Advice for Assuming Control of Aging Parents Finances

Convincing senior parents to turn over management
of their bank accounts can be more challenging
than taking away their car keys. After all, Mom and Dad
have been role models on the importance of saving
money and investing. Their repeated advice: Pay your
bills as soon as they arrive, but check them for accuracy.
Anything left over after you pay your living expenses
goes into savings accounts or conservative investments.

Bounced Checks, Spendthrift Behavior
But now, you may see some serious red
flags in your parents’ fiscal behavior. They don’t
seem to be living up to their own sage advice.
The “every penny counts” mother mentions bounced
checks and overdraft fees. Her electricity was shut off
because she forgot to pay the bill for two months. A
review of her checkbook shows that she mistakenly
paid the same insurance bill twice.

The historically frugal father has uncharacteristically
paid $2,500 to sweepstakes entries over the last year
and written six $100 checks to a TV evangelist – the
one recently arrested for fraud. It’s scary, parents might
make a devastating financial move and lose everything.

Start With a Compromise

If your parents are reluctant to cede control,
suggest starting with the “unofficial” role of financial
monitor. The first step is to set up online account
monitoring. Gradually, the adult child can move into the
more official role of money manager as a parent gets
comfortable with sharing control.
A more formal step is to enlist the help of an estate
planning attorney to draft a Durable Financial Power
of Attorney. This legal document allows a loved one
to handle a person’s finances when he or she no
longer can. It can be written to go into effect
immediately or upon a doctor’s certification that the
parent is incapacitated.

Options for Outside Help

Another solution for some families is to hire a
licensed and bonded private fiduciary to pay the bills.
There is also a growing body of professionals who
help seniors without any family available to help, or
whose loved ones are overwhelmed by the prospect
of dealing with a senior’s financial problems.
Most large cities have a Council On Aging. They
have bonded representatives who visit the elderly at
home and are able to assist in financial matters.
There are a variety of strategies in handling a senior
parent’s finances.
As always, we hope this article has helped you. If you have
a specific case or concern, please contact Stephen Lacey to
set up an appointment.
To contact Stephen Lacey call
(321) 984-2700.
Visit our website: www.mjlandl.com

When Does Someone Need To Move From Assisted Living to Nursing Home Care?

A client’s 86-year-old mother has been in an assisted living community close to my home for the past two years. She has been declining slightly, almost imperceptibly, over the years. Most recently she fell while in her room and was unable to get up or reach out for the call cord. It wasn’t until later that day, when mom did not come to dinner, that a staff member finally found her on the floor. She had been there for hours.

Fortunately, she was only weak and did not suffer any serious injury but it was of major concern for both the loved one as well as the centers administrator.

When our client was called about the incident, he spoke in length with the administrator. She told him that it was “time” for mom to move to skilled care, that it was best for her own safety.

He was disheartened for mom. She never wanted to go into “one of those places”. She loves her apartment, her friends and was still mentally strong and even physically strong. He took the time to research nursing homes and spoke with her doctor. He said that with her age and the fact that she fell and was unable to find the strength to get up, that it was an indication that her health was declining. He argued with the doctor that she doesn’t seem forgetful and that this environment was so good for her mental and emotional state. Of course, he wanted her to be safe but how is she going to feel having to go into a nursing home? How in the world would he tell her? How could they afford 24/hour skilled care? Can this facility force her to move?

These concerns are complex and unfortunately common. In fact, these questions are exactly the same that you may have, when faced with a situation such as this.

You are asking all the right questions and several more are in order:

What kind of contractual agreement does your mother have with the retirement community? Many assisted living facilities have month to month agreements. Often, when the facility needs more care, they can ask the resident to leave.

If it is a continuing care retirement community (CCRC), it is often stipulated in the contractual agreement that a nurse’s assessment will determine the location and level of care. It is more difficult for staff to provide services all over a large community and easier if all the people needing care such as medication and continence management are in the same building or on the same floor.

One other consideration is to think about how your mother’s quality of life may be when in a different setting? This can be difficult to assess and often depends on both the individual and the setting. Consider the levels of attention she may receive in a nursing home: less privacy and perhaps more restrictions with less activity and social schedules. Also, the cognitive levels of the other residents may be less than your mother’s, therefore she may not be able to establish as many friendships.

There are some other options, should the assisted living facility and her doctor agree:

• The option of physical therapy and exercise. Can her strength be regained with the appropriate guidance and strength training?
• Outside assistance. Can you afford and will the facility allow an in-home care agency to provide assistance in her room? Are you or other family/friends able to intervene more and see her on a more frequent basis?

Give all of the above serious consideration. Unfortunately, because we live in a litigious society, the facility may have liability concerns. If you are confident that it is best for your mother to stay where she is, you may want to inquire if the facility has a negotiated risk agreement or a “hold harmless” contract, where your family would basically promise not to sue if there is an adverse event. This is an important decision and one that as the loved one needs to make carefully. Seeking the advice of an elder law attorney can help you review the emotional, financial and long term plans for your mother, while protecting both her, you and the future.

To learn more about emotional, financial and long term planning to protect your loved one, you and the future, please contact me today to schedule an appointment. You can also visit our website at www.mjlandl.com/

Creating An Estate Plan or Updating One

If you have a Will detailing your assets, make certain that you create it or update it to include not only the list of financial accounts but your user names and passwords, too!

Without log-in information, survivors usually need to go to court for legal authority to gain account access. The process varies from state to state; it doesn’t always require a lawyer but it always takes time. In addition, the process can involve the heir approaching the individual on line companies to heed her authority - a task that can be very frustrating. Many married couples today already face this issue when trying to get a simple balance on a credit card that is only in one spouse name. Companies today are reluctant to release any information at all, to avoid potential litigation for personal information violations.

