For Clients, Community and Advisors.  Every day, we assist our clients in transferring assets to their trusts to ensure that the goals and objectives of their estate plans are accomplished.  Once the assets are transferred, we endeavor to verify  that the assets are correctly titled.  I would venture to say that every year, we deal with hundreds of financial institutions.  Some are easier to work with than others.  When we collaborate with financial planners, CPAs and investment advisors, the task is almost always easier.  However, recent changes in the banking laws have made working with many banks a little more difficult.  For the most part, all these institutions realize that they exist because of their customers.

There is one exception that looms large.  In professional meetings across the country, I have heard one nightmare after another recited by attorneys and paralegals about dealing with this national institution – particularly after the death of a client.  While our office has had some frustrations before, they are nothing like what I personally have experienced recently.

My parents live in Tucson, AZ.  They have both been sick recently.  I have been handling their finances.  Late last year, I took their standard power of attorney to their bank at a time when both of them were hospitalized.  The bank refused to honor the power of attorney.  The reason?  They dreamed up an oddball technicality – a provision that ALL attorneys normally use in well drafted powers of attorney.  I was fit to be tied!

Then, late this week, Mom needed money in her checking account.  They have a money market account at the same bank.  Both accounts are in the name of “Mom and Dad”.  No problem, right?  I drove over to the local branch with a $15,000 check.  The teller called over the manager who proceeded to give me the third degree as though I was a thief!  Then, she told me that she could not accept the check, she could not tell me why, and insisted that my 83 year old mother call her so she could let her know!  Then, right in front of me, she tore up the check and the deposit ticket.  I was livid!  I called my parents.  My sister was with them.  She took them over to the branch in Tucson.  Within an hour all of their money was removed from the bank and taken to their competitor.

Who is the bank?  Bank of America has a really bad reputation among estate planning attorneys and financial planners across the nation.  They are obstructive and they are difficult.  In an era where the customer experience is paramount, Bank of America does not understand anything but hard and fast rules.  Eventually, the marketplace will catch up them and either they will come to understand or they will continually lose market share.  In the interim, we will be recommending other financial institutions who are customer oriented.

For Clients, Advisors and Community.  There was recent news that Facebook users could register as organ donors.  This development gave great publicity to the fact that 70% of individuals would accept a donated organ if needed but only 30% are registered to be organ donors.  The result has been a well publicized shortage of needed organs for transplantation.

Please note that looking for an organ donor page on FaceBook and reading the stories there is an ineresting source of information.  However, “liking” a page on FaceBook does not register you as an organ donor.  You must find a specific website for organ donation to be registered.  There are several on FaceBook. 

How in Illinois do we most effectively indicate our desire to act as organ donors?  Or, conversely, how do we indicate that we do not want to be organ donors?  There are several steps.

First and foremost, make sure that your loved ones and, in particular, your agent under durable power of attorney for health care knows your intention.

Second, the new statutory form of health care power of attorney has a place to indicate whether or not you want to be an organ donor.  And, if you do, whether or not you want to place any limitations on donation.

Finally, if you want to be an organ donor, you should know that the best way to indicate your desire is to register with the donor registry sponsored by  the Illinois Secretary of State.  The indication on your driver’s license is not legally binding.  However, if you register at http://www.lifegoeson.com your decision will be legally binding upon your loved ones, perhaps reducing or eliminating conflict at a difficult time.

I’m a believer in organ donation.  I’ve seen how this selfless act has enriched the lives of others.  As an attorney, however, my obligation  is to see that my clients’ desires are fulfilled irrespective of my personal beliefs.

Indicating your desires via Facebook is one way to inform your family and loved ones about your intentions.  It is also a great way to remind your friends and family concerning this important and timely topic.

For Clients, Community and Advisers.  I am often asked about the mechanics of implementing a DNR (Do Not Resuscitate) Order.  Many elder or infirm clients do not want to spend their last months dragged through extraordinary medical procedures.  Rather, they choose to have a natural death without having the medical establishment bring out the paddles every time they arrest or have breathing trouble.  There is a pronounced tendency toward a nuanced and calm end, at home with loved ones – not in a hospital with a sterile environment.

