Edie Windsor and Thea Spyer entered into a committed relationship in 1963. In 1993 they registered as domestic partners in New York City, when that option became available. They married in 2007, in Canada, which then permitted gays and lesbians to marry. Spyer died in February 2009. Although the estate passed to Windsor, the marital deduction was not available, and a $363,053 estate tax was paid. Windsor sued for recovery of the estate taxes, arguing that her marriage must be respected for estate tax purposes under the equal protection clause of the U.S. Constitution. In addition, she argued that the definition of “marriage” under the Defense of Marriage Act (DOMA) must be unconstitutional.
Windsor won on all counts, in all courts, most importantly in the U.S. Supreme Court in June. The Court announced that the definition of marriage is purely a state matter, and whatever definition a state adopts must be respected by federal law. Accordingly, Windsor is entitled to a full refund of estate taxes paid, with interest, because the marital deduction should have been available to Spyer’s estate.
When a statute is declared unconstitutional, it is void from enactment. That means Windsor’s victory isn’t just for herself and future same-sex married couples, it applies retroactively to any married couple that was denied a marital deduction. As a practical matter, the statute of limitations will cut off relief after three years in most cases.

Estate planning implications

The expansion of the amount exempt from federal estate tax to $5 million (inflation-adjusted to $5.34 million in 2014) has made planning for the federal estate tax irrelevant for the vast majority of estates. In part that is because, for married couples, the amount excluded from tax goes to at least $10.68 million with the portability of the marital deduction. Still, that doubling effect could be important to wealthy same-sex married couples, and it is now available to them if they reside in one of the states that recognize gay marriage.
What happens if a gay couple is legally married but later moves to a state that doesn’t recognize their marriage? Regulatory guidance will be needed from the IRS. Some observers expect the IRS to take an expansive view; that is, once a marriage is recognized for federal tax purposes it always will remain recognized. But that is not yet certain.
A trust for an adult child routinely may give the child the power to appoint trust property to the child’s spouse, or it may give a spouse an interest in the trust. Such a provision may be interpreted to include same-sex spouses in relevant jurisdictions. The trust grantor may want to clarify that this is the intended result, if it is, in fact, so intended.

© 2014 M.A. Co. All rights reserved.
Any developments occurring after January 1, 2014, are not reflected in this article.

The importance of having a will cannot be overemphasized. It’s not simply the way that you direct the distribution of your financial and personal assets. Your will also enables you to designate an executor (or personal representative) who will act in your stead to meet your obligations and steer your assets through the probate process. If you have minor children, your will allows you to name a guardian who will see to their upbringing if you and your spouse should die with the task unfinished.
Of course, no will is final until its author dies, or is otherwise unable to change it. As circumstances change, provisions of an existing will can become hopelessly out-of-date. In any case, it is wise to review your will from time to time to see whether adjustments may be in order. Nevertheless, certain categories of family and financial changes make a prompt will review a top priority.

Personal status
Naturally, when you marry, divorce or remarry, changes in the provisions of your will are called for. At the same time, you’ll want to review beneficiary designations in retirement plans and life insurance policies as well.
A move to a new state, or simply acquiring assets in a different state, means that at least some of your property will be subject to a different set of laws from those under which your will was drafted originally. Thus, it should be reviewed and revised by an advisor versed in the workings of the new state’s inheritance laws.
When you have named specific assets in your will, such as a block of XYZ Corp. stock or a vacation home, you’ll need to make revisions when you dispose of the named property. You also may wish to make adjustments when a given asset changes substantially in value.
Retirement, a time of sharp change in your sources of support, is also a time for will review to ensure that it is based on your current resources.

Children
As mentioned above, your will is the place to provide for the guardianship of your offspring. You’ll probably want to name an alternative guardian as well, in case your first choice is unable or unwilling to serve.
If you’ll be leaving a substantial sum to provide for your children’s care, you may wish to set up a trust for that purpose in your will. That course may be advisable because in some states guardians are under strict court supervision as to the investment and expenditure of a child’s inheritance.
Other appropriate changes to your will would be in order when your children reach major¬ity, marry, become disabled, or experience other major changes in their personal or financial situation. Certainly, the birth or adoption of a grandchild is an event worthy of consideration.

