Tax Law

Joseph Maya selected to 2022 Edition of Best Lawyers in America

FOR IMMEDIATE RELEASE

 

Westport, CT

 

Maya Murphy, P.C. is pleased to announce that Joseph Maya has been included in the 2022 edition of The Best Lawyers in America®. Since it was first published in 1983, Best Lawyers has become universally regarded as the definitive guide to legal excellence.

Joseph Maya, a Connecticut and New York-based litigation attorney, was recognized in The Best Lawyers in America© 2022 edition. He has been rated Best Lawyers in America and ranks among the top private practice attorneys nationwide. Attorneys listed in this edition of The Best Lawyers in America were selected after an exhaustive peer-review survey that confidentially investigates the professional abilities and experience of each lawyer. Recognition in Best Lawyers® is widely regarded by both clients and legal professionals as a significant honor.

Mr. Maya has been practicing law in Connecticut for more than 25 years. He has been a licensed attorney in New York for more than 30 years.

“Best Lawyers was founded in 1981 with the purpose of highlighting the extraordinary accomplishments of those in the legal profession,” said Best Lawyers CEO Phillip Greer. “We are proud to continue to serve as the most reliable, unbiased source of legal referrals worldwide.”

Lawyers on The Best Lawyers in America list are divided by geographic region and practice areas. They are reviewed by their peers based on professional expertise, and undergo an authentication process to make sure they are in current practice and in good standing.

 

Maya Murphy, P.C. has offices in Westport, CT and New York City. For additional information on Joseph Maya or Maya Murphy, P.C., please visit its website at https://mayalaw.com, or call 203-221-3100.

 

What happens if I die without a will in Connecticut?

After someone dies, attention naturally shifts to the decedent’s survivors, property and wishes. A probate court (also called a surrogate court) is a specialized court that handles distribution of the decedent’s property and ensures that any debts, funeral expenses and taxes are paid prior to distributing the remaining assets. If there is a will, the decedent’s wishes are carried out and the process is typically straight forward. However, if there isno will, distribution of property is awarded to survivors in accordance with the state’slaws of “intestacy.”

In Connecticut, if you are survived by a spouse and children, your spouse takes the first $100,000 plus half of the remainder and your children take the other half of the remainder. If you are survived by a spouse and children who are not your spouse’s children, your spouse takes half and the children share the other half equally. If you are survived by a spouse and parent(s) but no children, your spouse takes the first $100,000 plus three quarters of the remainder and the parent(s) takes the other one quarter. If you are survived by a spouse only, your spouse takes it all. If you are survived by children only, your children take it all. If you are survived by parent(s) only, your parent(s) take it all. If you are survived by brother(s) and sister(s) only, your brother(s) and sister(s) take it all. If you are survived by next of kin only, your next of kin takes it all. If there is no next of kin but there is a step-child, your step-child takes it all. If there is no step-child, it all goes to the State of Connecticut.

Regardless of the value of your property, it is always in your best interest to have a will.If you have a will, it may be possible to reduce the amount of tax payable on the inheritance. If you die without a will, your money and property may not be distributed as you had wished. If you are unmarried but have a partner, he or she cannot inherit your property without a will. If you have children who are minors, you will need a will so that living and financial arrangements are as you had wished in the event of your death. If youor your former partner’s circumstances have changed and there is a new partner in the picture, you may want to have a will to ensure your property is distributed as you’d wished.

Maya Murphy Attorneys at Law can provide you with estate planning with artfully crafted trusts and tax avoidance. We know that clients want peace of mind for the future. Our experienced attorneys will help you map out a plan so that your family is properly cared for in the event of your death. Please call us at 203-221-3100, or email us at Ask@Mayalaw.com to schedule a free consultation.

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What happens if I die without a will in Connecticut?

