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Financial Power of Attorney and Estate Planning

A financial power of attorney can be a very useful document for many reasons and under different circumstances.  Many people will have their financial power of attorney prepared ad executed when they undergo their estate planning.  If you have questions relating to a financial power of attorney, other estate planning documents or estate planning questions in general, contact The McGuire Law Firm.  A Denver estate planning attorney at The McGuire Law Firm can assist you with the drafting of a will, powers of attorney and other estate planning documents.

Common Estate Planning Documents by Denver Estate Planning Attorney

What are common estate planning documents?  This may be a common question asked of an estate planning attorney, and it is important for people who are beginning to plan their estate to understand what their options are.  Common estate planning documents could be:

– Will and Last Testament

– Living Will

– Medical Power of Attorney

– Financial Power of Attorney

– Revocable Living Trust

The above estate planning documents could be considered common documents that you would discuss with an estate planning attorney.  You can contact a Denver estate planning attorney at The McGuire Law Firm in Denver, Colorado or Golden, Colorado.  The McGuire Law Firm provides a free consultation with an estate planning attorney in Denver to discuss your estate planning questions and needs.  The video below has been prepared to provide additional documents regarding common estate planning documents.

Contact The McGuire Law Firm to speak with a Denver estate planning attorney!

Medical Power of Attorney Discussed by Denver Estate Planning Attorney

A medical power of attorney can be a very important estate planning document.  A medical power of attorney can provide for individuals to assist you with medical issues if in fact you would need such assistance.  The video below has been prepared by a Denver estate planning attorney to provide additional information regarding a medical power of attorney.  You can contact The McGuire Law Firm to schedule a free consultation with a Denver estate planning attorney.

Schedule a free consultation with an estate planning attorney in Denver, Colorado- 720-833-7705.

When Should I Create My Will?

Estate planning attorneys will often be asked, when should I create my will?  This is an important question, because having a will can be very important.  Generally, individuals with minor children will want to have a will prepared, and many people as they age in life want their will prepared so they can designate how they leave behind certain assets and their legacy.  Thus, you can begin to plan your estate at any point in your life and you do not need to be wealthy to go through the estate planning process.

The video below has been prepared to further discuss this issue.  To speak with a Denver estate planning attorney, you can contact The McGuire Law Firm.

Contact The McGuire Law Firm to speak with a tax attorney in Denver- 720-833-7705.

Conditional Gifts, Gifts by Minors & Mistake of Fact or Law When Gifting

In previous articles we have discussed incomplete gifts and the power to revoke, and how such matters could impact making a gift in terms of estate planning and estate tax.  The article below will continue to discuss related matters, but focus more on conditional gifts, gifting to a minor and a mistake of fact.  Please remember to always discuss your specific estate planning and tax matters with your estate planning attorney, tax attorney and/or tax advisor.

Certain states will recognize the doctrine of a condition gift.  If your applicable state does recognize the doctrine of a conditional gift, the conditional gift transfer can be incomplete for gift tax purposes.  General property law principals would hold that a gift is complete and irrevocable upon completion of the transfer and acceptance by the donee (individual receiving the gift).  Under the conditional gift doctrine, a “gift” however can be subject to a condition and thus the initial transfer would not be deemed a completed gift for purposes of state property law if in fact the condition is not satisfied.  Thus, if the gift is not a completed gift under state law, it may not be a completed gift for federal tax purposes- estate tax and for purposes of your estate planning.  In terms of cases dealing with this issue, see Ver Brycke v. Ver Brycke, 379 Md. 669, 84 A.2d 758 (Md. 2004).

Gifts by minors bring certain questions and issues into consideration as well.  Because a minor is legally incompetent, a minor makes a gift and transfers property to another person the transfer may be disavowed by the minor, and the ability to disavow could cause the gifted property to go back to the minor who gifted the property.  Thus, is this a completed gift when a minor transfers property?  A gift by a minor is incomplete for federal gift tax purposes if under the applicable state law, the gift can be reverted back to the donor for a reasonable time after the minor has reached the age of majority in the applicable state.  Under these circumstances, the gift from the minor would be considered complete when the minor’s power disavow the gifted property lapses and the minor can no longer “take back” the property.

If a grantor has made a unilateral mistake of fact or law, a gift into trust can be considered incomplete if state law would allow for the revocation  For example, if a donor incorrectly transferred the incorrect (or unanticipated) amount of property, the transfer could be considered incomplete and not subject to gift tax.  However, it is important to note that a mistake as to the tax consequences of a gift will generally not allow the gift to be considered an incomplete gift.

