Archive for the ‘Thursday Reports’ Category

The Thursday Report – 7.17.2014 – Spot The Typos Edition

Posted on: July 17th, 2014

 

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Sttructuring IRA and Other Retirement Plan Beneficiary Designations to Provide Flexibility for Maried Clients After Death, an article by Christopher J. Denicolo, J.D., LL.M.

What Estate Planing and Other Laywers Need to Know About Bankruptzy, an article by Alberto F. Gomez and Alan S. Gassman, Part 2

Docusign – What Is It and How Dooes It Work?

Thoughtful Corner – Estate Planners – Reaching a Certin Age is Not Enough!

Your Tex Information Is Still Not Protectd From Being Hacked, an article by Denis Kleinfeld

Student of the Yeer Award Givin to Our Own Amy Bhatt!

We welcome contributions for future Thursday Report topics. If you are interested in making a contribution as a guest writer, please email Janine Gunyan at Janine@gassmanpa.com.

This report and other Thursday Reports can be found on our website at www.gassmanlaw.com.

Sttructuring IRA and Other Retirement Plan Beneficiary Designations to Provide Flexibility for Maried Clients After Death, an article by Christopher J. Denicolo, J.D., LL.M.

Many clients have IRAs and other qualified retirement plan accounts that will comprise a substantial portion of their estate upon their death.  It is therefore important for clients and their advisors to assure that the client’s beneficiary designations are titled appropriately to assure that the IRA and qualified retirement plan benefits will pass in a tax-advantaged manner upon the client’s death.

Married couples usually prefer to leave their retirement plan benefits to the surviving spouse after the first dying spouse’s death for asset security and other non-tax purposes.  Structuring beneficiary designations in this manner will allow the surviving spouse to roll over the first dying spouse’s retirement plan benefits into his or her own IRA, and be treated as the owner of the IRA for all purposes under the tax law.  This means that the surviving spouse would not be required to take annual required minimum distributions from the IRA until he or she reaches the age 70 ½, and that he or she can name his or her own beneficiary who would receive the IRA funds after his or her later death.

In second marriage situations and where clients wish to have spendthrift protection and other asset preservation considerations apply after the death of the first dying spouse, clients may want to leave their retirement plan benefits to their revocable trust.  This will cause the assets in the first dying spouse’s  retirement plan to pass in accordance with the client’s desired disposition under his or her revocable trust.  Further, the trust can be drafted as an “accumulation trust” that does not mandate the payment of annual or more regular distributions to the surviving spouse and to provide for a co-trusteeship or independent trustee to manage the assets, which can provide for the protection and preservation of the retirement plan benefits and prevent the surviving spouse from unilaterally  withdrawing such benefits from the trust.

However, naming the retirement plan owner/participant’s revocable trust as the primary beneficiary of the retirement plan would cause the annual required minimum distributions to be higher than what would occur if the surviving spouse was named as the primary beneficiary.  Moreover, the trust must be properly drafted in order to have the trust considered as a “see-through trust,” which the tax law looks through to the ultimate beneficiaries to determine the applicable ages to which the required minimum distribution percentages will apply.  If the Trust is not properly drafted and the other requirements of the regulations are not complied with, then the retirement plan benefits would need to be distributed within five (5) years of the decedent’s death, and the benefits would not be able to be “stretched” over the life expectancy of the beneficiaries.

For example, suppose that Husband leaves his IRA to his revocable trust upon his death, and that Wife is the primary beneficiary of the trust for her lifetime, with Husband and Wife’s descendants as the remainder beneficiaries after Wife’s death.  Wife would be able to benefit from the IRA benefits, but the annual required minimum distributions would be larger than if she was named as the sole beneficiary of the IRA and she rolled over the IRA into her own IRA.  This is illustrated in the chart described below.

The age of the oldest beneficiary of the trust is used to determine the applicable required minimum distribution percentages, so advisors want to be sure that the Trust does not provide benefits for older individuals or allow beneficiaries the power to appoint assets to individuals that are older than them.

If the revocable trust of the decedent provides for benefits for an older beneficiary, then the beneficiary designation should be structured to pay to a separate trust established under the decedent’s revocable trust for the younger beneficiary to avoid accelerating the required minimum distribution payments.

As a variation to the above example, if Husband’s father is also a beneficiary of Husband’s revocable trust after his death, then the father’s age will be used for the purposes of determining the annual required minimum distribution payouts of Husband’s IRA after his death.  This would cause  the required minimum distributions to be higher each year, which reduces the tax efficiency of “stretching out” the retirement plan benefits of the IRA after Husband’s death.  Husband may instead want to have his revocable trust drafted to provide that Wife will be the oldest beneficiary of a separate trust established for her benefit under his revocable trust, and that his father will be the oldest beneficiary of a separate trust established for his benefit under the revocable trust.  Husband can then structure his beneficiary designation so that all or a desired portion of his IRA will pass to the trust established for Wife, and that all or a desired portion of his IRA will pass to the trust established for his father.

If Husband and Wife want their children to receive retirement plan benefits on the death of the first dying spouse (or at least have this available as an option after the death of the first dying spouse), and want to take advantage of the lower required minimum distribution payouts based on the children’s longer life expectancy, then they can form an irrevocable trust solely for the benefit of the clients’ children and other descendants and name the trust as a beneficiary of all or a desired portion of their retirement plan assets.

This trust can be established in a manner that will cause the oldest child to be considered to be the “designated beneficiary” for the purposes of determining the annual required minimum distributions.  This will usually cause the annual required minimum distributions after the death of the retirement plan owner/participant to be significantly lower than if the surviving spouse or an older individual is also a beneficiary of the trust.  As stated above, it is important to assure that the requirements for a “see-through trust” are complied with in order to assure that the required minimum distributions can be stretched over the life expectancies of the beneficiaries of the trust.

Many clients want flexibility after the death of the first dying spouse with respect to the disposition of retirement plan assets.  A married couple therefore may want to name the surviving spouse as the first choice beneficiary under their retirement plans to enable the survivor to roll over the retirement plan into his or her own IRA, and name the separate revocable trust of the retirement plan owner/participant or a joint trust that locks up on the first death as the secondary beneficiary.  This will enable the surviving spouse to disclaim all of a portion of his or her interest in the retirement plan to cause the benefits to pass to the first dying spouse’s revocable trust or a joint trust that locks up on the first death, if such spouse wishes to do so within nine (9) months of the first dying spouse’s death and if the surviving spouse complies the other requirements for a qualified disclaimer (such as not accepting the benefits that will be disclaimed).

The clients further may want to establish an irrevocable trust for the benefit of their children, and name that trust as the tertiary beneficiary of their retirement plans.  This will afford the trustee of the first dying spouse’s revocable trust or the joint trust the ability to disclaim the retirement plan benefits after the death of the first dying spouse to cause them to pass into the irrevocable trust for the clients’ children and other descendants.

We have prepared the following chart to show clients the results and required minimum distribution payout implications of the various beneficiary designation alternatives that are described above:

Three Choices for Retirement Plan Benefits.1

While there is no “one size fits all” way to structure a beneficiary designation, many married couples will want to structure their retirement plan beneficiary designations with the surviving spouse as the primary beneficiary, the retirement plan owner/participant’s revocable trust (or a joint trust established by both spouses that locks up on the first death) as the secondary beneficiary, and an irrevocable trust established for the benefit of their children and other descendants as the tertiary beneficiary.  This can provide for flexibility in a tax-advantaged manner after the death of the first dying spouse, and can allow for the decision with respect to the ultimate disposition of retirement plan assets to be made after the death of first dying spouse when important factors and considerations are known.

What Estate Planing and Other Laywers Need to Know About Bankruptzy, an article by Alberto F. Gomez and Alan S. Gassman, Part 2

Last week’s edition provided an introduction to key bankruptcy principles, including the concept of strategizing to stay out of bankruptcy by having at least 12 creditors so that the rules would require that 3 creditors file to force a debtor into bankruptcy.  The question is to what creditors count and the extraordinary judicial powers held by bankruptcy judges are discussed below.  There have been many notable decisions, including one by the U.S. Court of Appeals for the Fifth Circuit in Denham v. Shellman Grain Elevator,[1] where the bankruptcy court refused to count small and recurring claims as “countable” under the 12 creditors requirement.  One Florida bankruptcy case, In re Smith, cited Denham and excluded creditors holding de minimis claims for $20-$275.[2] Other cases have permitted claims of $65 and $10 to be countable under Section 303 requirement that the aggregate claims must equal or exceed $12,300.

The courts that have chosen not to follow Denham, and to instead allow small and recurring claims to count, have dismissed the de minimis exception as an argument to disqualify one or more creditors, based upon the argument that Congress has not explicitly ruled out small and/or recurring debts and the statute,[3] therefore, should be applied literally.[4]  Some courts, however, such as the court in Matter of Runyan have indicated that a $25 debt would not be sufficient, and will evaluate the claims on a case-by-case basis.[5]

Filing an involuntary petition is an aggressive creditor strategy and there are serious and costly consequences if the petition is dismissed.  A creditor who files for an involuntary bankruptcy “in bad faith” can be forced to pay the debtor’s fees, costs and actual and punitive damages.[6] In In re Cannon Express Corporation,[7] the U.S. Bankruptcy Court for the Western District of Arkansas awarded compensatory damages and punitive damages where three creditors filed involuntary bankruptcy proceedings against debtor and the court found them to be in bad faith.

The decision was based on a combination of 5 tests identified in In re Landmark Distributors, Inc.[8] The Cannon court combined[9] and restated the tests finding that:

1. the claims were not well grounded in fact because the creditors did not speak with an attorney, talk to other creditors or attempt to collect the money from the debtor directly;

2. the creditors could have advanced their own interests in a different forum by using a collections agency or setting up a payment system with debtor or other forum, instead holding that using bankruptcy courts is an improper use of judicial resources.

3. the creditors used the bankruptcy proceedings to gain a disproportionate advantage over other creditors because the creditors, who were unsecured, testified that they thought filing involuntary bankruptcy proceedings would put them ahead of other unsecured creditors, thus gaining priority; and

4. the creditors were motivated, the court held, by an improper use because the creditor “knew that he was not going to be paid” but thought filing would force the debtor to make payment. Finally, the court held no other reasonable person would have filed the same or similar claim without first investigating whether or not the debtor was paying its debts on time or attempting to collect the debts in some other fashion.  For the improper filing the court awarded more than $14,000 compensatory damages and $35,000 in total punitive damages.  Had the debtor proven losses in sales by preponderance of the evidence, the court would have awarded these damages as well, which were to be $2,768,288.00 according to the debtor.

In re Adell, 321 B.R. 562 (Bankr. M.D. Fla. 2005) is a good example of an involuntary bankruptcy filing that backfired on the petitioning creditor and resulted in the petitioning creditor becoming a debtor!  In Adell, a bankruptcy court in Michigan dismissed an involuntary petition which was filed by Mr. Adell against his former builder.  The Court awarded sanctions in the amount of $6,413,230.68 against Adell.  Adell then quickly moved to Naples Florida and filed a Chapter 11 bankruptcy petition. Substantial litigation ensued resulting in the conversion of the Chapter 11 case to a Chapter 7 and ultimately the dismissal of the Chapter 7 case for substantial abuse.

The Bankruptcy Code can affect an estate plan if your client is a debtor, a recipient of a transfer from a debtor, or has an interest in a debtor. In general, upon filing a bankruptcy, assets of a debtor become property of the estate 11 U.S.C. Section 541.  Some assets are specifically excluded, such as an interest in a spendthrift trust, as defined in 11 U.S.C. Section 541(c)(2) or social security or veterans benefits under 11 U.S.C. Section 522(d)(10)(a) and (b).  If your client is a debtor, a recipient of a transfer from a debtor, or has an interest in a debtor, then bankruptcy law can dramatically affect the estate plan.

During pre-bankruptcy planning, advisors need to consider whether to leave assets in an estate that would become accessible to a trustee in bankruptcy.  On one hand, there is less likelihood that transfers made before the filing of bankruptcy would be considered “fraudulent,” when remaining assets that would be usable to pay creditors were, arguably, sufficient to pay a substantial portion of expected debt.

Also, courts may be sympathetic to situations in which debtors have lost “sacrificial lambs” as a part of their bankruptcy filings.[10] Judges may be more lenient in looking at fraudulent transfers and other issues with debtors who lose some assets upon filing bankruptcy, as compared to clients who have moved all of their assets to the exempt category and at filing show no assets going into the bankruptcy estate.

On the other hand, if a trustee has funds derived from bankruptcy estate assets to spend on attorneys’ fees and costs to pursue a debtor or recipient of a transfer, it is more likely that the bankruptcy or pre-bankruptcy transfers will be challenged.  Often, creditors do not want to “throw good money after bad,” so some planners believe that only enough money to pay a small distribution is appropriate to leave in the debtor’s name in the event of a bankruptcy.

JUDICIAL POWERS

Bankruptcy courts are courts of equity, able to fashion broad and extensive remedies typically not available to state court judges.  For instance, under 11 U.S.C. Section 105 of the Bankruptcy Code, bankruptcy judges can enter “any order, process or judgment that is necessary and appropriate to carry out the provisions of this title.” In addition to equitable powers, bankruptcy trustees are empowered with certain “strong arm powers” under the Bankruptcy Code.  Presumptions concerning fraudulent transfers and avoidance of transfers are built into the Code, for instance in 11 U.S.C. Section 548 (fraudulent transfer) and in 11 U.S.C. Section 547 (preference), which are described below.

As a matter of bankruptcy law, a trustee is the equivalent of a hypothetical judgment creditor, and the court can step into the shoes of creditors to exercise statutory strong-arm powers to set aside and recover transfers deemed to be fraudulent or preferential. For instance, Section 548 provides for a two year presumption of fraud for transfers of property owned by the debtor.

There are many bankruptcy cases in which courts have disregarded transfers that were ostensibly motivated by estate-planning purposes.  In most of these cases, the court’s decisions were fact-specific, involving transactions that occurred when the creditor claim was known or should have been known by the debtor.  One of the critical factors considered by courts is the “timing” of the specific transfers.

Lesson learned: Get your client’s estate and income tax plan underway early and document your client’s business, estate, tax, family, and other legitimate motives to ensure that a bankruptcy court will not dismantle legitimate planning that occurs before a bankruptcy petition is filed.[11]

Bankruptcy judges often apply substance over form and rely on equitable principles, in rendering decisions, which often favors the trustee and creditors. For example, in In re Larry Portnoy,[12] the bankruptcy court ignored the law of the applicable offshore jurisdiction and applied the law of the jurisdiction where the bankruptcy court resided, to determine that offshore trusts were not effective creditor protection devices.  In FTC v. Affordable Media[13] and in Lawrence v. Goldberg,[14] debtors were held in contempt and jailed for not turning over offshore assets.  The U.S. Court of Appeals for the Ninth and Eleventh Circuits, respectively, upheld the bankruptcy court’s decision in both Affordable Media and Lawrence.

TIMING CAN BE EVERYTHING

In too many cases, estate and asset protection plans miss key bankruptcy protections or ignore crucial facts that could jeopardize the plan itself.  Again the bottom line is that the timing of an asset protection or estate plan is crucial to how it will fare in bankruptcy court. Case law principles and strategy with respect to timing intent and documentation concerning pre-bankruptcy actions will be discussed next weak.

Check back next week to read the next installment of this article.

Docusign – What Is It and How Dooes It Work?
By Dena Daniels, MBA, and Stetson Law Student

What is Florida Statute 668.004 Force and effect of electronic signature.—Unless otherwise provided by law, an electronic signature may be used to sign a writing and shall have the same force and effect as a written signature.

Docusign is a program that allows you to sign documents electronically.  Using DocuSign, an individual or company can send documents all over the world to be signed by using a simple process.  First, a user of DocuSign uploads a document in Word, PDF, or other common document formats.  The user then adds the name and email of the people that need to sign the document, marks where they need to sign, and sends it out.  Once the recipients have signed the document it is returned to the original user and stored electronically for future use. This seems like a great way to be able to get documents signed quickly and efficiently, however the question is are these signatures valid and legally binding?

Legality of DocuSign Signatures

There are two major laws that govern the use of electronic signatures.  The first of these two laws is the Electronic Signatures in Global and National Commerce Act (“ESIGN”), a federal statute.  The second is the Uniform Electronic Transactions Act (“UETA”), this uniform law has been passed by 47 states, including Florida.[14]  The three states that have not implemented the UETA are New York, Washington, and Indiana.  Generally, an electronic signature may not be unenforceable simply because it is in electronic form.[16]  An electronic signature is defined in both acts as an “electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed by a person with the intent to sign the record.”[17] This can include typing a full name, clicking an “I accept” box, or scanning a signature into the file.  As you can see, most of us have likely used an electronic signature before.  DocuSign allows you to sign with your mouse, finger, upload a scanned image of your signature, or use a standard signature style provided by DocuSign.  This qualifies as an electronic signature under both ESIGN and the UETA, but other requirements must still be met.

Consent

The first requirement is that the signer has consented to sign electronically and has been given the option to sign on paper or in another non-electronic form.[18]  Consent can be established either explicitly or implicitly based on the parties interactions.  While using DocuSign, the parties accept emails and documents to sign.  This would most likely satisfy the requirement that the party consented to sign electronically.

Intent to Sign

The second requirement that must be met is that the signer has the intent to sign.[19]

Signature Associated with the Record

The third requirement is that the electronic signature must be logically associated with the record or thing that is being signed.[20]  In order to prove this the process used to sign the document must be documented. DocuSign satisfies this requirement via their digital audit trail.  This trail included the signer names, authentication history, digital signatures, email addresses, the IP address of the signer, the chain of custody of the document, etc. This information is provided if need be in a Certificate  of Completion that is tampered sealed and court admissible.

Record Retention

The final requirement is that the signed document is able to be effectively retained.  In order to satisfy this requirement the electronically signed document must accurately reflect the information set forth in the record, and remain available in a form that is able to be accurately reproduced for all parties entitled to access.[21]  DocuSign satisfies this requirement with their record keeping practices.  DocuSign securely stores information with encryptions and other methods to ensure that only the designated parties will be able to review the signed documents.

When a DocuSign signature would not work

Both the ESIGN Act and the UETA have explicitly stated exclusions to when an electronic signature will have no legal effect.  The exclusions are as follows:[22]

1. The creation or execution of wills, codicils, or testamentary trusts

2. Adoption, divorce, or other matters of family law

3. The Uniform Commercial Code except Section 1-107, 1-206, and Article 2 and 2A

4. Court orders, notices, or official court documents

5. Notice of cancellation of utility services

6. Default, acceleration, repossession, foreclosure, eviction, or a rental agreement for, an individuals primary residence.

7. Notice of cancellation or termination of health insurance or life insurance

8. The recall of a product

9. Any document related to the handling of hazardous materials

Conclusion

In conclusion, the procedures and safeguards of DocuSign will satisfy the legal requirements for an electronic signature.  Documents signed using DocuSign will be valid and legally binding, with exception of the above mentioned exclusions.  DocuSign provides a safe and efficient way for businesses and individuals to send documents around the world and have them signed in a matter of minutes with a valid and legally binding signature.

Thoughtful Corner
Estate Planners – Reaching a Certin Age is Not Enough!

We rarely draft trusts that release assets at any given age, but instead provide that the primary beneficiary of such a trust may become Co-Trustee or even sole Trustee upon reaching certain ages.

But how can we be sure that such an individual will be qualified to serve as Trustee and not “blow it?”

Please consider the following language to protect your clients’ descendants (from themselves):

6.04 Trusteeship of Separate Trusts.  After the death of myself and my spouse and after division of the Trust estate into separate trusts for my children or other descendants, then a Primary Beneficiary of a separate Trust (as defined in Article Four and/or Article Five) shall have the ability to do the following at the ages indicated below if such Primary Beneficiary meets one of the following criteria: (1) the Primary Beneficiary has attained a four-year college degree at an accredited state university or a well respected private university approved by a regional accreditation organization recognized by the United States Department of Education and the Council for Higher Education Accreditation, and is gainfully employed and self-supporting (or is a full-time homemaker raising one or more minor children) for a period of at least five (5) years; or (2) the Primary Beneficiary is determined to be stable, willing and able to support himself or herself, and responsible and thus appropriate to serve as Trustee by the individuals (other than the Primary Beneficiary) named above in Section 6.03 who are able and willing to affirm such status:

(a)         Upon having attained the age of twenty-five (25), to serve as Co-Trustee with the Trustee or Co-Trustees then serving, provided that there shall always be one individual named in Section 6.03 or a licensed trust company serving as Co-Trustee with the Primary Beneficiary; and

(b)         Upon having attained the age of thirty (30), to replace any Corporate Trustee or Co-Trustee then serving with another Corporate Trustee of the Primary Beneficiary’s choice, provided that there shall always be a Corporate Trustee serving with such Primary Beneficiary if such replacement power is exercised, until such Primary Beneficiary reaches age thirty-five (35);

(c)         Upon having attained the age of thirty-five (35), to serve as sole Trustee and to designate the successor Trusteeship to serve in the event of the Primary Beneficiary’s resignation or incapacity.

(d)       At any age as an adult, to designate the successor Trusteeship to take effect upon the death of the Primary Beneficiary of such separate trust or any trusts created therefrom, by signed writing delivered to the Trustee then serving or by specific reference to this power in the Primary Beneficiary’s Last Will and Testament.

We encourage stronger language than the above, but many clients have elected to use this looser standard.

The safest standard is to require a trusted individual and/or a licensed trust company to serve as Co-Trustee for the lifetime of the individual.

We tell the clients that if the individual beneficiary is sound they should not mind having a Co-Trustee, but if they are unsound it will be sorely needed.

6.08     Removal of Beneficiary/Trustees.   Notwithstanding any provision in this Article Six to the contrary, if a Primary Beneficiary is serving or is to serve as sole Trustee of a separate trust established for such Primary Beneficiary’s benefit, and if such Primary Beneficiary is insolvent or is unable to satisfy any financial or court or arbitration ordered obligation, or is in the process of being divorced, then such Primary Beneficiary shall be automatically removed as Trustee, and replaced with an Independent Trustee chosen by such Primary Beneficiary.  The Independent Trustee chosen as a replacement shall be a descendant of mine (other than the applicable Primary Beneficiary) who has attained the age of thirty-five (35), a licensed attorney who has represented me or who specializes in estate and trust law with an “AV” rating in the Martindale-Hubbell directory, a certified public accountant who has done my accounting work or has extensive experience preparing estate and income tax returns for a reputable trust company, or a licensed trust company.  A Trustee Beneficiary who has been forced to no longer serve by reason of this provision shall have the right to regain the trusteeship when circumstances have clearly changed such that there is no longer an insolvency and/or the applicable divorce has been resolved or withdrawn and there is no imminent threat of creditor or claims of a family nature that could cause loss of trust assets.  Further, if applicable state law where a beneficiary resides, or other applicable law, would make the Trust for such beneficiary creditor accessible if such beneficiary were the sole Trustee, then such beneficiary shall be required to choose an Independent Trustee meeting the requirements as described above with respect to trusteeship of such Trust and shall be required to serve with an independent Co-Trustee so long as the state law where such beneficiary resides requires a Co-Trustee to facilitate creditor protection.

Your Tex Information Is Still Not Protectd From Being Hacked
By: Denis Kleinfeld

Denis_Kleinfeld

“Serious weaknesses remain that could affect the confidentiality, integrity, and availability of financial and sensitive taxpayer data,” said Nancy R. Kingsbury and Gregory Wilsushusen of the Government Accountability Office (the GAO) in the latest GAO report on the IRS.

They ought to know since they are the directors for applied research and methods, and information security respectively.

Although the IRS has suffered from funding problems, an ever increasing work load of new tax laws, manpower limitations, plus Obamacare, compliance regulation impacting all financial institutions in the entire world, and morale depleting political scandals, that does not diminish the fact that your tax information is at risk of being stolen by hackers.

I have the impression that having all your most intimate financial details being in the IRS computers is somewhat analogous to a golf ball being teed up for Tiger Woods.  Only these Tiger Woods are the professional computer hackers stealing billions of dollars by getting your financial–and medical–information stored on the government’s computers.

GAO reports going back at least to 2007 have highlighted the flaws and vulnerabilities of the IRS systems.

Basically, the IRS has long standing information technology issues which can expose taxpayer data to cyber-attacks by hackers, criminals, and foreign governments.

The IRS is not alone.

The GAO report states, “Our previous reports, and those by federal inspector general, describe persistent information security weaknesses that place federal agencies, including the IRS, at risk of disruption, fraud, or inappropriate disclosure of sensitive information.”

The GAO labels the government’s computer information security as a “high-risk area since 1997.”

Yes, the IRS has made some progress, but as the GAO report says, “These weaknesses and others in the IRS’s security program increase the risk that taxpayer and other sensitive information could be disclosed or modified without authorization.”

Even when it comes to something as fundamental as passwords and preventing wrongful access, the IRS did not fully implement effective controls in the areas of user identification, authentication, authorization, cryptography, audit and monitoring, and physical security.

Other parts of the information systems are also in peril.  This is especially troubling considering that the IRS has the heavy burden of trying to keep their computer systems up-to-date with congress constantly making dramatic changes in the tax law. And now the IRS has oversight over both the entire health care system and getting U.S. tax compliance of every foreign financial account held by every financial institution world-wide.

Planning for continuity in configuring the computer system for new policies, procedures, techniques, software updates are challenges that may well be, and likely are, beyond any governmental agency or private company’s ability to keep pace.

The IRS is in the same boat as many computer owners in private industry in that it has a lot of its computers still using the Windows XP operating system which Microsoft is no longer supporting any security updates. The current IRS Commissioner explained in a recent congressional hearing that the conversion from Windows XP to Windows 7 had not been completed since the IRS didn’t have the money to do it.

No matter whether congress or the IRS is to blame for this mess, the fact is that taxpayers’ sensitive financial information is not being protected by the government from being hacked.

Student of the Yeer Award Givin to Our Own Amy Bhatt!

One great pleasure of our practice is hiring and watching high school students become mavens, and Amy Bhatt is a prime example.  Amy started working for our firm when she was 15 years old as a sophomore at Countryside High School.  She will be a fantastic lawyer!

In 10th grade, Amy took the highly demanding entrance test for the Early College Program and got accepted as one of the few selected students in Pinellas County. She has simultaneously achieved a 4.72 weighted High School GPA and a 4.0 College GPA. While in the Early College Program, she won the “Student of the Year” award after achieving the highest grade in the rigorous Honors Interdisciplinary Studies program.

With a passion for law and justice, Amy is majoring in Paralegal Studies at St. Petersburg College. Her goal is to earn a Juris Doctor from Stetson University College of Law. She currently works as a Legal Administrative Assistant at Gassman Law Associates, drawing from her education and prior office experience from the Criminal Justice Center to ease the workload of paralegals and attorneys.  If only Doogie Howser was here to see her!

Certificate

Upcoming Seminars and Webinars

FREE LIVE WEBINAR:

STEP-UP YOUR EFFORTS TO STEP-UP CLIENTS’ BASIS – STRATEGIC ESTATE PLANNING AND STEPPED-UP BASIS CONSIDERATIONS

Date:  Wednesday, July 23, 2014 |12:30 p.m. (30 Minute Webinar)

Speakers:  Edwin P. Morrow, III, Alan S. Gassman

Location: Online webinar

Additional Information: To register for the webinar please click here.

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FREE LIVE WEBINAR:

GAUGING AND HANDLING ENTITLEMENT TENDENCIES OF BENEFICIARIES, EMPLOYEES AND OTHERS – A FASCINATING AND EXTREMELY PRACTICAL GUIDE ON SOCIETY’S NEWEST ISSUE

Date: Tuesday, July 29, 2014 | 12:30 p.m. (30 Minute Webinar)

Speakers: Stephanie Thomason, Ph.D. and Alan S. Gassman, Esq.

Location: Online webinar

Additional Information: To register for the webinar please click here.

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CLEARWATER WORKSHOP FOR YOUNG LAWYERS:

Alan Gassman will be joined by several experienced attorneys and other well respected industry experts during a full day workshop for young lawyers who wish to enhance their practice and personal lives.

Date: Sunday, August 3, 2014 | 9am – 3pm

Location: Clarion Hotel, 20967 US 19 N., Clearwater

Additional Information: To register for this program please email agassman@gassmanpa.com

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FREE LIVE WEBINAR:

HIPOO MEDICAL OFFICE DISASTER AVOIDANCE CHECKLIST

This 20-25 minute webinar includes valuable forms and important strategies that every medical office should know about. Join us for an interactive and innovative discussion of how medical practices can be decimated by HIPOO, including a number of survival techniques, tips, and tools.

Date: Tuesday, August 5, 2014 | 12:00 p.m. and 7:00 p.m.

Speakers: Alan S. Gassman, Lester Perling, and Jeff Howard

Location: Online Webinar

Additional Information: To register for the 12 p.m. webinar, please click here. To register for the 7 p.m. webinar, please click here.

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FREE LIVE WEBINAR:

SOFTWARE UPDATE WEBINAR: NEW FEATURES FOR ATTENDING CREATURES

Alan Gassman will be joined by Ken Crotty and software designer Dave Archer to discuss the new features of our EstateView software.  Additionally, there will be a session for new users to become familiar with the program.

Date: Wednesday, August 6, 2014 | 12:30 pm (30 minutes)

Location: Online webinar

Additional Information: To register for the webinar please click here.

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FREE LIVE WEBINAR:

A POWERFUL 40 MINUTE DOUBLE HEADER WITH JONATHAN BLATTMACHR

Topics:

  • Foreign vs. Domestic Asset Protection Trusts: More Than Just Creditor Protection Considerations
  • Empowering Your Powers of Appointment: Don’t Leave Out Important Tax and Practical Provisions or Ignore Important Considerations.  With Sample Provisions

Date: Tuesday, August 12, 2014 | 12:00 p.m.

Location: Online webinar

Additional Information: To register for the webinar please click here.

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LIVE ISLE OF MAN PRESENTATION:

Alan S. Gassman will be speaking on US TRUST AND TAX LAWS FOR INTERNATIONAL INVESTORS at Cayman National Bank and Trust Company on the Isle of Man

Sign up now and you will receive a free lunch!  Transportation not included.

“Half-way between England

And Ireland in the Irish Sea.”

Is a great place to discuss trusts with glee.”

Date: Wednesday, September 3, 2014

Additional Information:  If you would like to receive a copy of the materials that will be presented please email Janine Gunyan at janine@gassmanpa.com and we will send them to you once they are ready.

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FREE LIVE WEBINAR:

Ken Crotty will be presenting a free live webinar entitled AVOIDING DISASTER ON HIGHWAY 709.  The 50 minute guide to disaster avoidance with respect to gift tax returns.  This webinar will qualify for 1 hour of CLE and CPE credit.

Date: Wednesday, September 3, 2014 | 12:30 p.m. (50 minutes)

Location:Onlinewebinar

Additional Information: To register for the webinar please click here.

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LIVE FT. LAUDERDALE PRESENTATION:

FICPA ANNUAL ACCOUNTING SHOW 

Alan S. Gassman will be speaking at the FICPA Annual Accounting Show on Thursday, September 18, 2014 on the topic of ESSENTIAL GUIDE TO BASIC TRUST PLANNING for 50 minutes.

This presentation will introduce basic and intermediate trust planning background and provide attendees with an orderly list of the most commonly used trusts, practical features and traps for the unwary, including revocable, irrevocable and hybrid.  The discussion will include tax, creditor protection and probate and guardian considerations.

Date: Wednesday, September 17 through Friday, September 19, 2014

Location:  Fort Lauderdale, Florida

Additional Information:  For more information about this program please contact Stephanie Thomas at ThomasS@ficpa.org

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LIVE CLEARWATER PRESENTATION:

Board Certified Tax Attorney Michael O’Leary from the Trenam Kemker firm in Tampa, Florida and Christopher Denicolo from Gassman Law Associates will be speaking at the Ruth Eckerd Hall Planned Giving Advisory Council event on Tuesday, September 23, 2014.

Mr. O’Leary’s topic is HOT TOPICS IN CHARITABLE PLANNING AND MORE.

Mr. Denicolo’s topic is PLANNING FOR INHERITED IRAS.

Date: Tuesday, September 23, 2014 | 5:00 p.m.

This presentation is free to members of the Ruth Eckerd Hall Planned Giving Advisory Council, Ruth Eckerd Hall members, and professionals who are attending a Ruth Eckerd Hall Planned Giving Advisory Council event for the first time.

Additional Information: You can contact Suzanne Ruley at sruley@rutheckerdhall.net or via phone at 727-791-7400, David Abelson at david.abelson@morganstanley.com or via phone at 727-773-4626, Alan S. Gassman at agassman@gassmanpa.com or via phone at 727-442-1200 or the Kentucky Fried Chicken located at 1960 Gulf to Bay Blvd, which is close in proximity to this location and available to provide you with crisp, spicy or even crispier chicken, mashed potatoes and gravy, rolls, and slaw!  Bring your 32 oz. Kentucky Fried Chicken drink container to the presentation and we will fill it with your choice of club soda or seltzer water, but no sharing permitted.

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LIVE NEW JERSEY PRESENTATION – WHAT NEW JERSEY LAWYERS NEED TO KNOW ABOUT FLORIDA LAW TO REPRESENT SNOWBIRDS AND FLORIDA BASED BUSINESSES:

NEW JERSEY INSTITUTE FOR CONTINUING LEGAL EDUCATION (ICLE)_SPECIAL 3 HOUR SESSION

New Jersey song trivia:  What song includes the words “Counting the cars on the New Jersey Turnpike, they’ve all gone to look for America”?  What year was it recorded and who wrote it?

Alan S. Gassman will be the sole speaker for this informative 3 hour program entitled WHAT NEW JERSEY LAWYERS NEED TO KNOW ABOUT FLORIDA LAW

Here is some of what the New Jersey Bar Invitation for this program provides:

New Jersey residents have always had a strong connection to Florida.  We vacation there (it’s our second shore), own Florida property (or have favored relatives that do) and have family and friends living there.  Sometimes our wealthiest clients move to Florida and need guidance, and you need background in order to continue representation.

There are real and significant differences between the two states that every lawyer should be cognizant of.  For example, holographic wills are perfectly legitimate in New Jersey and anyone can serve as an executor of an estate, which is not the case in Florida.  Also, Florida’s new rules regarding LLCs are different, and if you are handling estates of New Jersey decedents who owned Florida property, there are Florida law issues that must be addressed.  Asset protection differs significantly in Florida too.

Gain the knowledge you need to assist your clients with Florida matters including:

  • Florida specific laws involving businesses, trusts, and estates
  • Florida tax planning
  • Elective share and homestead rules
  • Liability Insulation and Planning
  • Creditor Protection and Strategies
  • Medical Practice Laws
  • Staying within Florida Bar Guidelines that allow representation of Florida clients

Comments from past attendees of this program:

  • Excellent seminar and materials!!!
  • This was one of the best ICLE seminars yet!
  • One of the best seminars I have attended.
  • Better than mashed potatoes and gravy.  Glad he didn’t serve grits!

Date: Saturday, October 4, 2014

Location: TBD

Additional Information: This is a repeat of the same program that we gave last year, but our book is now updated for the new Florida LLC law and changes in estate and trust law.  Please tell all of your friends, neighbors, and enemies in New Jersey to come out to support this important presentation for the New Jersey Bar Association.  We will include discussions of airboats, how to get an alligator off of your driveway, how to peel a navel orange and what collard greens and grits are. For additional information, please email agassman@gassmanpa.com

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LIVE NEW PORT RICHEY PRESENTATION:

Alan S.  Gassman, Kenneth J.  Crotty and Christopher J.  Denicolo will address the North FICPA Group on Financial Analysis and Tax Planning for Investment Products, Including Variable Annuities, Fixed Annuities, Life Insurance Contracts, and Mutual Funds – What Should the Tax and Financial Advisor Know and Advise?

Be there or be an equilateral triangle!

