IN THIS ISSUE

GUARDIANSHIPS

A STRATEGY TOO GOOD TO BE TRUE

MILLIONAIRES ON THE MOVE

ARTICLES OF INTEREST

We at Garden State Trust Company have established ourselves as a trusted partner in managing and settling estates. I thought that this month I would delve into the key aspects of our estate settlement services, highlighting our expertise and the benefits we offer to individuals and families during challenging times.

Understanding Estate Settlement: Estate settlement can be a complex and overwhelming process, involving legal and financial intricacies. We recognize the unique needs of individuals and provide personalized services to guide them through every step. From probate proceedings to asset valuation and distribution, we try our best to ensure a seamless settlement process.

Personalized Approach: We understand that each estate is unique, and therefore, we adopt a personalized approach to meet the specific requirements of our Will clients. We take the time to understand the wishes of the decedent and work closely with the family, the beneficiaries, and the legal representatives to ensure a smooth and efficient settlement.

Expertise in Probate Matters: Navigating the probate process can be challenging without proper guidance. We have experience and a deep understanding of probate laws and regulations, allowing us to handle all matters associated with estate settlement. We work closely with the estate's legal representative to ensure compliance and minimize complications throughout the settlement process.

Asset Management and Valuation: Estate settlement often involves managing and valuing various assets, including real estate, investments, and personal belongings. We have extensive experience in asset management, ensuring accurate valuation and appropriate distribution according to the estate plan. Our expertise helps alleviate the burden on the family at an unsettling time, ensuring proper asset transfer.

Comprehensive Financial Services: In addition to estate settlement, we offer a range of comprehensive financial services that greatly benefit our clients as well as beneficiaries of the estate. These services include investment management, tax planning, and trust administration. By leveraging our expertise in these areas, we provide holistic solutions that help secure the financial future of our clients.

Settling an estate can be a complex and emotionally challenging process. With our estate settlement services, individuals and families can find solace in knowing that a dedicated team of professionals is handling their affairs with care and expertise. Whether navigating estate complexities or managing assets, our caring and personalized approach ensures a smooth and efficient settlement. By choosing us, you can focus on healing and rebuilding lives while leaving the complexities of estate settlement in our capable hands.

ASK GARDEN STATE TRUST COMPANY

Dear Garden State Trust Company,

My friends that I play Bridge with told me that a Living Trust is only for wealthy individuals and is used to avoid probate. Is that true?

Thank you, 

Jane R.

Dear Jane R.,

Thank you for your question. I assume you are referring to a Revocable Living Trust. My simple answer is no, a Living Trust can be beneficial for those at various levels of wealth. There is a belief that the most important element of a Living Trust is to avoid probate. In New Jersey, probate is simple and not costly. In some states the probate process is complex and can be very costly. 

We suggest that you focus on the other benefits of a Revocable Living Trust. 1) A trust should include provisions to manage your assets and direct the trustee to manage all your financial affairs should you become ill or incapacitated. 2) Unlike a Will, a Revocable Living Trust is not a public document, so the details concerning your beneficiaries remain private. 3) You, the Grantor of the Trust, remain in control while you are able and may make changes or revoke the Trust completely. 

These are just a few of the benefits of a Living Trust that are applicable to individuals at all levels of wealth. If you want to learn more, please contact me.

Adam Brower, CTFA

President

2101 Highway 34 South, Suite A

Wall, New Jersey 07719

(732) 255-5000

abrower@gstrustco.com

HAVE A QUESTION ON TRUSTS, WILLS, OR INVESTMENT MANAGEMENT?

For general informational purposes only. This information does not constitute legal advice.

In our Informational Article, Guardianships read what happened to Cindy Birdsong, a former member of The Supremes, whose family asked for a conservator to be appointed when she became ill. There is a firm that tracks the global migration patterns of the wealthy. Global millionaire migration rose steadily in the years before the pandemic, from 51,000 in 2013 to 110,000 in 2019. Read more in Millionaires on the Move.

Summer is definitely here! As author James Dent said, "A perfect summer day is when the sun is shining, the breeze is blowing, the birds are singing, and the lawnmower is broken." Can anyone argue?

Sincerely,

According to news reports, the family of Cindy Birdsong, a former member of The Supremes, has asked that a conservatorship be created for her. Birdsong's health has been poor for some time. She shared an apartment with a longtime friend, Rochelle Lander. To manage Birdsong's finances, Lander was granted a power of attorney.

However, the family was not satisfied with the care Birdsong was receiving, or with their ability to communicate with her. In 2021, Birdsong was removed to a skilled nursing facility, where she still resides. In requesting the conservatorship, the family seeks to terminate Lander's powers over the singer's finances. Brother Ronald Birdsong is to be co-conservator, along with Brad Herman, who had worked with other celebrities.

A guardian or conservator of the person takes over daily decisions for living, as well as full financial management. These include deciding where the person lives, arranging for personal care and nutrition, and supervising health issues. The guardian is paid from the assets of the person being cared for.

To protect against the possibility of financial mismanagement, a surety bond may be required of the guardian. The costs of such bonding will depend upon several factors, including the size of the bond, the creditworthiness of the conservator, and geography. This expense is also paid from the assets of the person being cared for.

A useful alternative for affluent retirees to consider is establishing a revocable living trust for financial management using a bank or trust company as trustee. This will provide professional asset management, in accordance with the retiree's needs and objectives. The trust terms define the scope of the trustee's duties, and may also provide a metric to determine whether the beneficiary has become incapable of financial management. In the event of incapacity, this valuable financial trust management goes on without missing a beat, without the need for a court appointment of a guardian, saving time and money. 

(July 2023)

© 2023 M.A. Co. All rights reserved.

