monday, september 19, 2011 5:30 p.m. a webinar by: alan s. gassman, j.d., ll.m....

MONDAY, SEPTEMBER 19, 20115:30 P.M.

A WEBINAR BY:ALAN S. GASSMAN, J.D., [email protected]

AND LESTER PERLING, ESQ.

[email protected]

WHAT TO DO IF BOTH SPOUSES ARE DOCTORS

Copyright © 2011 Gassman Law Associates, P.A.

mailto:[email protected]

Upcoming Webinars and Seminars:Join us for the following upcoming webinars and seminars:

WEBINAR:Drafting Durable Powers of Attorney for the New Florida Law – With Forms and Common

Mistakes in Filing Gift Tax ReturnsTuesday, September 20, 2011 at 5:00 p.m.

SEMINARS:How to Design, Explain and Implement Dynasty Trusts, Whether Domestic, Foreign, or in

FloridaSuncoast Estate Planning CouncilThursday, October 6, 2011 at 7:45 AMAll Children’s Hospital Education Conference Center

How to Design, Explain and Implement Dynasty Trusts, Whether Domestic, Foreign, or in Florida

Pinellas County Estate Planning CouncilMonday, October 17, 2011 at 12:00 p.m.Clearwater Country Club

To register for any of these webinars please email [email protected]

UNIQUE OPPORTUNITIES

Physician couples have unique opportunities and risk exposures that should be considered in planning.

a. Income ability.b.Loyalty to one another in the physician community (hopefully).c.Creditor protection planning if there are not common patients.d.Common history and future.e.High intelligence and education.


ON THE OTHER HAND

On the other hand, physician couples have risk exposures and challenges, many of which are unique to two physician couples.a.There may be regulatory issues with cross-referral between separate practices, as will be discussed by Lester Perling.b.Many physician couples do find themselves treating the same patient, and thus can have exposure of joint assets.c.Financial challenges facing the medical profession will be suffered by both spouses. Time for one spouse to go to law school?


MEDICAL MARRIAGE

Someone once said that it was not easy to be married to a doctor – see The Medical Marriage by Wayne M. Sotile, Ph.D. and Mary O. Sotile, Ph.D.

“The only thing worse than being married to a physician is being a physician married to a physician.”

[Don’t let your babies grow up to be cowboys.]


GOAL AND CAREER ORIENTED

Being goal and career oriented, physician couples often do not have (or make) down time or buffer time to organize their “financial” affairs, or to carefully watch their various matters or delegate watching their matters to independent professionals.

This webinar will provide information that will hopefully be of interest to physicians who are married to other physicians and their advisors.a.Regulatory issues with Lester Perling.b.Pension plan coordination issues with separate medical practices.c.Creditor protection planning –

i. Replacing the income of a lost spouse.

ii. Protecting tenancy by the entireties assets if both spouses are sued.iii. The federal estate tax is still out there.


PRACTICE OWNERSHIP LOGISTICS - BEFORE

Separate ownership of medical practice assets – a lawsuit against one spouse will cause loss of all ownership thereof.

HUSBAND’SREVOCABLE TRUST

HUSBAND

LLC

WIFE’S REVOCABLE TRUST

WIFE

HUSBAND’S

P.A.WIFE’S

P.A.

100%

33.33%

Other Doctor 33.33%

Other Doctor 33.33%

33.33%

Other Doctor 33.33%

Other Doctor 33.33%BUILDING

LEASE


Separate ownership of medical practice assets – a lawsuit against one spouse will cause loss of all ownership thereof.

HUSBAND’SREVOCABLE TRUST

HUSBAND

LLC

WIFE’S REVOCABLE TRUST

WIFE

HUSBAND’S

P.A.WIFE’S

P.A.

100%

TBE

Other Doctor 33.33%

Other Doctor 33.33%

33.33%

Other Doctor 33.33%

Other Doctor 33.33%BUILDING

LEASE

33.33%


PRACTICE OWNERSHIP LOGISTICS - AFTER

PAYEE CREDITOR PROTECTED? TAX/EXPENSE ISSUES NOTES AND OBSERVATIONS

Pension Plans Yes Costs for staff and to maintain plan - spouse on payroll to

justify additional contribution.

Children on the Payroll Yes - If goes to Roth IRA in the name of the child.

Child in lower rate but 15.3% employment taxes apply.

Can do this for parents and in-laws as well!

Wages paid to Doctor If Head of Household, Florida Statute 222 may apply - deposit directly into protected account.

15.3% Wage taxes on first $102,000, and then 2.7% over

$102,000.1.35% deductible at 35% rate,

so "after income tax, employment tax rate" is

2.2275%.

Up to $________ countable for pension contribution purposes, or $_________ for defined

contribution plan.

Dividends to owner of entity. Only if owner is protected - such as tenants by the

entireties or a family limited partnership owning the entity.

Not subject to payroll taxes - but could be recharacterized by

IRS.

Not creditor protected as wages.

Spouse on payroll. Yes, if spouse is safe. Subject to 15.3% employment taxes on first $102,000 / 2.9%

over $102,000. May be worth it for protection and/or pension

contribution for spouse.

Rent Yes, if renting entity is protected. They protect PA assets if landlord has lien to

enforce rent on long-term lease.

7% sales tax -- after tax cost is 4.55%.

May be worth paying full retail rent if owner or part owner of building or equipment are children

and/or bypass trust for spouse to facilitate estate tax savings.

Interest owed to related parties. If related party is protected. Deductible as interest - receiving party pays interest

income.

Why pay a bank 7% with personal guarantees when a family limited partnership or trust for the

children might loan the money without guarantees at 14% and take a lien on all practice assets.

S CORPORATION

PRACTICEENTITY

Owned by Physician or as Tenants by the Entireties

CHOICES AND FACTORS WITH RESPECT TO ALLOCATION AND PAYMENT OF MEDICAL PRACTICE INCOME FOR THE SOLO PRACTITIONER

9Copyright © 2011 Gassman Law Associates, P.A.

LESTER PERLING’S COMMENTS

Lester J. Perling, [email protected]

m


The Stark Law & The Florida Patient Self-Referral Act

The Stark Law –What is Prohibited?

The Stark Law, 42 U.S.C. § 1395nn, is a prohibition on physician self-referrals.

Provides that if a physician (or immediate family member) has a direct or indirect financial relationship (ownership or compensation) with an entity that provides designated health services (“DHS”), the physician cannot refer the patient to the entity for DHS and the entity cannot submit a claim for the DHS, unless the financial relationship fits an exception.

Who is a Family Member?

Family member means: Family member means: Spouse;Spouse; Birth or adoptive parent;Birth or adoptive parent; Child;Child; Sibling;Sibling; Step-parent, step-child, or step-sibling; Step-parent, step-child, or step-sibling; Father-in-law, mother-in-law, son-in-law, daughter-Father-in-law, mother-in-law, son-in-law, daughter-

in-law, brother-in-law, or sister-in-law; in-law, brother-in-law, or sister-in-law; Grandparent or grandchild; and Grandparent or grandchild; and Spouse of a grandparent or grandchild. Spouse of a grandparent or grandchild.

What is a Financial Relationship?

A financial relationship means:A financial relationship means:i.i. an an ownershipownership or or investmentinvestment interest; interest;

or or ii.ii. a a compensation arrangementcompensation arrangement

between a referring physician and a between a referring physician and a provider.provider.

