T’was The Month Before ‘Cliff’-mas…

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

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

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.

Estate Planning Devices That May Help Greedy Heirs to Your Assets

Several widely used estate planning devices may actually assist greedy heirs in helping themselves to your assets. A recent article warns of what these estate planning devices are.

The first device is a power of attorney for finances. This is a document that allows you to specify who you would like to make financial decisions for you should you become unable to make such decisions yourself. Depending on what your specific power of attorney document states, the person who holds your durable power of attorney may be able to write checks out of your bank account, buy and sell your securities, and collect your social security payments.

To avoid abuse of these privileges, it is important not only to carefully choose an agent whom you trust, but also to speak with your estate planning attorney about broadening or narrowing your agent’s power based on your unique situation.

Another device that may easily lend itself to abuse is the joint bank account. If two people jointly own an account, either can make a deposit or withdrawal. Furthermore, at the death of one joint owner, the bank account automatically reverts to the other owner. This reversion occurs even where the deceased joint owner’s will specifies that they would like the account to be inherited by someone else.

Exit-Planning for Business Co-Owners

Many times, the last thing entrepreneurs consider in the process of starting a new business venture is how they will handle the departure, on good terms or otherwise, of a co-owner. As a recent article explains, it is never too soon to begin crafting an exit plan.

By its very nature, co-ownership of a business by its founding individuals cannot last forever. Consequently, the article suggests that co-owners need to address and have an action plan for three important questions:

  1. When will a co-owner have an option or obligation to sell or otherwise divest himself of his ownership interest?
  2. In situations where an ownership interest will be sold, how will the co-owners determine an appropriate purchase price?
  3. After an appropriate purchase price is determined in sale situations, where will the money to pay it come from?

“Trigger events” are events that lead to the option or obligation to sell an ownership interest in a business. Some of the more common trigger events occur when a co-owner dies or becomes disabled, or terminates his employment with the business. Although planning for these decisions may involve difficult or uncomfortable discussions, wise co-owners will maintain and update a well-documented exit plan.

Justice Department Seeks $28M Restitution in Estate-Planning Scheme

As reported in The Chicago Tribune, two men have been indicted in an estate-planning scheme that yielded $28 million from 120 investors. According to the Justice Department, Robert C. Pribilski and John T. Burns III fraudulently obtained the money by persuading wealthy retirees to invest in Turkish bonds. The ponzi-like scheme was in place from 2005 to 2010.

The men found investors through mass mailings that invited them to local estate-planning seminars. The investors were “absolutely and unconditionally” promised that, at the note’s maturity date, they would receive the principal and interest due on their note. In reality, the invested funds were paid out to other investors. The Justice Department alleges that Pribilski and third defendant Mahmut Erhan Durmaz – who has fled the country – took over $2.5 million of the investor’s funds to make payments to themselves, their friends, and their families. The pair also used invested funds to speculate in real estate and restaurants.

Counsel for Burns, Joseph Lopez, has stated that Burns should not have been indicted because he was simply an employee of Pribilski and Durmaz. He “didn’t get any proceeds” from the scheme beyond his usual compensation, Lopez said. The Justice Department hopes to retrieve the $28 million.

Learning From Celebrity Mistakes: The Case of the Houston Estate

English: Whitney Houston talking to the audien...

The premature death of six-time Grammy winner Whitney Houston should serve as a somber reminder that wills not only need to be created, but updated every few years. As estate planner Andy Mayoras points out, “Celebrity stories like this are a great educational tool to share with clients and highlight what should be done, what was done wrong, and what was done right.”

According to the Investment News, Houston’s will named daughter Bobbi Kristina Brown as the main beneficiary. Surprisingly, Houston drafted her will in 1993 – while still married to Bobby Brown – and never updated it. The will specifies that if Houston had no living children at the time of her death, her estate would pass to Bobby Brown and specified members of Houston’s family. Furthermore, Brown is named as the guardian for their daughter Bobbi Kristina.

Even if this is what Houston wanted, she should have clarified her intentions in a modified estate plan after her split with Brown. Estate plans should be routinely updated after major life events such as divorce, death of a beneficiary, or birth.

Also interesting is that Houston’s will created a testamentary trust for her daughter. A testamentary trust is created by a will, and therefore must pass through probate. By passing through probate, it becomes a public document. Had Houston wanted to keep the associated financial information private, she could have created a “living trust.” Living trusts pass outside of probate, and therefore remain hidden from the public eye.

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The Human Component of Estate Planning: Leaving Your Legacy

Current estate planning clients are looking to leave more than money and property to the next generation. As Businessweek reports, people are now attempting to leave their personal legacies through devices such as ethical wills, life histories, and video recordings. Through these devices, people are adding a human component to traditional estate planning.

According to certified financial planner Neal Van Zutphen, “There’s an element regarding money, but it is really more about affirming your life as a legacy.” Because of the various ways to create a personal legacy component of a will, these can be done as a small do-it-yourself project, or a more intensive, expert-guided concept. Perhaps the most frequently used form is the ethical will, which is a simple letter to one’s family. Van Zutphen provides all of his clients with workbooks to assist them in preparing ethical wills.

