Michigan Estate Planning Blog

Reasons for Going “Offshore” With Your Accounts

Offshore accounts have been in the news recently and not without reason. For one thing, the IRS has been gunning for foreign accounts for some time. It just doesn’t like them. Likely, you have seen a discussion (or two… or three) of the topic in connection with Mitt Romney and his use of such accounts. The truth is that such accounts are not all illegal or unpatriotic, and indeed, might just be a good idea. If you’re interested, there are a few ideas to be gleaned from a recent article through SmartMoney regarding offshore accounts. Is the real reason tax minimization? Not always. The article suggests that taxes truly aren’t the sole motivation. Although it should be said that there are advantages, even though the U.S. government still thinks it’s owed a piece on everything you own internationally. For one thing, an offshore account has a measure of “jurisdictional safety,” or more simply put, the U.S. courts have a harder time seizing your assets to satisfy litigation against you. Whatever the reason, it’s a growing trend. One more offshore and growing trend: expatriation. As pointed out in a recent Forbes article, the rate of expatriation has soared 16% in 2011 over 2010. In many ways, the use of offshore accounts and some form of expatriation work together. One thing they do share is that neither is easy and both involve further layers of taxation (like the government would allow such an easy out). If it is something worth thinking about – say if there are foreign and golden sands in your retirement future - it’s worth planning now, especially in light of global politics.

Forbes (February 14, 2012) “Celebrity Leavings: Bidding Stars Adieu”

IRS Changes Its “Power Of Attorney” Rule for Spouses

The IRS makes little changes all the time and while not all such changes are life threatening (or estate plan threatening, as is more likely) the devil is often in the details. In the interest of tracking changes, then, it’s worth noting that the IRS is changing its filing practices for power of attorney. As pointed out here in the Journal of Accountancy, the IRS will no longer be accepting the old version of form 2848 and will only be accepting the new version that has been available since October 2011. What’s interesting is that while the old form allowed a husband and wife who filed a joint tax return to also jointly file for power of attorney, the new procedure doesn’t allow this. Now, such couples will have to file their power of attorney documents “separately,” even if they file for the same individual and even if they file taxes jointly. This won’t affect couples who have already filed, and only marks a turning point in a certain kind of filing; that is to say that it seems minor at best. Nevertheless, this change means that the IRS is working to acknowledge spouses separately (at least to a certain extent). For estate planners it has to mean the opposite; that couples will have to work ever more intently together as a partnership. Is this a trend that will continue in all aspects? Further, it may also be worth thinking about whether this is how you and your spouse plan (or ought to plan).

Reference: The Journal of Accountancy (February 6, 2012) “Couples who filed joint returns must now file separate powers of attorney”

“Stretch IRAs” in The Taxman’s Crosshairs

For all the bills, budget proposals, and political fury raging over Capitol Hill these days, it’s strange to think that one of the more far-reaching changes may come from a funding proposal for a transportation bill. That’s right, but it’s a big transportation bill. As Reuters reported here, the Senate Finance Committee has been considering action that would severely limit inherited IRA’s. A lot of people stash fairly large sums into their nest-egg accounts and work to keep that money safe. They do this rather than spend it because, in the worst case, tax-advantaged dollars would be nice in a pinch. In the best case it offers a fairly convenient way of giving excess assets to your heirs at a tax advantage. There are a number of rules in that regard that I’ve discussed here in the past, but in short, heirs generally have the choice between taking a lump sum or stretching out the withdrawal in a pattern similar to required minimum withdrawals (RMDs). The latter alternative, called a “stretch” IRA, is on the chopping block. The proposal would limit the life of such “stretch” IRAs by placing a five year limit on liquidations of such accounts. It’s “financing” to the Senate because that forces an awful lot of money to be taken out and taxed within a short time span. It’s financial security for the inheriting taxpayer, on the other hand, but this proposal would limit the ultimate potential of these accounts to accrue over time and then limit the leeway of the inheritor to have even withdrawals over a longer period. It might not go anywhere. Regardless, keep your eyes on this because it’s made its way to the table and therefore we might see it reappear into any number of budget discussions. Unfortunately, too, in order to make it work Congress would grandfather old IRAs into it, so that means an awful lot of inheritors have something to think about for the future. Read more in the original article, and others like it.

Reference: Reuters (February 14, 2012) “ ‘Stretch’ IRA tax shelter on the chopping block”

Obama Budget… And Estate Planning Consequences

As you are likely to have heard, President Obama unveiled his budget proposal not too long ago and it packs a wallop. We are living an era of fierce partisanship, and election season hasn’t exactly put a damper on that. As a result, the media and the critics have been quick to pounce on a number of points, to include accusations that the President’s proposal is mere election-season partisanship. That media din aside, it truly is an important proposal to understand, especially when you are planning your estate. Why? Because you can at least attempt to hedge your bets against political tides, if not also plan for what may become law. Fortunately, there are a few straightforward analyses of the proposal from an estate planning perspective, like this one from the Wills, Trusts & Estates Professor (and the second part, here). Here are a few topics to whet your appetite: Wealth Transfer Taxes: The proposed budget would permanently roll back the Estate, Gift, and Generation-Skipping Transfer (GST) taxes to their 2009 levels. The exemptions and rates would remain unified and “portability” between spouses of unused exemptions would also become permanent. However, that means going back to an exemption amount of $3.5 million and a taxation rate of 45%, thereby saving us from the possible default of falling to 2001 levels (a $1 million exemption at a 55% rate), but still representing a serious hike from the current exemptions and rate (at $5 million and 35%, respectively). Grantor Trusts: Grantor trusts, and grantor retained annuity trusts (GRATs) in particular, get some special attention. For GRATs, the proposal calls for longer “minimum” terms, with 10 years as the minimum. For those of you familiar with the device, you know this makes the prospect inherently more risky, since you have to “outlive” the term of the GRAT before transfer of the trust assets. There’s more to GRATs, but even with Grantor trusts in general the proposal is intended to beef up transfer taxes. Why? Because, as a class of trusts, they have been so useful for disseminating wealth. Those are two of the bigger – and to a certain extent, less nuanced topics – but it ought be clear that there are myriad changes in the works (also see the changes regarding “valuation”) and you are well-advised to stay tuned and keep informed. It is politics, of course, and not yet actual law. On the other hand, it can help you understand the evolving debate and your own estate plans. If these changes were to become law, the impact would expansive.

Reference: Wills, Trusts & Estates Prof Blog (February 15, 2012) “Obama’s Budget Proposal Part 1” and “Obama’s Budget Proposal Part 2”

Trusts – Better Robust Than Bust

Trusts are like pocket knives, in a way. Even a fairly basic pocket knife can make your life immensely easier, especially in a pinch, but a particularly well built and expansive pocket knife is an actual survival tool. When it comes to trusts, however, why settle for a basic trust when a robust trust can provide essential protection for your loved ones? While surfing my news sources I discovered yet another, renewed, lesson in the robust set of provisions that can be crafted into a single trust, here. In addition, this article illustrates the difficult space between divorce and the trust, and that’s one more area where a robust trust can make all the difference. Depending on how you’ve structured it, a trust can last for varying lengths of time and offer the beneficiary/child various ways of accessing those funds. You might use this to teach lessons, for example, but don’t forget that you’re not always planning for the budding child but also the future adult. Unfortunately, that future adult may have creditors who could attempt an attack on the trust funds. More likely, however, is that a divorce and an ex-spouse will come into play, perhaps also children and child-support. How the courts treat your trust depends on numerous factors best considered at the formation and worthy of your consideration at that time. For more ideas (and at least one promising court case) read the original article. In the end, as with so many planning devices, everything hinges entirely on you, your family, and your unique circumstances.

Reference: Financial Planning Magazine (February 1, 2012) “Trust, But Verify”

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Charitable Giving Delayed… Is Not Charitable Giving Denied

It’s pretty impressive to top the Chronicle of Philanthropy’s list of America’s 50 most generous donors, but it just defies the imagination to make the list 5 years after passing away. Still, that’s the story of 2011 and the late Ms. Margaret Cargill. This fact was swiftly picked up here, in a recent Forbes article, and as it turns out the reason for such successful giving can be traced back to some complicated estate planning and finance work. Cargill is a name that, depending upon your exposure to agribusiness, is either an utter unknown in the discussion of wealth (the media is infatuated with Mark Zuckerberg these days) or an utter no-brainer. And Cargill is synonymous with massive agribusiness, having topped the list of America’s Largest Private Companies for all but two of the last 24 years. The late Margaret Cargill was heir to the fortune. At her death, Ms. Cargill left all of her shares of Cargill stock to be split between two charity foundations, the Anne Ray Charitable Trust and her own Margaret A. Cargill Foundation. But don’t forget, Cargill is a private company, albeit a large one, and that makes the stock rather difficult to value and liquidate. The trust and the foundation sat idly by until a fortuitous moment when Cargill sold its shares in another company, a public company called the Mosaic Company, which gave them the opportunity to exchange private Cargill stock for public stock that could be liquidated to the tidy sum of $6 billion (that process hasn’t quite finished up, but they’re counting it for 2011 anyhow). It’s important to remember these kinds of limitations when it comes to assets in either estate planning or charitable giving. Ms. Cargill’s wealth was essentially locked up in private stock and so, despite the inefficiencies of doing so, that is what she gave when it came time to bequeath and give that wealth away to charity. Luckily, however, Ms. Cargill did her charity work through the powerful intermediaries of charitable trusts and foundations, which were in a position to make such gifts work. At least there’s next year for Paul Allen, George Soros, and Michael Bloomberg, the next three (living) names on the list of millionaire donors, but 2011 belongs to Ms. Cargill.

