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3 Things To Consider When Planning For Clients Over $10 Million

April 8, 2015

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

Recent statistics indicate only 2 out of 1,000 clients have a federal taxable estate. While it affects only two‑tenths of a percent of the population, it is something attorneys come across that creates confusion in how best to plan. So, the first question to consider is how much over $10 million dollars a client’s estate is, which will dictate the type of planning strategy to use. Generally, there are three estate tax planning strategies utilized. One strategy is to utilize annual gifting to maintain the client's current asset level. This approach is effective for those who are just below or just above the limit and have sufficient number of beneficiaries to gift the excess each year. The second strategy is to "freeze" the value of a client's estate at its current value so that all further growth of the estate happens outside the estate. This strategy is typical when a client has assets that are expected to grow aggressively. And finally, the third strategy is to reduce or eliminate taxes for individuals who are over the $10 million limit significantly. Let's examine each approach.

Strategy One: Clients attempting to maintain their current estate can do outright gifts utilizing an estate tax focused irrevocable trust. This trust utilizes the “Crummey Power” to use the client annual gift exemption of $14,000.00 per person per year. Assets funded are removed from their estate. A critical distinction for this type planning is that the individual has enough beneficiaries to distribute the growth in their estate each year. For example, a typical $10 million estate that grows 5 percent a year would need to dispose of $500,000.00 each year. That would require 36 beneficiaries to distribute $14,000.00 to each year (or on their behalf to a Crummey trust) or 18 beneficiaries if the client is married and both husband and wife distribute each year. If the client does not have enough beneficiaries to distribute to, then maintaining the size of the estate using this approach, will be difficult. The attorney, however, can’t approach this planning in a bubble and must look to the type of assets in the estate to determine how rapidly it appreciates. For example if $5 of the $10 million is real estate that increases minimally in value or maintains its value given the current real estate market this strategy. The strategy may allow the client to maintain their current value but if you believe the real estate (or other assets, like a business) are going to appreciate significantly you may want to consider the second approach.

Strategy Two: The second strategy is to freeze the estate value by conveying away to a trust or other entity assets currently owned by an individual and utilize a client’s lifetime gift tax exemption (same as estate tax amount). This strategy ensures all future growth on assets transferred will grow outside of the client’s estate. A business owner client with a company currently worth $2 million, but the client believes might be worth $5 to 10 million in a few years, would benefit from utilizing part of their lifetime exemption now (the $2 million dollar value) in conveying away business ownership so when it grows to $5 or $10 million, it’s outside their taxable estate. The same is true of investment-based assets that a client expects to grow. This strategy may require the client to forever give up all rights to their assets, but depending on legal documents used, the client may be able to maintain control and even derive the benefit from their assets by use of promissory notes and management fees. A technique to add to the freeze approach is to utilize discounting techniques that currently achieve a 30 to 40% discount on the value of any gift made. This allows individuals to convey away $5 to 10 million of assets but only have to use $3 to $6 million of their $10 million lifetime exemption. When combining these strategies, reduction by using discounting techniques also “freezes” the value of those assets that have been transferred in the transferor’s estate.

Strategy Three: The final strategy to eliminate estate tax is accomplished through the use of charitable strategies. Charitable strategies can be used during lifetime or after death to “zero out” the estate taxes if a client's charitable intentions align with the planning strategy. Ultimately, if significant assets are conveyed to a charity the client has created (typically a private foundation) which the family still controls and benefits their community with. Charitable techniques can be used during life to reduce the estate tax and income tax! In addition, charitable planning through use of testamentary charitable lead trusts can reduce the estate to the maximum exemption and eliminate an estate tax.

So what do you want to do for a client over $10 million? I choose to focus on clients under $10 million as I find them to be more enjoyable and more open to the planning strategy and I co-counsel with attorneys that keep up with the technicalities of techniques to achieve the estate tax savings. The complication of advanced tax strategy requires a full focus by the attorney who understands the distinctions between these planning strategies and the overall goals of the clients. Be prepared to know these techniques or be able to worth with someone who does, if you intend to plan in this area.

If you want to learn more about estate planning and elder law and growing your practice, join us in St. Louis from June 1st through June 5th. We'll be spending 3.5 days on all you need to know about Asset Protection, Medicaid and VA Benefits Planning. If you practice in the estate and elder law arena, you DO NOT WANT TO MISS THIS week long event.

