Salt Lake City Estate Planning

Jimi Hendrix’s Estate Still Battling over the Rocker’s Money

Jimi Hendrix would be 75, if he was still alive.

The Express’ recent article, “Jimi Hendrix: Family feud over guitar legend’s £130million estate,” noted that Jimi died in London in 1970 at age 27.

His family has been counting the money ever since.

Nearly 50 years after Jimi’s death, he’s still one of the world’s highest-earning posthumous celebrities, earning more than $6.6 million last year. His $175 million estate remains a battleground. Jimi’s younger brother Leon, 69, has been battling the estate for the past 15 years, with three court cases awaiting trial.

Jimi’s estate is run by his adopted stepsister Janie.

Leon saw his brother’s formative years. Jimi’s first instrument was a ukulele from a garage sale.

He’s has felt plagued by conspiracies, since being cut out of his father’s will, which he’s contested.

Jimi died with no will and his then $66 million estate was inherited by his father Al. He drafted his own will, dividing the estate between his children and grandchildren. Leon claims that his dad was going to leave him $25 million in a trust fund, but in his final years Leon said his dad signed papers to cut him out of the will. When Al died in 2002, he left one gold record to Leon, while control of the Hendrix estate and its fortune went to Janie.

Leon sued to have his father’s original will reinstated, claiming that Janie had exerted undue influence on him.  However, she argued that Leon had been stripped of his inheritance because of his problems with drink, drugs, and crime. A court judge upheld Janie’s control of the estate in 2004, but three years later, Leon won a lawsuit giving him rights to Jimi’s likeness and image. When Leon produced Hendrix vodka, liquor, T-shirts and hi-fi speakers, she sued to stop him.

Janie is suing Leon for marketing Hendrix cannabis, alcohol and electronic goods, calling him a “serial infringer.” In addition, she’s brought an action to stop him from releasing a song on his new album that sounds like Jimi’s hit Foxy Lady, Leon claims.

Reference: The Express (November 25, 2017) “Jimi Hendrix: Family feud over guitar legend’s £130million estate”

If you have any further questions, please give our office to schedule a free consultation 801.438.7120!

Philip Seymour Hoffman's Estate Planning Mistake

Perhaps dealing with a lot of wealthy people in Hollywood or New York is what left a certain disgust in actor Philip Seymour Hoffman's mouth. He grew to despise what he called "trust fund kids" and did not want his children to become them.

Unfortunately, this aversion caused Hoffman to forgo hiring an estate planning attorney, in favor of an accountant who created a will for him.

The will left his $35 million estate to his girlfriend Mimi, who is the mother of his three children.

The big estate planning mistakes are Hoffman’s decisions not to marry Mimi and to use an accountant for a will. In the end, Hoffman’s estate did not have the benefit of the unlimited marital deduction. This cost his family $12 million in estate taxes alone, as Kiplinger points out in "Philip Seymour Hoffman's $12 Million Estate Planning Mistake."

Hoffman should have considered visiting with an estate planning attorney who could have explained the consequences of Hoffman’s circumstances, while he was still alive.

Hoffman could have told the attorney about his fears. He could have had the attorney design a specific estate plan to use the unlimited marital deduction with incentive trusts to ensure that the Hoffman children would be less likely to become trust fund dependents.

Do not make the same mistake that Hoffman did. When you want to plan for your estate, talk to an estate planning attorney.

Reference: Kiplinger (July, 2017) "Philip Seymour Hoffman's $12 Million Estate Planning Mistake." 

If you would like help planning your Estate Plan, please give us a call for a free consultation 801-438-7120. 

The Gift of Gift Tax Planning

Tax planning for many of us, means minimizing the amount of income tax paid. However, the federal gift tax can be a bigger concern because of its 40% rate. Many folks don't even know when they must pay gift tax. However, there are provisions in the tax laws to use to your advantage to avoid paying gift tax. In fact, most people can use these provisions to never pay any gift tax at all.

First, remember that the donor is responsible for paying the gift tax—not the recipient. You can give and receive taxable gifts in the form of money, property, or the right to use or receive income from property without receiving something of equal value at return. If you sell something for less than its full value or if you make a loan at no interest or with a reduced interest rate, it might be considered a gift.

Recently, madison.com posted an article, “Gift Tax: 6 Ways to Avoid Paying the IRS,” that details some of the exclusions and exemptions from the tax.

