Reading Your Trust (and Estate Plan)

Read your trust. Yes, I know, reading a will, trust, or almost anything written by a lawyer (except John Grisham or Scott Turow) sounds as appealing as doing your taxes, having a root canal, getting caught in a blizzard, or spending the night in an airport. And understanding “legalese” is even more daunting. Let’s face it: most lawyers don’t write well, and when they do write, they level forests, producing 50 page “briefs”and minor novellas by the hour. Lawyers speak legalese and often leave a trail of misplaced participles, dangling modifiers, and bizarre archaic phrases (e.g. “hereafter,” “heretofore,” “said party of the first part,” “such party of the second party,” “inter alia,” “res ipsa loquitor,” “stare decisis et non quieta movera,” “cy pres,” “stipulated,”  “subsequent,” “give, bequeath, and devise,” and “situate”). Most people don’t read the small print, we all just want to get it done (and leave the details to the professionals). People hire lawyers to apply their wishes and desires for the future to their family’s legal landscape: clients tell lawyers “we want X,” now figure out how to do it. And lawyers are the professionals who what you need in a will, trust, living will, powers of attorney, and who can answer your tax issues, and other vital questions.

If you’d like to work with a lawyer who speaks and writes in plain English and can help you decipher the legalese of your trust and other estate planning documents, give me a call (913-707-9220) or email me (steve@johnsonlawkc.com) for a convenient free consult with my firm, Johnson Law KC LLC. We practice law differently.

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

Selecting a Trustee

So you’ve decided it’s time to do some estate planning and you’ve talked with you estate planning attorney. And the lawyer asks who you want to serve as trustee. A friend or family member? Your bank or a trust company? Here’s a helpful article on some non-legal issues to think about when selecting a trustee.

The lawyer walks you through some of the pros and cons of each option – a friend or family member probably won’t expect to be paid for their service, but they may not know anything about investments or administering the trust for you and your family, so they could jeopardize your financial legacy to your descendants. A bank or trust company will usually serve for a fee of 1%/year of assets under management and they have professional investment and advising services included (so you’ll be getting a good return on investment and monthly or quarterly financial statements), but they might not want real estate or closely held (and non-diversified) business interests or other assets in the trust. And banks and trust companies often change through mergers and other business deals over the years, not to mention the internal turn over of trust officers and employees that you actually work with.

Even if you don’t set up a trust, the lawyer will ask a similar question about your will (who’s your executor?), your living will and your financial and medical powers of attorney (who’s your agent/attorney in fact?). Who’s going to be making decisions on your behalf? Who do you trust to handle your last affairs and settle your estate? The law doesn’t provide many answers, but a good estate planning lawyer can walk you through your options, and help you select the person or institution best suited for your unique situation and your needs. If I can help you on your estate planning journey or answer any other questions, please give me a call (913-707-9220) or email me (steve@johnsonlawkc.com) for a convenient appointment with my firm, Johnson Law KC LLC.

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

Preparing Your Kids for an Inheritance

The WSJ/Barron’s has this fascinating article about the new $5.25 million per person lifetime gift tax exemption that Congress passed as part of the deal to avert the fiscal cliff. But the question that arises, especially as some young, wealthy heirs and heiresses’ antics grace the tabloid and Internet headlines: can a child properly handle their inheritance? If you give your child $5 million, will they save and invest it wisely, or will they spend it frivolously and waste your hard-earned wealth and financial legacy to them? This age-old issue is nothing new – there’s a non-tax reason that custodian bank accounts exist for minors, that trusts are popular, that savings bonds, CDs, and 529 college savings accounts exist – parents and grandparents need to be able to shepherd the money their children and grandchildren will receive. Yes, a gift is giving away money without formal strings attached – not reserving some right to take it back if a financial rainy day comes along, if your child wastes the money on things you don’t approve of, or if the child turns out not to have any financial or investing sense. But legal techniques exist to help protect the gift while your child learns how to work with their inheritance.

