Bobby’s Blog

Multiple States Reducing Estate Tax Threat for Families and Businesses

Since 2014, approximately nine states have eliminated or lowered their estate taxes. This was accomplished primarily by modifying and increasing specific exemptions thereby reducing the number of households that could be hit with a large estate tax bill.

For example, Maryland is planning to raise its current $3 million estate tax exemption to $4 million in 2018. The District of Columbia is ahead of the game. In 2014, D.C. passed a major tax reform deal that included increasing its estate tax exemption amount from $1 million to $2 million at the start of 2017 and to ultimately match the generous federal exemption level ($5.49 million for 2017, indexed for inflation), starting in 2018, according to Forbes.

Other states are going even further. For example, New Jersey plans to eliminate its estate tax entirely, according to the Wall Street Journal. Currently, six states have repealed their estate taxes over the past 10 years, including Virginia.

Why are States Reducing Estate Taxes?

The modifications to estate tax laws is largely driven by competition between governors and legislatures hungry for affluent and wealthy taxpayers to relocate to their respective states. Such residents owe income taxes every year, but some are willing to move out of state to avoid death taxes.

Increased exemptions to estate taxes are not just a state policy. In fact, the federal estate-and-gift tax exemption increased to $5 million in 2011.

Check out Bobby’s video explaining the basics of estate taxes:

States Also Looking to Modify Inheritance Taxes

While most recent changes have been to state estate taxes, some states with inheritance taxes are looking to make reforms to ease the tax burden on families. Six states currently tax a beneficiary who inherits assets from a deceased loved one. Inheritance tax rates and exemptions often vary according to their relation to the decedent. For example, in Nebraska, there is no tax on assets left to a surviving spouse. However, if a sibling inherits an asset, they are subject to a 1 percent inheritance tax. Assets left to a non-relative (e.g., a close friend) in Nebraska are subjected to a potential 18 percent inheritance tax.

Maryland has both estate and inheritance taxes  and, as mentioned, the state legislature is planning to modify the estate tax exemption. There are no plans to modify the inheritance tax provisions under current law. Virginia, on the other hand, does not impose an inheritance tax. Also, as mentioned, Virginia no longer imposes an estate tax. The Legislature repealed the estate tax entirely in 2006. The more attractive and hospitable estate tax policies in Virginia make it much more attractive for high-income and wealthy individuals when compared to Maryland.

Speak to an Experienced Estate Planning Attorney Today

Although the gradual elimination of the state estate tax is a step in the right direction, the federal estate tax remains. In addition, taxes should not be the sole motivation for estate planning.  If peace of mind and protecting your family is an important goal for you then you should talk to an experienced estate planning attorney about the other risks your estate is faced besides the tax risk. Our team of experienced trust and estate planning attorneys possess a deep understanding of estate and inheritance tax laws as well as other common risks your family and estate will likely face. Contact our office to learn more.

Benefits of a Series LLC

The Uniform Law Commission (ULC) recently approved the Uniform Limited Liability Company Protected Series Act (ULLCPSA) to help provide consistency in the language used to structure Series LLCs. This was necessary since the series LLC is a fairly new concept for structuring ownership in a business, but it appears to be gaining popularity across the country. Eight states have already enacted their own Series LLC laws.

What Exactly is a Series LLC?

The Series LLC is a limited liability company comprised of a master LLC and other subservient LLCs that are separate from each other to reduce liability exposure. Some people have compared the Series LLC to a corporation that owns and manages multiple subsidiaries. Each LLC has its own set of assets that are distinct from the other LLCs, while the master LLC controls all LLCs in the series. Each LLC has its own owners and is only liable for its own debts and obligations.

A good way to think of a Series LLC is like a condominium complex. The condo association controls the entire complex, but separate owners are responsible for the management of each unit within the complex.

Series LLCs Gaining Popularity

This business structure has proven to be very popular in many states. For example, there are over 28,000 Series LLCs in Illinois alone, according to the Wall Street Journal. The District of Columbia enacted D.C. Code § 29-802.06 which allows an LLC operating agreement to establish a designated series of members, managers, or interests of a limited liability company, in which the members, managers, or interest holders have separate rights, powers, or duties with respect to specified property or obligations of the limited liability company. Virginia and Maryland have not enacted state-specific Series LLC legislation, as of the date of this posting.

The flexibility the Series LLC offers as a business-planning entity has resulted in immense popularity in the financial and insurance sectors. For example, if you own a venture capital fund with thousands of investors and hundreds of new start-up companies working towards an IPO, structuring your fund as a Series LLC makes sense. Why? Because venture capital funds may have some investors who only want to invest in new companies that use green technology. Other investors may only want to invest in new companies in the oil and gas industry. If the fund was structured as a traditional LLC, all of your investors and start-ups would be lumped together in the fund and you would have to try and appease everyone. Conversely, structuring the fund as a Series LLC would enable you to categorize companies into different Series (e.g., green energy, technology, oil & gas, etc.). Each investor would then be able to invest in the Series that it prefers to invest in.\

Speak to an Experienced Business Formation Attorney

If you are looking to start a business or need guidance on the best structure for your business, contact InSight Law today. We offer an array of business planning services. We tailor our services to the needs of our clients. We can work together to form a comprehensive strategy for your business, and build a relationship to ensure your business planning needs are taken care of.

