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In December 2017, Congress passed, and President Trump signed a sweeping tax reform bill commonly known as the Tax Cuts and Jobs Act. This new Act contains several significant changes that will impact your estate planning. Estate Tax Changes Starting January 1, 2018, the estate, gift, and generation-skipping transfer (GST) tax exemptions double from $5 million to $10 million (adjusted for inflation). For 2018, the exemption is now $11.2 million per person ($22.4 million for a married couple). As was the case under prior law, the exemption will adjust annually for inflation. This doubled exemption remains in effect until December 31, 2025, at which time the law sunsets and the exemptions revert to the $5 million level (indexed for inflation). These changes open significant opportunities to remove assets from estates and permanently exempt future appreciation of those assets from estate, gift, and GST taxation. Of course, whether tax-driven planning is appropriate for you depends on many factors. For people of considerable wealth, now may be the perfect time to implement strategies like a dynasty trust, a spousal lifetime access trust, a domestic asset protection trust, or a charitable remainder trust. For people whose net worth is less than the exemption, we still must review and possibly revise prior estate plans to ensure that any “old” tax-driven language still achieves your goals. For example, a person with assets of $8 million whose trust uses a formula to allocate assets may have been comfortable with a $5 million credit shelter trust and the $3M balance of their estate going into a marital trust, but may be concerned about funding their entire $8M estate into a creditor shelter trust. Obviously, estate tax planning is only one aspect of estate planning. Incapacity issues, protecting financially imprudent heirs, asset protection, avoiding probate, and minimizing income taxes are all other aims that can be achieved with proper estate planning. Some people may mistakenly believe that they do not need estate planning because of the increased exemption. In addition to working with people who are affected by the estate tax, we also welcome the opportunity to discuss the many benefits of comprehensive estate planning with any persons who still haven’t moved forward with their planning. Changes to Individual Taxation The Act retains a seven-bracket rate structure but changes the income level and rate for each bracket. In addition, the standard deduction has increased from $6,350 to $12,000 for individuals and $12,700 to $24,000 for married couples. However, the personal exemption deduction has been repealed. The widening of brackets, rate reductions, and increase in standard deduction are all intended to offset the repeal of the personal exemption. Congress’s intended result is lower effective income tax rates for individuals. The increase in the standard deduction will likely reduce the number of people who itemize, so tax season in 2019 (when 2018 tax returns are filed) will probably be a little less arduous for many people. The capital gains rate and net investment income tax are unchanged. The top long-term capital gains rate remains at 20 percent, and the net investment income tax rate remains at 3.8 percent. Like the changes to pass-through businesses (more below), these changes to the standard deduction, brackets, and the personal exemption are in effect from January 1, 2018, through December 31, 2025. Pass-Through Business Changes For business-owners, the reform of pass-through business taxation is likely an incredibly welcome change. This impacts sole proprietorships, partnerships, S corporations, and LLCs taxed as partnerships or S corporations. The Act provides for a 20 percent deduction for most pass-through businesses which reduces the effective top tax rate to 29.6 percent (37 percent highest bracket less the 20 percent deduction yields a 29.6 percent effective rate). Owners of some service businesses, including those in the fields of health, law, consulting, athletics, and financial services, are subject to income limitations. High-income earners engaging in those types of businesses will not receive the 20 percent deduction, but other strategies are available to help them reduce their income tax burden. Give us a call today so we can strategize with you. This 20 percent deduction mentioned above is available from January 1, 2018, through December 31, 2025. We should immediately discuss the impact of this new law with any persons that are considering transitioning to or opening a new pass-through business entity. Depending on your goals, the reduction in the C corporation rate (from up to 35 percent to a flat 21 percent) may also make a C corporation a potentially attractive option. Each situation is unique, and we are here to help. Putting It All Together The Act is perhaps the most significant tax legislation in over 30 years. Continued study and experience with the Act will undoubtedly reveal numerous tax planning opportunities. Stay tuned for more details. In the meantime, feel free to give us a call with any questions you may have about tax reform or estate planning. Read More

The benefits of a highly detailed, comprehensive power of attorney are numerous. Unfortunately, many powers of attorney are more general in nature and can actually cause more problems than they solve, especially for our senior population. This article highlights the benefits of a comprehensive, detailed power of attorney, including some of the provisions that should be included. A proper starting point is to emphasize that the proper use of a power of attorney as an estate planning and elder law document depends on the reliability and honesty of the appointed agent. The agent under a power of attorney has traditionally been called an “attorney-in-fact” or sometimes just “attorney.” However, confusion over these terms has encouraged the terminology to change so more recent state statutes tend to use the label “agent” for the person receiving power by the document. The “law of agency” governs the agent under a power of attorney. The law of agency is the body of statutes and common law court decisions built up over centuries that dictate how and to what degree an agent is authorized to act on behalf of the “principal”—in other words, the individual who has appointed the agent to represent him or her. Powers of attorney are a species of agency-creating document. In most states, powers of attorney can be and most often are unilateral contracts – that is, signed only by the principal, but accepted by the agent by the act of performance. Much has been written about financial exploitation of individuals, particularly seniors