Remember to always consult counsel before deciding on issues like what state to create your trust in.
For those looking to set up a trust, the best options may be far from home
By: Kristen McNamara
Wall Street Journal
About half a dozen states are actively vying to attract wealthy families' trusts, as well as the jobs and tax revenue that come from the companies that administer these estate-planning vehicles.
States such as Alaska, Delaware, Nevada, New Hampshire, South Dakota and Wyoming have modified their trust laws in recent years to make them more attractive to individuals and families, including nonresidents, looking to minimize taxes, shield assets from creditors and preserve family assets in the event of a divorce, among other things.
While the competition among states for trust business ultimately helps consumers, parsing the differences between state trust laws and separating hype from fact can be a challenge. "There's a whole lot of trash talking going on," says Richard Nenno, a managing director and trust counsel at Wilmington Trust Co. in Delaware. "It makes it difficult for people to cut through to what really matters."
When contemplating a trust—an agreement in which an individual or institution (the trustee) agrees to manage your assets for your beneficiaries—the first step is to determine with the help of an attorney what you are trying to accomplish. Next, examine which states' laws are best-suited to your needs. Because setting up a trust in another state can involve additional expenses, some families and individuals may not have enough wealth to make it worth their while. But for those who do, many trust lawyers say the only real requirement is that they choose an in-state trustee.
A state's tax laws and how long the state allows a trust to remain in existence are important considerations when deciding where to set up a trust. A minority of states, including Alaska, Nevada and South Dakota, don't tax trust income at all. Other states, such as Delaware, impose taxes only on in-state beneficiaries. New Hampshire lawmakers recently amended legislation to make clear that out-of-state trust beneficiaries aren't subject to state taxes.
About half of the states and the District of Columbia have abolished or modified their laws to allow trusts to last for long periods. That means assets in a properly structured trust can continue growing for hundreds of years, or indefinitely in some places, free of estate, gift and generation-skipping taxes, which can consume about half a trust's assets.
"At the end of the day, the taxation is a big factor," says Scott Baker, principal at Perspecta Trust LLC in New Hampshire, a state that is an aggressive participant in the trust race.
Among other factors to consider when shopping around for an attractive trust jurisdiction are flexibility to modify trusts and move assets between trusts, as well as state courts' familiarity with trust-and-estate cases.
Many people set up trusts to gain asset protection. Doctors and business owners, for example, may want to shield assets from creditors, while parents may want to ensure assets stay within the family if their children or grandchildren divorce.
"Creditor-protection techniques are becoming increasingly popular in the U.S.," says Nevada estate-planning attorney Julia Gold. "We live in a litigious society."
Companies responsible for administering trusts, investing trust assets and making decisions about distributions typically charge around 1% of assets for smaller trusts—say, those with a few million dollars. The percentage typically declines as the asset level increases.
Between 1985 and 2003, some $100 billion—about 10% of reported trust assets held by federally regulated financial institutions—moved to states that allowed long-term trusts and didn't tax trusts created by nonresidents, according to a study by Robert Sitkoff, a professor at Harvard Law School, and Max Schanzenbach, a professor at Northwestern University School of Law, published in the Yale Law Journal.
Since that study, states have tried to differentiate themselves further in an effort to attract more trust business.
According to Mr. Sitkoff, at least three states—Delaware, New Hampshire and South Dakota—have enacted laws that protect trustees from liability in the event the person who created the trust (the grantor) instructs the trustee not to diversify certain assets. Trustees in most states generally are required to diversify trust assets for risk-management purposes, though exceptions are made for illiquid assets like family businesses or real estate.
States also have different rules regarding trustees' obligations to disclose information to trust beneficiaries. Many senior family members worry that children and grandchildren who know they're going to receive significant sums of money won't be motivated academically or professionally, so they seek to keep the existence of a trust secret. Still, some attorneys and courts are uncomfortable with the withholding of information from beneficiaries, says Dana Fitzsimons Jr., a Virginia trust-and-estate attorney.
Really wealthy families—those with $100 million or more—might consider establishing a private trust company in states that allow them to do so, such as South Dakota, Nevada and Wyoming, say attorneys. The family then has a say in trust decisions and isn't limited to the investment products offered by a trust company.
"The whole issue is control," says Mark Merric, a Colorado estate-planning attorney, who along with Florida attorney Daniel Worthington published a journal article earlier this year on the most trust-friendly states. (Mr. Worthington serves on the audit committee and board for South Dakota Trust Co.)
Anyone contemplating an out-of-state trust can continue using an in-state attorney. The in-state attorney can draft trust documents and have a lawyer licensed in the more trust-friendly state confirm that they comply with and take full advantage of that state's laws.
If you ask about out-of-state options and your trust-planning professional gives you "a blank stare, I'd go elsewhere," Mr. Merric says.
Ms. McNamara is a former Dow Jones Newswires reporter. She can be reached at reports@wsj.com.
Monday, June 21, 2010
Thursday, June 17, 2010
Heir Fights Doggy for Trust Fund
Just some news of interest this morning.
Moms are so embarrassing, especially the ones who leave their pet chihuahua named Conchita a $3 million trust fund and the run of a Miami Beach mansion when they die. Bret Carr, however, the son of the recently deceased Gail Posner, is fighting his mom's last wishes challenging the legality of a will which left Conchita living, well, a dog's life. In a lawsuit, Carr is claiming household aides drugged his mother and forced her into giving them—and the dog—millions. According to Carr, the aides even convinced Posner to hire a doggy publicist to promote Conchita as "one of the world's most spoiled dogs." Carr, a filmmaker, is not without his own troubles, including an arrest for passing bad checks. The case, profiled in Thursday's Wall Street Journal, recalls the late Leona Hemsley who left $12 million to her pet Maltese named Trouble.
Moms are so embarrassing, especially the ones who leave their pet chihuahua named Conchita a $3 million trust fund and the run of a Miami Beach mansion when they die. Bret Carr, however, the son of the recently deceased Gail Posner, is fighting his mom's last wishes challenging the legality of a will which left Conchita living, well, a dog's life. In a lawsuit, Carr is claiming household aides drugged his mother and forced her into giving them—and the dog—millions. According to Carr, the aides even convinced Posner to hire a doggy publicist to promote Conchita as "one of the world's most spoiled dogs." Carr, a filmmaker, is not without his own troubles, including an arrest for passing bad checks. The case, profiled in Thursday's Wall Street Journal, recalls the late Leona Hemsley who left $12 million to her pet Maltese named Trouble.
Wednesday, June 2, 2010
How To Manage Your Death Portfolio
This story is about death and taxes—and estate planning.
If you don’t make appropriate financial plans, loved ones could pay unnecessary taxes, miss an inheritance, or wind up in a permanent rift. So, no matter what your net worth, you’ll need more than just a will to manage your death portfolio.
“Most people have the traditional legal documents, but they don’t have a simple Family Love Letter,” says Craig Silverman, retirement planning specialist with AXA Advisors in Melville, NY.
The letter that Silverman is referring to is a 50-page document, created by Jeff Scroggin, partner in Scroggin & Company in Roswell, Ga., and includes an inventory of advisors, assets and other information. It even contains details like account passwords, what frequent flyer miles you have, and if a neighbor owes you money.
While working on complicated tax documents several years ago, Scroggin realized nobody had ever thought of simple stuff like putting down whereabouts of a bank safety deposit box.
Scoggin learned the value of this the hard way. Scroggin's father, a decorated veteran, died with the wish that be buried in Arlington National Cemetery. Scroggin tried to fulfill the request, but realized he needed certain discharge papers. “I ended up finding them in a book mark in a book in his house,” he says.
A critical section of the Letter is the personal property list.
“There could be a million dollars of difference in inheritances and no one gets upset about that, but I’ve seen adult siblings shouting about a little yellow tweety bird that sat in their mother’s kitchen for forty or fifty years,” continues Scroggin.
Trust In Trusts
If you have a sizable estate or minor children to provide for, setting up a trust makes better sense for tax planning than leaving everything outright to your heirs, says Louis Mezzullo, Partner at Luce, Forward, Hamilton & Scripps in Rancho Santa Fe, California.
“The beauty of trusts is that they are as flexible as you want them to be,” adds Scroggin.
For example, if you want to distribute five percent of the annual income of a particular trust to your daughter every year, but no more, you can do that with a total return trust. On the other hand, if you don’t like required distribution, the trustee can be given absolute discretion of how, when and where. You can also specify that the money in a trust be spent only to educate children or grandchildren, and not on traveling through Europe.
Another reason that trusts are attractive, says Mezzullo, is that in many states, estate administration is time consuming and the probate tax is expensive, so many people try to avoid having their assets pass through probate by having them held in a revocable living trust (one that is set up when you are alive rather than when you die).
In addition to a will and trusts, Mezzullo and Scroggin agree that everyone should have medical directives, a living will and general power of attorney.
“The absolute number one rule is make sure that retirement account and life insurance beneficiaries are up to date,” says Herb Daroff, Registered Investment Advisor at Baystate Financial Planning in Boston, Massachusetts
This is important because beneficiary designations override your will. Retirement plan beneficiaries have become big issues, particularly in divorces. If the decree says the two divorcee’s assets are completely separate, but one dies in a car accident a year later and didn’t change his or her beneficiary designation, the ex gets the money.
Another thing which Silverman frequently finds is that there are no contingent, or second in line, beneficiaries. If, for example you name your wife as the beneficiary for your IRA life insurance, and don’t put your children second, it can go through probate if the first beneficiary is no longer around to collect.
