UltraTrust Irrevocable Trust Asset Protection

Financial Planning

Financial Planning, Tax

Inheritance Tax vs. Estate Tax, Inheritance Tax Exemptions

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About inheritance tax: discuss the differences of an inheritance tax and estate tax. What are the inheritance tax exemptions? How to protect yourself from inheritance tax by creating a trust or gifting with a charitable gift annuity. What is the Inheritance Tax Rate?   There is no such thing as a federal inheritance tax rate. The inheritance tax is imposed on a state level, and not all states have one. For example, Texas does not impose an inheritance tax, and some states refer to an estate tax and an inheritance tax as the same thing even though they are technically very different.   Other terms you may hear used in place of inheritance tax are “death duty” in the United Kingdom, “estate duty” in Hong Kong, or “stamp duty” in Bermuda. Some places such as Australia and the British Virgin Islands do not currently have an inheritance tax nor have they ever had one.   Difference of an Estate tax and Inheritance Tax   The difference between the estate tax and the inheritance tax lies with who is actually responsible for paying the taxes owed.   Who Pays the Estate Tax?   With an estate tax it is the responsibility of the Administrator, or Executor, of the estate to pay the taxes. The taxes are calculated based on the entire value of the estate, and if the Administrator cannot pay the taxes out of the estate’s value then it becomes the responsibility of the heirs to pay the taxes. The federal government will impose this tax according to established guidelines which include the value of the estate.   Who Pays the Inheritance Tax?   An inheritance tax is the individual responsibility of each heir. Determining the financial responsibility of the heirs for the inheritance tax is based on several key factors.   What is the Inheritance Tax Rate? It Depends…   The inheritance tax rate varies depending on the relationship of the heir to the deceased (decedent). Each state may determine this rate, and if the heir is a distant relative or friend the inheritance tax rate will be much higher than if the heir is a spouse or child of the decedent. A child may be entitled to an exemption of the first $3000 of their inheritance and be responsible for only a 7.5% tax on inheritance valued over $100,000. In contrast, a friend of the decedent may be taxed as much as thirty percent and only receive a tax exemption on the first hundred dollars.   Another consideration state government will make when determining the inheritance tax rate will be the fair market value of the property being transferred. Fair market value is not what it would cost to replace the property, but what you would be able to sell the property for if needed.   What are the Inheritance Tax Exemptions?   Your heirs may receive tax exemptions for taxes that have already been paid on the property and it is important to have all documents in a readily accessible location to prove that little or no debt is owed upon your death. If any of the inheritance has been designated for charitable organizations your heirs will not be held accountable for paying an inheritance tax on this portion of the estate.   Fraudulent Income Tax Returns Rise to Avoid Inheritance Tax   Opponents of the inheritance tax feel that in addition to an estate tax, the inheritance tax is harmful to families who may need the money immediately and cannot afford to pay harsh taxes imposed on them during an already emotionally difficult time. Critics also feel that taxes such as these encourage individuals to file fraudulent income tax returns by placing their money into annuities both on and offshore, and to establish trusts for their heirs to remove large amounts of property from their listed estate.   Call Estate Street Partners if you wish to know more about how to reduce your estate tax, eliminate your inheritance tax, possibly eliminate some of your income tax and learn how to strategize your money and assets to be in compliance with the IRS and federal and state-specific regulations. Estate planning can be complex and taking the route of doing it yourself can lead to severe financial penalties.   Seek Knowledgeable and Professional Estate Planning Advice from Estate Street Partners   Inheritance tax information can be obtained by seeking the services of a knowledgeable estate planner. Since each state differs in the amount taxed to heirs, an estate planner will be able to provide accurate information involving up-to-date tax laws and ways to protect assets.   One of the more common means of protecting inheritance from taxes is to place money into trusts and elect a trustee to transfer the property to your beneficiaries upon your death. Once money has been allocated into a trust it is removed from you listed estate and upon your death it will be distributed to your heirs free from estate and inheritance taxes.   Some people also choose to give their money in the form of gifts to organizations and establish a charitable gift annuity. Receiving money from an annuity protects your heirs from paying any inheritance tax, although they may still be responsible for an early withdrawal penalty from the IRS. Failure to consult with an advisor could result in unnecessarily high taxes for your heirs. Again please seek professional advice on these important financial matters.   Read more articles on: Selecting a Trustee Types of Annuity Annuity Payment Options Charitable Gift Annuity Private Annuity Trust How to Hide Your Assets Trustee of Trusts Grantor Trust Beneficiary of Trust Trust Protector Tax Sheltered Annuity Real Estate Taxes Offshore Annuity

