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Five Essential Roles For A Successful Practice – Part Two

June 22, 2015

by David Zumpano with 2 Comments Coaching & Implementation Systems & Processes

In our previous post (Five Essential Roles For A Successful Practice – Part One), we identified the five key roles that must be filled for your business to be successful: the entrepreneur, the visionary, the transformer, the performer and the leader. We distinguished the differentiating factors between the entrepreneur and the visionary and clarified how they can be the same person, but need not be. Today we will focus on the role of the transformer. The transformer is the most essential role in creating a business that operates without you.

So what is a transformer? As a successful Level Two entrepreneur, I can confidently say, it was not until I understood the role of the transformer that I was able to actually separate myself from the businesses I had created. Even if you do not intend to achieve Level Two status, to succeed as a Level One entrepreneur, you will need a transformer. The only distinction is the level of authority you ultimately give them. For those who intend to create value beyond their individual capabilities, coming to know and identify transformers to whom you are willing to give authority is essential to reaching Level Two.

The definition of a transformer is one who, with their own skills, knowledge and resources available, transforms an idea (vision) that benefits the world into a product or service that is deliverable. So what are the essential elements of this role? The first and most important is that transformers need no one else to perform the role. As a distinction, they do need others to get the job done, but transformers, with their own skills, knowledge and resources, are able to take a vision or idea and make it real. A transformer utilizes available resources, which can include other individuals, the Internet or any other source of information the transformer identifies as necessary to turn the vision into a reality.

The other key distinction of transformers is this: What they create is deliverable, even though they typically are not responsible for delivering it. To illustrate, many people have a vision or a “great idea.” The world is full of people with great ideas. The challenge is that there are skills required to take an idea and make it something that another individual is actually able to benefit from. The art of being able to take that vision and turn it into a deliverable product or service is what transformers do! Interestingly, transformers are not typically visionaries or entrepreneurs, and they do not need to identify that the idea is valuable in the marketplace. They are just building the deliverable identified by the entrepreneur and guided by the vision of the visionary. Transformers make ideas real.

So how would you recognize a transformer in your organization? In my experience, it’s simple. If there is a challenge in your office and you need to “get it done,” whom do you go to? Transformers are the ones who, when you go to them with your idea, you are able to step away and later find the idea implemented and delivered with minimal input. Transformers can also apply their talent to various elements of the business with ease. The level of transformer will dictate the reach of your ultimate success. The essential need for transformers is resources; the more resources they have access to, the greater the impact. Lawyers with Purpose has tremendous resources for the transformers in your law firm to help create products and services that can be delivered to clients easily and with tremendous value. In our next post we will discuss our final two roles, that of the performers and leaders.

For more information on becoming a Lawyers With Purpose member consider joining our FREE webinar "Having The Time To Have It All" on Thursday, July 23rd at 2EST.

In this one hour webinar, you will learn how all entrepreneurs have the same amount of time in the day and how they use it differently.

Here's just some of what you'll discover in this practice-transforming event…

How to effectively utilize your time to enroll your team to help as many people as you choose and profit from it too;
To work effectively with your team;
How to balance your work life and your personal life to ensure you are able to create the maximum amount of value in both; and
How to have sufficient time to market consistently which will ensure consistent cash flow and free up the time you're currently spending chasing dollars.

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

Five Essential Roles For A Successful Practice – Part One

June 21, 2015

by David Zumpano with No Comment Uncategorized

Many people have a business that makes them money by default rather than by design. Michael Gerber in “The E‑Myth” declared that the entrepreneurial myth is that most businesses are started by people risking capital to create value. In reality, Gerber contends, most businesses are created by frustrated technicians. Gerber goes on to discuss the three common roles in business: the entrepreneur, the technician, and the manager. So in this blog series, I will be expanding on what Gerber believed, based on my extensive work with more than a thousand small estate planning law firms over the past 15 years.

Gerber’s assessment is spot on and a macro approach. I will apply it in a more micro way to show what is needed at all levels of a successful law firm. In my experience, five key roles must be fulfilled to truly have success in any practice or business. Those five keys roles are the entrepreneur, the visionary, the transformer, the performer, and the leader. Let’s distinguish the subtleties of each role and how they interact to achieve ultimate success.

