Supreme Court Finds Constitutional Right for Same Sex Marriage

The United States Supreme Court ruled, in a 5-4 decision, that a state does not have the right to ban gay marriage. This, in essence, means that Nebraska’s ban on gay marriage, passed in 2000, no longer is the law. The holding of the case, Obergefell et al. v. Hodges, Director, Ohio Department of Health, Et Al., 576 U. S. ____ (2015) “requires a state to license a marriage between two people of the same sex and to recognize a marriage between two people of the same sex when their marriage was lawfully licensed and performed out of state.”

Central to the decision, the Supreme Court focused on the Fourteenth Amendment  due process clause and equal protection clause of the United States Constitution. Citing a long history of precedent protecting the right to marry, the Court proceeded to elaborate with four reasons on why the protection extends to same sex couples. First, the Court noted the right of personal choice is central and inherent to marriage. Second, the right to marry supports the union between two people and is therefore of the utmost importance. Third, marriage provides protection and safety for families, including children. Fourth, marriage is so set in the nations’ traditions that it must be recognized.  The Court found that the states supporting the gay marriage bans were unable to put forth a compelling reason to withhold a same sex couple’s right to marry.

In Nebraska, exactly when and how this will impact the ability for same sex individuals to marry remains unclear. County clerks have stated they will be seeking guidance from the Nebraska attorney general, as the specific case that will change the Nebraska law is still pending in the 8th Circuit Court of Appeals. However, in the short term, this may not necessarily stop county clerks from issuing marriage licenses to same sex individuals in Nebraska. Regardless of whether issuance of same sex marriage licenses begin within hours or weeks, it is now clear that banning same sex marriage is unconstitutional as determined by the Court.

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Probate Code Amended To Re-Allocate Costs Associated With Being Appointed To Care For a Minor

In May, the Nebraska Legislature amended the probate code to allow a court to provide reasonable fees and costs associated with being appointed to care for a minor. Legislative Bill 422 covers the fees and costs of an attorney, guardian ad litem, physician, or visitor as appointed by the court. Importantly, the payments will come from the estate of the minor or the county itself and awarded at the discretion of the court.

This law came forward as part of a Nebraska Bar Association effort and was a recommendation by the Supreme Court’s Guardianship and Conservatorship Commission. A similar provision had previously been enacted for situations when a person is incapacitated and when a person is to be protected, both situations requiring a court appointment.

The law and legislative notes may be found at the following link: http://www.nebraskalegislature.gov/bills/view_bill.php?DocumentID=24813

© 2015 Houghton Vandenack Williams

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Coordinating Beneficiary Designations with Your Estate Plan Can Help Avoid Unintended Tax Consequences

By Michael J. Weaver. A recent Tax Court case illustrates the importance of making sure beneficiary designations are consistent with your estate plan. (E. Morris, 109 TCM 1411, TC Memo. 2015-82) In this particular case, a father had listed his son as the sole beneficiary of his IRA. After his father passed away, the son was named the administrator of his father’s estate. In his capacity as administrator, the son requested a lump sum distribution of the IRA and then split the IRA among himself and two of his siblings, believing that this is how his father wanted the account handled. Son consulted with a local law firm and was advised that splitting the IRA in this manner would not subject the distributions to tax.

Unfortunately, the Tax Court held otherwise. Because the son was listed as the sole beneficiary on the IRA, requesting a lump sum distribution and then splitting the account among himself and his two siblings resulted in a taxable distribution of the entire account to the son that was includible in his gross income. The Tax Court noted that the son was not required to transmit the IRA distributions to his siblings as a trustee or a mere conduit. Despite the son’s honorable intentions in following what he believed to be his father’s wishes, his good intentions did not change the fact that the distribution was included in his gross income.

Had the beneficiary designation on the IRA been changed by their father during his life to be consistent with his wishes, i.e., if the three children were listed as equal beneficiaries of the IRA, this result could have been avoided. As such, making sure beneficiary designations are consistent with your estate plan is an important part of any planning process. Failure to do so can result in unintended tax consequences.

2015 Houghton Vandenack Williams

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Tax Basis is Important in Modern Estate Planning

By Mary E. Vandenack.  In 2012, the federal estate tax exemption increased to $5.12M adjusted for inflation ($5.43M in 2015). Such exemption applies to life gifts or death transfers. Skilled practitioners can drive a mack truck through the lifetime exemption. Thus, for most individuals, the federal estate tax can be avoided.

For estates of $5,430,000 or less ($10,860,000 for married couples), income tax planning has become significant in tax reduction. (For estates in excess of one exemption, especially if the estate is likely to grow, federal estate tax planning does remain important.)  One income tax consideration is the step-up in basis received at the date of death of the decedent.  By way of example, assume Jim Shelton purchased 1 share of Y Co. stock in 1995 for $10, that is his tax basis in the stock. If that share of Y Co. stock is now worth $5,000 and Jim sells the stock while he is alive, Jim will have capital gain of $4,990.  If instead, Jim dies, his heirs get a step up in basis to the fair market value as of the date of death. If the share of Y Co. stock is worth $5,000 on the day Jim dies, then his heirs can sell the stock the next day and have no gain.

