Ten Estate Planning Ideas For 2015
March 2015
Marvin E. Blum*▪
Gary V. Post*
John R. Hunter°▪
Steven W. Novak*
Len Woodard▪
A m a n d a L. H o l l i d a y * ▪
Edward K. Clark°▪
Catherine R. Moon*▪
Laura L. Haley*
Amy E. Ott▪
R a c h e l W. S a l t s m a n
Christine S. Wakeman
Kandice R. Damiano▪
Kerri G. Nipp
Julie A. Plemons
Anna K. Selby
Kelsey A. Brock
Emily K. Seawright
Emily R. Franco
Leslie M. Levy
Board Certified by the Texas
Board of
Legal Specialization
*Estate Planning & Probate Law
° Tax Law
▪ Certified Public Accountant
777 Main Street
Suite 700
Fort Worth, Texas 76102
(817) 334-0066
300 Crescent Court
Suite 1350
Dallas, Texas 75201
(214) 751-2130
2100 Post Oak Boulevard
Suite 4100
Houston, Texas 77056
(713) 489-7727
New Address as of
March, 2015:
303 Colorado Street
Suite 2550
Austin, Texas 78701
(512) 579-4060
Dear Clients and Friends,
Before we tell you our Firm news and relate this year’s estate and tax planning ideas, we want to let you
know how much we appreciate the opportunity to serve you. The trust you put in our firm is something we
will never take for granted and the friendships we have made with many of you are truly treasured. We look
forward to continuing our relationship with you in 2015.
The Blum Firm was named the 2014 Professional Advisor of the Year by the Community Foundation of
North Texas. This is the first time the award was presented to an entire firm and honored the firm’s topquality work and commitment to the community.
Steve Novak was named to the "Best Lawyers in Dallas" 2014 list by D Magazine. Steve received this
honor in the area of Trusts & Estates.
Thomson Reuters named Marvin Blum, Gary Post, John Hunter, Steve Novak, and Len Woodard as 2014
Super Lawyers. Marvin was also named in 2014 as one of the Top 100 Super Lawyers in the State of Texas
and one of the Top 100 Super Lawyers in the Dallas/Fort Worth area. Marvin, Gary, and Steve were recognized in the area of Estate Planning & Probate law, John was recognized in the area of Tax law, and Len in the
area of Business/Corporate law. Amanda Holliday was also named a 2014 Rising Star Super Lawyer in the area
of Estate Planning & Probate.
Fort Worth, Texas magazine recognized eleven of our attorneys as 2014 Top Attorneys. Marvin Blum,
Gary Post, John Hunter, Amanda Holliday, Catherine Moon, Laura Haley, Amy Ott, Kandice Damiano, Julie
Plemons, and Anna Selby were designated as Top Attorneys in the area of Probate, Estates, and Trusts.
Marvin, John, and Len Woodard were designated as Top Attorneys in the area of Tax.
Amy Ott was named a "Rising Star" in 2014 by the Texas Society of CPAs. TSCPA recognizes CPA
members under 40 who have demonstrated innovative leadership qualities and active involvement in TSCPA,
the accounting profession, and/or their communities.
We also welcomed our newest attorneys, Emily K. Seawright, Emily R. Franco, and Leslie M. Levy. Emily
Seawright has joined our Fort Worth office. She received her J.D. cum laude from Texas Tech University
School of Law in 2013, and she earned impressive 4.0 GPAs for a Bachelor of Science and a Master of Science
degree from Texas A&M University. You will find Emily Franco in our Austin office. She received her J.D.
from The University of Texas School of Law and earned a Bachelor of Arts in Psychology from Rice University
cum laude. Leslie is currently working in our Houston office. She received her J.D. from The University of
Texas School of Law and has earned a B.A. in Political Science from Hendrix College summa cum laude. Leslie is also attending The University of Houston Law Center to earn her LLM in Tax.
In the following pages, we discuss several estate planning ideas for you to consider in our current environment. This includes taking advantage of low oil and gas values, assisting family members in the most tax efficient way, and other techniques to maximize estate and income tax savings. Please contact us to discuss how
you might benefit from these ideas.
The Blum Firm, P.C.
In Memoriam: Our colleague and friend, Kent H. McMahan, of The Blum
Firm’s Dallas office, passed away on September 29th. On October 2, 2014, we
joined several hundred people at Park Cities Baptist Church to celebrate Kent’s
life. The service reflected on Kent’s passion– for God, his family, his work, and
Baylor University. Kent joined our firm in 2010 and in just four short years
touched our lives as well as the lives of clients he served. He continues to be an
inspiration to all of us. Kent’s passion will not be forgotten, and we miss him
dearly.
