After months of negotiating, Congress and the President finally reached an agreement regarding income taxes and Federal spending. The new laws are contained in a bill known as the “American Taxpayer Relief Act of 2012” (the “2012 Tax Act”). The 2012 Tax Act also addressed estate, gift, and generation skipping transfer taxes, and those changes are the subject of this letter.

1. Estate Tax Exemption, Rate of Tax, and Indexing For Inflation.

The 2012 Tax Act permanently increased the estate tax exemption to $5,000,000 per person, and importantly, the exemption is now indexed for inflation. With that indexing, the exemption for 2013 is equal to $5,250,000, and it will continue to increase each year. To the extent a decedent’s estate exceeds the exemption available in the year of death, the excess will be taxed at 40%. This rate of tax is higher than the 35% which was due on taxable estates in 2011 and 2012, but it is far lower than the 55% rate of tax which was imposed for many years prior to the Bush tax cuts.

2. Portability.

The 2012 Tax Act also made “portability” a permanent part of the estate tax system. Portability, which was originally introduced into law in 2010, is a way for married taxpayers to save estate taxes. Before 2010, if a spouse with a taxable estate died without proper estate planning and left his or her estate outright to the surviving spouse, that deceased spouse’s ability to shelter property from estate taxes after both spouses died was lost (absent a disclaimer of the inheritance by the surviving spouse, something most surviving spouses have no interest in doing). Even though the bequest to the surviving spouse did not generate any estate taxes due to the “unlimited marital deduction,” it meant the surviving spouse was left with all the property, but with only one person’s exemption from estate taxes. The exemption of the first spouse to die was therefore lost if no “bypass” trust was created. Now when a spouse leaves property directly to the surviving spouse, the surviving spouse can add the deceased spouse’s unused exemption amount (referred to as the “DSUE Amount”) to his or her own $5,250,000 exemption, thereby potentially doubling the amount that can be given away or left tax-free at death.

These new estate tax provisions may make planning less complicated for some clients, but there are still good reasons to create a bypass trust at the first spouse’s death. For example, if an estate is left to a trust, any appreciation that accrues to the trust property between the two spouses’ deaths will be removed from the surviving spouse’s estate. The DSUE amount is a fixed number, and it does not adjust for inflation. For example, if a couple has a $10,500,000 combined estate when the husband dies, and the wife’s estate subsequently grows to $15,000,000 prior to her death, she would be able to add only $5,250,000 to her exemption even though her husband’s half had grown to $7,500,000. This disadvantage is mitigated though because property owned outright by a surviving spouse receives a stepped-up cost basis upon the surviving spouse’s death, whereas assets in the trust will not. Even so, estate tax rates have historically been at least double that of capital gains tax rates (in 2013, the estate tax rate is 40% and the long-term capital gains rate is 20%), so in most cases, it will be best to use a trust rather than rely on portability.

Importantly, trusts offer creditor and divorce protection, two benefits that can be very important to many surviving spouses. Further, the portability laws provide that you can only claim the unused exemption from your last deceased spouse. If the surviving spouse in the above example remarries a wealthy man who dies shortly thereafter leaving his large estate to his own children, he will have no DSUE Amount for his wife to claim since he will have used up all of his exemption. The surviving spouse would lose her first husband’s DSUE Amount and have none to claim from her newly deceased husband. So, for some widows without a bypass trust, there’s the very real possibility that extra unplanned taxes might be owed if a new spouse dies first. Also, because a surviving spouse is usually not permitted to pass trust property to a new spouse or other beneficiaries, a trust has the added benefit of preserving the trust property for the children or other beneficiaries of the spouse who dies first.

3. Gift and GST Taxes, Rate of Tax, and Indexing For Inflation.

The 2012 Tax Act also made permanent changes to the gift tax and to the generation skipping transfer (“GST”) tax. Gift taxes apply to transfers made during lifetime that are in excess of any available exclusions and exemptions. GST taxes generally apply to transfers made to grandchildren, great-grandchildren and certain other persons and trusts.

