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70ae4677-c165-4ad9-9450-5108be974ed-300x300In drafting an estate plan, one tool available to clients is to create a trust. When you decide to create a trust, you essentially set up your assets to be managed by a third party (i.e., the “trustee”). The trustee’s job is to distribute the trust’s assets in a way that aligns with your stated goals. By putting your assets in a trust, you can avoid probate, protect funds from being used for any other purpose besides the one you intend, and avoid certain estate and gift taxes. While many clients assume the trust is only helpful for high-net-worth individuals, it can be a valuable tool no matter the size of your estate.

Many of our clients decide to create a trust as part of their estate plan, understanding its benefits and wanting to use those benefits for their advantage. What many clients don’t know from the get-go, however, is that there are extra layers of protection that could be helpful to add to their trust. One such layer is called the trust protector.

The trust protector is a person or entity that has power over the terms of the trust but that is not the trustee. The trust protector is always someone without any interest in the assets involved, meaning the trust protector does not stand to benefit from receiving any of the trust’s funds. Many times, individuals choose a law firm to act as their trust protector. The trust protector should be explicitly named in the trust’s documents so that there is no confusion about who is taking on the role.

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In the past few months, several clients have approached us to ask about the new reporting requirements under the Corporate Transparency Act. The Act (commonly referred to as the CTA) introduced a new set of obligations earlier this year, and companies will start to have to figure out how to comply with these regulations in the coming months. Today, we review the basic purpose, requirements, and exemptions under the CTA; but as always, if you have specific questions about how the CTA’s language might affect you or your business, we recommend that you speak with a Boulder attorney that can walk you through any possible overlap with your individual circumstances.

The Basics

The purpose of the CTA is simple: the federal government is trying to make it more difficult for individuals to create and use shell companies, which are businesses without assets that are often formed to avoid taxes or launder money. The CTA essentially creates a huge database of companies that are either formed or operating in the United States. By requiring these businesses to provide the government with basic information about their identities, the government creates a mechanism to track their functions and methods, monitoring against fraud in the process.

The new rules under the CTA were introduced on January 1, 2024; however, the government has given entities one year (until January 1, 2025) to come into compliance with the CTA’s regulations. However, if an individual or group of individuals creates a business in the year 2024, that business has only 90 days to register to file their information with the government.

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The link between wealth management and tax-related services is strong and growing stronger every year. For those who are either building an estate plan, making decisions about yearly gifts, establishing trusts, or partaking in special needs planning, it can be crucial to think about how yearly taxes will change based on the structure of your assets. With April 15 having recently come and gone, it is natural to feel like you may have been rushed into filing your taxes or that you did not have the chance to include everything you intended to include.

On today’s blog, we cover some important connections between the two industries, as well as what you can do if you feel like you need more time on your taxes. As always, this blog represents only a portion of what clients should know about the overlap between wealth management and tax-related services, and it is never a bad idea to speak with an experienced attorney that can help you navigate both worlds as seamlessly as possible.

Filing for an Extension

If you are in the process of starting to prepare your estate plan, do not hesitate to request a tax extension. During tax season, there is a common misconception that requesting an extension leads to an increased audit risk, but this is not the case. Instead, extensions can offer much-needed relief to those who are taking time to get their affairs in order. For those who will end up filing differently depending on the structure of their estate plan, it can be well worth it to ask the IRS for more time to file. Additionally, creating and finalizing an estate plan can take many months, and it is better to participate in the process thoroughly and carefully, so as not to skip any key steps in drafting your plan.

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In a March 1, 2024 ruling, the U.S. District Court for the District of Alabama deemed the Corporate Transparency Act (CTA) unconstitutional. In the wake of this decision, small business owners are asking how the ruling will affect their businesses and how they should move forward in alignment with the ruling. On today’s blog post, we take some time to walk you through the basics of the Court’s decision and discuss its possible implications, both today and further down the road. As always, if you have questions about how this post might or might not apply to you, contact an experienced Boulder estate planning attorney that can tell you more about the District Court’s ruling in this case and its possible implications moving forward.

What is the Corporate Transparency Act and Who Must Comply with the Act?

The CTA requires certain businesses to submit “beneficial ownership information” (BOI) to the U.S. Department of Treasury’s Financial Crimes Enforcement Network. The Act’s purpose is to ensure that businesses are above board, in that they are not engaging in illicit activities such as tax evasion and money laundering. Importantly, only certain kinds of businesses most comply with the CTA – these businesses include LLCs, corporations, and some other entities formed through filing with a Secretary of State. To check if your business is required to report under the CTA, you can either speak with a trusted attorney or look closely at the CTA’s requirements on the Department of Treasury’s website.

