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Wednesday, January 9, 2013

Ten Things That Can Complicate an Estate Plan

We strive to keep things simple for our clients.  Some complications can be avoided and some cannot.  Just knowning that these conditions exist can help your estate planning go more smoothly.  Ten things that tend to make estate planning more complicated are:

1.  Greater Wealth.  Larger estates tend to be more complicated because of estate and gift tax issues and the desire of clients to establish a plan that avoids or reduces taxes.

2.  Greater Number and Types of Assets.  Every asset adds complexity to planning and estate administration.  A client who has one bank account that holds $5 million has a simpler situation than a client who has $5 million spread throughout multiple accounts, real estate, business interests, airplanes, stocks, bonds, IRAs, and gold coins. 

3.  Real Estate in Multiple States or Countries.  Planning for a second home in another state or country, or a piece of the family farm in Iowa, increases estate plan complexity.

4.  Blended Families.  When the family includes “my” children, “your” children, and “our” children, the nature of the plan can become more complicated to assure that everyone receives the "right inheritance."

5.  Unmarried Couples. State and federal laws provide certain benefits and protections to married couples when it comes to estate planning.  These laws can be planned around when unmarried couples do their planning together, but such plans tend to be a little more complicated.

6.  Non-US Citizen.  Federal tax law may complicate planning when a client is married to a non-US citizen.

7.  IRAs and 401(k)s.  Large IRAs and 401(k)s are special assets because they are taxed deferred and subject to special regulations that can restrict client flexibility. 

8.  Other Types of Regulated Property.  Certain types of property are highly regulated by state or federal law which can add complexity to an estate plan.  Highly regulated property includes restricted stock in native corporations, native land allotments, fishing permits and individual fishing quotas, liquor licenses, timeshares, and US Savings Bonds.

9.  Operating Businesses. Operating businesses should (but rarely do) have an effective succession plan in place in the event the owner or key manager passes away.  This problem is magnified  when the business is a professional practice requiring a special license.

10. Significant Philanthropic Planning.  Many clients want to leave a large part of their estate to charity which seems simple.  But structuring a charitable gift in the right way to the right charities can increase complexity and require special effort and focus on the part of the client.

Wednesday, December 26, 2012

Limit on Tax Free Gifts Set to Increase

The IRS recently gave taxpayers certainty about one part of the estate and gift tax law.  In October, an increase in the annual exclusion for gifts was announced.  That amount will increase from $13,000 to $14,000 per recipient in 2014. 

The annual exclusion is the total amount you can give away to one person in a calendar year without triggering a requirement to file a gift tax return.  Annual exclusion gifts may result in a lower estate tax, as gifts made prior to death are not part of the taxable estate at death.  Married couples can join to make gifts of twice the exclusion amount per year, per recipient.

A gift tax return will need to be filed for gifts above the annual exclusion amount, although these gifts may not be taxed.  In 2012, tax won't be due until you've given $5.12 million (total) in gifts reported on gift tax returns.  All bets are off, though, for 2013.  Currently, the law for 2013 is that taxes will be due on all reportable gifts above $1 million. 

If you want to gift more than the annual exclusion amount to any recipient in one calendar year, it's a good idea to contact Foley & Foley first.  We can give you ideas about how to reduce or eliminate the gift tax on those large gifts.

Wednesday, December 12, 2012

Estate Planning with Gold

Some people believe that the best way to protect wealth from the government is to bury gold in the garden and keep lots of cash in the mattress.  A recent story reported by NBC News illustrates why this strategy might not be the best estate plan.

             When Walter Samasko, Jr., passed in May 2012 in Carson City, Nevada, he was not discovered until at least a month later. At 69 years of age, Mr. Samasko died from heart problems without a will or any immediate family.

            The city clerk's office undertook wrapping up the estate and selling the house under the assumption that Mr. Samasko had died broke with only $200 in his bank account.  But when cleanup crews arrived at the home, they discovered boxes of gold, including gold coins, gold bullion, $20 gold pieces, Austrian ducats, South African Krugerrands, and English Sovereigns dated to the 1840's. The $7 million estimated value of the gold was based on the weight of the gold alone.  The value could be much higher considering the rarity of some of the coins discovered.  The gold had to be removed in two wheelbarrow loads.

