A Premier Boston Life and Estate Planning Firm

States Want Your Trust

2010-06-21T16:26:00.001-04:00

Remember to always consult counsel before deciding on issues like what state to create your trust in.

For those looking to set up a trust, the best options may be far from home
By: Kristen McNamara
Wall Street Journal

About half a dozen states are actively vying to attract wealthy families' trusts, as well as the jobs and tax revenue that come from the companies that administer these estate-planning vehicles.

States such as Alaska, Delaware, Nevada, New Hampshire, South Dakota and Wyoming have modified their trust laws in recent years to make them more attractive to individuals and families, including nonresidents, looking to minimize taxes, shield assets from creditors and preserve family assets in the event of a divorce, among other things.

While the competition among states for trust business ultimately helps consumers, parsing the differences between state trust laws and separating hype from fact can be a challenge. "There's a whole lot of trash talking going on," says Richard Nenno, a managing director and trust counsel at Wilmington Trust Co. in Delaware. "It makes it difficult for people to cut through to what really matters."

When contemplating a trust—an agreement in which an individual or institution (the trustee) agrees to manage your assets for your beneficiaries—the first step is to determine with the help of an attorney what you are trying to accomplish. Next, examine which states' laws are best-suited to your needs. Because setting up a trust in another state can involve additional expenses, some families and individuals may not have enough wealth to make it worth their while. But for those who do, many trust lawyers say the only real requirement is that they choose an in-state trustee.

A state's tax laws and how long the state allows a trust to remain in existence are important considerations when deciding where to set up a trust. A minority of states, including Alaska, Nevada and South Dakota, don't tax trust income at all. Other states, such as Delaware, impose taxes only on in-state beneficiaries. New Hampshire lawmakers recently amended legislation to make clear that out-of-state trust beneficiaries aren't subject to state taxes.

About half of the states and the District of Columbia have abolished or modified their laws to allow trusts to last for long periods. That means assets in a properly structured trust can continue growing for hundreds of years, or indefinitely in some places, free of estate, gift and generation-skipping taxes, which can consume about half a trust's assets.

"At the end of the day, the taxation is a big factor," says Scott Baker, principal at Perspecta Trust LLC in New Hampshire, a state that is an aggressive participant in the trust race.

Among other factors to consider when shopping around for an attractive trust jurisdiction are flexibility to modify trusts and move assets between trusts, as well as state courts' familiarity with trust-and-estate cases.

Many people set up trusts to gain asset protection. Doctors and business owners, for example, may want to shield assets from creditors, while parents may want to ensure assets stay within the family if their children or grandchildren divorce.

"Creditor-protection techniques are becoming increasingly popular in the U.S.," says Nevada estate-planning attorney Julia Gold. "We live in a litigious society."

Companies responsible for administering trusts, investing trust assets and making decisions about distributions typically charge around 1% of assets for smaller trusts—say, those with a few million dollars. The percentage typically declines as the asset level increases.

Between 1985 and 2003, some $100 billion—about 10% of reported trust assets held by federally regulated financial institutions—moved to states that allowed long-term trusts and didn't tax trusts created by nonresidents, according to a study by Robert Sitkoff, a professor at Harvard Law School, and Max Schanzenbach, a professor at Northwestern University School of Law, published in the Yale Law Journal.

Since that study, states have tried to differentiate themselves further in an effort to attract more trust business.

According to Mr. Sitkoff, at least three states—Delaware, New Hampshire and South Dakota—have enacted laws that protect trustees from liability in the event the person who created the trust (the grantor) instructs the trustee not to diversify certain assets. Trustees in most states generally are required to diversify trust assets for risk-management purposes, though exceptions are made for illiquid assets like family businesses or real estate.

States also have different rules regarding trustees' obligations to disclose information to trust beneficiaries. Many senior family members worry that children and grandchildren who know they're going to receive significant sums of money won't be motivated academically or professionally, so they seek to keep the existence of a trust secret. Still, some attorneys and courts are uncomfortable with the withholding of information from beneficiaries, says Dana Fitzsimons Jr., a Virginia trust-and-estate attorney.

Really wealthy families—those with $100 million or more—might consider establishing a private trust company in states that allow them to do so, such as South Dakota, Nevada and Wyoming, say attorneys. The family then has a say in trust decisions and isn't limited to the investment products offered by a trust company.

"The whole issue is control," says Mark Merric, a Colorado estate-planning attorney, who along with Florida attorney Daniel Worthington published a journal article earlier this year on the most trust-friendly states. (Mr. Worthington serves on the audit committee and board for South Dakota Trust Co.)

Anyone contemplating an out-of-state trust can continue using an in-state attorney. The in-state attorney can draft trust documents and have a lawyer licensed in the more trust-friendly state confirm that they comply with and take full advantage of that state's laws.

If you ask about out-of-state options and your trust-planning professional gives you "a blank stare, I'd go elsewhere," Mr. Merric says.

Ms. McNamara is a former Dow Jones Newswires reporter. She can be reached at reports@wsj.com.

Heir Fights Doggy for Trust Fund

2010-06-17T09:02:00.000-04:00

Just some news of interest this morning.

Moms are so embarrassing, especially the ones who leave their pet chihuahua named Conchita a $3 million trust fund and the run of a Miami Beach mansion when they die. Bret Carr, however, the son of the recently deceased Gail Posner, is fighting his mom's last wishes challenging the legality of a will which left Conchita living, well, a dog's life. In a lawsuit, Carr is claiming household aides drugged his mother and forced her into giving them—and the dog—millions. According to Carr, the aides even convinced Posner to hire a doggy publicist to promote Conchita as "one of the world's most spoiled dogs." Carr, a filmmaker, is not without his own troubles, including an arrest for passing bad checks. The case, profiled in Thursday's Wall Street Journal, recalls the late Leona Hemsley who left $12 million to her pet Maltese named Trouble.

How To Manage Your Death Portfolio

2010-06-02T19:35:00.000-04:00

This story is about death and taxes—and estate planning.

If you don’t make appropriate financial plans, loved ones could pay unnecessary taxes, miss an inheritance, or wind up in a permanent rift. So, no matter what your net worth, you’ll need more than just a will to manage your death portfolio.

“Most people have the traditional legal documents, but they don’t have a simple Family Love Letter,” says Craig Silverman, retirement planning specialist with AXA Advisors in Melville, NY.

The letter that Silverman is referring to is a 50-page document, created by Jeff Scroggin, partner in Scroggin & Company in Roswell, Ga., and includes an inventory of advisors, assets and other information. It even contains details like account passwords, what frequent flyer miles you have, and if a neighbor owes you money.

While working on complicated tax documents several years ago, Scroggin realized nobody had ever thought of simple stuff like putting down whereabouts of a bank safety deposit box.

Scoggin learned the value of this the hard way. Scroggin's father, a decorated veteran, died with the wish that be buried in Arlington National Cemetery. Scroggin tried to fulfill the request, but realized he needed certain discharge papers. “I ended up finding them in a book mark in a book in his house,” he says.

A critical section of the Letter is the personal property list.

“There could be a million dollars of difference in inheritances and no one gets upset about that, but I’ve seen adult siblings shouting about a little yellow tweety bird that sat in their mother’s kitchen for forty or fifty years,” continues Scroggin.

Trust In Trusts

If you have a sizable estate or minor children to provide for, setting up a trust makes better sense for tax planning than leaving everything outright to your heirs, says Louis Mezzullo, Partner at Luce, Forward, Hamilton & Scripps in Rancho Santa Fe, California.

“The beauty of trusts is that they are as flexible as you want them to be,” adds Scroggin.

For example, if you want to distribute five percent of the annual income of a particular trust to your daughter every year, but no more, you can do that with a total return trust. On the other hand, if you don’t like required distribution, the trustee can be given absolute discretion of how, when and where. You can also specify that the money in a trust be spent only to educate children or grandchildren, and not on traveling through Europe.

Another reason that trusts are attractive, says Mezzullo, is that in many states, estate administration is time consuming and the probate tax is expensive, so many people try to avoid having their assets pass through probate by having them held in a revocable living trust (one that is set up when you are alive rather than when you die).

In addition to a will and trusts, Mezzullo and Scroggin agree that everyone should have medical directives, a living will and general power of attorney.

“The absolute number one rule is make sure that retirement account and life insurance beneficiaries are up to date,” says Herb Daroff, Registered Investment Advisor at Baystate Financial Planning in Boston, Massachusetts

This is important because beneficiary designations override your will. Retirement plan beneficiaries have become big issues, particularly in divorces. If the decree says the two divorcee’s assets are completely separate, but one dies in a car accident a year later and didn’t change his or her beneficiary designation, the ex gets the money.

Another thing which Silverman frequently finds is that there are no contingent, or second in line, beneficiaries. If, for example you name your wife as the beneficiary for your IRA life insurance, and don’t put your children second, it can go through probate if the first beneficiary is no longer around to collect.

"Today, the largest asset in most people’s taxable estate is going to be their retirement account, and you need to have adequate life insurance to be able pay the income taxes on these assets,” says Daroff.

Protecting Your Retirement Income

Here's why. Traditionally, people think of life insurance as something they need only during the pre-retirement period to pay off debt or cover expenses. However, Daroff suggests people have policies in place through the retirement years and arrange for their estate to apply the payout to the income taxes that the beneficiary will have to pay on retirement accounts.

Another life insurance tip, says Daroff, is that make sure that you are the owner of your own policy. In other words, it should be held outside the taxable estate in a proper trust. The reason is to protect your estate from the tax it will have to pay on the death benefit. Silverman recommends setting up an Irrevocable Life Insurance Trust (ILIT) when his clients are close to the estate tax limit.

If you are married, it is a good idea for tax planning purposes to split assets between yourself and your spouse. What frequently happens is that one partner tends to have more earnings and savings, as well as a bigger retirement account, and the overwhelming majority of the assets are in that person’s name. That preserves more of the potential inheritance.

Traditionally, estate planning has dealt with taxes, guardianship for minor children, and trusteeship for assets. However, these days people are considering how to manage the assets for the surviving spouse, kids, and grandkids.

You need to ask yourself what is the purpose of the money—is it just to provide income for your spouse, or is the money expected to run for several generations, or educate your grandchildren. Then, you need to decide if you want to restrict the kind of investments that fiduciaries can get into.

“People should do what they want, regardless of the tax consequence," says Mezzullo.

From: cnbc.com

Mind the Estate Tax Gap

2010-05-03T16:55:00.003-04:00

Lots to think about even though there is no Federal Estate Tax. Remember, there is a capital gains issue and a MA Estate Tax issue.

Bloomberg Business Week
By: Amy Feldman

Sure, heirs of the ultra-rich who die this year will get a break on estate taxes, but they could wind up paying even more in taxes on capital gains

For some time, people have been making morbid jokes about bumping off their rich relatives in 2010, a year that has no federal estate tax. The George W. Bush-era law that lowered the tax contained a one-year gap that Congress has never gotten around to fixing. The tax is set to return, at a 55% rate, on Jan. 1, 2011.

Few are laughing about it now. While heirs of the ultra-rich who die this year may enjoy an estate tax break (17,172 taxable estate tax returns were filed in 2008, according to IRS data), this gap year is having an unintended consequence. Far larger numbers of affluent families who suffer deaths this year could wind up paying stiff capital-gains taxes on inheritances. That's because of the disappearance of what's known as the "step-up" in basis, which allowed assets to be revalued for tax purposes at the time of death. "Many people are going to be worse off than before," says Clay R. Stevens, director of strategic planning at Aspiriant, a Los Angeles wealth-management firm. "If you've only read the sound bites, you've been misled."

Under last year's rules, estates below $3.5 million (or $7 million for a couple) were exempt from the estate tax; people above those limits were hit with rates as high as 45%. Crucially, assets were revalued at the time of death—"stepped up" to their full current value and not subject to capital-gains tax on past appreciation. When the estate tax went on hiatus, the "step-up in basis" rule for valuing assets went, too, so heirs are suddenly liable for capital gains on the past appreciation of assets they inherit and sell. For those who are bequeathed homes that have grown in value, family businesses that have expanded, or stocks that have risen in price, the old "step-up" rule let them start with a clean slate, owing no capital-gains taxes when they sold the assets. Not anymore.

An executor can now assign a "step-up" basis of up to $1.3 million to assets in the estate, and an additional $3 million for assets left to a surviving spouse. Many affluent families that have held assets for decades will bump up against those limits. Consider someone who inherits from their widowed father a home purchased for $100,000 decades ago that is now worth $2.5 million. Under last year's rules, assuming that was the only asset in the estate, there would have been no tax due because the estate would have been below the exemption amount. This year there would be no estate tax due either, but there would be capital-gains tax due on the $1.1 million in gain above the allocated step-up—$165,000 at the current 15% federal rate.

Things get more complex when family dynamics come into play. If there are multiple assets going to multiple heirs, the executor must choose how to allocate that $1.3 million in tax basis among the assets, a Solomonic task. "It may be applied so that it doesn't equally benefit all beneficiaries," Aspiriant's Stevens says. "You have to say, 'I'm giving you this asset and you get the step-up in basis, but I won't give it to that asset.' So two beneficiaries could receive the same fair market value of assets, but different amounts of aftertax value."

Take that example a step further. Assume that in addition to the $2.5 million house, there's $2.5 million in IBM (IBM) stock, bought for $500,000. If the house goes to the deceased's daughter and the stock to the son, the two would seem to get equal amounts. But because the daughter will owe more capital gains when she sells the house, she has actually received less—unless the executor allocates a larger portion of the step-up in basis to offset it.

Brent R. Brodeski, managing director at Rockford (Ill.) wealth-management firm Savant Capital Management, outlines a scenario where one adult child inherits a family business worth $5 million, with a tax basis of $1 million, and the other inherits $5 million in cash. Last year those bequests were equivalent in value. But without the step-up, the family business has an embedded capital gain that would be due at the time of the sale. Even if the executor allocated all of the $1.3 million to the business, that would still be the case, since there's $4 million in appreciation. "Does that mean that you have to look at the family business net of tax, and the kid with the cash has to ante up to the kid with the business?" Brodeski asks. "The kid with the cash says, 'My brother doesn't want to sell it, so I don't want to give him a bonus.' And the kid with the business says, 'I don't know if I want to pass it down to my kids, I might want to sell it.' How do you resolve that debate?"

These questions fall to executors, who face potential lawsuits from disgruntled heirs. There's also a record-keeping nightmare: tracking capital improvements parents made to a home or determining all the stock splits that occurred in a stock over 50 years. Estate attorneys are urging children of elderly parents who expect to inherit property that has substantially appreciated to ask parents to gather records now.

Last year the conventional wisdom was that Congress would fix the estate tax problem before yearend. More than three months into 2010, it's clear that even if Congress fixes the rules, it won't happen fast enough to forestall some families' estate tax hell. "I imagine we'll have decades-long court battles over it," says Brodeski. "It's a big, fat mess."

Feldman is an associate editor with Bloomberg BusinessWeek in New York.

Part-time Florida couple must pay Bay State taxes

2010-04-08T13:52:00.001-04:00

Residency is always a tricky issues. There are lots of factors to it and if you are contemplating a residency change, it is often helpful to check with an attorney before you do. There could be good and some not so good implications to your estate plan depending on which state.

Stock sale’s timing key to board’s ruling
The Boston Globe
By Todd Wallack
April 6, 2010

Warning to snowbirds: It takes more than a pair of winter homes in Florida to escape the long arm of Bay State tax collectors.

The Massachusetts Appellate Tax Board ruled late last week that the chairman of Timberland Co., Sidney W. Swartz, and his wife owe more than $890,000 in Massachusetts taxes and interest after selling millions of dollars in Timberland stock in 2004, even though they claimed to be Florida residents. Sidney retired as chief executive from Timberland, the trendy outfitter based in Stratham, N.H., in 1998, but remains chairman of the company.

Sidney and Judith Swartz, who spent most of their lives in Massachusetts, owned both a five-bedroom oceanside home in Marblehead and a condo in Brookline at the time of the stock sales. The couple also owned both a six-bedroom oceanside house in Delray Beach, Fla., and a condo near a country club in Boca West, Fla.

