Current Events

Wednesday, May 16, 2012

TAXES—The Tax Magazine®: The Mathematics of Harvesting Losses and Gains

The Ultimate Estate Planner, Inc. is pleased to share with you a copy the article, "The Mathematics of Harvesting Losses and Gains" by Robert S. Keebler, CPA, MST, AEP (Distinguished) found in the Family Tax Planning Forum that appeared in TAXES - The Tax Magazine®'s April 2012 edition.  This article presents a model for deciding when it makes sense to harvest losses and explore its planning implications and quantify the power of gain harvesting in 2012. Click here to read the full article.

This article is reprinted and redistributed with the publisher's permission from TAXES - The Tax Magazine®, a journal published by CCH, a Wolters Kluwer business. Copying or distribution of this article without the publisher's permission is prohibited. To subscribe to TAXES - The Tax Magazine® or other CCH Journals please call 800-449-8114 or visit cchgroup.com.

Download Free Charts & Resources from Robert S. Keebler, CPA, MST, AEP (Distinguished)

View Upcoming Teleconferences with Robert S. Keebler, CPA, MST, AEP (Distinguished)

View On-Demand Programs with Robert S. Keebler, CPA, MST, AEP (Distinguished)

View Upcoming Live 2-Day Educational Events by Keebler & Associates, LLP

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Friday, May 11, 2012

Steve Oshins & the Hybrid Domestic Asset Protection Trust

Reproduced with Permission by and Courtesy of Leimberg Information Services, Inc. (LISI).  For information about how to subscribe to LISI, click here.

“After approximately 15 years since the first DAPT legislation passed, not a single DAPT has been tested all the way through the court system.  Most likely this is because such a large supermajority believes that if tested the DAPT will work to protect its assets from a creditor of the settlor.  However, despite the very high likelihood of protection, if there is a way to increase the odds of success even more, then such a strategy should be utilized whenever possible.

The Hybrid Domestic Asset Protection Trust (“Hybrid DAPT”) is such a strategy, and it is very simple.  The Hybrid DAPT is like a regular DAPT except that the settlor isn’t an initial discretionary beneficiary of the trust, but can be added later.”

We close this week Steve Oshins’ commentary on a strategy he refers to as the “Hybrid Domestic Asset Protection Trust.”  According to Steve, the Hybrid DAPT puts the client in a significantly stronger position than with a traditional Domestic Asset Protection Trust.  As he explains below, this strategy can be used with both an incomplete gift version and a completed gift version of the Domestic Asset Protection Trust. 

Steven J. Oshins, Esq., AEP (Distinguished) is a member of the Law Offices of Oshins & Associates, LLC in Las Vegas, Nevada.  Steve is a nationally known attorney who is listed in The Best Lawyers in America® and has been named one of the Top 100 Attorneys in Worth magazine.  He was inducted into the NAEPC Estate Planning Hall of Fame® in 2011.  He has written some of Nevada's most important estate planning and creditor protection laws, including the law making the charging order the exclusive remedy of a judgment creditor of a Nevada LLC and LP (in 2001, 2003 and 2011), the law changing the Nevada rule against perpetuities to 365 years (in 2005) and the law making Nevada the first and only state to allow a Restricted LLC and a Restricted LP creating larger valuation discounts than any other state allows (in 2009).  He is also the author of the Annual Domestic Asset Protection Rankings which you can download from our Free Resources page.  Steve can be reached at 702-341-6000, x2 or at soshins@oshins.com.  His law firm's web site is http://www.oshins.com. 

Before we get to Steve’s commentary, members should take note of the fact that a new 60 Second Planner by Bob Keebler was just posted to the LISI homepage. In his commentary, Bob reviews the May 4th opinion by the Ninth Circuit in Estate of Morgans, where the issue presented was whether Section 2035(b)’s gross-up rule applies in the case of a surviving spouse's deemed gift of a QTIP remainder. You don't need any special equipment to listen- just click on this link.

Now, here is Steve Oshins’ commentary:

EXECUTIVE SUMMARY:

Asset protection has become one of the hottest areas of law and has become the ideal complement to estate planning.  Consequently, the Domestic Asset Protection Trust (“DAPT”) has become one of the most popular asset protection tools in the planner’s toolbox.  As more states have enacted DAPT legislation, practitioners have started doing more DAPTs for their clients.

FACTS: After approximately 15 years since the first DAPT legislation passed, not a single DAPT has been tested all the way through the court system.  Most likely this is because such a large supermajority believes that if tested the DAPT will work to protect its assets from a creditor of the settlor.  However, despite the very high likelihood of protection, if there is a way to increase the odds of success even more, then such a strategy should be utilized whenever possible.

The Hybrid Domestic Asset Protection Trust

The Hybrid Domestic Asset Protection Trust (“Hybrid DAPT”) is a strategy that should increase the probability that the trust assets will be protected.  And it is very simple.  The Hybrid DAPT is just like a regular DAPT except that the settlor isn’t an initial discretionary beneficiary of the trust, but can be added later.  Thus, the trust is initially set up for the benefit of the settlor’s spouse and descendants, for example, but not for the settlor.  By not including the settlor as a beneficiary of the trust, the Hybrid DAPT is by definition a third-party trust and therefore almost certainly avoids the potential risk of uncertainty of a regular DAPT.

Especially where the settlor is married and has a strong, trusting relationship with his or her spouse, is there any good reason that the settler must have his or her name in the trust agreement as a beneficiary?  It is very simple to indirectly access the trust assets through the spouse.  And the trust agreement should define the “spouse” using a “floating spouse provision” that defines the spouse as the person the settlor is married to and living with from time to time.  This gives the settlor the ability to access the trust assets through a subsequent spouse in the event of a divorce or the death of the settlor’s spouse.

If the settlor has no spouse, then it becomes more difficult to access the assets.  However, since a good asset protection planner will be sure to leave sufficient wealth outside of the client’s asset protection trust, in most cases the settlor won’t have to work through this issue anytime soon.

If the Settlor Is Added as a Beneficiary

In case the settlor needs to be a discretionary beneficiary of the Hybrid DAPT sometime in the future (i.e., if the settlor has no spouse or child that will “share” a distribution with the settlor and the settlor now needs a distribution), the trust agreement provides that the trust protector or independent trustee can add additional beneficiaries, including the settlor.  However, if the settlor is added, then the Hybrid DAPT becomes a regular DAPT and thus risks that the law is still unsettled on DAPTs (even though most people believe that they work).

What happens if the settlor suspects that a creditor attack may be forthcoming?  Or what if the settlor is considering filing bankruptcy?  In either case, very far in advance of the problem occurring, the settlor would ask the trust protector or independent trustee to remove him or her as a discretionary beneficiary. 

§548(e) of the 2005 Bankruptcy Act

It is extremely unlikely that a DAPT settlor will file for bankruptcy, especially if the settlor has an “old and cold” DAPT that is past the applicable state’s statute of limitations period.  In fact, of the hundreds of DAPTs created by the author, not one of those clients has gone through bankruptcy. 

However, in maintaining the philosophy of this commentarythat it is important to build into the structure every safeguard available, it is interesting to note that the Hybrid DAPT most likely does not fit the definition required by §548(e) of the 2005 Bankruptcy Act that would otherwise potentially claw back the assets of a traditional DAPT.  The requirements of §548(e) are as follows:

(1) In addition to any transfer that the trustee may otherwise avoid, the trustee may avoid any transfer of an interest of the debtor in property that was made on or within 10 years before the date of the filing of the petition, if—

(A) such transfer was made to a self-settled trust or similar device;

(B) such transfer was by the debtor;

(C) the debtor is a beneficiary of such trust or similar device [emphasis added]; and

(D) the debtor made such transfer with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made, indebted.

Unless the settlor is added as a discretionary beneficiary of the Hybrid DAPT, Subsection (C) doesn’t apply.  Also, arguably Subsection (A) doesn’t apply either since the Hybrid DAPT isn’t a “self-settled trust or similar device” at the time the provisions are applied.

The Completed Gift Hybrid DAPT

Most DAPTs are designed as Incomplete Gift DAPTs where the sole objective is asset protection.  However, many DAPTs are designed as Completed Gift DAPTs where the settlor is a discretionary beneficiary of a trust designed with the following attributes: 

(i)                It’s a completed gift for gift tax purposes,

(ii)             The settlor is a discretionary beneficiary,

(iii)           The trust assets are protected from the settlor’s beneficiaries, and

(iv)           The trust assets are outside of the settlor’s estate for estate tax purposes at the settlor’s death.

The Completed Gift DAPT strategy was approved by the Service in PLR 200944002 where a resident of a DAPT jurisdiction established the DAPT using the laws of that DAPT jurisdiction. 

However, with respect to a resident of a non-DAPT jurisdiction, although most practitioners are comfortable that this strategy works, whether the trust assets are open to creditors of the settlor is still uncertain, since it is unclear which state law will apply for creditor purposes.  The DAPT will be includible in the settlor’s estate at death if the trust assets are open to the settlor’s creditors.  If this were the case, this would occur under IRC §2036(a)(1) since the settlor would be treated as retaining the ability to run up creditor debts which can be paid out of the trust at the settlor’s death. 

IRC § 2036(a)(1) provides that the value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer (except in the case of a bona fide sale for an adequate and full consideration in money or money's worth), by trust or otherwise, under which the decedent has retained for life or for any period not ascertainable without reference to the decedent's death or for any period that does not in fact end before death the possession or enjoyment of, or the right to the income from, the property.

The Completed Gift DAPT reduces this risk significantly since the settlor isn’t a discretionary beneficiary of the trust and, thus, it isn’t a self-settled trust.  In an ideal scenario, the settlor will never need to be added as a discretionary beneficiary by the trust protector or independent trustee.  However, if the settlor does need to be added at a later date, since the Completed Gift Hybrid DAPT also gives the trust protector or independent trustee the power to remove beneficiaries, as long as the settlor is removed as a discretionary beneficiary more than three years prior to death, there is no estate tax inclusion since IRC §2035 (the three-year contemplation of death rule) won’t apply.

Down and Dirty

To this date, there is still no case law saying that a DAPT does or does not work to shield the assets from the creditors of a settlor who is a resident of a non-DAPT jurisdiction.  Although all the cases have settled, or the creditors have decided not to sue, the estate or asset protection planner must still consider how to plan if the law does go the wrong way.  Unfortunately, although there will ultimately be case law, whether good or bad, unless the case law goes through the appeal process and is ultimately decided by the highest court, we still won’t have any certainty.  So it is prudent to plan for this uncertainty.

If the settlor has set up a Hybrid DAPT, whether as an Incomplete Gift Hybrid DAPT or as a Completed Gift Hybrid DAPT, if the settlor wants to be sure to preserve a portion of the Hybrid DAPT’s assets if the settlor is being added in as a discretionary beneficiary, the trustee can split the Hybrid DAPT into two separate trusts and the trust protector or independent trustee can add the settlor as a discretionary beneficiary of only one of the two trusts so as not to taint the other trust.

For example, if there are $10 million of assets in the Hybrid DAPT, the trustee might divide the trust into two trusts – the “Clean Hybrid DAPT” which doesn’t include the settlor as a discretionary beneficiary and has $8 million of assets, and the “Dirty Hybrid DAPT” which includes the settlor as a discretionary beneficiary and has $2 million of assets.  Thus, the risk has been transferred away from the Clean Hybrid DAPT to the Dirty Hybrid DAPT (which, again, should be protected, but is potentially being sacrificed in the interests of not tainting the assets in the Clean Hybrid DAPT).  This is nothing more than a risk management decision.

COMMENT:

It is imperative that the asset protection planner create a plan with the highest probability of success.  In most cases, it is possible to significantly increase the protection by simply using a Hybrid DAPT rather than a traditional DAPT.  This commentary describes this structure, and also creates a further structure where the Hybrid DAPT can be divided into a Clean Hybrid DAPT and a Dirty Hybrid DAPT, so that even if the Dirty Hybrid DAPT is unsuccessful, it doesn’t taint the Clean Hybrid DAPT. 

HOPE THIS HELPS YOU HELP OTHERS MAKE A POSITIVE DIFFERENCE!

Steve Oshins

TECHNICAL EDITOR: DUNCAN OSBORNE

CITE AS: LISI Asset Protection Planning Newsletter #200 (May 10, 2012) at http://www.leimbergservices.com  Copyright 2012 Leimberg Information Services, Inc. (LISI). Reproduction in Any Form or Forwarding to Any Person Prohibited – Without Express Permission.

CITES: PLR 200944002; Oshins & Keebler on Mortensen:  “No, the Sky Isn’t Falling for DAPTs!”, Asset Protection Newsletter #186 (Oct. 31, 2011); Battley v. Mortensen, Adv. D.Alaska, No. A09-90036-DMD, May 26, 2011 (Original Memorandum) and July 18, 2011 (Memorandum Denying Motion For Reconsideration).

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Sources: Leimberg Information Services & Steven J. Oshins, Esq.

Monday, May 07, 2012

Estate Planning for the Blended Family: The Intersection of the Head and the Heart

By L. Paul Hood, Jr., Esq. & Emily Bouchard

A prospective new client contacts you about working with him and his partner.  Within minutes you learn that they are unmarried with each having children from prior relationships as well as one of their own together.  Do you experience a thrill of excitement at having such a complex and fascinating potential couple to work with, or does this scenario strike fear in your heart?  If you’re like most of the estate planners we work with, fear would be your first response.  Are you aware that your prospective client is most likely afraid as well, but for different reasons?

In Estate Planning for the Blended Family (Self-Counsel Press 2012), we identify and discuss 11 fears that clients can have when it comes to the estate planning process.  These fears include everything from confronting fear of death, to fear of the estate planning process itself.  On the other side of the equation, the biggest concern for the estate planner (or should be if it’s not already) is the likelihood of conflict of interests within the blended family system.

The reality is that estate planners need to be able to manage their own emotions, as well as those of their clients, around these fears and potential conflicts.  It’s not enough to understand the intricacies of estate planning vehicles to avoid taxes and transfer assets efficiently – it’s also necessary to make sure you are addressing the core concerns (and yes, fears) that are part of the process.  These fears prevent people from doing estate planning, or cause them to procrastinate.  Fears lead to avoidance strategies that cause costly and unnecessary delays in estate planning.  More often than not, people tend to avoid the conversations that could move the process along smoothly due to a lack of awareness about how to have the conversations effectively. 

Estate planning for the blended family client can present some of the most challenging work that an estate planner ever does.  One of the reasons why this is so is that most professionals in the field of estate planning aren’t sufficiently trained or experienced in the “human side” of the process, which is the “heart” of estate planning.  Most attorneys, accountants, and financial advisors are trained in the “head” side of estate planning.  The key to successfully navigating the often treacherous waters of estate planning for the blended family is properly balancing the head and heart. 

On Tuesday, May 8th, the first in a series of three teleconferences on Blended Family Estate Planning will commence.  This 90-minute presentation will dive into the key issues of the initial consultation and successful engagement of couples with a blended family. Participants learn how to address emotionally charged issues and fears that keep the planning process from moving forward, as well has how to move when a client shuts you down or shuts you out.  Specifics related to property ownership and distribution will be addressed along with who should be considered for key fiduciary roles.   The training provides a comprehensive introduction to estate planning for the blended family, and in so doing, marries the “head” and the “heart” of estate planning. 

In the second session to be held on Tuesday, May 15th, attention is focused on the lifetime planning options that are available or advisable to blended family couples. 

And last, but certainly not least, in the final session to be held on Tuesday, May 22nd, the various issues that are attendant to testamentary estate planning for blended family clients are addressed, as well as some post-death administration issues.

To sign up for this timely and important series and to receive a complimentary copy of our book, which includes a CD with forms, visit www.ultimateestateplanner.com.

If you have any questions, please feel free to contact Emily or Paul at estateplanning@blended-families.com.  You can also contact The Ultimate Estate Planner, Inc. at 1-866-754-6477.

Emily Bouchard and L. Paul Hood, Jr. © 2012

Thursday, May 03, 2012

Strengthening Your Brand with CPAs

Reposted from RegisteredRep.com | By Matt Oechsli

Houston—“I’ve never had much success with CPAs,” groaned Peter, an advisor in a workshop I was conducting. “Even the CPAs I’ve referred clients to—nothing ever comes back my way. Do you think it’s realistic to develop a true referral alliance with a CPA?”

My short answer was “Yes.” But I recognize that many financial advisors feel Peter’s pain. They refer clients to a handful of CPAs in their community, fully expecting the law of reciprocity to engage, and nothing happens. Few if any referrals come back. Essentially, Peter is asking, “What’s going on?”

As I told this group, when it comes to CPAs, there’s good news and bad news. The bad news is that most CPAs don’t trust the financial services industry and therefore don’t trust financial advisors. The good news is that many elite financial advisors have earned the trust of CPAs in their communities and have developed excellent working relationships with them. Yes, it can be done, and now is the perfect time of year to begin.

With tax season finally behind them, most CPAs are taking a deep sigh of relief and giving themselves some time to relax. What elite advisors are doing is using this period of CPA decompression as a time to organize social outings with the select group they work with. The following are a handful of events that have been used effectively:

• Social dinners: CPA and spouse with advisor and spouse. These are dinners with two couples, with CPAs where a healthy referral alliance is already established, and specific CPAs who are being romanced into a healthy referral alliance relationship.
• Group wine tasting with spouses: CPAs of top 25 clients invited.
• Drinks at a martini bar with spouse: CPAs of top 25 clients invited.
• Saturday afternoon cookout: CPAs and families of top 25 clients invited
• Golf outing: CPAs with a healthy referral alliance, and targeted CPAs (two foursomes; drinks with spouses to follow).

Sure, in some of these post-tax season events you’ll have competitive CPAs in attendance. That’s okay as you’re establishing a blanket of good will. The secret is to follow up and begin building a relationship with every CPA, one-on-one, following the event.

I know what many of you are probably thinking: “How can I call a CPA for a social event when I don’t even have a relationship with him?” And the answer is—easily. This is no different than inviting a prospect you’ve recently met to some fun event you’re hosting, but in the case of CPAs at this time of year, it’s even easier.

First of all, you might find it helpful to think in terms of four CPA buckets:

Bucket 1—These are the CPAs with whom you already have a healthy referral alliance relationship. With this group, you’ll want to make a personal telephone call and invite the CPA and spouse to dinner. The idea here is that they’ve worked hard over the past four months, you appreciate their hard work, and you want to make certain they have a relaxing evening with you and your spouse. It’s important to emphasize: no business, all social.

Bucket 2—CPAs of your top 25 or so affluent clients. For these CPAs, you should plan an event; whether it’s a wine tasting, martini evening or a cookout doesn’t really matter. The key is to make it fun. Here, either you or your assistant (if he or she has a good relationship) calls and personally invites each CPA and spouse to the event. Again, you’re recognizing the hard work they’ve been engaged in over the past four months, you express appreciation for the work they’ve done with your clients, and this is your way of saying thanks. Remember, your objective is to follow up and begin building relationships one-on-one.