 Reference: Forbes (February 6, 2012) “This Year's Most Generous Billionaire Philanthropist Has Been Dead Since 2006”

ESTATE PLANNING

Biomedical science has made some incredible advances over the years and we can only expect that trend to continue and for science to yield ever more secrets about and tools over the human body. The law, however, has not made such advances – you’ll still find wills written as they were by 18th century scriveners and sprinkled with language like “party of the first part” and “witnesseth” – but then legal planning might just be forced to evolve. For your consideration: now there is such a thing as posthumous birth and post-mortem parenthood, as pointed out in this recent article as elsewhere. Roughly half a million cryopreserved embryos and untold amounts of genetic material (sperm and ovum donations) line medical facility coolers around the country, and it’s not a novelty. An increasing number of couples have made plans to preserve the possibility of a child, either because they were having fertility issues; the financial situation imposed caution while the biological clock imposed haste, or precisely out of fear that one would pass away before there was an opportunity. It also means that an increasing number of children are being produced to parents who are no longer living, and there remains the ever-increasing possibility for grandchildren of the same nature. How do parents, grandparents, and estate planners at any juncture understand the ramifications? Frankly it will require a moment to think about the possibility and to confer with your adult children to find out if it is a possibility that you might have grandchildren who were born after their parent passed away. In many ways this is a dilemma faced by a number of grandparents already if they are concerned about future generations, but unlike the normal situation there is no longer an intermediary adult child/parent through whom assets can pass. It’s a hard situation to define because the law hasn’t gotten that far. You might say that biomedical science can divorce the person from reproduction but estate law is intrinsically about the person, their property, choices, and family; how do these reconcile? It requires forethought on the part of the planner.

Reference: US News and World Report (January 25, 2012) “Posthumous Births: An Emerging Estate Challenge”

Estate Planning for Same-Sex Couples

Representative Barney Frank, of the Dodd-Frank bill to regulate the banking industry, is getting married and that’s as good a reason as any to remember just what difficulties lay ahead of him. I say difficulties because Rep. Frank is also among the most prominent members of the Gay community, so he knows all too well the difficulties and will likely remain a public example. Forbes and Deborah L. Jacobs were quick to the punch with this piece on Frank and the trials and tribulations of same-sex marriage, and it’s worth a look. The central point, as many readers will know, is that same-sex marriage exists in a rather awkward nexus of laws, one that requires a great deal of work. Where it exists, it exists with all the legal weight of marriage, and that means the various financial duties and liabilities. Of course, even where it does exist, in a very real way it also doesn’t. This is because the Defense of Marriage Act of 1996 still rules out same-sex marriage by definition. That statute is what rules the IRS – and it has to enforce those rules – which is especially important in the realm of estate planning, even where there aren’t tremendous assets to guard. That said, though, there still are legal moves to be made and rules to thoroughly understand. Perhaps with another nod to Frank, the Journal of Financial Planning recently offered a piece on the estate planning issues that affect non-married couples and same-sex marriages alike and it too is worth your consideration.

Reference: Forbes (January 26, 2012) “Tying the Knot Isn’t All Love and Roses: By Marrying, Barney Frank and His Partner Take on Legal Duties, Too”

                The Journal of Financial Planning (February, 2012) “Estate Planning for Unmarried Couples: What Financial Planners Need to Know”

Trusts for Heirs – Six Rules for the Road

It doesn’t take an experienced estate planner to say so, but “money is the root of all evil.” Unfortunately money bears with it the potential for good and bad ends alike. An experienced estate planner can help your loved ones lean to the positive when it comes to the inheritance you leave them. When it comes to trust money, and inheritances in general, you need to find a balance that will help your children become the people you know they can be. For some solid tips, check out this article and the 5 trust fund rules to help children. The balance these rules help to create, as so aptly put by Warren Buffet, give your children “enough to do anything, but not enough to do nothing.” So, let’s review a few of the rules. Carrots and Sticks. A trust need not just leave money; but it can be a tool. By building the appropriate provisions, you can offer certain tests and incentives to guide your heirs towards positive goals. You earned your money through hard work and, likewise, the trust can help foster similar lessons as you see fit. Timing. The funds in a trust can be made readily available or made available over time, with or without incentive goals. After all, you might not want to lock a child into set goals (you might not know enough about which goals are appropriate for them), but you might want to keep their access to the funds at a pace consistent with their age and maturity. Generally speaking, such an approach generally is a solid bet. It can give a sense of security, without instilling laziness, too. Money Isn’t Everything. In keeping with the above, consider using the conditions that surround the trust (i.e., your death) as an opportunity to provide your wisdom through your own letters or videotapes of success stories, so that the trust fund is opened as your words are received. That’s only three of the five rules. For the other two, read the original article. Regardless, the time to act is now. The issues surrounding how to create the trust are worth mulling over, but just as important is the planning that goes into creating the trust and the correct timing to maximize its value. You can make good use of this timing given the present generous state of our estate and gift tax law, along with the currently depressed asset values. Again, whether it’s thinking about the funds to put in the trust or the future of the inheritor, there’s no time like the present!

Reference: The Fiscal Times (September 20, 2011) “5 Trust Fund Rules That Can Really Help Children”

Family Limited Partnerships – The Mega-Wealth Transfer Tool For 2012?

There are a number of incredibly powerful estate planning tools available for leveraging intergenerational wealth transfers. Naturally, the appropriateness of a given tool hinges on the assets your family controls. For some, one of those tools worthy of serious consideration is the Family Limited Partnership (FLP). However, you must take care to get it right. As a testament to the power of the FLP and the costs of failing to use them correctly, Peter Reilly at Forbes has assembled the six developments of 2011. I commend them to your reading. When FLPs work, they work. Consider the cases of Natale Giustina and Anne Y. Petter. However, since we so rarely learn our best lessons from our successes, there are four developments to instruct us regarding what not to do: LINTON v. U.S, Axel Adler, Jorgensen v. Comm’r. 107 AFTR 2011,and Paul H. Liljestrand. The Forbes article gives a “moral of the story” of sorts regarding each case. In the end, the overall moral to the FLP - as we head into 2012 and ever closer to the unknown tax laws of 2013, and an election year no less - is that this may be your last year to fully leverage the wealth transfer power of the FLP. Making use of the FLP tool requires dedication to the process and setting it up now (rather than later) may guarantee your ability to make use of the current laws. Regardless, 2012 may be the year for a mega-gift.

Reference: Forbes (December 30, 2011) “6 Family Limited Partnership Developments In 2011”

Estate (Tax) Planning Perspectives

Don’t be lulled into a false sense of security when it comes to estate law. That’s the lesson from a recent article out of Investment News, a gentle reminder that the estate law trap may be closing soon. As many taxpayers are well aware, the current laws related to wealth transfers (i.e., the estate tax, the gift tax, and the generation-skipping transfer (GST) tax) were set just over a year ago in the final days of December. Those laws offered fairly generous policies, effective rates, and exemption amounts, generous enough to surprise even the experts and to calm the thousands of families just spared from the estate tax. According to a Trusts & Estates magazine survey of legal and financial advisors, over the past year tax avoidance dropped from the primary concern of many to the fourth place concern. The gentle reminder: The laws are only good until 2013 and, barring any sudden outburst of non-partisan productivity at Capitol Hill, are set to expire within a year’s time. Snap, the tax trap shuts! While tax avoidance need not be your primary concern when it comes to planning, it’s likely to be a very important factor for purely economic reasons and, since estate planning is about the long haul in the first place, you can’t base it on short-term laws. Of course, however you rate the importance of tax avoidance when it comes to estate planning; it is rarely the sole concern. This lull in the taxes also can help clarify your goals in other areas. If tax avoidance dropped from number 1 to number 4, what did people start thinking about? According to the survey, people began planning in earnest to avoid chaos and discord among beneficiaries, to avoid probate, and to protect children from mismanaging their inheritance.

Reference: Investment News (January 15, 2012) “Estate tax lull may trap wealthy”

“Family” Is Key To Family Business Success

Legacy companies – those incredible companies that have lasted for generations within a family, some 100 to 150 years, and continue to grow – occupy a special place in the American imagination and even more so in the hearts of entrepreneurs. In fact, for most thinking people, there is a special appreciation for the care and planning necessary to start a company and keep it going for a short time, never mind for entire generations. Indeed, Legacy companies are a rare breed. Many family companies will simply never get there. Fortunately, there is heartening news in a recent study that suggests that the duration of a family company is not quite so important, for all its branding glory, as the duration of the family itself. As related in Family Business Magazine, the Family Firm Institute – a global association of researchers and advisers – has conducted a three year study: the “FFI/Goodman Longevity Study,” completed in 2010. By surveying some 500 senior family-firm executives they discovered that just 10.6 percent of family enterprises owned just one business. The average is actually closer to 3.4 businesses, with 21.3 percent controlling five or more businesses, and an average of 6.1 companies over a family history. What does all of this mean? Simply put, single companies are not the measure of enterprise, especially not in a family. The family itself is the asset and the drive that moves matters forward across time, generations, and changing markets. As you plan for your business - and for your family - this may be an essential thought to bear in mind, and one to foster in others. As noted in the original article: Families with a trans-generational orientation view the legacy company broadly rather than narrowly. Though they lovingly tell their children tales of the original business model and the town where it first took root, those aspects are just part of the family story. They place their emphasis on the founder’s entrepreneurial spirit, attention to the marketplace, flexibility and sense of stewardship. This perspective raises the odds that the family will prosper as an economic unit over many generations, no matter what form its wealth-creating entities take.

