5 VIP To-Dos Before Packing the Suitcase…
According to AAA, approximately 44.2 million people were to travel the weekend before the 2017 Independence Day holiday. Still, Americans are becoming more and more transient: Not just holidays, but graduations, vacations, and family reunions beckon lots of us away from the place we call “home.” With clients who are “snow birds,” non-U.S. citizen spouses, or dual citizenship partners, our firm has a unique perspective to share with you when it comes to protecting your loved ones as you “move freely about the cabin”: Advanced Directives, aka “Powers of Attorney.” Have them. Let your agents and successor agents know you’re travelling and how to contact you, even if you climbing Machu Picchu. Financial and Health Professionals. Copy them. Make sure your banks, brokerage houses, and doctors have copies of your Advanced Directives on file. Children’s Successor Guardians. Name them. Let them know you’re traveling with or without the kids and also how to contact you. If you have kids and are climbing Picchu, carrier pigeons may be an option. Destination Hospitals, Pharmacies, and Emergency Clinics. Know their locations in reference to your accommodations and their rules on treating patients or filling prescriptions for patients outside of their jurisdiction. “Check in” upon your return. Let your \”team\” know they can relax and maybe take a vacation, too. Nobody wants to become seriously ill while on vacation. However, with the right plan in pace and information in the appropriate hands, if you do become ill while travelling, you can focus on becoming better, knowing your trusted fiduciaries have your best interests under control just as you would. Happy, Safe, & Fun Travels!
The Other 1%*
In the beginning of my career as an estate planner, like many Americans, I was constantly bombarded with news about the “one-percenters” – Americans who were the wealthiest of our population. With respect to estate planning, these folks had all kinds of complex trusts – GRATs, SLATs, DAPTs, CRATs, pick your trust acronym – to suit their particular needs. The one-percenters have so much wealth that in addition to lack of anxiety over financial matters, future generations of their families generally share this liberating lack of anxiety. Because our community beat the drum so loudly in an effort to assist the one-percenters in preserving their wealth, when asked what I did for a living invariably, upon hearing the response, someone would say: “Oh, you help the one-percenters; that’s not me. I’ll call you when I get there.” Yet, as an estate administrator, I also know that those who rejected the notion of needing planning help because they weren’t a one-percenter were gravely (pun intended) mistaken. Folks in the 99% category are adversely affected in a much greater proportion by loss of wealth or earning potential than the one-percenters who experience loss of wealth. On a dramatic scale, a one-percenter who loses significant wealth may go from a McMansion to a bungalow; a 99%r may go from a bungalow to a homeless shelter. I witness it nearly every time I step into probate court. Consider this example: Ben owns thousands of acres that includes a successful dairy farm, a few oil wells, a couple of streams, and farmland that produces various grains. Ben’s family has not had any financial worries in more than a century; so, yes, they’re in the one-percenters. Several years ago, Ben assumed running the family “business” from his mother and when he did so, he spent about $100,000 in estate, retirement, and business planning fees. He now spends a nominal fraction of that annually between the 3. Ben’s plan safeguards the land and income it produces, and the initial fee structure represented less than 1% of the value of his family’s wealth. Now, consider your own wealth or your family’s wealth, whether you’re at the beginning, middle, or end of your “peak” wealth accumulation period. Next, consider your health. If you were to become seriously ill, is your earning potential, current capacity, or nest egg protected? Just like Ben, the one-percenter, you too, can use less than one-percent of your wealth or earning potential to protect what you have earned or your capacity; you can safeguard you and your loved ones and even future generations with just 1% of your family\’s annual earnings. After the popularity whirling about the one-percenters cooled, we started hearing a lot about “leaning in.” I recommend we zoom in. Focusing on the one-percenters while fun is also futile; instead, focus on the other one-percent – the 1% of you that can 100% help your family. *Credit for the title goes to my dear colleague, Stephen L. Hoffman.
