Paul O. Dillon, Attorney at Law

Does Your State Have an Inheritance Tax?

Most Americans aren’t concerned with the $12.92 million threshold for the federal estate tax. However, some states are not as generous with estate tax exemptions, and others impose inheritance taxes on heirs, reports the article “States That Won’t Tax Your Death” from Kiplinger. State death taxes can become expensive for loved ones.

Death taxes are tax liabilities incurred by heirs when you die. In some states, heirs pay death taxes on even small inheritances. For example, heirs in Nebraska pay a death tax rate of 15% on inheritances over $25,000. The good news is that if you live in a state with no estate or inheritance tax, you don’t have to worry about a state death tax.

If taxes are a big consideration for where you live, consider the pros and cons before making any big decisions. Not every state is as tax-friendly regarding other taxes, fees, or the overall cost of living.

• Alabama has no death taxes and low grocery taxes.
• Alaska has no death taxes, and Alaska pays residents to live in the state through the Permanent Fund Dividend. In 2023, the payment was $1,312.
• Arizona has no death tax, low-income taxes and a flat income rate of 2.5%.
• Arkansas has no estate or death taxes, and a recent tax cut bill reduced income taxes.
• California is generally a high-tax state with high costs of living, but there is no death tax.
• Colorado has no death tax and the highest EV credit of any state.
• Delaware is known to be very business friendly. However, it’s also a state with no sales tax, no state estate tax and no inheritance tax.
• Florida has no death taxes, and what appeals to many new arrivals is no state income tax.
• Georgia has no estate or inheritance tax.
• Idaho doesn’t have an inheritance tax, but some types of retirement income, including pensions, are taxable.
• Indiana has no inheritance tax and a fairly low flat-income tax rate of 3.15% (although some counties impose income taxes of their own).
• Kansas has no inheritance tax or estate tax.
• Louisiana has no death taxes and some of the lowest property taxes in the country.
• Michigan has no estate tax or inheritance tax.
• Mississippi taxes groceries but has no death tax or estate tax.
• Missouri has no state death tax.
• Montana has no state death tax.
• Nevada has no inheritance taxes and no income tax.
• New Hampshire doesn’t have a death tax, and there’s no personal income tax, but there is a tax on interest in dividends.
• New Mexico has no estate or inheritance tax.
• North Carolina has no death taxes and low property taxes.
• North Dakota has no estate or inheritance tax, and the highest income tax rate is 2.5%.
• Ohio has no death taxes but does have high property taxes.
• Oklahoma has no death tax; low property and income tax rates never reach 5%.
• South Carolina has no death tax or inheritance tax.
• South Dakota has no inheritance tax and no state income taxes.
• Tennessee has no estate, inheritance, or income tax.
• Texas has no income tax and no inheritance tax.
• Utah has no death tax but is one of 11 states that taxes Social Security retirement benefits.
• Virginia has high income tax rates but no inheritance or state estate taxes.
• West Virginia has no death tax.
• Wisconsin has no death or state estate taxes. However, property and income tax rates are high.
• Kiplinger ranks Wyoming as one of the best states for middle-class families because of the state’s overall low tax burden. There’s also no inheritance tax.

Reference: Kiplinger (Oct. 12, 2023) “States That Won’t Tax Your Death”

Largest Tax Bill in History Filed in South Korea

How’s this for a big inheritance tax bill: $10.8 billion! The Samsung family announced that it would be paying the sizable amount after the death of Lee Kun-hee, the chairman of Samsung. South Korea has one of the highest inheritance taxes in the world, as reported in this recent article, “An Inheritance Tax Bill You ‘Can’t Fathom’: $10.8 Billion” from The New York Times.

The family is required to inform the tax authorities of how it plans to pay the bill by the end of May, and they did so very publicly, appearing in a news broadcast to announce their plans. Their statement was clear and simple: “It is our civic duty and responsibility to pay all taxes.”

Samsung is the biggest and most profitable family-run conglomerate in South Korea.

Mr. Lee was credited for transforming Samsung into a massive tech giant, but he was also reclusive, and one of his secrets was how he wished his wealth to be divided among his wife and three children upon his death.

