It contained a cursory and misleading take on the effect of the changes Congress wrought when it raised the amount one could pass to heirs free of estate and gift tax to $5.25 million.  The comments section of the article is full of good, cautionary advice by many responders.  A representative responder opined as follows:

“the dollar amount exemption is only one reason to have a trust.

A trust is not a public document.

Real assets and real property transferred to trusts ARE NOT SUBJECT TO PROBATE

Trusts can include proper funding for children

Trusts can include provisions for guardianship, funding, and education for children.

Trusts can provide provisions for special needs family members.

Yes, those items can be set up as directives in a will, but if they are set up in and as a trust, they are set up already.

My wife and I have a trust. We absolutely are under and will remain under the $10 million dollar radar, and there is no way we would dismantle this trust thinking that it would be a good idea.”

A changing legal environment is always something one needs to take into account.  When deciding if one’s estate plan properly aligns one’s picture of the future that one would like to see come true with where things now stand in your family, your assets, your existing estate plan, and your wishes all need periodic review, especially if any of those components have materially changed, as is the case with the new estate tax ceiling.

An effective estate plan, one that actually works to make your vision about the future come true, is never a once-and-done exercise.  Like a car, it must be maintained or it will not take your dreams where you want them to go.

In the current legal environment, many estate plans were formed when the ceiling was much lower.  In light of that lower previous ceiling, many plans split into sub-trusts at the first death in a couple so that the estate tax exemption of the first spouse to die would not be lost or wasted at the second death.  With the higher ceiling, it now makes sense to think about the advisability of the trust not splitting at the first death.

What happens if the law changes again in the future?  I can almost guarantee that laws will change.  We are only a President and a Congress change away from the next change in the estate tax law.  What I cannot foresee is what that change will be.  What I can do is build flexibility into any changes in a trust so that the surviving spouse has the flexibility to meet whatever changes come without losing any of the tax advantages that the current law permits.

One great feature of the new law allows a surviving spouse to carry over the federal estate tax credit of the spouse who dies first without having to split the trust into sub-trusts.  This offers greats flexibility for the surviving spouse to make later changes.  The cost for achieving this flexibility is that the surviving spouse must make an election at the first spouse’s death by filing with the IRS.  The only current way to make this election is by filing an estate tax return, even if no estate tax is due.  The further benefit of not having to split the estate at the first death is that capital gains adjustment to the current fair market value can possibly reduce or eliminate potential capital gains tax at the second death, which was difficult to do previously.

I would encourage anyone with a previously established trust to have your situation looked at by a qualified legal professional.  It can potentially save you many times the cost of the legal work.

This IS Relevant to Planning Your Estate

Before you conclude that I’m about to embark on some platitude about how technology is leaving us all in the dust (I’m not going to do that), take a moment to think about your current digital footprint. In what ways are you out there on the internet?

• Facebook?
• YouTube?
• Email accounts? Cloud storage (Flickr, iCloud, Amazon Cloud, Google Docs)?
• PayPal? Online bank accounts? Online recurring subscriptions?
• Websites, domain names, blogs?

Unless your head’s been buried in the sand for the last ten years, it’s likely that you have at least some of the above-named assets.

Increased Online Storage

One of the most important functions of any estate plan is an instructional letter that advises your loved ones on where they can find critically important documents—Last Wills, Trust Agreements, Power of Attorney, Health Care Proxies, and financial instruments.

Increasingly, these sorts of documents are being stored online. Make things easy on your loved ones. Even if your critically important estate planning documents aren’t stored online, your loved ones will still need to access your digital life once you’ve exited the real world.

The first step in making life easy on your loved ones is to list your digital assets. Be careful . . . some assets might belong to your business (if you have one), so take care in discriminating who owns what (e.g. internet domain names). It can be a lot to sort through, but you’re the best person for the job. Nobody knows what you have better than you.

Understand the Fine Print

The terms of service for online providers differ markedly. Take the time to understand what you’re getting into when you sign up for a service. For example, when a person dies, his or her Facebook page is “memorialized.” That means it can’t be accessed or altered by anyone. Make sure you’re okay with that, and remember that whatever you write will be on the web . . . potentially forever.