The primary role essential to success is the entrepreneur. In my experience, the role of entrepreneur often gets confused or blended with the role of visionary, yet they are separate roles. While both are often fulfilled by the same person, each requires a different skill set and achieves different results. Let's examine the entrepreneur. An entrepreneur is “one who pursues opportunity without regard for resources currently controlled,” according to Harvard Business Professor Howard Stevenson. It seems appropriate but broad; I prefer a definition that sorts entrepreneurs into two levels. A Level One entrepreneur is an individual who identifies, creates and delivers a vision the world benefits from. I call a Level One entrepreneur a “solopreneur.” A Level Two entrepreneur is an individual who identifies, creates and delivers a vision the world benefits from, and is able to have it created and delivered without his or her direct involvement. Most lawyers are Level One entrepreneurs; that is, the success of their business is wholly dependent on them. As a result, they can be profitable, as many lawyers are, but their reach or impact is restricted by their individual capabilities and time. A Level Two entrepreneur is one who can create value without having to create it and deliver it themselves.

The entrepreneur is distinguished from the visionary in that a visionary is, according to the Oxford Dictionary, “someone who thinks about and plans the future with imagination or wisdom.” An important distinction is that entrepreneurs can implement either their own vision or others' vision. Did Ray Kroc invent the hamburger or the restaurant? No, but he had a vision. He had a vision of how to do it differently. Conversely, do you need to be Ray Kroc to own a successful McDonalds restaurant, or to be a successful entrepreneur? No. Entrepreneurs can implement the vision of others, as in the case of a franchise owner. The key point here is that both roles are needed. While entrepreneurs can implement their own or someone else's vision, not all visionaries can create and deliver their vision, and therefore, would not be an entrepreneur. For example, do you know who invented the Post-it note? Obviously, being creative and a visionary does not make you an entrepreneur, and this is the key distinction.

Lawyers with Purpose is an organization created by a successful entrepreneur and visionary who created a system that enables any attorney to implement it with the same success. Come discover. In the remaining parts of this series, we will discuss other key roles necessary for success: the transformer, the performer and the leaders.

If you aren't a Lawyers With Purpose member and want to discover how to be a successful entrepreneur and/or implement the ideas of other successful entrepreneurs and visionaries, join us for our FREE Having The Time To Have It All Webinar on Thursday, July 23rd at 2:00 EST. Register today to join the conversation and build the practice of your dreams!

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

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Avoiding The Five Major Threats To IRA’s: Part 5

May 25, 2015

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

Today I will conclude our five part series on the five threats to qualified accounts. In our first four blogs we outlined the threats to IRA’s from income taxes, excise taxes, long-term care costs, and estate taxes. Today we will focus on the final threat, the risk of loss to beneficiaries and/or their creditors. The U.S. Supreme Court in June 2014 in Clark v. Rameker held an inherited IRA is not a “retirement account” for purposes of the protection under the Bankruptcy Code. This threw the financial and estate planning industry into turmoil, but those of us who stayed abreast of the legal arguments, were not surprised by the courts decision had planned that way for many years. A second and often overlooked threat is by the beneficiary themselves. Not all beneficiaries are equipped to receive assets and properly manage or protect them. So let’s look at these dangers more closely.

As outlined in our first part of this series, qualified funds are inherently protected under ERISA and the Bankruptcy Act. The challenge however, is the U.S. Supreme Court now has ruled inherited IRAs (the IRA after the death of the owner) is not protected. This is a major threat to qualified accounts. The most strategic way to protect against this threat is to ensure an individual's IRAs is beneficiary designated to a "see through” asset protection trust. For a trust to be qualified as a designated beneficiary under the Internal Revenue Regulations it requires it is irrevocable at death, it is valid under state law, the beneficiaries are "identifiable" and a copy of the trust is provided to the plan administrator. Once these four conditions are met the IRS will look “through” the trust at the beneficiaries of the trust to determine the designated beneficiary to determine the required minimum distributions. This can be an exceptional planning tool to protect the qualified account from the reach of the creditors, divorce, lawsuits, nursing homes, or other predators of the beneficiary, who now owns the IRA. For a complete review of using a trust as a beneficiary of an IRA and all its benefits register for our FREE Clark v. Rameker Webinar.

