Asset Protection

March 16, 2016

ABC TRUST PLANNING – WILL IT BE A BURDEN?

NEW LAWS MEANS NEW RISK AND LEGAL OBLIGATIONS

President Obama signed into law the American Taxpayer Relief Act on January 2, 2013 which permanently raised the estate tax exemption and added an inflation index, such that it rises every year to account for inflation. Better still, the same law allows for spousal portability of estate tax exemptions, which this blog recently examined . The amount for 2016 is $5.45 million per person, $10.9 million per couple. This is a significant change from just 2008 when it was $2 million dollars and even as low as $675,000 in 2001 and $1 million in 2003 which was not that high considering that most people pay off their mortgage and probably have substantial retirement assets by the time they of retirement age.

For those amongst us who continue to work because that is part of their identity and not out of necessity, the $1 million threshold could easily be met. With the much larger $5.45 million exemption, less than .3 percent of estates in this country will met that threshold. So for all of those couples and individuals who planned on the much lower threshold your plans were likely well designed, but only under the then lower tax exemption. Now, with the much higher threshold and spousal portability, it is best to reexamine these estate planning documents. If one of the previous tools that you employed to insure lower tax liability was the AB trust also known as a bypass trust or even a family trust, it is likely that this will no longer serve you, your spouse, your estate or your heirs. Very briefly, depending on the size of your estate, it may no longer provide as great of tax relief as it once did and may unduly restrict your spouse by limiting their income, increase accounting costs, impose unneeded legal filing and generally complicate their life with other unforeseen complications that no longer serve their purpose.

March 14, 2016

IRS ART ADVISORY PANEL

by Ettinger Law Firm

GOVERNMENT HAS BEST AT HAND – FOR FREE

Whenever a taxpayer submits tax documents that deal with a work of art or of cultural significance that is valued at least $50,000, according to the taxpayer’s own estimate, the IRS goes through a process by which it independently evaluates the items. The IRS has on hand the very best of the best when it evaluates art and cultural items. More specifically, it has the Art Advisory Panel of the Commissioner of Internal Revenue, which is composed of the very best of the best when it comes to art evaluation. Better still, at least from the perspective of the IRS, they are volunteers and only reimbursed for travel and related costs.

It is relatively easy to understand that they would evaluate paintings, such as Degas, Monet and Van Gogh or photographs from the likes of Matthew Brady, Edward Curtis or Dorothea Lange. But things such as collections of samurai swords, vases and other decorative items from Tang era China, and even doll collections also are considered. The panel may not have a very important sounding name, but they do wield considerable influence over particular tax cases. Any time a work of art worth more than $50,000 changes hand, is donated to charity or gifted, the government wants to know the true value of the property.

March 11, 2016

ESTATE PLANNING FOR FAMILY OWNED FARMS

by Ettinger Law Firm

ESTATE PLAN AND CONTINUATION OF FARM PLAN

No doubt that anymore the running of a family farm is much like running a small business with other family members intimately involved. Often enough the continuation of the family farm requires that the current and main farmer, much like the ‘president and CEO’ of a small business, think ahead and plan for the transition of the farm to the next generation. Unlike a small business, however, the planning for the transition of a farm involves a recognition of a tradition that does not usually come into play with the transition of a small business. The issue of tradition is something that even the best lawyer in the world cannot advise you on. But a lawyer can help bring form to your intentions, so that when you do pass on the torch to the next generation it will be smooth and seamless. It requires the he use of traditional estate planning tools, including a combination of tools such as wills, trusts, powers of attorney or any other legal device or document, as deemed best by you in consultation with your estate planning attorney.

In addition, transition of the farm requires you to have a business succession plan, as the farm, just like a small business, is almost assuredly a legal entity. Family owned and operated farms pass from generation to generation much less than tradition would have you believe. Only approximately 30 percent of family run businesses successfully transition from one generation to the next. It is likely that because of this statistic that those in attendance at the 2016 American Farm Bureau Federation’s Annual Convention and IDEAg convention held this year in Orlando, Florida in January heard speeches in regards to the wisdom of creating a farm or business succession plan coupled with proper estate planning to insure the continued viability of family farms.