Be Clear on Your Wishes

Clearly communicate to your attorney or to someone that you intimately trust (i) what you have, and (ii) what you want to have done with it. If you’ve stored passwords to email accounts that you want someone to be able to access, make sure you leave a clear record. Otherwise, your loved ones might be locked out of your accounts (e.g. Facebook, as described above).

You just don’t want to leave your digital footprint to chance. Take the time to decide how you want your digital legacy handled, and then put a system in place to make sure it happens according to plan.

It’s A New Ballgame

Dealing with the issue of digital assets, not to mention hard assets like real estate, stocks, bonds, bank accounts, precious metals, business interests, etc., can be really stressful if you don’t know what you’re doing. Fortunately, I’m here to support you, and I’ve had experience dealing with these issues. Digital legacies might be a new ballgame, but they adhere to the tried and true rules of estate planning, so I can help you handle these issues without a hiccup.

Give me a call today to schedule a free Family Wealth Planning Session. The normal charge $750 for these sessions, but until my calendar fills up for the month, I’m going to give them away!

Leaving a digital legacy for your heirs

Loved ones need to know how to access your vital information online

By  Pamela Yip  of   THE DALLAS MORNING NEWS Sunday February 26, 2012 9:35 AM

After a Facebook user dies, the company “memorializes” the account, meaning only confirmed friends can see the user’s profile.

The digital evolution has reached estate and financial planning. One of the most important aspects of estate planning has long been to tell your loved ones where to find copies of your will, power of attorney and financial contacts.

That’s still true. What has changed is where people store their important information and documents, and that increasingly is online.

If you have stored much of your personal information and documents online, make things easy for your loved ones. How to start:

List your cyber-assets

Create a record of your cyberassets, including:

• Domain names, websites and blogs.

• Photos, videos and documents stored on sharing sites such as Flickr, YouTube and Google Docs.

• Email accounts.

• Online bank, credit-card and investment accounts, and other such accounts that typically require a password.

• Accounts with online companies such as Facebook, Twitter and eBay.

• Documents, spreadsheets, photos and other such items that are stored on your computers, hard drives, DVDs, smartphones, flash drives and other offline or online servers or backup servers.

Know where you stand

It’s critical that you read and understand the terms of service of an online provider or service. “Many websites will not allow someone to access the content if the individual is no longer alive,” said attorney Peter Vogel, who teaches a course on electronic commerce law at Southern Methodist University in Dallas.

For example, Google said it provides access to a deceased person’s Gmail account “in rare cases” and then only to an authorized representative.

“Any decision to provide the contents of a deceased user’s email will be made only after a careful review,” the company says in its terms of service.

At Facebook, the company “memorializes” an account after its user dies, meaning only confirmed friends can see the user’s profile.

“In order to protect the privacy of the deceased user, we cannot provide login information for the account to anyone,” Facebook said. “However, once an account has been memorialized, it is completely secure and cannot be accessed or altered by anyone.”

Facebook will process “certain special requests for verified immediate family members and executors, including requests to remove a loved one’s account.”

Make wishes known

“It’s the same old-fashioned advice I would give to any client about any asset,” said Ellen Dorn, an estate- planning lawyer in Dallas. “And that is, it’s important most of all to communicate to those in your life whom you trust, or to your attorney, what it is that you own, what it is that you value and how that information can be accessed upon your death.”

Name those you would like to receive each asset. “You can even include specific bequest language in the body of the will, much like estate planners routinely do for important items of personal property,” said Rick Salmeron, a certified financial planner in Dallas.

The bottom line is your digital legacy is too important to leave to chance, so think about how you want to pass that on to your loved ones and make the necessary preparations.

How Far Are You From Retirement?

If you’re still relatively young (35 or under), then you need to have some risk in your portfolio in order to grow your wealth.  Without risk, you can’t generate returns.  However, that doesn’t mean risking all of your money, and it certainly doesn’t mean you should take unreasonable risks.  Consider going “risk on” with thirty or forty percent of your portfolio, and be very clear about the risks you’re taking.

For example, if you’re investing in stocks, be aware that you are taking market risk, currency risk, macro-economic risk, and the risk of unsavory insider dealings (remember Enron and WorldCom?).

