The fallout from an unsteady economy that has toppled Wall Street titans also is shaking up New Jersey, with unemployment rising and fears that more upheaval is yet to come.
But the financial maelstrom may offer opportunities for business owners, according to some accountants and lawyers, who say the downturn in stocks, housing and other assets makes it a good time to review estate tax plans.
“Even if a company has not been directly impacted by Wall Street troubles, this may be a particularly good time for business owners to think about estate tax planning,” since certain tax strategies are pegged to interest rates, says Elizabeth E. Nam, a senior manager in the family office group of Rothstein Kass, an accounting firm with an office in Roseland.
One such planning vehicle is a grantor trust—a way to transfer business interests and other assets to next-generation heirs while minimizing estate tax liability.
“A low-interest-rate environment like this could open up some good opportunities to move a business from the senior generation to the next generation of owners,” Nam says.
In some cases, the value of real estate and other assets are now at depressed levels, so “giving them away now can mean that any later growth will be excluded from an individual’s estate, for tax purposes,” says Warren K. Racusin, a partner in the Morristown law office of McElroy, Deutsch, Mulvaney & Carpenter LLP. He is co-chair of the firm’s private client services group, and focuses on estate planning and other matters.
“This opportunity is perhaps the best since the early ‘90s, when we went through the savings and loan crisis,” he says. “Stocks, real estate and some business assets have taken a drubbing, so getting them out of an individual’s estate now may make sense.”
Scott Testa, a tax principal at the East Hanover office of Friedman LLP, an accounting firm, agrees.
“It’s a classic move,” he says. “When assets are depressed, you can generally gift more of an interest in them at a lower value, potentially reducing your taxable estate and your exposure to gift tax liability.”
One strategy involves transferring ownership rights in a closely held company without losing control of the business.
“A business may be able to create two classes of stock or interests, preferred interests—with fixed or stated priority as to dividends or distributions—and common interests that allow for future appreciation,” Testa says. “The current owner would retain the preferred interests, thus ‘freezing’ the value of his or her retained share of the business, while the common interests would be gifted to the owner’s children.” Those common interests would appreciate with the market’s recovery.
Another way to reduce the taxable value of an estate involves gifting cash, an interest in a business or other assets without running afoul of exemptions to gift taxes.
Generally, individuals can give away as much as $12,000 a year per recipient without having to pay a tax based on the value of the gift. On a cumulative basis, donors generally are subject to a $1 million lifetime exemption before they have to pay tax on the gifts.
“The key is to leverage these gifts using techniques that allow for discounts, or to take advantage of the currently low IRS valuation and interest rates,” Testa says. In
the case of marketable securities that have depreciated below the value paid, “it may be best to sell the shares first and then gift the cash.”
The timeline of the estate tax is another consideration, Testa says. It’s scheduled to be repealed in 2010, and reinstated in 2011.
“I’ve been counseling clients about strategies they can adopt,” Testa says. “But some of them are hesitant to take any action because of uncertainty surrounding the future of the estate tax.”
Wednesday, September 17, 2008
Thursday, September 11, 2008
Estate Planning: More Than A Will
By Parag P. Patel, Esq.
www.patellawoffices.com
During our lifetime, most of us strive to create and build upon our net worth. We generate savings, purchase a home, and eventually invest in stocks, bonds, mutual funds, IRAs and retirement plans. Unfortunately, most of us risk losing an unnecessarily large amount of these assets by failing to plan to protect them.
Recent surveys have revealed that over 40% of our population does not have a will. For those individuals, their death often creates a scenario whereby their family must needlessly waste money to petition the court for an individual to administer the estate. In many instances, this insult is compounded by the assets being subject to taxes, which could easily have been avoided. Thus, an integral part of anyone's financial planning must be an estate plan.
Traditionally, an estate plan was simply a will. However, with the growing medical needs of an aging population, as well as the ever-present threat of the Internal Revenue Service, prudent estate planning requires additional protections for all of us. Even the best written will has little value if one's assets are depleted in later years by health care costs which can be mitigated or borne by someone else.
Any prudent estate plan should address four questions:
(1) Where do I want my money to go after I am dead?
(2) How can I minimize any taxes as a result of my death?
(3) How can I protect my estate and myself if I become disabled?
(4) Do I want my life to be extended by life support even though a medical event has left me in critical condition without any hope of recovery?
The basic documents, which are necessary to answer these questions, are a will, living will and power of attorney. A will declares who shall inherit an individual's assets (the beneficiaries) and who shall be responsible for distributing them to such beneficiaries (the executor). For young parents, a will can also be used to appoint a guardian for their children and a trustee to manage a child's money until they are old enough to handle it themselves.
Often, individuals wish to care for their spouse first, then their children. Often, this intention is reflected in a will. If you die without a will, though, your spouse is only entitled to the first $50,000.00 outright. In New Jersey, he or she must split the rest of your assets with your children, no matter how young or old they are. If you have no children, your parents step into their place.
Even if you have a will, your assets are not completely protected. It is necessary to execute a Power of Attorney to provide to appoint someone to care for you and your assets if you are disabled. Individuals, who become disabled mentally and do not have a power of attorney, can only be protected by an expensive and humiliating procedure known as a guardianship, whereby they are judged to be "incompetent" in the public forum of a court.
Finally, a living will should be executed to announce your intentions in the event an accident, stroke or other serious medical event leaves you brain dead or physically depleted of any possible quality of life. A living will protects your assets from being used for unnecessary and costly life support. Without a living will, there is no authority, outside of a court proceeding, to allow a doctor to discontinue this treatment.
www.patellawoffices.com
During our lifetime, most of us strive to create and build upon our net worth. We generate savings, purchase a home, and eventually invest in stocks, bonds, mutual funds, IRAs and retirement plans. Unfortunately, most of us risk losing an unnecessarily large amount of these assets by failing to plan to protect them.
Recent surveys have revealed that over 40% of our population does not have a will. For those individuals, their death often creates a scenario whereby their family must needlessly waste money to petition the court for an individual to administer the estate. In many instances, this insult is compounded by the assets being subject to taxes, which could easily have been avoided. Thus, an integral part of anyone's financial planning must be an estate plan.
Traditionally, an estate plan was simply a will. However, with the growing medical needs of an aging population, as well as the ever-present threat of the Internal Revenue Service, prudent estate planning requires additional protections for all of us. Even the best written will has little value if one's assets are depleted in later years by health care costs which can be mitigated or borne by someone else.
Any prudent estate plan should address four questions:
(1) Where do I want my money to go after I am dead?
(2) How can I minimize any taxes as a result of my death?
(3) How can I protect my estate and myself if I become disabled?
(4) Do I want my life to be extended by life support even though a medical event has left me in critical condition without any hope of recovery?
The basic documents, which are necessary to answer these questions, are a will, living will and power of attorney. A will declares who shall inherit an individual's assets (the beneficiaries) and who shall be responsible for distributing them to such beneficiaries (the executor). For young parents, a will can also be used to appoint a guardian for their children and a trustee to manage a child's money until they are old enough to handle it themselves.
Often, individuals wish to care for their spouse first, then their children. Often, this intention is reflected in a will. If you die without a will, though, your spouse is only entitled to the first $50,000.00 outright. In New Jersey, he or she must split the rest of your assets with your children, no matter how young or old they are. If you have no children, your parents step into their place.
Even if you have a will, your assets are not completely protected. It is necessary to execute a Power of Attorney to provide to appoint someone to care for you and your assets if you are disabled. Individuals, who become disabled mentally and do not have a power of attorney, can only be protected by an expensive and humiliating procedure known as a guardianship, whereby they are judged to be "incompetent" in the public forum of a court.
Finally, a living will should be executed to announce your intentions in the event an accident, stroke or other serious medical event leaves you brain dead or physically depleted of any possible quality of life. A living will protects your assets from being used for unnecessary and costly life support. Without a living will, there is no authority, outside of a court proceeding, to allow a doctor to discontinue this treatment.
Friday, September 5, 2008
Estate Planning Checklist
This initial estate planning questionnaire is presented in a narrative form. The detailed explanations and the space provided for answers are designed to garner more complete and helpful information than would be afforded by merely filling in blanks.
ESTATE PLANNING REVIEW
FOR
__________________________
The purpose of this questionnaire
Your lawyer will use the information you provide in this
questionnaire:
1. To help you organize personal and financial
information so that you can assess your current
estate plans and evaluate whether changes are desired
or required.
2. To provide your estate planning attorney with the
information needed to make a similar analysis.
3. To help you evaluate your lawyer's estate planning
recommendations. The estate plan is your plan, not
your lawyer's, and you must be satisfied that it is
workable.
The information you provide must be as accurate as
possible. If you are uncertain about exact information,
tell your lawyer that and give your best assessment. If
your lawyer believes that exact information is required,
he or she will ask you to be more precise. You may provide
as much or as little information as you want. We recognize
that this questionnaire is a fairly intrusive document.
