Massachusetts Estate Planning

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Check out the new site and pass the link to others!    www.attorneyhk.com

 

To Give or Not to Give!!

Perhaps some of you are feeling in the giving spirit after the holidays?  If not, you might think about it!  Have you ever heard the old saying, it's better to give than receive?  Well, with the new tax law changes, that may very well be true!  See, the recent extention of the Bush era tax cuts and estate tax breaks create an amazing planning opportunity but for a very short time.  Amongst other things, the new law increased the estate and gift tax exemption from 1 million to 5 million per person.  That means a married couple can transfer up to 10 million dollars with no death or gift tax!  And, the tax rate dropped from a scheduled 55% to just 35%.  BUT--the good news doesn't last long!  Time is not your friend here.  In 2012, the law is scheduled to revert back to the 1 million exemption amount and the rateto 55%.  So, for the first time in a decade, it might be wise to take advantage of these next two years to move as much out of your estate and into the hands of your heirs as possible.  In other words, a married couple could give away 10 million this year with no gift tax.  If the laws revert back to less favorable levels in 2012 as projected, and then the assets were passed on to heirs, it would subject 8 million additional to tax at a 55% rate.  Who wouldn't want to transfer 10 million with no tax?  You might be shocked!  Like everything, there are pros and cons.  Whatever your position, you should seriously consider using gifts over the next 2 years to reduce large estates and eliminate or substantialy avoid death and gift taxes.  Consult an experienced estate planning attorney to be informed of all the consequences and potential pitfalls.    

Bush Tax Cuts Extended for Two Years!

President Obama signed the much anticipated compromise tax bill negotiated with the GOP today that extended some of the Bush tax cuts for another 2 years in exchange for the GOP agreeing to extend unemployment benefits again.  While the details of the new law will be fleshed out in the months to come, the key features for estate planning are the reinstatement of the estate tax but at very friendly exemption amount.  Estates will face a death death if the value of the estate exceeds 5 million dollars for a single person or 10 million dollars for a married couple.  Excess value will be taxed at 35%.  This is a substantial change--if Congress failed to act now, come January 1, 2011, the death tax would have returned to tax estates in excess of 1 million at 55%. 

What does this mean for you?  It means but for the wealthiest Americans, death tax planning will not be as much of an issue for the next two years.  After that, it is anyone's guess what will happen.  Remember, laws change from day to day.  This is a good example. 

So, for the middle class, nothing has really changed--the focuse for estate planning is still on avoiding probate, protecting your assets from loss to serious illness, rising healthcare, nursing homes, divorces and lawsuits.  That is where the focus has been and will continue to be for hard working Americans.     

Thoughts of a Fire Chief...

 
From his essay, The Ultimate Exit Interview: The Way to Prepare You and Your Family

“What if you suddently died of a heart attack today or were struck and killed by a drunk driver on the way home?  Could your family manage all your affairs once you are gone?  Eight out of ten people I have spoken to state that they have never thought about it, let alone planned for it.

The reality check is that most people have done no planning for this guaranteed event.  Culturally, death has always been a taboo subject to discuss and it is considered too macabre to talk about it. 

It’s time to get over this behavior.

Why am I so passionate about planning for the day you die?

Actually, there are several reasons.  First and foremost, I am the sole survivor of a family of five.  My parents, an older brother, and an older sister have all died due to health related complications.  With all of today’s modern life-extending technology, I still appreciate that acknowledgement of your family’s medical history plays a big part in one’s own health…and future! 

But my most passionate interest in planning for the day you die has been driven by my direct involvement following the attack on America on 9-11.  Within 24 hours of the attack and based upon some specialized training, I was on-scene at Ground Zero providing mental health support to emergency service personnel.

We each have our own image of that horrific day.  And yet my most vivid images have little to do with the carnage and destruction.  I will always “see” the desparate struggle of family members and co-workers, in the days following the attack, desperately seeking to know the whereabouts of a loved one.

In New York, 2,605 civilians, 60 police officers, and 343 firefighters perished.  Additionally, 125 people died at the Pentagon and 246 souls died aboard aircraft.  Each person was simply going to work and never came home.  Most never had the opportunity to say “goodbye” or “I love you.”

Have the courage to ask yourself this simple but hard question:  What do I want to happen when I die?  Then have the compassion to share your answers with your family.  The benefits you reap are beyond description.”

Tim Pelton

Former Fire Chief

McDonalds and White Castle Say Obamacare Will Cost Us All!

