Tuesday, December 10, 2013

Rules for Inherited IRA's

IRA's have many fans, including this young lady
IRA's are still a pretty good deal (see HERE if you need an explanation of what an IRA is). If you have not started one, do. Granted, they are not as good as many pensions or employer sponsored plans, but even if you have those, an IRA can be a great way to achieve tax savings or deferral. Remember, if you plan on making more later or think tax rates will go up, pick Roth. If you think you will make less or taxes will be less, go with traditional.

Enough investing, lets talk about death.  Often times the bulk of someone's estate can be in the form of an IRA, which they call, appropriately, and inherited IRA.

General Rules for Traditional Inherited IRAs

Spouses have the flexibility to roll it over into their own plan. This is usually the way to go, unless you are a young widow(er): you get popped with penalties for early withdrawal if you need money before age 59.5, so its best to wait to make the rollover. Else, you can delay distributions until your spouse would have been 70.5. Remember, they general key with IRA's is delay as long as possible.

If a non-spouse inherits an IRA, then all movement of money must be from one IRA custodian to another. Be sure to specify a "trustee-to-trustee" transfer if changing brokerage firms! You can get in trouble on this one if you screw it up.

You must re-title the IRA, including the original owner's name and indicating it is inherited, e.g., "Sally Smith, deceased, inherited IRA for the benefit of Bob Brown, beneficiary." Just do it. Don't ask why.

Distribution rules:

Must take distributions before Dec. 31 in year following death of decedent.

The Required Minimum Distribution (RMD) is calculated differently than for your own IRA. You take the balance on Dec. 31 of the previous year and divide it by your life expectancy listed in the IRS' "single life expectancy" table, rather than the table used by IRA owners. The next year you use the same life expectancy, minus a year, and so on.

Exception, "5 year rule" : If the original IRA owner died before reaching age 70½ (before required minimum distributions would be required) you also have the option to distribute your inherited IRA under the five-year rule. This allows you to take distributions however you like without penalty, as long as all assets are completely distributed from your inherited IRA by December 31 of the fifth year following the IRA owner's death: just remember these are taxed as ordinary income, so plan accordingly (however, if there was any estate tax pain, you might be able to take a deduction here, but I digress).

General Rules for a Roth Inherited IRA

If you inherit a Roth IRA and transfer the assets to an Inherited Roth IRA, unlike the original owner, you must take RMDs. As long as the assets have been in the Roth IRA for five or more years, these RMDs can be withdrawn federally tax-free.

Otherwise, see above.

Take Aways:

Ira's are good. If you don't have one, set one up.

Make sure you name your beneficiaries, and name backups. There are harsh rules with it ends up in an "estate" and you will likely not have the flexible tax options.

If you inherit one, ask for professional help. Play by the rules, transfer them correctly, and you can achieve maximum tax savings and deferral. 

Monday, October 28, 2013

Comment period open on ATF 41P/Proposed Gun Trust Rules

As I have previously discussed, the public comment period for the proposed rules that affect "Gun Trusts" is currently open, but only until December 9th. If you have not done so already, please take the time to comment on the proposed rule.

If you are too lazy to scroll down or click to read my previous post, here is a recap:

Current system:

"Gun Trusts" are a special trust used to own and purchase National Firearms Act ("NFA") items. These include silencers/sound suppression devices, short barrel shotguns and rifles, and machine guns.

The current system requires you to apply to the ATF, pay $200, and wait 9 months. What they do is a mystery, but if you use a trust or LLC, you can name multiple authorized users, and you can bypass getting fingerprinted and having your sheriff/chief of police sign off on the form. The real benefit is if you borrow someone's NFA item outside of their presence, it is a felony. The trust fixes that. It does not, and should not, bypass the background check.

New Proposed Rules:

The new rules would require every "responsible person" in a trust or LLC (settlor, trustees, even beneficiaries) to have to get fingerprinted and have their chief law enforcement officer sign off on the application. This costs roughly $15 per set of fingerprints (more or less) and will require time with the law enforcement officer, if you can get it. The fear is the added cost and time on local officials will result in a blanket "no" that will be a defacto ban on all NFA items.


This is an attempt at gun control that misses the mark. It just will make it harder, more expensive, if not outright impossible, for legal citizens to posses legal items.  The fix is requiring the ATF to run background checks on all "Responsible persons" if they do not already do so (which baffles me), and require the vendor who sells the items to run the NICS background check as well. This is easy, simple, and would accomplish the same goal without the additional time and expenses to both citizens and local governments.

Should you wish to comment, a full text of the rules and the comment page are available here.

Tuesday, October 1, 2013

Government shutdown, Obamacare, now what?

Maybe you, like "the markets" just don't care about a government shutdown. I am still at work, but I do have friends who are sitting at home and not working, not by choice, which means they are not getting paid.  Here is a quick rundown of the what/why.

Photo by Laura Koran/CNN
Image from Cnn.com
1. What's going on?
Congress is supposed to pass a budget so the government can pay for things, aka their "power of the purse". As a new fiscal year has started, there was no  new budget, so there is no purse. Also, the first "Obamacare" healthcare exchanges are opening up, albeit with some glitches.

2. But why?

House republicans (and Texas' own Ted Cruz in the senate) are using this stalemate/government shutdown rhetoric to continue to attempt and get the Affordable Care Act (AKA Obamacare) defunded, cut back, or delayed because they just don't like it. The Senate, with its Democrat majority, continues to offer a budget that contains implementation of Obamacare, while the Republican majority in the House continues to not approve the Senate proposals and offers in return a plan that defunds/delays Obamacare, but funds the government. Think ping pong, with Obamacare as the ball.

3. What does this mean, really?

This shutdown means different things to different people. If you're a furloughed government worker, you don't really care as much about the healthcare squabble as you do about your job. As long as they fight, you sit at home idle, as does the mars rover and the pandacam.  (Disclosure, I love the national zoo, and the pandacam).

Obamacare is a trickier position. The general pro-obamacare argument can be summarized in this quote from the Washinton Post's Ezra Klein: "this is all about stopping a law that increases taxes on rich people and reduces subsidies to private insurers in Medicare in order to help low-income Americans buy health insurance. That's it. That's why the Republican Party might shut down the government and default on the debt."

Yes, but also no.