In our practice, we always offer our clients a durable power of attorney for health care as part of their estate plan.  (In Illinois, normally do not use the “living will” as its equivalent provisions are included as part of the durable power of attorney for health care.  In other states including Florida and Wisconsin, it is different.)  Many of our older clients come in to the office asking that we include a DNR order in their power of attorney.  What is a DNR order and how does it work (under Illinois law)?

There was a new DNR order form developed by a task force and issued by the Illinois Department of Public Health in 2005.  It requires the signature of the patient (or his /her legal representative such as an agent under power of attorney if he or she in incapacitated and cannot make a decision or sign) and a witness.  To be valid, it must be signed by the patient’s physician.  The physician’s signature is required not for consent, but rather to ensure that patients are getting appropriate counseling concerning a critical life and death decision.

There are basically two options.  The first is whether or not CPR should be attempted in the event of cardiopulmonary arrest.  Typically, for an individual who wants a valid DNR order, the answer would be, “no”.  (Do No Rescusitate)  The second is whether or not CPR should be attempted in the event of a pre-arrest emergency (when breathing is labored or stopped, but the heart is still working).  Here, the answer could be yes or no.

In appropriate circumstances, we will prepare the DNR paperwork for our estate planning clients as well as those clients who are members of our Family Lifetime Care Program (our continuing service program.  For more information, call me).  It is important to keep in mind, however, that a valid DNR requires a physician’s signature.  The DNR order should be completed well in advance of any emergency.  A copy of the document should be kept in your medical record with your physician, the hospital you normally use and a copy handy in your home for any emergency.

End of life care decisions are always sad and often difficult.  Nonetheless, all of us need to face them at some time.  Planning makes this task much easier for each of us when our time comes; but also for our families and our loved one.

For Professional Advisors:

If your clients are shopping for long-term care insurance, they should expect higher costs and a tougher approval process.

That’s the message in a recent Wall Street Journal article (http://tinyurl.com/873zaco) about the decision by an increasing number of insurers to stop selling such policies.

Most recently, Prudential Financial announced plans to stop taking applications for individual policies that pay for nursing homes, assisted living and in-home care. Prudential plans to continue offering group care coverage through employers.

Prudential is the 10th of the top 20 insurers by sales to quit this market in recent years, the article said.

For insurers that continue to sell individual long-term care policies, many employ nurses or social workers to screen applicants’ health. Some even check prescription drug databases to learn all the medications your clients have ever been prescribed.

What Does This Mean to Clients?

People used to shop for long-term care coverage when they were well into their 60s. That may be too late for most clients.

In light of this trend, we believe it has become more important than ever to buy a policy now rather than take too long to shop and put off the decision until later. Procrastination will end up costing much more.  Estate planning options are much more flexible when there is a long term care policy in place.

With the skyrocketing cost of long-term care and premiums rising as much as 20 percent for certain policy holders, it is becoming more common for people to buy three to five years of benefits, rather than lifetime coverage.

Clients can also consider buying one policy with a “shared-care rider” so that benefits can be used by either spouse or split between them, the article said.

“Hybrid” Strategies

Finally, the article discussed two “hybrid” products as an alternative:

• A deferred fixed annuity packaged with long-term care benefits;
• A life insurance policy in which a portion is paid to cover the cost of long-term  care.

These alternatives can help cover the cost of care, while still providing a payout to your client or his heirs.

As always, I hope this article has helped you and your clients. If you have a specific concern or questions, please contact our office.

For Clients, Community, Advisers.  President Obama’s 2013 budget gives us some insight concerning what might happen if he is reelected and his 2013 budget (or any of its broad concepts) are adopted.