Just like the estate tax, the available lifetime exemption from both the gift and GST tax has been increased to $5,250,000 per person. Transfers that exceed this limit will be taxed at the same 40% rate that applies to the estate tax. This $5,250,000 exemption is also indexed for inflation and will be increasing along with the estate tax exemption in future years. Importantly, if a surviving spouse has unused exemption from a spouse who died (the DSUE Amount), that carry-over amount can be added to the $5,250,000 gift tax exemption, thus increasing the amount the surviving spouse can give away during his or her lifetime. With such large exemptions now available, there are far more planning options available to people who want to make gifts while they are alive, whether in trust or outright to their children or others.

Most people are not concerned with gift and GST taxes because of the annual exclusion. This is the amount that can be given to any person each year without using up any part of the lifetime exemption from gift and GST taxes. The annual exclusion in 2013 is now equal to $14,000, up from $13,000 last year. The annual exclusion allows any person to give any other person as much as $14,000 per calendar year without reducing the available lifetime exemption. The annual exclusion is indexed for inflation, and it increases from time to time in $1,000 increments.

You have a number of options when it comes to saving for college. There are Uniform Transfers to Minors Accounts, education IRAs, and prepaid tuition plans, just to name a few. All the options have their advantages, but have you considered a 529 account?

A 529 account combines great features to make a fairly good investment vehicle. The main advantage is that the earnings and most withdrawals are income tax free. Even though you must use after-tax money to create the accounts, all capital gains, dividends, and interest are generally tax free. Withdrawals are subject to income taxes only when they are not used for tuition, room, board, and other authorized expenses. Another advantage is that gifts to a 529 account not only qualify for the $13,000 annual gift tax exclusion, but you can even make five years worth of gifts today and elect to treat them as being made equally over a five year period. For example, a married couple with four grandchildren can give as much as $130,000 to each grandchild right now for a total of $520,000 to the four grandchildren. Each grandchild will be treated as receiving $26,000 per year for five years.

As far as estate taxes are concerned, all amounts you contribute to the account will be excluded from your estate even though you are the person controlling the account. However, if you elect to spread your contributions over five years for gift tax purposes and you die within that five year period, a portion of the gift will be included in your gross estate.

There are a few downsides worth noting. Unlike some of the other alternatives available for saving for college, 529 accounts don’t let you choose the investments yourself. All you can pick is the type of investment portfolio the account will maintain. Also, if you use funds in the account for non-qualified purposes, a 10% penalty will apply to the portion of the withdrawal which constitutes investment gains.

Overall, 529 accounts present you with an unbeatable combination of features. The accounts offer income tax free growth and withdrawals with no gift taxes, no estate taxes, retained control of the funds, and flexibility in the future should circumstances change.

Did you receive a POM at age 19? A DWI at age 21? Or is there some other small smudge on your criminal background record? If you have been successful on deferred adjudication probation, you may be able to control access to your criminal record through an Order for Non-Disclosure. Once sealed, you may legally and truthfully deny your criminal conviction.

An Order for Non-Disclosure prohibits the government from disclosing your criminal conviction to the public and prevents a private entity that compiles and disseminates for compensation criminal record information from compiling or disseminating information that is covered by the Order. Although sealing the record prevents its release to the public, the record remains available to law enforcement and to certain state agencies—for instance, licensing agencies. Also, the information can still be used against you in criminal proceedings.

What is an Order of Non-Disclosure?

An Order of Non-Disclosure is an order from the court effectively sealing your record from the public. It allows an individual to deny arrest or prosecution for which public information exists unless they are being prosecuted for a subsequent offense.
Benefits of a Texas an Order of Non-Disclosure:

Tell employers that you have not been convicted of a crime
Become eligible for student loans
Become eligible for housing assistance
Become eligible for more types of professional licenses and certificates
Tell friends and family that you have not been convicted of a crime
No more fear or embarrassment when someone does a background check

Who is eligible?

