GENERAL ESTATE PLANNING
In the year 2008, it started with one or two calls. Soon, I realized there was a potential serious issue. The issue was actually the personal or economic problems of your children. Parents were letting me know that their adult children had economic concerns and were wondering what they (the parent) should do. I had no magic answer for that but I did let them know that they needed to review their trust or estate to prevent their assets from suddenly going to creditors of the child if the parent were to die. Here are a few examples of the situation that can develop.
DIVORCE
Your son or daughter calls and states that things are not going well and that they may file for divorce in the near future. If you die and leave anything to your child shortly before the divorce then your assets could be counted in the child’s assets. This happened several years ago. I rewrote the trust leaving the child out of the final distribution. Sure enough, the father died and the daughter in law tried to get to the assets. By preplanning, the assets were protected and eventually got to the son’s family.
ILLNESS
This is the hardest one to explain. The case is when the adult child has a serious long term illness. It is anticipated that the child will have large medical bills. If they run out of funds then they may apply for government assistance. In either event, if the parent dies and a large amount of money would pass on the death of the parent, it would immediately go to the payment of medical bills and not be available for the surviving spouse and grandchildren. Preplanning can provide an alternate distribution that would protect your assets and see that the assets get to your loved ones.
Now for the new 2008 twist.
JOB LOSS
Your child is doing well and just bought a large home in a gated community. You receive the call that he or she lost their job and the house is up for sale. It will not take long for the bills to mount. The credit card interest rate triples and the penalties for mortgage nonpayment make home ownership out of the question with no possibility of sale in sight. If the parent dies, the inheritance is immediately available for all of the excessive charges that have accumulated. Bypassing the child will eliminate the loss of your estate for payment of excessive debts.
REAL ESTATE
This has several scenarios.
1. Your child called a couple of years ago and proudly announced that he was able to get a 95% loan on a new home that they could never have purchased otherwise. The interest rate was great and only adjusted every three years. You know the rest of the story. The rate increased and your child could no longer afford the payments. At this point many children just quit paying. Sometimes the bank will string the children along and let the debt grow with “interest only” payments that will also soon be unable to be paid.
2. Your child bought a house at a great price and even got a fixed rate loan. Then, the bank offered an equity loan with a large amount of available credit and a check book. All your child had to do was use the checking account for his everyday needs. Along came a new car and the family vacation. It was so easy and the payments in the beginning were small. What a great piggy bank. With every check came a larger payment. Soon the limit was reached and the payments were equal to the first mortgage payments.
3. The children hear from the infomercial that they can buy a house for no money down, fix it up and double their money. The bank helped with the plan and they are on their way to a fortune. The expenses are more then they anticipated but they would sell the house in six months and get their money back with a great profit. They may even quit their day job it was going to be so lucrative. You also know the last chapter of this story. The children still own the house and the mortgage payment has taken all of their other available assets. One child went into this venture with a partner. The partner moved to Nevada and the bank is calling the child to make the monthly payments. Since the loan was personally signed, the bank is looking only to your son. Even if the son can sell the house, they cannot find the partner whose name is on the deed. The legal cost and time to get a clear deed will add months and money to the problem.
All of the above have happened this year and will continue to happen. Even though this is your adult child’s problem, if you pass away your estate could be available for payment without any control mechanism in place.
BANKRUPCTY
Your child has done everything right and started his own business. You are so proud of his accomplishments. Then comes the call that with all that is going on with the economy, sales have slowed. Normally this call comes long after the problem could have been solved. He is so far behind that bankruptcy is the only answer to clearing all of the old debt. If you die shortly before he files, his share of your estate is immediately available for payment of all of the worthless debt.
CONCLUSION
This is not the complete list. The purpose of this article is to make you aware that your adult child’s problem may still be yours. If there are any red flags of concern you may consider revising your estate plan so that your assets will not be available for his debts. I am not saying that your child gets nothing, but there are ways to protect your assets and see that he or she or their family receive their inheritance after the crisis has passed.
How that is done is the subject of another article but I felt it was important to bring this to your attention. If you are unaware of any problem, you may seek to find out for their protection. With the current state of affairs, this situation will not go away any time soon.
Jeff Roth is a partner with Forrest Bacon and David Bacon of the firm ROTH and BACON with offices in Port Clinton, Upper Sandusky and Marion, Ohio. Mr. Roth is also licensed and practices in Florida. His practice is limited to wealth strategy planning and elder law in both states. Nothing in this article is intended for, nor should be relied upon as individual legal advice. The purpose of this article is to help educate the public on concepts of law as they pertain to estate and business planning. Jeff Roth can be reached at ohiofloridatrust@aol.com (telephone: 419-732-9994) copyright@Jeffrey P. Roth 2009.
For many reasons people elect to transfer a remainder interest in their real estate to children or other beneficiaries and retain for themselves a life estate for the rest of their lives.
Real estate from a legal perspective is in fact real property. Real property has two characteristics which define ownership. These characteristics are 1) Title and 2) Use.
When title and use to a piece of property are held by the same person, it is presumed that the person legally “owns” the property for all intents and purposes.
If a person elects to transfer the title to a piece of property to another person and at that the same time retains the use of that property until his own death or the death of another defined person, he may do so. This practice is commonly referred to as granting the remainder interest to a named beneficiary or beneficiaries while retaining a life estate.
This practice is accomplished by the execution and recording of a deed reciting the transfer of the title to the named remaindermen beneficiaries and the retention of the life estate in the life tenant or tenants.
As the person transferring the remainder interest has retained the use of the property during his lifetime, this practice is not considered to be a gift for gift tax purposes. The original owner during his remaining life may continue to reside in the property and use the property as he or she would have had they retained the title to the property.
Since the original owner may continue to use the property during his remaining lifetime, the taxing authorities do not regard this sort of practice as a “present transfer” for gift tax purposes and accordingly, no gift tax consequences are encountered.
Although the original owner may continue to use the property during his or her remaining lifetime, after transferring the title to the remainder beneficiaries the original owner is no longer able to sell the property without the consent and signatures of the named remainder beneficiaries. It is important to note that an important exception to the capital gains income tax law permits a person to sell their primary residence and not declare the first $250,000 worth of gains once every two years. In transferring the title to the remaindermen and retaining a life estate, this exclusion is lost to the original owner. For this reason it is important to understand that a transfer of this sort may not be recommended if it is your intent to sell the property prior to your death as the exclusion exception will be lost to you.
There may be certain benefits attendant to retained life estates for Medicaid planning purposes. Medicaid eligibility is complicated and the rules are continually being rewritten. It is important if you have already transferred a remainder interest in your property that you discuss any proposed sale of the property prior to the actual sale with a person qualified to explain the consequences of such a sale for Medicaid eligibility purposes. Properly structured retained life estates can in certain circumstances help to shield certain real property assets from Medicaid spend downs and may permit family members and or beneficiaries to retain certain real property assets even if Medicaid eligibility is attained.
If you die possessed of a life estate in real property, your ability to further “use” the property is extinguished by your death. The title to your property will already have transferred to your designated remaindermen when you executed the deed. Accordingly, there is no “probate” of the real property in your estate as the title to that asset has already passed to the designated beneficiaries. It will be necessary for your beneficiaries to file an affidavit in the County Recorder’s office stating that you have passed away and that your life estate in the property is accordingly extinguished.
For estate tax purposes, the real property is includable in your estate at appraised market value as of the date of your death. If there are any Federal or State estate taxes due upon your death, your estate will be required to pay those taxes. If there are not sufficient monies or other assets in your estate to satisfy these tax obligations, it will fall upon your beneficiaries to decide whether to advance the necessary taxes themselves from their own funds in order to retain the real property, or to sell the real property, pay the taxes and divide the remaining sales proceeds among themselves as their interests appear.
As the value of the real property is subjected to estate taxes at the market value of the property as of your date of death, the new basis of the property passing to the beneficiaries is the value of the property on the date you died. Accordingly if the beneficiaries subsequently sell the property, their basis for purposes of calculating their capital gains income tax consequences is the value of the property on the day you passed away.
These are some of the consequences of transferring a remainder interest to named beneficiaries and retaining a life estate. It is always good practice to thoroughly discuss all the consequences of any transfer of interest in property with a qualified professional prior to transferring said property.
Nothing in this document is intended as individual legal advice, but is intended to educate the public as to some of the consequences of transferring a remainder interest in real estate while retaining a life estate.
This article was written by David F. Bacon, Attorney and Ohio State Bar Association Board Certified Specialist in probate, trust and estate planning. David Bacon and Jeff Roth are partners in Roth and Bacon Attorneys with offices in Upper Sandusky, Marion, and Port Clinton, Ohio. They have focused their practice to provide estate and business planning concepts to their clients. Nothing in this article is intended for, nor should be relied upon as individual legal advice. The purpose of this article is to help educate the public on concepts of law as they pertain to estate and business planning. This is number one hundred fifty two of a series of articles. Additional articles will be published in the future. If you have any questions you would like to have answered, please direct your question to The Daily Chief Union and your question will be considered for use as the topic of subsequent articles. Copyright @ David F. Bacon 2009
THE SANDWICH GENERATION
It has become increasingly apparent that the average middle aged client has a real problem. While they are concerning themselves with their upcoming retirement, the reality has come to their attention that they are responsible for their children and also their parents. With parents living much longer and children wanting to keep ahead of the curve, the demands on the middle class have tripled.