• LIFETIME EXCLUSION FROM ESTATE TAX:  The law would essentially revert to that which was in place in 2009.  That is, the current Republican endorsed $5.12 million exemption which is in force in 2012 would become $3,500,000 per individual ($7,000,000 per couple).  The estate tax on amounts over $3,500,000 would be 45% instead of 35%.  Of course, if Congress does nothing before January 1, 2013, the exemption will become $1 million and the rate will be 55%.
• TARGET:  GRANTOR TRUSTS.  For many years, irrevocable grantor trusts have been used as a sophisticated estate planning technique to reduce the size of an individual’s estate while avoiding income tax.   It’s a “have your cake and eat it, too” type of transaction.  These trusts come in all sizes and flavors.  They are often used to pass a business interest to another generation without payment of income and deferral of estate tax.  The administration’s proposal eliminates the key benefits of grantor trust transactions.  These have been around for many years.  They have been an important tool in our toolbox.  The administration seeks to take away this key tool.
• QUALIFIED GRANTOR ANNUITY TRUST:  Sam Walton made the GRAT famous.  He transferred billions of dollars of Wal-Mart stock to his family at very little transfer tax cost.  Describing how a GRAT works is beyond the scope of this brief article.  The proposed legislation prohibits the “zero’d out” GRAT which is the tool that Walton used.  It is an important technique for transferring property that increases in value over a short time to others.  It keeps the growth in value outside the donor’s estate.  The administration has been after this technique since Obama came in to office.
• VALUATION DISCOUNTS.  To value property for gift or estate tax, an appraiser will take into account its marketability and whether or not the interest transferred is that of a majority interest or that of a minority interest.  If the interest or parcel has limited marketability, a marketability discount of 5-25% can be applied.  If a minority interest is transferred (such as a minority interest in a business), a minority interest discount of 5-35% can be applied.  It is not uncommon for us to see combined discounts of 35% to 45%.  Over the years, some taxpayers have become very aggressive.  As a result, the IRS has also become aggressive in challenging discounts.  Here, the administration seeks to cut back the discounts.  However, the 2013 budget does not specify exactly how they seek to do this.

There are a few additional points which are somewhat esoteric and beyond the scope of what I believe clients and advisers want to read in a short article.  The administration also seeks to cut back the use of dynasty trusts and the use of trusts which length exceed the traditional rule against perpetuities.

In 2012, it’s anyone’s guess as what is going to happen in the political area.  As a result no one can predict what, if anything, will be passed and signed when it comes to the estate tax and gift tax.  This area has been a political football since before George Bush left office.  My only prediction is that it will continue to be.  As a result, as lawyers and planners, we need to be proactive on our clients’ behalf.  And our clients need to be diligent in ensuring that their plans are reviewed on a continuing basis and are up-to-date.

For Clients, Advisors and Community

In my 32 years of practice, I have watched my clients age, enjoying long years with their children and grandchildren. In our senior care (elder law) practice, I am increasingly counselling my clients about long term care issues including, the transition from independent living to getting assistance whether it be with medications, getting to and from their doctor appointments, daily errands and the activities of daily living (including dressing, toileting, eating and other basic daily activities). Recently, I have experienced this dilemma in my own family.

In the 1990′s, assisted living facilities came into vogue on a stand alone basis or, more often, as part of more comprehensive long term care communities (including perhaps acute and skilled nursing care facilities). In an assisted living facility, each individual (or couple) has his or her (or their) own small apartment and typically takes meals in a community dining room or can make small meals themselves. There is 24 hour supervision, medication assistance, daily activities, a shuttle bus to and from local shopping and often other services available on an a la carte basis. The 2011 MetLife Market Study revealed that the average cost of assisted living in Illinois is $3,490 per month.

Many people think that assisted living care is covered by Medicare. Generally, it is not. Expenses for long-term care (caregivers, medication management and the like) for individuals that are living in the community (not in a hospital or in a nursing home) are not covered by health insurance programs. Individuals who have purchased long term care insurance and who need help with two or more ADLs (activities of daily living described above) may qualify for benefits if they need to live in an assisted living residence for that reason.

A recent Wall Street Journal article describes many families who have been frustrated by the care for their loved ones received in an assisted living facility. They describe a low ratio of caregivers to residents and long response times when they need help.  (In my experience, there are a few really good facilities in the Chicago metropolitan area that offer services from people who care. Nonetheless, I have heard the complaints of my clients’ loved ones about uncaring personnel, attitudes bordering on abusive behavior on the part of the staff, bad food and occasionally, medication mistakes at some facilities.)

The WSJ article describes some families who have started to look for long term care solutions offshore. For the same cost of a small apartment, some families have been able to secure a luxury residence in Costa Rica shared by three patients including a nurse, three staff members and a chauffeur. There was a community of U.S. citizens, they were able to go to church every Sunday and have a full life there. The family reports that they paid about the same cost as assisted living here, including the cost of childrens’ travel back and forth to visit the parents regularly. It’s certainly an “out of the box” solution.