You may qualify for an Order of Non-Disclosure if you satisfy the following requirements:

You entered a plea of guilty or no contest; AND
The judge deferred further proceedings against you and placed you on community supervision (probation) without a finding of guilt; AND
You have been successfully discharged from community supervision; AND
The case against you has been dismissed; AND
You meet waiting period after completing your sentence:
No waiting period for most misdemeanors
5-year waiting period for misdemeanors under Chapters 20 (kidnapping, unlawful restraint), 21(sexual offenses), 22 (assaultive offenses), 25 (offenses against the family), 42 (disorderly related offenses), and 46 (weapons offenses) of the Penal Code
5-year waiting period for all felonies.

Who is not eligible?

The following offenses are not eligible:

Aggravated Kidnapping
Sex Offender
Murder
Capital Murder
Injury to children, elderly, or disabled individuals
Child abandonment or endangerment
Stalking
Family violence

What is the process?

Contact the Law Office of Russell Frost right now!

Once you hire us, we can file a Petition for Non-Disclosure with the court and request a hearing be held to determine if an Order of Non-Disclosure can be granted in your case. We will prepare all of the documents for you and deliver them ready to be signed, notarized and filed with the courts. We will attend the hearing and guide you through the process.

Will I be required to travel for a hearing?

Any hearing would most likely be held in the county in which you were charged. We will attend the hearing for you–no matter its location–and your presence would most likely not be required.

What happens if the court grants it?

Many Texas agencies are forbidden from disclosing the information to the public. The records are eventually sealed by DPS.

After an Order of Non-Disclosure is granted, entities such as PublicData.com or other background check sites can be fined for releasing the information.

Note that a criminal justice agency can still disclose criminal history record information that is the subject of an Order of Non-Disclosure to the following non-criminal justice agencies or entities only:

State Board for Education Certification
School district, charter school, private school, commercial transportation company, or education shared service arrangement
Texas State Board of Medical Examiners
Texas School of the Blind and visually Impaired
Board of Law Examiners
State Bar of Texas
District Court regarding a petition for name change
Texas School for the Deaf
Department of Family and Protective Services
Texas Youth Commission
Department of Assistive and Rehabilitative Services
Department of State Health Services
Texas Private Security Board
Municipal of volunteer Fire Department
Board of Nurse Examiners
Safe house providing shelter to children
Public or Nonprofit Hospital
Texas Juvenile Probation Commission
Securities Commissioner, banking commissioner, savings and loan commissioner, or the credit union commissioner
Texas State Board of Public Accountancy
Texas Department of Licensing and Regulation
Health and Human Services Commission; and
Department of Aging and Disability Services

The court’s order will be sent to the Department of Public Safety. The Department of Public Safety will then send the order to all law enforcement agencies, jails or other detention facilities, magistrates, courts, prosecuting attorneys, correctional facilities, central state depositories of criminal records, and other officials or agencies or other entities of this state or of any political subdivision of this state, and to all central federal depositories of criminal records that there is reason to belie have criminal history record information that is the subject of the order. Those entities are obliged not to disclose the deferred adjudication record information to anyone other than:

Other criminal justice agencies
For criminal justice or regulatory licensing purposes
An agency or entity listed in Section 411.081(i)
The person who is the subject of the order

On May 25, 2011, the Texas Legislature passed H.B. No. 274 (a.k.a. “Loser Pays” Bill).  The law went into effect on September 1, 2011, and applies to civil suits filed after that date.  Despite its name, the “loser” of a suit only pays if it “loses” at an early stage of the litigation process.  Specifically, the law requires parties who lose a motion to dismiss their claims to pay the other sides’ court costs and attorneys’ fees. The law does not require an unsuccessful plaintiff to pay the defendant’s attorneys’ fees if after a trial the court/jury finds in favor of the defendant.

