Wednesday, April 14, 2021

How to Navigate a High-Net-Worth Divorce

By Carol K. G. Lutz, LL.M., Law Clerk, Morris Law Group

Founder, CEO and president of Amazon, Jeff Bezos, who is currently the richest man in the world with a net worth of $188 billion, got divorced in 2019. While divorce is far from unusual, the extremely uncommon aspect of Jeff and MacKenzie Bezos’s split is that there was no pre- or postnuptial agreement.

An agreement would have typically set out an exact amount of money that MacKenzie would have received in the event of a divorce, among other conditions. The typical arrangement involves waiving all elective share, intestacy, and alimony rights and agreeing on whatever the set amount is, usually a modest sum from the richer spouse and enough for the other spouse to live comfortably for some time but far from 50% of the money spouse’s assets.

Fortunately for Jeff, the divorce was not a contentious one and MacKenzie did not ask for all that she was entitled to by Washington state law, mostly likely due to the fact that they are business partners. She received the far-from-insignificant amount of $38 billion in the split, which is not even close to 50% of her former husband’s wealth. She also gave up all of her shares in the Washington Post and Blue Origin, and only retained 25% of her shares in Amazon.

Other famous high net worth individuals were not so lucky in such an amicable split. Rupert and Anna Murdock’s divorce in 1999 after being married for 32 years still remains one of the most expensive divorces in history. She also was entitled to half of his property, as California is a community property state like Washington, and there was presumably no pre- or postnuptial agreement. Anna walked away with $1.7 billion (now $2.6 billion indexed for inflation). 

Her former husband famously married the woman he was allegedly having an affair with during the last year of their marriage less than three weeks later, to add insult to injury. He later divorced her as well in 2013 for having alleged affairs but made sure to sign prenuptial and two postnuptial agreements this time.

A pre- or postnuptial agreement stipulating exactly who gets what assets is obviously the simplest way to avoid a costly divorce settlement, but what are the alternative options? A postnuptial agreement in particular can be difficult and very awkward to ask one’s spouse for, so we recommend settling up the agreement prior to a marriage.

One way to protect one’s assets from divorce settlement and potentially child support payments is a Domestic Asset Protection Trust (DAPT). Each state that authorizes DAPTs has different statutes dictating what events can pierce the DAPT and how long they must be in the trust before they are protected.

Predictably, the states with the strongest asset protections, including protection from tort creditors, involve incredibly specific drafting and steps to be taken in order to be a valid DAPT that is protected. In fact, in the best states for this strategy, if done correctly, the only creditor that can reach the trust assets is the government. This protection is negated if the transfer to the trust is done fraudulently, however.

At Morris Law Group, our skilled estate and asset protection planning attorneys regularly draft both kinds of trusts for this exact scenario. For more information, please contact us at (561) 750-3850 to schedule a consultation today.

Estate Planning and Tax Law Changes Expected with the Biden Administration

By Carol K. G. Lutz, LL.M., Law Clerk, Morris Law Group
With a change in the presidency comes changes in many areas of the law, including tax law. President Joe Biden’s plan is to reduce the current estate tax exemption to half of its current amount: back to $5 million per person, indexed for inflation. He may possibly call for a reduction as low as $3.5 million per person, depending on what is likely to pass through Congress. The current exemption is $11.58 million per person. What does this mean for you if the exemption is reduced?
If the law changes in 2021, for anyone who has not used their exemption up, they will lose anything over the new amount that is established in 2021. As the estate tax is 40% on any amounts over the exemption, this can mean paying millions more in estate tax, so it is critical for people with estates above $5 million, or married couples with estates over $10 million, to use up their exemption before the end of the year to preserve the tax savings that may be lost. A great way to use up the exemption is to gift the remaining exemption amount to a trust. This would preserve the current record high exemption and provide asset protection from creditors and divorces.
Some assets can be hard to value and would require an appraisal to prevent the IRS from being able to challenge the estimated value several years down the line. A method that would make using a hard-to-value asset possible for utilizing the current exemption amount is to gift assets that are easy to value, such as cash and marketable securities, in early 2021 that are the same value as the other asset and then swapping these assets out for the difficult to value one later on in 2021 after getting it appraised. This will result in no tax and will not jeopardize one’s exemption. Naturally, only certain trusts allow for this kind of asset swap and need to be drafted carefully in order to avoid unintended consequences.
President  Biden also plans to eliminate the basis step-up. We have discussed this in a previous article, but put simply, instead of assets being valued at their date-of-death value and passing tax free, they will use their cost basis and any appreciation between the purchase and death must be noted. The problematic issue here is that finding out how much the decedent paid for an asset can be difficult, if not impossible. If the cost basis cannot be determined, it will be deemed zero, which is incredibly disadvantageous. This issue will be demanding to handle and will require skilled estate planners to navigate as a new challenge in the field.
Be sure to watch Stuart R. Morris's video on the topic of estate and tax planning under the Biden administration here. If you would like more information or guidance on your estate planning, please contact us today at (561) 750-3850 or visit www.law-morris.com.