Join some of your most successful and forward-thinking peers from around the country at this program where we will discuss, discover, and provide solutions for Legal Technical, Operations, and Marketing. Click here to register and grab a seat now.

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Tips On Calculating Payments From IRAs

March 24, 2015

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

Many practitioners inquire whether the Social Security actuarial tables or the IRS minimum distribution tables should be used when determining the required minimum distribution (RMD) of an IRA to ensure their client qualifies for Medicaid. So what is the proper tables to use?

In typical lawyer fashion, the answer is, it depends. 42 USC Section 1396(b)(c)(1)(G)(ii) provides for annuity to be actuarial sound, and not considered an uncompensated transfer, the annuity must pay out over the life expectancy of the annuitant "in accordance with the actuarial publications of the Office of the Chief Actuary of the Social Security Administration." The same is true when determining the proper payout on a promissory note or mortgage as outlined in 42 USD 1396p (c)(1)(I). How does this differ from the required minimum distribution tables published by the Internal revenue service and what is the relevance?

Sections 401, 403, and 408 of the Internal Revenue code outlines requirements regarding retirement accounts. Upon attaining age 70½ required minimum distributions are required under the tax laws is based on the RMD tables published. In comparison, the Social Security tables are very different, and in some circumstances the IRS tables require nearly half the RMD that the Social Security life expectancy tables require. So how do you be certain which one you use?

To keep it simple, to remain compliant with the tax laws, the IRS tables must be utilized in determining the required minimum distribution to avoid any adverse tax penalties for failing to withdraw the minimum amount required. Medicaid and benefits planning, however has a different standard is that the Medicaid law specifically refers to the Social Security Administration table in determining the actuarially sound calculation of any annuity owned by a Medicaid applicant.

So the proper table to use will depend not on the law, but on which table your Medicaid department uses. While the law is clear that it requires the Social Security tables, many states allow the IRS RMD tables and some states even exempt an annuity if the IRA is simply in a "payout status. Once you are clear on how your state identifies an “actuarially sound” annuity or promissory note, you will have your answer. So, one final responsibility is to ensure when the Social Security tables are used, the amount required to be withdrawn is equal to or more than the minimum amount required by the IRS RMD tables. That ensures a client’s benefits’ planning is also tax compliant. Conversely, if a client is not doing benefits planning, then relying on the IRS RMD tables may result in a lower minimum distribution requirement.

If you are not a Lawyers With Purpose member, and would like to know more about who we are and the benefits we can bring to your estate and elder law practice, join our FREE Having The Time To Have It All webinar Monday at 8:00 PM EST.

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

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How To Completely Understand The Rule Of Halves

March 11, 2015

by David Zumpano with One Comment Asset Protection Estate Planning Drafting Software

Many Medicaid planning practitioners are aware of the rule of halves, but it is an area of confusion for many attorneys newer to the practice. Where does the rule of halves come from? Is it codified? Well, sort of. To understand the rule of halves you have to first understand the Medicaid law and then understand math.

42 USC 1396p (c) (1) (e) provide a penalty period shall be imposed on any individual who transfers assets for less than its fair market value (uncompensated transfer). The law further states the penalty shall be calculated by taking the amount of the uncompensated transfer and dividing it by the average cost of one month's nursing home in the region in which the Medicaid applicant resides. That is all the law states, so the question becomes where does the rule of halves come from? That's where math comes in. In essence in light of the law identified, if you take any amount of money and divide it by two, the half you gave away will create a penalty period equal to what the half kept will pay.

If an individual has $100,000.00 of excess assets, and gives half away, the $50,000.00 transfer will create a penalty period that will always equal the period the retained amount will pay thru. Assuming a regional divisor of $5,000.00, the penalty on the $50,000.00 transfer would be 10 months, and the $50,000.00 retained would thereby pay 10 months in a nursing home ($5,000.00). While the rule of halves, in its purest form, makes sense in practice, it's a little more complicated because one of the fallacies in using rule of halves, is it presumes that the regional divisor actually equals the cost of care (even by law it supposed to, it often doesn’t).

