Estate Planning and Tax Lawyer Blog

Bills aimed at helping Americans save more for retirement by automatically deducting three percent of their wages and depositing it in an IRA were recently introduced in Congress by New Mexico Senator Jeff Bingaman and Massachusetts Congressman Richard Neal.

The Automatic IRA Act would require employers with 10 or more employees to participate if they do not already offer a 401 (k) or other retirement savings plan to employees. According to reports on the legislation, employees would not be required to participate but would have to opt out of the program. The default account would be a Roth IRA, but employees could choose to contribute instead to a traditional IRA. The employer would be allowed to choose a provider for all employees, or allow each employee to choose his or her own IRA provider.

The default investment for the Automatic IRA will be a new type of Treasury Retirement Bond specially created for use with the Automatic IRA, the R-Bond. Individuals can override this choice at any time.

If passed, the Automatic IRA Act would provide employers with a $250 tax credit for each of the first two years of operation to offset implementation administrative costs. Employers that are exempt from the Act include businesses in operation less than two years, government and church employers.

Continue reading "Automatic IRA Act Seeks to Boost Retirement Savings" »

If you are the parent of an 18-year-old who may be off to college shortly, you should be aware that not only is your child leaving, but they are also taking many of your prior legal rights with them.

Once your child turns 18, he or she is considered an adult in the eyes of the law, and you are no longer able to access medical, bank or school records without permission. For your own peace of mind, here are some things you can do to ensure you have the right to access these records, especially in case of emergency:

1. Have your child sign a Health Insurance Portability and Accountability Act (HIPAA) form and make sure each of you has a hard copy. Make an electronic file as well in case you need to email it.

2. Make sure you are listed as the In Case of Emergency (ICE) contact on your chlid’s cell phone.

3. If your of-age child is incapacitated, who will make healthcare decisions for him or her? Discuss options with your estate planning attorney, who may recommend a health care power of attorney designation or health care directive.

4. Check out DocuBank.com, which stores all your child’s emergency medical information and directives online for immediate access by medical personnel anywhere in the world. Your child carries a card (similar to an insurance card) that lists allergies, conditions and emergency contact information.

Continue reading " Legal Planning for the College-Bound" »

If your phone contact list includes both a pediatrician and a gerontologist, welcome to the sandwich generation, that growing demographic segment of the population who are taking care of their parents and their kids at the same time.

Besides healthcare, many of us are also taking on more responsibility for helping older parents manage their finances.  If you are currently tasked with that responsibility – or will be at some point – here are some things to put on your checklist:

Prescription drug coverage. Is the Medicare drug program your parents chose a year or two ago still the right one for them?  Most seniors find the plethora of choices confusing, so defer making any changes they might need.  Mark Nov. 15 on your calendar, which is the start date for Medicare’s open enrollment program (it ends on Dec. 31).  Visit www.medicare.gov and use the online prescription drug plan finder to find the best plan for them.

Retirement account distributions. If you have parents over the age of 70 ½, they must take the required minimum distributions from their qualified retirement accounts by the end of each year.  If they don’t, whatever is left over on Dec. 31 is subject to a 50 percent penalty.  You can set up automatic deductions to solve this problem as well.

Estate planning.  If they have not done so already, your parents need to visit with an estate planning attorney.  Estate planning laws change constantly, so even if they do have an estate plan in place but haven’t updated it in awhile, they need to do so.

For more information on retirement and estate planning, contact our Jacksonville Florida estate planning law firm.

Here are some of the top things you may not know about estate planning but should:

1. It is always important to have an estate plan in place. – Estate plans ensure that your goals are met, for your family and financially, after your death.

2. Elements of an Estate Plan. – An estate plan can have several elements: a will, assignment of power of attorney, and a living will or health care proxy (medical power of attorney). For some people, a trust might also make sense. When drafting your estate plan, it is important to be mindful of both the governing state and federal laws – this is why it is important to seek legal representation when drafting your estate plan.