The second major risk to qualified accounts is that while we can protect the IRAs from the predators and creditors of the beneficiary, we cannot protect it from the beneficiary them self. How often do professionals get the call from the child, that inherited an IRA who says, “I need $70,000.00 out of my inherited IRA”, then the advisor discovers it is to buy a $50,000.00 car ($20,000.00 needed for income taxes) that's worth $40,000.00 when it’s driven off the lot. For individuals who are concerned about spendthrifts as beneficiaries, qualified accounts can be protected from abuse by the beneficiary themselves by creating an accumulation trust as beneficiary. An accumulation trust allows the trustee to hold the IRA required distributions made from the IRA in the trust and are not required to be distributed out to the beneficiary. This would typically be done if there's a risk of the distribution being lost to the beneficiary’s creditors or predators. The principal argument against accumulation trusts is that the income not distributed is taxed at the higher trust tax rate. True, but the question becomes would you rather pay the highest trust income tax rate of thirty nine point six percent or give it to a beneficiary who is subject to a judgment in which case the beneficiary would receive zero. In addition, to avoid the higher income tax, the distributions would be made to other beneficiaries named in the trust. So planning to protect an IRA from your beneficiaries and for your beneficiaries is not difficult, but does require planning during the life of the IRA owner to ensure the beneficiary does receive the qualified account outright but through the form of a trust which sets all the protections the client desires.

Join Lawyers With Purpose in St. Louis next week for 3.5 days of jam packed technical legal essentials necessary for any estate or elder law practicing attorney. We still have a few spots left – click here and register today.

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

Avoiding The Five Major Threats To IRA’s: Part 4

May 22, 2015

by David Zumpano with No Comment Asset Protection Estate Planning Drafting Software Legal Marketing Medicaid VA

As I have been discussing there are five threats to qualified accounts that most people don’t typically consider when doing estate planning. The five major threats to qualified plans are unexpected loss to income taxes, excise taxes, long-term care costs (all covered previously), estate taxes (today’s topic) and to beneficiaries and/or their creditors. As we’ve previously outlined, the threats of incomes taxes and excise taxes can easily be avoided if planned for, and the threat to long-term care costs can be planned for with the least risk by completing an IRA analysis to determine if an IRA should be liquidated or annuitized when the IRA owner becomes subject to long term care costs. When it comes to protecting qualified accounts from estate tax, it is more challenging.

If an individual dies with assets greater than $5,340,000.00 their estate is subject to a forty percent estate tax. When this occurs, the IRA (or other qualified asset) can be subject to more than seventy five percent in total taxes. How? Well assuming a $1 million IRA is part of a $7 million estate, the IRA will be subject to estate tax of forty percent ($400,000.00) and upon the liquidation of the IRA by the beneficiaries it could be taxed at a rate of up to thirty nine point six percent (39.6%), which results in an additional $396,000.00 in income tax if the beneficiary is in the highest income tax bracket. To add insult to injury, there is no deduction on the value of the estate tax return for the income tax due on the IRA. As if federal taxes were not enough, there can be state income taxes dues when the IRA is liquidated to pay the federal estate tax. It gets even worse if you live in a state that has an estate tax. A state estate tax is yet one more tax on top of the federal estate and income taxes, and state income taxes. Most states estate taxes are up to an additional sixteen percent. And so the question becomes, how do you protect qualified accounts from estate tax liabilities?

The answer is you really can’t, without first liquidating the IRA and paying the income tax (other than an annual $100,000.00 gift allowed to charity). So in order to protect IRA’s from federal and state estate taxes requires the reduction of a client’s non IRA estate during lifetime so the total estate evaluation does not exceed the estate tax limits. One strategy to do this is annual gifting, which can be effective, but often requires a significant number of beneficiaries to distribute the annual growth on an estate of that size. For example, if an individual had a $7 million estate and it grew at three percent the individual would have to give away $210,000.00 per year just to keep the estate from growing. That would require fifteen beneficiaries to distribute $14,000.00 to or eight beneficiaries if the client is married.

