Law News and Tips

Small Package; Big Problems

Fred Vilbig - Monday, July 09, 2018

 

SMALL PACKAGE; BIG PROBLEMS

Fred L. Vilbig © 2018

     I recently got a call from another attorney saying she had a “difficult” probate case and wondered if we would mind taking it over from her. Since the beneficiary was the Catholic Cathedral Basilica, I agreed without really getting all the details. My paralegal warns me (maybe it’s abuse) not to do things like that. This may read a little like Abbot and Costello’s “Who’s on First” routine.

     It turns out it was actually two estates. The first to die was the tenant (the “Tenant”) of a house owned by the second to die (the “Landlord”).  Neither the Tenant nor the Landlord had any close family. The Tenant’s will provides that everything goes to the Landlord.The house was in the City, so the Tenant’s estate will have to be probated in the Probate Court there. The City Probate Court is really swamped, so this can present a problem. From what we’ve been able to determine so far, the Tenant’s estate has less than $40,000 worth of assets in it, so we should be able to do what is called a small estate administration, an easier process. The problem is that the house is a mess, so we’ll have to hire someone to clean it out. Are you confused yet?

     The Landlord lived in the County. Since he owned the house, this will probably be a full estate. In order to probate an estate, we need a personal representative. In this case, the Landlord had a will that named a personal representative (the “PR”), but the PR is elderly with health issues. However, after talking about what’s involved, he did agree to serve. That was a relief since it can get really complicated when there isn’t a named PR willing to serve.

     In addition to the house, the Landlord’s estate appears to include some life insurance proceeds. It turns out that the Tenant had a life insurance policy that was payable to the Landlord. Since the Landlord survived the Tenant, the uncollected life insurance proceeds are payable to the Landlord’s probate estate. Are you confused now?

     The problem is we don’t know how much the life insurance policy was worth. We won’t know until we have a PR appointed. Life insurance companies (in fact any financial institution) won’t talk to anyone in an estate situation until a PR is appointed. I understand why; it’s just kind of a bother.

     In the end, we were able to simplify all of this, and there will be a nice sum of money (but not a fortune) going to maintain one of the gems of our region. The Cathedral Basilica is the largest single collection of mosaics outside of Ravenna, Italy – the second largest in the world! And they’re beautiful! So I feel justified in taking on a couple of involved, albeit small, probate estates. But I’m sure I’ll hear different from my paralegal. Oh well.

Want to avoid problems with your estate? Estate planning can avoid this type of situation.Contact Fred now about your situation. The first consultation is free. Or call him now at (314) 241-3963

After Mom Dies?

Fred Vilbig - Friday, May 11, 2018

 

AFTER MOM DIES?

Fred L. Vilbig © 2018

     I recently met with a client whose mom had died. I’d written his mom’s trust almost 20 years ago, and now we had to administer it.

     The first thing I always want to do is I want the named trustee to find out what assets were actually in the trust.When we do a trust plan, I always give clients a funding letter explaining how to transfer assets into their trust, but things get missed.This may or may not include joint assets which automatically pass to the surviving joint owner, if there is one.We are only interested in those assets that were only in the decedent’s name or where the decedent was the last surviving joint owner.

     If there are assets outside the trust, then we need to determine whether we can do a small estate or we have to do a full estate. For instance, many people overlook their cars, as this client had, but as long as the total value of the probate assets is less than $40,000, we can administer those assets by simply filing an affidavit and the original will (if there is one). It’s simple and easy to do.If the probate assets are over $40,000, then we will need to do a full probate, and that discussion is beyond the scope of this article.

     I always recommend that we file a decedent’s will. In addition to a trust, I always have my clients execute what we call a “pour over will.” This works kind of like a safety net for probate assets. If we had to open a full probate estate, the pour over will would simply scoop up those assets and pour them over into the trust. Even when we think that there aren’t any non-trust assets, we file a will in case assets are discovered later. A will is void if it isn’t filed with the probate court within a year of a person’s death, so we want to just be careful.

