OCElderLaw

Pet Trusts Provide Peace of Mind

The pet trust is a little-known legal option for the elderly and caregivers worried about what will happen to beloved animals following the deaths of their owners.

The four-legged members of a household (or two-legged, or conceivable even eight, as the case may be) are undoubtedly special members in any home. Accordingly, proper planning ought to address them as well.

Whatever the size of your pet and whatever the size of your family, it’s simply not always enough to leave these matters for your heirs to figure out. After all, the well-being of your animal (i.e., your friend and companion) is at stake and so it’s worth considering legal devices to provide for them, such as a pet trust.

 In a way, the idea of a “pet trust” is a natural one and yet it’s also not always common. Deborah Jacobs recently tackled the subject over at Forbes and her article certainly is worth a look. In its basic formula, a pet trust is like any other trust in its formation, however, it is designed to take care of the member of the family that can’t take care of itself (nor speak to which home it will move to upon its owner’s passing).

While that can be meaningful for many pet-owners, there also is reason for the elderly to pay special attention to the prospect, as another article over at the New Old Age Blog points out, here.  For the elderly, especially, a pet can be an incredibly important family member and one for whom planning can be all the more important. Why? The pet may outlive its owner. In the end, a pet trust may afford important protection and care for the pet, as well as peace of mind to the owner.

Reference: Forbes (February 14, 2012) “If You Love Your Dog (Or Cat Or Gerbil), Read This” and The New York Times – The New Old Age Blog (February 3,2012) “The Pet Problem”

Reasons for Going “Offshore” With Your Accounts

If you're not running for president, and don't have to worry about public relations, what are the legitimate reasons for moving money offshore?

Offshore accounts have been in the news recently and not without reason. For one thing, the IRS has been gunning for foreign accounts for some time. It just doesn’t like them.

Likely, you have seen a discussion (or two… or three) of the topic in connection with Mitt Romney and his use of such accounts. The truth is that such accounts are not all illegal or unpatriotic, and indeed, might just be a good idea.

If you’re interested, there are a few ideas to be gleaned from a recent article through SmartMoney regarding offshore accounts. Is the real reason tax minimization? Not always. The article suggests that taxes truly aren’t the sole motivation. Although it should be said that there are advantages, even though the U.S. government still thinks it’s owed a piece on everything you own internationally.

For one thing, an offshore account has a measure of “jurisdictional safety,” or more simply put, the U.S. courts have a harder time seizing your assets to satisfy litigation against you. Whatever the reason, it’s a growing trend.

One more offshore and growing trend: expatriation. As pointed out in a recent Forbes article, the rate of expatriation has soared 16% in 2011 over 2010. In many ways, the use of offshore accounts and some form of expatriation work together. One thing they do share is that neither is easy and both involve further layers of taxation (like the government would allow such an easy out).

If it is something worth thinking about – say if there are foreign and golden sands in your retirement future - it’s worth planning now, especially in light of global politics.

Reference: SmartMoney (February 13, 2012) “The Real Reasons the Rich Are Moving Cash to the Caymans”; and

                Forbes (February 14, 2012) “Celebrity Leavings: Bidding Stars Adieu”

IRS Changes Its “Power Of Attorney” Rule for Spouses

Couples who filed joint returns must now file separate powers of attorney.

The IRS makes little changes all the time and while not all such changes are life threatening (or estate plan threatening, as is more likely) the devil is often in the details.

In the interest of tracking changes, then, it’s worth noting that the IRS is changing its filing practices for power of attorney. As pointed out here in the Journal of Accountancy, the IRS will no longer be accepting the old version of form 2848 and will only be accepting the new version that has been available since October 2011.

What’s interesting is that while the old form allowed a husband and wife who filed a joint tax return to also jointly file for power of attorney, the new procedure doesn’t allow this. Now, such couples will have to file their power of attorney documents “separately,” even if they file for the same individual and even if they file taxes jointly.

This won’t affect couples who have already filed, and only marks a turning point in a certain kind of filing; that is to say that it seems minor at best. Nevertheless, this change means that the IRS is working to acknowledge spouses separately (at least to a certain extent).