Your financial status
If your net worth has increased significantly since you wrote your current will, revisions undoubtedly will be in order. Your larger estate gives you more opportunities to provide for family, friends and favored charitable causes. So you’ll want to be certain that assets are managed and distributed as you think best.
Estates that grow in value naturally grow in complexity as well. As a result, you may need to add special instructions for dealing with a business interest, an art collection, copyrights or other not-so-simple assets.
Also, as your wealth expands, so does your exposure to gift and estate taxes. A simple everything-to-my-spouse will can bring on hundreds of thousands of dollars of needless estate taxes.

Legal developments
Federal and state tax laws are subject to change at any time. Thus it’s important for you and your financial advisors to stay on top of these developments and make adjustments to your estate plans as required.
You will note that these arrangements rapidly become too complex to be placed in the hands of an untrained individual. The executor or personal representative named in your will needs to have the time and know-how to protect estate assets, collect debts, settle claims, manage investments, keep records and minimize tax exposure. To avoid burdening a family member or friend, you might choose to designate us to handle the settlement of your estate and provide long-term management as trustee. We’d also be happy to act as coexecutor with a family member to ease his or her burden.

© 2014 M.A. Co. All rights reserved.
Any developments occurring after January 1, 2014, are not reflected in this article.

If you are new to our state, or someone among your family or friends has just relocated here, we say, “Welcome!” Your move was certain to have been hectic (isn’t everyone’s?), and you still must have a million things to do. Even so, we’d like to make some suggestions regarding your financial and estate planning that, even though they may take some time and effort to put into effect, are, nonetheless, very important. What’s more, even if your relocation dates back a bit, it’s still a good idea to make sure that you have done the following:

1. Reviewed your will. Different states have different formalities regarding the drafting and execution of a will. If, for some reason, the will that you drafted in your former state doesn’t comply with our state law, it could be declared invalid. In that case your assets will pass as if you had no will, with our state’s intestacy laws dictating who will receive your assets. The key point to remember is that the beneficiaries chosen by the state’s intestacy laws may not be the ones to whom you made bequests in your now-invalidated will.
When you review your will, be sure to look closely at guardianship designations for your minor children to see if they still are logical in light of your relocation. The same goes for your executor designation. If you’ve named an individual or institution no longer nearby, consider naming us to serve as your executor. There are many good reasons to do so. We’ll be glad to tell you about them.

2. Moved a trust. If you already have established a trust in your former state of residence, we can help you determine whether it might be beneficial from a tax perspective to change the situs of that trust. You also may want to consider a change of trustee. By naming us to serve as the trustee of your relocated trust, you’ll have somebody close at hand with whom to discuss your concerns and to keep you informed. Of course, by doing so, you will also enjoy the wide variety of valuable services that we offer our trust clients.

3. Transferred your retirement assets. Are you entitled to a lump sum distribution from a former employer that you plan to roll over into an IRA? If you are, be sure to arrange for a direct transfer of your account balance from the company plan in order to avoid unpleasant tax surprises, rather than receive the money in hand. We will be glad to help arrange for a smooth transition of your retirement plan balance from the plan trustee to the IRA established with us.
Have you already set up a rollover IRA? If you have, we can help arrange for a
tax-free transfer of the funds in your current out-of-state IRA to an IRA with us.
In either case (or even if you did not roll over all of your account balance and seek investment guidance with regard to the money), we would be glad to meet with you and tell you about the wide range of investment choices that we offer.

