July & August 2012

Summary: Have you tried a “NeI'(l’z.” – H3 or. Three oI- I Better ILIT: You remember trust that includes the grantor
ivcsiki grape vodka, IE3 or. sweet and sour mix new and improved Tide, well as a discretionary beneficiary
IE3 or. I)cKuyperIHI Watermelon Pucker schnapps. Pour, why not new and improved PLR 21109-I-‘I[}l}2; B No rule
shake aml strain……enjo_’ at, where else but a cocktail ILITs (irrevocable life insur- against perpetuities so the
party of estate planners {_vawwwwn)I If you worked the ance trust)? Why set up an trust can last forever; E No
lloor with drink in hand. you’d hear exciting talk like: ILIT in a boring state like NJ state income tax. This may he
I Cleaver Familv Harmonv: While the folks might he- or NY for example, when you academic today, but if the
lieve (perhaps justifiably so) that one child has greater can set it up in a zippy state insured dies and the trust
financial needs than the others, leaving more to that like Delaware, Alaska, etc.? If holds substantial funds to
child, howeverjustified, might just leave a legacy of an- you can get the cost of using an invest, it can be big. Thanks
ger for all. Another approach would be to have a family institutional trustee down to a to Matthew Blattmachr,
meeting, with or without advisers, and discuss the issues modest enough level, taking Alaska Trust Company.
and concerns openly. Things are often different than the advantage of better state law
folks perceive. And surprisingly, if given the opportunity, might be well worthwhile. I Clawhack: If you make a
some siblings may step up to the plate to help another if Consider the following advan- $5.12M gift today and in 2013
asked to do so. That can be a far better result than a sur- tages an Alaska ILIT might we end up with a SIM exemp-
reptitious unequal distribution plan. If the focus can be afford: 5 Very low life insur- tion, will the $4.12M excess
shifted from something being an individual’s issue, to a ance premium tax (lllbps); 5 gift be clawed hack into your
collective family matter, more harmonious solutions may The trust can be a self-settled rcnmmmedan page 3;
become feasible. Thanks to David Schechner, Esq. West
Orange, NJ.
I “Talk to Lori”: Instead of “Talking to Chuck” try C H
“Talking to Lori.” Sometimes it’s the simple ideas that
have so much impact on getting planning going. “Change , _ _ _ _ t
the perspective and conversation at life transition points” 5″””“_‘””-“‘ E_’d°r l’””””f”‘ ]‘_’“”‘”‘ hkellhood 0’ 5’0” 5-‘?t’_ t
and “Plan ]n_mcti‘_,e])__ not only defensi‘,e])___.. Example: abuse is a mIsn_omcr. it Isa ting the shaft. ‘Can you dig It.’
Before marriage, a prenuptial agreement is common. But ““”‘’h l’”‘”‘‘!‘’” ‘“””‘ 5″°”T” ‘ You don t
the focus of the conversation is usually negative, i.e., on “ml “ 3″”.“””3-‘= “””””‘r ‘_” ‘”5″’ new tn nndnlanand “’9 939’
the marriage not working out. Reframe the talk to a posi- 1″“ °51_””””””-” “”_-“.‘”‘° “”“’ “”3 tam nuances 9f 3 GST a”°°a’
tive perspective of how overall planning during their t-‘_’””‘ “1 “”‘”‘”””‘l””t-” mac‘ _ fin“ but En” (la new tn “‘1’
marriage will be handled, gift tax planning to benefit ‘”“””t,h‘_”th’_”‘ Stu.“ lift.‘ in derstand tn‘? big llintnra Of a”
both parties, integrating asset protection considerations 5″”h’5t”“’t””‘) “”3 lf‘~”“3 “”“~’” Fan” Planning and ‘law’
into the prenup, and planning for your new life; and so “”“’”t”=’*”“’ ‘”0’ new 5 “’h”t men“; E‘:”“ the “mat “‘°”‘3