Keep in mind, however, that the more complete the
information is, the better it will equip you and your
lawyer throughout the planning process to come up with the
best possible estate planning alternatives. Your
information will be kept confidential by your lawyer
unless you authorize or request its release to others.
PERSONAL AND FAMILY INFORMATION
State the names requested below exactly as you want them to
appear in your will and other estate planning documents.
Where the space on the form is insufficient, please use the
reverse side.
Your name: _____________________ Date of birth: ___________
Spouse's name: _________________ Date of birth: ___________
Home Address:______________________________________________
Telephone No.: ______________________
Are you a United States citizen? _______________
If not, of what country are you a citizen? ________________
Is your spouse a citizen of the United States?_____________
If not, of what country is he/she a citizen? ______________
Your children, their spouses, and their children
Indicate which, if any, of your children is your child but
not your spouse's, or vice versa. Also show the date and
place of adoption of any adopted child. Be sure to include
any deceased child and indicate the date of the child's
death and his or her surviving spouse and children.
1.(a) Child:___________________ Date of birth: ____________
(b) Personal data (specify is the child from prior
marriage, adopted, deceased, etc.)
___________________________________________________________
___________________________________________________________
(c) Child's spouse:___________________ (d) Child's children
(and their dates of birth):
___________________________________________________________
___________________________________________________________
2.(a) Child:___________________ Date of birth: ____________
(b) Personal data (specify is the child from prior
marriage, adopted, deceased, etc.)
___________________________________________________________
___________________________________________________________
(c) Child's spouse:___________________ (d) Child's children
(and their dates of birth):
___________________________________________________________
___________________________________________________________
3.(a) Child:___________________ Date of birth: ____________
(b) Personal data (specify is the child from prior
marriage, adopted, deceased, etc.)
___________________________________________________________
___________________________________________________________
(c) Child's spouse:___________________ (d) Child's children
(and their dates of birth):
___________________________________________________________
___________________________________________________________
4. If either you or your spouse has been married
previously, state the name of each prior spouse and
indicate whether he or she is now living (if living give
his or her address).:______________________________________
___________________________________________________________
If either you or your spouse has been divorced, attach a
copy of the divorce decree.
5. Is there other important personal information that might
affect your estate plans? For example, does a member of
your family have a serious long-term medical or physical
problem that will require special care or attention in the
future?
___________________________________________________________
___________________________________________________________
PERSONAL AND FAMILY FINANCIAL ASSETS
The following questions do not require detailed responses.
For example, shares in publicly traded companies might be
shown simply as "common stocks." On the other hand, for
property interests that are more or less unique, such as
interests in real estate, greater detail will be helpful.
With regard to real estate, it is important for your lawyer
to know the location (city and state) of the real estate,
how title is held, and the character of the property, e.g.,
residence, shopping center, apartment house, or similar
description.
The following abbreviations may be used to describe certain
attributes of particular assets:
JT = Joint tenancy with right of survivorship
TE = Tenancy by the entirety
TC = Tenancy in common
H = Husband's name alone
W = Wife's name alone
LT = Land trust
FMV = Fair market value (or your best estimate)
CV = Cash value of life insurance policy
PV = Proceeds of life insurance policy
1. Personal residence:
Address: ______________________________________________
Description (e.g., single family, condo, or co-op,
similar description): _________________________________
How you hold title:
FMV:__ Mortgage balance, if any:______________ Mortgage
life insurance?__________________
2. Other personal residences or vacation homes:
Address: ______________________________________________
Description (e.g., single family, condo, or co-op,
similar description): _________________________________
How you hold title:
FMV:__ Mortgage balance, if any:______________ Mortgage
life insurance?__________________
3. Personal and household effects: If you think that the
general categories do not provide an adequate description,
please provide additional detail. Also state your best
estimate of the value of each kind of property and who owns
it (how you hold title).
Automobiles:_______________________________________________
General personal and household effects such as furniture,
furnishings, books, and pictures of no special value: _____
___________________________________________________________
___________________________________________________________
Valuable jewelry (indicate if insured): ___________________
___________________________________________________________
Valuable works of art (indicate if insured): ______________
___________________________________________________________
Valuable antiques (indicate if insured): __________________
___________________________________________________________
___________________________________________________________
Other valuable collections, e.g., coins, stamps, or gold
(indicate if insured):_____________________________________
___________________________________________________________
___________________________________________________________
Other tangible personal property that does not seem to be
covered by any of the other categories: ___________________
___________________________________________________________
___________________________________________________________
4. Cash, cash deposits, and cash equivalents: State the
name and address of each bank or institution and who owns
each item.
(a) Checking accounts, including money market
accounts:
You:______________________________________________________
Spouse:___________________________________________________
Jointly with:_____________________________________________
(b) Ordinary savings accounts:
You:______________________________________________________
Spouse:___________________________________________________
Jointly with:_____________________________________________
(c) Certificates of deposit:
You:______________________________________________________
Spouse:___________________________________________________
Jointly with:_____________________________________________
(d) Short-term U.S. obligations (T-bills):
You:______________________________________________________
Spouse:___________________________________________________
Jointly with:_____________________________________________
5. Pension & profit-sharing plans, IRAs, ESOPs or other
tax-favored employee-benefit plans.
(a) Pension plans.
You:___________________ Vested:____ Current value: _______
Spouse:________________ Vested:____ Current value: _______
(b) Profit-sharing plans.
You:___________________ Vested:____ Current value: _______
Spouse:________________ Vested:____ Current value: _______
(c) Individual Retirement Accounts (IRAs).
You:_________________________ Current value ______________
Spouse:______________________ Current value ______________
(d) Other tax-qualified employee benefit plan
interests. Please provide similar information. ___________
__________________________________________________________
6. Life Insurance on your life.
(a) Ordinary life insurance. List company, name,
address, and policy number.
__________________________________________________________
__________________________________________________________
Face amount of policies (proceeds):_______________________
If you do not own it, who does? __________________________
Beneficiaries: ___________________________________________
Cash value:_______ Loans, if any, against it: ____________
Amount of accidental death benefits, if any:______________
(b) Term/group term insurance. List company, name,
address, and policy number.
__________________________________________________________
__________________________________________________________
Face amount of policies (proceeds):_______________________
Owner other than you:_____________________________________
Beneficiaries:____________________________________________
__________________________________________________________
Accidental death benefits:________________________________
__________________________________________________________
(c) Please supply similar information with respect
to other life insurance or other insurance having life
insurance features:_______________________________________
__________________________________________________________
7. (a) Life insurance on your spouse's life. List
company, name, address, and policy number.________________
__________________________________________________________
Face amount of ordinary life insurance:___________________
Owner other than spouse:__________________________________
__________________________________________________________
Beneficiaries:____________________________________________
Cash value:_______ Loans, if any:____________
Accidental death benefits:___________________
(b)Term/Group life insurance. List company, name,
address, policy number.___________________________________
__________________________________________________________
Face amount of term/group term insurance:________
Owner other than spouse:__________________________________
Beneficiaries:____________________________________________
Cash value:_______ Loans, if any:____________
Accidental death benefits:________________________________
(c) Other insurance on spouse's life:______________
__________________________________________________________
8. Closely held business interests. Describe any interest
you have in a family or other business with limited
shareholders. Include the nature of the business, its form
of organization (e.g., corporation, partnership, or the
like), whether you are active in its operations, and your
estimate of its value. If it is a corporation, please
indicate whether an "S election" is in force with respect
to the federal taxation of the corporation._______________
__________________________________________________________
__________________________________________________________
__________________________________________________________
With respect to any such business, do you believe it would
continue to operate successfully in the event of your
permanent absence from it or the permanent absence of some
other key person? ________________________________________
__________________________________________________________
9. Investment assets. With respect to each category, please
state the owner (how title is held) and the approximate
value.
(a) Publicly traded stocks and corporate bonds.
You:______________________________________________________
Spouse:___________________________________________________
Jointly owned with:_______________________________________
(b) Municipal bonds.
You:______________________________________________________
Spouse:___________________________________________________
Jointly owned with:_______________________________________
(c) Long-term U.S. Treasury Notes and Bonds.
You:______________________________________________________
Spouse:___________________________________________________
Jointly owned with:_______________________________________
(d) Limited partnership interests.
You:______________________________________________________
Spouse:___________________________________________________
Jointly owned with:_______________________________________
(e) Other investments. Please describe the general
nature and value of other investment interests:
You:______________________________________________________
Spouse:___________________________________________________
Jointly owned with:_______________________________________
Other interests of current or future value
1. Interests in trusts. Describe any trusts created by you,
by any other person, such as a parent or ancestor, in which
you or a member of your immediate family has a right to
receive distributions of income or principal, whether or
not such distributions are actually being received or
anticipated in the future. Be as specific as you can. If
possible, submit a copy of the trust agreement. If the
trust agreement is not available, show the date the trust
was created, whether it can be amended or changed, whet
her someone has a power of appointment over it, when the
trust terminates, and who will receive the trust property
upon termination. Also, state the approximate current
value of the trust and the annual income from it.