Estate Planning, Financial Planning

Living Will: Pros, Cons to a Living Will, Free Living Will Forms

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Do you have a Living Will? To Living Will or to not to Living Will. These questions lend themselves to more questions: How well do you know and trust your loved ones? How confident are you that they understand your core values and views on what your final wishes are? Are you really sure they will respect the passing comment you made regarding your wishes in the case of terminal illness or vegetative state?      Watch the video on Living Will: Pros, Cons to a Living Will, Free Living Will Forms   Like this video? Subscribe to our channel.   The answer to these questions can often be resolved with a Living Will. A Living Will is a type of Advance Directive that outlines your treatment wishes should you become terminally ill or fall into a persistent vegetative state. While you have the option of making your Living Will oral or written, it is advised to have a written Will in case you are unable to communicate at the time when the Living Will is to be carried out.   A Living Will outlines to a healthcare professional which services you do and do not want. You can state that you do not want cardiopulmonary resuscitation, or a respirator, but you do want feeding tubes to provide you with necessary nutrition and you want to die at home.   Living Wills are often written in vague terms because you are trying to cover a variety of circumstances which are unknown to you when the Will is drafted. You may choose to sign a more restrictive Living Will, known as Do Not Resuscitate which prohibits the use of cardiopulmonary techniques to keep you alive during cardiac arrest.   It should be noted that unless you are wearing a special identifier such as a bracelet, your Living Will does not apply to the efforts of an Emergency Medical Team (EMT). There has been much debate in the news involving contrasting views on Living Wills, and most people will remember the Terri Schiavo case as an excellent example for debating the issue for drafting a Living Will.   Living Will Pros and Advantages   A Living Will, as with a standard Will, is a legal document and must be signed in the presence of witnesses and notarized. The importance of having a Living Will is that it clarifies to family and healthcare professionals which treatments you do and do not want if you are unable to speak for yourself. Although the wording in a Living Will is often ambiguous to cover a variety of situations, you might be surprised what can happen without one.   In the absence of a Living Will, most states will elect someone close to you (usually a family member) to make decisions for you. This person (sometimes referred to as the surrogate) may have no idea what your personal beliefs are regarding artificial nutrition and resuscitation, but if you are unable to speak for yourself this individual must act in what they feel is your best interest.   In some states the appointment of this surrogate will only occur when you are determined terminally ill, and all treatments leading up to this diagnosis are up to your doctor who has taken an oath to preserve life. If you have a Living Will you can alleviate indecision in your family by outlining the terms of your treatment.   You are never too young to draft a Living Will, and you may want to consider writing one “just in case”. The future can be unpredictable and it is better to be prepared than suffer an accident and leave others to decide your fate, especially if your religious beliefs conflict with artificial medical treatments such as feeding tubes.   Living Will Cons and Disadvantages   There are limitations associated with Living Wills. A Living Will is often written in vague terms. What “heroic measures” mean to you may not be the same as what it means to your doctor. Your definition of “heroic measures” might mean that you do not want feeding tubes used to sustain your life if you are unable to eat unassisted, but your doctor may not feel that use of a feeding tube is a “heroic measure”.   In addition, a Living Will is often not enacted until a person is deemed terminally ill. Doctors may disagree on when your condition falls into this category, and you may receive treatment which goes against your values as outlined in your Living Will. It is possible to be as specific as you want when drafting your Living Will, but keep in mind that the more specific wording you use, the greater the chance of excluding a wide range of scenarios in which you would want your Living Will applied.   One of the more common downsides to a Living Will is that it is not readily accessible to your healthcare provider. Some people choose to keep their Living Will locked up in a safety deposit box or another secretive location in their home. If you fail to provide your doctor with a copy of your Living Will, and you become unable to communicate, they will treat you as if you never had a Living Will drafted.   Free Living Will Forms: How to a Draft a Living Will?   Although you may be uncomfortable talking to your doctor about drafting a Living Will, your healthcare provider has access to free living will forms which are state specific. The Internet can also be used as a source for finding free living will forms, although it is wise to check with an attorney when using these forms or if you move to a different state to ensure your Living Will is in accordance with state laws.   A Living Will is revocable and you can change your mind at any time. You can obtain new forms from your doctor or attorney and change your mind whenever you want

Financial Planning, Trusts

Private Annuity Trust, Ensured Installment Sale (Structured Sale)

