Testing The Inheritance Of Test Tube Babies Born Post-Mortem in Utah

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The number of children conceived through in vitro fertilization has doubled over the last decade. The technology that has made these children possible has also challenged inheritance laws, especially in circumstances when a child is conceived after the death of a parent.

Planning an inheritance is hard enough when you know all of your family members. Matters can get dicey when planning to include future generations yet unborn. However, the current science of fertility, preservation, and in vitro fertilization has stretched inheritance laws to new limits when it comes to determining “unknown heirs.”

The New York Times noted some of the challenges in an article titled “Fertility Treatments Produce Heirs Their Parents Never Knew.”

There was a time, not so long ago, when family lines split and branched like a tree. This was known, literally, as per stirpes in the estate law canon. Inheritance law has adhered to this concept.

Problems arise when family lines do not follow neatly branching blood ties in a one-to-one relationship. More specifically, what happens when certain kinds of fertility treatments or preservations allow “genetic material” to be preserved well past the lives of the genetic mother or father? Are these children still heirs?

Utah law on the subject is governed by the Utah Uniform Parentage Act  78B-15-101 et. seq. The Utah Uniform Parentage Act, Utah Code section 78B-15-707, states, ” If a spouse dies before placement of … sperm …, the deceased spouse is not a parent of the resulting child unless the deceased spouse consented in a record that if assisted reproduction were to occur after death, the deceased spouse would be a parent of the child.”   In Utah , it is clear from the statute that one’s status as a biological father, is legally insufficient to confer on a biological father the status of “parent”.  Additionally, Utah Code Section 75-2-114(1) apparently requires compliance with the Utah Uniform Parentage Act in order to establish the parent and child relationship insofar as intestate succession is concerned.

In rich estates this means a new potential heir to lay claim to assets. In even more modest estates, this means a new eligible child for their parents’ benefits under various governmental programs.

So, how do you plan for the heir you will never know? In the first instance, it likely will all hinge on why you preserved genetic material in the first place. Many now preserve eggs prior to undergoing chemotherapy or another treatment, and some simply before menopause. Many men preserve genetic material before going to war or, likewise, just in case.

If you have preserved your genetic material, then what are your reasons for doing so? And in Utah if you do preserve your genetic material for purposes of creating heirs, you must specifically comply with the somewhat complex requirements of the Utah Uniform Parentage Act in order have your wishes carried into effect.

 Reference: The New York Time (August 30, 2013) “Fertility Treatments Produce Heirs Their Parents Never Knew”

Employees as Potential Candidates in Utah

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He chose two people he wanted to sell to who were already working in the company. They were young, they were paid well, and they were happy with what they were doing. “Look,” he told them, “I’m going to be out of here in 10 years. You’re going to own the company if you want it. Here’s what you need to do.”

It was the best of business successions; it was the worst of business successions. There is a right way to sell the business to your own managers or your own family members, and then there is a wrong way. Since you cannot live long enough to make all of life’s mistakes, then it is wise to learn from the mistakes of others.

In this spirit, consider a recent article in The New York Times titled “The Wrong Way to Sell a Business.”

Essentially, there are two types of owners when it comes to the sale or succession of their business. First, there is the one who knows they will sell the business, but procrastinates all the way up to the bitter end. This is not the owner/manager to emulate, and the article showcases a proof-positive example.

While you might think your managers are ready and willing to buy your business, they may have other ideas. Regardless, they likely will need time to acquire the capital and then structure their affairs accordingly. If nothing else, managers are not owners until they start thinking of themselves as such, and a bit of lead time can instill such a feeling.

But what about the other type of owner? Again, the article provides an example of an owner/manager who has a very decided life-goal in place and can therefore work to instill life-goals in his managers. Accordingly, if you plan for yourself, and allow your managers to plan for themselves, then you can train managers who can transition into becoming owners.

When the succession planning is successful, the transition is almost nothing more than economics. True, sometimes these transitions just do not work out, but it is rarely out of an abundance of planning or understanding. Instead, more than a few deals fall apart simply because they are all too sudden and unplanned.

Reference: The New York Time (August 29, 2013) “The Wrong Way to Sell a Business”

Roth IRA Inheritance Planning For Grandchildren and Your Utah estate Plan

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I have a Roth IRA that I would like used for my great-grandchildren’s education. Can it be inherited by minors or a trust for their benefit?

IRAs are not just about retirement planning. No, they also are important estate planning tools. This is especially true when it comes to Roth IRAs.

One specific application for Roth IRAs is in the context of inheritance planning for grandchildren. Unlike “regular IRAs,” there will be no future “income taxation” on withdrawals from Roth IRAs. MarketWatch recently explored this issue in a Q&A titled “How to leave your Roth IRA to a minor.”

