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February 2019: - In This Issue:
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TIME FOR "THE TALK"?
NOTES ON AN "ULTRA-MILLIONAIRE TAX"
A GOOD CASE FOR A CORPORATE FIDUCIARY
ARTICLES OF INTEREST
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While I am woefully celebrating the 50th Anniversary since the Jets last appeared in a Super Bowl, I could not stop shaking my head in amazement watching Tom Brady win his 6th Super Bowl ring since 2001! What a masterful defensive performance by the Pats. Kudos!! What a legacy.
Our legacy is our family and what we pass on to them when we are gone. One of the most important tools used to do this is through a will. How much time passes from the day that a will is signed to the day that it takes effect? Typically, many years. Years in which asset values can change substantially. Years in which some family members are born, and others die. The passage of time can alter family circumstances and resources dramatically, so that defensively a regular will review becomes as important as a regular medical checkup. As we have seen over the years, estate tax laws both from a federal and state standpoint are subject to sudden changes so that your existing will may become inadequate.
What happens if you never had your will updated since preparation and proves inadequate for estate tax purposes upon your death? An experienced executor can address this problem through post mortem estate planning which is estate planning after death. The experienced executor can utilize a disclaimer with a timely election to effectively change the estate plan to save taxes, or to better meet the needs of the beneficiaries.
Quite simply a disclaimer is a rejection by a beneficiary to accept a gift or bequest designated in the will of the deceased. Let's say that John leaves his entire estate to his wife, Mary, but after his death Mary believes that a portion of the estate should pass to their children. If Mary disclaims a portion of her interest, the amounts disclaimed will pass under other will provisions or under the laws of intestacy (the state laws that apply in the absence of a will). If not done properly, this may look like a gift from Mary to the children out of her inheritance. The disclaimer if handled correctly by the executor will be a transfer to the children from John through the estate, not from Mary which will eliminate the gift tax on the disclaimer. Keeping your estate planning documents current may lessen the necessity for your executor to utilize a disclaimer after you are gone. We suggest you review your estate plan every few years with your elder law attorney. In the absence of your attorney, Garden State Trust provides will reviews for any of its clients or referrals. Feel free to give us a call.
Now, as I have done for the past 50 years I will fantasize over the next 12 months about the Jets returning to the Super Bowl. As many have told me, don't hold your breath!
On February 2nd the Legendary Punxsutawney Phil, the most famous prognosticating groundhog, didn't see his shadow when the sun rose meaning that spring is coming early. We can hope.
Sincerely,
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SAB0TEUR [CC BY-SA 2.0 (https://creativecommons.org/licenses/by-sa/2.0)], via Wikimedia Commons
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Prince Phillip, the husband of Queen Elizabeth, was in a car accident in January. The Prince is 97 years old, so it is rather surprising that he continues to drive a car. Fortunately, there were no major injuries from the mishap. Although the Prince's car flipped upside down after striking another vehicle, he was able to walk away from the accident after a "good Samaritan" helped him to escape from the car.
There are no age limits on who may drive a car, and seniors tend to be stubborn about giving up driving privileges. No one wants to lose independence and mobility, becoming reliant upon others for transportation. Still, as one ages, one's reflexes decline, and the ability to handle a car, especially at higher speeds, may be compromised.
Those whose parents are in their 80s may want to consider having a frank discussion about how much longer the parents can drive safely. The story of Prince Phillip's accident may serve as a useful ice breaker.
Whether the Prince will continue to drive is unknown. According to the Washington Post, only the Queen is likely to be able to take his keys away. Driving has been one of his pleasures throughout his life--In fact, in 2016 he personally chauffeured President Barack Obama and First Lady Michelle Obama during their state visit.
(February 2019)
© 2019 M.A. Co. All rights reserved.
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NOTES ON AN "ULTRA-MILLIONAIRE TAX"
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Senator Elizabeth Warren, D-Mass, has proposed a dramatic shift of emphasis for the federal government's focus in taxing "the rich." Rather than looking to income, she wants an annual wealth tax, which would apply in addition to any other federal taxes due. A wealth tax is justified, according to Warren, because the share of wealth held by the top 0.1% of Americans has zoomed from 7% in the late 1970s to 20% by 2016. "Put another way, the richest 130,000 families in America now hold nearly as much wealth as the bottom 117 million families combined," according to her press release.