The law made several other substantive changes intended to make the legal process more efficient, including the following:

• Requiring the Texas Supreme Court to adopt rules for dismissal of a baseless cause of action;
• Requiring the Texas Supreme Court to adopt rules to expedite civil trials;
• Permitting appeals of otherwise unappealable orders if they involve a controlling question of law and may materially advance the termination of the litigation;
• Attempting to make it easier for defendants to obtain litigation costs if they make a qualifying settlement offer, the plaintiff rejects the offer, and the final award is less than the qualifying offer; and
• Prohibiting defendants from designating responsible third parties after the applicable limitations period.

Special thanks to Shane Johnson for his research and preparation of this post.

For some people, their estate planning documents are as private as their income tax returns, and nobody is ever given copies. For other people, estate planning documents are no different than a spare key to the house, and every family member and executor and/or trustee named in the documents is given a copy.

If you are the type of person who values your privacy, who does not especially trust your children, executor, or trustee, or if you have written a Will or trust which does not treat all the children equally, then it may not be a good idea to hand out copies. Also, you may have more money than your children expect, and depending on how your Will or trust is written, giving them a copy may be letting them know too much about your personal business.

On the other hand, if you have a fairly open relationship with all your children, you regularly discuss finances with them, and you are leaving your estate to them in equal shares, then go ahead and give everyone a copy. Of course, if you decide to change your Will or revocable trust, you should be sure to give all the same people copies of the new documents. If you don’t, then there may be some arguments following your death over which document controls the disposition of your estate.

The gift tax is a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return. The tax applies whether the donor intends the transfer to be a gift or not.

The estate tax is a tax on your right to transfer property at your death. It consists of an accounting of everything you own or have certain interests in at the date of death.

Each year, you may give any person you want as much as $13,000 without any gift tax consequences. This dollar amount is known as the annual exclusion, and it is now indexed for inflation. It will be increasing from time to time in $1,000 increments.

If you are married, the amount you can give to each person doubles to $26,000 since the person receiving the gift can receive $13,000 from each spouse. Gifts can be in the form of cash, stocks, bonds, real estate, or anything else of value. Buying real estate or bonds in the names of one or more other persons is the same as making a gift of that property to them. The value of the gift would be the amount of money you spent to buy the property or the bond.

You can also make tuition payments for any person you choose, and these payments do not count toward the $13,000 annual limit. Payments you make for medical expenses don’t count against the $13,000 limit either. However, if you make a tuition or medical payment, be sure to pay the school, hospital or doctor directly, as a check made payable to a person which is used for tuition or medical care counts towards the $13,000 annual limit.

If you want to give more than $13,000 to any one person, to the extent your gifts exceed $13,000, you will use up a portion of your $5,000,000 lifetime exemption. This is the amount each person can give away without having to pay gift or estate taxes. By way of example, if you give one of your children $45,000 this year, you can exclude the first $13,000 under the annual exclusion, and the other $32,000 will leave you with a remaining lifetime exemption of $4,967,000.

Keep in mind that if the gifts to any person exceed $13,000 during a single calendar year, you will be required to file a gift tax return by April 15th of the following year to report the gift. That is how the IRS keeps track of how much of your $5,000,000 lifetime exemption is still available. Once you have given away more than the $5,000,000 lifetime limit, you must start paying gift taxes. The estate and gift tax rate is presently 35%.

Before making large gifts, it is often a good idea to talk to an estate planning attorney. Once gifts are made, you can’t go back and do things a better way. For instance, if you are planning to make really large gifts, then it may be wise to create trusts for the benefit of your children. There are a number of important advantages to creating trusts, with few downsides.

Many clients ask, “Where is the best place to keep original estate planning documents?”  The best place is probably in a safe deposit box because it will protect the documents from theft, fire, accidental loss, and most other types of damage or harm. A potential problem, though, is getting it opened after your death.

