Another Reason to Have a Valid General Power of Attorney (GPOA)

douglas mcalpineMost married couples file their tax returns as Married Filing Jointly (MFJ) which is generally tax advantageous when compared to the other alternative which is Married Filing Separately (MFS).  It needs to be noted though, that filing jointly is an annual election by both spouses and cannot be used if one spouse does not agree to sign (a frequent issue during divorce proceedings).

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Donald Sterling and the L.A. Clippers: There’s Even More to the Story

Kim NewDonald Sterling was the controlling owner of the L.A. Clippers who made racially insensitive comments that went viral earlier this year.  After a hefty fine from the NBA, a lifetime ban, and a threat to force him to sell his controlling interest, Mr. Sterling, at age 80, still refused to sell his ownership interest in the team.  However, it was not the NBA that forced the sale of the team, it was his wife, Rochelle Sterling (“Shelly”), and the interplay of their estate plan that forced the sale and turned this scenario akin to a made-for-TV movie.

The Sterlings, California residents, created a lifetime revocable trust and funded it with all of their assets, including a controlling stake in the Clippers.  Both of the Sterlings were Co-Trustees and primary beneficiaries.  The revocable trust is the core document of an estate plan in many states, including California.  It controls assets during a person’s lifetime and manages the disposition of those assets at death without the need for the probate process.  As Co-Trustees, Donald and Shelly made decisions jointly with regard to their assets.

About the same time as the racial comments came to light, Shelly had Donald evaluated by two doctors for a determination of his mental capacity.  The doctors concluded Donald indeed suffered from diminished cognitive ability and was exhibiting signs of Alzheimer’s disease.  Pursuant to the Sterling’s revocable trust agreement, Donald could no longer serve as Co-Trustee with such diminished capacity, leaving Shelly as the sole Trustee with sole power to administer the trust’s assets.

Shelly negotiated the sale of the Clippers to former Microsoft CEO Steve Ballmer for $2 billion, despite the protests from Donald.  Donald sued to enjoin the sale and sought damages from Shelly and the NBA.  He argued that he had the proper capacity to remain Trustee, and that Shelly failed to follow the proper protocol in his medical evaluation; therefore, she was not sole Trustee and did not have authority to sell the Clippers

The dispute went to Probate Court in California where the Judge heard arguments as to whether Donald was properly removed as Co-Trustee based on his mental capacity and whether Shelly had authority to sell the Clippers under the terms of the Trust agreement.  In late July, the Probate Court Judge ruled entirely in favor of Shelly and held the sale of the Clippers could proceed even if Donald appealed the ruling.  The Judge dismissed the claim that the capacity argument was merely a scheme by Shelly to sell the Clippers.

This case received a lot of attention for Donald Sterling’s racially charged comments, but the case also deserves a lot of attention for highlighting the issues of incapacity and estate planning.  As the population ages, reports of dementia, Alzheimer’s disease and other forms of diminished mental capacity are on the rise.  Planning for someone else to manage your personal and financial affairs in the event of such illnesses or accident is a crucial part of an effective estate plan.  Who you choose to act on your behalf and how it is determined that you are “incapacitated” are equally important.  Although the events surrounding the sale of the Clippers were not as Donald and Shelly likely anticipated when creating their Revocable Trust, the Trust functioned exactly how it was intended.  Upon the death or incapacity of either Donald or Shelly, the survivor or remaining Trustee would serve as sole Trustee and continue to manage their joint assets, no court intervention needed.

A General Durable Power of Attorney and a Healthcare Power of Attorney or Directive are two key documents that plan for incapacity.  Without these in place, a time-consuming and costly court action will be required to name a Guardian or Conservator to manage the affairs of someone who is incapacitated.

Talk to your estate planning attorney about getting these documents in place for your family.  If you already have Powers of Attorney, give them a quick review, and make sure they still express your wishes and appropriately plan for the determination of incapacity.

 

For more information regarding this or any other estate planning concern, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com, call us at 404-255-7400 or send us an email.

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.

Update to the “DOMA” Ruling

The Treasury Department announced on August 29th that legally married same-sex couples will be treated as married for federal tax purposes regardless of what state they live in starting Sept. 16th, 2013.  Any same-sex couple legally married in a jurisdiction that allows it has the freedom to move to other states that don’t allow it and the federal government will recognize the marriage for tax purposes.