and other vulnerable people, by people who take advantage of them through undue influence, hidden transactions, identity theft and the like. Even though exploitation risks exist, there are great benefits to one individual (the principal) privately empowering another person (the agent) to act on the principal’s behalf to perform certain financial functions. A comprehensive power of attorney may include a grant of power for the agent to represent and advocate for the principal in regard to health care decisions. Such health care powers are more commonly addressed in a separate “health care power of attorney,” which may be a distinct document or combined with other health topics in an “advance health care directive.” Another important preliminary consideration about powers of attorney is “durability.” Powers of attorney are voluntary delegations of authority by the principal to the agent. The principal has not given up his or her own power to do these same functions but has granted legal authority to the agent to perform various tasks on the principal’s behalf. All states have adopted a “durability” statute that allows principals to include in their powers of attorney a simple declaration that no power granted by the principal in this document will become invalid upon the subsequent mental incapacity of the principal. The result is a “durable power of attorney” – a document that continues to be valid until a stated termination date or event occurs, or the principal dies. Absent durability provisions, the power of attorney terminates upon the principal’s death or incapacity. Having covered the explanation of what a durable power of attorney is, let us look at the top benefits of having a comprehensive durable power of attorney. Provides the ability to choose who will make decisions for you (rather than a court). If someone has signed a power of attorney and later becomes incapacitated and unable to make decisions, the agent named can step into the shoes of the incapacitated person and make important financial decisions. Without a power of attorney, a guardianship or conservatorship may need to be established, and can be very expensive. Avoids the necessity of a guardianship or conservatorship. Someone who does not have a comprehensive power of attorney at the time they become incapacitated would have no alternative than to have someone else petition the court to appoint a guardian or conservator. The court will choose who is appointed to manage the financial and/or health affairs of the incapacitated person, and the court will continue to monitor the situation as long as the incapacitated person is alive. While not only a costly process, another detriment is the fact that the incapacitated person has no input on who will be appointed to serve. Provides family members a good opportunity to discuss wishes and desires. There is much thought and consideration that goes into the creation of a comprehensive power of attorney. One of the most important decisions is who will serve as the agent. When a parent or loved one makes the decision to sign a power of attorney, it is a good opportunity for the parent to discuss wishes and expectations with the family and, in particular, the person named as agent in the power of attorney. The more comprehensive the power of attorney, the better. As people age, their needs change and their power of attorney should reflect that. Seniors have concerns about long-term care, applying for government benefits to pay for care, as well as choosing the proper care providers. Without allowing, the agent to perform these tasks and more, precious time and money may be wasted. Prevents questions about principal’s intent. Many of us have read about court battles over a person’s intent once that person has become incapacitated. A well-drafted power of attorney, along with other health care directives, can eliminate the need for family members to argue or disagree over a loved one’s wishes. Once written down, this document is excellent evidence of their intent and is difficult to dispute. Prevents delays in asset protection planning. A comprehensive power of attorney should include all of the powers required to do effective asset protection planning. If the power of attorney does not include a specific power, it can greatly dampen the agent’s ability to complete the planning and could result in thousands of dollars lost. While some powers of attorney seem long, it is necessary to include all of the powers necessary to carry out proper planning. Protects the agent from claims of financial abuse. Comprehensive powers of attorney often allow the agent to make substantial gifts to self or others in order to carry out asset protection planning objectives. Without the power of attorney authorizing this, the agent (often a family member) could be at risk for financial abuse allegations. Allows agents to talk to other agencies. An agent under a power of attorney is often in the position of trying to reconcile bank charges, make arrangements for health care, engage professionals for services to be provided to the principal, and much more. Without a comprehensive power of attorney giving authority to the agent, many companies will refuse to disclose any information or provide services to the incapacitated person. This can result in a great deal of frustration on the part of the family, as well as lost time and money. Allows an agent to perform planning and transactions to make the principal eligible for public benefits. One could argue that transferring assets from the principal to others in order to make the principal eligible for public benefits–Medicaid and/or non-service-connected Veterans Administration benefits–is not in the best interests of the principal, but rather in the best interests of the transferees. In fact, one reason that a comprehensive durable power of attorney is essential in elder law is that a Judge may not be willing to authorize a conservator to protect assets for others while enhancing the ward/protected person’s eligibility for public benefits. However, that may have been the wish of the incapacitated person and one that would remain unfulfilled if a power of attorney were not in place. Provides immediate access to critical assets. A well-crafted power of attorney includes provisions that allow the agent to access critical assets, such as the principal’s digital assets or safety deposit box, to continue to pay bills, access funds, etc. in a timely manner. Absent these provisions, court approval will be required before anyone can access these assets. Digital assets are also important because older powers of attorney did not address digital assets, yet more and more individuals have digital accounts. Provides peace of mind for everyone