“With the trust departments of many financial institutions disappearing, and those that remain declining to manage trusts with “non-traditional” assets or even life insurance policies, families with complex legacies are looking for fiduciary alternatives that can provide the requisite services for the long haul.”
To read the full report, click here.
“Most states impose a fiduciary duty on trustees of irrevocable trusts to inform and report to the beneficiaries regarding the trust accounts and administration. Depending on the trust agreement and the applicable state law, this duty may range from mandating that the trustee notify beneficiaries of a trust’s existence and provide annual reports, to leaving all such disclosure and reporting activities in the trustee’s sole discretion. These variations in state laws and increasingly complex trust agreements can present unique compliance challenges and potential liability exposure, particularly for non-professional trustees who lack the necessary experience and administrative infrastructure.”
To read the full report, click here.
“Acquiring life insurance on a surviving spouse inside a CST addresses multiple tax issues – it limits income tax associated with the CST assets and efficiently uses the estate and GST tax exemptions. This approach also eliminates the need for annual gifts to an ILIT (and corresponding Crummey withdrawal notices) and more complex funding programs, like split dollar arrangements.”
To read the full report, click here.
“Blended families, mobile beneficiaries, and new approaches to trusteeships require a flexible and highly customizable approach to irrevocable life insurance trusts (“ILITs”), one of the most common legacy planning tools.”
To read the full report, click here.
Despite the benefits and prestige that come with working at a top U.S. law firm, small and mid-sized firms, as well as boutique offices, offer trusts and estates lawyers a much more attractive proposition.
“The venerable law firm’s move to get out of the estate-planning business comes as the legal industry continues to emphasize more profitable practices.”
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By?PAUL SULLIVAN
Published: June 22, 2012
TIME may ? or may not ? be running out for one of the biggest tax breaks for wealthy Americans: the chance to give up to $5.12 million to heirs tax-free and then pay a comparatively low 35 percent rate on any gift above that. The break is scheduled to expire in six months, but no one will hazard a guess about its fate because it is just one of many tax and spending measures expiring at the same time.
When this break was agreed upon by President Obama and the Republican Congress at the end of 2010, I expected it would?spur the wealthiestto give away huge amounts of their estate to take advantage of the break. (The original $5 million limit was increased this year for inflation; it is separate from the $13,000 annual exclusion gift.) But the rush that I expected was?initially just a trickle. While the tax break was enticing, the fear of what lay ahead in the economy and financial markets made people cautious.
Now, some of the wealthy are faced with a choice that seems designed by a behavioral economist to test rational decision-making: Do they give their heirs the full amount of the exemption, happy that the money will help the heirs now and reduce their eventual?estate tax?bill? Or do they give less, or none at all, for fear that they could be left with not enough to live on?
?I?ve gone through this with lots of people, and based on the reactions, no one whose net worth is in the nine figures has worried about having enough,? said Edward F. Koren, chairman of private wealth services at the Holland & Knight law firm. ?Below that, it depends on their spending levels and their values. That?s so personal to the client.?
The deadline for making a decision is fast approaching because advisers say it takes at least three months to do everything that needs to be done to set up a gift of this size.
All advisers agree that every financial decision is about more than saving on taxes. But in this instance, the math on both taxes and compound interest is compelling, particularly for younger people with wealth who have decades to live.
While none of the advisers would make a prediction on what might happen, no one thought the exemption would remain this high or the tax this low in 2013. After years of a $1 million gift exemption, the advisers agreed that this was a once-in-a-lifetime opportunity.
Adding to the benefit of the large tax exemption is the amount the gifted money can grow. For a child who received $5 million today in a trust that was invested broadly, that gift could grow in 30 years to nearly $29 million, at a 6 percent return every year, according to calculations by Jonathan Blattmachr, a principal of Eagle River Advisors, which consults on estate planning. Meanwhile, the parents? estate would have been reduced by $29 million, cutting the tax due on the estate.
And that is why some wealthy people ? those who could run out of money in their lifetime ? have been seduced by this opportunity but are, at the same time, trying to work out how to do it. (The exemption for the estate tax is also $5.12 million until the end of the year, but, obviously, only those who die in 2012 can take advantage of it.)
Some people are also questioning the effect such a large gift will have on their heirs. Their main concern is that it will it rob their children of motivation, said Catherine McDermott, senior wealth planning strategist for Wells Fargo Private Bank.