3. A Good Starting Point: Take Inventory of Your Assets – Typical assets include your investments, retirement savings, insurance policies, and real estate or business interests. There are 3 important questions to ask yourself regarding your assets: (1) Whom do you want to inherit your assets?; (2) In the event you are ever incapacitated, whom do you want to handle your finances? (3) If you are unable to make medical decisions, whom would you like to medical decisions on your behalf?

4. Everybody needs a will. – A will states how your assets will be distributed after your death. It is also the best place to name the guardians of your children. Dying intestate, without a will, can be very costly and leaves you no say in how your assets will be distributed. If you have a trust, you still might need a will to handle any holdings outside of your trust.

5. Trusts are not just for the wealthy. – Trusts are legal mechanisms that allow you to put conditions on how and when your assets will be distributed after your death. Trusts also reduce estate and gift taxes as well as let you avoid the probate court, which administers wills.

6. Discuss your estate plans with your heirs. – Verbalizing your intentions will avoid confusion later.

7. The federal tax exemption changes regularly. – The federal tax exemption is the amount of your estate you leave to your heirs that avoids federal taxation. In 2009 the estate tax exemption was $3.5 million. However, it was phased out completely in 2010 and unless Congress passes a new law it will decrease to $1 million in 2011.

8. You may leave an unlimited amount to your spouse tax-free. However, this is not always the best tactic. – By leaving everything to your spouse, you increase your surviving spouse’s taxable estate. That means your children may pay more taxes if your spouse leaves them money.

9. Two simple ways to give gifts tax-free and reduce your estate. – You may give $13,000 per year to an individual (or $26,000 if you are married and giving the gift with your spouse). You may also pay an unlimited amount of educational or medical bills so long as you are paying the institution directly.

10. There are ways to give charitable gifts even after your death. – If you donate to a charitable gift fun or community foundation, your investment grows tax-free. You can also select the charities which are given before and after your death.

Having a will is a very critical element of your life. Contact an Estate Planning Attorney to obtain legal representation and protect your interests after your death.

The world of technology has effected another area of law, estate planning. Your online existence includes your email accounts, usernames, passwords, social networking accounts such as Facebook, MySpace, or LinkedIn, and more. Whether you pay bills online, shop, or even date, today, almost everyone has some sort of online account. What happens to these accounts after your death depends on the actions you take while living.

It is smart to have passwords to your online accounts only you know. However, this protective measure may pose problems at your death. For example, it depends on the provider of the service as to who owns your account when you die: Yahoo Mail will not divulge the decedent’s account information to their family without serious legal action; Google’s Gmail requires a copy of both the death certificate and power of attorney or birth certificate, as well as a e-mail sent from the decedent’s account – a not so easy task; and MySpace’s terms of agreement state that when you die, your profile dies.

Some steps you can take in order to avoid these types of obstacles:

1. Keep your passwords and usernames on a portable flash drive and pass the device onto a friend or family member at your death.
2. Companies, such as Legacy Locker, serve as a safety deposit box for passwords and other account information. These companies also provide personalized instructions on how to handle your online identity.
3. If you wish for your online identity to dissolve with you at death, an option is to do nothing and some accounts will be deleted by the providers as a result of inactivity on the account.

However, if you would like your online identity to continue after your death, it is important to plan for this as you would any other facet of your life. Planning your estate should include your online existence. An Estate Planning Attorney should be contacted so you can discuss these novel legal issues in order to ensure your interests and wishes are carried out after your death.

An auction is scheduled to sell some personal items of the late Lucille Ball and her second husband, Gary Morton. Morton and Ball were married until Ball's death in 1989, Morton later remarried. The items offered at the auction were consigned to Heritage Auction Galleries by Morton's widow, Susie Morton. Susie Morton is now battling the daughter, Lucie Arnaz Luckinbill, of Ball and her first husband and "I Love Lucy" co-star, Desi Arnaz.

