Common superstition says that famous deaths come in threes, but the death of New York Yankees owner George Steinbrenner on July 13 makes four billionaire deaths in 2010. It’s hard to deny the significance of such events in a year when there is no estate tax.

According to the Associated Press Steinbrenner’s family is set to receive a tax break of “about $328 million” because of the estate tax repeal this year. This number, along with the millions of dollars saved (that would otherwise have gone to pay estate taxes) by the families of Dan L. Duncan, Walter Shorenstein, and Mary Janet Morse Cargill may inspire Congress to take action on the issue of the estate tax before the year is over. The Washington Post quotes Senator Bernard Sanders of R.I. as saying, “In the midst of this terrible recession, the idea of giving billionaires a massive tax break is obscene… Already we have four billionaire families who are not paying taxes — Steinbrenner’s being the last one. Many billions are being lost. We have to address that reality right now.”

Although there is still some talk of the possibility of the estate tax being reinstated retroactively, most lawmakers and attorneys agree that the further into 2010 we get the less likely this becomes. But missing out on the estate taxes of four billionaires has to hurt, and the members of Congress are not likely to drag their feet much longer. One way or another, we can soon expect to see the issue of the estate tax become a hot topic of debate in Washington. Our firm will keep you abreast of any changes to the law that could affect you, your loved ones, or your estate.

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2010 has been anything but ordinary as far as the estate tax is concerned. First there was the unexpected repeal of the estate tax (unexpected not because the repeal was unplanned, but because nobody expected it to actually happen), then the idea that congress could reinstate the estate tax and make it effective retroactively, and now there are rumblings that certain Senators are considering a prepaid estate tax!

According to this article in the Christian Science Monitor, “News reports suggest that the Senate may soon consider restoring the estate tax with an option allowing people to prepay their tax before they die. Details are apparently still in flux as senators negotiate. We—and maybe they—don’t know yet what they’ll propose for the basic estate tax but it’s unlikely to be harsher than the 2009 version.”

If something like this gets passed, a visit to your estate planning attorney will be more important than ever, especially if you have the wealth to protect and the means to spend some money now to save a lot of money later.

Of course, this is all just speculation right now, but even the idea of prepaid estate taxes tells us just how much the government is counting on that revenue—one way or another. If you were under any illusions that the repeal of the estate tax might turn into a permanent thing this should be more than enough to convince you that the estate tax is here to stay.

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Usually on this blog I write about how to protect your real estate; how to keep business property profitable and how to pass personal property on to the next generation.  But every once in a while the market plays tricks on us, and property you thought would be a good investment ends up weighing you down.  What do you do then?  How do you turn unproductive property from a liability into an asset?

During the recent downswing of the real estate market, many people found that holding on to unproductive property was becoming a financial hardship. Although the market seems to be on the rebound, not all property is rebounding as quickly—or as strongly—as we’d like.  And yet many people are reluctant to sell their property at a loss. The good news is that there are ways to get the most out of property that no longer serves your family or your business (although it may not be the ways that you think), these include:

• Giving the property as a charitable donation
• Transferring the property into a charitable “lead” trust
• Keeping the property in a retained life estate.

If you think you might like to look further into leveraging your property—for charitable purposes or otherwise—please contact us for more information. Our office can answer your questions about the tax advantages of making a charitable donation of property; or alternatively of keeping the property, but holding it in a separate protective entity such as an LLP or FLP.

When considering your estate, your real property is likely your greatest asset. Let our firm help you decide how to make the most of your real estate, whether you choose to leverage it now or keep it safe for the future.

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What is a QPRT?

Chances are you’ve never heard of a QPRT (Qualified Personal Residence Trust.)  QPRTs are not as familiar as the Revocable Living Trusts (RLT) used by estate planners, and they’re not as prominent as the Irrevocable Life Insurance Trusts (ILIT) recommended by many financial planners; but for the right family and situation, the Qualified Personal Residence Trust can be the perfect solution to your concerns about how to transfer ownership of your home. Think about these questions:

• Would you like to protect your personal residence or vacation home from creditors and lawsuits?
• Would you like to pass your property to your children with as little estate tax or gift tax as possible?
• Would you like to continue to live in your home, but know that it will pass smoothly and tax-free to your children when you no longer need it?

