Monthly Archives: August 2013

Michael Jackson’s estate faces long battle in tax court

It has been several years since Michael Jakson’s death, yet his estate continues to have trouble. Anyone in El Paso who has been following the story knows that the Jackson estate has been battling with the Internal Revenue Service over just how much the estate owes in estate taxes. An important part of estate administration is determining how much the estate is worth and then paying the relevant estate taxes. Jackson’s estate is arguing that it did that, but the IRS has accused it of undervaluing the estate and, thus, failing to pay the correct amount of estate taxes.

The IRS has just filed an answer to the estate’s petition, saying the estate should have paid $700 million more in estate taxes than it already has.

So where does this gap come from? Apparently the Jackson estate claimed that his estate was only worth $9 million after all debts had been settled and the estate tax exemption was subtracted from his gross estate, but the IRS believed his taxable estate to be well over $400 million. At a tax rate of 45 percent, that would create quite a substantial estate tax burden.

While not many people in El Paso are having to deal with $700 million in estate taxes, there is an important lesson here: estate administration does not end within a few months after death. For some estates the problem may be heirs questioning a will, for others it will be a matter of settling debts and paying estate taxes. Regardless, having a lawyer in charge of estate administration will likely help to simplify some of the problems awaiting an estate after its owner’s death.

Source:Forbes, “IRS to Michael Jackson’s Estate: Who’s Bad?” Kelly Phillips Erb, Aug. 26, 2013

Baby boomers may wish to include charitable gifts in estate plans

A new study has found that baby boomers are nearly twice as likely to make charitable gifts as the next most likely generation. Since boomers are responsible for 43 percent of charitable giving, it is safe to say that there are likely many people between the ages 49 and 67 in Socorro who are interested in giving to charities and nonprofits. Unfortunately, not everyone in that age group, or really any age group, can afford to give.

So, instead of giving now, many people in Texas have turned to estate planning as a way to have enough money while still alive, but be able to give to important organizations after they are dead. By either leaving a nonprofit or charity money in a will or creating a trust that can give to organizations on an individual’s behalf, estate planning is an important charitable giving tool for any generation.

Many people in younger generations may not think they need a will or an estate plan, believing that it will be quite a while before they die or that their estate is so minimal that there is no point. This kind of thinking, however, means many younger people die without ever creating a plan for how they’d like their estate divided. Fortunately, baby boomers are getting older and recognizing the need to carefully plan for the ends of their lives.

Many people in Texas recognize the importance of charitable giving and want to do what they can for the organizations that are closest to them. At the same time, they may not be able to give right now, preferring to give through a will or trust. 

Source:Forbes, “Charitable Giving: Baby Boomers Donate More, Study Shows,” Deborah Jacobs, Aug. 8, 2013

On-shore trust option for asset protection gaining popularity

The term estate planning itself tends to lean towards the idea that these plans only matter after we are gone. It is true that a large part of the focus is placed on how our assets will be distibuted after death, but let us not forget that these tools provide significant benefit during life as well.

For instance, one type of trust is gaining popularity and replacing the use of a popular alternative for asset protection. Whether it is a surgeon who has a high risk for a malpractice lawsuit, a business owner facing environmental or other regulatory issues or even a parent worried that their child may get a divorce, tools that prevent creditors from laying claim to them are important.

Offshore accounts were once, and still are, a popular option for shielding assets from creditors. However, the Internal Revenue Service has tightened the reporting restrictions on these accounts, and the agency is coming down harder on those taxpayers who fail to report or pay the associated liability.

As a solution, many financial and estate planners are directing their clients towards another, on-shore option. A domestic asset protection trust is a way to proactively protect these financial interests. The irrevocable trust also provides this benefit to any claims made against the estate.

Although these trusts can only be created in 15 states, they are still available to those that live in a jurisdiction where this type of trust cannot be established.

An estate planning attorney in Texas not only provides a client with available options in the state, but will also advise on all options. The attorney can also work with any third-party professional necessary to create a complete plan.

Source:The Wall Street Journal, “Creditor-Proof Trusts Replacing Offshore Accounts,” Arden Dale, Aug. 8, 2013

Same-sex spouse inherits after Defense of Marriage Act falls

There are likely mixed emotions in El Paso about the Supreme Court of the United States’s decision earlier this summer to strike down a clause in the federal Defense of Marriage Act that denied federal recognition of same-sex marriage. Regardless of how you feel about it, it has had a serious impact in the field of estate planning and estate litigation. Today’s story is just one such example of the changes that may be coming to Texas.

After a same-sex couple married in Canada in 2006, they returned to the United States, but one of the spouses learned that she had cancer. Four years later in 2010, the woman died, starting a long battle for her law firm’s profit-sharing plan. The woman’s wife and her parents both claimed the $49,000, but a judge eventually ruled that the money belonged to the woman’s wife after part of the Defense of Marriage Act was struck down.