As You Get Closer To Hanging It Up

As you get closer to “calling it a career,” you need to take less and less risk with your money.  That means transitioning from investments like high growth stocks into more stable investment vehicles that provide consistent income.  Dividend stocks and high grade corporate and municipal bonds fit this bill.

As you approach retirement age, you can still take some risk with your portfolio, but the portion of your wealth put at risk should be smaller.  Ten percent is a good number to play with, and you can reduce risk by hedging your bets (look up “covered option strategies” as one example).

For Everyone

Once you’ve retired, the question becomes one of preservation of capital.  Just because you’re wealth is held entirely in cash doesn’t mean you’re not taking risk.  It’s just that the risk changes from market risk to institutional risk.  Institutional risk is the risk that the institution holding your money goes out of business (think MF Global).

Don’t kid yourself into finding security in FDIC insurance.  If one of the Too Big To Fail banks goes out of business, the FDIC has up to 99 years to pay its claim holders.  In order to minimize institutional risk, you really need to do your homework.  Hold your cash in institutions that have high Tier 1 capital ratios, strong balance sheets, and limited (or, better, zero) foreign sovereign debt or domestic mortgage exposure.

Doing your homework might seem like a daunting task, but you’ll sleep better at night knowing that your money is well protected and that your family’s needs will always be met.

The Last Puzzle Piece

Once your wealth is protected from market and institutional risk, you need to think about protecting it against the claims of potential creditors (e.g. frivolous lawsuits) and passing it on to your loved ones.  I am here to support you in doing that.  I help clients establish and maintain effective estate plans.

If you’re ready to get started on a plan, call my office to schedule a Family Wealth Planning Session.  The normal charge for these sessions is $750, but if you are one of the first two people to call my office and mention this blog post by name, I’ll meet with you for free.  Don’t wait, because the two spots could fill up before you call.

Pushing through the urge to disengage and through the resistance to be involved is difficult, but if we don’t all take responsibility for it, then we’ll end up in a place that we don’t want to be in.  Think about it like this: Who is taking responsibility for our current situation?  The answer is that we should all be taking responsibility, whether we played our role actively are passively.

More Reasons To Be Involved Than Ever Before

Even if the typical issues like taxes, the economy, social matters, job creation, globalization, and fiscal policy aren’t enough to motivate you to be involved, there is one issue that will probably get you off the couch this election season: YOUR MONEY!

On December 31st of this year, a law that provides very good tax treatment for estates will sunset, unless it is renewed by Congress and the President.  The current law exempts from taxation estates of $5 million or less ($10 million for married couples).  That means that most folks currently fall completely outside the realm of taxation.

If the current law does expire, the law that replaces it will likely tax estates that exceed the $1 million mark.  In other words, the new law will almost certainly cast a much wider net, and if you are at all concerned about your wealth, then you should be paying attention to the 2012 elections and writing to your representatives in Congress.  Every dollar in your bank account is a reason to be more involved than ever before.

It Can Actually Be Fun

The idea is to fully express yourself, and it’s okay to have some fun while doing it.  While the issues are very serious, there’s no reason that you have to take yourself too seriously, even when you’re talking politics with friends and family.  When you talk about your favorite candidates, talk about the issues and encourage your loved ones of voting age to research those issues and where the candidates stand on those issues.  And smile while you’re doing it!

An election year also presents an opportunity to teach your kids about our electoral system, the reasons it exists, and the importance of being involved.  Kids really do believe that they can make a difference in the world, and that idea should be nurtured, since children really are our future.

What You Can Do

Even if the beneficial estate tax laws sunset in 2012, you can take action today to prevent losing significant benefits.  There are several things you can do.  You can give gifts, you can create a trust, and there are some other tricks that can likely help you save on estate taxes.

If you have questions about establishing an estate plan, please don’t wait to call my office.  Time is ticking.  If you call my office today and mention this blog post by name, I’ll give you a Family Wealth Planning Session free of charge . . . a $750 value, absolutely free of charge.  Don’t wait.  November and election time could honestly be too late.

Regardless of how you choose to save, when it comes time to send your kids to college, you’re going to have to complete the Free Application for Federal Student Aid, affectionately known as FAFSA by students everywhere.  In order for your kids to qualify for any form of financial aid—loans, grants, or school scholarships—you’ll be required to complete the FAFSA.

