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real estate keys to house

It’s National Estate Planning Week (I know you’re as excited about it as we are!) which is a good excuse to bring up a hypothetical scenario: what happens, in terms of estate planning, if either the buyer or seller in a sale of real estate (like a house or land) dies before the closing?

It’s a situation that is fairly improbable, but it can and does happen. Plus, it’s good to explore just in case you ever find yourself dealing with this as the executor of a loved one’s estate.

Let’s say that you’re buying a house and you’ve already executed the contract (a purchase agreement) with the seller. Before the closing date, the seller passed away. What happens to the property? How does it fit into the seller’s estate plan? What is the executor responsible for? It’s easy to see how this can be a complicated conundrum.

Equitable and Legal Title

At this point, after the purchase agreement is drawn up and before the closing, you as the buyer hold an equitable title in the real property (the house). Equitable title is legal parlance meaning here that the buyer has a right to obtain full ownership of a property (or property interest). Equitable title comes with certain rights. For example, the seller can’t sell the property to a third party or subject the property to an encumbrance or a lien that would interfere with the buyer’s property interest.

Legal title, in comparison, is actual ownership of the land. In the period between the sale agreement and the closing, the seller holds the legal title to the property being sold. Legal title transfers to the buyer when the final payment is made (typically this is done at the closing or through an escrow process when the buyer receives the property deed in exchange for the payments made).

Like our hypothetical, if the seller dies during this point in the sales process this legal title in the property is a part of the seller’s estate. That means the seller’s estate can still sell the property (and is contracted to do so), collect the profit from the sale, and then disperse the profits as part of the decedent’s total gross estate to the beneficiaries.

What About the Seller’s Heirs?

The seller’s heirs-at-law and/or estate plan beneficiaries may have expected to inherit the house. But, if the seller entered into a valid contract for sale before they died, the estate’s executor is bound to honor the contract.

Note that sometimes there are required waiting periods where the executor must wait before executing documents for the estate (such as the sale of real estate). So, as the buyer, you can anticipate a reasonable time delay (think 30 days) compared to the schedule set out in the purchase agreement.

Of course, there are many rules of real estate and contract law that come into play, but in terms of property and how it plays into the estate planning process, these are the basics!

Enlist an Estate Planning Attorney to Help Everything Run Smoothly

If you do find yourself in the position of being the executor of a seller’s estate and that seller died in the midst of a real estate sale, don’t hesitate to enlist the expertise of an estate planner to help guide you how to best accommodate and fulfill your fiduciary duties.

On a related point, if you sell your house or purchase a new property, it may necessitate updates to your estate plan! Review your plan and then schedule a free consult to ensure all of your assets are properly accounted for in your plan.

Any questions about your specific estate planning situation? Contact GFLF at gordon@gordonfischerlawfirm.com or by phone,515-371-6077.

man writing on trust paper

If you’re unsure of what a trust is and how it works, you probably don’t have one. And, if you don’t have a trust, you’re not alone. About 57 percent of U.S. adults don’t have an estate planning document like a will or a trust even though they believe having one is important.

What Is a Trust? How Does It Work?

If you haven’t stopped to consider how a trust might help ensure that your wishes are followed and your assets are handled, you could be making a critical estate planning mistake.

A trust is simply a legal agreement among three parties—settlortrustee, and beneficiary—that provides instructions on how and when to pass assets to the trust’s beneficiaries. Let’s look at the role of each of these three parties, and then delve into how trusts work.

Settlor

A settlor—sometimes called the “donor, “grantor,” or “trustor”—is the person who creates the trust and has the legal authority to transfer assets into it.  

Trustee

The trustee is the person who agrees to accept, manage, and protect the assets delivered by the settlor. The trustee has a fiduciary duty to administer the assets according to the trust’s instructions and distribute the trust income and principal according to the rules outlined in the trust document and in the best interests of the beneficiary.

A trustee can be one, two, or more people. A trustee can also be what is known as a “corporate trustee,” such as a financial institution (like a bank) or a law firm that performs trustee duties and charge fees for their services. There are no formal requirements for being a trustee and nonprofessionals frequently serve as a trustee for family members and friends.

Beneficiary

The beneficiary is the person or entity benefiting from the trust. The beneficiary can be one person or entity or multiple parties. Also, trust beneficiaries don’t even have to exist at the time the trust is created (such as in the case of a future grandchild or charitable foundation that has not yet been established).

Trust Property

A trust can be either funded or unfunded. “Funded” mean that the settlor’s assets—sometimes called the “principal” or the “corpus”—have been placed into the trust. A trust is unfunded until the assets are in it (failing to fund a trust is a common estate planning mistake). 