4. Avoided unnecessary taxation. Have you severed all ties with your former state? If not, there may be all sorts of tax issues that you may need to address. Understanding the concept of domicile is important in order to avoid potential tax traps. A critical point: A person has only one domicile—your “home” state—yet you may be considered a resident of two states during the year. But nothing stops more than one state from claiming that you were “domiciled” there and that you should pay income on your earnings as if you were a resident, rather than a nonresident.
In the extreme, you could even face the possibility of overlapping state death taxes. Again, two states may put forth the claim that you were domiciled there and attempt to levy estate or inheritance taxes.
Other issues may arise as well. Property that you still own in your former state may be subject to tax in that state. A home that is not owned in joint name will be subject to the probate laws of that state.
Therefore, if you maintain connections to more than one state, you’ll want to find out about the steps that can be taken to minimize the possibility of multiple taxation. Consultation with a legal or tax advisor can help ensure that you have only one domicile for tax purposes.
If you have questions or concerns about your estate planning in light of your relocation, we would be glad to meet with you to discuss them.

© 2014 M.A. Co. All rights reserved.
Any developments occurring after January 1, 2014, are not reflected in this article.

Much of the attention surrounding the current financial crisis has focused on the implications for large businesses. Less emphasis has been placed on the impact that the turmoil has been having on family-owned enterprises.
Almost one in five small business owners is expressing concern about going out of business as a result of the economic climate, according to a survey conducted by the small business arm of American Express (American Express OPEN). It adds another entry to the list of enormous, ongoing challenges in operating a successful company.

The question to answer
For business owners who are approaching retirement, perhaps just as difficult a challenge is establishing a solid succession plan that will provide smoothly and effectively for the continuation of the business beyond the participation of its founders. The Small Business Administration estimates that only one-third of family -owned businesses will survive the transition from the first to the second generation. It looks even grimmer farther down the road: Other research suggests that only 12% of family -owned businesses stay viable into the third generation, and only 3% are alive at the fourth-generation level and beyond.
If you own a family business, as you plan to turn over the reins, the question to ask is: How can you transfer the business to your heirs; preserve the generation of income from the assets and provide liquidity, all with the least amount of tax erosion?

Elements of a succession plan
Many threads weave their way into the tapestry of a family business in transition. Specifically, you will need to:
• Determine the best form of operation for your particular business after you leave, whether it be a C Corp., S Corp, LLC, LLP or trust, considering all the tax and nontax issues;
• Divide the business fairly among your children, grandchildren and others who work in the business and those who do not;
• Review the business agreements among all owners (including nonfamily partners) that provide for buyout/cross-purchase of your interest at your death;
• Ensure that the valuation method for buyout purposes will be respected for estate tax purposes; and
• Draft documents (including wills, powers of attorney, trust agreements) that will give you the assurance that your plan will be carried out properly.

A family business is more than just an asset
As a business owner hands over the reins, it’s not just the monetary issues that need to be addressed. The transition of a business may have underlying emotional components as well. Your business may stand as a symbol of a lifetime of achievement, both from a professional and personal perspective, evoking a strong feeling of pride and a strong desire to protect your legacy, even if you may be forced to make difficult decisions.
Your offspring may view the transfer of the business from two perspectives—as an heir automatically entitled to a share of the business, or as someone whose talent and hard work has been instrumental in the success of the enterprise. An equal division of ownership, then, probably won’t be welcomed by offspring who have contributed to the success of the business. Any other division may be viewed as inequitable by those who weren’t involved in the operation of the business. In other words, there may be treacherous waters to navigate in order to avoid disharmony in the family.
First, keep everyone in the family informed, whether they are involved in the day-to-day operation of the business or not. It’s better to know about any hostilities upfront. In fact, springing the plans after everything is in place may well contribute to discord. An open discussion may help reveal reactions that may be addressed ahead of time.
Second, include the professionals—lawyers, accountants, insurance officers and trust officers—at the earliest stages of the process. They can provide useful planning insights.
Third, don’t wait too long. Many professionals suggest putting a plan in place at least five years in advance of the time that you take that final walk through the door.
Finally, if the current economic environment has had an impact on your business, your succession plan is likely to reflect that fact. As the economy recovers, and your business improves, be ready to revisit what you have set in place to see if changes might be necessary.

© 2014 M.A. Co. All rights reserved.
Any developments occurring after January 1, 2014, are not reflected in this article.