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estate plan for you if you don?t have your own,? is preferable to creating your own estate plan.

The problem is that newspapers, magazines, and other media often present conflicting views on whether it is best to choose joint tenancy, a will or a trust as your estate planning vehicle. Who?s telling the truth?

Let?s take a look at the three fundamental goals of an effective estate plan:

(1) Transferring your property to those you designate in a timely and efficient fashion,

(2) Providing for management of your property if you are physically or mentally unable to do so yourself, and

(3) Minimizing the amount of estate taxes imposed by the government as your property passes to succeeding generations.

Now that you know what an estate plan is supposed to accomplish, you can see how the ?Big Three? estate planning vehicles stack up. Joint Tenancy is frequently thought of as a ?poor man?s will? because the asset transfers automatically upon death to the people named on the title.

What this technique offers in convenience it loses in protection. Consider the case of Dorothy Schmit vs. the Internal Revenue Service. Mrs. Schmit put her husband, who happened to be delinquent in his taxes, on ?her? property as a joint tenant for convenience. Mrs. Schmit had to sue all the way to the 9th Circuit Court of Appeals, an expensive proposition, to get the IRS to finally accept the ?nominal? status of her husband.

Both wills and living trusts are more sophisticated ways of transferring property to your heirs. The primary difference between wills and trusts is that wills require a probate administration that can add time and costs to the disposition of your estate. This is true even in the ?simplified probate? procedures available in many states. At the margin, avoiding the additional costs and publicity of probate by the use of a living trust is preferable.

Joint Tenancy, a Will or a Trust?
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If the issue of property management during a property owner?s incapacity arises, both a properly prepared will or trust-based estate plan will have a durable power of attorney which enables someone you have chosen to manage your property. However, a living trust offers additional Read more…

In a nation consumed with wealth-building, it?s easy to forget that earning money is only half the financial security battle. Equally important is protecting our hard-won financial security with a well-designed estate plan. For women, the importance of planning is paramount, because most often women must cope when loved ones become disabled or die.

A recent study by Penn State University found that wives were three times more likely to have to cope with a mate?s illness or injury. The study also revealed that few husbands had prepared the kind of estate planning documents that would have eased their wives? burdens.
For example, a Living Will and a Health Care Power of Attorney give wives the legal clout to act on their husbands? behalf in the event of an emergency.

Without these tools, wives must endure the process of living probate, also known as a guardianship proceeding, in which a husband may be declared incompetent, and a probate judge decides who should be responsible for his personal care and financial affairs. While the wife is often granted this role, there are no guarantees that she will prevail. Judges have wide discretion over whom they may appoint, and the judge may deem that an outsider or professional guardian may be better suited to the task.

According to the U.S. Census Bureau, widows over the age of 65 outnumber widowers by five to one. And when women lose their husbands, they are often thrust into poverty. But if you think impovershed widowhood is something only the elderly experience, think again. The average age at which a wife becomes a widow is just 56. Estate planning can?t do anything to mitigate the loss of a loved one. But it can help ensure that the surviving spouse is financially protected.
When a husband dies without a plan, his estate is adminstered by a probate court. Death probate is a costly, time-consuming and public process that may add months, or even years, to a widow’s emotional stress.

Ask most married individuals whom they want to inherit their worldly goods, and they will usually say their spouse should receive the lion?s share. Unfortunately, most states use a rigid formula for distributing the deceased?s assets. In many states, the surviving spouse receives half, with children receiving an equal share. The result could be that grown children who are financially independent could receive assets that their parent needs more.

When Americans fail to plan, the government rejoices. That?s because taxpayers are losing opportunities to reduce or completely avoid estate taxes. Today, each taxpayer is entitled to pass assets worth up to $625,000 estate tax-free. With proper planning, a married couple can protect from taxes assets worth $1.25 million. Assets over that amount, however, will be taxed from 37 to 55 percent. Say that a husband and wife have a $1.25 million estate. But as a result of poor estate planning, they shelter only $625,000. About Read more…

Way back in 1993 in Texas, Mr. Strangi ended up sick with cancer, and gave his son-in-law, an attorney, authority to handle his affairs.

The son-in-law (we will call him ?Bob?) set up a Texas Family Limited Partnership (FLP) with a corporate general partner.

He contributed $9,876,929 to the Limited partnership. This amount equaled 98% of Mr. Strangi?s assets and included his home.

We know these numbers because of the subsequent publicity received by the transaction. Texans are usually publicity shy, especially when it concerns money.

