Dynasty Trusts: A Great Estate Planning Tool

The WSJ has this useful perspective on dynasty trusts and inheriting in trust. Dynasty trusts enable families to take care of future generations and ensure their philanthropic and business legacy while protecting hard-earned wealth from creditors, divorcing spouses, and other potential money drains. My firm counsels Kansas and Missouri clients to use Missouri dynasty trusts to help achieve their estate planning goals.

My law firmJohnson Law KC LLC, has experience working with individuals and families to serve their business and estate planning. I enjoy working with a variety of clients – ranging from single young professionals with minimal assets to multimillionaire business owners with complex trusts. My firm has strong relationships with local and national trust companies to help administer all types and ranges of trusts. If my law firm can help you or your family with your estate planningelder lawasset protectionbusiness law needs, or digital estate planning, including advising on trustee removal or other fiduciary litigation, call me (913-707-9220) or email me (steve@johnsonlawkc.com) for a free, convenient appointment.

(c) 2014, Stephen M. Johnson, Esq.

 

 

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Estate Planning in 2014

Some recent online highlights from the estate planning literature. Steve Akers of Bessemer Trust offers this helpful summary of the Fall 2013 ACTEC meeting. Here’s his take on Heckerling 2014. And Wealth Counsel recently sponsored a Heckerling Nuggets 2014 webcast – slides here. The ABA’s report of Heckerling 2014 is here – part 1 and part 2.

My firm has experience working with individuals and families throughout the business and estate planning processes. I’ve enjoyed working with clients ranging from single young professionals who want to plan for the future to business owners with complex trusts and tens of millions in assets. If my law firm can help you or your family with your estate planningelder lawasset protectionbusiness law needs, or digital estate planning, call me (913-707-9220) or email me (steve@johnsonlawkc.com) for a free, convenient appointment. I want to make business and estate planning simple and straightforward to serve your legal needs and help protect you and your business from lurking liabilities.

(c) 2014, Stephen M. Johnson, Esq.

Need an estate plan?

CNBC has this helpful article reminding readers that every adult (regardless of wealth or marital status) needs an estate plan. A basic estate plan includes 4 documents: (1) a will, (2) a living will, (3) a medical durable power of attorney, and (4) a financial durable power of attorney. If you’re married, you and your spouse should each have these documents. If you’re a wealthy person or have complex financial holdings, you may need a trust or more sophisticated documents. My firm crafts tailored estate planning documents for you that are affordable, reliable, include cutting-edge provisions standard (like asset protection, probate avoidance, elder law, and digital estate planning), and work smoothly whether you’re in the U.S. or abroad.

My firm has experience working with individuals and families throughout the business and estate planning processes. I’ve enjoyed working with clients ranging from single young professionals who want to plan for the future to business owners with complex trusts and tens of millions in assets. If my law firm can help you or your family with your estate planningelder lawasset protectionbusiness law needs, or digital estate planning, call me (913-707-9220) or email me (steve@johnsonlawkc.com) for a free, convenient appointment. I want to make estate planning simple and straightforward to serve your legal needs and help protect you and your family’s legacy.

(c) 2014, Stephen M. Johnson, Esq.

Estate Planning Like a Billionaire

Bloomberg has this fascinating article exploring grantor retained annuity trusts (GRATs) and grantor retained income trusts (GRITs) and how they are used by very wealthy business owners to pass assets to the family without incurring estate or gift taxes. (Longtime readers may recall our discussion of Mitt Romney’s large scale estate planning for his family’s estimated $750 million fortune.) Many estate planning attorneys and accountants make a sport of devising creative methods to help clients save money and pass their wealth on to future generations. The ideas aren’t illegal or unethical, they simply utilize gaps in the IRS Code that Congress and/or the Treasury haven’t solved that yield big savings to clients when multiplied by millions of shares in a given company. Estate planners are careful when practicing on the cutting edge of tax law to gauge how much risk the client is willing to take on (e.g. whether the IRS will void a transaction and send the client a tax bill), how much money is at stake, and how reliable/tested a technique is. While the estate planning techniques discussed in the Bloomberg article have been blessed by various authorities (the IRS, the Tax Court, or others), many advanced trust or tax techniques are in a legal grey area – we know X is illegal and we know Y is OK, but what about something between X and Y?