The annual gift tax exclusion. The IRS gives everyone the right to make gifts up to a certain dollar amount each year.  Therefore, ordinary gifts, like birthday presents, aren't subject to the tax. The amount of the annual gift tax exclusion is adjusted for inflation every year, and this year you can give up to $14,000 without triggering a gift tax. This limitation is on a per-recipient basis, so you can make individual $14,000 gifts to as many people as you want, and a married couple can give a total of $28,000 to each recipient under the annual gift tax exclusion.

Marital deduction. The gift tax laws permit married couples to transfer money and property between the two spouses without any tax implications. You can typically give your spouse as much money or property as you want, without incurring a gift tax.

Gifts for education. Payments for educational expenses can qualify for a gift tax exclusion, if it covers only tuition. Gifts for the expense of course materials, room and board, or other educational costs don't qualify for this exclusion. They will count toward annual exclusion amounts. It is important to note that the donor must make the payment directly to the school. There’s no exclusion if you give the money to the student, and the student then pays the tuition.

Gifts for medical expenses. You can also give money toward covering medical care expenses or health insurance costs.  However, you must make the payment directly to the healthcare facility or health insurance company to maintain the exclusion from gift tax.

Charitable deductions. Gifts to qualifying charities are exempt from gift tax.

Unified lifetime exemption from gift and estate tax. If you make a larger gift that’s not covered by the exclusions above, you can use your lifetime exemption. In your lifetime, you're entitled to a credit against gift and estate taxes that you incur. This credit increases each year for inflation. For 2017, it’s equal to the gift tax on gifts of $5.49 million. Thus, even after you give $14,000 in annual gifts to everyone, unlimited gifts to a spouse or charity, and unlimited gifts toward medical or educational expenses, you can give up to an additional $5.49 million without paying any gift tax. Whatever credit you use, reduces the unified credit you have left for your estate to use after your death.

Reference: madison.com (June 27, 2017) “Gift Tax: 6 Ways to Avoid Paying the IRS”

If you need a tax attorney or a referral to a financial advisor, contact our office at 801-438-7120 to discuss how to avoid Gift Tax.

Do-It-Yourself Estate Planning is a Recipe for Disaster

We’re all looking for a deal. No one wants to pay retail. After all, that’s why there are so many big box hardware stores and YouTube videos that try to teach you how to do things for yourself. You save the expense of hiring a professional to do the job for you. Many folks think the same can be said for estate planning.

They may have a broad idea of estate planning and are intent on doing it for themselves without paying for legal services. However, this usually is a bad idea. A teacher or a firefighter won’t have the background and knowledge required to draft the documents that cover their specific circumstances and the requirements of current probate and tax laws.

The Sabetha Herald notes in its recent article, “Estate Planning pitfalls,” that a DIY-er can make many mistakes. The article points out several of them.

The first issue is having an outdated estate plan, especially a will that has not be updated to reflect that your children are now married and have children of their own. Perhaps you’ve divorced and remarried. Review your estate plan regularly, at least every four years. If you want to revise your will, you can’t just cross out a part of an old will or simply add information and initial the document. You need to go through the same validation process as a new will.

Another mistake is not coordinating a will and a trust. They should be aligned, so your wishes will be carried out. Along the same lines, many people don’t title their assets correctly and don’t update beneficiary designations on IRAs, 401(k)s, company plans and other accounts.

Failing to name successor or contingent beneficiaries is a common mistake. If you name just one beneficiary on an account and he or she dies, then there’d be no successor to receive the account’s assets. The assets could then go to a person you didn’t want to have them, or they could end up in your probate estate.

A major mistake is not designating an individual to make your healthcare decisions, in the event you become incapacitated. These are known as living wills, medical directives, health care proxies or advance health care directives. A related mistake is relying on an outdated financial power of attorney. Your circumstances or your relationship with that person may have changed, since you signed the document.

Many people don’t think about Medicaid. They wait too long to plan for the costs of nursing home or other long-term care, and then try to apply for Medicaid. This should be addressed long before a person nears the time when such care may be needed.

Finally, many people think that estate taxes won’t apply to them.  However, many states have their own estate taxes with lower thresholds than the federal estate tax.

To consult with an experienced estate planning attorney to minimize state taxes, ensure that your assets are titled correctly and to be certain you have a complete estate plan in place for your heirs, contact us through our website or at 801-438-7120.

Reference: Sabetha (KS) Herald (June 2, 2017) “Estate Planning pitfalls”

Which Type of IRA Should I Choose?