Try contacting customer service and telling them, you’ve been appointed as your late brother’s administrator. Then ask them for his user ID and password. Eventually, of course, this type of problem is solved when you can reach a real human being who doesn’t act like this is the first out within every institution.

The process can be even more complicated if someone is incapacitated rather than dies. If there’s no Power of Attorney, then you MUST have a guardian or conservator appointed to have access to these records. Furthermore, some companies won’t release any information without a specific court order.

The time to gather all of this information can be lengthy and the costs associated with it, can be more than most families expect. It is definitely an area that can be avoided if you plan for it in your estate plan or be sure to update your existing plan with all of your user names and passwords.

For more information regarding estate planning and wills, please visit our website at www.mjlandl.com

No Estate Tax in 2010, But Much Uncertainty

Although we have known since 2001 that the federal estate tax was scheduled for a one-year repeal beginning on January 1, 2010, it’s hard to believe that the repeal has actually taken effect. Many experts were confident that Congress would have acted to prevent this from happening, perhaps by permanently extending the 2009 federal estate tax level and rates. Although the House had approved such a bill on December 3, 2009, the Senate failed to take similar action.

A brief review of the law will explain why this is so significant. The 2001 tax act signed into law by President George W. Bush was designed to provide significant tax relief. It gradually reduced the maximum federal estate tax (and generation-skipping transfer tax on transfers to grandchildren) from 55% to 45%. It also gradually increased the amount of property that could be passed free of federal estate tax (the “applicable exclusion amount”) from $675,000 per person in 2001 to $3.5 million per person in 2009. That means that a married couple who planned correctly could have passed up to $7 million free of federal estate tax had they both died in 2009.

Although there is no estate tax this year, in 2011, under the existing law, the estate tax rates are scheduled to revert to a top rate of 55% and the applicable exclusion amount will revert to $1 million. New York will continue to impose an estate tax on estates exceeding $1 million. It’s unclear whether Congress will take action this year and it’s uncertain what the laws will provide or whether they will be enacted retroactively. At least Senator Max Bauchus, Chairman of the Senate Finance Committee, recognizes that swift action is necessary to prevent “massive confusion.”

To compensate for the loss of estate tax revenue, the 2001 tax act increased the income tax by substantially changing the law with respect to capital gains on property included in a decedent’s estate. Before this year, a decedent’s assets received a step-up in basis to their fair market value at the date of death. Upon a subsequent sale of assets (such as real property or securities), the surviving spouse or heirs would not have to pay income tax on any of the growth that occurred during the decedent’s life. This resulted in an enormous tax savings for many heirs. However, in 2010, there is a limitation on the amount of property that can be “stepped up” in value at the time of death. Property that does not receive the step-up will be subject to tax on all increases in value from the date the decedent first acquired the property.

As you can imagine, this can affect many more people than even the change in the estate tax rates.

The repeal of the estate tax this year may significantly impact some married couples whose will or trust includes a formula to divide the decedent’s property into a credit shelter trust (also referred to as a “bypass” or “family” trust) and a marital trust, so as to maximize the amount that will pass free of estate tax. The trustee may be forced to fund more assets into the credit shelter trust than necessary, leaving the marital trust relatively empty. However, it is unclear how such formula clauses would be interpreted and how the credit shelter trust would be funded.

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Interesting Article

PROTECTION FOR DIGITAL ASSETS

Do heirs need to know your online passwords?

Monday, November 16, 2009 5:23 AM

BY TIM GRANT

PITTSBURGH POST-GAZETTE

After an American soldier died in Iraq five years ago, his father wanted to save copies of his son's e-mails sent through a Yahoo account. But the Internet company's privacy policy allowed access by only the soldier, triggering a legal fight.

The case highlights a growing discussion concerning what happens when the owner of a password-protected online account dies. To whom does the account belong? Can digital assets be passed on to heirs?

"If you use a computer, you need to have an estate plan that deals with digital assets and paperless transactions," said Lawrence H. Heller, an estate lawyer in Santa Monica, Calif. "People need to think about how to give their heirs access to information that may be stored online, but without the risk of unauthorized access."

Many important documents and personal treasures once kept in file cabinets and safe-deposit boxes are now stored electronically. Photographs, videos, music, letters and book manuscripts that might have monetary value -- or be priceless to loved ones -- often are saved exclusively on computer drives.

Legal disputes involving digital assets are relatively rare, but as the computer-literate population ages, after-death lawsuits are likely to become more common. "What we are trying to do is anticipate and avoid the problem," Heller said.

Until now, estate planning has primarily focused on tangible assets such as real estate, autos and jewelry and intangible assets such as stocks and bonds.

In exceptional cases, artists and musicians face issues involving copyright, trademark or patent law. But now, anyone who owns a computer could end up dealing with those issues, too.

"If I have created something in the digital universe, it's not free game. I may have a hard time protecting it, but I own it," said Steve Seel, an estate and trust lawyer in Pittsburgh.

Sometimes, heirs don't even know these things exist. As more companies move away from paper, online bank accounts, investment accounts, insurance polices, time shares and frequent-flier miles might become trickier to locate and access if someone dies without telling heirs of their existence.

According to a recent study by HSBC Direct, 49 percent of the online population conducts most of its banking via the Internet.

Meanwhile Internet blogs, as well as MySpace, e-mail and Facebook accounts, could be owned by an even greater percentage of the population.

In a growing number of cases, checking a deceased person's computer or other digital devices is becoming a crucial step in executing an estate.

Executors of estates often get special privileges giving them access to most assets. But privacy laws might prevent Internet companies from releasing username and password information to executors.

If a digital asset is stored on someone else's server, ownership becomes especially complicated. Yahoo mail, for example, has a provision in its user agreement that gives the account owner no right to transfer the ownership. All rights are terminated with the owner's death, and all content can be deleted.

