Successful Conclusions

Estate Planning is a Lifetime Process, not a one-time event. Though estate administration is the final stage in the process, a successful conclusion is dependent on proper completion of each of the preceding stages.

Prince or pauper, life’s journey eventually comes to an end for us all. Death, it has been said, is an equal opportunity experience. When your appointed time arrives, will your loved ones find your personal and financial affairs in order or in disorder? What grade will they give your Life & Estate Plan once it has passed through the three basic stages of Estate Administration? These basic stages are Collection & Management; Payment of Expenses; and Asset Administration & Distribution.

Collection & Management

The initial responsibility of your appointed fiduciaries will be to identify, safeguard and insure your assets. Unfortunately, if they cannot identify your assets, then it will be impossible to safeguard and insure your assets. Have you created and maintained an up-to-date inventory of your assets? At a minimum, your inventory should provide sufficiently detailed information about your assets so your fiduciaries can find them.

If you have a properly funded Revocable Living Trust along with a current inventory of all of your assets, then you will dramatically lighten the Collection & Management burden on your fiduciaries. Nevertheless, even if your Life & Estate Plan does not include a Revocable Living Trust, a current inventory will spare your fiduciaries considerable time, aggravation and money in fulfillment of their initial responsibility.

Payment of Expenses

With your assets collected and under management, your fiduciaries are ready to begin paying the expenses you left behind. These expenses include satisfaction of your just debts, your remaining tax liabilities, and your various post-mortem expenses. Time is of the essence in resolving these financial loose ends.

Your fiduciaries will be held personally liable for failing to dot all of the i’s and cross all of the t’s when it comes to dealing with the creditors of your estate, to include the IRS. This potentially unending liability extends beyond third-party creditors to your own estate beneficiaries. For example, certain post-mortem planning techniques, such as various elections and disclaimers must be exercised prior to filing the federal estate tax return (due within nine months of your death). The failure to properly exercise such post-mortem techniques may result in adverse tax and non-tax consequences.

Asset Administration & Distribution

Assuming your fiduciaries still have assets under management after paying your debts, taxes and expenses, then it is time for them to fulfill their final responsibility to administer and distribute your assets as stated in your Life & Estate Plan. This is the moment of truth: Will your assets be protected both for and from your loved ones; or will they be lost through their divorces, lawsuits, bankruptcies and squandering. Without proper Life & Estate Plans for this stage of Estate Administration, your fiduciaries may have no choice but to deliver your assets to parties you would otherwise intend to disinherit, rather than to your loved ones. Like trying to put toothpaste back in its tube, once you are gone the opportunity to change your administration and distribution plans is lost.

Alternatively, consider taking steps now to help ensure a successful conclusion to your Life & Estate Plans. For example, remarriage provisions may help protect your assets for your surviving spouse and children. Long-term discretionary trust provisions may protect your assets both for and from your heirs, even for unborn generations in perpetuity. You worked a lifetime for your assets, but without proper planning your financial legacy can be taken or lost in the blink of an eye.

Aside from your tangible financial legacy, have you considered leaving an intangible character legacy for your loved ones as part of your Life & Estate Plan. For example, you might write individually addressed last letters to remind your loved ones of your love and your confidence in them to press on to their own successful conclusions. Take time today to draft these last letters. Write the letters in your own hand. This is a lost art in this computer age of word processors and email. Then, in your Life & Estate Plan, instruct your fiduciaries to mail these last letters to your loved ones after your debts, taxes and expenses have been fully satisfied. By the way, the inventory of your financial assets is an excellent place to keep both these last letters and the instructions for their delivery.

Funding Your Living Trust

Trust funding is the process of placing your assets under the ownership and control of your Revocable Living Trust. Only those assets which are titled in the name of your Trust (or which name your Trust as beneficiary where appropriate) will be controlled by the terms of your Trust in the event of your incapacity or death. Otherwise your assets may be subject to probate, may lose valuable protection from estate taxes and may not pass to your beneficiaries as specified in your Life & Estate Plan.

There are three fundamental steps in the Trust Funding process:

1. Identify all of your assets by:

  Type: For example, is this asset a bond certificate, a certificate of deposit, or a publicly-traded stock certificate?

Value: How much is it worth and is it encumbered by debt?

Ownership: Do you own it individually or jointly with a spouse or others?

2. Transfer Ownership:

Once you have identified your assets, you can begin transferring ownership to your Trust by sending written notice to the various institutions involved. In that notice you identify the asset, the name of your Trust and then request the change of ownership or beneficiary designation.

Note: Do not be surprised if they respond with a request for completion of their own in-house form.

3. Maintain Your Trust Funding:

As you acquire additional assets, be sure to title them with ownership by your Trust or use the appropriate beneficiary designation from the outset.


Life & Estate Planning is a lifetime process, not a one-time event. A well-designed estate plan must be regularly reviewed and updated, properly funded, and properly administered. Seek appropriate legal counsel at each step along the way to ensure a successful conclusion.

This publication does not constitute legal, accounting or other professional advice. Although it is intended to be accurate, neither the publisher nor any other party assumes liability for loss or damage due to reliance on this material.

Note: Nothing in this publication is intended or written to be used, and cannot be used by any person for the purpose of avoiding tax penalties regarding any transactions or matters addressed herein. You should always seek advice from independent tax advisors regarding the same. [See IRS Circular 230.]

Voluntary Philanthropy

Many taxpaying Americans are involuntary philanthropists because they fail to maximize the tax incentives available under the Internal Revenue Code to become voluntary philanthropists in support of the charities of their own choosing.

Are you a gracious giver, perhaps even a philanthropist? If you are a taxpayer, then the answer is yes.

During your lifetime, your wealth is subject to taxes in a variety of forms. Income taxes levied on your wages, interest and dividends, and capital gains taxes extracted on the sale of your appreciated assets may tend to make April 15th one of your least favorite days each year.

Voluntary Taxes

Our tax system is voluntary in its form, but the civil and criminal penalties for noncompliance make the process involuntary in its substance. Thankfully for our national defense and other essential programs of the federal government, most taxpayers voluntarily comply with the Internal Revenue Code (IRC) and pay their fair share.

Beyond the essentials of government, however, are there any programs funded by the federal government you personally consider nonessential and perhaps even wasteful? If there are, then you are an involuntary philanthropist by your financial support of such causes as selected by Congress and the White House. Perhaps there are private sector charities you deem more worthy of your tax dollars? Chances are you already support these charities. If so, then you really should know about IRC § 664 and how you may turn your involuntary philanthropy into tax-savvy voluntary philanthropy.

IRC § 664

Charitable tax deductions have been part of the IRC since its inception. Why? The government’s own research determined that private sector charities deliver social services more cost-effectively than the government itself. The government, in turn, sought to encourage increased charitable giving to private sector charities by enacting IRC § 664 in 1969. In essence, IRC § 664 permits split-interest gifts, making it attractive for taxpayers to have their cake and eat it too!

A Charitable Remainder Trust (CRT) is a popular split-interest gifting technique. Through a CRT, you may increase your current income, enjoy current income tax deductions and leave a substantial financial legacy for your favorite charity (or charities) upon your death (or upon the death of your spouse, if later).

Here is how it works. First, you create a CRT and contribute an asset to it. [Note: Appreciated assets that would be subject to capital gains taxation were you to sell them yourself, are commonly contributed because they tend to be low income producers and have a low income tax basis.]

Second, the CRT sells the asset without capital gains taxation and then reinvests the proceeds in an income-producing portfolio that grows income tax free inside the CRT.

Third, you (and your spouse) receive an enhanced lifetime income plus valuable income tax deductions for up to six years.

Fourth, upon your death (or the death of your spouse, if later), the CRT distributes any remaining CRT assets probate-free to your selected charities and your estate receives a charitable estate tax deduction for the value of the distributed assets.

Family Matters

As the saying goes, charity begins at home. Accordingly, many Americans want to maximize the wealth they ultimately transfer to their children and grandchildren.

While the CRT provides a lifetime income and tax benefits to the taxpayer (and spouse), it correspondingly reduces the estate eventually available to loved ones.

This is obviously one of the major drawbacks to CRT planning. However, there is a tax-savvy strategy available to replace the value of the CRT assets for the benefit of loved ones.

The Trifecta

In the world of high-stakes wagering on horse races, winning the Trifecta requires picking not only the winner of the race, but also the second and third place finishers. When it comes to gracious giving, most taxpayers would prefer to benefit their charities first, themselves second, their loved ones third … and the IRS dead last. This Charitable Planning Trifecta can be achieved through a carefully coordinated financial and legal strategy that includes both a Charitable Remainder Trust (CRT) and a Wealth Replacement Trust (WRT).