Trust Assets

Trusts can hold just about any kind of asset: real estate, intangible property (like patents), business interests, and personal property. Common trust properties include farms, buildings, vacation homes, stocks, bonds, savings and checking accounts, collections, personal possessions, and vehicles.

“Imaginary Container”

Think of a trust as an “imaginary container” that holds and protects your assets. After the trust is funded, the trust property will still be in the same place before the trust was created—your land where it always was, your artwork on the wall, your money in the bank, your comic book collection in the den. The only difference is the asset will have a different owner: “The Jane Jones Trust,” rather than Jane Jones.

Transfer of Ownership

Putting property in a trust transfers it from personal ownership to the trustee, who holds the property for the beneficiary. The trustee has what is called “legal title” to the trust property and, in most instances, the law treats trust property as if it were now owned by the trustee. Each trust has its own taxpayer identification number, just like an individual.

But trustees are not the full owners of trust property. Trustees have a legal duty to use trust property as directed in the trust agreement and as allowed by law. The beneficiaries retain what is known as “equitable title”—the right to benefit from trust property as specified in the trust.

Assets to Beneficiary

The settlor provides terms in a trust agreement directing how the fund’s assets are to be distributed to a beneficiary. The settlor can provide for the distribution of funds in any way that is not against the law or against public policy. The near-limitless flexibility of trusts is a primary advantage for setting one up.

Types of trusts

A joke among estate planners says that the only limit to trusts is the imagination of the lawyers involved.  It’s true, though, that the number and kind of trusts are virtually unlimited.

Let’s start by taking a look at the four primary categories of trusts:

Inter vivos and Testamentary Trusts

Trusts that are set up during the settlor’s lifetime are called “inter vivos” trusts. Those that arise upon the death of the settlor, generally by operation of a will, are called “testamentary” trusts. There are advantages and disadvantages to both types of trusts, and how one decides depends upon the goals and purposes of the settlor.

Revocable and Irrevocable Trusts

Inter vivos and testamentary trusts can be broken down into two more categories: revocable trusts and irrevocable trusts. A revocable trust can be changed at any time during the settlor’s lifetime. Second thoughts about a provision in the trust or about who should be a beneficiary might prompt modification of the trust’s terms. The settlor can alter parts of the trust or revoke the entire thing.

Irrevocable Trust

An irrevocable trust is a type of trust that can’t be changed by the settlor after the agreement has been signed and the trust has been formed and funded. The terms of an irrevocable trust can’t be modified, amended, or terminated without the permission of the settlor’s beneficiary or beneficiaries.

A revocable living trust becomes irrevocable when the settlor dies because he or she is no longer available to make changes to it. But a revocable trust can be designed to break into separate irrevocable trusts at the time of the grantor’s death for the benefit of children or other beneficiaries.

You might wonder, “Why make a trust irrevocable? Wouldn’t you want to maintain the ability to change your mind about the trust or its terms?”

Not necessarily.

Irrevocable trusts, such as irrevocable life insurance trusts, are commonly used to remove assets from a person’s estate and thus avoid them being taxed. Transferring assets into an irrevocable trust gives those assets to the trustee and the trust beneficiaries forever. If a person no longer owns the assets, they don’t comprise or contribute to the value of his or her estate and so they aren’t subject to estate taxes upon death.

Revocable living trusts

There is no “one size fits all” trust—different kinds of trusts offer different benefits (and drawbacks) depending on a person’s circumstances. Age, number of children, health, and relative wealth are just a few of the factors to be considered. The most common trust my clients use is a revocable living trust, sometimes referred to by its abbreviation, “RLT.”

A revocable living trust—created while you’re alive and that can be revoked or amended by you—has three advantages over other kinds of trusts:

 1. Money-Saving

Establishing a revocable living trust helps avoid costly probate—the legal process required to determine that a will is valid. Probate generally eats up about two percent (2%) of an estate, which can add up to a chunk of change you’d probably rather see go to your beneficiaries.

Avoiding probate also means avoiding other fees, such as court costs, that go along with it.

2. Time-Saving

A revocable living trust not only eliminates the costs of probate, but the time-consuming process of probate as well. Here in Iowa, probate can take several months to a year, or sometimes even longer, leaving beneficiaries without their inheritances until the very end of the probate process. The transfer of assets in a trust is much faster.

3. Flexibility

Don’t want your 16-year-old niece to inherit a half-million dollars in one big lump sum? I agree it’s probably not a good idea.