Reference: Family Business (November 2011) “Family Business Longevity Examined in a New Light”

Your Portfolio And Your Estate Planning

Your portfolio can be thought of a machine, with many moving parts all working and buzzing away on their own. If you direct your own investments, however, your portfolio is more likely to resemble a well-tended garden that responds to the care and direction of you, the caretaker. What happens to the portfolio when you pass away? This is a very real question in need of an answer, especially when you are both the caretaker and the family financial mind. Just as with any other matter, how you want your finances to be tended is important information you ought to share with your loved ones sooner rather than later. Unfortunately, you can plan it out and hold family meetings on the subject but there is always the very real – and perhaps also, likely – possibility that your advice won’t be heeded. Spouses can forget or be persuaded otherwise, and adult children may think they know best and make the same mistakes as a novice. To make matters worse still, an expensive and mediocre advisor might get called in instead. This is the message of a recent Forbes article on the topic. If this matter is a concern for you, then there are ways to plan around it. For some, proper planning will entail establishing relations with an advisor and handing over some of the reins early. In terms of your portfolio and its role in your estate plans as a whole, you might consider a trust and a faithful trustee to do the work you know needs to be done. Clearly, your investments are important to you and your family, and so they also are important to your estate plan.

Reference: Forbes (January 5, 2012) “My Spouse Will Call You When I’m Dead”

Unique Assets Require Unique Planning For Risk Management

Not so fast: With unique assets, things aren't always straightforward. More specifically, owners of unique assets - such as family businesses, legacy real estate and valuable art, coin and other collections - need to consider specialized risk management. When you own a small business, and especially if you and your family are the sole owners of a not-so-small business, it’s important to remember that personal planning and financial planning are not separate activities. Unique assets call for comprehensive planning; whether legacy real estate or a valuable collection, but this is especially true if the asset is a business. Financial Planning recently ran a piece on this very issue and I thought it was worth passing along. According to the author, you likely practice some form of risk management in your business. In fact, you probably know all too well that things don’t always go along as planned, and, when Murphy’s Law strikes, there’s a great deal at stake. An even greater source of risk is personal when your business life, personal and family lives are one and the same. In short, you need a risk management plan for your business, yourself and your family in the form of comprehensive estate and succession planning. The original article has much more to say on the topic, with some stories that sound all too familiar.

Reference: Financial Planning (October 1, 2011) “To Collect and Protect”

Family Limited Partnerships – The Mega-Wealth Transfer Tool For 2012?

There are a number of incredibly powerful estate planning tools available for leveraging intergenerational wealth transfers. Naturally, the appropriateness of a given tool hinges on the assets your family controls. For some, one of those tools worthy of serious consideration is the Family Limited Partnership (FLP). However, you must take care to get it right. As a testament to the power of the FLP and the costs of failing to use them correctly, Peter Reilly at Forbes has assembled the six developments of 2011. I commend them to your reading. When FLPs work, they work. Consider the cases of Natale Giustina and Anne Y. Petter. However, since we so rarely learn our best lessons from our successes, there are four developments to instruct us regarding what not to do: LINTON v. U.S, Axel Adler, Jorgensen v. Comm’r. 107 AFTR 2011,and Paul H. Liljestrand. The Forbes article gives a “moral of the story” of sorts regarding each case. In the end, the overall moral to the FLP - as we head into 2012 and ever closer to the unknown tax laws of 2013, and an election year no less - is that this may be your last year to fully leverage the wealth transfer power of the FLP. Making use of the FLP tool requires dedication to the process and setting it up now (rather than later) may guarantee your ability to make use of the current laws. Regardless, 2012 may be the year for a mega-gift.

Reference: Forbes (December 30, 2011) “6 Family Limited Partnership Developments In 2011”

LLC Planning For Your Business and Family

When it comes to understanding your estate and planning for it, the key concept is ownership. How do you own your assets? How should you own your assets? How can you easily pass along this ownership to your loved ones? When it comes to business assets, whether in the context of ordinary day-to-day operations or as a business owner setting up your estate plan, ownership is still the name of the game. One question that arises, then, is whether your assets should be spread across separate or multiple LLCs. I came across a recent article in CPA Magazine and, according to the author, whether you should start splintering your assets into multiple LLC depends a great deal on what you hope to accomplish. No surprise there. However, to many it’s simply a question of liability and risk protection, but then there are other goals. Namely, splitting into multiple business entities will allow your company to move the ownership of assets around between family members or employees without necessarily dividing the business. This can be accomplished with some careful planning, corporate due diligence, and transactions like the sale-leaseback or, more in the vein of estate planning, the gift-leaseback. In that latter play, the business owner either leases or gifts the asset away and then immediately leases it back, thereby spreading ownership but retaining the operations of the company. Of course, not all business assets are well equipped for this practice, but others are perfectly positioned, especially those that deal in large equipment or vehicles. It’s not quite as simple in practice, and diligence is a necessity, but for many small and family owned businesses this fractured structure will allow a great deal of leeway. Whether it truly is right for you will take some thought and competent counsel at your side. In the end, it all comes down to your own unique goals, first for your business and second for your family.

Reference: CPA Magazine (2011) “How to Determine if a Separate LLC is Right for Your Assets”

“Family” Is Key To Family Business Success

Legacy companies – those incredible companies that have lasted for generations within a family, some 100 to 150 years, and continue to grow – occupy a special place in the American imagination and even more so in the hearts of entrepreneurs. In fact, for most thinking people, there is a special appreciation for the care and planning necessary to start a company and keep it going for a short time, never mind for entire generations. Indeed, Legacy companies are a rare breed. Many family companies will simply never get there. Fortunately, there is heartening news in a recent study that suggests that the duration of a family company is not quite so important, for all its branding glory, as the duration of the family itself. As related in Family Business Magazine, the Family Firm Institute – a global association of researchers and advisers – has conducted a three year study: the “FFI/Goodman Longevity Study,” completed in 2010. By surveying some 500 senior family-firm executives they discovered that just 10.6 percent of family enterprises owned just one business. The average is actually closer to 3.4 businesses, with 21.3 percent controlling five or more businesses, and an average of 6.1 companies over a family history. What does all of this mean? Simply put, single companies are not the measure of enterprise, especially not in a family. The family itself is the asset and the drive that moves matters forward across time, generations, and changing markets. As you plan for your business - and for your family - this may be an essential thought to bear in mind, and one to foster in others. As noted in the original article: Families with a trans-generational orientation view the legacy company broadly rather than narrowly. Though they lovingly tell their children tales of the original business model and the town where it first took root, those aspects are just part of the family story. They place their emphasis on the founder’s entrepreneurial spirit, attention to the marketplace, flexibility and sense of stewardship. This perspective raises the odds that the family will prosper as an economic unit over many generations, no matter what form its wealth-creating entities take.

Reference: Family Business (November 2011) “Family Business Longevity Examined in a New Light”

Keeping An Eye On Change – Your Estate Plan

The Ball has dropped and that means another year is upon us. Likely, you’ve made some New Year’s Resolutions. Hopefully, one of your resolutions is to update your estate plan. In reality, your estate plan is like a living thing, at least inasmuch as you are. As things change in your life – and the lives of your loved ones, so, too, do your goals to protect everyone you love and everything you have. As a rule of thumb, then, whenever your life changes in a significant way remember to review and maybe even change your plans. For a little additional reading on this topic, check out a recent Elder Law Answer’s article here. Unfortunately, there also are other reasons to review your plans unrelated to life changes. Yes, the ever changing legal environment requires careful monitoring. What may have worked before may not work now if the laws have changed. We are leaving a politically turbulent year and are plunging straight into one that may prove even more troubling. Indeed, by the end of the year we will have to rewrite the laws about the estate and gift taxes, amongst many other important provisions, and that may mean radical change. Make 2012 a year for awareness of your estate planning and how it reflects the course of your life and, what is more troublesome, with the course of law.

Reference: Elder Law Answers (updated December 12, 2011) “When Should You Update Your Estate Plan?”

LLC Planning For Your Business and Family

When it comes to understanding your estate and planning for it, the key concept is ownership. How do you own your assets? How should you own your assets? How can you easily pass along this ownership to your loved ones? When it comes to business assets, whether in the context of ordinary day-to-day operations or as a business owner setting up your estate plan, ownership is still the name of the game. One question that arises, then, is whether your assets should be spread across separate or multiple LLCs. I came across a recent article in CPA Magazine and, according to the author, whether you should start splintering your assets into multiple LLC depends a great deal on what you hope to accomplish. No surprise there. However, to many it’s simply a question of liability and risk protection, but then there are other goals. Namely, splitting into multiple business entities will allow your company to move the ownership of assets around between family members or employees without necessarily dividing the business. This can be accomplished with some careful planning, corporate due diligence, and transactions like the sale-leaseback or, more in the vein of estate planning, the gift-leaseback. In that latter play, the business owner either leases or gifts the asset away and then immediately leases it back, thereby spreading ownership but retaining the operations of the company. Of course, not all business assets are well equipped for this practice, but others are perfectly positioned, especially those that deal in large equipment or vehicles. It’s not quite as simple in practice, and diligence is a necessity, but for many small and family owned businesses this fractured structure will allow a great deal of leeway. Whether it truly is right for you will take some thought and competent counsel at your side. In the end, it all comes down to your own unique goals, first for your business and second for your family.