            After investigating potential heirs, the city clerk determined that the closest next of kin was a first cousin, Arelene Magdanz,  a substitute teacher who lives in San Rafael, California.  When contacted by a lawyer regarding the estate and her newly found inheritance, she was shocked.  Ms. Gagdanz had not seen her cousin in over a year. 

            Mr. Samasko was described as being "anti-government, paranoid, and a reclusive hoarder.”  Evidently, Mr. Samasko believed that he could avoid taxes and government intervention in his estate by holding everything in gold.  But things didn't work out that way.  The City of Carson City has undertaken to wind up Mr. Samasko's estate and the Internal Revenue Service will collect at least $750,000 in estate taxes from Mr. Samasko's estate.

            We have a number of clients who hold a substantial amount of gold and cash in safety deposit boxes or in their homes.  These clients often fail to tell their estate planning attorney and CPA about the gold or cash on the assumption that it will be passed to the next generation without anyone discovering it.  But this is a risky plan for two reasons:

            First, the next of kin have a legal obligation to report the transfer of wealth to the IRS if the entire estate is over the estate tax threshold amount ($5.12 million in 2012 and, if and when the current law expires, $1 million in 2013).  Failure to report the transfer of wealth is considered tax evasion, a serious federal criminal offense.

            Second, next of kin who are willing to be dishonest with the IRS are likely to be dishonest with other family members, too.  In such cases, the first family member to find the gold and cash simply carts it away and doesn't report it to other family members who were intended to share the inheritance. 

            Gold has recently been a very good investment.  But when raw gold is held in an estate, the transfer of the gold should be properly handled.  There are legitimate ways to avoid estate taxes with these assets. Hoarding and hiding is not the best plan.

Wednesday, November 28, 2012

Even the Rich and Famous are Victims of Poor Estate Planning

In his recent article in Wealth Management, Jim Moniz illustrates how estate planning, or a lack thereof, has come to be known as the "great equalizer."  With so many newsworthy battles of heirs and estate planning disasters, Mr. Moniz ponders how a majority of American adults still have no plan in place for the assets they leave behind.  Here are a few examples:

Sonny Bono: He left his third wife to manage claims from Cher and an alleged love child in an estate worth an estimated $1.7 million, including the right to exercise Sonny's music rights. He did not set up a will or a trust before his untimely death in a skiing accident.

Howard Hughes: This famous businessman, aviator, and philanthropist died intestate after a handwritten will found on a church official's desk was deemed forged. One of the richest people in the world, his $2.5 billion estate was split among 22 cousins after thirty-four years of litigation.

James Brown: James Brown tried to leave his $100 million to a special trust to benefit poor and needy children. He did not discuss his wishes with his family, however, and failed to update his will while he was married to his fourth wife. These mistakes left his money in limbo and ultimately only benefited legal teams.

To read the article in its entirety, see Jim Moniz, "Lessons of the Rich and Famous,", Nov. 21, 2012.

Wednesday, October 17, 2012

Fall 2012 Estate Tax Law Update

The current estate tax law is scheduled to expire on December 31, 2012, together with other "Bush Tax Cuts" affecting overall tax rates, capital gains taxes and taxation of trusts.  If Congress does not act by December 31, 2012 or pass a retroactive tax law change, the current $5.12 million estate tax exemption will expire and the law will revert to the 2001 exemption, adjusted for inflation, of $1.3 million.  Because of the risk that the larger exemption might expire and not be renewed retroactively, some wealthier Americans are choosing to take advantage of the $5.12 million exemption by making larger gifts in 2012 to family members or to trusts for themselves or their family. 

Contact us if you want to discuss your situation and how you might take advantage of the current law before it expires.