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Warning: As of October 18, 2006 Private Annuity Trusts (PAT) are no longer recognized by the Internal Revenue Service (IRS) as legal means for managing assets tax deferred! The Private Annuity Trust has been replaced with The Ensured Installment Sale (Structured Sale), which will be discussed later. The following information applies only to Annuity agreements funded prior to October 18, 2006, which are still honored by the IRS.   A Private Annuity Trust works very similar to an Immediate Annuity, although you will use assets other than money to fund this Annuity. Typically, you transfer ownership of a home or land with high value to a Trust. The Trust agrees to make lifetime payments to you, and can then sell the asset you gave them and use the money to fund this Annuity agreement through investments.   You cannot use other retirement funds such as a 401k to fund a Private Annuity Trust, but you can add multiple properties to increase your tax break and Annuity payment. If you decide to add an additional property to your Private Annuity Trust you must create a new Annuity agreement for each property, unless your original agreement contained a provision to include additional assets at a later date.   Each new agreement will have a different deferral period which creates an added benefit to you by providing both immediate and long term income. The withdrawal period from a Private Annuity Trust must begin by age 70 1/2, but you can always choose to receive payments sooner.   When structuring a Private Annuity Trust, you must name a Trustee who will be responsible for controlling the investments of your assets in the Private Annuity Trust. The Trustee can be an adult child, relative, close friend, attorney, or anyone else other than you or your spouse. By law, the annuitant is not allowed to have any direct control over the investments of their Annuity. You may make council to the Trustee but cannot have any direct contact with the assets once they are transferred into the Private Annuity Trust, and your transfer of ownership is irrevocable.   Assets Transfered to a Private Annuity Trust: How to Estimate the Annuity Payments?   It is fairly easy to estimate what your Annuity payments will be for the asset transferred into a Private Annuity Trust. The IRS uses the following factors to determine your payment: Your life expectancy The selling price of your asset The Annual Federal Mid-Term Rate (AFMR) effective when your property was transferred (this rate will be the rate used for the duration of your Annuity) The length of time you defer payments   Using these factors, the amount you will receive from an Annuity is a fixed amount and you cannot start and stop payments from a Private Annuity Trust. Once the withdrawal period begins you will continue to receive payments for life.   The life expectancy factor is only used by the IRS to help determine what your payments should be and is not to be confused with a payment’s cutoff age. If you live beyond what the IRS factored as your life expectancy, you will continue to receive payments for life.   Joint Annuity for Spouse to Receive Payments   Owning a joint annuity will allow your spouse to continue receiving Annuity payments should you die first. After your spouse dies, payments will cease and your beneficiaries will inherit any surplus money remaining in your Private Annuity Trust created by wise investment options of the Trust’s reserve.   By law there must be enough money set aside for the Trust to fulfill its Annuity agreement with you, and there will usually be a reserve account established of five to ten percent of your asset’s value as a safety precaution. Remember, your Annuity payment is fixed and will not increase regardless of profit your assets create via the Private Annuity Trust.   No Estate Tax, Income Tax or Gift Tax on Private Annuity Trust Transfer   When you establish a Private Annuity Trust, you are not subject to estate, income, or gift taxes. The transfer of ownership of an asset to a Trust is paid for by the Annuity agreement. The IRS cannot accurately determine your life expectancy, and therefore cannot determine how many payments you will actually receive.   Taxes will be deferred on the transfer until you start receiving payments, and a portion of your payment will be taxed based on your income amount. The transfer of ownership involving your assets is not considered a gift to the Trust because they are agreeing to pay you for the asset at a later date, and as a result you will not have to pay a gift tax.   Once your asset is transferred to the Trust, it is removed from your taxable estate. This is of particular benefit to your beneficiaries who will not be held responsible for paying estate taxes when they receive excess funds from your Annuity. After your death it is the responsibility of the Trust to cover any unpaid taxes due on the assets.   Ensured Installment Sale (Structured Sale)   The Ensured Installment Sale was developed by the Allstate Insurance Company in 2005 and works in a similar manner to the Private Annuity Trust. The major difference between the two is that when you sell your assets, the Annuity is purchased directly from an insurance company. The insurance company, and not the Trustee for a Private Annuity Trust, is responsible for making investment decisions and ensuring you receive Annuity payments for life.   Read more articles on Annuities, Irrevocable Trusts & Asset Protection: Types of Annuities Annuity Payment Options: Income for Life, Joint Survivor, Annuity Cons Charitable Gift Annuity Tax-Sheltered Annuity Frivolous Lawsuits Terri Schiavo: terminal patient Anna Nicole Dies without a Will Will Contest: What is it? Anna Nicole Smith’s Baby Daughter and her Will How to Hide Your Assets

Estate Planning, Financial Planning

Charitable Gift Annuity: Immediate, Deferred, College, Flexible Annuity

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What is a Charitable Gift Annuity? The different types of Charitable Gift Annuities are: Immediate Annuity, Deferred Annuity, College Annuity and Flexible Annuity. Example of a how a Charitable Gift Annuity functions.   For some people, a Charitable Gift Annuity (CGA) is a convenient way to donate funds to an educational, religious or other charitable organization. A Charitable Gift Annuity works very similar to other annuities you might purchase through your insurance company, but in this case you will receive an annuity payment directly from the organization. Typically, you donate a monetary amount to the organization of your choice and then begin receiving payments either immediately or at a predetermined date in the future.   Donations to charities are subject to the charitable tax deduction, and you are entitled to make this deduction on your income tax return for each year you make a new donation. You can choose to receive your annuity payments yearly, quarterly, or monthly, although most people choose quarterly payments. Quarterly payments from a Charitable Gift Annuity are received on the last day of the quarter, not the first.   Similar to other annuity options, Charitable Gift Annuities are subject to state and federal regulations. The American Council on Gift Annuities (ACGA) sets uniform gift annuity rates for use by charitable organizations. These rates set the recommended limits for payout rates to the donor.   If a charity stays at or below these rates, they are not required to justify that their rates are within state regulatory laws. If the charity chooses rates above those set by the ACGA then an actuary is necessary to ensure compliance to the individual state laws. Rates are determined by the age of the annuitant and when the withdrawal period for the annuity begins.   A charity may spend a portion of a donation immediately but must retain enough money in its reserve to satisfy its annuity agreement with the donor. The agreement for Charitable Gift Annuities states that the annuitant will receive fixed payment amounts for their lifetime only and not an additional period of time thereafter for their beneficiaries.   This means that once an annuitant dies, payments cease and the remainder of the annuity is absorbed by the charity. The donor can opt to extend the annuity agreement to an additional annuitant, as with the joint and survivor or two lives in succession options, but the annuity payments will be split between the two individuals and will cease after both parties have died.   Different Types of Charitable Gift Annuities   Immediate Gift Annuity If you choose an Immediate Gift Annuity, payments will begin in the payment period immediately following the final contribution date. As mentioned previously, the annuitant can choose to receive payments annually, quarterly, monthly, etc. Depending on when the contribution was made, you can request your first payment to be for the full, and not prorated amount. Deferred Gift Annuity With a Deferred Gift Annuity, the annuitant is allowed to receive payments at a future date predetermined by the donor. The date chosen must be at least one year from the contribution date, but the payout schedule offers the same flexibility as the Immediate Gift Annuity. College Annuity A parent or grandparent may want to establish a college fund for a child to offset the rising cost of higher education. In this case, they would donate money for a College Annuity which will only pay out over the lifetime of the child (annuitant). Payments usually begin at age eighteen, or when the child/annuitant is old enough to attend college. The annuitant may choose payments for life or receive larger payments spread out over the number of years they attend school. Flexible Annuity A Flexible Annuity allows the annuitant to decide the starting date for payments. Usually the annuitant chooses retirement or another date of importance to begin receiving payments. Keep in mind that one factor for the annuity payment rate is age, so you will receive larger payments if you wait until you are older.   How does a Charitable Gift Annuity Work?   You may be asking how this works in a real life example. Let’s assume you just turned seventy-five and have $25,000 that you would like to donate to your alma mater as a Charitable Gift Annuity. You opt to receive immediate annuity payments on a yearly basis, and your calculated annuity rate is eight percent. Based on your annuity agreement with your alma mater, you will receive a payment for $2000 every year for the rest of your life, and an immediate tax deduction of over $9000!   This is only an estimate, and your actual deduction will vary according to changing tax laws and changing rates established by the ACGA. You should always consult with a knowledgeable financial advisor such as Estate Street Partners before donating or investing large sums of money to guarantee your rights are protected.   Read more articles on Annuities, Irrevocable Trusts & Asset Protection: Types of Annuities Annuity Payment Options: Income for Life, Joint Survivor, Annuity Cons Private Annuity Trust: Ensured Installment Sale (Structured Sale) Tax-Sheltered Annuity Frivolous Lawsuits Terri Schiavo: terminal patient Anna Nicole Dies without a Will Will Contest: What is it? Personal Injury Lawyer to Protect Assets Anna Nicole Smith’s Baby Daughter and her Will How to Hide Your Assets