forth. Change the conversation and enhance the result. ‘5″”_’‘ ”‘’-““’s 5″”? “l’””t ‘”’t Planning “Ina can ’39 ax‘
Thanks to Lori Sackler of Morgan Stanley-Smith Barney, 5*’-°””‘g we Shim‘ Plalnnd in brand tn”n5- 1‘ “”3
‘’‘‘“‘“‘“S’ N” v jream mom who’s the cat Z.i§’§.L’;§‘I.’l‘l‘3.1f.‘§if?.;:‘i‘ii.?§.i°’
I new Transfers: In snitn nf nnntnbilitn many snnnsns that won’t cop out when N.o shame in getting help. Big
still should re-title assets to fund a bypass trust on the “‘°”°’5 danger 3” aha”? “SR “1 5°”“’”“” _d“‘ft’“g
first death. Can the lender call the mortgage? Depends on SHAFT! Haw a nnnrdinatnd Sanlntning 3’0″ Sign that 301′
state law. Section 341 of the Garn-St. Germain Act of astata D]annin11taaTn- If .‘.”on1′ tnnlfi’ nan“ nnd*n‘Stand- EX‘
1982 prohibits a lender from exercising its option pursu- CPA» attonna§’oin§n1’an’3‘3 nan‘ anllnai Mast Sand Wnaltn
ant tn 3 dnn_nn_saln nlnnsn nnnn 3 transfer where the sultant and wealth manager managers have some knowl-
snnnsn nf tnn nnn.n“.tn. nnnnnnts an nwnnr me the n,.nn_ are from independent firms edge in their shops about es-
nntn Thanks tn James Cnstnun, Esn_ Bnidgnntntnr NJ_ and all look over each other’s tate planning. Similarly. most
shoulders, there is a much rFomr’mwd ow»-“tee -iir’t’.‘.’ont.r‘mtedfi-am page U assets to but on which you continue even push your estate below the
estate triggering an estate tax? Bright to pay the income tax), and the trust threshold to file a return (but lots of
estate tax minds take opposite views as uses a power of substitution to estates should file a federal estate tax
to whether this is “to be or not to be.” achieve grantor trust status, this per- return anyway to secure portability
Bottom line. that is not the question. In mits you to repurchase for cash ap- for their surviving spouse). If you
most conceivable cases, gift planning preciated assets inside the trust. This recover. you can reeharacteriae your
should still be pursued ‘cause lifetime technique can bring those low basis Roth back to a regular [RA and
gifts may outweigh the risks of claw- assets back into your estate and let avoid the tax. But if your power of
back: E lock in discounts that may be them get a basis step up on death.
repealed, E remove post-gift apprecia- Help your heirs avoid the higher
tion from your estate. E grandfather capital gains tax the folks in Wash- Time is
grantor trust and GST allocations to a ington keep threatening. E If there is ‘1
completed gift trust, etc. Nevertheless no swap power in the irrevocable ‘ ‘ running out
work the numbers. consider the risks. trust you set up (but it is a grantor
try to evaluate who will bear the claw- trust using other mechanisms) there v V Oll 20 12
back tax if it happens (not easyl). State is another way to skin the cat (isn’t -at
tax apportionment laws m.ay not .ad- that an awful sayingt). Buy the ap- planning
dress this if the will is silent. Will t.ax- preciated assets from the trust. This ACT Now.
payers really pay their lawyers to draft purchase will similarly be ignored T‘
more complex clauses? They should. for income tax purposes. Rev. Rul. 85
But they should also floss daily. -13. m If you live in a decoupled state attorney doesn’t expressly permit.
(e.g., NY, NJ) you can make a death Roth”ing and i’echaracteri:iiation, the
I Death Bed Planning: E If you have bed gift and save state estate tax. But general language might not suffice.
highly appreciated assets in a grantor Goldilocks, check the gift provision
