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.

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.

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.

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.

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.

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.

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.