Date: Wednesday, October 15, 2014 | 4:30 p.m.

Location: Chili’s Port Richey, 9600 US 19 N, Port Richey, Florida

Additional Information: To attend this seminar please email agassman@gassmanpa.com

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LIVE PASCO COUNTY PLANNED GIVING (AND DRINKING!) COCKTAIL HOUR AND PRESENTATION:

Alan S. Gassman and Christopher J. Denicolo will be speaking at the Pasco-Hernando State College’s Planned Giving Consortium Luncheon on Planning for Inherited IRA’s in View of the Recent Supreme Court Case – and Demystifing the “Stretch in Trust” Ira and Pension Rules

Date: Thursday, October 23, 2014 | 4:30 p.m.

Location:  Spartan Manor, 6121 Massachusetts Avenue, Port Richey, Florida

Additional Information:  For more information, please contact Maria Hixon at hixonm@phsc.edu

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LIVE SARASOTA PRESENTATION:

2014 MOTE VASCULAR SURGERY FELLOWS – FACTS OF LIFE TALK SEMINAR FOR FIRST YEAR SURGEONS

Alan Gassman will be speaking on the topic of ESTATE, MEDICAL PRACTICE, RETIREMENT, TAX, INSURANCE, AND BUY/SELL PLANNING – THE EARLIER YOU START THE SOONER YOU WILL BE SECURE

Date: October 25 – 26, 2014 | Alan Gassman is speaking on Sunday, October 26, 2014

Location: TBD

Additional Information: Please contact agassman@gassmanpa.com for additional information.

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LIVE CLEARWATER PRESENTATION:

TAMPA BAY CPA GROUP

Alan Gassman, Ken Crotty and Christopher Denicolo will be presenting THE MATHEMATICS OF ESTATE PLANNING in a 2 hour session at the Tampa Bay CPA Group Fall 2014 Seminar.

Date: November 7, 2014

Location: Marriott Hotel, 12600 Roosevelt Blvd North, St. Petersburg, FL 33716

Additional Information: For more information please contact Richard Fuller at richardf@fullercpa.com.

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LIVE UNIVERSITY OF NOTRE DAME PRESENTATION:

40th ANNUAL NOTRE DAME TAX & ESTATE PLANNING INSTITUTE

Topic #1: PLANNING WITH VARIABLE ANNUITIES AND ANALYZING REVERSE MORTGAGES

This presentation will cover the unique income tax and financial planning characteristics of fixed and variable annuities.

Topic #2: THE MATHEMATICS OF ESTATE AND ESTATE TAX PLANNING

Christopher J. Denicolo, Kenneth J. Crotty and Alan S. Gassman will also be presenting a special Wednesday late p.m. two hour dive into math concepts that are used or sometimes missed by estate and estate tax planners.  This will be an A to Z review of important concepts, intended for estate planners of all levels, sizes and ages.  Donald Duck has rated this program A+.

Date:November 13 and 14, 2014

Location: Century Center, South Bend, Indiana

We welcome questions, comments and suggestions on variable annuities, which will be Alan Gassman’s topic for this conference.

Additional Information: The focus of this year’s institute will be on “Business Succession Planning: An Income Tax, Estate Tax and Financial Analysis.”  As in past years, several sessions are designed to evaluate certain financial products and tax planning techniques so that the audience can better understand and evaluate these proposals in determining not only the tax and financial advantages they offer, but also evaluate limitations and problems they may cause in the future.  Given that fewer clients will need high-end estate tax planning with the $5 million exemptions, other sessions will address concerns that all clients have.  For example, a session will describe scams that target elderly individuals and how to protect the elderly from these scams.  As part of the objective on refreshing or introducing the audience to areas that can expand their practice, other sessions will review the income tax consequences of debt cancellation, foreclosures, short sales, the special concerns that arise in bankruptcy and various planning available to eliminate the cancellation of debt income or at least defer it with a possible step-up basis at death.  The Institute will also continue to have sessions devoted to income tax planning techniques that clients can use immediately instead of waiting to save estate taxes far in the future.

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LIVE FORT LAUDERDALE PRESENTATION:

Alan Gassman will be speaking at the 2015 Representing the Physician Seminar on the topic of DISASTER AVOIDANCE FOR THE DOCTOR’S ESTATE PLAN.

Date: January 16, 2015

Location: TBD – Fort Lauderdale, Florida

Additional Information:For more information, please email Alan Gassman at agassman@gassmanpa.com

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LIVE NAPLES PRESENTATION:

2nd ANNUAL AVE MARIA SCHOOL OF LAW ESTATE PLANNING CONFERENCE

Date:  Friday, May 1, 2015

Location:  Ave Maria School of Law, 1025 Commons Circle, Naples, Florida

Additional Information:  Jerry Hesch and Alan Gassman will present The Mathematics of Estate Planning.  If you liked Donald Duck in Mathematics Land, you will love The Mathematics of Estate Planning.  This will not be a Mickey Mouse presentation.

Other speakers include Jonathan Gopman, Bill Snyder, Elizabeth Morgan, Greg Holtz, and others.

Please let us know any questions, comments, or suggestions you might have for this amazing conference, which features dual session selection opportunities in one of the most beautiful conference facilities that we have ever seen.

And don’t forget to have a great weekend in Naples with your significant other or anyone who your significant other doesn’t know!  Domino’s Pizza is extra.

NOTABLE SEMINARS BY MOTHERS

(We aren’t speaking but don’t tell our mothers!)

LIVE ORLANDO PRESENTATION

49th ANNUAL HECKERLING INSTITUTE ON ESTATE PLANNING

Date: January 12 – 16, 2015

Location: Orlando World Center Marriott 8701 World Center Drive, Orlando, Florida

Additional Information: For more information please visit: https://www.law.miami.edu/heckerling/?op=0

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LIVE ST. PETERSBURG PRESENTATION:

ALL CHILDREN’S HOSPITAL FOUNDATION

Date: Thursday, February 12, 2015

Location: St. Petersburg, FL

Additional Information: Please contact Lydia Bennett Bailey at Lydia.Bailey@allkids.org for more information.

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LIVE PRESENTATION:

2015 FLORIDA TAX INSTITUTE

Date: Wednesday through Friday, April 22 – 24, 2015

Location: TBD

Additional Information: Please contact Bruce Bokor at bruceb@jpfirm.com for more information.

Applicable Federal Rates

Below we have this month, last month’s, and the preceding month’s Applicable Federal Rates, because for a sale you can use the lowest of the 3.

federal rates

[1]Denham v. Shellman Grain Elevator, 444 F.2d 1376 (5th Cir. 1971), the debtor listed 18 creditors with an aggregate indebtedness of only $467.13, all but one of whom were owed less than $100, to defeat an involuntary petition for bankruptcy filed by one of Denham’s very large creditors.  The court found that all of the debts were open and unliquidated, as opposed to claims reduced to judgments, and that small recurring debts cannot qualify creditors to be counted toward the necessary amount required to initiate a petition.

[2]See In re Smith, 123 B.R. 423 (M.D. Fla. 1990).

[3]11 U.S.C. Section 303(b)(2) (2007).

[4]See In re Okamoto, 491 F.2d 496 (7th Cir. 1974) which allowed eight debts, all of which were below $65 each, to count toward the 12 creditor threshold and stated that most courts abandon Denham because Denham refused to acknowledge Congressional intent by specifically differentiating betweenlarge and small debts and removing a prior provision excluding debts below $50; See Matter of Rassi, 701 F.2d 627 (7th Cir.1983) which prevented the petitioner from forcing the debtor into an involuntary bankruptcy by allowing two claims, both $10 or less; See also 11 U.S.C. Section 548(e); See also Steve Leimberg’s Estate Planning Newsletter Number 485 by Alan S. Gassman.

[5]Matter of Runyan, 832 F.2d 58 (Tex. Court App. 1987).

[6]11 U.S.C. § 303(I) (2007).

[7]280 B.R. 450 (Bankr. D. W.Ark. 2002).

[8]189 B.R. 290,309-10 (Bankr. D.N.J. 1995).

[9]Those five tests are 1) the improper use test which finds bad faith if a creditor files involuntary bankruptcy to gain a disproportionate advantage for himself over other creditors, 2) the improper purpose test which finds bad faith if creditor’s motivation for filing is ill will, malice or harassment, 3) the objective test which asks if a reasonable person would have also filed involuntary bankruptcy, 4) the subjective test which looks at the subjective motivation of the creditor (almost identical to the improper purpose test), and 5) the two part test which combines the subjective and objective tests. Cannon at 453.

[10]A common refrain from bankruptcy lawyers regarding this topic is that “pigs get fat and hogs get slaughtered.”  Leaving a sacrificial lamb may tip the scales more favorably towards a debtor since the perception of treating creditors fairly increases. Also, there is a much better chance that a settlement will result, especially with a Chapter 7 trustee. The Chapter 7 trustee is a court fiduciary who is required to promptly convert assets and disputes to cash, unlike some litigants who pursue litigation out of principle or some ulterior motive.

[11]For bankruptcy cases dealing with estate planning issues, see In Re Kossow, 325 B.R. 478 (S.D. Fla. 2005); In Re Jennings, 332 B.R. 465 (M.D. Fla. 2005); In Re Ludwig, 345 B.R. 310 (Bankr. D. Colo. 2006); Joseph J. Luzinski v. Peabody & Arnold, LLP and Joel Reinstein, P.A. (In Re Gosman), Adv. No. 03-3228-BKC-SHF-A (S.D. Fla. 2007).

[12]In re Larry Portnoy, 201 B.R. 685 (Bankr. S.D.N.Y. 2996).

[13] Federal Trade Commission v. Affordable Media, LLC, Denyse Lindaalyce Anderson and Michael K. Anderson, 179 F.3d 1228 (9th Cir. 1999).

[14]Lawrence v. Goldberg (In re Lawrence), 279 F.3d 129 (11th Cir. 2002).

[15]http://www.ncsl.org/portals/1/oldsite/programs/lis/images/uetamap.gif

[16] 15 U.S.C. § 7006 (a);   F.S. 688.50 (7)(a)

[17] 15 U.SC. § 7006 (5); F.S. 688.50 (2)(h)

[18]15 U.S.C. § 7001 (c)(1)

[19] 15 U.SC. § 7006 (5); F.S. 688.50 (2)(h)

[20] Id.

[21]15 U.S.C. § 7001 (d)(1)

[22] 15 U.S.C. § 7003; F.S. 688.50 (3)

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The Thursday Report – 7.10.14 – Congress Quacks and Ludwig von Duck

Posted on: July 10th, 2014

Qualifying Longevity Annuity Contracts (QLAC)

What Estate Planning and Other Lawyers Need to Know About Bankruptcy, an article by Alberto F. Gomez and Alan S. Gassman – Part 1 of 3

“The IRS ‘Madoff’ with My Estate!”

Thoughtful Corner – How to Help a Client Express What They Want for Children Who May Have Mental, Addiction, or Similar Issues

Humor! (or Lack Thereof!)

We welcome contributions for future Thursday Report topics. If you are interested in making a contribution as a guest writer, please email Janine Gunyan at Janine@gassmanpa.com.

 This report and other Thursday Reports can be found on our website at www.gassmanlaw.com.

Qualifying Longevity Annuity Contracts (QLAC)

The $125,000 question:

Should your clients over age 70 ½ reduce their IRA minimum distributions by investing in specially designed annuity products?

Introduction:

The insurance industry received a July 4th gift from the Internal Revenue Service in the form of a new regulation released on July 1, 2014 that makes it possible to place IRA and pension plan investments into fixed annuities that will enable the IRA holder or plan participant to avoid the minimum distribution rules that apply after age 70 ½ to the extent that IRA or plan assets are held under such vehicles. The maximum amount that can be invested in such fixed annuities under an IRA or pension will be the lesser of $125,000 or 25% of the value of the pension or IRA account as of the time of the investment. Basically, the value of such contracts will not be considered to be assets of the IRA or pension for purposes of the minimum distribution rules until the owner is age 85.

None of the life insurance or annuity companies have released their products as of yet.

These rules will also allow QLAC’s to be held under 403(b), and 457(b) plans, but not under defined benefit plans or Roth IRA’s.

Under the regulations, these annuity contracts will not be variable or equity indexed annuities, even if they offer a guaranteed minimum rate of return, unless or until explicitly approved by the Internal Revenue Service. Instead, the products available will be ones with a fixed rate of return, life payment, or other similar contract that can be expected to guarantee a minimum rate of return, and to actually credit a slightly higher rate of return in the same manner that many whole life insurance products now offer. The preamble to the new regulations point out that variable and equity indexed annuities with contractual guarantees provide an unpredictable level of income to the holder, and they are inconsistent with the purpose of the new regulation.

A typical arrangement would be that a taxpayer would invest $125,000 (the maximum that can be invested is the lesser of 25% of the value of the qualified account at the time of the investment or $125,000) into a deferred income annuity contract that would pay-out upon the earlier of the death of the account holder or planned participant or ratably from ages 85-90.

One very knowledgeable advisor, Michael Morrissey of Vanguard’s annuity division, gave us the following example of how a hypothetical QLAC might perform.

If a 65 year old male wants to receive monthly income of $1,000 from his IRA after the age of 80, put $47,920 into an annuity contract under his IRA, and the value of the annuity contract would not be subject to the Required Minimum Distribution rules on the value of his IRA until reaching age 80. The contract could allow access to receive payments earlier, if and when needed, based upon the terms of the contract.

The new regulations require that payments from a QLAC must begin to be made by age 85. Therefore, if a 65 year old man wants to receive $1,000 a month for life beginning at age 85, he would only have to put $26,634 into a Vanguard life annuity contract, and would receive a guaranteed payment for life beginning at age 85.

In both of the above arrangements there is a death benefit, as is permitted under the new regulations, which will provide that if the account holder dies before receiving payments equal to the amount invested, then the deficit amount will be paid into the IRA (typically without interest) shortly after death, or payments might continue for the lifetime of a surviving spouse who could roll the annuity over to his or her own IRA and continue to have the benefit of payment rights.

There will doubtless be interaction and confusion between these rules and the “stretch trust” minimum distribution rules, which we will analyze and share in the near future.

For a copy of these new regulations, please email us at agassman@gassmanpa.com.

What Estate Planning and Other Lawyers Need to Know About Bankruptcy
Part 1 of 3

Bankruptcy lawyer Al Gomez and Alan Gassman have recently updated their article on bankruptcy for publication.  We last published this in Trusts & Estates in October of 2007 under the title of “Avoid Catastrophe – Know the Bankruptcy Code to Ward Off Devastating Surprises to an Estate Plan.”

We bring this now to Thursday Report readers as a three part piece, beginning as follows:

EXECUTIVE SUMMARY – Essential Knowledge for Estate Planning Lawyers and Advisors

While many estate planners are familiar with asset protection mechanisms, even a great many lawyers who regularly provide asset protection advice have limited knowledge of the U.S. Bankruptcy Code and laws and practices associated therewith, notwithstanding that these rules can have a catastrophic effect upon an estate plan or corporate structure. Indeed, many estate tax- and income tax-oriented planning structures risk being dismantled by a bankruptcy judge, even though the plan’s primary purpose had nothing to do with creditor protection.

That is why it is critical to not only know the basics, but also to recognize certain rules that apply in the bankruptcy forum and the need to consult with a bankruptcy lawyer in certain situations. The following information will provide an update, review, or excellent introduction to this most important segment of financial services.

 FACTS:

CRUCIAL BASICS

Any estate planning client could end up in a bankruptcy proceeding, whether voluntarily or involuntarily.  In many cases, it is unlikely that a client would choose to file a voluntary bankruptcy petition.  Often, a client may be forced into a bankruptcy proceeding on an involuntary basis.1 And since the implementation of the 2005 Bankruptcy Abuse Prevention and Creditor Protection Act (2005 Bankruptcy Act), there are more stringent requirements imposed on consumer debtors that must be met for them to be eligible to file a petition.

In general, there are three types of bankruptcy:

Chapter 7 is essentially a liquidation mechanism.

Chapters 11 and 13 contemplate a repayment plan.

A Chapter 7 debtor must meet a “means test.”  Upon filing a petition to implement an automatic stay against creditor actions, a Chapter 7 trustee is appointed and the assets become property of the bankruptcy estate, many of which may qualify as exempt.  In Chapter 7, the court essentially takes a snapshot of the debtor’s assets and liabilities as of the date of filing.

This is significant because the debtor’s post-petition earnings are not property of the estate.  For example, if a debtor won the lottery post-petition, the lottery winnings would not be property of the estate. Typically, 90 days from filing, the debtor obtains a discharge from responsibility for pre-bankruptcy debt.  The debtor is afforded a fresh start. However, there are some exceptions to the discharge rule. For instance, only individuals receive a discharge, not corporations. Other debts excluded from discharge include claims not listed by the debtor on the schedules, taxes, and domestic support obligations.

Chapter 13 is only available to individuals (not corporate or other business entities).  To be eligible to file a Chapter 13, an individual must have unsecured debts of less than $383,175 and secured debts of less than $1,149,525.2  Chapter 13 repayment plans are for three to five years and are funded by the debtor’s disposable income.  In exchange for paying under a Chapter 13 plan, a debtor keeps his or her assets.  Chapter 13 is prospective as opposed to the snapshot concept of Chapter 7.  The Chapter 13 trustee administers payments under a plan once a court confirms the plan.  At the conclusion of the plan, after payments are made, the debtor obtains a discharge.

Chapter 11 is used primarily for business entities, but individuals with significant assets or who do not meet the debt limits for Chapter 13, may file a Chapter 11. Instead of a trustee, the debtor becomes the debtor-in-possession (DIP) and is afforded an opportunity to propose a plan. The DIP remains in possession and control of her assets. Chapter 11 requires the debtor to obtain the vote of creditors in order to confirm the plan, unless the debtor is able to “cramdown” the plan as authorized by the Code. The cramdown rules allow the bankruptcy judge to approve the debtor’s plan over the objections of dissenting creditors. The cramdown is only permitted if the plan does not discriminate unfairly, and is fair and equitable to the dissenting classes.

Estate planners should become well-versed in the nuances of these three types of bankruptcies, because significantly different results could occur depending on what chapter applies.  For instance, in the case of the lottery winnings, if the winnings were obtained post-petition in a Chapter 7, the debtor would keep the winnings. On the other hand, if the winnings occurred while in a Chapter 13 or Chapter 11, the winnings are property of the estate.

Moreover, the application of the attorney/client privilege differs depending on whether a client files for Chapter 7, 11, or 13. When a Chapter 7 bankruptcy petition is filed, the Chapter 7 trustee may become the owner of the attorney/client privilege, as well as all client files for purposes of asserting or waiving the privilege. There is a split of authority on this point.3

Therefore, correspondence to the client that may reveal significant risks or adverse issues with respect to potential creditor planning might cause irreparable damage to the client, and the estate planner, if and when a bankruptcy petition is filed. However, the above privilege issue would not arise in the context of a Chapter 13 or Chapter 11 bankruptcy.

INVOLUNTARY BANKRUPTCY

It only takes one creditor to force a debtor into involuntary bankruptcy when the debtor has fewer than 12 creditors. Under 11 U.S.C. Section 303, when a debtor has 12 or more creditors, an involuntary bankruptcy can be commenced only when 3 or more creditors file a petition, with each creditor holding a claim that is (1) not contingent as to liability, and (2) not subject to a bona fide dispute as to liability or amount.

A creditor cannot be counted in the three-or-more-creditor requirement if it holds a lien on the debtor’s property, unless its claim exceeds the value of the property liened by at least $12,300.  Generally, employees and “insiders” are not counted as creditors in determining whether 12 creditors exist. Because of the stricter bankruptcy rules, which are now applicable, more clients with large judgments against them will be rendered insolvent, yet will attempt to avoid or delay bankruptcy while maintaining their creditor exempt assets.  Creditors may respond by utilizing the involuntary option.

Next week, we will provide further discussion of the 12 creditor requirements and cover a number of other important bankruptcy principles that estate planners need to be aware of.

———————————————————————————————————–

111 U.S.C. Section 303 (2007).

211 U.S.C. Section 109(e) (2010).

3Community Futures Trading Comm’n v. Weintraud, 471 U.S. 343 (1985), held that a trustee may waive the attorney client privilege for a corporate Chapter 7 debtor, but it did not extend its holding to individual debtors. See Miller v. Miller, 247 B.R. 704 (Bankr. D. Ohio 2000), discussing the split of authority.

“The IRS ‘Madoff’ with My Estate!” 

In Estate of Kessel, the IRS argued that the value of the decedent’s estate should include the date-of-death value of the decedent’s pension account managed by Bernie Madoff.  The decedent died in July of 2006 and, at the time of his death, he purportedly held more than $4.8 million of appraised assets in his Madoff investment account.  The decedent’s federal estate tax return included the value of the Madoff account, and the estate paid the tax liability, which included value of the Madoff account in the tax determination.  Following the realization of Bernie Madoff’s Ponzi scheme, the estate determined that the decedent’s Madoff investment account had zero value.  The estate, therefore, filed a supplemental federal estate tax return seeking a $1.9 million refund based on the worthlessness of the decedent’s Madoff account.  The IRS denied the refund and, instead, IRS determined that the estate had a $339,143 deficiency in the initial federal estate tax return.

The IRS maintained that the estate was not entitled to the refund because it measured the Madoff’s account value at the time of decedent’s death as what a willing buyer would pay to a willing seller for such account.  The IRS argued since the account was purportedly valued at $4.8 million, a willing buyer would likely pay that amount for the account because at the time of the decedent’s death, a willing buyer would neither reasonably know nor foresee that Bernie Madoff was operating a Ponzi scheme.  The IRS moved for summary judgment on these grounds. The Tax Court, however, denied the IRS’s motion because the court found that whether a willing buyer had a reason to believe that Bernie Madoff was operating a Ponzi scheme was a question of material fact.  While the Tax Court denied this motion, the case is still pending.  Stay tuned.

Thoughtful Corner

How to Help a Client Express What They Want for Children Who May Have Mental, Addiction, or Similar Issues:

Give Discretion to Trustees But Have an Explicit Letter of Wishes in the File

Clients often have children or others in the family that they would like to benefit in restrictive ways without embarrassing the person in trust documents.

One solution is to provide that one or more beneficiaries will be able to take over trusteeship of trusts at certain ages, while others will not.  This does not have to be so obviously drafted so as to embarrass the beneficiary of concern.

The following Letter of Wishes can be used to express the client’s instructions to fiduciaries.  This particular one also goes into some detail about coordinating efforts with an ex-spouse who will also be on the scene if the client dies.

To my Trustees:

            As I design my estate plan I am mindful that my daughter, [NAME], has been a “straight-A kid” in all ways.  I have every confidence that she will succeed without the need for much assistance, and will be able to handle her own financial decision making upon reaching proper ages, as is or will be reflected in my estate planning documents.

             I have significant admiration for how well my son, [NAME], has done in the face of challenges beyond his control.  I am very proud that he has developed into a resourceful, caring, and admirable adult, but I also would like to make sure that he is completely protected for his entire lifetime to the extent that this is made possible by whatever legacy and wealth I am able to leave for him.

             I would strongly prefer that he support himself to the maximum extent possible, and I have been very impressed with his ability to economize and not waste money or financial opportunities, and am pleased that he is not materialistic or in need of “showing off” what he has or has access to.

            I am hopeful that in decades to come there will be improved medications and treatments for individuals who have challenging circumstances, but I am mindful that my future grandchildren may carry genes that would give them similar challenges.

             I have therefore requested special provisions for my trust documents that will give professional trustees or trust companies the ability to maintain lifetime control over trusts for my son and his descendants as they deem fit, and for my daughter’s descendants if she is no longer living, has descendants, and has not herself otherwise designated.

             I also would be remiss to not point out that my children’s mother, [NAME], is presently well off financially, and should be able to provide assistance and support, as well as input and encouragement, for our descendants.

             [EX-SPOUSE] and I had some wonderful years together, and both of us dedicated significant efforts to raising these two much loved children. I request that my fiduciaries work with her as best as possible to help assure that overall well being, opportunity, and personal achievement are maximized for our common descendants.

            Although I do not consider this document to be part of my trust agreement, I request that ____________ and _____________, as Trust Protectors under the Agreement, take such actions as they deem appropriate, but only after careful consideration and extensive testing and interviewing by well-respected, independent professionals who advise on mental health issues, special needs planning, financial budgeting, and investment managers. 

Seminar Announcement

Webinar Announcement Cartoon

To register for the 12 P.M. webinar, please click here.

To register for the 7 P.M. webinar, please click here.

 Humor! (Or Lack Thereof!)

 The Duck and the Pharmacist

A duck walks into a pharmacy and says, “Do you have any chapstick?”
When the pharmacist hands it to him, the duck replies, “Thanks, just put it on my bill.”

Kentucky Fried Duck
​a poem by Colonel Sanders

Kentucky Fried Duck
​We tried, but it wouldn’t cluck
​Ludwig and Donald tried to buy in
​And offered us Daffy again and again

But the wings were too large
​To fit in our buckets
​At first we tried boxes
​But later said chuck it!

Upcoming Seminars and Webinars

NEW PORT RICHEY SEMINAR:

Alan S. Gassman and Kenneth J. Crotty will be speaking at the North FICPA Monthly meeting on two topics:

  • Planning for Same Gender Couples and Laws that Apply to All Couples
  • A CPAs Guide to Trust, Tax Law and Compliance

Date: Wednesday, July 16, 2014 | 4:30 p.m.

Location: Chili’s 9600 US Highway 19, Port Richey, FL.

Additional Information: If you would like to attend this seminar please contact Ron Cohen at 352-257-9518 or email agassman@gassmanpa.com

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FREE LIVE WEBINAR:

STEP-UP YOUR EFFORTS TO STEP-UP CLIENTS’ BASIS – STRATEGIC ESTATE PLANNING AND STEPPED-UP BASIS CONSIDERATIONS

Date:  Wednesday, July 23, 2014 |12:30 p.m. (30 Minute Webinar)

Speakers:  Edwin P. Morrow, III, Alan S. Gassman

Location: Online webinar

Additional Information: To register for the webinar please click here.

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FREE LIVE WEBINAR:

GAUGING AND HANDLING ENTITLEMENT TENDENCIES OF BENEFICIARIES, EMPLOYEES AND OTHERS – A FASCINATING AND EXTREMELY PRACTICAL GUIDE ON SOCIETY’S NEWEST ISSUE

Date: Tuesday, July 29, 2014 | 12:30 p.m. (30 Minute Webinar)

Speakers: Stephanie Thomason, Ph.D. and Alan S. Gassman, Esq.

Location: Online webinar

Additional Information: To register for the webinar please click here.

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FREE LIVE WEBINAR:

HIPPA MEDICAL OFFICE DISASTER AVOIDANCE CHECKLIST

This 20-25 minute webinar includes valuable forms and important strategies that every medical office should know about. Join us for an interactive and innovative discussion of how medical practices can be decimated by HIPPA, including a number of survival techniques, tips, and tools.

Date: Tuesday, August 5, 2014 | 12:00 p.m. and 7:00 p.m.

Speakers: Alan S. Gassman, Lester Perling, and Jeff Howard

Location: Online Webinar

Additional Information: To register for the 12 p.m. webinar, please click here. To register for the 7 p.m. webinar, please click here.

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FREE LIVE WEBINAR:

Blattmachr

A POWERFUL 40 MINUTE DOUBLE HEADER WITH JONATHAN BLATTMACHR

Topics:

  • Foreign vs. Domestic Asset Protection Trusts: More Than Just Creditor Protection Considerations
  • Empowering Your Powers of Appointment: Don’t Leave Out Important Tax and Practical Provisions or Ignore Important Considerations.  With Sample Provisions

Date: Tuesday, August 12, 2014 | 12:00 p.m.

Location: Online webinar

Additional Information: To register for the webinar please click here.

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LIVE ISLE OF MAN PRESENTATION:

Alan S. Gassman will be speaking on US TRUST AND TAX LAWS FOR INTERNATIONAL INVESTORS at Cayman National Bank and Trust Company on the Isle of Man

Sign up now and you will receive a free lunch!  Transportation not included.

“Half-way between England

And Ireland in the Irish Sea.”

Is a great place to discuss trusts with glee.”

Date: Wednesday, September 3, 2014

Additional Information:  If you would like to receive a copy of the materials that will be presented please email Janine Gunyan at janine@gassmanpa.com and we will send them to you once they are ready.

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LIVE FT. LAUDERDALE PRESENTATION:

FICPA ANNUAL ACCOUNTING SHOW 

Alan S. Gassman will be speaking at the FICPA Annual Accounting Show on Thursday, September 18, 2014 on the topic of ESSENTIAL GUIDE TO BASIC TRUST PLANNING for 50 minutes.

This presentation will introduce basic and intermediate trust planning background and provide attendees with an orderly list of the most commonly used trusts, practical features and traps for the unwary, including revocable, irrevocable and hybrid.  The discussion will include tax, creditor protection and probate and guardian considerations.

Date: Wednesday, September 17 through Friday, September 19, 2014

Location:  Fort Lauderdale, Florida

Additional Information:  For more information about this program please contact Stephanie Thomas at ThomasS@ficpa.org

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LIVE CLEARWATER PRESENTATION:

Board Certified Tax Attorney Michael O’Leary from the Trenam Kemker firm in Tampa, Florida and Christopher Denicolo from Gassman Law Associates will be speaking at the Ruth Eckerd Hall Planned Giving Advisory Council event on Tuesday, September 23, 2014.

O'Leary

Mr. O’Leary’s topic is HOT TOPICS IN CHARITABLE PLANNING AND MORE.

Chris

Mr. Denicolo’s topic is PLANNING FOR INHERITED IRAs.

Date: Tuesday, September 23, 2014 | 5:00 p.m.

This presentation is free to members of the Ruth Eckerd Hall Planned Giving Advisory Council, Ruth Eckerd Hall members, and professionals who are attending a Ruth Eckerd Hall Planned Giving Advisory Council event for the first time.

Additional Information: You can contact Suzanne Ruley at sruley@rutheckerdhall.net or via phone at 727-791-7400, David Abelson at david.abelson@morganstanley.com or via phone at 727-773-4626, Alan S. Gassman at agassman@gassmanpa.com or via phone at 727-442-1200 or the Kentucky Fried Chicken located at 1960 Gulf to Bay Blvd, which is close in proximity to this location and available to provide you with crisp, spicy or even crispier chicken, mashed potatoes and gravy, rolls, and slaw!  Bring your 32 oz. Kentucky Fried Chicken drink container to the presentation and we will fill it with your choice of club soda or seltzer water, but no sharing permitted.

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LIVE NEW JERSEY PRESENTATION – WHAT NEW JERSEY LAWYERS NEED TO KNOW ABOUT FLORIDA LAW TO REPRESENT SNOWBIRDS AND FLORIDA BASED BUSINESSES:

NEW JERSEY INSTITUTE FOR CONTINUING LEGAL EDUCATION (ICLE)_SPECIAL 3 HOUR SESSION

New Jersey song trivia:  What song includes the words “Counting the cars on the New Jersey Turnpike, they’ve all gone to look for America”?  What year was it recorded and who wrote it?

Alan S. Gassman will be the sole speaker for this informative 3 hour program entitled WHAT NEW JERSEY LAWYERS NEED TO KNOW ABOUT FLORIDA LAW

Here is some of what the New Jersey Bar Invitation for this program provides:

New Jersey residents have always had a strong connection to Florida.  We vacation there (it=s our second shore), own Florida property (or have favored relatives that do) and have family and friends living there.  Sometimes our wealthiest clients move to Florida and need guidance, and you need background in order to continue representation.

There are real and significant differences between the two states that every lawyer should be cognizant of.  For example, holographic wills are perfectly legitimate in New Jersey and anyone can serve as an executor of an estate, which is not the case in Florida.  Also, Florida=s new rules regarding LLCs are different, and if you are handling estates of New Jersey decedents who owned Florida property, there are Florida law issues that must be addressed.  Asset protection differs significantly in Florida too.

Gain the knowledge you need to assist your clients with Florida matters including:

  • Florida specific laws involving businesses, trusts, and estates
  • Florida tax planning
  • Elective share and homestead rules
  • Liability Insulation and Planning
  • Creditor Protection and Strategies
  • Medical Practice Laws
  • Staying within Florida Bar Guidelines that allow representation of Florida clients

Comments from past attendees of this program:

  • Excellent seminar and materials!!!
  • This was one of the best ICLE seminars yet!
  • One of the best seminars I have attended.
  • Better than mashed potatoes and gravy.  Glad he didn’t serve grits!

Date: Saturday, October 4, 2014

Location: TBD

Additional Information: This is a repeat of the same program that we gave last year, but our book is now updated for the new Florida LLC law and changes in estate and trust law.  Please tell all of your friends, neighbors, and enemies in New Jersey to come out to support this important presentation for the New Jersey Bar Association.  We will include discussions of airboats, how to get an alligator off of your driveway, how to peel a navel orange and what collard greens and grits are. For additional information, please email agassman@gassmanpa.com

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LIVE PASCO COUNTY COCKTAIL HOUR AND PRESENTATION:

Alan S. Gassman and Christopher J. Denicolo will be speaking at the Pasco-Hernando State College’s Planned Giving Consortium Luncheon on Planning for Inherited IRA’s in View of the Recent Supreme Court Case – and Demystifing the “Stretch in Trust” Ira and Pension Rules

Date: Thursday, October 23, 2014 | 4:30 p.m.

Location:  Spartan Manor, 6121 Massachusetts Avenue, Port Richey, Florida

Additional Information:  For more information, please contact Maria Hixon at hixonm@phsc.edu

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LIVE UNIVERSITY OF NOTRE DAME PRESENTATION:

40th ANNUAL NOTRE DAME TAX & ESTATE PLANNING INSTITUTE

Please send us your questions, comments and suggestions for Alan Gassman’s talk on Planning with Variable Annuities and Analyzing Reverse Mortgages. 

This presentation will cover the unique income tax and financial planning characteristics of fixed and variable annuities.

Topic #2: THE MATHEMATICS OF ESTATE AND ESTATE TAX PLANNING

Christopher J. Denicolo, Kenneth J. Crotty and Alan S. Gassman will also be presenting a special Wednesday late p.m. two hour dive into math concepts that are used or sometimes missed by estate and estate tax planners.  This will be an A to Z review of important concepts, intended for estate planners of all levels, sizes and ages.  Donald Duck has rated this program A+.

Date:November 13 and 14, 2014

Location: Century Center, South Bend, Indiana

We welcome questions, comments and suggestions on variable annuities, which will be Alan Gassman’s topic for this conference.

Additional Information: The focus of this year’s institute will be on “Business Succession Planning: An Income Tax, Estate Tax and Financial Analysis.”  As in past years, several sessions are designed to evaluate certain financial products and tax planning techniques so that the audience can better understand and evaluate these proposals in determining not only the tax and financial advantages they offer, but also evaluate limitations and problems they may cause in the future.  Given that fewer clients will need high-end estate tax planning with the $5 million exemptions, other sessions will address concerns that all clients have.  For example, a session will describe scams that target elderly individuals and how to protect the elderly from these scams.  As part of the objective on refreshing or introducing the audience to areas that can expand their practice, other sessions will review the income tax consequences of debt cancellation, foreclosures, short sales, the special concerns that arise in bankruptcy and various planning available to eliminate the cancellation of debt income or at least defer it with a possible step-up basis at death.  The Institute will also continue to have sessions devoted to income tax planning techniques that clients can use immediately instead of waiting to save estate taxes far in the future.

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LIVE FORT LAUDERDALE PRESENTATION:

Alan Gassman will be speaking at the 2015 Representing the Physician Seminar on the topic of DISASTER AVOIDANCE FOR THE DOCTOR’S ESTATE PLAN.