Nearly any type of investment or Nearly any type of investment or compensation agreement between the compensation agreement between the referring physician (or an immediate referring physician (or an immediate family member of the referring physician) family member of the referring physician) and the DHS entity will qualify as a and the DHS entity will qualify as a financial arrangement under the Stark financial arrangement under the Stark law.law.

What is a Referral?

A “referral” is defined more broadly than merely recommending a provider of designated health services to a patient.

A referral is “the request by a physician for the item or service” or “the establishment of a plan of care by a physician which includes the provision of designated health services.”

Exception for Intra-Family Rural Referrals

The following intra-family referrals are exempt from the referral prohibition: The patient who is referred resides in a rural area In light of the patient's condition, no other person or entity is

available to furnish the services in a timely manner within 25 miles of or 45 minutes transportation time from the patient's residence

If services are provided to a person in-home, no other person or entity is available to furnish the services in a timely manner in light of the patient's condition

The financial relationship does not violate the Federal anti-kickback statute (section 1128B(b) of the Act), or any Federal or State law or regulation governing billing or claims submission.

The referring physician or the immediate family member must make reasonable inquiries as to the availability of other persons or entities to furnish the DHS

Categories of designated health services subject to the referral restrictions:(A) Clinical laboratory services. (B) Physical therapy services. (C) Occupational therapy services. (D) Radiology services, including magnetic resonance imaging,

computerized axial tomography scans, and ultrasound services. (E) Radiation therapy services and supplies. (F) Durable medical equipment and supplies. (G) Parenteral and enteral nutrients, equipment, and supplies. (H) Prosthetics, orthotics, and prosthetic devices and supplies. (I) Home health services. (J) Outpatient prescription drugs. (K) Inpatient and outpatient hospital services. (L) Outpatient speech-language pathology services

Designated Health Services

Penalties for Violation of the Stark Law

Nonpayment of claims to entity submitting claims

Civil Money Penalties of $15,000 for each service rendered plus an assessment of three times the amount of the claims

Penalty of up to $100,000 for “circumvention scheme”

False Claims Act liability for submission of false claims resulting from Stark prohibited referrals

Exclusion from Medicare/Medicaid

Florida Patient Self-Referral ActFla. Stat. §456.053

A health care provider may not refer a patient for the provision of (i) designated health services to an entity in which the health care provider is an investor or has an investment interest; and (ii) he/she may not refer a patient for the provision of any other health care item or service to an entity in which the health care provider is an investor, unless that referral meets the requirements of an exception

Who is an Investor?

An “Investor” is a person or entity owning a legal or beneficial ownership or investment interest in an entity, directly or indirectly, including, without limitation, through an immediate family member, trust, or another entity related to the investor.

What is an “Investment Interest”?

An “Investment Interest” is a debt or equity security issued by an entity, including, but not limited to, shares of stock in a corporation, units or other interests in a partnership, bonds, debentures, notes, or other equity interests or debt instruments.

Who is an Immediate Family Member under Fla. Stat. §456.053?

An immediate family member is a health care provider’s: Spouse; Child or child’s spouse; Grandchild or grandchild’s spouse; Parent; Parent-in-law; Sibling

Designated Health Services

Clinical laboratory servicesPhysical therapy services Comprehensive rehabilitative servicesDiagnostic-imaging services

MRI, nuclear imaging, nuclear medicine, angiography, arteriography, CAT, PET, tomography, digital vascular imaging, bronchography, lymphangiography, splenography, ultrasound, EEG, EKG, nerve conduction studies and evoked potentials,

Radiation therapy services

Penalties for Violation of Fla. Stat. §456.053

In addition to the penalties imposed by the Stark Law: A violation of the Florida statute constitutes

grounds for disciplinary action by the applicable regulating board.

A hospital that discriminates against or penalizes a physician for making referrals to another entity can be disciplined by the Agency for Health Care Administration

IMPUTED RELATIONSHIP = IMPUTED EXCEPTION ?

CHECKLIST


Completed To Be Done ?

1. Failure to have and maintain a proper planning structure.

2. Failure to periodically review and adjust asset ownership and titling.

3. Failure to have appropriate ownership/beneficiary designations for life insurance, retirement accounts, IRA’s and annuity contracts.

4. Failure to have enough life insurance.

5. Failure to focus on asset protection planning.

6. Tenancy by the Entireties

7. Wages and Wage Accounts

8. Failure to revisit the plan every 2 to 4 years, when there are significant changes.

9. Failure to protect the spouse and the next generation by the use of protective trusts.

10. Failure to do estate tax planning.


Protective trust system.How a married couple can best own assets.A limited partnership/gift trust system.


Determining Best How To Allocate Assets As Between A Married CouplePart I

General Rules:-Typically want each trust funded with at least $3,500,000 worth of assets on death for estate tax planning.- May be funded from ½ of tenancy by the entireties assets via disclaimer and probate or by life insurance/pension/IRA assets.

Husband WifeTrustee other than Husband or Wife

Wife could be Trustee if Husband is sole grantor (or vice

versa)

Husband’s

Revocable Trust

Protected life insurance and annuity contracts “owned by the insured.”

Wife’s Revocable Trust

Gifting Trust

(Irrevocable)

Lifetime By-Pass Trust

(Irrevocable)

TBE(Tenancy by the

Entireties)

1. Assets held directly by revocable trust are subject to husband’s creditor claims.

2. Direct ownership of limited partnership or LLC not in TBE may have charging order protection (meaning that if a creditor obtains a lien on the limited partnership or LLC, the husband cannot receive monies from the limited partnership or LLC without the creditor being paid).

1. Only exposed to creditors if both spouses owe the creditor or if one spouse dies and the surviving spouse has a creditor, the spouses divorce, or state law or the state of residence changes.

2. On death of one spouse, surviving spouse may disclaim up to ½ (if no creditor is pursuing the deceased spouse) to fund By-Pass Trust on first death.

1. Safe from creditors of husband but exposed to creditors of wife (Maintain large umbrella liability insurance coverage to protect these assets.)

2. On wife’s death, can be held under a protective trust, which will continue to be safe from creditors of husband and subsequent spouses and “future new family”

1. Safe from creditors of both spouses.

2. If divorce occurs, should not be subject to rules for division of property between spouses.

3. May be controlled by the “entrepreneurial spouse” by using a Family Limited Partnership.

1. Safe from the creditors of the Grantor’s spouse.

2. If funded by one spouse, may benefit other spouse and children during the lifetime of both spouses.

3. Otherwise can be identical to gifting trust pictured to the left.

SEE NEXT PAGE FOR SECOND TIER PLANNINGA COMMON SOLUTION - to use a limited partnership or similar mechanisms and have no assets directly in the “high risk” spouse’s trust, half to two-thirds of the assets held as tenants by the entireties, and half to two-thirds of the assets directly in the “low risk” spouse’s trust.


A COMMON SOLUTION - to use a limited partnership or similar mechanisms and have no assets directly in the “high risk” spouse’s trust, half to two-thirds of the assets held as tenants by the entireties, and half to two-thirds of the assets directly in the “low risk” spouse’s trust.

Determining Best How To Allocate Assets As Between A Married CouplePart II

Subsidiary Entity Techniques:-Limited partnerships can be used to facilitate discounts, for estate tax purposes, and for charging order protection.-Limited partnerships and LLCs can also be used to provide “firewall protection” from activities or properties owned.