 
Re-printed from Dan Kennedy's Newsletter:

"There is 15%+ unemployment looming in our future, and here's how it can occur:  McDonald's and White Castle have completed their analysis of all the costs packed into Obamacare, aimed at them beginning 2011 and building to climax by 2014.  By White Castle's estimates, healthcare reform will take at least55% od its net profits by 2014.  McD's puts the median estimated hit to operating profits to be $50,000 per store or 15% to 20% of the franchisee's income...and they warn passing it on in price hikes could be destructive to customer visit frequency.  (Source:  Nation's Restaurant News 9-6-10).  Since business can never actually be taxed, such epic robbery can get only three responses:  one, price hikes (a tax on the poor, not the rich)--which as cautioned, will reduce volume while preserving margin, thus requiring fewer employees; two, payroll cost reductions via full-time to part-time, elimination of jobs (automation, poorer service, other means), and three, closing least profitable outlets and shrinking size of companies.  If just 20% of all franchised and company owned fast food units close and the remaining 80% cut staff and remaining staff's hours, you tell me.  This is but one factual predictor of just how catastrophic--and I do mot use the word lightly--this and other sweeping, trans-formative legislation of this administration is going to reveal itself to be, in job destruction, small business destruction, and overall economic damage, unfolding over the coming 3+ years.  It's not over--it's barely begun."

Something to think about on election day! 

My Recent Newspaper Article on IRA Planning

 
IRAs are one of the largest assets in the estate of most people over 50 years old.  Here's a recent article I wrote for the 50+ Advocate, a wonderful newspaper focused on the issue of people over 50 years old. 

http://fiftyplusadvocate.com/archives/1701

Alarming Increase in Senior Disability Rates!

As the summer ends and the night air begins to remind us of the impending fall in New England, I'm reminded of a famous Mark Twain quote:  "When the facts are against you, argue the law.  When the law is against you, argue the facts.  And when the law and the facts are against you, swear."  What does that have to do with anything?  Well, it looks like the law and the facts are against seniors given statistics about disability in our country. 

The U.S. Census Bureau reports that of the 53.03 million senior citizens living in the U.S., 52% have a disability.  And, of this number, 37% have a severe disability.  That's alarming and serves as strong evidence that the chances of becoming disabled are increasing and continue to do so with age.  But, it gets worse--for people 80 and older, the disability rate sky-rockets to 71%, with 56% having a severe disability. 

Interestingly, women are much more likely to become disability than men within the same age brackets.  That statistic is contrary to popular wisdom which believes that men have more disability issues than women. 

The numbers set forth above are much higher than the last time The Census compiled disability numbers back in 2002.  At that time, only 18% of seniors reported a disability.  Among those with a disability, only 12 percent had a severe disability.  Now compare those numbers to the new numbers above and it you get an early Halloween fright!  

What accounts for the rise in disability?  Longevity, obesity, drugs, stress?  It could be a combination of many factors, but from the legal perspective, the sharp rise in disability is telling in its consequences for the senior population.  It means more need for skilled nursing care and more need for disability protection and asset protection going forward.  And, with Congress continually searching for new forms of revenue and the Boomer population projected to increase demand for nursing home care beyond current projected capacity, advanced planning has never been more important.  

Will you need long term care?  Will you become severely disabled in the future?  Lets put it this way--do you like to gamble?  Would you put your life savings on your bets?   

How To Make Millions With Your IRA Without Investing Another Dime!

Now that I have your attention, how great would it be to make millions with your IRAs and 401(k)s without investing another dime!  Even better--to protect it all for you heirs from gold-diggers, the "in-laws", divorces, creditors and lawsuits! That would be something, right?

Here's the good news:  YOU CAN!  

The two main goals of retirement planning with IRAs and 401(k)s are wealth building and protecting the piggy bank for your loved ones.  Everyone has the same goals.  Unfortunately, until a few years back, when you passed down an IRA or 401(k) plan to the kids or grand-kids, you could only do one or the other, not both.  In other words, you could give your IRA to the kids and have it protected against their financial problems like divorce and lawsuits using an irrevocable asset protection trust, BUT doing so would likely trigger the 5 year withdrawal rule, thereby forcing your heir to take a full distribution of the IRA within 5 years after your death.  Result?  A taxable distribution and a huge income tax hit that would devastate the account.  

On the other hand, you could "stretch-out" the IRA so the distributions lasted far longer (typically over the beneficiary's life stan), which would be great for wealth building, but doing so would provide no asset protection.  Therefore, when your son or daughter's spouse filed the divorce papers at the court house, half or more of the IRA they inherited from you (your life savings accumulated over 40 years of saving) is handed to the ex-spouse on a silver platter!  Or, worse, your child dies and all of it goes to your in-laws!  By the way, what's the difference between an in-law and an outlaw?  Answer:  Outlaws are WANTED!  :-)

So, how can you both continue to build wealth with inherted IRAs and 401(k)s AND protect what you leave the kids?  Some of you have hard me speak about this amazing trust before--the IRA Protetor Trust (Inheritor's Trust).  It is a special trust established by you while you are alive to be the beneficiary of your IRA and 401(k) money.  When you die, it works its magic to protect the funds from your children's financial issues and it stretches out the distributions over their respective life spans (as determined by IRS tables) so even an IRA of $100,000 can grow into a million or more for an heir without adding another dime. 

More to come on this in future blogs--including the question I always here--"if this is so great, why haven't I heard about it before?"  (Probably a more appropriate question for your financial adviser!)    