The Swartzes argued before the tax board that they had become Florida residents before they sold the stock, in late October and early November 2004. They said they spent less than half the year in Massachusetts — typi cally during the warmer months from May to October and lived in Florida the rest of the year.

But the tax board ruled they were still technically Bay State residents when they cashed in their Timberland stock.

For instance, when the couple bought the Brookline condo on Oct. 13, 2004, to be closer to their children and grandchildren, the deed said they were from Marblehead. And while Sidney Swartz changed his voter registration to Florida on Oct. 14, a few weeks before the stock sales, Judith voted in Marblehead with an absentee ballot in November 2004 and didn’t change her registration to Florida until December 2004.

In addition, the Swartzes continued to use their Marblehead address for many key documents, including their Florida real estate tax bill. And they didn’t obtain Florida driver’s licenses until Dec. 27, 2004, two months after the stock sales.

The board said in its ruling that it found the Swartzes “business and personal financial ties were stronger to Massachusetts than in Florida.’’

Judith Swartz declined to comment.

Assemble a Paper Trail, and Make Sure Your Heirs Can Follow It

2010-03-25T16:02:00.001-04:00

Great article and advice from The New York Times

By PAUL SULLIVAN

NO one wants to think about dying. But refusing to look at the documents that will determine where your money goes when you pass away will not make you live longer. It will just make sorting through everything more difficult for your heirs.

Any review of financial health needs to take into account the legal documents that govern our assets and our lives, if we become incapacitated or die with minor children.

Holly Isdale, managing director at Bessemer Trust, said she likes to break down this task into “high priorities and someday-maybes.” And this seems as realistic a strategy as any to force yourself to review these documents.

WILLS AND TRUSTS
The whole notion of the sanctity of a will has been thrown into disarray by the expiration of the estate tax. But the bottom line is that, before you can review your will, you need to have one. And 65 percent of Americans do not, according to a survey released last month by Lawyers.com.

There is no excuse for this. A basic will is cheap and can be facilitated through online sites like legalzoom.com.

Many people think that if they die without much money, their heirs will simply inherit it. They will, eventually. But first the state will appoint a conservator and hire lawyers, the costs of which will be deducted from your estate and ultimately decide how your money is passed on, said Edythe M. DeMarco, first vice president at Merrill Lynch Global Wealth Management. A simple will avoids this.

Once you have a will, it is crucial to keep it up to date. This should be done every five years or whenever there is a major life event. “The pitfall with the will is, they set it and forget it,” said Ken Kilday, a wealth manager at USAA.

In a year when there is no federal estate tax — though there will almost certainly be one in 2011 — reviewing wills and trust documents should be on everyone’s to-do list.

Reviewing both wills and trusts for someone with substantial assets is particularly important this year. Even though there is no estate tax, wills can have clauses that distribute assets to trusts as if the tax still existed. This could end up leaving some heirs too much money and others none at all. And since a federal estate tax will return next year even if Congress does nothing about it, there will be a need to review everything again in 2011.

BENEFICIARIES
The form that can often wreak havoc on a family is the beneficiary designation form. It determines who will get your insurance and retirement accounts, so-called contract assets as opposed to financial assets. Many people do not know that it overrides a will.

If you named your brother on your beneficiary designation form for an IRA and die 30 years later without having changed it, your brother, not your spouse or children, gets it.

This happens more often than you would think, advisers said. The reason is forgetfulness. “The worst thing from my perspective is to try to explain to a widow that her deceased husband’s former spouse actually inherits the IRA,” Mr. Kilday said.

Whether this is a high-priority or someday-maybe issue depends on your personal life. But one thing everyone should have is a contingent beneficiary, in case the first one dies before they do. Ms. Isdale said she suspected that many people neglect to name one at the time because they plan to do it later.

HEALTH CARE PROXIES AND GUARDIANSHIP
These are two high-priority documents because they address something far more important than money: what happens to you if you are incapacitated, and who cares for your children if you die.

With both, it is essential to make sure the person you have designated is still someone with whom you are in close contact. Often a guardian is named at a child’s birth, but the families move away or lose touch. When it comes to health care, you should also sign a HIPAA, or Health Insurance Portability and Accountability Act, release form so your health care proxy can have access to your medical records.

A related issue is the traditional power of attorney. Many people talk of having a durable power of attorney, but Mr. Kilday points out that if that were the case that person could act on your behalf immediately. What you want is a springing durable power of attorney, which is activated by events you detail.

This brings the conversation back to wills. “The other major pitfall is people have a power of attorney and they think that means they don’t need a will,” Mr. Kilday said. “The problem is that power dies with you.”

TITLING OF ASSETS
This is a someday-maybe issue because it can be time-consuming and expensive. For people who would have been subject to the old federal estate tax, for example, it would have made sense to retitle assets like a home in just one name. But, as Ms. Isdale pointed out, not all spouses feel completely comfortable ceding control.

Another issue is the well-meaning parent who, for help with her financial matters, puts one child on her accounts. When she dies, those accounts belong to that child alone, even though her will says the money should be split among all three children.

Even if that child wants to make things right with siblings, he could end up using some of his gift tax exemptions to do so. “You can disclaim it, but it’s messy,” Mr. Kilday said.

SINGLES AND SAME-SEX COUPLES
The law always looks for legally recognized family members in dispensing with your estate, but who is going to take care of your affairs if you are not in a traditional marriage?

Someone who is single may want to name a health care proxy who lives closer than a parent who could be thousands of miles away.

Ms. DeMarco said same-sex couples need to be particularly vigilant in their estate and proxy planning. She noted that until a few years ago in Rhode Island, where she works, a domestic partner could not make funeral arrangements; it had to be done by a family member.

Health care proxies are important, but so, too, are the documents that will direct assets to a partner. “For a nonfamily member, it’s a hard and difficult legal road,” she said. “In absence of these documents, the state is going to name the beneficiary, and the law looks to the bloodline.”

BALANCE SHEET
If your family cannot find the documents you have worked hard to update, you may have wasted your efforts. Ms. Isdale suggested drawing up a balance sheet that lists the basic information about your assets. She called this a high-priority item and suggested that a more exhaustive one should be on the someday-maybe list.

Mr. Kilday said he advises clients to include a final letter of intent. It has no legal standing, but it can help guide your heirs with what you want done after you’re gone. “Clients kind of chuckle and say, ‘It doesn’t matter to me, I’m dead,’ ” he said. “But from the kids’ perspective they want one last chance to respect and honor you.”

REPORT: ESTATE TAX BURDEN FALLS DISPROPORTIONATELY ON SAME-SEX COUPLES

2010-03-22T16:03:00.006-04:00

Here is a link to an interesting and humbling study released from UCLA concerning Same Sex couples and the Estate Tax.

The headline reads: New Study by Williams Institute Finds that Exclusion from the Estate Tax Marital Deduction Will Cost Affected Same-Sex Couples $3.3 million On Average

For the key findings and links to the full report, click here.

No Federal Estate Tax, but What About Your State?

2010-03-13T21:33:00.002-05:00

As a reminder, we in MA have a $1,000,000 estate tax. Our trusts and wills account for this. If you have any questions, always feel free to email or call the office.

By: Paul Sullivan
The New York Times

The first quarter is nearly over, and the federal government has made no move to reinstitute the estate tax. So dying today seems free, right?

There is just one problem: If you live in one of 20 states with a state estate tax, you could find your existing estate tax plans causing more harm than good.

State estate taxes are not new. They had just been a secondary element in the course of figuring out the much higher federal estate tax.

Now, the issue is sorting through wills written to maximize the old federal exemption from estate taxes — $3.5 million in 2009. In states with their own estate taxes, some of these provisions could distribute money and incur taxes in ways the deceased never expected — or maybe not if the federal estate tax is reinstated. As Jerry Weihs, director of advanced planning at Sun Life Financial, said: “We’re in a state of ambiguity.”

AUTOMATIC MISTAKES The biggest issue with the state estate taxes is wills that contain so-called formula clauses. Many wills were redrafted in the last decade to take into account the increasing federal estate tax exemption. Instead of rewriting the will every few years, clauses were put in to reflect the rising exemption amount.

Two commonly worded clauses for estates that left money in trusts could cause problems. “If the clause says you leave the applicable exclusion to your kids and the rest to a second spouse, that could now mean leaving nothing to your children since there is no applicable exclusion in 2010,” said Sharon Klein, head of wealth advisory at Lazard Wealth Management. “The other issue is if you leave the maximum that could pass free of federal tax to your children and the rest to a second wife, then it is skewed toward the kids, and the wife is disinherited.”

So far 12 states have introduced legislation to remedy this, but the proposals vary. New York, for example, looks at the intent of the will on Dec. 31, 2009, but this applies only if there is a surviving spouse. A formula clause that splits assets between nieces and charity will not function as intended. Florida’s solution could be even more contentious: it allows a judge to interpret the intent of the deceased, if a trustee or a beneficiary challenges the will.

UNEXPECTED TAXES A formula clause can also cause another costly problem. If it was written to send as much money as possible free of federal estate taxes to a credit shelter trust, the estate could pay an unexpected amount in state estate taxes.

That is because estate plans were often written so that the maximum amount that would not incur federal estate taxes would be passed to one set of heirs and the rest to a surviving spouse tax-free. In New York, which has a $1 million state exemption, the estate would have paid $229,200 in state estate taxes on the difference between the New York exemption level and the $3.5 million federal exemption.

Today, the entire estate could pass free of federal taxes. This could lead to an unexpectedly high state tax bill, said Stephen Akers, associate fiduciary counsel at Bessemer Trust. He said the tax on a $25 million estate in New York would be $3,466,800.

“In retrospect, it could be wise to pay that,” Mr. Akers said. “You might be able to avoid the federal estate tax on that much money.” But that is a big if, and it depends on whether Congress decides to make a new estate tax retroactive.

MARRIAGE PROBLEMS The absence of a federal estate tax also raises the question of whether an estate can finance a qualified terminal interest property (QTIP) trust. Such trusts hold assets left to a surviving spouse free of tax until the second spouse dies. The glitch is that a QTIP trust was typically selected when filing the federal estate tax return.

Mr. Akers said several states like Connecticut, Massachusetts and Pennsylvania have a state QTIP election and others are working on it.

In theory, people living in these states could end up far ahead of where they otherwise would have been, he said. If someone left his estate in a state QTIP trust, the surviving spouse would not have to pay estate taxes on it when she died. This is because the estate tax for the surviving spouse comes into play only if a marital deduction is allowed when the first spouse dies. Since there is no federal estate tax return to file, the marital deduction is not an option now.

Mr. Akers said this had not been tested, but it was a better option than leaving assets outright to a spouse, which would certainly be taxed when the spouse died.

Ms. Klein said she was advising clients to set up QTIP trusts, where allowed, as a hedge. By filing extensions to the estate tax returns, you could have up to 15 months to make the election, at which point the estate tax landscape should be clearer.

SNOWBIRD TRAP More jarring to retirees who escape to Florida in the winter may be a bill under debate in that state’s legislature. It proposes to tax property owned by non-Florida residents who are residents of states with state estate taxes.

This is a radical change for Florida, which has long enticed wealthy residents because it had no income or estate taxes. The proposal, on the surface, is a battle between states: Florida wants its cut of any estate tax collected by another state on Florida property. (As proposed, people who live in states without an estate tax will be exempt.) But where it would affect nonresidents is in the legal costs to make sure Florida gets its cut.

And there are also immediate costs of Congressional inaction: changing your will to reflect your state estate tax is not free. “There are going to be significant expenses for what may well be a temporary situation,” Mr. Weihs said.

Trying to Get Foxx's Estate Out of the Redd

2010-03-09T07:34:00.002-05:00

Interesting story from one of my father's favorite actors. I thought you might enjoy. Shawn

By Steve Friess

LAS VEGAS (March 7) -- It could easily have been the plot for a "Sanford and Son" episode: a bizarre money-making scheme cooked up by a well-meaning but possibly misguided man that seems destined to go comically awry.

But in this real-life case, it's a county official in Las Vegas who is trying to put the life story of late "Sanford" star Redd Foxx on the block to resolve mammoth debt the actor left behind. Foxx owed more the $3.6 million in taxes to the IRS when he died 19 years ago.

The trouble is, it's not clear that such a thing can actually be sold or what its value might be.

When Cahill surveyed the outstanding cases after taking office in 2007, Foxx's name stood out. The performer was a longtime resident of Las Vegas, where he frequently performed stand-up comedy during his career. He died in 1991 at a Los Angeles hospital.

Cahill learned that Foxx's daughter, Debraca Foxx, had been removed in 2006 as the administrator of the actor's estate because she had failed to provide an accounting of revenue received in royalties, residuals and licensing deals since her father's death.

Foxx's fourth wife and widow, Ka Ho Foxx, has accused Debraca Foxx in court filings of pocketing money that should have gone toward paying down the tax debt. As a result of the family squabble, the probate court put the public administrator in charge of managing the estate and resolving the debts.

Since 2007, Cahill's office has aggressively pursued the case, according to public documents, collecting more than $101,000 owed to the estate. Payments include a $5,000 fee from CBS Studios for use of a video clip of Redd Foxx in an episode of "Everybody Hates Chris" and $3,000 from Hallmark for use of Foxx's image on a greeting card.

"The estate had no assets at all at that time, although we've been able to locate some assets, collect some royalties since then," Cahill said. "This was the big-ticket item, the rights to his story. That was an asset to be marketed."

So Cahill kept his efforts to sell the story quiet until last month, when his office issued an unusual press release announcing that it had received offers from $20,000 to $2 million and that Cahill had done lunch and taken meetings with Hollywood types.

A producer even brought along an actor interested in playing Foxx "who was in a popular TV series that had recently ended," Cahill said in an interview. He declined to disclose the actor's name but said the deal fell through, as has every other prospect.

"Who I'm waiting to call, the call that would make my day would be Jamie Foxx," Cahill said. "That would be great for so many reasons. There's the connection there." The Oscar-winning actor's professional name is an homage to Redd Foxx.

The deals may have failed because the concept of selling a life's story is one that doesn't exist, said intellectual property rights attorney Eric J. Goodman, a partner in the law firm of Burkhalter, Kessler, Goodman and George in Orange County. He regularly deals with celebrity cases.

Goodman said Nevada allows for the marketing of someone's "right of publicity," defined in the law as the ability to use a "name, voice, signature, photograph or likeness" of anyone for commercial purposes.

Among the exceptions, however, is "the use in connection to an original work of art" and the use "to portray, imitate, simulate or impersonate a person in a play, book, magazine article, newspaper article, musical composition, film, or a radio, television or other audio or visual program, except where the use is directly connected with commercial sponsorship."

"The issue for the administrator is if they're going to sell bobblehead dolls, great, that can be bequeathed to an estate," Goodman said. "But he's proposing the use of Redd Foxx's name for commercial use. A film is a piece of art. I think the administrator has good intentions and this is a very creative idea, but what he's selling is the Brooklyn Bridge here. Who's to say anybody else can't come along and sell their own biography of him?"

Travis Twitchell, a Las Vegas-based attorney hired by Cahill's office, reads the law differently. To him, the use of Foxx's name or portrayal in a movie would be a commercial endeavor.

But Twitchell's definition presents other problems -- namely that, in his view, a filmmaker could never tell Foxx's life story without participation from and possible compensation for other people in his life. Neither Cahill nor Twitchell can promise any prospective buyer that Foxx's survivors would go along -- thereby undermining the value of the rights.

Debraca Foxx remains under an unfilled court order to account for money received during her years as administrator. She could not be reached for comment. And an attorney for Ka Ho Foxx said she plans to object in court to Cahill's effort to market the rights.

As for Cahill, he plans to step out of the Hollywood arena. At an April court hearing, he expects a probate judge to approve a licensing deal with CMG Brands, a large Hollywood firm that licenses the image and material of dozens of stars.

He realized he was out of his depth, he said, when he dined with the unnamed producer and TV star. It was hardly glamorous, just a quiet meal at a suburban chain restaurant about 10 miles from the seemingly more appropriate setting of the Las Vegas Strip.

"We did joke around about who would play me," said Cahill, sort of a burly, Wilford Brimley-meets-Ed Asner type. "But how Hollywood does what they do is something of a mystery to me. We're about to find out."