FAFSA is the first step in applying for financial aid, and it’s the cornerstone of any and all awards of financial assistance.

Fast FAFSA Tips – File Early

A lot of financial aid money is allocated on a first-come, first-served basis.  In other words, you need to have a sense of urgency, and the entire process begins with filing your FAFSA.  While the federal deadline for completing the FAFSA is June 30th, the FAFSA can be filed any time after January 1st.  Many states have deadlines that are much earlier than June 30th, and it’s a well-known fact that in some situations, students who file early get more generous awards.

One common objection to filing the FAFSA early is that detailed tax information isn’t available in January.  That’s easily overcome.  The answer is that you should gather financial information and make informed, educated guesses on the FAFSA.  You’ll have an opportunity to update the FAFSA later, after you’ve actually filed your tax returns.  Just remember to check the “will file” box on the FAFSA, and the Department of Education will send you an email reminder to update the form in April.

Be Thorough

Schools typically audit about 30% of FAFSA applications.  If your application is audited and it contains mistakes, you’ll waste valuable time.  The moral is that you need to be thorough and accurate when completing the FAFSA.  Gather all the information you’ll need and take the time to really focus while completing this document.  Take note that you’ll need more than just your adjusted gross income (“AGI”).  You’ll have to add any contributions to pre-tax retirement plans like 401(k) or IRA accounts.

Other Odds and Ends

If you’re divorced, then the FAFSA is filled out for the household (parent and step-parent, if applicable) in which your student spends most of his or her time.  The other parent must also complete a supplemental form to the FAFSA.

The FAFSA can be completed online, and it can be re-filed each year (as is required) online too.  This method is preferable, since you’ll be given a PIN for access to revise and update your application at any time.  Filing online will also help you reduce mistakes, since the online application has a guidance screen that will answer questions that typically arise while completing the form.

You don’t have to fill out a FAFSA for each school that you’re applying to.  Rather, you can indicate the schools where you’re applying on the FAFSA, and your information will be transmitted to each of those colleges.  If you filed online, you can update your list of schools at any time.

Part of Parenting

Helping your kids figure out how to pay for college is part of parenting.  So is making sure that you have an adequate estate plan in place.  This primer on the FAFSA is a service that I’m providing, because I want to help you take care of the details.  If you’re interested to learn how I can help you form an estate plan, contact my office and ask to schedule a Family Wealth Planning Session.

Irrevocable Life Insurance Trusts

If you have a life insurance policy and die, the proceeds will be part of your estate.  In some circumstances, this can result in an unnecessary tax liability.  You can remove proceeds of life insurance from your estate by placing your policies into an irrevocable life insurance trust (an “ILIT”).

In many cases, ILITs are used both to own life insurance policies and to be the beneficiary of the policies.  This gives you the option to make sure that insurance proceeds are held in trust and protected against irresponsible spending, creditors, or ex-spouses.  It also means that you can designate proceeds to benefit your spouse, children, grandchildren, or anyone else you want to make sure is cared for.

Keep Control, Get Paid, and Give Away . . . All At the Same Time

Limited liability companies (“LLCs”) are typically thought of as business entities, but they can and often do serve estate planning purposes.  Here’s how it works: You create an LLC and transfer assets into it.  Those assets can range from real estate to precious metals to cash in a bank account or even stocks and bonds.  You make your children (or other heirs) members of the LLC, which essentially gives them an ownership interest.

Finally, when you create the LLC, you designate yourself as the manager of the entity.  That gives you full control, and it also gives you the right to get paid from the assets within the LLC for your role as manager.  You can also retain a membership interest for yourself, which is advisable.

The beauty of using an LLC is that it has an asset protection feature in addition to the estate planning feature.  Specifically, if anyone sues you personally, they typically won’t be able to get at the assets in the LLC!  Though it’s not really relevant for LLCs used as estate planning vehicles, the reverse is true as Ill: If the LLC gets sued, your personal assets would be shielded.  This latter feature is what makes LLCs such great business vehicles.

There are other structures that can be adapted for use as estate planning tools as well.  The family limited partnership is one such vehicle.

