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Adoption of children is a relatively common occurrence in the United States. But, in most states, it is also possible to adopt an adult. The adult adoption tool has been used in planning for same-sex couples for decades. Now, it seems that its use may be spreading, in the right circumstances.
There are many reasons to adopt an adult, both legal and emotional:
- Establish a tighter bond between the parties
- Enable inheritance rights between the parties
- Enable the “child” to get health insurance on the “parent’s” plan
Let’s look at a situation to see how this might arise. John is the heir to a large sum of money. However, these assets are left in trust for him. At his death, the assets are to go to his children. The trust and state law do not exclude adult adoptees as potential children. If he has no children, the assets go to his cousins. If he had a limited power of appointment, he could send those assets elsewhere at his death. He does not. He wants the assets to go to his domestic partner, Mike. By adopting Mike, John can ensure that his assets go to Mike.
In a unique twist, adult adoption can give lifetime access to otherwise protected money. Floridian John Goodman had placed $1.5 million in an irrevocable trust for his children. He had two children at that time. The assets were invested and ballooned in value to several hundred million dollars. The transfer of assets into the trust was not a fraudulent transfer and Goodman had no interest in the trust. Thus, those assets were exempt when he became involved in litigation in which he was accused of drunk driving and killing a 23-year-old man and then leaving the scene.
Goodman, age 48, adopted his girlfriend, age 42. When she became one of his “children,” under the terms of the trust, she gained access to the funds in the trust. So, through the adult adoption, Goodman’s girlfriend (and, indirectly, Goodman himself) gained access to millions of dollars of money which has been deemed off limits to his creditors.
Here’s a link to the story: http://www.forbes.com/sites/trialandheirs/2012/02/06/can-florida-millionaire-justify-adopting-his-girlfriend/
Perhaps adult adoption may be increasingly relevant as an estate planning and asset protection tool.
Stephen C. Hartnett, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128
www.aaepa.com
Tax season is here. For most of your clients and prospects, that means the headache of crunching numbers and rebalancing the budget to pay Uncle Sam. Tax time takes on a different meaning to thieves.
Most of the documents needed for taxes are very revealing. They contain client’s name, address, credit account information and most importantly, their SSN. For the identity thief, it means that there is a treasure chest of information to be targeted in the next two months. This provides you, as a trusted source, with a reason to meet with your clients and prospects to share the following ID Theft prevention checklist – ways to help prevent their personal identifying information out of the hands of would-be thieves.
Feel free to use the copy below when meeting with a client or prospect, as information to present during a social prospect or client event, or as part of your direct mail invitation content.
ID Theft Prevention Checklist:
- Document Disposal – Once you have gathered the receipts, paperwork and the various forms you need to calculate your taxes, make sure that any papers you no longer need go through a good, cross-cut shredder. Papers with credit card account numbers, Social Security numbers (health benefit payment forms), loan papers, and such all have information that a thief can convert into a new credit account in your name. This tip also applies to all the papers you decide to dispose of from previous years. Just because a receipt is 7-years old does not mean it cannot be used to your detriment.
- Computer Security – Many of us do our taxes or prepare our information for tax accountants on our computers. If your computer links to the Internet it must have firewall software to protect it from invasion.
- Mail Theft Prevention Tip – Since these tax forms have a lot of information on them, the best advice is to take the forms directly to the post office, dropping them in a box INSIDE the post office. It is best to not drop them in an outside box after last pick-up of the day since that gives a thief more opportunity to steal the mail. Do not leave them in the outgoing box at work, drop them at the corner blue box or leave them in an unlocked box for pickup.
- Social Security Number on the Check – Should I or shouldn’t I? Since your check goes through so many hands, it is best not to print your entire SSN on the face of the check. The last 4 numbers should suffice if you decide to put any part of the number at all.
- Tax Preparers – Be selective about who works on your taxes. Check out companies with the Better Business Bureau, especially if they are new or seasonal offices. Ask questions of the managers. How will your information be stored? What type of computer security do they use? Has the person who will be working on your taxes gone through a thorough background screening? Do you see other people’s papers sitting around? If you feel uncomfortable or believe this is not a company that understands security issues, take your business elsewhere.