After someone dies, attention naturally shifts to the decedent’s survivors, property and wishes. A probate court (also called a surrogate court) is a specialized court that handles distribution of the decedent’s property and ensures that any debts, funeral expenses and taxes are paid prior to distributing the remaining assets. If there is a will, the decedent’s wishes are carried out and the process is typically straight forward. However, if there isno will, distribution of property is awarded to survivors in accordance with the state’slaws of “intestacy.”

In Connecticut, if you are survived by a spouse and children, your spouse takes the first $100,000 plus half of the remainder and your children take the other half of the remainder. If you are survived by a spouse and children who are not your spouse’s children, your spouse takes half and the children share the other half equally. If you are survived by a spouse and parent(s) but no children, your spouse takes the first $100,000 plus three quarters of the remainder and the parent(s) takes the other one quarter. If you are survived by a spouse only, your spouse takes it all. If you are survived by children only, your children take it all. If you are survived by parent(s) only, your parent(s) take it all. If you are survived by brother(s) and sister(s) only, your brother(s) and sister(s) take it all. If you are survived by next of kin only, your next of kin takes it all. If there is no next of kin but there is a step-child, your step-child takes it all. If there is no step-child, it all goes to the State of Connecticut.

Regardless of the value of your property, it is always in your best interest to have a will.If you have a will, it may be possible to reduce the amount of tax payable on the inheritance. If you die without a will, your money and property may not be distributed as you had wished. If you are unmarried but have a partner, he or she cannot inherit your property without a will. If you have children who are minors, you will need a will so that living and financial arrangements are as you had wished in the event of your death. If youor your former partner’s circumstances have changed and there is a new partner in the picture, you may want to have a will to ensure your property is distributed as you’d wished.

Maya Murphy Attorneys at Law can provide you with estate planning with artfully crafted trusts and tax avoidance. We know that clients want peace of mind for the future. Our experienced attorneys will help you map out a plan so that your family is properly cared for in the event of your death. Please call us at 203-221-3100, or email us at Ask@Mayalaw.com to schedule a free consultation.

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Utilizing Valuation Discounts for Gift Tax Savings: The Family LLC

This memorandum discusses the advantages of using gifts of fractional ownership interests in a family limited liability company (“LLC”) to defer or reduce gift and estate taxes. A family limited liability company can be used as an estate planning tool to “leverage” gifts to the next generation. The leverage is created by valuation discounts that apply to gifts of interests in a family LLC.

For gift tax purposes, the value used in determining the amount of a gift is fair market value, generally defined as the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of the facts. Ownership of an interest in an entity such as a family LLC, whether a majority or minority interest, generally will result in a lower valuation for estate and gift tax purposes than the outright ownership of assets outside of the entity. Lower valuations result because minority interest and lack of marketability valuation discounts are allowed for transfers of interests in closely held corporations and limited partnerships.

A minority interest is any ownership interest in an entity such as a family LLC that lacks voting control over the entity, such that the member has no unilateral power to determine the timing of distributions, to force a liquidation of the LLC, or to control the management of the LLC. A marketability discount generally applies to majority and minority interests in a LLC due to the illiquid nature of such interests. A combined marketability and minority interest discount may approach fifty percent.

The following example illustrates the advantages of utilizing valuation discounts
in gifts of Family LLC interests:

Suppose Mom and Dad own real estate worth $1,000,000.00. They wish to make partial gifts of this real estate to their four children to take advantage of the $13,000.00 annual exclusion under Internal Revenue Code § 2503(a). Mom and Dad decide to establish a family LLC to own the real estate. Each receives a 50% interest in the LLC upon contribution of the real estate to the LLC. Mom and Dad are appointed managers, which gives them the power to make all decisions regarding the management and operation of the LLC. After establishing the LLC for substantial business reasons, and after the LLC has been in existence for some time, Mom and Dad make a gift of 19.2% of their interests in the LLC, by giving a 4.8% interest to each of their four children.