Kent H. McMahan
7/11/46 - 9/29/14
Page 2
Ten Estate Planning Ideas For 2015
YOUR ADULT CHILDREN NEED ESTATE PLANS TOO
Many children in early adulthood may feel estate planning is not necessary until the child has started a career, gotten married, started a family, or
accumulated substantial assets. That is not true. Everyone who is age 18 or over should have an estate plan. At a minimum, the estate plan should
include a Power of Attorney and Medical Power of Attorney (appointing an agent to make financial and medical decisions if the child is unable), a
HIPAA Authorization (allowing the release of medical information to named individuals), a Directive to Physicians (a/k/a a “Living Will”), and a Will
(to transfer real and personal property owned by the child at his or her death).
For children considering marriage, a premarital or postmarital agreement should be considered to protect separate property (including future inherited property) from becoming community property assets (which is subject to division upon the dissolution of the marriage by death or divorce).
If a child does not have an estate plan and something unforeseen happens, the process to have a guardian appointed to handle his or her financial and
personal needs, or the process to retitle assets upon death, will likely be difficult and expensive. This is easy to avoid by drawing up the documents
mentioned above.
WHAT CAN I DO WITH A LIFE INSURANCE POLICY THAT IS NO LONGER NEEDED?
If you have a life insurance policy and your family no longer needs the death proceeds or if the premiums have become burdensome, don’t let the
policy lapse before considering a sale of the policy on the secondary market. When the estate tax exemption was much lower than it is today, many
people purchased life insurance, either directly or through an irrevocable life insurance trust (“ILIT”), as a way to cover anticipated estate tax liability. Now that the estate tax exemption is in excess of $5 million per person, many of those policies are no longer needed to pay estate taxes. We recommend that you review your insurance coverage and talk to us about your options, which could include selling a policy rather than letting it
lapse and forfeiting all of the premiums that you (or the ILIT) have paid in over the years.
PASSING RETIREMENT ACCOUNTS TO CHILDREN: OUTRIGHT OR IN TRUST?
Generally, retirement accounts should be left outright to the surviving spouse to defer the income tax on the funds for as long as possible. However,
it may make sense for them to pass in trust to children at the surviving spouse’s death, rather than outright. Doing so may better protect a child’s
share of the retirement assets from (i) a divorcing spouse’s claims that income earned on the account is community property in Texas, (ii) estate taxes, and (iii) the child’s creditors. Note that Texas law precludes creditors from seizing inherited retirement accounts held directly by a child,
but that protection may not apply if a child moves to another state without corresponding protection.
A trust must be specifically structured to secure these benefits and still permit a child to “stretch out” withdrawal of the retirement funds and thereby
defer payment of income taxes for as long as possible. Often, conventional trusts will not accomplish both objectives. Please contact us if you would
like us to ensure your retirement accounts pass in this protected and tax-advantaged manner.
ESTATE FREEZE PLANNING: MAKE YOUR MINERALS WORK FOR YOU
With oil prices at a six-year low, now is an ideal time to make your minerals work for you in your estate planning. First, your low-value minerals are transferred to an entity such as a limited partnership. Because an entity can qualify for certain valuation discounts, this “squeezes” down the
value of the minerals. Second, your ownership interests in the entity are transferred to one or more trusts, by gift and/or sale, thereby “freezing” the
value in your estate. The trust can be: (i) solely for the benefit of your children and their descendants (e.g., an Intentionally Defective Grantor Trust),
(ii) for the benefit of you and/or your spouse (e.g., a 678 Trust and/or a Spousal Lifetime Access Trust), or (iii) a combination of those trusts. When
your mineral interests increase in value in the future, all of that appreciation occurs in a pocket not subject to estate tax, saving potentially hundreds of
thousands of dollars or more. Please contact us if you would like to take advantage of this low-mineral-value environment.
ESTATE FREEZE PLANNING OPTIONS WITH A GROWING OPERATING COMPANY
Another ideal asset for “squeeze” and “freeze” planning is an operating company that will appreciate in value. The value of the operating
company can be “squeezed” down through valuation discounts, perhaps to a value equal to 4 to 5 times its operating earnings. The company then can
be sold to a trust for a note equal to the “squeezed” value. This means that the trust should be able to pay off the note in 4 to 5 years. All earnings of
the company after the note is paid off can then be accumulated in the trust, where it will not be subject to estate tax.