Traditional to Roth IRA conversions: Don’t be tripped up by tax implications

2010-02-13T08:09:00.000-05:00

Another good overview from The Boston Globe.

By Humberto Cruz
When you try to oversimplify tax matters, you often commit inaccuracies. I’ve found plenty, from slight to gross, in the nearly incessant media commentary about Roth IRA conversions. No wonder readers are confused.

As of this year, anybody with a traditional IRA can convert all or part of it to a Roth IRA. A Roth IRA offers the potential for future tax-free withdrawals. But if you convert, you will owe income taxes on the converted amount the same as if you withdrew the money from the traditional IRA (but with no 10 percent penalty, regardless of age).

That’s where the first inaccuracy creeps in. Many reports I’ve read state that if you convert, you will be taxed “upon conversion.’’ That phrase has led many readers to believe that as soon as you make a conversion you must send a check to the IRS for the taxes due on that conversion.

Not so. The taxable amount of the conversion simply counts as taxable income for the year. How much of the converted amount is taxable will depend on whether your traditional IRA includes nondeductible contributions.

If you have little additional income and enough exemptions and deductions, a small conversion may cost you little or even nothing in taxes.

But a big conversion can be expensive if the additional taxable income pushes you into a higher tax bracket and/or makes you ineligible for certain tax credits. You may be required to pay quarterly estimated taxes to meet your tax liability and avoid a penalty.

Another common inaccuracy is the assertion, and I quote, that “taxes from a Roth IRA conversion in 2010 can be split between 2011 and 2012.’’

The facts: If you convert in 2010, you can either report all the taxable income from the conversion on your 2010 tax return or report half of it on your 2011 return and the other half on your 2012 return. (You may not, as many readers believe, report one-third of the income for 2010, one-third for 2011, and one-third for 2012). The option to split the income exists for 2010 conversions only.

So, in reality, you may not have to start paying the taxes from a 2010 conversion until 2012, when you file your 2011 tax return.

Another inaccuracy is that it is the taxable income from the conversion and not the actual tax that may be split between the two tax years, said Kim Saunders, a tax analyst for Thomson Reuters.

“This seems a pretty important point to clear up,’’ an observant reader wrote. A large converted amount one year may push a taxpayer into a much higher tax bracket and result in a large tax bill that could be reduced by splitting the income. But a risk of income splitting is tax rates may go up for 2011 and 2012.

A decision on when to declare the income from a 2010 conversion does not have to be made until you file your 2010 return, Saunders said. By then, tax rates for at least 2011 will be known.

Vermont tax repeal effort draws controversy

2010-02-08T15:11:00.001-05:00

News for our neighbors to the north.

Burlington, Vermont - February 7, 2010

As the Vermont legislature struggles to find $150 million worth of budget cuts this year, an attempt to roll back two tax increases is running into opposition. At issue are the capital gains and estate taxes, primarily affecting upper income Vermonters. But there's evidence that the two taxes are driving wealthier residents out of state to places like Florida.

The Vermont senate Economic Development committee met at Burlington city hall last week to hear testimony on repealing last year's increases on the state capital gains tax and the estate tax. Although farms were excluded from the death tax, as critics call it, the two taxes together raise tens of millions of dollars a year. And tax advisor Rick Wolfish told the panel the higher taxes are driving out high-income Vermonters.

"That is exactly what is happening," he told the panel, "that people are leaving the state. And CPAs and professionals are advising them."

Last year, the legislature lowered an exclusion on the estate tax from $3.5 million to $2 million. Tax experts say it's not just big Wall Street investors who get hit. Any Vermonter who built up a small business can get hit at anything over two-million of net assets, upon his or her death.

Wolfish said, "Under current law, if a taxpayer is considering the sale of a business, why not move to another state before the sale and pay no Vermont on the sale whatsoever?"

Real estate developer Ernie Pomerleau agreed. He said, "You know, there are people who can survive this, there are people who just say enough is enough. I can live someplace else."

Pomerleau has invested millions in Vermont development projects, creating jobs in the process. He says he'll never leave Vermont. "I'll die with my boots on here," he said. But Pomerleau said he knows others who already have left. "I know three dozen colleagues that are gone," he told the senators. "And I know you'll hear 'one comes in, one goes out.' The ones that go out have been here for forty years creating jobs, philanthropic, part of the energy of this community."

The legislature raised estate and capital gains taxes to help close a looming budget deficit as Vermont was losing 20,000 jobs along with a lot of income tax revenue. One Progressive policy advisor says the state simply cannot afford to restore a capital gains tax break. Doug Hoffer testified, "We have four years of data from when the capital gains exclusion was adopted, in those four years it cost us over $150 million. Now, the highest year was $51 million in a single year. That's a big hole to fill."

But supporters of the tax repeal say the question comes down to whether high state taxes are killing the goose that laid the golden egg. Still, the fact that the economic development committee is the only legislative committee to take up the repeal indicates how difficult that is likely to be.

Andy Potter -- WCAX News

IRS Silent So Far On New US Tax Rules For Inherited Wealth

2010-02-06T22:30:00.001-05:00

Our trusts are drafted in such a way to account for the change, but still going to be an interesting time figuring it all out.

By Martin Vaughan, Of DOW JONES NEWSWIRES

WASHINGTON -(Dow Jones)- The U.S. Internal Revenue Service is taking a wait- and-see approach on issuing guidance dealing with taxes on inherited wealth, unsure whether Congress will act in the next several months to change the rules again.

Advisers to the wealthy say they are left without a roadmap on a number of issues related to the disposition of assets left behind by those who have died since Jan. 1. In particular, they are looking to IRS for rules on how a new capital gains-tax regime that took effect this year will apply to estates.

"There are no forms that give us any idea how or what we are supposed to report," said Stephen Litman, an estate planner at the Minneapolis law firm of Leonard, Street and Deinard. "This leads to significant administrative challenges for families."

Congress is weighing whether to set permanent rules for taxing estates, and whether to make those rules retroactive to the beginning of this year, but such action is weeks, and maybe even months, away.

The 2001 tax-cut law was aimed at gradually eliminating estate taxes, but repeal proponents at the time lacked the congressional majorities needed to do so permanently.

As a result, the federal estate tax was repealed for 2010 only, and is scheduled to return in 2011 at rates similar to those in effect prior to President George W. Bush's tax cut legislation.

In place of the estate tax for 2010 is a capital gains tax that is levied when assets are sold. Heirs would have to pay capital gains taxes on the full appreciation in value of the asset from the time it was acquired by the deceased benefactor, a concept known in tax circles as "carryover basis."

That means that families have an additional step of searching records to establish the basis value of the asset, which was unnecessary when estate taxes were in place.

"Carryover basis rules have added another level of complexity," said Carol Kroch, head of wealth and financial planning at Wilmington Trust Corp. "Families will have to go through a more difficult process of valuing assets."

The 2010 law provides that heirs can get a "step-up" in basis, meaning no capital gains taxes would be due if the asset is immediately sold, for up to $ 1.3 million of the estate property. Surviving spouses can get a step-up in basis for an additional $3 million in property.

Families will have to decide which assets to protect from capital gains taxes with the basis step-up. For example, property that is to be sold in the near future might be a good candidate, to avoid an immediate tax consequence. It might also be wise to protect property that has been in the family for a long time, and therefore has a low basis, wealth advisors say.

All that said, Congress might pass legislation that reinstates the estate tax for 2010 and eliminates the carry-over basis rules, which would make all such planning moot.

That may explain why IRS for now is waiting for the legislative picture to come into focus.

"We are currently looking at the issues involved to determine the best course of action," said IRS spokesman Bruce Friedland.

Families generally have nine months from the death of the estate owner to file estate tax returns, so there is a little breathing room before they have to make decisions about how to allocate assets.

"I don't think anyone would be distributing assets yet," said Kroch. "Over time, estate executors will have to make a decision about how much to hold in reserve for the estate tax" in case Congress re-imposes it retroactively, she said.

Another option that is getting some discussion by congressional staff is an election that would allow the family members of people who died between Jan. 1, 2010 and when new legislation takes effect to choose between paying estate taxes, for example at the rates in effect in 2009, or the capital gains-tax regime under the current law.

As we celebrate the life and legacy of MLK

2010-01-19T07:57:00.000-05:00

Yesterday, we celebrated the life of Martin Luther King, Jr., one of the main leaders of the American Civil Rights Movement.

Dr. King devoted all of his income and talent to the movement. He died intestate (no Will), leaving less than $30,000 in his estate. Some of that money was already earmarked for the movement.

Additional information about Dr. King’s legacy is available on NPR’s Talk of the Nation entitled The Legacy of Martin Luther King Jr

Estate tax repeal seen bringing chaos

2009-12-18T15:10:00.000-05:00

By Kim Dixon

WASHINGTON (Reuters) - The scheduled expiration of the tax on wealthy estates in the United States, unthinkable just days ago, has whipped the wealthy and their estate planners into a flurry of confusion over the changes to the controversial tax.

Under a quirk in the law, beginning on January 1 there will be a one-year repeal of a 45 percent tax on the value of estates over $3.5 million for individuals and $7 million for families.

"I'm going to be fending calls from people saying, 'Should I keep mom plugged in?'" said Carol Harrington, head of the private client group at law firm McDermott Will & Emery. "This is a disaster even if you are in favor of repeal."

Now, those who die on December 31 will pay the tax, while those who die a day later will not. In addition, the law's expiration unleashes a slew of changes, including for capital gains treatment of estates.

And because of the same quirky 2001 law that repeals the tax for a year, the estate tax is due to spring back to life in 2011 at a higher rate of 55 percent rate, which would be levied on estates with a value over $1 million for individuals.

The conventional wisdom had been that the Democrat-controlled Congress would pass an extension of current law. But opposition from Republicans to the tax and a U.S. Senate mired in a partisan health-care debate has prevented that from happening.

Once the current estate tax expires on December 31, those inheriting states will have to pay capital gains taxes on any assets sold based on the original price paid for the asset, after an exemption for the first $1.3 million in capital gains.

That is changed from the current law, which uses the market value of an asset at the time the estate is inherited as the basis for calculating capital gains on any future sale.

This will mean higher taxes for as many as 70,000 taxpayers, according to House Democrats, many more than will be impacted by elimination of the estate tax itself.

Tax experts say that the change will create a major problem because of the paperwork needed to establish the original investment price. Without documentation, the original basis goes to zero, meaning that the full sale price would be taxable after $1.3 million.

"Many people don't keep records," said Brenda Schafer, manager of tax analysis at the Tax Institute at H&R Block. "It's not like we can go back in time and get those records."

The estates of about a quarter of 1 percent of Americans would be subject to the estate tax under an earlier bill introduced by Democrats to extend it permanently, according to the Brookings Institution-Urban Institute Tax Policy Center.

CONSTITUTIONALITY OF A FIX

An aide to Senate Finance Committee Chairman Max Baucus said Baucus still holds out hope for an 11th-hour extension of the current tax, though most analysts are dubious.

"I am stunned that the Democrats, who have professed undying support for estate taxation all these years, have been in power for now this time, and not enacted" an extension," said Bill Ahern, policy and communications director at the conservative Tax Policy Foundation, which backs a repeal of the estate tax.

The tax has divided some Democrats, with conservatives from the party teaming with Republicans to propose a lower tax with a greater exemption level.

The battle will likely begin anew next year. Baucus said he will aim to retroactively reenact the tax at current levels, a policy backed by most Democrats.

But Clint Stretch, a former legislative counsel to the joint congressional committee on taxation, said there is a debate about the constitutionality of such a fix.

"Since scholars are divided in their opinions on whether the Constitution allows Congress to retroactively reimpose those taxes, litigation will result," he predicted.

And the politics are complicated by the reinstatement of the tax at a higher rate in 2011.

Progressive groups such as the Citizens for Tax Justice see this as the silver lining of a one-year repeal.

The specter of higher rates has led traditional opponents of the tax, such as the Chamber of Commerce and small business groups, to back a permanent extension of current policy.

Baucus to Try Next Year to Extend Estate Tax Retroactively

2009-12-16T15:09:00.000-05:00

Washington Post
December 16, 2009

WASHINGTON -- Senate Finance Committee Chairman Max Baucus (D., Mont.) said he will try early next year to pass legislation ensuring no lapse in the estate tax, after Republicans blocked another effort to extend the tax for a three-month period.

Democrats had sought to extend the tax at its current, 2009 levels, but it now appears likely the tax will be repealed as scheduled Jan. 1. Mr. Baucus said he will try to move legislation early in 2010 that ensures that there won't be a window where wealthy estate owners who die will escape the tax.

"We clearly will work to do this retroactively, so that when the law is changed, it will have retroactive application," Mr. Baucus said on the Senate floor Wednesday.

Mr. Baucus sought unanimous consent from the Senate for a two-month extension of the tax, warning that allowing the tax to be repealed pending congressional action would create unnecessary confusion.

But Republicans said the repeal should be allowed to take effect, as provided under current law. "The problem doesn't have to exist if they'll just leave the existing law alone, and let the rate go to zero, where everyone wants it anyway," said Sen. Jon Kyl (R., Ariz.).

In 2009, estate wealth above $3.5 million, or $7 million for married couples, is taxed at a 45% rate. The estate tax will disappear in 2010, replaced by a capital-gains tax paid when heirs sell inherited assets. Then in 2011, unless Congress acts, the estate tax will return to tax estates above $1 million, or $2 million for couples, at a 55% rate.

Mr. Baucus called that a "yo-yo effect."

"It's so irresponsible to further the yo-yo effect by allowing current law to expire, and create this massive confusion," he said.

House votes to make estate tax permanent

2009-12-07T10:33:00.000-05:00

By Kim Dixon
December 3, 2009

WASHINGTON (Reuters) - The U.S. House of Representatives passed a permanent extension of the federal estate tax on Thursday, but the measure, which taxes estates at rate of 45 percent after exempting the first $3.5 million, is likely to be changed in the Senate.

The current tax is due to expire on December 31 but return in 2011, when it will exempt just the first $1 million of an estate while taxing the remainder at a rate of 55 percent.

Keeping the current rate would cost the government $234 billion of revenue over 10 years, according to a congressional tax committee.

The bill passed 225 to 200, drawing all its support from Democrats.

"The estate tax is critical to prevent a permanent aristocracy from arising in this country," said Jared Polis, a Colorado Democrat who said, as one of the wealthiest members of the House, he would pay the tax under the bill.

Republicans blasted the bill and called for complete repeal of the tax. "Death in and of itself should not be a taxable event," said Dave Camp, a Michigan Republican.

Preserving the 45 percent rate and the $3.5 million exemption indefinitely will be much harder in the U.S. Senate because of the cost. In addition, Senate lawmakers are consumed by the healthcare reform bill debate, which could continue into January.

Given the price tag, the bill is "pretty much a non-starter" in the Senate, analyst Anne Mathias at Concept Capital said.

A likely compromise in the Senate is a one-year extension of current law, which would raise some money because of the 2010 phase out.

The estates of about a quarter of one percent of Americans would be subject to the tax under the House bill, according to the Brookings Institution-Urban Institute Tax Policy Center.

The non-partisan Congressional Budget Office reported in 2005 that fewer than 2 percent of all estates have had to pay estate taxes in recent years.

Republicans warned Democrats would suffer at the ballot box if they extend the tax, citing Americans' general dislike of any new taxes.

Democrats countered by citing prominent estate tax proponents, including investors George Soros and Warren Buffett, who has argued the tax helps keep America a meritocracy.

BUSINESS GROUPS SPLIT

Business groups are divided on the legislation.

The Chamber of Commerce has long called for the abolition of the estate tax, although recently said it was willing to back a continuation of the current law.

"The uncertain nature of the estate tax regime over the next two years is a major concern for business, many of which are struggling in this current economic downturn," Bruce Josten, a lobbyist for the Chamber, said in a letter to lawmakers on Wednesday backing the Democrat's bill.

The National Association of Manufacturers urged rejection of the bill, saying its members pay tens of thousands of dollars in fees for estate planning.

CAPITAL GAINS RELIEF

The House bill contains capital gains tax relief for those inheriting estates by repealing so-called carry-over basis rules.