A QPRT is one tool that can help you accomplish all of these goals by taking the property out of your taxable estate and putting it “in trust” for a specified number of years before ownership is transferred to the beneficiaries. During the specified number of years the grantors retain the right to live in the home and continue to take responsibility for maintenance and upkeep; however, at the end of the term the value of the “gift” to the beneficiaries is not based on the current market value of the property, but on the much lower actuarial value of the property as determined by the IRS actuarial tables.

In this way, creating a Qualified Personal Residence Trust is a useful way to give property to your children without incurring high estate taxes or gift taxes—and it allows you to continue living in your residence until a time of your choosing.

Setting Up A QPRT

Before you set up a QPRT you’ll need to decide 3 things:

1. Who will serve as the initial trustee(s)?—This will usually be the property owners—the people who will continue to use the property until the end of the term.
2. How long will you want to continue to live in the home?—This should be a length of time that is useful to the grantors, but not so long that the grantors are likely to pass away before the end of the term.  If the grantor dies before the end of the term the entire value of the property will end up being included in the taxable estate.
3. Who will be the ultimate beneficiaries of the trust?—This is most often the grantor’s children. But have caution when choosing your beneficiaries, once the term is over the property belongs to the beneficiaries, who may or may not choose to allow the grantors to continue their residence in return for fair market rent.

Once you’ve answered the above questions you’ll want to talk to an experienced attorney who can help you safely set up your QPRT.

What are the benefits of a QPRT?

The main benefit of a Qualified Personal Residence Trust is that it allows you to give a gift of significant value to your heirs without incurring heavy estate or gift taxes.  A QPRT removes a valuable piece of property from your taxable estate while allowing you to continue to enjoy the benefit of living in it.  Mom and dad have the security of knowing they won’t be kicked out of their home, while their children rest easy knowing that the inheritance of the family property is a foregone conclusion.  Additionally, during the time that it is in trust, the property is safe from lawsuits or creditors because it is not yet officially owned by either the grantor or the beneficiaries.

Are there any drawbacks to creating a QPRT?

A QPRT will not be the right solution for everyone. First of all, a QPRT will not be of much benefit if your property is still mortgaged.  Secondly, if the grantor dies before the term of the trust is up the property goes right back into the taxable estate and any benefits will be lost.  Thirdly, due to the exacting nature of the IRS rules and regulations, the creation of a QPRT requires the help of a knowledgeable and experienced attorney or tax planner—this is not a trust to attempt on your own!

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Do you own a home?  If so, do you know what is going to happen to that home when you die?

Perhaps you want your spouse to have the house when you die.  Or maybe you plan to leave it to your kids. The question is: how is that transfer of ownership going to take place?

If you own your home jointly with your spouse you are probably safe in assuming that title will automatically pass to that spouse when you die; no need for probate, no need to re-title, a joint tenancy transition is generally very smooth. Unfortunately, the real problems with joint tenancy appear when the surviving spouse passes away and your children or other heirs have to contend with the lengthy and expensive probate process. Not only this, but your estate will be subject to estate tax, your heirs may be forced to sell in a down market—or be prevented from selling in an up market—there are simply no guarantees without an effective estate plan.

The fact is—if you own a home, you need a trust.

Putting your home into a living trust essentially keeps it out of your probate estate.  A living trust is an entity that continues even after the grantor passes away, which means that the “owner” of the asset still exists, and probate is thereby avoided. When you pass away ownership is transferred smoothly and immediately to the beneficiaries of the trust. In this way, you can leave your home to your spouse and then to your children without having to go through the probate process.

Another benefit of living trusts is their flexibility.  Whether you want to transfer ownership to a spouse, hold the property for a certain number of years while your children mature, sell and divide the proceeds among your grandchildren, or leave it to a charitable organization, a trust can help you do it.

If you have rental or investment property you may want to consider an LLC or FLP in combination with a living trust as a way to own the property, avoid probate, and easily transfer ownership when you die. For more information about the best way to hold your property, contact my office today.



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