Congress has changed the estate tax laws pursuant to the Taxpayer Relief Act of 2012, providing newer and simpler options for many estates. The law may affect your estate plan; and, if you have not yet put such a plan in place, now is an excellent time to take advantage of an opportunity to protect your loved ones and minimize their burdens, expenses, and tax costs associated with your estate. There are also recently adopted Advanced Health Care Directives in the State of Utah, which go much further and cover more needs than the old living wills and special medical powers that were used prior to 2008.

This is an excellent time for you to visit with one of our estate planning attorneys, to evaluate your needs, and help you take advantage of new provisions which could simplify your life, and save on burdens of administration and reduce or eliminate income and estate taxes for your family. For anyone who contacts our firm for an estate evaluation and review, prior to May 1, 2013, we are offering a free half-hour initial consultation, and a $50.00 discount from any new, complete estate plan.

We are eager to explain to you just what the documents are that you should consider for a complete estate plan, and answer your questions, and review your current documents to see if they are adequate and accomplish your present desires for estate planning. If you do have an estate plan currently, let’s review it and bring it current. Often, that may only involve a simple amendment. If you don’t have a current estate plan, let’s help you put things in order, and provide the peace of mind that comes with knowing that you are prepared, and comfortable in having the documents that take advantage of all of the law’s expanded opportunities for you and your loved ones.

• Tax Rate. The maximum estate, gift, and GST tax rate is 40 percent.
• Estate and Gift Tax Applicable Exclusion Amount. The applicable exclusion amount for estate and gift taxes is $5 million (adjusted for inflation to $5,120,000 in 2012).
• Exemption Amount for GST Tax. The exemption amount for GST tax is $5 million (adjusted for inflation to $5,120,000 in 2012).
• Portability. Portability of the deceased spousal unused exclusion amount for estate and gift tax purposes is made permanent. Portability allows the estate of a decedent who is survived by a spouse to make a portability election and permits the surviving spouse to apply the decedent’s unused exclusion to the surviving spouse’s own transfers during life and at death.

How Does this Impact Me?

Many of our estate planning clients are breathing a sigh of relief because if Congress had not acted on the sunset provisions, effective January 1, 2013, the maximum federal estate tax rate was scheduled to revert to 55 percent with an applicable exclusion amount of $1 million (not indexed for inflation). The 2012 Taxpayer Relief Act brings some certainty to the Tax Code related to transfer taxes that has been controversial over the last few years.

Do I Need to Take Any Action?

If you and your spouse created separate trusts (or a joint trust that “splits” into a family/marital trust upon the death of the first spouse) then we advise that you speak with an attorney at HAO. A simple amendment to your trust may help your family avoid unnecessary and complicated issues associated with your current trust. Other estates may also be impacted by the 2012 Taxpayer Relief Act. Please contact an attorney at HAO at (435)752-2610 if you have a question about the impact of the 2012 Taxpayer Relief Act on your estate and family.

Something that I have learned over the years in working with small business owners and with clients’ estate planning is that very often these areas overlap. One of the most common deficiencies is not having a current buy-sell agreement between the owners of a business. The purpose of such an agreement is to provide a mechanism to avoid disputes in the event an owner dies, becomes disabled, or wants to retire or just leave the business. In the absence of an enforceable agreement all of these occurrences can end up in court. The best time to sort out these issues is when all of the owners are actively involved in the business since any of them could either be a buyer or a seller of their interest in the business and that tends to keep the discussion balanced and fair. The climate changes dramatically when the spouse of a deceased owner who is inheriting the business is desperate to get as much money as possible from the business. The other issue that arises at that point is whether the surviving owner(s) can continue to work with the spouse or family of the deceased owner. Most buy-sell agreements contemplate a fair buy-out of the deceased owner’s share so that a problem does not arise. A common method of funding these buy-sell agreements is with life insurance.

Business Upkeep and Maintenance

Another common deficiency is maintaining good records in the business. If it is a corporation or LLC (limited liability company) the annual filing with the state must be maintained or the business could be administratively dissolved and the limited liability protection may be lost. When clients come in for business or estate planning we review the filing records and quite often this has happened. With corporations it is important to maintain the corporation book with updated articles and bylaws as well as copies of shareholder and board of directors meeting minutes. The stock ledger needs to be properly maintained consistent with stock ownership. With LLC’s or partnerships it is very important to review the operating or partnership agreement to make sure it is consistent with the understanding of the owners. These documents can become critically important if there is a dispute among the owners or if one of them dies or becomes disabled.

Business Divorce Litigation

The attorneys at HAO look for these kinds of issues and have many years of experience in formulating solutions for these problems, but the law suits that arise when business owners cannot resolve their differences look and act very much like divorces. We have been involved in a number of cases involving disputes that have arisen in these circumstances and are skilled in litigating them. However, our experience has taught us that it is a lot easier and cheaper to keep our clients out of trouble than it is to get them out once they are in. We would be happy to help you avoid these kinds of problems so give us a call.