The Trifecta Challenge

The creation of a CRT helps your charity finish first, with you (and your spouse) a close second. Before the charity inherits the assets held in the CRT upon your death (or upon the death of your spouse, if later), you enjoy a lifetime income from the CRT and valuable charitable tax deductions. However, when the charity inherits the assets, they are forever unavailable to your loved ones. That is where the WRT comes in.

The WRT Solution

With your CRT generating income sweetened by income tax deductions, you may have a total annual income in excess of the amount necessary to maintain your lifestyle. If so, then you may want to consider acquiring life insurance in a WRT to replace the value of the CRT assets ultimately passing to charity instead of to loved ones. To keep the value of the life insurance death benefit out of your estate (and that of your spouse) you must be very careful to follow the WRT dance steps to ensure proper ownership of the life insurance from the outset.

WRT Dance Steps

First, you create a WRT. While you may not serve as a Trustee (nor should your spouse), you may select the current and successor Trustees. The beneficiaries of the WRT will be your loved ones.

Second, you (and your spouse) make gifts to the Trustee on behalf of the WRT beneficiaries in an amount roughly equal to the insurance premiums. The Trustee then provides written notice of the completed gift to each WRT beneficiary and that each beneficiary has a designated period of time (typically, at least 30 days) to request distribution of their respective share of the gift. After the designated period has lapsed, the Trustee applies for the appropriate life insurance and pays the initial premium. [Note: This annual gifting ritual continues until your death (or the death of your spouse, if an insured and your survivor).]

Third, assuming all of the WRT dance steps have been followed, the death benefit will be estate tax free when paid to the WRT for your loved ones. This will replace the value of the CRT assets paid to the charity.

Finally, seek appropriate legal counsel. It will be time and money well spent.

This publication does not constitute legal, accounting or other professional advice. Although it is intended to be accurate, neither the publisher nor any other party assumes liability for loss or damage due to reliance on this material.

Note: Nothing in this publication is intended or written to be used, and cannot be used by any person for the purpose of avoiding tax penalties regarding any transactions or matters addressed herein. You should always seek advice from independent tax advisors regarding the same. [See IRS Circular 230.]

Planning for Minor Children

It is an unfortunate fact of life: airplanes plummet, trains derail, ships sink and automobiles crash. Sometimes there are survivors, sometimes there are no survivors. What is left when a tragedy claims both parents of minor children? Orphans and assets.

Children are a family’s greatest treasure. Think of all the precautions taken to safeguard young children – from the first purchase of an infant car seat to the compulsory swimming lessons and even driver’s safety instruction. Yet, most parents leave their children completely unprotected from one of life’s most crushing blows – being orphaned upon the loss of their parents.

Great Expectations

While every parent expects to rear their minor children to adulthood, life may throw any of us an unexpected curve ball in the form of a fatal injury or illness. Are you, and your children, prepared for that curve ball? Who would you legally appoint to serve as their back-up parents to fulfill your parental responsibilities? Your answer may depend on how family is defined for you. Is yours a single parent family, a blended family or a traditional family?

Single Parent Families

If you are a single parent, then the surviving biological parent automatically remains the natural guardian, unless proven unfit. Without contrary legal arrangements, the surviving parent likely will manage the inheritance you leave behind. Then, upon reaching the age of majority for an inheritance under applicable state law (e.g., typically age 18), your children will receive whatever is left of their inheritance without guidance or restriction. If both you and the other parent are deceased, what happens? In that instance, if there are no proper legal plans in place, a judge will select the backup parents (i.e., guardians) for your minor children and see that the inheritance is distributed outright at the age of majority.

Blended Families

When the minor children in the household may be yours, mine and ours, how do you select the back-up parents … especially when the children consider themselves to be one family? Should  the minor children remain together, if possible? If not, then with whom should they be placed and should legal arrangements be made to facilitate their ongoing contact?

Traditional Families

If yours is a traditional, nuclear family, then the whole matter seems rather simple, doesn’t it?

The surviving parent remains the natural guardian. However, what if both parents are deceased? Will your children be reared by their paternal or their maternal side of the family? That is when things can get complicated. In our mobile society, both sides of the family may not know one another and may even live on opposite coasts even if they do. Alternatively, perhaps you would you rather your children be reared by good friends in a stable marriage who share your values and lifestyle?

Some Pointers

As you can see, every family situation is different. Nevertheless, here are some general guidelines for your consideration when selecting guardians for your minor children:

• Select guardians who share your religious beliefs, core values and life priorities and already have an established, positive relationship with your children;

• When selecting a married family member, appoint the family member only, not their spouse, in case they divorce or your family member predeceases;

• Ensure that your legal plans provide for compensation of the guardians, or at least that assets are available from your children’s inheritance to cover all expenses incurred on their behalf; and • Obtain permission of the selected guardians before appointing them in your legal plans.

Inheritance Planning

Once these guardians are appointed, great care must be given to any inheritance left to your children. Now, let’s turn our attention to some methods for managing any inheritance left to them. We will review a common default method provided under the laws of many jurisdictions, a method of providing multiple opportunities for inheritance success or failure and a method that seems complex at first blush, but really may be the simplest method of the three.

Outright Distributions

In the absence of any legal arrangements, the laws of most jurisdictions provide for the outright distribution of an inheritance to a child who is at or beyond the age of majority (e.g., age 18 in most jurisdictions). Children who are under the age of majority receive their lump sum inheritance upon reaching that age. Bottom line: Following an outright distribution to your children, the full inheritance may fall prey to such common threats as divorces, lawsuits, bankruptcies or squandering. If you worked hard to accumulate your wealth, then you may want to protect any inheritance both for your children and from them.

Staggered Distributions

Although a bit more complex than the outright distribution approach, the staggered distribution method holds the inheritance of a child in trust until such time as outright distributions are triggered by such terms as you may determine. Oftentimes, parents will designate multiple distributions of a percentage or fractional share upon a child’s attaining certain ages or reaching certain goals set by the parents. Regardless, at some identifiable point the trust share of the child is terminated and the entire inheritance is distributed to them. Contrasted with the outright distribution method, this arrangement with its staggered distribution provisions provides increased protection from the common threats described above. For parents seeking even greater protection of the inheritance and their children, yet another method warrants serious consideration.

Discretionary Trusts

Both the outright distribution and the staggered distribution methods share an apparent attractiveness: Simplicity. But complexity has a tendency to sometimes masquerade as simplicity. For example, of what value is an inheritance if it is taken or lost unnecessarily? Alternatively, an inheritance may be held in a long-term discretionary trust to protect it both for and from your child, regardless of their age. In such a trust you set the terms under which the inheritance is available for your child. Moreover, if properly constructed, a discretionary trust may own assets for the use and enjoyment of your child and even their children for generations … without the risk of loss between generations to divorces, lawsuits, bankruptcies or squandering. In short, great flexibility, creativity and control are made available through discretionary trust planning.

This publication does not constitute legal, accounting or other professional advice. Although it is intended to be accurate, neither the publisher nor any other party assumes liability for loss or damage due to reliance on this material.

Note: Nothing in this publication is intended or written to be used, and cannot be used by any person for the purpose of avoiding tax penalties regarding any transactions or matters addressed herein. You should always seek advice from independent tax advisors regarding the same. [See IRS Circular 230.]

Retirement Plan Tax Traps

Qualified Retirement Plans (QRPs) present some of the most complicated tax and non-tax planning challenges of any asset in an estate, especially for married couples. The failure to make proper Life & Estate Plans for your QRP can unnecessarily enrich the IRS and disinherit loved ones.

For many Americans, a significant portion of their estate value is in Qualified Retirement Plans (QRPs). This remains true despite the (inevitable) ups and downs of the stock market. One reason QRPs weather economic storms better than non-qualified investments is their unique tax treatment. All contributions to QRPs are made with pre-tax dollars and all of the growth inside such plans is tax-deferred until withdrawn. Hence, contributions to QRPs not only reduce your current income tax liability, but they grow with compound interest and without the barnacles of annual income taxation.

Your estate value includes everything that you own: your QRP, your life insurance death benefits, your real estate, your overall non-qualified investment portfolio and your collectibles.

Under current tax law, every taxpayer has a $2 million Applicable Exemption Amount to protect their estate from federal estate taxes. A married couple may protect a combined total of $4 million. However, this is not automatic. Many couples fail to maximize their federal estate tax protection. Consider the following case study.

Husband and Wife have a combined estate value of $4 million. Wife has a $2 million QRP and selects Husband as the Designated Beneficiary. When Wife dies, Husband inherits the QRP as an income-tax-free rollover and no federal estate taxes are due upon Wife’s death because of the Unlimited Marital Deduction. But using this deduction can be a very expensive tax trap.

