Colorado Probate Blog - Wade Ash Woods Hill & Farley, P.C.

Annual Review Checklist

January is the perfect time for the annual review of estate plans, particularly if you have had significant changes in your life such as deaths, relationships or assets. Here are a few questions to help get started.

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Tax Update

This Tax Update article is authored by Laurie A. Hunter, Kevin D. Millard, Jonathan F. Haskell and Heidi J. Gassman.

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Late Portability Election

“Portability” allows a surviving spouse to add a deceased spouse’s unused estate tax exemption onto his or her own exemption. Each spouse has an estate tax exemption amount of $5 million, which is indexed for inflation after 2011. In 2017, the exemption is $5,490,000. To elect portability, a client must timely file Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, which is due 9 months after the decedent’s date of death, but the due date can be extended for six months if a request for extension is timely filed.

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Third Party Rights: Small Estates and Non-Probate Assets

Many of our probate statutes are designed to carry out a decedent’s intention as expressed in his or her will. Certain rules of construction (survivorship, substitution of assets) apply to wills and revocable trusts as will substitutes. The statutes also provide for recognition and ordering of third party (non-beneficiary) interests in probate and revocable trust assets. These would include taxes, creditor claims, and family protection entitlement during the period of administration.

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Elusive Assets After Death

Aubrey McClendon, a co-founder of Chesapeak Energy Corp. and a pioneer in the shale industry, died on March 2, 2016. Mr. McClendon had significant assets yet his estate appears to be insolvent. Creditor claims filed to date exceed $1.1 billion. Mr. McClendon’s business holdings were complex and the estate has had a hard time selling assets.

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Don’t Defer Planning Your Estate Because The Estate Tax Might Be Repealed

In 2001, when the estate tax exemption was $675,000 and George W. Bush was President, Congress “repealed” the estate tax. But the repeal was phased in over ten years and was then scheduled to last for only one year. Instead of actual repeal, what we got, under President Obama, was a reinstated estate tax with a much higher exemption of $5 million, indexed for inflation. The Republican party now controls both houses of Congress as well as the White House, and we are again hearing calls for repeal of the estate tax.

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Value of Michael Jackson’s Image

When Michael Jackson died, his estate valued his image and “right of publicity” at zero on his U.S. Estate Tax Return, as well as the value of his music interests due to the large debts encumbering those interests. The IRS disagreed, and argued that the success of the documentary and Cirque du Soleil show released after his death were foreseeable and should affect the value of his estate. The disagreement resulted in a $526 million estate tax deficiency and penalties of $205 million imposed by the IRS. The trial began in Tax Court on February 6, 2017.

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Mary Tyler Moore: Another Uncertain Celebrity Estate

Beloved actress, producer and activist, Mary Tyler Moore, was laid to rest in a private ceremony in Fairfield, Connecticut on January 29, 2017 at 80 years old, after battling diabetes and suffering from complications with pneumonia. While the status of her estate is unclear at this point, it is very likely that Moore left behind a Will. With a considerable legacy, including an estate that is valued at $60 million, a question arises of who will inherit Moore’s fortune. Her son and only heir, passed away tragically in an accident and her brother and sister are also deceased. This essentially leaves Robert Levine, her longtime husband, as her primary heir. Under Connecticut Probate Rules, Levine is entitled to at least one third of Moore’s probate estate, which in this case, under Connecticut’s spousal share, could be in the spectrum of $20 million. Although Moore left an undetermined amount of money to charity, the question remains: Will her husband inherit a large chunk of the “high-net-worth” legacy that she leaves behind or will charities such as PETA and the Juvenile Diabetes Research Foundation, to which she has contributed in the past, receive the majority share?

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2016 Colorado Law Changes

There were a few probate-related bills passed by the Colorado legislature this past session, including the following:

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2017 Inflation-adjusted Transfer and Fiduciary Income Tax Figures

Based on the CPI index for period ending August 31, 2016, RIA Checkpoint has calculated the transfer tax figures for 2017 to be the following:

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Death, Taxes, and the Business of Dead Celebrities

Prince, the artist formerly known as Prince Rogers Nelson, died on April 21, 2016 at the age of 57. While people all over the world are mourning the loss of this music icon, his surviving family and the lawyers for his estate may soon be mourning his lack of legal planning for his death.