The conservative view, is generally that Obamacare is another handout to the poor, a tax on those who already work hard, that anything mandatory is an affront to personal liberty, and it will be another costly step into the ever growing welfare state where we now live.

Yes, but also no.

Universal healthcare seems to work in other countries. Can it work here? I don't know, but if yes, it will take a while to get it right. The grandstanding of the President and Congress that it if its good enough for America, it is good enough for them as well seems to be a sham, and even the new IRS agents that will be enforcing the law do not want it for their own plan.  Seems fishy.

See how the coverage of today's shutdown taken from the frontpage of foxnews.com, is slightly different than that of cnn.com:

Foxnews.com front page 10/1/2013
Cnn.com frontpage, 10/1/2013

Photo by Laura Koran/CNN
Image from cnn.com
Two very different approaches to the same story. Notice how shutdown changed to slimdown,  on foxnews.com  and things really are not that bad. Here, we have heroes of WWII "storming" the monument after it was closed by big bad government on the day they were supposed to visit, with bagpipes as their war cry. Cnn.com mentions it too, but not as the lead story. The lead story is that there is a no deal, which is a big deal.

Yes, the fight against Obamacare is the fight of the "rich" against the poor and uninsured or underinsured, sort of. But its also the fight against the middle against insurance companies who already took too much of their paycheck, and against the government for making the insured pay for the uninsured who abuse emergency rooms as if they were their private physicians, and for making a mandatory system that you pay a fine into even if you don't use.

I am a relatively healthy person with insurance I pay for. My insurance costs are rising, substantially, under Obamacare. Thus, I don't really like the plan. However, I do know some people who are not healthy, tried to find private insurance, but due to pre-existing conditions, could not get any insurance at all. These are not the "poor" or the "morbidly obsese" or any other of the ridiculed "other" that get the blame for rising healthcare costs, they are just sick folks who got cancer, or ALS, or were born with whatever they suffer from. So, I can see why they would want Obamacare, and I can't argue that too much.

Also, the government "shutdown" really is a "slimdown," as only "non-essential" workers go home or get furloughed. Mail still gets delivered, social security and medicare benefits still go through, planes can still take off and land, and our armed forces are still getting paid. So there's that, but I have friends sitting at home who have jobs they deem "essential," to their families.  A slimdown is not a good thing either.
Take aways:

The shutdown is bad. Congress is a mess, and it has been for a long time.  The Affordable Care Act was passed over 3 years ago, yet Republicans are still not letting the biggest pieces of the President's legacy go without a fight that he will refuse to lose...seem like an impass? Is it perfect? No. Do I like it? No, but that is only because it just costs me more money: I'd love it if it helped me out. Do I have a better idea? No, and neither do the Republicans as of yet, which is why this fight can really do no good.  Lets just give this a try, if it doesn't work, we can change it. This is America, that's what we do. Albeit slowly.

The bigger issue is going to come in 16 days, when we have to place the Full Faith and Credit  of the United States on the line again when we run up against our debt ceiling, which we have to raise again or run the risk of default. This is even a bigger deal than the shutdown. And the fight starts all over again.

Friday, August 30, 2013

President proposes Executive Action on Gun Trusts

If you haven't heard already, the President took the path of Executive Action to continue his attempts at so called "gun control", this time taking action against gun trusts. If you don't know what a gun trust is, my previous post will catch you up.  Since Congress did not act, the President could only use executive orders, and that means it only affects NFA (National Firearms Act) items. Those are silencers/suppressors, short barreled rifles/shotguns, and machine guns. As I understand it, this will not affect normal shotguns, pistols, rifles, or even the much maligned AR-15.

The text of the new  proposed rules can be found here. It is long, so I'll summarize:
  1. All "responsible persons" to a trust, LLC, partnership or other entity will be required to submit photographs and 2 sets fingerprints along with a full ATF Form 4 
  2. The Chief Law Enforcement officer of your community must sign off on the application for every responsible person.
  3. All responsible persons must fill out an ATF Form 5320.23, which I don't think exists yet, as will people added to trusts and entities (within 30 days of changes).
  4. Clarifies that executors and administrators of estates qualify for "tax-exempt" transfers of decedent's firearms, if they go to a member of the estate.
  5. Limits importation of curio/relic antique firearms from foreign countries to military and museums only.
First off, "Responsible person"  will include the trustees, beneficiaries, settlor, grantor, basically everybody who possesses, directly or indirectly, the power or authority, under any trust instrument or other document, or under state law, to receive, possess, ship, transport, deliver, transfer, or otherwise dispose of a firearm for, or on behalf of, the trust.
This is silly. Allegedly, the "White House" said that "At present, when the weapon is registered to a trust or corporation, no background check is run,”.  If this is so, why does it take (by current ATF estimates, as of this afternoon) 9 months to process the application? I do not believe that they are not already checking every associated name on a trust or other document. If that is the case, what are they really doing here?
Next, I do not know of any dealers that do not run the NICS (national instant criminal background check system) on a person who wants to buy an NFA item. This is the same background check as you get for any other gun.  I am sure some are out there, but that is the first line of defense. Next, the ATF has the name and address of the people that are applying, it is just simply not feasible that they are not running the checks already.
What this really means is that its just an added pain to get fingerprinted, get a passport photo, and get the chief of police or your sheriff to sign off on every application. What's great is they estimate the time and cost of this...several hours of time for the applicant, about $40 extra, and millions in costs for local communities and the feds. In some communities (San Antonio is famous for not signing any applications) this will be a defacto ban on NFA items. In others, it is just more of a nuisance and time consuming.
What I don't understand is why you wouldn't just list 1 person on your entity, then add the others later, depending on what this magical Form 5320.23 requires. As of today, it does not exist on the ATF Form database.  Also, I think a trust can be tailored to make just the settlor the "responsible person," but that will ultimately be up to the ATF.
More thoughts:
I understand political agendas. I think with the tragedies that we have seen over the past few years, we needed a measure of gun control, but that is on the background check end.  Close the "gun show" loophole. That is just fine.  This does not do that.
If gun stores and dealers are not running background checks before they sell NFA items, then they should have their licensed revoked, and they should be prosecuted. This does not do that. This is not gun control. This makes it more difficult for legitimate gun owners to legally acquire legal items. The ban on importation of gun used in foreign countries? How many Korean War M1 garands do you hear about in violent crimes? Again, a waste of a law and an unnecessary restriction on a collector who would otherwise be spending money and putting it back into the economy.
This will do little to keep items out of the wrong hands. All that had to be done was for the ATF to do "officially" what I have no doubt they are doing "unofficially" which is to just run a background check on everyone who applies. That is not hard. This is just pushing toward a complete ban of these type of items.  I encourage people on both sides of the gun debate to get involved in the public comments for this proposed rule. This does nothing to stop the violence that claimed lives at Sandy Hook, or the tragedies in Colorado and elsewhere. All this does is require the legitimate firearms owners to submit more personal information to the government, at a higher cost to the individual and the taxpayer.
Let's hope the powers that be can change this one before its set in stone.