March 7, 2016

WRONGFUL DEATH LAWSUIT AS PART OF PROBATE ESTATE

by Ettinger Law Firm

PROBATE IS UNAVOIDABLE

It is a fact of life that we can never plan for the worse case scenario and there is always risk in anything you do. The law recognizes this special risk, at least in part, in wrongful death lawsuits. In order for a wrongful death action to proceed, a party must apply to the Surrogate’s Court to act as the personal representative of the estate. In essence, that person must stand in the shoes of the deceased for purposes of the wrongful death action. Any and all settlement or award monies must pass through the probated estate under the jurisdiction of the Surrogate’s Court. This can present special issues if you already have a will, but no trust or other legal device to bypass the probate process and your estate is close to the estate tax exemption threshold. The federal estate tax exemption is currently set at $5.45 million dollars.

Anything above the Federal exemption is taxed at a heavy 40 percent. New York’s estate tax exemptions are changing and will continue to change until 2019 when it will match the Federal government’s exemption amounts. After 2019 there is an added problem with New York’s estate tax exemption; specifically, if the entirety of the estate exceeds the exemption amount by five percent, the entirety of the exemption is forfeited and the entire estate is taxed. That means that if your estate is say, for example, 120 percent of the exemption amount, the entirety of your estate will be taxed under New York rates. At the same time, 20 percent of your estate will be taxed at 40 percent. It is important to note the difference between the exemption amount and the taxable rate.

March 4, 2016

WHAT HAPPENS IF MY HEIRS OR BENEFICIARIES PASS AWAY AT THE SAME TIME AS ME?

by Ettinger Law Firm

MODERN PROBLEM WITH ANCIENT ROOTS

New York is one of approximately 19 states, along with the District of Columbia and the Virgin Islands to specifically adopt the Uniform Simultaneous Death Act in some significant form or another. The law was drafted in 1940 and amended through the decades, last time in 1993. It was written by the Uniform Law Commission in an effort to provide uniformity and the accompanying benefits that uniformity provide across the 50 plus jurisdictions that exist in these United States. Of course each state is free to adopt the uniform act in its entirety, part of the law or just use it as a template to base a similar but different law on it.

New York adopted the Uniform Simultaneous Death Act, at least in part, early on in the early 1940s. By 1944 at least 24 states and the then Territory of Hawaii also adopted the Uniform Simultaneous Death Act. It was designed in large part to address the issue of when two or more people pass away in a common disaster, with no meaningful difference in the order of death. For example, if both father and son or husband and wife both pass away in a tragic automobile accident. Such tragedies were much more commonplace in previous decades with the rapid and significant increase in medical technology. Not surprisingly reports of how the law was resolve such legal technicalities goes back centuries, to at least 1784. Even ancient Roman law had presumptions in place to deal with such tragedies.

February 29, 2016

INHERITANCE RIGHTS OF ADOPTIVE CHILDREN

by Ettinger Law Firm

NOT CUT OFF FROM BIOLOGICAL PARENTS IN EVERY CASE

It is not unheard of for adoptive children to seek out their biological parents and reestablish contact once they are old enough and understand the world much better. The drive to understand who your biological ancestors are, to know where they came from and their story is practically innate or inborn. This is a healthy endeavor as it helps to fill out and expand the adult child’s world view of who they are and may help to explain certain personality quarks. There are also legitimate medical reasons for the decision to reach out to the biological parents, so as to understand medical risks, family medical histories or perhaps even obtain a pool of possible bone marrow or organ donors in the unlikely event that something like that is needed. Those issues speak to the social and emotional issues that revolve around adoption. Legally, however, an adopted child is a veritable stranger to the biological parent in non-stepparent adoptions. Inheritance rights are created in the adoptive child vis-a-vis the adoptive parents. Inheritance rights via the biological parents are severed. The only way that a biological parent can pass property or money on to the child adopted out from them is to specifically include them in their will. A class gift to “all of my children” from a biological parent excludes from its scope children adopted out from them and includes any children that that person adopted.

WHAT HAPPENS WHEN ADOPTION LAW AND INHERITANCE LAWS COLLIDE

February 26, 2016

THE GRAT – GRANTOR RETAINED ANNUITY TRUST – NOT JUST A TOOL FOR THE UBER WEALTHY

by Ettinger Law Firm

Grantor retained annuity trust (GRATs) are tremendous tools not just for the ultra wealthy, such as Mark Zuckerberg and the other founders of facebook, it is an estate planning technique that allows for a trust grantor to avoid paying gift taxes on the assets that they place into the trust with the intention that they will pass that asset on to the next generation. They are ideal for any asset that will likely quickly appreciate in value and that will also pay a dividend. Most people automatically think of stocks, which makes sense, but it could also include real estate, patents, trademarks or other intellectual property or even a valuable piece of art or perhaps even valuable machinery or some other object that can be rented.