A Nod to Philosophers and Poets
“Change is the only constant in life.” – Heraclitus This year, 2016, will likely be determined by historians as one of the most politically chaotic in the history of the West. First, there was Brexit; then there was USAmerexit. And regardless of where you stand on either outcome, two things are certain, both: (1) were unfathomably unpredictable; and (2) represented a fundamental recognition of opinion divergence in the representative countries. Whether the diverging opinions are based largely in fact or fake news is debatable, but that the world has and will continue to change is not. So…what to do? To paraphrase the world-renowned mater poet, Maya Angelou: If you don’t like something, then change it; if you can’t change it, then change how you respond to it. Yet, often, people do nothing; they simply accept the change in quiet, unnecessary resignation. As an attorney, it is my duty to consider the pending political climate and respond accordingly by recommending pragmatic planning for changes to current policy that will affect our clients. Yet, changing political climates do not change how we always approach planning for our clients and the question we always consider: What if? Nothing is guaranteed, not good health, not good fortune, nothing except death. So, what if a loved one, who owns a nice home and has a good retirement plan, is diagnosed with a serious, long-term illness that may result in death or permanent disability? What if this kind of emotional, potentially life-changing shift occurs? Your loved one can: Fight the diagnosis aggressively, using all resources at their disposal. Doing so may work, in which case the diagnosis will change. Doing so may not work, but the fight may be a necessary catharsis or expression. Accept the diagnosis and do nothing, which will likely result in long-term and serious anguish for their immediate loved ones and squander precious resources – theirs and yours. Change the way they plan to spend retirement, by establishing a care plan and an estate plan, which will result in long-term peace and benefit for all. Most importantly, providing them with the highest quality of life possible under the circumstances. Our office has witnessed all 3 of the above scenarios and cannot emphasize how unnecessary the heartbreak – or family feuds – that inertia in cases such as the above is. The term \’chaos\’ comes from the Greek word \’kaos\’, which meant a void or an abyss; now it means utter disorder. Presuming Heraclitus’ was correct and that change is the only constant, just because we cannot predict what the change will be and the consequential effects, does not mean we cannot appropriately adjust our attitudes, plan for those effects, and avoid chaos, whether in the form of an abyss or utter disorder. Thank you, Maya Angelou and Heraclitus.
Illinois Court & AG Provides Life Preserver to Underwater Homeowners
In our probate practice, my firm occasionally provides services to individuals who inherited homes but can\’t afford the existing mortgage. Depending on the circumstances, we either assist the estate administrator in obtaining a loan modification or selling the home because a loan modification isn\’t feasible or wise. These circumstances usually arise because someone died intestate, i.e., without a will. Unfortunately, thousands of Illinois homeowners are still recovering from the sub-prime lending crisis and own homes that are “underwater,” where the balances on home mortgages exceed actual home values.Consequently, they seek loan modifications in order to prevent their homes from being foreclosed upon or to mitigate the stress on their budgets. Still, even in the wake of millions of people losing employment and homes, predatory subprime service providers haven\’t stopped. Nefarious actors can no longer offer subprime loans without impunity, so they now offer subprime loan modification services, instead. And to add insult to injury, in a recent Illinois case, wrongdoers argued that they could not be found liable for their misdeeds because they weren’t providing loans. Well, the Illinois Appellate Court in the First District disagreed. In People v. Wildermuth, the Illinois Attorney General sued lawyer and non-lawyer business partners who “aggressively” targeted African American and Latino communities to obtain clients who were faced with losing their homes. The pair falsely promised above-average loan modification results, while charging thousands of dollars for average results or worse. On behalf of Illinois citizens, the Illinois AG hauled the 2 into court on the grounds of reverse redlining, which the AG argued was a violation of the Illinois Human Rights Act. Redlining is the infamous discriminatory practice of refusing to provide mortgages in certain communities, such as minority communities. Reverse redlining is extending credit on unfair terms in “redlined” communities. The Illinois Human Rights Act protects citizens from such commercial discriminatory practices. The defendants in Wildermuth argued that because loan modifications didn’t involve new loans, i.e., they weren’t providing mortgages, that the reverse redlining theory didn’t apply to them. The Illinois Appellate Court, siding with the Illinois Attorney General, rejected their argument, stating that [R]everse redlining includes a broader scope of discriminatory practices involving real estate transactions and “target[ing] distressed African American and Latino homeowners … with regard to loan modification services and other actions including negotiation and procurement of loan modifications and short sales” was, included within that scope. So, Illinois citizens who suffer from predatory reverse redlining practices now have a remedy available when they fall victim to such practices. Lesson 1: The most basic of estate planning tools – life insurance that is sufficient to pay off the mortgage – would eliminate this issue for beneficiaries. Lesson 2: If it seems too good to be true, it usually is.