The rules were tested in the high-profile case involving the father of Lance Cpl. Justin Ellsworth, a combat engineer with the Marine Corps who died in Iraq in November 2004. The two men were in constant e-mail contact during the deployment, and when the son died, the father wanted the e-mails from his son's account for sentimental reasons.

But the son had changed his password a few weeks before his death and had not shared it with his dad, who lives in Detroit. It took a five-month legal case to work out an arrangement to release copies of the e-mails.

Asset Protection Seminar

Presented by

Stephen J. Lacey, Esq.

McClelland, Jones, Lyons, Lacey & Williams, LLC

1901 S. Harbor City Blvd, Ste. 500 Melbourne, FL 32901

Workshop presented in the law office conference room

Wednesday, December 9th (10:30 am to noon)

There is no charge. But since space is limited, reservations are required. (So R.S.V.P. A.S.A.P.!)

Please call (321) 984-2700 for reservations or email slacey@mjlandl.com.

Visit us on the web at www.mjlandl.com for more information.

December Issue of SpaceCoast Business Magazine

Workshops/Consultations

UPCOMING WORKSHOPS

Reserve your seat at the next workshop! To make a reservation:

1. Call Us Today » 321-984-2700
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INDIVIDUAL CONSULTATIONS

Attorney Stephen J. Lacey is available to meet one-on-one with you or in a small family setting, if desired. Call today for appointment - 321-984-2700

Recent News

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Asset Protection Seminar

We are hosting our popular

Asset Protection Seminar

Presented by

Stephen J. Lacey, Esq.

McClelland, Jones, Lyons, Lacey & Williams, LLC

1901 S. Harbor City Blvd, Ste. 500 Melbourne, FL 32901

Workshop presented in the law office conference room

Wednesday, December 9th (10:30 am to noon)

There is no charge. But since space is limited, reservations are required. (So R.S.V.P. A.S.A.P.!)

Please call (321) 984-2700 for reservations or email slacey@mjlandl.com.

Visit us on the web at www.mjlandl.com.

How to Protect your Money from Nursing Homes and Estate Taxes

This is truly an educational session. Come prepared to experience a thought-provoking

Who Should Attend?

• I want to know what nursing homes cost.
• I am afraid a nursing home will bankrupt me.
• I have a loved one with special needs (including child/grandchild). What next?
• I want to protect my loved ones’ inheritance from creditors, divorce and remarriage
• I have an existing plan over 3 years old
• I don’t fully understand Living Wills, Powers of Attorney, Wills, Trusts or Probate.
• I’m not sure what Medicaid is.
• I’m not sure what Medicaid pays for.

If you checked 2 or more of these, you should attend this workshop!

What You Will Learn:

➢ What Medicaid is
➢ What Medicaid pays for and excludes
➢ The cost of long term care
➢ How to protect your money
➢ How to plan for the FL Estate Tax by using, not losing, your estate tax credits
➢ How to make your loved ones’ inheritance creditor, divorce and judgment proof
➢ How to keep your estate plan up to date
➢ What each estate planning document is for. ALSO
➢ What long term care insurance is for
➢ Why many estate plans don’t work
➢ BONUS: Get a free consultation with Attorney Stephen Lacey to review your personal options.
review of your options. Avoid the pitfalls of poor planning and design an estate plan that works!

A Small Business Could be NO Business Without a Succession Plan

Small businesses are the engines for innovation. They not only account for 75% of all businesses in the U.S., they also provide for over 50% of jobs. It is readily apparent that small businesses are vital to the U.S. economy and help shape our great nation. Yet, a majority of small businesses fail to pass to the next generation. Even worse, only 13% of small businesses survive to the third generation. Why is this? As Benjamin Franklin said, “failure to plan is planning to fail.”

Think of business succession planning as a plan to manage issues that create a smooth transition between you and the future owners of your business. With family businesses, succession planning can be especially complicated because of the relationships and emotions involved - and because most people are not that comfortable discussing topics such as aging, death, and their financial affairs. In most cases, the "killer" is taxes or family discord, both issues that a good family business succession plan will cover.

When considering your business succession plan, it is easiest if you break your planning into three main issues: management, ownership, and taxes. Let’s start with the easy one. Estate taxes. Currently, the Unified Credit (the coupon the federal government gives everyone to pass their assets upon death free from estate tax) is set at $3.5 million. In 2011, it drops to $1 million. Any excess is taxed at approximately 50%. If a person dies owning a successful small business, that business may have to be liquidated to pay the estate tax.

Let’s assume that either the estate tax is not an issue. What other issues may derail all the hard work someone put into growing a business? It could just be family dynamics. Sibling rivalry could hinder the succeeding generation for management. Or the older generation may not wish to let go of management because of the fear of losing their leadership role in the family. Or there may be different expectations and ideas on the direction the business should grow in the future. Consider the sacrifices the founding member made to make the business successful. 80 hour work weeks. Missing baseball games and dance recitals. The younger generation may not understand or appreciate the hard work.

So what can be done? First, ensure that the business is structured properly so that it may be passed easily to the next generation and ease the tax burden if needed. There are many, many ways to do this based upon the goals of the family.

Second, schedule family meetings where business planning such as short and long term strategies are discussed. It is important that the older generation explain the values in which the business was started and grown, while the younger generation decides whether they are willing to manage the business and if so, what direction they envision the business heading. These meetings are also an opportune time to facilitate identifying if, or which child can be groomed to be an heir. Erase the concept that the only fair thing to do is to divide the business equally between your children. While this is a nice idea in theory, it may not be in the best interests of your business. Remember that management and ownership are separate business succession planning issues. It may be fairer for the successor(s) you have chosen to run the business to have a larger share of business ownership than family members not active in the business. Or it may be best to transfer both management and ownership to your chosen successor and make other financial arrangements to benefit your other children. Consider inviting a third party advisor, the business’s CPA or attorney, to identify this protégé.