Any assets passing to a surviving spouse via the Unlimited Marital Deduction forfeit the federal estate tax savings otherwise available under the Applicable Exemption Amount of the deceased spouse. Husband now has the full $4 million in his estate. Since Husband’s Applicable Exemption Amount is less than the estate value at the time of his death, this couple will incur an unnecessary federal estate tax liability.

Given the same basic facts as above, Wife could create a Credit Shelter Trust (CST) to shelter her retirement assets from federal estate taxes by using (and not forfeiting) her available Applicable Exemption Amount instead of the Unlimited Marital Deduction.

Under this approach, Wife would select Husband as the primary beneficiary of her QRP and would designate her trust as the contingent beneficiary. Upon Wife’s death, Husband could disclaim the retirement plan assets, making the credit shelter trust the primary beneficiary by default.

Result: Wife’s Applicable Exemption Amount would be applied to the value of her QRP disclaimed to the trust, yet Husband would be the beneficiary under the trust terms.

Downside: Since the trust is not a surviving spouse, the Wife’s retirement plan cannot be rolled-over to the Husband, and income-taxable distributions must begin to Husband, regardless of his Required Beginning Date.

While this technique may forfeit the income tax deferral available through the spousal rollover, it may achieve significant federal estate tax savings. Nevertheless, this alternative affords the surviving spouse maximum flexibility over the couple’s combined wealth and its ultimate disposition. Therefore, it is most appropriate in first marriages where any children are of that marriage. Blended family situations, on the other hand, present unique planning challenges.

Fact: There are more blended families in the United States today than original nuclear families. If yours is a blended family, then you should give careful consideration to your choice of Primary and Contingent Designated Beneficiaries for your Qualified Retirement Plan.

Again, assume the same basic facts as above, except Husband and Wife have adult children from their respective prior marriages and a minor child from their marriage together.

Dilemma #1:

If Wife identifies Husband as the primary beneficiary of her QRP and her Credit Shelter Trust as the Contingent beneficiary, then it is possible for her children to be completely disinherited upon Husband’s subsequent death. How could this happen? One of two ways: (1) Husband fails to disclaim the retirement plan assets to Wife’s trust, under which her children are the ultimate beneficiaries, or (2) Husband fails to specifically identify Wife’s children as among the primary beneficiaries under his rollover of Wife’s QRP.

Dilemma #2:

Wife cannot designate a Credit Shelter Trust as the primary beneficiary of her retirement plan, instead of her husband, without his knowledge and consent. With very limited exceptions, under federal law a surviving spouse has special rights to the Qualified Retirement Plan assets of their deceased spouse.

Is there any alternative that would allow Husband to rollover the QRP, while ensuring that Wife’s children are not totally disinherited. Yes. We will call it the QRP Insured Triple Play.

Triple Play

There are few more exciting defensive plays in the game of baseball than the triple play. It is where preparation and opportunity meet with no margin for error. So it is with the QRP Insured Triple Play. Here is how it works, assuming the same facts as above.

First, Wife identifies Husband as the primary beneficiary of her qualified retirement plan, with her credit shelter trust as the contingent beneficiary. Wife’s trust identifies Husband, along with their combined children as beneficiaries. Upon Wife’s death, Husband can either: (a) elect the QRP rollover for the income tax savings, instead of the potential federal estate tax savings attained through a disclaimer to Wife’s trust; or (b) elect to disclaim the QRP to Wife’s trust for the potential federal estate tax savings, instead of the income tax savings of a rollover. If Husband elects (a), then he must arrange his primary beneficiaries carefully to include Wife’s children or they will be disinherited. However, if he elects (b), then neither he nor any of the couple’s children will be disinherited.

Second, Wife creates an Irrevocable Life Insurance Trust (ILIT) that in turn applies for and owns a $2 million insurance policy on her life. The ILIT is named as beneficiary under the policy, with Wife’s children as the beneficiaries of the ILIT. Because neither Wife nor Husband is the applicant, owner or beneficiary of the policy, it is not included in their taxable estate.

Third, upon Wife’s death, she is assured that her children will inherit $2 million from her through the ILIT;even if Husband elects the QRP rollover and fails to include her children among his primary beneficiaries.

In baseball, a perfectly executed triple play may not guarantee victory, but it can help you survive a very difficult inning. Similarly, a perfectly executed QRP Insured Triple Play may not guarantee both income and estate tax savings. It can, however, help you provide for all of your loved ones and preserve family harmony.

This publication does not constitute legal, accounting or other professional advice. Although it is intended to be accurate, neither the publisher nor any other party assumes liability for loss or damage due to reliance on this material.

Note: Nothing in this publication is intended or written to be used, and cannot be used by any person for the purpose of avoiding tax penalties regarding any transactions or matters addressed herein. You should always seek advice from independent tax advisors regarding the same. [See IRS Circular 230.]

Estate Planning 101

Unfortunately, confusion and myth abound when it comes to estate planning. Perhaps that is why so few people actually get around to making such plans at all.

What is estate planning? If you were to ask 10 adult Americans this question, you would likely get 10 different answers. Even otherwise financially savvy people seem confused about estate planning. Most erroneously equate estate planning with death planning. They think estate planning is limited to arranging for the ultimate distribution of their assets at life’s end. Due partly to this confusion and partly to good, old-fashioned procrastination, it is little wonder that six out of 10 adult Americans have no estate plan at all.

In reality, the ultimate distribution of your assets is but one of many important elements to successful estate planning. Were your estate plan your autobiography, then the ultimate distribution of your assets would only be Chapter 4, the book’s final chapter. The preceding chapters of your estate plan would involve a lifetime process of making legal arrangements to protect yourself, your loved ones and your hard-earned assets from three fundamental estate planning challenges: unnecessary probate, confiscatory taxes and unpleasant surprises.

Chapter 1: Unnecessary Probate

Probate is the court process that takes care of people and their assets when they no longer can make their own personal, health care and financial decisions. You have two opportunities to experience probate: at incapacity and at death.

The law says every adult American is responsible for their own personal, health care and financial decisions. Such decisions include everything from where to live, to when to die (e.g., authorizing or withholding/withdrawing health care treatments), to filing tax returns, to real estate transactions.

What happens, though, if a stroke, a car wreck or advanced Alzheimer’s leaves you disabled to the point of legal incapacity? Who will make your decisions for you? Will it be someone you know and trust? Perhaps it will be your spouse, your children, your siblings, a friend or a trusted professional advisor. The answer is none of the above … unless you make proper estate plans in advance of such tragedy.

Incapacity probate is the default plan for people who fail to make plans to avoid it. In the incapacity probate process you can expect to employ at least three lawyers (the probate judge, an attorney to represent your interests and an attorney representing the potential guardian), potentially spend thousands of dollars, expose your personal situation and financial matters to the public, and place yourself under the ongoing control of the probate court until you either recover or die.

At your death, any assets that are titled in your name alone or which name your estate as the beneficiary (e.g., life insurance or retirement plans) will go through probate. One common estate plan myth is that a valid Last Will & Testament will avoid probate of these assets. That myth could not be further from the truth.

In reality, a Will is your admission ticket to the probate court and only has legal effect when accepted by the court as valid. Like the incapacity probate, the death probate is the default plan for people who fail to make plans to avoid it. Similarly, in the death probate process you may expect to pay some potentially unnecessary costs, expose your personal situation and financial matters to the public, and place your assets under the ongoing control of the probate court for six months to a year or more.

Chapter 2: Confiscatory Taxes

Question: Which tax can take the biggest bite out of your estate assets? Is it the income tax, the capital gains tax or the estate tax? Answer: The estate tax. While no one enjoys the income tax with a top marginal rate of 35 percent or the capital gains tax with a top rate of 20 percent, most are shocked to learn that the estate tax is more than 40 percent. Even more disturbing is that this is a final tax on assets that have already been subject to income and capital gains taxes…oftentimes repeatedly during one’s life.

As noted earlier, six out of 10 adult Americans have no estate plan. They likely are headed to probate unnecessarily and may lose hundreds of thousands of dollars to the IRS in death taxes unnecessarily. Even people with estate plans in effect may have made serious mistakes in their planning.

Common mistakes may include joint tenancy ownership of assets, improper ownership methods for life insurance and simple Wills with no tax planning provisions.

Chapter 3: Unpleasant Surprises

Along with probate avoidance and tax minimization, asset protection should be a cornerstone of every estate plan. With divorces, lawsuits and bankruptcies (probably as a result of the other two), proper estate planning includes protecting your assets from unnecessary loss while you are alive and protecting them for your loved ones upon your death. The next and final chapter is a natural extension of this chapter.