Another strategy to reduce estate taxes is to give away money to charity. An individual can have the ability to benefit charities and their family by use of various strategies which is outside the scope of this writing. A third way to reduce estate taxes is by using legal strategies to discount the value of assets by use of various tax planning techniques. Unfortunately none of these strategies work to reduce an IRA’s value other than outright gifting after withdrawal and the payment of income tax or use of the annual allowance for distributions from qualified account to charity. In summary, subjecting qualified accounts to estate taxes is a significant burden to the tax payer which only can be minimized by ensuring their non-qualified estate is reduced and moving to a state without income tax can reduce the income tax burden. Obviously qualified accounts are very appealing as they have tax referral advantages, but one must weigh the long term benefit of the difference with the tax cost upon receipt or death.

If you want to learn more about what it's like to be a Lawyers With Purpose member, join our 3.5 day Practice With Purpose Program (you can find the agenda here). We still have a few spots left so grab them now! It's a jam packed 3.5 days that include all the essentials on Asset Protection, Medicaid & VA for your estate or elder law practice.

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

Avoiding The Five Major Threats To IRA’s: Part 3

May 20, 2015

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

Many people are keenly aware the many advantages of qualified accounts such as IRAs, 401ks and the like but few are aware that of the five major threats to all qualified accounts. In the first two parts of this series, we discussed the risk of income taxes and excise taxes. Today, I will discuss the risk of losing IRAs to the long care costs, and finally we will continue our series with threat to IRAs by estate tax and the beneficiaries and/or their creditors after the death of the plan owner.

Many people believe that IRAs and qualified assets are exempt from determining eligibility for long-term care benefits such as Medicaid or Veterans Aid and Attendance benefits. This is far from true. It is important when planning for qualified funds to be clear on what the law states. An IRA is an available resource in determining ones eligibility for Medicaid. This is deduced by the annuity exception contained in 42 USC 1496p (C) (1)(G). The law states that an IRA is exempt if annuitized and follows the provisions. Conversely, there is no exemption to IRAs being excluded under the law. Accordingly, all assets are deemed countable except in the case of an IRA that is annuitized pursuant to 42 USC 1496p (C) (1)(G). While the law is clear, many states Medicaid policy allows the individuals to protect their IRAs. In recent years however, several states have begun counting IRAs as an available resource unless it is annuitized. The challenge of annuitizing an IRA is the underlying asset is lost and instead, is converted to an income stream.

The greatest threat of IRA’s to long-term care costs however, is the threat of the state changing its policy of exemption with no notice. Since the federal Medicaid law is clear it is an available asset unless it is annuitized, many states policy current exempt it if it is in “payout” status, which often just requires proof that regular payments are coming out of the IRA. Most states will accept it as long as the “required minimum distribution” is being made. This is not the law, but rather state policy. The state has the right to change this policy at any time without notice. This is a major threat to individuals trying to protect their qualified assets from the cost of long-term care.

It’s also important to distinguish that while the IRA may be exempt, the income distributions are not. That’s why it is critical that you perform an IRA analysis to determine what the point of no return is. The point of no return is that point in time, when, if the IRA is annuitized, the amount paid out towards the cost of long term care from the monthly IRA income, is more than the amount that would have been paid to income taxes if it had been liquidated.

The LWP™ Medicaid Qualification software calculates a complete IRA analysis that identifies the point of no return so you can know at the beginning of planning, the length of time in a nursing home that would result in more money being paid out to long term care costs than to taxes if the IRA was liquidated and the taxes paid. For a complete demo of the software contact Molly Hall at mhall@lawyerswithpurpose.com. Or you can schedule it right now by clicking here.

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

Avoiding The Five Major Threats To IRA’s: Part 2

May 20, 2015

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

In this series I am discussing the five major threats to qualified assets, today is Part 2 of the five-part series (you can read Part 1 here). The five major threats to qualified funds include income taxes (covered previously), excise taxes (which we will cover today), long term care costs, estate tax and risks to beneficiaries and/or their creditors. A major threat to IRAs and other qualified assets is the unexpected payment of excise taxes. Excise taxes are in addition are ordinary income taxes and are imposed when a client takes their money too soon, or waits too long to withdraw it. Let's address each one.