The Bottom Line

The bottom line is that there are thousands of variations of estate plans that can be formed given the universe of tools available to attorneys.  With all those options, the only one way that you can be sure you’re getting the right plan for you is by consulting with a professional who has a vested interest in making sure that your plan is perfectly fit to your circumstances.  The boilerplate forms available online just simply aren’t going to get the job done in most cases.

If you’re interested in sitting down with an attorney who will take the time to understand your situation and help you plan for the future, then call my office today.  If you mention this article by name, I will meet with you for free, even though a Family Wealth Planning Session normally costs $750.

If, right now, you’re thinking “Sounds good; I’ll do it [fill in the blank: “when I get around to it”; or “soon”], none of us knows how much time is granted to each one of us.  If protecting those you love is important, why not take of it today, now?

While the traditional tools work very well at accomplishing their designated tasks, you might be surprised to learn that they are not the only tools available for estate planning.

Business Entities

Certain types of business entities have features that make them very good estate planning tools.  Consider limited partnerships, for example.  A limited partnership has very interesting features that date back to the 16th or 17th century, when shipping companies needed to raise capital for expeditions to the New World and India.  The shippers had a unique expertise in their maritime knowledge and ability to deliver cargo, but they lacked the capital needed to build new ships and undertake expeditions.

Governments recognized the value of shipping enterprises and developed an entity that allowed the ventures to proceed.  Today the entity is known as the limited partnership.  The shippers—the ones with the expertise—were the general partners of the ventures they promoted.  They made all the decisions regarding the business, and they exerted complete control over the enterprise.  They were also on the hook for all of the obligations incurred by the limited partnership.  In other words, the general partners had no corporate veil to hide behind.  They were “generally liable” for the full extent of the debts owed by the partnership.

The limited partners, on the other hand, were pure investors.  They had no say in the operation of the business, but they were given protection from creditors of the business.  The most a limited partner could lose in a venture was the amount he or she had invested.

So to recap, general partners had control and unlimited liability for debts.  Limited partners had no control but only limited liability.

Limited partnerships work the same way today.

Making it a Family LP

Limited partnerships today can be treated by the IRS as Family Limited Partnerships, which is really just recognition by the IRS that a limited partnership is being used for estate planning purposes.  In a typical case, parents serve as general partners and make their children and even their grandchildren limited partners.  The parents then maintain control of the entity and manage the assets as they see fit, while the children (or other heirs) own only a beneficial interest.  The good news is that by doing this you avoid the necessity of willing the assets held by the limited partnership.  That’s because you don’t own them, even though you still exert control over them while alive!

The most beautiful aspect of this type of planning is that in many cases it provides a layer of asset protection for items owned by a limited partnership.  The protection is often on par with that provided by sophisticated trusts but without the issues inherent in trusts (e.g. lack of control or protection for assets).

Let’s Talk More About It

If you are thinking of forming an estate plan in 2012, maybe a limited partnership will be the way for you to go.  Or you might be the perfect candidate for a more traditional plan.  The bottom line is that I can help you formulate and implement a custom plan that fits your specific needs, regardless of whether you are an elderly person or a young entrepreneur on the rise.  Contact my office and mention this blog post by name, and I’ll provide you with a Family Wealth Planning Session valued at $750 for absolutely no cost.

It’s no secret that 2012 marks the end of the Mayan Calendar.  What that means, however, is anyone’s guess.  Maybe it means that the end of the world is imminent (though that’s not likely).  Perhaps the Mayans just got tired of plotting time and decided to continue writing their calendar in a few hundred years.  Maybe, just maybe the last day of the Mayan Calendar signifies a new awakening and a higher consciousness that will usher in a new era for humanity.

Or maybe it’s just a day on the calendar, and we can make it whatever we want it to be.

How Will Your World End?

Ayn Rand wrote one of the most widely read novels in history when she penned Atlas Shrugged.  In an interview, Rand once said something to effect that the world would end when she died.

Does that statement make Ayn Rand the most self-centered person ever?  Probably not, though she did write another book on the virtues of selfishness.  That’s beside the point.  What Rand meant by her statement is that at death, her world would end.  And since we all live in our own worlds . . . since it’s impossible to live in anyone else’s world or to walk in another person’s shoes, death is the end of this world for all of us.

Have you ever thought of it in those terms?  If not, maybe 2012 will be the beginning of some new beliefs for you.

