Michigan Estate Planning Blog

Using Easements to Preserve Posterity Property

Sometimes one of the greatest charitable gifts you can bestow is the mere promise not to do anything with, or to, what you own. Of course, this common conundrum occurs most frequently when you happen to be sitting on a piece of history. Whether the property is in the country or in the city, the challenge is the same: how to protect the property from development in perpetuity. Sometimes, however, the key is convincing the IRS of the charitable value of the property itself. If you have an asset worth this kind of consideration, and the hope to preserve it, then an “easement” may be necessary. In the city there are “façade” easements, and in the country there are “conservation” easements. Both are worthwhile means to a charitable end. Consider Peter Reilly’s recent post in Forbes, titled “Donating TriBeCa Facade Easement Is Like Renouncing Your Super Powers,” about an illustrative case in TriBeCa, Manhattan. The story highlights some possible, practical complications that may arise when the situation seems too good to be true. After all, an easement is a unique way of giving to charity and your neighborhood, but only when the IRS agrees. A practical concern, if successful in obtaining the easement with IRS approval, is in finding a charity to enforce your charitable gift and the easement of your property. Ultimately, the end result may be worth the work if you preserve your posterity property in perpetuity from development in the hands of an inevitable McDonalds or Starbucks franchisee. The charitable tax deduction can come in handy, to boot.

Reference: Forbes (May 7, 2012 “Donating TriBeCa Facade Easement Is Like Renouncing Your Super Powers

“Death Puts” May Secure Income and Estate Value

Are you concerned about the return on your investments or the return of those investments en route to your heirs? If yes, then you might consider an “estate put.” When it comes to later-in-life investments, yield and time can be unfortunate obstacles. In order to secure the highest yield, you must make long-term investments. Unfortunately, when making such long-term investments, fearing they’ll survive you and fall apart without your guidance is common. Fortunately, a recent SmartMoney article featured the “death put,” or “estate-feature put,” as known in more dignified circles. The article, titled “Yield-Hungry Retirees Turn to 'Death Puts,’” describes how the put is just a built-in device that allows heirs to redeem the investment at face value and recoup all that went into the original investment. You can find it on many investment vehicles, even CDs purchased through brokers. Sound attractive? There’s more. A “death put” can guarantee an investor that an investment won’t eventually turn south or clutter up their estate for their survivors, but it will still secure a decent yield (in a world of low yields) today. In substance and in form, “death puts” are an add-on and, although comparable to a form of insurance, this means they are subject to the manner in which your broker or investment company writes them. Translation: the devil is in the fine print. For more on “death puts,” investment ideas, and some of the numbers involved, read the original article. Regardless, this subject matter is another reminder for you to carefully consider (and even reconsider) your investments in the context of your present income needs and future wealth transfer to your heirs. Like any strategy, a “death put” should only be put in play after thoughtful advice and counsel from your team of trusted professional advisors.

Reference: SmartMoney (May 1, 2012) “Yield-Hungry Retirees Turn to 'Death Puts”

Helpful Advice for Non-Profit Entrepreneurs

Giving to charity can be a particularly taxing activity even when you’re doing it for all the right reasons. Whether it’s picking the right charity or the right assets to give, it can be a daunting task. If you haven’t found just the right charity, perhaps you should consider starting one yourself. Starting a charity is no walk in the park. Worthwhile goals are rarely reached without a bit of elbow grease. Still, for many business-savvy philanthropists, it’s not enough to think solely about the goal and the gift; you’ve got to be the leading edge as well. If your current challenge has been bested or if you’re moving onto a second career, there are few things that can beat the sensation of creating a thriving charity. That being said, you may need some planning and advice. Why? A charity is essentially a business (with extra effort and sans profit). Never fear. A recent article in Forbes titled “How To Start A Charity” can help jumpstart the process and get your charity up and running. Be sure to engage in competent legal and tax counsel before you leap. There are plenty of landmines awaiting the unwary that could impede on good your intentions.

Reference: Forbes (May 7, 2012) “How To Start A Charity”

Wealth Transfers Worries

Planning your wealth transfer can be complicated. While there are many elements to consider, forgetting the “family factor” could be detrimental. Obscure laws, politics, budgets, financial markets, returns, etc., are all important elements of wealth transfer. Unfortunately, for many planners, it’s a sad irony that they oftentimes overlook the true object of the process – the inheritors. So, how do inheritors factor into planning? Financial Planning magazine recently weighed in on this issue with an article titled, “Younger Inheritors, Women Concerned About Pitfalls of Wealth.” The article featured the results of a new survey by Campden Wealth and Morgan Stanley Private Wealth Management. This survey examined multiple generations within high-net worth families for their opinions on their family estates and their roles in planning for the future. The results are telling. 79% of next-generation inheritors responded that they wanted to be good stewards of the family wealth. In fact, they want more involvement in the finances. Although these respondents diverged regarding what they would do with the investments, most were enthusiastic. It’s clear that families planning for wealth transfers should consider bringing the inheritors to the table sooner rather than later. The educational opportunity is profound when an interest is present. Interestingly, 79% of female inheritors indicated concern over how the impact might affect them. They also expressed concern over potential mismanagement of wealth outside of their control. Education is certainly essential regardless of gender, but perhaps more so for females. Traditional stereotypes still remain relevant. In either case, the biggest takeaway from the original article is this: today’s inheritors are eager for information and inclusion. Whether your estate is monstrous or modest, when it comes to the ultimate inheritors, a little foreknowledge will go a long way toward ensuring the success of your wealth transfer.