     I also suggest that we publish a notice of trust. This is a notice published in a legal paper just saying that the client died, and there is a trust. What that does is it notifies creditors that if they have a claim, they need to file it with the trustee within six months of the publication of the notice. Without a notice, the claims period is one year. If anyone has a claim against the decedent, they would have to file within six months (or one year without the notice) of the notice publication date or be barred from filing the claim.

     We then talked about taxes. If there is a surviving spouse, then he or she just files a tax return including all of the couple’s joint income. If there’s not a surviving spouse, then the fiduciary has to file a tax return for the decedent reporting income and paying taxes incurred up to the date of death. That is filed using the decedent’s Social Security number. Whether there is a surviving spouse or not, if there is real estate to be sold or if it is anticipated that the trust or estate will earn more than $600 before things get wrapped up, the fiduciary needs to get an employer identification number (and “EIN”). Any amounts held by the trust after death will need to use that EIN. And when real estate is sold, the title company is going to insist on having an EIN. And if the trust has more than $600 of taxable income, then a Form 1041 will have to be filed.

     One of the more complicated things in administering the trust is the need for an accounting. Missouri law requires it if a beneficiary asks for it, but it just makes sense anyway. You need to start with the date of death value on all of the assets; show all of the income, payments, and adjustments made during the course of administration; and then come up with the remaining balance at the end showing who gets what. A thorough accounting can avoid a lot of problems at the end.

     As you can see, there is a lot to administering a trust. If you want some direction, give us a call.

Contact Fred now about your situation. The first consultation is free. Or call him now at (314) 241-3963

Planning for Digital Assets

Fred Vilbig - Thursday, April 12, 2018

 

PLANNING FOR DIGITAL ASSETS

Fred L. Vilbig © 2018

     As I’m writing this, Mark Zuckerberg, the CEO of Facebook, is in the middle of testifying before Congress about a data breach of some sort.  To be honest, I haven’t really been following all of the reports on this situation, so I won’t pretend to understand what all is involved in this.  But I do know that Americans have surrendered a huge amount of privacy to digital businesses.  One study found that even with your cell phone off, the GPS on your phone can still track almost everywhere you go.  And people put all kinds of personal stuff on line, and it really isn’t private.

     That started me thinking about estate planning for your digital assets.  More and more of our financial information is on line.  Most people buy things on line which requires using credit cards or debit cards. Some people pay bills on line.  A lot of people do on-line banking.  And then people have all kinds of social media accounts that may have private information or pictures on them.

     The question is, what happens to all of that when you die?  I’ve had widows and widowers who knew their deceased spouse’s username and password.  They have continued to use the deceased spouse’s accounts for quite some time after their death, even investment accounts.  I understand the practicality of that, but I don’t endorse it.

     The problem arises when no one knows the decedent’s username and password (or whatever the access procedure calls for).  There are lots of digital pirates sailing the virtual sea.  It’s not uncommon for one of those pirates to commandeer a digital account, steal the information, and run up bills.  Your estate in the end might not end up being liable for those, but it can create a real headache for your personal representative or trustee (your “fiduciary”).

     So what’s a person to do? First, you need to pick a fiduciary who has some working knowledge of digital finance and social media.  They need to be comfortable working in the digital world.  You have to name them in your will or trust.  It may be that you want to have one fiduciary to handle your regular assets and another to handle the digital assets.  Your call.

     Next (or maybe even simultaneously) you need to make a list of your digital accounts, the user name, and the password.  If a particular digital account has some special access procedure, you need to include that information on your list.  The problem with all of this is that I end up changing usernames and passwords fairly frequently.  In particular, I forget passwords and have to change them.  So this list needs to be fairly accessible.

     There are apps you can use to store all of that information.  I am not endorsing any of these, but the ones I have heard about are PasswordBox, PasswordSafe, and SecureSafe.There are many more.  If you’re old fashioned (or tech-challenged) like me, then maybe having a paper list in a safe or a Word document on your computer can work too.  Just make sure that your digital fiduciary knows how to access that information. I’ve put a sample table at the end of this blog if you want to use that.