Date: January 16, 2015

Location: TBD – Fort Lauderdale, Florida

Additional Information:For more information, please email Alan Gassman at agassman@gassmanpa.com

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LIVE NAPLES PRESENTATION:

2nd ANNUAL AVE MARIA SCHOOL OF LAW ESTATE PLANNING CONFERENCE

Date:  Friday, May 1, 2015

Location:  Ave Maria School of Law, 1025 Commons Circle, Naples, Florida

Additional Information:  Jerry Hesch and Alan Gassman will present The Mathematics of Estate Planning.  If you liked Donald Duck in Mathematics Land, you will love The Mathematics of Estate Planning.  This will not be a Mickey Mouse presentation.

Other speakers include Jonathan Gopman, Bill Snyder, Elizabeth Morgan, Greg Holtz, and others.

Please let us know any questions, comments, or suggestions you might have for this amazing conference, which features dual session selection opportunities in one of the most beautiful conference facilities that we have ever seen.

And don’t forget to have a great weekend in Naples with your significant other or anyone who your significant other doesn’t know!  Domino’s Pizza is extra. 

NOTABLE SEMINARS BY OTHERS

(We were not invited, but will attend and are still excited!)

LIVE ORLANDO PRESENTATION

49th ANNUAL HECKERLING INSTITUTE ON ESTATE PLANNING

Date: January 12 – 16, 2015

Location: Orlando World Center Marriott 8701 World Center Drive, Orlando, Florida

Additional Information: For more information please visit: https://www.law.miami.edu/heckerling/?op=0

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LIVE ST. PETERSBURG PRESENTATION:

ALL CHILDREN’S HOSPITAL FOUNDATION

Date: Thursday, February 12, 2015

Location: St. Petersburg, FL

Additional Information: Please contact Lydia Bennett Bailey at Lydia.Bailey@allkids.org for more information.

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LIVE PRESENTATION:

2015 FLORIDA TAX INSTITUTE

Date: Wednesday through Friday, April 22 – 24, 2015

Location: TBD

Additional Information: Please contact Bruce Bokor at bruceb@jpfirm.com for more information.

Applicable Federal Rates

Below we have this month, last month’s, and the preceding month’s Applicable Federal Rates, because for a sale you can use the lowest of the 3.

federal rates

The Thursday Report – 7.3.2014 – 4th of July Edition

Posted on: July 3rd, 2014

Try Our Safety Latch Clause to Protect Your Clients and Their Inheritances

“Explaining the Surviving Spouse’s Disclaimer, Portability, and Clayton Q-TIP Choices in 577 Words or Loss”

State-by-State Summary of Inherited IRA Protection Statutes, by Edwin P. Morrow, III, J.D., LL.M., MBA, CFP, RFC

Seminar Announcement – Step-Up Your Efforts to Step-Up Clients’ Basis – Strategic Estate Planning and Stepped-Up Basis Considerations

Tea for Two Liked by Bloomberg BNA Too

Annuity Concepts and Terminology Review for Tax Advisors, an article by Alan S. Gassman, Christopher H. Price and Christopher J. Denicolo

Thoughtful Corner – What is the Helper’s High, and How Can I Get Some?

Humor! (or Lack Thereof!)

We welcome contributions for future Thursday Report topics. If you are interested in making a contribution as a guest writer, please email Janine Gunyan at Janine@gassmanpa.com.

 This report and other Thursday Reports can be found on our website at www.gassmanlaw.com.

Try Our Safety Latch Clause to Protect Your Clients and Their Inheritances

Many times we have used the following clause to assist a client who might be infirm, of high age, or subject to undue influence.

The clause prevents amendment of a revocable trust without confirmation of good mental status, and understanding of the change, and absence of undue influence by one or more listed individuals and/or neurology or psychiatry doctors.

We have used this provision dozens of times, and it has facilitated avoidance of undue influence or trust litigation on a number of occasions.

Try it, you’ll like it!

I recognize that I have had mental challenges and want to assure that any future changes to this Trust Agreement or my estate plan are verified to have been carefully and completely considered and understood by me, and therefore wish to have a medical or psychologist verification of any change made and to have any two of __________________, _________________, _________________ and/or a board certified psychiatrist or neurologist verify my mental capacity.

           2.01     Reservation of Power/Safety Latch Provision.  Except as provided below I expressly reserve the right, at any time and from time to time, during my lifetime, by instrument in writing delivered to the Trustee, to alter, amend, or revoke this trust instrument, either in whole or in part.

Notwithstanding the above, or any provision herein to the contrary, no amendment or revocation of this Trust, no change of trusteeship, and no withdrawal by me or any other person of more than $100,000 of principal in cash or other assets (unless such withdrawal is authorized by a Trustee not related to me) in a calendar month may be made unless it is documented that such amendment, revocation, or withdrawal is made by me at a time and under circumstances as to which I am of sound mind and full mental capacity and am acting as the result of undue influence, by means of such action being: (1) approved in writing as to such mental condition by a then serving Trustee or Co-Trustee who is not related to me or a beneficiary of this Trust; or (2) such sound mind and full mental condition is confirmed in writing by (a) my ______________, ______________________, (b) any two (2) of the following individuals: ____________________________, ______________________________, or ____________________________, or (c)  by two (2) Specialist Physicians selected as described below in this paragraph.  In the event of a dispute or uncertainty between me and an acting Trustee or Trustees with respect to my competency to make a change in trusteeship, to make a Trust Amendment, or to require payment of principal or income under this Trust Agreement, then such dispute shall be resolved by two (2) Specialist Physicians.  For the purposes of this provision Specialist Physicians shall mean licensed physicians specializing and board certified in areas relating to mental competency (psychiatrists or neurologists) who are on full-time staff at a well-respected hospital near where I reside, and are selected by the Trustee(s).  If there is a dispute as to the selection of such Physicians, then the party with the power to designate successor trusteeship in the event of vacancy under Section 6.05(d) of this Agreement shall select such Physicians.  Further, the exercise of any power of appointment by me set forth under this Agreement shall require the above confirmation as well.

“Explaining Credit Shelter Trusts, Clayton Q-TIP Trusts,       Q-TIP Trusts and GST Exemption to Clients in 577 Words or Less”

Most but not all estate tax planners have become fluent with disclaimers, portability and Clayton Q-Tip choices.

Others are not so sure.

We welcome reader comments on whether the following is understood or enlightening by estate planners.

Enjoy!

A husband dies in 2014 and leaves everything to his wife.  At the time of death, the couple has $20,000,000 worth of assets, which will be worth $40,000,000 when the wife dies.  If the wife does not disclaim any of the assets left to her, then all of the couple’s assets will be subject to federal estate taxation on her death. The wife, however, by disclaimer can allow up to $5,340,000 worth of assets to pass into a “by-pass trust,” which will benefit her for her lifetime without being subject to federal estate tax.  When the wife makes a valid disclaimer within 9 months of the husband’s death, she will be deemed to not have received the disclaimed property, but will also have to disclaim any right that she would otherwise hold to direct how the property would pass during her lifetime or upon her death.

The wife’s estate tax exemption on her death will be based upon her $5,340,000 present exemption, plus increases in the Consumer Price Index taking place after 2014, plus the husband’s unused $5,340,000 portability allowance, which does not grow with inflation.  If she receives the portability allowance but remarries and her successor spouse dies before her and does not leave her a portability allowance, then the portability allowance left by the husband in our example above completely disappears!  We are using $5,340,000 under the assumption that 2014 amounts will apply, and that the couple has not made gifts exceeding $14,000 per year to any individuals that would reduce the allowance.

Let’s assume that the wife disclaims $3,000,000 worth of assets that will be held for her benefit without being subject to federal estate tax at her death, and those $3,000,000 worth of assets grow to $7,000,000 in value before she dies, so that the wife will have $33,000,000 of individually owned assets when she dies.  That whole $7,000,000 in value passes without being subject to federal estate tax, and she still has $2,430,000 from her husband’s portability allowance, so assuming that she does not remarry, upon her death the amount that passes estate tax free for the assets outside of the $7,000,000 in the trust that is already estate tax free will be based upon $2,340,000, plus whatever the $5,340,000 allowance has grown to.

The wife, however, may decide to rely on portability completely but would like to maximize the amount that will be held in a protective trust for her children and for her descendants, so as to never be subject to estate tax at the children’s level.  In such scenario, she can  disclaim up to $5,340,000 worth of the assets that would have been coming over from the husband into the special trust.  The trustees of the special trust then would make a “Clayton Q-TIP election” so that those assets will be subject to federal estate tax as if they belong to the wife when she dies, and the wife will have the entire $5,340,000 portability allowance from the husband. The Clayton Q-TIP election allows the executor to determine how much of the Q-TIP trust should qualify for the marital deduction.  The amount not qualifying for the deduction may pass to another trust or to other beneficiaries without jeopardizing the entire marital deduction.

The advantage here is that the husband has a $5,340,000 generation skipping tax exemption that enables that amount in assets to be placed into the Clayton Q-TIP trust on the husband’s death (after the disclaimer and the Clayton Q-TIP trust election have been made) and if that $5,340,000 grows to $12,000,000 before the wife dies it will nevertheless be able to pass to a trust that can benefit the children without being subject to federal estate tax at the children’s level.

So in a situation similar to this one, upon the death of the first spouse, the surviving spouse has the disclaimer option, the using portability option, and the Clayton Q-TIP option.

State-by-State Summary of Inherited IRA Protection Statutes, by Edwin P. Morrow, III, J.D., LL.M., MBA, CFP, RFC

Our friend and writing idol, Edwin P. Morrow, III, J.D., LL.M., MBA, CFP, RFC was kind enough to updated the attached chart which shows a state-by-state summary of inherited IRA protection statutes.  To view the chart please click here.

If you have not read Ed’s materials on obtaining a step-up in basis by trust and power of appointment planning please let us know and we will be glad to send them, or you can contact Ed directly by emailing him at Edwin_p_morrow@keybank.com.

Ed’s picture and short biography are as follows:

Edwin Morrow

Ed Morrow is currently the Manager for Wealth Strategies Communications for Key Private Bank’s Wealth Advisory Services and is involved in the marketing of advanced wealth strategies and training of local teams of credentialed financial planners, trust officers, investment specialists and private bankers.  In addition, Mr. Morrow is a Wealth Specialist analyzing tax, trust and estate planning needs of high net worth and ultra-high net worth clients nationwide.  He is a Board Certified Specialist (Ohio State Bar Assn.) in Estate Planning, Trust and Probate Law, a Certified Financial Planner (CFP) and Registered Financial Consultant (RFC).  He is also a Non-Public Arbitrator for the Financial Industry Regulatory Authority (FINRA).  Mr. Morrow is a frequent speaker at CLE/CPE courses on asset protection, tax, and various financial and estate planning topics.

50 State Chart by Ed Morrow_Page_1 50 State Chart by Ed Morrow_Page_2 50 State Chart by Ed Morrow_Page_3

50 State Chart by Ed Morrow_Page_4

Seminar Announcement – Step-Up Your Efforts to Step-Up Clients’ Basis –  Strategic Estate Planning and Stepped-Up Basis Considerations

Webinar Announcement

To register for the webinar, please click here.

Tea for Two Liked by Bloomberg BNA Too

Our recent article entitled Tea for Two, and Two for TBE has been featured in the July edition of the Bloomberg BNA Tax Management Estates, Gifts and Trusts Journal, with the following introductory poem:

Tea for Two,

And two for TBE,

Many clients want to own assets jointly,

If not sure, why not try and see………..

The article explains that same gender couples residing in Florida and other states that do not recognize their marriages may still nevertheless attempt to use tenancy by the entireties in anticipation of court decisions that will quite likely provide that state law must recognize these marriages.

The first ten requesters will receive a complimentary copy of the entire Journal, which includes our article.

For a copy of the article itself please click here.

What about situations where the individuals are married and one dies owning a homestead and Florida does not recognize the marriage?  Will there be a cause of action later to the effect that the surviving spouse had homestead inheritance rights?  Time will tell, but on some days it is better to be a lawyer than a title insurance company.

Annuity Concepts and Terminology Review for Tax Advisors, an article by Alan S. Gassman, Christopher H. Price and Christopher J. Denicolo

Our article entitled Annuity Concepts and Terminology Review for Tax Advisors was published in the July 2014 edition of Estate Planning Magazine.

To read the article please click here.

Thoughtful Corner – What is Helper’s High, and How Can I Get Some?

Wikipedia defines helper’s high as “a euphoric feeling, followed by a longer period of calm, experienced after performing a kind act.”

The encyclopedia goes on to indicate that the sensation results from the release of endorphins, followed by a longer lasting period of improved emotional well being and sense of self-worth, which will reduce stress and improve health.

When you help someone make sure to enjoy your “helper’s high.”

It is better than shopping, gambling, and many other things that cause release of endorphins.

So it’s okay to get high, as long as it is the “helper’s high”, and especially if it is billable or charitable.

Humor! (Or Lack Thereof!)

The Legal Problems of Cartoon Characters
by Ronald H. Ross

Bullwinkle the Moose

Was jailed for substance abuse

His partner shouldn’t be so cocky,

He turned state’s witness against Rocky

When he couldn’t pay his debts to thugs,

It was broken bunny legs for Buggs

Popeye accidentally squeezed Olive Oil

So hard she shuffled off her mortal coil

Caught with a bone, and someone else’s shoe,

Was seasoned crime-fighter Scooby Doo

Charged with treason is Betty Boop,

Giving info and “entertaining” enemy troops

And there’s a reason they call him Speed Racer

(amphetamines with a whiskey chaser)

They almost caught Mr. Magoo,

The FBI wired one of his criminal crew

But the nearsighted guy smelled trouble because the snitch was Pepe Le Pew

Upcoming Seminars and Webinars

NEW PORT RICHEY SEMINAR:

Alan S. Gassman and Kenneth J. Crotty will be speaking at the North FICPA Monthly meeting on two topics:

  • Planning for Same Gender Couples and Laws that Apply to All Couples
  • A CPAs Guide to Trust, Tax Law and Compliance

Date: Wednesday, July 16, 2014 | 4:30 p.m.

Location: TBD

Additional Information: If you would like to attend this seminar please contact Ron Cohen at 352-257-9518 or email agassman@gassmanpa.com

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FREE LIVE WEBINAR:

STEP-UP YOUR EFFORTS TO STEP-UP CLIENTS’ BASIS – STRATEGIC ESTATE PLANNING AND STEPPED-UP BASIS CONSIDERATIONS

Date:  Wednesday, July 23, 2014 |12:30 p.m. (30 Minute Webinar)

Speakers:  Edwin P. Morrow, III, Alan S. Gassman

Location: Online webinar

Additional Information: To register for the webinar please click here.

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FREE LIVE WEBINAR:

GAUGING AND HANDLING ENTITLEMENT TENDENCIES OF BENEFICIARIES, EMPLOYEES AND OTHERS – A FASCINATING AND EXTREMELY PRACTICAL GUIDE ON SOCIETY’S NEWEST ISSUE

Date: Tuesday, July 29, 2014 | 12:30 p.m. (30 Minute Webinar)

Speakers: Stephanie Thomason, Ph.D. and Alan S. Gassman, Esq.

Location: Online webinar

Additional Information: To register for the webinar please click here.

********************************************************

FREE LIVE WEBINAR:

Blattmachr

A POWERFUL 40 MINUTE DOUBLE HEADER WITH JONATHAN BLATTMACHR

Topics:

  • Foreign vs. Domestic Asset Protection Trusts: More Than Just Creditor Protection Considerations
  • Empowering Your Powers of Appointment: Don’t Leave Out Important Tax and Practical Provisions or Ignore Important Considerations.  With Sample Provisions

Date: Tuesday, August 12, 2014 | 12:00 p.m.

Location: Online webinar

Additional Information: To register for the webinar please click here.

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LIVE ISLE OF MAN PRESENTATION:

Alan S. Gassman will be speaking on US TRUST AND TAX LAWS FOR INTERNATIONAL INVESTORS at Cayman National Bank and Trust Company on the Isle of Man

Sign up now and you will receive a free lunch!  Transportation not included.

“Half-way between England

And Ireland in the Irish Sea.”

Is a great place to discuss trusts with glee.”

Date: Wednesday, September 3, 2014

Additional Information:  If you would like to receive a copy of the materials that will be presented please email Janine Gunyan at janine@gassmanpa.com and we will send them to you once they are ready.

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LIVE FT. LAUDERDALE PRESENTATION:

FICPA ANNUAL ACCOUNTING SHOW 

Alan S. Gassman will be speaking at the FICPA Annual Accounting Show on Thursday, September 18, 2014 on the topic of ESSENTIAL GUIDE TO BASIC TRUST PLANNING for 50 minutes.

This presentation will introduce basic and intermediate trust planning background and provide attendees with an orderly list of the most commonly used trusts, practical features and traps for the unwary, including revocable, irrevocable and hybrid.  The discussion will include tax, creditor protection and probate and guardian considerations.

Date: Wednesday, September 17 through Friday, September 19, 2014

Location:  Fort Lauderdale, Florida

Additional Information:  For more information about this program please contact Stephanie Thomas at ThomasS@ficpa.org

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LIVE CLEARWATER PRESENTATION:

Board Certified Tax Attorney Michael O’Leary from the Trenam Kemker firm in Tampa, Florida will be speaking at the Ruth Eckerd Hall Planned Giving Advisory Council event on Tuesday, September 23, 2014 at 5:00 p.m.

O'Leary

Mr. O’Leary’s topic is HOT TOPICS IN CHARITABLE PLANNING AND MORE

Date: Tuesday, September 23, 2014 | 5:00 p.m.

This presentation is free to members of the Ruth Eckerd Hall Planned Giving Advisory Council, Ruth Eckerd Hall members, and professionals who are attending a Ruth Eckerd Hall Planned Giving Advisory Council event for the first time.

Additional Information: You can contact Suzanne Ruley at sruley@rutheckerdhall.net or via phone at 727-791-7400, David Abelson at david.abelson@morganstanley.com or via phone at 727-773-4626, Alan S. Gassman at agassman@gassmanpa.com or via phone at 727-442-1200 or the Kentucky Fried Chicken located at 1960 Gulf to Bay Blvd, which is close in proximity to this location and available to provide you with crisp, spicy or even crispier chicken, mashed potatoes and gravy, rolls, and slaw!  Bring your 32 oz. Kentucky Fried Chicken drink container to the presentation and we will fill it with your choice of club soda or seltzer water, but no sharing permitted.

********************************************

LIVE NEW JERSEY PRESENTATION – WHAT NEW JERSEY LAWYERS NEED TO KNOW ABOUT FLORIDA LAW TO REPRESENT SNOWBIRDS AND FLORIDA BASED BUSINESSES:

NEW JERSEY INSTITUTE FOR CONTINUING LEGAL EDUCATION (ICLE)_SPECIAL 3 HOUR SESSION

New Jersey song trivia:  What song includes the words “Counting the cars on the New Jersey Turnpike, they’ve all gone to look for America”?  What year was it recorded and who wrote it?

Alan S. Gassman will be the sole speaker for this informative 3 hour program entitled WHAT NEW JERSEY LAWYERS NEED TO KNOW ABOUT FLORIDA LAW

Here is some of what the New Jersey Bar Invitation for this program provides:

New Jersey residents have always had a strong connection to Florida.  We vacation there (it=s our second shore), own Florida property (or have favored relatives that do) and have family and friends living there.  Sometimes our wealthiest clients move to Florida and need guidance, and you need background in order to continue representation.

There are real and significant differences between the two states that every lawyer should be cognizant of.  For example, holographic wills are perfectly legitimate in New Jersey and anyone can serve as an executor of an estate, which is not the case in Florida.  Also, Florida=s new rules regarding LLCs are different, and if you are handling estates of New Jersey decedents who owned Florida property, there are Florida law issues that must be addressed.  Asset protection differs significantly in Florida too.

Gain the knowledge you need to assist your clients with Florida matters including:

  • Florida specific laws involving businesses, trusts, and estates
  • Florida tax planning
  • Elective share and homestead rules
  • Liability Insulation and Planning
  • Creditor Protection and Strategies
  • Medical Practice Laws
  • Staying within Florida Bar Guidelines that allow representation of Florida clients

Comments from past attendees of this program:

  • Excellent seminar and materials!!!
  • This was one of the best ICLE seminars yet!
  • One of the best seminars I have attended.
  • Better than mashed potatoes and gravy.  Glad he didn’t serve grits!

Date: Saturday, October 4, 2014

Location:  TBD

Additional Information: This is a repeat of the same program that we gave last year, but our book is now updated for the new Florida LLC law and changes in estate and trust law.  Please tell all of your friends, neighbors, and enemies in New Jersey to come out to support this important presentation for the New Jersey Bar Association.  We will include discussions of airboats, how to get an alligator off of your driveway, how to peel a navel orange and what collard greens and grits are. For additional information, please email agassman@gassmanpa.com

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LIVE PASCO COUNTY COCKTAIL HOUR AND PRESENTATION:

Alan S. Gassman and Christopher J. Denicolo will be speaking at the Pasco-Hernando State College’s Planned Giving Consortium Luncheon on Planning for Inherited IRA’s in View of the Recent Supreme Court Case – and Demystifing the “Stretch in Trust” Ira and Pension Rules

Date: Thursday, October 23, 2014 | 4:30 p.m.

Location:  Spartan Manor, 6121 Massachusetts Avenue, Port Richey, Florida

Additional Information:  For more information, please contact Maria Hixon at hixonm@phsc.edu

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LIVE UNIVERSITY OF NOTRE DAME PRESENTATION:

40th ANNUAL NOTRE DAME TAX & ESTATE PLANNING INSTITUTE

Please send us your questions, comments and suggestions for Alan Gassman’s talk on Planning with Variable Annuities and Analyzing Reverse Mortgages. 

This presentation will cover the unique income tax and financial planning characteristics of fixed and variable annuities.

Topic #2: THE MATHEMATICS OF ESTATE AND ESTATE TAX PLANNING

Christopher J. Denicolo, Kenneth J. Crotty and Alan S. Gassman will also be presenting a special Wednesday late p.m. two hour dive into math concepts that are used or sometimes missed by estate and estate tax planners.  This will be an A to Z review of important concepts, intended for estate planners of all levels, sizes and ages.  Donald Duck has rated this program A+.

Date:November 13 and 14, 2014

Location: Century Center, South Bend, Indiana

We welcome questions, comments and suggestions on variable annuities, which will be Alan Gassman’s topic for this conference.

Additional Information: The focus of this year’s institute will be on “Business Succession Planning: An Income Tax, Estate Tax and Financial Analysis.”  As in past years, several sessions are designed to evaluate certain financial products and tax planning techniques so that the audience can better understand and evaluate these proposals in determining not only the tax and financial advantages they offer, but also evaluate limitations and problems they may cause in the future.  Given that fewer clients will need high-end estate tax planning with the $5 million exemptions, other sessions will address concerns that all clients have.  For example, a session will describe scams that target elderly individuals and how to protect the elderly from these scams.  As part of the objective on refreshing or introducing the audience to areas that can expand their practice, other sessions will review the income tax consequences of debt cancellation, foreclosures, short sales, the special concerns that arise in bankruptcy and various planning available to eliminate the cancellation of debt income or at least defer it with a possible step-up basis at death.  The Institute will also continue to have sessions devoted to income tax planning techniques that clients can use immediately instead of waiting to save estate taxes far in the future.

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LIVE NAPLES PRESENTATION:

2nd ANNUAL AVE MARIA SCHOOL OF LAW ESTATE PLANNING CONFERENCE

Date:  Friday, May 1, 2015

Location:  Ave Maria School of Law, 1025 Commons Circle, Naples, Florida

Additional Information:  Jerry Hesch and Alan Gassman will present The Mathematics of Estate Planning.  If you liked Donald Duck in Mathematics Land, you will love The Mathematics of Estate Planning.  This will not be a Mickey Mouse presentation.

Other speakers include Jonathan Gopman, Bill Snyder, Elizabeth Morgan, Greg Holtz, and others.

Please let us know any questions, comments, or suggestions you might have for this amazing conference, which features dual session selection opportunities in one of the most beautiful conference facilities that we have ever seen.

And don’t forget to have a great weekend in Naples with your significant other or anyone who your significant other doesn’t know!  Domino’s Pizza is extra. 

NOTABLE SEMINARS BY OTHERS

(WE WERE NOT INVITED, BUT WILL ATTEND AND ARE STILL EXCITED)

LIVE ORLANDO PRESENTATION

49th ANNUAL HECKERLING INSTITUTE ON ESTATE PLANNING

Date: January 12 – 16, 2015

Location: Orlando World Center Marriott 8701 World Center Drive, Orlando, Florida

Additional Information: For more information please visit: https://www.law.miami.edu/heckerling/?op=0

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LIVE ST. PETERSBURG PRESENTATION:

ALL CHILDREN’S HOSPITAL FOUNDATION

Date: Thursday, February 12, 2015

Location: St. Petersburg, FL

Additional Information: Please contact Lydia Bennett Bailey at Lydia.Bailey@allkids.org for more information.

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LIVE PRESENTATION:

2015 FLORIDA TAX INSTITUTE

Date: Wednesday through Friday, April 22 – 24, 2015

Location: TBD

Additional Information: Please contact Bruce Bokor at  bruceb@jpfirm.com for more information.

Applicable Federal Rates

Below we have this month, last month’s, and the preceding month’s Applicable Federal Rates, because for a sale you can use the lowest of the 3.federal rates

The Thursday Report 6.26.2014 – Monkees Trivia Edition

Posted on: June 26th, 2014

Singh Meets - USE

blattmachr gans with title - USE

“Effective immediately, the so-called ‘Covered Opinion’ rules for written advice relating to any Federal tax issues that have been contained in section 10.35 of Circular 230 essentially have been repealed.  All requirements for written advice relating to a Federal tax matter will now be contained in section 10.37.   It is important, nonetheless, to remember and be aware of the many other provisions in the Circular that practitioners must adhere to, in order to avoid discipline which may include disbarment from practice before the IRS, in giving advice, whether written or oral, about Federal tax matters.”  

Mitchell M. Gans is the Rivkin Radler Distinguished Professor of Law at the Hofstra University School of Law and an Adjunct Professor of Law at the New York University School of Law in its Masters in Tax program

Jonathan G. Blattmachr is the Director of Estate Planning for the Alaska Trust Company, a principal of Pioneer Wealth Partners, LLC, and co-developer, with Michael L. Graham, Esq., of Dallas, Texas, of Wealth Transfer Planning, a computer system produced by Interactive Legal that provides artificial intelligence advice and automated document assembly systems for practitioners.    Mitchell and Jonathan are prolific writers, lecturers and commentators, and are the authors of The Circular 230 Deskbook (PLI).

We are pleased that Jonathan Blattmachr will be presenting a free two-topic webinar moderated by Alan Gassman on Tuesday, August 12, 2014 at 12:00 p.m.  The topics that they will be discussing are as follows:

  • Foreign vs. Domestic Asset Protection Trusts; More Than Just Creditor Protection Considerations; and
  • Empowering Your Powers of Appointment: Don’t Leave Out Important Tax and Practical Provisions or Ignore Important Considerations.  With Sample Provisions.

To register for the webinar please click here.

We thank Steve Leimberg of Leimberg Information Services for allowing us to reprint this amazing article, and of course Mitchell Gans and Jonathan Blattmachr, not only for this article but also for all they have done for our industry and clients.

Here is their commentary:

EXECUTIVE SUMMARY: 

Effective immediately, the so-called “Covered Opinion” rules for written advice relating to any Federal tax issues that have been contained in section 10.35 of Circular 230 essentially have been repealed.  All requirements for written advice relating to a Federal tax matter will now be contained in section 10.37.   It is important, nonetheless, to remember and be aware of the many other provisions in the Circular that practitioners must adhere to, in order to avoid discipline which may include disbarment from practice before the IRS, in giving advice, whether written or oral, about Federal tax matters.   Among other things, the Circular 230 disclaimer attached to nearly every email sent out by tax practitioners can now be eliminated.  Indeed, Karen Hawkins, Esq., head of the Office of Professional Responsibility for the IRS has stated that practitioner should eliminate any “warning” that the disclaimer is required by Treasury regulations.

COMMENT:

Background

Under the recent amendments to Circular 230, the rules in section 10.35 that had imposed a heightened standard for Covered Opinions have been eliminated.  See T.D. 9668.  As the preamble (or explanation accompanying the new provisions) contemplates, as a result of the amendment, there will no longer be any practical need for the Circular 230 disclaimers that had become so ubiquitous in emails and other correspondence in the aftermath of the promulgation of the Covered Opinion rules.  Indeed, one can infer from the preamble that the extensive use of such disclaimers was at least partially responsible for the decision to delete these rules.   The decision was also driven by a concern about the burden on taxpayers, resulting of course in extra cost for tax advice where the Covered Opinion rules were implicated – or even, as the preamble indicates, where they were possibly implicated inasmuch as the practitioner would be required in such circumstances to engage in an analysis of section 10.35 of the Circular to determine if it applied.

More Detail

This is not to say, however, that the rules applicable to tax advice have been entirely eliminated.  To the contrary, section 10.37, which previously had imposed rules in the case of written tax advice, will continue to apply to all written advice concerning a federal tax matter.[i] And while the rules under section 10.37 are not as rigorous as the now-withdrawn Covered Opinion rules in section 10.35, they are more rigorous under the amendment than they had previously been.  Thus, the prior two-tier system – under which certain written advice was subject to the more rigorous Covered Opinion rules in section 10.35 while other written advice was subject to the less rigorous rules in section 10.37  – has now been replaced by a uniform system of rules contained in section 10.37.

Written vs. Oral Advice

It is worth emphasizing that, as indicated, section 10.37 applies only to written advice.  As a consequence, in the case of oral advice, the section does not apply.  Practitioners who give oral advice will nonetheless remain subject to other constraints.  For example, oral advice about a position to be taken on a tax return remains subject to the section 10.34 and to the penalty provision in section 6694 of the Internal Revenue Code.

Under section 10.37(a)(1), government submissions on matters of policy of a general nature do not constitute written advice on a federal tax matter and, therefore, are not subject to the section.  The preamble offers an example of a practitioner who submits written comments on a proposed regulation on behalf of a client.  Such comments, according to the preamble, are not subject to the section.  Nor are presentations made in a continuing education context subject to the section.[ii]  Such presentations are, however, subject to the section if they involve the marketing or promoting of transactions.

Basic Written Advice Requirements

Under section 10.37, as amended, the following principles apply where written advice concerning a federal tax matter is given: (1) the advice must be based on reasonable factual and legal assumptions (including assumptions about future events); (2) the practitioner must consider all relevant facts that the practitioner knows or reasonably should know; (3) the practitioner must use all reasonable efforts to identify and ascertain facts relevant to the advice; (4) the practitioner may rely on others but only if doing so is reasonable; and (5) the practitioner must not take into account the possibility that the return will not be audited or that the issue would not be raised on audit.

In a significant departure from the rules under the Covered Opinion rules in section 10.35, there is no requirement in section 10.37 that the practitioner describe the relevant facts in the written advice.  Nor is there any requirement that the practitioner analyze the application of the law to the facts in the written advice, which had also been required under section 10.35.  Likewise, there is no requirement in section 10.37 that the conclusion concerning the application of the law to the facts be set forth in the written advice.  The preamble explicitly states that, unlike former section 10.35, any analysis as to whether the practitioner has complied with section 10.37 will be based on all of the facts and circumstances, not on whether each of the required components is addressed in the writing.

As indicated, a practitioner may not, consistent with section 10.37, make unreasonable factual or legal assumptions.  The preamble, as well as the text of the section itself, makes clear that a practitioner who fails to consider the relevant legal authorities or fails to relate that law to the facts makes unreasonable legal or factual assumptions.   Therefore, while the failure to include in the written advice the relevant legal authorities or an analysis that applies the law to the facts is not necessarily problematic, a practitioner who fails to consider the relevant authorities or who fails to apply the law to the facts will be in violation of section 10.37.

While, as indicated, a practitioner who fails to include any particular piece of information or analysis in the written advice does not necessarily violate section 10.37, the preamble encourages practitioners, “in appropriate circumstances,” to describe in the writing the relevant facts, law, analysis and assumptions.  The preamble explicitly states that, in determining whether a practitioner has complied with section 10.37, it will be appropriate to consider all of the facts and circumstances, including whether it was appropriate to describe in the writing all relevant facts, law, analysis and assumptions.  In so cautioning practitioners, the preamble may have the, perhaps, unintended effect of encouraging practitioners to err in favor of including in written advice all facts, law, analysis and assumptions.  To the extent that this is the effect, the new rules may fail to accomplish one of their objectives: reducing the cost taxpayers incur in securing tax advice.  It is, of course, also possible that the effect will be an increase in the use of oral advice, which would of course enable the practitioner to avoid the requirements of the section entirely.

Audit Lottery Considerations

Although a practitioner may not in analyzing the substantive issue take into account the possibility of an audit or the likelihood that the issue would be raised on audit – a prohibition was also contained in the pre-amendment version of the section – this does not prevent the practitioner from taking into account or from informing the client about the possibility and/or likelihood that the issue could be settled if raised by the IRS.  As the preamble indicates, the provision in the pre-amended version of the section prohibiting the discussion or consideration of the settlement issue could improperly interfere with practitioner’s obligation to keep the client properly informed.[iii] As a result, the settlement-related prohibition is not carried over into the section as amended.

One commentator had suggested that the section be amended to indicate that taking into account audit-related issues is impermissible not only in the case of written advice but also in the case of oral advice.  The preamble explains that it would not have been appropriate to include such a prohibition in section 10.37 given that it is not otherwise applicable in the case of oral advice.  Nonetheless, the preamble does state that audit-lottery issues may not be taken into account in the oral-advice context under existing authority.[iv]

Under the proposed amendment to section 10.37, practitioners would have been subject to a heightened standard of review in determining whether they complied with the section where the advice would be used in a marketing context involving a significant purpose to avoid or evade tax.  This, of course, might have had the effect of bringing into section 10.37 through “the back door” the more rigorous Covered Opinion approach, at least in that context.  In response to comments that the heightened-standard approach was too vague, the preamble indicates that, as provided in section 10.37(c)(2), a “reasonable practitioner” standard will be used in determining if the advice is in compliance.  And where the advice involves the marketing of such a significant-purpose transaction, an emphasis will be given to the additional risk involved as a result of the practitioner’s limited knowledge of the taxpayer’s particular circumstances.[v]

Reliance on Advice from Others

Tax practitioners often rely on the advice of other professionals in formulating their own advice.  In section 10.37(b), the rules concerning such reliance are set forth.  The rules apply, as the preamble indicates, even where the practitioner relies on an appraiser or someone who is not subject to the Circular.  The rules contain three elements.[vi] First, if the practitioner knows or reasonably should know that the opinion of the other professional should not be relied on, the practitioner is precluded from relying on the opinion.  Second, reliance is not appropriate if the practitioner knows or should reasonably know that the other professional is not competent.  The preamble suggests that, if the practitioner is not familiar with the other professional’s background, the practitioner will have an affirmative obligation to inquire about the other professional’s competence.   Third, reliance is again not appropriate if the practitioner knows or reasonably should know that the other professional has a conflict of interest under the provisions of the Circular.  As the preamble makes clear, however, despite the conflict, reliance can be appropriate if it was waived through informed consent.

Reasonable Practitioner Standard

In section 10.37(c), the standard for reviewing compliance with the section is set forth.  Under the provision, a “reasonable practitioner” standard is to be applied.  In applying this standard, all of the facts and circumstances are to be considered, including the scope of the engagement and the type and specificity of the advice sought.  Does this suggest that, where the scope of the engagement or the nature of the advice is limited, a practitioner may more easily establish compliance with the section?  Or, conversely, does it suggest a more rigorous application of the section will be required in such a case?  Other than to indicate that the scope of the engagement and the nature of the advice are relevant, the provision does not clarify how the limited nature of the advice/engagement will impact on the analysis.