Reference: Financial Planning (May 8, 2012) “Younger Inheritors, Women Concerned About Pitfalls of Wealth”

IRS Relaxes “Innocent Spouse” Relief Rules

Spouses filing taxes jointly make a very special commitment. Aside from being already committed to marriage, joint filing makes them jointly and severally liable for those taxes, or any problems. This can create a significant problem when one spouse runs afoul of the tax laws. Why? It can drag the other spouse into the matter, unless you can convince the IRS to grant “innocent spouse relief.” Luckily, what was once very tricky might now be much easier to achieve. An article from Forbes last month is worth a look, as it details how the IRS may have lowered the bar for innocent spouse relief. Essentially, a new memorandum from the IRS has issued a set of eight factors to weigh for the determination of the need for spousal relief. With these new criteria (such as “economic hardship” and “nonrequesting spouses legal obligation”) the playing field is that much more level for spouses dragged into a sticky situation. If you (or someone you know) want to know more, check out the original article which provides more details on what relief is available and how to obtain it.

Reference: Forbes (January 29, 2012) “IRS Lowers Bar for Innocent Spouse Relief”

Many Seniors Unaware Of Available Assistance

America’s elderly have had an increasingly difficult time over the past decade or so, if not before, and it’s not necessarily going to get easier. Still, there are more sources of aid available. If you (or an elderly loved one) need additional assistance, then according to the National Council On Aging (NCOA), “You Gave, Now Save.” As reported here, in a recent Reuter’s article, millions of seniors are missing out on more than $20 billion through various programs for food, medicine, and heating. In response, the NCOA and several other organizations have launched campaigns to educate seniors on what’s available. The Reuter’s article provides more information regarding the programs. In addition, you may want to check out a more recent article from the New Old Age Blog of the New York Times, here.

Reference: Reuters (February 14, 2012) “U.S. seniors missing out on $20 bln of benefits”and The New York Times – The New Old Age Blog (February 16, 2012) “Tracking Down Government Aid”

ELDER LAW

Baby Boomers are discovering that one of life’s most difficult passages is when the child becomes the caretaker for his or her parents. Tough subjects and hard choices can leave us paralyzed when we need to act quickly. Communication, early and often, is critical. The primary problem with understanding and caring for elderly loved ones lies in recognizing a deteriorating mental condition. Alzheimer’s, for one, affects one in eight persons over the age of 65. Simple dementia, on the other hand, is difficult to define, but far more Americans within that age group suffer from it. If your elderly loved ones may be susceptible to Alzheimer’s or dementia, there are certain warning signs to recognize and steps to take. While there is no consensus on exactly how to approach the problem, a recent SmartMoney article titled Talking to Mom About Alzheimer’s and Her Money provides some practical advice on understanding and discussing the problem. Simply put, there are red flags that cannot be ignored. It is necessary to address this subject with your elderly loved one and begin to take steps to provide for their interests and care. At a minimum, make sure fundamental legal documents are signed while your loved one is mentally capable of understanding. Such documents should include Advance Health Directives, a Living Will, a Financial Durable Power of Attorney and a Last Will. Here’s the bottom line: if you and your loved one wait too late to have “the conversation” and take action, then the result may be unnecessary legal fees, courts and costs.

Reference: SmartMoney (May 7, 2012) Talking to Mom About Alzheimer's and Her Money

Estate Planning Challenges In The Face Of Uncertainty

In the upcoming year many favorable tax laws are set to expire, and the political winds are blowing with great uncertainty- especially as the election season heats up. Estate planners in particular find themselves on shifting sands when it comes to reading the tea leaves for their clients. Who do estate planners think are most susceptible to the legal and tax currents this year? Peter Reilly at Forbes has given them a name: the “midmills,” short for the “midmillionaires.” According to Reilly in his article titled Beating The Possible Estate Tax Increase Without Switching To Cat Food - The Midmill Dilemma, this group of taxpayers has a fairly high net worth- somewhere between $4 and $15 million. So, what kind of estate planning should they pursue? After all, the current exemption amount to the estate tax, which is unified with your lifetime gift exemption, is only set at $5.12 million until December 31, 2012. Unfortunately, next year is uncertain. The good news is that Peter Reilly is not one to just acknowledge problems. He’s a census-taker too. Consequently, Reilly has compiled the opinions of various Forbes columnists and has weighed in himself. At least one thing is clear: no one is certain about “Midmill Dilemma.” In the end, the dilemma comes down to you, your risk aversion, and the kinds of assets you have. Regardless of whether one has a few millions at stake or not, we’re all in the same boat. Proper estate planning is a necessary tool for everyone, even when we’re not sure what Congress will throw at us.

