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?

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.

Are You a Sitting Duck in Your Law Practice? An In-Depth Look at ADA Accessible Websites

by Audrey Ehrhardt, Esq., CBC, Practice42

ADA accessibility and compliance in law firm websites across the nation are becoming not only more relevant, but a necessity as we see an increasing amount of litigation against businesses over their websites.  Website accessibility lawsuits center around the fact that all, or a portion of, the business website or app is inaccessible to the disabled.  We are watching as the filing of website accessibility lawsuits rises dramatically.  While in 2017, we only saw an increase in these types of lawsuits by 17%, in 2018 we have seen an increase by 181%.¹

Most of us understand and have taken the steps we need to take in order to ensure our physical location is ADA friendly, but what about our law firm website?  From parking spaces and clear, wide entryways to employee training on relay communication and braille friendly documents, our law practices are friendly to disabled persons.  This holds true in many small firms, even when they are not required to be disability-friendly under Title I of the ADA.

Documentary Film, “Lives Well Lived,” Continues to Impact Lives, For Both Young and Young at Heart

In January 2019, at The Heckerling Institute on Estate Planning, a select group of InterActive Legal subscribers were invited to a private luncheon screening of the documentary film, "Lives Well Lived."  The film visits with 40 people ranging in age from 75 to 100 years young and casts a light on what these fully actualized individuals continue to do in order to make their own lives rich and well lived in the latter decades of life.

At the January event, InterActive Legal guests were delighted to meet and have their photo taken with the film’s creator, Sky Bergman.  Ms. Bergman closed out the event by describing the creative process behind the film and answering audience questions. 

 

InterActive Legal Welcomes Deirdre R. Wheatley-Liss, Esq. and Scott M. Solkoff, Esq. to its Advisory Board

Melbourne, FL - InterActive Legal welcomes Deirdre R. Wheatley-Liss, Esq. and Scott M. Solkoff, Esq. to its Advisory Board.

It is my honor to welcome two of the nation’s top elder law attorneys, Deirdre Wheatley-Liss and Scott Solkoff, to the InterActive Legal Advisory Board. It is fitting that Deirdre and Scott join our cadre of Advisors at the same time, because each of them exhibits what I have come to appreciate as the essential qualities of many successful elder law attorneys: compassion for those they serve, a commitment to supporting the elder law community and their colleagues, and the entrepreneurial spirit to develop a thriving practice.

Deirdre, a long-time InterActive Legal subscriber, has a depth of knowledge in the areas of elder law and estate planning, and a phenomenal insight into the business of an elder law practice. She understands the needs of the broad spectrum of elder law attorneys, whether practicing at a large firm or in a solo practice. Scott, in addition to being a talented and successful elder law attorney, has a unique gift for teaching, which I had the pleasure of witnessing when I attended the 360° Elder Law Practice Builder Conference earlier this year. His ability to explain the foundational concepts of elder law and estate planning in a way that is comprehensive yet approachable led to numerous “a-ha” moments for all of us in attendance, regardless of background and level of experience.

Meet the newest member of InterActive Legal's content team, Mohineet Khosla!

 

Melbourne, FL — InterActive Legal extends a warm welcome to the newest member of its legal team, accomplished estate planning attorney, Mohineet Khosla.

Mohineet Khosla received her J.D. from New York University School of Law in 2001. Following law school, Mohineet practiced for over a decade at Milbank LLP in NYC, where she was a colleague of InterActive Legal Editor-in-Chief and Co-Author, Jonathan Blattmachr, and InterActive Legal President, Vanessa Kanaga. Her practice included providing sophisticated estate planning advice to high net worth families, both domestic and international. Mohineet has also represented clients in audits before the Internal Revenue Service and fiduciaries on complex estate and trust administration matters.

As a consultant with the InterActive Legal Content Team, Mohineet will apply her expertise in researching and developing content for the InterActive LegalSuite programs. Her depth of knowledge and experience, combined with her meticulous and reasoned approach to her work, will allow InterActive Legal to continue to enhance and expand its offerings while maintaining the quality and accuracy that have given InterActive LegalSuite its reputation as the premium automated document drafting system for estate planning and elder law attorneys.