     And when you’re doing all of this, be sure to investigate the particular terms and conditions of the digital accounts.  For instance, Facebook has a way of deleting digital information or notifying certain people you have designated if your account remains inactive too long. Google has something similar.  Twitter is much more draconian: it requires, among other things, a death certificate, a government issued ID, and a signed statement from a personal representative (which may require that you open a probate estate).

     So planning for digital assets does require work, but besides the basic will or trust, it is work that you have to do.  If you have any questions, contact me.

Contact Fred now about your situation. The first consultation is free. Or call him now at (314) 241-3963

DIGITAL ACCOUNT LIST

Digital Account Username Password Special Instructions
       
       
       
       

 

 

Taxes and Death

Fred Vilbig - Thursday, March 29, 2018

 

TAXES AND DEATH

Fred L. Vilbig © 2018

     Tax Day is just around the corner.For those getting refunds, the date is probably irrelevant. You’ve probably already filed your tax return, deposited your refund check, and bought that big screen TV.

     Tax Day is much more relevant for those who still owe some taxes. They may still be gathering information for their preparer.They most certainly are trying to figure out where they are going to get the money to pay the remaining taxes due.And they resent the fact that it costs probably over 50% of their earned income to be an American.

     Yes, between state and federal income taxes, personal property tax, real estate tax, and sales tax, a number of people pay over 50% of their income in taxes.Sure there may be some who can avoid paying some of their taxes by making certain investments and things, but that is a very small number of people. The vast majority of American citizens don’t have those kinds of options. They have to work for a living, and so they pay taxes, and lots of them.

     One of the only remaining (legal) tax savings (and it’s really only a tax deferral) options open to taxpayers is saving for retirement. It used to be that employers provided pensions to workers, and it was up to the company to worry about how that was going to get funded. Government employees (including teachers) still get this. But those days are gone.

     For most of us, we have to take money out of our paychecks and put it in 401(k)s or IRAs. Although that can be painful now, it is critically important for the future. Although some people have gotten lazy and think that the government will take care of us all through Social Security and Medicare, Social Security checks don’t really go that far. And since the US has to borrow literally billions of dollars each year just to keep this flimsy boat afloat, who knows how much longer we can keep plugging the fiscal holes with foreign money.It’s a scary thought, so putting money away for retirement is absolutely critical.

     And for those who have saved money, what happens to it if you die unexpectantly. I often have clients tell me they just going to live until they run out of money. The problem is no one really knows when that day will come.

     So you do need to plan for that. If you’re married, your retirement money will probably go to your spouse. On the death of the second of you to die, you probably have named your children as the beneficiaries. The problem is that inherited IRAs can be taken away in lawsuits, and they can even get caught up in divorce settlements.If you don’t do any planning, then within five (5) years of your death, the government can take a huge chunk of your hard-earned money in taxes.

     Although we surprisingly still get a lot of pushback from financial advisors on this, the best plan for retirement assets after a spouse is a trust. In 1999, the IRS gave us some “magic” language that allows us to do that. IRAs that go through a trust are protected from bankruptcies and court judgments, and they should never enter into any divorce settlement discussions.In my opinion, it’s the best way to go. But like I said, we still get pushback for some reason.

     Call me to discuss further.It would be sad if all that money you worked so hard to save just went up in flames … I mean taxes …wait, that’s kind of the same things, isn’t it.

Contact Fred now about your situation. The first consultation is free. Or call him now at (314) 241-3963

A Client Letter

Fred Vilbig - Wednesday, March 14, 2018

 

A CLIENT LETTER

Fred L. Vilbig © 2018

Dear Client:

     Let me commend you on what you are doing. Having helped my wife care for her parents as their health and mental capacity declined, I know how physically, intellectually, and emotionally draining this can all be. Growing up, we never really think about the kinds of things you have to deal with now. Some people walk away. Some people delegate the duties. Some people just want to end it all. But you are caring for your mother at what is probably the most difficult time in her life, and also of your life up to now. As I said at the beginning, I commend you.