MAXIMIZE THE TAX BENEFITS OF YOUR CHARITABLE GIFTS
The Pease Limitation is a cutback of the allowed itemized deductions for high income earners. This pesky limitation takes some of the fun out of
charitable giving by reducing the itemized deductions of taxpayers, significantly in a lot of cases.
But, for those who are charitably inclined, there is a way to avoid this limitation. The secret? A Charitable Lead Trust. The Pease Limitation
generally doesn’t apply to charitable donations made from a trust, so by creating a special type of charitable trust called a Charitable Lead Trust
(known as a “CLT”), the trust can make your annual charitable contributions for you. The basic aspects of a CLT are a trust that is (1) authorized to
make distributions to a charitable organization and (2) funded with income producing assets. When the trust makes charitable contributions, it gets a
full dollar-for-dollar deduction against the trust’s income. This means that, if you’re in the top tax bracket, this technique sends an additional 43.4 cents
on each dollar to the charity instead of to the IRS. Plus, the assets you place in a CLT are not subject to estate tax. At the end of the CLT term, the
assets remaining in the trust can pass to your descendants. If you intend to make charitable contributions a part of your estate plan, consider utilizing a
trust to prevent the IRS from becoming an uninvited beneficiary of your generosity.
Page 3
DON’T LET YOUR PARENTS’ ESTATE TAX EXEMPTION GO TO WASTE
Many Americans have unwittingly been dubbed members of the “Sandwich Generation.” Statistics say that about one in seven middle-aged adults
provides financial support to at least one adult child and at least one parent over the age of sixty-five. Affluent adults are even more likely to be members of the Sandwich Generation than members of the general population.
Wealthy individuals with parents of more modest means should consider their options for benefitting a parent. For example, an affluent individual might make $14,000 annual exclusion gifts to a parent. Additional steps should be taken to make sure gifted funds remaining at the parent’s
death do not pass back to the child in a way that would cause them to be subject to the estate tax at the child’s death.
Here is how this technique might work: child uses annual exclusion amount to gift funds to a trust for the benefit of parent; parent is given the
right to withdraw up to the first $14,000 gifted to the trust in any given year, but declines to do so allowing funds to remain in trust; the trust provides
asset protection against parent’s creditors and protection against scam artists who prey on the elderly; funds are available for the support of the parent
during his or her lifetime; appreciated assets remaining in trust at parent’s death might qualify for a step up in income tax basis to fair market value as
of parent’s date of death; parent’s estate tax exemption and generation-skipping transfer tax exemption is applied to the funds so that they can pass to
the child and successive generations in trust as long as the law allows without incurring estate tax. This is a very efficient way to assist elderly parents.
YOU’RE NOT FINISHED PLANNING JUST BECAUSE YOU HAVE USED YOUR LIFETIME GIFT TAX EXEMPTION
Don’t give up on estate planning just because you have used all (or almost all) of your lifetime gift tax exemption. This also applies to those individuals who would like to preserve their gift/estate tax exemption. The first planning option to keep in mind is the annual exclusion, which allows
each individual to make tax-free gifts of $14,000, per year, per recipient (or $28,000 for a couple per recipient). Annual exclusion gifts utilize
no gift tax exemption and are one of the easiest ways to reduce estate taxes. Remember that annual exclusion gifts can be made with assets other than
cash. Other planning options that don’t require the usage of any gift tax exemption include the creation of a GRAT. A GRAT (Grantor Retained Annuity Trust) lets you transfer an asset (e.g., stock or other asset anticipated to appreciate in value) to a trust for a set number of years, removing it from your estate but requiring the trust to pay you an annuity during the term of the trust. When the GRAT ends, any remaining value in the
GRAT can be transferred to your descendants without incurring any gift tax. Finally, you should consider a sale of assets to a “678 Trust” or a
“grantor” Trust in exchange for a promissory note (with a low interest rate) to remove those assets from your estate while “freezing” them at their current value. There are many opportunities available to you, whether you have gift tax exemption remaining or not.
PLANNING CAN SAVE INCOME TAXES AND ESTATE TAXES
Estate planning often involves making large lifetime gifts to irrevocable trusts. The changing tax environment makes it important to be sure that, by
planning for the estate tax, the effect on income taxes is not ignored.
