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Avoiding The Five Major Threats To IRA’s: Part 4

May 22, 2015

by David Zumpano with No Comment Asset Protection Estate Planning Drafting Software Legal Marketing Medicaid VA

As I have been discussing there are five threats to qualified accounts that most people don’t typically consider when doing estate planning. The five major threats to qualified plans are unexpected loss to income taxes, excise taxes, long-term care costs (all covered previously), estate taxes (today’s topic) and to beneficiaries and/or their creditors. As we’ve previously outlined, the threats of incomes taxes and excise taxes can easily be avoided if planned for, and the threat to long-term care costs can be planned for with the least risk by completing an IRA analysis to determine if an IRA should be liquidated or annuitized when the IRA owner becomes subject to long term care costs. When it comes to protecting qualified accounts from estate tax, it is more challenging.

If an individual dies with assets greater than $5,340,000.00 their estate is subject to a forty percent estate tax. When this occurs, the IRA (or other qualified asset) can be subject to more than seventy five percent in total taxes. How? Well assuming a $1 million IRA is part of a $7 million estate, the IRA will be subject to estate tax of forty percent ($400,000.00) and upon the liquidation of the IRA by the beneficiaries it could be taxed at a rate of up to thirty nine point six percent (39.6%), which results in an additional $396,000.00 in income tax if the beneficiary is in the highest income tax bracket. To add insult to injury, there is no deduction on the value of the estate tax return for the income tax due on the IRA. As if federal taxes were not enough, there can be state income taxes dues when the IRA is liquidated to pay the federal estate tax. It gets even worse if you live in a state that has an estate tax. A state estate tax is yet one more tax on top of the federal estate and income taxes, and state income taxes. Most states estate taxes are up to an additional sixteen percent. And so the question becomes, how do you protect qualified accounts from estate tax liabilities?

The answer is you really can’t, without first liquidating the IRA and paying the income tax (other than an annual $100,000.00 gift allowed to charity). So in order to protect IRA’s from federal and state estate taxes requires the reduction of a client’s non IRA estate during lifetime so the total estate evaluation does not exceed the estate tax limits. One strategy to do this is annual gifting, which can be effective, but often requires a significant number of beneficiaries to distribute the annual growth on an estate of that size. For example, if an individual had a $7 million estate and it grew at three percent the individual would have to give away $210,000.00 per year just to keep the estate from growing. That would require fifteen beneficiaries to distribute $14,000.00 to or eight beneficiaries if the client is married.

Another strategy to reduce estate taxes is to give away money to charity. An individual can have the ability to benefit charities and their family by use of various strategies which is outside the scope of this writing. A third way to reduce estate taxes is by using legal strategies to discount the value of assets by use of various tax planning techniques. Unfortunately none of these strategies work to reduce an IRA’s value other than outright gifting after withdrawal and the payment of income tax or use of the annual allowance for distributions from qualified account to charity. In summary, subjecting qualified accounts to estate taxes is a significant burden to the tax payer which only can be minimized by ensuring their non-qualified estate is reduced and moving to a state without income tax can reduce the income tax burden. Obviously qualified accounts are very appealing as they have tax referral advantages, but one must weigh the long term benefit of the difference with the tax cost upon receipt or death.

If you want to learn more about what it's like to be a Lawyers With Purpose member, join our 3.5 day Practice With Purpose Program (you can find the agenda here). We still have a few spots left so grab them now! It's a jam packed 3.5 days that include all the essentials on Asset Protection, Medicaid & VA for your estate or elder law practice.

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

Avoiding The Five Major Threats To IRA’s: Part 3

May 20, 2015

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

Many people are keenly aware the many advantages of qualified accounts such as IRAs, 401ks and the like but few are aware that of the five major threats to all qualified accounts. In the first two parts of this series, we discussed the risk of income taxes and excise taxes. Today, I will discuss the risk of losing IRAs to the long care costs, and finally we will continue our series with threat to IRAs by estate tax and the beneficiaries and/or their creditors after the death of the plan owner.

