Idaho Estate Planning

Conservation Easement as Charitable Gift in Idaho

Sometimes the greatest charity of all is simply doing zip, nada, and nothing. Well, at least that may be the case when it comes to being charitable with land. Why? Because the charity consists in preserving the land from development instead of capitalizing on its highest and best economic use.

Enter the conservation easement.

The perennial problem with easements, however, is the question of valuation of the “potential value” of the land.

The entire point behind an easement is that the land itself (or the façade, as the case may be with urban-dwellers) has intrinsic value worth saving. This can be hard to put into concrete numbers. But then again, there always remains the risk that certain persons may look to maximize the charitable deduction for an easement through creative valuation.

This theme was picked up in a recent Forbes article titled “Conservation Easement No Deduction For Hypothetical Vineyard.” The lesson is less outlandish than the title suggests – not every problem comes from supposing the remote possibility of a vineyard, a stadium, or a skyscraper. Rather, when asking for the easement you need to settle upon one out of every possible use of the land and the IRS has to agree that potential use is the best and most likely use.

The IRS has a presumption against any big dreams, you might say, and that can be difficult to overcome.

Proper valuation is a key component of any purchase, gift, or act of charity. When it comes to easements, however, the subject of valuation may be more difficult to capture accurately.

Placing an effective easement means building a case and an effective understanding of the true potential to any land given.

For more information on this and other estate planning subjects, contact Idaho Estate Planning and schedule a consultation. Remember, good planning is no accident.

Idaho, Don't Let Your Estate Planning End at Unified Credit

What is a “unified credit” and how does it affect your estate plans? Forbes recently shed some light on this topic and the tax benefits along the way.

The article, titled “The Unified Credit Freeze, Not the Philly Freeze” is one you may want to keep.

If you are not familiar with the term “unified credit,” it is the federal tax exemption given to every taxpayer for use against gift and estate taxes.  You get one “unified” exemption amount to be applied in life against lifetime gift taxes, at death against the dreaded estate tax, or against some of each.

At present the credit is pegged at a fairly nice $5.25 million, or $10.5 million for married couples. While this is cause for celebration for more than most taxpayers, whether married or single, there still is estate planning to be done.

The article addresses “traditional” estate planning for married couples through revocable living trusts, which then create “credit shelter trusts” and “marital trusts” upon the death of the first spouse. The article does not address the new “portability” option for estate tax minimization.

The basic teaching point of the article is to follow through on your estate planning and do not become complacent, especially if your overall marital estate exceeds the maximum exemption amount. Unpleasant and otherwise avoidable estate taxes could be triggered.

For more information on this and other estate planning subjects, contact Idaho Estate Planning and schedule a consultation. Remember, good planning is no accident.

 

Large Charitable Gifts and Taxes in Idaho

Here we have another blog in our series of "greates hits". This one first appeared in July of 2011 and is still valid advice in 2013.

Giving to charity can be a very noble thing and for many of us it comes quite naturally. Unfortunately it’s also rather easy to give incorrectly, at least as far as taxes are concerned. To prevent a simple but all too common mistake, the Wall Street Journal offers a mantra: “Get the letter. Get the letter. Get the letter.”

If you are making a donation of more than $250, the charity must properly acknowledge your donation before the IRS will, and that means a letter. Indeed, the IRS is surprisingly literal about this and refuses to bend or accept other means of proof, even when people go out of their way to offer alternatives. You must have a letter written by the charity that clearly delineates the amount of the donation. Further, the letter also must affirm that no goods or services were rendered or, if there was an exchange, the letter must itemize and deduct the cost of those goods and services from the overall donation.

When it comes to any tax deduction, charitable or otherwise, remember the IRS likes to have hard answers and cold facts. Laura Peebles, a director at Deloitte Tax in Washington summed it up for the WSJ, “If you don't have the correct paperwork, there's no way to fix the problem.”

Understanding Taxes and Charitable Donations is just a part of successful estate planning. To ensure a successful plan, we at Idaho Estate Planning will: 1) educate you and your helpers; 2) take the time to get to know you, your family, your desires, your concerns, your goals, and your potential problems; 3) gladly and patiently answer questions until you understand the concept or issue; and, 4) based on experience with the problems and results caused by poor planning, help you design and implement the plan that fits your concerns and goals. Remember, good planning is no accident.

Idahoans Beware of the Time Traveling IRS

Why wouldn’t you file a gift tax return if you made a taxable gift? Well, for a lot of people, the answer might be “I didn’t know it was required.” But, in this case, Redstone argues the transfer wasn’t gift, but rather the result of an “intra-family lawsuit” and thus “an ordinary business transaction.” 

So, how long does (or can) the IRS scour your financial history to find taxable gifts? Well, it seems they do (or can) go back some 41 years. Whether you are a billionaire or a regular “Joe,” this case is worth watching.