If the economic downtown hit your portfolio like high tide hitting a beautifully crafted sand castle on the beach (as it impacted most people’s hard-earned investments, savings, and home equity), or if you’re still working to build up wealth as the economy slowly recovers, you may be looking at smaller gifts for family members. Maybe  you anticipate giving tens or hundreds of thousands to loved ones, not millions. The same principle still applies – can you child or grandchild handle getting a check for $5,000, $10,000, $100,000?

Parents and grandparents need to talk with their children and grandchildren about money, investing, saving, and inheritances. It may not be an easy or fun talk and it might be awkward at first, but it’s a lot easier to discuss now than when you’re gravely ill or when your family is trying to clean up a messy estate after you’ve died. Look for some tips on how to inherit and handling an inheritance soon on this blog. In the meantime, if I can help you or your family with your estate planning, small business, or asset protection needs, give me a call (913-707-9220) or email me (steve@johnsonlawkc.com). At Johnson Law KC LLC, we’re here to serve your needs – now and for many years to come.

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

Happy New Year: The “Fiscal Cliff,” Your Taxes and Estate Planning

Happy New Year! While the nation technically went over the “fiscal cliff” at 12:01 am Tuesday morning, the U.S. Congress has reached a deal to retroactively avert the fiscal cliff crisis and the bill has passed the House and Senate. Here’s the scoop:

  • Portability survives – you can use your deceased spouse’s unused estate tax exemption. Using portability requires filing an federal estate tax return (even if no estate tax is owed) and careful tax planning with your attorney.
  • Estate and gift tax exemptions are $5.25 million per person (inflated adjusted). Using portability, a married couple can give their children $10.50 million. The maximum estate tax rate is 40% on estates over $5.25 million. See Sec. 101 (c)(2) (page 11) of the Senate bill for exact estate tax rates. See Sec. 101(c)(3)(A) (estate and gift transfers after 12/31/2012).
  • Annual gift tax exclusion is now $14,000 per person/year ($28,000 per couple/year), as the IRS announced an inflation adjustment in November 2012.
  • Generation skipping tax exemption is $5.25 million per person. See Sec. 101(c)(3)(A) (generation skipping transfers after 12/31/2012).
  • Grantor income tax trust rules the same. So intentionally defective grantor and beneficiary defective trusts (IDGTs and BDITs) are legal wealth transfer techniques for estate and business planning. These trusts allow parents to transfer wealth, businesses, farms, and other assets to their families without the assets being included in the parents’ estates, while being income taxable to the grantor or the beneficiary, depending on the trust’s design.

The fiscal cliff deal also includes new income tax rates, capital gain tax rates, and other tax provisions of interest to individuals, couples, small business owners, farmers, and ranchers. Individuals earning more than $400,000 per year, or couples earning more than $450,000 per year, should contact their accountant immediately on these issues. Forbes has this helpful article on how the fiscal cliff deal affects various taxes, IRAs, charitable deductions, and other planning considerations.

If I can help you or your family with estate planning or small business or family farm transfer planning, please contact our office, Johnson Law KC LLC – call us at (913) 707-9220 or email us at steve@johnsonlawkc.com.

In reaching the fiscal cliff deal, Congress delayed until March dealing with the massive spending cuts that are required by law as part of the last budget deal (the sequestration cuts). While it seems unlikely, it’s possible that Congress will revisit some of these rules in March or add additional restrictions to existing estate planning techniques. If Congress did change these rules in March, there’s a small probability of having 2 estate tax regimes (as we did in 2010, where an estate could elect a stepped-up basis and pay estate tax, or use a carryover basis without owing estate tax).

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

“It’s Beginning to Look a Lot Like Christmas”: Give $10.24 Million to Your Family, Tax Free

The NYT has this interesting article profiling Jonathan Blattmachr and his wife, Betsy, and their estate planning strategy. Blattmachr is one of the nation’s most preeminent estate planning attorneys and a tax law expert than many attorneys, accountants, and others read for advice on navigating the complex labyrinth that is the IRS Code. He’s a classic example of the Type A personality who immerses himself in the materials of a particular topic and then declares with certainty (often to others’ bemusement) that he’s absolutely certain if you do X, Y will occur. Most attorneys, accountants, and other estate planning professionals are smart, analytical, and risk averse; Blattmachr is the proverbial smartest guy in the room who believes (and often convinces others) that he’s devised a solution so ingenious that despite the critics’ howls and groans, it’s flawless and incontrovertible. And he’s usually right: his work holds up well under IRS attack.