With no action, those inheriting estates after December 31 will have to calculate capital gains taxes based on the original price paid for the property.

"People will be stuck with large tax bills forcing liquidation if they were forced to pay a capital gains tax on a 1959 basis," said Polis, the Colorado lawmaker. "Do opponents truly believe making families pay capital gains is better?"

The American Farm Bureau, the nation's largest agricultural group representing all sizes of farms, opposes any estate tax but backs the portion of the bill that repeals the cost basis rules. The group had no data on how many of its members would be impacted by the tax.

(Editing by Steve Orlofsky and Tim Dobbyn)

Interesting Estate Update- Howard Hughes

2009-10-30T11:13:00.000-04:00

Real-Estate Slump Hits Howard Hughes's Heirs
General Growth Bankruptcy Filing Puts Payout in Limbo.

Wall Street Journal
By KRIS HUDSON

Reclusive billionaire Howard Hughes was an only child, dying in 1976 with no will or children.

Mr. Hughes's estate now has more than 1,000 heirs and beneficiaries who are hoping for one last, big payout from a swath of Las Vegas land bought by the tycoon in the 1940s to establish an inland base for his aerospace operations.

They are likely to get little. The housing bust has shriveled the value of the 7,000 acres left in what is now called the Summerlin development in Las Vegas, once thought to be worth as much as $2 billion. The property also has gotten bogged down in the bankruptcy of mall giant General Growth Properties Inc., which controls the land and was supposed to make a final payment to the Hughes group early next year.

"There's terrible disappointment," says Platt Davis, a retired lawyer in Houston and second cousin of Mr. Hughes who leads the group of heirs along with two other beneficiaries. The 2010 payment is supposed to be equal to half the appraised value of the remaining land at the end of this year.

Summerlin represents the last chapter of the Hughes-estate saga, which is almost as extraordinary as the life of the aviator, film director and entrepreneur who set world speed records for flight, romanced Katharine Hepburn and founded Hughes Aircraft Co.

Eric Kayne for The Wall Street Journal Howard Hughes's heirs -- led by, from left, David Elkins, David Lummis and Platt Davis -- will be hard-pressed to get final payment on the Summerlin development in LasVegas, below, after General Growth filed for bankruptcy.
. Olga Minkevitch for The Wall Street Journal ..When Mr. Hughes died, his holdings encompassed 26 disparate companies that included seven Las Vegas casinos, a struggling helicopter maker, several aircraft, a television station, private airport, regional airline, mining claims and a bag of casino chips he neglected to redeem. Summerlin was then 22,500 undeveloped acres of desert and scrub.

Because Mr. Hughes had no will or children, his estate initially was divided among his cousins, aunts, uncles and other relatives. Law firms and other professionals that did the initial work to sort out the estate and fix up some assets for disposition accepted small shares of the proceeds as payment for their services.

The number of claimants and their beneficiaries has grown to more than 1,000 people, including more than 200 relatives of Mr. Hughes. They so far have collected more than $1.5 billion from the liquidation of his estate, according to figures provided by the group.

The heirs include schoolteachers, ministers, college professors, homemakers, architects, a federal judge and a rancher. Mr. Davis and the other co-leaders of the group, second cousin David Lummis and former lawyer David Elkins, say they have fielded questions and concerns by phone, email and even in person at reunions of various Hughes family branches.

Catherine Russell received her share of Mr. Hughes's estate in her 1986 divorce from her husband, a lawyer whose firm did work for the Hughes heirs. The money she received every year amounted to at least a few thousand dollars but never more than half her annual salary, helping to cover college for her son and daughter and medical costs after a drunken driver hit her in 1989.

Ms. Russell, a deputy commissioner in California's Department of Real Estate, also steered yearly proceeds toward the care of her son, now 38 years old and mentally disabled because of a 1994 motorcycle accident. She planned to use the final Summerlin payout to establish a trust for her son and put a deposit on a house.

Now that the payment is on hold with General Growth's other debts and obligations, Ms. Russell describes her situation as "very disconcerting and depressing." While many people assume that all of the beneficiaries of the Hughes estate are rich, she says, "it is very depressing to be 60 years old and no longer be able to afford a piece of property and to pass something on to my children, especially considering my son's disability."

General Growth, owner of more than 200 U.S. shopping malls, says it wants to resolve the Hughes claim.

"The company is optimistic that a fair resolution will be reached with the Hughes heirs, as with all of our stakeholders, as we proceed through the process of emergence from bankruptcy," President and Chief Operating Officer Tom Nolan says.

Mr. Hughes bought the Las Vegas land, which the heirs later named Summerlin after his grandmother, because he was concerned that the Japanese attack on Pearl Harbor in 1941 had exposed the vulnerability of the aircraft industry along coastal California.

By the mid-1990s, the area was hot real estate. In 1996, the Hughes group agreed to sell the property to Rouse Co., a large developer.

In the negotiations, Rouse and the Hughes group couldn't agree on a purchase price because so much of Summerlin had yet to be developed. Instead, they formulated a profit-sharing agreement, in which the heirs would receive half of each year's profits from sales of Summerlin land to home builders over 14 years. And instead of cash, the heirs decided to receive payments in stock, which helped them defer taxes.

Those payments amounted to roughly $570 million in stock as Summerlin was developed. Roughly 95,000 people live there now. But land values have fallen so drastically in Las Vegas that the Summerlin claim might now be worth less than $100 million, says analyst Kevin Starke of CRT Group LLC.

One other problem facing the Hughes group: General Growth bought Rouse in 2004, inheriting the pact with the heirs. In April, the mall owner, struggling under $27 billion of debt, sought Chapter 11 bankruptcy protection. Heirs who held on to General Growth stock from earlier payments saw its value fall 92% from its high of $67 in March 2007.

Now that General Growth is in bankruptcy, the Hughes group must get in line with the hundreds of other creditors, submitting a claim to U.S. Bankruptcy Judge Allan Gropper next month. Stuck in the pecking order with shareholders, Mr. Hughes's heirs and beneficiaries get nothing unless General Growth's lenders and debt holders recoup the full amounts of their claims.

As part of the process, General Growth and the Hughes group will need to decide whether to keep the old deal, revise it or strike a new one subject to the judge's approval

Estate Tax Update

2009-10-27T16:38:00.001-04:00

WASHINGTON -- House Majority Leader Steny Hoyer (D., Md.) said Tuesday he supports a move to permanently fix the estate tax at 2009 levels and expects it will be adopted by Congress before the end of the year.

The staff on the tax-writing Ways & Means Committee is working on legislation that would set the rate of the tax at current levels.

The House legislation would continue the 2009 estate tax parameters indefinitely. It would exempt estate wealth under $3.5 million, or up to $7 million for a married couple, and tax inheritances above that amount at 45%.

If Congress does nothing, the estate tax would be repealed for one year in 2010. It would then snap back in 2011 to levels not seen since before President George W. Bush signed landmark tax legislation in 2001. That rate would only allow a $1 million exemption and charge any income over that amount with a 55% levy.

The extension would cost the taxpayer $233 billion over the next decade, because currently the federal budget assumes the rate will increase sharply from 2011.

The House measure would attach language requiring implementation of pay-as-you-go budget rules for most other mandatory spending. The Senate opposes this effort, which could set up an end-of-year battle between House and Senate lawmakers.

Some lawmakers are advocating a more generous exemption, lifting the threshold to $5 million for individuals and lowering the effective rate charged to 35%.

Write to Corey Boles at corey.boles@dowjones.com and Martin Vaughan at martin.vaughan@dowjones.com

The Higher Lifetime Costs of Being a Gay Couple

2009-10-03T20:57:00.002-04:00

Interesting article that shows the complexity of life and estate planning for LGBT couples.

BY TARA SIEGEL BERNARD and RON LIEBER
The New York Times

Much of the debate over legalizing gay marriage has focused on God and Scripture, the Constitution and equal protection.

But we see the world through the prism of money. And for years, we’ve heard from gay couples about all the extra health, legal and other costs they bear. So we set out to determine what they were and to come up with a round number — a couple’s lifetime cost of being gay.

It was much more complicated than we initially imagined, and that’s probably why we’ve never seen similar efforts. We looked at benefits that routinely go to married heterosexual couples but not to gay couples, like certain Social Security payments. We plotted out the cost of health insurance for couples whose employers don’t offer it to domestic partners. Even tax preparation can cost more, since gay couples have to file two sets of returns. Still, many couples may come out ahead in one area: they owe less in income taxes because they’re not hit with the so-called marriage penalty.

Our goal was to create a hypothetical gay couple whose situation would be similar to a heterosexual couple’s. So we gave the couple two children and assumed that one partner would stay home for five years to take care of them. We also considered the taxes in the three states that have the highest estimated gay populations — New York, California and Florida. We gave our couple an income of $140,000, which is about the average income in those three states for unmarried same-sex partners who are college-educated, 30 to 40 years old and raising children under the age of 18.

Here is what we came up with. In our worst case, the couple’s lifetime cost of being gay was $467,562. But the number fell to $41,196 in the best case for a couple with significantly better health insurance, plus lower taxes and other costs.

These numbers will vary, depending on a couple’s income and circumstance. Gay couples earning, say, $80,000, could have health insurance costs similar to our hypothetical higher-earning couple, but they might well owe more in income taxes than their heterosexual counterparts. For wealthy couples with a lot of assets, on the other hand, the cost of being gay could easily spiral into the millions.

Nearly all the extra costs that gay couples face would be erased if the federal government legalized same-sex marriage. One exception is the cost of having biological children, but we felt it was appropriate to include this given our goal of outlining every cost gay couples incur that heterosexual couples may not.

Our analysis is not exact science. Not every couple would get married if they could, and others would not want to have children. We also made a number of assumptions based on average costs, life spans, state of residence and gender.

Our gay family is made up of two women living in New York State in a committed partnership that lasts 46 years, until the first partner dies at age 81. We ran two sets of calculations: in the one that turned out to be our worst case financially, one woman earned $110,000 and the other $30,000. In our second couple, both partners earned $70,000. We started running the numbers when both were age 35.

We received assistance from Roberton Williams, a senior fellow at the Tax Policy Center, who performed our tax analysis, which required simulating more than 900 income tax returns, in part because we followed the partners for 50 years. We also decided to run all scenarios across the three states so that the results would not be skewed by different state taxes. We’ve outlined all the detail in a workbook linked to the online version of this column.

As for the emotional costs of living with these added complexities, they can’t be quantified. Frederick Hertz, a lawyer in Oakland, Calif., who works with same-sex couples, likens heterosexual marriage to being in the car pool lane. “Being part of a same-sex couple, it’s always stop. Wait. Pay a toll,” he said.

Harvey Hurdle, who lives in Philadelphia with his partner and their young son, said he was reminded of the disparities every time his Social Security statement arrived in the mail. “It’s pretty insulting,” he said. “It says your spouse would get this much. And it’s like, ‘Oh no he won’t!’ ”

Health Insurance

In our worst case, the lower earner’s employer did not provide health insurance and her partner’s employer didn’t cover domestic partners. So the lower earner had to buy coverage on the private market, while the higher-earning partner provided coverage for herself and the two children. All this cost the gay couple $211,993 more than their heterosexual married counterparts, who were able to take advantage of the higher-earner’s family coverage.

In our best case, health coverage cost the gay couple $28,595 more. We assumed both gay partners were eligible for employer-provided coverage. The higher-earner’s employer also provided domestic partner coverage, which covered her partner for the five years she stayed at home. When she returned to work, she used her own employer’s insurance.

Even though the couple paid nearly $29,000 more in premiums than an identical heterosexual married couple, it was cheaper than using domestic partnership coverage throughout because of the onerous tax implications, according to Mr. Williams of the Tax Policy Center. A nondependent partner’s coverage is taxable income, and she can’t use pretax dollars to pay the premiums, according to Todd A. Solomon, a partner in the employee benefits department of McDermott Will & Emery in Chicago.

Social Security

All our hypothetical individuals started collecting Social Security when they were 66. Same-sex couples are not entitled to a variety of Social Security benefits, including spousal benefits (heterosexual spouses can receive up to 50 percent of a spouse’s benefits while the spouse is alive, if they are higher than their own); survivor benefits (surviving spouses can receive their deceased spouse’s benefits in lieu of their own, if they are higher); and a flat death benefit of $255.

In the worst case, the gay partner who earned $30,000 could not receive higher spousal benefits or survivor benefits from her partner’s much higher earnings record. Nor was she entitled to the death benefit. In total, the gay women collected $88,511 less in Social Security than a similar heterosexual couple. Some couples might try to buy life insurance in an attempt to replace the benefit.

In our best case, when the gay partners had largely identical incomes, neither was at a huge disadvantage because they ended up with about the same monthly benefits. So the only extra benefit a heterosexual married couple received was the $255 death benefit.

Estate Taxes

Heterosexual married couples can transfer an unlimited amount of assets to each other during their lives and at death without paying estate taxes. Everyone else, including married same-sex couples, must pay federal estate taxes on amounts that exceed the 2009 exemption of $3.5 million. Many states also levy their own estate or inheritance taxes, though same-sex couples may be shielded from those in states that recognize their unions. Our couple lived in New York, where the estate tax exemption is $1 million. And though New York recognizes marriages performed elsewhere, that recognition does not extend to state income or estate taxes.

In our worst case, the gay partner who died first in 2055 left an estate that exceeded the state’s threshold by $171,528. That meant a tax bill of $43,378, according to Ron L. Meyers, an estate-planning lawyer with a significant same-sex clientele at Cane, Boniface & Meyers in Nyack, N.Y.

Meanwhile, their identical heterosexual counterparts owed nothing.

The gay couple in our best case had a smaller estate, in part because they were careful to title their home as tenants-in-common, so only the deceased partner’s half of the home was taxable. The estate didn’t exceed the federal or state threshold. So they owed nothing.

Childbearing

Two women who want to have a biological child together need sperm to do it. They may need to purchase sperm from a bank and use a medical professional to inseminate one of the partners. There are also legal adoption costs.

The worst case here totaled $40,000. It included 12 months of sperm and insemination costs, but the big wild card was the possible need to move to a state where same-sex second-parent adoptions were legal. While this may seem extreme, couples often do it, according to Joyce Kauffman, a lawyer in Cambridge, Mass., who has worked with many of them. We estimated a minimum of $20,000 for this cost, including real estate brokerage fees to sell a home and moving costs.

In the best case, there might be no cost at all: the couple could use sperm from a relative of the partner who isn’t bearing the child or from a friend, inseminate at home and take their chances with free legal forms on the Web. Ms. Kaufman does not recommend such a cavalier approach to vital documents.

The cost for men to have a biological child would be much higher if they used a surrogate.

Pension

We assumed that one partner, in both best and worst cases, received a small pension. In both cases, the partner with the pension plan died first.

Employers do not have to provide survivor pension benefits to a same-sex spouse, but many do anyway (which would put our best case at $0). In our worst case, however, the higher-earning partner died first and did not work for such a company. So the surviving partner got nothing. A similarly situated heterosexual surviving spouse would receive $32,253 before dying herself several years later.

Spousal I.R.A.

You generally need to earn income to contribute to an Individual Retirement Account. But heterosexual married couples can contribute up to $5,000 annually to a spousal I.R.A. for a nonworking spouse. Stay-at-home gay partners, however, cannot make these contributions. So they end up with smaller retirement accounts.

We assumed that all the couples would have either saved 7 percent of the stay-at-home parent’s previous year’s salary, or $5,000, the maximum contribution. So the gay couple with one partner who started out earning just $30,000 would have saved less (had she been legally able to) than someone earning $70,000. In both cases, that five-year gap in savings early on in the partners’ lives haunted them later because they weren’t able to benefit from decades of compounding returns.

The couple with the lower-earning partner at home ended up $48,654 behind by the time that partner died, assuming she invested in a portfolio mixed equally between stocks and bonds that returned 5.94 percent annually. The surviving spouse from the gay couple with equal incomes ended up $112,192 behind.

Tax Preparation

Instead of filing one joint federal tax return and one state income tax return, same-sex couples must file two sets of returns. In both best and worst cases, those couples paid an additional $12,300 in tax preparation fees over the 46 years they are together.

