An estate plan is always necessary unless you want your estate to pass through “operation of law” which involves the long, uncertain, public and expensive process at your death with a stranger (the courts) deciding who gets everything you leave behind. This process often leads to heartache, delay and additional stress for those you leave behind, especially if they need the assets to sustain the family or if (all too commonly) family members may fight over what you leave behind.
A Simple Will comes into effect at your death, controls the distribution of your assets (who gets what and when), and names who the Executor of your estate, the person you chose to be in charge and carry out your wishes, will be. A Will is the most basic form of estate planning and still requires the estate and its assets to go through the probate process, meaning that there will be an expense and delay in transferring assets at your death. A will is also public, meaning that a record of exactly what you left and to whom is available. In our view, it’s best suited for those with limited and simple assets, few or no heirs, and those with no minor children, dependents or pets that require specific care and guardianship guidance.
A Revocable Living Trust (RLT) on the other hand includes all the elements of a will, is established and can take title to a certain assets during your lifetime when you (and your spouse) can actively manage and change it. The RLT avoids probate, passes assets privately with little or no public record and typically includes a variety of sophisticated estate tax avoidance measures. (This last issue is especially important given that many seasoned estate planners are preparing their clients for an expected estate tax regime that takes 55% of everything a married couple leaves over $2 Million as of January 1, 2011.) The RLT also names and has specific guidelines for the Trustees of your estate, appoints Guardians for your children and dependents and can retain wealth and “sprinkle” income off the principal to your heirs. It allows a countless variety of sophisticated directives including what you want done if you have some sort of incapacitation condition like an illness or mental issue, typically referred to as “living will” and “health care power of attorney” provisions.
If you don’t have an estate plan, or have had substantial changes to your family structure, wealth, children’s guardians, asset structure or gifting plans it’s time to get experienced help.
The basic estate planning tools noted above are only the tip of the iceberg. These are “death planning” tools, and do not protect assets during your life. A wide variety of Asset Protection, estate planning and family wealth management tools are available more easily and cost effectively than you know, call us to discuss your wishes and concerns!
Showing posts with label estate planning. Show all posts
Showing posts with label estate planning. Show all posts
Monday, June 21, 2010
Monday, June 14, 2010
Why Does a creditor protected CASH ALTERNATIVE make sense? Because 60% of AZ banks are vulnerable to FAILURE!
We have been warning advisor partners and clients for some time about the vulnerability of banks across the country and how we feel a little risk spreading is a good idea from both a bank solvency and Asset Protection standpoint.
The first link below is to an article that shows how vulnerable some banks in Arizona are, as just one local example of a national crisis. There have been over 80 bank closings across the country since January 1 of this year and a highly placed banking executive has informed us that the FDIC has basically run out of money twice in the last nine months. The second Link describes one of the solutions we are implementing.
THE PROBLEM:
Report: 60 Percent of Arizona Banks Vulnerable to Failure:http://tinyurl.com/2dcgnp9
And one of the SOLUTIONS: Creditor Protected Alternatives To Cash:http://tinyurl.com/lkwqtv
Please take a look at this and share with anyone you feel it would help. As always, call us for help or with questions.
Yours, Ike
The first link below is to an article that shows how vulnerable some banks in Arizona are, as just one local example of a national crisis. There have been over 80 bank closings across the country since January 1 of this year and a highly placed banking executive has informed us that the FDIC has basically run out of money twice in the last nine months. The second Link describes one of the solutions we are implementing.
THE PROBLEM:
Report: 60 Percent of Arizona Banks Vulnerable to Failure:http://tinyurl.com/2dcgnp9
And one of the SOLUTIONS: Creditor Protected Alternatives To Cash:http://tinyurl.com/lkwqtv
Please take a look at this and share with anyone you feel it would help. As always, call us for help or with questions.
Yours, Ike
Tuesday, May 25, 2010
What Happens To My Stuff When I Die?
The Following is a no-nonsense overview of some good basic Estate Planning questions and options by my friend Attorney Jay Young, a partner at the law firm of Marquis & Aurbach in Las Vegas. Call Jay and his team for help or with questions and make addressing this issue a top priority and an essential part of any well thought out financial plan for your family.
Yours, Ike
WHAT HAPPENS TO MY STUFF WHEN I DIE?
I tried for 15 years to get my friend to do some basic Estate Planning. He assured me he didn't need my help, and that he had everything "under control" without spending money on an attorney to do a Will and a Trust. My friend died last month and I am now trying to help his widow through the financial mess he left behind.
Now, my friend was an extremely intelligent man and very capable in many ways. But he did not have things "under control". Now, his widow will have to spend thousands of dollars in attorney fees, put his estate through probate, and lose almost 1/3 of the assets they worked so hard to accumulate. His widow is learning through my friend's mistakes that if you do not have an estate plan, the State will determine who gets your assets, not you.
Following is an overview of the ways one may transfer assets upon his or her death, discussing the risks and rewards of each method. We will also discuss the estate planning tools that are available to you to avoid the risks associated with each transfer method.
What Happens to My Stuff if I Die With or Without a Will?
No matter how many times you tell your spouse that you want "Johnny" to get your Ford Motor stock, your survivors will not decide who gets your assets upon your death unless you complete some basic estate planning. Those who die without a Will or who do not title assets such that they pass to a designee by operation of law or under the terms of a contract (discussed below), allow the State to determine who will receive their assets upon death. Assets that are not titled to provide for transfer at death may only be transferred by court order.
