San Jose Estate Planning Attorney Blog

I am often asked why we have recommended making a different state the location for a client's Dynasty Trust, Family Limited Partnership, or LLC.  Since setting a trust or entity up in another jurisdiction is

There are many different reasons for doing so.

Some states allow a trust to last forever.  California, on the other hand, severely limits the length of time the trust may exist.  This can have real negative tax consequences to my clients.

Some states allow for great restrictions on the Limited Partners or LLC Members.  California, on the other hand, is fairly loose.  This means that those entities do not get the best valuation discounts nor the asset protections afforded by other states.

Recently, Tamara Pow of the Structure Law Group, posted on the San Jose Business Lawyers Blog an article on Choice of State for a New Corporation.  In it, she compares California, Nevada, Delaware as places to form your new corporation.  She discusses the pros and cons of each.  I commend her post for your perusal. 

Obviously, these are complex issues that require time and an understanding of the client's goals and objectives.  It is not uncommon, in my practice, for clients to decide to do the more convenient thing rather than the most “tax efficient” thing.  They may a business decision.  Or they make a family decision.

But it is very important that clients be given options… so they can make a decision.  In my experience, most Santa Clara County Estate Planning Lawyers only advise and recommend California trusts and entities.  They often don't know better. 

Make sure you client's get options.  Fill out our Contact Form or call the office to comment or ask questions.  A reminder… our office is in San Jose near the airport with convenient freeway access and free parking.

Bert Torres, a Palo Alto CPA, recently asked about the estate tax results for people who died in 2010.  If the decedent's estate is less then $3,000,000, does an estate tax return or the 8939 (Carry-Over Basis Form) need to be filed?

Answer:  When Congress changed the law on December 17, 2010, they modified the default rules that apply for decedents who died in 2010.

First, the traditional rules applying to estates prior to 2010 are the rules that will apply in 2010 itself. However, the estate tax exemption is $5,000,000 for 2010.  This means that all assets in the decedents estate (with the exception of IRD) qualify for a Step-Up in Basis.  No estate tax return needs to be filed for estates less than $5,000,000.

If the estate is greater than $5,000,000, you will need to file the estate tax return, pay tax on the taxable estate at the rate of 35%, and get your step-up in basis.

Second, Decedent's estates may “Opt Out” of the traditional rules on Form 8939.  Instead of paying estate tax, you may have an unlimited estate tax exemption.  However, you only get a limited amount of basis to allocate among the assets.

All estates may increase basis a maximum of $1,300,000.  An additional $3,000,000 in basis may be increased for property that is passing to the spouse.

The deadline is fast approaching to make decisions regarding 2010 estates.  Call the Sheffield Law Office if you have any questions or we can help in any way.  Our number is (408) 920–2500.

Last week I posted Part 1 here. It focused on the planning and arrangements you could make before the conference begins. Today we will focus on what you do while attending the conference. There are many benefits to attending a professional conference. Most CPA's, Enrolled Agents, and Financial Advisors I know attend so they can satisfy their Continuing Education Requirements and learn from the presenters so they can improve the quality of the services they provide to their clients.

However, taking advantage of these suggestions will help. Here are some suggestions to implement while attending the conference.

1. Make a Point of Meeting Everyone You Called Face to Face

Meet everyone! Over breakfast, lunch or dinner. For a quick coffee or tea. Talk about the things that made you put them on your list. But don't forget to ask about them. Why are they at the conference? What sessions are they attending and why? The point is NEVER eat alone. There is always someone to meet and someone to talk to.

If you will be attending the same session at some point, make arrangements to sit together. This gives you a chance to connect again. It also gives you a chance to talk about what you a learning at that session and how the two of you will implement those concepts in your various practices.

2. Meet the Leader of the Next Conference

If you want to be a speaker at the next conference, make sure you meet the person responsible for running the conference next year. Let them know of your interest and find out their process for selecting speakers. When you follow up later, they will be able to put a face to the name.

