Denver Estate Planning

ESTATE PLANNING

More than half a million cryopreserved embryos are now in storage somewhere in the United States. An unknown but far greater number of sperm donors have also made deposits that could be used for an expanding array of assisted reproductive technologies (ART). Putting aside any number of religious, ethical, and social issues, ART is also creating very difficult problems for some estates. 

Biomedical science has made some incredible advances over the years and we can only expect that trend to continue and for science to yield ever more secrets about and tools over the human body. The law, however, has not made such advances – you’ll still find wills written as they were by 18^th century scriveners and sprinkled with language like “party of the first part” and “witnesseth” – but then legal planning might just be forced to evolve. For your consideration: now there is such a thing as posthumous birth and post-mortem parenthood, as pointed out in this recent article as elsewhere.

Roughly half a million cryopreserved embryos and untold amounts of genetic material (sperm and ovum donations) line medical facility coolers around the country, and it’s not a novelty. An increasing number of couples have made plans to preserve the possibility of a child, either because they were having fertility issues; the financial situation imposed caution while the biological clock imposed haste, or precisely out of fear that one would pass away before there was an opportunity. It also means that an increasing number of children are being produced to parents who are no longer living, and there remains the ever-increasing possibility for grandchildren of the same nature. How do parents, grandparents, and estate planners at any juncture understand the ramifications?

Frankly it will require a moment to think about the possibility and to confer with your adult children to find out if it is a possibility that you might have grandchildren who were born after their parent passed away. In many ways this is a dilemma faced by a number of grandparents already if they are concerned about future generations, but unlike the normal situation there is no longer an intermediary adult child/parent through whom assets can pass. It’s a hard situation to define because the law hasn’t gotten that far. You might say that biomedical science can divorce the person from reproduction but estate law is intrinsically about the person, their property, choices, and family; how do these reconcile? It requires forethought on the part of the planner.

Reference: US News and World Report (January 25, 2012) “Posthumous Births: An Emerging Estate Challenge”

 

Simple Math Makes it Even More Difficult to Find a Nursing Home for Dad

Searching for a nursing home for his hospitalized father in semirural Massachusetts, a friend of mine recently came up against an unexpected barrier. It’s harder to find a bed for a man than for a woman.

Finding a nursing home for an ailing loved one, and a good nursing home that is affordable, is already a fairly difficult task. Unfortunately, it’s only likely to grow in difficulty as the number of elderly in need of care begins to peak. Unfortunately, too, there are some factors that you just might not think of. Like this: it is disproportionately difficult to find a nursing home for a male patient.

This fact was recently pointed out over at the New Old Age Blog and I thought it was worth sharing. What is working against our male elderly loved ones is not much more than simple math, with a bit of Medicare policy work at play. As you are likely aware, women have a longer life span on average and therefore there are more women in nursing homes to begin with; that’s already a bottleneck based on population statistics. Then you throw in the fact that, under Medicare rules, most rooms in nursing homes are no more than “semi-private”, a delicate euphemism, and co-ed rooms aren’t allowed either. Thus, with more women already in such rooms the more that only women can be admitted into a facility. The math is fairly easy to figure out, but it’s a strange and unintended consequence nonetheless.

Reference: The New York Times The New Old Age Blog (January 30, 2011) “Fewer Beds For Men Entering Nursing Homes”

 

Estate Tax Uncertainty Continues

The fate of the federal estate tax likely lies in the results of the next election. Here are the most probable scenarios.

If you’ve been following the political saga of the estate tax over the past few years then you know it’s coming to a head… again. In fact, the estate tax may very well be amongst the largest and most divisive topics as we sink deeper into the current election cycle. It’s hard to say which way it will fall, or if it will stay there for long, and that just makes estate planning a bit tricky.

Even if it’s hard to say what will happen, there still are some fairly likely situations that may occur and with very different consequences. It’s worth thinking systematically, or at least understanding your odds, and in that vein I found a recent article laying out the four possibilities.