Retired psychiatrist Paul Wilson undertook a more involved project when he decided to write a 60-page memoir for his children and grandchildren. Wilson plans to self-publish the memoir, which will contain photographs and newspaper articles. Wilson explained, “It’s therapeutic in that I come out of this learning more about myself – my present and my past … but the reward is more the experience of allowing myself to wander back to those times, and describe them in words as precise and concise as I can.”

Court Finds that J.P. Morgan Mishandled Trust, Orders $18.1 Million Payout

An Oklahoma judge has recently held that J.P. Morgan & Chase Co.’s administration of the Carolyn S. Burford trust was “grossly negligent and reckless.” As a result, the court ordered J.P. Morgan to pay the trust $18.1 million, as well as punitive damages and legal fees.

English: Category:JPMorgan Chase

According to a recent article in the New York Times, the order for monetary damages came after the Tulsa County Judge found that J.P. Morgan breached its fiduciary duties in handling the trust account. In 2000, J.P. Morgan sold variable prepaid forward contracts to the trust. The court determined that this sale was a breach of fiduciary duty. Not only did the bank fail to ensure that the client understood what the product was, but it also failed to disclose the fact that the transaction was beneficial to the bank. The court further found that the bank was “double dipping” when it used the proceeds from the contracts to further invest in it’s own investment products.

Current law requires that brokers handling trust accounts act in the best interest of the client. According to J.P. Morgan spokesperson Douglas Morris, “We disagree with the court’s decision and will take all appropriate measures to respond, including appealing the decision.”

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Protecting Your Digital Assets

Every day, people are living more of their lives online. Whether via Facebook or online banking, millions of people conduct substantial portions of their personal and professional business online. Image representing Facebook as depicted in Cru... All of this online activity creates what are known as digital assets. As the Pittsburgh Post-Gazette reports, these digital assets are often forgotten when it comes to estate planning.

There are many different categories of internet assets, some examples include: social media accounts, email, financial products such as banking, reward programs such as frequent flyer miles, and entertainment accounts such as iTunes and Netflix. Without conducting simple estate planning for these digital assets, heirs may be unable to even identify all of the deceased’s virtual property, let alone gain access to it.

The easiest solution to this problem is to create a list of all your online accounts, passwords, and security question answers. Keep this list in a secure place where your family can access it if you pass away or become incapacitated. There are also online services that will manage your digital assets for you such as Legacy Locker.

Image representing Legacy Locker as depicted i...

This site charges a fee for its legacy protection services, however it also provides a number of bonus features such as protected document storage and backup.

Discussing your digital assets with a qualified estate planner is the only trusted way to ensure that your estate plan is complete.


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“Here’s a Story…Of a Lovely Lady…” Planning for Today’s Blended Families

I grew up watching the Brady Bunch.  Mike and Carol Brady are my first recollection of the “Blended Family.”  Mike had three children from a previous marriage: Greg, Peter and Bobby (of course, they also had Tiger, the family dog.)  Carol had three daughters from her previous marriage:  Marsha, Jan and Cindy … the youngest one in curls.  Although the concept may have been very progressive & I found the show very entertaining, I have my doubts about how representative or realistic it is of Blended Families that exist today.

For example, wouldn’t it be more likely in today’s age that Mike’s and/or Carol’s divorces would have led to the creation of their new blended family (as opposed to them both being widowed?)  I suppose that the producers of the show felt that having Mike’s or Carol’s divorced spouse written into the show would have changed the dynamic (if so, I have to agree.)

Also, what if Mike and Carol had more children after they were married?  This new child would be the only common biological child to both parents.   How would that have affected the family?

A quick Google search revealed this as a definition for a Blended Family (from this Boston College website):

    “1. A family that is formed when separate families are united by marriage or other circumstance; a stepfamily. 

    2. Various kinship or nonkinship groups whose members reside together and assume traditional family roles” (Barker, 2003, p. 46).

“…has a role structure in which at least one parent has been previously married and which includes children from one or both of these marriages” (Johnson, 2000, p. 119).

My colleague, Jennifer L. Moccia, has written a wonderful blog post with some introductory thoughts on the topic, titled Estate Planning Considerations for Blended Families.  Ms. Moccia notes some of the issues surrounding these “nontraditional” families, including:

  • the fear that children from a prior relationship may not be provided for by the surviving spouse if the parent were to become disabled or pass away,
  • how the absence of an estate plan & a marital agreement may affect a child’s inheritance because of state law,
  • who would control the child’s inheritance in the case of a minor child, and
  • how to accomplish the parents desires to treat children equally or unequally.

You can read the entire blog post by clicking here.  I think the following quote from her post puts it best: “Successful blended family estate planning is a matter of setting and communicating goals, learning the available legal strategies, implement­ing the chosen documents and setting appropriate expectations for the client. With guidance from experienced counsel, the various goals of each family can be met by crafting and implementing estate plans that provide for each spouse and protect the interests of their respective children.”

How To Choose The Right Guardian For Your Children

Who should raise your children if for some reason you and your spouse are unable to do so? It’s not an easy question to answer, but if you have young children, it is a topic you most certainly should address in your estate plan. Otherwise, a court will decide, and their decision will probably not be the same as the one you would have made, and may not even be in the best interests of your children.

