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!

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.

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.

The Right and Wrong ways to Avoid Probate

Probate is a system of laws and court procedures that exist in every state to assure a decedent’s assets pass to the intended heirs and the decedent’s bills are paid. In most cases, Probate can and should be avoided because it is expensive, time consuming and unnecessary.

While adopting a Last Will and Testament allows a person to specify their heirs, designate a Personal Representative in charge of estate administration and conduct most estate business without court order, a Will does not avoid probate. Under most circumstances, the probate process takes nine months or longer and requires the hiring of attorneys, accountants and appraisers. Professional fees typically range from 3% to 5% and any required probate court hearings may take months to schedule.

Probate can be avoided by both intentional and unintentional ways, some which are better than others.

JOINT TENANCY WITH RIGHT OF SURVIVORSHIP

The joint owners of an asset can provide for the surviving owners to inherit without probate in two different ways. First, joint ownership by a husband and wife automatically transfers to the surviving spouse and is known as “tenants by the entirety” or “TBE”. Second, the same result occurs with joint ownership by two or more other persons that specifies “with right of survivorship”. Except for assets titled in the joint name of a husband and wife, ownership by other surviving owners will not be automatic unless “with right of survivorship” is specified. In that case, probate will be necessary. Following the death of a spouse and the automatic transfer of joint marital assets without probate, the surviving spouse often wants to create new joint “with right of survivorship” title with their children or other heirs. Two common pitfalls should be pointed out:

First, transfers of homestead property may result in a loss of all or part of the homestead tax exemption and other tax benefits, unless the surviving spouse retains a “life estate.” Second, future judgments or other claims against one of the new joint owners could jeopardize all or part of the asset that has been retitled.

“POD”, “ITF” AND OTHER BENEFICIARY DESIGNATIONS

The transfer of bank, credit union and brokerage firm accounts without probate following the death of the accountholder can be accomplished by having the accounts designated as “Payable on Death” (POD) or “In Trust For” (ITF). Different financial institutions offer different types of options. While these arrangements avoid the risk of joint ownership, they are not suitable for beneficiaries who may be minor children and must be kept updated in the event a designated beneficiary later dies. These arrangements also do not work for real estate and should not be used if the estate later needs funds for expenses and taxes from a beneficiary who may refuse to contribute their fair share.

Beneficiary designations also control and avoid probate on all types of life insurance, annuity contracts, retirement funds and individual retirement accounts. As discussed in previous articles, care must be taken and professional advice obtained when selecting beneficiary options and reviewing the possible tax issues that may exist.

INTER VIVOS OR “LIVING” TRUSTS

A properly drafted and funded trust agreement prepared during a person’s lifetime will avoid probate without the pitfalls described above. The owner retains complete control of the assets in the trust and has the right to amend the trust at any time. No additional tax returns or maintenance costs are necessary. An outside or successor trustee is not involved until the owner dies or becomes disabled.

The only criticism that can be made against living trusts is they involve more paperwork and effort than simply preparing a Will for the heirs to probate later. Such criticism comes mostly from probate lawyers and whose motives you can judge for yourself.

Spending the extra time, money and effort to adopt a living trust is especially important for the following persons:

1) Persons who are elderly or disabled and want to avoid the expense and complexity of guardianship proceedings;

2) Persons who own real estate outside Florida and want to avoid the delay and expense of probate in two or more states;

3) Persons who want to discourage litigation among family members and keep their financial affairs private;

4) Persons who own an active business that needs to continue operating without court interference or delay; and

5) Persons who want their heirs to save time and money.