Finally, it may be that the next generation simply does not want the family business. While that can be disheartening, it is best to address this issue when both the business owner and business is healthy. If you want to pass your family business along to the next generation, putting off business succession planning is the worst thing you can do. By discussing the issues with the family and creating a plan unique to your business and your family you can ensure that you have the funds you need to retire and that the business you have built continues to thrive in the hands of the next generation.

Stephen J. Lacey, JD, LLM-Tax is a partner in the law firm of McClelland, Jones, Lyons, Lacey & Williams, LLC. Mr. Lacey concentrates his practice in the areas of Estate Planning, Asset Protection, Medicaid Planning, Probate and Real Estate. To contact Stephen call (321) 984-2700 or visit www.mjlandl.com.

We Are Excited To Join You At...

The Brevard Association of Human Services – 2009 BAHS Annual Senior Health Fair
November 11, 2009
8:00am – 1:00pm
Hilton Rialto Hotel


For More Information Click Here >>

RAISE YOUR HAND IF YOU NEED AN ESTATE PLAN

There is a common misconception that estate planning is only for the rich. So let’s do a test to determine whether you need an estate plan.

Now imagine you have everyone you care about in your left hand, your family, friends, maybe a charity or even if it is only your dog and in your right hand, you have everything you own, all of your stuff. Now imagine someone has a gun to the head of someone in your left hand and tells you give me all of your stuff or I pull the trigger. What do you do? You give him all of your stuff. Congratulations, you need an estate plan. The reason is that you just said that you care more about the people that matter, then about your stuff. Now, let’s consider what matters to you:
Do you want to make sure you give your stuff to whom you want, when you want and the way you want?

Are you concerned about your assets going to a second spouse’s family after you have passed away? We have all heard stories of one spouse passing away, getting remarried then passing away without an estate plan. All of your assets are now passed to second spouse. Who do you think is going to benefit from her estate plan?
Do you have a child or relative with special needs? The loss of governmental benefits can devastate an estate. Moreover, designating someone (and their successors) to ensure that the child always has someone assisting him or her throughout their lifetime.

Do you want to safeguard your stuff for your spouse in case you must join the millions of residents in nursing homes at $75,000 per year? Unfortunately, nearly half of people over the age of 65 will need nursing home care during their lifetime. Proper planning is essential to not only preserve assets but also to create the most choices for your care.

Do you want to protect your stuff from your children’s creditors or divorce after your passing? Make sure your stuff is inherited by the people you want, not by their ex-spouses, creditors or the IRS.

Do you want to avoid the “lottery Winner Syndrome” whereas your beneficiaries spend all the stuff that you spent your whole life building within 18 months? Giving a child more money is not going to make them more happy, it seems that often it makes them less productive and less happy. Encourage and reward your children for making smart life decisions and not depleting all of your stuff.

Do you want to designate someone to manage your affairs if you become disabled? Without a Power of Attorney, Health Care Surrogate or sometimes a Revocable Trust, if you become disabled and unable to make decisions for yourself, someone will be forced to open an expensive and lengthy guardianship proceeding so decisions may be made for your benefit.

Do you want to designate someone to care for your minor children if something happens to you? In Florida, if a minor child receives money from an inheritance (this includes designated beneficiaries) exceeding $15,000, then a guardianship must be created for the benefit of the child until they reach 18. Moreover, do you want to designate who is raising your child? Do you want to designate someone who has similar values, religious views, educational goals, etc. as you do? Or do you want to leave it to chance?

Are there specific charities that are near and dear to your heart? If you do not create an estate plan to assist such beneficiaries, then those charities will not benefit from your estate.

If your answer is yes to any of these questions, then raise your hand, you need an estate plan.

Stephen J. Lacey, JD, LLM-Tax is a partner in the law firm of McClelland, Jones, Lyons, Lacey & Williams, LLC. Mr. Lacey concentrates his practice in the areas of Estate Planning, Asset Protection, Medicaid Planning, Probate and Real Estate. To contact Stephen call (321) 984-2700 or visit www.mjlandl.com.

10 Good reasons to have an Estate Plan

1. No matter your net worth, it's important to have a basic estate plan in place.

An estate plan ensures that your family and financial goals are met after you die. It is a process. It involves people—your family, other individuals and, in some cases, charitable organizations of your choice. It also involves your assets (your property) and the various forms of ownership and title that those assets may take. Overall, it addresses your future needs in case you ever become unable to care for yourself. It is not only for the elderly – even young people are faced with unfortunate circumstances: health related, automobile accidents and so forth.

2. An estate plan has several elements and considerations. It can determine:

* A will.
* How and by whom your assets will be managed for your benefit during your lifetime if you ever become unable to manage them yourself.
* The assignment of a power of attorney (POA)
* When and under what circumstances it makes sense to distribute your assets during your lifetime.
* How and to whom your assets will be distributed after your death.
* A living will or health care proxy. How and by whom your personal care will be managed and how health care decisions will be made during your lifetime if you become unable to care for yourself.
* For some, the establishment of a trust, may also be suitable.

3.What is involved in estate planning?

Taking inventory of your assets is a good place to start.

Your assets include your investments, retirement savings, insurance policies, and real estate or business interests. A good place to start is to ask yourself the following questions:

1. What are my assets and what is their approximate value?
2. Whom do I want to receive those assets—and when?
3. Who should manage those assets if I cannot—either during my lifetime or after my death?
4. Who should be responsible for taking care of my minor children if I become unable to care for them myself?
5. Who should make decisions on my behalf concerning my care and welfare if I become unable to care for myself?
6. What do I want done with my remains after I die and where would I want them buried, scattered or otherwise laid to rest?

