Definition of the Week: Asset

Asset: In our estate lawyer practice, we use the word "asset" to mean "real property" (not just "real estate" narrowly but all types of "real property" generally). In this regard, an asset is assumed to be something of value described in a legal document, which legal document is on file outside your home at a private company or government agency. The legal document may be called a deed, a title, a certificate, or a contract. This legal document describes the asset and who owns, controls, or is entitled to the asset.

The word "assets" includes, by way of example, the following real estate, water or mineral rights, stock, bonds, life insurance, promissory notes, financial, investment, or retirement accounts or benefits, or automobiles. The term "assets" also includes ownership interests in partnerships or closley-held businesses or in other complex arrangements or structures. Cash in the bank is clearly an asset. Cash in hand-though it does not have a document of ownership attached to it--is still considered by law to be an asset.

Valuable art, books, or musical instruments are also categorized as assets, but only if they have legal documents of ownership on file at a private company or insurance company. An asset can often be insured separately and specifically by name.

Finally, an asset is defined by the fact that if ownership of the asset ever changes hands, the legal document of ownership must be changed to reflect the name of the new owner.

Check out our website here for additional estate planning resources.

Inheriting Double Eagle Gold Coins Might Not Be Easy

Israel Switt, a Philadelphia jeweler, died in 1990. In 2003, Switt's daughter, Joan Langbord, discovered ten gold coins in a safety deposit box owned by her father. She is now suing the U.S. Government for the right to inherit those gold coins.

The gold coins in question are called double eagles. In 1933, Franklin Delano Roosevelt ordered all double eagle gold coins to be melted back into gold bars. The double eagles were never released by the U.S. Government. But a few of these gold coins mysteriously got out.

Ms. Langbord insists the government has the burden of proof in this case. This could mean that if the government cannot prove Israel Switt personally stole the double eagles, the gold coins would pass to Israel Switt's heirs. And Israel Switt's heirs could inherit coins that are worth millions of dollars.

A few articles of interst regarding Mr. Switt's double eagle gold coins are:

"Heirs Battle U.S. Mint Over Prized Gold Coins" by the Wall Street Journal
"Family fights government over rare 'Double Eagle' gold coin" by Yahoo
"Pa. family fights US over rare 1933 gold coins" by Associated Press

For more information regarding inheritance issues look here.

2011 Estate Tax

Six months to go . . . . .

Read this Wall Street Journal Article:
http://online.wsj.com/article/SB10001424052748703609004575355572928371574.html

Heavy Estate Taxes to Hit Middle Class in 2011

Why Planning Now is More Important Than Ever.

For 93 years there has been an estate tax. 2010 is an historical year, the only year since 1916 there has been no estate tax. This does not mean the estate tax has been repealed. No, no! The estate tax has only been suspended for one year. The tax comes back with a fury in ten short months in 2011.

Numerous proposals have been made to lift this suspension and reimpose the estate tax on all those who die in 2010, retroactive to January 1. The following is my analysis of why there will be no estate tax in 2010, and why 2011 will hit the heirs of estate planning procrastinators right between the eyes.

No Political Motivation to Reinstate the Estate Tax.

The first reason why there will be no estate tax in 2010 is that both Republican and Democrat members of Congress have no political reason to do so.

Consider. In this important midterm election year, the Republicans are in a beautiful political position regarding the estate tax. Those Republicans up for reelection can brag to their constituents that they (and the Bush Administration) successfully rid the country of the dreaded death tax. They can brag that there is currently no estate tax, thanks to their untiring efforts. They can point to their nasty Democrat opponents who, lockstep with the Obama Administration, want to reinstate the death tax. For the Republicans, it plays exceptionally well to sit tight right up to November and not encourage any reinstatement of the estate tax.

Of course, the Republicans will not emphasize that the estate tax is set to return in 2011, exempting only $1 million from estate taxes, instead of the $3.5 million that was exempted from estate taxes just last year. Rather, the Republicans will be content to bask in the glory of their temporary 2010 victory over estate taxes and not push for any change.

From the Democrat's perspective, this is also a critical election year politically. The Democrats (including key leaders such as Harry Reid) are in tight races this November against conservatives with conservative agendas. These Democrats don't want to be in a position in their reelection campaigns to be arguing for reinstatement of the nasty death tax. A couple of years ago, the Democrats were in a good negotiating position with the Republicans in arguing how much the estate tax exemption should be: $3.5 million, $5 million, $7 million. This year, the picture is very different. There is no estate tax at all and the Democrats are in the unenviable position of essentially arguing whether there should even be a death tax! For the Democrates, this is not a good position to be in. So even though they may approve of the estate tax philosophically, they are unlikely to push for reinstatement of the estate tax for 2010 for their own political survival.

