CA Estate Planning

The Separation of Church … And Estate

For many people, estate planning isn't just about financial assets and other practical concerns. It's also about honoring their religious beliefs and passing those values on to family members. That can be very tricky ground.

Planning your estate may seem like a simple matter of deciding who gets your stuff when you’re gone. What if you are a person of great faith and religious conviction? How does a person of faith plan for his or her estate when life (and especially life beyond) is so much more than mere “stuff”?

The problem of mixing religion and estate planning – that is, the problem of doing it well – is a issue taken up by the Wall Street Journal in an article titled Joining Church and Estate.

If your decisions during life are guided by your faith, then likely your estate decisions will be too. For example, end-of-life, disposition of remains and even charitable giving decisions are oftentimes determined by ones religious beliefs. These are personal decisions that directly impact you and collaterally impact others.

However, an entirely different matter, and one that can be the source of much trouble, are the religiously motivated decisions you may make in regards to others.

Given the numerous alternative planning strategies and tools available to plan your estate, it is possible to make (or attempt to make) religious decisions for your heirs. This is where problems can arise.

In the extreme, you can move beyond encouraging to requiring the observance of certain religious principles, rituals, or lifelong membership in the given religion to secure any inheritance. As the Wall Street Journal article illustrates, this is where problems can arise. In short, requiring heirs to uphold religious principles they do not share can work to undermine them.

The article discusses some particularly poignant examples, and real life court battles, but as a general principle it may be worth avoiding this type of planning.

Reference: The Wall Street Journal (April 30, 2012) “Joining Church and Estate”

 

 

 

Using Easements to Preserve Posterity Property

If you have property that you would like preserve in its present form, there is nothing so close to a free lunch as the donation of an easement. Out in the country, you will call it a conservation easement. In the big city it is a facade easement. In either case, the principle is the same.

Sometimes one of the greatest charitable gifts you can bestow is the mere promise not to do anything with, or to, what you own. Of course, this common conundrum occurs most frequently when you happen to be sitting on a piece of history.

Whether the property is in the country or in the city, the challenge is the same: how to protect the property from development in perpetuity. Sometimes, however, the key is convincing the IRS of the charitable value of the property itself. If you have an asset worth this kind of consideration, and the hope to preserve it, then an “easement” may be necessary.

In the city there are “façade” easements, and in the country there are “conservation” easements. Both are worthwhile means to a charitable end.

Consider Peter Reilly’s recent post in Forbes, titled “Donating TriBeCa Facade Easement Is Like Renouncing Your Super Powers,” about an illustrative case in TriBeCa, Manhattan. The story highlights some possible, practical complications that may arise when the situation seems too good to be true. After all, an easement is a unique way of giving to charity and your neighborhood, but only when the IRS agrees.

A practical concern, if successful in obtaining the easement with IRS approval, is in finding a charity to enforce your charitable gift and the easement of your property.

Ultimately, the end result may be worth the work if you preserve your posterity property in perpetuity from development in the hands of an inevitable McDonalds or Starbucks franchisee. The charitable tax deduction can come in handy, to boot. 

Reference: Forbes (May 7, 2012 “Donating TriBeCa Facade Easement Is Like Renouncing Your Super Powers”

 

 

The Separation of Church … And Estate

For many people, estate planning isn't just about financial assets and other practical concerns. It's also about honoring their religious beliefs and passing those values on to family members. That can be very tricky ground.

Planning your estate may seem like a simple matter of deciding who gets your stuff when you’re gone. What if you are a person of great faith and religious conviction? How does a person of faith plan for his or her estate when life (and especially life beyond) is so much more than mere “stuff”?

The problem of mixing religion and estate planning – that is, the problem of doing it well – is a issue taken up by the Wall Street Journal in an article titled Joining Church and Estate.

If your decisions during life are guided by your faith, then likely your estate decisions will be too. For example, end-of-life, disposition of remains and even charitable giving decisions are oftentimes determined by ones religious beliefs. These are personal decisions that directly impact you and collaterally impact others.

However, an entirely different matter, and one that can be the source of much trouble, are the religiously motivated decisions you may make in regards to others.