Unfortunately, those court proceedings are expensive. It is estimated that the average cost of these types of court proceedings is $10,000. Compared to the cost of simple estate planning devices, this is a great expense and is very avoidable. Having a Will does not even protect you from having to go to court, however. A Will is nothing more than directions to a judge saying. "Dear Judge: I do not want my assets to pass according to statute. Instead, I want them to pass as follows . . .." In other words, a Will virtually GUARANTEES that your loved one will have to go to court and spend attorney fees. There has to be a better and less expensive way, right? Read on.
How Can I Make Sure my Assets Pass by Operation of Law?
Some forms of ownership of an asset declare legally who will receive the asset upon your demise. Owning property in joint tenancy, as community property with right of survivorship, or designating that assets are held for the benefit of, payable on death to, or to be transferred on death to a designee are recognized in the law as valid ways to transfer ownership of an asset upon your death.
While these methods are fairly easy and cost-effective, people usually get into trouble when they THINK they have made these designations, but have not. My friend "forgot" to title cemetery lots and to designate a beneficiary on a bank account and stocks even though he thought he had everything "under control".
How Can Contracts Help me Pass Assets on my Death?
You can designate by contract that upon your death, certain assets pass to your designee. These contracts include life insurance policies, partnership agreements, shareholder agreements for closely help corporations, trusts, retirement benefits, stocks, etc.
How Can an Estate Plan Help?
A proper estate plan can help to make sure your assets pass to those you intend to receive them. It can ensure that your dependents are cared for both financially and physically (especially for minors). An estate plan can also help reduce taxes and attorney fees and keep your loved ones from having to go to court. The cost of a simple estate plan is a fraction of the average cost of going to probate court.
Many people think that a Trust is only for rich people. They would be wrong.
A Living Trust is a tool that should be utilized by anyone over 18 years old who has children and/or real property. When properly formed and funded, a Trust replaces a Will and will provide for the management and distribution of your assets upon your death without having to go to probate court. During your lifetime, you have complete control over your assets, even though you would place all assets (homes, bank accounts, stocks, etc.) into the Trust (meaning the Trust is the owner of the assets). You will need to designate a successor trustee, whose job it will be to transfer the property in your Trust according to your written desires. A Trust can be changed as often as you like after it is formed. When you die, your successor trustee will simply follow your directions and may transfer your assets without having to go to court or incur those attorney fees.
Of course, there are other estate planning tools that we recommend along with a Trust. Those include a Living Will (directive to doctors whether you desire life support, etc.), a Pour-Over Will, Power of Attorney, and others depending on the scope of your needs and amount of your assets.
How Can I Get Started Protecting my Family?
Call 702.821.2419 for a free consultation with one of Marquis & Aurbach's excellent estate planning attorneys. They can meet with you and explain how to best protect your family (every situation is unique and your estate plan should be designed just for you). Whether you make any changes is up to you, but let them help educate you on whether your family is at risk and how you can avoid that risk. www.marquisaurbach.com
Yours, Ike
WHAT HAPPENS TO MY STUFF WHEN I DIE?
I tried for 15 years to get my friend to do some basic Estate Planning. He assured me he didn't need my help, and that he had everything "under control" without spending money on an attorney to do a Will and a Trust. My friend died last month and I am now trying to help his widow through the financial mess he left behind.
Now, my friend was an extremely intelligent man and very capable in many ways. But he did not have things "under control". Now, his widow will have to spend thousands of dollars in attorney fees, put his estate through probate, and lose almost 1/3 of the assets they worked so hard to accumulate. His widow is learning through my friend's mistakes that if you do not have an estate plan, the State will determine who gets your assets, not you.
Following is an overview of the ways one may transfer assets upon his or her death, discussing the risks and rewards of each method. We will also discuss the estate planning tools that are available to you to avoid the risks associated with each transfer method.
What Happens to My Stuff if I Die With or Without a Will?
No matter how many times you tell your spouse that you want "Johnny" to get your Ford Motor stock, your survivors will not decide who gets your assets upon your death unless you complete some basic estate planning. Those who die without a Will or who do not title assets such that they pass to a designee by operation of law or under the terms of a contract (discussed below), allow the State to determine who will receive their assets upon death. Assets that are not titled to provide for transfer at death may only be transferred by court order.
Unfortunately, those court proceedings are expensive. It is estimated that the average cost of these types of court proceedings is $10,000. Compared to the cost of simple estate planning devices, this is a great expense and is very avoidable. Having a Will does not even protect you from having to go to court, however. A Will is nothing more than directions to a judge saying. "Dear Judge: I do not want my assets to pass according to statute. Instead, I want them to pass as follows . . .." In other words, a Will virtually GUARANTEES that your loved one will have to go to court and spend attorney fees. There has to be a better and less expensive way, right? Read on.
How Can I Make Sure my Assets Pass by Operation of Law?
Some forms of ownership of an asset declare legally who will receive the asset upon your demise. Owning property in joint tenancy, as community property with right of survivorship, or designating that assets are held for the benefit of, payable on death to, or to be transferred on death to a designee are recognized in the law as valid ways to transfer ownership of an asset upon your death.
While these methods are fairly easy and cost-effective, people usually get into trouble when they THINK they have made these designations, but have not. My friend "forgot" to title cemetery lots and to designate a beneficiary on a bank account and stocks even though he thought he had everything "under control".
How Can Contracts Help me Pass Assets on my Death?