Reference: Forbes (May 2, 2012) Beating The Possible Estate Tax Increase Without Switching To Cat Food - The Midmill Dilemma

Consider A “Gun Trust’ For Your Firearms

Do you have any firearms that are collectible and likely expensive? Do you have any firearms that are subject to federal regulations on ownership and use? If yes, then careful planning may be required to avoid running afoul of tax and regulatory laws upon your incapacity or death. Planning to give away your estate property is often about understanding your loved ones and family members, but proper planning is also about understanding the assets you are giving and the snares to avoid. You own different assets in accordance with different laws, so you must take these elements into consideration when giving them away. Many firearm owners take great pride in their collection and also hope to pass them along to their loved ones. Failing to plan for the legal ownership transfer, however, can result in accidentally triggering illegal transfers. Accordingly, if you own a firearm or even a firearm collection you plan to leave to family or loved ones, then a “gun trust” may be in order. A recent article in AmmoLand, titled A New Breed of Gun Trusts – Protecting Firearms Collectors & Their Collections, makes this point very clearly. A properly written gun trust can skirt tax and regulatory pitfalls. When drafted correctly, trusts are very powerful and specially-tailored legal tools for giving all sorts of unique assets.

Reference: AmmoLand (April 30, 2012) A New Breed of Gun Trusts – Protecting Firearms Collectors & Their Collections

Good News For Transferring Business Interests

Just between us, isn’t it nice when the IRS loses a case to a taxpayer? For example, the little-guy victory in the landmark case of Wandry v. Commissioner affirms and simplifies a very powerful tool for passing on wealth, especially for the business owner. While the case and the estate planning tool in the crosshairs have been the subject of previous articles, The Wall Street Journal provided a new explanation of the two in an article appropriately titled “Shielding the Family Business.” The basic plan for wealth transfer when there is a business involved is to give it in pieces, and that’s precisely the plan that benefits from Wandry v. Commissioner. Giving away the entire business outright is a good way to take a tax hit, since it will invoke a gift tax when you cross certain thresholds during the year and in your lifetime. There’s currently a lifetime exemption of $5.12 million and an annual exclusion of $13,000. Nevertheless, it’s easy for a business to be worth more than $5.12 M, and using that exclusion in full will drain what you have available against the estate tax later at death. However, by their very nature and structure, business interests are especially amenable to piecemeal ownership transfer. This is because ownership of the business, and therefore the underlying assets owned by the business, is an abstraction, and you can simply gift your interests in the business without a tax hit. For example, you can chip away by giving a usefully small amount, say, $13,000 per year per individual (or whatever number Congress and the IRS set for that year), without gift taxes. Of course, gifting business ownership is not entirely ideal. Fortunately, that’s what the Wandry v. Commissioner case tries to fix. Gifting exactly $13,000 is pretty easy by simply writing out the figures and name on a check. On the other hand, with an abstraction like business ownership, the gift depends on the value of the business and, more to the point, on the value that you and the IRS agree or disagree about. If you give $13,000 of ownership on the basis of your valuation, but the IRS adds up $15,000 based on its own valuation, then the IRS might also think you owe a tax (or, alternatively, that your gift/estate tax exemption should erode by that much). As you might have guessed, that’s exactly what happened in the Wandry case. Unfortunately for the IRS, the court held that the Wandrys had clearly intended to give their annual exemption amount and, if there is a new appraisal and higher valuation of the gift, then the excess wasn’t intended to be gifted in the first place. Obviously, there is much more to this case and more guidance to be gleaned for the business owner. I would recommend reading the original article if you are or will be transferring interests in your business. As always, make sure you engage qualified legal counsel before taking action.

Reference: The Wall Street Journal (April 30, 2012) “Shielding the Family Business”

Reducing Taxes By Minding Your Cost Basis

Investing and taxation can be tricky things, especially if you have been investing for some time. This can get even trickier when you transfer assets to loved ones or contemplate doing so. Taxation hinges on a few fundamental numbers, one of which is the cost basis. Given some interesting changes to the law governing cost basis, you may need to rethink your plans. If you have investment accounts, then you likely are aware of some of the changes that have begun to take effect and will continue to roll out through 2013. One of the most obvious changes was recently addressed in a Morningstar article titled “Beware the Default Method for Cost-Basis Elections.” Are you aware of the difference between the old style of cost basis election and the new possibilities your brokerage firm or mutual fund company can offer? Essentially, the old system of electing a cost basis was typically in the hands of the investor since they had to track and record their own cost basis on various investments. This meant averaging out the cost basis when selling various stocks at tax time. Now the cost basis is directly reported to the IRS from the firm/broker. Companies tend to offer the default means of reporting, but since information is going directly to the IRS, this also means there is enough information for specific-share identification in the cost basis election. The Morningstar article offers some interesting math to support why this actually can be advantageous for the crafty planner. The bottom line is that any trimming you can safely accomplish can secure more favorable capital gains taxation. Why? Because this cost basis carries over into another magic taxation number, the stepped-up basis, when investment assets are transferred. In short, small numerical changes add up and may affect your overall wealth-transfer planning.

Reference: Morningstar (March 26, 2012) “Beware the Default Method for Cost-Basis Elections”