Husband WifeTrustee other than Husband or Wife

Wife could be Trustee if Husband is sole grantor (or vice

versa)

Husband’s

Revocable Trust

Wife’s Revocable Trust

Gifting Trust

(Irrevocable)

Lifetime By-Pass Trust

(Irrevocable)

TBE(Tenancy by the

Entireties)

1. Assets held directly by revocable trust are subject to husband’s creditor claims.

2. Direct ownership of limited partnership or LLC not in TBE may have charging order protection (meaning that if a creditor obtains a lien on the limited partnership or LLC, the husband cannot receive monies from the limited partnership or LLC without the creditor being paid).

1. Only exposed to creditors if both spouses owe the creditor or if one spouse dies and the surviving spouse has a creditor, the spouses divorce, or state law or the state of residence changes.

2. On death of one spouse, surviving spouse may disclaim up to ½ (if no creditor is pursuing the deceased spouse) to fund By-Pass Trust on first death.

1. Safe from creditors of husband but exposed to creditors of wife (Maintain large umbrella liability insurance coverage to protect these assets.)

2. On wife’s death, can be held under a protective trust, which will continue to be safe from creditors of husband and subsequent spouses and “future new family”

1. Safe from creditors of both spouses.

2. If divorce occurs, should not be subject to rules for division of property between spouses.

3. May be controlled by the “entrepreneurial spouse” by using a Family Limited Partnership.

1. Safe from the creditors of the Grantor’s spouse.

2. If funded by one spouse, may benefit other spouse and children during the lifetime of both spouses.

3. Otherwise can be identical to gifting trust pictured to the left.

FLP FLP

FIREWALL LLC

LLC

Husband,

Manager

100%

Leveraged Investment

Property or activity

97% 3% 1% 96% 3%SECOND

TIER PLANNING:


PROTECTIVE TRUST LOGISTICAL CHART

First Dying Spouse’s Revocable Trust

Surviving Spouse’s Revocable Trust

$5,000,000*(Adjusted upward for

inflation after 1/1/2011)

Remaining Assets

Family(By-Pass)

Generation Skipping Trust

(Not taxed in surviving spouse’s estate)

QTIP Non-GST Trust

(Marital Deduction Trust that is not

generation skipping)

Generation Skipping Trusts

for Children

Children’s Trust (or outright

distributions)

Surviving spouse can have the right to redirect how assets are distributed on second death.

Benefits children and grandchildren.Not estate taxable in their estates.

Benefits children.Taxable in their estates.

Surviving Spouse’s Revocable Trust(Will include assets owned jointly on

first death)

$5,000,000*(Adjusted upward

after 1/1/2011)

Remaining Assets


for Children(Can merge with first dying

spouse’s Generation Skipping Trusts shown on

left)


distributions)



During both spouse’s lifetimes:

Upon first death in 2011:

During surviving spouse’s remaining lifetime:

Upon second death:

After deaths of both spouses:

*Assumes first spouse dies in 2011 and that the surviving spouse dies in a later year when the estate tax exemption is still $5,000,000.*The Unified Credit Exemption is $5,000,000 in 2011 and 2012, and is scheduled to go back to $1,000,000 in 2013.



Tenancy by the Entireties – was the right box checked?

Should assets be held under living trusts? Living Trusts do not protect assets from creditors. Sometimes it is best to own the assets jointly as

tenants by the entireties. If trust ownership is needed, is it properly structured?


3. Failure to have appropriate ownership/beneficiary designation for life insurance, retirement accounts, IRA’s and annuity contracts.

Life insurance and annuities are protected from creditors if owned by the “insured person”

Typically life insurance will be owned by the insured and made payable to the revocable trust of the insured. Alternatively, it may be owned by an irrevocable life

insurance trust to avoid estate tax.


BUYING CONVERTIBLE TERM INSURANCE

• You can ask an independent agent who writes for many carriers to have the client take the physical so that they can get quotes from several carriers.

• You can ask that all results and quotes be confidential and not given to the bureau that all carriers belong to and share information with. Once a carrier turns the client down or "rates" the client all other carriers know.

• This is called an "informal application" and then the carriers can each give informal quotes for term coverage. If the client likes the quote then he or she can buy it.

• You might spread this among 2 or 3 carriers in case one goes under.

• Sample term rates for "preferred", "standard" and "standard smoker" individuals at ages 35, 40, 45, 50 and 55 are as follows:



AGE 30

PREFERRED STANDARD STANDARD SMOKER

MALE FEMALE MALE FEMALE MALE FEMALE

10 Year Term $378 $328 $658 $518 $1,548 $1,218

15 Year Term $458 $398 $768 $688 $1,918 $1,438

20 Year Term $608 $478 $968 $738 $2,278 $1,638

30 Year Term $938 $768 $1,518 $1,218 $3,908 $3,018

AGE 35



10 Year Term $375 $345 $735 $565 $1,685 $1,345

15 Year Term $515 $415 $915 $805 $2,135 $1,775

20 Year Term $665 $565 $1,105 $945 $2,885 $2,265

30 Year Term $1,015 $825 $1,735 $1,375 $4,705 $3,555

AGE 40



10 Year Term $505 $435 $925 $785 $2,405 $2,005

15 Year Term $655 $575 $1,215 $1,035 $3,125 $2,485

20 Year Term $865 $745 $1,505 $1,255 $4,345 $3,185

30 Year Term $1,495 $1,135 $2,465 $1,985 $7,175 $5,275

AGE 45



10 Year Term $805 $705 $1,405 $1,095 $8,935 $3,055

15 Year Term $1,065 $875 $1,985 $1,445 $5,275 $3,815

20 Year Term $1,415 $1,105 $2,355 $1,755 $7,195 $4,895

30 Year Term $2,355 $1,765 $2,845 $2,825 $11,625 $7,555

AGE 60



10 Year Term $3,098 $2,198 $4,808 $3,278 $13,028 $8,308

15 Year Term $4,488 $3,048 $7,088 $5,218 $17,658 $12,978

20 Year Term $5,798 $4,078 $9,488 $6,668 $22,048 $15,058

30 Year Term Not Available Not Available Not Available Not Available Not Available Not Available

AGE 50



10 Year Term $1,235 $1,025 $2,145 $1,625 $6,435 $4,295

15 Year Term $1,785 $1,235 $2,805 $2,065 $7,825 $5,725

20 Year Term $2,225 $1,625 $3,425 $2,715 $10,425 $6,865

30 Year Term $4,025 $2,645 $6,245 $4,785 $13,719 $10,109

AGE 55



10 Year Term $2,025 $1,495 $3,315 $2,235 $8,935 $5,905

15 Year Term $2,895 $1,835 $4,655 $2,985 $12,055 $7,995

20 Year Term $3,505 $2,465 $5,955 $3,985 $14,875 $9,985

30 Year Term Not Available Not available Not Available Not Available Not Available Not Available



What assets are creditor protected and what are not creditor protected.

Common errors. Revocable trusts do not protect assets from creditors. Creditors of a beneficiary may be able to attach IRAs. Use LLCs to shield from ownership and activity

liabilities? Possible use of family limited partnership planning.


FLORIDA RESIDENTS- LEARNING HOW TO PROTECT YOUR ASSETS IN TWO MINUTES


CREDITOR EXEMPT ASSETS ASSETS THAT ARE DIFFICULT FOR A CREDITOR TO OBTAIN

ASSETS EXPOSED TO CREDITORS

Homestead-Up to half acre if within city limits.-May be immune from fraudulent transfer statute.