You can designate by contract that upon your death, certain assets pass to your designee. These contracts include life insurance policies, partnership agreements, shareholder agreements for closely help corporations, trusts, retirement benefits, stocks, etc.
How Can an Estate Plan Help?
A proper estate plan can help to make sure your assets pass to those you intend to receive them. It can ensure that your dependents are cared for both financially and physically (especially for minors). An estate plan can also help reduce taxes and attorney fees and keep your loved ones from having to go to court. The cost of a simple estate plan is a fraction of the average cost of going to probate court.
Many people think that a Trust is only for rich people. They would be wrong.
A Living Trust is a tool that should be utilized by anyone over 18 years old who has children and/or real property. When properly formed and funded, a Trust replaces a Will and will provide for the management and distribution of your assets upon your death without having to go to probate court. During your lifetime, you have complete control over your assets, even though you would place all assets (homes, bank accounts, stocks, etc.) into the Trust (meaning the Trust is the owner of the assets). You will need to designate a successor trustee, whose job it will be to transfer the property in your Trust according to your written desires. A Trust can be changed as often as you like after it is formed. When you die, your successor trustee will simply follow your directions and may transfer your assets without having to go to court or incur those attorney fees.
Of course, there are other estate planning tools that we recommend along with a Trust. Those include a Living Will (directive to doctors whether you desire life support, etc.), a Pour-Over Will, Power of Attorney, and others depending on the scope of your needs and amount of your assets.
How Can I Get Started Protecting my Family?
Call 702.821.2419 for a free consultation with one of Marquis & Aurbach's excellent estate planning attorneys. They can meet with you and explain how to best protect your family (every situation is unique and your estate plan should be designed just for you). Whether you make any changes is up to you, but let them help educate you on whether your family is at risk and how you can avoid that risk. www.marquisaurbach.com
Monday, February 1, 2010
Federal Estate Tax for 2010 - What you must KNOW and DO
What you need to know: The Congressional debate on estate tax legislation has been put on pause during its recess, allowing current legislation that repeals the federal estate and generation-skipping transfer taxes to take effect.
What you need to do: Individuals should determine whether these changes will affect their estate planning and stay abreast of the situation in Congress once discussion resumes.
See all the details and the full article from LEXOLOGY here: http://tinyurl.com/yejuhze
What you need to do: Individuals should determine whether these changes will affect their estate planning and stay abreast of the situation in Congress once discussion resumes.
See all the details and the full article from LEXOLOGY here: http://tinyurl.com/yejuhze
Thursday, January 28, 2010
Life insurance proceeds received by limited partnership not included in gross estate of insured limited partner
In Private Letter Rulings 200947006 & 200948001, the IRS considered whether a series of transactions among a partnership, corporations and trusts which altered the ownership and beneficiary designations of two life insurance policies required inclusion of the policies in the insured's estate.
See the Whole Article here: http://tinyurl.com/y865vlp
See the Whole Article here: http://tinyurl.com/y865vlp
Thursday, December 17, 2009
Estate Tax to Temporarily Expire Until Next Year - Now the Really Bad News
Given the depressed value of many real estate and investment portfolios, there has never been a more tax efficient and advantageous time to implement the right kind of estate planning, start transferring assets at their current value and improve and tune up the life insurance components of your planning, here's why:
The 45 percent tax on estates of over $3.5 million for individuals, or $7 million per couple, is scheduled to expire on Dec. 31, 2009, only to return in 2011 at a 55 percent rate for all estates of over $1 million. During 2010, estates would be taxed at the capital gains rate of 15 to 28 percent when heirs sell off more than $1.3 million in inherited assets.
Call us for help in making sure that 55% of your life's work is not lost to a system that is VOLUNTARY - that's right, I said ESTATE TAX IS VOLUNTARY. Why? Because the law allows you to structure, transfer and insure you way to ZERO estate tax liability if you are willing to put a small amount of time, money and effort into it.
See the whole story here: http://www.webcpa.com/news/Estate-Tax-Temporarily-Expire-Until-Next-Year-52743-1.html?ET=webcpa:e623:134343a:&st=email
Yours, Ike
The 45 percent tax on estates of over $3.5 million for individuals, or $7 million per couple, is scheduled to expire on Dec. 31, 2009, only to return in 2011 at a 55 percent rate for all estates of over $1 million. During 2010, estates would be taxed at the capital gains rate of 15 to 28 percent when heirs sell off more than $1.3 million in inherited assets.
Call us for help in making sure that 55% of your life's work is not lost to a system that is VOLUNTARY - that's right, I said ESTATE TAX IS VOLUNTARY. Why? Because the law allows you to structure, transfer and insure you way to ZERO estate tax liability if you are willing to put a small amount of time, money and effort into it.
See the whole story here: http://www.webcpa.com/news/Estate-Tax-Temporarily-Expire-Until-Next-Year-52743-1.html?ET=webcpa:e623:134343a:&st=email
Yours, Ike
Monday, October 19, 2009
Ike Devji's Article Featured Nationally on Financial Advisor Match
The Article: Creditor Protected Cash Alternative and Wealth Multiplier?
Was picked and published on FinancialAdvisorMatch.Com as of this AM.
Click here to see the article in full :http://www.financialadvisormatch.com/community/articles/1253_creditor_protected_cash_alternative_and_wealth_multiplier_.html
Was picked and published on FinancialAdvisorMatch.Com as of this AM.
Click here to see the article in full :http://www.financialadvisormatch.com/community/articles/1253_creditor_protected_cash_alternative_and_wealth_multiplier_.html
Monday, August 17, 2009
LONG TERM CARE INSURANCE - CAN YOU AFFORD NOT HAVE IT?