The Point to All of This

There is a point to all of this.  Specifically, it’s this: Life is important.  The importance is defined by the meaning we choose to assign to events, and it is defined by the decisions we make and the impact we have on our loved ones.

We are generally good at making choices.  We choose careers and modes of productivity to impact our planet, sometimes even long after we’re gone.  We choose spouses, friends, and hobbies.  Life is about choice.

In some sense, death is about choice, too.

Choices That Take Effect When Our Worlds End

For far too long, estate planning has been considered something that only the elderly need—for those people who are established and on the downhill side of life.  Fortunately, there has been a popular movement aimed at showing young professionals and families that they too need estate planning, especially when young children are involved.

The reason is simple: An estate plan puts you in the driver’s seat.  It allows you to choose who will raise your children, who will manage your assets, and who will carry on your legacy if your world happens to end prematurely.  These are all choices you can make today that will have the effect of law, whether you pass away next week or in sixty years.  And if you fail to make these choices, they will be left to a judge—a total stranger with the discretion to act as he or she chooses without regard to what you “might have wanted.”

Make 2012 Count

You can make 2012 count in a major way by starting the year off with bold action.  Don’t wait to create a plan.  Waiting will never help when it comes to estate planning, and it could be absolutely catastrophic in some cases.  Make your plan now.  Set the wheels in motion so that if anything does happen to you, you’ll be remembered as the person who made sure everyone was cared for.

If you decide to create an estate plan this year, call my office and mention this blog post by name.  If you do that, I’ll provide you with a Family Wealth Planning Session absolutely free of charge (normally valued at $750).  You literally have nothing to gain by waiting . . . so don’t.

1. The ability to maintain control of assets while alive.  This includes investment and managerial control.
2. Access to the assets.  This includes access to both the principal and the income.  In short, most folks want to have the beneficial use and enjoyment of their assets.
3. Decision-making authority over how assets are to be distributed to family members and other loved ones.
4. Protection from creditors, regardless of whether the creditor is after you or the people to whom you leave your wealth.
5. Reduction of taxes upon the transfer of your wealth.

Cold, Hard Trust . . . I Mean “Truth”

The long and short of it is that it’s incredibly difficult (and very, very expensive) to accomplish all five of those objectives.  The good news is that most people don’t need all five.  Most people really only need three out of the five.  The three most important elements of any estate plan are control, access, and decision-making over distributions after your death.  All of those goals can be accomplished with relative ease, so long as you’re working with an estate planning attorney who “knows the ropes.”  In short, to retain control, access, and decision-making authority, you will need a revocable trust and a will, both of which must be drafted to meet your individual needs and fit your unique circumstances.  There is no “one size fits all” in estate planning.

What They Do

Revocable trusts are designed to hold assets.  Because they are revocable, the creators of the trusts retain complete control over the assets in trust, and they have complete discretion to use those assets however they see fit.  No exceptions.

What the trust does is designate certain people as beneficiaries.  That simply means that when the last trust creator dies, the trust document itself states who is to receive what.  We all know that a will can do that as well.  The trust goes one step further.  Trusts are not probated, which means that when the last trust creator dies, the trust itself becomes the law.  There is no need to involve the court system in any way.

Finally, when the last trust creator dies, the trust itself can become irrevocable.  When a trust become irrevocable, the assets held in trust are effectively shielded from outside creditors.  In other words, when you create a trust, you have the option to make sure that the assets held in the trust are protected from future claims against your loved ones.

Where The Will Fits In

When used together with trusts, wills are generally termed “pour over wills.”  In essence, the will “pours over” into the trust, so that all assets in your estate are distributed according to the terms of your trust.  Again, this avoids expensive and potentially lengthy and contentious court involvement, and it gives your wishes the effect of law.  It’s your one chance to be both the judge and jury!

Year End Planning

The end of one year signals the beginning of something new, and this is your chance to create a new plan that will let you sleep well at night, and it will serve to protect your loved ones.  Don’t wait another year.  Do it now!  And to help give you some incentive, I am going to meet for free with the first two people to call my office and mention this blog post.  Family Wealth Planning Sessions normally run $750, so this is an extraordinary value.  Make 2012 your year of planning.