Capital gains tax. The capital gains tax is a tax levied on capital gains, which is the difference between the price paid for the asset (the “basis”) and
the sales price of the asset. In 2015, the top capital gains tax rate is 23.8%. Under current law, all assets owned at death receive a new basis equal to
the assets’ fair market value as of the taxpayer’s date of death. Estate tax. The estate tax is a tax levied on assets owned at death over the remaining
federal estate tax exemption. In 2015, the federal estate tax exemption is $5.43 million per person, and the estate tax rate is 40%.
A common planning technique is to make lifetime gifts to an irrevocable trust, removing assets from the estate. However, the assets owned by the
trust will not receive a step up in basis at the taxpayer’s death. Many taxpayers see this as a deterrent, but there are ways to have it all.
One solution is to include in the trust a power to substitute assets, meaning that you can swap assets in the trust with assets outside of the trust of
equal value. Another solution is to allow the trustee to sell trust assets back to the grantor. With either solution, the asset growth is monitored
after the date of the gift. Low-basis assets in the trust can be swapped or purchased for high-basis assets. The low-basis assets owned by the taxpayer will receive a step-up in basis to the fair market value as of the date of the taxpayer’s death, and the high-basis assets will continue to be owned
by the trust, avoiding estate tax. This effectively minimizes both the estate tax and the capital gains tax.
USING INTRA-FAMILY LOANS TO HELP YOUR CHILDREN
Would you like to help your child buy a house or start a business, or would you like to provide your child with funds to invest? If so, consider making a loan to your child instead of gifting assets to him or her outright.
Any gift exceeding the $14,000 annual exclusion amount will use up a portion of your lifetime gift and estate tax exemption. In contrast, loans allow
you to transfer assets to your children without using any exemption. While the unpaid balance of the note will be in your estate for estate tax purposes,
a child will retain the appreciation over the interest due on the note.
Loans between family members can also be beneficial, in that the required interest rates are generally lower than those available through commercial
lenders, and the loan terms can be much less stringent. For the month of March, the minimum interest rate for long-term loans (more than 9 years) is
2.19%, which is lower than the current rates for a 15-year mortgage. And, like with commercial loans, the child may be able to deduct the interest payments on his or her income tax return.
This newsletter contains generalizations and simplifications. Prior to implementing any estate plan, you should consult with competent tax and legal counsel to assess your specific circumstances and determine whether any particular technique discussed in this communication would be appropriate for you and could be implemented in a manner designed to achieve the
desired favorable outcome. This newsletter including any attachments is not intended to be, and should not be construed as, U.S. federal tax advice for purposes of Circular 230 and may
not be used for the purpose of avoiding penalties under the Internal Revenue Code. Additionally, this newsletter including any attachments is for education purposes and is not intended to
be used for, and should not be used for, the purpose of promoting, marketing or recommending to another party any transaction or matter addressed herein.
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The Blum Firm, P.C.
777 Main Street, Suite 700
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Ten Estate Planning Ideas For 2015
NUMBERS TO KNOW IN 2015
MARVIN E. BLUM
Super Lawyer
(2003 - 2014)
Estate Planning
Tax Law
GARY V. POST
Super Lawyer
(2006 - 2014)
Estate Planning
JOHN R. HUNTER
Super Lawyer
(2004 - 2014)
Tax Law
Lifetime Gift Tax Exemption … $5,430,000
Estate Tax Exemption … $5,430,000
GST Tax Exemption … $5,430,000
Annual Gift Tax Exclusion … $14,000 per donee
Top Estate/Gift/GST Tax Rate … 40%
LEN WOODARD
Super Lawyer
(2014)
Business/
Corporate Law
STEVEN W. NOVAK
Super Lawyer
(2013 - 2014)
Estate Planning
AMANDA L. HOLLIDAY
Rising Star
(2008 - 2014)
Estate Planning
The comments compiled for this newsletter are general in nature and are not tailored to any particular situation. As in the case with any estate, tax or financial planning recommendation, the planning tips suggested in this summary should not
be implemented without carefully considering the total economic impact and obtaining the advice of counsel. The advice of an attorney, accountant, or other financial planning professional will provide valuable aid in analyzing the suitability of
the particular estate, tax, or financial planning tip for you. By providing this information, The Blum Firm, P.C. does not assume any obligation to provide notification of future changes in laws. Please contact us if the information we have
provided affects you and you would like to discuss. The content of this letter was prepared by Marvin E. Blum.
Ten Estate Planning Ideas For 2015 is provided by The Blum Firm, P.C. to provide current information about developments in tax and estate planning.
© Copyright 2015 The Blum Firm, P.C. All Rights Reserved.