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Estate Taxes on Life Insurance & Life Insurance Trusts (“ILITs”)

October 17, 2014

Filed under: Estate Planning,Estate Taxes,ILIT,ILITs,Irrevocable Life Insurance Trusts,Life Insurance,Life Insurance Policies — Tags: , , — admin @ 1:18 am

Many Americans may be unaware of what an irrevocable life insurance trust (“ILIT”) is, let alone the benefits it may provide to them.

Typically, life insurance policy proceeds are not subject to income taxation. However, they are included in the calculation of a person’s gross taxable estate. This is where the ILIT comes in. If a person puts their life insurance policy into an ILIT, the proceeds of the policy are kept out of his or her taxable estate. The proceeds will therefore be available to his or her heirs free of income and estate tax.

Additionally, ILITs are a great way to provide cash to help pay for the taxes that will be levied on your estate. Beneficiaries of your ILIT can use some of the proceeds to pay the taxes owed on your estate. By doing this, your actual estate is kept in tact. This strategy is especially beneficial to those whose estate consists largely of illiquid assets such as a business or real estate. Through setting up an ILIT, you can ensure that your family will not have to sell the illiquid assets in your estate in order to satisfy the estate taxes.

Call us at 732-521-9455 or email at info@LawEsq.net to discuss the right way to own your life insurance.

IRS Offshore Promoter Limits Highlight Important of Proper Risk Management

October 3, 2014

Filed under: Captive Insurance Companies — Tags: — admin @ 6:18 pm

It was recently discovered that the IRS finally took action on investigations of managers in small insurance companies. This has spiraled into the usage of “promoter audits” of such managers, leading in some cases to subpoenas demanding information about captive insurance companies.

The majority of the subpoenas are interested in details about the risk pools and how claims are paid and premiums are calculated, but they are also asking for marketing materials. These materials may be used to determine whether the captive was being used properly or whether it was simply being used to avoid taxes. There are some situations where captives just don’t work well, but there are other situations in which captives fill an important need.

If you’re using a captive insurance company or if you’re thinking about knowing one, risk management is crucial for structuring and reviewing. Knowing what to expect and knowing where the risks are gives you some insight into whether the captive is the appropriate vehicle for you. You should always talk to experienced tax attorneys when you’re using a captive or other complex strategy to help you manage risk. If you believe that you are being investigated or if you would like to discuss the opportunities of using a captive insurance company, reach out to our offices. Request an appointment through email at info@lawesq.net or over the phone 732-521-9455.

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Could the Court Ruling on Art Save You Money?

October 2, 2014

Filed under: Asset Protection,Estate Taxes,Inheritance — Tags: — admin @ 5:25 pm

Art collectors are celebrating a recent decision handed down from a US Appeals Court which could help to minimize taxes. The court agree that shared ownership in a highly-valued blue chip art collection, which can also be noted as a “fractional interest” enabled one family a critical tax break in the settling of an estate.

The Texas family involved had collected Picassos, Jackson Pollock pieces, and art by Paul Cezanne. The family used a grantor-retained income trust where partial ownership of the art was handed down to each one of their three children. The idea is that shared ownership interest limits the opportunity to sell or transfer the works since this would also require agreement from each child.

The court ruling determined that the deficiency lay with the IRS commissioner’s failure to properly use the discount for restricted ownership in this case, although an earlier tax court had argued that the family was only entitled to a 10 percent discount.

If you have a substantial art collection and are concerned about how it will be passed down to beneficiaries, talking to an estate planning expert could be in your best interest. Contact our offices today to learn about trusts or other vehicles that might work best for you. Request an appointment via email at info@lawesq.net or over the phone 732-521-945twert

 

 

 

 

 

 

 

 

 

Photo  Credit: findingdulcinea.com

What’s the Downside of DIY?

October 1, 2014

Filed under: Asset Protection,Estate Planning — Tags: — admin @ 5:03 pm

There are positive aspects to attempting your estate planning on your own, but there are just as many downsides. Those downsides can cost you big time, whether you have many different kinds of assets and business interests or whether you believe that your estate is simpler.

More complex situations should always be addressed with an experienced estate and tax planning attorney. Appreciated property, families with children who have special needs, family-owned businesses, and blended families are but a few examples of where DIY estate planning can go so wrong.