Financial and Legal Planning

Even married same-sex couples are encouraged to create a number of documents that try to replicate the protections and rights of heterosexual marriage because their unions are not universally recognized. In the worst case, our gay couple spent $5,500 more than their heterosexual counterparts on their additional paperwork. That included a revocable living trust, which is more difficult to contest than a will, and what is known as a pour-over will, which ensured that anything left out of the trust would be included. They also each set up financial powers of attorney, health care proxies, living wills and a domestic partnership agreement.

In the best case, our couple didn’t spend any more than a prudent heterosexual couple would. Both couples created two wills, financial powers of attorney, health care proxies and living wills.

Income Taxes

Married heterosexual couples with two working spouses with similar incomes often pay more in federal taxes than if they remained single because of the so-called marriage penalty. This occurs when a couple’s combined income pushes them into a higher tax bracket than they would have been in if they filed as singles. But some couples — especially those with a wide disparity in income or with a stay-at-home parent — usually pay less when they file jointly. They benefit from what’s known as a marriage bonus.

In our worst case, where one gay partner earned $110,000 and one earned $30,000, the couple paid $15,027 less in taxes over their lifetimes than their heterosexual counterparts. Though the gay and heterosexual married couple had identical salaries, the married couple collected more income in retirement — a direct result of their marriage status — and thus owed more in taxes (though they still benefited from the marriage bonus). For instance, the married couple collected higher Social Security spousal benefits and survivor benefits, pension income and income derived from a spousal I.R.A. The gay couples weren’t entitled to any of these benefits.

In our best case, where the partners each earned $70,000, the gay couple paid $112,146 less in income taxes. “That is the marriage penalty rearing its ugly head,” Mr. Williams said.

Kennedy’s will reveals more roles for Kirk

2009-09-28T09:50:00.002-04:00

Just an interesting update on Senator Kennedy's estate.

Longtime friend is executor, trustee
Boston Globe, By: Jonathan Salzman

Three years to the day before he died, Senator Edward M. Kennedy named Paul G. Kirk Jr. as executor of his estate, according to a will filed yesterday with Barnstable Probate Court.

The five-page document signed by Kennedy on Aug. 25, 2006, underscores his close relationship with Kirk, a former Democratic National Committee chairman who was named yesterday as Kennedy’s interim successor by Governor Deval Patrick.

The same day Kennedy finalized his will, he named Kirk, along with himself, as a trustee of a trust in Kennedy’s name that will handle the senator’s assets.

The will says the trust will provide for Kennedy’s widow, Victoria R. Kennedy, his three adult children, and other unnamed descendants. But it gave no indication of the value of Kennedy’s assets, which came as little surprise to seasoned probate lawyers.

“It’s perfectly in line with what I would do for a wealthy client,’’ said Nancy E. Dempze, a Boston lawyer and former cochairwoman of the trust and estate section of the Boston Bar Association who was not involved in preparation of the will but reviewed a copy. “You want to keep all of that private,’’ she said.

A 2008 federal financial disclosure report indicated that the senator’s family fortune was worth tens of millions. The report, which included Kennedy’s assets and those of Victoria Kennedy and their dependents, listed a string of publicly and nonpublicly traded trusts and assets and a range of values. The report placed the net worth of his publicly traded assets somewhere between $15 million and $72.6 million.

Under the terms of Kennedy’s will, assets from two blind trusts that Kennedy established in his name in 1978 and 1987 were to be transferred after his death to the 2006 trust. The trustee of the 1978 blind trust is John C. Culver, a former Democratic senator from Iowa and a longtime Kennedy friend who played on the Harvard football team with him and spoke at his Aug. 28 memorial service. The trustee of the 1987 blind trust is Joseph A. Kouba of Los Angeles.

Politicians and business leaders often use blind trusts, in which they have no knowledge of their holdings, to shield themselves from accusations of making political or business moves to benefit their finances.

If Kirk cannot serve as executor of Kennedy’s estate, that duty will fall to Kennedy’s son, Edward M. Kennedy Jr., according to the will, which was filed by Kevin J. Willis, a lawyer at Ropes & Gray in Boston.

Dempze said it was possible that some of Kennedy’s assets might be disclosed in the next few months if a probate inventory is filed with the court. Such an inventory excludes jointly owned assets.

Kennedy’s one-page death certificate was also filed in Probate Court yesterday. It said Kennedy died at home at 11:33 p.m. on Aug. 25, 2009, and listed the cause of death as glioma, the malignant brain tumor with which he was diagnosed 15 months earlier. No autopsy was performed.

Is a Roth IRA Right for You?

2009-08-16T21:43:00.001-04:00

New rules beginning in 2010 will allow higher-income holders of traditional IRAs to convert to a Roth IRA. But it pays to run the numbers first. You should consult with your financial advisor, estate planning attorney, and accountant before converting.

Business Week
By Amy Feldman

It has been one of those perverse things. The wealthier you are, the more sense it makes to convert a traditional IRA, where you pay taxes when you withdraw the money, to a Roth IRA, where you pay taxes on money when it goes in. But the rules have only allowed people with modified adjusted gross income no greater than $100,000—those less likely to have big IRAs—to convert a traditional IRA to a Roth. Come 2010, however, the option opens up to everyone. "For 2010 we're going to hire extra analysts to run the numbers," says Christopher Cordaro, a wealth manager with RegentAtlantic Capital in Morristown, N.J.

More than $3 trillion sits in IRA accounts, excluding IRAs that are already Roths. Deciding whether to convert (and how much to convert) is complex. It involves some variables—such as future tax rates—that are unknowable. That, plus the pain of paying taxes now instead of later, may be why many people have been loath to consider conversion in advance of 2010.

But if you have substantial assets—and especially if you want to leave money to the next generation—run the numbers. Online calculators like the one at rothretirement.com can help, but the myriad rules and tax ramifications make talking to an adviser worthwhile. There is an out if you convert and then wish you hadn't—perhaps because your portfolio subsequently shrank as the market fell. The Internal Revenue Service allows you to undo a conversion in a process called "recharacterization."

Here are some guidelines to help you think through the decision.

CASH FOR TAXES
When you convert a traditional IRA to a Roth, you'll face an immediate tax hit. If you own solely IRAs funded with nondeductible contributions, then you will owe taxes on the earnings only (you paid income tax on the original amount before you set up the account). If you have only IRAs with deductible contributions, then you'll owe taxes on the full amount you want to convert (since you contributed on a pre-tax basis). In that case, your tax hit could be a third of the account's value or higher.

If you contributed both ways, all those assets are considered a lump sum for conversion purposes, and you'll need to figure out the tax implications based on the pro-rata share of each. This prohibits you from cherry-picking among IRA assets to avoid paying taxes on the conversion.

Whatever amount you owe, don't convert if you need to tap tax-deferred savings to pay the taxes. "If you have to use some of that money to pay taxes, this is not a good strategy, and if you are under 591/2, it's even worse because you'd pay a penalty [for early withdrawal] just to pay taxes," says Joan Crain, senior director of wealth strategies at BNY Mellon Wealth Management in Fort Lauderdale.
For 2010 only there is an extra loophole: You can choose to postpone the taxes and pay them in two installments over the next two years.

TAX RATE GUESSWORK
If you can pay the taxes on the conversion, the next question is tax rates. One of the big benefits of a Roth is your ability to play your current tax rate off your potential future one: If you expect your rate to be higher in retirement, you can pay the taxes up front at the lower rate. While it's impossible to know what your rate will be in the future, it seems likely it will be higher (at least, in the near future). "A lot of people think they can postpone the taxes until they retire and pay them in a lower tax bracket, but that is not how it is likely to work for a lot of people now," says BNY Mellon's Crain.

There are benefits to conversion even for those whose tax rates remain the same, says T. Rowe Price (TROW) senior financial planner Christine Fahlund. She argues that since you don't know where your tax rate will be in the future, you should think about tax diversification—holding some assets in a regular IRA and some in a Roth—in the same way you'd spread wealth among different asset classes.
You'll want an accountant to calculate the impact of the conversion on your taxes in the year you make the move. For some, the additional taxable income from the conversion could push them into a higher tax bracket or into the Alternative Minimum Tax. That could cause them to lose deductions and pay more overall tax than they otherwise would. If you fall into that category, you may want to hold off or convert only a small piece of your IRA assets in 2010.

THE BIG PAYOFF
The further off retirement is, the more worthwhile the Roth conversion, thanks to the value of tax-free compounding. Similarly, the less likely you are to need the money in retirement, the more valuable the Roth. That's because Roths aren't subject to the rules that force traditional IRA holders to begin drawing down assets at 701/2. If you're nearing retirement and haven't saved enough, you're likely better off not converting. But if you can keep your Roth intact in retirement, the power of tax-free compounding is enormous.

The really big payoffs for conversion come to those who hope to leave assets to kids or grandkids. For those worried about the estate tax, the amount you pay in tax on the conversion lowers the value of your future estate (though Roth assets are still included in the estate value). The inheritors will never owe income tax. While there are required minimum distribution rules for inheritors other than a spouse, those amounts are also tax-free. T. Rowe Price ran numbers (below) showing the benefits of converting $25,000 from a traditional IRA to a Roth for a 45-year-old who won't need the money in retirement, and the even-larger benefits for the adult child who inherits that Roth 40 years later. As Fahlund says: "It's a way to leverage that money throughout a family."

Feldman is an associate editor with BusinessWeek in New York

Tax Secrets of the Wealthy: Solve your business succession problem

2009-08-14T08:42:00.000-04:00

Just in case the last article was not enough, here is another article on business secession planning. There are lots of options, but only if you plan. If we can be of any assistances, please do not hesitate to contact us.

Tax Secrets of the Wealthy: Solve your business succession problem
Marco Eagle
By: Irv Blackman

Own a family business? Want to transfer it to your kids? Then you’ll love this article. It’s about an old IRS letter ruling that is one of my favorites. It might be labeled “the lazy man’s way to plan your business transfer.” The ruling shows you how to take advantage of some favorable tax law while avoiding pitfalls. Good stuff!

There is a bit of a problem to using the technique: You see, you must drop dead before your family can enjoy the benefits of Letter Ruling 9116031.

But wait, the ruling has one redeeming quality. Really! First, the facts.
Joe, his wife Mary and their children owned all the stock in a family business. Joe died in 1990 and Mary inherited all of his stock. (Note: Mary’s tax basis — for computing capital gains — is the fair market value (FMV) of the stock on the day Joe died. For example, if the FMV was $1 million and she sold it for $1 million, there would be no capital gains tax.) Mary immediately sold all of her stock back to the corporation.

Here’s the general rule: When you or any member of your family sells stock back to your corporation (called a redemption), the redemption is usually taxed as a dividend — a tax disaster.

But there is a special tax-saving exception for a family member who has owned the stock for 10 years or more: If he/she divests all interest in the company (including any position as an officer or director), the redemption is treated as a sale (gets favorable capital gains treatment, instead of being a dividend). Since Mary sold all (stock she owned before Joe died and stock she inherited from him) of her remaining interest in the corporation, the purchase by the corporation of her shares was considered a bone fide sale (redemption) and not a dividend — a big tax victory.
When all the smoke cleared, not only had Mary escaped a big dividend income tax bill, but she has succeeded in effectively transferring the business to her children. How? Since the kids now owned all the remaining issued and outstanding stock, they owned 100 percent of the business. To sum it up: Mary walked off with a near-tax-free capital gain, (the price paid to Mary for the stock was a bit more than the exact FMV of the stock inherited from Joe) while the kids walked off with the business. A fantastic tax result.

Here’s some more good stuff about succession planning. Over the years, we have used the above ruling dozens of times with real-life clients and have nicknamed the strategy “The little guy redemption technique.” Here’s why. We use it when the seller is (1) in a very low or zero income tax bracket; (2) the stock price is (by a sort of rule-of-thumb) $600,000 or lower and (3) the seller is not worth enough to have a potential estate tax problem.

For example, the last one we did was for $380,000 for Dad No. 1, who owned 5 percent of the stock. The corporation redeemed all the stock paying the full $380,000 with a note payable over 10 years with interest at 6 percent on the unpaid balance.
Simple! Effective. Really a nice little flow of spendable cash for Dad No. 1, whose total net worth was only $800,000.

Let’s change the facts, just a bit.

Dad No. 2 (a real client from New York) is in the highest income tax bracket and estate tax bracket. Tax heaven would be to transfer his interest in the corporation (valued at $3 million) tax-free to his kids.

Dad No. 2’s succession plan must be centered around a strategy called an intentionally defective trust (IDT). An IDT is a tax-saving machine. It’s tax-free to Dad No. 2. Best of all the “buyer” of the stock (Dad’s kids) do not pay a single penny for the stock. Instead, the kids get the stock tax-free as a beneficiary of the IDT.

The lesson to be learned. Never, but never sell your stock to your kids, unless you are a little guy (as spelled out above). If transferring the stock of your family business to one or more of your children will be a tax burden to (a) you or (b) the children or (c) (in most cases) both, it is a must to find out just how much the family will save in taxes using an IDT. The rule of thumb: The savings are over $600,000 for every $1 million of the stock’s price. In real life, Dad No. 2 and his kids saved $1,920,000 in taxes (on a stock price of $3 million).

Business Secession Planning Primer

2009-08-03T17:03:00.002-04:00

We work with many clients who start to think about business secession planning. with both experienced estate planning and business attorneys here at the firm, we are able to assist clients in managing this process. This is a good article for things to begin to think about when you want to start to create a succession plan. This article is about a presentation to contractors, but it can apply to almost any business.

In Need of a Succession Plan? Here Are the Basics
American Chronicle

Have you been at the helm of your company for longer than you can remember? Do you know who will succeed you and how? Well, the experts say these are some indicators that you need to start thinking about succession planning.

While the prospect of the loss of control probably produces anxiety for you, you undoubtedly recognize the need for planning not just for your own future, but also for your employees' future as well. Shannon Affholter, a senior managerof the construction and real estate group of the accounting firm Moss Adams (Shannon.offholter@mossadams .com) and his colleague, Glenn Wattum, CPA (also of Moss Adams) presented a session at the Construction Financial Management Association's 2009 Annual Conference on succession planning for contractors.

CBMR spoke with Affholter to focus on how to get started and what is involved in the planning process. Affholter says that succession planning is an important business issue because approximately 60 percent of family-owned businesses will be changing hands in the next 10 years.

Thoughts of succession planning in the context of a family business conjure up images in my mind of the fights between J.R. and Bobby Ewing on the television series Dallas for control of the family oil business and actual "discussions" I have had with my brother and my dad (our company's president) in our company's conference room. Although we all get along well and are fairly unlike the Ewing family, power issues frequently bubble up especially when we discuss our company's long-term plans. The issues presented by a change in the business leader in a family business are often sensitive. What should happen if the company president becomes incapacitated? Which child (or should any of them) be in charge? Should the children be treated equally? Will the employees stay on with someone else as leader?

Before heading to your lawyer or accountant for planning services, it is a good idea to get a handle on the components of the process and to start thinking of the answers to some of the tough questions you'll be confronting along the way.

Affholter points out that succession planning involves more than who is next in line to take over. It has five components that need to be integrated and are interdependent. The components are business planning, ownership transition planning, succession planning, estate and tax planning, and personal wealth planning.

Business planning. This is the strategic plan that identifies where you want your business to be. It is the time to identify your long-term goals for your business. Do you want to perpetuate your business, cash out for the best possible value, or a . combo? While these are not the only options available, you need to establish what your goal is.

Ownership transition planning. If you are considering perpetuating your business, identifying viable candidates to succeed you is elemental. You will need to establish in your own mind what skills the successor needs and what level of competency is required in each. The skills you are likely evaluating are overall business competency, commitment, personal character, and leadership ability.

Frequently, the owners of family businesses begin looking at their children or other family members as their first choice for their successor. Affholter cautions that you should objectively look at the family member's skills to see whether he or she will be able to fill the role of leader. It may be difficult for you to accurately assess the person's real strengths, weaknesses, and potential. It may be helpful to have an outsider evaluate them. Affholter suggests seeing whether additional training or outside experience will get the family member to the level needed to fulfill the company's needs. It is really going to be a hard sell to your current employees to get them to respect and follow a family member who has little experience and placed at a high level in your company.