___________________________________________________________
___________________________________________________________
2. Anticipated inheritances. If you or any other members of
your immediate family are likely to receive substantial
inheritances in the foreseeable future from persons other
than yourself or your spouse, describe your best estimate
of the value and the nature of each inheritance.
___________________________________________________________
___________________________________________________________
3. Other assets or interests of value. Describe the general
nature, form of ownership, and your estimate of the value
of any asset or interest of value that does not seem to
fit in any of the categories above.
__________________________________________________________
__________________________________________________________
Liabilities
Describe here substantial financial liabilities not
reflected in the asset information you have provided above.
If they are secured, indicate the nature of the security.
Also show any substantial contingent liabilities, such as
personal guarantees you have made on obligations of a
business, a family member, or any other person. Indicate
whether you have insured against any of these obligations
in the event of your death, or if the obligations do not
survive your death.
PERSONAL ESTATE PLANNING OBJECTIVES
1. How would you dispose of your estate at your death if
there were no such thing as estate or inheritance taxes?
__________________________________________________________
__________________________________________________________
__________________________________________________________
2. In the event of your death, would your spouse or
children be likely to receive income from sources other
than your estate, such as the continuance or resumption by
your spouse of his or her vocation or profession?
__________________________________________________________
__________________________________________________________
__________________________________________________________
3. Describe any personal objectives you have for your
family and your estate that override possible adverse tax
consequences arising from trying to achieve them.
__________________________________________________________
__________________________________________________________
__________________________________________________________
GUARDIANS, EXECUTORS, AND TRUSTEES
1. Guardians for minor children. If you have minor
children, you may designate in your will a guardian or
guardians of the person and their estate in the event of
your death and/or your spouse's.
(a) Guardian of the person.
Name(s):__________________________________________________
Address:__________________________________________________
(b) Guardian of the estate, if different.
Name(s):__________________________________________________
Address:__________________________________________________
(c) Substitute guardian of the person.
Name(s):__________________________________________________
Address:__________________________________________________
(d) Substitute guardian of the estate.
Name(s):__________________________________________________
Address:__________________________________________________
2. Executor. Your executor has the responsibility to wind
up your affairs at your death, see to it that your assets
are collected, that claims, expenses, and estate and
inheritance taxes are paid, and then distribute your
property to trustees or others you have named. It is a
task of limited duration, substantial responsibility, and
much work.
(a) Principal executor.
Name(s):__________________________________________________
Address:__________________________________________________
(b) Substitute executor.
Name(s):__________________________________________________
Address:__________________________________________________
3. Trustees. Your trustees have the responsibility for the
long-range management of property that is to be held in
trust for the benefit of the beneficiaries of trusts you
may create.
Depending on the terms of the trust, there may be adverse
tax consequences if a trustee has an interest or possible
interest in the trust, although usually if the trustee's
discretion is limited those adverse tax consequences are
similarly limited. A trustee can be a corporation
(qualified to act) or individual. You may choose to have
co-trustees, one of which may or may not be a corporation.
Because corporate trustees must charge fees for their
services, they may decline to accept small trusts. Their
fees to administer a small trust may turn out to be
disproportionately large if they are to cover their costs
in handling the trust. In general, choose a trustee with
the following qualities: integrity, mature judgment,
fiscal responsibility, and reasonable business and
investment acumen. If you wish to select co-trustees, you
may want to choose them for how well their individual
strengths compliment each other. Frequently, the same
person(s) or corporation selected as executor(s) may be
designated as trustee(s).
(a) Principal trustees.
Names:_____________________________________________________
___________________________________________________________
Addresses:_________________________________________________
___________________________________________________________
(b) Substitute trustees (to act if one or more of
the principal trustees cannot or will not act).
Names:_____________________________________________________
___________________________________________________________
___________________________________________________________
Addresses:_________________________________________________
___________________________________________________________
___________________________________________________________
OTHER MATTERS
1. Other factors. Describe or list here any facts or
matters that do not seem to be covered by the other
sections of this questionnaire and that you believe may be
important for your estate planning attorney to know.
___________________________________________________________
___________________________________________________________
___________________________________________________________
2. Community property. If you now live in or have lived in
one of the states listed below, or if you own real estate
in one of these states, please circle the name of the
state and indicate whether you and your spouse have
entered into any agreement about whether that property is
separate property.
States: Arizona, California, Idaho, Louisiana,
Nevada, New Mexico, Texas, Washington, Wisconsin___________
___________________________________________________________
3. Powers of attorney. Have you given a power of attorney
to your spouse, a child, or any other person authorizing
them to do either specific things on your behalf or to act
generally on your behalf? If so, please indicate to whom it
was given, the nature of the power (specific or general),
the date, and the location of the document granting the
power. ____________________________________________________
___________________________________________________________
___________________________________________________________
4. Living will. Have you signed any document indicating
your wishes concerning the "heroic" or extraordinary
measures to save your life in the event of a catastrophic
illness or injury? If not, would you like to do so? ______
5. Health care power. Have you signed any document
specifically authorizing another person such as your spouse
to make decisions with respect to your health care in the
event that you are unable to do so? If not, would you like
to do so? ___________
Date completed:____________
The American Bar Association Guide to Wills and EstatesCopyright © 2004 American Bar Association
ESTATE PLANNING REVIEW
FOR
__________________________
The purpose of this questionnaire
Your lawyer will use the information you provide in this
questionnaire:
1. To help you organize personal and financial
information so that you can assess your current
estate plans and evaluate whether changes are desired
or required.
2. To provide your estate planning attorney with the
information needed to make a similar analysis.
3. To help you evaluate your lawyer's estate planning
recommendations. The estate plan is your plan, not
your lawyer's, and you must be satisfied that it is
workable.
The information you provide must be as accurate as
possible. If you are uncertain about exact information,
tell your lawyer that and give your best assessment. If
your lawyer believes that exact information is required,
he or she will ask you to be more precise. You may provide
as much or as little information as you want. We recognize
that this questionnaire is a fairly intrusive document.
Keep in mind, however, that the more complete the
information is, the better it will equip you and your
lawyer throughout the planning process to come up with the
best possible estate planning alternatives. Your
information will be kept confidential by your lawyer
unless you authorize or request its release to others.
PERSONAL AND FAMILY INFORMATION
State the names requested below exactly as you want them to
appear in your will and other estate planning documents.
Where the space on the form is insufficient, please use the
reverse side.
Your name: _____________________ Date of birth: ___________
Spouse's name: _________________ Date of birth: ___________
Home Address:______________________________________________
Telephone No.: ______________________
Are you a United States citizen? _______________
If not, of what country are you a citizen? ________________
Is your spouse a citizen of the United States?_____________
If not, of what country is he/she a citizen? ______________
Your children, their spouses, and their children
Indicate which, if any, of your children is your child but
not your spouse's, or vice versa. Also show the date and
place of adoption of any adopted child. Be sure to include
any deceased child and indicate the date of the child's
death and his or her surviving spouse and children.
1.(a) Child:___________________ Date of birth: ____________
(b) Personal data (specify is the child from prior
marriage, adopted, deceased, etc.)
___________________________________________________________
___________________________________________________________
(c) Child's spouse:___________________ (d) Child's children
(and their dates of birth):
___________________________________________________________
___________________________________________________________
2.(a) Child:___________________ Date of birth: ____________
(b) Personal data (specify is the child from prior
marriage, adopted, deceased, etc.)
___________________________________________________________
___________________________________________________________
(c) Child's spouse:___________________ (d) Child's children
(and their dates of birth):
___________________________________________________________
___________________________________________________________
3.(a) Child:___________________ Date of birth: ____________
(b) Personal data (specify is the child from prior
marriage, adopted, deceased, etc.)
___________________________________________________________
___________________________________________________________
(c) Child's spouse:___________________ (d) Child's children
(and their dates of birth):
___________________________________________________________
___________________________________________________________
4. If either you or your spouse has been married
previously, state the name of each prior spouse and
indicate whether he or she is now living (if living give
his or her address).:______________________________________
___________________________________________________________
If either you or your spouse has been divorced, attach a
copy of the divorce decree.
5. Is there other important personal information that might
affect your estate plans? For example, does a member of
your family have a serious long-term medical or physical
problem that will require special care or attention in the
future?
___________________________________________________________
___________________________________________________________
PERSONAL AND FAMILY FINANCIAL ASSETS
The following questions do not require detailed responses.
For example, shares in publicly traded companies might be
shown simply as "common stocks." On the other hand, for
property interests that are more or less unique, such as
interests in real estate, greater detail will be helpful.
With regard to real estate, it is important for your lawyer
to know the location (city and state) of the real estate,
how title is held, and the character of the property, e.g.,
residence, shopping center, apartment house, or similar
description.
