When a Restricted Gift is Not a Restricted Gift

As universities feel the pinch of the recession, many of them are looking for sources of money to cover operational expenses.  One important source is endowments.  Universities love unrestricted gifts, because the money is theirs to use as needed to pay faculty salaries, financial aid, and other expenses.  The reality is that most significant endowments are for a restricted purpose.  For example, maybe the donor hopes that the money will be used to bring prominent speakers to the university.  It might be that the donor enjoyed his experience at the college’s radio station and wanted to see it continue.  Perhaps the donor gave expensive works of art for the university to display for future generations.  By the way, these are real-life examples.  See New Unrest on Campus as Donors Rebel, Wall Street Journal.

The donor’s intent is almost always expressed in writing, so what if the university needs it for another purpose?  Should a university be able to use a restricted gift for an unrestricted purpose, or worse, should a university be able to sell the works of art or the radio station?  If the university is in dire financial straits, it may have no choice; however, it should try to honor its benefactor’s intent.  Donor unrest is never a good thing.  You know the saying, “you should not bite the hand that feeds you”.

Rankings of Best and Worst 529 Savings Plans

Investors in Ohio’s CollegeAdvantage 529 savings plans have something to feel good about.  The Morningstar investment research firm ranked the savings plan as the best in its rankings released today.  The research firm liked the fact that the Ohio Tuition Trust Authority not only created the plan, but it manages it as well.  Both low fees and a variety of investment options, including age-based options, were important factors in Morningstar’s favorable ranking.

The news for the brokerage sold Ohio Putnam CollegeAdvantage fund was not nearly as good.  Morningstar ranked the Putnam fund “at the polar opposite end of the spectrum.”  The research firm did not like the fund’s heavy exposure to Putnam Funds and recommends avoiding the plan.

Is The Family Foundation Giving Way to The Donor-Advised Fund?

A charitable family foundation can be much more involved than a donor-advised fund.  It is important to understand a client’s expectations before recommending one or the other.  A recent Wall Street Journal article, Family Charities Shift Assets to Donor Funds, provides a few recent examples where foundations were dissolved in favor of donor-advised funds.  In reading the examples provided, the underlying theme seemed to be that the donor-advised fund was easier and much less time-consuming.

 The Columbus Foundation’s website discusses the advantages of the donor-advised fund versus the private foundation.  If you look at the list of these advantages, it is clear why the donor-advised fund is easier to establish.  Additionally, one nice thing about the donor-advised fund is that it can be set up with as little as $10,000.  It is not cost-effective to set up a family foundation with that amount.

Quotes of the Month

“We need to simplify a monstrous tax code that is far too complicated for most Americans to understand, but just complicated enough for the insiders who know how to game the system.” – President Barack Obama’s comments in Washington on April 15, 2009.

 “There is no justification for the countless billions that citizens will have to pony up this tax season to fund liberalism’s reckless abuse of the federal treasury.” – Statement issued by Americans for Tax Reform, during several anti-tax protests across the U.S.

 “We need to end the tax breaks for the wealthiest 2 percent of Americans, so that folks like me are paying the same rates that the wealthiest 2 percent of Americans paid when Bill Clinton was president.”  President Obama.

 See Bloomberg article, Obama Uses Tax Deadline Day to Vow Revamp of System, for full story.

Intentionally Defective Grantor Trusts

What if you paid a significant amount of money to buy something and it was defective?  In one instance, you would be getting exactly what you bargained for.  The intentionally defective grantor trust, sometimes referred to as a grantor defective trust (GDT), is an estate planning tool for the wealthy.

Normally when a grantor establishes a trust for other beneficiaries, the grantor wants to avoid being taxed on the trusts income; however, in the case of the GDT, the grantor intends to pay the tax on the trust’s income.

The GDT is an irrevocable trust.  The trust is set up to accomplish the following 3 goals.  First, the grantor wants to make completed gifts to the trust for gift tax purposes.  Next, the grantor wants to remove the trust assets from the grantor’s estate for estate tax purposes.  Lastly, the grantor wants to intentionally set the trust up in a manner where the grantor continues to pay the income taxes on the assets (in effect making additional gifts).

A Wall Street Journal article, Unusual Trusts Gain Appeal in Unusual Time, reports that this strategy currently has appeal due to the depreciation of many assets and the historically low interest rates.  The article provides an example where a married couple set up a GDT and loaned the trust money to buy their office building.  The couple will receive interest payments for 9 years.

Today’s low interest rates mean that the trust repays the couple less, further benefitting the heirs.  When the loan is repaid, the asset’s appreciation should pass to the heirs both estate and gift tax-free.

The Ohio Supreme Court Rules Unclaimed Funds + Interest

The Columbus Dispatch reported this morning that the Ohio Supreme Court unanimously ruled that The Ohio Department of Commerce, Division of Unclaimed Funds is not permitted to withhold interest on unclaimed funds accounts.

The Department of Commerce has been withholding interest for the past 18 years.  In 1991, the Ohio legislature ended the practice of paying interest and added a 5% administrative fee.

The Ohio Supreme Court summary indicates that the withholding of interest is a violation of property rights.  The department currently holds approximately $1.2 billion in unclaimed funds.