Reference: CPA Magazine (2011) “How to Determine if a Separate LLC is Right for Your Assets”

Protecting Your Precious Two-Legged Treasures

The Wall Street Journal typically focuses their editorial slant on financial assets, but an article last week actually touches on a much more important aspect of estate planning: Who will take care of your child(ren) if you die? It’s a tough question to face, but if ignored, it leaves the fate of an orphaned child entirely up to someone who usually is a stranger – a judge. If you are the parent – or grandparent – of a minor child, here are some tips that might get you (or your adult child) motivated to complete proper planning: Choose a guardian for now. Remember, you can change your mind and modify your will in the future. Think outside the box. The guardian you name does not have to be a blood relative. Remember that nobody’s perfect. You probably are not a “perfect” (i.e., flawless) choice to parent your own children – neither is anyone else. Consider a mixed approach. You may want to name a guardian for your children, someone who is great with the kids; and a guardian for the estate to handle the finances.

 Reference: The Wall Street Journal (December 12, 2011), “The Hard Question.”

Estate Planning New Year’s Resolutions

Time has almost expired for 2011. So, with the exception of a few last minute gifts and end-of-year financial transactions, that usually means relaxing with eggnog and, a bit later, champagne. Of course, it also means that 2012 is about to start ticking and that’s big news. 2012 is going to be a big year for planning. Why? Because the end of 2012 also means the end of the foreseeable future regarding a huge swath of estate planning issues. Everything we know now about the estate tax, the gift tax, and the other wealth transfer taxes is only set in the tax code until the end of 2012… at least until Congress finishes battling it out and makes a decision about what to do going forward. In the end, proper planning these days is about taking advantage of what we know about 2012, and hedging our bets about the future thereafter. So what do we know? Smart Money recently provided a brief run-down here: The estate tax is still set at a $5 million exemption with a 35% rate thereafter but, barring action, it will revert back to a $1 million exemption and a 55% rate! To be precise, the estate tax is actually indexed for inflation and that means it is effectively set at $5.12 million for 2012 The exemption amount for the gift tax is the same as it is for the lifetime gift-tax exemption at the inflation indexed $5.12 million, and in like fashion will snap back in 2013 without any action. This means that it may be the last year ever to take advantage of that unprecedented gifting amount. Finally, a new and very progressive provision will still be in place for 2012: “portability.” Portability means that a spouse may pass along their unused estate/gift tax exemption to their surviving spouse. That makes the effective total a married couple can pass on without tax a whopping $10 million, or $10.24 once indexed for inflation. These at least are the basic facts. It may well be that we will see a situation not unlike what occurred in 2010, when the Bush-era laws expired at congressional inaction. Remember that? Taxpayers tried to hold out until 2010 and then tried to hold onto 2010 laws (or lack thereof) until the first moments of 2011. Will we be holding onto these laws currently in play through 2012 and their generous exemptions, or is 2013 going to be even more advantageous… or treacherous for taxpayers?

Reference: Smart Money (December 13, 2011) “Estate Planning for 2012”

Inheritance Planning – “How” You Leave the Inheritance Defines Your Legacy

The inheritance you leave isn’t, in itself, your legacy. This is true even if you’re passing on the business you worked your entire life to create. That said, how you leave your inheritance just might become your legacy, so take great care. The decisions you make regarding what to leave behind and to whom, and how to divide your assets between your family members, are crucial. The Wall Street Journal recently tackled this subject. Do you split your assets evenly? To you divide them based on merit? Or on need? Do you think about the immediate generation or the grandchildren? What if there is no balance? These are very real questions that only you can answer. Well… that’s not quite right. In reality, there will be many people in your family with opinions and answers to offer. The challenge is to plan as you see fit, and for the reasons that you value, but in doing so you may also want to make these considerations and reasons clear to your family. When it comes to communicating your reasons for the how of your estate plan, you may consider capturing your wishes on video. On the other hand, and this is usually more helpful, consider having an open and ongoing dialogue with your family. The choices you make and the inheritances you leave are very important, but what is often just as important is the meaning that is understood in how you leave them.

Reference: The Wall Street Journal (December 12, 2011) “Heiring Grievances”

Estate Planning Challenges Await Unmarried Co-Habitants

Heads up, if you are an unmarried co-habitant (same-sex or opposite-sex)! Regardless whether you share a home, children, and assets you can be no more than well-acquainted strangers in the eyes of the legislature, the broker, and the tax-man. It’s a very real problem to be faced by an increasing amount of the population, given the rise of same-sex marriage and the decline of marriage (or re-marriage) in heterosexual couples. Indeed, from a federal point of view, same-sex marriage isn’t marriage at all. I happened upon an article I had missed out of the September issue of Financial Advisor Magazine and I thought it was worth sharing on this topic. It gives a general outline of the sorts of issues that unmarried cohabitants face when it comes to estate planning. In essence, the problem is that there are very basic laws on the books, laws that have organized our family finances for generations, but unmarried persons don’t benefit from them. In fact, until it is too late, they might not realize the extent to which they won’t benefit from them. Insurance problems abound, as well. And, when it comes to taking care of each other later in life or after death, it likely will be too late to find ways around the problem. Proper planning is always about charting a path for the future, and without certain legal designations you may be bushwhacking it. Better to clear the path for the future today.

Reference: Financial Advisor Magazine (September 1, 2011) “Commingled Finances”

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Study Shows Inherited Wealth Is Squandered

A new and unfortunate statistic confirms what we all intuitively suspected. According to research out of The Williams Group, 70% of all wealth transfers fail. As reported by Forbes here, the failure is not that the money doesn’t get passed down; it is that the family inheritance quickly dissolves in a flash of poor planning, bickering, and waste. How can that be? The research found that the successful 30% had all actively engaged in transition planning, in addition to simple inheritance planning. In a very real sense, all proper estate planning is about both planning for the inheritance and planning for the inheritors. After all, the inheritors are why you want to pass on your assets in the first place. Naturally, then, transition planning is all about bringing the inheritors into the fold and allowing them to learn how to run it. If you have a family business, then this is of the utmost importance. Why? Because for it to remain a “family business” the family has to know about the business, how to run it, and how to think about it. To be successful, hands-on training is required. But then again, aside from a family business asset, there is still a great deal of work to be done to help inheritors properly understand wealth and investments. Likewise, hands-on training in the family wealth, perhaps beginning in philanthropy, can make all the difference. In the end, to overcome the odds against the successful transfer of your family wealth, work together to form a plan, to understand it, and to put it into action.

Reference: Forbes (December 9, 2011) “Wealth Transfers: How To Reverse the 70% Failure Rate”

ALZHEIMER’S: BE PREPARED!

It’s important not to forget about Alzheimer’s. Medical research and advocacy are vital causes to uphold. Nevertheless, it is a disease that you and your loved ones might have to face directly, if you have not already. The reality of Alzheimer’s or dementia striking close to home, then some understanding and prior planning can help you in terms of the extensive economic toll and the unique legal ramifications. According to a recent Forbes article, Alzheimer’s is as widespread as it is demanding. Consider this: Another American citizen will develop Alzheimer’s every 69 seconds. The symptoms are oftentimes subtle, at least initially. Some estimate that more than 13 million Americans will have the disease by 2050 and run up as much as $1 trillion in costs. Because of the progressive nature of the disease, most of the costs and problems won’t develop until later on. Nevertheless, significant planning must take place at the time of diagnosis, if not anticipated beforehand. So, what is the scope of this “significant planning”? First, you will need to secure medical care, both for now and for the future. That means fundamental financial planning need to be addressed, to include securing government benefits like Medicare and Social Security Disability Insurance. Second, because of Alzheimer’s progressive cognitive degeneration, estate planning must occur early in the process to secure and protect family assets. Fundamentally, it’s important to understand that Alzheimer’s is not the same as other diseases. Through it all, competent counsel will be necessary to properly assess the needs and possibilities, as well as to ensure that everything is in place when needed most

Reference: Forbes (September 21, 2011) “September Marks World Alzheimer's Month as Advocates Push for Early Diagnosis and Health Care Planning”

Business Succession Planning Protocol



When someone starts talking about “business planning,” too often they just mean getting it off the ground or, if they have high aspirations, how to make it fly once airborne. Of course, “business planning” also is about keeping the business aloft through turbulence (e.g., bad markets) and even should the pilot-in-command become unable to fly (e.g., retirement, incapacity, or death). In the end, a proper business plan for any small business, but especially for a family business, always entails some form of succession planning. I just ran across a Forbes article that ran a few months ago, yet is forever timely on this subject. This article illustrates just how important coordinated succession planning and estate planning are in the context of a family-owned business. If you run such a businesses, whether it’s a small shop or a large company, oftentimes your personal wealth and the wealth of the family are tied up with the business itself and your ability to keep running it. [Not to mention any lines of credit your signature and personal assets may secure.] What happens when you fall ill or pass away? “That day” is not always a day you can see coming or you can delay. The biggest hurdle to any succession plan is planning for your own successor. Let’s face it, running a business is tough and jumping on board while the carousel is moving can be a dicey proposition. While the Forbes article has some specific advice, undoubtedly it will take measured thought and time to form and implement an effective succession plan. Then again, there also must be the contingency of deciding simply to sell the business. Either way, whether you ultimately continue the business or sell it, careful planning is a must. In many ways, it’s not just for your own sake or for the sake of your family that the business has to be protected with proper planning. A business means employment for many people and often wealth for a community. It’s timely news, then, to find that small businesses created 55,000 new jobs this past November. Oh, if no one has thanked you lately for being a business owner then by all means, then let me say “thank you.”



Reference: Forbes (October 12, 2011) “Identifying a Successor for Your Family-Owned Business”



EXECUTORS… BEWARE!