Estate Planning, Financial Planning

Will Contest: What is it? How can you Protect a Will?

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What is a Charitable Gift Annuity? The different types of Charitable Gift Annuities are: Immediate Annuity, Deferred Annuity, College Annuity and Flexible Annuity. Example of a how a Charitable Gift Annuity functions.   For some people, a Charitable Gift Annuity (CGA) is a convenient way to donate funds to an educational, religious or other charitable organization. A Charitable Gift Annuity works very similar to other annuities you might purchase through your insurance company, but in this case you will receive an annuity payment directly from the organization. Typically, you donate a monetary amount to the organization of your choice and then begin receiving payments either immediately or at a predetermined date in the future.   Donations to charities are subject to the charitable tax deduction, and you are entitled to make this deduction on your income tax return for each year you make a new donation. You can choose to receive your annuity payments yearly, quarterly, or monthly, although most people choose quarterly payments. Quarterly payments from a Charitable Gift Annuity are received on the last day of the quarter, not the first.   Similar to other annuity options, Charitable Gift Annuities are subject to state and federal regulations. The American Council on Gift Annuities (ACGA) sets uniform gift annuity rates for use by charitable organizations. These rates set the recommended limits for payout rates to the donor.   If a charity stays at or below these rates, they are not required to justify that their rates are within state regulatory laws. If the charity chooses rates above those set by the ACGA then an actuary is necessary to ensure compliance to the individual state laws. Rates are determined by the age of the annuitant and when the withdrawal period for the annuity begins.   A charity may spend a portion of a donation immediately but must retain enough money in its reserve to satisfy its annuity agreement with the donor. The agreement for Charitable Gift Annuities states that the annuitant will receive fixed payment amounts for their lifetime only and not an additional period of time thereafter for their beneficiaries.   This means that once an annuitant dies, payments cease and the remainder of the annuity is absorbed by the charity. The donor can opt to extend the annuity agreement to an additional annuitant, as with the joint and survivor or two lives in succession options, but the annuity payments will be split between the two individuals and will cease after both parties have died.   Different Types of Charitable Gift Annuities   Immediate Gift Annuity If you choose an Immediate Gift Annuity, payments will begin in the payment period immediately following the final contribution date. As mentioned previously, the annuitant can choose to receive payments annually, quarterly, monthly, etc. Depending on when the contribution was made, you can request your first payment to be for the full, and not prorated amount. Deferred Gift Annuity With a Deferred Gift Annuity, the annuitant is allowed to receive payments at a future date predetermined by the donor. The date chosen must be at least one year from the contribution date, but the payout schedule offers the same flexibility as the Immediate Gift Annuity. College Annuity A parent or grandparent may want to establish a college fund for a child to offset the rising cost of higher education. In this case, they would donate money for a College Annuity which will only pay out over the lifetime of the child (annuitant). Payments usually begin at age eighteen, or when the child/annuitant is old enough to attend college. The annuitant may choose payments for life or receive larger payments spread out over the number of years they attend school. Flexible Annuity A Flexible Annuity allows the annuitant to decide the starting date for payments. Usually the annuitant chooses retirement or another date of importance to begin receiving payments. Keep in mind that one factor for the annuity payment rate is age, so you will receive larger payments if you wait until you are older.   How does a Charitable Gift Annuity Work?   You may be asking how this works in a real life example. Let’s assume you just turned seventy-five and have $25,000 that you would like to donate to your alma mater as a Charitable Gift Annuity. You opt to receive immediate annuity payments on a yearly basis, and your calculated annuity rate is eight percent. Based on your annuity agreement with your alma mater, you will receive a payment for $2000 every year for the rest of your life, and an immediate tax deduction of over $9000!   This is only an estimate, and your actual deduction will vary according to changing tax laws and changing rates established by the ACGA. You should always consult with a knowledgeable financial advisor such as Estate Street Partners before donating or investing large sums of money to guarantee your rights are protected.   Read more articles on Annuities, Irrevocable Trusts & Asset Protection: Types of Annuities Annuity Payment Options: Income for Life, Joint Survivor, Annuity Cons Private Annuity Trust: Ensured Installment Sale (Structured Sale) Tax-Sheltered Annuity Frivolous Lawsuits Terri Schiavo: terminal patient Anna Nicole Dies without a Will Will Contest: What is it? Personal Injury Lawyer to Protect Assets Anna Nicole Smith’s Baby Daughter and her Will How to Hide Your Assets