Jorge Villar is President of Response Mail Express (RME), with more than 26 years of direct marketing experience, he is known in several industries for his ability to create mail packages that garner the highest response rates. He is responsible for the Seminar Success program that, for the last 17 years has accounted for more than 65% of the events being held in the nation with over 14 million individuals making reservations. Mr. Villar has also been very successful marketing to physicians and business owners regarding Success Planning and Asset Protection. Response Mail Express, and parent company DME, is a $100+ million marketing powerhouse, housing over 600 employees in their 2 state-of-the-art facilities in Florida. Their marketing ideas are presently being utilized by over 10,000 clients, including: top producing advisors, estate planning attorneys, large financial organizations, health care organizations, universities and many other industries. Mr. Villar is a frequent key note speaker at national financial symposium and training conferences.
Academy Guest Blogger
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128
www.aaepa.com
Attorneys often tell me about how great their employees are and how long they’ve been with their firm. In my experience, this can be both good news and bad news.
The Good News
It’s always good to have excellent employees. They do good work, they’re a pleasure to be around, and they tend to increase your bottom line. It’s every boss’s dream, and every boss wishes for an office full of excellent employees.
The Bad News
But here’s the problem with excellent employees: if you’re dependent on a person to run your business, you’re vulnerable. Great employees get sick. They move away. They make lifestyle changes. All these things can result in job changes that leave bosses in a bind, so your firm is what we call “people dependent.”
The Solution
Happily, you can have great employees without making your firm’s success dependent on those employees’ life choices. You do this by making your business dependent on systems rather than on people.
You accomplish this by establishing a firm-wide organizational chart, which Sandy discussed in one of his recent blogs. You also implement what we call position contracts for each function within your law firm. A position contract is a detailed description of what each person does in the firm. This is an ongoing, updated process so that if one of your employees leaves, there’s a system to follow.
Even with an organizational chart and position contracts in place, hiring excellent employees is still top priority. However, when your law firm is systems-dependent rather than people-dependent, there’s order and predictability, even when you lose a great employee.
Robert Armstrong
President and Co-Founder
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128
www.aaepa.com
TRA 2010 included a new provision that allowed for the surviving spouse to use the Deceased Spousal Unused Applicable Exclusion Amount (DSUEA). There are a few reasons why the DSUEA should not be relied upon as a replacement for the credit shelter trust.
First, (I will not “bury the lead” reason), TRA 2010 sunsets at the end of this year. The DSUEA is part of TRA 2010 and, if TRA 2010 sunsets, the DSUEA sunsets with it. Unless your client and your client’s spouse both plan on dying this year, there is no guarantee the DSUEA will exist after the ball drops in Times Square this New Year’s Eve.
Second, to use the DSUEA, an estate tax return must be filed for the first spouse to die. When the first spouse dies, they do not need to file an estate tax return if they have under the applicable exclusion amount. However, in order for the surviving spouse to utilize the DSUEA, the first spouse’s estate must file an estate tax return which would otherwise be unnecessary.
Third, the DSUEA does not apply for GST purposes. The Generation Skipping Transfer tax exemption is a way to shelter a descendant’s inheritance from estate tax in their own estate. Example: John leaves $1 million to his daughter Betty in trust. Betty dies with the applicable exclusion amount. Since John left the money to Betty in trust, with distributions subject to an ascertainable standard, the $1 million is not included in Betty’s estate even though she was the trustee. Thus, the $1 million passes on to Betty’s son Louis without further transfer tax. Even if the DSUEA applies to preserve the predeceasing spouse’s applicable exclusion, it does not preserve their GST exemption.
Fourth, the DSUEA does not operate to protect the assets from the surviving spouse’s creditors. A trust can be drafted in such a way as to protect the assets from the spouse’s creditors, whereas leaving the assets directly to the spouse does not.
In conclusion, while the DSUEA is a useful tool to utilize in the case of an unplanned estate, it is not a replacement for a credit shelter trust.
Stephen C. Hartnett, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128
www.aaepa.com
The number of beneficiaries receiving Improved Pension increased 25% from 2010 to 2011. Such a substantial increase led the VA to make organizational changes with the goal of allocating more resources and attention to the special issues surrounding the eligibility criteria for Improved Pension.
The Pension and Fiduciary Services Department was established April 11, 2011, which David McLenachen, Director, being appointed on August 29, 2011. The purpose of the new Service is to allow VA to separately focus on administration of the pension and fiduciary programs. The P&F Service is responsible for issuing policy and procedural guidance to the Pension Management Centers and VA’s fiduciary activities, as well as monitoring consistency in decision-making and quality of decisions.
