1/23/12 San Antonio, Texas: The Spahn Law Firm of San Antonio is honored to recognize the sacrifices of native Texan Army veteran SSgt. Shilo Harris and his family. Harris was a combat Army Cavalry veteran on his second deployment, attached to the 10th Mountain Division, I-89th Cavalry in Iraq in 2007. Severely wounded when the Bradley vehicle in which he rode struck an IED in southern Baghdad, SSgt. Harris refused treatment until his fellow soldiers were evacuated from the area. He lost three friends and received multiple facial and bodily injuries and burns on over 40 percent of his body. Now as he continues to recover at home in Texas, Harris and his wife are dedicated to helping other wounded soldiers overcome handicaps and disabilities. Harris is a motivational speaker and his wife, Kathreyn, works with the Army Wounded Warrior Project.

The Shilo Harris family is the grateful recipient of a recent visit from Extreme Makeover: Home Edition’s Ty Pennington and team, who traveled to Floresville in January 2012 to construct a new home for the war hero and his family. Members of the Spahn Law Firm staff were among thousands of local volunteers during the construction on the Harris home. The episode from EM:HE is set to air in December 2012.

The Spahn Law Firm wishes to personally convey a heartfelt “Thank You” to a soldier who has endured a long and painful recovery. Law firm president Matt Spahn will work with the couple to create for them a comprehensive estate plan which will meet their needs, now and into the future. Additionally, the firm has arranged for Shilo and Katheryn to attend the Dave Ramsey Total Money Makeover event in San Antonio and they will also receive tickets to select University of Texas San Antonio football games.

Spahn Law Firm is grateful for the dedication and service of all active and veteran military personnel. “I am so honored to be able to donate my services to this man who has given so much to our country in defense of our freedoms. We are passionate about estate planning. It protects what is most precious to people, their loved ones and those things they need in this life. We’re lucky every day we get to do this for clients, who quickly become friends,” stated Matt Spahn, owner and president.

It’s that time of year again:  time to put up the Christmas tree.  We recently did that at the office.  Dejan went out and picked up a pre-lit artificial tree.  As I stared at the box and contemplated assembling it (while everyone else at the office did the “real” work), I had mixed feelings.  The last time I had decorated an artificial tree was 1996.  This simply didn’t seem like a real Christmas tree, in more ways than one.

While I was bringing that artificial tree to life, I started making a mental list of the Pros of an Artificial Christmas Tree.

My first thought was the most obvious:  It’s FAKE!    There are a host of benefits in this fact alone.  I didn’t have to haul it inside in a net bag, leaving a trail of needles behind me.  When I have that much mess before I even get started, I am not very motivated to finish the task of decorating.  I didn’t have to cut the bottom off to make it fit in the stand.  When I put it in the stand, it was already perfectly balanced; no twisting screws to make it straight.  My mom tells a story of one Christmas when my dad actually nailed the stand into the hardwood floor because they couldn’t get it to stand up any other way.  (Can you imagine the conversation while that was taking place?)  None of that for me with this tree!  And once I had this thing fully assembled and shaped, I had no sticky tree sap covering my hands and arms.

It was time to appreciate the fact that the tree already had the lights on it.  Wow!  This saved me so much time and frustration.  I was beginning to like this tree.  It was becoming real to me.  I had spent close to an hour shaping the branches and I was proud of my handiwork.  It had come out of the box looking nothing like a tree.  It was in three misshapen pieces and now I felt like I had a work of art.

Now to call in the troops to help put the ornaments on it.  After some sheepish comments like, “I don’t know how to do this” and “Where do I put them?” everyone jumped in and dressed up our tree.   Dejan’s height was needed to get the topper in place.  We all stepped back and admired the finished product.  It was perfect.  Artfully shaped branches, bright lights, beautifully arranged decorations, no needles to be swept from the floor, no stand to fill with water.  But wait…..something was missing.

It didn’t SMELL like a Christmas tree.  There was no delightful pine scent filling the room.  “Light a scented candle,” you say.  “Spray some Christmas air freshener.”   Sure, let’s add some fake smells to go with our fake tree.