Bucket 3—Oh, those thankless CPAs who you’ve given referrals to but haven’t experienced the reciprocity. These rascals in Bucket 3 need a wake-up call over a social lunch. Call and invite them to a lunch with a slightly different twist; now that tax season is over, you simply want to catch up. Yet during that lunch you want to express your appreciation for how well they are handling the clients you’ve referred to them (mention each by name), and after a brief discussion you bring down the hammer by directly asking, “I’m very curious. I’ve sent X referrals to you over the past Y years and I haven’t received even one from you. Why?” You’ll want to soften this to your own personality, but here is where you shut up and watch the CPA squirm. Either you’ll get an apology or an explanation why you’ll never get referrals. This will have one of two outcomes—either you’ll never get referrals and you’ll never give another referral, or you’ll start getting referrals. In which case, this CPA moves to Bucket 1 and it’s time for a social dinner.

Bucket 4—These are those CPAs you’re targeting but have yet to develop any type of relationship. This group requires a bit more homework. You will want to ask CPAs in Buckets 1and 2 if they know these individuals. If so, you’d like to invite them, as their guest, to your upcoming Top 25 CPA event. If not, you should conduct a social media search as you are looking for a connection. If you find a connection with anyone you know, you call the person you know, explain that you want to meet this particular CPA, describe the event, and invite them both, using your connection to invite the CPA you’re targeting.

I recognize that Bucket 4 CPAs are more challenging, but you’ve got nothing to lose. Tis-the-season to socialize with CPAs. Yet, you’ll need a game plan; not all CPAs are equal and not all will allow you to develop a healthy referral alliance relationship.

Yet all you need are three or four good CPA relationships to become a master rainmaker. It will take time, patience, and persistence—but over the next eight months you can significantly strengthen your branding with CPAs.

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Source: RegisteredRep.com
Photo Credit: prssasdsu.org

Monday, April 30, 2012

LISI.com - Practice Pointers on the Core Concern of Blended Family Estate Planning: Joint or Separate Representation

Reproduced with Permission by and Courtesy of Leimberg Information Services, Inc. (LISI).  For information about how to subscribe to LISI, click here.

“Statistics show that approximately 60% of second marriages end in divorce, and almost 75% of third marriages do as well.  These figures loom large in the minds of couples with the “yours, mine and/or ours” scenarios in their step and blended families.

There are pluses and minuses to couples sharing everything regarding their estate planning together, and when it comes to couples with blended families, the minuses can outweigh the pluses substantially. While there is great value in working together in approaching estate planning, it is important to be aware of the cautions against representing both partners in estate planning, especially when it is the second or third marriage or partnership for one of the members of the couple.

When couples who have children from prior relationships contact you about possibly representing them, the first question that should go through your mind is: “Should I represent this couple together or should I only represent one of the partners in the couple?”

The pros and cons of joint representation of blended family couples is the subject of L. Paul Hood, Jr. and Emily Bouchard’s commentary. Paul and Emily have written a book on the subject titled Estate Planning for the Blended Family, (Self-Counsel Press 2012) that will be released at the end of April. Their book will be available on all of the major online bookstore, and order information can be obtained through the following link: http://blended-families.com/estateplanning/

LISI members should also look for their three-part series on blended family estate planning that they are presenting on May 8, 15 and 22 for Phil Kavesh’s The Ultimate Estate Planner, Inc. The information on how to register for their upcoming teleconference series can be obtained either by clicking the following link: Estate Planning for the Blended Family 3-Part Teleconference Series.

L. Paul Hood, Jr. received his J.D. from Louisiana State University Law Center in 1986 and Master of Laws in Taxation from Georgetown University Law Center in 1988. Paul is a frequent speaker, is widely quoted and his articles have appeared in a number of publications, including BNA Tax Management Memorandum, CCH Journal of Practical Estate Planning, Estate Planning, Valuation Strategies, Digest of Federal Tax Articles, Loyola Law Review, Louisiana Bar Journal, Tax Ideas and Charitable Gift Planning News. Presently, He has spoken at programs sponsored by a number of law schools, including Duke, Georgetown, NYU, Tulane, Loyola (N.O.) and LSU, as well as many other professional organizations, including AICPA and NACVA. From 1996-2004, Paul served on the Louisiana Board of Tax Appeals, a three member board that has jurisdiction over all Louisiana state tax matters.  Paul Hood can be reached directly at paul@paulhoodservices.com

Emily Bouchard is a family, wealth, and money coach, and the managing partner of Wealth Legacy Group (WLG), specializing in the emotional impact of wealth in people’s lives.  She has been working with inheritors in high net worth families since 2004 with a specialty in step and blended family issues.  She is also the director of www.Blended-Families.com and has appeared on the Today Show and NPR, and has been featured in publications such as New York Times and Newsweek.  Along with coaching individuals, couples, and families, she consults with advisors in responding effectively to their client’s emotional needs related to estate planning.  Her book, co-authored with Paul Hood, from Self Counsel Press on Estate Planning for the Blended Family is due out later this month. Emily can be reached at 360.991.9558 or by e-mail to emily@wealthlegacygroup.net.

Here is their commentary:

EXECUTIVE SUMMARY:

Statistics show that approximately 60% of second marriages end in divorce, and almost 75% of third marriages do as well.  These figures loom large in the minds of couples with the “yours, mine and/or ours” scenarios in their step and blended families.

There are pluses and minuses to couples sharing everything regarding their estate planning together, and when it comes to couples with blended families, the minuses can outweigh the pluses substantially. While there is great value in working together in approaching estate planning, it is important to be aware of the cautions against representing both partners in estate planning, especially when it is the second or third marriage or partnership for one of the members of the couple.

When couples who have children from prior relationships contact you about possibly representing them, the first question that should go through your mind is: “Should I represent this couple together or should I only represent one of the partners in the couple?”

COMMENT:

Advantages of One Strategy versus the Other

Obviously, most professionals want what is in the client’s best interest.  And there are advantages to both separate and joint representation. 

Some advantages of joint representation for couples on blended families include:

• It is a way to build greater trust and more open communication between the two of them, and possibly with all of the children in their lives.
• It is more cost-effective, since they only have to pay one set of estate planners.
• It can be more efficient for them, as they can work together and divvy up tasks as they prepare to meet with you.

Some pro’s of having separate representation for clients with blended families include:

• Each may have more freedom to speak up about their specific concerns and desires without having to necessarily compromise with their partner.
• The best interests of the individual you represent are the only interests guiding you, and this is an important consideration since there can often be competing agendas, and potential conflicts of interest, often between a step parent and their step children.
• How suited the couple is for joint representation can be discovered in an introductory session with you, which we see also is advantageous for you, even if it is complimentary.  No one wants a problem client, as they are more likely to sue you and less likely to pay you.  Even in these uncertain economic times, sometimes the best decision that an estate planner can make is to not take on certain people as clients.  Taking the time to determine the best route to go up front makes a lot of sense, even if you give a bit of your time away for free.

Without healthy communication between the couple, joint representation could be disastrous. Paul witnessed this first hand with a couple, he in his early sixties, and she in her early fifties.  Outwardly, they looked like a routine couple coming in for estate planning, and Paul agreed to represent the couple together, despite lingering concerns about how much was left unsaid at their introductory session, particularly about the abilities of each of their children, who should serve as their successor trustees, and how much to leave to all the children in their lives.  However, shortly after the meeting, things quickly disintegrated between the partners, so much so that the couple ultimately divorced, in part over the significant differences in their estate planning goals and plans.

To make sure that he complied with the legal rules of ethics, Paul withdrew from representing both of them, and so they had to start over with two new attorneys. There were so many differences between the partners that they would have been better served by each having a separate set of estate planners from the start. The husband wanted their oldest son to serve as executor, while the wife was adamant that her younger daughter was the most capable.  He felt strongly that her “baby” wasn’t ready or capable enough to handle her step-brothers and she wouldn’t command the boys’ respect or cooperation; his wife was just as adamant that his “baby” was neither incompetent nor unable to handle the enormity of the responsibilities.  This couldn’t have been the reason for the divorce, but it was apparently just the straw that broke the camel’s back on a life-long tortured marriage, and it all came tumbling down.

Emily got to witness the other side of the equation, where joint representation created an opening for results beyond what anyone could have imagined.  The advisory team at a well-known bank referred a client couple to Emily after then went two years without signing their estate planning documents.  Their stand-off was a result of a blended family situation, where the husband had two children from a prior marriage and his second wife had two children with him.  He wanted the estate equalized at the time of his death and to be assured that all four of his children received the same amounts. 

She saw things very differently, since his children were not the same as theirs together, being able to benefit (or not as the case may be) from their bio-mother’s estate.  As a result, she wanted her two children to receive the bulk of her estate, including that which she would be the beneficiary of if she were to outlive her husband (which was very likely since she was significantly younger than him).  After four months of family dynamics coaching, they learned some communication strategies that allowed them to address over 30 years of long standing hurts and resentments.  As a result of some in-depth, facilitated conversations, they not only came up with an innovative approach to their estate planning that honored both of their concerns, they also expressed feeling closer as a couple. They then worked effectively with their team at the bank and found an estate planning attorney who specialized in blended family issues who was able to easily incorporate their wishes into their documents.

Signposts for Joint or Separate Representation
In order to make the decision of joint or separate representation a bit more straightforward, there are some signposts that strongly indicate the need for considering separate representation:

• If one partner is childless but the other has children. These people are not in similar circumstances if only one of them has descendants.  Most people want to leave their estates to their children; it’s only natural.  However, childless people don’t have such a tie.  The risk here is where the stated goal of the parent partner is to leave everything to his or her children may be changed if the parent partner is the first to die.
• There is a significant disparity in wealth or income in the couple.  While not always definitive, an income or wealth disparity between the partners can signal an economic imbalance in the couple that could adversely affect the estate planning of the partner who has less.
• One of them is economically dependent on the other. This signpost alone is usually not necessarily of the need to have separate representation.  However, it together with the presence of other signposts discussed in this recording can be a strong signal of the need for separate representation.
• One of them does all of the talking or appears to exert strong influence over the other.  As an estate planner, you should take note of this sort of situation and take steps to delve into what appears to be a problem in communication between the two of them.  The one who is being strongly influenced (or oppressed) will certainly know but may lack the self-will or the perceived freedom to point it out.
• Length of the relationship. Generally speaking, the shorter the relationship, the stronger the suggestion of separate representation. 
• The number of past relationships one, or both of them, have had. Generally speaking, the greater the number of past relationships, the stronger the suggestion of separate representation.
• The two of them were separately represented in a pre-nuptial agreement or property agreement.  If it was important enough to have been separately represented in an earlier agreement, it is probably still important enough to maintain separate representation with respect to estate planning.
• There is a significant age disparity between the couple.  Generally speaking, the greater the age disparity between the couple, the greater is the need to consider separate representation.
• If one of them has a significant secret from the other partner like another child, other assets or another lover.  Secrets can have an insidious impact on relationships and can really put your estate planners in a difficult spot when the secret comes to light. Obviously, clients who are inclined to hold on to secrets aren’t going to be forthcoming, so you’ll have to ascertain this indirectly by reading between the lines and finding points of aggravation where you have violated the boundaries that the secret holding client has set around that secret information. 

Ways to Address These Concerns with Potential Couple Clients
These are not easy points to consider and, the more uncomfortable they make the couple as you bring them forward, the stronger the indication that you all should slow things down.  Give them sound legal reasons for why you think they need to seriously consider separate representation, if that’s what their particular circumstances call for at the time of your initial meeting.  You can assure them that there are ways that they can stay in communication and connection around their planning even as they are represented separately.

Once they are clear about why you are recommending separate estate planners, you can then breakdown the different details to be determined together, such as medical/durable powers of attorney, and show them that they can still share with each other their thinking, and explore the pros and cons of their pending decisions.  You can also note that when conflicts of interest arise, couples who can find places to align with each other, instead of needing 100% agreement, are able to feel more connected as they make their individual decisions. 

With regards to alignment, in Emily’s earlier story about the couple with “yours and ours”, the husband was able to let go of needing 100% equality.  They were able to come up with a strategy that honored the wife’s contribution to their marriage in a monetary fashion. They both agreed that her earning potential was about one sixth of his, and they calculated a percentage that seemed to fairly represent both of their views.  This percentage was then taken into consideration in the difference that their two children together would receive over and above what his two would get.  They were in alignment around the new approach and were able to get there by both letting go of their attachment to having their original views seen as right. In his estate, should he outlive his wife, all four children received the same amounts. She was able to be in alignment with that decision, even though it wasn’t her first choice.

Conclusion
If you determine that separate representation is the best option for a couple, communicate how you see it professionally and with a sense of truly taking care of both of their needs and concerns.  Frame your assessment in ways that show them why this in their best interest and that it is not personal but is based on sound advice.

HOPE THIS HELPS YOU HELP OTHERS MAKE A POSITIVE DIFFERENCE!

CONTRIBUTORS: L. Paul Hood, Jr., J.D., & Emily Bouchard

CITE AS: LISI Estate Planning Newsletter #1954, (April 26, 2012) at http://www.leimbergservices.com/

© Copyright 2012 Paul Hood. Reproduction in Any Form or Forwarding to Any Person Prohibited – Without Express Permission.

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Sources: Leimberg Information Services, Inc. & Robert S. Keebler, CPA, MST, AEP

Friday, April 27, 2012

Autism Awareness Month: Special Planning for the Future with Autistic Children

April is Autism Awareness Month and The Ultimate Estate Planner, Inc. has teamed up our fellow colleague, Thomas D. Begley, Jr. and the Begley Law Group, P.C., based out of New Jersey, to help spread awareness for this very special cause. 

A recent report released by the Centers for Disease Control shows a drastic increase in autism diagnoses. One in every 88 children in the United States is diagnosed with a form of autism spectrum disorder, an increase of 78% since 2002. Boys with autism continue to outnumber girls at a rate of 5 to 1.

Since this is such a prevalent disorder that touches so much of the population, it is necessary to ensure that safeguards are in place for your loved one affected by autism.

GUARDIANSHIPS

If, upon reaching age 18, an autistic individual has sufficient capacity, he or she can, and ought to, execute documents, including a will, living will, and powers of attorney. These documents will name a loved one to act as an agent, if necessary, regarding emergency medical decisions as well as routine financial and personal decisions.

For an individual with insufficient capacity, a guardianship will be necessary. Once a child turns 18, the parents no longer retain the legal right to make the decisions that they have been making up to that point. In many cases, the guardianship process can be simple for parents of children on the autism spectrum, but it is still essential in order to ensure that safeguards are in place for the child.

It is also important for parents of children with autism to make sure that their own wills name choices for a successor guardian for their child.

SPECIAL NEEDS TRUSTS

Most parents worry about the well-being of their children once both spouses have passed away. A parent's or grandparent's concern about their loved ones is especially well-founded for special needs children. Leaving an inheritance outright to a child with special needs will jeopardize his or her eligibility for governmental benefits. For example, in order to receive Medicaid benefits, an individual cannot have more than $2,000 of countable assets in his or her name.

In order to rectify this issue, parents and loved ones often establish a third party special needs trust, which is a mechanism through which funds can be made available in order to enhance quality of life while still allowing the child to remain on government benefits. A special needs trust supplements public benefits, such as Medicaid and SSI, without jeopardizing eligibility. The trustee has absolute discretion to expend funds from the trust to purchase things for your child that are not otherwise covered by Medicaid.

It is extremely important to inform relatives about the existence of this special needs trust. Grandparents and other relatives can make lifetime gifts or leave inheritances directly to the child's trust in order to make sure that benefits are preserved.

Even if you are not personally affected by autism, please join us at The Ultimate Estate Planner, Inc. and the Begley Law Group, P.C., along with millions of other advocates, to continue to spread awareness about autism spectrum disorders and the importance of looking at the special planning needed for these individuals.

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Source & Photo Credit: Begley Law Group, P.C., Susan M. Green, Esq.

Wednesday, April 25, 2012

New Book Helps You Plan for and Protect Your Assets

Orange County, California (March 29, 2012) – There are few things in life more certain than death and taxes and perhaps, in today’s society, Law suits.  However, the fact is few people actually plan for them. 

In the New Book The Ladder of Success: An Asset Protection Planning Primer, Attorney Jeffrey R. Matsen (“Top 100 Attorneys in U.S.” Worth Magazine) has provided a straightforward and elementary description of what Asset Protection really is and demonstrates how it can be effectively implemented by taking various steps, like rungs on a ladder, to truly climb the ladder of success.

“The one constant over the many years of my practice and among the hundreds of different clients I have served is the imbalance of, on the one hand, their profound concern regarding Asset Protection, and on the other, their lack of understanding as to how to implement it,” says Attorney Matsen. “I have dedicated my career to assisting these clients in planning the fortification of their resources to ensure their financial security in the face of taxes, liability and creditor attacks.” 

The Ladder of Success: An Asset Protection Planning Primer explains:

• Why Plan?  The Need for Asset Protection
• The Limitations
• The Operating Business Entity
• Basic Estate Planning
• Bankruptcy Considerations, Exemptions and Marital Planning
• Liability Protective Entities for Investment Assets
• Domestic Asset Protection Trusts and Modular Planning Utilizing LLCs
• The Offshore Asset Protection Trust and the Modular Planning that Accompanies It
• Advanced Estate Planning Techniques
• Special Issues and Strategies for Physicians and Dentists
• Climbing the Ladder and Putting It All Together

Chock full of authoritative information about estate planning and asset protection, The Ladder of Success: An Asset Protection Planning Primer is one book every conscientious person should own.  “Nobody understands the nuances and practicalities of this area better than Jeff Matsen.  His unique ability of making issues clear for clients and their advisors is a gift.  This book is required reading for any layperson or professional who wants to learn more about asset protection and more importantly, take action,” says Bill Deitch, Leading Estate Planning Attorney, Chicago.

“Jeff Matsen is an expert to the experts in the asset protection field.  Those seeking asset protection often share common characteristics—such as wealth, business ownership, real estate ownership, considerable income and estate tax exposures, as well professional practice ownership—and I recommend they read Jeff’s book to protect their families,” states Joseph J. Strazzeri, Fellow, Southern California Institute; Co-founder, Laureate Center for Wealth Advisors. 

Tim Voorhees, JD, MBA President, Family Office Services;  Principal, Matsen Voorhees, Orange County, CA. explains “Because of Jeff’s broad, multi-disciplinary experience, he knows how to integrate protection from lawsuits with protection from taxes. Jeff’s ability to combine creditor protection with tax planning helps clients accumulate more wealth and maximize upside potential.” 

“Jeff Matsen is one of the best estate planning and asset protection attorneys in the country.  His knowledge, wisdom and direct experience have truly made him one of the elite group of top experts in his field. If you are concerned about protecting your assets and want to leave a legacy for future generations, I highly recommend you read this book,” says Stephen Fairley, CEO of The Rainmaker Institute, LLC, The Nation’s Largest Law Firm Marketing Company. 

 Marc Selden, Nationally Recognized Estate Planning Attorney, New York City, states “Jeff is widely recognized in the legal community as an asset protection guru.  In this book, Jeff does a wonderful job of explaining the principles and strategies of complex asset protection planning in a very clear and easy-to-understand way.”

