Archive for the ‘Asset Protection’ category

Drafting your Last Will and Testament – You May Delay, but Time Will Not

May 8, 2013

 By Rose Wilson

You may have heard stories in the news recently about Roman Blum, the multi-millionaire from New York who died without a will, leaving an estate of $40 million without any named beneficiaries.  Today, almost a year and a half from the date of his death, it is possible that the money will stay in the hands of the state government as none of his heirs have been found.

Many people procrastinate when it comes to completing their estate planning, but what happens if you die without a will?  A common misconception is that the government will receive your assets.  In reality, the answer to this question depends on the “intestacy” law of the state in which you reside at the time of your death.  To die “intestate” means to die without a will.  When this occurs, the identity of your heirs will be determined by state law, and intestacy laws vary from state to state.

In the state of Georgia, the intestacy law generally provides for distribution of the estate in the following order.  If you are married and have no children at the time of your death, your spouse will receive all of your assets.  If you are married with children at the time of your death, then your spouse and your children share the estate in equal shares, although your spouse will receive at least one-third of the estate.  If you die unmarried and without descendants, then your property will pass in equal shares to your nearest living relatives (parents, then siblings if your parents are not alive, then your nieces and nephews, and continuing out along the family lines according to degree of kinship).

In the event that you die intestate and no heirs can be identified, then your estate will remain with the government.  The scenario in which an individual has no heirs seems unlikely because one must have a living relative somewhere on the planet.  The real trouble comes in identifying the heirs, but cases where no heirs can be identified are uncommon.

What if your heir under state law is your third cousin twice removed, whom you barely know, and you prefer that your money go to friends or charity?  Then you must sign a will to make that happen.  Whether you’re a multi-millionaire like Roman Blum, or simply an average Joe, a last will and testament may be one of the most important legal documents you will ever prepare.  Not only does it provide for the disposition of your assets in the manner that you desire, it can provide numerous other benefits to your estate beneficiaries, such as asset protection, tax savings, and more.

Fractional Interests in Real Estate: The Unintentional But Effective Partnership

March 14, 2012

 by Jeff Waddell

A gift of a small interest in real estate can have a greater benefit than intended.  So you decided to transfer a one percent interest in the family farm to your daughter last year.  The values were such that the 1% worked out to about $13,000 so you were within your annual exclusion and that was the plan.  You may have done a lot better than you thought from an estate tax perspective.

By creating a fractional interest situation, the farm is now effectively owned by a partnership between you and your daughter.  No third party is going to buy your 99% interest without the ability to obtain her separate 1% interest so effectively you have created a non-marketable interest in real estate.  Additionally, you cannot independently obtain financing on the property or enter into agreements affecting the property without your daughter’s consent. That means you also have a lack of control over the property.  Both of these factors, lack of marketability and lack of control, are recognized discounts which, at present, can be taken for estate and gift tax return purposes.  The amount of the discount depends on a number of factors; but, even with a discount as low as 20%, the effect of your 1% gift can be dramatic, as illustrated below.

Property Value: $1,300,000 prior to gift.  Transfer 1% for $13,000.  Undiscounted remaining value in estate $1,287,000.

Property Value: $1,300,000 prior to gift. Transfer 1% for $13,000. Discount for lack of control and marketability 20%. Remaining value in estate $1,029,600.

Fractional ownership of real estate can be burdensome, but when used effectively can have significant transfer tax benefit as illustrated above.  Consideration of this technique in a fully developed estate and business plan is certainly appropriate for those who have significant real estate holdings.

Do I Need Estate Tax or Asset Protection Planning?

March 2, 2012

 By James M. Kane

A difficulty for clients is how to decide what estate tax / asset protection techniques are realistically suitable or cost-beneficial, compared particularly to the super-wealthy who likely need virtually every technique available.

In other words, a client should gauge whether someone is merely trying to sell them a technique they really don’t need.   This is a legitimate question worthy of serious consideration.

Here are some key points to consider:

(1)    Don’t end up in a situation where the courts have to get involved because you became incapacitated or died without adequate documents in place. Simple examples are dying without a Will, failing to have named guardians for your minor children, ending up with a court-managed guardianship if you later become incapacitated (trusts can help eliminate these threats);

(2)   Keep an eye on your estate tax exposure. The federal tax law exempts a certain portion of your estate from estate tax. This is called the estate exemption amount. (Georgia presently has no death tax).  If your death occurs in 2012 the federal exemption is $5.12 million ($10.24 million combined exemption during 2012 for a married couple). This exemption drops to $1.0 million beginning for deaths in 2013 ($2.0 million combined for a married couple).

