When To Dismantle ILIT’s For Today’s Clients

January 21, 2015

by David Zumpano with No Comment Estate Planning Drafting Software Legal Technical

I meet with many clients who come in and have an ILIT, (Irrevocable Life Insurance Trust), which was set up in the 1990s or 2000s as part of their estate plan. ILIT’s are typically used when a client is subject to Estate tax and wants to ensure the value of life insurance is not taxed in their estate. They were much more popular in the 90’s and early 2000’s when the estate tax limits were much lower. The question is, are they still needed?

A strong argument can be made that a vast majority of clients (99.8 percent) who have ILITs no longer need them because the estate tax levels have risen to a point where they only affect 2 out of 1,000 clients. So, what do we do with the old ILIT?

One strategy is to continue them and let them play out as intended. A second option is to dissolve the trust under state law, get the insurance policy and any cash value back to the grantor and have the grantor create a new irrevocable pure grantor trust that would ensure asset protection for the grantor but allow the grantor full control, as trustee, the ability to modify it as to any and all changes make other than making it available back to the grantor. The greatest benefit however is that it would allow the grantor to add other assets to the trust to benefit those intended now, during life rather than just after the grantor’s death.

There are two key steps to dissolve an irrevocable trust. First, to identify your state law for termination of an irrevocable trust, typically, by the consent of all the parties. Second, to identify under the state statutes who the beneficial interest would go to, that is back to the grantor, or to the beneficiaries. If there's a way to get it back to the grantor that yields the greatest result so the grantor's life insurance and other assets can be combined and utilized for the benefit of the grantor's beneficiaries during lifetime and after death with full complete asset protection and complete access and control by the beneficiaries. If your state statute requires the ILIT be distributed to the beneficiaries, then the key would be to identify the fewest number of beneficiaries and have them receive the benefits and create a "third party irrevocable pure grant trust" (otherwise known as a KIT™). Under this strategy the benefits could be used for the grantor and others, depending on the trust design. Typically, the ILIT beneficiaries create a trust for the benefit of a larger class of beneficiaries outside of themselves or limit what they are entitled to, to protect the trust corpus.

There are a lot of ILITs out there and obviously maintaining them is the "easier" thing to do. I question however, if they still serve the goal of the client. Terminating these trusts and creating new, more user friendly trusts may ultimately have a better impact on the client and the plan they are trying to accomplish, the key question are you up to speed on helping them to accomplish this effectively and efficiently?

To learn more, join us for our Practice With Purpose Program, February 3-5th, in Charlotte, NC.

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center

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Medicaid Planning For Previously Transferred Assets

January 20, 2015

by David Zumpano with No Comment Asset Protection Estate Planning Drafting Software Legal Technical

Many clients who come into my office in search of "qualifying for Medicaid" are concerned about losing their assets. Unfortunately, in many instances they got advice at the beauty shop or coffee shop (and sometimes a lawyer) to give their assets away so that they could be protected if sixty months goes by.

As we know, there is no rule that says a client has to wait 60 months, even if they transferred assets, and we are typically able to get clients qualified in much shorter periods of time, even in crisis. When preplanning, we are also able to protect between fifty and one hundred percent of assets immediately with the proper facts and planning. Understanding this level of planning requires a complete and thorough understanding of the 12 key Medicaid rules and how they apply to each client differently. For a demonstration of how the LWP industry exclusive software documents tally in minutes for any client fact pattern go to https://www.lawyerswithpurpose.com/Estate-Planning-Drafting-Software.php to schedule a software demo.

A key challenge for many clients who have already transferred assets is, how does it figure in in determining their eligibility now, in crisis, or later if they are preplanning. (The answer comes down to two distinctions.)

First, has the transfer been within the sixty months of when they come to see you? If so, the amount of the transfer should be added back to the client's assets as if they still owned them. That is the practical result when applying for Medicaid if within the sixty months of the application. Re-including the assets provides a proper picture of all assets of clients that have to be considered in determining how much can be protected and how much would be lost if the client is in crisis or will require long-term care within sixty months of the transfer.

