Controlling Assets After Death: The Perpetual Trust
April 17, 2013
In the 17th century, the Duke of Norfolk attempted to maintain power long after his death by drafting an estate plan that passed his titles down to his heirs for countless generations. Not long after his death, however, the House of Lords tore up his will. In doing so, they created the notion that it would be too difficult to allow a person to control property beyond the lives of those who are currently living.
Regardless of this notion, people are still attempting to create estate plans that allow them to maintain control from the grave. One popular tool through which people attempt to achieve this result is the perpetual trust. Perpetual trusts are legal in 29 states; New York may soon become the 30th. As their name suggests, it is unclear how long a perpetual trust may actually last.
According to estate lawyer Kathleen Scallan, “It’s all the rage right now . . . Clients are attracted to the idea of leaving a lasting family legacy.” Scallan notes that clients like perpetuity trusts not only because they can exist for long periods, but also because they allow clients to shield trust assets from creditors and taxation, potentially forever.
When Asset Protection Plans Are Too Late
March 13, 2013
As a recent article in Forbes explains, there is often little that can be done to assist those who seek out asset protection planning after a claim has already been levied against them. Most often, this occurs when a person who has previously signed a personal guarantee is worried that the guarantee will be called. Other common situations that promote last minute asset protection planning include automobile accidents or malpractice claims.
Unfortunately, many of these people cannot be helped. This is due to fraudulent transfer laws, which prevent people from protecting assets after a claim is entered against them. Moreover, fraudulent transfer laws are based on “claims” rather than actual lawsuits. Essentially, claim for the purposes of the Uniform Fraudulent Transfer Act (“UFTA”) is anything that gives rise to liability. This means that the claim does not have to mature into a demand letter or lawsuit. Rather, a claim arises for purposes of the UFTA when the action itself – such as the automobile accident – occurs.
Asset protection planning should always be a preventative measure, occurring well before any claims actually arise. Asset planning at any stage after the claim is considered defrauding creditors, and is often ineffective in protecting assets.
How to Protect Your Partner Even if You Choose Not to Marry
July 30, 2012
According to the U.S. Census Bureau the number of senior couples choosing to cohabitate instead of marry (or remarry) has risen significantly. Although this may seem like a shocking choice that goes against tradition, the truth is that there are quite a few reasons why senior couples might choose not to tie the knot:
* Tax disincentives
* Loss of military and pension benefits
* Keeping medical expenses separate
* Keeping any current debt separate
* Asset protection for the benefit of children or grandchildren
Any couples who do decide against marriage, however, will need to take extra steps to protect their partner and preserve any traditionally spousal privileges you would like your partner to have. For example, in case of accident or emergency, do you want your partner to have the same access to medical information that a spouse would have? Do you want your partner to a voice in making medical decisions if you are unable to do so?
Seniors will also want to consider the subject of real property and living arrangements. If something were to happen to you or your partner, would the surviving partner be able to remain in the home? Would he or she at least have time to find another living situation? Most people would like to think that relatives who inherit shared property will be compassionate toward the surviving partner, but this is not always the case.
Fortunately, there are ways for seniors who choose to cohabitate instead of remarry to arrange their affairs in such a way that they preserve the benefits of staying legally single, but provide their partner with traditionally spousal benefits. The best way to do this is through excellent estate planning. Our office can help seniors create a plan that will protect their rights, protect assets for their heirs, and protect the rights and well-being of their partner as well. Contact us for more information.
Facebook Founders Use GRATs to Avoid Excessive Taxation; You Can Too
May 16, 2012
News sources recently revealed that Facebook founder Mark Zuckerberg—as well as other Facebook top brass—use Grantor Retained Annuity Trusts to protect their assets and investments from excessive taxation. Grantor Retained Annuity Trusts (more commonly called GRATs) are a perfectly legal—and very efficient—way to protect and pass significant assets from one person to another without incurring an exorbitantly high tax bill.
According to the article cited above, “GRATs offer a perfect vehicle for wealthy investors who put money in start-ups, while other trusts don’t.” But we don’t recommend GRATs only to wealthy startup investors. GRATs are “an excellent way to shift wealth to others at little or no tax cost and with minimal legal and economic risk.” As such, they can be the perfect tool for business owners, professional investors, and many others.
Setting up a GRAT allows the investor/grantor to give assets over to the trust for a pre-determined number of years. During this time the assets appreciate and the grantor receives “annual payments adding up to the asset’s original value plus a return based on a fixed interest rate determined by the Internal Revenue Service.” At the end of the trust term the assets (at their new value) are transferred to the beneficiary named in the trust with none of the usual gift or estate tax on the appreciation.