Each gift of an interest in the LLC is entitled to a minority interest discount, because each child lacks control of the entity. Each gift is also entitled to a lack of marketability discount because each interest in the LLC is highly illiquid, and no child has the power to liquidate the LLC. Assuming for purposes of this example a total discount of fifty percent, the fair market value of the 4.8% gift made to each child is only $24,000.00, even though 4.8% of the underlying assets in the LLC is $48,000.00. Thus, the gift tax exclusion has been “leveraged” using the LLC because $48,000.00 in underlying asset value has been transferred to each child without gift tax cost and without using any unified credit.

As the real estate owned by the LLC increases in value, such increase in value
will be reflected in Mom’s and Dad’s estates only to the extent of their remaining interest in the LLC. Furthermore, after the gifts Mom and Dad each owns only a 40.4% minority interest in the LLC. Each such interest lacks the power to liquidate the LLC, and would also be entitled to minority interest and lack of marketability discounts. Thus, significant gift and estate tax savings can be achieved by using a family LLC, although at the “cost” to Mom and Dad of foregoing the income that otherwise would have been received on the 19.2% that has been given away to the children.

Because of many recent court cases involving the use of family limited liability companies and family limited partnerships, a careful analysis in each instance is needed before interests in a family entity are gifted. Moreover, in most situations a professional appraisal is needed to value both the company’s underlying assets and the fair market value of the interests gifted. The cost of such appraisals must be considered when a decision is make to implement the use of family entities as a part of one’s estate plan.

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Use a Irrevocable Life Insurance Trust (ILIT) to Shield Your Policies From Estate Tax

Many clients are surprised to learn that the death proceeds of their life insurance are subject to estate taxation. They believe that life insurance escapes estate taxes and passes to their loved ones intact.

This confusion probably began when the client was told that life insurance is income tax-free. For married clients, the confusion is compounded by the belief that the unlimited marital deduction somehow magically insulates the client’s death proceeds from ever being taxed. Often the marital deduction merely postpones the heavy tax burden on such death proceeds until the second spouse dies.

For clients who have taxable estates, estate taxes may consume up to fifty-five percent of their life insurance proceeds.

The proceeds from your life insurance are generally includable in your taxable estate if you owned the policy or had any “incidents of ownership.” (as defined by the IRS) This is true for term insurance, cash value insurance, and even insurance provided by your employer.

“Incidents of ownership” which will cause life insurance death proceeds to be taxed as part of the insured’s taxable estate include not just policy ownership, but also the right to borrow the cash value, the right to change beneficiaries, and the right to change how the proceeds are ultimately distributed to the beneficiaries.

The Irrevocable Life Insurance Trust (or “ILIT” as it is frequently called) has proven to be a highly effective method of avoiding estate taxes without the many problems of transferring ownership of the policy to the client’s children or other heirs. An ILIT is created to own one or more policies insuring your life. The ILIT is irrevocable, meaning you cannot generally change the terms once it has been signed. You must also choose someone else as trustee of the ILIT besides you and your spouse (a knowledgeable professional is the ideal choice).

You cannot be a beneficiary of the trust, but your children may be (and usually are) beneficiaries. Quite often, the ILIT parallels the dispositive provisions of your revocable living trust or other estate planning documents, although there is no legal requirement for the ILIT to do so.

Moreover, the ILIT cannot be payable to your estate or to your revocable living trust, as your ability during lifetime to change your will or trust would result in your ability to change the beneficial enjoyment of the policy proceeds, thus bringing the policy back into your taxable estate. In addition, if you die within 3 years of placing an existing policy into the trust, it will be brought back into your estate. Hence, it is more favorable for the trust to the insurance on your life than you placing an existing policy in.

Your contribution to the ILIT represents gifts which you cannot get back. The gifts are usually used to pay the premiums on one or more policies insuring your life and which are owned by the trust. Because you cannot reclaim the policies, or receive any benefit from the trust, it would be inappropriate to have the trust own policies whose cash values you had planned to use for retirement income.