Some of the most important issues to consider when choosing a guardian include:

  • Does the prospective guardian have a genuine interest in your children’s well-being?
  • Does the prospective guardian share your values?
  • Can he or she handle the role physically and emotionally? What about financially, if you cannot provide him or her with enough assets to raise your children?
  • Does the prospective guardian already have children of his or her own? Will he or she be able to make enough time to adequately care for and look after your children?
  • Where does the prospective guardian live? Would that be a good fit for your children? Would having to move far away make an already stressful situation for your children even more so?
  • Is it essential that all your children share the same guardian? Most parents say yes, but in some circumstances, such as when your children are of significantly different ages, naming more than one guardian is an option.
  • Should you choose one person to act as personal guardian and another to manage the financial arrangements for your children-that is, name a second person to act as Custodian or Trustee?

In certain situations, such as when the best surrogate parent for your children is not necessarily the best person to handle financial matters, this option is worth considering.

  • Perhaps most important of all, have you spoken to the prospective guardian about taking on such a responsibility, and does he or she seem readily willing to do so?

What if you and your child’s other parent cannot agree?
It goes without saying that you and your child’s other parent should name the same guardian for your children. But what if you are divorced, or for whatever reason you and your spouse cannot agree on the most suitable guardian? Naming different guardians will lead to a battle in court should you and the children’s other parent pass away while your children are still minors. The decision over guardianship will then be in the judge’s hands.

Part of the solution to this situation is to leave a Letter of Explanation, outlining your reasons for choice of guardian. It is important to have an experienced attorney assist you in the drafting of such a letter, but here are the basics of what should be included:

  • Who the children would prefer, that is, the relationship between the children and the prospective guardian
  • Why your choice of guardian will best meet the children’s needs, particularly with regard to providing stability and proper care
  • The values and moral fitness of the prospective guardian
  • The physical and financial ability of the prospective guardian to raise your children

We have helped many couples select the ideal guardian for their children and designed wills or other planning documents to ensure their wishes are carried out. We welcome the opportunity to do the same for you.

Estate Planning: A Process, Not an Event

You have signed all of your estate planning documents and, if your plan includes trusts, completed their funding. You sit back, relax, and enjoy the peace of mind that comes with completing that task. But don’t bask in that feeling for too long – estate planning is an ongoing process, not a one-time event.

[Still unsure of what the term “Estate Plan” means? Click here to watch & hear me explain further in this video: http://www.youtube.com/watch?v=QjWtCPl947o&list=UUZReC3JLutCu4AU9vX11Slw&index=3&feature=plcp ]

Let’s examine why your estate plan will need to evolve to keep pace with your life, family, and finances as they change, events that should prompt you to consider making changes, and planning opportunities that can arise along the way.

Why Your Estate Plan Will Need to Evolve
Your estate plan is designed in light of what is known at the time; a snapshot, if you will, of you, your family, your financial situation and the tax laws as they existed and were anticipated to change in the future at the time it was prepared. All of those things do change during your lifetime, and often in ways that were not anticipated. When the unanticipated happens, your estate plan will need to change, to adjust.

It is unreasonable to expect that a basic will-based plan created when you were a newlywed living in an apartment would still be all you need when you have children, a home, and a business. Life’s curve balls – such as a divorce, a loved one who has special needs, or changes in the tax laws can also make plan adjustments advisable.

Events that Trigger Changes to Your Estate Plan
Maintaining an estate plan has been compared to maintaining an automobile. Both need periodic attention if you expect them to perform the way you want when you need them. While a car will have time and mileage checkpoints for servicing, your estate plan will haveevent checkpoints and should be checked periodically, too.

Generally, any significant change in your personal, family, financial or health situation, or a change in the tax laws should prompt an estate plan review. The following list can be used as a guide, but is by no means all-inclusive:

Personal and family changes:

  • You marry, separate or divorce;
  • Your or your spouse’s health declines;
  • Your spouse dies;
  • Birth or adoption of a child;
  • Marriage or divorce of a beneficiary;
  • Family member develops special needs or requires extra care;
  • Minor becomes an adult;
  • Beneficiary’s attitude toward you changes;
  • Beneficiary develops a substance abuse problem;
  • Beneficiary displays poor financial management skills;
  • Parent’s or other beneficiary’s health declines;
  • Family member dies.

Family finances changes:

  • Value of your assets changes significantly;
  • You anticipate a sale or transfer of a family business;
  • You buy real estate in your own or another state;
  • Value of a family member’s assets changes dramatically;
  • Beneficiary gets into financial difficulties;
  • Parent or other relative becomes financially dependent upon you.

Other Changes:

  • Federal or state tax laws change;
  • You move to a different state;
  • Successor trustee, guardian or administrator moves, becomes ill, or changes their mind about serving;
  • You change your mind about who you want to be your trustee, guardian or administrator.

