Salt Lake City Estate Planning

Reasons for Going “Offshore” With Your Accounts

If you're not running for president, and don't have to worry about public relations, what are the legitimate reasons for moving money offshore?

Offshore accounts have been in the news recently and not without reason. For one thing, the IRS has been gunning for foreign accounts for some time. It just doesn’t like them.

Likely, you have seen a discussion (or two… or three) of the topic in connection with Mitt Romney and his use of such accounts. The truth is that such accounts are not all illegal or unpatriotic, and indeed, might just be a good idea.

If you’re interested, there are a few ideas to be gleaned from a recent article through SmartMoney regarding offshore accounts. Is the real reason tax minimization? Not always. The article suggests that taxes truly aren’t the sole motivation. Although it should be said that there are advantages, even though the U.S. government still thinks it’s owed a piece on everything you own internationally.

For one thing, an offshore account has a measure of “jurisdictional safety,” or more simply put, the U.S. courts have a harder time seizing your assets to satisfy litigation against you. Whatever the reason, it’s a growing trend.

One more offshore and growing trend: expatriation. As pointed out in a recent Forbes article, the rate of expatriation has soared 16% in 2011 over 2010. In many ways, the use of offshore accounts and some form of expatriation work together. One thing they do share is that neither is easy and both involve further layers of taxation (like the government would allow such an easy out).

If it is something worth thinking about – say if there are foreign and golden sands in your retirement future - it’s worth planning now, especially in light of global politics.

Reference: SmartMoney (February 13, 2012) “The Real Reasons the Rich Are Moving Cash to the Caymans”; and

                Forbes (February 14, 2012) “Celebrity Leavings: Bidding Stars Adieu” 

Please contact us today to discuss how to best manage your assets and investments.

 

 

Savvy Givers Like Mitt Romney Give Strategically

If you’re wealthy, you set up your own private foundation. You get a deduction now, but you don’t have to give it all away right away. You can do it in a much more leisurely way.

It’s hard to comment on the recent outpouring of information about presidential hopeful Mitt Romney and his tax records.

First, since he is a potential presidential candidate, there are political ramifications, as he is a wealthy individual there are ideological (if not also political) ramifications, and as he is a Mormon who practices tithing there are theological ramifications. That said, and whatever your opinions on the man are, it’s hard to deny that he is a very real life example of some serious charitable giving at work.

As reported by BusinessWeek (and a thousand other places besides), the Romneys gave about $7 Million dollars to charitable causes over the past two years. Interestingly, their giving wasn’t just a matter of simply writing a check (although, granted, a great deal of it was by cash donation). No, the Romneys make use of their own charitable organization. If you, too, are a serious donor, then this may be a worthwhile strategy to consider.

As an individual giving to charity you are somewhat limited, especially when it comes to the tax year and claiming deductions. By using a charitable organization as a conduit you can give during a given tax year, take the deduction from your personal taxes, and then, as a leader in the charitable organization, still work to grow that gift and take the time to make it do the most good. Likewise, you can lead others and implore them to your causes. (Think Bill and Melinda Gates Foundation.)

Of course, starting a foundation and maintaining it are often difficult tasks, even though they don’t have to work on such a grand scale as the famous examples. As far as tax advantages, a similar benefit can still be wrought from a form of pooled charity trust, set up by a charity or investment company and able to grant you a tax deduction on your gift in the current year while waiting to pool resources and do the most good.

Still both approaches are elaborate ways of practicing your charitable giving and either may just be the right method for you. Be sure to consult with appropriate legal and tax counsel to determine the appropriate method for your objectives.

Reference: BusinessWeek (January 24, 2012) “Romney Tax Returns Show $7 Million in Donations Over 2 Years”

Please visit the Charitable Giving section of our website and contact us today to schedule an intial consultation.

 

Discretionary Trusts Can Trump Bankruptcy Liquidation

The simple answers are usually painfully wrong, and the real art of asset protection is the exercise of considerable forethought as to how the structure will work under extreme duress, with creditors getting writs and orders so as to financially strangle the Debtor.

Sometimes giving assets to a loved one in hopes of protecting those assets from future creditors may not be such a good idea. This is especially true when the loved one is a young one. No, if you want your asset protection planning to be successful, then that usually means a trust is necessary.

Trusts are incredibly powerful tools for a number of reasons, foremost because they allow you to protect both the beneficiary and the assets.