You can get the high points of the case from a recent Bloomberg article titled “Billionaire Redstone Challenges IRS on Tax for 1972 Gift.” Normally the IRS is bound by a statute of limitations set to about three years. However, an exception to this rule includes the failure to file a tax return like the allegedly missing gift tax return of Mr. Redstone.

Apparently, the difficulty arose over certain shares of National Amusements Inc., and a family lawsuit resulting in a “transfer” of shares. The IRS is now calling that “transfer” a “gift” with $1.1 million in taxes, penalties, and interest due and owing.

According to Richard Behrendt, a former estate and gift tax auditor turned director of estate planning, “This is unheard of… I can’t remember ever hearing of anybody going back 41 years to raise an issue. It’s really unprecedented in my experience.”

Note: Mr. Redstone may have become a target, given the fact he is the chairman of both Viacom and CBS, not to mention National Amusements and all the related subsidiaries of the three. Reportedly, Mr. Redstone is worth approximately $4.9 billion. Nevertheless, this 41-year-look-back is a troublesome precedent.

The take-away (even if you have a smaller fortune) is that timely filing of an accurate gift tax return will start the clock running on a three-year statute of limitations. If no gift tax return is filed, the statute does not apply. Thus, if a taxpayer fails to file a gift tax return, the IRS can pursue you indefinitely.

For more information on this and other estate planning subjects, contact Idaho Estate Planning and schedule a consultation. Remember, good planning is no accident.

Idaho Trusts In Danger of the IRS Scalpel

Trusts can accomplish many goals and, usually, can secure some real tax advantages. Powerful estate planning tools indeed! But take note – ObamaCare may be changing all of that in the pursuit of revenue to pay for the program.

It may not be a game changer, but it may be worth noting that some trusts might get a bit more dinged up this year with the new 3.8% surtax on investments created by ObamaCare.

Indeed, the accountants are just starting to do the math after the IRS staked out its position in a new “technical advice memorandum” (see TAM 201317010). Forbes has weighed in on the consequences of this new TAM in an article titled “Tough IRS Position Means More Trusts Will Get Hit With New ObamaCare 3.8% Tax.”

Cutting to the chase, the new 3.8% ObamaCare surtax hits investment income, and trusts that own interests in pass-through entities are construed as ‘passively active’ (a bitter oxymoron in accounting-speak) and thereby produce investment income to tax.

To make matters worse, such trusts see the tax kick in at a much lower income rate than for an individual. And, to further complicate things, such trusts are not often designed to be “active” entities. A complex plan might involve various trusts with various holding interests in companies, and might be targeted at various levels. As you can see, things can get complicated fast.

Like most matters on the tax (and political) front, it remains to be seen how the year and the tax battle will be played out. Nevertheless, you should keep an eye on Washington, D.C., and a hand on your wallet.

For more information on this subject, contact Idaho Estate Planning and schedule a consultation. Remember, good planning is no accident.

Pay Attention Idaho - Obama Eyes Estate Planning Tools

In the midst of the budget battlefield, many estate planning attorneys are closing watching the President’s budget proposal. Why such interest? Well, beyond the Military spending and health care sections, the proposed budget targets numerous estate planning tools and techniques.

Forbes has been watching the various budget proposals with great interest and provided a helpful summary in an article titled “Obama's Budget Proposal: The Impact On Estate Planning Tools.”

Essentially, this is a crib sheet list of the techniques presently in the crosshairs:

• High value IRAs of over $3 million
• Generation Skipping Transfer Trusts
• Dynasty Trusts
• Grantor Retained Annuity Trusts (GRATs)
• Intentionally Defective Grantor Trusts (IDGTs)

Click over to the article for an overview of the techniques, along with examples of their estate planning applications.

If your current estate plan already includes one or more of these techniques, then any change could impact you, your loved ones and your assets in a significant way. This would be a good time to schedule a review consultation with your own estate planning attorney.

For more information on this subject, contact Idaho Estate Planning and schedule a consultation. Remember, good planning is no accident.

  

Can the Credit Shelter Trust Help Idaho Tax Payers?

Even amongst recent tax law changes, there are certain estate planning tools that are still good ole’ standbys for your estate plan.  You just have to make sure those sparkly tax law changes don’t blind you from seeing that old tools, like the credit shelter trust, can still work.

Before the advent of portability as a method to maximize the full estate tax exemption available to married couples, such couples would oftentimes get caught in a marital deduction trap. In other words, the first spouse to die could pass all their wealth to the surviving spouse without triggering estate taxes, but upon the death of the surviving spouse only one spousal exemption (i.e., that of the surviving spouse) would be available to reduce estate taxes on the couples combined estate. Under the right circumstances, this was a recipe for disaster.

Enter the credit shelter trust, also known as a bypass trust, which was a way of avoiding that marital deduction trap. Nevertheless, recent changes to the federal estate tax laws now allow a decedent spouse to pass their assets and their estate tax exemption to their surviving spouse. This portability of the estate tax exemption can now give a married couple the power to shelter as much as $10.5 million tax-free.

