In light of the increase in the estate tax exemption to $5,000,000, several clients of mine asked why they need a Revocable Trust if they don’t need advanced tax planning (at least in their minds). The following discusses some of the reasons for doing so.
What is a Revocable Trust?
A Revocable Trust (also known as a “living trust” or an “inter-vivos trust”), is a legal arrangement in which the creator (referred to as a “grantor” or “settlor”) transfers, during life, all (or part) of his or her assets to a Trustee to be managed and administered pursuant to the terms designated in the trust until fully distributed to the beneficiary or beneficiaries. (more…)
The September, 2011 7520 Interest Rate is 2.0%.
The September Applicable Federal Rates can be found here.
What are digital assets? Generally speaking, “digital assets” are any type of data in which a person has some right or proprietary interest. A person’s digital assets may include (but are not limited to) information in his or her email accounts, information saved on his or her Smartphones, his or her computer files, picture files, video files, music files, social networking accounts, blogs, websites, word processing documents, and spreadsheets.
Do digital assets have value? Many digital assets have value. Like tangible assets, digital assets can have monetary value (for example, blogs that generate revenue, or intellectual property rights, which – in some cases – may be extremely valuable), or sentimental value (family photos or video files, for example). For this reason, it is important to establish a plan for what should happen to your digital assets in the event of your death or incapacity. It may be necessary to access the digital assets of an incapacitated or recently deceased person in order to preserve value in his or her business or estate, even though those digital assets may have no monetary value. For example, although a person’s email account does not have monetary value per se, many people conduct their day-to-day business primarily via email (by taking orders, making sales, arranging for deliveries, contacting suppliers, etc.) If such a person becomes incapacitated or passes away, his or her agents or fiduciaries will likely need to access that email account to avoid contract breaches, which could be costly to an incapacitated person’s business or may result in claims against a decedent’s estate. As discussed below, it may be impossible for your agents or fiduciaries to access your email account or other digital assets if you don’t plan ahead. (more…)
(Please click here to see Part I of this series, entitled: “Why Do I Need a Will?”)
If you divorce, you may need a Will (or an update to your existing Will) to prevent your ex-spouse from receiving assets at your death.
Here is a follow up to my post earlier this week. In this recent article posted at AOL’s DailyFinance site, the author discusses the contents of Amy Winehouse’s U.K. Will. The late Amy Winehouse had an ex-spouse, and the author mentions that English law may allow an ex-spouse to receive property bequeathed to him or her under their former (now deceased) spouse’s Will even if the divorce occurred after the Will’s execution. This Forbes.com article implies that even if she had died without a Will at all, English law may look favorably upon an ex-spouse’s position and allow them to inherit. Fortunately for Winehouse’s parents and brother, she had prepared a new Will post-divorce which effectively cut out the ex-husband in favor of them. (more…)
Effective August 1, 2011, a number of new changes went into effect changing Delaware trust law. While the amendments make a lot of changes to the Delaware trust laws, below are some of the changes that are likely to have the biggest impact on litigation concerning Delaware trusts.
Wrongdoing: The amendments have added a definition of “wrongdoing” to clarify its meaning within the definition of “wilful misconduct.” For purposes of Delaware trust law, “wilful misconduct,” means “intentional wrongdoing, not mere negligence, gross negligence or recklessness.” Apparently, there was some confusion over the meaning of “wrongdoing,” and, therefore, “wrongdoing” is now defined as “malicious conduct or conduct designed to defraud or seek an unconscionable advantage.” To the extent that previously there was a benign interpretation of “wrongdoing,” the Delaware Code is now clear that the threshold for a fiduciary to commit “intentional wrongdoing” is quite high. (more…)
A friend of mine (in the industry) recently asked how to respond to this question. My friend’s clients are a young wealthy couple with a new child. That is all I know about these people, but I thought I would share my answer with you:
The three main reasons for having estate planning documents for this couple are (1) naming a guardian for their child, (2) establishing a credit shelter trust structure to save the first-spouse-to-die’s estate tax exemption, and (3) establishing a trust for minors to avoid a conservatorship.
Here’s a little more on each of these: (more…)
The IRS has released drafts of Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return for estates of decedents dying after Dec. 31, 2009 and before Jan. 1, 2011, and its instructions. They reflect law changes made by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (2010 Tax Relief Act), as well as indexing and other changes. Form 706 must be filed by the executor of any estate of a decedent dying in 2010 whose gross estate, plus adjusted taxable gifts and specific exemption is more than $5,000,000. Alternatively, for decedents dying in 2010, the estate may elect not have the estate tax apply, but rather to apply modified carryover basis treatment to property acquired or passing from the decedent. If such election is made, the executor would not file a Form 706, but rather the IRS has indicated that such election will be made on Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent, which currently is available only in draft form. Earlier this year, IRS said that it plans to issue future guidance that will provide a deadline for filing Form 8939 and for electing to have the estate tax rules not apply to the estates of persons who died in 2010, but such guidance is still forthcoming. The draft instructions state that for estates of decedents dying between Jan. 1, 2010 and Dec. 16, 2010, the due date for filing Form 706 and payment of estate and GST taxes is Sept.19, 2011. The applicable exclusion amount is $5 million and the maximum estate tax rate is 35%. The applicable rate for generation-skipping transfers (GSTs) is zero.
The Internal Revenue Service issued guidance today on the treatment of basis for certain estates of decedents who died in 2010. The guidance assists executors who are making the choice to opt out of the estate tax and have the carryover basis rules apply. Form 8939, the basis allocation form required to be filed by executors opting out of the estate tax, is due Nov. 15, 2011.
The updated Circular 230, revised to reflect the new return preparer oversight program and other changes, is now available.
When Christian Lopez caught Derek Jeter’s historic 3,000th hit on July 9, he most likely thought that he was just being a nice guy by giving it back to the Yankee shortstop. In that moment, Lopez probably didn’t realize that his incredibly selfless gesture could lead to potentially negative tax consequences.
Did Lopez give the ball to Jeter as a gift? That could mean that Lopez made a taxable gift equal to the fair market value of the ball. How much is that ball actually worth? Fair market value is defined as the price a willing buyer would pay a willing seller for the ball. You can buy an official Rawlings MLB baseball on amazon.com for $17.30. Chump change. However, some people are estimating that Lopez could have sold Jeter’s ball for up to $250,000. Now we’re talking some serious money. (more…)