The tax law in most cases – combined with proper planning — allows a married couple to delay the day of reckoning for paying the estate tax until the surviving spouse’s death, regardless of the size of the couple’s estates. However, even with this postponement, the above exemptions for each spouse may require a level of estate planning in order to coordinate and make sure both exemptions are (or can be) fully used.

(3)   Asset protection is more subjective than items (1) and (2) above.  Whether you need asset protection depends on your exposure (particularly your occupation) and whether you will sleep better knowing you have in place techniques that better protect you and your family from lawsuits, judgments, creditors, and in some cases bankruptcy.  Thus, in this subjective situation an important cost-benefit factor is how much peace and repose you will experience if you put into place asset protection techniques for insulating you and your family from these types of potential threats and claims.

In reviewing whether items (2) and (3) above may warrant further action, my view is that the portion of assets a client expects to hold for the long-term, exceeding what the client likely will  spend during lifetime for food, shelter, necessities, school, vacations, medical, etc., should at least fall under consideration for potential estate tax and asset protection planning.

By contrast, for younger clients who are spending most of their income currently on raising young children, and so forth, the need for complex estate tax and asset protection planning may not be as important.  In these situations, if one spouse dies with young children the likelihood is much greater that most of the assets will be ultimately spent-down for the care of the surviving spouse and for the children while they continue to grow up and attend school, etc.   The assets ultimately may not be large enough when the surviving spouse dies to trigger estate tax exposure.  In this situation the planning might need to be minimal so as to prevent the courts from having to get involved in dealing with a spouse’s death or incapacity (such as dying with no Will).   Asset protection can also be minimal and directed at making sure a surviving spouse does not remarry and divert the assets to another spouse or children from someone else’s marriage (again, trusts can help eliminate these threats).

Resolving to Succeed

January 12, 2012

 by Jeff Waddell

The end of the year and beginning of the new year is a time when many of us reflect on that which has passed and that which is to come.  Resolutions are made regarding exercise, fiscal responsibility and other personal items.  Personal health is a primary theme in this introspective endeavor, but for the business owner, what about the long-term health of your business?

An often quoted and almost equally often overlooked adage says that “failing to plan is planning to fail.”  While that sentiment is true during our lifetimes, just stop for a moment and consider what happens when a small business owner does not have a business succession plan in place.  More often than not, the next generation was either not involved in the business or not ready to “take command.”  If proper planning has not occurred, the estate tax burden on the estate of the deceased business owner could cripple the business moving forward.  Do not let this happen to your business.

Take the time to review the health of your business and determine your goals for the business after you retire, in one form or another.  Once you have a general plan, visit with your accountant and estate/business planning attorney to refine your goals through a variety of available vehicles including trusts, corporate restructuring, stock sales, and many others, to achieve a clear cohesive plan of action and begin to implement it.  Hopefully you will “tone those abs” in 2012, but also take the time to resolve to succeed for your business this year.

Jingle Bells or Ringing Out the Year Gone By – Time Is Short to Complete Annual Planning

November 14, 2011

 by Jeff Waddell

Each year at this time our section of the office begins to get really busy.  Clients we have reached out to all year but who have not responded suddenly begin appearing.  Yes, its year end annual gifting time.  Pay heed to the sounds of the approaching holiday season, for in all the merriment those sounds signal the last days to take advantage of annual exclusion gifting or the last opportunity to capture a loss to offset a gain in the same tax year.

Take the opportunity to be proactive.  Review what you have done and what can, or should, be done before year-end.  Be aware that the annual gifting exclusion for each individual is currently $13,000.  Consider consulting your accountant (now is a relatively quiet period for them) to determine whether you are likely to experience an unpleasant April surprise on your tax bill and if so what might help offset that unwanted occurrence.  Then give your estate planning attorney a call to discuss what needs to occur before year end.

Just as with holiday giving, estate planning gifts come in all shapes and sizes.  Annual gifting is something, as the name implies, to consider every year.  This year and next, unless and until the law changes, larger opportunities exist than ever before in the gifting arena (with lifetime $5 million dollar gifting exemptions) so, if your current financial situation allows, consider making it a truly memorable holiday season for yourself and your loved ones.

Tweeting from the Grave: The Benefits of Virtual Asset Instruction Letters

November 10, 2011

 By Erica Opitz

In a world that is increasingly virtual, assets that exist solely on a person’s computer or the internet can be just as important as the tangible assets in a decedent’s estate.  In a 2007 research study,[1] it was determined that internet use in the age group over 71 was a mere 29%, while internet use for Baby Boomers was almost 80%, and for people 30 and younger, internet use exceeded 90%.