The Ladder of Success: An Asset Protection Planning Primer,  $19.95, Paperback 179 pages, ISBN 978-0-9852041-1-2, is published by Wealth Strategies Counsel, and is available online.  >>ORDER NOW

ABOUT  JEFFREY R. MATSEN
JEFFREY R. MATSEN, JD, received his law degree with honors from the UCLA School of Law and served as a Military Judge with the rank of Captain in the US Marine Corps.  Matsen has been a Professor of Law in Business, Estate Planning and Advanced Taxation. He is a highly sought-after and respected speaker and educator and has published numerous legal articles.  Matsen is the founder of “Wealth Strategies Counsel,” the Estate Planning and Business Transactions Department of Matsen Voorhees and Bohm, Matsen, Kegel & Aguilera, LLP, in Orange County, California.  His practice areas include: Business and Estate Planning, Asset Protection, Probate and Trust administration and litigation, Real Estate and Offshore structures.  Matsen has been designated one of the Nation’s “Top 100 Attorneys” by Worth Magazine, A “Super Lawyer” by Los Angeles Magazine and he is listed in The Best Lawyers in America.  The Nationally Renowned Attorney Rating Service, AVVO, has rated Matsen a perfect “10/10 Superb.” Besides continuing to achieve the highest “AV rating,” he has been designated a “Preeminent Lawyer” by the prestigious attorney rating directory, Martindale Hubble.

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Monday, April 23, 2012

A Vexing Retirement Planning Problem? Predicting Health Care Costs

What worries your clients most about their prospects for achieving a secure retirement? The cost of health care.

Americans are less confident that they'll have enough money to pay for medical and long-term care expenses in retirement than they are about their ability to cover basic expenses, according to the Employee Benefit Research Institute's recently released Retirement Confidence Survey.

Affluent households seem especially worried. Seventy-nine percent of investors with $250,000 or more in investable assets responding to the most recent Merrill Lynch Affluent Insights Survey cite health care costs are their top financial concern – ahead of the nation's budget deficit, unemployment or possible tax hikes. And 34 percent say they are more worried about the financial strain associated with a chronic health situation than how it might compromise their quality of life.

It's the third year in a row that health care cost worries have topped Merrill Lynch's survey. Growing awareness among older Americans that longevity is rising is a key factor, since it raises the specter of ballooning lifetime cost, says David Tyrie, head of Personal Wealth and Retirement for Bank of America Merrill Lynch. “The longevity challenge is complex, and we need to think about it more holistically and find a comprehensive solution,” he says.

Health care cost inflation for retirees actually has moderated somewhat in recent years. Fidelity Investments reports that projected lifetime health care costs fell for those retiring in 2011 – the first time inflation abetted since the company began tracking it 10 years ago. Fidelity estimates that a 65-year-old couple retiring last year will need $230,000 to pay for lifetime medical expenses, not including nursing-home care. That represents an eight percent decline from 2010, when the estimate was $250,000 (Fidelity's 2012 report is due to be released later this month).

A key factor moderating prices is the Obama Administration's health reform law, according to Fidelity and other experts. The Affordable Care Act (ACA) contains several key changes to Medicare, including a gradual closing of seniors' out-of-pocket spending on prescription drugs in the notorious doughnut hole. The prescription drug program also has experienced lower-than-forecast enrollment and a major patient shift to generic drugs. The ACA also cuts reimbursement rates to hospitals, skilled nursing facilities, home health services and Medicare Advantage managed care plans.

While overall Medicare spending is soaring due to the country's aging demographics, the rate of average annual per capita spending is projected to be 3.5 percent for the coming decade – in line with projected GDP growth of 3.8 percent, according to the Congressional Budget Office. From 1985 to 2009, annual per capita spending growth averaged 6.7 percent. However, long term care costs have continued their inexorable rise. The annual rate for a private nursing home room last year was $77,745 in 2011, according to the Genworth 2011 Cost of Care Survey, up $17,520since 2005 – a compound annual growth rate of 4.35 percent over that period.

At the same time, the market for long term care insurance (LTCI) continues to struggle. The federal government threw in the towel last October on efforts to create a federally-sponsored option for long-term care coverage, called The Community Living Assistance Services and Supports Act (CLASS), due to worries that the program wouldn't be financially sustainable without adding significantly to the federal deficit.

The news in the private LTCI market hasn't been much better. Prices for LTCI policies this year are ranging from six to 17 percent higher than a year ago, according to the American Association for Long-Term Care Insurance (AALTCI) Many existing policy holders have been hit with double-digit rate hikes, as well.

Much of the premium hikes stem from the ultra-low interest rate environment, according to Jesse Slome,executive director of AALTCI. “Many people don't understand the importance of investment return in the insurance business. “About half of the assets carriers use to pay future claims comes from investment returns, and the other half comes from premiums” he says. “Every half point drop in interest rates translates into a 15 percent rate increase by insurers.”

Meanwhile, insurance carriers have been withdrawing from the market – 10 of the top-20 underwriters of individual LTCI policies five years ago have since announced that they will stop writing new policies, according to LIMRA, the insurance industry research and consulting group. And sales have been lackluster. In 2011, the number of people buying policies fell two percent to 230,000, according to LIMRA.

Helping Clients Cope

Mapping a strategy for managing health care costs in retirement is a critical component of any good financial plan. Yet the Merrill Lynch survey finds that, while respondents may be wringing their hands about the problem, they're not doing much to prepare. Seventy-eight percent of Americans under age 50 haven't planned for retirement health expense—but 62 percent of those over 50 haven't figured it out either.

Here are some key strategies to consider as you work with clients:

Create a savings goal for health care. Consider urging clients to set up a separate account to be tapped only for health expenses in retirement. Some may have access to a Health Savings Account at work, which permits investment of pre-tax dollars, tax-free growth and withdrawals for workers who want to save to offset health expenses. But HSAs are limited to workers enrolled in high-deductible insurance plans ($1,200 for an individual, $2,400 for families). Contributions are limited to $3,050 for individuals, and $6,150 for families.

Roth IRAs also can be useful vehicles for setting aside dollars tagged for health care, since they don't have Required Minimum Distributions for those over age 70 ½ and withdrawals generally are tax free.

Work longer. Staying on the job even a few years longer than planned is one of the best overall ways to counter health expenses, because it means more years of employer-sponsored health insurance and delayed Medicare enrollment.

Do a prescription drug benefit check-up annually. Seniors should re-shop prescription drug plans annually to ensure that they are getting the best price and appropriate coverage. Insurance companies often change their offerings year-to-year in ways that can increase premiums by thousands of dollars, or make it difficult to get certain drugs. And, your clients' health needs may change, too.

Manage Medicare carefully. Clients should be sure to sign up for Medicare within the correct enrollment windows to avoid major penalties for Part B – 10 percent for every year of delay for life.And high income seniors should pay careful attention to manage tax brackets to avoid premium surcharges levied for Part B and Part D.

Consider long-term care insurance. Despite the LTCI market's recent problems, there really aren't many viable alternatives for protecting clients against the risk of catastrophic cost. Medicare covers only a small amount of LTC costs; Medicaid, which funds the greatest share of the country's nursing home costs, requires beneficiaries to spend themselves into poverty and the quality of care available is spotty at best.

Some may be able to self-insure – a strategy that requires $500,000 to $750,000 in retirement assets in order to be confident of having sufficient resources to self-fund an LTC need, according to Dawn Helwig, a principal with Milliman, an actuarial consulting firm that works with the LTC insurance industry.

Helwig recommends that LTCI buyers consider trimming their costs by staying away from the most expensive policy types. “Especially with the way inflation has been running, people don't really need to be buying policies with five percent compound inflation features right now. The regulations usually require insurance agents to offer that, but most also offer lower inflation protection at lower rates, and that can make a big difference.”

And if rates jump on an existing policy, policyholders may be able to keep rates flat by reducing their benefit levels.

“There really isn't another game in town, unless you're willing or able to divest all your assets and qualify for Medicaid” says Helwig.

Mark Miller is a journalist and author who writes about trends in retirement and aging. Mark edits and publishes RetirementRevised.com, featured as one of the best retirement planning sites on the web in the May 2010 issue of Money Magazine. He is a columnist for Reuters and also contributes to Morningstar and the AARP Magazine. Mark is the author of The Hard Times Guide to Retirement Security: Practical Strategies for Money, Work and Living (John Wiley & Sons, 2010).

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Source: RegisteredRep.com | By Mark Miller
Photo Credit: worldofdtcmarketing.com

Wednesday, April 18, 2012

Keebler & Ward on Taproot v. Commissioner: Roth IRA Not Eligible Shareholder of S Corporation

Reproduced with Permission by and Courtesy of Leimberg Information Services, Inc. (LISI).  For information about how to subscribe to LISI, click here.

Traditional IRAs are not eligible S corporation shareholders under Rev. Rul 92-73 on the theory that the beneficiary of a traditional IRA is not taxed currently on the IRA's share of the S corporation's income. But what about Roth IRAs?

In Employee Benefits and Retirement Planning Newsletter #506 Bob Keebler provided LISI members with his analysis of the initial Tax Court decision in Taproot, that at the time supplied the answer to the fascinating question set out above.  Now, Bob returns with Michelle Ward, and together they comment on the 9th Circuit’s affirmation of the Tax Court’s decision.

EXECUTIVE SUMMARY
In Taproot, the Ninth Circuit Court of Appeals upheld the U.S. Tax Court’s finding that a Roth IRA is not an eligible S-corporation shareholder.

FACTS
Paul Di Mundo incorporated Taproot Administrative Services, Inc. in the state of Nevada in 2002. Taproot elected S corporation status effective as of the date of incorporation and filed its 2003 tax return on a U.S. Income Tax Return for an S Corporation.

In early 2003, Taproot issued all outstanding shares of its stock to a custodial Roth IRA account held at the First Trust Co. for the benefit of Di Mundo. The custodial Roth IRA account remained Taproot’s sole shareholder during the 2003 tax year.

In 2007, the Commissioner of the Internal Revenue Service issued a notice of deficiency to Taproot for the 2003 tax year. Among other findings, the Commissioner determined that a Roth IRA did not qualify as an eligible shareholder of an S corporation. Consequently, Taproot was deemed taxable as a C corporation for the 2003 tax year.

DISCUSSION
Taproot argued that the individual beneficiary of a custodial account also qualifying as a Roth IRA should be considered the shareholder for purposes of the S corporation statute.

Treas. Reg. Sec. 1.1361-1(e)(1) provides that “[t]he person for whom stock of a corporation is held by a nominee, guardian, custodian, or an agent is considered to be the shareholder of the corporation for purposes of [the S corporation statute].” Taproot contended that as the sole beneficiary of the DiMundo Roth IRA, DiMundo should be considered the shareholder and, thus a qualifying individual for the purposes of the statute.

IRC Sec. 1361(c)(2)(A)(i) also extends shareholder eligibility to any grantor trust “all of which is treated...as owned by an individual who is a citizen or resident of the United States.” Taproot therefore also argued that a Roth IRA should be classified as a grantor trust.

In Rev. Rul. 92-73, the IRS ruled that an IRA is not a permitted shareholder of an S corporation under section 1361. The IRS reached similar conclusions regarding an IRA’s eligibility as an S corporation shareholder in a least 42 PLRs (see, e.g., PLRs 200915020, 200931039 and 200940013). While the Court acknowledged that such rulings were not binding precedent, it also noted that they can be used as evidence of an administrative practice of the IRS.

The Tax Court, along with noting the functional differences between IRAs and grantor trusts, found Rev. Rul. 92-73 to “sensibly distinguish[ ] IRAs from grantor trusts.” In making that determination, the Tax Court relied in part on the rationale of Revenue Ruling 92-73, stating that:

[T]raditional IRAs are not eligible S corporation shareholders because the beneficiary of a traditional IRA is not taxed currently on the IRA’s share of the S corporation’s income whereas the beneficiaries of the permissible S corporation shareholder trusts listed in section 1361(c)(2)(A) are taxed currently on the trust’s share of such income.

On appeal, Taproot maintained that the Di Mundo Roth IRA functioned merely as the form of Di Mundo’s individual investment account and that the plain language of Treas. Reg. Sec. 1.1361-1(e)(1) explicitly authorizes those IRAs and Roth IRAs created as custodial accounts to be shareholders of S corporations.

Taproot first claimed that both forms of IRAs and Roth IRAs—trusts and custodial accounts—lack the essential characteristics of a separate taxpayer and should therefore be treated as indistinguishable from the individual owners. The Court, however, found that Taproot did not provide persuasive reasoning or convincing authority for this conclusion and found the reasoning in Rev. Rul. 92-73 to support the opposite result. The Court found that the distinguishing feature is the deferred income tax treatment, which differentiates IRAs from beneficiaries listed in IRC Sec. 1361(c)(2)(A) who are taxed currently on the trust’s share of income.

The Tax Court also discussed the legislative intent behind the S corporation statute, finding the only available evidence suggested that Congress did not intend to allow IRAs to own S corporation stock. Although at the time Congress initially drafted the S corporations statute, both traditional and Roth IRAs had yet to be created, the Tax Court reasoned that “had Congress intended to render IRAs eligible S corporation shareholders, it could have done so explicitly,” as it did with the 2004 amendment allowing banks with IRA shareholders to elect S status in specific circumstances.

This was especially true in light of Congress’s 1999 directive to “the Comptroller General of the United States to conduct a study of possible revisions to the rules governing S corporations including “permitting shares of such corporations to be held in individual retirement accounts.” For these reasons, the Tax Court concluded that traditional and Roth IRAs were not eligible shareholders. On appeal, the Court found the legislative history of the S corporation statute favored limited eligibility and that if at any point Congress had intended IRA eligibility, it could have amended the statute. The Court pointed out that if IRAs and Roth IRAs qualified as eligible shareholders in 2003, then the subsequent 2004 amendment would have been completely unnecessary.

CONCLUSION
It is interesting to note that the Tax Court was also mindful that under Taproot’s theory of statutory construction, DiMundo would avoid virtually all taxation on his S corporation profits. This would enable S corporations to achieve an overwhelming benefit over C corporation competitors which are subject to two levels of taxation —one at the corporate level and another at the shareholder level.

In a lengthy dissent, however, Judge Halpern notes that “this underestimates the strengths of the Code's other defenses against such shenanigans.” He noted that there are numerous limitations on what can go in and out of an IRA—income-contribution limits, deadlines for contributions, penalties on prohibited transactions, and penalties on excess contributions. Judge Halpern further noted that while custodial retirement accounts are generally exempt from tax on undistributed IRA income, they are still subject to the taxes imposed on Unrelated Business Income Tax. In general, the Unrelated Business Income Tax subjects the business earnings of tax-exempt organizations to taxation.

The majority of the Tax Court, however, expressed its skepticism that the Unrelated Business Income Tax could adequately mitigate this tax advantage. Although Taproot contended that the Unrelated Business Income Tax negates the Tax Court’s policy concerns, the Appeals Court agreed with the IRS that I.R.C. Sec. 512 generally excludes passive investment income, such as interest income, from application of the UBIT and thus, in this case, the interest income at issue would not be subject to the UBIT.

HOPE THIS HELPS YOU HELP OTHERS MAKE A POSITIVE DIFFERENCE!

TECHNICAL EDITOR: Barry Picker

CITE AS: LISI Employee Benefits and Retirement Planning Newsletter #603 (April 17, 2012) at http://www.leimbergservices.com/ Leimberg Information Services, Inc. (LISI). Reproduction in Any Form or Forwarding to Any Person Prohibited – Without Express Permission.

CITES: Taproot Administrative Services v. Commissioner, Case No. 10-70892; Revenue Ruling 66-266, 1966-2 C.B. 356; Revenue Ruling 92-73, 1992-2 C.B. 224

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Sources: Leimberg Information Services, Inc. & Robert S. Keebler, CPA, MST, AEP

Tuesday, April 17, 2012

Practical Planner: 2012— ACT NOW! (Volume 7, Issue 2)

Martin “Marty” Shenkman, Esq., CPA, MBA is an estate planning attorney and Certified Public Accountant who authors a number of publications each month, including his monthly e-mail newsletter, "Practical Planner".  Below is the second installment from Marty's March/April 2012 newsletter.  To be added to Marty's monthly e-mail distribution list, e-mail newsletter@shenkmanlaw.com.

Summary: Unless you’re hiding under a rock, you’ve been bombarded with email newsletters, mailings and more from your CPA, investment adviser, the 100s of people who want to be your investment adviser and more, cajoling you to make gifts before the end of 2012. Well this article is one more of ‘em. And you should pay heed. While the main drift of this message is clear: “make gifts before the law changes in 2013.” There are a number of important nuances to the message that the media blitz has not addressed: Lot’s of people, not just the ultra-high net worth folks, should be doing this. So if you’ve tuned out these messages because you’re not a zillionaire, tune back in! So, “I'll bet you think this song is about you.  Don't you? Don't you?” Well Carly, it is! No one should just make a gift, the gifts should be in trust (your lawyer won’t make any money on the deal if it’s just a simple gift!). These trusts raise a host of issues, many of which have special implication to 2012 planning. So, we’re going to try to convey these key points in a really succinct amount of space, but hopefully enough can be conveyed to motivate you to act now, and act prudently.

• Point 1:  Uncertainty shouldn’t be an excuse for inaction. If the weatherman says 20% chance of a horrible storm, you’d carry an umbrella. Uncertainty may also mean opportunity. If you don’t act now 2013 is scheduled to bring a $1 million exemption and 55% rate. President Obama has continued to propose estate and gift tax changes that will undermine much of the planning arsenal, making his proposed 45% rate and $3.5 million exemption far more costly than most imagine. Consider that the left end of the tax continuum. True, the future is uncertain. Perhaps the Republicans will sweep the election and repeal the estate tax.  Consider that the right end of the tax continuum. If you don’t act now and the left end materializes you (not only your heirs) may lose out big time. If the right happens worst case you’ve wasted the cost of the planning, but have you? The trust planning that will serve your estate planning needs will also provide asset protection benefits, including divorce protection for heirs, and better control and management of your assets. So the planning in the best tax case scenario won’t be for naught, you’ll just have one less benefit. And by the way, even if the estate tax is repealed (and ya shouldn’t hold your breath hoping for that one) the gift tax may remain intact with a $1 million exemption even under Republican control. Most folks forget that the gift tax is an integral backstop for the income tax, not only for the estate tax. Look at what happened in 2010 with the gift tax.

• Point 2:  Planning is not only for Richie Rich. If you have a non-married partner a $1 million gift exemption in 2013 may make it costly to shuffle ownership of assets between you and  your partner. Everyone, not just surgeons, should be concerned about asset protection. Nothing anyone in Washington does will change the litigious nature of our society. About a score of states have decoupled from the federal estate tax system so that lower amounts of wealth may trigger state death tax. A simple gift today might be all it takes in many situations to reduce or eliminate state estate tax. Use the current favorable tax environment to shift assets into protective structures before the party ends. A $1 million gift exemption will render much of this planning costly, impractical, or impossible. Remember at midnight 12/31/12 the carriage turns back into a pumpkin and the ride is over.