Real Estate Developers May Be Able to Avoid Gift Taxes When Passing On Developer Units

In February 2016, two Central Park condos owned by then-candidate Donald Trump had an estimated market value of $790,000 and $800,000. In April 2016, Trump sold these condos to his son, Eric Trump, for pennies on the dollar ($350,000 each, to be exact).

For most people, this family-friendly sweetheart deal would typically incur hundreds of thousands of dollars in gift taxes. Not so for Donald Trump. Why? Because he was a real estate developer.

A real estate owner who sells a piece of property for less than it’s estimated worth typically has to pay gift tax on the difference between the sale price and the true market value, according to MSN.com. Any personal gifts worth more than $14,000 in a given year are subject to a federal tax that could be as high as 40 percent. However, in Trump’s case, since he the building’s developer selling the condos for the first time, he enjoyed a level of flexibility within the law to determine the estimated value of the condos.

Other taxes paid on the transaction indicate gift taxes were not paid by Trump. He reportedly paid a total of $13,000 in city and state transfer taxes, according to New York City property records. Those transfer taxes, according to a spokeswoman for the city’s Department of Finance, are not usually paid when “bona fide gifts” are involved. Furthermore, when a home sale is reported as a gift, buyers and sellers typically disclose that the sale is taking place between two relatives in the transfer records. The Trumps did not have such an indication.

The condo sales were disclosed in President Trump’s 2017 federal financial disclosure, which was released by the U.S. Office of Government Ethics. The buyers of the two condos were listed as two limited liability companies that were managed by Eric Trump.

This transaction likely means that Eric Trump will probably be able to sell the condos later on at a much higher price.

Strategies for Avoiding Unnecessary Gift Taxes

Obviously, unless you are a real estate developer, the gift tax avoidance strategy described above probably will not apply to you. However, there are other strategies you could potentially utilized under the tax code. For example, under current IRS regulations, if you make a gift in excess of $14,000, you must file a Form 709 to report the gift and pay tax on the amount above $14,000.  The gift tax threshold for married couples is $28,000 per donee.

Here are some strategies that you could consider in making a gift in excess of the exemption amount without being subject to gift taxation:

  • Pay someone’s medical expenses. Just make sure the payments are made directly to a third party medical institution or physician. The gift can’t be given to the donee directly or else it’s subject to the exemption limit.
  • Paying someone’s college tuition. Like with the medical expenses, make sure the payments are made directly to a third party educational institution. If the payments go directly to the student, you fall in the gift tax zone.
  • Make a gift to a qualified charitable organization formed under IRC 501(c)(3). This has a double benefit in that the contribution is tax deductible and is exempt from the gift tax limitation.

To learn more, sit down with an experienced trust and estate planning attorney in your area.

How to Properly Establish a Living Trust

One of the best estate planning tools you can utilize is a living trust. Establishing a trust allows your loved ones to avoid lengthy and complicated probate and may save your family money in administrative expenses and taxes. So how do you set up a living trust? The requirements of a trust to be considered legally valid include:

  • You need to have the intent to create a trust. This is a fairly simple requirement to meet by stating your intent in the trust document.
  • You need to have the testamentary capacity to create a trust. This means you need to have the mental capability to create and sign the trust document.
  • Your trust must have a specific, legitimate purpose (e.g., for management of assets in your estate plan).
  • The trust must convey some form of property. This means you cannot simply create a trust and it be barren. Future interests in property are acceptable, but they must be in existence at the time you created the trust. Speculative property, such as future earnings from a non-existent business, is not valid.
  • You must name a trustee. This is the person in charge of holding the trust and transferring trust assets to a beneficiary, or beneficiaries.
  • Relatedly, you must name a beneficiary. This is the person, or individuals, who will receive the trust assets.
  • Sign the trust document in front of a notary public.
  • Some states also require that witnesses are present to see you sign the trust document.

Generally, living trusts take one of two forms – revocable and irrevocable. You, in consultation with your estate planning attorney, can decide what form the living trust will take at the time of creating and signing the trust document.

Here is a video where Bobby discusses some of the basics of a trust:

A Trust is Only One Component of an Estate Plan

Establishing a trust is a wise estate planning strategy, but it is not the end-all-be-all of your estate plan. You also need to have a legally valid Last Will and Testament, a Durable Power of Attorney, proper beneficiary designations for your IRAs, pensions, and other savings accounts, a list designating beneficiaries for family heirlooms and items with intangible value to you and your loved ones, and so on and so forth. This is why it makes sense to speak to an estate planning attorney to ensure you have a fully developed estate plan that is updated annually.

Is a Trust Permanent After It is Created?