Choosing an executor can be a difficult task, and in no small part this is because it means finding someone you trust to do as you would do. Oftentimes it is gesture of trust and respect made to a friend or family member. Neither the estate planner nor the would-be executor ought to forget, however, that serving as executor can be a fairly difficult role to play. The Wall street Journal recently offered some practical insights and advice on the topic, noting that to be named executor is both “an honor… and a pain.” Simply put, the executor administers a decedent’s Last Will and Testament through probate, navigating the many twists and turns of that court process. Administration involves accounting for assets, paying bills, and distributing assets in accordance with the terms of the Last Will. The process typically takes time, too. It can mean up to several years for larger estates, and during that time the executor must keep up with the associated laws, tax code changes, and financial investments, or else intelligently delegate such responsibilities to professionals. It means that a “non-professional” can do the job, but perhaps not an amateur; you have to know your abilities and have confidence. To top it off, the compensation for being an executor is often meager, given the heavy workload, and is regulated by state laws. The biggest problem an executor will face, by and large, is a shifting relationship with the family. Money can make people antsy or even belligerent, even if the terms are clear in the Last Will, and that’s something an executor might have to bear. This is especially true of family members turned executors who may face soured relationships at family functions. Accordingly, that can make for some awkward moments around the Thanksgiving table. Practically speaking, to serve as an executor you must anticipate the challenges ahead of time, prepare for them, and remain organized. Indeed, organization is essential throughout the probate process, to include separating yourself into the two roles: executor and family member/friend. While planning your estate and settling on an executor, consider alerting your would-be executor your decision ahead of time. Doing so will allow them to prepare for the role, and perhaps even get directions from you personally. For more advice and anecdotes you can read the original article here, but to get a better idea of the challenges it is best to consult with your estate planning attorney for advice and counsel.

Reference: The Wall Street Journal (September 19, 2011) “Estate Executors: An Honor… and a Pain”

Kicking the Can – Washington’s Tax Tangle

The end of the year doesn’t just mean turkey, presents, and a bit of champagne; it also means end-of-year tax planning. That’s never fun, but this year even the Congressional Supercommittee failed to come to a decision. As a result, we now are into December, without a clear idea of the major tax-code issues we’ll face in the coming years. Actually, and quite unfortunately, this is the third consecutive year that December has brought us such confusion, and with it, a different congressional squabble each year. If you’re looking for assistance, there are many voices out there, like this piece from Forbes, “Yearend Tax Planning In Uncertain Times” and the Wall Street Journal weighs-in, too, with “The Tax Mess Deepens.” The steps you should take largely depend on your own financial position. Regardless, there are some key tax-code issues to bear in mind as they fight it out on Capital Hill. By year’s end, Congress has to come to a decision about a host of programs. For example, the two percent Social Security payroll tax holiday (one that has meant extra money for a great many families), not to mention fixing the Alternative Minimum Tax (AMT) so that millions of taxpayers don’t end up ensnared in it for 2012 (many of them solidly middle-class). To make matters even more “interesting,” these program decisions are on the plate for this month, this year. The real fun will be watching the battles to be waged next year (an election year, at that). The tax code has only been agreed upon until the end of next year, meaning that we have no idea what will happen and very little way to guess accurately. Uncertainty is the bane of all tax-planning, whether you are planning for your estate or for your medical budget, but isn’t “uncertainty” the reason we plan in the first place? Ah, isn’t it good to live in interesting times?

Reference: Forbes (November 30, 2011) “Yearend Tax Planning In Uncertain Times”

                  The Wall Street Journal (November 26, 2011) “The Tax Mess Deepens”

Pitfalls of A DIY Last Will and Testament

A DIY attitude can get you a lot of places, after all, its part and parcel to the entrepreneurial spirit. Of course, anyone who’s jury-rigged a project also knows that a DIY attitude doesn’t always translate into a successful end result. In the end, you either learn from your mistakes for the next project or else hire a professional to do it right the first time. What about your Last Will and Testament? What are the dangers of a “DIY Last Will”? Forbes recently ran an article on the possible pitfalls of a DIY will and the reasons to consider a professional. It can’t be denied that it is easier now than ever before to prepare your own Last Will and other estate planning documents. Welcome to the computer age. However, unlike other projects where you can learn a lesson for next time or, conversely, learn to hire the pro if things don’t turn out right, you won’t have a chance to “fix” your Last Will if it proves unsatisfactory. By the time your Last Will becomes truly important you’re no longer around to tweak, to re-align, or to call in the experts. For one thing, the assumptions you might have today (e.g., that a younger relative or child will outlive you, that an asset you own today will still be around tomorrow, and that all the details will fall into neatly into place, etc.) could end up falling short, as would your plans. Likewise, you might be fully confident regarding the meaning and intent of your “language,” but others may interpret a different meaning or even argue that you didn’t specify well enough (i.e., “legalese” can be a difficult thing to DIY). In the end, having a professional around to defend your choices and your intent in the face of unforeseen changes can help ensure that even the improvised bits of your estate plan will work out in the end. Indeed, there are a lot of reasons to consider consulting a professional when it comes to your Last Will (or for any legal matter), as the Forbes article explores in greater depth.

Reference: Forbes (November 18, 2011) “5 Reasons to Get Professional Help Writing Your Will”

Unique Assets Require Unique Planning For Risk Management

Owners of unique assets - such as family businesses, legacy real estate and valuable art, coin and other collections - need to consider specialized risk management. When you own a small business, and especially if you and your family are the sole owners of a not-so-small business, it’s important to remember that personal planning and financial planning are not separate activities. Unique assets call for comprehensive planning; whether legacy real estate or a valuable collection, but this is especially true if the asset is a business. Financial Planning recently ran a piece on this very issue and I thought it was worth passing along. According to the author, you likely practice some form of risk management in your business. In fact, you probably know all too well that things don’t always go along as planned, and, when Murphy’s Law strikes, there’s a great deal at stake. An even greater source of risk is personal when your business life, personal and family lives are one and the same. In short, you need a risk management plan for your business, yourself and your family in the form of comprehensive estate and succession planning. The original article has much more to say on the topic, with some stories that sound all too familiar.

Reference: Financial Planning (October 1, 2011) “To Collect and Protect”

Loans vs. Gifts – When It’s All in the Family

A loan is not a gift; if you’ve spoken with a bank representative or a particularly pennywise relative. We talk a lot about gifts when it comes to estate planning, but loans are just as important, as evident in a recent piece on the New Old Age Blog. In the article, a piece by Craig Reaves, past president of the National Academy of Elder Law Attorneys, a family had their mother’s estate plan in shambles. The culprit? A small notebook found under her bed. Apparently, there were many disagreements, but none so deep seated as those caused by the notebook. Why? Because it has a little ledger of the “loans” she had made to all the family members. Some of the family members hadn’t received any money, but at least one had received $20,000. Other family members had repaid in full and some had not so much as begun to do so. This case raises an important question: To what extent does the amount of an unpaid loan get added to the decedent’s estate, and does it simply come out of each family member’s share in proportion to their loans? One thing that’s clear, of course, is that the money is not gone and out of the estate. Why, it’s a loan and not a gift, after all. The second thing that’s clear is that the mother hadn’t thought about how these “loans” figured into her estate. That family aside, it should be noted that any loan evidenced by a signed promissory note can become an asset in the estate. And, even if it’s a family loan, the promissory note has to be repaid. An estate planner can ease this problem with a bit of foresight. For example, the loan can be forgiven, meaning they relinquish any expectation of being repaid. For that matter, too, the loan can be “offset” and thereby deducted from any assets made available through inheritance. While there are a number of things that can be done, forgetting the loan is not one of them. After all, the IRS is waiting just within earshot and has a trained eye to recognize the difference between a loan and a gift, as well as the additional tax burdens it can assign if it spots a gift or a poorly executed loan.

Reference: The New York Times – The New Old Age Blog (November 15, 2011) “Ask the Elder Law Attorney: Family Loans”

Trusts for Heirs – Six Rules for the Road

It doesn’t take an experienced estate planner to say so, but “money is the root of all evil.” Unfortunately money bears with it the potential for good and bad ends alike. An experienced estate planner can help your loved ones lean to the positive when it comes to the inheritance you leave them. When it comes to trust money, and inheritances in general, you need to find a balance that will help your children become the people you know they can be. For some solid tips, check out this article and the 5 trust fund rules to help children. The balance these rules help to create, as so aptly put by Warren Buffet, give your children “enough to do anything, but not enough to do nothing.” So, let’s review a few of the rules. Carrots and Sticks. A trust need not just leave money; but it can be a tool. By building the appropriate provisions, you can offer certain tests and incentives to guide your heirs towards positive goals. You earned your money through hard work and, likewise, the trust can help foster similar lessons as you see fit. Timing. The funds in a trust can be made readily available or made available over time, with or without incentive goals. After all, you might not want to lock a child into set goals (you might not know enough about which goals are appropriate for them), but you might want to keep their access to the funds at a pace consistent with their age and maturity. Generally speaking, such an approach generally is a solid bet. It can give a sense of security, without instilling laziness, too. Money Isn’t Everything. In keeping with the above, consider using the conditions that surround the trust (i.e., your death) as an opportunity to provide your wisdom through your own letters or videotapes of success stories, so that the trust fund is opened as your words are received. That’s only three of the five rules. For the other two, read the original article. Regardless, the time to act is now. The issues surrounding how to create the trust are worth mulling over, but just as important is the planning that goes into creating the trust and the correct timing to maximize its value. You can make good use of this timing given the present generous state of our estate and gift tax law, along with the currently depressed asset values. Again, whether it’s thinking about the funds to put in the trust or the future of the inheritor, there’s no time like the present!