Chapter 4: Unpleasant Surprises Reprise

A well-designed, thoroughly implemented and faithfully maintained estate plan can not only protect you and your hard-earned assets from unnecessary probate, confiscatory death taxes and unpleasant surprises, but it also can protect your assets from these same fundamental estate planning challenges to benefit your loved ones over multiple generations.

Is it Time to Review Your Plan?

Estate Planning is a Lifetime Process, not simply an after-death distribution program. So, it makes sense to periodically reflect on your Life & Estate Planning goals, and review your legal documents as circumstances in your life change. Use this checklist of life changes or activities that could alter your estate-planning needs as a starting point.

– Marriage, remarriage or divorce

– Death of a spouse

– Substantial change in total asset value

– Death or incapacity of an executor, guardian or trustee

– Move to another state

– Acquisition of real estate in another state

– Birth or adoption of a child or grandchild

– Serious illness of a family member

– Change in business interest or retirement

– Change in insurability for life insurance

– Marriage or divorce of a beneficiary

– Change in beneficiary attitudes

– Financial irresponsibility of a beneficiary

– Change in tax laws

– More than two years since last review of plan with attorney

Finally, seek appropriate legal counsel. It will be time and money well spent.

This publication does not constitute legal, accounting or other professional advice. Although it is intended to be accurate, neither the publisher nor any other party assumes liability for loss or damage due to reliance on this material. Note: Nothing in this publication is intended or written to be used, and cannot be used by any person for the purpose of avoiding tax penalties regarding any transactions or matters addressed herein. You should always seek advice from independent tax advisors regarding the same. [See IRS Circular 230.]

Pet Trust Planning 101

Do any of your closest friends have feathers, fins or fur? What will happen to them if you are no longer around? Although it cannot replace you, a Pet Trust can provide your friends with love and care for the rest of their lives.

An estimated 500,000 pets are euthanized each year by shelters and veterinarians when their owners predecease them.  Do any of your closest friends have feathers, fins or fur? Are you also responsible for their room, board and ongoing veterinarian care?

Consider this: If something untoward were to happen to you today, what would happen to your feathered, finned or furred friends tomorrow?

What arrangements have you made for these friends (some people refer to them as pets, so we will use the terms interchangeably) in your Life & Estate Plans? Unfortunately, if you are like most Americans (58 percent), you do not have even a basic Last Will and Testament. Not surprisingly, most Americans also have neither health care directives (69 percent) nor powers of attorney for either health care or financial matters (74 percent).2

Pet Trust Anatomy

Given these numbers, it should come as no surprise that most Americans (79 percent) have not created a traditional trust as part of their estate plan.3 (Traditionally, a trust is a legal arrangement providing for the ongoing management of assets, sometimes for multiple generations of beneficiaries.) Whether you are among the minority who have completed comprehensive estate planning, or among the majority who have yet to do so, be aware that a new type of trust may be an appropriate adjunct to traditional planning. More than 30 states now have laws permitting the creation of Pet Trusts and a growing number are considering them.

A Pet Trust may be created under a Last Will and Testament or a Revocable Living Trust. Either way, there generally are four parties to any Pet Trust: the trustee, the caretaker, the pet (one or more) and the remainder beneficiary. In addition, a Pet Trust should have property contributed to it to adequately fund the lifelong care of your pet.

The trustee may be an individual, a corporate fiduciary, or both. As with most choices, there are advantages to each approach. The same is true with the caretaker. However, it may be prudent to ensure that the trustee and the caretaker are not one in the same.

While a trusted friend or family member likely knows your pet better than any outsider, whenever money is involved; there also lurks the temptation for mischief. For example, there have been reported instances where pets have died, only to be replaced by look-alikes so the trustees/ caretakers continued to receive compensation for their services. Also, remember to appoint successors in case a primary trustee or caretaker is unwilling or unable to serve.

The remainder beneficiary is the party designated to inherit any remaining trust property upon the death of the last surviving pet beneficiary. Typically, the remainder beneficiary is a family member, friend or charity.

Setting aside the appropriate amount of property to fund your Pet Trust is essential to its success. For example, a horse not only eats like a horse, but has an average life expectancy of between 25 and 30 years (or more than 40 years, with tender loving care). By contrast, a Great Dane has a much smaller appetite and a much shorter average life expectancy of between seven and 10 years.4 Accordingly, you would need to set aside a significantly larger nest egg to fund the future care of a horse than for a Great Dane.

So, just how much of a nest egg do you need to set aside to fund the future care of your pet? The amount depends on two variables “ the life expectancy of your pet and the projected cost of care. Your veterinarian is an excellent resource when estimating the life expectancy of your pet, just as your check register is an excellent resource to calculate the actual cost of annual care. Once you know the likely remaining life expectancy of your pet and the historical cost of care, simple multiplication is all that is needed to determine the amount of trust property required to provide the appropriate nest egg. You may want to err on the conservative side, too, since inflation will affect the future cost of care for your pet.

Refrigerator Notes

It is not unusual for the parents of small children to arrange for an occasional evening out “ alone. Before leaving for their date, however, many parents post rather detailed notes on the refrigerator containing such child-specific instructions as authorized snacks, favorite games and the appointed bedtime hour. Just like these parents, consider leaving written instructions for the trustee and caretaker of your friend. You can update these written instructions as necessary without formal changes to your Pet Trust (or additional legal fees!). In your instructions, tell the trustee and caretaker everything about your friend, from favorite daily rituals (e.g., walks and feeding) to how your friend seeks shelter away from the annual pop-pop-pop of the neighborhood fourth of July firecrackers.

Emergency Cards

Estate planning attorneys oftentimes prepare Health Care Emergency Cards for their clients to carry in their wallets or purses at all times. Why? If a client is ever involved in an accident, or suddenly is taken ill, then the emergency card will let medical providers know that the client has prepared a health care directive, a durable power of attorney for health care matters and a written declaration regarding organ donations. In addition, these emergency cards not only identify the card holder, but also the names and phone numbers of their appointed health care agents. In a health emergency, time is of the essence.

Similarly, consider creating a Pet Card to ensure, upon your incapacity or death, that prompt attention and care is given to your pet. At a minimum, the Pet Card should contain your name, key information about your pet (e.g., name, type, location, special care needs and veterinarian) and contact information regarding the appointed trustee and caretaker of your Pet Trust.

Final Thoughts

Your pet has been a loyal companion and friend, whether it has feathers, fins or fur. Unfortunately, if you have no plan (or plan to leave money to someone) for their future care, then you are simply leaving the future care of your pet to chance. Alternatively, a properly prepared and adequately funded Pet Trust can replace this element of chance with the requirements of law;  providing greater peace of mind. And there is no better time than today to ensure that your pet will be okay even if you are not.

1. Survey, LexisNexis Martindale-Hubbell, 2004

2. Ibid.

3. Ibid.

4. Source,

This publication does not constitute legal, accounting or other professional advice. Although it is intended to be accurate, neither the publisher nor any other party assumes liability for loss or damage due to reliance on this material.

Note: Nothing in this publication is intended or written to be used, and cannot be used by any person for the purpose of avoiding tax penalties regarding any transactions or matters addressed herein. You should always seek advice from independent tax advisors regarding the same. [See IRS Circular 230.]

Elder Law 101

Good news, bad news. The good news is that Americans are living longer than ever. The bad news is that we eventually wear out physically, mentally or both. It is a classic Catch-22.

Are you a seasoned citizen (i.e., over age 65), do you care about someone who is, or do you anticipate becoming a seasoned citizen yourself one day? According to U.S. Census Bureau statistics, today, there are nearly 35 million and by 2010 there will be some 40 million seasoned citizens. Thereafter, due to the graying of the Baby-Boom generation, we will see that figure jump to 53 million in 2020 and to 70 million in 2030! As this seasoned population grows, so will the need for Elder Law services.

What is Elder Law?

Generally speaking, Elder Law is the holistic application of general legal principles to the specific emotional, logistical and financial needs of the elderly. Many seasoned citizens are concerned with two fundamental threats to their dignity: (1) becoming incapacitated and thereby losing control to the court system regarding their personal, health care and financial decisions; and then (2) running out of money due to the catastrophic costs of long-term care. Fortunately, both of these threats may be minimized or avoided through properly coordinated legal and financial planning.

Incapacity Planning

As the number of birthday candles increases on your birthday cake, so does the likelihood that you will become incapacitated due to an injury or illness. Whether incapacity strikes suddenly, as with an accident or acute illness, or gradually, as with Alzheimer’s, the consequences are the same. Either you will have appointed the back-up decision-makers of your own selection through proper legal plans or, by default, the court system must step in to appoint them for you.