Tuesday, October 2, 2012

Your Digital Assets

Where's the Combination to the Safe?  You may have imagined family members asking this question in the event of your death.  It's a simple matter to let them know where you keep that combination. 

One of the challenges of life in the “electronic age” is keeping track of login information and passwords.  As we all know, the more random, complex and short-lived we make passwords, the more secure our information is.  This information should be changing constantly.

Tracking your own passwords and login information is complicated.  Trying to puzzle through someone else's password and login information is at best, challenging and at worst, it's impossible.

A few months ago an Anchorage man passed away unexpectedly.  His sister, dealing with the shock of his death, traveled to Anchorage to settle his affairs.  In life, this family had been separated by many miles and in death, unknown passwords meant the man's most important information was inaccessible to his sister.  Tasked with settling the man's affairs, his sister had no idea what his passwords were – this man literally took secrets to the grave.  The result is that nothing has been easy; some information will never be uncovered. 

According to the Pew Internet & American Life Project, 36% of adults over age 45 now do their banking online.  Without access to your digital assets, even figuring out what automatic payments are made each month and cancelling your subscriptions can be a challenge.

Passwords and login information are assets to be protected during life and passed on at death.  So how to go about doing this?  Here are some ideas: 

1.  The Old Fashioned Way:  Write them down.  Keep a list of passwords and login information in a safe place.  Tell at least two other people where it is and update the list EVERY time something changes.  With help from some of our clients, we have developed a simple form that's a starting point for a list of password and login information.  Give our office a call and we'll email it to you.

2.  The "Simple" Technology Way: Put them into a document on your computer.  Make a list of passwords and login names; if you want, you can password protect the list.  Tell at least two other people the name of the document, its location and the password.  Update the document EVERY time something changes.  If you email a copy of the document to someone, password protecting it is a must; however, do not make the mistake of sending the document and the password in the same email.

3.  Use a Password Tracking Program.  There are dozens out there.  Lastpass and RoboForm are two our clients have mentioned.  Pick one that works on your computer and any portable devices you use.   Set it up and use it religiously.   Tell at least two other people what service you use and how to log into the service.  Again, do not give them all of that information by email at the same time. 

4.  Use a Service That Releases Information in the Event of Your Death.   These services require proof of your death.  An example is Legacy Locker (  Another service, Deathswitch (, will send an email to you at the frequency you have selected.  If you don't respond after repeated requests, the service will send information you prepared to loved ones or friends of your choice.  If you use a service like this, make sure your information will also be available to those chosen confidants in the event of your disability.

There are lots of other ways to keep this information safe for others.  What's important is that you leave a trail for your loved ones to follow. 

Let us know what works for you!  Drop us a line or send an email, and we'll publish some of your ideas in a future newsletter.


Tuesday, September 25, 2012

Keeping it Simple

"Simple can be harder than complex: You have to work hard to get your thinking clean to make it simple.  But it's worth it in the end because once you get there, you can move mountains."  -Steve Jobs

            One of the most common comments we hear from clients is, "Why does it have to be so complicated?  My estate is simple."  The prevailing presumption is that it is the nature of lawyers to make things more complicated than necessary and in many instances, the clients are probably right.

            As the above quote from Steve Jobs indicates, it takes more work to keep things simple.  The easiest path is not usually the path of least resistance.  But Foley & Foley makes it a practice of making the extra effort to try and keep things simple for our clients.  Some of these extra efforts include:   

            Education.  We spend a great deal of time counseling and educating clients through our workshops and in our personal client conferences.  When clients have a basic understanding of the law and the issues that will be faced by heirs upon the death of a loved one, the estate planning process doesn't seem quite so complicated.

            A Step by Step Process.  Foley & Foley follows a simple process for assisting clients as they implement their estate plan.  The process is thorough, systematic and understandable, which means that details do not fall between the cracks.  Every client goes through the same five steps: 1) Intake appointment, 2) design appointment, 3) delivery appointment, 4) funding appointment, and 5) updating and maintenance.

