Uncategorized – Page 6 – Kling Law Offices

Mr. or Mrs. President? You Can Be Prepared for Either!

September 15, 2016/in Uncategorized/by Michael Kling

The upcoming presidential election dominates the news, and many of us are looking for details about the financial platform each candidate will enact. Some details about their views on the estate and gift tax laws have been revealed, and there are significant differences between the Republican and Democratic approaches. If you are lucky enough to have an ongoing relationship with your estate planning attorney, you may already be prepared to make the most of the changes and new opportunities that may arise. In our offices, we worry less about WHO will be our next President, and more about HOW we can help you manage any changes in the laws to achieve your desired outcomes.

Does Mr. Trump’s call to eliminate the estate and gift tax mean you no longer need estate planning? Not exactly. In our opinion, you still need a good estate plan and an estate planning lawyer who will make sure your plan does more than just reduce taxes. Planning should still proceed and should be structured to meet multiple goals. It is important to understand all of the reasons your estate plan is important. For instance, an irrevocable trust can provide important asset protection, shelter assets in the case of a divorce, and more. These types of non-tax goals mean your estate planning has merit regardless of Mr. Trump’s plan to repeal the estate tax.

Mrs. Clinton’s proposals currently include several key changes, including a significant decrease in the gift tax exemption to $1 million (from the current $5.45 million); lowering the estate tax exemption to $3.5 (from $5.45 million); eliminating the inflation adjustment on the estate tax exemption; and increasing the tax rate to 45%. These proposals bring to mind the 2012 estate planning environment when those who were unprepared faced worries about shifting assets to use a remaining gift tax exemption and whether the proper planning techniques were used for gifting. If your planning is up to date and you are in touch with your attorney, you will be ready to make gifts to appropriate spousal lifetime access trusts (if married) or to domestic asset protection trusts (if married or single) in the event you have not used all of your exemption. On the other hand, if you have used (or will use) all of your exemption, you will be ready to compare and consider options like a rolling GRAT before additional restrictions prevent using this technique.

No matter your political leanings, your ability to capture the opportunities that will arise under a new President will depend upon the relationship you have with your estate planning attorney. At Kling Law Offices, we work with our clients to insure they remain aware and informed of law changes that can be used to enhance an estate plan. We would welcome the opportunity to discuss your desires and options so you can plan for the peace of mind you deserve. Call our office today for your free initial consultation.

Top Estate Planning Things to Do Before the End of This Year

August 16, 2016/in Uncategorized/by Michael Kling

Even though it is only mid-year, the year’s end will be here in a flash. Nevertheless, there is still time to accomplish some important estate planning goals. Here is your list of the top things to do before the end of this year to give yourself the peace of mind you deserve.

Execute your Estate Plan: If you have not yet taken care of yourself and your family by executing a will, trust, power of attorney, and health care documents, make a point to get it done. Ask around for a referral to a trusted attorney who can walk you through the difficult decisions on how to divide your estate, who will be guardian of minor children, and who should be your executor or trustee. If you avoid making these choices, state laws and the courts will make them for you.

Update Your Existing Plan: Spend time considering how your life has changed since you executed your estate plan. If there are changes in your family, finances, or tax laws, or different people should be named to act on your behalf, it is time for an update.

Update Health Care Documents: Every adult should have a Durable Power of Attorney for Health Care giving another person legal authority to make health care decisions in a time of need, as well as HIPAA authorizations that give doctors the right to discuss a person’s medical care with others. Review who you named as your decision-maker and decide whether to update these critical documents.

Review Guardians for Minor Children: Consider whether the named guardian for your minor children is still the best choice. As your children age, or circumstances change, your choice of who should assume their care may also change. If you have not named a guardian, or the named person can/will not serve, a court will decide who will raise your children for you.

Talk to Your Loved Ones About Your Estate Plan: In general terms, talk with your children and other loved ones about the “what” and “why” of your planning. The more your loved ones understand your choices, the more likely they will be to accept what does, and what does not, happen once you pass.