1. Gridlock. Each party pushes and pulls and yet there is no victor, and so we all lose. That is to say that if the current law isn’t extended, updated, or changed, the compromise deal reached in December of 2010 will sunset and the law will revert all the way to pre Bush tax-cuts at a whopping 55% over the $1 million exemption. That’s higher than a number of pro-tax advocates care to call for, especially given the inflation of some ten years. That said, Congressman Jim McDermott of Washington has put just such a bill into the works, with those rates and exemption amount indexed for inflation.
2. Stalemate. Perhaps no one will win but no one will want to lose, and receive their self-inflicted pain, either. Instead of failing to pass any measure they can simply extend what we have now. President Obama signed it once already and it’s a far better deal than most anti-tax representatives have seen before or since the lapse in 2010.
3. Democrat control. In many ways it’s fairly difficult to say what this would amount to since there are more pro-tax representatives amongst Democrats but few that are so concerned as to return to steep taxation. To take President Obama as a cue, it may mean a return to a higher rate (somewhere between the current 35% and 55%) to add a bit more edge, but also a higher exemption amount to cut into fewer estates.
4. Republican control. Especially if there is a Republican in the White House sometime soon, there’s renewed possibility of dropping rates and exemptions or even a lapse of the tax entirely. Of course, even with most of the legislative and executive branches there is a growing political furor over the taxation of wealth – even certain potential Republican candidates are voicing these concerns – and the estate tax is an easy target.

In the end, 2012 will be about keeping one eye on the ebb and flow of politics, even if it is a particularly rapid current these days, and intelligently planning. After all, having plans in place won’t hurt if the estate tax does pass on into legislative history, but the other way around can bring some pain. For that matter, the estate tax isn’t the only impetus for a solid plan for the distribution of wealth.

Reference: Producers Web (January 17, 2012) ”4 potential scenarios for the future of the estate tax”

 

When Bankruptcy Looks Like Peonage … Or Not

Does slavery still exist in the United States? Mr. Derrick Dewayne Gordon seems to think so.

There are just some cases where you wish you could be there to see the look on the Judge’s face when they hear a defense, and one such recent case can be found in re Gordon, ___ F.Supp.2d ____, 2012 WL 255274 (N.D.Ga., Jan. 24, 2012). As reported here in Forbes, Mr. Derrick Dewayne Gordon has given voice to the many persons filing for bankruptcy by complaining it was like slavery or peonage… only that was his defense against actually filing for Chapter 11 bankruptcy.

 It’s especially hard to believe Mr. Gordon once you learn the circumstances. In brief, he was sued for running afoul of a non-compete clause and, having managed to have that reversed on appeal, went out to prevent having to pay for the $335,000 in legal fees that the court didn’t reverse. His strategy was to file for Chapter 7 bankruptcy, at which his former employer balked and wanted to either move him to Chapter 11 (which uses a payment plan over the full discharge of Chapter 7) or reject the bankruptcy out of hand. Indeed, Mr. Gordon was about to rack up a $250,000 annual salary, but that doesn’t change the principal, or so he would contend, that he is therefore put into a condition of servitude against many laws. The court didn’t bite, and even if you had figured that out already you can read all about it here.

This case is something of an outlier, if an amusing one, but it also goes to show a few core realties to bankruptcy and asset protection. Firstly, that the purpose of bankruptcy is not to protect the bankrupt but to marshal their assets for their creditors, whichever chapter will get that accomplished most completely. Second, that the court isn’t one for tricks and last-minute strategies; asset protection is a real exercise in understanding your assets and keeping them out of harm’s way as much as possible.

Reference: Forbes (January 31, 2012) “Gordon: Debtor Asserts Concepts Of Slavery And Peonage To Try To Avoid Chapter 11 Bankruptcy”

 

Estate Planning for Same-Sex Couples

Other same-sex couples who might be thinking of following suit [with Rep. Barney Frank] should understand something that needs no explaining to Frank, co-author of the Dodd-Frank Bill to regulate the banking industry: Whether marriage will be a financial win depends on a couple’s age, income, assets, debts, where they live, whether they have kids and a raft of still unresolved legal issues.

Representative Barney Frank, of the Dodd-Frank bill to regulate the banking industry, is getting married and that’s as good a reason as any to remember just what difficulties lay ahead of him. I say difficulties because Rep. Frank is also among the most prominent members of the Gay community, so he knows all too well the difficulties and will likely remain a public example.

Forbes and Deborah L. Jacobs were quick to the punch with this piece on Frank and the trials and tribulations of same-sex marriage, and it’s worth a look. The central point, as many readers will know, is that same-sex marriage exists in a rather awkward nexus of laws, one that requires a great deal of work. Where it exists, it exists with all the legal weight of marriage, and that means the various financial duties and liabilities. Of course, even where it does exist, in a very real way it also doesn’t. This is because the Defense of Marriage Act of 1996 still rules out same-sex marriage by definition. That statute is what rules the IRS – and it has to enforce those rules – which is especially important in the realm of estate planning, even where there aren’t tremendous assets to guard.