Currently, you may gift up to $14,000 per year per donee (recipient) without any gift tax implications. This exclusion is only available to gifts of a present interest, which is something you may enjoy or use now, and gifts in trust generally do not qualify, as they are gifts of a future interest, or one that will be enjoyed or used later. To avoid this limitation, your ILIT should provide that each lifetime beneficiary (who must also be beneficiary or contingent beneficiary at your death) has the right to withdraw his or her proportionate share of the contribution for a limited period of time after each contribution is made. This is known as a Crummey power and is named after a famous tax law case. A Crummey power forces what would otherwise be a future interest into a present interest that will fit the annual exclusion if the beneficiary has been given notice of a right to a withdrawal period that lasts at least 30 days.

After the expiration of the withdrawal period, the trustee may use the contribution to pay the premium on a life insurance policy. The IRS has approved the ILIT concept when all the technical requirements are met, but the IRS is notorious for challenging ILITs when the requirements are not met. Even the order in which the documents are signed is critical.

The trustee receives the death benefit upon your death. These proceeds may be distributed to your family, held in trust, or used to purchase assets from your estate or from your revocable living trust. This last option would be important if your estate had insufficient liquid assets to pay estate taxes.

The tax on your estate is due nine months after the date of death. Those with large estates often do not have sufficient cash or other assets which could be easily converted to cash within the nine month time frame. The need to pay estate taxes has caused many a farm, family business, or major real estate holding to be sold at discounted prices to pay the estate tax.

Life insurance may provide the money needed to pay the estate tax, and by having the policy purchased and held in an ILIT, the proceeds may be used to provide the needed liquidity for your estate and yet not be subject to estate tax on your death.

Married couples may wish to consider using a “second-to-die” policy which pays the death benefit only after both spouses are deceased. That is usually the exact time that the proceeds are needed to pay the estate taxes. Because no death benefit is paid on the first death, the premium is much lower than purchasing a policy which insures just one life.

Often clients try to accomplish similar results to the ILIT by having, say, their two children own the policy equally. Many problems may arise under such an arrangement. A child may predecease the parent; the policy may be attached and liquidated by a child’s creditors; the policy could be considered as the child’s property in the event of a divorce; one child may refuse to pay the premiums or may wish to borrow the cash value. The outright gift of a policy makes no provisions for your children or grandchildren. These and other issues may be addressed in a properly drafted ILIT.

If you have a taxable estate and own a large insurance policy, or are contemplating purchasing one, you would be well advised to consider how the ILIT might benefit you and your family.

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Zeroed-Out GRATs: A Must For Those With Substantial Assets

Under a GRAT, a grantor creates a trust and transfers property to the trust and retains an annuity payable for a term of years. At the end of the term, the trust property will go to the trust’s beneficiaries (either outright or in trust for their benefit). The initial transfer of property to the trust constitutes a gift for tax purposes which will eat up a person’s lifetime exemption amount. The value of the gift, however, is calculated based on actuarial tables based on the life of the grantor and based on interest rates published by the IRS (also known as the “hurdle rate”). Because of this, if assets transferred to the trust appreciate at a rate faster than the hurdle rate the grantor can transfer the excess appreciation, free of gift tax, to the grantor’s heirs. The major downside is that if the grantor dies before the GRAT terms expires, all trust assets are included in the grantor’s estate–thereby causing the grantor to lose the opportunity to do other estate planning that might have successfully removed the property from the estate.