Changes Your Estate Plan Might Need
These will vary according to the circumstances in which you find yourself at the time. As before, the following can be used as a guide to stir your thoughts, but it is by no means a complete list:

  • When you begin to have a family, you will need to name a guardian and inheritance manager for your minor children and plan for their future. (Otherwise, the court could name who will raise them if you can’t, and it will pay out each child’s inheritance at age 18.)
  • You may want to add or drop a beneficiary.
  • Beneficiary designations, especially for IRAs and other tax-deferred plans, may need to be updated. (As your tax-deferred plan grows, consider a “stand-alone retirement trust” to ensure maximum tax-deferred growth for these assets.)
  • You and other family members may want to set up a special trust to provide for a family member (child, parent, irresponsible adult) without jeopardizing their eligibility for valuable government benefits.
  • You may want to change a trustee, successor trustee, guardian or executor, or replace one who is no longer able or willing to serve.
  • Once you own your own home or have other significant assets, you may want to change from a will-based plan to a living trust-based plan.
  • As your wealth increases, you may want to establish a gifting program so you can see the results of your gifts while you are living.
  • With more assets to pass on, you may want to change the way your beneficiaries will inherit from you. In fact, you may decide to keep their inheritances in a trust to protect the assets from creditors, predators (including ex-spouses), irresponsible spending and future estate taxes.
  • With more disposable income and accumulated wealth, you may want to increase the amount of your life insurance to hedge against estate taxes, create a dynasty trust for future generations or to fund a private foundation.
  • You may want your estate planning to help you pass on your values (religion, education, hard work, etc.) in addition to your financial assets.
  • Your health care documents may need to be updated. (You may want to change who will make decisions if you are unable to make them; also, some states require the documents be replaced periodically.)
  • With more accumulated wealth, you may want to add a charitable beneficiary, such as your church or synagogue, hospital, university, or other favorite cause.
  • You may want to plan for a smooth transfer of a family business before your retirement, disability or death.

Tax Law Changes Can Affect Your Estate Plan
Proper estate planning should always consider estate and gift tax rules. In recent years, we have seen the federal estate, gift and generation skipping transfer (GST) tax exemption rise from a stable $1 million to a very temporary $5 million. As those changes took place, many states enacted their own estate or inheritance tax, in addition to the federal tax.

If your estate plan does not keep up with these and other changes in the tax laws, it may not work the way you intended when it was established. That could cause your estate to pay too much in taxes and leave less to your beneficiaries than you had planned or have your estate distributed in ways you did not anticipate.

Special Planning Opportunities During the Rest of 2012 Only
The final months of 2012 are a time of special opportunity. Until December 31, 2012, an individual can give up to $5.12 million ($10.24 million, if married) in lifetime gifts without paying gift taxes. For most Americans, that will allow them to transfer as much as they want to family members without having to worry about gift taxes. For those with larger estates, combining the $5 million gift and GST tax exemptions with discounting, installment sales, and other advanced planning techniques can allow the tax-free transfer of huge amounts of wealth.

However, unless the President, House of Representatives and Senate all agree otherwise, on January 1, 2013, the federal estate, gift, and GST tax exemptions will drop from $5.12 million to about $1.4 million and the tax rate on everything over $1.4 million will increase from a flat 35% to a sliding scale starting at 45% and topping out at 55%. At the same time, unless the President, House of Representatives and Senate all agree otherwise, income tax rates will also increase, the tax on long-term capital gains will increase from 15% to 20% and the favorable tax treatment of dividends will end.

Planning Tip: If you transfer assets to a family limited partnership or limited liability company, an outside buyer would pay substantially less than the underlying asset value for an interest that cannot be sold without the approval of the other owners. Discounting values through planning strategies like this can leverage the $5.12 million gift and GST tax exemption available this year only and further increase its exceptional value as a wealth transfer tool.

Planning Tip: A very large amount of life insurance can be purchased with $5.12 million or $10.24 million. Giving the money to a trust that buys the insurance can allow the insurance policy proceeds to pass to younger generations free of probate, income taxes and estate and GST taxes or be available to meet liquidity requirements at death.

What Can We Expect in 2013?
The simple answer is that nobody knows. The exemptions from estate, gift and GST taxes and tax rates are political issues. What will happen in 2013, therefore, will depend a lot on who controls the House, Senate and Presidency after the November elections. The old adage, “Make hay while the sun shines” was never more true. The farmer understands that today’s sunshine may be followed by a rainy tomorrow and thus the opportunity to “make hay” irretrievable lost. Trusting that the President, House of Representatives and Senate will all agree to continue today’s estate, gift and GST tax regime into 2013 and beyond is a very risky strategy, especially when compared with the certainty of today’s extremely favorable tax situation – and especially in light of continuing record federal deficits.

Planning Tip: The current administration has targeted for elimination long-used wealth transfer strategies like discounting (mentioned above) and even unlimited charitable deductions. Nobody yet knows what the tax laws will be in 2013. However, we do know what we have now an exceptional planning opportunity that we may never see again.

When Should You Review Your Estate Plan
It’s a good idea to review your estate plan every year. To make that happen, set aside a specific time each year (such as a birthday, anniversary, family gathering) as your reminder to review it. Having a plan in place and then reviewing it regularly will maximize the probability that it will be current on that unknowable future date when it really will need to be.

When you do your annual plan review, take time also to update and organize your financial records. That way, when the unexpected happens, your family members will not be doubly stressed by having to search for insurance policies, bank records, etc., like so many are forced to do, following a death or disability event. Instead, your family or trustee will have the comfort of knowing that you planned for this event when they find everything they need organized and in one place.