New Video: Tax Planning During the Biden Administration

Watch the latest video below by Morris Law Group's founding partner Stuart R. Morris, Esq., CPA, B.C.S., on important estate planning and tax planning considerations during the Biden administration. For more information or to set up an estate planning or tax planning consultation with one of our attorneys, please contact Morris Law Group at (561) 750-3850 or visit www.law-morris.com



Tuesday, December 29, 2020

Why Estate Planning Is Critical for Same-Sex Couples

By Carol (Cara) K. G. Lutz, LL.M., Law Clerk, Morris Law Group

After the 2015 case Obergefell v. Hodges, same sex marriage is legal in all 50 states and comes with the same advantages that opposite-sex marriages do, such as tax considerations, intestacy law, and even in hospitals when only family is allowed to see the patient. All estate planning that is effective for heterosexual married couples now works in the same way for homosexual married couples. 

Issues of portability and marital deductions, to list a few examples, are treated the same way for all married couples, regardless of sex. Just like any other couple, same-sex couples should have the basic estate planning documents: Wills, Durable Powers of Attorney, Living Wills, and Designations of Healthcare Surrogate. These documents can name anyone, but as same-sex marriage is now legal, all couples who are married may refer to their partner as “spouse” and there will be no confusion.

Even so, unmarried same-sex couples require more advanced planning. Like any unmarried couple, there is no portability or marital deduction, and nothing will go to the partner in the case of passing intestate (dying without a will). Therefore, it is even more critical to have the necessary estate planning documents in place if the couple is unmarried. Without these documents, the partner of the descendant will not have a claim over any assets and could very likely receive nothing and have no decision-making ability in the event of an emergency. Especially for same-sex couples, the people that do have the ability to make decisions (e.g., family members) by state statute may not be aware of the relationship and assume it is platonic and not a romantic partnership, causing further grief.

This said, one major issue that the Supreme Court did not address in 2015 and continues to be a planning issue is children. Currently, it is not scientifically possible for a same-sex couple to both be the genetic parent of the same child. Other than adoption of a child that is not biologically either spouse’s, the typical solution is for the egg or sperm of one spouse to be used and a third party donor for the remaining required cell. What does this mean for the spouse that is not biologically related?

After a Florida case in 2015 to seek enforcement of the law, both same-sex parents are now permitted to be listed on the child’s birth certificate. While this does not solve all the potential legal issues, it does help with the day-to-day issues, like registering a child in school and being recognized as a parent by the school.

The simplest way around this and all legal issues is for the non-biological parent to adopt the child. This gives the parent all the legal rights he or she would otherwise have if there was a biological relation. Adopted children are treated the same as biological children for estate planning and tax purposes. It is no different than adopting a child with whom neither parent is biologically related.

However, there are some additional concerns for same-sex couples in conceiving a child that heterosexual couples who are unable to have children face as well. Sperm donors and some types of surrogates have given up all legal rights to any children born from their donations, assuming a preplanned adoption agreement has been signed as required. However, a female surrogate retains more rights if her egg is used and she carries the child. A surrogate in this scenario can renege on the arrangement within 48 hours of the birth and decide to keep the child, regardless of a preplanned adoption agreement: an upsetting idea to any couple. That is why it is extremely important to select a surrogate the couple trusts completely.

For more information about estate planning and advance directives, please contact Morris Law Group to schedule a consultation with one of our attorneys by calling (561) 750-3850 or emailing Info@Law-Morris.com.

Thursday, November 19, 2020

How Will the New Biden Administration Affect Your Estate Planning?

Now that the presidential election is over, with Joe Biden as the presumptive president-elect, what changes can be expected in regards to estate planning with the new Biden administration? 

President-Elect Joe Biden is expected to make some major changes after his inauguration in January 2021, including lowering the marginal tax and capital gains rates, reducing the federal gift and estate transfer tax exemption (currently at $11.58 million) and eliminating the step-up in basis. 

