Make an Achievable 2016 New Year’s Resolution – Get an Estate Plan Checkup!

123.6117170_sMake an Achievable 2016 New Year’s Resolution – Get an Estate Plan Checkup!

With 2016 upon us, it’s time to start thinking about achievable and worthwhile new year’s resolutions.

It doesn’t matter whether you have an estate plan or don’t, one important item to add to your list is getting an estate plan checkup.

Don’t Have an Estate Plan?

If you don’t already have an estate plan, then getting one in place should be at the top of your 2016 new year’s resolutions.
Why? Because without an estate plan, you and your property may end up in a court-supervised guardianship if you become incapacitated, and your property and your loved ones may end up in probate court after you die.
Worse yet, if you don’t take the time to make your own will, then the state where you live at the time of your death will essentially write one for you, and it most likely won’t divvy up your property the way you would have.
A common misconception is that estate planning is only necessary for wealthy people. But this simply isn’t true – anyone with a bank or a retirement account, a home, or a family needs to make a plan for what happens if they become incapacitated or when they die. Of course the complexity of a plan will vary depending on your circumstances, but all estate plans should be put together with the help of an attorney who is experienced with the legal formalities required to create a valid will, trust, health care directive, and power of attorney in your state.

How Old is Your Estate Plan?

Do you already have an estate plan?
If you do, then please pull your documents out of the drawer, dust them off, and look at the date you signed them.
Were your documents signed in the 80s or 90s, or, worse yet, before 1980? Then please run, don’t walk, to an estate planning attorney, because your documents are terribly out of date and need to be brought into the new millennium as soon as possible.
Did you sign your documents between 2000 and 2009? Aside from the federal estate tax exemption jumping from $675,000 to $3,500,000 during that time period, state estate taxes disappeared, or at the very least increased estate tax exemption limits, in many states. Because of the significant changes in federal and state estate taxes, documents from this time period can be out of date and need to be tweaked in some shape or form.
Did you sign your documents during 2010, 2011, or 2012? Federal estate taxes, gift taxes, and generation-skipping transfer taxes went through major changes during these years, and “portability” of the federal estate tax exemption between married couples was introduced. Unfortunately, while your estate planning documents may only be a few years old, they very likely do not take advantage of the opportunities made available from recent changes in federal tax laws. And, it’s not just tax laws that are changing – modifications to state laws governing wills, trusts, health care directives, and powers of attorney may warrant some revisions to your estate planning documents as well.
And last but not least, regardless of what year you signed your estate planning documents, think about all of the changes in your life since you signed them. Did you get married or divorced, have a child or two or a grandchild or two, or move to a new state? Did you sell your business, retire, have a significant change in assets, or win the lottery? Any major changes in your family or financial situation will certainly have an affect on your estate plan.

Estate Planning is Not a One Shot Deal

Estate planning is not a static event that you grudgingly do once and then forget about it. On the contrary, estate planning is a continuing process, because life is a moving target that is full of constant change, so your estate plan needs to change as your life changes.

3 Asset Protection Tips You Can Use Now

A common misconception is that only wealthy families and people in high risk professions need to put together an asset protection plan. But in reality, anyone can be sued. A car accident, foreclosure, unpaid medical bills, or an injured tenant can result in a monetary judgment that will decimate your finances. Below are three tips that you can use right now to protect your assets from creditors, predators and lawsuits.

What Exactly is Asset Protection Planning?
Before getting to the tips, you need to understand what asset protection planning is all about. In basic terms, asset protection planning is the use of legal structures and strategies to transform property that creditors might snatch away into property that is completely, or, at the very least, partially, protected.

Unfortunately, this type of planning cannot be done as a quick fix for your existing legal problems. Instead, you must put an asset protection plan in place before a lawsuit is imminent, let alone filed at the courthouse. So, now is the time to consider implementing one or more of these tips.

Now, on to the three tips.

Asset Protection Tip #1 – Load Up on Liability Insurance
The first line of defense against liability is insurance, including homeowner’s, automobile, business, professional, malpractice, long-term care and umbrella policies. Liability insurance not only provides a means to pay money damages, it often also includes payment of all or part of the legal fees associated with a lawsuit. If you do not have an umbrella policy, then now is the time to get one since it is relatively inexpensive when compared with more advanced ways to protect your assets. You should also check all of your current insurance policies to determine if your policy limits are in line with your net worth and make adjustments as appropriate. You should then review all of your policies on an annual basis to confirm that the coverage is still adequate and benefits have not been stripped to keep premiums the same.

Asset Protection Tip #2 – Maximize Contributions to Your 401(k) or IRA
Under federal law, tax-favored retirement accounts, including 401(k)s and IRAs (but excluding inherited IRAs) are protected from creditors in bankruptcy (with certain limitations). Therefore, maximizing contributions to your company’s 401(k) plan is not only a smart way to increase your retirement savings, but it will also keep the investments away from creditors, predators and lawsuits. On the other hand, if your company does not offer a 401(k) plan, then start investing in an IRA for the same reasons.