"Today, the largest asset in most people’s taxable estate is going to be their retirement account, and you need to have adequate life insurance to be able pay the income taxes on these assets,” says Daroff.
Protecting Your Retirement Income
Here's why. Traditionally, people think of life insurance as something they need only during the pre-retirement period to pay off debt or cover expenses. However, Daroff suggests people have policies in place through the retirement years and arrange for their estate to apply the payout to the income taxes that the beneficiary will have to pay on retirement accounts.
Another life insurance tip, says Daroff, is that make sure that you are the owner of your own policy. In other words, it should be held outside the taxable estate in a proper trust. The reason is to protect your estate from the tax it will have to pay on the death benefit. Silverman recommends setting up an Irrevocable Life Insurance Trust (ILIT) when his clients are close to the estate tax limit.
If you are married, it is a good idea for tax planning purposes to split assets between yourself and your spouse. What frequently happens is that one partner tends to have more earnings and savings, as well as a bigger retirement account, and the overwhelming majority of the assets are in that person’s name. That preserves more of the potential inheritance.
Traditionally, estate planning has dealt with taxes, guardianship for minor children, and trusteeship for assets. However, these days people are considering how to manage the assets for the surviving spouse, kids, and grandkids.
You need to ask yourself what is the purpose of the money—is it just to provide income for your spouse, or is the money expected to run for several generations, or educate your grandchildren. Then, you need to decide if you want to restrict the kind of investments that fiduciaries can get into.
“People should do what they want, regardless of the tax consequence," says Mezzullo.
From: cnbc.com
If you don’t make appropriate financial plans, loved ones could pay unnecessary taxes, miss an inheritance, or wind up in a permanent rift. So, no matter what your net worth, you’ll need more than just a will to manage your death portfolio.
“Most people have the traditional legal documents, but they don’t have a simple Family Love Letter,” says Craig Silverman, retirement planning specialist with AXA Advisors in Melville, NY.
The letter that Silverman is referring to is a 50-page document, created by Jeff Scroggin, partner in Scroggin & Company in Roswell, Ga., and includes an inventory of advisors, assets and other information. It even contains details like account passwords, what frequent flyer miles you have, and if a neighbor owes you money.
While working on complicated tax documents several years ago, Scroggin realized nobody had ever thought of simple stuff like putting down whereabouts of a bank safety deposit box.
Scoggin learned the value of this the hard way. Scroggin's father, a decorated veteran, died with the wish that be buried in Arlington National Cemetery. Scroggin tried to fulfill the request, but realized he needed certain discharge papers. “I ended up finding them in a book mark in a book in his house,” he says.
A critical section of the Letter is the personal property list.
“There could be a million dollars of difference in inheritances and no one gets upset about that, but I’ve seen adult siblings shouting about a little yellow tweety bird that sat in their mother’s kitchen for forty or fifty years,” continues Scroggin.
Trust In Trusts
If you have a sizable estate or minor children to provide for, setting up a trust makes better sense for tax planning than leaving everything outright to your heirs, says Louis Mezzullo, Partner at Luce, Forward, Hamilton & Scripps in Rancho Santa Fe, California.
“The beauty of trusts is that they are as flexible as you want them to be,” adds Scroggin.
For example, if you want to distribute five percent of the annual income of a particular trust to your daughter every year, but no more, you can do that with a total return trust. On the other hand, if you don’t like required distribution, the trustee can be given absolute discretion of how, when and where. You can also specify that the money in a trust be spent only to educate children or grandchildren, and not on traveling through Europe.
Another reason that trusts are attractive, says Mezzullo, is that in many states, estate administration is time consuming and the probate tax is expensive, so many people try to avoid having their assets pass through probate by having them held in a revocable living trust (one that is set up when you are alive rather than when you die).
In addition to a will and trusts, Mezzullo and Scroggin agree that everyone should have medical directives, a living will and general power of attorney.
“The absolute number one rule is make sure that retirement account and life insurance beneficiaries are up to date,” says Herb Daroff, Registered Investment Advisor at Baystate Financial Planning in Boston, Massachusetts
This is important because beneficiary designations override your will. Retirement plan beneficiaries have become big issues, particularly in divorces. If the decree says the two divorcee’s assets are completely separate, but one dies in a car accident a year later and didn’t change his or her beneficiary designation, the ex gets the money.
Another thing which Silverman frequently finds is that there are no contingent, or second in line, beneficiaries. If, for example you name your wife as the beneficiary for your IRA life insurance, and don’t put your children second, it can go through probate if the first beneficiary is no longer around to collect.
"Today, the largest asset in most people’s taxable estate is going to be their retirement account, and you need to have adequate life insurance to be able pay the income taxes on these assets,” says Daroff.
Protecting Your Retirement Income
Here's why. Traditionally, people think of life insurance as something they need only during the pre-retirement period to pay off debt or cover expenses. However, Daroff suggests people have policies in place through the retirement years and arrange for their estate to apply the payout to the income taxes that the beneficiary will have to pay on retirement accounts.
Another life insurance tip, says Daroff, is that make sure that you are the owner of your own policy. In other words, it should be held outside the taxable estate in a proper trust. The reason is to protect your estate from the tax it will have to pay on the death benefit. Silverman recommends setting up an Irrevocable Life Insurance Trust (ILIT) when his clients are close to the estate tax limit.
If you are married, it is a good idea for tax planning purposes to split assets between yourself and your spouse. What frequently happens is that one partner tends to have more earnings and savings, as well as a bigger retirement account, and the overwhelming majority of the assets are in that person’s name. That preserves more of the potential inheritance.
Traditionally, estate planning has dealt with taxes, guardianship for minor children, and trusteeship for assets. However, these days people are considering how to manage the assets for the surviving spouse, kids, and grandkids.
You need to ask yourself what is the purpose of the money—is it just to provide income for your spouse, or is the money expected to run for several generations, or educate your grandchildren. Then, you need to decide if you want to restrict the kind of investments that fiduciaries can get into.
“People should do what they want, regardless of the tax consequence," says Mezzullo.
From: cnbc.com
Monday, May 3, 2010
Mind the Estate Tax Gap
Lots to think about even though there is no Federal Estate Tax. Remember, there is a capital gains issue and a MA Estate Tax issue.
Bloomberg Business Week
By: Amy Feldman
Sure, heirs of the ultra-rich who die this year will get a break on estate taxes, but they could wind up paying even more in taxes on capital gains
For some time, people have been making morbid jokes about bumping off their rich relatives in 2010, a year that has no federal estate tax. The George W. Bush-era law that lowered the tax contained a one-year gap that Congress has never gotten around to fixing. The tax is set to return, at a 55% rate, on Jan. 1, 2011.
Few are laughing about it now. While heirs of the ultra-rich who die this year may enjoy an estate tax break (17,172 taxable estate tax returns were filed in 2008, according to IRS data), this gap year is having an unintended consequence. Far larger numbers of affluent families who suffer deaths this year could wind up paying stiff capital-gains taxes on inheritances. That's because of the disappearance of what's known as the "step-up" in basis, which allowed assets to be revalued for tax purposes at the time of death. "Many people are going to be worse off than before," says Clay R. Stevens, director of strategic planning at Aspiriant, a Los Angeles wealth-management firm. "If you've only read the sound bites, you've been misled."
Under last year's rules, estates below $3.5 million (or $7 million for a couple) were exempt from the estate tax; people above those limits were hit with rates as high as 45%. Crucially, assets were revalued at the time of death—"stepped up" to their full current value and not subject to capital-gains tax on past appreciation. When the estate tax went on hiatus, the "step-up in basis" rule for valuing assets went, too, so heirs are suddenly liable for capital gains on the past appreciation of assets they inherit and sell. For those who are bequeathed homes that have grown in value, family businesses that have expanded, or stocks that have risen in price, the old "step-up" rule let them start with a clean slate, owing no capital-gains taxes when they sold the assets. Not anymore.
An executor can now assign a "step-up" basis of up to $1.3 million to assets in the estate, and an additional $3 million for assets left to a surviving spouse. Many affluent families that have held assets for decades will bump up against those limits. Consider someone who inherits from their widowed father a home purchased for $100,000 decades ago that is now worth $2.5 million. Under last year's rules, assuming that was the only asset in the estate, there would have been no tax due because the estate would have been below the exemption amount. This year there would be no estate tax due either, but there would be capital-gains tax due on the $1.1 million in gain above the allocated step-up—$165,000 at the current 15% federal rate.
Things get more complex when family dynamics come into play. If there are multiple assets going to multiple heirs, the executor must choose how to allocate that $1.3 million in tax basis among the assets, a Solomonic task. "It may be applied so that it doesn't equally benefit all beneficiaries," Aspiriant's Stevens says. "You have to say, 'I'm giving you this asset and you get the step-up in basis, but I won't give it to that asset.' So two beneficiaries could receive the same fair market value of assets, but different amounts of aftertax value."
Take that example a step further. Assume that in addition to the $2.5 million house, there's $2.5 million in IBM (IBM) stock, bought for $500,000. If the house goes to the deceased's daughter and the stock to the son, the two would seem to get equal amounts. But because the daughter will owe more capital gains when she sells the house, she has actually received less—unless the executor allocates a larger portion of the step-up in basis to offset it.
