Griepp and McRee: Estate Planning Articles tag:www.griepplegal.com,2007:/articles//2 2007-06-29T20:23:26Z Certified Specialists in Estate Planning firm located in Pasadena, California. Our mission is to translate that love and concern into an estate plan that reflects your values, attitudes and the uniqueness of your family. Movable Type 3.33 What is your "estate?" tag:www.griepplegal.com,2007:/articles//2.29 2007-06-21T01:38:02Z 2007-06-29T20:23:26Z All intangible assets: Bank accounts Annuities Stocks Bonds Mutual funds Limited partnership interests Small business ownership interest Life insurance face amounts (payout to beneficiaries) Retirement plan proceeds (what you have now and what’s left when you die)... All intangible assets:
  • Bank accounts
  • Annuities
  • Stocks
  • Bonds
  • Mutual funds
  • Limited partnership interests
  • Small business ownership interest
  • Life insurance face amounts (payout to beneficiaries)
  • Retirement plan proceeds (what you have now and what’s left when you die)
    • ]]> All tangible assets:
  • House and other real estate
  • Automobiles
  • Jewelry
  • Precious metals, coins
  • Collectibles, antiques, heirlooms
  • Other personal possessions
    • yourestatebig.jpg In short, your estate is your "stuff!"
    © 1996 Galen F. Griepp, Attorney at Law
    ]]>     Business Succession Planning: Is Your Legacy At Risk? tag:www.griepplegal.com,2007:/articles//2.28 2007-06-21T00:53:41Z 2007-06-21T22:20:08Z The question of who will take over the reins, when the entrepreneurs and business owners of the 1970's and 80's reach retirement age, will be a major concern at every level of American business as we move into the 21st... The question of who will take over the reins, when the entrepreneurs and business owners of the 1970's and 80's reach retirement age, will be a major concern at every level of American business as we move into the 21st century. So says a survey of CPAs, conducted by the American Institute of Certified Public Accountants (AICPA). More than 58% of respondents to the survey, which was sent to 4200 CPA/consultants in every area of the country, ranked inadequate succession planning as the biggest threat facing small to mid-sized businesses.* "Clearly, CPAs see inadequate succession planning as a wide-spread problem," says Joseph Puleo, a top executive with AICPA. "This lack of preparation will have immense implications as businesses mature and strive to provide family security, community job opportunities, and wealth for succeeding generations." Indeed, inadequate or inappropriate planning of all sorts is plaguing closely-held businesses. Nearly half of all survey respondents say it will pose a "severe or serious threat" to companies with fewer than $5 million in sales, often family owned and managed. Another challenge for family businesses will be lack of managerial skills in key positions, say the consultants. According to the survey, family businesses are often caught up in day-to-day operations and are not well prepared to deal with a range of pressing management issues. Particularly cited were problems making use of valuable new technologies, evaluating cash management strategies, and a lack of awareness of cost-saving health care options and alternatives. Many respondents observed that smaller companies tend not to maintain asset protection systems or understand alternatives to litigation. For businesses that are largely family owned, key business owners must give attention to their personal estate plans and coordinating business succession strategies. Will the owner be able to retire when the time is right? If the owner suffers a disability, have steps been taken to insure that income continues for the owner, without a deterioration in the quality of business management? In the event of the death of an owner, are buy/sell mechanisms in place, so that the business and the family will experience minimal disruption?
    If you're just assuming there's someone waiting in the 'wings,' your business planning may be strictly 'for the birds…'
    In our law practice, it is not uncommon to find that a successful family business has developed over a period of years, often without written agreements between formal or informal partners, especially family members. In most cases, "junior" or "junior miss" were youngsters when the parents began their business, and the integration of the younger generation into the business has occurred without real structure, often to the great relief and delight of the parents. For some, even the thought of discussing succession issues with family members is highly unsettling.
    Business succession planning becomes the great "unspoken issue," often featuring sets of false assumptions about whom will do what, when and how.
    Unfortunately, these sets of assumptions often differ between generations and individuals, and, as any seasoned estate planning lawyer will tell you, when the time comes to pass the reins of management and ownership, "assumptions" are the basis of many a heartbreaking family feud. Avoiding a family split may only be a matter of taking a few simple steps. In a meeting with a trusted attorney, take your personal (family) estate plan documents with you. If your estate plan reflects your attitudes and wishes, it will provide the attorney with foundational guidelines that will help in determining your best business succession strategy. If you are unfamiliar with the details of your own family estate plan (a not-uncommon situation), ask the lawyer to explain your plan to you, in plain language. Maybe it needs to be changed to reflect changes in your life, or to correct features that are not consistent with your point of view. Your lawyer may suggest taking a first step, which could be a re-evaluation of your choice of business form (corporate, partnership or family partnership, limited liability company, sole proprietorship, for example). Another recommendation may be to have the principals and owners of the business enter into buy/sell agreements, which can provide an unambiguous mechanism for transition of management and ownership. Such agreements can facilitate retirement, accommodate disability, and make the after-death transition a smooth one. If appropriate, your lawyer might suggest more sophisticated planning techniques, such as irrevocable trusts, employee stock ownership plans, or a tax-advantaged charitable gift program, for example.
    It's important to: identify your beliefs and attitudes; be honest about your family needs and problems; objectively evaluate the needs of your business; be willing to pay for expert help; and to the maximum extent possible, involve your family members and closest managers in the planning or pre-planning process.
    A few hours in consultation with an expert now can save you, and those closest to you, from any number of problems, including unnecessary tax liabilities, intra-family alienation, business management disruption, competitor takeover, court-ordered liquidation, and a sad end to the lifetime body of achievement and goodwill that you have labored to build. * Survey by Management Consulting Services Division of AICPA, as reported in Business Life, May 1995
    © 2002 Sharon McRee, Attorney at Law
    ]]>     Long-Term Care Insurance tag:www.griepplegal.com,2007:/articles//2.18 2007-06-20T21:39:37Z 2007-06-21T01:31:35Z A new insurance product has come onto the market within the past few years, and it may be one of the most important investments an individual can make. Long-term care insurance is a product that promotes "planning," not "crisis management."... A new insurance product has come onto the market within the past few years, and it may be one of the most important investments an individual can make. Long-term care insurance is a product that promotes "planning," not "crisis management." Do you recall the statistic noted earlier in this chapter? Depending upon your age, you are four to seven times more likely to become disabled in any given year, than you are likely to die! Yet there are millions upon millions of life insurance policies existing in this country, and fewer than one million long-term care policies. What is long-term care insurance? Long-term care insurance is designed specifically to provide pre-determined benefits (payable to a policy holder, a care provider or to an institution) to cover the expenses of long-term (after-hospital) care. Long-term care is generally defined as the necessary ongoing use of skilled, semi-skilled or sometimes unskilled assistance in carrying out one or more of the ordinary "activities of daily life." A policy typically will be written with an "exclusion" period (waiting period), and may have other limits built into it. There are many options for consumers to consider, each choice having an effect on the cost of premiums for this type of coverage. Do I have to be in a nursing home to receive policy benefits? Long-term care insurance is designed to cover all or part of the cost of confinement in a nursing home or convalescent facility, but (depending upon the terms of the policy), it can also provide cash benefits for any type of assistance that is medically necessary.This means that, unlike the standards imposed for Medicaid benefits, an individual with long-term care insurance may remain in his/her own home (or any other location) and still receive all or part of the cost of professional care or even unskilled help, if made necessary because of a disability. Each policy is different, but as a general rule, the standard for determining whether the policy will pay a benefit is the loss of the ability to perform a certain number of the activities of daily living. The exact number of "limitations" a policyholder must manifest is determined by the language of the policy, and can be as minimal as impairment of one or two activities, or can require impairment of three, four or more. The "activities of daily living" include: bathing; feeding; toileting; dressing; moving about; and other similar tasks. Many people who are in recovery or rehabilitation are only limited in certain activities and may need to engage unskilled or semi-skilled help in the home to maintain normal functioning. Others will require assistance with several activities, and still others are best served in the environment of a professional care facility. Long-term care insurance is now widely available and consumers may customize policies to their own projected needs, ranging from policies which offer payments when there is a minimal "loss" of a daily activity, to those requiring loss of several; policies covering only professional care facilities, to those paying cash directly to an insured, who may choose his/her own location and level of help; those with no benefit waiting period, to those with one, three, or six-month exclusions. In general, the benefit period (including waiting period) will begin when there is a so-called "medical necessity" for assistance with one or more activities of daily living, as determined by a physician. What will long-term care insurance cost? The cost of long-term care policies is widely variable, since many policies can be tailored to specific needs. Costs can be kept at a minimum by building into the policy: longer waiting periods for benefits, a requirement that the insured be impaired in several activities of daily living, or by limiting the maximum amount of daily, yearly, or lifetime benefit available, among other cost-saving options. There is no rule of thumb for predicting policy costs, but obviously a younger person, selecting more restrictive policy terms, will have the lowest premium. For example, the annual premium for a long-term care policy with inflation protection may run about $2000 for someone age 65.(See A Shoppers Guide to Long-Term Care Insurance, published by National Association of Insurance Commissioners, 1993) If a policy is purchased at age 75, the premium will generally be 2.5 (two and a half) times greater than at age 65, and it will be six times greater than a policy purchased at age 55. Obviously, if you are considering the purchase of a long-term care policy, you cannot begin your inquiry too soon! Can I afford long-term care insurance? Given the cost of prolonged health care and the dramatic increase in life expectancy, perhaps the better question is: can I afford NOT to have long-term health care insurance? Remember, as more insurance companies enter the LTC arena, there will be more policies with more options to choose from. These choices will allow you to keep the cost of your premiums at a level that is manageable for you. Some of the factors to consider are:
    • do I want to pay additional premium for "inflation protection?" [automatic increases in the benefits I am entitled to]
    • will I be able to continue to pay the premium, even after I retire or must live on a fixed income?
    • how long a "benefit waiting period" should I accept? Am I sure that I can "pay my own way" during that period?
    • should I accept a limited benefits package, because I know I can rely on other sources of help or income?
    • can I coordinate my private long-term care policy with Medicare or other insurance coverage that is available to me?
    How do I choose an insurance company? You may be most comfortable approaching your current life insurance (or health insurance) agent, and inquiring about LTC insurance. But don't stop at that. A careful consumer will do some comparison shopping. When considering any policy, be sure that the company underwriting it is financially stable. Several private companies or rating agencies conduct financial analyses of insurance companies and grade them. These ratings are published, and are available at most public libraries. Ask for insurance ratings publications by any of these companies: A.M. Best; Duff and Phelps; Moody's Investor Service; Standard and Poor's. If you have questions about the agent or insurance company, contact your state's insurance department. (Look under State Government in the front of your white pages telephone book.) Compare policies offered by at least two reputable and solid insurance companies. Ask the selling agent to explain the policy to you, making reference to the actual policy document during your conversation. He/she should show you where each term, condition and obligation is clearly written in the text of the policy. If you decide that you do not want a policy after you purchase it, you can cancel it and receive a premium refund, if you take action within a certain period of time. This is called the "free look" period, and is 30 days in most states.
    Crisis or Comfort?
    It is virtually self-evident in most cases that long-term care insurance is a wise investment and a sound alternative to possible Medicaid impoverishment. Additionally, long-term health care coverage can offer you many options that are not available using government programs. With private insurance, you can choose to stay in your own home. You may be able to provide fair payment to a friend or relative who assists you. You may structure your policy so as to keep pace with inflation in medical costs. You can maintain the right to make many personal choices which are not available to a government-aid recipient. Whatever long-term care "plan" you put into place, be it purchasing insurance or planning to qualify for Medicaid, it is important to take steps now to guarantee that your plan will be successful. Don't delay that meeting with your insurance agent and your estate planning attorney. Their advice and assistance could save you and your family thousands of dollars and unlimited heartache. When it comes to facing "crisis" or "comfort," planning makes all the difference. Dignity, preparation, peace of mind, maintenance of quality of life, preservation of your estate. All of these are valuable and achievable goals, which you can meet if you take steps now to anticipate a period of disability and plan now for its management. What are you waiting for?
    Copyright © 2004 Sharon Stuart McRee
    ]]>     Your Long-Term Care: Medicare and Medicaid tag:www.griepplegal.com,2007:/articles//2.4 2007-05-29T07:44:04Z 2007-06-29T20:26:14Z Most of us have given only passing thought to the subject of long-term care. Even when we have witnessed a friend or family member suffering through the complications of a long recuperation or rehabilitation, most of us still tell ourselves,... Most of us have given only passing thought to the subject of long-term care. Even when we have witnessed a friend or family member suffering through the complications of a long recuperation or rehabilitation, most of us still tell ourselves, "that won't happen to me!" "I will never need a home care assistant!" "I will rely on my children to help me!" "I will stay in my own home, no matter what!" "I will use government benefits to pay for the nursing home that I choose!" The truth is that, in any given year, each of us (depending on our age) is four to seven times more likely to become disabled than to die! To put this in perspective, let's look at it this way: for every adult death, there are between four and seven adults the same age, who do not die from their illnesses, injuries or accidents, but become disabled and need some type of special care or rehabilitation. Nowadays, we are more focused and aware of our own medical "risk factors," whether they arise from personal or family medical history. This awareness offers us the opportunity to take preventative measures with regard to risks from conditions such as heart attack, stroke, osteoporosis, cancer, depression, and obesity, and to adopt lifestyle changes that help us to live longer than any previous generation. Let's take an optimistic point of view, assuming that you understand your own health risks, and modify your lifestyle accordingly. You follow your doctor's advice and feel confident about the medical care you will receive if you experience an illness or injury. You know exactly how your medical costs will be paid. Unfortunately, most of us tend to forget that even successful treatment for a serious illness (or debilitating injury) includes a period, following the conclusion of medical treatment, when we are in recovery or rehabilitation. As any doctor will tell you, it is difficult to predict the length of any patient's recover period, or even if a given patient will ever fully recover. Because we feel confident about ourselves and our medical providers, we can be caught unprepared when the need arises for nursing home care, rehabilitative services, or in-home assistance. This article concerns itself the management of your recovery or, recuperation from an illness or injury, and the matter of your control, care and comfort over the long-term.