Monday, July 29, 2013

Anonymous Purchases of Real Estate, and Thoughts on Series LLC's.

Sometimes, you don't want to be found, or want people to know what you own. I'll leave the reasons up to you, but often it makes good business sense to put a layer or two between you and everyone else.

Example 1: Someone knocks on your door. It's your neighbor. He says, "I want to lease your property for oil and gas." Ok, you say. He offers you a check for $1000 and a decent royalty interest. You think, "fair enough, I've lived her for 40 years and this place is never going to produce any oil."

Example 2: Someone knocks on your door. It's someone you have never met before, but they have an EXXON logo embroidered on their shirt. They say "I want to lease your property for oil and gas." You say, "ok, how much?" They say, "I'll pay you a $1000 bonus and give you a good royalty (same terms as before)." You say, "No way, you are EXXON, you can afford to pay me 100x that."

Perception matters. In the real estate business, where margins are everything, a little perception can mean all of your potential profit. So, instead of walking up to the bargaining table as a multi-billion dollar company, we can be EM LLC, and no one would be the wiser.

When you buy real property, there is usually (hopefully) a deed. This deed says who owned it before you, and that you are now the owner. You usually record this deed in the county office where the property is located, so all the world knows who owns what. Unless you do not want someone to know who owns what, at least your piece of what.

Enter "anonymous" purchases of real estate.

In theory, you could own real estate anonymously by never recording the deed of  whatever property you purchase, as this is not technically required by law. This makes property difficult to sell however, so that is probably not the route you commonly want to take.

Next comes the LLC or Trust ownership route.  If you currently own property in your name and want that to become anonymous, it becomes obvious if you simply transfer the property to an LLC or Trust owned/managed by you.  A better process would include having several intermediaries in between yourself and the final entity, but this will not stand up to a truly trained eye, either. All you have to do is go to the deed office and follow the chain of title.
If you are purchasing from a third party, consider a so called“blind trust.” Trusts are not recorded, and if you correctly set up the trust with a competent trustee that is more than a degree of separation away from you and your entity, you are doing pretty well. However, if you only employ the trust, you can run into liability issues if you retain management and control as the beneficiary of the trust. I would suggest coupling the trust with a limited liability entity, such as an LLC. I don’t love blind trusts, (unless you’re a politician trying to shield personal assets away from potential conflicts of interest you are legislating on), but in a limited use they could serve a function here.
In the LLC realm, as of 2009 Texas has approved the use of the Series LLC, which I do like for real estate or other asset based businesses as it provides the ability to separate the liability on a property by property or asset by asset basis. Again, LLC’s require disclosure statements, so it really depends how many layers of the onion you are willing to place between yourself and the potentially prying 3rd party.  Coupling the series LLC with a “blind trust” as manager of the LLC is about as anonymous as you can get under the current law.
Another recommended route can be to place one of the onion layers in a different state or even a different country. For example, you could have an in-state LLC hold assets, which was owned by another out of state LLC, which was owned by an offshore, say, Cayman Islands entity. This would no doubt offer you the protection you require, but is expensive, tricky to set up, and requires some maintenance to make sure things don't go south.

Conclusion:  Sometimes you want to be anonymous, and it makes business sense to do so. I always recommend running your business under a limited liability entity (an LLC or Limited Partnership), because the chance that something could go wrong and you could personally be on the hook is always there. In the real property world, it is often imperative you do business like this. For the sellers out there, make sure you know who you are really dealing with. For the buyers, make sure you have taken every step to prevent getting the "Exxon" treatment.

Wednesday, July 3, 2013

After the probate hearing...what's left to do?

This could be part 2, a continuation of "what happens in a probate" series. I should have done "what happens before a probate hearing" but that can be a later prequel. Let's press on.


After the hearing, assuming the court approves everything, you will walk away with "letters," testamentary if there was a will, or letters of administration if there was no will. Now what do you do?

These letters give you the power to do business on behalf of the estate, as if the deceased person was doing it. This means you can open and close bank accounts, pay off debts, and sell real estate.

You hope that there are no outstanding debts, but there almost always are.  When people pass away, you have burial expenses, last medical bills, last cellphone/credit card/power/cable etc., that have to be paid before you can start giving the grandkids their inheritance.  You have to pay these off, and if you do not and instead spend all the money or give it all away, you are personally liable for the debts. Make sure you do this right (If it was a "dependent" administration, you may be able to get out from paying some of the bills. This is a different discussion, for another day).  Further, creditors have up to 1 year from the probate hearing to send your their bills, and you must send a formal notice to secured creditors.

Further, you, as the executor or administrator, have to file a final inventory with the probate court. This is a "snapshot" of what the deceased person owned when they passed away. Exact bank account values, descriptions of real property, vehicles, insurance policies paid to the estate, investment accounts all this must be described and approved by the court.

Aside from this being required by law, there is a hidden benefit from this numbers on the inventory: the adjusted cost basis at death.

Adjusted Cost Basis Primer:

Certain assets are classified as "capital" assets, (for the IRS description, see here) but think your real estate, stocks, collectibles, furniture, or anything that you buy for your personal or investment purposes.  Whatever you buy it for is the item's "basis", or the bottom line for tax purposes. If you sell it, whatever it is, you will have to pay taxes on the difference between the basis and the final sale price. Of course you can have losses too, but we will keep things simple.  Depending on the type of asset and how long you hold it, the tax rates will fluctuate.  Regardless, you have to pay the tax, and it can be a significant amount. Here is the key: if you die holding one of these assets, then the basis becomes whatever its value was at the time you passed away.