A revocable living trust offers flexibility for the payout of an inheritance because you set the ground rules for when and how distributions are made. For example, you might decide your beneficiaries can receive certain distributions at specific ages (21, 25, 30, etc.), or for reaching certain milestones, such as marriage, the birth of a child, or graduation from college.

last will and testament

Drawbacks

Despite the significant advantages of establishing a revocable living trust, there are drawbacks people should be aware of

For starters, trusts are more expensive to prepare than basic estate plan documents such as wills. However, the costs associated with sitting down with a lawyer and carefully putting in place a trust is, in my opinion, greatly outweighed by the money your estate will save in the end.

Creating a trust can also be an administrative bother at the start of the process because assets (farm, business, stock funds, etc.) must be retitled in the name of the trust. But, all things considered, this is a small inconvenience that is greatly outweighed by the smooth operation of a trust when you pass away.

You Can Trust me to Talk About the Best Trust(s) for You

Interested in learning more about trusts or questioning if you need one? Feel free to reach out at any time by email, gordon@gordonfischerlawfirm.com, or on my cell, 515-371-6077. If you want to simply get started on an estate plan (everyone needs at least the basic documents in place!) check out my estate plan questionnaire, provided to you free, without any obligation.

cash and checkbook

When estate planning you’re answering many of the unknowns for the future by deciding to whom you want your stuff—your cash assets, real estate, personal property, physical body, to name just a few—to pass to and when. You also have to consider some tough topics about your own mortality and imagine a future for your loved ones that doesn’t involve you in it. Estate planning also has a little bit of a learning curve—figuring out what strategies and documents you may need to help you meet your tax, financial, charitable giving, and estate goals and why. (Just one of the many reasons a qualified estate planner is a must.)

The one thing that shouldn’t be a mystery or an unknown cost is the cost of an estate plan. If you’re going to invest in a quality set of legal documents that never expire, tailored to your personal situation and intentions, you should know what you’re getting yourself into. Click the image below to see a cost breakdown by packageRate Sheet Checklist

That’s why Gordon Fischer Law Firm is always transparent with estate planning package rates. You can find them at the end of my Estate Plan Questionnaire (the first of many important documents a part of your plan) and you can also find them on this (super shareable!) estate plan package rate sheet.

Don’t have an estate plan? Don’t let any questions about costs hold you back. Get in touch with Gordon at gordon@gordonfischerlawfirm.com or by phone at (515) 371-6077.

Person writing on paper

A last will and testament certainly sounds like a complex document. But, when boiled down, your will answers just three simple, yet important questions.

  1. Who do you want to inherit your assets?

A will provides for the orderly distribution of your property at death according to your wishes. By property, I mean everything you own. Your property includes both tangible and intangible things. An example of a tangible item would be your stamp collection. An example of intangible items would be stocks and bonds.

mom and daughter holding hands

  1. Who do you want to be in charge of carrying out your wishes as expressed in the Will?

In a will, you also name the “executor” of your estate. The executor is the person who’s responsible for making sure the will is implemented as written. Needless to say, this is a very important position, and you want to name someone you can trust completely, and you know to be responsible and competent.

  1. Who do you want to take care of your kids?

If you have minor children (i.e., kids under age 18), you’ll want to designate a legal guardian(s) who will take care of your children until they are adults. Also, a will can set up a financial trustee (may be the same as the guardian) who can oversee and be responsible for your child’s funds until they are old enough (and mature enough) to inherit property.

 

Without a Will, There’s No Way

Without a last will and testament, you’ve given no guidance to anyone about who should inherit your property, who should be in charge of carrying out your wishes, and who you want to be your kids’ legal guardian. Not having a will creates unneeded stress and heartache, and even total chaos, for your loved ones and friends. This distress would also come at the worst possible time—when they are mourning your passing.

Drafting a quality estate plan that incorporates your wishes and goals is the height of responsibility. And if estate planning sounds intimidating, fear not! We’ll walk through the five steps of estate planning together. The best place to start is with my Estate Plan Questionnaire.

I’d love to hear from you. You can email me anytime at gordon@gordonfischerlawfirm.com.

movie camera

I was scrolling through Netflix the other night and finally landed on The Aviator, which I haven’t seen in a while. The 2004 Scorsese film starring Leonardo DiCaprio tells the story of the eccentric aviation magnate and movie producer, Howard Hughes, who tragically battled OCD, paranoia, and chronic pain (from a near-death plane crash) and spent his later life as a hermit. That led me down a rabbit hole of internet research into the real Howard Hughes. As an estate planner, I naturally wondered what happened to his estate when he passed away in 1976. (Perhaps fittingly the aviator passed away in an airplane.)

