Bielski Law Office, Ltd.

Easy to Explain Estate Taxes? Not Exactly

Seems like the subject of estate taxes becomes part of every politician's election promises, and today's election environment is no different. Even though we are not really expecting significant changes in that area, estate taxes have changed dramatically, and some folks may still be uncertain about how those changes relate to them. First of all, remember that there are two kinds of estate taxes and each can be significantly different from the other in certain ways. What gets taxed? Essentially everything you own (even the face value of life insurance policies where you are listed as owner). The amount of each person's estate that can be excluded from federal estate taxes stands at a whopping $5 million. That means the federal estate tax of roughly 35% would be exacted on any estate valued over $5 million. Another relatively new provision is that married persons, each of whom has the $5 million exclusion, can pass any unused portion of their $5 million to their spouse. This is called "portability."

The article, "Estate taxes explained," from nj.com explains that state estate taxes are entirely different animal: many are not very easy to understand and state laws can differ drastically from state to state. For example, married persons have the flexibility of knowing that they don't have to pay either federal or state estate taxes in New Jersey when one of them dies. This is called the unlimited marital deduction.

But things can get pretty tricky quickly when you own real estate in a state or states that are not your state of residence. When you die, those other states may seek to tax your estate with their own very different state estate tax. A smart way to avoid this issue is to establish a trust to hold that property. The surest way to avoid estate taxes is to give assets away. However, that's a serious step when you might need those assets to provide for you and your family during your lifetime.

Another way would be to create an irrevocable life insurance trust. In that situation, the trust, and not you, "owns" the life insurance, and if life insurance is purchased directly into the trust, there is no waiting period. But if existing life insurance is transferred into the trust, there's a three-year wait before the life insurance is considered out of your estate.

Another way to remove assets from your estate is to establish a 529 Education Savings account with a named beneficiary. With a 529 plan, even though you're the stated "owner" of the account, it's not considered part of your estate.

Keep in mind there are only a few ways to accomplish this, so work with an experienced estate planning attorney.

Reference: nj.com (October 18, 2015) "Estate taxes explained"

Don't Let a Perfect Storm Ruin Your Plans for the Family Farm

In February of 1959, rock and roll musicians Buddy Holly, Ritchie Valens and J.P. "The Big Bopper" Richardson were killed when a plane Holly chartered at the last minute crashed near Clear Lake, Iowa. The event later became known as "the day the music died." Richardson had the flu and talked Waylon Jennings into giving up his seat on the plane. Valens won a coin toss with Tommy Allsup for the last seat. The timing of these two fateful actions altered the course of history for these men and their families. My first memory of playing musical chairs was in kindergarten. Our elementary music teacher taught us not only about music but also unknowingly about competition. When the music stopped, the goal of the game was to be in a position to grab the chair and not be left standing, alone and out of the game. We were taught the "Golden Rule" — to be nice to classmates — but at the same time, the game instilled a conflicting desire to grab that last open chair from a fellow 6-year-old who may not have been quite as quick on the draw. There is a perfect storm brewing in agriculture — specifically regarding transition of assets from one generation to the next. The timing of this perfect storm could be catastrophic for a family farm.

Factors included in this perfect storm include the quantity of farms owned by the older age group, as well as the psychological and emotional issues involved with trying to keep a family institution thriving and in the family. Couple these issues with the amount of capital investment required to continue the farm and the uncertainty of when things will happen, and your farm operation could be in trouble. You need a complete plan, says an article in the Iowa Farmer Today, "Discuss farm estate and succession plans now so no heir is 'left standing.'"

The article advises every farm family to create and review an estate plan and a farm succession plan. These two plans may overlap, but they are two different programs. The estate plan includes documents such as a will or trust, powers of attorney, farm continuation language, executors, trustees, distribution plans, and the age of distribution for minor beneficiaries, as well as contingency plans in the event a beneficiary has predeceased or is disabled at the time of your death. The estate plan includes the coordination of beneficiary designations of retirement plans and life insurance. An important point is to maintain liquidity to pay debts, taxes, or administration costs. This may not be accomplished by simply naming your children as beneficiaries, as many do.