For estate planners it has to mean the opposite; that couples will have to work ever more intently together as a partnership. Is this a trend that will continue in all aspects? Further, it may also be worth thinking about whether this is how you and your spouse plan (or ought to plan).

Reference: The Journal of Accountancy (February 6, 2012) “Couples who filed joint returns must now file separate powers of attorney”

“Stretch IRAs” in The Taxman’s Crosshairs

Inherited retirement accounts are truly one of those gifts that keep on giving because heirs can benefit for many years without much tax burden, but Congress is starting to talk about curtailing breaks on the accounts.

For all the bills, budget proposals, and political fury raging over Capitol Hill these days, it’s strange to think that one of the more far-reaching changes may come from a funding proposal for a transportation bill. That’s right, but it’s a big transportation bill. As Reuters reported here, the Senate Finance Committee has been considering action that would severely limit inherited IRA’s.

A lot of people stash fairly large sums into their nest-egg accounts and work to keep that money safe. They do this rather than spend it because, in the worst case, tax-advantaged dollars would be nice in a pinch. In the best case it offers a fairly convenient way of giving excess assets to your heirs at a tax advantage.

There are a number of rules in that regard that I’ve discussed here in the past, but in short, heirs generally have the choice between taking a lump sum or stretching out the withdrawal in a pattern similar to required minimum withdrawals (RMDs). The latter alternative, called a “stretch” IRA, is on the chopping block.

The proposal would limit the life of such “stretch” IRAs by placing a five year limit on liquidations of such accounts. It’s “financing” to the Senate because that forces an awful lot of money to be taken out and taxed within a short time span. It’s financial security for the inheriting taxpayer, on the other hand, but this proposal would limit the ultimate potential of these accounts to accrue over time and then limit the leeway of the inheritor to have even withdrawals over a longer period.

It might not go anywhere. Regardless, keep your eyes on this because it’s made its way to the table and therefore we might see it reappear into any number of budget discussions.

Unfortunately, too, in order to make it work Congress would grandfather old IRAs into it, so that means an awful lot of inheritors have something to think about for the future. Read more in the original article, and others like it.

Reference: Reuters (February 14, 2012) “ ‘Stretch’ IRA tax shelter on the chopping block”

Obama Budget… And Estate Planning Consequences

Obama's budget proposal was recently released, and here are some of the proposed changes that involve estate planning.

As you are likely to have heard, President Obama unveiled his budget proposal not too long ago and it packs a wallop. We are living an era of fierce partisanship, and election season hasn’t exactly put a damper on that. As a result, the media and the critics have been quick to pounce on a number of points, to include accusations that the President’s proposal is mere election-season partisanship.

That media din aside, it truly is an important proposal to understand, especially when you are planning your estate. Why? Because you can at least attempt to hedge your bets against political tides, if not also plan for what may become law.

Fortunately, there are a few straightforward analyses of the proposal from an estate planning perspective, like this one from the Wills, Trusts & Estates Professor (and the second part, here).

Here are a few topics to whet your appetite:

Wealth Transfer Taxes: The proposed budget would permanently roll back the Estate, Gift, and Generation-Skipping Transfer (GST) taxes to their 2009 levels. The exemptions and rates would remain unified and “portability” between spouses of unused exemptions would also become permanent. However, that means going back to an exemption amount of $3.5 million and a taxation rate of 45%, thereby saving us from the possible default of falling to 2001 levels (a $1 million exemption at a 55% rate), but still representing a serious hike from the current exemptions and rate (at $5 million and 35%, respectively).

Grantor Trusts: Grantor trusts, and grantor retained annuity trusts (GRATs) in particular, get some special attention. For GRATs, the proposal calls for longer “minimum” terms, with 10 years as the minimum. For those of you familiar with the device, you know this makes the prospect inherently more risky, since you have to “outlive” the term of the GRAT before transfer of the trust assets. There’s more to GRATs, but even with Grantor trusts in general the proposal is intended to beef up transfer taxes. Why? Because, as a class of trusts, they have been so useful for disseminating wealth.