Limited partnership and similar entity interests.

Individual money and brokerage accounts.

IRA-Includes ROTH, Rollover, and Voluntary IRAs, but possibly not inherited IRAs.

Foreign trusts and companies. Joint assets where both spouses owe money.

401(k)-Maximize these!

Foreign bank accounts. One-half of any joint assets not TBE where one spouse owes money.

Permanent Life Insurance -Must be owned by insured.

Note – foreign entities are very rarely recommended and must be reported to IRS -

Personal physical assets, including car, except for $4,000 exemption ($1,000 if homestead exemption is claimed in bankruptcy).

Annuity Contracts Vocabulary:EXEMPT ASSET – An asset that a creditor cannot reach by reason of Florida law – protects Florida residents.CHARGING ORDER PROTECTION – The creditor of a partner in a limited liability partnership can only receive distributions as and when they would be paid to the partner.FRAUDULENT TRANSFER - Defined as a transfer made for the purpose of avoiding a creditor. Florida has a 4 year reach back statute on fraudulent transfers. A fraudulent transfer into the homestead may not be set aside unless the debtor is in bankruptcy. It takes 3 creditors of a debtor who has 12 or more creditors to force a bankruptcy.Upon filing a Chapter 7 Bankruptcy, an individual debtor may be able to cancel all debts owed and keep exempt assets, subject to certain exemptions.Annuities and life insurance policies are not always good investments, and can be subject to sales charges and administrative fees.There is a lot more to know- but this chart may be a good first step.

Wages of Head-of-Household Wage Accounts Tenancy by the Entireties (joint where only one spouse is obligated)- Must be properly and specially titled – joint with right of survivorship may not qualify. 529 College Savings Plans Annuity Contracts

6. Tenancy By The EntiretiesDefinition of TBE

“My wife and I were happy for 20 years….then we met.”-Rodney Dangerfield

Law requires “the 6 unities”:1. Unity of possession

Joint ownership and control

2. Unity of interest Same interest in the account

3. Unity of time Interests of both spouses originate simultaneously in the same instrument

4. Unity of Title Ownership under the same title

5. Survivorship With one spouse left one sole owner

6. Unity of marriage Must be legally married under Florida law


8 COMMON LLC PLANNING ERRORSBy: Alan S. Gassman, J.D., LL.M.

Steve Leimberg's Asset Protection Planning Email Newsletter - Archive Message #83Date: 16-May-06 From: Steve Leimberg's Asset Protection Planning Newsletter Subject: 8 Common LLC Planning Errors Alan Gassman of Gassman, Bates & Associates in Clearwater Florida is a frequent LISI contributor. Alan is on the Board of Advisors of the Research Institute of America, Journal of Asset Protection.

Alan warns LISI members of 8 common asset protection planning mistakes made when setting up and running LLCs.

EXECUTIVE SUMMARY:

Limited liability companies are quite often the entity of choice for investment and business holdings.

Problems can arise, however, where structuring does not take important risks and federal and state law requirements into account.

FACTS:

Some of the most common problems we encounter in reviewing LLC arrangements for clients are:

1. TENANCY BY THE ENTIRETIES" DESIGNATION THAT WILL NOT QUALIFY AS TENANCY BY THE ENTIRETIES. Many married couples in states that protect tenancy by the entireties assets from the creditors of one spouse or the other have their LLC interests titled jointly as tenants by the entireties. But they don't realize that there are provisions in the operative documents which are inconsistent and would thus annul tenancy by the entireties characterization and protection.

Common examples of this are:

(a) By the rules of tenancy by the entireties, the joint interest must pass outright solely by the surviving spouse in the event of the death of the surviving spouse. Oftentimes an operational document will provide that on the death of a member, the interest of that member must be sold. Agreements are commonly not drafted to explicitly provide that on the death of a spouse, the other spouse will be the owner of the joint interests, without any inconsistent member agreement provisions.


40

(b) Similarly, provisions under an operative document which restrict transfers may actually be read to prevent one spouse from owning the entire member interest on the death of another spouse. (c) While the certificate of ownership may be issued to both spouses as tenants by the entireties, oftentimes the Operating Agreements or Articles of Organization will provide for only one spouse or the other to be an owner. 2. ENTITY DOCUMENTS CAN DISQUALIFY S ELECTION. Limited liability companies may be treated as S Corporations under the federal income tax law if certain very strict requirements are met and an S election is made. If the S election is made but the S Corporation requirements are not met, then the company will be taxed as a "C Corporation," therefore exposing properties and income to double tax.

Common causes of this catastrophic treatment are as follows:(a) An operating agreement does not provide for all income to be distributed pro rata to ownership. Commonly "partnership style" clauses assure members that they will recapture their original investment or have some sort of an income sharing that would reflect a "second class of stock," which is not permitted under the S Corporation Rules. (b) Although state law permits a limited liability company to have non-citizens, corporations, and other entities own LLC interests, these and certain other entities are not permitted owners of S Corporation stock, and will thus cause disqualification. (c) Too high of a debt equity ratio could cause disqualification from S Corporation status.


Real Estate OwnedOutside of Florida

If state does not recognize TBE, ownership of real property should be converted to an intangible asset so Florida law applies Most States (including Georgia, Colorado and

Washington) do not recognize TBE Some States recognize TBE, but don’t provide “full

protection” for those assets (Alaska, Tennessee) Some states recognize TBE law (Delaware, North

Carolina) and in these states the creditors of one spouse cannot touch TBE property owned by the other spouse

Make sure organizational documents are consistent with the law of TBE


Other TBE Notes

Three-way account cannot be TBETBE property can be freely transferred from a

debtor spouse to a non-debtor spouseTransfers to non-resident alien spouses IRS can invade TBE assets where only one

spouse owes taxesFraudulent transfers and using money

borrowed on TBE property to purchase more TBE property

Consider the Alaska Community Property Trust


A FLORIDA PHYSICIAN’S GUIDE TOPROTECTION OF WAGES AND WAGE ACCOUNTS

Florida law provides limitations upon the access that creditors may have to “wages” and “wage accounts” earned and funded by Florida residents.

Florida Statute Section 222.11 provides that wages earned by a head of household will generally be immune from creditors.

Head of household has been defined to mean that the wage earner provides most of the support for themselves and other family members. For example, where the wage earner’s spouse earns more than the wage earner, the wage earner may not qualify as “head of household” for creditor exemption purposes unless it can be shown that the actual wages earned by such person provide more than half of the support for at least one other family member.

Wages do not include dividends that are paid attributable to ownership of a professional practice, as opposed to being labeled as wages. Wages are subject to employment taxes.

A family member being supported should be a relative, or maybe a non-relative, who actually resides in the household with the wage earner.

Some courts have indicated that where the wage earner is a shareholder in a closely held corporation, and can thus manipulate between what would be received as wages and what would be received as dividends, then no wages may be protected. These unfortunate bankruptcy court decisions have not been appealed, and point out the importance of taking regular paychecks and having arm’s-length employment agreements in place so that wages are paid periodically in a traditional manner to enhance the probability that they will be protected.



44

If wages are “creditor exempt,” then it is important to maintain the creditor exempt status of the wages by depositing them into an account or other investments that will also be creditor exempt.