     That said, I wanted to answer some of your questions. The first was whether having your mom declared incompetent created any problems for you personally. To answer that, I need to define what I mean by declaring your mom incompetent.

     If she had not done any planning, that would mean getting a court involved. It’s not the end of the world, but it is sort of a pain. You’d need to get a doctor to answer a formal set of questions (“interrogatories”) to say that your mom can’t perform certain basic functions of daily living. For instance, can she remember to take her medicine at the proper time? Does she know to wear a coat when it’s cold outside?

     Once you have the interrogatories, you have a hearing. Assuming all goes as planned, the judge would then put you in charge of her finances (a conservatorship) and her person (a guardianship). You would next need to get a court order authorizing you to spend money, and then you have to file an annual financial report with the court.

     Fortunately, your mom did all the necessary planning. She has a general durable power of attorney, a medical directive (which includes a medical power of attorney and a living will), and a trust. Although people can put others in charge of things even while they’re competent, your mom (as most people) wanted to retain control as long as she could. So in her case, in order for you to take over, you just need a doctor to certify that she is not able to perform some of the necessary basic functions of daily living.

     Just as a caution to you, although getting that kind of certification from a doctor used to be fairly easy, I have noticed in recent years that doctors have become more cautious. They are often reluctant to make that certification. However, given the right circumstances, they will.

     Once you do get the certification, you can pay your mom’s bills and make decisions regarding her care. There is no need for any court proceeding. I know you were worried about having to testify, so I’m assuming that is a relief.

     I now want to return to your main question about liability. The doctor’s certification does not impose any additional personal liability on you. You are basically already doing what needs to be done. With the certification, you will just have the proper authority to do it. And you can do everything with your mother’s assets, not yours. You will have no additional personal financial liability for your mom.

     Once again, I want to commend you on what you are doing. Even though it can be very challenging, it is the right thing to do. Our parents took care of us when we were young, and now it’s our turn. Life is funny that way.

     Let me know if you have any more questions.

                                                                         Sincerely,

                                                                         Fred L Vilbig

 

Contact Fred now about your situation. The first consultation is free. Or call him now at (314) 241-3963

Resolutions and Taxes

Fred Vilbig - Tuesday, January 16, 2018

RESOLUTIONS AND TAXES

     Every year when the New Year rolls around, we all talk about making resolutions. We make resolutions to improve our appearance and physical health. We make resolutions to become better people. We make resolutions to improve our finances. I saw one study that says that people achieve less than 10% of their New Year’s resolutions. I wonder if it’s even that high.

     I would like to propose a resolution for the New Year (I know this will be published in late January, but we had the new tax law to deal with). I want people to resolve to update their estate plans, and the new tax law provides an incentive. Here’s why.

     The federal estate tax exemption used to be $600,000. With homes and life insurance and retirement benefits, a lot of people got caught by this tax. We wrote a lot of estate plans with tax planning included, which was the right thing to do at the time.

     A typical plan for a married couple involved two separate trusts. We used two trusts to make administration simpler on the death of the first spouse to die. The trusts were generally equal in value. Every year or so we wanted to look at the assets in the separate trusts to make sure they were still generally equal, and the clients were supposed to periodically rebalance the trusts by shifting assets from one to the other where possible.

     On the death of the first spouse to die, the assets in his or her trust would be distributed first to a tax-sheltered trust up to the amount of the exemption. The trustee of that trust (typically the surviving spouse) was required to distribute all of the income to the beneficiary. The surviving spouse was almost always entitled annually to demand a distribution of 5% of the trust for no reason at all. In addition, the trustee could use the principal for the health, education, maintenance, and support of the spouse in the trustee’s discretion. The amounts in the tax-sheltered trust would avoid estate taxes even on the death of the second of the spouses to die, provided that the trust was properly administered. Clients generally felt that these restrictions were reasonable enough to avoid estate taxes. Any amounts in excess of the exemption would be distributable to a marital trust that could be subject to estate taxes on the death of the second spouse to die.