trust (an irrevocable trust you give in your durable power of attorney – I Home Sweet Home: Home owner-
some are too cold and prohibit gifts, ship use to be a given. Now planners
Disclaimer to Readers: Pracfical Plannerpmides some are too hot and limit gifts to the are evaluating the pros/cons and I
reasonabb, accurate infomm-on_ however’ dueto annual gift exemption, but some have helping clients determine if renting is
epecetimitatiene’ and ether factors’ there is ne a [)O“’Cl‘ that jllSt right. What a bCttCl‘ economic deal than owning.
assurance thatevery item can berelied upon. Facts you only have appreciated assets in Just ‘cause appreciation may not be
s_n€l sinnunisisnsssi including but n°ilin1iis¢l_ i°_ your name (gee I wish my portfolio likely doesn’t mean renting wins the
d’n°’°”°°5 ‘”.Siai.° lei!» may nlakethe al’l’l’°ai’°” °ia looked like that!) and worrv that a dav. Consider other benefits of own-
general planning idea in Practical Planner, death bed .ft 3.” ‘_ dd] I T‘ k. I 1 . E Y _ . _‘ __ _ h
inappropriate in your circumstances. This newsletter gl “I 5“ E -‘Our it 5 mg‘ 0″ can impmne 30″‘ “me
does notpmttide estate pta,ming_ taxotothettegat with a bigger capital gains tax then for medical reasons and deduct all
advice. lfsuch services are required you should seek the state estate tax saving you’ll real- costs as a medical expense. E If
Pfefessiensl Quidenee T_ne nulnef. Publisher end iare? Take a smarter route – margin you-‘re wealthy you can use a Quali-
NAEEC ‘ii’ “°t. hall” l’E.’i”l’n’ f°’”.n”l’ l°35 ‘ii ‘ial”a9° vour securities account and gift the fied Personal Residence Trust
resulting from mfomiaiion cflntained herein‘ This borrowed c-ish (but make sure the (QPRT) to shift value in a verv atl-
newsletter constitutes attorney advertising 22
NYCRR 12gg_ check clears before death). The debt vantageous way to kids. $250,000}
should reduce the of your estate, 8500.000 home sale exclusion. E
Review-‘ In-ne‘i’eW Wolfe: CPA. 58¢ but the appreciated securities will Meet the home office requirements
ms circular 230 Legend: No infomafion contained iemain in y name and get the step and you c.an use a ioom as an office
herein was intended orwrmen to be used’ and cannot up in tax basis to ieduce the capital and take a tax deduction. E Home
be used, to, the purpose otauotdtng U_3_ tederat state gains your heirs would otherwise ownership in many states lienefits
erlecel tax penalties. Practical Planner was notwritten pay. from speci.al laws that afford valu-
te suppertthe promefion. makeune. or resemmenda- able aisset pi-otection that is cheaply-
li°” °l3”l’ lei‘ Planning nnnlnun °l’ n°n°n- I Power Roth’ing Your IRA – Make and simply obtained. Example: If a
Pubflshmnformwon: Practice. Planner is published sure your durable power of attorney husband and wife own a home to-
bi_month’y by Law Made Easy press’ l_l_Cl p_0_ Box affflrds _-‘(}lll‘ tlgflllt the right to Con- gcthcl‘ HS tenants i)}’ tilt! entirety :1
1300, Tenafitt New Jersey o7e7o_ mtonnation; news vert your IRA to a Roth. If you’re on claimant of one spouse cannot force
[email protected]. orcall 838-LAW-EASY. your death bed a conversion will the sale. The legal, tax and other
capyfight Smemnt_©2m2 Law Made Easy Press trigger income tax due the payment benefits of home ownership can be
LLC. All rights reserved. No part ofthis publication i of which might reduce your estate significant‘ PP
may be reproduced, stored, or transmitted without for estate tan liurlmsess and mi‘-ni