In the same example if you gave away $50,000.00 in a location the divisor is $5,000.00, it would create a 10-month penalty period, but, if the cost of care was actually $6,000.00, then the $50,000.00 retained would not pay through the 10-month penalty period (you would need $60,000). The federal Medicaid law requires the state to publish at least annually, the average cost of one‑month's private paid nursing home (regional divisor). Each state however, has their own way to calculate this and most facilities are above (rarely below) that regional rate. A few states (Illinois for example) have made the divisor the actual cost of care at the facility where care is being provided. That negates any concerns about the effectiveness of the rule of halves calculations.

Finally, when planning using the halves calculation, one must also consider the income of the Medicaid recipient. When a cost of care in excess of the divisor, creates in a shortfall of retained funds needed to pay through any penalty period, failing to take income into account, often creates excess resources for the client at the end of the penalty period, which will render them ineligible.

To illustrate, assume again an individual had $100,000.00 excess assets and transferred $50,000.00 with a monthly divisor was $5,000.00. The $50,000.00 transferred would create a 10-month penalty and the $50,000.00 retained would pay through the 10‑month penalty. All other things being the same, at the end of 10 months, with the recipient in a nursing home, they're not spending their monthly income (assume $1,200.00 Social Security) the client would have accumulated an additional $12,000.00 ($1,200.00 a month times 10 months) and have excess resources and therefore not be eligible for Medicaid until additional spend-down and penalty may be created.

Proper planning utilizing the rule of halves assumes an analysis of the actual cost of care, the actual regional divisor and the actual income of the recipient are considered. The LWP Medicaid Qualifying software automatically calculates the optimal client assets to transfer and retain considers the actual cost of care, the regional divisor and the clients actual income.

To learn more about Lawyers With Purpose and what we have to offer your estate or elder law practice, please join us THIS THURSDAY for our "Having The Time To Have It All… Three Time Strategies To Have A Practice With Profit And Purpose." Click the link for registration information and to reserve your spot now.

David J. Zumpano, CPA, Esq., Practicing Attorney, just like you & Founder of Estate Planning Law Center & Lawyers with Purpose LLC

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Conduit Or Accumulation Trust

March 4, 2015

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

The question of whether an attorney uses a conduit or accumulation trust in regards to an inherited IRA is a question of simplicity versus protection. Recently, the U.S. Supreme Court in Clark v. Remeker, ruled an inherited IRA is not "protected" from the reach of creditors.

As practitioners, we can still protect an inherited IRA by ensuring the beneficiary is a trust, not an individual. They key question when utilizing a trust is whether to make it a conduit trust or an accumulation trust. What factors should you consider? If the practitioner wants simple for both himself and the client, a conduit trust is the answer. Conduit trusts provide that any and all distributions that come into the trust on an annual basis must be distributed out in the same year to the rightful beneficiary.

Therefore, the trust is merely a "conduit" to hold the IRA for the benefit of the beneficiary. While this provides asset protection of the underlying principal of the IRA, it does not provide any protection of the required distributions from the trust to the beneficiary.

Alternatively, practitioners can elect to provide for an accumulation trust. In an accumulation trust, the RMD (or other IRA distributions) is distributed from the IRA to the trust, but, the trustee has the option to "hold" the distribution and accumulate it with the principal of the trust. The major downside to an accumulation trust is if the RMD is held and accumulated, the trust must pay the tax on the income from the IRA and trusts are traditionally taxed at a much higher rate than individuals.

Why would one do this?

If the beneficiary is in the middle of a lawsuit or becomes subject to alimony or other liabilities, any income distributed to the beneficiary would be lost. So the question becomes what is the bigger loss, a potential twenty-five to forty percent income tax, or a 100 percent loss creditors or other legal obligation. An accumulation trust can also serve to protect a beneficiary from themselves. In addition to protecting the income and assets "for" the beneficiary. A properly drawn accumulation trust also protects the IRA and distributions "from" the beneficiary. Many of us are aware of individuals with children who inherit IRAs and their first item to purchase is a fancy new sports car that costs $50,000.00. To do this, requires the beneficiary has to withdraw $71,500.00 assuming a 30% tax rate which leaves $50,000.00 to purchase the car that's worth $40,000.00 when they drive it off the lot. Great way to turn $71,500.00 into $40,000.00 in a single act! In cases of spendthrift or other concerns, a accumulation trust provides the greatest option.

