Basics

Lifetime Buyout of a Co-Owner

When disability strikes an owner, the company will endure substantial hardships, both economic and operational. More importantly, in the absence of a buy-sell agreement, the disabled owner’s income stream from the company also may evaporate. This problem confronted Steve Hughes, one of three equal shareholders in a growing advertising agency.

At age 38, Steve suddenly had a stroke. As with many stroke victims, his recovery was incomplete. Physically, he was the picture of health (his golf game even improved!); but he totally lost his ability to speak and read. Doctors told Steve he would never be able to return to work.

Steve’s firm had a buy-sell agreement, but it covered only a buyout at death and an option for the company to buy Steve’s stock if he were to try to sell it to a third party. Trying to find and sell closely held stock to a third party is a difficult proposition anytime; Steve’s disability made it impossible. Even if his fellow shareholders had wanted to continue his salary, they did not have the resources to do so indefinitely.

2013 Estate Tax Law Updates

The New Year has arrived with all of its attendant changes.  Although Congress couldn’t seem to get its act together until after the deadline passed, they have ultimately settled on a few things, which is very good news for those of us who are trying to understand what our options are.  Here is a quick summary of some of the highlights of the 2013 American Taxpayer Relief Act that are particularly relevant to our clients:

 

     The gift and estate tax exemption amounts will be at least $5.12 million per person.  This amount will likely go up this year to $5.25 million due to inflation adjustments.  Thus, an individual may still gift or devise as much as $5.25 million  without incurring any transfer tax liability.

     The estate tax rate changed from 35% in 2012 to 40% in 2013 for those who die having more than the $5.25 million in their estates.  This means that if your estate is larger than this, additional planning strategies will need to be implemented to avoid paying the IRS $0.40 on the dollar for every dollar over this amount when you die.

     “Portability” will remain between spouses on the use of their estate tax exemption.  This means that a surviving spouse can use the other spouse’s unused estate tax exemption if the $5.25 million is not sufficient at the second spouse’s death.  However, portability is not automatic as the surviving spouse must make this election on a Form 706 after the first spouse’s death.  Such a filing must be made shortly after the first death or this benefit may be lost.  Although this benefit is certainly a good thing, it can lull people into a false sense of security regarding their estate tax liability and prevent them from doing the kind of planning that is much more certain to ensure that estate taxes are not a problem.

     The GST Tax (Generation Skipping Transfer Tax) stays at the same rates as the estate and gift tax.  This tax is imposed upon transfers of wealth over $5.25 million to individuals 37.5 years younger than the individual making the transfers, either through testamentary transfers or lifetime transfers.

     The annual Gift Tax exemption amount increased from $13,000 per person to $14,000.

 

Most of these changes to the estate, gift, and GST tax laws have been passed as “permanent” changes rather than under the “sunset” provision conditions that we’ve been dealing with for the last 10 or so years.  Thus, there is some measure of certainty going forward that this is going to be the law for some time.  I hope that is the case.  Nevertheless, Congress can change any of the laws just as soon as they decide it is prudent to do so.  So, any real permanence in these laws may in fact be illusory.  For the moment, however, I will operate under the assumption that these laws will remain permanent.

Getting Informed About Nursing Homes

I've recently had a number of family and friends face the ordeal of finding a nursing home for their loved one. In some cases, the family member had experienced a fall or a stroke. In other cases, a minor surgery had complications that took more time to heal than was expected, and providing care for them at home wasn't a good option. And in still other cases, the level of care and supervision required due to dementia or other health conditions had caused the family to recognize that it was simply in the best interest of their loved one to have that level of care.

As our population continues to age and our improving medical technology further lengthens our lives, these kinds of decisions will eventually be made by most of us. I wanted to make you aware of two resources that may be very helpful to you when that time arrives for you and your loved ones.

The first is the U.S. Government's Medicare online "Nursing Home Compare" guide. The following paragraph comes from the website's own description of its purpose:

Nursing Home Compare allows consumers to compare information about nursing homes. It contains quality of care information on every Medicare and Medicaid-certified nursing home in the country, including over 17,000 nationwide.

Big Changes, Critical Decisions: Divorce and Estate Planning.

This week, I was visiting with a client of mine who has been married more than once. The questions that this client had for me centered around whether there was anything that needed to be done in her estate planning after a divorce.

The fact is, there is a great deal that must be considered when a divorce takes place. Getting a divorce decree from the courts is only the beginning. Here are some things that should be dealt with as soon as possible after a divorce that can have a major impact on your estate planning:

1. You should carefully review your guardianship nominations for your minor children in your will or other legal documents and update them if necessary. This ensures that should something happen to you, your children will end up with the caregivers that you would prefer. Often, a divorce drastically changes your previous views on this issue.

2. Update your Health Care decision documents. In Utah, you should execute a new Advance Health Care Directive that helps you to designate whom you would want to make health care decisions for you if you were incapable of doing so. Often, these documents have not been changed after a divorce and in an emergency, and an ex-spouse is contacted about health care decisions by the doctors. This is exactly what happened in the case of Gary Coleman here in Utah. His ex-spouse was still named as the health care agent in his legal documents. Thus, she made decisions about his health care. And even though that may have been what Mr. Coleman would have wanted, it is still unclear if that was the case.