Planning Tip: Depending on your relationship with your beneficiaries, it can be a good idea to let them know the general provisions of your estate plan. You don’t have to give them specific amounts of their inheritance or of your financial accounts. But it can be very helpful for them to understand what your plan contains and why you have planned it this way.

What if Your Estate Plan Needs Changes?
You need an estate planning lawyer’s advice to make an estate plan and you need the same kind of lawyer’s advice and assistance to change one. Trying to make a change yourself by writing on your original plan documents is a sure-fire recipe for disaster. Maybe your changes won’t be valid. Maybe they will actually void your plan documents altogether. Maybe they will lead to confusion that will require a judge and jury to straighten out. Maybe the change will have tax consequences you didn’t anticipate.

Your estate planning lawyer will be able to provide critical guidance you need to make the appropriate changes to your plan, thus giving you peace of mind that everything has been done correctly. And that will put you back where you were when we started this conversation: sitting back, relaxing and basking in that peace of mind that comes with knowing that you have just the planning you need…at least until the next change comes along.

Estate planning is an ongoing process. You wouldn’t mark “Done for life” next to “Buy clothes” on your task list and you can’t so mark “Plan estate.” Your estate plan needs to be changed, adjusted and adapted as you move through the events of your life. Keeping your estate plan up to date will give both you and your family assurance that it will work the way you want whenever it is needed. And that is one of the most thoughtful and considerate things you can do for yourself and those you love.


Most people only need to do their estate planning one time.
  T        F
Every young family should start with an expensive, comprehensive estate plan that will carry them all the way to retirement and beyond.
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A change in your personal, family, financial or health situation could result in the need to change your estate plan.
  T        F
Proper estate planning should consider estate and gift tax rules.
  T        F
Estate planning can help provide a smooth transfer of a family business.
  T        F
Estate and gift tax laws are stable – they haven’t changed in years.
  T        F
There are exceptional estate planning opportunities in 2012 that may not last.
  T        F
There’s no need to review your estate plan more often than every 10 years or so.
  T        F
If you want to change your estate plan, you can make the change yourself by just crossing out the old and writing in the new wording on the plan documents.
  T        F
While you do not need to share specific financial information with your beneficiaries, it can be helpful to inform them of the general provisions of your estate plan and why you planned it the way you did.
  T        F
Answers: 1, 2, 6, 8 and 9 are false. The rest are true.

One of the Biggest Problems of Dying as a Resident of New Jersey

It’s not uncommon for my out-of-state relatives & friends to utter some variation of the phrase “I wouldn’t be caught dead in New Jersey.”  Just Google the state name & you’ll find a ton of clever quips about the Garden State (use “Armpit of America” as your search term and you’ll find search results right on point.)

Having lived here for the past 25 years, I can vouch for the fact that New Jersey is a great state in which to live.  We experience all the seasons throughout the year; you can take a road-trip to visit farms, cities & shores all in the same day.  There is a tremendous diversity of cultures.  Yes, it can be a fantastic place to live.  Dying here, however, is another story.

I shared an article from a Wall Street Journal Blog about a year ago (click here to read the Death Tax Ambush) which highlighted one of the biggest problems of dying as a resident of New Jersey:

“Here’s some free financial advice: Don’t die in New Jersey any time soon. If you have more than $675,000 to your name and you die in the Garden State, about 54% may go to the IRS and the tax collectors in Trenton.”

An article last week in the Wall Street Journal addressed this issue again (click here to read Death Tax Defying.) Ohio has abolished its Estate Tax/Death Tax, making it state #29 to do so.   Unfortunately, New Jersey has not (neither has New York for that matter.)   One of the arguments I hear most often for the repeal of the Estate Tax/Death Tax in New Jersey (and the Federal Estate Tax for that matter) is best summed up in last week’s article:

“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.”

If you happen to find yourself in the Garden State, I hope you reach out to me. Perhaps we can grab a bite at one of the fantastic restaurants in Princeton or New Brunswick, or maybe catch a show at Newark Performing Arts Center.  We can enjoy some delicious Jersey Tomatoes, or I can point you to a spot in Cape May (which can be a great place for a family vacation.)   However, until the legislature acts or you’ve done some planning, just don’t get caught dead here.

An Introduction to Asset Protection Planning

Almost everyone knows someone who had a problem and lost everything. Claims can, for example, allege professional liability, responsibility for a car accident, or unpaid creditors. Whether meritorious or not, defense can be enormously costly. With our litigious society, with limited risk for those making liability claims, asset protection planning has become required for many and highly desirable for many more.

In this issue of The Wealth Advisor, we will provide an introduction to asset protection planning (what it is, types of risk, when to plan, what to expect in the planning process, and levels of planning) and how you can get started.

What is Asset Protection Planning?
Asset protection planning is not about hiding or concealing assets. It is about using the existing laws appropriately to obtain the best possible level of protection for your assets – in other words, to make you a less desirable target for claimants.

Types of Risk
Professional Liability

Physicians, dentists, other health care professionals, lawyers, accountants, and sometimes people whose business enterprises pertain to health care, such as skilled nursing facilities and assisted living facilities, are frequent targets for claims. Those in construction (architects, builders, developers) also have professional liability concerns.