We know that putting your home in a FLP is bad, as is not holding back enough assets to pay for your estimated living expenses. So these two slip ups are probably the ones that caused the resulting publicity and the costs of the ensuing tax court cases.

Prior to Mr. Strangi?s death the following year (a scant 2 months after the partnership was set up), the partnership made distributions only when needed by Mr. Strangi. Again, a problem when not enough money is held back.

After Mr. Strangi passed away, the son-in-law, Bob, filed the estate tax return, claiming a valuation discount of 40%. This discount saved the estate about $2.2 million in estate taxes, or about $550,000 for each of Mr. Strangi?s children, including one of whom was married to Bob, the son-in-law and lawyer.

The IRS examined the facts, the most important of which are presented above, and decided that the partnership was not truly a partnership, but in fact a ?piggy bank? that was set up solely to reduce the amount of estate taxes that would ultimately be payable, and determined that the FLP had no other established business purpose. The IRS sued in tax court to collect the $2.2 million in taxes which it thought the estate owed. A very expensive trial took place and all the details of the family, their money and the tax bill were exposed and discussed publicly all around the country.

Fortunately, despite the poor set of facts presented, the tax court ruled that the taxpayers (Strangi family) were right; the FLP was found to be a valid partnership and the discount was allowed. Great news! (Lesson here: If you are going to go to tax court, do it in Texas; they hate taxes in Texas.)

However, the IRS appealed the case to a higher court, and amazingly the higher court came back and said the lower court was right, except for one thing. During the trial, the tax court had refused to listen to an argument from the IRS that no discount should be allowed due to a section of the law called ?2036?.

Section ?2036? says that if you give your property away but retain an interest in it (right to income, use, enjoyment or possession) then it is all taxable as part of your estate. Since the FLP was in fact just a piggy bank, it could be considered a trust, with Mr. Strangi having retained an interest in it. He was in fact living rent-free in the FLP?s property-his former home- which he had unwisely contributed to the FLP.

Well, it?s a great argument for the IRS because if proven right it calls all the property back into his estate, EVEN that which have been given away to others. This was really bad news to the estate and children of Mr. Strangi. Forget using discounts, this argument even brings back into the estate any gifts he may have made to others without discounts.

The higher court sent it back to the tax court to reconsider the case, with instructions this time to include the section ?2036? law which the tax court had ignored first time because of a foot fault on the part of the IRS. The second time the IRS won everything. The entire FLP without discount was ruled to be included in the estate and the additional $2.2 million in estate tax needed to be paid.

The case went back to the appeals court Read more…

During the estate administration, the personal representative (the Executor where there is a will and the Administrator, where there is none) has full control of the assets of a deceased’s estate. Only the executor has the power and authority to sign the checks in respect of the deceased’s bank accounts, sell the assets and receive the sale proceeds.

Choosing and appointing a financially literate executor will give you and your beneficiaries, peace of mind. This must be one of the most important considerations when writing your will. Sometimes what can go wrong will go wrong.

Remember the case in America; the children of the world-renowned violinist Isaac Stern have commenced legal action against their late father’s executor. But is the executor able to compensate your beneficiaries in the event your estate suffers loss as a result of negligence or wrongdoing? Sometimes the loss may not even be of their own doing, their staff or agents could have caused it.

Thus, Trust Corporation, which form part of financial services groups, can give the assurance of compensation to their customers. This is not only because they have the financial resources, but also the group’s reputation and branding are at stake.

Say, if LMN Trustee is sued for wrongdoing, the reputation of the LMN financial services group is also affected. The LMN group may consist of other types of businesses such as securities, futures, unit trust, asset management, corporate finance, debt capital market, structured products, venture capital and equity financing; it has lots to lose.

If you win a legal suit against LMN Trustee, LMN as the shareholder will have to pay any lawful compensation rather than let LMN Trustee be wound-up. Otherwise, there will be substantial negative impact on LMN’s other businesses arising from its marked reputation in the public’s eye. From a business perspective, it’s an obvious decision for LMN.

Even though there are no concrete statistics, it is believed that Read more…

Many people make the mistake that retirement is only something that older people need to worry about. Unfortunately, this way of thinking can longer be acceptable, because those in their 20?s and 30?s who do not plan for their future now will end up with very little come retirement age. If you engage in planning for retirement now, you?ll be able to rest assured that you can continue to live the lifestyle you?ve always dreamed about. Remember, it?s never too early to start planning for the future, and you want to make sure you have enough to support yourself by the time you can?t work anymore.