A farm succession plan typically includes the business operating agreements, terms of future purchase, the terms for lease if not purchased, and limitations on ownership. Which of the parts of an estate and farm succession plan will be most important to your family will depend on the timing and what stops the music in the estate.

A key part of any estate plan is identifying ownership and an updated fair market value of the estate assets.

Many folks think that an estate plan just deals with the distribution of assets at death. But an estate plan should identify and discuss strategies for the distribution of any assets that could or should be distributed prior to your death, in addition to those distributed when you pass away.

A good estate plan not only identifies assets but sets out a timeline to distribute those assets with a process that is tax efficient, while keeping in mind the general goals of the estate.

Sharing plans for your estate and business succession is critical for the effective and efficient transfer of the operation. You can avoid some hurt feelings and selfishness down the road if you explain your goals and transparently deal with the heirs whose ideas of distributing your estate may not be the same as yours.

A critical aspect of a succession plan is to identify the method of pricing the assets that adequately represents not only the structure of the business but also the goals of the owner. Another important component of a complete plan is a source of funding when the transition occurs, such as a loan or insurance if the buyout would occur at death. Cash flow is essential for any viable business.

Business succession and estate planning is more of an art than a science. Although there are parts of each plan that are consistent, the real value of an estate and a business succession plan is recognizing the unique issues of each individual situation. There's no "boiler-plate" plan that will work and should be automatically used for every family business. You need to find a way to create plans that fit your distinctive goals.

Sometimes being involved in a farm business without a concrete estate and farm succession plan can be a little bit like playing the game of musical chairs: when the music stops in your estate, don't let your farm heir be the one left standing with uncertainty and confusion—and ultimately find themselves out of the game.

Reference: Iowa Farmer Today (October 16, 2015) "Discuss farm estate and succession plans now so no heir is 'left standing'"

Former NBA Star Could have Future Ex-Wife Making Medical Decisions

Lamar Odom and Khloe Kardashian may appear to be split on reality TV, but on paper, their divorce is not final. That could leave the former NBA player's estranged wife with the role of making medical decisions for him. Odom, who has an address in Henderson, and Kardashian both signed off on their divorce in July, but the case has not even been assigned to a judge in the backlogged Los Angeles court system. A court spokeswoman said that a final resolution can take months. The judgment packet has been received and awaits a review by a judicial officer, and there are no hearings scheduled at this time, said Mary Eckhardt Hearn, director of public information for Los Angeles Superior Court. Former L.A. Lakers forward Odom was found unconscious at a brothel in Nye County. He remains at Sunrise Hospital and Medical Center in Las Vegas, according to several people who have visited him and spoken to the media afterward. But officially, Odom was not registered as a patient at Sunrise — a status that was his right through federal laws designed to shield patient information from the public. Anyone who called asking about Odom was told his information did not appear on the hospital registry, the same answer someone would get if he wasn't a patient there at all. "Only information that comes from a hospital spokesperson is considered legitimate information," said Stacy Acquista, a marketing executive with the Far West Division of HCA, the company that owns Sunrise.

A story in the Las Vegas Review-Journal, "With open divorce case, Khloe Kardashian could be making Lamar Odom's medical decisions,"explains just who is allowed to make medical decisions.

Nevada law spells out who will make medical decisions for patients who become incapacitated, which are sometimes called substituted judgment statutes. In the Silver State, spouses or registered domestic partners are first in line. If Odom does not have advanced directives, legal documents stating his health care choices, Khloe would be the one to make these decisions.

There are several types of advanced directives, including living wills and medical powers of attorney. These estate planning documents let individuals make their wishes known to family, friends, and health care professionals to avoid confusion in cases like Odom's.

Odom may have an advanced directive which would apply. By signing an advanced directive, you select the individual you want making your decisions for you.

The Nye County Sheriff's Office stated that Odom had been using cocaine and sexual performance enhancers in the days prior to being discovered unconscious at Love Ranch brothel in Crystal, about 90 minutes outside of Las Vegas. (Nevada is the only state with legalized prostitution, and county regulations say that business licenses can be revoked if brothels have drug issues).