Given the numerous alternative planning strategies and tools available to plan your estate, it is possible to make (or attempt to make) religious decisions for your heirs. This is where problems can arise.

In the extreme, you can move beyond encouraging to requiring the observance of certain religious principles, rituals, or lifelong membership in the given religion to secure any inheritance. As the Wall Street Journal article illustrates, this is where problems can arise. In short, requiring heirs to uphold religious principles they do not share can work to undermine them.

The article discusses some particularly poignant examples, and real life court battles, but as a general principle it may be worth avoiding this type of planning.

Reference: The Wall Street Journal (April 30, 2012) “Joining Church and Estate”

 

 

'TIS BETTER TO GIVE THAN RECEIVE. 'TIS BETTER YET TO GIVE AND RECEIVE!

More people are seeking investment income from an unlikely source: their favorite nonprofits. Why "gift annuities" are on the rise. In charity, as in all matters, the greatest gifts are the ones that keep on giving. This is especially true when the gift actually gives back to you after you make the gift. It comes as no surprise then that “gift annuities” are rather popular right now. That noted, gift annuities are not perfect for everyone and there are some risks. A recent article in SmartMoney titled Charitable Gifts That Give Back addressed both sides of the gift annuity coin. The essential idea behind any annuity is to transfer a large sum of money in exchange for regular and equal payments over a specified period of time (to include over the remainder of your life). As such, annuities can be a powerful source of predictable income late in life under the right circumstances. Commonly, you establish an annuity with a large financial institution because it can make enough money off of your money (and the money of other annuitants) to honor its commitment to make the current and future payments back to you. On the other hand, should you establish your annuity with a charity, the annuity works the same way but with certain valuable additional benefits, depending on the kind of trust that you create. First, if at the outset, you transfer an asset that has greatly appreciated in value, the charity can sell the asset without any paying capital gains tax. The charity pays you an annuity and at your death (or even after the death of your spouse), the balance of the initial funds are available to the charity for its own purposes (known as a charitable remainder trust). Secondly, because of your immediate transfer to the charity, your initial lump sum funding counts as a charitable gift and is deductible for income-tax purposes in the year it is made. [Note: There is a rather sophisticated calculation that determines the actual amount of the deduction and over how many years.] There is another basic form of charitable trust where the charity has immediate use of the funds and transfers to assets back to your heirs on your death without payment of any estate or gift tax. This is known as a charitable lead trust. [Note: It is not that simple but that is the basic idea.] As with most financial decisions, caveat emptor (i.e., “let the buyer beware”). Not all charities offer gift annuities and, if they do, you should be sure to evaluate their ability to make good on the payment stream. While the gift annuity process can be uniquely satisfying, and is therefore worth consideration, be sure to look carefully before you leap. Reference: SmartMoney (April 6, 2012) “Charitable Gifts That Give Back”

Discuss your estate plan with your heirs; you may be surprised by their opinions. Small changes now may avoid large fights after you've gone

The death of a parent often shifts the family dynamic, making issues arise that appear to be based on current events but in fact are perceived as slights that occurred years ago and are now playing out as the parents’ estate is doled out.

Families are complex. While people are complex in general, families are all the more. Why? Families are built on shared histories, both good and bad.

For better or worse, a family’s history sticks with the members of the family, informing their every decision or reaction. This is oftentimes strikingly apparent when it comes to creating one’s estate plans. Remember: The estate planning decisions you make today may affect your loved ones, perhaps for generations.

This issue was the focus of a recent article from Private Wealth titled Siblings Scorned.

As the article notes, it takes a careful hand to divide your estate amongst your family members. Sometimes, even mathematically, equal shares aren’t even in the eyes of certain family members. What are the possible tensions in the family? The reasons are as varied as the makeup of each family itself. For example, did one child get a college degree, while another was denied the opportunity because the family fell on hard times? Did one child seem more favored by the parents, either earlier or later in life?

Interestingly, the most important considerations when planning your estate are rarely money-focused. Over the years, studies have shown that communication between generations and among family members can reduce the risk of family fallouts over estate planning decisions. The “details” communicated, however, will vary from family to family.

