Thursday, December 20, 2012

IRS Nonacquiesces in Wandry

The Tax Court had held in the Wandry case (TC Memo 2012-88) that a fixed-dollar gift of an LLC interest (as opposed to a fixed percentage) was valid for gift tax purposes. This would be very helpful for taxpayers making gifts of hard to value assets. The IRS issued a notice that it will not acquiesce in this decision. AOD appearing at 2012-46 IRB. Some commentators believe this means that Treasury may issue regulations against fixed-dollar gifts, or that they have a better case in the pipeline.

Wednesday, December 19, 2012

Supreme Court to Review DOMA Challenge

We had earlier highlighted the Second Circuit opinion holding federal DOMA invalid and allowing the marital deduction against the federal estate tax for a same-sex widow, in Windsor, 110 AFTR 2d 2012-6370 (2012 CA2). The U.S. Supreme Court has now agreed to review this case, so we should know in 2013 whether same-sex couples who are legally married under state law are entitled to the same federal tax benefits as heterosexual married couples. Stay tuned!

Monday, November 26, 2012

Walmart to Pay Dividend in December Instead of January to Avoid Fiscal Cliff

According to an article in Reuters, the dividend that Walmart usually pays in late January will be moved up to late December, so that its shareholders will be able to have their qualified dividends taxed at the current 15% rate, instead of possibly being included in ordinary income (at a top 39.5% rate) if Congress fails to take action to avoid the "fiscal cliff." Stay tuned!

Monday, November 19, 2012

Laurie Hunter Honored by CBA/CLE in Colorado, Inc.

Laurie A. Hunter will be presented with the Richard N. Doyle CLE Award of Excellence at the Colorado Bar Association/CLE in Colorado, Inc.'s annual Reception and Wine Tasting on December 3, 2012. The Award will be presented to Laurie in honor of her dedication and outstanding contributions to CBA/CLE programs and publications. Please join us in congratulating Laurie for this wonderful recognition of her efforts!

Monday, November 5, 2012

Estate Planning and Digital Assets

The digital age has lead us to rely on computers and the internet for storage of many of our important documents and personal information. In an effort to centralize information and reduce the number of papers cluttering our lives, many have moved to digital storage. We purchase books, music, movies, etc. via internet retailers and store these purchases on our personal computers, digital devices or in the cloud. In addition, we manage our financial accounts online and have switched to paperless statements, rarely, if ever, receiving any paper communications. The question now becomes, what happens to these accounts and assets when we die. Conventional wisdom used to be that the personal representative (executor) would simply have the decedent’s mail forwarded and eventually he or she would be able to identify the decedent’s assets and creditors through the correspondence received.

Unfortunately, the ease of the digital age has created unexpected difficulty for personal representatives. How does a personal representative fully identify a decedent’s assets when he or she is not afforded access to the decedent’s online financial and email accounts? To complicate matters, the law is unclear as to whether a decedent actually owns the digital files he or she has purchased and now stores on his or her digital device, personal computer or in the cloud. Many digital content retailers provide that the consumer is simply purchasing a license to use the content, but does not actually own the property. In addition, the use of a cloud service further complicates matters, as it is uncertain as to who owns the stored content, the cloud operator or the consumer.

Further, many retailers do not have policies in place as to inheritance of use licenses, nor termination dates for those licenses. In practice, a personal representative can copy the files and transfer possession as he or she would any other personal property, in accordance with the decedent’s wishes. Transferring ownership, however, is more complicated and as of right now there is no clear answer as to how to properly effectuate the transfer.

With respect to digital accounts such as email and financial accounts, a personal representative may be able to gain access, if he or she is afforded the login and password information prior to the decedent’s death. Accessing these accounts, however, may technically be in violation of terms of service. Further, once the personal representative notifies the account provider of the decedent’s death, future access may be denied, or the account terminated and deleted altogether. Denial of access to email accounts could potentially prevent a personal representative from fully identifying the decedent’s assets and creditors.

Social media websites further complicate matters as each host is free to provide policies as to what happens at a person’s death. Facebook for example turns the decedent’s page into a living memorial in which all aspects of the page are frozen in time, with the exception of the decedent’s wall, which remains available for friends and family to post messages.

The legislature has been slow to accommodate the changing digital landscape. A few states, including Connecticut and Rhode Island have enacted legislation allowing a personal representative to access a decedent’s email account. A few other states, including Idaho, Nebraska, Oklahoma and Indiana have enacted laws allowing heirs to obtain access to digital accounts. In Colorado, the Trust & Estate Section of the Colorado Bar Association is exploring proposing legislation to address digital assets and accounts; however, a clear direction has yet to be determined to address all facets of digital media and provide personal representatives and heirs with the best solution. The main problem facing the legislature is that statutes granting a personal representative or heir with access to the decedent’s digital assets and accounts are often in conflict with the terms of service contracted between the decedent and the company holding the assets/account; thus, there is no guarantee that the company will be required to provide access.

In the meantime, it is essential that consumers plan ahead. Within the confines of the estate planning process, consumers should create an inventory of their digital assets and ensure that login and password information is readily available to assist their personal representatives and heirs with the estate administration process. Individuals may also consider including specific direction and bequests with regard to their digital assets and accounts in their Wills or other dispositive documents. While it is not clear whether a personal representative will be able to actually transfer ownership to the intended beneficiary, the company holding the asset may be more likely to assist the personal representative in transfer of the assets when there is specific direction provided in the decedent’s Will.