10 Vital Points to consider about your LONG TERM CARE INSURANCE
As an Asset Protection attorney ANY avoidable source of loss, risk or exposure to my clients is unacceptable. One often overlooked area is the possibility that you or a loved one may need long term care as a result of age, illness or accidents. In cases where such care is required, the financial effects can be devastating even to the most affluent clients and are a needless expense that can be avoided.
For help in this area I turned to an expert, Dr. Jonathan Smith, M.D. a medical specialist who knows what this care costs and who now provides education and coverage to clients and advisors all over the U.S. on this easily addressed but potentially serious exposure. He shares important thoughts on this issues with us below. The insurance part is good enough, but some options are also both creditor protected AND have a return of premium guarantee if you never need it. Interestingly, even DOCTORS (who know better) often neglect this area of their own planning.
Here are Dr. Smith's points, they are tough to argue with...
1. The successes of medical science and the Medical Profession have helped people to live longer, but not necessarily healthier.
2. Women live longer than men.
3. The Federal Government says "at least 70% of the people over age 65 will require some form of Long Term Care services at some point in their lives". (1)
4. The Term Long Term Care services is applied to any 1 of 3 levels of services a person receives when that person fails to perform at least two of the six Activities of Daily Living (ADL), or is mentally incompetent.The ADLs are:
A - ambulating, walking around
B - bathing oneself
C - continence; continent of urine and/or stool
D - dressing
E – eating; feeding oneself
T - transferring; moving between bed and chair, etc
5. The inability to perform the ADLs may occur at any age.Example: as a result of a severe automobile accident, a person is left unable to walk (Ambulating). Toileting and Bathing are accompanying failures. As a result, who is going to move that person to a toilet each time there is a need to urinate?Or shall that person be left to soil him/herself?
6. The cost of care can be CATASTROPHICALLY EXPENSIVE.
Example: When the minimum wage in California is $8.00 per hour for UNSKILLED help, the cost for labor for home-help is $192.00 per day, and, if paid from a tax-deferred account, is nearly $120,000.00 per year! (assuming an overall tax rate of 40%)
7. Medicare and private health insurance programs do NOT pay for the majority of long term care services. (1)
8. Successful business owners have a special tax advantage when it comes to protecting earned assets from the aforementioned real and crippling financial losses.
9. Successful business owners can own PEACE OF MIND for themselves and their dependents, thus sparing each other the effects of the potentially devastating financial losses.
10. The successful business owner can experience the DIGNITY of receiving care at home, instead of 'spending down assets' to be eligible to be admitted to a Medicaid facility. He still has the ability to leave a LEGACY with the premium payment money returned upon his death.
It comes as a surprise to many that there is an insurance policy that has been around since HIPAA (1997) which specified Long Term Care Insurance as "A Health Benefit" in the tax code. (HIPAA LEGISLATION PUBLIC LAW 104-191 AUGUST 21, 1996 IRC Sec. 7702B)
Such a product is QUALIFIED LONG TERM CARE INSURANCE with CONTRACTUALLY-GUARANTEED FULL REFUND OF ALL PREMIUMS PAID with no reduction in the refund for benefits paid.
HOW DOES IT WORK? Money is paid to the the Insurance Company; the amount is enough to buy the Peace of Mind, the Dignity of the Insured and/or his family, and the size of intended Legacy.
The premium payment may be partially tax deductible, or completely tax deductible, if paid as a benefit to employees in a C corp,{IRC Sec. 162(a) and Regulations.162-10; IRC Sec. 162(a) and ISP Coordination Paper UIL 162.35-02; IRC Sec. 7702B(a)(3) IRC Sec. 7702B(a)(1)}: and is ERISA independent (ERISA: 29 USC 1191b IRC Sec. 1167; Not subject to ERISA) (please consult your tax attorney/ accountant we never provide specific tax advice in a setting like this).
Long term care Insurance is 'purchased' for a level of benefits, and upon death of the insured, the insurance company contractually guarantees to refund all premiums paid (and this is a nontaxable event!{IRC Sec. 7702B(b)2(C)(1)(E)}
As of January 1,2010, PPA (2006) suggests a 1035 exchange from a qualified plan to Qualified Long Term Care Insurance (PENSION PROTECTION ACT PUBLIC LAW 109-280 AUGUST 17, 2006, SECTION 844)
(Sec. 844) Excludes from gross income any charge against the cash value of an annuity contract or the cash surrender value of a life insurance contract made as payment for coverage under a qualified long-term care insurance contract which is part of or a rider on such annuity or life insurance contract if the investment in the contract is reduced (but not below zero).
Requires an individual excluding such charges from gross income to file a return with the Secretary of the Treasury. (http://thomas.loc.gov/cgi-bin/bdquery/z?d109:HR00004:)
I recommend anyone interested consult a specialist; use these references for guidance:
(1). http://www.longtermcare.gov
(2) www.aarp.org/families/caregiving/state_ltc_costs.html
(3) www.dhcs.ca.gov/services/ltc/Pages/ConsAWordfromtheDirector.aspx.
About guest author Jonathan Smith, M.D.
More than a quarter century in Anesthesia practice (monitoring of people’s health, managing their risks and protecting them from death), made me aware of the financial burden on people living longer, but not necessarily healthier. I saw the need for Guaranteed Full Refund of Premium Long Term Care Insurance as a way to protect Earned Assets from the often debilitating losses to long term care, while preserving Dignity by affording home care; and capital for a Legacy. I own such a policy and advocate the concept. Clients and advisors can reach me directly at jonathan.smithmd@gmail.com for help.