Other creditor exempt assets that wages may be “converted to” can include paying down the mortgage on a protected home, investing the paycheck directly into a properly titled annuity contract or life insurance policy, funding a tenancy by the entireties account where the wage earner’s spouse would not be sued by the same creditor as the wage earner, or making deposits into a wage account.

Physicians who have monies or investments that are not creditor exempt might be well advised to spend down the non creditor exempt savings, while accumulating wages in a wage or other protected account.

The Florida statutes do not explicitly impose any ownership, titling, naming or other specific requirement for an account to qualify as a wage account. A “wage account” can be owned by the physician earner, or may be held as tenancy by the entireties by the physician earner and the physician’s spouse.


45

Most, if not all, married physicians whose spouses do not practice with them will be better protected by depositing their wages into a tenancy by the entireties account so that the wages may be safeguarded for two reasons: (1) the wage exemption rules as described above will apply, and (2) to “invade” a tenancy by the entireties bank account, a creditor must have a judgment against both spouses or show that the transfer into the account was a “fraudulent transfer.” If a wage check is a creditor exempt asset, then the deposit of the wage check directly into a protected tenancy by the entireties account should not be considered a “fraudulent transfer.”

Many physicians and bankers waste a lot of time opening “wage accounts” where tenancy by the entireties accounts or other vehicles just as, if not more, protective and would qualify as wage accounts anyway.

The statute simply says that wages are protected for six months in the account so long as they can be traced, and thus are not confused with non-wage or older wage deposits that would not be protected.

It makes sense to have an account funded solely by wages, and to “empty the account” into other exempt investments, at least every six months, so that there would never have to be a tracing and proof analysis as to wage money protection. Copyright © 2011 Gassman Law Associates, P.A.

MEMORANDUM

TO: CLIENTS AND ADVISORSDATE: JUNE 3, 2011RE: CHARGING ORDER REPAIR BILL SIGNED BY GOVERNOR************************************************************************************************************************************ Concerns over the Florida LLC charging order law have been resolved in favor of multiple member LLCs and their owners.

On Tuesday, Governor Scott signed the new bill which took into account the Florida Supreme Court Olmstead case, which will no longer be pertinent for multiple member LLCs.

It will still be important that LLC Operating Agreements and other documents be appropriately worded and structured.

Single member LLCs will not have charging order protection.

Our 18 page article on the new law and matters associated therewith will appear in the LISI financial advisor system shortly, but if you would like an advance copy, please let us know.

By way of background, Charging order protection means that upon receiving a judgment against an LLC member a creditor cannot take over part ownership or take assets out of the LLC, but is instead limited to being paid as and when the LLC makes distributions, with the LLC not having any obligation to make any distributions at any time.

Last summer, the Florida Supreme Court held in the case of Olmstead v. Federal Trade Commission that a charging order was not the sole remedy for a judgment creditor of the sole member of a single member LLC. The Court’s reasoning also indicated that charging order protection may not apply for multiple-member LLCs.

The new legislation makes it clear that charging order protection will apply in a properly structured multiple-member LLC situation. The legislation is retroactive to the initial passing of the LLC statute in the 1990s. Single member LLCs will not be accorded any substantial treatment, although the new legislation provides that a creditor of a single member LLC owner will not be able to seize assets or control of the LLC if the Court is convinced that the creditor will be paid in full within a reasonable time.

It is important to note that an improperly drafted or structured multiple-member LLC arrangement may not qualify for charging order protection. Many LLC members and managers may, therefore, want to have their LLC operating agreements reviewed to be certain that the legislative fix will be beneficial to them.

$5,000,000

$251,000

Umbrella Policy #1

Covers claims for home and car exceeding $250,000.

Must be “drop-down” umbrella if home policy is issued by Citizens or a comparable state agency that does not cover liabilities from pools, pets, or other notable exceptions.

Umbrella Policy #2

May need a separate umbrella for out-of-state vacation home, large boats or other items.

$250,000

$0

Policy #1 – Homeowners

Policy #2 – Car Driver and Owner Policy

Policy #3 – Vacation Home

Policy #4 - Big Boat at Vacation Home

UNDERSTANDING YOUR LIABILITY INSURANCE COVERAGE

The vast majority of carriers will only issue a $250,000 policy on your home, a $250,000 policy on your driving, and a $250,000 policy on your vacation home.A separate “umbrella carrier” or “carriers” will then issue separate policies for above $250,000, as shown in the example below. Sometimes one carrier will write two or more of the below described policies, but often there will be 3 or more carriers involved and coordination can be a challenge:


UMBRELLA INSURANCE COVERAGERe: UMBRELLA LIABILITY INSURANCE COVERAGE

Dear ________________:

As part of our planning I wanted to reiterate the importance of having an appropriately coordinated and “gap free” liability and casualty insurance program.

I am enclosing a sample letter that some clients use to help assure that they have coverage for common gaps or mistakes made in structuring liability insurance. If you would like assistance in completing this type of letter, please let me know.

The rest of this letter is about umbrella liability insurance coverage. We believe that it is very important to have appropriate limits of liability on automobile and homeowner insurance policies. Typically, the automobile and homeowner policies will be at $500,000 coverage, and then there will be excess coverage under what is called a "personal umbrella policy."

The personal umbrella policy is used in combination with homeowners and auto policies to cover most clients' needs. If it is a true "umbrella" it will provide excess limits above and beyond your primary insurance coverage (such as homeowners, automobile or boat policy), and will also provide coverage for situations excluded or not addressed by underlying coverages. Each individual insurance company will have its own requirement for limits that you must have on your primary policies. You will want to be careful to assure that these policies are coordinated with your umbrella coverage.

Umbrella limits start at $1,000,000 and can go over $10,000,000. Pricing for these policies are based primarily on the number of houses and vehicles to be insured, with each additional $1,000,000 of coverage being less expensive than the preceding. In your situation I would probably have $___________________ of umbrella liability insurance. Also, I would consider placing much of your brokerage account and other assets under a family limited partnership to further insulate you for creditor protection purposes.

Another coverage that is often underutilized by clients is called "uninsured motorist coverage." If you are in an automobile accident caused by someone who does not have enough coverage to pay for your damages, you can pursue your own insurance company to the extent of your "uninsured motorist" coverage. We encourage clients to see what it costs to have $500,000 or more in uninsured motorist coverage to help compensate for catastrophic accidents that can happen.

Some carriers, including citizens and carriers who have assumed policies from citizens do not provide liability coverage for pool and pet or animal related liabilities. In this event the Umbrella liability coverage may or may not apply. This is something that should be discussed with the insurance agency or carrier that provides liability coverage.

If we can provide you with any further information or with assistance concerning your insurances, please let us know.

Very truly yours,

Alan S. Gassman


Dear Liability Insurance Agency and/or Carrier:

I recently met with my estate planning lawyer and wanted to make sure of the following:

1. Please confirm that we have Personal Liability Umbrella insurance covering our automobiles, boats, recreational vehicles, and all properties owned. I would like quotes on the following coverage limits, $1,000,000, $3,000,000 and $5,000,000, with and without Uninsured Motorist coverage.

2. Please confirm that we are covered for animal liability under our primary homeowners insurance and confirm that the Liability Umbrella would also extend to animal liability. We have been told that the primary homeowners may exclude animal liability and that some Liability Umbrella policies will not provide coverage when the primary homeowners insurance excludes same.

3. Please confirm that we are covered for pool related accidents occurring on our property and also confirm that the Personal Liability Umbrella policy will also extend coverage to pool related accidents.