• Point 3:  Start with a Financial Plan. While your estate planner might think he or she holds the keys to the planning kingdom, this kinda planning should have at its foundation a well thought out financial plan. Does this suggest your wealth manager should be driving the bus? Nah, but they should be a co-pilot. How much can you afford to give away and be really assured that you won’t be asking the kids for a loan? Which assets can or should you give away? Do you need additional life insurance for coverage in light of components of the plan? Do you need access to the money you give away and if so how much? This analysis is meant to insure that you’re left with more than adequate assets to maintain your lifestyle after the transfers. This can deflect an IRS challenge that you had also an implied understanding with the trustees (or managers of an LLC) to get money back because you left yourself with insufficient resources. It can make it harder for a creditor to prove later that your transfers constituted a fraudulent conveyance.

• Point 4:  Make Gifts in Trust. Whatever amount you determine to give away, give it to one or more trusts, not outright to an heir. Trusts provide asset protection, divorce protection, preserve generation skipping transfer tax benefits (in English they can keep the assets out of the transfer tax system forever). Trusts can be structured as “grantor trusts” so you can sell assets to them without triggering capital gains tax and you can pay the tax on trust income and gains thereby growing the value of the assets inside the trust faster while shrinking the assets left in your name, thus reducing assets reachable by creditors or subject to estate tax.  Both of these bennies are on President Obama’s hit list, so get ‘em while you can. Perhaps the biggest vig of gifting to a trust is you can retain the ability to benefit from the assets in trust. Say you set up a trust for your spouse/partner and all future descendants. So long as your spouse/partner is a beneficiary you can indirectly benefit. Alternatively, you can set up a Domestic Asset Protection Trust (DAPT) and be a beneficiary of your own trust. Even if you’re mega rich, but much of your wealth is concentrated in a business, be very cautious about cutting off your access to trust assets. Don’t forget the harsh economic lessons of 2008-10+.

• Point 5:  Sell Assets to Trusts. While gifts can take advantage of the current law, sales of assets to trusts can also provide a huge benefit now, that may also disappear when the ball drops in Times Square. If you sell 45% of your interest in a family business valued with a 40% non-marketability and lack of control discount, that’s huge leverage. Discounts may head the way of the Dodo bird. Since few trusts will have sufficient cash to pay for the purchase these sales are structured as note sales. Interest rates remain at historic lows. So transfers well beyond the $5.12 million are “can do.” For many folks the better approach is a technique described in prior newsletters called a Beneficiary Defective Irrevocable Trust (BDIT) that will depend on this sale technique. Sell ‘em while you can!

• Point 6:  Design the Trusts Right. The trust or trusts you’ll use should not be off the rack. This is the time to step up to the custom tailored suit. Navigating Scylla and Charybdis is child’s play by comparison. Some of the issues to consider include:
  • Should you be a beneficiary or not? If yes, there are precautions to take and only certain states in which the trust can be established.
  • Is there any reason the trust should not be a grantor trust? Unlikely, but ask. If it is a grantor trust what happens if there is a big capital gain? Example – you transfer your family business to the trust and 5 years from now sell out to a public company for big bucks. You have to pay the gain but the bucks are in the trust. Some practitioners use a tax reimbursement clause but caution is in order. These clauses have to be handled correctly and the trust must be in a state with appropriate laws. Also, worrisome is that if the trustee just so happens to reimburse you, the IRS might argue that you had an implied agreement with the trustee to reimburse you for the capital gains tax on a big sale.  There may be better approaches.
  • If you and your spouse/partner both set up trusts, the trusts need to be sufficiently different to avoid the IRS arguing what is called the “reciprocal trust doctrine” -- that they are so identical that they should be “uncrossed” so that the trusts are taxable in each of your estates. That would entirely negate the planning. Differentiate the trusts using different powers, different distribution standards, set them up in different states, sign them on different dates, use different assets, print them on different color paper (just kidding on that one), etc.
  • If you own all the assets to be given can you set up a trust and gift $10.24 million and have your spouse treat the gift as if it is ½ his thereby using up his exemption? While spouses can gift split, if your spouse is a beneficiary of the trust which is the recipient of the gift, that is a no-no.
  • What if you gift $5.12 million to your spouse, and he then gifts it to his trust to avoid the gift splitting issue? Nice try but maybe no cigar. The IRS could attack using the “step transaction doctrine.” If the IRS wins they might treat your gift to your spouse, and his gift to the trust, as an indirect gift by you to his trust. Thus, you’d be treated as making two $5.12 million gifts and owe about $1.8 million in gift tax. Ouch!
  • There has never been a time in history when so many taxpayers may feel so compelled to make so many large transfers in such a short time period. Big brother will be watching so more caution and planning then ever before should be exercised.
  • You want to fund a FLP or LLC with appreciating assets, make gifts and secure discounts. If the assets are not inside the entity long enough the IRS will argue that the gifts were of the underlying assets – no discount.

• Point 7:  Operate the Plan and Trusts Right. Administer the plan and trust properly, and monitor it by meeting not less than annually with all your advisers to make sure all formalities are adhered to. Be sure the CPA is in the loop to monitor the gift and income tax returns so they all properly reflect the reality of the transfers. Revise asset allocations to coordinate asset location decisions.

Bottom Line:  Just Do It! Time is fleeting. Everyone should review planning options for themselves and their family/loved ones to ascertain what might be beneficial and how to expedite the process so planning is completed in advance of year end, preferably before the election.

To download the complete newsletter and prior newsletters, click here.

_______________________

ABOUT THE AUTHOR: Martin “Marty” Shenkman, Esq., CPA, MBA is an estate planning attorney and Certified Public Accountant from Paramus, New Jersey. He received his Bachelor of Science degree from Wharton School, University of Pennsylvania 1977 with a concentration in accounting and economics. He received a Masters degree in Business Administration from the University of Michigan 1981, with a concentration in tax and finance.

Mr. Shenkman is a widely quoted expert on tax matters and is a regular source for numerous financial and business publications, including The Wall Street Journal, Fortune, Money, The New York Times, and others. He has appeared as a tax expert on numerous television and cable television shows including The Today Show, CNN, NBC Evening News, CNBC, MSNBC, CNN-FN and others. He is a frequent guest on radio talk shows throughout the country and has a regular weekly radio show on Money Matters Financial Network.

Mr. Shenkman is a prolific author, having published thirty-four books and more than seven hundred articles. Mr. Shenkman has served as contributing editor to a host of publications, including: New Jersey Lawyer, The Journal of Real Estate Finance, Real Estate Insight, Commercial Leasing Law & Strategy, The Journal of Accountancy, Real Estate Accounting and Taxation, Shopping Centers Today, and others.

Mr Shenkman is active in numerous charitable organizations, sitting on many boards and planned giving committees and lectures regularly for these and other organizations.

Monday, April 16, 2012

WSJ.com - Inherited IRAs: A Sweet Deal

Reposted from WSJ.com | By Kelly Greene

Inherited individual retirement accounts made news earlier this year when the Senate Finance Committee proposed to make heirs empty them within five years of the benefactor's death.

The measure, which was abandoned shortly thereafter, would have upended a system that is highly advantageous to families. Under current rules, heirs get to stretch withdrawals from an inherited IRA across their own life expectancies, meaning the assets could potentially increase in value, tax-deferred, for decades.

Yet many unwitting families cash out the account, losing the possibility of a life-expectancy payout, says Natalie Choate, an estate-planning lawyer at Nutter McClennan & Fish LLP in Boston.

That is a problem, she says, because there is no way to get the money back into the IRA after it has been cashed out.

Sometimes, even when the heir is aware of the opportunity to keep the inherited IRA in tax-deferred investments, financial and legal advisers botch the paperwork so badly that the IRA is disqualified.

Here are some of the snags that can result:

Trust tangles: M.D. Anderson, a tax preparer in Chandler, Ariz., has worked on so many inherited IRA snafus that he set up a website to chronicle the morass, titled InheritedIRAHell.com.

One of the most common problems involves how they intersect with trusts. Many people who set up plain-vanilla living trusts, often marketed as a way to avoid probate, name the trust as the IRA beneficiary.

But a trust isn't a person, and has no life expectancy, so it can't take advantage of the opportunity to stretch withdrawals across decades.

There is a potential fix: Demonstrating that a trust qualifies as a "conduit," or "see-through" trust, meaning its purpose is to get the IRA distributions to a trust's beneficiaries. Doing so, however, could require winning a so-called private-letter ruling from the Internal Revenue Service, which can cost $4,000 for filing and double that for the accountant or lawyer preparing it, Mr. Anderson says.

His advice: Keep the IRA out of the trust unless your kids' situation is so egregious that there isn't any alternative, like having kids who are in jail.

Titling problems: When you inherit an IRA, you should retitle the account so it reads like this: "William Smith, Deceased (date of death) IRA F/B/O (for benefit of) James Smith, Beneficiary." But Mr. Anderson is working with a client who received forms from the custodian of the account that didn't spell out that he had inherited the account. The second set of forms the client received still needed some edits to avoid possibly disqualifying the account, Mr. Anderson says.

So, when you retitle the account, make sure the paperwork is in the proper format.

Paying the tax twice: If the benefactor's estate were large enough to be subject to federal estate tax, and a federal estate tax were paid, then the IRA beneficiary can get a tax deduction for the estate tax paid on the IRA's value. That is the case even if someone else paid the tax, Nutter McClennan's Ms. Choate says.

Estates worth up to $5.12 million are exempt from estate tax this year, but the exemption reverts to $1 million in 2013 unless Congress acts.

For example: a mother leaves a $1 million IRA to her son and the rest of the estate to her daughter. The daughter ends up paying the federal estate tax on the entire estate, including the IRA, the taxes on which were $350,000. The son cashes out the $1 million IRA. He now has $1 million in gross income and a $350,000 deduction for the estate tax.

"This is the most overlooked deduction in America," Ms. Choate says. The reason: Heirs often don't realize they are entitled to the "income in respect of a decedent" deduction, as it is known. Estate administrators typically don't feel it is their job to tell beneficiaries about their future tax situations. Meanwhile, the beneficiary's tax preparer might have no idea that estate tax has been paid on the IRA.

Failing to pass it on: Many wealthier adult children forget they can disclaim an inherited IRA and pass it along to their children—possibly creating tax-deferred growth for decades, says Bobbi Bierhals, an estate-planning lawyer with McDermott Will & Emery in Chicago.

There are two things to keep in mind, Ms. Bierhals says. First, the IRA owner has to fill out the beneficiary designation form in a way that will allow it. The best way is to leave the account "to my then-living descendants, per stirpes," which means the account goes equally to your children, or, if they have died, to their children.

Also, you must act quickly. Disclaimers must be completed within nine months of the benefactor's death, she says.

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Photo Credit: James Steinberg via WSJ.com
Source: WSJ.com

Tuesday, April 10, 2012

Attract, Engage & Work with Families with Taxable Estates and Their Advisors

For decades many of us, as wealth strategies planners, have wondered not only how but if we should attract, engage and work with affluent families and those with complex taxable estates.  Their advisors are more protective.  The solutions are more complicated and create larger liability.  Though the fees may be greater, are they enough to cover the time and effort – especially if we only do it occasionally?

The Laureate Center for Wealth Advisors has the training and education needed to attract, engage, and implement work in the taxable estate arena.  You owe it to yourself and your clients to learn more about The Laureate Program, especially if you desire to:

• Quarterback a team of advisors or be called in as a team member;
• Find your quiet confidence as a leader and resource to clients and their advisors;
• Identify, explain, and implement complex tax, wealth, legal, and other technical strategies in an understandable client language;
• Price for your intellectual property and the value you create;
• Improve closing techniques while practice with energy, freedom, and passion;
• Have an effective, process-oriented, and profitable business, not a job

This program should seriously be considered by wealth strategies practitioners and advisors interested in the Families with Taxable Estates market and having the quiet confidence to quote six digit fees.

Below is a summary of The Three Pillars of the Laureate Curriculum: Counseling, Practice Management, and Case Studies. These pillars seem to separate the successful cases from the wildly successful and have helped to truly address the clients’ concerns, increase advisor compensation, and provide an established process through review, design, and implementation.

Counseling – Interpersonal Labs

The training and counseling labs provided through the Laureate Program helps each member decide and recognize which type of client you would like to work with.  We believe that expanding from a “client engagement” to “client partnering” deepens the relationship and leads to more productive plans and results.

Client Partnering achieves the client’s specific goals through the process of Review, Design, and Implementation through authority on and clarity of:

• Problem and what’s behind it;
• Possible Solutions often resulting in former goals as less or not important; and
• Implementation and commitment to solution, timeline, and responsibilities for new goals.

In Client Partnering we facilitate a safe environment to explore the client’s and advisor’s true drivers.  The common characteristics of facilitating a safe environment are:

• Rapport – a continued feeling of connection
• Relevance – current personal perspective related to the subject
• Expanding engagement
• Encouraging “new and clearer thought about the situation and what’s behind it”
• Understanding and committing to “We Can Help”
• Proactive commitment to process
• Expectations – setting, continuously reaffirming, achieving, and “whole plus one”

Practice Management - Processes & Protocols

Processes that worked before may not support a practice serving wealthy clients.  Practitioners need to review and fine tune their processes and systems to support themselves and their team’s implementation, considering changes in technology.  It is even more critical to continue to include the other collaborative advisors in communications, being sensitive and respectful to each professional and his or her role.

In short, continue to enhance your protocols on how you and your team interact with clients and advisors.  Remember to work on, not in, your practice.

Case Studies – Review, Design, and Implementation

It is important to stay abreast of changes caused by new laws, economic conditions, financial products, and the impact of the media.  Even though counseling and practice management are stronger players in attracting and engaging families with taxable estates, financial, tax and legal competency is required to design and implement successful client strategies.  Through the technical and strategic training provided by The Laureate Program, we not only teach the “ins” and “outs” of stand-alone strategies but the more integrated strategies that should, or should not, be used together in the more hands on world of wealth strategies planning.

The art of working with affluent families is in the combining and layering of strategies that we have learned in order to accomplish our client’s deeper goals – identified through counseling. Laureate Program Members, through the Three Pillars of study and its members’ various professional experiences, continue to learn and practice to not only the variations of combining and layering complex strategies through case studies, but also ways to present these strategies to clients in an understandable fashion.

Enjoy Practicing Law – Join The Laureate Program today!

The Laureate Program facilitates discussions and provides process on how to counsel at a deeper level, manage our practices with more process, and to practice case studies that challenge ourselves, make more money, and appreciate what we do.  Collaboration is king! Join The Laureate Program to learn more about how working with affluent families can be profitable and pleasurable with the right team of advisors at the table.

The Laureate Center for Wealth Advisors provides cutting edge training from industry leaders in advanced wealth, business, estate, and income tax planning. This year’s three 3-day session starts May 10-12, 2012. Visit www.laureatecenter.com or call (858) 200-1919 for more information.

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Friday, April 06, 2012

TrustAdvisor.com: Does Hartford’s Annuities Exit Signal the End for Others?

Reposted from The Trust Advisor | By Scott Martin

Dumping $1.4 billion business underlines the extreme pressure some insurance carriers have been facing, but retirement income experts say the variable annuity market is simply shaking out a lot of second- and third-tier competitors. 

Annuities now account for the bulk of the Hartford Financial Services Group’s earnings, so the wealth management industry was stunned when the company unceremoniously pulled the plug on future sales and started winding down the business.  Hartford, of course, isn’t alone. Big names like ING, Sun Life and John Hancock have peppered the headlines over the last few months with similar announcements.

With all these names dropping out of the annuity business, advisors may be wondering what will be left on their retirement income shelf this time next year.

Turns out there will still be plenty of vendors happy to write this business — and there’s currently $240 billion of this business to write, according to the industry watchdogs at LIMRA, formerly known as the Life Insurance Marketing and Research Association.

Hartford was just a bit player anyway

Although Hartford’s decades of marketing have created huge brand recognition for its home and auto insurance lines, the company hadn’t been more than a niche player in the annuity business in a long time.

With “only” $1.4 billion in annuity sales, the company didn’t even make the Top 20 list of annuity vendors last year.

And given the infamously concentrated nature of the industry, you have to either go big or go home.

The ten biggest annuity carriers already write 61% of the total business. The next bracket is hanging onto another 18% share, leaving everyone else — including Hartford — to fight over the scraps.

So instead of Hartford being the canary singing about trouble brewing in the annuity coal mine, the real question is what that songbird was doing down there at all.

Analysts who follow the company are actually pretty pleased that this is happening.

“We think that this is the right decision for the company,” says John Nadel, who follows Hartford for Sterne Agee & Leach. “We applaud the actions.”

Not a bad business

The other annuity vendors departing the business were only marginally bigger players than Hartford, with only Sun Life even managing to capture a 1% share of the overall market.

If Sun Life couldn’t generate enough scale to keep selling new annuity contracts, everyone smaller — accounting for maybe $55 billion in annual sales — should definitely be thinking about their future.

Giants like MetLife, Prudential and Jackson National Life, on the other hand, are feeling no pain. Sales of variable annuities in particular soared 13% last year to a post-recession high, and these carriers have consolidated close to half of that high-margin business just between the three of them.

If anything, they’re even more eager to sell annuities than ever, given the way demand for these products spikes when the stock market looks rocky.

Jackson National, for example, was getting grief from its corporate parents last spring because its variable annuity business was so successful that it was crowding everything else off the map.

A year later, Jackson is still generating a staggering 64% profit margin on these products — sending a record $511 million back to corporate — and the executives have stopped complaining.

Scale is evidently the key here. Compare those huge margins to the money-losing proposition that a much smaller vendor like John Hancock was facing with its annuity business.

Between “volatile equity markets and the historically low interest rate environment,” Hancock restructured its annuity sales back in November.

Vendors like Hartford, crowded to the edges of the annuity industry, never quite recovered their balance after the 2008 market crash, when aggressive portfolio management imploded on carriers and sucked billions of dollars in capital off their books to pay promised benefits.

The leaders printed heavy losses too, but were big enough to survive. Smaller players are now acknowledging that they’ll never hit that scale.

Winding down contracts, not desperate for buyers

But since Hartford was earning relatively fat margins on its annuity sales, why dump that business?

Nadel thinks the big win for Hartford here is not so much in abandoning a profit center but in freeing up billions of dollars in capital currently tied up in the company’s life insurance contracts.

That money is better spent paying down debt and meeting the demands of activist shareholders like hedge fund king John Paulson, who owns 8.5% of the company.

Since the annuities ride alongside life insurance and Hartford’s retirement product sales, it doesn’t make much sense to keep them if those non-core businesses go on the chopping block, he says.

As it is, Hartford is perfectly happy to let its existing annuity contracts run down over the next decade or so — and the legacy book value there is worth about $10 billion.

Ironically, Paulson isn’t so cheerful, since he sees the company’s property insurance unit as the main problem.

And down on the street, annuity-focused advisors are actually booking strong sales and charging big commissions.