Once you have some answers to these questions, our office can help you create an estate plan, and advise you on such issues as taxes, title to assets and the management of your estate.

4. Everybody needs a will.

A will tells the world exactly where you want your assets distributed when you die. It's also the best place to name guardians for your children. Dying without a will - also known as dying "intestate" - can be costly to your heirs and leaves you no say over who gets your assets. Even if you have a trust, you still need a will to take care of any holdings outside of that trust when you die.

5. Trusts are only for wealthy people.

Trusts are legal mechanisms that let you put conditions on how and when your assets will be distributed upon your death. They also allow you to reduce your estate and gift taxes and to distribute assets to your heirs without the cost, delay and publicity of probate court, which administers wills. Some also offer greater protection of your assets from creditors and lawsuits.

6. Don’t I only have to discuss my estate plans with my family (heirs) to prevent disputes or confusion?

That would be nice, but upon death emotions rise and there are often hard feelings among those you loved. Inheritance can be a loaded issue and at times full of mixed emotions and even greed. By being clear about your intentions with your loved ones, you may help dispel potential conflicts after you're gone, however, there may be issues you do not wish to speak of. Discussing your true wishes in confidence with your attorney can help provide you with peace of mind.

7. The federal estate tax exemption - the amount you may leave to heirs free of federal tax - has hit $3.5 million in 2009.

The estate tax is scheduled to phase out completely by 2010, but only for a year. Unless Congress passes new laws between now and then, the tax will be reinstated in 2011 and you will only be allowed to leave your heirs $1 million tax-free at that time.

8. You may leave an unlimited amount of money to your spouse tax-free, but this isn't always the best tactic.

By leaving all your assets to your spouse, you don't use your estate tax exemption and instead increase your surviving spouse's taxable estate. That means your children are likely to pay more in estate taxes if your spouse leaves them the money when he or she dies. Plus, it defers the tough decisions about the distribution of your assets until your spouse's death.

9. There are two easy ways to give gifts tax-free and reduce your estate.

You may give up to $13,000 a year to an individual (or $26,000 if you're married and giving the gift with your spouse). You may also pay an unlimited amount of medical and education bills for someone if you pay the expenses directly to the institutions where they were incurred.

10. There are ways to give charitable gifts that keep on giving.

If you donate to a charitable gift fund or community foundation, your investment grows tax-free and you can select the charities to which contributions are given both before and after you die.

I have a will, so why do I need an Estate Plan?

Many people mistakenly think that estate planning only involves the writing of a will. Estate planning, however, can also involve financial, tax, medical and business planning. A will is part of the planning process, but you will need other documents as well to fully address your estate planning needs.

Who needs estate planning?

You do—whether your estate is large or small. Either way, you should designate someone to manage your assets and make health care and personal care decisions for you if you ever become unable to do so for yourself.

If your estate is small, you may simply focus on who will receive your assets after your death, and who should manage your estate, pay your last debts and handle the distribution of your assets.

If your estate is large, your attorney will also discuss various ways of preserving your assets for your beneficiaries and of reducing or postponing the amount of estate tax which otherwise might be payable after your death.

If you fail to plan ahead, a judge will simply appoint someone to handle your assets and personal care. Your assets then, will be distributed to your heirs according to a set of rules known as intestate succession.

Contrary to popular myth, everything does not automatically go to the state if you die without a will. Your relatives, no matter how remote, and, in some cases, the relatives of your spouse will have priority in inheritance ahead of the state.
Still, they may not be your choice of heirs; an estate plan gives you much greater control over who will inherit your assets after your death.

What is included in my estate?

All of your assets. This could include assets held in your name alone or jointly with others, assets such as bank accounts, real estate, stocks and bonds, and furniture, cars and jewelry.

Your assets may also include life insurance proceeds, retirement accounts and payments that are due to you (such as a tax refund, outstanding loan or inheritance).
The value of your estate is equal to the “fair market value” of all of your various types of property—after you have deducted your debts (your car loan, for example, and any mortgage on your home.)

The value of your estate is important in determining whether your estate will be subject to estate taxes after your death and whether your beneficiaries could later be subject to capital gains taxes. Ensuring that there will be sufficient resources to pay such taxes is another important part of the estate planning process.

Silver Lining

Silver Lining

Yes, your business is down. Yes, we may (or may not) be slowly coming out of the recession but the economic climate will not be the same as it was a few years ago. Yes, the value of your business is at its lowest point since you began the business in 1984.

Even in the darkest of times, I always try to find a silver lining. So here it is: this is the perfect time to explore gifting shares of the business to younger family members.

Let’s look at an example: Mr. Gates owns a tech business called Computers R Us, LLC (as you saw in previous article, there are advantages to owning small business as LLC rather than corporation). Mr. Gates owns 80% of Computers R Us, LLC, while his son owns 10% and his daughter owns 10%. In 2007, the business was valued at $3,500,000. It is now worth $2,500,000. Mr. Gates has a meeting with his attorney and realizes that if the Unified Credit drops to $1,000,000 as it is set to do in 2011, significant estate tax will be owed on the value of his business alone at his death. After exploring several tax strategies and planning tools, Mr. Gates decides to transfer 20% of his interest to each of his children. Now, Mr. Gates owns 40% and each of his children own 30%. So what has Mr. Gates achieved?

First, the Internal Revenue Code allows an annual gift of $13,000 to be excluded from tax. Mr. Gates is married so between the two of them, they can pass $26,000 under the annual exclusion. The above-described transfer of business interest is eligible for this gift exclusion. Currently, the marginal estate tax rate is 45%. Therefore, Mr. Gates provided savings to his family of $23,400 ($26,000 x 45% x two children).

