Kansas and Missouri Estate Planning

What are Some Common Real Estate "Inheritance" Issues?

Inheriting real estate can be complex.

You have inherited real estate.

You have a lot of questions.

In fact, tax questions may be foremost on your mind.

According to a recent Petoskey News-Review in the article “The pros and cons of inheriting real estate,” taxes due are dependent upon a few factors.

Not all states have an "inheritance" tax.

If you live in a state without an inheritance tax, you will not owe anything on the property simply because you inherited it.

Kansas and Missouri fall into this camp.

However, our Cornhusker neighbors (oh, how I miss the Big 8 Conference) do have an inheritance tax.

What about real estate capital gains taxation?

How does that work on gifted and on inherited real estate?

Capital gains and losses are calculated based the purchase and sale price of the home.

Let us say your parent gives you his or her home.

The price when purchased was $100,000.

You then turnaround and quickly sell the home at $220,000.

You will need to pay taxes on the $120,000 in gains.

What if you inherit the home instead assuming the same numbers?

If you sell the property at $220,000 soon after the death of your parent, then you will pay no capital gains taxes.

Why?

At death of the owner, the property received a step-up in basis to its new value.

Having the property valued by an experienced real estate appraiser is important for you to determine the actual value at the date of death.

Do not know an appraiser?

Ask an experienced estate planning attorney.

He or she may be able to give you a recommendation.

Taxes are not the only issues faced when inheriting a home.

Interpersonal conflict can arise.

If multiple children inherited a home and they disagree about selling, then families can be torn apart through conflict.

Discuss these plans with your parents and among your siblings before inheriting.

By doing so you will keep family peace and manage expectations.

Open communication throughout the estate planning process will help bring your family together rather than bring discord.

After all, home is where the heart is.

Reference: Petoskey News-Review (June 25, 2019) “The pros and cons of inheriting real estate”

What Estate Plans Should be Made for My Parent's Family Home?

Selling a home can be an ordeal at any stage of life.

Selling a home is no small task.

It involves cleaning, repairs, and moving your things from the space.

According to a recent The Washington Post article titled “With proper planning, selling a parent’s house can be a relatively painless process,” the process can be further complicated.

How so?

You could be selling home on behalf of a deceased loved one.

In addition to the normal activities associated with putting a home on the market, you will be in a state of grief.

Can the process be simplified?

Yes.

If your parents have not yet died, encourage them to get their estate planning affairs in order.

Including their home in the planning sooner rather than later will make the process proceed more smoothly.

If each of your parents do not have a last will and testament, they should begin there.

Understand money will need to be spent in the process of selling the house.

There will be minor repairs and property maintenance.

After your parents die, you should promptly make sure the property is secure.

This involves changing the locks.

By doing so, you will protect the property from both vandalism and theft.

And not all thieves are "strangers," if you know what I mean.

You should have the property valued and appraised by a professional.

Before the house goes on the market, all personal belongings should be removed.

Remember homes just sell better when well presented.

Landscaping and staging should reflect the livability of the home.

"Curb appeal" is real.

Selling a home is a process and communication is key.

The executor should serve as the point person for updating the family members on the progress of that process.

Taxes should be considered when selling a home.

This includes any inheritance, estate, and income taxes.

To minimize estate taxes, it is often advisable to do so as soon as you receive the rights to the property.

Why?

The “step-up” in basis excludes capital gains taxes on the sale of the home, if the sales price does not exceed the date of death value of the home.

In some situations a trust may be beneficial as it can simplify administration and minimize family conflict.

Working with an experienced estate planning attorney can help your family create a plan to best meet the goals of your family for the family home.

Reference: The Washington Post (May 16, 2019) “With proper planning, selling a parent’s house can be a relatively painless process”

How Should I Plan for Valuable Collections in My Estate Planning?

Do not forget your collections in your estate plan.

Collecting is a passion for you.

Through it, you have come to possess a few treasures.

Whether these are intrinsically valuable or their worth is from personal sentiment, your collectables should be included in your estate plan.

According to a recent Forbes article titled “Astute Estate Planning For Art, Antiques And Valuable Collectibles,” personal property is approached differently than financial accounts and assets in estate planning.

How so?

