The facts about dementia are scary. One in eight Americans over age 65 and 43 percent of individuals 85 and over have Alzheimer’s [...]]]> The time to face facts about a parent’s (or one’s own) declining mental abilities and memory loss is sooner, not later, but too often the task is put off too long.

The facts about dementia are scary. One in eight Americans over age 65 and 43 percent of individuals 85 and over have Alzheimer’s disease. There’s a very high chance that facing Baby Boomers as the generation slips into elder status is a parent suffering from Alzheimer’s or another form of dementia. This poses problems for medical care and supervision, and also for financial security, but both afflicted elders and their children are often reluctant to acknowledge the problem.

Elders want to remain independent. Their children are reluctant to butt in where they may be resented. And so the warning signs are ignored, as an article in Smart Money details. The early warning signs should be addressed as soon as they appear, or consequences for New York asset protection are far too likely. It can result in closed accounts, damaged credit, money lost to scam artists – even foreclosure.

Red flags include unusually large numbers of phone solicitations and mailboxes stuffed with donation requests, checkbook mistakes; unpaid bills; and desks and drawers, once neatly organized, now scattered with paperwork. Dementia presents special challenges for NY estate planning because the primary planner becomes incapable of planning properly. This means, of course, that planning should be done early, before problems arise. Wills, living wills, and medical directives are essential legal documents, but even more than that side of things there should be an understanding among the parties involved.

Adult children and parents – before memory loss sets in – agree on “triggers” that might signal a need for help (for example, a notice that an account is in arrears). At the same time, both sides can settle on a plan that lets parents and children work together if such an event occurs. Planning for the contingency early and with competent professional help, but legal and medical, can help prevent the kind of conflicts that delay action and lead to serious problems. The article in Smart Money has more details on the potential dangers of Alzheimer’s disease to estate planning and family relations.

Talking to Mom About Alzheimer’s and Her Money

In the upcoming year many favorable tax laws are set to expire, and the political winds are blowing with great uncertainty- especially as the election season heats up. [...]]]> The current scheduled changes in the estate and gift tax rates and exemptions have great significance for those with net worth between $4 and $15 million.

In the upcoming year many favorable tax laws are set to expire, and the political winds are blowing with great uncertainty- especially as the election season heats up. This is especially worrisome in terms of NY estate planning, as among the laws scheduled to sunset are generous exemptions and low rates for federal estate and gift taxes, and the expiration of those laws could increase the tax penalty for transferring wealth.

According to Peter Reilly at Forbes in his article titled Beating The Possible Estate Tax Increase Without Switching To Cat Food – The Midmill Dilemma, the group of taxpayers especially susceptible to these changes has a fairly high net worth- somewhere between $4 and $15 million. Reilly dubs them the “midmills.” Their net worth is high enough that they are very likely to exceed the changed lifetime exemption, whatever it finally comes down to be, but low enough that the tax bite could be a significant pain to their heirs and assigns.

We face a lot of uncertainty at this point, the only thing definitely certain is that the current estate and gift tax laws will be gone at the end of this year. What will replace them could be what went before, if Congress takes no action. Otherwise, it depends on what Congress decides to do, and in an election year that’s a fool’s game to try to predict. New York asset protection may never have been such a difficult or uncertain enterprise.

The article at Forbes has some material for consideration. In addition, it should always be borne in mind that no matter how much things change or how uncertain they become, there is one constant rule: estate planning should be done early. Competent legal advice is also highly recommended. No matter what curve balls in regard to estate taxes Congress may throw at us – or not – the need for diligence does not change.

Reference: Forbes (May 2, 2012) Beating The Possible Estate Tax Increase Without Switching To Cat Food – The Midmill Dilemma

Traditional NY estate planning can be problematic when dealing with firearms. The documents used to manage your bank accounts often instruct people to [...]]]> A Gun Trust is an estate planning document that has been designed to help you transfer firearms while protecting your family and friends from inadvertent violations of state and federal laws.

Traditional NY estate planning can be problematic when dealing with firearms. The documents used to manage your bank accounts often instruct people to violate laws that pertain to the transfer, possession, and use of firearms. Firearms are often quite valuable, even collectible. As such, they represent substantial assets for many estates. At the same time, firearms are subject to regulations at the state and federal level, and transfer of firearms in an estate may cause the recipients to violate these laws inadvertently.

