The Key Benefits Of Templates

April 22, 2015

by David Zumpano with No Comment Estate Planning Drafting Software Legal Technical

Recently we had a member complain that our system "didn't work the way he wanted it to”. We later discovered he was on the ListServ of another major estate planning organization and referred to one of our planning templates for designing and drafting our trusts.

Immediately, many people on the ListServ requested a copy of the template, which he kindly obliged. Aside from violating his licensing agreement and being guilty of conversion, he did not even understand and appreciate the value of what he was providing, while those requesting it, did.

So let's examine why templates are so powerful. Typically, templates are used as a guide for us to create legal documents. The challenge is, most documents are lawyer centered and the template is merely a reflection of the document “options” to ensure you know what options to include. I believe a template should be used to guide the attorney to counsel the client on all options available to achieve the client goals, not just the specific provisions allowed or limited in a particular document creation program. That's where properly drawn templates are extremely powerful.

A properly drawn template must match and tie to the software that actually generates the document and must allow the attorney to utilize any design choice the attorney deems appropriate to achieve the client’s goal. Lawyers with Purpose document templates, have unlimited customization ability that integrates 100% with the software to accommodate it. So rather than being restricted to the options in a typical document instead, a properly created template that's integrated with the software will permit true customization at every element of design in the document being created. A proper template will not only allow you to custom design each and every document to the needs to the client, but more importantly, integrates the custom design into all of the different legal documents together with a single entry.

Our templates integrate all legal issues for the client to consider and when used with the software generates all documents to complete the clients plan with the customizations. This is consistent with the way clients think and more importantly, takes each of the custom drafting options of the client and properly integrates them across all different planning documents with one single entry and one single template. This creates not only better plans, but a more efficient way of designing and drafting them to accomplish the clients overall goals.

Perhaps the greatest benefit of a powerful template is when you make choices on it and when it's implemented into the software, it warns you of inconsistent choices that you have made that threatens the overall plan you've selected for the client. This is where the power of artificial intelligence in the LWP client-centered document creation system is so critical. By using the template it guides the attorney to all of the various counseling issues available to a client in each area of their life. Thereafter choosing the options that are most helpful for the client the template is then shared with a paralegal or drafter in your office who will then translate it into the software to create the will, healthcare proxies, powers of attorney, personal care plan, revocable trust, and irrevocable trust, all from a single entry. What's more powerful, are the custom choices the client makes are integrated into each of those documents, with a single client interview and single entry into the software. As further protection, if the attorney chooses to elect different variable in the planning strategy that are inconsistent with the overall goal of the client the software maintains and keeps track of all choices to alert the attorney if he has created a scenario that might put the client's overall objectives and goals at risk.

So how important and effective can templates be? Can you imagine the power of templates when they're properly designed and integrate with the document creation system? Discover the power of templates to you and your clients and how to utilize them to integrate the planning strategy to achieve client’s goals.

To learn more about our templates and our systems and processes to support your estate and elder law practice, join our Practice Enhancement Event in St. Louis in June. You can check out the full agenda here and see all that it has to offer your estate planning and elder law practice and your team. You do not want to miss this event!

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center

2 Ideas On What We Can Do About Lawyers Who Give Assets To Kids

April 15, 2015

by David Zumpano with One Comment Asset Protection Estate Planning Drafting Software Legal Technical

As an estate planning attorney for 23 years, I cannot count the number of times I have been saddened and frustrated by clients who have given their assets away to their kids to protect them. This advice was inadvertently given from a general practitioning attorney (or sometimes self-professed estate planning attorneys) who convinced the client it was a much "simpler approach" to protect assets. Those of us in the estate planning world know nothing can be further from the truth.

Transferring assets to children has many high risks that clients aren't familiar with. Most commonly, it can create a gift tax filing requirement that is rarely done and results in a “carryover” tax basis to the beneficiary who receives the gift. Many of these general practitioners fluff it off because they may have reserved a life estate for mom and dad, to preserve or step up in basis on the home. While they may be correct on the step up in basis issue, what they have failed to consider is, what is the impact of conveying the house to four kids is after the death of mom and dad? Imagine trying to sell that house and getting the four kids to agree on the price and to even agree whether it's sold or not.