The following abbreviations may be used to describe certain
attributes of particular assets:
JT = Joint tenancy with right of survivorship
TE = Tenancy by the entirety
TC = Tenancy in common
H = Husband's name alone
W = Wife's name alone
LT = Land trust
FMV = Fair market value (or your best estimate)
CV = Cash value of life insurance policy
PV = Proceeds of life insurance policy
1. Personal residence:
Address: ______________________________________________
Description (e.g., single family, condo, or co-op,
similar description): _________________________________
How you hold title:
FMV:__ Mortgage balance, if any:______________ Mortgage
life insurance?__________________
2. Other personal residences or vacation homes:
Address: ______________________________________________
Description (e.g., single family, condo, or co-op,
similar description): _________________________________
How you hold title:
FMV:__ Mortgage balance, if any:______________ Mortgage
life insurance?__________________
3. Personal and household effects: If you think that the
general categories do not provide an adequate description,
please provide additional detail. Also state your best
estimate of the value of each kind of property and who owns
it (how you hold title).
Automobiles:_______________________________________________
General personal and household effects such as furniture,
furnishings, books, and pictures of no special value: _____
___________________________________________________________
___________________________________________________________
Valuable jewelry (indicate if insured): ___________________
___________________________________________________________
Valuable works of art (indicate if insured): ______________
___________________________________________________________
Valuable antiques (indicate if insured): __________________
___________________________________________________________
___________________________________________________________
Other valuable collections, e.g., coins, stamps, or gold
(indicate if insured):_____________________________________
___________________________________________________________
___________________________________________________________
Other tangible personal property that does not seem to be
covered by any of the other categories: ___________________
___________________________________________________________
___________________________________________________________
4. Cash, cash deposits, and cash equivalents: State the
name and address of each bank or institution and who owns
each item.
(a) Checking accounts, including money market
accounts:
You:______________________________________________________
Spouse:___________________________________________________
Jointly with:_____________________________________________
(b) Ordinary savings accounts:
You:______________________________________________________
Spouse:___________________________________________________
Jointly with:_____________________________________________
(c) Certificates of deposit:
You:______________________________________________________
Spouse:___________________________________________________
Jointly with:_____________________________________________
(d) Short-term U.S. obligations (T-bills):
You:______________________________________________________
Spouse:___________________________________________________
Jointly with:_____________________________________________
5. Pension & profit-sharing plans, IRAs, ESOPs or other
tax-favored employee-benefit plans.
(a) Pension plans.
You:___________________ Vested:____ Current value: _______
Spouse:________________ Vested:____ Current value: _______
(b) Profit-sharing plans.
You:___________________ Vested:____ Current value: _______
Spouse:________________ Vested:____ Current value: _______
(c) Individual Retirement Accounts (IRAs).
You:_________________________ Current value ______________
Spouse:______________________ Current value ______________
(d) Other tax-qualified employee benefit plan
interests. Please provide similar information. ___________
__________________________________________________________
6. Life Insurance on your life.
(a) Ordinary life insurance. List company, name,
address, and policy number.
__________________________________________________________
__________________________________________________________
Face amount of policies (proceeds):_______________________
If you do not own it, who does? __________________________
Beneficiaries: ___________________________________________
Cash value:_______ Loans, if any, against it: ____________
Amount of accidental death benefits, if any:______________
(b) Term/group term insurance. List company, name,
address, and policy number.
__________________________________________________________
__________________________________________________________
Face amount of policies (proceeds):_______________________
Owner other than you:_____________________________________
Beneficiaries:____________________________________________
__________________________________________________________
Accidental death benefits:________________________________
__________________________________________________________
(c) Please supply similar information with respect
to other life insurance or other insurance having life
insurance features:_______________________________________
__________________________________________________________
7. (a) Life insurance on your spouse's life. List
company, name, address, and policy number.________________
__________________________________________________________
Face amount of ordinary life insurance:___________________
Owner other than spouse:__________________________________
__________________________________________________________
Beneficiaries:____________________________________________
Cash value:_______ Loans, if any:____________
Accidental death benefits:___________________
(b)Term/Group life insurance. List company, name,
address, policy number.___________________________________
__________________________________________________________
Face amount of term/group term insurance:________
Owner other than spouse:__________________________________
Beneficiaries:____________________________________________
Cash value:_______ Loans, if any:____________
Accidental death benefits:________________________________
(c) Other insurance on spouse's life:______________
__________________________________________________________
8. Closely held business interests. Describe any interest
you have in a family or other business with limited
shareholders. Include the nature of the business, its form
of organization (e.g., corporation, partnership, or the
like), whether you are active in its operations, and your
estimate of its value. If it is a corporation, please
indicate whether an "S election" is in force with respect
to the federal taxation of the corporation._______________
__________________________________________________________
__________________________________________________________
__________________________________________________________
With respect to any such business, do you believe it would
continue to operate successfully in the event of your
permanent absence from it or the permanent absence of some
other key person? ________________________________________
__________________________________________________________
9. Investment assets. With respect to each category, please
state the owner (how title is held) and the approximate
value.
(a) Publicly traded stocks and corporate bonds.
You:______________________________________________________
Spouse:___________________________________________________
Jointly owned with:_______________________________________
(b) Municipal bonds.
You:______________________________________________________
Spouse:___________________________________________________
Jointly owned with:_______________________________________
(c) Long-term U.S. Treasury Notes and Bonds.
You:______________________________________________________
Spouse:___________________________________________________
Jointly owned with:_______________________________________
(d) Limited partnership interests.
You:______________________________________________________
Spouse:___________________________________________________
Jointly owned with:_______________________________________
(e) Other investments. Please describe the general
nature and value of other investment interests:
You:______________________________________________________
Spouse:___________________________________________________
Jointly owned with:_______________________________________
Other interests of current or future value
1. Interests in trusts. Describe any trusts created by you,
by any other person, such as a parent or ancestor, in which
you or a member of your immediate family has a right to
receive distributions of income or principal, whether or
not such distributions are actually being received or
anticipated in the future. Be as specific as you can. If
possible, submit a copy of the trust agreement. If the
trust agreement is not available, show the date the trust
was created, whether it can be amended or changed, whet
her someone has a power of appointment over it, when the
trust terminates, and who will receive the trust property
upon termination. Also, state the approximate current
value of the trust and the annual income from it.
___________________________________________________________
___________________________________________________________
2. Anticipated inheritances. If you or any other members of
your immediate family are likely to receive substantial
inheritances in the foreseeable future from persons other
than yourself or your spouse, describe your best estimate
of the value and the nature of each inheritance.
___________________________________________________________
___________________________________________________________
3. Other assets or interests of value. Describe the general
nature, form of ownership, and your estimate of the value
of any asset or interest of value that does not seem to
fit in any of the categories above.
__________________________________________________________
__________________________________________________________
Liabilities
Describe here substantial financial liabilities not
reflected in the asset information you have provided above.
If they are secured, indicate the nature of the security.
Also show any substantial contingent liabilities, such as
personal guarantees you have made on obligations of a
business, a family member, or any other person. Indicate
whether you have insured against any of these obligations
in the event of your death, or if the obligations do not
survive your death.
PERSONAL ESTATE PLANNING OBJECTIVES
1. How would you dispose of your estate at your death if
there were no such thing as estate or inheritance taxes?
__________________________________________________________
__________________________________________________________
__________________________________________________________
2. In the event of your death, would your spouse or
children be likely to receive income from sources other
than your estate, such as the continuance or resumption by
your spouse of his or her vocation or profession?
__________________________________________________________
__________________________________________________________
__________________________________________________________
3. Describe any personal objectives you have for your
family and your estate that override possible adverse tax
consequences arising from trying to achieve them.
__________________________________________________________
__________________________________________________________
__________________________________________________________
GUARDIANS, EXECUTORS, AND TRUSTEES
1. Guardians for minor children. If you have minor
children, you may designate in your will a guardian or
guardians of the person and their estate in the event of
your death and/or your spouse's.
(a) Guardian of the person.
Name(s):__________________________________________________
Address:__________________________________________________
(b) Guardian of the estate, if different.
Name(s):__________________________________________________
Address:__________________________________________________
(c) Substitute guardian of the person.
Name(s):__________________________________________________
Address:__________________________________________________
(d) Substitute guardian of the estate.
Name(s):__________________________________________________
Address:__________________________________________________
2. Executor. Your executor has the responsibility to wind
up your affairs at your death, see to it that your assets
are collected, that claims, expenses, and estate and
inheritance taxes are paid, and then distribute your
property to trustees or others you have named. It is a
task of limited duration, substantial responsibility, and
much work.
(a) Principal executor.
Name(s):__________________________________________________
Address:__________________________________________________
(b) Substitute executor.
Name(s):__________________________________________________
Address:__________________________________________________
3. Trustees. Your trustees have the responsibility for the
long-range management of property that is to be held in
trust for the benefit of the beneficiaries of trusts you
may create.
Depending on the terms of the trust, there may be adverse
tax consequences if a trustee has an interest or possible
interest in the trust, although usually if the trustee's
discretion is limited those adverse tax consequences are
similarly limited. A trustee can be a corporation
(qualified to act) or individual. You may choose to have
co-trustees, one of which may or may not be a corporation.