Among the items up for sale are the couple's Rolls Royce, photos, sketches, love letters between Morton and Ball as well as some of the actress' awards.

Susie Morton sought a judge's ruling declaring the auction can proceed. Luckinbill stated she will go to court to try and stop the auction if the items she requested are not returned to her. Luckinbill is requesting the return of seven love letters, Ball's address book, some portraits and several lifetime achievement awards.

Cases like this happen all too often because people do not keep their will up to date. It is important after any major lifetime occurrence or event that you update your will to include in property that may be of value to your or your loved ones.

Continue reading "Heirs Argue over Lucille Ball Auction in Los Angeles, California " »

The recent death of child actor Gary Coleman should serve as a reminder to us all of the importance of having an advance medical directive.

After suffering a major brain hemorrhage sustained in a bad fall, Coleman was placed on life support at a Utah hospital while doctors consulted with the woman they believed to be his wife – but who, it turns out, had been divorced from Coleman in 2008. She was no longer legally able to provide direction for his care.

Luckily, Coleman had drafted an advance medical directive, no doubt because of his long history of health problems. Medical authorities followed his wishes as laid out in that directive, and he was removed from life support and died shortly thereafter.

Advance medical directives include:

Living Will – a document that specifies what kind of medical treatments should take place in case you are incapacitated.

Health Care Proxy – a document that designates a person who can make health care decisions for you in cases where you cannot.

Durable Power of Attorney – a document that gives the power of attorney to others to make financial transactions for you in case you are medically incapacitated.

For more information on advance medical directives and Florida estate planning, contact our Jacksonville Florida estate planning law firm.

The battle continues over the former childhood star's estate. Gary Coleman's ex-wife Shannon Price and former business associate, Anna Gray continue to argue over who Coleman left as the beneficiary of his estate. In the meantime, Robert Jeffs, an attorney, has been appointed as the estate's temporary special administration.

Coleman and Price were divorced in 2008, but were living together at the time of Coleman's death. One one hand, Price argues that she was Coleman's common-law wife and has filed a hand-written document from 2007 that would give her Coleman's estate, if validated by the court. On the other hand, Coleman signed a will in 2005 that named Gray, from Portland, Oregon, as executor and awarded her all of his estate.

It is expected to take Utah District Judge, James Taylor, several months to conduct a trial that will determine which document is Coleman's last legal will and, thus, who will be awarded Coleman's estate. Until then, Coleman's remains are expected to be cremated and locked into a vault by Jeffs. There is no debate over whether or not Coleman wished to be cremated; the 2005 will called for his remain to be cremated as well as an earlier will made in 1999. Although both these wills are in agreement over Coleman's cremation, the wills contradict each other over whether or not Coleman wanted to have a funeral service. The 2005 wills states "there be no funeral serve, wake, or other ceremony memorializing my passing." However, the earlier 1999 will states gives instructions on who could and could not attend any funeral or memorial service. To read more about the battle of Coleman's estate see Gary Coleman's estate may take months to resolve.

Coleman's case happens all to frequently; where different and conflicting wills are created throughout one's lifetime. It is important to keep your legal will up to date. A legal will ensures your interests are protect and your estate is divested the way you intended. Contact a Florida Estate Planning Attorney to draft a legal will, update a previous legal will or discuss any questions or concerns you may have regarding the planning of your estate.

If your phone contact list includes both a pediatrician and a gerontologist, welcome to the sandwich generation, that growing demographic segment of the population who are taking care of their parents and their kids at the same time.

Besides healthcare, many of us are also taking on more responsibility for helping older parents manage their finances. If you are currently tasked with that responsibility – or will be at some point – here are some things to put on your checklist:

Prescription drug coverage. Is the Medicare drug program your parents chose a year or two ago still the right one for them? Most seniors find the plethora of choices confusing, so defer making any changes they might need. Mark Nov. 15 on your calendar, which is the start date for Medicare’s open enrollment program (it ends on Dec. 31). Visit www.medicare.gov and use the online prescription drug plan finder to find the best plan for them.