involved. Taking the time to sign a power of attorney lessens the burden on family members who would otherwise have to go to court to get authority for performing basic tasks, like writing a check or arranging for home health services. Knowing this has been taken care of in advance is of great comfort to families and loved ones. Conclusion This discussion of the Reasons Why Everyone Needs a Comprehensive Power of Attorney could be expanded by many more. Which benefits are most important depends on the situation of the principal and their loved ones. This is why a comprehensive power of attorney is so essential: Nobody can predict exactly which powers will be needed in the future. The planning goal is to have a power of attorney in place that empowers a succession of trustworthy agents to do whatever needs to be done in the future. Please call us if we can be of assistance in any way or if you have any questions about durable powers of attorney. To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in this newsletter was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax penalties that may be imposed on such person and (ii) each taxpayer should seek advice from their tax advisor based on the taxpayer’s particular circumstances. Read More

It has been a year packed with activity on the presidential and congressional level. We have seen proposed, amended and failed legislation, blocked executive orders, investigations, and charges of collusion on both sides. In this issue, we will summarize how developments from 2017 are likely to impact seniors, Veterans, and persons with disabilities. What Happened with Health Care? 2017 saw multiple attempts by Congress to repeal and replace the Affordable Care Act. The House passed its legislation but Senate Republicans did not. The legislative process and the House and Senate bills were explained in detail in previous editions, so we will begin this recap with a short summary. Even though the Republicans have a majority in both the House and Senate, they only have 52 Republicans in the Senate. Sixty (60) votes are needed to pass new legislation, so they have been attempting to pass the legislation through the Budget Reconciliation process which only requires 51 votes. However, because that process is limited to budget items only, they could not include provisions that some Republicans wanted in a full repeal and replace bill—such as letting insurance companies sell across state lines to increase competition, lower prices and create better plans, and allowing the government to negotiate lower drug prices. Republicans were also trying to make changes to Medicaid. The Affordable Care Act allowed states to expand Medicaid to some low-income Americans above the poverty level, which greatly increased the number of people on Medicaid. Also, the funding for Medicaid is open-ended, which means the funding increases as need increases. The goal of Medicaid reform was to reduce the number of enrollees and reduce future spending so that it grows more slowly. Instead of open-ended benefits, both the House and Senate plans would have provided the states with either a per capita cap (a certain number of dollars per person) or a block grant of funds, which each state could use as it wished. Republican proposals would also allow insurers to charge older Americans and those with pre-existing conditions more for their coverage than they charged younger, healthier people. (Those who could not afford the higher premiums would receive premium assistance from the government.) Insurers would also be allowed to offer plans that did not include all of the Affordable Care Act-mandated benefits and comprehensive-only plans for younger, healthy Americans. After promising “Repeal and Replace” for more than seven years, Republican leadership seemed to be caught off-guard by its members’ objections. Conservative Republicans wanted a full repeal and replace while some moderate Republicans wanted to keep some of the more popular parts of Affordable Care Act, including Medicaid expansion and no extra charges for those with pre-existing conditions. In the end, Senate Republicans were unable to pass any health care reform, not even a flat repeal of Affordable Care Act as a starting point. That has not stopped President Trump from taking some action through Executive Orders (EOs) to start dismantling the Affordable Care Act. In October, he signed an EO that included a 90% cut to the advertising budget for the Affordable Care Act enrollment period starting November 1. The EO also directed agencies to issue new regulations that would expand the ability of small businesses and other groups to band together to buy insurance through association health plans, and it lifts limits on short-term health insurance plans. A second EO, also signed in October, cut off payments to insurers that are known as cost-sharing reductions (CSRs). These were created under the Affordable Care Act to reimburse insurers for reducing out-of-pocket expenses for customers making up to 250% of the federal poverty level (about $61,000 for a family of four). The payments are the subject of an ongoing lawsuit that argues they were not properly authorized under Affordable Care Act. The White House agreed and decided to end them. Congress can easily solve the problem by passing a law appropriating funds for the CSRs. However, a new multi-state lawsuit has been filed to stop President Trump from halting the payments to insurers. What This Means for Seniors, Veterans and the Disabled The uncertainty about the future of health insurance is very unsettling to many seniors, the disabled and Veterans who depend on Affordable Care Act or Medicaid for their health insurance. According to one recent study, about 15.6 million people are covered by individual insurance plans. (Most Americans have insurance through their employers or are on Medicare.) But almost 70 million are currently covered by Medicaid, including about 11 million Veterans who do not get their health care through the Veterans Affairs system. The Congressional Budget Office (CBO) estimated that as many as 23 million people would lose their current health care coverage if the House or Senate bills had passed. This number includes individuals who would voluntarily discontinue their health care coverage when the individual mandate was eliminated. It also includes millions who were added to Medicaid by the expansion under Affordable Care Act. Many leaders on both sides believe something must be done soon to address several issues with the Affordable Care Act: Premiums continue to rise; deductibles and copays are so high that many cannot afford to use their plans; and insurers, who underestimated costs, are leaving markets. Many counties across