Posts Tagged ‘trust’

A Unique Opportunity

December 23, 2010

The new tax law (2010 Tax Relief Act) creates an once-in-a-lifetime planning opportunity that ends at midnight, December 31, 2010.


Generally, transfers (greater than $13,000 per year) to generations younger than children are subject to what is known as the generation-skipping transfer tax (GSTT), an onerous tax equal to the maximum gift or estate tax rate.  The purpose of this tax, enacted in the late 1980s, is to prevent wealthy individuals from transferring assets to younger generations for the purpose of avoiding application of the estate tax at every generation.


The 2010 Tax Relief Act creates a unique opportunity to make gifts through December 31, 2010 that are not subject to the generation-skipping transfer tax.  This is because, under the new law, the tax rate is zero for any generation skipping transfer made in 2010. Beginning January 1, 2011, the tax rate for these transfers with be 35%.  In two short years the rate goes back to 55%.


There are three common scenarios offering planning opportunities.  First, make gifts before December 31, 2010 to Skip Trusts.  These are trusts that you create for grandchildren, great grandchildren or more remote generations.  There will be no generation skipping transfer tax.  The gift tax is 35%, after use of the $1 million lifetime gift exclusion.  This strategy is most effective for large taxable estates.  On the gift tax return, you will want to elect out of automatic Generation Skipping Transfer (GST) allocation rules.  For 2010, you will allocate nothing to the GST Exemption because there is no estate tax.  Use a Trust Protector with the power to add beneficiaries (e.g. children/spouse).


The second planning scenario deals with the unique planning opportunities for those who are beneficiaries of trusts that will be subject to GSTT upon distribution from the trust.  Distributions should be made from these trusts before December 31, 2010 because the tax rate is 0%.  After this year, the distribution will be subject to at least a 35% tax rate.  Sometimes, there is concern about beneficiaries getting outright distributions.  Some of these concerns may be alleviated if the trustee invests trust assets in limited partnerships or limited liability companies (LLCs) and then distributes the partnership interests or LLC membership interests.


The third planning opportunity deals with clearing any loans made to trusts.  The most common scenario involves Irrevocable Life Insurance Trusts.  Until the passage of the 2010 Tax Relief Act, there was no way to allocate the GSTT exemption, so loans were used.  With the new act, you can now allocate the GSTT exemption on a timely-filed gift tax return.  If you unwind the loans now, you can save the 2010 annual exclusion that would otherwise be lost.


I strongly encourage you to take advantage of this rare gift from Congress and consider making transfers to generations younger than children, even if you do not yet have grandchildren.  We can help you structure these gifts so that they meet your goals and objectives, regardless of amount.

Planning may help prevent family feud

April 28, 2010

The only good legal battle is the one that never happens.

I was just sent an interesting article by Claudia Buck of the Sacramento Bee, which addresses some of the practical reasons people should do estate planning. The story speaks for itself:

“Family, money and death are a combustible combination,” said Toronto-based attorney Les Kotzer, who co-authored a new book — “Where There’s an Inheritance …” — a compilation of 80 real-life vignettes taken from his law practice and radio-show callers.

Some of the tales are horrifying. Many are heartbreaking.

“A lot of time they will spend more on lawyers than the value of items they’re fighting over,” said Kotzer, who said he wrote the book to warn families about the perils of family feuds. “Once you send a lawyer’s letter to your brother, the relationship will never be the same.”
Those who witness the ugly aftermath say many of the situations could have been avoided with a properly executed will or trust.
“Generally, parents are the glue that holds a family together and by the time estate-planning blunders become apparent, the glue is gone and the family can fall apart,” said Trudy Nearn, a longtime Sacramento, Calif., estate-planning attorney.

The recession has apparently kept even more Americans from completing any basic estate-planning documents — a will, trust or financial/medical powers of attorney, according to a December survey by Only 51 percent of adults reported they had such estate-planning documents, compared with 64 percent in 2007. Most cited their need to focus on paying bills and other “essential” money priorities, the survey said.

Amid all the distressing tales, there are some lessons to be learned:
Too many families get torn apart by who-gets-what disputes: who gets Mom’s china, who keeps Dad’s signed Joe Montana football, who gets the lawn furniture.

It’s often stuff that’s not even particularly valuable, says Sacramento estate-planning attorney Michelle Goff. She had clients who argued for years over their mother’s personal effects. It finally got resolved around a lawyer’s conference table where the disputed items, many with their JC Penney’s and Kmart price tags still attached, were spread out. Taking turns, each sibling got two minutes to pick two items, until the table was emptied. But that was only after three years and $15,000 in legal fees.

