|
|
April 20th, 2008
by Michael
 We’re celebrating here at the Living Trust Network because we’ve finally released the new version of our website. We hope you’ll take a look around, make a list of things you like, don’t like, would like to see, etc., etc., and let us know what you think.
We actually have a lot of things to talk about with this new site, including the fact that we’ve added a My Plan membership for those who actually want to do some estate planning. A My Plan membership is a paid membership, but it’s only $9.95 per month with no obligations whatsoever. Where else can you do some estate planning for $9.95?
Of course, as most of you know, we firmly believe that you shouldn’t go it alone when it comes to estate planning. There are too many issues that really need the advice of an experienced professional. Our My Plan membership is designed to help you organize your thoughts and your basic information so that you understand the process and can make the important decisions that have to be made. If you can do that, then you’ll be in a much better position to discuss your needs with a professional advisor. That way, you’ll get a better result and the cost should be much lower than if you just walked into an attorney’s office with no prior preparation.
That’s the theory. We’re working hard to make it happen - and we think we’ve made good progress with this release of our website. But, we need your feedback to keep improving and making it better. Of course, we’ve also added much more information and we’ve added more interesting “things” with this release - all of which are totally free. In addition, we’ll be working on developing our Legal Services Program with highly-qualified and experienced attorneys to work with our members and guests.
Now, we need you to make this site a lively and active community for both consumers and professionals alike. You can start by registering for our community forums. Registration is free, but required. If we don’t require registration, then our forums will be over-run by spiders and bots and other horrible sounding things that add pornographic posts without any human intervention. Registration stops all that - at least 90% of it - so please register and try your hand at posting on our forums. Or, for that matter, you can add a comment at the end of this article. Give both a try! Hey, who knows, you might find that it’s a lot of fun - besides being a good source of information.
Enough said! We do hope you enjoy the site and that you’ll return often. Thanks for visiting.
September 29th, 2006
by Michael
[Note: This article was originally published in Staying Current on September 29, 2006. It has been updated and republished here in order to maintain it in the Staying Current archives.]
 The thought of having a conservator appointed for a parent or relative - even a friend or neighbor - is something we all seem to loath. It has all sorts of negative connotations, including the fact that a conserved individual will be paraded through the probate courts with psychiatric and medical evaluations open for all to see. But, most of all, it’s the loss of dignity that results when the state declares an individual incapable - and takes away his or her right to vote, or marry, or divorce, or write a check, or pay a bill, or make any other meaningful decisions. It’s a position that no one wants to come to in this life.
But, despite all the negative aspects of being conserved, there are times when the appointment of a conservator is actually a good thing. Consider the case of Jane Wiederhold, a Barkhamstead, Connecticut, widow who was left an estate worth roughly $12 million by her husband, John Wiederhold. The Wiederholds had no children and the closest relatives lived out of state. At the time of her husband’s death in January of 1998, Jane Wiederhold showed signs of dementia and the inability to manage her finances. A friend of the family reportedly stated to the police that she was unable to write a check to pay for her husband’s funeral and she couldn’t remember how to spell her name.
Prior to his death, John Wiederhold had an attorney, Peter K. Sivaslian, from Torrington, Connecticut. Immediately after John Wiederhold’s death, Attorney Sivaslian started settling John Wiederhold’s estate. He also began to assist Jane Wiederhold with her personal finances. Within three months after her husband’s death, it is alleged that Attorney Sivaslian started purchasing bearer bonds and stock from the money in the Wiederholds’ accounts, the bulk of which were later traced into accounts held by Sivaslian and his wife, Lillian Sivaslian, according to a warrant served on Attorney Sivaslian by Connecticut state police. The warrant charged Attorney Sivalslian with two counts of first-degree larceny and two counts of second-degree larceny. It is alleged that Attorney Sivaslian stole as much as $4.8 million from Jane Wiederhold over several years, although the actual loss is somewhat less because some of the stocks and bonds have been recovered. He also charged a fee of $2,000 a month to handle Jane Wiederhold’s financial affairs, and he paid himself $200,000 to settle John Wiederhold’s estate.