Brent R. Brodeski, managing director at Rockford (Ill.) wealth-management firm Savant Capital Management, outlines a scenario where one adult child inherits a family business worth $5 million, with a tax basis of $1 million, and the other inherits $5 million in cash. Last year those bequests were equivalent in value. But without the step-up, the family business has an embedded capital gain that would be due at the time of the sale. Even if the executor allocated all of the $1.3 million to the business, that would still be the case, since there's $4 million in appreciation. "Does that mean that you have to look at the family business net of tax, and the kid with the cash has to ante up to the kid with the business?" Brodeski asks. "The kid with the cash says, 'My brother doesn't want to sell it, so I don't want to give him a bonus.' And the kid with the business says, 'I don't know if I want to pass it down to my kids, I might want to sell it.' How do you resolve that debate?"
These questions fall to executors, who face potential lawsuits from disgruntled heirs. There's also a record-keeping nightmare: tracking capital improvements parents made to a home or determining all the stock splits that occurred in a stock over 50 years. Estate attorneys are urging children of elderly parents who expect to inherit property that has substantially appreciated to ask parents to gather records now.
Last year the conventional wisdom was that Congress would fix the estate tax problem before yearend. More than three months into 2010, it's clear that even if Congress fixes the rules, it won't happen fast enough to forestall some families' estate tax hell. "I imagine we'll have decades-long court battles over it," says Brodeski. "It's a big, fat mess."
Feldman is an associate editor with Bloomberg BusinessWeek in New York.
Bloomberg Business Week
By: Amy Feldman
Sure, heirs of the ultra-rich who die this year will get a break on estate taxes, but they could wind up paying even more in taxes on capital gains
For some time, people have been making morbid jokes about bumping off their rich relatives in 2010, a year that has no federal estate tax. The George W. Bush-era law that lowered the tax contained a one-year gap that Congress has never gotten around to fixing. The tax is set to return, at a 55% rate, on Jan. 1, 2011.
Few are laughing about it now. While heirs of the ultra-rich who die this year may enjoy an estate tax break (17,172 taxable estate tax returns were filed in 2008, according to IRS data), this gap year is having an unintended consequence. Far larger numbers of affluent families who suffer deaths this year could wind up paying stiff capital-gains taxes on inheritances. That's because of the disappearance of what's known as the "step-up" in basis, which allowed assets to be revalued for tax purposes at the time of death. "Many people are going to be worse off than before," says Clay R. Stevens, director of strategic planning at Aspiriant, a Los Angeles wealth-management firm. "If you've only read the sound bites, you've been misled."
Under last year's rules, estates below $3.5 million (or $7 million for a couple) were exempt from the estate tax; people above those limits were hit with rates as high as 45%. Crucially, assets were revalued at the time of death—"stepped up" to their full current value and not subject to capital-gains tax on past appreciation. When the estate tax went on hiatus, the "step-up in basis" rule for valuing assets went, too, so heirs are suddenly liable for capital gains on the past appreciation of assets they inherit and sell. For those who are bequeathed homes that have grown in value, family businesses that have expanded, or stocks that have risen in price, the old "step-up" rule let them start with a clean slate, owing no capital-gains taxes when they sold the assets. Not anymore.
An executor can now assign a "step-up" basis of up to $1.3 million to assets in the estate, and an additional $3 million for assets left to a surviving spouse. Many affluent families that have held assets for decades will bump up against those limits. Consider someone who inherits from their widowed father a home purchased for $100,000 decades ago that is now worth $2.5 million. Under last year's rules, assuming that was the only asset in the estate, there would have been no tax due because the estate would have been below the exemption amount. This year there would be no estate tax due either, but there would be capital-gains tax due on the $1.1 million in gain above the allocated step-up—$165,000 at the current 15% federal rate.
Things get more complex when family dynamics come into play. If there are multiple assets going to multiple heirs, the executor must choose how to allocate that $1.3 million in tax basis among the assets, a Solomonic task. "It may be applied so that it doesn't equally benefit all beneficiaries," Aspiriant's Stevens says. "You have to say, 'I'm giving you this asset and you get the step-up in basis, but I won't give it to that asset.' So two beneficiaries could receive the same fair market value of assets, but different amounts of aftertax value."
Take that example a step further. Assume that in addition to the $2.5 million house, there's $2.5 million in IBM (IBM) stock, bought for $500,000. If the house goes to the deceased's daughter and the stock to the son, the two would seem to get equal amounts. But because the daughter will owe more capital gains when she sells the house, she has actually received less—unless the executor allocates a larger portion of the step-up in basis to offset it.
Brent R. Brodeski, managing director at Rockford (Ill.) wealth-management firm Savant Capital Management, outlines a scenario where one adult child inherits a family business worth $5 million, with a tax basis of $1 million, and the other inherits $5 million in cash. Last year those bequests were equivalent in value. But without the step-up, the family business has an embedded capital gain that would be due at the time of the sale. Even if the executor allocated all of the $1.3 million to the business, that would still be the case, since there's $4 million in appreciation. "Does that mean that you have to look at the family business net of tax, and the kid with the cash has to ante up to the kid with the business?" Brodeski asks. "The kid with the cash says, 'My brother doesn't want to sell it, so I don't want to give him a bonus.' And the kid with the business says, 'I don't know if I want to pass it down to my kids, I might want to sell it.' How do you resolve that debate?"
These questions fall to executors, who face potential lawsuits from disgruntled heirs. There's also a record-keeping nightmare: tracking capital improvements parents made to a home or determining all the stock splits that occurred in a stock over 50 years. Estate attorneys are urging children of elderly parents who expect to inherit property that has substantially appreciated to ask parents to gather records now.
Last year the conventional wisdom was that Congress would fix the estate tax problem before yearend. More than three months into 2010, it's clear that even if Congress fixes the rules, it won't happen fast enough to forestall some families' estate tax hell. "I imagine we'll have decades-long court battles over it," says Brodeski. "It's a big, fat mess."
Feldman is an associate editor with Bloomberg BusinessWeek in New York.
Thursday, April 8, 2010
Part-time Florida couple must pay Bay State taxes
Residency is always a tricky issues. There are lots of factors to it and if you are contemplating a residency change, it is often helpful to check with an attorney before you do. There could be good and some not so good implications to your estate plan depending on which state.
Stock sale’s timing key to board’s ruling
The Boston Globe
By Todd Wallack
April 6, 2010
Warning to snowbirds: It takes more than a pair of winter homes in Florida to escape the long arm of Bay State tax collectors.
The Massachusetts Appellate Tax Board ruled late last week that the chairman of Timberland Co., Sidney W. Swartz, and his wife owe more than $890,000 in Massachusetts taxes and interest after selling millions of dollars in Timberland stock in 2004, even though they claimed to be Florida residents. Sidney retired as chief executive from Timberland, the trendy outfitter based in Stratham, N.H., in 1998, but remains chairman of the company.
Sidney and Judith Swartz, who spent most of their lives in Massachusetts, owned both a five-bedroom oceanside home in Marblehead and a condo in Brookline at the time of the stock sales. The couple also owned both a six-bedroom oceanside house in Delray Beach, Fla., and a condo near a country club in Boca West, Fla.
The Swartzes argued before the tax board that they had become Florida residents before they sold the stock, in late October and early November 2004. They said they spent less than half the year in Massachusetts — typi cally during the warmer months from May to October and lived in Florida the rest of the year.
But the tax board ruled they were still technically Bay State residents when they cashed in their Timberland stock.
For instance, when the couple bought the Brookline condo on Oct. 13, 2004, to be closer to their children and grandchildren, the deed said they were from Marblehead. And while Sidney Swartz changed his voter registration to Florida on Oct. 14, a few weeks before the stock sales, Judith voted in Marblehead with an absentee ballot in November 2004 and didn’t change her registration to Florida until December 2004.
In addition, the Swartzes continued to use their Marblehead address for many key documents, including their Florida real estate tax bill. And they didn’t obtain Florida driver’s licenses until Dec. 27, 2004, two months after the stock sales.
The board said in its ruling that it found the Swartzes “business and personal financial ties were stronger to Massachusetts than in Florida.’’
Judith Swartz declined to comment.
Stock sale’s timing key to board’s ruling
The Boston Globe
By Todd Wallack
April 6, 2010
Warning to snowbirds: It takes more than a pair of winter homes in Florida to escape the long arm of Bay State tax collectors.
The Massachusetts Appellate Tax Board ruled late last week that the chairman of Timberland Co., Sidney W. Swartz, and his wife owe more than $890,000 in Massachusetts taxes and interest after selling millions of dollars in Timberland stock in 2004, even though they claimed to be Florida residents. Sidney retired as chief executive from Timberland, the trendy outfitter based in Stratham, N.H., in 1998, but remains chairman of the company.
Sidney and Judith Swartz, who spent most of their lives in Massachusetts, owned both a five-bedroom oceanside home in Marblehead and a condo in Brookline at the time of the stock sales. The couple also owned both a six-bedroom oceanside house in Delray Beach, Fla., and a condo near a country club in Boca West, Fla.
The Swartzes argued before the tax board that they had become Florida residents before they sold the stock, in late October and early November 2004. They said they spent less than half the year in Massachusetts — typi cally during the warmer months from May to October and lived in Florida the rest of the year.
But the tax board ruled they were still technically Bay State residents when they cashed in their Timberland stock.