the country will have no plans in the individual marketplace in 2018. Members of Congress have stated they will try again as part of the tax legislation they are working on now. There have also been bi-partisan meetings with some early proposals. Specific Actions for Veterans President Trump campaigned on helping Veterans. With his actions, encouragement and the appointment of Secretary of Veterans Affairs David Shulkin, there have been some positive developments this year. Here are some of the highlights: The Accountability and Whistleblower Protection Act of 2017 was passed in June and promptly signed by President Trump. Written in response to an Obama-era scandal in which Veterans died waiting for doctors’ appointments, this law will make it easier to discipline and fire bad employees, better protect those who report misconduct and improve care for Veterans. As of July 14, the VA has fired over 500 employees, suspended 200, demoted 33 and disciplined 22 senior leaders. A Veterans’ complaint hotline has been established. Unemployment rates for Veterans fell in October to 2.7%, continuing a long-term downward trend in unemployment among U.S. Armed Services. This rate is down from 4.7% in October 2016 and 10.2% in 2009. President Trump also signed into law The Veterans Choice Program (VCP) Extension and Improvement Act, improving the 2014 program that allows eligible veterans to receive care from providers in the community instead of only from the VA. The VA has announced a new Electronic Health Record (EHR) system that will modernize its medical records to use the same system as the Department of Defense. The Veterans’ records will now follow them when they leave service, providing faster and better care. In August, President Trump signed The Veterans Appeals Improvement and Modernization Act, which streamlines the process for Veterans to appeal disability benefit claims. Also in August, President Trump signed an expansion of Veterans’ education benefits, boosting aid by $3 billion over the next 10 years and extending assistance to some veterans and dependents who didn’t qualify. This “Forever GI Bill” is officially titled The Harry W. Colmery Veterans Educational Assistance Act of 2017, named for the past commander of the American Legion who authored the GI Bill of Rights in 1944. The VA Connect app is being expanded to allow patients to conduct telehealth visits from their home computers and mobile devices and from private medical offices. VA providers in cities where there are a lot of doctors and specialists will be able to help Veterans in areas where there aren’t as many healthcare professionals. This will be a valuable service for those who are home-bound, live in rural areas, or need help in the area of mental health and suicide prevention. A Look Ahead to 2018 Congress is already at work on tax cuts and tax reform. Republicans want to simplify the tax code so that most people can file their tax returns on a postcard. We will most likely see continued efforts to either repeal and replace the Affordable Care Act, or to address Medicaid spending. Treatment of Veterans and processing of claims will continue to be an important issue for members of Congress and the President. It should be another exciting year! If you or those you serve have any questions, we would be happy to hear from you. Read More

“Whatever can go wrong, will go wrong.” Murphy’s Law applies itself with surprising vigor in the estate planning field. If you are leaving outright, no-strings-attached inheritances or gifts to your beneficiaries, you are practically inviting disaster. But, there’s hope. A properly designed estate plan protects your beneficiary. What Can Go Wrong with Outright Distributions or Gifts? There are many perils with outright distributions or gifts. Here’s a short list of what can (and, in many cases, will) go wrong: Judgment creditors can seize or garnish a beneficiary’s inheritance to satisfy their claim (even if it’s a “frivolous” lawsuit). Bankruptcy courts can seize a bankrupt beneficiary’s inheritance to pay creditors and costs. Guardianship or conservatorship courts can impose “living probate” if a beneficiary is now or, later becomes incapacitated. If the beneficiary doesn’t effectively plan (remember, if it can go wrong, it will), then the family will probably need to probate the estate. A divorce court might award some or all of a beneficiary’s inheritance to a soon-to-be ex-spouse. Many people are unaware of these and other risks of outright distributions or gifts. But, Gudorf Law Group understands the risks and are here to help identify and proactively solve these problems for you. What is a Lifetime Discretionary Trust? A lifetime discretionary trust is the solution to the problems created by outright distributions or gifts. It is a mechanism that allows you to pass assets to beneficiaries in continued trust rather than outright or staggered (such as one-third at 30, one-third at 35, and the remainder at 40). Two points about lifetime discretionary trusts. First, these trusts are really just a feature in your estate plan. After your death, the trust holds assets for the next generation, while providing direction and control during the entire lifetime of at least one successor generation. In this way, they are similar to dynasty trusts. Second, these trusts are discretionary in that successor trustees are not required to distribute income and/or assets in rigid ways. Instead, it gives successor trustees the power, within limits, to adjust the timing, direction, and percentage distributions of income and assets in light of contingencies that could not have been known at the time the trust was initially funded (often at the death of the client). For example, maybe one of the children or grandchildren is a spendthrift, has a substance abuse problem, or has special needs. The discretionary element allows for flexibility toward that person. Here are the 6 primary benefits of a lifetime discretionary trust: Benefit # 1 – Protection from Liabilities An inheritance that goes directly into the beneficiary’s pocket is readily available to pay the beneficiary’s liabilities from a car accident, in bankruptcy, or after a lawsuit. A properly structured lifetime discretionary trust will protect the inheritance from the beneficiary’s liabilities and provide a place for long term safekeeping. Benefit #2 – Protection from Divorce An inheritance that goes directly into the beneficiary’s pocket is readily available for division during a divorce. A properly structured lifetime discretionary trust will keep the inheritance out of the hands of the beneficiary’s soon-to-be ex-spouse. Benefit #3 – Protection During Incapacity An inheritance that goes directly into the beneficiary’s