To Roth Or Not To Roth

As you likely have read here or elsewhere, the end of 2012 and the transition to 2013 are likely to be a tumultuous time for taxes of all sorts. Accordingly, this is a year of planning. One major thing to bear in mind: This may be the last excellent year for the Roth IRA conversion. Forbes recently ran a few articles on this subject, including this recent test. I thought I’d share it here to help you determine whether a Roth IRA conversion may be right for you. So, somewhat abridged, here it is: 1. Do you expect your tax bill to stay the same well into retirement? 2. Do you have a traditional IRA (especially a large one) that can be converted? 3. Are you ready, willing, and able to pay for the taxes of tomorrow, today? 4. Are you interested in estate-reduction and, at once, leaving a large tax-free gift to your heirs? If you answered “yes” to the above questions, then you may want to put pencil to paper and assess whether a Roth IRA can make sense and, more to the point, can create a huge savings now and a huge value for your heirs later. The big payoff: A Roth IRA is not a tax-deferred account as retirement accounts traditionally are. The reason a tax-deferred account is nice is that it’s assumed you’ll have a lower income in retirement and, therefore, have a lower tax percentage. As a result, you allow the account to appreciate now and ultimately pay fewer taxes later. If your income is not expected to drop, as is often the case, then your tax bracket might not drop and so your tax savings won’t appear. Instead, you’ll have less liquidity during the golden years. By paying the taxes upfront, by rolling a traditional IRA into a Roth, you’ll pay a tax upfront to secure that account for the future and avoid any RMD’s (the very same that might force you into other tax problems). Moreover, since taxes are generally expected to go up with the expiration of the Bush-era tax cuts (unless some serious attention is given and quickly) paying the tax now might be an actual steal. There is more information in the original article.

Reference: Forbes (February 20, 2012) “Roth IRS Conversion 2012: Are You A Good Candidate?”

Son Seeks Eviction Of Elderly Mother From Her Home

There is a difficult transition in old age. When it becomes necessary to move on from the homestead and to a nursing facility, it can be difficult to think about, let alone follow through. In the end, it’s a difficult transition for both the elderly person and their family. The family dynamics of transitioning an elder family member to a nursing home can make for some tricky cases, and even trickier court battles, as one recent case shows. Consider it a worst-case-scenario family feud over the situation. In New Haven, Connecticut, a 71 year old son has been utterly unable to come to an agreement with his mother and get her to move into a nursing home. She just didn’t want to leave home. As a result, this son evicted his 98 year old mother from her “own” home. The catch: Apparently the mother had ceded ownership of the house, but retained the right to live there by using a quit claim. Now the matter landed in court and she has been found competent by a judge and assigned counsel. There are some wrinkles in this case. For example, it turns out that the son may not have seen his mother recently and is, therefore, not in a position to know her status. In fact, the mother has healthcare workers in and around the house often and can still cook for herself and regularly attends her church often. But to take the son at his word, he doesn’t want to put her on the street and simply wants to be sure that she has the care she needs. At 98 the son’s concern isn’t much of a stretch, but this is still probably a bad way of going about it. You can read more at the original article, here. Let the worst-cases underscore the need to do things right and to open proper communication within your own family.

Reference: The Columbus Dispatch (February 18, 2012) “Son gives mom, 98, an eviction notice”

Expatriates Get A Tax Swat Upon Exit

As far as the IRS is concerned, permanently leaving the country is something on the order of dying, because the tax burden is the same. Here’s the deal: When you expatriate and renounce your US Citizenship, the IRS will treat you as though you sold all of your worldly assets at their fair market value the day before leaving. Consequence: The IRS will tax all such worldly assets as a “capital gain.” Accordingly, this tax event is known as the “exit tax.” There are certain exclusions, to include the cases involving dual-citizenship or expatriation before age 18.5. Why? Because in either case you wouldn’t qualify as a “covered expatriate.” Additionally, you can escape this taxation if you have an overall value of less than $651,000 of (supposed) income. Still, if you’re hoping to spend your golden years abroad, then it’s unlikely you will escape the grasp of the IRS by the above exclusions. Nevertheless, planning just might limit how much the IRS can take. If nothing else, this kind of complete appraisal of your property is consistent with your overall estate planning. So, for those considering expatriation even remotely, why not kill two birds with one stone and make a full inventory of your assets right now. In addition, some strategic gifting may help lower the amount of your assets subject to the “exit tax” should you elect to pull the proverbial trigger. For more background reading on this subject, consult a recent article in Forbes titled Tax Expatriates: We'll Always Have Paris.

Reference: Forbes (May 1, 2012) “Tax Expatriates: We'll Always Have Paris”

The Disinheritance Dilemma

Planning what to leave behind to loved ones can be a difficult matter since, even with taxes out of the picture, it means explaining your choices and your hopes. On the other hand, planning to specifically disinherit can be all the more difficult. Inheritance and disinheritance are emotionally charged concepts. The motivations that go into disinheritance are especially complex, as discussed in a recent article in The Trust Advisor titled Why Are Family Members Disinherited?. Teaching point: If you are considering disinheritance, then it is also important to think about what that means, both for yourself and the excluded heir. There are many reasons to disinherit, some more reasonable than others and some worth abandoning upon meditative reflection. Still, if you must disinherit, then consider explaining your basis for that decision. While it is your choice and right, your legal documents must be clear and withstand (oftentimes) inevitable legal challenge by the affected heir.

Reference: The Trust Advisor (April 15, 2012) “Why Are Family Members Disinherited?”

Business Owners – Exiting Gracefully

If you’re a small business owner, then you probably speak of your business and your life in the same breath. There’s nothing wrong with that. In fact, you are in good company. All told, your business is one of the biggest challenges and accomplishments in your life. That said, it’s rare that the business is the only fulfilling thing in your life – there’s family, for one. In addition, do you really want to continue working in and on your business until the day you die, with no retirement or with old-age eventually getting in the way? With your life and your business so intertwined, it makes it all the more necessary to plan properly. A recent article in the Wall Street Journal took up this matter in a recent article titled Preparing to Leave. I recommend this article to your reading list because it both warns of mistakes and offers solutions. To whet your thirst, here are the “mistakes” identified: 1. Creating a business that’s too dependent on the owner. 2. Ignoring the tax benefits of planning ahead. 3. Incorrectly valuing the business. 4. Rushing to accept a rich number. 5. Hiring your brother in law to do the deal. 6. Underestimating the emotional impact of selling a business. Like one of the old movie matinees, I am going to leave your pondering the solutions to these “cliffhangers.” In the end, only you know when to hold’em and ergo when to fold’em when it comes to the continuation of your business. However, don’t delay. You, your loved ones and others dependent on the business will be glad you didn’t.