Retirement account distributions. If you have parents over the age of 70 ½, they must take the required minimum distributions from their qualified retirement accounts by the end of each year. If they don’t, whatever is left over on Dec. 31 is subject to a 50 percent penalty. You can set up automatic deductions to solve this problem as well.

Estate planning. If they have not done so already, your parents need to visit with an estate planning attorney. Estate planning laws change constantly, so even if they do have an estate plan in place but haven’t updated it in awhile, they need to do so.

For more information on retirement and estate planning, contact our Jacksonville Florida estate planning law firm.

What are the basic estate planning tools that you can use to protect your family – and your assets – no matter what age you are right now?

Will – if you die without a will or a living trust in place, your assets will be divided up according to state law.  And you might not like it.  Are you on a second marriage?  Just been through a divorce?  Without a will designating how your assets will be distributed, you will be leaving a mess for your heirs to clean up.

Financial Power of Attorney – this allows you to designate a responsible party to handle your financial affairs in case you become incapacitated.

Living Will – a living will or a healthcare power of attorney designates someone to make major healthcare and/or end-of-life decisions for you when you cannot, according to your wishes.

Beneficiary Forms – even if you name the beneficiaries of retirement accounts or life insurance policies in your will, if those names are not on the account or policy’s beneficiary form, they will not receive them.

Title Your Assets – if you have set up living trusts for your spouse or children, you must be sure to retitle the assets in the name of the trust or the living trusts are invalid.

Need to learn more about protecting your family through careful estate planning?  Contact our Jacksonville Florida estate planning law firm.

My last blog on gifting between spouses discussed an irrevocable trust that allows spouses to gift into irrevocable trusts while still maintaining control and allowing the assets to grow income tax free and pass estate and gift tax free to the beneficiaries.  However, doing so is not as easy as it sounds. 

The type of assets that may hold are cash, stocks, bonds, insurance, real property and business interests to name a few.  The amount that may be transferred into the trusts though is the tricky part.  The IRS has a rule, called the 5 and 5 rule, which states that when an annual exclusion gift is placed into an irrevocable trust for a spouse, a portion of the transfer will be included in the spouse's estate if the transfer is greater than $5,000 or 5% of the value of the trust property. 

Taking the 5 and 5 rule into account, if the trust has no asset in it, then $5,000 will be the limit for transferring assets into the trust until such a time arises that 5% of the value of the trust becomes greater than $5,000.  At that point, then the amount that may be transferred per year will be 5% of the trust assets until you reach the annual gift exclusion amount (currently $13,000 per year in 2010).  You can transfer $260,000 in year one into the trust tax free by filing a gift tax return and borrowing against your lifetime gift exemption ($1,000,000).  By doing this, 5% of $260,000 is $13,000 and you may then transfer the maximum amount per year.  This second technique is super charging the trust and dramatically increases the amount that passes to your beneficiaries completely tax free.  By creating these trusts, you are creating a second estate tax exemption above and beyond the exemption that the IRS currently allows. 

To discuss the benefits of these trusts, please contact an estate planning attorney.

Generally, when clients make gifts, they make them to their children and grandchildren in an amount that is completely free from the gift tax (currently in an amount equal to $13,000 per year).  However, you may use the same logic to make gifts between spouses.  The best part...you do not lose control of the money and it passes to your beneficiaries free from the estate tax.  It must be done correctly though.

First, set up an irrevocable trust, where the donor spouse is the trustmaker and the other spouse, the donee, is the beneficiary.  The donee spouse may also be the Trustee so you do not lose any control over the assets.  The Trustee then may pay out of the trust for the beneficiary’s health, education and maintenance.  By limiting the distributions to this standard, the assets held in the irrevocable trust are asset protected for the beneficiary.Further, the trust is generally structured as a grantor trust, meaning that the income taxes that would be owed by the trust are actually paid by the trustmaker.  By structuring it as a grantor trust, then the assets in the trust will grow income tax free as well!  In my next blog, I will discuss the rules that apply to transfers to the trust as there are specific requirements for gifts between spouses to ensure that they are free from gift taxes.