For instance, when the couple bought the Brookline condo on Oct. 13, 2004, to be closer to their children and grandchildren, the deed said they were from Marblehead. And while Sidney Swartz changed his voter registration to Florida on Oct. 14, a few weeks before the stock sales, Judith voted in Marblehead with an absentee ballot in November 2004 and didn’t change her registration to Florida until December 2004.
In addition, the Swartzes continued to use their Marblehead address for many key documents, including their Florida real estate tax bill. And they didn’t obtain Florida driver’s licenses until Dec. 27, 2004, two months after the stock sales.
The board said in its ruling that it found the Swartzes “business and personal financial ties were stronger to Massachusetts than in Florida.’’
Judith Swartz declined to comment.
Thursday, March 25, 2010
Assemble a Paper Trail, and Make Sure Your Heirs Can Follow It
Great article and advice from The New York Times
By PAUL SULLIVAN
NO one wants to think about dying. But refusing to look at the documents that will determine where your money goes when you pass away will not make you live longer. It will just make sorting through everything more difficult for your heirs.
Any review of financial health needs to take into account the legal documents that govern our assets and our lives, if we become incapacitated or die with minor children.
Holly Isdale, managing director at Bessemer Trust, said she likes to break down this task into “high priorities and someday-maybes.” And this seems as realistic a strategy as any to force yourself to review these documents.
WILLS AND TRUSTS
The whole notion of the sanctity of a will has been thrown into disarray by the expiration of the estate tax. But the bottom line is that, before you can review your will, you need to have one. And 65 percent of Americans do not, according to a survey released last month by Lawyers.com.
There is no excuse for this. A basic will is cheap and can be facilitated through online sites like legalzoom.com.
Many people think that if they die without much money, their heirs will simply inherit it. They will, eventually. But first the state will appoint a conservator and hire lawyers, the costs of which will be deducted from your estate and ultimately decide how your money is passed on, said Edythe M. DeMarco, first vice president at Merrill Lynch Global Wealth Management. A simple will avoids this.
Once you have a will, it is crucial to keep it up to date. This should be done every five years or whenever there is a major life event. “The pitfall with the will is, they set it and forget it,” said Ken Kilday, a wealth manager at USAA.
In a year when there is no federal estate tax — though there will almost certainly be one in 2011 — reviewing wills and trust documents should be on everyone’s to-do list.
Reviewing both wills and trusts for someone with substantial assets is particularly important this year. Even though there is no estate tax, wills can have clauses that distribute assets to trusts as if the tax still existed. This could end up leaving some heirs too much money and others none at all. And since a federal estate tax will return next year even if Congress does nothing about it, there will be a need to review everything again in 2011.
BENEFICIARIES
The form that can often wreak havoc on a family is the beneficiary designation form. It determines who will get your insurance and retirement accounts, so-called contract assets as opposed to financial assets. Many people do not know that it overrides a will.
If you named your brother on your beneficiary designation form for an IRA and die 30 years later without having changed it, your brother, not your spouse or children, gets it.
This happens more often than you would think, advisers said. The reason is forgetfulness. “The worst thing from my perspective is to try to explain to a widow that her deceased husband’s former spouse actually inherits the IRA,” Mr. Kilday said.
Whether this is a high-priority or someday-maybe issue depends on your personal life. But one thing everyone should have is a contingent beneficiary, in case the first one dies before they do. Ms. Isdale said she suspected that many people neglect to name one at the time because they plan to do it later.
HEALTH CARE PROXIES AND GUARDIANSHIP
These are two high-priority documents because they address something far more important than money: what happens to you if you are incapacitated, and who cares for your children if you die.
With both, it is essential to make sure the person you have designated is still someone with whom you are in close contact. Often a guardian is named at a child’s birth, but the families move away or lose touch. When it comes to health care, you should also sign a HIPAA, or Health Insurance Portability and Accountability Act, release form so your health care proxy can have access to your medical records.
A related issue is the traditional power of attorney. Many people talk of having a durable power of attorney, but Mr. Kilday points out that if that were the case that person could act on your behalf immediately. What you want is a springing durable power of attorney, which is activated by events you detail.
This brings the conversation back to wills. “The other major pitfall is people have a power of attorney and they think that means they don’t need a will,” Mr. Kilday said. “The problem is that power dies with you.”
TITLING OF ASSETS
This is a someday-maybe issue because it can be time-consuming and expensive. For people who would have been subject to the old federal estate tax, for example, it would have made sense to retitle assets like a home in just one name. But, as Ms. Isdale pointed out, not all spouses feel completely comfortable ceding control.
Another issue is the well-meaning parent who, for help with her financial matters, puts one child on her accounts. When she dies, those accounts belong to that child alone, even though her will says the money should be split among all three children.
Even if that child wants to make things right with siblings, he could end up using some of his gift tax exemptions to do so. “You can disclaim it, but it’s messy,” Mr. Kilday said.
SINGLES AND SAME-SEX COUPLES
The law always looks for legally recognized family members in dispensing with your estate, but who is going to take care of your affairs if you are not in a traditional marriage?
Someone who is single may want to name a health care proxy who lives closer than a parent who could be thousands of miles away.
Ms. DeMarco said same-sex couples need to be particularly vigilant in their estate and proxy planning. She noted that until a few years ago in Rhode Island, where she works, a domestic partner could not make funeral arrangements; it had to be done by a family member.
Health care proxies are important, but so, too, are the documents that will direct assets to a partner. “For a nonfamily member, it’s a hard and difficult legal road,” she said. “In absence of these documents, the state is going to name the beneficiary, and the law looks to the bloodline.”
BALANCE SHEET
If your family cannot find the documents you have worked hard to update, you may have wasted your efforts. Ms. Isdale suggested drawing up a balance sheet that lists the basic information about your assets. She called this a high-priority item and suggested that a more exhaustive one should be on the someday-maybe list.
Mr. Kilday said he advises clients to include a final letter of intent. It has no legal standing, but it can help guide your heirs with what you want done after you’re gone. “Clients kind of chuckle and say, ‘It doesn’t matter to me, I’m dead,’ ” he said. “But from the kids’ perspective they want one last chance to respect and honor you.”
By PAUL SULLIVAN
NO one wants to think about dying. But refusing to look at the documents that will determine where your money goes when you pass away will not make you live longer. It will just make sorting through everything more difficult for your heirs.
Any review of financial health needs to take into account the legal documents that govern our assets and our lives, if we become incapacitated or die with minor children.
Holly Isdale, managing director at Bessemer Trust, said she likes to break down this task into “high priorities and someday-maybes.” And this seems as realistic a strategy as any to force yourself to review these documents.
WILLS AND TRUSTS
The whole notion of the sanctity of a will has been thrown into disarray by the expiration of the estate tax. But the bottom line is that, before you can review your will, you need to have one. And 65 percent of Americans do not, according to a survey released last month by Lawyers.com.
There is no excuse for this. A basic will is cheap and can be facilitated through online sites like legalzoom.com.
Many people think that if they die without much money, their heirs will simply inherit it. They will, eventually. But first the state will appoint a conservator and hire lawyers, the costs of which will be deducted from your estate and ultimately decide how your money is passed on, said Edythe M. DeMarco, first vice president at Merrill Lynch Global Wealth Management. A simple will avoids this.
Once you have a will, it is crucial to keep it up to date. This should be done every five years or whenever there is a major life event. “The pitfall with the will is, they set it and forget it,” said Ken Kilday, a wealth manager at USAA.
In a year when there is no federal estate tax — though there will almost certainly be one in 2011 — reviewing wills and trust documents should be on everyone’s to-do list.
Reviewing both wills and trusts for someone with substantial assets is particularly important this year. Even though there is no estate tax, wills can have clauses that distribute assets to trusts as if the tax still existed. This could end up leaving some heirs too much money and others none at all. And since a federal estate tax will return next year even if Congress does nothing about it, there will be a need to review everything again in 2011.
BENEFICIARIES
The form that can often wreak havoc on a family is the beneficiary designation form. It determines who will get your insurance and retirement accounts, so-called contract assets as opposed to financial assets. Many people do not know that it overrides a will.
If you named your brother on your beneficiary designation form for an IRA and die 30 years later without having changed it, your brother, not your spouse or children, gets it.
This happens more often than you would think, advisers said. The reason is forgetfulness. “The worst thing from my perspective is to try to explain to a widow that her deceased husband’s former spouse actually inherits the IRA,” Mr. Kilday said.
Whether this is a high-priority or someday-maybe issue depends on your personal life. But one thing everyone should have is a contingent beneficiary, in case the first one dies before they do. Ms. Isdale said she suspected that many people neglect to name one at the time because they plan to do it later.
HEALTH CARE PROXIES AND GUARDIANSHIP
These are two high-priority documents because they address something far more important than money: what happens to you if you are incapacitated, and who cares for your children if you die.
With both, it is essential to make sure the person you have designated is still someone with whom you are in close contact. Often a guardian is named at a child’s birth, but the families move away or lose touch. When it comes to health care, you should also sign a HIPAA, or Health Insurance Portability and Accountability Act, release form so your health care proxy can have access to your medical records.
A related issue is the traditional power of attorney. Many people talk of having a durable power of attorney, but Mr. Kilday points out that if that were the case that person could act on your behalf immediately. What you want is a springing durable power of attorney, which is activated by events you detail.
This brings the conversation back to wills. “The other major pitfall is people have a power of attorney and they think that means they don’t need a will,” Mr. Kilday said. “The problem is that power dies with you.”