According to 26 USC Sec. 1014, when you pass away with one of these capital assets, the basis becomes the fair market value at the date of the person's death, instead of whatever you paid for it. This can be a massive tax savings for your estate and beneficiaries, and one of the main reasons I think "probate avoidance" techniques do not make sense for most, if not all folks.

The most common scenario is that the decedent owned a house, which they lived in forever. They bought it for $100,000, now its worth $300,000. If they had sold it before they died or transferred it to their kids or heirs before they died, they would've had to pay the capital gains on the sale or their heirs would have received the house at the same basis as the decedent. When the heirs sell it, they pay the capital gains tax. At today's rates (15% for most folks, unless you make over $450k/year) here is how the math works:

$300k sale price - $100k cost basis = $200k capital gains x .15% = $30k in taxes due.

If they had waited and left the house to the kids by their will, the taxes would have been $0.

$30k in taxes to avoid paying a lawyer a couple grand to do your probate? That math does not add up. The same thing happens for anything that you transfer or sell before you pass away, and you do not get the basis adjustment.


As the executor or administrator, you have some duties to fulfill. Get all the assets together, pay off the debts, and file a final inventory.  You might have heirs nagging you about "getting their money," but your duty is to the estate, not to the heirs. Also, you have to protect your own skin and not make sure you will be on the hook for any liability.  Finally, carefully go through all the assets, and see if there are adjusted cost basis tax savings to be had. If you look carefully, you can usually find them.

Yourtexasestateplan.com wishes all a happy and safe Independence Day.  Make sure if you leave the house, you have a designated driver.

Thursday, June 6, 2013

Thoughts on the recent IRS mess

No one likes the IRS, and they are under the gun right now. But why? Is it really any different than it has been historically, or could we just be paying more attention in this digital media age?

Let's break down the "scandals".

1. Alleged audit targeting of "tea party" affiliated groups.

What happened:

Allegedly the IRS delayed/denied/targeted at a higher rate tea party affiliated groups who applied for tax exempt 501(c)4 status. This means, in a nutshell, that conservative pseudo lobbying groups had a tougher time getting their agendas across than liberal ones did, because they were stuck in a tax audit limbo that prevented them spending their money in the way other 501(c)4 groups could.

What is that and what does that mean in English:

A 501(c) entity is just the designation for tax-exempt status in the tax code. There are many types, (501(c)3 are your churches/religious organizations,  501(c)7 are your country clubs, and it goes on,  (including 501(c)21 black lung benefits trusts ) but 501(c)4 groups are supposed to be:


(A)Civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare, or local associations of employees, the membership of which is limited to the employees of a designated person or persons in a particular municipality, and the net earnings of which are devoted exclusively to charitable, educational, or recreational purposes.
(B)Subparagraph (A) shall not apply to an entity unless no part of the net earnings of such entity inures to the benefit of any private shareholder or individual.
Translate this to: volunteer firefighters and civic organizations. The trick is that they CAN contribute to political lobbying/activism/campaigns, as long as this is not their "primary" purpose. The real trick is that donors to these groups do not have to be reported to the IRS like political parties and Political Action Committees (or PACs or SUPER PACs). These groups outspend the PACs by a 3 to 2 margin, allegedly.


This targeting is obviously not ok, on any level, by a neutral government entity. It doesn't matter if it is the tea party or the toga party, this just stinks, as it seems "the Man" is targeting opposition groups, ala every dictatorship/oppressive regime we read about elsewhere in the world (see, Syria).

However, I just cannot believe this has not happened before, it was just exposed this time. If you have ever been audited, you might know how one works. If you have not, know that they are a pain. I don't think this was just a couple of "rogue agents," that is just not how the IRS works. Usually, the IRS targets a group or groups because they want to encourage litigation, with the ultimate result of getting court cases that mean more tax revenues for them. A few years ago, it was Family Limited Partnerships, as they were getting big deductions and the IRS didn't like it. It is cyclical, and its just the way it is. You just hope the taxpayer wins in court.

If you were President, would you use the powers at be to exert a little pressure in whatever way you could, on the people who spend all day every day trying to take your job or worse, going as far to say you lied about where you was born.  So maybe there was a memo, but who's to say.  You want to

The real quagmire is that both conservative and liberal groups use the 501(c)4 gimmick to influence elections. Requiring disclosures of the donations like they do for political parties and PAC's might fix it, or just scrap the political influence ability of the nonprofits all together. It is just not that hard:clean up the ability of the big money power brokers to buy elections. Campaign finance reform seems to crawl along at a snail's pace, so don't hold your breath on this one. Instead of ceremonially firing a top official who was about to retire anyway, hopefully the IRS will fix this at the source.

2. IRS Spends $50 million on 220 employee conferences over 3 years.

This one looks pretty bad, in the times of people hurting and growing distrust of where our tax money goes, and rocketing national debt. But was it?

What happened:

Reports have come out detailing these events, including a video of employees line dancing, lavish hotel rooms, and other perks. The IRS admitted to it and says it fixed the problem.


C'mon man. Who cares? I get it, "It is our tax dollars!" The math is not that bad though. This expenditure from an IRS budget that runs about $12 billion a year comes out to, wait for it, 0.139%. The same story claims they have already slashed this, and cut back on expenses.

The real problem comes with our perception of the IRS. Nobody likes paying taxes, but we all like roads, hospitals, schools, etc. Some of us cheat on our taxes, others do not, and we all suffer for those who do not pay their fair share. This means tax rates go up, because we must factor in the cost of those who just will not pay.  The IRS reports this "tax gap", what should be collected from what actually is, at $385 million as of 2006, while others report it could be as high as $600 billion. Makes $12 billion look like a pretty small number to throw at that big of a problem, and $50 million to make these tax collectors happy and motivated a small drop in the bucket. Companies have conventions. They have motivational speakers. They have conga lines. They go into the woods and do trust falls.

Next, we have to come to terms that the IRS is a company, with people working there. I don't like a lot of the IRS folks I have dealt with, but my disdain is probably rooted in the same emotions that caused me not to like my childhood dentist (you know who you are). On the flip side, I have had some great experiences with IRS agents, and I have friends and colleagues who work there. My point is, like google, apple, or any company, to attract and retain talent, not to mention keep workers happy, you need a little line dancing once in a while. If baseball tickets equal higher tax compliance, I'll share the collective bill. Presidential suites are pushing it, so IRS don't get carried away. Would anyone care if this was a report on Goldman Sachs or Amazon? Didn't think so.


