Posts tagged with "elder law"

Utilizing Valuation Discounts for Gift Tax Savings: The Family LLC

This memorandum discusses the advantages of using gifts of fractional ownership interests in a family limited liability company (“LLC”) to defer or reduce gift and estate taxes. A family limited liability company can be used as an estate planning tool to “leverage” gifts to the next generation. The leverage is created by valuation discounts that apply to gifts of interests in a family LLC.

For gift tax purposes, the value used in determining the amount of a gift is fair market value, generally defined as the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of the facts. Ownership of an interest in an entity such as a family LLC, whether a majority or minority interest, generally will result in a lower valuation for estate and gift tax purposes than the outright ownership of assets outside of the entity. Lower valuations result because minority interest and lack of marketability valuation discounts are allowed for transfers of interests in closely held corporations and limited partnerships.

A minority interest is any ownership interest in an entity such as a family LLC that lacks voting control over the entity, such that the member has no unilateral power to determine the timing of distributions, to force a liquidation of the LLC, or to control the management of the LLC. A marketability discount generally applies to majority and minority interests in a LLC due to the illiquid nature of such interests. A combined marketability and minority interest discount may approach fifty percent.

The following example illustrates the advantages of utilizing valuation discounts
in gifts of Family LLC interests:

Suppose Mom and Dad own real estate worth $1,000,000.00. They wish to make partial gifts of this real estate to their four children to take advantage of the $13,000.00 annual exclusion under Internal Revenue Code § 2503(a). Mom and Dad decide to establish a family LLC to own the real estate. Each receives a 50% interest in the LLC upon contribution of the real estate to the LLC. Mom and Dad are appointed managers, which gives them the power to make all decisions regarding the management and operation of the LLC. After establishing the LLC for substantial business reasons, and after the LLC has been in existence for some time, Mom and Dad make a gift of 19.2% of their interests in the LLC, by giving a 4.8% interest to each of their four children.

Each gift of an interest in the LLC is entitled to a minority interest discount, because each child lacks control of the entity. Each gift is also entitled to a lack of marketability discount because each interest in the LLC is highly illiquid, and no child has the power to liquidate the LLC. Assuming for purposes of this example a total discount of fifty percent, the fair market value of the 4.8% gift made to each child is only $24,000.00, even though 4.8% of the underlying assets in the LLC is $48,000.00. Thus, the gift tax exclusion has been “leveraged” using the LLC because $48,000.00 in underlying asset value has been transferred to each child without gift tax cost and without using any unified credit.

As the real estate owned by the LLC increases in value, such increase in value
will be reflected in Mom’s and Dad’s estates only to the extent of their remaining interest in the LLC. Furthermore, after the gifts Mom and Dad each owns only a 40.4% minority interest in the LLC. Each such interest lacks the power to liquidate the LLC, and would also be entitled to minority interest and lack of marketability discounts. Thus, significant gift and estate tax savings can be achieved by using a family LLC, although at the “cost” to Mom and Dad of foregoing the income that otherwise would have been received on the 19.2% that has been given away to the children.

Because of many recent court cases involving the use of family limited liability companies and family limited partnerships, a careful analysis in each instance is needed before interests in a family entity are gifted. Moreover, in most situations a professional appraisal is needed to value both the company’s underlying assets and the fair market value of the interests gifted. The cost of such appraisals must be considered when a decision is make to implement the use of family entities as a part of one’s estate plan.

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The Popularity of Pet Trusts

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Here is an interesting article recently published by the New York Times. The number of Americans owning pets is at a record high, and more people are making provisions in their wills to provide for these animals after they’re gone.

But to ensure your pet is cared for as you intend, it’s important to set up a pet trust—an arrangement that 46 states permit.

While some—including noted financier Muriel Siebert, who died in August—have left tens of thousands of dollars for the care of a pet, attorneys who specialize in planning for the care of pets say most pet owners allocate only enough to cover necessities like food and veterinary care.

“Pet trusts aren’t just for the wealthy,” says Frances Carlisle, a trust and estates attorney in New York. For most pet owners, she adds, the goal “is to make sure a plan exists for the care of the animal.”