Long-Term Scare

Did you know that after age 65, there is about a 50 percent chance that you will need care in a skilled nursing facility? After age 80 the odds that you will need skilled nursing care jump to 9 in 10, or 90 percent. If you are age 65 and married, the odds are 70 percent that you or your spouse will need skilled nursing care. The average nursing home stay, by the way, is 2.5 years.

And the cost of long-term care is high. The national average cost for a year in a nursing home is estimated to exceed $60,000. Is it any wonder some 50 percent of all elderly couples become impoverished within a year after either spouse enters a nursing home? The number jumps to 70 percent for widowed or single people.

By the way, forget about Medicare paying for your chronic long-term care needs. Medicare only pays for acute nursing home care for up to 100 days, and even then your eligibility and the payments are subject to strict requirements. Remember, too, that Medigap (i.e., Medicare Supplement) policies typically exclude coverage for chronic long-term care.

What about giving away your assets to your loved ones to qualify for Medicaid? Any transfer of assets for less than fair market value may render you ineligible for Medicaid assistance for 60 months or more under the complex and confusing web of Medicaid Regulations.

Long-Term Solutions

The key to proper long-term care planning is to plan now rather than react later. There are numerous legitimate strategies to preserve more of your assets … if you have time to plan.

For example, under a special federal law called the Spousal Impoverishment Act, married couples may preserve more assets for the non-nursing home resident, even if the other spouse is Medicaid-qualified.

Some seasoned citizens have turned to Reverse Mortgages (i.e., borrowing against the equity in their homes) to pay for their long-term care. The best strategy, however, may be to insure your financial security with the purchase of a Long-Term Care Insurance (LTCI) policy.

Long-Term Care Insurance (LTCI)

No one relishes the idea of paying insurance premiums of any kind. After all, you can pay and pay and pay and never collect. If you are fortunate, that is.

The purpose of insurance is to transfer a risk you can afford (i.e., the payment of a premium with no guarantee of its return) to cover a risk you cannot afford.

For example, what homeowner does not insure their personal residence from damage due to fire? Or, what automobile owner does not insure their auto from damage due to a collision? Consider this: The odds of a major fire insurance claim are 1 in 88, with an average claim of $2,000. And, the odds of an auto insurance collision claim are 1 in 47, with an average claim of $8,000.

Against this backdrop, why would any responsible person not insure against the financial risk of requiring long-term care at some point?

Remember: The odds are nearly 1 in 2 that a person over age 65 will need long-term care for about 2.5 years at an average cost of $60,000 per year, with an average claim in excess of $100,000!

The LTCI Alternative

Fortunately, an appropriate LTCI policy can be designed to fit almost any budget. Most LTCI policies share some common features you should know, to include the following:

* Benefit Amount: How much and how long will the policy pay?

* Benefit Triggers: When will the policy pay benefits?

* Inflation Protection: Will the purchasing power of the Benefit Amount increase?

* Level of Care: Are Custodial and Intermediate Care covered, along with Skilled Nursing Care? Is Home Health Care covered?

Caveat Emptor!

That is Latin for Let the Buyer Beware. With many insurance companies selling LTCI, this is an appropriate warning. As with any form of insurance, the policy is only as good as the ability of the insurance company to pay your claim. Check out the financial strength and reputation of the insurance company before you sign on the dotted line.

Reputation also is important. Contact the Insurance Commissioner for your state regarding an insurance company’s status and any complaints from policyholders.

Finally, contact the National Association of Insurance Commissioners for a copy of the Life Insurance Buyer’s Guide, by phone (816) 842-3600 or online at


Seek appropriate counsel to interpret the contractual provisions of any LTCI policy before submitting an application for coverage. It will be time and money well spent.

This publication does not constitute legal, accounting or other professional advice. Although it is intended to be accurate, neither the publisher nor any other party assumes liability for loss or damage due to reliance on this material.

Note: Nothing in this publication is intended or written to be used, and cannot be used by any person for the purpose of avoiding tax penalties regarding any transactions or matters addressed herein. You should always seek advice from independent tax advisors regarding the same. [See IRS Circular 230.]

Common Estate Blunders

Proper estate planning is not just for the rich and famous. Every adult American has an estate worth planning, regardless of their net worth.

Quick.  When you hear the words estate planning, what mental images do you see?  Do you see beautiful, tanned people with incredible wealth, living in enormous mansions, riding in shiny limousines and boarding private jets bound for exotic destinations? If so, then you are only partially correct. In reality, everyone has an estate worth planning. Some are just more complex than others. Here are some basic estate blunders common to princes and paupers alike.

Incapacity Issues

Every 18-year-old has an estate, even if they have only two dimes to rub together. On your 18th birthday you are considered an adult American citizen and you become responsible for your own personal, health care and financial decisions. Even your parents become strangers to you, in a legal sense, should you become incapacitated due to an injury or an illness. This same legal strangerhood applies, by the way, between spouses.

As a result, every person age 18 and older, married or single, must appoint agents through proper Durable Powers of Attorney to make their personal, health care and financial decisions in the event of their incapacity. Alternatively, a court process involving at least three lawyers will be required to appoint agents to make such decisions for you under the ongoing supervision of the court. And this can be rather expensive and invasive of your privacy.

Minor Children Matters

Silver and gold aside, if you are blessed with children, then they are your most valuable assets…even if you feel like trading them for S & H Green Stamps at times. If your minor children were orphaned, who would rear them to adulthood and impart your morals and values to them? Only through a Last Will & Testament can you appoint the appropriate guardians (i.e., back-up parents) for your minor children. Alternatively, a court process would be required to appoint them. This court process is not only expensive and public, but the court may not appoint the same parties you would have selected.

Death & Taxes

On every actuarial chart of every life insurance company death is a 100 percent certainty. In fact, there is a long history of anecdotal evidence to support those charts. When it comes to transferring your earthly possessions upon your death, you can either make it easy on your loved ones through proper estate planning or you can leave it up to the court system by default. Prior planning is, without fail, the more efficient and effective option. There are a variety of planning methods to accomplish this transfer. For example, Revocable Living Trusts are commonly used to transfer assets postmortem, independent of the legal system in many states.

Benjamin Franklin observed that the only two certainties in life are Death & Taxes. The United States Supreme Court has ruled that no taxpayer should pay more than his or her fair share in taxes. That said, proper estate planning can save hundreds of thousands of dollars from unnecessary federal estate taxes. If you are married, is your estate plan taking full advantage of your available estate tax exemption through a combination Credit Shelter/QTIP Marital Trust?

Inheritance Risks

No one values the worth of a dollar like the person who earned it and paid taxes on it. Have you arranged your estate to impart your work ethic to the next generation and beyond? Careful consideration should be given, therefore, to protecting and preserving an inheritance through one or more Long-Term Discretionary Trusts for your loved ones. Properly structured, such trusts will protect and preserve an inheritance for generations to come from squandering, divorces, lawsuits and bankruptcies. Without proper estate planning, a lifetime of thrift can disappear in a season of conspicuous consumption or through personal misfortune.

Multi-State Real Estate

If you own real estate outside your home state, it will be subject to probate in the state where it is located… unless you have made proper legal plans to avoid the probate process. In some states probate is less burdensome than in other states. However, if you choose to avoid probate you must make appropriate legal plans in advance.

Tax Planning For Retirement Plans

Due to government support of employer-sponsored retirement plans, much of the private, individual wealth in America is in qualified retirement plans. Unless they carefully coordinate their financial plan with their estate plan, much of a married couple’s retirement monies could pass to the IRS instead of their loved ones. With proper coordination, however, the tax impact on these unique assets can be substantially minimized or eliminated.

Business Succession Planning

Statistically, only 30 percent of family businesses survive from the founding generation to the next. The success rate thereafter is even more dismal.

Just like individuals, business owners fail to make plans, have the wrong plan or even an outdated plan for the eventual transfer of their business interests. A comprehensive Life & Estate Plan may incorporate planning for the business succession. For example, if some children are “active” in the business and others are not, how do you treat everyone equally as well as fairly?

Joint Tenancy With Rights of Survivorship

(In some states “Tenancy by the Entirety” when between spouses) This is the most common form of asset ownership between spouses. Joint Tenancy (or TBE) has the advantage of avoiding probate at the death of the first spouse. However, the surviving spouse should not add the names of other relatives to their assets. Doing so may subject such assets to loss through the debts, bankruptcies, divorces and/or lawsuits of any additional joint tenants. Joint tenancy planning also may result in unnecessary death taxes on the estate of a married couple.