To learn more about spousal gifitng, please consult with an estate planning attorney.

My last blog began a series of questions you should ask yourself to see if your estate plan needs to be updated.  Again, if you answer “No” or “I don’t know” to any of the questions, please set up a consultation with us so that we may review your estate plan with you to either tell you what it says or update it so that you have an estate plan that works for you and your families needs:

1. I am satisfied with the persons I named as guardians of my minor children in my current plan.
2. I am satisfied with the persons I named as executor or trustee in my current plan.
3. The persons I named as executor are either a Florida resident or a family member.
4. I am satisfied that my current plan sets up a contingent trust for my minor children.
5. I am aware of all future estate planning fees and expenses; including an understanding of those involved at the time of my death.
6. My children have met with my attorney and fully understand their roles and responsibilities upon my incapacity or death.
7. My Revocable Trust, if any, and Power of Attorneys specify an understandable test to determine my disability.
8. My Revocable Trust, if any, gives instructions for my care and the care of my loved ones if I become mentally disabled.
9. My Revocable Trust, if any, is fully funded so that my family can avoid the delays, publicity  and expenses of probate.
10. I and my spouse, if applicable, own everything jointly.
11. I have put my personal property into my Revocable Trust, if applicable.
12. I own property in another state which has already been dealt with in my estate plan.

If your estate plan needs updated, please conult with an estate planning attorney to set up a review of your current estate plan.

Does your estate plan need a tune up?  Although most Americans do not have an estate plan, those who do have an estate plan set up their estate plan, shove it in a file drawer in their homes and completely forget about it afterwards.  Below are a series of questions to quickly ask yourself to make sure that your estate plan still does what you originally wanted it to do.  If you answer “No” or “I don’t know” to any of the questions, please set up a consultation with us so that we may review your estate plan with you to either tell you what it says or update it so that you have an estate plan that works for you and your families needs.

1. I have a current Health Care Power of Attorney that has the required HIPAA authorizations to permit my spouse, children and/or family to make emergency health care decisions for me in the event I am unable to do so.
2. I have a current Durable Power of Attorney that is less than four years old to permit my spouse or children to handle my financial affairs in the event I become disabled.
3. I am certain that my current estate plan will minimize possible federal estate taxes at my death, including taxes on my house, life insurance and IRAs.
4. I have taken steps to avoid possible will contests and disputes at my death.
5. I have taken steps to protect my children’s inheritance in the event my surviving spouse chooses to remarry.
6. I have recently checked the beneficiary designations of my retirement plans and life insurance policies, and I am confident that I have not listed my estate or any minor children as either primary or secondary beneficiaries.
7. I have a plan to provide creditor and lawsuit protection for assets passed to my surviving spouse.
8. My current plan provides creditor and lawsuit protection for my children’s’ inheritance.
9. My current plan addresses income tax planning.
10. I have a plant to protect my children’s inheritance from a divorcing spouse.

Again, if you answered "No" or "I don't know", please consult with an estate planning attorney to review your estate plan and ensure it still works for you and your family.

Probate is a lot like trying to get to a destination going through a long construction zone, very frustrating.  An important goal in Florida estate planning is to spare your family the expense and hassle of a probate court proceeding.  Here are some options to avoid Florida probate:

Living trust – setting up a Florida living trust can ensure that all your assets will be passed on to whomever you designate without probate court proceedings.  This entails creating living trust documentation and assigning a successor trustee to transfer the assets to your beneficiaries after your death.  However, you must transfer property ownership to yourself first as the trustee of your trust to ensure the property will be controlled by the terms of the living trust.  An estate planning attorney can help you with this.

