December 2014

CURRENT ISSUES IN THE AREAS OF ESTATE, TAX

AND PERSONAL AND BUSINESS PLANNING

The information that follows summarizes some of the current issues in the areas of estate, tax and personal and business planning which may be of interest to you. Although this information is accurate and authoritative, it is general in nature and not intended to constitute specific professional advice. For professional advice or more specific information, please contact my office.

Advantages Of Limited Partnerships. A limited partnership can offer certain advantages compared to a corporation and other entities. Since a limited partner is not involved in the active management of the enterprise, protection exists against claims and liabilities affecting the partnership. Also, if a creditor obtains a judgment against an individual limited partner, the creditor can generally not attach the assets of the enterprise and will generally be limited to obtaining a charging order for repayment to the extent that distributions are made from the partnership. The creditor would not have the right to force a cash distribution, thus putting the creditor in the unenviable position of being taxed on undistributed partnership income without actually receiving a cash distribution. In the case of a limited partner who is in bankruptcy, it is unlikely that the bankruptcy court could affect the partnership assets inside the enterprise. Similar benefits may apply to a limited liability company (LLC), although it may be easier for a creditor to pierce the “veil of protection” available to an LLC than a limited partnership.

Year-End Charitable Gifts: Do Your Homework. Potential donors should investigate and understand a charitable organization’s purposes to better assure that the donor’s goals and objectives are consistent with the charity’s purposes. In addition to checking the organization’s website and undertaking other independent research, certain sites offer informational search tools about qualified charitable organizations. Check www.GuideStar.org and www.CharityNavigator.org. Donors should also remember that there are alternative ways of making charitable gifts. Of course, an immediate cash gift is the simplest, although the donor should be sure to receive a receipt documenting the contribution. The charitable IRA rollover technique, which was available in 2013 to persons age 70½ or older, is still pending in Congress, and so its availability for 2014 is uncertain. More complicated techniques involve various kinds of trusts. Previous issues of this newsletter and other information contained on our website can provide additional information and guidance. Making a gift of appreciated securities may offer particular advantages. For example, a person who donates publicly traded stock with a value of $20,000 that the donor purchased more than a year ago for $8,000 will result in a $20,000 charitable contribution deduction without the donor being required to pay capital gain tax, or state income tax, on the unrealized capital gain. The charity can then sell the stock and the capital gain tax is entirely avoided. Now is an opportune time to begin to consider alternative ways of funding a charitable gift.

An Update On Reverse Mortgages. The October issue of this newsletter provided information concerning certain HUD changes in the reverse mortgage program. As a result of a lawsuit against HUD filed by the AARP in 2012, and due to the decision of the U.S. District Court for the District of Columbia, HUD has issued a new rule providing that in the case of a couple, when one spouse is under age 62, the underage spouse can be listed as a “non-borrowing spouse.” If the older spouse dies, the non-borrowing spouse may remain in the home provided that the surviving spouse establishes within 90 days that he or she has the legal right to stay in the home. This could be provided by means of an ownership document, lease, or court order. Presumably a provision in the deceased spouse’s trust or will would be sufficient if legally enforceable. However, the spouse must meet certain requirements such as paying property taxes, insurance, etc. The new rule appears to apply only to a surviving spouse who was married to the borrower-spouse at the time that the loan was effectuated. The new rule applies only to loans written after August 4, 2014.

Incorporating Tangible Personal Property Distribution Provisions in Estate Plan. Issues pertaining to the distribution of tangible personal property, such as household goods, personal effects, jewelry, etc., are often not given adequate consideration in conjunction with a person’s or a couple’s estate plan. Standard provisions are too often incorporated in documents without serious planning or thought. Giving a little additional attention to such issues can simplify the process of transferring such property to a person’s beneficiaries with a minimum of time, complexity, and inconvenience, and disputes can often be avoided. Some of the biggest legal entanglements I have experienced in my practice have resulted from property having minor economic value, but significant emotional value, such as family photographs.

Specific property can be listed in a will or in a trust. However, if there are quite a few specific items, it may be best to refer to a list in the will or trust, in which event the list can be changed without having to amend the will or trust document. The list must actually be in existence, however, at the time that the will or trust is signed. When that is done, it is a good idea for the list to be well documented, and witnessed in the case of a will, and for the attorney to retain a duplicate list. If the list is changed, the client should be advised to provide a copy of the updated list to legal counsel. If there is no desire to specifically describe items, and the parent wishes to let the children divide the items as they agree, then it should be clearly set forth that any items about which there is any dispute shall be sold, with the proceeds to become a part of the estate or trust and to be distributed in accordance with the terms of the will or trust. In that way, the children can divide the items by mutual agreement, but if there is an argument about any particular item, that item would be sold. In such cases, it may be appropriate to provide that any differences in value between beneficiaries will be equalized in cash. Insurance should also be considered, and it is usually a good idea to include in the bequest or trust distribution directions that any policies of insurance on such tangible personal property shall also be included. The goal of such a provision is to better assure that a loss due to theft, fire or any other casualty which is covered by insurance will result in the insurance proceeds being distributed to the beneficiary or beneficiaries.

It is also possible in very simple cases to provide for the disposition of tangible personal property by means of a transfer-on-death memorandum. For example, tangible personal property which has not been transferred to a trust could be covered by a TOD memorandum providing that the tangible personal property described in the memorandum will pass into the trust in the event of the death of the owner, and then distributed in accordance with the terms of the trust. This might be important in cases where an irrevocable trust is used for certain purposes, and it is not desired to transfer the tangible personal property to the irrevocable trust. Nevertheless, the TOD memorandum will result in the non-probate transfer of that tangible personal property to the trust in the event of death, which can then be distributed in accordance with the terms of the trust.

Additional Information. Future issues of this Newsletter will address other issues of current interest. Please contact my office with any questions that you might have.