A big decision for retirement savers is whether to invest with a traditional IRA or a Roth IRA. Both have pluses and minuses, and both can play a feature role in your overall retirement planning. Motley Fool’s recent article asks “Which IRA Is Best for Me -- Traditional or Roth?” It recommends that you review these factors to figure out which IRA is better for you.

The most significant difference between traditional IRAs and Roth IRAs is how they are taxed. Traditional IRAs typically tax up-front with a deduction on the amount contributed. This means that there is an immediate tax savings in the year in which you make the traditional IRA contribution. Roth IRAs don't have an up-front tax deduction, so you must use after-tax money to make your contributions.

However, in retirement, the tax benefits are flipped: traditional IRAs aren't as great in retirement, because you have to add any withdrawals to your taxable income when you take them. But Roth IRA withdrawals are usually tax-free, creating no impact on your taxes in retirement.

Forced withdrawals in retirement. Another difference is how they address required minimum distributions (RMDs). Traditional IRAs typically require withdrawals as soon as you reach age 70½, with the amount based on your life expectancy. If you don't take these withdrawals, you'll owe the IRS a penalty of 50% of the amount you should’ve withdrawn! Roth IRAs don't have this requirement, so you can keep money in the Roth as long as you’d like. That can be useful if you're using your retirement account assets for estate planning. Stretch IRA strategies can extend the tax-free treatment of Roth IRAs for generations after your death.

Income prevents you from having the IRA you want. Income limits prevent taxpayers from making contributions to a Roth IRA, and a phase-out exists in which you can contribute only a portion of the maximum that most savers can contribute. In 2017, it’s $5,500 for those under age 50 or $6,500 for those 50 or older. Here are the income limits.

Filing Status	Contributions are reduced if income is above this amount...	…and contributions are not allowed if income exceeds this amount…
Single, head of household, or married filing separately if you didn't live with your spouse during the year	$118,000	$133,000
Married filing jointly or qualifying widow or widower	$186,000	$196,000
Married filing separately if you lived with your spouse at any point during the year	$0	$10,000

Source: IRS.

There's no income limit on contributions for traditional IRAs, so you can deposit the full contribution amount. But you may not be able to deduct your contributions from your taxable income, if you or your spouse is covered by an employer-sponsored retirement plan at work. Here are the income limits:

Filing Status	Limits If You're Covered	Limits if Your Spouse is Covered but You're Not Covered
Single or Head of Household	$62,000 to $72,000	N/A
Married Filing Jointly	$99,000 to $119,000	$186,000 to $196,000
Married Filing Separately	$0 to $10,000	$0 to $10,000

Source: IRS.

To pay the least amount of tax possible, try to see if your current tax rate is higher or lower than what your tax rate will be in retirement. It’s not easy to guess, especially if retirement is years away.

Those in low tax brackets now should look at Roths, because the deduction from a traditional IRA isn't worth much for low-bracket taxpayers. On the other hand, people in high brackets can benefit from a deduction now and should look more closely at traditional IRAs.

Reference:  Motley Fool (May 29, 2017) “Which IRA Is Best for Me -- Traditional or Roth?”

For Tax-Planning Questions or for a referral to a financial advisor, contact our office at 801-438-7120.

Don’t Let Your Tax Shelter Become a Tax Nightmare

“Your 401(k), 403(b) and IRA: Tax Shelter or Tax Nightmare?” This is the title of a recent Kiplinger article that looks at the fiscal challenges facing our country. Since last year,  nearly every tax dollar that comes into the U.S. Treasury goes to pay for just four programs: Social Security, Medicare, Medicaid and interest on the national debt.

With more Baby Boomers retiring every day, they won’t be putting money into Social Security and Medicare. Instead, they’ll start taking money out. When they do, the costs for these four programs will skyrocket.

In the last several years, the percentage of tax dollars going to Medicare and Medicaid has increased. In 2016, 29.1% of every tax dollar went to cover health programs (such as Medicare and Medicaid), as opposed to just 20% of every tax dollar in 2012. Let’s look at where you may see changes and need to plan ahead.

Tax-Deferred Savings. Many retirees and pre-retirees have the majority of their savings in 401(k) and IRAs. Traditional accounts typically haven’t paid taxes. If you have the majority of your savings in one of those retirement accounts, remember that not all of that money is yours. The federal government can increase its share and reduce yours with new legislation in the tax code. Here are a few other things that the withdrawals from your 401(k), 403(b) and IRA accounts can impact:

• The government will tax every dollar that comes out at your highest tax bracket;
• Each distribution has the potential to move you into the higher tax bracket;
• Every dollar you withdraw may increase the tax you pay on your Social Security; and
• Each distribution can increase your exposure to the 3.8% surtax on investment income.