Reference: The Wall Street Journal (April 29, 2012) “Preparing to Leave”

Death & (Income) Taxes

Of the two certainties in life – that is, of death and of taxes –the taxman always gets the grim last word. End-of-life taxes are, moreover, easily among the most onerous. For many loved ones, writing those last few checks to the IRS can be especially tough … and seem to never end. Enter the postmortem income tax return. The death taxes are one thing, and inheritance taxes are generally another, since they are paid by the inheritor. However, as a recent article in Kiplinger makes clear, there usually is one final income tax return to file for the decedent. I recommend the article, titled Death and Taxes, for your reading. The burden of filing this final income tax return is something you assign in your will, usually to the executor or administrator, or failing that it falls upon a survivor. Regardless, do not neglect that duty if you occupy one of those roles. Why? Because it is just basic estate planning and administration. If you are planning your estate or if you are administrating one, this burden is not one to be taken lightly. To make matters worse, the fiduciary is on the hook for any sins of commission or omission. If ever there was a time to retain appropriate legal, accounting and tax advice, then this is one of them. Bottom line: The income taxes likely are the least of your taxation concerns with the estate, inheritance, gift, and generation-skipping taxes all vying for attention. Unfortunately, that doesn’t diminish the importance of income taxes. Even if an estate will not be subject to extra taxation, this last rite to the IRS has to be observed.

Reference: Kiplinger (March 2012) “Death and Taxes

The Separation of Church … And Estate

Planning your estate may seem like a simple matter of deciding who gets your stuff when you’re gone. What if you are a person of great faith and religious conviction? How does a person of faith plan for his or her estate when life (and especially life beyond) is so much more than mere “stuff”? The problem of mixing religion and estate planning – that is, the problem of doing it well – is a issue taken up by the Wall Street Journal in an article titled Joining Church and Estate. If your decisions during life are guided by your faith, then likely your estate decisions will be too. For example, end-of-life, disposition of remains and even charitable giving decisions are oftentimes determined by ones religious beliefs. These are personal decisions that directly impact you and collaterally impact others. However, an entirely different matter, and one that can be the source of much trouble, are the religiously motivated decisions you may make in regards to others. Given the numerous alternative planning strategies and tools available to plan your estate, it is possible to make (or attempt to make) religious decisions for your heirs. This is where problems can arise. In the extreme, you can move beyond encouraging to requiring the observance of certain religious principles, rituals, or lifelong membership in the given religion to secure any inheritance. As the Wall Street Journal article illustrates, this is where problems can arise. In short, requiring heirs to uphold religious principles they do not share can work to undermine them. The article discusses some particularly poignant examples, and real life court battles, but as a general principle it may be worth avoiding this type of planning.

Reference: The Wall Street Journal (April 30, 2012) “Joining Church and Estate”

Charitable Giving – Leaving A Lasting Legacy

At some point in your life, there comes a moment when it becomes important – vital, in fact – to focus your energies on a cause and give to charity with all the passion that went into amassing your worth. But what drives so many generous givers to this moment? A recent Wall Street Journal article points out that it’s the age-old, if hackneyed, idea: legacy. Beyond a doubt, there are certain tax advantages to well-timed and well-planned charity; the tax code is designed for this. But also it is important to realize that there is a history to the tax code. Regardless however convoluted the reason, many a tax advantage exists beyond the lobbying of non-profits and the work of those set to take advantage for fiduciary reasons. No, such advantages exist to recognize the urge to provide a legacy. Planning for your estate and your wealth, in life and after death, is usually about “legacy” in one form or another. Your family is part of your legacy, that is oftentimes a give, but the missions you held dear in life are just as much a part of your legacy. In fact, they are an extension of your ideas, dreams and hopes for the world, or some small corner of it. The original article goes as far as to say that legacy, in broad terms, is why we give to charity in the first place. So, what will your legacy be, and what do you want to leave for the world? If there is something that you care about, perhaps it is worth acting upon, either in life or as a bequest.

Reference: The Wall Street Journal (March 8, 2012) “Why the Rich Give to Charity”

