Protecting Estates

The LA Times has this interesting obit of Roger Richman, a California attorney who represented various celebrities’ estates and campaigned for state laws to protect (or tastefully restrict) the use of a deceased celebrity’s image or likeness. This issue involves state and federal law: state law governs estates (probate) and tort (appropriating or misappropriating someone’s name, image, or likeness), while federal trademark law may also come into play. Richman’s work led to beneficial laws for estates of celebrities or other well-known or influential people.

If my law firm, Johnson Law KC LLC, can help you or your family, or a loved one’s estate with your legal needs – estate planning, elder law, asset protection, small business law, or probate – give me a call (913-707-9220) or email me (steve@johnsonlawkc.com) for a convenient, complimentary consultation. I have extensive experience working with individuals, families, small businesses, and nonprofits on legal issues large and small – from drafting a basic estate plan for a young couple or young professional client with minimal assets to counseling affluent families with millions of dollars of complex business and real estate holdings.

(c) 2013, Stephen M. Johnson, Esq.

Bad Estate Planning: Celebrity Edition

According to this Daily Mail (UK) article, James Gandolfini’s will (following “The Sopranos” star’s recent death in Rome from a heart attack) distributes his $70 million estate so that massive estate taxes (about $30 million) are likely to be owed. One estate planning attorney remarked on the will that ‘It’s a nightmare from a tax standpoint,’ and the will’s segregation of assets was a ‘big mistake’ and the will itself ‘a disaster.’ To be fair, Mr. Gandolfini’s will hasn’t been published yet and it’s not clear whether he had trusts or other entities that held assets. But it sounds like his estate plan may not have been well done, not complex enough for his level of wealth or portfolio structure.

We can learn from the bad estate planning of celebrities and tragic deaths that happen far too early is the importance of good planning. If my law firm, Johnson Law KC LLC, can help you or your family with your estate planning, elder law, asset protection, small business, or probate needs, give me a call (913-707-9220) or email me (steve@johnsonlawkc.com) for a free, convenient consultation.

(c) 2013, Stephen M. Johnson, Esq.

 

Offshore Banking

Costco’s member magazine has this interesting discussion about offshore bank accounts in its July 2013 issue. (I also recommend this interview with noted author Tom Wolfe, which explores his life and writing.)  They ask various members whether offshore bank accounts are ethical, should be legal, or should be taxed differently than American bank accounts. We know that many celebrities and politicians have offshore bank accounts – see this blog post for more details.

Ethical questions about offshore banking center on whether the account owner is paying a “fair” level of tax on the account. Complicating matters is that the IRS Code treats Americans’ investments abroad differently from other countries – the IRS collects tax on an American’s accounts or investments anywhere in the world, while many other countries only collect tax on accounts their citizens hold domestically (e.g. a Briton who holds an account in London and an account in New York would only pay British taxes on the London account).

Offshore banking may be unavoidable, even inevitable, for many professionals and business owners. If you have a factory or business colleagues or partners overseas or offices around the globe, you may have to use offshore banking accounts. And many companies, mutual funds, IRAs, and other investment vehicles have extensive overseas holdings, which can be a good thing to diversify accounts, invest in emerging markets, and collaborate with business partners around the world.

What do you think? Should offshore accounts and banking and tax havens be allowed or outlawed? Are they ethical? If so, when? Should they be taxed differently than American accounts or investments?

If my law firm, Johnson Law KC LLC, can help you or your family with your estate planning or asset protection needs, give me a call (913-707-9220) or email me (steve@johnsonlawkc.com) for a convenient, free consultation.

(c) 2013, Stephen M. Johnson, Esq.

British or American English?

British or American English? Tea or coffee? Whether you’re a fan of the Brits (as I am) or not, check out this interesting article  in Wealth Management about the differences between English and American per stripes. Many lawyers will recall this discussion from their law school days studying estates and trusts. “Per stirpes” is a Latin term that means “by the stocks” and refers to who inherits your estate if you die without a will (intestate). Most wills include the term “per stirpes” or “taking by rights of representation” in their definitions section (although those terms aren’t always used in the Kansas or Missouri probate code). This article is a good reminder to attorneys and clients alike: be sure your estate planning and other legal documents say what you want them to say. Using Latin or French or other “legalese” is dangerous if you’re not certain what the terms mean, and if your attorney can’t explain a document to you in plain English, (1) tell him or her to rewrite it or (2) hire an attorney who’s more knowledgeable.

Some lawyers use big words and convoluted sentences in documents because they rely on old forms (from the 1970s or 80s or even older). My law firm, Johnson Law KC LLC, has a personal service, client-centered approach – I personally craft and review every document for a client to make sure it’s readable and that my client understands what it says and does. You get the best of both worlds – big firm expertise with small firm personal attention. I often review and revise my firm’s documents based on the latest developments in the law, business, and taxes, with an eye towards improving readability and organization. I invite you to experience the difference. If I can serve your legal needs, call (913-707-9220) or email me (steve@johnsonlawkc.com) for a convenient, free consultation. On a personal note, thanks for being a part of this conversation for 100 posts and counting – I look forward to sharing many more posts and conversations.