     The problem with this plan is that the tax-sheltered trust was an irrevocable trust. Irrevocable trusts are taxable. They have to file tax returns. Failure to file the return can result in penalties and interest. And these trusts can generate taxes on trapped capital gains. Taxes on trust income are particularly bad because although the rates are comparable to individual rates, they kick in very quickly. For instance, any trust income over $11,950 will be taxed at 39.6%.

     With the new tax law, the exemption amount is around $11 million. A married couple can avoid taxes on approximately $22 million. It is estimated that only two in every 100,000 people will be subject to federal estate tax. What that means is that for most married couples, an estate plan with tax planning is not only unnecessary, but it can also end up costing money.

     Another problem with these old plans is that the separate assets of spouses can be liable for the debts of the individual spouse.Jointly held marital assets are protected from the claims of the creditors of either individual spouse. In 2011, the Missouri legislature passed a law allowing joint, marital trusts to be protected from the claims of individual spouses as well. Separate trusts could be liable for the debts of an individual spouse.

     I would like to propose a resolution with couples with old estate plans: update your plan. Don’t leave the surviving spouse with a headache.When one of you dies, it probably is not a good time to deal with this sort of thing.

     It’s the right thing to do. I’ll wait for your call.

Contact Fred now about updating your Estate Planning.

THE 2017 TAX CUTS AND JOBS ACT

Fred Vilbig - Thursday, December 28, 2017

 

We finally have the much ballyhooed and vilified 2017 tax act, the “Tax Cuts and Jobs Act” (the “2017 Act”) – don’t you just love these names. The 2017 Act changes a lot of fairly obscure provisions of the tax code that will affect a relatively small number of people, but some of the changes will impact a lot of people. How they affect individual taxpayers will have to be seen. It should be noted that a number of provisions under the old law have not been repealed, but they have only been suspended through 2025. This is probably due to budgetary requirements.

For purposes of this post, I want to provide a very brief summary of some of the provisions that I think will affect the most people. I can assure you that much more will be written on it in the future.

New Income Tax Rates and Brackets: The 2017 Act reduces most of the tax rates for individuals by 2 or 3 %. The 2017 Act also creates new tax brackets for trusts and estates. Under the old law, trust and estate rates were the same as those for individuals, but they were telescoped down so that you hit the maximum tax rate at about $12,500. This will change.

Increase in the Standard Deduction: Under current law, the standard deduction for 2018 would have been $13,000 for married couples; $9,550 for heads-of-households; and $6,500 for individuals who were either single or married but filing separately. Under the 2017 Act, the standard deduction is increased to $24,000 for married couples; $18,000 for heads-of-households; and $12,000 for individuals who are single or are married but filing separately. That’s the good news.

Personal Exemptions Suspended: Now for the bad news. In exchange for the increase in the standard deduction amounts, the deduction for personal exemptions is reduced to zero until 2026. It appears that these two changes in conjunction with one another mean that prior non-itemizers may come out ahead while prior itemizers may come up short.

New Inflation Adjustment Factor: Beginning in 2018, several inflation adjusted amounts will use a “chained” consumer price index (“CPI”) formula. Reportedly the chained CPI grows faster than the unchained rate. This is an obscure point, but it might work in the favor of taxpayers.

Kiddie Tax: Since this applies to kids up to 18 (or 22 if full-time students), this is probably a bad name. Perhaps a better name would be “dependent’s tax.” However, the 2017 Act changes the tax charged on a child’s income. Earned income will be taxed at single individual rates. Net unearned income (interest, dividends, rent, and royalties) will be taxed according to the new brackets for trusts and estates.

Capital Gains: The 2017 Act retains the present provisions on capital gains, but the breakpoints will be indexed for inflation using the new chained CPI.

A number of deduction provisions are also modified under the 2017 Act.

State and Local Tax Deductions: Non-business payments for state and local property taxes and income taxes are deductible, but only up to $10,000. This will be a bitter pill to swallow for residents of high income tax states.