Second, the value of the interest transferred to each child is $500,000. If the value of the business returns to 2007 levels, the value of those interests will be $700,000. Yet, Mr. Gates transferred $400,000 free from estate or gift tax because the value of the transfer is frozen at the $500,000 level (value at the time of the gift). Thus Mr. Gates provided additional savings to his family of $180,000 ($200,000 x 45% x two children).

Third, the Internal Revenue Code allows certain valuation discounts due to minority interests and lack of marketability. Often times, these discounts can be 25% or more. Due to the fact that the transfers to the children were minority interests and lacked marketability (unlike shares of stock traded on the Stock Exchange, there is no readily available market to buy interest in Computers R Us, LLC), such gifts may be discounted by 25%. As a result, the gift of $500,000 may be discounted by $125,000 resulting in Mr. Gates’ family saving $112,500 ($125,000 x 45% x two children).

Lastly, at Mr. Gates death, his estate can claim a minority interest and lack of marketability discounts against any remaining interests. Thus, Mr. Gates passes away in 2012 when the value of Computers R Us, LLC is $5,000,000. His estate may be able to claim a minority interest and lack of marketability discounts since Mr. Gates owns 40% of the company at his passing. So Mr. Gates has saved his family an additional $675,000. (45% x ($2,000,000 – $500,000).

So, yes, the economy is terrible. Yes, the value of the company is less than what it used to be. But through proper planning, Mr. Gates saved his family over $990,000 in estate taxes. See, I can always find a silver lining.

WORD OF CAUTION: Currently, there is proposed legislation threatening the viability of lack of marketability and minority interest discounts. With the White House spending into historic deficits, money will need to be raised through taxes. Therefore, please consult with a qualified attorney so that proper planning may be done specific to your factual situation and current laws.

Lessons from the Rich and Famous

Lessons from the Rich and Famous

It was a sad day in June when two legends passed away, Michael Jackson and Farrah Fawcett. Both under completely different circumstances, one died unexpectedly while the other succumbed to a long battle with cancer. So what lessons can we learn from these two tragedies?

Guardianships for Minors

While it may be questionable whether Michael Jackson was biologically responsible for his three minor children, we are certain that those children were legally his. According to his Will, Jackson named his mother as guardian over the children. While the mother of the children apparently gave up any parental rights some time ago, it would not stop her from trying to contest it. Still, the court would give great deference to the wishes of Jackson because of his Will. Therefore, it is very important that anyone with minor children should have a Will designating who they want to take care of their children if something were to happen to them.

We are not aware whether Jackson established a Trust for his minor children. In Florida, a minor cannot receive more than $10,000 as an inheritance. If any amount is passed to minor children in excess of that amount, then the law requires that a guardianship is set up. A requirement of a guardianship is that an annual accounting is filed with the court along with a fee that is calculated by the amount of assets in the guardianship account. This can be an expensive process which would deprive that child of money that would otherwise be left to them.

Asset Protection Trust/ Special Needs Trust

Unfortunately, Farrah had a different set of issues. Her son Redmond was incarcerated in LA County Jail at the time of her death. This was due to a possession of heroin charge. Obviously, Redmond has a horrible addiction problem as this prevented him from being at his mother’s bedside when she passed away. Without any knowledge of Farrah’s estate plan, let’s hope she received quality advice. So how does one provide for their child but “save them” from their addiction problem rather than feeding it? Or sometimes, a drug problem progresses so far that it leads to a disability, how does a loving parent plan?

Sometimes, despite a parent’s best efforts, their child does not turn out the way they had planned. Maybe their son has a problem with addiction. Maybe their daughter has declared bankruptcy three times despite making over $100,000 a year. Or maybe they are good kids but are involved in a bad marriage or an unlucky car accident. With proper estate planning, a parent can plan around these types of foreseen and unforeseen events and still protect and provide for their children. If that child has cognitive impairments or other disabilities whereas they are provided with government assistance, proper planning is required so that the child is well taken care of without losing such valuable assistance.

Many of us procrastinate, minimize our personal need or the legal importance of drafting wills, trusts, living wills, and durable powers of attorney. The complexities of combining and coordinating diverse assets such as individual assets, jointly held assets, retirement plans, life insurance, annuities and business interests seem just too daunting for some. For others, they do not realize the importance of looking at all of their assets from an overall perspective; namely, when all is said and done who ends up with what.

Estate planning is not only for the wealthy. As you see in these two examples, Michael Jackson and Farrah Fawcett faced real life problems that we all may face. Estate planning is about family and making sure that you are passing on your assets to whom you want, when you want and the way you want. Protect yourself, and your family.

Common Mistakes in Estate Planning (Part Two)

The first part of this article described five common mistakes made in estate planning and the kinds of trust protection that should be provided children. This second part will list other common mistakes in estate planning.

MISTAKE #6 – PARENTS WHO FAIL TO HAVE ENOUGH LIFE INSURANCE

I don’t sell life insurance, so readers with minor children should not view the following advice as self-serving. The average amount of life insurance provided by employers is two or three times annual salary. Additional accidental death insurance may be provided, but most people don’t die as a result of an accident and never collect on this type of life insurance. Two or three times annual salary sounds like a lot of money, unless the primary wage earner has just died and you are raising two or three minor children. Unless financial sacrifices are made or there is a surviving spouse willing and able to work, the typical amount of employer life insurance won’t last five years or provide nearly enough for the college education of each child. Additional funds in retirement plans should not be considered “life insurance” because it will be heavily taxed if withdrawn and may be needed for the future support of a surviving spouse. Until the youngest child has completed their education, most families need and should purchase additional life insurance protection to replace lost income and fund each child’s college education. Term life insurance is available from numerous companies and in most cases at an annual premium cost of 1/10th of 1% of the coverage provided. Parents with minor children should review their options with a life insurance advisor.