(c) 2013, Stephen M. Johnson, Esq.

Asset Protection 101

What does asset protection mean? Asset protection is about preserving and safeguarding your hard-earned money and other assets from creditors, divorcing spouses, or others. Asset protection is best done through a trust, an LLC, or a family limited partnership. The key to asset protection is (1) finding a good, protective place and (2) setting up an entity to hold the assets. Missouri was one of the 1st asset protection states in America. Kansas or Missouri residents can set up a Missouri asset protection trust to hold their assets. Kansas law doesn’t allow an asset protection trust, but does allow other trusts. An asset protection trust is irrevocable – a stand-alone entity that must file an annual income tax return. LLCs or family limited partnerships (FLPs) can be used to hold farm land, real estate, stock, the family business, or other assets. A family LLC or FLP must have a valid business purposes, but members or partners may be able to claim some discount off the value of contributed assets – e.g. if you put a minority (say 30%) interest in the family farm or business into a family LLC or FLP, you can claim a discount since your stake wouldn’t be easily marketable to outside buyers.

My law firm, Johnson Law KC LLC, is experienced counseling families and small business owners on using various asset protection tools. If I can help you or your family with your asset protection needs, call (913-707-9220) or email me (steve@johnsonlawkc.com) to schedule a convenient, free consultation.

(c) 2013, Stephen M. Johnson, Esq.

Becoming a Philanthropist

The WSJ has this interview with  Laura Arrillaga-Andreessen, a Stanford business school lecturer and leading philanthropist in Silicon Valley. Her Stanford course is to be offered free online. She argues that individual philanthropists (whether of the $10 or $10 million variety) tend to give sympathetically, instead of strategically.

If my law firm, Johnson Law KC LLC, can help you or your family with your estate planning needs or with establishing structures to facilitate your philanthropic goals, give me a call (913-707-9220) or email me (steve@johnsonlawkc.com) for a convenient, free consultation.

(c) 2013, Stephen M. Johnson, Esq.

Is New York “Offshore?”

The NY Times has this fascinating article about the recent corporate tax controversy of large global companies parking money in international holding companies that have domestic bank accounts or investments. But poof (now you see it; now you don’t) – by tax accounting magic, the money’s held internationally. America has the highest corporate tax rate in the developed world –  35%. Some other countries, like Ireland, have much lower tax rates, so having the money held by an Irish subsidiary in a New York bank account yields a substantially lower (say 13%) tax rate.

While offshore bank accounts (for individuals or corporations) are often discussed in political terms, they’re a bipartisan issue. While companies some might view as conservative do it (like oil and gas companies), so do seemingly more moderate or even liberal giants like Microsoft, Google, and Apple. (A few months back, Apple passed ExxonMobil as the biggest company by market cap – all those iPhones, iPads, and iPods everybody loves fueled its rise to the coolest big business on the planet.) And wealthy folks of all political stripes like Mitt Romney, Al Gore, Terry McAuliffe, and Penny Pritzer have offshore accounts or investments. Why? Lower tax bills. Whether you think offshore holdings are great or terrible, the math tells the story.

The unfortunate moral of the story is the obscene complexity of America’s tax law – call it the lawyers’ and accountants’ full employment act. Most Americans, whether conservative or liberal, favor a less complex IRS Code. Meanwhile, if my law firm, Johnson Law KC LLC, can help you or your family with your personal estate planning or small business needs, give me a call (913-707-9220) or email me (steve@johnsonlawkc.com) for a free consultation.

(c) 2013, Stephen M. Johnson, Esq.

Talking to Family about Inheritances

CNBC has this article about a recent US Trust study about when parents should talk to their children (and grandchildren) about inheritances. As the article points out, many children of wealthy families realize they’re wealthy based on the lifestyle they enjoy. But there’s a big difference between knowing “My family’s wealthy and takes exotic vacations” and knowing “Mom & Dad have XYZ income each year, a house held in ABC trust, a controlling interest in Family Co LLC, a vacation home also held in trust, and a net worth of $_______.” When to tell family members specifics is an important question to consider in careful consultation with your family’s accountant, attorney, and other professional advisors. As the article suggests, maturity levels, financial acumen, and other factors come into play. But as the article rightly concludes, “even if parents don’t give their kids “the number” for their wealth, they should at least give them the skills and the values to manage it well.”

Beyond the tax and legal details of structuring entities that attorneys and other wealth advisors do, imparting skills and values to manage a legacy is vital. Without the skills and values, a child or grandchild may not know how a family member became wealthy, why a family member managed their lifestyle as they did, or what legacy the wealth should have. I encourage clients to be open and honest with their families when the time comes to discuss inheritance and legacy. But don’t just give your family the numbers, give them the context and share your values and passion and legacy with them.

If my law firm, Johnson Law KC LLC, can help you or your family with estate planning or asset protection needs, or give you ideas for spurring these important conversations with your family, please call (913-707-9220) or email me (steve@johnsonlawkc.com) for  a convenient free consultation.

(c) 2013, Stephen M. Johnson, Esq.

Tax Like its 1972?