To optimize their clients' estate planning, Morris Law Group is advising clients to utilize their exemptions by making monetary gifts now prior to year end. 

Founding Partner Stuart R. Morris, Esq., CPA, B.C.S. discusses the impact of the 2020 election on estate planning with some action steps you can take now prior to year end in this new video on post-election estate planning. Click on the video below to watch it on YouTube. 



Time is of the essence, so please watch this short video and then give us a call to discuss the steps you can take to ensure your estate plan is ready for the new year. For more details, please contact Morris Law Group or call (561) 750-3850.

Wednesday, October 21, 2020

What You Should Know About Setting Up Florida Trusts with Out-of-State Beneficiaries or Trustees

By Carol K. G. Lutz, LL.M., Law Clerk, Morris Law Group
One of the benefits to living in Florida, beyond the nice weather and easy access to beaches anywhere in the state, is the lack of a state income tax. The amount of potential tax savings is what attracts many high net worth individuals, including celebrities, to be domiciled in Florida and have Florida trusts.
However, if the trust contains assets from another state, it may be subject to that state’s income tax. This can be costly for states with high taxes, like New York.
In order for a trust to be subject to New York income tax, it must be set up by a New York resident or have a New York domiciled trustee to be considered a resident trust. If neither of these facts are true, the trust is considered an exempt trust.
However, if there is any New York sourced income, the entire trust is subject to New York income tax and loses its tax exempt status. New York also has a throwback tax on distributions to New York resident beneficiaries from a trust.
This essentially means that a Florida trust with a New York trustee, beneficiary, or New York property that generates income will have to pay New York state income tax. This defeats the purpose of having a Florida trust if the entire trust must pay another state’s income tax.
If you would like more information about setting up a Florida trust or would like to meet with one of our attorneys, please contact us, call (561) 750-3850 or email us at Info@Law-Morris.com.

Estate Planning Post-Election: Biden vs. Trump on the Estate Tax


By Carol K. G. Lutz, LL.M., Law Clerk, Morris Law Group

With any presidential election, there is always the possibility of major changes in the law, especially tax law. Both Joe Biden and Donald Trump have discussed the estate tax in their tax plans, which naturally caught our attention as it is pertinent to our clients. 
With the current pandemic, recent polls have listed taxes as a primary concern of only 1% of voters at the moment, but that does not make the candidates’ tax plans unimportant. Joe Biden and Donald Trump have very different ideas when it comes to the estate tax.

Joe Biden's Tax Plan

Vice President Joe Biden's plan is to pass legislation as soon as possible to reduce the current exemption of $11.58 million to $5 million per person indexed for inflation. At the current exemption, less than 0.1% of people are subject to it. Joe Biden's plan of reducing the exemption to its previous amount, while including more people, still excludes the vast majority. 

In 2016, when the exemption was $5.45 million, 0.2% of Americans paid estate taxes. While this affects very few people, another aspect of Biden's plan does affect everyone: the elimination of the basis step-up. This feature in the tax code allows people to bequeath or devise property to another, and upon his or her death, the recipient receives it at the fair market value at the time of death instead of the purchase price. This eliminates any tax on the appreciation, which can save beneficiaries a substantial amount of money. Further, finding out the current fair market value of property is usually much simpler than trying to find out what the decedent paid for it originally.

Donald Trump's Tax Plan

President Donald Trump’s plan is less defined as far as numbers are concerned, but the strategy is clear: Make the estate tax apply to even fewer people. When running for his first term, he frequently said he would like to eliminate the “death tax,” just as George W. Bush said he would. September 11th and the War on Terror sidelined this goal for Bush and it became unlikely to pass such legislation through Congress. Donald Trump is also unlikely to be able to pass legislation eliminating the estate tax, so he has stated that he will push to increase the exemption, to what number has not been said.

The aim is to reduce the 0.1% of people subject to the estate tax to as close to zero as politically possible. Donald Trump would not change the tax code in regard to the basis step-up, allowing for gains in appreciated property to go untaxed to devisees and preventing the need to find the purchase price of every asset of a decedent.

Modifications to Your Estate Plan May Be Necessary

No matter who wins the election in November, the tax code will be subject to change and your estate plan may need to be modified. We’ll update you as the circumstances change.

For more information about the estate tax or tax planning, please contact us to set up a consultation with one of our attorneys at (561) 750-3850 or Info@Law-Morris.com.