Records.

Unlike a bank account, physical items can be misplaced or “lost.”

To avoid this, you should keep an inventory of your items as well as documentation of appraisals, receipts, and provenance records.

Disbursement.

It is easier for people to steal personal property.

In fact, when someone passes away such items seem to sprout legs and vamoose on their own to the back of an awaiting pickup truck or van! 

For accountability, your executor and heirs should all have a complete inventory.

You should also include instructions regarding who is to receive various individual items or collections.

It may be wise to include photos, identifying descriptions, and serial numbers of them.

Security.

As previously mentioned theft is a real threat.

Home safes, safe deposit boxes, and alarms systems help protect assets.

Make sure your executor and trustee know the codes to access the safe places.

When it comes to safety deposit boxes, make sure your executor and trustee may access the contents when needed.

Accordingly, they will need to sign signature cards now to access the contents later.

Do this without delay.

Insurance is essential to protect your investment in your collectibles.

Documentation.

Be sure to have proof of authenticity of the item.

Keep detailed records of bills of sale, condition reports, photographs, artists’ notes, appraisals, and insurance reports.

This will be beneficial to protecting the history of the item for future generations.

Valuation.

The value of an item can change from time to time.

You may need to include a specialist to speak into the current fair price of the item.

Estate Tax Issues.

These assets are included in your estate and will need to be properly identified, appraised, and included on your estate tax return.

Collectibles can be easily overlooked in this process.

Take the time to specifically plan for these special items.

Reference: Forbes (April 8, 2019) “Astute Estate Planning For Art, Antiques And Valuable Collectibles”

Will The Trump Administration Change the Federal Estate Valuation Rules?

Valuation rules are under review.

There is no definitive answer regarding the fate of the current and controversial estate valuation rules.

Yet.

The Trump Administration desires to reduce tax regulator burdens.

The result?

These rules are now under review by the U.S. Treasury Department.

According to a recent Forbes’ article titled “Hated Estate Tax Valuation Rules On Trump's Hit List,” its review is to be passed on to the President by September 17.

Why is the “Restrictions on Liquidation of an Interest for Estate, Gift and Generation-Skipping Transfer Taxes” under Section 2704 so controversial?

It would curb valuation discounts.

What does this mean?

When a family business owner dies, the estate taxes could be increased.

Those in favor of the rule believe it is important to close loopholes for the wealthy when it comes to taxes.

Those opposed feel the rule removes an important tool for small family businesses.

When the rule was announced last August, people began updating their plans accordingly.

What should you do?

To be safe, you should get a qualified appraisal of your business, make an “adequate disclosure” and file a gift tax return.

Most importantly, do not try to meet this task on your own.

Work with an experienced estate planning attorney to create a plan to meet your needs and satisfy the tax laws.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Forbes (August 11, 2017) “Hated Estate Tax Valuation Rules On Trump's Hit List”

Why is the IRA Socking a Deceased NBA Owner with Death Taxes?

For regular folks, the current estate tax threshold is not a big concern. After all, a single person must have more than $5.43 million and married couples must have twice that.

Such is not the case if you have more that can be protected from the IRS ... especially if you have a lot a lot more.

Enter the case of the Bill Davidson estate. 

Davidson was the owner of the NBA Detroit Pistons and other ventures when he died in 2009 at age 86.

Did you hear about the recent $388 million settlement between the IRS and his estate?

That is hard to fathom.

So, what is the back story?

For the scoop we turn to Forbes and its article titled "IRS Grabs $388 Million From Billionaire Davidson Estate."

It seems about two years ago Davidson's estate took the IRS to U.S. tax court in an attempt to challenge the agency's assessment of additional taxes.

The IRS claimed that the estate owed $187 million in gift taxes, $152 million in estate taxes, and $49 million in generation-skipping taxes, plus a $133,000 gift tax penalty bill.

Two problems factored into to these deficiencies.

First, the IRS claimed that the Davidson estate undervalued some corporate stock and improperly valued the self-cancelling installment notes (SCINs).

On top of the, the IRS claimed that the estate also  underestimated the value of privately held stock held in trust for Davidson's children and grandchildren.

So, what are SCINs?