Bloomberg provides this interesting article on Summer Redstone’s appeal of the IRS arguing his 1972 transaction was a gift. Some might think that 41 years is a bit late (!) to be challenging a transaction (or collecting tax on it), and many of the lawyers quoted were surprised by the IRS’ claims. It will be fascinating to watch how this case plays out. If the IRS’ argument turns out to be merited (albeit 41 years late), this has ripple potential in the estate planning and tax communities, as attorneys, accountants, and advisors grapple with how to insulate clients (and themselves) from liability decades after the fact.

Stay tuned for updates from the recent 2013 KC Estate Planning Symposium, which I attended last week (25-26 April 2013). This year’s program featured a host of top speakers on topics ranging from grantor trust tax, FLP and other case law updates to special needs trusts, IRAs, asset protection, and Social Security planning.

If my office, Johnson Law KC LLC, can help you or your family with gift tax or other estate planning issues, give me a call (913-707-9220) or email me (steve@johnsonlawkc.com) for a convenient free consultation.

(c) 2013, Stephen M. Johnson, Esq.

Intent, Trusts, and No Contest Clauses

The Kansas Supreme Court recently issued an interesting decision in Hamel v. Hamel, arising from Rooks County, Kansas (north central Kansas). Hamel teaches us 3 lessons: as you contemplate estate planning, business succession, and your wealth management goals, be sure (1) your estate planning documents clearly communicate your intent , (2) others (family members and professional advisors) understand your intent, and (3) your estate planning documents provide broad discretion and the necessary powers to handle various transactions. Intent matters and clearly communicating your intent makes all the difference.

Hamel involved Lawrence Hamel, a trust beneficiary and child of the decedent, Arthur Hamel, challenging his father’s trust, specifically whether the trustee had authority to sell farmland owned by the trust. Arthur’s trust said another son (who was a trustee of the trust), Dennis,  had priority (or first refusal rights) to buy the land owned by the trust, and that Dennis had 3 years to buy the land from the trust. Dennis signed an installment sale contract to buy the land over 6 years, paying 5% interest (no interest during the 6th year), funding the purchase with money from the trust with a mere $10,000 down payment, and for Dennis to get all the income and profit the land generated during the 6 years. So Dennis wanted to self deal with the trust on very favorable terms (he was a trustee in his fiduciary capacity and the buyer in his individual capacity, a conflict of interest which the trust waived), have a year of payments interest fee, minimal down payment, and get the land’s revenue before he owned the land. Not surprisingly, Dennis’ brother Lawrence objected. Lawrence pointed out that while their father had wanted Dennis to have the land and permitted favorable inter-family sale terms, the deal had to be done within 3 years, not 6. Enter the trust’s no contest clause, which said if you object to the sale or other trust administration aspects, you lose your inheritance.

This family’s trust dispute wound up at the Kansas Supreme Court. The Justices, in an 8-1 opinion, agreed with Lawrence that the 6 year installment sale to Dennis was too long, since the trust only allowed for 3 years. Instead of enforcing the no contest clause (and disinherit Lawrence for his objections to the farm sale), the Court found that Lawrence had probable cause to challenge the sale of the farm from the trust to his brother. The Court found probable cause in the 3 year sale provision: “while the Trustees [Dennis and a sister] possessed broad authority to sell the Trust real estate, they were not authorized to enter into a contract for the sale of the farmland that extended beyond the 3-year period specifically provided by the Trust.” (Hamel, pg. 24) The installment sale could go far, but not that far. As the Court saw it, Lawrence was just looking out for the Trust’s best interests (the Trustee’s job and fiduciary duty), when the Trustees were cutting corners, so of course he could object and make the Trustees follow the Trust’s rules. The Court didn’t address it, but there may also have been tax traps lurking beneath the surface of this installment sale. The IRS looks closely at inter-family sale and transactions and asks: (1) was the farm properly valued (or did the family take too many discounts)? (2) is the buyer paying the seller a fair market rate of interest for the entire installment sale period? (interest free loans are gifts) (3) is the buyer a bona fide purchaser, or is the “sale” really just a gift wrapped in different paper?

Installment sales are an important technique for asset protection, estate planning, and business succession planning. But they have to be carefully structured and done right, or the result is a long, expensive, contentious, public mess. Installment sales are frequently used by serial entrepreneurs trying to transition a business; farmers, ranchers and landowners trying to pass the family farm on to the next generation, or business owners who are ready to retire from the day-to-day grind. When coupled with a Missouri inheritor’s trust (a beneficiary defective inheritor’s trust), grantor trust (an intentionally defective grantor trust), a FLP (family limited partnership), or a family LLC (family limited liability company), an installment sale can be an efficient, effective, and integral part of a complex estate plan. A good installment sale will freeze an asset’s value for tax purposes, get it off your balance sheet (for tax and asset protection purposes), and add value to the asset’s legacy for generations.

If my law firm, Johnson Law KC LLC, can serve you or your family’s legal needs, call (913-707-9220) or email me (steve@johnsonlawkc.com) for a free, convenient consultation.

(c) 2013, Stephen M. Johnson, Esq.