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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Gift Tax Returns 101

Some good advice from Forbes on completing (any last minute) gift tax returns before the April 15 deadline. And here’s some advice on giving tax free gifts to friends, families, or charitable organizations.

If my law firmJohnson Law KC LLC, can help you or your family with your estate planning needs, call (913-707-9220 or email me (steve@johnsonlawkc.com) for a complimentary and convenient consultation.
(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.

The Family Bank

CNBC has this interesting article highlighting a trend where wealthy family members give large amounts of cash or other items to family members (children, grandchildren, extended family, etc). While gifts can be a great tool in the estate planning repertoire, they can also create tax issues for gifts over $14,000/year (see this post with advice about gift giving for couples and singles), dependency issues (“These good intentions may be creating generations that are disabled when it comes to financial responsibility” and see The Millionaire Next Door (1998) (recommending not giving children homes in neighborhoods beyond their budget)), and other problems. Instead of giving family members cash, consider paying tuition for college classes, investing in a relative’s small business venture (assuming a well-developed business plan exists), offering to match their IRA/Roth IRA contribution (to promote good savings and retirement planning habits), hiring them to work in your family business (create a job and help them learn the value of hard work and diligence), or making them a trust beneficiary (trusts can include “strings” about beneficiary ages, completion of education, not being addicted to drugs or alcohol/living a risky lifestyle). The biblical book of Proverbs, part of the Wisdom literature of Judaism and Christianity, has much to say about money and wise stewardship, including “lazy hands make a man poor, but diligent hands bring wealth” (Proverbs 10.4), “all hard work brings a profit, but mere talk leads only to poverty” (Proverbs 14.23), “the plans of the diligent lead to profit as surely as haste leads to poverty” (Proverbs 21.5), “the borrower is servant to the lender” (Proverbs 22.7), and “a generous man will himself be blessed, for he shares his food with the poor” (Proverbs 22.9).

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. 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.

(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.

Estate Planning 101

We’ve all heard that every adult needs an estate plan. But what does that mean? What’s are the essentials or the bare basics that you need to protect you and/or your family? T.S. Eliot memorably wrote in The Four Quartets: “What we call the beginning is often the end/And to make and end is to make a beginning./The end is where we start from.” So what’s your estate planning end game? Start from there to figure out how to get there.

An estate plan includes 4 basic documents:

  • Will/trust
  • Living will
  • Durable financial power of attorney
  • Durable medical power of attorney

1. Will/trust

– Tells your executor/trustee how to handle your property and who gets what when you die

-Pour over wills go with a trust

-Married couples can have a joint trust or individual trusts

-Trusts can be separate from your will or integrated with it

2. Living will

-Directions about your end of life choices (e.g. CPR and life support) to avoid a situation like Nancy Cruzan or Terri Schiavo

– Customized based on your faith, convictions, and moral beliefs

3. Durable medical power of attorney

– Gives spouse or child power to make medical decisions (e.g. authorize surgery if you’re injured in a car wreck)

– Gives access to medical records protected by HIPAA and privacy laws

4. Durable financial power of attorney

– Gives spouse or child power  to pay bills on your behalf and handle other financial affairs for you

– Digital estate planning – online account, email, photo, Facebook, LinkedIn access

-Elder law – Medicaid, gift, Veteran’s benefits, and Social Security disability planning

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

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

Undue Influence?

This NY Times article discusses how a hospital manipulated a long term patient (net worth > $100 million) to obtain gifts, pledges, and other favors from her. Undue influence is a common probate or trust litigation issue. Wills in Kansas and Missouri are only valid if executed without undue influence. Most attorneys hear undue influence and think of a child or other prospective heir trying to persuade a family member to favor them over other relatives or heirs. But what about organizations, hospitals, and others looking for a piece of an individual’s or family’s inheritance? Food for thought.

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

Inheriting personal property

This Daily Mail article talks about Delta Airlines’ new policy prohibiting transfer of frequent flier miles to family members or friends upon death. Frequent flier miles are a form of personal property – you accumulate them and then trade them for a ticket or two on a flight of your choice – and this is another limitation on transferring (or alienation, as lawyers like to say) of personal property. Is it legal? Sure – if you’re issuing personal property to others, you can specify the conditions (e.g. only this airline, these flights, this time of year, these destinations, etc). Like many licenses, airline tickets (or movie, theater, or sporting game tickets) have restrictions on use, re-use, and transfer. The moral of this story is don’t count on being able to pass your frequent flier miles on to your family.

If my office, Johnson Law KC LLC, can help you or your family with estate planning questions, please call me (913-707-9220) or email me (steve@johnsonlawkc.com) to schedule a free, convenient consultation.

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