Not the \”Bump\” Couples Want…
High income households can strategically plan their income tax payments to better limit their Alternative Minimum Tax (AMT) liability exposure. The AMT structure differs from the regular tax system in that it subtracts fewer deductions and instead deducts one significantly larger exemption. This exemption phases out once a threshold is reached and as income increases. The AMT applies a tax rate of 26% on the first $175,000 of income and 28% thereafter. Households pay the AMT when a great tax liability results when using the regular system; thus, paying the AMT usually results in reduced marginal tax rates. However, as the AMT exemption phases out, the marginal tax rate increases and approaches a “bump zone” of tax rates. The marginal tax rates jump to 32.5% and 35% until the exemption completely phases out. After this, the marginal tax rate returns to 28%. Appropriate tax planning allows households to avoid “the bump” of rising marginal rates. Deferring income at the lower end will preserve the exemption taken. If income is higher, accelerating additional income to exit the zone and completely phase out the exemption would return the 28% marginal rate. However, accelerating too much income may subject a taxpayer to the regular 39.6% marginal tax rate instead of the 28% AMT rate. The phaseout threshold depends on the taxpayer’s state income tax rate and how much in excess AMT-adjusted deductions the taxpayer has. To maximize the AMT exemption and avoid the unwanted \”bump,\” taxpayers should consult with their tax advisor to discuss anticipated income and deductions in addition to identifying potential areas of liability. Timing can be everything. — Danielle Haseman, Team Max Elliott Law
Jennifer\’s Story – A Fiduciary\’s Tale, Part 1
Fiduciaries are individuals who are held to a higher standard of legal accountability than others with whom folks may enter into agreements. The high standard is attributed to fiduciaries because usually they\’re responsible for making very important decisions or taking critical actions on behalf of others. In Estate Planning and Estate Administration, professional fiduciaries help families and individuals create and implement plans that will protect their interests. Professional fiduciaries include bankers, lawyers, financial advisors, doctors, and accountants. So, the interests these important folks protect involve money, one’s life, or confidential information about the same. The information you share with professional fiduciaries should be considered and treated as trusted confidential information, to be shared with only those individuals you expressly authorize to receive the information. If that trust is not respected, i.e., breached, because fiduciaries are held to a higher standard of accountability, the professional usually can be hauled into court. The down n dirty scoop on fiduciaries can start with Jennifer\’s story*: Jennifer was visiting her grandmother when she learned that her parents were involved in a horrible car accident. Jennifer flew back home immediately, heading to the hospital directly from the airport. At the hospital, she was informed by one doctor that both parents were placed in a medically-induced coma. Additionally, her brother, Alex, who had been estranged from the family for 10 years was standing in the ER speaking with another doctor. It was clear to Jennifer that the doctor had presumed Alex had authority to make decisions for her parents and was providing Alex with information about her parents health. When Jen asked the doctor why he was sharing information with her brother, the doctor informed her that the nature of the situation required the medical staff to engage with the next of kin to determine and obtain permission for urgent care and treatment. Yet, was that legally the case? Jennifer’s parents had healthcare powers of attorney on file with their preferred hospital. However… Stay tuned… Jennifer\’s Story – A Fiduciary\’s Tale, Part 1 | 2 | 3
Our Readers\’ Top 5 Articles from 2013