Even if You’re Not a Billionaire, You Need an Estate Plan

Unfortunately, the tale of the Hughes estate is a cautionary one of what NOT to do.

Hughes—who was reputed to be one of the wealthiest men in the world—died intestate, meaning he died without a valid will. That can cause chaos, confusion, and cost ample time and money for regular folks. But, when your estate is worth billions like Hughes’ was, it causes a mass tangle of court proceedings. In the case of the Hughes estate, debate and disputes lasted a total of 34 years.

In the aftermath of his death, several documents were brought forth alleging to be the magnate’s will. All were deemed to be forgeries. A Nevada court determined Hughes died intestate, meaning the law determines how assets are distributed to heirs-at-law. However, Hughes died divorced (allegedly) and without any close relatives; he left no clear heir(s). This debacle of no will meant that many people came out of the woodwork claiming to be relatives.

A Messy Web of Forgeries, Fraud, & Litigation

So, after years of attorneys, courts, and dubious claims, what actually transpired?

Eventually, $2.5 billion was split between 22 of Hughes legal cousins in 1983. (Undoubtedly he didn’t know some or even the majority of these people. It’s also been said he didn’t want his money to go to his distant relatives, but without an estate plan, his wishes were steamrolled by probate law.) In an interesting twist, a woman named Terry Moore came forth claiming she married Hughes on a boat in international in 1949 and that they were never divorced. She didn’t produce any proof of the marriage (like a marriage certificate), but the estate paid her a $400,000.

The Supreme Court even had to step in. They ruled in the messy dispersion of assets that the Howard Hughes Medical Institute owned Hughes Aircraft, which it then sold off in 1985 to General Motors for more than $5 billion. The Court also rejected lawsuits brought by Texas and California, claiming they were owed inheritance taxes, but the suits were eventually put to rest with settlements of $50 million and $150 million respectively in property and/or cash.

In 2010, more than three decades after Hughes passed, the last slice of Hughes pie (Summerlin residential development community near Las Vegas) was liquidated.

Leave a Valuable Legacy

Undoubtedly, Hughes left his mark on 20th century American history. However, his legacy could have been cemented in the way he wanted (probably giving the bulk of his estate to the Howard Hughes Medical Institute and nothing to long lost cousins) if he would have had a proper estate plan created completed with valuable strategic tools like different trusts and charitable giving vehicles. While most of us will never have an estate valued even close to the likes of Hughes, we can be smart with what we do have and make certain what we choose is dispersed to whom we choose, when we choose. There’s no need for your assets to be tied up in red tape or be dispersed in a way that’s not fitting with your wishes.

Contact me with your estate planning questions, or get started with my free, no-obligation Estate Plan Questionnaire, which will help you organize important information needed for the plan in one place.

two women sitting on bench

One of the worst-case scenarios for any family is to avoid estate planning conversations completely because you risk offending a loved one.

I’ve known some couples who haven’t been able to agree on an important decision, such as who will take care of the children in the event of them both passing. Since they can’t reach an agreement they decide to bypass the conversation entirely and leave their children without a legal guardian. Which is, of course, the worst possible decision of all!

How you communicate your wishes to your family depends entirely on the family dynamic. One interesting concept I’ve heard of for family heirloom-decisions is to give your beneficiaries monopoly money and have them bid against each other for different items in an auction format. While that could make for a fun (albeit competitive) game night, it’s important that your loved one realize the importance and finality of an estate plan.

No matter how you determine decisions such as property dispersal, a professional estate planner can help you fully understand all the implications of your estate plan.

Tricky Family Situations

I’ve seen variations of this potentially tricky situation many times.

Three brothers grow up on a farm. Eventually, two of the brothers moved to the city while the third continued to run the farm’s operations. When their parents passed away, the third brother who had managed the farm, inherited the entire property while the brothers received none of the farm assets. As you can imagine, even if two of the brothers were not actively involved in the farm’s operations, if the parents died without discussing the estate arrangement with all of their children conflict could ensue between the siblings.

Then consider if the parents in this scenario divided out the farm assets between the brothers, whether or not they had a hand in helping manage the property. The brother who actually, actively manages the farm may feel slighted. Either way, such situations are made thorny when there’s no upfront, clear communication.

Bottom Line

two young people talking near beach

Estate planning can be an extremely difficult decision-making process. It is something that should be discussed with your loved ones, family members, and beneficiaries, especially when your choices may take them by surprise. Help everyone — yourself included — achieve peace of mind by seeking professional help to draft a sturdy estate plan. And then your estate planner can help you communicate your decisions to your loved ones.

Have questions? Need more information?

