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How a Succession Plan for a Family Business Fits Into Your Estate Plan

Wednesday, October 21st, 2015

When a family business is transferred to the next generation, careful planning and proper timing are essential. The succession plan should take into account interest rates, taxes and the effect that the transfer may have on one’s estate plan.

One factor that family business owners should take into consideration is interest rates. The importance of this factor depends on individual economic circumstances, but generally speaking it is beneficial for the transfer of a family business to take place when interest rates are low. The seller may wish to finance the sale of equity or make a distribution that is financed through borrowing, or the buyer may wish to borrow funds so that the seller can be paid in full. In any of these scenarios, lower interest rates will benefit both parties, so the owners of a family business may want to have a succession plan in place but wait to implement it until the interest rate environment is most beneficial.

A succession plan for a family business also needs to take income tax issues into account. The 3.8 percent net investment income tax (NIIT) will apply to many business sales. In addition, many transfers of a family business involve an installment sale. If the older generation’s estate plan calls for that debt to be forgiven, then there will be debt cancellation income to the estate, which can create an income tax burden for the estate. Starting the transfer of the business sooner reduces this risk.

A family business succession plan involves many individual factors, including the crucial matter of when the next generation is ready to lead. It is important to take a long view and have a plan in place that can be implemented at the right time, but business owners should also stay abreast of fluctuation in interest rates and any changes in tax laws that may be on the horizon.

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The Medicare “Donut Hole” Explained

Monday, September 21st, 2015

Seniors and others with Medicare prescription drug coverage (Part D) should be aware of the coverage gap known as the “donut hole,” so that they can plan properly for the cost of their medication.

Most Medicare prescription drug plans have a “donut hole” coverage gap, which means that when you have spent a certain amount on medication, your coverage will be reduced until your costs reach a higher amount where coverage picks up again. The Affordable Care Act reduced the effects of the donut hole, but it can still result in a significant cost for seniors. Here is exactly how the donut hole comes into play with Medicare prescription drug coverage: Littman Krooks Elder Law

First, you are responsible for 100 percent of your deductible (not more than $320 in 2015 and not more than $360 in 2016). After you have paid the deductible, you are covered (meaning you are only responsible for your co-payments or coinsurance), until you and your plan have spent a combined total on covered drugs that reaches a certain limit ($2,960 in 2015; $3,310 in 2016). Above that limit, you have entered the “donut hole” coverage gap.

Previously, Medicare Part D beneficiaries were responsible for paying 100 percent of drug costs in the donut hole. Now, under the Affordable Care Act, you pay 45 percent of the price for brand-name drugs; however, 95 percent of the price counts toward getting out of the donut hole. For generic drugs, you pay 65 percent of the price in 2015; that percentage will drop each year until it reaches 25 percent in 2020. However, for generic drugs, only the price you pay counts toward getting out of the donut hole.

You exit the donut hole when you’ve spent above a certain limit ($4,700 in 2015; $4,850 in 2016). At that point, catastrophic coverage begins, and you will pay a small copayment or coinsurance for covered drugs for the rest of the year.

Expenses that do not count toward the coverage gap include your monthly premium, pharmacy dispensing fees, and any amount you pay for drugs that are not covered.

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The Dispute Over Robin Williams’ Estate

Wednesday, September 2nd, 2015

robin williamsOne year after the death of Robin Williams, a legal battle over his estate continues.

Despite the fact that Williams’ estate was planned with a certain degree of sophistication, several disputes have arisen between his widow and his three children from two previous marriages. Williams’ estate plan provides that his widow be able to live in their mansion in Tiburon, California, and retain most of its contents. However, Williams’ children claim that the home contains memorabilia items that are designated for them. Another area of dispute concerns a fund dedicated to expenses associated with the residence, which Williams’ widow claims is being restricted by his children.

Many wealthy people die having done inadequate estate planning, or none at all, which is almost certain to lead to legal disputes among heirs. In Williams’ case, the actor and comedian had done the right thing for the most part, creating a tax-efficient estate plan that included trusts to be managed by people in whom he had confidence. However, this did not prevent legal turmoil after his death.