Monday, October 29, 2012

IRS Confirms Deductibility of Donations to Certain Charity Owned LLCs

In a long awaited pronouncement, the IRS in Notice 2012-52 confirmed what tax-exempt practitioners had expected for many years: that a donation to a single member LLC that is wholly owned by a U.S. charity, where the LLC is acting as a charitable branch or division of the U.S. charity and conducting charitable activities, are tax-deductible as if the donation were made to the U.S. charity directly. Many charities use single member LLCs to isolate its activities that may expose the parent/single member owner to increased liability. For example, real estate owned by a charity is often held in a single member LLC. However, single member LLCs are also sometimes used to expand the scope of charitable services offered or to establish charitable operations in locations outside the charity’s original service area. In these situations, the LLC is really an extension of the parent/single member charity and operates much like a branch or division of the charity. Donors often develop loyalty to and wish to donate directly to the local LLC rather than to the parent charity. For many years the IRS avoided issuing guidance on whether donations to such LLCs were deductible and as a result, conservative practitioners advised donors and charities alike that, to be assured of a deduction, donations had to be made directly to the charity that was exempt under Section 501(c)(3) rather than through any single member LLC, even where the LLC was wholly owned and operated by the charity. With the issuance of this Notice, however, donations can be made directly to the LLC, as a gift to a branch or division of the charity, provided the LLC satisfies the other requirements of deductibility for charities (i.e., it is organized and operated in the U.S., it is organized and operated exclusively for charitable purposes, there is no private inurement of the earnings and it satisfies the lobbying and political campaign restrictions for 501(c)(3) organizations). The Notice states that the U.S. charity is the donee for substantiation and disclosure purposes, and the IRS encourages the charity to disclose in the acknowledgment or another statement that the LLC is wholly owned by the U.S. charity and treated by the charity as a disregarded entity (that is, the charity reports all of the LLC’s activities on its information return and does not treat it as a separate taxpayer). The Notice is effective for contributions made on or after July 31, 2012, but can also be relied on by taxpayers for prior taxable years where the statute of limitations has not yet expired (that is for prior year gifts).

Thursday, October 25, 2012

Year End Deadline for Small Nonprofits

More than 275,000 tax-exempt organizations have lost their exempt status under Section 501 of the Code in the last few years as a result of a fairly recent change in the law. Certain qualifying small organizations that had their exemption revoked have only until December 31, 2012 to take advantage of the IRS’ "transitional relief" that both provides a reduced application fee of $100 (as opposed to the usual $850) and automatically qualifies such organizations for retroactive reinstatement of their tax-exempt status.

The Pension Protection Act of 2006 (the "PPA") required that all tax-exempt organizations, regardless of size, file an annual notice or information return with the IRS, and mandated that those who fail to file for 3 consecutive years (beginning in 2007) automatically lose their exempt status. Those organizations that have lost their exemption must reapply to the IRS to regain tax-exempt status (even if the organization was not originally required to file). The IRS has discretion whether to grant exemption and if granted, whether to retroactively reinstate an organization’s exempt status to the date of revocation if the organization establishes reasonable cause for its failure to file. Prior to the PPA, organizations that normally had not more than $25,000 per year in gross receipts (a number based on a rolling 3 year average) were not required to file any form of annual information return or notice with the IRS. Since the PPA, organizations that normally have less than $25,000 (or $50,000 beginning in 2010) per year in gross receipts (again based on a 3 year rolling average) are required to file an annual information return (the Form 990-N e-postcard). Despite many efforts to notify organizations of this change, the PPA requirements caught many small organizations by surprise.

So many small organizations lost their exemption for failing to file their required annual electronic notices that the IRS issued Notice 2011-43 providing transitional relief for certain qualifying "small organizations." Organizations that qualify will be allowed to pay the reduced user fee and will be treated as having established reasonable cause for failing to file its annual returns for taxable years beginning in 2007, 2008 or 2009. To qualify for the relief, the organization must be a "small organization" - that is it must have average annual gross receipts of not more than $50,000 in its most recent taxable year and the two immediately preceding taxable years. Additionally, the small organization must meet the following criteria: (1) it must not have been required to file an annual information return (i.e., Form 990 or 990EZ) for tax years before 2007; (2) it must have been eligible to file the Form 990-N e-postcard in each of 2007, 2008, and 2009 (both in terms of gross receipts and type of organization); and (3) it must file its application for reinstatement of tax-exempt status (i.e., a new Form 1023, or Form 1024 if organization is other than a 501(c)(3)) no later than December 31, 2012. Organizations seeking this transitional relief must write "Notice 2011-43" at the top of the Form 1023/1024 and on the envelope and must attach a specific statement to its application that essentially confirms that it satisfies the criteria above.

Many of our clients either are small organizations or are active volunteers with small organizations who may have unknowingly been affected by the PPA changes and automatic revocation. Small tax-exempt organizations should check the IRS’ automatic revocation list using the IRS’ Select Check online tool at to confirm they are not on the automatic revocation list. If they are, and they qualify, they should immediately submit a new application for reinstatement using the transitional relief if possible. Additionally, donors should always check the IRS’ current exemption database at the same IRS website to confirm the charity they are giving to is eligible to receive tax-deductible contributions if deductibility of the gift is important. Donors should also be aware that organizations who had their exemption revoked but were reinstated will remain on the automatic revocation list. However, if the charity is now on the list of organizations the IRS recognizes as "eligible to receive tax-deductible contributions" (which may occur if the organization’s exemption was revoked but it successfully sought reinstatement), the gift should be deductible.

If charities or donors have any questions about the automatic revocation and reinstatement process, or about deductibility of a gift, please feel free to call us. However, given the very busy year end we are anticipating, charities seeking reinstatement under the transitional relief must contact us immediately, and no later than mid-November
if they would like our assistance filing for reinstatement.