In law school, the first day of estate planning class with Prof. Martin Dickinson, he told us a story about a family business in a small town where a father gave his wife and each of his 4 children a 20% stake in the family business (worth about $5,000 each at the time, the annual gift tax exemption) in 1953. 60 years later, that family business is called Wal Mart and each 20% stake is worth $20 billion. So $100 billion was transferred without estate or gift tax liability. Sam Walton relates the story in his autobiography Made in America and credits his fraternity brother and banker, R. Crosby Kemper Jr., of UMB Bank with helping him develop the business. Here’s Bloomberg’s visual of some of the tricks of the estate planning world.

Inheriting in trust is better than inheriting money in your individual name, as it protects your inheritance from lawsuits, creditors, and divorcing spouses, among other unpleasant life surprises. Inheriting in trust using a discretionary trust provides asset protection. Asset protection uses a separate entity (e.g. a trust or LLC) to hold an asset and protect it from your creditors, divorcing spouses, spendthrift kids, or others. Asset protection trusts are not allowed under Kansas law (see K.S.A. 33-101), but Kansas and Missouri residents can use a Missouri trust to protect assets for generations. Missouri (unlike Kansas) welcomes dynasty trusts – irrevocable trusts designed to pass wealth across families for generations – and allows them to last indefinitely. For clients who anticipate inheriting over $400,000, we recommend a Missouri inheritor’s trust. An inheritor’s trust allows you to protect the assets and keep them off your balance sheet for tax purposes (so you don’t have to worry about estate, gift, or generation-skipping taxes) while having the assets available for your use and enjoyment.

My firm has experience working with individuals and families to serve their business, estate planning, and nonprofit/charitable/philanthropic needs. I enjoy working with a variety of clients – ranging from single young professionals with minimal assets to multimillionaire business owners with complex trusts. My firm has strong relationships with local and national trust companies to help administer all types and ranges of trusts. If my law firm can help you or your family with your estate planningelder lawasset protectionbusiness law needs, or digital estate planning, including a Walton GRAT, a GRIT, or other sophisticated trust planning, call me (913-707-9220) or email me (steve@johnsonlawkc.com) for a free, convenient appointment.

IRS CIRCULAR 230 Disclosure: Unless expressly stated otherwise, any U.S. federal tax advice contained in this blog post or links is not intended or written by Johnson Law KC LLC to be used to avoid IRS or other tax penalties, and any tax advice cannot be used to avoid penalties that may be imposed by the IRS.

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

Supreme Court Applies Valuation Misstatement Penalties

The U.S. Supreme Court unanimously decided this morning, per Justice Antonin Scalia‘s pen, that an IRS penalty applies for misstating a value on property (U.S. v. Gary Woods, 2013), reversing the Texas-based federal 5th Circuit Court of Appeals. Mr Woods and his employer, Mr McCombs, participated in an income-offsetting tax shelter in the 1990s marketed to high income earners. The tax shelter used a complicated series of investments and partnership interests to reduce their income for tax purposes. The district court found their partnership a sham – not surprising, since partnerships or corporations must have a legitimate business purpose, and avoiding taxes isn’t a legitimate business purpose. (Partnerships, corporations, or LLCs with legitimate business purposes are great for streamlining taxes, but the IRS doesn’t allow shams just to lower the tax bill. Lowering your taxes can be the icing, but you need a cake underneath the frosting, not just a pile of frosting you dub a “cake.”) But the courts wrestled with interpreting the IRS Code: the taxpayers had misstated property values. Could the IRS penalize them for misstating property values (e.g. “you lied about the value, and now owe a penalty for your dishonesty”), or would the IRS say “oops, you wrote down the wrong number, just pay us the difference”? The Supreme Court decided 9-0 that the IRS could penalize them for misstating the property value. The moral of Woods is the IRS can exact penalties for misstating property values, so be sure you have accurate appraisals and carefully prepare or review your tax filings. While Woods has some nice statutory interpretation quotes that legal eagles will enjoy (Justice Scalia has strong views on interpreting texts and statutes that often surface in scathing and witty dissents on various cultural issues, and is a lively writer and speaker – see A Matter of Interpretation (1997), Making Your Case (2008), and Reading Law (2012)), it’s not clear that Woods will have much impact beyond deciding that the IRS can penalize misstatements in property value.