Albert and Gladys Gerhardt created a Charitable Remainder Annuity Trust (CRAT) in November 2015. They transferred real property worth $1.8 million to the trust, and reported the transfer on Form 709, the federal gift tax return. The adjusted basis of the property was reported to be $97,517. The trustee sold the property for $1.6 million, then used the proceeds to purchase a Single Premium Immediate Annuity (SPIA) for $1.5 million. The SPIA contract paid the Gerhardts $311,708 every April for five years.

The couple reported the annuity payment as a tax-free return of principal. Their view was that the CRAT was a tax-free entity, not subject to tax on the gain from the sale. They evidently believed that immunized them from taxation as well, rendering the CRAT a tax elimination scheme.

Similar arrangements were made in the same time frame by Alan and Audrey Gerhardt, Jack and Shelley Gerhardt, and Tim and Pamela Gerhardt. All the couples took the same tax position, that their annuity payments were tax-free returns of principal.

The IRS was not amused. Two years into the distribution period, deficiency notices were sent to all four couples. Their cases were consolidated in the Tax Court.

It is true, the Court held, that no gain is realized when appreciated property is transferred to a CRAT, and it is also true that the CRAT itself is not subject to tax when its appreciated assets are sold. But it is not true that the private beneficiaries pay no tax on distributions from the CRAT. "Distributions from a CRAT to income beneficiaries are deemed to have the following character and to be distributed in the following order:

1. as ordinary income, to the extent of the CRAT's current and previously undistributed ordinary income;
2. as capital gain, to the extent of the CRAT's current and previously undistributed capital gain;
3. as other income, to the extent of the CRAT's current and previously undistributed other income; and
4. as a nontaxable distribution of trust corpus."

Therefore, the capital gains of the CRATs became taxable to private beneficiaries when there were distributed. The Court upheld the IRS deficiencies [Gladys L. Gerhardt et al. v. Commissioner, 160 T.C. No. 9]. What's more, an accuracy-related penalty was imposed upon Tim and Pamela, because they failed to meet their burden of proving that they relied upon competent legal counsel for their tax positions.

These taxpayers were duped

Why did these four couples all take these tax positions? This scheme, the CRAT tax elimination strategy, was created and promoted to the public by John Eickhoff, a licensed insurance agent and a senior advisor with Hoffman Associates. They learned of the scheme from him, and he referred them to a CPA for its implementation. 

Last February the U.S. Justice Department filed a complaint against Eickhoff and Hoffman Associates to end their peddling of the CRAT Tax Elimination Scheme. At least 70 other CRATs were organized under the abusive scheme, with an estimated $40 million going unreported, resulting in estimated lost tax revenue of $8 million.

In May, Hoffman Associates and Eickhoff were permanently enjoined from promoting this scheme. Hoffman Associates had to pay a judgment of $1.1 million, and Eickhoff, $400,000.

To get the word out on these abusive tax schemes, the IRS issued News Release 2023-65:

"In abusive transactions of this type, property with a fair market value in excess of its basis is transferred to a CRAT. Taxpayers may wrongly claim the transfer of the property to the CRAT results in an increase in basis to fair market value as if the property had been sold to the trust. The CRAT then sells the property but does not recognize gain due to the claimed step-up in basis. Next, the CRAT purchases a single premium immediate annuity (SPIA) with the proceeds from the sale of the property.

"By misapplying the rules under sections 72 and 664, the taxpayer, or beneficiary, treats the remaining payment as an excluded portion representing a return of investment for which no tax is due."

The scheme doesn't work, the IRS warned, and the taxpayer remains liable for all taxes due. Whether the taxpayer has any recourse against the promoter of the scheme was not addressed.

For philanthropically minded taxpayers who own substantially appreciated property, the CRAT continues to be a sound planning alternative to explore. But it will not magically erase taxable gains, and the IRS is on the lookout for claims that it does.

(July 2023)

© 2023 M.A. Co. All rights reserved.

Henley & Partners is an investment migration consultancy, based in London. The firm advises wealthy families and successful businesses on the acquisition of residence and citizenship around the world. In support of that mission, the firm tracks the global migration patterns of the wealthy.

Global millionaire migration rose steadily in the years before the pandemic, from 51,000 in 2013 to 110,000 in 2019. In 2020, migration crashed to 12,000, recovering slightly to 25,000 in 2021. Full recovery is expected in 2023, with a projected 122,000 moves.

Although millionaires are exiting the United States, even more wish to immigrate into the country. The net inflow for 2022 was 1,500, which is down sharply from the 10,800 millionaire immigrants to the U.S. in 2019. The report speculates that the prospect of higher taxes on the rich may be fueling the trend.

The biggest winner in 2022's millionaire migration sweepstakes was the United Arab Emirates, followed by Australia, Singapore, and Switzerland. The U.S. was in fifth place, followed by Portugal, Canada, Israel, Greece, and New Zealand.

The biggest losers of millionaires were China, with a net outflow of 10,800, and India, losing a net 7,500. After invasion of Ukraine, Russia lost 8,500 millionaires, but is projected to lose only 3,000 this year.

The United Kingdom enjoyed a net inflow of millionaires until the passage of Brexit, and now it has a net outflow. Some 1,600 millionaires emigrated from the U.K. in 2022, and 3,200 are projected to move this year. Movement between the European Union and Britain is not as simple as it once was, and that is evidently a problem for the rich.

Political stability is the most important metric when millionaires are deciding where to live, according to the report. Low taxes, business-friendly environments, and personal freedom also figure into the equation. Given that elections are coming up in the next 18 months in many countries, the report speculates that some millionaires will wait on the results to make up their minds.

(July 2023)

© 2023 M.A. Co. All rights reserved.

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