Mortgage and Home Equity Loan Interest Deductions: The deduction for interest paid on home equity loans is suspended through 2025. For mortgages created after December 15, 2017, the deduction or mortgage interest is limited to interest paid on mortgages up to $750,000 for married couples (down from $1,000,000), and $375,000 (down from $500,000) for married taxpayers filing separately. This new lower limit does not apply to pre-December 15, 2017, mortgages, but it would apply to any refinancing of old mortgages.

Charitable Contribution Rules: The limitation on the deduction for cash contributions to public charities (generally schools and universities, churches, museums, etc.) is increased from 50% of the donor’s AGI to 60% of his or her AGI. There is no increase in the deductibility of non-cash contributions to public charities or any contributions to what are called private foundations.

Miscellaneous Itemized Deductions: Under current law, a taxpayer can deduct certain expenses (such as the cost of preparing tax returns) to the extent that they exceeded 2% of the taxpayer’s AGI. This deduction has been suspended through 2025.

Individual Mandate: The individual mandate under the Affordable Care Act which imposed a penalty for not maintaining a mandated health insurance policy has been repealed.

Alternative Minimum Tax: The tax code imposes an additional tax on certain “tax preference” items and on excess children. Income is exempt up to a certain amount. For taxpayers who are hit by this tax, the 2017 Act almost doubles the exemption.

529 Accounts: Under current law, 529 plans could be used to pay for qualified higher education expenses. Under the 2017 Act, these plans can be used for tuition at elementary and secondary public, private, or religious schools, and even for certain home school expenses, up to a $10,000 annual maximum.

Estate and Gift Taxes: The 2017 Act doubles the estate tax exemption amount, indexed for inflation. It is expected that the 2018 exemption amount will be $11.2 million ($22.4 million for married couples). I’ll write more on that in the future. This increase also increases the generation skipping tax exclusion amount.

Qualified Business Deduction: The 2017 Act added a new deduction for non-corporate taxpayers engaged in a business activity other than certain service businesses, including law and accounting. The deduction is allowed for S-corporation shareholders. The math is complicated, but it’s basically connected to a business’ W-2 wages. In promoting the 2017 Act, the Republicans said that it would promote the creation of jobs. It seems that this deduction does that, but time will tell.

There has been a lot of spin put on the 2017 Act by both the left and the right. Time will tell how it plays out nationally, but to see how it will affect your taxes personally, you will probably need to see your tax advisor.

Happy returns!

Contact Fred now about your Estate Planning.



​ Making Sausage & The New Tax Bill

Fred Vilbig - Friday, December 08, 2017

They say that making sausage isn’t pretty. I like sausage, but I’ve never made it, and I probably don’t want to know much about it. With all the government regulation of food now, this probably isn’t as bad as it once was. However, when families used to process their own meat, they were very efficient. Everything was used. As the saying goes, the only thing they didn’t use was the moo. And all the spare parts went into the sausage. You probably just don’t want to know.

I look at politics much the same way. Having served on my city government, I can say it was ugly and frustrating to say the least.

I’d have to imagine it is much worse at the federal level. Having watched the whole process of getting a new tax law (as of this writing, we still don’t have one), it’s been pretty disturbing. I think the policy considerations are being devoured by all the special interests.

To understand what’s going on, it’s probably good to keep the process in mind. Bear with me while we return to Civics 101 with an ugly dose of reality.

All revenue legislation is supposed to start in the House of Representatives. It starts in the House Budget Committee. This is where the special interest pressure starts, at least in Congress. There is public debate. Amendments are voted up or down. Then the bill is voted on according to party lines basically without regard to the merits of the bill.

If approved by the committee, the bill is then sent to the full House. Moderate horse-trading ensues, and amendments are proposed. Noble sounding speeches are made, but only for the benefit of the constituents at home. Some amendments pass while some are voted down. If the party in control likes the bill, it passes the House and is sent to the Senate.

