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Archive for the ‘Estate Planning’ Category

Community Agriculture Alliance: Relief from Estate Taxes?

A little-publicized but welcome surprise occurred when Congress and the president reached agreement on how to limit some of the impact of the fiscal cliff and adopted the American Taxpayer Relief Act of 2012. The first section of the act is entitled “Permanent Extension and Modification of 2001 Tax Relief.” And at the end of this section, the estate tax provisions that were in effect in 2012 essentially are continued on a “permanent” basis. (Congress always can amend the law, but any near-term amendment is unlikely.)

For people trying to finalize a will, financial advisers, accountants and estate-planning attorneys, the past decade has been a challenge. By virtue of the plan adopted by Congress in 2001, some of the estate tax rules changed every year or two. Depending on the size of a prospective estate, trusts sometimes were needed as part of a will in order to minimize estate tax impacts. In 2011, the estate tax disappeared briefly only to be re-enacted and reconfigured on a temporary basis in the middle of the calendar year. And technically, the 2001 provisions expired for a few hours at the beginning of 2013, bringing the rules that existed before the 2001 legislation back into effect.

In the meantime, legal and financial advisers who were convinced that Congress never would get its act together before 2013 arrived (and the rules reverted to 2001 rules, with limited exemption amounts) suggested that their clients make major gifts while the 2012 exclusions were in place. During that window of opportunity, an individual could make a gift of slightly more than $5 million without incurring estate or gift taxes, and a couple could make a gift of slightly more than $10 million. As a result of these concerns, a lot of gifts were made in 2012.

Finally, with the American Taxpayer Relief Act adopted at the beginning of 2013, we have something that Congress is calling a “permanent extension” that provides some reasonable guidance for making future plans. These relatively high levels of exemption base ($5 million/$10 million) have been continued under the new legislation. The portability of the exemption — meaning that if a spouse dies without using his or her exemption, the surviving spouse can (under specific rules) make use of the full $10 million exemption — has been continued.

In this region with our high real estate values, it does not take too much property to reach a $1 million value. Had the rules reverted to 2001 exemption levels, anything more than an individual’s $1 million estate would have been subjected to a high tax rate and could have required the sale of real estate or other major assets to be able to pay the taxes. With the American Taxpayer Relief Act leaving the basic exemption at $5 million and with the portability feature allowing for an estate in excess of $10 million to be passed along to a next generation, most estates (and many farms and ranches) will be able to avoid taxation. The American Taxpayer Relief Act provisions will allow a ranch or a farm to be passed along to family members without forcing the sale of the ranch or farm to pay taxes.

Finally, it is important to remember that even with the American Taxpayer Relief Act, the estate tax rules remain complex and will vary in different circumstances. This column should not be relied upon as legal advice or as tax advice for any individual situation. You should consult with your adviser on the significance of the American Taxpayer Relief Act to your situation.

Rich Tremaine is an attorney in Steamboat Springs and a member of the Community Agriculture Alliance’s advisory board. He provides occasional comment on estate tax issues.

This article was published in the Steamboat Today on January 11, 2013 and can be accessed here.

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CLASS OUTLINE: LAND STEWARDSHIP 202


1.         INTRODUCTION TO RURAL LAW

a.          Know the facts about what you own/have purchased (real estate rights; boundaries; easements; access; claims of others; fence lines; water rights).

b.          Avoid unnecessary confrontations; reach a reasoned agreement, if possible; particularly on neighbor-neighbor disputes.

c.          If litigation is necessary, get fully prepared to go to trial, but make formal efforts to settle, before, during or after hearing/trial.

2.         LEGAL ENTITIES IN COLORADO.

a.          Agriculture as a high-liability activity.  Large animals, heavy equipment, water bodies, fences.

b.          Corporations, LLC, Partnership.  General recommendations that I make to clients.

3.         PERSONAL PLANNING.

a.          Ranch Maintenance and Management (written contracts)

b.          Protecting access rights, boundaries, water rights.

– Number one, know what rights you have.

– Number two, know how you can lose your rights. e.g. adverse possession is generally a period of 18 years; water rights must be used, or can be construed as having been abandoned.

c.          Estate Planning.

– In context of farm or ranch that you want to pass along to children or family, there are a number of steps that can be taken to protect this ability.  For example, family partnerships, lifetime transfers, conservation easements, family businesses, etc.  These efforts can be critical to preserving this property for heirs, especially in periods of escalating land values.

d.          Ownership.  Review of plats, boundaries, title commitments.