What’s the Downside of DIY?
Photo Credit: militarybyowner.com

 

More sophisticated planning strategies, like the use of trusts, are outside the realm of possibility for someone completing their estate planning documents. Furthermore, new legislation (and sometimes, increasingly complicated legislation) means it’s vital to contact a professional to ensure you understand the opportunities and liabilities correctly. Laws are always changing, but template forms and DIY strategies are not as up to date on these strategies as an “in the know” estate planning firm will be.

Going DIY could mean that what you set up for plans after your death doesn’t actually hold because the wording, structure, or legal applicability is incorrect. Trust the experience and training of an estate planning firm that has helped individuals and families address needs across the spectrum. Call us at 732-521-9455 or through email at info@lawesq.net to begin.

Lessons from the Joan Rivers Estate

September 30, 2014

Filed under: Asset Protection Planning,Beneficiaries,Estate Administration,Estate Planning For Business Owners,Estate Taxes,Home Probate,Pets,Probate,Trusts — Tags: — admin @ 9:28 pm

Joan Rivers was heralded as a stellar performer, but she also left behind a legacy as an incredible businesswoman. Her estate included income, collectibles, and real estate that was estimated in value between $150 million and $250 million. She left behind detailed instructions for her assets after her death, which is rare in a society when many celebrity deaths highlight the weaknesses of their estate plans. Photo Credit: breitbart.com

Looking at her careful planning, there are a few key lessons: be prepared for the unexpected, outline plans for pets, and correctly title the assets. Joan Rivers was also masterful in giving her family a brief overview of the estate plans to help improve clarity and reduce the possibility of arguments. Rivers made use of family trusts to reduce the tax burden for her beneficiaries and titled her assets

appropriately to allow for the smooth transition of business assets. This act alone helped to diminish her capital gains taxes.

Regardless of the size of your estate, proper planning allows you to pass on assets to your heirs in the most efficient manner while minimizing the tax liability. Contact our offices today for a consultation for your business and personal needs through email at info@lawesq.net or contact us via phone at 732-521-9455.

Should I Worry About Protecting My IRA?

September 29, 2014

Filed under: Asset Protection,Asset Protection Planning,IRA,Retirement Planning — Tags: — admin @ 9:02 pm

This past June, an important ruling from the Supreme Court found that an inherited IRA is not protected as retirement funds. If a beneficiary of inherited IRA funds files for bankruptcy, the funds they inherited could be subject to creditor claims.

Photo Credit: breitbart.com

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This new finding highlights the value of a trust. If the inherited IRA funds were received by a beneficiary though a trust, this would help to protect those funds so that they could be used in the manner desired by the person setting up

the beneficiaries. One such example is the use of a Standalone Retirement Trust, where inherited funds flow to a third-party trust after the retirement plan owner passes away. While the beneficiary still retains access to the funds, the fact that he or she didn’t create the trust allows quite a bit of protection for the beneficiary.

There are some states where laws on the books do protect inherited retirement accounts from creditors, but it’s always wise to consult with an estate planning attorney to discuss best structures for passing down assets. To learn more about your options, send us an email at info@lawesq.net or contact us via phone at 732-521-9455 to get started.

New After-Tax Rollover Rules For Your 401(k)

September 26, 2014

Filed under: Retirement Planning,Taxes — Tags: — admin @ 8:47 pm

New rules for your 401(k) could actually end up benefitting you. If you have saved after tax money in your 401(k) retirement account, it can be rolled over to a Roth IRA. While in the Roth IRA, your money will grow on a tax free basis instead of a tax deferred basis. You’ll avoid having to pay pro rata taxes on your distribution, too.

Photo Credit: visionarywealthmgmt.com

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This new change creates an opportunity for planning. Prior to this new rule, advisors had to use complex planning tools to address client concerns. Taxpayers were required to roll over their entire 401(k) and use outside funds at the time to manage the 20% income tax withholding amount. The new rule, however, gives people without the cash on hand to replace dollars that were already withheld through a distribution.

In order to capitalize on this new rule, it’s important to understand that the distributions must be scheduled at the same time or they will be treated as separate, causing the mix of pre-tax and post-tax dollars. While the official rules begin on January 1, 2015, taxpayers can make use of them now since the rules were issued on September 18, 2014. In the past the IRS has allowed taxpayer relief based on a “reasonable interpretation” standard.