Reference: The Fiscal Times (September 20, 2011) “5 Trust Fund Rules That Can Really Help Children”

Keeping The Family Vacation Home In The Family

For those of you with still-fresh memories of this past Labor Day weekend out at the family cottage, now may be the time to take action to ensure that future Labor Days and summer outings will continue to be enjoyed by your family long after you are gone. In other words, ensure the future of the family cottage and the peace and domestic tranquility of your family through proper estate planning. So, how do you do that? The Wall Street Journal Online recently touched on the topic. The best way to leave an inheritance that includes a family vacation home depends on who will be inheriting it. That is the first essential decision. For example, are you leaving it to one family member or to several? Who will be interested in the home (or more interested in your portfolio)? Who will be able to use the home? The adult child living in California might not be able to enjoy the Cape Cod cottage. This is especially true if they have their own vacation property, or if they wouldn’t be able to afford the upkeep, insurance and taxes. If you’ve settled on a single person to inherit the family vacation home, then it is relatively easy: you can either gift it during your lifetime (before 2013 would be prudent), or leave it through your Last Will and Testament or Revocable Living Trust. If you are leaving it to multiple beneficiaries, like an entire generation of your family, then perhaps consider establishing a specific arrangement for such ownership. For example, many families find the Limited Liability Company (LLC) or various forms of trusts to be practical tools. If all of the heirs are adults, then an LLC might be a better bet as it allows members a more equal say in what to do, while still providing a framework for decisions or an organizational structure through the use of a solid operating agreement. Of course, you could take it a step further and form a trust that owns an LLC that owns the home, or even specific trusts like a Qualified Personal Residence Trust (QPRT.). On the other hand, if there are young children in the family, then a trust with a long-term duration might be better. Why? Because it allows parents to pass on the vacation home to their children while still appointing an adult in charge as trustee. In addition, properly drafted with “spendthrift provisions,” such trusts can protect the family home from the potential divorces, lawsuits and bankruptcies of the heirs. For many, a family vacation cottage is a place of many happy memories shared over a long family history. As a result, it just has to stay in the family. Once you start down the path to make that happen, however, don’t wander too far without appropriate legal counsel. You will need experienced help to navigate the details, figure out what’s best for your unique situation, and eventually put ink to paper.

Reference: The Wall Street Journal Online (September 4, 2011) “Create A Plan To Pass On The Family Cottage

Family Feuds – When Estate Property Grows Legs

Sometimes, planning for the money and liquid assets in your estate can actually be the easiest part. While that does mean dealing with myriad legal codes and taxes, nevertheless, liquid assets are conceptual and easily divided. What happens when the most important assets are tangible? Unfortunately, tangible assets usually are the most important to your family and, as Deborah Jacobs recently pointed out, are easily the ones to tear apart a family. The case she discusses is how a plastic bowl tore three grandchildren apart. Of course, this particular bowl wasn’t just any bowl… it was the bowl she had always used to feed them breakfast when they stayed over as children. Family attachments are really hard to quantify, as there’s no science to it, no calculator to cheat by, and not even the IRS issues guidelines. When it is all said and done, it’s the family attachments you’re planning for in the first place. Therefore, in order to plan properly, first you need to understand your family. It could be a small plastic bowl, or it could be something even more complicated like a painting, a gun collection, or the family cottage. Proper planning ought to include discussing these issues with your family and then making. Communication is key. Remember: The IRS may define an “asset” entirely differently from how you and your family would define it.

Reference: Forbes (October 24, 2011) “Little Things Can Cause Big Fights When A Relative Dies”

Myths Vs. Reality – Appointing Guardians For Minors

Estate Planning can be a pretty off-putting subject for many people. And, since the subject matter is one’s own death, it’s easy to understand why. Sometimes, however, it may be easier to just think about estate planning in terms of money or assets. Nevertheless, the issues that are worth planning for are often more immediate. For example, every parent has a good reason to nail down the issue of guardianship for their minor children. To that end, Jacoba Urist at the Huffington Post recently put together the four dangerous myths about choosing a guardian: 1. The myth of the perfect match. What would the perfect match look like? Someone just like you, presumably (and you personally, in a perfect world.) Nevertheless, it’s a convenient myth for putting off any decision and getting any planning done. Remember: You can always name a new guardian as your child grows or as circumstances change. 2. The myth that someone will step up and solve the issue anyway. While it may be true that your family members will swoop in, that doesn’t mean they will all agree on who ought to do so (or that the family members you would want to will even be able). It can mean a family fight and, in that case, the one who actually chooses is the judge. 3. The myth that you can just leave a letter hidden somewhere. Many parents write a letter asking a loved one to become guardian and then tuck it away so that it can be found if the need should arise. Although that’s better than nothing, it’s not legally binding. 4. The myth that you don’t have to ask. If you don’t ask you’ll never know how your guardian feels about your decision. Deciding this issue in advance can help your family and your children in a difficult time. Take a look at the original article here, and maybe consider if you’re holding yourself back from making a decision. Often, proper planning begins in one place and spreads out into an entire plan, so perhaps this is how you come to find your plans and your priorities.

Reference:  The Huffington Post (October 24, 2011) “4 Dangerous Myths About Choosing a Guardian”

Life Insurance Deconstructed for the Wary

Most of us don’t much like insurance of any type. If nothing else, it means confronting and directly dealing with risk. And life insurance can be an especially touchy subject, since it means dealing with the topic of death (usually our own). Still, life insurance is neither as scary nor as difficult as we may think. Fortunately, the Wall Street Journal recently provided a basic rundown for the wary on how to go about life insurance. Life insurance can be a powerful estate planning tool, because it is waiting to provide a potentially massive injection of liquidity into your estate at your time of death. It can mean the necessary income to provide support for your family, as well as pay off any debts, taxes and expenses you may leave behind. In addition, cash is king when it comes to paying estate taxes. This can be critical when your estate value is tilted toward illiquid assets like a family business interest. Still, the type and amount of life insurance that is right for you will depend on your own unique circumstances and the purpose of the insurance. Before you begin wading into the life insurance analysis process, take a look at the Journal’s rundown of the basics. Then, make sure you get the advice of an insurance professional to help you.

Reference: The Wall Street Journal (October 15, 2011) “Need to Know: Life Insurance 101”

QTIPs: May Cause Problems Unrelated To Your Ears

Blended families are a fairly normal part of modern life, with both divorces and remarriages becoming quite common. That said, this fact of life accounts for a good portion of the family baggage of modern living and a lion’s share of the estate planning problems. Blended families have some extra concerns and extra problems, especially when each spouse hopes to take care of their own children from a previous marriage. A recent Forbes article explores a particularly strange probate case to prove the point. Word to the wise: Watch out for QTIPs (and not just because your doctor is worried you will hurt your ear). A QTIP is shorthand for “Qualified Terminable Interest Property.” It is a way to hold property for the surviving spouse that qualifies for the unlimited marital deduction without being an outright bequest. Of course, a spouse can always give his or her assets outright to their surviving spouse without incurring taxation. In the case of an outright bequest the surviving spouse gets to deal with the outright assets as his or her own property (because it is). But what if you ultimately wanted to give the property to your children from a previous marriage, but you wanted to allow your spouse to have it until their own death? That’s the planning strategy that lead to the contested probate court case of In the Matter of The Estate of Sydney Stark, as described by Forbes. Sydney Stark used the QTIP to leave an apartment to his wife, Sylvia, and then ultimately to his children from a previous marriage. The problem with the QTIP is that the assets in the QTIP have to count as being owned within the surviving spouse’s estate to qualify for the marital deduction. As a result, it becomes more likely that the surviving spouse’s estate may incur the estate tax. Sylvia Stark’s estate did. In the case of a blended family like this one, with Sylvia leaving her assets to her own child of a previous marriage, this strategy meant Sylvia left an estate tax bill to her own child without the additional assets to pay the IRS. Why? The QTIP assets passed fully to the children of Sydney Stark. Naturally, Sylvia’s own child cried foul. You can read more about QTIPs and the unfortunate tale of this dystopian Brady Bunch in the original article. In the end, this case provides yet another lesson about matters for careful consideration when planning your estate, especially if you and your spouse have complex and potentially competing interests.

Reference: Forbes (October 14, 2011) “Blended Family Not Like The Brady Bunch – At Least Not in Probate Court”

Valuation Discount Strategies

Oftentimes, proper planning is about the ability to offer proper proof. That’s my primary take-away lesson from the Ninth Circuit Court of Appeals and the case of Estate of Petter v. Commissioner, as assessed in a recent Forbes article. As many of you appreciate, when giving away assets it is important to get the most bang for your buck and that can be achieved by generating “discounts.” This was the plan of Ms. Petter when she transferred $22 million of UPS stock to a limited liability company (LLC) and then gave or sold units of the LLC to her heirs. Note: An LLC can help diffuse ownership and effectively transform the taxable value of the underlying assets. This transformation of value hinges on the “marketability” of the interests held by the LLC members and their degree of “control” over the assets. As a result, the lack of marketability and control makes the interests held by the LLC members less valuable. Accordingly, such interests are “worth less” than the face value of the underlying assets and their value inside the LLC may be “discounted.” Such was the case with the LLC established by Ms. Petter. Ms. Petter claimed a whopping 51% discount on the underlying assets of the LLC. Unfortunately, she was unable to support this discounted value and the IRS rejected that figure and approved a far more conservative discount of 36%. Not to be defeated, Ms. Petter tried another approach. She built a provision into her planning that were there a valuation dispute with the IRS, then any discounted percentage denied would automatically go to her chosen charity… instead of to her estate or an heir. Why? She wanted to avoid any gift or estate taxes. Naturally, the IRS challenged this fall back position, but the Ninth Circuit upheld it.

Reference: Forbes (September 30, 2011) “Fancy Appraisals Can Defeat IRS”

Why Have A “Crummey” Trust?