Procrastination Perils

Some 60 percent of adult Americans have no estate plan at all and many others have an outdated plan that no longer meets their needs. As a result, these otherwise responsible adult Americans may leave a legacy of unnecessary pain and conflict for their loved ones.

Finally, whatever you do regarding your estate planning, seek appropriate legal counsel. It will be time and money well spent.

This publication does not constitute legal, accounting or other professional advice. Although it is intended to be accurate, neither the publisher nor any other party assumes liability for loss or damage due to reliance on this material.

Note: Nothing in this publication is intended or written to be used, and cannot be used by any person for the purpose of avoiding tax penalties regarding any transactions or matters addressed herein. You should always seek advice from independent tax advisors regarding the same. [See IRS Circular 230.]

Blended Family Basics

If you are a blended family member, then you are in good company. Blended families now outnumber traditional nuclear families. And the number is likely to grow, based on current divorce statistics and trends.

If you are a blended family member, then you are in good company. Blended families now outnumber traditional nuclear families. And the number is likely to grow, based on current divorce statistics and trends.

Divorce is rather common in America. In fact, an estimated 50 percent of first marriages end in divorce after an average of 11 years. The average divorce will cost the parties about $15,000 and take approximately one year to process from initial filing to final decree. Thereafter, the resulting economic fallout will tend to reduce the standard of living of both ex-spouses. Not surprisingly, divorce is not only expensive, but researchers consistently rank it as one of the most stressful life experiences.

Blended families face unique social, psychological and economic challenges. As a result, an estimated 60 percent of second marriages end in divorce. Fortunately, there are numerous organizations and support groups dedicated to helping blended families with these challenges. Unfortunately, however, little attention has been paid to the critical Life & Estate Planning challenges of blended families. These challenges include disinheriting your ex-spouse, protecting your own children, providing for your new spouse and minimizing your estate taxes.

Your Ex-Spouse

Will your ex-spouse inherit your retirement money, even if the laws of your state automatically extinguish their interest in the assets of your estate? It depends. In Egelhoff v. Egelhoff, 121 U.S. 1322 (2001), the United States Supreme Court held that federal law under the Employee Retirement Income Security Act of 1974 (ERISA) preempted state law regarding the retirement plan of a recently divorced and deceased man.

Mr. Egelhoff had failed to replace his ex-spouse with his children as the named beneficiaries of his retirement plan prior to his death. State law automatically disinherited ex-spouses. In a 7-2 decision, the Court found that the retirement plan administrator must follow the ERISA statutes requiring distributions to the named beneficiary, even when the end result conflicts with state law. Bottom line: Mr. Egelhoff’s former spouse inherited the sizeable ERISA retirement plan instead of his own children.

Your Own Children

Assuming you have removed your ex-spouse as the named beneficiary of your ERISA retirement plan, does the rest of your Life & Estate Plan protect the inheritance of your children from your ex-spouse? Without proper legal planning, your exspouse (as surviving parent/guardian) would likely be appointed by the probate court to manage the inheritance you leave to your children. To make matters worse, what if your children later predecease your ex-spouse, and are single and childless at that time? Who would inherit your assets then? That is right … your ex-spouse, as the next-of-kin of your children.

Regardless whether children are reared in a traditional nuclear family or in a blended family, great care should be given to protect any inheritance both for them and from them. For starters, wealth representing a lifetime of your hard work and thrift can be squandered in very short order. Dollars earned just spend differently than dollars inherited. In addition to good, oldfashioned squandering, an inheritance can quickly vanish through divorces, lawsuits and bankruptcies.

Your New Spouse

Chances are you made a few solemn promises to your new spouse on your wedding day. Among them were promises to be there through thick and thin, personally and financially. In the absence of a Pre-Marital Agreement to maintain separate assets, most spouses in blended families tend to blend their wealth. For example, titling their respective assets in the names of both spouses and designating one another primary beneficiary of their respective retirement plans and life insurance policies.

Warning: Should you predecease your new spouse, then you may forever disinherit your own children from your share of such blended wealth! Thereafter, upon the death of your new spouse, your assets likely may be inherited by your stepchildren, or even by your new spouse’s next spouse and their children. 

 Your Estate Taxes

Aside from disinheriting your own children, blending your wealth with your new spouse may unnecessarily enrich the IRS. How? The Internal Revenue Code provides an exemption to each taxpayer for purposes of sheltering a certain dollar value from estate taxes (with marginal rates exceeding 40 percent). However, this is a use it or lose it exemption and you lose it when title to your blended assets vests in your new spouse upon your death. In addition to disinheriting your own children, this mistake alone can trigger hundreds of thousands of dollars in unnecessary estate taxes.

Alternative Solutions

While there is no one-size-fits-all solution, there are a few alternative solutions you might want to consider.

Be sure to disinherit your ex-spouse by replacing them as the named beneficiary of your ERISA retirement plans, for starters. While you are at it, create a Long-Term Discretionary Trust (LTD Trust) to administer the inheritance for your children and appoint a party of your own selection to serve as trustee. That way, even if your children reside with your ex-spouse, your trustee will control the inheritance through the LTD Trust and ensure its use only for your children. Should your children predecease your ex-spouse, the inheritance would remain in trust for your grandchildren, your surviving children or for other beneficiaries of your own selection.

Your LTD Trust does double duty by securing many additional tax and non-tax benefits. For example, protect the inheritance for and from your children (and their potential squandering, divorces, lawsuits and bankruptcies) through Spendthrift Provisions contained in your LTD Trust.

Create a Qualified Terminable Interest Property Trust (QTIP Trust) to provide income and perhaps even principal to your new spouse for life, while protecting the inheritance for your new spouse in the event of any subsequent remarriage and divorce. Thereafter, the QTIP Trust assets may pass to the LTD Trust you established for your own children.

Create an Estate Tax Exemption Trust to shelter the maximum available exemption amount upon your death. Often used in conjunction with the QTIP Trust for your new spouse, this trust can help you leave more wealth for your loved ones … and less to the IRS.

Finally, seek appropriate legal counsel. It will be time and money well spent.

This publication does not constitute legal, accounting or other professional advice. Although it is intended to be accurate, neither the publisher nor any other party assumes liability for loss or damage due to reliance on this material. Note: Nothing in this publication is intended or written to be used, and cannot be used by any person for the purpose of avoiding tax penalties regarding any transactions or matters addressed herein. You should always seek advice from independent tax advisors regarding the same. [See IRS Circular 230.] © Integrity Marketing Solutions.

Business Owner Blues

Being a business owner today is both rewarding and challenging, especially if your business is a family business. For business owners facing the unique challenge of transferring ownership of the family business upon retirement, disability or death, a properly funded Buy-Sell Agreement may be the key to survival.

Are you a business owner? If so, then you probably know what it’s like to be the first one to arrive in the morning and the last one to leave in the evening. Over the years, you have no doubt worked through physical, mental and financial pain that would have caused other folks to close shop and look for a job elsewhere. No doubt, as a business owner you have survived untold challenges. If yours is a family business, then you face some unique challenges to protect and preserve your business … and your family. It would be an understatement to say that family businesses are the backbone of the American economy. Some 90 percent of all businesses in this country are either family-owned or family-controlled. They come in all shapes, sizes and colors, representing all sectors of our economy. From agriculture, to services, technology, and manufacturing, family businesses generate an estimated one-half of the U.S. Gross National Product and pay half of all wages earned in this country. Not all family businesses are traditional small businesses either. In fact, about one-third of all businesses included in the Fortune 500 are family businesses. But not all of the family business statistics are rosy.

Tragic Transitions

Family businesses do not tend to outlive their founders. At any given moment, 40 percent of family businesses are in the process of transferring their ownership. Unfortunately, two-thirds of all initial transfers fail. Of the one-third that survives an initial transfer, only one-half will survive a second transfer. Why such a dismal success rate? The reasons are as varied and unique as the businesses and business owners themselves. Nevertheless, many of the failed transfers can be traced to three causes: people, taxes and cash.

People Planning

The family element in every family business can mean the difference between its success or failure during the transfer process. Common triggering events include the retirement, disability or death of the business owner. Tough questions must be asked and answered. Otherwise, a business that took you decades to build can be destroyed overnight.

For example, who will run the business after you? Will it be your spouse, one of your children or a non-family member key employee? What arrangements have you made for the inheritance of your businessinactive children? Have you in-law proofed your estate? Thinking ahead to the secondgeneration transfer of your business, what provisions have you made to encourage thrift and industry among your grandchildren?