pocket will become inaccessible if the beneficiary becomes incapacitated and require court intervention to gain access. An inheritance held inside a lifetime discretionary trust will allow the trustee to manage it for the benefit of the incapacitated beneficiary without any court involvement. Benefit #4 – Protection for the Bloodline or Charity An inheritance that goes directly into the beneficiary’s pocket can easily be wasted on fast cars, expensive shoes, and extravagant vacations or squandered by the beneficiary’s deadbeat spouse or children. An inheritance held inside a lifetime discretionary trust will be protected and invested for the benefit of the lifetime beneficiary and go wherever the trust maker wants it to go (such as to grandchildren or a favorite charity) after the lifetime beneficiary dies. Benefit #5 – Protection from Estate Taxes An inheritance that goes directly into the beneficiary’s pocket will be subject to estate taxes after the beneficiary dies. A properly structured lifetime discretionary trust can shelter the inheritance from estate taxes after the beneficiary dies. Benefit #6 — Protect Valuable Illiquid Assets from Premature Sale A lifetime discretionary trust can allow for valuable, illiquid assets to be sold in a more relaxed way (possibly for a better price), or even to continue developing over many decades. Examples of relatively less liquid assets include certain investment real estate, private equity positions, and some other alternative assets. Their relative illiquidity may mean a forced sale would fetch far less than the assets are worth. A properly structured and managed lifetime discretionary trust can provide better management of these assets. WARNING: Lifetime Discretionary Trusts Aren’t For Everyone Even though lifetime discretionary trusts offer many benefits, they’re not for everyone. The smaller the value of the trust, the more expensive it will become to maintain over time. Things that should be considered include the beneficiary’s age, the value of the assets that will be used to fund the trust, and the expenses involved in managing the trust during the beneficiary’s entire lifetime. Let’s Work Together Identifying when a discretionary lifetime trust will benefit your spouse, child, or grandchild is relatively easy. Knowing when the benefits outweigh the long-term cost isn’t. Call us if you have questions – we’re always available to help and look forward to working with you. Read More

From savings-building strategies to concerns about investments, financial advisors like you work closely with your clients throughout the year. As estate planning attorneys, we typically see those same clients far less often, but there are numerous circumstances where collaboration between us can help secure the best outcomes for our mutual clients. It may not seem intuitive to loop in an estate planning attorney. After all, you offer comprehensive services to your clients. Why bring more cooks into the kitchen? The truth is, working collaboratively with estate planning attorneys can add significant value to your clients’ outcomes. Sustainable planning is a team sport Think of a typical client of yours—let’s call her Elizabeth. Like any fiscally responsible person, Elizabeth has put together an all-star team to help her reach her financial goals. On her team, every player has their role. The team works best when there’s clear communication at every play. The team can rely on each other to assist when there is an opportunity to score extra points for Elizabeth. 4 situations to pick up the phone We don’t need to be in touch for every decision, but here are four situations where two heads are definitely better than one. Give us a call when you run across any of these scenarios. 1. High-growth assets What about that high-growth asset that’s just about to pop up in value tomorrow? Maybe it’s founder’s stock, a private placement that’s about to go public, an art collection that’s suddenly spiked in demand, or something else entirely. Wealth can change overnight, and Elizabeth’s financial plan must be flexible enough to allow for room to grow. How we can help: With the help of an estate planning attorney, Elizabeth could sign onto an incomplete non-grantor trust that would organize her state and federal tax liabilities into separate entities. This way, her high-growth asset could be managed under the trust in a state with favorable income tax laws. That means that when Elizabeth does decide to sell her hot new startup or her collection of Warhols, she’s only responsible for the federal portion of the taxes associated with the sale. This strategy could save significant state income taxes if she lives in a high-tax jurisdiction, and that’s a big win for her. 2. Hard-to-value assets Hard-to-value assets like commercial real estate, small business interests, and closely held companies are another reason you might want to bring us into the loop as soon as possible. Suppose that Elizabeth has inherited her father’s regionally-beloved ice cream franchise. It’s hard to tell what the company’s current value is, but it’s easy to tell that the number of franchises in different locations makes her vulnerable to heavy estate taxation and challenging valuations going forward. How we can help: A wide variety of planning options are available to Elizabeth depending on her goals and her other assets. A business succession plan, a grantor retained annuity trust (GRAT), a life insurance trust (ILIT), or several other tools could help Elizabeth incorporate this new hard-to-value asset into her holdings. Of course, it doesn’t just have to be an inheritance that’s hard to value. Any difficult to value assets should be considered when developing a comprehensive financial plan and estate plan, thereby providing a big relief for Elizabeth and those like her. 3. New homeownership Buying a new house, be it a principal residence, vacation property, or rental property, is a huge decision. Is she making the right choice, and is she taking smart, strategic financial steps in the process? Thanks to Elizabeth’s career success, she’s able to purchase the type of high-value house she’s been dreaming of for her family. But before signing for it, there’s an estate planning tactic that could substantially benefit her down the road by removing the appreciation of the property from her estate. How we can help: Before the purchase is official, Elizabeth could set up a qualified personal residence trust with the help of an estate planning attorney. This helps her in a few ways. For one, she can name her children as beneficiaries that would inherit the property after her death, with less gift tax cost than she’d otherwise have to deal with. She can still live in the home during the tenure of the trust. Now Elizabeth has both a new home and a great asset lined up for her children in the future. Even if a qualified personal residence trust isn’t a great fit, it still makes sense for Elizabeth to discuss whether her new home should be titled in the name of her trust. 