    What are my Options?

    Most of us understand that the federal government's Medicare program will pay for certain medical treatments. But Medicare is not designed to pay the costs associated with long-term care, whether provided in your home or in a health care facility.If Medicare will not pay these costs, how will you receive the quality of care that you need and deserve? Will you have any control over the choice of facility or care providers? Will your spouse (or your estate) be impoverished to pay for (or reimburse) your care?Some people have sufficient personal assets to pay for nursing home care, or for an in-home assistant, without substantially affecting the lifestyle of a spouse or depleting their assets. Others are "quite sure" that they can rely on their adult children to provide money or care, a point of view that often overlooks the possibility that highly-skilled medical attention will be needed, or that adult children may be limited in the degree of help and care they can offer. There are those who plan to rely on government benefits, such as those available through the Medicaid program, or through the Veterans Administration. And then there are those who have anticipated the possibility of needing long-term care, and purchased long-term care insurance. Let's take a look at the federal medical assistance programs, Medicare and Medicaid, and get acquainted with one of the newest and most important insurance products: long-term care coverage.

    Medicare

    Medicare is a federal insurance program that is paid out of Social Security deductions. All persons over age 65 are entitled to Medicare benefits, as are certain other disabled workers. How does Medicare work? Medicare has two parts: hospital insurance (part A) and medical insurance (part B). Participants in the Medicare program must meet certain deductible and co-payment requirements, as well as pay monthly premiums for part "B" coverage. Medicare does not pay for all medical expenses, and usually must be supplemented with private insurance (often called "medi-gap" coverage), or enrollment in an HMO that contracts with Medicare. What about my recovery or rehabilitation? Medicare will pay the costs of medical treatment for an "acute" illness or injury, and will cover all of the cost for up to 20 days of skilled nursing care in a Medicare-cooperative facility. For days 21 through 100, you or your insurance company must pay part of the cost. Medicare offers no payments for skilled nursing care beyond 100 days, and never pays for care that is other than "skilled care," such as an in-home personal assistant. If you think about the most common causes of illness and disability in the adult population, it seems fairly clear that recovery periods of over 100 days are not uncommon. Consider the circumstances following any of these common medical procedures: heart bypass surgery; stroke treatment; cancer therapy or surgery; joint replacement or repair; organ transplant; back injury and treatment; complications of diabetes. Would you be ready, willing and able to take over the costs of your skilled nursing care or to shoulder the full cost of semi-skilled help in your own home? There is a substantial likelihood that you will need long-term care. One national study projects that 43% of those who turned age 65 in 1990 will enter a nursing home at some time during their lives. Among all persons who live to age 65, about one in three will spend three months or more in a nursing home; about one in four will spend one year or more in a nursing home ("Lifetime Use of Nursing Home Care," The New England Journal of Medicine, February 28, 1991). Are you relying on another government program, Medicaid, to pick up the costs of continuing care? Is that a safe assumption on your part? Let's take a look at the federal and state cooperative program called Medicaid.