Tax Truths

Will the federal estate tax be repealed or significantly reformed in the future? Perhaps. While the future of the federal estate tax is uncertain at best, many states are imposing or may impose their own estate taxes to make up revenue shortfalls, independent of any federal estate taxes.

Careful monitoring of the economic, political and legal climate is required. Why? Without proper planning, you family may have to sell you family business to meet and estate tax cash call. Will there be enough money to fuel the survival of your family business?

Money Matters

Will there be enough money to fuel the survival of your family business? Unless you coordinate your financial plan with your Life & Estate Plan, there may not be enough cash to fund your ultimate objectives. For instance, an appropriately funded plan could provide financial security for your spouse, ensure that your preferred successor takes over the business, equalize the eventual inheritance among your children and protect their inheritance from future problems (e.g., divorces, lawsuits and bankruptcies). Life insurance is typically used to fund such money matters when owned in the proper amount, type and manner.

Buy-Sell Agreements

A Buy-Sell Agreement (BSA) is one fundamental key to the survival of a family business. A BSA is a lifetime contract providing for the transfer of a business interest upon the occurrence of one or more triggering events as defined in the contract itself.

For example, common triggering events include the retirement, disability or death of the business owner. An interest in any form of business entity can be transferred under a BSA, to include a corporation, a partnership or a limited liability company. Also, a BSA is effective whether the business has one owner or multiple owners. As a contract, a BSA is binding on third parties such as the estate representatives and heirs of the business owner. This feature can be invaluable when the business owner wants to ensure a smooth transition of complete control and ownership to the party that will keep the business going. Subject to certain Family Attribution Rules under Internal Revenue Code §318, a BSA can help establish a value for a business that is binding on the IRS for federal estate tax purposes as provided under Internal Revenue Code § 2703.

Three Flavors

A BSA is commonly structured in one of three general formats: An Entity BSA, a Cross-Purchase BSA, and a Wait-And-See BSA. Under an Entity BSA, the business entity itself agrees to purchase the interest of a business owner. Conversely, under a Cross-Purchase BSA, the business owners agree to purchase one another’s interests. The Wait-And-See BSA gives the entity a first option to purchase the interest before the remaining business owner(s). In addition to these three general formats, a One-Way BSA may be used when there is one business owner and the purchaser is a third party. The selection of the appropriate BSA format is critical for a variety of tax and non-tax reasons beyond the scope of this discussion. However, no BSA is complete without a proper funding plan. Like a beautiful automobile without fuel in the tank, a BSA without cash to fund the purchase is going nowhere.

Funding Options

Some common options to fund the purchase obligation under a BSA include the use of personal funds, creating a sinking fund in the business itself, borrowing funds, installment payments and insurance. Of these options, only the insured option can guarantee complete financing of the purchase from the beginning. Accordingly, a proper BSA will include both disability buy-out insurance and life insurance. Since the health of the business owner determines their insurability, any delay in acquiring appropriate coverage could be fatal to the success of the BSA and with it the survival of the business.

This publication does not constitute legal, accounting or other professional advice. Although it is intended to be accurate, neither the publisher nor any other party assumes liability for loss or damage due to reliance on this material. Note: Nothing in this publication is intended or written to be used, and cannot be used by any person for the purpose of avoiding tax penalties regarding any transactions or matters addressed herein. You should always seek advice from independent tax advisors regarding the same. [See IRS Circular 230.] © Integrity Marketing Solutions.

Seniors Should Review Their Will

Published by LYNNE BUTLER, Globe and Mail Update

People in their 60s and 70s shift the focus of their estate planning away from accumulation of wealth for the first time. They now focus on strategic use and preservation of assets. Until this point, most planning has been for the future. In this stage of life, the future has arrived.

Most people will retire or semi-retire during this phase of life, happily pursuing those golf games and Aegean cruises that were postponed in the name of work. It’s the time when the initial plans made during your earlier years begin to bear fruit.

It’s not that adults are no longer saving money at this age; it’s more that income sources change. At age 65, you’ll begin to collect Old Age Security and Pension Plan benefits. Private pensions also kick in. By the end of the year you turn 71, your RRSP must be converted to a RRIF, which will provide income whether you want it or not. It’s important to continue working with a financial planner to maximize these sources, minimize taxes and understand what will be available for retirement and to leave in your will.


The second major focus during this phase of life must be planning for incapacity. Of course nobody wants to think about it, but seniors will notice the uptick in the number of serious health issues happening among their contemporaries. Most people will already have health care directives in place and should take them out, dust them off and update them if necessary. This is the time to put serious thought into how one spouse will fare if the other loses mental capacity.

Health and money intersect, of course, and couples should consider the potential cost of health care that may or may not be needed in years to come. Have you thought about the cost of your spouse continuing to live in the family home if you must live in a long-term care facility due to incapacity?

Powers of attorney

In enduring powers of attorney and health care directives, you will name the person or people you want to put in charge of your decision making in the event you cannot manage it yourself. By the time adults are in their 60s and 70s, they generally want to rethink the previous appointment of friends and siblings and appoint their children instead.

The choice of representative is crucial. Financial abuse of seniors is rampant. Sadly, much of the suffering could have been avoided by a more thoughtful and critical choice of attorney under a power of attorney.


During the later years of this phase of life, some Canadians will be widowed. This carries its own set of emotional and financial challenges. The death of a spouse should bring about a complete review of the survivor’s plans.

A majority of widows and widowers find it worthwhile to simplify their assets at this point. For example, a cottage that you’re not going to use much now that you’re a single rather than part of a couple might be sold. The large family home may prove to be too much of a handful for you alone, and you may wish to downsize to a condominium, apartment or smaller house. Joint investments and bank accounts are now solely owned.

Handing down assets

These are worthwhile steps to take as they can smooth potential estate problems. But as always, there are pitfalls. The process of simplification can end up creating as many problems as it solves if it is taken too far. A common homemade estate-planning strategy is to put assets into joint names with the children, which can make even the toughest estate lawyer or accountant wince.

The idea is to avoid probate fees and possibly “simplify” by avoiding the probate process altogether, but the cost is frequently disputes among the children, and in many cases, lawsuits to determine the true owner of the joint asset.

While it’s not always advisable to transfer assets to the kids without advice, it is definitely a good idea to open conversations with your children about estate planning. Let them know who you have named as your executor, your attorney and your health care representative. Tell them where your documents are kept. Find out their thoughts on the family cabin.

And send them a postcard from Greece.

Lynne Butler has worked in estate planning and law for more than 20 years and is the author of several books about estate planning, published by Self-Counsel Press.

Seniors in Clearwater, Palm Harbor, Oldsmar, Seminole and the Tampa area can count on the Coleman Law firm to help them with their wills and other financial planning issues. For more information, see our web site


Did you lose money after your broker encouraged you to invest in real estate investment products to generate income or to diversify your portfolio?

It is well known that real estate values have dwindled in America over the past few years.  Regardless, many banks and brokerage firms have continued to encourage their clients to invest in real estate products to diversify their portfolios or to generate income.   Many brokers led investors to these risky products with attractive yield percentages and misled investors by selling these products as “CD alternatives,” “preferred stocks,” or even “bonds.”  Unfortunately, the true risks associated with these products were not disclosed, and investors have lost all or a significant amount of their investments, have not received the yield percentages that were touted, or are unable to access the money they invested.

Investors are filing claims against banks and brokerage firms for losses suffered in the following:

1). Non-Traded REITs – Non-traded (or private) REITs are securities offered by your bank or brokerage firm that are not listed or traded on a public exchange. These products often offer attractive yields; however, many have reduced the advertised distribution amounts, have stopped making distributions to investors, or have forbidden investors from accessing their money.  In other words, many investors in non-traded REITs are finding that they are receiving much less income than anticipated, no income at all, or that they cannot access any of their investment dollars.

             2). Traded REITs – Traded REITs are securities sold by your bank or brokerage firm that are listed and traded on a public exchange.  These securities often offer attractive yields and trade similarly to common stocks; however, traded REITs share the downside risks of common stocks.  Your broker may have told you that you were purchasing a “bond” or “preferred stock” when you actually purchased a REIT.  Many investors in traded REITs have suffered significant losses due to decreases in share price or have been unable to find buyers for their now worthless shares due to financial problems of the underlying real estate company.

             3).  Other Real Estate Projects – Many investors have been approached by representatives of banks and brokerage firms to invest in or make loans to real estate projects organized by that representative or a business partner or friend of that representative.  Investors are often approached despite not having a relationship with the particular bank or brokerage firm.  The projects often promise attractive returns or yields much greater than what is offered by the bank or brokerage firm.  The investments are not offered by the bank or brokerage firm and often involve condominium and commercial real estate developments and oil/gas exploration.  Unfortunately, investors often lose all or a significant portion of their investments in these projects and find that the projects were scams or were poorly managed. The bank or brokerage firm, however, still may be liable for investor losses in these projects.

