Asset Protection Seminars Are Not All the Same

Beware Of Asset Protection Scams

Recently, a friend attended a seminar on asset protection.  Based on information that my friend provided to me, the seminar seemed to be what has become a disturbing trend.

To be certain, asset protection is an important discipline within the field of wealth management.  Asset protection might also be called risk management.  As one might imagine, there are a number of ways to implement asset protection/risk management.  And, it is not uncommon for asset protection/risk management issues to intertwine with other disciplines, such as estate planning and tax planning.

So, how might a seminar on asset protection be a scam?  Perhaps you have heard the saying: if all you have is a hammer, everything looks like a nail.  What typically occurs in one of these seminars is that the presenter whips up fear about gold-diggers filing frivolous lawsuits attempting to get at your hard-earned money.  Typically, the presenter’s solution is not an interdisciplinary approach to an individual’s circumstances.  Instead, the presenter’s solution seems to always lead to a family limited partnership, a Nevada “secret” company, or an asset protection trust in a favorable jurisdiction . . . which is what the presenter specializes in.  And, whatever the solution is, it is cloaked in an aura of “only the elite know about this.”

In reality, the specific way that asset protection/risk management should be implemented for any person will be wholly dependent on that person’s specific objectives and circumstances.  The solution should attempt to integrate asset protection/risk management issues, estate planning issues, tax planning issues, etc.  You should question anyone who doesn’t do this.

One key question about asset protection/risk management planning is about the cost of implementation.  A particular approach might provide you with a “bullet-proof” solution.  (Keep in mind that there are always trade-offs and limits to any approach.)  But, what does it cost to implement and what does it cost to maintain?  One popular approach that is pushed at asset protection seminars is a foreign asset protection trust.  Such trusts – if done correctly – can easily run $20,000 or more simply to establish . . . never mind the annual expense to maintain.  (Key point: if done correctly.)

Now, let’s consider another approach to asset protection/risk management that has been around for hundreds of years: insurance.  As a point of disclosure, neither my firm nor I sell insurance nor are we licensed to sell insurance.

According to one source, the net worth threshold to enter into the top 1 percent of wealth in the U.S. is about $1.5 million.  Let’s round this up to $2 million.  The annual cost of a $2 million umbrella insurance policy will vary from provider to provider but will be in the range of about $300 to $400.  That is a pretty inexpensive asset protection plan compared to the annual cost to maintain a structure proposed by these presenters.

While I don’t have a source, for the sake of argument, let’s just say that the top one-half percent wealth threshold is $5M.   The annual cost of a $5 million umbrella insurance policy should run about $600 to $700.   If we extend the coverage to a $10 million umbrella insurance policy, the annual expense might reasonably be $1000 to $1200.

Think about it: for 99 percent of the general population, insurance is a fairly low-cost solution for asset protection/risk management.  In all fairness, insurance has its own limitations.  However, insurance can be combined with existing estate, tax, and business planning to yield a respectable asset protection plan.  Don’t be led to believe that one presenter’s solution is “the” way to meet your needs.

Here are some final thoughts.  Hiding assets is not a valid asset protection strategy.  If you have a judgment against you and you fail to disclose ownership of assets, you might be found in contempt.  Hiding assets is not a valid tax reduction strategy.  If you hide assets and fail to report income from those assets, you might be found guilty of tax evasion.  Do things right and do things smart.

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The Law Offices of Jeremy W. Howe, LTD. are ElderLaw attorneys in Rhode Island who specialize in wills and trusts, estate planning, guardianship, probate, and Veterans Aid and Attendance Benefits.

They also are Newport Rhode Island Divorce Lawyers, Attorneys, Mediators, and Arbitrators providing services for family law issues such as divorce, child custody and visitation, support, and military family law.

Call them today at 401-841-5700 or visit them on the web at http://www.CounselFirst.com.

Estate Planning Issues to Consider

Estate Planning

In May, 2011, I was asked to speak at the United States Coast Guard’s Senior Executive Leadership Conference on the key issues facing our generation as they relate to elder law and elder care. Many in our generation are taking care of themselves and their children, as well as elderly parents, so I focused on advance care and estate planning.

Just recently I met with the Coast Guard officer who had invited me to the conference. He told me that the “reviews” of my talk were very positive and he asked if I would be willing to come to the next conference since so many of the attendees found the subject matter of personal interest. Of course I was flattered by the invitation, but more importantly, I was reminded how “timely” the subject of estate planning is and how critical it is that people learn now what they should have in place for the future.

Simply put we need to start asking the following:

• What type of medical care do I want towards the end of my life?
• Where do I want to be cared for?
• How can I ensure that my desires will be honored if I am not able to speak or act for myself?
• What financial arrangements should I make now to ensure that I can receive the care I want?
• What resources are available for my care?
• What will happen if I outlive my assets?
• What do I want to happen after my death?

The practice of elder law attempts to assist people in formulating the answers to these questions by articulating goals for care while you are alive and plans for taking care of your estate upon your death. At the very least your planning should include the drafting of Durable Powers of Attorney for Medical Care and Finances and executing a Will or Trust. Our office can help by initiating the discussion that leads to plans that will meet your individual needs.