A great place to get started with your estate plan is with my free (no obligation) Estate Plan Questionnaire or feel free to reach out at any time.

In my ongoing efforts to break down the legalese barriers that tend to separate lawyers from the real world, and have increased quality communication, here’s another Fun with Legal Words post. Today’s word is “trust.”

In this context, and in the simplest terms, a trust is a legal agreement between three parties: settlor, trustee, and beneficiary. Let’s look at each of these three parties, and then delve more into how a trust works.

Settlor

All trusts have a settlor, sometimes called the “donor” or “trustor.” The settlor creates the trust, and also has legal authority to transfer property to the trust. 

Trustee

The trustee can be any person or entity that can take title to property on behalf of a beneficiary. The trustee is responsible for managing the property according to the rules outlined in the trust document and must do so in the best interests of the beneficiary.

Beneficiary

The beneficiary is the person or entity benefiting from the trust. The beneficiary can be one person/entity or multiple parties (true also of settlor and trustee). Multiple trust beneficiaries do not have to have the same interests in the trust property. Also, trust beneficiaries do not have to even exist at the time the trust is created (such as a future grandchild, or charitable foundation that hasn’t been set up yet).

Trust Property

A trust can be either funded or unfunded. By funded, we mean that trust property has been placed “inside” the trust. This property is sometimes called the “principal” or the “corpus.” A trust is unfunded until property are transferred into your name as trustee of the trust.

Any Asset

Any asset can be held by a trust. Trust property can be real estate, intangible property, business interests, and personal property. Some common examples of trust property include farms, buildings, vacation homes, money, stocks, bonds, collections, personal possessions, and vehicles.

“Imaginary Container”

We speak of putting assets “in” a trust, but assets don’t actually change location. Think of a trust as an “imaginary container.” It’s not a geographical place that protects something (such as a garage protects your car), but a form of ownership that holds it for your benefit. For instance, on your car title the owner blank would read “The John Smith Trust.” It’s common to put real estate (farms, homes, vacation condos) and entire accounts (savings, checking, credit union, and brokerage accounts) into a trust.

After the trust is funded, the trust property will still be in the same place before the trust was created—your land where it always was, your car in the garage, your money in the bank, your stamp collection in the study… The only difference is the property will have a different owner: “The Jane Jones Trust,” not Jane Jones.

imaginary container

Transfer of Ownership

Putting property in a trust transfers it from personal ownership to the trustee, who holds the property for the beneficiary. The trustee has legal title to the trust property. For most purposes, the law treats trust property as if it were now owned by the trustee and trusts have separate taxpayer identification numbers.

But, trustees are not the full owners of trust property. Trustees have a legal duty to use trust property as provided in the trust agreement and permitted by law. The beneficiaries retain what is known as equitable title: the right to benefit from trust property as specified in the trust.

Assets to Beneficiary

The settlor provides terms in a trust agreement as to how the fund’s assets are to be distributed to a beneficiary. The settlor can provide for the distribution of funds in any way that is not against the law or against public policy.

Types of Trusts Almost Limitless

The types of trusts are almost limitless. Trusts may be classified by their purpose, duration, creation method, or by the nature of the trust property.

Benefits of Trusts

The potential benefits of trusts are immense. The benefits include avoiding probate (and other costs savings), privacy, and helping with every family’s unique needs. 

Avoid Probate

A major benefit of trusts is avoiding probate. This is because, upon death, the trust dictates how trust property will pass. Avoiding probate saves your loved ones both time and money as the probate process is time-consuming, taking anywhere from several months to a year to complete. Sometimes, depending on the size of the estate, it can take even longer. Probate can also be expensive. Attorney’s fees alone can amount to two percent of the total estate, or even more in extraordinary cases. For some, two percent of their assets can be a very high number. Often, the cost of creating a trust is considerably less expensive than the cost of probate would have been.

Privacy

When a will is filed with an Iowa court upon death, the will becomes a public record. Trusts, on the other hand, remain private documents. Many folks, especially in small towns, have a strong desire to keep business affairs private.

Second Marriages and Blended Families

dad swinging children on beach

Trusts are also helpful in situations involving second marriages or blended families. When married couples have children from previous relationships, the surviving spouse has the ability to disinherit stepchildren. A trust can remedy this situation by providing lifetime benefits to the surviving spouse but, after his or her death, leaving assets to children and stepchildren.

Special Needs Trusts

Families with members who have special care needs must take a careful estate planning approach. For example, when a person receives government assistance due to a disability, a gift or inheritance might result in denial of benefits. However, assets can be left in certain types of trusts (for example, a special needs trust), to provide for supplemental needs while still allowing persons with disabilities to continue to receive benefits.