SCINs are legitimate tax planning devices, but there is some gray area in the way they are structured.

In this instance, the IRS questioned the calculations used and said the basketball team owner was, in effect, making taxable gifts he should have reported.

The IRS requires a "fair exchange" of assets for the notes.

This case is interesting and instructive.

On large estates, "valuation" issues tend to be the Achilles heel.

Even if you are not a billionaire NBA owner, you may have hard-to-value assets.

Teaching point: If you are wanting to take advantage of cutting edge estate planning techniques (like SCINs), then tread very carefully and make sure you have your valuation ducks in a row.

Contact an experienced estate planning attorney if you are considering the use of SCINs or other advanced techniques as part of your estate plan. 

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit my estate planning website. 

Reference: Forbes (July 8, 2015) "IRS Grabs $388 Million From Billionaire Davidson Estate."

Do Not Overlook the Hidden Estate Value of Books

My wife loves to sale. No typo there. She loves to go to "garage sales" to find hidden treasures and for an excuse to leave our home and meet new people. When I accompany her on these adventures, I am often struck by how boxes and boxes of books - old and new - are for sale at their bulk pulp value.

Do not make this valuation mistake if you are charged with settling an estate.

In fact, a recent JD Supra article, titled “California Estate Planning: What to Do if You Inherit a Library,” warns against failing to value books left as part of an estate.

Libraries and rare books in an estate can frequently be hidden treasures.

You never know if the library has tucked away an inscribed first edition of “For Whom the Bell Tolls” by Ernest Hemingway. That’s going for $8,500 on Ebay right now. Or maybe a signed J.D. Salinger “The Catcher in The Rye.” Asking price for this is only $55,000 these days.

There are rare first editions and hard-to-find antique items are out there. But if you are left with the responsibility of sorting through a collection containing hundreds of volumes, and you have little experience with books, where do you start?

An experienced estate planning attorney should be able to help you.

In addition, you can start be doing some of the preliminary research yourself. Websites such as www.Abebooks.com and www.AddALL.com are extremely detailed and gather data from numerous book sites. There is also the American Book Prices Current database (www.bookpricescurrent.com). This is a valuable tool that about every professional bookseller in North America knows and uses. This database shows you if a book has sold at auction in the past.

What if you do not have the time to catalog and research all those hundreds of book titles and ISBN numbers on a website or go through entire libraries by hand? Consult an experienced rare book dealer.

As an expert, he or she can quickly identify rare or unusual items in your library and estimate their worth by taking into account the rarity of a book, its condition, and the book’s provenance (its ownership history).

According to the original article, most rare book dealers are happy to buy books and libraries, as some will want to make you an offer on the most valuable titles. So do not discount a library collection bequeathed in an estate—Ernest or J.D. may be hiding in there somewhere!

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website.

Reference: JD Supra (November 3, 2014) “California Estate Planning: What to Do if You Inherit a Library”

Treasure, Trash And The IRS

Estates with precious artworks or age-old antiques face a central paradox: the more priceless an object is, the more important it is to put a price to it. This is the paradox of valuation for tax purposes.

It gets all the more tricky with antiques composed of protected materials, especially ivory, which cannot legally be sold.

How do you value a priceless yet worthless object?

The problem of valuation is not a new one, but it has taken some serious turns as of late and there is a helpful guide to the whole ordeal over in a recent WealthManagement article titled “Zero Fair Market Value for Antiques?”

Regular readers will already know a good deal about the issues and the recent tax court decision in the Sonnabend case. Quickly stated: in that matter, the Sonnabend estate offered a $0.00 valuation for a famous painting.

Its rationale?

The painting could not have a “fair-market value” since it also could not be sold under U.S. law. The piece was Raushenberg’s “Canyon” and “painting” is a loose term for this mixed media artwork. Problem: It included the remains of a bald eagle, which are protected under various laws and forbidden from sale.

The IRS said no dice after an odd analysis involving the possibility of illegal or foreign markets offering a price for fair market analysis. In sum: regulations forbidding the sale of items within an antique or piece of art do not mean that the tax based on “fair market value” will not be upheld.

Now to ivory. As the original article elaborates, elephant ivory has long been an issue in valuation for estates and taxation purposes. There have been certain workarounds and a notable exemption in the case of antiques. Nevertheless, it looks like the exemption has seen its last days.

