Profaci Law Notes

Pet Trusts Provide Peace of Mind

The pet trust is a little-known legal option for the elderly and caregivers worried about what will happen to beloved animals following the deaths of their owners.

The four-legged members of a household (or two-legged, or conceivable even eight, as the case may be) are undoubtedly special members in any home. Accordingly, proper planning ought to address them as well.

Whatever the size of your pet and whatever the size of your family, it’s simply not always enough to leave these matters for your heirs to figure out. After all, the well-being of your animal (i.e., your friend and companion) is at stake and so it’s worth considering legal devices to provide for them, such as a pet trust.

 In a way, the idea of a “pet trust” is a natural one and yet it’s also not always common. Deborah Jacobs recently tackled the subject over at Forbes and her article certainly is worth a look. In its basic formula, a pet trust is like any other trust in its formation, however, it is designed to take care of the member of the family that can’t take care of itself (nor speak to which home it will move to upon its owner’s passing).

While that can be meaningful for many pet-owners, there also is reason for the elderly to pay special attention to the prospect, as another article over at the New Old Age Blog points out, here.  For the elderly, especially, a pet can be an incredibly important family member and one for whom planning can be all the more important. Why? The pet may outlive its owner. In the end, a pet trust may afford important protection and care for the pet, as well as peace of mind to the owner.

Reference: Forbes (February 14, 2012) “If You Love Your Dog (Or Cat Or Gerbil), Read This” and The New York Times – The New Old Age Blog (February 3,2012) “The Pet Problem”

 

Courtesy of The Law Office of Vincent J. Profaci, P.A., serving Altamonte Springs, Kissimmee, Lake Mary, Longwood, Maitland, Orlando, Sanford, and all of Central Florida in the areas of Wills and Trusts, Estate Planning, Asset Protection, Elder Law, Probate, Real Estate, and Business Law and Litigation.

ProfaciLaw Primer: Probate in Florida—What is Probate and When is it Necessary?

Editor's note:  This is the first in what we hope will be many "primer" articles that we intend to write on the specific areas of Florida law in which our law firm practices.  If you have any specific topic requests, please contact us.

"Probate” is a term commonly used to refer to estate administration, which is the legal procedure that may be required to retitle assets from a deceased person to that person’s beneficiaries.  It is also an optional procedure to clear creditors’ claims where no estate administration is otherwise necessary.

Technically, the term “probate” refers to only one of several available options for the administration of a deceased person’s estate.  However, before we consider the available options, the first step is to determine if an estate administration is necessary. 

Generally, in Florida an estate administration of some sort will be required to transfer any asset titled solely to a deceased Florida resident (or to transfer Florida real property titled to a deceased person regardless of state of residence), which does not have an automatic death beneficiary.  Assets that will not be subject to an estate administration, because they either were no longer titled to the deceased person, or were automatically retitled upon the person’s death, can include but are not limited to the following:

• Assets titled to a living trust
• Assets with a TOD (Transfer on Death) or POD (Pay on Death) beneficiary designation
• Other assets with an individual beneficiary designation, such as retirement accounts or life insurance policies
• Assets titled as joint tenants with right of survivorship
• Assets titled as tenants by the entireties (husband and wife)
• Homestead, where the decedent was survived by a spouse or minor child

Some assets with beneficiary designations must still be transferred in an estate administration, because the beneficiary is actually the decedent’s estate instead of another individual or individuals.  This can occur because the decedent designated his or her estate as the beneficiary specifically (not uncommon for example with older life insurance policies, e.g. “Estate of John Doe”), or unintentionally (for example, by failing to make a beneficiary designation for a retirement account).  In these cases the beneficiary is the estate itself, so in order to transfer the assets to the ultimate beneficiaries an estate administration must be conducted.

Even if all of a decedent’s assets pass automatically upon death to individual beneficiaries, it may still be advisable to “probate” the estate because in a formal probate, creditors’ claims can be cut off after 90 days.  This may be desirable for estates of professionals who may have unknown liabilities, such a physicians with potential medical malpractice claims.  Without a probate, claims can be asserted against an estate or its beneficiaries for up to two years after death.

