Saturday, September 21, 2013

Charitable Giving Guidelines and Scam Alert

Mitch Morrissey, the Denver District Attorney, released this special edition of Consumer Alerts.  The aftermath of the Colorado floods are fertile ground for scam artists to take advantage of people who are still struggling to get back on their feet. Go to Colorado Flood Scam Alert for more information.

Thursday, August 22, 2013

Perils of Avoiding Probate

By James R. Wade, Esq.

In states (unlike Colorado) where estate settlement costs are high and the system of estate administration is slow, there are various methods properly used to have assets pass outside of the probate system.  In Colorado, however, these methods may be counterproductive.

In some states, revocable trusts are often used as a will substitute to avoid probate.  In Colorado, however, our system of informal probate, unsupervised administration, and informal closing effectively removes the court from estate administration and makes probate estate administration as efficient as use of a revocable trust at death. 

There are disadvantages to revocable trusts including the following:

1.    Loss of statutory homestead exemption for residential real estate placed in a revocable trust (our Court of Appeals ruled that the exemption was intended to benefit people and not trusts);

2.    Loss of short four-month period for creditors to file claims in a probate estate after death;

3.    Risk of having to file trust income tax returns prior to death;

4.    Post-death complications in not being able to utilize income tax and distribution planning (trusts generally can only utilize a calendar year for income tax purposes; post-death a trust can file a special election under the Internal Revenue Code to be taxed as if it were a probate estate so as to get the benefits of selecting a non-calendar year); and

5.    The early costs of setting up the trust and funding it (the ultimate net cost should be about the same).

POD (payable on death) bank accounts and TOD (transfer on death) security accounts are authorized by statute and are sometimes promoted by financial institutions as a short-cut way to avoid probate.  Again, probate cost avoidance is not applicable in Colorado, and there is a real risk that use of these accounts may end up distorting the primary estate plan provided in the will.  Assume you have your estate under your will pass in equal shares to your three children.  Having no POD or TOD designations will accomplish this.  If, however, these kinds of accounts are used to designate a particular child as recipient of a particular account or accounts there must be constant surveillance as to the value and titling of each account to keep your overall estate in balance.

An aside: Adding a family member’s name to an asset as joint tenant (again to avoid probate at death) may be unwise.  Such action with respect to real estate and securities creates an irrevocable, completed gift for transfer tax purposes and may require the filing of a gift tax return.  It may also subject the assets to the creditors of the child whose name is added.  This may not be the case with bank accounts, but those accounts provide their own problems.  Assume again that your will names your three children as equal beneficiaries of your estate.  Assume you add the name of one of your children to your bank account, at least in part to have a second signature to write checks to pay bills.  Assume there is $20,000 in your account at the time of your death.  Does the child whose name was added as joint tenant get the full $20,000 by survivorship or should the amount pass as part of your estate in equal thirds?  The easy solution to this problem is to add the child to your account by using the bank’s power of attorney or agency account registration form (rather than using the joint tenancy registration form).  In this way the child can still write checks to pay bills without distorting the estate plan. 

As additional aside: A revocable trust funded only with real estate outside of Colorado may be appropriate to avoid ancillary probate and administration.  At death the trustee is directed to distribute the real estate pursuant to the will of the person who created the trust. 

Thursday, August 15, 2013

Considering Charitable Giving

Josie M. Faix, Esq.

Co-creator of the long-running television show The Simpsons, Sam Simon, was diagnosed with terminal colorectal cancer in 2012.  Mr. Simon has used his grim news as a catalyst to increase his own charitable giving, and to encourage others to do so.  He started the Sam Simpson Foundation in 2002 to benefit and protect stray-dogs from being euthanized.  Since then he has given to countless organizations that care for animals, people, and the environment.  Realizing he has a short time left, he has spoken publicly about his desire to give his estate to charity and the good his fortune will do for the causes he cares about.  To read an interview with Sam Simon about his charitable works, visit Sam Simon.

You don’t have to be dying or extremely wealthy to give more thought to your own charitable intent.  There are tax-wise ways to give to your favorite causes and programs, including use of appreciated stock, retirement accounts, donor advised funds and private foundations.  Give us a call to discuss charitable giving generally, and its coordination with your estate plan.

Monday, August 5, 2013

Recipient of IRA Subject to Transferee Liability for Taxes

By Laurie A. Hunter, Esq.