Amended Section 10.35

Section 10.35 has been, to a very large extent, gutted, with the elaborate Covered Opinion rules replaced by a general standard of competence.  Under this standard, a practitioner is required to possess the necessary level of competence before undertaking an assignment within the scope of the Circular.  For example, if a client wants to engage a practitioner to prepare written advice concerning a federal tax matter, the matter would fall within the scope of section 10.37 of the Circular and the practitioner would violate section 10.35 if he or she accepted the engagement and did not have the requisite competence.  On the other hand, section 10.35 would have no application if the subject of the engagement were not within the scope of the Circular.

Competence

Competence is defined in section 10.35 as “the appropriate level of knowledge, skill, thoroughness, and preparation necessary for the matter for which the practitioner is engaged.”  The preamble acknowledges that preparation is a function of experience.  Hence, with a practitioner who has more experience concerning the issue, less preparation for the engagement may be required in order to satisfy the competence standard.

The section indicates that a practitioner who lacks the necessary competence may nonetheless acquire it and therefore be able to accept the engagement either by relying on other experts or through study of the law.   According to the preamble, whether such consultation and/or research is sufficient to permit a practitioner who otherwise lacks competence to accept the engagement will depend on the particular facts and circumstances.

Finally, although some had requested that examples be included that would clarify the competence standard, the preamble rejects this approach.  It instead makes reference to legal and accounting ethics as sources from which the competency standard can acquire more content.[vii]

Other Changes

The Circular has been amended in several other ways, all of which will be covered in our Circular 230 book.  However, it is worth mentioning here the requirements for practitioners to establish procedures to ensure compliance with former section 10.35. Because the new regulations remove former section 10.35, these regulations also remove former section 10.36(a).  As set forth in the notice of proposed rulemaking preceding these final regulations, Treasury and the IRS, however, amended Section 10.36 to ensure compliance with Circular 230 generally.

[i] Section 10.37(d) defines federal tax matter broadly to include any matter concerning the interpretation or application of: a revenue provision as defined section 6110(i)(1)(B) of the Internal Revenue Code; any provision of the Code or regulations affecting a person’s obligations or liability; any other law or regulation administered by the IRS.  This definition replaces the definition that had been contained in section 10.35, which has been deleted, and, as indicated in the preamble, is broader than the now-deleted definition.

[ii] The preamble indicates that practitioners who provide continuing-education presentations, while not subject to section 10.37, will remain subject to the general competence and due diligence standards in sections 10.22 and 10.35.

[iii] Although the preamble does not acknowledge the First Amendment implications, the settlement-related prohibition under the pre-amended version of the section did have the potential to create an impediment to appropriate communication between practitioner and client that could have been unconstitutional.  The First Amendment implications might be different in the context of the audit-lottery prohibition that remains in the section.  See Milavetz, Gallop & Milavetz, P.A. v. U.S., __ U.S. __, 130 S.Ct. 1324 (2012) (applying a regulation concerning legal advice, although the Court explicitly indicated that the First Amendment issue was not before it).

[iv] While the preamble does not cite authority for this proposition, it would seem impermissible under section 6694 of the Code to take the audit lottery into account in formulating oral advice.  For to the extent that section 6694 (imposing penalties on certain return preparers) requires substantial authority in order to avoid the penalty it imposes, it implicitly relies on the definition of substantial authority in Treas. Reg. §1.6662-4(d)(2)), which makes audit lottery issues irrelevant.  See also section 10.34, which incorporates section 6694 principles; and further see ABA Opinion 314 (making it unethical to take the audit lottery into account).

[v] See section 10.37(c)(2).

[vi] As the preamble indicates, the rules are designed to be consistent with the provisions in section 10.22 and 10.34(d).

[vii] The preamble makes reference to Rule 1.1 of the ABA Model Rules, State Bar opinions and the AICPA competency standard – though, as the preamble indicates, these other sources are not binding on the Treasury or the IRS. While acknowledging that the standard in section 10.35 is nearly identical to the standard in the Model Rules, the preamble points out that the standard in section 10.35 will apply to all practitioners subject to the Circular, not just attorneys.

Seminar Announcement

The speakers and topics for the 40th annual Notre Dame Tax & Estate Planning Institute have been announced and are as follows:

The focus of this year’s institute will be on “Business Succession Planning: An Income Tax, Estate Tax and Financial Analysis.”

As in past years, several sessions are designed to evaluate certain financial products and tax planning techniques so that the audience can better understand and evaluate these proposals in determining not only the tax and financial advantages they offer, but also evaluate limitations and problems they may cause in the future.  Given that fewer clients will need high-end estate tax planning with the $5 million exemptions, other sessions will address concerns that all clients have.  For example, a session will describe scams that target elderly individuals and how to protect the elderly from these scams.  As part of the objective on refreshing or introducing the audience to areas that can expand their practice, other sessions will review the income tax consequences of debt cancellation, foreclosures, short sales, the special concerns that arise in bankruptcy and various planning available to eliminate the cancellation of debt income or at least defer it with a possible step-up basis at death.

The Institute will also continue to have sessions devoted to income tax planning techniques that clients can use immediately instead of waiting to save estate taxes far in the future.

The line-up of speakers is as follows:

SPEAKER TOPIC
Bart, Susan Saving for Education: Creating Educational Dynasty Trust Using 529 Plans.
Kahn, Prof. Doug What Every Estate Planner Needs to Know About Cancellation of Indebtedness, Loan Modifications, Foreclosures and Converting Debt into Equity.
Kahn, Prof. Jeff What Every Estate Planner Needs to Know About Cancellation of Indebtedness, Loan Modifications, Foreclosures and Converting Debt into Equity.
Blattmachr, Jonathan The IRS’s Recent Attacks on Private Annuities, SCINs and Installment Sales to Grantor Trust.  How to Properly Structure These Techniques.
Jansen, Don Evaluating the Different Forms of Life Insurance Policies and Complexities in How They are Valued.
Tritt, Prof. Lee Ford Benefit of the Beneficiary: How Trustees Must Serve Their Beneficiaries.
Davis, Mickey Evaluating Portability, Portability Mistakes and the ATRA Math Impact.
Williams, Melissa Evaluating Portability, Portability Mistakes and the ATRA Math Impact.
Peebles, Laura “Blinking Trusts” When Grantor Trusts Become Complex Trusts or Complex Trusts Become Grantor Trusts: An Income Tax Conundrum.
Bloom, Prof. Ira Powers of Appointment Under The New Uniform Powers of Appointment Act: Planning and Drafting Considerations.
Lavelle, Chaz Evaluating Captive Insurance Proposals: Business Uses, Pressure Points and IRS Hot Spots.
Lapiana, Prof. William Drafting for Flexibility, Especially if Estate Taxes are No Longer a Concern.
Schlessinger, Sandy Maximizing the Chances Your Donor’s Charitable Intentions are Followed: Creating Charitable Legacies that are Workable, Sustainable and Sensible.
Berry, Turney Maximizing the Chances Your Donor’s Charitable Intentions are Followed: Creating Charitable Legacies that are Workable, Sustainable and Sensible.
Pennell, Prof. Jeff Current Developments.
Lee, Paul Obtaining Basis Step-Up at Death: Part 2 Using Illustrative Examples.
Berry, Turney Obtaining Basis Step-Up at Death: Part 2 Using Illustrative Examples.
Verdon, Jeff Asset Protection Due Diligence: What Lawyers Do to Protect Themselves.
Herzig, David Evaluating Mistakes and Risks with Commonly Used Planning Techniques: Part 2
Handler, David Evaluating Mistakes and Risks with Commonly Used Planning Techniques: Part 2
Harrington, Carol Automatic Allocation of the GST Exemption and Other Tax Traps for Trusts.
(Unavailable) Automatic Allocation of the GST Exemption and Other Tax Traps for Trusts.
Choate, Natalie NIIT Picking: Trusts, Retirement Benefits and the 3.6% Surcharge.
Lee, Henry Reinvent Yourselves and Staying “Linked” to Younger Clients Using Social Media.
Gassman, Alan Evaluating Commercial Annuities and Reverse Mortgages.
Zeydel, Diana Changing the Unchangeable?  Modifying Irrevocable Trusts by Revising, Decanting, Moving to New Jurisdictions or Early Termination.
Seal, Catherine Scams that Target the Elderly; Recognizing Ponzi Schemes and Preventing Them; Exploitation of Services by Family Members; How Predators Target Homes of Seniors.
Kirtland, Michael Scams that Target the Elderly; Recognizing Ponzi Schemes and Preventing Them; Exploitation of Services by Family Members; How Predators Target Homes of Seniors.
Fisher, Howard The New Circular 230 Guidelines; Ethical Guidelines and How to Minimize Potential Professional Liability.
Harwood, Richard Planning for Art as Unique Assets, Working with Dealers and Auction Houses.
Burda, Joan Reproductive Rights of Parents; Genetic Material and Inheritance Rights for Posthumously Conceived Children.
Teitel, Conrad Choosing Wisely Among Charitable Life Income Plans.
Kirk, David The 3.8% Surcharge: Part 2
Keebler, Bob The Final Regulations on the Section 67 2% Phase-Out for Trusts and Estates; Using Trusts and Estates for Assignment of Income and Income Tax Deferral.
Albright, Christine Looking Over the Past 30 Years: Trends That are Changing.
Kamin, Kim What It Means to be a Fiduciary: Directed Trusts, Duties of Loyalty, Surviving Spouse as a Fiduciary, The Evolving Landscape.
McBryde, Neill The Ascendancy of Income Tax Planning: Income Tax Planning Using Estate Planning Techniques.
(Wednesday Session) ESOPs: A Primer and the Burdens Put on Employees in Funding the Buyout.

Tea for Two

WHY MANY SAME GENDER COUPLES LIVING IN NONRECOGNITION STATES SHOULD TITLE THEIR ASSETS AS TENANTS BY THE ENTIRETIES?

 “With tea for two and two for tea

Just me for you and you for me alone

Read below and you will see”

Alan S. Gassman is also the co-author of two recent Haddon Hall Publishing books on planning for same gender couples.

The professional guide is entitled The Florida Advisor’s Guide to Counseling Same Sex Couples and the layman version is entitled The Florida Legal Guide for Same Sex Couples.

If you would like to purchase a copy of the professional version please click here for the paperback and here for the kindle version.

If you would like to purchase a copy of the layman version please click here  for the paperback and here for the kindle version.

To receive a 20% discount off the cost of the book please use the top secret code: K2UQPYWT.

On and well before July 4, 1776, the law of England, and thus each of the original thirteen (13) and many subsequently admitted US states provided that husbands and wives could own their assets jointly as tenants by the entireties, and as a result neither spouse alone nor any creditor would be able to break the tenancy or have a claim against such joint assets.

Today exactly one-half (2) of the states recognize tenancy by the entireties as a form of ownership between married couples, and fourteen (14) of these states prohibit creditors of one spouse from having access to the tenancy by the entireties assets.  Some of the other tenancy by the entireties states offer varying degrees of creditor protection.

The law of England did not recognize same sex marriages until this was legislated in the United Kingdom effective March 13, 2014.  As of submission of this article to the publisher, 13 of the states that recognize tenancy by the entireties, and 7 of the states that provide Apure protection@ for tenancy by the entireties have recognized same sex marriage, as set forth in the chart that follows this article.

What should same gender couples who reside in states that recognize tenancy by the entireties but not same sex marriage (Florida, Mississippi, Missouri, North Carolina, Virginia and Wyoming) do?

In the vast majority of situations, we believe that the best strategy for same gender couples, who would otherwise own their assets jointly with right of survivorship, will be to attempt to establish tenancy by the entireties status while having back-up structures and mechanisms, as they may choose. This is to protect the couple in case the tenancy by the entireties is not recognized.

For example, Brittany and Angela are a Florida couple who have shared their assets for a number of years.  They were recently married in Delaware in a legitimate ceremony, but Florida does not recognize their marriage.  Angela is an obstetrician, and has a high risk of being sued by patients.  Brittany works part-time as a podiatrist, and also drives the children to school, soccer, and other events.  She was in an accident recently and one of her friend=s children was injured.  The other driver received a ticket, and she does not expect to get sued, but unfortunately the damages could exceed the limits of her liability insurance policy.  You explain that it could be three (3) years or longer before the United States Supreme Court finally decides whether all states must recognize same sex marriages that are consecrated in a state that recognizes them, and that until then it will be unclear in Florida and many other states as to whether a same sex married couples= joint assets can be considered as held as tenants by the entireties.

Most of their assets have been owned under a limited liability company owned five percent (5%) by Angela and ninety-five percent (95%) by Brittany.  They ask about placing the ownership of the limited liability company into tenancy by the entireties so that if Brittany was in a car accident they would not lose or have a charging order against ninety-five percent (95%) of their LLC.

A large portion of their assets have been held in a limited liability company owned ninety percent (90%) by a revocable trust owned by Brittany and ten percent (10%) in a revocable trust owned by Angela.  In years past they have entered into a Marital Property Clone Agreement which provides that their assets would be equally divided in the event that either of them files a court petition to separate their assets.

You explain that if the attempted tenancy by the entireties is not recognized, the creditors can make claim to the one-half (2) ownership held by the debtor spouse, but that mechanisms can be put into place to provide a degree of protection if tenancy by the entireties will not be recognized.[1]  You also explain that since they are now married, Angela could transfer enough ownership of the LLC to Brittany so that they will be equal owners, and no gift tax return would need to be filed.  They could then transfer the ownership of the LLC to themselves as tenants by the entireties, which may or may not be recognized, as discussed below.

Each state has had a different evolution or legislative history that causes the formation and recognition of tenancy by the entireties to be different in each state. However, it is a common requirement that joint assets that are held with right of survivorship will not be considered as tenancy by the entireties assets unless and until there is a conveyance by the spouses, through a straw man, from themselves as joint tenants, to themselves as tenants by the entireties, by deed, bill of sale, establishing new accounts, cancellation and re-issuance of stock certificate, or whatever else is needed to satisfy the legal requirements that apply in that state.

For example, in Florida real estate owned before a marriage with right of survivorship as well as bank accounts and stock certificates will not be considered as tenancy by the entireties property until the couple reconveys the real estate or stock certificate from themselves as joint owners to themselves as tenants by the entireties. In the case of bank or brokerage accounts they must open new tenancy by the entireties accounts and transfer or ledger the jointly held money or assets over into tenancy by the entireties.

You also explain that bank and brokerage accounts that are held in a financial institution that exists only in a state that does not recognize tenancy by the entireties may not be considered a tenancy by the entireties asset, even if the titling is otherwise correct.

From the above discussion it seems clear that any same gender couple that wishes to own assets jointly with right of survivorship in a state that recognizes creditor protection for tenancy by the entireties assets will be well advised to re-title the assets as tenants by the entireties in order to have a degree of creditor protection that may not otherwise apply.

Nevertheless, clients need to understand that it may be many years before our courts, legislatures, and case law provide exact guidance and predictability as to the degree of protection that tenancy by the entireties will receive.

This is why many Floridians establish Florida LLCs that in turn own assets that may be situated outside of Florida to assure that the ultimate ownership qualifies as tenants by the entireties.

You also explain that under Florida law (and the laws of most other states) if a married couple owns an LLC jointly but not as tenants by the entireties, and a creditor receives a judgment against only one spouse, the creditor cannot reach into the limited liability company or take over one-half (2) ownership, but instead only receives a charging order that gives it the right to monitor the LLC and to receive one-half (2) of any LLC distributions.  Such a creditor has no right to require that the LLC make distributions, so typically charging order positions are bought off by debtors for a small percentage of the underlying value that the charging order attaches to.

Brittany and Angela might also consider establishing a Delaware tenancy by the entireties trust.  By legislation passed in 2010, Delaware law provides that assets held by a Delaware Trustee under a bona fide Delaware tenants by the entireties trust will be considered as tenancy by the entireties assets, notwithstanding the residency or other potential circumstances of the married couple.

It is unknown whether a Florida court will apply Delaware law if Florida does not recognize tenancy by the entireties for same gender marriages. Regardless, the Delaware creditor  protection trust statute may apply to provide protection from creditors of the couple. This is assuming that the full faith and credit clause of the Constitution does not require Delaware to follow a court decision in Florida that may deny applying Delaware law to a case involving a Florida LLC that has assets originating from Florida but is owned by a Delaware tenancy by the entireties trust. A decision that may indicate how a court would view this would be the 2013 case of In re Huber which has been widely discussed. In that case, a federal judge from the Western District of Washington found jurisdiction over an Alaska trust having an Alaska trustee, where the Grantor lived in Washington state and funded the trust under circumstances found to have been a fraudulent transfer (for the purpose of avoiding creditors) and the trust in Alaska held only a $10,000 account and ownership of an LLC that in turn owned Washington real estate.

It is worth noting that Tennessee has an asset protection and TBE trust statute that many commentators believe is stronger and more thoroughly drafted than Delaware=s statute.  This new Tennessee statute was legislated to go into effect on July 1, 2014.

It is also worthwhile to note that tenancy by the entireties protection also applies under the Federal Bankruptcy Code, and based on the statement issued in February 2014 by Attorney General Eric Holder same gender married couples residing in states that do not recognize their marriage may nevertheless file as married in bankruptcy under the Federal Bankruptcy Code.  Presumably, this means that if a married individual has creditors who does not have a claim against his or her same gender spouse and resides in a state that does not recognize tenancy by the entireties, the Bankruptcy Court in the state where he resides will provide protection of tenancy by the entireties. This should be true regardless of whether the law in that state provides creditor protection or recognition for same sex couples.

It would therefore seem that the protection of tenancy by the entireties assets will be more certain for same gender married individuals who file bankruptcy even when they live in a state that does not recognize their marriage or creditor protection for tenancy by the entireties assets.

Notwithstanding the above conversation, you explain that it could be decades before the law in this area is ever clear, and other creditor protection vehicles such as annuities, life insurance, homestead, and asset protection trusts may be employed as and when applicable.

More details on the state of the law and where it may be heading follows:

Will the Supreme Court confirm that tenancy by the entireties (TBE) is a viable option when  a same-gender couple is married in a jurisdiction that allows TBE, and resides in a jurisdiction that allows TBE and creditor protection for TBE?   In half of the states, TBE is utilized as a favorable type of property ownership, but is only available to those who are married.  TBE gives both parties an equal and undivided interest in the property and provides advantages like the right of survivorship and protection from creditors.[2] As the gay rights movement pushes forward, with marriage as the hot topic in the wake of the Supreme Court=s landmark decision in Windsor, other issues like this also remain unanswered.

On April 19th and 20th, Oregon and Pennsylvania became the 18th and 19th states to recognize same-gender marriages, respectively.  These are just the two most recent decisions furthering same-gender marriages since the Windsor decision, issued in June of 2013.  Windsor struck down part of the Defense of Marriage Act (DOMA) and forced the federal government to recognize same-gender marriages.  Using the logic set forth in Windsor many states, including Kentucky, Ohio, Indiana, and Tennessee, have held that bans on same-gender marriages are completely unconstitutional.  No federal court has held that such bans are constitutional.

With the same-gender marriage landscape shifting so quickly, many estate planners representing same-gender couples who are married in a Arecognition state@ are left to ponder whether traditionally recognized marital rights will also be given to same-gender couples.  Equal Protection is the constitutional guarantee that no person or class is denied the same protection of the laws that is enjoyed by other classes.  Under this definition of Equal Protection, one would assume the class of same-gender people could not be discriminated against for sexual orientation.  For this reason, it seems like a no-brainer for estate planners to use TBE in states like Delaware, Hawaii, Illinois, Maryland, Massachusetts, New Jersey, New York, Rhode Island, and Vermont, where same-gender marriage and TBE are both recognized.  Things start to get more fuzzy in states where they are only required to recognize legitimate out of state same-gender marriages.

In the recently decided Obergfell v. Kasich, which forced Ohio to recognize legitimate out of state same-gender marriages, U.S. District Judge John G. Heyburn IIsaid that Ohio=s refusal to recognize gay marriage is Aunenforceable in all circumstances.@  Also within the ruling was the acknowledgment that once the government attaches benefits to marriage, it must constitutionally grant equal protection to all.  With TBE undeniably being one of those benefits provided to heterosexual married couples, logically courts would extend that line of reasoning to recognize same-gender TBE as well.  Therefore, in states that recognize legitimate out of state same-gender marriages, couples should title their assets as TBE if state law protects such assets from the creditors of either partner.  States like Ohio are seemingly in a transition to fully allowing same-gender marriages, however, over half the states still do not recognize same-gender marital rights at all.

The states that provide significant creditor protection, but not same-gender marriage recognition, are Florida, Indiana, Michigan, Mississippi, Missouri, North Carolina, Virginia, and Wyoming.  Estate planners representing same-gender couples who reside in these states face the greatest dilemma due to the potential upside of successfully titling assets as a TBE.  These estate planners should strongly consider continuing to push the envelope and title their assets as TBE.  Since the 2013 Windsor decision, courts in these jurisdictions have been far more willing to recognize that laws favoring heterosexual couples are unconstitutional.

The chart below shows the states that recognize tenancy by the entireties, and the degree of creditor protection associated with it, as featured in our recent book The Florida Advisors Guide to Counseling Same Sex Couples and The Florida Legal Guide for Same Sex Couples.

STATE LAW PURE PROTECTION Allows Same Sex Marriage
Alaska Recording a judgment against a judgment debtor, thus creating a judgment lien against property owned by the judgment debtor, does not sever a tenancy by the entireties between the judgment debtor and spouse. Smith v. Kofstad, 206 P.3d 441 (Alaska 2009) No No
Arkansas Real property owned by the husband and wife as tenants by the entireties may be sold under execution to satisfy a judgment against the husband, subject to the wife’s right of survivorship. Morris v. Solesbee, 892 S.W. 2d 281 (1995). No No
Delaware Creditors of a spouse have no interest in realty that is held by the entireties. Johnson v. Smith, 1994 WL 643131 (Del. Ch. 1994) Pure Protection Yes
D.C. Although tenancy by the entireties property is liable for the spouses’ joint debts and for the individual debts of the surviving co-tenant, it is unreachable by the creditors of one tenant.  Morrison v. Potter, 764 A.2d 234 (D.C. 2000). Pure Protection Yes
Florida Property is subject only to the debts of both spouses. In re Matthews, 360 B.R. 732 (Bankr. M.D. Fla. 2007). Pure Protection No
Hawaii An estate by the entireties is not subject to the claims of the spouse’s individual creditors during the joint lives of the spouses. Sawada v. Endo, 561 P.2d 1291 (1977). Pure Protection Yes
Illinois Tenancy by the entireties in real property is available for homestead property only.  Premier Property Management, Inc. v. Jose Chavez, 728 N.E. 2d 476 (2000). No Yes
Indiana Generally, the creditor of one spouse may not seize, sell or attach entireties property. Anuszkiewicz v. Anuszkiewicz 360 N.E. 2d 230, 232 (Ind. App. 1977). Pure Protection No/Yes(law will take effect June 1st)
Kentucky A creditor cannot force a sale of property owned by husband and wife as tenants by the entireties with right of survivorship, but the debtor spouse’s expectant interest can be sold. Coleman American Companies, Inc. v. Leasure, 2008 WL 5191463 (2008). No No
Maryland Because entireties property is owned by the husband and wife as the marital unit, it is not subject to the claims of individual creditors of either spouse. Schlossberg v. Barney, 380 F.3d 174, 178 (4th Cir. 2004). Pure Protection Yes
Massachusetts The property is protected from creditors of the debtor spouse, so long as the nondebtor spouse lives in the house. Coraccio v. Lowell Five Cents Sav. Bank, 612 N.E. 2d 650, 654 (1993).  If the nondebtor spouse no longer occupies the residence, it is subject to the execution for the debts of the other spouse. In re Snyder, 231 B.R. 437, 443 (Bankr. D. Mass. 1999). No Yes
Michigan In re Strausbough, 426 B.R. 243 (Bankr. E.D. Mich. 2010). A tenancy by the entireties form of concurrent ownership is intended to protect the marital estate.  In a tenancy by the entireties, neither husband nor wife may sell or encumber property to a third person without consent of the other spouse.  To the extent of joint debt, entireties property is not protected from claims of the joint creditors. Pure Protection No
Mississippi Mississippi statutory authority states that assets of a debtor do not include “[a]n interest in property held in tenancy by the entireties to the extent it is not subject to process by a creditor holding a claim against only one tenant.” Miss. Code Ann. ‘ 15-3-101(b)(iii) (Supp.2010). Pure Protection No
Missouri Hanebrink v. Tower Grove Bank & Trust Company, 321 S.W. 2d 524, 527 (Mo. App. 1959). Pure Protection No
New Jersey While New Jersey recognizes tenancy by the entireties, creditors of either spouse have the right to reach entireties property, including debtor-spouse’s present interest therein, subject to the right of survivorship; thus, a creditor who does so becomes a tenant in common, in possession with nondebtor-spouse. In re Etoll, 425 B.R. 743 (Bankr. D. N.J. 2010). No Yes
New York A tenancy by the entireties cannot be divided absent consent of both spouses. Prario V. Novo, 645 N.Y.S. 2d 269 (N.Y. 1996) Applies only to real estate. No Yes
North Carolina Where property is held as tenants by the entireties, any judgment against only one of the spouses may not attach to the real property while it remains as a tenancy by the entireties.  Dealer Supply Co. v. Greene, 522 S.E. 2d 350 (N.C. App. 1992). Pure Protection No
Ohio Only recognizes Tenancy by the entireties if established prior to April 4, 1985. No No
Oklahoma Some, but not all, creditors can pursue the obligations of individual spouses in the entireties property. See 60 Okla. Stat. ‘ 74. No No
Oregon The interest of a judgment debtor spouse, as tenant by entireties with nondebtor spouse, may be sold on execution, and the execution purchaser only obtains the debtor spouse’s interest, which ceases to exist should a debtor spouse predecease the nondebtor spouse. Hoyt v. American Traders, Inc., 725 P.2d 336 (1986). No Yes
Pennsylvania Property held as tenancy by the entireties is unavailable to satisfy the claims of the creditor of one of the tenants. Johnson v. Johnson, 908 A.2d 290 (2006). Pure Protection Yes
Rhode Island In Cull v. Vadnais, 406 A.2d 1241 (1979), the court held that a creditor had the right to attach a debtor-spouse’s interest in real property held as tenancy by the entireties. No Yes
Tennessee Where the debtor owns property with a nondebtor spouse in a tenancy by the entireties, only the debtor’s survivorship interest is subject to execution, not the debtor’s present, possessory interest. 16 Tenn. Prac., Debtor-Creditor Law and Practice ‘ 15:33 (2d ed.). No No
Vermont If a tenancy by the entireties is validly created, it is protected from the sole creditors of an individual debtor. RBS Citizens, N.A., v. Ouhrabka, 30 A.3d 1266 (Vt. 2011).  The court noted that the property held by husband and wife, as husband and wife, is protected from either the sole creditors of either the husband or the wife. Anchor Foundations, Inc. v. Ingalls, 191 Vt. 641 (Vt. 2011 Unpublished LEXIS case) Pure Protection Yes
Virginia Property that is held in tenancy by the entireties by spouses is protected from the claims of the debtor’s individual creditors. In re Bradby, 455 B.R. 476 (Bankr. E.D. Va. 2011). Pure Protection No
Wyoming Wyoming law does not allow a judgment creditor to seize property held by a husband and wife as tenants by the entireties to satisfy the individual debts of one of the spouses. Colorado Nat. Bank v. Miles, 711 P.2d 390, 393-94 (Wyo. 1985). Pure Protection No

Advisors representing same-gender couples who reside in tenancy by the entireties states that offer creditor protection attributes should consider advising their clients to title assets and entities between them as tenants by the entireties, and advise on the possible impact of such titling.  The creditor protection aspects may be very important for medical or other professionals who work in areas of high risk or for business people who guarantee debts or have other possible obligations that their same gender spouse would not be responsible for.

Clients that need or wish to have a higher chance of success, if a creditor were to pursue assets, may wish to consider using a Delaware or Tennessee tenancy by the entireties trust.  Both states have legislation which specifically provides that their tenancy by the entireties rules will apply to assets held under a trust that has an active trustee and assets held in that state.  Time will tell whether the Full Faith & Credit Clause of the U.S. Constitution will permit assets held in a trust under one state to be classified pursuant to the characterization laws of that state, but it cannot hurt to try.

______________________________

[1]Many same gender couples choose to own their assets jointly, and normally this will be with right of survivorship between them.  If a creditor gets a judgment against one joint owner, then the one-half (2) ownership interest of that joint owner would normally become accessible to the creditor.

[2]In a state that recognizes creditor protection for tenancy by the entireties assets, a creditor holding a judgment against one spouse is not able to reach the tenancy by the entireties assets.

Singh Meets

Pariksith Singh, M.D. is board certified in Internal Medicine. Dr. Singh received his medical education at Sawai Man Singh Medical College in Rajasthan, India (where he was awarded honors in internal medicine and physiology).  His residency training occurred at All India Institute of Medical Services (New Delhi, India) and Mount Sinai Elmhurst Services, (Elmhurst, New York).  Upon completion of his residency, Dr. Singh relocated to Florida and worked for several years before establishing Access Health Care, LLC in 2001. 

Dr. Singh thanks Alan Gassman for his assistance in reviewing and refining this article.

We have all heard of the 80/20 rule and although it is applied to several disciplines and in several different aspects, the general premise is that there is an unequal relationship between inputs and outputs. Dr. Singh unfolds this ancient theory, known as The Pareto Principle, and provides an analysis as to how it is applied in medical practices and organizations.  Enjoy!

The Pareto principle, discovered by an Italian researcher Vilfredo Pareto in 1897, states that 20% of causes invariably produce 80% of the results. While not mathematically exact, it underlines an important principle in statistics and population medicine, quality improvement and process-corrective action. This principle has several applications in health care, some of which are described below.

1. Risk Population: In the world of managed care and ACO’s, 20% of patients cause nearly 80% of the expenses. This has significant implications in care management of high-risk population. Further study shows that the sickest 5% of a given population can cause the plan or panel to incur 60-70% of the costs. Improving morbidity and mortality for the most vulnerable and sickest members of a given population will therefore result in enormous savings. This does not mean that normal preventive testing and screening and standard primary health care of the population in the bell curve should be eschewed, however, it does show that exceptional focus and attention should be directed at the farthest end of the bell curve of the population. That 5% skews the spread of expenses and makes it uneven.

If one were to graph the disease status of a population against the expense, we would find that a bell curve might well describe the severity of disease as it spreads in the entire population. In the middle two-thirds of the bell curve would be those with minor ailments or with one or two chronic conditions. On the far left would be the extremely healthy with minimal medical issues. On the far right would be patients with more than three chronic conditions which are complex and require intense and collaborative management. If one plots this bell curve against the graph of expenses that spread across the population, one would likely see a flat line or slightly ascendant line up to the first 75-80% of the population. As the line moves towards the right side of the curve, it dramatically goes up until it ends up being almost vertical at the end. It is this far end, the vertical end of the bell curve that we are interested in, in hopes of having a proper handle on Intense Care Management, Disease Management and Daily Utilization Review.

2. Process Improvement: Used in Quality Improvement by Deming and Juran in Japan in the post-World War II world, it was discovered that a focused effort to improve the most deficient areas in operations and processing resulted in dramatic reductions in defects in factories.  Applying these principles, IBM found 80% of the time spent by its computers are on 20% of their functions.  IBM developed the fastest and best computers in the world by concentrating on the improvement of those 20% concentrated functions.

3. Marketing: In a recent book ‘The Tipping Point’, Malcom Gladwell discusses a similar principle when he points out that epidemics and marketing campaigns need just a few things to happen at the right time to cause a significant impact.

4. Network development: One does not need to enroll each physician in a geographical area to create a network.  We know from experience that a successful network can be initiated by connecting with approximately 20% of select specialties.  These 20% can have a strong impact on the health of the population and can create Care Management Initiatives and negotiate successful contracts with insurers or self-insured employers, as the case may be.

5. Billing processes and Auditing: If we study Henry Ford’s Flow Line Method and the Theory of Constraints, we realize that the focus should be on optimizing the overall flow.  It is best to study the entire supply chain step by step, process by process, and determine where the bottlenecks are as a primary goal to improve the overall flow and abolish local efficiencies. When such an approach is taken, one notices that removing bottlenecks at one step improves the flow of the entire operation and accelerates the whole chain.

With such insight, the Pareto Principle provides a very good gauge for analyzing the billing cycle of each office and, eventually, the whole organization. Oftentimes we find that the biggest bottleneck in a compliant practice is the billing department. The physicians and their staff are incentivized to see more and more patients and send the claims in a timely manner to the auditors and billers. As the auditors review the claims and either approve them or return them to the office for correction of documentation or level of billing, we find a slowing of the entire billing cycle. Thus, it makes sense to get additional help in auditing or billing by hiring temps or more billers and auditors, improving the technology and work flow for auditing review as needed, and eventually eliminating this bottleneck.

As one bottleneck is opened up, others might appear. Again, the same laser-like precise approach will impact the output of the entire Flow Line.

6. Compliance: 15-20% physicians require 80% of the time invested by operations, leadership, finance and legal departments.  At what point should these physicians be given the opportunity to work elsewhere or make major changes in their methodology and attitudes?

7.  HEDIS and outcomes: Star Ratings: in our experience, the plans that do not rely simply on processes but are extremely hands-on with patient data and address deficiencies, say use of ACE or ARB in Diabetics, or COA forms, patient by patient until the last day of the year, week by week, physician by physician, deliver the highest scores. We have seen sizeable populations of patients reach scores of 5 in Star Ratings with such detailed and precise effort.

8. Financial: One is reminded of the story of a famous consultant who was invited to hear a 3-day presentation of how a giant conglomerate of 1500 factories was hemorrhaging money day after day due to change in the industry. The consultant listened quietly and reviewed all complex recommendations on how long it would take the conglomerate to climb out of its hole and had to innovate itself out of trouble and how it was going to be an extremely difficult task. At the end of the presentation, when he was asked for his recommendations, his answer was simple. “Close the 500 factories where you are incurring these huge losses and you will be financially solvent within a month,” he said, illustrating the same principle. In our experience, we have seen a significant turnaround for a company when in times of drastically reduced premiums and decreased profits, it closed nearly ten percent of its offices and ensured liquidity within a few months.

9. Contracting and negotiating Multi-Platform Business agreements: One does not need to accept all the companies in the market; nor does one need to contract with every physician in the market. It is the key physicians or anchor-practices that can influence contract negotiations one way or other. Having a strong contract with a plan opens the door to be able to contract favorably with more suitable providers thereby causing a positive feedback loop.

Can the Pareto Principle be applied to everything medical? No, certainly not in compliance where a basic standard of adherence is needed across the board. But there too, it might be found that it is the few that skew the results of the many, and if addressed, will have maximum impact on overall scores. It is these few that can be brought ahead with concise effort.

Thoughtful corner

Our law firm currently has eight staff members participating in a book club that is held every six weeks.

The Book Club operates as follows:

A few days before the meeting, an email is circulated to members asking them to add any book suggestions to the bin in my office for possible selection at the upcoming meeting.  Members are encouraged to print out descriptions of a couple of books they are interested in reading and would like to discuss with the group.  All genres of books are welcome.

The meeting is held in our upstairs conference room and generally lasts for one hour. The participating staff members are “off the clock” but enjoy complimentary lunch.

During the meeting, we discuss the current book selection.  Sometimes this involves a list of discussion questions that we bring to the meeting and other times it is an open discussion without a set outline.  Often personal stories that relate to situations in the book are shared.  The meeting provides an opportunity to learn more about your co-workers and to enrich office friendships.

Toward the end of the meeting, we circulate the book suggestions around the table and everyone writes their initials on the book they would like to read next.  The book with the most votes is chosen as the next month’s book.

On the afternoon after a meeting, an email is circulated to members giving them the date of the next Book Club meeting and the name and author of the next book we are reading.

A few of us will get a copy of the next book from the library and then share that copy with whoever has not read the book when we are finished.  Everyone has the option of buying the book, taking a copy from the library or borrowing the book from another member.  We allow six weeks between meetings so that “borrowers” have time to read the book after someone else is finished.