Because corporate trustees must charge fees for their
services, they may decline to accept small trusts. Their
fees to administer a small trust may turn out to be
disproportionately large if they are to cover their costs
in handling the trust. In general, choose a trustee with
the following qualities: integrity, mature judgment,
fiscal responsibility, and reasonable business and
investment acumen. If you wish to select co-trustees, you
may want to choose them for how well their individual
strengths compliment each other. Frequently, the same
person(s) or corporation selected as executor(s) may be
designated as trustee(s).
(a) Principal trustees.
Names:_____________________________________________________
___________________________________________________________
Addresses:_________________________________________________
___________________________________________________________
(b) Substitute trustees (to act if one or more of
the principal trustees cannot or will not act).
Names:_____________________________________________________
___________________________________________________________
___________________________________________________________
Addresses:_________________________________________________
___________________________________________________________
___________________________________________________________
OTHER MATTERS
1. Other factors. Describe or list here any facts or
matters that do not seem to be covered by the other
sections of this questionnaire and that you believe may be
important for your estate planning attorney to know.
___________________________________________________________
___________________________________________________________
___________________________________________________________
2. Community property. If you now live in or have lived in
one of the states listed below, or if you own real estate
in one of these states, please circle the name of the
state and indicate whether you and your spouse have
entered into any agreement about whether that property is
separate property.
States: Arizona, California, Idaho, Louisiana,
Nevada, New Mexico, Texas, Washington, Wisconsin___________
___________________________________________________________
3. Powers of attorney. Have you given a power of attorney
to your spouse, a child, or any other person authorizing
them to do either specific things on your behalf or to act
generally on your behalf? If so, please indicate to whom it
was given, the nature of the power (specific or general),
the date, and the location of the document granting the
power. ____________________________________________________
___________________________________________________________
___________________________________________________________
4. Living will. Have you signed any document indicating
your wishes concerning the "heroic" or extraordinary
measures to save your life in the event of a catastrophic
illness or injury? If not, would you like to do so? ______
5. Health care power. Have you signed any document
specifically authorizing another person such as your spouse
to make decisions with respect to your health care in the
event that you are unable to do so? If not, would you like
to do so? ___________
Date completed:____________
The American Bar Association Guide to Wills and EstatesCopyright © 2004 American Bar Association
Monday, August 25, 2008
Guardianship of Children With Special Needs
Two good posts coming from Leanna Hamill in Massachusetts and Tredway, Lumsdaine & Doyle in California on planning for children with special needs. Among the excellent suggestions are the following:
Special Needs Trust - allowing parents, grandparents and guardians to provide funds for a special needs child without disrupting eligibility for government aid.
Exploring the qualifications of the child’s guardian. Specifically, are they located close enough to qualified medical personnel? Can they handle (or are they knowledgeable) about the particularities of caring for your child?
Have you left enough financial and other resources to care for the child? Everything from remodeling a house to make it wheelchair accessible to paying for the guardian to stay home full-time should be considered.
Special Needs Trust - allowing parents, grandparents and guardians to provide funds for a special needs child without disrupting eligibility for government aid.
Exploring the qualifications of the child’s guardian. Specifically, are they located close enough to qualified medical personnel? Can they handle (or are they knowledgeable) about the particularities of caring for your child?
Have you left enough financial and other resources to care for the child? Everything from remodeling a house to make it wheelchair accessible to paying for the guardian to stay home full-time should be considered.
Thursday, August 14, 2008
Estate Planning in New Jersey
Estate Planning in New Jersey
You can save a lot of money and potential chaos and hard feelings among those closest to you by preplanning how you want your assets managed when you are incapacitated, and how your property will be divided at your death.
Powers of Attorney
In New Jersey, you can sign a durable power of attorney to appoint someone to handle your assets if you become incapacitated. At a minimum, a power of attorney should include the power to:
Manage and transfer all assets
Deal with the IRS
Make gifts on your behalf
Create and amend any trusts you set up
You don't need to transfer any assets at the time you sign a power of attorney, but it's a good idea to keep the person you've chosen informed about your ongoing financial matters.
You can also appoint a Durable Power of Attorney for Health Care to make health care decisions for you when you're unable to do so yourself. This person can provide informed consent for treatment, or even refuse treatment for you.
Dying Without a Will
If you die without a will (known as dying "intestate") in New Jersey, your assets will be divided amongst your immediate family. If you do not have children or parents, your estate will go to your spouse. If you have a spouse and children, your spouse gets the first $50,000 plus one-half of the balance of your estate. The remainder will go to your children. If you have a spouse and parents but no children, your spouse also gets the first $50,000 plus one-half of the balance of your estate.
If you do not have a spouse, your children will receive your estate. If you do not have a spouse or children, your parents will receive your estate.
Alternatives to a Will
Wills eventually become public after your death, with the details of what you owned and how much it was worth available to anyone curious enough to read the court file. As a result, many people look for more private ways to transfer their assets.
In New Jersey, alternatives to making a will include:
Life insurance policies or trusts
Gifting cash or other assets before your death
"Transfer On Death" ("TOD") or "Payable On Death" ("POD") bank accounts
Holding assets by joint tenancy with right of survivorship ("JTROS"), with the assets transferring automatically to the other joint tenant at the time of death
Holding assets through a tenancy in common, with each tenant having a divided interest in the property which can be independently sold
Retirement plans and Individual Retirement Accounts ("IRAs")
"Revocable living trusts" (sometimes called "grantor trusts"), giving all your assets to a trustee for management before your death
Making a Will
In New Jersey, you can make a valid will if you are at least 18 years old and of sound mind. The will must be in writing and signed by you or by another at your direction and in your presence. Two or more competent witnesses must witness your signature.
A lawyer who does a lot of estate planning can explain the consequences of some of the most basic choices you must make, such as whether property you want to leave to your minor children should be put into a trust at your death. For that reason, it makes sense to consult with a New Jersey estate planning lawyer and have him or her draft your will, so that you don't make costly mistakes or accidentally not accomplish what you intended.
Providing For Young Children
There are many kinds of trusts, but the most common is one you would set up for your minor children or incapacitated adult relatives for their care after you are gone and until they are old enough or well enough to take care of themselves. A parent can name a trustee to be in control of the finances and decide whether to sell or keep property, and manage assets such as real estate. The trustee, usually a family member or trusted friend, can be paid an hourly rate or a set monthly amount for their services out of the trust assets.
You will probably also want to name a guardian for your children, someone who would have physical custody of and take care of your children on a daily basis should you or your spouse be unable to do so.
Probate
"Probate" is the public process of:
Filing and validating a will in court
Paying all the debts and taxes of the deceased person
Dividing up the assets according to the will or New Jersey law
If you have no debts and no "titled property" such as real estate or vehicles to pass along to heirs, there may be no need for probate.
Probate lawyers generally charge by the hour, and they make sure everything gets processed according to the law.
You can save a lot of money and potential chaos and hard feelings among those closest to you by preplanning how you want your assets managed when you are incapacitated, and how your property will be divided at your death.
Powers of Attorney
In New Jersey, you can sign a durable power of attorney to appoint someone to handle your assets if you become incapacitated. At a minimum, a power of attorney should include the power to:
Manage and transfer all assets
Deal with the IRS
Make gifts on your behalf
Create and amend any trusts you set up
You don't need to transfer any assets at the time you sign a power of attorney, but it's a good idea to keep the person you've chosen informed about your ongoing financial matters.
You can also appoint a Durable Power of Attorney for Health Care to make health care decisions for you when you're unable to do so yourself. This person can provide informed consent for treatment, or even refuse treatment for you.
Dying Without a Will
If you die without a will (known as dying "intestate") in New Jersey, your assets will be divided amongst your immediate family. If you do not have children or parents, your estate will go to your spouse. If you have a spouse and children, your spouse gets the first $50,000 plus one-half of the balance of your estate. The remainder will go to your children. If you have a spouse and parents but no children, your spouse also gets the first $50,000 plus one-half of the balance of your estate.
If you do not have a spouse, your children will receive your estate. If you do not have a spouse or children, your parents will receive your estate.
Alternatives to a Will
Wills eventually become public after your death, with the details of what you owned and how much it was worth available to anyone curious enough to read the court file. As a result, many people look for more private ways to transfer their assets.
In New Jersey, alternatives to making a will include:
Life insurance policies or trusts
Gifting cash or other assets before your death
"Transfer On Death" ("TOD") or "Payable On Death" ("POD") bank accounts
Holding assets by joint tenancy with right of survivorship ("JTROS"), with the assets transferring automatically to the other joint tenant at the time of death
Holding assets through a tenancy in common, with each tenant having a divided interest in the property which can be independently sold
Retirement plans and Individual Retirement Accounts ("IRAs")
"Revocable living trusts" (sometimes called "grantor trusts"), giving all your assets to a trustee for management before your death
Making a Will
In New Jersey, you can make a valid will if you are at least 18 years old and of sound mind. The will must be in writing and signed by you or by another at your direction and in your presence. Two or more competent witnesses must witness your signature.