A revocable trust can be terminated by you (the trustor) at any time and you can repossess the property that was transferred to the trust. Terminating an irrevocable trust is more complicated but it is possible if the trust has been drafted properly and the attorney understands the nuances. Both types of trusts avoid probate and estate tax protection if assets are properly titled in or to the trust (we see this as the biggest flaw in most of the trusts we review), but only irrevocable living trusts provides asset protection for you during your lifetime (if maintained properly).

Is My Living Trust Enforceable Across the Country?

Yes. Living trusts created in Virginia, Maryland, or D.C. are enforceable in any state. Similarly, a living trust created under another state’s laws is likewise enforceable in the DMV.

Other Benefits of Establishing a Trust

Living trusts offer an array of benefits including the ability to share property ownership with multiple family members and loved ones, the aforementioned potential to minimize estate taxes and the protection of your assets from creditors. This protects your property from potential legal seizure and sale.

A trust also empowers you to specifically explain how you want the trust to distribute money and property to each beneficiary and include stipulations on those distributions. For example, if you have a minor child, you can include provisions on when they can access their inheritance and a yearly or quarterly amount they can receive as well as protect the assets from divorce and other creditors.

Speak to an Experienced Trust and Estates Lawyer

Establishing a legally valid trust can get complicated, especially if you have a large estate with properties in different states and a large family of potential beneficiaries. This is why it makes sense to sit down and speak to an experienced estate planning attorney in your area.

As Insight Law, we can help both establish your trust and represent the personal representative or trustee through the administration process when that service is needed.

Contact our office today to schedule a meeting.

How to Properly Establish a Living Trust

One of the best estate planning tools you can utilize is a living trust. Establishing a trust allows your loved ones to avoid lengthy and complicated probate and may save your family money in administrative expenses and taxes. So how do you set up a living trust? The requirements of a trust to be considered legally valid include:

  • You need to have the intent to create a trust. This is a fairly simple requirement to meet by stating your intent in the trust document.
  • You need to have the testamentary capacity to create a trust. This means you need to have the mental capability to create and sign the trust document.
  • Your trust must have a specific, legitimate purpose (e.g., for management of assets in your estate plan).
  • The trust must convey some form of property. This means you cannot simply create a trust and it be barren. Future interests in property are acceptable, but they must be in existence at the time you created the trust. Speculative property, such as future earnings from a non-existent business, is not valid.
  • You must name a trustee. This is the person in charge of holding the trust and transferring trust assets to a beneficiary, or beneficiaries.
  • Relatedly, you must name a beneficiary. This is the person, or individuals, who will receive the trust assets.
  • Sign the trust document in front of a notary public.
  • Some states also require that witnesses are present to see you sign the trust document.

Generally, living trusts take one of two forms – revocable and irrevocable. You, in consultation with your estate planning attorney, can decide what form the living trust will take at the time of creating and signing the trust document.

Here is a video where Bobby discusses some of the basics of a trust:

A Trust is Only One Component of an Estate Plan

Establishing a trust is a wise estate planning strategy, but it is not the end-all-be-all of your estate plan. You also need to have a legally valid Last Will and Testament, a Durable Power of Attorney, proper beneficiary designations for your IRAs, pensions, and other savings accounts, a list designating beneficiaries for family heirlooms and items with intangible value to you and your loved ones, and so on and so forth. This is why it makes sense to speak to an estate planning attorney to ensure you have a fully developed estate plan that is updated annually.

Is a Trust Permanent After It is Created?

A revocable trust can be terminated by you (the trustor) at any time and you can repossess the property that was transferred to the trust. Terminating an irrevocable trust is more complicated but it is possible if the trust has been drafted properly and the attorney understands the nuances. Both types of trusts avoid probate and estate tax protection if assets are properly titled in or to the trust (we see this as the biggest flaw in most of the trusts we review), but only irrevocable living trusts provides asset protection for you during your lifetime (if maintained properly).

Is My Living Trust Enforceable Across the Country?

Yes. Living trusts created in Virginia, Maryland, or D.C. are enforceable in any state. Similarly, a living trust created under another state’s laws is likewise enforceable in the DMV.

Other Benefits of Establishing a Trust

Living trusts offer an array of benefits including the ability to share property ownership with multiple family members and loved ones, the aforementioned potential to minimize estate taxes and the protection of your assets from creditors. This protects your property from potential legal seizure and sale.

A trust also empowers you to specifically explain how you want the trust to distribute money and property to each beneficiary and include stipulations on those distributions. For example, if you have a minor child, you can include provisions on when they can access their inheritance and a yearly or quarterly amount they can receive as well as protect the assets from divorce and other creditors.

Speak to an Experienced Trust and Estates Lawyer

Establishing a legally valid trust can get complicated, especially if you have a large estate with properties in different states and a large family of potential beneficiaries. This is why it makes sense to sit down and speak to an experienced estate planning attorney in your area.

As Insight Law, we can help both establish your trust and represent the personal representative or trustee through the administration process when that service is needed.

Contact our office today to schedule a meeting.