But she said that fear may be misplaced. ?A lot of the education around stewardship of wealth occurs during a lifetime as you?re raising children,? she said. ?Many of those questions parents face as they?re raising children.?
In other words, by the time you have made enough money to think about leaving a lot of it to your heirs, you have either set them on the right path in life or led them to believe that your money will be their cushion.
For those who do decide to make a substantial gift, there are many different ways to do it. Writing a check is the simplest way, but advisers would tell you that would leave the money unprotected against creditors. It would also waste an opportunity to use various strategies to multiply the gift.
Putting appreciated securities in a trust would seem to be a good idea, but that could lock up liquid assets that might be needed.
Another option for people worried about having enough liquid assets is to put real estate or a share in a private business into a trust.
?Transferring a home doesn?t feel the same as transferring $5 million in stocks or bonds,? said Diane E. Lederman, president and chief executive of the Neuberger Berman Trust Company.
She cautioned that anyone doing this should make sure that all the paperwork was perfect because the people making the gift would essentially be renting their home back from a trust in their heirs? names. ?When you?re giving an asset away and you?re continuing to reside there, it?s going to attract I.R.S. scrutiny,? she said.
But those who worry that they may need the money back should understand that a gift that satisfies the?Internal Revenue Service?has to be irrevocable, and the person making that gift can no longer have control over the assets.
That would seem to be straightforward, but the world of tax planning is anything but. Mr. Blattmachr, who built his own wealth interpreting tax law for his clients at the law firm Milbank Tweed, where he was a partner for 35 years, has structured trusts with his wife, Betsy, that are so complex they boggle the mind. They enable the Blattmachrs to take advantage of the current exemptions and gift money today to reduce future estate taxes. But he has structured the trusts, which each hold about $4 million, in such a way that they have a built-in safety valve if something goes wrong: they can get the money back.
One risk to trusts like these is that they mirror each other and could then get disallowed by the I.R.S.
Another risk would be if the Blattmachrs divorced, but after 42 years of marriage, he said he was not worried about that. Many estate planners are wary of these trusts. ?There is very little out there from the I.R.S. on this,? said Paige Ben-Yaakov, a partner in the tax section at the law firm Baker Botts. ?It?s not as easy as taking the assets and giving them away because you know that works.?
Mr. Blattmachr has put great effort into making sure his trusts will be allowed. At the beginning of 2011, he began setting up his trust, naming his children, grandchild and his wife as beneficiaries. Earlier this year, he set up a trust for his wife that named their children, grandchild and him as beneficiaries. Setting up trusts at different times is one way to counter any future allegations by the I.R.S. that the gifts were not real and the trusts were reciprocal.
But Mr. Blattmachr went further. He put their two homes in his trust ? and now lives in them as a guest of his wife ? and put securities in her trust. He made sure the trusts had different sets of trustees, giving her the right to replace hers but denying himself that ability. Her trustees can convert her trust to pay her 4 percent a year regardless of the principal; his can make distributions only for health, maintenance and support.
?The I.R.S. always wants the low-hanging fruit,? Mr. Blattmachr said. ?You want to get yourself way, way up in the tree.?
He added, ?I don?t think any one can tell you that this absolutely works or this absolutely doesn?t work. But what they?re going to tell you is the I.R.S. will go after others before you.?
This article has been revised to reflect the following correction:
Correction: June 22, 2012
Because of outdated information supplied by a company spokesman, an earlier version of this column misstated the job title of Diane Lederman as head of wealth planning and chief fiduciary counsel at Neuberger Berman.
What do you think of the following quote from this important and interesting article in today?s NY Times:? ?Your lawyer shouldn?t be writing a medical contract any more than you would want your doctor to write a legal contract.?
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Mapping Your End-of-Life Choices
By JANE E. BRODY
Yvetta Fedorova
Robert H. Laws, a retired judge in San Francisco, and his wife, Beatrice, knew it was important to have health care directives in place to help their doctors and their two sons make wise medical decisions should they ever be unable to speak for themselves. With forms from their lawyer, they completed living wills and assigned each other as health care agents.
They dutifully checked off various boxes about not wanting artificial ventilation, tube feeding and the like. But what they did not know was how limiting and confusing those directions could be.