As of 2012, 68% of U.S. households owned pets, up from 62% in 2010. Among cat owners, 9% had made financial provisions in their wills for their animals, up from 6% in 2010, according to the American Pet Products Association, which represents manufacturers of pet food and other products. From 2010 to 2012, the percentage of dog owners making such arrangements rose to 9% from 5%.

“Many people think of their pets as family members and want to make sure they are well provided for,” says Bob Vetere, president of the association.

Pet owners aren’t allowed to bequeath money directly to their animals. State laws treat animals as property, which means they can’t own property themselves. A pet owner wishing to provide for an animal typically leaves money to a designated caretaker—but that person “is under no legal obligation” to keep the pet or to use the money for the animal’s benefit, says Ms. Carlisle.

Instead, she says, a better idea is to set up a pet trust. (Her fees for an estate plan, including a will and pet trust, start at $1,000.)

The advantage of a trust is that it is administered by a trustee, who is appointed by the pet owner and is legally obligated to act in the animal’s best interest and to ensure the owner’s wishes are carried out, says Ms. Carlisle. The trustee pays the pet’s bills and oversees the performance of its caretaker. (Trustees can double as caretakers.)

Be sure those you appoint want to perform their duties and name successors just in case, says Rachel Hirschfeld, a New York City attorney whose “pet protection agreement” is available at sites including legalzoom.com for $39.

Designate people or charities to receive any money left after the animal’s demise. And give the beneficiaries—along with the trustee, caretaker and successors—a copy of the trust document so each understands your expectations and can monitor the pet’s care.

Pet trusts can take effect either after you die or while you’re alive. The latter provides for care of the pet in the event you suffer an accident or illness that leaves you unable to take care of your animal.

If you are interested in creating a pet trust, or simple have questions about estate planning, call one of Maya Murphy’s experienced estate planning attorneys today at 203-221-3100.

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The Dilemma of Elderly Exploitation

Unfortunately, many unsuspecting senior citizens, who have diligently planned for retirement and their happy golden years, fall prey to financial abuse (elderly exploitation). This financial abuse can come at the hands of a complete stranger, a caregiver or even a beloved family member. For a senior citizen who has fallen victim to financial abuse, an attorney skilled in elder law may be able to assist by filing a lawsuit to recover the money or property taken as a result of this elderly exploitation. A report to local law enforcement authorities is also recommended to help prevent the elderly exploitation of others by the same perpetrator.

Not surprisingly, senior citizens are often targeted by scammers posing as investors, telemarketers, fundraisers or even their own granddaughters or grandsons, either via the telephone or the internet. Perpetrators use deception, scare tactics or exaggerated claims to induce the senior citizens to send money to the perpetrator. If a credit card number is obtained from the senior citizens, the perpetrator will use the credit card to rack up large balances. The main objective of these perpetrators is to swindle the senior citizen out of as much money as possible and in some instances even steal their identity.

Shockingly, even individuals who are close to the senior citizen, such as their caregivers or even a family member, may resort to other forms of financial abuse of the elderly. These abusers may take money or property, forge the senior citizen’s signature on documents or checks and even use the senior citizen’s property or possessions without permission. Worse, these abusers may even attempt to get the senior citizens to sign a deed, title, will or power of attorney in order to steal their money and property.

Whether the concern is for you or an elderly loved one, there are several signs that can indicate financial abuse is taking place. Such indicators include a sudden withdrawal of large amounts of cash, the unexpected ‘cashing in’ of stocks, bonds or annuities, an additional name or transfer of title on a bank or brokerage account, or limited or reduced access to the senior citizen by the abuser.

Fortunately there are measures that you can take to help prevent financial abuse. With the assistance of a knowledgeable elder law attorney, proper estate planning is one of the best ways to prevent financial abuse. Effective estate planning creates a system of checks and balances appointing more than one person to key positions. This means assigning co-agents under durable powers of attorney or co-trustees to help manage the senior citizen’s financial affairs. You might also want to name a third party, such as your attorney or certified public accountant to serve along with your family members.