What Does This Mean For You?
Now that the new law is in effect, we suggest that you contact us to determine if your estate plan needs to be modified. Please contact one of HAO’s Tax, Estate & Benefit Planning Section Members: Gary N. Anderson, Dale G. Siler, Brian G. Cannell, or Monica N. Howard, at (435)752-2610 to schedule an appointment.

HAO Attorneys
Hillyard, Anderson, & Olsen, PC is a full-service law firm, and we are pleased to offer legal services in the following areas, among others:

• Wills/Trusts
• Probate
• Power of Attorney
• Trust Administration
• Guardianships / Conservatorships
• Corporate, LLC & Other Business Formation

• Business Succession Planning
• Pre & Post-Nuptial Agreements
• Divorce & Family Law
• Custody
• Personal Injury
• Criminal Defense/DUI
• Civil Litigation/Appeals

• Real Estate
• Collections
• Juvenile Court
• Pension Plans/ERISA
• Water Law
• Tax Law
• Adoptions
• Contracts

Professional Resource
We often receive questions from our clients about their personal financial strategies. One such financial planning resource, with whom we have been pleased, is the firm of Allegis Financial Partners (AFP). AFP provides strategies for IRA distributions, estate and insurance planning, and policies which combine a Long Term Care and Life Insurance policy. If you have any questions regarding your personal financial strategies, and would like to arrange for a complimentary (FREE) financial review with someone from AFP, please contact Kim Jenson, Estate Planning Paralegal. She may be reached at the phone number listed above or by email at kim@hao-law.com for scheduling purposes.
Highlights of the New Law

Estate Tax
Congress increased the estate tax applicable exclusion amount to $5 million per individual ($10 million per couple) with a maximum estate tax rate of 35%. If Congress had not acted, then starting on January 1, 2011, the estate tax applicable exclusion amount would have only been $1 million dollars with a maximum tax rate of 55%. Congress also eliminated the modified carryover basis rules. Therefore, any property in a decedent’s estate will generally receive a step-up in tax basis to the amount of the property’s fair market value on the date of the decedent’s death.

Gift and Generation Skipping Transfer Tax
During 2010, an individual had an applicable exclusion amount of $1 million dollars. Any lifetime gifts totaling more than $1 million, excluding gifting using the annual gift tax exclusion amount ($13,000 per donee, in 2010 and 2011, for a total of $26,000 for both spouses), were taxed at a maximum tax rate of 35%. Going forward, the temporary modification reunifies the estate and gift tax to provide an applicable exclusion amount of $5 million, with a maximum tax rate of 35%. Effectively, such taxable lifetime gifts reduce the estate tax exclusion amount that would otherwise apply. There was no GST tax for direct transfers made during 2010. In 2011 and 2012, there is a $5 million exemption with a maximum tax rate of 35%. These changes may provide some unique gifting opportunities.

Portability
A surviving spouse may now have their applicable exclusion amount increased by the deceased spouse’s unused exclusion amount. For example, if David dies on January 1, 2011 and only uses $2 million of his applicable exclusion amount, then if a timely election is made, David’s surviving wife could potentially have up to an $8 million dollar applicable exclusion amount. In order to take advantage of this portability, a timely special election is required by the executor of the deceased spouse’s estate. If someone in your family passes away during 2011 or 2012, please contact us so that we can ensure that a timely election is made to preserve this benefit for your family. This portability feature, like the estate tax changes generally, is also set to expire on December 31, 2012, unless otherwise continued by Congress in that election year.

Decedent Passing Away in 2010
The new law allows the estate of a decedent who passed away during 2010 the option of either (1) paying no estate tax but have modified carryover tax basis rules apply, or (2) using the new $5 million exemption/35% rate with a step-up in basis to market value on the date of death. If someone in your family passed away during 2010, we would be happy to work with you and your accountant to make an advantageous election for you.

*For related post click here.

Olsen has, for several years, conveyed food, clothing, and toys to an orphanage in Mexico and also provided a 32-seat bus for the transport of the children. His next orphanage run is scheduled for February 2011. Olsen is a shareholder with the law firm of Hillyard, Anderson & Olsen, P.C., located in Logan, and currently serves as a Utah State Bar Commissioner. Olsen is also an approved Mentor for the Utah State Bar. Olsen has received several awards and made significant contributions in the legal community, including formerly serving as President of the Cache County Bar Association, being named Utah Pro Bono Attorney of the Year (2008) and receiving the Utah Business Legal Elite Award for personal injury litigation (2007 and 2009). Olsen was also named as the Top Professor at Utah State University (2006), where he teaches handball.