Joint tenancy – if you own property with a spouse or someone else, a “right of survivorship” provision will ensure that the property transfers to the surviving owner.  In Florida, each owner must own an equal share of the property.  For married couples, this is known as “tenancy by the entirety.”  The downside to joint tenancy is that it can really mess up estate tax planning (remember, the estate tax returns on January 1, 2011, if not before).

Transfer-on-death designations – in Florida, you can register brokerage accounts in “transfer-on-death” (TOD) form.  Bank accounts and CDs can be designated “payable-in-death” (POD).  For both, the beneficiary inherits immediately upon your death, but you control the funds until that time.  Florida does not have such provisions for real property, like homes or vehicles.  There is also a possibility that TOD and POD designations will not avoid probate in the future.  There is talk that the Florida lawmakers are contemplating making accounts with TOD and POD designations an asset subject to probate.

If you need information on how to avoid Florida probate, consult a Florida estate and tax planning attorney.

I recently had a potential client come and ask me what happens when property is sold that is subject to the life estate.   My answer to her was it depends (I know, a typical lawyer answer).

The reason it depends is that it depends on who is selling the interest in the property.  With a life estate, there are two real property interests involved.  The first interest is the holder of the life estate itself.  A life estate gives the holder the right to use the property until their death.  Upon death, the property automatically transfers to the remaindermen, the second property interest involved.

If only the holder of the life estate sells their interest, then the buyer is only buying a right to use the property during the life of seller.  They could be buying it for a day or for many years, no one knows.  A valuation specialist usually must be brought in to value the life estate, which is based upon the age of the holder of the life estate.  Again though, the buyer is only buying a right to use the property during the life of the seller, not forever.  Upon the seller’s death, the rights in the property then pass automatically to the remaindermen. 

In order to fully purchase the property so that the buyer owns the property outright, both the holder of the life estate and the remaindermen need to be parties to the transfer.  They each need to transfer their respective property interests to the buyer.

If you have any questions in regards to a life estate, please consult an estate planning attorney to discuss the life estate further.

Confused when your estate planner asks if you want the distribution to be per stirpes or per capita?  You are not alone.  Most people, including some attorneys, do not know the difference between a per stirpes distribution pattern and a per capita distribution pattern.  The very best way to explain it is with an example.

Assume Parent 1 has Child A and Child Z.  Child A has two children b and c and Child Z has one child y.  Under either a per capita or per stirpes distrubtion, when Parent 1 dies, Child A and Child Z each get ½ of the property.  Also under each system, if Child A predeceases Parent 1, upon Parent 1’s death, Child Z will still get ½ and children b and c will each get ¼ (sharing in Child A’s ½ share).

The difference between the two distribution patterns is shown if Child A and Child Z both predecease Parent 1.  In a per stirpes distribution pattern, children b and c will each get ¼ (sharing in Child A’s ½ share) and child y would get ½ (Child Z’s share).  In a per capita distribution pattern, children b, c and y each would get a 1/3 share.

If you would like to discuss the differences further, please contact an estate planning attorney to answer your questions.

When potential clients come into my office to talk to me about estate planning, some of them have certain goals in mind.  Others have no idea what they want or need while others have one goal but leave with other goals in mind.  This blog hopes to get you thinking about what you really want to accomplish in your estate plan.

Some clients’ goal is to avoid the probate process.  Probate here in Florida is a pain because it costs a lot of money, is public record and takes a long time.  Some clients come in just wanting to save money in estate taxes.  While that is not a big problem this year that will definitely change whether Congress acts this year or not. 

One frequent goal is to pass on a family business or a secondary residence that has been in the family for years.  That can easily be obtained with proper planning.  Finally, and probably the most frequent goal, is to make sure that the assets stay in the family and do not go to the in-laws in a divorce.