THE MIDDLE CLASS
I had a client tell me that his mother moved into his house 15 years ago because she had one year to live. Thanks to modern medicine she is still there. This same client has three college bound children. He wants the best for all but the pie is only so big. He is part of the sandwiched generation. If he were rich there would be no problem. There would be plenty of money and his parents would probably have the same amount. If he were poor, the children would have many need based scholarships and loans available and the parents would be on Medicaid. It is that middle class that has the problem .They have too much money for assistance and not enough to provide for the needs of three generations.
WHO ARE BABY BOOMERS?
They are that group of individuals born from 1946 to 1965. They are the first generation to be influenced by television. They appear to be financially better than their parents and luckier than their children. This generation may have planned for their children and themselves but the financial status of the parents present a real source of concern.
KIDS
The parents are being asked to insure their children’s education and preparedness for life. Not only is a college education not enough, but children expect to go to the best school at the best location. Even if the kids do not feel that way, the parents feel the peer pressure to see that their children have everything that their neighbor’s children or their siblings’ children have.
Historically, a child stayed close to home and worked in the same factory as his father. Today, that factory may not exist. Communication, television and the internet has broadened the child’s horizons. He is not afraid to travel four states away since he can report home each evening via the internet.
Many children expect parents to provide all that is necessary to insure that they have the latest and greatest. Children today are more aware of the importance of education and want to take advantage of what the world has to offer.
IDEAS
529 plans or other long term savings plans are great for the young child. If your child is now in college, a student loan is not a sin. Unsubsidized loans such as a Pell Grant allow the child to be involved and appreciate the value of doing well. Let the child select the college and split the cost. Any scholarship comes off his share. Have the children realize early in high school that this will be a joint effort.
PARENTS
Along with advances in science and medicine comes longevity. Parents easily live to ninety and above. The problem is that their pensions and savings were based on 1960 numbers. Many are simply running out of money. Years ago, it was expected to have the parents move into the child’s home for the last two years of their life. Today, neither the parent nor the child wants to take this course of action. Parents more than children want their independence.
With siblings, major problems are created between the expected caretaker and the child that is just too busy. In the end the one that was too busy expects everything to be equal. We won’t even bring in the subject of the in-laws and their opinions. Much goes unspoken in the area of planning for the parent between brothers, sisters and their spouses until after the funeral. At that point many families are destroyed because the children did not approach the situation with reality and a joint effort.
IDEAS
Children should address this potential problem when their parents are in their sixties. At least be involved to take an inventory of their available assets and anticipated needs. Have frank discussions as to alternative future courses of action. You will meet resistance because this generation thinks you are after their money. This is where an experienced third party can ask the right questions and assist the family in planning for the future.
The purpose of this article is to make you aware that you are not alone on this subject. Children being proactive at an early stage with their parents are the correct approach.
Please email any areas of interest or questions that you would like to have discussed to ohiofloridatrust@aol.com. It is important that this column is relevant to its readers.
Jeff Roth is a partner with Forrest Bacon, David Bacon and associate Jessica Moon of the firm ROTH and BACON with offices in Port Clinton, Upper Sandusky, Marion, Ohio and Fort Myers, Florida. All members of the firm are licensed in the State of Florida. Mr. Roth’s practice is limited to wealth strategy planning and elder law in both states. Nothing in this article is intended for, nor should be relied upon as individual legal advice. The purpose of this article is to help educate the public on concepts of law as they pertain to estate and business planning. If you have any questions you would like to have answered in this area of law, please direct your question to this journal and your question will be considered for use as the topic of subsequent articles. Jeff Roth can be reached at ohiofloridatrust@aol.com (telephone: 419-732-9994) copyright Jeffrey P. Roth 2011.
With the Downturn in the Economy Is There Any Estate Planning Remaining to Be Done?
Over a decade ago my partner and I made a commitment to shift the focus of our legal practice from what had been the general practice of law including divorce, trial work, criminal, federal bankruptcy, business entities, real estate etc. to a specialized practice of law focusing on estate and business planning.
The shift in our practice was undertaken with some trepidation on our part as many of those areas of law we were then practicing were paying our bills and putting food on the table. However, we decided that the then increasing complexities in every field of law demanded that we decide upon a specialized area and practice in that area of the law and areas of law related to estate planning.
Within just a few years of our shift of focus the second Bush Presidency commenced and with it came sweeping changes to the federal estate and income tax structure. Almost immediately the questions began as to how we were going to be able to continue to practice once the Federal Estate tax exemptions were finally phased in and the Federal Estate tax was repealed. The popular wisdom was that with the passage of the repeal of the federal estate tax that there wouldn’t be anything for us to do.
The surprise to us of course was that the then proposed phase out of the Federal Estate tax did not decrease out business. Our business actually increased as people began to reassess their estate plans and make amendments to assure that their plan conformed to the new regulations.
With the recent downturn in the economy, and I am using that term “downturn” in the most hopeful sense possible as describing current economic conditions as a “downturn” is similar to explaining the Titanic tragedy as a leak developing in the boat, we are again questioned what it is that we as estate planners will be doing in the future as no one any longer has any estate to plan. A friend recently referred to his retirement plan as his “201k” plan.
I have come at this definition of what “estate planning” actually means in many past articles and will address it again in this one.
Estate planning is not solely defined as a plan to avoid the taxation of a major fortune. Planning to pay the minimum amount of taxes is of course part of estate planning, but tax planning is not sole descriptor of estate planning any more than reciting that an automobile defines transportation. There are multiple facets to the transportation industry just as there are multiple disciplines, goals and objectives in estate planning.
So, here is a “heads up” as to some of the things which won’t change with whatever changes come to pass under the new administration’s tax strategies.
Under Ohio law you have an estate plan devised for you if you have not devised one for yourself. In Ohio if you have any asset that is titled in your name and the title to that asset remains titled in your name after you die, that asset under Ohio law will become a probate asset. Having probate assets at your death will most likely require your estate representatives to have some sort of a probate estate opened for you at your death. In Ohio the Probate Court of a decedent’s residence will most generally have primary jurisdiction (right to say) over that decedent’s estate.
Wills primarily direct the distribution of probate assets. If you have probate assets at your death and do not have a will, you will still have a probate administration of your estate. The difference is that Ohio’s laws of descent and distribution will determine who your heirs at law are and will distribute your probate assets to those folks.
It is possible to avoid the probate administration of your estate, but you have to take steps to accomplish that happening. It is possible through beneficiary designations to ensure that your assets do not remain titled in your name after your death and become probate assets, but rather pass directly to beneficiaries whom you have pre-designated. This pre-designation is something that you must do before your die. Some examples of these pre-designations are transfer on death (TOD) or payable on death (POD).
In addition to these beneficiary pre-designations it is possible during your lifetime to create and fund revocable living trusts and title your assets into these trusts. A revocable trust is a trust over which the grantor (person placing the title to the asset into the trust) has relinquished no control. The Grantor retains the right during his or her lifetime to remove any asset from the trust and to modify and or terminate the trust. Properly funded during lifetime a revocable living trust will in most instances avoid the probate administration of a decedent’s estate.
The next thing that hasn’t changed is the absolute necessity of creating powers of attorney for you. These documents enable the persons you select to make business and health care decisions for you if you are unable to make these decisions for yourself. Absent these advance directive documents, if you become disabled your loved ones will most probably be required to seek a probate guardianship over your person and or estate. This procedure is almost never necessary for an adult and most generally occurs when the disabled person has simply failed to plan in advance.
So here we are heading bravely into the New Year and lots of changes in estate planning again on the horizon. I’ll end this as my Aunt Muriel always concluded her correspondence, “More later…”
This article was written by David F. Bacon, Attorney and Ohio State Bar Association Board Certified Specialist in probate, trust and estate planning. David Bacon and Jeff Roth are partners and Jessica B. Moon is an Associate in Roth and Bacon Attorneys, LLC with offices in Upper Sandusky, Marion, Port Clinton, Ohio, and Fort Myers, Florida. They have focused their practice to provide estate and business planning concepts to their clients. Nothing in this article is intended for, nor should be relied upon as individual legal advice. The purpose of this article is to help educate the public on concepts of law as they pertain to estate and business planning. This is number one hundred forty eight of a series of articles. Additional articles will be published in the future. Copyright @ David F. Bacon 2008.
The Danish storyteller Hans Christian Anderson quite a while ago wrote a lovely little fable entitled “The Emperor’s New Clothes.” In this tale the following action occurs. There is an Emperor who is very vain and probably insecure although two hundred years ago those writing fables didn’t concern themselves with the mindset of their protagonists so the insecurity part is something that I surmised and added. As far as Hans was concerned the Emperor was just vain about his appearance.
The Emperor was all about “dressing to impress” and probably would have subscribed to Gentleman’s Quarterly and Men’s Health had those periodicals been available at the time. He put out an invitation or a summons requiring all of the very best tailors to come up with some really terrific duds for a certain parade which would naturally feature as its climax moment an appearance by the Emperor in his new clothes.
Well all of the tailors did their very best to get the costliest and most upscale threads available to “dude out” the Emperor in this parade and at the fashion try-outs everyone was one upping each other in attempt to win the Emperor’s favor with their couture.
There was one little tailor, however who, despite Hans not blatantly letting us in on the fact that the Emperor was insecure, apparently discerned that ultimately appealing to the Emperor’s vanity, not necessarily his taste in clothing was the key to winning the contract.