The first option when planning for your retirement is to open a Roth IRA. Your current employer may have this option available to you, and you might be able to open one for you and for your spouse. This type of IRA will grow for many years tax-free, and you don?t have to do anything to it. Once you?ve reached age 59 and a half, you can withdraw whatever money has accumulated or leave it there to continue to develop until you really need it. Because you never have to touch the IRA, Read more…

Parents of children with special needs, such as those with cerebral palsy should visit a lawyer and set up a Special Needs Trust. A special needs trust is set up allow use of property for the beneficiary without losing access to essential government services and benefits.
As it stands now a person who is disabled cannot inherit more than $2,000- it will interrupt his or her government benefits. Especially important are long-term care and nursing home benefits under the Medicaid welfare program.

Government benefit programs are now recognizing that family contributions can only improve a disabled person’s life. As long as the family’s contributions are supplementary and do not duplicate government benefit programs, they are allowed. Some current government benefit programs do let the family to provide some supplementary income and resources to the person with a disability. However, government regulations are very strict, and they are carefully monitored for abuse.

Special Needs Trusts are frequently used as a way to receive an inheritance or personal injury settlement proceeds on behalf of a disabled person in order to allow the person to qualify for Medicaid benefits.

A special needs trust can be used to buy Read more…

During our working lives, many people fail to realize the importance of saving for retirement. In order to live the lifestyle you desire after you quit working, it?s important to build a nest egg prior to your retirement years that you can support yourself on. It?s never too early to start saving, and the longer you wait the less money you?ll have accumulated by the time you reach your golden years. In order to ensure a comfortable lifestyle once you retire, it?s important to take steps now to save the money you?ll need to support yourself for the rest of your life.

In order to start saving money now, it?s important that you create a budget and stick with it! Living within a budget is one of the most effective ways to save money and plan for the future, because it allows you to live within your means without going overboard. By creating and maintaining a budget, you know exactly how much money is coming in and how much money is going out. Cut back on unnecessary expenses and consider setting that money aside in a retirement savings account.

You?ll also Read more…

You’ve worked hard, accumulated assets, and been diligent in saving for a comfortable retirement. Now it is important to implement a plan to protect those assets in the event something were to happen to you. Estate planning is critically important in the development and implementation of a plan that facilitates the distribution of your assets in the event you become incapacitated, or ultimately, at death. Having an estate plan can help ensure that your money and other assets are distributed as you choose. Some people wish to leave their assets to loved ones. Other individuals may wish to designate their assets to a particular charity. Without an estate plan, you have no say on who gets what. What’s more, your property may go to others such as the state and federal government.

Estate planning is not just for the wealthy. Proper planning may be important to individuals with a wide range of financial situations. In fact, it may be more important if you have a smaller estate, as final expenses will have a much greater impact on your estate. Your plan may include many different components including power of attorney, wills, trusts, life insurance, and gifting.

Power of Attorney- A written document that authorizes a particular person to perform certain acts on behalf of the person signing the
document.

Wills- A will is a legal document that lets you state how you wish your
property distributed after you die and who will administer your estate,
and who will be the guardian of any minor children.

Trusts- A trust is a separate legal entity that hold Read more…

How will you be remembered after you are gone? Perhaps you don?t care or perhaps you haven?t thought about it. Maybe, if you are like me, you have thought about it quite a bit. Two events in my life really got me thinking about this issue. The first was at my grandmother?s funeral. She lived in a small town in the south and I remember looking back on the funeral procession and seeing that it stretched as far as the eye could see. That small town must have been shut down that day. Then came my father?s funeral. I remember a stream of people coming up to me, many whom I didn?t know, telling me stories of how wonderful a person my father was. I wondered how many people would come to my funeral and what they would tell my children about me. What will your legacy be? Here are some questions to ask yourself.

How is your estate plan?

Do you have a will? If not, you have chosen to leave your assets to your heirs in the most confusing and time consuming manner possible. If so, that?s a great first step but it may not be enough. A well thought out estate plan leaves your belongings to your heirs in the most efficient manner while taking into account their different needs and wants. Your will might cover large items but what about the small stuff lying around your house? If have heard horror stories about siblings who no longer talk because of fights over trivial items not included in the will. Have you left your home equally to your two children knowing full well that one will want to live in while the other will want to sell it? People do things like these all the time, yet it?s a recipe for disaster.