Tuesday, October 23, 2012

Year End Tax Planning

As we have discussed in our prior newsletters, and as summarized in numerous news articles about the impending "fiscal cliff," important tax changes will occur January 1, 2013 unless Congress takes action
$5,120,000 Gift and Estate Tax Exemption Ends
. In 2012, each U.S. citizen and resident has a $5,120,000 gift and estate tax exemption. In 2013, that exemption will be $1 million unless Congress acts. If one makes a $5 million gift (assuming no prior taxable gifts) in 2012, no gift tax would be due, but that gift will be taken into account in computing the estate tax at the donor’s death. If the exemption had decreased, estate tax would be due. However, such a gift will be effective to remove all future income and appreciation on the gifted assets from the donor’s estate. We had suggested that clients may want to consider the creation of a "Lifetime Credit Shelter Trust" that could benefit the donor’s spouse and children. If each spouse wants to create such a trust for the benefit of each other, they must be careful to avoid the "Reciprocal Trust Rule" because if the rule were applied and a donor is deemed to create a trust for the donor’s benefit, all of the trust property would be included in the donor’s estate under Code §2036(a). Usually, in order to avoid the Reciprocal Trust Rule when both spouses create an irrevocable life insurance trust, we have recommended creating the two trusts at least six months apart. That is no longer possible at this late date in 2012. It would still be possible for one spouse to create an irrevocable trust for the benefit of spouse and descendants, and the other spouse to create an irrevocable trust only for the benefit of the descendants. IF YOU WANT US TO WORK WITH YOU TO CREATE SUCH A TRUST, YOU MUST CONTACT US BY NOVEMBER 15, 2012. Preparing the trust agreement(s) with the desired terms and obtaining necessary appraisals of the gifted assets require time. DO NOT WAIT UNTIL THE HOLIDAYS TO CONTACT US.
Generation-Skipping Transfer Tax Exemption
. If Congress fails to act, the GST exemption will be $1,430,000 based upon increases for inflation from 2001. The tax rate will be 55% (the 2013 top estate tax rate), up from 35% in 2012.
Increase in Capital Gains tax rates
. In 2012, the tax rate on capital gains is 15%. In 2013, if Congress fails to act, the maximum long-term capital gain rate will be 18% on assets held more than five years and 20% on assets held less than five years, but more than one year.
Increase in tax rate on dividends
. In 2012, qualified dividends are taxed at a 15% rate. In 2013, if Congress fails to act, all dividends will be taxed as ordinary income. Because dividends are taxed in 2012 at the same rate as long-term capital gains, it was not important whether a distribution from a corporation was characterized as a dividend or a redemption. That distinction will again become important when the rates are different.
Increase in tax rates generally
. The Bush tax cuts will expire at the end of 2012. The tax rates under the 2001 Act ranged from 10% to 35%. In 2013, if Congress fails to act, the rates will range from 15% to 39.6%.
3.8% surtax on investment income
. In addition, starting in 2013, a 3.8% surtax will apply to the lesser of (1) net investment income or (2) the excess of modified adjusted gross income over the threshold amount: $250,000 for joint filers, $125,000 for married filing separately and $200,000 for other taxpayers. For estates and trusts, the tax is 3.8% of the lesser of (1) undistributed net investment income or (2) the excess of adjusted gross income over the dollar amount at which the highest income tax bracket applicable to an estate or trust begins (Only $11,650 in 2012).
Annual Exclusion Gifts
. For some good news, the gift tax annual exclusion that is $13,000 per donee in 2012 is expected to increase to $14,000 per donee in 2013. DON’T WAIT TO MAKE YOUR ANNUAL EXCLUSION GIFTS FOR 2012. Go ahead and make them now, and then make your 2013 annual exclusion gifts in January.
Estate Tax Statistics
. As reported by Jonathan Blattmachr to the ACTEC listserv, 4,600 estate tax returns were filed in 2011, down nearly 70% from 2010, which was down 55% from 2009. Net estate tax receipts was $3 billion in 2011, down from $13 billion for 2010 and $20+ billion for 2009.

Monday, October 22, 2012

Another Appeals Court Strikes Down DOMA

The Second Circuit in Edith Schlain Windsor v. U.S. (CA 2 10/18/2012) Docket No. 12-2335-cv(L), held that a surviving spouse in a legally married same sex couple is entitled to the federal estate tax marital deduction, and therefore a refund of estate taxes paid. The Court struck down the Defense of Marriage Act (DOMA) that prohibits the federal government from recognizing legally married same sex couples for federal benefit purposes. A few other courts this year have also found DOMA to be unconstitutional, but some court watchers believe that this is the case that the U.S. Supreme Court may accept for review. One reason is that Justice Elena Kagan may have had to recuse herself from the other cases, but she was not involved in this one when she was White House counsel.

Wednesday, September 26, 2012

2013 Gift Tax Annual Exclusion

According to RIA Checkpoint’s analysis of the inflation numbers, the gift tax annual exclusion amount will increase to $14,000 per donee in 2013. Keep that in mind as you are planning your annual exclusion gifts. You can make gifts of $13,000 per donee in 2012, and in January, it looks like you can make gifts of $14,000 per donee. The IRS is required to officially release the 2013 inflation adjustments by December15, 2012.

Monday, September 24, 2012

Orange Book Forms - The Must Have Tool for Colorado Trust & Estate Practitioners

Laurie Hunter and Josie Faix are speaking at the October 4, 2012 CLE hosted by CLE in Colorado, Inc. and the Colorado Bar Association entitled "Orange Book Forms - The Must Have Tool for Colorado Trust & Estate Practitioners". Laurie is speaking on the "Most Commonly Used Forms" including Financial Powers of Attorney, Parent's or Guardian's Delegation of Powers, Appointment of Guardian by Signed Legal Writing, Medical Durable Power of Attorney, Advance Directive for Medical/Surgical Treatment, and Gifting Issues to Watch Out for When Using These Forms. Josie is speaking on Revocable Trusts including Single Person, Married Couple and Joint Trusts, and Issues to Watch Out for When Using These Forms.

Thursday, September 20, 2012

Tax Changes 1/1/2013

As a reminder, if Congress fails to act, there will be significant tax changes in 2013. If you want to meet with us to plan in advance of these changes, do NOT WAIT UNTIL DECEMBER. The most important changes include the following:

Individuals: 10% bracket disappears, and 15% bracket is smaller; top rate is 39.6%. Long-term capital gain max rate is 20% (18% for assets held more than 5 years) – instead of 15% now. Dividends are taxed at same rate as ordinary income (instead of 15%). Standard deduction for married filing jointly will be 167% (instead of 200%) of single taxpayers’ deduction. Itemized deductions for higher income taxpayers will be reduced by 3% of AGI. Personal exemptions are phased out for higher-income taxpayers.

Estate Tax: $1 million exemption (instead of $5.12 million); top tax rate of 55% (instead of 35%); 5% surtax on higher estates; reinstated state death tax credit; reinstated QFOBI deduction; and the more favorable installment payment rules will disappear. No more portability of the deceased spouse’s exemption.

Gift Tax: $1 million exemption (instead of $5.12 million); top tax rate of 55% (instead of 35%).

Generation-Skipping Transfer (GST) Tax: $1,430,000 exemption (adjusted for inflation; instead of $5.12 million); tax rate of 55%; the more favorable automatic allocation rules and severance of trusts will disappear.

Tuesday, September 18, 2012

Contested Wills - When Intent is in Dispute

Greg Washington and Alison Zinn are speaking at the September 21, 2012 CLE hosted by CLE in Colorado, Inc. and the Colorado Bar Association entitled "Contested Wills - When Intent is in Dispute". Greg is going to fill in as the moderator of the program (since Herb Tucker is currently in Trial) and he will also be co-presenting "Tort Claims in Probate and Related Insurance Coverage Issues" with Greg Giometti. Alison will be presenting "Case Law and Legislative Updates for Probate, Trust and Protected Proceedings for 2011-2012", and will also fill in for Herb Tucker and co-present "The Pros and Cons of Video Taping Will Executions" with Keith Lapuyade.