A lending library is also set up in the office and Book Club members along with other staff members are encouraged to borrow and share books.  We include books that we read for Book Club and also books that we enjoyed and would like to share with our co-workers.

Prior Book Club selections are below:

Sisterland by Curtis Sittenfeld                                                                Burial Rites by Hannah Kent

The Husband’s Secret by Liane Moriarty                                           The Silent Wife by A.S.A. Harrison

Lies You Wanted to Hear by James Whitfield Thomson             The Divorce Papers by Susan Rieger

Currently reading:

How to Kill Your Boss by Anonymous

Seminars and Webinars 

NEW PORT RICHEY SEMINAR:

Alan Gassman will be speaking at the North FICPA Monthly meeting on a topic to be determined.

Date: Wednesday, July 16, 2014 | 4:30 p.m.

Location: TBD

Additional Information: If you would like to attend this seminar please contact Ron Cohen at 352-257-9518 or email agassman@gassmanpa.com

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FREE LIVE WEBINAR:

STEP-UP YOUR EFFORTS TO STEP-UP CLIENTS’ BASIS – STRATEGIC ESTATE PLANNING AND STEPPED-UP BASIS CONSIDERATIONS

Date:  Wednesday, July 23, 2014 |12:30 p.m. (30 Minute Webinar)

Speakers:  Ed Morrow, III, Alan S. Gassman

Location: Online webinar

Additional Information: To register for the webinar please click here.

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FREE LIVE WEBINAR:

GAUGING AND HANDLING ENTITLEMENT TENDENCIES OF BENEFICIARIES, EMPLOYEES AND OTHERS – A FASCINATING AND EXTREMELY PRACTICAL GUIDE ON SOCIETY’S NEWEST ISSUE

Date: Tuesday, July 29, 2014 | 12:30 p.m. (30 Minute Webinar)

Speakers: Stephanie Thomason, Ph.D. and Alan Gassman

Location: Online webinar

Additional Information: To register for the webinar please click here.

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FREE LIVE WEBINAR:

Jonathan Blattmachr

A POWERFUL 40 MINUTE DOUBLE HEADER WITH JONATHAN BLATTMACHR

Topics:

  • Foreign vs. Domestic Asset Protection Trusts: More Than Just Creditor Protection Considerations
  • Empowering Your Powers of Appointment: Don’t Leave Out Important Tax and Practical Provisions or Ignore Important Considerations.  With Sample Provisions

Date: Tuesday, August 12, 2014 | 12:00 p.m.

Location: Online webinar

Additional Information: To register for the webinar please click here.

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LIVE ISLE OF MAN PRESENTATION:

Alan Gassman will be speaking on US TRUST AND TAX LAWS FOR INTERNATIONAL INVESTORS at Cayman National Bank and Trust Company on the Isle of Man

Sign up now and you will receive a free lunch!  Transportation not included.

Date: Wednesday, September 3, 2014

Additional Information:  If you would like to receive a copy of the materials that will be presented please email Janine Gunyan at janine@gassmanpa.com and we will send them to you once they are ready.

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LIVE FT. LAUDERDALE PRESENTATION:

FICPA ANNUAL ACCOUNTING SHOW 

Alan Gassman will be speaking at the FICPA Annual Accounting Show on Thursday, September 18, 2014 on the topic of ESSENTIAL GUIDE TO BASIC TRUST PLANNING for 50 minutes.

This presentation will introduce basic and intermediate trust planning background and provide attendees with an orderly list of the most commonly used trusts, practical features and traps for the unwary, including revocable, irrevocable and hybrid.  The discussion will include tax, creditor protection and probate and guardian considerations.

Date: Wednesday, September 17 through Friday, September 19, 2014

Location:  Fort Lauderdale, Florida

Additional Information:  For more information about this program please contact Stephanie Thomas at ThomasS@ficpa.org

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LIVE CLEARWATER PRESENTATION:

Board Certified Tax Attorney Michael O’Leary from the Trenam Kemker firm in Tampa, Florida will be speaking at the Ruth Eckerd Hall Planned Giving Advisory Council event on Tuesday, September 23, 2014 at 5:00 p.m.

Mr. O’Leary’s topic is HOT TOPICS IN CHARITABLE PLANNING

Date: Tuesday, September 23, 2014 | 5:00 p.m.

This presentation is free to members of the Ruth Eckerd Hall Planned Giving Advisory Council, Ruth Eckerd Hall members, and professionals who are attending a Ruth Eckerd Hall Planned Giving Advisory Council event for the first time.

Additional Information: You can contact Suzanne Ruley at sruley@rutheckerdhall.net or via phone at 727-791-7400, David Abelson at david.abelson@morganstanley.com or via phone at 727-773-4626, Alan S. Gassman at agassman@gassmanp.com or via phone at 727-442-1200 or the Kentucky Fried Chicken located at 1960 Gulf to Bay Blvd, which is close in proximity to this location and available to provide you with crisp, spicy or even crispier chicken, mashed potatoes and gravy, rolls, and slaw!  Bring your 32 oz. Kentucky Fried Chicken drink container to the presentation and we will fill it with your choice of club soda or seltzer water, but no sharing permitted.

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LIVE NEW JERSEY PRESENTATION:

NEW JERSEY INSTITUTE FOR CONTINUING LEGAL EDUCATION (ICLE)_SPECIAL 3 HOUR SESSION

New Jersey song trivia:  What song includes the words “Counting the cars on the New Jersey Turnpike, they’ve all gone to look for America”?  What year was it recorded and who wrote it?

Alan Gassman will be the sole speaker for this informative 3 hour program entitled WHAT NEW JERSEY LAWYERS NEED TO KNOW ABOUT FLORIDA LAW

Here is some of what the New Jersey Bar Invitation for this program provides:

New Jersey residents have always had a strong connection to Florida.  We vacation there (it=s our second shore).  Own Florida property (or have favored relatives that do) and have family and friends living there.  Sometimes our wealthiest clients move to Florida and need guidance, and you need background in order to continue representation.

There are real and significant differences between the two states that every lawyer should be cognizant of.  For example, holographic wills are perfectly legitimate in New Jersey and anyone can serve as an executor of an estate, which is not the case in Florida.  Also, Florida=s new rules regarding LLCs are different, and if you are handling estates of New Jersey decedents who owned Florida property, there are Florida law issues that must be addressed.  Asset protection differs significantly in Florida too.

Attendees will receive Mr. Gassman’s book entitled “Florida Law for Tax, Business and Financial Planning Advisors,” which has a retail value of $34.95.

Our informative seminar, presented by Clearwater attorney Alan Gassman, highlights issues New Jersey lawyers should be aware of when handling matters for New Jersey residents who own Florida property, reside there part time, have interest in Florida businesses, or who are considering a move to Florida.  The Florida Bar rules permit out of state lawyers to continue representation of Florida residents under rules that will be discussed.

Gain the knowledge you need to assist your clients with Florida matters, including:

  • Florida specific laws involving businesses, trusts, and estates
  • Florida tax planning
  • Elective share and homestead rules
  • Liability Insulation and Planning
  • Creditor Protection and Strategies
  • Medical Practice Laws
  • Staying within Florida Bar Guidelines that allow representation of Florida clients

Comments from past attendees of this program:

  • Excellent seminar and materials!!!
  • This was one of the best ICLE seminars yet!
  • One of the best seminars I have attended.
  • Better than mashed potatoes and gravy.  Glad he didn’t serve grits!

Date: Saturday, October 4, 2014

Location:  TBD

Additional Information: This is a repeat of the same program that we gave last year, but our book is now updated for the new Florida LLC law and changes in estate and trust law.  Please tell all of your friends, neighbors and enemies in New Jersey to come out to support this important presentation for the New Jersey Bar Association.  We will include discussions of airboats, how to get an alligator off of your driveway, how to peel a navel orange and what collard greens and grits are. For additional information please email agassman@gassmanpa.com

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LIVE PASCO COUNTY COCKTAIL HOUR AND PRESENTATION:

Alan Gassman and Christopher Denicolo will be speaking at the Pasco-Hernando State College’s Planned Giving Consortium Luncheon on Planning for Inherited IRA’s in View of the Recent Supreme Court Case – and Demystifing the “Stretch in Trust” Ira and Pension Rules

Date: Thursday, October 23, 2014 | 4:30 p.m.

Location:  Spartan Manor, 6121 Massachusetts Avenue, Port Richey, Florida

Additional Information:  For more information please contact Maria Hixon at hixonm@phsc.edu

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LIVE UNIVERSITY OF NOTRE DAME PRESENTATION:

40th ANNUAL NOTRE DAME TAX & ESTATE PLANNING INSTITUTE

Please send us your questions, comments and suggestions for Alan Gassman’s talk on Planning with Variable Annuities and Analyzing Reverse Mortgages.

This presentation will cover the unique income tax and financial planning characteristics of fixed and variable annuities, and provide estate and tax planners with a number of strategies for understanding and planning with existing and contemplated contracts. With over One Trillion Dollars of US taxpayer money invested in annuity contracts, more and more clients are showing up in their estate planners’ offices with large annuity contracts and common misunderstandings about “guaranteed income” and “guaranteed rates of return” features.   The presentation will cover common policy features, what is actually happening inside of a policy, illustration techniques, and changes that can be made to defer income tax and reduce overall tax liability.   Minimum distribution rules that apply to variable annuity contracts will also be discussed.

Date:November 13 and 14, 2014

Location: Century Center, South Bend, Indiana

We welcome questions, comments and suggestions on variable annuities, which will be Alan Gassman’s topic for this conference.

Additional Information: The focus of this year’s institute will be on “Business Succession Planning: An Income Tax, Estate Tax and Financial Analysis.”  As in past years, several sessions are designed to evaluate certain financial products and tax planning techniques so that the audience can better understand and evaluate these proposals in determining not only the tax and financial advantages they offer, but also evaluate limitations and problems they may cause in the future.  Given that fewer clients will need high-end estate tax planning with the $5 million exemptions, other sessions will address concerns that all clients have.  For example, a session will describe scams that target elderly individuals and how to protect the elderly from these scams.  As part of the objective on refreshing or introducing the audience to areas that can expand their practice, other sessions will review the income tax consequences of debt cancellation, foreclosures, short sales, the special concerns that arise in bankruptcy and various planning available to eliminate the cancellation of debt income or at least defer it with a possible step-up basis at death.  The Institute will also continue to have sessions devoted to income tax planning techniques that clients can use immediately instead of waiting to save estate taxes far in the future.

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LIVE NAPLES PRESENTATION:

2nd ANNUAL AVE MARIA SCHOOL OF LAW ESTATE PLANNING CONFERENCE

Date:  Friday, May 1, 2015

Location:  Ave Maria School of Law, 1025 Commons Circle, Naples, Florida

Additional Information:  Jerry Hesch and Alan Gassman will present The Mathematics of Estate Planning.  If you liked Donald Duck in Mathematics Land you will love The Mathematics of Estate Planning.  This will not be a Mickey Mouse presentation.

Other speakers include Jonathan Gopman, Bill Snyder, Elizabeth Morgan, Greg Holtz, and others.

Please let us know any questions, comments, or suggestions you might have for this amazing conference, which features dual session selection opportunities in one of the most beautiful conference facilities that we have ever seen.

And don’t forget to have a great weekend in Naples with your significant other, or anyone who your significant other doesn’t know!  Domino’s Pizza is extra.

Notable seminars

49th ANNUAL HECKERLING INSTITUTE ON ESTATE PLANNING

Date: January 12 – 16, 2015

Location: Orlando World Center Marriott 8701 World Center Drive, Orlando, Florida

Additional Information: For more information please visit: https://www.law.miami.edu/heckerling/?op=0

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LIVE ST. PETERSBURG PRESENTATION:

ALL CHILDREN’S HOSPITAL FOUNDATION

Date: Thursday, February 12, 2015

Location: St. Petersburg, FL

Additional Information: Please contact Lydia Bennett Bailey at Lydia.Bailey@allkids.org for more information.

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LIVE PRESENTATION:

2015 FLORIDA TAX INSTITUTE

Date: Wednesday through Friday, April 22 – 24, 2015

Location: TBD

Additional Information: Please contact Bruce Bokor at  bruceb@jpfirm.com for more information.

Applicable Federal Rates

 

The Thursday Report 6.19.2014 – The Monkees Edition

Posted on: June 19th, 2014

 

Titles

We welcome contributions for future Thursday Report topics. If you are interested in making a contribution as a guest writer, please email Janine Gunyan at Janine@gassmanpa.com.

This report and other Thursday Reports can be found on our website at www.gassmanlaw.com.

IRA Header

Which Monkees’ songs did Neil Diamond write?  The first two readers who give us two Monkees’ songs written by Neil Diamond will receive a special gift, whether they want it or not.

Brandon Ketron is currently entering his third year of law school at Stetson University College of Law, and is a licensed CPA in the State of Virginia.  He attended Roanoke College for undergrad where he graduated cum laude with a degree in Business Administration and a concentration in both Accounting and Finance. Brandon plans to pursue an LL.M. in Taxation after successful completion of law school, and then practice in the areas of Estate Planning, Tax, and Corporate and Business Law. 

EXECUTIVE SUMMARY

On June 12, 2014, Justice Sonia Sotomayor delivered the opinion of a unanimous Supreme Court in the case of Clark v. Rameker[1] to answer the question of whether assets held under an inherited IRA (and likely other types of qualified retirement plans, such as 401(k)’s would qualify as “retirement funds” under the applicable bankruptcy exemption.  The Court held that assets held under an IRA inherited by a non-spouse beneficiary after the death of the IRA owner are not “retirement funds,” and therefore are not protected under federal bankruptcy law.

Debtors who are domiciled in states like Florida, Arizona, Alaska, and Texas, which have statutory creditor protection for inherited IRAs will not be impacted by this decision if they qualify to file bankruptcy in their state of domicile (by having been domiciled there for 730 days prior to filing of a bankruptcy petition), and they elect out of federal bankruptcy exemptions and into the state law exemptions, if applicable.  Debtors who live in states that do not have statutes which provide protection for inherited IRAs, or debtors who are domiciled in states that do have such statutes, but have not lived there for 730 days and must therefore file bankruptcy based upon a previous state of domicile, will not be able to exempt inherited IRAs as qualified “retirement funds” as a result of this opinion.

Even where contemplated beneficiaries are anticipated to reside in a state that provides favorable inherited IRA and retirement account creditor exemptions, planners may want to encourage their clients to consider leaving their retirement accounts and IRAs to spendthrift trusts which benefit their intended beneficiaries, in lieu of having such retirement accounts and IRAs payable directly to the beneficiaries.

FACTS:

In 2001, Ruth Heffron died and left an IRA worth about $450,000 to her daughter Heidi Heffron-Clark, a resident of Wisconsin.  Heidi elected to take monthly distributions from the IRA as her required minimum distributions.  In 2010, Heidi and her husband filed for bankruptcy under Chapter 7 of the Bankruptcy Code, exempting the IRA (then worth around $300,000) under 11 U.S.C. ‘ 522(b)(3)(C).  The Clarks’ creditors argued that the inherited IRA did not fall within the meaning of “retirement funds” and thus was not exempt from the bankruptcy estate.

The bankruptcy court ruled in favor of the creditors, stating that inherited IRAs are not “retirement funds, because the funds are not set aside for retirement needs, nor are they distributed upon retirement.”  The decision was then appealed to a federal district court.  The district court reversed the decision of the bankruptcy court, holding that inherited IRAs do qualify as retirement funds and are exempt from the bankruptcy estate under the ‘ 522(b)(3)(C) exemption.  The decision was appealed yet again to the Seventh Circuit, which agreed with the bankruptcy court that inherited IRAs do not qualify for the ‘ 522(b)(3)(C) exemption.  This ruling was in conflict with In re Chilton, 674 F.3d 486 (5th Cir. 2012) which held that inherited IRAs were exempt because “the defining characteristic of ‘retirement funds’ is the purpose they are ‘set apart’ for, not what happens after they are ‘set apart’.”

The Supreme Court agreed to hear the case in order to resolve the split in the circuit courts.

The Court found that the language of Title 11 of the United States Code, Section 522(b)(3)(C), which describes protected assets to include “retirement funds” that are “exempt from taxation” under Sections 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code, means that the account has to be characterized as a retirement vehicle for an employee or the contributor and compliant with the rules described in the above referenced Sections.

Further, the Court held that assets held under an IRA inherited by a non-spouse beneficiary are not “retirement funds” that are protected under Section 522(b)(3)(C) because it was Congress’s intent to “help the debtor obtain a fresh start,” and not to provide a windfall to those who would simply inherit by receiving a “free pass.”  Specifically, the Court noted that “[a]llowing that kind of exemption would convert the Bankruptcy Code’s purposes of preserving debtors’ ability to meet their basic needs and ensuring that they have a fresh start, into a ‘free pass’.”

The Court went on to note that “inherited IRAs do not operate like ordinary IRAs” because unlike ordinary IRAs or Roth IRAs, the owner of an inherited IRA “not only may, but must withdraw its funds… within 5 years of the original owner’s death or take minimum distributions on an annual basis… and “unlike a traditional or Roth IRA, the owner of an inherited IRA may never make contributions to the account.”

Accordingly, the debtors were not entitled to have their inherited IRA excluded from the bankruptcy estate as an exempt asset, and the assets held under such IRA were subject to the claims of their creditors.

COMMENT:

The Three Characteristics Referenced by the Court: Will They Be Universally Applied?

In reaching its holding, the Court described three characteristics of inherited IRAs that distinguish such accounts from tax advantaged retirement accounts that are considered as held for retirement and are therefore afforded protections from creditor claims under the Bankruptcy Code.  While the Court viewed these characteristics in the context of an inherited IRA, other types of accounts (which universally may be thought as creditor exempt) might exhibit these characteristics, and there will doubtlessly be years of litigation and uncertainty as a result of this opinion.

The first characteristic is that a holder of an inherited IRA is not able to invest additional monies into the IRA.  It is noteworthy that there are frozen pension plans (that are exempt from taxation under Sections 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code) into which contributions cannot be made, but which are clearly held for retirement.

The second characteristic is that a holder of an inherited IRA is required to withdraw monies from such account upon at least an annual (or more frequent) basis in the form of required minimum distributions.  In certain situations, an owner of or participant in a retirement account is required to take withdrawals from the account, such as after the holder reaches age 59 2 or has elected to take distributions from the account over a series of substantially equal periodic payments made at least annually.

The third and final characteristic described by the Court is that a holder of an inherited IRA is permitted to withdraw the entire balance of the account at any time, and for any reason, without penalty.  Again, an owner of or participant in a retirement account who has attained age 59 2  is entitled to withdraw as much of the assets from the retirement account as he or she desires, without penalty.  Additionally, an owner of or participant in a retirement account may be entitled to withdraw amounts as he or she determines from his or her retirement account without penalty, if such individual meets one or more of the exceptions to the 10% penalty tax for early withdrawals from retirement accounts described in Internal Revenue Code Section 72(t) (such as distributions attributable to the owner/participant being disabled or made for certain medical expenses).

The Court did not provide very much discussion with respect to these characteristics, or how they would apply to retirement accounts that are protected from creditors in bankruptcy.  In fact, the only discussion in the opinion of the first characteristic is as follows:

Inherited IRAs are thus unlike traditional and Roth IRAs, both of which are ‘quintessential retirement funds.’  For where inherited IRAs categorically prohibit contributions, the entire purpose of traditional and Roth IRAs is to provide tax incentives for account holders to contribute regularly and over time to their retirement savings.

The Court’s only discussion on the second characteristic was to the effect that the Internal Revenue Code requires the withdrawal of all of the funds in an IRA within five years of the death of the IRA owner, or over the life expectancy of the IRA beneficiary through yearly distributions from the IRA.  The Court’s sole analysis of this requirement as it relates to inherited IRAs is “that the tax rules governing inherited IRAs routinely lead to their diminution over time, regardless of their holders’ proximity to retirement, is hardly a feature one would expect of an account set aside for retirement.”

Further, the only discussion on the third characteristic indicates that the 10% penalty tax that applies to the withdrawal of funds from a traditional or Roth IRA before the owner or participant reaches the age of 59 2 encourages individuals to leave the funds untouched until they reach retirement age.  Inherited IRAs have no such provisions, and according to the Court, “constitute a pot of money that can be freely used for current consumption, not funds objectively set aside for one’s retirement.”  The Court also noted that although the 10% penalty tax does not apply to withdrawals of contributions from a Roth IRA because such contributions are made with after-tax income (i.e., they were already subject to income taxes), withdrawals of any gains or investment income from a Roth IRA are in fact subject to the 10% penalty tax absent the application of a limited exception.  This is different from an inherited IRA where no withdrawals of assets are subject to the 10% penalty tax.

It will therefore remain to be seen how and when these three characteristics might be universally applied to retirement accounts to determine what other types of accounts will qualify for protection under the Bankruptcy Code.

To Elect Out of Federal Bankruptcy Exemptions or Not to Elect Out?B That is the Question (Which Could Provide the Solution).

The Court addressed the underlying purpose of the bankruptcy exemptions, in that they “serve the important purpose of ‘protecting the debtor’s essential needs,'” and stated that the principal purpose of the Bankruptcy Code is
“to grant a fresh start to the honest but unfortunate debtor” and “exceptions to discharge should be confined to those plainly expressed.”  Thus, it can be expected that bankruptcy exemptions will be construed narrowly by the U.S. Supreme Court.  This is contrary to the typical approach taken by state law exemption statutes, which are commonly construed liberally by state courts in favor of the debtor.  Specifically, Florida, Arizona, Texas, and Nevada law expressly provide that their respective state law creditor exemptions are to be construed broadly.[2]

As stated above, a debtor who has been domiciled in a state for at least 730 days prior to the filing of a bankruptcy petition (or was domiciled in a state for the 180 day period or greatest portion thereof immediately prior to such 730 period, if his or her domicile has not been located in a single state for such 730 period) may elect to use the state law creditor exemptions afforded by such state in lieu of the federal exemptions.  Therefore, debtors who have been domiciled in a state with favorable creditor exemptions for the requisite time period will be inclined to elect of the federal bankruptcy exemptions and choose to have the applicable state exemptions apply, if the applicable state exemptions do not apply by default.  Certain states[3] provide that domiciliaries thereof who file for bankruptcy are required to utilize the applicable state law exemptions instead of the federal bankruptcy law exemptions.

In fact, the debtors in this case elected out of the federal exemptions, and the creditor exemptions afforded by their state of domicile (Wisconsin) applied instead of the federal exemptions.  However, Wisconsin does not provide for a creditor exemption for assets held under an inherited IRA as certain other states do (such as Florida, Arizona, Alaska, and Texas).[4] If the debtors had been domiciled in Florida rather than Wisconsin, then they would have been required to utilize Florida’s more favorable exemption with respect to inherited IRAs, which would have removed their inherited IRA from the bankruptcy estate.

In this vein, it is important for debtors who are contemplating the filing of a bankruptcy petition to review their state’s creditor exemptions vis-a-vis the federal exemptions to determine whether it would be advantageous to elect out of the federal exemptions and into the applicable state exemptions.  Some debtors may want to delay their bankruptcy filing until they are considered as domiciled in a state with more favorable creditor exemption laws.

Are Rollovers by a Surviving Spouse Really Safe in Bankruptcy?

As a result of this decision there will be at least some degree of continuing uncertainty as to whether IRAs inherited by surviving spouses that have been rolled over or are eligible for rollover into the surviving spouse’s own IRA will be exempt under the federal bankruptcy law.  The Court did not seem to expressly address this question in its opinion, and perhaps created uncertainty as to  whether assets held under IRAs that have been rolled over or are eligible for rollover by a surviving spouse are protected under federal bankruptcy law.  One would think that the following language confirms that the Court assumed that such assets would be protected:

The third type of account relevant here is an inherited IRA.  An inherited IRA is a traditional or Roth IRA that has been inherited after its owner’s death.  See ”408(d)(3)(C)(ii), 408A(a).  If the heir is the owner’s spouse, as is often the case, the spouse has a choice: He or she may “roll over” the IRA funds into his or her own IRA, or he or she may keep the IRA as an inherited IRA (subject to the rules discussed below).  See Internal Revenue Service, Publication 590: Individual retirement Arrangements (IRAs), p. 18 (Jan. 5, 2014).  When anyone other than the owner’s spouse inherits the IRA, he or she may not roll over the funds; the only option is to hold the IRA as an inherited account.

While a number of commentators have noted that a spousal rollover IRA will be protected, the lack of an express statement by the Court will at least create doubt as to this proposition.  Additionally, the Court did not discuss whether an IRA inherited by a spouse that has not yet been rolled over but is eligible for rollover by such spouse will be eligible for the federal creditor exemption for retirement funds.  A spousal rollover of an inherited IRA may be effectuated through passive acts, such as the failure to take a required minimum distribution from the decedent’s IRA, in addition to affirmative acts, such as the re-titling of the inherited IRA, the addition of assets to the inherited IRA or a transfer of the assets in the inherited IRA into the spouse’s own IRA.  Further, there is no time limit as to when a surviving spouse can roll over an IRA from his or her spouse into his or her own IRA.[5]  The IRS has permitted a surviving spouse to roll over an IRA into her own IRA even though she was treated as a beneficiary of the inherited IRA for two tax years following her late husband’s death.[6]

Accordingly, what is the treatment of assets held under an inherited IRA that has passed to a surviving spouse before the spouse has rolled over the inherited IRA?  Further, if the surviving spouse effectuates a rollover while she has creditors or an impeding bankruptcy, is it a fraudulent transfer?

The Court’s failure to address these questions will thus create uncertainty with respect to IRAs inherited by surviving spouses.

 Spendthrift Accumulation Trusts – The Answer, and Perhaps a Panacea. 

Well versed practitioners already know that retirement accounts and IRAs can be made payable to spendthrift “Accumulation Trusts” which can provide for beneficiaries without being subject to their creditor claims, and stretch out the required minimum distributions from the retirement account or IRA over the life expectancy of the oldest beneficiary of the trust (referred to as the “Designated Beneficiary” under the Regulations).

The Treasury Regulations and a number of Private Letter Rulings have approved the use of discretionary or ascertainable standard trusts as beneficiaries of the retirement accounts and IRAs in order to avoid the 5-year minimum distribution rule.[7]  A trust can therefore be structured so that  the beneficiaries can only receive distributions as determined by an independent trustee, and can have a spendthrift provision that would prevent the creditors of a beneficiary from reaching the assets of the trust.  The trust can receive the retirement account or IRA of the decedent, and the required minimum distributions can be “accumulated” by the trustee for distribution to the beneficiary only if and when the trustee deems it to be appropriate.  The life expectancy of the oldest beneficiary of the trust will be used to determine the amount of the required minimum distributions that must be made each year so that, for federal income tax purposes, it is treated similar to the oldest beneficiary having been directly named as the retirement account or IRA beneficiary.

Naming an Accumulation Trust with a spendthrift provision as the beneficiary of a retirement account or IRA will enable the protection of the beneficiaries and their descendants from potential divorce claims, child support claims, poor self-management, and/or spendthrift tendencies.  Further, using an Accumulation Trust as a receptacle to receive a retirement account or IRA on the death of the participant/owner can provide creditor protection for those beneficiaries who live outside of states that have exemptions for inherited IRAs.  Many practitioners will continue to make the mistake of assuming that all beneficiaries will be protected if the law of the state where the retirement account or IRA participant/owner provides protection, notwithstanding that the creditor exemption status of an inherited IRA will be determined by the law of the state where the beneficiary resides, which cannot be definitely known before the death of the retirement account or IRA participant/owner.

Moreover, a retirement account or IRA that is inherited directly by an individual will be subject to federal estate tax in such individual’s estate, which will not be the case if inherited under an Accumulation Trust that is generation-skipping tax exempt.  A beneficiary of an inherited retirement account or IRA typically cannot name his or her own beneficiaries that would inherit such account in the event of the beneficiary’s death before the account is exhausted.  However, a beneficiary of an Accumulation Trust can have a power of appointment over the assets of the Trust that will in effect allow the beneficiary to control the disposition of the retirement account or IRA after his or her death.

Planners will want to be careful with drafting powers of appointment under Accumulation Trusts because the ages of the possible appointees are taken into account in determining the Designated Beneficiary under the Trust whose life expectancy will control the amount of the annual required minimum distributions.  The authors recommend drafting the power of appointment under the Trust so that it may only be exercisable in favor of individuals who are younger than the applicable beneficiary of the Trust in order to prevent a more rapid required minimum distribution schedule from applying.

There is a downside to having a retirement account or IRA payable to an Accumulation Trust instead of having it payable directly to a surviving spouse.  The surviving spouse is unable to roll over the retirement account or IRA into his or her own if it is made payable to an Accumulation Trust.  This would result in the surviving spouse being required to take larger required minimum distributions each year than if he or she rolled over the decedent’s retirement account or IRA into his or her own.

One way to mitigate this downside and to provide for flexibility is to name the surviving spouse directly as the primary beneficiary of the retirement account or IRA, to name an Accumulation Trust for his or her benefit as the secondary beneficiary, and to name an Accumulation Trust established for the benefit of the children and other descendants as the tertiary beneficiary.  The surviving spouse could then disclaim all or a portion of the retirement account or IRA into the Accumulation Trust and remain a beneficiary thereof (albeit without a power of appointment), and the trustee of such Trust could further disclaim all or a portion of the retirement account or IRA  into an Accumulation Trust for the descendants if the surviving spouse is not in need of the retirement benefits.

Thus, with appropriate disclaimer language, the family and advisors can decide after the decedent’s death whether to have the retirement account or IRA pass (1) directly to the surviving spouse as a rollover IRA; (2) to an Accumulation Trust for the surviving spouse so that payments will come out over the life expectancy of the spouse; or (3) to an Accumulation Trust for a child or children so that the payments will come out over the life expectancy of the oldest child who is a beneficiary of the Trust.

The following chart that shows the required minimum distribution percentages that would apply in each of the three scenarios described above, and the advantages and disadvantages of each scenario, based upon a 75-year-old surviving spouse and the oldest child being 50 years old at the time of the decedent’s death:

Chart for Artilce

CONCLUSION:

Notwithstanding the negative result for the debtor, this Supreme Court decision may do more good than harm by propelling estate planning practitioners and advisors to encourage clients to leave retirement accounts and IRAs into properly structured Accumulation Trusts.  Another consequence of this decision will be that many state legislatures will undoubtedly consider the question of providing state law exemption for inherited IRAs so that the bankruptcy will protect these for state citizens who file bankruptcy.

This Court decision provides certainty for retirement accounts and IRAs inherited by individuals other than surviving spouses, but unfortunately also exposes inherited retirement accounts and IRAs of many Americans that are in bankruptcy or might be contemplating bankruptcy.  The ramifications of the opinion should cause many Americans with substantial retirement accounts or IRAs to update their estate planning documents and beneficiary designations to protect their children or other beneficiaries from creditors.  Further, this case puts the burden on practitioners to carefully navigate the Treasury Regulations and literature on using Accumulation Trusts in order to provide for the creditor protection of retirement accounts and IRAs while avoiding application of the requirement that all retirement account and IRA benefits be distributed within 5 years of the decedent’s death.

The decision does not provide as much certainty as the authors hoped that it would for spousal rollover retirement accounts and IRAs, but it seems probable that they will be protected in bankruptcy.  It is also important to remind clients and advisors that this decision will virtually have no impact with respect to beneficiaries who reside in states that have statutes that protect inherited retirement accounts and IRAs as creditor exempt.

Nevertheless, this decision stresses the importance of planners making sure to provide their clients with the advantages and disadvantages (both tax and non-tax) applicable to the various methods of structuring beneficiary designations of retirement accounts and IRAs.

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[1]  Clark v. Rameker, 573 U.S. _____ (2014)
[2] Goldenberg v. Sawczak, 791 So. 2d 1078, 1081 (Fla. 2001); Gardenhire v. Glasser, 226 P. 911, 912 (Ariz. 1924); Hickman v. Hickman, 234 S.W.2d 410, 413 (Tex. 1950); In re Christensen, 149 P.3d 40, 43 (Nev. 2006).
[3] These states are Alabama, Alaska, Arizona, California, Colorado, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Utah, Virginia and Wyoming.
[4] Fla. Stat. ‘ 222.21; Ariz. Rev. Stat. ‘ 33-1126; Alaska Stat. Ann. ‘ 09.38.017; Tex. Prop. Code ‘ 42.0021
[5] Treas. Reg. _ 1.408-8, A-5(a).
[6] PLR 9534027.
[7] Treas. Reg. ‘ 1.401(a)(9); PLR 200438044; PLR 200228025

Seminar AnnouncementTO REGISTER FOR THIS WEBINAR PLEASE CLICK HERE

IRS Commissioner Says Taxpayers Have Rights
by Denis Kleinfeld

IRS Commissioner John A. Koskinen has announced that “respecting taxpayer’s rights continues to be a top priority for IRS employees…”

I bet you didn’t know that your rights as a taxpayer were one of the IRS’s top priorities.  In fact, according to Nina Olsen, the National Taxpayer Advocate for the IRS, “…taxpayer surveys conducted by my office have found that most taxpayers do not believe they have rights before the IRS and even fewer can name their rights.”

There are in fact three separate laws and each one is called “the Taxpayer Bill of Rights”—The Taxpayer Bill of Rights #1 (1988), the Taxpayer Bill of Rights #2 ((1996), and the Taxpayer Bill of Rights #3 (1998).

Sound confusing?

Of course it is. This is your federal tax law. Nothing done by Congress is intended to be fathomable by taxpayers, or, for that matter, understandable by the IRS employees.

There is nothing new in this new list of taxpayer rights.  It is just a list of 10 aspirational concepts meant to educate taxpayers.  At best, this is merely a symbolic gesture.

There are no new rights that do not already exist buried someplace in the tax code, and there are no new enforcement protocols or safeguards to help make sure that the IRS respects whatever rights a taxpayer may have.

Curiously, this public relations announcement does not mention any of the specific rights which taxpayers would find helpful. For example, the right to make an audio recording of any interview,  or the right to have the Taxpayer Advocate (previously named the IRS Ombudsman)  intervene in an enforcement action if the taxpayer is “suffering or about to suffer a significant hardship as the result of the manner in which the Internal Revenue Service is operating.”

What are the 10 core concepts that the IRS Commissioner is touting as part of an effort to regain the taxpayers’ trust in the tax system?

1. The Right to be Informed.  That is, somebody from the IRS is going to let you know you are in a world of hurt and that the process is going to be painful.

2. The Right to Quality Service.  This should be interesting since the National Taxpayer Advocate told Congress that the IRS is badly underfunded, undermanned, and overburdened with a complex tax law that is incomprehensible under the best of circumstances and far more work than it can handle.  Practitioners are commonly faced with situations where IRS personnel simply cannot or will not respond to requests to fix IRS errors, or to give guidance in situations where taxpayers are being wrongly treated or inconvenienced.

3. The Right to Pay No More than the Correct Amount of Tax.  A highly unlikely occurrence since dealing with the IRS is an intense adversarial process where they are presumed to be correct and the taxpayer is presumed to be wrong.  In other words, the game is rigged.

4. The Right to Challenge the IRS’s Position and Be Heard.  Basically, you can tell them you object to being robbed and they can tell you to stuff it.

5. The Right to Appeal an IRS Decision in an Independent Forum.  This means you can take the case to Appeals where the appeals’ officer is an employee of the IRS and even to the Tax Court where the judges are either former IRS people or government prosecutors.

6.  The Right to Finality.  Even if you are dead, the IRS will go after your estate.

7. The Right to Privacy.  Meaning that the IRS will be only as intrusive as they want, and will provide each taxpayer with the amount of due process as Congress has allowed in passing the tax statutes.  Effectively, the taxpayers will have more privacy in a hostile divorce than a tax audit.

8. The Right to Confidentiality.  Think Lois Lerner or what it would be like appearing before Senator Levin’s Subcommittee on Permanent Investigations.