As an Asset Protection attorney ANY avoidable source of loss, risk or exposure to my clients is unacceptable. One often overlooked area is the possibility that you or a loved one may need long term care as a result of age, illness or accidents. In cases where such care is required, the financial effects can be devastating even to the most affluent clients and are a needless expense that can be avoided.
For help in this area I turned to an expert, Dr. Jonathan Smith, M.D. a medical specialist who knows what this care costs and who now provides education and coverage to clients and advisors all over the U.S. on this easily addressed but potentially serious exposure. He shares important thoughts on this issues with us below. The insurance part is good enough, but some options are also both creditor protected AND have a return of premium guarantee if you never need it. Interestingly, even DOCTORS (who know better) often neglect this area of their own planning.
Here are Dr. Smith's points, they are tough to argue with...
1. The successes of medical science and the Medical Profession have helped people to live longer, but not necessarily healthier.
2. Women live longer than men.
3. The Federal Government says "at least 70% of the people over age 65 will require some form of Long Term Care services at some point in their lives". (1)
4. The Term Long Term Care services is applied to any 1 of 3 levels of services a person receives when that person fails to perform at least two of the six Activities of Daily Living (ADL), or is mentally incompetent.The ADLs are:
A - ambulating, walking around
B - bathing oneself
C - continence; continent of urine and/or stool
D - dressing
E – eating; feeding oneself
T - transferring; moving between bed and chair, etc
5. The inability to perform the ADLs may occur at any age.Example: as a result of a severe automobile accident, a person is left unable to walk (Ambulating). Toileting and Bathing are accompanying failures. As a result, who is going to move that person to a toilet each time there is a need to urinate?Or shall that person be left to soil him/herself?
6. The cost of care can be CATASTROPHICALLY EXPENSIVE.
Example: When the minimum wage in California is $8.00 per hour for UNSKILLED help, the cost for labor for home-help is $192.00 per day, and, if paid from a tax-deferred account, is nearly $120,000.00 per year! (assuming an overall tax rate of 40%)
7. Medicare and private health insurance programs do NOT pay for the majority of long term care services. (1)
8. Successful business owners have a special tax advantage when it comes to protecting earned assets from the aforementioned real and crippling financial losses.
9. Successful business owners can own PEACE OF MIND for themselves and their dependents, thus sparing each other the effects of the potentially devastating financial losses.
10. The successful business owner can experience the DIGNITY of receiving care at home, instead of 'spending down assets' to be eligible to be admitted to a Medicaid facility. He still has the ability to leave a LEGACY with the premium payment money returned upon his death.
It comes as a surprise to many that there is an insurance policy that has been around since HIPAA (1997) which specified Long Term Care Insurance as "A Health Benefit" in the tax code. (HIPAA LEGISLATION PUBLIC LAW 104-191 AUGUST 21, 1996 IRC Sec. 7702B)
Such a product is QUALIFIED LONG TERM CARE INSURANCE with CONTRACTUALLY-GUARANTEED FULL REFUND OF ALL PREMIUMS PAID with no reduction in the refund for benefits paid.
HOW DOES IT WORK? Money is paid to the the Insurance Company; the amount is enough to buy the Peace of Mind, the Dignity of the Insured and/or his family, and the size of intended Legacy.
The premium payment may be partially tax deductible, or completely tax deductible, if paid as a benefit to employees in a C corp,{IRC Sec. 162(a) and Regulations.162-10; IRC Sec. 162(a) and ISP Coordination Paper UIL 162.35-02; IRC Sec. 7702B(a)(3) IRC Sec. 7702B(a)(1)}: and is ERISA independent (ERISA: 29 USC 1191b IRC Sec. 1167; Not subject to ERISA) (please consult your tax attorney/ accountant we never provide specific tax advice in a setting like this).
Long term care Insurance is 'purchased' for a level of benefits, and upon death of the insured, the insurance company contractually guarantees to refund all premiums paid (and this is a nontaxable event!{IRC Sec. 7702B(b)2(C)(1)(E)}
As of January 1,2010, PPA (2006) suggests a 1035 exchange from a qualified plan to Qualified Long Term Care Insurance (PENSION PROTECTION ACT PUBLIC LAW 109-280 AUGUST 17, 2006, SECTION 844)
(Sec. 844) Excludes from gross income any charge against the cash value of an annuity contract or the cash surrender value of a life insurance contract made as payment for coverage under a qualified long-term care insurance contract which is part of or a rider on such annuity or life insurance contract if the investment in the contract is reduced (but not below zero).
Requires an individual excluding such charges from gross income to file a return with the Secretary of the Treasury. (http://thomas.loc.gov/cgi-bin/bdquery/z?d109:HR00004:)
I recommend anyone interested consult a specialist; use these references for guidance:
(1). http://www.longtermcare.gov
(2) www.aarp.org/families/caregiving/state_ltc_costs.html
(3) www.dhcs.ca.gov/services/ltc/Pages/ConsAWordfromtheDirector.aspx.
About guest author Jonathan Smith, M.D.
