Monthly Archives: February 2014

Charitable Trusts in the Time of Giving

charitable trust IMAGEWith taxpayers owing such a high percentage of taxes on almost any type of long-term gain, in addition to other taxes –such as the Medicare surtax – those in the top tax brackets might consider establishing charitable remainder trusts for donations of highly-appreciated assets. A charitable trust is a trust established for some charitable purpose. Charitable trusts are limited in what they can do; they must fit into a certain category established by the law.

 Setting up a Charitable Trust

In order to establish a charitable trust, you must first create the trust and donate the property to the trust that will eventually pass to a charity that is approved by the IRS. The trustee will manage or invest the property to produce an income. A charitable trust can pay the person who established the trust a certain percentage of the income that was made from the trust over an agreed upon payment timeline.  After the person that established the trust passes away, the charity becomes the owner of the property.

 Why establish a charitable trust?

An income tax deduction may be available for the value of the property given to the charitable trust. The IRS will consider the value of the property and the amount of income you may receive from the trust in determining your deduction.

In addition to receiving tax benefits, remember that you are also doing something beneficial for an organization that works to put a little extra good in the world.  Current laws make charitable trusts irrevocable. Hence, while you may be able to obtain a cash flow from the property for the remainder of your life, the property cannot be sold later or given to an heir. The administration and management costs associated with charitable trusts should be carefully considered.

Charitable trusts are a great way to give back to your community, and gain a benefit for you as well. If you have any questions regarding charitable trusts, or any other estate planning questions, reach out to an experienced Illinois attorney today.

 

The Importance of Not Relying too Heavily on Portability

portability IMAGEIn 2010, President Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 into law. As part of this law, significant modifications were made to the rules governing federal estate taxes, gift taxes, and generation skipping transfer taxes. Additionally, the law also introduced the concept of “portability” of the federal estate tax exemption between married couples for the 2011 and 2012 tax years. Additionally, last year, President Obama signed the American Taxpayer Relief Act into law. Under the provisions of that law, portability of the estate tax exemption between married couples was made permanent.

 Defining Portability

Portability is a valuable addition to estate tax laws because it allows a surviving spouse to use any unused federal estate tax exemption of the predeceased spouse. Portability may allow some couples to pass significant wealth without complicated estate tax planning.

 Why You Should Be Careful

The unused part of the exemption inherited by the surviving spouse is called the deceased spousal unused exemption (DSUE) amount. Although portability provides some safety for couples that did plan their estate in the traditional way, portability does have some drawbacks that the traditional type of planning with marital trusts does not.  Here are a few:

  • Assets passed on to the surviving spouse can use up more of the tax exemption in the surviving spouse’s estate due to appreciation;
  • If a surviving spouse remarries, and the second spouse predeceases, the surviving spouse will lose the unused exemption amount;
  • The appreciation in the assets after the death of the first spouse is taxable in the estate of the surviving spouse;
  • Federal estate tax returns must be filed for the estate of the first deceased spouse in order to reserve the DSUE amount.

Although portability can provide some streamlining of the estate planning process, every client should meet with an experienced estate planning attorney to discuss the advantages that these new provisions may provide for estate planning. If you have any questions regarding the planning of your estate or the impact that portability may have upon your estate plan, an experienced Illinois estate planning attorney can assist you.

 

Legal Issues Surrounding Lost Art

 adverse possession IMAGEA recent Hollywood-like story out of Munich is setting the stage for some interesting issues regarding estate planning and the rights of heirs. In a raid on the home of Cornelius Gurlitt in Germany, the police found over 1,000 paintings, drawings, and other works of art packed alongside hoarded groceries.  Among the art discovered were works by Beckman, Picasso, Matisse, and Renoir – all taken from Jewish collectors in Nazi Germany.  According to an article from the Chicago Tribune, the art stashed away in Gurlitt’s house could be worth over $1 billion.

 The Nazi Regime and “Degenerate Art”

The art found in Gurlitt’s home was previously possessed by Gurlitt’s father, who helped Adolf Hitler sell art that had been stolen or quickly sold off by Jewish collectors throughout Europe. The Nazis categorized many great works of art as ‘degenerate’ and sold them on the open art market to provide additional wartime funding. Despite human rights organizations and Jewish groups around the world calling on Gurlitt to unconditionally return the art to their rightful owners, the German newspaper Der Spiegel reported that he has no plans of returning the artwork to those who owned the pieces sixty years ago.  Instead, Gurlitt said, he plans on spending his life with the paintings.

Legal Issues

How is it that Gurlitt is allowed to keep art stolen by Nazis?  Due to the sheer enormity of the find by German police officers, there is no legal precedent for what to do with all of the art. While many believe that the art should simply be returned to those who lost it during World War II, the solution is not that simple.  First, a statute of limitations may exist barring collectors who lost their work from making claims against Gurlitt.  A statute of limitations is a legally prescribed time limit in which a lawsuit may be filed in court.  Second, some are already claiming that Gurlitt owns the art through adverse possession.  Adverse possession is a way in which someone else may acquire ownership of property so long as a number of requirements are met, including ‘openly’ using the property so that the true owner is put on notice.

While in the U.S. the doctrine of adverse possession primarily applies to real estate, in Germany it can apply to art as well.  Hence, even if someone who lived under Nazi rule could show that they had lost their property to Hitler’s regime, after decades of the art being in someone else’s possession, any claims for restitution may be barred.

Sometimes the law regarding property ownership and the rights of heirs can be complicated, even nonsensical.  It is therefore important that you make sure all of your assets are accounted for and your estate is planned.  If you have any questions regarding your estate, contact an experienced Illinois estate planning attorney today.