estate planning
Reasons to Sell Royalties
The sale of royalty interest provides the opportunity to liquidate and clean up the assets of an estate to avoid foreclosure delinquencies or estate tax problems.
Some people sell in order to eliminate future legal expense to Probate their estates. For the Small Interest Owner, the cost associated with transferring ownership can exceed the perpetual value of the royalty interest.
It is very important to understand cost or percentage depletion of a well when computing taxes. Some interest owners do not want to incur extra costs or out-of-pocket expense for the tax preparation and administration.
Some people feel it is cumbersome to try to keep track of royalty interest income and the taxes associated with the interest. This seems to be especially true for owners of small interests. By selling your interests now, you will no longer be required to pay property taxes, which can simplify your taxing preparation or taxing problems.
With energy prices at an all time high, this is an excellent time to convert royalty interest into cash and liquidate. The Cardinal Rule is, “Buy Low, Sell High”, with the oil and gas commodity markets at an all time historic high, there has never been a better time to sell.
There are various companies that will buy your interest, just make sure you go with a reputable one so you are not taken advantage of when selling.
A Cancer drug reverses Alzeheimer’s Disease in Mice
Researchers at Case Western Reserve University have discovered that a drug currently used to treat cancer patients can reverse the cognitive deficits related to Alzheimer’s disease in mice, and what’s more, it accomplishes this feat in a remarkably short period of time.
The drug, called bexarotene, has been approved for the treatment of a type of skin cancer since 1999. In the new experiments with genetically engineered mice, the drug quickly cleared away the beta-amyloid plaques in the brain that are believed to cause cognitive deficits in Alzheimer’s disease.
This is not the first time that scientists have essentially cured Alzheimer’s in rodents. A decade ago, scientists got excited when a potential Alzheimer’s vaccine appeared to chew up nerve-destroying amyloid protein deposits in animal brains, but were equally disappointed when it failed to do the same in human patients.
Reporting Abuse of the Elderly in Texas!
As the baby boomers begin to age, the issue of abuse of the elderly has become a very important topic. In Texas, the law requires any person who believes that an elderly or adult with disabilities is being abused, neglected or exploited to report the circumstance to the Texas Department of Family and Protective Services (DFPS) Statewide Intake or to the Department of Aging and Disability services. Adult Protective Services (APS) has a hotline where abuse can be reported. APS: 1-800-647-7418. Once reported, APS will investigate allegations of abuse, neglect, and exploitation in facilities that care for adults including: private homes, adult foster homes, unlicensed room and board, state facilities and community centers that provide mental health and mental retardation services, home health agency staff, and exploitation in nursing homes when the alleged perpetrator is someone outside the facility. If there is abuse or neglect occurring, APS may take steps to notify the local courts that a Guardianship may be necessary.
Guardianship is a legal process used to provide protection for adults who are incapacitated. The Probate Code defines an incapacitated person as: “An adult individual who, because of a physical or mental condition, is substantially unable to provide food, clothing, or shelter to himself or herself, to care for the individual’s own physical health, or to manage the individual’s own financial affairs.” Usually these elderly have severe memory loss, dementia, and cognitive impairments that seriously jeopardize their health and well-being. Many of these elderly have experienced self-neglect, physical abuse or financial exploitation. A guardian is appointed only when it has been determined that the elderly lacks decision-making capacity and must have a surrogate decision-maker appointed to advocate for services and give informed consent for medical procedures.
Abuse of the elderly is not always easy to tell as many adults that are being subjected to abuse, neglect or exploited are embarrassed or unable to express that abuse is occurring. Therefore, it is important that people surround the elderly take notice of specific signs of abuse, such as : bruises, pressure marks, broken bones, abrasions, and burns which may be an indication of physical abuse, neglect, or mistreatment; unexplained withdrawal from normal activities, a sudden change in alertness, and unusual depression may be indicators of emotional abuse; bruises around the breasts or genital area can occur from sexual abuse; sudden changes in financial situations may be the result of exploitation; bedsores, unattended medical needs, poor hygiene, and unusual weight loss are indicators of possible neglect; behavior such as belittling, threats and other uses of power and control by spouses are indicators of verbal or emotional abuse; and strained or tense relationships, frequent arguments between the caregiver and elderly person are also signs.