    Medicaid

    Medicaid (known as MediCal in California) was conceived and implemented during Lyndon Johnson's ambitious "Great Society," to provide medical care for persons on welfare, the disabled, and other low-income recipients. Over the years, Congress and the states have made adjustments to the program, lending more attention to eligibility for benefits and to stricter standards and procedures leading to government recovery of money spent for an individual's medical care. Medicaid is not a part of the Medicare program. Whereas almost all U.S. residents over the age of 65 are entitled to Medicare, only those with specific needs and qualifications are eligible for Medicaid. Therefore, Medicare is referred to as an "entitlement program," and Medicaid is a "needs-based program." Am I eligible for Medicaid benefits? To be eligible for receipt of Medicaid benefits, an individual must meet particular requirements. Certain categories of people are automatically eligible (including children and pregnant women, certain welfare recipients, and those receiving Social Security disability payments.) Also eligible for receipt of Medicaid benefits are indigent [poor] adults residing in skilled nursing or intermediate care facilities. There are strict rules concerning who is "sufficiently poor" to be eligible for Medicaid. What services does Medicaid cover? Medicaid will pay for health care services which are "medically necessary." These include some prescriptions, doctor visits, adult day health service, some dental care, ambulance services, some home health, x-ray and lab costs, orthopedic devices, eyeglasses, hearing aids, some medical equipment, etc. Nursing home care is a separate consideration, and is covered if ordered by a physician and deemed "medically necessary." What about my "share of cost?" All states require Medicaid recipients to bear some share of the cost of their care. For example, the State of California has mandated that persons receiving Medicaid medical treatment benefits, who are receiving income (from any source) of over $600 per month must contribute a portion of their income toward their medical bills. As a rule of thumb, this "share of cost" obligation would be roughly equal to the amount of income which is in excess of $600. But those who receive Medicaid benefits for long-term care (nursing home) must share a portion of their care costs if they have monthly income in excess of $35! Since virtually all income over $35 per month must be contributed as a "share of cost," long-term care expenses can easily consume all income from all sources. "Share of cost" requirements are linked to income, and come into play after it has been determined that an individual is otherwise eligible to receive Medicaid benefits. Eligibility is linked to the size and character of the assets in an estate, and eligibility may not be granted to those whose estates (assets) exceed certain strict limits, even when the individual has little or no income. If you have been of the belief that you will be eligible to receive Medicaid because you are in a minimum-income category, it is important for your read the following information. How will the size of my estate (assets) affect my eligibility to receive Medicaid? To qualify for Medicaid an individual must demonstrate that he/she has limited resources available. Since 1989, the property (asset) limit for one person has been set at $2000 in most states. Not all assets are "counted" when it comes to determining eligibility to receive Medicaid benefits. Property that is not counted is referred to as "exempt" property. Property which is included in the $2000 calculation is known as "non-exempt" property. Let's use the rules of the State of California as our example, remembering that each state may (to some extent) customizes its own rules.
      In California, the following property is generally exempt and therefore is not counted in determining eligibility (but be sure to check on the rules and regulations of your home state):
    • The home. A residence is totally excluded from the evaluation of eligibility if it is the principal residence, including a mobile home, houseboat, or even a multi-unit dwelling, so long as the recipient lives there. Under certain circumstances, the exemption may be lost if steps are not taken to secure it, particularly if a nursing home stay is lengthy.
    • Other real property may be considered an exempt asset if it is used in whole or in part as a business or means of self-support.
    • Household goods and personal effects are totally exempt.
    • Jewelry is exempt only to very narrow limits (including wedding jewelry, heirlooms, and other jewelry valued at $100 or less.)
    • One car is generally exempt if used for the benefit of the applicant or if needed for medical reasons.
    • Whole life insurance policies with a total face value of $1500 or less are exempt. If the face value of all of the life insurance policies exceeds $1500, the cash surrender value is counted toward the asset threshold of $2000.
    • Term life insurance is totally exempt.
    • Burial plots are exempt. Prepaid irrevocable burial plans of any amount are exempt, along with $1500 in designated burial funds.
    • IRAs and work-related pensions are generally exempt if applicant is receiving payments from the retirement plan. The retirement fund is not exempt if the applicant does not draw interest and principal from it.
    • Non work-related annuities are exempt so long as the payments are calculated so as not to exceed the payee's projected life expectancy.
    • Cash reserves of up to $2000 are exempt, and may include liquid assets such as savings, checking funds, and excess cash surrender value of life insurance.
    • Spousal resource allowance. Each state has its own rules with regard to the value of property that may be owned by the "well" spouse. In California, for example, the non-Medicaid spouse may retain up to approximately $81,500 in liquid assets, not including the home.
    Any assets above the property reserve limit of $2000 (including any asset that is not exempt) will disqualify an individual from ELIGIBILITY to receive Medicaid benefits. Will my home always be given special regard in a Medicaid situation? Not necessarily! In California, for example, a home will continue to be considered "exempt" as to the eligibility limits so long as the owner intends to return to the home and states this in writing. Certain other circumstances will sustain the exemption of the home, including a spouse or child under the age of 21 or a dependent relative continuing to reside in the home. The greatest risk at this stage (while still receiving Medicaid benefits) would be the loss of the home exemption where there is no spouse in residence. For example, a home exemption is at risk if the applicant's spouse is deceased or is, herself/himself, confined in a care facility! If a home exemption is withdrawn, the homeowner would then, virtually without question, have assets sufficient to cause non-eligibility for continuing Medicaid benefits. This does NOT mean that the "exempt" home is protected against claims by the state to obtain repayment (recovery) of the money spent on the care of a Medicaid patient. Can't I give away assets or spend my money to become eligible for Medicaid? An individual whose personal property is above the Medicaid resource limit may "spend down" to $2000, but note that giving away assets may have a serious effect on Medicaid eligibility. In most cases a person can give away all of his/her assets without any consequence, and thus become eligible for Medicaid, with one large exception: eligibility for Medicaid nursing home benefits, the very thing most people are least prepared to pay for! Because a large percentage of the population will need short-term or ongoing nursing home care, with average costs (in California) in the range of $3600 per month, many people (and their adult children) are tempted to simply give away all of their property and use Medicaid benefits in a nursing home environment. This property giveaway has the effect of preserving assets, and in many cases creating an early "inheritance" for the next generation. The medical cost burden is shifted from the individual to the taxpayer. Medicaid property transfer rules are designed to deter this strategy. Simply stated, the Medicaid rules will impose a period of ineligibility for nursing home care, roughly equal to the number of months of nursing home care that the asset could have purchased, if converted to cash. If an individual needing nursing home care has given away non-exempt assets within the 30-month period (36 months in some states) preceding his/her application for benefits, Medicaid will consider that individual to be ineligible for nursing home benefits for a specific period of time, calculated as follows: A typical example of the Medicaid ineligibility period following asset transfer Value of assets given away: $72,000 Cost of nursing home care: $ 3,600 mo Number of months which the assets could have paid for in a nursing home: 20 mos ($72,000/$3600)* Number of months applicant will have to wait before gaining eligibility: 20 mos* *Remember that this example assumes that the assets were transferred within the 30 months (or 36 months) prior to the application for benefits. This is called the "look back" period. The legal trend is toward enacting longer look back periods. If assets are given away our of a trust, for example, the "look back" period in California is 60 months!! As long as a home is an "exempt" asset, it can be given away without any eligibility penalty, because the transfer rules do not apply to most "exempt" property. However, in states which have adopted 1993 federal guidelines, (OBRA 93), the "look back" rule would apply to any sale or gift of a residence, if done within 30-60 months before applying for Medicaid benefits. Because of the "look back" period, it is not uncommon for innocent transfers (gifts to family members, friends or charities) to result in Medicaid ineligibility! Can Medicaid claim my assets after my death? After the eventual death of a Medicaid benefits recipient, even if it occurs many years later, the state can make a claim against the estate, if the individual was 55 years of age or older at the time he/she received Medicaid OR if the individual received Medicaid while in a nursing home. Each state has its own guidelines and procedures for recovery of monies spent for nursing home care. (Some states will not enforce a claim while there is a surviving widow or widower, for example.) Don't be confused! It is important to remember that assets which may be "exempt" for purposes of achieving eligibility for Medicaid benefits are typically NOT "exempt" from later reimbursement claims by the state! Your state may seek recovery from any real or personal property or other assets in which the individual had any legal title to or interest in, at the time of death. This means that the state can place a claim against homes and other assets, including assets held in joint tenancies, tenants in common, living trusts, life estates, or "other arrangements." This includes assets received by a surviving spouse, such as assets left to the spouse by will or community property. When should I consult an attorney about Medicaid planning? As you have read, Medicaid is not a "free ride," and it is administered to discourage and uncover fraud, deception and abuse. Remember that Medicaid is a program that was originally intended to benefit poor people. At its inception, over 30 years ago, it was the social standard for people to attempt to pay for their own long-term care, even if doing so resulted in depletion of their estates. This social standard is still inherent in the Medicaid rules and regulations, even though one might argue that the "social standard" has changed. Nowadays, there seem to be broader expectations about government assistance with medical-related expenses, particularly since the costs of all medical services have skyrocketed, far in excess of the rate of inflation or increase in costs of other goods and services! If you truly feel that you are a candidate for Medicaid benefits, it would be well worth the small expense of consulting an attorney who is experienced in Medicaid law, prior to making your application for benefits. As you now understand, from reading the material in this chapter, serious issues can arise with regard to both eligibility for benefits and recovery of expenses by the state. Very often, a senior is strongly influenced by the wishes of his/her adult children, who may counsel the parent to give away assets to become eligible for Medicaid benefits. While this advice is generally meant to protect the parents' interests, and sometimes to protect the property interests (inheritance) of the adult children, property transfers can backfire and should not be done without legal counsel. With the guidance and counsel of an experienced estate planning attorney, who recognizes that his/her duty is to the elder client (and not to the adult children), both generations often come to appreciate the economy and the wisdom of investing in long-term care insurance - or are able to realistically assess the parent's options and ability to pay for his or her own care, understanding the limits and responsibilities that come with reliance on government medical welfare.]]>     Taking Care of Your Family Business tag:www.griepplegal.com,2007:/articles//2.2 2007-05-28T09:51:59Z 2007-06-29T20:25:27Z How do you plan for the ultimate disposition of your business, including ownership and control, after you have passed away? Will it be run by your children, your spouse, valued employees? Will the business be sold to family or to... How do you plan for the ultimate disposition of your business, including ownership and control, after you have passed away? Will it be run by your children, your spouse, valued employees? Will the business be sold to family or to outsiders? Will it fail because you are the glue that holds it together? Will your affairs be tied up in probate court indefinitely, leaving the business poorly supervised and in danger of failing? The issues of planning the succession of ownership and/or management of your business are complex, and will present a continuing challenge for many years to come. You may feel overwhelmed by the choices you have to make, and because the business planning process is ongoing, your may have to revisit your choices as your life unfolds. Business succession planning is not a one-shot event, but requires your commitment to review and revise. Unless you develop and implement a plan, the law and taxes will act on your behalf, usually to the detriment of your heirs. When you are ready to think about business succession planning, here are some simple questions that should get your mental wheels turning:
  • What is my business worth?
  • Is there value in good will or contacts that I have made, which might not be there for my successor?
  • If my business consists of appreciating assets, when is the last time these were appraised?
  • Is the "worth" of my business significantly dependent upon the presence or efforts of one or more "key" employees?
  • Do I want and expect my business to continue after I am gone, or should I consider leaving instructions or preparing my heirs to sell or liquidate the business to their maximum advantage?
  • I would like to retire but don’t know what to do with my business. My children can’t run it, or don’t want to, and I need cash from my business to fund my retirement. How can I benefit myself and everyone else?
  • I envision my business continuing, but whom do I want to manage or control it after I am gone? Is that person(s) trained and able to do this now, or will my plan include grooming my successor?
  • Which family members or friends do I wish to benefit from the ongoing or liquidated value of the business after I am gone?