After re-including the transferred assets, you must then calculate the amount of assets that will be protected and those that will be needed for care (in a crisis case), or, could be needed in a preplanning case, (if care is within sixty months). The key distinction actually comes down to funding. Pre‑transferred assets are a funding issue, not a calculation issue. After adding back the transferred assets and completing the calculations to determine the amount protected, then the first funding task is to allocate the previous transfer to the amount protected and then you only have to fund the balance. If the previous transfers are more than the amount of assets that could be protected, the family must make up for the excess transfer by giving it back (cure). If the amount previously transferred is less than the amount protected then the balance of the assets that can be protected, are thereafter transferred pursuant to the asset protection plan created by the attorney.

While complicated in the written word, with a proper understanding of the law and how to apply it to each client and when you have the software that calculates and supports the law and provides calculations in real time utilizing the Medicaid laws, you are able to confidently help your client protect their assets.

If you are interested in learning more about becoming a Lawyers With Purpose member, consider joining us for our Practice With Purpose Program in Charlotte, NC, February 3rd – 5th. We are almost at capacity and there are only a few seats left so register today!

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center

The VAAS™ Difference In VA Benefits Estate Planning Software

January 11, 2015

by David Zumpano with No Comment Estate Planning Drafting Software

I recently read a statistic that indicated one in three seniors are veterans. As estate, elder law and asset protection attorneys, we are often challenged when we encounter seniors in need of care, who are veterans seeking to protect their assets and qualify for Medicaid. The challenge is doing so while ensuring they can also be eligible for the Veterans 'Administration (VA) Aid and Attendance (A&A) benefit without messing up their other planning. Typically, there are three major challenges when doing estate planning, Medicaid planning and VA A&A benefit planning for the same client. First is determining if the veteran is eligible for Aid and Attendance benefits and its impact on the asset protection and Medicaid plan. Second is properly filing the application to ensure benefits are received timely. And third is keeping up the many changes regularly occurring in the VA’s benefits regulations and rules.

To keep up with these critical components of having an Aid and Attendance practice, a practitioner can have the VAAS™ difference to achieve it. VAAS™ is the Lawyers with Purpose Veterans' Administration Application Software. The power of VAAS™ is it takes you through a series of questions that will quickly identify not only if the veteran is eligible for benefits, but also identify the excess assets in planning strategies to make them eligible. It calculates and provides a VA calculation worksheet for you to track your thinking process and the law to support it. Secondly, and critical to the process, is VAAS™ is the only software in the legal industry that completes and prints the Veterans' Aid and Attendance application forms ready for filing.

The interview asks the relevant information on the client and based upon your answers, will properly identify the forms necessary and ask you all the relevant questions to complete them for filing of a benefits claim. And finally, subscribers of VAAS™ software get access to the nation's leading veteran’s benefits attorney, Victoria Collier, who hosts calls three times a month keeping you apprised of the changes in the Veterans' Administration policies affecting Aid and Attendance benefits as they occur as well as provides regular helpful tips and techniques to simplify your A&A practice.

Many of us practicing in the veterans' benefits area understand how complicated it can be when considering the Medicaid and estate planning issues in conjunction with VA benefits planning. That's why it is important to ensure you have the proper internal systems, knowledge and access to industry experts to ensure your VA A&A practice remains cutting edge and gets the results your client wants. For a demo of how the VAAS difference can impact your VA practice click here.

If you want to know more about Lawyers With Purpose, and what it's like to be a member, and part of our community of elder and estate planning attorney's nationally, join us for our Practice With Purpose Program this February 3rd – 5th in Charlotte, NC. But hurry and register today – the hotel cut off is TOMORROW – Monday, January 12th! And we only have 6 spots left!

