In addition to providing ease of management and significant asset protection, FLPs and (FLLCs) are still a excellent planning tool for obtaining gift and estate tax discounts (for minority interests and lack of marketability) - provided that the implementation and valuation are done correctly.  See this BVWire article on Keller v. U.S., 2009 WL 2601611 (S.D. Tex.) (Aug. 20, 2009).

However, anyone considering a FLP or FLLC for the transfer tax advantages should not delay - the Obama administration has recommended legislation prohibiting such discounts in most cases.

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The following is a list of some of the events that should trigger a review of your estate plan:

(1)        Marriage, divorce, death of spouse.

(2)        Birth of a child.

(3)        Children become financially independent.

(4)        Birth of a grandchild.

(5)        New business venture.

(6)        Substantial growth in your business.

(7)        Job promotion.

(8)        Retirement.

(9)        Purchase of life insurance.

(10)      Move to a different state.

(11)      Substantial increase or decrease in wealth.

(12)      Decision to make large charitable gifts.

(13)      Increase in risk of being subject to a lawsuit.

(14)      Substantial amounts of property are in joint names.

(15)      Purchase of real property (including a time share) in another state.

(16)      Changes in tax or other relevant laws.

Even in the absence of any of these events, an estate plan should be reviewed every three to five years to ensure that the documents are in keeping with current laws.

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What Can We Learn from Sam and Helen Walton?
by: Larry W. Gibbs

Contemporary estate planning causes a division of an estate and results in an ultimate dissipation of the resource base over a period of years. Is it possible to keep the resource base together to serve the family for many family generations? The Sam and Helen Walton story tells us how we can do so. The King Ranch story provides another illustration of what can be done.

Sam Walton's autobiography was published shortly before his death in April of 1992. Sam Walton writes about building a business and entrepreneurship. He also talks about the building of an estate plan. Most of the information I provide comes from the book. Other information comes from those who knew Mr. Walton or members of his family.

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From IR 2009-85:

WASHINGTON ― The Internal Revenue Service today provided guidance for retirement plan administrators, plan participants and retirees regarding recent legislation affecting required minimum distributions. The Worker, Retiree, and Employer Recovery Act of 2008 waives required minimum distributions for 2009 from certain retirement plans.

Generally, a required minimum distribution is the smallest annual amount that must be withdrawn from an IRA or an employer’s plan beginning with the year the account owner reaches age 70½. The 2008 law waives required minimum distributions for 2009 for IRAs and defined contribution plans (such as 401(k)s) and allows certain amounts distributed as 2009 required minimum distributions to be rolled over into an IRA or another retirement plan.
 
Notice 2009-82 provides relief for people who have already received a 2009 required minimum distribution this year.  Individuals generally have until the later of Nov. 30, 2009, or 60 days after the date the distribution was received, to roll over the distribution.

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Here's the money your family could have saved had you done proper estate planning:

(with thanks and apologies to Geico)

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In a case interpreting Arizona law, the Court of Appeals for the Ninth Circuit held in Gaughan v. Costas that a disclaimer filed prior to declaring bankruptcy was valid and effective since the disclaimer was permitted under state law.  In re Costas, 555 F.3d 790 (9th Cir. 2009).  The effect of the ruling is that federal courts must examine state law definitions of property to determine whether a disclaimer of an interest in a trust or estate constitutes a fraudulent transfer under the Bankruptcy Code.

In Costas, the court’s decision meant that because the debtor had disclaimed her inheritance before filing for personal bankruptcy, her family members rather than her creditors were able to recieve the money her father had left for her.   Check out this Trusts and Estates article discussing the case.

North Carolina falls under the jurisdiction of the Fourth Circuit Court of Appeals, so this ruling does not automatically apply to bankruptcies in this state.  The NC law on disclaimers (called renunciations in NC) provides that a renunciation valid under federal law means that the renouncer is treated as having predeceased the date of the transfer (generally the death of the person from whom the renouncer would inherit). 

Federal disclaimer law provides, inter alia, that the disclaimer must be made within nine months of the date of  death of the transferor and without accepting benefits from or asserting control over the disclaimed property interest. IRC 2518.

I have yet not researched NC case law, but based on the wording on the NC statute (click "Continue Reading), I think the Fourth Circuit could reach the same conclusion.