With regard to policy and decision making, attorneys working with pension claims have experienced surprising and inconsistent results, specifically in the areas of net worth calculation for the home place, assets placed in trusts, and transfers of assets. Because of the widespread disparity and overwhelmingly increase in confusion among lawyers across the United States, as evidenced by communication on various listserves, I felt it was time to seek go directly to the source and get answers. I had been communicating with David for years via telephone and email when he worked as a staff attorney under the General Counsel. But, since he became the leader in charge of the new Pension & Fiduciary Services, I wanted to meet with him face-to-face to discuss such important matters.
As never done before, I requested an in-person meeting with David McLenachen to discuss with him the inconsistencies, the changes in policy and practice but not law, the expectation of the future so that lawyers could competently advise their clients. To my delight, Mr. McLenachen accepted the invitation.
Knowing that this meeting would be the beginning or the end of establishing a good relationship, I felt it necessary to call upon my closest and most qualified colleagues to join me. Moreover, having attorneys who service clients from all three PMCs was important. Thus, I invited Rick Law, Law Elder Law, and his associate Zach Hesselbaum, from Illinois, and William (Bill) Hammond, The Elder & Disability Law Firm of William G. Hammond, from Kansas and Missouri, to join me. Rick Law has been a long time national educator on the Improved Pension and Bill Hammond has the innate ability to recognized trends in the market place and key in on the most relevant issues.
On December 19, 2011, the four of us traveled to Arlington, VA and met with the entire team comprising the Pension & Fiduciary Service for almost three hours. We felt the meeting went exceptionally well. Mr. McLenachen, Director, and his entire team met us warmly and opened with a presentation summarizing the new service and its mission. He then turned the meeting over to me wherein I introduced myself, Bill Hammond, Rick Law, and Zach Hesselbaum. Rick then discussed the importance of understanding the Elder Care Journey and how VA benefits fits into this journey. Following, we all discussed the specific issues related to net worth and the homestead, transfers of assets issues, income only trust issues, independent living facilities, and fiduciary concerns. The entire staff was engaged and sincerely interested to hear what we were communicating. We ended the meeting by playing a video of three of my three clients showing their personal experiences filing for VA pension benefits as well as how the pension helped them maintain a better quality of life.
The P&F Services indicated that they have been discussing making changes to the regulations (title 38) regarding both the homestead and transfers of assets. They encouraged us to look for the proposed changes in the federal register. When proposed regulations are submitted, the public has an opportunity to comment and recommend suggested changes. The period to make comment lasts for 60 days from the time the proposed regulation was published. We will monitor this and certainly make comment when appropriate.
Overall, it was clear that the Director and staff of the new P&F service is open to communication, they want to make the right changes to ensure the mission of the VA is being met and that veterans are being taken care of. We feel very positive that this meeting was the beginning of a good relationship with the VA.
Victoria L. Collier, Collier & St. Clair, LLP, co-founder VAGA, co-author VisPro, author of 47 Secret Veterans Benefits for Seniors…Benefits You Have Earned but Don’t Know About, and national speaker and educator of VA Improved Pension benefits, and periodic contributor to the American Academy of Estate Planning Attorneys blog.
Academy Guest Blogger
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128
www.aaepa.com
How do you build lasting relationships with your clients and make sure they don’t see you as just the provider of an ink-on-paper commodity?
One way to do this is to keep in regular communication, with routine “touches” throughout the year. At the Academy, we find that it’s ideal to make contact with clients twelve times per year. It would be a little odd for your estate planning attorney to call you every month or to send you an email, like clockwork, every few weeks. However, there are a variety of ways to provide value to your clients and remain in regular contact with them. Things like:
- Newsletters, both paper and electronic
- Estate Plan Review Invitations
- Client Appreciation Events
A number of our Member firms also have a Client Advisory Board. They invite 6 to 10 loyal clients into the office every quarter to get feedback and to find out what additional services those clients would like the firm to provide.
Using strategies like these to stay in touch with your clients sets the stage for you to have lifetime and even multigenerational clients. Eventually, you’ll meet the children of your existing clients and have the opportunity to win their trust and loyalty. Before long, they will be clients as well.