This makes GRATs sound like the perfect (and perfectly simple) tool, but nothing is perfectly simple. The pre-determined lifetime of your GRAT will depend on your individual circumstances, as well as the tax laws at the time, so you’ll want to make sure you have the help of an experienced and knowledgeable attorney helping you design your trust. Contact our office for more information.
2012 Could be the Year You Start Your Own Business
January 4, 2012
Before we move away from the topic of New Year’s resolutions, there’s one more New Year’s Resolution we’d like to address—that of taking control of your destiny and starting your own business. The desire to move away from corporate America and work for oneself is not at all unusual. Unfortunately, not all who make this resolution will follow through with it. This is not because these brave entrepreneurs can’t make it, but because they get discouraged. Branching out on your own is a scary venture, especially if you aren’t sure where or how to start; but making that start is a lot easier if you have a plan and know that you’re not alone.
The following article from Kiplinger.com, Six Steps to Starting Your Own Business, can help you with the first part, and your attorney can help you with the second.
That’s right; your attorney can help you start your business, and in fact should help you start your business. Although the idea and impetus behind this new venture will be all yours, you should absolutely talk to your attorney about the formal incorporation and formation. Many attorneys are small business owners themselves, and can also help with the challenging and daunting tasks of structuring and formalizing a business plan. Once your business is off the ground and making money (as it undoubtedly will) your attorney can also help you protect it from creditors and lawsuits.
With a clear plan, and a friend in your corner, starting a business seems almost too easy.
If you’ve ever considered starting your own business, this could be the year to do it. Make a plan, call your attorney, and take control of your own destiny.
The Pros and Cons of a Crummey Trust
October 3, 2011
If you are looking for a reliable way to leave financial gifts to family members you may find that a Crummey trust is the right estate planning strategy for your family. A recent article in the Wall Street Journal explains that “Crummey trusts are used in many circumstances, but are best suited for making gifts to minors—especially when a parent is giving money to a young child who isn’t ready to handle a large sum.”
While it’s true that Crummey trusts can be a very convenient and reliable estate planning tool, they do require a certain amount of annual attention and maintenance, and may not be the right strategy for everyone.
Crummey trusts can be used for many different kinds of assets, but they are most commonly used to protect life insurance policies from estate taxes. Your estate planner can help you set up the Crummey trust and use it to purchase a life insurance policy. Then you “fund the premiums with annual gifts… That gets money out of the estate while skirting the gift tax. Since the trust owns the policy, the death benefit ultimately goes to the trust, shielding it from federal estate taxes.”
Once the initial work of setting up the trust and buying the insurance policy is done, “The trustee must send out ‘Crummey letters’ each year, informing beneficiaries that they can withdraw the gifted amount during a window of time, say 30 days. Usually, the beneficiary leaves the money in the trust. But the IRS considers it a tax-free gift only if the person has the right to take it in the short term, and the Crummey letter proves that he has that right.”
Sending letters once a year isn’t a difficult task, but forgetting even once can lead to consequences with the IRS. Our advice is to be very careful to select a trustee you can count on to be timely and detail-oriented with the Crummey letters. Alternatively, the estate planner who set up your trust will often be willing to take over the administrative task of sending annual Crummey letters as well. Contact our office for more information.
Make Financial Decisions a Family Activity
June 22, 2011
When it comes to chores many families are not so different from businesses, with members tending to “specialize” in something they enjoy or are good at. Certain chores will often become the domain of one family member or another, lessening the daily burden all around. This may work well for tasks such as cooking, doing the laundry, mowing the lawn, etc.; but when it comes to finances this “specialization” can create long term problems.
While it may be convenient for one partner to pay bills every month, if both partners aren’t aware of the family budget and month-to-month financial status there can be a tremendous disconnect in spending habits, leading to resentment and often a slow decline into debt. Even more frightening, disaster can strike quickly if the “accountant spouse” dies or becomes incapacitated. Quite often the surviving spouse has no idea what the family financial status is, or even where accounts or investments are located and how to access that money.
The best solution is for couples to talk about their finances often, or take turns being the family CFO. You may even want to consider involving the kids in the family financial planning once they’re old enough. Having a regular allowance or earning pocket money for chores not only teaches kids about money management, but also helps them understand when they have to wait to get that new video game, or when the family may have to cut back on certain luxuries.
Furthermore, children are natural problem solvers and activists, and including them in financial decisions such as which charities the family should support, or how to spend surplus cash can make them feel useful and important, as well as teaching them financial accountability.
Many of us look upon our finances with dread; but it doesn’t have to be that way. Skill with money matters can bring us just as much pride and joy as skill with a paintbrush, tennis racquet, or any other skill that must be acquired with practice and hard work. With a little education, and the involvement of the entire family, we can all become the masters of our own financial futures.
Royal Couple Has Many Asking “How Effective Are Prenuptial Agreements?”