Many people believe that IRAs and qualified assets are exempt from determining eligibility for long-term care benefits such as Medicaid or Veterans Aid and Attendance benefits. This is far from true. It is important when planning for qualified funds to be clear on what the law states. An IRA is an available resource in determining ones eligibility for Medicaid. This is deduced by the annuity exception contained in 42 USC 1496p (C) (1)(G). The law states that an IRA is exempt if annuitized and follows the provisions. Conversely, there is no exemption to IRAs being excluded under the law. Accordingly, all assets are deemed countable except in the case of an IRA that is annuitized pursuant to 42 USC 1496p (C) (1)(G). While the law is clear, many states Medicaid policy allows the individuals to protect their IRAs. In recent years however, several states have begun counting IRAs as an available resource unless it is annuitized. The challenge of annuitizing an IRA is the underlying asset is lost and instead, is converted to an income stream.

The greatest threat of IRA’s to long-term care costs however, is the threat of the state changing its policy of exemption with no notice. Since the federal Medicaid law is clear it is an available asset unless it is annuitized, many states policy current exempt it if it is in “payout” status, which often just requires proof that regular payments are coming out of the IRA. Most states will accept it as long as the “required minimum distribution” is being made. This is not the law, but rather state policy. The state has the right to change this policy at any time without notice. This is a major threat to individuals trying to protect their qualified assets from the cost of long-term care.

It’s also important to distinguish that while the IRA may be exempt, the income distributions are not. That’s why it is critical that you perform an IRA analysis to determine what the point of no return is. The point of no return is that point in time, when, if the IRA is annuitized, the amount paid out towards the cost of long term care from the monthly IRA income, is more than the amount that would have been paid to income taxes if it had been liquidated.

The LWP™ Medicaid Qualification software calculates a complete IRA analysis that identifies the point of no return so you can know at the beginning of planning, the length of time in a nursing home that would result in more money being paid out to long term care costs than to taxes if the IRA was liquidated and the taxes paid. For a complete demo of the software contact Molly Hall at mhall@lawyerswithpurpose.com. Or you can schedule it right now by clicking here.

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

Avoiding The Five Major Threats To IRA’s: Part 2

May 20, 2015

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

In this series I am discussing the five major threats to qualified assets, today is Part 2 of the five-part series (you can read Part 1 here). The five major threats to qualified funds include income taxes (covered previously), excise taxes (which we will cover today), long term care costs, estate tax and risks to beneficiaries and/or their creditors. A major threat to IRAs and other qualified assets is the unexpected payment of excise taxes. Excise taxes are in addition are ordinary income taxes and are imposed when a client takes their money too soon, or waits too long to withdraw it. Let's address each one.

There is a ten percent excise tax otherwise known as the "early withdrawal penalty" if an individual removes assets from their IRA prior to age fifty nine and a half. The government has done this because it has a strong interest to ensure individuals save for retirement so they are secure and less of a risk to be a burden on society to support them. The government in recent years however has permitted certain exceptions to allow withdrawals from IRAs before fifty nine and a half for the purchase of a home or to pay medical expenses. Both of these exceptions have limitations but when properly followed, avoid the extra ten percent excise tax.

Another long standing rule that avoids the excise tax, is what is commonly referred to as the 72(t) election. An IRA owner may withdraw prior to age fifty nine and a half without the excise tax if they agree to take an equal stream of payments over a period of time that is the greater of five years or when the IRA owner turns fifty nine and a half. For example if a 72(t) election is made to withdraw $300.00 a month from an IRA at age fifty, to avoid the excise tax, the recipient must agree to accept that monthly payment for nine and a half years. Alternatively, if an individual at the age of fifty seven elects to take a regular stream of payments, they must take it for a minimum of five years which would require them to continue the distributions until age sixty two.