A powerful lesson on trusts recently came out and is featured in a recent Forbes article. It’s the case of re McCoy, 2011 WL 6748388 (Bkrtcy.W.D.Wis., Slip Copy, Dec. 21, 2011) and it’s worth a look.

The case focuses on a trust containing a “spendthrift provision” against bankruptcy. A mother set up the trust for her daughter (and soon to be debtor) with her son as trustee. The trust has a spendthrift provision, meaning that the assets are controlled and kept from the beneficiary except in regular distributions. Further, the trust provided that the brother, as trustee, has discretionary control over the distributions, and can release them or hold them in the trust as deemed appropriate in his capacity as trustee.

The daughter went bankrupt. Soon thereafter, her bankruptcy trustee soon turned a leering eye to those trust funds. You see, bankruptcy is about marshalling the available assets of a debtor to pay as many debts as possible. However, thanks to the spendthrift provision the trust funds are immediately disqualified from consideration.

Why? Because the beneficiary doesn’t “own or exercise control” over them. Nevertheless, the bankruptcy trustee did try to grab an upcoming distribution, thinking it was leaving the trust and therefore fair game. This, too, was denied, because the trustee had discretionary control over its release and simply wouldn’t release it into the hungry jaws of creditors.

If the trust had appointed the brother as trustee without granting discretionary powers and, instead, required mandatory distributions, then the distributions would have fallen into the hands of the creditors – but instead it was saved.

In the end, there are a few good lessons for the wise in this case. Here are a succinct few advanced by the Forbes author:

1. A well-drafted Living Trust can provide, as here, very substantial asset protection for beneficiaries. Mark me as in the camp that says that children should never be given a significant gift outside of a trust, since children (particularly those with money, but without experience) are prone to develop creditors.
2. A well-drafted non-self-settled trust can provide, as here, very substantial asset protection for beneficiaries. Contrast this with self-settled spendthrift trusts (a/k/a “asset protection trusts” which despite their nickname provide at best highly dubious and almost entirely untested asset protection advantages). See Chart Regarding Effectiveness of Asset Protection Trusts
3. For asset protection purposes, trusts should be drafted as discretionary trusts. Remember: If a beneficiary has a right to the trust assets or payments, etc., so will creditors.

To learn more and to successfully set up a trust for your loved ones, you will want competent counsel. This is not a Do-It-Yourself project.

Reference: Forbes (December 28, 2011) “The Real McCoy: Living Trust Provides Spendthrift Protection To Assets Of Beneficiary In Bankruptcy”

 

Selecting the Right Trustee

While hiring a professional trustee may not always be the best solution, it is almost always better to have a professional with experience managing special needs trusts serve in place of an unqualified or overwhelmed non-professional trustee.

So, you’ve created a trust to protect your loved ones. Did you name the right person as trustee? Likewise, perhaps you’ve just been asked to serve as trustee without a firm appreciation for what that means, or perhaps you’ve just figured it out. Question: Should the trust have a professional trustee?

Whether you’re parent who’s set up a trust or you’re a named trustee, Special Needs Answers recently offered a couple of tests to determine if the trust has the right trustee and if a professional may be in order. Their advice, as you would imagine, is especially poignant in the case of a special needs trust, but also has broader application.

Does the trustee have enough time? Being a trustee is not like being a god-parent; it’s almost like another job and even a full-time job for some kinds of trusts. Is the trustee able to keep up with it?

Does the trustee keep track of the rules? Every trust has various rules in place to maintain it, and even more to make sure it accomplishes its goals. In the case of a special needs trust this means keeping track of government benefit rules (even as they change, or threaten to change as in the current political climate). The trustee has to be able to do this.

Does the beneficiary make things complicated for the trustee? If the trustee knows the beneficiary directly, whether by familial relation or long acquaintance, then they also may exert more influence on the trustee than the trustee ought to allow. If the beneficiary feels entitled or wants to ask for something, they may have leverage and the trustee may cave.

Of course, these questions illustrate the common difficulties a trust and a trustee will have to face. Everyone involved ought to understand these difficulties in advance and make the right choices for all concerned.

Bottom line: If you’re setting up a trust, seek the advice of qualified estate planning legal counsel.

Reference: Special Needs Answers (November 2, 2011) “Is It Time For A Professional Trustee?”

 

 

EXECUTORS… BEWARE!

Being asked by friends or family to be executor of an estate is a big honor, but the warm feelings can vanish once the job starts.