Asset Protection Tip #3 – Move Rental or Investment Real Estate into an LLC
If you are a landlord or a real estate flipper or investor, then aside from having good liability insurance, moving your real estate into a limited liability company (LLC) can be a great way to help protect your assets from creditors, predators and lawsuits.

There are two types of liability that you should be concerned about with rental or investment property: (1) inside liability (where the rental or investment property is the source of the liability, like a slip and fall on the property, and the creditor wants to seize an LLC owner’s personal assets) and (2) outside liability (where the creditor of an LLC owner wants to seize LLC assets to satisfy the owner’s debt).

An LLC will limit your inside liability related to the real estate, such as a slip and fall accident on the front stairs of the property or a fire caused by faulty wiring located at the property, to the value of the property. In addition, in many states the outside creditor of the member of an LLC cannot get their hands on the member’s ownership interest in the company (in some states this will only work for multi-member LLCs, while in others it will also work for a single member LLC). This type of outside creditor protection is often referred to as “charging order” protection. This means that a creditor will have to look to your liability insurance and any unprotected assets to collect on their claim.

If you are interested in asset protection planning for your investment real estate using an LLC, then you will need to work with an attorney who understands the LLC laws of the state where your property is located to insure that your LLC will protect you from both inside and outside liability.

U.S. Supreme Court Rules Inherited IRAs are Not Protected from Creditors

U.S. Supreme Court Rules Inherited IRAs are Not Protected from Creditors

The U.S. Supreme Court–in a unanimous decision–ruled that Individual Retirement Accounts (IRAs) inherited by anyone other than a spouse are not retirement funds and therefore are not protected from the beneficiary’s creditors in bankruptcy.

The reasoning is, because the beneficiary cannot make additional contributions or delay distributions until retirement, it is not a retirement account. There is, in fact, nothing to prevent a beneficiary from withdrawing funds, or even clearing out the account, at any time. As a result, these funds must also be available to satisfy the beneficiary’s creditors during bankruptcy. Following the same logic, an inherited IRA is also subject to divorce proceedings.

This is not great news for parents who have planned to leave large IRA accounts to their children or grandchildren, with the desire to continue the tax-deferred earnings for many more years over their lives.

Fortunately, there is a solution. By using a trust as the beneficiary of the IRA, you can continue the tax-deferred earnings over a beneficiary’s life expectancy and protect your hard-earned savings from the beneficiary’s creditors.

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U.S. Supreme Court Rules Inherited IRAs are Not Protected from Creditors

U.S. Supreme Court Rules Inherited IRAs are Not Protected from Creditors

The U.S. Supreme Court–in a unanimous decision–has ruled that Individual Retirement Accounts (IRAs) inherited by anyone other than a spouse are not retirement funds and therefore are not protected from the beneficiary’s creditors in bankruptcy.

The reasoning is, because the beneficiary cannot make additional contributions or delay distributions until retirement, it is not a retirement account. There is, in fact, nothing to prevent a beneficiary from withdrawing funds, or even clearing out the account, at any time. As a result, these funds must also be available to satisfy the beneficiary’s creditors during bankruptcy. Following the same logic, an inherited IRA is also subject to divorce proceedings.

This is not great news for parents who have planned to leave large IRA accounts to their children or grandchildren, with the desire to continue the tax-deferred earnings for many more years over their lives.

Fortunately, there is a solution. By using a trust as the beneficiary of the IRA, you can continue the tax-deferred earnings over a beneficiary’s life expectancy and protect your hard-earned savings from the beneficiary’s creditors.

The Key Takeaways
o Inherited IRAs are not protected from the beneficiary’s creditors in bankruptcy.
o Using a trust as beneficiary can continue the tax-deferred earnings over a beneficiary’s life expectancy and protect these savings from the beneficiary’s creditors.

Using a Trust as Beneficiary of an IRA
Using a trust as beneficiary of an IRA or retirement plan account will let you use the oldest beneficiary’s life expectancy to stretch out the tax-deferred growth. It will let you keep control over when the beneficiary receives distributions, and can protect the asset from the beneficiary’s creditors (including bankruptcy), predators (those who may have undue influence on the beneficiary), irresponsible spending, and divorce proceedings. You can even provide for a beneficiary with special needs without jeopardizing government benefits.

In order for the trust to qualify, it must meet certain requirements, including that a) it must be valid under state law; b) it must be irrevocable not later than the death of the owner; c) all beneficiaries of the trust must be individuals (no charities or other non-persons) and they must be identifiable from the trust document; and d) a copy of the trust document must be provided to the account custodian by a certain date.

Because the trust’s oldest beneficiary’s life expectancy must be used to determine the distributions, many people opt for a separate share for each beneficiary or even a separate trust for each beneficiary. These are called “stand alone retirement trusts” because they are created solely for retirement plan and IRA assets. (A revocable living trust would still be used for other general estate planning purposes.)