Let’s Get Started

You probably still have some questions on trusts…which is why I’m here! Don’t hesitate to contact me. I offer a free one-hour consultation at which point we can discuss your personal situation, see if a trust is right for you, and set up the steps to take for success.

Thanks for reading the 25 Days of Giving series; this is the “gift” for day 3! Plan on coming back to the blog every day from now through Christmas Day.

Might this be a good season to consider being more generous to your place of worship? Generally, churches are considered to be public charities. This means they are typically exempt from local, state, federal, and property taxes. This also means donations can be deducted if you itemize your federal income taxes.

Allow me to offer up four tips which could allow you to give more to your church and pay less in taxes. It’s a win-win situation: make a financially wise contribution AND a difference in an organization you care about.

Tip 1: Consider All Your Assets

You need to consider ALL your assets for smart giving. Don’t just consider cash, but look at your entire basket. Here are three real-world examples:

  1. I know a farmer who doesn’t have lot of cash on hand—we’ve all heard the phrase, “land rich, cash poor.” But, farmland itself can be a very tax-savvy gift. So are gifts of grain.
  2. I know a young person who’s self-employed. Again, not lots of cash on hand. But, this person inherited an IRA from a relative, and must make annual required minimum distributions [RMDs]. IRA RMDs can be a tax-wise gift.
  3. I also know a couple who recently retired. The couple has three life insurance policies, which made lots of sense when their kids were younger. Their kids are now grown and independently successful. A paid up life insurance policy could be signed over to their favorite charity.

Your individual facts and circumstances are unique. Consider seeking a qualified attorney or financial advisor to look at your whole basket of assets.

Tip 2: Consider Long-Term Capital Gains Property

Gifts of long-term capital assets, such as publicly traded stock and real estate, may receive a double federal tax benefit. Donors can receive an immediate charitable deduction off federal income tax, equal to the fair market value of the stock or real estate.

Records are required to obtain a federal income tax charitable deduction. The more the charitable deduction, the more detailed the recording requirements. For example, to receive a charitable deduction for gifts of more than $5,000, you need a “qualified appraisal” by a “qualified appraiser,” two terms with very specific meanings to the IRS. You need to engage the right professionals to be sure all requirements are met.

Second, assuming the donor owned the asset for more than one year, when the asset is donated, the donor can avoid long-term capital gain taxes which would have been owed if the asset was sold.

Let’s look at an example to make this clearer. Sara Donor owns stock with a fair market value of $1,000. Donor wants to use the farmland to help her favorite causes. Which would be better for Sara? To sell the stock and donate the cash? Or, gift the stock directly to her church? Assume the stock was originally purchased at $200 (basis), Sara’s income tax rate is 37%, and her capital gains tax rate is 20%. 

Donating cash versus donating long-term capital gain assets, such as publicly traded stock Donating cash proceeds after sale of stock Donating stock directly
Value of gift $1,000 $1,000
Federal income tax charitable deduction ($370) ($370)
Federal capital gains tax savings $0 ($160)
Out-of-pocket cost of gift $630 $470

NOTE: ABOVE TABLE IS FOR ILLUSTRATIVE PURPOSES ONLY. ONLY YOUR OWN FINANCIAL OR TAX ADVISOR CAN ADVISE IN THESE MATTERS.

Again, a gift of long-term capital assets made during lifetime, such as stocks or real estate, can be doubly beneficial. The donor can receive a federal income tax charitable deduction equal to the fair market value of the asset. The donor can also avoid capital gains tax.

Tip 3: Consider Endow Iowa Tax Credit Program

Under the Endow Iowa Tax Credit program, gifts made during lifetime can be eligible for a 25% tax credit. There are three requirements to qualify:

  1. The gift must be given to, or receipted by, a qualified Iowa community foundation (there’s a local community foundation near you).
  2. The gift must be made to an Iowa charity.
  3. The gift must be endowed (i.e., a permanent gift). Under Endow Iowa, no more than 5% of the gift can be granted each year – the rest is held by, and invested by, your local community foundation. This final requirement is a restriction, but still, in exchange for a 25% state tax credit, it must be seriously considered by Iowa lawyers and donors.

Tip 4: Combine the First Three Tips!