The CTA lays out important details such as reporting deadlines, reporting requirements, and penalties for non-compliance. In order to comply with the Act, businesses can face average costs of $8,000 within the first year of reporting, which can be a huge lift for smaller businesses. When businesses send in information according to the Act’s requirements, the information is not made public; instead, the government uses the information to monitor possible illicit business activities.

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The world of estate planning is a complicated one, and the sheer number of tools available to those creating, enforcing, and challenging a will or trust can be overwhelming. One of the goals of this blog is to break down some of these tools for you, so that you can go into your own estate planning journey with a foundational knowledge and an idea of what might work for your individual circumstances. In today’s blog post, we cover the will contract, reviewing its purpose, its nuances, and the reasons you might want to ask your Colorado estate planning lawyer if it is right for you.
What is a Will Contract?
A will contract is an agreement made between two individuals (most frequently made between spouses) that dictates how each person will distribute his or her assets. During marriage, money becomes comingled, making it difficult to differentiate between each spouse’s assets as the marriage goes on. With the will contract, each spouse commits in writing to a specific arrangement for his or her assets upon death. That way, for example, if one spouse comes into the marriage with more assets than the other, he or she commits to giving that same percentage of assets to his or her heirs after death, as opposed to giving a smaller percentage after the couple’s assets have become comingled over time.
Take an example. If a husband and wife have children from another marriage, and each spouse wants to make sure his or her children are protected, the couple might consider making a will contract. Without a will contract, the following scenario could occur: the husband passes, the wife legally inherits the husband’s assets, and the wife then fails to honor the husband’s wishes by giving money to his children. She instead inherits the assets and gives the money directly to her children, bypassing his children entirely. If the pair had a will contract, the wife would be obligated to give a certain percentage of her husband’s assets to his children. She would have signed an agreement binding her to look out for them, even after her husband is gone.

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Do you have a 2024 resolution? Have you thought through this year’s goals and priorities? The best place to start could be a place you hadn’t considered: estate planning. Time and time again, we speak with clients and prospective clients that put off estate planning for the “later” stages of their lives. Because their circumstances do not vary much from year to year, they say, there is no reason to spend the time and resources engaging in estate planning now when they could just start later.

We always dissuade our clients from thinking this way. To state the obvious, we never know what’s around the corner. With no way of predicting the future, the best tool we have to ensure that our wishes are respected in the long-term future is making a thorough estate plan as soon as possible. Below, we detail several reasons why now is the best time to start (or continue) your estate planning journey.

Tax Exemptions in 2026

The federal government is gearing up to significantly alter how it handles certain kinds of tax exemptions. For example, did you know that the gift and estate tax exemptions will all be cut in half in 2026? The lifetime gift tax exemption was $11.58 million in 2020, increased to $12.92 million in 2023, and is now scheduled to decrease to $6 million in 2026. As for the estate tax exemption, it currently sits at $12.92 million per person. In 2026, the exemption is scheduled to decrease to roughly $7 million.

These exemptions can have major implications for those trying to pass on assets to their heirs and loved ones. This means that if you want to do more in 2024 and 2025 to pass on gifts to loved ones, 2024 is the time to put plans into action. By waiting until the end of 2025, you risk missing out on a major tax benefit that will be substantially less beneficial within the next two years.

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Online and elsewhere, Coloradans have been buzzing about the Colorado Privacy Act, which represents our state’s successful push to pass broad consumer privacy legislation and protect individuals as they share their personal data (whether intentionally or unintentionally). The Act is good news for the state, and today we take some time to walk you through its implications so that you can be aware of your rights under the Act. The Act is both long and involved, and while today’s post does not provide a review of every provision, it represents the key parts of the Act that are vital for your own privacy protection.

In the summer of 2021, the Colorado governor signed the Colorado Privacy Act into law, and it went into effect exactly two years later. Now that the Act has been in place for six months, we are starting to see its positive effects on the lives of everyday Coloradans, and we are also starting to get questions about what some of the Act’s terms mean.

In short, the Colorado Privacy Act takes steps to protect individuals’ personal data. The more we use our phones, travel, make purchases, browse the web, and log onto social media, the more of our personal data is out there and potentially at risk of being used without our consent. With the Colorado Privacy Act, we, as consumers, maintain the right to access, delete, and correct our personal data. This data includes financial data, which is often part of clients’ efforts to protect their assets and guard against creditors, lawsuits, and other financial losses.