Disinheriting Children Can Be Dicey

They say that money is the root of all evil, but that’s not quite right since money can also be the product of much hard work, knowledge, and ability. What tends to be right more often than not, and also what happens to be more unfortunate, is that money is the “toxic soil” of crooked trees, unruly gardens, and those that don’t understand money and value itself. That’s a serious challenge to the wealthy estate planner and especially the planner with a business to leave behind. As pointed out recently, here, a possible, if difficult, option among wealthy parents is some form of disinheritance. That’s right, you may actually decide to simply not leave your wealth (or some form/amount of wealth) to your children. It need not be out of malice, but it likely will require every bit of planning that otherwise leaving a robust inheritance otherwise would. Your challenges aren’t in the political system, the tax court, or even arcane IRS challenges, but they are no less real. For one thing, you must decide what to do with those assets if not to let them transfer downstream. At the same time, you must protect your decision against entreaties and potential lawsuits from the disinherited. The poster-parent of this idea, and the source of much legal activity in the Australian Court system, is none other than Gina Reinhart the mining billionaire (and an heiress herself). It seems Ms. Reinhart came to the conclusion that her children aren’t fit to run the company and shut them out of the ownership stakes of the business (although they are already part of the family trust): Court documents cited in the Australian media show that Ms. Rinehart believed the kids weren’t fit to manage their fortune. She said none had ever held a real job, unless it was given to them by the family. “None of the plaintiffs (her children) has the requisite capacity or skill, nor the knowledge, experience, judgment or responsible work ethic to administer a trust in the nature of the trust in particular as part of the growing HPPL Group,” she claimed in court papers. It’s not a complete disinheritance, but it is a decided opinion, and a terse objection, to leaving certain things to those children. Indeed, a tough call. More information about the Reinharts and their trials can be found in the original article. Their specific situation and grievances aside, it goes to show that planning to give and planning to withhold are, usually, two sides of the same coin. They require the same decision making and authoritative execution.

Reference: Forbes (March 13, 2012) “Billionaire Says Her Kids Aren’t Fit for Inheritance”

The Conversation: Mind Your Own Beeswax!

Taking care of an elderly loved one can be difficult, especially when they are nervous about meeting of their own future needs. It’s worse when the issue is money, either for current finances or future planning. Has your elderly loved one ever told you to butt out and not worry? This is a position many adult children with aging parents will have to face. If you’re in this situation (or fear you may be one day) a recent article in Forbes titled Has Your Aging Parent Told You to "Mind Your Own Business"? is worth a read. For many Depression-era survivors and baby-boomers, money is an important symbol of control. In addition, for elderly parents who don’t have “enough” money, talking to them about their financial futures can be troubling. In essence, it disempowers them. Ironically, this is all the more reason it should be discussed (especially if they will be in need of medical care). As with every dark cloud, there is a silver lining. Discussions about assets can easily segue into revealing concerns over the meaning of money, and the proper disposition of family assets, or even a family business. In the end, there is a psychology to old age and money. I recommend the original article and the examples therein. Practically speaking, however, your parents might have a point – have you taken care of our own (estate planning) business yet? Perhaps if you have your own house in order, you will have more credibility when addressing these issues with your parents.

Reference: Forbes (April 17, 2012) “Has Your Aging Parent Told You to "Mind Your Own Business"?”

Generation-Skipping Gyrations

For a number of reasons, the government seems to think that family wealth ought to pass from one generation to the next, without “skipping” over anyone. However, that’s not always the way the world works (or the way folks want to distribute their assets) What if you want to provide for your grandkids instead of your children? This is one time when extra planning is crucial to escape a series of tax law traps. As a result, this planning may require a generation-skipping or “dynasty” trust. The idea that wealth ought to trickle down from generation to generation is, if nothing else, a way of guaranteeing that taxes are paid at each level. On the other hand, it’s not necessarily in keeping with your plans or modern reality. For example, who would have anticipated the student debt so many grandchildren face today? For whatever reason, you might want to skip a generation in your estate distribution. The estate planning vehicle to accomplish this objective is a trust, specifically a “generation-skipping” or “dynasty” trust. For more information, check out an article in ProducersWeb titled Generation-skipping Trusts. While there are many limitations, and perhaps also a growing political battle to further limit such trusts, there are very real gains to be secured for you and your family. These trusts can become complicated very quickly, so competent counsel will be necessary to determine whether a generation-skipping trust is appropriate for your unique circumstances and, if so, then to implement it.

Reference: ProducersWeb (April 11, 2012) “Generation-skipping Trusts”

The Archie’s Successors … Arch-Enemies?

Are you a Baby Boomer, or the child of one? If yes, then perhaps you recall the Archie Comics. Unfortunately, that halcyon world of yesteryear has given way to litigation and lawyers. Archie’s Comics has been in a state of war since the passing of the founders and the dysfunctional antics of their successors. There is at least one more lesson to learn from Archie and the gang: proper succession planning. The story of the succession and rapid rise in hostilities can be followed in an article in onwallstreet.com titled Archie Comics Power Struggle Provides Valuable Succession Planning Lessons. In the end, the Archie Comics tale is too commonly repeated. According to the article, one of the successors actually is accused of slashing the other’s tires; the accuser apparently is under a restraining order keeping them from the company – a restraining order which they have allegedly violated. In short, ugly stuff. Too often ugly feuds can break out, even in once idyllic companies. The Archie Comic Publications has been around since 1941, after all, and it was only in 2007/2008 that the newest generation came on board. When thinking about your company, it is vital to consider the future beyond your ownership. Who will be the successors? Will they be compatible partners to carry the business forward? These and other fundamental issues are better resolved now, rather than later.