More than a quarter century in Anesthesia practice (monitoring of people’s health, managing their risks and protecting them from death), made me aware of the financial burden on people living longer, but not necessarily healthier. I saw the need for Guaranteed Full Refund of Premium Long Term Care Insurance as a way to protect Earned Assets from the often debilitating losses to long term care, while preserving Dignity by affording home care; and capital for a Legacy. I own such a policy and advocate the concept. Clients and advisors can reach me directly at jonathan.smithmd@gmail.com for help.
Wednesday, August 5, 2009
19 TIPS FOR MANAGING YOUR LIMITED PARTNERSHIP SAFELY AND EFFECTIVELY
© 2009 Ike Z. Devji, J.D.
One common and well placed tool for estate planning and Asset Protection is known as a “Limited Partnership”, also commonly called an Asset Management Limited Partnership or Family Limited Partnership (LP).
The tool is one part of a set of tools that forms an individually tailored system. The LP IS NOT a miracle cure that can answer all your problems and hold any kind of asset you care to stuff into it, contrary to what you might read on the websites of amateurs and Nevada LLC and LP mills that are not staffed by attorneys and which are rarely drafted for a particular purpose like ours are. Remember, there is no one size fits all plan in Asset Protection. Every plan must be tailored to your unique assets, exposures and business needs.
Below are some simple tips for managing your LP, safely, legally and effectively. The LP was created for you as an Asset Protection and Estate Planning vehicle and is officially in the business of “managing your assets and investments” and must act like it to attain the full benefit and protection of the law.
The tool itself, like all of the best Asset Protection tools, is tax neutral. While this planning has incidental tax and estate reduction benefits, we suggest that our clients tread lightly in those areas, and utilize the services of appropriate tax, accounting and legal experts when making decisions regarding these benefits.
1. Make sure that assets transferred into the LP are properly re-titled to reflect the LP’s ownership. Your interest in real estate (properly insulated in an LLC); personal property (transferred through a bill of sale) and marketable securities should be properly transferred to the LP and recorded as soon as possible so that the LP will be the proper titleholder when income is received from these assets. Records of all such transfers should be maintained with your LP records.
2. Risky assets should NEVER be put directly into your LP. They should be safety wrapped in LLCs or other vehicles so that real property liability is one arm’s length removed from the LP itself, this includes raw land. Safe assets, on the other hand, may be directly titled in the name of the LP. Examples of safe assets include stocks, bonds, securities CDs and money market accounts, to name a few.
3. Maintain comprehensive business records. All business receipts should be deposited into the LP account and all LP expenses should be paid from it. Make sure that all federal and state income tax returns are timely filed and accurately prepared. If possible, a monthly accounting of all partnership income and expenses should be maintained.
4. Separate tax returns are not always required for your LP. You may not need to file a separate tax return for your LP. For instance in Arizona, unless you have income that was generated within the state of Arizona they don’t want a tax return. Our client’s LP papers include a letter from the Arizona Department of Revenue to this effect, advise your accountant accordingly and always check with your attorney and/or CPA for specific tax advice – which I am NOT providing here.
5. Assets required for living expenses should remain outside the LP. Those assets necessary for your daily living expenses should be kept outside the LP so that it does not create the appearance that the LP is merely a personal account holding any given partner’s personal assets. If a major contributing partner finds it necessary to dip into the LP due to the nature and level of their contributions, it may lead to a direct piercing by either a judgment creditor of the LP, by a reverse piercing of the LP veil by a judgment creditor of that partner(s), or even by the IRS at the time of that partner’s death.
6. Refrain from co-mingling partnership and personal funds. Once the partnership has been fully formed, and an EIN (tax number) obtained, the LP should establish a separate Money Market account/ and or investment account.
7. Do not have the LP pay personal expenses directly. Instead, make a formal pro-rata distribution from the partnership to all partners if you need to withdraw cash from it. Then use the distribution to pay for the expense.
8. When possible, avoid “non-pro-rata” distributions to any one partner. Instead, make a proportionate distribution to all partners based on their percentage of ownership. These kind of distributions are better structured as a "loan" secured by a note with interest back to the partnership.
9. Consider having each partner make a capital contribution to the LP upon formation. This supports the idea and reality of the LP being a joint enterprise to which all partners have contributed.
10. Operate the LP in accordance with the terms of the partnership agreement. If this proves to impractical or if the LP’s needs change, amend the partnership agreement to accommodate the changes required in the LP’s operation in order to avoid an administrative dissolution of the LP.
11. Make sure that the LP should comply with all organization and filing requirements and other formalities requited by state law. This will help ensure that your LP maintains all required records and will help avoid any proposed administrative dissolution. Strict adherence to all sate law requirements is necessary to meet the stringent scrutiny of the IRS. In your case, you can be assured the LP was properly formed if created for you by us.
12. Do not transfer personal (non-business) assets into your LP. Your LP must have a valid business purpose, in the case of such partnerships we create the business purpose is the management of your assets and investments. The FATAL flaw of transferring non-income producing assets, such as your personal residence, furniture, and personal automobiles creates the appearance that the LP is being used for personal, as opposed to business purposes. More importantly, it carries the liability that each of those items may carry into the LP, defeating the essential purpose for which it was created.
13. Transfer business and income producing assets into the partnership. In addition to stocks and bonds your LP may hold your interest in income producing real-estate (if properly insulated in one or more LLC’s), personally owned office and business equipment, and any equipment necessary to operate a lab, records business or related enterprise. If any of these items are capable of generating liability they too should be isolated in an LLC, and that interest assigned to the LP, as you would with real-estate. Having your LP engage in multiple revenue generating and asset holding activities (i.e. real estate and equipment leasing, stock portfolio management) helps support the fact that this is a valid business that is a legitimate arms length joint enterprise.