More complex yet, is imagine one of those four kids dies, becomes disabled, ends up in a nursing home, gets divorced, get sued, or goes bankrupt? In all of those scenarios the "simplicity" of just transferring the house to the kids is no longer simple and no longer cheap.

Other challenges occur if the asset is not the home, but rather other assets that mom and dad need to live on. Transferring needed assets to the children now puts all of mom and dad's lifetime of assets and security in the hands of their children. Assuming the children are "good kids" and continue to allow the parents access to those assets is a far cry to begin with, but even if the children were cooperative, the children are still subject claims they have no control over such as lawsuits, their own poor health, their own death, or a divorce. Imagine the child the assets were transferred to who dies of cancer or a car accident and now mom and dad's assets are owned or controlled by the "daughter-in-law".

Obviously lawyers who just routinely transfer assets to another party have not considered the significant disadvantages and more importantly risks to the client. So what are we to do about it?

The first and most important thing for us to do is to continue to educate by blogging, delivering presentations, workshops, seminars, and other ways to be the proper educators of the public and always professionals as to the pitfalls of transferring assets to children. The second and more important thing is to perhaps educate our fellow attorneys by sending newsletters, or even committing to doing a CLE at your local bar association. Don't take this lying down, clients need our support. Get involved and protect clients by ensuring their assets are not transferred out of their control during their lifetime!

For more information on estate planning, asset protect, medicaid planning and VA benefits planning, join us in St. Louis from June 1st-5th. It's everything you need for your estate or elder law practice on education, marketing, operations and team development (you can check out the jam packed agenda here). Make sure to register today as some sessions have limited space. This event is not to be missed if you practice in the estate planning arena!

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center

Registration For LWP’s Tri-Annual Practice Enhancement Retreat Is OPEN!

April 15, 2015

by David Zumpano with No Comment Asset Protection Estate Planning Drafting Software Legal Marketing Legal Technical Medicaid Systems & Processes Team Building

Molly here from Lawyers With Purpose. Just a quick heads up that we’ve opened the doors to register for our Tri-Annual Practice Enhancement Retreat, happening June 1-5 in St. Louis, MO.

You won’t want to miss the opportunity to attend one the industry’s most in-depth training programs for Estate and Elder attorneys (and their teams!), focused on helping you:

Freshen up on your legal/technical knowledge and discover new lucrative offerings to weave into your current business model;
Stay up-to-date on changing laws and best practices that affect your business;
Learn how to host consumer-focused presentations, effortlessly fill the room and master the art of “speaking to sell;”
Implement guerilla marketing strategies for any budget that work right away to fill your calendar with high quality estate or elder law clients;
Develop your legal team into efficient and productive staff members who come to the office each day excited to serve your clients with excellence, become your greatest evangelists in the community and love your practice as if it were their own.

It’s a weeklong event with many different trainings and focus sessions to choose from based on YOUR unique needs and the needs of your staff members. Here’s just a little taste of some of the focus sessions and programs offered:

Mastering The Business of Law - A roadmap to increasing office efficiency and revenues.
Adding Insurance Services To Your Law Practice
Train the Trainers: Speaker School- Learn a more strategic way to give presentations that leaves audience members rushing to the podium after your talk to sign up to work with you!
Legal/technical training, including: General Medicaid Laws & Rules, Penalty Period Scenarios, Crisis Planning, Debrief of VA Benefits, Trust Fundamentals, Design Strategy, Strategic Planning for Qualified Assets and more.
Converting Prospects Into Paying Clients– Mastering Client Attraction and Retention, Enrollment with Initial Contact and Initial Meeting and Value Proposition Pair Practice.

Click here now and register today to make sure you reserve your spot! The full agenda is now live for your viewing.

This is your chance to learn from some of the most respected and successful leaders in estate and elder law. These are attorneys that have grown their practices to seven figures and beyond, are doing what you want to do and will openly show you their secrets and how to duplicate their success without costly learning curves or trying to sell you something.

We promise you’ll be ready to hit the ground running with new strategies and plans for explosive growth your first week back in the office!

Jump ahead now to view the full agenda and decide what portion of the program you’d like to attend… or again, consider joining us for the FULL week.