Like most, The Shark Free Zone took a little time off to reflect over last year’s work and our readers’ preferences. So before the “reflection” month of January is over, below are the top 5 articles from 2013. Enjoy! NUMBER ONE. The popularity of our top article for 2013 may have had a little to do with its melodramatic title, “Infants, Stairwells, & Burning a Million Dollars.” The premise was less dramatic than the title, but still important: If professionals or smallbiz owners fail to protect their assets by not planning, they might as well set their income and belongings on fire. Of course, we’re not advocating arson, but if someone slips and falls on your property or a toddler visiting with Mom finds his or her way into a non-child-proof cabinet, oh woe… Click here to read the star of The Shark Free Zone for 2013 and feel free to pay it forward. TWO. \”What the Civil Union Means…to Many,\” was a spillover all the way back from 2011, providing useful information on LGBTQ couples considering or entering into Illinois Civil Unions. It\’s continued popularity was likely because it resonated with many concerned about the economic benefits that can be reaped when discrimination ends. It’s a somewhat moot now that Illinois has passed the Religious Freedom and Marriage Fairness Act, providing marriage equality to Illinois LGBTQ couples. However, the article has many relevant points, so you can read it here. Our article on marriage equality in Illinois is forthcoming, so stay tuned! THREE. Smack dab in the middle is our series, whose information, is rising to the top of the news charts as more statistics and reports are being shared daily about the large aging Baby Boomer population. We first mentioned the Baby Boomer issue, or “Silver Tsunami,” a few years ago. It is now abundantly clear to all advisors that almost everyone is or will be affected by the Boomer generation, especially families that are unprepared. Don’t get caught by the Boomer wave. Prepare for the Silver Tsunami by checking out this middle entree. FOUR. Fourth in last year’s popular articles again involved marriage equality, particularly DOMA’s undoing. Our series, “The IRS Takes a Bite Out of DOMA” highlighted the complex estate and financial planning machinations LGBTQ couples had to take before the U.S. Supreme Court’s ruling in U.S. v. Windsor and the subsequent IRS ruling 2013-17 that removed a lot of that complexity for legally married LGBTQ couples, and especially those in \”friendly\” states. Tap here to read the beginning of this important 4-part series. FIVE. Rounding out our top 5 is “The Money Talk.” Recently, a relative became engaged, which will likely happen with many couples next month on Valentine’s Day. As couples take this loving step, it’s critical to know and understand each other’s mindset as it relates to saving, spending, investing, charitable giving, and a host of other related issues. So before you say “yes” or consider putting a ring on it, consider having this conversation. So there you have it: The top interests of 2013 were about love, money, and justice. What else is there to be interested in, except a pair of good looking shoes, right?
A Peaceful Way to End the Year – Checking the List
As the year winds down and we embark upon the “holidaze,” it’s a great time to take a few minutes and step back to review. \”Now?!,\” you may ask. Yes, \”now.\” Reviewing what we’ve accomplished and can accomplish before year’s end allows us to breathe a little easier as we deal with the frenzied seasonal festivities. So, the next few articles will focus on fundamentals that can bring you peace of mind and a nice deep breath before 2014. First on the list is insurance – life insurance and business insurance. If you don’t have it or enough insurance, then either purchase it by year’s end or put in the budget for Q1 ’14. However, you should be mindful that, like all important things we must buy, insurance rates are only going to increase. Thus, it may sound counterintuitive, but if your budget is a significant concern but cash flow isn’t, act now because rates will likely increase and the value of your money will decrease. Life insurance on all the working adults in one’s family is critical. Having sufficient insurance will make for a peaceful night’s rest during times when everything is fun and festive. Conversely, when unthinkable situations occur, family members can focus on the healing and comforting of each other instead of scrambling to try to find money to pay for memorial service necessities or thinking about a job search to replace income. Business insurance should be a no-brainer. Yet, thousands of smart business owners don\’t have liability insurance. America is the most law-suit crazy country in the world. I need not say more about that. However, insurance can also be of great help if a smallbiz owner becomes ill and can\’t pay the bills for a few months. Finally, keyman insurance is helpful in succession planning issues. For more information about the usefulness of insurance, check out these articles and be sure to enter 2014 on a peaceful note: Why and how to make the appropriate designations; it is not as easy as it appears. Determining the appropriate amount; and it shouldn\’t concern Jimmy Choo. Why small business success is like sushi. Happy Holidaze!