Financial Planning

Annuity Payment Options: Income for Life, Joint Survivor, Annuity Cons

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Annuity payment options discussed. Income for life, Income for Life with Guaranteed Period and Joint and Survisor options. Review downsides and cons to an annuity.   Three Main Options When You Receive an Annuity Payment   There are three main options to choose from when receiving an annuity payment.   The first is Income for Life which guarantees you a set income for the duration of your life, but payments will cease upon your death. This option is risky since you don’t know exactly when you will die. Should you die before your annuity has been completely paid out, the insurance company, and not your beneficiaries, will receive the remainder of the annuity funds. The second payout option is Income for Life with a Guaranteed Period. This option is more appealing because it provides the same coverage as the first option, but if you die before the predetermined guarantee period expires, your beneficiaries will continue to receive payments until the guarantee period ends. A third option is known as the Joint and Survivor option. This option guarantees payment to you and another person, usually a spouse, until both of you dies. Annuity payout options are flexible and any of these options can be combined to fit your individual needs. Downsides and Cons to an Annuity   Annuities may also be used to fund your 401(k), 403(b), and Individual Retirement (IRA), although it is not generally advised to use your annuity for this purpose. The two downsides of greatest concern of an annuity are a contribution limitation, and the federal government requirement for you to begin receiving minimum payments by age 70 1/2. Additionally, once you have used your annuity to finance your 401(k), for example, you will incur a ten percent penalty for early withdrawal if you take money before you reach age 59 1/2 and there are few exceptions to paying this penalty. Once you begin receiving annuity payments you cannot change your mind, and you will continue to receive payments for the predetermined time frame established during the accumulation phase.   Read more articles on Annuities, Irrevocable Trusts & Asset Protection:   Annuity: Fixed, Variable, Equity-Based Annuity: Deferred, Immediate Annuity Frivolous Lawsuits Terri Schiavo: terminal patient Anna Nicole Dies without a Will West Palm Beach Accident Attorney Personal Injury Lawyer to Protect Assets Anna Nicole Smith’s Baby Daughter and her Will How to Hide Your Assets

Financial Planning

Annuity: Fixed, Variable, Equity-Based Annuity: Deferred, Immediate Annuity

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Anna Nicole Smith may have left a will but is a will truly enough to save her baby daughter and the problems that have ensued over the legal battles of her estate?   With much discomfort I have been forced to watch the Anna Nicole Smith probate proceedings and much more information than I wanted to know about Anna Nicole’s life events. Her reported death is everywhere: on TV, in print, magazines, online and everywhere else you can imagine. The media has made a circus of showing the legal battle going on in open court about the six-year-old will and interpretation thereof.   COULD YOU BE LEAVING THE SAME LEGACY AS ANNA NICOLE SMITH?   Would you want this to happen to you? The legal battles over the Anna Nicole Smith’s estate will go on for years. An unintended myriad of problems and a legacy left behind about her life living and beyond the grave.   A will does not avoid probate. A will does not eliminate the estate tax. If you die with a will or without a will your personal and real property has to go to probate. If you have property in more than one state, each states’ probate court has jurisdiction to probate the will.   What’s probate? Probate is a public process whereby a local court of jurisdiction (probate court) assumes the responsibility of determining who gets what. The court will determine the legitimacy of your will? Was it written with undue influence? Is it the last will? Who is the true executor (i.e. the person who will make the distributions under court jurisdiction)? Did it assign custody for minor children?   The probate court will take inventory of your personal and real property. In addition, the probate court will assign and investigate claims made against your property from potential and real creditors and even assign accountants and lawyers to drag the process.   SO WHY HAVE A WILL? WHAT GOOD IS A WILL?   There are two legitimate reasons for having a will. The will enables:   (1) The assignment of a custodial guardian of minor children. (2) The assignment of an executor.   The assignment of choosing a guardian for your minor children is the most important aspect of having a will. Choose your custodian well, based on the love of your children as if you were going to be there. Traditionally, you would not choose the executor of your will to be the guardian of your minor children.   There’s a balance to be had between the Executor and the Guardian of your children. The Executor would have some degree of control if there were to be any uncontemplated issues, later in time. All other aspects of the will can be highly contested by anyone having an interest in the outcome of any distributions. Even a very well drafted will becomes a public document and must go to probate in each state where the decedent had property.   Anna Nicole’s will is a public document; even you can get a copy if you’re interested. Final disposition and battle over her estate is going to play before our eyes for years to come. Is this what you would want?   THINGS YOU CAN DO TO AVOID LOSING CONTROL OF YOUR ASSETS   What can you do to avoid the type of media circus over your assets? Can you avoid leaving this painful legacy? An absolute and resounding YES.   Aside from the custody of minor children, a will does not provide any type of safety net over your assets. Only a Trust will avoid this public disclosure of what should be a private matter between you and your assets you leave behind.   A Trust is a Contract. If you choose to be private about your private matter, a Trust, any Trust, will avoid probate; revocable or irrevocable, grantor or non-grantor type Trusts will avoid the probate process. A Trust is not just for the rich. Any one with $200,000 or more should have a Trust.   A perfect Trust for under $500,000 is a living Trust, or a revocable Trust to avoid the probate process. Any one with significant assets should have an Irrevocable Trust. While any Trust will avoid the probate process, only an Irrevocable Trust will avoid the probate process and avoid the inheritance tax or the estate tax.   WHAT’S THE DISTINCTION BETWEEN REVOCABLE AND IRREVOCABLE TRUSTS?   With a Revocable Trust the word “revocable” means that you have sufficient strings to revoke the contract; nullify and void it. While it will avoid going to probate and drag your dirty linen through the public process, it will not avoid the inheritance/estate tax, because on the date of your death you still owned your assets in your name.   For purposes of taxation and civil liability the “revocable” strings attached, means that you did not give up power to control and “own” on a long-term basis your assets; therefore, you are the “deemed” owner of the assets. The Estate Tax is based on what you own in your name at the date of your death. So, the Probate Process is about who gets what; the Estate Tax is about who owns what and what’s it worth for the purpose of taxation.   The estate tax is based on the “fair cash value” of your property of personal estate or real estate at the time of your death not at the time you bought it. Items that are included in your estate are cash, CD’s, real estate, investment accounts, IRA’s, vacation spot, art, jewelry, antiques, boats, planes or anything of value that could be converted to cash or near cash. Only an Irrevocable Trust avoids both the Probate Process and the Estate/Inheritance Tax.   THE IRREVOCABLE TRUST   An Irrevocable Trust is a Contract whereby you give up “any ownership claims” against your assets repositioned/transferred from you to your Irrevocable Trust. The key to dissolve your ownership claims is with