In U.S. v. Mangiardi, (DC FL 07/19/2013) 112 AFTR 2d 2013-5108, the district court refused to dismiss a transferee liability action brought by the IRS against a decedent’s daughter who received funds from his IRA after his death. The gross estate consisted primarily of $4.5 million in a revocable trust and $4 million in an IRA. Tax due was $2.4 million after audit (actually reduced by $200,000!), but the estate requested and received extensions of time to pay, arguing that the securities had greatly depressed values due to the recession. In fact, the decedent’s daughters engaged in active trading of the securities and paid themselves hundreds of thousands of dollars in fees. The IRS levied for the unpaid taxes; the probate estate is insolvent. The IRA was distributed to decedent’s nine children as named beneficiaries. The Court noted that if the estate tax is not paid after notice and demand, a lien (which lasts for 10 years) arises automatically against all property in the estate. In addition, a "transferee of property" in the estate has personal liability to the extent of the value of the property received. The Court agreed with the IRS that the transferee liability suit can be brought within the 10-year time period of the lien against the transferor, and was not limited to the three-year plus one statute of limitations in Code section 6901 that concerns transferee liability. Point to remember: recipients of assets on death are liable for taxes if unpaid by the estate.

Wednesday, July 31, 2013

The 2013 Revised Dead Man's Statute

By Herb E. Tucker, Esq.

The revisions to the Colorado Dead Man's Statute went into effect on August 7, 2013 as a result of the General Assembly passing Senate Bill 13-077. The new statute applies retroactively to all pending cases, unless the court determines that it is in the interest of justice that the former statute apply.

Colorado has had a Dead Man's Statute on the books since it was a territory. In 1999, the Colorado Legislature rejected repeal of the statute recognizing, as a matter of public policy, the need for the statute to reduce the risks of false claims against decedents and incapacitated persons at trial. Despite creative arguments by crafty trial lawyers, the 2002 Dead Man's Statute has survived twelve years of judicial scrutiny, with only one published Colorado Court of Appeals case construing the statute. In conjunction with the Elder Law Section, the Trust and Estate Section of the CBA has approved the subcommittee recommendations to refine the 2002 statute to provide greater clarity to both trial lawyers and judges throughout the state. It is the subcommittee's expectation that the new statute will, for many years to come, continue to survive challenge and level the playing field in cases involving decedents or persons incapable of testifying.

For more information on the 2013 changes, contact an attorney at Wade Ash, or see Herb Tucker and Marc Darling's article in the upcoming August, 2013 issue of The Colorado Lawyer.

Monday, July 29, 2013

Civil Unions and Court Forms

By Laurie A. Hunter, Esq.

The Colorado Supreme Court has released updated court JDF forms for dissolution of marriage, child custody and support actions, and other forms involved in family law, to add partners in a civil union, pursuant to the Colorado Civil Union Act that took effect May 1, 2013. The Rules and Forms Committee of the Trust and Estate Section of the CBA is working on suggested changes to the probate JDF forms to add partners in a civil union; Laurie Hunter is the new chair of that committee. In addition, a subcommittee of the Orange Book Committee of the Trust and Estate Section of the CBA is working on a review of all of the Orange Book estate planning forms, for the addition of partners in a civil union. Laurie Hunter is a member of that subcommittee.

Friday, July 26, 2013

Probate Filing Fees Increased

Effective July 1, 2013, the "temporary reduction" in court filing fees ended. The fees have now returned to their pre-January 23, 2012 levels: probate filing fee is $164 instead of $127, and certified copies of Letters are $20.75 each instead of $13. In addition, the fee for filing a Trust Registration Statement is $163 instead of $126.

Sunday, July 7, 2013

Marc Darling Named Recipient of R. Sterling Ambler Award

Marc Darling was named the 2013 recipient of the R. Sterling Ambler Award in recognition of his remarkable and devoted service to the Trust & Estate Section of the Colorado Bar Association.

Thursday, June 27, 2013

U.S. Supreme Court Finds Federal DOMA Unconstitutional

By Laurie A. Hunter, Esq.

On June 26, 2013, the U.S. Supreme Court, in a 5-4 decision, determined that the federal DOMA (Defense of Marriage Act) that prohibited recognition of a valid same-sex marriage under state law was unconstitutional. U.S. v. Windsor. In this case, the surviving spouse of a valid same-sex marriage filed a U.S. Estate Tax Return, claiming the marital deduction for assets passing to her. The marital deduction was denied by the IRS, and tax assessed. This decision makes clear that for a valid marriage under state law, the federal government cannot deny benefits to a spouse.