“Today’s ruling provides certainty and clear, coherent tax filing guidance for all legally married same-sex couples nationwide. It provides access to benefits, responsibilities and protections under federal tax law that all Americans deserve,” Treasury Secretary Jacob Lew said in a statement. “This ruling also assures legally married same-sex couples that they can move freely throughout the country knowing that their federal filing status will not change.”

However, this ruling will not apply to same-sex couples in states that don’t allow same-sex marriage for social security purposes.  It will also not apply to those same-sex couples in domestic partnerships or same-sex unions.

On June 26, 2013 the Supreme Court of the United States held Section 3 of the Defense of Marriage Act (“DOMA”) unconstitutional “as a deprivation of the liberty of the person protected by the Fifth Amendment” in United States v. Windsor, an estate tax case.  As a result, the federal government must henceforth recognize same-sex marriages as valid if they are conducted lawfully in a state that allows them.  This means that legally married same-sex couples will be able to file joint income tax returns and will qualify for other income and estate tax benefits previously associated with marriage between a man and a woman.

However, the DOMA ruling does not mean that states have to recognize same-sex marriage.  Georgia has a constitutional ban on same-sex marriage.  Therefore, same-sex couples in Georgia remain under the same rules that existed prior to the DOMA ruling.  That is, same-sex couples may not file joint Georgia income tax returns.  Further, a same-sex partner will not be treated as next of kin for purposes of medical decision making or sharing of medical information under HIPAA.  Likewise, it will remain difficult for a same-sex partner to get appointed as guardian or conservator of their partner without proper estate planning documents.

Regardless of a same-sex couple’s marital status in Georgia, well drafted estate planning documents, including wills, health care directives and financial powers of attorney, can incorporate many of the otherwise available benefits for same-sex couples.

 

For more information regarding this or any other estate planning concern, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com, call us at 404-255-7400 or send us an email.

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.

Understanding the DOMA Ruling

On June 26, 2013 the Supreme Court of the United States held Section 3 of the Defense of Marriage Act (“DOMA”) unconstitutional “as a deprivation of the liberty of the person protected by the Fifth Amendment” in United States v. Windsor, an estate tax case.  As a result, the federal government must henceforth recognize same-sex marriages as valid if they are conducted lawfully in a state that allows them.    This means that legally married same-sex couples will be able to file joint income tax returns and will qualify for other income and estate tax benefits previously associated with marriage between a man and a woman.

However, the DOMA ruling does not mean that states have to recognize same-sex marriage.  Georgia has a constitutional ban on same-sex marriage.  Therefore, same-sex couples in Georgia remain under the same rules that existed prior to the DOMA ruling.  That is, same-sex couples may not file joint Georgia income tax returns.  Further, a same-sex partner will not be treated as next of kin for purposes of medical decision making or sharing of medical information under HIPAA.  Likewise, it will remain difficult for a same-sex partner to get appointed as guardian or conservator of their partner without proper estate planning documents.

But what if Georgia same-sex couples legally get married in another state or move to Georgia from another state where they were legally married?  Well, no one is really sure what that means for them on a federal level.

“I think (the ruling) gives a false confidence that everything is taken care of and it’s not,” University of Florida Estate Planning Professor Lee-Ford Tritt told the Tampa Bay Times. “It’s going to be very confusing for people.”

For federal income taxes, it seems like the IRS will need to change its policy on filing jointly since it currently considers a state of residence.  This appears to be something that can be administratively fixed.  The status of many other federal benefits is still uncertain in a situation like this.

Regardless of a same-sex couple’s marital status in Georgia, well drafted estate planning documents, including wills, health care directives and financial powers of attorney, can incorporate many of the otherwise available benefits for same-sex couples.

 

For more information regarding this or any other estate planning concern, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com, call us at 404-255-7400 or send us an email.

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.

 

Hoffman Extended Family Services

At Hoffman & Associates, we strive to provide excellent service to our clients by ensuring they preserve and protect their legacy for generations to come.  By having a proper estate plan in place, you can be certain that loved ones are well taken care of, the risk of paying high taxes is  minimized, and the administrative burden of probate is less.

In that light, we are excited to announce Hoffman Extended Family Services.  The new permanent estate tax laws enacted in 2013 have given estate planning practitioners quite a bit more flexibility, and even an element of simplicity, in drafting proper estate plans for our clients.  We feel that many of your children, grandchildren, friends and neighbors could benefit from a simple, but professionally prepared estate plan.

We are offering a simple estate plan, which includes a Last Will and Testament, General Power of Attorney and Georgia Advance Healthcare Directive for a married couple, to your family and friends for only $950.00.  This special price is limited to simple Wills, without trusts, but will ensure your loved ones receive peace of mind knowing their assets are protected and there is a professional estate plan in place.  We will meet with each client individually and draft an estate plan that fits their needs.