TITLING OF ASSETS
This is a someday-maybe issue because it can be time-consuming and expensive. For people who would have been subject to the old federal estate tax, for example, it would have made sense to retitle assets like a home in just one name. But, as Ms. Isdale pointed out, not all spouses feel completely comfortable ceding control.
Another issue is the well-meaning parent who, for help with her financial matters, puts one child on her accounts. When she dies, those accounts belong to that child alone, even though her will says the money should be split among all three children.
Even if that child wants to make things right with siblings, he could end up using some of his gift tax exemptions to do so. “You can disclaim it, but it’s messy,” Mr. Kilday said.
SINGLES AND SAME-SEX COUPLES
The law always looks for legally recognized family members in dispensing with your estate, but who is going to take care of your affairs if you are not in a traditional marriage?
Someone who is single may want to name a health care proxy who lives closer than a parent who could be thousands of miles away.
Ms. DeMarco said same-sex couples need to be particularly vigilant in their estate and proxy planning. She noted that until a few years ago in Rhode Island, where she works, a domestic partner could not make funeral arrangements; it had to be done by a family member.
Health care proxies are important, but so, too, are the documents that will direct assets to a partner. “For a nonfamily member, it’s a hard and difficult legal road,” she said. “In absence of these documents, the state is going to name the beneficiary, and the law looks to the bloodline.”
BALANCE SHEET
If your family cannot find the documents you have worked hard to update, you may have wasted your efforts. Ms. Isdale suggested drawing up a balance sheet that lists the basic information about your assets. She called this a high-priority item and suggested that a more exhaustive one should be on the someday-maybe list.
Mr. Kilday said he advises clients to include a final letter of intent. It has no legal standing, but it can help guide your heirs with what you want done after you’re gone. “Clients kind of chuckle and say, ‘It doesn’t matter to me, I’m dead,’ ” he said. “But from the kids’ perspective they want one last chance to respect and honor you.”
Monday, March 22, 2010
REPORT: ESTATE TAX BURDEN FALLS DISPROPORTIONATELY ON SAME-SEX COUPLES
Here is a link to an interesting and humbling study released from UCLA concerning Same Sex couples and the Estate Tax.
The headline reads: New Study by Williams Institute Finds that Exclusion from the Estate Tax Marital Deduction Will Cost Affected Same-Sex Couples $3.3 million On Average
For the key findings and links to the full report, click here.
The headline reads: New Study by Williams Institute Finds that Exclusion from the Estate Tax Marital Deduction Will Cost Affected Same-Sex Couples $3.3 million On Average
For the key findings and links to the full report, click here.
Saturday, March 13, 2010
No Federal Estate Tax, but What About Your State?
As a reminder, we in MA have a $1,000,000 estate tax. Our trusts and wills account for this. If you have any questions, always feel free to email or call the office.
By: Paul Sullivan
The New York Times
The first quarter is nearly over, and the federal government has made no move to reinstitute the estate tax. So dying today seems free, right?
There is just one problem: If you live in one of 20 states with a state estate tax, you could find your existing estate tax plans causing more harm than good.
State estate taxes are not new. They had just been a secondary element in the course of figuring out the much higher federal estate tax.
Now, the issue is sorting through wills written to maximize the old federal exemption from estate taxes — $3.5 million in 2009. In states with their own estate taxes, some of these provisions could distribute money and incur taxes in ways the deceased never expected — or maybe not if the federal estate tax is reinstated. As Jerry Weihs, director of advanced planning at Sun Life Financial, said: “We’re in a state of ambiguity.”
AUTOMATIC MISTAKES The biggest issue with the state estate taxes is wills that contain so-called formula clauses. Many wills were redrafted in the last decade to take into account the increasing federal estate tax exemption. Instead of rewriting the will every few years, clauses were put in to reflect the rising exemption amount.
Two commonly worded clauses for estates that left money in trusts could cause problems. “If the clause says you leave the applicable exclusion to your kids and the rest to a second spouse, that could now mean leaving nothing to your children since there is no applicable exclusion in 2010,” said Sharon Klein, head of wealth advisory at Lazard Wealth Management. “The other issue is if you leave the maximum that could pass free of federal tax to your children and the rest to a second wife, then it is skewed toward the kids, and the wife is disinherited.”
So far 12 states have introduced legislation to remedy this, but the proposals vary. New York, for example, looks at the intent of the will on Dec. 31, 2009, but this applies only if there is a surviving spouse. A formula clause that splits assets between nieces and charity will not function as intended. Florida’s solution could be even more contentious: it allows a judge to interpret the intent of the deceased, if a trustee or a beneficiary challenges the will.
UNEXPECTED TAXES A formula clause can also cause another costly problem. If it was written to send as much money as possible free of federal estate taxes to a credit shelter trust, the estate could pay an unexpected amount in state estate taxes.
That is because estate plans were often written so that the maximum amount that would not incur federal estate taxes would be passed to one set of heirs and the rest to a surviving spouse tax-free. In New York, which has a $1 million state exemption, the estate would have paid $229,200 in state estate taxes on the difference between the New York exemption level and the $3.5 million federal exemption.
Today, the entire estate could pass free of federal taxes. This could lead to an unexpectedly high state tax bill, said Stephen Akers, associate fiduciary counsel at Bessemer Trust. He said the tax on a $25 million estate in New York would be $3,466,800.
“In retrospect, it could be wise to pay that,” Mr. Akers said. “You might be able to avoid the federal estate tax on that much money.” But that is a big if, and it depends on whether Congress decides to make a new estate tax retroactive.
MARRIAGE PROBLEMS The absence of a federal estate tax also raises the question of whether an estate can finance a qualified terminal interest property (QTIP) trust. Such trusts hold assets left to a surviving spouse free of tax until the second spouse dies. The glitch is that a QTIP trust was typically selected when filing the federal estate tax return.
Mr. Akers said several states like Connecticut, Massachusetts and Pennsylvania have a state QTIP election and others are working on it.
In theory, people living in these states could end up far ahead of where they otherwise would have been, he said. If someone left his estate in a state QTIP trust, the surviving spouse would not have to pay estate taxes on it when she died. This is because the estate tax for the surviving spouse comes into play only if a marital deduction is allowed when the first spouse dies. Since there is no federal estate tax return to file, the marital deduction is not an option now.
Mr. Akers said this had not been tested, but it was a better option than leaving assets outright to a spouse, which would certainly be taxed when the spouse died.
Ms. Klein said she was advising clients to set up QTIP trusts, where allowed, as a hedge. By filing extensions to the estate tax returns, you could have up to 15 months to make the election, at which point the estate tax landscape should be clearer.
SNOWBIRD TRAP More jarring to retirees who escape to Florida in the winter may be a bill under debate in that state’s legislature. It proposes to tax property owned by non-Florida residents who are residents of states with state estate taxes.
This is a radical change for Florida, which has long enticed wealthy residents because it had no income or estate taxes. The proposal, on the surface, is a battle between states: Florida wants its cut of any estate tax collected by another state on Florida property. (As proposed, people who live in states without an estate tax will be exempt.) But where it would affect nonresidents is in the legal costs to make sure Florida gets its cut.
And there are also immediate costs of Congressional inaction: changing your will to reflect your state estate tax is not free. “There are going to be significant expenses for what may well be a temporary situation,” Mr. Weihs said.
By: Paul Sullivan
The New York Times
The first quarter is nearly over, and the federal government has made no move to reinstitute the estate tax. So dying today seems free, right?
There is just one problem: If you live in one of 20 states with a state estate tax, you could find your existing estate tax plans causing more harm than good.
State estate taxes are not new. They had just been a secondary element in the course of figuring out the much higher federal estate tax.
Now, the issue is sorting through wills written to maximize the old federal exemption from estate taxes — $3.5 million in 2009. In states with their own estate taxes, some of these provisions could distribute money and incur taxes in ways the deceased never expected — or maybe not if the federal estate tax is reinstated. As Jerry Weihs, director of advanced planning at Sun Life Financial, said: “We’re in a state of ambiguity.”
AUTOMATIC MISTAKES The biggest issue with the state estate taxes is wills that contain so-called formula clauses. Many wills were redrafted in the last decade to take into account the increasing federal estate tax exemption. Instead of rewriting the will every few years, clauses were put in to reflect the rising exemption amount.
Two commonly worded clauses for estates that left money in trusts could cause problems. “If the clause says you leave the applicable exclusion to your kids and the rest to a second spouse, that could now mean leaving nothing to your children since there is no applicable exclusion in 2010,” said Sharon Klein, head of wealth advisory at Lazard Wealth Management. “The other issue is if you leave the maximum that could pass free of federal tax to your children and the rest to a second wife, then it is skewed toward the kids, and the wife is disinherited.”
So far 12 states have introduced legislation to remedy this, but the proposals vary. New York, for example, looks at the intent of the will on Dec. 31, 2009, but this applies only if there is a surviving spouse. A formula clause that splits assets between nieces and charity will not function as intended. Florida’s solution could be even more contentious: it allows a judge to interpret the intent of the deceased, if a trustee or a beneficiary challenges the will.
UNEXPECTED TAXES A formula clause can also cause another costly problem. If it was written to send as much money as possible free of federal estate taxes to a credit shelter trust, the estate could pay an unexpected amount in state estate taxes.
That is because estate plans were often written so that the maximum amount that would not incur federal estate taxes would be passed to one set of heirs and the rest to a surviving spouse tax-free. In New York, which has a $1 million state exemption, the estate would have paid $229,200 in state estate taxes on the difference between the New York exemption level and the $3.5 million federal exemption.