14. Use the expertise of investment advisors to find safe growth vehicles for your investments. For instance, a combination of dividend paying stocks and interest bearing bonds could generate immediate, steady, and relatively determinable income that will both increase the value of your assets and prove the fact that the LP is indeed a for-profit business entity as opposed to a mere holding vehicle.
15. Do not transfer assets required to meet your fixed daily living expenses into the LP. Such items would include your personal revolving checking account; this is akin to co-mingling funds. If a court were to find that these assets were required or were used to meet your daily expenses it could include them in your estate thereby weakening the strength of your LP.
16. Make your LP act like a separate business entity. You can get cards and stationery in the name of the LP to help establish a business identity for the LP separate and apart from yourself. More importantly, the partnership should hold an annual meeting and should maintain the minutes of those meetings. In the case of LP’s created and maintained for you by us, we include that service. This is an important reason to schedule and follow-through with your “Annual Review” with a member of our firm. Upon the completion of your review the firm will re-assess the planning we have in place for you, recommend any changes or additions necessary, and generate meeting minutes that you may add to your LP’s records.
17. Memorialize lease agreements in writing. All real estate and equipment held by the LP (through an LLC) should have leases drawn up which are supported by billing invoices to the lessee (usually yourself or the business you own). This both supports the valid business purpose of the LP, the write-offs you may choose to claim (consult your accountant) for payments to the LP for such leases, and makes your accounting process much clearer.
18. File any required gift tax returns in a timely manner. While the planning we create is tax neutral, it does have incidental tax benefits and implications, including those pertaining to “gifting”, the transfer of a portion of your interest in the LP to a family member or other beneficiary. Should you choose to avail of these benefits, please do so with the guidance of a professional accountant familiar with such a process. A federal gift tax return utilizing IRS FORM 709 should be filed with your personal tax returns. Even if no tax is actually owed, the filing of such a return with full and proper disclosures may be of benefit, as it starts a 3-year statute of limitations, after which the IRS is precluded from challenging the valuation and assignment of said gifts.
19. Qualified tax and pension plans, such as IRA’s, should not go into your LP. These types of assets are usually referred to as “qualified plans or accounts” and often have tax benefits that will be negated by changing title away from yourself. Perhaps more importantly, this transfer will destroy the well established stautory protecetion those types of accounts and plans have in place by law.
This is meant to be a helpful introduction, the uses and benefits of the LP go far beyond what I have covered here. As always, call or email with specific questions or to see if this tool should be part of your personal planning.
CIRCULAR 230 NOTICE: To comply with U.S. Treasury Department and IRS regulations, we are required to advise you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this article, including is not intended or written to be used, and cannot be used, by any person for the purpose of (1) avoiding penalties under the U.S. Internal Revenue Code or (2) promoting, marketing, or recommending to another party any transaction or matter addressed in this e-mail or attachment. ALWAYS GET PROFESSIONAL TAX ADVICE.
One common and well placed tool for estate planning and Asset Protection is known as a “Limited Partnership”, also commonly called an Asset Management Limited Partnership or Family Limited Partnership (LP).
The tool is one part of a set of tools that forms an individually tailored system. The LP IS NOT a miracle cure that can answer all your problems and hold any kind of asset you care to stuff into it, contrary to what you might read on the websites of amateurs and Nevada LLC and LP mills that are not staffed by attorneys and which are rarely drafted for a particular purpose like ours are. Remember, there is no one size fits all plan in Asset Protection. Every plan must be tailored to your unique assets, exposures and business needs.
Below are some simple tips for managing your LP, safely, legally and effectively. The LP was created for you as an Asset Protection and Estate Planning vehicle and is officially in the business of “managing your assets and investments” and must act like it to attain the full benefit and protection of the law.
The tool itself, like all of the best Asset Protection tools, is tax neutral. While this planning has incidental tax and estate reduction benefits, we suggest that our clients tread lightly in those areas, and utilize the services of appropriate tax, accounting and legal experts when making decisions regarding these benefits.
1. Make sure that assets transferred into the LP are properly re-titled to reflect the LP’s ownership. Your interest in real estate (properly insulated in an LLC); personal property (transferred through a bill of sale) and marketable securities should be properly transferred to the LP and recorded as soon as possible so that the LP will be the proper titleholder when income is received from these assets. Records of all such transfers should be maintained with your LP records.
2. Risky assets should NEVER be put directly into your LP. They should be safety wrapped in LLCs or other vehicles so that real property liability is one arm’s length removed from the LP itself, this includes raw land. Safe assets, on the other hand, may be directly titled in the name of the LP. Examples of safe assets include stocks, bonds, securities CDs and money market accounts, to name a few.
3. Maintain comprehensive business records. All business receipts should be deposited into the LP account and all LP expenses should be paid from it. Make sure that all federal and state income tax returns are timely filed and accurately prepared. If possible, a monthly accounting of all partnership income and expenses should be maintained.
4. Separate tax returns are not always required for your LP. You may not need to file a separate tax return for your LP. For instance in Arizona, unless you have income that was generated within the state of Arizona they don’t want a tax return. Our client’s LP papers include a letter from the Arizona Department of Revenue to this effect, advise your accountant accordingly and always check with your attorney and/or CPA for specific tax advice – which I am NOT providing here.