A second excise tax which is much more costly is the fifty percent excise tax if an individual fails to take the minimum distribution required under the tax law. This is commonly referred to as the "late payment penalty". The government has preferential treatment for IRAs so that people can save for retirement, but wants to ensure that they actually utilize the funds in retirement, and not just use it as a tax avoidance tool. The tax law requires IRAs to begin being distributed once an individual turns seventy and a half years old. If the individual fails to take the required minimum distribution calculated based on their age and life expectancy, they are imposed to a fifty percent excise tax in addition to the ordinary income tax rate on the undistributed required minimum distribution.

Assuming a required minimum distribution was $1000.00 and an individual is in the twenty percent income tax bracket, the individual will lose seventy percent or $700.00 if the required distribution is not made timely. That is simply calculated as a $1000.00 distribution with a payment of $200.00 in income tax and $500.00 in excise tax. Obviously this is a major threat to IRAs but easy to avoid with proper management of accounts. Don't let excise taxes threaten your IRAs, ensure you leave the assets in until reaching age fifty nine and a half and begin taking the required minimum distribution when you turn seventy and a half.

Stay tuned for Parts 3-5. And, if you're interested in learning more on Protecting IRA's After Clark v. Rameker join our FREE webinar this Friday at 1 Eastern.

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

Avoiding The Five Major Threats To IRA’s: Part 1

May 19, 2015

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

IRA’s and other qualified accounts are becoming the biggest portion of many individuals' portfolios. They have many special rules to maintain their income tax advantages and despite having special rules that protect them for income tax there are several threats to them that are often overlooked by individuals and the professionals that serve them. This will be the first of a five-part series sharing the five major threats to IRA’s and other qualified accounts and how to avoid them. So what are the five major threats to retirement plans? In my experience it is: income taxes, excise taxes, long term care costs, estate taxes, and risks to beneficiaries and/or their creditors.

The first risk to IRAs, and other qualified assets, is income taxes. Many of us are aware contributions made to a qualified plan defers the income tax on the money contributed. In addition, contributions accumulate "tax free". The challenge and threat however is not upon the contribution to the plan, but the withdrawal. The presumption is the individual will withdraw the money at retirement when they are in a lower income tax bracket. That is not always true. There is a risk the individual can have a higher tax bracket after death, or that income tax rates will rise (Congress has raised rates many times in the past). Higher income tax rates later are not only caused by Congress and by the asset mix of the client, but quite often the income tax rate of the beneficiary is higher than that of the original plan owner. For example a client in retirement might be taxed at the fifteen percent tax bracket but they pass away and leave it to their children, who may be in the thirty nine and a half percent tax bracket. This is often overlooked.

The biggest threat I find however, is that many individuals who own IRAs and retirement funds, only withdraw the required minimum distribution rather than optimizing the minimum income tax overall . In many circumstances, seniors pay no income tax or only pay ten or fifteen percent. A married couple over the age sixty five can earn up to $21,850.00 (not including social security) without paying any tax and up o $40,300.00 before they are subject to taxes beyond fifteen percent. But seniors routinely take the required minimum distribution rather than taking more distributions to withdraw the most possible while keeping them in the fifteen percent tax bracket or less. The biggest advantage is the after tax money (which only between zero and fifteen percent was paid) reinvested grows and is subject to capital gains rates which is lower than ordinary income tax on an IRA if ever sold during life, and if held till after death gets “stepped up” and no income tax is paid on the growth of the assets by the kids that inherit them, If the kids hold onto them all growth is subject to capital gains rates rather than the higher ordinary income tax rates. So the alert to all is don't be on autopilot, examine your short and long term income tax rates compared to your beneficiaries, to properly decide when to take advantage of strategic distributions during life to ensure you pay the overall lowest income tax on your IRA’s.

Stay turned for Parts 2-5 and subscribe to our blog if you're not already (just enter your name and email on the box to the left). If you would like to learn more about protecting IRA's after Clark v. Rameker join our FREE WEBINAR this Friday at 1 EST. Click here to register.