The Top 10 Benefits of a Comprehensive Power of Attorney

The benefits of a highly detailed, comprehensive power of attorney are numerous. Unfortunately, many powers of attorney are more general in nature and can actually cause more problems than they solve, especially for our senior population. This issue of our newsletter is intended to highlight the benefits of a comprehensive, detailed power of attorney. A proper starting point is to emphasize that the proper use of a power of attorney as an estate planning and elder law document depends on the reliability and honesty of the appointed agent.

The agent under a power of attorney has traditionally been called an "attorney-in-fact" or sometimes just "attorney." However, confusion over these terms has encouraged the terminology to change so more recent state statutes tend to use the label "agent" for the person receiving power by the document.

The "law of agency" governs the agent under a power of attorney. The law of agency is the body of statutes and common law court decisions built up over centuries that dictate how and to what degree an agent is authorized to act on behalf of the "principal"--the individual who has appointed the agent to represent him or her. Powers of attorney are a species of agency-creating document. In most states, powers of attorney can be and most often are unilateral contracts--that is, signed only by the principal, but accepted by the agent by the act of performance.

Important Medicare Information and How to Find It

On Monday, I participated in a training on the Social Security and Medicare programs hosted by the Mountainland Aging and Family Services department in Utah County. It is important for me in my profession to keep abreast of the rapid changes taking place with regard to Social Security, Medicare, Medicaid and other government programs that provide such important benefits to the aging population.

On an almost daily basis I run across misinformed statements about these programs and have to help my clients understand what the law really says they are entitled to. However, I have also learned that there are significant efforts being made by both the federal government, and local governments, to provide accurate information about these programs. I wanted to make you aware of at least two of these excellent resources for getting your questions answered on what can, at times, seem to be overwhelmingly complex topics.

Was Winston Churchill a Democrat?

The Republican National Convention has just wrapped up, and the Democratic National Convention is on a roll. If you're like many people, the shrillness of political rhetoric can begin to take a toll after a while. I know that for me, there are times that I think to myself "If I have to listen to one more political pundit mouth off about why so-and-so is wrong on this or that point, I'm going to go crazy!" I admit, it's tempting to just wash my hands of it.

When I catch myself thinking thoughts like these, I look around my office and notice a few things that remind me of why it is so important to stay engaged in the political process. One of these items hangs above my desk. It is a small portrait of Winston Churchill, cigar in hand, with his famous bull-dog like expression (or lack of expression) staring back at me.

Once, when my dad took our family on a research trip to London for a month, we visited the famous Madame Tussaud's Wax Museum. While there, my dad suggested that we each find a wax figure of an individual that we most admired or identified with, and take a photo standing next to them.

Is Your Neighbor a Con Artist?

Affinity fraud is becoming a major problem here in Utah. If you listen to the radio regularly, you've likely heard a number of ads put out by the Securities Division of the State of Utah about consumer fraud. One variety of consumer fraud is called "Affinity Fraud."

The Utah Securities Division website defines this term as follows:

Affinity fraud is when someone abuses membership or association with an identifiable group to convince a potential investor to trust the legitimacy of the investment. Common affinity groups include religion, ethnicity, profession, education, common handicaps, language, age and any other common likeness or shared characteristics that allow investors to trust members of the group.

It has probably happened to all of us at some point, whether or not we recognized it at the time. You know how it goes. A friend or someone you trust approaches you or your spouse about this "amazing" opportunity to invest that has almost no risk whatsoever, but the returns on your investment will be potentially staggering. However, you've got to act fast, because the opportunity to invest won't last long. People are lining up with money in their hands on this one and you're going to miss out if you don't get on the ball.

Amy Winehouse's House: Not So Orderly After All?

A few months back, I shared a report by Forbes magazine indicating that the late singer, Amy Winehouse, had done a good job of estate planning. It was reported that she had updated her estate planning documents shortly after her divorce to reflect her wishes that he not inherit her wealth were anything to happen to her.

However, Forbes is now reporting that an intestacy proceeding has been filed in court with a majority of her estate being listed as the assets that must pass through probate. What does this mean? It could mean a number of things:

A Vicious Lie: “Multitasking”

Are you good at multitasking?  Are you able to work on multiple things at once and thereby accomplish more than most people?  Personally, I’ve never really considered those questions.  I just assumed that in today’s world, that’s what you have to do to stay on top of things.  How else can you satisfy all the demands placed upon you?

 

Last week I attended a networking luncheon for the Lehi Area Chamber of Commerce.  The speaker at the meeting was Dave Crenshaw, author of the book “The Myth of Multitasking: How “Doing It All” Gets Nothing Done”.  What he shared in his short presentation was a real eye-opener to me.  I’ve since obtained a copy of his book and have been sharing it with everyone at work.  It has caused me to seriously re-evaluate the way I approach my workday, my personal life, and my relationships in general.

 

Here are a few pearls of wisdom from Crenshaw’s book that have really helped me, and I hope will do the same for you:

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