Florida Estate Planning, Probate and Asset Protection

Don’t “Escheat” Your Family Inheritance

Nearly 2.5 million Americans died last year, many without signing a will. One of them was apparently Roman Blum, a Holocaust survivor and New York real estate developer who was worth almost $40 million when he passed away in January 2012 at the age of 97 … If, after three years, there’s still no sign of his doing any estate planning and no one comes forward to claim his assets, all that money will go to New York State, under a legal rule called escheat.

Estate planning is not a do-it-yourself endeavor; there are plenty of opportunities to make costly mistakes. The biggest mistake is having no estate plan. Why? Because your life’s work may escheat to your state’s treasury by default.

At the very least, a proper will can avoid legal landmines like the escheat rule.

Escheat is the principle that there is no such thing as estate-limbo. Basically, an estate can sit in limbo for only so long before it gets swallowed up by the state where the decedent last resided. Consider the case of Roman Blum in New York, as reported in a recent Forbes article titled “N.Y. State Could Get $40 Million From Man Who Died Without A Will.” You can read all of the details in the original article, but Mr. Blum likely did not intend the State of New York to benefit from his life’s work as a real estate developer.

For whatever reason, many otherwise responsible Americans do not take time to meet with an estate planning attorney to ensure the proper administration and distribution of their estates. The failure to make proper estate plans is really a plan to fail at your estate planning.

Reference: Forbes (April 28, 2013) “N.Y. State Could Get $40 Million From Man Who Died Without A Will”

President’s Budget Proposal Targets Estate Planning Tools

A couple weeks ago on April 10, President Obama released his budget proposal for 2014.  Although the proposal largely focused on areas such as military spending, education, Social Security and health care, hidden between the lines of the 244 page document were some important implications for estate planning.

Have you been tracking the budget battle storm clouds? Estate planning attorneys are keeping a wary eye cast in the direction of the President’s budget proposal. It targets a number of important estate planning techniques.

Forbes has been watching the various budget proposals with great interest and provided a helpful summary in an article titled “Obama's Budget Proposal: The Impact On Estate Planning Tools.”

Essentially, this is a crib sheet list of the techniques presently in the crosshairs:

• High value IRAs of over $3 million
• Generation Skipping Transfer Trusts
• Dynasty Trusts
• Grantor Retained Annuity Trusts (GRATs)
• Intentionally Defective Grantor Trusts (IDGTs)

Click over to the article for an overview of the techniques, along with examples of their estate planning applications.

If your current estate plan already includes one or more of these techniques, then any change could impact you, your loved ones and your assets in a significant way. This would be a good time to schedule a review consultation with your own estate planning attorney.

Reference: Forbes (April 26, 2013) “Obama's Budget Proposal: The Impact On Estate Planning Tools”

Daughter Experiences Estate Plan Nightmare as Executor

In hindsight, as mind-numbing and rage-provoking as the last five years have been for me moonlighting as the sole executor of his estate, there are some invaluable lessons that I’ve picked up during the process—ones that have had an impact on my approach to finances and life.

In many respects, understanding “personal finance” is easy when it is about annual year-ends and accounts balances. On the other hand, it is quite another matter when you look at personal finance over the life of an individual, and yet another still when you become the executor to that individual’s estate.

Since we will not live long enough to make all of life’s mistakes, it is prudent to learn from the mistakes of others. In this spirit, there is much wisdom to be gleaned from a recent autobiographical article in Forbes titled “What My Dad's Death Taught Me About Money.”

As you read this article, there are many lessons the daughter and only child of the decedent learns in her role as executor. The unfortunate fact is that these lessons were learned the hard way and unnecessarily. I highly recommend reading the full article, but here are the essential takeaways:

Lesson #1: Everyone Should Have an Estate Plan … or at Least a Will

Lesson #2: Adequate Medical Insurance is a Must

Lesson #3: Mental Breaks Trump Burgeoning Bank Accounts

It is less painful and less expensive to learn from the mistakes of others, especially when it comes to estate planning. One of the best and last gifts you can leave your loved ones is a well-planned and organized estate.