As a general rule, nobody can limit their own professional liability through a legal device. That’s why professionals carry malpractice insurance. But there are other areas of risk against which professionals can and should protect themselves.

Professional and Personal Liabilities of a Partner
In a general partnership, each partner is liable for all claims arising out of partnership activities. Verbal partnerships are always general partnerships. Only in a limited partnership can the partners be protected from liability for the malpractice of the other partners. In a multi-owner entity in which an owner is married, protection may also be needed against a partner’s next spouse becoming an owner.

Non-Professional Personal Liabilities
These include liabilities for business deals (for example real estate) that have gone bad and tort claims (such as for car wrecks). In any business there could be non-professional liability claims based on employment practices, alleged employment discrimination, and alleged sexual harassment, to name just a few.

Other General Liabilities
Professionals and nonprofessionals alike are exposed to general liabilities that can cause their assets to be at risk. These include liability for unpaid income and estate taxes; the behavior of children and their spouses, which can lead to loss of family assets; co-signing a loan or mortgage with a relative or another who defaults or has a judgment filed against them; or a car wreck or other accident.

When to Plan
The best time to plan is before a claim arises. There are different rules that apply for known claimants and unknown future claimants. But even with an existing claim, and sometimes even after a judgment has been entered, some options may still be available. It is, however, vital to avoid making a “fraudulent” transfer; i.e., a transfer of assets with intent to defraud or hinder creditors that is made without full and adequate consideration.

The Planning Process and What to Expect
Because asset protection planning can include a variety of strategies, it is usually best accomplished by a team of advisors, which may include a CPA, estate planning attorney, financial advisor, insurance advisor and possibly retirement plan administrator. Any member of this advisor team may recognize that you need asset protection planning and recommend an evaluation, or you may have some concerns that you would like to address. Generally, the process takes at least three meetings to plan and implement. They are:

    1. An Initial Meeting: During the first meeting, the advisors will gather basic financial information, determine your objectives and begin to establish a relationship with you. They will also set some reasonable expectations for how asset protection planning works, including how the laws work and what you can expect.

    It is important that you are honest and forthright in providing the information requested. At the same time, because the very nature of asset protection planning can involve current worry about potential risk and/or litigation, it is important to determine early how much information you are willing to share and should share with various members of your advisory team. For example, it may be vital to preserve attorney/client privilege and not share litigious information with non-attorney advisors who could be subpoenaed later.

    2. An Advisors Meeting: After the initial meeting, the advisor team will usually meet without you to review your objectives, discuss various legal and financial solutions and determine a consensus solution.

    3. A Solution Meeting: Here the advisor team will present a unified solution plan, including all legal and financial components, to you. Because many of us are living into our 90s, your plan should be flexible enough to accommodate changes over 20 or more years.

Have Reasonable Expectations

  • Many people would like to have a high degree of certainty of the outcome of asset protection planning, but there may be circumstances that neither your advisors nor you can effectively control. Even so, the end result should be considerably better than if you had done no planning at all.
  • Many people want to maintain control rather than shift assets to some unknown third party in a foreign land. The preferred approach is to maintain control or at least oversight of your assets.
  • You want to have a plan that will discourage lawsuits from the outset. Your advisors cannot make your assets appear not to exist, but they can create a structure that will make it much less attractive for a potential plaintiff to go after you than after someone who has done no planning.
  • You want to avoid liability traps of owning assets in general partnerships or in joint ownership where the assets are at risk to problems another owner may have.

Funding the Plan
Once the plan has been approved, your advisors will make a list of the assets and determine where they need to go. It can easily take six months to a year to fully fund the plan, and it’s usually done in steps and pieces. During this time, it’s important that everyone stays informed about the process.

Levels of Asset Protection Strategies
There are numerous asset protection strategies you can employ, from very basic to advanced, depending upon the particular risks you face, your current situation, and the extent to which you are willing and able to go to protect your assets. Briefly, asset protection begins with utilizing state and federal law exemptions for things like life insurance, retirement plans, and limited types of jointly owned property. These exemptions have limited effectiveness, however, because they only protect these specific types of assets. For those who need broader protections, more advanced strategies like business entities and even trusts specifically designed to protect you against future creditors may be in order.

Planning Tip: Asset protection planning is a complex area, and as you start to become familiar with these tools, you will begin to understand why a team of advisors is usually needed to accomplish your goals.

If you are concerned about protecting your assets, talk to us. We can help you evaluate your situation, put together a team of advisors and start putting a plan into place. Most asset protection plans will build right on top of your existing estate planning.

Remember, the best time to plan is before a claim arises.

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in this newsletter was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax penalties that may be imposed on such person and (ii) each taxpayer should seek advice from their tax adviser based on the taxpayer’s particular circumstances.

What is Probate?

Something I am asked regularly is “what is probate?”  Often, that question is followed up with “how do I avoid probate?”  I always find it interesting when someone asks me the second question first, as I’m not sure why someone would want to avoid something without knowing what it is.

When one has passed away with assets to their name, the survivors are left to go through the court process to have an appropriate person appointed to transfer these assets to the rightful people, commonly referred to as the “beneficiaries.”  The act of going to court to appoint to the appropriate person, notifying the next of kin, filing estate tax returns and overall winding-up the affairs for the deceased’s estate  is what is commonly referred to as Probate.