When you’re looking to pass on significant assets, a trust is a powerful tool. Quality is important. While a “crummy” trust won’t cut it, a “Crummey” trust just might do the trick. Poor puns like this and more abound in a recent Forbes article about “Crummey trusts” I thought you might enjoy. A “Crummey trust” – so named for the case of Crummey v. Commissioner and the good Reverend Crummey himself – is a way of legally avoiding estate taxes while passing on wealth to heirs by combining an irrevocable trust and a life insurance policy. To create a Crummey Trust, you first create the trust and then have it buy a life insurance policy on your life. In the end, when you pass away, the beneficiaries of the trust inherit the proceeds from the life insurance policy without that money ever “coming in contact” with your taxable estate. This strategy isn’t without its challenges, however. One challenge is the risk of incurring gift taxes. However, as long as annual premiums are below the gift tax threshold of $13,000 per person (and you don’t gift them anything else during the year in excess of that amount in combined gifts) you can stay in the clear. The biggest problem usually tends to lie in the practice of sending out annual letters – “Crummey letters’ – since the beneficiaries must be notified within very specific windows during which they may elect to withdraw the gifted funds. Failure on the part of the trustee to send out the letters can raise questions with the IRS and may upset the apple cart, so to speak, when seeking to qualify the annual gifts as falling within the annual gift exclusion. For this reason, many families find the safest approach is to engage a professional trustee to handle these notice letters and other administrative duties to ensure compliance.

Reference: Forbes (October 9, 2011) “With Trusts, ‘Crummey’ Is Good”

Dynasty Trusts Offer a Unique Estate Planning Opportunity

There are many strategies – or tools – available to the savvy estate planner to help protect and preserve the fruits of a lifetime of accomplishment, and pass them along to future generations. Bloomberg recently wrote about a specific type of trust known as the Dynasty Trust – a little known strategy that you might have thought was only suitable for the ultra-rich. However, in today’s tax environment, Dynasty Trusts are gaining popularity as a valid strategy for those of more modest means. Trusts can be powerful tools for overcoming transfer taxes to include the estate tax, the gift tax, and the generation-skipping transfer tax – but there are always limitations. A dynasty trust is used to pass money on to multiple generations of descendants while paying as little in taxes as possible. The trusts have no expiration date and there are no required minimum distributions, meaning their assets may grow for an unlimited number of future generations. This year represents a pretty good opportunity to set one up too, thanks in no small part to the generous gift tax exemptions in effect until the end of 2012. Currently the exemption is set at $5 million, and effectively $10 for married couples, which is a nice hefty amount to begin a trust. Since the trusts last indefinitely and avoid taxes, the money can simply accumulate over the remainder of your lifetime, offering a huge advantage over other transfer methods. Bloomberg offers some math: A dynasty trust funded with $10 million from a couple today could be worth as much as $184 million in 50 years, assuming no intergenerational transfer taxes and a 6 percent annual return, and before subtracting any federal income or capital-gains taxes paid on the trust’s investment returns. By comparison, assets not placed in a trust and taxed twice as an estate in that period could be worth $39 million at the end of 50 years, assuming a $1 million exemption and 55 percent top rate. Because of their unique nature, dynasty trusts can’t be set up in all states – most states have restrictions on the life of a trust – so setting one up might mean doing so across state lines. Still, if you are looking to set up this kind of family wealth, or transfer a large.

Reference:  Bloomberg (July 28, 2011) “Dynasty Trusts Let U.S. Wealthy Duck Estate, Gift Taxes Forever”

ESTATE PLANNING / FAMILY FEUDS

The sad tales of families squabbling over an inheritance (or disinheritance) oftentimes make public even the most intensively private of lives. Such is the case with John Steinbeck, and his family’s prolonged fight over a small piece of property he used to call his “little fishing place.” It’s just a little house at the end of a point jutting into a cove of Noyac Bay in Sag Harbor, NY. It’s just a writer’s shack, really, where Steinbeck wrote “Travels with Charley,” and other works. While alive, he worked to keep the place private. He even hand-stenciled a sign warning, “Trespassers Will Be Eaten.” But, his heirs have taken the little house and made a public spectacle of it. You can read the sad story online at the New York Times. Of course, the Steinbeck heirs are not unique. Intra-family feuds are rather common these days following the death of a family member. That fact was confirmed in a survey conducted by the AARP/Scudder Investment Program of Americans age 50 and over. According to the survey, 20 percent of the respondents cited problems among surviving family members due to their inheritance, or lack thereof. More often than not, these feuds are over tangible personal property and family business interests. So, how do you protect your legacy and preserve family harmony? Unfortunately, the truth is that even the best estate planning cannot prevent every instance of unreasonable behavior among heirs. But there are things you can do now, with proper legal planning and good communication, to avoid problems later on.

FAMILY ESTATE PLANNING / FINANCIAL TOOLS FOR YOUNG PEOPLE

There is an old saying that can be painfully true, “You are only as happy as your unhappiest child.” One of the most common laments I hear from parents of adult children is that, for whatever reasons, their offspring seem to (repeatedly) need financial assistance … not because of illness of hardship, but simply through poor decision-making. It’s hard to talk-turkey with your adult children, and they seldom listen anyway. But, maybe they will listen to advice from a third-party, especially if that advice is delivered in a manner with which they are most comfortable – fresh, fun and online. American Express has launched Currency (www.getcurrency.com) to provide just that type of advice. They offer online “courses,” and even a new iPhone app, Social Currency for social networking. A recent hot topic: Currency 101: What is “Spending”? Some of other course topics include Buying Your First Home, Get a Handle on Your Taxes, and Managing Student Loans.

CRTs – More Benefits Of Giving And Receiving

Sometimes, giving an asset to charity doesn’t mean you can no longer enjoy benefits from it. Yes, it’s true. And, the magical legal tool that affords this wonder is the “Charitable Remainder Trust (CRT).” Recently, Reuters cast another spotlight on this powerful tool with an eye to the future. A CRT, as many of you may be aware, is a specific type of irrevocable trust set up to give an asset away to charity at the time of death, but to allow you to receive income from the asset for your lifetime, another’s lifetime or even a period of years. The CRT allows you to do good, receive an income, and avoid some hefty taxes. As Reuter’s puts it: “In essence, the trust takes advantage of the tax-exempt status of the nonprofit it benefits.” The important thing about the CRT these days, at least as far as taxes are concerned, is the future. The returns on a CRT are similar to any investment in accordance with the market. And, with the market as it is, that’s not great. It follows then that the tax reduction might not be that great either. But many taxpayers are concerned about increased taxation in the future. President Obama already has called for further taxation with the new idea of the so-called Buffet Rule, not to mention the closing of Bush-era tax cuts and stricter estate taxes. For as many in Congress as are calling for tax reduction there are those calling for tax increases… and the super-committee might be turning the latter direction. If the Bush-era tax cuts expire, and in particular if the capital gains tax rises back up to 24% instead of 15%, the CRT will be quite the advantageous machine. In the end, a CRT is an irrevocable trust. It can’t be undone once it is created. More background and insights can be gleaned in the original article. Whether a CRT is right for you and your circumstances will require competent legal counsel. As always, look before you leap.

Reference: Reuters (Sepetember 30, 2011) “Charitable remainder trusts: how the wealthy give it away and get it back”

Charitable Giving – Ways And Means

Giving to charity over your lifetime can be powerful. Not only can you make an impact on the charities you care about, but you enjoy personal satisfaction and even charitable deductions. Still, since the tax laws are in a state of flux (and we can only expect them to become more uncertain as the politics in Washington continues to boil over), making substantial lifetime gifts may become more dicey, especially given the fragile economy. As a result, giving at your death may be more attractive and practical. As the Wall Street Journal points out, there is always the option of leaving a bequest. One way to make a postmortem bequest is through your Last Will and Testament. While you lose the lifetime charitable deduction, the bequeathed amount is deducted from your estate value. Depending on the size of your estate, that deduction can be significant. It’s true that the estate tax exemption amount is (for most Americans) a safe $5 million, but there’s no guarantee it will stay there (as with the gift tax laws). Nevertheless, a bequest also is a more malleable means to benefit charity, since you can think about your decision over a longer period and can give more types of assets. A classic example is the ability to name a charity as beneficiary to your IRA without the income tax burden of required minimum distributions. Remember: Charities do not have to pay income taxes on your IRA like your heirs would. Indeed, there are many powerful tools to use when making a bequest, depending on the type of asset. Be sure to read the original Wall Street Journal article for more ideas.

Reference: The Wall Street Journal (October 1, 2011) “The Quest for the Right Bequest”

ESTATE PLANNING

The Tax Relief Act of 2010, passed in December, opens a number of new estate planning opportunities – some of which may be short-lived, since the law expires at the end of 2012. Of course, with the change in the law comes the possibility that your current estate planning may need some updates, both to reflect the new rules and perhaps to take advantage of opportunities that were not previously available to you. In their article The New Rules of Estate Planning, Smart Money focused on a few of the most common issues to consider. • Gifting as a Means of Asset Protection. The new law raises the gift tax exemption from $1 million to $5 million, which means you can give away up to $5 million of your estate without paying gift taxes. Under the previous law, sheltering significant holdings from potential creditors required sophisticated planning, legal entities and valuation discounts. Now, especially with the market-induced valuation discounts, transferring significant holdings is much less complex, and you can much more easily shift up to $5 million to someone else. If you have asset protection concerns, this may be a strategy to discuss with your estate attorney. • Formula Clauses. Certain wording in older estate planning documents could have unintended consequences in today’s generous tax-exemption environment. For example, it was not uncommon for documents to call for “an amount up to the federal estate tax exemption” to be transferred to a trust for the benefit of your children, with the balance passing on to your spouse. This, when the exemption amount was $675,000, may have made sense. But with a $5 million exemption, the same language could easily result in unintentionally disinheriting your spouse. • Dynasty Trusts. The new rules also make certain types of trusts more attractive, like the Dynasty Trust, which can shelter assets from estate taxes for generations. More than half the states and the District of Columbia now allow such trusts, and there is talk that these types of trusts could be curtailed in the future. So now may be a good time to explore the possibility. • State Taxes. Sixteen states and the District of Columbia have decoupled from the federal estate tax guidelines and enacted their own estate tax laws. And, given the revenue-fix many states are in, who knows what will happen next? To help avoid a future state tax bite, an aggressive gifting strategy now might be a good strategy to consider. You can learn more about estate and gift taxes on the Estate Tax Practice Center on our website. And, be sure to sign up for our free monthly e-newsletter to stay abreast of changes that could affect you, your family and your estate plan.