 

Copyright of The Law Office of Vincent J. Profaci, P.A., serving Altamonte Springs, Kissimmee, Lake Mary, Longwood (includung Lake Brantley and Sweetwater), Maitland, Orlando, Sanford, and all of Central Florida in the areas of Wills and Living Trusts, Estate Planning, Asset Protection, Elder Law, Probate, Real Estate, and Business Law and Litigation.

IRS Changes Its “Power Of Attorney” Rule for Spouses

Couples who filed joint returns must now file separate powers of attorney.

The IRS makes little changes all the time and while not all such changes are life threatening (or estate plan threatening, as is more likely) the devil is often in the details.

In the interest of tracking changes, then, it’s worth noting that the IRS is changing its filing practices for power of attorney. As pointed out here in the Journal of Accountancy, the IRS will no longer be accepting the old version of form 2848 and will only be accepting the new version that has been available since October 2011.

What’s interesting is that while the old form allowed a husband and wife who filed a joint tax return to also jointly file for power of attorney, the new procedure doesn’t allow this. Now, such couples will have to file their power of attorney documents “separately,” even if they file for the same individual and even if they file taxes jointly.

This won’t affect couples who have already filed, and only marks a turning point in a certain kind of filing; that is to say that it seems minor at best. Nevertheless, this change means that the IRS is working to acknowledge spouses separately (at least to a certain extent).

For estate planners it has to mean the opposite; that couples will have to work ever more intently together as a partnership. Is this a trend that will continue in all aspects? Further, it may also be worth thinking about whether this is how you and your spouse plan (or ought to plan).

Reference: The Journal of Accountancy (February 6, 2012) “Couples who filed joint returns must now file separate powers of attorney”

 

Courtesy of the Law Office of Vincent J. Profaci, P.A., serving Altamonte Springs, Kissimmee, Lake Mary, Longwood, Maitland, Orlando, Sanford, and all of Central Florida in the areas of Wills and Trusts, Estate Planning, Asset Protection, Elder Law, Probate, Real Estate, and Business Law and Litigation.

“Stretch IRAs” in The Taxman’s Crosshairs

Inherited retirement accounts are truly one of those gifts that keep on giving because heirs can benefit for many years without much tax burden, but Congress is starting to talk about curtailing breaks on the accounts.

For all the bills, budget proposals, and political fury raging over Capitol Hill these days, it’s strange to think that one of the more far-reaching changes may come from a funding proposal for a transportation bill. That’s right, but it’s a big transportation bill. As Reuters reported here, the Senate Finance Committee has been considering action that would severely limit inherited IRA’s.

A lot of people stash fairly large sums into their nest-egg accounts and work to keep that money safe. They do this rather than spend it because, in the worst case, tax-advantaged dollars would be nice in a pinch. In the best case it offers a fairly convenient way of giving excess assets to your heirs at a tax advantage.

There are a number of rules in that regard that I’ve discussed here in the past, but in short, heirs generally have the choice between taking a lump sum or stretching out the withdrawal in a pattern similar to required minimum withdrawals (RMDs). The latter alternative, called a “stretch” IRA, is on the chopping block.

The proposal would limit the life of such “stretch” IRAs by placing a five year limit on liquidations of such accounts. It’s “financing” to the Senate because that forces an awful lot of money to be taken out and taxed within a short time span. It’s financial security for the inheriting taxpayer, on the other hand, but this proposal would limit the ultimate potential of these accounts to accrue over time and then limit the leeway of the inheritor to have even withdrawals over a longer period.

It might not go anywhere. Regardless, keep your eyes on this because it’s made its way to the table and therefore we might see it reappear into any number of budget discussions.

Unfortunately, too, in order to make it work Congress would grandfather old IRAs into it, so that means an awful lot of inheritors have something to think about for the future. Read more in the original article, and others like it.

Reference: Reuters (February 14, 2012) “ ‘Stretch’ IRA tax shelter on the chopping block”

 

Courtesy of the Law Office of Vincent J. Profaci, P.A., serving Altamonte Springs, Kissimmee, Lake Mary, Longwood, Maitland, Orlando, Sanford, and all of Central Florida in the areas of Wills and Trusts, Estate Planning, Asset Protection, Elder Law, Probate, Real Estate, and Business Law and Litigation.

Obama Budget… And Estate Planning Consequences

President Obama's budget proposal was recently released, and here are some of the proposed changes that involve estate planning.