This little tailor appeared with his box of goodies and as he slowly unwrapped the robes he had prepared the tailor carefully explained to the Emperor that only those few extraordinary persons possessing rare wisdom and discernment would be able to even see the fabrics he had made. These fabrics were so wondrously special that a person possessed of merely ordinary intelligence or less would see nothing at all. The Emperor was of course elated that someone had finally “gotten” what it was that the Emperor had been looking for all along.
Imagine the Emperor’s surprise when the tailor finally unwraps the box and much to the chagrin of the Emperor, the Emperor could see nothing at all. The tailor went on to describe in great detail the beauty and elegance of his creation and the Emperor, wholly unwilling to admit that he was one of the great unwashed who couldn’t even see the stuff went right along with the tailor and lavished praise upon the tailor and his creation.
Needless to say, the tailor got the contract. By the time the day of the parade came everyone in the kingdom knew that only those special few who were possessed of “all the right skills” would be able to actually see the gowns of the Emperor. The Emperor as advertised “pulled up the rear” of the parade and unfortunately due to the apparel his vanity had selected for him, it was the Emperor’s rear that the adoring crowds wound up seeing. However, as no one was willing to admit that they were two sandwiches shy of a picnic in the requisite wisdom skill set and couldn’t see the gown, everyone applauded and cheered the tailor and his fantastic creation.
This tale of course ends with a small boy who had not yet developed the ability to cultivate vanity as a life tutorial to exclaim, “But the Emperor isn’t wearing any clothes.” At that moment, as it always does, the truth which had been there all along was finally recognized for what it was. Everyone, including the Emperor had been scammed. If the tale goes on to explain what happened to the tailor, I don’t remember what did. That was never the point of the fable. The point was that everyone believed that the robes of the Emperor were invisible to them because they weren’t smart enough to be able to see the fabric. Since no one wanted to admit they were not bright enough to understand the situation, things just kept getting worse.
Welcome to 2009. Like most things, the state of our national economy is not impossible to understand. It’s complicated, but even the wheel was complicated when it first came out.
As a nation over the last thirty years we outsourced our manufacturing infrastructure to other countries which countries in turn provided cheaper labor. Since the labor force at home was left with fewer things to actually do, we created a service economy and multiple layers of corporate and government bureaucracy to accomplish what we ourselves had been primarily content to do for ourselves for past generations. These service jobs in the public and private sector provided employment but added significant cost to the goods and services provided. As the cost of basic goods and services rose accordingly, we extended credit to those who could not ordinarily afford these goods and services. It was important that everyone be able to continue purchasing or our artificial work force would have no basic goods or services upon which to overlay their multi-layered services.
Unsecured credit debt found a new home in the real estate industry when lending institutions found themselves at risk due to the credit collapse. Home prices which had climbed artificially with the rest of the economy were unable to be maintained at these astronomical figures because eventually no one could afford to pay their mortgages. After real estate collapses what is left is everything being worth what it was in the first place. Jobs which were created for artificial reasons collapse along with everything else.
We are now poised to pump an additional $800,000,000 worth of artificially created dollars somewhere into the economy in an attempt to accomplish a glorious conclusion to the end of this parade. The origin or final destination of these funds is not able to be known or appreciated by the common man as like the admirers of the Emperor’s new clothes, we are not sufficiently wise enough to understand or see what is happening to us.
If you are sufficiently challenged to understand that it is your privilege and duty to participate in the American arena and are trying to decide what role you can play in this unfolding drama, be the small boy. Even though you’ve got only one line, it’s the best part in the whole show.
This article was written by David F. Bacon, Attorney and Ohio State Bar Association Board Certified Specialist in probate, trust and estate planning. David Bacon and Jeff Roth are partners in Roth and Bacon Attorneys with offices in Upper Sandusky, Marion, and Port Clinton, Ohio. They have focused their practice to provide estate and business planning concepts to their clients. Nothing in this article is intended for, nor should be relied upon as individual legal advice. The purpose of this article is to help educate the public on concepts of law as they pertain to estate and business planning. This is number one hundred fifty two of a series of articles. Additional articles will be published in the future. If you have any questions you would like to have answered, please direct your question to The Daily Chief Union and your question will be considered for use as the topic of subsequent articles. Copyright @ David F. Bacon 2009
In the last several months, I have received calls about individuals with an illness or who have died suddenly. Many of them had no planning and no documents. I know I keep repeating this subject but it is sad to have to go through a long complicated legal process because nothing was done while the individual was healthy.
UNSTATED REASONS WHY I DO NOT HAVE A PLAN.
I am in great health and plan to be here many years.
I heard that if I do not do anything, the government would provide for me.
I know that my children will be there and take care of me.
I really do not have much, so it really will not matter when I die.
I WILL DO IT NEXT YEAR WHEN I HAVE MORE TIME.
People think you have to be in your eighties to worry about this subject. Here are various types of individuals who have become ill or passed away without any preparation:
YOUNG adults eighteen and above. They have very few assets but the transfer of the car or the one bank account upon unexpected death is just as time consuming and expensive. A simple joint account could have saved this expense.
A SINGLE individual of any age. No transfer of assets will be automatic. Again, the adding of a name on the account or at least a transfer on death designation will prevent extensive probate administration.
A SECOND marriage or not revisiting your documents after a DIVORCE. Horrendous events occur and transfers to those who you would not want are the result.
Preparing a plan and then NOT UPDATING after many years. The objects of your bounty may be different today than they were twenty years ago.
Having a plan for your CHILDREN only to find out they are going bankrupt or getting a divorce.
Your plan after your SPOUSE DIES. Many times, circumstances change and the plan created by the two of you is vastly different after one is gone.
Even if you have your accounts and the vehicle titles correctly passing at death, do you have documents to provide for health care decisions while you are sick or a business power of attorney if you are unable to take care of your day-to-day business? I know that this is repetitious, but the only ones who will gain from your inaction are the attorney and the probate court. As Larry the cable guy would say, “Getter Done.”
Jeff Roth is a partner with David Bacon and associate Jessica Moon of the firm ROTH and BACON with offices in Port Clinton, Upper Sandusky, Marion, Ohio and Fort Myers, Florida. All members of the firm are licensed in Ohio and Florida. Mr. Roth’s practice is limited to wealth strategy planning and elder law in both states. Nothing in this article is intended for, nor should be relied upon as individual legal advice. The purpose of this article is to provide information to the public on concepts of law as they pertain to estate and business planning. Jeff Roth can be reached at ohiofloridatrust@aol.com (telephone: 419-732-9994) copyright Jeffrey P. Roth 2012.
Having life insurance proceeds go directly to a spouse or child may create more problems than it can solve. You do not know when your death will make available a sizable insurance check for your young bride or young child. It may be best to have protective measures in place to offer some control over the funds. By using an Irrevocable Life Insurance Trust, we can accomplish that goal. For this article, we will use the term ILIT when referring to an irrevocable life insurance trust.
WHAT IS AN IRREVOCABLE LIFE INSURANCE TRUST?
An ILIT is an irrevocable trust that is created to own and be the beneficiary of a life insurance policy on the trust maker’s life. The death proceeds of life insurance held in an ILIT are not included in the estate of the insured or the insured’s spouse if properly drafted. By the use of an ILIT you can control who gets the funds and at what age. Remember, we do not know when you or your spouse will die. A properly drafted ILIT can offer a defined payout at a time appropriate to the needs and maturity of the beneficiaries. Here are some thoughts to consider.
MINOR CHILDREN. If money goes to minor children, they may be too young to legally accept the funds without a guardian. Who will control the money and how will the funds be used? What if a child becomes incapacitated before he or she receives the money? What if there is a second marriage involved with his, hers and our children?
ADULT CHILDREN. If you leave a lump sum proceeds to an adult child, can he or she handle the funds? A large amount of money could destroy a young adult’s work ethic and perhaps his or her life. A lump-sum payment to your adult child is also exposed to his or her spouse and creditors. Even when adult children are responsible, a misfortune such as a lawsuit, bankruptcy, divorce, or death may put the policy proceeds at risk.
SPOUSE. If your life insurance names your spouse as a lump-sum beneficiary, all decisions will belong to the spouse. If you want the money to go to your spouse and then to your children, what happens if your spouse remarries? If your spouse remarries and then dies before your “replacement,” the second spouse may have a right to all of the money. If your spouse leaves the proceeds to your children by will, the new spouse may have elective rights that will transfer the funds to the “new” spouse. What if your surviving spouse does not know how to handle money or becomes incapacitated?
In an ILIT, you have one opportunity to create the blueprint as to what happens to the funds and to whom the funds shall pass. You have initial control but you do not get the luxury of changing your mind as to the provisions later on during your life. This normally applies to a large policy. It may be wise to consider placing the policy and subsequently the proceeds into an ILIT. You can insure that the proceeds will accomplish the purpose you intended when you created the policy.
Jeff Roth is a partner with David Bacon and associate Jessica Moon of the firm ROTH and BACON with offices in Port Clinton, Upper Sandusky, Marion, Ohio and Fort Myers, Florida. All members of the firm are licensed in Ohio and Florida. Mr. Roth’s practice is limited to wealth strategy planning and elder law in both states. Nothing in this article is intended for, nor should be relied upon as individual legal advice. The purpose of this article is to provide information to the public on concepts of law as they pertain to estate and business planning. Jeff Roth can be reached at ohiofloridatrust@aol.com (telephone: 419-732-9994) copyright Jeffrey P. Roth 2013
The Individual Retirement Account has been available since 1974. Most Americans today have some type of a tax deferred account. Any tax deferred account is distributed upon death by the directions you have placed in writing with the institutional custodian holding your account. Here are several alternatives for beneficiary designations.