My firm has experience working with individuals and families throughout the business and estate planning processes. If my law firm can help you or your family with your estate planningelder lawasset protectionbusiness law needs, or digital estate planning, call me (913-707-9220) or email me (steve@johnsonlawkc.com) for a free, convenient appointment.

IRS CIRCULAR 230 Disclosure: Unless expressly stated otherwise, any U.S. federal tax advice contained in this blog post or links is not intended or written by Johnson Law KC LLC to be used to avoid IRS or other tax penalties, and any tax advice cannot be used to avoid penalties that may be imposed by the IRS.

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

Estate Planning and Relationships

About a month ago, I had the pleasure of attending a wedding of two dear friends. A month or so before the wedding, I shared some advice with the groom (I’ve shared the same advice with other friends over the years). Every bride and groom encounter various financial, tax, and legal questions in the busy and chaotic wedding planning time and after the honeymoon’s over and the new couple adjusts to life together. Good planning is crucial. Nobel Laureate T.S. Eliot memorably wrote, “What we call the beginning is often the end/And to make an end is to make a beginning./The end is where we start from.” (The Four Quartets, Little Gidding, V). True with estate planning as with many endeavors in life. So what’s the end game? Start from there to figure out how to get there. 

Pre-wedding tips:

  • Don’t buy your fiancé expensive gifts in his or her name. Whether a car, house/condo, jewelry, vacations, clothes, furniture, artwork, antiques, or other big ticket items, wait until you’re married. Federal law allows you to give your fiancé a gift of up to $14,000 tax free per year, but if the item costs $14,001, you’ll owe gift tax and have to file a gift tax return (not fun or romantic). The IRS says a gift is anything you receive without paying fair market value. (Kansas and Missouri don’t have state gift taxes.) Instead buy the item in your name and give it to your spouse once you’re married, as husbands and wives can give each other unlimited gifts without tax consequences.
  • Don’t add your fiancé to real estate deeds until you’re married. Again, any gift (like a house or farm) over $14,000 will cost you gift tax and require filing a return with the IRS.
  • Don’t pay off your fiancé’s credit cards, car or student loans before you’re married. Gifts are romantic, but gift taxes aren’t. Wait until you’re married.

After the wedding:

  • Execute living wills, and durable medical and financial powers of attorney. These are inexpensive, but vital documents that can last for decades. Your spouse can’t talk with your doctor, authorize surgery, or make financial decisions for you without these documents in place. My firm’s financial powers of attorney include cutting edge digital estate planning and elder law provisions, standard. My firm’s living wills and medical powers of attorney include HIPAA, HITECH, and Affordable Care Act (ObamaCare) privacy releases and can easily be custom tailored at no extra charge to reflect your beliefs and convictions about end of life treatment issues. (Having these done as a single person is wise, especially if you have health issues, travel frequently, or have various assets (family business stock or a small business, home mortgage, intellectual property, etc) – you can change your attorney in fact (or agent) quickly and inexpensively once you’re married.
  • Execute a will and/or trust. Simple, no-frills wills for a couple are economical. Wills that include a trust (testamentary trusts), or pourover wills that leave everything to a standalone trust are also affordable. Kansas law automatically invalidates an existing will when you get married and have a child. Missouri law is different. A will or trust allows you to leave specific instructions for how you want your financial affairs handled, how much your spouse and children receive, who cares for your child, and so on. Kansas and Missouri both allow a separate personal property list (highly recommended) to leave specific items to different family members or friends. Whether you’ve got $5,000 in student loans or $5 million in your stock portfolio, you need a will or trust. If you die intestate (without a will), your family will pay more for probate administration and endure a longer, more complex court process than if you have a will. And who wants the government to dictate how their things are distributed and who gets what? My firm has worked on dozens of probate estates in Kansas and Missouri, but it’s easier on everyone to plan ahead. Avoid LegalZoom, Rocket Lawyer, and other do-it-yourself books or websites – I’ve seen (and fixed) online/DIY documents for clients that any practicing attorney would’ve been embarrassed to have drafted. Like many other services, you get what you pay for – good planning requires expertise. My firm has the training and expertise to guide you through the process, leavened with friendly counsel.