Favorable PLR on Grantor Trusts

Although a Private Letter Ruling only applies to the taxpayer involved, and cannot be used as precedent, the IRS analysis can be instructive. In PLR 201235006 (August 31, 2012), the IRS stated that a sale of a life insurance policy at its gift tax value from one grantor trust to another grantor trust would not be a "transfer for value" for income tax purposes. While life insurance proceeds are usually exempt from income tax to the beneficiary, if the policy had been sold or was subject to any other "transfer for value," the proceeds are subject to income tax. The IRS also concluded in the PLR that the insured’s power to reacquire the assets of the grantor trust in exchange for assets of equivalent value (a common power included in a trust to make it a grantor trust) would not be considered an incident of ownership over the policy for estate tax purposes. If the insured dies owning any incidents of ownership in a policy on the insured’s life, the proceeds are included in the insured’s estate. This ruling clarified that such a power in an "Irrevocable Life Insurance Trust" would not cause the proceeds to be included in the insured’s estate.

Sunday, September 9, 2012

Who Inherits Your itunes Library?

Recently the Wall Street Journal published a small piece on bequeathing digital media along with other personal property.  The article examines the increasing trend of our accumulation of more and more digital media such as mp3’s, mp4’s, and digital books and magazines.  And, we spend a lot of money on these things.  But, what happens to them when we die?  Can they be passed down or do they die with us?

The crux of this issue is – what do we actually own?  In most circumstances, when it comes to digital content, we own a license to use the digital file but we do not own the content itself.  The case law concerning this issue is virtually non-existent – but it is coming.  Estate planners are beginning to see this issue crop up and a few are getting creative.  According to the WSJ, David Goldman, a lawyer in Jacksonville, says he will launch software next month called DapTrust that will help estate planners create a legal trust for their clients’ online accounts that hold music, e-books, and movies.  This is only one potential solution in what may be becoming a digital nightmare.  Tech pros are calling for regulation reform and digital giants like Apple and Amazon are looking to lock down their property.  The key will become licensing agreements and increasing consumer demand to hold onto property that may be ready to die with them.

See also, itunes Library.

Thursday, September 6, 2012

Your 18 Year Old Is An Adult Too -- Medical Power of Attorney

Although we like to think of our children as "babies" forever, upon reaching age 18 that child is now an adult in the eyes of the law. If a child is 18 or older and becomes incapacitated, the parent does not have the legal right to direct care or even receive information about the child's condition. This catches most parents off guard, and they are surprised to learn that they, as parents, do not have an automatic right to direct a child's care. Only an agent under a medical power of attorney or a court-appointed guardian can direct the care of another adult. If a child is 18 or older and does not have a medical power of attorney naming an agent to direct medical care, a parent is forced to petition the court for guardianship, which is time-consuming and expensive and requires a court appearance. We strongly recommend your child who is 18 or older execute a medical power of attorney naming an agent to act on his or her behalf during any incapacity, as well as a HIPAA authorization which authorizes doctors and hospitals to give health information about your child to the authorized agent. Go to our website to read more or call our office to discuss.

Tuesday, September 4, 2012

Pitfalls of “Do-It-Yourself” in Estate Planning

In tough economic times, many of us are trying to reduce expenses in any way we can. Fewer dinners out, "stay-cations" and clipping coupons may be part of a strategy to shrink a household budget. There are some who will attempt to create their own estate plans, or update their existing plans, in order to save money. Sometimes our "do-it-yourself" efforts can result in expensive, unintended consequences.

Adam "MCA" Yauch, a member of the musical group the Beastie Boys, died this spring in New York. His attorney-prepared Will contained a specific provision regarding the prohibition of using Mr. Yauch’s name or likeness in any advertising. But at some point after he executed his Will, Mr. Yauch, in his own handwriting, inserted in his Will the part of the following excerpt that appears in bold: "in no event may my image or name or any music or any artistic property created by me be used for advertising purposes." This handwritten addition may lead to controversy, as Mr. Yauch, while having every right to restrict his publicity rights, may have no right to restrict the use of the Beastie Boys catalogue, which is governed by the laws of copyright. Also, the New York court may hold that such handwritten addition does not satisfy the legal requirements for execution of a codicil (an amendment to a Will) and the addition may be removed.

Although Mr. Yauch’s intention in handling his own estate planning revision was probably not aimed at cost-savings, the failure to consult a professional to assist with this change may lead to litigation for his estate; an expensive result for any estate. And if the New York courts hold the provision invalid, Mr. Yauch’s intentions, to whatever extent he could legally proscribe them in his Will, are left unfulfilled.

Lesson learned? If a change you want to make to your estate plan is important to you, seek guidance from a professional to ensure it will be legally binding. Saving your family from uncertainty or, at worst, litigation, may be well worth the expense.

For more information, go to Adam Yauch.

Tuesday, August 28, 2012

Testamentary Provisions v. Public Policy

Many of us want to leave money to family members in a way that encourages our values in the next generation, such as receiving an education, becoming self-sufficient, or participating in a spiritual life. However, Colorado courts will not enforce a provision in a Will or Trust that is deemed to violate public policy, such as requiring a beneficiary to divorce their spouse if they wish to receive a bequest.

Frank Mandelbaum, founder of the ID-verification firm Intellicheck, recently died with a very large fortune. His son, Robert Mandelbaum, is a gay Manhattan Criminal Court Judge. In Frank’s Will, he creates a $180,000 trust for his grandchildren, but Robert's 16-month old son, Cooper, may be excluded from those benefits unless Robert marries Cooper's biological mother. Although Frank knew his son was gay, he included a provision excluding "an adopted child of Robert, if adopted while Robert is a single person, or a biological child of Robert, if Robert shall not be married to the child's mother within six months of the child's birth." The provision will exclude Cooper if Robert remains married to his partner. His attorney Anne Bederka wrote that the Will provision was "tantamount to expecting him either to live in celibacy, or to engage in extramarital activity with another man, and is therefore contrary to public policy."

Robert is challenging the will because in order to meet the conditions set in the Will, he would have to enter into a sham marriage in violation of New York marriage-equality law. The Manhattan Surrogate's court has yet to approve a settlement.