The situtation didn’t come to light until three years after her husband’s death, when Jane Wiederhold told her nephew that Attorney Sivaslian had not provided any accountings of her finances and she suspected that half her money was gone. The nephew said he would look into it.
Despite the concern of friends and the funeral home director, no one seemed to do anything to protect Mrs. Wiederhold or her money until the nephew got involved. “No one suspected an attorney would commit any wrongdoing, her relatives, friends and home assistants reported to police,” according to an article published by the Register Citizan. Apparently, a medical examiner had recommended in 2001 that Mrs. Wiederhold be placed in conservatorship, but Attorney Sivaslian delayed filing the application until 2002 - more than five years after her husband’s death.
This is a case where everyone in contact with Mrs. Wiederhold may have wondered what was going on, but no one felt they had the right to inquire - at least not until the nephew got involved.
That wouldn’t have been the case if a conservatorship application had been filed with the probate court as soon as Mrs. Wiederhold lost her husband. That’s when Mrs. Wiederhold was most vulnerable and in need of supervision with adequate checks and balances in place to insure that her best interests were taken care of. A conservatorship proceeding would have given her that support system. It would have appointed someone to take care of her personal and financial needs. It would have required that an initial inventory of her assets be prepared and filed with the court. It would have also required that an accounting of her finances be filed every three years - more often if requested by the probate court judge.
While we all loath the thought of a loved one being conserved, it’s important to recognize that the probate court system in every state is designed to protect vulnerable individuals who can no longer care for themselves. Yes, there are alternatives that are available if the necessary steps are taken at the appropriate times. But, once the signs of dementia or other debilitating conditions become apparent, then the best option is to seek the protection of the probate courts. The Jane Wiederhold story is a tragic example of what could happen if you don’t.
A special thanks to the Hartford Courant and the Register Citizen for their articles on this story.
March 1st, 2006
by Michael
[Note: This article was originally published in Staying Current on March 1, 2006. It has been updated and republished here in order to maintain it in the Staying Current archives.]
 In an earlier post, we discussed the annual gift tax exclusion and how it works. In summary, we said that you could give up to $12,000 in cash or property to any one person during 2008 and not have to pay a federal gift tax. In fact, you don’t even have to file a gift tax return. This is not the result of a kind and benevolent federal government at work. Rather, it is simply an effort to avoid an administrative nightmare keeping track of everyone’s nominal gifts for weddings, birthdays, holidays, etc. Can you image having to file a gift tax return every time you took a bottle of wine over to your neighbors’ for dinner?
So, the annual gift tax exclusion exists purely for administrative reasons. But, what happens if you exceed that exclusion amount during 2008 or any other year? What if, for example, you give your son or daughter $20,000 as a down-payment on a house?
In that case, you are required to file a federal gift tax return (Form 709) for the year of the gift. The return is required by April 15th of the following year, just like your personal income tax return (Form 1040). For 2008, the gift tax return would have to be filed by April 15, 2009.
However, that does not mean that you will actually pay a gift tax, because the tax laws give you a credit that can be applied against any gift taxes incurred during your lifetime and any estate taxes incurred upon your death. Because the credit applies against both the gift tax and the estate tax, it’s called a “unified credit.”
For years 2002 through 2009, the gift tax unified credit is $345,800. That translates into a gift of $1,000,000 before any gift taxes are actually paid.
That being the case, why do you have to file a gift tax return when your gifts to any one person exceed the annual gift tax exclusion for that year? The answer is simply because the gift tax unified credit of $345,800 through 2009 is cumulative, and the only way the federal government can keep track of your taxable gifts and the amount of unified credit you have used is through the filing of gift tax returns.