As we baby boomers, and our parents, age, we will need to develop creative solutions to keep us happy as we live longer. Here’s one alternative.

Are Living Trusts Created Just For Tax Benefits?

For Professional Advisors.  Lawyers and advisors around the country are getting some push back from their clients when they recommend Revocable Living Trusts (RLT). The issue seems to be that their clients perceive RLTs to only be good as tax planning tools.

With the federal estate tax exemption currently set at $5 million per individual and $10 million per married couple, some perceive a reduced need for such trusts.

But there are many important benefits to the RLT beyond tax protection.

Keeps You in Control

With a properly drafted RLT, a client can not only control who inherits his assets, but also how those assets are disbursed and under what circumstances.

The Grantor (your client) can set up rules or stipulations in the trust that must be met before assets are inherited by beneficiaries. The Trustee, chosen by your client, manages those assets according to your client’s wishes.

Some clients want the Trustee to have a lot of control, particularly when beneficiaries are minors or are financially inexperienced.  Others want the Trustee to exercise less control, particularly when the beneficiaries are mature adults.  We encourage our clients to keep beneficiary assets in trust for Protection and Privacy.

Protection and Privacy

Even properly drafted, a simple Will is essentially no more than a letter to a probate court judge. It informs the judge of the decedent’s wishes about what he or she wanted done with personal property and other assets, but the court can rule differently.

Court hearings and documents filed in a probate case are public record, meaning that if all your client had was a Will, then his personal worth and any records of family infighting over the estate could make the headlines. An RLT is executed outside of a probate court’s venue, keeping the entire matter private and out of public view.

After death, the RLT continues to offer protection to the client’s heirs. If left in the name of trust, assets are shielded from the beneficiaries’ creditors, lawsuits and divorce settlements. It also helps protect your client’s children from “accidental” disinheritance when a surviving spouse remarries.

Reduction in Stress

Probate can last many months to several years, depending on the size and complexity of your client’s estate. Administering a trust can often take less than a year.

Ask your clients how much grief and anxiety they are willing to let their heirs endure after their death due to poor planning. An RLT can dramatically reduce the wait time for an estate to be settled, allowing beneficiaries to move forward with their lives much sooner and receive the assets your client wanted them to enjoy and benefit from.

Have you experienced push back from a client when you propose a revocable trust?  Please let me know by post a comment.

Revocable Living Trusts are flexible tools. If you think you have a client that may need one as part of his or her plan, we would be delighted to talk to both of you about its benefits.

In recent years, have you made a gift of real estate to your children or grandchildren or, for that matter, anyone? If you have, you need to read this article.

The Law.  Transfer of real estate (or anything of value) from one person (donor) to another (donee) for less than fair market value is considered a gift for gift tax purposes. This is considered a separate tax system from our income tax system. Any gift in excess of $13,000 per year (per donee) must be reported to the IRS on a gift tax return (Form 709). From 2001 until 2011, the lifetime gift tax exemption was $1 million.  Beginning in 2012, every individual has a lifetime gift tax exemption of $5 million. So, gifts of less the $5 million will be tax-free!  (The value of the gift is based on the date of the gift not the date the return is filed). 

The IRS Program.  The Internal Revenue Service (IRS) has discovered that many gifts of real estate have gone unreported to the IRS.  This is potentially a loss of significant revenue for the IRS.  As a result, the IRS has initiated a project where they are reviewing real estate transactions in large metropolitan areas against gift tax returns filed.  This can be an innocent trap for an unknowing family.  Unfortunately, the IRS will not reduce taxes, penalties and interest for taxpayers who claim ignorance of (an admittedly little known and less understood) law.  Further, and most importantly, if the taxpayer files the back returns before the IRS catches up to them, serious penalties and problems can be avoided (though not necessarily entirely).  This is not a time or place to bury one’s head in the sand or play the audit lottery!

Take Action.  If you made a gift of real estate at any time in the past (or an interest in a land trust or any significant gift of any type of property at all) and the gift was not reported to the IRS on Form 709, you need to consult with a knowledgable estate and gift tax attorney to ascertain: whether or not you have to file, what if anything you have to do, and what, if any, are the potential consequences.  There is no statute of limitations.  Failure to file a gift tax return could affect your heirs significantly upon your death.  As a result, this is a subject that requires immediate attention.