See Alyssa Newcomb, Gay Man Told to Marry Woman or Son Would Lose Inheritance.

Tuesday, July 31, 2012

Another Chapter in the Marshall Estate Saga

In June, a federal court ruled that the executor of the Estate of J. Howard Marshall and the trustee of a trust which received gifts from Mr. Marshall, are both personally liable for gift tax deficiencies related to the decedent. Both men, in reliance on legal counsel, distributed property without first paying unpaid gift tax. The court stated that reliance on incorrect legal advice does not excuse the non-payment, and personal liability attached to the fiduciaries. (U.S. v. MacIntyre, ___ F.Supp.2d ___, 2012 WL 2403491 (S.D. Tex June 25, 2012).

Wade Ash was involved with the infamous case of Anna Nicole Smith versus the Estate of J. Howard Marshall (Marshall v. Marshall, 547 U.S. 293 (2006)), for which our own Jim Wade submitted an amicus brief to the United States Supreme Court on behalf of the National College of Probate Judges.

Thursday, July 26, 2012

“Distraction” Thieves Are Burglarizing Elders’ Homes

The Denver D.A.'s Crime Alert for July, 2012 referenced the fact that thieves posing as roofers, fence installers, utility workers and those of other trades are burglarizing Denver residences by using distraction tactics on elderly victims to gain entry into their homes. First, they lure their unsuspecting victims outdoors under false pretenses, such as to help locate property lines, or to assess “damaged power lines”,  trees in need of pruning, etc. While the victim is detained, . . . (to read more, go to Burglary Alert).

Senior Law Day

Saturday, July 28, 2012 marks the 14th Annual Senior Law Day event. Colorado seniors and adult children are invited to participate in this event. Workshop topics include, for example:

Adult Protection and Elder Abuse
Assisted Living and Nursing Home Issues
Estate Planning: Wills, Trusts & Your Property
Powers of Attorney and Guardianship & Conservatorship
What to do When Someone Dies

For more information or to register for this program visit

Monday, July 23, 2012

Can a Child Have More Than Two Parents?

Under current law, California does not allow more than two legal parents per child. But with the rise of surrogate births, same-sex parenthood, and assisted reproduction, California state senator, Mark Leno, introduced Senate Bill 1476, which would allow a child to have multiple parents. The bill states that in a situation in which three or more people could not agree on child custody, a court could divide custody among all of them.

The bill does not require a judge to take this step, but it provides another avenue when trying to decide what is in the best interest of a child. California’s children might ultimately benefit from additional financial support, health insurance, or social security benefits from more than two parents. Supporters of the bill believe this factor might ultimately reduce the state's potential financial responsibility. Opponents argue the bill is redefining and "muddy[ing] the waters" of family structure. It may also have unintended consequences in other areas of the law, such as inheritance or wrongful death. It will be interesting to hear the issues raised by this bill, and if it is signed into law, how it impacts families.

We are not aware of any Colorado law which would authorize more than two legal parents for purposes of determining child custody or child support issues. However, Colorado has changed state intestacy statutes to allow for a person to inherit from more than just two parents (adoptive and birth parents, under certain situations). This statute does not impact Colorado law regarding child support or child custody.

See Jim Sanders, California Bill Would Allow a Child to Have More than Two Parents, The Sacramento Bee, July 2, 2012.

Sunday, July 15, 2012

Living Forever On Facebook - A Reminder

Today a Wade Ash attorney received a message on Facebook which notified her it was the birthday of a Friend. However, this Friend died of brain cancer in March. Her husband is not a Facebook user, and it appears no one has notified Facebook of her death (did you know you can do that)? Now that more of our lives are on-line, everything from our vacation photos to our banking needs, consider creating a password list and include a direction regarding your wishes for your digital assets. Pass this list on to your estate planning attorney and make it available to your agent under a durable power of attorney and the fiduciaries named in your estate planning documents for use upon your disability or death.

Wednesday, July 4, 2012

Court Allows Estate Tax Marital Deduction for Same-Sex Surviving Spouse

In Edith Schlain Windsor v. U.S. (DC NY 6/6/2012) 109 AFTR 2d ¶ 2012-870, a district court found that the federal Defense of Marriage Act (DOMA) was unconstitutional when it denied the marital deduction for gifts passing to a surviving spouse married under Canadian law to a same-sex partner. They were domiciled in New York, a state that also now recognizes same-sex marriage. The IRS denied the application of the marital deduction to gifts passing to the surviving same-sex spouse per DOMA, and assessed $363,000 in estate tax. The surviving spouse appealed, and the court found that DOMA violates the equal protection clause of the U.S. Constitution because there is no rational basis supporting the law. As a result, the marital deduction was applied to the estate of the deceased spouse. The federal estate tax marital deduction is unlimited in amount and postpones any estate tax on assets passing from the decedent to a surviving spouse who is a U.S. citizen. Special rules apply to a spouse who is not a U.S. citizen. (IRC §2056).

Monday, July 2, 2012

Federal Law News Flash!

On June 15, 2012, Treasury issued temporary and proposed regulations which give clarity and guidance as to the application, use and limitations on the portability of the unused estate tax exemption of the first spouse to die. In particular, the IRS clarified how the portable amount of estate tax exemption is calculated, and how that amount can be used by the surviving spouse, both for lifetime gifts as well as at death. Treasury calculates the surviving spouse’s exemption in a way that is favorable to taxpayers: The first spouse’s unused exemption (calculated in the year of death and pursuant to a timely filed U.S. Estate Tax Return) is added to the surviving spouse’s exemption. This means that if the first spouse dies in 2012 with $5 million in unused exemption; his estate timely files a Form 706; and surviving spouse dies in 2013 with a $1 million exemption because of the change in federal law, the surviving spouse’s estate will have a $6 million total exemption. Earlier, commentators had interpreted the statute as limiting the surviving spouse’s total exemption to two times the exemption available at the survivor’s death (or a total of $2 million in the example described above). This favorable interpretation makes it even more important to consider filing a Form 706 at the first death.

Thursday, June 14, 2012

Speak Up For At-Risk Adults

June 15th is being recognized as World Elder Abuse Awareness Day. Sponsors including the City of Denver, the Denver District Attorneys' Office, SeniorSource 9 News, Denver Health and 50 Plus Marketplace (along with others) are sponsoring a free resource fair for seniors, families, caregivers and service providers on Friday, June 15, 2012 from 9:00 a.m. to 12:00 noon at City Park Pavillion. Live entertainment features the Raging Grannies. For more information, go to Speak Up for At-Risk Adults.