If you know of someone who may be the subject of abuse, you can complete a Suggestion of Need for a Guardian and submit it to the Probate Court in your county. The Court will then investigate whether a guardianship is needed, and appoint someone using the priority given by the Texas Probate Code. The Court can skip over a person higher on the priority list if the court finds that person to be disqualified. A person is disqualified to be appointed guardian if he or she is a minor; a person whose conduct is notoriously bad; an incapacitated person; a person who has certain conflicts of interest with the ward; a person who, because of inexperience, lack of education, or other good reason, is incapable of properly and prudently managing and controlling the ward or the ward’s estate; a person found unsuitable by the court; a person specifically disqualified from serving as guardian by the ward prior to his or her incapacity in a properly executed designation of guardian; and a person who is not a resident of Texas and who has not designated an agent in Texas for service of process. Because of these priorities, it is important for an adult individual who is worried about his or her possible future incapacity to consider designating those persons he or she wishes to serve as guardian and those persons he or she wishes to disqualify from serving as guardian, especially if a non-relative is preferred.
Do you need a trust to preserve your assets?
One of the main ways to protect your assets during your life, after death, and even after the death of your children is by using a trust vehicle. Individuals need the help of professionals to design a comprehensive plan for their trust needs if they want to ensure the trust works as planned. Your attorney can help you prepare the trust document, additional estate planning documents, and deeds transferring your real property or mineral interests into the trust. Your financial advisors can help you transfer your investment funds and accounts into the trust. Your banker or a corporate trustee can help you manage the trust during your life, upon disability or after your death.
The benefits of incorporating trusts into estate plans may include the ability to provide for ongoing professional management of assets in the event of your disability, and to help your family avoid the expense and delay of probating your estate, can pass more of your estate to the beneficiaries by minimizing your estate tax liabilities, and can benefit charitable organizations during and after the individual’s life.
There are various types of trusts that can be used and while this list is not exclusive it describes does provide some of the basic types of trusts as well as some of the more sophisticated types of trusts used in estate plans. A Testamentary Trust is one created after your death through language contained in your will and can be used to limit the estate taxes upon your spouse’s death and to control or govern the assets for your children or grandchildren until they reach a certain age. A Credit Shelter Trusts is a type of trust that allows the assets specified in the trust agreement to pass to the beneficiaries named in the trust, normally your children, while at the same time allowing your spouse to maintain rights to the trust assets and the income they generate during the remainder of your spouse’s life. Upon the spouse’s death, the assets can pass free of estate tax to the next generation. A Family Trusts is a trust that bypasses the surviving spouse and distributes your assets directly to the children or other heirs. A Marital Trust is a trust that qualifies under the marital deduction provision in the Internal Revenue Code in which the surviving spouse receives all of the trust income for life, after which any assets in the trust are subject to Federal Estate Tax.
Other types of trusts that may be beneficial in your estate planning are: A Living Trust or inter vivos trust is created during your lifetime for the purpose of long term property management and to avoid probate of your estate, which can hold all of your assets or just specific assets like your mineral interests. An Irrevocable Life Insurance Trust is used to generate liquidity in your estate to enable your estate to pay estate taxes, to fund a bequest, or to transfer wealth to the next generation. A Special Needs Trust is used to set aside money or property to provide current and future income for the needs of family members with disabilities while maintaining their eligibility for government benefits. A Grantor Retained Annuity Trust (GRAT) is an irrevocable trust to which you transfer assets in return for a fixed amount of income for either a given number of years or until your death. A Grantor Retained Unitrust (GRUT) is a trust similar to a GRAT, except that you receive a fixed percentage of the annual fair market value of the trust assets. With both a GRAT and A GRUT, the trust assets pass to the named remainder beneficiary(s). A Qualified Terminable Interest Property (Q-TIP) trust allows assets to be transferred between spouses. The grantor of a Q-TIP trust directs income from the assets to his or her spouse for life but has the power to direct how the assets will be distributed upon the death of that spouse; this trust also qualifies for the federal estate tax marital deduction.