Only this didn’t seem like a fake tree anymore.  It is a real Christmas tree.  It brought us all together in the Spirit that is Christmas.  We shared stories of our families as we decorated.  We laughed and got to know each other better.

We pray, that as you gather with friends and family around your Christmas tree, that you will be blessed by the Spirit that is the reason for the season.  Merry Christmas!

Often after presentations, attendees exclaim to me their surprise at my passion for the subject of estate planning. They say, “Wow, Matt. You really love talking about wills and trusts and powers of attorney!” Yeah, I do. I love talking about it and doing it. My clients and I share a really good feeling after the documents are signed. Usually, that’s in my office. Sometimes it’s in other places. I did an estate plan in an ICU once. The nurse that was managing the patient’s (my new client) care was awesome. The family would share with me later the tremendous peace of mind their mom had after I had served her. What an honor for me to help.

Really, if you’re considering doing your estate plan, one reason you might be putting it off is its complexity and all the contingencies you feel you must consider. If you’ve been reading my blogs or know me, you know that I consider myself more an estate planning teacher than simply an estate planning attorney. You deserve to understand the choices you can make and the ramifications. Check out the testimonials on this site and see what people just like you have said about our process.

So, day in day out, no big deals, then suddenly, life happens. What my latest video focuses on is one of the catalysts to estate planning. The moving factors often are marriage, birth, travel, death, taxes and health. Let’s focus on health. So many people are diagnosed every day with serious health issues. If you or someone you know has had this happen, the last thing they want or need to worry about is their estate plan, yet it weighs on them heavily. They want to get this done. Help them get with a good estate planning attorney who knows how to answer their questions and walk and talk them through the documents they need to cover incapacity and death. Help them get this item checked off their bucket list. If you’re a doctor, nurse, therapist, pharmacist or other health professional, be ready with a good referral for all those patients you serve. They need that prescription, too.

To preserve your estate tax lifetime exclusion, your good attorney put in your will (or your living revocable trust) a bypass trust.  Might have called it credit shelter trust, might have called it the family trust, regardless, if drafted right, it followed the internal revenue code and could receive your lifetime exclusion upon your death.  Your widow could be the trustee and the primary beneficiary of this trust, so her life seems just like it would if you left it outright to her, but for estate taxes, you’ve done a good thing for your family.  When she dies, her estate may suffer death taxes, but the assets that were placed in your bypass trust should transfer to the kids with no death taxes, a very good thing.

So now it’s 2011 and the new law says you don’t have to have some fancy bypass trust to preserve your lifetime exclusion.  You die and your executor/trustee can apply the unused amount of exclusion to your widow/widow’s estate without your late husband having a bypass trust.  I don’t even want to go into the limits of this and what happens if she remarries.

What I want to communicate is that you should still seriously consider the bypass trust which doesn’t disappear if she remarries.  If done right, it takes your lifetime exclusion and allows it to appreciate.  It can go up in value and that value can still transfer to your kids upon your widow’s death without suffering the estate tax.  It can also preserve the assets from generation skipping transfer taxes, which are not portable under the new law.

Please also remember that bypass trusts can protect their assets from the bad things that happen to good people, that is, they can have protection from unworthy creditors.

Photo Credit Born.to.be.mild

Doesn’t the title to this blog just flow from your lips?  So, when a spouse wants to make a gift to their spouse while they are both alive, there’s really been no limits because the transfer tax laws say there’s none.  Same thing when the first spouse dies and gives the estate to the surviving spouse.  So she bequeaths $54 million to him.  Fine.  But whether he survives her by ten minutes or ten years, at some point, he too shall die and then, the question remains, what shall the transfer taxes be on his estate?

So with non-spouse transfers, there’s been limits before a transfer tax kicks in.  You’ve heard of the estate/death/inheritance tax and the gift tax.  There’s also a generation skipping transfer tax that you probably haven’t heard of.  They’ve usually all had the same lifetime exclusion amount and if you exceed that amount when you’re transferring assets, a tax has to be paid.