As you are likely to have heard, President Obama unveiled his budget proposal not too long ago. We are living an era of fierce partisanship, and election season hasn’t exactly put a damper on that. As a result, the media and the critics have been quick to pounce on a number of points, to include accusations that the President’s proposal is mere election-season partisanship.

That media din aside, it truly is an important proposal to understand, especially when you are planning your estate. Why? Because you can at least attempt to hedge your bets against political tides, if not also plan for what may become law.

Fortunately, there are a few straightforward analyses of the proposal from an estate planning perspective, like this one from the Wills, Trusts & Estates Professor (and the second part, here).

Here are a few topics to whet your appetite:

Wealth Transfer Taxes: The proposed budget would permanently roll back the Estate, Gift, and Generation-Skipping Transfer (GST) taxes to their 2009 levels. The exemptions and rates would remain unified and “portability” between spouses of unused exemptions would also become permanent. However, that means going back to an exemption amount of $3.5 million and a taxation rate of 45%, thereby saving us from the possible default of falling to 2001 levels (a $1 million exemption at a 55% rate), but still representing a serious hike from the current exemptions and rate (at $5 million and 35%, respectively).

Grantor Trusts: Grantor trusts, and grantor retained annuity trusts (GRATs) in particular, get some special attention. For GRATs, the proposal calls for longer “minimum” terms, with 10 years as the minimum. For those of you familiar with the device, you know this makes the prospect inherently more risky, since you have to “outlive” the term of the GRAT before transfer of the trust assets. There’s more to GRATs, but even with Grantor trusts in general the proposal is intended to beef up transfer taxes. Why? Because, as a class of trusts, they have been so useful for transferring wealth.

Those are two of the bigger – and to a certain extent, less nuanced topics – but it ought be clear that there are myriad changes in the works (also see the changes regarding “valuation”) and you are well-advised to stay tuned and keep informed.

It is politics, of course, and not yet actual law. On the other hand, it can help you understand the evolving debate and your own estate plans. If these changes were to become law, the impact would be expansive to those with taxable estates.

Reference: Wills, Trusts & Estates Prof Blog (February 15, 2012) “Obama’s Budget Proposal Part 1” and “Obama’s Budget Proposal Part 2”

 

Courtesy of the Law Office of Vincent J. Profaci, P.A., serving Altamonte Springs, Kissimmee, Lake Mary, Longwood, Maitland, Orlando, Sanford, and all of Central Florida in the areas of Wills and Trusts, Estate Planning, Asset Protection, Elder Law, Probate, Real Estate, and Business Law and Litigation.

Charitable Giving Delayed… Is Not Charitable Giving Denied

This Year's Most Generous Billionaire Philanthropist Has Been Dead Since 2006

It’s pretty impressive to top the Chronicle of Philanthropy’s list of America’s 50 most generous donors, but it just defies the imagination to make the list 5 years after passing away. Still, that’s the story of 2011 and the late Ms. Margaret Cargill.

This fact was swiftly picked up here, in a recent Forbes article, and as it turns out the reason for such successful giving can be traced back to some complicated estate planning and finance work.

Cargill is a name that, depending upon your exposure to agribusiness, is either an utter unknown in the discussion of wealth (the media is infatuated with Mark Zuckerberg these days) or an utter no-brainer. And Cargill is synonymous with massive agribusiness, having topped the list of America’s Largest Private Companies for all but two of the last 24 years. The late Margaret Cargill was heir to the fortune.

At her death, Ms. Cargill left all of her shares of Cargill stock to be split between two charity foundations, the Anne Ray Charitable Trust and her own Margaret A. Cargill Foundation. But don’t forget, Cargill is a private company, albeit a large one, and that makes the stock rather difficult to value and liquidate.

The trust and the foundation sat idly by until a fortuitous moment when Cargill sold its shares in another company, a public company called the Mosaic Company, which gave them the opportunity to exchange private Cargill stock for public stock that could be liquidated to the tidy sum of $6 billion (that process hasn’t quite finished up, but they’re counting it for 2011 anyhow).

It’s important to remember these kinds of limitations when it comes to assets in either estate planning or charitable giving. Ms. Cargill’s wealth was essentially locked up in private stock and so, despite the inefficiencies of doing so, that is what she gave when it came time to bequeath and give that wealth away to charity.

