Estate Tax

Partial Roth IRA Conversions May Reduce Tax Impact for Houston Investors

Published on: September 8, 2014 | By McCulloch & Miller, PLLC

Today, ordinary income plus various other taxes could boost the effective tax rate on those second-level RMDs well over 40%. Who knows what tax rates might be in effect when current clients eventually pass their IRAs to future generations?

Some individuals choose to have partial Roth IRA conversions so they remain in their current income tax bracket and decrease other taxes and charges, according to a recent article in Financial Planning titled "Estate Planning: Smart Roth Conversion Trick." Along with a Medicare surtax and deduction phase-outs, Medicare Part B premiums are also part of the mix.

Medicare enrollees typically pay about $105 monthly for Medicare Part B. This covers doctor bills and some other medical expenses. However, seniors who have a modified adjusted gross income (MAGI) above $85,000 (or $170,000 on joint returns) will pay anywhere from roughly $145 to $335 a month for that same coverage. This is because Roth IRA conversions increase an individual's MAGI. The original article advises those in this situation to take an annual series of partial conversions now to thereby limit future taxes, as well as “stealth” taxes like extra Part B premiums.

Robin Williams Set Up Trusts To Protect His Children From “Affluenza”

Published on: August 29, 2014 | By McCulloch & Miller, PLLC

Some people decide, as Robin Williams apparently did, that it's better to hand down wealth to adult children while you, the parent, are still alive. (Of course, you have to have more than enough assets for yourself to be able to do that.) One benefit is that you will have some ability to help guide your children's decisions, and it can be hugely rewarding to watch them build their lives responsibly with the help of the gifts you have given them.

Early reports indicated that Robin Williams created a trust to control the distribution of assets to his children. His children, 22-year-old Cody, 25-year-old Zelda, and 31-year-old Zachary each were reported to receive money in incremental stages, not all at once. At age 21 they each would receive one-third of their share; at 25 they would receive half of what remains; and when they reach age 30, they each would receive the remainder of their full share.

Now, it is being said that these trusts are not currently part of his estate planning. But the trust talk begs the question: how much should you give to your heirs in trust and when should you give it?

Phillip Seymour Hoffman’s Passing Spurs Estate Planning Lesson

Published on: August 27, 2014 | By McCulloch & Miller, PLLC

His Will was written before the birth of his last two children and never updated; thus, his estate plan is completely silent about his wishes for them. The actor's death also highlights the effect that marriage can have on an estate plan.

It seems that once a high-profile celebrity passes away, news of their estate floods the media shortly after. A recent article in The National Review, titled "A Hollywood Lesson for Everyday People: Trusts," emphasizes how one of the biggest misfortunes in the passing of actor Phillip Seymour Hoffman is that everyone now knows his business. We all know what assets were left to whom, who was left out, and how much money he had. These are typically private concerns, but because Hoffman only had a will, which is publicly probated in open court, everyone has access to these public records. Fortunately, there is a simple way for people to keep their estate plans from becoming blog material (like this!): create a trust.

A revocable living trust is a common type of trust that can help secure your privacy. According to the original article, Hoffman said he did not want his kids to be "trust fund kids." This meant he did not want his kids to be spoiled by his acting fortune. However, his definition of a trust could have used some better intel. Hoffman's children actually would have been better off with a trust that set out specific distributions tied to some conditions or events, such as their 25th birthdays or to use for college tuition.

Think You Don’t Need an Estate Plan Because You Don’t Have Kids? Think Again, Houston!

Published on: August 15, 2014 | By McCulloch & Miller, PLLC

Did you think estate planning would be easier because you don’t have children … or that you don’t really need an estate plan? If so, you couldn’t be more wrong!

The website dailycall.com recently posted an article, titled "Aging and estate planning for singles and couples without children," to help get you thinking about the special challenges people face who do not have adult children to assist them in their aging years.

Here are some of the ideas suggested:

Samsung Chairman’s Estate Sparks Tax Questions for Houston Families

Published on: August 7, 2014 | By McCulloch & Miller, PLLC

Lee is a legendary figure in South Korea as the man who turned Samsung Electronics into a powerful conglomerate. He is also the country's richest man with an estimated net worth of US$11.4 billion. Under Korean inheritance law, an heir will have to pay 50 percent in tax when inheriting such wealth, indicating an inheritance tax bill of some US$6 billion.