A Letter and Recipe for Your Family\’s Long-Term Health
Dear Family, Friends, and Folks Like Me, Last weekend I was able to release my culinary skills on a lovely group of friends and it was so delightful, I thought I\’d write a letter capturing that theme. So, I’m writing to ask that you join me in promising not to take the path of so many of our elders in creating a disastrous family meal and that you follow a healthier recipe. A friend recently heard the term, “Sandwich Generation,” for the first time. He asked me if it was because our peers grew up with Wonder Bread. Smiling, I responded, “Not quite.” I explained that the term is not because of what we ate as kids but because of what many of us are experiencing as adults. If we step back and look at the generations of family to whom we are connected, most of us will have children, whether our own or nieces, nephews, or cousins, on one side and our parents or grandparents, and sometimes both on the other side. Accordingly, we will have loved ones looking to us for care and assistance from both sides. Considering “sandwiches,” if our loved ones are the bread, then what are we? Yes. We are the stuff in the middle – peanut butter and jelly, roast beef, turkey – and because some of our elders didn’t understand or didn’t receive lessons on how to prepare a healthy, life-sustaining, family meal, many of us are starting to feel more like seamy meat-by-product instead of the tasty Portobello mushroom. So, Dear Family, Friends, and Folks Like Me, take a couple of seconds to jot down this recipe for a healthy family meal: Ingredients 1 lb of good health insurance, which may include long-term care insurance because, despite our denial, we will get old and most of us will live longer than anticipated 2 tbsps of life insurance: one for income replacement and the other for bills and larger items that must be or should be paid, such as mortgages and college educations 2-4 gallons of consistent retirement savings – about 1 cup per year 2 tbsps of powers of attorney: one for financial issues and one for healthcare issues; and 1 Will: so you can decide on who gets what and not the courts. Preparation Combine all of the above with 3-4 trusted and honorable fiduciaries, covered by a trust if you own a home, and stir occasionally with a very good financial planner and CPA. Cooking Time Then let sit for about a year, or taking it out more frequently to revisit growing family needs basis. Let’s make a conscious promise that instead of making our children feel like overdone and gamy sandwich meat, we show them that they are part of a healthy, hearty stew from which everyone can benefit and be satisfied in the long run. A votre sante! Max
The IRS Takes a Bite Out of DOMA, Pt 3
Before beginning today’s article in earnest, a brief recognition and review of the legislative process is relevant. Yesterday, Tuesday, November 5, 2013, was a historic day for Illinois. The state’s legislature voted affirmatively on the question of marriage equality, i.e., allowing Illinois same-sex couples to marry. Thus, Illinois LGBT couples, as of June 1, 2014, may enter into a legal state of loving matrimony. Listening to members on the floor of the House deliver the reasons why they favored the bill, SB10, one theme rang loud and clear: We should not be a society where the law treats individuals or groups in our population differently because other individuals or groups disagree with their lifestyles, don’t like them, or may not understand what makes them “different.” Sidebar: I’m saving arguments that address the reductio ad absurdum issue for later. Being one of those “different” kinda folks myself, I have always been a proponent of marriage equality and LGBT equal rights. Yet, when I saw and heard Catholics and African American men steadfastly and eloquently place their support behind the law, a sense of pride in our legislature, in our democratic system of governance, in our state, washed over me. While Illinois, most assuredly, has its fiscal woes, our money problems aren’t, or at least shouldn’t be, the ultimate issue. The ultimate issue is whether those of us with immutable differences, such as sexual orientation and identification, skin color, or ethnicity, should be afforded the same rights as those whose immutable characteristics are more commonplace. Surely, if we look deep enough, we will recognize that, in some way, we are all different, and our differences should not be the sole basis for