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I saw this post by a fellow estate planning attorney on linkedin and thought it would be good to share with my readers:

Ten Dangerous Estate-Planning Fantasies

By FREYA ALLEN SHOFFNER - an attorney in Boston who focuses on estate planning.

Estate Planning is great. It is an empowering tool that can be used in a multitude of ways. Planning your estate means designing the documents that will direct how your assets are handled now and in the future. Making an estate plan that works means avoiding the difficulties of conservatorship, guardianship, and a complicated probate process. A good plan can help you and your family save many thousands of dollars in taxes. It allows you to make your medical decisions in advance.

Unfortunately many people have fallen for the many myths and fantasies about estate planning. Often, their families and loved-ones are left with nothing but huge bills, complicated probate proceedings, and even nasty lawsuits.

Here are ten dangerous estate-planning fantasies. Which ones do you believe?

1) I’m Too Young For An Estate Plan. False. If you have passed your eighteenth birthday, you need an estate plan. Every pot of gold comes with a pot, and your estate plan is the pot that holds your gold. Your estate plan helps you manage your assets during your life, if you are disabled, at death, and after. Don't leave Earth without it.

2) I’m Too Poor For An Estate Plan. Wrong. Estate planning is essential for everyone who is concerned about how their assets are managed now and how they will be distributed after their death. Don’t forget, once you take into account the value of your home, your retirement funds, and insurance policies, you might be wealthier than you thought.

3) A Simple Will Is All I Need. Not Necessarily. Many people have the mistaken belief that their Will controls where all their assets will go. However, many assets like insurance proceeds, retirement plans, IRAs, annuities, and even bank accounts may automatically become the property of someone else. Be sure to review all of your co-owned assets when you begin your estate plan.

4) Once I Write My Will, I’m Done. Absolutely Not. Birth, adoption, divorce, death, and many other factors can change the way you should set up your plan. Review your estate plan periodically, especially when there are major changes in your life.

5) I’ll Just Leave Everything to My Spouse So I Won’t Have To Pay Taxes. Not True. The federal government and many states do offer a tax credit for assets that pass to your spouse. However, if you leave everything to your spouse, you may be throwing away half of the credit.

6) I Can Make Unlimited Gifts to My Children To Avoid Estate Taxes. A Myth. While making gifts to your children can lower your estate tax total, you need to do it properly to make the most of the gift tax laws.

7) My Closest Relative Will Automatically Be My Children’s Guardian. No. Guardianship of minor children is an important aspect of estate planning that requires thought and careful consideration, nothing about it is automatic.

8) Life Insurance Doesn’t Count For Estate Taxes. Another myth. Life insurance proceeds are part of the policy owner’s taxable estate. And, if you forget to name a beneficiary they could be part of your probate estate as well.

9) If I Go Into A Nursing Home the State Will Take All of My Money. False. There are many ways to plan for payment of long term care expenses. Sit down with your attorney to discuss long-term care strategies.

10) An Online Form Is All I Need. Very Wrong. While online estate planning forms might give you an idea about what to do, every state has different requirements for the specifics of a Will. Remember, you estate plan is the container that will hold all of your wealth. Don’t risk your family’s future security on a fill-in form.

Don’t be fooled. With a little thought and the help of a good attorney, your estate plan will work to protect your hard-earned wealth for decades to come.

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Jonathan Weisman of the Wall Street Journal reports that the Estate Tax Faces Its Own Life-and-Death Struggle.  When and what will happen with regard to the federal estate tax is still very much up in the air.

Here's what's happened this decade:

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Fellow Blawger Gideon Alper, who writes the Gay Couples Law Blog, has an interesting take on what will, or will not, happen with the federal estate tax over the next year or so: Estate Tax Repeal in 2010 Not a Big Deal Because Congress Can Pass a Retroactive Tax Amendment.

Regardless of what happens with the estate tax, the bottom line for those whose estates are $1 million or more, or are likely to be in the near future, is to be prepared, to the extent possible, by implementing a comprehensive, yet flexible, estate plan.  And then - review it as the tax legislation does change.

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From IR-2009-84:

WASHINGTON ─ The Internal Revenue Service today announced a one-time extension of the deadline for special voluntary disclosures by taxpayers with unreported income from hidden offshore accounts. These taxpayers now have until Oct. 15, 2009.  