Luckily, however, Ms. Cargill did her charity work through the powerful intermediaries of charitable trusts and foundations, which were in a position to make such gifts work.

At least there’s next year for Paul Allen, George Soros, and Michael Bloomberg, the next three (living) names on the list of millionaire donors, but 2011 belongs to Ms. Cargill.

 Reference: Forbes (February 6, 2012) “This Year's Most Generous Billionaire Philanthropist Has Been Dead Since 2006”

 

Courtesy of the Law Office of Vincent J. Profaci, P.A., serving Altamonte Springs, Lake Mary, Longwood, Kissimmee, Maitland, Orlando, Sanford, and all of Central Florida in the areas of Wills and Trusts, Estate Planning, Asset Protection, Elder Law, Probate, Real Estate, and Business Law and Litigation.

A National Alzheimer’s Agenda

The Obama administration announced plans Tuesday for a two-year, $156 million cash infusion for Alzheimer’s research and care. The money will help solidify a still-developing national plan to better treat and even prevent the illness by 2025.

With budget plans just now coming to a head, it’s good news for many of us that Alzheimer’s has become one of the “we can’t wait” initiatives in President Obama’s plan.

Such measures still need to be passed through Congress, and positive advances may not be immediately forthcoming. However, it is heartening to see fiscal support for an issue that affects so many of us and our loved ones.

If all goes to plan and the approach makes it through Congress – a politically trepidatious journey these days even for the most common-sense and appealing legislation – then the budget will earmark an infusion of $156 million for Alzheimer’s research and care.

In many ways it’s the flesh and bones to an earlier announcement from the administration regarding a national plan toward treating Alzheimer’s that came out to some guffaws due it’s lack of a clear source of funding.  The full details on allocation are still forthcoming, but at least a small portion of that infusion, some $26 million, is intended for immediate use and care of Alzheimer’s patients. The rest is to go toward research and the hope of improving future care, and also perhaps systematic prevention.

How this news will affect us, and whether it will weather violent political and economic seas is yet to be seen, but it’s a powerful promise for many.

Reference: The Kaiser Health News (February 7, 2012) “Alzheimer’s Research Gets Funding Boost”

 

Courtesy of the Law Office of Vincent J. Profaci, P.A., serving Altamonte Springs, Lake Mary, Longwood, Maitland, Orlando, Sanford, and all of Central Florida in the areas of Wills and Trusts, Estate Planning, Asset Protection, Elder Law, Probate, Real Estate, and Business Law and Litigation.

Medicaid Misunderstandings Costly

Some Medicare beneficiaries who visit the hospital are getting surprised by big bills because their stays weren't considered inpatient services.

When an elderly person is ready for the nursing home, some families are entirely understanding, in agreement, and financially able. As a result, the transition happens smoothly. Unfortunately, for a far larger number of families and elderly persons, some trip to the hospital will happen in between and may even immediately precipitate the transition to nursing home care.

If that’s the case, then there are important hospital and Medicare policies of which you should be forewarned. Enter “observation care” which can make for a big bill upfront and even far bigger ones down the line.

According to a recent article in the Wall Street Journal, and their sources at the Medicare Rights Foundation, the number of “observation hours” has been steadily growing for years. Tragically, such observation hours count as “outpatient services,” even if the service lasts for several days (as it sometimes does with the elderly) and Medicare pays for inpatient and outpatients services in entirely different ways.

As you likely know, Medicare Part A pays for inpatient bills, so those are usually taken care of, but Medicare part B is what takes care of outpatient services. And those services can add up to a far greater cost.

It’s often vital to know the distinction between the two types of services from the hospital, and yet it’s also fairly difficult. Medicare advises to simply ask, but then there are certain documents such as the “Important Message from Medicare” which accompanies inpatient care, but not outpatient. Still, the hospital can switch with little to no notice.

It’s actually even more important than the size of the immediate bill. Medicare will only pay for nursing home expenses if the person was admitted inpatient at a hospital for at least three days, excluding the discharge day.

For so many families that’s the sole reason why it takes a hospital visit to arrange for the transition to nursing home care in the first place, but if you are put under observation or other so-called “outpatient” care, and without your notice, it can literally mean thousands of dollars out-of-pocket down the line.