    • What is my business worth?

    Before you consider the other issues related to succession planning, you need to have a good idea of what your business is worth. Remember that what you'd take for the business and what it’s actually worth may be two different figures. An approximation of the market value of your business will figure prominently in your planning, particularly if you are considering sophisticated techniques, such as grantor trusts, limited partnerships, and buy/sell agreements. Speak with your accountant. If necessary, engage an appraiser.

    Do I want and expect my business to continue?

    This may be the toughest question to answer. You may "want" your business to continue, but it may be unrealistic for you to "expect" it to.
      Some of the factors to take into account are:
    • Am I such a great personal asset to the success of this business that its operation would be critically negatively affected by my departure?
    • Would my creditors, customers and suppliers deal with others?
    • Have I wanted or hoped that family members would participate in the business, but been disappointed by their lack of interest or lack of talent or skill?
    • Is this a business that may be overtaken by advances in technology, the rise of mega-corporations, or shifts in the habits and customs of consumers?
    • If so, is a timed closure of my business a good move for me?
    • Notwithstanding my family dynamics, do I know one or more people (possibly employees) who could continue to effectively run my business and would welcome the opportunity to do so?

    Who can manage or control my business?

    There are a number of possible answers to this question, and we will explore four of them, assuming you do not envision liquidation of your business. Most of the time the people you want controlling the business are the ones you want to benefit from its value, but don’t get locked into this model if it simply does not work in your situation. Spouse In all likelihood, if your spouse is competent and has been involved in the business, you will want your spouse to continue managing the business. However, if your spouse does not have your gift for growing the business, has no interest in it, does not get along with or manage the employees well, the "spouse as successor" idea needs careful evaluation. Even if your spouse has worked side-by-side with you, has he or she filled certain roles or functions exclusively? If your spouse has filled a specialized function, can he or she successfully assume all of the responsibilities necessary to run the business? Is it likely that, after your death, you spouse would become newly interested in the business and willing to become educated and active in new ways? If the answer is definitely yes, then your spouse is a good candidate for succession to management. If the answer is no, you need to look elsewhere. Often your viewpoint about a spouse’s capabilities or interest in the business may be at odds with the thinking of the spouse. No matter how long we have lived with others, we really can’t read their minds. Before making a definitive declaration about your spouse’s willingness or suitability, engage in a structured and substantive discussion with your spouse about these issues. Involve your lawyer, or even a family counselor, if appropriate. Children Are your children or other family members (usually younger members of a successor generation) capable of managing the business? Would you have confidence in them? Are they confident in their own abilities, and have they shown the qualities that you most admire: perhaps such qualities are focus, determination, creativity, community involvement, management talent, vision, people skills and there are so many more. The list depends on what you know to be important to the continuing success of the business. If you don’t feel comfortable turning over the control of your business to your children today, do you believe they could develop the capacity to become good managers and creative entrepreneurs over the next several years? Can they work together, notwithstanding family interplay? Are there spouses of your children who might present special problems or challenges? Is distance a factor? Would a child be required to abandon a dream, goal or other career in order to participate in the management of your business? How would the child and his/her spouse feel about that? If you have several children, some of whom would not be good candidates to participate in the business, do you feel a need to equalize the benefit provided by the business to provide for the non-participating children, or will they receive other assets, or is inequality of inheritance okay with you? Employees Do you have key employees who could effectively and enthusiastically manage the business? Would they be as loyal to the company without your guidance as they are now, and would they be able to stay around after you’re gone? Would you consider a stock ownership incentive plan, or even an outright structured sale of the business to these employees? Normally, employee involvement in business succession is most effective when younger employees are involved. If this is the direction you may want to move in, consider taking steps now to facilitate the employees’ gradual or structured purchase of your business. Management by Outsiders Would it be best to bring in an outsider to run the business? If so, should you bring in the outsider well before you retire, in order to teach her the business? Recognize the risks inherent in bringing in a “management employee” who has no ownership stake in the business, and consider an incentive program. If neither you nor family nor current employees are capable of (or desire to) manage the business, and you decidedly do not want it liquidated or sold, you have little choice but to begin planning for outside management. The key to finding the best management may lie in your creative design of incentive and reward features. Combination Because every business is unique, maybe some combination of these solutions would be appropriate. The successful choice of a person or team to manage your business is not only a function of ability or training. It’s also very much about personal dynamics, also called personal style, or management style. There’s no value in putting together a team of perfect people, if the people cannot work well together and with their employees. If you are contemplating a combination of family, employees and outsiders, the sooner you create and empower your team, the better. Once you are satisfied that your team can, indeed, continue without your day-to-day leadership, you have many options: you can remain in your business for as long as you want, you can retire when you want to, take extended leaves of absence, properly attend to a medical disability, follow your dream to pursue other interests. All the while, your business will continue profitably and without interruption.

    Who should benefit from the value of my business?

    Most business owners want their spouse and family to be the principal beneficiaries of the value of a business. In effect, this means that the ownership of the business will pass to them. If you have a spouse, or you have children, and you are sure you do not want the value of your business to pass to them, it is critical that you be aware of steps you can take to structure your estate and business planning with this goal in mind, while at the same time not jeopardizing the legal property rights of your spouse or the legitimate support needs of your children. It goes without saying that you do not want the IRS to be the principal beneficiary of your business, so obviously, some planning is necessary in order to prevent the government from becoming the beneficiary or partner of your family business! If you wish to leave your business (the value of it, if not the management) to your children, do you want to divide the value equally? It’s not uncommon to find that some children are involved in the business, and others are not. Will you leave them equal shares, or will the active participants get a greater proportion? Will you consider individual needs and circumstances in reaching this decision? The answers to these questions lie in knowledge of your personal philosophy and family inter-relationships. Here is an example of a family dedicated to equal but different inheritances for three children: A husband and wife own a large business and have one son and three daughters. The son is the only one actively engaged in the business, and has given up educational and social opportunities over the years to assist his parents in the business. The parents want the son to end up with control over the business, but want to divide the value of the business among all three of their children. They decide to transfer the business to their son, and most of their other assets to their daughters. Because the business is located on a valuable piece of real estate, which represents a substantial asset of the estate, the parents will equalize the inheritance by having the children unequally co-own the real estate, while requiring that it be leased by the business (from the three children). Here are some other examples to think about as you contemplate the best solution for your business: Example 1 You own all of the shares of a corporation. You decide to give stock in the corporation to your two daughters, who are active in the business, and give other assets outside the corporation to your two other children who are not involved in the business. Upon your death, the remaining corporate stock will go to the daughters who are active in the business and your personal assets will go to the non-active children. Because you feel strongly about rewarding the daughter who has worked with you, you are not particularly concerned about disparity in the value of their inheritances, which are all very generous. You may consider giving partial ownership, with no management rights, to the two "outsider" daughters. Techniques which may be useful in a case like this include revocable living trust, with family limited partnerships, grantor trusts, and buy/sell agreements. Example 2 You allow employees and/or family members to purchase, over a period of time, an increasing percentage of corporate stock (which may be non-voting shares, if you choose to structure or re-structure the classes of stock in this way). The use of grantor trusts and employee stock ownership plans may be a great way to achieve this result. Example 3 Your children are doing well in their own careers, and your business may never be worth more than it is now. You design a transfer of your business to a charitable organization, through the use of a charitable trust. This gives you an immediate personal tax benefit, income to fund your own retirement or your next business, and is structured to pay generous income to your children, and even your grandchildren, on a tax-advantaged basis. There are so many options and combinations of techniques that you are well advised to seek the counsel of capable estate planning attorneys, accountants, appraisers, and (if necessary) even a family counselor, to resolve all of your concerns and meet your requirements in a satisfactory and tax-minimizing way.

    Developing and implementing your plan

    If you’ve dealt with answering the basic questions at the beginning of this article, you should now be ready to clearly state your succession goals. It’s up to your lawyer to translate your thoughts and dreams into appropriate legal documents that will accomplish exactly what you want. The first step to implementing your plan for succession in your business is to make sure that you have prepared a living trust, a will and appropriate powers of attorney. They are necessary to establish your personal standards for distribution or management of all your assets.

    Review the structure of your business

    Consider the nature of your business entity. The mechanics of implementing your plan will vary, depending on the organizational structure of your business. If you are doing business as a proprietorship, the transfer of assets upon death is usually addressed by a living trust. While this simplifies your business succession planning, there are disadvantages to operating as a proprietorship. You are personally liable for the debts of the business. After your death, your creditors will seek reimbursement from your estate for both your personal and business debts. Secondly, the odds are that your business may not continue after your death of retirement. Establishing a family limited partnership takes care of some of these problems. It can limit the ability of business creditors to ravage your personal estate. It can provide for orderly continuation of your business, and it can effect a transfer to other family members at minimized tax status. A sole proprietor might also want to consider changing the organizational structure to a corporation, or a limited liability company, to name only two options. These forms of ownership may give you some liability protection and will increase the likelihood that your business will continue after your death or retirement, or at the least may make your business marketable outside your family. If you have already entered into any buy/sell agreements or other contracts relating to the disposition of your business, or your share in the business, such agreements should be consistent with your personal estate plan, so that they work hand-in-hand to benefit those whom you seek to provide for.

    Determine the value of your business

    One of the key issues in planning for the succession of a business is determining the value of your interest. Valuation is also important in the preparation of buy/sell agreements. Such agreements describe the method to be used to determine the value of a retiring, disabled or deceased owner’s interest, which can be established in several ways. The owners may simply agree what the value of the business would be in the event of a buy out. Conceptually, this seems simple, but the value must be updated regularly, and may be subject to IRS scrutiny if it is artificially low. On the other hand, if it is too high, the surviving purchasers may seek to have it revised. Wherever possible, valuations should be done by experienced appraisers. Remember that an appraisal should accurately reflect the fair market value, but cannot generally take into account future value, the "goodwill" factor, and other subjective considerations. The value of these intangibles must be added to the appraiser’s analysis to achieve fair buy/sell valuation. The best solution may be to obtain an appraisal and then meet with the parties to the buy/sell agreement, and agree on a formula (such as a percentage increase over the appraised value) which takes into consideration factors such as good will, the uniqueness of the product or operation, the value of community recognition and longevity, and so forth.

