December, 2012 | Shah & Associates, P.C. Estate Planning & Business Law Blog
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Increase the Value of Your Charitable Giving

December 26, 2012

Filed under: Charitable Giving,Estate Planning — Neel Shah @ 9:00 am

As the economy continues to heal, charitable giving is again growing. Following two consecutive years of decline, charitable giving increased 3.8 percent from 2009 to 2010. According to nonprofit leaders, however, it could take years for charitable giving to return to pre-recession levels.  A recent article in InvestingDaily discusses strategies for those who are able to make charitable contributions to maximize the current and future value of the gifts transferred.

Property (Photo credit: mallix)

First, consider giving property that you know is going to appreciate. By gifting such property out before it appreciates, you remove that appreciation from your own estate. Gifting appreciable assets should happen early in the year so that any subsequent appreciation during the year will not count against your exclusion amount. Alternatively, you can also save on appreciation costs by giving an asset when it has a low market value.

On the other hand, it is wiser to retain “loss property.” If a piece of property decreases in value during your ownership of it (rendering it “loss property”), neither you nor a future recipient is allowed to deduct that loss upon gifting the property. A better choice would be to sell the loss property so that you can deduct the loss on your tax return, and then gift the cash instead.

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Succession Plans for Franchises

December 19, 2012

Filed under: Business Succession Planning,Franchises — Neel Shah @ 3:28 pm

Although most people do not enter into a franchise agreement with the goal of creating a family business, children are increasingly choosing to succeed their parents in owning the family franchise. However, the International Franchise Association (“IFA”) reports that only 30 percent of family-owned franchises survive into a second generation. A recent article in Entrepreneur discusses how franchise owners can best prepare for a successful succession.

Succession plans for franchises are inherently difficult because the franchisor generally yields veto power over any proposed succession, and is the sole decider of whether a person is qualified to succeed his or her parents as a franchise owner. According to attorney and co-author of the IFA handbook William Slater Vincent, Franchise Succession Planning and Transfers, “I’ve worked with franchises from over 100 systems, and every single franchise agreement I’ve seen clearly states that if the franchise owner dies, the franchisor has to approve the successor.” Such provisions mainly serve as a protective mechanism for the franchisor. Said Vincent, “I don’t know how many times a husband dies and his wife takes over the business even though she was never involved before. Instead of being a viable business, it becomes an asset sale. Franchisors don’t want that.”

Each franchise has a different protocol for succession planning. These protocols range from not paying attention, to allowing local reps to sign off on proposed successions, to requiring that successors undergo rigorous training akin to that of a new a franchisee. The key to creating a successful succession plan, therefore, is speaking to your franchisor about any succession requirements, and creating a plan that qualifies your chosen successor in the eyes of the franchisor.

Death of Equities? Not So Fast

December 12, 2012

Filed under: Current Events — Neel Shah @ 2:05 pm

Many a Wall Street Guru has opined that the American public has simply given up on stocks. To make their case, they point to low trading volumes, as well as the $440 billion that investors have removed from stock mutual funds since the stock market crash of 2008. However, a recent article in The New York Times reveals the bigger picture that equities are far from dead.

Currently, investors have over $5.7 trillion invested in stock mutual funds. This figure is more than the total amount of money investors have in bonds and money markets, combined. Investors have an additional $880 billion invested in stock-centric exchange-traded funds. These numbers show that, while investors have not forgotten the plunge of 2008, they prefer the stock market to alternative investment opportunities.

Treasury bonds, for example, are currently paying an interest rate less than the annual rate of inflation. The interest rates currently being offered on certificates of deposit average .8 percent, and the payout from money market accounts is even less. Many investors are driven to equities because they believe that equities are their best option for a comfortable retirement. According to Adam B. Scott of Argyle Capital Partners, “if your time frame is 10 years or more, you’re better off in stocks.”

T’was The Month Before ‘Cliff’-mas…

December 8, 2012

Filed under: Estate Planning,Estate Taxes — Neel Shah @ 6:35 pm

As I attended a Christmas play with my family last weekend (TWAS THE NIGHT BEFORE CHRISTMAS @ the Kelsey Theater), I tried for a couple of hours to completely ‘unplug’ myself from the office and focus on being “there” with the family.