In the event that you or your loved one has fallen victim to financial abuse or has failed to effectively create a system of checks and balances through proper estate planning, then it is imperative that you or your loved one seek legal counsel immediately. An attorney with expertise in the area of elder law and estate planning will be able to assist with recouping your losses (which may include a report being filed with local law enforcement officials) as well as properly plan for the future.

If you would like to speak to an experienced estate planning attorney at Maya Murphy, call 203-221-3100 or email rsweeting@mayalaw.com today!

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The Dilemma of Elderly Exploitation

Unfortunately, many unsuspecting senior citizens, who have diligently planned for retirement and their happy golden years, fall prey to financial abuse (elderly exploitation). This financial abuse can come at the hands of a complete stranger, a caregiver or even a beloved family member. For a senior citizen who has fallen victim to financial abuse, an attorney skilled in elder law may be able to assist by filing a lawsuit to recover the money or property taken as a result of this elderly exploitation. A report to local law enforcement authorities is also recommended to help prevent the elderly exploitation of others by the same perpetrator.

Not surprisingly, senior citizens are often targeted by scammers posing as investors, telemarketers, fundraisers or even their own granddaughters or grandsons, either via the telephone or the internet. Perpetrators use deception, scare tactics or exaggerated claims to induce the senior citizens to send money to the perpetrator. If a credit card number is obtained from the senior citizens, the perpetrator will use the credit card to rack up large balances. The main objective of these perpetrators is to swindle the senior citizen out of as much money as possible and in some instances even steal their identity.

Shockingly, even individuals who are close to the senior citizen, such as their caregivers or even a family member, may resort to other forms of financial abuse of the elderly. These abusers may take money or property, forge the senior citizen’s signature on documents or checks and even use the senior citizen’s property or possessions without permission. Worse, these abusers may even attempt to get the senior citizens to sign a deed, title, will or power of attorney in order to steal their money and property.

Whether the concern is for you or an elderly loved one, there are several signs that can indicate financial abuse is taking place. Such indicators include a sudden withdrawal of large amounts of cash, the unexpected ‘cashing in’ of stocks, bonds or annuities, an additional name or transfer of title on a bank or brokerage account, or limited or reduced access to the senior citizen by the abuser.

Fortunately there are measures that you can take to help prevent financial abuse. With the assistance of a knowledgeable elder law attorney, proper estate planning is one of the best ways to prevent financial abuse. Effective estate planning creates a system of checks and balances appointing more than one person to key positions. This means assigning co-agents under durable powers of attorney or co-trustees to help manage the senior citizen’s financial affairs. You might also want to name a third party, such as your attorney or certified public accountant to serve along with your family members.

In the event that you or your loved one has fallen victim to financial abuse or has failed to effectively create a system of checks and balances through proper estate planning, then it is imperative that you or your loved one seek legal counsel immediately. An attorney with expertise in the area of elder law and estate planning will be able to assist with recouping your losses (which may include a report being filed with local law enforcement officials) as well as properly plan for the future.

If you would like to speak to an experienced estate planning attorney at Maya Murphy, call 203-221-3100 or email rsweeting@mayalaw.com today!

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Keep Your Estate Planning Documents Current

Too often we will responsibly execute legal documents, put them in a safe place and then promptly forget about them. An experienced estate planning attorney can assist with keeping your important legal documents current by making appropriate changes to these documents based upon your life or lifestyle.

There is no set schedule for updating your will, living will, durable power of attorney or living trust, etc. but there are some life events that may serve as a guideline. Some of those events could be getting married or a change in your marital status whether that is a divorce, the death of a spouse or a remarriage. Another may be becoming a parent.

Other life changing events impact our assets, perhaps making a major purchase like becoming a homeowner or selling a property, receipt of a substantial inheritance, moving to another state or even a change in the tax code would merit a review of our important documents. Changes in financial status, whether positive or negative, may warrant an update to your existing estate planning documents or in some instances, be better served by more complex legal documents.