            Internal Systems.  Foley & Foley has implemented internal systems and procedures that ensure that the plans and legal solutions are quickly and reasonably implemented.  These systems also ensure that every member of the estate planning team, from the receptionist to legal assistant, paralegal and lawyer, remains in the loop and understands the current status of each plan.

            Technology.  Foley & Foley keeps up to date of the latest hardware and software technology available to assure that we can:

  • Communicate efficiently and effectively with our clients as well as other lawyers and advisors.
  • Efficiently create and edit sophisticated legal documents.
  • Organize, archive and retrieve physical and electronic documents.
  • Research and educate ourselves and our clients about changes in the law.
  • Maintain, update and respond to changes in our clients' situations.

            Simple Legal Solutions.  The attorneys and staff are constantly looking for the simplest and most effective legal solutions to the particular problems faced by our clients.  Because we have worked with hundreds of estate planning clients, we have the experience necessary to suggest ways to keep things simple. 

            Fixed Fees.  We try to utilize fixed fees whenever possible to reduce the stress of not knowing what the plan is going to cost.  When fees are fixed and not hourly, everyone, including the lawyers, have incentive to keep it simple.


Thursday, August 16, 2012

Leaving Behind or Gifting Your Assets Does Not Mean Losing Control

A recent article in the Wall Street Journal by Laura Sanders (link below) explored the many ways in which you can provide for your loved ones and still ensure that the assets you have left are used in a productive manner after your gone.  In fact, there is a great deal of leeway for individuals who wish to provide conditions on the distribution and release of not only the inheritance that they leave behind, but also gifts they may wish to make now. 

As Ms. Sanders explains in her article, what you give away and how is especially relevant because of the unusual, and likely short-lived, current estate and gift tax exemptions which allow a taxpayer to transfer up to $5.12 million tax-free, either at death or through lifetime gifts. Because the current exemptions are set to expire in January 2013, you should consider making gifts before the end of the year. 

While making gifts now means giving up control of a portion of your assets, you can structure the terms of your estate plan to restrict distributions until the achievement of a certain goal or landmark event.  You can also use your assets as future incentives to encourage your children or grandchildren to complete higher education or become entrepreneurs.  When designing your estate plan, you may also want to include a popular provision provided in many states, including Alaska, prohibiting your beneficiaries from contesting the validity of your estate plan or else risk losing their inheritance. 

To read the article in its entirety, see Laura Sanders, How to Control Your Heirs From the Grave, Wall Street Journal, Aug. 10, 2012.

Tuesday, August 14, 2012

Buy-Sell Agreements and Your Business

If you co-own a business, you need a buy-sell agreement. Also called a buyout agreement, this document is essentially the business world’s equivalent of a prenup. An effective buy-sell agreement helps prevent conflict between the company’s owners, while also preserving the company’s closely held status. Any business with more than one owner should address this issue upfront, before problems arise.

With a proper buy-sell agreement, all business owners are protected in the event one of the owners wishes to leave the company. The buy-sell agreement establishes clear procedures that must be followed if an owner retires, sells his or her shares, divorces his or her spouse, becomes disabled, or dies. The agreement will establish the price and terms of a buyout, ensuring the company continues in the absence of the departing owner.

A properly drafted buy-sell agreement takes into consideration exactly what the owners wish to happen if one owner departs, whether voluntarily or involuntarily.  Do the owners want to permit a new, unknown partner, should the departing owner wish to sell to an uninvolved third party? What happens if an owner’s spouse is involved in the business and that owner gets a divorce or passes away? How are interests valued when a triggering event occurs?

When drafting a buy-sell agreement, business owners should be prepared to consider the following issues:

  • Triggering Events - What events trigger the provisions of the agreement?  These normally include death, disability, bankruptcy, divorce and retirement.
  • Business Valuation - How will the value of shares being transferred be determined? Owners may determine the value of shares annually, by agreement, appraisal or formula.  The agreement may require that the appraisal be performed by a business valuation expert at the time of the triggering event. 
  • Funding - How will the departing owner be paid?  Many business owners will obtain insurance coverage, including life, disability, or business continuation insurance on the life or disability of the other owners.  With respect to life insurance, the agreement may provide that the company redeem the departing owner’s shares. Alternatively, each of the owners may purchase life insurance on the lives of the other owners to provide the liquidity needed to purchase the departing owner’s shares (“cross purchase agreement”).   The agreement may also authorize the company to use it’s cash reserves to buy-out the departing owners.  