His only son, Lee Joe-young, is the de facto leader of Samsung. If he inherits his father’s shares in the company’s many subsidiaries, it will boost his control of the company. However, it is still unclear how much he will inherit or how he will raise the $10.8 billion needed to pay the inheritance tax.

Analysts expect that he will sell some non-essential Samsung shares and secure bank loans. How the elder Mr. Lee’s fortune is divided will impact the future of the company.

The Lees are South Korea’s wealthiest family. Samsung reported that the $10.8 billion is more than half of the value of the father’s estate, and more than three times the total inheritance taxes collected by the government last year.

The family announced that it will donate his personal art collection of 23,000 works to national and provincial museums throughout South Korea. The collection has been estimated as worth $2.2 billion.

The Lees have also committed $900 million to fight the growth of infectious diseases and help children afflicted by cancer and rare diseases. Half of the money is dedicated to building the first hospital in the country dedicated solely to infectious diseases.

The generosity is from a family that has struggled with its public identity. In January, the son was imprisoned after being convicted for bribery. Recently, business groups have lobbied the government to pardon him, so he could lead the company as the semiconductor industry faces uncertainty.

The company has long been accused of trying to secure a father-son transfer of power at all costs, even if success required breaking laws, buying political influence and avoiding taxes. The senior Mr. Lee himself received a suspended three-year prison sentence in 2009 for evading taxes for assets he secretly inherited from his own father, Samsung founder Lee Byung-chull. The money was secreted in stock accounts opened in the name of his assistants.

Mr. Lee Jae-yong has run the conglomerate, since his father suffered a heart attack in 2014.

By law, the chairman’s widow is entitled to one-third of the total inheritance, with the rest split evenly between the three children. However, the wealthy families of South Korea often reach private agreements to ensure the eldest son remains in control of the company.

The family has a history of promising to use its wealth to benefit society, but reportedly has not kept its word until this recent announcement. Reaction from South Koreans is mixed, from skeptics who take a wait-and-see attitude, to others who are pleased by the large donations being made.

Reference: The New York Times (April 28, 2021) “An Inheritance Tax Bill You ‘Can’t Fathom’: $10.8 Billion”

Britney Spears’ Conservatorship Battle with Father Continues

A Los Angeles court has declined an application from Britney Spears asking to remove her father James Spears from the conservatorship of her estate, reports NBC News in the recent article “Britney Spears loses bid to remove father from conservatorship, refuses to perform.” The singer’s father has been her sole conservator in 2019, after attorney Andrew Wallet resigned from his role as co-conservator.

Superior court judge Brenda Penny declined to suspend James Spears from his conservatorship in a hearing in a Los Angeles court. She did not rule out the possibility of considering any future petitions for his removal or suspension.

Britney Spears’ attorney, Samuel D. Ingham III, informed the judge that the singer is afraid of her father and has said that she will not perform again as long as her father is in charge of her career.

The financial company Bessemer Trust has been appointed as co-conservator.

James Spears’ lawyer has argued that in the time he has been in charge of her estate, Britney Spears’ net worth has changed from being in debt to a net worth reaching $60 million.

In addition to the conservatorship battle being waged in court, there is also an online campaign named #FreeBritney. The campaign maintains that the singer is being controlled by her father, despite her wishes to be an emancipated adult.

James Spears became his daughter’s conservator following a mental breakdown in 2007, which was widely covered in the media. An acting conservator, Jodi Montgomery, has stepped in to help Spears.

James has been critical of the #FreeBritney movement, comparing supporters to conspiracy theorists.

Britney has requested that her father be removed from his role as conservator earlier this year, but his conservatorship has been extended until February 2021.

This past September, James also withdrew his legal battle to rehire estate manager Andrew Wallet, who Britney Spears said was “uniquely unsuited” during his first period of service.

He worked from 2008-2019 as a co-conservator, but Britney said that she could not afford his services.

Wallet subsequently claimed that the pop star will likely need to be under conservatorship for the rest of her life.

Reference: NBC News (Nov. 11, 2020) “Britney Spears loses bid to remove father from conservatorship, refuses to perform”

What Does an Executor Do?