Have questions? Just email me at mhall@lawyerswithpurpose.com and let me know what’s on your mind. I’m happy to personally jump on a call with you and walk you through your options.

Hope to see you in St. Louis!

Molly

Don’t wait: http://retreat.lawyerswithpurpose.com/

Bigstock-One-Two-Three-Numbers-On-Dice--36582055

3 Things To Consider When Planing For Clients Over $10 Million

April 9, 2015

by David Zumpano with No Comment Uncategorized

Recent statistics indicate only 2 out of 1,000 clients have a federal taxable estate. While it affects only two‑tenths of a percent of the population, it is something attorneys come across that creates confusion in how best to plan. So, the first question to consider is how much over $10 million dollars a client’s estate is, which will dictate the type of planning strategy to use. Generally, there are three estate tax planning strategies utilized. One strategy is to utilize annual gifting to maintain the client's current asset level. This approach is effective for those who are just below or just above the limit and have sufficient number of beneficiaries to gift the excess each year. The second strategy is to "freeze" the value of a client's estate at its current value so that all further growth of the estate happens outside the estate. This strategy is typical when a client has assets that are expected to grow aggressively. And finally, the third strategy is to reduce or eliminate taxes for individuals who are over the $10 million limit significantly. Let's examine each approach.

Strategy One: Clients attempting to maintain their current estate can do outright gifts utilizing an estate tax focused irrevocable trust. This trust utilizes the “Crummey Power” to use the client annual gift exemption of $14,000.00 per person per year. Assets funded are removed from their estate. A critical distinction for this type planning is that the individual has enough beneficiaries to distribute the growth in their estate each year. For example, a typical $10 million estate that grows 5 percent a year would need to dispose of $500,000.00 each year. That would require 36 beneficiaries to distribute $14,000.00 to each year (or on their behalf to a Crummey trust) or 18 beneficiaries if the client is married and both husband and wife distribute each year. If the client does not have enough beneficiaries to distribute to, then maintaining the size of the estate using this approach, will be difficult. The attorney, however, can’t approach this planning in a bubble and must look to the type of assets in the estate to determine how rapidly it appreciates. For example if $5 of the $10 million is real estate that increases minimally in value or maintains its value given the current real estate market this strategy. The strategy may allow the client to maintain their current value but if you believe the real estate (or other assets, like a business) are going to appreciate significantly you may want to consider the second approach.

Strategy Two: The second strategy is to freeze the estate value by conveying away to a trust or other entity assets currently owned by an individual and utilize a client’s lifetime gift tax exemption (same as estate tax amount). This strategy ensures all future growth on assets transferred will grow outside of the client’s estate. A business owner client with a company currently worth $2 million, but the client believes might be worth $5 to 10 million in a few years, would benefit from utilizing part of their lifetime exemption now (the $2 million dollar value) in conveying away business ownership so when it grows to $5 or $10 million, it’s outside their taxable estate. The same is true of investment-based assets that a client expects to grow. This strategy may require the client to forever give up all rights to their assets, but depending on legal documents used, the client may be able to maintain control and even derive the benefit from their assets by use of promissory notes and management fees. A technique to add to the freeze approach is to utilize discounting techniques that currently achieve a 30 to 40% discount on the value of any gift made. This allows individuals to convey away $5 to 10 million of assets but only have to use $3 to $6 million of their $10 million lifetime exemption. When combining these strategies, reduction by using discounting techniques also “freezes” the value of those assets that have been transferred in the transferor’s estate.

Strategy Three: The final strategy to eliminate estate tax is accomplished through the use of charitable strategies. Charitable strategies can be used during lifetime or after death to “zero out” the estate taxes if a client's charitable intentions align with the planning strategy. Ultimately, if significant assets are conveyed to a charity the client has created (typically a private foundation) which the family still controls and benefits their community with. Charitable techniques can be used during life to reduce the estate tax and income tax! In addition, charitable planning through use of testamentary charitable lead trusts can reduce the estate to the maximum exemption and eliminate an estate tax.

So what do you want to do for a client over $10 million? I choose to focus on clients under $10 million as I find them to be more enjoyable and more open to the planning strategy and I co-counsel with attorneys that keep up with the technicalities of techniques to achieve the estate tax savings. The complication of advanced tax strategy requires a full focus by the attorney who understands the distinctions between these planning strategies and the overall goals of the clients. Be prepared to know these techniques or be able to worth with someone who does, if you intend to plan in this area.

