InterActive Legal Blog

Defined Value Clauses: Ensuring No Adverse Surprises

©2020 by Jonathan G. Blattmachr, Mitchell M. Gans, and Vanessa L. Kanaga. All Rights Reserved.

With very limited exceptions, estate, gift and GST (called "wealth transfer") taxes are imposed on property's fair market value (FMV). Only cash and publicly traded securities have definite values for estate and gift tax purposes. All other assets, such as closely held business interests, land, private equity and art, do not and their FMVs are equal to the price at which the property would trade hands between a willing buyer and willing seller, neither of whom is acting under a compulsion to buy or sell but both of whom have full knowledge of the "knowable" facts affecting value (e.g., the price of land is determined without regard to the fact that there is undiscovered gold under the ground).

In fact, the IRS is known to collect more additional wealth transfer taxes on account of challenges to values reported by taxpayers than all legal issues combined. Moreover, penalties of between 20% and 40% may be imposed on the amount of tax underpaid attributable to an undervaluation of property for wealth transfer tax purposes. Section 6662(g). A reasonable cause exception (subject itself to exceptions) to the penalty is provided under Section 6664(c). The requirements for this exception are fleshed out in Reg. 1.6664-4 and are very worthwhile studying. Among other requirements is that the taxpayer must obtain an independent appraisal of the property transferred.

Hence, one way to try to avoid penalties and an additional wealth transfer tax by reason of an undervaluation is to rely on a thorough and complete appraisal. However, that has not, in many cases, avoided an increase in tax even if it did avoid the Section 6662(g) penalty.

How I am Changing My Practice, Client Meetings, Client Planning, and More to Address the Coronavirus

This article originally appeared in the American Bar Association, RPTE eReport 2020 Spring Issue (May 2020).  This version contains non-substantive grammatical edits for clarity.

Authors: Jonathan G. Blattmachr, Barron Henley, Thomas A. Tietz, Martin M. Shenkman, and Mary Vandernack

Prominent Trusts and Estates attorneys Jonathan G. Blattmachr, Barron Henley, Thomas A. Tietz, Martin M. Shenkman and Mary Vandernack provide their valuable tips for practicing and best serving clients during the current Coronavirus crisis. During the pandemic, trusts and estates services are acutely needed, and the authors give us the benefit of their collective experience.

Introduction

We are in the throes of the Coronavirus pandemic, and even though states are loosening stay-at-home restrictions, the impact on estate planning professionals, as well as their families, finances, and our country, will continue for some time. Estate planners have an incredible opportunity to help clients through this difficult time. However, to do so, we have to address how we can operate our practices though the challenges of remote work and more. A business disaster is defined as anything that interrupts the normal flow of business and the severity is a function of how long the business is impaired, and the severity of the impairment.  For most or perhaps all estate planning firms, this pandemic is classified as a catastrophic business disaster. For some, the severity of the impairment is very significant.  There have been numerous blogs and articles published in the last several weeks of firms that have had their partners stop drawing profits from the firm, had to drastically cut compensation for and laid off both associates and support staff, and still may not be able to weather the economic storm we are currently experiencing. Generally, 25% of businesses do not reopen after closing for a disaster.[1] The long-term impact of Coronavirus on the viability of law firms is uncertain, but by taking proactive measures now, firms may reduce the impact.

What steps and considerations should practitioners, and their firms, take in these times?

How the Trust and Estate Planning and Elder Law Attorney Can Help the Plaintiff Attorney

By Joanne Marcus, MSW, Executive Director, Commonwealth Community Trust

When the call comes from the plaintiff’s attorney asking what should be done about the client’s public benefits, be prepared to answer. The case is about to settle, or the verdict is in, and now the client wants to know how it will affect his or her benefits. First, you will likely have to help the PI attorney assess the type(s) of benefits the client is receiving and determine if the settlement puts those benefits in jeopardy. How did the client receive these benefits – through means-testing or due to work history? Perhaps the PI attorney has not considered benefits but understands that the client is incapacitated and will need their assets managed; or perhaps public benefits may be necessary in the future.

Medicaid, the means-tested public benefit for disabled individuals who are also impoverished, will need to be protected. More than $2,000 in resources and the client will lose this valuable benefit; personal injury proceeds are plainly resources. Medicare, the benefit received by disabled workers who have earned enough quarters to qualify for disability benefits, may also need to be protected as well. In addition, Supplemental Security Income (SSI) and Social Security Disability Income (SSDI) need to be considered. Both benefits provide a monthly income to the disabled. SSI is meanstested, just as Medicaid is, but SSDI, like Medicare, is not. Therefore, SSI income will need to be considered when planning.