So, no need for those credit shelter trusts? Not so fast! As addressed in a recent post in Elder Law Answers titled simply “Credit Shelter Trusts,” there is still plenty of life left in the this tried-and-true estate tax planning approach.

For starters, many states still have their own independent estate taxes at much lower levels than the $5.25 million level exempted per spouse under the federal estate tax exemption. More importantly, portability does not apply to such taxes. In addition, credit shelter trusts not only shelter assets from estate taxes, but they can protect an inheritance from the unsuccessful remarriage of the surviving spouse and general inheritance protection.

While there are myriad trust arrangements available to help you achieve your specific estate planning goals, the basic credit shelter trust is a proven tool that should be considered in the estate planning of every married couple.

For more information on this subject, contact Idaho Estate Planning and schedule a consultation. Remember, good planning is no accident.

Idaho Residents Living Overseas Face Complicated Tax Issues

Traveling abroad can be exhilarating enough, but living abroad comes with a whole other level of excitement … and even some hitches if you aren’t careful. If you are one of those hopping back and forth across a U.S. border, beware of the financial hurdles and heightened attention of the IRS.

If you are no stranger to frequent border traffic, then likely you are aware of the recent adjustments in IRS practice, not to mention several large developments involving overseas accounts and income. Essentially, the IRS is on a mission – it wants to capture more and more overseas accounts and assets taxable under U.S. law. How? By working in sync with international banking institutions.

Ostensibly, the targets are tax-evasion type accounts in Swiss banks. In reality, the dragnet is catching a broader group of individuals and families of all means and intentions. And many of these individuals and families are unaware that they are targets and even fewer are aware the rules of the (tax) road.

The problem has been growing with the surge in IRS attention to the matter and The New York Times tackled the issue not too long ago in an article titled “Overseas Finances Can Trip Up Americans Abroad.”

Bottom line: if you’re going to be crossing borders regularly, whether for work, for family, or even as part of your retirement, then this is an important reminder about the hurdles those little lines on the map can pose if you aren’t careful. Whether you work, live, or retire abroad, it’s important to be aware of the new international complications.

Treasure Valley Concerned Over Rise in IRS Estate Tax Audits

Nobody wants to hear from the IRS …and I mean nobody. Typically the IRS would only contact you for an audit, which is never good news. But audits are not just for your income tax returns either – they also apply to estate tax returns.

Estate tax return audits can be especially bad news. First, the estate tax return itself must be filed within nine months following the death of the loved one who owned the assets subject to the return. Second, to make matters worse, the IRS seems to be upping pressure on estate tax returns more than any other.

With tax season dying out for most of us (if you haven’t filed for an extension), the last thing you might want to hear about are audits of any kind. Nevertheless, the fiscally-minded writers at AccountingWeb want to warn taxpayers about this apparent IRS interest in estate tax returns in an article titled “IRS 2011 Audit Rates Show Estate Tax Returns under the Microscope.”

Bottom line: take this as fresh evidence to cross your “t’s” and dot your “i’s” when it comes to your own estate plan. At Idaho Estate Planning we are the experts you need to know and trust. Work with us and we'll put together a plan that works for you and your loved ones. Remember, good planning is no accident.

Remember Treasure Valley - Even In Death - There's No Substitute For Cash

A million dollars worth of art is quite a collection!  But this illiquid asset isn’t exactly helping one’s heirs upon death. When it comes to burial costs, cash is still king. The family of Merton D. Simpson knows this all too well, as they encountered this challenge upon Mr. Simpson’s death.

In short, “illiquid assets” can present a great challenge to proper planning for you, your family, and your estate.

While there are countless examples, a very recent and public one is the case of the aforementioned Merton D. Simpson. As reported by The New York Times in an article titled “Art Worth Millions, Yet No Cash for Burial,” careful planning is required to meet “liquid” cash needs virtually every estate encounters. Whether paying last health care expenses or other debts, you at least want to have enough cash for your funeral.

Mr. Simpson’s entire estate was worth millions in a vast collection of African and modern art, not to mention art in his own name as an artist of no little esteem. Tragically, in the end there was no money for the funeral. In addition, what happens if and when the taxes come due? That’s when expensive collections of illiquid assets are sold at auction, oftentimes for pennies on the dollar.

Now there’s more to the story of Mr. Simpson and many more lessons to be gleaned regarding proper financial and estate planning, as well as a bit of family intrigue. The takeaway: if one dies with an estate of priceless, illiquid assets – then one’s estate may find itself deep in the desert with a purse full of gold, but not a drop of cool water to drink.

At Idaho Estate Planning we are the experts you need to know and trust. Work with us and we'll put together a plan that works for you and your loved ones. Remember, good planning is no accident.