MY ESTATE AS THE BENEFICIARY.
This is normally the worst choice. If you have a will, that document will direct distribution. If you do not have a will the account will pass by state law under the statute of descent and distribution. You have now taken a non probate asset and placed it within the jurisdiction of the probate court.
MY SPOUSE.
This allows the most flexibility. Your spouse can continue to defer the payment of income tax. This also allows the spouse the ability to determine the beneficiaries at his or her death. For high net worth couples, advanced planning with IRAs is essential.
CHILDREN
Children as primary beneficiaries offer a great way to give a child an automatic retirement fund. If each child is designated as a separate beneficiary, he can continue to defer part of the account over his own life expectancy. In a second marriage situation an IRA is a great tool. The designation to children of the first marriage allows a guaranteed inheritance without involving the second family. If done properly it cannot be challenged.
GRANDCHILDREN
Designation to grandchildren can provide the longest deferral of the payment of income tax. If a two year old is a named beneficiary he can receive income over a life expectancy of over eighty years.
REVOCABLE TRUST
A trust will allow you to control the funds after your death. It permits a trustee to allocate among a class of beneficiaries or direct the use of the funds. It also allows the retention of funds if a child is not mature enough to receive the funds. A trust can delay the immediate unrestricted access to the monies by your children.
CHARITY
The use of IRAs to distribute to a charity is a great tax saving vehicle. If you want to give to charity, the monies will go directly free of probate and free of the payment of income tax upon presentation of a death certificate. If the distribution had come directly from the trust, income tax would have first been paid and only a portion of the funds would have gone to the charities.
The purpose of this article is to make you aware of the importance of the written beneficiary designation form. Remember to name a contingent beneficiary or we will watch the asset pass through the estate. Good luck.
Jeff Roth is a partner with David Bacon and associate Jessica Moon of the firm ROTH and BACON with offices in Port Clinton, Upper Sandusky, Marion, Ohio and Fort Myers, Florida. All members of the firm are licensed in Ohio and Florida. Mr. Roth’s practice is limited to wealth strategy planning and elder law in both states. Nothing in this article is intended for, nor should be relied upon as individual legal advice. The purpose of this article is to provide information to the public on concepts of law as they pertain to estate and business planning. Jeff Roth can be reached at ohiofloridatrust@aol.com (telephone: 419-732-9994) copyright Jeffrey P. Roth 2012.
Anyone working with our office knows it is our challenge and goal to never go through the probate process. Ohio law has become very conducive to that end. Through the proper titling of assets, most property can be transferred to the next generation automatically at death. An automatic transfer is not always the best way for tax reasons.
Several years ago a lady asked to have her will reviewed. One of her greatest concerns was to insure that her church would receive a bequest at her death. In her will she gave One Hundred Thousand Dollars to her church. Her largest money asset was her Individual Retirement Account (IRA) naming her children as the beneficiaries. She was told that the charitable bequest needed to be in her will to insure that the bequest would take place. This plan would have cost her children the following:
1. The full and complete probate of her estate at a cost of two to five per cent of the value
of her assets and take three to fifteen months to complete.
2. The IRA money would first be subject to three or maybe four taxes: Ohio Estate Tax,
Federal Income Tax, Ohio Income Tax and maybe Federal Estate tax.
3. The estate or children would have to first pay all of the above income taxes on the
money before making the distribution to the church. All IRA money is taxed before
distribution except if paid directly to a charity.
4. Considerable paperwork would be necessary to transfer assets from the estate to the
children and also paperwork to transfer the IRA to the children.
Charities are exempt from income tax. Any IRA monies that would pass directly from the IRA to the church would do so free from any Federal or State income tax. Under her old will and her IRA designation, the One Hundred Thousand Dollars would have passed to the children first. Her children are very successful and were in a thirty-five percent income tax bracket considering Federal and Ohio tax. It would have cost the children THIRTY FIVE THOUSAND DOLLARS to transfer the One Hundred Thousand Dollars to the church.
The solution was not complicated. We contacted the custodian of the IRA account and created separate account beneficiaries. First, we made the church a beneficiary for One Hundred Thousand Dollars. The charitable beneficiary received all of the money without having to pay any federal or state income tax. They also received this money immediately without going through a long drawn out probate process. We then separated the balance of the IRA account into three separate accounts for each of the children whose ages ranged from twenty-two to thirty-two. Each child was able to stretch withdrawal of their account funds over their life expectancy. The ten year difference in age created a tremendous increase in value for the youngest child. They in effect were able to stretch withdrawal of these funds over their sixty-plus life expectancy. Partial deferral of paying tax on this money can turn Twenty Thousand Dollars into Eighty Thousand Dollars.
Through the use of transfer on death, life estate and proper beneficiary designations we did not need to file a will and go through the probate process. Today, a new temporary law has allowed distribution direct to charity while you are alive without tax consequences. This will be the subject of another article.
The size of the account does not matter. If a person wants to benefit their church, school or other charitable cause with a donation of One Thousand Dollars, the use of a designated account within their IRA will accomplish that end. You cannot combine your children and the charity as joint beneficiaries without adverse consequences. Each designation must be separate. It is important to see in print your beneficiary designation to insure that the desired result is in place. You can have this distribution at your death or upon the death of your spouse if created correctly.
This article is a result of seeing how a proactive approach to estate planning saved time, money and inconvenience for the next generation. This individual did pass away and the stated course of action was completed within one month of her passing.
Jeff Roth is a partner with Forrest Bacon, David Bacon and associate Jessica Moon of the firm ROTH and BACON with offices in Port Clinton, Upper Sandusky, Marion, Ohio and Fort Myers, Florida. All members of the firm are licensed in the State of Florida. Mr. Roth’s practice is limited to wealth strategy planning and elder law in both states. Nothing in this article is intended for, nor should be relied upon as individual legal advice. The purpose of this article is to help educate the public on concepts of law as they pertain to estate and business planning. If you have any questions you would like to have answered in this area of law, please direct your question to this journal and your question will be considered for use as the topic of subsequent articles. Jeff Roth can be reached at ohiofloridatrust@aol.com (telephone: 419-732-9994) copyright Jeffrey P. Roth 2011.
Now that you’ve inquired into the process of estate planning and the actions you need to take in order to keep the process moving outside the controls, costs, and constraints of the Probate Court. Our firm believes in avoiding the Probate Court and process where possible. Wills are important to have in order to carry out your wishes, but wills do nothing to protect against Probate—wills direct Probate assets. In a Probate setting, there are unnecessary expenses (fees in Florida and Ohio are both set by statute) and the ultimate decision is left to the Judge—not to you.
While trusts are the most flexible and surest of options, they are not always the most practical. Below, I have included the basic steps every couple can take during their lifetimes to ensure the smooth transfer of assets without the necessity of Probate and avoid the necessity of a guardianship over their person and estate. Similarly, single persons can use this information for the titling of their assets.
I have broken down the different stages that may occur during both your lifetimes and the steps that should be taken at that time.
Both Alive, Both Well
Accounts
You should currently have all your bank accounts held in joint and survivorship. This looks something like “Tom and Sue Smith and/or the survivor of them”. Sometimes, it simply looks like “Tom or Sue”. You can make sure in any event just by asking the Bank that holds your accounts, CDs, etc. Be sure you have designated beneficiaries on all of you life insurances and IRAs.
Home
Your home should likewise be titled as joint and survivorship between the two of you. In Florida, this ownership is referred to as tenants by the entireties and carries its own tax and planning consequences. There are other ways to make your home pass outside of Probate. One of those ways is to retain a life estate and leave the remainder to your heirs, as is the case here. You need to seek counsel to determine which way works best for your tax planning and family needs.
POAs
At this point you should already have executed Power of Attorneys (including Health Care, Business, and Living Will provisions) to your agents in matters both involving Healthcare and Business. You have done so. This allows your agents to be able to care for you and your assets, taxes, etc. should you become unable.
In Ohio and Florida, Health Care and Business Powers should contain HIPPA provisions in order to comply with current Federal law. See http://www.hhs.gov/ocr/privacy/. In Florida, Powers should be updated to comply with recent 2011 legislation. See http://leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&Search_String=&URL=0700-0799/0709/0709PARTIIContentsIndex.html.
Upon the First Spouse to Pass Away
Accounts
Remember, everything that was titled as “joint and survivorship” property is immediately owned by the surviving spouse and/or other named person on the account. This means that you will not have to use the Will and/or the Probate Court in order to get the joint bank accounts, the home, and the CDs into the other spouse’s name—he/she ALREADY owns it.
However, that does not mean there is nothing to do to reflect the title change; something has happened. One of you has passed away. You will more than likely need to present the Bank holding your accounts with a death certificate of your deceased spouse in order to retitle the account monies in the survivor’s name only.
If nothing more is done, the account monies become Probate assets upon the survivor’s death and are subject to a Will setting and Court’s authority. You may now change the title to the accounts to reflect a “transfer on death” designation. This method, like joint and survivorship, ensures that title will immediately pass to those designated by the survivor. The title on the accounts/CDs will look something like: “Sue Smith, payable on death to: Jonathon, Sarah, and Sam”. The listed beneficiaries will not have present access to the funds (unless for the survivor’s care exercised by the Power of Attorney). However, Ohio law does not allow “per stirpes” designations; this means if a named child/beneficiary has died before the account has, that child’s share is redistributed among the named beneficiaries and the grandchildren are excluded from sharing.