What You Need to Know
Planning for IRAs and other tax-deferred savings plans is not something to be taken lightly and not a task to try to master yourself. The laws are complicated, and a simple mistake can be disastrous and irreversible. Because there is often a lot of money involved with these plans, it pays to work with an estate planning attorney who has considerable experience in this area.

Important Notes
o A conduit trust requires that all distributions from the IRA or retirement plan must be distributed to the trust’s beneficiary(ies). (The trust is simply a “conduit” from the plan to the beneficiary.) These distributions are not protected from a beneficiary’s creditors and have no asset protection.
o With an accumulation trust, the distributions may be kept within the trust instead of being distributed to the beneficiary. Assets that remain in the trust are protected from the beneficiary’s creditors, but any undistributed income kept in the trust will be subject to higher income tax rates than what an individual would pay on the same amount.
o A “trust protector” can be given the power to change the trust from a conduit to an accumulation trust. This can be valuable if there is a change in the beneficiary’s circumstances (due to disability, drug problems, etc.), making it advantageous to keep the distributions in the trust.
o Your attorney will be able to suggest the best combination of beneficiary designations for both the IRA or retirement plan and your Trust(s). Having these options will let your beneficiaries make good decisions based on the circumstances at that time. For example, if your spouse is in ill health when you die, it may make sense for your spouse to disclaim an IRA so that your children can inherit it and have distributions paid over their longer life expectancies.

Take Action
It is essential that you take action to ensure that your IRA can’t be seized by your beneficiaries’ creditors. Call our office now to schedule an appointment. We’ll get you in as soon as possible and analyze whether a Standalone Retirement Trust is appropriate to protect both your beneficiaries and your assets.

Understanding Losses: Liability Exposure

Real Estate, Demetri LawUnderstanding Losses: Liability Exposure

We live in a litigious society. Lawsuits abound, whether deserved or not. If you own property or stock that was purchased at a low price and has had high appreciation, it is at risk to litigation and creditors–even if you are not in a high-risk profession. Others may be in a private business such as medicine or law that bring with it additional exposures to monitor.

The Key Takeaways
o Assets that have high appreciation are at risk of litigation and creditors.
o There are steps you can and should take now to protect your assets, especially if you have considerable wealth in these assets.

We Are All at Risk
The wealthy, celebrities and sports figures are easy targets for lawsuits, as are those in high-risk professions, such as the medical field (doctors, dentists, other health care professionals), lawyers, accountants, architects and those in construction (builders, developers).

Note: As a general rule, you can’t limit your professional liability through legal means. If you are concerned about a professional claim, the best first step is to have adequate malpractice insurance. However, additional protective steps should still be taken to secure your private practice or business from creditors and non-malpractice litigants.

But, really, we are all at risk of liability claims. These can include business deals that have gone wrong, car accidents, sexual harassment claims and slip-and-fall claims. Even the behavior of children, their spouses and ex-spouses can lead to loss of family wealth.

What You Need to Know
The best time to do asset protection planning is before a claim arises, when there are only unknown potential future creditors. While there are some options even with an existing claim (such as an ERISA qualified plan), it is highly important to avoid fraudulent transfers. (A fraudulent transfer, also known as fraudulent conveyance, is a transfer of wealth to another person or company to swindle, delay or hinder a creditor, or to put the wealth beyond the creditor’s reach.)

Actions to Consider
o Asset protection planning must be accomplished under the guidance and planning of qualified professionals. A misstep or unintended error can negate the entire process and fully expose your assets.
o Everyone should have personal umbrella liability insurance, which is quite inexpensive.
o Existing state and federal exemptions should be maximized. State exemptions can include personal property, life insurance, annuities, IRAs, homestead and tenancy by the entirety for spouses. Federal exemptions include ERISA, which covers 401(k) plans, pensions and profit sharing plans.
o Sometimes it is possible to convert non-exempt assets into exempt assets. For example, cash can be invested to pay down a mortgage to increase home equity, or an unprotected IRA can be transferred into an ERISA plan.
o Sometimes assets can be transferred to the spouse who is not at risk. But should a divorce occur, these assets will be owned by that spouse.
o Limited liability companies (LLCs) can be formed to remove expensive equipment from a business or practice, which is then leased back to the business or practice.
o Family limited partnerships (FLPs) can be formed to own non-practice assets (personal and investment real estate, investment accounts, bank accounts, collectibles), which can be leased back to the individual.
o Domestic Asset Protection Trusts (formed in certain states such as Delaware) and third party Hybrid Domestic Asset Protection Trusts are also options that can be used.

Having been a litigator for many years, attorney Adam Demetri is cognizant of the liability issues and recognizes the importance of proactive advanced asset protection. Contact our firm to inquire how we can help you implement strategies today to protect your assets from potential claims.