Something you could do now would be to start putting together a financial statement (your assets minus your liabilities) to see if your spouse and children would be affected by this.

Pre-employment interviews are an integral part of the hiring process for any employer and when properly
administered, serve as an excellent tool for screening applicants and ultimately hiring successful and
productive employees. However, interviews can also, potentially, be abused to improperly and unlawfully
restrict or deny employment opportunities to individuals classified by certain “protected classes.” Both
federal and state law prohibit the use of pre-employment inquires that are not job-related or predictive of
successful job performance and disproportionately screen out minority groups or members of one sex.
Accordingly, it is imperative for employers to know which types of inquires are appropriate and which
types of inquires are not only improper, but illegal. By initiating conversation about a certain topic or
asking a question pertaining to a “protected class” could be considered discriminatory and open the door
for potential litigation.

The following list contains some inappropriate and illegal inquires, provided for information purposes
only, which pursuant to federal and/or state law cannot be considered when making personnel decisions:

1. Race or Color: An employer may NOT ask about an applicant’s complexion or color of skin.

2. Religion: An employer may NOT ask about an applicant’s religious affiliation, church,
synagogue, parish, pastor, rabbi, or religious holidays observed.

3. National Origin: An employer may NOT ask about an applicant’s lineage, ancestry, national
origin, descent, parentage, nationality, birthplace, or native language.

4. Marital Status: An employer may NOT ask questions about marital status, maiden name, pregnancy, future child-rearing plans, and number and/or age of children.

5. Age: An employer may NOT ask an applicant’s age or date of birth.

6. Citizenship: An employer may NOT ask an applicant to identify his or her country of
citizenship or whether the applicant is a naturalized or native-born citizen of the United States.

7. Disability: An employer may NOT ask questions that are disability-related (i.e., inquires
that are likely to elicit information about a disability).

For more information, please contact Gary Anderson or Jonathan Nash with the Employment Law division of Hillyard Anderson & Olsen, P.C.

Fifty percent of business owners plan to pass their business on to family members.
Ten percent anticipate selling to a competitor. Thirty percent plan to sell to employees
and ten percent plan to sell to outsiders.

Despite these expectations, the actual statistics show that only fifteen percent of
small businesses actually pass to the second generation; only five percent of the second
generation businesses pass on to the third generation; ten percent actually do sell to
competitors; five percent sell to employees; and, ten percent are sold to outsiders. The
balance of these businesses are closed and liquidated.

Why is it so difficult to accomplish a small business owner’s expectation of
passing the business on? There are several succession blockers that impact the ability of
an owner to pass the business on to the next generation such as:

1. unexpected death or disability resulting in loss of economic power
to continue the business and the emotion and physical drain on
surviving owners, employees and family members;

2. Conflicts among the surviving owners, employees and family
members; and,

3. FAILURE TO PLAN!

When a business owner dies, the following alternatives exist:

1. liquidate the business;

2. surviving owners continue in the business with the decedent’s
heirs;

3. surviving owners sell their interest to decedent’s heirs;

4. surviving owners sell their interest to outsiders; or,

5. decedent’s interest is sold to outsiders; or,

6. decedent’s interest is sold to surviving owners.

In a multi-owner business, most surviving owners prefer to purchase the
decedent’s interest and continue in the business in the event of the death of a co-owner.

If the business owners plan appropriately for the ultimate succession of the
business, they will stabilize and maximize the value of the business; transfer ownership
under controlled conditions; minimize the cost of transfer and loss. This is best
accomplished through a “buy-sell” agreement.

A buy-sell agreement allows the owners to set the value of their business or
provide a method of valuation prior to a life event that triggers the need to transfer
ownership such as in cases of death. By setting the value and putting in place triggers,
the owners can minimize the impact of the life changing event and ensure that the
business will continue to the next generation.

Buy-sell agreements are often funded with life-insurance policies so that there is
little disruption in the cash flow of the business in the event one of the triggering events
occur. This succession planning tool provides continuity that allows the business to
continue while providing value to a decedent’s family who has suffered not only the
emotional loss of their loved one but also their major income source.

In addition, a buy-sell agreement prevents disputes among surviving owners as to
what value needs to be paid for the decedent’s interest in the business and allows for the
surviving owners to continue in the business without worrying about being joint owners
with the decedent’s family.

In summary, a buy-sell agreement is a MUST business succession planning tool
as well as an estate planning tool and should be discussed with a legal and tax advisor
early on in the creation of the business and when estate planning is being contemplated.
For more information, please contact Gary Anderson, Dale Siler, Brian Cannell or
Monica Nelson Howard with the Estate and Business Planning Division of Hillyard
Anderson & Olsen, P.C.