    Prepare a Buy-Sell Agreement

    Prepare a buy/sell agreement if you have not already done so. The agreement will specify what will happen to your interest (and to any other owner’s interest), in the event of death, divorce, disability or retirement.. Not only does the agreement provide important estate planning advantages, it prevents the ownership and control of your business from going to others without your approval. Conversely, of course, it protects your interests in the event that a co-owner retires, becomes disabled or dies. Your buy/sell agreement should address (1) the terms of a sale, before death, of an owner’s partial or complete interest, (2) the sale of an interest after an owner's death, divorce, disability or retirement, and (3) the effect of any creditor’s efforts to attach an owner’s interest for payment of a personal or business debt. A buy/sell agreement can also be used to address other issues, which can be structured as "conditions" to a sale, such as the management structure, employee rights, and so forth. The agreement should give the business itself or its owners the right to purchase another owner’s interest before it can be transferred to someone else. This is often called a "right of first refusal." This will protect the remaining owners from having to do business with outsiders, including heirs, unless that is the understanding among the owners or parties to the buy/sell agreement.

    Payment of Buy-Out Amount

    After you have decided on the terms of the buy/sell agreement, the next issue will be how to fund (pay for) the buy out. Your business, business associates, or participating family members may not have the cash on hand to facilitate the purchase of your interest. Two simple ways to deal with this issue are: - structuring the buy out so that it occurs over a period of time, or; - having each business partner or associate receive the cash benefits from a life insurance policy on the life of the now-deceased owner. (This second suggestion, of course, is of no value if the triggering event is a disability or retirement.) Other possibilities are use of a private annuity, or exchange of stock, to cite only two examples. While a buy out may be structured to occur over a period of time, there is a major drawback; the full amount of the business interest (less any discount valuation for lack of marketability) may be included in the taxable estate of the owner, and the resulting estate taxes may be greater than the cash in the estate, which is now the owner of a promissory note, resulting from the buy/sell agreement. Unfortunately, the value of the promissory note will usually be included in the estate tax calculation, even though it is not immediately convertible to cash. A better solution might be to provide the surviving owners or associates with sufficient cash to buy the entire business interest, thus making the decedent's estate whole, and facilitating the payment of taxes and debts, as well as providing cash to the heirs. The creative use of life insurance can achieve the second objective, if the insurance is owned by the associates, or by the business, itself. If the insurance is in any way associated with ownership by the insured (called "incident of ownership"), then the insurance policy proceeds will be deemed to belong in the insured’s estate, even if they are paid to someone else! If life insurance is to be used to provide cash to fund buy/sell agreements, it must be very carefully structured and managed to avoid serious pitfalls of estate tax inclusion.

    Agreements with Key Employees

    If your management succession plan depends upon employees who are not also owners, you might consider signing long term employment agreements with them, creating rewards for assisting your successors. If you feel that key employees need or deserve more incentive, or are potential business successor-owners, then creation of an employee stock ownership plan is worth your strong consideration.

    Consulting your Attorney

    As you've seen in these very few illustrations, there are many factors to be considered in business succession planning. It does not exist in a vacuum, but must be consistent with a personal estate plan. It requires evaluation of a number of factors, which reach beyond numbers, dollars, and contracts. There are potentially significant income and estate tax questions, and there are almost always complex family issues to be resolved.

    The "I'm too young" Trap

    If you have been avoiding doing business succession planning (or even personal estate planning) because you are relatively young, it is not necessary to adopt the belief that "I might die any day, so I'd better get my estate plan done!" This depressing thought can create paralysis. Perhaps a more palatable attitude would be "I have many years to live, but I know that my planning can be put into effect now, for maximum good results, later. The sooner I take action, the more effective my plan will be." The information offered in this article is not intended to substitute for competent legal advice, and is informational only. No representation or guarantee is made of its accuracy, and no estate planning should be undertaken without the advice and assistance of an attorney qualified in estate planning. ]]>     Avoiding Trust Scams tag:www.griepplegal.com,2007:/articles//2.3 2007-04-28T10:52:17Z 2007-06-21T01:31:36Z There are trusts and then there are trusts - good trusts and bad trusts. Good trusts are part of a process used by legitimate estate planners and their clients to control the disposition of assets, avoid probate, reduce administration costs,... There are trusts and then there are trusts - good trusts and bad trusts. Good trusts are part of a process used by legitimate estate planners and their clients to control the disposition of assets, avoid probate, reduce administration costs, save estate taxes, and preserve family wealth for future generations. This article is not about good trusts. It is about bad trusts. There are two main categories of bad trusts: scam trusts and mill trusts. SCAM TRUSTS What are scam trusts? These are so called "trusts" or "contracts" that are promoted by scam artists who claim that their documents and plans will allow individuals and, in some cases businesses, to avoid, or significantly reduce, all taxes, including income taxes. The promoters may also claim that their plans, for which they charge a hefty fee, will also make your assets unreachable by creditors. They often use a complex structure that involves the "irrevocable" transfer of your assets to one or more business or trust entities controlled by you. The promoters claim that the arrangement will significantly reduce or eliminate not only estate taxes but also income taxes. Scam trusts are marketed through high pressure seminars, by door-to-door salesmen, and on the Internet. In some cases, they are recommended by well meaning but poorly informed CPA's, financial advisors, friends, or business acquaintances. The marketing techniques can be very persuasive, and are aimed at all classes of people. I have seen doctors, dentists, accountants, and financial advisors who have fallen for the hype. How can you recognize them? Remember the following four tests: 1) The "Name" Test: The name of the trust is often a hint that something is amiss. The scam trusts have a variety of forms and names, such as: "Constitutional Trusts," "Pure Trusts," "Common Law Trusts," "Unincorporated Business Associations," "Asset Protection Trusts," "Business Trusts" (not to be confused with legitimate Massachuset Business Trusts), and "Family Trusts" (not to be confused with legitimate revocable family trusts). 2) The "It Seems Too Good To Be True" Test: If the trust is promoted as one that will reduce or eliminate your personal income tax, watch out. Almost all of the scam trusts purport to allow a person or a family to arrange their assets and business affairs in a manner that will avoid or substantially reduce income taxes, change nondeductible personal expenses into deductible business expenses, or redirect all, or most of, a person's ordinary income into retirement savings. 3) The "Authority Approval" Test: The promotional materials that are used to help sell scam trusts often contain incorrect references to the Constitution, as well as references to court cases that have been overturned or changed by statute. They often cite scripture. The promoters of these fraudulent trusts often incorrectly associate the names of prominent families, such as Kennedy or Rockefeller, with the trusts that they are trying to peddle. Here is part of an actual sales pitch written by a scam trust purveyor:
    You can LEGALLY avoid excessive taxation in order to build a financially secure estate; dramatically reduce your liabilities; gain the ultimate in personal and business privacy; and eliminate all the estate and inheritance taxes plus probate costs. This previously "secret" method has been successfully utilized by the nation's wealthiest families: the Rockefellers, the Hunts, the Kennedys and others, plus leading oil and industrial companies. All of these have demonstrated that it is a POSSIBLE, LEGAL, and EFFECTIVE solution to avoid estate shrinkage. First, this is possible because the United States of America is founded on the principle that the peoples' unalienable rights are originally received directly from our Creator! This is why we acknowledge our country to be a "NATION UNDER GOD" ("of the people, by the people, and for the people"). Embodied in this principle is the "Key" to total protection of your personal and business assets - the Constitution. It recognizes our inalienable rights by the use of the Law of the land by which we protect our freedoms, and our property.
    4) The "Dumb Advisor" Test. In almost all cases the promoters of scam trusts will caution you against having your CPA or attorney review the documents that the promoters want to sell to you. They often say that CPA's and attorneys simply do not understand them, or have a vested interest or bias against them. What is wrong with scam trusts? BEWARE! Trusts and business arrangements that are marketed as a way of avoiding all or a substantial amount of income tax are almost always illegal. These are classified as "abusive arrangements" by the IRS. Any person who creates one of these trusts will, when caught by the IRS, have to pay all back taxes owed, interest, and serious penalties. Criminal sanctions will be imposed upon all who participate in the promotion of abusive trusts. A transfer of real estate to a scam trust may result in a reassessment by the county appraiser, resulting in significantly greater property taxes. Once you have entered into a scam trust, and perhaps transferred title to some or all of your assets, it can be very expensive to undo the arrangement. STAY AWAY FROM SCAM TRUSTS. For further information on scam trusts, I recommend the following two Internet sites: www.falc.com and Tax Prophet . MILL TRUSTS Now, let's consider mill trusts. What are mill trusts? I define a mill trust as a generic "one size fits all" document ostensibly designed to avoid probate and save estate taxes. Often the producer of the document is not a lawyer, but may claim to have the document either "created by," "reviewed by," or "approved by" a lawyer. How can you recognize mill trusts? Again, there are four tests: 1) The "Lack of Counsel" Test: Proper estate planning requires substantive individual legal counseling. Mill trusts are usually produced after the "client" has filled out a simple form questionnaire (often of the "check the box" type). The client is usually given very little counseling (in many cases the interview, if there is one, will last for no more than one hour). Often the mill trust client meets only with a "paralegal", a CPA, or a financial advisor, but not with an attorney who specializes in estate planning. 2) The "Limited Purpose" Test: Mill trusts are often prepared solely for the purposes of avoiding probate and/or saving estate taxes. No consideration is giving to protection in the case of incompetency, planning protective distributions for descendants, or tailoring distributions for families with children or grandchildren of different marriages. No consideration is given to integrating life insurance and retirement funds with the dispositions provided for in the trust documents. 3) The "Lack of Funding" Test: Most mill trusts don't work because they are not properly funded. The client is usually given a letter of instructions on how to fund the trust (i.e., transfer assets into the trust), but no help is given in effecting the transfers. As a result, the majority of mill trusts are not properly funded. When a trust is not properly funded, it does not work. 4) The "Cheap" Test: Mill trusts usually range in cost from $350 to less than $1000. What you get is what you pay for--not very much. What is wrong with mill trusts? Although mill trusts are not burdened with the illegalities of scam trusts, they are usually a waste of money and not suited for proper estate planning. An unfunded mill trust is a waste of money because assets not transferred to the trust will not be controlled by the trust terms and may have to be probated. Many mill trusts contain provisions which can actually result in increased estate taxes. People who prepare mill trusts almost never take into consideration retirement assets and life insurance proceeds. A failure to integrate retirement fund and insurance policy planning with the overall estate plan can lead to increased taxes and ultimate distributions that are inconsistent with your goals. Proper estate planning requires consideration of your specific needs and family goals. When done correctly, much can be accomplished. When done incorrectly, much may be lost. © 2000 By Lorin Castleman, Attorney-at-Law. All rights reserved. Reprinted with permission. ]]>     What is a Revocable Living Trust tag:www.griepplegal.com,2007:/articles//2.34 2007-04-11T23:06:07Z 2007-06-21T23:10:08Z A revocable Living Trust is a legal container, designed by you to take ownership of most of your assets.... A revocable Living Trust is a legal container, designed by you to take ownership of most of your assets. Revocable Living Trust:
  • You retain control over the assets in your living trust during your lifetime.
  • At your death, someone else (a trustee, pre-selected by you) will take over the management, use and ultimate distribution of your assets.
  • The trustee is legally required to follow the terms and conditions you have written in your Living Trust document!
  • Your Living Trust will continue until it has fulfilled all of the conditions and instructions you have built into it.
  • This period of continuing asset management may be very short, or may span several generations!