You want to be viewed as the trusted advisor for the entire family. By remaining in contact through valuable information that is of interest to them, you continue to nurture the relationship as well as be visible and relevant. Make sure you do everything possible to be the sounding board and problem solver most are looking to rely upon.
In your experience, what are the most effective ways to keep in touch with your clients?
Sanford M. Fisch
CEO & Co-Founder
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128
www.aaepa.com
There has been considerable back and forth over the release of 2012 Republican Presidential candidate Mitt Romney’s income tax return. He released his 2010 federal income tax return recently. It’s been widely publicized that the return reports over $21 million of income and that he paid tax at an effective rate of less than 14%.
You can view Romney’s 2010 federal income tax return by clicking here.
The return reveals the use of trusts. The return references a “blind trust.” A blind trust is used to avoid the appearance of an improper bias. Theoretically, the Romney’s would not have knowledge of the assets in the trust and, therefore, would have no reason to implement or advocate political policies to favor those investments. With a blind trust, the trustee does not divulge the nature of the investments to the grantor.
The tax return also hints at the implementation of estate planning strategies. In particular, the return shows over $1.5 million of dividends from the Ann & Mitt Romney 1995 Family Trust. Of course, due to the nature of trusts, we do not know the terms of that trust. But, we could speculate that this was an irrevocable trust set up as a grantor trust. With a grantor trust, the income is taxable to the grantor even though the income may remain in the trust or gets distributed to others. This is a common way to reduce transfer taxation because the income tax paid on the trust’s income is not deemed to be an additional gift by the grantor.
The tax return also shows the existence of the W. Mitt Romney 1996 CRUT. A “CRUT” is a Charitable Remainder UniTrust. With a CRUT, the trust pays a fixed percentage of its assets to the non-charitable beneficiary each year during the term of the trust. At the end of the trust term, the remainder of the trust goes to the charity. The CRUT itself is a tax exempt entity. However, distributions from the CRUT to the non-charitable beneficiary carry out the income tax characteristics those dollars would have had.
Let’s look at a simple hypothetical. Mitt owns $1 million of XYZ Corporation, which he acquired for $100,000. If he sold the stock, he would recognize a gain of $900,000 and pay tax at 15% ($135,000) on that gain. If he contributes the stock to the CRUT, he will get a charitable income tax deduction based on the full fair market value of the stock (including the $135,000), less the value of the income interest he has retained. When he receives distributions from the trust, they will be “flavored” by any income the CRUT has received, first ordinary income, then capital gain, etc. Thus, the CRUT can be a great way to defer the income tax consequences of a sale of an asset that has gain.
While we cannot know Mitt Romney’s exact estate plan from this income tax return, the peek reveals the likelihood of some reliable estate planning tax strategies.
Stephen C. Hartnett J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128
www.aaepa.com
Estate planning, as well as funeral planning, is generally a hard conversation to start. People are reluctant to talk about their mortality.
There’s actually a psychological term for this reluctance: the Terror Management Theory. It’s based on the work of Dr. Ernest Becker and his 1973 Pulitzer Prize-winning work, The Denial of Death.
The Terror Management Theory posits that all human behavior is ultimately motivated by the fear of death. Death creates anxiety: it can strike at unexpected and random moments, and its nature is essentially unknowable.
This awareness of our own eventual death, called “mortality salience,” affects our decision-making in the face of this terror. Many people deal with it by deciding to avoid the topic altogether.
It takes personal value and a healthy self-esteem to even consider talking about estate and funeral planning. And it’s estimated that two-thirds of the general population has low self-esteem.
So perhaps one-third of your potential clients have the positive self-esteem to even show up at your office to plan their estates. Playing a little game can help start the reluctant conversation.
Remember the TV show, “The Newlywed Game,” which quizzed newly-married couples on how well they knew each other? The Newly-Dead Gameä– based on elements of “The Newlywed Game” — tests how well couples know their partner’s last wishes in a fun, upbeat way.
The game debuted at the 2011 Frozen Dead Guy Days festival in Nederland, Colorado, and will be returning for this year’s festival March 2-4, 2012. (See the September 19, 2011 post on Cryonics and Estate Planning.)
Couples who have played this game come away with a fresh appreciation of how much they still need to know about each other when it comes to funeral planning. The Newly-Dead Game can also help adult children obtain information about their parents’ last wishes.