A lawyer who does a lot of estate planning can explain the consequences of some of the most basic choices you must make, such as whether property you want to leave to your minor children should be put into a trust at your death. For that reason, it makes sense to consult with a New Jersey estate planning lawyer and have him or her draft your will, so that you don't make costly mistakes or accidentally not accomplish what you intended.
Providing For Young Children
There are many kinds of trusts, but the most common is one you would set up for your minor children or incapacitated adult relatives for their care after you are gone and until they are old enough or well enough to take care of themselves. A parent can name a trustee to be in control of the finances and decide whether to sell or keep property, and manage assets such as real estate. The trustee, usually a family member or trusted friend, can be paid an hourly rate or a set monthly amount for their services out of the trust assets.
You will probably also want to name a guardian for your children, someone who would have physical custody of and take care of your children on a daily basis should you or your spouse be unable to do so.
Probate
"Probate" is the public process of:
Filing and validating a will in court
Paying all the debts and taxes of the deceased person
Dividing up the assets according to the will or New Jersey law
If you have no debts and no "titled property" such as real estate or vehicles to pass along to heirs, there may be no need for probate.
Probate lawyers generally charge by the hour, and they make sure everything gets processed according to the law.
Thursday, August 7, 2008
Naming Your Executor
You should name an executor in your will. In order to decide who is best to carry out this position, you need to know what responsibilities the position has.
The executor’s job is to start the probate process with the court, gather all of your assets, pay your debts, last expenses, and taxes, and distribute whatever is left over to the persons named in your will. Additionally, your executor will notify Social Security, pension providers, insurers, financial institutions, and other entities of your death. If you have antiques or valuable collections (coins, stamps, collectibles), your executor will need to hire an appraiser to get a value for these items. If anyone owes you money, the executor must collect that debt. At the end of the distribution, the executor must be able to give an accounting to all of your beneficiaries that your wishes, as expressed in your will, were carried out.
The executor owes fiduciary duties to anyone who has an interest in the estate, and the executor must act in the best interests of the estate. For example, if an executor mismanages the estate assets, he or she can be held personally liable and may have to repay the estate for any losses.
The executor for a New Jersey estate is entitled to a fee for services performed. Under New Jersey law, the executor of an estate is generally entitled to the following commissions:
6% on all estate income;
5% of the estate up to $200,000;
3.5% on excess above $200,000 up to $1,000,000;
2% on excess over $1,000,000 or such other percentage as the Superior Court may determine.
There are different rules for commissions when there is more than one executor, or when the executor has rendered unusual or extraordinary services. In some cases family members may choose not to accept (waive) fees. However, a decision to waive fees should be made only after the legal (who will get the money) and tax (what is the cost of the lost deduction) issues are considered.
The executor’s job is to start the probate process with the court, gather all of your assets, pay your debts, last expenses, and taxes, and distribute whatever is left over to the persons named in your will. Additionally, your executor will notify Social Security, pension providers, insurers, financial institutions, and other entities of your death. If you have antiques or valuable collections (coins, stamps, collectibles), your executor will need to hire an appraiser to get a value for these items. If anyone owes you money, the executor must collect that debt. At the end of the distribution, the executor must be able to give an accounting to all of your beneficiaries that your wishes, as expressed in your will, were carried out.
The executor owes fiduciary duties to anyone who has an interest in the estate, and the executor must act in the best interests of the estate. For example, if an executor mismanages the estate assets, he or she can be held personally liable and may have to repay the estate for any losses.
The executor for a New Jersey estate is entitled to a fee for services performed. Under New Jersey law, the executor of an estate is generally entitled to the following commissions:
6% on all estate income;
5% of the estate up to $200,000;
3.5% on excess above $200,000 up to $1,000,000;
2% on excess over $1,000,000 or such other percentage as the Superior Court may determine.
There are different rules for commissions when there is more than one executor, or when the executor has rendered unusual or extraordinary services. In some cases family members may choose not to accept (waive) fees. However, a decision to waive fees should be made only after the legal (who will get the money) and tax (what is the cost of the lost deduction) issues are considered.
Tuesday, August 5, 2008
Family Limited Partnerships, or more commonly now, Family Limited Liability Companies, are great vehicles for management & protection of family assets
Family Limited Partnerships, or more commonly now, Family Limited Liability Companies, are great vehicles for management and protection of family businesses, real estate, and investments. They also can be used to facilitate gifting, since interests in the entity given to junior family members typically qualify for minority interest and lack of marketability discounts. These discounts can provide powerful leveraging.
However, to stand up to IRS scrutiny, it is important the FLP or FLLC be properly formed and administered. See the below checklist to help determine if your family entity meets the necessary criteria.
1. Were timely and properly filed papers filed to set up an FLP under appropriate state law?
2. Has the planning team carefully documented the significant non-tax benefits to the client to justify the creation and maintenance of FLP? (i.e., Are there demonstrable bona fide business/investment purposes in both the formation and operation and is there economic substance to the entity?)
3. Have we obtained the appraisal of a full time accredited, independent, and experienced (preferably court-tested) valuation professional who created a studiously crafted individual report (rather than a “fill in blanks” quickie) based on the specific FLP’s facts? (And were realistic and justifiable assumptions used in developing the valuation discounts – and did the expert document the reasons for the types and amounts of discounts?)
4. Have we avoided co-mingling of funds and continued treatment by the client of money in the FLP as “his/her own money”?
5. Have we made sure that there has in fact been a significant change in the administration and management of the client’s assets – and can prove that there was much more than merely a name change and a different wrapper around the assets?
6. Have we supervised the transfer of assets to the FLP account in a timely and business-like manner?
7. Did we hold and keep passive or personal assets that are not appropriate to a business or investment enterprise out of the FLP?
8. Did we set up the FLP while our client was young/healthy/competent (or was the entity formed by a very old and very ill person – on or practically on his/her deathbed or was our client incompetent at the time we set up the FLP?)
9. Did our client retain sufficient assets to maintain his/her standard of living without the need to rely on FLP assets (or did our client place all or essentially all of his/her assets into FLP leaving no visible and adequate means of support other than the FLP’s assets)?
10. Were we careful to advise parties in writing that they could have no expectation or understanding that – directly or indirectly – status prior to creation of FLP would remain (i.e. “It’s still Pop’s money” or “All of this will continue to be available to pay Mom’s bills and meet her financial needs and expenses”? Did Dad always get what he asked for or what he wanted or needed from the FLP? Did Mom expect that her children would provide support for her – through the FLP? Were Mom’s and Pop’s taxes (income or estate) and related expenses paid by the FLP?
11. Were we careful to place only business or investment assets into FLP and keep personal assets – such as the family home (particularly our client’s personal residence) out of the FLP? Did we insist our client had to either leave a residence that he/she placed into FLP or actually pay the entity (not accrue) a fair and arms’ length rent? Has the client actually paid rent in a timely manner? Have we retained documentation?
12. Does this FLP really represent more than a mere change in title and more than a recycling of value? What have we done to prove it?
13. Did the FLP initially – and does it continue – to meet the appropriate state’s definition of an FLP?
14. Are general partners really and actively involved in business?
15. Have we actually changed investment strategy – after securities were contributed?
16. Did our client give up the right to replace or remove the general partner?
17. Did our client (and his/her spouse) give up the right (directly or indirectly) unilaterally to decide when, how much, and to whom distributions from FLP would go?
18. Does the FLP conduct formal meetings and observe business formalities?
19. Are there meaningful negotiations and bargaining between the general partners?
20. Do adult children actively represent their own interests – or did they do just what Mom and Pop tell them to do?
21. Did we get our “timing” right? Have we made sure that our capital contribution was first credited to the senior member’s (parent’s) capital account and then, a discrete time later, followed by a gift of the partnership interest to the children?
However, to stand up to IRS scrutiny, it is important the FLP or FLLC be properly formed and administered. See the below checklist to help determine if your family entity meets the necessary criteria.
1. Were timely and properly filed papers filed to set up an FLP under appropriate state law?
2. Has the planning team carefully documented the significant non-tax benefits to the client to justify the creation and maintenance of FLP? (i.e., Are there demonstrable bona fide business/investment purposes in both the formation and operation and is there economic substance to the entity?)
3. Have we obtained the appraisal of a full time accredited, independent, and experienced (preferably court-tested) valuation professional who created a studiously crafted individual report (rather than a “fill in blanks” quickie) based on the specific FLP’s facts? (And were realistic and justifiable assumptions used in developing the valuation discounts – and did the expert document the reasons for the types and amounts of discounts?)
4. Have we avoided co-mingling of funds and continued treatment by the client of money in the FLP as “his/her own money”?
5. Have we made sure that there has in fact been a significant change in the administration and management of the client’s assets – and can prove that there was much more than merely a name change and a different wrapper around the assets?
6. Have we supervised the transfer of assets to the FLP account in a timely and business-like manner?
7. Did we hold and keep passive or personal assets that are not appropriate to a business or investment enterprise out of the FLP?