Estate planning attorneys across America have been encouraging affluent clients to max out their $5.12 million lifetime gift tax exemptions before Dec 31, 2012 (since the exemption falls back to $1 million on Jan 1, 2013) (pardon the cheesy title, but clients are well-advised to take advantage of these historically high exemptions). And because of a(n IRS approved) technique called “split gifting,” if you’re married, your $5.12 million individual exemption is actually $10.24 million. So far so good, right? Well, as the article mentions, there’s an old tax law ghoul called the reciprocal trust doctrine. And the reciprocal trust doctrine says if a husband and wife set up trusts with identical terms that make each other beneficiaries and trustees, the IRS can step in and pull the plug, and tell the couple that their clever estate planning is undone and the $10.24 million gift (designed to remove assets from their estates) is now back in their estates (and taxable at the 45%+ estate tax rate). The reciprocal trust doctrine prohibits the wink wink nod nod, quid pro quo, I’ll scratch your back if you scratch mine estate planning strategy in irrevocable trusts. But there are ways around the reciprocal trust doctrine.

To avoid the reciprocal trust doctrine, attorneys vary the terms of the trusts. We (1) set them up at different times, (2) name different beneficiaries, (3) name different trustees, and otherwise vary the terms to make them materially different.

If you’re looking to set up trusts for your family and descendants, sell or transition your small business, or do other estate planning before 2013, time’s running out. Our firm, Johnson Law KC LLC, has experience advising individuals, families, small business owners, and entrepreneurs in all facets of estate planning – whether simple or complex – and we can handle your other legal needs as well. Give us a call (913-707-9220) or email (steve@johnsonlawkc.com) if we can be of service to you.

(c) 2012, Stephen M. Johnson, Esq.

Inheriting in Trust

Yahoo Finance and CNBC have this interesting story about Whitney Houston’s daughter. The famed pop star’s daughter is set to inherit a large fortune from her late mother’s estate, but some of the daughter’s advisers are concerned that the inheritance will make her a target for creditors. Inheriting in trust is better than inheriting money outright, as it protects your inheritance from creditors and divorcing spouses, among other unpleasant surprises in life. Inheriting in trust using a discretionary trust gets into an estate planning buzz word, asset protection. Asset protection is using an entity, usually a trust or LLC, to hold an asset and protect it from your creditors, divorcing spouses, spendthrift kids, or others who might squander your money. Asset protection and discretionary trusts are not allowed under Kansas law, 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 receiving more than $400,000 in inheritance, we recommend a beneficiary defective inheritor’s trust (BDIT or 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.

Our firm, Johnson Law KC LLC, is experienced counseling clients on all aspects of estate planning, asset protection, and inheritor’s trusts. If we can serve you or your family with these sensitive matters, please call (913-707-9220) or email us (steve@johnsonlawkc.com) to schedule a convenient appointment.

(c) 2012, Stephen M. Johnson, Esq.

Final Boarding Call: Estate Planning in 2012

The WSJ has this helpful article reminding folks to get their estate plans in order, especially for families with $1 to 5 million+ in assets. As we ring in the new year in a few short months, if Congress hasn’t done anything on the tax front, you’ll see several changes hitting your pocketbook. The Bush tax cuts will expire – so you’ll owe tax if you (1) die with more than a $1 million estate, if you (2) give more than $1 million to family or friends, or (3) if you do more than $1 million generation skipping transfers (e.g. grandparents to grandchildren). Portability is also set to expire, so you won’t be able to use your predeceased spouse’s estate tax exemption. The Obama payroll tax cut will also expire – so you’ll have less take home pay from each paycheck. Like the historically low interest rates now in play, we may not see estate and gift tax laws that allow you to pass on your hard-earned wealth and leave a legacy for your family again in our lifetimes.