For those Academy Members who would like to consider The Newly-Dead Game for client or community outreach events, contact me and I’ll send you a complimentary .PDF file of the question cards and game rules. Just as talking about sex won’t make you pregnant, talking about funerals won’t make you dead – and your clients will benefit from the conversation.
Gail Rubin is a Certified Celebrant who brings light to a dark subject and helps get funeral planning conversations started. Her award-winning book, A Good Goodbye: Funeral Planning for Those Who Don’t Plan to Die, won Best of Show in the 2011 New Mexico Book Awards. The book is available in print and e-book formats at Amazon.com, Barnes&Noble.com, and at AGoodGoodbye.com. Contact her at 505-265-7215 or email Gail@AGoodGoodbye.com.
Academy Guest Blogger
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128
www.aaepa.com
A funny thing happens when you really start marketing your law firm. Suddenly, there are a lot more people coming in for initial consultations, and they don’t automatically hire you. They’re sizing you up and interviewing you.
Two Ears, One Mouth
It’s at this point that we as estate planning attorneys might want to heed the words of Greek philosopher Epictetus, who said, “We have two ears and one mouth so that we can listen twice as much as we speak.”
Perhaps more than other people, lawyers like to hear themselves talk and it’s a problem when the lawyer talks more than the client in an initial consult. Yet that’s what usually happens. We’re so used to being the “answer man or woman” that it requires a whole new skill to stifle ourselves long enough to really hear about the client’s needs.
The Secret
The secret to converting a prospect into a client is to use the initial consult to show off your skills as a great counselor. You cannot – I repeat cannot– effectively counsel someone until you understand what their problems, concerns, and issues are.
We’ve found that attorneys tend to have trouble converting prospects to clients because of how they handle client meetings. Doing things like talking too much, talking about things that are really of no interest to the clients, and not asking great questions are ways to guarantee your first meeting will also be your last.
Know What to Listen For
Just as important as asking great questions is listening carefully to the answers. That’s how you find out where the problems and issues are and delve into them. Learn what the impact is if those issues aren’t handled in a timely manner. What are your clients’ fears and concerns? How important is it for them to handle their issues right now? Where do these issues rank on their priority list?
Your job is to help families make decisions that are in their best interests. Discussing things in this manner gets results because it leaves clients feeling like you really heard them and like you really understand what matters to them.
Try this approach and you’ll become a trusted advisor, and you’ll have a client for life.
Robert Armstrong
President & Co-Founder
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128
www.aaepa.com
This week I’m at the Heckerling Institute on Estate Planning. In the Recent Developments session during the opening day of the Institute, we looked at a Tax Court case involving a taxpayer with dozens of cats. Van Dusen v. Commissioner, 136 T.C. No. 25 (2011). In fact, she had so many cats that she could not invite guests over. The number of cats in her home varied between 70 and 80 over the course of the year. In addition, the taxpayer had 7 cats who were her pets and who had names.
The taxpayer claimed an income tax deduction for various cat-related expenses including: pet food, medical expenses, increased utilities for laundering of feline linens, etc. The taxpayer worked closely with “Fix Our Ferals,” a cat rescue operation, and other charities. The IRS denied her a charitable deduction. However, the Tax Court found for the taxpayer because of the close connection between the charity and the taxpayer. However, they limited the deduction to $250 because there was no contemporaneous acknowledgement of the gift/expenses by the charity, as required by regulation for a larger deduction.
This shows the importance of planning. If she had planned and obtained contemporaneous acknowledgment from the charity, all of those expenses would have been deductible. While she did not plan well for her income tax deduction, we can hope that she has planned for someone to care for her 7 pet cats and the dozens of other cats in the event of her death or incapacity.
Estate Planning attorneys plan for our clients and their human families. However, often, the non-human members of the family are overlooked in the planning process. As Van Dusen shows, pets may be a very important part of a client’s life. It is important to do Pet Planning so that a willing and able caretaker is designated to carry on with pet care. (Can you imagine how quickly a home with 80 cats would deteriorate without someone to take care of them?) Also, Pet Planning provides the financial support necessary to care for the pets. It’s easy to underestimate the financial obligation pets require. Ms. Van Dusen spent over $12,000 a year in caring for cats.
“Pet Planning” is planning for the often-overlooked, non-human members of a client’s family. Do you provide Pet Planning as part of the estate planning services you provide?
Stephen C. Hartnett, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128
www.aaepa.com
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