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Wednesday
Nov302016

Estate Planning NOW: Preparing for a New Government

Gift Tax, Trusts & Estate Planning Attorney

by Kira S. Masteller
818.907.3244

It’s impossible to predict what any future president will do, or what Congress will approve. But in light of comments president-elect Donald J. Trump made on the campaign trail, and given that Grand Old Party members will have a majority in both houses of Congress – certain factors in estate and succession planning should be considered.

Estate Planning for Tax Reform

Trump has promised what he calls A Pro-Growth Tax Plan, designed to reduce taxes for many groups of taxpayers.

In broad strokes, the president-elect has promised lower taxes for businesses and low to middle-income families with children. The plan also promises to close special interest loopholes, repeal estate taxes (which generates a hefty 40 percent in federal income from single taxpayer estates worth $5.45M or more; $10.9M for married couples), and reduce tax brackets down to three from seven, according to Motley Fool.

If we combine Trump's and the GOP's 2015 tax reformation plans, the changes could include the broader goals above, and: 

  • Increase standard deduction amounts from $6.3K to $12K for single tax payers; and $12.6K to $24K for married couples;

  • Eliminate personal exemptions;

  • Cap itemized deductions at $100K (single), $200K (married), which could put a damper on reaping the current benefits of charitable contributions (more information on that below);

  • Repeal AMT (alternative minimum tax);

  • Repeal NIIT (net investment income tax); and

  • Repeal generation-skipping transfer taxes.

Mortgage interest deductions and charitable contribution deductions would remain under the GOP plan, but changes may be imminent.

Estate Planning for a Trump Presidency

We looked at the broader strokes above. But here are some considerations to make for the immediate future.

Trump Tax ReformCharitable Contributions: Make them now, just in case. The GOP opted to keep them, but Trump wants to "disallow" them. Currently, you can deduct up to 50 percent of your adjusted gross income when giving cash – and anything above 50 percent can be carried forward over the next five years.

Death Tax: If the federal estate tax is repealed, those with significant assets may not need to reduce the size of their estates.

Capital Gains: On the other hand, the president-elect's tax plan would levy fees on capital gains at death if they are worth more than $5M (single) or $10M (married).

Business Planning: Now may not be the time to sell business interests. Currently, income generated from those sales is taxed at over 43 percent. But if the Trump tax reformations go into effect, the tax rate could come down to 33 percent.

Again, none of us can predict what will happen should tax reforms be enacted under a Trump presidency. The main things to remember now are that charitable contributions may be worth making in 2016, and that it may be best to hold off on selling businesses for the moment. 

 

Kira S. Masteller is a Shareholder in our Trusts & Estate Planning Practice Group. 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Thursday
Apr282016

Living Like a Prince, but not Dying Like One

Tax Law Certified SpecialistTax Law Certified Specialist

 

 

by Michael Hackman

818.907.3279

 

 

The media seems to be concerned with two primary subjects lately, and both topics continue to trounce each other in turn on social networks for attention:

1. The presidential elections

2. The death of Prince, and his lack of a will

Prince at the Los Angeles Forum, 4.22.11

We’ll worry about the elections later, but right now we should clear up a misunderstanding. It’s not the lack of a will that is so important. For a musician of Prince’s caliber – it’s more the lack of a trust and overall estate plan that is most critical.

Here in California, one needs a trust to avoid probate courts if real property is involved – a will won’t help your heirs in that regard, and probate is a very expensive process. 

Having only a will is fine for those who have smaller assets to bequeath, such as small sums of money, a car, jewelry etc. In California, up to $150,000 of otherwise probatable assets can be distributed without requiring a probate.

For those with real estate and larger financial assets, a trust is needed. Additionally, a will only goes into effect when a person passes away, whereas a trust can ensure care and stability during life; which is much more of a concern for those of us who are not living like rock stars.

Even a rock star like Prince should have had an estate plan though, particularly if the rumors of his prescription drug addiction turn out to be true. If an overdose or some other tragedy had left the musician incapacitated, Prince could have used an estate plan to determine who makes health and business decisions until he recovered.

Intellectual Property and Right of Publicity

The website TMZ is reporting that Prince had no will, though it’s entirely possible one will turn up eventually. In the meantime, the musician’s sister filed documentation in probate court to have Prince’s bank, Bremer Trust, administer the estate.

If there really is no will, and if an old but valid will turns up, it is likely that it will be different than what he would do if making decisions in the year before his death. For now it seems Prince’s siblings will divide proceeds from the estate under Minnesota law.