You may also choose to vest a person with a present interest in your account—again, using the title Joint Tenants with Rights of Survivorship. Remember, however, that in titling your accounts that way, you have given the other named person complete and present access to those funds to the exclusion of your other heirs. Any decision should be carefully considered with counsel in order to assess the risks and benefits of all your options.
Home
You will also need to seek counsel in order to reflect the title change of your home. Remember, with the remaining Joint Tenant owning the property—without any action on behalf of the survivor, the home place becomes a probate asset for the second owner. In Ohio, the surviving spouse and/or named beneficiary may execute “transfer on death affidavits” with the help of counsel; this will again ensure that the Probate process is avoided upon the second person to pass away.
In Florida, “transfer on death” forms are not recognized in relation to real property. It is important to consider the use of trusts, business entities, and/or life estate deeds in order to avoid Probate. These are available forms in Ohio as well. Unlike the Probate setting, no one can change your mind or the actions you already took during your lifetime to ensure smooth title transition to your home. Any decision should be carefully considered with counsel in order to assess the risks and benefits of your options.
POAs
If the survivor has become incompetent or otherwise unable to perform any of the acts above, the agent designated in a POA may step in to perform the above acts on behalf of the survivor.
Upon the Second Spouse to Pass Away
Accounts
Everything that was titled as “transfer on death” property is immediately owned by the listed beneficiaries. This means that you will not have to use the Will and/or the Probate Court in order to get the bank accounts, the home, and the CDs into the beneficiaries’ name—they ALREADY own it.
The beneficiaries will need to present the Bank holding your accounts with a death certificate of the second deceased spouse in order to retitle the account monies in the beneficiaries’ names only or outright distribute the funds.
Home
You will also need to seek counsel in order to reflect the title change of your home. This is a necessary step to reflect title and would be utilized in the Probate setting as well. Unlike the Probate setting, no one can change your mind or the actions the survivor took during his/her lifetime to ensure smooth title transition.
This article was written by Jessica B. Moon, Attorney licensed in Ohio and Florida. David Bacon and Jeff Roth are partners in Roth & Bacon Attorneys, LLC; Jessica Moon is an Associate. The Offices are located in Upper Sandusky, Marion, and Port Clinton, Ohio, and Fort Myers, Florida. They have focused their practice to provide estate and business planning concepts to their clients. Nothing in this article is intended for, nor should be relied upon as individual legal advice. The purpose of this article is to help educate the public on concepts of law as they pertain to estate and business planning. Copyright @ Jessica B. Moon 2011.
Today’s article relates to parent’s finances and the steps children should take to protect them.
SOLICITATONS
Two years after the process starts, the child discovers that mom or dad answers all of the pleas for help from every charity legitimate or not so legitimate. These “nonprofits” know exactly how to place the guilt trip on the parent and receive ten or twenty dollars. Magazines and free gifts are not far behind in getting the parent’s attention. Psychology is needed here. You cannot just stop the process but need to find a way to intercept. Eventually, contact all of the charities as they come in and ask to be permanently removed from the list. The best answer is to have all of the mail go to your address. If this is unacceptable then ask mom or dad to put all of the mail in a box for a weekly joint review. If you are able to stop the process, normally the parent soon forgets this type of mail and the problem will temporarily go away. You can expect that the requests will resurface every year.
FINANCIAL ACCOUNTS
Government backed insurance is normally the answer as to why mom and dad have funds in seven banks. It is your job to be a financial detective and determine where all of the accounts are located and how they are titled. Now that your parents are retired and staying at home more, it is not necessary to have so many accounts. The key is one maybe two banks that acknowledge your presence and will work closely with you to oversee and protect your parent’s funds. You need to have your name placed on the account along with a power of attorney to have the ability to sign and make any decisions necessary. Look at their prior income tax returns to determine that you have located every account.
INVESTMENTS
There are better ways to invest than savings accounts. You need to have a good working relationship with the financial advisor and have the power to make decisions. It can be difficult to get involved with investment decisions without threatening your parent’s control. If they give you that power, keep your parents updated as to the earnings of the accounts. You do not need to explain every decision, but be sure that they are copied with statements and that they feel involved in the process. Eventually, they will not need to know and will fully trust your judgment. If you have brothers and sisters, it is recommended that you seek the opinion of a financial advisor. Have a team of third parties in the financial, legal and insurance professions to verify and offer a neutral opinion.
LOCATING DOCUMENTS
Locate your parents’ wills, power of attorneys, life insurance policies, trust documents, pension papers, funeral plan and any other documents that apply to them in the near or distant future. If there is a lock box, you need to take an inventory. Personally, I do not feel that they are necessary. Most documents can be duplicated. If you go to the box have a third party to witness the process and eliminate any questions as to your action. If you elect to keep the box, be sure to have your name added as a signatory if you need to reenter the box at a later date.
BILLS
Get an accurate list of all monthly bills. This will be very foreign to your parents, but arrange to have the majority of the bills automatically deducted from their checking account. This offers the assurance that everything will be paid in a timely manner. They can still receive a paper receipt showing payment. This will allow your parents to be current without you sitting at their kitchen table each week paying a new set of invoices. It may sound strange, but a few older individuals maintain and use a credit card to excess. They never study the statement for discrepancies. You will have to place parameters on the use of this card. Some companies will find a way to place automatic charges on the account that you will need to police the account. A credit card is a great way to keep track of expenses but can be abused by third parties.
NO GOOD DEED GOES UNPUNISHED
You have been selected to assist your parents with their financial affairs. All is well until they pass away. Then the second guessing starts by the brothers and sisters or more often their spouses. Keep a journal of everything you do. Have a receipt or paper trail of every transaction. If it is an unusual transaction, have mom or dad initial. This may seem unnecessary but a majority of times there is one person who will be suspicious. They have no concept of the time you have spent. All of that is forgotten shortly after the funeral. It is actually best for you to be paid on a monthly basis but very few do. Keep everyone in the loop. With email, a monthly overview may be the best policy.
This all may seem elementary, but families have been split by lack of communication and information. Helping your parents with their finances is not an honor but a tedious job. Good Luck.
Jeff Roth is a partner with Forrest Bacon, David Bacon and associate Jessica Moon of the firm ROTH and BACON with offices in Port Clinton, Upper Sandusky, Marion, Ohio and Fort Myers, Florida. All members of the firm are licensed in the State of Florida. Mr. Roth’s practice is limited to wealth strategy planning and elder law in both states. Nothing in this article is intended for, nor should be relied upon as individual legal advice. The purpose of this article is to help educate the public on concepts of law as they pertain to estate and business planning. If you have any questions you would like to have answered in this area of law, please direct your question to this journal and your question will be considered for use as the topic of subsequent articles. Jeff Roth can be reached at ohiofloridatrust@aol.com (telephone: 419-732-9994) copyright Jeffrey P. Roth 2011.
There comes a certain time in each person’s life when he or she realizes that they are not going to live forever. At these moments one is called upon to make decisions as to what age appropriate activities yet unexplored will be experienced and what activities will forever remain a mystery.
There are more subtle choices remaining as we age which rationally may be pursued if one is willing to depart from his or her personal comfort zone and experience something different. These choices may be as simple as finally riding a roller coaster, taking dance classes or in my case sailing with friends. There is nothing more dangerous than committing to an adventurous activity a year in advance. It all sounds so far away when you consent to the activity and before you know it the event is right there in front of you waiting.
Such was the case for my wife and me. Our friends have a 38’ sailboat moored at Port Clinton on Lake Erie and we have a small vacation cottage on the North Shore of Lake Huron. It was only natural that at some point a suggestion would be made that we sail to the cottage from Port Clinton and after a couple of years discussing this somehow we agreed to undertake the trip.
I have been around water all of my life and like to swim. Those qualifications do not necessarily qualify to make me comfortable in 8-10 foot waves in a small boat in the middle of Lake Huron approximately 20 miles from shore. Our Captain assured me for several days that there was indeed a shoreline out there somewhere but I was somewhat challenged in believing him because I could not see any shore. Intellectually I knew there was a shoreline there somewhere, but physically I couldn’t see it and accordingly no increased level of comfort was achieved. In addition to this for a couple of days the water temperature in these eight to ten foot waves was approximately forty five degrees and the air temperature was not a whole lot higher.
In short I was officially out of my comfort zone and wholly beyond any ability to control either my environment or my circumstances. I was relying on the preparedness level of the Captain and the boat and many Presbyterian prayers. After several days of not perishing it suddenly dawned on me that I might indeed survive this adventure. As I am writing this it is evident that I have survived and have lived to tell the tale.
What is important to understand and the lesson to be learned here is that my survival in this case was no accident. The Captain of this ship and his wife are both experienced sailors and know their boat well. They are both attuned to maintaining the boat and all of its instruments, sails, motors and survival gear. This order that has been achieved on the vessel is not random chance. It is the result of constant work and maintenance which prepares their craft for each of its voyages. Accordingly even though the sail was a major adventure for my wife and me, it was just another well planned trip successfully plotted and realized for these two.