9. The Right to Representation.  This is at your own expense. Tax professionals do not come cheap.

10. The Right to a Fair and Just Tax System.  Well, the United States doesn’t have one.  The taxpayers and the people working at the IRS are both made victims by Congress, confusion, and underfunding.

While I can appreciate the IRS Commissioner’s good intentions in publicly expressing that taxpayers have rights, it is clearly a futile bureaucratic effort to try and rectify a tax system that is fundamentally and profoundly beyond hope.

 Book Announcement

We are pleased to announce the publication of our two latest books, The Florida Legal Guide for Same Sex Couples – a layman edition, and The Florida Advisor’s Guide to Counseling Same Sex Couples – a professional edition.

For a discount use the top secret 20% off promotional code K2UQPYWT and click here to order the Professional Version ] or here to order the layman version.

Please send us your questions, comments and suggestions on topics related to these books for possible publication, or we might just laugh at you!

Thoughtful Corner

 

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Consider a Corporate DOG

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Upcoming Seminars

LIVE CLEARWATER PRESENTATION:

FICPA SUNCOAST CHAPTER MONTHLY MEETING

Alan S. Gassman will be speaking at the FICPA Suncoast Chapter’s monthly meeting on HOW TO PLAN, STRUCTURE, AND PROTECT WEALTH USING REVOCABLE AND IRREVOCABLE TRUSTS AND TRUST SYSTEMS.  A COMPREHENSIVE OVERVIEW WITH A PRACTICAL PLANNING CHECKLIST AND PRACTITIONER TAX COMPLIANCE GUIDE.

Speaker: Alan S. Gassman

Date: TODAY, June 19, 2014 | 4:00 p.m. (100 minute presentation)

Location: Feather Sound Country Club, Clearwater, Florida

Additional Information:  For more information, to register and a discount code please email agassman@gassmanpa.com

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FREE LIVE WEBINAR:

A POWERFUL 40 MINUTE DOUBLE HEADER WITH JONATHAN BLATTMACHR

Topics:

  • Foreign vs. Domestic Asset Protection Trusts: More Than Just Creditor Protection Considerations
  • Empowering Your Powers of Appointment: Don’t Leave Out Important Tax and Practical Provisions or Ignore Important Considerations.  With Sample Provisions

Date: Tuesday, August 12, 2014 | 12:00 p.m.

Location: Online webinar

Additional Information: To register for the webinar please click here.

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LIVE FT. LAUDERDALE PRESENTATION:

FICPA ANNUAL ACCOUNTING SHOW 

Alan Gassman will be speaking at the FICPA Annual Accounting Show on Thursday, September 18, 2014 on the topic of ESSENTIAL GUIDE TO BASIC TRUST PLANNING for 50 minutes.

This presentation will introduce basic and intermediate trust planning background and provide attendees with an orderly list of the most commonly used trusts, practical features and traps for the unwary, including revocable, irrevocable and hybrid.  The discussion will include tax, creditor protection and probate and guardian considerations.

Date: Wednesday, September 17 through Friday, September 19, 2014

Location:  Fort Lauderdale, Florida

Additional Information:  For more information about this program please contact Stephanie Thomas at ThomasS@ficpa.org

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LIVE NEW JERSEY PRESENTATION:

NEW JERSEY INSTITUTE FOR CONTINUING LEGAL EDUCATION (ICLE) SPECIAL 3 HOUR SESSION

Alan Gassman will be the sole speaker for this informative 3 hour program entitled WHAT NEW JERSEY LAWYERS NEED TO KNOW ABOUT FLORIDA LAW

Here is some of what the New Jersey Bar Invitation for this program provides:

New Jersey residents have always had a strong connection to Florida.  We vacation there (it’s our second shore).  Own Florida property (or have favored relatives that do) and have family and friends living there.  Sometimes our wealthiest clients move to Florida and need guidance, and you need background in order to continue representation.

There are real and significant differences between the two states that every lawyer should be cognizant of.  For example, holographic wills are perfectly legitimate in New Jersey and anyone can serve as an executor of an estate, which is not the case in Florida.  Also, Florida’s new rules regarding LLCs are different, and if you are handling estates of New Jersey decedents who owned Florida property, there are Florida law issues that must be addressed.  Asset protection differs significantly in Florida too.

Attendees will receive Mr. Gassman’s book entitled Florida Law for Tax, Business and Financial Planning Advisors, which has a retail value of $34.95.

Our informative seminar, presented by Clearwater attorney Alan Gassman, highlights issues New Jersey lawyers should be aware of when handling matters for New Jersey residents who own Florida property, reside there part time, have interest in Florida businesses, or who are considering a move to Florida.  The Florida Bar rules permit out of state lawyers to continue representation of Florida residents under rules that will be discussed.

Gain the knowledge you need to assist your clients with Florida matters, including:

  • Florida specific laws involving businesses, trusts, and estates
  • Florida tax planning
  • Elective share and homestead rules
  • Liability Insulation and Planning
  • Creditor Protection and Strategies
  • Medical Practice Laws
  • Staying within Florida Bar Guidelines that allow representation of Florida clients

Comments from past attendees of this program:

  • Excellent seminar and materials!!!
  • This was one of the best ICLE seminars yet!
  • One of the best seminars I have attended.
  • Better than mashed potatoes and gravy.  Glad he didn’t serve grits!

Date: Saturday, October 4, 2014

Location:  TBD

Additional Information: This is a repeat of the same program that we gave last year, but our book is now updated for the new Florida LLC law and changes in estate and trust law.  Please tell all of your friends, neighbors and enemies in New Jersey to come out to support this important presentation for the New Jersey Bar Association.  We will include discussions of airboats, how to get an alligator off of your driveway, how to peel a navel orange and what collard greens and grits are. For additional information please email agassman@gassmanpa.com

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LIVE PASCO COUNTY PRESENTATION:

Alan Gassman, Christopher Denicolo and Kenneth Crotty will be speaking at the Pasco-Hernando State College’s Planned Giving Consortium Luncheon on Hot Topics and Creditor Protection including Inherited IRAs and Planning for Same Gender Couples.

Date: Thursday, October 23, 2014 | Time to be determined

Location:  TBD

Additional Information:  For more information please contact Maria Hixon at hixonm@phsc.edu

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LIVE UNIVERSITY OF NOTRE DAME PRESENTATION:

40th ANNUAL NOTRE DAME TAX & ESTATE PLANNING INSTITUTE

Please send us your questions, comments and suggestions for Alan Gassman’s talk on Planning with Variable Annuities and Analyzing Reverse Mortgages.

This presentation will cover the unique income tax and financial planning characteristics of fixed and variable annuities, and provide estate and tax planners with a number of strategies for understanding and planning with existing and contemplated contracts. With over One Trillion Dollars of US taxpayer money invested in annuity contracts, more and more clients are showing up in their estate planners’ offices with large annuity contracts and common misunderstandings about “guaranteed income” and “guaranteed rates of return” features.   The presentation will cover common policy features, what is actually happening inside of a policy, illustration techniques, and changes that can be made to defer income tax and reduce overall tax liability.   Minimum distribution rules that apply to variable annuity contracts will also be discussed.

Date:November 13 and 14, 2014

Location: Century Center, South Bend, Indiana

We welcome questions, comments and suggestions on variable annuities, which will be Alan Gassman’s topic for this conference.

Additional Information: The focus of this year’s institute will be on “Business Succession Planning: An Income Tax, Estate Tax and Financial Analysis.”  As in past years, several sessions are designed to evaluate certain financial products and tax planning techniques so that the audience can better understand and evaluate these proposals in determining not only the tax and financial advantages they offer, but also evaluate limitations and problems they may cause in the future.  Given that fewer clients will need high-end estate tax planning with the $5 million exemptions, other sessions will address concerns that all clients have.  For example, a session will describe scams that target elderly individuals and how to protect the elderly from these scams.  As part of the objective on refreshing or introducing the audience to areas that can expand their practice, other sessions will review the income tax consequences of debt cancellation, foreclosures, short sales, the special concerns that arise in bankruptcy and various planning available to eliminate the cancellation of debt income or at least defer it with a possible step-up basis at death.  The Institute will also continue to have sessions devoted to income tax planning techniques that clients can use immediately instead of waiting to save estate taxes far in the future.

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LIVE NAPLES PRESENTATION:

2nd ANNUAL AVE MARIA SCHOOL OF LAW ESTATE PLANNING CONFERENCE

Date:  Friday, May 1, 2015

Location:  Ave Maria School of Law, 1025 Commons Circle, Naples, Florida

Additional Information:  Jerry Hesch and Alan Gassman will present The Mathematics of Estate Planning.  If you liked Donald Duck in Mathematics Land you will love The Mathematics of Estate Planning.  This will not be a Mickey Mouse presentation.

Other speakers include Jonathan Gopman, Bill Snyder, Elizabeth Morgan, Greg Holtz, and others.

Please let us know any questions, comments, or suggestions you might have for this amazing conference, which features dual session selection opportunities in one of the most beautiful conference facilities that we have ever seen.

And don’t forget to have a great weekend in Naples with your significant other, or anyone who your significant other doesn’t know!  Domino’s Pizza is extra.

Notable Seminars

 

LIVE ORLANDO PRESENTATION

49th ANNUAL HECKERLING INSTITUTE ON ESTATE PLANNING

Date: January 12 – 16, 2015

Location: Orlando World Center Marriott 8701 World Center Drive, Orlando, Florida

Additional Information: For more information please visit: https://www.law.miami.edu/heckerling/?op=0

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LIVE ST. PETERSBURG PRESENTATION:

ALL CHILDREN’S HOSPITAL FOUNDATION

Date: Thursday, February 12, 2015

Location: St. Petersburg, FL

Additional Information: Please contact Lydia Bennett Bailey at Lydia.Bailey@allkids.org for more information.

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LIVE PRESENTATION:

2015 FLORIDA TAX INSTITUTE

Date: Wednesday through Friday, April 22 – 24, 2015

Location: TBD

Additional Information: Please contact Bruce Bokor at  bruceb@jpfirm.com for more information.

Applicable Federal Rates

The Thursday Report 6.12.2014 – BP, Annuity, CLE, Cartoons, and me

Posted on: June 12th, 2014

Planning with Variable Annuities – Part 2

A Letter to the Editor of the Thursday Report, by Gene Stern

Like Its Oil Rig, BP’s Last Attempt to Dodge Payments Goes Up in Flames

Contempt of Court – Part 2: Self-Created Impossibility Defense, an article by Howard Rosen, Esq.

Thoughtful Corner – Are You Smarter Than Your Cell Phone?

Humor! (or Lack Thereof!)

We welcome contributions for future Thursday Report topics. If you are interested in making a contribution as a guest writer, please email Janine Gunyan at Janine@gassmanpa.com.

 This report and other Thursday Reports can be found on our website at www.gassmanlaw.com.

Planning with Variable Annuities – Part 2

When planning with variable annuities the first question is whether you should be doing this.

A great many clients come to us with variable annuities that they do not understand and are possibly not well suited for.

The following is Part 2 of excerpts from our recent live webinar entitled Planning with Variable and Other Annuity Products and may be of interest.  We have had a great deal of feedback with respect to this, and criticism from those who are proponents of variable annuities.

 If you would like to view the webinar please email agassman@gassmanpa.com

We welcome any and all questions, comments and suggestions for variable annuity planning.

We are working on a book with respect to this.

Here is Part 2 which covers items 7 through 12 of the 12 Reasons to be Cautious About Variable, “Index”, and “Guaranteed Income” Annuities:

7. Lifetime Gifts of Annuities Can Trigger Deferred Income.  The transfer of an annuity other than to a spouse will generally cause the transferor to be subject to income tax as if all of the deferred income in the annuity had been withdrawn.  This is treated as ordinary income to the donor at the time of the transfer.  In other words, Section 72(e)(4)(C) provides that if a deferred annuity contract is transferred without adequate consideration, then a deemed distribution of the built-in gain in the contract gain occurs to the donor.  An exception applies when the donee is a spouse or the transfer is made incident to a divorce.  The donee or divorced recipient spouse will have the same investment in the contract as the donor spouse had.

 8.  Borrowing or Pledging Can Trigger Income Tax. Unlike life insurance products, monies borrowed from annuity contracts or by pledging of the contract are taxable to the extent that the contract has taxable income built up, and the transfer by gift of a contract (other than to a spouse) will trigger income tax as if the contract were sold to the transferee.  Life insurance death benefits and loan elimination on death happens tax free, which is contrary to what occurs with annuities when the moneys therein are eventually paid out.

9.  Not Necessary Under IRAs.  Oftentimes annuities are sold to be held under IRA’s, where tax deferral is already in place, and costs imposed in these situations will normally reduce performance significantly.

10. Trusts as Holders of Annuity Contracts.  Trusts are frequently constructed with the goal of preserving and protecting assets and avoiding federal estate tax at the level of a surviving spouse or one or more generations.

Annuities held by or payable to a revocable trust during the lifetime of a grantor will be treated for tax purposes as if they are owned by the grantor, although state law creditor protection might be compromised if a Statute protects individual owners and beneficiaries but not trusts.

Irrevocable trusts may be disregarded for income tax purposes, in which event annuity contracts owned by such trusts will be considered as owned by the grantor or a beneficiary depending upon which “grantor trust” rules apply.

Irrevocable trusts may also be “complex trusts” which are taxed as separate taxable entities in their own income tax brackets, the highest bracket of which is presently 39.6% on income not distributed that exceeds $12,150 a year.  The 3.8% Medicare tax also applies above the $12,150 threshold for undistributed trust income.

11.  Commissions Can Influence Judgment.  Clients are not apprised of high commissions that can be 7% or more, annual 12b-1 fees that may be .3% per year or more, and other rewards that can influence a sales person in an organization to favor these over mutual funds or other investments that may pay much smaller commissions and cost the client much less in fees and much less exposure for surrender charges.

If an irrevocable trust requires that all income be distributed annually to the income beneficiaries, then the trust may be a Asimple trust@ for federal tax purposes.

Under Section 72(u) annuity contracts must be held by natural persons, or by an agent for a natural person. Private Letter Rulings 9204014 and 9204010 concluded that annuity contracts owned by trusts for specified individual beneficiaries would be treated as being owned by Anatural persons@ for tax deferral purposes.  In these Rulings, the IRS ruled that where a non-grantor trust that has only one individual beneficiary holds an annuity contract, the contract can be treated as owned by a natural person.

Since then, a number of private letter rulings have come to the same conclusion, but none of these rulings (except possibly for one of them) have stated that an irrevocable trust that benefits multiple beneficiaries can be the owner of a tax-deferred annuity where the trustee has the ability to “spray” income and/or principal among multiple beneficiaries.

In addition, the IRS has not yet ruled on whether an unborn person is a “natural person” for the purposes of Section 72(u), which can be an important issue if a trust holding an annuity contract does not pay out to individual beneficiaries, but instead is held for the benefit of future generations indefinitely (or at least until the perpetuities period runs). However, Private Letter Rulings 199933033 and 200449016 suggest that unborn heirs are considered “natural persons.”

Most of the private letter rulings have been based upon factual scenarios where the trust documents specifically require that any one or more annuity contracts will be used solely for one named beneficiary, and in many of the rulings the contract itself is to be transferred to the one individual beneficiary that the contract has been purchased to benefit.  For example, Private Letter Ruling 201124008 allowed a multiple beneficiary trust to hold multiple annuity contracts, but the trust required that each separate contract was designated for a separate individual beneficiary, and that each contract would eventually be distributed to the designated beneficiary.  It is not known why each of the letter rulings were couched in these terms.

12. Difficult to Get an Objective Second Opinion.  It is very hard to get an objective 2nd opinion from those who feel strongly that these are worthwhile investments and those who would oppose them cannot be nearly as well compensated as those who support them.

The non commissioned annuities sellers and those who structure low cost private annuity wrappers for larger situations may be good sources of advice in this area.

We have enclosed a number of articles, both pro and con, and it seems clear to us that clients will be well advised to carefully consider their alternative and not jump blindly into an annuity product situation.

13.  Large Surrender Charges.  A typical surrender charge schedule would be 8% in years one and two, 7% in year three, 6% in year four, 5% in year five, 4% in year six, 3% in year seven, and 2% in year eight.

A Letter to the Editor of the Thursday Report
by Gene Stern

For over 30 years, Gene Stern has helped develop and service numerous corporate retirement plans. He has assisted hundreds of employees implement suitable retirement accounts. Economic uncertainty has jeopardized the viability of some of these employees to meet their retirement income needs.

As President of Innovative Retirement Income Solutions™ (IRIS), LLC, Gene has embarked on a mission to work with these and other employees to objectively understand and implement creative solutions that will assist them in finding a retirement date to be anticipated instead of dreaded.

Gene has earned the Chartered Retirement Planning Counselor (CRPC®) designation. He is a registered representative with Lincoln Financial Advisors Corp. and is one of its many Chartered Retirement Planning Counselors® located throughout the United States. Lincoln Financial Advisors Corp. is a member of Lincoln Financial Group, a Fortune 500 Company. For more information, including a copy of the most recent SEC reports containing current balance sheets, please visit www.LFG.com.

Alan:

 Thank you for your attempt to produce an evenhanded report on Variable Annuities.  I use both variable and fixed annuities in my practice for the right reasons, as described herein.

 I agree that many annuities have been sold for the wrong reasons, but please do not paint the entire industry with a bias.

 I cannot tell you how many clients have thanked me for protecting a portion of their income in retirement without having to worry about market downturns.

 One thing that you have not yet mentioned is that the built up income in a deferred annuity can be used to pay for long term care insurance.  I think that it is very important that you cover that in a future edition of your newsletter.

 Here is an example to show you what the populace is thinking:  I recently did a financial plan for a couple, each aged 65.  $2MM net worth and no debt and both will qualify for the maximum SS benefit.  In doing my plan, I did not recommend that they consider the purchase of an annuity as they did not need protected income to meet their “needs expense”.  I did suggest the annuity purchase of One America to protect assets from LTC needs on a joint basis.  When all was said and done, the husband, who is an engineer, asked me why I did not propose a Fixed Index Annuity.  I asked him why he thought he needed it and he said:  I have to RMD on my 401k of $550K and I would like to have the highest possible income from those assets without having to worry about the market tanking.  With drawdown rates now being purported to be 3.5%, I was able to use that 401K to create an average of 5.5% drawdown factor of an increasing value for the first few years and even when the account value fell to zero, this contract from Allianz, will still have a potentially increasing income due to the fact the index does not go away and this was on a joint life basis.  This $550K was able to generate the same income that an invested account needed to be worth $748K at a 3.5% drawdown.

 I love your humor.  Keep up the good work.  I hope my comments help you.

 Gene

Like Its Oil Rig, BP’s Last Attempt to Dodge Payments Goes Up in Flames

By John D. Goldsmith, J.D. and Alan S. Gassman, J.D., LL.M.

— A historic decision made in an unusual manner by the Supreme Court on an emergency motion gives good insight to predict that the class action settlement agreement will be enforced.

 — Claimants, CPAs, and lawyers are ready to receive adjudications and appeal and contest individual claim appeals.

 GENERAL HISTORY  Delay tactics until recently.

 The BP class action settlement that was blessed by U.S. Federal District Court Judge Barbier in March 2012 led to the appointment of Patrick Juneau as the Claims Administrator, and the hiring of the PricewaterhouseCoopers and the Postlethwaite & Netterville APAC accounting firms as program vendors for the Court-Supervised Settlement Program to facilitate the adjudication of claims using the court approved  private adjudication process.

 Up through October 2, 2013, the date BP swayed an appellate court to order a re-examination of the settlement to gauge the validity of payments, a high percentage of those claims were appealed, however, BP still paid out over $3.5 billion.

 While claims have continued to flow in at a high velocity, BP was successful in delaying the payment of claims by actions that it filed with the Fifth Circuit Court of Appeal, on the grounds that the class settlement action should have explicitly required claimants to show that their damages were directly attributable to the April 2010 oil spill.[1]

 On March 3, 2014 a three judge panel of the Fifth Circuit Court of Appeal found by 2-1 decision that no such direct causation would need to be proven, recognizing that the entire economy of the counties in Louisiana, Mississippi, Alabama, and Florida that are on or have direct water access to the Gulf of Mexico suffered miserably as the result of the spill.1

 In exchange for waiving any proof of causation requirement, BP avoided what could have been more than $40 billion in criminal and civil penalties for the criminal acts that it was later indicted for and pled guilty of.[2]

 After the 2-1 decision of the Fifth Circuit Court of Appeals’ panel, the question was posed to the entire panel of 14 judges and the majority of those judges decided to reject BP’s request to override the three judge panel on May 19, 2014.

 IMMEDIATE HISTORY – U.S. denies a stay while it determines whether it will hear an appeal on BP’s claim that it should not have to pay claimants who cannot prove that the spill caused their reduction of income or losses.

 On May 28, 2014, BP appealed to the U.S. Supreme Court for a stay, which is an order that would have enabled BP to not pay claims while it now appeals the causation decision of the three judge Fifth Circuit  panel to the U.S. Supreme Court.

 Procedurally, only Judge Scalia, who handles emergency motions to the Supreme Court, needed to consider the requested stay. He has the right to rule on the motion himself.

 Instead, Judge Scalia brought the entire nine member U.S. Supreme Court into deliberation on the matter, and the decision of the Court, rendered only 12 days after BP filed for its emergency stay was a resounding thumbs down to what it asked for. This heavy-handed action suggests that the Supreme Court will not rule in BP’s favor on the question of causation.

  The “mandate” to pay class action claims now stands and requires the Claims Administrator to again process and pay business economic loss claims. Payment of almost all business economic loss claims has been shut down since the initial stay on October 2, 2013 by an earlier court order, so there is a very large backlog.

 While the denial of BP’s emergency motion does not mean the Supreme Court will not agree to hear the case, it now seems unlikely.  The reason is that if the majority of the Court had found that BP’s arguments had merit, it would have granted the stay, preventing payment.  BP argued that, “Unless the mandate is recalled and stayed, countless awards totaling potentially hundreds of millions of dollars will be irretrievably scattered to claimants that suffered no injury traceable to BP’s conduct.”

 To obtain a stay, BP had to show that (1) there was a “reasonable probability” that the Court would grant cert; (2) that there was a “significant possibility” that the Fifth Circuit’s decision would be reversed; and (3) that BP would be irretrievably harmed if the stay were not granted.

 BP claimed that the class action settlement could not be interpreted consistent with Rule 23 and Article III of the Constitution[3] to “require payment to claimants who have no plausible claim that their injuries were caused by the spill.”  By rejecting the emergency motion the Supreme Court gave a strong hint that it will deny hearing the appeal. That is very good news for the business claimants, and their employees, who have suffered from BP’s continued actions to evade its class action settlement.

 BP has thirty (30) days to appeal each adjudicated claim, and typically does so on the thirtieth (30th) day.  Appealed claims have typically taken at least 14 days to resolve and about 20 business days after ruling to receive payment.  BP has to pay an additional five percent (5%) when it loses an appeal to help compensate the claimant and/or its advisors for the additional work needed.

 If BP is successful in its ultimate appeal of the Fifth Circuit’s decision, those claims that have been paid before any such victory occurs will be cows out of the barn that cannot be brought back in, and it seems doubtful that the U.S. Supreme Court will accept BP’s appeal or adjudicate in its favor given the timing and unanimity of the Fifth Circuit’s decision.

 The other issue at hand involves whether claimants will have to match cash revenues to expenses at different times based on an order dated December 24, 2013 whereby the Fifth Circuit Court of Appeals ordered the Claims Administrator to, “adopt and implement an appropriate protocol or policy for handling BEL claims in which the claimant’s financial records do not match revenue with corresponding variable expenses”. As a result of this, the Claims Administrator issued 88 pages of Policy 495 which is aimed at a small number of industries which are professional services, farming, construction, and education.

Please stay tuned as this situation continues to develop, and BP pays the price for negligence and criminal action that will be studied and criticized in historical and business textbooks for centuries to come.

__________________________

[1]http://www.nytimes.com/2012/02/21/us/ahead-of-bp-oil-spill-trial-settlement-talks-pick-up.html?pagewanted=all&_r
[2] BP plead guilty to manslaughter charges and agreed to pay $4.5 billion in government penalties to resolve the criminal charges that stemmed from the oil spill. http://money.cnn.com/2012/11/15/news/bp-oil-spill-settlement/
[3] Rule 23 deals with class action lawsuits and can be found here: http://www.law.cornell.edu/ rules/frcp/rule_23. The pertinent sections of Article III of the Constitution is as follows:
Section 1.The judicial power of the United States, shall be vested in one Supreme Court, and in such inferior courts as the Congress may from time to time ordain and establish. The judges, both of the supreme and inferior courts, shall hold their offices during good behavior, and shall, at stated times, receive for their services, a compensation, which shall not be diminished during their continuance in office.
Section 2.The judicial power shall extend to all cases, in law and equity, arising under this Constitution, the laws of the United States, and treaties made, or which shall be made, under their authority;–to all cases affecting ambassadors, other public ministers and consuls;–to all cases of admiralty and maritime jurisdiction;–to controversies to which the United States shall be a party;–to controversies between two or more states;–between a state and citizens of another state;–between citizens of different states;–between citizens of the same state claiming lands under grants of different states, and between a state, or the citizens thereof, and foreign states, citizens or subjects.
 In all cases affecting ambassadors, other public ministers and consuls, and those in which a state shall be party, the Supreme Court shall have original jurisdiction. In all the other cases before mentioned, the Supreme Court shall have appellate jurisdiction, both as to law and fact, with such exceptions, and under such regulations as the Congress shall make.
 The trial of all crimes, except in cases of impeachment, shall be by jury; and such trial shall be held in the state where the said crimes shall have been committed; but when not committed within any state, the trial shall be at such place or places as the Congress may by law have directed.

Contempt of Court – Part 2: Self-Created Impossibility Defense, an article by Howard Rosen, Esq. and Patricia Donlevy-Rosen

                                           Rosen Headshot - Square                                            Donlevy-Rosen Headshot - Sqaure

HOWARD ROSEN is an “AV Preeminent” rated Attorney and a Certified Public Accountant practicing law in Miami, Florida, as a partner in the Coral Gables firm of Donlevy-Rosen & Rosen, P.A. Mr. Rosen served as an ADJUNCT PROFESSOR and LECTURER AT LAW at the University of Miami School of Law for twenty years, and is a frequent lecturer on the subject of asset protection.

Mr. Rosen is the founding author of the BNA TAX MANAGEMENT PORTFOLIO titled “ASSET PROTECTION PLANNING”, which is used by lawyers, CPA’s, and estate planners nationwide in researching asset protection issues. He was also the co-author of another BNA TAX MANAGEMENT PORTFOLIO titled “U.S. TAXATION OF FOREIGN ESTATES, TRUSTS, and BENEFICIARIES” and has published numerous articles in professional and academic journals on these subjects, and he is the Editor/Publisher of The ASSET PROTECTION NEWS.

Mr. Rosen is the CHAIRMAN OF THE ASSET PROTECTION COMMITTEE OF THE AMERICAN ASSOCIATION OF ATTORNEY-CPA’S, he is a member of TAX MANAGEMENT’S ADVISORY BOARD ON ESTATES, GIFTS AND TRUSTS, the SOUTHPAC OFFSHORE PLANNING INSTITUTE ADVISORY BOARD, and the Tax and International Law Sections of the Florida Bar.

Mr. Rosen concentrates his nation-wide law practice in asset protection planning.

PATRICIA DONLEVY-ROSEN is an “AV Preeminent” rated Attorney practicing law in Miami, Florida, as a shareholder in the firm of Donlevy-Rosen & Rosen, P.A. She is also admitted to practice law in New York. Ms. Donlevy-Rosen is a frequent lecturer on asset protection, corporate and business planning subjects.

Ms. Donlevy-Rosen is the author of an RIA Tax Advisors Planning Series publication, “ASSET PROTECTION PLANNING”, which is used by lawyers, CPA’s, and estate planners nationwide in researching asset protection issues. Ms. Donlevy-Rosen is the author of three chapters on asset protection in “THE BIGGEST LEGAL MISTAKES PHYSICIANS MAKE AND HOW TO AVOID THEM”, and has also published asset protection articles in professional and other publications such as Tax Management’s Estates, Gifts and Trusts Journal, and others.

Ms. Donlevy-Rosen is a member of the Board of Advisors of the Southpac Offshore Planning Institute, the Asset Protection Planning Committee of the Real Property, Probate and Trust Law Section of the ABA and the Business Law and Real Property, Probate and Trust Law Sections of the Florida Bar.

Ms. Donlevy-Rosen’s nation-wide law practice is concentrated in asset protection planning and related matters.

INTRODUCTION. “Will I go to jail if I set up an offshore trust?” The short answer continues to be “no” (See, APN Vol. XVII, No. 1, for background on contempt). The more complete answer is “not if the trust is competently prepared and properly implemented” (See, APN Vol. VII, No. 2, for background on the importance of competent counsel). Case in point: the 2014 Bellinger case.

 BELLINGER CASE.   In 2006 the predecessor of the plaintiff bank made a loan to a company Mr. Bellinger was involved in and obtained personal guarantees from him and two others. Although not mentioned in the Court’s decision, the other two individuals had agreed to indemnify Mr. Bellinger should his personal guarantee be called upon. Those individuals had made good on previous indemnifications, and Mr. Bellinger believed that they would continue to honor their agreements.

 The loan went into default in February 2011, and Mr. Bellinger and the others were sued by the bank on their personal guarantees in May 2011. On November 30th, 2011, Mr. Bellinger created a Cook Islands Trust (“Trust”), funded with approximately $1.7 million in assets. MAKE NO MISTAKE: it is always best to set up an asset protection trust BEFORE a claim arises, because, depending upon the specific circumstances, it is often not possible to set up a trust after a claim arises. To be clear: in this case the claim arose when the loan went into default.

 The bank won the case in January 2013, and the Court entered a final judgment against Mr. Bellinger for $4,923,797.57, plus post-judgment interest. The bank then sought to collect its judgment from Mr. Bellinger, but was unable to do so. Mr. Bellinger, as ordered by the Court, requested the Cook Islands trustee to send back all of the funds in the Trust to pay the judgment. The trustee considered his request and refused. The bank then asked the Court to incarcerate Mr. Bellinger for contempt, pointing out that “[p]rior to the entry of the final judgment, but several months after [Plaintiff] filed [its] lawsuit, Bellinger created an offshore Cook Islands Trust.”  The bank alleged that “Bellinger created the Cook Islands Trust in order to shield his assets from the final judgment that was ultimately entered against him by this Court.” The bank further asserted that Mr. Bellinger could not argue that it was impossible for him to comply with the final judgment because, by creating the Trust, his inability to comply was self-created.

 In opposition to the bank’s motion to have him incarcerated, Mr. Bellinger argued that the bank was overreaching by seeking to have him incarcerated because he lacked the financial ability to pay the monetary judgment entered against him. In response to the bank’s argument that the Solow case (APN, Vol. XIX, No. 1) should be controlling, Mr. Bellinger argued that his case was not a disgorgement action seeking the refund of wrongfully-obtained funds (as in Solow), but rather a garden variety civil action on a personal guaranty following a failed commercial loan. Mr. Bellinger argued that the Trust was lawfully created before any final judgment was entered against him, and that the bank was improperly seeking to have him held in contempt because he was unable to pay a civil judgment. Additionally, Mr. Bellinger argued that he should not be held in contempt because he lacked the power to have assets released from the Trust in order to comply with the final judgment. Mr. Bellinger explained that he established the Trust because he had recently been divorced, needed to revise and update his estate planning (quite customary), and, in particular, he wanted his updated estate planning to assure the financial security of his daughter (who was in need of financial assistance). Mr. Bellinger testified that he could not compel payment of the judgment from the Trust (he had asked and the trustee refused), that he could not replace the trustee, and that the Trust was irrevocable. The Court found Mr. Bellinger to be a credible witness, and the Court concluded that he had adequately shown an inability to comply with its final judgment.

 It is noteworthy that from March 2012 to May 2013, Mr. Bellinger had received a monthly distribution from the Trust which he used to cover “overhead costs of [his] support.” After May 2013, such monthly trust distributions were made to Mr. Bellinger’s girlfriend (who was also a discretionary beneficiary of the Trust). Thus, he was able to benefit from his Trust while the creditor was trying to reach his assets – not possible with a domestic trust.

 In reaching its decision, the Court correctly relied on the controlling U.S. Supreme Court case of Maggio v. Zeitz“Civil contempt orders are coercive in nature. … “To jail one for contempt for omitting an act he is powerless to perform would reverse [that] principle and make the proceeding purely punitive, to describe it charitably. Contempt orders will not be issued if the court finds no willful disobedience but only an inability to comply.” (emphasis added) (See, APN  Vol. XVII, No. 1Mr. Bellinger was (properly) not held in contempt.

 ONE MORE THING.    The Court stated that the bank appeared to assert a fraudulent transfer allegation in support of its contempt motion. However, even if the bank had successfully argued and won a fraudulent transfer argument, it would have been to no avail. Consider this: since the trustee refused to return trust assets when Mr. Bellinger was faced with contempt incarceration, it is very likely to have refused to honor a “return the assets” order of a U.S. federal court. After all, no U.S. court has jurisdiction (power) over a Cook Islands trustee (as it would with a domestic trustee), and, in order for any fraudulent transfer finding to have effect, a court must have jurisdiction over the transferee (in this case, the trustee) so it can enforce its return order with threats of sanctions.

 SUMMARY. Court decisions have consistently held that civil contempt incarceration can only be used to obtain compliance with a court order – it cannot be used to punish, and, it can only be used when the party subject to the court order has the present ability to comply. Incarcerating a party for failing to comply with an order which is impossible to comply with is punishment and, under the long-standing law set forth by the U.S. Supreme Court, cannot be done.

 To read part 1 of Howard’s article please click here.

Thoughtful Corner –Why Your Smart Phone May Be Much Smarter Than You Are.  Who Works For Who And Why

It is great to get messages and be able to reply to them on the go, or anywhere, but the great majority of professionals make a grave mistake by routinely answering questions and addressing opportunities with one finger, one letter at a time, without circling back to expound, connect or follow up.

Here is why that is a grave mistake:

  1. When you type, dictate a response for transcription, or call someone you have a much easier flow of information, detail and creativity and warmth to convey.
  1. When you reply by phone you are much less likely to follow up or think through what the other person wants or needs.
  1. The recipient is not going to give as much credence or thought to what comes back with the suffix “please excuse typos and grammar from this phone”.
  1. And, for Pete’s sake, gosh darn it, why do so many people on phones reply only to the sender?  Is there an epidemic of “reply all” keys not working?

               So when I am away from the office and answering emails on my phone:

1. I copy key people in my organization as a signal for them to follow up with me on the matter.  In fact, if I cc “PP” my assistant gets this email and prints it and puts it on my printer so that I can follow up later, and I make sure that I do.

2. I have my assistant print up the emails I send on my phone whenever I am away from the office for a long period of time.  I use these to also make sure that I have billed for any significant time spent reviewing messages or documents on my phone.

3. I am mindful that responses and interaction will not be as rich, warm, or meaningful than it would be if I had a keyboard or a dictaphone in front of me, and act accordingly.

So do not become a scattered mess like so many of those who we observe.

The phone is to be our servant, not our master or downfall.

Humor! (Or Lack Thereof!)

Sign 6.12.14.pdf

Upcoming Seminars and Webinars

BLOOMBERG BNA WEBINAR:

HIRING AND TERMINATING EMPLOYEES; WHAT TO DO, WHAT TO AVOID

Speaker: Alan S. Gassman, Esq., Colleen Flynn, Esq. and Dr. Stephanie Thomason

This is a very practical guide that your office manager is sure to enjoy.  Let us know if you would like to see Alan Gassman’s slides for this presentation.

Date: Wednesday, June 18, 2014 | 2:00 – 3:00 p.m.