5. Assets required for living expenses should remain outside the LP. Those assets necessary for your daily living expenses should be kept outside the LP so that it does not create the appearance that the LP is merely a personal account holding any given partner’s personal assets. If a major contributing partner finds it necessary to dip into the LP due to the nature and level of their contributions, it may lead to a direct piercing by either a judgment creditor of the LP, by a reverse piercing of the LP veil by a judgment creditor of that partner(s), or even by the IRS at the time of that partner’s death.
6. Refrain from co-mingling partnership and personal funds. Once the partnership has been fully formed, and an EIN (tax number) obtained, the LP should establish a separate Money Market account/ and or investment account.
7. Do not have the LP pay personal expenses directly. Instead, make a formal pro-rata distribution from the partnership to all partners if you need to withdraw cash from it. Then use the distribution to pay for the expense.
8. When possible, avoid “non-pro-rata” distributions to any one partner. Instead, make a proportionate distribution to all partners based on their percentage of ownership. These kind of distributions are better structured as a "loan" secured by a note with interest back to the partnership.
9. Consider having each partner make a capital contribution to the LP upon formation. This supports the idea and reality of the LP being a joint enterprise to which all partners have contributed.
10. Operate the LP in accordance with the terms of the partnership agreement. If this proves to impractical or if the LP’s needs change, amend the partnership agreement to accommodate the changes required in the LP’s operation in order to avoid an administrative dissolution of the LP.
11. Make sure that the LP should comply with all organization and filing requirements and other formalities requited by state law. This will help ensure that your LP maintains all required records and will help avoid any proposed administrative dissolution. Strict adherence to all sate law requirements is necessary to meet the stringent scrutiny of the IRS. In your case, you can be assured the LP was properly formed if created for you by us.
12. Do not transfer personal (non-business) assets into your LP. Your LP must have a valid business purpose, in the case of such partnerships we create the business purpose is the management of your assets and investments. The FATAL flaw of transferring non-income producing assets, such as your personal residence, furniture, and personal automobiles creates the appearance that the LP is being used for personal, as opposed to business purposes. More importantly, it carries the liability that each of those items may carry into the LP, defeating the essential purpose for which it was created.
13. Transfer business and income producing assets into the partnership. In addition to stocks and bonds your LP may hold your interest in income producing real-estate (if properly insulated in one or more LLC’s), personally owned office and business equipment, and any equipment necessary to operate a lab, records business or related enterprise. If any of these items are capable of generating liability they too should be isolated in an LLC, and that interest assigned to the LP, as you would with real-estate. Having your LP engage in multiple revenue generating and asset holding activities (i.e. real estate and equipment leasing, stock portfolio management) helps support the fact that this is a valid business that is a legitimate arms length joint enterprise.
14. Use the expertise of investment advisors to find safe growth vehicles for your investments. For instance, a combination of dividend paying stocks and interest bearing bonds could generate immediate, steady, and relatively determinable income that will both increase the value of your assets and prove the fact that the LP is indeed a for-profit business entity as opposed to a mere holding vehicle.
15. Do not transfer assets required to meet your fixed daily living expenses into the LP. Such items would include your personal revolving checking account; this is akin to co-mingling funds. If a court were to find that these assets were required or were used to meet your daily expenses it could include them in your estate thereby weakening the strength of your LP.
16. Make your LP act like a separate business entity. You can get cards and stationery in the name of the LP to help establish a business identity for the LP separate and apart from yourself. More importantly, the partnership should hold an annual meeting and should maintain the minutes of those meetings. In the case of LP’s created and maintained for you by us, we include that service. This is an important reason to schedule and follow-through with your “Annual Review” with a member of our firm. Upon the completion of your review the firm will re-assess the planning we have in place for you, recommend any changes or additions necessary, and generate meeting minutes that you may add to your LP’s records.
17. Memorialize lease agreements in writing. All real estate and equipment held by the LP (through an LLC) should have leases drawn up which are supported by billing invoices to the lessee (usually yourself or the business you own). This both supports the valid business purpose of the LP, the write-offs you may choose to claim (consult your accountant) for payments to the LP for such leases, and makes your accounting process much clearer.
18. File any required gift tax returns in a timely manner. While the planning we create is tax neutral, it does have incidental tax benefits and implications, including those pertaining to “gifting”, the transfer of a portion of your interest in the LP to a family member or other beneficiary. Should you choose to avail of these benefits, please do so with the guidance of a professional accountant familiar with such a process. A federal gift tax return utilizing IRS FORM 709 should be filed with your personal tax returns. Even if no tax is actually owed, the filing of such a return with full and proper disclosures may be of benefit, as it starts a 3-year statute of limitations, after which the IRS is precluded from challenging the valuation and assignment of said gifts.
19. Qualified tax and pension plans, such as IRA’s, should not go into your LP. These types of assets are usually referred to as “qualified plans or accounts” and often have tax benefits that will be negated by changing title away from yourself. Perhaps more importantly, this transfer will destroy the well established stautory protecetion those types of accounts and plans have in place by law.
This is meant to be a helpful introduction, the uses and benefits of the LP go far beyond what I have covered here. As always, call or email with specific questions or to see if this tool should be part of your personal planning.
CIRCULAR 230 NOTICE: To comply with U.S. Treasury Department and IRS regulations, we are required to advise you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this article, including is not intended or written to be used, and cannot be used, by any person for the purpose of (1) avoiding penalties under the U.S. Internal Revenue Code or (2) promoting, marketing, or recommending to another party any transaction or matter addressed in this e-mail or attachment. ALWAYS GET PROFESSIONAL TAX ADVICE.
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