8. Did we set up the FLP while our client was young/healthy/competent (or was the entity formed by a very old and very ill person – on or practically on his/her deathbed or was our client incompetent at the time we set up the FLP?)
9. Did our client retain sufficient assets to maintain his/her standard of living without the need to rely on FLP assets (or did our client place all or essentially all of his/her assets into FLP leaving no visible and adequate means of support other than the FLP’s assets)?
10. Were we careful to advise parties in writing that they could have no expectation or understanding that – directly or indirectly – status prior to creation of FLP would remain (i.e. “It’s still Pop’s money” or “All of this will continue to be available to pay Mom’s bills and meet her financial needs and expenses”? Did Dad always get what he asked for or what he wanted or needed from the FLP? Did Mom expect that her children would provide support for her – through the FLP? Were Mom’s and Pop’s taxes (income or estate) and related expenses paid by the FLP?
11. Were we careful to place only business or investment assets into FLP and keep personal assets – such as the family home (particularly our client’s personal residence) out of the FLP? Did we insist our client had to either leave a residence that he/she placed into FLP or actually pay the entity (not accrue) a fair and arms’ length rent? Has the client actually paid rent in a timely manner? Have we retained documentation?
12. Does this FLP really represent more than a mere change in title and more than a recycling of value? What have we done to prove it?
13. Did the FLP initially – and does it continue – to meet the appropriate state’s definition of an FLP?
14. Are general partners really and actively involved in business?
15. Have we actually changed investment strategy – after securities were contributed?
16. Did our client give up the right to replace or remove the general partner?
17. Did our client (and his/her spouse) give up the right (directly or indirectly) unilaterally to decide when, how much, and to whom distributions from FLP would go?
18. Does the FLP conduct formal meetings and observe business formalities?
19. Are there meaningful negotiations and bargaining between the general partners?
20. Do adult children actively represent their own interests – or did they do just what Mom and Pop tell them to do?
21. Did we get our “timing” right? Have we made sure that our capital contribution was first credited to the senior member’s (parent’s) capital account and then, a discrete time later, followed by a gift of the partnership interest to the children?
Saturday, August 2, 2008
What is a Stretch IRA?
Trusts in General - A trust is a legal relationship that exists when one person or an entity (the Trustee) holds title to money or property for the benefit of one or more people (the Beneficiaries). The terms of the relationship are decided by the person providing money to the trust (the Grantor), and are usually in writing.
Stretch IRA – The term Stretch IRA refers to a plan, following the death of the IRA holder, to withdraw only the minimum amount allowed by law. This amount is known as the required minimum distribution. The resulting benefit of this plan is that the assets inside the IRA can continue to grow tax-deferred over the lifetime of the named beneficiaries. Either a traditional IRA or a ROTH IRA may be stretched.
Design of a “Stretch IRA Trust” - A “Stretch IRA Trust” is a flow-through trust designed to guarantee the extension of payouts of your IRA for as long as possible after your death. This is accomplished by allowing the trustee of the Stretch IRA Trust to take out the required minimum distribution, absent emergency. The trust is specially created for the sole purpose of being named as the Designated Beneficiary of an IRA. The reason a special trust is needed is because the provisions of most trusts will not qualify as a flow-through trust. In contrast, should a non-qualified trust be named as the Designated Beneficiary, all the income tax would be due in year one and there would be no further opportunity for tax deferred growth – the worst outcome possible.
What are the Benefits of a Stretch IRA Trust?
Guarantees Deferred Payout of IRA – A plan to stretch out an IRA is merely a plan until the person you name as your beneficiary decides to withdraw the entire amount, creating a huge income tax. Naming a Stretch IRA Trust as the beneficiary of your IRA will ensure that your loved ones defer the built in tax for as long as possible. This is especially useful for young or irresponsible children/grandchildren.
Allows for Control of Assets After You Die – You can set the terms of an IRA Stretch Trust so that your heirs receive money over time, rather than in a lump sum. You can also control where the money goes at the death of the beneficiary if the beneficiary should die before all the money is distributed.
Asset Protection - A trust can protect your money from creditors and make it less likely your heirs will fritter away their inheritance.
Allows for Post-mortem Planning – It is difficult to do much planning with IRAs, but in the event your children do not need the money, creating a trust structure will permit your children to transfer the IRA to their heirs, via disclaimer, without fear that the money will be squandered.
Avoids Over-funding of Spouse for Estate Tax Purposes - A trust structure can both provide income for a surviving spouse and allow both spouses to make proper use of their tax exemptions, thereby minimizing federal and state estate taxes upon the second to die.
Who Should Consider an IRA Stretch Trust?
Individuals with Significant IRAs or ROTH IRAs - Individuals with substantial wealth trapped in their IRA or ROTH IRA may benefit from a Stretch IRA Trust as a way to guarantee that income taxes are reduced, the assets continue to grow on a tax deferred basis, the assets are protected from creditors, and your wealth is preserved. This is particularly helpful for individuals who have young or irresponsible children/grandchildren.
Couples in a Second Marriage – An IRA which names a second spouse as a beneficiary, rather than children of the first marriage, can frequently lead to unintended results - like the money going to the children of your spouse rather than to your children! Giving the money to your spouse in trust will ensure that the money is available for spouse, but also provide for any remainder to go to the people you truly wish to benefit.
What Is Involved In Creating an IRA Stretch Trust?
Hiring an Attorney – When choosing an attorney to prepare your IRA Stretch Trust, you should choose an attorney who is knowledgeable in estate planning, retirement planning, current tax law and asset protection law.
Choosing a Trustee – You can hire either a corporate trustee or an individual trustee. Many people simply have their spouse or a relative act as trustee. You may also have a corporate fiduciary and another person act as co-trustees.
Cost - The cost of an IRA Stretch Trust varies from practitioner to practitioner as well as each client’s needs. How complicated you wish to make the trust and how many beneficiaries you wish to name may also be a factor in the cost. Nevertheless the cost will almost always be far less than the anticipated savings.
Beneficiary Designation Forms – Whether you create an IRA Stretch Trust or plan to stretch an IRA without a trust, it is imperative that you correctly fill out the beneficiary designation forms associated with your IRA to avoid one or more of your loved ones from being inadvertently left out or to avoid paying unnecessary taxes.
Maintenance – An IRA Stretch Trust generally requires no maintenance until after the death of the IRA holder.
Stretch IRA – The term Stretch IRA refers to a plan, following the death of the IRA holder, to withdraw only the minimum amount allowed by law. This amount is known as the required minimum distribution. The resulting benefit of this plan is that the assets inside the IRA can continue to grow tax-deferred over the lifetime of the named beneficiaries. Either a traditional IRA or a ROTH IRA may be stretched.
Design of a “Stretch IRA Trust” - A “Stretch IRA Trust” is a flow-through trust designed to guarantee the extension of payouts of your IRA for as long as possible after your death. This is accomplished by allowing the trustee of the Stretch IRA Trust to take out the required minimum distribution, absent emergency. The trust is specially created for the sole purpose of being named as the Designated Beneficiary of an IRA. The reason a special trust is needed is because the provisions of most trusts will not qualify as a flow-through trust. In contrast, should a non-qualified trust be named as the Designated Beneficiary, all the income tax would be due in year one and there would be no further opportunity for tax deferred growth – the worst outcome possible.
What are the Benefits of a Stretch IRA Trust?
Guarantees Deferred Payout of IRA – A plan to stretch out an IRA is merely a plan until the person you name as your beneficiary decides to withdraw the entire amount, creating a huge income tax. Naming a Stretch IRA Trust as the beneficiary of your IRA will ensure that your loved ones defer the built in tax for as long as possible. This is especially useful for young or irresponsible children/grandchildren.
Allows for Control of Assets After You Die – You can set the terms of an IRA Stretch Trust so that your heirs receive money over time, rather than in a lump sum. You can also control where the money goes at the death of the beneficiary if the beneficiary should die before all the money is distributed.
Asset Protection - A trust can protect your money from creditors and make it less likely your heirs will fritter away their inheritance.
Allows for Post-mortem Planning – It is difficult to do much planning with IRAs, but in the event your children do not need the money, creating a trust structure will permit your children to transfer the IRA to their heirs, via disclaimer, without fear that the money will be squandered.
Avoids Over-funding of Spouse for Estate Tax Purposes - A trust structure can both provide income for a surviving spouse and allow both spouses to make proper use of their tax exemptions, thereby minimizing federal and state estate taxes upon the second to die.
Who Should Consider an IRA Stretch Trust?
Individuals with Significant IRAs or ROTH IRAs - Individuals with substantial wealth trapped in their IRA or ROTH IRA may benefit from a Stretch IRA Trust as a way to guarantee that income taxes are reduced, the assets continue to grow on a tax deferred basis, the assets are protected from creditors, and your wealth is preserved. This is particularly helpful for individuals who have young or irresponsible children/grandchildren.