Just about all Americans are worried about protecting their retirement savings through volatile markets, and as LIMRA data points out, they’re as eager as ever to buy annuities and lock in at least part of their retirement income.

Annuities are even moving into retirement plan menus. For the victors, the spoils are going to get mighty sweet indeed.

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Source: trustadvisor.com

Friday, March 30, 2012

WSJ.com - Death Tax Defying: Estate Tax Repeal Gains Momentum in the States

While Washington continues to debate what to do with the federal death tax—the top rate is now 35% and is scheduled to rise to 55% next year—states are starting to recognize that their high estate taxes are a good way to chase away wealth producers.

Last year Ohio abolished its estate tax, joining the 28 other states that do not impose such a tax at death. Indiana's legislature recently passed by big margins a bill to phase out its death tax by 2021, and Governor Mitch Daniels signed it this week. Heated debates are going on in Tennessee and Nebraska over the issue. Even in Oregon taxpayer groups are attempting to put an initiative on the November ballot to abolish the death tax, and polls show it could win.

The left has long been flummoxed by polls showing that roughly two of three Americans want this tax abolished. Why would Americans oppose a tax that politicians say is aimed at the top 1%?

The answer is that Americans instinctively understand that the tax is unfair. It punishes a lifetime of thrift and investment solely due to the accident of death. And it does so in a way that imposes another tax on income that in most cases has already been taxed once, or sometimes twice.

A majority still believes that anyone can get rich in America, and that someday that could happen to them or to their children. They reject the idea that the government could then help itself to half their hard-earned fortune. All of this is to say that Americans generally view the death tax debate not in soak-the-rich terms, as the left does, but as a moral issue: Thou shalt not steal.

But even on purely economic grounds, death taxes are spectacular failures as revenue raisers or a tool of income redistribution. This is because the people who are subject to these taxes often move across state borders to avoid paying. They do this so they can pass businesses and property to their children and grandchildren.

People generally don't build up assets to leave them to the IRS. Certainly Warren Buffett doesn't, though he favors a punitive death-tax rate. He can afford to be generous with everyone else's money because he's created a charitable foundation that will let him avoid the tax.

A November 2011 study of tax return data by economists Arthur Laffer and Wayne Winegarden shows how people avoid state death taxes. The study compared Florida and Tennessee high-income returns. Both states have no income tax, but Tennessee is one of only two states that imposes an estate and a gift tax. (Connecticut is the other.)

The authors point out that this year there is a $5 million exemption on the federal estate tax and gift tax (a once-in-a-lifetime wealth transfer for the living), but in Tennessee the exemption is a meager $13,000 for estates and gifts. With a gift and death-tax rate that reaches 9.5%, a Tennessean with a $5 million estate would pay $462,000 more estate tax than someone living in the 29 states with no such tax, such as Florida. Tennessee is a very expensive state to die in.

The Tennessee tax really does cause the rich to flee. The authors found that in 2010 Florida had nearly twice as many federal tax returns with taxable estates (per 100,000 population) as did Tennessee. The average estate is also larger in Florida—$7.4 million versus $4.4 million in Tennessee.

Here's the kicker: Because wealthy people avoiding the estate tax take their businesses and spending with them, the study concludes that "had Tennessee eliminated its gift and estate tax 10 years ago, Tennessee's economy would have been over 14% larger in 2010." They also find the estate tax cost Tennessee state and local governments over $7 billion in tax collections. Could there be a more self-defeating tax?

The main obstacle to reform in Nashville is GOP Governor Bill Haslam, who earlier this year acknowledged damage from the tax, saying "There's a whole lot of people who used to live in Tennessee who don't anymore because it's cheaper to die in Florida." But he now says the state needs the revenues, however imaginary they might be. This mistaken logic is also being used to block repeal in Nebraska.

With Ohio and Indiana zeroing out their estate taxes and others likely to follow suit, the remaining high-rate states will have an increasingly hard time holding onto their mobile high-income citizens as they get older. Mr. Obama wants a 45% federal estate tax rate next year, which in many states would mean a more than 50% combined rate. That is not fairness. It is self-defeating confiscation.

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Source: WSJ.com

Thursday, March 29, 2012

Paul Hood on Wandry v. Commissioner: A Significant Taxpayer Win in another Defined Value Case

Reproduced with Permission by and Courtesy of Leimberg Information Services, Inc. (LISI) and L. Paul Hood, Jr..  For information about how to subscribe to LISI, click here.

"Congratulations to counsel to the taxpayers for a slam dunk taxpayer victory!  You should read this opinion.  It is an important extension of defined value gifts and proves that one doesn’t need a charitable or marital “wrapper” for these things to work properly as I have argued in published articles for almost ten years.  In my opinion, the bottom line is that properly designed and implemented defined value transfers are more legitimate now than ever before and should be accorded respect for tax purposes, and it is well past time for the IRS to accommodate them with formal guidance.  Given the significant string of defeats in these cases, it is time for the IRS to start getting hit with attorney’s fees under IRC Sec. 7430 for continuing this fight.”  The case of Wandry v. Commissioner represents another taxpayer win in a “defined value” case, and Paul Hood provides LISI members with his timely commentary on this hot-off-the-press decision that was released on Monday, March 26th.

L. Paul Hood, Jr. received his J.D. from Louisiana State University Law Center in 1986 and Master of Laws in Taxation from Georgetown University Law Center in 1988. Paul is a frequent speaker, is widely quoted and his articles have appeared in a number of publications, including BNA Tax Management Memorandum, CCH Journal of Practical Estate Planning, Estate Planning, Valuation Strategies, Digest of Federal Tax Articles, Loyola Law Review, Louisiana Bar Journal, Tax Ideas and Charitable Gift Planning News. Presently, He has spoken at programs sponsored by a number of law schools, including Duke, Georgetown, NYU, Tulane, Loyola (N.O.) and LSU, as well as many other professional organizations, including AICPA and NACVA. From 1996-2004, Paul served on the Louisiana Board of Tax Appeals, a three member board that has jurisdiction over all Louisiana state tax matters.

Before we get to Paul’s commentary, members should take note of the fact that a new 60-Second Planner was recently posted to the LISI homepage. In his PodCast, Bob Keebler provides members with his thoughts on the Wandry decision. You don't need any special equipment to listen, simply just click on this link. 

Now, here is Paul Hood’s commentary:

EXECUTIVE SUMMARY:

In this federal gift tax case, the Tax Court determined in a memorandum opinion that the taxpayers’ respective defined value gift clauses were enforceable under state law, were defined value gifts of LLC membership interests instead of gifts of percentage interests and were to be respected for federal gift tax purposes.

FACTS:

On January 1, 2004, Joanne and Dean executed separate assignments and memorandums of gifts (“gift documents”).  Each gift document provided:

I hereby assign and transfer as gifts, effective as of January 1, 2004, a sufficient number of my Units as a Member of Norseman Capital, LLC, a Colorado limited liability company, so that the fair market value of such Units for federal gift tax purposes shall be as follows:

Although the number of Units gifted is fixed on the date of the gift, that number is based on the fair market value of the gifted Units, which cannot be known on the date of the gift but must be determined after such date based on all relevant information as of that date.  Furthermore, the value determined is subject to challenge by the Internal Revenue Service (“IRS”).  I intend to have a good-faith determination of such value made by an independent third-party professional experienced in such matters and appropriately qualified to make such a determination. Nevertheless, if, after the number of gifted Units is determined based on such valuation, the IRS challenges such valuation and a final determination of a different value is made by the IRS or a court of law, the number of gifted Units shall be adjusted accordingly so that the value of the number of Units gifted to each person equals the amount set forth above, in the same manner as a federal estate tax formula marital deduction amount would be adjusted for a valuation redetermination by the IRS and/or a court of law. [emphasis added]

Corresponding timely adjustments were made to the capital accounts of the members.  The transfers were subsequently appraised by a qualified appraiser.  The transfers were fully disclosed with all of the documentation on the federal gift tax returns of Joanne and Dean.  There was a little discrepancy between the gifts as shown on the gift tax returns, which reflected gifts of interests worth a certain dollar amount, and the supporting schedules, which reflected gifts of percentage interests of 2.39% and .101%, respectively.

On audit of the federal gift tax return, the IRS argued for a higher unit value ($366,000 and $15,400, respectively) than that opined by the business appraiser.  Additionally, the IRS argued that the defined value gift clauses granted percentage gifts (2.39% and .101%, respectively) rather than defined value gifts ($261,000 and $11,000) because of the schedules to the gift tax returns.  The IRS also argued that the defined value gift clauses were unenforceable and violated public policy. 

Joanne and Dean obviously disagreed, and each filed a Tax Court petition.  Subsequently, the parties agreed that the values of the gifts were $315,800 and $13,346, respectively, which would require subsequent downward adjustments to the membership interests pursuant to the defined value gift clauses.

In the Tax Court, Judge Haines began with the gift description issue.  While the IRS cited Knight v. Comr. in support of its position on this issue, namely, that the schedules to the gift tax returns reflected what Joanne and Dean actually gave, Judge Haines distinguished Knight, noting:

Petitioners have not similarly opened the door to respondent’s argument. At all times petitioners understood, believed, and claimed that they gave gifts equal to $261,000 and $11,000 to each of their children and grandchildren, respectively. In Knight, the taxpayers’ gift tax returns did not report dollar value gifts. In the cases at hand, although respondent relies on the gift descriptions as the basis for the alleged admissions, petitioners’ gift tax returns were consistent with the gift documents. Petitioners’ gift tax returns reported gifts with a total value equal to $1,099,000, and the schedules supporting petitioners’ gift tax returns reported net transfers with a value of $261,000 and $11,000 to petitioners’ children and grandchildren, respectively. Petitioners’ C.P.A. merely derived the gift descriptions from petitioners’ net dollar value transfers and the [business appraiser] report.[Emphasis added]

Judge Haines then addressed the IRS argument, citing a Colorado (applicable law state) case, Thomas v. Thomas, that the capital account adjustments, rather than the gift documents, control and the former described percentage gifts.  Judge Haines disagreed with the IRS, noting:

Respondent’s reliance on Thomas is misplaced. Thomas is a case about whether and when a gift of corporate stock is complete, and it has no bearing on the nature of petitioners’ gifts. We do not find respondent’s argument to be persuasive. The facts and circumstances determine [the LLC’s] capital accounts, not the other way around. Book entries standing alone will not suffice to prove the existence of the facts recorded when other more persuasive evidence points to the contrary.

…

In fact, the Commissioner routinely challenges the accuracy of partnership capital accounts, resulting in reallocations that affect previous years. If the Commissioner is permitted to do so, it can be said that a capital account is always “tentative” until final adjudication or the passing of the appropriate period of limitations. Accordingly, [the LLC’s] capital accounts do not control the nature of petitioners’ gifts to the donees.

Even if we agreed with respondent’s capital accounts argument, respondent has failed to provide any credible evidence that the [LLC] capital accounts were adjusted to reflect the gift descriptions. The only evidence in the record of any adjustments to [the LLC’s] capital accounts in 2004 is the capital account ledger and the [LLC’s] members’ Schedules K-1, neither of which provides credible support to respondent’s argument. The capital account ledger is undated and handwritten. There is no indication that it represents [the LLC’s] official capital account records, and it does not reconcile with any of petitioners’ or respondent’s determinations. The capital account ledger is unofficial and unreliable. [emphasis added]

With respect to the argument of the IRS that Petter Est. was distinguishable, Judge Holmes also disagreed, noting:

Respondent argues that the cases at hand are distinguishable from Estate of Petter. Rather than transferring a fixed set of rights with an uncertain value, respondent argues that petitioners transferred an uncertain set of rights the value of which exceeded their Federal gift tax exclusions. Respondent further argues that the clauses at issue are void as savings clauses because they operate to “take property back” upon a condition subsequent.

Respondent does not interpret Estate of Petter properly.

Judge Haines then went on to analyze the subject case documents under the Petter Est. rationale and noted several key points.  First, he noted that the only unknown in the mix, i.e., the value of the LLC’s assets as of January 1, 2004, was a constant.  Second, both before and after the IRS audit, the donees were entitled to receive the same percentages of LLC interests because the gifts were “essentially expressed as a mathematical formula, as follows:

Value of gift to child = $261,000

FMV of LLC assets

Value of gift to grandchild = $11,000

FMV of LLC assets

After this analysis, Judge Haines concluded:

Absent the audit, the donees might never have received the proper [LLC] percentage interests they were entitled to, but that does not mean that parts of petitioners’ transfers were dependent upon an IRS audit. Rather, the audit merely ensured that petitioners’ children and grandchildren would receive the 1.98% and .083% [LLC] percentage interests they were always entitled to receive, respectively.

It is inconsequential that the adjustment clause reallocates membership units among petitioners and the donees rather than a charitable organization because the reallocations do not alter the transfers. On January 1, 2004, each donee was entitled to a predefined [LLC] percentage interest expressed through a formula. The gift documents do not allow for petitioners to “take property back”. Rather, the gift documents correct the allocation of LLC membership units among petitioners and the donees because the [business appraiser] report understated [the LLC’s] value.  The clauses at issue are valid formula clauses. [emphasis added]

Finally, with respect to the Procter public policy argument, Judge Haines also turned it back, expressly noting that “[t]he lack of charitable component in the cases at hand does not result in a ‘severe and immediate’ public policy concern.”

COMMENT:  

Congratulations to counsel to the taxpayers for a slam dunk taxpayer victory!  You should read this opinion.  It is an important extension of defined value gifts and proves that one doesn’t need a charitable or marital “wrapper” for these things to work properly as I have argued in published articles for almost ten years.

In my opinion, the bottom line is that properly designed and implemented defined value transfers are more legitimate now than ever before and should be accorded respect for tax purposes, and it is well past time for the IRS to accommodate them with formal guidance.  Given the significant string of defeats in these cases (conjuring up memories of the armies of certain unnamed allies who never win wars), it is time for the IRS to start getting hit with attorney’s fees under IRC Sec. 7430 for continuing this fight.

HOPE THIS HELPS YOU HELP OTHERS MAKE A POSITIVE DIFFERENCE!

CITE AS:  LISI Estate Planning Newsletter #1941 (March 27, 2012 at http://www.leimbergservices.com Copyright © 2012 L. Paul Hood. Reproduction in Any Form or Forwarding to Any Person Prohibited – Without Express Permission.

CITES: Wandry v. Comr., 2012-88; Petter v. Comr., T.C. Memo 2009-290, aff’d 643 F. 3d 1012 (9th Cir. 2011); Christiansen v. Comr., 130 T.C. No. 1 (2008), aff’d 586 F. 3d 1061 (8th Cir. 2009); McCord v. Comr., 120 T.C. 358, 364 (2003), rev’d 461 F.3d 614 (5th Cir. 2006); Comr. v. Procter, 142 F. 2d 824 (4th Cir. 1944); King v. U.S., 545 F. 2d 700 (10th Cir. 1976); Knight v. Comr., 115 T.C. 506 (2000); Ward v. Comr., 87 T.C. 78 (1986); Harwood v. Comr., 82 T.C. 239 (1984); Rev. Rul. 86-41; and Hood, Defined Value Gifts and Sales Under the Microscope: What’s Possible and What’s Not-Revisited, BNA Tax Management Estate, Gift and Trust Journal, July 11, 2011.

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Sources: Leimberg Information Services & L. Paul Hood, Jr., J.D.

Wednesday, March 28, 2012

4 Estate and Tax Planning Steps to Take in an Uncertain Year

Regardless of whether Congress acts on taxes by year-end, estate planning attorney John Scroggin says taxpayers shouldn't dally

Reposted from AdvisorOne.com | By Michael S. Fischer, AdvisorOne

Planners will not know before year-end what changes on the tax front are in the works for 2013, according to John Scroggin, a business, tax and estate planning attorney and a popular speaker at advisor conferences based in Roswell, Ga. A last-minute deal in a post-election lame duck session of Congress, similar to the one in 2010, is highly unlikely.

That means planning this year will have to take place in a vacuum, Scroggin told AdvisorOne in a recent phone interview.

Scroggin (right) said affluent people, defined as those with upward of $3 million in assets, should discuss with their advisors whether estate planning is necessary in 2012, and consult with a qualified expert in estate and income taxes before implementing any major tax planning this year. “Waiting to year-end is stupid in this environment,” he said.

Given the parlous planning environment this year, he offered the following suggestions:

1. The estate and gift tax exemptions drop from $5 million per taxpayer in 2012 to $1 million in 2013. People with estates above $5 million to $10 million should consider making significant gifts in 2012 in order to reduce the future estate tax cost of bequests when the exemption is lower and the tax rate is higher. Although Congress may increase the exemptions in 2013, there is no assurance that will happen and if it does happen what the exemptions will be. Effectively, you will be forced to “plan for the worst and hope for the best,” he said.
2. The federal dividend rate of 15% will expire at year-end. Anyone holding significant cash in a C-Corporation should consider taking a dividend of the cash out before year-end. If needed, the funds could be loaned back to the C-Corporation.
3. The federal capital gain rate increases from 15% to 20% in 2013. If you are anticipating an imminent capital gain transaction, consider completing the transaction before year-end. If a transaction in 2012 has any deferred payments, consider assuming the entire tax burden in 2012, rather than opting to pay taxes as the funds are received.
4. A client whose longevity beyond 2012 is in question (because of terminal illness or old age, for example) should consider having a general power of attorney in place, with the power holder having broad authority to make gifts and/or advance bequests.

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Yesterday, we held a teleconference with estate planning attorney and CPA, Martin M. Shenkman on the topic of, "Recent Developments in Estate Planning: Special Traps and Tips to Avoid Them".  According to attendees, this was an excellent program to cover a variety of tax planning ideas for this year.  You can still purchase the handout materials and the audio recording to this program. 

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Friday, March 23, 2012

Steve Oshins on Weddell v. H20, Inc: Nevada Supreme Court Affirms Creditor Protection Benefits of Nevada LLCs

Reproduced with Permission by and Courtesy of Leimberg Information Services, Inc. (LISI).  For information about how to subscribe to LISI, click here.

“Prohibiting the creditor from exercising the debtor’s management rights reflects the principle that LLC members should be able to choose those members with whom they associate.  Thus, the historical rationale for charging order protection was to protect the other members of an LLC where one member has a personal creditor problem. 

However, as asset protection planning has evolved and the competition among the states to have the most protective asset protection laws has intensified, the asset protection planners now have the ability to use charging order protected entities to protect their clients’ assets from potential creditors.  This tool is so easy, yet it is extremely underused by estate planners who at a minimum should be integrating this form of asset protection planning into their repertoire.” 

We close this week with Steve Oshins’ observations on the “hot off the press” case of Weddell vs. H2O, Inc., an opinion issued by the Supreme Court of Nevada on March 1, 2012.  As Steve points out in his commentary, this case illustrates the creditor protection benefits of using a Nevada LLC.