If we go back to the good old days when it was simple (Hah!), a million dollars was that limit for each of us.  Now the gift tax had along with its lifetime exclusion also an annual exclusion.  That was good for donors because it allowed living transfers, if that amount or less, to pass without hardly any tax implications; no gift tax, no reduction if the lifetime exclusion, and usually not taxable to the recipient.  Exceed that annual exclusion with a living gift, and you would reduce your lifetime exclusion for your estate tax by the same amount and definitely affect your exclusion for generation skipping transfer taxes.

Let’s stay in these good old days for this example.  If you’re adding up in your head lifetime exclusions, spouses don’t get to do that.  Example: So you’re a real Texas gentleman and die first, leaving your widow to have some time to herself.  You better leave her everything!  Heck, you know that what’s yours is hers, what’s hers is hers, and what you owned together was hers anyway.  So if you had a $1 million lifetime exclusion and she did too, later when she dies, $2 million would transfer estate tax free.  Right?  Wrong.  You lost your lifetime exclusion when your assets went to your widow.  When she dies and gives it to the kids (and it doesn’t change the estate tax if there’s 1 or 15 of them), everything over the first $1 million is subject to the estate tax which is about 50%.

To be continued….

Photo Credit Don DeBold

I’m teaching estate planning at St. Mary’s Law School and I have the best students.  Most are in their last semester, and although ready to graduate and receive that doctorate degree in jurisprudence, they are worried about that bar exam.  The hundreds of thousands of dollars the degree costs won’t allow them to practice law. Only the license from the state bar will, and they have to pass that test.

I told them I teach estate planning every day to clients and do presentations all the time.  I had to admit that I am so excited to be back in law school, much more so than the first time!

You know, law school wasn’t much fun.  I went at it pretty intensely.  I started at Baylor Law in May of ’90 and finished in July of ’92, 26 months later.  Although it’s usually a three year matriculation and a few months studying for the bar, I took my last final in July followed by a few days break, and then took the three-day bar exam.  I graduated the next day, August 1.

But in law school, I also thought they were hiding the ball.  It’s like they put your face right up next to the big picture, so close that you could only see one tiny bit of it, and only at the end did you back up and see what the picture looked like as whole.  It was like putting together a jigsaw puzzle without the picture to go by!

I promised my students I’m not going to do that.  I said we’d look at the big picture first, and then pull in close for the detail.  I do love to teach.  I love the dialogue.  Learning is exciting.  One of the reasons I love what the Lord has given me to do; I learn something new every day.

So we all heard that there was no estate tax in 2010, but did you know that there were no step-up in basis rules?  You see, in the years prior to 2010, when someone died and their will gave you their house, you usually got what is often called a step-up in basis.  Your basis in the house was the fair market value of the house on their date of death or their basis, whichever was greater.  In contrast, if the person made a gift of the house to you while they were alive, you did not get to step-up your basis, instead you got their basis, called the carry-over basis.

Our new tax laws actually are retroactive and say the transfer tax limits for 2010 are $5 million.  Of course, it’s not nearly that simple.  They let executors and trustees choose whether they want to limit the estate of 2010 to $5 million and get the step-up in basis, or choose no limit to the lifetime exclusion of the decedent but get no step-up in basis. But there’s more.  The trustee or executor may apply basis to the assets of the estate for the beneficiaries; up to $1.3 million for non-spouses and $3 million for spouses, limited in both situations to the fair market value.  Choices…choices.  What’s one to do?

photo credit: Rob the Moment

A blog is no place to give legal or tax advice, nor is any other medium.  When you ask your CPA or lawyer to advise you on taxes and they agree, then you’re getting tax advice.  This warning applies to everything on this website and its noted elsewhere here, but it’s worth repeating.

So what follows is an attempt to explain the labyrinth we find ourselves in tax-wise:

Our new law brings the lifetime exclusions together again.  The estate tax, generation skipping transfer tax, and gift tax have exclusions of $5,000,000 and a top bracket of 35%.

Clear as mud?