I would recommend reading the article from Private Wealth for ideas to mull over and for some real-life stories. 

Reference: Private Wealth (March 2012) “Siblings Scorned”

 

Will your beneficiaries appreciate your art collection as much as the IRS appraises it for estate tax?

How do you dispose of your valuable art collection?  Does it go to a museum where many may appreciate it?  Will your heirs appreciate it or just send it to auction?  Here are some options.

Collecting artworks has been your passion for many years; you've built a fine collection.  However much you may appreciate early Renaissance Madonnas, your children may be more into Jackson Pollock or Joan Mitchell. Or you may have discovered Lucien Freud before he came popular and your collection has greatly appreciated in value.  Capital gains, estate and gift taxes are on your mind.  

So, how do collectors and their estate planning attorneys make proper plans for the transfer of your treasures?  There are many different options, but first of all it may be a good idea to determine the market value of the collection for taxation purposes:  This is valuation used by the IRS.

The next challenge is determining who will receive your collection.  Recently, estate planning issues regarding art have received media attention (to include the strange case of Ileana Sonnabend) as highlighted in a recent article in the Wall Street Journal appropriately titled The Art of Passing Along Art.

As the article notes, the major problem with making an estate plan to transfer art is the nature of “art” itself.  Ultimately, you need to ask yourself why you are giving the art collection in the first place. Are you giving to an art-lover or in lieu of liquid assets? Are you actually giving to the beneficiaries or are you simply trying to find safe homes for the pieces?  Or, do you bequeath it to a museum and offset the charitable deduction against your estate taxes, and probably avoid capital gains tax if you sold the pieces during your life.

Whatever your wishes, there are estate planning solutions. However, you need to prioritize your own goals and wishes for your loved ones, as well as for your art treasures.

Reference: The Wall Street Journal (March 2, 2012) “The Art of Passing Along Art”

 

Check out a Charity before Cutting a Check!

If charitable giving is important to you, you may want to do some investigating to ensure that the charities you support are in good standing with the IRS. Fortunately, a new IRS search tool for tax exempt organizations can simplify this process for you.

While the tool (known as the Select Organizations Exempt Check) isn’t exhaustive, it does offer some helpful information, to include whether an organization:

• Is eligible to receive tax-deductible contributions.
• Had its tax exemption automatically revoked for failing to file a required Form 990, Return of Organization Exempt from Income Tax, for three consecutive years.
• Filed a Form 990-N, Annual Electronic Filing Requirement for Small Exempt Organizations, also called an e-Postcard.

Such information can help a potential donor see an organization as the IRS does. However, the tool is not without some glitches, as addressed in a recent article in the Journal of Accountancy. For example, once an organization is placed on the auto-revocation list (triggered when the organization fails to file a form) it won’t be removed from the list even if the organization re-applies and is re-admitted back into tax exempt status.

With that caveat, the tool provides an excellent means to check the status of a given charity. Nevertheless, if one of your favorite charities is on the auto-revocation list, then you may need to confirm the current standing directly with the charity itself.

For more information, read the original article in The Journal of Accountancy and the IRS news bulletin.

Reference: The Journal of Accountancy (March 15, 2012) “New online search tool makes it easier to find information about exempt organizations”

 

Giving to Charity Is One Important Way to Create Your Own Legacy

Perhaps the most powerful and prevalent reason why the rich give to charity is to create what is most commonly referred to as a “legacy.”

At some point in many people’s lives, there comes a moment when it becomes important – vital, in fact – to focus their energies on a cause that impels them to give to charity with all the passion that went into amassing their wealth in the first place.  But what drives so many generous givers to this moment?  

A recent Wall Street Journal article points out that it’s the age-old, if hackneyed, idea: Creating a legacy.

Beyond doubt, there are certain tax advantages to well-timed and well-planned charity; the tax code is designed  to encourage what is a human urge to leave a legacy.

 Planning for your estate and your wealth, in life and after death, is usually about “legacy” in one form or another. Your family is part of your legacy, that is oftentimes a given, but the missions you held dear in life are just as much a part of your legacy. In fact, they are an extension of your ideas, dreams and hopes for the world, or some small corner of it.