The Fish and Wildlife Service issued “Questions and Answers about Director’s Order 210” which states:

Under a special rule that has not yet been revoked, items made from African elephant ivory can still be sold across State lines and exported whether they qualify for the ESA [Endangered Species Act] antiques exception or not. We are working on the regulatory action needed to change this regulation.

As new regulations have yet to be published it is hard to say what the legal circumstances facing estates and family heirlooms may yet be. On the other hand, it is clear that it will become all the more difficult. According to the sources, the market for ivory antiques has already frozen in indecision.

Do you and your family own special antiques and how do you plan for them?

Specific plans must be made for items containing ivory and other substances. In the end, it might simply be illegal and/or impossible to pass them down. These new regulations may be forthcoming, but the issue is one to address sooner rather than later so as to safeguard what you can.

Now is the time to devise a strategy to keep those precious family heirlooms or ensure the highest value for the unique antique collection.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website.

Reference: WealthManagement (June 19, 2014) “Zero Fair Market Value for Antiques?”

Invaluable Easement Valuations / Overland Park, KS

Knowing something is of value is one thing. However, being able to prove the value is another kettle of fish.

Enter the easement valuation ... a fine kettle of fish indeed.

This easement valuation challenge goes double since you are attempting to value an intangible, non-market benefit, and triple when it is the IRS you are trying to convince.

The developing trend against easement valuations was the subject of a recent Forbes article titled “Easement Valuations Not So Easy Anymore.” If you have any possible interest in leaving an easement then it is a problem well worth your planning attention.

So what is an easement and why would you be interested in leaving one? Essentially, an easement is a charitable gift of the right to change your property, or anyone else’s right should they purchase it from you. If you own forested land in the country and you want to conserve that forest as it is instead of putting up a strip mall, then protect it with a conservation easement. If you own historic property in the city and you want to conserve that historic building as it is instead of allowing for yet another contemporary high-rise, then protect it with a conservation easement.

There are lots of hurdles to qualifying as an easement and there must be a charity to eventually run it. Regardless, value is the key hurdle to clear when taking a deduction for the donation without also ruining the value of the property itself. After all, just because you are foregoing utter capitalization of the property does not mean you were hoping to debase any value at all.

As the original article points out, valuation has been a tricky game and it is only getting trickier. With nothing but rough estimates to live off of – there is no market rate for an “easement” after all – valuations fell to simple principles and the (hopeful) applications of percentages. This is what the IRS is now challenging.

No surprise there.

Read the original article for a better understanding of the cases in the works and the challenges now being levelled by the IRS against easement valuations. The bottom-line: this should underscore how important valuation is and how important it is to build your easement plan carefully.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website.

Reference: Forbes (April 5, 2014) “Easement Valuations Not So Easy Anymore”

What Is Your Business Worth? / Overland Park, KS

A business is a tricky thing to plan. First, the busines is a thing in motion rather than an asset at rest. Second, businesses are just a hard asset to value appropriately. Does your retirement plan and maybe your estate plan for your heirs rely upon the business?

I will cut to the chase: do you know what your business is actually worth?

For a sobering problem many business owners end up facing when it comes to valuing their business, be sure to read a recent article in Forbes titled “Is Your Business Worth As Much As You Think? Many Aren't.”

At the core of the article is an interpretation of findings in recent released by Pepperdine University in its 2014 Capital Markets Report.

The key finding: buyers and sellers of businesses cannot agree on how much they are worth.

Instead of negotiating back and forth to an eventual middle ground value, about 1 in 3 engagements fell through without any sale at all.

Now, keep in mind that it is always in the nature of high-pressure deals to come to such divisive and decisive ends. However, all the same there is a lesson to learn when so much is at stake, whether in Overland Park or elsewhere.

What is your business worth and how do you prove it? How do you approach the sale and how do you structure your assets thereafter? This can be a rather complex transaction. Putting it into the proper context and value is essential both in the beginning and the end of the process.

So, again, what is your business worth?

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website.

Reference: Forbes (March 2, 2014) “Is Your Business Worth As Much As You Think? Many Aren't”