Monday, June 4, 2012

James R. Wade to be Honored at DBA Senior Spring Banquet

James R. Wade will be honored at The University Club in Denver, Colorado on June 12, 2012 at the 14th Annual Denver Bar Association Senior Spring Banquet. The Denver Bar Association will honor those members who became lawyers in 1962 and celebrate 50 years of participation in the legal profession!

Wednesday, May 30, 2012

James R. Wade’s 50th Year of Practicing Law!

This year marks the 50th year of practicing law for James R. Wade! To date, he has had a long and distinguished career which includes his stint as a Denver Probate Judge, as the author of The Colorado Probate System and the Colorado Law of Wills, Trusts and Fiduciary Administration. He has served as advisor to various national commissions on probate and trust law standards and is a member of the National College of Probate Judges, the International Academy of Estate and Trust Law, and the American College of Trust and Estate Counsel. Mr. Wade is a member of the Joint Editorial Board for the Uniform Estate and Trusts Acts. His practice focuses on the areas of estate and trust planning, estate and trust administration, and estate and trust litigation. For more information, go to the firm's website at

Monday, May 28, 2012

May, 2012 Fraud Alert

This month's Consumer Fraud Alert which is issued by the Denver District Attorney's Office is titled Identity Thieves Benefit by Stealing Social Security Numbers. The Alert lists some common signs that should alert you to the fact that you may have become a vicitim of identity theft, as well as the steps to take if it happens. For more information, go to May 2012 Consumer Fraud Alert.

Friday, May 25, 2012

Do You Have a Social Media Will?

Have you thought about what will happen to your social media accounts (Facebook, LinkedIn, etc.), your paypal account, etc. when you die? You may have executed a written Will to take care of your home and other assets, but what about your online assets? For more food for thought, go to The Hot Button Blog.

Wednesday, May 23, 2012

James Wade & Herb Tucker Speaking at 32nd Annual Estate Planning Retreat

James Wade and Herb Tucker (along with Keith Lapayude) will be speaking at the 32nd Annual Estate Planning Retreat to be held June 7-9, 2012 in Breckenridge, Colorado. The session, entitled "How to Attack and Defend Expert Witnesses in Trust and Estate Litigation" will cover many topics including the selection and engagement of experts, deposing and cross-examining your opponent's expert and evidentiary rules regarding the qualification of experts. For more information, go to 32nd Annual Estate Planning Retreat.

Tuesday, May 22, 2012

The U.S. Supreme Court and Frozen Sperm

On May 21, 2012, the Supreme Court ruled in Comm’r of Social Security v. Capato, No. 11-159 that Social Security benefits are payable only to "children" as defined in applicable state law, and that under Florida law in that case, children conceived after the decedent’s death using his frozen sperm were not his "children." Effective July 2010, Colorado adopted changes to the Uniform Probate Code, in which children conceived within three years after the decedent’s death using frozen sperm in certain circumstances will be "children" for purposes of the Colorado intestate statutes and class gifts. C.R.S. 15-11-121(8). Therefore, after July 2010, a Colorado decedent will have a different result than the Capato case. For more information about this topic, go to our June 2010 Wade Ash Newsletter or go to the Wall Street Journal article.

Friday, April 20, 2012

Cost of Living Adjustments to Probate Code

Effective January 1, 2012, certain figures in the Colorado Probate Code were adjusted for inflation, pursuant to the 2010 addition of C.R.S. 15-10-112 to the statutes, but such adjustments are only made where the increase or decrease is in increments of $1,000. The Colorado Department of Revenue is supposed to release the numbers by February 1, but this was the first year for this requirement, and apparently they had not been informed by the legislature! The numbers that change are as follows:

2011 amount
2012 amount
Initial intestate share for spouse where parent survives decedent
Initial intestate share for spouse where spouse has children from prior marriage
Initial intestate share for spouse where decedent had children from prior marriage
Supplemental elective-share amount
Small Estate Affidavit limit
$60,000 (as of August 2011, increased from $50,000)
Exempt Property
$30,000 per statute change, not COLA adjustment
Family Allowance
$30,000 per statute change, not COLA adjustment

Note that the increase in the small estate affidavit limit to $61,000 creates a disconnect from the total of the Exempt Property and Family Allowance amounts.

Wednesday, April 11, 2012

SB 12-131 Passed by Legislature

This bill protects a personal representative and trustee from liability for distribution of an estate or trust without regard to a valid designated beneficiary agreement so long as the fiduciary does not have actual knowledge of such an agreement, and the fiduciary reviewed the county records for a recorded designated beneficiary agreement in the counties in which the decedent was domiciled within three years before death.

Monday, April 9, 2012

IRS Expands Penalty and Installment Payment Relief

The IRS announced that it has expanded its "Fresh Start" initiative to help struggling taxpayers by providing late payment penalty relief and making installment agreements available to more taxpayers. Failure to pay penalty relief applies to two categories of taxpayers: (1) wage earners who have been employed at least 30 consecutive days during 2011or in 2012 (up to the April 17th filing deadline); and (2) self-employed individuals who experienced a 25% or greater reduction in business income in 2011, due to the economy. To qualify, the taxpayer’s income must not exceed $100,000 for single and head of household filers or $200,000 for joint filers. In addition, the 2011 tax liability due cannot exceed $50,000. To seek relief, the taxpayer must file Form 1127-A, Application for Extension of Time for Payment of Income Tax for 2011 Due to Undue Hardship. Those qualifying for relief will avoid the penalty until October 15, 2012, but will be responsible for interest on the tax until paid. With respect to installment agreements, the IRS has raised the threshold limit to $50,000, meaning that taxpayers who owe up to $50,000 in back taxes may qualify for an installment agreement without having to provide financial information to the IRS. In addition, the IRS extended the maximum term for installment agreements to 72 months.

HB 12-1074 Passed by Legislature and Sent to Governor

This bill grants the courts access to contact information from other state agencies for guardians and conservators who fail to timely file required reports. This will add to the court’s options for contacting fiduciaries to obtain such reports. The Denver Probate Court has been issuing Letters to guardians and conservators that expire on the date such reports are due, and will only be re-issued once the reports are filed.