Bottom line: It all hinges on hospital practice and Medicare definitions.

Reference: The Wall Street Journal (February 5, 2012) “Check Hospital Tab”

 

Courtesy of the Law Office of Vincent J. Profaci, P.A., serving Altamonte Springs, Lake Mary, Longwood, Orlando, and all of Central Florida in the areas of Wills and Trusts, Estate Planning, Elder Law, Probate, Real Estate, and Business Law and Litigation.

When Your “Alter Ego” May Not Be Enough

This case illustrates the inherent dangers of the Single Member LLC — which is they are “an alter ego case waiting to happen”.

LLCs or “Limited Liability Corporations” can be excellent vehicles to accomplish just what their names suggest - limiting liability.

That said, here is a recent message of caution regarding some LLCs, and the court case of Martin v. Freeman, ___ P.3d ____, 2012 WL 311660, 2012 COA 21 (Colo.App., Feb. 2, 2012) to back it up, both of which are worth sharing.

You might say that an LLC is one thing, but a SMLLC, or a “single member” LLC, is a different beast entirely, at least from an asset protection point of view. To wit, the above article points out that a single member LLC is “an alter ego case waiting to happen.”

The case of Martin v. Freeman is, as you might have imagined, a “veil-piercing” case as Freeman was the sole owner of an LLC involved in some hefty litigation and sold the LLC’s property to, at least in part, help cover the legal fees of the litigation. Of course, that left the LLC with no assets to satisfy the judgment that came down against it and only one place to turn for that satisfaction: Freeman himself.

After all, Freeman had just under-capitalized the LLC, and did so by distributing funds to himself only to turn around and help pay legal fees for the LLC. “Undercapitalization” is the great leveler of corporations when it comes to asset protection and with little difference on record between “Freeman the LLC owner” and “Freeman the individual,” the corporate veil fell apart. Freeman was held personally liable.

This is one more lesson on a subject that always bears repeating. Single member LLCs aren’t exactly flawed by nature, but they are often the easiest to muck up. In the end, keeping things straight between yourself as the “business owner” and yourself as the “individual” requires some vigilance and diligence.

Reference: Forbes (February 5, 2012) “Martin: The Inherent Dangers Of The Single Member LLC And Alter Ego Veil Piercing”

 

Courtesy of the Law Office of Vincent J. Profaci, P.A., serving Altamonte Springs, Lake Mary, Longwood, Orlando, and all of Central Florida in the areas of Wills and Trusts, Estate Planning, Probate, Real Estate, and Business Law and Litigation.

Trusts – Better Robust Than Bust

Not all trusts are created equal, especially when it comes to protection in a divorce.

Trusts are like pocket knives, in a way. Even a fairly basic pocket knife can make your life immensely easier, especially in a pinch, but a particularly well built and expansive pocket knife is an actual survival tool.

When it comes to trusts, however, why settle for a basic trust when a robust trust can provide essential protection for your loved ones?

Yet another, renewed, lesson in the robust set of provisions that can be crafted into a single trust can be read about in this recent article here. In addition, the article illustrates the difficult space between divorce and the trust, and that’s one more area where a robust trust can make all the difference.

Depending on how you’ve structured it, a trust can last for varying lengths of time and offer the beneficiary/child various ways of accessing those funds. You might use this to teach lessons, for example, but don’t forget that you’re not always planning for the budding child but also the future adult. Unfortunately, that future adult may have creditors who could attempt an attack on the trust funds.

More likely, however, is that a divorce and an ex-spouse will come into play, perhaps also children and child-support. How the courts treat your trust depends on numerous factors best considered at the formation and worthy of your consideration at that time.

For more ideas (and at least one promising court case) read the original article. In the end, as with so many planning devices, everything hinges entirely on you, your family, and your unique circumstances.

Reference: Financial Planning Magazine (February 1, 2012) “Trust, But Verify”

 

Courtesy of the Law Office of Vincent J. Profaci, P.A., serving Altamonte Springs, Lake Mary, Longwood, Orlando, and all of Central Florida in the areas of Wills and Trusts, Estate Planning, Probate, Real Estate, and Business law and litigation.