Your virtual assets are the “electronic information stored on a computer or through computer-related technology.”[2]  Think about bank account statements and other electronic account statements, your email accounts, social media accounts, or even photographs and home videos that you store on your computer or an internet site.  What happens to this virtual identity upon your death?  At death, each of these accounts and the information stored within them are an asset that must be dealt with by your personal representative and/or trustee.  Arguably, in our virtual world, in order to meet the prudent person standard, personal representatives and trustees must deal with these virtual assets or hire an agent whom is capable of dealing with them.[3]

So how do decedents make it easier for their fiduciaries to handle these virtual assets in the way the decedent would prefer?  A Virtual Asset Instruction Letter allows the decedent to identify all virtual assets by listing all online accounts and other virtual assets and provides web addresses, user names, and passwords as well as instructions on what to do with and who to give access to these assets upon the decedent’s death.  For example, these instructions could specify that the testator would like all of the photographs on his/her computer to be copied and given to multiple beneficiaries.  The Virtual Asset Instruction Letter could also instruct the fiduciary to close an account after a certain amount of time or to delete personal and credit card information that may be stored on different websites.  These types of instructions can help prevent the theft of the decedent’s identity.  This instruction letter could also be used upon the incompetency of an individual by referencing the letter in a power of attorney document.

In order to grant specific authority to a fiduciary to manage the testator’s virtual assets, a provision in the testator’s will, such as the following, could be used.

I may leave with this Will a letter signed by me and prepared in accordance with ________ law designating those certain Virtual Assets (as hereinafter defined) I may own at the time of my death be given to the persons named therein, and I direct my Executor to distribute such property at the time of my death in accordance with the terms and provisions of that letter.  For purposes of this Will, a “Virtual Asset” shall mean any intangible personal property which is stored and/or accessed by any electronic means whatsoever, whether on a personal computer, computer network, portable electronic storage device or media, or through and/or over the internet.

Upon my death, my Executor may take such actions as are reasonably necessary and prudent to locate, administer, transfer, and distribute any Virtual Asset which I may own or otherwise possess rights to at the time of my death.  Without limiting the generality of the foregoing, my Executor is authorized: (a) to hire and reasonably compensate computer or other technical experts to assist my Executor with respect to any Virtual Asset; (b) to change passwords or other means to access and/or control any Virtual Asset; (c) to take such actions as my Executor shall deem necessary to protect the security and continued accessibility of any Virtual Asset; and (d) to communicate with any software licensor, internet service provider, or other third party in connection with the location, administration, transfer, or distribution of any Virtual Asset.

In a day and age where our lives are leaving less and less of a paper trail and are increasingly lived online, it is important to protect our virtual assets upon death.  Not only will a Virtual Asset Instruction Letter ensure that the fiduciary has the information to access necessary accounts making the fiduciary’s job easier, but it will also ensure that the decedent’s intentions are carried out with respect to his/her virtual assets while protecting the virtual identity of the decedent.


[1] Estabrook, Pew Internet & Am. Life Project and Graduate Sch. of Libr. & Info. Science, U. of Ill. At Urbana-Chapman, “Information Searches That Solve Problems: How People Use the Internet, Libraries and Government Agencies When They Need Help” (2007).

[2] Walker, Michael and Victoria Blackly, “Virtual Assets”, 36 Estates, Gifts and Trusts Journal 253 (2011).

[3] See id.

Finishing the Process – Entities and Trusts are Only as Good as Their Funding

July 7, 2011

 by Jeff Waddell

It happens. Clients get motivated to finally do their planning, be it for estate planning, corporate or asset protection purposes, and just when we get their new limited liability company (“LLC”) or trust established they thank us, pay the bill and disappear. Discussions have been had and memos follow advising the client that the trust needs to be funded or the real estate needed to be deeded to the LLC. The client assures us that they are handling it, but nothing happens.

Time, energy and money may have effectively been wasted. The situation is potentially uncomfortable if something goes wrong before the problem gets fixed. Who is responsible?  What obligation does the attorney have to see that the planning he or she has done is properly funded to provide the client with the benefit they initially sought? The answers to these questions vary from jurisdiction to jurisdiction and fact pattern to fact pattern, but it never needed to come to this in the first place.

Communication with the client from the outset of the engagement is imperative to stress that the job is not done until the funding is complete. Gathering the documentation (i.e. deeds, stock certificates, etc.) as you go through the entity or trust creation phase so that it can be discussed in person at the signing is a good step. The optimal situation would be to have the client authorize the attorney to prepare the documents to make the transfers and sign those documents mere moments after the entity is created.

Remember until the titling of the asset has changed the protection an entity can provide is not in place. Find ways to finish with a flourish.