Is it possible to leave a Roth IRA to grandchildren for educational purposes or, failing that, to a trust for their benefit? The short answer: yes. The Roth IRA (or other IRA) can be left as part of the inheritance simply by naming one or more individuals as the beneficiary or beneficiaries under the plan. In the case of the Roth IRA, you can name a trust as a beneficiary, thereby allowing a single IRA to either work overtime for a host of beneficiaries or to more carefully manage it. The regular IRA present a different problem when dealing with naming a trust as beneficiary.  I have explained that problem in an earlier post regarding conduit trusts.

Of course there is a long answer to this question, too. Naming a minor as a direct beneficiary to a Roth IRA account will require a legal guardian, which may be a court-appointed role. Problem: the legal guardian appointed may not be the person you would have selected. Moreover, the IRA will not be skirting the court system as you may have intended by passing free of the courthouse.

Arguably, naming the trust as beneficiary does require the expense and thoughtfulness of establishing a trust, but the benefits typically far exceed getting caught in the legal red tape of the probate court.

Essentially, Roth IRAs are unique assets and giving to minors always involves a bit of a challenge in and of itself. However, since Roth IRAs are some of the most commonly owned assets, it makes good sense to plan for their efficient administration after you are gone.

So, how does your Roth IRA (or other IRA) currently fit into your estate plan?

Reference: MarketWatch (September 20, 2013) “How to leave your Roth IRA to a minor“

What To Do When You No Longer Want Your Utah Trust

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Setting up a trust can be complicated. Now investors are discovering it can be even trickier to unwind one.

Trusts are powerful legal creations. Unfortunately, they are as often misunderstood as understood by the very people who have them. Some are asking “how do I set up a trust?” while others are asking “how do I get rid of the trust I already have?”

These conflicting questions are not an indictment of trusts, but they are really the consequences of our current legal and tax environment.

Trusts, of course, are amongst the most powerful tools for moving wealth outside of the reach of the gnashing teeth of the estate tax. However, the estate tax level has not been predictable for much of the last two decades. While the estate tax level was recently twice set to drop to lows not seen in a decade or more, Congress miraculously hiked it back up to far more generous exemption amounts with far less damaging taxation percentages.

In other words, some taxpayers have found that a trust might not be doing the work for which they established it simply because Congress got it right. Following this thought, The Wall Street Journal recently published an article titled “How to Dismantle a Trust.”

As the article notes, there is a way to properly blow up your trust. On the other hand, do not be too quick with the dynamite. Why? There are far more important reasons to keep your trust independent of any present or future estate tax exposure.

For example, the probate avoidance enjoyed through a properly funded revocable living trust can save time, money and inconvenience should you become incapacitated and upon your death. Moreover, the inheritance protection available for your heirs can be an important consideration.

If you have yet to set up a trust, there are still many great reasons to establish one for yourself and your heirs. On the other hand, if your current trust is more burden that benefit, then the trust can be shut down.

Reference: The Wall Street Journal (September 20, 2013) “How to Dismantle a Trust“

Utah Tax Appraisals – There Must Be A Method To Appraiser’s Madness

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Sloppiness of an appraisal doesn’t matter.  Reliability of an appraisal doesn’t matter.  Even proper application of facts underlying an appraisal doesn’t matter.  What makes an appraisal “qualified,” says the Tax Court, is whether it provides sufficient information to enable the Internal Revenue Service to evaluate an appraiser’s methodology. 

Giving, bequeathing and otherwise charitably donating cash is straightforward and easy. Cash embodies the very concept of economic value, after all. On the other hand, non-cash assets must be apprais Utah Tax Appraisals – There Must Be A Method To Appraiser’s Madness

ed to determine (and justify) the value claimed by the donor. In short, under such circumstances the appraisal must be a “qualified appraisal.”

The issue of valuation and taxation is an entirely opaque matter, to the tax court and taxpayers alike. WealthManagement.com recently attempted to provide some clarity in an article titled ““Qualified Appraisal” of Façade Easement and Development Rights.”

The article hinges on a fairly recent tax court matter known as Friedman v. Commissioner, but the issue of what qualifies as a “qualified appraisal” is age old. As you may well know, to give an asset that does not have a readily ascertainable monetary value requires a valuation for IRS purposes. This valuation, in turn, requires an independent expert to issue their “qualified appraisal.”

Unfortunately, it is not always a simple matter. For instance, the qualified appraisal of stock in a privately held business is entirely different than the qualified appraisal of a unique piece of art. Moreover, neither the stock nor the art bear any resemblance to the fairly simple qualified valuation of a house.