Being asked to serve as the executor of a loved one’s estate is flattering, but it is also a big responsibility and a lot of work. As the executor, you are responsible for taking care of all of the financial and legal matters of the estate, explains the article “An executor’s guide to settling a loved one’s estate” from Review Times. The job will require a lot of time and, depending upon the complexity of the estate and the family situation, could be challenging.

Some of the tasks include:

• Filing court papers to start the probate process to determine whether the will is valid.
• Making a complete inventory of everything in the estate.
• Obtaining an estate tax ID number, opening an estate bank account and using the estate funds to pay bills, including funeral costs and medical bills.
• If the estate includes a home, maintaining the home and paying the mortgage, taxes, etc.
• Terminating credit cards, notifying banks and government agencies—including Social Security—and the post office.
• Preparing and filing income tax returns for the last year of the person’s life, unless they filed them already, and for the estate.
• Distributing assets, as directed by the will.

Your first task is to locate the will and any important documents and financial information. You will need the will, deeds, titles, brokerage statements, insurance policies, etc..

If the estate is complicated, you will want to work with an estate planning attorney, who can guide you through the process. The estate pays for the attorney, and you work closely with them. Every state has its own laws and timetables for the executor’s responsibilities, which the attorney will be familiar with.

If possible, find out if there are any family conflicts, before the loved one passes. If there are potential problems, it may be better for the loved one to tell who will be inheriting what before they die. If there is no plan for asset distribution, the person who is asking you to be the executor needs to meet with an estate planning attorney as soon as possible and have a plan created, with all of the documents necessary for your state.

The executor is entitled to be paid a fee, which is paid by the estate. In most states, that fee is set at a percentage of the estate’s value, depending on the size and complexity of the estate. If you are both an executor and a beneficiary, you may want to forgo the fee, because fees are taxable, but in most states, inheritances are not.

Reference: Review Times (Sep. 6, 2020) “An executor’s guide to settling a loved one’s estate”

Estate Planning Basics You Need to Know

The key reason for estate planning is to create a plan directing where your assets will go after you die. The ultimate goal is for wealth and real property to be given to the people or organizations you wish, while minimizing taxes, so beneficiaries can keep more of your wealth. However, good estate planning also reduces family arguments, protects minor children and provides a roadmap for end-of-life decisions, says the article “What is estate planning?” from Bankrate.

Whenever you’ve opened a checking and savings account, retirement account or purchased life insurance, you’ve been asked to provide the name of a beneficiary for the account. This person (or persons) will receive these assets directly upon your passing. You can have multiple beneficiaries, but you should always have contingent beneficiaries, in case something happens to your primary beneficiaries. Named beneficiaries always supersede any declarations in your will, so you want to make sure any account that permits a beneficiary has at least one and update them as you go through the inevitable changes of life.

A last will and testament is a key document in your estate plan. It directs the distribution of assets that are not distributed through otherwise designated beneficiaries. Property you own jointly, typically but not always with a spouse, passes to the surviving owner(s). An executor you name in your will is appointed by the court to take care of carrying out your instructions in the will. Choose the executor carefully—he or she will have a lot to take care of, including the probate of your will.

Probate is the process of having a court review your estate plan and approve it. It can be challenging and depending upon where you live and how complicated your estate is, could take six months to two years to complete. It can also be expensive, with court fees determined by the size of the estate.

Many people use trusts to minimize how much of their estate goes through probate and to minimize estate taxes. Assets that are distributed through trusts are also private, unlike probate documents, which become public documents and can be seen by anyone from nosy relatives to salespeople to thieves and scammers.

Trusts can be complex, but they don’t have to be. Trusts can also offer a much greater level of control over how assets are distributed. For instance, a spendthrift trust is used when an heir is not good with handling money. A trustee distributes assets, and a timeframe or specific requirements can be set before any funds are distributed.

Living wills are also part of an estate plan. These are documents used to give another person the ability to make decisions on your behalf, if you become incapacitated or if decisions need to be made concerning end-of-life care.

An estate plan can help prevent family fights over who gets what. Arguments over sentimental items, or someone wanting to make a grab for cash can create fractures that last for generations. A properly prepared estate plan makes your wishes clear, lessening the reasons for squabbles during a difficult period.