Steven J. Oshins, Esq., AEP (Distinguished) is a member of the Law Offices of Oshins & Associates, LLC in Las Vegas, Nevada.  Steve is a nationally known attorney who is listed in The Best Lawyers in America® and has been named one of the Top 100 Attorneys in Worth magazine.  He was inducted into the NAEPC Estate Planning Hall of Fame® in 2011.  He has written some of Nevada's most important estate planning and creditor protection laws, including the law making the charging order the exclusive remedy of a judgment creditor of a Nevada LLC and LP (in 2001, 2003 and 2011), the law changing the Nevada rule against perpetuities to 365 years (in 2005) and the law making Nevada the first and only state to allow a Restricted LLC and a Restricted LP creating larger valuation discounts than any other state allows (in 2009).  He is also the author of the Annual Domestic Asset Protection Rankings Chart, which can be downloaded on our website under our Free Resources.  Steve can be reached at 702-341-6000, x2 or at soshins@oshins.com.  His law firm's web site is http://www.oshins.com. 

Here is Steve’s commentary:

FACTS:

Between 2000 and 2007, Michael B. Stewart and Rolland P. Weddell entered into a business relationship concerning a number of different projects, ranging from garlic farming to geothermal energy. Several disputes arose between the two parties, ultimately leading to the collapse of their business relationship. Upon the relationship's demise, Weddell filed a complaint asserting numerous claims against Stewart. Stewart also filed a complaint and asserted numerous counterclaims. After a four-day bench trial, the district court found in Stewart's favor on all counts. Weddell appealed the decision.

Stewart and Weddell both owned percentages of Granite Investment Group, LLC (“Granite”) and High Rock Holding, LLC (“High Rock”).  In October 2008, in an unrelated matter, the district court granted an application by a creditor to charge Weddell's membership interest in Granite and High Rock, among other Weddell entities, for over $6 million. Pursuant to NRS 86.401.2, the charging order issued by the court entitled the creditor to any and all disbursements and distributions, including interest, and all other rights of an assignee of the membership interest.

Creditor’s Rights under Charging Order

The primary issue in the case was whether the judgment creditor receives any rights to participate in the management of a Nevada LLC upon receiving a charging order over the debtor’s membership interest.  The district court had ruled that the charging order against Weddell's membership interests in Granite not only gave the judgment creditor Weddell’s economic rights over the membership interest, but also his managerial rights.

The collection rights and remedies against a member's interest in a Nevada limited liability company are governed by NRS 86.401. This provision recognizes the charging order as a remedy by which a judgment creditor of a member can seek satisfaction by petitioning a court to charge the member's interest with the amount of the judgment.  A charging order directs the LLC to make distributions to the creditor that it would have made to the member.  As a result, a charging order affects only the debtor's membership interest and does not permit a creditor to reach the LLC assets.

Consequently, the judgment creditor does not step into the shoes of the member.  The judgment creditor only receives the rights of an assignee of the member's interest.  A judgment creditor, or assignee, is only entitled to the judgment debtor's share of the profit and distributions, takes no interest in the LLC's assets, and is not entitled to participate in the management or administration of the business. 

After the entry of a charging order, the debtor member no longer has the right to future LLC distributions to the extent of the charging order, but retains all other rights that the debtor had before the execution of the charging order, including managerial interests. The Supreme Court of Nevada reversed the district court's judgment relating to the scope of the charging order against Weddell's membership interests.  The Supreme Court ruled that the charging order only divested Weddell of his economic opportunity to obtain profits and distributions from Granite, not his managerial rights.

COMMENT:

It is no surprise that the Supreme Court of Nevada reversed the district court on the issue of the extent of the rights the holder of a charging order has with respect to the LLC.  This decision is in line with decisions in other charging order cases.

This case was decided under the Nevada charging order laws that were modified in the 2003 legislative session and did not include the substantial enhancements made in the 2011 legislative session.  See Steve Leimberg's Asset Protection Planning Email Newsletter - Archive Message #180.  The 2003 version of Nevada’s charging order laws specifically made the charging order the exclusive remedy of a judgment creditor.  However, there were no provisions disallowing the judge from issuing an equitable remedy to find a way around the exclusive remedy language.

For example, the judge could have used one of a number of potential equitable remedies, including the constructive trust theory, the resulting trust theory, the alter ego theory or the reverse veil-piercing theory as a way around the statutory provisions.  Maybe none of these potential theories were raised by the attorney for the holder of the charging order or maybe the judge determined that it wasn’t appropriate to go beyond the charging order remedy.

The 2011 legislative changes to Nevada’s charging order laws specifically disallow the issuance of any equitable remedies.  Therefore, in future litigation, members of Nevada LLCs will be even more protected than the degree of protection provided by pre-2011 laws. 

Planning Opportunities

Prohibiting the creditor from exercising the debtor’s management rights reflects the principle that LLC members should be able to choose those members with whom they associate.  Thus, the historical rationale for charging order protection was to protect the other members of an LLC where one member has a personal creditor problem.

As asset protection planning has evolved and the competition among the states to have the most protective asset protection laws has intensified, the asset protection planners now have the ability to use charging order protected entities to protect their clients’ assets from potential creditors.  This tool is so easy, yet it is extremely underused by estate planners who at a minimum should be integrating this form of asset protection planning into their repertoire. 

By itself, a charging order protected entity almost always causes a creditor to settle a dispute for less than the amount that the creditor would be able to reach if the charging order protected entity did not exist.  This is why there are relatively few published charging order cases in comparison to the endless number of litigation cases filed each year.  So, at a bare minimum, an LLC (or LP) should be used for almost every client who has sufficient at-risk assets to substantiate the cost of forming and maintaining an LLC (or LP).

Taking this a step further, when the charging order protected entity is combined with an asset protection trust, the odds are even more stacked against a potential creditor from the creditor’s perspective.  Thus, there are even fewer published cases involving asset protection trusts.  The more roadblocks the planner can include, the more frustrated a potential creditor will get and the better the negotiation will tilt in favour of our debtor clients.

HOPE THIS HELPS YOU HELP OTHERS MAKE A POSITIVE DIFFERENCE!

TECHNICAL EDITOR: DUNCAN OSBORNE

CITE AS: LISI Asset Protection Planning Newsletter #196 (March 22, 2012) at http://www.leimbergservices.com  Copyright 2012 Leimberg Information Services, Inc. (LISI). Reproduction in Any Form or Forwarding to Any Person Prohibited – Without Express Permission. 

CITES: Weddell v. H2O, Inc., 128 Nev.Adv.Op. #9 (Nev., Mar. 1, 2012); NRS 86.401

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Sources: Leimberg Information Services & Steven J. Oshins, Esq.

Wednesday, March 21, 2012

Polls: Current Financial Concerns Trump Planning for Retirement

Reposted from RegisteredRep.com | By Jerry Gleeson

inancial advisors and RIAs may have more handholding to do with clients. The glum outlook for American retirement appeared little improved with the release this week of two separate reports that showed continued worker skepticism about their prospects.

In its annual survey on the state of retirement, the Employee Benefit Research Institute said the percentage of workers who feel confident about having enough money for a secure retirement is at just 14 percent, statistically unchanged from a year ago.

It remains at the lowest level since EBRI began its annual survey 22 years ago. It also showed that just 21 percent of workers were getting advice from an FA, down from 33 percent two years ago.

Meanwhile, the Certified Financial Planner Board of Standards reported poll results that found 49 percent of respondents were worried about their retirement savings, and 44 percent don’t feel any better about their financial security than they did a year ago.

It wasn’t all gloom. EBRI found that 81 percent of eligible workers are contributing to workplace retirement plans, a figure that has remained relatively stable over the past three years. And the CFP poll found solid optimism among respondents about their financial shape in the months to come—51 percent were “more positive” about their financial situation a year from now, while just 9 percent were “more negative.”

Stronger optimism could support the economic recovery, CFP Chief Executive Kevin Keller said. Concern about their current financial conditions appeared uppermost in the minds of the respondents in the two polls.

“Retirement is not Americans’ major concern. Right now job security and financial security are,” Jack VanDerhei, EBRI’s research director, said during a conference call with reporters this week. “Many workers report they have virtually no savings and investments.”

Indeed, 58 percent of workers with less than $35,000 in income report having less than $1,000 in savings. The percentage of workers who feel they are on track with their retirement savings is just 31 percent, down from 44 percent in 2005.

“Workers are falling further behind, and they know it,” said Mathew Greenwald, co-author of the report.

Scott Mings, associate vice president of Hensley & Mings, a Raymond James & Associates practice in Greenwood, Ind., said he was surprised at the dropoff in Americans using FAs. He said he doesn’t get a lot of pushback on the fees he charges, although questions about fees tend to come up more often during tougher economies.

And more people are investing on their own, he added, spurred on by marketing campaigns by large on-line brokerages that encourage a do-it-yourself approach.

“The market’s going to have to show people some positive returns. Quite frankly, there hasn’t been a lot of added value from advisors on 401(k)s; maybe that’s a reason for a little bit of the dropoff,” Mings said. “If you’re getting advice but your accounts aren’t growing, then what’s the value of the advice?”

EBRI’s finding that 81 percent of eligible workers are contributing to workplace retirement plans bodes well for both investors and advisors; 64 percent of those who contribute to such plans say they are “very” or “somewhat” confident that they will have enough to retire comfortably on, while just 48 percent of those who don’t contribute to such plans feel that way.

The workplace is a good place for advisors to grab a larger share of the market, Greenwald said, as plan sponsors seek ways to help their employees manage money in 401(k) and other plans.

“I think that’s a natural,” he said. “I think there’s various ways a lot of people are going to step up to the plate and try to get more involved in managing money in retirement…It’s just a question of how it’s going to get done. I think we’ll see a lot of experimentation and a lot of success in that area.”

EBRI surveyed more than 1,200 workers and retirees by telephone in January. The CFP telephone survey polled 1,000 Americans across broad income ranges on March 1-4.

Pessimism about economic prospects abounded in the EBRI report. Just 16 percent of workers and 11 percent of retirees were “very confident” that their investments would grow in value; 8 percent of workers and 10 percent of retirees said they were “very confident” that the economy would grow an average of at least 3 percent a year over the next 10 years.

To offset reduced retirement savings, many workers are resigned to postponing retirement and working longer. EBRI noted that workers who expect to retire at age 70 or older has risen from 12 percent in 2002 to 26 percent this year.

But it may not be an option for many, EBRI warns. While 70 percent of workers expect to work for pay in their retirement years, just 27 percent of retirees report actually doing so. Greenwald said many workers underestimate their prospects for this period.

“In many occupations it’s difficult to get the job done as people get into their 60s,” he said. “So the plan to work longer is positive in some respects but risky in other respects.”

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Source: RegisteredRep.com

Wednesday, March 21, 2012

The Drama of Whitney Houston’s Estate Continues to Unfold

Greatest Love of All
Reposted from Trust & Estates | By Michael K. Kirsch

Ever since Whitney Houston’s death on Feb. 11 at age 48, rumors have been circulating about her estate. Would her ex-husband, Bobby Brown, seek to gain control of the money? Did Whitney protect her daughter, Bobbi Kristina, with a trust, or will everything be paid to her at once, since she is 18?

Life Insurance Lawsuit
We know that shortly before her death, Whitney won a court case brought by her stepmother over a $1 million life insurance policy that John Houston, Whitney’s father, had left to Whitney. Barbara Houston, her stepmother, said the policy was supposed to pay off the money that Whitney’s father and stepmother borrowed from Whitney to buy their New Jersey condo. Whitney held a private mortgage on the condo.

Barbara sued after Whitney refused to credit the life insurance money against the mortgage. In December, eight years after John died, an appeals court judge ruled in Whitney’s favor because Barbara didn’t have any documents to prove the insurance policy was meant to cover only the mortgage loan. As the judge noted, its impossible to legally determine what the deceased would have wanted, beyond what’s spelled out in the documents. Had John’s attorneys set up a trust to accept the life insurance proceeds and use them to pay off the loan, his wishes would have been clear, and none of the ensuing legal in-fighting would have been necessary.

Assets in Estate
How much was Whitney worth? Some have speculated that Whitney’s estate will be worth between $10 and $20 million. Others claim she was broke. Back in 2001, she signed the biggest record deal in history, for six albums and $100 million in guaranteed royalties. She died owing Arista three records, so a big chunk of that $100 million could be lost. Regardless of its current value, Whitney’s estate is expected to benefit from the boost in sales since her death. Her estate reportedly has made $700,000 in royalty payments since her death. In August 2012, a movie she did with Jordan Sparks called “Sparkle” will be released. She also owned a home in New Jersey, once worth $6 million, but recently listed for under $2 million.

The Will
As it turns out, Whitney had a will, which was executed on Feb. 3, 1993. The 19-page will names her only child, Bobbi Kristina, as the primary beneficiary. According to the terms of the will, the assets will be placed in a trust with one-tenth of the principal paid to her at age 21, one-sixth at age 25 and the remaining balance at age 30. A codicil to the will dated April 14, 2000, appointed Whitney’s mother, Cissy Houston, as executor and her brother and sister-in-law, Michael and Donna Houston, as trustees. Reportedly, Bobbi Kristina has been struggling with substance abuse issues for years, much like her mother did.

Distributions made outright to a client’s heirs have no protection from the variety of risks to which personally held assets are exposed. Once distributed, the heirs can use those assets as they choose and the assets can be subject to their creditor’s claims. However, bequests that are kept in trust for the benefit of the heirs enjoy protection from creditors, predators (including ex-spouses), irresponsible spending and future estate taxes.

Whitney’s death serves as a reminder to estate planning professionals to make sure their client’s estate plan includes more than a simple will and that they update documents every few years. For the majority of clients with even a modest amount of assets, a will isn’t enough. A properly funded trust, with detailed distribution provisions specifically tailored for your client’s beneficiaries and based on your client’s wishes, is the best way to protect your client’s loved ones.

Celebrities are, for the most part, very difficult clients to deal with when it comes to estate planning. They’re used to having things done for them, and they would rather not deal with all of the issues involved. Many celebrities start the planning process, but never actually finalize it. A number of music/sports stars have died without completing a will. That list includes Sonny Bono, John Denver, Jimi Hendrix and Steve McNair.

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This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Source: trustandestates.com
Photo Credit: cmgworldwide.com

Friday, March 16, 2012

Leimberg Information Services: 60-Second Planner on Fifth Circuit Affirms Chilton on Inherited IRAs

Reproduced with Permission by and Courtesy of Leimberg Information Services, Inc. (LISI).  For information about how to subscribe to LISI, click here.

Nationally renowned CPA, Robert S. Keebler, recently produced an audio recording for Leimberg Information Services on the court ruling in the Chilton case pertaining to Inherited IRAs.  CLICK HERE TO LISTEN TO THE LEIMBERG 60-SECOND PLANNER RECORDING

Special thanks to Robert S. Keebler and Stephan Leimberg for sharing this valuable information!

Additionally, Robert Keebler is gearing up for his upcoming Learn it Live 2-day IRA seminar in Green Bay, Wisconsin on May 14-15, 2012 and just announced a June seminar to take place in Minneapolis. The Minneapolis seminar will be held June 20-21, 2012. This 2-day seminar for lawyers, CPAs and financial advisors is titled: "What the Lawyer, CPA and Financial Advisor Need to Know about Sophisticated Planning and Drafting for IRA & Qualified Plan Distributions Including How to Plan with a $5,120,000 Exemption." The seminar provides extensive coverage regarding planning with retirement accounts including: Estate planning for IRAs with a $5,120,000 exemption, the Pension Protection Act, the IRA Regulations, pre-retirement issues, required beginning date issues, the inherited IRA, the minimum distribution rules, spousal rollovers, QTIPing an IRA, charitable bequest planning, beneficiary designation planning, retirement plans payable to trusts, Roth IRA issues, distribution of employer securities, insurance strategies and new, innovative planning strategies.   For more information and to register...

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Sources: Leimberg Information Services, Inc. & Robert S. Keebler, CPA, MST, AEP

Thursday, March 08, 2012

Tax Expert Marty Shenkman: Two Tax Mistakes to Avoid With Clients in 2012

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Marty Shenkman is a speaker for several teleconferences for The Ultimate Estate Planner, Inc., including 2 programs coming up this month.  The first is on Wednesday, March 14th at 9am Pacific Time on the topic of, "Gift Tax Returns: Traps & Tips for Practitioners Heading Into Filing Season".  The second is on Tuesday, March 27th at 9am Pacific Time and is on the topic, "Recent Developments in Estate Planning: Special Traps and Tips to Avoid Them".

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Thursday, March 08, 2012

MainStreet.com: The Top 15 Richest Counties in America

Much to the pleasure of our Maryland-native Event Coordinator, Megan DeLaGarza, and the many other estate planning professionals based out of the Northeast, we are pleased to repost this article we found on MainStreet.com with the Top 15 Richest Counties in America.  Are any of you planning in these counties?  If not, you should be!  Happy Estate (and Financial) Planning!

The Richest Counties in America
by Kali Geldis

Where the 1% Live
While many Americans struggle to find jobs, balance their budget and get by with less, some folks are still living high on the hog.

Looking at the most recent Census Bureau data from 2010, we chose the 15 counties in the U.S. with the highest median household income. With three counties exceeding the $100,000 mark, life seems pretty good in these areas, even as the U.S. median household income declined 2.3% from 2009 to 2010. Still, the following 15 richest counties still have a median income that is about double the national average of $49,445.

Read on to see if your county made the list.

• 15th Richest: Charles County, Md.
  Median Household Income: $87,007
  The first of five Maryland counties to make our list, Charles saw a population burst of 21.6% in the first decade of the 21st century.  With Maryland taking up a full third of our list, it’s important to note that this state’s residents took the sixth spot in our ranking of the most generous states in the U.S.

• 14th Richest: St. Mary's County, Md.
  Median Household Income: $88,444
  The median household income in St. Mary’s sky-rocketed from about $72,000 in 2009 to more than $88,000 in 2010, the biggest percentage increase (roughly 22%) on our richest counties list. This beautiful county lies on the Chesapeake Bay across from Virginia, and is home to the Lexington Park neighborhood as well as a state park and a regional airport.

• 13th Richest: Calvert County, Md.
  Median Household Income: $88,862
  Calvert lies just across the Patuxent River from St. Mary’s County, which holds the 14th spot on our list. The median household income in this county didn’t see the same boom that St. Mary’s saw year over year, though. Its income remained essentially flat, decreasing less than 1% from 2009. Veterans make up roughly 10% of the population, according to the most recent census data.

• 12th Richest: Montgomery County, Md.
  Median Household Income: $89,155
  With almost 1 million residents, Montgomery is one of the largest counties on our list. It’s no surprise that this county is so large, since it’s situated just north of Washington, D.C. and only an hour from Baltimore.  More than half of the county’s population has a bachelor’s degree or higher and the home values in this area are astounding. The median value of owner-occupied homes was $482,900 from 2006-2010.

• 11th Richest: Nassau County, N.Y.
  Median Household Income: $91,104
  Just a hop, skip and a subway ride from Manhattan, Nassau County contains a large chunk of Long Island and Long Beach. The only New York county to make the list, this area has an extremely low poverty rate, with only 5% of residents living below the poverty line. But what really sets Nassau apart is its diversity, with 20.7% of foreign-born residents and 27.3% of its residents speaking a language other than English at home.