If you wish to discuss your investment in REITs or other real estate investments offered by representatives of banks or brokerage firms or have questions about securities fraud and want to know if you have a case, please contact us at (727) 461-7474 or visit our Investor FAQs page and fill out the Do I Have a Case form at

For more information about Securities fraud, or estate planning, particularly if you are in Clearwater, Palm Harbor, Tarpon Springs or the Tampa Bay, Florida area, go to our website


Have you Suffered Losses in Fannie Mae or Freddie Mac Preferred Stocks?

You are not alone, and many investors in Fannie Mae and Freddie Mac preferred stocks are filing claims against their brokers and brokerage firms as a result of the sales practices related to these products.

For years, investment salespeople have pitched preferred stocks and Fannie Mae and Freddie Mac investment products to elderly clients, retirees, and clients nearing retirement.  The products are often pitched and misrepresented as “safe,” “no risk,” “secure,” “insured,” and “CD alternatives.”  In addition to claims that clients cannot lose money or investment principal, Fannie Mae and Freddie Mac products are often pitched with the added assurance that the Fannie Mae and Freddie Mac are “implicitly backed” or “guaranteed” by the federal government, or, gasp, that Fannie Mae and Freddie Mac are the federal government.

It was well known in the securities industry as early as 2006 that the mortgage industry was in turmoil in America. Unfortunately, in 2007 and 2008, numerous brokerage firms and banks ignored the warning signs, including widespread reports regarding the financial instability of Fannie Mae and Freddie Mac, and continued to sell Fannie Mae and Freddie Mac preferred stocks as “safe” investments.  In some instances, investors were never warned of the true risks associated with the products or they were told that the products were protected with some sort of governmental backing.

Preferred stocks are not debt instruments, and Fannie Mae and Freddie Mac preferred shareholders are not afforded the same implied governmental protections afforded to bondholders, regardless of the representations to the contrary erroneously made by many brokerage firms and their salespeople.  Preferred shareholders are not afforded any such protection.  Whether investors were told the risks to these investments were minimal or the true risks were not disclosed, investors in these products suffered substantial losses.

If you wish to discuss your investment in Fannie Mae or Freddie Mac preferred stocks or have questions about securities fraud and want to know if you have a case, please contact us at (727) 461-7474 or visit our Investor FAQs page and fill out the Do I Have a Case form at

For more information about Securities fraud, or estate planning, particularly if you are in Clearwater, Palm Harbor, Tarpon Springs or the Tampa Bay, Florida area, go to our website


Have You Suffered Losses in Morgan Keegan Bond Funds?

Have you purchased Morgan Keegan Bond Funds, particularly the Regions Morgan Keegan High Income Fund; Regions Morgan Keegan Multi-Sector High Income Fund; Regions Morgan Keegan Select High Income Fund; Regions Morgan Keegan Strategic Income Fund; Regions Morgan Keegan Advantage Income Fund; or the Regions Morgan Keegan Select Intermediate Bond Fund?

Many investors have filed suitability and fraud claims against Morgan Keegan for substantial losses suffered as a result of the sales practices related to these funds.   Much of the abysmal performance of the funds has been attributed to the risky and speculative securities purchased by the funds’ manager, and Morgan Keegan allegedly concealed and misrepresented the true risks associated with these funds. Morgan Keegan’s alleged egregious conduct includes making material omissions and misrepresentations in marketing materials and regulatory filings; withholding information from and misrepresenting information concerning the funds to the Morgan Keegan Sales force; and failing to adequately supervise its employees.  In other words, Morgan Keegan kept investors and their trusted advisors in the dark regarding the true risks of these funds.

If you wish to discuss your investment in Morgan Keegan funds or have questions about securities fraud and want to know if you have a case, please contact us at (727) 461-7474 or visit our Investor FAQs page and fill out the Do I Have a Case form at

For more information about Securities fraud, or estate planning, particularly if you are in Clearwater, Palm Harbor, Tarpon Springs or the Tampa Bay, Florida area, go to our website


It is our experience that the majority of the victims of securities fraud simply do not take action for a number of reasons.  Such inaction is often the result of uncertainty as to what constitutes securities fraud or uncertainty as to what things brokers can, cannot, or are required to do.  Additionally, we find that many victims of securities fraud are understandably embarrassed or ashamed and often forgo taking action to hide their losses from family members and friends.  Furthermore, many victims of securities fraud may even refrain from taking action because they recall arbitration language in the account paperwork they signed and are intimidated or uncertain as to what steps to take to pursue a claim.

Investments are complicated, so investors often entrust, confide in, and compensate investment professionals to act on their behalf.  Investors, therefore, should expect to be treated by their investment professionals and investment firms in accordance with the high standards imposed upon them by the brokerage securities profession.  Unfortunately, investment professionals and firms often engage in egregious conduct that breaks investors’ trust and confidence, thus leaving investors no choice but to protect themselves.

If you have questions regarding securities fraud and the conduct of your representative and/or investment firm, DO NOT contact the representative or investment firm.  Please contact us at (727) 461-7474 or visit our Investor FAQs page and fill out the Do I Have a Case form at

For more information about Securities fraud, or estate planning, particularly if you are in Clearwater, Palm Harbor, Tarpon Springs or the Tampa Bay, Florida area, go to our website


If you have purchased a variable annuity, or any annuity for that matter, it is likely that you do not fully understand how it works, what it does and does not offer you, or why you even purchased it in the first place.  It is also very likely that your insurance agent, banker, broker, or financial planner does not fully understand what he or she sold you either, yet he or she likely presented the annuity idea to you with the uttermost zeal.  What these financial salespeople clearly understand, is that annuity sales typically generate higher commissions than sales of other investment products. Be careful when being persuaded to purchase an annuity, and be extra careful when someone encourages you to transfer your annuity to a new annuity.

You should be particularly careful when considering transferring your money from one annuity to another.   This procedure is often referred to as a 1035 or tax free exchange and is different from simply transferring money from one investment choice to another within the same annuity.  Here, you actually exchange an existing variable annuity contract for a new annuity contract.  There are legitimate reasons for a 1035 exchange; however, there are several potential downsides that your annuity salesperson may or may not know or remember to mention, including:  1) surrender charges for surrendering the first annuity; 2) possible subjection to a new and potentially longer surrender charge schedule for the new annuity; 3) ineligibility for a tax free transfer; 4) or higher fees for the new annuity.

In addition to the foregoing, numerous annuity beneficiaries have suffered tremendous losses at the hands of annuity salespeople who knowingly or negligently failed to address the potential detrimental effects of 1035 exchanges on the value of the initial annuity contract’s death benefit.  Death benefits come in various forms, but most variable annuity contracts guarantee that the beneficiaries of the contract will receive, upon the annuitant’s death, the original amount invested in the annuity contract, adjusted for withdrawals.  This provides peace of mind in that the beneficiaries will receive at least what was invested in the contract, regardless of investment performance.  Some contracts offer beneficiaries a death benefit guaranteeing beneficiaries the higher of the original invested amount or the highest appreciated value of the annuity, determined at certain prescribed future dates. Regardless, fees are assessed for the death benefit feature, and the death benefit guarantee can be very important and powerful in the event of decreased investment values.

Assume, for example, you invested $500,000 with XYZ variable annuity company and, due to market declines and/or inappropriate investment choices, the variable annuity decreased to $250,000 in value.  Assuming no withdrawals, the death benefit would still be $500,000.   In this scenario, many competing financial salespeople likely would encourage you to consider a different annuity with different investment choices or additional bells and whistles, and a $250,000 or 50% portfolio decline may encourage you to do so.  Annuity transferor beware! If you were to transfer your XYZ annuity to a PDQ annuity, your new death benefit would be based on the new investment value of $250,000 and not $500,000.

Similar scenarios have played out where death occurred while investment values continued to decline or before the investment values could hope to close the 50% loss gap.  Many investors and beneficiaries have brought claims against annuity salespeople and their employing firms for intentionally failing to or not knowing to disclose the potential loss of death benefit value when conducting a 1035 exchange.

If you wish to discuss the circumstances of your annuity investment or have questions about securities fraud and want to know if you have a case, please contact us at (727) 461-7474 or visit our Investor FAQs page and fill out the Do I Have a Case form at 

For more information about Securities fraud, or estate planning, particularly if you are in Clearwater, Palm Harbor, Tarpon Springs or the Tampa Bay, Florida area, go to our website