There is a ten percent excise tax otherwise known as the "early withdrawal penalty" if an individual removes assets from their IRA prior to age fifty nine and a half. The government has done this because it has a strong interest to ensure individuals save for retirement so they are secure and less of a risk to be a burden on society to support them. The government in recent years however has permitted certain exceptions to allow withdrawals from IRAs before fifty nine and a half for the purchase of a home or to pay medical expenses. Both of these exceptions have limitations but when properly followed, avoid the extra ten percent excise tax.

Another long standing rule that avoids the excise tax, is what is commonly referred to as the 72(t) election. An IRA owner may withdraw prior to age fifty nine and a half without the excise tax if they agree to take an equal stream of payments over a period of time that is the greater of five years or when the IRA owner turns fifty nine and a half. For example if a 72(t) election is made to withdraw $300.00 a month from an IRA at age fifty, to avoid the excise tax, the recipient must agree to accept that monthly payment for nine and a half years. Alternatively, if an individual at the age of fifty seven elects to take a regular stream of payments, they must take it for a minimum of five years which would require them to continue the distributions until age sixty two.

A second excise tax which is much more costly is the fifty percent excise tax if an individual fails to take the minimum distribution required under the tax law. This is commonly referred to as the "late payment penalty". The government has preferential treatment for IRAs so that people can save for retirement, but wants to ensure that they actually utilize the funds in retirement, and not just use it as a tax avoidance tool. The tax law requires IRAs to begin being distributed once an individual turns seventy and a half years old. If the individual fails to take the required minimum distribution calculated based on their age and life expectancy, they are imposed to a fifty percent excise tax in addition to the ordinary income tax rate on the undistributed required minimum distribution.

Assuming a required minimum distribution was $1000.00 and an individual is in the twenty percent income tax bracket, the individual will lose seventy percent or $700.00 if the required distribution is not made timely. That is simply calculated as a $1000.00 distribution with a payment of $200.00 in income tax and $500.00 in excise tax. Obviously this is a major threat to IRAs but easy to avoid with proper management of accounts. Don't let excise taxes threaten your IRAs, ensure you leave the assets in until reaching age fifty nine and a half and begin taking the required minimum distribution when you turn seventy and a half.

Stay tuned for Parts 3-5. And, if you're interested in learning more on Protecting IRA's After Clark v. Rameker join our FREE webinar this Friday at 1 Eastern.

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

Avoiding The Five Major Threats To IRA’s: Part 1

May 19, 2015

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

IRA’s and other qualified accounts are becoming the biggest portion of many individuals' portfolios. They have many special rules to maintain their income tax advantages and despite having special rules that protect them for income tax there are several threats to them that are often overlooked by individuals and the professionals that serve them. This will be the first of a five-part series sharing the five major threats to IRA’s and other qualified accounts and how to avoid them. So what are the five major threats to retirement plans? In my experience it is: income taxes, excise taxes, long term care costs, estate taxes, and risks to beneficiaries and/or their creditors.

The first risk to IRAs, and other qualified assets, is income taxes. Many of us are aware contributions made to a qualified plan defers the income tax on the money contributed. In addition, contributions accumulate "tax free". The challenge and threat however is not upon the contribution to the plan, but the withdrawal. The presumption is the individual will withdraw the money at retirement when they are in a lower income tax bracket. That is not always true. There is a risk the individual can have a higher tax bracket after death, or that income tax rates will rise (Congress has raised rates many times in the past). Higher income tax rates later are not only caused by Congress and by the asset mix of the client, but quite often the income tax rate of the beneficiary is higher than that of the original plan owner. For example a client in retirement might be taxed at the fifteen percent tax bracket but they pass away and leave it to their children, who may be in the thirty nine and a half percent tax bracket. This is often overlooked.