A Zeroed-Out GRAT comes into play when the value of what the grantor gets back in the form of the annuity (actually the present value of the annuity interest) is equal to the value of the property transferred. In this situation the grantor makes a large gift of property to the GRAT, but sets the annuity at an amount so that, for gift tax purposes, there will be nothing left to pass to the heirs at the end of the term. However, if the trust’s assets appreciate above the hurdle rate, there will be value and appreciation that will pass tax free to the children. By utilizing a Zeroed-Out GRAT, a grantor can pass large amounts of value to their children gift and estate tax free.
GRAT
But what if the assets you own have a volatile value and there is no guarantee that over many years there will be a net amount of appreciation? In this case, one can utilize what is called a series of Zeroed-Out “rolling” GRATs. Generally, this entails establishing a series of consecutive 2-year GRATs. Because the terms are so short, it reduces the likelihood of dying during the term. In addition, if there is a down swing in value it will only affect the GRAT for the 2 year term. If there is a subsequent upswing in value that exceeds the hurdle rate the value can be passed on to the heirs. In a sense, it is a one way ratchet that will pass on value to heirs when the assets appreciate.

As with all estate planning techniques, one must consider their unique family circumstances, their assets, and current law to determine whether a GRAT makes sense.

The helpful info graphic above visually explains the use of the rolling GRAT technique, making references to billionaire Sheldon Adelson (via Bloomberg News). Credit: Jared Callister

Keywords- GRATs, estate planning techniques, ct estate planning, trust and estates, tax free wealth transfer, tax free appreciation, grantor retained annuity trust

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Rolling GRATs: A Low Risk High Reward Estate Planning Tool

A Grantor Retained Annuity Trust (GRAT) can be an effective wealth transfer technique without incurring a gift tax or utilizing one’s lifetime gift tax exemption. A risk, however, with a long-term GRAT is if the Grantor dies prior to the expiration of its term. Death of the Grantor would subject the trust assets, including any income and appreciation, to estate tax. To reduce the mortality risk (especially for elderly clients or for those with health concerns), there is an estate planning technique that utilizes shorter-term GRATs.

The “Rolling GRAT” technique involves creating a series of consecutive short-term GRATs (typically 2 to 3 years) with each successive GRAT funded by the previous trust’s annuity payments. Rolling GRATs minimize the risk of mortality during the term and thereby increases the success of transferring wealth. Two years is the shortest amount allowable by the IRS according to recent revenue rulings. These short-term GRATs can take advantage of asset volatility by capturing rapid appreciation in assets such as a rapid increase in stock value (i.e. Tesla). In fact, research on GRATs funded with publicly traded stock showed that a series of rolling GRATs outperformed an identical long-term GRAT, regardless of the 7520 rate at time of creation. The study showed that the short-term GRAT strategy minimized the risk that good investment performance in one year would be offset by poor performance in another year. Rolling GRATs also keep more funds committed to the estate planning strategy.

If the short-term GRAT strategy is effective (assets appreciate faster than the IRS Section 7520 rate within the trust term), wealth is removed from the taxable estate and transferred to beneficiaries at little cost. If the strategy is not effective (assets did not outperform the IRS Section 7520 rate), all of the assets would go back to the Grantor in form of the annuity payments and none of the lifetime gift tax exemption would be wasted. Thus, almost no risk, but the potential for very high reward.

Rolling GRATs also offer the advantage of plan and strategy flexibility. The Grantor can stop the rolling process at any time and for any reason. For example, the Grantor may wish to stop if he or she needs the income from the trust assets, no longer has an estate tax concern, wants to transfer wealth to the beneficiaries sooner, the assets’ growth rate drops too low, or his or her health has deteriorated and is not expected to live for another 2 or 3 years. The disadvantage of a short-term GRAT is that a particularly low Section 7520 rate will not be locked in long-term.

While Rolling GRATs offer advantages for liquid assets, such as publicly traded stock, illiquid or hard-to-value assets are better suited for long-term GRATs. In particular, illiquid assets would require frequent valuations that may be subjective, cumbersome and costly.
It is important to note that a provision in the President Obama’s 2014 Budget seeks to eliminate the use of short-term GRATs. The proposal would require that any new GRAT have a minimum term of 10 years and would require that the remainder interest have a value greater than zero at the time the interest is created. This minimum 10 year term would not eliminate the use of GRATs, but it would increase the risk that the grantor would fail to outlive the GRAT term and lose the anticipated transfer tax benefit.