Echoing the anecdotes offered in the WSJ article, our firm has been very busy lately, and our appointment calendars are filling up with work, as are the other professionals we work with to best serve clients with a holistic approach. If you need to do any estate planning, business, or real estate work before 2013, it’s time to act. If you have a small business, real estate interests, or other potentially hard-to-value assets, you may need to have an appraisal done before structuring your business succession plan, or setting up a family limited partnership (FLP) or family LLC. Appraisers’ schedules are filling up, so if you’re thinking of passing on your business or real estate holdings, it’s time to bite the bullet and get it done. Your family will thank you and you’ll be able to enjoy the holidays with the peace of mind that everything’s taken care of according to your desires.

We offer a free 1/2 hour consultation, convenient and affordable flat fee billing, and we’re a simple phone call or email away at (913) 7o7-9220 or steve@johnsonlawkc.com. At Johnson Law KC LLC, we look forward to serving your legal needs.

(c) 2012, Stephen M. Johnson, Esq.

Estate Planning: Beyond Taxes

Conrad Teitell, a noted tax and non-profit lawyer, has these helpful tips to remind people that while a good estate plan will minimize or completely avoid taxes for your and your family, estate planning is about more much than taxes. I would add that consulting with an estate planning attorney is crucial. Any adult with any complexity in their life (married, divorced, kids, grandkids, house, more than $50,000 in assets, business interests, life insurance, IRAs, favorite charities or college, anticipated inheritance, etc) needs to talk with a lawyer about their estate plan.

Every adult needs a will and/or trust, a living will, and durable financial and medical powers of attorney. Our law firm’s estate planning documents include digital estate planning provisions (for email, social media, digital photos, online banking, and more) standard. While digital estate planning is a cutting edge field and certainly not included in most online legal services or other one-size-fits-all forms, at Johnson Law KC LLC, we listen to your needs and provide custom tailored solutions that will protect you and your family for generations to come. Give us a call (913-707-9220) or email us (steve@johnsonlawkc.com) for a free 1/2 hour consultation on your estate plan.

(c) 2012, Stephen M. Johnson, Esq.

Gift Giving in 2012

The NYT has this interesting blog post encouraging wealthy individuals and families to take advantage of the $5.12 million gift tax exemption for 2012. Remember, on New Year’s Day 2013, the gift tax exemption goes back to $1 million per person, meaning you’ll lose the opportunity to give $4.12 million tax free. And the gift tax rates are scheduled to rise from the current 35% (for amounts over the $5.12 million exemption).

Does your financial power of attorney document include gifting provisions if you’re incapacitated? If not, you may need a new power of attorney.

If you’re considering giving gifts this year to family members, remember the old adage that there’s no time like the present. Call (913-707-9220) or email our office (steve@johnsonlawkc.com) for convenient appointment to discuss your gift giving strategy for 2012 and a complimentary 30 minute consultation.

(c) 2012, Stephen M. Johnson, Esq.

Holistic Estate Planning and Leaving a Legacy of Your Family’s Values

Here’s an article on a relatively new concept called holistic estate planning that combines traditional estate and tax planning considerations with mediation, family conferences, and facilitating the sharing of values and communicating across generational boundaries. The estate planning attorneys in our office strongly recommend holistic estate planning and believe that it’s a great way to bring families closer, pass on a strong and positive legacy of values and family traditions to future generations, and ensure all family members can play a vital role in the family’s ongoing legacy, business or real estate interests, and impact on the local community.

A practical application of holistic estate planning is found in this article in this weekend’s LA Times. Two siblings – one conservative and one liberal – are using some of their inheritance to promote their political ideas in California. The brother and sister are the children of Charlie Munger, the Harvard trained lawyer and investment partner of Warren Buffett, the legendary investor behind Berkshire Hathaway. The article illustrates an overarching goal of estate planning: having sufficient financial and other freedom to pursue your passion.

If we can help you and your family with estate planning or serve you in the holistic estate planning process, give our firm, Johnson Law KC LLC, a call (913-707-9220) or email us (steve@johnsonlawkc.com) for a convenient appointment.

(c) 2012, Stephen M. Johnson, Esq.