Kotzer recalls a sister who was incensed that a crystal vase she’d given her mother was to be divvied up in the estate, rather than handed to her outright. Her angry solution: smash it to smithereens in the parking lot “so nobody will get it.” A better solution: Ask your kids if there are things they’d like after you’re gone. Type up a list designating who gets important items, like wedding rings, silver, family mementoes.

“If parents make the list, the trustee is obligated to follow (it). It removes the emotional battle,” Goff said. Sacramento estate-planning attorney Mark S. Drobny said he’s had families whose list has only three items on it; others run 30 pages long, “down to the socks in the drawer.”

Deciding who will handle your affairs after you’re gone can be tricky. Lawyers say parents often select their oldest adult child, but that’s not always the person best equipped emotionally or organizationally to handle the task. And it can create resentment among other siblings. Similarly, naming all your children as co-executors can result in deadlocks.

Every family is unique and parents should consider their choice thoughtfully. Sometimes an outsider — a trusted family friend or a private fiduciary (an individual licensed in a county to act as an executor or estate trustee) — is preferable.

Beware of unintended consequences. Drobny had a client who set aside $75,000 in her will for friends, family and charities, with the remainder going to her only child. But when she died, the value of her assets had plummeted so significantly that once the $75,000 was disbursed her daughter received almost nothing.

In another case, Kotzer recalls a client who had dutifully taken care of her mother for years, while her sibling was largely absent. The mother wanted to leave nothing to the absentee daughter, but was persuaded to give a token 5 percent. The arrangement backfired. The devoted daughter, who was executor of her mother’s estate, became shackled financially for years to her resentful sister, who disputed every financial decision. In that case, Kotzer said, the mother’s wishes would have been better served by specifying a small, set amount for the distant daughter.

To ensure there’s something left for everyone you care about, be specific about your bequest; i.e. the charity will receive “the lesser of $75,000 or 20 percent of the estate.”

Many parents build incentives into their trusts for their children’s inheritance: reaching a certain age in adulthood, completing college, mandatory drug/alcohol testing in cases of substance abuse. Those can be worthwhile goals that keep young — or even adult — children from squandering their parents’ bequest.

But some take it too far, says Drobny. He had clients whose will stipulated that the first son to provide them a grandchild would get $1 million. The sons, both in their 50s, soon sired children. “Neither son had any business becoming a parent at such a late age, let alone ever,” noted the attorney, who said he tried talking the parents out of it, but they were adamant. The sons subsequently left the mothers of their offspring.
In another case, a local elderly woman had set aside part of her estate to care for her beloved pet dog until its death, when the remainder would go to her brother, a retired policeman in Ohio. The brother subsequently contacted Drobny’s office to discuss his sister’s money and property. When the attorney explained that there was no estate to settle while the dog was alive, the brother declared the unthinkable: “He said he’d taken the dog out in the country and shot it.”

In their book “Trial & Heirs,” Danielle and Andrew Mayoras, Michigan-based husband-and-wife estate attorneys, chronicle the lessons learned from notorious estate battles of Hollywood celebrities, rock stars, athletes and political figures. Like the years of costly lawsuits stemming from rock guitarist Jimi Hendrix’s death in 1970 at 26, without a will. With his father and half-siblings locked in disputes over his multimillion-dollar legacy, it took 34 years, many court proceedings and several million in legal fees to sort it out.

All of it could have been avoided, say the authors, if Hendrix had left a simple will.

Poor estate planning can drain families emotionally and financially. A little prevention — good planning, thoughtful choices and a clear discussion among family members — can sidestep an ugly aftermath.

As the Mayorases put it in their book: “The only good legal battle is the one that never happens.”

(A printer-friendly pdf version of this article can be found here.)

A remedy for estate tax problem?

April 16, 2010

I received an email today about Senate Bill 670, stating that the Elder Law Section of the Wisconsin Bar Association is joining the RPPT Section in support in principle of this bill relating to disposal of a decedent’s property.

The Elder Law Section works to develop and improve laws that affect the elderly, and promotes high standards of ethical performance and technical expertise for those who practice in the area. RPPT pertains to the law of real property, probate and trusts. They support this bill as a remedy for problems experienced by families with estate planning gone awry because of the repeal of the federal estate tax in 2010.

Congressional inaction has resulted in a great deal of uncertainty as to the application of thousands of Wisconsin estate plans (and millions nation-wide) which were premised on, and designed around, the existence of such a tax. Many other states have taken, or are considering, legislative solutions to resolve the issues created in testamentary plans.

The primary issue is that for decades, estate planning attorneys and other planning solutions have utilized formula clauses when creating estates plans or trusts. These formula clauses determine the distribution of assets in an estate or trust while accounting for taxation of such estates or trusts. With no federal estate tax in 2010, there can be (1) significant ambiguity in the interpretation and implementation of these formulas; and (2) the inadvertent disinheritance of children, spouses and charities.