A gift tax return can be filed at any time.  There may or, in many cases, may not be tax due.  The IRS has three years to audit the return once appropriately filed.  Otherwise, if it is filed in accordance with various IRS rulings concerning appropriate valuation, appraisal and disclosure, the values on the return are deemed accepted by the IRS.  Thus, the return needs to be filed by an experienced estate and gift tax attorney.

If you have made a gift – particularly of a real estate interest – and have not reported it to the IRS, pick up the phone and get advice about what to do – now.

For Clients, Advisors and Community.  In March and May, 2011, I wrote blog articles about the asset protection aspects of inherited IRAs. This article describes current developments involving tax aspects of inherited IRAs. What is so important about inherited IRAs?

With careful planning, the beneficiary of an inherited IRA (typically a child) has the opportunity to defer income taxes (with tax-deferred growth) over his or her lifetime. Many refer to this as the “stretch IRA”. It is a significant income tax savings tool, particularly for individuals who have large IRAs, or for whom tax deferred monies constitute a large portion of their estate.

In some cases, without proper planning, the child or grandchild (and sometimes the spouse if the planning is done incorrectly) only has five years to withdraw all the money from the IRA. This is called the “five year rule”. This accelerates all the tax payment. The government gets its money at once. There is very little opportunity for tax-deferred growth.

The highway bill, which is currently moving through Congress, contained a provision removing the “stretch IRA” and implementing the five year rule for everyone. That would raise $4.6 billion over the next decade.

In recent weeks, there was an extensive campaign by members of the Financial Services Institute (your financial planners) which put extreme pressure on Congress, especially the Majority Leader of the Senate, Senator Harry Reid. Last week, Senator Reid removed the offending provision from the highway bill thereby leaving the current “stretch IRA” provisions in force.

The national experts in the field think that the Congress may revisit the matter. Who knows what is going to happen when the government is looking under every rock for revenue!

Strategy: If you or a family member is the beneficiary of an account or benefit in a profit sharing, 401(k), or pension plan where the employee has passed away, it will be important to do an inherited IRA rollover as soon as possible. You need to consult a financial planner or investment advisor who is familiar with the rules, as well as a tax attorney to ensure that the IRA is coordinated with your estate plan. The rules are complicated. You need to find individuals who are fully trained in the required minimum distribution (RMD) and trust rules.

Taxation of Inherited IRAs is one place the Congress may go looking for revenue. There is a possibility that the stretch IRA may become a thing of the past; I doubt it because there will be another uprising. Nonetheless, it makes sense to plan now.

For Clients, Advisors and Community.

Do you have a vacation home? Perhaps you celebrate every Christmas at a mountain lodge built by Grandpa, take the kids on a spring break to a beachside condo, or spend summer weekends at the old farmhouse so the little ones can catch fireflies.

How do you pass on your vacation home to the next generation so that everyone still enjoys spending time together there? An article published by the Wall Street Journal deals with this question. (Click here to see the article.)  The article examines some of the complex issues involved, including paying expenses and determining access and use. It’s a great article for you if you’re considering leaving such assets, as well as for those who inherit them.

Families Are Not Simple
Once you pass away, how will the costs to maintain the vacation home be paid? This includes taxes, insurance, utilities and repairs (i.e., a new roof).

There are other complex, family-oriented questions that take more than a spreadsheet to figure out:
• Should every child get an equal share?
• When children get married, can we protect the property from a divorce?
• How will it be decided who gets to use the property and how often?
• If one child “wants out” of the arrangement down the line, will this force a sale?

While one generation of siblings might successfully share a mountain cabin, the next generation might not. Later generations won’t have the same attachment to a property, so an exit strategy should be considered as part of the plan.

Strategies to Consider
The WSJ article suggests putting the home in a trust and funding it with life insurance. A professional trustee manages the property and insurance proceeds cover expenses. If one of your kids wants to sell, the money in the Trust can be used to buy him out. The trustee might decide on a schedule of use and whether the property should be rented out occasionally to cover expenses.

Working with an estate planning attorney will help you and your family (or your clients) decide which strategy will best fit their needs, and ensure that the next generation enjoys the property for many years to come.