Retirement is another milestone that can impact estate planning with regard to changes in financial needs and status. Sometimes life challenges like becoming disabled or other serious physical ailments may force us to re-evaluate our needs. Also, as we advance in years or experience negative changes to our health, we may wish to modify our estate planning documents.

It is important to periodically contact your attorney so that you can discuss life changes, review your important legal documents and effectively plan for the future. Like any successful partnership, you will want to trust and be comfortable with the lawyer with whom you choose to do business. Evaluate your research, use common sense and hire the attorney you feel will best represent and champion your needs.

It is important to update your documents frequently, and it is even more important to do that with experienced estate planning attorneys like those at Maya Murphy, P.C. If you would like to speak to one of our estate planning attorneys feel free to call 203-221-3100 or email at rsweeting@mayalaw.com today!

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2014 Estate & Gift Tax Limits Adjusted For Inflation

Starting next year, people who have done some estate planning and made the maximum tax-free transfers to their families (and those thinking about doing it) can take another crack at it. Beginning January 1st 2014, the amount folks can pass on during life (and at their death) completely free from federal estate tax will increase by an additional $90,000.

Using the Consumer Price Index data for the most recent month and the preceding 11 months, the tax experts at Research Institute of America calculated and reported increases for 2014 to a number of tax limits including the income where the various marginal tax brackets apply, the standard deduction amounts, the personal exemption amount, and a number of other items. They also calculated adjusted amounts for the various estate tax and gift tax limits that will apply in 2014.

Gift tax limits rise in 2013
2013 tax rules than can save you money
Reducing taxes on IRA payouts

Here are a few of the new limits that affect tax free gifts made in 2014:

Unified estate and gift tax exclusion amount. For gifts made and estates of decedents dying in 2014, the exclusion amount will be $5,340,000 (up from $5,250,000 for gifts made and estates of decedents dying in 2013).

This means that in 2014, each person has a credit that can be used to offset the estate tax on a taxable estate of up to $5.34 million of assets. The practical application of this is that individuals can make gifts during life or transfers at death of up to this new higher limit and pay no federal estate tax. Also, new last year is that spouses may combine their unused individual credit amounts and pass on assets free of estate tax on a taxable estate of up to $10.68 million at the death of the second spouse, assuming none of these credits were used during their lifetimes.

Other estate limits that change in 2014 include:

Generation-skipping transfer (GST) tax exemption. The exemption from GST tax will be $5,340,000 for transfers in 2014 (up from $5,250,000 for transfers in 2013).

Increased annual exclusion for gifts to non-citizen spouses. For gifts made in 2014, the annual exclusion for gifts to non-citizen spouses will be $145,000 (up from $143,000 for 2013).

Foreign earned income exclusion. The foreign earned income exclusion amount increases to $99,200 in 2014 (up from $97,600 in 2013).

Gift tax annual exclusion. For gifts made in 2014, the gift tax annual exclusion will be $14,000 (same as for gifts made in 2013). Generally the amount that can be given to any individual each year that is excluded from the gift tax is $14,000 per person per year. In 2014, this amount is projected to remain at $14,000 per person as the amount that may be gifted annually free from the gift tax. Parents may also use the technique of “gift splitting” or combining gifts to a child, whereby they can each make a gift of $14,000, for a total amount of tax free gifts made of $28,000 to a single person or child each year.

credit-Ray Martin

If you have any questions about this information, or if you would like to speak with one of Maya Murphy’s experienced estate planning attorneys, call 203-221-3100 or email rsweeting@mayalaw.com today!

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DSUE: The Deceased Spouse’s Unused Exclusion

Many individuals have no idea what the DSUE is. Well, it is a fairly simple term when you break it down. Every individual gets an exclusion amount for estate and gift taxes that is adjusted for inflation, last year is was $5,250,000. That means that on death, or during life, an individual can devise, bequeath, or gift up to that amount without generating any tax liability. (Gifts must be under the annual exclusion amount of $14,000 in order to not be subjected to a 40% tax). If you are married, you and your spouse can combine your exclusion amounts or, when one spouse passes away with some of their exclusion left, the other spouse may use that. This is called portability and the unused amount is called the deceased spouse’s unused exclusion (DSUE for short).