Tuesday, April 3, 2012

Do Children Born Post-Death of a Parent Qualify for Social Security Benefits?

On March 19, the U.S. Supreme Court will consider the case of Karen Capato, who is trying to receive Social Security survivor benefits for her children who were born after the death of her husband, using in vitro fertilization. In 2000, Robert Capato was diagnosed with cancer and, as a precaution, froze sperm with a fertility clinic, out of concern that the treatment would render him sterile. Robert and Karen decided before Robert’s death to use the frozen sperm to conceive a child, as a sibling to their son. Robert died in 2002, and Karen gave birth to twins in 2003. She then applied for Social Security survivor benefits for the twins, but was denied. The government says this is because of the inheritance laws in effect in Florida (where the Capatos reside) which states that children conceived after the death of a parent cannot inherit property unless specifically provided for in a Will. Mrs. Capato argues that under the 1938 Social Security Act, survivor benefits go to any "child" of a covered individual, and that includes biological offspring of a married couple. The Florida law would only come into play if biological parentage is uncertain. A federal appeals court in Philadelphia ruled in favor of Mrs. Capato last year. There are currently an estimated 100 similar cases pending with the Social Security Administration.

Tuesday, March 20, 2012

Gifts to Trust Complete Even With Retained Power of Appointment

In Chief Counsel Advice 201208026, the IRS rejected two arguments for transfers to an irrevocable trust to avoid gift tax. First, the taxpayer argued the gifts were "incomplete" because the donor retained a testamentary limited power of appointment over the trust, but no power over discretionary distributions to the current beneficiaries. The IRS stated that the gift was complete as to the income interest of the current beneficiaries, and incomplete as to the remainder. In addition, the "crummey" withdrawal powers were defective because the beneficiaries could not enforce them, and would lose their interests as a discretionary beneficiary if the powers were exercised. For more information, see Federal Taxes Weekly Alert.

Tuesday, March 13, 2012

The Truth About Financial Elder Abuse

The 2010 Dodd-Frank Wall Street Reform and Consumer Financial Protection Act (P.L. 111-203) established a new agency in the Federal Reserve, the Consumer Financial Protection Bureau.  The Dodd-Frank reforms include major financial regulatory reforms and changes to the financial services industry.

The law established an Office of Older Americans within the Bureau to educate and inform older consumers so they can make better financial decisions.  The Office is committed to carrying out their purpose in a way that produces tangible, measurable and real-life results.

Some facts about Financial  Elder Abuse:

- Older Americans are losing an estimated $2.9 billion a year to financial abuse.
Three out of five families headed by a person over 65 do not have any money in retirement accounts.
- Women between 80 and 89 who live alone are twice as likely as men to be victims of financial abuse.

This problem is global.  The best way to combat financial abuse is to help seniors speak up and speak out about abusive and deceptive financial services.  For resources, information, or to share a story with the Office of Older Americans, please visit

Monday, March 5, 2012

Portability Election for Estates of Decedents Dying in First Half of 2011

For decedents dying in 2011 or 2012 with a surviving spouse, the "deceased spouse’s unused exclusion" (DSUE) amount can be added to the surviving spouse’s estate tax exemption, subject to a number of restrictions. This means that the surviving spouse could potentially double his or her estate and gift tax exemption, but only if a timely filed U.S. Estate Tax Return (Form 706) is filed. The return is due nine months after date of death, but can be extended for six months by filing Form 4768. The IRS recently issued Notice 2012-21, 2012-10 IRB; IR 2012-24 extending the deadline to file the Form 706 for decedents dying in the first half of 2011 to fifteen months after the date of death, but only for "qualifying estate" defined as estates with a surviving spouse and the gross estate does not exceed $5 million. The estate must file Form 4768 by 15 months after date of death to receive this extension, even if Form 706 was filed before the 15 months (but after the 9-month) deadline. For more information, go to IRS Notice 2012-21.

Monday, February 27, 2012

February Fraud Alert from Denver DA

The Denver DA’s office sends out a "Fraud Alert" each month. This month, they caution that "The most common tax fraud this time of year is committed by perpetrators who use stolen identities to file tax returns in the hopes of collecting tax refunds. However, not all identity thieves have financial motives in mind. Stolen Social Security numbers are also used by perpetrators or others with questionable backgrounds to get a job." They note that perpetrators will send e-mails or call saying they are from the IRS and asking for Social Security numbers and other information. The IRS never contacts taxpayers in this way. The alert also tells taxpayers to be sure to use a password to protect your tax return electronic file, and then save it to a disk and delete it from your hard drive. To see other Fraud Alerts, go to Fraud Alerts.

Monday, February 20, 2012

“Temporary” Reduction in Probate Filing Fees

Effective January 23, 2012, the Colorado Supreme Court has temporarily reduced filing fees in court actions, including probate matters. At least temporarily, the fee for filing an application or petition for probate is $127 instead of $164, and the fee for filing a trust registration statement is $126 instead of $163. The fee for certifying Letters is also reduced from $20 to $13. While the directive on the Supreme Court website says that the reduction is temporary, it does not say when the fees will go back up to prior levels. See Filing Fees.

Wednesday, February 15, 2012

Estate Planning Basic Skills 2012

Laurie Hunter will be presenting at the Colorado Bar Association's Continuing Legal Education seminar entitled "Denver Estate Planning Basic Skills 2012" on March 1, 2012. Laurie's presentation will focus on Planning for Married Clients and Larger Estates: Yours, Mine and Ours - Second Marriages and Blended Families, Using Contingent Trusts for Children or Grandchildren, Planning for Problem Adult Children, Non-Tax Considerations When Planning the Larger Estate Such as Distributions of Business Interests, Etc., Which Tax Apportionment Clause is Appropriate, Married with Children.

Monday, February 6, 2012

Portability: Mechanics, Compliance and Risks

Josie Faix is presenting a seminar entitled, "Portability: Mechanics, Compliance and Risks" on behalf of the Trust & Estate Section of the Colorado Bar Association on February 7, 2012 at the CBA offices at 1900 Grant Street, Suite 300, Denver, Colorado. Josie will focus on compliance and exposure issues related to what has been trumpeted by some in the media as one of the most significant estate planning benefits of Sections 302(a)(1) and 303(a) of The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010.