April 4, 2011
It’s all over the news lately that Prince William and his fiancé Kate Middleton will likely not sign a prenuptial agreement before the royal wedding on April 29th. Although many reasons have been given as to why the couple will forgo signing a prenup, one of the reasons is that “while prenuptial agreements are common in the United States, they are far less prevalent in the UK. Only in the last year have British courts agreed to recognize such deals.” This is a statement that has some Americans asking exactly how legally binding are prenuptial agreements here in the States?
The answer to that question depends on a number of factors: your state of residence, the terms of your prenuptial agreement, how long you stay married, and more. Fortunately, the longer prenuptial agreements are around, and the more common they become, the more respect they get from the courts. But if you’re worried that your prenuptial agreement won’t hold up in court, here are few tips to help ensure the validity of your agreement.
Neither party must be signing under duress. The more time each party has to review the agreement before the wedding the better. Any prenuptial agreement signed the day of or the day before the wedding could be looked upon as being signed under duress.
The agreement should include full disclosure of income and assets. If you live in a state where it is possible to waive full disclosure of assets then BOTH parties should specify that they do so knowingly.
Each party should have their own legal representation. In order to be sure that neither party is being taken advantage of, each party should have their own independent attorney review the document before it is signed.
Details regarding children or child support in a prenuptial agreement may not be enforced by most courts. Partners my want to include details about possible custody or child support arrangements in a prenuptial agreement, but keep in mind that any court will always give the best interests of a child the highest priority, even if it means disregarding those sections of the agreement between spouses.
Of course, every couple hopes that a prenuptial agreement will never come into play, but these tips can help ensure that your agreement will be considered valid by a court if the worst should happen. Contact our office if you have any questions about prenuptial or marital agreements, we’d like to help.
Prenuptial Agreements Help Protect Your Assets AND Your Marriage
March 23, 2011
Marriage is not just a mingling of hearts and households; it’s also a mingling of assets and property. This may not seem like a big deal if both partners are young and have little to their names yet, but if either partner (or both partners) is well established, with a career or business of their own a prenuptial agreement is particularly well advised. A prenuptial agreement can also be a good idea if one partner has children (or assets, or debt) from a previous marriage, or is an expectant heir or heiress.
Contrary to what many people may think, a prenuptial agreement isn’t just for the rich and famous, and a prenuptial agreement doesn’t mean you aren’t sure your marriage will really make it. In fact, this article in the Huffington Post details 10 reasons why a prenuptial agreement is a good idea—and not one of those reasons is “You don’t think your marriage can make it.” Here are just some of the reasons why you should consider a prenuptial agreement:
- Writing a prenup will help you learn about each other.
- Separate property before you marry should often remain separate property when you married.
- A prenuptial agreement can help keep the peace in your extended families.
- Prenuptial agreements can provide freedom from each other’s debts.
- Expectations for the marriage can be addressed in advance with a prenuptial agreement.
No matter what your age or position in life, creating a prenuptial agreement before you wed can be beneficial to your family, your finances, and your marriage. Don’t let old-fashioned notions about prenups and the rich and famous keep you from protecting your assets. Talk to your partner and consult your attorney before you walk down the aisle.
Retirement Advice for EVERY Age
February 16, 2011
“Retirement”—It’s a word that goes hand-in-hand with “Baby Boomer” these days. After all, as has been pointed out over and over again, retirement is the issue of the hour as the first round of Baby Boomers hits that magic age. But what about the younger set? Is there anything that twenty- or thirty-somethings should be considering regarding retirement at this point in their lives?
Actually, according to this article by Steve Vernon at MoneyWatch.com, it is never too early to start thinking about retirement; and there is plenty for adults in their twenties or thirties to consider right now that can help them get a jump on retirement a couple decades down the line.
According to the article, “The challenge facing most people in their 20s and 30s is juggling competing priorities — usually there isn’t enough money in the budget to do it all… ‘Should I save money for retirement, a down payment on a house, or for my kid’s college education?’… How do you prioritize?” While all of these things are important, Vernon suggests that your first priority in your twenties should be yourself. He suggests that the best investments you can make at this time are in your career, your home, your health, and your spending habits.
What our firm would like to point out is that a large part of investing in those things mentioned above is protecting those things. An estate planner can help you decide how to best protect your home from taxes, lawsuits, or divorce; an estate planner can also help you protect your health with a living will or healthcare directive. Additionally, many young adults (frustrated with the current state of the job market) have decided to take employment into their own hands by starting their own businesses—and many have been very successful! An estate planner can help you with the overwhelming but necessary task of protecting and planning for the future of your small business.
The news may be flush with stories about (and advice for) Baby Boomers entering or nearing retirement, but we know that everybody can use help and advice when it comes to planning for the future. Our office can help you prepare for your best future—regardless of your age. Call us today.