Are you properly insured?

Will you leave behind enough money for your family to maintain their lifestyle or a stack of bills? A simple rule of thumb measure to figure out if you have proper insurance is cut in half and drop the zero. For example, if you have $500,000 in life insurance you divide that number in half ($250,000) and drop the zero ($25,000). This is how much annual income your heirs could expect to receive from the life insurance proceeds. This example ignores a number of variables but it is a good starting point in figuring out if you have proper insurance.

Are you making smart choices with your Read more…

This FLP Alert is directed at clients and their advisors who have already established Family Limited Partnerships (?FLP?s?) and those clients who are considering a partnership as part of their estate plan.

With all the attacks the IRS has made on FLP?s over the past few years, culminating at the Strangi III decision in July 2005, many have inquired as to the continued viability of FLP?s, particularly with respect to estate tax valuation discounts. The Strangi cases (I, II and III) were extreme cases involving a fact pattern that weighed heavily against the taxpayer and should be used to clarify how to structure an FLP in order to minimize tax consequences.

Background ? In the Strangi case, Mr. Strangi?s son-in-law, acting as his agent under a durable power of attorney, created an FLP two months before his death in 1994. Approximately 98% of Mr. Strangi?s net worth was transferred to the FLP and he became the 99% limited partner; however, he also retained a small percentage of the 1% general partnership interest.

On Mr. Strangi?s estate tax return, the executor reported the value of Mr. Strangi?s partnership interest at a discount from the value of the underlying partnership assets using the ?estate tax valuation discount.? In claiming this discount the executor asserted that the FLP agreement created restrictions that would cause a third party to value the limited partnership interest lower than the value of the underlying assets held by the partnership. On audit, the IRS disagreed and informed the executor that it was seeking an additional $2.5 million in estate taxes. Litigation has continued since then, with the most recent decision in favor of the IRS, referred to a Strangi III. It is unknown at this time whether the Estate will appeal this decision to the U.S. Supreme Court.

? 2036(a) of the Internal Revenue Code provides that transferred assets can still be included in the taxable estate if prior to death the decedent retained (1) possession or enjoyment of the assets or (2) the right to designate persons who shall possess or enjoy the assets. In Strangi II, which was upheld by Strangi III, the courts determined that ? 2036(a) applied to the assets held by the Strangi FLP, thereby increasing the estate?s tax liability considerably.

Lessons from Strangi III ? Here is what we have learned as far as what to avoid in the formation of FLP?s, and things to look for in the operation and management of FLP?s.

? Don?t put all your assets in the partnership. The partnership should be viewed as a business or investment vehicle, not a tax planning vehicle or account. Reserve an amount of assets outside of the partnership sufficient to allow you to live in your desired standard of living for the remainder of your anticipated life expectancy. In addition, in the Strangi case, the IRS was highly critical that the FLP paid estate administration expenses following Mr. Strangi?s death. Therefore, it is probably a good idea to include anticipated expenses in the reserve described above, perhaps even considering a reserve for estimated estate and inheritance taxes, or providing for those taxes through a life insurance policy.

? Don?t put ?personal use? assets in the partnership. One of the many facts that caught the IRS’s attention was Mr. Strangi?s occupying his home rent-free after it had become a partnership asset. Personal use assets include vacation homes, boats, airplanes, art collections and similar items. It?s just not a good idea to put these in a Family Limited Partnership.

? Don?t make any distribution that fails to follow the terms of the partnership agreement. Most FLP agreements require that when the general partner makes distributions to the partners, the distributions must be made pro-rata based on each partner’s proportionate interest in the partnership. Distributions to only one limited partner implies to the IRS that there is some sort of agreement among the partners to benefit one partner over others This can provide the IRS with significant ammunition against the valuation discounts.

? Don?t make too many distributions. The IRS is consistently arguing that most FLP?s have no business purpose, and in certain situations is finding success with that argument in the courts. Treat the partnership like a business and have a business purpose for the FLP. Most well run businesses do distribute every dollar – they assess their opportunities and first seek to reinvest in the business. If adequate reserves have been identified, the partnership cash flow should not be necessary to support the lifestyle of the limited partners. The retained funds should then be invested for the benefit of all the partners.

? Don?t fail to re-title assets that belong to the partnership. Once it is determined what assets will be transferred to the partnership, be sure to change their title. For example, if an investment account is to be a partnership asset, then change the account title to the name of the partnership, even if this requires opening a new account and closing the old. A Read more…