Thursday, February 2, 2012

Estate Planning - Being Mindful of Divorce

There are some lessons to be learned in the estate planning context to help protect family assets from claims of a spouse of a child or other relative in a dissolution proceeding.

Property is characterized as either "marital" property or "separate" property. Generally separate property is allocated 100% to the party who owns it. Fortunately, from an estate planning perspective, separate property includes property which is received by gift or inheritance. The earnings on and appreciation in value of separate property is, however, characterized as marital property. In general, all property which is not separate property is characterized as marital property and is subject to division by the divorce court. Colorado is a so-called "equitable" division state which means that marital property does not have to be divided equally, but may be divided on a non-pro rata basis determined to be equitable by the court. One basis for an unequal division may be the disproportionate value of separate property owned by one of the parties.

One risk is that property which might otherwise be characterized as separate property may lose that status if it becomes commingled with marital property or otherwise cannot be traced to its separate property source.

For more information on this topic, including some general guidelines, see our December 2011 newsletter.

Monday, January 30, 2012

Colorado Advocates Push For Mandatory Reporting Law for Elder Abuse

American Bar Association Commission on Law and Aging reports that Colorado is currently one of only four states without a mandatory reporting law for elder abuse for social workers, physicians and other care occupations. Advocates for the elderly have been working to pass a law that would require social workers, physicians and others to report suspected abuse of at-risk adults. Over the last thirteen years, multiple mandatory-reporting bills have been sent to legislative committees, where the bills languish. One bill made it to the Governor’s desk in 2005, but then Governor Bill Owens vetoed the bill. Advocates of mandatory reporting plan to introduce another bill on this issue in the 2012 legislative season. Many in the elder care community are in favor of such a law, but are cautious when it comes to the consequences. Dora-Lee Larson, executive director of the Denver Domestic Violence Coordinating Council, said she supports the law, as long as it is accompanied by funding so caseworkers have the resources to meet expanded need.

Thursday, January 26, 2012

International Network of Boutique Law Firms

Wade Ash Woods Hill & Farley, P.C. is a member of The International Network of Boutique Law Firms ("INBLF"). INBLF is an organization of highly credentialed single-discipline (boutique) law firms, each of which, after a great deal of research, has been identified and hand-selected as prominent in each firm's respective field of practice.

Each member firm practices, and has achieved preeminence, in only one or two specific substantive areas of practice, none of which overlaps with any other member firm's area of expertise in that specific geographic market. The INBLF is organized such that individual chapters have been established in every significant city and geographic market throughout the United States and Canada, thereby ensuring that all major practice areas in every major market are covered by a highly credentialed INBLF member.

The purpose of the INBLF, among other things, is to ensure that each firm's clients will receive only the very highest quality legal representation -- irrespective of the nature of the legal issue or the jurisdiction in which it arises -- should that client elect to retain an INBLF member for legal counsel or assistance.

Wednesday, January 25, 2012

Yes, There is an App for That

Facebook now has an application (commonly referred to as an "app") called "If I Die" that allows a user to post a final message on his or her Facebook wall when the user dies. A user selects three "trustees" who are Facebook friends that will verify the death of the user. After the trustees confirm the user’s death, Facebook posts the user’s "If I Die" message. Eran Alfonta, the app’s co-founder, said the app was created because "[w]e all have things to say and don’t necessarily have the audience with the patience to hear us. Actually we all want to leave something behind, we all want to leave a stamp behind us." For now, the app posts the "If I Die" message on the user’s public profile page, but the creators are working on changes to the app which will give users the ability to send non-public messages, even to non-Facebook users. The number of app users is expected to hit 100,000 within a couple of months.
See If I Die: Facebook App Lets You Leave Sweet Last Words, Mashable Social Media, Jan. 6, 2012.

Wednesday, January 18, 2012

Colorado Lawyer of the Year

Marc Darling was recently named the 2012 Colorado Lawyer of the Year in Litigation - Trusts & Estates Law by U.S. News - Best Lawyers®.

Tuesday, January 17, 2012

Wade Ash Woods Hill & Farley, P.C. Named Best Law Firm in Colorado

Wade Ash Woods Hill & Farley, P.C. was recently named Best Law Firm in Colorado by U.S. News - Best Lawyers® for the following practice areas:

Trusts & Estates Law
Litigation-Trusts & Estates Law

Advanced Estate Administration

Laurie Hunter will be presenting at the Colorado Bar Association's Continuing Legal Education seminar entitled "Advanced Estate Administration" on February 1, 2012. Laurie's presentation will focus on Settling Probate Matters with Minors: Alternatives for Distributions if a Trust is Not Created, When a Conservatorship Might be Required, Who Represents the Minor in a Settlement of a Controversy, Cordinating a Guardianship with the Probate Proceeding, Effect of Divorce, Claims for Child Support, Changes in Gifts or Fiduciaries, Allowances, Pretermitted Children.

Monday, January 16, 2012

Avoiding Battles Over Personal Property

The distribution of tangible personal property is the leading cause of family disputes in probate administration. More family disputes are caused by division of jewelry and family heirlooms than money. Frequently, these fights occur in blended families where the parents may have heirlooms earmarked for children from a prior marriage, rather than a second spouse and /or his or her children. Estate planning lawyers have developed many techniques to help reduce these problems and to avoid having off-duty police officers attend meetings among family members to select personal property.  For more information, go to our December 2011 newsletter.

Tuesday, January 10, 2012

Changes in Non-Appearance Hearing Time Periods

Effective January 1, 2012, and as part of the changes to the state court procedural rules to adopt the "Rule of Seven," the deadlines in Probate Rule 8.8 were revised from 10 days’ notice of a non-appearance hearing to 14 days. That also means 14 days (two weeks) and no additional days for mailing, weekends, etc. The Rule of Seven is designed to simplify determination of time deadlines, and is discussed in more detail in The Colorado Lawyer article by Richard P. Holme, January 2012 issue at pages 33 - 40. JDF Forms 712, 722 and 963 have been revised to note the new 14-day deadlines.

Wednesday, January 4, 2012

Changes Effective January 1, 2012

The Exempt Property and Family Allowances increase on January 1 to $30,000 each for a total of $60,000 that a surviving spouse or dependent children may request from an estate under the Colorado Probate Code. The federal estate, gift and generation-skipping exemptions increase from $5 million to $5,120,000 as a result of inflation in 2012, but keep in mind that they may go down to $1 million in 2013 if Congress fails to take action. Happy New Year!