4. Charitable giving If Elizabeth is thinking about making a large charitable gift, you’ll want to make sure to work with us to assess any opportunities to get the most out of Elizabeth’s generosity. How we can help: There are numerous charitable tools available, such as charitable remainder trusts, charitable lead trusts, gift annuities, donor advised funds, and private foundations. There are no one-size-fits-all solutions to planned giving, but there are so many options available that it’s almost certain that something will work for Elizabeth to make the most of her gift. Give us a call today We can work with you to help you strengthen your client relationships by solving these issues. Collaborate with us to improve outcomes and generate strong, long-lasting relationships with your clients. Read More

6 Important Conversations to Have with Your Clients Before the Hustle and Bustle of the Holidays It’s time to start thinking about year-end tax planning. This is an opportunity to communicate with your clients, offer solutions, and deepen your relationship by helping them save thousands of dollars next spring at tax time. To help your clients make the most of these opportunities, here are five conversations you can have with them before the holiday season sets in. 1. Discuss any tax changes for 2017 that might affect the client. Yearly changes in the tax rules can either save or cost them at tax time. Since you’re already familiar with your clients’ financial structures and strategies, you can determine which of your clients are affected by tax law changes, using that conversation as an entry point to a discussion about year-end tax planning. By acting now, your clients can optimize their outcomes. By engaging your clients in this way, you demonstrate to them that you care and provide value as a trusted consultant. You also create an additional market for your services. Even if only 10% of your clients hire you to take action related to their year-end taxes, your company’s cash flow can see a significant bump. Remember, delays in planning help only the IRS – not your clients. 2. Offer a review of your clients’ investment portfolios. A year-end review of a client’s investments can often reveal unseen opportunities to reduce taxes. For example: If certain stocks are underperforming, selling those stocks now enables the client to harvest those losses to offset gains in other stocks. Strategically deferring the sale of other stocks until next year can minimize spikes in taxable income now. You can discuss other options for managing capital gains from stock sales and dividends. 3. Invite clients to consider opening a retirement savings account. For clients who do not yet have an IRA, 401(k) or other retirement savings account, opening a new one now gives the client an immediate opportunity to manage his/her tax burden. Since taxes are deferred on these accounts until they are cashed out, any extra income that can be put into the account between now and the end of 2017 will reduce your client’s taxable income for the year, as well as start building wealth for the future, a win-win. 4. Discuss options for year-end giving. Year-end giving is another proven method for reducing your clients’ tax burdens for the following year, and opening up this conversation with your clients can also lead to additional opportunities to discuss longer-term tax savings and wealth building strategies. Here’s how: Invite your client to make a year-end tax-deductible donation to one or more of his/her favorite charities. For longer-term tax savings, if your client’s estate faces the estate tax, the client can give away up to $14,000 per person per year up to a certain threshold without paying gift tax. This strategy effectively removes taxable estate value while transferring some seed money to friends and loved ones. Your client may also be interested in setting up a charitable trust, like a charitable lead trust (CLT) or a charitable remainder trust (CRT), both of which can be structured to benefit both charities and loved ones while removing the property from the estate. This strategy, too, can reduce taxes in the long term. We can help you and your clients develop a gift plan that maximizes the benefits while minimizing taxes. 5. Suggest other tax-saving strategies. Since everyone’s financial situation is different, there may be other specific year-end financial moves that don’t fit into any of the other categories above, but which would still effectively reduce your client’s tax burden. For example, after review, you might suggest some of the following: Pre-pay the spring semester of college. If your client has one or more kids in college, tuition payments may be deducted—even tuition paid in advance. Empty the FSA. If your client has a Flexible Spending Account (FSA) for out-of-pocket healthcare expenses, any unused money becomes taxable at the end of the year. If he or she has been meaning to get some dental work done or buy new prescription lenses, doing it now to empty that account means lower taxes next spring. Pre-pay a mortgage payment in December. By paying January’s mortgage payment before December 31, your client might be able to deduct that extra interest in 2017, further reducing the tax burden. 6. Ask about any changes in your clients’ income or employment status. During the year, many people get raises, lose jobs, start new businesses, sell homes, and so on. Any significant increase (or decrease for that matter) in income calls for an adjustment in tax planning to prevent unwanted surprises, and the fall season is an ideal time to assess these changes. For most tax problems, there’s a solution. We need to sit down, learn about your clients, and build an action plan for them. While working through the year-end tax planning process, you might learn something about your clients and be able to provide new or different financial services depending on the changes. We’re here to help you and your clients. As a financial advisor, any opportunity you have to interact with your clients is a chance to help them build wealth while increasing your own business opportunities. Admittedly, bringing up tax season to your clients at this time of year might feel a bit like asking them to eat their vegetables, but they’ll thank you later, especially when they see how much you’re able to help them save! If you need guidance as to which year-end tax strategies are most suited to your clients, or if you want insight into detailed, technical questions related to their estate planning questions, we’re here to help. Call or email us to get the support you and your clients need. Read More