Estate planning experts familiar with Williams’ estate say that a lesson that can be learned from this case is that specificity is essential to proper estate planning. Especially when personal items are to be left to different people, specifically naming individual items is much better than using general language to describe categories of possessions. Leaving things open to interpretation is one way that disputes can arise. Another factor that can help prevent disputes is to set expectations by letting loved ones know the general plan for the estate, so that they are not surprised by its provisions.

 

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Joni Mitchell and Conservatorship

Wednesday, August 5th, 2015

Beloved singer-songwriter Joni Mitchell was found unconscious in her Los Angeles home on March 31, having suffered a brain aneurysm. After Mitchell spent more than a month in the hospital, her longtime friend Leslie Morris was appointed her conservator to make medical decisions for her while she recovers. As fans wish Mitchell a full recovery, they may also be wondering, “What is a conservator?”

A conservator or adult guardian is appointed by the court to make certain decisions on behalf of an adult who has become unable to make such decisions on his or her own, due to a physical or mental condition, or advanced age. The court may place certain limits on the guardianship or conservatorship. For instance, the court in Los Angeles granted Morris control only over Mitchell’s medical care, in the absence of the 24-hour care she received in the hospital. A court may also grant a conservator or guardian control over a disabled person’s financial affairs or other aspects of his or her life, such as whether the person should reside at home or in a nursing facility.

A conservator or guardian can be essential in protecting the well-being of a person who has become unable to make his or her own decisions. A conservator or guardian can pay bills for the incapacitated person, prevent financial abuse, prevent self-neglect, and advocate for the person’s health.

The court may appoint a conservator or guardian in response to a petition submitted to the court. For example, in New York, a guardianship proceeding is brought under Article 81 of the Mental Hygiene Law. However, guardianship is considered a drastic remedy, and the court is required to consider less restrictive alternatives, such as home health aides, representative payees and other solutions that may meet the person’s needs without the appointment of a guardian.

In many cases, if a durable power of attorney or health care proxy has been appointed before the person becomes incapacitated, then guardianship proceedings are unlikely to be necessary. This is one reason why people planning their estate should give such appointments careful consideration.

 

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The Importance of Asset Protection Strategies

Monday, July 6th, 2015

Protecting your assets from creditors is an important part of estate planning. There are several different strategies that may be effective. Because individual situations vary and the laws regarding these strategies can be complex, you should only use them with the advice of an experienced estate planning attorney. With that in mind, here is an overview of some techniques for asset protection:

lawyer-or-notary-with-cl Give certain assets away before any claims arise. When done properly, such a gift may succeed in transferring property while keeping it out of an estate that may face claims from creditors. However, creditors may try to claim the transfer is fraudulent if it is made after claims arise, if the gift makes you insolvent, or if you place limits on the gift such that you still maintain control over the assets.

In the business context, a basic strategy for protecting your personal assets is to operate businesses as limited liability entities, such as corporations or limited liability companies (LLCs), rather than as partnerships or sole proprietorships. However, be aware that if you blur the line between your personal finances and those of your company, you may open your personal assets up to creditors of your business.

At the family level, an important asset protection strategy is for a married couple to hold title to property as tenants by the entirety, rather than as tenants in common. This can prevent one spouse’s creditors from asking the court to partition the property. The laws on this vary by state, but in New York, third parties cannot partition a tenancy by the entirety. However, when a married couple may be subject to estate tax, there are reasons why owning property as tenants in common may be more advantageous.