If you decide to keep your estate planning documents in a safe deposit box, consider naming a family member or your executor or trustee as a joint holder on the box. That should simplify matters following your death because someone will be able to get into the box without delay. Also, if you live in a flood zone, be sure to put the document in a water-tight plastic bag. As many shocked clients have learned, water damage caused by flooding can ruin the contents of a safe deposit box.

Another option is to keep your original estate planning documents at your attorney’s office.  Most attorneys will hold your originals at no charge. Of course, if you move, you will need to be sure to remember to provide your attorney with your new address and phone number.

Many people keep their original estate planning documents at home in a secure place. If you have a safe at home, that can be a good place to keep them. Be aware though, when thieves enter your home and discover a locked safe, they often take the whole safe thinking they’ll find cash and jewelry. The last thing they want is a file containing your estate planning documents, but that’s one of the things they’ll get if you keep them in your safe. Therefore, unless your safe is bolted to the foundation of your house, it may not be the best place to keep your originals.

Another option with regard to a Will is to deposit it with the county clerk’s office. Taking this approach can be a great idea, except that you need to be sure your records at home clearly indicate where the original can be found. Moving to a different county or changing your Will can cause problems as well.

More people than you would expect keep original Wills and other estate planning documents in an air-tight plastic bag at the bottom of their freezers. Freezers are well insulated and heavy, and have a way of withstanding fires, hurricanes, and tornadoes. Also, they don’t die or move away, and they are stolen far less frequently than in-home safes.

Section 41.0105 of the Texas Civil Practice and Remedies Code provides that recovery of medical expenses is limited to amounts “actually paid or incurred . . . .”  Tex. Civ. Prac. & Rem. Code Ann. § 41.0105 (Vernon 2008).  Plaintiffs’ attorneys argued this meant that plaintiffs are entitled to recover all amounts paid and all amounts incurred, including amounts adjusted or written off by a health care provider.  Defense attorneys argued that plaintiffs should only recover amounts actually paid, and amounts incurred and later written off or adjusted should not be recoverable damages because doing so provides plaintiffs with a windfall.

Recently, the Supreme Court determined that “paid or incurred” means plaintiffs are entitled to those medical expenses that are recoverable—that is, expenses actually paid or actually due.  Haygood v. De Escabedo, —S.W.3d—-, 2011 WL 2601363 at *3 (Tex. 2011).  That’s right: “paid or incurred” really means “paid or to be paid.”  The Court also held that “only evidence of recoverable medical expenses is admissible at trial.”  Haygood, 2011 WL 2601363 at *6.  This particular holding raises an issue with the frequently used medical affidavits provided for in section 18.001 of the Texas Civil Practice and Remedies Code.  That section provides that an affidavit stating that the amount a person was charged was reasonable is sufficient evidence to support a finding of fact.  Tex. Civ. Prac. & Rem. Code § 18.001(b).  Unfortunately, what a person is charged means what a person has incurred, and “incurred” now means “paid or to be paid,” and not “paid or incurred.”  (Although the Court discussed the 18.001 affidavits and determined the section did not dictate another outcome on the interpretation of “paid or incurred,” it did not address how practitioners are to deal with the now inconsistent language.)

The long term solution for this problem is for the Texas Legislature to amend sections 18.001 and 18.002 of the Civil Practice and Remedies Code.  In the meantime, practitioners should make reasonable modifications to the language in their 18.001 affidavits by eliminating the word “charged” and replacing it with “paid or incurred,” “paid or to be paid,” or “recoverable,” as appropriate.  More importantly, any dollar amounts included in practitioners’ affidavits must conform with the holding of Haygood.  Listing an amount that has been written off or adjusted will make the affidavit partially or wholly inadmissible, a problem no attorney wants to encounter on the day of trial.

There’s no question that estate planning for young families is a must.  Not only does proper estate planning determine who will care for your minor children, it avoids a costly guardianship.

What is a guardianship?

When parents leave behind minor children without a will or other proper estate planning, the Court must intervene and create a “guardianship” to determine who cares for the children and who manages any estate left to the children.

Why avoid guardianships?