Long-term care is becoming an important issue for our nation to address. We have 78 million aging baby boomers. The costs of long-term care to these baby boomers can be catastrophic and few people have sufficient resources to pay for needed long-term care. In an effort to deal with this growing concern, the Long-Term Care Financing Collaborative (the “Collaborative”) began meeting informally in 2012 for the purpose of finding a solution. They have since become a formalized group made up of a variety of national experts and stakeholders with varying ideological stances. Their common goal is to improve the way Americans pay and prepare for non-medical care (Long-term supports and services) needed by the elderly and those living with disabilities. On February 22, 2016, the Collaborative announced its third and final set of recommendations. ABOUT THE COLLABORATIVE The diverse group is made up of policy experts, consumer advocates and representatives from service providers and the insurance industry. In addition, the group consists of senior executive branch officials in both the Democratic and Republican administrations, former congressional aides, and former top state health officials. THE COSTS INVOLVED The statistics surrounding long-term care or long-term supports and services (“LTSS”) are eye opening. According to the Collaborative, there are between 10 and 12 million adults today who require LTSS and that number is expected to double by the year 2030. More than two-thirds of older adults will need some assistance before they die and nearly half will have a high enough need that they will be eligible for private long-term care insurance or Medicaid to pay the bill. More than 6 million older adults need that level of care today and nearly 16 million will need it in 50 years. The Collaborative defines Long-term supports and services (“LTSS”) as non-medical assistance. This would include help with such things as food preparation, personal hygiene, assistive devices and transportation, bathing, eating and the like. Cost to the Elderly or Disabled: The elderly or disabled persons who find themselves in need of LTSS try to pay for it out of their savings or income from their retirement along with help from family members. Often, this is insufficient to cover the costs and many people have to turn to Medicaid for help. The overall spending on LTSS is expected to double by 2050, which will cause even more people to depend on Medicaid to pay for it. Few people have saved sufficiently for LTSS. In fact, the Collaborative reports that a typical American between the ages of 65 and 74 has financial assets of $95,000 and about $81,000 in home equity. This does not include retirement savings, which vary widely across the country. To pay for one’s lifetime medical expenses with a 90% certainty requires savings of about $130,000 and an additional $69,500 for LTSS costs. With this in mind, it is easy to see how people are running out of money. Over all, individuals pay for about 55% of LTSS expenditures; Medicaid pays about 37%; and Private LTSS insurance pays for less than 5%. Cost to Family and Friends: In addition to the financial stress this places on the elderly and disabled, it also significantly affects their families. The Collaborative estimates that in 2013, family and friends provided 37 billion hours of uncompensated LTSS to adults. This care calculates to up to $470 billion, which is three times the amount Medicaid spent on LTSS the same year. When family members provide caregiving to a loved one, it often comes at the cost of their job or a portion of their job. On average, the Collaborative reports, a woman in her 50s who leaves a job to care for her aging parents does so at a cost of $300,000 of income over her lifetime. The Collaborative states that “unpaid family caregivers lose an estimated $3 trillion in lost lifetime wages and benefits.” Cost to Employers of Family and Friends: The Collaborative reports that employers experience a loss of $17.1 to $33 billion in productivity due to absenteeism alone. In addition, they state that “costs of turnover and schedule adjustments for caregiving workers add an additional $17.7 billion in costs.” THE COLLABORATIVE’S RECOMMENDATIONS The Collaborative was able to agree to five key recommendations in three key areas. This final set of recommendations focused significantly on: 1) A need for universal catastrophic insurance; 2) Private market initiatives and public policies to revitalize the insurance market to help address non-catastrophic LTSS risk; and 3) Enhanced Medicaid LTSS for those with lower lifetime incomes. The Collaborative calls for a strong government role in the solution. The group considered voluntary and universal insurance programs and came to the conclusion that universal was the only viable, long-term solution as it spread the risk across the entire population and avoided challenges of adverse selection. The Collaborative noted in the report, “As a result, universal insurance appears to offer broad-based insurance at a comparatively low lifetime cost.” In addition to recommending universal catastrophic insurance, the Collaborative also recommended taking some actions to revitalize the private insurance market. These included suggestions of employers offering long-term care insurance as part of their benefits packages. In addition, the group suggests that regulatory changes in the insurance industry, creating more standardization in policies, would save costs to consumers. The specifics of the regulatory change suggestions include increasing premiums and benefits as the individual ages. There is also a suggestion that this type of insurance be sold in conjunction with Medicare supplemental programs. Finally, the group suggests that policymakers continue to encourage and support efforts by the insurance industry to experiment with more hybrid products, combining long-term care insurance with other products. Another recommendation given by the Collaborative was to encourage increased private savings for retirement. This encouragement might come in the form of ease of enrollment through employers’ benefits programs, expanded retirement products, tax subsidies and education. Of note was a recommendation made by the Collaborative was to modernize Medicaid financing and eligibility. This recommendation is really one to expand Medicaid coverage to include more people, in more settings, for more care. Eligibility would be based on a functional assessment and a needs assessment rather than requiring an institutional level of care. CONCLUSION The Collaborative leaves us with a final recommendation to provide more education about LTSS. Many people are in denial about the possibility that they may need it some day and do not plan. While it is encouraging that the nationwide issue is being studied more and taken more seriously now, the problem is far from resolved. Until there is a firm solution, individuals must take responsibility and plan ahead. If you or someone you know has questions about how to plan for the costs of long-term care, please feel free to contact our office. Read More