So, what will your legacy be, and what do you want to leave for the world? If there is something that you care about, perhaps it is worth acting upon, either in life or as a bequest.  This could be something to discuss with your estate planning attorney.

Reference: The Wall Street Journal (March 8, 2012) “Why the Rich Give to Charity”

 

ESTATE PLANNING & GIFT TAXES

The economy is starting to show some life in a number of sectors but, unfortunately for many, the housing market is not one of them. The good news for the crafty estate planner is that the poor housing market coupled with the tax laws that went into effect with last December’s compromise offer a rather unique opportunity, one that may very well rate amongst the smartest estate planning moves one will ever make, according to Forbes columnist Rob Clarfeld.

Now might be time to give away the house.

The poor housing market remains perhaps the largest unhealed wound of the Great Recession. If you are trying to sell a home right now you are likely a bit frustrated. Homes are not moving quickly, and many sellers are forced to take a relative loss just to move their property. But, if you were considering making a gift of your home, the situation is entirely more cheerful. Depressed prices mean that you won’t have to work to reduce your home’s taxable value, and the gift you make of it will take a much smaller chunk of your lifetime gift tax exemption. This is a serious boon to high net-worth individuals looking to give away property of considerable value.

But wait, there’s more. The tax compromise signed in with the budget deal last December also extends the lifetime gift allowance from $1 million up to a generous $5 million. So, right now, there is an 18-month window of opportunity for you to make a tax-advantaged gift.

Previously, when one wanted to give away real estate the strategy of choice might have been a Qualified Personal Residence Trust (QPRT) because it allowed for considerable discounts given certain risks through a gradual transfer, but with this perfect storm of depressed real estate prices and a generous gift tax exemption – an outright gift in trust may make more sense. Further, if you want to retain post-gift use of the real estate, you may want to consider transferring the home to an Intentionally Defective Grantor Trust (IDGT), with a structured plan that allows you to remove the asset (in this case your home) from your estate for estate and gift tax purposes, but not for income tax purposes. . Of course, carefully crafting the trust provisions, including dispositive and potential generation skipping provisions, is of utmost importance.

Again, this window of opportunity could close at any time, so if this is an estate planning strategy you might consider, you are well-advised to discuss your situation with professional counsel sooner rather than later.  

For more answers to your Estate Planning questions please visit our website. This blog is intended to provide general information only and is purely a public resource (See website disclaimer).

 

 

ESTATE PLANNING: HOW TO LEVERAGE SMALL BUSINESS, FAMILY LOANS & GIFTS

If you have an adult child asking you for investment capital to launch a new business, you may be strongly tempted to comply. It might be a good investment, or it might not. Either way, a recent article in The Wall Street Journal points out several things you can do to preserve both your capital and your relationship.

• Understand that most start-up businesses fail within the first few years, so there is a good chance that your “investment” will not pay off, or if it does, it may take longer than you expected. Decide now whether you are making a gift with no expectation of getting your money back, an investment for an equity position, or a loan at a favorable interest rate. There is no single right answer, but make sure everyone is on the same page about the nature of your investment. Also, be sure to consult your attorney about any gift- and estate-tax implications.
• Get it in writing. Families often “forget” this important aspect of any financial deal, but it’s important for both sides to put the terms in writing to prevent misunderstandings down the road. Remember, if you want to preserve both your money and your relationship, a written agreement is your friend.
• Treat your child like an adult. Don’t become a nagging parent, but rather try to foster an environment that encourages your child to come to you with open, honest communication. And allow your adult child to run the business without unnecessary interference.
• Give advice as needed. It’s a fair bet that your child has never run a business before, in fact he or she may not have much business experience at all. Consider taking an advisory role, and don’t be surprised or indignant of your first-time CEO makes a few rookie mistakes.
• Examine your own motives. Make sure you are providing funds to help the fledgling business, and that you are not trying to buy your kids’ love.

For more answers to your Estate Planning questions please visit our website. This blog is intended to provide general information only and is purely a public resource (See website disclaimer).