Financial Planning

Financial Directive Powers: Real Property, Business, Medicaid, Taxes, Personal Property

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Financial Directive powers and how it differs from Power of Attorny. Financial Directive powers in real property, personal property, banking poweres, tax returns, family maintenance and social security issues like Medicare and Medicaid.   What if I already have a power of attorney? How will the financial directive help me still? A boilerplate power of attorney is intended to give your agent general powers. A Financial Directive has very specific powers granted by the Principal (you) to the Agent, as for example but NOT all inclusive:   Collection powers to forgive, request, demand, sue for, recover, collect, receive, hold all such sums of money debts, dues, commercial paper, checks, drafts, accounts, deposits, legacies, bequests, devises, notes, interests, stock certificates, bonds, dividends, certificates of deposit, annuities, pension, profit sharing, retirement, social security, insurance and other contractual benefits and proceeds, all documents of title, all property, real or personal, intangible or tangible property and property rights, and demands whatsoever, liquidated or unliquidated, now or hereafter owned by, or due, owing, payable or belonging to, you or in which you have or may thereafter acquire an interest. Real Property Powers to bargain, contract, agree for, option, purchase, acquire, receive, improve, maintain, repair, insure, plat, partition, safeguard, lease, demise, grant, bargain, sell, assign, transfer, remise, release, exchange, convey, mortgage and hypothecate real estate and any interest in it (and including any interest which you hold with any other person as joint tenants with full rights of survivorship, or as tenants by the entireties), lands, tenements and hereditaments, for such price, upon such terms and conditions, as your Agent shall determine. You can add more specific powers addressing potential circumstances more specific to your circumstance. Personal Property Powers to bargain, contract, agree for, purchase, option, acquire, receive, improve, maintain, repair, insure, safeguard, lease, assign, sell, exchange, redeem, transfer, mortgage, hypothecate and in any and every way and manner deal in and with goods, wares, merchandise, furniture and furnishings, automobiles, bills, notes, debentures, bonds, stocks, limited partnership interests, certificates of deposit, commercial paper, money market instruments, and other securities, chooses in action and other tangible or intangible personal property in possession or in action, for such price, upon such terms and conditions, as your Agent shall determine…and more specifically to your circumstance. Banking Powers to make, draw, sign in your name, deliver and accept checks, drafts, receipts for moneys, notes, or other orders for the payment of money against, or otherwise make withdrawals from any commercial, checking or savings account which you may have in your sole name or in joint name with your spouse or other person(s), in any bank or financial institution, for any purpose which your Agent may think necessary, advisable or proper; and to endorse and negotiate in your name and deliver checks, drafts, notes, bills, certificates of deposit, commercial paper, money market instruments, bills of exchange or other instruments for the payment of money and to deposit same, as cash or for collection, and cash into any commercial, checking or savings account which you may have in your sole name or in joint name with your spouse or other person(s), in any bank or financial institution and to carry on all your ordinary banking business. Specifically, you, the Principal empower your Agent to do all of the following: Continue, modify, and terminate an account or other banking arrangement made by or on behalf of the Principal. Establish, modify, and terminate an account or other banking arrangement with a bank, trust company, savings and loan association, credit union, thrift company, industrial loan company, brokerage firm, or other financial institution selected by the Agent. Hire or close a safe deposit box or space in a vault. Contract to procure other services available from a financial institution as the Agent considers desirable. Withdraw by check, order, or otherwise money or property of the Principal deposited with or left in the custody of a financial institution. Receive bank statements, vouchers, notices, and similar documents from a financial institution and act with respect to them. To have access to any safe deposit box of which you are a tenant or co-tenant with full power to withdraw or change from time to time the contents of it; and to exchange or surrender the box and keys to it, renew any rental contract for it, and to do all things which any depository, association or bank or its agents may require, releasing the lessor from all liability in connection with it. Borrow money at an interest rate agreeable to the Agent and pledge as security personal property of the Principal necessary in order to borrow, pay, renew, or extend the time of payment of a debt of the Principal. Make, assign, draw, endorse, discount, guarantee, and negotiate promissory notes, checks, drafts, and other negotiable or nonnegotiable paper of the Principal, or payable to the Principal or the Principal’s order, receive the cash or other proceeds of those transactions, and accept a draft drawn by a person upon the Principal and pay it when due. Receive for the Principal and act upon a sight draft, warehouse receipt, or other negotiable or nonnegotiable instrument. Apply for and receive letters of credit, credit cards, and traveler’s checks from a financial institution, and give an indemnity or other agreement in connection with letters of credit. Tax Returns. To prepare, execute and file tax reports, tax returns, tax declaration, tax forms and tax statements for any and all tax purposes including income, gift, real estate, personal property, intangibles tax, single business tax, or any other kind of tax whatsoever, to pay such taxes and any interest or penalty or additions to make and file objections, protests, claims for abatement, refund or credit in relation to any such tax proposed, levied or paid; to signify, as may be required by the 1986 United States Internal Revenue Code, as amended, or any corresponding future United States law, your consent to having one-half of any gift(s) made by your spouse considered as made by you