A frequently overlooked aspect of a client’s life insurance is proper alignment with estate planning goals. Between the typical set-it-and-forget-it mentality and a simple beneficiary approach many people take, a neglected life insurance policy often fails to achieve the goals that initially led to the purchase of the policy. What can go wrong with life insurance? Many people fail to integrate their life insurance policies into their estate planning effectively. Here are just a few of the many things that can go wrong: A client may think their life insurance is entirely separate from their other assets. As a result, they fail to adequately account for this asset in their estate plan, missing opportunities to provide for their family. A client may have an old, underperforming policy that follows dated mortality tables, bears higher administrative costs, or yields lower interest than a more current policy would. There has been so much change in the financial services and insurance industry over the years that “old” policies certainly need a fresh look. A client may own life insurance inside an Irrevocable Life Insurance Trust or ILIT. Depending on the client’s needs, age, health, and financial status, the ILIT itself may no longer be necessary. ILIT-owned policies should also be reviewed, as they may need to be replaced by a new policy. A client may have outdated or non-existent beneficiary designations. Common mistakes include naming a deceased person, a former spouse, a minor child or grandchild, or omitting children born after the policy was issued. Integrating life insurance into a clients’ estate plan can resolve these issues and more. Tools for life insurance estate planning The good news for your clients, and for you, is that a full review of the estate plan will often reveal these vulnerabilities so you can correct them before any adverse outcomes occur. Of course, the solution will differ from client to client based on the size of the estate, the current ownership and beneficiary structures, and other factors. The 1035 Exchange Typically, when a permanent or universal life insurance policy is cashed out, the proceeds count as taxable income. However, a 1035 Exchange, named after the applicable section in the tax laws, enables your client to trade in a less-than-ideal “old” life insurance policy for a “new” life insurance policy without adverse income tax consequences. Depending on the size and complexity of your client’s estate plan, this simple switch may be all that’s needed at the moment; at other times, you’ll use it simultaneously with other strategies. Obtain a Completely New Policy or Convert a Term Policy If your client has a term life insurance policy, it might make sense to get an entirely new policy. Of course, a client’s health is a significant factor here and that alone might be a reason to convert an existing term policy into a permanent policy, if a conversion feature is available. Some insurers even allow for the addition of long-term care riders or other “lifetime” access features that either weren’t available at all or weren’t widely available in the past. Irrevocable Life Insurance Trust (ILIT) Life insurance death benefits are considered part of a decedent’s estate and are therefore subject to estate tax. The proper design, funding, and implementation of a special trust designed to own life insurance, known as an Irrevocable Life Insurance Trust or ILIT, can save estate taxes. Unfortunately, many people consider these trusts for estate tax reasons only, but the robust asset protection and asset management consolidation for beneficiaries can be reason enough to create one of these trusts. Stan Miller, a principal of WealthCounsel and estate planning attorney at ILP + McChain Miller Nissman, summarizes the asset management benefits of trusts: In my experience, wealth that is aggregated and managed will grow and provide a lasting benefit to a family. On the other hand, wealth that is divided and distributed dissipates. It simply doesn’t create a long-term benefit. Life insurance, for many people, creates instant wealth that, when properly managed inside a trust, can provide lifelong benefits to your spouse, children, and even grandchildren.” The importance of ongoing insurance review and management The best way to help keep your clients’ life insurance component current is through periodic review and continuous management. Here are some examples of what this review process can look like: If you have a client who has no life insurance, now is the perfect time to strategize with him or her and get an appropriate policy in place. As a client’s wealth continues to grow, the amount of life insurance may need to adjust. (For those clients with taxable estates, the life insurance death benefit might actually be used to provide liquidity to pay federal or state estate taxes. In these cases, we’ll work with you and the clients to ensure the overall plan design makes these funds available without causing any estate tax problems.) If your client has an ILIT, then he or she cannot be the trustee. Otherwise, the estate tax benefits are nullified. You may either be able to fill that role or work alongside a family member appointed to that position. An ILIT that hasn’t been maintained well may not be effective either, so we should coordinate a trust review with you and your clients in addition to reviewing the insurance policy. As your client’s financial and estate planning needs change, ongoing monitoring ensures that a client’s life insurance plan adapts to keep pace. Reinforce to your clients that life insurance is part of their wealth and wealth that isn’t managed tends to dissipate. By offering your review and management services now, you are building a relationship and helping your clients and their beneficiaries preserve wealth for the future. We’re here to assist. A well-structured life insurance component can be a welcome addition to any estate plan. But don’t use life insurance in a vacuum – work with us to coordinate it with your clients’ estate plans. Our team can help you provide strategic estate planning services for your clients. Give us a call or email us with your questions at any time. Read More