For example, imagine you and your spouse have used none of your exclusion amounts. Now, one spouse passes away and their estate is $2,250,000. The deceased spouse’s estate will not be subject to estate tax because they had an exclusion amount of $5,250,000 in 2013. Therefore, the spouse had $3,000,000 left after their estate was settled. If the surviving spouse, or their executor makes the election, they may use the remaining $3,000,000 from their deceased spouse’s estate in addition to their $5,250,000. This means they can exclude up to $8,250,000 from estate, gift, and generation skipping transfer tax. The DSUE is thus “portable.”

While no estate planner relies on portability (because the government can change the law at any time), it is definitely a useful tool for those with large enough estates to utilize it. In 2013, the government set forth legislation to make portability “permanent” for the foreseeable future.

For more on the DSUE and portability see this article: Lewis Saret, Estate Tax Portability – Date DSUE Amount May Be Taken Into Account, Forbes, Jan. 14, 2014.

Or, if you would like to speak with one of Maya Murphy’s experienced estate planners call 203-221-3100. The head of our estate planning division can also be reached by email at rsweeting@mayalaw.com

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Spendthrift Trusts for You and Your Children’s Own Protection

It’s unfortunate, but clients who meet with me to do their estate planning will sometimes mention that one or more of their children is somewhat of a liability for one reason or another. You see it and hear about it all the time, a troubled youth or just a child who has no idea how to manage their affairs. Often, parents still want to include these children in their wills, but they fear what may happen when the children do get the money.

The answer: A spendthrift trust. Using such a trust as a component of your estate planning is generally a wise approach when a child (or any beneficiary who is not a child) is in one or more of the following cicumstances:

The child is irresponsible with money management, does not have a history of saving and investing, and there is a concern that your hard-earned estate will be wasted;
The child has a history of creditor problems, actually hascurrent creditor problems, or you are reasonably certain that creditor issues will arise in the future based on the child’s behavior;
The child is in an unstable marriage where a divorce is more than likely…the trust can prevent the estate from becoming part of a divorce settlement process;
The child is addicted to drugs, alcohol or gambling;
The child has a history of being influenced by an overbearing spouse in regards to money management;
The child belongs to a religious group or some similar organization and you do not want some/all of your estate to ultimately be donated to such a group;
The child would be prone to “financial predators” and scam artists.

A spendthrift trust is a trust usually established with the object of providing a fund for the maintenance of another person, known as the spendthrift, while also protecting the trust against the beneficiary’s imprudence, extravagance, and inability to manage financial affairs. For example, a settlor establishes a spendthrift trust for his son, a compulsive gambler, who spends money injudiciously with no concern for the future. Under the terms of the $400,000 trust, which is to be administered by the family’s lawyer, the son is to receive $15,000 a year. Any words that indicate the settlor’s intention to impose a direct restraint on the transferability of the beneficiary’s interest can be used to create a spendthrift trust.

Such trusts do not limit the rights of the spendthrift’s creditors to the property after it is received by the beneficiary from the trustee (one appointed or required by law to execute a trust). The creditors cannot compel the trustee to pay them directly. This means that any of the spendthrift’s creditors can seek to have the money the spendthrift has already received applied to satisfy their claims. A creditor’s claims to future payments under the trust, however, are restrained. The spendthrift’s creditors cannot reach the $15,000 that he is to be paid in a subsequent year until it is actually paid out to him. If such a person could dispose of his right to receive income from the trust, his incompetence or carelessness might lead him to anticipate his income and transfer to monetary lenders and creditors the right to receive future income as it became due. By restricting the spendthrift so that he can do nothing with the income until it is paid into his hands by the trustee, he is more likely to be protected, at least to some extent, against impoverishment.

Please note that this is not always the best approach, but those of you in a situation such as this should discuss this issue with an estate planning attorney. Otherwise, your child’s inheritance may tragically disappear…and perhaps make your child’s problem worse. If you have any questions of spendthrift trusts, or are looking for an attorney to plan your estate, call the experience estate planning lawyers of Maya Murphy, P.C. today at 203-221-3100.

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