- Hilary



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The Law Offices of Jeremy W. Howe, LTD. are Elder Law Attorneys in Newport, Rhode Island who specialize in Wills and Trusts, Estate Planning, Guardianship, Probate, and Veterans Aid and Attendance Benefits.

They also are Newport Rhode Island Divorce Lawyers, Attorneys, Mediators, and Arbitrators providing services for Family Law issues such as divorce, child custody and visitation, support, and Military Family Law.

Call them today at 401-841-5700 or visit them on the web at http://www.counselfirst.com

A Matter of Trust: Giving Away a Home

Family Value

By Anne Tergesen

Depressed real estate values and changes in tax rules make this a good time for older homeowners to transfer property to their children using a specialized trust designed to save on gift and estate taxes.

Known as "qualified personal residence trusts," or QPRTs, these vehicles allow a homeowner to continue to live in a house for years before transferring ownership to heirs at a discount to the current market value.

Wealth advisers say QPRTs are getting more popular as clients seek to take advantage of beaten-down property values and a temporary increase in the gift-tax exemption to $5 million from $1 million for individuals and to $10 million from $2 million for couples.

"When the gift-tax exemption was only $1 million, it was more difficult for clients to pass along their homes without gift-tax consequences," says Mike Foltz, a principal at Balasa Dinverno Foltz LLC, an Itasca, Ill., estate-planning firm. Mr. Foltz says five of his clients currently are evaluating QPRTs, up from two at this time last year.

"They can move a big asset out of their estates at a fraction of the future value," he says.

To maximize the savings - and minimize the conflict - families who use these trusts need to plan carefully. Advisers say the strategy makes the most sense for someone with a net worth above the current estate-tax exemption, which also is $5 million per person.

Below that level, transferring a residence through a QPRT still could be a smart tax move for those who might get caught if their assets appreciate or the individual estate-tax exemption drops back to $3.5 million (as the Obama administration's 2012 budget proposes) or even to $1 million (as the current law mandates for 2013).

But there are risks. Most use QPRTs for homes they expect to remain in their families after they are gone. In part, that is because when a homeowner gives away a residence in a QPRT, his or her adjusted tax basis - the original purchase price plus improvements - carries over to the heirs. As a result, if the children were to turn around and sell the home, they could owe a substantial capital-gains tax. (Still, at 15%, the capital-gains-tax rate is far below the 35% estate-tax rate.)

What's more, selling a home held in a QPRT "can get messy," says Blanche Lark Christerson, managing director at Deutshce Bank Private Wealth Management in New York. Because of restrictions on the amount of cash QPRTs can hold, a home-owner must reinvest the proceeds of a sale in another property or take back the cash directly or in a series of payments. Since withdrawing cash from a QPRT reduces the amount that will go to heirs, it defeats the purpose fo the deal, Ms. Christerson says.

Another risk: You have to give up the home when the trust ends, even if you are still alive. To prepare for that day, many homeowners craft upfront agreements that give them the right to rent the peroperty for the rest of their lives. Rental payments are an effective way to transfer more to their lives. Rental payments are an effective way to transfer more to heirs. But to pass muster with the Internal Revenue Service, you must pay a fair-market rent. And your children will owe tax on the income.

Still, the QPRT can be a powerful estate-planning tool.William Mielke, 63 years old, and his wife, Barbara, 62, are considering putting their Marco Island, Fla., oceanfront vacation condominium into a QPRT for the benefit of their 30-year-old daughter. With a QPRT, Mr. Mielke, president and chief executive of an engineering firm in Waukesha, Wis., can transfer a valuable asset without giving up his access to the home or reducing the liquid investments he may need in retirement, says his adviser, Mark Ziety at Shakespeare Wealth Management Inc. in Pewaukee, Wis.

What's more, if the market for Florida real estate rebounds (and the Mielkes outlive their trust), any appreciation the property earns will pass to Mr. Mielke's daughter gift- and estate-tax free.

When you set up a QPRT, you remain the home's owner for as long as the trust is in effect - often 10 to 20 years. During that period, you continue to live in the house and pay all the expenses, including the property taxes and insurance. When the trust expires, the home passes to your children, free of gift tax. Typically, the necessary appraisals and legal documents run $5,000 to $10,000.

Here's how it works: Suppose you set up a QPRT at age 60 when your property is worth $2.5 million. Since the home won't actually pass to your children until the trust expires, the law allows you to discount the $2.5 million you are transferring by an interest rate the Internal Revenue Service sets monthly. This tells you the current value of the gift you will be making in the future.

At today's 3% rate, the current value of a $2.5 million gift to be made in 10 years is $1.59 million, Deutsche's Ms. Christerson says.

If you don't outlive the trust, the market value of your home will be included in your estate. (While your demise would cause your heirs to miss out on any estate-tax savings, it also would nullify the upfront gift-tax consequences of the deal.)

To prevent conflict some families hash out written plans for dividing the finances and chores. For Mr. Mielke, this is easy: "She's our only daughter, so we won't have to worry about family arguments over who wants to use the house and whether to sell."

