Month: July 2016

Pop Songstress’ Estate Arguing over $11 Million Dollar Tax Bill

7-29-2016Whitney Houston’s heirs are now in Tax Court fighting over what the IRS says is owed in estate taxes, according to Billboard’s article, “Whitney Houston Estate Challenges $11 Million Tax Bill.” The estate said it objects to the determination that $22.6 million has been underreported. This, the IRS claims, means that more than $11 million is owed, including $3 million in penalties.

Some of the money that’s owed is from Whitney’s song and performance royalties. There’s also a $9 million dispute over the value of her album catalog.

The Whitney Houston estate claims that the IRS is in error by increasing the value of her publicity rights from $11.5 million to $11.7 million. There’s no indication as to the agency’s rationale for the increase, but it shows that the IRS means business and will continue to pursue money from the name and image of dead stars. A trial is scheduled for next February.

Right now, the IRS is currently in court fighting with another pop legend’s estate. The Michael Jackson estate is litigating over the value of his publicity rights. The IRS originally stipulated that the value of these rights upon death was $434 million. However, it has recently backed off from this precise amount. On the other hand, the Michael Jackson estate argued it’s worth just $2,105.

Reference: Billboard (May 27, 2016) “Whitney Houston Estate Challenges $11 Million Tax Bill”

You Bet Your Life There’s Value in Life Insurance

Life insurance can be very complicated and confusing. It’s also an area where mistakes can be made very easily.

A recent study that looked at the life insurance purchased by 94 ultra-wealthy business owners with a net worth of $30 million or more showed that roughly 40% of them didn’t have the appropriate level or type of life insurance—or it wasn’t properly structured to meet their needs and goals. 7-28-2016

A recent Forbes article, “How The Ultra-Wealthy Avoid Life Insurance Missteps,” says that there were several reasons for these results. The most common mistake made by more than 80% of the business owners was buying more life insurance than actually was necessary. Also, for 60% of these uber-wealthy business owners, their life insurance wasn’t effectively integrated with their estate plans.

For example, if the policies are not held in irrevocable trusts, then the proceeds are included in the estate values and are subject to estate taxes. About 75% of these surveyed business owners had policies that were simply wrong for their specific situations. Each of us should have the type of life insurance that addresses the particular needs of our individual situations.

While the study was just exploratory, it demonstrates the need for working with a highly experienced and reputable life insurance specialist. Choose to be like one of the remaining 60% of successful business owners in the study who have the right amount of the right kind of life insurance that is properly structured.

The results of the research also suggest the practicality of a second opinion. If you have questions or uncertainty about the appropriateness of a life insurance policy, there’s no harm in getting a second opinion. Whether you are ultra-wealthy or an ordinary purchaser of life insurance, there’s the possibility of making costly mistakes or not being able to get the desired results.

We all should be discerning when talking with a life insurance specialist, as not all have our best interests in mind. Don’t forget to speak with your estate planning attorney to make sure that the insurance you have is properly structured.

Reference: Forbes (June 7, 2016) “How The Ultra-Wealthy Avoid Life Insurance Missteps”

Exploring Long-Term Care

The Huffington Post says that more than 40% of people over age 65 need care in a nursing home for some period of time. The article, “What is Long Term Care?”, quotes the National Institute of Health (NIH), which states that what’s termed long-term care (LTC) can—in reality—be a long time or a short time. Long-term care can be in an institution or at home, based on the patient’s specific situation and needs.

LTC is now a very broad term and has evolved into a term for the type of care required instead of the time period. The need for this care can be because of a sudden event like a fall, or it can develop gradually. Before someone reaches the point where total personal care is required for his or her activities of daily living (ADLs), other ancillary services might be necessary. There are adult day care and senior centers to help them socialize and keep active.

Even when elder care doesn’t mean admission to a facility, caregiving demands may make paid LTC with a home health aide a necessity. AARP found that more than 40 million Americans provided unpaid care to adults last year, with an average of 44. 7-27-20166 hours for spouses or partners. And 10 percent of those caregivers were elderly themselves—age 75 years or older.

Beyond an individual’s personal savings, long-term care insurance is available with many options and levels of coverage. It’s more affordable the earlier you sign on. LTC insurance will typically cover care not covered by health insurance, Medicare, or Medicaid. It can guard your savings accounts from becoming depleted by increasing healthcare expenses, and premiums may be tax deductible. LTC insurance can also eliminate the burden on family members who would be providing this care.

An elder care and estate planning attorney can help with strategies to help fund this care. Government programs like Medicare and Medicaid should be explored—as well as any veteran’s benefits and Social Security. In light of the expense of nursing home care and Medicaid eligibility requirements, elder law attorneys can discuss spending down assets to qualify for Medicaid.

Reference: Huffington Post (June 8, 2016) “What is Long Term Care?”

A New Era of Estate Planning

ThinkAdvisor's article, "New Estate Planning Strategies for a Post-Portability World," says that there may be many folks who've continued to rely upon their outdated, pre-2013 estate plans. This could easily lead to adverse tax consequences in the future. 7-26-2016

Reviewing a pre-2013 estate plan may be really beneficial for higher-income individuals. There are new techniques and strategies to help them take advantage of the new rules to minimize estate and income tax liability.

Relying on the old credit shelter trust strategy may no longer be a wise move, since there are new strategies that can produce dramatic tax savings—as well as more flexibility.

Prior to portability, which allows a surviving spouse to (almost) automatically use the deceased spouse's estate tax exemption, credit shelter trusts were used by married couples to fully use their two estate tax exemptions. Part of the deceased spouse's assets equal to the estate tax exemption amount would be placed into a trust created for the benefit of the surviving spouse. The remaining assets—those in excess of the deceased spouse's exemption—would pass outright to the surviving spouse. The surviving spouse didn't technically own the assets held in the trust. As a result, those assets would pass without estate tax to his or her heirs. The assets that the surviving spouse owned outside of the trust would also pass without estate tax up to the value of—but not exceeding—the exemption amount.

For many, a credit shelter trust isn't necessary for estate tax purposes. The "permanently" higher federal estate tax exemption is now at $5.45 million this year. Many folks don't understand that the value of the assets (tax basis) is in effect frozen at the time they're placed in the credit shelter trust. Thus, if those assets appreciate in value, they may create an unexpected income tax hit for the heirs. But if those assets were left outright to the surviving spouse, they'd see a step-up in basis upon the surviving spouse's death. If the asset value has appreciated, capital gains taxes are minimized.

But unlike a credit shelter trust strategy, a disclaimer strategy can provide flexibility to a surviving spouse. This lets a spouse evaluate his or her financial circumstances and the tax rules as they actually exist at the time of the deceased spouse's death. To use this strategy, he or she leaves all assets to the surviving spouse outright but gives the survivor the option of disclaiming those assets. If the spouse opts to disclaim the assets, they'll pass into a bypass trust established for his or her benefit. This can be nice if the surviving spouse lives in a state with its own estate or inheritance tax, since that exemption may be a lot lower than the federal exemption. In addition, a bypass trust can also be good from an asset protection standpoint if the surviving spouse is worried about creditors' claims or a possible new spouse later in life. The disclaimer strategy lets the surviving spouse analyze his or her situation when it's relevant. They don't have to rely on a strategy that was possibly put into place years before.

Regardless, consult a qualified estate planning attorney to help you select the most appropriate strategy for your circumstances.

Reference: ThinkAdvisor (June 7, 2016) "New Estate Planning Strategies for a Post-Portability World"