Mark A. Bregman, Estates and Trusts Lawyer


Why Would A Person Choose To Establish Irrevocable Trust?

Once an irrevocable trust has been finalized it cannot be terminated, whether that occurs upon the grantor’s death or during their life. Set up with the help of a trust and probate attorney, trust account rules state that once property is placed into an irrevocable trust account it cannot be retrieved by the grantor.

A revocable trust offers some of the best flexibility for trust administration, allowing people to make changes and amendments as necessary throughout the duration of the trust. Why, then, would someone choose to establish an irrevocable trust, which has much more stringent rules?

There are a few benefits to selecting an irrevocable trust. One property is in an irrevocable trust it is no longer part of the grantor’s estate, so this trust administration setup can actually reduce taxes as it reduces the overall estate value. Because the assets essentially belong to the trust, not the grantor, it will not be subject to taxation.

There is also something to consider when it comes to trust and probate — an irrevocable trust is one way to potentially avoid the probate process.

Using an attorney with trust account rules knowledge you can also use irrevocable trusts to set up long-term plans. If you want to ensure continued support for someone, or protect assets into the future, an irrevocable trust is a way to set up an extended payment schedule or protect property from creditors. An attorney experienced in trust administration can guide you through the decision-making process, if you are considering an irrevocable trust for these reasons or similar factors.

To set up an irrevocable trust you certainly need to have confidence in your situation, your attorney, and the person you have selected to be your trustee, as you cannot easily regain control over an irrevocable trust once it is finalized.

Because of this, it is important to select a qualified and competent trust and probate attorney who can help you explore the pros and cons of irrevocable trusts versus revocable trusts, or other trust administration options. You most certainly will want to have all of the details possible when making this type of financial decision, especially if you go down the path of selecting an irrevocable trust to manage your assets. There are many reasons to do so, but you should be fully informed.

Posted in Irrevocable Trusts on October 1st, 2015 · Comments Off on Why Would A Person Choose To Establish Irrevocable Trust?

IRS Issues Fact Sheets Describing How to Avoid Identity Theft

With the recent news that TurboTax will no longer allow electronic filing of state tax returns because of the high incidence of fraud stemming from identity fraud, you may find the 2 fact sheets released by the IRS on January 26, 2015 interesting.  Click on the following links to read the fact sheets:

FS #1 and FS #2 -Identity-Theft-Information-for-Taxpayers-and-Victims

or go to site for identity theft.

Heeding the warnings and taking the precautions described by the service may help you avoid the tragedy and inconvenience of a stolen identity

If you want further information, please contact us for help.


Posted in Uncategorized on February 6th, 2015 · Comments Off on IRS Issues Fact Sheets Describing How to Avoid Identity Theft

President Obama’s So Called Trust Fund Tax Proposal

I usually refrain from commenting about proposals making changes to the tax code that, in my opinion, have no chance of passing in the current Congress.  But I am making an exception in this case because within the majorly flawed proposal is a kernel of truth that is intriguing.

As background, you should be aware that every March when the President submits his budget to Congress, the “Green Book” contains tax proposals.  Anyone who cares about this is aware that every year the President, not just Obama, but Presidents before him, include proposals that commentators like to rate from likely, to possible, to dead on arrival.  Most proposals to change the tax code are DOA.  President Obama’s favorites include eliminating zero out GRATs, reducing the applicable exclusion amount, and raising the estate tax rate.  Without commenting on the efficacy of any single proposal, I call such proposals wishful thinking at best and campaign fund raising programs at the most cynical.

It is within this context that the most recent proposal must be evaluated.

It is woefully misnamed because it has nothing to do with trusts.  In fact, it will promote even more trusts.  The catch-phrase “trust fund loophole” is politic-speak for taxing rich trust funders.  It certainly caught the attention of a lot of you.

The proposal, wrapped in so much doubletalk, is actually quite elegant, but so ill-conceived as to be meaningless in its present form.

The proposal treats death as a recognition event.  Appreciated assets would be subject to capital gains taxation at the death of the owner.

Retirement accounts would not be affected.  The proposal affects folks with appreciated assets other than retirement accounts.

This proposal is already the system used in Canada which has no estate tax.  However, the President’s proposal did not propose eliminating the estate tax.  Therein lays the tale.

Taxing appreciated assets and net worth is unfair.  Taxing appreciated assets at death in place of an estate tax would affect each estate differently, better for some, worse for others, but undoubtedly it would raise a significant amount of revenue because the step-up basis rule is one of the biggest “loopholes” in the tax code.  Despite the distaste for paying taxes, the plan would likely have a positive impact on the economy because it removes the incentive for holding onto appreciated assets solely waiting for the step-up basis at death.  It would also benefit some older small business owners who would no longer be trapped in their businesses because of the promise of avoiding taxes if they die owning the business.