Choosing an executor can be a difficult task, and in no small part this is because it means finding someone you trust to do as you would do. Oftentimes it is gesture of trust and respect made to a friend or family member. Neither the estate planner nor the would-be executor ought to forget, however, that serving as executor can be a fairly difficult role to play. The Wall street Journal recently offered some practical insights and advice on the topic, noting that to be named executor is both “an honor… and a pain.”

Simply put, the executor administers a decedent’s Last Will and Testament through probate, navigating the many twists and turns of that court process. Administration involves accounting for assets, paying bills, and distributing assets in accordance with the terms of the Last Will.

The process typically takes time, too. It can mean up to several years for larger estates, and during that time the executor must keep up with the associated laws, tax code changes, and financial investments, or else intelligently delegate such responsibilities to professionals. It means that a “non-professional” can do the job, but perhaps not an amateur; you have to know your abilities and have confidence. To top it off, the compensation for being an executor is often meager, given the heavy workload, and is regulated by state laws.

The biggest problem an executor will face, by and large, is a shifting relationship with the family. Money can make people antsy or even belligerent, even if the terms are clear in the Last Will, and that’s something an executor might have to bear. This is especially true of family members turned executors who may face soured relationships at family functions. Accordingly, that can make for some awkward moments around the Thanksgiving table.

Practically speaking, to serve as an executor you must anticipate the challenges ahead of time, prepare for them, and remain organized. Indeed, organization is essential throughout the probate process, to include separating yourself into the two roles: executor and family member/friend.

While planning your estate and settling on an executor, consider alerting your would-be executor your decision ahead of time. Doing so will allow them to prepare for the role, and perhaps even get directions from you personally. For more advice and anecdotes you can read the original article here, but to get a better idea of the challenges it is best to consult with your estate planning attorney for advice and counsel. 

Reference: The Wall Street Journal (September 19, 2011) “Estate Executors: An Honor… and a Pain”

To learn more about how we can help you in your estate planning needs, please visit the Fundamental Estate Planning section of our website.

 

Special Needs Planning – A Changing Landscape

Deciding how to leave your assets to your kids is tricky enough. If your adult child has a chronic disability, the task is much more complicated.

Estate planning is never easy, if only because it means thinking about protecting your loved ones when you’re no longer around. It’s bad enough making plans to protect self-sufficient heirs who take care of themselves and an inheritance. However, it can be a real challenge when planning for heirs with special needs for a variety of personal and legal reasons. Unfortunately, as The Wall Street Journal Online recently pointed out, with the economy and politics as they are, there are new concerns to bear in mind as you plan.

Both the State and federal budgets are strapped for cash and the burden is falling on Medicare and Medicaid. It’s up to the Congressional Special Committee to consider the future of Medicare now, but many Medicaid programs already are feeling the squeeze with tighter income restrictions for benefits and services.

Of course, much of the disabled population (12% of the overall population) relies on state and federal services for those services that they couldn’t afford in the private market. To plan for an heir with special needs, then, means planning to provide for them without risking their main sources of care. Now, more than ever, that means a “special needs trust,” tailored to provide the inheritance as a safety net without endangering the continuation of benefits. [Sidebar: Sometimes an older parent can make this move kill two birds with one stone. How? They create the trust now for themselves and a loved one with special needs so that both qualify for government benefits, once the “look back” period has past for eligibility disqualification. As budgets get tighter, expect greater governmental scrutiny of such moves.]

The other major issue, and a related one, is housing. Many Americans with special needs live in group housing programs. These programs are, in turn, subsidized by government agencies, but are increasingly unable to meet demand and are cash-strapped. For one, the same political/economic pressure is keeping those agencies from expanding.

At the same time, there simply are more prospective residents due to lengthening life expectancies. The US would have had to expand its residential-services capacity by 28% to meet the demand as of two years ago. Clearly, housing has been an issue and it will only get worse.

Amidst all of this uncertainty, you still need to plan where your loved one will live. This might mean another form of trust. For example, a “Qualified Personal Residence Trust” (QPRT) would provide that you live in your home until your death, but that your family member with special needs would live there (without disqualifying ownership). Great care would need to be given in the preparation of such an arrangement. Also, it may be possible to provide a home to shelter several persons with special needs. For example, say several families pool resources, or even to leave a home to a non-profit that can convert the home into a new group home. The options are limited by your creativity.