MISTAKE #7 - FAILING TO MATCH OLD BENEFICIARY DESIGNATIONS WITH NEW ESTATE PLANS

For many families with minor children, the parents’ life insurance and retirement plan accounts equal most of what their children may inherit. Only the most recent beneficiary designation forms on file with each life insurance company and retirement plan administrator will control these funds, even if the parents have adopted new estate plans with trust protection for their children. Most married persons know (or assume) their spouse is designated as primary beneficiary of all life insurance and retirement funds, but few persons are certain who is designated as secondary beneficiary. If there is no surviving spouse and the children have been designated secondary beneficiaries, each child will receive their share of the life insurance and retirement funds when they reach age 18, regardless of any different estate plan with trust protection adopted by the parents. To prevent this mistake, new beneficiary designation forms on all life insurance and retirement accounts should be updated at the same time new estate plans are adopted.

While it may be appropriate for the surviving spouse to remain designated as primary beneficiary, the new Will or Trust Agreement established to provide the children with standby trust protection should be specifically designated as contingent beneficiary. This action is critically important and due to privacy laws, cannot always be handled by the attorney who has assisted with the new estate plan.

MISTAKE #8 - DEFEATING AN ESTATE PLAN BY JOINT OWNERSHIP

An estate plan is not worth the paper it is written on, if the Will or Trust Agreement does not solely control the assets. Just as outdated beneficiary designation forms may still control the distribution of life insurance or retirement funds, an asset titled in joint names with one or more other persons may defeat the intent of an estate plan, result in additional taxes and risk loss of the asset itself. For example, joint ownership by a husband and wife typically results in the surviving spouse being the automatic and sole owner upon the death of the other spouse. Legal proceedings are usually not required and any contrary instructions in the Will or Trust Agreement of the first spouse to die will be disregarded. The same and a potentially worse result occurs when joint ownership with right of survivorship is created by a parent and their children in order to avoid probate. For estate tax purposes, such arrangements are often disregarded by the IRS. For asset protection purposes, creditors of a child listed as a joint owner may be able to attach or force the sale of such joint assets in order to collect against the child’s share.

Special care must be taken in creating joint ownership of real estate. Even if only avoiding probate is intended, all joint owners will be required to execute future transfer deeds or loan documents. In addition, the homestead tax and other exemptions available on a residence may be jeopardized.

MISTAKE #9 – DO-IT-YOURSELF ESTATE PLANNING

At the risk of sounding self-serving, this last item is too important to ignore. Because the services of an attorney can be expensive, estate planning is often delayed or attempted through internet or paralegal sources. Unfortunately, single parents and families with limited resources may need estate planning the most, but receive it the least. My recommendations are:

DO locate a qualified estate planning advisor by asking friends, tax or financial advisors or free legal referral services for one or more recommendations;

DO obtain an estimate of fees and any costs up front. Many attorneys charge only a nominal consultation fee and should be expected to discuss their fee and payment arrangement at that time. If the fee sounds too high, keep looking;

DO provide your advisor with a complete list of current assets and how titled, life insurance coverage and the current beneficiaries, copies of any existing wills or divorce decrees and information about family members, intended legal guardians and possible trustees;

DON’T rely on internet or other sources of legal forms that are not current, that are not specifically prepared for Florida residents or that you do not fully understand. The execution requirements for Florida documents is complicated, is different than some other states and should be supervised by some one familiar with these requirements; and

DON’T put off until tomorrow what you should do for your family today.

Common Mistakes in Estate Planning (Part One)

This is the first part of a two-part article which will alert readers to changes they may need to make to their own estate plans. While not having any estate plan in the first place is the greatest mistake, this article assumes the reader has already adopted some form of Will or Trust Agreement. While the mistakes described below and in the next article can result in added financial costs, their impact on the lives of children can be even greater.

MISTAKE #1 – PARENTS WHO FAIL TO ESTABLISH TRUST PROTECTION FOR THEIR CHILDREN

Most people adopt their first Wills in order to designate legal guardians for their minor children. Unfortunately, the authority of a legal guardian terminates when a child attains age 18. At that same age, a child may also gain unrestricted control of their inheritance despite their lack of maturity or the wrongful influence of outside parties at that time. Parents can and should prevent this mistake by providing in their estate plan for the continued trust control of a child’s inheritance until the child’s education is completed and the child has attained a more mature age.
MISTAKE #2 –GRANDPARENTS WHO FAIL TO ESTABLISH STANDBY TRUST PROTECTION FOR THEIR GRANDCHILDREN

The typical Will or Trust Agreement provides that the inheritance due a deceased child shall instead be distributed to the surviving issue of that child. In the event one of their children later dies, grandparents often fail to provide the same trust protection for their grandchildren as recommended above. This mistake by the grandparents often involves an even larger inheritance than the grandchild may receive from their deceased parent and could also result in the control of a grandchild’s inheritance being managed by inlaws or non-family members.

MISTAKE #3 – CREATING UNEQUAL TREATMENT BY PROVIDING EQUAL SHARES TO CHILDREN

The age spread between the oldest and youngest children in a family often ranges from 5 to 15 years. Even when trust protection is provided to prevent a child from inheriting at age 18, an even worse result can occur if each child’s share is made equal without regard to each child’s age. For example, the three surviving children of the Jones family are ages 23, 18 and 12 at the time of their parents’ death. The estate plan of Mr. and Mrs. Jones provides for equal division among the children at their death, followed by distribution as each child attains age 23. Until distribution, each child’s separate share can be used in the discretion of the Trustee toward that child’s support, education and medical care. While Mr. and Mrs. Jones never intended such a result, the older child (whose college education has already been provided by the parents) will receive a full one-third share, the middle child will likely spend all or most of their share in order to complete college, while the youngest child may exhaust their share and never go to college due to lack of funds. This mistake can be prevented by providing trust protection and equal division of assets only after the youngest child has received the same opportunities as each other child (e.g., until the youngest child attains age 22). Until that time, the Trustee can provide support to each of the children according to their needs from time to time (not necessarily in equal amounts) and as the parents would do themselves if living. Once the remaining assets are divided after the youngest child attains the designated age, distribution of each child’s remaining share will occur at such later age of maturity as designated by the parents.