Guardianships are undesirable for a number of reasons, one of which is cost.  The associated costs include filing fees, attorneys’ fees for all interested parties, attorney ad litem fees, and service of process fees.  Once the guardianship has been established, there are a variety of maintenance fees, which inevitably include additional attorneys’ fees, additional filing fees, additional ad litem fees, and yearly accounting fees.  Legal expenses for guardianships will run into the thousands or tens of thousands of dollars, a healthy portion of which unfortunately comes out of the estate itself.

How do I avoid a guardianship for my children?

To avoid a guardianship and its exorbitant costs, contact an estate planner regarding a testamentary trust provision in your will.  Once established, the testamentary trust is a virtually free vehicle to ensure your children are cared for by the people you trust most.

This past Fourth of July weekend, APD made approximately sixty DWI arrests.  If you find yourself being pulled over on suspicion of DWI, here’s what to do:

1. Smile, you’re on camera!  This begins before the officer turns on his overhead lights, and it continues until you are at the police station.  If you are within earshot of the officer, your voice is being recorded.  Be polite and courteous throughout your exchange no matter what.
2. Pull over quickly and safely.  If you cannot immediately find a safe spot to stop out of the roadway, slow down, signal your intent to stop by putting on your blinker, and stop at the first available safe area.
3. Set your brake, turn off your engine, roll down your window ALL THE WAY, and turn off your music.  You want the officer—and more importantly the jury who is also watching—to like you.  Making the officer give you common sense instructions is not the best start.
4. Know the officer is NOT your friend.  It is imperative that you understand the officer’s only task right now is to build a case against you.  He may be nice, and he may tell you that if you cooperate fully everything will be fine, but IT’S A LIE!  He is gathering evidence to convict you.
5. Provide the officer with your name, license, and proof of insurance.  Locate these items quickly if possible; however, the officer will be concerned you are reaching for a weapon, so follow any specific instructions he has regarding the retrieval of these documents.
6. Keep your dome light off.  Let’s not shed any more light on this situation than is required.  This also gives you a great reason to block his flashlight from your eyes when he starts waiving it in your face.
7. Exercise your rights.  When the officer asks you incriminating questions—How much have you had to drink?  When did you have your first drink?  What bar were you at?—ask to have your attorney present for any questioning, and tell the officer you otherwise would like to exercise your right to remain silent.  Regardless of his response to your statements (“You’re not under arrest” or “You don’t need an attorney”), remain silent.
8. Step out of the car when asked to.  Remember, you are on camera!  If you feel unsteady for any reason, lean against your car or the squad car.
9. Refuse field sobriety tests without your lawyer present.  Under no circumstances should you ever take a field sobriety test.  There is no statutory penalty for refusing to participate.  Tell the officer you need your lawyer present to participate in any such tests.
10. The Breathalyzer: refuse without your lawyer present unless….  Refusing to take a breathalyzer will most likely result in a suspension of your driver’s license.  However, if you are being asked to take a breathalyzer, you are almost certainly going to be arrested for DWI anyway, and your real concern is avoiding a DWI conviction.  UNLESS you are 100% certain you will pass the breathalyzer with flying colors (not just barely), or UNLESS you are 100% certain the officer is going to take your blood if you don’t blow (for instance, by obtaining a search warrant), do not take the breathalyzer test.
11. Once you refuse the breathalyzer, you will be placed under arrest.  The officer will place you in handcuffs and read you your rights.  In response, expressly state you are exercising both your right to remain silent and your right to an attorney.  Even if you already exercised these rights, do it again!
12. Smile, you’re still on camera!  The officer has now placed you in the back of the patrol car, and he has turned his video camera around to face you.  Act appropriately.  Do not strike up a conversation with the officer about how much the Astros suck, who will be QB for the Horns, or anything else.  Keep quiet.
13. Contact your attorney ASAP.  If you refused the breathalyzer, you have a very limited amount of time to challenge the license suspension.  Call your attorney immediately.