The reaction has been swift and it now appears that it was purely a political ploy unlikely to get any traction.  Some commentators suggest it is an advance push against Republican efforts to repeal the estate tax.

Whatever it is, it certainly stirred the pot and increased awareness of the tax system.

Now would be an ideal time to check in with your tax and legal advisors and determine if your current plan is tax efficient and what you intend.

Posted in Tax News on February 1st, 2015 · Comments Off on President Obama’s So Called Trust Fund Tax Proposal

Inherited IRAs May be Fair Game for Creditors

In Clark v. Rameker, the United States Supreme Court recently (June 2014) decided that inherited IRAs were not entitled to bankruptcy protection under the federal bankruptcy code.

Although inherited IRAs continue to remain protected in bankruptcy under the Arizona exemption laws, many descendants inheriting IRAs from Arizona decedents may live outside Arizona and their inherited IRAs may be available to the inheritor’s creditors and bankruptcy trustee.  For most people this is an undesirable result.

There is a simple and affordable solution to prevent this from happening.  Using an IRA inheritor’s trust, a specially designed trust is named the beneficiary of the IRA.  If properly designed, the IRA beneficiary will retain all the “stretchout” benefits available to an individual beneficiary with the added benefit that the IRA benefits will not be subject to the claims of the inheritor’s creditors.

The IRA trust was first approved by the IRS in 2005 and is a tried and tested strategy for controlling benefits, stretching out minimum required distributions, and providing protection for creditors.

To find out more about this important strategy, contact me at or call (480)945-9131.

Posted in Uncategorized on June 25th, 2014 · Comments Off on Inherited IRAs May be Fair Game for Creditors

New Perils of Arizona Beneficiary Deeds

I first wrote about using an Arizona beneficiary deed to avoid probate on November 13, 2012.

A recent decision of the Ninth Circuit Bankruptcy Appellate Panel reveals a major shortcoming that should affect the popularity of beneficiary deeds.  In Jones v. Mullen, BAP No. AZ-12-1644-DPaKu, the panel decided that the debtor’s interest in real property acquired because of the death of his grandmother 3 days after the debtor filed a Chapter 7 bankruptcy petition was property of the bankruptcy estate.  The bankruptcy trustee was allowed to sell the debtor’s post-petition acquired interest in the real property.  The debtor’s creditors benefitted from the decedent’s beneficiary deed rather than the intended grantee, the decedent’s grandson.

Beneficiary deeds have become so popular and widely available on the internet, many people create beneficiary deeds without consulting a lawyer or otherwise gaining an appreciation for some of the more common pitfalls.  Leaving property outright to an intended beneficiary heads the list of problems that can be avoided with planning.  This mistake could be made in a Will or a trust as well as a beneficiary deed, but most trusts and many Wills are prepared by lawyers who have the opportunity to counsel their clients and discover whether or not special circumstances exist which suggest adoption of a different plan.

Bankruptcy laws can disrupt an estate plan and cause a detrimental unintended consequence.  A well constructed estate plan considers potential obstacles such as unforeseen bankruptcy filings and poor timing and “plans” for such possibilities in ways that a beneficiary deed form cannot.

Interestingly, in Jones, the decision did not rely on the 180 day clawback rule of §541(a)(5) for inheritances, but rather reconfirmed a 24 year old case, Neuton v. B. Danning (In re Neuton), 922 F.2d 1379 (9th Cir. 1990), decided using §541(a)(1).  The controlling law in the Ninth Circuit is that a contingent interest becomes property of the bankruptcy estate upon the filing of a petition, subject to divestiture and valuation issues.  Here, when the contingency occurred, Grandma’s death, during the pendency of the bankruptcy case, the debtor was left with no recourse and the interest was sold for the benefit of the bankruptcy estate and the debtor’s creditors.

The Ninth Circuit consists of California, Oregon, Washington, Nevada, Hawaii, Alaska, Montana, Idaho and Arizona.  The result could be different in other states that don’t have the same precedent.

The Jones case is a perfect example of the old adage “that for the want of a nail, the horse was lost.”  Although a beneficiary deed may be inexpensive to create and avoids probate, it also contains none of the protections many folks want for their descendants.  If any adverse conditions exist on the date of death, the decedent’s estate plan will be frustrated.

This is just one example of how beneficiary deeds may be innocently misused.  Failure to adequately identify who takes the property if the originally named beneficiary fails to survive the grantor is another common mistake that can be avoided with careful planning and competent drafting.

In the proper circumstances, a beneficiary deed can be a time and money saving alternative to probate, but unforeseen consequences can assure that the simple idea is not a good one.  Before using a beneficiary deed, make sure you have identified not only the benefits you desire, but the risks and pitfalls not often discussed.  I can help you analyze whether a beneficiary deed is a good solution for you.  For this or any other estate planning concern, call me today.