Step-up in basis, along with many other income tax planning tools, should be considered in the modern estate plan.

© 2015 Houghton Vandenack Williams

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Report on Retirement Savings by Americans

Earlier in March, the National Institute on Retirement Security issued a report on retirement planning by Americans. Although the savings in 401(k) plans and Individual Retirement Accounts (IRA) hit $11.3 trillion dollars at the end of 2013, an all-time high, the overall news regarding retirement savings remains negative.

The report notes that nearly 45% of households with working age adults have no retirement savings in a recognized retirement vehicle, such as a 401(k) plan. For all households, even those without traditional retirement vehicles, the average retirement savings is $2,500; the number jumps to $14,500 for those near retirement. The report also finds that 62% of households with working individuals between the age of 55 and 64 have total savings of less than one year of their income.

The National Institute on Retirement Security continues to highlight the worsening condition for retirement and the need for developing retirement vehicles. In fact, the Institute stated that for all working adults between 25-64 in 2014, the retirement shortfall will be approximately $4.13 trillion dollars. The report may be found at the following link: http://www.nirsonline.org/storage/nirs/documents/RSC%202015/final_rsc_2015.pdf

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IRS Private Letter Ruling on Testamentary Powers of Appointment of Trust Property

In late 2014, the Internal Revenue Service (IRS) issued two Private Letter Rulings (PLR) regarding testamentary powers of appointment. In the PLRs, the IRS evaluated whether a grandchild’s power of appointment over a grandparent’s trust property qualified as a general power of appointment. The importance of the distinction is determining whether the trust property would be included in the grandchild’s estate. If the trust property is considered a part of the grandchild’s estate, his or her creditors could attach to the property in the trust.

The PLRs declared that the testamentary powers of appointment, as drafted, were not broad enough to consider them a general power of appointment. The language explicitly detailed that it was a discretionary trust and upon the grandchild’s death, the property must be distributed to the grandchild’s issue as designated by the grandchild. Since the power of appointment was limited to a finite number of individuals, it was not a general power. Since this was a testamentary trust, the grandchild lacked the ability to appoint any creditor or himself as beneficiary. Thus, the IRS determined that the trust assets are not attachable by the grandchild’s creditors, nor included in the grandchild’s estate.

For more information please see the original private letter rulings, PLR 201446001 and PLR 201446011.

© 2015 Houghton Vandenack Williams Whitted Weaver Parsonage LLC

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Longevity Annuity Contracts in Retirement Plans

By Mary E. Vandenack.

Owners of IRAs or participants in certain retirement plans can use up to $125,000 or 25% of their account balance to purchase a qualified longevity annuity contract (“QLAC”). A QLAC is an annuity that begins payments when the annuitant reaches age 85. The annuity contract is not used in calculating minimum required distributions. QLACs cannot make available cash surrender value and cannot be a variable or indexed contract presently. QLACs may contain cost of living adjustments.

© 2015 Houghton Vandenack Williams Whitted Weaver Parsonage LLC

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What Is the Difference Between a Private Foundation and a Public Charity?

An Estate Planning FAQ with Mary E. Vandenack.

Private foundations and public charities are both tax exempt entities under section 501c3 of the Internal Revenue Code. The differences are that a public charity qualifies for a little more in terms of tax benefits. If you make a contribution to an organization that qualifies as a public charity, there is a little bit larger percentage that you can deduct in certain circumstances. The limitations aren’t as significant on the private foundation. The public charity is typically one that benefits the public at large rather than a smaller group. The private foundation is more typically formed by a smaller group and benefits a smaller group of individuals.

© 2014 Parsonage Vandenack Williams LLC

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How Do I Form a 501c3 Public Charity?

An Estate Planning FAQ with M. Thomas Langan II.

A 501(c)(3) public charity is a non-profit organization that is exempt from federal income tax. These organizations must be organized and carried out for certain exempt purposes, which include charitable, educational, religious and scientific purposes.

There are several ways to create a 501(c)(3) entity. The most common way is to first form a non-profit corporation. This is typically done by filing articles of incorporation with your state’s Secretary of State. At this point you just have a non-profit corporation. In order to be tax exempt federally, you need to take the extra step of filing for exempt status with the IRS by filing Form 1023. The application must be complete and accompanied with the appropriate user fee.

If the application is approved, you then have a 501(c)(3) public charity and are subject to annual reporting requirements.

© 2014 Parsonage Vandenack Williams LLC

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What Is a 501c3?

An Estate Planning FAQ with Mary E. Vandenack.

501(c)(3) is actually a section of the tax code that provides for the ability of an entity to fit into certain parameters and claim tax exempt status. In the section 501(c)(3) there are actually quite a few different types of organizations that will qualify for tax exempt status. The type that most people are familiar with is the public charity, so the American Red Cross and organizations like that are typically tax exempt entities and are actually subject to certain types of taxes but they have a general tax exempt status.

© 2014 Parsonage Vandenack Williams LLC

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