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

How To Add Insurance Services To Your Practice

May 5, 2015

by Lawyers With Purpose with No Comment Asset Protection Estate Planning Drafting Software Legal Technical

One of the greatest challenges (dare I say, frustrations) of being an estate or elder law attorney is dealing with the nature of a “transactional practice.”

It can be a constant effort and struggle just to find new clients. Then, once current business is completed and files are closed, the attorney has to start the next month over at ZERO again… hunting fresh prospects from scratch. Yuck!

It’s no wonder why the idea of creating “residual” or “multiple” streams of income is all the rage in estate planning and elder law circles. We all want the gut-wrenching financial rollercoaster to stop!

Yet very few lawyers ever take the plunge into this territory, despite the many benefits (…financial, mental, emotional AND practical). Why is that?

Here’s what I think: there are just way too many webinars and seminars out there that teach WHY the additional of financial services is so wonderful, but no one ever stops to show you HOW to step out and make magic happen.

That stops today.

At our upcoming Tri-Annual Practice Enhancement Retreat happening June 1-5 in St. Louis, MO, we have an entire session devoted to helping you incorporate insurance services into your practice.

You will have the opportunity to learn from, strategize with and bounce ideas off of attorneys who are already successfully doing what you want to do!

Whether it’s tips for dealing with ethics issues, suggestions for getting started (even if you have ZERO experience with financial services), or uncovering practical strategies for running a more holistic estate or elder law practice that serves every need of the client, we are here to guide you toward success.

Reserve your space now to ensure you are registered for this in-depth session, and the rest of the trainings at our Tri-Annual Practice Enhancement Retreat.

We are already 92% full and now making preparations for overflow seating! Reserve space now for you and your team before we are completely full.

REGISTER NOW HERE

Victoria L. Collier, Veteran of the United States Air Force, 1989-1995 and United States Army Reserves, 2001-2004. Victoria is a Certified Elder Law Attorney through the National Elder Law Foundation, Author of 47 Secret Veterans Benefits for Seniors, Author of Paying for Long Term Care: Financial Help for Wartime Veterans: The VA Aid & Attendance Benefit, Founder of The Elder & Disability Law Firm of Victoria L. Collier, PC, Co-Founder of Lawyers for Wartime Veterans, Co-Founder of Veterans Advocate Group of America.

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Planning To Protect Assets For The Spouse & From The “New Friend”.

April 30, 2015

by David Zumpano with No Comment Asset Protection

As an estate planning attorney I come across many couples who do estate planning that have been married 30, 40, 50 or more years. A common question I ask is do you want to plan to protect your half of the assets from your spouse’s “new friend” after your passing. It usually gets a chuckle but is often as an important issue because each of us knows someone who lost a spouse and now has a “new friend”. Most couples are willing to address the issue because ultimately they want to ensure their “stuff” gets to their children or beneficiaries. Similarly, those in second marriages want to be able to provide for their current spouse without disinheriting their loved ones.

It is important to accept our individual needs for companionship are essential to humanity and in no way does kindling a new friendship or romance after a loss of a spouse in anyway negate the love one had for a deceased spouse. Think of it as an “and” rather than an “or”. The question becomes who gets your half of the assets accumulated during your life, your beneficiaries or your surviving spouses, new friend? The greatest threat to your assets is if your health fails and the cost needed for care. Many couples leave assets to their spouse and “trust” the spouse will provide as they planned. The challenge occurs however, when the surviving spouse needs care and appoints their new friend or in the case of a second marriage the spouses children, as power of attorney. At that point, any hope of ensuring your stuff gets to your loved ones is greatly diminished.

Planning to protect your assets for your spouse, and from your spouse’s “new friend”, or in second marriages, ensuring your assets ultimately gets to your loved ones is a common goal both spouses agree on. Why? Because you don’t know which one’s going to die first so you want to ensure that no matter who does, the deceased spouse’s share is always protected for the surviving spouse, and from “new friends”, or the separate kids of the surviving second spouse. This planning is easily accomplished if you plan while you are alive and healthy, but becomes nearly impossible if you become incapacitated or die with it in place. We have all heard the horror stories of unintended beneficiaries getting all the assets after mom or dad dies. Don’t risk it, plan for it. It’s not complicated it just has to be planned for.