Expiring Tax Cuts and New Taxes

As of January 1, 2013, the Bush era tax cuts will expire and whether we go over the fiscal cliff or not, there are issues of concern to all investors, including retirees.

The 15% tax rate on dividends will expire and recipients will pay tax on those dividends at their marginal tax rate up to 39.6% for the wealthiest among us. Most of you will not reach that top tax bracket, but you face higher taxes on your dividends than at any time in the past 10 years.

The Alternative Minimum Tax (AMT) still has not been “fixed” and is a concern to all taxpayers with investment income.

Individuals earning more than $200,000 or couples earning more than $250,000 will be subject to a medicare surcharge of 3.8% on their investment income with few exceptions. Some taxpayers will be subject to a lower rate. Investment income is broadly defined to include dividends, interest, and capital gains.

Capital gains will be taxed at 20% instead of 15% for most taxpayers.

It is important to recognize these changes are critically important to each of you on a micro level because you will pay more taxes. If you have highly appreciated stocks or other property that can be sold before the end of the year, and you were already considering selling the assets next year, you should consider accelerating your plans and make the sale this year to take advantage of the lower rates. A capital gain harvested this year will be taxed at only 63% of the rate next year for high income taxpayers. A capital gain of $100,000 will incur federal and state tax this year of $20,000, but if sold after the first of the year, the tax will be $28,800.

If it sounds like this change may affect you, consult your tax advisor and your financial advisor before deciding what to do.

Do not rely on this post for your tax advice, this is just a shout out to get the full explanation addressed to your specific situation from someone you trust to advise you about taxes.

Remember although this is a serious concern to you personally, it is probably a good thing for the long range health of the economy. Next week, I will depart from my strict policy of staying away from predicting the future direction of the economy and describe why these are necessary changes to the future of a stable economy.

I remain anxious to help you make sure your estate plan is current and meets your intentions. I can also help with designing gifting and tax advantaged charitable gifting plans. If interested in discussing such issues, call me.

Posted in Tax News on November 26th, 2012 · Comments Off on Expiring Tax Cuts and New Taxes

End of the Year Notes – Gifting

Much has been written about strategies for taking advantage of the historically unprecedented $5,120,000 exclusion from gift taxes that is available for gifts during 2012.  Time is running out on the ability to make and document such gifts before the end of the year.

Of course the furor is all about what happens if the Bush era tax cuts expire and the estate tax exclusion amount goes back to $1M and the opportunity to get an additional $4.12M out of the estate and gift tax system is lost.

There are several strategies available that address the concerns, but factors to consider include

1)      Do you have sufficient wealth that you can afford to give away assets of that magnitude?

2)      After making the gift, will you have enough cash flow to be comfortable?

3)      Do you have assets to give away that are not highly appreciated; and if so, is there an alternate strategy that will work for you?

Giving away $1M does nothing to improve your tax situation.  Because of the uncertainty about what the tax laws will be, it is not clear that giving away even $3.5M will help.  This is a strategy that works best at the maximum level and at best is only neutral at the $3.5M level.  It is also a strategy that must be careful designed and carried out.

Most plans will require a formal valuation of the gift property, mindful analysis, and careful implementation.  If you need help working through the analysis, call me now.

Next week, I will explain the mechanics of the coming changes to capital gains tax and the medicare surcharge and why it is tax efficient to harvest capital gains before the end of the year.

Posted in Personal on November 19th, 2012 · Comments Off on End of the Year Notes – Gifting

Should I Use a Beneficiary Deed?

Arizona was the first state to recognize beneficiary deeds as a method of transferring property at death.  At the time this article is written, Arizona has been joined by 16 other jurisdictions and the list is growing larger.  Why is it so popular?

A beneficiary deed allows you to retain ownership of your property and to change your mind at any time during your lifetime.  You may sell, rent, or mortgage the property without any complications.  It is becoming a favored strategy in conjunction with living trusts because it avoids having to retitle the property, notify lenders and insurance companies, and to remove the property from trust if the property is refinanced.

The beneficiary deed must be recorded before the grantor’s death.

A beneficiary deed passes title at the moment of death to those persons named as grantees in the deed.  All that is required is to record the death certificate and notify the lender, insurance company, county assessor, and homeowner’s association if there is one.

When creating a beneficiary deed, care must be taken to consider alternate or unexpected succession issues.  You may name one or more beneficiaries who may take as tenants in common or with rights of survivorship.  Grants to predeceased grantees may lapse or pass to the named grantee’s descendants depending on the language chosen.  Each grantee will have an undivided interest in the property and an equal right to possession unless otherwise stated.  You may create life estates or any other form of ownership recognized in Arizona.

Beneficiary deeds work well when the title will pass to a single individual or to a few individuals all of whom share a common vision of what to do with the property.  If there are multiple grantees who will not work well together, then a beneficiary deed may create problems and a probate will probably be a better choice for the grantor.