Ultimately, the best plan will depend on your own unique family circumstances, as well as the current state and federal laws governing benefits and services. Unfortunately, according to a recent study by Arc, an advocacy group, only one-third of affected actually has plans to control what happens when the caregiver grows old and after they are gone.

Bottom line: Remember to engage qualified legal counsel to help you navigate the regulatory minefields.

Reference: The Wall Street Journal Online (September 3, 2011) “Taking Care of Disabled Heirs”

Please visit the Estate Planning section of our website, and feel free to call our office (801.631.0228) today to set up your initial consultation.

Keeping The Family Vacation Home...In the Family

If you enjoyed that last summer outing to your vacation home this Labor Day weekend, it's a good time to start thinking about creating a succession plan for the property. A detailed plan will make the transfer of ownership easier and establishes rules to will help prevent bitter family conflicts down the road, experts say.

For those of you with still-fresh memories of this past Labor Day weekend out at the family cottage, now may be the time to take action to ensure that future Labor Days and summer outings will continue to be enjoyed by your family long after you are gone. In other words, ensure the future of the family cottage and the peace and domestic tranquility of your family through proper estate planning. So, how do you do that? The Wall Street Journal Online recently touched on the topic.

The best way to leave an inheritance that includes a family vacation home depends on who will be inheriting it. That is the first essential decision. For example, are you leaving it to one family member or to several? Who will be interested in the home (or more interested in your portfolio)? Who will be able to use the home? The adult child living in California might not be able to enjoy the Cape Cod cottage. This is especially true if they have their own vacation property, or if they wouldn’t be able to afford the upkeep, insurance and taxes.

If you’ve settled on a single person to inherit the family vacation home, then it is relatively easy: you can either gift it during your lifetime (before 2013 would be prudent), or leave it through your Last Will and Testament or Revocable Living Trust. If you are leaving it to multiple beneficiaries, like an entire generation of your family, then perhaps consider establishing a specific arrangement for such ownership. For example, many families find the Limited Liability Company (LLC) or various forms of trusts to be practical tools.

If all of the heirs are adults, then an LLC might be a better bet as it allows members a more equal say in what to do, while still providing a framework for decisions or an organizational structure through the use of a solid operating agreement. Of course, you could take it a step further and form a trust that owns an LLC that owns the home, or even specific trusts like a Qualified Personal Residence Trust (QPRT.).

On the other hand, if there are young children in the family, then a trust with a long-term duration might be better. Why? Because it allows parents to pass on the vacation home to their children while still appointing an adult in charge as trustee. In addition, properly drafted with “spendthrift provisions,” such trusts can protect the family home from the potential divorces, lawsuits and bankruptcies of the heirs.

For many, a family vacation cottage is a place of many happy memories shared over a long family history. As a result, it just has to stay in the family. Once you start down the path to make that happen, however, don’t wander too far without appropriate legal counsel. You will need experienced help to navigate the details, figure out what’s best for your unique situation, and eventually put ink to paper.

See the The Wall Street Journal Online Article from September 4, 2011, entitled “Create A Plan To Pass On The Family Cottage” for more information.  Or, feel free to contact our office to discuss your estate planning needs.

Tax Guidance for Estates of Decedent's who Died in 2010

On August 5, 2011, the IRS published long-awaited guidance for executors of estates of people who died in 2010. Notice 2011-66 explains how these executors can opt out of the estate tax, and Revenue Procedure 2011-41 explains the special tax rules that apply to assets when executors opt out of the estate tax.

After a bit of biding our time, we finally have something official with which to work regarding 2010 estate taxes. Nevertheless, there is a bit more waiting to do. The IRS recently published its guidance in the form of Notice 2011-66 and Revenue Procedure 2011-41.

As you may recall, 2010 was a uniquely advantageous year for decedent’s estates. Yet, in many ways, it was a uniquely stressful year for estate tax planning. Most of the wealth transfer taxes lapsed after the inaction of Congress the previous year, until last December’s tax compromise that is. This compromise set the transfer taxes back in place, retroactively for the entire past year (i.e., 2010). With taxes both in effect and not in effect by various laws, the December compromise left it to individuals taxpayers to decide between paying estate taxes or not paying estate taxes. Consequently, much of the chatter on the issue has been debating which path to take (since it’s not actually as obvious as one would think). Now, resolving that tax dilemma is less hypothetical since Notice 2011-66 explains how to opt out of the estate tax and Revenue Procedure 2011-41 explains the special tax rules that will go into effect if you do opt out.