If you want to learn first hand what it's like to be a Lawyers With Purpose member, join us for our Estate & Elder Law Practice Enhancement Week in St. Louis, June 1st – 5th. Below is just some of what you'll get (and this is just Monday and Tuesday)! You can look at the full agenda and register here.

Asset Protection

Recent Updates to Asset Protection and Medicaid-Compliant Strategies
The New Asset Protection Strategies Dominating the Marketplace
The Death of DAPT’s, FLP’s, GRATS, GRUTS, and Tax Planning, and What’s Replaced Them
The Five Essential Trusts and Key Drafting Needs to Serve 99.7% of Clients
The Power of Powers of Appointment, in the Right Places
Four “Must Have” Drafting Considerations and Three “Most Forgotten” Powers in Trust

Medicaid

Four Steps to Medicaid Eligibility for Any Client
How to Calculate the “Breakeven” to Ensure the Proper Filing Date for the Shortest Penalty Period
Medicaid Qualifying Annuities – Hidden Risks and How to Properly Disclose Them to Clients or Protect from Them
The Seven Key Factors to Calculate any Medicaid Case in Seven Minutes (or Less)
IRAs – Exemption Versus Taxes, How to Calculate if IRAs Should be Liquidated or Exempted in Medicaid and VA Cases

VA Benefits

Meet the VA
Service Connected Benefits (Veterans & Widows/Dependents)
Non-Service Connected Benefits – Improved Pension, Housebound, Aid & Attendance
Asset Eligibility
Application Process
Correct Forms
Annual Reviews
Appeals Process
Representation and Marketing – Getting Veterans to March in Your Door

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

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Finally! An Intensive Legal Workshop That Trains Your TEAM On Practice Success

April 21, 2015

by Molly Hall with No Comment Asset Protection Estate Planning Drafting Software Legal Marketing Systems & Processes Team Building

You’re only one person, and if you want to be successful in your practice, you need to be focused on doing ONLY that which makes you the most money—serving clients, networking with key advisors and handling legal matters.

You should not be answering the phone.

You should not be “babysitting” staff members so they stay on track.

You should not have to get too involved selling your services, either (hint: your staff members should be your most profitable evangelists… if they are not, you have a problem).

…Plus so many other things that you may find yourself “stuck” handling on a daily basis.

Your team members really don’t want to let you down or add more work on your plate; they simply don’t understand where they fit in the big vision of your practice or how to move beyond their “9 am to 5 pm, punch a clock” conditioning that they’ve been taught their whole lives.

That’s why at our Tri-Annual Practice Retreat this year in St. Louis, we are devoting two entire days to training your team for practice success mastery (June 4^th and 5^th).

We are going to transform your staff members into the most profitable assets of your practice!

This training includes our Firm Retreat, which is a dedicated, uninterrupted half-day where we will help create YOUR personalized Law Firm “Money Plan™" that will equip each staff member with a step-by-step blueprint to hitting your revenue goals in just four months!

No more “it’s not my job” attitudes. No more “9-5” mentality.

Our team training event will empower your staff members to work your practice as if it were their very own business and their own capital on the line.

Sound good?

Then don’t wait to register for our Tri-Annual Practice Enhancement Retreat. Bring your staff members to this intensive event but don’t wait, doors close in less than 30 days (May 15^th)! To view the full agenda and pricing information, visit: www.retreat.lawyerswithpurpose.com

Molly Hall

P.S. Think about all of the training you’ve attended to learn how to grow your practice and push beyond limiting beliefs and habits. Why shouldn’t your key staff members do the same? They arguably have the most interaction with your clients and help steer your practice ship each day. Make the wise choice to invest in their success to boost your own: www.retreat.lawyerswithpurpose.com

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/

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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.

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.

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