Perhaps the greatest advantage of an accumulation trust is you can have the best of both worlds, that is if you choose to distribute all RMD out in the year received to have it operate like a conduit trust. A conduit trust, however cannot hold money to be protected or distributed later like a accumulation trust. Accumulation trust also is a better choice if the beneficiary is in the maximum tax bracket, so any accumulation would not create any additional tax loss. When properly drawn both conduit and accumulation trusts can provide for all of the RMD be calculated on the age of one beneficiary, but the distributions of the RMD can be distributed out to other beneficiaries who are in a lower tax bracket (i.e. the children of the beneficiary).

So determining whether to use a conduit or accumulation trust is deciding whether simple is the goal or ultimate protection is the goal. It is critical that you properly educate your client so they can advise you of what's most important.

If you would like to know more about Lawyers With Purpose and discover three tried and tested time strategies to get a practice that allows you to help more people and be profitable join us on Thursday, March 12th for our "Having the Time to Have it All…Three Time Strategies to Have a Practice with Profit and Purpose" webinar.

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
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

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Knowing The Breakeven Point… A Must When Pre-Planning!

February 18, 2015

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

When Medicaid planning, many practitioners focus on the look back date and the penalty period to identify the best strategy to ensure Medicaid eligibility in the shortest period of time. While that may be true for crisis planning, when preplanning for Medicaid benefits, the look forward period and the breakeven date are critical factors to become eligible in the shortest period of time.

When pre‑planning, practitioners must strategize on two premises; (1) what the worst case scenario would be (if the client fell ill the day after pre‑planning is completed) and compare that to (2) the best case scenario, which occurs when the client stays healthy for 60 months. While crisis practitioners focus on the look back date and review of financial records for the previous 60 months, pre‑planning practitioners must focus on the date of a conveyance (uncompensated transfer) and "look forward" 60 months to determine the timeframe in which the the transfer will be in the purview of a future Medicaid application. Understanding the distinction between the look-back period and the look forward period is critical in determining the breakeven date when preplanning for future Medicaid benefits.

So, what is the breakeven date? It is the date, when pre-planning, that if it is reached, it will be better to wait out the 60 months from the original conveyance date than to convert to a crisis case. The breakeven date is calculated by determining the worst case scenario and comparing it to the best case scenario. The worst case scenario is if the client fell ill the day after pre‑planning was completed. What would be the best case scenario in such an event? To determine that, you would calculate as if it were a crisis case, and determine the "minimum months to qualify", the soonest period in which you would be able to get the client eligible for Medicaid if they came in in crisis. Once you have calculated the minimum months to qualify, and then compare it to the best case scenario, if the client had stayed healthy for sixty months. The breakeven point is simply the best case minus the worst case. Restated the best case is remaining healthy 60 months (the entire look forward period) and the worst case is if it were a crisis case and you calculate the minimum months to qualify.

Let's give an example. Assume a client came into you in crisis and after doing your calculations you are able to determine that you can get them qualified for Medicaid in 23 months. This is done by transferring assets and reserving enough assets to pay through the 23 month ineligibility period. It's pretty straightforward in a crisis case. Assume now the same exact client came in, but was healthy. In preplanning case you would calculate what would happen if the client were in crisis (like we just presumed) and then compare it to the best case scenario (they stay healthy 60 months). In this pre‑planning case the breakeven date would be 37 months (60 minus the minimum months to qualify of 23 months) from when the preplanning was completed.

Therefore in a pre‑planning case if the need for nursing home care occurred within 37 months, you would convert the pre‑planning case to a crisis case at that time and get them qualified in 23 months. If however, the client's need for nursing home care occurred after month 37 (the breakeven point), then instead of converting to a crisis case, you would privately pay until the 60^th month after the original transfer (look forward date). Sounds confusing, but it's really quite simple once you understand these new terms.

To learn about these key terms join our FREE Webinar February 24th on Simplifying Medicaid Eligibility & & Qualified Transfers.