U.S. Senate Proposes Lowering the Estate Tax

There are several articles this morning reporting that the Senate passed an amendment to lower the estate tax. The amendment raises the estate tax exemption amount to $5 million ($10 million for a married couple) and lowers the maximum tax rate to 35%. While this is non-binding legislation, it does set the tone.

Here are links to some of the articles:

The Hill.com

The New York Times

The Associated Press

Fox News

The Wall Street Journal (subscription required)

The Silver Lining of Stock Losses

We have covered some of the opportunities that a depressed economy can provide some people.  What about that bank stock that you own?  One possibility is selling an asset for a loss to help offset capital gains tax in the present and future.  While the idea of selling an asset at a low point might make one cringe, the tax offset might be worth it.  If you have a lot of nearly worthless stock, you might want to discuss this strategy with your financial planner and/or accountant.

The Probate Law Institute (PLI) is in “Must See” Category

The Columbus Bar Association’s 15^thAnnual Probate Law Institute (PLI) is scheduled for Friday, May 1, 2009.  What does the PLI have to offer?  How about two probate judges, the Ohio Attorney General and several knowledgeable estate planning and probate experts.  Our newly elected Franklin County Probate Judge Eric Brown will kickoff the Institute and Lucas County Probate Judge Jack Puffenberger will present the statutory and case law update.  Ohio Attorney General Richard Cordray is the keynote speaker.  If you are a probate practitioner, this is an Institute that you do not want to miss.

Income Tax Season is Upon Us

There are a number of sites on the Internet that help people with basic tax terminology; however, some of the best information comes from the taxing authorities.  The IRS website provides tax forms, online filing instructions, and has a “Frequently Asked Questions” section.  The IRS website address is http://www.irs.gov/.

For Ohio filers, the Ohio Department of Taxation has an equally valuable website.  The website address is http://www.tax.ohio.gov/.

If you itemize your deductions, you probably would benefit from the services of an accountant.

Welcome Caregivers Attending Alzheimer's Association Presentation

I want to welcome the attendees of tonight's Caregiving 101 Program sponsored by the Alzheimer's Association of Central Ohio.  The attendees have already covered, among other topics, the medical aspects of dementia, safety and communication, the art of caregiving, and community resources. Tonight we will discuss legal issues.  I hope you find the discussion, the written materials and this site useful.

529 College Savings Plans Not Without Risk

While you do not get a federal income tax deduction for contributions to a 529 college savings plan, you do benefit from the tax-free growth of the account.  The key factor is that your account must grow to realize that benefit.  As you probably know, your 529 plan is subject to the same risks as most other investments.  Parents with younger children who will not be using the investment in the immediate future are less concerned with the market woes.  You can imagine the disappointment of a person needing to use their account now or in the near future and the value of their account has dropped 30 – 50%.

Every Time I See an Ad for LegalZoom I Cringe

You have seen Robert Shapiro, the criminal attorney known for his representation of O.J. Simpson, on these ads for Legalzoom.com.  He is plugging his website-based product as an easy, inexpensive way to, among other things, form a legal entity, get a divorce or prepare a will.  While I have never tried the service, I have read their disclaimer.  You know, the fine print where you are told that LegalZoom is not a law firm and they are not your attorney, and they are not permitted to practice law or give you legal advice.  The disclaimer discusses that they do not review your information for legal sufficiency or draw legal conclusions.  It adds that its product “is not guaranteed to be correct, complete or up-to-date. Because the law changes rapidly, is different from jurisdiction to jurisdiction…”  Still feeling confident?  It continues “LegalZoom is not responsible for any loss, injury, claim, liability, or damage related to your use of this site…, whether from errors or omissions in the content of our site…, from the site being down or from any other use of the site. In short, your use of the site is at your own risk.”  So, in the words of LegalZoom, use their site at your own risk.

 It is conceivable that, despite not using an attorney, you may end up with a valid legal document that meets your needs.  It is just as conceivable that you end up with an insufficient document without even knowing it.

 As an estate planning attorney, I have never taken the “one document fits all” approach.  Also as an Ohio attorney, I would never try to prepare a will for a resident of another state.  I have wondered how the people at LegalZoom could know whether a will was executed properly under the laws of the State of Ohio?  How could they advise people on the importance of understanding what assets are non-probate assets and the importance of beneficiary designations?  How could they advise a young couple with children on the advantages of a contingent trust?  How could they know whether a will was prepared for a person by another and that person lacked capacity or was unduly influenced?  There are several other questions that one could ask and the answer would always be the same.  Read the disclaimer.

 I recently handled an estate where the decedent tried to create his own will, apparently using a form off of the Internet.  He signed it and had it notarized.  Guess what?  It was not a valid will.  He died intestate.  If you ask any estate planning/probate attorney whether they have encountered a matter where problems arose from a person preparing their own legal documents, the answer will almost certainly be yes.  These are the types of cases that end up making attorneys a lot more money cleaning up the mess after the person is gone.  Seriously, if there were a problem with a will you created on the Internet, how would you ever know?

 Finally, take a look at these comments regarding LegalZoom users.