Centers for Medicare and Medicaid Services (CMS) has begun enforcing the Secondary Payor Act for liability cases, meaning these clients should have a Medicare Set-Aside account. Some clients are eligible for both Medicare and Medicaid, but can they both be protected? The answer is yes, but not without some planning from the PI attorney and with your help. Adding complexity, many plaintiffs are choosing a Structured Settlement as a part of their proceeds. While providing important benefits to the client, these also have pitfalls to be avoided.

Executive Orders, Proposed Legislation Address Remote Signing During COVID-19 Precautions

By Jonathan G. Blattmachr and Vanessa L. Kanaga

As some of you have already heard, on March 20, New York Governor Andrew Cuomo signed Executive Order No. 202.7, which will allow “notarial acts” required under New York law to be performed using “audio-video technology” (while not mentioned in the Order, presumably this refers to Skype, Zoom, Face Time or similar technology). The New York Order requires the person signing the document to represent that the person is physically situated in New York, and does not address witnesses acting remotely. It is anticipated that the governor of Massachusetts will soon sign a similar order (if it has not already been signed by the time you read this), addressing remote notarization and witness signatures.

These Executive Orders demonstrate a quick and proactive response to the constraints on mobility due to the current pandemic. Practitioners should be cautioned, however, that the use of the executive power to modify notary and witness requirements is, to our knowledge, unprecedented. Although the power granted to governors in some states is quite broad, we cannot be certain that these orders are valid. If possible, the highest court of the state in which such an executive order is signed should render a declaratory judgment on the matter, to give the public and their advisors complete comfort in relying on the orders. This is particularly true with respect to execution of a last will and testament.

Estate Planning is a Process

by Vanessa L. Kanaga, Esq.

Each year, at the annual Heckerling Institute on Estate Planning (known simply as "Heckerling"), InterActive Legal hosts a luncheon for our subscribers, prospective subscribers, and Advisors. The luncheon is our way of thanking those who support us (in addition to providing some sustenance in the middle of a marathon week), and each year we provide a program that we hope our attendees will find interesting and enlightening.  This year, our program featured InterActive Legal Advisor and respected Florida estate planning attorney Alan Gassman, as well as guest speaker, Dr. Srikumar Rao. Dr. Rao is a celebrated author, speaker, and coach, helping professionals better manage and improve their lives and work, and the balance between the two¹.

In the weeks since Heckerling, I have reflected on Dr. Rao's comments during our program, and in the materials I read and watched in preparation for the luncheon. Like any expert teacher, Dr. Rao weaves together several conceptual threads to illustrate his overall lesson, which is intended to guide his audience on the path to a more fulfilling life and career. To loosely paraphrase Dr. Rao, one of those threads is the notion that we, as part of our human nature, focus too intently on the results of our actions, eager to evaluate those results and categorize them as good or bad. Rather than focus on those results, Dr. Rao teaches, we should instead set a goal and then focus on the process we take to achieve that goal. By doing so, we are more present in our daily lives, and able to benefit from the process itself, regardless of whether the result is as we expected. Ironically, by focusing on the process, we often are more likely to achieve the desired result.

I know that many of you reading this will think of it simply as new-age babble, not applicable or helpful to you in your busy workday and life. I know it because I also felt that way at first. We are in a results-driven business; estate planning is just that – planning in order to bring about a certain result. Our clients come to us seeking that result, and we have a duty to do our best to achieve it, if possible. Accordingly, teachings like Dr. Rao's seem, at first glance, not only unhelpful, but anathema to what we are trying to do in our profession. However, being the diligent student, I tried to apply the concept in my work and my life, and I now see the benefit in it. By being cognizant of what we are doing each step of the way toward our goals, we are better able to learn from each experience. We are able to be more flexible and adjust our behavior along the way, which may very well lead to better results in the end. More importantly, even if the result is not what we expected, learning from and appreciating the experience allows us to understand that we have accomplished something through the process, even if not what was intended.

5 Tips to Dividing an Estate Peacefully

by David MacMahan

Drafting estate and trust documents can be fairly routine or may require some serious planning, but it is extremely helpful to the family and solves the issues for how to preserve and divide wealth and assets. But what about the things typically described as, “divide the remaining assets equally between the children”? Have any of you experienced this part either not going well at all, or at least having the executor or the trustee having trouble getting through the process logistically? Below are some tips you may want to share with your clients, or even include in letters of instruction to assist the executor when they are charged with doing something they typically have never done before:

1.  Remember everyone processes grief differently, and peoples’ attachment to the value (emotional value) of things isn’t always a reflection of caring more or less about the lost loved one. Some people really want, or must have things they can touch, see, smell…. that help them remember a person by. Others may find those reminders hurt or interfere with how they want to, or can imagine moving forward. Don’t judge if it looks different than how you are feeling.