While there are many other avenues to consider when making your estate plan, the various options with regard to trusts are important to consider to protect your assets, to limited your taxes, to ensure you are taken care of upon disability and to ensure your family is provided for after your death.
Estate Planning using Community Foundations
If you have a desire to pass on some of your wealth to the charity of your choosing, there are numerous ways to accomplish this goal. You could make a bequest in your will to your favorite cause, you could create a charitable trust, you could create a foundation, or you could give to a community foundation during your life or after death.
A Community Foundation can help you reach your charitable goals as follows:
- Build a personalized philanthropic plan with assistance from our expert staff, who will work with you to carefully understand your charitable goals and interests.
- Use the Community Foundation’s knowledge of your region and its nonprofits to enhance your giving.
- Choose to remain anonymous, if you want to protect your privacy and deflect much unwanted solicitation.
- Create a permanent legacy for future generations.
- Bring your family together around giving and pass along your philanthropic values to the next generation.
- Develop a family mission statement and define charitable interests and goals.
- Develop a list of organizations and programs that match your family’s interests.
- Facilitate annual family meetings to consider grants from your fund.
If your interested, you can contact the local community foundation in your area. Most states have an association of community foundations to assist you in picking the right one. In my area, The Community Foundation of North Texas at 817-877-0702.
What is the future of the estate tax?
The estate tax is a tax imposed on the transfer of a person’s assets at death, irregardless of whether such property is transferred by will, according to the state’s intestacy rules, through a trust, or by life insurance. A certain amount of each estate is exempted from taxation by the federal government. The exemption amount for 2012 is $$5,120,000 at a 35% tax rate for all amounts above that and in 2013 the exemption amount goes down to $1,000,000 at a 55% tax rate. There have been numerous laws passed which have made only temporary changes to the estate tax exemption amount and estate tax rate, however, Congress has failed to provide for any real permanency with regards to the estate tax.
In this election year, it is clear that both the President and Congress will drag their feet to wait until the last-minute to deal with the expiration of the 2010 Tax Relief Act. Nonetheless there are several directions that Congress could go in after this fall’s elections, which include doing nothing and allow the tax to remain at 55% on anything over $1,000,000, extend the current tax act, compromise, or repeal the estate tax all together. Most estate planning professionals will tell you that it is anyone’s guess what the boys and girls in Washington will do in the Fall Session, while the rest of the country just waits. Politics as usual!
Social Security: Will it be here when you need it?
The Social Security program has been providing benefits to over 47 millions workers for the past 65 years. It was originally created to provide some assistance to workers after retirement, along with their employee retirement accounts and personal savings. Social Security program is a sort of earned benefit insurance program, that provides benefits to workers and their family members for retirement, early retirement, disability and survivorship benefits. It is only available to those who work and pay taxes and the benefits are supposed to be available to the workers and their family upon retirement, disability or death.
This program was never meant to be the sole funds to be relied on by retirees. However, in these modern times Americans are saving less and receiving less company benefits, therefore reliance on the Social Security program has increased. In December of 2005, almost 48.5 million people received Social Security benefits on a monthly basis. In the next twenty years, the baby boomers will start to retire in large numbers and could likely create a strain on the Social Security program. Will the Social Security program still be around when we need it? After this years election, we will have a new Congress which will have a major effect on the program, so only time will tell!
Do you need a special needs trust?
A special needs trust or “supplemental needs trust” is a trust created for the benefit of a physically or mentally disabled individual. The purpose of such a trust is to provide an individual the ability to receive litigation settlement funds or inheritance funds without affecting their government benefits.
This type of estate planning, ensures that the recipient of a settlement award or inheritance has his or her benefit eligibility preserved and is not subject to unnecessary Medicaid payback provisions.
Example: Amber is a 39-year-old women involved in an automobile accident that left her paralyzed and with permanent brain damage. The lawsuit settlement provided that Amber was to receive $600,000.00 for damages. The settlement agreement was structured so that instead of being paid the money directly, it was put into a Special Needs Trust for Amber and allowed her to obtain Medicaid assistance.
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