 

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Planning for Diminished Capacity

Tuesday, June 23rd, 2015

Older investors are at risk for “diminished financial capacity,” or a decline in the ability to manage money and other assets in one’s own best interests. Such a decline is a problem in itself, and it also may make investors more vulnerable to fraudulent investments and other forms of financial abuse. senior couple planning

In a recent bulletin, the Securities and Exchange Commission (SEC) stressed the importance of planning for the possibility of diminished capacity. In order to minimize difficulties for investors and their families, the SEC recommends taking these steps:

  • Organize important documents in an accessible, safe location so that they can be available to loved ones in an emergency, and keep them up to date. This includes bank and brokerage statements and account information, mortgage and credit information, insurance policies, Social Security and pension information, and contact information for your attorneys and financial and medical professionals.
  • Provide financial advisers with trusted emergency contacts. Make sure that investment advisers or brokers have the contact information of a trusted loved one they can contact if they suspect something is amiss or if they are unable to get in touch with you.
  • Consider a durable financial power of attorney. Such a document gives a trusted person the power to make financial decisions on your behalf. It is called “durable” because it remains in effect if you become incapacitated. You may still revoke or alter it while you retain capacity.
  • Consider involving a loved one in your financial affairs. If you become incapacitated, it will be much easier for a loved one to help out if he or she already has some idea of your finances. For instance, you may wish to consider having duplicate statements sent to a friend or relative.
  • Speak up if something is amiss. If you feel that someone is trying to take advantage of you financially, or you are having trouble with managing your affairs, talk about it with someone you trust. General elder abuse can be reported by calling the Eldercare Locator at 1-800-677-1116. Suspected elder financial abuse involving investment advisers or brokers can be reported by calling the SEC at 1-800-732-0330.

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Financial Impairment Can Occur In Cognitively Normal Seniors

Wednesday, June 3rd, 2015

Littman Krooks elder law attorneysWhile cognitive declines associated with Alzheimer’s diseases and other dementias are well-known, most people are unaware that seniors without dementia are also at risk for cognitive impairment, particularly in financial issues.

The University of Alabama at Birmingham’s Alzheimer’s Disease Center conducted a study that revealed that different types of intelligence plays roles in determining when people are at their best cognitively. Research showed that fluid intelligence, or the ability to solve new problems, may start to decline as early as age 20. When it comes to financial matters, people tend to peak in their 50’s. Crystallized intelligence, or a person’s wisdom and experience, continues to build until reaching a plateau around the age of 70. At that point, people may begin to have difficulty keeping track of financial matters or are vulnerable to making bad decisions or being exploited.

The research also identified early warning signs of financial decline that adult children of seniors should watch out for, to help prevent financial losses.

The warning signs include:

  • Taking longer to complete ordinary financial tasks, for example, paying bills, filing taxes
  • Paying less attention to financial details, such as an overdue bill, an error in a bank statement
  • A decline in everyday math skills, for instance, calculating a tip in a restaurant
  • A decreased understanding of financial ideas, possibly, interest rates or return on investments
  • Difficulty assessing the risks in a financial opportunity, such as the risk of a scam or poor investment

Seniors can be proactive and authorize their elder law or estate planning attorney to contact a trusted family member or friend if they believe that their cognitive skills are declining.

 

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In Retirement Planning, Timing of Withdrawals is Everything

Monday, May 18th, 2015

Planning for retirement can be complicated. Many retirees rely on a combination of Social Security retirement benefits and retirement savings accounts such as IRAs. Knowing when it is in one’s best interest to start taking benefits or withdrawals is crucial: not too early and not too late.  Littman Krooks Elder Law

When it is “too early” to take benefits or withdrawals may be a matter of opinion. After all, if a retiree needs the funds at a certain time, he or she may be have no choice. However, in planning your retirement, it is important to know when taking money too early will carry penalties. With regard to savings in IRAs, if you withdraw funds before age 59 1/2, you will face a 30 percent mandatory withholding: 20 percent prepayment of income tax and a 10 percent penalty for early withdrawal. When it comes to Social Security benefits, keep in mind that taking early retirement benefits at age 62 means that you will receive a fraction of the benefits you would get if you waited until full retirement age or even longer. It’s also important to know that if you take early retirement benefits while still working, the money you earn over a certain amount each year may reduce your benefits, until you reach full retirement age.

At the other end of the scale, withdrawing money “too late” means failing to take your required minimum distributions from an IRA once you reach age 70 1/2. If retirees with pretax retirement accounts wait too long to withdraw retirement income, they can face a 50 percent tax. So whether you need the cash flow or not, be sure to take those required minimum distributions, even if it is only to reinvest the funds.