That said, though, there still are legal moves to be made and rules to thoroughly understand. Perhaps with another nod to Frank, the Journal of Financial Planning recently offered a piece on the estate planning issues that affect non-married couples and same-sex marriages alike and it too is worth your consideration.  

Reference: Forbes (January 26, 2012) “Tying the Knot Isn’t All Love and Roses: By Marrying, Barney Frank and His Partner Take on Legal Duties, Too”

                The Journal of Financial Planning (February, 2012) “Estate Planning for Unmarried Couples: What Financial Planners Need to Know” 

 

Small Business Owner Retirement Perspectives

Retirement plans have their place, but many entrepreneurs starve their business of needed working capital by putting money instead into tax-deductible accounts such as traditional 401(k)s. They think they are saving taxes. 

Small business owners, by and large, have a hard time thinking beyond their business. It is a significant part of their very lives. If you are a small business owner, now may be the time to start thinking of your business as its own retirement vehicle, at least according to a recent guest columnist over at Forbes.

For retirement planning, a business owner typically has to take out of the business what would otherwise be capital for growth. You’re taking it out to put into a tax advantaged plan like a 401k, hoping it will grow there enough to make up for the taxes to be paid later. In addition, you are doing so in the belief that you’ll be in a lower tax bracket when you call upon those funds later on. But what are the returns on that account? It may be that a properly capitalized company will give far greater returns.

According to the Forbes article, a small business owner has to exist in a couple capacities, and the self that is an “individual” cannot be eclipsed by the self that is the “business owner,” nor the other way around. Ideally, perhaps, they can work in a synergy.

It is a risky strategy, especially for those nearing retirement, but it may be worth looking into the original article’s numbers.

Reference: Forbes (January 25, 2012) “Fund Your Business Before You Stuff  Retirement Accounts”

 

Medicare Confuses Many Seniors

Most seniors on Medicare will pay $99.90 per month this year for Part B outpatient coverage. But how would you like to pay 10 percent more for that coverage, or 50 percent more?

As many readers will know, it’s fairly critical to understand the rules for filing for Social Security. Likewise, the rules for filing for Medicare benefits can make or break your retirement. Unfortunately, it’s also fairly easy to forget about the basics of Medicare filing, as a recent article out of Reuters highlights the importance of filing earlier rather than later.

For each full 12-month period that a senior could have had coverage but didn't sign up, the monthly Medicare Part B premium jumps 10 percent. The average monthly cost of Part B coverage is $99.90, so just a few years delinquency will result in $20, $30, or more a month; that adds up, is unnecessary waste, and is permanent.

Suffice it to say that the government really wants you do sign up when it’s time. But why is that difficult? Well, for one, the full retirement age for Social Security is no longer the age for Medicare enrollment. As a result, many otherwise forward-thinking people are waiting until age 67 to enroll in Social Security (for the maximum monthly benefit), but 65 is the age for Medicare.

In addition, with so few people actually leaving the workforce it’s easy to forget (or fail to realize, since you’re not really retired) that it might be time for Medicare. That also can depend on the nature of your employment. For example, if you are still working at age 65 and your employer has fewer than 20 employees, Medicare is the primary payor; at companies with more than 20 workers, the employer's plan is primary. In the latter situation, a senior can postpone filing for Parts A (hospitalization) or Part B, although many choose to enroll for Part A anyway, since it doesn't require premium payments. If you delay your Part B coverage, you can enroll without penalty when you do retire for up to eight months following that point.

The bottom line is to keep all of this on your radar, regardless whether you will be relying on Medicare. In fact, not relying on Medicare may be the source of the problem.

If you are employed it may be worth a visit with the company accountant to be sure on which side of the line the company falls, and therefore what your insurance ought to be like.

Reference: Reuters (January 20, 2012) “Big penalties await those who delay Medicare filing

 

Savvy Givers Give Strategically

“If you’re wealthy, you set up your own private foundation… You get a deduction now, but you don’t have to give it all away right away. You can do it in a much more leisurely way.”

It’s hard to comment on the recent outpouring of information about presidential hopeful Mitt Romney and his tax records.