    • A living trust does not "die" when you do, and since there is no "death" of the owner of the assets [your living trust], no probate is required!

    © 2007 GRIEPP & MCREE, Attorneys at Law
    ]]>     What Do I Want from my Estate Plan tag:www.griepplegal.com,2007:/articles//2.33 2007-03-21T22:55:13Z 2007-06-21T23:02:10Z This form will help you begin the estate planning process by identifying areas of special concern to you. You will be better prepared to work with a knowledgeable attorney specialist. Based on your current knowledge of estate planning, check those... This form will help you begin the estate planning process by identifying areas of special concern to you. You will be better prepared to work with a knowledgeable attorney specialist. Based on your current knowledge of estate planning, check those objectives which are of personal importance to you.
  • Keep personal, family and business affairs private after death.
  • Choose guardians for minor children and leave specific instructions for them.
  • Provide specific instructions for my medical treatment and life-sustaining measures.
  • Avoid probate court proceeding to appoint a conservator if a disability occurs.
  • Save all probate fees.
  • Avoid federal estate tax on life insurance policy benefits.
  • Protect, assist and provide for surviving spouse.
  • Protect the assets of a surviving spouse if there is a remarriage.
  • Protect, assist and provide for one or more children (including children of a prior marriage).
  • Protect, assist and provide for other family members or friends.
  • Protect an inheritance from creditors of spouse, children and grandchildren.
  • Protect family home from unwanted sale, or allow for orderly and profitable sale.
  • Protect a family business from a distress sale or plan for an orderly transfer of ownership.
  • Disinherit one or more legal heirs.
  • Shelter the inheritance of a child from his/her spouse or former spouse.
  • Special planning for a physically or mentally disabled family member (spouse, child, parent).
  • Set up an education fund for one or more persons.
  • Fulfill a child support obligation without disrupting current family unit.
  • Plan for maximum use and flexibility of retirement funds (IRA, 401k, etc)
  • Benefit a charity, church, school or other charitable organization.
  • Create and endow a private foundation to serve a specific need or purpose.
  • Plan for an inheritance I expect to receive.
  • Coordinate my estate plan with the plans of other family members, to serve a common goal.
  • Set up a family limited partnership to achieve a transfer of a family business or family assets.
  • Shelter assets from claims and lawsuits through offshore asset protection.
  • Other:
    • These "talking points" are used in our estate planning practice, and are made available to you to assist you in identifying your own important issues and needs. They are distributed for private use and may not be duplicated, reprinted or excerpted. Download a printable copy of this checklist here .
    © 2007 GRIEPP & MCREE, Attorneys at Law
    ]]>     Have you forgotten to finish your estate plan? tag:www.griepplegal.com,2007:/articles//2.16 2006-06-18T02:32:26Z 2007-06-21T01:31:36Z Ask your kids. You may be surprised. Personal property trumps money in most cases. How "finished" is your personal estate plan when you leave our office, sign your funding documents, participate in your annual review sessions and update your trust... Ask your kids. You may be surprised. Personal property trumps money in most cases. How "finished" is your personal estate plan when you leave our office, sign your funding documents, participate in your annual review sessions and update your trust as your estate changes and expands? The answer might surprise you! When you were given your completed trust documents, they include a template for completing your Personal Property Memorandum. This is usually done by you, in writing, then placed in your trust notebook. With proper trust documentation, it may also be done by video. If you have been intending to do a home video or photo inventory for insurance purposes, why not do a PPM at the same time, using the same material? Just be sure to consult with us so that your trust language will properly reference your use of this technology! A recent study conducted by Allianz Life Insurance Company was designed to evaluate how personal wealth is/will be distributed as the "greatest generation" [World War II] passes its legacy to the " baby boomers" [b. 1946-1965], who in turn pass it to their children and loved ones. According to Ken Dychtwald, who conducted the study of 2600 seniors and boomers for Allianz Life Insurance Company, "Many people wrongly assume the issue is money…[but] it's way down the list." Of most importance to children and other family members are items of personal property that hold special meaning for them. If you stop to think about it, you may have feelings about certain items from your own childhood, but do you think your parents realize(d) the depth of your attachment? Perhaps it's not so surprising to learn that heirs will argue with great passion over some of these items because of what they represent (good times, special events, traditions, holidays, customs, habits), not because of what they are. Still, while you may understand the concept of emotional attachment to certain objects, and even feel it yourself, you might be completely unaware of which of your personal possessions have emotional meaning to your children or other loved ones. Because such items are usually small, they are probably not formally titled as assets in your revocable living trust, so to direct that they be given to specific people on an itemized basis, they should be listed in your Personal Property Memorandum. Although cash and other non-personal assets were also important to those who participated in the survey, disagreements over these assets are much easier to resolve. In many if not most cases, efforts have been made to equalize cash and property distributions or to distribute to the heirs based on level of need. And disagreements can be resolved by apportioning dollar assets. "Splitting" dad's clarinet or mom's garden tools obviously creates a much "thornier" problem! Of the survey sub-group whose parents were already deceased, 3% said that financial assets had been the "greatest source of conflict," while 15% said that the greatest conflicts had been overthe distribution of personal possessions of emotional value. By now we hope we've got you thinking about how you would like to distribute many of your personal effects, and perhaps you can look at this task from a different point of view. It's not really about dad's old tuba or mom's old garden tools, is it? It's about what they lovingly represent to someone in particular. If you have adult heirs (or loved ones) or you are an heir-to-be, some communication has to take place if you intend your personal property to be given to more than one person (and even if you intend it for only one person, it's a good idea to say so!) And knowing what people want is better than guessing what they might want, wouldn't you agree? If your loved ones are teens or adults, then you may do well to take a somewhat direct approach with them. There are several ways to do this (in person, in writing) and the method you choose should be in keeping with the comfort level of your family interaction and custom. We have had several interesting experiences with clients who have asked for our help in drafting a Personal Property Memorandum and we know that even the closest families can experience a lot of discomfort about discussing issues even remotely related to death. There are a number of ways to approach this, not the least of which might be to consider whether you have personal possessions that you might like to give away right now, in a process of re-organizing, downsizing, moving, de-cluttering or just gift giving. If your heirs are minor children, your property distribution choices may involve some creativity, some guesswork, and some reliance on an adult trustee to help you by safeguarding your property until the children are old enough to express preferences. At that point, your personal property trustee can follow any guidelines that you have designed. Often, it is only after children are grown that they realize how strongly they associate an object with a parent or grandparent. Why not do what you can, now, and review your PPM annually, just as you review your other estate planning documents?]]> The Family Limited Partnership: A Controlled Business Transfer tag:www.griepplegal.com,2007:/articles//2.32 2006-06-03T22:35:10Z 2007-06-21T22:42:45Z A family limited partnership is different from any other partnership, because only family members can hold “limited” partnership interests. A limited partner is one who has an ownership interest in a business, but has no formal control over its operation.... family limited partnership is different from any other partnership, because only family members can hold “limited” partnership interests. A limited partner is one who has an ownership interest in a business, but has no formal control over its operation. Limited partners may, as a matter of practice, be engaged in the day-to-day affairs of the business, even serving in management positions, but when it comes to the “last word,” the general partner(s) has exclusive control. ]]> A family limited partnership can be an ideal way to make an orderly, progressive transfer of a business from one generation to the next. Here’s how it works:
  • A limited partnership is formed, with Dad and/or Mom, (and maybe Uncle Harry and Aunt Sue), as general partners, but the general partners’ ownership share is usually only 1% or 2% of the entire partnership. The balance of the business is allocated to limited partnership shares, which are, at first also owned by the general partners.
  • The general partner may be an individual(s) or a corporation, but the general partnership is designed and directed by the business owner. Typically, a general partnership should be put into proper legal form, and in most cases, it should be assigned to the general partner’s revocable living trust.
  • The goal is a systematic transfer of the limited partnership interests to the successor generation, which is accomplished by making “gifts” of the limited partnerships, at a rate and a valued amount to be determined. Two things should be noted: the transfer is not of the assets of the business, goodwill of the business, or any other “thing” that is part of the business. The transfer is a transfer of a limited partnership interest, and it is the legal entity of the partnership which owns the assets, not the persons who happen to be partners, in an individual capacity.
  • Since a family limited partnership will be set up so that only family members can own partnership interests (whether general or limited), the transferability (salability) of those interests is extremely limited, since there is virtually no market for a non-controlling interest in a family business. Because, as a rule, such interests are only marketable to other family members, they are worth far less than typical corporate equity shares or public partnerships. Furthermore, because the limited partnership interests constitute a minority interest in the business, the combination of lack of marketability and minority status allow the assignment of reduced valuation, for purposes of calculating applicable gift exclusion eligibility and/or gift taxation. This is true even when the transfer of the minority interest will eventually cause the recipient(s) to have a majority interest. This reduction in valuation is called discounting.*
    • Let’s suppose that you have a $300,000 retail facility. You (or your corporation) are the owner of it, and you set up a family limited partnership , transferring title of your business to your new “FLP.” Now, even though the FLP owns the business, you, as general partner, continue to control and manage the business, which is the asset owned by the partnership. To the extent that you, as general partner, fail to divest yourself of limited partnership interests, they will be included in your estate at your death. Assuming the partnership is not liquidated to satisfy the debts and taxes of your estate, it is likely that your remaining limited partnership interests will be valued at a discount. Notwithstanding this potential estate tax valuation discount, the family limited partnership should be undertaken with the intention of achieving a complete generational transfer. Here’s a typical scenario, using the $300,000 retail business as a case study: If you and your spouse decide to give tax-free gifts to each of your three children, as permitted by law, you may each make a gift of $10,000 to each child, per year (for a total of $20,000 per child). Of course, greater amounts may be given, but are subject to the federal gift tax. If you simply gave each child $20,000 worth of the ownership of your retail business, it would take five years before your children achieved full ownership of the business, assuming the market value of the business did not increase in the meantime. If, as an alternative, you gave each child $20,000 worth of the limited partnership, the children would not own a portion of the retail business. You still own it. What your children own, instead, is a portion of a partnership, in an amount that is increasing every year. And remember that $20,000 “worth” of a limited partnership may well be an amount far greater than $20,000 “worth” of a retail operation, because of valuation discounts. Even if you gave away 99% of the partnership, as long as you are the general partner, you would retain the right of control over 100% of the partnership. What this means, in practical terms, is that you can accomplish a business transfer, with significant valuation discounts, without ceding control to your limited partners, no matter how large their interest. As general partner, you may choose to delegate any of your responsibilities anytime you want to, as a way of training or including the successor generation, but you do not have to do so. Then, when you are ready to retire or leave the business, you can give away or sell your remaining interest in the partnership, which may be as little as 1%. Remember that under normal gifting restrictions, it would take you five years to transfer the entire $300,000 business to your three children, and “control issues” might arise, as are typical among multiple “owners.” If you transfer, instead, shares of the family limited partnership , the discounted value of the partnership is less than the market value of the retail business itself, and thus the transfer may be accomplished more quickly. Additionally, like it or not, limited partners cannot override the business decisions of general partners. Gifts even larger than the tax-free $10,000 may be made, to hasten or unequally apportion the transfer, if you are willing to assume federal gift tax liability. This is not altogether a bad idea, since the gift tax liability will be based on the discounted valuation of your gift. If no family limited partnership or other business succession transfer is in place, your business interest will be included in your taxable estate. If it passes to your heirs by inheritance, estate tax will be assessed on the appraised market value of the business, (which would be its value if sold to a stranger or a competitor), without the family limited partnership valuation discount! A family limited partnership is ideal where a business owner desires that a business continue beyond his/her retirement or death, and where there is a least one other family member (usually of the younger generation) who is willing and able to become active in the business, with actual ownership occurring gradually. * Valuation discounts must be made by qualified appraisers, and are subject to IRS review and approval. Typical discounts may range as high as 35-55% or more.
    © 2006 Sharon McRee and Galen Griepp, Attorneys at Law
    ]]>     There's No Substitute for Self Reliance tag:www.griepplegal.com,2005:/articles//2.15 2005-10-12T02:11:34Z 2007-06-21T01:31:37Z Like you, I've recently been following the news and it's been an astonishing year of environmental challenges, hasn't it? Today I am reading about the devastating 7.6 earthquake in Kashmir and terrifying mountainside collapses in Guatemala. Two weeks ago Typhoon... Like you, I've recently been following the news and it's been an astonishing year of environmental challenges, hasn't it? Today I am reading about the devastating 7.6 earthquake in Kashmir and terrifying mountainside collapses in Guatemala. Two weeks ago Typhoon Damrey displaced 300,000 in southeast Asia. This followed a month of ever-more alarming news of unbelievable loss and stories of unpreparedness following Hurricane Katrina, evacuation nightmares and gas shortages in Hurricane Rita, a freak paralyzing snowstorm in the Dakotas and the dramatic beginning of Southern California's catastrophic fire season, predicted to be one of the most severe on record, owing to the torrential winter rains of ‘04-‘05. Who knows? It's no indictment of local, state or federal government to declare that we need to make our own plans in the event of a disaster, "we" being individuals, families, extended families, social and religious communities, and neighborhoods. Self-reliance is at the core of the American spirit and it sets us apart. Do some planning with your loved ones. Be at peace. Here are some of my notes about our own emergency planning. I hope my thoughts encourage you to do some planning of your own!