One goal that I usually have to bring up with the client is to make sure that they themselves are taken care of.  Clients get so caught up in worrying about everything else that they forget about themselves.  I feel clients need to be focused on the present while they are alive and well, when and if they become disabled and then finally what happens upon their death.

No matter what your goals are, a proper estate plan can take care of all of them while taking care of you at the same time.  To learn how to accomplish your estate planning goals or ensure your estate plan actually accomplishes your goals, consult with an estate planning attorney to review your current estate plan and create a plan that accomplishes all of your goals.

Although there currently is no estate tax in place, it is scheduled to rear its ugly head once January 1^st rolls around again.  This time though, it comes back with a vengeance at a $1,000,000 exemption and a 55% tax rate for anything over the exemption.  However, if you plan now, there are ways to effectively pay or reduce your estate taxes.

First, you can just pay the taxes.  It is a very rare sight to see, but some folks like to pay taxes.  They feel it is their civic duty.  Again, this is VERY rare.  Second, you can spend all your money.  Clients have told me that they hope to spend every last penny before they die.  Although very admirable and probably the most enjoyable of all the alternatives, it most likely will not happen.  If you have an estate that is taxable, the estate grew to become a taxable estate due to saving and not spending.

Third, you can make charitable donations.  You can make them during your life or at death.  Fourth, you can start a family gifting program.  You may currently give $13,000 per year per person to anyone you want.  So you may give a $13,000 to everyone in your family this year and then on January 1^st, do it again.  The earlier you do this, the more money you will be able to get out of your estate.  Further, you may give an unlimited amount to anyone for education and medical expenses, as long as the money goes directly to the education or medical provider.

Fifth, you may create an irrevocable life insurance trust, also known as an ILIT.  An ILIT is a special type of trust that will own your life insurance and be the beneficiary of it upon your death.  Since you no longer own the life insurance at death, it cannot be included in your estate.  There are a lot of pitfalls though which much be avoided for this to work correctly.

Finally, you can do other advanced planning techniques to shrink your estate.  One technique removes your primary or secondary home from your taxable estate.  Another technique deals with setting up a business and gifting a percentage of the business away on an annual basis.  There are well over 60 different techniques that can be used and each offers a different level of complexity.

If you would like to further discuss ways of reducing your estate taxes, please consult an estate planning attorney.

A very popular estate planning technique is to transfer assets into a Family Limited Partnership (FLP) and then claim a valuation discount on the interests that the estate still owns upon a person’s death.  The IRS has questioned this technique and is starting to litigate cases that fall within certain parameters.  In fact last year, the IRS hired 14 new estate tax attorneys and plans on hiring 10 more this month.  In doing so, the IRS is looking at estate tax returns that claim reduced values of the estate based upon FLP interests.  The IRS has hinted as to what “red flags” they look at when determining whether or not to litigate a case where an estate valuation discount is taken.  The following is a list of some, but not all, of those “red flags”:

• Near death creation of the FLP
• Decedent retained no assets for living expenses
• No contributions by other partners
• Nature of assets (person use assets)
• Failure to observe partnership formalities
• Commingling of personal and partnership  assets
• Post-death distributions or borrowing from the FLP (ex. Loan taken out by estate to pay taxes)
• Non pro rata distributions if the decedent is the only person receiving distributions
• No real business or investment purpose or creditor protection purpose
• Achieving discounts seems to be the real reason for creating the FLP

If you have created a FLP or are thinking about creating a FLP, please consult with an estate planning or tax attorney for advice or to review how you have been conducting business through the FLP.

Many people prefer a relative to be a trustee of their trusts.  However, in some situations, hiring an independent corporate trustee may be the smarter decision.