In my company, the rule of thumb seems to be that the family employee needs to work twice as hard as nonfamily employees to garner the respect of long-term employees. Your employees are looking for the same traits and confidence in your family member as they see in you. If his or her ability is not close to yours or his or her leadership skill is not readily apparent to your employees, your employees will be hard to motivate.

If you don't think you have good candidates from within your company or your family, consider a strategic hire. At this point, a tremendous amount of high-quality talent is available for hire in the industry.

If your timeline is long enough, you might consider having an in- house development program that rotates potential leadership candidates through various departments in the company, Affholter suggests.

Ownership transition planning also includes looking at how your economic interest in the business will be handled. You will need to consult your tax counsel on the most advantageous way to address this. There are quite a few options for intrafamily business transfers Affholtersuggests investigating. Some of the options include creating a limited liability company where you can establish membership interests and transfer business assets now rather than later and having a buy-sell agreement that pre-establishes purchase price and sale terms for a transfer in the future. I have also seen other owners who decided they did not want to sell their company to a third party and had no family members who could be appropriate leaders use an employee stock ownership program (ESOP) to cash out equity in their business and transfer ownership to their employees.

Management succession planning. This is the road map for read/ ing your business for your departure or readying your successorfor his or her new leadership role. If you are going to sell your business, then the plan needs to include steps and a process for making your business an attractive purchase.

If you have a successor in mind that needs additional experience or knowledge, the plan will set out the method for supplying the experience.

Personal wealth planning. In many cases, the answer to the question "What will be your monetary needs in retirement?" will determine significant elements of your business and ownership transition plan. So be prepared with at least a general answer to the question before approaching your counsel or advisor to do your succession plan.

Estate planning. The estate planning component involves developing a strategy that minimizes your estate tax burden. The strategy will have to dovetail your business plan with your other assets and your goals for the distribution of your assets upon your death. Before pursuing an integrated strategy, you might consider consulting with a tax attorney to see what options and choices you should be exploring in fashioning your overall plan. Expect that the estate planning component will involve at least your accountant and a tax attorney.

Affholter suggests that accomplishing a comprehensive succession strategy either with one professional or multiple professionals generally takes a few years. The final succession plan, Affholter cautions, often has to be fine-tuned, or modified as circumstances change.

Copyright Institute of Management & Administration Aug 2009

They’re finally off to college, but we are still their parents

2009-07-22T12:01:00.001-04:00

What a great accomplishment. After 18 wonderful (and quick years) your child is now off to start this amazing new chapter in their life. They couldn’t wait to get settled in their new digs. Perhaps off to explore a new city. And, at a school you both really like, perhaps for different reasons.

In fact, your college age child is also of legal age – although it’s hard to imagine them making all the adult decisions they will need to make without you. And, as such, your ‘parental rights’ in a legal sense, are effectively terminated. Well, they still need you to help with the finances and you have a good relationship – so –nothing to worry about – right ?

Wrong. Being legally independent gives your child a host of new rights and terminates ones you used to have. One important example of this is in the area of making medical decisions. Everyone knows that it makes sense to appoint a Health Care Agent when they do their Will. Most people prepare these documents later in life (usually after the children are born). But, what if something happened to your college age child (now legally an adult) and someone needed to make medical decisions ? Is it clear that you will be the one ? Without a properly drafted and signed Health Care Agent appointment, the answer is no.

But, what if something even worse were to happen. We all hope that another VMI incident never occurs. But, if it were to, chaos ensues. People rushing to an emergency room to find out the condition of loved ones. Surely the hospital personnel would speak to you and help you understand the condition of your loved one ? Not so. Federal law (HIPAA) has now tightened up medical providers’ ability to disclose confidential information about a patient without their prior consent. The fix is easy: A HIPAA Release. This pre-authorizes medical providers to speak with the named individuals about a patient’s condition. Also a form typically done later in life when one does one’s estate plan documents.

Why wait ? Why not begin to teach your children about keeping their affairs in order early by suggesting that they consider (as a legal adult) already appointing a health care agent to act on their behalf if they ever were to have a catastrophic accident and couldn’t speak for themselves ? And, while they’re at it – do a HIPAA Release so that not only Mom & Dad can get through easily to the nurses station to see how they’re doing – but – so too could grandparents or siblings.

These documents are easy to prepare and simple to make available in a time of need. Consider a trip to the family lawyer’s office when they’re home for holiday break and give them a gift of guidance around very important issues. And, for the college student reading this article – think about taking initiative yourself and contacting a lawyer to draw up these simple papers for you.

For more information, or to schedule an appointment for your college age child, contact info@squillace-law.com

Charitable Remainder Trusts May Provide Benefits

2009-07-20T13:10:00.001-04:00

We’ve attached a worthy article about Charitable Remainder Trusts “CRT”). These are important vehicles that can help client’s accomplish life planning goals (like reduced taxes and enhanced retirement income planning) while at the same time benefiting their favorite charity or group of charities. It is one piece of a bigger puzzle that could fit into your own estate plan – depending on your overall goals and objectives.

Many people don’t understand CRT’s. Hopefully, this will help bridge that gap.

CRTs may provide benefits
Times Herald Record
by Laura Medigovich

Charitable remainder trusts are gifting vehicles that provide for two sets of beneficiaries, a current income beneficiary and a remainder beneficiary.

CRTs can also provide the donor with substantial income tax savings and estate tax savings as well. In a nutshell, the donor donates an asset to a charity through a trust. The charity sells the assets and invests the proceeds. The income beneficiary receives an income stream for a term, not to exceed 20 years. At the end of the term, the remaining proceeds belong to the charity.

For illustration purposes, let's assume you are 50 years old, and you have $1 million worth of ABC stock. You purchased the stock 30 years ago for $200,000. So you have a low cost basis (the amount you paid for the stock) of $200,000. If you sold ABC stock for $1 million you would have to pay capital gains tax on $800,000 ($1 million minus $200,000 minus your cost basis equals $800,000). The federal tax bite alone would be $120,000 ($800,000 x 15 percent = $120,000).

Provides income stream

Instead, you can create an irrevocable charitable remainder trust and donate the ABC stock to "favorite" charity through the trust. The trust sells ABC stock on behalf of "favorite" charity and invests the $1 million of proceeds at a 6 percent rate of return. For the next 10 years, you receive an income stream of $50,000 a year as the income beneficiary. At the end of 10 years, "favorite" charity receives the remaining principal assets from the trust, approximately $582,065.

The above example illustrates the many benefits the donor and charity receive through a charitable remainder trust. First, our donor would receive a federal income tax deduction based on the $582,065 (the remainder amount) the charity would receive at the end of the 10-year term. Second, by gifting $1 million worth of assets, the donor has reduced his or her taxable estate, therefore creating estate tax savings. Third, the donor has also created a stream of income for himself or herself. Of course the donor has also provided the charity with a sizable donation, which is good for everyone involved.

One of the major disadvantages with a CRT is that it is irrevocable. Which means once you have donated the asset, you have lost all claims to it. So you should be confident that you have enough other assets to live comfortably, before you make the donation.

This has been a simplified discussion regarding charitable remainder trusts. When it comes to CRTs, there are several variations on the theme, such as CRATs, CRUTs and NIM-CRUTs. Each has its own nuances. As with any estate planning strategy, it is important to consult with your attorney and tax adviser to determine which is best for you and your family.

Laura Medigovich is a financial planner and assistant vice president for M&T Bank's Hudson Valley region.

Women, Wisdom, & Wealth: Being prepared means peace of mind

2009-07-08T22:30:00.002-04:00

Here is a great little article from a paper down in Florida that stresses the importance of proper estate planning. I really like when she comments: “Over a decade ago as new residents of Southwest Florida, we educated ourselves on proper hurricane preparedness procedures. We took the necessary actions and implemented a plan. We share the details with family members and revisit our plan each year; just in case. The peace of mind of being prepared is priceless. In the event of an emergency the last thing we need is to be searching and scrambling for important documents or contact information. Instead we’re available to help our friends and neighbors.”

By DARCIE GUERIN
Macro Eagle
Tuesday, July 7, 2009

Last week you were introduced to my friend Grace who was recently widowed. She and her husband had the difficult conversations while he was alive and discussed what the future may hold if one of them were to pass. In doing this while he was alive, she was much better prepared to handle the financial responsibilities of widowhood. The rewards were most worthwhile and helped make a very difficult time a little bit easier for her to deal with. Below are a few practical financial matters to be dealt with by widows and widowers.

PROPERTY

How are your assets owned? Is everything titled as joint tenants with rights of survivorship (JTWROS)? If the answer is yes, transfers occur immediately, but this isn’t always the best choice. If property was owned as tenants in common it will go through probate. If property was owned by a trust, the terms of that trust will determine how the property will be distributed. If there is no will, you’ll need to go through probate. You’ll also need to identify ownership of and transfer titles of bank accounts, real estate, stocks, bonds, mutual funds and retirement plans. Call your lawyer and financial advisor for assistance.

LIFE INSURANCE

Be sure to contact the Social Security Administration, current and past employers and any life insurance companies to determine and obtain all benefits you may be entitled to. Don’t forget to check on military benefits if your spouse was in the service. This may be an overwhelming task so start with just one phone call at a time.

RETIREMENT

If you’re the beneficiary of your spouse’s plans you have several options and choices to make on how to receive the benefits. Start by contacting the custodian or trustee of the plan. The selections you make on how to receive these funds are critical to your future financial well-being, so be sure to consult a trusted financial professional for guidance. And don’t forget to update your beneficiaries on retirement plans and life insurance policies.

HEALTH INSURANCE

Coverage will depend on your age and your spouse’s employment status. If covered by an employee group plan you’re probably eligible for continued coverage at a cost through COBRA or you may qualify for Medicare.

TAXES

Seek professional tax advice and request IRS Publication 559 for survivors. You may file a joint tax return and claim an exemption for your spouse in the year he or she dies. If there was a life insurance policy owned by your spouse or if proceeds of a policy were payable to the estate, the death benefit may be included in the estate for estate tax purposes.

INVESTMENTS

Grace’s husband was a savvy investor. He enjoyed keeping up with the markets and monitoring their investments each day. Grace’s primary concern was to identify income sources and evaluate her expenses. Then she determined if the investments were suitable for her needs and risk tolerance. This allowed her to ensure that her immediate and longterm financial needs would be met. Again, it’s helpful to seek professional advice as you work through these choices.

As you can see, there are many important financial matters to consider. You’ll want to coordinate efforts among the team of professionals you already have in place. It’s much easier to develop these relationships over time rather starting from scratch during a crisis.

KEY PLAYERS

Here are a few of the key players in your important decision making: Financial advisor, accountant, attorney, employer’s benefit department and insurance agents.

Over a decade ago as new residents of Southwest Florida, we educated ourselves on proper hurricane preparedness procedures. We took the necessary actions and implemented a plan. We share the details with family members and revisit our plan each year; just in case. The peace of mind of being prepared is priceless. In the event of an emergency the last thing we need is to be searching and scrambling for important documents or contact information. Instead we’re available to help our friends and neighbors.

Lack of preparation is one reason many widows and widowers face financial hardship. It doesn’t have to happen to you. Give yourself the gift of organizing and arranging ahead of time. If you do experience the unfortunate loss of a spouse, at least you’ll be as ready as you can be. There’s no better time than now to take control of the things you can. And in the meantime, after you’ve done your homework, enjoy each other’s company.

Darcie Guerin, Financial Advisor & Branch Manager, Raymond James & Associates, Inc. located at 606 Bald Eagle Drive, Suite 401, Marco Island, and FL 34145 provides this article. If you have questions please contact Darcie Guerin via e-mail at Darcie.Guerin@RaymondJames.com. Phone (239) 389-1041, toll free (866)-343-0882 or at RaymondJames.com/Darcie. Past performance may not be indicative of future results.

Information contained in these postings is for educational purposes only. No warranty, expressed or implied, is made as to their use. No one should consider this legal advice. If you have a question about your own affairs, you should seek the advice of a licensed attorney.

Who would have thought?

2009-07-02T12:52:00.001-04:00

When our Firm receives calls from three people (around the age of 50) in one day to suddenly get started with their estate planning, you know there has been a seismic shift in terms of how people think about this work. It’s not just for the elderly. It’s for everybody !

There are very few deaths that will garner more attention than that of a celebrity. Michael Jackson’s recent passing at the age of 50 is one such death that serves as a wake-up call. High-profile deaths often bring about interesting responses from people. In one day we witnessed two. Farah Faucett’s, though tragic, was not unanticipated given her battle with cancer. Michael Jackson’s however, was a surprise for most and a reminder that it can happen at any age.

From what we have been able to ascertain so far (simply by what is made publically available from court filings), Jackson’s Will is similar to the Wills we often provide our clients. It is known as a Pour Over Will and intended to place all of his assets in trust for the children and other beneficiaries in his Family Trust. The Family Trust was likely a Revocable Living Trust (which, if properly drafted, becomes Irrevocable at death.) If handled correctly, we should never know the detailed provisions of the Family Trust since it is not required to be filed with the Court.

However, depending on whether his Family Trust was ‘funded’ during his lifetime, will inform whether we learn more details about his assets. Typically people do not complete this funding process (which essentially involves re-titling of assets from one’s personal name to the name of one’s trust) and instead rely on the Pour Over Will after death to get the assets into the trust. This process is the Probate process that we all know about and usually try to avoid. We will not know for some time yet whether the Pour Over Will is actually going to be used to re-title assets into Jackson’s Family Trust. My guess is yes – and – it will cost the family considerable time and money with lawyers and other professionals to do this which is why we usually recommend to our clients to fully fund, and keep updated and funded, their trusts during their lifetime.

Concern about privacy is obviously important for celebrities – but – it is also important for families wanting to protect their loved ones from unwarranted solicitations from any number of vendors. Keeping details of a family’s finances out of the public eye is an important benefit to doing estate planning with these types of trusts – and funding them during your lifetime and keeping them updated. There is always the risk that somehow (from a beneficiary or otherwise) Jackson’s Family Trust could be leaked to the press and would become publically available anyway.

People have asked us: “What about his debts?” Revocable Living Trusts usually do not a provide any way to avoid debts you accumulate during your lifetime. (This can vary based on state law.) Generally speaking, you are your revocable living trust for purposes of creditors and therefore your debts are not extinguished at death. (There are other types of planning vehicles for asset protection that sometimes can address these issues.) A trust can, if properly drafted, provide certain creditor protections, remarriage protections and other types of protections, but only after the funds have been properly placed into that trust. Michael Jackson’s affairs will need to be put in order including selling property, paying debts, settling claims, etc. After that, any assets left will be available to his children and other beneficiaries through the terms of his Family Trust.

So, while Michael Jackson did indeed have a Will, it is still unclear how the trusts were set up and funded. We will not know for some time whether these were properly drafted to provide the important protections they should. We cannot stress how important it is to update your estate plan.

Massachusetts Probate Code Changes

2009-06-26T10:22:00.002-04:00

After years of work and debate, Massachusetts is about to begin implementation of its new Uniform Probate Code (“UPC”). Part of the UPC will become effective next week on July 1, 2009 and the remaining provisions will go into effect on July 1, 2011.

The biggest change for now will be that guardianships and conservatorships will be split and require separate filings and separate plans for implementation. A new limited guardianship and ability to file petition for a single financial transaction without the need for a conservator will also go into effect on July 1. Since this is new, it is still a bit unclear how useful some of these provisions will be, but some commentators believe they could provide a valuable alternative to a full conservator process.

There is also a change in the language and certain definitions used for these proceedings. A guardianship will address the personal needs of an “incapacitated person” while a conservatorship will focus on the assets of a “protected person.” One of the other language changes was the definition of “ward.” Wards will now refer only to minors.

There are also some new rules concerning Powers of Attorney that will be effective on July 1, 2009. In the past, people may have had problems with various institutions questioning the validity of a Power of Attorney if it was older than three or five years. The UPC now requires any properly executed Power of Attorney to be honored regardless of age. It also provides statutory remedies for damages caused by a third party’s refusal to accept an otherwise valid Power of Attorney. It will take some time for businesses and other institutions to recognize these new rules.