And this is all in 2010. It is 2011 politics that is also driving the picture this year. While the Democrats may be the guys down in 2010 on the estate tax issue, come 2011, the Republicans will be the guys being kicked in the head. Remember, the Republicans can crow this year in their reelection campaigns that there is no estate tax (and again, for their short-term political gain, they are very unlikely to emphasize the estate tax will return in 2011). Now if the Democrats simply avoid the estate tax fight this year, just bide their time and not push for estate tax reinstatement, then in 2011 when there is an estate tax on every dollar above a measly $1 million (Insurance policies alone push vast numbers of middle class taxpayers above the $1 million threshold.), then guess who is going to be on the hot seat in regard to estate taxes? That’s right, the Republicans.

You can hear the Republicans already in 2011: “Oh,” they will say, “look at this terrible death tax we are facing: it is all the fault of those limousine liberals, those terrible Democrats.” The Republicans can play off the Democrats in this way politically. But in reality, it is the Democrats who are sitting pretty on the actual issue of the estate tax. The Democrats are in the perfect position in 2011 to negotiate a low estate tax exemption or just not negotiate at all, and keep it at $1 million and let the Republicans sweat and start the fight for estate tax reform! Once the Republicans begin the fight for reform, the Democrats can argue, “well, we will agree to increase the estate tax exemption to . . . oh, let's say $2 million.”

All the Democrats have to do is wait another ten months for the above scenario to play out, and the country may well be faced with an estate tax exemption of $1 million (maybe $ 2 million after some negotiating), where it was $3.5 million just last year. The Democrats are in the perfect position to beat up on the Republicans in 2011, by just sitting tight and taking their lumps this year.

Monetary Motivations to Postpone Reinstatemetn of the Estate Tax.

The second reason why there will be no estate tax in 2010 is that both Republican and Democrat members of Congress have monetary motivations to postpone reinstatement of the estate tax.

In this election year both the Republicans and the Democrats can enrich themselves and their reelection coffers by playing to both sides of the estate planning debate. The more smoke they can create (saying, “oh, we need to do something about this estate tax”), the more money the pro-estate tax lobbyists will throw at the Democrats and the more money the anti-death tax lobbyists will throw at the Republicans. As we know, these funds thrown at politicians can be used for a variety of purposes to their advantage and even for their ultimate personal benefit. So why cut off the hand that feeds you, by actually doing something?

The Obama Administration is Monetarily Motivated
to Create Uncertainty by Delaying Reinstatment of the Estate Tax

What about the IRS–the Treasury Department? Don’t they want to push estate tax reinstatement? Let’s look at the estate tax reform from the prospective of the Obama Treasury Department. The Treasury will in fact lose a bit of revenue if the estate tax is not reinstated for the year 2010. A bit of revenue (relatively speaking) will be lost on those wealthy individuals who die this year and avoid paying any estate tax.

However, the heirs of anyone dying a few seconds into the new day of January 1, 2011 (and thereafter) are in for a big surprise–to the benefit of the IRS. A meager one million dollar exemption from estate taxes in 2011 will hit wealthy and many middle class tax payers dying in 2011. The heirs of these decedents will be writing out checks that very likely will make up for the lost revenues in 2010.

In reality, the IRS and Obama Administration have no extraordinary motivation to push reinstatement of the estate tax in 2010. The Treasury Department will get theirs. It may be in 2011 and thereafter, but they will get theirs. (What the Obama Administration would really like is to eliminate certain advantages to taxpayers under current estate tax law, such as GRAT terms and partnership discounts. However, this desire of the Administration could happen under the radar, with reinstatement of the estate tax for 2010 being quietly abandoned or not emphasized.)

But there is something even nastier about all this. Consider the uncertainty regarding the estate tax. The IRS in fact takes full advantage of this uncertainty to bring in more revenue. Uncertainty in estate tax planning has benefitted the Service immensely. Many individuals potentially subject to estate taxes procrastinate and delay and say, “well there may not be an estate tax this year” or “the exemption will probably increase” or “my congressman will make sure there’s no estate tax” or “something good will happen.”

Uncertainty motivates people to inaction. It prompts people not to do any planning and in the process of failing to do planning, the IRS ultimately benefits because existing laws often require effective planning to be done several years before an individual dies. So the more uncertainty there is, the more people will delay planning, and the more likelihood hefty checks will be written to the IRS down the road. All the political machinations and maneuvers currently underway, all the talk by the Administration or members of Congress, plays out perfectly for the Service in creating uncertainty and motivating inaction.