The gifting of property can be an important part of estate planning, but has many tax implications and issues to consider.  Thus, it is important to discuss gifting issues with an estate planning attorney or tax attorney.  You can speak with a Denver estate planning attorney and tax attorney by contacting the McGuire Law Firm.

Contact The McGuire Law Firm to schedule a free consultation with a Denver tax attorney and estate planning attorney!

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Gifts Within One Year of Death

Previous articles and information posted by The McGuire Law Firm have discussed issues related to a step up in basis and carryover basis depending upon whether the property was gifted during a donor’s lifetime or acquired at death via inheritance.  Given the marital deduction, Congress was concerned that certain individuals may take advantage of the unlimited marital deduction and code sections that allow for a step up in basis.  Thus, Internal Revenue Code section 1014(e) was enacted to prevent certain abuse.  The article below has been prepared by a tax attorney in Denver to provide additional information related to IRC Section 1041(e).  Please remember that this article is for informational purposes and you should always contact your tax attorney or estate planning attorney directly regarding your tax and estate planning matters.

IRC Section 1014(e) prohibits a step up in basis in regards to appreciated property that was acquired by the decedent via a gift within one year of their death.  Thus, section 1014(e) would provide for a carryover basis for such property.  Section 1014(e) specifically states: In the case of a decedent dying after December 31, 1981, if: (A) appreciated property was acquired by the decedent by gift during the 1 year period ending on the date of decedent’s death, and (B) the property is acquired from the decedent (or passes from the decedent to) the donor of the property (or the spouse of such donor), the basis of the property in the hands of such donor (or spouse) is the adjusted basis of the property in the hands of the decedent immediately before the death of the decedent.  Appreciated property is defined as “any property if the fair market value of such property on the day it was transferred to the decedent by gift exceeds its adjusted basis.”

By requiring that the donee spouse survive for at least one year after the transfer, IRC Section 1014(e) limited the ability of a tax free transfer to a terminally ill spouse and then the receipt of such property upon the death of the terminally ill spouse with a step up in the basis of the property.  Moreover, the Internal Revenue Service has also ruled that IRC Section 1014(e) will apply to portions of property that are held in a joint revocable trust funded with assets that were held by the grantors as tenants by the entireties.

In 2001, the Economic Growth and Tax Relief Reconciliation Act repealed Section 1014, and a carryover basis position was implemented under IRC Section 1022.  This code section will (or may) apply to decedents passing after December 31, 2009.  IRC Section 1022 holds that property received from a decedent is treated as if received via a gift, thus the recipient of the gift would have a basis equal to the lesser of the decedent’s adjusted basis of the fair market value as of the date of death.  Thereafter the 2010 TRA did reinstate the estate tax and fair market value basis at death provisions, and repealed the IRC Section 1022 carryover basis for decedents passing after 2009.  Thus, the provisions and application within these code sections can be confusing, and it is important to understand the history.  Again, when looking at the application of these sections and provisions, you should always consult with your estate planning attorney and/or a tax attorney or tax professional.

If you have tax questions or questions related to your estate plan, contact The McGuire Law Firm to speak with a Denver estate planning attorney or tax attorney.  The McGuire Law Firm provides a free consultation with an estate planning attorney and tax attorney in Denver, Colorado.

Denver Estate Planning Attorney

 

 

Depreciation Adjustment to Basis of Joint Property

In prior articles we have discussed the basis in property that is received through a survivorship right.  The article below continues to discuss this issue, but brings an additional variable or issue into the discussion.  This issue being: How does depreciation impact the basis of property that is received by a survivor, or in other words, if the asset received by the survivor was subject to depreciation, how does the depreciation impact the survivor’s basis in the asset?  Please remember that the article below is for informational purposes and you should always consult with your tax attorney and/or estate planning attorney regarding your specific facts and circumstances.

When a survivor acquires property from a decedent prior to death, and the property is included within the decedent’s estate at fair market value when calculating estate tax, the survivor’s basis may be reduced by the amount of depreciation taken by the survivor when calculating taxable income.  The code section to reference regarding this issue is Internal Revenue Code Section 1014(b)(9).  Thus, when a co-owner of property has received benefits from depreciation on the property acquired and eventually obtains complete ownership, the properties basis in the hands of the survivor will be lessened by the depreciation benefit received before the co-owner’s death.