The exemption from the wealth tax would be $50 million. At family wealth levels above that cut-off, an annual tax of 2% would apply. A second 3% bracket kicks in at wealth levels above $1 billion (a "billionaire surtax"). The tax presumably would apply each year to unrealized capital gains. It would continue to apply during economic downturns, when family wealth is shrinking. Some 75,000 American households are projected to be snared by the tax, which would raise an estimated $2.75 trillion over ten years.
Any family that wanted to escape this annual tax bite by giving up American citizenship would be subject to a new 40% "exit tax" applied to its entire net worth.
Six American law professors from around the country have weighed in supporting the constitutionality of a wealth tax. The Tax Foundation, on the other hand, has criticized the proposal on administrative and economic grounds. Much family wealth is very difficult to value accurately on an ongoing basis. Interests in privately held businesses, real estate, art collections, and the like are much harder to value than publicly traded securities. Today wealthy individuals face the valuation puzzle only once, for paying death taxes. Having to do so every year would be a substantial burden (but a bonanza for tax lawyers and accountants). Wealth taxes have declined in popularity around the world due to their negative economic impacts--in 1990 12 OECD countries had wealth taxes, today only four do.
Congress is unlikely to act on Warren's proposal, but the idea could play a role in the 2020 elections.
(February 2019)
© 2019 M.A. Co. All rights reserved.
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A GOOD CASE FOR A CORPORATE FIDUCIARY
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As they say in the movies, the following is based upon a true story.
Alex was in the market for a boat slip. He found one, owned by a brother and sister, Jack and Jill. They had inherited it from their father. However, they seemed emotionally tied to the slip, which was odd because neither of them owned a boat of their own. Jack and Jill needed to meet Alex, and when they did, they concluded that their father would approve of him.
Further investigation revealed that they didn't own the boat slip after all. It was owned by a trust established by their father. They didn't have the right to sell it, at least not yet.
Additional background
The story of the trust was pieced together over a period of months of interactions. The father in this story had remarried. He had two children of his own, and his second wife, Janet, had a son named Sam.
The father attended an estate planning seminar on the benefits of having a living trust. He was sold on the idea. He wanted to protect his second wife, while also providing a significant inheritance for his own children. A lawyer was hired to draft the trust, which would include his home, the boat slip, and some $400,000 in investment assets. The trust included a restriction on the selling of the home.
The trust became irrevocable at the father's death. The trust beneficiaries were the surviving spouse, Janet, and the father's children, Jack and Jill. Jill and Janet were named as trustees.
Jill spent $3,500 on a lawyer to learn about her responsibilities as trustee. However, the investment did not do her much good.
Janet asked the probate court to replace Jill as trustee with her son Sam. In making the request, it appears that the trust agreement presented to the court was miscopied. A clause that stipulated what a trustee could only be replaced for misconduct, which was at the bottom of page, was not included in the version given to the court.
Jill should have contested being replaced as trustee, but she had already spent $3,500 on a lawyer and did not want additional expense. The change of trustees was approved by the court.
Jack and Jill did not hear much about the trust after that. Sam lived in another state, and was not very communicative. They did not get reports or statements of the trust assets. The house was sold, in violation of the trust terms, and Jill thought that fraud must have been involved.
When Janet died, the remaining trust assets passed to Jack and Jill. But all that was left in the trust was the boat slip. There was no accounting explaining what Sam did with the rest of the trust assets.
The reason Jack and Jill had such odd emotions about the boat slip was that it was all they received from their father.
Two mistakes
The father in this case didn't completely trust his wife to protect the financial interests of his children, which was why he liked the idea of the trust. That instinct proved to be sound. But had he named a corporate trustee, such as us, the protection would have been much better. He may have thought that he was saving the expense of a trustee's fee by naming his wife and daughter as trustees, but that was penny wise and pound foolish. A corporate trustee provides reporting of trust assets as a matter of course.
The second error was in Jill not taking the role of trustee seriously enough. One of the drawbacks to choosing inexperienced relatives for trusteeship or estate settlement is that they will incur fees for professional services to be able to do the job properly. Jill's unwillingness to spend that money, and her failure to demand more of the trustee, led to the loss of nearly all of the children's inheritance.
(February 2019)
© 2019 M.A. Co. All rights reserved.
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Cherry Hill, NJ
Lebanon, NJ
Linwood, NJ
Toms River, NJ
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856-251-1300
908-287-7188
888-323-5535
732-255-5000
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Because of the rapidly changing nature of tax, legal or accounting rules and our reliance on outside sources, Garden State Trust Company makes no warranty or guarantee of the accuracy or reliability of information contained herein nor do we take responsibility for any decision made or action taken by you in reliance upon information provided here or at other sites to which we link. ©2017. All rights reserved.
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