According to the WealthManagement.com article and the underlying tax case cited involving a façade easement (a fairly intangible asset, you could say), what makes a “qualified” valuation is the clarity of the underlying methodology. Translation: the tax court must at least understand how a value was determined and that a relevant method was used to get there. Understandably, the tax court is not an expert on any given asset valuation, just the tax law. That said, the tax court may engage their own experts for their own appraisals, especially with items like artwork.

Whatever basis the tax court uses, it just goes to show how intractable the problem of value is to the law. As for you, one planning for your assets and estate, it also goes to show the absolutely essential need to engage a qualified expert to produce a “qualified appraisal” regarding the value of your assets.

Reference: WealthManagement.com (September 26, 2013) ““Qualified Appraisal” of Façade Easement and Development Rights”

Donations to your Utah Charity- Think of “Unnecessary” Life Insurance

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Here’s the situation: You have a whole or universal life-insurance policy that you or your heirs don’t really need. What do you do? Well, you may want to donate it to your favorite charity.

To be over-insured is not exactly the same problem as being under-insured. Ask any widow or widower. That noted, if you have sufficient assets to provide for your loved ones, then you may have life insurance you really do not need. In that case, consider donating it to charity.

Many of us tend to think of charity as an act of signing over an immediate gift. Nevertheless, even products like life insurance policies are important charitable contributions. What seems like a relatively small contribution now can have a big payoff later.

The Wall Street Journal considered the ins-and-outs of donating life insurance in a recent article titled “Donating a Life-Insurance Policy to a Charity.”

Basically, you have two fundamental options when it comes to being charitable with your life insurance policy. First, you can designate the charity as your primary beneficiary and the proceeds will pass upon your death. This approach provides a tax benefit to your estate, but no lifetime tax benefit to you.

Alternatively, you can give the life insurance policy itself to the charity right now and enjoy tax benefits right now just as with any other immediate charitable contribution. Once the policy is owned by the charity, the charity can designate itself as the primary beneficiary.

This latter alternative, gifting the ownership now, also means you can get further tax benefits by continuing to make cash gifts to the charity so it can continue to pay the life insurance premiums. This is pretty savvy, if you currently support the same charity with cash donations.

These are notions worth exploring, if you truly have life insurance that no longer serves the purpose for which it was acquired. However, do make sure your family security is assured before taking action.

Reference: The Wall Street Journal (September 18, 2013) “Donating a Life-Insurance Policy to a Charity – See more at: http://blog.elder-care-lawyer.net/2013/10/donations-to-your-utah-charity-think-of-unnecessary-life-insurance.html#sthash.jpI6n5UU.dpuf

Making The Most Of Your Utah Business Sale

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When business owners take these three sets of actions, they’re strongly positioning themselves to not only get the best price for their companies, but to also make certain they and their families become as wealthy as possible. Unfortunately, not all that many business owners are taking these actions.

It is so easy to pour your life into the business. You may even regard the business as your life, especially if you love the work and it is a family business to boot. Unfortunately, for many a business owner the life after the business seldom gets the attention and planning it requires.

If you might wish to sell your business in the future for the good of your future life, then there is much planning to do even now.

Since the business is such an integral part of your personal wealth, and perhaps also of your family wealth, planning time is time well invested. Thinking about, planning for, and knowing when to pull the trigger on the sale is just good life-planning. It can be tricky, too.

Forbes gave a few tidbits of wisdom on the topic of maximizing your business sale and the ensuing wealth in a recent article titled “How Business Owners Maximize Personal Wealth Selling Their Companies.” The article provides three steps worthy of consideration.

Essentially, you must plan to put the business in the right place to be bought, plan to put the family and yourself in the right place to sell, and plan to come to the negotiation table ready to get what you need.

Because your business, your family and your life goals are unique, be sure you “measure twice (at least) and cut once” when it comes to this major event.

There are no mulligans you can use once the ink is dry and the money has changed hands regarding your business sale.

Reference: Forbes (October 1, 2013) “How Business Owners Maximize Personal Wealth Selling Their Companies”

Art Advisory Panel – Art Police For Your Salt Lake City Art Transactions

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Officially, they are merely volunteers, members of the obscure-sounding Art Advisory Panel of the Commissioner of Internal Revenue. In reality, they are the taxman’s art police, and anyone with art worth more than $50,000 may end up on their radar.

The IRS has been getting its share of bad press as of late. However, one positive is the Service seems to know what is in its wheelhouse – and what is not. The IRS knows taxes, but looks to outside experts when it comes to valuing art.