Reference: onwallstreet (April 18, 2012) “Archie Comics Power Struggle Provides Valuable Succession Planning Lessons”

Charitable IRA Distributions In Play

Are you taking Required Minimum Distributions (RMD) from your IRA? Perhaps you would rather contribute your RMD to the charity (or charities) of your own choosing rather than to the IRS. Do you have a RMD to take from your traditional IRA and don’t know what to do with it? If yes, then it may be best to wait until the end of the year as illustrated in a recent article in Kiplinger titled Don't Transfer IRA Distributions to Charity Yet. Ironically, RMDs can be a hassle when you don’t need them. Why? Because they can trigger some unfortunate income taxes and they are only “required” for the sake of taxation. In the past there was the possible saving grace of distributing your RMD directly to charity, as an alternative to the IRS. Unfortunately, the laws that allowed direct distributions from your IRA to charity expired in 2011 and have yet to be written for this year. Accordingly, it may be wise to wait until later in the year to take your RMD (assuming you don’t need it now). Regardless, it is possible that the “freedom of choice” approach to charitable distributions will be resurrected. It is a small comfort, at least, that this is a taxation matter that even a lame-duck Congress might heartily approve, assuming they get the chance.

Reference: Kiplinger (March 12, 2012) “Don't Transfer IRA Distributions to Charity Yet”

Will Writing Fundamentals

Writing your Last Will and Testament is the most basic act of estate planning. Nevertheless, preparing one’s Last Will has been deferred or ignored by the majority of the adult American population. In fact, some 70% of Americans have no Last Will. Against this backdrop, the excuses for not having a Last Will typically include the “I’ve got plenty of time” excuse. As reported in a recent article in Forbes, Tell Your Family You Love Them -- Write Your Will, there are certain fundamentals only you can control when it comes to your estate. In reality, there isn’t a single moment in your life when you’re ready to plan your estate. You don’t just reach some magical “pause button” where everything stops and there’s nothing new happening in your life, your business, your investments, or with your loved ones. Likewise, there is no time to stop planning, and for the same reasons. Estate planning is not an event, but rather a lifetime process. Beginning today, you can put a plan in place with enough flexibility to cover many of life’s twists and turns. And, of course, you should always update your plan to reflect major changes – whether in the law, your life, your assets or the lives of your loved ones.

Reference: Forbes (March 30, 2011) “Tell Your Family You Love Them -- Write Your Will”

Joint Tenancy Transfers Matter For Medicaid Eligibility

American law contains a principle that runs like a thread through very fabric of our jurisprudence – one is “innocent until proven guilty.” In other words, the law begins with the premise that one accused of wrongful conduct or motives, whether in a civil or a criminal context, is first given the benefit of the doubt until established otherwise by competent evidence to the contrary. Nonetheless, sometimes the tax courts, in their zeal to root out cheats, end up reversing that principle and end up turning on those vulnerable people who act only in the best of intentions: sometimes the elderly are “guilty until proven innocent” when it comes to the courts and Medicare disqualification. Consider the case of Mallery v. Shah (N.Y. Sup. Ct., App. Div., 3rd Dept., No. 513277, Mar. 1, 2012), as written about here in a recent post over at ElderLawAnswers. Here’s the deal: Paula Mallery wanted to be sure she had safely left her estate to her friend, Ron Stanton, and a moderate estate at that, without her family interceding and dragging the matter into the probate court following her death. Her reasons are her own (but you can appreciate anyone wanting to avoid a public bloodbath). It was something she thought about, even sought counsel for, and ultimately effected by adding Mr. Stanton as joint-tenant on her home and bank accounts. Mr. Stanton withdrew $141,410.12 between 2007 and 2008. Then, in 2009, when Ms. Mallery fell, required nursing home care, and ended up applying to Medicaid to pay for it. No, no, no. That was Medicaid’s response. Why? Medicaid maintained that Ms. Mallery had effectively made “uncompensated transfers” and was therefore subject to a 19 month penalty period (and more than a year and a half of such care is expensive!). To assume the absolute best of Ms. Mallory and her motivations – because it wouldn’t change the decision either way – she simply intended to pass her property quietly to Mr. Stanton, but ended up getting dragged into court. She appealed the decision and was ultimately rejected on the grounds that she never disproved the allegation her planning moves were motivated with an eye toward Medicaid qualification. It’s yet another harsh lesson in unintended consequences and the trials of qualifying for Medicare. In the end, planning for your assets after death must always also be about planning for those assets, and your medical care, throughout the remainder of your life.

Reference: ElderLawAnswers.com (March 5, 2012) “Estate Planning Move to Avoid Probate Earns Medicaid Applicant Penalty Period”

Trust “Protector” Power – Potential Pitfalls

Trustees are a special kind of hero to the trusts and the families they oversee, and that’s a tough gig as many will know. Nevertheless, some problems call for superheroes. In the context of some trusts, some problems call for “trust protectors.” The idea got some recent limelight from Barrons, and this article there, but essentially the difference between a trustee and a trust protector is the level of power they have over the trust itself. A trustee has the power to uphold the document as it was written and getting something dramatic done might involve petitioning for a court order; it can mean being stuck between a rock and a hard place but valiantly working with what you were given. A trust protector, on the other hand, has broad powers to change the trust as they see fit but always in the name of the greater good that is the intentions of the drafter. That might mean overriding debate among parties to the trusts, moving the trust from state to state, terminating the trusts, and a host of other possible superpowers. This gives a definite malleability to your trust arrangement, especially if you are creating an irrevocable trust or something as long lasting as an actual dynasty trust. The benefits are obvious. On the other hand, as the “maker” of the trust, it can be a difficult thing because it means entrusting all of your own powers to someone else. In essence, you literally are choosing someone to do as you would do and maybe even with the hope that they would do it better. It may make for a powerful meditation on the role of the person who sets up the trust, since they create their own heroes and superheroes. The trust protector is not a recognized role in every state – only about half of them, in one form or another – and so that is something investigate, as with any trust arrangement. In the end, the drafting of any advanced trust will require a skilled hand and tempered judgment, and so too with a trust that empowers a so-called “trust protector,” if not evn more so.