Unmarried Adult Children Need Estate Planning, Too: Once children turn 18, they should have basic planning documents in case of an emergency. At a minimum, adult children should have a Durable Power of Attorney for Health Care and HIPAA authorizations; you should discuss a springing general power of attorney in case of incapacity; and, you should contemplate their need for a simple will. If any of these contingencies is needed, everyone will benefit from the planning.

There is plenty of time left in 2016 to complete this short list of essential estate planning tasks. We can help you get started with a complimentary consultation to prioritize your concerns and goals so you can end the year knowing you and your family are prepared for the year ahead.

What to Do After You Have a Trust

July 14, 2016/in Uncategorized/by Michael Kling

After signing your trust documents, you might be tempted to think you are done with the estate planning process. Until your trust is properly funded, however, your planning is not complete. Without taking the additional steps of funding your trust, you won’t realize all the benefits of having a trust.

“Funding” your trust describes the process of transferring assets into the name of the trust. Generally, you should put all of your assets into your trust, which will include your house and other real estate, bank accounts, investments, and business interests. Assets controlled by beneficiary designations (like insurance) should name the trust as a beneficiary so they will be controlled by the terms of your trust. Special rules apply to retirement plans and IRAs, so you should talk with your attorney about those assets.

While the trust funding process is generally easy, people often get sidetracked before completing the process. It is key to remember that the trust only controls the assets you put into it and, until you change titles and beneficiary designations, your trust will not help you avoid probate. A good tip is to start with the most valuable items on your asset list and work your way down, while reminding yourself of the peace of mind you will have when your estate plan is fully in place.

Your attorney can help with the process and provide instructions or sample letters for you to use. Some institutions will require proof that your trust exists before re-titling assets. For these situations, you can supply a “Certificate of Trust.” This is an abstract of your trust that establishes the trust’s validity without revealing the details about how your estate will be distributed.

At Kling Law Offices, we will prepare deeds for re-titling real property and assist by recording them in the appropriate county. We also prepare a “pour-over will” that acts as a safety net at the time of death, catching individually owned assets and directing them to your trust. Nevertheless, you are ultimately responsible for making sure your assets are transferred into your trust. While your attorney may assist you in re-titling your assets, he or she simply does not have authority to change ownership of your real estate, financial accounts, and other assets on your behalf.

Along these lines, it is important to remember that the trustee you name controls the assets in your trust. With most revocable living trusts, you have named yourself as the trustee, so you are the decision-maker and have complete control of the trust assets. This means you can add or remove assets from the trust any time you need or want to do so.

If you have questions about the status of your trust’s assets, or need help completing the funding process, contact our office for a complimentary consultation. We would be happy to help you make the most of your trust and achieve the peace of mind you deserve from your estate plan.

Is Your B Trust A Time Bomb?

June 16, 2016/in Uncategorized/by Michael Kling

In the estate planning world, Bypass Trusts, commonly called “B Trusts,” have historically been used to minimize taxes. Recent changes to income and estate tax rates, however, have altered the usefulness of these trusts by creating higher capital gains taxes without providing estate tax savings. As such, existing B Trusts are being called “ticking time bombs” that detonate after the surviving spouse’s death.

Under the old federal estate exemption of $675,000 with 55% federal estate tax, estate planners used a marital deduction formula and A-B Trusts to minimize income and estate taxes. In Community Property states such as Nevada, marital formulas placed the surviving spouse’s ½ community property interest and 100% of separate property into the A Trust. The deceased’s ½ community property interest and 100% of separate property went into the B Trust. The survivor would have unrestricted access to the A Trust income and principal. When the second-to-die spouse passed, beneficiaries and heirs received a step-up in basis that minimized capital gains tax liability.

Since B Trusts were irrevocable and limited the surviving spouse’s access to the deceased spouse’s assets, the marital formula is now creating tax burdens on the surviving spouse and beneficiaries. These outcomes can be expensive and surprising to everyone.