4. Can you please confirm that we are covered for cars being driven by _____________________.

5. Can you please confirm that we are covered for the investment property that we own at ______________________________. It is titled under the name of ______________________________?

6. Can you please confirm that we are covered for our ______________________________ boat, which is ______ foot long and is normally stored at ______________________________. The horsepower is ______________.

Are we also covered for trailering the boat with our trailer?

Also, can you please confirm that we are covered for our waverunner/jet ski which is a _________________ with horsepower of _________________. It is stored at ________________________.

7. You do not handle the coverage for our vacation ______________________________ in ______________________________ or our vacation ____________________________ in ______________________________. Is our potential liability relating to the use of these properties covered under our umbrella, or do we have to obtain a separate umbrella for these properties?

Our ______________________________ and _____________________________ are stored and used up in our ______________________________ ______________________________.

8. ______________________________ drives the car owned by ______________________________ both for personal purposes and with respect to the ______________________________ business. We assume our coverage includes business driving both by ______________________________ and by ______________________________ who occasionally drive the car for the business.

9. Can you please confirm that we are covered for our motorcycle being driven by ___________.

10. Is there anything not mentioned above that comes to mind that we should be aware of?

Please send our lawyer, Alan S. Gassman, a copy of your response to this letter, which has been generated as a part of our estate planning. Alan's email address is [email protected] and his street address is 1245 Court Street, Suite 102, Clearwater, Florida 33746. His fax number is (727) 443-5829. Please send us a copy of your response as well.

If you have any further suggestions with respect to our coverages please let us know.

Thank you very much for your assistance herewith.

Best personal regards,


8. Failure to revisit the plan ever 2 to 4 years, or when there are significant changes.


Creditor Protection for Physicians – Most Common Mistakes



Spouse can be trustee or co-trustee of bypass trust and/or marital deduction trust – can protect from estate tax on second death, creditors, subsequent spouses, and aggressive son and daughter-in-laws.

Are children better off inheriting directly or becoming trustees of trusts that pay them amounts as reasonably needed for health, education, and maintenance to maintain their standards of living. Protect from the child’s creditors. Protect from estate tax on the child’s death. Protect from divorce claims. Protect from mistakes or imprudence by requiring that the

child serve as co-trustee?


PROTECTIVE TRUST LOGISTICAL CHART

First Dying Spouse’s Revocable Trust

Surviving Spouse’s Revocable Trust

$5,000,000*(Adjusted upward for

inflation after 1/1/2011)

Remaining Assets

Family(By-Pass)

Generation Skipping Trust

(Not taxed in surviving spouse’s estate)

QTIP Non-GST Trust

(Marital Deduction Trust that is not

generation skipping)


for Children


distributions)

Surviving spouse can have the right to redirect how assets are distributed on second death.



Surviving Spouse’s Revocable Trust(Will include assets owned jointly on

first death)

$5,000,000*(Adjusted upward

after 1/1/2011)

Remaining Assets


for Children(Can merge with first dying

spouse’s Generation Skipping Trusts shown on

left)


distributions)



During both spouse’s lifetimes:

Upon first death in 2011:

During surviving spouse’s remaining lifetime:

Upon second death:

After deaths of both spouses:

*Assumes first spouse dies in 2011 and that the surviving spouse dies in a later year when the estate tax exemption is still $5,000,000.*The Unified Credit Exemption is $5,000,000 in 2011 and 2012, and is scheduled to go back to $1,000,000 in 2013.


TRUST SYSTEMS FOR CHILDREN AND FUTURE GENERATIONS

TO: ESTATE PLANNING CLIENTSFROM: ALAN S. GASSMAN, ESQUIREDATE: September 9, 2009RE: TRUST SYSTEMS FOR CHILDREN AND SUBSEQUENT GENERATIONS❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀❀I. THE TRADITIONAL APPROACH:

A. On the death of the surviving spouse there is a separate share for each child.

B. Each child receives what the Trustees deem appropriate and receive percentages of principal upon attaining certain ages, such as:

Age Percentage of Remaining Assets

25 33 1/3%30 50%35 100%

C. Release as needed plus at specified ages.

D. The child may become Co-Trustee at a certain age, such as 30, and sole Trustee at age 35.


II. A MORE PROTECTIVE APPROACH FROM A POSSIBLE DIVORCE AND CREDITOR PROTECTION STANDPOINT FOR THE CHILD:

Child becomes a trustee but has trust protection for life.

A. Assets are held in a Protective Trust that is as immune as possible from creditor claims and divorce claims.

B. The child is to receive amounts as reasonably needed for health, education and maintenance of themselves and descendants.

C. The child may serve as Co-Trustee upon reaching a certain age, such as 25, Co-Trustee with their choice from a list of selected people or a licensed trust company at a later age, such as 30, and sole Trustee at age 35.

D. The child can designate how the assets would pass on the child’s death, which may be restricted to lineal descendants or perhaps up to 1/3rd to a spouse or charity.

III. AN EVEN MORE PROTECTIVE APPROACH:

Independent trusteeship for entire life of child.

A. The same as II above, except the child must serve as Trustee for life with their choice of any licensed trust company.

IV. WITH EACH OF THE SYSTEMS DESCRIBED ABOVE THERE CAN BE SPECIAL STIPULATIONS, SUCH AS NOTHING BUT EDUCATIONAL EXPENSES AND SUPPORT UNTIL A FOUR YEAR DEGREE OR A CERTAIN AGE HAS BEEN ATTAINED, A RESTRICTION ON THE CHILD SERVING AS A CO-TRUSTEE OR TRUSTEE DURING THE PENDENCY OF A DIVORCE, CREDITOR PROBLEM, REACHING A CERTAIN ADVANCED AGE, AND EVEN REQUIREMENTS THAT THE CHILD’S DISTRIBUTION WOULD BE LIMITED TO A PERCENTAGE OF W-2 INCOME OR TIMES WHEN THE CHILD IS A FULL-TIME HOMEMAKER WITH YOUNG CHILDREN AT HOME.


WHY HAVE A CORPORATE OR PROFESSIONAL CO-TRUSTEE

While family members may seem like the best choice for trusteeship of long term trusts to benefit spouses and children, we often recommend consideration of having the family member serve as co-trustee with their choice of a licensed trust company or a professional individual to act as co-trustee in order to avoid major pitfalls that often occur. Examples are as follows:

1. Loss of assets often occurs by reason of:a. Loans authorized by the fiduciary which can later not be repaid.b. High risk investments that did not seem high risk to the non-professional trustee at the

time they were made.c. Liberal distribution and beneficiary/loan decisions made where a feeling of generosity

was allowed to influence what should have been an attitude of conservatism for long term benefit.

2. Tax and funding mistakes are often made by well meaning individuals who do not hire and closely follow the advice of appropriately specialized advisors. Non-specialized advisors may mean well, but sometimes give mistaken advice, and a non-professional fiduciary would never know the difference.

3. Family squabbles that can often occur when one family member has decision-making authority over other family members with no one to “blame decisions on.”

The professional trustee will commonly be a bank or brokerage firm affiliate, an experienced CPA or a lawyer who works extensively in the trust administrative area, or in some cases an offshore trust company.

We always recommend that selected family members or advisors have the ability to replace an acting trustee from a list of alternate trustees or categories thereof to help assure responsiveness, competitiveness and reasonableness as to fees charged, and to exert a reasonable degree of influence over trustee decisions.