Estate Planning, Financial Planning

Financial Directive: Advanced Estate Tax Planning, Power of Attorney Issues

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Defines what is a Financial Directive and its need in advanced estate tax planning. Compare the Financial Directive with general Power of Attorney. What provisions you do not want to assign to your agent.     Watch the video on Financial Directive: Advanced Estate Tax Planning, Power of Attorney Issues   Like this video? Subscribe to our channel.   I recently wrote about the absolute need for a Medical Directive granting the “exclusive power” to your Agent for the purpose of communicating your healthcare wishes and to instruct those in charge of your medical care and to respond to the actual facts and variables known when an actual healthcare decision needs to be made. Your Medical Directive becomes effective, when:   You cannot communicate your own wishes for your medical care: Orally, In writing, or Through gestures, and You are diagnosed to be close to death from a terminal condition, or to be permanently comatose, and The medical personnel attending to your care are notified of your written directions.   What is a Financial Directive?   To summarize, a “Medical” Directive is a legal Instrument addressing the issue(s) of your healthcare and a “Financial” Directive is legal financial Instrument that empowers your Agent over all your financial matters and to exercise or perform any act under a recognized “Principal / Agent” relationship, with power, duty or right of any obligation whatsoever over everything that you now presently have or may thereafter acquire in the future, relating to any person, matter, transaction or property, real or personal, tangible or intangible, now owned by you or thereafter acquired by you, including, without limitation, general powers and specifically enumerated powers as to each possible event or circumstances.   In order for your Financial Directive to be legally binding on all third parties, the third parties so notified of your Principal/Agent relationship, your instrument must be in writing, properly witnessed or notarized with power to indemnify all those who accepted it in good faith.   Your Financial Directive should grant your Agent full power and authority to do everything necessary in exercising any of the powers as fully as you might or you could do if you were personally present, with full power of substitution or revocation, ratifying and confirming all that your Agent may lawfully do or cause to be done by virtue of your Financial Directive.   Essential Estate Tax Planning: The Financial Directive   A Financial Directive should be part of your estate tax planning.   Your Financial Directive Instrument should address the following general powers and specifically enumerate those powers as to each possible event or circumstance: Demand, receive, and obtain by litigation or otherwise, money or other thing of value to which the Principal is, may become, or claims to be entitled, and conserve, invest, disburse, or use anything so received for the purposes intended. Contract in any manner with any person, on terms agreeable to the Agent, to accomplish a purpose of a transaction, and perform, rescind, reform, release, or modify the contract or another contract made by or on behalf of the Principal. Execute, acknowledge, seal, and deliver a deed, revocation, mortgage, lease, notice, check, release, or other instrument the Agent considers desirable to accomplish a purpose of a transaction. Prosecute, defend, submit to arbitration, settle, and propose or accept a compromise with respect to a claim existing in favor of or against the Principal or intervene in litigation relating to the claim. Seek on the Principal’s behalf the assistance of a court to carry out an act authorized by your Financial Directive Instrument. Engage, compensate, and discharge an attorney, accountant, expert witness, or other assistant as it becomes necessary or relevant to principal objective(s). Keep appropriate records of each transaction, including an accounting of receipts and disbursements. Prepare, execute, and file a record, report, or other document the Agent considers desirable to safeguard or promote the Principal’ s interest under a government statute or governmental regulation. Reimburse the Agent for expenditures properly made by the Agent in exercising the powers granted by this Instrument. In general, do any other lawful act with respect to the subject at hand.   When does Your Financial Directive Become Effective?   Your Financial Directive becomes effective when you are considered disabled or incapacitated.   For purposes of your Financial Directive Instrument, “disabled or incapacitated” means when a physician certifies in writing at a date later than the date of your Instrument was executed that, based on your physician’s medical examination of you, your doctor declares you mentally incapable of managing your financial affairs.   Your Financial Directive should have a paragraph to “legally authorize your/the physician” who examines you to disclose your physical or mental condition to another person for validation. You may even authorize a second physician for a second opinion. Subsequent to this verification and disclosure of your incapacitated condition, a third party that accepts your Financial Directive is fully protected from any action taken.   Financial Directive Compared to General Power of Attorney   I am reminded of cases where the spouse is precluded to sit in important business meetings of which her temporarily incapacitated husband was a member, and decisions were being made affecting her husband’s interest in the business. While a general power of attorney may have been sufficient, but more likely would have required further court action. The Financial Directive is a significantly stronger Instrument than a general power of attorney, and would have specifically addressed issues concerning the spouse’s ability to sit and vote with the Agent, in decisions affecting the business, and more specifically her ownership interest in the business, with ability to bring in professional assistance to consult with her on such important matters.   Cautionary Provisions Within Your Financial Directive You Do Not Want to Assign to Your Agent   While we have enumerated the specifics of the powers to your Agent, there are some powers you would not want your Agent to have:   Your Agent cannot execute