Escape Clause

To save face here, I must say that my entire analysis above fails in one scenario: the Republicans recognize the long-term advantage to them of agreeing with the Democrats to reinstate the estate tax this year, despite the short-term political damage that may cause. What do you think? Will the Republicans look long term or short term on this issue this election year?

What to Do?

What does this mean for clients? Consider reality. There will be an estate tax. THERE WILL BE AN ESTATE TAX! It is time for individuals to face reality. The estate tax will come back with a vengeance and it may be too late by then for all those individuals who keep on waiting to plan “until things settle down.” A time of uncertainty is the perfect time to plan.

My advice in regard to taxes is to plan for the worst; pray for the best; and then accept with optimism and peace that the worst will in fact happen.


Craig E. Hughes
170 South Main, Suite 375
Salt Lake City, Utah 84101
801.364.5600
www.estateessentials.com

Son, You Can Have your Inheritance Only if You Marry a Good Jewish Girl

Max Feinberg stipulated in his will that each of his beneficiaries would receive their inheritance only if they married someone of the Jewish faith or the beneficiary's spouse converted to Judaism within one year of marriage. Only one beneficiary met the requirement. Another beneficiary sued. The Court held that because the beneficiaries had no legal ownership interest in the trust property at Mr. Feinberg's death and because Mr. Feinberg's requirement did not violate any public policy, then Mr. Feinberg's instructions in his will were perfectly valid and enforceable.

If the will had directed that Mr. Feinberg's beneficiaries receive their inheritance only if they assassinated the local mayor, then that would violate public policy against murdering the local mayor. Any term in a will that calls for violation of a law in order to receive an inheritance will be held invalid. Otherwise, you have pretty much free rein to decide under what conditions your assets will be distributed.

For information regarding the Max Feinberg case go to:
In Re Estate of Max Feinberg v. Feinberg
In re Max Feinberg
Max Feinberg

What Do You Do When You Inherit Poems?

In 1994, David Broza, an Israeli balladeer, performed once in a small concert with Townes Van Zandt, a Texan singer and songwriter. When Mr. Van Zandt died in 1997, he bequeathed his unpublished poems to Mr. Broza. An unexpected inheritance for Mr. Broza. Eight years after Mr. Van Zandt's death, Mr. Broza, in tribute to Mr. Van Zandt, turned the poems into songs. In 2010, Mr. Broza produced an album "Night Dawn: The Unpublished Poetry of Townes Van Zandt." A nice tribute and great music and lyrics. Check it out http://nightdawn.davidbroza.net/

Will the Estate Tax Die January 2010?

Under the current Economic Growth and Tax Relief Reconciliation Act ("EGTRRA")if a person dies in 2009 with less than $3.5 million in their estate, their are no estate taxes. Well over 95% of U.S. citizens who die in 2009 will have less than $3.5 million in their name. Under EGTRRA, the estate of anyone who dies in 2010 will not be subject to estate taxes--regardless of how much their estate is worth. For example, if you had assets worth $100 million and died in 2010, your heirs would pay nada, zero, zilch in estate taxes. This is only for 2010. The estate tax returns for those who die in 2011 and thereafter.

Will Congress pass a law in time to prevent the death of the estate tax for the year 2010? Beth Shapiro Kaufman in July's issue of Estate Planning points to the fact that a few congressmen have tried to repeal the estate tax completely, but most think there should be an estate tax of some sort. The sticking point is what the ceiling amount or exemption from taxes should be--something less than the existing $3.5 exemption, $3.5 million, 5 million, or some other amount? No matter the exemption amount, Ms. Kaufman indicates that time is of the essence for Congress to do something now in 2009 in order to prevent the death of the estate tax exemption in 2010.

There is no question in our mind at Hughes Estate Group that there will be an estate tax of some sort imposed on those who die in 2010 with more than $3.5 million to their name. To plan or postpone planning in the hope that there will be no estate tax in 2010 is unwise.

Stop! Don't Give Me Cash! Give Me A Special Needs Trust!

It is crucial, when planning for the care of special needs children that a parent talk with a good estate planning attorney. Giving a special needs child an inheritance will very likely diminish or eliminate benefits (including means-tested government benefits) that a special needs child is receiving. A better way to benefit a special needs child upon death is to create a "Third-Party" special needs trust. We at Hughes Estate Group, Attorneys, would be glad to answer any questions you may have regarding special needs trusts. Give us a call at 801.364.5600.