Today, the entire estate could pass free of federal taxes. This could lead to an unexpectedly high state tax bill, said Stephen Akers, associate fiduciary counsel at Bessemer Trust. He said the tax on a $25 million estate in New York would be $3,466,800.
“In retrospect, it could be wise to pay that,” Mr. Akers said. “You might be able to avoid the federal estate tax on that much money.” But that is a big if, and it depends on whether Congress decides to make a new estate tax retroactive.
MARRIAGE PROBLEMS The absence of a federal estate tax also raises the question of whether an estate can finance a qualified terminal interest property (QTIP) trust. Such trusts hold assets left to a surviving spouse free of tax until the second spouse dies. The glitch is that a QTIP trust was typically selected when filing the federal estate tax return.
Mr. Akers said several states like Connecticut, Massachusetts and Pennsylvania have a state QTIP election and others are working on it.
In theory, people living in these states could end up far ahead of where they otherwise would have been, he said. If someone left his estate in a state QTIP trust, the surviving spouse would not have to pay estate taxes on it when she died. This is because the estate tax for the surviving spouse comes into play only if a marital deduction is allowed when the first spouse dies. Since there is no federal estate tax return to file, the marital deduction is not an option now.
Mr. Akers said this had not been tested, but it was a better option than leaving assets outright to a spouse, which would certainly be taxed when the spouse died.
Ms. Klein said she was advising clients to set up QTIP trusts, where allowed, as a hedge. By filing extensions to the estate tax returns, you could have up to 15 months to make the election, at which point the estate tax landscape should be clearer.
SNOWBIRD TRAP More jarring to retirees who escape to Florida in the winter may be a bill under debate in that state’s legislature. It proposes to tax property owned by non-Florida residents who are residents of states with state estate taxes.
This is a radical change for Florida, which has long enticed wealthy residents because it had no income or estate taxes. The proposal, on the surface, is a battle between states: Florida wants its cut of any estate tax collected by another state on Florida property. (As proposed, people who live in states without an estate tax will be exempt.) But where it would affect nonresidents is in the legal costs to make sure Florida gets its cut.
And there are also immediate costs of Congressional inaction: changing your will to reflect your state estate tax is not free. “There are going to be significant expenses for what may well be a temporary situation,” Mr. Weihs said.
Tuesday, March 9, 2010
Trying to Get Foxx's Estate Out of the Redd
Interesting story from one of my father's favorite actors. I thought you might enjoy. Shawn
By Steve Friess
LAS VEGAS (March 7) -- It could easily have been the plot for a "Sanford and Son" episode: a bizarre money-making scheme cooked up by a well-meaning but possibly misguided man that seems destined to go comically awry.
But in this real-life case, it's a county official in Las Vegas who is trying to put the life story of late "Sanford" star Redd Foxx on the block to resolve mammoth debt the actor left behind. Foxx owed more the $3.6 million in taxes to the IRS when he died 19 years ago.
The trouble is, it's not clear that such a thing can actually be sold or what its value might be.
When Cahill surveyed the outstanding cases after taking office in 2007, Foxx's name stood out. The performer was a longtime resident of Las Vegas, where he frequently performed stand-up comedy during his career. He died in 1991 at a Los Angeles hospital.
Cahill learned that Foxx's daughter, Debraca Foxx, had been removed in 2006 as the administrator of the actor's estate because she had failed to provide an accounting of revenue received in royalties, residuals and licensing deals since her father's death.
Foxx's fourth wife and widow, Ka Ho Foxx, has accused Debraca Foxx in court filings of pocketing money that should have gone toward paying down the tax debt. As a result of the family squabble, the probate court put the public administrator in charge of managing the estate and resolving the debts.
Since 2007, Cahill's office has aggressively pursued the case, according to public documents, collecting more than $101,000 owed to the estate. Payments include a $5,000 fee from CBS Studios for use of a video clip of Redd Foxx in an episode of "Everybody Hates Chris" and $3,000 from Hallmark for use of Foxx's image on a greeting card.
"The estate had no assets at all at that time, although we've been able to locate some assets, collect some royalties since then," Cahill said. "This was the big-ticket item, the rights to his story. That was an asset to be marketed."
So Cahill kept his efforts to sell the story quiet until last month, when his office issued an unusual press release announcing that it had received offers from $20,000 to $2 million and that Cahill had done lunch and taken meetings with Hollywood types.
A producer even brought along an actor interested in playing Foxx "who was in a popular TV series that had recently ended," Cahill said in an interview. He declined to disclose the actor's name but said the deal fell through, as has every other prospect.
"Who I'm waiting to call, the call that would make my day would be Jamie Foxx," Cahill said. "That would be great for so many reasons. There's the connection there." The Oscar-winning actor's professional name is an homage to Redd Foxx.
The deals may have failed because the concept of selling a life's story is one that doesn't exist, said intellectual property rights attorney Eric J. Goodman, a partner in the law firm of Burkhalter, Kessler, Goodman and George in Orange County. He regularly deals with celebrity cases.
Goodman said Nevada allows for the marketing of someone's "right of publicity," defined in the law as the ability to use a "name, voice, signature, photograph or likeness" of anyone for commercial purposes.
Among the exceptions, however, is "the use in connection to an original work of art" and the use "to portray, imitate, simulate or impersonate a person in a play, book, magazine article, newspaper article, musical composition, film, or a radio, television or other audio or visual program, except where the use is directly connected with commercial sponsorship."
"The issue for the administrator is if they're going to sell bobblehead dolls, great, that can be bequeathed to an estate," Goodman said. "But he's proposing the use of Redd Foxx's name for commercial use. A film is a piece of art. I think the administrator has good intentions and this is a very creative idea, but what he's selling is the Brooklyn Bridge here. Who's to say anybody else can't come along and sell their own biography of him?"
Travis Twitchell, a Las Vegas-based attorney hired by Cahill's office, reads the law differently. To him, the use of Foxx's name or portrayal in a movie would be a commercial endeavor.
But Twitchell's definition presents other problems -- namely that, in his view, a filmmaker could never tell Foxx's life story without participation from and possible compensation for other people in his life. Neither Cahill nor Twitchell can promise any prospective buyer that Foxx's survivors would go along -- thereby undermining the value of the rights.
Debraca Foxx remains under an unfilled court order to account for money received during her years as administrator. She could not be reached for comment. And an attorney for Ka Ho Foxx said she plans to object in court to Cahill's effort to market the rights.
As for Cahill, he plans to step out of the Hollywood arena. At an April court hearing, he expects a probate judge to approve a licensing deal with CMG Brands, a large Hollywood firm that licenses the image and material of dozens of stars.
He realized he was out of his depth, he said, when he dined with the unnamed producer and TV star. It was hardly glamorous, just a quiet meal at a suburban chain restaurant about 10 miles from the seemingly more appropriate setting of the Las Vegas Strip.
"We did joke around about who would play me," said Cahill, sort of a burly, Wilford Brimley-meets-Ed Asner type. "But how Hollywood does what they do is something of a mystery to me. We're about to find out."
By Steve Friess
LAS VEGAS (March 7) -- It could easily have been the plot for a "Sanford and Son" episode: a bizarre money-making scheme cooked up by a well-meaning but possibly misguided man that seems destined to go comically awry.
But in this real-life case, it's a county official in Las Vegas who is trying to put the life story of late "Sanford" star Redd Foxx on the block to resolve mammoth debt the actor left behind. Foxx owed more the $3.6 million in taxes to the IRS when he died 19 years ago.
The trouble is, it's not clear that such a thing can actually be sold or what its value might be.
When Cahill surveyed the outstanding cases after taking office in 2007, Foxx's name stood out. The performer was a longtime resident of Las Vegas, where he frequently performed stand-up comedy during his career. He died in 1991 at a Los Angeles hospital.
Cahill learned that Foxx's daughter, Debraca Foxx, had been removed in 2006 as the administrator of the actor's estate because she had failed to provide an accounting of revenue received in royalties, residuals and licensing deals since her father's death.
Foxx's fourth wife and widow, Ka Ho Foxx, has accused Debraca Foxx in court filings of pocketing money that should have gone toward paying down the tax debt. As a result of the family squabble, the probate court put the public administrator in charge of managing the estate and resolving the debts.
Since 2007, Cahill's office has aggressively pursued the case, according to public documents, collecting more than $101,000 owed to the estate. Payments include a $5,000 fee from CBS Studios for use of a video clip of Redd Foxx in an episode of "Everybody Hates Chris" and $3,000 from Hallmark for use of Foxx's image on a greeting card.
"The estate had no assets at all at that time, although we've been able to locate some assets, collect some royalties since then," Cahill said. "This was the big-ticket item, the rights to his story. That was an asset to be marketed."
So Cahill kept his efforts to sell the story quiet until last month, when his office issued an unusual press release announcing that it had received offers from $20,000 to $2 million and that Cahill had done lunch and taken meetings with Hollywood types.
A producer even brought along an actor interested in playing Foxx "who was in a popular TV series that had recently ended," Cahill said in an interview. He declined to disclose the actor's name but said the deal fell through, as has every other prospect.
"Who I'm waiting to call, the call that would make my day would be Jamie Foxx," Cahill said. "That would be great for so many reasons. There's the connection there." The Oscar-winning actor's professional name is an homage to Redd Foxx.