When using a beneficiary deed, you must be watchful for changes in your family dynamics or structure that would make this simple method inappropriate.  The deed may be revoked at any time.

If you think a beneficiary deed may work for you, contact me to discuss beneficiary deeds and your estate plan.  I look forward to hearing from you.

Posted in Estate Planning on November 13th, 2012 · Comments Off on Should I Use a Beneficiary Deed?

What is Probate?

Probate  is the court process by which a Last Will and Testament is proved valid or invalid. Its name is derived from a latin root word that means “the truth.”  It is also the legal process whereby assets of a decedent are administered.  “Administration” means finding, collecting, and distributing assets in kind or after liquidation and payment of the decedent’s debts and the administrative expenses incurred performing those acts.  A probate case is also the process whereby the distributees of the decedent’s assets are determined and the creditor claims are examined.

Probate is not required in every case and the kind of assets owned by a decedent and how those assets are titled will determine if a court proceeding is necessary or not.  I am best known for creating estate plans using trusts that help families avoid estate taxes and probate, but my staff and I are also experienced at helping families determine if a probate case is necessary and to help families transition assets with as little anxiety and expense as possible.

Contrary to popular belief, the value of the assets is not the primary factor in determining if a probate case is necessary.  Some very small estates must be probated and many high value estates avoid probate.  Probate is a different issue than whether an estate tax return is required.  We will help you make an initial determination as to both issues.

The key factor for probate is whether or not the decedent would have had to sign a legal document to transfer the asset.  Common assets falling into this category are houses, bank accounts, vehicles, and business interests for which no alternate method of transfer has been pre-arranged.  We can assist you in pre-arranging your affairs to avoid probate and also efficiently transfer the assets regardless of whether pre-arrangements were made or not.

Life insurance proceeds or retirement plan benefits left to minors, survivorship interests in joint tenancy property that have not been documented, oil and gas interests, interests in partnerships or businesses are just a few of the problems you may need help resolving.  Arizona property owned by a decedent in another state is another common problem.

Some issues can be resolved by recording or filing a death certificate in the proper place, small estate affidavits can be used to good effects under some circumstances, and in some cases a probate case in one or more jurisdictions may be required.  This much is true, choosing the wrong process will delay the resolution and increase the eventual cost.

Even if all the decedent’s assets were properly owned by the living trust, there is still work to be completed before the beneficiary can enjoy the use of the asset.

To reduce the anxiety and expense of transferring assets after the death of a loved one, it is best to begin with the end in mind, which means understanding what needs to be done, having a good process in place for doing it, and having competent advisors assisting you.

I want to be that advisor for you.  Contact us to find out how we can work together.

Posted in Probate on November 5th, 2012 · Comments Off on What is Probate?

Trouble Ahead for Single Member LLCs (SMLLCs)?

A primary reason for forming an LLC is to protect a client’s other assets from liabilities arising from the business of the LLC.  That protection may now be at risk.

For some time, practitioners have been alert to the limitations in some states of the protection afforded to assets held in a SMLLC even when the statute, as in Arizona, provided a charging order as the sole and exclusive remedy, but now there is a new concern – that even clients that meet state law may be at risk under alter ego liability theories.

I’m taking a break this week from the explanations of basic estate planning to discuss an important recent case which imposes troublesome limitations on the protection afforded by a single member LLC.

The Colorado appellate court recently used an alter ego analysis to erode the protection an LLC provides to its members.  In Martin v. Freeman, the court employed a 3 prong analysis and found that a single member of an LLC was liable for the debts of his LLC because (1) the LLC was the alter ego of its member, (2) that the entity was used to defeat a rightful claim, and (3) an equitable result was obtained by ignoring the entity.  The court considered a variety of fact specific elements, including insider control, thin capitalization, the entity was a mere shell, legal formalities were disregarded, and commingling of funds, all relatively common occurrences in the operation of Arizona LLCs.  The court’s analysis twisted relative innocent facts to reach the conclusion that the validly formed and operated LLC provided no protection for its single member.  There was a spirited dissent which drew a bright line on the lengths to which the majority was willing to go to express its dislike for the notion that clients can avoid potential liability by merely forming an LLC in compliance with existing statutes.

The case makes clear that clients must supply something much more than a shell of an LLC.  Observation of certain elements derived from sometimes obtuse rulings from other jurisdictions may be important in cementing the client’s protection.  Merely observing the letter of the statute may not be enough.

Call me for a copy of my newly revised LLC operations manual which describes additional steps which may be important if you are to avoid personal liability when your LLC is sued, to obtain a more robust operating agreement, or form a new LLC.  Be careful out there, it is a dangerous world.

Posted in Uncategorized on February 13th, 2012 · Comments Off on Trouble Ahead for Single Member LLCs (SMLLCs)?