refusing, abrogating, eliminating, or enlarging our rights individually and collectively. The fundamental rights of all should be equal. Therefore, if a state gives the right to marry or literally speaking, license to marry, to one group, it is an abomination to our system of democracy if we do not provide the same license to another. So it stands that Illinois citizens should applaud our legislators who lifted the rights of all Illinoisans yesterday when they provided marriage equality to our LGBT community. Now back to the business at hand, which is even more poignant for Illinois couples given the last 24 hours. Because of Windsor and the flurry of guidance that followed, disparate treatment of lawfully married same-sex couples under federal tax laws has been virtually eliminated. Therefore, estate and tax planning for same-sex married couples is more aligned with traditional estate planning methods for opposite-sex married couples. In the post Illinois Civil Union – make that the Illinois Religious Freedom and Marriage Fairness – Act and post Windsor plus guidance world, a same-sex married couple in Illinois should receive equal federal and Illinois treatment for purposes of income tax, estate tax, qualified retirement plans under ERISA, and FICA. However, practitioners must be mindful of the nuances between Illinois and federal law, such as, statute of limitations for amending returns, date of marriage recognition, portability*, and the fact that Illinois estate tax exemption is lower than the federal exemption. *Portability is the “check the box rule” that allows a surviving spouse to use the unused portion of the deceased spouse’s lifetime gift exemption. EXAMPLE: Michael dies on June 30, 2014 and used $1M of his $5.34M federal exemption. David, Michael’s surviving spouse can add the remaining $4.34M of Michael’s exemption. This means if David hasn’t used his, he now has $9.68M to give away tax free during his lifetime. NOTE: Before the Rev. Rule 2013-17, this wasn’t available to lawfully married same-sex couples anywhere in the U.S. So what does this mean for filing purposes? Because lawfully married same-sex couples are now equal in the eyes of the state and federal tax regimes for Illinois, they don’t have to complete “dummy” federal returns for income or estate tax purposes. WARNING: Illinois couples who are currently only in Civil Unions are not in federally recognized relationship; so, they must still complete the “dummy” forms. IRS Notice 2013-61 followed Rev. Rule 2013-17 and is at the center of the tax return amending issue for most married same-sex couples. The Notice requires employers to amend their 941 returns with respect to over withholding, FICA overpayment, and benefits counted as wages. Why is this relevant to estate tax returns? To file an accurate estate tax return, Form 706, an accountant or attorney should have an accurate income tax return record. Therefore, for these purposes especially, before amending a 706, a decedent spouse’s 1040 should probably be amended to account for Notice 2013-61 issues. Debates wage among colleagues about whether to file an amended return for an estate that is not taxable and, given the level of the federal exemption for a married couple, only very few estates are taxable at the federal level and even at Illinois’ level. Yet, if the income tax return is being amended, then filing a 706 might be advisable for consistency’s sake. Also, a surviving spouse should file a 706 if he or she wants to or should elect portability. All of this ultimately suggests that surviving spouses of same-sex marriages should request a filing extension on original returns to ensure that all tax records are thoroughly reviewed before filing amendments. The same premises apply for Illinois estate taxes because federal numbers drive state numbers. Of course, just because tax returns that fall within the statute of limitations should be reviewed, doesn’t mean they should be amended. Like a surviving spouse of an opposite sex marriage, a surviving spouse of a same-sex marriage might have to pay more taxes. Nevertheless, couples should review the amendment issue. As discussed last week, Rev Rule 2013-17 stipulates that “affected taxpayers may rely on this revenue ruling for the purpose of filing original returns, amended returns, adjusted returns or claims for credit or refund for any overpayment of tax resulting from these holdings providing the applicable limitations period for filing such claim