Couples in a Second Marriage – An IRA which names a second spouse as a beneficiary, rather than children of the first marriage, can frequently lead to unintended results - like the money going to the children of your spouse rather than to your children! Giving the money to your spouse in trust will ensure that the money is available for spouse, but also provide for any remainder to go to the people you truly wish to benefit.
What Is Involved In Creating an IRA Stretch Trust?
Hiring an Attorney – When choosing an attorney to prepare your IRA Stretch Trust, you should choose an attorney who is knowledgeable in estate planning, retirement planning, current tax law and asset protection law.
Choosing a Trustee – You can hire either a corporate trustee or an individual trustee. Many people simply have their spouse or a relative act as trustee. You may also have a corporate fiduciary and another person act as co-trustees.
Cost - The cost of an IRA Stretch Trust varies from practitioner to practitioner as well as each client’s needs. How complicated you wish to make the trust and how many beneficiaries you wish to name may also be a factor in the cost. Nevertheless the cost will almost always be far less than the anticipated savings.
Beneficiary Designation Forms – Whether you create an IRA Stretch Trust or plan to stretch an IRA without a trust, it is imperative that you correctly fill out the beneficiary designation forms associated with your IRA to avoid one or more of your loved ones from being inadvertently left out or to avoid paying unnecessary taxes.
Maintenance – An IRA Stretch Trust generally requires no maintenance until after the death of the IRA holder.
Wednesday, July 30, 2008
PRESIDENT BUSH SIGNS THE HOUSING AND ECONOMIC RECOVERY ACT OF 2008 WITH TAX BENEFITS AND TRAPS FOR THE UNWARY
Today President Bush signed the Housing and Economic Recovery Act of 2008. The eagerly anticipated housing-rescue law is intended to calm the mortgage market, the real estate market, homeowners on the verge of bankruptcy and foreclosure, victims of bank failures and others whose lives are topsy-turvy this year.
But from a tax perspective, the bill is likely to cause more upset than calm. Here is a look at four areas where tax law was changed along with housing law:
1. Tax credit for new homeowners
The housing act gives first-time homebuyers nationwide a temporary refundable tax credit equal to 10 percent of the purchase price of a home, up to $7,500 ($3,750 for married individuals filing separately) The credit begins to phase out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 in the case of a joint return).The credit is effective for homes purchased on or after April 9, 2008, and before July 1, 2009. If you buy the home in 2009, before July 1, 2009, you can make an election to report the purchase on your 2008 tax return and get the refund a year early.
Unlike other credits, however, the first-time homebuyer credit must be repaid in equal installments over 15 years, essentially making it an interest free loan from the government for most qualifying homeowners.
In other words, if you bought a home in August 2008, you start paying back 6.667% of the original credit on your 2010 tax return. This credit applies to purchases of new homes on or before April 9, 2008 and before July 1, 2009.
As a refundable credit, even if your total tax liability is zero, you can file to get a refund. Therefore, people who normally don't have to file tax returns will need to start filing tax returns just to pay the credit back. You can expect IRS computers to track this and to issue notices for unfiled returns. If you sell the house in less than 15 years, you will have to repay the rest of the credit immediately. Only people who have not owned a principal residence for three years before buying the new home qualify. If you've owned a vacation home or timeshare, you will still qualify.
2. New standard deduction rules
Currently, only individuals who itemize deductions may deduct real property taxes imposed by state and local governments. The new law gives non-itemizers a limited deduction for state and local real property taxes by increasing the amount of their standard deduction by the lesser of: (1) The amount of real property taxes paid during the year, or (2) $500 ($1,000 for a married couple filing jointly). This temporary deduction is available only for 2008. Taxpayers most likely to benefit from this deduction include homeowners who have paid off their mortgage (and, therefore, no longer itemize interest payments) and lower-income homeowners (whose overall itemized deductions generally do not exceed their standard deduction). There are no income limits to this benefit.
3. Vacation-home hit
Gain from the sale of a principal residence home will no longer be excluded from gross income under Code Sec. 121 (the $250,000 ($500,000 for couples filing jointly) personal residence capital-gains-tax exclusion) for periods that the home was not used as the principal residence.
In the past, savvy taxpayers have played hopscotch, moving from home to vacation home to the next home, etc. and avoiding income taxes on the sale of each one. That free ride is at an end.
The personal resident exclusion is still good on your personal home. However, you'll be paying taxes on the sale of your vacation home, or rental property converted to a home. The tax will be based on the amount of days the house was not a qualified personal residence divided by the total number of days you owned it. This ratio is multiplied by the amount of gain realized on the sale of the property. It's not clear if their temporary absences will be considered a period of nonqualified use.
This new income inclusion rule applies to home sales after December 31, 2008, and, under a generous transition rule, is based only on nonqualified use periods that begin on or after January 1, 2009. So, if you've got a second house you want to sell tax-free in the next year or two -- move into it before the end of this year.
4. Tighter tracking of credit card payments received by businesses
Under the new law, banks and other processors of merchant payment card transactions (credit and debit cards) will be required to report a merchant’s annual gross payment card receipts to the IRS (and to the merchant). The new law also requires reporting on third-party network transactions (such as ones used by many online retailers). In other words, IRS will get your business’ total merchant credit card gross revenue for the year. In the past, when the IRS wanted to get information from banks and merchant accounts, it was required going to a judge and getting a subpoena. With this new law in place, the IRS now has the information to step in and audit the business at any time.
Merchants and payment card processors have time to prepare. The new treatment is effective for sales made on or after January 1, 2011.
But from a tax perspective, the bill is likely to cause more upset than calm. Here is a look at four areas where tax law was changed along with housing law:
1. Tax credit for new homeowners
The housing act gives first-time homebuyers nationwide a temporary refundable tax credit equal to 10 percent of the purchase price of a home, up to $7,500 ($3,750 for married individuals filing separately) The credit begins to phase out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 in the case of a joint return).The credit is effective for homes purchased on or after April 9, 2008, and before July 1, 2009. If you buy the home in 2009, before July 1, 2009, you can make an election to report the purchase on your 2008 tax return and get the refund a year early.
Unlike other credits, however, the first-time homebuyer credit must be repaid in equal installments over 15 years, essentially making it an interest free loan from the government for most qualifying homeowners.
In other words, if you bought a home in August 2008, you start paying back 6.667% of the original credit on your 2010 tax return. This credit applies to purchases of new homes on or before April 9, 2008 and before July 1, 2009.
As a refundable credit, even if your total tax liability is zero, you can file to get a refund. Therefore, people who normally don't have to file tax returns will need to start filing tax returns just to pay the credit back. You can expect IRS computers to track this and to issue notices for unfiled returns. If you sell the house in less than 15 years, you will have to repay the rest of the credit immediately. Only people who have not owned a principal residence for three years before buying the new home qualify. If you've owned a vacation home or timeshare, you will still qualify.
2. New standard deduction rules
Currently, only individuals who itemize deductions may deduct real property taxes imposed by state and local governments. The new law gives non-itemizers a limited deduction for state and local real property taxes by increasing the amount of their standard deduction by the lesser of: (1) The amount of real property taxes paid during the year, or (2) $500 ($1,000 for a married couple filing jointly). This temporary deduction is available only for 2008. Taxpayers most likely to benefit from this deduction include homeowners who have paid off their mortgage (and, therefore, no longer itemize interest payments) and lower-income homeowners (whose overall itemized deductions generally do not exceed their standard deduction). There are no income limits to this benefit.
3. Vacation-home hit
Gain from the sale of a principal residence home will no longer be excluded from gross income under Code Sec. 121 (the $250,000 ($500,000 for couples filing jointly) personal residence capital-gains-tax exclusion) for periods that the home was not used as the principal residence.
In the past, savvy taxpayers have played hopscotch, moving from home to vacation home to the next home, etc. and avoiding income taxes on the sale of each one. That free ride is at an end.
The personal resident exclusion is still good on your personal home. However, you'll be paying taxes on the sale of your vacation home, or rental property converted to a home. The tax will be based on the amount of days the house was not a qualified personal residence divided by the total number of days you owned it. This ratio is multiplied by the amount of gain realized on the sale of the property. It's not clear if their temporary absences will be considered a period of nonqualified use.
This new income inclusion rule applies to home sales after December 31, 2008, and, under a generous transition rule, is based only on nonqualified use periods that begin on or after January 1, 2009. So, if you've got a second house you want to sell tax-free in the next year or two -- move into it before the end of this year.
4. Tighter tracking of credit card payments received by businesses
Under the new law, banks and other processors of merchant payment card transactions (credit and debit cards) will be required to report a merchant’s annual gross payment card receipts to the IRS (and to the merchant). The new law also requires reporting on third-party network transactions (such as ones used by many online retailers). In other words, IRS will get your business’ total merchant credit card gross revenue for the year. In the past, when the IRS wanted to get information from banks and merchant accounts, it was required going to a judge and getting a subpoena. With this new law in place, the IRS now has the information to step in and audit the business at any time.
Merchants and payment card processors have time to prepare. The new treatment is effective for sales made on or after January 1, 2011.
Subscribe to:
Posts (Atom)