While this story did not happen in Texas, employee benefits that fall under the Employee Retirement Income Security Act (as this woman’s did) are governed by federal law. This means that same-sex spouses in Texas that were married in a jurisdiction that recognizes same-sex marriage will be the automatic beneficiaries of these kinds of benefits. Granted, any benefits controlled by state law will continue to operate under the premise that same-sex spouses are not married.

The judge deciding the case cited the Supreme Court case that ultimately brought down the Defense of Marriage Act, saying that it was clear the women were married in the eyes of the federal government.

Source:Philadelphia Post-Inquirer, “Judge awards late lawyer’s benefits to lesbian spouse,” Joseph A. Slobodzian, July 31, 2013

Proper estate planning includes discussion of taxes

This blog has frequently mentioned estate taxes, but we cannot stress enough how important it is to talk to an estate planning lawyer about these taxes when making important end-of-life decisions. Although any estate planning attorney in Culberson County can help you make a will, only an experienced one will fully brief you on estate taxes and how they may effect your loved ones. As one individual in the will and estate field says, “There’s nothing worse than being in your worst grieving moments and having to deal with financial chaos.”

One of the problems that many Texans don’t consider is that different vehicles are taxed differently. Imagine someone leaving roughly the same amount to his or her two children, but in vastly different forms. One may be subject to various taxes, while the other is not, leaving one child with far less than his or her sibling. Though the intent was to leave both children the same amount, a shoddy will or an inattentive estate planning attorney may not catch what will surely be a disappointing result.

Another big problem is the fact that many people die after having failed to pay their taxes for a few years. When you are older, ill, hospitalized or living in a nursing home, you may not think about taxes or even filing for an extension. While the Internal Revenue Service may not catch you right away, when your estate is distributed to your beneficaries, it certainly will take unpaid taxes out. To have to deal with the IRS and taxes while coming to terms with the loss of a loved one can be too much to bear.

Wise estate planning, however, will do a better job of addressing these tax issues up front and incorporating them into the will and estate plan.

Source:Chicago Tribune, “Plan now to avoid inheriting a tax mess,” Amy Feldman, Aug. 8, 2013

Judge decides woman with Down syndrome can choose guardian

Many parents in Hudspeth County look forward to having happy, independent adult children. For some parents, however, they know their children will never be truly independent, most often because of a disability or accident. When adult children are not able to make decisions for themselves, it is essential that the children be appointed guardians. While a guardian should not completely run a person’s life or go against the incapacitated person’s wishes, the guardian provides support and care that the individual is otherwise unable to provide for him- or herself.

Although many people in need of guardians will choose their parents, not all will, and one judge has determined that a person needing a guardian should have some say in who his or her guardian is. Although this did not happen in Texas, judges here may also choose to listen to the disabled person’s preferences as to who his or her guardian is.

The 29-year-old woman at the heart of this matter has Down syndrome and the judge made it clear that she needed to have a guardian. He found that she was unable to remain entirely indpendent, but that he was required to listen to her preferences.

The young woman’s mother and stepfather had filed for guardianship and wanted to put her in a group home. The young woman, however, wanted to live with her friends, a couple that currently employ her to work in their thrift shop. Had her parents won guardianship, they would have been able to dictate who she spends her time with, where she lives and what medical treatments she would recieve.

Source:USA TODAY, “Judge: Woman with Down syndrome can live with friends,” Natalie DiBlasio, Aug. 3, 2013

Trusts were one option to lower James Gandolfini’s estate taxes

Almost one month ago, we brought you the tragic story of James Gandolfini’s death. We also discussed how he had intelligently created a will that made specific provisions for his loved ones, something of a rarity among the Hollywood elite. Although the people in El Paso may have been impressed by Gandolfini’s generosity, they may also have noticed how much in estate taxes his friends and family will have to pay.

Estate taxes can be a burden for many people in Texas and anyone with an estate over $5.25 million. One way to get around those taxes, however, is to establish trusts for people who would otherwise have to pay those taxes. For Gandolfini, that would be anyone but his wife.

In Gandolfini’s will, he left a little less than 20 percent of his money to his wife, meaning more than 80 percent of his estate was subject to estate taxes. Had he created a trust for his other family members and friends, they would have received much more.

Setting up a trust can be difficult and many people think it would just be easier to write a will. It is important to remember, however, that you worked hard for your money and you should be able to give nearly all of it to the people of your choosing, not paying the federal government up to 55 percent of your bequests. Working with an estate planning attorney can help to create trusts and avoid the cost of estate taxes.

While it is certainly clear that Gandolfini’s friends and family will not be wanting after the bequests they received, they could have received even more if Gandolfini had used trusts to provide for them.

If you would like more information, please see our previous post on specifics of Gandolfini’s will.

Source:CNBC, “Gandolfini’s will a case study on what not to do,” Kelley Holland, July 26, 2013