r(‘ommaea’_,ri-om page It ‘t possible alternative solutions that
CPAs have some background as well, wanted: perhaps tho biggest emu so may better meet your objectives.
while many have considerable exper- prfessionals use for taking actions ‘t 3 Get hills
tiSt!- Include them in the estate [llah- that may be inappropriate. Profes- on auto-pay and deposits made auto-
tlinii dieeltssietle te 38-S1ll‘e th1it.”01ll‘ sionals should make sure that the matically. Not only is it harder to
“’i-Shes are l‘ei1″.” being tmlllemehtelh steps a client requests are rational miss something, but the more auto-
‘I Checks and h*‘t3“‘~“’-‘5 and reasonable and not blindl_v fol- matic the less opportunity for the
are critical. There’s lots of ways to low requests made under stress or bad guys to dig in. Consolidate ac-
build them into your planning. Have when in emotional pain. Clients counts, less is more. The less ac-
duplicate monthly statements sent to should encourage their advisers to counts the easier to keep track of

a trusted family member or better challenge them. A “yes man” might your assets. Use a P.O. box to mini-
yet your CPA. Ideally have the re- be good for the ego but not for much mize the risks of someone snagging
cipient log information into a com- else. Encourage your advisory team your mail. Get credit reports from
puter bookkeeping program to gen- to engage in discussions and to advo- the major bureaus and review them
erate reports that can be reviewed to cate for different options. Meaning- for anomalies.

identify unusual items. Use an insti- ful evaluation of different views will v’ Checks and Balances: Have a care
tutional co-trustee on trusts. lead to better decisions. If you tell manager moot you in your homo and
‘I Prifittc 9.“: John }’olll’ attorney Io disinherit }’olll‘ So11, eemplete an independent evaluation
Shaft asked lots of questions. So She might Stmllh’ 110 50- A better 1it- periodically. Abuse of those who are
should you. Be alert for anything out tol‘Ile.V Witt etlgiliie Nell to Uhdefstilfld elderly or vulnerable is common,

of the ordinary-_ Often when some- the underlying reasons and [lI“0[]oS(! growing and usually undetcctcd_ pp
thing doesn’t seem right, it isn’t! Is
one of your advisers being unusually

solicitous? Are there inconsistencies D P M E N

in recommendations a particular

adviser is making? Has a niece or
nephew that you haven’t heard from I Florida Trust Change: For non-probate and non-trust assets of divorced cou-
in years suddenly resurfaced without ples (e.g. insurance, annuities, retirement plans passing by beneficiary designa-
logical reason? Has an “investment” tion, and transfer on death accounts), a final judgment of dissolution (i.e., the
adviser made recommendations divorce) will treat the ex-spouse as predeceased if the client failed to change the
without looking at your overall fi- beneficiary designation after the divorce. Anyone who is divorced in Florida
nancial situation? Does someone sell- must carefully evaluate the ownership (title) to accounts and beneficiary desig-
ing you a product get uncomfortable nations post divorce. If an ex-spouse was to remain a beneficiary of a particu-
if you ask how they are compensated, lar account or asset, be certain to review with Florida counsel what steps to

or if you request that another adviser take to secure that result in light of the new law. Thanks to Jeffrey A. Baskies,
review the proposal? When a plan- Boca Raton, FL. An important lesson of this development is for those living in
ning technique or product has a states that don’t have this Florida type of law. If you divorce and don’t revise
unique or trademarked name, or your beneficiary designations, your ex-spouse may remain your heir regardless
combines several different products of what you agreed in the divorce agreement. So the real lesson of this Florida
or techniques into one, especially if it law change is a reminder to everyone to be sure your planners periodically

is complicated to decipher the com- review all of your beneficiary designations and title to your accounts to make
ponent parts, be wary. It’s a bit like sure they are consistent with your goals.