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center

The Pitfalls Of Aged Distribution

January 6, 2015

by David Zumpano with 4 Comments Asset Protection Estate Planning Drafting Software Legal Technical

Many lawyers counsel clients to make distributions to beneficiaries at certain ages. Typically it’s distributed one-third at 25, one third at 30 and one third at 35 or some variation thereof. This is a mistake on many levels.

In fact, when properly examined, it’s contrary to most clients’ goals. Many clients’ primary goal with staged distributions is to “protect” the assets for the beneficiary. Jane was a client with only one son who was going to inherit all of her $750,000.00. She was concerned about his ability to manage it so she asked me to distribute it in staged distributions so he had time to come to understand how to manage it.

After Jane died her son, Bob, was disappointed to learn that his mom “didn’t trust him”. I shared with Bob that his mom adored him but just wanted to “protect him” from his inexperience of other “good intending” people. Well the rest of the story played out and after the first five years, Bob had blown through his first distribution. When he was entitled to his second distribution he actually asked the trustee not to give it to him and asked how he can better manage it to ensure that it was protected from being lost like his first third.

When Bob was entitled to his final distribution, five years later, his portfolio had grown over seventy percent from when mom died. Today, Bob still has all his money and what it’s grown to and it’s protected from his predators and creditors.

We accomplished this by permitting distributions at the discretion of the trustee, who, by the way, was Bob, rather than forcing the distribution out. The downsides of staged distribution at different ages is that it forces the money out of the asset protection trust and makes it available to all the creditors and predators of the beneficiary. When properly designed, like for Bob, the assets can be held for the beneficiary with the beneficiary in full control of when distributions are made out of the trust to them. Not only will this assure asset protection but it will also assure all of the growth of the assets will be protected while allowing the beneficiary access to the use and benefit of the money for their entire lifetime.

In fact, when examined closely, beneficiaries usually use the trust funds to purchase assets like a home or vacation property. This subjects the new asset to the creditors and long term care costs of the beneficiary. All these risks are avoided, when the beneficiary has his separate share asset protection trust purchase the asset. Before you design a plan that forces money out of protection trusts, consider instead educating your client into how a lifetime asset protection trust with the kids in control can ultimately serve the clients’ needs.

To learn more about Asset Protection Strategies and how Irrevocable Pure Grantor Trusts meet many needs of clients not traditionally considered join us at our Asset Protection & Medicaid Practice With Purpose Program. Hotel cut off is January 12th so register today. This event will sell out!

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center

What To Do With… “Trust Or LLC?”

December 30, 2014

by David Zumpano with No Comment Asset Protection Estate Planning Drafting Software Legal Technical

Many lawyers create LLCs to provide clients "asset protection" in the event they own an asset that has a risk of a lawsuit. A typical asset put in an LLC is rental real estate to ensure the client is protected from liability that could occur at the rental real estate.

The question is; “When is a trust a better vehicle than an LLC?”

When the proper trust is used and the ultimate goals of the client are protection from liability of the asset and protection of the asset from his liabilities, then a trust is usually better. Instead of conveying the rental real estate to an LLC (which only protects the client from risk from assets), a single-purpose irrevocable pure-grantor trust can also protect the high risk asset from loss from the clients liabilities (i.e. nursing home).

In addition, a pure-grantor trust is included in the clients’ taxable estate at death, which assures a full "step up” in basis on the real estate, even after a lifetime of depreciation. Similar to an LLC, it assures the client asset protection from any liabilities that could occur by the high risk asset. The distinct advantage of the trust, however, is that it also protects the rental real estate from the client’s personal liability, like lawsuits not related to the real estate and a client’s long term care costs.

One benefit I never expected was clients’ desire to maintain privacy. Many of my clients who use trusts, relish not having to file with the state for an LLC which often requires an annual fee, and separate income tax returns. Surprisingly, clients highlight the benefit of not being on the “mailing list” of solicitors who target those who file LLC’s with the state.