In addition to his 2009 and 2010 NBA Championships with the LA Lakers, Odom is known for being part of the Kardashian family. Khloe filed for divorce in 2013 after four years of marriage.

Reference: Las Vegas Review-Journal (October 18, 2015) "With open divorce case, Khloe Kardashian could be making Lamar Odom's medical decisions"

Special Needs Attorney Testifies Before Congress

Richard A. Courtney, President of the Special Needs Alliance (SNA) and principal in the Courtney Elder Law Associates section of Frascogna Courtney, PLLC, testified Friday, September 18 before the U.S. House Energy and Commerce Committee Subcommittee on Health in favor of the Special Needs Trust Fairness Act (H.R. 670). The bill would enable mentally capable adults with disabilities to establish "Special Needs Trusts" (SNT) on their own behalf. SNTs are a means of protecting eligibility for assets-based programs such as Medicaid and SSI (Supplemental Security Income), while holding funds for expenses that those programs fail to cover. The same measure was approved unanimously by the U.S. Senate on September 9^th.

Richard Courtney told the Subcommittee members that the legislation that originally created Special Needs Trusts (SNTs), the Omnibus Budget Reconciliation Act of 1993, "included a drafting oversight that seems to assume that a person with disabilities lacks the requisite mental capacity to enter into a contract… We believe it was … not the intent of Congress to deny a basic right to individuals with disabilities."

In its report on the testimony, The (Jackson, MS) Clarion-Ledger's "Courtney testifies before Congress on behalf of persons with disabilities," said that, at present, special needs trusts funded with assets of an individual with disabilities must be created for that individual by his or her parent, grandparent, legal guardian or a court. Because of this requirement, adults with no living parents or grandparents and no guardian are forced to petition the court to create a special needs trust.

Courtney based his remarks on both his professional experience as a special needs and elder law attorney, as well as his experience as the father of a daughter with cerebral palsy and learning disabilities. Speaking of daughter Melanie, he noted that she needs and is receiving attendant care under a Medicaid waiver program. Because the cost of her care and services is expensive, she must rely on programs such as Medicaid, as do many persons with disabilities.

Right now the law says that she can't create her own trust if she were to receive an inheritance or settlement—so she could forfeit her Medicaid waiver benefits that pay her attendant to her each day for a few hours.

An SNT would allow Melanie to pay for additional health care that's not covered by Medicaid, in addition to basics like clothing, transportation, and furniture.

Talk with an elder law and special needs attorney if you have questions about SNTs.

Reference: The (Jackson, MS) Clarion-Ledger (October 18, 2015) "Courtney testifies before Congress on behalf of persons with disabilities"

Money and Estate Planning Issues for Unmarried Couples

Whether a couple is married or unmarried, there are invariably many money issues for them to consider – and some valuable financial moves to make. Here are some tips for those in the not-married camp. A bad way to manage your joint and separate finances is to just wing it. Do so, and one or both of you can end up feeling resentful because of various irritations or an overall sense of unfairness – such as if one party is spending much more than the other thinks is best.

The Motley Fool says to talk things out and have a plan when it comes to financial issues in "Financial Moves Unmarried Couples Should Consider Making." In addition, the author suggests that couples discuss which income and assets are joint and which, if any, are to remain separate.

Calculate how much money is coming into the household and how you both want it to be spent. Create a budget and a plan for keeping it. Plan for retirement savings and other savings goals, like a down payment on a house or college expenses. Most of all, live below your means. This is especially true if one or both partners have substantial debt. Make it a priority to get that paid off.

Unmarried couples don't have some of the automatic protections married couples have, especially as far as estate planning. Most state laws give a spouse the right to inherit automatically. However, an unmarried partner's rights are many times almost nonexistent. That shows how important it is to set up your finances deliberately if you want to leave money to a partner while you're not married.

Here are two strategies to achieve that goal.

Joint Tenancy. Holding property in joint tenancy accounts with rights of survivorship serves to transfer ownership directly to the surviving partner after death without probate, and without a will or regard to the laws of intestate succession. Beneficiary designations on retirement accounts and life insurance policies can also do the same thing.