In most jurisdictions, two joint tenants are entitled to one-half of the income and charged with one-half of the expenses.  Thus, upon the death of the first tenant the surviving tenant’s basis in the property would be reduced by one-half of the depreciation allowed during the time the property was owned in joint tenancy.

 

An example may help illustrate this matter.  In 2010 X and Y purchase depreciable property for $100,000.  Over four tax periods, from 2010 through 2013, depreciation of $10,000 is taken each year totaling $40,000, and Y passes away in 2013 when the property had appreciated to $120,000.  X’s basis in the property would be $100,000.  This is the full value of the property included in Y’s estate of $120,000, less $20,000, which is X’s share of the total depreciation taken during the time the applicable property was jointly owned.

Understanding and calculating basis can be complicated and require the maintenance of tax returns and other documents.  But again, we care because you must be able to accurately calculate basis to accurately calculate the gain or loss upon the sale or disposition of an asset.  If you  have questions related to the basis of an asset, you can contact a Denver tax attorney at The McGuire Law Firm to discuss these matters.  Further, The McGuire Law Firm assists clients with certain estate planning matters, and you can discuss the transfer of certain assets with an estate planning attorney if needed.

Denver Estate Planning Attorney Denver Tax AttorneyContact The McGuire Law Firm to schedule your free consultation with a tax attorney in Denver, Colorado.

 

Revocable Transfer Discussed by Estate Planning Attorney

Often when property is gifted, whether directly or perhaps into a trust agreement, the transfer may be incomplete or only partially complete.  An incomplete gift may be from design, and some estate planning attorneys will use an incomplete gift purposefully within an overall estate plan.  Other times, the gift may be incomplete, but not necessarily on purpose.  A gift can be incomplete because of a power to revoke, certain reserved powers and under other circumstances.  The article below has been prepared by an estate planning to provide information relating to an incomplete gift due to the transfer being revocable.  Please remember to discuss your estate matters directly with your estate planning attorney.

When a donor gifts property, whether the gift is into a trust agreement or otherwise is incomplete to the extent the donor has the right or reserves the right to revoke the transfer.  The ability to revoke the transfer or revocation power could be a directly expressed or implied based upon the facts and circumstances.  If a transfer is subject to a revocation power, the transfer or gift becomes complete only when the donor’s power to revoke the gift has terminated or has been relinquished.

As stated above, the power to revoke can be implied if a trust agreement indicates that the donor, in essence has reserved the power to revoke.  One court case within the United States Tax Court, In Mandels Est. v. Commissioner, 64 T.C. 61 (1975), the court determined that the grantor’s initial transfer into the trust agreement was not a complete gift because a gift into trust was revocable under state law (New York State law).  The court made this determination even though the trust agreement did not expressly provide for a revocation power.  However, within the trust agreement, the donor maintained the majority of the elements one would consider regarding incidents of ownership over shares of the stock of a closely held corporation that were transferred into the trust.  In Mandels, the trust agreement specifically prevented the trustees from selling, transferring, pledging or encumbering the stock.  Furthermore, the trustees could take no action or proceedings regarding the stock of the closely held corporation.  Furthermore, the donor (trust grantor) retained the rights the stock dividends as well as redemption and liquidation proceeds, as well as the right to vote the shares.  Thus, under these circumstances, the donor or grantor had retained too much power, or the implied ability to revoke the transfer and thus the gift was deemed incomplete.

A gift that is deemed incomplete may impact an individual’s overall estate plan and estate or gift tax consequences.  Thus, it is important that you consider these issues with your estate planning attorney and tax attorney when drafting estate planning documents.  You can speak with a Denver estate planning attorney and tax attorney by contacting The McGuire Law Firm.