Common examples.- The Surviving Spouse - When one spouse dies the surviving spouse receives

$2,000,000.00 of life insurance premiums in trust to support themselves and the children. Instead of serving as sole trustee, the surviving spouse can serve with their choice of any trust company or any one of certain persons named in the document. The spouse can negotiate fees before making a decision and terminate the acting professional co-trustee with an alternate trust company or listed individual at any time and for any reason.

The spouse is much less likely to be “bossed around” or inappropriately influenced by a new spouse or by the children in later years where a professional co-trustee is serving.

- The Elderly Client - When an elderly client loses their spouse they are often quite shaken up both emotionally and sometimes from a health standpoint. By having a co-trustee involved they have added security and independence from well meaning loved ones and caretakers who might exert undue influence or make mistakes from an investment or fiscal responsibility standpoint.

- A Child - Monies left to an adult child who is responsible but has marital, emotional spending or other issues such that it is best that the assets be managed and paid out in a professional manner with the child perhaps having the power to replace the trustee or trustees with alternate independent trustees.

A Gambler – Monies left to people who have gambling tendencies, including entrepreneurs who tend to do deals and risk losing assets are much more secure held with a co-trustee.



Will the bypass trust be funded on the first death?

Can any large inheritances by shifted in trusts to bypass the child?

Annual gifting based upon $13,000/per person/per year.

Gifting discounted limited partnership and/or LLC interests to have more effective gifting.

Installment sales to irrevocable trusts.Grantor retained annuity trusts.Other strategies.


Moving More Value OutOf Taxable Estates by Using

Discounted Limited PartnershipOr LLC Annual Gifting

10 Year Gifting Period$13,000 Annual Exclusion Allowance

35% Valuation Discount

Year

Permitted Annual Gifting

Cumulative Value with 7% Growth

Permitted AnnualGifting

Cumulative Value with 7% Growth

Value Added By Contributing $200,000 More in Year 1

1 $13,000.00 $13,000.00 $213,000.00 $213,000.00 $200,000.002 $13,000.00 $26,910.00 $13,000.00 $240,910.00 $214,000.003 $13,000.00 $41,793.70 $13,000.00 $270,773.70 $228,980.004 $13,000.00 $57,719.26 $13,000.00 $302,727.86 $245,008.605 $13,000.00 $74,759.61 $13,000.00 $336,918.81 $262,159.206 $13,000.00 $92,992.78 $13,000.00 $373,503.13 $280,510.357 $13,000.00 $112,502.27 $13,000.00 $412,648.34 $300,146.078 $13,000.00 $133,377.43 $13,000.00 $454,533.73 $321,156.309 $13,000.00 $155,713.85 $13,000.00 $499,351.09 $343,637.2410 $13,000.00 $179,613.82 $13,000.00 $547,305.67 $367,691.8411 $0.00 $192,186.79 $0.00 $585,617.06 $393,430.2712 $0.00 $205,639.87 $0.00 $626,610.26 $420,970.3913 $0.00 $220,034.66 $0.00 $670,472.97 $450,438.3214 $0.00 $235,437.08 $0.00 $717,406.08 $481,969.0015 $0.00 $251,917.68 $0.00 $767,624.51 $515,706.8316 $0.00 $269,551.92 $0.00 $821,358.22 $551,806.3117 $0.00 $288,420.55 $0.00 $878,853.30 $590,432.7518 $0.00 $308,609.99 $0.00 $940,373.03 $631,763.0419 $0.00 $330,212.69 $0.00 $1,006,199.14 $675,986.4620 $0.00 $353,327.58 $0.00 $1,076,633.08 $723,305.5121 $0.00 $378,060.51 $0.00 $1,151,997.40 $773,936.8922 $0.00 $404,524.74 $0.00 $1,232,637.22 $828,112.4723 $0.00 $432,841.47 $0.00 $1,318,921.82 $886,080.3524 $0.00 $463,140.38 $0.00 $1,411,246.35 $948,105.9725 $0.00 $495,560.20 $0.00 $1,510,033.59 $1,014,473.3926 $0.00 $530,249.42 $0.00 $1,615,735.95 $1,085,486.5327 $0.00 $567,366.88 $0.00 $1,728,837.46 $1,161,470.5828 $0.00 $607,082.56 $0.00 $1,849,856.09 $1,242,773.5329 $0.00 $649,578.34 $0.00 $1,979,346.01 $1,329,767.6730 $0.00 $695,048.82 $0.00 $2,117,900.23 $1,422,851.41


Based upon a two year GRAT with payments of 49.4208% oforiginal contribution at the end of year one, and 59.305% oforiginal contribution at the end of year two, the value of a giftcaused by a $4,000,000 contribution is approximately $1,000.

One spouse can fund a trust on a tax advantaged basis tobenefit the other spouse and their descendants.

Other Spouse = Trustee

GRANTORSPOUSE

Year One $1,976,832.00Year Two $2,372,198.40

Assuming 10% per yeargrowth in assets, the GRATTrust will have $293,286.40 After the second year, trust assets can be held for the lifetime after two years. benefit of Trustee Spouse and Descendants.

Assuming 15% per year Assets not accessible to creditors of thegrowth in assets, the GRAT Trustee/Beneficiary Spouse, or theTrust will have $644,444.80 descendants.after two years.

Annuity payments payable to the Grantor/Spousewho is a Florida resident should be protectedfrom creditors under Florida Statute Section 222

Contribution of $4,000,000

Repayment Obligations:

LIFETIME BYPASS

GRAT

LIFETIME BYPASS GRAT(GRANTOR RETAINED ANNUITY TRUST)


See Page √

1. Always first review the probability analysis system on the previous page to assure that your planning takes into account the possibility of some combination of the following occurring.

a. Continuation of a $5,000,000 exclusion.

a. Reduction to a $3,500,000 or lower estate tax exclusion.

a. Reduction of the $5,000,000 gift exclusion to $1,000,000.

a. Elimination of estate tax.

1. Married clients will want the option to not fund a credit shelter trust on the first death. Consider methods to allow for first dying spouse’s assets to be paid outright or into a marital deduction trust to facilitate use of the portability allowance for the surviving spouse (most clients will want to fully fund a credit shelter trust).

1. Facilitate having Credit Shelter Trust language be flexible to allow trust assets to be includable in the estate of the surviving spouse to get an income tax basis step-up.

a. Draft the Credit Shelter Trust with an independent committee having power to give surviving spouse a taxable general power of appointment to cause inclusion of the assets subject to the power in the surviving spouse’s estate, which would allow for a step-up in income tax basis in lieu of estate tax avoidance on the second death.

a. Provide for outright or QTIP marital disposition on first death, but allow for the surviving spouse or the trustee of the QTIP trust to disclaim assets into the Credit Shelter Trust within nine months of first dying spouse’s death.

a. Provide for Clayton QTIP language under Credit Shelter Trust, to permit fiduciaries to determine whether to have the Credit Shelter Trust be treated in whole or in part as a QTIP marital deduction trust.

a. Draft the Credit Shelter Trust to allow an independent committee to make distributions of Credit Shelter Trust assets directly to the surviving spouse to cause inclusion of the distributed assets in the surviving spouse’s estate, which would allow for a step-up in income tax basis in lieu of estate tax avoidance on the second death.

a. Provide language for spouse to activate estate tax inclusion by exercise of power of appointment to a subsequent generation, using the “Delaware Tax Trap.”