Powers of Attorney. Make sure to give each other powers of attorney for both financial decisions and healthcare choices on each other's behalf.

Too many people just make assumptions about what their partner would want—or they ignore tough decisions. Doing this only makes it harder if the worst does come to pass. Without these tough conversations, you might find yourself unsure what to do if your partner is temporarily or permanently incapacitated, or if they pass away.

Talk openly about your wishes, and then make plans to put them in place with the help of a qualified estate planning attorney.

Reference: Motley Fool (October 17, 2015) "Financial Moves Unmarried Couples Should Consider Making"

Leaving Your Tattoos Behind

If you want to make many people say "Ewww" and leave your tattoos behind permanently after you pass away, a new service will let you do that.

Many people spend a lot of time and money on their tattoos. To them, it is a form of expression and art. This has traditionally come with the unstated understanding that the tattoos could not be given away after death. If a person is buried, the tattoos are buried as well. If a person is cremated, the tattoos are destroyed. However, a new service seeks to change that.

The National Association for the Preservation of Skin Art is now offering a way to preserve and frame the tattoos. When the person passes away, the funeral home is given a kit to cut off the tattoo and send it to the association. There it will undergo chemical treatment, be framed and sent to someone of the deceased's choosing. Yes, that does mean that a framed and preserved piece of human skin can now be given away. The Daily Examiner reported this story in "Love your skin art? It doesn't have to die with you."

While it is always good to have more estate planning options, this is one you should consider only after proceeding with caution. Communication is the key. You do not want to unexpectedly leave someone a piece of your preserved skin without first checking that he or she is okay with it.

However, if you are following good estate planning advice, you already know that communication is essential to a successful estate plan, so you are already communicating with your heirs.

Reference: Daily Examiner (October 12, 2015) "Love your skin art? It doesn't have to die with you."

Can a Lawyer Profit From an Unethical Will He Drafted?

A recent appellate court decision in Michigan means that it is possible for attorneys to be unethical and still profit from the wills they create.

Every state has a basic ethical rule for attorneys: an attorney cannot draft a will for a non-relative that includes a substantial gift for the attorney. The theory behind this rule is that attorneys could manipulate unsophisticated or incompetent clients into leaving the attorney a sizeable inheritance.

Despite this well-known rule, an attorney in Michigan drafted a will for his long-time friend that gave $14 million to the attorney and his children. This was nearly the entire estate. The deceased's family sued to have the will declared invalid. The trial court ruled that since the attorney acted unethically in drafting the will, the will itself was against public policy and invalid.

The attorney appealed and won.

The appellate court decided that the will was not automatically invalid. Instead, since the attorney acted unethically, it created a presumption that he exerted undue influence. If the attorney can prove that he did not exert undue influence, then the will remains valid. The Detroit Free Press reported this story in "Court: Lawyer's $14M inheritance unethical, not invalid."

Ordinarily the person claiming there was undue influence in creating a will has the burden to prove the claim, which is often difficult. It remains to be seen how difficult it will be for the attorney to prove that he did not exert undue influence. This case will be watched closely by those in the estate planning industry as well as legal ethics experts.

Reference: Detroit Free Press (October 9, 2015) "Court: Lawyer's $14M inheritance unethical, not invalid."

Is Elizabeth the True Queen of England?

Queen Elizabeth II has asked a court to decide if DNA evidence can be used in disputes over hereditary titles. If the court says yes, then it could mean that her own lineage and right to the throne could be called into question.

One significant difference between estate law in the United States and the United Kingdom is that in the US we don't have hereditary titles of nobility. The United Kingdom does, and it sometimes leads to disputes over who the rightful heir to the title is.

A current dispute started innocently enough with a family tree project and the Clan Pringle DNA project. DNA evidence revealed that the last holder of the Pringle of Stichell Baronet was not actually descended from the family bloodline. Thus began a fight over the title between two branches of the family.

The Queen has asked the little known Supreme Court, made up of Britain's most senior judges, to decide whether DNA evidence can be used in the case to determine to whom the title rightfully belongs.

