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.
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