Reference:  Smart Money (July 14, 2011) “The New Rules of Estate Planning”

ESTATE PLANNING / BENEFICIARY DESIGNATIONS

What is the quickest way to un-do an otherwise carefully planned estate? Open a bank account, brokerage or retirement account. Why? Because the beneficiary designations on these accounts override your will. Yes, it’s true – the beneficiary designation is the estate planning trump card. And many an estate plan has come undone because of carelessly named beneficiaries. The Wall Street Journal last week issued a warning in an article entitled Beware the Beneficiary Form. “People don’t realize the importance of this,” says Martin Shenkman, an estate planning lawyer in Paramus, NJ. A carelessly named beneficiary on a financial account can cause a loved one to be disinherited, a disabled child to lose government benefits, and heirs to be slapped with a big tax bill. The Journal also offers a few tips to protect you from this type of estate plan destruction, to include: Know what kinds of accounts have beneficiary designations. Did you know that U.S. Savings bonds have a beneficiary form? Other accounts for which you may have named a beneficiary include retirement accounts, life insurance policies, bank accounts, certificates of deposit, stocks, bonds and mutual funds. Review your beneficiary designations regularly and certainly after any life-changing event such as a marriage, divorce, birth or death of a loved one. Also, job-changers and retirees take note: Beneficiary designations on retirement plans don’t carry over when you roll a 401(k) to a new employer’s plan or to an IRA, or when you convert a regular IRA to a Roth IRA. Learn more about beneficiary designations in the August 2010 issue of our newsletter, aptly titled Beneficiary Designations.

Reference:  The Wall Street Journal (July 6, 2011) “Beware the Beneficiary Form”

ESTATE PLANNING / ESTATE TAXES

With the new estate tax laws in place, including the $5 million exemption ($10 million for a married couple), many people are enjoying a false sense of security about any potential estate tax liability. First, as Forbes recently pointed out, keep in mind this new generous law expires at the end of 2012 … and it’s anyone’s guess what will happen next. In the meantime, also remember that if your state imposes a state estate or inheritance tax, the likely outcome is that combined federal and state taxes could pack a surprising punch for those above the $5 million exemption amount. The federal estate tax rate runs 35 percent, but depending on where you live, combined federal and state tax rates could run as high as 48 percent. Forbes has a handy chart here for you to review the impact of combined state and federal estate taxes by state. You can learn more about estate taxes on the Estate Tax Practice Center on our website. Also, stay informed about changes in the law that could affect you and your estate planning by subscribing to our free monthly estate planning e-newsletter.

Reference: Forbes – Robert W. Wood (July 7, 2011) “Will Ohio Estate Tax Repeal Trigger More?”

Estate Planning For Firearms

Proper estate planning for your assets depends, in large part, on what those assets are. Common assets in an estate include the obvious, such as real estate, collections, cash, brokerage accounts, retirement funds and stock portfolios. However, there can be less obvious assets requiring special attention. A recent article through Forbes points this out with a fairly common example that is all too easily forgotten: the special estate planning problem of guns. Guns are as natural to own for some as any other asset is. Indeed, to some, their firearms collection is really more akin to an art collection. That noted, under the law, passing down your firearms to your heirs may trigger a different set of laws than passing down your tools set or the painting in your hearth room. Firearms are highly regulated at both the federal and state levels. Consequently, the laws and regulations need to be followed, particularly if the firearms will be crossing state lines. Passing down firearms to heirs can take time and require the approval of several parties, such as the chief law enforcement officer for the respective jurisdictions. Enter the “gun trust.” This can be a simple and powerful tool to pass down your firearms. Practically speaking, it is a special purpose revocable living trust. At its formation, the owner of the trust is both trustee and beneficiary. At the owner’s death, the trust property (i.e., firearms) is passed down to the lifetime and remainder beneficiaries by the successor trustees. Of course, trust or not, there are some hard and fast rules imposed by the National Firearms Act and all parties have to comply with them (or risk incurring serious fines and possibly even forfeiture of the right to bear arms). Your firearms (and other atypical estate assets), may hold a unique status under federal and state laws. Make sure you comply with any law governing their transfer, as part of your estate planning.

Reference: Forbes (September 22, 2011) “Gun Collections Pose Special Estate Problems”

Avoiding Bad (Spendthrift) Heir Days

Estate planning is about taking care of your family and loved ones. But what if you have concerns about how your loved ones will use those assets? You spent a lifetime earning what you have through hard work and thrift. So why pass it along only to be squandered? Would you hand over the car keys to a teen who hasn’t proven he or she can drive? As any automobile insurance agent can attest, we spend a good deal of energy (and resources) ensuring that doesn’t happen. I’ve written on this topic before (see this earlier article I reviewed in the New York Times), but The Wall Street Journal recently provided more suggestions worthy of your consideration. An elaborate but effective way of ensuring the financial literacy of your heirs and the security of your family assets can be the formation of a family investment company. Here’s how it works: You establish the company, put your heirs on the board, and have them hold discussions with your financial advisors. Throughout the process, you can look on and ensure that correct decisions are being made. While you may elect to hold back and observe the progress of your heirs, the process may surprise you and exceed your expectations… or it simply may justify your concerns. In any event, the family investment company can make for a great learning experience. For some families, that may entail paying for academic financial lessons, as well as providing a time for inter-generational conversations about the family assets. Regardless, to be most beneficial, the process should be started earlier rather than later and provide for ongoing involvement. The main tool for teaching financial skills and inheritance training usually will be the trust. There are a great many tools at your disposal when you begin a trust and you can tailor them to include incentives or benchmarks to protect the assets and the heirs. Of course, the trust also can be powerful, since it brings the trustees into the mix. Another suggestion to consider is appointing multiple trustees. For example, you may appoint one trustee to manage the purse-strings and another to oversee the heirs and gauge their progress. Depending on how you arrange the trust, the trustees can become powerful gatekeepers to protect the assets and even motivate the heirs. As a result, it is often advisable that you consider appointing someone far removed to be in charge of trust finances, with a family friend to interact with the heirs. In many instances, it is not advisable to appoint a family member as trustee, since this may create intra-family strife. There are many options to consider and these are just a few. What you do will depend on your assets, your heirs, and the specific concerns you hope to address. It is best to discuss your concerns with appropriate legal counsel who understands your situation and can help you determine the best course of action.

Reference: The Wall Street Journal (September 19, 2011) “When You’re Child’s A Spendthrift”

JOINT OWNERSHIP - HIDDEN PITFALLS TO AVOID

Estate planning can be daunting. Once you get past the fact that your very mortality (and morbidity) is the triggering event, estate planning means taking stock of all you own and, what is often more important, how you own it. Yes, there are many degrees of ownership and each can make for some difficult wrinkles. One common phenomenon is joint ownership between generations. Not only is it common, but it can make for some unintended problems. Forbes recently ran a piece on some of these problems and the five reasons to avoid such ownership form. Let’s review some of the high points, but I would commend the full article to your reading file. Joint ownership oftentimes is an attempt to simplify things, or at least that is why people use it as a means of holding title. Perhaps they want to simplify practical day-to-day financial management. Aging parents needing such help may add an adult child’s name to a bank account or investment, either for direct aid or for just assisting in managing the accounts or assets. Likewise, it could be done as an attempt to avoid probate. Adding the adult child’s name to the account, investment, or real estate as a form of will-substitute (a so-called “poor man’s will”). Of course, these are only simple solutions, and may actually work, when things go off without a hitch. One problem to remember is joint-ownership is a two-way street. That means that adult child joint owner has equal ownership rights to the assets and so do any of that adult child’s financial predators. The adult child may have their own creditors, may be facing an acrimonious divorce, or may be sued for damages in civil court. In addition, while no parent would anticipate it, the adult child may use the jointly owned bank account for a “quick loan” when they are running a little short of cash. Any of these unintended consequences can not only jeopardize the financial independence of an aging parent, but can cause hard feeling among other adult children who may (or may not) be joint owners with their parent. Another problem, especially from an estate planning perspective, is that joint ownership as a stop-gap or a will-substitute is not really estate planning and may run afoul of the parent’s actual estate distribution wishes. For example, the adult child who has joint ownership doesn’t have to share such assets upon the parent’s death. As you can imagine, it is very easy for such cases to spill over into family squabbles and even prolonged court-cases. Sometimes joint ownership seems like a good idea and a quick fix to avoid probate. And, sometimes it is. Before you use joint ownership as a form of titling your assets, however, consider the drawbacks. In the end, an estate planning attorney can help you determine whether joint ownership is appropriate under your unique circumstances. Remember: Look before you leap. The protection of your assets and family relationships are at stake. You can learn more about Joint Ownership in the January issue of our free e-newsletter, “Joint Tenancy Troubles.” Visit our website and sign up to receive this valuable update for free every month.

Reference:  Forbes (September 13, 2011) “Top 5 Reasons to Beware of Joint Ownership Between Generations”