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December 2018: - In This Issue:
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A LIVING TRUST IN ACTION
NO "CLAWBACKS"
MULTI-YEAR TAX PLANNING
ARTICLES OF INTEREST
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"I don't have your money. It's in Tom's house...and Fred's house."
George Bailey in
It's a Wonderful Life convinced the town's people to trust the Building and Loan Association, so that they could all benefit from the mutual debt that they owed one another that the bank facilitated. Trust and goodwill can create wealth and good fortune. We are proud to be in a business that is centered on trust.
The great gift that George Bailey received from Clarence (the angel) that turned his life around was to see the positive impact he made on the world (by witnessing the contrary). One does not need to be an angel to give this gift -- We can all give this gift to one another, by sharing words, making a toast, and letting our loved ones know the positive impact they've made in our lives.
We truly appreciate the trust our clients, their families and those we share information with have placed in us and are thankful for the continued opportunity to help them achieve their goals.
From all of us at Garden State Trust Company we wish you, peace, joy, prosperity and good health throughout the coming year. We look forward to continuing our relationship with you for many years to come.
Sincerely,
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This is a true story about the successful use of a trust to manage property in accordance with the wishes of the property owner.
The details in the court decision about the tensions in the Briggs family are sketchy, but we do know that Elizabeth Briggs used a revocable living trust to manage her finances. Judith, her daughter, was a trustee. In 2009 Elizabeth amended her trust to disinherit her son, Thomas. That meant that when the trust terminated at Elizabeth's death, all the trust assets would pass to Judith. The amendment stated that Thomas knew the reasons for his disinheritance, but the court decision does not go into them.
After Elizabeth died in 2013, an attorney for the estate and trust advised Thomas that he had received no property from his mother's estate. The notice also advised Thomas that he had 60 days to commence any judicial proceeding against the trust.
Acting as his own lawyer, and within the 60 days, Thomas e-mailed the county clerk and the attorney a "Notice of Objection to the Trust Instrument of Elizabeth A. Briggs." However, the reasons for the objection were not identified. No remedy was proposed. Accordingly, no court file was opened.
Some 611 days after Thomas received his 60-day notice, he commenced a judicial proceeding to contest the amendments to the trust and his disinheritance. He also alleged that Judith had exercised undue influence over Elizabeth, as well as that she had breached her fiduciary duties to the trust. The nature of the breach was not explained.
In 2010 the relevant state law (South Dakota) had been amended to create the 60-day window for lodging an objection to the validity of a trust or a trust amendment. That specific time period trumped the more general state statute of limitations governing undue influence claims, the lower court held, and the South Dakota Supreme Court agreed. Thomas' filing of an objection to the trust did not "stop the clock" on the time limit. He had 60 days to begin his action; he did not, and so his lawsuit is untimely. The trust amendment is preserved, and Thomas is disinherited.
As to the alleged breach of fiduciary duty, Judith was not named as a defendant to the lawsuit. The trust is not liable for any of Judith's actions as her mother's caretaker, even assuming that she exercised undue influence. Accordingly, that claim was dismissed as well.
In this particular case the attack on the trust failed because of the serial failures of Thomas acting as his own lawyer. But estate planners agree that attacks on a trust generally are harder to maintain by disappointed heirs than are attacks on a will. The trust has been actively in operation with the approval of the property owner, in contrast to the dormancy of a will.
See your estate planning advisor to learn more about living trusts.
(December 2018)
© 2018 M.A. Co. All rights reserved.
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Next year the amount exempt from the federal estate and gift tax will be $11.4 million per taxpayer. For a married couple, assuming that they both die next year, the exemption is doubled, to $22.8 million. This exemption is scheduled to fall roughly in half in 2026, unless Congress acts before then to make it permanent.
Reductions in the federal estate tax exemption have been scheduled before, but one has never happened in the history of our estate tax. If a reduction does take place, there is some concern about how that will work. The confusion arises because the federal estate tax is imposed based upon the sum of the lifetime gifts and the assets that the decedent still owns at death. Specifically, could a gift that was protected from the federal gift tax by the enlarged exemption amount be hit by an estate tax that would "claw back" the tax benefit?
To take an extreme and simplified example, Jonathan is worth $11.4 million. He makes a taxable gift of all of his assets in 2019, but owes no federal gift tax because the exemption amount covers it. Jonathan then survives until 2026, when he dies. Theoretically his federally taxable estate that year is $11.4 million (his lifetime taxable gifts), while the exemption will have fallen to roughly $5.5 million. Theoretically that suggests a federal estate tax of some $2 million could be due, even though the estate will have no assets.
Fortunately for taxpayers, the IRS has recently proposed new regulations to head off this possibility. Gifts that were free of transfer tax during the period of an enlarged exemption will stay tax-free forever, they won't be hit by a later estate tax.
The practical import of this development for those who have larger estates is that they should consider making substantial gifts before 2026 so as to "lock in" the benefit of the larger exclusion. The gift also locks in the taxable value of the transfer. However, the last time this advice was given it was proved to be unnecessary, so don't rush into any decisions.
(December 2018)
© 2018 M.A. Co. All rights reserved.
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According to estimates there will be 29 million more taxpayers using the standard deduction for the 2018 tax year than did in 2017. Usually one who is relying on the standard deduction can get away with fairly minimal tax planning--maximize contributions to qualified retirement plans, offset capital gains with capital losses, and so on.
However, some taxpayers will profit by alternating between itemizing and taking the standard deduction. Here's an example of how that works.
Sam and Janet pay $12,000 in state and local property taxes each year, and they give $10,000 each year to charity. That gave them $22,000 of deductions for 2017. But in 2018 their standard deduction will be $24,000, and their SALT deduction will be capped at $10,000, so they won't need to itemize. They might never need to itemize again, unless their charitable giving grows dramatically.
What this couple should consider is accelerating their 2019 $10,000 charitable gift into this tax year. That will give them a deduction of $30,000 for this year. Next year they can take the $24,400 standard deduction (there's been an inflation adjustment for 2019) even though they don't make any charitable gift. Over the two years their tax deductions will come to $54,400, compared to $48,400 if they simply rely on the standard deduction every year.
Speaking of gifts, the annual exclusion from federal gift tax is $15,000 per person this year. It's a use it or lose it proposition, there's no carryover of unused annual exclusion amounts. Married taxpayers may use "gift splitting" and so give $30,000 to each of as many children and grandchildren as they like.
(December 2018)
© 2018 M.A. Co. All rights reserved.
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You don't have to travel to a big city to experience nonstop Christmas fun.
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From Thanksgiving Day through Cyber Monday, more than 165 million Americans shopped either in stores or online.
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A gallery of fun, enticing or just plain practical gift baskets for the 2018 holiday season.
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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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