The Senate will refer it to their Ways and Means Committee. More horse-trading ensues. Nice speeches are made. Amendments are voted up or down. Some version of the bill makes it out of that committee and goes before the Senate. Again if the party in control likes the bill, it gets approved.

The problem is the versions of the bills approved by the Senate and the House are never the same. The two versions then have to go to a Conference Committee to “reconcile” the two bills. Amendments can be inserted at that time too after all public debate is over. It’s here were some of the most controversial provisions are added, such as the HHS Mandate and the Johnson Amendments. Do you hear the meat grinder going?

What emerges from the Conference Committee many times bears striking differences from what went in. And the House and Senate then have to vote the reconciled bill straight up or straight down, without any further amendments.

In my mind the problem with this process is that you and I have no real input into what comes out of the Conference Committee. Special interest groups and very powerful constituents put pressure on the committee members. Individual congressmen propose amendments that favor one of their particular constituents. If his or her vote is needed for passage, that provision passes. Sometimes you’ll see tax code provisions that referred to a business located on a lake that operates a sandwich shop between the hours of ten and five in the state of Alabama. The name of the particular beneficiary of that law is not mentioned, but it was written so narrowly that it could only apply to one organization. But nice speeches were made.

The tax bill being proposed at best has only slim margins for passage. Concessions to individual congressmen will be necessary to get the votes they need. It will be interesting to see what special interest provisions end up in it. I guess this is all part of the democratic process, but it sure seems like sausage making to me. Is that any way to run our government?

Contact Fred now about your Estate Planning.



 

Smart Giving

Fred Vilbig - Tuesday, December 05, 2017

 

SMART GIVING

     You’ve heard the expression, “It’s better to be lucky than to be good?” Well, John was lucky. He was good too, but the lucky part was the biggest thing. But being a religious guy, he knew that luck had nothing to do with it. More on that later.

     John was in advertising. He’d worked hard. Over time he had moved up in his company, and they had made him a partner. Not a big partner, but still a partner. That was the hard work part.

     His firm had a good reputation, and when an advertising firm from London was looking for a St. Louis partner, they found John’s firm. They made John and John’s partners an offer they really couldn’t refuse. After taxes, John netted $5 million in the company shares. That was the lucky part.

     Now for the religious part: he knew this was a gift. He knew that nothing just happens by chance, so the question was, what should he do with this gift? He couldn’t just give it away since he and his wife needed the income for retirement. He also had a pretty big tax liability he was facing, so he needed to do some planning.

     He was working with a financial planner at the time. After talking this through, the planner recommended that John and his wife set up a charitable remainder unitrust, a CRUT. A CRUT allows a donor to make an irrevocable gift of a remainder interest while retaining the right to receive annual payments of a percentage of the value of the CRUT principal. Since there is an irrevocable gift involved, John and his wife were entitled to a charitable contribution deduction for a portion (though not all) of the value of the assets transferred to the CRUT. In addition, since the CRUT itself is tax exempt (unfortunately not the annual payments, though), they could at least to defer tax on the sale of his stock. Pretty nifty, eh?

     When John was setting up the CRUT, he really hadn’t decided on what charities he wanted to benefit and how.  I had warned him about just giving money outright to charities.  I have seen congregations torn apart over money fights when they received a big gift.  So we set up the CRUT, I included a provision so that he could designate the charitable beneficiaries in his will.

     There a little trick to doing this.  If you are making a gift to a public charity, for cash gifts, you can deduct up to 50% of your adjusted gross income (your “AGI”).  If you’re giving real property, stocks, or bonds, then your deduction is limited to 30% of your AGI.  However, if you are contributing to what is called a private foundation, then your deduction for cash gifts is limited to 30% of your AGI, and the deduction for non-cash gifts are limited to 20% of your AGI. There is a 5-year carry-forward for the unused charitable contribution deductions, so they’re not lost, but who wants to wait for a deduction.

     If you reserve the right to name a charity in the future and say no more, then your deductions will be subject to the private foundation 30/20% limits. The trick is that the CRUT needs to provide that you can only designate qualified public charities as the beneficiaries of the CRUT. Then you contribution will be eligible for the 50/30% limits.