Estate problems are on the horizon for Samsung Chairman Lee Kun Hee's heirs. Lee suffered a major heart attack three months ago and has been in the hospital ever since. It does not appear he will live for much longer. Hee's estate is believed to be worth approximately $12 billion. As China Topixpoints out, in an article titled “Samsung Heirs Could Pay a Massive US $6 Billion Inheritance Tax,” under South Korean law the estate will have to give half of the estate to the government. The family could avoid some of this tax burden by placing the money in a foundation, but that would mean giving up some control of the assets.

It is unclear whether Lee could have avoided this through estate planning before his heart attack. It is possible that South Korea has laws and vehicles that could be used to more effectively keep wealth in the family as opposed to giving it to the government. In the United States, if a wealthy person does nothing, then their family might not be much better off than Lee's. The government will not necessarily take half of the wealth, but a significant portion of the estate will be lost, as much as 40% in some cases.

Humorous Take on Newsworthy Estate Planning Topics

Published on: August 4, 2014 | By McCulloch & Miller, PLLC

Income inequality and the estate tax continue to be hot button issues in American politics and culture. Americans have a wide array of opinions about these two linked topics. Comedian John Oliver recently gave his humorous thoughts on them.

More and more Americans, especially younger Americans, want to be entertained when they are listening to the news. They often look to comedians, such as Jon Stewart and Stephen Colbert, for the lowdown on hot topics. One new television show in this category is HBO's Last Week Tonight hosted by John Oliver.

A recent Los Angeles Timesarticle titled “John Oliver Tackles Income Inequality on 'Last Week Tonight'” describes a recent Oliver show that tackled the estate tax and income inequality. Oliver suggested during the show that whether a viewer would agree with his opinions depended on whether they subscribed to HBO or watched his show by getting it illegally. The implication was that people who were wealthy enough to afford HBO would have one opinion and those who were not would have another opinion. Oliver later went on to compare the American promise to a lottery system where the already rich get multiple fantastic opportunities to win and the poor cannot even get a draw because the machine is broken.

A Qualified Personal Residence Trust: Take a Note from the Clintons!

Published on: July 30, 2014 | By McCulloch & Miller, PLLC

Even with its funny name, a QPRT can save you hundreds of thousands of dollars in estate taxes after your death for your Houston family. Let's take a closer look at what the Clintons did and whether the same strategy could help you.

While QPRTs are complicated trusts, the basics of what they do and why are easy to understand.

If you are considering this trust as part of your plan, take a note from Bill and Hillary Clinton. The Clintons used a qualified personal residence trust as part of their own estate tax planning.

Adding Your Collection to Your Houston Estate Plan – Does the Value Hold Up?

Published on: July 14, 2014 | By McCulloch & Miller, PLLC

Over the past few years pieces have not been selling as well as expected or not selling at all. Often the amount they are appraised for, and thus the amount the IRS views them as valuing, is not close to the amount that they garner at auction.

Have you ever watched the TV show Pawn Stars? The same process plays out on the show over and over again. Someone will bring in a rare item, the pawn store owner will call in an expert to appraise the item, the appraiser will give an approximate value, and then the store owner will offer to pay half the appraised value of the item.

Obviously, a pawn shop is not going to pay full price for anything. However, the spiel that the store owner often gives contains lessons. He explains to the customer that the appraisal value is how much the item might get at auction, but that it has to be the right auction with the right buyer and that in this economy nothing is going at auction for the full appraisal value.

The Federal Estate Tax Exclusion: Get The Facts for Houston Families

Published on: June 5, 2014 | By McCulloch & Miller, PLLC

What is the $5 million federal estate-tax exclusion, and how does it work?

Now that "tax time" is over for many Americans, the subject of taxes may not come up as often. In fact, when it comes to the estate tax you may not think about it until you sit down to plan for your estate. So what is this tax anyways?

A reader recently put these questions to the Q&A in The Wall Street Journal, which found its way to publication in “The Federal Estate-Tax Exclusion.” If you find yourself asking, “What is the $5 million federal estate-tax exclusion, and how does it work?” you’re not alone and here’s a start.

No Need For Your Life Insurance? Donate It To A Houston Charity!

Published on: April 16, 2014 | By McCulloch & Miller, PLLC

There are several ways to donate a life insurance policy to charity, according to the Planned Giving Design Center, Monroe, NC.

There are many advantages to life insurance as it can be a cushion against high-cost issues or a source of much-needed cash flow for your family. However, you might end up not needing it all. If this is the case, what do you do with the policy?

The good news is that you can kill two birds with one stone. Have you thought about donating your life insurance to a worthy cause?