Let’s look again at the case of Sarah, who is donating stock per the table above. If Sarah makes an Endow Iowa qualifying gift, the tax savings are dramatic:

Tax benefits of donating long-term capital gain asset with Endow Iowa
Value of gift $1,000
Federal income tax charitable deduction ($370)
Federal capital gains tax savings ($160)
Endow Iowa Tax Credit ($250)
Out-of-pocket cost of gift $220

NOTE: ABOVE TABLE IS FOR ILLUSTRATIVE PURPOSES ONLY. ONLY YOUR OWN FINANCIAL OR TAX ADVISOR CAN ADVISE IN THESE MATTERS.

Note Sara’s significant tax savings! In this scenario, Sara receives $396 as a federal charitable deduction, avoids $160 of capital gains taxes, and gains a state tax credit for $250, for a total tax savings of $806. Put another way, Sara made a gift of $1,000 to her favorite charity, but the out of pocket cost of the gift to her was less than $200.

giving package with green spruce

Each donor’s financial situation and tax scenario is unique; consult your own professional advisor for personal advice. I’m happy to offer you a free consult to discuss your charitable giving options. I can be reached by phone at 515-371-6077 or by email.

subpoena and pen

The language in which much of the law is written and conducted in can be downright confusing…it’s not called legalese for nothing! Even basic words, like property and trust, can take on varied and more specific meanings than their normal everyday meanings. But other words and phrases are a part of most adult Iowan’s peripheral lexicons if even from watching shows like The Good Wife or the nightly news Certain events or people can also spark an interest in legal-based terminology. For instance, many more people have now heard of the legal term “inclusion rider” thanks to Frances Dormand’s Best Actress acceptance speech at the recent Academy Awards. We’ve seen plenty of headlines featuring the word “subpoena” in the news cycle recently particularly in relation to a former outspoken Trump aide. It’s one of those words you kind of know, or think you may know, but again aren’t for sure. In order to better understand what’s going on with special counsel Robert Mueller’s investigation on Russia’s interference in the 2016 elections, let’s review what the legal term “subpoena” really means and if you can simply ignore it or refuse to cooperate if you want to…looking at you, Sam Nunberg.

What Does Subpoena Mean?

A subpoena is a formal court-ordered command to do something specific. There are two main, different kinds of subpoenas. (Quick phonetics lesson: the “b” is silent and the “poe” makes a long “e” sound.”) We’ll use the former Trump campaign aide (and defendant in a Trump lawsuit) Sam Nunberg as an example throughout.

Subpoena duces tecum

One type, subpoena duces tecum, demands you present a kind of tangible evidence like a physical item or document. For instance, a subpoena could request letters, photographs, emails, audio recordings, video footage, and text messages related to the case. (In fact, as a practical matter, a subpoena duces tecum will generally request all these items).

In the case of Sam Nunberg, the subpoena requested documents and communications dating back to November 2015 with people related to the scope of the investigation such as Donald Trump, former campaign advisor Roger Stone, Trump’s lawyer Michael Cohen, and former chief strategist Steve Bannon, among others. The subpoena was issued by a grand jury. (Grand jury reminder: a prosecutor establishes a grand jury to determine if there is enough probable cause, or evidence, to pursue a criminal case.) Earlier this week, Nunberg said in an interview he “objected to the subpoena because it asks for information about people whom he either never talked to or with whom he had close relationships.” Nunberg also asserted that it wasn’t fair for the investigation to demand his personal communications and that his emails weren’t relevant to the investigation.

subpoena nunberg

An excerpt from Nunberg’s subpoena | The New York Times

Subpoena ad testificandum

The other type of subpoena is ad testificandum, which compels a person to give their oral testimony at a specific time before an authorized legal body, such as a court, congressional/legislative body, grand jury, or government administrative agency. Before such a subpoena is issued, the person or group seeking information will typically first seek testimony on a voluntary basis. (For example, Trump’s White House attorneys have provided the investigation team with voluntary testimony.)

In the two-page subpoena, Nunberg was also requested to appear before a federal grand jury testimony and deliver oral testimony this Friday, March 9.

Subpoenas & Enforcement

Quite literally the word subpoena is derived from the similar Latin term sub poena which means “under penalty.” This makes it pretty obvious that there are penalties involved if you don’t do whatever is requested without a valid reason. If you receive a subpoena and you don’t cooperate with the (presumptively reasonable) request, you could be held in contempt of court and/or hit with time in jail and/or a fine.

Relating this back to our infamous subpoenaed headliner—when Nunberg was asked by MSNBC if he was worried about being arrested for defying the subpoena, he didn’t seemed concerned and said, “I think it would be really, really funny if they wanted to arrest me because I don’t want to spend 80 hours going over emails I had with Steve Bannon and Roger Stone.”

If no proper legal reason was asserted by Nunberg’s attorneys, and he failed to testify in front of the federal grand jury, prosecutors could ask a judge to grant a bench warrant for Nunberg’s arrest.

supreme court building

Can You Refuse a Subpoena at all?