It is easy to contemplate many things when you’re being tossed about in ten foot waves in forty degree temperatures outside the view of land. As the shoreline recedes from sight many other things not regularly seen suddenly come into sharp focus. I am sure that my life was in no real danger on this small adventure, but the thought does cross your mind. One thinks about what things one has done in preparation of the inevitability of leaving this world for what lies ahead. Much of society today is fixated today upon the erroneous notion that human life as we know it may be prolonged indefinitely if we just take the right medication, lower our bad cholesterol, raise our good cholesterol, exercise regularly and call our family Physician every ten minutes with questions provided for us in infomercials on television.
Of course that notion is nonsense and we all know it, however, it is sometimes easier to rely on a hazy premise which we know to be false than it is to prepare for what we inevitably know will ultimately be true.
Estate planning can and should be regarded as a sailing adventure. We are all sailing through this life and moving inescapably toward a far horizon which cannot now be seen. The adventure of the trip can be made enjoyable through adequate preparation or can be quite unpleasant if there is no readiness for the voyage and the outcome of each day’s sail is left to happenstance.
Powers of attorney, wills, trusts, gift and Medicaid planning all can and should be considered as important tools which we will use along this journey to ensure safe and orderly passage. If you don’t have your arrangements made, it’s time to consider creating your own plan for the seas which lie ahead.
This article was written by David F. Bacon, Attorney and Ohio State Bar Association Board Certified Specialist in probate, trust and estate planning. David Bacon, Jeff Roth, and Jessica Moon are Members in Roth & Bacon Attorneys, LLC with offices in Upper Sandusky, Marion, and Port Clinton, Ohio, and Fort Meyers, Florida. They have focused their practice to provide estate and business planning concepts to their clients. Nothing in this article is intended for, nor should be relied upon as individual legal advice. The purpose of this article is to help educate the public on concepts of law as they pertain to estate and business planning. Copyright @ David F. Bacon 2013
The recent election cycle purported to be all about change. It was advertised as “change we can believe in,” whatever it is that phrase means. The incongruous message hopelessly trapped in the phrase “change we can believe in” is that change occurs whether or not we believe in it. Change occurs whether or not it is specifically targeted as a destination.
Better minds than mine have wrestled with this concept. Heraclitus, a Greek philosopher who graduated just a couple of years ahead of me (535-475 BC) has the phrase, “nothing is as constant as change” attributed to him. If he wasn’t the first person who thought about this concept, he was at least the first person who wrote it down as far as we know. Heraclitus believed that the constant evolution of events (change) was central to the development of the universe. From this constant evolution of time and correspondent events Heraclitus established the term Logos. The term Logos in Western philosophy refers when used to the source and fundamental order of the Comsos. From this root word we derive our term logic.
Other great thinkers through the ages have likewise borrowed “nothing is as constant as change” and applied it to their own take on things. Plato took a stab at this thought and came up with, “You cannot step twice into the same river, for other waters are constantly flowing in.” This phrase can be shortened into, “You cannot step twice into the same river.” I get that concept. The Sandusky River runs on its northerly path behind my house. Some days in the dead of summer the river is barely a brook and my grandchildren despite their parents’ warnings have not yet but will attempt to jump across the water. Other days in the spring and fall the river is a roaring brown torrent covering the fields beyond its banks and the poor little deck that the family built several years ago sits submerged under that great roiling mass of water. Regardless of the amount of water that comprises the river at any one point in time, it is still the same river and at the same time it is never the same river as different waters are constantly passing. This seeming incongruity is known as a paradox.
Life is a paradox. Other more dispirited thinkers have added in their darker moments, “Nothing ever changes.” In the Bible the Teacher in the book of Ecclesiastes opines that “There is nothing new under the sun. All is vanity and a striving after the wind.” It is dangerous business to crawl around in the book of Ecclesiastes and come out with only one quote to represent its truth. The message in Ecclesiastes must be drawn from the whole of that book. The full range of human endeavors is considered by the author and the final message achieved is that our labors are in vain if we do not pause to consider that life is a gift to be enjoyed and that ours is the business of joyfully living with the knowledge of God. The Greek philosopher Hippolytus reflects on this thought as follows. “History is a child building a sand castle by the sea, and that child is the whole majesty of man’s power in the world. Time is a game played beautifully by children.”
This is heady stuff, but these, as with all times are heady times. Many of the recent changes to our structure of governance are deemed by some as a dangerous erosion of our most cherished liberties. Others regard these changes as necessary evolutions in the progression of a secular and just society. There is always the third category often named “undecided.” Those in the undecided category profess to have no opinion on any matter. These are the folks whom the pollsters are always after at the last minute come election time. I never count myself in the company of the undecided. I usually make my mind up on something right away. Then I take care to acquaint myself with the facts I am able to glean. These additional facts once acquired could and often do result in my coming around to adopting another view on a subject. Sometimes accordingly I do change my mind, but I am never undecided. I believe one’s counting himself or herself in the ranks of the “undecided” is disingenuous. Not having an opinion on a matter is not a true position. Further comforting yourself with the thought that your lack of participation in deciding a matter excuses you from responsibility for the result is inaccurate. Heraclitus again addressed this thought far better than I could do, “Even sleepers are workers and collaborators on what goes on in the universe.” Understand that even if you throw in the cards, you’re still playing the game.
Many of us are now “deer in headlights” with the marked slowdown of our economy. It seems it would be so easy to just sleep through things. Of course for the reasons recited, that approach is not an honest one. That fact coupled with our unique responsibilities as citizens of a free country which requires the education and participation of each of its citizens to chart its course demands that we join in and participate.
There are things which we must attend to. It is so very important now more than ever in these difficult economic times that we make provisions for the orderly distribution of our estates and for the care of our families. It is imperative that we provide workable business and health care authority documents in favor of those we trust to provide for our business of living when we are unable to do so ourselves. With the massive recent encroachment of the government into our personal lives and freedoms, now is the time to review your estate plan to ensure that you and your family are protected and provided for. Unnecessary taxes and Court supervision of your business and decedent’s estate can in most cases be minimized and in many instances avoided altogether. The avoidance of unnecessary Court and government intervention into our daily lives no longer occurs as naturally as our founding fathers originally countenanced. Increasingly the retention of privacy and diminishment of government intrusion into our lives is something we ourselves must provide for in advance.
“Change we can believe in.” means nothing in and of itself. Change can be for the better or for the worse. Change is inevitable and will come whether we believe in it or not.
It’s time for us all to wake up and get busy for ourselves and for our country. When others attempt to silence your dissent by admonishing you that we must all agree on whatever the current agenda item is for the common good remember your new friend (old friend?) Heraclitus who concluded his thoughts on change with this final paradox, “Opposition brings concord. Out of discord comes the fairest harmony.”
This article was written by David F. Bacon, Attorney and Ohio State Bar Association Board Certified Specialist in probate, trust and estate planning. David Bacon and Jeff Roth are partners in Roth and Bacon Attorneys with offices in Upper Sandusky, Marion, and Port Clinton, Ohio. They have focused their practice to provide estate and business planning concepts to their clients. Nothing in this article is intended for, nor should be relied upon as individual legal advice. The purpose of this article is to help educate the public on concepts of law as they pertain to estate and business planning. This is number one hundred fifty three of a series of articles. Additional articles will be published in the future. If you have any questions you would like to have answered, please direct your question to The Daily Chief Union and your question will be considered for use as the topic of subsequent articles. Copyright @ David F. Bacon 2009
People are living longer today. Many are remarrying to fully enjoy the second half of their lives. This being said, many estate problems can occur when no estate planning is completed prior to or after the marriage.
The purpose of this article is not to give all of the solutions but to alert you to the potential unintended consequences after the death of one of the spouses of a second marriage. You may even disinherit your children without knowing that it could happen.
There are several second marriage categories:
1. Each spouse has children.
2. Each spouse has children and they have a natural child between them.
3. One spouse has children and the other spouse has none.
4. Neither spouse has children.
Each of these situations requires special planning to insure that the right beneficiaries receive the correct family property. Most couples take it for granted that their children or family will receive their property upon the death of themselves or after the death of the second spouse.
PRENUNPTIAL AGREEMENT - SEE THE LAWYER BEFORE THE MINISTER.
A prenuptial agreement can often save the children of each family a lot of grief. First of all, it is contract that has to be entered into BEFORE the marriage ceremony. Its validity depends on full disclosure. It is best that each party have an attorney to advise and verify the contents of the agreement.
It is imperative that each person disclose in detail all of their assets. If this is not done, then the survivor can possibly prove that the assets of the deceased were not disclosed and break the agreement. This is most often initiated by the children of the surviving spouse. They discover what the deceased spouse owned and that it could belong to their parent and eventually to themselves. It is important to understand that a prenuptial agreement will do nothing to protect the assets of a spouse if the other person enters a nursing home.
NO WRITTEN AGREEMENT.
Most couples had a handshake and a kiss and promised to see that the other’s children would get everything that belongs to them. They are probably telling the truth but they have no idea of the results that can occur without planning. The following is a partial list of assets that could go to someone other then where the deceased intended:
JOINT AND SURVIVORSHIP ACCOUNT, TRANSFER ON DEATH ACCOUNTS.
The titling of accounts is crucial to proper planning. These accounts will go as set forth on the signature card. Many times an account created for the convenience of the spouse or the child will be transferred automatically to the other spouse or child of the deceased. Large accounts can end in the wrong hands with the check of the box on the signature card.
LIFE INSURANCE.
It is imperative to know who is the named beneficiary. If the beneficiary designation is not updated, the wrong person may receive the funds. Life insurance is a great planning tool but if neglected, the pay out can surprise everyone.