Location: Bloomberg BNA Tax & Accounting Online webinar

Additional Information:  For more information, to register and a discount code please email agassman@gassmanpa.com

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LIVE CLEARWATER PRESENTATION:

FICPA SUNCOAST CHAPTER MONTHLY MEETING

Alan S. Gassman will be speaking at the FICPA Suncoast Chapter’s monthly meeting on HOW TO PLAN, STRUCTURE, AND PROTECT WEALTH USING REVOCABLE AND IRREVOCABLE TRUSTS AND TRUST SYSTEMS.  A COMPREHENSIVE OVERVIEW WITH A PRACTICAL PLANNING CHECKLIST AND PRACTITIONER TAX COMPLIANCE GUIDE.

Speaker: Alan S. Gassman

Date: Thursday, June 19, 2014 | 4:00 p.m. (100 minute presentation)

Location: Feather Sound Country Club, Clearwater, Florida

Additional Information:  For more information, to register and a discount code please email agassman@gassmanpa.com

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LIVE FT. LAUDERDALE PRESENTATION:

FICPA ANNUAL ACCOUNTING SHOW 

Alan Gassman will be speaking at the FICPA Annual Accounting Show on Thursday, September 18, 2014 on the topic of ESSENTIAL GUIDE TO BASIC TRUST PLANNING for 50 minutes.

This presentation will introduce basic and intermediate trust planning background and provide attendees with an orderly list of the most commonly used trusts, practical features and traps for the unwary, including revocable, irrevocable and hybrid.  The discussion will include tax, creditor protection and probate and guardian considerations.

Date: Wednesday, September 17 through Friday, September 19, 2014

Location:  Fort Lauderdale, Florida

Additional Information:  For more information about this program please contact Stephanie Thomas at ThomasS@ficpa.org

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LIVE NEW JERSEY PRESENTATION:

NEW JERSEY INSTITUTE FOR CONTINUING LEGAL EDUCATION (ICLE)_SPECIAL 3 HOUR SESSION

Alan Gassman will be the sole speaker for this informative 3 hour program entitled WHAT NEW JERSEY LAWYERS NEED TO KNOW ABOUT FLORIDA LAW

Here is some of what the New Jersey Bar Invitation for this program provides:

New Jersey residents have always had a strong connection to Florida.  We vacation there (it’s our second shore).  Own Florida property (or have favored relatives that do) and have family and friends living there.  Sometimes our wealthiest clients move to Florida and need guidance, and you need background in order to continue representation.

There are real and significant differences between the two states that every lawyer should be cognizant of.  For example, holographic wills are perfectly legitimate in New Jersey and anyone can serve as an executor of an estate, which is not the case in Florida.  Also, Florida’s new rules regarding LLCs are different, and if you are handling estates of New Jersey decedents who owned Florida property, there are Florida law issues that must be addressed.  Asset protection differs significantly in Florida too.

Attendees will receive Mr. Gassman’s book entitled “Florida Law for Tax, Business and Financial Planning Advisors,” which has a retail value of $34.95.

Our informative seminar, presented by Clearwater attorney Alan Gassman, highlights issues New Jersey lawyers should be aware of when handling matters for New Jersey residents who own Florida property, reside there part time, have interest in Florida businesses, or who are considering a move to Florida.  The Florida Bar rules permit out of state lawyers to continue representation of Florida residents under rules that will be discussed.

Gain the knowledge you need to assist your clients with Florida matters, including:

  • Florida specific laws involving businesses, trusts, and estates
  • Florida tax planning
  • Elective share and homestead rules
  • Liability Insulation and Planning
  • Creditor Protection and Strategies
  • Medical Practice Laws
  • Staying within Florida Bar Guidelines that allow representation of Florida clients

Comments from past attendees of this program:

  • Excellent seminar and materials!!!
  • This was one of the best ICLE seminars yet!
  • One of the best seminars I have attended.
  • Better than mashed potatoes and gravy.  Glad he didn’t serve grits!

Date: Saturday, October 4, 2014

Location:  TBD

Additional Information: This is a repeat of the same program that we gave last year, but our book is now updated for the new Florida LLC law and changes in estate and trust law.  Please tell all of your friends, neighbors and enemies in New Jersey to come out to support this important presentation for the New Jersey Bar Association.  We will include discussions of airboats, how to get an alligator off of your driveway, how to peel a navel orange and what collard greens and grits are. For additional information please email agassman@gassmanpa.com

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LIVE SOUTH BEND, INDIANA PRESENATION:

40th ANNUAL NOTRE DAME TAX & ESTATE PLANNING INSTITUTE

Please send us your questions, comments and suggestions for Alan Gassman’s talk on Planning with Variable Annuities and Analyzing Reverse Mortgages.

This presentation will cover the unique income tax and financial planning characteristics of fixed and variable annuities, and provide estate and tax planners with a number of strategies for understanding and planning with existing and contemplated contracts. With over One Trillion Dollars of US taxpayer money invested in annuity contracts, more and more clients are showing up in their estate planners’ offices with large annuity contracts and common misunderstandings about “guaranteed income” and “guaranteed rates of return” features.   The presentation will cover common policy features, what is actually happening inside of a policy, illustration techniques, and changes that can be made to defer income tax and reduce overall tax liability.   Minimum distribution rules that apply to variable annuity contracts will also be discussed.

Date:November 13 and 14, 2014

Location: Century Center, South Bend, Indiana

We welcome questions, comments and suggestions on variable annuities, which will be Alan Gassman’s topic for this conference.

Additional Information: The focus of this year’s institute will be on “Business Succession Planning: An Income Tax, Estate Tax and Financial Analysis.”  As in past years, several sessions are designed to evaluate certain financial products and tax planning techniques so that the audience can better understand and evaluate these proposals in determining not only the tax and financial advantages they offer, but also evaluate limitations and problems they may cause in the future.  Given that fewer clients will need high-end estate tax planning with the $5 million exemptions, other sessions will address concerns that all clients have.  For example, a session will describe scams that target elderly individuals and how to protect the elderly from these scams.  As part of the objective on refreshing or introducing the audience to areas that can expand their practice, other sessions will review the income tax consequences of debt cancellation, foreclosures, short sales, the special concerns that arise in bankruptcy and various planning available to eliminate the cancellation of debt income or at least defer it with a possible step-up basis at death.  The Institute will also continue to have sessions devoted to income tax planning techniques that clients can use immediately instead of waiting to save estate taxes far in the future.

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LIVE NAPLES PRESENTATION:

2nd ANNUAL AVE MARIA SCHOOL OF LAW ESTATE PLANNING CONFERENCE

Date: Friday, May 1, 2015

Location: Ave Maria School of Law, Naples, Florida

Speakers:   Alan S. Gassman will be once again be speaking at the Ave Maria School of Law Estate Planning Conference in Naples, Florida along with Jonathan Gopman, Bill Snyder, Elizabeth Morgan, Greg Holtz, Jerry Hesch, and others.  Please let us know any questions, comments, or suggestions you might have for this amazing conference, which features dual session selection opportunities in one of the most beautiful conference facilities that we have ever seen.

And don’t forget to have a great weekend in Naples with your significant other, or anyone who your significant other does not know!  Domino’s Pizza is extra.

Additional Information: Please contact Karen Grebing at kgrebing@avemarialaw.edu for more information.

NOTABLE SEMINARS BY OTHERS

(WE WERE NOT INVITED, BUT WILL ATTEND AND ARE STILL EXCITED)

LIVE ORLANDO PRESENTATION

49th ANNUAL HECKERLING INSTITUTE ON ESTATE PLANNING

Date: January 12 – 16, 2015

Location: Orlando World Center Marriott 8701 World Center Drive, Orlando, Florida

Additional Information: For more information please visit: https://www.law.miami.edu/heckerling/?op=0

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LIVE ST. PETERSBURG PRESENTATION:

ALL CHILDREN’S HOSPITAL FOUNDATION

Date: Thursday, February 12, 2015

Location: St. Petersburg, FL

Additional Information: Please contact Lydia Bennett Bailey at Lydia.Bailey@allkids.org for more information.

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LIVE PRESENTATION:

2015 FLORIDA TAX INSTITUTE

Date: Wednesday through Friday, April 22 – 24, 2015

Location: TBD

Additional Information: Please contact Bruce Bokor at  bruceb@jpfirm.com for more information.

Applicable Federal Rates

Applicable Federal Rates JuneThe 7520 rate for June is 2.2% and for May was 2.4%.

 

The Thursday Report 6.5.2014 – Annuities II, SCGRATs, Need Blattmachr Topic, and Remembering Judge Caddell

Posted on: June 5th, 2014

Titles

 We welcome contributions for future Thursday Report topics. If you are interested in making a contribution as a guest writer, please email Janine Gunyan at Janine@gassmanpa.com.

This report and other Thursday Reports can be found on our website at www.gassmanlaw.com.

Planning with Variable Annuities

We received a number of comments on our article last week entitled Planning with Variable Annuities that can be reviewed by clicking here.

Veteran chartered retirement planning counselor and financial planner, Gene Stern is preparing an article for us which will outline advantages and positive outcomes that he has had in his practice.

We also received the following comments from Parker Evans, CFA, CFP, CMT.

Our article will continue next week.

Are Annuities a Good Investment?
by Parker Evans, CFA, CFP, CMT

Parker Evans

Parker Evans is a Certified Financial Planner (CFP) and Chartered Financial Analyst (CFA) investment professional with 30 years of experience. He is President of Successful Portfolios LLC, a Clearwater, Florida based, fee-only Registered Investment Advisor.

Are annuities a good investment?  The short answer is probably not. Annuities are insurance contracts based on life expectancy tables.  A simple, traditional annuity provides the buyer with a fixed monthly stream of income for life.  Unfortunately, the insurance industry has made great strides in making the simple complex.  For example, annuities can be immediate or deferred, and fixed, variable or equity linked. Today, new-fangled annuities outsell traditional immediate fixed annuities by a wide margin. There are at least four potential problems with investing in a deferred annuity:

  1. Tax Disadvantages
  2. Mind-boggling Complexity
  3. High Costs and Illiquidity
  4. Concentrated Credit Risk

Consider this hypothetical example.  A fifty-two year old investor purchases a $100,000 equity index deferred annuity.  The annuity is linked to the S&P 500 Index, has a seven-year surrender term, a 60% participation rate, and a 6% annual cap.  Please keep in mind that this investor could easily invest in an ultra-low cost, tax efficient ETF that will reliably replicate the return on the S&P 500 Index.  Also, currently the ETF pays a tax-advantaged dividend of approximately 2% annualized which can increase over time.  The annuity investor will not receive any return linked to dividends, a fact disclosed only in the fine print of the contract.  Now, assume the S&P 500 appreciates 60% over the 7-year term of the annuity term.  The $100,000 invested in the ETF is now worth $160,000 and considerably more with the dividends reinvested.  The $100,000 invested in the annuity is worth at most $133,300 and probably less, possibly a lot less.  It gets worse.  When the investor surrenders his annuity, he pays taxes on any gain at his highest marginal tax rate, which can be as high as 43.4% when you include the 3.8% Medicare tax.  In contrast, the ETF investor, if he sells his shares, may enjoy lower long-term capital gains tax rates.  Better yet, the ETF investor may never owe taxes on his gain if he is in a low marginal tax bracket at the time of sale or if he qualifies for a step up in basis at death.

In the event the investor needs to surrender his annuity before seven years, the insurance company will charge hefty surrender fees and a market value adjustment.  If the investor has not reached age 59-1/2 then an extra 10% of income excise tax may apply.  In contrast, the ETF investor will incur only a relatively small commission to sell his shares.  And unlike the annuity investor, the ETF investor could easily borrow money at very low cost using his ETF as collateral without triggering a taxable event.

Now it is possible, but historically unlikely, that the S&P 500 will be lower after seven years.  In that scenario, the annuity investment might actually outperform the ETF, assuming that the annuity carrier does not go bust.  In the aftermath of the 2008-2009 market crash, many annuity issuers were in such dire financial straits that they required TARP capital injections from the US Treasury.

“Don’t be a fooled. Annuities can be unsuitable investments with complex riders and features designed to promote sales and protect the insurance company, not the investor.“

SCIN, SCRAM, Annuity or SCGRAT – Planning for Clients with Short Life Expectancies After Davidson and CCA 2013-30-033, an article by Alan Gassman & Ken Crotty

On Tuesday, June 3, 2014, our article “SCIN, SCRAM, Annuity or SCGRAT – Planning for Clients with Short Life Expectancies After Davidson and CCA 2013-30-033 was published in Leimberg Information Services.

We have received some positive feedback on the article already including this quote from Scott Tippett, Esq. “Great Leimberg article on SCINs and SCGRATs.  As good as the article is, footnote IV is priceless.

Footnote IV reads as follows: In the famous television game show, Let’s Make a Deal, moderator Monty Hall would give contestants the choice of three different doors or the box where Carol Merrill was standing.  The box where Carol Merrill was standing was not usually the winner, and Carol Merrill was no Vanna White, but let’s not digress any further here other than to mention that the song “My Whole World Lies Waiting Behind Door Number 3,” by Jimmy Buffett on the A1A album from 1974 is more than worth listening to.  “Didn’t Get Rich,” “Son of a ________”, “I’ll be Back Someday, You’ll See,” “My Whole World Lies Waiting Behind Door Number 3.”  If you have never heard the A1A album please listen to it from beginning to end, which is the way that most great albums were designed to be experienced.  Greatest hits almost never do justice to any good musician.  The entire lyrics for the song My Whole World Lies Waiting Behind Door Number 3 can be reviewed by clicking here.  Dolphins can click six times!

Our article is as follows:

“Since the Tax Court decision of Estate of Moss v. Comm’r in 1980 and the issuance of Treasury Regulation § 1.1275-1(j) in 1998, estate tax planners have used self-cancelling installment notes (SCINs) to save millions of dollars of estate taxes for taxpayers whose life expectancy may be shorter than that assumed under the 2000CM Mortality Table promulgated by the Treasury Department under Publication 1457.  In the recent CCA 2013-30-033, the IRS has taken the position in the Davidson case that clients with shorter than average life expectancies may not rely on the 2000CM Mortality Table to determine their life expectancy for the purpose of valuing the SCIN and may make taxable gifts when the sale occurs if they do rely on the 200CM Mortality Table. 

To reduce the possible gift tax exposure for clients, practitioners using SCIN with clients who have reduced life expectancies may want to use the SCGRAT technique. Utilizing a SCGRAT may be the best choice for practitioners who would like to use SCINs with a client who has a reduced life expectancy. 

If the Service successfully challenges the transaction and reduces the face value of the note by applying the willing buyer willing seller standard, by using the SCGRAT the value of the GRAT formed by the client should be increased.  If the value of the GRAT is increased, then the payments from the GRAT to the client will be increased.  As a result, there should not be any additional gift tax liability for the client.”

Alan Gassman and Ken Crotty provide members with their commentary on the benefits of using the “SCGRAT” planning technique.

EXECUTIVE SUMMARY:

Since the Tax Court decision of Estate of Moss v. Comm’r in 1980 and the issuance of Treasury Regulation § 1.1275-1(j) in 1998, estate tax planners have used self-cancelling installment notes (SCINs) to save millions of dollars of estate taxes for taxpayers whose life expectancy may be shorter than that assumed under the 2000CM Mortality Table promulgated by the Treasury Department under Publication 1457.  In the recent CCA 2013-30-033, the IRS has taken the position in the Davidson case that clients with shorter than average life expectancies may not rely on the 2000CM Mortality Table to determine their life expectancy for the purpose of valuing the SCIN and may make taxable gifts when the sale occurs if they do rely on the 200CM Mortality Table.  To reduce the possible gift tax exposure for clients, practitioners using SCIN with clients who have reduced life expectancies may want to use the SCGRAT technique described below.

FACTS:              

The industry practice for most well versed practitioners has been that the 2000CM Mortality Table can be used when the taxpayer has a better than 50% chance of living at least one year at the time that the SCIN or private annuity arrangement is entered into.[i]

In order to avoid incurring income tax on the sale of assets for a SCIN or private annuity, most arrangements have entailed having an irrevocable trust established to be separate and apart from the taxpayer for federal estate tax purposes, while being disregarded for income tax purposes so that there is no income on the sale and no interest or Internal Code Revenue § 72 income recognized by the taxpayer as payments are received by the taxpayer from the trust during the taxpayer’s lifetime.

Treasury Regulation § 25.7250-3(b)(2)(i) was enacted to implement the “probability of exhaustion test” which generally provides that if the entity purchasing assets for a private annuity is not capitalized with sufficient assets to enable the trust to make the scheduled private annuity payments until the Grantor reaches age 115, assuming a market rate equal to what is known as the  7520 rate which is equal to 120% of the Federal midterm rate in effect under § 1274(d)(1) for the month when the transaction is entered into, rounded up to the nearest 2/10ths of 1%.

Because of the difficulty of satisfying the probability of exhaustion test, especially in periods of low interest rates, most estate tax planners have recommended the use of SCINs, which are not subject to that test.  A commonly used planning industry rule of thumb has been that a trust purchasing assets from a Grantor in exchange for a SCIN should have a positive net worth equal to 10% or more of the value of the assets purchased in order to be considered a separate and viable entity for estate tax planning purposes.

When trusts do not have sufficient assets to pass the probability of exhaustion test or the “10% rule of thumb” described above then it is common to have beneficiaries or affiliated entities guarantee the note or the private annuity in order to meet the applicable test,[ii] the 10% test for a SCIN or the probability of exhaustion test for a private annuity.

Treasury Regulation § 25.7520-3(b)(3)(I), which states that the 2000CM Mortality Table can be used when the person whose life controls the document has better than a 50% chance of living at least one year, applies explicitly to private annuities.

Many leading commentators, including Howard Zaritsky and Ronald D. Aucutt, have concluded that most likely this regulation applies to SCINs, because in form and content a SCIN constitutes a series of payments over time that can in substance be exactly the same as a private annuity contract.

The Service has strongly disagreed with this approach, but has waited over 18 years since the enactment of the above-referenced Treasury Regulation and notwithstanding annual and continuing industry and leading treatise literature to the contrary, on the occasion of the death and estate tax return audit of William M. Davidson to challenge this approach, whereby over $1,000,000,000 of estate tax is being assessed by the Service (constituting over 25% of the total estate taxes that the U.S. government would receive for a given calendar year) as the result of Mr. Davidson having sold a large percentage ownership in the Detroit Pistons basketball team and other assets in exchange for multiple SCINs when Mr. Davidson is said to have been in failing health.

The Service further threw the gauntlet down in front of the estate tax planning industry by publishing CCA 2013-30-033 on August 5, 2013, as an IRS Chief Counsel Advice which concludes that a SCIN will be worth substantially less than its face amount if a willing buyer would pay a willing seller less than the face amount if there was open market negotiation for the note.

In other words, if Mr. Davidson sold $1,000,000,000 worth of assets for a $1,000,000,000 SCIN then the trust that sold the note would only be able to receive $300,000,000 pursuant to an auction of the note at an event where every willing buyer received notice of the auction. Mr. Davidson would then have made a $700,000,000 gift and he would be subject to $280,000,000 worth of estate tax, enough to purchase two F-35 fighter jets.

What is a planner to do now when a wealthy client has a short life expectancy – SCRAM, go flat or SCGRAT?

COMMENT:

Door Number 1

A private annuity arrangement could be entered into with family members, such as occurred in the 2012 Estate of Kite v. Commissioner case.  If a private annuity is entered into where the parent sells assets to children, the children’s basis in the assets will be equal to the annuity payments made by the children.  If the parent dies before receiving any annuity payments, such as what happened in the Kite case, the children would have a zero basis in the assets received and would face a 23.8% capital gains tax on the full value of the assets when they were sold.

Alternatively, the planner must face the probability of exhaustion test if a grantor trust is used that would quite possibly allow a stepped up basis for the assets.

The probability of exhaustion test may not apply, as discussed in the University of Miami Heckerling presentation by Lawrence Katzenstein[iii], but there is a significant risk that the probability of exhaustion test will apply.

Door Number 2

Go with a SCIN, but understand the risk posed by CCA 2013-30-033 and the Davidson case that the Grantor could be making a significant taxable gift at the time the transaction was entered into.

Door Number 3

Do nothing, but accelerate planning with charitable donations, discounting, and other methods.

Door Number 4

The box where Carol Merrill is now standing. [iv]

Door number 4 is the bread slicer – or at least what we think is better than sliced bread – a SCIN arrangement that would allow any gift element to not be subject to gift tax and to instead be repayable to the Grantor by use of a grantor retained annuity trust arrangement.

Instead of selling the assets to a typical irrevocable grantor trust the taxpayer first establishes a limited liability company owned 100% by the Grantor and places the assets that are being “sold” into the LLC and also receives a SCIN from the LLC while verifying that the taxpayer has a better than a 50% chance of living at least one year.

The taxpayer also executes a grantor retained annuity trust agreement (GRAT) which provides that a percentage of the value of the Day 1 GRAT assets will be paid back to the Grantor each year for two years on the anniversary date of the GRAT being established.[v]

The Grantor then transfers ownership of the LLC to the GRAT and hires a valuation firm to determine the value of the assets owned by the LLC.

If the valuation firm opines that the assets in the LLC are worth less than the face amount of the SCIN, then the LLC will be considered to have a negligible value, and the payments owed back to the Grantor will be very small.  There should be some positive value even if the assets in the LLC are worth less than the SCIN because the owner of the LLC has no downside and at least some limited upside potential that the assets will grow in value and yield a net return exceeding the amount owed on the SCIN.

If the assets have a value exceeding the value amount of the SCIN then assuming the 7520 rate is 2.4%, then the excess amount multiplied by approximately 51.8% will be the amount of the annual payment that the GRAT will make to the Grantor, which may be in cash that the LLC can distribute to the GRAT or in the form of assets equal in value to such amounts that the LLC may distribute to the GRAT each year.

After the second annual payment, the LLC will be owned by the GRAT or an irrevocable “remainder trust” that the GRAT pours into after the second year.

The SCIN will typically be an interest only SCIN with a balloon payment at the end of the term of the note which will normally be just before the standard life expectancy of the individual on whose life the note is based as determined under 2000CM Mortality Table or the mortality table under Treasury Regulation § 1.72-9, Table V.

The 2000CM Mortality Table will typically have a shorter life expectancy and it is therefore safer to use it.  For example, for a 78 year old the life expectancy under the 200CM Mortality Table is 9.44 and the life expectancy under Treasury Regulation § 1.72-9, Table V is 10.63.

To determine the value of the SCIN, either the interest rate of the SCIN will be increased, the face amount of the SCIN will be increased, or the interest rate and the face amount of the SCIN can both be increased to the extent appropriate to satisfy actuarial assumptions which make the note equal in value to the assets sold so that the seller is compensated to take into account that the note will vanish on death.  This can be determined based upon standard life expectancies under actuarial tables using software programs like Steve Leimberg’s Number Cruncher and Larry Katzenstein Tiger Tables. The links to obtain these programs are as follows.

The need to value the assets held under the LLC is a substantial reason to use the GRAT when assets are hard to value or discounts will be applicable.

A GRAT must be funded in a single transfer and there is no authority for the ability to sell assets to a GRAT in exchange for a note at the time of funding.

This is why well respected commentators have suggested that an LLC that is disregarded for income tax purposes will first be funded by the Grantor and that the Grantor can receive a note back from the LLC in order to provide appropriate financial leverage for the arrangement.

Many taxpayers will want to have their remaining assets be under the amount that would require an estate tax return to be filed in order to reduce the paperwork, expenses, and delay in estate administration that results from having to file a federal estate tax return.  A SCIN will not be considered to be an asset owned at the time of death for estate tax return threshold filing purposes.

 However, in Estate of Moss v. Comm’r, 74 T.C. 1239 (1980) , the Tax Court held in favor of theestate….***See: Cain v. Comm’r, 37 T.C. 185 (1961)

Where a marital deduction devise or charitable disposition may facilitate avoidance of federal estate tax on the death of the Grantor when used in conjunction with the SGRAT, it can still be advisable to have GRAT assets pass to fund a marital devise or trust and/or a charitable devise as remainder beneficiaries of the GRAT so that a federal estate tax return using it is more clear that the assets passing to fund a marital devise will receive a stepped up basis if held by the taxpayer on death, but the advantage of not having to file a federal estate tax return may outweigh the risk of not receiving a stepped up basis on assets passing to fund a marital or charitable devise.

Another consideration is whether to maximize the use of the taxpayer’s generation skipping tax exemption makes the filing of a federal estate tax return worthwhile.  Generation skipping tax exemption can clearly be allocated to a marital deduction trust that is funded from the Grantor’s estate or revocable trust that receives the payments from the GRAT.

Many clients will prefer to zero out the GRAT in order to avoid the need to file a federal gift tax return for the year that the SCGRAT is implemented.  It may therefore be important to be sure that there are no gifts exceeding $14,000 per donee or any gifts that do not qualify for the annual gift tax exclusion for the year in which a gift tax return would be filed, although even if a gift tax return needs to be filed it seems likely that a zeroed out GRAT would not be considered to be a gift that would need to be reported on a gift tax return.

Sample charts demonstrating this SCRAT technique are attached.

Conclusion

Utilizing a SCGRAT may be the best choice for practitioners who would like to use SCINs with a client who has a reduced life expectancy.  If the Service successfully challenges the transaction and reduces the face value of the note by applying the willing buyer willing seller standard, by using the SCGRAT the value of the GRAT formed by the client should be increased.  If the value of the GRAT is increased, then the payments from the GRAT to the client will be increased.  As a result, there should not be any additional gift tax liability for the client.

Citations

[I]Treasury Regulation § 1.7520-3(b)(3) provides that: an individual who is known to have an incurable illness or other deteriorating physical condition is considered terminally ill if there is at least a 50 percent probability that the individual will die within 1 year. However, if the individual survives for eighteen months or longer after the date of the decedent’s death, that individual shall be presumed to have not been terminally ill at the date of death unless the contrary is established by clear and convincing evidence.

[II]It has been appropriately noted by many commentators that the 10% rule of thumb described herein is not based upon any specific IRS ruling, court case, or comparable situation.  It actually came into being after well respected estate tax planner Byrle Abbin delivered a paper at the University of Miami Institute on Estate Planning in 1997, in which he reported that he had conversations with IRS personnel about a comparable situation and concluded the conversation with the mutual non-binding understanding that a 10% net worth should be sufficient to allow a trust entering into such a transaction to be considered as a separate independent entity.

[III]Larry Katzenstein, “Turning the Tables: When do the IRS Actuarial Tables Not Apply?” 34 Univ. Miami Heckerling Institute on Estate Planning (Miami, Fla. Jan 6-10, 2003).

[IV]In the famous television game show, Let’s Make a Deal, moderator Monty Hall would give contestants the choice of three different doors or the box where Carol Merrill was standing.  The box where Carol Merrill was standing was not usually the winner, and Carol Merrill was no Vanna White, but let’s not digress any further here other than to mention that the song “My Whole World Lies Waiting Behind Door Number 3,” by Jimmy Buffett on the A1A album from 1974 is more than worth listening to.  “Didn’t Get Rich,” “Son of a ________”, “I’ll be Back Someday, You’ll See,” “My Whole World Lies Waiting Behind Door Number 3.”

[V]We have used two years as an example.  Some planners believe that a GRAT can be as short as just over one year, and certainly can be for a longer period of time.  If the Grantor dies during the GRAT term then the present value of the GRAT payments that have not yet been paid will be considered to be held by the Grantor’s estate, and can qualify for the federal estate tax or charitable deduction if the GRAT is properly drafted and would then pass to a spouse, a marital deduction trust, or to a private or public charity.

Celebration of Life for Judge Patrick Caddell

Caddell

A Celebration of Life for Judge Patrick Caddell
Saturday, June 21, 2014 at 10 a.m.
Pinellas Park Performing Arts Center 4951  78th Avenue, Pinellas Park

From the Clearwater Bar Association:

Longtime Pinellas County Judge Patrick Caddell, known for his quick wit on and off the bench, died Tuesday after a battle with cancer. He was 60.

“He was kind of the Yoda of judges,” said Thomas McGrady, chief judge for the Pinellas-Pasco circuit.

Caddell had been a mentor to him and many others, offering tips on how to be a good and effective judge. “It was all good advice,” McGrady said.

Caddell, who was elected county judge in 1986 and was the county’s administrative judge, also was well known for his somewhat acerbic sense of humor

In 1987, shortly after Caddell was elected, an irate business owner flew an airplane over downtown St. Petersburg with a banner that read: “Judge Caddell lies from the bench – violates civil rights – Is he fit to stay on the bench?”

Afterward, Caddell quipped: “I’m sorry I didn’t get a picture of it for my mom. She always said I’d be famous someday.”

When Caddell recently ruled a portion of St. Petersburg’s sign ordinance was unconstitutional, the St. Petersburg doctor who challenged the law stood up and thanked him “for recognizing the natural born rights I have of free speech.”

Caddell dryly responded: “It’s what I do for a living. Don’t think you’re anything special.”

This was cited this month when Caddell received the Clearwater Bar Association’s George W. Greer Judicial Independence Award. Caddell was too sick to accept the award in person, but he greatly appreciated it and wrote some remarks for McGrady to read aloud:

“I cannot imagine a higher award to which any judge could aspire than to be deemed ‘independent’ by his or her profession.”

Caddell also was chairman of the Pinellas County Canvassing Board, which supervises election procedures. “No one cared more about ensuring the integrity of election results,” Pinellas Supervisor of Elections Deborah Clark said in a statement.

McGrady said the news of Caddell’s passing came as a shock. “We all knew he was sick. … We were cautiously optimistic that he could beat the cancer and be back. It came much quicker than any of us thought.”

Where Can the Dolphins File Their BP Claims?

Linda.Dolphin.Saying

The U.S. National Oceanic and Atmospheric Administration (NOAA) has recently released a study of dolphins that is very alarming. The study, formally known as a Natural Resource Damage Assessment, investigated the possible damage to gulf coast wildlife as a result of the BP oil spill. Two groups of dolphins were studied, one group in Barataria Bay, an area heavily affected by the 2010 oil spill, and another group from Sarasota Bay, an area not affected by the spill.

The report indicates that the Barataria Bay group had abnormally high cases of lung disease, were under weight, had missing teeth, and very low levels of adrenal hormones (a critical hormone for responding to stress).

The team even came across a pregnant dolphin. Unfortunately, the fetus had already died about a weeks earlier. The fetus had died in the second trimester which was unusual because usually things that cause abortions in dolphins usually occur in the third trimester.

BP has rebutted the study, stating that there are no causal links between the two events. For instance, BP asserts pesticides or other man-made chemicals may have entered the environment through rain water run-off. Despite BP’s claims, scientists performed an analysis of both group’s blubber and discovered that the Sarasota Bay group had higher levels of pesticide and chemical exposure, potentially ruling those out as causes for this event. BP also claims that the symptoms found in the dolphins are also caused from natural diseases like Morbillivirus and Brucellosis.

BP was also unhappy with the scientists’ decision to use dolphins in Sarasota Bay because they are genetically different and live in a different environment then the Barataria Bay dolphins. BP states that Barataria Bay is more industrialized and has been effected by other oil and fuel spills.

Researchers are hoping to receive funding for more studies this coming summer. They wish to study the same group in Barataria Bay in an attempt to better understand this increased level of dolphin disease and sickness.

Thoughtful Corner – The Road Not Taken by Robert Frost, a new Thursday Report Weekly Column for Advisors Who Care

The Road Not Taken | Robert Frost, 1874 – 1963

As we as advisors and planners help clients make important decisions, let’s not forget that the opportunities they have may justify risks and actions that they can afford to hand, and that we can encourage this with appropriate analysis of exposure and how to best protect from risk.

Yes, it is our job to warn them of risks, and help to reduce problems ahead, but let’s not get carried away and drown the next Apple or Microsoft or Facebook.

If the client has passion and the wherewithal to make an intelligent choice then let’s do what we can do to help them.

Let’s not forget that no great achievement has occurred with risk and ambition, and that doing nothing in the face of an important decision is often the wrong move.

As Yogi Berra said, “when you come to the fork in the road, take it.”  What can we do to help clients understand that inaction can be very harmful, in a number of ways.

And let’s not forget the following immortal verse by Robert Frost:

Two roads diverged in a yellow wood,

And sorry I could not travel both

And be one traveler, long I stood

And looked down one as far as I could

To where it bent in the undergrowth;

 

Then took the other, as just as fair,

And having perhaps the better claim,

Because it was grassy and wanted wear;

Though as for that the passing there

Had worn them really about the same,

 

And both that morning equally lay

In leaves no step had trodden black.

Oh, I kept the first for another day!

Yet knowing how way leads on to way,

I doubted if I should ever come back.

 

I shall be telling this with a sigh

Somewhere ages and ages hence:

Two roads diverged in a wood, and I–

I took the one less traveled by,

And that has made all the difference.

Or said in another way:

No Guts No Glory

Have a great Thursday and let’s help others achieve greatness when the time is right.

Stay in motion and have a great day!

 

Next week–Why Your Smart Phone May Be Much Smarter than You Are.  Who works for who and why.

Two Webinars of Interest: Improve Your Professional Practice with Rick Solomon, and a webinar with Jonathan Blattmachr and Alan Gassman

Improve Your Professional Practice

Professional practice coach and workshop leader guru Rick Solomon, CPA will be providing a free live informative webinar for CPAs, lawyers and other professionals on the theme of building an ideal practice.  This presentation will also describe a 6 hour webinar program that Rick offers for lawyers and other professionals that will occur on Thursday, September 11, 2014 and Friday, September 12, 2014 from 2pm to 5pm for $497 ($397 for anyone in the first two years of practice).  Please feel free to attend this complimentary webinar, notwithstanding whether you might be interested in the September 11 and 12 program.  We know from experience that what Rick says at this webinar can have an everlasting positive impact on your practice and professional life.

To register for the webinar please click here.

Rick Solomon

Rick Solomon started his CPA career at a New York City-based international CPA firm before going on to build one of the fastest growing CPA firms on Long Island. He developed and presented his renowned Sell Without Selling sales program to thousands of professionals in seven countries on three continents, helping them add millions of dollars in new business annually. Rick has engaged in lengthy study at the Sedona Institute in Arizona, developing a deep understanding of how to help free people from limiting beliefs and points of view. This freeing process has become the “secret ingredient” in all of Rick’s training programs. He served on the faculty of the esteemed Esperti-Peterson Institute Masters Program, a think tank of the nation’s leading estate planning attorneys. Currently, Rick Solomon is owner and CEO of RAN ONE Americas, a world leader in helping accountants and other advisors build lucrative and rewarding business advisory practices. He continues to travel worldwide presenting inspiring, motivational seminars and challenging thousands of CPAs and other professionals to expand their view of themselves and the value they bring to their clients. Rick‘s message has appeared in almost all industry related publications, including a feature story in the Sunday edition of the New York Times.

Webinar with Jonathan Blattmachr and Alan S. Gassman

Blattmachr.Gassman.Thought Bubbles

Free webinar with Jonathan Blattmachr and Alan Gassman on Tuesday, August 12, 2014 at 12:00 p.m.

Help us decide the topic.

Please tell us what you would like to hear about.

The vast majority of tax and estate planning lawyers recognize that Jonathan Blattmachr is one of the very best estate planning and tax minds, and also a leading author and visionary in our profession.

Nothing he says or suggests goes unnoticed in the estate planning world and he has occupied this position for decades.

Please participate in this interesting and thought provoking process by letting us know what you would like to hear about.

Please email agassman@gassmanpa.com with topic ideas and general thoughts for this webinar.

To register for the webinar please click here.

Upcoming Seminars and Webinars

FREE WEBINAR:

VERSION 226.3 OF OUR ESTATEVIEW ESTATE TAX PROJECTION AND ILLUSTRATION SOFTWARE – A FREE WEBINAR

Alan Gassman, Ken Crotty and David Archer will be presenting a free 30 minute webinar on what is new with our EstateView software which will be featured later this year in Jason Havens’ excellent American Bar Association RPTE Probate and Property column.

Speakers: Alan Gassman, Ken Crotty and David Archer

Date: Monday, June 9, 2014 | 12:30 p.m.