Is Probate something which should be avoided?  The answer to that, much like the answer to many questions that involve legal ramifications is: “it depends.”  The factors that go into deciding whether or not probate is something which should be avoided are usually:

    1)      What assets did one own at the time of his death?

    2)      What are the specific laws of probate in the state in which the deceased resided and/or owned property during her lifetime?;  and

    3)      Is privacy something which is important to the person doing the planning?

The assets one owned at the time of their death is an important factor because different assets are transferred differently.  For certain assets (real estate, for example), state laws may require the Executor or Administrator (the person winding up the affairs) to jump through more hoops than others.  Some assets may require complicated valuations as well.  Avoiding probate in such cases can simplify or bypass altogether the court process of transferring these assets to the beneficiaries.

Some states have stricter probate laws than others.  The more strict the probate laws in a particular jurisdiction, the more costs & hassle the Executors and Administrators may have to endure in order to wind up the affairs and get the assets to the beneficiaries.

Finally, much like most court actions, probate is generally a public process.  That means that anyone (nosy neighbors, business partners and disgruntled family members who may not have received anything by way of inheritance) all have the same access to the public record documents that are involved in probate.

If one has determined that probate avoidance is a goal after weighing all the factors, the planning process can continue to determine the best strategy to achieve the goal.

Jeeves & the Estate Home: So What Exactly is an Estate Plan Anyway?

While out driving yesterday, I passed a sign put up by a builder seeking to sell “Estate Homes.”  Despite the fact that I deal with “Estate” matters every day, the builder has succeeded in conjuring up the image they wanted me to see by using the term “Estate”:

White pillar columns in the front of the home, family initials on a gated entrance, German Sheppard guard dogs guarding the perimeter and possibly a butler named Jeeves to greet me at the entrance.

For the most part, I stopped calling myself an Estate Planning Attorney unless I’m speaking with someone who is also an attorney or financial professional.  As someone who deals with the topic every day, I have to remind myself that not everybody realizes what Estate Planning entails.  Moreover, very few people know what it means to have an Estate.   Yet others are under the belief that estate planning is for those who have amassed or exceeded a certain level of wealth.

Follow this mental exercise with me: think of everything that you own or everything that you would leave behind when you are no longer on this Earth.  This can include real estate, investments, business interests, life insurance death benefits, retirement accounts, pensions, jewelry, German Sheppard guard dogs etc. While living, these items are your assets.  When you pass away and they go to someone else, these assets are collectively referred to as your Estate.

An Estate Plan is the planning that you do prior to death or disability which allows you to control your property while living, and to give what you have to whom you want to give.  You can specify when you want it to be received and in which the manner it will be received.  When done properly, it’s also an opportunity to save significantly on estate taxes, provide asset protection, plan for disabilities, as well as to serve other goals.

So who needs an Estate Plan?  Is it someone past a certain level of wealth?  No.   While the amount of wealth will have a bearing on the nature of the plan selected & the strategies used, it is not the sole determining factor of who needs an estate plan.  A person needs an estate plan when they want control who receives their property, when it is received and in the manner in which it is received.  That person can be the person buying the “Estate” home or Jeeves, the gentlemen who greets you at the door.

Protecting Your Clients From Sales & Use Tax Liability


Whether our clients are purchasing an existing business under a newly formed entity (corporation, LLC or other) or are purchasing the ownership interests (Stock or Membership units) of an existing company, both parties to a contract are typically eager to Close the transaction on the anticipated settlement date after all remaining contract contingencies have been satisfied. Among the myriad of liabilities from which we need to protect our Buyer-client is that of back owed Sales & Use taxes.

How can we protect our Buyer-client from liabilities arising out of the Seller’s failure to pay sufficient sales & use taxes? 

The answer is by filing a timely Bulk Sales notification with the State of New Jersey Division of Taxation. Per the New Jersey Bulk Sales Act, the Division of Taxation requires that when a business is being sold or dissolved, the Bulk Sales Section must be notified and given the opportunity to determine whether any taxes are due and owing to the State. Recently, the State of New Jersey has made clear that they intend the statute to apply not only to transfers of business assets, but also to the sale of real estate if the real estate is the principal asset of the seller or if the primary purpose of the real estate is to support a business. The statute also applies to any transfer, regardless of the consideration or dollar amount. This means that even if the transfer is for no consideration, the Buyer and Seller must comply with the State mandated bulk sale notification procedures.

What are the steps for gaining protection? 

To protect the Buyer from unknowingly assuming the Seller’s tax liability, adhering to the following Bulk Sale Transfer Notice Requirements is imperative prior to, on the day of, and after Closing:

1. The Seller, with the assistance of the Seller’s accountant, must prepare and deliver to the Buyer the Asset Transfer Tax Declaration, which will assist the State in determining the estimated tax on the gain from the transfer of assets.
2. The Buyer, with the assistance of the Buyer’s attorney, must prepare a Notification of Sale, Transfer or Assignment in Bulk, which, along with a copy of the fully executed Contract, will be forwarded to the Division of Taxation at least ten (10) days prior to Closing.
3. Within ten (10) days following receipt of the documents, the Division of Taxation will notify the Buyer’s attorney of any possible claim for state taxes and specify the amount to be held from the Seller’s proceeds and escrowed by the Buyer’s attorney on the day of Closing. This amount may include any underpayments to the State, unfiled returns and any fixed or pending audit assessments. In the event no taxes are owed to the State, the Division of Taxation will issue a Letter of Clearance.
4. After Closing, any amounts owed to the State will be paid out of the escrow account. Once all state taxes have been paid, the Division of Taxation will authorize the release of the remaining funds in escrow to the Seller by issuing a Letter of Clearance.