The Daily Mail reported this story in "Who's the real aristocrat? Queen demands DNA to be tested in court to settle dispute over 330-year-old baronet title (...but could ruling mean a Utah Mormon is our king?)."Even though we do not have hereditary titles in the United States, if the court allows DNA evidence to be used, then it is possible it could be used to prove whether or not a Utah attorney is actually the true king through descent from George IV.

It could also possibly be used against the Queen in another way. She claims her ancestry back to Henry VII. His claim to a Royal bloodline came through John of Gaunt, the son of Edward III. However, historians have speculated that John was actually the child of an adulterous affair between Edward's wife and another man.

Reference: Daily Mail (October 11, 2015) "Who's the real aristocrat? Queen demands DNA to be tested in court to settle dispute over 330-year-old baronet title (...but could ruling mean a Utah Mormon is our king?)."

Children of Spanish Duchess Sue for Inheritance

It is well-known that the Duchess of Medina Sidonia did not get along with her children. That family feud led to her attempting to see that the children did not receive the family archives and legacy. The children are now suing to get it.

Luisa Isabel Álvarez de Toledo could trace her heritage back to the man who led the doomed Spanish Armada attack against England. She was known as the "Red Duchess" for her vehement opposition to Franco. She also controlled her family's private historical archive, which has an approximate value of $67 million.

In the 1990s, her children successfully sued her to stop her from giving away portions of the family estate. This caused a permanent rift and the Duchess decided to leave nothing behind for her children. Eventually, she created a foundation to hold the archives.

On her deathbed in 2008, the Duchess married her longtime lover and put her in charge of the foundation, believing this would effectively cut her children out of the estate. The Telegraph reported this story in "Children of 'Red Duchess' who married lesbian lover on deathbed in battle over legacy." The children are now suing for part of the archive.

Under Spanish law children have a right to receive at least one-third of the estate of their parents. However, the courts will have to sort out whether that applies in a case such as this, where the property was actually given to a foundation before the parent passed away. It is clear that the intent behind the law is to make certain that parents cannot leave their children nothing. Thus, if policy dictates, it would seem the children should win.

Reference: Telegraph (October 12, 2015) "Children of 'Red Duchess' who married lesbian lover on deathbed in battle over legacy."

Jimi Hendrix's Missing Guitar

The estate of Jimi Hendrix has seen more than its fair share of legal controversies. In yet another legal battle, the estate is suing for the return of a guitar it claims was stolen.

Jimi Hendrix owned a lot of guitars, but relatively few of them made it back to his estate after he passed away. One of those that did was his Black Widow guitar. Through the estate of Hendrix's father, this guitar eventually passed to Hendrix Experience LLC, along with the rest of Hendrix's estate.

Hendrix Experience is currently managed by Hendrix's sister Janie. In 2014, an auction house contacted Hendrix Experience to get the guitar authenticated, which alerted the company that the guitar was missing. The guitar was actually in the possession of a man named Brian Patterson. Patterson later sold the guitar to Harvey Moltz. Patterson claims that he purchased the guitar from Sheldon Reynolds. This is where the lawsuit comes in.

Sheldon Reynolds is a former member of Earth, Wind & Fire and Janie Hendrix's ex-husband. Janie claims that Reynolds stole the guitar. Patterson claims to have a letter that states Janie Hendrix gave the guitar to Reynolds while they were married. The estate is suing Moltz and seeking the return of the guitar. Of course, if he's ordered to return it, he can sue Patterson, who can turn around and sue Reynolds. The Daily Mail has more on this story in "Shop is sued over 'stolen' Jimi Hendrix's Black Widow guitar worth nearly $1MILLION."

One interesting note to this story is that even if Janie Hendrix did give the guitar to Reynolds, the estate still might be able to recover the guitar. Although she is the CEO of Hendrix Experience LLC, it is unclear if she would have had the authority to give the guitar away as a gift in her personal capacity.

Reference: Daily Mail (October 11, 2015) "Shop is sued over 'stolen' Jimi Hendrix's Black Widow guitar worth nearly $1MILLION."