dieting, gotta eat less and exercise I Same Sex Couples: A surviving same-sex spouse won a constitutional chal-
more, most of the rest is fluff. Finan- lenge to Section 3 of the Defense of Marriage Act (DOMA), which denies recog-
cial and estate planning requires a nition of same-sex marriages for purposes of Federal law. The court found the
budget, estate planning documents, provision violated the Constitution’s Equal Protection clause and allowed a
strategic investment allocation, ap- marital deduction. Edith Schlain Windsor v. U.S. (DC NY 6f6f2012).

propriate insurance coverage, etc. I Basis Ad iustment: A partnership was granted a 120-day extension of time in
Anyone recommending esoteric slick which to file a basis election under Code Sec. 754 to adjust basis. When an FLP
sounding stuff before the basics are or LLC interest is sold or a memberfpartner dies be sure your CPA looks into
in place, is not looking out for you. filing a timely election. While the IRS was lenient in this case it’s not the posi-
The investment product with a high tion you want to be in. The IRS found that the failure to file the election re-
guaranteed return is as real as the sulted from “inadvertence” and that the partnership acted reasonably and in
muffin with no fat. 51123!‘ 01′ C=1lol’icS- good faith. PLR 201222012. PPPRACTICAL PLANNER
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PO Box I300, Tenafly, NJ 07670
Email: [email protected] Perm” No‘ 1121
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Creative Jo.-“ut;‘om that coordinate allyourplanning goals:
i -Estate – Tax – Business – Persona}
3 Financial -Asset Pmtection
E/J4‘.I./J4‘.I.IJ1.I./ta‘././.1‘.IJfa‘.IIa‘¢./.Ita‘.Alfa‘.IJfa‘.J‘.fr././rs‘.//.ra‘.//.fa‘.f/r¢.$
you really want to wing it on a guess-
N I timatc relying on defined value
clause? What if the trust company
cannot open a new trust account in

I Post-Death LLC Planning: A sale of able loss from operations up to the time? What do time constraints do to
a minority member’s interest, or the date of death. The remainder of the how you would structure funding an
death of a member, will close the year is very profitable. Using the days LLC and gifts to a trust? Would you,
partnership (or LLC) tax year as to allocation method can have an ad- or must you, opt for non-trust gifts
the transferor but not terminate the verse result for the deceased (selling) (e_g_, gifts of LLC interest direct to a
partnership. Allocations to the trans- partnerfmember. Most taxpayers child) thereby losing any GST bene-
feror member can be determined by: would opt for a closing of the books to fits and the trust asset protection?

I an interim closing of the partner- avoid surprises but in the family con- what happens if you try to set up a
ship books; I by the proration of text there could be creative post- trust in NY and later shift it to Deia-
annual income; I or any other mortem advantages. Not addressing ware? what issues does that create?
“reasonable” method. If the partner- this in the governing agreement and How should es-er}-one try to protect
ship agreement specifies an approach, instead leaving it to the family to pick themselves from the atltietl risk and
it must be used. If not, have a CPA the optimal approach after the fact complexity near last minute year.end
evaluate the tax impact of each alter- may permit planning flexibility. But, transactions may present? Act now:
native and see which nets the best tax it could backfire on certain beneficiar- pp

result for the family. In 2013 if we get ies. Thanks to Ira Herman, CPA – JH

a 3.9% Medicaid tax the spread from Cohn, Roseland, NJ. E E4

higher to lower bracket family mem- I 2012 Two-Step: As the 2012 year $9 ‘-9?

bers (including say a deceased par- draws to a close folks will be coming ‘go

ent’s estate) may net a few tax divi- out of the woodwork realizing gee 3 3

dends. Without a provision in the maybe they should do something. As 3 a,
governing agreement there could be the end of the year approaches it will

abuse. A departing member could be present unique planning issues. What Prmmgy kg“;
allocated much more income than will there still be time to do? What if inflagn English

expected. Example: There is a tax- there is no time for an appraisal? Do

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