• 10th Richest: Morris County, N.J.
  Median Household Income: $91,469
  Morris just barely snuck into the top 10 richest counties after its median household income fell by roughly $3,000 from 2009. The county’s residents are less than an hour from Manhattan, and the area includes several lakes and state parks. Golfing is big in Morris county, with about 20 places to tee off.

• 9th Richest: Prince William County, Va.
  Median Household Income: $92,655
  Not to be outdone, Virginia matches Maryland with the most counties on our list. Prince William has seen its median household income increase from 2009, even as the national average declined. Prince William is situated outside of Washington, D.C., just like several other on the list. What makes it stand out from the rest though is the 43.2% population boom it has seen in the past decade.  The area is home to many historical sites, including the Manassas National Battlefield Park, where two Civil War battles took place.

• 8th Richest: Somerset County, N.J.
  Median Household Income: $94,270
  With one of the most prestigious colleges in the country just outside the county line (Princeton University), it’s no surprise that the education levels of Somerset County’s residents are very high. Almost 93% of residents have a high school diploma and roughly 50% have a bachelor’s degree or higher.

• 7th Richest: Stafford County, Va.
  Median Household Income: $94,317
  With just 128,961 residents, Stafford County is one of the smallest population areas on our list, but what it lacks in size it makes up for in jobs. The county’s unemployment rate is just less than 5%, much better than the current national average of 8.3%. The wealth of jobs must put residents in the giving mood, since the state of Virginia also came in at the third spot on our list of the most generous states in the U.S.

• 6th Richest: Douglas County, Colo.
  Median Household Income: $94,909
  The only Colorado county and the only county west of the Mississippi to make our list, there’s something special about Douglas. The large youth population (30.5% of residents are under the age of 18) suggests that the county is a good place for families. Lying just outside of Denver, residents only need to travel up I-25 to get to the Mile High City. The rural beauty must attract residents, as there are only 339.7 people per square mile and the population has seen a 62.4% increase from 2000-2010.

• 5th Richest: Arlington County, Va.
  Median Household Income: $94,986
  Living in Arlington isn’t cheap, so you’d better be making at least the median household income to live in this county that sits just outside of Washington, D.C.  Arlington may not be the richest, but it does set a record for real estate values. The median value of owner-occupied homes in Arlington county is $571,700 – almost $70,000 more than any other county on our list. This county also stands out as the most educated on our list – 70.1% of residents hold a bachelor’s degree or higher.

• 4th Richest: Hunterdon County, N.J.
  Median Household Income: $97,874
  The richest county in New Jersey, Hunterdon just missed the six-figure mark in median household income. Located just west of Somerset County, which took the 8th-richest county spot, Hunterdon’s income has actually crossed the $100,000 mark before.  While some might assume that Hunterdon’s residents make high salaries by commuting to New York City, where salaries are higher than the national average, the truth is that almost 94% of residents stay in-state for work. In fact, more residents commute to Pennsylvania for work than New York.

• 3rd Richest: Howard County, Md.
  Median Household Income: $101,771
  With an astounding 58.3% of residents holding a bachelor’s degree or higher, Howard County shows that higher education can pay. One of only three counties that have a six-figure median household income in the U.S., Howard is located between Baltimore and Washington, D.C., attracting the extremely affluent. The median value of owner-occupied homes in the county is $456,200.

• 2nd Richest: Fairfax County, Va.
  Median Household Income: $103,010 
  Fairfax County is one of the largest counties in terms of population to make our list (1,081,726 residents in 2010), but it is also notable for its real estate. Fairfax is one of only two counties on our list to break the half-million mark in home values. Coming in at $507,800 for the median value of owner-occupied homes, the county truly has some spectacular real estate.  Government buffs will be excited to learn that Langley (headquarters of the CIA) is within the county line, so government employees must be making a decent amount of money these days. Also, the unemployment rate in the county has been astoundingly low historically, hitting 1.4% in 1999.

• The Richest County in America: Loudoun County, Va.
  Median Household Income: $119,540
  With a median household income that is a full $16,000 higher than our second-place finisher, Loudoun county has trounced the competition on its way to becoming the richest county in America. Another county surrounding our nation’s capital, Loudoun borders both West Virginia and Maryland and is the home to Washington Dulles International Airport. The Appalachian Trail runs along its western border and the area was largely an agricultural community until the airport was built in the 1960s.  The population has continued to increase since then, with the area nearly doubling in population size from 2000 to 2010. The poverty rate is also at an incredibly low 3.2%.

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

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Friday, March 02, 2012

Senate Highway Bill S.2132 Brings Back Mandated 5-Year Rule for Payout of Inherited IRAs

A special thanks to Robert Keebler of Keebler & Associates, LLP for bringing to our attention the Senate Highway Bill S.2132, which brings back the mandated 5-year rule for Inherited IRAs (with some exceptions).  This obviously has a lot of estate planning professionals on edge to see what's going to happen with respect to retirement benefit planning for clients this year and beyond.  The entire Bill can be found on the Library of Congress' website.  To view S.2132, click here.

Robert Keebler has a phone call into Senator Baucus' office to confirm and will be posting more updates in the future as we eagerly await news on this Bill.

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

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Friday, March 02, 2012

22 Days of Tax Planning Advice: What I Do in My Practice, Pt. 1

Reposted from AdvisorOne.com | By Mike Patton

This is the first in a series of blog postings from advisor Mike Patton on how he works with clients during tax season and throughout the year to maximize his value to clients when it comes to tax planning.

As we approach tax return filing time, there are opportunities for advisors to add value, even if you’re not your client’s tax preparer. In this post, the first in a series of blogs, I'd like to share what I am doing during this season for my clients. 

Fact-Checking 1099s
Clients should have received their 1099s by now. Although most will contain all of the necessary data, believe it or not, there are a few firms that do not include the cost basis for securities sold. In fact, the custodian that I use 'had' a relationship with one such clearing firm. This firm, which shall remain unnamed, showed the gross proceeds, but not the basis. To remedy this, I export the 'gains and losses' for the calendar year into an Excel spreadsheet. Then I would send this to the client’s tax preparer. Because it was in Excel, it can easily be sorted by capital gain treatment, position, etc.

Asking for Clients' Returns
I sent out an email to all financial planning clients recently requesting a copy of their 2010 tax return and their 2011 return when completed. In an effort to become more involved in this area, and to assist in identifying errors and ways to save, clients were very appreciative. After all, to maximize cash flow, you must either increase income or reduce expenses, or both. And the more free cash flow, the greater the potential for wealth accumulation.

As an example of how having returns benefits clients, one of the returns I reviewed recently was from an elderly couple who had been using the same preparer for decades. The problem was that this particular preparer had made numerous errors on their return. Although I do not prepare returns, and have no plans to do so, I can help identify issues which need addressing. In this case, I referred the client to a CPA who filed an amended return for the year in question. The result? The client saw the benefit I brought to the table. And after all, that's what it's all about! 

Making Tax-Smart Use of My CMS
I just completed a revision of my contact management system. The update included adding fields which will increase my ability to effectively communicate with clients. For example, I added the fields, "taxable" and "tax deferred." Then I created a query so I can filter clients with taxable or tax deferred accounts. To those with taxable accounts, I can send communications geared to tax issues and for tax deferred accounts, I can suggest that they make a contribution to their IRA for 2011. Of course, I would include the parameters whereby they can make a contribution such as having earned income. 

There are many sometimes overlooked steps we can take as advisors to become more involved and add value for our clients when it comes to issues revolving around taxes. These are only a few. Perhaps you'd like to share some of your ideas?

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

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Wednesday, February 29, 2012

February 29th: Fun Facts About Leap Day

Today is February 29th, 2012.  LEAP DAY!  We thought that it'd be fun to share some fun facts about Leap Day with all of you, thanks to this entry on Yahoo! Work + Money. Enjoy!

2012 is a leap year, meaning that February, the shortest month, has an extra day, bringing the year to 366 days. This notable event comes only every four years. Which means you have an extra 24 hours. So what will you do with yourself? How about heading to Disneyland for 24 hours straight, catching a movie, or spending the day skiing?

Lookups on the Web are taking a leap, including "leap day activities," along with the quadrennial questions: "what is leap year," "why is there a leap year" and "history of leap year." Here, your guide to the day.

When is it? An extra day is added to the month of February every four years. This year, Leap Day is on Wednesday, February 29.

Why we need Leap Day: Usually, our year is 365 days long. Except that it's not: A full cycle of seasons is actually 365 days, 5 hours, 49 minutes, and 16 seconds long, or about 365.25 days. Over time, the extra quarter of a day adds up, and without Leap Day, the calendar would be one day out of sync with the seasons. After 30 years, it would be about a week off, and after 100 years, it would be nearly a month off.

Bing Quock, the assistant director of Morrison Planetarium at the California Academy of Sciences, explains, "Leap Day is added as a correction to the calendar so that it stays in sync with the seasons ... that way, the seasons start on the same day from year to year to year."

The history of Leap Year: Leap Year has been around for 2,000 years, since Julius Caesar created the 365-day calendar, although Caesar's astronomer, Sosigenes, get s credit for adding an extra day in February every four years.

How to celebrate: Fans of Disney parks will be lining up to take advantage of "One More Disney Day" at Disneyland in California and at Magic Kingdom in Florida, which will be open for 24 hours, from February 29 at 6 a.m. until 6 a.m. March 1. Michele Himmelberg, a spokesperson for Disney, said it's the first time in recent memory that theme parks on both coasts will be open to mark the quadrennial event. She confirmed the rides will run all night. Hey, come in your PJs.

Leap Year babies probably have the biggest reason to rejoice -- since they see their birthdate only once every four years. Yahoo! searches are in a festive mood with lookups on "leap year birthdays," "leap year birthday cards," and "leap year party ideas." Good news for ski bums born on February 29: Show your Leap Year birthday date and get a free stay at Mammoth ski resorts.

If you prefer to mark the extra day on your couch, there's always "Leap Day," the movie. The 2010 romantic comedy stars Amy Adams and is based on an Irish tradition that a man must say yes to a woman who proposes to him on Leap Day. Some NBC shows have already run their Leap Day-themed episodes, which included "30 Rock's" alternative-universe idea that Leap Day is celebrated like an actual holiday and even has a mascot, "Leap Day William" (Jim Carrey), who stars in a "Groundhog Day"-type movie with Andie MacDowell. Its message: Take a leap.

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This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Source: Yahoo! Work + Money Blog by Claudine Zap
Photo Credit: ABCnews.com

Monday, February 27, 2012

Adopt Your Girlfriend as Your Daughter Asset Protection Plan Shocks Planning Community

Reposted from The Trust Advisor | By Scott Martin

Estate planners call “Adopt Your Girlfriend as Your Daughter” strategy to shield John Goodman’s assets from creditors bizarre. His lawyers say they have lost confidence in Bessemer Trust’s ability  to manage Goodman’s children’s money after the girlfriend-daughter was added as a trust beneficiary. Others say that relationship now legally amounts to incest.

Depending on who you talk to, Palm Beach air conditioner tycoon John Goodman was either brilliantly expanding the frontier of traditional estate planning or hastening the end of western civilization when he adopted his 42-year-old girlfriend as his daughter and heir.

A dig into the details shows that while the move was way outside the box, it represents a remarkable response to a difficult and arguably unique situation.

Goodman is already facing 2010 drunk driving manslaughter charges that could put him away for the next three decades, so in that respect he’s past trying to protect his public image.

But with the court talking about starting the trial in the immediate future, his lawyers shifted to locking down his more tangible interests, including support for his girlfriend and control of a family trust reportedly worth $300 million.

After all, if the trial goes badly, his time as a free man will be extremely limited.

“It should be obvious to everyone that at the present time Mr. Goodman’s continued availability to ensure that the trust’s assets grow and continue to provide benefits for his children is uncertain,” explains Daniel Bachi of West Palm Beach law firm Sellars, Marion & Bachi.

Cutting through the hype

When the media heard that the lawyers had decided to have Goodman adopt romantic companion Heather Hutchins — barely six years younger than he is — it unleashed a frenzy of misconceptions about how trusts actually work.

For one thing, Goodman is not trying to hide his money from the parents of the young man whose car he hit two years ago.

The assets in the trust were transferred in 1991, so the notion that Goodman was trying defraud a civil suit 20 years down the road is vanishingly remote.

In any event, while the trust is currently run under Delaware law, it’s not an “asset protection” trust in any way, shape or form. Goodman is not a beneficiary or the trustee, so he has neither ownership nor control.

He’s signed affidavits to that effect.

The bottom line here is that naming Hutchins as his third “child” doesn’t add a layer of protection from lawsuits — it’s not Goodman’s money any more and hasn’t been for a long time.

And Hutchins isn’t immediately going to get $100 million or even $70 million to play with. She’s now a beneficiary entitled to draw on the income, but not the trustee.

That income stream allows Goodman to provide for her and her two young children from a previous marriage, without antagonizing rich relatives who might balk at carving out a big piece of the family fortune for the girlfriend.

Under a separate agreement, Hutchins agreed that only $10 million of the trust’s principal would ever pass on to her children. Subsequent amendments whittled her interest down even further, to $5 million.

So adopting Hutchins takes care of her if Goodman goes to jail. But there’s an even bigger game afoot here waiting to play out.

Fighting the trustee, not the plaintiffs

Goodman’s lawyers frame the decision to adopt Hutchins as a way to give her official status in the eyes of Bessemer Trust, which has been running the trust since 2009.

As far as they’re concerned, Bessemer failed to live up to its promises to accept Goodman’s direction on how the “special” holdings in the trust — including his house and the $14 million polo club that turned him into a pillar of Florida society — should be managed.

“Bessemer agreed to keep the management team that had grown and protected these holdings in place for many years,” lawyer Bachi explains.

“Instead, Bessemer took steps to change management of these holdings, which have significant financial and intangible value to the children.”

Goodman named himself and two business associates as obvious choices with “experience with the management of such special assets.”

However, ex-wife Carroll objected to the appointment, leaving Bessemer with the headache that many trust companies that accept “alternative” assets like private equity and real estate know so well.

While the trustee tries to maintain an iron curtain between the grantor and the operations of the trust itself, the fact remains that the grantor is often uniquely qualified to manage the assets to their best potential.

As it is, Goodman’s ongoing relationship with the polo club is now being used in arguments that he’s been secretly running the trust to his own enrichment all along, no matter what the trust documents say.

If that were the case, those assets may be exposed to legal action no matter how many children he adopts.

That’s where adopting his girlfriend as a legal child-beneficiary may give him a chance to keep his polo club and run it too — even if he ends up in jail.

Hutchins apparently knows how Goodman wants the club to operate. As beneficiary, Bessemer has to take her interests and informed opinions seriously.

And in return for her input, she gets at least $500,000 a year from the trust.

“The contract provides funds to take care of Ms. Hutchins and her family and to compensate her for the large undertaking of overseeing such a complex and closely held family business,” Bachi explains.

As for the incest argument, it only legally applies to blood relatives.

Besides, if Goodman goes to jail, it will only matter on occasional conjugal visits anyway.

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Photo Credit: thetrustadvisor.com

Friday, February 24, 2012

Leimberg Information Services: 60-Second Planner on President Obama's Estate & Income Tax Proposal

Reproduced with Permission by and Courtesy of Leimberg Information Services, Inc. (LISI).  For information about how to subscribe to LISI, click here.

As mentioned previously by Robert S. Keebler in a previous blog entry, President Obama's Fiscal Year 2013 budget was released on February 13th. Follow this link to get a full copy of the 2013 Budget. The Treasury's Green Book containing general explanations of the Administration's revenue proposals can be found here.

We now wanted to share with you two Leimberg Information Services, Inc. 60-Second Planner podcasts in response to this budget. One podcast deals with the estate and gift tax proposals of the budget and the other addresses the income tax proposals. These recordings are reproduced courtesy of LISI (Leimberg Information Services, Inc.) and can be found on their website, along with plenty of other resources for you and your practice.

Special thanks to Robert S. Keebler and Stephan Leimberg for this valuable information!

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Sources: Leimberg Information Services, Inc. & Robert S. Keebler, CPA, MST, AEP
Photo Source: politico.com

Wednesday, February 22, 2012

Senate Bill Threatens Life of Stretch IRAs

Highway bill provision would end tax-deferred stretches of IRAs for beneficiaries other than a spouse, minor children or the disabled

Reposted from AdvisorOne | By Melanie Waddell

Industry trade groups are up in arms over a provision in a Senate highway bill that would reduce the value of inherited IRAs, commonly referred to as stretch IRAs, and are determined to have it removed.

The bill, S. 1813, the Highway Investment, Job Creation, and Economic Growth Act, includes a provision that would no longer permit tax deferred stretches of IRAs for beneficiaries other than a spouse, minor children or the disabled. Others, such as adult children, would only be permitted a five-year window to defer.

The provision would require beneficiaries to pay taxes on inherited IRAs over five years instead of spreading them over their lifetime. If passed, the provision would apply to deaths after Dec. 31, 2012.

The proposal is designed to reduce the value of a tax-planning technique that allows inside buildup of tax-deferred funds inside inherited retirement accounts.

Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, added the provision on Feb. 7 during markup of the bill by his committee, but after pushback he promised to have the provision removed.

During the markup of the bill, Baucus said that “IRAs are intended for retirement,” adding that IRAs are being “used by some taxpayers to give tax-free benefits” to future generations. The taxes from the stretch IRAs provision was to be used to help pay for the highway bill, and would raise $4.6 billion over 10 years.

As it stands now, the provision was adopted by Baucus’ committee and remains intact in the highway bill, which awaits action by the full Senate. Once taken up by the Senate, industry officials believe that the IRA provision will be replaced with one that raises the funds by changing the way assets are valued in defined benefit plans.

Judy Miller, chief of actuarial issues at the American Society of Pension Professionals and Actuaries, says that the new provision would likely "reduce the current required contribution to defined benefit plans; when you do that there are fewer deductions taken so it raises money."

But given that the IRA provision has yet to be taken out, the Financial Services Institute is mobilizing its members to have it removed.

Chris Paulitz, spokesperson for FSI, says that FSI “won’t rest" until it's removed. "We’re keeping the pressure on from our members to try and ensure it eventually is indeed stripped out.”

FSI said in a Feb. 15 letter to its members that “while we expect the provision to be removed from the highway bill, it is important that we send the Senate the message that taxes on inherited IRAs should not be used to pay for other governmental spending.”

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Photo Credit: advisorone.com

Wednesday, February 22, 2012

IRS Extends Deadline to Make Portability Election

By Robert S. Keebler, CPA, MST, AEP

On February 17th, the IRS released an important Notice allowing an extension to make a portability election for certain qualifying estates. An executor of a qualifying estate that wants to obtain the extension granted by this notice must file the application for a six month extension no later than 15 months after the decedent's date of death. With the extension granted by this notice, the Form 706 of a qualifying estate will be due 15 months after the decedent's date of death. The first of these extensions (and underlying Form 706) will be due April 2nd. Estates qualifying for this election must meet the following requirements:

• The decedent must have a date of death after 12/31/10 and before 7/1/11
• The decedent must be survived by a spouse
• The gross estate does not exceed $5 million
• The estate is not a qualifying estate if the estate effectively requested an automatic six-month extension of time to file Form 706 by timely filing Form 4768 on or before the due date for filing Form 706.