The deals may have failed because the concept of selling a life's story is one that doesn't exist, said intellectual property rights attorney Eric J. Goodman, a partner in the law firm of Burkhalter, Kessler, Goodman and George in Orange County. He regularly deals with celebrity cases.
Goodman said Nevada allows for the marketing of someone's "right of publicity," defined in the law as the ability to use a "name, voice, signature, photograph or likeness" of anyone for commercial purposes.
Among the exceptions, however, is "the use in connection to an original work of art" and the use "to portray, imitate, simulate or impersonate a person in a play, book, magazine article, newspaper article, musical composition, film, or a radio, television or other audio or visual program, except where the use is directly connected with commercial sponsorship."
"The issue for the administrator is if they're going to sell bobblehead dolls, great, that can be bequeathed to an estate," Goodman said. "But he's proposing the use of Redd Foxx's name for commercial use. A film is a piece of art. I think the administrator has good intentions and this is a very creative idea, but what he's selling is the Brooklyn Bridge here. Who's to say anybody else can't come along and sell their own biography of him?"
Travis Twitchell, a Las Vegas-based attorney hired by Cahill's office, reads the law differently. To him, the use of Foxx's name or portrayal in a movie would be a commercial endeavor.
But Twitchell's definition presents other problems -- namely that, in his view, a filmmaker could never tell Foxx's life story without participation from and possible compensation for other people in his life. Neither Cahill nor Twitchell can promise any prospective buyer that Foxx's survivors would go along -- thereby undermining the value of the rights.
Debraca Foxx remains under an unfilled court order to account for money received during her years as administrator. She could not be reached for comment. And an attorney for Ka Ho Foxx said she plans to object in court to Cahill's effort to market the rights.
As for Cahill, he plans to step out of the Hollywood arena. At an April court hearing, he expects a probate judge to approve a licensing deal with CMG Brands, a large Hollywood firm that licenses the image and material of dozens of stars.
He realized he was out of his depth, he said, when he dined with the unnamed producer and TV star. It was hardly glamorous, just a quiet meal at a suburban chain restaurant about 10 miles from the seemingly more appropriate setting of the Las Vegas Strip.
"We did joke around about who would play me," said Cahill, sort of a burly, Wilford Brimley-meets-Ed Asner type. "But how Hollywood does what they do is something of a mystery to me. We're about to find out."
Saturday, February 13, 2010
Traditional to Roth IRA conversions: Don’t be tripped up by tax implications
Another good overview from The Boston Globe.
By Humberto Cruz
When you try to oversimplify tax matters, you often commit inaccuracies. I’ve found plenty, from slight to gross, in the nearly incessant media commentary about Roth IRA conversions. No wonder readers are confused.
As of this year, anybody with a traditional IRA can convert all or part of it to a Roth IRA. A Roth IRA offers the potential for future tax-free withdrawals. But if you convert, you will owe income taxes on the converted amount the same as if you withdrew the money from the traditional IRA (but with no 10 percent penalty, regardless of age).
That’s where the first inaccuracy creeps in. Many reports I’ve read state that if you convert, you will be taxed “upon conversion.’’ That phrase has led many readers to believe that as soon as you make a conversion you must send a check to the IRS for the taxes due on that conversion.
Not so. The taxable amount of the conversion simply counts as taxable income for the year. How much of the converted amount is taxable will depend on whether your traditional IRA includes nondeductible contributions.
If you have little additional income and enough exemptions and deductions, a small conversion may cost you little or even nothing in taxes.
But a big conversion can be expensive if the additional taxable income pushes you into a higher tax bracket and/or makes you ineligible for certain tax credits. You may be required to pay quarterly estimated taxes to meet your tax liability and avoid a penalty.
Another common inaccuracy is the assertion, and I quote, that “taxes from a Roth IRA conversion in 2010 can be split between 2011 and 2012.’’
The facts: If you convert in 2010, you can either report all the taxable income from the conversion on your 2010 tax return or report half of it on your 2011 return and the other half on your 2012 return. (You may not, as many readers believe, report one-third of the income for 2010, one-third for 2011, and one-third for 2012). The option to split the income exists for 2010 conversions only.
So, in reality, you may not have to start paying the taxes from a 2010 conversion until 2012, when you file your 2011 tax return.
Another inaccuracy is that it is the taxable income from the conversion and not the actual tax that may be split between the two tax years, said Kim Saunders, a tax analyst for Thomson Reuters.
“This seems a pretty important point to clear up,’’ an observant reader wrote. A large converted amount one year may push a taxpayer into a much higher tax bracket and result in a large tax bill that could be reduced by splitting the income. But a risk of income splitting is tax rates may go up for 2011 and 2012.
A decision on when to declare the income from a 2010 conversion does not have to be made until you file your 2010 return, Saunders said. By then, tax rates for at least 2011 will be known.
By Humberto Cruz
When you try to oversimplify tax matters, you often commit inaccuracies. I’ve found plenty, from slight to gross, in the nearly incessant media commentary about Roth IRA conversions. No wonder readers are confused.
As of this year, anybody with a traditional IRA can convert all or part of it to a Roth IRA. A Roth IRA offers the potential for future tax-free withdrawals. But if you convert, you will owe income taxes on the converted amount the same as if you withdrew the money from the traditional IRA (but with no 10 percent penalty, regardless of age).
That’s where the first inaccuracy creeps in. Many reports I’ve read state that if you convert, you will be taxed “upon conversion.’’ That phrase has led many readers to believe that as soon as you make a conversion you must send a check to the IRS for the taxes due on that conversion.
Not so. The taxable amount of the conversion simply counts as taxable income for the year. How much of the converted amount is taxable will depend on whether your traditional IRA includes nondeductible contributions.
If you have little additional income and enough exemptions and deductions, a small conversion may cost you little or even nothing in taxes.
But a big conversion can be expensive if the additional taxable income pushes you into a higher tax bracket and/or makes you ineligible for certain tax credits. You may be required to pay quarterly estimated taxes to meet your tax liability and avoid a penalty.
Another common inaccuracy is the assertion, and I quote, that “taxes from a Roth IRA conversion in 2010 can be split between 2011 and 2012.’’
The facts: If you convert in 2010, you can either report all the taxable income from the conversion on your 2010 tax return or report half of it on your 2011 return and the other half on your 2012 return. (You may not, as many readers believe, report one-third of the income for 2010, one-third for 2011, and one-third for 2012). The option to split the income exists for 2010 conversions only.
So, in reality, you may not have to start paying the taxes from a 2010 conversion until 2012, when you file your 2011 tax return.
Another inaccuracy is that it is the taxable income from the conversion and not the actual tax that may be split between the two tax years, said Kim Saunders, a tax analyst for Thomson Reuters.
“This seems a pretty important point to clear up,’’ an observant reader wrote. A large converted amount one year may push a taxpayer into a much higher tax bracket and result in a large tax bill that could be reduced by splitting the income. But a risk of income splitting is tax rates may go up for 2011 and 2012.
A decision on when to declare the income from a 2010 conversion does not have to be made until you file your 2010 return, Saunders said. By then, tax rates for at least 2011 will be known.
Monday, February 8, 2010
Vermont tax repeal effort draws controversy
News for our neighbors to the north.
Burlington, Vermont - February 7, 2010
As the Vermont legislature struggles to find $150 million worth of budget cuts this year, an attempt to roll back two tax increases is running into opposition. At issue are the capital gains and estate taxes, primarily affecting upper income Vermonters. But there's evidence that the two taxes are driving wealthier residents out of state to places like Florida.
The Vermont senate Economic Development committee met at Burlington city hall last week to hear testimony on repealing last year's increases on the state capital gains tax and the estate tax. Although farms were excluded from the death tax, as critics call it, the two taxes together raise tens of millions of dollars a year. And tax advisor Rick Wolfish told the panel the higher taxes are driving out high-income Vermonters.
"That is exactly what is happening," he told the panel, "that people are leaving the state. And CPAs and professionals are advising them."
Last year, the legislature lowered an exclusion on the estate tax from $3.5 million to $2 million. Tax experts say it's not just big Wall Street investors who get hit. Any Vermonter who built up a small business can get hit at anything over two-million of net assets, upon his or her death.
Wolfish said, "Under current law, if a taxpayer is considering the sale of a business, why not move to another state before the sale and pay no Vermont on the sale whatsoever?"
Real estate developer Ernie Pomerleau agreed. He said, "You know, there are people who can survive this, there are people who just say enough is enough. I can live someplace else."
Pomerleau has invested millions in Vermont development projects, creating jobs in the process. He says he'll never leave Vermont. "I'll die with my boots on here," he said. But Pomerleau said he knows others who already have left. "I know three dozen colleagues that are gone," he told the senators. "And I know you'll hear 'one comes in, one goes out.' The ones that go out have been here for forty years creating jobs, philanthropic, part of the energy of this community."
The legislature raised estate and capital gains taxes to help close a looming budget deficit as Vermont was losing 20,000 jobs along with a lot of income tax revenue. One Progressive policy advisor says the state simply cannot afford to restore a capital gains tax break. Doug Hoffer testified, "We have four years of data from when the capital gains exclusion was adopted, in those four years it cost us over $150 million. Now, the highest year was $51 million in a single year. That's a big hole to fill."
But supporters of the tax repeal say the question comes down to whether high state taxes are killing the goose that laid the golden egg. Still, the fact that the economic development committee is the only legislative committee to take up the repeal indicates how difficult that is likely to be.