Hani Sarji has offered up a helpful piece on his Forbes-based blog explaining the developments in detail, along with the pros and cons. He also provides several helpful tables of information to help you navigate this issue.

If you are looking for guidance about a decedent's estate, including probate, estate or trust administration, estate or trust litigation, or taxes, contact our office for a free consult or visit our informative website and sign up for our free newsletter.

 

Appropriate Estate Planning For A Globalized World

"Do you own a vacation home in Mexico? Have a bank account in Hong Kong? Has your spouse retained Canadian citizenship? Are you a long-term U.S. resident who was born in the U.K.? Is your brother-in-law, who is a citizen and resident of Ireland, the successor trustee of your revocable trust?

Each of these scenarios raises complex tax issues that, without proper planning, could easily have disastrous and costly consequences."

-From SmartBusiness (June 1, 2011) “Tips for estate planning and tax law compliance in a global    economy”

The fact is that we live in a globalized world: technology and commerce allow us to move about as we please, even across several continents. But remember that technology and commerce do not eliminate the legal borders of nations. Even if your life transcends those borders, your legal status, your tax obligations, and your estate do not. Settling estates, trusts, and the other related taxes can become an expensive headache if you and your family are stretched across the globe.

Last week, SmartBusiness issued a short list of common problems “global citizens” may encounter. For example, it has become increasingly common for a U.S. citizen to own a house in Mexico, but to do so may have involved a “fideicomiso”, which the IRS considers a trust subject to all foreign trust reporting requirements. So, if you purchased a condo in Cancun, you must file both IRS Forms 3520 and 3520-A annually or be subject to significant civil penalties. To make matters worse, after March 18, 2010, if you actually use the condo or let a relative use the condo, the fair rental value for the period of use is subject to U.S. income tax.

What if your spouse is not a U.S. citizen? Spouses are generally able to transfer assets to each other, both during lifetime and at death, without tax consequences. But if our spouse is not a U.S. citizen, things get a little more complicated. You may want to consult a qualified estate planning attorney to avoid unexpected (and unnecessary) gift and estate taxes.

If your estate and your life are spread across the globe then you need to account for some complex issues in your tax and estate planning. For more tips about how to stay out of the IRS’s crosshairs, read the information on the estate tax planning section of our website. 

Insights on Wealth and How to Preserve The Worth of Your Estate

“We have found a significant dichotomy between clients we talk with, who tell us that intergenerational wealth transfer is the single most important issue on their minds, and a large segment of high net worth population we surveyed, who are not taking action and therefore leaving the legacy of their life’s work to chance.”

US TRUST (April 19, 2011) “US Trust Insights on Wealth and Worth”

If you are a Baby Boomer who has worked hard, accumulated significant assets, support charitable causes, and plan to continue working through “retirement,” you are not alone! And you won’t be particularly surprised by the findings of a recently released survey by US Trust: Insights on Wealth and Worth. The survey was conducted earlier this year, with 457 high net worth and ultra high net worth individuals, with $3 million or more in investable assets. The survey found a distinct generational mindset among the wealthy – many of whom are Baby Boomers, self-made, first generation wealthy who achieved financial success on their own.

Here are some of these insights found by the survey:

• Nearly half of these wealthy individuals plan to continue working in “retirement,” many starting a second career or new business.
• Many also want to be able to travel
• Many wealthy Americans want to give back to their communities and support charitable causes, and they may need professional legal advice to fulfill those ideals.
• Few have the type of comprehensive estate planning in place that matches the complexity of their estate, their finances, and their estate planning goals.

That last insight, about few people having the type of comprehensive estate planning they really need, may come as a surprise to you – or even to US Trust – but not to me. I see this in my practice every day. Just because you have a simple will in place, or believe the federal estate tax will not affect you, does not mean you have adequately  met your estate planning needs. Some common “gaps” that turned up in the US Trust survey include:

• No living will or health care directive
• No durable financial power of attorney
• No revocable living trust
• Inadequate planning for life insurance
• No charitable planning, despite charitable intent
• No written plan for the distribution of personal property
• No business succession plan, in fact only three percent of business owners had a business succession plan in place

If you saw yourself in any portion of this post, you would be well-advised to talk to an experienced estate planning attorney. If you don’t take action, then you are, as US Trust President Keith Banks said, “leaving the legacy of (your) life’s work to chance.”