If you are a business owner and share ownership interest in your company, Foley & Foley can assist you in crafting this essential document to preserve the value of your contribution to the company.  For more information on the necessity of buy-sell agreements, see this recent article in Forbes by Robert W. Wood:  "In Business? Get A Buy-Sell Agreement!"

Thursday, July 12, 2012

Considering the Heirs

In his recent article in the New York Times, Paul Sullivan writes about the current tax break that allows individuals to give up to $5.12 million to their heirs tax-free.  The fate of this current break, set to expire in nearly five months at the end of 2012, may not be determined until after the November election.  In the meantime, individuals have a "once-in-a-lifetime opportunity" to transfer their assets in trust to their children and other loved ones without leaving them a hefty tax bill.  As Paul writes, the issue for some is giving up control and trusting they have enough liquid assets to live on should their financial circumstances change:

Now, some of the wealthy are faced with a choice that seems designed by a behavioral economist to test rational decision-making: Do they give their heirs the full amount of the exemption, happy that the money will help the heirs now and reduce their eventual estate tax bill? Or do they give less, or none at all, for fear that they could be left with not enough to live on?

One option for individuals worried about retaining their liquid assets is to put real estate or shares in a private business into a trust.  While no one can predict with certainty what the estate laws will look like in January, one thing is clear:  You should sit down with an estate planning attorney to assess your concerns and consider taking advantage of this opportunity soon, before the law expires.  

Check out Paul's entire article here.



Wednesday, June 13, 2012

Common Estate Planning Myths

Estate planning is a powerful tool that among other things, enables you to direct exactly how your assets will be handled upon your death or disability. A well-crafted estate plan will ensure you and your family avoid the hassles of guardianship, conservatorship, probate or unpleasant estate tax surprises. Unfortunately, many individuals have fallen victim to several persistent myths and misconceptions about estate planning and what happens if you die or become incapacitated.

Some of these misconceptions about living trusts and wills cause people to postpone their estate planning – often until it is too late.

Myth: I’m not rich so I don’t need estate planning.
Fact: Estate planning is not just for the wealthy, and provides many benefits regardless of your income or assets. For example, a good estate plan includes provisions for caring for a minor or disabled child, caring for a surviving spouse, caring for pets, transferring ownership of property or business interests according to your wishes, tax savings, and probate avoidance.

Myth: I’m too young to create an estate plan.
Fact: None of us know exactly what the future holds. Even if you have no assets and no family to support, you should have a power of attorney and health care directive in place, in case you ever become disabled or incapacitated.

Myth: Owning property in joint tenancy is an easier, more affordable way to avoid probate than placing it in a revocable living trust.
Fact: In Alaska, only a husband and wife can jointly own property with a right of survivorship.  Holding title to real property with someone other than your spouse results in a tenancy in common.  Tenants in common have no right of survivorship, meaning that if one tenant in common dies, that tenant's interest in the property will be part of his or her probate estate and pass to their heirs and devisees either by will or intestate succession. 

Myth: Keeping property out of probate saves money on federal estate taxes.
Fact: Probate, and probate avoidance, are governed by state law and address how property passes upon your death; they have nothing to do with federal estate taxes, which are set forth in the Internal Revenue Code. Estate planning can reduce estate taxes, but that has nothing to do with a discussion regarding probate avoidance.

Myth: With a living trust, a surviving spouse need not take any action after the other spouse’s death.
Fact: Failure to adhere to the proper legal formalities following a death could result in significant administrative and tax implications. While a properly drafted and funded living trust will avoid probate, there are still some tasks that have to be performed such as filing documents, sending notices and transferring assets.  

Which myths have you heard? Which ones have you believed? 



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