Another element with the new rules is that in the past there has often been a waived sureties on any type of bond when initiating a guardianship or conservatorship proceeding. That is no longer the case. You will be required to have sureties unless you specifically waive them in your Power of Attorney. It is suggested that anyone holding Powers of Attorney consider updating them to allow this waiver. It could be a significant savings each year to not have posted any type of bond. Our clients will automatically receive the new updated Powers of Attorney if they are participating in our Annual Client Maintenance Program.

As always, if we can help you with any of these matters, please feel free to contact us.

Scott E. Squillace, Esq.
Boston Estate Planning Attorney

New Website Released

2009-06-25T17:56:00.001-04:00

We are proud to announce our new website: www.squillace-law.com

You can also check out our new video on the right.

Update on NH and RI Estate Tax

2009-06-21T09:38:00.004-04:00

It looks like most of the NH papers now agree, a NH Estate Tax is on hold. Several new taxes were thrown out, and instead, the legislature will raise user fees. It also appears the proposed capital gains tax will not be approved.

A legislative committee in Rhode Island has proposed raising the estate tax exemption in Rhode Island from $675,000 to $850,000 and index it to inflation. Stay tuned as this is just the first step in a very long process. (By the way- a proposed changes has also been made to tax capital gains at normal income rates.)

Probate and Passwords

2009-06-17T17:28:00.001-04:00

From Attorney Scott E. Squillace

We attempt to provide considerable information on our webpage (www.squillace-law.com) concerning probate and trust administration. We describe the process, court proceedings, etc. There are, however, some important practical issues that people run in to when probating an estate or settling a trust. These issues are not unique to Boston or Massachusetts. We would like to highlight some of these for you in this posting.

One of the challenges we see more and more has to do with electronic passwords. If you bank on-line, pay bills on-line, have automatic drafts, on-line savings account, or any other type of electronic payments, your executor and/or trustee could run into problems.

If the account is in the trust’s name, the successor trustee could step in and have automatic withdrawals stopped as long as the payments were made from the account. The challenge appears when the payments are set up through the credit card company or on an automatic withdraw. The only way to know there is a withdrawal is to wait and see if it happens. If it is not a trust account, your executor or successor trustee would have to wait months to access the account (assuming you were the sole owner).

While everyone is nervous about secrecy of passwords, and they should be, it does create a probate if you pass away unexpectedly.

Of course, before you embark on any suggestions contained in this posting you should consult with an estate planning attorney for the pros and cons of each suggestion.

To help alleviate the problem created by electronic passwords, you could:

1. Put the cash account into the name of your trust- could be a hassle, but a successor trustee can step in immediately. May require you to close the account and open a new one.

2. Keep a password list in safe place- let your loved ones know you have a password list and that it is stored in safe place. You could store it in a home safe (assuming someone else has the code to get in) or a safety deposit box (again, hoping that someone else’s name is on the box to have access after passing). Or, better yet – give a copy to your estate planning attorney for them to keep in your file at a safe location in their office and be sure to keep it UPDATED when you update your estate plans annually.

If you need help with a probate matter, estate planning, or family business, please do not hesitate to contact us at (617) 716-0300 or info@squillace-law.com.

Fees, taxes eyed to balance state's books

2009-06-15T16:20:00.003-04:00

New Hampshire Legislature looks to 8% Estate Transfer Tax on estates larger that $2,000.000. Stay tuned on the budget details that should be passed by July 1, 2009.

Foster's Daily Democrat
By: Adam D. Kraus

CONCORD — Maybe you're a smoker, or every so often enjoy a cheap cigar, a meal at your favorite restaurant and, for whatever reason, need a copy of your driver's license or vehicle registration.

It's going to cost you more — if the New Hampshire Legislature agrees on a budget that includes some form of the tax and fee increases approved by the House and Senate.

The Senate wants to increase the $1.33 tax on cigarettes by 45 cents, while the House has eyed 35 cents. The proposals would bring in between $56 million and $66 million over the biennium for the general and educational trust funds.

Both houses agree on taxing cigars and a 30 percent hike to the 19 percent tax on the wholesale price of other tobacco products, with the measure bringing in $6 million over two years for the funds.

Representatives and senators back a .75 percent increase in the 8 percent rooms and meals tax, which would bring in as much as $40 million over two years.

The budget process remains very fluid, those involved stress, so any proposal can change up until both chambers reach agreement, which could come this week.

Neither chamber is behind a sales or income tax, a position that is the backbone of the state's cherished low tax status.

New Hampshire government is heavily dependent on property taxes, but the state's overall tax burden, estimated at 7.6 percent of income, has ranked among the nation's lowest in nearly every year of the past three decades, according to the nonpartisan Tax Foundation in Washington, D.C.

The budget contains proposals to tax capital gains and estate transfers, but the N.H. Center for Public Policy Studies says the state won't lose its "low tax, low fee" advantage.

"Every other state in the country is in the same boat we're in" because of the recession, said Dennis Delay, the center's deputy director. Just about every state is eyeing revenue enhancers in hopes of closing budget shortfalls that average between 10 to 15 percent, he said.

Gov. John Lynch and lawmakers are seeking consensus on a two-year budget, which kicks in July 1, as they try to close what The Associated Press reported last week is a $650 million revenue gap. The shortfall is in the $3.2 billion general fund portion of the budget, while the total spending package is closer to $11.6 billion with federal and other funds included.

Economic slowdowns tend to ratchet up tax burdens, Delay said.

And it appears few, if any, Granite Staters will escape the pain this time around, according to a compilation of some of the proposed tax and fee increases that passed each chamber.

A slew of changes to motor vehicle-related items could be on tap, including:

— A $4 increase for electronic motor vehicle record requests and a $7 hike for others so it costs $8 and $12, respectively;

— Adding $5 to the $10 fee for certified copies of registrations, licenses or driving records;

— Increasing the cost of getting a vanity plate by $15 so it costs $40, with a similar increase to the service fee;

— Adding $10 to driver's license fees, $15 to motor vehicle registrations, with a $15 surcharge for vehicles more than 8,000 pounds, and increasing motorcycle registrations by $10.

The Senate version includes a 75-cent jump on inspection stickers, from $2.50 to $3.25, while the House likes a 40-cent change.

Elsewhere, the $150 charge for the Department of Environmental Services to review subdivision plans and site plan inspections could go up by $150, and the $140 charge for review of sewage or waste disposal plans could go up to $300.

Courts would be able to increase the penalty assessment fee by 4 percentage points, making it 24 percent, and the Department of Safety will be able to charge $100 for the annulment of criminal records.

Plus, boat registration fees are set to double; they currently range from $12 to $46 depending on the boat's size. Registration, agent, ownership transfer and licensing fees would also rise.

It would also cost someone from out of state $80 more to carry a concealed weapon under the Senate plan.

The House and Senate disagree on major areas.

Whereas the Senate's budget relies on more than $200 million in projected revenue from expanded gambling, the House proposal envisions a 10 percent tax on gambling winnings, a 5 percent capital gains and an 8 percent tax on transfers of estates greater than $2 million. The estate tax is projected to collect $10 million.

Proponents say more than 90 percent of those impacted by taxing capital gains — the sales of assets like stocks, businesses and real estate investments — earn $200,000 or more. The measure also increases the exemption for the interest and dividends tax from $2,400 to $5,000.

Lynch is set to present a plan today for $150 million in new revenue, including from a mortgage refinancing tax, that could do away with gambling and the capital gains tax, the governor told the AP.

The Senate has also gotten behind the temporary suspension of the business enterprise tax credit, which is used against the state's business profits tax. That could bring in $40 million.

The House opted to freeze the insurance premium tax, which lawmakers agreed to begin lowering four years ago. That could bring in $5.1 million.

Elsewhere, the House also got behind a 15-cent hike in the gas tax over three years while the Senate is on board with Lynch's plan to modify the E-ZPass discount program and restructure the funding relationship between highways and turnpikes.

The deficit exists despite deeps cuts throughout the budget, particularly to health and human services, said Sen. Jackie Cilley, D-Barrington. And further cuts are challenged by the need to meet residents' rising needs, maintain infrastructure and funding tied to federal stimulus dollars, she said

"We have a choice of building a budget that tries to address the needs of the people of this state or willy-nilly cut this budget in a way that's going to send these problems back in bigger droves to the community," she said.

State receives $13 million from single estate

2009-06-10T12:00:00.001-04:00

Here is a reminder about state estate taxes. While this article is from Vermont, don’t forget that Massachusetts imposes a significant estate tax for estates valued above $1 million (which can include Life Insurance!). In these current economic times, we do not expect that any state to eliminate or even reduce this revenue source. Careful planning, however, can reduce or eliminate this tax for your heirs. The choice is often whether you will engage in ‘voluntary philanthropy’ (like naming a charity as a beneficiary) or ‘involuntary philanthropy’ – meaning the State will take a chunk. Careful planning can help make these choices.

Burlington Free Press
By Terri Hallenbeck, Free Press Staff Writer

MONTPELIER — As lawmakers were stretching the last nickels and dimes to pull together the 2010 state budget last week, an unlikely thing happened: A $13 million windfall blew through the door.

That’s how much the state received in estate tax from one person’s estate last month.

“That’s a very unusual, large, one-time estate tax,” said Tax Commissioner Tom Pelham. He is precluded by law from identifying the estate’s owner. Somewhere in Vermont, someone died last year who was worth something on the order of $80 million to $100 million.

For the state, the $13 million in unexpected revenue is like an inheritance from a long lost relative and couldn’t have come at a better time. Various revenue that fund state spending have shrunk in the last year because of the ailing economy, forcing program cuts and layoffs.

As they put the last pieces of the 2010 budget together, legislators found the estate-tax money a welcome bandage to stop the bleeding. They earmarked $1.5 million of it for college scholarships that would otherwise have gone unfunded. The rest will be used as insurance in case revenue takes another dive in June. If the revenue doesn’t materialize, the money could help spare various state special funds from being cut and could give the state the first step out of a $67 million hole in the 2011 budget.

Because of that one estate, estate tax revenue was up $13.6 million above what economists had predicted in May, said state Finance Commissioner Jim Reardon. Other revenue continued to lag, he said, and the estate tax windfall left state $11.6 million over the expected General Fund revenue mark.

“Relying on a large settlement to balance your books is not the greatest position to be in,” he said, “but a worse position is not to balance your books.”

Estate taxes of that size are rare, said Joseph Bilodeau, a certified public accountant with Bilodeau Wells & Co. in Essex Junction. He estimated that a person’s estate would have been worth about $80 million to yield a $13 million tax bill. Many people with such a sizeable estates donate at least a portion to charity, making it tax-free, Bilodeau said.

Reardon said the state’s economist estimated the estate could have been worth $100 million, depending on whether all the assets were held in Vermont.

More wealthy Americans donating through foundations

2009-06-10T10:06:00.004-04:00

We work with The Boston Foundation that also has donor advised funds. There are, of course, other options for charitable giving, some which can also produce an income for you during your lifetime. We are happy to discuss charitable giving with new estate planning clients or with clients that already have estate plans that may want to add a charitable giving compenent.

The Bradenton Herald
By Grace Gagliano

BRADENTON — The charitable giving of wealthy Americans like Warren Buffett and Bill Gates has called attention to philanthropy as a way to give back to the community while you are still living.

Instead of leaving behind large estates that are taxed heavily before distributed, the wealthy can give through charitable organizations and protect their portfolios from government taxes.

The current estate tax, often known as the death tax, charges all estates worth $3.5 million or more at a 45 percent rate.

A tax-cut package enacted in 2001 called for the estate tax to be phased out over 10 years. The tax cut expires next year if Congress doesn’t act. However, an estate tax repeal is expected to go before Congress soon. It would reduce the amount of the exception from $3.5 million for individuals to $600,000 with a top tax rate of 55 percent after 2009. Estates valued at more than $1.2 million would be subject to estate taxes.

The benefit to charitable giving is tax write-offs that range between 30 percent and 50 percent of the actual amount donated depending upon a person’s adjusted gross income and the charity receiving the donation, financial advisers say. While donors are giving away a portion of their wealth, tax benefits and giving back to their community can make it worthwhile.

Tom Kubik, president of Kubik Financial Services, advises his clients to review estate plans every five to seven years to assure they are kept up to date with changes in the estate laws. He also wants them to avoid probate, a process that takes nine to 12 months during which the wealth shrinks by 6 percent, the legal fee charged to settle the estate.

“In estate planning you have two choices,” Kubik said. “You can do nothing and let the state of Florida and IRS decide what’s left over after you die. Or you can set it up in a will or a trust that a certain amount of your estate is going to go to your church, the Salvation Army, Red Cross or wherever. That’s a decision for your estate and at least that amount is not going to be subject to the estate tax.”

People don’t have to postpone charitable giving until after death, experts say.

Jim Brennan, president of the Sarasota division of GenSpring, an asset management firm, guides clients to help them manage charitable giving.

The initial step is a capital sufficiency analysis in which Brennan helps clients determine how much capital they’ll need to achieve life goals and whether they can simultaneously afford charitable giving.

“Assuming the answer is yes they’re able to (donate), we sit down and walk them through their goals through philanthropy,” Brennan said. “We look at why do you want to give, is it compassion, legacy, honoring loved ones or tax motivated.”

By completing a survey that helps determine a client’s basis for charitable giving, Brennan is able to build a mission statement for the family that includes how much control clients want of their financial gifts and what charities they want to support.

Sarasota resident Jean Hendry went through an estate planning with Kubik years ago and decided she wanted to begin distributing her wealth to Mote Marine Laboratory. She started volunteering at the aquarium in 1984 after her husband died and about 10 years ago began giving contributions — some of which have been in the six figures.

And when Hendry, 84, dies, she will leave her home valued at $887,100 to Mote Marine.
“It’s been my pleasure to give to them,” Hendry said. “To me, it is just the satisfaction of giving to Mote now rather than me trying to invest it someplace. I can give to them and they can spend it now or as necessary.”

At the Manatee Community Foundation, Executive Director Marilyn Howard said tax savings are not the sole reason clients are setting up family or charitable funds.

“The economy is tough on everybody right now. It’s tough on profits and it’s making people feel, in some ways, as if they have less to be charitable with,” Howard said. “However, we still have some very, very generous people out there.”

The philanthropic organization manages 110 donor funds and 36 donor advised funds worth about $12.5 million and has distributed grants and scholarships over the past year totaling $842,556.

Setting up a fund at the Manatee Community Foundation starts with a consultation in which officials help clients determine what would be their most suitable fund: restricted, unrestricted, field of interest, donor advised, scholarship or agency endowment funds.

The donor advised fund allows a client to distribute charitable contributions and make recommendations about their fund while they are living.

“It’s like having your own small private foundation,” Howard said. “It’s one of our more popular funds because people want to take a much more active role in making decisions about where their charitable dollars go.”

Bob Firkins, owner of Firkins Chyrsler in Bradenton, set up a charitable fund with the Manatee Community Foundation about six years ago to support local charities. “You never know what the future holds,” Firkins said. “So it’s nice to put it away in good years so in years when they’re not as good it is already there.”

Bob Blalock, of the Bradenton law firm Blalock, Walters, Held & Johnson, PA and a board president for the Manatee Community Foundation, set up a family fund with the foundation.

Neither Firkins nor Blalock would say how much they contribute each year but their funds with the Manatee Community Foundation are classified as founders funds, which have a minimum donation of $25,000.

Money from the fund is distributed annually to local non-profits such as the Bishop Animal Shelter, Ringling Museum, United Way and the Anna Maria Island Community Center.

“There’s just so much need out there right now, you might as well distribute what you can while you’re here,” Blalock said.

Monday, June 8, 2009

Deciding if Your Kid Is Trust-Worthy

2009-06-08T13:27:00.004-04:00

Parenting is more than reading to your children or getting them to eat their vegetables. It's also about securing their financial future. One way to do that is by drafting a trust and naming a trustee. In this excerpt from her new book "The Wall Street Journal Financial Guidebook for New Parents," Stacey L. Bradford explains why parents may want to consider estate-planning tools beyond a will.