3. Host a Dinner

Every year in January I attend the premier estate planning conference, the Heckerling Institute, in Orlando, Florida. Often I will arrange a dinner for a number of people that I am trying to build relationships with. I don't usually pay; we go Dutch Treat. However, I make the reservations and invite the people I want to know.

You can also look for people that seem to be all alone (the orphans). They will be grateful for the new friend and someone to talk to. You never know how that will turn out.

4. Use Free Information as an Incentive to Collect Names & Addresses

I have never done this, but it will work depending on your goals for the conference and whom the attendees are. If your firm has a company newsletter, email subscription list, etc., you can offer to send someone a copy if they give you their business card. It is a lot less threatening for someone to hand you their contact information face to face then fill out a form online to receive it.

5. Ask People You Meet to Help With Your Article Research

If you are writing an article for publication, as attendees you meet to help. What thoughts do they have on your topic? Do they find it interesting? Any comments or suggestions they might make?

We do not have a Comments section on this blog. Your feedback is appreciated, however. Please call the Sheffield Law Office and talk to Amy or myself to let me know your comments, or if you have any questions on how better to implement the above suggestions.

Football season is right around the corner, and it's time for our annual first game of the season party.

As many of you know, I am a Dallas Cowboys fan (don't hold it against me).  They are playing the New York Jets on Sunday evening, September 11 at 5pm.

Rob Ryan, the Cowboy's Defensive Coordinator will be going up against his brother Rex Ryan, the head coach for the Jets.

Seating is limited.  And this is invitation only.

Please call the office at (408) 920–2500 for an invite and directions to my house.

We will have Pizza and Drinks (beer, margaritas, soda, etc.)

Can't wait to see you there. 

As a thought leader in the legal community, I am often asked to speak at conferences in the Bay Area and around the country. Last month, I was in Chicago speaking at Wealth Counsel's Annual Conference.  I believe there were close to a thousand estate planning attorneys at the conference.  My topic was International Estate Planning (or estate planning for Non-Citizens and Non-Resident Aliens who own property in the United States).

Since most of us travel from time to time to attend classes, annual updates, and conferences; I thought I would give some suggestions on how to maximize your personal branding and connect with others at a conference.

In this post, I will talk about attending a conference composed mostly of your peers.  Depending upon the nature of your practice, you may or may not get many referrals from this group.  But there are still things you can do to enhance your reputation in your community that will have a positive impact on your practice.

Let's start with things to do before the conference starts.

1.   Have a Game Plan

What is your goal for attending the conference?  The purpose is to make or deepen relationships with the people you meet at the conference.  Pick a realistic goal for you.  Is it 2 or 20?

2.   Get a List of Attendees

If you can get a list of attendees before you travel to the conference you will be able to target the people you want to meet.  If you can't get this years list, get a copy of last years.  Many of the same people will probably be in attendance.  Worst case scenario: go over the list of attendees when you get to the conference, and target a few names at that point.

3.   Set up Breakfast, Lunch and Dinner Appointments with your Targeted Attendees

Call or email the people you would like to connect with and invite them to meet.  Everyone has to eat, and most people will welcome an invite from another attendee to break bread.  If you are nervous about meeting someone one-on-one, get a group together.  Make the meal around further discussions of one of the topics presented at the conference.  You can use any reason that your targeted attendees will find useful.  They will want to meet with you to see what you know as well.

In future posts I will discuss some potential targets for your meetings.  I will also provide a strategy for what to do during the conference and after as well.

If you have any great ideas on how to make our reader's next conference a better marketing opportunity send me an email or fill out the Contact Us form with some comments we can include in future posts.

Yesterday I posted an article entitled 8 Assets to Avoid Placing Into A Charitable Remainder Trust. Today, I want to follow that up with 3 suggestions for assets you can consider using when you create a Charitable Remainder Trust.

Remember, each asset class is unique. You should work with your qualified estate planning attorney when setting up and funding the CRT.