A final significant benefit is that a single-purpose IPUG integrates into the client's traditional estate plan whether it is a revocable living trust, an income-only irrevocable trust, a control-only irrevocable trust or a third-party irrevocable trust. While lawyers have traditionally used LLC’s, many clients prefer trusts when the distinctions are properly discussed. My clients choose the single-purpose IPUG™ three to one over an LLC.

For more information on what Lawyers With Purpose has to offer, join us in Charlotte, NC, February 3rd – 5th. We'll go over this strategy and many more over the period of 2.5 days! Hotel cut off is January 12th so register today to reserve your spot! For registration information contact Marci Otts at motts@lawyerswithpurpose.com or call 877-299-0326.

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center

How To Protect Annuities Without Being Taxed

December 28, 2014

by David Zumpano with No Comment Uncategorized

Many clients wonder if their non-qualified annuities are “safe” from their creditors and predators. The quick answer is no. Not only can general creditors and predators gain access, the loss of an annuity to long-term care cost is common. In either event an annuity is an asset that is subject to the risk of creditors. The most common strategy, to avoid loss of annuities to creditors is to annuitize them. While this protects the annuity, it takes away the value of the underlying asset and converts it to an income stream which also can be attacked.

An annuity can be protected from nursing homes and general creditors, without annuitizing it, by putting it into an irrevocable pure grantor asset protection trust. It permits the grantor to be trustee retaining full control in management of the annuity. In addition, the client gives up minimal rights that ensures full protection underlying annuity without having to annuitize it or liquidate it. Should the client ultimately need the income stream generated by the annuity they’re still given the right to annuitize or take periodic distributions without annuitizing it. See full legal analysis and client benefits of iPug™ protection trust.

The beauty of utilizing an IPUG trust is by changing the ownership of the annuity to the trust instead of the client, there is no tax impact as an irrevocable pure grantor trust is a grantor trust for income tax purposes and utilizes the client’s Social Security number as its tax I.D. Under the tax law, no transfer of ownership has occurred and no tax generated, but, asset protection is achieved.

The distinctive planning strategy continues by naming a proper beneficiary of the annuity, not just changing the ownership. As a standard practice the trust should be named beneficiary to ensure all of the protections granted by the trust. In addition, it allows distributions to be made to beneficiaries other than the grantor, to ultimately achieve the goals of the client for their estate plan. Protecting clients annuities without causing taxation and not having to subject clients to early termination penalties are great benefits of transferring annuities to an iPug™ trust rather than having to liquidate or annuitize them.

If you're interested in a FREE webinar on iPug Business Planning click here to register today to:

Learn the difference between General Asset Protection, DAPT Protection, Medicaid Protection and iPug® Protection
Review a comprehensive outline of the 2 primary iPug® Business Protection Strategies
Learn why clients choose single purpose Irrevocable Pure Grantor Trusts™ over LLCs
Learn how it all comes down to Funding

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center

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How To Medicaid Plan For IRAs

December 16, 2014

by David Zumpano with No Comment Estate Planning Drafting Software Legal Technical

The biggest challenge of most Medicaid planning attorneys today is how to plan when the majority of the client’s assets are in qualified funds. Let’s review the law. An IRA under the federal Medicaid law is an available resource. The exception to the general rule is if the IRA is annuitized. Once annuitized the IRA is no longer considered an available resource, but the income generated from the IRAs monthly pay out is considered income to the applicant in determining eligibility for Medicaid. The confusion occurs in many states exempt an IRA if required minimum distributions are made, rather than requiring it be annuitized, which protects the IRA. A recent trend over the past two years, however, is states are beginning to take the position an IRA is an available resource unless annuitized and I expect this trend to continue. So, what are your options?

There are primarily only two options in this case. The client can annuitize the IRA, in which he or she converts the entire lump sum into a stream of payments that end at the death of the client. This rarely serves the long-term goal of the client which is to ensure there is some benefit left for his or her heirs. The alternative is to liquidate the IRA, pay the taxes and put the balance into an asset protection trust. The question is knowing when to pull the trigger to liquidate.