To have the society as we know it, we have to collect taxes. There are good ways to do this, and bad, depending on who you ask. Yes, the IRS has some straightening up to do. Should we cut them so slack? Noway. However, we can also think about the task they have, how important it is for all of us, and remember there are people behind the mask too.

Wednesday, May 29, 2013

What happens in a probate hearing

We have talked about the P-Word before, but I still have clients that are scared of it. The root of that fear is often THE HEARING. IN COURT.
Let's dispel some myths.
If you're the executor or executrix of a will, or the adminstrator/adminstratix of an adminstration, this is what you can expect.
Scenario #1: Everyone gets along, and there is a valid Will.
Proate hearing in a Courtroom

Venue: First off, the proper county is where the person lived for the last bit of their life, or where they had some property (see TX Probate code Sec. 6.).

In some counties, (like Dallas, Fannin, Tarrant, and Hunt, to name a few), the hearings are held in a crowded courtroom, and dozens of cases are heard one after another.
Informal, office probate hearing


In other counties (Grayson, Collin, mostly the smaller counties but it really depends on the judge and if there is a statutory probate court), the hearing is often less formal, with the judge often shaking your hand at the door to his or her office, and then showing you to a chair right there in the office. You are still giving sworn testimony, but just from a comfy chair instead of a in a courtroom. Either way, its no big deal.

Proceedings: At the hearing, you will be sworn in, just like you are giving any other testimony in any court. This makes some people scared. Don't be. Next, you essentially say "yes" or "no" to a list of facts about your deceased relative or friend. "Did they live in this county when they died.... Yes." "Did they have any children born after this will was written...Yes or No (tell the truth). "Is this their last will and testament, and does this appear to be their signature...Yes (it better be)." Easy stuff. Next,  judge will then sign an order admitting the will to probate, and you sign several pieces of paper including an "Oath" which is you just swearing that you will do the right thing as the executor or administrator.
After the hearing, you go to the clerk's office and get Letters Testamentary or Letters of Administration which will allow you to go to banks, financial institutions, and other places in order to handle the business of the estate. You will also sign a required notice to creditors, that must be published so that anyone who things the deceased person owes them money can make a claim.

Final Steps:  Within 90 days of qualifying as executor or administrator, you must file an inventory with the court. If you need extra time, the court will usually let you have it. The inventory lists all the assets which pass under the decedent's will or estate, and not those that are directly distributed out (like POD accounts or insurance to others). After the inventory is filed, the judge will sign an order approving the inventory. Then you're pretty much done with the formal work, all that is left is paying the bills, filing a final income tax return (and an estate tax return if necessary) and distributing the estate. Remember that creditors have 1 year to come back and request you pay them debts, so it is usually a good practice to leave some funds in an account for that.

Note: Small estate administrations and muniments of title are similar to this, with less requirements.

Scenario #2: Everyone gets along, and there is no will.

Venue: Always the same, unless its contested, then it might get sent to District Court.

Proceedings: Since there is no will, an Attorney Ad Litem will have been appointed to do background research and determine the heirs. They will be at the hearing, and the estate has to pay them (think of this as the I HAD NO WILL tax). The Probate Code requires that you have witnesses if there is no will, think of these as close friends who knew the family, but are not inheriting anything. Some courts will let you get away with 1, many require 2. Sometimes you can have this done by an affidavit, so just check with the specific court. Everything else is the same.

Final Steps: Same as above.

Scenario #3: No one gets along, and there is a valid Will

Venue: Same as above, if there is not a contest to the will.

Proceedings: If the will names an independent executor, and this is not challenged, all is the same. Else, you have a fight on your hands, and this is where things get messy. Make sure your lawyer knows their stuff. Else, if you can actually get it to the probate hearing, its all the same.

Final Steps: Same, and good luck getting your family to agree on who gets Dad's old boots or Mom's favorite china.

Scenario #4: No one gets along, no will.

Venue: Same as above, depending on the county.

Proceedings: Now you are stuck in Dependent Administration land, which we have discussed before. This means you will be in court, a lot, and your legal bills will be high. Can't we all just get along?

Final Steps: Dependent administrations require annual accountings as well as a final. There are also some more paperwork to deal with, as well as dealing with creditors claims.

Final Thoughts

Most of probate is easy, and not scary. If you have a fight, it is no different from any other lawsuit, and those can be scary. Just make sure you know what you are getting yourself into before you show up at the courthouse unprepared.

Thursday, May 9, 2013

For the Moms

Mother's day is coming up. All of us, whether we know them or not, have one.  If they are in your life, wonderful. If not, I'm sure you either know of a mom out there somewhere who could use a nice word of encouragement, or just an afternoon of help in her mom-duties.

For those of you who are still trying to scramble for a last minute mother's day gift, skip the flowers or the card. It's time you gave the gift of some estate planning and tax advice to the mother in your life.

Here is a list of some of the great gifts you could give that special mom out there:

1.  Designation of Guardian of a Child Advance- In Texas, a competent adult guardian of a minor child can designate a backup guardian in case they become disabled or pass away. You can also do this in a Will, but in the event there is not Will, this is a good safety valve. This allows mom to rest easy, knowing that who she wants to take care of her child, will.

2. Help her make a Will- Beat the person who offers just number 1, and help her actually make a will. You can combine the designation of a child guardian, and this way you can set up an estate plan or a trust that will provide the comfort that knowing your children will be taken care of provides.

3. Educate her about Tax Savings- The more kids you have...the more you get child tax credits! Educate the mom in your life to make sure she is getting all the appropriate income tax credits and deductions. See here.

4. Educate Mom about Life Insurance, and Savings Accounts- If your mom has work sponsored or even just a life insurance policy, make sure it is left to the right person(s), or in a way that it will take care of their loved ones. Also, tell them to make sure and check any bank, savings, or investment accounts, to that the proper beneficiary designations are made.

OR, scrap all this, and get her some cupcakes or chocolate covered strawberries.

Special thanks to all you moms out there. I, and the rest of us wouldn't be here without you.

Monday, April 22, 2013

Elder Abuse: How to Spot it, What to do About it

Just typing the words "child abuse" makes me sick, and just plain mad. As I'm assuming it does for most. But what about "elder" abuse? Do you even know what it is?