This means that you may need to include more of your Social Security benefits as taxable income, and your Medicare Part B premiums can increase. You also will have required minimum distributions, or RMDs, that begin at 70½. There are major penalties if you forget to withdraw funds.

Roth IRA Conversion as a Tax-Reduction Strategy. If you convert to a Roth IRA, you may protect your savings from a future tax increase by paying tax at today’s rates. With a Roth IRA, the distributions in retirement are tax-free (if you’re at least 59½ and have held your Roth account for at least five years). Therefore, they typically won’t impact other things tied to your income, such as taxable Social Security income and your Medicare Part B premiums or health insurance subsidies.

Roth IRAs also don’t have required minimum distributions during your lifetime. In retirement, you can take as much or as little as you want—you’re not forced to take anything at 70½ like with traditional IRAs or 401(k) plans. Your Roth IRA can continue to grow, tax-free, for your heirs. This a great vehicle for estate planning.

Reference: Kiplinger (May 2017) “Your 401(k), 403(b) and IRA: Tax Shelter or Tax Nightmare?”

For assistance with tax planning contact our office at 801-438-7120 for a consultation or a referral to a financial advisor.

Life Estate May be the Solution to Your Estate Planning Issues

Kiplinger’s recent article, “An Overlooked Way to Pass Down Your Home Without Probate: The Life Estate,” explains that simply designating a beneficiary in your will or assuming your home will pass to your children might mean issues for your heirs. If you don’t want to create a trust, you may want to consider a life estate.

With this strategy, you (as the “life tenant”) retain the right to live in your home until your death.  The property is then automatically transferred to the “remaindermen,” or your designated heirs. This can be advantageous for individuals or for couples who want to be sure that both parties can remain in the home for their lifetimes.

You’ll need to execute and file a deed to the property that records your status as the “grantor,” your remaindermen’s status as “grantees” and a clause on the deed that stipulates that you retain a life estate in the home. You should then update your property insurance policy to reflect the addition of new owners. As the life tenant, you’re still responsible for paying the mortgage, taxes, insurance premiums and maintaining the property. But even though you’ll have all the responsibilities of a full owner, your control over your home is complete. Once you add remaindermen to your property’s deed, you cannot just remove them without their consent. You also can’t sell or mortgage your home without the agreement of the remaindermen.

One potential drawback to a life estate is that a life estate ties up your financial interests with that of your heirs. For example, their divorce or bankruptcy could impact the property with a lien. It is also important to note that giving away assets through a life estate, may impact the timing of Medicaid eligibility and result in gift taxes for your heirs.

In addition to ensuring that you’ll remain in your home, it can make it simpler for your heirs to manage the logistics of your property after you pass away. For instance, you can use a life estate to make sure that your home goes to your children from a previous marriage while also guaranteeing that your spouse can stay for his or her lifetime, if you die first.

When making these types of plans, talk to an experienced estate planning attorney to help find the options that are best for your family.

Reference: Kiplinger (May 2017) “An Overlooked Way to Pass Down Your Home Without Probate: The Life Estate”

For questions regarding life estates, or for help transferring ownership of your property to your trust, contact our office at 801-438-7120.

Simple Steps for Retirement Planning

Vanguard recently published an article, “4 things to put on your to-do list for retirement prep,” which has a list of important items to consider when planning for retirement.

Determine what you need to save. Figure out some rough estimates for expenses you're likely to have, regardless of your plans, like housing, food, utility, and health care costs. You want to get a general idea of how much you'll need to meet those expenditures with income from Social Security, a pension or annuity and retirement or investment accounts.

Invest with a strong asset mix. Put your savings to work for your future through investing in the right mix of stocks, bonds and short-term cash reserves (asset allocation) based on your goals, the length of time before you'll need to use your savings and your comfort level for risk. Review and modify your investment portfolio regularly. Rebalancing should be designed to minimize risk as you get closer to your retirement date, not maximize returns.

If you fail to rebalance, your portfolio could become overweighted with one type of investment. This happens frequently with stock holdings when equity markets are strong. When stocks appreciate quickly and shift a portfolio's balance, it's more vulnerable to market corrections and that puts it at risk of greater potential losses when compared with the original asset allocation.

Consider taxes. The type of account where you have your assets can make a substantial difference in your tax liability. Investments that generate capital gains distributions or taxable income should be held in tax-advantaged accounts. Tax-efficient investments also make more sense if they are held in taxable accounts.