Those are two of the bigger – and to a certain extent, less nuanced topics – but it ought be clear that there are myriad changes in the works (also see the changes regarding “valuation”) and you are well-advised to stay tuned and keep informed.

It is politics, of course, and not yet actual law. On the other hand, it can help you understand the evolving debate and your own estate plans. If these changes were to become law, the impact would expansive.

Reference: Wills, Trusts & Estates Prof Blog (February 15, 2012) “Obama’s Budget Proposal Part 1” and “Obama’s Budget Proposal Part 2”

Avoiding Vacation Home Vexations

Is there a way to hand off a vacation home to the next generation so that everyone still wants to spend time together there?

As we head into the dreary remainder of winter, a few lucky readers and their families might just have a vacation somewhere warm in the works. Even better still, some of them have a family vacation home to visit. 

On the other hand, perhaps you’re stuck in the snow and dreaming of the upcoming summer trip to your getaway place. Regardless where you find yourself, if you have a vacation home for your family to cherish, then I have a question for you: How will you leave your vacation home to your family?

 Bequeathing vacation homes is often an important after-thought when it comes to most estate plans. How about yours? Typically, such real estate is wrapped in memories, but when it comes to dollars and cents, the vacation home is overshadowed by the family home itself.

The Wall Street Journal recently published an article on the topic to remind us of the importance of this issue, the possibilities, and the problems that can arise.

The central point in planning, whether for a vacation home or other matter, is to know your family and the available estate planning options. In all likelihood, the vacation home is not an asset you would want to give to just one child, especially if it was where everyone spent their summers together. Is giving the home to one person the same as giving it to everyone? Perhaps not.

Maybe you need to think even bigger and consider multiple generations by moving the home, not to a person, but to an entity like a Limited Liability Company (LLC) or a trust. A particularly powerful tool to bear in mind, in the right circumstances, is the Qualified Personal Residence Trust (QPRT).

There are, of course, a number of practical considerations to make – like, can so-and-so take care of the home and will so-and-so be living too far away to make use of it?  

For a few more ideas you can take a look at the original article. In the end, whether your vacation plans are for escaping the snow now or waiting until summer, it’s important to start thinking about your estate plans for your vacation home sooner rather than later.

Reference: The Wall Street Journal (January 7, 2012) “Who Gets The Vacation Home?”

Capital Gain Conundrum

Schedule D is so Last Year! You were used to reporting capital gains and losses on Schedule D. Now, in most cases, use new Form 8949 to report capital gain and loss transactions.

A new tax season and a new tax reporting rule for capital gains. It’s not a big change but, as Robert Wood writing for Forbes reminds us, any change to something as important as the capital gains tax is worth noting, especially with tax season upon us. From the IRS news release:

New Way to Report Capital Gains and Losses

In most cases, taxpayers now use new Form 8949 to report capital gain and loss transactions. Schedule D, the form traditionally used to show these individual transactions, is now used as a summary sheet, reporting amounts for total sales price, basis and other adjustments for all individual transactions, and for figuring the tax. For securities both bought and sold in 2011, the Form 1099-B, issued by the broker, normally shows the taxpayer’s basis. The information on this form will help taxpayers correctly fill out Form 8949. See the instructions for Form 8949 and Schedule D for details.

If nothing else, let this practical change remind you of the very practical reality of capital gains and losses, and what they mean to your estate planning strategies. Your goal, after all, is to leave your assets to your loved ones. However, depending on how you manage your planning, you also may be incurring unnecessary gift or estate taxes on your end… and inheritance or capital gains taxes on the recipient’s end. Accordingly, bearing this in mind can allow more precise footwork with your overall wealth transfer planning (especially when it comes to the taxable basis of the assets).

Reference: Forbes (January 11, 2012) “New Capital Gains Tax Reporting For 2011 Returns”; IRS.GOV news (January 2012) “2011 Changes Offer Tax Benefits to Almost Everyone; Special Tax Payment and Reporting Requirements Apply to Many”

Business Exit Planning – Begin With The End In Mind

If you are a small business owner, then you know planning for your finances and your estate is not that simple. In fact, you and your business need to plan together, and that means succession or exit planning.