– If you have no survey, consider having one done.  If there are known boundary issues, contact neighbor and resolve.  If there are items on title commitment that are of concern, make inquiry and resolve.  Important for dealing with neighbors, for dealing with government, for dealing with sale of all or part, for dealing with owners of mineral interests, etc.

e.          Protecting agriculture tax status.

Know the definitions and the rules.  Then, be careful to comply.  Discuss County efforts 10-12 years ago; litigation; attitude since the litigation.  (Colorado Revised Statutes, Sec. 39-1-102, “Agricultural land”, “Farm” and “Ranch” defined; recent amendments (House Bill 11-11-46).

f.           Protecting rights of use (building, activities).

– As County becomes more urban, county’s planners come up with changes to zoning resolution that may impact use of private property.  For example, limits on ridge-line development were a major issue for a couple of years.  Secondary units and the related rules continue to be an issue.  Land preservation subdivisions and the related rules may impact owner directly or indirectly.

g.          Conservation Easements.

– Describe and explain how they come into being.  Describe the basic steps to be taken, and the basic options.  Describe the short-term and long-terms impacts.  Discuss/provide information on where to get more details.

– Discuss that fact information is critical to establishing a conservation easement.  Here, not only are boundary lines critical, but also knowledge about water rights and mineral rights.

– Practical:  Those conservation groups which are active in this region tend to be cooperative and mutually supportive.  However, all have their standard form easement, which, as expected, tends to be very restrictive.  The fact is that where there is any level of “gift” involved, the organization will negotiate terms.

h.          Mineral Rights.

– In Colorado, mineral rights are severable from the surface rights of real estate.  In some cases, this has occurred.  For example, on my ranch property, my company owns the surface rights; the State of Colorado owns the mineral rights.

– On some properties, a past owner may have retained the mineral rights, or may have retained a one-half interest in the mineral rights.  A later owner may have retained the other half.  However, mineral rights are not cleanly traceable in the land records.  So, a title company may note that certain mineral interests were reserved, or conveyed, by a previous owner, but the title company will not insure that you are receiving mineral rights, as part of a title commitment.

– Historically, not a lot of issues/disputes in Routt County.  However, with the energy development activities, there have been serious issues between rural property owners and energy development interests – particularly in New Mexico and in Wyoming.  In Colorado, these issues have started to arise in Garfield, Rio Blanco and Moffat Counties.  We are now seeing these in Routt County.

4.         DISPUTES.

a.          Fences and Gates.  The basic law; the typical dispute.  (Colorado Revised Statutes, Sec. 35-46-101, et seq.)

b.          Covenants and Easements.  Restrictions that are “recorded.”

– Back to your title commitment.  Typical provisions/restrictions will relate to access, to road maintenance, to utilities, and to water rights; some relate to permitted structures, require architectural review.

c.          Water Rights.  Discuss fact that water rights are established, ultimately, by Court Decree.  Property owner can make use of the water first; then file for rights.  Alternatively, owner can file first, and then develop the water rights that were established.  Discuss Colorado Supreme Court case; ramifications.

d.          Dispute resolution.  Court or alternative dispute resolution (ADR).

5.         ADDITIONAL INFORMATION SOURCES.

a.          A Guide to Rural Living & Small Scale Agriculture, Routt County

b.          “ktlaw.com” publications page

c.          “cobar.org” (Colorado Bar Association)

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Richard Tremaine: An Open Letter to the US Congress


“… in the world nothing can be said to be certain except death and taxes.”

— Ben Franklin

When I read the initial news reports that you were going to amend the estate tax as part of the Tax Cut Extensions Bill (H.R. 4853), I was thrilled. Finally, you had taken some action to provide us with some rules and some guidance that would carry into the future. I had mentally started a letter of thanks to you. Then, I learned that the estate tax amendments only were for two years. Then, I saw more details that there are other revisions that will affect how estate planning is done and how documents are prepared. Then, I realized that this was just more “business as usual.”