1. Marketable Securities with a Low Basis and High Appreciation Potential

Selling Marketable Securities within the CRT does not trigger immediate taxation for capital gains, and the trust does not pay income tax. Any capital gains on the securities sold is deferred usually until payments are made from the trust.

2. Closely Held C Corporation Stock

The tax treatment for C Corporation stock is the same as for marketable securities discussed above. However, make sure that you comply with the self-dealing rules if you are running the corporation. If the closely held stock is not sold by the trust, it will have to be reappraised each year if you have a Charitable Remainder Unitrust.

3. Appreciated Unencumbered Real Estate

The deferral of capital gains taxes is a major plus. However, since real estate is often illiquid and may be difficult to sell, you can also use it to set up other types of CRT's like the FLIP-CRUT that don't start paying the income out of the trust until after the property is sold.

A Charitable Remainder Trust is a wonderful vehicle for taking Long Term Capital Gain property and converting it into Income Producing Property without the immediate tax hit from the sale of the property.  You also get a nice income tax deduction for the gift into the trust.

However, there are some assets that may not be a good fit for Charitable Remainder Trusts.  Caution should be used before transferring any of these assets into a CRT.  Make sure to see a qualified estate planning attorney to set up and help fund the Charitable Remainder Trust

1.   Assets that are Required to be Sold

If an assets is already under contract for sale, the IRS will treat the gift of that property differently than the normal rules of CRT contributions.  The donor will have to report the sale and pay capital gains tax.  The donor will be treated as having donated cash to the CRT. The trust is irrevocable and is not available to pay the tax liability on the sale of the asset. 

2.   S Corporation Stock

Charitable Remainder Trusts are not qualified shareholders for S corp status.  Donating S corp. stock will disqualify the corporation and all shareholders from pass-through treatment of earnings on their shares.

3.   Partnership and LLC Interests

Caution should be exercised before donating Partnership or LLC interests because they can create Unrelated Business Taxable Income –  income earned from a trade or business that is not substantially related to the Charitable Trust's purpose.  This may result in taxes and penalties to the CRT.

4.   Personal Residence

Donating your personal residence violates the self-dealing rules if the donor is living in or using the residence.  You would also lose your Section 121 capital gains exemption upon sale of the residence.

5.   Encumbered Real Estate

This is the one I get the most calls on in my office.  If you donate real estate that has a mortgage on it, you will have negative tax consequences.  The loan may trigger debt-financed income (income produced by assets acquired with borrowed funds), which is considered unrelated business taxable income to the CRT.

6.   Tangible Personal Property

Not only may the income tax deduction be limited significantly, but it may be delayed as well.  No deduction may be taken until all interests and rights to possession or enjoyment of the property have expired or are held by persons other than the donor.

7.   Restricted Securities.

This depends upon the type of security and the restrictions on it. There may be company specific or regulatory restrictions on the transfer.  These may significantly affect the valuation of the gift, if you can do the gift at all.

8.   Employee Stock Options

There may be many restrictions on your ability to transfer the options and difficulties valuing them as well.  Many options are also not long-term capital assets.

Are there any other assets you can think of that may be a problem placing into a Charitable Remainder Trust?  Call, send me an email, or send a comment on the Contact Us form to the left.

 

 

 

 

I run a small study group for CPA's and Enrolled Agents every Thursday Morning at 7:30.  We meet until 9 A.M.

Each month, different members take turns leading the group.  We cover all topics related to estate planning, probate & trust administration, fiduciary duties, etc.

It is a great time to come ask some questions and learn from each other.

We are starting a new year, and if you would like to join, call Amy at my office for an invitation.

I provide bagels or donuts, coffee and juice for all attendees.

I hope to see you there.

I think you will acknowledge that it is hard to meet a client's objectives unless you understand what it is they need and want.  Understanding is one of the underpinnings of good advice.  Without it, you can't give it.

But how do you come to this understanding?