You don't need to be Bill Gates to consider setting up a trust for to manage your child's assets until he reaches 18 or 21, depending on the state.

That property guardian may be a complete stranger who won't understand your values. Perhaps more important, the guardian could add one more layer of bureaucracy to an already complicated situation. When your child needs money, the guardian may have to make a formal request that then goes through the court system. It can be a real headache for your kids to get funds when they need it, and it's not an arrangement that's always in their best interests.

One way around the court system is to set up a custodial account for your kids through your will. In that case, you get to name the custodian, and he decides how the money is spent. Once your son or daughter is legally considered an adult, he or she inherits the money outright. The problem with this setup is that your kid might blow through the money and have nothing left over for college or grad school.

For many parents, setting up a trust is a better alternative that allows them more control over how their money is spent once they're gone. If you have the means and want your child to go to private school, for example, include that in the trust document. A trust can also delay the age at which your kids get their hands on the money.

This is often the biggest selling point for parents. Most people, looking back, would probably agree that they didn't necessarily make the most responsible decisions about money when they were 18 or 21, a time of life when it may have seemed perfectly reasonable to rack up credit-card debt. Even delaying a few more years -- until, say, 25 -- makes the money more likely to be put toward, for example, education or a down payment on a house.

While setting up a trust is a bit more complicated than a custodial account -- it requires a lawyer's assistance, for one thing -- it also provides more financial security for your children and is therefore worth considering. Ideally, you should set up a trust when you draft your will. But you can always add a trust later as your estate gets more complicated or your assets grow. For most parents, a simple trust will do. For more advanced planning purposes, such as reducing estate taxes, you could consider other options, such as a marital bypass trust or a grantor-retained annuity trust.

Here are a few questions to ask yourself to determine if a trust is right for your family:
Do you anticipate leaving your children more than a modest sum of money? A trust may not be worth the effort if you think you'll only be leaving a child (or children) $100,000 or less. On the other hand, if you're leaving life insurance money to cover four years of school and you own a home, there's a good chance a trust would make sense for you.

Do you want to have some say in how your children's money is spent?
A trust allows you to restrict spending to basic support, including food, clothing, education and health care. This is something that can't be done with a custodial account. If the custodian is a soft touch, he could end up lavishing your child with designer jeans and a fancy car, leaving very little left for the college years. Even worse, if the custodian is also the guardian, he could start writing himself large "support" checks to help cover his other expenses.

Would you prefer that your children not inherit the money when they turn 18 or 21?
If you think giving a high-school senior a large sum of cash is a recipe for disaster, then you should consider a trust. The ability to delay inheritance was the main draw for drafting a trust for Laurie and Greg Wetzel, a New York City couple in their mid-30s with three small children. Should something happen to both of them, they decided, their kids will each receive half of their inheritance at age 30, and the remaining amount when they reach 35. "Your 20s are such a transitional time that we don't want our children to have significant financial decisions to make," Ms. Wetzel says.

Do you want the money to be used for a college education?
If you specifically bought life insurance so that there would be enough money to help fund college in the event of your death, then you'll definitely want to delay the age at which your kids inherit your money. Otherwise, your child could think a red Ferrari is a better investment than a crimson Harvard diploma.

Would you like your children to have recourse if their money is mismanaged?
One more benefit of a trust that you don't get with a custodial account is that a trust is a legal contract; the trustee has an obligation to follow your directions and act in a reasonable and prudent manner. If the beneficiary feels the trustee spent the money frivolously, he can demand an accounting, and can sue for reimbursement if the trustee acted improperly with the funds. It may be pretty tough to prove illegal or improper actions with a trust, but just the threat of a possible lawsuit can keep someone in line.Choosing a trustee. The trustee holds the purse strings, so don't delegate this job lightly. You need someone who is trustworthy, is good with money and has great attention to detail. In other words, don't choose your brother who has trouble remembering to pay his own bills.

Your trustee is going to be working with your guardian, so they had better get along. While they don't need to be best friends -- in fact, it's probably better if they aren't -- they also can't be archenemies. You want your trustee to be able to tell your guardian she can't use the money to buy your son a new sports car, but you also want your trustee to take your guardian's phone calls when she needs more money to pay for your son's braces.

Then there's the issue of naming a family member as your trustee. There's no general rule here, and many people prefer to name a sibling since there's no one in the world they trust more. Siblings also typically don't charge to perform the service. On the other hand, my husband and I chose a close family friend. In our case, we felt he would be less biased and more likely to follow through with our wishes without passing judgment on how we want our child's money spent.

You'll also face the debate over naming your children's guardian as the trustee. On one hand, it's rather convenient. The person raising your kids won't have to ask anyone for permission about how the money will be spent. But a division of power can be a safer route. Some estate-planning attorneys worry that having one person fill the dual role leads to a conflict of interest and the risk that the guardian could take money for herself.

If you have a lot of money -- more than a million dollars -- you may want to name a bank or a lawyer to act as trustee. An institution has a lot of experience handling accounts and taking care of all the investments and necessary tax paperwork. You could also offer your trustee the option to hire a bank and act as co-trustee or as an agent, so that he or she still has ultimate control. He or she would basically keep an eye on the bank. Just be aware that a bank's services aren't free. They typically charge an annual fee of 1% to 2% of the principal.Drafting the trust.

Now that you've gotten this far, it's time to hire a lawyer, or use the same one who drafted your will. An attorney may ask you to sign standard forms, but don't feel locked in; you can personalize the trust to better meet your family's needs.

As much as trusts are about maintaining some say in how your money is spent, the language in the document should be vague enough to allow your trustee some leeway should your child's needs change or should something come up that you couldn't have anticipated.

Finally, you'll want to write your trustee a letter expressing your wishes for how you want the money spent on your children. Some parents go so far as to say that some of the money can be used to help raise the living standard of the other kids they may be living with, so everyone feels equal. Of course, it's up to the trustee to crunch the numbers and make sure there is still money left over to meet your main goals.

Adapted from 'The Wall Street Journal Financial Guidebook for New Parents,' by Stacey L. Bradford. Copyright 2009 by Dow Jones & Co. Inc. Published by Three Rivers Press, an imprint of the Crown Publishing Group.

Bill would protect animals when owners die

2009-06-04T14:02:00.001-04:00

Good news for our family and friends with furry loved ones in Connecticut.

By Ken Dixon
Connecticut Post

HARTFORD -- Animal lovers will be able to establish trusts for their pets under legislation that won unanimous approval in the House Tuesday morning.

The 142-0 vote sends the legislation to Gov. M. Jodi Rell for final action.
If signed into law, it would allow for pet owners to care for their animals after they die or if they become incapacitated.

Lawmakers on both sides of the aisle praised the legislation for giving pet owners a process under which they can ensure their animals will be treated properly.

Under the bill, trust protectors would be established for animals by Superior Court judges. If the issue comes up during hearings in Probate Court on an estate or guardianship, it would stay in that court.

Rep. Michael P. Lawlor, D-East Haven, co-chairman of the Judiciary Committee, said the bill has been three years in the making. "This is a very simple addition to our state statutes," Lawlor said. "I'm delighted this has come forward," said Rep. John W. Hetherington, R-New Canaan. "This will enable people who want to care for their pets when they pass away, or who become incapacitated, to create these trusts."

He said about 39 states have provisions for animals who survive their owners.

In Connecticut a new trust-protector provision would be similar to a conservator in handling the housing and feeding of a pet.

Rep. Jason Perillo, R-Shelton, joked that the issue could divide families. "If my wife were given the option between me and the dog, I don't know which one would win," Perillo said.

Attorney Squillace selected for Prestigious Advisory Group

2009-06-03T15:07:00.000-04:00

Attorney Scott E. Squillace was recently selected to serve a two-year term on the prestigious Professional Advisory Committee for The Boston Foundation. Every year, members of the Boston estate planning community, including attorneys, accountants, and investment advisers, are asked to serve. The Committee "counsels The Boston Foundation as we work to establish, develop and maintain strong working relationships with members of Greater Boston's advisor community."

In addition, the group regularly shares best practices and insights into philanthropic giving.

"I am so honored to have been selected for the Professional Advisory Committee. I am humbled to join such a talented group of individuals in the philanthropic community. It is a privilege to be a part of one of the most successful and well respected community foundations in the country," Squillace said.

The first meeting of the new Committee will be in September.

Keep Tabs on Insurance That Covers Estate Tax

2009-05-31T16:18:00.000-04:00

By: Arden Dale

Using life insurance to cover the death tax is common practice, but the strategy is blowing up some estate plans now.

The policies are imploding because of low interest rates. An insurance plan issued years ago, when interest rates were higher, may no longer be earning the investment returns it needs to pay premiums as drafted. That shortfall leaves the owner on the hook for unexpected costs.

If the worst happens and a policy collapses, its demise can even result in a big tax bill.
Estate planners are noticing the problem. (It is hardly limited to their arena. A policy can lapse no matter what it is used for.) Some expect it to get worse.

Donald Walters, general counsel for the Insurance Marketplace Standards Association, said IMSA has heard anecdotally of "growing concern" about troubled policies. The group is a nonprofit that develops best practices for the insurance industry.

Insurance consultant Bill Boersma, the founder and president of Opportunity Concepts in Grand Rapids, Mich., said he has worked with many troubled policies recently. He predicts a "tsunami" of lapses over the next few years.

"The worst are going to be from the 1980s and 1990s, when interest rates used for the projections were higher," said Mr. Boersma, who sees most trouble with universal and variable-life policies, although whole-life policies are starting to fail "at an alarming rate."

Problems stem largely from expectations about how well investments in a policy will perform. A policy may have been set up to self-pay premiums, based on the notion that investments will beat the interest rate used. Money then builds up and pays the premiums automatically.

But if interest rates decline over time, trouble can occur. The owner may not be aware that the policy is taking out internal loans to keep up with the premium payments.

Indeed, a lapsed policy often comes as a shock to its holder. Many assume the insurance is paid up or on automatic pilot so that they won't owe anything more out of pocket.

Jere Doyle, senior vice president at BNY Mellon Wealth Management, says he hasn't yet seen lapsing policies. But he says people do need to know that, if a policy doesn't perform as projected because of lagging investment returns, "the insured will have to pay the premium out of pocket longer than expected or for the duration of the policy."

Policies can be structured in many ways, and how the terms are laid out can determine a holder's liability. Knowing those terms is critical.

Advice to those using life insurance in an estate plan: Have an attorney check on the health of the plan. And don't be surprised if that person turns the matter over to an independent insurance expert. Policies are complicated enough that an estate planner or attorney may not feel comfortable vetting them.

Wall Street Journal, May 26, 2009, D2

Choosing an Effective Estate Planning Attorney

2009-05-29T14:37:00.000-04:00

This is a great article that everyone searching for an estate planning attorney should read.

A Values Based, Client Centered Attorney Will Help Clients Succeed
By Daniel P. Stuenzi

All successful estate planning is the result of several professions working together for the good of the client. However, professionals of one group sometimes have misconceptions of professionals belonging to other groups. For example, the financial advisor may see the estate-planning attorney as a deal killer or a document peddler. But this is far from the truth. There are hundreds of estate-planning attorneys who are willing to work together with other professionals to help their clients. The key is to find those who are values-based, relationship-driven, client-centered and counseling-oriented.

Searching for gold
So where do you find these rare creatures? How do you know if you’re dealing with the right kind of attorney? The right kind of attorney will have an orientation toward relationship building and counseling rather than document preparation. The first thing he will offer is the ability, through counseling, to draw out the client’s hopes, dreams, fears and aspirations for himself and his loved ones. The attorney will carry on a sensitive dialogue that will enable his client to make clear his wishes to maintain control over his affairs, to be cared for properly in the event of a disability and to provide meaningfully for his loved ones after he is gone.

The right attorney will inquire about:
** the complexities of the family relationships through multiple marriages
** special-health needs of a grandchild
** a son-in-law who is not to be trusted
** the spendthrift daughter

On a more positive note, the right kind of attorney will ask about:
** the client’s wishes to fund the education of his offspring for several generations
** grand philanthropic goals that provide the client with feelings of significance that surpass his
success

In-depth counseling forms the strong foundation on which a long-term relationship is built. The right attorney will involve the other advisors in this process to the degree that the client is comfortable with that arrangement. When a client shares what is really important to him now and after his death, he develops a strong bond with his professional advisors.

An interdisciplinary approach
Another trait of the right kind of attorney is a true commitment to the team approach in estate planning. A good estate-planning attorney recognizes that every member of the planning team (the investment advisor, the insurance professional and the CPA) is vital to the success of the plan.

Legal documents are not enough. Even documents that have been drafted from in-depth counseling and are custom-designed to meet the unique needs of the client are not enough. Documents standing alone are like the proverbial automobile without fuel; the documents’ instructions only apply to assets that are properly owned.

For example, a will only controls those things owned in the individual’s name—not jointly. The trust only controls those things owned by the trustee of the trust. An irrevocable life insurance trust works only if it is properly funded with a suitable insurance policy. Advanced entities require careful balancing of assets for maximum effectiveness. Accurate valuation of the client’s business interests is imperative. New planning tools often require additional accounting and tax advice.

Financial and insurance advisors, as well as accountants, provide the fuel that is needed to help ensure that appropriate financial assets are allocated and funded correctly, offer necessary valuations and tax returns, and provide the means for proper balance within the plan. The estate-planning attorney you work with should not only recognize these truths, he should also be communicating them to your client on your behalf.

Each member of the interdisciplinary team provides third-party credibility for the other members. If there is disagreement among the professionals on a strategy or its implementation, it can be discussed and worked out between them as a team. In this way, the client is served with unanimous agreement.

Mutual respect and clear protocols will characterize the interdisciplinary team that is working well together. Each team member will know exactly what is expected of him, and communication will be constant and clear.

A client-centered relationship
The right kind of attorney will be focused on a long-term (even multi-generational) relationship with the client and his family. The attorney will not have a transactional approach to the estate plan, but rather a process approach. The estate plan is never really done until the client has passed away and every instruction for every beneficiary of every subsequent generation has been carried out. Those who speak of the plan or the client in the past tense may have a shortsighted perspective.

The client-centered attorney wants to ensure that everything possible is done to make sure that the plan is carried to fruition and that the client’s expectations are met.
There is nothing as constant as change. The client’s personal, family and financial situations change all the time. Kids get married and have children; there are divorces and remarriages; and the market goes up or down.

In addition, laws (both tax and nontax) change constantly. We have an estate tax. Then we’re told the estate tax isn’t so bad. The estate tax is abolished. Oops, the estate tax is back. Assets in retirement accounts and trusts are protected from creditors and predators. Some protected assets may not be protected in certain circumstances.

The other thing that should be constantly changing is the growth and education of the attorney and every advisor working with that client. New planning strategies should be developed, new tools should be discovered, and there should be a better way to say something.

The right estate-planning attorney has systems in place to ensure he stays in touch with the client, that the planning team knows of changes, and that there are methods to adjust the plan in light of those changes.

The attorney will also be aware that for a plan to work well, the people who will help in the future need to know what’s going on. If the children will someday serve as trustees and personal representatives, the attorney might tell those children what to do. If ongoing trusts have been established to protect those children and grandchildren, the other advisors should be in a position to continue serving as advisors to the subsequent generations instead of losing those accounts. The client-centered interdisciplinary approach can make that happen.

The right attorney does exist, and is looking for the right financial advisor, insurance professional and CPA to work with. If you share the values and practices outlined, you should look for an attorney with beliefs similar to yours. You might also check with regional and national organizations of attorneys who specialize in this area of the law, visit their events and spend some time getting to know their members.

As every member of the planning team focuses on the needs of the client, the process will run more smoothly, the client will be more comfortable and the practices of all the professionals involved will prosper.

Dan Stuenzi is the director of member development for the National Network of Estate Planning Attorneys.

Posted with author's permission. Originaly printed in 'Advisor Today'.

Check Back Soon

2009-05-28T09:46:00.000-04:00

Dear Friends and Colleagues:

We will be posting more soon. This blog will be our way to share current articles and trends in the Life and Estate Planning Field with you. Thank you for visiting.