Do you have any valuable art in the family? If yes, then you need to be more than familiar with the Art Advisory Panel. Its opinion is potentially your burden. When it comes to taxation, no one likes surprises.

The Art Advisory Panel is, in the history of the tax code, a fairly new invention dating back to 1968. Despite its relatively recent existence, the influence of the Art Advisory Panel has only increased over the intervening decades as the value of art itself has skyrocketed.

The Wall Street Journal recently provided an introduction to the Panel in an article titled “The Art (Tax) Police.”

Practically speaking, the value of art is ambiguous at best, and yet it is also very real. Just because you regard a painting as “priceless,” some potential purchaser just might give you, your estate, or your heirs a very definite and taxable price for it. The Art Advisory Panel exists to double-check your numbers on the real-world taxable value of the artwork for the purposes of the assessment of taxes or even charitable deductions. Consequently, the Panel truly is the tax police of the art world, scrutinizing any piece of art assigned a value of more than $50,000.

Happily, the Panel finds in favor of the taxpayer about half of the time. Unhappily, those taxpayers on the losing end find themselves stuck with a larger than anticipated tax bill and, perhaps, penalties.

When it comes to the valuation of art, it is worth your time to get a qualified appraisal so you are well-prepared if the IRS calls in the art (tax) police.

Reference: The Wall Street Journal (September 20, 2013) “

Evaluating “You” in Your Estate Plan?

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Executors of estates for people who owned small businesses, particularly in service areas like law, accounting or medicine, where the revenue is reliant upon the owner, often face the opposite problem of the Salinger and Jackson estates: the values plummet when their owners are gone, but the I.R.S. still assesses a tax on the value at the date of death.

Some assets are easily valued, while others are unique and hard to value. But how do you value assets unique to “you” and even assets that, for all intents and purposes, are you?

From a human interest perspective, if nothing else, you will want to read about the estates of Michael Jackson and J.D. Salinger as reported in a recent article in The New York Times titled “Putting an Estate Value on the Assets Unique to You.”

It seems there is a commonality between Michael Jackson, the late king of pop, and J.D. Salinger, the late author of The Catcher in the Rye. Beyond their fame and [relatively] recent passing, the value of both estates has been a moving target with the IRS solely as a result of their passing.

In the case of Jackson, his estate was rather valuable at the time of his death. Nevertheless, the estate value has continued to skyrocket with ongoing IRS scrutiny. The initial valuation of the Jackson estate came to a mere $200 million. However, with the benefit of several intervening years of high sales driven largely by an improving image of the late Jackson (an image not driven by scandal, you might say) the IRS has come to value the estate at $700 million. The estate was not worth as much when he passed and only shot up in value because of his passing (and an economic upswing). So, which value is fair?

If the estate value does not come until well after, or well before the time of death, at which time should it be valued and how do you plan for that?

The Jackson estate value is newsworthy because of who he was, but the situation is not all that uncommon.

Intangible assets often face radical valuation spikes. Think intellectual property and patents, as common examples.

On the other side of the coin, there can be plummeting estate values, such as when a business owner dies. The sole-proprietorship may be valuable when the owner is alive, since the business is them. However, that is hardly a reasonable basis for valuation and taxation once they’re gone.

Indeed, the valuation of many estates can be more of an art than a science.

Reference: The New York Times (September 27, 2013) “Putting an Estate Value on the Assets Unique to You”

Open Season On Medicare Enrollment- Tips for Utah Citizens

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Medicare’s open enrollment season begins Tuesday October 15. That’s when the nation’s 50 million Medicare beneficiaries who are 65 or older can choose, switch, add or drop their 2014 health and prescription plan coverage. The open enrollment period is scheduled to end December 7.

And so the race is off! That is to say, Medicare open enrollment period began as of October 15 and beneficiaries have until December 7 to find the right plan and sign up. Earlier is better, as in all such decisions, but all the same you (or your loved ones) should take great care in selecting a plan this year since it is no typical enrollment period.

The trouble with this enrollment period is that it is more confusing than ever before. Medicare reform, the opening of Obamacare exchanges, and no small amount of political dysfunction have seeded misunderstanding and misinformation. Consequently, this environment has left the door wide open for elder abuse and Medicare scammers.

If you (or your loved ones) are facing this confusion head-on, and perhaps for the first time, then it helps to have a new set of tips for the current year. Fortunately, Forbes lends a helping hand in a recent article titled “Tips For Medicare’s Tricky Open Enrollment Season.”

This also is a good time to bone up on the subject of Medicare, as local community seminars and informational hearings can be a great resource.

Reference: Forbes (October 14, 2013) “Tips For Medicare’s Tricky Open Enrollment Season”