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Overseas Tax Shelters Now Complying With IRS

Some of the world’s most notorious secret account havens have agreed to give information about U.S. taxpayers to the Internal Revenue Service.

In a 24-day span ending December 19, eight jurisdictions — the Cayman Islands, Costa Rica, Jersey, Guernsey, the Isle of Man, Bermuda, Malta and the Netherlands – signed separate agreements with the IRS to help it implement the Foreign Account Tax Compliance Act (FATCA), enacted by Congress to uncover offshore tax evasion. Deals with more countries are in the works.
Piles-of-Cash
An IRS intergovernmental agreement “obligates the foreign country to require its investment funds and other financial institutions, unless they are exempt, to collect certain information from their U.S. account holders and report it to their country’s tax authority, which will then report the information to the IRS,” explains accountant Jay Bakst, a partner in the financial services practice of EisnerAmper LLP, an advisory and accounting firm in New York.

Institutions in countries that have yet to ink an intergovernmental agreement must enter into an agreement with the IRS to report directly to it or face 30-percent withholding on certain income from U.S. sources.

Reportable data includes the client’s name, address and tax identification number, plus information on account deposits, withdrawals and balances. Reporting begins in 2015, when 2014 account data will be furnished to the IRS.

For advisors and their U.S. clients, the Cayman Islands accord is particularly significant. The British territory’s toney and secretive banks, private funds and insurance outfits are popular with affluent Americans, and for some of them the new pact could prove a game changer.

Prior to the Cayman government’s November 29 agreement with the IRS, Cayman banks that didn’t have income from the U.S. — and which were therefore unaffected by FATCA’s withholding on U.S.-source income — had little motivation to comply with the American law. The same was true for Cayman funds with no U.S. income. But the intergovernmental agreement means an institution will be breaking its own country’s law by failing to report U.S. investors’ information to its government. That is a “strong incentive” to turn over the data regardless of whether withholding would apply, Bakst says.

For advisors with international clients, attorney Frank L. Brunetti points out that most IRS intergovernmental agreements are reciprocal. For example, the IRS will be reporting to Costa Rica about its taxpayers in the U.S.

International clients should also be aware that multilateral agreements are expanding, where “multiple countries are sharing in the same exchange-of-information protocol,” says Brunetti. He is a partner at Scarinci Hollenbeck in Lyndhurst, N.J., as well as an academic observer to the United Nations Committee of Experts on Cooperation in International Tax Matters.

“Governments are cooperating with each other because they are looking for revenue, and they’re getting much better at it with the technology and the laws,” Brunetti says. “There are not many places for the international billionaire to hide assets anymore.”

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Connecticut Conveyance Taxes

Connecticut Conveyance Taxes

These are taxes paid to the Town and State on the sale of real estate. They are generally paid by the seller from the closing and given to the town clerk when the transaction is recorded.

State Conveyance Taxes

State Conveyance Taxes are paid to the State of Connecticut, Commissioner of Revenue Services. Based upon sales price, they are three quarters of one percent of the sales price up to $800,000.00; and one and a quarter percent for everything over $800,000.00.

Local Conveyance Taxes

Paid to the city or town where the property is located. They are 0.25% of the sales price except as noted below.

The rate in Stamford is 0.35%.

Certain other towns are allowed to charge one half of one percent. These towns are:

Bloomfield
Bridgeport
Bristol
East Hartford
Groton
Hamden
Hartford
Meriden
Middletown
New Britain
New Haven
New London
Norwalk
Norwich
Southington
Waterbury
Windham

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The Attorneys of Maya Murphy, P.C. In the News

The attorneys of Maya Murphy have received significant news coverage for their excellent representation on a variety of issues. Please scroll through the newspaper clippings below to view the news coverage.


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