The biggest threat I find however, is that many individuals who own IRAs and retirement funds, only withdraw the required minimum distribution rather than optimizing the minimum income tax overall . In many circumstances, seniors pay no income tax or only pay ten or fifteen percent. A married couple over the age sixty five can earn up to $21,850.00 (not including social security) without paying any tax and up o $40,300.00 before they are subject to taxes beyond fifteen percent. But seniors routinely take the required minimum distribution rather than taking more distributions to withdraw the most possible while keeping them in the fifteen percent tax bracket or less. The biggest advantage is the after tax money (which only between zero and fifteen percent was paid) reinvested grows and is subject to capital gains rates which is lower than ordinary income tax on an IRA if ever sold during life, and if held till after death gets “stepped up” and no income tax is paid on the growth of the assets by the kids that inherit them, If the kids hold onto them all growth is subject to capital gains rates rather than the higher ordinary income tax rates. So the alert to all is don't be on autopilot, examine your short and long term income tax rates compared to your beneficiaries, to properly decide when to take advantage of strategic distributions during life to ensure you pay the overall lowest income tax on your IRA’s.

Stay turned for Parts 2-5 and subscribe to our blog if you're not already (just enter your name and email on the box to the left). If you would like to learn more about protecting IRA's after Clark v. Rameker join our FREE WEBINAR this Friday at 1 EST. Click here to register.

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

How Are You Showing Up?

May 3, 2015

by David Zumpano with No Comment Coaching & Implementation Legal Marketing Systems & Processes

Do you know how you show up in the world? Most people don’t. Most hand out evaluations after they give a speech or presentation but most of the questions are canned and quite honestly useless, “On a scale of 1 to 10 please rate…”

What if you knew, really knew what people out in the crowd were seeing? And the real impact it is making on your practice.

I remember my first presentation at The National Network of Estate Planning Attorneys. I thought it was a home run. I was on fire and the evaluations were off the charts. The room was packed. So naturally they invited me back. In between the 6 months of the first presentation, and the 2^nd one, I met one of the Co-founders of Ridge Associates at a local Entrepreneurial Society meeting in my town. I instantly enrolled in his Speakers School and the next presentation for NNEPA people were mobbing me in the hallways (including the owners) saying “What happened to you? You were not even close to the same person you were 6 months ago on stage…can you teach ALL of our leaders how to do what you just did?”

That night at dinner one of my closest buddies at NNEPA said to me, “I didn’t know how to articulate it after your May presentation but after seeing this 2^nd presentation I have to tell you that your 1^st presentation was painful to watch. But, the first 5 minutes of today’s presentation…. HOLY SMOKES….NNEPA wants you back for the Spring Collegium as a KEYNOTE SPEAKER! WHAT. DID. YOU. DO? - what did you do? And can you show me how to do it too?!”

It wasn’t anything I did. I just showed up.

Trust me, get in the room. We don’t know when we will offer Speakers School again. We are fortunate enough to get Bob Gabor, my trainer, and it took a few years to get him booked. I don’t want you to wait a few years to get the single thing that I attribute ALL of my success too.

I know, I know…YOU don’t need it. That’s what I thought about myself 14 years ago. But apparently the audiences I was speaking too thought differently.

I am personally excited to sit through Speakers School again, 14 years later. Click here to join me. This will be the best investment you make in your practice in 2015. I cant wait to hear how your conversion number soar.

I want you sitting next to me.

Dave

P.S. Oh yeah…. 2 of my staff members will be sitting in THIS Speakers School WITH me. They want to get more workshops and presentations to our area power partners for my practice (nursing homes, adult daycare centers, etc.). Talk about a SURREAL moment. Your team is invited too but there are only 8 seats remaining so RESERVE your firm seats NOW.

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Planning To Protect Assets For The Spouse & From The “New Friend”.

April 30, 2015

by David Zumpano with No Comment Asset Protection

As an estate planning attorney I come across many couples who do estate planning that have been married 30, 40, 50 or more years. A common question I ask is do you want to plan to protect your half of the assets from your spouse’s “new friend” after your passing. It usually gets a chuckle but is often as an important issue because each of us knows someone who lost a spouse and now has a “new friend”. Most couples are willing to address the issue because ultimately they want to ensure their “stuff” gets to their children or beneficiaries. Similarly, those in second marriages want to be able to provide for their current spouse without disinheriting their loved ones.