Here's just some of what you'll discover…

Understanding the 12 Key terms of Medicaid
Learn the Qualification Standards: Does Client Meet Needs Tests?
Learn the Medicaid Terms of Art
Learn the Snap Shot, Look Back/Look Forward Distinction: And how to put it all together
At the end of the event receive an ALL STATES Medicaid Planning Resource Guide
…and much, much more!

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

And you can learn how the LWP-CCS™ Medicaid software can calculate both crisis and preplanning strategies optimal to every client fact pattern: and simplify this otherwise confusing planning opportunity!

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 Know When An SNT Needs A Tax ID Number

February 12, 2015

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

The question among many practitioners is, does a supplemental needs trust need a separate tax I.D. number and have to file a separate income tax return? The answer is, it depends. So let's examine when an SNT needs a separate tax I.D. and when it doesn’t.

A supplemental needs trust will be a first party or third party trust. A first party supplemental needs trust is funded with assets of the disabled individual who is also the beneficiary of the trust. Under law a first party supplemental needs trust can only be created by the parent or grandparent of the individual, or a court. Once the first party supplemental needs trust is created, it will not require a separate tax I.D. number, but instead will use the tax I.D. number of the disabled beneficiary. All income earned by the first party supplemental needs trust will be reported on the income tax return of the disabled beneficiary, but will not affect or be counted toward their continuing eligibility, as long as distributions are made on the beneficiary’s behalf and not made directly to the beneficiary.

A third party supplemental needs trust is created and funded by someone other than the disabled beneficiary, but for the benefit of a disabled beneficiary. Whether a tax I.D. number is required for the third party SNT will depend upon how the trust is structured. In most third party SNT’s, the creator of the trust (grantor) wishes to maintain control of the trust for the benefit of the disabled beneficiary. In this case, no separate tax I.D. number would be required as it would be considered a "grantor" trust and all income would be taxed to the grantor. If the grantor is not the trustee, but retains other identified rights, then the same rules would apply. Alternatively, if the grantor creates a trust and retains no rights to change it, benefit from it or control its distribution, then it may be a non‑grantor trust and need a separate tax identification number.

Similarly, after the grantor who created the trust and retained rights to make it a grantor trust dies, the third party supplemental needs trust now becomes a "non‑grantor trust" and requires a separate tax identification number. Annual income tax returns would have to be filed for non-grantor SNT’s but the actual tax will be deemed payable by either the beneficiary, or the trust, depending upon the actual distributions made. For example, if a supplemental needs trust earned $10,000.00 in a year, and they used $7,000.00 of it for the beneficiary, it would "pass through" the $7,000.00 in taxable income to the beneficiary on a Form K1. The remaining $3,000.00 retained in the trust, would be taxed at the trust tax rate and payable by the trustee directly with the tax return filed by the trust with the IRS. Finally, in relation to IRAs, the IRS has ruled in Private Letter Ruling 200820026, that an IRA payable to a supplemental needs trust at the death of the IRA owner, will not be required to be liquidated and, but instead, the age of the disabled beneficiary will be used for "stretch purposes" and it will be considered a grantor trust of the beneficiary for purposes of the IRA distribution.

So does a supplemental needs trust need a tax I.D. number? No and yes it all depends how you create the trust during lifetime and how you plan for it!

If you are interested in learning more about estate planning and more specifically on the iPug Business Planning, join us February 12th at 8 EST where we'll talk about:

Learning the difference between General Asset Protection, DAPT Protection, Medicaid Protection and iPug® Protection
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

And much much more… Click here to register now!

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 Plan For The Home The Right Way

February 11, 2015

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

A major question comes up often during estate planning for seniors in determining what to do with the primary residence. There are many choices, but the actual selection will depend heavily on the ultimate goal of the client. Typical client goals include basic estate planning, probate avoidance, home management in the event of incompetency, benefits planning (Medicaid/VA), asset protection planning, and estate and income tax planning. Let's review strategies in each of these situations.

The most common form of ownership of the primary residence by a husband and wife is as tenants by the entirety or similar legal ownership. By state law, this provides asset protection during life as 100 percent of the property will convey to the surviving spouse without any liens attached by a deceased spouse’s liabilities. Obviously for single individuals no asset protection is provided and non-spousal joint tenancy may protect the assets for the surviving joint tenant, subject only to Medicaid and IRS's right to recovery. The most typical funding strategy is to transfer the primary residence to a revocable living trust (RLT) to avoid probate. Some states also allow payable-on-death deeds (ladybird deeds) or heirship deeds. While funding the home to a revocable trust or these other strategies avoid probate and could provide post death asset protection (RLT), they do not effectively provide protection "during life".