Wisconsin law has long provided that the intentions of a deceased person regarding the disposition of assets are to be respected. Plus, greater certainty in the application of estate planning instruments is in the public interest. SB 670 will further longstanding public policy, reduce protracted litigation and court proceedings, and minimize family and financial dislocations because it says estate planning instruments are to be administered in a manner that is most likely consistent with a deceased person’s expectations and intent.

The times they are a-changin’

April 14, 2010

— To borrow from Bob Dylan.

I recently received a postcard from my alma mater pointing out how things have changed for those of us who graduated 40 years ago. Thought you might enjoy seeing some of the ways “then” (1970) compares to “now.”

Then… Now…
Yearbook Facebook
Zits Age Spots
The Weathermen Global Warming
Keggers Microbreweries
Vietnam War Iraq War
Long Hair No Hair
Curfew Asleep on the Couch
Overactive Hormones Viagra
Freshman Studies Book Clubs
Walter Cronkite Jon Stewart
Thunderbird Pinot Noir
Typewriters Laptops
Hall Telephones Cell Phones
Mini-skirts L.L. Bean
Marijuana Nicorette
The Stones The Stones… Okay, some things never change.

Emily Fey

On a more personal note, things have recently changed at the law firm as well. As of this week, the name of our firm has changed to Swendson/Fey Law Ltd. I’m happy to announce that Emily Fey has been promoted to shareholder. Emily has been practicing with me since 2004 when she graduated from Drake University Law School in Des Moines. Tony Menting is no longer with us and is now practicing with a firm in Madison. We wish him well.

Emily focuses primarily on estate planning, probate and trust administration, and family and asset protection. You cannot find a more diligent and caring attorney. Her clients, supporting paralegals and the probate court staff in the surrounding counties all adore her. They know that she will do whatever it takes to get the job done right.

I founded this firm in 1982 with the goal of rethinking the way law was traditionally practiced by employing the latest technology and organizing the firm to focus on the needs of clients. Swendson/Fey Law Ltd. continues to be committed to providing creative solutions to our clients’ unique circumstances, and to being professional, courteous, and compassionate advocates for all our clients.

Estate Tax Reform Update

April 6, 2010

You may be interested in the April 1 AALU Bulletin (No: 10-37), Update on Estate Tax Reform: Developments and Dynamics, which states that three factors shape the ongoing environment for the federal estate tax:

  1. A packed congressional schedule;
  2. A focus on deficit reduction; and
  3. The upcoming mid-term elections.

The AALU concludes that we may have a clearer picture once Congress returns to session this week but that the Senate may be hesitant to pass a reconciliation bill (which could include the estate tax) because of the recent health care reconciliation bill. If it is not included in a reconciliation bill (which requires only 51 votes), 60 votes would be necessary to pass estate tax legislation:

“The difficulty in finding 60 votes may lead to either (1) reversion in 2010 to a $1 million exemption and 55% rate or (2) a short-term extension of tax cuts, including the estate tax on a two-year basis at $3.5 million exemption and 45% rate, possibly during a lame duck session (when Congress returns after November elections).”

A copy of the complete bulletin is available online here.

Estate Tax Reform

January 6, 2010

There’s another fine mess you’ve gotten us into…

You can hardly pick up a newspaper right now without reading about the estate tax mess we’re in.

There are winners and losers. The Economic Growth and Tax Relief Reconciliation Act of 2001 lowered estate taxes and eliminated them entirely in 2010.

Unfortunately, Congressional budget rules required the act to have a sunset provision, which means the entire act would disappear on December 31, 2010. Then we would be back where we started in 2001 – no reform. But who cared in 2001? There were nine years to address the problem.

Well, here we are in 2010 and Congress has done nothing. Right now there are all sorts of predictions, but no one really knows what will happen. The question is what to do with people dying in 2010, before new legislation is enacted? Many in Congress want to adopt legislation in 2010 and make it effective retroactive to January 1, 2010, but that may be unconstitutional.

Regardless, you need to review your estate plan now, especially if you are in a second marriage, have a marital trust and/or family trust.  Otherwise your plan might not work as you intended.

Only put off until tomorrow what you are willing to die having left undone. – Pablo Picasso

For more detailed information, you can read our latest Wealth Counselor newsletter, Planning After “Repeal” of the Federal Estate Tax, available here.

(Swendson/Menting Law Ltd. offers this free monthly newsletter to our clients, friends and strategic partners that addresses current issues and developments in the law. If you would like to receive future editions, please contact us.)