In our example above, we assumed that you gave your son or daughter $20,000 as a down-payment on a house in 2008. In that case, you would have to file a gift tax return for 2008 and report the gift. However, the amount of the reportable gift is not $20,000, but only $8,000, since the first $12,000 is covered by the annual gift tax exclusion. Under the gift tax rate schedule, the gift tax on $8,000 is 18% or $1,440. Against this gift tax, you would apply $1,440 of your gift tax unified credit of $345,800, leaving no gift tax owing. The amount of gift tax unified credit available to offset any of your future gifts would be reduced to $344,360 ($345,800 - $1440).
The important point here is that you don’t pay any gift taxes on the first $1,000,000 in gifts that you make during your lifetime. And, the $1,000,000 in gifts does not include any gifts covered by the annual gift tax exclusion. So, for all practical purposes, if you don’t plan to give away more than $1,000,000 during your lifetime, then your decision to make gifts should not be influenced by federal gift taxes. The only downside, if any, is that you will have to file a federal gift tax return for each year in which your gifts to any one person exceed the annual gift tax exclusion for that year.
February 25th, 2006
by Michael
[Note: This article was originally published in Staying Current on February 25, 2006. It has been updated and republished here in order to maintain it in the Staying Current archives.]
 We know that you can give up to $12,000 per person per year and never pay a federal gift tax - thanks to the annual gift tax exclusion. That’s fine if you’re writing out a check or just giving cash. But, how can you give someone a house or a business or anything else that is not money and still have it come under the annual gift-tax exclusion?
Let’s say your parents have a home in Florida that they bought several years ago for $100,000, and it’s now worth $400,000. Now, they want to give it to you and your two sisters because they’re concerned about the new Medicaid laws and their estate taxes.
Qualifying the entire $400,000 home under the annual gift tax exclusion is not easy. First, it’s hard to gift real estate in $12,000 increments. Sure, you can do it by simply dividing the value of the home ($400,000) by the annual exclusion amount ($12,000 in 2006). In our example, $12,000 is equal to a 1/34th interest in the home, which means that each of your parents could give you and each of your sisters a 1/34th interest in the home each year. At that rate, it would take roughly 6 years to complete the transfer. If spouses were included in the annual gifts, then the time needed to transfer the entire homw would be reduced to about three years. [Careful planning could reduce that time to 366 days by making the first transfers on December 31st, the second transfers on the following January 1st, and the final transfers on January 1st of the next year.]
Seems pretty cumbersome though, doesn’t it? And, it is. Besides, every year your parents would have to prepare a new deed for each gift and would have to record each deed on the land records. Plus, they’ll probably need an attorney to take care of all that for them. The costs for all that work, including the recording fees, can be quite substantial. Then, when all of you decide to sell the home, you’ll have to put 34 different deeds together, with every owner signing off on the sale.
There’s still another problem - that is, you have to make sure that your values are all correct. You see, if you give money, there’s no queston as to what the value of the gift is. With anything besides money, whether it’s real estate, stock, bonds, collectibles, etc., there is often no readily ascertainable value. So, you need to have the property appraised by a qualified appraiser so that the value comes under the annual exclusion. There are rules for doing this and, if you don’t comply, then the IRS can always challenge your value. If the value is found to be more than the annual exclusion amount, then you’d have to file a gift tax return each year and possibly pay a gift tax. Appraisals cost money and have to be done every time a gift is made.
Is there a better way to transfer real estate under the annual gift tax exclusion? Sure there is! No one wants to transfer real estate in the manner we just discussed. It’s just too cumbersome, time consuming, and expensive. The preferred way to transfer real estate under the annual gift tax exclusion is to use a separate legal entity, such as a corporation, or a limited liability company, or a family limited partnership to facilitate the transfer. My preference is a limited liability company (LLC) because it is easy and inexpensive to set up, and does not create the need for additional on-going expenses.
Here’s how it works: First, your parents would create a limited liability company. Let’s call it the Smith Family Home, LLC. The LLC would be created with 34 membership units ($400,000 / $12,000). Your parents would then transfer their home to the LLC in exchange for all 34 membership units (each parent would receive 17 membership units). Only one deed is necessary when your parents transfer the home to the LLC, and only one recording is required. Likewise, only one appraisal is necessary to establish the value of the home at the time of the transfer.
