Tidbits From a Conference
Those who have read the Profile and Bio on my website know that I am active in a professional organization – the American College of Trust and Estate Counsel (“ACTEC”).
Here is a description of ACTEC from their official website: www.actec.org :
The American College of Trust and Estate Counsel is a national organization of approximately 2,600 lawyers elected to membership by demonstrating the highest level of integrity, commitment to the profession, competence and experience as trust and estate counselors…Its members work to teach those who aspire to enter the field and to improve and reform laws, procedure and standards while working with their peers and other professional organizations.
Various ACTEC conferences are held throughout the year and the professional programs presented by ACTEC are outstanding. Here is a summary of just a few of the “hot” topics that were discussed during one of the meetings last year (2013):
1. Mineral interests. More and more clients inherit oil and gas interests and more often than not, the mineral interests span more than one state. There are many legal issues related to transferring ownership of mineral interests including properly classifying the mineral interest as a royalty interest, a working interest, an overriding royalty interest, a production payment interest or something else. Taxation of the “fruits” of the mineral interest, as well as sorting out who bears the costs of making the mineral interest productive are just some of the interesting aspects of working with mineral interests in estate planning and probate administration.
2. Subchapter “S” corporations and trusts. “S” corporations are creatures of the federal tax law. In general, the income, gains, deductions and losses of an “S” corporation conducting a business activity are “passed-through” to its shareholders and are reported on the separate federal and state income tax returns of the shareholders. Generally, “S” corporations do not pay a separate corporate level federal income tax. Often, clients who are shareholders of “S” corporations want to transfer some of their stock in the corporation to trusts for the benefit of their children and grandchildren. These trusts need to meet technical federal tax rules so that not only are the trusts eligible shareholders of the “S” corporation, but also so that the corporation is able to continue to take advantage of the favorable status as an “S” corporation. There are different planning and drafting options available for designing the appropriate type of trust to be a qualified shareholder in an “S” corporation. In many cases, attention also needs to be given to how the new “net investment income tax” of 3.8% and the Medicare surtax of .9% can be minimized when trusts hold stock in an “S” corporation.
3. Migrating between states. There are approximately 11 states that have a property ownership regime between spouses known as “community property.” The rest of the states are “common law” property ownership states. Interesting issues arise when a married couple moves from a “community property” state to a “common law” property state and vice versa. Similar issues arise when a married couple lives in one type of property ownership state but owns assets, particularly real estate, in another type of property ownership state. Married couples who migrate from one state to another (or who purchase property outside of their “home” state) must be mindful of taking appropriate actions to obtain or maintain the federal income tax “basis step-up” benefit of “community property;” the same federal income tax benefit does not apply for “common law” property ownership. These issues now also affect a same sex couple whose relationship is recognized as a marriage in some states.
4. IRAs. Under current federal income tax law (2013), an IRA owner can name younger, non-spouse family members as designated beneficiaries to receive the IRA account on the owner’s death. If properly drafted, the designated beneficiaries can receive distributions from the IRA account over their respective life expectancies – sums that are not withdrawn remain in the IRA to continue to grow income-tax deferred. A young beneficiary could have a life expectancy of decades. This is known as the “stretch” IRA and provides a terrific federal income tax benefit. The “stretch” IRA provides a nest egg that can grow substantially over time (depending of course, upon investment performance), unimpeded by current taxation. The “stretch” IRA is so popular that Congress might seek to eliminate it. In one of many revenue raising proposals floated over the last few years, the “stretch” IRA would be limited to a five year period, rather than decades that can be achieved in certain circumstances under current tax law. Stay tuned for more information on this as it develops.
5. Portability of Estate Tax Exemption. Each individual dying during 2013 can pass property with a value of up to $5,250,000 to his or her family members (unlimited amounts can be passed to a surviving spouse if certain requirements are satisfied). This is commonly referred to as the “exemption” amount. The federal estate tax law now permits a deceased spouse to “leave” his or her exemption amount to his or her surviving spouse thereby doubling the value of property that the surviving spouse can subsequently leave to family members without federal estate tax. This is a very big paradigm shift in the federal estate tax law; estate planning options have increased and become more flexible for many clients as a result. One drawback, however, is that Wills and Trusts that were prepared years ago may not work as originally intended when the exemption amount was much smaller and was not “portable” between spouses. If you have not reviewed your Wills or Trusts in the last two years, now is a very good time to do so to make sure that your estate plan actually operates as intended under the new law.
Working to Preserve Your Wealth and Protect Your Future in a Constantly Changing World.
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Barbara Ann Dalvano, Esq.
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