Steinbrenner Beats the Tax Man!!

Love him or hate him, George Steinbrenner, the late owner of the New York Yankees, passed away on July 13, 2010.  While not his usual fiery self due to illness over the past few years, George Steinbrenner will always be remembered for his “antics” as owner of the Yankees.  As a life-long Red Sox fan, George was certainly a worthy adversary and willing villain.  Always entertaining and unpredictable, Steinbrenner did one thing better than almost all others—win!  As he told the New York Times in 1998, “I hate to lose.  Hate, hate, hate to lose.”  And George didn’t lose often!  Looking back, George bought the struggling Yankees from CBS in 1973 for 8.8 million dollars.  His obsessive fear of losing allowed him to pull the Yankees up “The Boss.”  The Yankees also sky-rocketed in value under his reign, from $8.8 million to $1.6 billion, according to Forbes Magazine.  

But despite all of Steinbrenner’s victories, perhaps his biggest and most impressive of all has come in death.  At least for now, George Steinbrenner has beaten the tax man!  How did he do it?  Well, if George had died one minute after midnight, December 31, 2010, his heirs would have owed Uncle Sam over $500,000,000 dollars in estate taxes (“death taxes”)!  Yes, you read it correct—over five hundred million dollars in death taxes!  But, George didn’t die in 2011, he died last month in 2010!  See, ironically, Congress’s failure to address a 10 year estate tax problem has resulted in 2010 being the dream year for wealthy Americans to die because there is no federal death tax in 2010!  So because Steinbrenner died in a year without a federal death tax, no death taxes are due to Washington.  That means his heirs keep over $500,000,000 dollars that would have gone to Uncle Sam! 

Had George died a few months from now in 2011, the outcome would have been far different.  See, the death tax comes roaring back with a vengeance in 2011 with estate valued at over $1,000,000 to be taxed at a high of 55%!  Take you house, ad in your IRA and 401(k) and many Americans are right there! 

Now, there’s been a lot of talk that Congress may make the death tax retroactive to January 1, 2010.  Were they to do so, it would surely be challenged in court as being unconstitutional.  And what better case to challenge it than the United State of America v. the Estate of George Steinbrenner!  I must say, it would be a tough to pick a side to root for in such a battle!  In one corner we have the taxpayer represented by the heirs of George Steinbrenner, Red Sox nemesis and baseball villain extraordinaire.  In the other corner we have an out-of-control, tax and bailout-hungry IRS!  Were I a betting many I’d have to put my nickel on George!  While it turns my stomach as a Red Sox fan to root for the former Yankee’s boss, in this case, he would be the proverbial David taking on Goliath.  Alas, the fight is unlikely to happen as seems highly unlikely Congress will try to make the death tax retroactive to January 1, 2010 risk a Constitutional battle with some of the nation’s wealthiest heirs. 

So, what’s my point?  The federal estate tax is coming back in just a few short months!  The exemption amount will drop to 1 million dollars--the first time in U.S. history that the exemption amount has ever dropped.  Most experts bet the farm that Congress would fix the problem by now.  They have not.  It now seems almost certain that Congress will do nothing so when 2011 rolls into town in a few months, Middle-Class Americans will be stuck with the largest tax hike in our country’s history when the death tax returns!  With most states broke or going broke fast, Washington running up unfathomable debts, jobs and the economy showing no signs of recovery and the beginning of Obamacare that will admittedly cost taxpayers trillions, George Steinbrenner may not be so hard to root for after all!  But for those of us who plan on sticking around a while longer, 2011 is a wake-up call!  As I’ve said numerous times, you’ve got three choices:  use it, lose it or get a plan! 

LegalZoom Sued When Cheapo Wills and Trusts Don't Work!

Every has seen the commercials with OJ Simpson's former attorney, Robert Shapiro, bragging about creating LegalZoom--a website that provides "do-it-yourself" kits for Wills, Trust and just about any other legal document.  Of course, they offer too good to be true prices and claim that "almost" anyone can use their documents!  Well, NOT REALLY!  Turns out a few angry customers fell for their low prices and ordered their living trust kits only to find out there is no customization other than inputing their name and address and the customer ended up paying a lawyer to fix all the problems with the LegalZoom Trust so it would actually work when needed!  Here's a link to the article--which, incidentally, is a class action lawsuit--meaning this has happened to a number of customers--not just one person! 

 http://www.courthousenews.com/2010/06/01/27694.htm

I can't emphasize enough that when it comes to protecting your hard-earned life savings and protecting your family--hire a qualified estate planning attorney to do the job right!  Of course it will cost more than $99!  Why would anyone think they could protect their nest egg from all the predators, government tax programs, and disability problems, for so little?  If it were that simple, everyone would be able to do it!  It's sad that good, hard-working Americans had to be fleeced by LegalZoom before realizing that you get what you pay for.  Like I tell my clients--"you wouldn't operate on yourself, would you?"  Then I beg of you, don't be reckless with your life savings!