What are the ramifications of not complying with the Notice requirement? 

The statute containing these requirements, N.J.S.A. 54:32B-22(c), provides that if the State is not notified of the transfer, in addition to being subject to the liabilities and remedies imposed under the provisions of the uniform commercial code, Title 12A of the Revised Statutes of New Jersey, the Buyer “shall be PERSONALLY liable for the payment to the State of any such taxes theretofore or thereafter determined to be due to the State from the seller, transferor or assignor, and such liability may be assessed and enforced in the same manner as the liability for tax under this act.” Conclusion Prior to accepting the transfer of any business assets or real estate, the Buyer and Seller should confirm with their respective attorneys that all the above requirements are applicable and satisfied, so that no unexpected liabilities result from the transfer.

(Note that New York & Pennsylvania, states in which we maintain active practices, have similar means of protections, but are procedurally different.)

Estate Tax reform coming soon… or is it?

What can accountants and financial advisors tell their clients to expect from Congress with respect to Estate Tax reform? According to a recent article in Trusts & Estates magazine (available at http://trustsandestates.com/wealth_watch/estate-tax-reform1028/), the answer may surprise you. Here are some of the highlights:

There is an increasing possibility that Congress just may do nothing and send us back to the 2001 scenario. Advisors should consider taking immediate action to plan properly for that, and other possible scenarios. Indeed, we have to advise them in 2009 to take into account any number of possible scenarios.

“Everyone” predicted that by 2009 we’d have seen an amendment to the estate tax law. So far, “everyone” was wrong (although, admittedly, there are still almost 2 months left.)

Here’s the current law:

In 2009, we have. . .
$3.5 million generation skipping transfer (GST) tax exemption
$3.5 million exclusion from estate tax
$1 million exclusion from gift tax
45 percent top marginal rate
No state death tax credit

In 2010, there’s supposed to be . . .
No GST tax
No estate tax
$1 million exclusion from gift tax

And in 2011, we’re slated to get . . .
$1 million GST exemption
$1 million exclusion from estate tax
$1 million exclusion from gift tax
55 percent top marginal rate
State death tax credit reappears

Bear in mind that this does NOT address the state’s ‘take’ on estate taxes (i.e. New Jersey’s estate tax exemption is STILL at the pre-EGTRRA level of $675,000.00)

What will happen? Here are some possibilities:

· Congress will do nothing.

· Congress will enact a one-year extension of the 2009 law through 2010 only.

· Congress will enact a one-year extension of the 2009 law and make significant estate tax law changes in 2010 to extend permanently, or make significant estate tax law changes in 2009 to extend permanently, including:

-making the 2009 law permanent;

-reducing or increasing the various exclusions;

-unifying the gift and estate exclusions;

-reinstating the state death tax credit.

Planning in such an unpredictable climate requires the implementation of flexibility in estate plans, the use ofcreativity in maximizing exemptions & deductions, all whilekeeping an eye on Congress for any last minute reform.

What do you need to address for your family?

Your goal may be making sure your children & spouse are financially secure and to protect your assets from those who may ‘attack’ them. Perhaps you want to ensure your property and business is secure in the event of the following: death, divorce, a partner developing a debilitating disability and/or creditor’s attacks. Or it may be as simple as naming a guardian for your minor children. Most probably, your goals and needs are a combination of the above, plus other circumstances unique to you.

There’s no such thing as a ‘one-size-fits-all’ estate plan or a ‘cookie-cutter’ simple will. Different goals and unique circumstances requirepersonal attention and customized plans. Here are examples of client estate planning needs we’ve addressed in the recent past:

• An IT Professional and his business partner needed a comprehensive Buy-Sell agreement which ensured that in the event of either of their untimely deaths, the business can continue to run, but the deceased partner’s family would be paid a fair market value for his share of the business. As you can see both the family and the business needs are addressed.

• A married couple with substantial real estate investmentswanted to ensure that their personal home and assets wouldn’t be lost to a tenant, a lender or other litigant who sues them as a result of liabilities arising from their investments. We were able to implement an Asset Protection Plan which shields their family assets from liabilities than can arise from their investments. Most importantly, they also named a Guardian for their minor children in the event neither of them is around.

• One of our clients is a Physician who is married. Her husband is anon citizen. Her concern was saving money in Estate Taxes and what would occur if she died and her husband survived her, still not an American citizen. We implemented a plan, consisting of Wills and Trusts for each, that will save hundreds of thousands of dollars. Also addressed was the potential negative tax impact facing her husband upon her death as a result of his Resident Alien status. They also chose to create a Pet Trust for their dog.

Your customized plan should address your individual goals and needs. We can work together to put into effect a plan for your asset and income protection that will allow you to keep intact the Estate that you have spent a lifetime creating.