Financial Planning, Wealth Management

Family Limited Partnership: Disadvantages

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Family Limited Partnerships can be abusive tax-free wealth transfers. How does the family limited partnership work and what are the disadvantages? To discount estate tax valuations of underlying assets used as a tax deferral strategy when gifting to the younger generation.     Watch the video on Family Limited Partnership: Disadvantages   Like this video? Subscribe to our channel.   Family limited partnerships, one such traditional limited partnership, have been over marketed as wealth transfer devises. Family limited partnerships are red flags for the Internal Revenue Service as abusive tax-free wealth transfers. Family partnerships have been widely propagated as the devise of choice for transferring the family business and other highly appreciated assets tax-free from parents to their children.   Different programs are available to transfer ownership and the management of a family business. The Family limited partnership is nothing more than the traditional partnership for which “only family members” can be partners as either general partners or limited partners.   Did you know that general partners of family partnerships are exposed to frivolous lawsuits, court judgments, and creditor seizures? The problem is avoided if an irrevocable trust such as the Ultra Trust® (not a revocable trust) is used as the general partner of your family limited partnership.   How does the Family Limited Partnership Work?   The older generation (i.e. parents) become owners with 2% stake in the business and thereby establish themselves as general partners in a family limited partnership. Over a period of time, by gifting limited partnership interests, the younger generation (i.e. children) end up as limited partners with a 98% stake in the business. This all sounds wonderful and an almost ideal tax deferral strategy. But is there a catch to all of this great tax-free wealth transfer and strategy?   Gifting to the Younger Generation with a Family Limited Partnership   The result is highly appreciated assets are transferred from the estate of the parents to the children presumably tax-free. When carefully and properly implemented the family limited partnership is a useful tool. But there are better ways to achieve a significantly more efficient transfer of wealth.   Did you know the IRS considers these family limited partnership arrangements abusive when overzealous practitioners over claim two commonly used discounts in the valuation of underlying (highly appreciated) assets in estate tax valuations? The IRS comes down significantly hard, when these arrangements are made over a deathbed especially in the hours or days before death. Please note that there’s an increasing congressional opposition to the use of family limited partnerships.   Two Discount Estate Tax Valuations of Underlying Assets in Family Partnerships are:   Lack of marketability discounting which is typically 15% to 35% reduced estate tax valuation due to a limited market for the business or the assets, if sold. Limited minority interest discounting which is typically an additional 15% to 35% reduced estate tax valuation to the minority position (lack of control) in the business or underlying assets. Combined, these two discounts can amount up to 70% or more. But how much is too much?   Disadvantages of Family Limited Partnerships:   Gifted property does NOT receive the “stepped-up” basis treatment that bequeathed property receives. Therefore the children, who have received “gifted partnership interests” may face unexpected capital gains tax liability. If discounting is reasonably and carefully applied, it’s a significant tax saving devise. Keeping in mind that it’s great for the parents, not so good for the children because of the unexpected capital gains tax liability that can be imposed on the children. General partners are not insulated from potential lawsuits, judgments, or creditor seizures. This problem can be avoided if the general partner is the Ultra Trust. The parents as general partners are 100% in control of the assets and 100% responsible for a potential lawsuit. General partners will have no asset protection in these cases.   Family Business Succession Estate Planning:   If you have an interest in family business succession planning, there are several financially-engineered devises addressing the following important issues: Ownership of family business – Which of the family members will become the future owners of the business? What method or combination of methods is the most effective in consideration of asset protection and wealth preservation, elimination of probate, deferral of capital gains taxes, elimination of estate taxes, and reduction of taxes on earned income or possibly eliminate income taxes. Control of your family business – Which of the family members will become the future managers. Not all family members have management skills. Some family members should have voting control, while others must become silent partners. Dispute resolution – How will family members deal with potential disputes? What mechanism is fair to controlling and non-controlling family members? Employment – Which family members will be employed by the business?   Read more traditional limited partnerships, your financial goals, estate plannning, deferring taxes, deferring income tax, deferring capital gains tax by clicking here: Limited Partnership Financial Goals Financial Estate Planning Defer Taxes Defer Income Taxes Defer Capital Gains Tax

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