The Merging of Estate Planning and Elder Law

by Scott M. Solkoff, Esq.[1]

Two major pressures are moving the practices of Estate Planning and Elder Law together. The dominant pressure is one of demand. For most Americans, the greatest threat to their financial well-being is not taxes. It is the cost of incapacity and long-term care. Addressing these needs with the ethics and skills of an attorney are in high demand. The second pressure is the continuing erosion of value proposition. This second pressure is further broken down twofold: perceived commoditization and the reduced market for tax planning.

Those who routinely deal with high net-worth clients are largely insulated by these pressures. The very wealthy can bear the storm of incapacity and long-term care and they are more apt to understand the value of good lawyering relative to taxes. Given today’s large exemption amounts, however, only one-tenth of one percent of Americans are subject to federal estate, gift and generation-skipping tax exemptions.[2] Most Americans need a different approach, one that blends the Estate Planning and Elder Law toolboxes.[3]

Estate Planning Attorneys are therefore looking to diversify their practices, address prevalent problems and preserve or increase their income streams. Many are wedding Elder Law to their existing practices. Elder Law is among the fastest growing areas of law and has a great level of personal reward. For Estate Planning attorneys, it is also a relatively easy practice area to incorporate since Elder Law and traditional Estate Planning are not-too-distant cousins. This blog post explains the core practice components of an Elder Law practice and how to determine whether Elder Law is right for you.

Healthy Debate Shines Light on Automated Drafting

by Vanessa L. Kanaga, Esq.

A recent set of articles published in the February issue of Trusts & Estates discusses the pros and cons of using Document Assembly Systems (referred to in the articles as "DAS"). The articles are nicely presented as a Point/Counterpoint feature. In the first article (the "Point")[1], Jonathan G. Blattmachr[2] and Martin M. Shenkman[3] discuss the advantages of using DAS in an estate planning practice, ultimately reaching the conclusion that DAS are a must for estate planning attorneys, because they offer the consistency and efficiency needed to stay competitive in the market. In the “Counterpoint” article[4], Douglas J. Paul[5] warns of the dangers of using DAS in an estate planning practice, primarily focusing on the concern that attorneys will become overly reliant on DAS, rather than applying their own expertise in planning and drafting documents for clients.[6]

Certainly, it goes without saying that my colleagues and I appreciate and share the views expressed in the Blattmachr and Shenkman article. However, what may come as a surprise is the extent to which we respect and welcome the objections and concerns discussed in the Paul article. It may be tempting for those of us in the DAS business to sweep the counterpoint article under the rug, or argue that it reflects an outdated view that will be irrelevant in the near future. Yet, the truth is that Paul raises reasonable points that should be in the mind of any good attorney considering the use of DAS in practice. In fact, I venture to say that those of us in the industry are intimately familiar with the concerns raised in the Paul article, because we face them every day, in addressing the questions of prospective customers, and in the decisions we make regarding our systems and the documents within them. The Trusts & Estates articles shed light on these concerns, creating a welcome opportunity to address them in an open forum. In this post, I will discuss how the concerns raised by Paul, though valid, can be addressed by selecting the right system for your practice.

How the Elder Law Attorney Can Help the Personal Injury Attorney

By Joanne Marcus, MSW, and Karen Dunivan Konvicka, Esq., Commonwealth Community Trust



This article was originally published in "NAELA News."  The opinions expressed in this article are those of the authors and are not to be construed as an endorsement by NAELA or InterActive Legal.

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 will it affect his or her benefits. First, you will likely have to help the personal injury (PI) attorney assess the type or types of benefits the client is receiving and determine if the settlement puts the 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 the assets managed; or perhaps public benefits may be necessary in the future.

Medicaid, the means-tested public benefit for people with disabilities 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 workers with disabilities 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 of these benefits provide a monthly income to people with disabilities. SSI is means-tested, just as Medicaid is, but SSDI, like Medicare, is not; therefore, SSI income will need to be considered when planning.