Personal Health
For example, Judge Laws said in an interview, he?d want to be ventilated temporarily if he had pneumonia and the procedure kept him alive until antibiotics kicked in and he could breathe well enough on his own.
What he would not want is to be on a ventilator indefinitely, or to have his heart restarted if he had a terminal illness or would end up mentally impaired.
Nuances like these, unfortunately, escape the attention of a vast majority of people who have completed advance directives, and may also discourage others from creating directives in the first place.
Enter two doctors and a nurse who are acutely aware of the limitations of most such directives. In 2008, they created a service to help people through the process, no matter what their end-of-life choices may be.
The San Francisco-based service, called Good Medicine Consult & Advocacy, is the brainchild of Dr. Jennifer Brokaw, 46, who was an emergency room physician for 14 years and saw firsthand that the needs and wishes of most patients were not being met by the doctors who cared for them in crisis situations.
?The communication gap was huge,? she said in an interview. ?The emergency room doctor has to advocate for patients. I felt I could do that and head things off at the pass by communicating both with patients and physicians.?
Sara C. Stephens, a nurse, and Dr. Lael Conway Duncan, an internist, joined her in the project. Ms. Stephens flew to La Crosse, Wis., to be trained in health care advocacy at Gundersen Lutheran Health System. Through its trainees, tens of thousands of nurses, social workers and chaplains have been taught how to help patients plan for future care decisions.
?People often need help in thinking about these issues and creating a good plan, but most doctors don?t have the time to provide this service,? said Bernard Hammes, who runs the training program at Gundersen Lutheran. ?Conversation is very important for an advance care plan to be successful. But it isn?t just a conversation; it?s at least three conversations.??
Dr. Hammes, editor of a book, ?Having Your Own Say: Getting the Right Care When It Means the Most,? said that while he is especially concerned that people 60 and older make their wishes known to family members and develop a cohesive plan, this should be done by someone who develops a serious illness at any age.
?People need to sit down and decide what kind of care makes sense to them and what doesn?t make sense, and who would be the best person to represent them if they became very ill and couldn?t make medical decisions for themselves,? Dr. Hammes said.
?If, for example, you had a sudden and permanent brain injury, how bad would that injury have to be for you to say that you would not want to be kept alive? What strongly held beliefs and values would influence your choice of medical treatment??
Divisive family conflicts and unwanted medical interventions can be avoided when people specify their wishes, he said. His own mother ?told us that if she had severe dementia, it would be a total waste of her life savings to keep her alive. She would rather that her children got the money.?
?We help people work through the decision process and involve those close to them so that the family shares in their goals,? Dr. Hammes said. ?When patients have a care plan, the moral dilemmas doctors face can be prevented.?
At Good Medicine in San Francisco, Dr. Brokaw and her colleagues have thus far helped about two dozen people explain their goals and preferences, at a cost of $1,500 for each person.
?In today?s health care systems, families will be asked when patients can?t speak for themselves and many families are very unprepared to make these decisions,? she said.
Her colleague Ms. Stephens pointed out that only about a quarter of American adults have advance care directives of any kind, and only half of them have them in hand or know where they are should they be needed.
Furthermore, only 12 percent had any input from a physician when filling out the forms, which are often done alone or with a lawyer.
?Your lawyer shouldn?t be writing a medical contract any more than you?d want your doctor to write a legal contract,? Dr. Brokaw said.
The kinds of questions she said people should consider: What was your state of health at the start of the illness? What state are you likely to be in at the end of the illness? What, if anything, can provide a soft landing?
Judge Laws writes in the directive he is preparing, ?After family, I value clarity of mind and the capacity to make decisions. To live well is to continue to possess the ability to converse, to read, to retain what I learn and to coherently reflect and understand. I do not want my life prolonged if I undergo a marked lessening of my cognitive powers.?
Judge Laws also does not want ?to live with severe, distracting pain.?
His directive will request that any treatment he receive be compatible with those goals. He also writes that he expects his sons and his wife to support his decisions even if they disagree with them and not to let any quarrels over his care cause a rift in the family.
Studies have shown that advance care planning reduces stress on patients, their families and health care providers. It also results in 30 percent fewer malpractice suits, greater patient and family satisfaction, and a lower incidence of depression, drinking problems and other signs of complicated grief among survivors.