      Think about

    • Earthquake/limited access in or out
    • Sudden fire
    • Wildfire/brushfire/limited access in or out
    • Mudslide/flooding/blocked streets in or out
    • Epidemic crisis [e.g. flu]
    • Man-made crisis [bio-agent or chemical release, etc.]

      Places where you might be

    • Home
    • Workplace
    • School
    • Other family home
    • Volunteer location
    • In car or near car
    • In public, not near car

      First actions?

    • Is it immediately necessary for us to be together? To establish communication? *
    • If so, and we cannot reach one another, is there a backup communication plan? *
    • If we cannot communicate, are we all confident that all know how to look after ourselves until contact can be established? *
    • Is it more appropriate to attempt to gather at our home or at another location? How can we all be sure we agree on what we are doing in this regard, or does it matter?
    • Is this emergency of a "GO" type of a "STAY" type? [ Evacuate home, self-quarantine, stay at home until help arrives, or ??]
    • Do I know exactly how my child's school has planned for an emergency and does my plan fit into the school's?

    Emergency stuff

    If you have a house fire, just GET OUT. For emergencies where you have a short chance to evacuate, keep a short list of necessary items by your main door. (Better yet, keep some of these items in another secure location). Important things to include: insurance policies, vital documents, stock certificates, com- puter CPU or backup discs, medications, telephone list, small valuables. Add whatever is precious to you, in descending order of importance. Here's our recommended list of emergency supplies; We've compiled these lists of emergency supplies from a number of sources, only including interesting things you might overlook. Be sure to read about the new products listed at the end of the article. To find lists of basics: www.redcross.org www.oes.ca.gov

      At home

    • Laminated copy of family contact plan*
    • Gallon water per person per day including pets. Refresh water every six months
    • Transistor radio, flashlight and batteries**
    • Charged cell phone batteries or cell charger**
    • Can opener
    • First aid kit and instructions; include tweezers for splinters or glass and bandages for cut feet (most common injury in Northridge quake)
    • Antibacterial hand gel
    • Extra glasses or contacts
    • Sturdy shoes
    • Essential medications and copies of prescriptions
    • Extra house/car keys
    • Toilet paper, toiletries, toothbrushes
    • Fire extinguisher
    • Pet food, leash/carrier
    • Cash and change
    • Water purification kit or unscented liquid bleach (8 drops per gallon)
    • Special foods for babies, disabled, special needs
    • Picnic-type eating utensils
    • Aluminum foil
    • Paper towels
    • Knife and razor blades
    • Candles and light sticks
    • Matches in waterproof container
    • Work gloves
    • Broom, rope, wire, hammer, nails, ax, crowbar, shovel, small tools
    • Local street map and compass
    • Pen, paper, cards, games, reading materials, books, art materials, tape recorder for journal, camera

      In every car

    • Laminated copy of family contact plan*
    • Bottled water (several)
    • Nonperishable food
    • Transistor radio, flashlight and batteries**
    • Charged cell phone batteries or cell charger**
    • First aid kit
    • At least one day's worth of your personal prescription meds (or keep this in your purse) and copies of your prescriptions
    • Gloves
    • Blanket or sleeping bag
    • Moist towelettes and antibacterial hand gel
    • Toothbrush/lip balm
    • Small tool kit
    • Matches and lighter
    • Walking shoes and socks
    • Change of clothes
    • Hat or visor
    • Cash (small bills & change)
    • Local street map and compass
    • Reading and journaling materials and pens