Another primary strategy is to convey the home to an irrevocable trust. These are typically done when clients are interested in estate tax savings or asset protection. The primary question relates to whether the irrevocable trust is a "grantor trust" or a "non-grantor trust” for tax purposes. Traditionally, estate tax reduction trusts are non-grantor trusts and the home would maintain its "carry over tax basis" to the beneficiaries of the trust thereby creating a capital gains tax on the difference between the sales value and the original price paid by the grantor who conveyed it to the trust. In contrast, a grantor trust that retains rights that include the value of the irrevocable trust in the estate of the deceased grantor, would receive a "step up" in basis after the death of the grantor. While these serve estate and income tax needs, they often may conflict with benefits planning, such as for Medicaid and/or veterans' benefits. In addition, one must be cautious in conveying a principle residence to a RLT or irrevocable trust as it could defeat any real property tax exemptions. The client is eligible for when the property is owned in the client’s name. You need to confirm with your local assessor on the impact of the credits upon funding the home to the trust chosen.

Medicaid and veterans' benefits, on the other hand, have additional restrictions above and beyond the tax and legal restrictions regarding trusts. Putting a personal residence in an irrevocable trust for Medicaid can provide asset protection during lifetime but doing so creates a uncompensated transfer which affects future eligibility. Another question in funding the personal residence is whether to retain a reserved life estate in the deed and convey the remainder to the trust or to convey the whole residence to the trust and maintain a right for the grantor to live there inside the trust document. This is often avoids the loss of any real property tax credits but if the home is sold during the grantor’s lifetime, then the grantor's pro rata ownership (lifetime interest) proceeds would be considered “available” in determining the grantor's ongoing Medicaid eligibility.

In contrast to Medicaid planning, planning for VA benefits has additional considerations. A veteran can convey their home to an irrevocable “grantor” trust without consequence. The caution, however, is if the residence is sold during the grantor's lifetime and converted to an income producing asset (cash, stocks, ect.) it would thereafter trigger the asset value in determining the veteran's future benefit eligibility.

Planning for the home appears simple but is absolutely essential that the overall client goal is identified before determining where to fund the home. Understanding these strategies are essential.

If you would like to learn more about irrevocable trust (iPug Trust) join our FREE webinar Thursday, February 12th at 8 EST click here to register now. During this webinar you'll discover:

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

Click here to register. We'll see you then!

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

Key Distinction In Asset Protection

February 10, 2015

by David Zumpano with No Comment Asset Protection Legal Technical

Many attorneys confuse asset protection with Medicaid planning, and estate tax avoidance. It is essential attorneys and allied professionals are very clear on the key distinctions of asset protection and the types of asset protection that can be obtained.

The first distinction is identifying if protection is desired during life (now), after death, or both? Determining when asset protection is sought, will lead to whether a revocable living trust or irrevocable living trust is utilized. Revocable living trusts typically provide for the management of an individual’s assets during their lifetime if they become incapacitated, and can provide asset protection for those same assets to the beneficiaries, after the grantor’s death. In contrast, a properly drafted irrevocable trust created during lifetime, can provide asset protection when funded, but may not meet the requirements to qualify for benefits eligibility planning, Medicaid, VA and other needs based benefits. A traditional irrevocable trust will provide asset protection as long as the grantor who funds the trust gives up the right to the assets and/or income which protection is desired. Simply restated, if the grantor retains the right to income but not principal, the principal will be protected, but the income will not. General asset protection begins when the asset protection trust is funded. If any liability arose or became known prior to the funding of an irrevocable asset protection trust, the protection will be not be achieved as to those known potential liabilities. Any liability occurring after the funding of the trust, will be protected from any claims related to it.