Do we just know what the client needs?  Is this client the same as the last one who was the same as the one before?

Many of you know that my practice is not based on just filling out some forms and producing documents.  We are a Counseling oriented practice.  We take time with the client to find out what their needs and want's are.   We do that by … LISTENING!

Can you really understand what the client needs without listening to what the client tells you?

So, how do you listen?  Or, let me put it another way, what part of you does the listening?   If you said your ears, you are only partly correct.

What about eyes and ears?  Getting closer.  Certainly the eyes are as important as the ears because non-verbal communication is important.  How someone is saying what they are saying matters as much as what they are saying.

When a client is talking about their children, it is important to me to watch their body language as they describe them.  Some parents light up when they talk about one child and then slump or frown when they talk about another.  This helps me to follow up with questions for additional feedback on their relationship or issues regarding the child's ability to get along with siblings or their ability to manage money.

Everyone knows that email messages don't always communicate the best (especially with emotional content) because the reader may take something written in a way that the writer never intended.  Talking on the phone is similar.  Only 45% of the message is communicated over the phone.

This is why we always try to meet with client's in person if possible.

Early in my practice, I was so eager to show client's how much I knew, I didn't stop to listen.  I was always talking.  Of course, if you are talking, you are not listening.

Suppose a prospective client told you that her current professionals were “not responsive.”   Most professionals would not bother to ask “why” or “how” or “in what way,” etc.  Instead, they immediately launch into a speech about how they are “responsive.”  But what did the client mean when they said “responsive.”  Did it mean that their advisors didn't return phone calls?  Maybe they don't explain things very well?   Frankly, it could mean any number of things, but you won't find out unless you dig deeper and listen to their response.

Listening takes concentration and patience.  It is not easy.  But listening also build's trust with the client.  Demonstrating that you understand where the client is coming from or the feelings they are communicating will help you help them.   And isn't that what we are trying to do in our professions anyway?

 

Mary Emery was Dean of Admissions at the University of Santa Clara School of Law since 1985.  She was one of the first three women to graduate from the law school, completing her degree in 1963.

You can read a very nice tribute to her in the San Jose Mercury News.

While I was a student at the school, she awarded me a scholarship helping defray the large cost of tuition. 

I first met Dean Emery through her admin Patti.  Patti's brother Jeff was best man at my wedding. With my career “wandering in the wilderness,” Patti suggested I meet with Dean Emery about attending law school. 

It was Dean Emery, with Patti's help, who provided me a path into law school, who encouraged me when things were tough, and who remained my friend after graduation as well.

She will be missed.

For many years, the GRAT has been a staple of estate planning strategies. It was something that every high net worth client considered as a freezing technique.

With the new estate tax law that became effective last December, a GRAT may not be the best strategy for many clients going forward.

While the GRAT is an excellent method for shifting the future growth of an asset to the children, there are a number of risks associated with this strategy. For example, the trust maker must survive the entire GRAT term for there to be any benefit. In addition, payouts from the GRAT must be done on a regular basis (monthly, quarterly, annually, ect.) and each payment must be basically the same amount (no more than a 20% increase) as the previous payment.

For many client’s, there is a better technique available to accomplish the same goals but without these risks. This technique is an installment sale to a grantor trust (IDGT).

How does the installment sale work? The trust maker sells the property to a grantor trust at its fair market value in exchange for a note. There are two important aspects to this strategy. First, the trust must be structured as a grantor trust so it can be disregarded as a separate taxpaying entity for income tax purposes. Second, the transfer for fair market value must be a bona fide sale for full and adequate consideration to avoid any gift tax issues. After the note has been paid in full, whatever remains in the trust may be distributed to the beneficiaries (usually the trustmaker's children and/or grandchildren) free of estate and gift taxes, and if appropriately structured, generation-skipping transfer taxes as well.