A few other ideas for newlyweds:

  • Joint or separate bank accounts
  • Change IRA/retirement plan beneficiary to spouse
  • Change life insurance beneficiary to spouse
  • Car titles – joint or separate
  • Real estate – joint or separate – joint tenancy in Kansas or Missouri; tenancy by the entirety in Missouri
  • If you’re moving to another state once you’re married, you have about 30 days to change your driver’s license, legal name, etc

My firm has experience working with young professionals, young families, and newlyweds to make the estate planning simple, easy, and inexpensive. My firm also has experience working with high net worth individuals and families with tens of millions in assets, closely held businesses, real estate, and other issues. We provide reliable, easy to understand documents so you can rest easy and enjoy your life. Give me a call (913-707-9220) or email me (steve@johnsonlawkc.com) to schedule a convenient, free consultation.

IRS CIRCULAR 230 Disclosure: Unless expressly stated otherwise, any U.S. federal tax advice contained in this blog post or links is not intended or written by Johnson Law KC LLC to be used to avoid IRS or other tax penalties, and any tax advice cannot be used to avoid penalties that may be imposed by the IRS.

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

Settling Large Estates

The NY Times has this interesting article about an estate and trust litigation settlement that has been reached in the Huguette Clark case in New York. Ms. Clark, who died in 2011 at age 104, leaving behind a roughly $300-500 million estate, elected to be a recluse for much of her adult life. Her story is told sympathetically and even-handedly by the recent book Empty Mansions (2013). (The title comes from a series of news stories about her mansions in Santa Barbara, CA, New York, and Connecticut which were left untouched and sat vacant for decades) Settling the estate was a wise decision by the various parties involved: ”Both the family and the beneficiaries had reasons to settle. Rolling the dice at a trial can mean losing everything. Both sides had already spent a great deal on pretrial research and legal fees. And a trial would be an exhausting endeavor, expensive for everyone, last weeks or months.” Empty Mansions, 345

 

The legal dispute over Clark’s estate arose because she executed 2 wills a few weeks apart in 2005: 1 Will left most of her estate to her surviving relatives (distant cousins, nieces, nephews), and another Will created a foundation in the Santa Barbara mansion and left large gifts to her healthcare providers, attorney, accountant, and mostly excluded her family. The distant relatives weren’t as concerned about inheriting part of her fortune as they were about the apparent manipulation of her by doctors, nurses, accountants, attorneys, and others, who took advantage of her generosity for private lucre. (More about those issues in future posts.) Still by all accounts, Ms. Clark ”lived a surprisingly rich life of love and loss, of creatively and quiet charity, of art and imagination. Though the platitude – money can’t buy happiness – may be comforting to those who are less than well heeled, great wealth doesn’t ensure sadness either.” Empty Mansions, 353.

Huguette was a daughter and an heir of Sen. W.A. Clark, a copper baron of the Gilded Age whose wealth was of a similar magnitude to Rockefeller, Carnegie, Mellon, and other Gilded Age business owners. Unlike his Gilded Age contemporaries, Sen. Clark did not due smart estate or business succession planning: ”The W.A. Clark business empire was not built for longevity, collapsing soon after its founder handed it to his children. While his Gilded Age contemporaries typically operated through hierarchies of executives and managers, creating vast corporate entities, W.A. ran his companies as essentially sole proprietorships, which he ruled autocratically. Having attended to every detail of his companies personally W.A. failed in succession planning.” Empty Mansions, 142.

One of her distant relatives summed up the issues she faced as the steward of a large estate: ”I think having such wealth can lead some people to have a lack of self-worth because of not having developed a lucrative career of their own or even having investigated their own potential. Having an overabundance of wealth can make people insecure around others who have far less than they do, since the former might wonder if potential partners or even friends are ‘only’ after them for their money. Well-meaning people of excessive wealth can feel anxious about the lack of perfection of charities they support, and about the fact that even as willing patrons they are powerless to obliterate suffering – all the while knowing that any small amount of money that they might spend on themselves is still enough to change or even save some lives. Wealth can lead to guilt over the unfairness of people working endlessly for them who have never been included fully into the family. In sum, having immense wealth can lead one to feel isolated and to have a false sense of being special.” Empty Mansions, 328 – 329.