I am writing yet again to request that you give some serious attention to the estate tax, and provide us — since we are all affected — with some clear tax rules that will apply for the foreseeable future. Your collective intransigence on this issue is unconscionable, when the limited range for potential compromise is so clear. Your failure to act leaves us to plan a year at a time, rather than for the long term. Perhaps if you were able to enact a long-term estate tax plan, Congress also could enact other long-term legislation. You might even end up with some major programs that make some sense and are not simply driven by the most potent special interest group of the moment. But I digress.

When you amended the estate tax in 2001, you created a challenge because the rules changed every few years all the way to 2010, when the estate tax was briefly repealed. When consulting with clients, I had to describe the existing rules and the changes that would occur in the rules during the next several years. Although this was a pain, it still allowed us to collectively plan; for example, in 2002, we at least knew what the rules would be in 2008. Our clients could make a rational decision and plan for at least six or seven years.

In my experience, when people sit down to prepare a will and to plan for the distribution of their assets after they are deceased, they want to know, “How much of my estate will be needed to pay taxes to the federal government?” Depending on the answer to this question, they may have the additional question, “What can I do to minimize the amount that goes to the government and maximize the amount that goes to my family, friends and charities?” If there are clear rules, an attorney can respond to these questions and help clients develop a plan. Conversely, without rules, an attorney and his client are left to guess what you might do and when you might do it, and to try to make family bequests based on our “best guess.”

So maybe all we need to know is what The New York Times reported — that with the exemptions created by Congress for the next two years, very few people will have to pay estate taxes. All they have to do is to die in 2011 or 2012. Maybe we just shouldn’t worry that in two years, when another Congress fails to take action, the rules will revert to the rules of 2001, and suddenly, the estate tax will affect a large portion of the population.

By your past actions, you have proven that the only thing we can count on is continued uncertainty and the likelihood that you will not amend the estate tax again in the next two years. It’s just not important enough to you or to the lobbyists who have your ear.

Frustrating? Yes. Who is to blame — the Republicans or the Democrats? Yes. The fact is that neither those who wish to see a stringent estate tax that affects nearly everyone nor those who would repeal the “death tax” forever have sufficient votes to bring about their desired result. Therefore, the range of acceptable compromise looks to be somewhere between the 2009 rules ($3.5 million individual exemption; tax rate of 45 percent after exemption) and the 2011-12 rules ($5 million individual exemption; tax rate of 35 percent after exemption).

How about compromising halfway between the two sets of numbers and adding an inflation factor so that these numbers can adjust upward or downward in step with the overall economy? This could set a plan and rules for 10 or 20 years; then, we could plan. And you could, too.

Sincerely yours,

Richard Tremaine

Originally published in The Steamboat Pilot & Today

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Goldilocks, the Three Bears, and the Honey Tax


When Goldilocks jumped out of the cottage window and came running out of the woods in 2001, she was resolved to never again visit the Three Bears. However, during her inspection of their cottage, she had noticed a lot of paperwork scattered around that seemed to be focused on trying to avoid the “honey tax” that was going to be imposed on the honey that Mama Bear and Papa Bear had accumulated during their lives. The effect of that tax would be that Baby Bear would have to give half of his parents’ honey to the government when they passed away.

Goldilocks thought to herself, “It’s just not fair,” and she resolved to fix the situation. Goldilocks sat down, with the lessons from her visit to the Bear’s cottage still firmly in mind. She didn’t want the tax to be too big or too small; it needed to be “just right.” She decided to approach this cautiously and to lower the tax on a gradual basis, over a period of nearly 10 years, so that she could see how her plan was working. Since she didn’t know what was going to be “just right,” she decided to first make it go away completely in 2010, and then to bring it back completely in 2011, returning the tax to 2001 levels.

Meanwhile, back in the woods, the Three Bears were initially shocked to see the picture of the yellow-haired girl who had visited them in their Wall Street Journal and in The Steamboat Local on the business pages. They were pleasantly surprised to find that she had established new rules that would let them pass more honey from their estate along to Baby Bear. And, they remembered that Goldilocks always would have to see what was “too hot” or “too cold” — or “too big” or “too small” — before she could get to what was “just right.” So, the Bears waited patiently to see what Goldilocks would do next.

Goldilocks did nothing more about the honey tax. The Bears waited and they waited. They knew that Goldilocks would never let the honey tax completely expire; the government simply needed too much honey. They remembered that when Goldilocks tried a chair that was too small, it broke. They could not imagine that she would let the honey tax get too small or too big, and they planned accordingly.