IRA, 401K’S AND OTHER LIKE ACCOUNTS.
These accounts all have designated beneficiaries. Many individuals forget to update or make an informed decision as to who is second in line if the first designated beneficiary should predecease the owner. This type of account is also a great tool in planning but one must know who will inherit.
REAL ESTATE.
Improper titling of real estate can have disastrous consequences. People think their real estate is titled one way only to find out it not. Remember that a property titled as joint and survivorship will go to the survivor. Real estate passing under a will can be subject to the probate statutory rights of the new surviving spouse. The children may be forced to buy back their parent’s property or lose the family homestead forever.
MOTOR VEHICLES.
A simple asset such as an automobile can go to the wrong person. A man had a 1929 Ford that was supposed to go to his son. He didn’t provide for that in writing. At his death, the surviving spouse is allowed by law two motor vehicles automatically. Of course the son of the second wife convinced her that that her husband must have wanted her to has it and she elected to take title to the antique car as provided by law. She has since passed away and the car looks great in her son’s garage. If dad had titled that car in his name, transfer on death to his son, it would be in his son’s garage today.
ESTATE PLANNING.
Detailed estate planning is imperative for a second marriage. It is also one the most difficult planning areas. The attorney’s job is to look at all of the worst case scenarios and plan accordingly. We must take the emotion out of the equation and see that each person’s assets get to the intended beneficiary. A trust is often the best tool to insure completion of the couple’s desires. Having the couple plan will prevent potential feuding among the survivors. Without proper documents, your children may not even be involved in your end of life decisions. Moving to another state can have adverse consequences in the ultimate distribution plan. There are many other potential problems that can be prevented by honest informed planning and continued thought as new assets are acquired.
Jeff Roth is a partner with Forrest Bacon and David Bacon of the firm ROTH and BACON with offices in Port Clinton, Upper Sandusky and Marion, Ohio. Mr. Roth is also licensed and practices in Florida. His practice is limited to wealth strategy planning and elder law in both states. Nothing in this article is intended for, nor should be relied upon as individual legal advice. The purpose of this article is to help educate the public on concepts of law as they pertain to estate and business planning. Jeff Roth can be reached at ohiofloridatrust@aol.com (telephone: 419-732-9994) copyright@Jeffrey P. Roth 2009.
What the wealthy people are doing
(and what you should consider)
The fiscal cliff: maybe you haven’t heard about the pending “fiscal cliff” or perhaps you
missed one of Vice President Biden’s comments about “letting the unfunded tax cuts expire”. If that’s the case, you may want to take a minute to review this. When President Bush came to office, the legislature came to an agreement aptly titled “the Bush Tax Cuts”. This agreement was structured to phase out the federal estate tax by 2010, among other things. The estate tax is levied on a Decedent’s estate before the estate passes to the Decedent’s heirs. In order to get the tax cuts passed, Congress imposed a “sunset” provision on the legislation; what this means is, that if Congress does nothing to affirm the repeal of the estate tax [among other things], then the tax levels would automatically return to the pre-Bush levels—with an exemption amount of $1,000,000.00 and a 55% tax on the remainder.
Let’s put this into perspective using the following example*.
Asset value 2013 estate tax due
Farm ground/300 acres $5,000.00 per acre $275,000.00
As stated above, the estate tax is already in place to return to a one million exemption amount. All Congress has to do is: (1) nothing or (2) not agree; in either event, the legislation is set to return to the above levels.
The current good news: in 2010, Congress put a band-aid on the situation and President Obama agreed. Much to everyone’s surprise, they passed legislation that granted a massive 5 million dollar federal exemption amount for each individual and unified the gift and estate tax. This is the highest the exemption amount has ever been. This means that, for those two years, you could: (1) pass away with; or (2) gift amounts of up to $5 million without incurring a federal tax. This legislation comes with a catch—this opportunity ends with the close of 2012 and we are right back where we started in 2010.
You may be asking yourself—why does this apply to me? I do not have amounts near $5 million or even $1 million in my estate. Even if you have a modest estate, you may still have planning opportunities that you should explore that will be lost after the close of this year. In addition to the pending estate tax/ gift tax increase, there are also scheduled increases in the capital gains tax rates. Capital Gains’ taxes are assessed on the sale of appreciated assets, “unearned income”, and are presently and *generally taxed at a 15% rate. If you sell a vacation home worth $150,000.00, for example, you will incur a $22,500.00 tax. In 2013, if Congress again does nothing or cannot agree, this rate is slated to go to 20% ($30,000.00). On top of this rate increase, President Obama’s healthcare legislation places an additional 3.8% tax on top of all capital gains, or in this example, an additional $5,700.00.
While some of the tax issues may become clearer after the election, some issues will not be resolved. Both candidates have expressed concerns with the tax code and in particular “loopholes”. Right now, there are Grantor Trust rules in place that allow many families to set up plans to shield assets from future creditors while still retaining benefit(s) from the Trust during their lifetimes. Both candidates may choose also to alter/eliminate the benefits gained from family limited partnership(s) and/or LLCs, that allow for valuation discounts on restricted share/ownership in closely-held businesses. It is unclear which current advantages will be eliminated or altered for 2013. The following are some items that are certain:
1) The exemption amount has never been this high ($5,000,000.00);
2) For the first time, the exemption amount is slated to switch to a lesser amount than
the year before ($5 million to $1 million next year);
3) There are no guarantees regarding the future treatment of planning opportunities
available now;
4) Ignoring planning opportunities because of potential cost may forfeit your ability to
save and protect assets for the long term.
So what are the wealthy people doing? The wealthy people are currently talking to their advisors, attorneys, CPAs, etc. and planning ahead.
“The great successful men of the world have used their imaginations… they think ahead and create their mental picture, and they go to work materializing that picture in all its details, filling in here, adding a little there, altering this a bit and that a bit, but steadily building/steadily steadily building.” Robert Collier (American Motivational Author, 1885-1950)
There are many strategies and tools that we use in order shifts assets and income to the persons you have designated; some examples of these are: business entities, such as LLCs and Limited Partnerships; trusts; sales to Intentionally Defective Grantor Trusts and/or irrevocable trusts. No one plan fits all and these should be carefully considered in an overall comprehensive estate plan. Unfortunately, there remains only a short time before the New Year and comprehensive planning takes time. To find out more information, contact your attorney and/or CPA.
*This article was written by Jessica B. Moon, Attorney licensed in Ohio and Florida. David Bacon, Jeffrey Roth, and Jessica Moon are members in Roth & Bacon Attorneys, LLC. The Offices are located in Upper Sandusky, Marion, and Port Clinton, Ohio, and Fort Myers, Florida. They have focused their practice to provide estate and business planning concepts to their clients. Nothing in this article is intended for, nor should be relied upon as individual legal advice. The purpose of this article is to help educate the public on concepts of law as they pertain to estate and business planning. Copyright @ Jessica B. Moon 2012.
In our law practice, like many others, we stress the use of legal documents as “tools” to use in carrying out your estate during your lifetime and at death. A few of these tools are: trusts (revocable and irrevocable); durable powers of attorney; healthcare powers of attorney, and living wills. We use these tools to best carry out the plans we’ve created for ourselves, our children, and our future. As there are many tools, there are also many ways to travel through an estate process. Some tools determine which way your plan will be carried out; some do not.
As my father often tells me and others, “there is nothing inherently wrong with the Probate process; it is, however, a default system. It is where you end up when you have not clearly expressed your wishes during your lifetime while you had the mental capacity to do so.” This sets us on a course to consider two paths through the estate process: one parallel to the other.
The Probate Path
This is the path to which most of you are likely very familiar. It is the old guard. This path contains: Last Wills and Testaments; Guardianship filings, accountings to the Court; Will contests; rigorous and calculated step by step action. All of these documents have one thing in common: the Court’s authority. At the center of this path is the premise that you must request permission to do what you wanted to with your assets but for some reason cannot, i.e. you do not have mental capacity, you are deceased, etc. For those of us who did not plan for the day that we may be unable to act, this makes sense—we want someone to watch over us with a guiding hand and we want that someone to be subject to generally accepted principles. The compromise in receiving that guiding hand is accountability from your actor(s); and with accountability comes excessive production and reproduction of proof that you are who you are and you want what you want. This path also carries the expense of excessive process and the burden of constant, and sometimes redundant, action.
But what if there was another way?
The Parallel Path
This path is somewhat new and occurs outside the Court’s constant approval and authority. This path carries with the tools of Trusts and Powers of Attorney. These tools are used to forge an independent path. This path has rules that you write, that you determine. When you have passed away or have lost capacity, those who you’ve designated will look to your structure and your authority documents in order to see what to do and where to go. If there is an argument between your heirs and/or those looking after you, it is your word, not the Court’s, that they will turn to in deciding how to proceed. If the Court’s authority is called upon, the Court may act only to decide what you’ve said and not to decide whether or not that is a fair, popular, or just result. After all, when making every day decisions, how many of us consult what a Court in our position would decide? We simply carry on and act in the best way we know how, understanding and appreciating that we are free to decide for ourselves. This path requires trust, demands efficiency, and reduces cost.
This path may not be for everyone, but it is always worth considering.