We treat children specially because we have determined, as a society, that they are not responsible enough to be left alone, make their own decisions on important matters, or handle finances. Thankfully, the Texas Department of Family and Protective Services is there for the old folks too.

The department offers services for "any adult who has a disability or who is age 65 or older over that is in a state of abuse, neglect, or exploitation." Lets break this down into what this means, and how to look for it.

Scenario 1.
You have a (neighbor/friend/family member/parent hereafter "Papa") who is getting on in years and/or suffering from a disability. As a result, they require home health care. You have never really paid attention to Papa's finances, but have noticed that home health care attendant (hereafter "Anna Nicole") is coming around more often, and Papa is speaking about them more. You notice one day that Anna Nicole is driving a new, different car, and generally looks like she has new jewelry.

Then you ask Papa, and he tells you they are getting married.

What to do:

You can take a guardianship out on Papa to control his finances, but they are expensive. If he is competent, get a Power of Attorney over Papa. You likely just need to sit Papa down, tell Anna Nicole to get lost, and hope she hasn't done too much damage. Check Papa's bank accounts, insurance policies, and any brokerage or financial accounts, and see if Anna Nicole's name is there or if she has somehow become a beneficiary. Tell the police, but usually the best bet is to get Papa away from the damage and stop the bleeding. Also, report Anna Nicole to the Texas DFPS at 1 800 252 5400 so they will have her on record.

Scenario 2.

You have a (neighbor/friend/family member/parent hereafter "Nani") who lives alone and has no kids. Nani passes away, and leaves you, the favorite niece, in charge of the estate. You start going through Nani's finances and realize that something is amiss. You find in her personal papers, amongst her will, is a Power of Attorney naming someone you are not familiar with (hereafter, "John"). You do a little more digging and check the banking records, and realize that John has cleared out a significant amount of money from Nani's accounts. For a real life example, see here.

What to do:

Call the police. They prosecute this stuff. Hopefully you can try and get some of the money back, but you never know. The best way to fight it is prevention: talk with your elderly friends and make sure they have their estate and powers of attorney in order. You can't stop all fraud and exploitation, but you can prepare and try to limit the potential damage.


I try and bring levity to most topics, but elder abuse is not funny on any level. Often, the above scenarios are much worse, and physical abuse, threats, and emotional abuse are going on as well. The point is that abuse is abuse, and we all deserve a voice. There are resources out there to stop this terrible practice. Lets educate ourselves, know the warning signs, and do something about it.

Wednesday, April 3, 2013

Its all about Trust

Who can you trust?  What can you trust? Can you trust your assets to a Trust?

People hear the word "trust" and think lots of things. Trust me. Trust fund. Trust fund baby. Bank and trust. Trust account.

I have previously written on the perils of the probate avoidance "living trust" and how people get scammed into making one.

So I will not belabor that. What I will focus on is a growing problem of choosing your trustee.

Scenario 1.
You are your own Trustee.

Ok, you out smarted the system. Who needs to trust anyone except themselves? Well, the government has figured that one out. They look at someone who created a trust, for their own benefit, who named themself as a trustee...as a nothing. You just put your wallet from your back pocket to the front, as you still have control. Your trust is pointless, and you probably were convinced you needed one by someone who didn't know what they were talking about.

Also, as an individual taxpayer, you have to earn $400k in 2013 dollars to hit the top, 39.6% tax rate. Got your business in a trust? You get there at $11,950.  That is a huge, huge tax hit, and that applies to all of these scenarios.

Scenario 2.
You pick a close family member as Trustee.

Ok, a little better. Don't pick a beneficiary, or their share loses any creditor protection like in scenario 1. Further, if you picked your wife/brother/son, what happens if they get mad at you? What if they get too busy? What if, they decide to invest all your assets in a great stock tip they heard, only to have it turn out to be a bust? Do you have any recourse? Are you going to sue your wife/son/brother? I didn't think so. Choose wisely here, and make sure they are not a beneficiary of the trust.

Scenario 3.
You pick a bank or institutional Trustee.

A pro trustee, banks are a safe bet. They are insured, know what they are doing, and have access to investment leverage and knowledge that most do not. However, they do not know your family (likely) and are not emotionally invested, so you might not be able to call them at midnight or on the weekend for an emergency. Also, they cost.


Picking a trustee, like picking an executor for your will, is a big decision. If you are in over your head and know a family member or friend would be too, then trust a professional. If it doesn't make financial sense to pay someone, then pick someone whom you trust, who has the time, and will do a good job. Finally, unless you have talked to a professional about the limited instances you should be trustee over your own trust, don't. Just don't.

Tuesday, March 5, 2013

The Holographic Will

Sounds spooky, right? Sound eerily similar to the Smash 1995 hit, Hologram Man? Does it make you think of the resurrection of Hologram Tupac at last year's Coachella concert? (warning, explicit lyrics coming from Hologram 'pac. However, it was pretty amazing.)

Well, it's a lot like that. Kinda.

In Texas and many other states, there are a variety of things that pass for a will. According to the Texas probate code, a "holographic will" can pass for a valid last will and testament if it is written, and signed, "wholly in the handwriting" of the testator. They changed the handwriting part because the old statute just said writing, which led to the case where a fully typed out will being deemed valid, with even the signature typed out. Those are easy to forge, so they changed it.

What this really means: You can take a crayon, and write your will on a napkin. Really. According to a bunch of people and what I still cannot track down as a relevant source, a guy wrote "all to wife" on a bedroom wall, and this counted as a holographic will. A farmer in Canada allegedly scratched his will into the fender or a tractor, as he knew he was going to die. This worked.

I have also seen a husband and wife try to do a "joint" holographic will. You can do a "joint" will, if it is executed with all the formalities of a witnessed, attested normal will, but this does not work for a holographic will. Think about it: whoever did the writing of the "joint" holographic will and signs their name has made a valid will. However, the extra signature of the spouse makes the will fail because it is not "wholly in the handwriting" of the testator. (see Roberts v. Drake (Civ.App. 1964) 380 S.W.2d 657 if you want to read about the story there).  Then you're stuck, and your estate passes by intestate succession. (see my earlier post for what that means.)

But don't do this. I don't recommend holographic wills, mainly because they end up being more expensive for your estate than if you just paid someone (a lawyer) to do one. You have to "prove" the will in Court after you die, which requires witnesses, and usually a lawyer to quarterback everything. However, sometimes you just can't wait.