Under special provisions issued in March, taxpayers with these hidden accounts originally had until Sept. 23, 2009 to come forward. Those taxpayers who do not voluntarily disclose their hidden accounts by the new deadline face much harsher civil penalties, where applicable, and possible criminal prosecution.

IRS officials decided to extend this deadline after receiving repeated requests from tax practitioners and attorneys around the country following an influx of taxpayer requests. By extending the deadline for a short period of time, the IRS is providing relief for those taxpayers who had intended to come forward prior to the deadline, but faced logistical and administrative challenges in meeting it. The extension will allow tax preparers and attorneys the necessary time to interview and advise their backlog of taxpayers with these hidden accounts, and prepare the necessary paperwork to qualify for the special penalty provisions.

The IRS also announced that there will be no further extensions.

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A New York tax lawyer, of all people, was denied medical expense deductions for $100,000 or so in expenses for his prostitute and pornography habit.  See the TaxProf's posting on the U.S. Tax Court case of Halby v. Commissioner, T.C. Memo 209-204.

Much more scintillating than than the tax problems of Obama's cabinet members and Charles Rangel!

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Hurry up and wait is basically the message of this article from TheHill.com

TheHill.com is self-described as the publication “for and about Congress, breaking stories from Capitol Hill, K Street and the White House. The Hill stands alone in delivering solid, nonpartisan reporting on the inner workings of Congress and the nexus of politics and business.”

For those seeking some certainty in the tax laws to be able to do more effective planning, the situation on the Hill may seem more like the "Hell."

I, for one, am advising my clients not to count on a $3.5 million or more exemption in the future as a given.  This goes for current planning and post-mortem planning, such as funding credit-shelter trusts by disclaimer after the death of the first spouse to die.  Not that my clients always take my advice...I just make sure my file is documented so if the kids end up with large estate tax bill, I won't be the one to blame.

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From the Wall Street Journal: Higher Taxes Are Coming: Are You Prepared?

Here in North Carolina, we've already been hit with higher taxes.  Can't wait for the federal increases. :-(

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Rich Rodriguez, the football coach for the University of Michigan, has been sued for $3.9 million due to a loan default.  Rodriguez and partners formed an limited liability company, The Legends of Blackburg LLC, to develop a condo community in Virginia.  Apparently, as is customary, he had to give a personal guarantee, and now he's on the hook for a cool $4,000,000.00.

Rodriguez was previously sued by his former employer, West Virginia University, for $4 million over a buyout clause dispute.  That case was settled last year.

Let's hope he learned his lesson and did some asset protection planning before the condo loan defaulted!

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House Bill 1058 - Effective December 1, 2009, an individual resident of North Carolina who is a debtor can retain, free from the enforcement of the claims of creditors, the debtor's aggregate interest, not to exceed $35,000 in value, in real property or personal property that the debtor or a dependent of the debtor uses as a residence, in a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence, or in a burial plot for the debtor or a dependent of the debtor. The current amount is $18,500.

·        An unmarried debtor who is 65 years of age or older can retain an aggregate interest in the property not to exceed $60,000 in value so long as the property was previously owned by the debtor as a tenant by the entireties or as a joint tenant with rights of survivorship and the former co-owner of the property is deceased. The current amount is $37,500.

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I previously blogged about a Bankruptcy Court in Texas holding that an inherited IRA was not exempt from claims of the new owner's creditors.   In re Jarboe, 2007 WL 987314 (Bkrtcy S.D. Tex. 2007).

A new ruling out of Florida reaches the same conclusion, stating:

"[t]he purpose of the . . . Legislature in exempting individual retirement accounts is to allow debtors to preserve assets which have been earmarked for retirement in the ordinary course of the debtor's affairs. Such a purpose would not be served by upholding [the beneficiary's] request to keep his interest in the IRA as exempt."   (Second District Court of Appeals in Robertson v. Deeb (2D08-6428))

Given that Texas and Florida are perhaps the two most debtor-friendly states in the nation, this trend is certainly something to be concerned about.  It's probably just a matter of time before we see such a ruling in North Carolina.

Don't wait until it's too late - protect your legacy by using a standalone IRA Trust.