 

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Home Sharing May Be A Viable Option for Seniors

Wednesday, April 15th, 2015

By Bernard A. Krooks, Certified Elder Law Attorney®

As baby boomers enter retirement, a trend is emerging: more and more single seniors are choosing to live with roommates.

This living arrangement may be especially attractive to widows or widowers in retirement who own a home that is too large or expensive for one person. Other options such as selling the home to move into a smaller one, moving into a retirement community, or living with an adult child, may not be as appealing as staying put and welcoming a roommate.Littman Krooks Elder Law

People in retirement find home sharing to be a viable option because it allows a certain lifestyle to be maintained, preserves one’s independence and adds the positive element of companionship. Loneliness and isolation are significant problems for many single people in retirement, and home sharing can be a solution. Many people living in a home sharing situation cite the sense of community as a positive factor. Simply having someone to ask how one’s day is going or help out with little things can make a huge difference in one’s outlook.

Saving money is a big motivator as well. A shared household is more efficient, and single individuals whose adult children are grown may find that paying all of the expenses of a household on their own is not feasible. Roommates can share in all household expenses. This reduction in costs makes it possible for single seniors to stay in a larger home and can be an important way to preserve their financial advantages.

Of course, living with roommates often requires accommodation. Seniors may not have lived with a roommate since their college years and adapting to different personalities and lifestyles may take adjustment. Some seniors in a group housing arrangements have found it useful to hold house meetings and set house rules.

Setting up a household with another single friend may be the most common set-up, but cooperative households have been formed by seniors who did not know each other previously. Home sharing is being organized through websites, workshops and meetings for potential housemates to get to know each other. In considering potential roommates, it is important to talk beforehand about expectations and potential differences in lifestyle to determine whether compatibility exists.

Although it may be common for one roommate to move into a home owned by another and pay rent, other groups of seniors have invested in a home together. Joint ownership of a home and joint checking accounts for roommates may not be the norm, but they have worked in some instances for close friends committed to living cooperatively.

Overall, home sharing can be a practical and enjoyable option for seniors. “The Golden Girls” may have had the right idea after all.

 

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It’s Time to Protect Your Family and Your Future – 2015 National Financial Literacy Month

Tuesday, April 14th, 2015

In support of the 2015 Improving Financial Awareness & Financial Literacy Campaign built around National Financial Literacy Month (April) and six month later during National Estate Planning Awareness Week (3rd week in October) the following estate planning article contains a very important message.

Over 50% of our adult population does not have a current or up-to-date estate plan to protect themselves and their family’s assets; that’s half your family, friends, and associates.

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Estate planning is a financial process that can protect you and your family and is a very important component of your overall financial planning. Now is the perfect time to put your estate planning house in order. If you don’t have an up-to-date estate plan and you happen to get hurt or sick and cannot manage your financial affairs, the courts will have to appoint someone to manage them for you. The person they appoint might not be the one you would want to perform those tasks.

Without an estate plan, when you pass away, your affairs will be settled by default through a complex legal system called “probate.” The handling of your financial affairs can turn into a costly and frustrating ordeal for your family and heirs.

The crafting of a good estate plan starts with planning, followed by the proper drafting and signing of appropriate legal documents such as wills, trusts, buy-sell agreements, durable powers of attorney for asset management, and an advanced health-care directive or health-care power of attorney. Having these documents in place saves you and your family a lot of money and time at a very difficult and emotional time. 5-2-Graphic-EPArticle
Your estate planning should also address the coordination of the way you hold title to your various assets, your beneficiary selections, and the possible transfer of certain assets while you are alive.

Regardless of the extent of your net worth, estate planning is important for everyone. Complex strategies may be used by wealthy people to reduce death taxes and costs. Others may only require a simple will and/or trust to pass on property to their heirs and provide for minor children.

Even if a simple will is all you require, an estate plan is an essential part of your financial planning. Everybody will need it someday. The time to address or update your estate plan is now.

For more information on estate and financial planning content, contact
V.Sabuco@TheFinancialAwarenessFoundation.org.

 

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