     One last thing – John did not want to give up control.  He didn’t want to be locked into a bank or a charitable foundation.  He wanted to be his own trustee.  So we named him and his wife as the initial co-trustees.

     As you can see, CRUTs can be kind of complicated, but under the right circumstances, they are a tremendous way for charitably minded people to make a gift, get a deduction, defer taxes on capital gains, and earn tax deferred income like in an IRA.

     To learn more or to analyze whether this is a good option for you, feel free to call and make an appointment.  I look forward to hearing from you.

Contact Fred now about your situation.



Disturbing the Dead

Fred Vilbig - Thursday, October 26, 2017

DISTURBING THE DEAD

Fred L. Vilbig © 2017

     As I mentioned in my last column, a good estate plan is where the kids are still celebrating the holidays five years after mom and dad have died. A bad plan is where they’re not even talking to one another soon after the funeral. Sometimes the fights are enough to wake the dead.What a good topic for Halloween!

     I run into that family every once in a while where the parents haven’t planned their estate carefully or implemented the plan correctly. Many times when mom and dad are getting older, they become more and more dependent on one child as opposed to the others. Sometimes it’s to the complete exclusion of the others. And sometimes it’s that child who is isolating the parents.

     We have a case like that now. There are four children in the family. When mom and dad were younger, three of the kids clearly remember both mom and dad saying everything would be split into four equal shares when they died. The mom and dad also set up a trust. The trust said that when mom and dad became incompetent, one of the sons could step in to pay the bills. On their death, the trust provided that everything was supposed to be split four ways just like the three kids remembered.

     But for whatever reason, mom left her bank accounts out of the trust. She even had a power of attorney authorizing one of the kids to take care of the non-trust accounts. But that was not the daughter who moved in with her. After dad died and mom was growing more feeble, that daughter convinced mom that since she was living with her, mom should just “put her name on the accounts.” That way she could pay her mother’s bills and make her life easier.

     There are a couple of ways you can “add someone’s name to an account,” but the daughter marched mom down to the bank and had mom add her name as a joint owner.

     One of the characteristics of a joint bank account is that when a joint owner dies, the entire account passes over to the surviving joint owner(s). In the case of a husband and wife, that is usually a good thing. In our case, it wasn’t.When someone is added to a bank account as a joint owner, all other planning becomes meaningless. On the death of one joint owner, the entire amount in the account belongs entirely to the surviving joint owner(s), no matter what a will or trust might say.Once its theirs, they can do whatever they want with it.

     Soon after the funeral, the funeral home wanted to be paid. The son who was the successor trustee under the trust went to check how much money was in the trust to pay these bills. He found mom’s checkbook. According to the ledger, there was plenty of money in it. However, he thought it was curious that the checks had his sister’s name on them but said nothing about the trust. He called the bank only to be told that they couldn’t talk to them. They couldn’t even tell him who owned the account now. His blood pressure began to rise.

     It occurred to him that since his sister’s name was on the account, he should ask her, so he did. When he asked what happened to their mom’s checking account, he was told it was none of his business. His blood pressure rose a little more.

     When he pressed the question, his sister told him that mom wanted her to have that money, and she deserved it. She had been the one taking care of mom all these years (a slight exaggeration), and this was mom’s way of paying her back. The son asked when mom had said this, and the sister told him. The son knew mom had been pretty ill at about that time. His blood pressure was getting sky high.

     When the brother told the other siblings about this, they were furious. They called a family meeting, and the one sister came. The three other kids told her that mom and dad had wanted them to split those accounts equally, but the sister stuck to her position. Tempers flared, voices got harsh, the meeting ended in chaos, and litigation will follow.

     It’s such a sad ending to what had been a very happy family life. It’s not at all what mom or dad would’ve wanted. I’m sure it’s enough to make them turn over in their graves.

     There are alternatives.Feel free to contact us to discuss further. Call today314-241-3963

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