Reference: Forbes (April 19, 2013) “What My Dad's Death Taught Me About Money”

The ESOP Way to Business Succession Win-Win

As more entrepreneurs, like Ms. Cabot, approach retirement—about 30% of the nation's business owners are 55 or older, according to the U.S. Small Business Administration—many are choosing to sell their companies to their employees, rather than outside buyers.

In the alphabet soup of company forms (S-Corp, C-Corp, LLC, LLP, LP, LTD., and so on and so forth) there is a growing turn toward a slightly more obscure acronym: the ESOP.

So, what is an ESOP, what can it do, and is it right for your business?

ESOPs, or Employee Stock Ownership Plans, are a tricky breed. Essentially, an ESOP is a tool recently highlighted by Congress and featured by The Wall Street Journal in an article titled “Founders Cash Out, but Do Workers Gain?” Planning to exit a business is all about doing one of two things; either restructuring the business or selling it outright. With an ESOP you accomplish both goals and build the company around the very employees that compose the company in the first place.

Rather than going out and hunting for a buyer, the employees become vested in the stock ownership of their own company. In turn, the ownership stake simultaneously becomes a retirement asset while the ownership of the founder is bought out.

Now, if you are already familiar with this approach, it may be worth reading the original article since there are certain limitations affecting the employees-turned-owners. The article gives examples of how an ESOP can work a win-win for all concerned under the right circumstances. These examples include Bob’s Red Mill, for example, or, from a different industry, Manson Construction Co.

ESOPS have been a powerful tool in an otherwise soft market for business transfers. Accordingly, ESOPS are worth a good look, and then even a second look, as a unique and proven business succession strategy.

Reference: The Wall Street Journal (April 17, 2013) “Founders Cash Out, but Do Workers Gain?”

Credit Shelter Trusts – The Tried and True Tool

Credit shelter trusts are a way to take full advantage of state and federal estate tax exemptions. Although such trusts may appear needless unless you are a multi-millionaire, there are still reasons for those of more modest means to do this kind of planning, and one of the main ones is state taxes.

There are some estate planning tools that are just basic and vital, regardless of tax law changes. Unfortunately, some of these tools may be ignored by taxpayers (to their peril) when they appear to be eclipsed by changes in the tax laws. For the prudent taxpayers, however, old standbys like the credit shelter trust should not be swept aside.

Before the advent of portability as a method to maximize the full estate tax exemption available to married couples, such couples would oftentimes get caught in a marital deduction trap. In other words, the first spouse to die could pass all their wealth to the surviving spouse without triggering estate taxes, but upon the death of the surviving spouse only one spousal exemption (i.e., that of the surviving spouse) would be available to reduce estate taxes on the couples combined estate. Under the right circumstances, this was a recipe for disaster.

Enter the credit shelter trust, also known as a bypass trust, which was a way of avoiding that marital deduction trap. Nevertheless, recent changes to the federal estate tax laws now allow a decedent spouse to pass their assets and their estate tax exemption to their surviving spouse. This portability of the estate tax exemption can now give a married couple the power to shelter as much as $10.5 million tax-free.

So, no need for those credit shelter trusts? Not so fast! As addressed in a recent post in Elder Law Answers titled simply “Credit Shelter Trusts,” there is still plenty of life left in the this tried-and-true estate tax planning approach.

For starters, many states still have their own independent estate taxes at much lower levels than the $5.25 million level exempted per spouse under the federal estate tax exemption. More importantly, portability does not apply to such taxes. In addition, credit shelter trusts not only shelter assets from estate taxes, but they can protect an inheritance from the unsuccessful remarriage of the surviving spouse and general inheritance protection.

While there are myriad trust arrangements available to help you achieve your specific estate planning goals, the basic credit shelter trust is a proven tool that should be considered in the estate planning of every married couple.