The recipients may not have the requisite permits for owning, carrying, or using the firearms, or they may be minors, mentally ill, or have criminal records, and in such a situation merely handing them over could be asking for trouble. Nor does a testator necessarily know all the details about his beneficiaries (although certainly you should if possible), and any transfer of assets is happening after his death, so that he has no immediate control. All unique assets present issues in their transfer, but firearms present more issues than most.

Enter the “gun trust.” This instrument operates much like other trusts for New York asset protection, but includes instructions for how to evaluate factors relevant to the transfer of the weapons including the geographic location of the firearms, the location of the beneficiary, the legal status of the beneficiary, and the maturity and responsibility of the beneficiary so as to avoid giving your guns to someone who may not be appropriate.

In addition, by placing firearms in trust, they can be protected from tax liability and from being seized as assets by creditors. There are, as always, right and wrong ways to go about this, and competent legal advice should be sought before creating a gun trust. A recent article in AmmoLand, titled A New Breed of Gun Trusts – Protecting Firearms Collectors & Their Collections, goes into detail about what a gun trust is for and how gun trusts operate.

Reference: AmmoLand (April 30, 2012) A New Breed of Gun Trusts – Protecting Firearms Collectors & Their Collections

Transferring ownership of a small business and its assets as gifts can be tricky in terms of taxes. That’s because a business is not a monolith [...]]]> The Tax Court has just passed a new technique that small businesses owners can use to pass assets to heirs with a minimal amount of taxes and complications.

Transferring ownership of a small business and its assets as gifts can be tricky in terms of taxes. That’s because a business is not a monolith and can be broken in pieces and the ownership transferred bit by bit, so as to avoid eroding the lifetime or annual gift tax exemption (currently set at $5.12 million lifetime and $13,000 annual). How much a business is worth can be a matter of controversy between the donor and the IRS, however. If the agency determines that the portion of the business transferred in a year is worth more than $13,000, the gift can become subject to gift tax on the amount by which it exceeds the maximum.

A tax court recently ruled in Wandry v. Commissioner in favor of taxpayers on exactly this issue, which, as a recent article in The Wall Street Journal details, is a big help to small business owners who wish to transfer their business as part of NY estate planning. The article is entitled, appropriately enough, “Shielding the Family Business.” The issue in Wandry involved disputed valuation of a gift made to a family member of interest in the family business. The Wandrys valued the gift at $13,000. The IRS claimed it was worth $15,000, and hit the family up for taxes on the $2,000 that exceeded the annual maximum exclusion.

Fortunately for the family, the court ruled that the Landrys had clearly intended to gift an amount equal to the annual exclusion, and that if there is a new appraisal and higher valuation of the gift, then the excess wasn’t intended to be gifted in the first place. While there are many additional details to the case and those who own small businesses and are concerned about New York asset protection in connection with them are encouraged to read the original article, that’s the essence of the case.

The key word here seems to be “intent,” so it’s probably not a good idea to assume that you could get away with gifting an amount much larger than the annual exclusion and then claim honest disagreement about evaluation after the fact. As with all estate planning and gift matters, early planning in consultation with qualified legal and accounting professionals is advised.

Reference: The Wall Street Journal (April 30, 2012) “Shielding the Family Business”

Taxes levied by the government on investment income and returns depend on several key numbers. One of these is the cost basis. Recent changes to government policy may call for reconsidering how this is done, and as always when it comes to [...]]]> The cost of procrastinating about cost-basis elections seems particularly high right now.

Taxes levied by the government on investment income and returns depend on several key numbers. One of these is the cost basis. Recent changes to government policy may call for reconsidering how this is done, and as always when it comes to New York asset protection, sooner is wiser than later.

If you have investment accounts, then you likely are aware of some of the changes that have begun to take effect and will continue to roll out through 2013. One of the most obvious changes was recently addressed in a Morningstar article titled “Beware the Default Method for Cost-Basis Elections.” The biggest change is that the cost basis for an investment is now reported to the IRS directly by the brokerage firm or equivalent, where before it was reported by the investor on a case-by-case basis.

Companies tend to offer the default means of reporting, but since information is going directly to the IRS, this also means there is enough information for specific-share identification in the cost basis election. The Morningstar article offers reasons why this actually can be advantageous for NY estate planning if one is careful.

The bottom line is that any trimming you can safely accomplish can secure more favorable capital gains taxation. The reason is that this cost basis carries over into another important taxation number, the stepped-up basis, when investment assets are transferred. In short, small numerical changes add up and may affect your overall wealth-transfer planning in respect to capital gains taxes.