If the assets in the trust appreciate at a rate greater than the interest rate due on the note, there will be assets remaining in the trust at the end of the note term to pass to the beneficiaries. Ideally, we would like the income produced by the assets to be greater than the interest only payment due on the note. This allows for maximum compounded growth of the principal. The trustee, however, may use the trust's capital assets to pay the note if necessary.

Generally, any assets with appreciation potential or yield in excess of the note interest rate are candidates for this installment sale strategy. Assets that can be valued at a discount, such as a minority interest in a family business or a fractional interest in real estate produce significant savings because the face amount of the note will be based on the discounted value of the assets sold rather than on the full economic value. At some point in the future, however, when the assets are sold, the discount is recaptured and the discounted benefit fully realized.

In the coming weeks we will continue to blog further about GRAT's and Installment Sales.

Make sure your client's are working with an Excellent Estate Planning Attorney who understands both planning and tax.

I have tried to model my marketing efforts about this simple phrase.

Be a “Problem Solver.”

How can you help a client solve a problem?  Is there a referral source that could use your help?

Make yourself valuable to others irrespective of whether you get paid or not.

Will everyone thank you?  No!

Will everyone send you a client?  No!  Become a client?  No!

But some will remember.  Some will become clients.  It will create opportunities to work with others.  To get to know them better. 

And along the way, you have the satisfaction of knowing that you helped someone else with whatever was troubling them. 

San Jose Estate Planning Attorney Responds: It is not uncommon for financial planners to believe that their conversations and records regarding the information they learn from a client is confidential. In fact, the CFP Board Code of Ethics requires planners to keep client information confidential.

However, there are many areas where a financial planner’s documents or testimony regarding conversations may be discoverable by a court of law or the IRS. This is particularly true in the advanced estate tax planning area.

There is no legal privilege for financial planners. Conversations with your clients regarding tax planning and strategies may be subject to discovery. Papers detailing and explaining these strategies in your possession may also be discoverable.

You do not want to fall into the trap this financial planner did. As his clients decided to go aggressive in some of their estate tax planning strategies, the planner was involved in every aspect of the planning along the way. He sat in meetings with the attorney involved. He helped the client understand the strategies and what they involved. No one told him that there was a problem. No one told him that there was no privilege.

Later, after an estate tax audit, the IRS subpoenaed records from the financial advisor. You can guess the rest of the story.

A good financial planner is invaluable to the planning team. In fact, for many of our clients, it is the financial planner who quarterbacks the team and leads the process. However, it is important to remember where the limits of the financial planner's involvement may need to end. There are times when a good attorney will want everyone to leave the room except for the client. The attorney is trying to bypass the other advisors. They are asking you to leave so they can have a private, attorney-client privileged conversation with the client. If any one else is there, whether it is the client's children or advisors, there is no attorney-client privilege. And therefore, no protection.

Never Forget: your work papers, correspondence, and recollections or notes of client conversations are all discoverable in court or by the IRS.

Many of the advisor's we work with have asked us to blog about marketing issues.

Of course, they don't put it quite like that.  They ask questions on how to take care of clients, how to get new clients, and how to network.  They want to know why we did our Boot Camps and were they successful for us. Others wonder about internet marketing, blogs, and social media opportunities.

Marketing Monday will be a regular column on this blog designed to flesh out some of these questions.  Hopefully we can provide some answers.  Or, at a minimum, some food for thought.

Do not expect life changing secrets.  In fact, most things we will write about may be well known to many of you.  However, they do provide thoughtful reminders to all of us that without Client's we do not have a business.  If we can't take care of them, and provide them with meaningful service, then what are we doing?

I know very few CPA's, Enrolled Agents, and Financial Planners who don't genuinely care for their client's well being.  Many have known their client's for a very long time.  They try their best to protect their client's from harm. When one of them is hurting, they hurt too.

Together, let's see if we can improve the service we provide to our clients.  And hopefully find a few more as well.

Look for Marketing Monday every Monday on our blog:  San Jose Estate Planning Attorney Blog