IF you must do a holographic will, take out a nice pen and paper, and do it right. Sign your name, and date it. Write out "this is my last will and testament, and I revoke any other prior wills by this writing." Then say what you want to happen.


Tuesday, February 12, 2013

Gun Trusts

Guns are a hot topic right now. Probably too hot, actually. I think we can all agree, whatever side of the fence you are on, that some sort of reform needs to be done, while respecting the Second Amendment. Either with background checks, closing the private seller loophole,  funding for mental health, or something else. But enough politics.

That said, guns are still legal to own in Texas, and many of my clients have guns. Some of these guns are already required to be specially registered with the Bureau of Alcohol, Tobacco, and Firearms (ATF) as they fall into a special class of items under the terms of the National Firearms Act (NFA).


The 1934 National Firearms Act was essentially a tax levied by Congress, but the real purpose was to thwart and curtail possession of "gangster" type weapons, some thought to be a specific response to the St. Valentine's Day Massacre allegedly orchestrated by Al Capone. All sound suppression devices, short barreled rifles and shotguns (less than 18 inches in length), machineguns, and a catch-all class of "other weapons" were listed, and a $200 tax stamp was imposed on any transfer.  That was a lot in 1934 dollars, and it worked. Weirdly,  it has not changed since.

The registration also required detailed data that the government then used to prosecute registrants who lived in states where possession was illegal, or that could not possess the items for other reasons. Sound like entrapment? Well it was.  This lasted until the Supreme Court held that using the self-supplied information for prosecution violated the 5th Amendment protection against self-incrimination.

A 1968 amendment fixed the problem, and you now cannot be prosecuted for a violation prior to or concurrent with your application to register an item. However, after a 90 day moratorium, this also took away the mechanism to register a currently unregistered NFA item, interestingly enough. So, if you have, or come upon, an unregistered NFA item, run away. You're breaking the law. And call a lawyer.

Current Status:

The NFA is still in effect. You still have to go through this process if you want any of the above listed items. Recently, Texas, along with a number of other states, has approved the use of sound suppression devices/silencers for hunting use.  This has been met with some controversy, as many people think of "silencers" as something assassins use in movies to kill people. Hence, why they are included in the same category as a machine gun. Others, (such as the Finnish Government, where you can apparently purchase a silencer at any hardware store) think that silencers/sound suppression devices should be mandatory,  due to the noise associated with firearms and the potential for hearing loss of those nearbye, and are very much different than machine guns. With that, and the current rush to try and buy any and all firearm related items before any new legislation, many individuals are purchasing items listed under the NFA.

NFA Application process:

Should you decide to purchase a NFA item, there is a process to go through. A long process. Once your item arrives from a licensed dealer, you must complete an ATF form 4 transfer.  It is not very complicated, but you will need the serial number of the item, a valid description, and some more identifying information.

If you decide to apply for the item in your name, then after your dealer fills in the required info, you have to submit a photo, fingerprints, and have the chief law enforcement officer (sheriff or police chief) sign off on your application. This can be a pain. Further, only you can possess the NFA item. If you let someone borrow it, they are breaking the law. If you pass away, then your heirs might be breaking the law if the proper structure is not in place.

Here is where a "gun trust" comes in. With the trust format, you apply as settlor/trustee of a trust. This way, you do not have to give your photograph, fingerprints, or have the chief law enforcement officer sign off. This saves a little time in the application process. The real benefit, however, is that it allows any of your named trustees to possess the item outside of your presence. This allows your family and hunting buddies to share in your item and not break the law. Further, many trusts set out a beneficiary designation, so you can dictate exactly who the item will go to, instead of just to your estate. All good things.

Regardless of what route you take, the background check process is extensive. A gun trust will not, I repeat, WILL NOT, allow someone who would otherwise be disqualified from possessing an NFA item to acquire it. They still run a background check on you. Either way, several months or more are common wait times to hear back.


A "gun trust" is what it sounds like, and it is also not what people think. It is not an asset protection device, and it is not a place to put all your guns. I get lots of calls asking for both of these, but that is not the purpose of this specific trust. The best use, until the law changes one way or the other, is for the responsible use and acquisition of NFA items. Nothing more. That said, it is a very useful tool for those who have that specific need.

Tuesday, February 5, 2013

Protect your ASSets.

Pun intended. Watch Nightline lately? Or most any other news program or paper?  Who do you trust with your privacy? Yes, I'm talking about racy photos you send to your paramour(s). Be careful with these (see the links above). But I am also talking about your passwords to digital accounts.

The point here, is not just to protect your ASSets, but all your assets.  Where we have discussed in earlier posts the ways to attempt to safeguard your real, physical assets, we have seldom taken on discussing your digital ones.

Ever been locked out of your email? Its a pain. What if your parent/partner/sibling passed away, and had essential information on their email? How would you access it? What about accessing their social media profiles? Banking records and accounts? Ever thought about this?

Like so many things planning related, a checklist is usually the best way to go about things.

  • Financial and business accounts passwords. Seems obvious, but do you have these written down somewhere? And have a backup to these? How will anyone know about your online stock account, if you don't tell someone, or have a list written down?

  • Email Account passwords. You should change these regularly, but also have them written down, just in case. Gmail, for example, offers some recourse, but like anything you have to mail or fax a request in to, don't hold your breath.

  • Social Media. Some people live on social media, others make their living from it. This can be a real estate asset. Facebook will memorialize an account for you, but I think that is a little creepy. Twitter has a similar policy for deleting an account.

  • Itunes, music, pictures, etc. Bruce Willis did us a favor. Anyone every read those ten page contracts you AGREE to when you buy something on Itunes? Yeah, me either. I guess we should have just gone to the local music store and purchased a CD though, because when you die your song library is going to be worthless. WORTHLESS. How many millions/billions of dollars has itunes made, only for a life estate in the music? What a joke. I get it, from a business standpoint, similar to how, originally, you couldn't just transfer your itunes to someone else's computer or ipod. Now, they charge you $0.30 more. Genius? Maybe, but now when I die, my family has to pay for the same bad one-hit-wonder again at inflation adjusted, 2067 prices? Criminal. In all seriousness, this is the easy one. Back up your hard drive. Then back it up again. Keep the backups in different locations. (Houses burn down. Trust me).