A corporate trustee brings impartiality, experience and expertise at a time that is often filled with emotion.  A corporate trustee will remain neutral in the face of family disagreements.  A lot of attorneys frequently recommend hiring corporate trustees, rather than naming family members for the following reasons:

• Corporate trustees have record keeping systems in place to guarantee timely, accurate accounting of principal and income as well as production of regular statements.
• Past history with family members can impair decision making.  A corporate trustee can ensure decisions are made on facts and not feelings.
• Privacy is a fiduciary duty of the corporate trustee.
• In matters pertaining to your legacy and your beneficiary’s inheritance, it is important to have someone with experience at the helm.
• Corporate trustees are consistently available, devoting full attention and resources to achieving the results required of a trustee.
• Substantial capital surplus and insurance coverage are carried by reputable corporate trustees for liability purposes.
• Perpetual existence assures a capable, professional organization is ready to complete the trust tasks required for decades going forward.
• There are strict compliance standards set by State and/or Federal regulatory agencies, as well as audits conducted by an independent auditor at least annually.
• Corporate trustees are required by law to faithfully perform all its duties and follow the trust document terms to the letter.
• Specialization in trust administration provides services in an efficient, cost-effective manner for reasonable fees.

If you’d like to discuss the value of a corporate trustee further, please contact an estate planning attorney for further information.

Ever wonder what happens to your pets after you pass away?  Most pet owners consider their pets as a member of their family.  It, however, is not uncommon for pets to be left behind as their owners pass away.  What can you do to ensure that your pet is taken care of upon your passing?  Estate planning for pets became more popular in the 90s and pet trusts are now legal in most states.

Legally, your pet is deemed to be tangible personal property that would pass to your heirs or beneficiaries by law.  With a will or a trust, you can control who will get your pets and how they should be taken care of.

Typically a pet trust sets aside a certain amount of money that is dedicated to caring for the pets you owned upon your death.  Once the last of the pets pass, any remaining funds pass to your beneficiaries.  There are decisions to be made though in setting up the pet trust.

The most important decision is who will serve as the trustee of the trust and caretaker of the pets.  Friends and family are usually thought of first.  Although they may enjoy playing with your pets, the enjoyment may diminish quickly.  A good way to test whether or not they will be a good caretaker is to have them pet-sit for several days. 

Another decision to be made is how much, if any, to compensate the caretaker for their services.  If you compensate them too little, they may not adequately care for your pets.  If you compensate them too much, they may keep a suffering pet alive too long.  There is a story about a caretaker who found a new black dog whenever the old black dog passed away to ensure they continued to receive compensation.  You want to avoid this situation.  There are always non-profit organizations who will gladly care for your pet under a pet trust.

If you would like to discuss the possibilities of a pet trust further, please contact an estate planning attorney to draft the legal documents necessary to ensure your pets are taken care of upon your passing.

Are inherited IRAs asset protected?  The answer, unfortunately, seems to be that it depends on which state and which court you are in.  There are state courts all over the United States which have ruled that an inherited IRA is not protected from a creditor of the beneficiary. 

Recently, a Florida state court ruled that an inherited IRA is not asset protected from a judgment creditor.  The facts of the case were that the creditor obtained a judgment against the debtor and served a writ of garnishment to obtain the funds held by the debtor in an inherited IRA received from his deceased father.  The Florida District Court of Appeal ruled that Florida Statute 222.21(2)(a) does not apply to inherited IRAs because the language of the statute references only the original “fund or account” and also that an inherited IRAs tax consequences are different from the original IRAs tax consequences.

However, even more recently, a Bankruptcy court in Minnesota ruled that an inherited IRA is protected in bankruptcy.   In that case, the debtor claimed exemption under 11 U.S.C. Section 522(d)(12).  The court ruled that 11 U.S.C. Section 522(d)(12) does apply and, therefore, the inherited IRA is exempt in the bankruptcy proceeding.  This court however seemed to limit its ruling to the facts of the case.

The easiest way to ensure that your inherited IRA is asset protected is through a trust setup specifically to deal with the inherited IRA upon the IRA owner’s death.

If you have questions regarding inherited IRAs and other assets being protected as they pertain to judgments, bankruptcy and other proceedings, please contact a legal professional for legal counsel.