IDEAS FOR PLANNERS AND CHECKLIST FOR HELPING CLIENTS DURING THE 2011 AND 2012 $5 MILLION BUMP

YEARS



YEARS

4. Assuming the desire for use of a Credit Shelter Trust, evaluate restitute assets to facilitate full funding of the Credit Shelter Trust on first death.

a. Are there $5 million worth of assets under each spouse’s revocable trust?

b. To the extent that a spouse has less than $5 million of assets under his or her revocable trust, consider having assets being held jointly by the spouses that can be disclaimed to the Credit Shelter Trust. This will generally be one-half of assets held jointly by the spouses, except for 100% of joint accounts that were funded solely by the first dying spouse?

c. Consider using a joint trust, with each spouse having a full general power of appointment to facilitate funding of a Credit Shelter Trust with all joint trust assets on the first death. See Private Letter Rulings 200101021 and 200210051.

d. Consider adding term or other life insurance to make best use of first dying spouse’s allowance, if high income earner or inheritor situation indicates need for full funding.

e. Wealthier spouse may give less wealthy spouse a power to appoint sufficient assets under wealthier spouse’s revocable trust, exercisable on death of less wealthy spouse, to fund a Credit Shelter Trust with assets held under wealthier surviving spouse’s own revocable trust. See Private Letter Ruling 200403094.

5. Clean-up time: use the new added $4 million each, two-year lifetime gifting exclusions to:

a. Forgive or reduce intra-family and inter-trust loans. (May be best to gift cash to the borrowing entity and let the borrowing entity use that cash to repay the loan – report a cash gift on the tax return.)

b. Pay off loans that may have been taken out on life insurance policies that are owned by irrevocable trusts or family. (Or is it best to keep a low interest loan or grandfathered split dollar arrangement in place and to use gifting allowances elsewhere?)

c. Have children who own life insurance policies on their parents use part of their own $5 million lifetime gifting exclusions to gift such policies to trusts, to preserve policy proceeds from potential future creditors, divorce, or unwise management or spending.



YEARS

d. Fund irrevocable trusts that may buy out remainder interests, purchase existing Grantor Retained Annuity Trusts (“GRATs”) assets, purchase homes from Qualified Personal Residence Trusts (“QPRTs”), or otherwise assist in unwinding or unfreezing mechanisms and arrangements now in place.

e. Make further ballast gifts to irrevocable trusts which owe installment notes and are highly leveraged, due to reduction in values given post-2007 economic circumstances.

f. Have family resolution of intentions and goals for descendants to have homes, resolve intra-family mortgage situations, and consider use of QPRTs, homestead gifting trusts, family vacation/ranch/beach house or other dynasty property planning, or similar assets.

g. Transfer closely held corporate, LLC, and partnership interests by transferring presently available stock to dynasty trusts, entering into installment sales, and taking advantage of other opportunities under the $4 million increased gifting exclusion.

h. Fully fund life insurance trusts.

6. Funding dynasty trusts to lock in use of added $4 million gift and GST exclusion opportunities.

a. Consider a creditor protection jurisdiction dynasty trust, with discretionary provisions that would allow the Grantor to become a beneficiary.

b. Consider multiple dynasty trusts, so that one or more may be “toggled off” to be a separate taxable entity for federal income tax purposes, while one or another is “toggled on” to be disregarded for income tax purposes.

c. Convert existing asset protection trusts into dynasty asset protection trusts that will continue to have creditor protection qualities.

d. Ask children and other beneficiaries to obtain pre-marital agreements or post-marital agreements before receiving significant gifts.

7. Consider new installment sales to grantor trusts, GRATs, family limited partnerships, and other family wealth transfer techniques with what remains of the $5 million gift exclusion, as a cushion for valuation issues that might arise from 2011 or 2012 valuation questions.

8. Reduce or eliminate family life insurance expenses if second-to-die or other policies are no longer desirable, or make the same economic sense.



YEARS

a. Request in-force ledgers from each life insurance carrier showing:

i. Present guaranteed and assumed results with present premium payments.

ii. If dividends are being used to add death benefit, the same as above but show no increase in death benefit and what the premium reduction would be.

iii. Each of the above, but showing policy crediting 1% below what is otherwise shown on projections.iv. Showing reduction of the death benefit to a level that can be maintained without future premium payments.

b. Request projections for minimum premium payments for 2011 and 2012, and what the actual cost would be in 2013 to make up for missed or reduced 2011 and 2012 premium payments, if the client may reduce or drop coverage if the estate tax is phased out or will not be a concern.

c. While involved, help the client to understand what the projected and guaranteed performance of the policy is, and also request in-force projections showing a crediting rate of 1% below the present crediting rate to demonstrate prudent future planning expenses.

d. If there is a paid-up additions feature that increases death benefit from dividends, request a projection showing reduced premiums in lieu of the increased death benefit, and run spreadsheets showing the client what the time-value cost of money is for paid up additions.

9. Update wills to permit the surviving spouse to require the filing of an estate tax return and the making of a portability election.

10. Consider “Love and Marriage Strategies,” such as:

a. Clients may consider getting divorced if they were married only to get a marital deduction or to save estate tax on the first death and are each well under $5,000,000 in assets.

b. Single clients who expect to pay estate tax may look to marry someone who will not use their entire $5,000,000 exclusion, so that there can be portability of the less wealthy spouse’s estate tax exclusion. (Honey, I love you for your Portability Allowance)

c. Husbands and wives with single parents may want the parents to marry so as to have portability go from parent to parent. "My mother with $8,000,000 in assets should marry your father who has only $2,000,000 in assets. This can save estate tax on $3,000,000 of assets!”


d. A married couple with $18,000,000 in assets can pass them tax-free if they divorce, by splitting their assets evenly ($9,000,000 to each spouse), and each subsequently marrying someone with only $1,000,000 in assets.

e. Update wills to require that a portability election be made by the first dying spouse’s estate.f. Update pre-nuptial or post-nuptial agreements to require the portability election. g. Encourage pre-nuptial agreements for children who may receive large gifts because of the $4,000,000 gift tax

exclusion increase.

h. Same sex partners can gift significant assets if they wish to have equal net worth's or joint ownership.

11. Change domicile to avoid high-tax states? A client who was subject to federal estate tax under the prior law would have received an estate tax deduction for state inheritance tax, and thus the effective after state inheritance tax rate would have been 55% of the state rate. Now there would be no federal estate tax deduction for the state tax, so all the more reason to move to or another low tax state.

Some states impose income taxes on grantor trusts, and impose income taxes on clients as well!

12. Reconsider charitable giving in light of no estate tax savings for many clients.13. Consider a private foundation or private operating foundation to facilitate receiving income tax deductions and

recognition for lifetime charitable giving.

14. Consider charitable lead annuity trust planning.


YEARS


CHECKLIST

Completed To Be Done ?



3. Failure to have appropriate ownership/beneficiary designations for life insurance, retirement accounts, IRA’s and annuity contracts.



6. Tenancy by the Entireties


8. Failure to revisit the plan every 2 to 4 years, when there are significant changes.




QUESTIONS?


monday, september 19, 2011 5:30 p.m. a webinar by: alan s. gassman, j.d., ll.m....

Documents

gassman law associates

physician community

law school

new florida law

medical marriage

separate medical practices

medical profession

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