Andy Potter -- WCAX News
Burlington, Vermont - February 7, 2010
As the Vermont legislature struggles to find $150 million worth of budget cuts this year, an attempt to roll back two tax increases is running into opposition. At issue are the capital gains and estate taxes, primarily affecting upper income Vermonters. But there's evidence that the two taxes are driving wealthier residents out of state to places like Florida.
The Vermont senate Economic Development committee met at Burlington city hall last week to hear testimony on repealing last year's increases on the state capital gains tax and the estate tax. Although farms were excluded from the death tax, as critics call it, the two taxes together raise tens of millions of dollars a year. And tax advisor Rick Wolfish told the panel the higher taxes are driving out high-income Vermonters.
"That is exactly what is happening," he told the panel, "that people are leaving the state. And CPAs and professionals are advising them."
Last year, the legislature lowered an exclusion on the estate tax from $3.5 million to $2 million. Tax experts say it's not just big Wall Street investors who get hit. Any Vermonter who built up a small business can get hit at anything over two-million of net assets, upon his or her death.
Wolfish said, "Under current law, if a taxpayer is considering the sale of a business, why not move to another state before the sale and pay no Vermont on the sale whatsoever?"
Real estate developer Ernie Pomerleau agreed. He said, "You know, there are people who can survive this, there are people who just say enough is enough. I can live someplace else."
Pomerleau has invested millions in Vermont development projects, creating jobs in the process. He says he'll never leave Vermont. "I'll die with my boots on here," he said. But Pomerleau said he knows others who already have left. "I know three dozen colleagues that are gone," he told the senators. "And I know you'll hear 'one comes in, one goes out.' The ones that go out have been here for forty years creating jobs, philanthropic, part of the energy of this community."
The legislature raised estate and capital gains taxes to help close a looming budget deficit as Vermont was losing 20,000 jobs along with a lot of income tax revenue. One Progressive policy advisor says the state simply cannot afford to restore a capital gains tax break. Doug Hoffer testified, "We have four years of data from when the capital gains exclusion was adopted, in those four years it cost us over $150 million. Now, the highest year was $51 million in a single year. That's a big hole to fill."
But supporters of the tax repeal say the question comes down to whether high state taxes are killing the goose that laid the golden egg. Still, the fact that the economic development committee is the only legislative committee to take up the repeal indicates how difficult that is likely to be.
Andy Potter -- WCAX News
Saturday, February 6, 2010
IRS Silent So Far On New US Tax Rules For Inherited Wealth
Our trusts are drafted in such a way to account for the change, but still going to be an interesting time figuring it all out.
By Martin Vaughan, Of DOW JONES NEWSWIRES
WASHINGTON -(Dow Jones)- The U.S. Internal Revenue Service is taking a wait- and-see approach on issuing guidance dealing with taxes on inherited wealth, unsure whether Congress will act in the next several months to change the rules again.
Advisers to the wealthy say they are left without a roadmap on a number of issues related to the disposition of assets left behind by those who have died since Jan. 1. In particular, they are looking to IRS for rules on how a new capital gains-tax regime that took effect this year will apply to estates.
"There are no forms that give us any idea how or what we are supposed to report," said Stephen Litman, an estate planner at the Minneapolis law firm of Leonard, Street and Deinard. "This leads to significant administrative challenges for families."
Congress is weighing whether to set permanent rules for taxing estates, and whether to make those rules retroactive to the beginning of this year, but such action is weeks, and maybe even months, away.
The 2001 tax-cut law was aimed at gradually eliminating estate taxes, but repeal proponents at the time lacked the congressional majorities needed to do so permanently.
As a result, the federal estate tax was repealed for 2010 only, and is scheduled to return in 2011 at rates similar to those in effect prior to President George W. Bush's tax cut legislation.
In place of the estate tax for 2010 is a capital gains tax that is levied when assets are sold. Heirs would have to pay capital gains taxes on the full appreciation in value of the asset from the time it was acquired by the deceased benefactor, a concept known in tax circles as "carryover basis."
That means that families have an additional step of searching records to establish the basis value of the asset, which was unnecessary when estate taxes were in place.
"Carryover basis rules have added another level of complexity," said Carol Kroch, head of wealth and financial planning at Wilmington Trust Corp. "Families will have to go through a more difficult process of valuing assets."
The 2010 law provides that heirs can get a "step-up" in basis, meaning no capital gains taxes would be due if the asset is immediately sold, for up to $ 1.3 million of the estate property. Surviving spouses can get a step-up in basis for an additional $3 million in property.
Families will have to decide which assets to protect from capital gains taxes with the basis step-up. For example, property that is to be sold in the near future might be a good candidate, to avoid an immediate tax consequence. It might also be wise to protect property that has been in the family for a long time, and therefore has a low basis, wealth advisors say.
All that said, Congress might pass legislation that reinstates the estate tax for 2010 and eliminates the carry-over basis rules, which would make all such planning moot.
That may explain why IRS for now is waiting for the legislative picture to come into focus.
"We are currently looking at the issues involved to determine the best course of action," said IRS spokesman Bruce Friedland.
Families generally have nine months from the death of the estate owner to file estate tax returns, so there is a little breathing room before they have to make decisions about how to allocate assets.
"I don't think anyone would be distributing assets yet," said Kroch. "Over time, estate executors will have to make a decision about how much to hold in reserve for the estate tax" in case Congress re-imposes it retroactively, she said.
Another option that is getting some discussion by congressional staff is an election that would allow the family members of people who died between Jan. 1, 2010 and when new legislation takes effect to choose between paying estate taxes, for example at the rates in effect in 2009, or the capital gains-tax regime under the current law.
By Martin Vaughan, Of DOW JONES NEWSWIRES
WASHINGTON -(Dow Jones)- The U.S. Internal Revenue Service is taking a wait- and-see approach on issuing guidance dealing with taxes on inherited wealth, unsure whether Congress will act in the next several months to change the rules again.
Advisers to the wealthy say they are left without a roadmap on a number of issues related to the disposition of assets left behind by those who have died since Jan. 1. In particular, they are looking to IRS for rules on how a new capital gains-tax regime that took effect this year will apply to estates.
"There are no forms that give us any idea how or what we are supposed to report," said Stephen Litman, an estate planner at the Minneapolis law firm of Leonard, Street and Deinard. "This leads to significant administrative challenges for families."
Congress is weighing whether to set permanent rules for taxing estates, and whether to make those rules retroactive to the beginning of this year, but such action is weeks, and maybe even months, away.
The 2001 tax-cut law was aimed at gradually eliminating estate taxes, but repeal proponents at the time lacked the congressional majorities needed to do so permanently.
As a result, the federal estate tax was repealed for 2010 only, and is scheduled to return in 2011 at rates similar to those in effect prior to President George W. Bush's tax cut legislation.
In place of the estate tax for 2010 is a capital gains tax that is levied when assets are sold. Heirs would have to pay capital gains taxes on the full appreciation in value of the asset from the time it was acquired by the deceased benefactor, a concept known in tax circles as "carryover basis."
That means that families have an additional step of searching records to establish the basis value of the asset, which was unnecessary when estate taxes were in place.
"Carryover basis rules have added another level of complexity," said Carol Kroch, head of wealth and financial planning at Wilmington Trust Corp. "Families will have to go through a more difficult process of valuing assets."
The 2010 law provides that heirs can get a "step-up" in basis, meaning no capital gains taxes would be due if the asset is immediately sold, for up to $ 1.3 million of the estate property. Surviving spouses can get a step-up in basis for an additional $3 million in property.
Families will have to decide which assets to protect from capital gains taxes with the basis step-up. For example, property that is to be sold in the near future might be a good candidate, to avoid an immediate tax consequence. It might also be wise to protect property that has been in the family for a long time, and therefore has a low basis, wealth advisors say.
All that said, Congress might pass legislation that reinstates the estate tax for 2010 and eliminates the carry-over basis rules, which would make all such planning moot.
That may explain why IRS for now is waiting for the legislative picture to come into focus.
"We are currently looking at the issues involved to determine the best course of action," said IRS spokesman Bruce Friedland.
Families generally have nine months from the death of the estate owner to file estate tax returns, so there is a little breathing room before they have to make decisions about how to allocate assets.
"I don't think anyone would be distributing assets yet," said Kroch. "Over time, estate executors will have to make a decision about how much to hold in reserve for the estate tax" in case Congress re-imposes it retroactively, she said.
Another option that is getting some discussion by congressional staff is an election that would allow the family members of people who died between Jan. 1, 2010 and when new legislation takes effect to choose between paying estate taxes, for example at the rates in effect in 2009, or the capital gains-tax regime under the current law.
Tuesday, January 19, 2010
As we celebrate the life and legacy of MLK
Yesterday, we celebrated the life of Martin Luther King, Jr., one of the main leaders of the American Civil Rights Movement.
Dr. King devoted all of his income and talent to the movement. He died intestate (no Will), leaving less than $30,000 in his estate. Some of that money was already earmarked for the movement.
Additional information about Dr. King’s legacy is available on NPR’s Talk of the Nation entitled The Legacy of Martin Luther King Jr
Dr. King devoted all of his income and talent to the movement. He died intestate (no Will), leaving less than $30,000 in his estate. Some of that money was already earmarked for the movement.
Additional information about Dr. King’s legacy is available on NPR’s Talk of the Nation entitled The Legacy of Martin Luther King Jr
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