Burden of Proof When Stepping up Basis of Jointly Owned Property

Under Section 2040(a) of the Internal Revenue Code, all jointly owned property must be included within a decedent’s estate, except for any portion that can be shown to have originally belonged to the surviving joint tenant, and that was never received or acquired by the surviving joint tenant from the decedent for less than full and adequate consideration.  Section 1014 of the Internal Revenue Code will generally give a surviving joint tenant a step up in basis as to the portion of the jointly held property that was included in the decedent’s estate.  This inclusion of the jointly held property in the decedent’s estate may or may not create any estate tax due, which would or may depend upon the use of the decedent’s unified credit or use of the marital deduction depending upon who else was a joint tenant.  Regardless, the inclusion of the property in the joint tenant’s estate will allow for the step up in basis.  This step up in basis could lead to taxpayers arguing that a larger portion of the jointly held property was included within the deceased joint tenant’s estate.  A taxpayer may be able to accomplish this by failing to show that they had contributed to the property.  Thus, what happens if the surviving joint tenant or tenants fail to or makes no attempt to establish their contribution in regard to the acquisition of the jointly held property?  Can the surviving joint tenant or tenants receive a full step up in basis to the fair market value of the property as of the date of death?  Who has the burden to prove a step up in basis should be allowed and the amount of the step up in basis?

One United States Tax Court case touched on some of the issues or questions above.  In Madden v. Commissioner, 52 T.C 845 (1969) the consideration furnished test was applied when the taxpayer included one half of jointly held stock in his wife’s estate tax return.  Such inclusion was made even though the deceased wife had not paid any consideration for the stock that was included within her estate tax return.  When the taxpayer sold the stock, a stepped up basis was used in computing the gain on the sale of the stock.  The basis was challenged by the IRS and the taxpayer unsuccessfully argued that his wife’s estate had failed to prove the burden that the consideration was not paid by the wife, and thus one half of the stock should receive a step up in basis under IRC Section 1014.  As stated above, this argument was unsuccessful as the court held the taxpayer had the burden to prove, and failed to prove that the jointly held property was required to be included in the decedent’s estate.  See IRC Section 1014(b)(9).  The reasoning of the court was that a taxpayer should not receive a tax advantage by deciding whether or not to include jointly owned property within an estate.  Thus, the “requirement” issue.

Under the current law, the consideration furnished rule will likely not apply to most cases involving property that is jointly owned by spouses, and one half of the property will be included within the estate of the first spouse to pass.  However, the consideration furnished test is likely to apply to non-spousal joint tenancies  and thus Madden can be of relevance.

You can contact The McGuire Law Firm to speak with a Denver estate planning attorney and tax attorney through a free consultation.

Denver Estate Planning Attorney

Basis in Property Received Via Right of Survivorship

What is the basis in property that you receive via right of survivorship?  This is an important question for tax and estate planning purposes.  For tax purposes, your basis will impact your gain upon the sale or exchange of the property.  For estate planning purposes, you may hold property differently or gift certain property differently depending upon whether such property will receive a step up in basis or a carryover in basis.  The article below has been prepared by a tax attorney at The McGuire Law Firm to provide additional information regarding this issue.

Prior to revision the Internal Revenue Code only allowed  a step up in basis to the fair market value of the property at the date of death if the property passed from decedent by a bequest, inheritance or devise.  Thus, property held jointly did not receive a step up in basis because the property was viewed to have been acquired via a lifetime transfer, not an inheritance, bequest or devise.  When the Internal Revenue Code was later amended, Congress must have considered why a step up in basis for jointly held property would not be allowed when the property was included in the gross estate of the decedent for estate tax purposes.  Therefore, the code was changed to allow a step up in basis for property passing to the survivor of a joint interest.  The basis of the property could be stepped up or increased to the fair market value as of the date of death, or on the alternative valuation date if an alternative valuation date was elected.  It is important to note that joint property treated as income in respect of decedent under Section 691 of the Internal Revenue Code, is an exception to the current rule and thus does not receive the step up in basis.

What happens if only a portion of the joint property is included within the estate of the first joint tenant to pass away?  The survivor’s basis may be determined in part by the rules of Section 1014, potentially receiving a step up in basis and in part by reference to the basis of the survivor before the deceased joint tenant’s death.  This can be troublesome for the survivor, if the survivor received the property through titling (for example as tenants by the entirety) because the transfer can predate certain code sections and the transfer may not be treated as a gift.  Thus, could one tenant’s basis be zero?

Given the benefit of a step up in basis, individuals need to plan carefully when orchestrating their overall estate plan.  Under certain circumstances, it may be better for an individual to inherit property as opposed to a life time gift.  Of course, each individual’s circumstances are different and should be discussed with their tax attorney and/or estate planning attorney.

You can contact The McGuire Law Firm to discuss your estate and gifting matters with a Denver estate planning attorney, and discuss the tax implications of certain gifts with a tax attorney.

Denver Estate Planning Attorney