Reference: Morningstar (March 26, 2012) “Beware the Default Method for Cost-Basis Elections”

Leaving the United States and renouncing your U.S. citizenship – expatriation – is treated by the IRS in the same [...]]]> U.S. citizens or long-term residents who expatriate are faced with an “exit tax” on the value of all their property as if they had sold it for fair market value before leaving the country.

Leaving the United States and renouncing your U.S. citizenship – expatriation – is treated by the IRS in the same manner as if you had died. When you expatriate and renounce your US Citizenship, the IRS will treat you as though you sold all of your worldly assets at their fair market value the day before leaving.

This on-paper-only realization of gains is subject to capital gains tax, except that it’s called an “exit tax” in this case. (In a way, it’s a lot like the estate tax.) Obviously, if you prefer to live abroad and have a lot of property – and this property can be located anywhere in the world, not just the U.S. – this can be a New York asset protection nightmare.

There are some exceptions and exemptions. Citizens leaving the country before the age of 18 ½ are exempt, as are those of dual citizenship. If the overall value of your global property is less than $651,000, the exit tax is not applied. Obviously the youth exemption or the minimum asset provision would not help those who are considering retirement abroad, and have significant assets to help them do so. Still, it’s possible to minimize the tax bite through careful planning.

In fact, this sort of complete appraisal of your assets is very much like the centerpiece of NY estate planning. Those considering expatriation might be well advised to go ahead and conduct such a complete inventory ahead of time, for purposes of planning or at least minimizing the shock and maximizing the ammunition you have to contest any IRS decisions. A recent article in Forbes has more, and should be consulted if you are planning expatriation, as well as consulting competent counsel.

Reference: Forbes (May 1, 2012) “Tax Expatriates: We’ll Always Have Paris”

Here’s one side of NY estate planning that isn’t often discussed, but perhaps should be explored better: the deliberate decision to disinherit a family member. A recent article in [...]]]> The motives for disinheritance, cutting a relative out of an estate, range from the most primal — hate, abandonment, regret — to the most rational.

Here’s one side of NY estate planning that isn’t often discussed, but perhaps should be explored better: the deliberate decision to disinherit a family member. A recent article in The Trust Advisor explores this subject in some detail. It begins with the story of Nigel Ruddy, whose unexpected death caused the surfacing of wills cutting his wife of 15 years, Nasim Aftar, out of almost all of his accumulated millions. The article goes on to discuss reasons why a presumed heir might be cut out of the will, and how it’s adjudicated in estate law.

In the U.S., it’s virtually impossible to disinherit a spouse the way Mr. Ruddy did, barring a prenuptial agreement allowing this to happen. In most states, the spouse is entitled to a share of the estate no matter what the will says, and a will saying to the contrary will almost certainly be challenged successfully in court. But it’s still possible to disinherit children, grandchildren, and other usual recipients of estate proceeds, and there are both good and bad reasons for doing so.

Sometimes people choose to make special provisions protecting children from previous marriage from being cut out in favor of more recent offspring. Sometimes testators try to leave their fortunes to those who need it most, or to those who can be relied upon to handle it most responsibly. A wealthy testator may follow the philosophy of Bill Gates Sr. that parents should provide their children enough to do anything, but not enough to do nothing, and leave the bulk of their fortune to charity.

And of course, sometimes people are shut out for completely visceral reasons. A spouse was caught cheating. A parent disapproves of a child’s marriage, religious affiliation, political stances, sexual orientation, or other lifestyle factors. But whatever the reason, good or bad, disinheritance isn’t something to be undertaken lightly. It can result in court battles that can dissipate estate assets, and so can be a bad idea from the standpoint of New York asset protection. Like most aspects of estate planning, it’s something to be considered carefully and with the help of competent legal advice.

Reference: The Trust Advisor (April 15, 2012) “Why Are Family Members Disinherited?”

If you’re a small business owner, then you probably speak of your business and your life in the same breath. There’s nothing wrong with that, but the question naturally [...]]]> The wealth of many boomers is tied up in small businesses they own. And that can be a problem when it comes time to retire.

If you’re a small business owner, then you probably speak of your business and your life in the same breath. There’s nothing wrong with that, but the question naturally arises: do you want to keep working on your business (and putting in the long hours that usually involves) until the day you die, or would you like to retire one day? If you’re like most people, you’ll want to retire, and that involves some New York asset protection planning just as if you were leaving the business in an estate – only more so, because retiring involves resisting some temptations that the dead don’t suffer.