If you want to learn more about estate planning and elder law and growing your practice, join us in St. Louis from June 1st through June 5th. We'll be spending 3.5 days on all you need to know about Asset Protection, Medicaid and VA Benefits Planning. If you practice in the estate and elder law arena, you DO NOT WANT TO MISS THIS week long event.

Join some of your most successful and forward-thinking peers from around the country at this program where we will discuss, discover, and provide solutions for Legal Technical, Operations, and Marketing. Click here to register and grab a seat now.

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center

3 Things To Consider When Planning For Clients Over $10 Million

April 8, 2015

by David Zumpano with No Comment Asset Protection Estate Planning Drafting Software

Recent statistics indicate only 2 out of 1,000 clients have a federal taxable estate. While it affects only two‑tenths of a percent of the population, it is something attorneys come across that creates confusion in how best to plan. So, the first question to consider is how much over $10 million dollars a client’s estate is, which will dictate the type of planning strategy to use. Generally, there are three estate tax planning strategies utilized. One strategy is to utilize annual gifting to maintain the client's current asset level. This approach is effective for those who are just below or just above the limit and have sufficient number of beneficiaries to gift the excess each year. The second strategy is to "freeze" the value of a client's estate at its current value so that all further growth of the estate happens outside the estate. This strategy is typical when a client has assets that are expected to grow aggressively. And finally, the third strategy is to reduce or eliminate taxes for individuals who are over the $10 million limit significantly. Let's examine each approach.

Bigstock-Tips--Tricks-card-with-colorf-80835410

Tips On Calculating Payments From IRAs

March 24, 2015

by David Zumpano with No Comment Asset Protection Estate Planning Drafting Software Legal Technical

Many practitioners inquire whether the Social Security actuarial tables or the IRS minimum distribution tables should be used when determining the required minimum distribution (RMD) of an IRA to ensure their client qualifies for Medicaid. So what is the proper tables to use?

In typical lawyer fashion, the answer is, it depends. 42 USC Section 1396(b)(c)(1)(G)(ii) provides for annuity to be actuarial sound, and not considered an uncompensated transfer, the annuity must pay out over the life expectancy of the annuitant "in accordance with the actuarial publications of the Office of the Chief Actuary of the Social Security Administration." The same is true when determining the proper payout on a promissory note or mortgage as outlined in 42 USD 1396p (c)(1)(I). How does this differ from the required minimum distribution tables published by the Internal revenue service and what is the relevance?

Sections 401, 403, and 408 of the Internal Revenue code outlines requirements regarding retirement accounts. Upon attaining age 70½ required minimum distributions are required under the tax laws is based on the RMD tables published. In comparison, the Social Security tables are very different, and in some circumstances the IRS tables require nearly half the RMD that the Social Security life expectancy tables require. So how do you be certain which one you use?

To keep it simple, to remain compliant with the tax laws, the IRS tables must be utilized in determining the required minimum distribution to avoid any adverse tax penalties for failing to withdraw the minimum amount required. Medicaid and benefits planning, however has a different standard is that the Medicaid law specifically refers to the Social Security Administration table in determining the actuarially sound calculation of any annuity owned by a Medicaid applicant.

So the proper table to use will depend not on the law, but on which table your Medicaid department uses. While the law is clear that it requires the Social Security tables, many states allow the IRS RMD tables and some states even exempt an annuity if the IRA is simply in a "payout status. Once you are clear on how your state identifies an “actuarially sound” annuity or promissory note, you will have your answer. So, one final responsibility is to ensure when the Social Security tables are used, the amount required to be withdrawn is equal to or more than the minimum amount required by the IRS RMD tables. That ensures a client’s benefits’ planning is also tax compliant. Conversely, if a client is not doing benefits planning, then relying on the IRS RMD tables may result in a lower minimum distribution requirement.

If you are not a Lawyers With Purpose member, and would like to know more about who we are and the benefits we can bring to your estate and elder law practice, join our FREE Having The Time To Have It All webinar Monday at 8:00 PM EST.