This article was written by Jessica B. Moon, Attorney licensed in Ohio and Florida. David Bacon, Jeffrey Roth, and Jessica Moon are members in the law firm of Roth and Bacon Attorneys, LLC. Their Offices are located in Upper Sandusky, Marion, and Port Clinton, Ohio, and Fort Myers, Florida. They have focused their practice to provide estate and business planning concepts to their clients. Nothing in this article is intended for, nor should be relied upon as individual legal advice. The purpose of this article is to help educate the public on concepts of law as they pertain to estate and business planning. Copyright @ Jessica B. Moon 2012.
Thinking about how your assets are titled or who will make decisions for you if you should become unable are probably not one of your top priorities. These are probably less likely to come into your mind if, like me, you are married, under the age of forty and thinking about or having children.
In the event that you or your loved ones pass away unexpectedly, is there a plan in place to pass your assets and provide care to your children and/or spouse? Or, what if either you or your spouse becomes permanently disabled and unable to make necessary and daily decisions? The problem is: you have plan already—you just may not know what that is and you may not like it when you hear it.
There are things that everyone under forty should be planning for and need to consider. A few items to consider are:
1. Proper titling to assets
2. Simple wills including guardianship provisions and testamentary trusts where applicable
3. Probate avoidance where possible
4. Healthcare and Durable powers of attorney
5. Small/family business filings and maintenance where needed
AVOIDING PROBATE
While our firm emphasizes the use of Trusts to avoid Probate, that’s not all we do. Trusts are the surest and most flexible of the options; however, not everyone may be interested in that route. The fact is, there are many ways to avoid the Probate Court that many clients do not use during their lifetime.
At Roth and Bacon Attorneys, LLC, we will first check into how all of your assets are titled. We can then prepare deeds that automatically pass title to your designated persons. We can also advise on account titling, beneficiary designations, etc. Most assets are easily manipulated to best suit your needs and still remain in your complete control—all while avoiding the Probate Courts.
Roth and Bacon can provide simple wills that direct only those assets that are left subject to the Probate Court and also provide guardianship provisions for your minor children, in the event that you have children already or may have children in the future. If these matters are left unsaid by you during your lifetime—the Probate Court must make these decisions for you. What some clients do not understand or consider is that the ability to make these decisions ultimately belongs to (and should be made by) the client and not the Court.
ESTABLISHING POWERS OF ATTORNEY
Most everyone plans for the eventual passing of their assets upon their death, but few people plan on how their affairs will be managed in the event they become unable to make decisions on their own behalf during their lifetime. Have you thought about who you would like to speak and act on your behalf if you should become unable? If you haven’t, chances are, the Probate Court will have to make these decisions for you and your family.
You have the ability and capability right now to make these decisions—to appoint those whom you trust to speak for you in the event of your disability and to lay out your wishes in both healthcare and business. You can decide who will manage your IRA, who will pay your taxes, and who will agree to treatment on your behalf at the local hospital. If you do not express these wishes, or even if you do, if you do not have a validly executed power of attorney, you’ve asked the Probate Court to decide for you.
BUSINESS INTERESTS
What about your small business? Have you maintained the proper filings and updated the books where necessary? Have you given any thought as to whether that business will continue without you? Roth and Bacon can work with you to streamline some issues that occur in any business. Your current business plan should work with your during your lifetime and also work with your estate plan after you pass away. At Roth and Bacon, we prepare buy/sell agreements, secretary of state filings, dissolutions paperwork, and shareholder/member agreements.
Copyright 2011@ Jessica B. Moon
I have been asked this question many times. Bear in mind that this question is usually followed with another question on how to accomplish this same seeker’s goal. The simple answer is: you don’t need an attorney to set up you business. You don’t need an attorney to draft your Will. You don’t need an attorney to represent you in a lawsuit. In fact, I challenge you to find an instance where you are ever required to have an attorney assist you with anything. The real question is: why would you want an attorney to assist you in these matters?
With the information age, my generation has suddenly found themselves miniature experts in every area of professional life; are you sick? Go to WebMD or google your symptoms. Are you starting a business? Go to the Secretary of State and fill out some forms. Need estate planning documents, such as powers of attorney? Go to Legal Zoom. While these sites and sources are helpful contributions and in many cases may adequately assist you with certain issues, these sites rely on one thing in order to be truly successful: a proper foundation and understanding of your own circumstances.
While you may not need an Attorney to assist you in your plans, you may certainly want one to help you find out what issues may prevent your plan from coming to fruition. An Attorney is specially trained and equipped to ask you the right questions and to understand the issues that you do not. An Attorney should address and account for all your issues and goals, not just the issues you’ve already thought of.
Problems often arise when you act quickly and without counsel in your decisions. The advent of the internet brings exciting new access to good information; the problem is, you must first know how to navigate through the misinformation also readily available. Often times we mistake speed for progress and a good web design for accuracy. Also, with the abundance of information also comes an abundance of caveats, exceptions, and technical points. Even in my field of law, you will rarely find an Attorney learned in the complexities and intricacies of the law outside their own specialty.
For these reasons, you may want to consider asking for assistance. Not only should you seek counsel in your affairs, you should seek the right counsel. Of course, you are always free to handle your own legal work yourself, without aid or counsel. Just be sure to keep in mind: “The best way to convince a fool that he is wrong is to let him have his own way.” Josh Billings, U.S. Humorist (1818-1885).
This article was written by Jessica B. Moon, Attorney licensed in Ohio and Florida. David Bacon, Jeffrey Roth, and Jessica Moon are members in the law firm of Roth & Bacon Attorneys, LLC. Their Offices are located in Upper Sandusky, Marion, and Port Clinton, Ohio, and Fort Myers, Florida. They have focused their practice to provide estate and business planning concepts to their clients. Nothing in this article is intended for, nor should be relied upon as individual legal advice. The purpose of this article is to help educate the public on concepts of law as they pertain to estate and business planning. Copyright @ Jessica B. Moon 2013.
Articles of late have not been of a legal nature but rather focusing on the reality of growing old. We are living so much longer now and mature adults are conscious of keeping in shape and watching what they eat. This is great but it can also give them a false sense of being as fit mentally and physically as when they were in their fifty’s.
Parents may admit to a few pains but they also brag about being able of doing the things that their parents could never have done at this age. It is a wonderful attitude but there are times when older people have natural limitations that they will not acknowledge.
One of the most devastating moments in life is when a person can no longer drive a car. It is not sudden but occurs over time. The children see the problem but the parent is quick to confirm that he is as qualified as twenty years ago and it is his experience that keeps him and everyone else safe. He will become very defensive.
Society cannot automatically rescind everyone’s license upon reaching a certain age. Give them every chance, but it is your duty to observe and decide that a plan must be developed to curtail driving. There are times when kids overreact and want the keys immediately. Make an honest evaluation of the situation before you demand the keys. Be objective in determining if any of the following exist:
“Loss of vision and hearing; slowdown in response time; distance perception; getting lost repeatedly; asking passengers to be their eyes while turning or passing; having difficulty in physically moving the head or limbs; taking medications that would impair driving.”
Driving does not need to be all or nothing. Start by agreeing on the driving parameters. Have an agreement that dad will drive close to home and only in the daytime. Further agree that he will not drive alone and allow plenty of time to go and to return. Once you have determined that it is time for your parent to stop driving, the psychology begins. Start by having other drivers as often as possible. Use friends and family and stay in control of the calendar. Over time, they will depend on others and actually become scared to drive on their own. If it starts to work, don’t talk about the subject anymore.
If dad will not stop and danger to dad and the public is obvious, stage an intervention. I am aware of several occasions when local law enforcement has been contacted to cooperate. Normally, it is not hard to find a violation while he is driving that will result in a ticket. Sounds devious but if he has to quit driving because he cannot pass the test everyone is safe. If dad passes the test you better have a plan B. Good Luck and remember your day is coming.
Jeff Roth is a partner with David Bacon and associate Jessica Moon of the firm ROTH and BACON with offices in Port Clinton, Upper Sandusky, Marion, Ohio and Fort Myers, Florida. All members of the firm are licensed in Ohio and Florida. Mr. Roth’s practice is limited to wealth strategy planning and elder law in both states. Nothing in this article is intended for, nor should be relied upon as individual legal advice. The purpose of this article is to provide information to the public on concepts of law as they pertain to estate and business planning. Jeff Roth can be reached at ohiofloridatrust@aol.com (telephone: 419-732-9994) copyright Jeffrey P. Roth 2013.
ADULT CHILDREN ISSUES IN THIS ECONOMY
CONSEQUENCES OF TRANSFERRING A REMAINDER INTEREST IN REAL ESTATE AND RETAINING A LIFE ESTATE
ECONOMIC AND SOCIAL PRESSURES ON THE BABY BOOMER GENERATION
ECONOMIC DOWNTURN AND THE NEED FOR ESTATE PLANNING
I DON'T GET IT?
I DON'T NEED TO PLAN
THOUGHTS ON AN ILIT
IRA BENEFICIARIES
IRA'S AND CHARITIES
NO PROBATE, NOW WHAT?
PARENTS FINANCES
SAILING THROUGH LIFE
SEASON OF CHANGE
SECOND MARRIAGES
THE FISCAL CLIFF
THE PARALLEL PATH TO THE PROBATE PROCESS
UNDER FORTY AND UNPREPARED
WHY DO I NEED AN ATTORNEY IN THE AGE OF INFORMATION
DAD'S CAR
The purpose of this site is not to provide personal legal advice. This information is general and is not a substitute for individual legal services. Roth and Bacon Attorneys, LLC encourages you to obtain estate planning services and advice from an attorney, CPA, or other qualified individual.