Unlike asset protection, benefits eligibility planning requires additional restrictions beyond what is required for asset protection. The two most significant distinctions are (1) any rights provided to the spouse of the grantor will be determined available to the grantor or spouse in determining the grantor or spouse’s eligibility for a needs-based benefit; or (2) unlike an asset protection trust where the assets are protected immediately upon funding, funding of an irrevocable asset protection and needs benefits trust exposes the asset to “view” and still be considered in determining the future eligibility of the grantor or spouse for up to five years after the trust is funded. These two additional restrictions are problematic for general asset protection attorneys whose client’s later attempt to qualify for needs-based benefits. A final distinction in needs based benefits planning relates to veteran’s benefits which provide that any asset owned in an asset protection trust that is a grantor trust, is counted (in “view”) in determining eligibility for the Veteran’s Aid and Attendance and Housebound benefits. One caveat however is property held trust which does not generate income and therefore not targeted (or in “view”) by the Veteran’s Administration. Any conversion of the property to income producing will make the proceeds countable in determining the Veteran’s eligibility for benefits, even though it’s in an irrevocable asset protection trust.

Another key distinction with asset protection is whether a “domestic asset protection trust (DAPT)” is utilized or an iPug™. DAPT’s are complicated and available in only 14 states. Typically DAPT’s require a nexus with the state it is created and a close assessment of each of the individual rules associated with the states DAPT statute. In addition, domestic asset protection trusts are typically not successful in being able to plan for needs-based benefits. A more useful approach is the iPug™. The irrevocable pure grantor trust allows the grantor remain as trustee, change the beneficial interest to anyone except themselves, maintain the benefits during their lifetime of income or use of the residence, and to receive a full step up in basis on all trust assets at the grantor’s death.

A final consideration with asset protection is whether any tax reduction strategies are a goal. Some asset protection planning trusts can be utilized to reduce federal estate taxes while others choose to ensure the assets of the asset protection trust are included in the estate of the grantor, to ensure a “step up in basis” on the assets owned by the trust. Other asset protection trusts enable the spreading of income generated by the trust to beneficiaries who are in a lower income tax bracket than the Grantor, thereby minimizing income tax. The choice of trusts available for Estate and income tax planning are various and complex.

So you think you know asset protection, think again. Get clear on your client’s needs and goals and then pursue the trust that best accomplishes them.

If you want to learn more about understanding how iPug Trusts are used for clients with businesses for asset protection join our FREE webinar this Thursday, February 12th at 8:00 EST. Click here to register now and reserve your spot today.

Here's just some of what you'll discover during the webinar…

Learn the difference between General Asset Protection, DAPT Protection, Medicaid Protection and iPug® Protection
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
And much much more… register now to reserve your spot!

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

SPECIAL GUEST BLOG: “We Fight Back!”

January 29, 2015

by Lawyers With Purpose with No Comment Asset Protection

Lawyers With Purpose welcomes guest blog and Tri Annual Practice Enhancement Retreat sponsor, David A. Weintraub, P.A. "Many Stockbrokers and Investment Advisors Take Advantage of Senior Citizens. We fight back!"

The sad truth is that not all stockbrokers and investment advisors are ethical. While many are very ethical and do the best they can for their clients, others give ill-advised or inappropriate advice, and sell high commission, high risk products, that are not suitable for your clients. Much of this predatory behavior is at the expense of senior citizens – your clients – who are unaware of the consequences of these unethical and illegal practices.

We fight back against these predators. We protect the interests of those who have been taken advantage of by unscrupulous investment advisors. We hold them accountable for their actions and strive to compensate their victims for their losses.

We look forward to meeting you next week and working with you to help your clients recover losses they should never have incurred.

For more information about David Weintraub’s practice, please click here. David was also recently mentioned in the elder abuse related article you can find here: http://www.sun-sentinel.com/local/broward/pembroke-pines/fl-pines-century-village-financial-20150122-story.html

Lawyers With Purpose cannot wait to be in the room with all of our member and vendors next week in Charlotte for our Tri Annual Practice Enhancement Retreat! Safe travels and we'll see you soon.

Roslyn Drotar – Coaching, Consulting & Implementation, Lawyers With Purpose

The Veterans Administration Proposes 3 Year Look Back On Gifts

January 28, 2015

by Lawyers With Purpose with 3 Comments Asset Protection Estate Planning Drafting Software Legal Technical VA

On Friday, January 23, 2015, the VA issued proposed new Veterans Administration regulations that would penalize wartime veterans up to ten years for making gifts of assets for less than fair market value. The VA is trying to stop what they perceive as lawyers and financial advisors “taking advantage of veterans” when helping them strategically plan to preserve assets and qualify for the Improved Pension benefit.