The executor of a qualifying estate may file Form 4768 at the same time as the executor files Form 706, as long as both are filed on or before the date that is 15 months after decedent's date of death. To obtain the extension, the executor must meet the following requirements:

• The executor files Form 4768 with the Service office designated in the form's instructions;
• The executor files Form 4768 no later than 15 months from the decedent's date of death; and
• The executor enters at the top of Form 4768 the notation "Notice 2012-21, Extension for Good Cause Shown" or otherwise sufficiently notifies the Service on or with Form 4768 that Form 4768 is being filed pursuant to this notice.

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

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Tuesday, February 21, 2012

Whitney Houston Leaves Behind a Legacy of Music and Estate Riddled With Confusion

Reposted from The Trust Advisor | By Scott Martin

Mere weeks after winning nine-year probate case against her own stepmother, glamour queen’s shock death and controversial financial shape raise the odds of much bigger courtroom battles ahead.

Whitney Houston’s management had barely squelched rumors that the 48-year-old diva and recovering cocaine addict had run out of cash before they had to confirm reports that she was dead.

The latest news is that she fell asleep in the bathtub and drowned after mixing prescription painkillers with alcohol.

Now, it’s the disposition of Houston’s remaining wealth that is becoming the object of public scrutiny — and giving advisors plenty to mull where their own clients are concerned.

If Houston’s lawyers were smart, they ironed out her estate plan a decade ago, the gurus tell me.

Back in 2001, she had just signed the biggest record deal in history — six albums, $100 million in guaranteed royalties — and the signs of her drug use were getting harder to hide.

That combination of massive incoming wealth and rising litigation and mortality risks should have been all the incentive her advisors needed to set up long-term trusts and iron out her will.

Unfortunately, that was also the moment at which her career and personal life started to unravel, so they might have missed their opportunity — and as details come out, we might see the grim results.

A very complicated decade

Part of the problem is that Houston’s last decade was extremely complicated, so the lawyers had less time than we might think to keep her affairs orderly.

When she signed that $100 million contract, she was already carrying her long-time husband, Bobby Brown, and a young daughter.

Her father, who had managed her career up to that point, was slowly dying of heart disease and seems to have been perpetually hurting for cash.

In 2002, he sued her for a round $100 million, claiming he was owed that much for helping her beat marijuana possession charges and negotiate her big record deal.

That suit dragged on well after his death before being dismissed in 2004, robbing Houston’s lawyers of vital time to move that money into an asset protection trust.

As long as the lawsuit was pending, those record company millions were simply too hot to hide — any judge would have considered such a move a blatant attempt to defraud an existing creditor.

Two years of relative quiet followed, but Houston spent a lot of that time in and out of rehab, so any claims she was in “sound mind and body” to sign any estate documents may not hold up without challenge.

Her divorce from Bobby Brown dragged on through most of 2007. Her lawyers were on the ball here: she had a prenuptial agreement cutting him out of her money and any legitimate claim to spousal support.

After that, she drifted out of the limelight. And now she’s gone.

Fighting her father’s example

Given the haphazard way the Houston musical dynasty used sophisticated planning techniques to manage its millions, we might expect to see Whitney’s estate reflect a mix of good and bad advice.

On the positive side, Bobby has no claim on her money, and now that daughter Bobbi Kristina is legally an adult — and out of the hospital herself — he can’t try to get custody and the money that goes with that.

And Houston’s father earmarked a $1 million life insurance policy to cover the mortgage on his house, so someone over the years was on the ball there.

Unfortunately, if Whitney and her father used the same lawyers, we can expect fireworks ahead.

John Houston appears to have died without clearly stating whether the life insurance money was meant to go to Whitney — who loaned him the money for the house in the first place — or to pay off his debt to his daughter.

He left behind letters talking about how Whitney made an oral agreement to apply the $1 million toward the loan, but her lawyers successfully noted that nothing like that was spelled out in his actual will.

In November — a full eight years after John Houston died — the case finally wrapped up in Whitney’s favor.

Had the lawyers set up a trust to accept the life insurance proceeds and use them to pay off the loan, his wishes would have been clear and none of the ensuing legal in-fighting would have been necessary.

As the judge noted, it’s impossible to legally determine what the deceased would have wanted, beyond what’s spelled out in the documents.

How much was Whitney worth?

The big question is how much of Whitney’s money the lawyers managed to save.

She died owing Arista three records, so a big chunk of that $100 million from the 2001 contract could be forfeited right away.

Her 10-acre New Jersey property was once appraised as worth $6 million but more recently listed for well under $2 million — barely what she owes in taxes and mortgage payments.

While rumor has it she was calling friends to borrow $100 a few weeks ago, her people insist that she wasn’t hurting for cash.

She’d just wrapped her first movie in 15 years, and as her staff says, she didn’t work for free.

“People get paid to make movies,” they point out.

And estate planners get paid to make sure the movie money lasts. Let’s hope Whitney’s lawyers earned their fees.

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Photo Credit: thetrustadvisor.com

Thursday, February 16, 2012

Forbes.com: Obama Declares War On Rich Folks And Wealth Advisors

By Deborah Jacobs
Reposted from Forbes.com

If Pres. Obama has his way, starting next year, it will be substantially more difficult for the ultra rich to pass along wealth to children and grandchildren without giving Uncle Sam his due.

The President’s proposed budget for 2013, issued yesterday, would permanently restore the estate tax rates to those that were in effect in 2009 and severely curtail some popular high-end tools for shifting assets to future generations. The Green Book, as it is called, downloads here as a pdf.

Under current law, we can each transfer up to $5.12 million tax-free during life or at death without incurring a tax of up to 35%. That figure is called the basic exclusion amount. In addition, widows and widowers can add any unused exclusion of the spouse who died most recently to their own. This enables them together to transfer up to $10.24 million tax-free.

Monday, February 13, 2012

Bloomberg: Senate Proposes Tougher Requirements for Inherited IRAs

The changes that Baucus proposed earlier today would raise $4.6 billion for the Treasury over the next decade by requiring younger beneficiaries to pay taxes over five years instead of spreading them over their lifetimes, according to the Finance Committee. Baucus, a Montana Democrat, had wanted to use the money to help pay for a highway bill the panel is debating.

Under pressure from Republicans, Baucus said he would work with them to find replacement revenue. During the committee meeting, he didn’t provide details about alternatives.

Baucus’s proposal would curtail a tax-planning technique that allows the buildup of tax-deferred gains inside inherited retirement accounts. Currently, holders of inherited IRAs can take required taxable distributions over their anticipated lifespan.

“IRAs are intended for retirement,” said Baucus, who said the current law is being abused. “They’re being used by some taxpayers to give tax-free benefits” to future generations.

Financial advisers and tax lawyers said Baucus’s proposal would significantly alter retirement and estate planning.

Change ‘Playing Field’

“It would really change the whole playing field for retirement planning,” said Ed Slott, an IRA adviser in Rockville Centre, New York. “That would make things simpler, but it would really put a crimp in the whole legacy planning people do for IRAs.”

The proposal includes exceptions for an account owner’s spouse, beneficiaries within 10 years of age of the account owner, and disabled and chronically ill people, according to a summary by the nonpartisan Joint Committee on Taxation. Children would be exempt from the new five-year rule until they reach adulthood.

Owners of regular IRAs must begin taking taxable distributions at age 70 1/2, and they must be taken according to a life-expectancy calculation.

Baucus’ proposal would take effect for people who die starting in 2013.

Late Starter

Senator Jon Kyl, an Arizona Republican, said members of his party found out that the IRA provision would be included early this morning and said it showed that senators’ attempts to limit highway funding sources to items related to transportation and energy had fallen apart.

“I think we’ve lost the opportunity to have a truly bipartisan package,” he said during the committee meeting. He later praised Baucus for his willingness to find a replacement for the provision.

“Perhaps this provision and the subject can be taken up in tax reform,” Baucus said.

Depending on how the language is written, beneficiaries in some cases might be able to use rollovers into their IRAs to avoid the required distributions, said Mary Ann Mancini, who leads the private client group at Bryan Cave LLP in Washington.

Mancini said many of her clients don’t use IRAs as an estate-planning tool because beneficiaries often want to spend their inheritances.

“If you can keep it in the IRA with tax-free growth, the longer you can keep it in the IRA, people can come out with millions,” she said. “The problem is people don’t keep it in the IRA. Young people want the money.”

‘Too Much Invested’

Baucus’s proposal would return IRAs to their intended purpose as a retirement savings tool and not an estate-planning tool known as a stretch IRA, Slott said. The change, if enacted, would cause people to spend the money in their IRAs rather than leave it as an inheritance for their children, he said.

“It sounds good, but I think it’s a nonstarter,” Slott said. “There’s too much invested in the whole stretch IRA concept.”

John Olivieri, a partner in the private clients group at White & Case LLP in New York, said the change could increase the taxable income of heirs each year for five years and may push them into a higher income tax bracket, he said.

Another potential benefit to the federal government is that, because distributions would be taken out faster, there would be less time for the money to accumulate in the IRA tax- free, Olivieri said.

“Once the money is out of the account, it can no longer grow tax-free,” he said. “That’s where the government may be planning to get the most benefit from this.”

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Photo Credit: marketwatch.com

Monday, February 13, 2012

U.S. Treasury Announces President Obama's 2013 Budget and Proposed Estate Tax Law Changes

A special thank you to Robert Keebler of Keebler & Associates, LLP for the heads up that the U.S Treasury just released its FY2013 Greenbook, which provides an explanation of the Administration's revenue proposals for Fiscal Year 2013. The Administration's FY2013 budget proposes tax policy to boost growth, create jobs and improve opportunity for the middle class.

In particular, as estate planning professionals, we are all extremely interested to see what is going to happen with the current Federal Estate Tax Exemption Amount, which is set to revert back to $1 million in 2013.  According to this bill, the estate tax exemption amount would revert back to the 2009 $3.5 million level.  According to Robert Keebler, that despite this change, the income tax changes would keep us all busy for a decade.

Some estate planning professionals feel that this bill looks very similar to the 2012 Budget Proposal, which was released exactly a year ago on February 14, 2011 and was rejected by the Senate in a unanimous vote of 97 to 0.

To view the explanations of the proposed changes to the Estate & Gift Tax Exemption, click here.

To view the complete FY2013 Greenbook, click here.

Photo Source: AP

Friday, February 10, 2012

The eBoot Camp's Valentine's Day Gifts to You

Phil Kavesh here to share with you a very special Valentine’s Day Gift that I am passing along from a dear friend of mine.

A little over a year ago, I had the fortunate opportunity to pick up a copy of The eBoot Camp’s President, Corey Perlman’s, book entitled, The eBoot Camp: Proven Internet Marketing Techniques to Grow Your Business.  Some of my favorite marketing minds and authors had endorsed the book for small businesses and as a self-proclaimed internet dinosaur, it was not only an easy read, but I could tell that Corey knew what he was talking about.

Corey then informed me of a 2-day Seminar he was holding where he would spend time with me and other attendees on the concepts of internet and social media marketing for our businesses.  More so, he was going to give us hands-on, personal consultations about our website and our current internet marketing plans.  I was convinced that I needed to go, but the seminar was in Florida and my schedule wouldn’t allow it.  He then offered me the option for a personal consultation while he spent a week with several other businesses in Los Angeles - - an offer I couldn’t refuse.

It was time and money well spent and we have already incorporated a lot of Corey’s ideas into not only my law practice, but with The Ultimate Estate Planner, Inc. as well. 

Corey sent me an e-mail this morning with my Valentine’s Day gifts from him.  Good thing Kristina and Megan monitor my e-mail, because I might have deleted it (joking of course, Corey!).  It was filled with different offers that I asked Corey if we could pass along to all of you and he replied back with a resounding, “YES!”.  So, here you go.

The eBoot Camp’s Valentine’s Day Gifts to You
by Corey Perlman

Gift #1: A Tip

Engagement is an important piece of the social media puzzle and occasions like Valentine's Day are great for connecting with your prospects and customers. 

If you're going to send out a Valentine's Day email or post to your social media sites, here are a few tips:

• Give sincere appreciation. Valentine's Day is about telling people how you feel. Take the opportunity to tell your customers, contacts, fans, co-workers, etc. that you appreciate them and are thankful for their business. 
• Use video or pictures. Two years ago, I posted Happy Valentine’s Day on my Facebook business page and got very little in the form of engagement. Last year, I also included a cute video of a lion and his trainer reuniting after being separated for a year. It got a lot more responses and engagement from others. Videos and pictures are worth 1,000 words! 
• Ask them to engage! Ask for a funny Valentine’s Day date story or ask them to 'like' your post if you helped remind them to go get something special for their significant other. 

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Gift #2: A Video 

My friend Erik Qualman (Social Media Revolution) is at it again and shot a great social media video with a Valentine's Day theme. Enjoy and share it with your community as well: http://www.youtube.com/watch?v=6vY9Nd3Pft8

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Gift #3: A Free Webinar 

Time is limited, budgets are thin. But we all know social media is here to stay. I will share five tips YOU can implement right now to increase your reach and see a better return on your web marketing efforts. If you're in charge of your social media marketing, don't miss this session. 

It will be February 23rd from 12pm-1:15pm EST. 

Here's the link to register: 

Social Media Webinar: 5 Ways to Maximize Your Efforts

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Gift #4: A Deal

We're at about 50% capacity for our 2-day Workshop in Atlanta, so we're going to have a great group of entrepreneurs, business owners and marketers. 

At the 2-day on March 22nd and 23rd, you will:

• Receive recommendations to improve your Website.
• Make sure you rank well on Google.
• Start a Wordpress blog and learn how to update it. 
• Makeover your LinkedIn profile. 
• Learn to use Twitter efficiently and effectively - never miss a Tweet about you or your business.
• Start using Google+ and I'll share why it's going to rival Facebook and Twitter. 
• Work on strategies for better email marketing and video marketing.
• Leave feeling confident on exactly what you need to do on the web to be successful.

Deal #4 - You're getting $200 off the price. 

Deal #2 - You get to bring a colleague for free. 

Deal #3 - I'll give you a 1-year subscription to our Geek for 1-Hour a Week program. 

That's about $2,000 worth of a DEAL! 

Register between now and February 14th (pssst- that's Valentine's Day!) 

Here's the link: www.ebootcamp.com/seminars

Corey really helped my practice out and got the ball rolling for me to enter the 21^st Century in marketing.  If you aren’t ready to commit to his seminar, then at the very least, visit the eBootCamp’s website, sign up for his e-mails, read his Blog, and connect with him on Facebook, Twitter, and LinkedIn.

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Photo Credit: eBootCamp.com

Thursday, February 09, 2012

Financial Planning Magazine: Top Tax Strategies For 2012

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Photo Credit: wscounselblog.com

Tuesday, January 31, 2012

Retirement Benefits in the Context of Estate Planning

With the permission from our colleague, Lewis J. Saret, J.D., founder and author of Wealth Strategies Journal, we are reposting his articles found in the November 2011 and January 2012 issues of CCH’s Taxes Magazine.

Retirement Benefits in the Context of Estate Planning Part I: Minimum Required Distributions

Introduction
Qualified retirement plans and individual retirement accounts (hereinafter jointly referred to as “QRPs”) typically represent a significant amount of most individuals’ net worth. To illustrate, one study reported that at the end of 2008, individual retirement accounts (IRAs) alone represented 25.4 percent of total U.S. retirement wealth and 8.5 percent of U.S. household financial assets.1 In addition, QRPs often pass outside of an estate by means of beneficiary designations, which name the beneficiary of QRPs upon the death of the participant of the qualified retirement plan or the account owner of the IRA (hereinafter both participants of qualified retirement plans and account owners of IRAs will be referred to as “participants” for the purpose of convenience).

This necessitates that QRP beneficiary designations be coordinated with the overall estate plan.  To effectuate the testamentary intent of the participant. This is the first of several columns that will address retirement benefits in the estate planning context. This column focuses on the minimum required distribution (MRD) rules that apply to QRPs because an understanding of the MRD rules is essential in order to incorporate QRPs into an estate plan. Future articles will discuss the income taxation of QRPs; tax issues associated with naming trusts as beneficiaries of QRPs, including both the application of the MRD rules as they apply to trusts named as beneficiaries of QRPs and the income taxation of trusts that receive QRP benefits; and Roth IRAs.

Retirement Benefits in the Context of Estate Planning Part II: Income Taxation of Retirement Benefits

Introduction
This is the second in a series of columns that address retirement benefits in the estate planning context. The first column in this series discussed the minimum required distribution rules that apply to qualified retirement plans and individual retirement accounts (herein jointly referred to as “QRPs”). This column focuses on the income taxation of QRP payments where the participant or account owner has basis associated with his/her QRP interest, which is important because of its economic impact on the QRP beneficiary. Future columns will discuss aspects of the income taxation of retirement benefits that are not covered in this column, including lump-sum distributions, qualified rollovers from one plan to another and income in respect of a decedent, as well as tax issues associated with naming trusts as beneficiaries of QRPs, including both the application of minimum required distribution rules as they apply to trusts named as beneficiaries of QRPs and the income taxation of trusts that receive QRP benefits, and Roth IRAs. Deferral of income taxation is the primary attraction for QRPs for most participants. As discussed in more detail below, taxation of income earned by QRP assets is generally deferred until such income is distributed to the QRP beneficiaries. This deferral benefits participants by allowing them to earn investment income on assets that would otherwise have been paid in taxes on a current basis.

This column first discusses the income taxation of QRP distributions in general terms and then focuses on the income taxation of retirement benefits where the QRP participant or IRA owner (hereinafter both participants of QRPs and IRA account owners will be referred to as participants” for the purpose of convenience, unless otherwise noted) has basis in such QRP or IRA.

You can also subscribe to Lew Saret’s Wealth Strategies Journal directly by going to his website at www.wealthstrategiesjournal.com.  This is an excellent resources for estate planning professionals.

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Photo Credit: today.ucla.edu

Monday, January 30, 2012

Top 50 Independent Broker/Dealer Women Advisors in 2011

Registered Rep Magazine just released its annual Top 50 Independent Broker/Dealer Women Advisors in 2011 Report.  As noted in Registered Rep's January issue, the wealth management business is changing. Women control a greater percentage of the world’s wealth, and some of them want to work with women advisors. Women are also good at some of the relationship-building skills required of financial advisors today. And so, women are in demand in the business, and the independent space is no exception. Independent Broker/Dealers (IBDs) are ramping up efforts to recruit women advisors, and keep existing ones happy. Many are launching training programs targeted towards women. So far, they’re doing a good job of helping them to succeed. 

(On a sidenote, we are pleased to see that the affiliated advisor that works with Phil's law firm clients is ranked among one of the top advisors on this list!  Congratulations!)

Click here to view the Top 50 IBD Women Advisors in 2011

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Photo Source: cjmfiscal.com