Reference: Barron’s (March 3, 2012) “Why You May Need A ‘Trust Protector’”

Planning Today For Dementia In Your Tomorrow

It has been an unfortunate past few weeks for celebrity deaths. Recently both Dick Clark and Mike Wallace passed away. It is in the life and death of Mike Wallace, however, that there is a lesson to learn for all those planning for old age and, perhaps more so, for those planning for their estates. The estate planning lesson of Mike Wallace’s life was the subject of a recent article in Forbes by Deborah Jacobs. Titled “Mike Wallace Death Underlines Need To Prepare Financially For Risk Of Dementia,” the article is a wakeup call for making proper estate plans while you are physically and mentally able. Apparently, Wallace suffered from dementia late in life. In fact, developing that condition will be an increasingly prevalent fact of life for baby boomers. According to recent projections, one in eight baby boomers will develop Alzheimer’s after they turn 65. The problem, as pointed out in the Forbes article, is that once dementia or Alzheimer’s strikes, it is too late to make plans. Simply put, you are no longer, “of sound body and mind” as per the classic Last Will and Testament language. Furthermore, even if you are in control “most of the time,” any legal document or change you may make to a legal document will become suspect or outright inadmissible. This is a fact of life and a fact of law. Just as old age is not the time to be planning your retirement finances, it is not the best time to make your estate plans either. The lesson learned is to engage appropriate financial and legal counsel sooner rather than later.

Reference: Forbes (April 8, 2012) “Mike Wallace Death Underlines Need To Prepare Financially For Risk Of Dementia”

Estate Planning For Couples Can Be Complicated

One thing about life in the new millennium … it is complex. Whether it is finances, taxes, gadgets or relationships, nothing is as it was in the “good old days” (whenever that was, if ever). So it is with estate planning for the modern family, how ever you define “family.” For example, how should married couples plan for their estates? Separately or together? This issue was explored recently by Forbes in an article titled “Estate Planning For Couples: Should It Be A Solo Or A Duet?” Indeed, this question is one worthy of your consideration if you are married. On the surface, married couples would seem to face fewer challenges when it comes to estate planning. Nevertheless, the applicable laws make a great number of assumptions that may not be applicable to you, your spouse, and your family. For instance, the interests of married persons might not so neatly dovetail as their love lives, as in the case of blended families. In the blended family context, couples may disagree about how distribute their assets, and even to whom assets should be distributed. To make matters even more difficult, in the absence of a clear-cut premarital agreement, there can be considerable rancor regarding ownership of the separate (let alone marital) assets. One fundamental consideration at the outset is the question of separate representation. In other words, are the latent difficulties or possible misunderstandings so substantial that each spouse ought to secure independent legal counsel? While this may, at first blush, invite confrontation, it need not. In the main, a single attorney representing both parties after full disclosure of potential conflicts of interest and written waivers may be the most appropriate solution for a couple. As the article highlights, however, each case (just like each couple) is different and there is no one-size-fits-all solution.

Reference: Forbes (April 10, 2012) “Estate Planning For Couples: Should It Be A Solo Or A Duet?”

Art Therapy for Alzheimer’s Patients

Caring for an elderly loved one with dementia or Alzheimer’s is a difficult thing, often both for the caregiver and the patient. This is especially true when it comes to effective communication. Enter “art therapy.” According to a recent article in The New York Times (The New Old Age Blog) titled Art Therapy For Alzheimer's Patients, art helps to comfort and often even invigorate a patient by giving them “something” with which to associate that does not require verbal interaction. As a result, various museums have begun programs with care professionals to provide guided tours for patients. These tours through exhibits offer patients the opportunity to associate with and discuss the art on display. According to the article, the experience also has proven to be a pleasurable activity for the caregivers, even if neither the caregiver nor the patient was an art-buff beforehand. So, if you have a loved one who has Alzheimer’s or dementia, then you might check with your local art museum and inquire about an art therapy program. Who knows, perhaps your suggestion just might initiate a similar program in your hometown.

Reference: The New York Times – The New Old Age Blog (April 13, 2012) “Reconnecting Through Art”

Family Business Mistakes Matter

If you have a family business, then a recent article in Inc. magazine is a must read to avoid unaffordable mistakes. In short, these mistakes can kill your family business. The Inc. article is titled the “4 Worst Legal Mistakes a Family Business Can Make.” While I commend the entire article to your reading, here is some of the wisdom offered by the author: 1. Do not mix your family finances with those of the business. 2. Do not muddle along without employment agreements. 3. Do not forget to get (and remain) street legal with appropriate licenses and filings. 4. Do not fail to have a succession plan. Remember, large or small, your business is just that – a “business.” If you treat the company accounts like your personal checkbook, hire and fire employees on a handshake (if that), ignore “legal formalities” attending the creation and operation of the business and take the “get-around-to-it” approach to the succession of the business, then do not be surprised when the business crashes and burns. Teaching point: Take time right now to engage competent legal, accounting and financial counsel to help you stay out of trouble … before it is too late.

Reference: Inc. (April 9, 2012) “4 Worst Legal Mistakes a Family Business Can Make”