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Articles Tagged with trusts

By Leah Morrison, Attorney
English, Lucas, Priest and Owsley, LLP

trustsWhen it comes to planning to avoid or minimize Federal Estate tax, there are four (almost) magic words that frequently appear in trust documents: health, education, support and maintenance, known in the trust and estate law industry as HEMS. Outside of the tax advantages of including HEMS in a trust document, these words also impact the administration of the trust. When a trust includes HEMS language, beneficiaries from the trust may receive funds from the trust for those type of expenses, and those only.

A trustee is placed in charge of the trust. That trustee usually has broad latitude in determining how many distributions are made from the trust and in what amounts – but HEMS language is included to limit what those distributions may be used for. Trustees must ensure that the distributions fall under those categories. Trustees are often a lay person, and in many cases, a family member. This can make things particularly sticky and confusing, especially if there are disagreements among family members.

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By Nathan Vinson, Attorney 
English, Lucas, Priest and Owsley, LLP

just married photoAs early as 2000, states began grappling with the issue of same sex marriage. Some states allowed unions. Some allowed marriage. Some didn’t allow either. Now, with the U.S. Supreme Court’s decision in Obergefell v. Hodges, all states must allow and recognize same sex marriages. So moving forward, what happens at tax time if you’re married in one state but live in a state that previously didn’t recognize same sex marriages?

The American Bar Association offered an online Continuing Legal Education seminar by attorneys Patricia Cain and George Karibjanian recently to help tax attorneys sort through some of the more difficult legal issues surrounding same sex marriage.

It’s been a mess, frankly, for same sex couples.

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Broken Heart by Prawny on MorgueFileHardly anyone goes through the process of putting together a comprehensive estate plan with the intentions of getting divorced from their current spouse thereafter. It is, however, a fact of life that becomes reality for a large portion of society. Divorce can affect more than just a person’s emotions and wallet. Here is a brief overview of the effect of divorce on your estate plan.

The Will

In Kentucky, a divorce or annulled marriage “revokes any disposition or appointment of property made by the will to the former spouse, any provision conferring a general or special power of appointment on the former spouse, and any nomination of the former spouse as executor, trustee, conservator or guardian, unless the will expressly provides otherwise.”  KRS 394.092.  The statute goes on to provide that property that would have passed to the former spouse by will now passes as if the former spouse predeceased the decedent.  Put simply, Kentucky law basically “removes” the former spouse from your will, unless you expressly provide otherwise.

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Morguefile photo by Ricorocks

Having a child can be exciting (and stressful).  Probably the last thing you might think to do when having a child is to update an estate plan, but it’s absolutely necessary.  Here are 6 things to consider when you have a child.

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housesMany elderly clients feel the need (and rightfully so) to plan for the protection of their home from creditors, including government interests, during their elder years and after their death. It is too often forgotten the planning tools available that provide benefits now rather than later. In line with our recent posts regarding tax issues and real estate (see Life estates and Kentucky inheritance in estate planning), we would like to share some little known potential federal tax savings for the elderly community. Here are two illustrations of what you can do now to protect what’s likely your biggest asset: your home.

Having a child live with you

The United States Tax Court recently decided a case where a son moved into his mother’s home to take care of her after her divorce from the son’s father. The son could not afford to purchase an interest in the home, but he orally agreed to make the monthly mortgage payments, and in exchange, his equity interest in the home would gradually increase (presumably by the amount of principal on the mortgage that the son paid down). The son filed his IRS Form 1040, claiming a mortgage interest deduction for the tax year that he first began living in the home and caring for his mother. The IRS denied the deduction and imposed a substantial penalty. The Tax Court held that the son’s deduction was proper, and thus generally held that interest paid on another’s mortgage can be deducted. The Court explained that even though the son was not liable on the home loan secured by the mortgage, and that the ”indebtedness generally must be an obligation of the taxpayer and not an obligation of another,” the son could claim a deduction for the mortgage interest he paid because he was an equitable owner of the home (Phan v. Commissioner, Tax Court Summ. Op. 2015-1).This case represents a unique planning tool for the elderly community.  A person may planto pass down his or her home to a child or children at death, but would like to remain in the home. However, the person may also have trouble paying the mortgage on the home. A child or children may move into the home, agree to pay the monthly mortgage in exchange for equity in the home, and properly claim a mortgage interest deduction for federal tax purposes.

Elvis items

Many people collect all kinds of things, and these collections come to hold tremendous sentimental and in some cases monetary value. As people age, they begin to think about who they would like to have certain items or entire collections, and sometimes, bold relatives or friends suggest they’d like to receive something special to remember you by. Gifts and promises of gifts are also made to honor a special relationship.

These type of collections can cause significant arguments after you are deceased. The best way to avoid such disputes is to clearly specify in writing exactly who is to receive what items. Verbally telling a relative or friend what you would like for them to have upon their death, and giving away significant items while you’re still living, causes confusion and prompts some to get greedy.

It’s the last thing anybody wants after they’re gone.

 

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