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This morning I came across this article on estate planning advice by the Better Business Bureau.  I certainly endorse the idea of urging people to do proper planning, but articles like this can sometimes do more harm than good.  I give a grade of C (mediocre).

Here's the text of the majority of the article, with my comments in bold:

An estate plan can be as simple as drafting a will or as complex as setting up a trust and a living will. BBB offers the following guidance on the basic components of an estate plan and advice on choosing what is necessary for different situations.

Wills can be complex also, and can contain trusts that take effect at death (testamentary trusts).  Also, the first sentence implies that a will and a living will are mutually exclusive, which of course is not the case.  The only source of true estate planning guidance should be a well-qualified estate planning attorney.

Will

At the very least, anyone who has assets that they would like to pass on to specific individuals should create a will. A will can allocate assets as well as establish guardianship of children. Most wills have to go through probate after the individual’s death. In probate, a court oversees the payment of any debts and distributes inheritances—the process can last several months.

This is basically accurate, but it's not really the will that goes through probate, it's the assets (depending on what type and how they were owned),  And in many cases, probate can last for a couple years.  This is one reason I generally counsel the use of living trusts to avoid probate.

Living Trust

While a trust might sound like something only wealthy people need, it’s actually a tool for anyone who would like to set conditions on how and when their assets are distributed. A trust can also help reduce the amount of taxes paid on the inheritance and does not have to go through probate—unlike a will. Examples for creating a trust include wanting to give a child their inheritance over time, rather than in a lump sum, and restrict how the money can be spent.

This is misleading.  A will can also contain provisions that set conditions on how and when assets are distributed (a testamentary trust).  In addition, a living trust in and of itself does nothing to reduce inheritance (estate) taxes.  Trusts or other provisions that can save estate taxes can also be contained in wills.

Living Will

A living will provides a way for an individual to communicate their desire for life-saving measures in case they are incapacitated. In addition to a living will, individuals can also assign medical power of attorney to someone they trust who can further ensure that their wishes are fulfilled.

Actually, a living will normally states one's desire to not have life-prolonging measures.  There's no mention of HIPAA restrictions on sharing health care information, however, and the need for a blanket HIPAA Authorization.

For simple estates, many Web sites offer an inexpensive do-it-yourself approach to creating a will; for more involved estates, it’s best to enlist the help of a lawyer. BBB advises researching any estate planning companies or lawyers first at www.bbb.org before paying for assistance.

Beware of the websites.  Using a website to do your estate planning is like diagnosing and treating yourself after reading WebMD.  In, the North Carolina State Bar has stated that Legalzoom is violation of the law.  Click "Continue Reading" to view the text of a letter sent to Legalzoom in 2008.

Also, to be accredited with the Better Business Bureau, a business must pay a fee.  Therefore, lack of accreditation should not be viewed as a negative factor.  Finally, don't just use any lawyer - with a board certified estate planning specialist you know that he or she has extensive knowledge and experience in estate planning.

After creating an estate plan, BBB recommends communicating the terms of the plan with the family members and loved ones it impacts. An estate plan needs to be revised every time the individual moves, changes marital status or is affected by major financial changes, such as investments or buying or selling a business. An estate plan will also need to be reviewed if anyone the estate plan affects undergoes major life changes such as marriage or death.

Communication with family members is generally good, unless you think it will start a family feud.  Regular review and updating of estate plans is also important because of changes in the law.

Bottom line - it's a good idea to try to educate about estate planning before meeting with a lawyer, but don't rely on the Internet alone for your estate planning.  There's no substitute for the services of a knowledgeable and experienced attorney.

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Effective today, along with 1% increase the sales tax, the filing fee for probate cases has increased to $88 (from $61).  The .40/100 fee applied to estate assets (maximum of $6,000) does not increase this year - but watch for future increases as the state continues to struggle to increase revenues. 

If you use a living trust to avoid probate your heirs won't get stuck with these fees.

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Most people fail to do any estate planning at all, and many more have outdated or inadequate plans.  A recent article, A slacker's guide to death, discusses this issue.   One word of caution - the article, while generally applicable to North Carolina, has one suggestion that is not always a good idea in North Carolina, and that's for married couples to own assets jointly.  I normally recommend that only for real estate, as jointly owned cash and investment accounts are more vulnerable to creditors.

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