Get assistance. Use the skills of an estate planning attorney and a Certified Financial Planner™ (CFP®)

Checking these items off your to-do list, will help as you prepare for retirement.

Reference: Vanguard (May 15, 2017) “4 things to put on your to-do list for retirement prep”

Do you need a referral to a financial advisor? Contact our office at 801-438-7120 and we would be happy to refer you to a financial planner who meets your needs and who will work with us to make your estate plan work best for you. 

Is More Than One IRA a Good Idea?

IRAs can be a terrific way to make the most of what you save for retirement. They also have some tax breaks that outweigh regular investing accounts. There's no restriction on the number of different IRAs you can have, and you can open as many IRAs as you like.

One reason for having multiple IRAs is to take advantage of both Roth and traditional IRA rules and to use both direct contributions and rollover transactions to boost your retirement nest egg. Motley Fool’s recent article asks “Can I Own More Than 1 IRA?”

If you choose to have both a traditional IRA and a Roth IRA, you must keep them in separate accounts—which is a good reason to own two different IRAs. A traditional IRA provides an upfront deduction on contributions, and the Roth IRA gives tax-free growth to most retirement savers.

Withdrawals from traditional IRAs are included in taxable income, but not with Roth withdrawals.  Therefore, you have the flexibility to take distributions and control your tax liability in the best way possible.

In the past, keeping rollover IRA money separate from contributory IRAs was important in order to maintain the ability to move the rollover money back into a 401(k) at a current or future employer. The old laws didn't allow commingling of rollover and non-rollover assets. However, now the rules preventing those movements have been eliminated, making it less critical to keep a separate rollover IRA from your regular contributory IRA. Nevertheless, many still find it valuable for tracking purposes—and some state creditor protection laws can provide additional benefits if you keep money that initially came from an employer plan separate from your ordinary IRAs.

Another advantage of multiple IRAs is that you can use a different financial provider for each one, particularly if you have specific mutual funds or other investments that you like.

Finally, when looking at IRAs and estate planning, there are circumstances where having multiple IRAs will be necessary or keep things simple.

You might also want to open multiple IRAs and list different beneficiaries for each account, so that you can customize the amount of money each beneficiary will receive, as well as the assets they'll get.

Remember, it’s OK to have only one IRA, but there are several reasons why you should consider multiple IRAs.

Reference: Motley Fool (May 9, 2017) “Can I Own More Than 1 IRA?”

Have questions about IRAs? Contact our office at 801-438-7120 for a consultation today. We work with some of the best financial planners to set you up for an enjoyable retirement.

Don’t Forget the Portability Election

With the sizeable federal estate tax exemption, most upper middle class folks don’t need to worry too much about making a portability election in order to preserve the portability option for the future. Nonetheless, the IRS has provided relief for those who’ve failed to make a portability election on time. You should be aware of this, following the death of a spouse.

ThinkAdvisor explains it in its article, “For Estate Planning, Don’t Overlook Late Portability Elections.” The Portability Rules let a surviving spouse make use of both his or her individual federal estate tax exemption and the exemption granted to a first-to-die spouse.

This estate tax exemption can, however, frequently result in an issue for surviving spouses when the entire estate of the first-to-die spouse is sheltered from estate tax. A commonly overlooked key requirement for obtaining the benefits of portability, is that you must ask for it. Even when there’s no estate tax due upon the death of a first-to-die spouse, the executor of the estate must elect portability, by filing an estate tax return on Form 706 within nine months of death.

If you don’t make the election, it can eventually cause the estate of the second-to-die spouse to bear the entire tax burden—especially because the surviving spouse usually inherits most of a deceased spouse’s estate. That will increase the value of his or her own estate.

Failure to elect portability is common, and it could be valuable, such as a lower estate tax exemption in future years or if the estate grows substantially in the years between the death of the first spouse and the surviving spouse.

The IRS says that extensions may be available, if the estate can show there was good cause for the failure to file the portability extension. However, if the estate was originally required to file an estate tax return, there’s no extension. Some “good cause” excuses are that the taxpayer relied on a qualified tax professional’s advice that no portability election was needed or that, given the taxpayer’s experience and the complexity of the issues, the taxpayer was unaware of the need for making the election after exercising reasonable diligence. Relying on written IRS guidance or discovering the error and requesting relief before the IRS discovers the error, also qualify as good cause excuses.

Reference: ThinkAdvisor (April 11, 2017) “For Estate Planning, Don’t Overlook Late Portability Elections”