Reference: Elder Law Answers (updated: April 18, 2013) “Credit Shelter Trusts”

Have “The Talk” with Your Children Now

Telling heirs how much they stand to inherit can be a subject fraught with emotional land mines for parents … But waiting too long to discuss the issue, or avoiding the conversation altogether, is a bad idea, financial advisers say. It can cause confusion, mistrust and leave heirs unprepared to manage the family's wealth.

There are a number of “talks” you have with your kids. We all are familiar with the infamous “the talk” – and a few others that are more easily avoided than had.

Add “the inheritance talk” to the short list of intergenerational talks too important to avoid. So, how do you prepare and execute this too-important-to-avoid chat?

To be blunt: there is no easy answer. Why? Because so much of the talk depends on what you have to leave, who is going to manage it, who is going to inherit it, and how soon are they going to get it?

The Wall Street Journal recently offered a pep-talk for estate planning parents in a recent article aptly titled, “The Inheritance Conversation. Ugh.”

One of the key reasons for this essential intergenerational communication is to prepare the inheriting generation for the attending responsibilities. One challenge, of course, is that any “inheritance” carries the risk of robbing a developing person of their work ethic.

In short, what makes you, your assets, and your heirs unique? That is what needs to be understood and communicated. The sooner you have the inheritance talk, the better it will be for all concerned.

Reference: The Wall Street Journal (April 19, 2013) “The Inheritance Conversation. Ugh.”

Exiting Your Business on Your Own Terms

“It’s too early to do exit planning; I need to retain control of my business!”  It’s always a feel-good moment for me to let a business owner know that these two concepts are not mutually exclusive. There are myriad ways to begin the exit process from your business without giving up management control.

Exit planning for your small business isn’t like a light switch – there is no simple on/off switch when it comes to control or ownership. It took time to build the business the right way and so it will also take proper time and planning to leave it on your own terms. Fortunately, you can structure your exit in such a way that you can lay the foundations to flip the switch in the future while retaining management control today.

So, how do you structure the business so that you can start succession while still sitting on the throne? A recent Forbes article titled “How To Retain Control, Even As You Exit” provides some practical advice.

At the most basic level, you may want to adjust the structure of the business itself. Is it an LLC? If yes, then retain control by making it a “manager-managed” LLC and retain the management position. Is it a corporation? If yes, then there are more options. For instance, you could issue various types of stock, either in different classes (voting vs. non-voting), or even offer restricted stock that becomes vested only upon certain conditions. The corporate structure also offers other powerful tools like Employee Stock Ownership Purchase (ESOP) arrangements.

Your approach and the timing of your exit will depend on other factors, not the least of which hinges on your successors. When will they be ready to assume more control? Even more important, when will you be ready to begin relinquishing control?

More often than not, you can structure an exit so both control and financial gain slowly adjust to everyone’s benefit, but you have to start with a plan.

Reference: Forbes (April 10, 2013) “How To Retain Control, Even As You Exit”

IRAs Targeted in Obama Budget

President Obama’s budget, just sent to Congress, proposes to cap tax-advantaged savings across all accounts at $3 million in order to raise $9 billion over 10 years. The proposal is being spun as a way to prevent wealthy private-equity executives from amassing huge IRAs—like Mitt Romney’s, once estimated to be worth as much as $100 million. But it would also curb the savings ability of self-employed professionals like doctors and lawyers.

Three budget plans are winding their way around the capitol, to include President Obama’s. While the details are thin and the pundits are still weighing in, self-employed professionals need to take heed. They are tax targets when it comes to their retirement savings.

For retirement savers and those making powerful use of an IRA, here’s at least one tidbit the rumor mill has been circulating well before the budget’s release. If enacted, “wealthy” individuals would be pinched with a $3 million cap on their IRA holdings.

Several sources have reported on this, to include Time Magazine in an article titled “Obama’s Budget Would Cap Tax-Advantaged Savings.” Although $3 million may sound like a lot, it may end up affecting more savers who otherwise might not be considered traditional tax targets: self-employed individuals like doctors, lawyers, and entrepreneurs. The self-employed all have unique abilities (and needs) to contribute large amounts to their IRAs.