The Wall Street Journal took up this very issue in a recent article titled Preparing to Leave. I recommend this article to your reading list because it both warns of mistakes and offers solutions. It’s a particularly interesting article in terms of long-range NY estate planning as well as business planning, because while you can often find information on succession planning for a family business, planning to retire from it is not covered as well. Here are the mistakes identified in the article:

1. Creating a business that’s too dependent on the owner.
2. Ignoring the tax benefits of planning ahead.
3. Incorrectly valuing the business.
4. Rushing to accept a rich number.
5. Hiring your brother in law to do the deal.
6. Underestimating the emotional impact of selling a business.

All of these issues can make it difficult (in one way or another) for a business owner to let go. As with everything involving estate planning (and make no mistake, that’s what this is, the fact that it’s implemented while you’re still alive changes that no more than, say, making gifts or using asset protection trusts), it’s wise to plan early and thoroughly, using competent professional advice. You may not be ready to retire just yet, but it’s harder to do than you might suppose, so plan ahead for how you’re going to stop obsessing over your small business, don’t leave it until the last minute.

Reference: The Wall Street Journal (April 29, 2012) “Preparing to Leave”

Death and taxes are the two tongue-in-cheek certainties in life, and anyone familiar with NY estate planning already knows to associate the two. Death means estate taxes and, for some, inheritance taxes. But there is another tax that is also a part of estate [...]]]> Death does not excuse a final accounting with the IRS.

Death and taxes are the two tongue-in-cheek certainties in life, and anyone familiar with NY estate planning already knows to associate the two. Death means estate taxes and, for some, inheritance taxes. But there is another tax that is also a part of estate planning and must be taken into consideration, and that is the income tax.

When a person dies, the duty of filing an income tax return with the IRS for the year in which death occurs falls upon the estate. If specified in the will, it is the duty of the executor of the will or the administrator of the estate. If not, then the duty falls upon a survivor. Regardless, it is a legal requirement and the penalties for any errors of omission or commission fall upon the estate, and can be a problem for New York asset protection.

Any income, payroll, or self-employment taxes owed the IRS become an obligation of the estate. Any refunds due from the IRS become an asset of the estate. An article in Kiplinger, titled Death and Taxes, on this subject is highly recommended. Filing that last income tax return with the IRS can be an emotional burden as well as, potentially, a financial burden for the estate, but failing to file it or making errors in doing so can be worse.

As with all other matters of estate planning, a little foresight can avoid a lot of headaches, and as with all matters of taxation and estates, competent legal and accounting advice is highly desirable. With estate taxes, gift taxes, combined exemptions, generation-skipping taxes, and other duties to the taxman specifically associated with death and the estate, it’s understandable if a tax we associate with the living skips the mind – understandable, but not excusable.

Reference: Kiplinger (March 2012) “Death and Taxes”

If you are a person of strong religious convictions, NY estate planning (like so much else in life) can easily become more than just a [...]]]> For many people, estate planning isn’t just about financial assets and other practical concerns. It’s also about honoring their religious beliefs and passing those values on to family members.

If you are a person of strong religious convictions, NY estate planning (like so much else in life) can easily become more than just a matter of dollars and cents. As has been said before in many ways, treasures laid up in heaven are the real ones, not those on earth, and passing on values and beliefs can be more important by far to those who hold them than passing on material assets.

Religious beliefs impact a wide variety of decisions, including end-of-life health care, family planning, organ donations, charitable giving both in life and in one’s will, and of course the distribution of assets to heirs. All of this can be a source of friction within a family, whose members will not necessarily always agree on matters of faith, and a gentle hand is sometimes more appropriate than harsh actions that can spark (un)holy war. An article in The Wall Street Journal deals with this issue in some depth.

The article describes a situation in which a devout Jewish dentist, Max Feinberg, set up trusts for his grandchildren with the proviso that the funds in them would only go to grandchildren who married within the Jewish faith, or whose non-Jewish spouses converted within a year after the marriage. Otherwise, the funds would go to Feinberg’s children instead. The courts, after a long battle, upheld Feinberg’s legal right to distribute his estate in this way, but it created an enormous battle within the family and dissipated assets in legal fees, and was surely not a wise thing to do, even though it was legal.

Generally speaking, it makes more sense from the standpoint of New York asset protection to instill spiritual values while living than it does to attempt to use the coercive force of one’s estate to do so posthumously. The article has many other examples of how religion and estate planning sometimes mix poorly, and should be read by anyone to whom this might become an issue.

Reference: The Wall Street Journal (April 30, 2012) “Joining Church and Estate”