It is important to accept our individual needs for companionship are essential to humanity and in no way does kindling a new friendship or romance after a loss of a spouse in anyway negate the love one had for a deceased spouse. Think of it as an “and” rather than an “or”. The question becomes who gets your half of the assets accumulated during your life, your beneficiaries or your surviving spouses, new friend? The greatest threat to your assets is if your health fails and the cost needed for care. Many couples leave assets to their spouse and “trust” the spouse will provide as they planned. The challenge occurs however, when the surviving spouse needs care and appoints their new friend or in the case of a second marriage the spouses children, as power of attorney. At that point, any hope of ensuring your stuff gets to your loved ones is greatly diminished.

Planning to protect your assets for your spouse, and from your spouse’s “new friend”, or in second marriages, ensuring your assets ultimately gets to your loved ones is a common goal both spouses agree on. Why? Because you don’t know which one’s going to die first so you want to ensure that no matter who does, the deceased spouse’s share is always protected for the surviving spouse, and from “new friends”, or the separate kids of the surviving second spouse. This planning is easily accomplished if you plan while you are alive and healthy, but becomes nearly impossible if you become incapacitated or die with it in place. We have all heard the horror stories of unintended beneficiaries getting all the assets after mom or dad dies. Don’t risk it, plan for it. It’s not complicated it just has to be planned for.

If you want to learn first hand what it's like to be a Lawyers With Purpose member, join us for our Estate & Elder Law Practice Enhancement Week in St. Louis, June 1st – 5th. Below is just some of what you'll get (and this is just Monday and Tuesday)! You can look at the full agenda and register here.

Asset Protection

Recent Updates to Asset Protection and Medicaid-Compliant Strategies
The New Asset Protection Strategies Dominating the Marketplace
The Death of DAPT’s, FLP’s, GRATS, GRUTS, and Tax Planning, and What’s Replaced Them
The Five Essential Trusts and Key Drafting Needs to Serve 99.7% of Clients
The Power of Powers of Appointment, in the Right Places
Four “Must Have” Drafting Considerations and Three “Most Forgotten” Powers in Trust

Medicaid

Four Steps to Medicaid Eligibility for Any Client
How to Calculate the “Breakeven” to Ensure the Proper Filing Date for the Shortest Penalty Period
Medicaid Qualifying Annuities – Hidden Risks and How to Properly Disclose Them to Clients or Protect from Them
The Seven Key Factors to Calculate any Medicaid Case in Seven Minutes (or Less)
IRAs – Exemption Versus Taxes, How to Calculate if IRAs Should be Liquidated or Exempted in Medicaid and VA Cases

VA Benefits

Meet the VA
Service Connected Benefits (Veterans & Widows/Dependents)
Non-Service Connected Benefits – Improved Pension, Housebound, Aid & Attendance
Asset Eligibility
Application Process
Correct Forms
Annual Reviews
Appeals Process
Representation and Marketing – Getting Veterans to March in Your Door

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

Joint Or Individual Trust

April 28, 2015

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

A quandary most estate planning attorneys encounter is whether to use individual or joint trusts when planning for a married couple. Some argue a joint trust is simpler to administer than doing separate trusts and less paperwork. Other attorneys contend separate trusts are simpler to track and fund assets. The answer, I believe, lies within two core issues; the personal planning intentions of the client and whether estate planning asset protection or tax planning is the legal strategy to be utilized.

When estate planning for a couple, the primary distinction to determine whether drafting a joint trust or separate trusts is determined by the personal planning goals of the client. Most notably, do the husband and wife intend to follow the same plan? That is, do they intend to have the same beneficiaries, the same distribution patterns, the same trustees, and the same trust protectors? If yes, then a joint trust holding all of the assets of the husband and wife is probably the simpler approach. Some may challenge using joint trust when one spouse has assets that are separate property, like an inheritance from a parent. While this adds an additional element to consider, it is not related to the overall planning strategy, but merely a funding issue. A joint trust can easily account for separate assets by ensuring there are separate schedules on the joint trust that detail the husband's assets, the wife's assets and the joint assets. Further, utilizing the individual spouses social security number on all accounts outlined on their separate schedule and on half of the joint schedule accounts, assures their separate assets are properly maintained in a joint trust.

