February 2012 Archives

2012: a good year for giving (Part II).

February 23, 2012, by

TE BLOG. Tax squeeze.02.08.2012.iStock_000016320152Small[1].jpg
Lars has explained to Nils the likely estate tax benefits of giving $500,000 to a trust for relatives this year. Nils is able to do this without immediate tax because the formerly $1 million gift tax exemption (the amount one may give during lifetime without paying gift tax) was increased to $5 million for 2011 and 2012. Nils had already used the $1 million exemption.

One benefit Lars has pointed out, is that future income and gain on the $500,000 will occur outside Nils's taxable estate, rather than within it. Lars has a guess on how that will work out. Nils, in his eighties, has a remaining life expectancy of only about six years (although his hardy and determined nature seems to promise more). The trust is likely to have about $200,000 of income and gain over the six years. If we figure the combined State and Federal estate tax rate will be 50% when Nils dies, then this should produce about $100,000 in savings for Nils's estate.

Continue reading "2012: a good year for giving (Part II). " »

2012: a good year for giving.

February 16, 2012, by

TE BLOG.Cash gift.02.03.2012.iStock_000015406963Small[1].jpgAs we have seen uncle Nils has given $500,000 of his assets to a new trust for relatives, placing Lars in charge of it as trustee.

This is a good year for Nils to make the gift, due to many factors. The most obvious, to Nils and Lars, is that the Federal exemption for making gifts (without paying gift tax) was increased from $1 million to $5 million for years 2011 and 2012. This law is to be revisited in 2013 and we don't know what Congress will do then.

Continue reading "2012: a good year for giving. " »

Trustee investing: lucky isn't good enough.

February 9, 2012, by

TE BLOG. Financial Graph. 02.03.2012.iStock_000016153672Small[1].jpgLars and Nils have made their bet. Nils is putting his $500,000 on precious metals. Lars as trustee of a new family trust with the same amount, is investing in diversified fashion. We'll check in from time to time on how this bet is going.

Trustees, who are investing money for other people, are obliged to strive for safety and a good return at the same time, not always an easy combination. They must also balance the interests of different classes of beneficiaries. For instance if a trust pays income to a surviving spouse and then goes on to children (or, not uncommonly, to stepchildren), then the trust should ordinarily have a mix of bond-like producers of income for the spouse, and stock-like holdings promising long-term gain for the children.

The duties and legal exposure of a trustee are illustrated in Estate of Cooper, a case decided by the Washington Court of Appeals in 1996. In oversimplified terms the surviving husband was lifetime income beneficiary as well as trustee. He got sued by the children who were to receive the trust after his lifetime.

Continue reading "Trustee investing: lucky isn't good enough. " »

Nils and Lars make a bet.

February 2, 2012, by

iStock_000016737502XSmall.jpgStep-nephew Sal has gotten the wealthy old man Nils keenly interested in precious metals. Look at the returns the last few years! OK; gold has come off its 2011 high, but the three-year return is way better than that of the Dow. And in one way of thinking isn't gold the only sure thing, the basic measure, what people will be grabbing for if our whole financial system goes kaput?

Nils has been a very good real estate investor over the years. He seems to think this carries over to other areas and Lars realizes this is potentially dangerous, but not unusual and not likely to get out of control. To give Nils some room to feel like he's still a crafty guy, Lars has agreed over the holidays to a bet or contest between them.

Continue reading "Nils and Lars make a bet. " »