Now, whenever your parents wish to make a gift to each of you under their annual gift tax exclusion, all they have to do is transfer one membership unit in the LLC. No further deeds are required, no recording of deeds is required, and no attorney’s fees are required. The transfers have to be reflected on the books of the LLC, but that’s it. Not only does the LLC make it very easy to transfer the property in the first place, it also makes it very easy to manage the property and eventually sell it when the time comes.
That’s the preferred way to transfer real estate or any other type of property to multiple beneficiaries under the annual gift tax exclusion.
Next time: Is it so terrible if you go over the annual gift tax exclusion amount in any year?
February 2nd, 2006
by Michael
[Note: This article was originally published in Staying Current on February 2, 2006. It has been updated and republished here in order to maintain it in the Staying Current archives.]
 Here are some interesting tidbits about the annual gift tax exclusion that you should be aware of:
1. No gift taxes are imposed on the first $12,000 in gifts that you make to any person during 2008. This exclusion from federal gift taxes is known as the “annual gift tax exclusion.” This exclusion is indexed for inflation so that the amount will vary from year to year in $1,000 increments. Originally, the exclusion amount was $10,000. In 2005, the amount was increased to $11,000 and, for 2006, the amount was increased to $12,000. The exclusion amount remains at $12,000 for 2007 and 2008.
2. This exclusion applies only to gifts of a present interest. In other words, the gift must have no strings attached. The recipient must be able to use and enjoy the gifted property immediately. There are certain exceptions, however, such as gifts to a 529 plan where the money will be used for future tuition payments.
3. This exclusion amount applies to every person to whom you make a gift during the year. For example, if you give $12,000 to Harry and $8,000 to Mary during 2008, no gift taxes would be due. However, if you give $12,001 to Harry and $8,000 to Mary during 2008, the $1 given to Harry in excess of the annual exclusion amount is subject to the federal gift tax. (But see gift-splitting between spouses discussed below.)
4. If you make gifts to any person during a calendar year that exceed the annual gift tax exclusion (i.e., the $1 to Harry during 2008), you are required to file a federal gift tax return (Form 709) . Form 709 is required to be filed for each calendar year that a taxable gift is made, and must be filed by April 15th of the following year.
5. If you are married, both you and your spouse are entitled to the annual gift tax exclusion. Both of you could, for example, give $12,000 to, say, your daughter during 2008, for a total of $24,000, without either of you having to file a gift tax return. Think of the planning possibilities here. Assuming for the moment that you have a married daughter with two children, you and your spouse could each give your daughter, her husband, and each of their children $12,000 during 2008. That’s a total of $96,000 that the two of you could transfer to them gift-tax free. Remember, too, that the recipients of your gifts do not have to pay any gift taxes, or income taxes, or any other taxes on those gifts.
6. In our example above, we sort of implied that you would give $48,000 to your daughter, her husband, and their two children ($12,000 x 4) and your spouse would do the same. But, what if your spouse doesn’t have the money to give? In that case, you and your spouse could elect to treat all gifts made by either of you as made 1/2 by each of you, regardless of whom actually gave the money.
7. One further point. Gifts from one spouse to another do not fall under these annual gift tax exclusion rules. That’s because the gift tax laws totally exempt any and all gifts from one spouse to another from any gift taxes. This is accomplished by granting a gift-tax deduction for all gifts made to a spouse, no matter how large the gift. This deduction is known as an “unlimited marital deduction.” You should be aware, though, that there is an exception for so-called “terminable interest” gifts and there is a special limitation for gifts to spouses who are not U.S. citizens. For more information on this, please take a look at the instructions for Form 709.
Next time, we’ll discuss how you go about gifting real estate to your children and having it all come under the annual gift tax exclusion. And, don’t hesitate to comment if you have a question or want further explanation.
|
|
|
|