Think of these taxes as transfer taxes.  When you receive a gift or bequest, it may not be taxable for you.  Look at your 1040.  Gifts and bequests are not usually considered income.  The question is: Does the donor have to pay a tax because the transfer exceeds his lifetime exclusion?  If Don (the donor) gives you, his non-spouse, $5,013,000, what are the tax consequences?  Well, for him, he probably just exhausted his lifetime exclusion of $5 million and his annual exclusion of $13,000.  If he had never exceeded his annual exclusion before, and he had $5 million he could transfer, he may not owe any taxes.  But he should fill out and turn in Form 709 to show what he’s done to the IRS.  He probably has exhausted his lifetime exclusion for estate and gift taxes.  So if Don dies the next week, and his estate still has $3 million worth of assets, and he bequeaths to you, his non-spouse, that amount, now his estate probably has to pay the estate tax.  The $3 million would, under this scenario, be subject to about 35% of tax, or $1,050,000.  His estate is supposed to pay that tax within nine months.

So of the three transfer taxes, estate, generation skipping, and gift, only the gift tax has an annual exclusion to go with its lifetime exclusion.  You can give a non-spouse a certain amount per year that is under the exclusion amount, and yes, you can give more than that, but it will have gift tax implications.  See the example above.

Please note what is often called the spousal exclusion or exemption.  For most US citizen spouses, there are no transfer taxes between them.

The estate tax is the sticking point.  So say the pundits this Wednesday morning, December the 8^th.  The proposal accepted by President Obama, which keeps personal tax rates at their current level, sets the death (estate) tax lifetime exclusion at $5 million.  Estates passing more than that in asset value would have to pay 35% on that amount within nine months of the loss of the loved one.

So the Senate, going against all conventional wisdom and their own statements, allowed the death tax to be repealed for this year, 2010.  Now they think this lifetime exclusion amount is too high and that the rate of the tax is too low.  They may get a compromise.

Reader, know this:  there’s nothing in the law that’s permanent.  All things change.  Putting automatic repeals or changes to tax code provisions make them no more changeable than they’ve ever been.  Look:  our federal Congress is almost always in session and they’re constantly making new laws and changing old ones.  The death tax goes up, down, sideways, gets repealed, gets killed, buried, and yet, it keeps coming back.

When are you going to die?

If married, when is your spouse going to die?

How much will your entire estate be worth?

What will the law be at that time?

If they ‘permanently’ repealed the death tax today, do you not believe that next month, next year, four years from now, a new congress would bring it back?

You see, planning, estate planning, doesn’t limit your choices.  It doesn’t paint you in a corner.  On the contrary, planning allows for choices; for you, for your loved ones, for the organizations and causes you support.

Plan now.

photo credit:  Lars P

(The following is a guest blog post by our client, Polly Duke.)

Enter the client.

That’s me, Polly Duke.  I’m here at the Spahn Law Firm for a typical reason.  I need a will that legally covers all the bases:  from my health care in case I become incapacitated, to the distribution of my possessions following my death.  No wonder I’m grim.  This is a scenario I find strange, fearful, lonely, sad, disorderly.  My mind cannot come to grips with a world in which I am no longer actively among my family, and I would prefer to procrastinate once again.  That is not the mental state from which clear thinking resulting in a finely drawn will emerges.

In two smooth, actually pleasant, sessions Matt Spahn and his staff at Spahn Law Firm guided me through the two distinct emotional levels of the many documents comprising a will:  the first is the cold necessary charted legalities as prescribed by law, in which Matt’s legal knowledge and experience predominate. The second is the best-for-all decisions of choice as decided by me, in which my family knowledge and experience predominate.  The latter is where the going gets tough, but after session one, my thoughts became organized and crystallized enough to convince me that, as a team, we could complete the task.

Session two is over.  The will has been edited, scrutinized, understood, signed and witnessed.  It’s a done deal, a handshake and a high-five conclusion to what should have been done long ago.  It’s the very best that Matt and I could do, and we are happy with it.

Exit the client.

photo credit, konstriktion