Archives for 2012

Consider “Front-Loading” Your Life Insurance Trust Contributions

A proposal that first appeared in the Obama administration’s failed 2012 budget proposal seeks to override existing state laws and limit the terms of cascading or “dynasty” trusts to 90 years. This proposal didn’t make it into the “Fiscal Cliff” legislation, but might resurface again in 2013.

Frontload your irrecovable life insurance trustAlthough there can be no guarantees, any new federal law along those lines probably would treat existing dynasty trusts as grandfathered, and so exempt from this term limitation. However, if gifts were made to such trusts after the effective date of a trust term limitation law, a result might be that the trust would lose its grandfathered status. This already happens with certain grandfathered trusts (those settled before September 25, 1985) with respect to the generation-skipping transfer (GST) tax.

Or, a contribution after the effective date might cause the trust to be divided into a “dynasty share” and a “limited-term share.”

Many of my clients (and many, many people who aren’t my clients yet) have already-existing life insurance trusts (ILITs) to which they contribute annually. Many of these trusts are 100% exempt from the generation-skipping transfer tax. Those folks, to the extent possible and practicable, should consider using some of their lifetime exemption to “front-loading” their gifts to such GST exempt ILITs. Just in case.

Virginia Trust & Estate Law Recodification Charts (For Attorneys and Advisors)

Trusts & Estates DetectiveEffective October 1,  2012, Virginia has reorganized and renumbered its statutes relating to wills, estates, trusts, fiduciary powers, fiduciary responsibilities, and related topics in an attempt to put everything (more or less) in one Article of the Code, so that attorneys and advisors will not need to skip so often between different Articles, Chapters, and Sections when drafting or interpreting documents.

Virginia estate planning listservs and forums have been flooded with questions about which “old” sections have been replaced by which “new” sections, and vice versa. The tables that show the renumberings are buried deep in the Virginia Code Commission website and are kind of hard to find, so I’ve put them here:

(Note: Clients and casual browsers might find these a bit dry.)

7 Major Errors in Estate Planning – A Financial Advisor’s View

These days, access to estate planning counsel and financial advisors is no longer restricted to the very rich.

(Well, there was never actually an exclusive club of rich folks who kept the secret rituals secret, but it used to cost a lot more than it does today. And in the good old days, only the very rich had to concern themselves with income taxes and death taxes.)

These can burn you.But even with the increasing democratization of trust and estate planning, there continues to be a large group who, somehow, just don’t get the word. Forbes Online contributor Rob Clarfeld posted an article in April entitled “7 Major Errors In Estate Planning.” His top seven aren’t necessarily the same seven I’d pick (I’ll put up my own short list one of these days) but they’re awfully common nevertheless. Here are the bullet points in Rob’s list – his comments are at the link.

  1. Not having a plan at all (aside from the “plan” that legislators have written for you).
  2. Trying to do everything yourself.
  3. Failing to consider how IRA and life insurance beneficiary designations and improper titling of assets can affect your planning.
  4. Failure to understand the interplay between gift taxes, death taxes, and life insurance.
  5. Allowing your annual gift tax exemptions to go to waste.
  6. Failing to take advantage of the $5 million 2012 gift tax exemption amount scheduled to sunset on December 31. (Update – it’s back for 2013.)
  7. Leaving assets outright, rather than in well-designed “spendthrift” trusts, to adult children.

Are you guilty of any of these planning sins? If you know you are (or even think you are), contact me for more information. You can use the form in the sidebar.

Why Copyrights and Trusts Don’t Always Mix Well

Literary rightsHere’s a recent article of mine about the estate planning aspects of transferring copyrights to literary and artistic works. I wrote it for a readership of trusts & estates lawyers, CPAs, and financial planners who get questions about copyrights, making gifts of them during life and at death, and how the heirs of authors and artists can often terminate and reclaim a grant of rights that was made during an author’s lifetime.

You can read the whole thing, but the nugget of wisdom is this: if you intend to make a gift of literary rights when you die, do it in your will (which can be a pour-over will), and not by transferring them to your living trust while you’re alive.

2012 Changes in the Estate & Gift Tax Laws

Calendar pageThis is the first January in many years in which I haven’t had to revise my site extensively to outline and integrate all the changes in estate and gift tax laws, exemptions and rates for the New Year.

So far, there are only two changes of interest to that small group of regular people – non-lawyers and non-CPAs – who play close attention to this stuff.

Donations from IRAs to Charities – A notable change was the expiration, on December 31, 2011, of the opportunity to donate assets directly from retirement plans such as IRAs, 401Ks, and 403Bs, to charity. [UPDATE: Congress reinstated the IRA charitable rollover in January 2016, and (finally!) made it permanent.]

Increase in the Unified Exemption – The second is an increase for calendar year 2012 in the unified federal estate tax, gift tax, and Generation-Skipping Transfer Tax exemption amount. It goes from a round $5 million to an inflation-adjusted $5,120,000 per person. That might not sound like a big thing, but it could save the estate of a person who died on January 1, 2012 about $42,000 in federal estate taxes compared to what would have been owed had he died on December 31, 2011. And even more if that $120,000 was earmarked for grandchildren and would have been subject to GST tax had he died a few hours earlier.

Unfortunately, next January’s website edits probably will not be as simple. Congress and this president, or the next one, will almost certainly be making some changes. And at this point, it’s hard to predict what those changes might comprise. But we know one thing – if they do nothing, the exemption amount will drop to $1 million. And if that happens, a whole lot of folks in Northern Virginia will suddenly find themselves with potentially taxable estates. [UPDATE: Congress acted at the last minute to keep the exemption at $5.25 million, to be adjusted for inflation in coming years. Whew.]