Sadly,  I found myself so preoccupied with the year-end planning we are doing in the office (for client’s seeking to tax advantage of the increased exemption this year), that visions of ‘esate-planning’ danced in my head throughout the show.  My mind must have somehow mixed the two concepts, because the idea for the below poem came to me.

(Don’t worry, I won’t give up my day job.)

T’was The Month Before ‘Cliff’-mas…

T’was the month before the New Year and all through the country,

all were in a good mood, except (that is), Trust Attorneys.

 

It seems like we will miss all the holiday cheer,

as our procrastinating clients finally plan out of fear.

 

It will be taxed at their deaths or when they give it away,

But much less for those who actually plan today.

 

The gifts on our minds will involve Gift Tax Exemptions,

instead of Barbie and Wii’s  and Sony Play-stations. 

 

Oh, how we wished we could drink, eat and relax,

and forget for a while about the Gift & Estate Tax.

 

The House passed a bill and so did the Senate,

but since the mid-summer, they’ve just sat on it.

 

As $1 Million may well be the new Exemption,

we are swamped with the tasks of trusts cre-a-tion,

 

So on New Year’s Eve, make my drink real stiff,

as I’ve tried to steer clients from their own fiscal cliff.

Protecting Your Assets From Potential Lawsuits

December 5, 2012

Filed under: Asset Protection Planning — Neel Shah @ 3:04 pm

While many people write off asset protection as a mechanism for the very wealthy, the reality is that it would be worthwhile for middle class people with a nice home and a couple of cars to consider as well. Engaging in asset protection is even more worthwhile for people who can see themselves being sued one day, such as lawyers and doctors. A new article in The New York Times discusses how to protect your assets in the event of a future lawsuit.

The article begins with the caveat that it is virtually impossible to shield all of a person’s assets. Rather, asset protection involves taking steps to discourage creditors from going after certain assets. As Jason Cain of Credit Sussie Private Banking USA explains, “there is no such thing as asset protection… What there is is good business and estate planning that as a byproduct insulates your assets from future, potential creditors.”

Several tips for protecting your assets from potential lawsuits include:

  • Assess what assets you own, and the respective likelihood of a creditor pursuing them.
  • Remember that insurance is the most crucial part of an asset protection plan. Consider the many different types of insurance, from automobile and homeowners insurance, to an umbrella policy to limit liability to arising from the unexpected, to professional insurance.
  • Check current state law to see what assets are automatically protected.
  • Consider holding money meant for transfer to heirs in an irrevocable trust.

An Update on Developments, or ‘lack thereof’, on Estate Tax Reform, and a Little Estate Tax Trivia

December 2, 2012

Filed under: Current Events,Estate Planning,Estate Taxes — Neel Shah @ 2:19 pm

Two articles about this week sought to shed some light on the estate tax developments, political positions as it pertains to the estate taxes & the “Fiscal Cliff.”

The Associated Press went the route of detailing the specifics of bills passed in the Democratic-controlled Senate in July and the Republican-led House in August:

Senate: Does not address the estate tax, allowing the top rate to increase from 35 percent to 55 percent. Currently, the first $5.1 million of an estate is exempt from the federal estate tax; the exemption rises to $10.2 million for married couples. If the tax cut expires, the exemption would be reduced to $1 million for individuals and $2 million for couples.

House: Extends the top rate of 35 percent through 2013, with the larger exemption [$5.12 million.]

You can find the article by clicking here

A Yahoo! article speaks a little more specifically about President Obama’s views on the estate tax, divisions among the Democrats within the party and it’s impact on illiquid assets such as farms and ranches (click here for the full article.) A testament to the discord between the two parties is their inability to agree upon a label for the tax:

The divide between the political parties over the tax is so wide that they cannot even agree on a name for it. Democrats call it the estate tax, as it is described in law.

Republicans, who generally want to repeal it, have another, more provocative name. They call it the “death tax” and characterize it as a penalty on being wealthy and successful.

Ever wonder what the highest rate in history has been for the Estate Tax? Although it has fluctuated, the rate hit a high of 77% before World War II.

According to the article:

“It was a Republican president, Teddy Roosevelt, that proposed the first permanent inheritance tax, arguing that inheritance of “enormous fortunes” does a society no good.

“No advantage comes either to the country as a whole or to the individuals inheriting the money by permitting the transmission in their entirety of the enormous fortunes which would be affected by such a tax,” Roosevelt said.