For LWP members, they use the IRA liquidation analysis software to calculate the point of no return, when the client would have lost more to the nursing home by distributing the RMD than had they liquidated and paid the taxes to the IRS. For others it’s more obscure. But either way the critical issue comes down to the cost offset. If a client is in the nursing home, then use of the IRA is a great way to get the maximum benefit of the IRA because the cost of the care is tax deductible expense that offsets the taxable distributions from the IRA. This gives the owner the maximum benefit from the IRA and acts as an additional cash benefit to offset long term care costs equal to the amount liquidated multiplied by the IRA owners’ tax rate (usually 20-30%). Preplanning however, requires a different analysis in identifying the age in which the client begins to liquidate the IRA to ensure that the overall tax rate that they will pay will be far less than what their beneficiaries would pay. Either way it is a viable solution if you’re doing the proper analysis. For a demonstration of how LWP calculates its IRA liquidation analysis contact Molly Hall at mhall@lawyerswithpurpose.com.

If you want to learn more about planning with IRAs and more specifically learn more about Clark v. Rameker – the recent court decision that set new precedent that inherited IRAs are not protected from creditors and preditors, join our Free Webinar TOMORROW at 7:00PM EST. Click here to register now!

During this Webinar you will learn:

Share the key holdings of the recent Supreme Court decision.
Discuss the asset protection strategies available for inherited IRAs.
Identify the four requirements for trusts to qualify to own IRAs without causing taxation.
Review the "inside" and "outside" planning strategies we have used for years to protect inherited IRAs and provide clients with the maximum number of options at death to avoid the loss of an IRA to creditors and long-term care costs.
And much much more…

Just register here and reserve your seat… it's 100% FREE!

If you're an existing Lawyers With Purpose member, good news! You already have access to this information on the members' website.

To your success,

Dave Zumpano

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Free Webinar – Why NOT To Name Kids As IRA Beneficiaries

December 11, 2014

by David Zumpano with No Comment Asset Protection Legal Technical

The US Supreme Court in Clark v. Rameker (June, 2014) solidified that children or other “non-spouse” individuals should not be named the beneficiary of an IRA, if asset protection is a goal. The court, in a 9-0 decision, declared that an inherited IRA is not a “retirement account” and allowed the bankruptcy trustee to invade an IRA inherited by the debtor (child), to pay her creditors. The decision set the new precedent that inherited IRAs are not protected from the creditors and predators of its owners. Click here for a decision tree on naming your IRA beneficiary options and the asset protection impact.

The Supreme Court decision left intact the ability to name a spouse as beneficiary, since a spouse has the right to create a new IRA or combine the IRA of the deceased spouse with his or her existing IRA. While this method may appear to protect a spouse’s inherited IRA, it is not a viable approach when an individual dies without a spouse, or if the surviving spouse is in need of long-term care. There is however, a foolproof way to protect IRAs after death, regardless of circumstance. Name a trust as beneficiary!

Most legal and financial professionals will grimace at the idea of a trust being named beneficiary of an IRA. They believe that doing so makes the entire IRA taxable at death or will result in the loss of the “stretch” and force it to be paid out within five years. This is true only if the trust named beneficiary is not a “qualified” pass thru beneficiary, but if it is, it enjoys all the benefits the trust beneficiaries would receive as direct beneficiaries.

For a trust to be a “qualified” pass thru beneficiary of an IRA it must meet four criteria:

1) it must be valid under state law;

2) it must have identifiable “human” beneficiaries;

3) it must be irrevocable after death; and

4) a copy of the plan document must be provided to the plan administrator.