Dave Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center

How To Tell If You’re A Trust Mill

March 19, 2015

by David Zumpano with No Comment Estate Planning Drafting Software

Sometimes the hardest part of doing something, is getting started and knowing where to begin. Imagine if you had a template to guide you through your day. Wouldn't it be easier. The same is true when drafting estate planning. The challenge becomes how to utilize templates, and not become a "mill". I often ask attorneys if you look at the last ten estate plans you've done, what has changed other than the names and the beneficiaries? If you fall into this trap, you may be a "mill" already.

So how do you ensure you address all the issues with planning and have the freedom to create custom documents without doubling the time it takes to draft the document? Having a document creation system that meets the needs of creative lawyers, ensures all legal technical requirements of today's planning is addressed requires much more than a "fill-in-the-blank" software program. It actually requires your software to have artificial intelligence. When the LWP document creation system was created, it was created with a client-centered approach.

What does that mean? All document creation systems are lawyer centered, that is they ask questions of the lawyer as to what legal provisions they want in the documents. The LWP software was designed in the inverse inquiring of the needs and goals of the client, (estate planning, asset protection, benefits planning, or tax planning), and after identifying the clients personal and financial distinctions, all is entered and the software uses its preset intelligence to integrate all of the proper legal terms into all the various estate planning document to ensure the clients wishes actually occur. Since the software is client centered, a single interview generates all the estate planning documents ( will, HCP, PIA, personal care plan, revocable and irrevocable trusts) that assuring all of them are integrated in all the key needs of the client.

The beauty of this type system is that when speaking with clients you're not asking whether they want a power of appointment, but you're asking them questions about whether they would like their spouse or someone else to be able to change the planning upon their incapacity or death and if so, then you even have the ability to determine when and how (during life, after incompetency, after death, after remarriage, ect.)

The significance of this software is that it knows the questions relevant to each of the four categories of planning a client chooses and has created the decision trees internally to make the drafter of issues they may not have considered or if they choose confliction provisions. The greatest advantage, however is, different choices the client is able to make to be confident in their plan. Perhaps the greatest advantage of the client-centered software is for the attorney is that it has over 4,900 combinations of occurrences and allows the attorney to customize any individual part of the plan.

Assume two people are buying a car. While they may both buy the same model, each typically chooses different options on the car. This is how typical estate-planning software works. What makes the LWP software different is it is like going to a web site and choosing a car or an SUV or a pickup truck and then identifying what particular things are important to you on that car and then go through and design every part of it as you deem appropriate. For example you can opt the A package which has power windows and door locks or you can opt to customize the color of the knobs on the radio if you so desire.

Sound complicated? Well, it is, if you're the programmer developing the artificial intelligence (already done!), but it's quite simple if you're the attorney using it. All you need is a template. As you go through the template it helps identify all the triggering events in the decision tree and allows you to use preselected choices most commonly used by attorneys (typically three to five) or allows you to customize any particular provision to your specific desire. Now that's client centered!

I get two typical responses from lawyers that use the client-centered software. One is "This software doesn't do X." That typically comes from the attorneys who are unwilling to take the time to become familiar with client centered approach. The other answer we typically receive is holy moly, I cannot believe how much I can do with this software and it’s amazing how it all integrates. It’s amazing! Once you go client centered, you’ll never go back to lawyer centered. If you're a non-member and want to know more about our estate planning drafting software, click here for a live demo of our client centered software.

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center

Bigstock-high-resolution-green-half-sym-19584152

How To Completely Understand The Rule Of Halves

March 11, 2015

by David Zumpano with One Comment Asset Protection Estate Planning Drafting Software

Many Medicaid planning practitioners are aware of the rule of halves, but it is an area of confusion for many attorneys newer to the practice. Where does the rule of halves come from? Is it codified? Well, sort of. To understand the rule of halves you have to first understand the Medicaid law and then understand math.

42 USC 1396p (c) (1) (e) provide a penalty period shall be imposed on any individual who transfers assets for less than its fair market value (uncompensated transfer). The law further states the penalty shall be calculated by taking the amount of the uncompensated transfer and dividing it by the average cost of one month's nursing home in the region in which the Medicaid applicant resides. That is all the law states, so the question becomes where does the rule of halves come from? That's where math comes in. In essence in light of the law identified, if you take any amount of money and divide it by two, the half you gave away will create a penalty period equal to what the half kept will pay.