So, who is the intended target of this kind of a cap? One name keeps surfacing: Mitt Romney. Remember that fabled $100+ million IRA, as pointed out by the Boston Globe in an article titled “Obama budget would pinch IRAs of wealthy with $3m cap.”

The analyses of the proposal are still being churned out, and there are some important details to be hammered out as well. At present, this cap is no more than a proposal and part of a budget plan none-too-well-liked by either side. Nevertheless, this kind of cap and its prying look at tax-advantaged plans is worth watching.

Reference: 

Time Magazine (April 10, 2013) “Obama’s Budget Would Cap Tax-Advantaged Savings”

The Boston Globe (April 10, 2013) “Obama budget would pinch IRAs of wealthy with $3m cap”

Do You Really Have Enough Life Insurance?

Ownership of life insurance policies has been declining over the last couple of decades, leaving 50 million Americans without adequate life insurance coverage and 40% of adult Americans having no life insurance at all. As a result, less than 25% of widows and widowers of spouses who died prematurely (age 30 to 55) felt their spouse had adequate life insurance. So how do you know whether you have enough?

It’s not too hard to properly insure a car or a valuable piece of art, because the value of the object can be determined, even in a shifting market. What about insuring your life for those who depend on you for financial support? How do you insure your life and how do you even begin thinking about life insurance?

For starters, it is essential to note that life insurance can be a complex subject, especially when it comes to the right “kind” and the right “amount” of insurance.

So what questions do you ask? Sometimes the important questions don’t come up when you click through those online life insurance calculators, and unfortunately, less so with some insurance brokers. Forbes recently addressed this important issue in an article titled “What A Life Insurance Calculator Can't Tell You.”

Generally speaking, insurance exists so you can pay a “premium” now that you can afford to protect against the risk of a catastrophic event later that you cannot afford. When it comes to life insurance, of course, the risk is to your family and loved ones if you were no longer there to care for them. Life insurance is a potent tool in this regard, but it is far from the only tool to protect for your loved ones in the event of your death.

The original article provides an excellent analysis of common “needs” that life insurance can protect. In the end, however, nothing can replace the advice and counsel of an experienced and qualified life insurance professional.

Reference: Forbes (March 28, 2013) “What A Life Insurance Calculator Can't Tell You”

“Fair Or Equal” Inheritance – It’s in the Eye of the Beholder

As much as we like to think our relationships can’t be defined by money, it happens.

If you are planning your estate, or have already inked your planning, how will your loved ones react to their inheritance? Are you providing a “fair” or an “equal” inheritance? While it is your estate, it may be helpful to communicate your wishes and rationale now to avoid misunderstandings (or worse) later on.

The Washington Post recently explored this subject in an article titled “Dividing up money can cause divisions in families.” The article tracks the case of a certain individual who can’t help feeling resentment over the estate plan his parents have created. He believes the basis for the estate plan is his chosen “lifestyle.”

He is gay and his married sister is not. He has no children and she does. The parents of these adult children have chosen to leave an inheritance “directly” to their grandchildren, instead of “through” their daughter. The grandchildren are set to each inherit one-sixth of the estate, with the children splitting the remaining two-thirds.

The author of the article concludes thusly regarding the inheritance planning of these parents: “And yet, this is their prerogative. It’s their money.”

What about your own family and heirs – will they understand? What can you do to make yourself understood? Then again, if instead you are the one inheriting, have you thought it through from everyone’s perspective?

Properly thinking through your estate planning objectives and then committing it to proper legal instruments can be an arduous task. That is why too few otherwise responsible adults actually follow through on their intentions. One of the most common estate plans is one that lies unsigned in a desk drawer.

When all is said and done, it is your estate and you may distribute it as you wish. Period. Nevertheless, long-term family harmony often hinges on communicating your wishes while you are alive and able to explain them. Surprise is only a good thing when it comes to birthdays and military maneuvers.

Reference: The Washington Post (March 29, 2013) “Dividing up money can cause divisions in families”