While there are some complexities in complying with these rules, once understood and properly applied, naming a trust as the beneficiary is the only way to ensure asset protection of inherited IRAs in the post Clark v. Rameker world. When properly drafted, a Revocable Living Trust, an Irrevocable Pure Grantor Trust (iPug™), a grantor trust or non-grantor trust can be utilized. The drafter of the trust must distinguish the “inside” designation strategy from the “outside” designation strategy. That is, how to structure the beneficiary designation on the IRA beneficiary designation form and integrate it with the beneficiaries designated in the Trust to accomplish a myriad of scenarios for the surviving spouse (or other beneficiaries) that do not have to be decided until after the death of the IRA owner.

Click here to download a copy of the LWP IRA Beneficiary Designations Decision Tree. And to learn more about Clark v. Rameker join our FREE webinar THIS Wednesday, December 17th at 7:00 ET. Register now. It's 100% free! We'll see you then.

Dave Zumpano

Why Most Lawyers Fail…

December 10, 2014

by David Zumpano with No Comment Estate Planning Drafting Software Systems & Processes

The entrepreneurial seizure happens when the natural technician who enjoys doing the work finally has a different experience – frustration.

The technician says to himself, "Wait a minute, I didn’t start my own business to do data entry nights and weekends." He or she believes they must be missing something.

In that moment, their fate is sealed.

As lawyers, we are technicians.

In "The E-myth Revisited," Michael Gerber explains that most business owners make a fatal assumption. They understand the technical work, so they mistakenly believe that means they also understand the business that provides the technical work.

Unfortunately, this is simply not true! And this belief that they know enough ultimately leads them to failure.

Most lawyers fail because they never had any formal training on how to run a business.

It's not enough to perform as an outstanding lawyer.

You probably don't know enough about finance, marketing, management, and operations.

The good news is, these subjects are easy enough to learn.

As Gerber says in his book, "You must analyze your business as it is today, decide what it must be like when you've finally got it just like you want it, and then determine the gap between where you are and where you need to be in order to make your dream a reality. And then delegate the rest."

I have the tool to help you start to do that: Pay Per Trust back-office trust drafting.

Walk into 2015 without the baggage of 2014. FINALLY get control of your business's financial health, delegate the admin so you can focus your time on meeting with clients to actually increase cash flow.

The bottom line is, this tool will free you up to focus on revenue-generating activities without increasing your overhead.

Click here to take full advantage of back-office trust drafting and received $100 off your first trust using the discount code of “HOLIDAY”. But act now, because this offer ends 12/31/14.

Committed to your success,

Dave Zumpano

When Cash And Time Are Choking

December 7, 2014

by David Zumpano with No Comment Estate Planning Drafting Software

It’s holiday time, your team has been pre-approved for planned vacation time and you have seven clients who have hired you in the past two weeks.

What’s the problem, you ask?

Well, last week you finally had the time to sit down with Jolie, your drafter, to go over all the files sitting on the floor in the north corner of your office. Jolie reminds you that you approved her vacation time in August. She’s out Wednesday and won’t be back for eight business days.

The clients are scheduled for their signing meetings the day after she gets back.

You won’t have time to review the trusts, make the changes, and print and assemble the documents.
You will have to work nights and weekends and, between all the trying band concerts, choir concerts and white elephant parties your wife already committed you to etc., your weekends and evenings are not exactly looking like an available resource.

That is why I am personally enthusiastic about the “Pay Per Trust” model. Finally law firms can outsource their back-office administrative activities to free themselves up to meet with clients and referral sources – the activities that create consistent cash flow. And the best part is, this will also enable the team to focus on client services and referral relationship management.

Are you ready to make a move and start focusing your already minimal time on growing your practice – without spending countless hours drafting trusts or hiring extra help? The BONUSES are:

No contract at all. Only pay us when you have a client, whether that is once or multiple times a month.
Try our back-office trust drafting and received $100 off your first trust using the discount code of “HOLIDAY,” but act now – this offer ends 12/31/14.

Click here to find our how to “try it on,” and if it doesn’t fit, you don’t have to show here again. But I highly doubt that will be your result.

Committed to your success,

Dave Zumpano