HOW IT WORKS

To create a GRAT, a person places their property into the trust and pays tax on the property at that time, with the lower value. The trust is structured such that during the life of the trust the grantor received an annuity payment from the corpus of the trust. If the grantor is alive at the end of the trust term, the beneficiary receives the property tax free. The grantor sets the term for a number of years for the GRAT to exist in advance. Basis is a tricky and can be a very beneficial advantage to use of the GRAT because the GRAT allows the grantor to substitute two different assets of the same value but different basis amounts at any time. Since the grantor paid from an annuity during the life of the trust, the grantor still enjoys largely the same benefits.

February 24, 2016

GENERATION SKIPPING TRANSFER TAX

by Ettinger Law Firm

CLOSING PERCEIVED LOOPHOLE

Congress created the generation skipping tax almost 40 years ago in 1976 and ushered in an age of increasing complexity for the tax code, always complicated and cumbersome, to fix a problem perceived at the time (and since) of avoiding taxable events by transferring assets to “several generations while avoiding the Federal Estate Tax” via use of trusts and other transfers of property rights. At the time, Congress saw how wealthy families were creating life estates in their kids, followed by a life estate in their grandkids and followed by a life estate of their great grandkids.

Life estates are not subject to federal estate tax. This meant that wealthy families who had the inclination to create these arrangements and the money to pay an attorney to do so avoided paying large amounts of taxes and smaller families and estates were paying more in taxes than wealthier ones. As such, Congress decided to tax any transfer of property or assets from an individual to another individual that is more than one generation away from the grantor, in the case of family members, or from one person to another who is at least 37 1/2 years younger than the grantor, in the case of nonfamily members. The tax applies even if the transfer is via a trust

February 22, 2016

UNDERSTANDING HEALTH SAVINGS ACCOUNTS

by Ettinger Law Firm

GOOD FOR CERTAIN SUBSET OF POPULATION

A health savings account is another way to save your money, tax free, for an inevitable expense that everyone will have to face and deal with eventually. Unfortunately one of the variables of retirement is that you will never know how much you will spend on health care costs. At the same time, as the body ages health invariably declines with more visits to the family doctor or perhaps even more expensive specialists. To further add to the expense, modern medicine has added significantly to the life expectancy of the majority of people who do not meet some unfortunate trauma or accident.

This is often the result of more expensive treatments, more costly medicines and more diagnostic tests or procedures that occur more often. Often these treatments, medicines, tests and procedures are medically appropriate, so any money spent is money well spent. But as with anything in life, the question must be asked, from where did the money come from? Insurance does not cover all medicines, tests and procedures and even when it does, it does not one hundred percent of their costs. You can pay for better insurance plans, with the inevitable higher monthly premiums, which leads back to the original question of where does the money come from for these costs? A more sound approach to these unknown variable but inevitable costs is a health savings account. Health savings accounts are not for everyone, but for a sizable portion of the population they are a good fit.

February 19, 2016

NOT JUST ANOTHER CELEBRITY ESTATE

by Ettinger Law Firm

ROBIN WILLIAMS UNIQUE ESTATE PLANNING GENIUS

This blog discussed some of the aspects of Robin Williams estate in the past. Mr. Williams will be remembered for a long time due to his many accomplishments, with a long, funny, inciteful and compassionate comedic wit. While it seems fairly certain that Mr. Williams mental state was brought on by a biological or, more accurately, a neurological condition that spawned a profound depression. Mr. Williams will also be remembered for his estate which was perhaps the first of many to come from actors, singers or other celebrities who have value in their likenesses or other unique personal attributes.

While Mr. Williams created a multi-tiered estate plan, he was sure to include the right to profit, or, more accurately, to curtail a person, company or entity from profiting from his likeness and publicity for 25 years following his death. In other words, movie studios, music producers or producers of Mr. Williams stand up comedy routine cannot take Mr. Williams image, voice or any other asset tied to his likeness or even his publicity and profit from it. While some pundits commented on the novelty of it and the breadth of the prohibition on his likeness and the length of time, it is not surprising that someone created such a blanket prohibition. Look at what the producers of Forrest Gump did with John Lennon or President Lyndon B, Johnson. To someone unaware of the times, they would be unaware that the producers of the movie morphed and cut and pasted the images and footage into the movie and could believe that Mr. Lennon or President Johnson personally appeared in the movie.