The proposed changes in regulations would:

Establish a 3 year look back for gifts
Impose penalties for up to 10 years
Create a bright-line net worth standard of $119,220, which includes annual income
Deny any expenses related to independent living facilities as care costs
Require Veterans to sell their home place property if the lot coverage exceeds 2 acres.

How will this work? When a veteran or widow of a veteran applies for the Improved Pension with Aid and Attendance, the VA will ask if any transfers of assets for less than fair market value have been made in the three years prior to the application. If so, the VA will presume it was for the purpose of meeting the VA eligibility standards.

Penalized gifts include gifts of money or assets to children or others, establishing estate plans with the use of trusts, and establishing retirement plans through the use of annuities which can provide a life time income stream.

When a gift has been determined to have happened during the look back period, the VA will calculate the penalty by dividing the value of the gift by the claimant’s pension rate with aid and attendance. Each classification of claimant varies, thus, the penalty periods will be different depending on who makes the claim. The pension rates with aid and attendance are as follows:

(1) Married veteran = $2,120

(2) Single veteran = $1,788

(3) Widow = $1,149

Thus, if a married veteran gives away $15,000 and a widow gives away $15,000, the widow is penalized almost double that of the veteran. (Married veteran $15,000 divided by $2,120 = 7 month penalty; widow $15,000 divided by $1,149 = 13 month penalty.)

Also, because the “net worth” standard will include income, high income earners will be allowed to have low to no savings for emergency items; whereas, very low income earners will be permitted to keep much more in savings. Because of the strict ruling on how the VA plans to define “medical care,” veterans who have dementia, Alzheimer’s Disease or other degenerative diseases and live in independent living facilities because they no longer drive and need a safe environment in which to live, will not be eligible for the benefits because they may not yet the hands on care for bathing, dressing, eating, toileting or transferring (ADLs). Although they are unsafe to live at home due to their health care condition of cognitive decline, the VA refuses to consider any expenses of care for a facility as deductible from the claimant’s income unless the claimant needs assistance with no less than 2 ADLs.

Between 2012 and 2014, Congress introduced two different bills, each imposing a three year look back penalty. Both bills were died. Nevertheless, the VA is moving forward on their own to create the look back and penalties. These changes will not only hurt wartime veterans, specifically WWII and Korean war vets, but it will further exacerbate the enormous claims back logs that already exist.

To fight this from happening, everyone who cares about a veteran must respond. Public comments must be received no later than March 24, 2015 and can be sent through http://www.regulations.gov or by mail or hand-delivery to: Director, Regulation Policy and Management (02REG), Department of Veterans Affairs, 810 Vermont Ave. NW., Room 1068, Washington, DC 20420; or by fax to (202) 273-9026. Comments must include that they are in response to “RIN 2900-AO73, Net Worth, Asset Transfers, and Income Exclusions for Needs-Based Benefits.”

Victoria L. Collier, Veteran of the United States Air Force, 1989-1995 and United States Army Reserves, 2001-2004. Victoria is a Certified Elder Law Attorney through the National Elder Law Foundation, Author of 47 Secret Veterans Benefits for Seniors, Author of Paying for Long Term Care: Financial Help for Wartime Veterans: The VA Aid & Attendance Benefit, Founder of The Elder & Disability Law Firm of Victoria L. Collier, PC, Co-Founder of Lawyers for Wartime Veterans, Co-Founder of Veterans Advocate Group of America.

If are in the Charlotte NC, area, or will be attending our Practice With Purpose Program or our Tri Annual Practice Enhancement Retreat, consider joining Victoria for her Specialty Program on Wednesday, February 4th, and get your initial VA Accreditation through the VA. If you provide legal advice to Veterans about specific VA claims, to include drafting asset protection trusts for VA Benefit qualifications, you MUST be accredited by the VA. Contact Molly Hall at mhall@lawyerswithpurpose.com for registration information.

** Before attending this course, you must have submitted an Application for Accreditation, VA Form 21a, to the Office of General Counsel and received approval.