Of primary concern is that trust accounting rules often require capital gains on transactions within the trust be taxed at the trust level, rather than at the surviving spouse’s individual tax rate. While an individual is taxed at the highest marginal rate with $413,000 in annual income for a single taxpayer, the highest marginal rate for a trust is applied at only $12,300 in income.

Under B Trust marital formulas, the death of a spouse triggers a transfer of ½ of all assets into the B Trust. This process can generate capital gains that may be taxed at the higher trust rate. Additionally, beneficiaries do not receive a step-up in basis on assets received when the surviving spouse dies. This leaves beneficiaries owing substantially higher capital gains taxes when selling assets after the surviving spouse’s death.

What may not be obvious is that even an “irrevocable” trust can be modified to prevent these costly results. A surviving spouse can seek consent of all beneficiaries to make changes to the B Trust. By eliminating a B Trust, or reforming its terms, it is possible to avoid tax at the trust level, generating significant savings. Saving the beneficiaries significant taxes is often a good motivator for reaching these agreements.

In Nevada, trust decanting or modification without a court order can avoid these major pitfalls of B Trusts. Decanting is a particularly good option because it does not require court approval and can be done quickly if a surviving spouse’s health is at issue. Alternatively, modifications that ensure capital gains are taxed to the surviving spouse at an individual rate can be inserted to a B Trust. For your consultation on avoiding a “tax explosion” in your estate plan, please call Kling Law Offices today.

What Would a Judge Say About That?

May 15, 2016/in Uncategorized/by Michael Kling

A recent article in the Utah Bar Journal by John A. Adams ¹ revealed interesting insights into district court judges’ opinions in trust and estate cases. These observations are important to anyone planning their estate, since we benefit from understanding what a judge might say about our efforts. This awareness can elevate the overall planning process, as well as the preparation of your actual documents.

In responding to a survey, judges reported on success rates of common claims, including undue influence; testator competency; enforceability of no-contest clauses; and discharge of a fiduciary due to breach of duties. The consensus revealed very few contested cases make it to trial and those that do face a low probability of success.

Undue influence is frequently alleged, but seldom established by a complainant. It requires proof that the wrongdoer had the opportunity to influence the testator, will receive something from the estate, that the testator was in a weakened condition at the time a will was signed, and that there was a confidential relationship between the testator and the influencer. In the judges’ experience, this claim is frequently initiated by out-of-area family members whose allegations stand in stark contrast to those of family members who were physically and emotionally close to the testator.

The burden of proof regarding testamentary incapacity rests on the person contesting the will. In Nevada (as in Utah), the threshold for establishing capacity is relatively low, and must only exist at the time documents are executed. The testator must be able to identify the natural objects of his bounty and recognize his relationship to them, recall the nature and extent of his property, and understand the plan formed for disposing of that property. When documents are prepared by a reputable attorney, steps are taken to establish testamentary capacity before documents are executed, making this a difficult claim for contestants.

No-contest clauses prohibit contests of a will or trust, but carry a perception of being unenforceable. In fact, they will be disregarded if a complainant has probable cause for instituting proceedings. Because of this, the judges recommended custom tailoring no-contest provisions by detailing the testator’s concerns in order to increase the probability of enforcement.

Although claims regarding breaches of fiduciary duty had a low success rate, the judges offered significant insights on their assessment of fiduciaries. When the fiduciary knowingly or repeatedly failed to comply with their duties, the judges responded. They were prompted to act when the fiduciary was self-dealing, failed to keep heirs informed, or blatantly violated ethical or fiduciary standards.

Consulting with an experienced attorney will give you important perspectives on procedural rules and substantive law issues. Knowing how to plan your estate property is the best defense against any future challenge. We invite you to call our office today for your complimentary estate planning consultation.

¹ John A. Adams, What Utah Trial Judges Have to Say About Trust and Estate Litigation – Survey Results, Utah Bar Journal, Vol. 29, No. 1, Jan/Feb 2016.

Have estate planning or probate questions?