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Heir Location Service Industry Problems

At the end of 2015, the U.S. Department of Justice brought charges against a California-based heir location services provider. The DOJ has a number of ongoing antitrust investigations into customer allocation, price fixing, bid rigging and other anticompetitive conduct that runs rampant in the heir location service industry. Consumers will benefit from the Department of Justice shining a light on this industry.

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Don't Forget Your Annual Exclusion Gifts!

A donor may give up to $14,000 per year per donee that qualifies for the annual exclusion from federal gift tax (generally, a gift of a present interest). Earlier in the year, it had been anticipated that amount would increase to $15,000 in 2016, but that turned out not to be true because of a low rate of inflation. So if you have not made annual exclusion gifts for 2015, and you are in a program of giving to reduce the size of your estate, you should make your $14,000 gifts before the end of the year, and you can make 2016 gifts of the same amount in January. If spouses intend to "split their gifts" by doubling the amount of the annual exclusion gifts, the election to split gifts must be made on a U.S. Gift Tax Return (form 709) filed with the IRS. The federal estate tax exemption is $5,430,000 in 2015, and it is increasing to $5,450,000 for decedents dying in 2016.

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Pretermitted Heirs

Suppose you have a will and then, following the execution of the will, get married/or have a child. Did you know that Colorado has a “pretermitted heir” statute which basically provides that, under those circumstances, the new spouse or child is granted an intestate share of your estate. The intestate share is 50% + for a spouse and an equal share of the balance for a child. The shares are to be distributed outright, and the failure to redo your will may seriously distort the pattern for distribution of your estate. For example, your present will may set up trusts for children which coordinate the management and timing of trust distributions for the benefit of your other, pre-existing children.

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Facebook's Legacy Contact

Facebook now lets users designate a person who can have access to their account after their death, as part of the security settings. In the past, Facebook and other on-line services have resisted permitting one's agent under a financial power of attorney or a personal representative of one's estate from accessing accounts. Partly, this is because federal law prohibits anyone other than the "user" from accessing an account. The Uniform Fiduciary Access to Digital Assets Act authorizes fiduciaries under state law to access accounts, but there is still a conflict with federal law. This Uniform Act may be introduced in the Colorado legislature this session. Stay tuned!

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Lauren Bacall's Pooch to Inherit $10,000 From Her Fortune

According to a recent Times of India article, Lauren Bacall kept aside $10,000 of her $26.6 million dollar fortune for her beloved papillon pooch, Sophie. For the full story, go to Lauren Bacall's Pooch.

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IRS Wants $500 Million in Taxes From Michael Jackson's Estate

The Los Angeles Times recently reported that, according to documents filed with the U.S. Tax Court in Washington, the executors of Michael Jackson's Estate placed his net worth at the time of his June 2009 death at slightly more than $7 million. The IRS placed it at $1.125 billion. The L.A. Times article said, "Jackson's return was so inaccurate, the IRS said, that it qualified for the gross valuation missstatement penalty, which would allow the government to double the usual 20% penalty for underpayment." For the full story, go to http://articles.latimes.com/2014/feb/07/local/la-me-jackson-taxes-20140208.

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65-Day Rule and New 3.8% Medicare Tax

For Trusts (and Estates) that report income on a calendar year, distributions can be made to beneficiaries up to 65 days after the end of the calendar year, or March 6, 2014, that carry out taxable income from 2013.  New for 2013 is the 3.8% Medicare Tax on Net Investment Income over a threshold amount.  For trusts and estates the threshold is $11,950.  For single individuals, the threshold is $200,000 and for married filing jointly, the threshold is $250,000.  Because of the relatively low threshold for estates and trusts for the imposition of this added tax on net investment income (defined as not earnings/wages and not income from an active trade or business, but will include interest, dividends and passive rent), a trustee or personal representative should carefully consider whether to make distributions of taxable income from the trust or estate to the beneficiaries so that they report it on their personal returns, and are subject to the higher individual thresholds.

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Recipient of IRA Subject to Transferee Liability for Taxes

By Laurie A. Hunter, Esq.

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