Protecting You Against the Sale of Personal Data

Importantly, the Act allows individuals to decide that websites cannot sell their personal data for the purpose of marketing – many sites, for example, use consumers’ data to keep records on which demographics are flocking to their pages, which they can then use to create targeted advertisements with the goal of selling more products to more people. With the Colorado Privacy Act, though, individuals can opt out of the processing of their personal data for targeted advertising.

Individuals are also now able to opt out of the use of the sale of their personal data and the use of their data for profiling, which happens when companies keep information on consumers to track what they like, don’t like, and might be interested in going forward.

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In the past few years, inflation has surged. From groceries to gas, the cost of goods and services has increased in virtually every area of life. As the cost of living has skyrocketed, your income may not have kept pace with rising prices. This is of critical importance for those who are in the process of creating an estate plan, as the value of today’s dollar is almost certainly going to be worth less in the future. In response to inflationary concerns, the Internal Revenue Service (IRS) has increased its inflation adjustment from 2023. As a result, you may owe less in taxes from your income in 2024.

How Does the Inflation Adjustment Lower My Taxes?

The IRS applies inflation adjustments to income tax brackets. Typically, the more you earn, the more you pay in taxes as a percentage of your income. A person who earns $40,000 per year will pay a lower percentage of their income than someone who earns $400,000. Next year, your taxes may be lower due to the rise of the minimum income that falls within each tax bracket range. For example, if you are single and earned $45,000 in 2023, you will pay 22% in federal income taxes this spring. After the newest adjustment, you will only owe 12% of your income earned in 2024. As the income that qualifies under each tax bracket increases, your taxes will decrease because you will fall into a lower tax bracket. However, this projection assumes that your salary will hold steady between 2023 and 2024. If you received a salary increase to account for inflation, you may fall within the same tax bracket as the year before. In this scenario, your taxes may not be lower in 2024.

As inflation has risen, many Americans are all too familiar with the increased cost of living. However, one overlooked effect of inflation is the rate at which estates and gifts are taxed. Estate taxes, gift taxes, and the valuation of real property in a decedent’s estate can all depend on IRS adjustments for inflation. As a result, the ultimate tax rate on your estate may rise or fall with inflation, leading to unpredictability for your beneficiaries. Fortunately, you can apply several tax strategies to protect your estate from fluctuations in the tax rate.

How Can I Use Tax Laws to Plan My Estate?

A recent Forbes article highlights several provisions in tax law that can help you with estate planning during inflation. First, take advantage of the increased lifetime gift tax exemption and generation-skipping transfer (GST) tax exemption. The lifetime gift tax exemption allows you to give away a large monetary amount in gifts throughout your lifetime without triggering taxation. The GST tax applies to inheritances that “skip” a generation (i.e., from your children to your grandchildren). The exemption allows you to set aside nontaxable gifts to benefit a grandchild, such as college tuition. In response to rising inflation, the IRS has increased the lifetime gift and GST tax exemption amounts. As a result, a higher monetary amount is now exempted from gift and GST taxes. To take advantage of these exceptions, you may consider giving a gift to your beneficiaries while they are still alive to reap the benefits of the increased exemptions.

When you are choosing a trustee to handle your estate, a professional may be the best option. Professional trustees are experts in managing trusts, and they have no conflicts of interest with your beneficiaries. However, not all professional trustees are alike. They can take the form of banks, trust companies, or private professional fiduciaries. They also vary in the type and quality of service they provide. If you are choosing between professional trustees, there are a few factors you should consider before making your final decision.

First, consider the size of your trust. In a recent Wall Street Journal article, Braverman Law Group’s Managing Attorney, Diedre Wachbrit Braverman, explained why the size of the trust can determine the most appropriate trustee. As she noted in the article, banks are more suitable for large trusts. However, they may not offer trustee services for small to medium-sized trusts. For mid-sized estates in the $1 million to $5 million range, a trust company or private professional fiduciary may be the best choice. Finally, private professional fiduciaries are appropriate for smaller trusts due to their more manageable cost.

Second, evaluate the professional trustee’s fee structure. As Attorney Braverman noted in the article, banks and trust companies tend to charge between 0.5% and 2% of the overall value of the trust. This fee covers services such as filing tax returns, accounting for funds withdrawn from or added to the trust, investing funds, and communicating with beneficiaries. In the alternative, banks and trust companies may charge a fixed minimum fee rather than a percentage, which usually ranges from $2,500 to $5,000. Conversely, private professional fiduciaries charge an hourly rate, usually around $150 per hour. They will also charge the trust for third-party investment management expenses. Professional fiduciaries’ fees are typically lower than those of an institutional trustee, such as a bank. Additionally, professional trustees often maintain relationships with service providers, such as realtors, that can lead to significantly lower rates for these services.

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