Much to the Bears’ surprise, the honey tax expired at the end of 2009. The Bears were thrilled. This meant that they could pass all of their honey along to Baby Bear. But wait — that meant that they had to die during 2010 because in 2011, the government would go back to taking half of their honey. They weren’t ready to die, so it was time to take action.

The Bears decided to pay Goldilocks a visit. They found her house at the edge of the woods and saw a large tent in the yard that was filled with chairs and tables and with cups and saucers at every place. It looked like Goldilocks was going to have a tea party. At the center of each of the round tables was a pot of honey — undoubtedly from the honey tax, paid by other bears. For nearly 10 years, Goldilocks had done nothing to make the honey tax cuts permanent and the large tax was going to return. The Bears were very angry at this. When Goldilocks came out to inspect all of the party arrangements, the Bears jumped out of the woods and ate her.

Author’s note: If you think that this story has no foundation in reality, think of Goldilocks as the U. S. Congress, of the Three Bears as a family of taxpayers, and of the honey tax as the estate tax.

Originally published in The Steamboat Local

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Hiring a Lawyer: Finding a Trusted Adviser


“Never leave that till tomorrow, which you can do today” – Benjamin Franklin

Last week you learned about being your own attorney. Well, if that is not for you, then you are going to need to select a lawyer to address your legal needs. Venturing into the world of finding a lawyer may seem daunting. You may not know who to call. Should you reach for the phone book? The newspaper? The computer? If you need a lawyer, or think you might, you should start your search promptly. If you delay this, you run risks and create unnecessary stress. For example, if you are a Colorado resident and are served with a lawsuit, you have twenty days to answer. If you start searching for an attorney right away, you will have a choice of available attorneys. You can conduct a couple of interviews and hire a lawyer who has a few days to assist you in preparing a timely response.

The following should be considered to ensure that you do not just hire a lawyer, but that you engage someone who will quickly become: a trusted adviser.

1. Seek a referral. The best place to start is to talk with your family, friends, and colleagues about lawyers they recommend. These people can tell you about their experiences and whether they were satisfied with their attorneys. While your parents’ estate planning lawyer may not be able to defend you against the crime of which you have been accused, good lawyers will usually point you in the direction of other good lawyers.

2. Arrange for a meeting. Meet with the lawyer you are considering hiring to get a feel of whether you will be able to work with that lawyer. Be aware that many lawyers charge for an initial consultation, so to make the most of your time be prepared to present a brief, clear summary of your legal issue. A good lawyer will explain your options and the legal procedures you will encounter at your initial consultation.

3. Look for a good fit. Make sure the lawyer you are considering hiring has experience in handling your specific legal issue. Most lawyers concentrate in one or more areas of law. It is also important that your lawyer has knowledge of the judge or legal environment you are facing. Finally, you should consider the lawyer’s personality and approach to the case. You do not need to become friends with your lawyer, but your lawyer should be someone that you can work with. At the minimum, you should ensure that your trusted adviser listens to you, answers your questions, and respects your wishes as to the direction that the case goes.

4. Learn how you will be charged. Lawyers may charge an hourly fee, a one-time flat fee, or a fee based upon a percentage of the amount awarded to you at the end of the case. The fee depends on the type of case and the attorney’s practice. Ask the attorney about how small fees, such a copying, faxing, and filing are assessed. Usually a retainer, or advance payment, is required and your attorney should explain how that money will be handled. Learn whether the lawyer works alone or has a paralegal and administrative support staff. Paralegals and support staff can sometimes complete tasks at a lower rate, which will likely save you money in the long run.

5. The Three As: Availability, Affability, and Ability. How quickly you can secure an appointment for an initial consultation should tell you something about your lawyer’s availability. Your trusted adviser should return your phone calls and e-mails within a reasonable time. Your lawyer should be a person you can trust to be honest with you through difficult times. Your lawyer should have the experience to provide you with current legal advice, as well as what to expect from the judge who may decide the outcome of your case.

The bottom line is that your lawyer should be a trusted adviser, especially in tough times. You will be able to rely on your lawyer as a source of advice and support. Because your relationship with your lawyer is trust-based, taking the time to select a lawyer that will be candid and honest with you will pay off in the end. In closing, an old adage comes to mind – “They that will not be counseled, cannot be helped.”

…………………………………………

Originally published in The Steamboat Local

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