      At work

    • Laminated copy of family contact plan*
    • Tennies or walking shoes
    • First aid kit
    • Transistor radio and flashlight with extra batteries**
    • Matches
    • Toiletries/toothbrush
    • Cell phone charger*
    • Reading, entertainment and journaling materials
    • At least one day's worth of your personal prescription meds (or keep this in your purse) and copies of your prescriptions
    * Family contact plan **Great products]]>     Special Needs Children tag:www.griepplegal.com,2007:/articles//2.35 2005-10-04T23:09:58Z 2007-06-21T23:17:22Z Many parents with physically, emotionally or developmentally disabled children have not secured the child's financial future. A recent survey by Metropolitan Life shows that 60% of parents don't expect their child with special needs to be financially independent. Despite this... Many parents with physically, emotionally or developmentally disabled children have not secured the child's financial future. A recent survey by Metropolitan Life shows that 60% of parents don't expect their child with special needs to be financially independent. Despite this candid acknowledgement, 68% of parents haven't written a will! and 29% have done nothing to plan for the child's financial future. "The Torn Security Blanket: Children with Special Needs and the Planning Gap," questioned 1,718 parents of children with special needs. The survey, conduced by NOP World, has a plus or minus 2% margin of error at a 95% confidence level. According to the U.S. Census Bureau, about 10% of Americans between the ages of 16 and 64 suffer some form of physical, mental or emotional impairment. Many of them are outliving their parents thanks to improved care medical technology. Parents should take basic steps to preserve eligibility for government benefits. They need to ensure that the child's assets don't exceed the federal aid limit, which would make the child ineligible for some government benefits. They need to structure special needs trusts to provide for their child and preserve assets for the child's benefit without running afoul of federal or state eligibility rules.
      The MetLife survey found:
    • 88% of parents who have children with special needs haven't set up a trust to preserve eligibility for benefits such as Medicaid and Supplemental Social Security.
    • 84% haven't written a letter of intent outlining an agreement for the future care of the child.
    • 72% haven't named a trustee to handle the child's finances.
    • 53% haven't identified a guardian for their child.
    The survey found that 32% of parents spend more than 40 hours per week with their special-needs child, or time equal to a second full-time job. Parents spend an average of $326 per month, or just under $4,000 per year, on out-of-pocket medical expenses on their special-needs children.
    © 2005 GRIEPP & MCREE, Attorneys at Law
    ]]>     Why You Need a Certified Specialist tag:www.griepplegal.com,2007:/articles//2.36 2003-08-01T23:17:16Z 2007-06-21T23:19:33Z Why would you choose a Certified Specialist in Estate Planning rather than a competent lawyer who seems experienced and may even charge less for his services? Well, ask yourself this question: if you needed to have a serious operation, would... Why would you choose a Certified Specialist in Estate Planning rather than a competent lawyer who seems experienced and may even charge less for his services? Well, ask yourself this question: if you needed to have a serious operation, would you choose a competent family physician to do it, or would you choose a doctor who is board certified in surgery? Estate Planning, Trusts and Probate. This designation of Certified Specialist in this field is held by fewer than ½ of 1% of all attorneys in California. Galen Griepp was awarded this designation in August 2001. You might be wondering what requirements Galen had to meet, in order to earn this certification. What makes a Certified Specialist uniquely qualified to help you? Why aren’t there more certified specialists in the trust and probate field? The requirements for certification as a specialist include the demonstration of expertise in several specific areas of practice, which may include tax planning matters, tax procedures or tax returns, including tax opinions, memoranda, advice letters, tax-sensitive wills, trusts or other dispositive instruments; expertise in estate and incapacity plans, including wills, trusts, custodianship, documents of title, beneficiary clauses, property agreements, powers of attorney, advanced health care directives ("living wills"), gifts, powers of appointment, disclaimers, public benefits plans. An applicant must show evidence of involvement in administration procedures for estates, trusts, and a number of other procedures under the Probate Code, must demonstrate a number of completed transfers of assets, including tax issues, tax returns or tax basis problems. A candidate for certification must also show that (s)he has met a high standard for continuing education in estate planning, trust and probate law. He must submit a number of favorable references from judges and attorneys who are familiar with his work in estate planning, AND he must pass a rigorous examination given by the State Bar Board of Specialization. As you can see, such designations are not available to less-experienced lawyers, to those who maintain a catch-all law practice, or to those who cannot demonstrate specific expertise in estate planning, including broad experience and excellent references. We hope and believe that when you choose to become a client of our law office, it is because you are confident that your estate planning is in the "best possible hands!"
    © 2003 Sharon McRee, Attorney at Law
    ]]>     I don't have a current estate plan because… tag:www.griepplegal.com,2003:/articles//2.30 2003-03-21T21:49:46Z 2007-06-21T21:51:16Z These real excuses have been compiled by Sharon McRee, Attorney at Law. Do you recognize YOUR excuses?... Do you recognize YOUR excuses?]]>
  • I hate lawyers. (And I don't care if my attitude costs my heirs thousands in taxes and probate fees!)
  • I don't "get it." I feel uneducated, uninformed, confused by the minutiae or legalese of estate planning, and I'm embarrassed because I don't understand the purpose or benefits of estate planning for me.
  • I have a fear of losing control that makes it difficult for me to trust or even select a lawyer to help me.
  • I don't want to by psycho-analyzed, but I sometimes have a fear of making decisions, when I have to base them on someone else's advice.
  • I'm a "can do" person, but I think in terms of immediate gratification and immediate loss, and I can't see the value of paying fees for expert help and advice that may not provide any measurable benefit for years.
  • I'm sure my estate is "too small" or has the "wrong" kind of assets, and that I'd be making a fool of myself or wasting my time if I consulted a lawyer.
  • Why bother? The government always screws the taxpayer, no matter what you do.
  • I'm really uncomfortable discussing financial or personal matters. I don't know if it's because of my upbringing or because I fear being taken advantage of.
  • My family or business situation is so complicated / complex / messy, that I really just don't want to think about it now. I just don't believe that talking about it and coming up with some strategies would give me any peace of mind.
  • I witnessed the problems of executing someone else's estate plan. It was just awful, and I'm not really convinced there can be any good way to resolve all of the thorny issues.
  • I want to put together an estate plan, but my spouse is unwilling to participate.
  • I am superstitious. I know it's silly, but I'm afraid once I've completed an estate plan, I will die.
  • I'm just a procrastinator, plain and simple. I "mean to" get around to doing my estate planning, but it hasn't happened yet.
    • © 2003 Sharon McRee, Attorney at Law
    ]]>     "No-Kids" Estate Planning Techniques tag:www.griepplegal.com,2002:/articles//2.12 2002-09-18T00:47:15Z 2007-06-21T22:11:22Z Our firm has helped hundreds of families with their estate planning needs. But we are often asked "How would you address estate planning for childless couples?" or "What about single people with no dependents?" Add to these categories the many... Our firm has helped hundreds of families with their estate planning needs. But we are often asked "How would you address estate planning for childless couples?" or "What about single people with no dependents?" Add to these categories the many families whose children will not need a significant inheritance, those who wish to help other family members or charities, and there is a substantial population of people who do not "fit" the traditional spouse and children planning concepts. Tuition payments You can pay for anyone’s education without owing gift taxes, as long as the payments are made directly to the school and are used to cover tuition and books, not room and board. (This is in addition to the $11,000 per year you can give to any number of people, free of gift taxes.) This allows you to target the money for a specific purpose. Also, don’t forget the new tax-favored college savings accounts offered by some states. You can use your $11,000 tax-free gifts to open accounts for anyone. The money grows tax-deferred until it is tapped for tuition, books, and sometimes room and board. Then the earnings are taxed at the student’s tax rate.

    Grantor Retained Income Trust

    A "GRIT" lets you transfer assets to heirs during your lifetime with tax advantages. Congress has outlawed its use for lineal relatives (spouses, children, siblings), but it can still be used to benefit non-relatives or collateral relatives (such as nieces, nephews, cousins). Consider the example of a 50-year-old woman who contributes $1 million to a GRIT for her niece. During the predetermined life of the trust — let’s say ten years — the aunt is required to receive the income (if any) generated by the $1 million. Investment of the money can be conservative or aggressive, depending upon the terms of the trust. If the objective is to "grow" the principal, which will pass to the beneficiary when the trust ends, then income will be kept to a minimum. Using historical investment averages, this hypothetical $1 million GRIT could expand considerably, perhaps to three times its original value, benefiting the niece, with reduced tax consequences. GRITs must be carefully drawn, and expert investment advice is always recommended.

    Private foundations

    James, 54, a business owner, and his wife, Nicole, 51, an architect, expect to amass assets of about $9 million by the time they die. With no children of their own, they are already paying the private-school tuition of one of James’ two teenage nieces and will probably pay for both girls’ college and graduate school, too. With the estate tax exemption of $2 million and some careful planing, they can leave substantial inheritances to the girls, tax-free. They are contemplating leaving the balance of their estate to their own private foundation, to benefit local charities in Pasadena and Glendale. The nieces could be trustees, drawing a reasonable salary and distributing the money. One underappreciated benefit of setting up a foundation is that the responsibility of running the foundation helps build the character of the trustees. The nieces could name their own children as successor trustees, so James and Nicole can create a legacy of character and compassion. Due to the heavy setup and maintenance fees, plus reporting requirements, it usually doesn't make sense to create a foundation unless you're giving at least a few million dollars. To make sure that your designated trustees are up to the challenge of managing your foundation, consider establishing your foundation while you are still alive and can observe how the foundation is managed. This allows you to co-manage the assets while imparting your own style and priorities to your co-trustees.

    Charitable trusts

    Charitable trusts are ideal when an individual, couple or family have non-cash assets with meaningful market value. The transfer of the assets to one or more charities (either immediately or sometime in the future) provides an income tax benefit to the donor, offers transfer of capital gains liability, can provide a stream of income to the donor or other designated beneficiaries, and may be earmarked for specific purposes. There are numerous options for the childless and for those who do not choose to leave their entire estates to their own children. Please call us at 626.584.8900 to schedule an appointment to discuss your needs!]]>