To learn more about the best strategies for your 401(k) and other retirement accounts, contact our offices for a personalized consultation. Request an appointment via email at info@lawesq.net or over the phone 732-521-9455.

What Qualifies as a Digital Asset?

September 24, 2014

Filed under: Asset Protection,Asset Protection Planning — Tags: — admin @ 8:33 pm

One of the biggest buzzword phrases in estate planning today is “digital asset”. But what does that mean, and how should you plan for it? Does everyone have digital assets? What happens if you fail to plan? These are all great questions, and this brief article will provide you with some details about how to approach this new concern.

Photo Credit: dupage-county-lawyer.com

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You’ll want to identify your digital assets before you set up plans for them. These might include:

  • Domain names/hosting rights
  • Credit card accounts
  • Debts
  • Email
  • Storage
  • Financial and banking account
  • Stocks
  • Bonds
  • Securities
  • Utility accounts
  • Social media
  • Online loyalty accounts
  • Retirement accounts
  • Tax accounts
  • Insurance accounts

As you can see, you very well could have quite a few digital assets. When outlining your list, include the account number, usernames, and passwords. You can store this on a hard media source or through the use of an online program. There will be numerous passwords, especially when it comes to accessing a device, the operating system, opening documents, etc. This way your account information is kept secure.

To manage these accounts, you need a digital fiduciary. It’s easiest if this is the same person who is serving as your will executor, trustee, or agent through a power of attorney. That individual would manage identifying the digital assets, copying or deleting information, and distributing the asset to the intended person.

Without a digital asset plan, your digital information could be forever lost. Even family photos that you have saved on a hard drive could be difficult to access without specific instructions. To learn more about comprehensive planning for all your assets, contact us at 732-521-9455 or through email at info@lawesq.net to begin.

 

 

 

 

When LLC Members Pass Away: What Are Executor Rights?

September 18, 2014

Filed under: Business Law,Business Planning,Business Succession Planning,Estate Planning For Business Owners,LLCs — Tags: — admin @ 9:36 pm

A recent case highlights some of the questions surrounding the situation mentioned in the title. According to the default rule in New York, the death of a member doesn’t trigger a dissolution of the LLC unless the survivors vote to take action on dissolving.

There are a few important outcomes of this new default rule, known as 701b in the New York LLC law. First, executors only have limited powers in their ability to exercise member rights or to become members themselves. Second, family members who inherit a deceased member’s interests are not admitted for official membership unless those other members consent to this. Third, without such consent, the inheriting family member retains only economic interest, not management or voting powers. Finally, these individuals can be considered non-members and do not have any decision making authority when it comes to judicial dissolutions or mergers and consolidations.

One example of this rule in action is the Budis case. An executor-husband of his late wife had his case dismissed against other LLC members for lack of standing. The operating agreement stated that the death of a member was seen as a voluntary withdrawal, and the estate thus became an interest holder but not a member per se. The solution is to include something in the operating agreement stating that a family member or executor inheriting the deceased’s LLC interest should be treated as a member of the LLC with all rights and powers afforded to other LLC members. To learn more about protecting your interests in an LLC, contact us today info@lawesq.net or via phone at 732-521-9455

When to Use a Family LLC

September 17, 2014

Filed under: Asset Protection,Estate Planning,Estate Taxes,Family Limited Partnerships,Family LLCs — Tags: — admin @ 9:24 pm

Most people have heard about LLCS, but you might not be aware of the best situations to use them when it comes to your family. Essentially, a family LLC is an estate planning tool for holding assets or transferring them to succeeding generations.

The people most likely to use a family LLC are those individuals who want to keep family assets together and intact, managed only by a limited number of people. As an LLC manager, you’re in control while you’re alive, but you can also exercise control in selecting who will manage the LLC after you pass away.

If your family has rental real estate, it’s a good option to use a family LLC. You can manage it during your lifetime, and then at your death a portion of the LLC managing that real estate goes to your children. This limits the opportunity for children to argue after you have passed away about who is entitled to what.

Another benefit of a family LLC is that you can gift it during your lifetime. Without having to worry about other members signing off on your decisions, you can sell, lease, or buy assets while you are still alive. This gives you control while you are still present with opportunities for your heirs to manage the LLC after you are gone.

Interested in learning more about Family LLCs or other family entities? Send us an email at info@lawesq.net or contact us via phone at 732-521-9455.

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