Protecting minor children and heirs is another important reason to have a well thought out estate plan. Your last will and testament is used to nominate a guardian for minor children and can also be used to direct who will be in charge of any assets left for the children’s care.

Reference: Bankrate (Aug. 3, 2020) “What is estate planning?”

‘Siegfried & Roy’ Star Roy Horn Named Siegfried His Executor

Legal documents revealed that performer Roy Horn’s last will and testament was filed in the Las Vegas courts on June 18, 2020, according to the article “’Siegfried & Roy’ Star Roy Horn’s Will Names Siegfried As Executor Of His Multi-Million Dollar Estate” as reported in The Blast. The document gave Siegfried Fischbacher the power to administer and distribute Horn’s assets after his death. If Siegfried was not able to perform the tasks, Roy Horn had named Lynette G. Chappell as the alternate executor.

Lynette G. Chappell was the performer’s longtime assistant.

Roy Horn died at age 75 after contracting COVID-19. Siegfried had told an interviewer that he drove to the hospital with Lynette and was able to see his life partner one more time before he died.

Roy Horn also named Siegfried’s longtime lawyer, John Moran Jr., to be co-executor of his estate with Chappell, if Siegfried was unable or unwilling to be his executor.

The will, which was signed in 2016, also included directions that Roy Horn’s multi-million estate be distributed to beneficiaries, which were named in a private trust. The trust was not attached to the legal filing that included the last will and testament, so the names of his beneficiaries will remain private. The will does state that Roy Horn is unmarried and has no children. He was survived only by his brother, Werner Horn.

Siegfried was given broad powers to manage all of the financial issues of the estate, including paying for the funeral and any expenses regarding handling Horn’s remains. As the executor, the personal representative is empowered to perform any act necessary to administer the estate and any trust established under the will. The will also permits Siegfried to hold, retain, invest, sell or manage any real or personal property, distribute assets of the estate without requiring pro-rata distribution of specific assets, employ attorneys, accountants, custodians, and any other agents or assistants as the executor deems necessary and to pay them and pay for their expenses from income or principal.

According to reports, Siegfried and Roy had a combined estimated net worth of more than $100 million, after they had signed several highly lucrative contracts to perform their award-winning show on the Las Vegas Strip.

The duo performed on the Las Vegas Strip for decades, until 2003, when their show abruptly ended when Roy was attacked on stage by a white tiger. He was dragged off the stage by the tiger and suffered severe injuries, including a severed spine, a stroke and massive blood loss.

Siegfried revealed in a recent interview with a German publication that Roy Horn had been cremated and his ashes are being kept in a chapel in their Las Vegas compound.

Reference: The Blast (June 27, 2020) “’Siegfried & Roy’ Star Roy Horn’s Will Names Siegfried As Executor Of His Multi-Million Dollar Estate”

When Does the Fiduciary Duty Granted by a Power of Attorney Begin?

A recent case examined the issue of when the fiduciary duty begins for an agent who has been given Power of Attorney, as reported by the Chicago Daily Law Bulletin in the article “Presumed power of attorney fraud is main factor in joint-account fight.”

Soon after moving to Illinois from Florida to live with his eldest son, a man and that son opened multiple bank accounts, purchased certificates of deposit (CDs) from a bank where the son’s wife worked and transferred more than $60,000 from two of the man’s Florida bank accounts to Illinois banks. Soon after the man moved, his eldest son deposited more than $300,000 from the sale of his father’s Florida condominium into one of the father’s Illinois bank accounts.

The eldest son then withdrew money from the father’s accounts to pay for home improvement costs and other personal expenses. After the father died, the eldest son’s two brothers sued their older brother, accusing him of initiating numerous transfers of money that were not in their father’s or their best interests, and of exerting undue influence on their father, by convincing him to change his will after he moved in with the oldest brother.

The trial court ordered the older brother to repay more than $900,000 back to the estate, including almost $300,000 in prejudgment interest, and voided the revised estate planning documents that the older brother had his father sign. That included a revised will, trust and power of attorney that favored the older brother.