What this decision does not do: It did not address the validity of a state’s "DOMA" laws, which Colorado has passed, in which a state refuses to recognize the validity of a same-sex marriage that is valid under another state’s law. This may be the next case that reaches a court. It also does not address civil unions, that are specifically not marriage. In Colorado’s new Civil Union statute, a valid same-sex marriage in another state automatically converts to a civil union in Colorado. Therefore, it may be that couples married in a state where same-sex marriage is valid, would still not be entitled to spousal benefits in Colorado, but they could be entitled to federal spousal benefits. The effect is unclear at this point.

Monday, June 3, 2013

501(c)(4)-Gate: Shocking IRS Scandal or Business as Usual?

By Merry Balson, Esq.

Over the last few weeks I’ve been glued to the media reports as the IRS scandal, dubbed by some "501(c)(4)-Gate", has unfolded. After all, it is not often that the Exempt Organizations division of the IRS makes national news once, much less multiple times in the same month, focusing so much of the nation’s attention on my line of work. If you’ve followed this story at all, you too might be as shocked as members of Congress were to learn that the IRS has targeted various categories of politically backed organizations applying for tax-exempt status. While I am certainly not condoning this kind of behavior, targeting of groups by the IRS, lengthy delays in processing applications, and seemingly unnecessary requests for information from new organizations seeking exemption is certainly not a new phenomenon. Over the last few decades the IRS has targeted gay and lesbian organizations, credit counseling organizations, housing assistance organizations, family-controlled organizations and anyone else the IRS may think either does not deserve the much coveted tax-exempt status or (in the IRS’ experience) is likely to abuse that status. Remember too that, like many other areas of government, the IRS budget has been cut time and again over the last decade or more. While more senior agents have retired, the IRS has either not filled the positions, or filled them with far less experienced personnel who have not had the luxury of their predecessor’s training. Complaints have mounted for years that the IRS is understaffed and undertrained, that processing times for 1023s and 1024s (the applications organizations file with the IRS to obtain tax-exempt status) have become unreasonably long (up to more than a year at this point for many organizations), and that IRS agents routinely ask for seemingly unnecessary and burdensome information in their follow-up requests to new organizations seeking tax-exempt status, but until now, no one in Washington seemed to notice or have any motivation to make any changes. The singling out of political organizations of any nature would absolutely be inappropriate, but to those of us familiar with the long standing problems with the IRS, if the investigations uncover that an internal practice like this existed, it would not be entirely surprising, and though deplorable, it would certainly not be "shocking" given the IRS’ history. We can only hope that whatever the outcome, this new attention to the IRS Tax-Exempt/Government Entities division will bring about some long needed changes that will benefit all tax-exempt organizations, and maybe too a serious review of whether granting tax exemption to any political organization is an appropriate and intended use of taxpayer funds.

Read more about the IRS’ history of burdening nonprofits in the New York Times article published on June 3, 2013 at New York Times.

Kardashian Diaries Suit, Copyrights and Estate Planning

The recent news that the late Robert Kardashian’s widow, Ellen Pearson (a/k/a Ellen Kardashian), has been sued by the Kardashian children (and Mr. Kardashian’s former wife, Kris Jenner), for selling excerpts from their father’s diaries about their lives is a good reminder of the importance of good, clear estate planning documents. Reportedly, Ms. Pearson, who sold portions of the diaries to the tabloids, found the diaries in a box at a vacation home she shared with her late husband. The Kardashian children claim that Mr. Kardashian’s will left the bulk of his tangible and intangible personal property (which would include copyrighted items) to them, including the diaries, and that Ms. Pearson’s sale of them was, among other things, a copyright violation. Interestingly though, Mr. Kardashian’s will may have given both the vacation home and other personal property "customarily used at that property" to Ms. Pearson. The question is whether the property left to Ms. Pearson with the vacation home included the intangible personal property rights (such as copyright and publication rights) in the diaries. Though he probably had no idea his children would have such a public life following his death, had Mr. Kardashian given careful thought to how those diaries and any intangible property rights from photos and other personal effects should be disposed of in his will, and had drafted his plan to clearly reflect that intent, this dispute might have well been avoided. A court has not yet ruled but for estate planners and their clients, the lesson is to plan for all eventualities - who knows, your own kids may turn out to be reality TV stars well after your death and your own notes and photos might be for sale to the highest bidder.