First, since he is a potential presidential candidate, there are political ramifications, as he is a wealthy individual there are ideological (if not also political) ramifications, and as he is a Mormon who practices tithing there are theological ramifications. That said, and whatever your opinions on the man are, it’s hard to deny that he is a very real life example of some serious charitable giving at work.

As reported by BusinessWeek (and a thousand other places besides), the Romneys gave about $7 Million dollars to charitable causes over the past two years. Interestingly, their giving wasn’t just a matter of simply writing a check (although, granted, a great deal of it was by cash donation). No, the Romneys make use of their own charitable organization. If you, too, are a serious donor, then this may be a worthwhile strategy to consider.

As an individual giving to charity you are somewhat limited, especially when it comes to the tax year and claiming deductions. By using a charitable organization as a conduit you can give during a given tax year, take the deduction from your personal taxes, and then, as a leader in the charitable organization, still work to grow that gift and take the time to make it do the most good. Likewise, you can lead others and implore them to your causes. (Think Bill and Melinda Gates Foundation.)

Of course, starting a foundation and maintaining it are often difficult tasks, even though they don’t have to work on such a grand scale as the famous examples. As far as tax advantages, a similar benefit can still be wrought from a form of pooled charity trust, set up by a charity or investment company and able to grant you a tax deduction on your gift in the current year while waiting to pool resources and do the most good.

Still both approaches are elaborate ways of practicing your charitable giving and either may just be the right method for you. Be sure to consult with appropriate legal and tax counsel to determine the appropriate method for your objectives.

Reference: BusinessWeek (January 24, 2012) “Romney Tax Returns Show $7 Million in Donations Over 2 Years”

 

Succession Planning – Three Deadly Mistakes

So we all know a [succession] plan is needed. But having the wrong plan can be just as disastrous.

It’s said that a little knowledge can be a dangerous thing (“drink deep, or taste not the Pierian spring”). However, what is less often said, yet is ultimately just as true, is that just a little planning can be a dangerous thing. Improper and rushed planning will do you no good (and perhaps even harm).

This is especially the case with succession planning. Oftentimes, the lifeblood of a business is at stake even more than its assets. In that vein, then, a recent article in Registered Rep magazine described the three deadly mistakes of succession planning. The original article has an emphasis on financial advisors, but with a little rhetorical tweaking these mistakes are universal in application.

Don’t “build the wrong bench.”

Don’t stock your management team with the wrong people. Who are the wrong people? That depends on your business, but certainly for a family business that can mean a disinterested family member. It can just as easily mean someone who doesn’t share enough in the business goals or, in the other direction, one who doesn’t think outside of the box enough to see past them.

Don’t turn succession into a contest.

It makes for a great story when we read or hear about executives jockeying into position for a spot at the top, whether on TV or in real life. However, this jockeying doesn’t make good business sense (and come to think of it that’s usually the moral of the story when it is on TV). Competition for succession within a business can be destructive rather than character-building, and the business itself is what suffers.

Don’t act out of fear.

It’s the most obvious and yet also the most difficult when you’re facing big questions. Rather, it’s important to center yourself on the task and get appropriate legal counsel to ensure the success of the process.

Reference: Registered Rep (January 20, 2012) “The Three Deadly Mistakes of Succession Planning”

 

ELDER LAW

Craig Reaves, past president of the National Academy of Elder Law Attorneys, practices elder law in Kansas City, Mo., and fields occasional questions from New Old Age readers.

On the topic of disclosures, a reader inquired about what to do about her family of eight siblings and one elderly father. Long ago the siblings got together and put two of the sisters in charge of their father, largely because his will and other directives advised as much. As a result, they were granted power-of-attorney and access to his accounts.

Now, the reader has discovered that they aren’t forthcoming with information about their father, his care, and his finances. The reader is worried that she won’t hear anything until there’s a demand for money to care for their elderly father, and, perhaps, that the original funds weren’t adequately used.

The response of Craig Reaves is tailored to the reader’s unique situation, but his advice is applicable for many in this same or similar position. As a preliminary caveat, there are specific state laws (i.e., like those regarding “powers of attorney”) that govern the authority, responsibility and liability of agents and fiduciaries.

Read Craig Reaves’ enlightening response in his original post.

Reference: The New York Times – The New Old Age Blog ( January 18, 2012) “Ask
the Elder Law Attorney: Disclosures and Loans”