Once you are appointed as a power of attorney, you become a fiduciary—that’s how most state laws work. That means you must act first in the interest of the person who has appointed you. The law states that an agent owes a fiduciary duty to the principal. Period. Any transactions that favor the agent over the principal (or their estate) are deemed fraudulent, unless the agent is able to disprove the fraud with clear and convincing evidence that his or her actions were undertaken in good faith and did not betray the confidence and trust placed in the agent. If the agent can meet this burden, the challenged transaction may be upheld. But if it doesn’t, then the transaction is not valid.

Some of the facts the court look at when making this determination are: did the fiduciary make a full disclosure to the principal of key information, did the fiduciary pay the fair market value for the transfer and did the principal have competent and independent advice.

In this case, the trial judge found that the multiple transfers into the Illinois banks and the gift of $130,000 from the principal to the oldest brother occurred during the existence of the POA relationship. The oldest brother clearly benefitted from these transfers, which activated the presumption of fraud.

The trial court’s decision was appealed by the older brother, who along with his two younger brothers brought motions for summary judgment, that is, for the appeals court to disregard the decision of the trial court. However, the appeals court agreed with the trial judge that the older brother failed to prove that the transfers were in good faith.

The appeals court makes it clear: the power of attorney fiduciary relationship begins when the power of attorney agent signs the document and the agent has a legal responsibility to put the interests of the principal first.

Reference: Chicago Daily Law Bulletin (April 23, 2020) “Presumed power of attorney fraud is main factor in joint-account fight”

Why Is the New Tax Law A Good Reason to Retire in Florida?

Florida is looking better every day, thanks to changes in the federal tax code. A newly enacted limitation on the deductibility of state and local taxes (SALT) is motivating people from high-tax states, like New York and California, to explore new ways to reduce their tax exposure. That’s leading them to move to Florida. The change in the federal tax code, combined with Florida not having any personal state income tax, has become a key reason for the relocation of many to the Sunshine State.

The Miami Herald recently reported in the article, “Federal tax changes make the Sunshine State even sunnier,” that since the new tax law went into effect in 2018, many people have been considering relocating to Florida. There is good reason. Under the new rules, taxpayers, generally, can only deduct up to $10,000 of SALT as an itemized deduction, which is just a small part of what’s typically paid in these states.

Establishing Florida as your domicile isn’t that easy. While spending 183 days in Florida will help you become a resident, establishing domicile in a new state requires a bit more legwork. Developing a plan of action is crucial to ensuring a seamless process and avoiding penalty-invoking errors.

Moving your domicile to Florida doesn’t mean you must sever your ties with your former home state. Maintaining secondary residence, spending time with family and other activities can all continue, but must be judged against evidence that supports intent, facts and circumstances:

• Keep good records, like diaries, monthly shopping and flight records to be able to prove that you’ve spent a minimum of 183 days in your new home state;
• File a Florida Declaration of Domicile;
• Buy a home in Florida, file for homestead and relinquish it in your previous home state;
• Register to vote, get a Florida driver license, transfer your car registration and relinquish these rights in your previous home state;
• File all federal income tax returns and any other state and governmental items with a primary Florida address;
• Relocate your primary business activities to Florida, if applicable;
• Open Florida-based bank accounts and move any safe deposit boxes;
• Do the majority of your spending activities here, like shopping and charitable giving;
• Get involved with religious and civic organizations in your new hometown; and
• Update your estate planning documents.

Another major item when planning a relocation, is the lack of tax on transfers of wealth upon death, like an inheritance, or during life, such as a gift. The same states that impose large income taxes also often impose inheritance and gift taxes that can tax up to 20% with lower exemption levels than at the federal level. While inheritance and gift taxes at the state level can be imposed on estate and gifts as low as $1,000,000, cumulatively, Florida doesn’t have these taxes. This means that in high-tax states, estate and gift taxes could be imposed, if there’s no federal estate tax imposed.

Adhere to the requirements mentioned above, so you aren’t still taxed in your former state. High tax states know they are losing residents, so they are likely to be more vigilant about making sure that newly-declared Florida residents meet all the requirements. Be ready to prove your residency, or face taxes from your previous, high-tax state.

Reference: Miami Herald (February 22, 2019) “Federal tax changes make the Sunshine State even sunnier”