Monday, May 20, 2013

Fraud Alert

The Denver D.A.'s Fraud Alert this month is related to Auto Dent-Repair Scammers who are targeting victims in parking lots. For the full Fraud Alert go to Alert

Friday, May 17, 2013

World Elder Abuse Awareness Day

Meet National Senior Olympians on Tuesday, June 4, 2013 from 9:00 a.m. to Noon at Eisenhower Recreation Center. This free event will feature an Age of Champions Documentary, hands-on workshops, resource fair and free breakfast. For more information, go to Awareness Day.

Tuesday, May 14, 2013

New Colorado Statutes Effective August 8, 2013

On May 11, 2013, Governor John Hickenlooper signed Senate Bill 13-077 into law which will become effective on August 8, 2013. This Bill contains the statutory changes requested by the Trust & Estate Section of the Colorado Bar Association. Several statutes will go into effect in August. Among them, the new law modifies Colorado’s Dead Man’s Statute to make it more user friendly, particularly in the probate context in which it often plays a part. It adds to the factors that are to be considered by a judge when determining the reasonableness of compensation and costs in probate matters, and reaffirms that nominated and appointed personal representatives have legal standing to determine their decedent’s probable intent and estate planning purposes on issues involving the decedent’s estate and it allows those representatives to prosecute or defend their decedent’s intent at the expense of the estate, resolving a previously open question in probate proceedings.
The Bill also contains a statute harmonizing the information of appointment requirements sent to heirs and beneficiaries (and other interested persons) with those under the corresponding probate rule, it modifies the priority of claims in decedent estates to give child support claims a higher priority than those of general creditors and it makes clear that funds on deposit in bank accounts and credit unions are subject to collection by affidavit in small estates.
We will now have a statute that makes mandatory the requirement that a court order a professional evaluation in a conservatorship proceeding if the respondent requests it. In order to preserve assets in a conservatorship, the new law also will provide relief when there are insufficient funds available to pay all creditors, by providing a mechanism for the conservator to request that the protective person's limited funds be used for his or her care prior to being paid to general creditors.
In August, we will have a law that authorizes a grantor to be reimbursed by the trust for taxes he or she paid on behalf of their IDGT (intentionally defective grantor trust) without exposing the trust’s assets to his or her creditors or causing them to be included in his or her estate. Another statute will provide protection to trustees under certain circumstances involving ILITs (irrevocable life insurance trusts). The Bill also adopts, with some changes, the Uniform Trust Code’s codification of the law involving revocable trusts and makes definitional changes to ensure that revocable trusts in probate are characterized differently from business trusts.
Finally, the Bill contains new effective date provisions for amendments to the Colorado Probate Code (other than those effecting “protective proceedings” like guardianships and conservatorships) that, with one notable exception, will be uniform with the effective date provisions of the Uniform Probate Code. The one exception deals with the law of intestacy in which it will now be clarified that the intestate law in effect in Colorado at the time of the decedent’s death controls the identification of the heirs and the amount of their shares, despite any prior or future amendments to the laws of intestacy.

Monday, May 6, 2013

Colorado Secretary of State Increases Filing Fees

For most of the past year, the filing fees for the Secretary of State’s office were $1, including filing Articles of Incorporation (corporations), Articles of Organization (limited liability companies), and Certificates of Limited Partnership. That temporary reduction of fees has ended, and the filing fees are now back to $50 for each new fling, and generally $25 for amendments. Certificates of Good Standing are free on-line, and periodic reports are $10 on-line. The periodic reports cannot be filed in paper form.

Thursday, May 2, 2013

President’s Budget Includes Changes Affecting Estate Plan

The President released his budget on April 10, 2013. While this does not mean these provisions will become law, they could be part of a tax reform package later this year. Some of the changes include: (1) a $3 million cap on IRAs and retirement plan; (2) Inherited IRAs would have to be paid out in 5 years instead of over the beneficiary’s life expectancy; (3) Generation-skipping transfer tax exemption applicable to trusts would expire after 90 years; (4) Grantor retained annuity trusts would have a minimum term of 10 years; and (5) coordination between the value of an asset reported on the U.S. Estate Tax Return and the beneficiary’s reported basis on a sale.