2.  Some people want to get through things quickly to get to the other side, and some want to take their time and may feel rushing somehow dishonors the lost loved one. Both feelings can feel very legitimate. And what I would put forth here is that, they are both very legitimate and both approaches should be honored if possible, or at least acknowledged and empathized with. In any case, try to avoid judging.

InterActive Legal Founder, Jonathan G. Blattmachr, is the recipient of Bloomberg Tax & Accounting’s Leonard L. Silverstein Award

Jonathan Blattmachr recognized for years of excellence and contributions.

Melbourne, FL- Bloomberg Tax and Accounting presented the Leonard L. Silverstein Award to InterActive Legal Founder and Editor-in-Chief, Jonathan G. Blattmachr.

The Leonard Silverstein Lifetime Achievement Award, named after the founder of the Tax Management Portfolios for his longstanding contributions to the field of tax, is generally awarded to individuals that have demonstrated excellence in their field throughout their career, made contributions to the tax community at large, and contributed to the success of BNA’s Portfolios.  A recent communique from an official at Blomberg Tax and Accounting had this to say about Jonathan: “There is no doubt that you [Jonathan Blattmachr] not only fit, but exceed by leaps and bounds, all criteria, and we would be honored to celebrate such contributions via this award.”

In receiving this award, Jonathan Blattmachr said, “One of the great honors I got, is… for 20 years, I was Leonard’s personal attorney.  That was a great honor.  I just adored the man and I’m just so sorry he isn’t with us anymore.”

InterActive Legal Advisor Comments on Important Issue Facing Children of Retired Parents

InterActive Legal Advisor and Director of Elder Law Strategy, Letha McDowell, was featured in a recent Money Magazine article titled How to Support Your Retired Parents Without Sinking Your Own Retirement Plan. The article sheds light on the seldom discussed topic of working-age children who find themselves in the position of providing financial assistance to their retired parents, potentially to the detriment of their own future financial security. Letha is quoted extensively, suggesting practical solutions such as direct payment of a parent's utility or other bills in order to ensure that the child's financial contributions are devoted to necessary items. The article draws upon the expertise of Letha and other professionals to provide an informative discussion that will help attorneys and other advisors navigate a situation faced by many of their clients.

Letha's contribution to this article is a prime example of her caring and pragmatic approach to helping her clients, and her commitment to furthering discussion of topics that are critically important to those in the elder law community. We are proud of Letha and her accomplishments, and grateful to have the opportunity to draw on her talents at InterActive Legal. Personally, I am happy to count Letha as a friend and colleague, and congratulate her on her continued success.

Vanessa L. Kanaga, Esq.
InterActive Legal President
and Director of Content Development

Understanding A Client Facing Loss

by Anna E. Byrne

One of the most difficult things we as estate planners face is the eventual and inevitable responsibility of helping and comforting a client whose spouse has passed away.

It is heart wrenching. But it is also the time when we can most offer help and provide the greatest value to our clients, and can create a sustaining and powerful connection between us and our clients.

If you are an established estate planner with some years of experience under your belt, it is a good bet that you learned your profession in the era of the technician. 

Expertise was the professional differentiator, but as more and more technology enters and overtakes document creation and other aspects of our workplace, what will set apart the more successful estate planners in the near future is their ability to master the human side of client interactions.

Times have also changed in terms of the level of service that is being offered to consumers everywhere, and this means that client expectations about what good service means in estate planning has changed as well. It’s not enough to be able to provide the documents and explain the numerical options and outcomes anymore. Human connection does not mean generating more documents and more emails.

A third, significant trend is the reality of demographics. Demographics are destiny, and as baby boomers age, and as wives outlive their husbands to a large degree, widows will become the majority of the clients that you will be helping. 

'Twas the Week Before Christmas

by Teresa Bush, Esq.

 

Twas the week before Christmas, and Congress was trending.

Impeachment and budget bills both had been pending.

Articles to impeach were debated and passed

And left for the Senate to later rehash.

 

With that taken care of, the next thing to do

Was keep the government running, the whole year through.

So Nancy in her power suit and Mitch in his tie

Passed a spending bill that included a little surprise.

 

In the back of the bill, they included a matter,

That sent estate and financial planners a-chatter.

Away to the end of the bill we all paged,

To read about the SECURE Act, and how it had changed.