The opposite situation, when clients have different plans also impacts whether an individual or a joint trust is used. This is common in a second marriage. Typically, clients in second marriages have joint assets, but separate beneficiaries’ distribution patterns, and trustees. A properly drawn plan will allow for the deceased spouse to provide for their surviving spouse without having to disinherit their separate children or other family members. While this can become more complicated to administer through a joint trust, it can easily be accomplished if the trust is clear on the separation and management of the assets after death of a spouse. For example, the LWP™ drafting system allows the attorney to clearly set out the separation of assets and distribution goals specific to each planning strategy. For most drafting systems that don’t accommodate this level of customization, separate trusts are easier to accomplish the separate goals of the clients when distribution patterns are significantly different.

The final consideration when deciding on separate trusts or joint trust is whether the client desires asset protection or estate tax planning. In this distinction, the use of the formula funding clauses becomes important when utilizing joint trusts. Separate trusts are easily distinguished as they are funded independently of the spouse assets, whereas in a joint trust, if all assets are funded on a joint schedule, you may lose some of the tax benefit by not being able to maximize your federal estate tax exemption. For example, if one half of the total joint assets in the trust (represents the deceased spouse’s portion) does not exceed the federal exemptions and the spouse does not have other assets (i.e. IRAs) outside the trust, full utilization of the individual credit shelter amount may not be achieved. Conversely, if one utilizes a formula that maximizes the exemption at the first death, it may not meet the estate planning needs of the separate planning of the spouse. The formula clause must account for joint assets and all outside assets of the deceased grantor to maximize the estate exemption on the death of the first spouse, and the planning must consider the separate assets of each spouse and their individual planning goals. The same is true for the clients who do not have estate tax concerns, but rather, the threat of long term care costs to the surviving spouse. In this case, the formula finding must be formulated to provide the greatest asset protection from cost of care, not taxes.

So to summarize, whether an attorney does a joint trust or separate trust, there is no legal differential on the outcome if the attorney is diligent, and the document properly instructs the trustee to get the maximum benefit for the client to meet their planning and protection goals. Clients in one long term marriage are generally able to be served efficiently and effectively using a joint trust while clients who are on second marriages or have different distribution ideas may better served separately if the attorneys software is not thorough enough to manage it. Tax planning and asset protection goals can also be met using joint trusts if the attorney is diligent in allocating the separate assets to the separate schedules (and Social Security numbers where appropriate) of the grantors. So the good news is there's no wrong answer but it's important you distinguish what the client’s goals are and your software flexibility to adhere them.

If you want to sharpen the saw on your estate and elder law legal technical join us for our Estate Planning Practice Enhancement Week in St. Louis, June 1st – 5th. Below is just some of what you'll get (and this is just Monday and Tuesday)! You can look at the full agenda and register here.

Asset Protection

Recent Updates to Asset Protection and Medicaid-Compliant Strategies
The New Asset Protection Strategies Dominating the Marketplace
The Death of DAPT’s, FLP’s, GRATS, GRUTS, and Tax Planning, and What’s Replaced Them
The Five Essential Trusts and Key Drafting Needs to Serve 99.7% of Clients
The Power of Powers of Appointment, in the Right Places
Four “Must Have” Drafting Considerations and Three “Most Forgotten” Powers in Trust

Medicaid

Four Steps to Medicaid Eligibility for Any Client
How to Calculate the “Breakeven” to Ensure the Proper Filing Date for the Shortest Penalty Period
Medicaid Qualifying Annuities – Hidden Risks and How to Properly Disclose Them to Clients or Protect from Them
The Seven Key Factors to Calculate any Medicaid Case in Seven Minutes (or Less)
IRAs – Exemption Versus Taxes, How to Calculate if IRAs Should be Liquidated or Exempted in Medicaid and VA Cases

VA Benefits

Meet the VA
Service Connected Benefits (Veterans & Widows/Dependents)
Non-Service Connected Benefits – Improved Pension, Housebound, Aid & Attendance
Asset Eligibility
Application Process
Correct Forms
Annual Reviews
Appeals Process
Representation and Marketing – Getting Veterans to March in Your Door

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