Look for more posts soon on the Huguette Clark saga and lessons we can all learn from her story. In the meantime, if you need an experienced attorney to serve your estate planning needs (anything from a simple will, living will, and power of attorney, to complex business and tax planning with dynasty trusts for multiple generations), call my firm (913-707-9220) or email me (steve@johnsonlawkc.com) for a convenient, free consultation. My firm is also experienced handling probate and trust administration – ensuring your Will proceeds smoothly through probate, or that your Trust works seamlessly to avoid probate and ensure your legacy for your family, business, and favorite charities. My law firm, Johnson Law KC LLC, can serve you or your family’s estate planningasset protectionelder law, or business needs, . My firm looks forward to serving you and your family with reliable, friendly experience and counsel at an affordable cost. One valuable lesson for us all from Huguette Clark’s life is don’t leave your legacy and your family’s inheritance at the mercy of a court settlement.

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

It Don’t Mean a Thing if it Hasn’t Been Executed

With apologies to the Duke Ellington Orchestra’s 1934 rendition of the great jazz standard “It Don’t Mean a Thing” (if it ain’t got that swing), here’s an interesting LA Times piece about a family where a child was promised for years (decades even) that he would inherit a house, but the parent’s Will was never signed. Kansas and Missouri both require Wills to be signed by witnesses to be valid. A Kansas Will must be signed by 2 disinterested witnesses (people who won’t inherit anything) and notarized, then filed with the county probate court within 6 months of your death to validly pass property (see K.S.A. 59-601 et seq.). A Missouri Will must be signed by 2 or more disinterested witnesses and notarized, then filed with the country probate court within 1 year of your death to validly pass property (see V.A.M.S. 474.310 et seq.). While an adult can write their own Will, consulting an experienced estate planning attorney, such as my law firm, Johnson Law KC LLC, is highly recommended to ensure your wishes are carried out according to your desires and that no federal tax or state probate issues arise after your death. Don’t be like the family in the LA Times that didn’t execute documents or did homemade documents that didn’t hold water legally and found out when it was too late – call or email my firm today for an affordable, professional solution to your estate planning needs and make an investment in your financial well being and your family’s future. My firm is experienced handling the full estate planning spectrum, from a simple will, living will, and power of attorney, to complex business and tax planning with dynasty trusts for multiple generations. My firm is also experienced handling probate and trust administration – ensuring your Will goes through the Probate Court smoothly, or that your Trust works as intended for your family, business, and favorite charities.

If my law firm, Johnson Law KC LLC, can serve you or your family’s Wills or trusts, living wills, powers of attorney, estate planningasset protectionelder law, or business needs, call me (913-707-9220) or email me (steve@johnsonlawkc.com) for a convenient, complimentary consultation. My firm looks forward to serving you and your family with reliable, friendly experience and counsel at an affordable cost. Don’t leave your family’s inheritance up in the air this autumn season.

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

7 Reasons Why You Need a Trust

Fox Business has this brief, helpful article with 7 reasons why a person would want or need a trust.

They are:

1. Don’t Want Children to Inherit at Age 18

2. Asset Protection from Creditors

3. Someone Else at the Helm

4. Complicated Family Situation

5. Avoid the Probate

6. Take Care of a Disabled Child

7. Safeguard Your Privacy

All 7 of these are good reasons to consider a trust. My firm often works with clients wanting or needing asset protection, privacy, avoiding probate, or caring for a disabled child (or parent). Trusts come in a variety of options and are affordable, smart choices for many clients. If my law firm, Johnson Law KC LLC, can serve you or your family’s estate planningasset protectionelder law, special needs trusts, or business needs, call me (913-707-9220) or email me (steve@johnsonlawkc.com) for a convenient, complimentary consultation. My firm looks forward to serving you and your family with reliable, friendly experience and counsel at an affordable cost. And there’s no better time than before the holiday rush, amid the beautiful autumn colors, to get your financial affairs settled.

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

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.