If the bank is approved as Trustee, it will have to determine the values of Prince’s real property (mansion, grounds, memorabilia, etc.) as well as that of his intellectual property, including an issue called right of publicity. Right of publicity puts a value on the musician’s name and image.

We saw this same issue come up when Michael Jackson passed away. The case is still unresolved, eight years after the King of Pop died, and there is no immediate end in sight. Appraisers for the IRS and the estate argue over the value of Jackson’s master recordings, likeness, right of publicity and other details.

Estate Planning for Intellectual Property

Any artist who engages in creation for profit, inventors, and business owners, should include intellectual property rights in their estate planning.

1. Copyrights in the United States exist for the author’s life plus an additional 70 years (if the work was created after 1978). For a “joint work prepared by two or more authors who did not work for hire,” the term lasts for 70 years after the last surviving author’s death. For works made for hire and anonymous and pseudonymous works, the duration of copyright is 95 years from first publication or 120 years from creation, whichever is shorter. Heirs may profit from copyrights until they come to term.

2. Duration of publicity rights (use of name, likeness, voice, image, signature) vary from state to state. In at least 13 states (including California), it runs for 70 years, from the date of the artist’s death.  

3. Trademark rights do not expire so long as they are actively used.  In most countries to maintain trademark registrations, the owner must renew the registrations every 10 years. 

4. For patents, the term is 20 years from the filing date of the application (for those patents filed on or after June 8, 1995. Design patents have a term of 15 years from issuance (for applications filed on or after May 13, 2015).

All intellectual property can be distributed among heirs, just as other property can. But ownership rights may be determined by actions the original author or owner of the intellectual property did during their lifetime.

For example, let’s imagine the album Purple Rain was never released, and left in the famous vault at Paisley Park. Prince may have bequeathed or transferred during his lifetime the original sheet music or recording to one heir, the rights to digital reproductions to another, and the right to turn the song or album into a movie, to a third.

Taxing Challenges for Prince’s Estate

Considering Prince’s habit of living large and presumably, having some unresolved debts;  his personal wealth; innumerable real property assets; and undetermined values for intellectual property assets, the probate courts will be a long time in unraveling how the musician’s estate should be administered. Currently, a very conservative estimate runs at $250 million, which could potentially result in $120 million going to state and federal governments. (Unlike California, Minnesota has a state estate tax.)

So what’s the lesson here? Don’t let nearly half of your net worth go to the government, when it could be better used by your family, friends, or a worthy charity.

Prince was apparently charitably inclined. If he had made gifts to charity through a will or trust, a significant amount of estate taxes could have been saved. Further, to the extent he was making charitable donations during his life, those beneficiaries will now no longer receive support from the music icon's largesse. Prince's legacy in this regard is apparently, no more.

 

Michael Hackman is a Certified Specialist in Tax Law (State Bar of California Board of Legal Specialization), and Chair of our Tax Planning and Trusts & Estates Planning Practice Groups. 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Monday
Dec282015

Congress Forges PATH in Tax Laws for Business, Individuals

Tax Law Certified SpecialistTax Law Certified Specialist (State Bar of California Board of Legal Specialization)

 

by Michael Hackman
818.907.3279

 

 

 

Tax Attorney

 

Congress has avoided a government shutdown by agreeing to a new budget in its Consolidated Appropriations Act, and the adopted legislation [cynically named the Protecting Americans From Tax Hikes (PATH)], includes some significant tax changes. 

Some of these changes are “permanent” – which even though they’ll be subject to future legislation, at least end the government practice of allowing a provision to expire and then retroactively extend it in late December for the year about to end – but leave uncertainty for future years.

Among the provisions are:

A. Reinstating and making permanent the ability of a taxpayer who has reached age 70 ½ to make a charitable contribution of up to $100,000 from an IRA. These distributions to charity can be part of a Required Minimum Distribution (RMD). This provision has been around since 2006, but lately it has not applied to the current year until revived in late December.  

B. Making permanent the five-year period in which an S corporation is subject to a built-in gains tax (essentially a double tax) when an S corporation sells assets. Initially a 10-year period, and then a seven-year period, the extra tax won’t apply if five years from conversion to an S corporation has elapsed before the start of a year of sale.

C. Eliminating the tax when up to $2 million of mortgage indebtedness obtained to acquire the principal residence is cancelled. This temporary rule starting in 2007 is now in effect through the end of 2016.

There are many other tax provisions in the legislation, some of which will be the subject of a future blog.

 

Michael Hackman is a Certified Specialist in Tax Law (State Bar of California Board of Legal Specialization), and Chair of our Tax Planning and Trusts & Estates Planning Practice Group. 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

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