Thursday, April 11, 2013

Despite Willa Cather's Restrictive Will, her Personal Letters Will be Published

Since her death in 1947, author Willa Cather’s personal letters have been off limits per a provision in her Will which prohibited the publication of her personal letters. Her last individual executor died in 2011, which resulted in her copyrights passing to the Willa Cather Trust, the University of Nebraska Foundation and the Willa Cather Foundation, which quickly dropped the prohibition of Ms. Cather’s letters, as well as the restriction concerning the ban on film adaptions of Ms. Cather’s works. As a result, The Selected Letters of Willa Cather will be published this month and will contain 566 of the almost 3,000 letters which are known to have survived Ms. Cather. Go to the link for the New York Times article about this - O Revelations! Letters, Once Banned, Flesh Out Willa Cather

Thursday, March 28, 2013

Civil Unions Become Law in Colorado

On March 21, 2013, Governor John Hickenlooper signed the Colorado Civil Union Act into law, which will become effective as of May 1, 2013. A civil union may be entered into by any two adults (regardless of gender), and will function as the legal Colorado equivalent of marriage. Couples wishing to enter into a civil union must go to their local clerk and recorder and file a license, and the officiant then files a civil union certificate to verify the union. Please note that a civil union will supercede any recorded beneficiary designation.

Although civil unions are not marriage (the Colorado constitution defines marriage as between a man and a woman only), all of Colorado state laws will apply to partners in a civil union as they do spouses. Partners will have the same statutory rights and responsibilities as spouses. If partners wish to end their civil union, they will have to obtain a legal dissolution of the union, and will be subject to the current laws regarding maintenance, parenting time, child support, and property division. All of the same rights at death will apply to a surviving partner. Just as with marriage, partners in a civil union may enter into an agreement to modify the rights of each partner at both death and divorce.

Despite the change in Colorado law, the federal law is currently unchanged. The federal government has the Defense of Marriage Act (DOMA), which was signed into law in 1996, and defines marriage as only between a man and a woman, and denies federal law coverage for those that have married in a state which has legalized same-sex marriage. This means that for federal law, such as income taxation, social security benefits, estate and gift rules, and federal spousal benefits, partners in a civil union will be treated as if they are both single people. On March 27th, the U.S. Supreme Court considered a case which will be decided based upon the constitutionality of DOMA. Even if the Court decides DOMA is unconsitutional, it is unclear if federal law will apply to partners in a civil union.

Sunday, February 3, 2013

2013 Probate Numbers Indexed for Inflation

The 2013 numbers have been posted by the Colorado Department of Revenue: Small Estate Affidavit is $63,000; Exempt Property is $31,000; Family Allowance is $31,000; Elective Share supplemental amount is $52,000.

Wednesday, January 9, 2013

The Charitable IRA Rollover is back for 2012 and 2013!

The American Taxpayer Relief Act of 2012 (ATRA) enacted January 2, 2013, extended the IRA charitable rollover rules which were originally put in place in 2006, and expired at the end of 2011. This provision allows individuals who are 70 ½ or older to transfer (or "rollover") up to $100,000 per year from their IRAs to most charities if the transfer is a "qualified charitable distribution" and certain rules are followed. Not only can taxpayers use the charitable rollover for 2013 distributions, but distributions from IRAs made after November 20, 2012 and before January 31, 2013 may be treated as a charitable IRA rollover for 2012, if that distribution is made in cash to charity before January 31, 2013. Thus, you could give up to $200,000 to charity from your IRA in 2013 (with $100,000 treated as given in 2012) if you act quickly. Contact us or your IRA plan administrator to learn more.

Saturday, January 5, 2013

New Tax Bill Passed!

The American Taxpayer Relief Act was passed in the first days of 2013 to avoid raising taxes on all taxpayers. The Act: (1) extends the 2012 income tax rates for persons earning less than $400,000, or $450,000 for joint filers; (2) for these same filers, the capital gains and dividends rate will increase from 15% to 20%, but stay at 15% for other taxpayers; (3) estate, gift and GST exemptions stay at $5 million (indexed for inflation) but the top rate is increased from 35% to 40%; (4) makes "permanent" the portability of a deceased spouse’s unused exemption to the surviving spouse; and (5) makes "permanent" the alternative minimum tax relief and indexes it for inflation.