Ms. Stephens said that advance directives are ?organic documents that can be changed at any time if circumstances or a person?s wishes change.? They should be reviewed at least once every 10 years, she added.
h3>Here’s our latest post on LinkedIn..
Which definition would you prefer for your clients – “any permanent life insurance product currently available” or “will be able to convert to a permanent product of our choosing”? The consequences for picking the product with the wrong definition can be severe. Two recent client situations: First, the uninsurable client wanted to convert and keep the policy or do a life settlement (the conversion product was so inferior to other products that conversion was impractical) and Second, a potential $40 million conversion, the product was inferior to other products within the same company; but luckily the client is insurable and will get better coverage elsewhere. I would like to publicize this issue. Have you run into issues regarding conversion for your clients?
Al Gibbons is the past President of the Philadelphia Estate Planning Council and Recipient of their 2005 Distinguished Estate Planner Award.
Al is expanding his social network and looks forward to offering his services nationwide. More about Al Gibbons: • Creator of The 80/20 Estate Plan • A talented thinker, speaker and writer with a national reputation, Al is often sought after to explain what he does and why his unique process is so effective for clients. • Offering the right solutions to advisors • Helping you exceed your clients' expectations • Newsletters, video and audio available to assist you with complicated clientele matters
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This story appears in the May 7, 2012 issue of Forbes Magazine.
Someone is going to go postal on the Geico gecko. Every week it seems another unsolicited solicitation from the insurance company best known for its Aussie-accented pitch-lizard appears in my mailbox along with stacks of credit card offers, catalogs, nonprofits’ pleas for money, fly-by-nights wanting to refinance my mortgage and reams of garish advertising flyers.
But now, instead of hauling a pile of paper directly from the mailbox to the recycling bin, I pull out my iPhone and fire up a new app called MailStop. I snap a photo of the Geico envelope, tap the screen and beam it to Catalog Choice, a Berkeley, Calif. startup that then notifies the advertising-crazed insurer to take me off its mailing list. Within a few minutes I’ve performed a digital jujitsu on the junk mail in my mailbox. In other words, all the mail in my mailbox.
The $51 billion direct mail industry and the U.S. Postal Service are about to get disrupted, Silicon Valley-style.
The 22.5 million stop requests Catalog Choice has processed over the past five years are a mere scrap of the some 85 billion pieces of junk mail that landed in American mailboxes in 2011.
But that pace could dramatically pick up as junk mail- blocking apps from Catalog Choice and competitors like PaperKarma begin to seed smart phones. Meanwhile, cash strapped cities seeking to save landfill and recycling costs are launching their own junk mail sites, powered by Catalog Choice software.
“We have hit a point in your mailbox where the signal-to-noise ratio is out of whack,” says Chuck Teller, a former PeopleSoft executive who founded Catalog Choice in 2007. “It’s like watching an hour of TV, and there’s 58 minutes of commercials and 2 minutes of programming.”
A grassroots junk mail revolt would be more bad news for the beleaguered postal service, which has grown increasingly dependent on revenue from what it calls “standard class mail” as the volume of first-class mail falls 7% a year thanks to e-mail, social networking and online billing. First-class mail currently accounts for 51% of the postal service’s revenue; by 2020 it’s projected to fall to 35%. (The USPS would not comment.)
That a nine-person outfit like Catalog Choice poses any kind of threat to the 646,000-employee postal service or the direct mail industrial complex would seem ludicrous. Then again, a decade ago the nation’s press barons paid little heed to a nerdy guy named Craig who started a classifieds website out of his San Francisco apartment.
Opting out of junk mail has long been available as many corporate privacy policies allow consumers to put themselves on the company’s do-not mail list. Getting on that list is another matter. There is no national one-stop do-not-mail registry like the Do Not Call service, which allows people to halt telephone solicitations by simply entering their phone numbers on a government website. “There’s anti-innovation in this space,” says Teller, 50.
He started Catalog Choice after his employer, PeopleSoft, was taken over byOracle in 2005. A friend at the Overbrook Foundation, a New York nonprofit that focuses on environmental issues, approached Teller about starting a company to attack the junk mail monster. Writing the code to automate opt-outs was easy; finding a business model was not. So Teller set up Catalog Choice as a nonprofit funded by Overbrook, the Merck Family Fund and other foundations.
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