If an individual has $100,000.00 of excess assets, and gives half away, the $50,000.00 transfer will create a penalty period that will always equal the period the retained amount will pay thru. Assuming a regional divisor of $5,000.00, the penalty on the $50,000.00 transfer would be 10 months, and the $50,000.00 retained would thereby pay 10 months in a nursing home ($5,000.00). While the rule of halves, in its purest form, makes sense in practice, it's a little more complicated because one of the fallacies in using rule of halves, is it presumes that the regional divisor actually equals the cost of care (even by law it supposed to, it often doesn’t).

In the same example if you gave away $50,000.00 in a location the divisor is $5,000.00, it would create a 10-month penalty period, but, if the cost of care was actually $6,000.00, then the $50,000.00 retained would not pay through the 10-month penalty period (you would need $60,000). The federal Medicaid law requires the state to publish at least annually, the average cost of one‑month's private paid nursing home (regional divisor). Each state however, has their own way to calculate this and most facilities are above (rarely below) that regional rate. A few states (Illinois for example) have made the divisor the actual cost of care at the facility where care is being provided. That negates any concerns about the effectiveness of the rule of halves calculations.

Finally, when planning using the halves calculation, one must also consider the income of the Medicaid recipient. When a cost of care in excess of the divisor, creates in a shortfall of retained funds needed to pay through any penalty period, failing to take income into account, often creates excess resources for the client at the end of the penalty period, which will render them ineligible.

To illustrate, assume again an individual had $100,000.00 excess assets and transferred $50,000.00 with a monthly divisor was $5,000.00. The $50,000.00 transferred would create a 10-month penalty and the $50,000.00 retained would pay through the 10‑month penalty. All other things being the same, at the end of 10 months, with the recipient in a nursing home, they're not spending their monthly income (assume $1,200.00 Social Security) the client would have accumulated an additional $12,000.00 ($1,200.00 a month times 10 months) and have excess resources and therefore not be eligible for Medicaid until additional spend-down and penalty may be created.

Proper planning utilizing the rule of halves assumes an analysis of the actual cost of care, the actual regional divisor and the actual income of the recipient are considered. The LWP Medicaid Qualifying software automatically calculates the optimal client assets to transfer and retain considers the actual cost of care, the regional divisor and the clients actual income.

To learn more about Lawyers With Purpose and what we have to offer your estate or elder law practice, please join us THIS THURSDAY for our "Having The Time To Have It All… Three Time Strategies To Have A Practice With Profit And Purpose." Click the link for registration information and to reserve your spot now.

David J. Zumpano, CPA, Esq., Practicing Attorney, just like you & Founder of Estate Planning Law Center & Lawyers with Purpose LLC

Bigstock-different-concepts--red-apple-56219489

Think “Differently” About Your Time & You’ll Get More Done

March 10, 2015

by David Zumpano with No Comment Estate Planning Drafting Software Legal Marketing Legal Technical

In a speech, Steve Jobs said, “You must think differently about what you do.” In fact, it has become the brand of Apple – Think Differently. So I ask, “What are you doing to think differently about how you spend time in your practice?” Are you frustrated that your growth is stagnant or not at the rate you'd like? If you continue doing what you've always done you will always get what you've always gotten.

That's why you must think differently, and that's why on Thursday March 12^th at 4PM EST and then again at 7 PM EST I am hosting a one-hour webinar entitled, “Having the Time to Have it All – Three Time Strategies to Have a Practice with Purpose and Profit”.

In this webinar you will think differently about how you utilize your time. You will re-examine the best use of your time and how to use your strengths and abilities to ensure marketing time, client time, and planning time you need, is achieved. I will also show you how to ensure your time provides consistent cash flow while being able to help more people.

Jeff Bellomo of York, Pennsylvania recently declared, “I was doing it all already, I just wasn't utilizing it in the right way. Just a few of the concepts you have opened me up to have allowed me to help more people, make more money, and have a greater impact on my community.” You can begin to think differently about your practice. I look forward to sharing with you.

Click here to register now and discover how to have the time to have it all.