MISTAKE #4 – PARENTS WHO FAIL TO TREAT DIFFERENT CHILDREN DIFFERENTLY

Most parents love their children equally and treat their children equally in their estate plans. The reality in many cases is that once all of the children have reached adulthood, they have achieved different levels of maturity, career and marital success. While parents with a disabled child usually provide special trust protection for that child, the same parents often fail to protect the inheritance of those children threatened by creditors, broken marriages or bad lifestyles. Many options exist for parents to provide all or some of their children with added trust protection and should be discussed with their advisors.

MISTAKE #5 – PICKING THE WRONG TRUSTEE

In selecting a legal guardian who may become the caregiver, mentor and substitute parent for a minor child, my advice has always been to “let your heart rule your head.” In selecting a trustee to manage a child’s inheritance, make investment decisions and say “no” when necessary, you should instead “let your head rule your heart.” The family member or friend, who may be best choice as legal guardian, may be unqualified or overwhelmed with the responsibility of also being trustee. Parents and grandparents alike should consider designating an independent and qualified investment firm or other financial institution to serve as trustee or trust advisor and made responsible for investment management, bill paying and recordkeeping. This is especially important in trust protection arrangements that may last for many years and beyond the lifetimes of friends or family members. When an independent and qualified trustee is designated, I recommend a friend or family member be provided the authority to replace that trustee with another investment firm or financial institution if circumstances or personnel later change. The second part of this article will cover other common estate planning mistakes, including, purchasing life insurance, designating beneficiaries and using joint ownership.

Developing an Estate Planning Checklist

The only thing worse than having a Will or Trust Agreement that is out of date, is having no estate plan at all. Many estate plans become outdated as children grow older and financial conditions change. Because many people don’t fully understand all the legal provisions and “broiler plate” in their Wills or Trust Agreements, the need to update, and/or replace provisions may not be apparent.

Following is a checklist of Estate Planning issues you should discuss with your advisors, whether to establish an estate plan in the first place or update an existing estate plan:

WHO PAYS THE BILLS?

While the primary purpose of most Wills or Trust Agreements is to designate who inherits your property, attention should also be given to who will pay the debts, taxes, expenses of administration, maintenance and repair of property. Where all or some of the heirs maybe under the care of a legal guardian, directions should be provided and arrangements made to reimburse the guardian for each additional expenses, including housing and transportation. Dividing expenses the same way you divide property is not always fair.

WHO GETS THE PERSONAL PROPERTY?

Most family feuds start over division of personal property rather than money. Emotions often run high and in-laws don’t help matters. Florida Law provides a very easy means to leave instructions concerning personal property and which don’t require constant trips back to your lawyer’s office to amend or update your instructions.

WHO IS IN CHARGE?

The appointment of one or more Personal Representative in a Will or Trustees in a Trust Agreement is often a difficult choice. Sometimes the wrong choice is made based on location, business experience or age. More important qualifications may be the abilities to delegate, supervise and communicate. In many circumstances, it may also be appropriate to select or include a third party or professional fiduciary. In preparing or updating your estate plan, be sure and talk to your advisors about the selection of both primary and backup legal representative of Trustees.

ARE THERE ANY TAX ISSUES?

The maximum federal estate tax rate in 2009 is 45%. If real estate is owned outside the State of Florida, separate and additional estate debt taxes may apply. In turn to ignore these taxes in favor of a simple estate plan is the same as listing the government as your favorite heir. While tax exemptions in various other means exist to reduce or avoid these taxes, they do not happen automatically. In addition, changes in the federal estate tax laws could be expected. An even up to date estate plan may require future revisions. Beside possible estate taxes, significant income taxes may arise on individual retirement accounts, pension plans and other forms of deferred compensation. While not easy to avoid, options do exist to defer these income taxes.

IS THERE A BUSINESS TO SELL OR CONTINUE?

Business succession planning will be the subject of future articles. Prevailing the business or professional practice has been the primary source of family support, will often vanish or quickly diminish without careful planning or good management. Where such a business exists, the Will or Trust Agreement should confirm the arrangements for the sale or continuation of that business in the hands of qualified managers.

DOES THE WILL OR TRUST AGREEMENT CONTROL THE ASSETS?

Previous articles have discussed the common estate planning mistake of not letting a Will or Trust Agreement control such substantial assets as life insurance, property, retirement plans, or jointly owned property. Exception in many cases, these types of assets pass outside the terms of a Will or Trust Agreement. It may be distributed:

1. To either the wrong people, or to the right people too early;

2. A Trust Agreement that is not properly funded; or

3. A Will that does not control important assets, is not worth the paper it is written on.

READ AND UNDERSTAND ANY ESTATE PLANNING DOCUMENTS YOU ARE SIGNING

Leases, mortgages and many other types of legal agreements are signed without reading the fine print. While this may be safe if the fine print cover terms you may not intent to violate, both Wills and Trust Agreements are not your usual legal agreements. Broiler plate provisions do exist to avoid court intervention, provide for tax election and confirm the authority of designated Personal Representatives or Trustees. Nonetheless, you should ask for an explanation of any provision that is not clear or its purpose apparent.