For added incentive and another horror story on the subject, take a look at a recent article on the Wealth Counsel blog. It’s the story of three businessmen that proves both the necessity for planning and the necessity of understanding the plan.

These three businessmen were at the head of a once-prosperous construction company and even had the proper forethought to set out an agreement ahead of time. Of course, the economic meltdown hit the construction market fairly hard and that company turned south fast. As a result, the three put their own funds into the company by way of personal loans just to keep it afloat.

One of the partners then contracted and succumbed to a terminal disease. In turn, this prompted the question of how his life-insurance funds ought to be distributed and the role of his stake in the company. Naturally, the surviving spouse thought she was to be compensated for her husband’s interest in the company. On the other side of the table, however, the surviving partners thought the business was owed some of the life insurance money (to help pay off their personal loans to the company).

It was, essentially, a mess.                                         

Thankfully, on the basis of the existing plan – even if it wasn’t as comprehensive as it ought to have been – the parties were able to come to a compromise.

Teaching point? It goes to show that even a little planning is better than no planning. Otherwise, the case may have become fodder for protracted litigation and huge legal fees. Still, it is essential that all parties understand the plan and work to effect it in the intended spirit.

 Reference: Wealth Counsel (December 28, 2011) “Creating an Exit or Succession Plan for Your Business”

 

Your Portfolio And Your Estate Planning

Your portfolio can be thought of a machine, with many moving parts all working and buzzing away on their own. If you direct your own investments, however, your portfolio is more likely to resemble a well-tended garden that responds to the care and direction of you, the caretaker.

What happens to the portfolio when you pass away? This is a very real question in need of an answer, especially when you are both the caretaker and the family financial mind. Just as with any other matter, how you want your finances to be tended is important information you ought to share with your loved ones sooner rather than later.

Unfortunately, you can plan it out and hold family meetings on the subject but there is always the very real – and perhaps also, likely – possibility that your advice won’t be heeded. Spouses can forget or be persuaded otherwise, and adult children may think they know best and make the same mistakes as a novice. To make matters worse still, an expensive and mediocre advisor might get called in instead.

This is the message of a recent Forbes article on the topic. If this matter is a concern for you, then there are ways to plan around it.

For some, proper planning will entail establishing relations with an advisor and handing over some of the reins early.  In terms of your portfolio and its role in your estate plans as a whole, you might consider a trust and a faithful trustee to do the work you know needs to be done.

Clearly, your investments are important to you and your family, and so they also are important to your estate plan.

Reference: Forbes (January 5, 2012) “My Spouse Will Call You When I’m Dead”

 

Selling Your Family Business with The Tax Wind At Your Back

Whether we’re coming out of the recession is still very much in debate. Nevertheless, at least for some small businesses, the balance sheets are starting to look a bit better.

Having weathered the storm, some business owners are now ready to get out. According to a recent New York Times article, 2012 is going to be the time to sell the business for some owners.

“Buy low, sell high” is conventional market wisdom. To some business owners coming out of the rut with a good year behind them, right now may be the “high sales” they’ve been awaiting. Yet for some investors right now may still be the “low buys” with an eye for growth.

Behind the scenes, however, there’s more than simple market dynamics afoot in 2012. As you may recall, it also is the last year of the Bush-era tax cuts as they were extended only until the end of 2012.

So, if you’re looking to sell the business, then 2012 will offer a lower capital gains tax rate, at 15% instead of the 20% slated to fall into place come next January.

If your business IS your personal wealth, then this is real money for your future and for your family’s future.

Why are you waiting? Unless you intend to keep you family business in the family, the tax planets are beautifully (albeit temporarily) aligned with those same Bush-era tax cuts in place – and the generous Gift and Estate tax levels.

Accordingly, I recommend a consultation with your trusted accounting, legal and financial advisors without delay.  

Reference: The New York Times (December 21, 2011) “Why Some Business Owners Think Now Is The Time To Sell”