If you have a great work ethic, a passion for helping people, are a lifetime learner, and value relationships; this webinar will get you thinking differently about how to actually get what you've always hoped for in the same time you have now.

If you are an existing Lawyers With Purpose member, you already have access to this valuable information. Simply reach out to us and we'll tell you how to access it on the members section of the website.

Cheers to helping people,

David J. Zumpano, CPA, Esq., Practicing Attorney, just like you & Founder of Estate Planning Law Center & Lawyers with Purpose LLC

Bigstock-Pretty-young-lady-taking-a-dec-53759368

Conduit Or Accumulation Trust

March 4, 2015

by David Zumpano with No Comment Asset Protection Estate Planning Drafting Software

The question of whether an attorney uses a conduit or accumulation trust in regards to an inherited IRA is a question of simplicity versus protection. Recently, the U.S. Supreme Court in Clark v. Remeker, ruled an inherited IRA is not "protected" from the reach of creditors.

As practitioners, we can still protect an inherited IRA by ensuring the beneficiary is a trust, not an individual. They key question when utilizing a trust is whether to make it a conduit trust or an accumulation trust. What factors should you consider? If the practitioner wants simple for both himself and the client, a conduit trust is the answer. Conduit trusts provide that any and all distributions that come into the trust on an annual basis must be distributed out in the same year to the rightful beneficiary.

Therefore, the trust is merely a "conduit" to hold the IRA for the benefit of the beneficiary. While this provides asset protection of the underlying principal of the IRA, it does not provide any protection of the required distributions from the trust to the beneficiary.

Alternatively, practitioners can elect to provide for an accumulation trust. In an accumulation trust, the RMD (or other IRA distributions) is distributed from the IRA to the trust, but, the trustee has the option to "hold" the distribution and accumulate it with the principal of the trust. The major downside to an accumulation trust is if the RMD is held and accumulated, the trust must pay the tax on the income from the IRA and trusts are traditionally taxed at a much higher rate than individuals.

Why would one do this?

If the beneficiary is in the middle of a lawsuit or becomes subject to alimony or other liabilities, any income distributed to the beneficiary would be lost. So the question becomes what is the bigger loss, a potential twenty-five to forty percent income tax, or a 100 percent loss creditors or other legal obligation. An accumulation trust can also serve to protect a beneficiary from themselves. In addition to protecting the income and assets "for" the beneficiary. A properly drawn accumulation trust also protects the IRA and distributions "from" the beneficiary. Many of us are aware of individuals with children who inherit IRAs and their first item to purchase is a fancy new sports car that costs $50,000.00. To do this, requires the beneficiary has to withdraw $71,500.00 assuming a 30% tax rate which leaves $50,000.00 to purchase the car that's worth $40,000.00 when they drive it off the lot. Great way to turn $71,500.00 into $40,000.00 in a single act! In cases of spendthrift or other concerns, a accumulation trust provides the greatest option.

Perhaps the greatest advantage of an accumulation trust is you can have the best of both worlds, that is if you choose to distribute all RMD out in the year received to have it operate like a conduit trust. A conduit trust, however cannot hold money to be protected or distributed later like a accumulation trust. Accumulation trust also is a better choice if the beneficiary is in the maximum tax bracket, so any accumulation would not create any additional tax loss. When properly drawn both conduit and accumulation trusts can provide for all of the RMD be calculated on the age of one beneficiary, but the distributions of the RMD can be distributed out to other beneficiaries who are in a lower tax bracket (i.e. the children of the beneficiary).

So determining whether to use a conduit or accumulation trust is deciding whether simple is the goal or ultimate protection is the goal. It is critical that you properly educate your client so they can advise you of what's most important.

If you would like to know more about Lawyers With Purpose and discover three tried and tested time strategies to get a practice that allows you to help more people and be profitable join us on Thursday, March 12th for our "Having the Time to Have it All…Three Time Strategies to Have a Practice with Profit and Purpose" webinar.

Here's just some of what you'll discover in this practice-transforming event…

How to effectively utilize your time to enroll your team to help as many people as you choose and profit from it too
To work effectively with your team
How to balance your work life and your personal life to ensure you are able to create the maximum amount of value in both
How to have sufficient time to market consistently which will ensure consistent cash flow and free up the time you're currently spending chasing dollars.

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center