Take Away: The easiest way to accomplish all this is have a pen and paper and a couple of extra hard drives. Every month, back up your stuff, update it, and keep one (or more) off site. Keep it in a safe deposit box. It is not that hard, and it is not that expensive. There are online companies you can pay to have real time, online access and storage, but you probably don't need that. I thought that would be a great business idea: maybe it is, but I was convinced my malpractice insurance wouldn't go for it.

Like any good boy scout/doomsday prepper/zombie apocalypse afficionado, the motto is the same. Just be prepared. Same goes in estate planning.

Also, Valentine's day is coming up. Remember, if you want to forever memorialize your most private and itimate moments via digital media, just make sure you trust who is on the other end. It could come back to haunt you, and you could end up in a class action lawsuit.

Friday, January 18, 2013

What happens now

national affairs secrets of the bailout taibbi
Illustration by Victor Juhasz
Estate planners were busy at the end of 2012 with the Fiscal Cliff. We all were worried about the
 "death tax" coming back, at lower levels, but it didn't. I called that in November.  Now, everyone has $5.25 million they can keep tax free, and the annual exclusion is up to $14,000 per year, so gifting is easier/cheaper than its ever been. All that fuss, all those trusts, seemingly for nothing. Who has $5 million to worry about, anyway?

We do have higher income taxes, we have more taxes built into dividends and capital gains.  Who knows what our income tax returns will look like come tax season, but if you get a paycheck, you already know that you somehow just got a reverse raise. All for, what, exactly? Deficit reduction? Universal healthcare?

With the "death"/estate tax taken care of for now, planning is pretty straight forward.  Have your affairs set in order for the unexpected (via a will, and maybe a trust) and have your other assets
(bank accounts, insurance policies, investments) styled with beneficiary designations so there is no issue at death. Easy stuff. Now comes the hard part, in acquiring enough wealth to have to worry about any estate or gift taxes down the road, but that's another story.

So, what do I need to worry about now? Not much, but healthcare costs will continue to rise. How is your insurance situation? Are you looking at long-term care, or a government program, like medicare or medicaid? Do you have an elderly parent, or relative that is going to need assistance? "Uncle Steve is in fine health..." for now. If he has a stroke next year, Steve's estate is toast if he ends up on medicaid. Its just not that hard to plan ahead, and you have to do it now, as there is a five (5) year look back period to worry about.  Steve's house? At least the heirs will get that after he passes away, right? Gone, unless you plan ahead or use a LadyBird Deed.

Congress seemingly did us a favor, in restoring the estate tax, but it's a favor that doesn't help too many normal folks.

So, where, exactly, are we? The new taxes, that are supposed to help reduce the deficit? A huge chunk are already spent in the $51 Billion Hurricane Sandy Relief Bill, through earmarks that don't have anything to do with helping the communities affected by the storm.  How hard is it to help those in need, without sneaking in unnecessary, "pork" spending?  We have another debt ceiling crisis coming (we already hit it), which the house just pushed down the road another three months, but at least they didn't have to make that $1 trillion coin. Yet.

Want to get even more upset? Read Matt Taibi's article in the Rolling Stone about the back story and current status of all the Wall Street Bailout Money.  "It's all paid back...taxpayers will make a profit..." all these feel-good success stories seem to be just smoke and mirrors accounting tricks, by taking lower interest loans from the government to pay back their higher interest, TARP/bailout loans and calling it a victory for the common man. "There will be strict rules against paying big bonuses..." yes, but don't worry, there are loopholes as big as Long Island to get around that, and the executives whose risk hurt so many across the country were rewarded handsomely on the back burner.  When I heard a conservative quote that somewhere between 10-30% of the TARP money was just assumed to end up going to "fraud, just because." I was irate. Now that I know more...I'm just disappointed, and frustrated at our leadership.

But that is where we are.  Just make sure you have a plan. 

Monday, January 7, 2013

Post Fiscal Cliff Recap

I'm not going to say I told you so, but I told you so.

Estate and Gift tax wise, we have the same thing as we had before: ~$5 Million exemption amount for estate and gift, portability between spouses, only wrinkle is it is 40% beyond that (up from 35%).

Yes, taxes went up. Yes, payroll tax cut went away. Yes, medicaid/care related taxes went up. This is all bad, but at least you won't have to worry about getting taxed on giving your money away.

The real takeaway is that to preserve your portability between spouses, you will now have to fill an estate tax return, even if you don't owe anything, 9 months after the death of the decedent spouse. This little piece of paper will save you a potential $5 million in exemption, so don't forget to bring it up with your attorney.

Else, its business as usual, except we are all going to take home less money. On to the next debt ceiling debate, and hopefully some serious talks about cutting the deficit and reducing the budget/spending.

Tuesday, January 1, 2013

Fiscal Cliff Deal Passes the Senate

Here it is: the bill the senate passed, and now its on to the house.  I read most of it.

The "American Taxpayer Relief Act of 2012" is a compromise, but its pretty much what we thought it would be.

The highlights:

·      The level at which tax rates will go up is $450k for families $400k for individuals. Not the $250k/$200k limit initially discussed. Capital gains and dividends rates go up for these people too.
·      Estate tax stays at a $5 million applicable exclusion amount, but the rate above that goes from 35% to 40%. The exclusion amount will go up, as it is indexed for inflation. 
·      Personal exemptions and itemized deductions are phased out at $300k for a family, and $250k for an individual. 
·       Mortgage interest deductions, tuition deductions, stay in place. 
·       Unemployment will be extended for a year. 
·       There are extensions for medicare/aid, clean energy companies, agri-business, indian owned businesses.
·       Payroll tax cuts were not extended. 

The lowlights:

·      Doesn't address the "sequester," the big federal budget cuts that are mandated to kick in to balance the budget, just delays it 2 months. 
·      Doesn't address the debt ceiling, which we apparently hit again, yesterday. That will need to be address in the coming months, AGAIN. 


Income taxes go up, but it won't affect many people. Payroll tax cuts will affect a lot of people. Most everything in this bill just kicks the can down the road, a year or two, a month or two, we will have this battle again. We still don't have the budget cuts needed to pay down the national debt. 

And the real kicker: the house swears in a new batch of representatives on Thursday. So, if they don't pass this by Thursday, we start from scratch. Again. Make it happen, Boehner.