Some scenarios allow you to present a valid legal defense against complying with the subpoena. You can claim the subpoena’s request(s) is overly taxing or too expansive in scope. You could also refuse if the material(s), info, or data requested is eternally lost, or is privileged in nature. (Think attorney-client, executive, or physician-patient privilege.) Another avoidance tactic for a subpoena in criminal cases is asserting it violates your Fifth Amendment right not to incriminate yourself. (This, however, would still require you to show up, you just wouldn’t have to answer questions). Of course, these efforts aren’t always successful, and the subpoena could still be enforced.

In short, Nunberg’s defense of “screw that” without anything to back it up, is not a proper excuse.

In the latest reporting on Nunberg, apparently he’s indicated he will now cooperate with Mueller and comply with the subpoena.

Subpoenas are serious legal documents and always require serious legal advice. It’s important to seek counsel from a trusted attorney if you get served with a subpoena, most especially if you want to deny a subpoena request.

chess board

Applicability of this Knowledge to Nonprofits

You may be thinking, “wow, this is all really interesting, and thanks so much, but what the heck does this have to do with nonprofits?”

It’s true that the mission of Gordon Fischer Law Firm is to promote and maximize charitable giving in Iowa.

Realize that nonprofits can receive subpoenas, too! And they do!

Remember, as was stated earlier, subpoenas can be issued not only by grand juries, but also by government agencies. So, if a disgruntled ex-employee complains, you might receive a subpoena from, say, OSHA, or the Department of Labor, or the Iowa Civil Rights Commission. It’s critically important that if this happens to you, or your fave nonprofit, you understand all the legal rights and responsibilities by contacting appropriate counsel.

Questions? Thoughts? Tell me in the comments section below or contact me via email or phone (515-371-6077).

Stacked books and notebook

What’s It All For?

In Hamilton: An American Musical, a perplexed Alexander Hamilton asks Aaron Burr, “What was it all for?” Regarding trusts, we know that all the work is for the beneficiary.

Classic Definition of “Trust” and “Beneficiary”

A trust is created when a property owner transfers property to a person with the intent that the recipient hold the property for the benefit of someone else. There are three parties to a trust: (1) the settlor (also called donor or grantor); (2) the trustee; and (3) the beneficiary. Every trust must have at least one beneficiary – a person for whose benefit the trust property is being held and who therefore has legal rights to enforce the trust.

Beneficiaries Must Be Sufficiently Definite

 

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The beneficiaries must be described with sufficient detail that their identities can be determined. If the description of the beneficiaries is too vague or indefinite, then the trust will fail and the property will be returned to either the settlor or the settlor’s estate.

Let’s take two simple examples.

  • Alan establishes a trust for the benefit of his then-living children. The beneficiaries are sufficiently definite.
  • Sara establishes a trust for the benefit of all her friends. The beneficiaries are insufficiently definite.

Easy, right?

Exception: Charitable Trusts

There is one narrow, but critically important exception to the rule beneficiaries of a trust must be sufficiently definite. Charitable trusts–trusts established to fulfill a recognized charitable purpose – can be for the benefit of an indefinite group. For example, a charitable trust set up to provide scholarships to disadvantaged youth will be held valid.

Multiple Beneficiaries: Concurrent Interests or Successive Interests

Trusts can have more than one beneficiary and they commonly do. In cases of multiple beneficiaries, the beneficiaries may hold concurrent interests or successive interests. An example of concurrent interests is a group of beneficiaries identified as grandchildren of the settlor, who all receive distributions after their grandparents’ deaths. An example of successive interests is a trust in which one beneficiary has an interest for a term of years, and the other beneficiary holds a future interest, to become possessory only after the present interest terminates.

 

dad swinging children on beach

Special Remedies for Beneficiaries

There are several remedies available to an aggrieved beneficiary in the event of a breach of trust by a trustee. Such remedies include claims for damages, injunction to restrain a breach, tracing and/or recovery of trust property, among others. A beneficiary may be able to recoup damages, perhaps even from the trustee’s personal assets. If the trustee wrongfully disposes of trust property, the beneficiaries may be able to reclaim the property from a third party. Again, legal remedies for a breach of trust by a trustee are broad.

Let’s Talk More About Trust Beneficiaries

Interested in establishing a trust or having difficulty deciding on beneficiaries? Don’t hesitate to reach out; email me at gordon@gordonfischerlawfirm.com. I offer a free one-hour consultation to everyone, without any obligation. I’d be happy to talk to you any time.