There are good sources (in addition to estate planning attorneys) that discuss special needs trusts. A recent article found in the July/August 2009 issue of Probate & Property by Sebastian V. Grassi Jr., titled "Estate Planning for a Family with a Special Needs Child" touches on Special Needs Trusts. Mr. Grassi says, "The principal purpose of a third-party created and funded SNT is to provide an inheritance for the special needs child without risking the loss of important means-tested government benefits such as SSI, Medicaid, and so on." (p. 17)

Another resource is the book titled, Special Needs Trust Administrative Manual, a Guide For Trustees, found online. While this guide is sometimes focused on Massachussets law, the guide nevertheless gives you not only an idea of what special needs trustees are required to do, but how a special needs trust works.

Here at Hughes Estate Group we subscribe to the "Special Needs Trust Handbook," published by Aspen Publishers which is updated on a regular basis, keeping our Firm up-to-date on Special Needs issues. It is expensive but is a resource for the person wishing to be really up to speed in the Special Needs arena.

In addition, the Nolo Press book titled "Special Needs Trusts" by Stephen Elias is a good book for laymen to get an overview of Special Needs Trusts in preparation to talking with a good attorney. We would highly discourage using the boilerplate forms in the book. The forms do not cover a wide variety of critical tax and legal issues involved in establishing and administering special needs trusts and may cause critical harm to your special needs beneficiary. Other than the forms, the book is a good introduction to Special Needs Trusts.

In addition, the following websites are helpful.
Social Security Trust Spotlight
Special Needs Trust for Austism
The Center for Special Needs Trust Administration, Inc.

Get a Living Will

The Obamas have living wills and you should, too. You should also have powers of attorney as well. If you are in Utah and need help with these documents, contact us.

H/T Death and Taxes blog.

Headline of the Day

Lightning kills nine at funeral

The C.L.A.S.S. Act (Community Living Assistance Services and Support. To transform the way people pay for long-term care. Participants would receive daily benefits. They could use this money for home care adult day programs, or assisted living or nursing homes.

It creates a national insurance trust that people can voluntarily participate in. It's a publicly sponsored insurance plan. You have to pay premiums that will be average around $65 a month for five years before you can draw benefits. It will be self-funding.

While Medicaid already pays for some of the same services, you have to be really sick and really poor to qualify. The plan allows you to have no more than $2,000 in assets plus your house, which they will put a lien on when you die for reimbursement of your care. This plan has been proposed as a way of easing the burdens of middle class families.

The bill was introduced this summer by Senators Edward Kennedy and Tom Harkin and Representatives John Dingell and Frank Pallone.

In the Press Release on the bill they said that there are currently 10 million Americans in need of long-term care services. It quotes Sen. Kennedy, "Too many Americans are perfectly capable of living a life in the community, but are denied the supports they need. They languish in needless circumstances with no choice about how or where to obtain these services.Too often, they have to give up the American Dream – the dignity of a job, a home, and a family – so they can qualify for Medicaid, the only program that will support them. The bill we propose is a long overdue effort to offer greater dignity, greater hope, and greater opportunity. It makes a simple pact with all Americans – ‘If you work hard and contribute, society will take care of you when you fall on hard times.’”

Mysterious Syncronicity and the Popularity of Obituaries

The Flourishing Life of the Obit Desk

By Andrew Alexander
Sunday, August 2, 2009

"Did you catch the news about the golfer who died of a stroke? How about the librarian who checked out? Or the math teacher whose number was up?

They've heard them all on newspaper obituary desks."

So starts a Washington Post Post Mortem article today about the paper's obituary column. Mr. Alexander goes on to tell us that the obituary departments were at one time a starting point for novice reporters or the department to which they were sent when their careers foundered.

But today, obituaries are gaining increased audience and revenues. In the past six month's the Post's Obituary Web site have had almost three times as many pages as their popular "subsection" in the Metro section.

And while reporters once viewed the obit desk as the worst assignment, some now see working there as one of the best.

Always something interesting at the Post Mortem. Today's obituaries include the Boston DJ George Taylor Morris who started the urban legend about a mysterious synchronicity between Pink Floyd's "Dark Side of the Moon" and the movie classic "The Wizard of Oz." If you start them out at the same time "the lunatic is on the grass" line comes just when the Scarecrow begins dance near a green lawn. The line "got to keep the loonies on the path" comes just as Dorothy and the Scarecrow start down the Yellow Brick Road.

They've been cued up for you at the RollingStone if you want to have a look.