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The Law Offices of Jeremy W. Howe, LTD. are ElderLaw attorneys in Rhode Island who specialize in Wills and Trusts, Estate Planning, Guardianship, Probate, and Veterans Aid and Attendance Benefits.

They also are Newport Rhode Island Divorce Lawyers, Attorneys, Mediators, and Arbitrators providing services for Family Law issues such as Divorce, Child Custody and Visitation, Support, and Military Family Law. 

Call them today at 401-841-5700 or visit them on the web at http://www.CounselFirst.com.

House Sale Proceeds and Minor Children

ELDER LAW:
An elderly father and his adult son came to our office just after the mother had died. All three had been joint owners of property that was being sold and father and son had questions regarding the proceeds from the sale. Specifically, they wondered if they would be able to put all the proceeds in the son’s name. By doing so, they hoped to provide for the son since he was unemployed and enable the father to qualify for state assistance should he need future nursing home care.

We cautioned the father and son that any transfer of the father’s share of the proceeds to the son would have adverse consequences should financial assistance from the state be required before five years had passed. We also advised them that “gifting” would have tax implications. Our concern was that although the father wanted to help his son, he could be jeopardizing his own financial future.
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The Law Offices of Jeremy W. Howe, LTD. are ElderLaw attorneys in Rhode Island who specialize in Wills and Trusts, Estate Planning, Guardianship, Probate, and Veterans Aid and Attendance Benefits.

They also are Newport Rhode Island Divorce Lawyers, Attorneys, Mediators, and Arbitrators providing services for Family Law issues such as Divorce, Child Custody and Visitation, Support, and Military Family Law. 

Call them today at 401-841-5700 or visit them on the web at http://www.CounselFirst.com.

A Reminder About the Validity of Your Durable Power of Attorney

Durable Power of Attorney News

When you grant Durable Power of Attorney to another person - your "Attorney in Fact" - you are giving that person the power to act on your behalf in all financial matters. This power endures even if you become incapacitated, disabled or incompetent. However, many people do not realize that once you die, your Durable Power of Attorney is no longer valid; in other words, it dies when you die.

Often, the "Attorney in Fact" will attempt to access accounts post-death only to be told that he or she does not have the legal right to do so. Just recently a gentleman came into our office to discuss this very issue. He was a joint owner of his mother's only bank account, but she was the sole owner of a mutual funds account worth approximately $125,000. On a certain Friday in September, this gentleman thought that he should - as his mother's "Attorney in Fact" - transfer the mutual funds into the joint account so that he could pay her nursing home bills. But because he had other things that needed to be taken care of that day, he put off the transfer intending to do it at the beginning of the following week.

Unfortunately, his mother died that weekend and the son was no longer able to access her mutual funds account. As a result, it became necessary to open a probate estate so that he could be named Executor and then have the necessary power to close the account. While opening a probate estate is not difficult or complicated, it does mean fees and time that might not have needed to be expended.

So a reminder: whether you are granting someone Durable Power of Attorney or whether you are someone's "Attorney in Fact," be mindful of the limitation of this power and act accordingly in managing assets and accounts.
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The Law Offices of Jeremy W. Howe, LTD. are ElderLaw attorneys in Rhode Island who specialize in Wills and Trusts, Estate Planning, Guardianship, Probate, and Veterans Aid and Attendance Benefits.

They also are Newport Rhode Island Divorce Lawyers, Attorneys, Mediators, and Arbitrators providing services for Family Law issues such as Divorce, Child Custody and Visitation, Support, and Military Family Law. 

Call them today at 401-841-5700 or visit them on the web at http://www.CounselFirst.com.

Television Prepares for New Reality Shows

It recently came to my attention that television producers are developing two "reality" shows that deal with the distribution of a decedent's estate. The first, The Will, concerns a wealthy benefactor, still living, and the potential beneficiaries in his Will. As in the Survivor, there will be challenges and contests to determine who will be voted out and who will ultimately receive assets from the estate when the benefactor dies. The second, Estate Wars, reportedly will follow the heirs of a person, already deceased, as they fight over the assets of the estate.

While either show might appeal to TV audiences for the potential conflict and emotional scenes, most of us would prefer that our estates not be disbursed in such dramatic fashion. In fact, one of the most basic reasons for executing a Will in the first place is to avoid conflict and ensure that our assets are distributed as we desire.

Your Will is a statement that directs who will receive your property at your death and it appoints a legal representative to carry out your wishes. With a Will, you have the ability to choose the legal representative, your Executor, and to determine how your property is to be disbursed.

If you die intestate - without a Will - the state where you are domiciled will decide who receives the assets in your estate, not the participants in a TV show!
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The Law Offices of Jeremy W. Howe, LTD. are ElderLaw attorneys in Rhode Island who specialize in Wills and Trusts, Estate Planning, Guardianship, Probate, and Veterans Aid and Attendance Benefits.

They also are Newport Rhode Island Divorce Lawyers, Attorneys, Mediators, and Arbitrators providing services for Family Law issues such as Divorce, Child Custody and Visitation, Support, and Military Family Law. 

Call them today at 401-841-5700 or visit them on the web at http://www.CounselFirst.com.