"Holla We Want Prenup", even if you never get a divorce.

Kayne West and Kim Kardashian are reportedly preparing a prenup before their upcoming marriage.

http://www.huffingtonpost.com/mindy-r-smith/kanye-west-and-kim-kardashian_b_4165510.html

Most outlets are emphasizing the use of prenups in protecting assets in the event of a divorce. Besides the obvious jokes about the longevity of Hollywood marriages, prenups (or more properly called, ante nuptial - "before marriage" agreement) are useful for estate planning. Your will generally can allocate assets how you wish, but spouses have a right in most states, including Minnesota to receive a minimum portion of the estate. The only way to guarantee that the surviving spouse will not invoke that right, is to have a prenup that waives the right. Prenups, particularly if there are family business assets, family farmland or other significant family assets, can keep the asset from being distributed against your wishes. You may never get a divorce, but everybody dies.

Know the Consequences of Life Estates

A life estate can be a somewhat simple way to make sure your real property easily transfers to another when you die, but you need to know what you're getting into before you sign off on the deed. Life Estates have many consequences.

First, the property is transferred and your kids have ownership rights the day you sign and deliver it. This means that your kids may have things come up, like divorces or creditors that could create a title issue on your property. For this reason, a transfer on death deed can be a better option. Second, you can’t take the property back. If you want the property free of your kids’ ownership, they need to deed back to you. Finally, transferring property of any kind may have significant gift, estate or income tax issues. A life estate may be a good idea, depending on your circumstances. However, you should meet with both an attorney and CPA to make sure you don’t get surprised later on.

Pohlads in Dispute with IRS over Valuation of the Twinkies.

The IRS thinks that the Twins are worth more than the Pohlad estate claimed on Carl Pohlad's estate tax return. (Have they seen the Twins record recently? - ba dum dum)

http://www.startribune.com/business/216303871.html

The estate claimed the value of Carl Pohlad's interest in the Minnesota Twins at the time of his death was $24 million at the time of his death in 2009. The IRS claims it was more like  $293 million. So why the discrepancy? Are the Pohlads trying to get away with not paying their fair share? Well, it's not so clear cut.

Valuation of business interests are notoriously difficult to estimate. You can take into account the assets and liabilities of the company, but what about it's liquidity? Are the assets or business interests marketable? These questions create a whole range of good faith valuations on business interests.

This is further complicated when an individual, like Carl in 2009, owned a minority interest. The IRS recognizes that if you own say 10% of the interests in a company worth $100.00, the value of your interest is lower than $10.00 because you can't exert control over the company or its assets and the value should be discounted to reflect the minority status. But, the question of how much the asset is discounted adds another layer of uncertainty.

If you own business interests, its extremely important that you work with legal counsel to determine if you have a taxable estate and how to minimize estate taxes.

And, because I'm a Twins fan, here's my obligatory cheap shot at the Yankees... well, at least the Pohlads are paying estate tax, unlike the Steinbrenners. http://blogs.wsj.com/metropolis/2010/07/13/how-steinbrenner-saved-his-heirs-a-600-million-tax-bill/

New Happenings at the Law Office

Is it almost August already? Whoops! This month our law office expanded to include a Chatfield office and we're preparing to set up a satellite office in Spring Valley. I've joked that it's like having one kid and then suddenly finding out you're having triplets. This all means that that I get to focus on files in the area of law I love, estate planning. This also means that July has been a whirlwind of activity. I was all set to write about controversies with the Pohlad estate (a familiar name to Minnesotans or Twins fans) this month, but plain ran out of time. See you in August, when I'll write about the Pohlads, the IRS, and valuing your estate.

IRS is Claiming Whopping Amount in Taxes on Ex-Pistons Owner's Estate

It's not often you get estate planning news on ESPN.

http://espn.go.com/nba/story/_/id/9409964/irs-ex-pistons-owner-bill-davidson-estate-tax-dispute

The IRS is claiming around $2 billion (yes, with a "B") in unpaid estate taxes on ex-Pistons owner, Bill Davidson's estate. They claim the estate undervalued stock and didn't appropriately report lifetime gifts made to his spouse and daughter.

While you  may never be in a position to owe billions of dollars in tax, you may be surprised to learn that things like life insurance are included in taxable estates. Many people who are not millionaires may have million dollar estates. Particularly in Minnesota, which has, for the most part, a $1 million estate tax exemption, many people may be surprised to learn they might have a taxable estate. There are options to reduce or eliminate your liability, but you need to meet with an attorney before you die.

Minnesota Now Has a Gift Tax

During this legislative session, the DFL House and Senate passed, and the DFL Governor signed into law, a tax on gifts. While estate planners are familiar with federal gift tax, the new state gift tax has some significant differences. For "taxable gifts" transferred after June 30, 2013, Minnesota will impose a tax of 10%. "Taxable gifts" are "transfers by gift which are included in taxable gifts for federal gift tax purposes". While the gifts subject to tax appear to track with the federal gift tax, Minnesota did not change it's estate exclusion amount to be a lifetime transfer exclusion, like the federal estate and gift tax. For federal gift tax, while a gift may be large enough to be reported, tax would not have to be paid as long as total lifetime gifts were lower than the lifetime transfer exclusion, which this year is over 5 million. Unlike the federal estate and gift tax system, Minnesota chose not apply their estate exclusion of between 1 million to 5 million to gifts. Rather, the lifetime credit on gift tax is $100,000.00. That allows for up to 1 million to be gifted in a lifetime without being taxed, but not the additonal 4 million in farm property that is exempt from estate tax. A credit covering the tax on 1 million dollars is significant, but land rich, cash poor farmers looking to transfer to the next generation may still run into a tax bill. If you are small business owner or farmer in Minnesota, you should schedule a meeting with your estate planner immediately.

Look for Me at the 2013 MSBA Probate & Trust Law Section Conference

I'm excited to announce that I'll be presenting on my favorite estate planning topic, estate planning for transnationals, at the 2013 MSBA Probate & Trust Law Section Conference! My session will be a discussion of 13 dangerous assumptions that estate planners can have when dealing with transnational clients.

I've been preparing my class materials, which meant that a few other things, like my monthly blog posting, fell by the wayside. I do plan on giving a little taste of my presentation in future blog posts.

As always, there will be a variety of interesting topics. Take a look at the schedule for details.
http://www.minncle.org/seminardetail.aspx?ID=102901301