If you have friends or family that can benefit from our services, please have them contact us at 404-255-7400 or visit us online at www.hoffmanestatelaw.com.  As always, should you have any questions concerning your estate plan, do not hesitate to give us a call or send us an email.

For more information regarding estate planning, business law or tax controversy and compliance, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com or call us at 404-255-7400.

 

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.

General Power of Attorney

A General Power of Attorney is a written document that grants a broad range of specific powers over your financial and personal affairs to someone you trust (referred to as your “agent” or “attorney-in-fact”).  Specific provisions can establish when and how the appointment of the Power of Attorney takes effect, the duration and the manner in which it can be terminated, and may describe or limit the powers granted to such agent.

A General Power of Attorney is “durable” since it remains in force at all times, even during periods of disability or incapacity.  One could elect for it to be “springing”, which means the General Power of Attorney does not come into effect until the maker is disabled or incapacitated. This is popular as a means of avoiding “blank check” issues.   All Powers of Attorney terminate upon the death of the maker.  A Power of Attorney is an extremely important document that can be used to avoid the appointment of a conservator by a court when a person becomes incapacitated.

 

For more information regarding estate planning, business law or tax controversy and compliance, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com or call us at 404-255-7400.

 

 In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose.  The information contained herein is provided “as is” for general guidance on matters of interest only.  Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services.  Before making any decision or taking any action, you should consult a competent professional advisor.

Federal Estate Tax Planning

In order to keep the estate tax burden from continually growing in your estate with further appreciation, you may want to do what many other clients have done: introduce some discounting and freezing techniques to your overall estate plan.  Gifting is also important, as each individual can make annual and lifetime gifts tax-free and decrease the size of his or her estate.

A popular freeze technique is where a client’s interest in limited liability companies, corporations, partnerships or real estate (the “Property”) is sold to a defective grantor trust (DGT) in exchange for an installment note. The beneficiaries of the DGT will be the client’s children and their descendants.  It is called a “defective” trust because the trust is a grantor trust, meaning the IRS ignores it for income tax purposes, but not for estate tax purposes (i.e., the grantor trust is “defective” for income tax purposes).

A DGT allows the value of the assets in such trust to be removed from your estates for estate tax purposes; however, the trust and any transaction(s) between the grantor (you) and the trust is disregarded for income tax purposes. For example, you would still pay income taxes on taxable income of the DGT.  This is a good tax result.  Your assets are being used to cover tax liabilities attributable to a DGT. This “tax haircut” is, in essence, gifting (paying someone else’s tax liability), but the IRS does not interpret this activity as gifting.

Your interest in the Property will be sold to the DGT in return for an installment note payable to you.  This will “freeze” the entire value of the Property; for estate tax purposes the unpaid balance of the installment note remains in your taxable estate, while the Property is not.  An income stream is generated for you from the DGT via payments on the installment note.  The payments from the DGT to you are ignored by the IRS since the payments are coming from a grantor trust.  The only “leakage” is the unusually small interest rate we are able to put on the promissory note to you. As discussed, payments on the installment note are typically interest only but we can work with that number based on the income and cash flow generated by the LLC property.  However, keep in mind that it is advisable to pay the interest yearly as the IRS may frown upon a balloon note with the interest and principal payable at the end of the term of the note.

The sale to the DGT allows you to not only freeze the value of the Property in your taxable estate, but to also reduce the size of your taxable estate based on the income taxes paid by you for the DGT’s income taxes, again, the “tax haircut”.  Also, you are able to take advantage of significant discounting in valuing the fractional LLC interests being sold to the DGT.

The non-voting membership interest in the LLC would be partially gifted and partially sold to the DGT in exchange for an installment note.  This way you freeze most of the value of the LLC in your taxable estate, but retain control of the LLC via your continued ownership of the voting membership interest. The underlying property in the LLC would need to be appraised.  The fees for these appraisals can vary depending on the appraiser.  Once those appraisals are received, the non-voting membership interest of the LLC would be valued.  After the non-voting membership interest is valued, we would use this number to determine the sale price for the non-voting membership interest.

For more information regarding estate planning, business law or tax controversy and  compliance, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com or call us at 404-255-7400.

 

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose.  The information contained herein is provided “as is” for general guidance on matters of interest only.  Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services.  Before making any decision or taking any action, you should consult a competent professional advisor.