Location: Online webinar

Additional Information: To register for the webinar please click here.

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FREE WEBINAR:

CREDITOR AND OTHER PLANNING FOR SAME GENDER COUPLES

Date: Tuesday, June 10, 2014 | 7:30 p.m.

Location: Online webinar

Additional Information: To register for the webinar please click here.

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BLOOMBERG BNA WEBINAR:

HIRING AND TERMINATING EMPLOYEES; WHAT TO DO, WHAT TO AVOID

Speaker: Alan S. Gassman, Esq., Colleen Flynn, Esq. and Dr. Stephanie Thomason

This is a very practical guide that your office manager is sure to enjoy.  Let us know if you would like to see Alan Gassman’s slides for this presentation.

Date: Wednesday, June 18, 2014 | 2:00 – 3:00 p.m.

Location: Bloomberg BNA Tax & Accounting Online webinar

Additional Information:  For more information, to register and a discount code please email agassman@gassmanpa.com

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LIVE CLEARWATER PRESENTATION:

FICPA SUNCOAST CHAPTER MONTHLY MEETING

Alan S. Gassman will be speaking at the FICPA Suncoast Chapter’s monthly meeting on HOW TO PLAN, STRUCTURE, AND PROTECT WEALTH USING REVOCABLE AND IRREVOCABLE TRUSTS AND TRUST SYSTEMS.  A COMPREHENSIVE OVERVIEW WITH A PRACTICAL PLANNING CHECKLIST AND PRACTITIONER TAX COMPLIANCE GUIDE.

Speaker: Alan S. Gassman

Date: Thursday, June 19, 2014 | 4:00 p.m. (100 minute presentation)

Location: Feather Sound Country Club, Clearwater, Florida

Additional Information:  For more information, to register and a discount code please email agassman@gassmanpa.com

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LIVE WEBINAR:

Free webinar with Jonathan Blattmachr and Alan Gassman on Tuesday, August 12, 2014 at 12:00 p.m.  Topic to be announced.  Please tell us what you would like to hear about!

The vast majority of tax and estate planning lawyers recognize that Jonathan Blattmachr is one of the very best estate planning and tax minds, and also a leading author and visionary in our profession.

Nothing he says or suggests goes unnoticed in the estate planning world and he has occupied this position for decades.

Please participate in this interesting and thought provoking process by letting us know what you would like to hear about.

Speakers: Jonathan Blattmachr and Alan Gassman

Date: Tuesday, August 12, 2014 | 12:00 p.m. (50 Minute Webinar)

Location: Online webinar

Additional Information: To register for this webinar please click here.

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LIVE FT. LAUDERDALE PRESENTATION:

FICPA ANNUAL ACCOUNTING SHOW 

Alan Gassman will be speaking at the FICPA Annual Accounting Show on Thursday, September 18, 2014 on the topic of ESSENTIAL GUIDE TO BASIC TRUST PLANNING for 50 minutes.

This presentation will introduce basic and intermediate trust planning background and provide attendees with an orderly list of the most commonly used trusts, practical features and traps for the unwary, including revocable, irrevocable and hybrid.  The discussion will include tax, creditor protection and probate and guardian considerations.

Date: Wednesday, September 17 through Friday, September 19, 2014

Location:  Fort Lauderdale, Florida

Additional Information:  For more information about this program please contact Stephanie Thomas at ThomasS@ficpa.org

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LIVE NEW JERSEY PRESENTATION:

NEW JERSEY INSTITUTE FOR CONTINUING LEGAL EDUCATION (ICLE)_SPECIAL 3 HOUR SESSION

Alan Gassman will be the sole speaker for this informative 3 hour program entitled WHAT NEW JERSEY LAWYERS NEED TO KNOW ABOUT FLORIDA LAW

Here is some of what the New Jersey Bar Invitation for this program provides:

New Jersey residents have always had a strong connection to Florida.  We vacation there (it’s our second shore).  Own Florida property (or have favored relatives that do) and have family and friends living there.  Sometimes our wealthiest clients move to Florida and need guidance, and you need background in order to continue representation.

There are real and significant differences between the two states that every lawyer should be cognizant of.  For example, holographic wills are perfectly legitimate in New Jersey and anyone can serve as an executor of an estate, which is not the case in Florida.  Also, Florida’s new rules regarding LLCs are different, and if you are handling estates of New Jersey decedents who owned Florida property, there are Florida law issues that must be addressed.  Asset protection differs significantly in Florida too.

Attendees will receive Mr. Gassman’s book entitled “Florida Law for Tax, Business and Financial Planning Advisors,” which has a retail value of $34.95.

Our informative seminar, presented by Clearwater attorney Alan Gassman, highlights issues New Jersey lawyers should be aware of when handling matters for New Jersey residents who own Florida property, reside there part time, have interest in Florida businesses, or who are considering a move to Florida.  The Florida Bar rules permit out of state lawyers to continue representation of Florida residents under rules that will be discussed.

Gain the knowledge you need to assist your clients with Florida matters, including:

  • Florida specific laws involving businesses, trusts, and estates
  • Florida tax planning
  • Elective share and homestead rules
  • Liability Insulation and Planning
  • Creditor Protection and Strategies
  • Medical Practice Laws
  • Staying within Florida Bar Guidelines that allow representation of Florida clients

Comments from past attendees of this program:

  • Excellent seminar and materials!!!
  • This was one of the best ICLE seminars yet!
  • One of the best seminars I have attended.
  • Better than mashed potatoes and gravy.  Glad he didn’t serve grits!

Date: Saturday, October 4, 2014

Location:  TBD

Additional Information: This is a repeat of the same program that we gave last year, but our book is now updated for the new Florida LLC law and changes in estate and trust law.  Please tell all of your friends, neighbors and enemies in New Jersey to come out to support this important presentation for the New Jersey Bar Association.  We will include discussions of airboats, how to get an alligator off of your driveway, how to peel a navel orange and what collard greens and grits are. For additional information please email agassman@gassmanpa.com

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LIVE SOUTH BEND, INDIANA PRESENATION:

40th ANNUAL NOTRE DAME TAX & ESTATE PLANNING INSTITUTE

Please send us your questions, comments and suggestions for Alan Gassman’s talk on Planning with Variable Annuities and Analyzing Reverse Mortgages.

This presentation will cover the unique income tax and financial planning characteristics of fixed and variable annuities, and provide estate and tax planners with a number of strategies for understanding and planning with existing and contemplated contracts. With over One Trillion Dollars of US taxpayer money invested in annuity contracts, more and more clients are showing up in their estate planners’ offices with large annuity contracts and common misunderstandings about “guaranteed income” and “guaranteed rates of return” features.   The presentation will cover common policy features, what is actually happening inside of a policy, illustration techniques, and changes that can be made to defer income tax and reduce overall tax liability.   Minimum distribution rules that apply to variable annuity contracts will also be discussed.

Date:November 13 and 14, 2014

Location: Century Center, South Bend, Indiana

We welcome questions, comments and suggestions on variable annuities, which will be Alan Gassman’s topic for this conference.

Additional Information: The focus of this year’s institute will be on “Business Succession Planning: An Income Tax, Estate Tax and Financial Analysis.”  As in past years, several sessions are designed to evaluate certain financial products and tax planning techniques so that the audience can better understand and evaluate these proposals in determining not only the tax and financial advantages they offer, but also evaluate limitations and problems they may cause in the future.  Given that fewer clients will need high-end estate tax planning with the $5 million exemptions, other sessions will address concerns that all clients have.  For example, a session will describe scams that target elderly individuals and how to protect the elderly from these scams.  As part of the objective on refreshing or introducing the audience to areas that can expand their practice, other sessions will review the income tax consequences of debt cancellation, foreclosures, short sales, the special concerns that arise in bankruptcy and various planning available to eliminate the cancellation of debt income or at least defer it with a possible step-up basis at death.  The Institute will also continue to have sessions devoted to income tax planning techniques that clients can use immediately instead of waiting to save estate taxes far in the future.

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LIVE NAPLES PRESENTATION:

2nd ANNUAL AVE MARIA SCHOOL OF LAW ESTATE PLANNING CONFERENCE

Alan Gassman will once again be speaking at the Ave Maria School of Law Estate Planning Conference in Naples, Florida, whether he is invited or not!  Hats off to Jonathan Gopman, Karen Grebing, Northern Trust and many others for having hosted one of the most enjoyable conferences in 2014.

Date: Friday, May 1, 2015

Location: Ave Maria School of Law, Naples, Florida

Additional Information: Please contact Karen Grebing at kgrebing@avemarialaw.edu for more information.

NOTABLE SEMINARS BY OTHERS

(We were not invited but will attend and are still excited!)

Live Gulfport, Florida presentation

Practical Ethics: The Ethical Questions that Practitioners Ask with attorney Sandra Diamond.  This annual webinar will address the real ethical dilemmas faced by attorneys in elder law and special needs trusts drafting and administration.

Date: Wednesday, June 11, 2014 | 12-1:30 p.m

Location: Stetson University College of Law, Gulfport, Florida

Additional Information:  To register for the webinar please click here.

LIVE ORLANDO PRESENTATION

49th ANNUAL HECKERLING INSTITUTE ON ESTATE PLANNING

Date: January 12 – 16, 2015

Location: Orlando World Center Marriott 8701 World Center Drive, Orlando, Florida

Additional Information: For more information please visit: https://www.law.miami.edu/heckerling/?op=0

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LIVE ST. PETERSBURG PRESENTATION:

ALL CHILDREN’S HOSPITAL FOUNDATION

Date: Thursday, February 12, 2015

Location: St. Petersburg, FL

Additional Information: Please contact Lydia Bennett Bailey at Lydia.Bailey@allkids.org for more information.

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LIVE PRESENTATION:

2015 FLORIDA TAX INSTITUTE

Date: Wednesday through Friday, April 22 – 24, 2015

Location: TBD

Additional Information: Please contact Bruce Bokor at  bruceb@jpfirm.com for more information.

Applicable Federal Rates

Applicable Federal Rates June

The 7520 Rate for June is 2.2% and for May was 2.4%.

Annuity Traps, Same Gender TBE, Avoid Vehicle Probate, and Team Enhancement Strategies

Posted on: May 29th, 2014

Same Gender Married Couples Living in Florida – Why Not Place Their Assets as Tenants by the Entireties

Planning with Variable Annuities

Phil Rarick’s Informative Blog: Transfer of Motor Vehicles After

Owner’s Death: How to Avoid Probate in Florida

Making Your Professional Firm a Great Workplace

Phil McLeod’s Daughter Gets Married!

Humor! (or Lack Thereof!)

We welcome contributions for future Thursday Report topics. If you are interested in making a contribution as a guest writer, please email Janine Gunyan at Janine@gassmanpa.com.

This report and other Thursday Reports can be found on our website at www.gassmanlaw.com.

Same Gender Married Couples Living in Florida – Why Not Place Their Assets as Tenants by the Entireties by Alan Gassman, Travis Arango and Scott Callin

Travis Arango and Scott Callin are Stetson Law students who are clerking for Gassman, Crotty & Denicolo, P.A.

On April 19th and 20th, Oregon and Pennsylvania became the 18th and 19th states to recognize same-gender marriages, respectively. These are just the two most recent decisions furthering same-gender marriages since the landmark Supreme Court Windsor decision, issued in June of 2013. Windsor struck down part of the Defense of Marriage Act (DOMA) and forced the federal government to recognize same-gender marriages. The Court did not address Section 2 of DOMA, which allows states to ignore marriages legitimately performed in other states. However, using the logic set forth in Windsor many states, including Kentucky, Ohio, Indiana and Tennessee, have ordered same-gender marriages from other states be recognized.

As the gay rights movement pushes forward, with marriage as the hot topic, other issues remain unanswered. In Florida and a number of other states, tenancy by the entireties (TBE) is utilized as a favorable type of property ownership, but is only available to those who are married. TBE gives both parties an equal and undivided interest in the property and provides advantages like the right of survivorship and protection from creditors. Florida has traditionally had a strong stance against giving any marital rights to same-gender couples, however, with this tidal wave of change moving across the nation, and even in Florida, we may see the end of that repressive era.

So why not attempt to title their assets as TBE if state law may protect such assets from the creditors of either partner? TBE provides obvious advantages, and Equal Protection is the constitutional guarantee that no person or class is denied the same protection of the laws that is enjoyed by other classes. Under this definition of Equal Protection, one would assume the class of same-gender people could not be discriminated against for sexual orientation. However, the same-gender marriage debate has been raging for years so it obviously is not this cut-and-dry. In the recently decided Obergfell v. Kasich case, which forced Ohio to recognize legitimate out of state same-gender marriages, U.S. District Judge John G. Heyburn II said that Ohio’s refusal to recognize gay marriage is “unenforceable in all circumstances.” Also within the ruling was the acknowledgment that once the government attaches benefits to marriage, it must constitutionally grant equal protection to all. With TBE undeniably being one of those benefits to heterosexual married couples, logically courts should extend that line of reasoning to recognize same-gender TBE as well. There is a recent Florida decision that sheds some light on the topic as well.

D.M.T. v. T.M.H., decided in late 2013 by the Florida Supreme Court, held that Florida Statute 742.14 was unconstitutional as it only allowed legally married heterosexual couples to retain parental rights to children born from donated genetic material from one party to the other. The Court said that the statute, defining a “commissioning couple” as a heterosexual married couple, did not provide equal protection to same-gender couples. The case involved a lesbian couple where one woman donated her egg (“biological mother”) to her partner (“birth mother”) to carry the child. Years after the birth of the child, the birth mother refused to give the biological mother parental rights and asserted the biological mother was only a donor of the egg with no parental rights. Under Florida’s donation statute, since they were not a legally married couple, when the biological mother donated her egg, she was viewed as an egg donor and did not retain any rights to the resulting child. This case relied heavily on Windsor and could be a sign of things to come in Florida law.

Same-gender marriage is often a topic that creates division between the political parties, but that did not hold true in D.M.T. The Court currently has only two justices appointed by a Democratic governor (Pariente and Lewis), four by a Republican (Canady, Polston, Labarga, and Perry), and Justice Quince was appointed by Jeb Bush and Lawton Chiles by a joint agreement as Bush assumed office. In D.M.T., the majority comprised of Pariente, Quince, Labarga, and Perry, while the dissent was Polston, Lewis and Canady. This makes forecasting the outcome of subsequent same-gender appeals all the more unpredictable in Florida. With 10 states lifting bans in the last year, the question is no longer IF Florida will recognize same-gender TBE, and marriages in general, but WHEN it will do so.

Florida, along with Indiana, Michigan, Mississippi, Missouri, North Carolina, Virginia, and Wyoming, provide significant creditor protection, but not same-gender marriage recognition. Considering how quickly the political landscape is shifting, estate planners representing same-gender couples who reside in these state should strongly consider continuing to push the envelope and title their assets as TBE. Since the 2013 Windsor decision, courts have been far more willing to recognize marriage, and the rights that go along with it, as a fundamental right to same-gender couples.

The chart below shows the states that recognize tenancy by the entireties, and the degree of creditor protection associated with it. Same Sex chart part 1 Same Sex chart part 2 Same Sex chart part 3 Same Sex chart part 4

Advisors representing same-gender couples who reside in tenancy by the entireties states that offer creditor protection attributes should consider advising their clients to title assets and entities between them as tenants by the entireties, and advise on the possible impact of such titling. The creditor protection aspects may be very important for medical or other professionals who work in areas of high risk or for business people who guarantee debts or have other possible obligations that their same gender spouse would not be responsible for.

Planning with Variable Annuities

When planning with variable annuities the first question is whether you should be doing this.

A great many clients come to us with variable annuities that they do not understand and are possibly not well suited for.

The following excerpts from our recent live webinar entitled Planning with Variable and Other Annuity Products may be of interest.

If you would like to view the webinar please email agassman@gassmanpa.com We welcome any and all questions, comments and suggestions for variable annuity planning.

We are working on a book with respect to this.

Commercial annuities are contracts issued by insurance carriers and annuity companies to individuals, trusts, and other entities. These contracts are designed to qualify for tax deferral and/or basis (cost) allocation rules which are found in Internal Revenue Code Section 72 and the Treasury Regulations issued thereunder. Internal Revenue Code Section 72 has been around for decades. It purports to control the taxation of annuity contracts. Nevertheless, there are many gray areas, uncertainties, and draconian rules presented under Code Section 72.

Some of these tax rules may also apply to private annuities, but private annuity structuring is beyond the scope of this book. In a commercial annuity, an individual or some other entity goes to a registered insurance company, or possibly an offshore insurance company, and says “Here’s some money, give me a return on my money based upon the terms of an annuity contract.” This commences a contractual relationship between a client, whether an individual or an entity, and an insurance company.

In the interest of full disclosure, I must first state that many of our clients have come to us with variable annuity contracts which they entered into without understanding (a) the tax treatment, (b) the costs, and (c) the rate of return calculations.

In the Forbes.com article “9 Reasons You Need To Avoid Variable Annuities” author Eve Kaplan says “[t]here are unusual situations when a variable annuity may make sense – e.g. doctors who are concerned about malpractice suits. Three-quarters of US states protect variable annuity assets from creditors – regular IRAs do not benefit from ERISA protection and may be more vulnerable to creditors. There are a few other instances when variable annuities may make sense – but they’re few and far between. More often than not, it’s clear that variable annuities always benefit the seller, and only infrequently benefit the buyer.”

Our law firm does not sell annuities, nor do we receive any kickbacks or have any financial relationship with any companies that sell annuities. Our only priority is to come up with the best planning possible for our clients.

I would like to thank my partner, Christopher Denicolo, for countless hours spent researching and outlining materials, and also Christopher Price of Lincoln Financial Group, who spent dozens of hours explaining the labyrinth of complex rules and regulations that apply to annuities.

In addition, Michael Morrissey of Vanguard, John Prizer in Orlando, Nathan West, J.D., L.L.M. at KPMG, and Ryan Chaplinski of Dimensional Fund Advisors have spent time assisting me with policy specifics.

12 Reasons to be Cautious About Variable, “Index” and “Guaranteed Income” Annuities That Your Clients May Own or Consider Purchasing

While vast amounts of literature exist expounding the virtues of annuities, it is important to remember that these are most often marketing materials that are paid for by insurance companies to promote their products. In order to best protect your clients, it is important to understand the practical results of these arrangements, and to consider the following limitations, obstacles and issues:

1. Converting Long Term Gains for Ordinary Income. Annuities convert long-term capital gains that would otherwise be dividends taxed at a maximum of 20% into ordinary income.

They would be best suited as a tax deferral devise for high ordinary income investments like REITs (“Real Estate Investment Trusts”) is and hedge funds that throw off short term capital gains.

Converting long-term gains into ordinary income typically raises the tax rate for a client’s assets. Suppose you give an insurance company $100,000. The company places the investment into clone accounts, mutual fund arrangements, and index arrangements. The company is going to give you a rate of return based on how the various funds perform. A mutual fund will typically receive dividend income, which is taxed at 15% to 23.8%, and capital gains income, which is taxed at 15% to 23.8%. With a variable annuity, the good news is that you do not have to pay tax until you make a withdrawal or trigger income; the bad news is when you do have to pay taxes, it is at ordinary income rates. This bumps up the tax rate to 39.6% at most, but there may be an extra 10% tax rate based upon an excise tax that applies in certain situations when distributions are made from variable annuities, and possibly the 3.8% Medicare tax. Many clients are not aware of this distinction with a variable annuity.

Forbes Magazine recently cited study by Richard Toolson (who is an Accounting Professor at Washington State University) that looked at the break-even points for variable annuities and investments in the same funds through a low-turnover stock index mutual fund in lieu of the annuity wrapper, based on the assumption that both investments earn the same pretax return. The study indicated that an individual in a 36% tax bracket will never come out ahead by investing in a variable annuity because of the continued drag of fees and tax issues related to the variable annuity product.”

In her article, “9 Reasons You Need To Avoid Variable Annuities”, Eve Kaplan further states that “[i]f you truly want to convert after-tax dollars and gains to tax-deferred gains, you can pour money into a variable annuity but be aware you do NOT receive a tax deduction since annuities are not qualified retirement products.” Kaplan further explains that “[v]ariable annuities convert lower capital gains rates on taxable income (if the annuity is purchased with after-tax dollars) into a higher tax rate levied on ordinary income. This can cost consumers significant tax dollars down the road.”

2. No Step-Up In Basis on Death. Annuities do not get a step up in basis when the owner dies – the income has to come out eventually and will be taxed at ordinary rates.

For example, if I own an annuity with an $80,000 cost and a $200,000 value and I die, then my family is going to eventually pay tax on that $120,000 of gain when they pull it out. There is absolutely no way around this unless the client has net operating losses or huge nursing care costs in their later years so that they have losses to offset the ordinary income. This is important to keep in mind.

Eve Kaplan also addresses this in her above referenced article, where she states that “[a]nnuities are disadvantageous to inherit if they don’t go to a spouse. If the money formerly was after-tax dollars, the heir receives no step-up in basis on accounts with gains. If you invest the same dollars (after-tax) in a stock fund, your heirs benefit from a step-up on basis at the date of death or 6 months later. This is hard to quantify but a step-up in basis is a powerful tool to reduce capital gains taxes.”

3. Guarantees are Complicated and May Be Deceiving. Most commercial annuities with “guaranteed income” or “market protection” features are extremely complicated and difficult to understand. The sales materials for these products may be confusing at best and intentionally misleading at worst. In many cases even the salespeople for annuity products do not seem to have a firm grasp on what exactly the product does and the financial mechanics of it. Most elderly clients have no hope of truly understanding how the products work, and illustrations only serve to further muddy the waters. The guarantees in annuities are complicated and they may even be deceiving.

If you analyze an annuity with a guarantee feature and reach the conclusion that a majority of the policy owners can expect to come out ahead, you do not understand the product because that cannot be so. It is, however, theoretically possible that an annuity contract could be constructed with a guarantee that would increase the probability of achieving certain goals.

4. 10% Excise Tax. A 10% excise tax on built-up income will apply when withdrawals come out to any individual (or possibly a trust) who has not reached age 59 ½. The excise tax may apply to trusts for generation skipping or creditor protection, even where the monies will eventually make their way to beneficiaries who have reached age 59 ½. Further, making annuities payable directly to individuals can open wealth up to mismanagement, divorce exposure, and other issues. The 10% excise tax will apply on funds withdrawn from an annuity to the extent that there is income under the annuity.

5. Must Pay Out Ordinary Income Shortly After Death (Unless Payable to the Spouse).

Although the Internal Revenue Code has “stretch IRA like rules” that are to apply to non-qualified annuities, the IRS has never issued regulations or other guidance on this topic, so most carriers will not allow annuities to continue in trust after the death of the policy holder or annuitant. Therefore, funding of credit shelter trusts and/or GST exempt trusts with variable annuities will normally not work.

When somebody dies owning an annuity, Congress is essentially saying through Code Section 72 that because of the deferral of income under annuity products, taxpayers will need to take monies out of the annuity and pay tax on the distributions in a manner similar to IRAs and other retirement plans. But unlike IRAs and pensions, which have very complicated but manageable rules that allow taxpayers to make IRAs and other retirement accounts payable to trusts that will make distributions over the life expectancies of the beneficiary to the trust, this is not the case with respect to non-qualified annuity contracts.

Code Section 72(s) provides the general rules that a contract must satisfy in order to be treated as an annuity contract for income tax purposes (and therefore be afforded tax deferral advantages). If a contract does not satisfy these rules, then all payments received under the contract after the holder’s death will be included as gross income.

In order to use an exclusion ratio to exclude a portion of each payment received from gross income, an annuity contract must provide both of the following:

1. If the holder of the contract dies on or after the annuity’s starting date and before the entire interest in the contract has been distributed, then the remaining portion of such interest must be distributed at least as rapidly as under the method of distributions being used as of the date of the holder’s death (the “at least as rapidly” rule). When the annuitization is based on a life or certain period and the holder dies, the exclusion ratio is replaced with a FIFO payment scheme so that the first payments made will be tax-free to the extent of the holder’s unrecovered investment in the contract.

2. If the holder of the contract dies before the annuity’s starting date, the entire interest in such contract must be distributed within 5 years after the death of such holder. This is referred to as the “5-year rule”.

If the above requirements are not satisfied, then all monies paid from an annuity will constitute income to the extent that the value of the annuity contract exceeds the investment in the contract, unless one of the broad exceptions to this general rule applies. If one of the following exceptions applies, then the exclusion ratio will apply to defer the income taxes applicable to the amounts received from the annuity contract after the holder’s death. These exceptions are as follows:

1. If (a) the annuity contract allows any portion of the holder’s interest in the contract to be payable to (or for the benefit of) a “designated beneficiary,” (b) such portion will be distributed over the life expectancy of such designated beneficiary, and (c) such distributions begin no later than 1 year following the holder’s death, then such portion shall be treated as distributed on the day on which such distribution began. This exception is often referred to as the “Life Expectancy Rule.”

For example, if I leave my annuity to my two children equally, they can stretch payments out over their life expectancies if I die after the annuity has begun annuitizing.

Suppose that I want to leave the annuity to my two children equally in trust for a variety of reasons. In the IRA and pension plan area I can certainly do that, and there are rules that will look through the trust to the life expectancies of my children and use those life expectancies to govern the period of time over which the distributions must be made. There are no similar rules or guidance in the area of annuities, even though the statutes are very much similar in Code Section 72(s) and Code Section 401(a)(9). This gray area leaves advisors without much guidance, and a lot of commentators are really unsure of what the result would be if an annuity contract is payable to a trust with only individuals as beneficiaries.

2. If the holder’s surviving spouse is the designated beneficiary, then the surviving spouse is treated as the holder of the contract, which will allow for the continued deferral of income taxes as if the holder had been receiving the scheduled payments under the contract.

You can have an annuity payable to a spouse, and the spouse can pretty much roll it into a substitute annuity, that is never going to be a problem.

3. If the annuity contract is held under a qualified plan described in Chapter 401(a), 403(a) or 403(b), is an IRA or held under an IRA, or is a qualified funding asset that is defined in Chapter 130(d), then the “at least as rapidly” and “5-year” rule described above do not apply and the income taxation of the contract is controlled by the rules applicable to qualified plans or qualified funding assets.

It is also possible to have an IRA or a pension held by an annuity contract, and in that case the minimum distribution rules under the IRA rules apply rather than the annuity rules. This can often create confusion as to which set of rules apply. If the client dies and you have to pay the required minimum distributions, or it is payable to a trust and the IRS does not recognize the trust as being a person, then you may have a lot of taxable income and unhappy clients.

6. Discounting is Difficult. Discounting values for estate and gift tax purposes normally involves placing investments in FLP’s, Family LLC’s and similar arrangement to facilitate partial interest gifting and “discount on death” planning. While it would make sense that an annuity contract could be held by a “disregarded discount entity” with special design and drafting, most carriers will consider the transfer of a product to an FLP or LLC as a taxable transfer, and will issue a 1099 as if the contract proceeds were paid out. Also, can you compress the value of a variable annuity without compressing the tax basis (investment in the contract) or other characteristics?

We had a client who was on her death bed about 5 months ago. Her net estate was about $7 million, a lot of which was in variable annuities. We decided to put the variable annuities into a family limited partnership. However, we discovered that if you transfer an annuity from a person to a partnership, it will trigger all of the income as taxable.

So we went to the next step and we structured an LLC as a disregarded entity owned by the client, but irrevocably managed by her children. We were going to put the annuity in the LLC, take the discount out on death, and avoid paying the tax. When we went to register the change of ownership to the disregarded LLC, the carrier called and said “don’t do this or we are going to issue a 1099 for all the income.” We said, “but wait a minute, the LLC is a disregarded entity that is considered as owned by the client for federal income tax purposes.” However, the carrier responded by saying, “we don’t have any letter rulings, we have not been able to get the IRS to recognize disregarded entities for purposes of the triggers. You’re probably right, Mr. Gassman, but if you do this we’re going to issue a 1099.”

So remember, discounting with annuities will probably not work, and should not be considered as a reliable planning option.

Next week we will continue our discussion on the 12 reasons to be cautious about annuities.

Phil Rarick’s Informative Blog: Transfer of Motor Vehicles After Owner’s Death: How to Avoid Probate in Florida, an article by Christina M. Fernandez, Esq.

A. The Question

A common question we encounter is how to transfer the title of a motor vehicle upon the death of its owner.

B. Law Summary

Florida law allows the beneficiaries or heirs of a deceased person to transfer a motor vehicle title without the need of a formal court proceeding. To avoid court intervention, the beneficiary/heir or personal representative must apply for a new certificate of title to the Department of Highway Safety and Motor Vehicles and that application must be accompanied by an affidavit – a statement attesting to certain facts. The tax collector’s office in the county in which the deceased person resided will generally take the applications and also supply the appropriate forms upon request. They will process the application and accompanying documents with the Department of Highway Safety and Motor Vehicles. See, Fla. Stat. §319.28

C. Intestate

If the deceased person died intestate (without a Last Will), the required documentation includes:

• The completed application for the certificate of title;

  •       This can be found on the Florida Department of Highway Safety and Motor Vehicles (FLHSMV) website

• The certificate of title or other satisfactory proof of ownership or possession;

• An affidavit that the estate is not indebted; and. . .

Click here to read more.

Making Your Professional Firm a Great Workplace by Alan S. Gassman, Esq.

Have you ever been to a business or resort that provided exemplary services and made these look easy and enjoyable for the team serving you? We all know that it takes a lot more than just hiring qualified people and giving them policy and procedure manuals to put together a great team that can make everything look easy.

The Gallup organization surveyed over 80,000 successful managers. Some of their conclusions make great sense, and others might surprise you.

Here is our summary of their report:

The team at the Gallup organization, and in particular Gary Buckingham of Gallup, Inc., have put together a fantastic book called 12: The Elements of Great Managing by Rodd Wagner, Ph.D. and James K. Harter based upon comprehensive surveys of what it takes to create, have, and maintain a great workplace.

Their first discovery was that, “There are no great companies, there are only great workgroups,” and that “there appear to be 12 characteristics that will consistently describe great workgroups.”

While many of these are well-known and based on common sense or intuition, a few of them may come as a surprise.

Item 1: Knowing what is expected. Confusion over expectations and desired outcomes can be extremely frustrating and cause loss of effectiveness and morale.

Do your team members know exactly what is expected, or is that a nebulous situation?

Item 2: Lack of frustration by having all of the necessary workplace tools needed to do the job right.

Confusing or poorly working computer systems, forms that are inappropriate, and other systems that get in the way as opposed to help can be the downfall of what might otherwise be an effective and positive team member.

Item 3: Doing what the person does best.

“Frank Sinatra never moved pianos.”

– Dan Sullivan, Strategic Coach –

Everyone has an innate instinct as to what he or she does best, but in our law firm we test talents using OMNIA profile and Kolbe A personality testing and are very mindful as to what the team member can do best, and what they can develop to be better at.

If the team member is not in a job that allows them to be their very best, then it may be time to change the job or the person.

Remember the recurrent theme from the book Outlyers” by Malcolm Gladwell – once you find somebody who is a good fit for what they do, and they do it for 10,000 hours they can be at the genius level and lead the world.

That only takes 5 years if everything is properly situated.

Item 4: Praise and recognition are completely essential in a great workplace. A study of more than 80,000 managers found that there is a significant difference between “don’t complain if the team member does a good job” versus giving consistent and well directed praise.

Item 5: My immediate supervisor or boss cares about me.

The Gallup Poll study showed that the fifth most important item with reference to a good workplace relationship is that the person with supervisory or mentorship authority sincerely cares about the welfare of the team member.

Item 6: Does someone on the team encourage the employee’s development.

Good team members want to get better, that is part of the human psychological makeup for successful and positive people.

Knowing that someone is there to help make this occur is an important component.

Item 7: The opinion of the team member counts. Team members each have a unique view and ability to contribute to improve ideas, systems, and services. If they think that their opinion doesn’t count, then you may be counting them out for helping you to maintain and grow your business.

Item 8: The link between the team member and the company’s mission or purpose. Team members at every level like to know that they are integral part of an organization that has a purpose and mission.

Everyone on the team should contribute directly to that mission in their own unique way.

Item 9: Doing quality work. Team members like to know that they are provided good quality work that need not be criticized or cause stress that would result from errors. “Pride in workmanship” is an important part of the work experience that each team member should have the opportunity to thrive with.

Item 10: Having a best friend at work (BFW). Gallup found in their 80,000 manager study that employees who report having a best friend at work achieved as follows:

• 43% more likely to report having received praise and recognition for their work in the last seven days.

• 37% more likely to report that someone at work encourages their development.

• 35% more likely to report co-worker commitment to quality.

• 28% more likely to report that in the last six months, someone at work has talked to them about their progress.

• 27% more likely to report that the mission of their company makes them feel their job is important.

• 27% more likely to report that their opinions seem to count at work.

• 21% more likely to report that at work, they have the opportunity to do what they do best every day.

What are you doing in your company to help make sure that good team members are properly introduced to good influence co-workers, are able to socialize and meet each other’s families in simple but enjoyable “company picnic” and happy hour events? Employees don’t need expensive and fancy parties and events – simple and relaxed low-key after-hours opportunities to mingle can have a significantly positive impact on all team relationships.

By the way, the best friend at work cannot be Colonel Sanders. If you think he works at your office get professional help!

Alan KFC with sayings

Item 11: Team members like to discuss their progress. Gallup reports that great managers are always encouraging employees to know themselves and the roles that they are likely to succeed in. Gallup recommends that feedback be specific and given in the context of a positive employee/manager relationship.

Item 12: Are there opportunities to learn and grow?

Good team members are always interested in learning new things and growing as team members. An appropriate atmosphere and methodology can advance this.

Phil McLeod’s Daughter Gets Married!

St. Petersburg collaborative family lawyer Phil McLeod’s daughter was recent married to a daring young man who was apparently not represented at the wedding or at the honeymoon thereafter. Mr. McLeod is pictured here with his wife and daughter during a discussion of post-marital injunctions.

McLeod with Sayins

Humor! (or Lack Thereof!)

Incredibly strict waiver limits daredevil Evil Kneivel, Jr. to jumping over two ottomans covered in rugs at an elevation slightly higher than the floor.

New Evil Rug

Upcoming Seminars and Webinars

FREE WEBINAR:

WILL THE SUPREMES TAKE BP CLAIMS ON A MIDNIGHT TRAIN TO GEORGIA?

Date: Friday, May 30, 2014 | 12:30 p.m. (20-30 Minutes)

Location: Online webinar

Additional Information: To register for the webinar please click here.

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LIVE OHIO PRESENTATION:

THE JOINT EXEMPT STEP-UP TRUST AND PLANNING WITH COMMERCIAL ANNUITIES

Alan Gassman will be speaking at the annual Ohio Conference on Wealth Transfer on June 4, 2014 on two different topics:

1) Wealth Transfer on Structuring Joint Exempt Step-Up Trusts (“JESTs”): Maximizing Stepped-Up Basis Planning, Fully Funding Credit Shelter Trusts with Joint Assets and Practical and Technical Aspects Thereof – With Forms

With the increased federal estate tax exclusion, it may be time to reconsider “joint” trusts for married couples. Alan co-authored two articles in the October and November issues of Estate Planning Magazine about Joint Exempt Step-Up Trusts (JESTs), and will talk about maximizing stepped-up basis planning, fully funding Credit Shelter Trusts with joint assets, and other practical aspects of JESTs with forms.

2) Planning with Commercial and Charitable Annuities. Mr. Gassman will also be participating in a panel discussion the evening before hosted by Johnson Investment Counsel and The Ohio State University.

This session will discuss planning with fixed and variable annuities, covering common policy features, misunderstandings about “guaranteed” rates of return, the minimum distribution rules akin to the IRA rules, income taxation of annuities on the death of the owner or annuitant, and trusts as holders of annuity contracts.

Skip Fox will be speaking on the following:

1) Recent Developments.

This session will include commentary on marital planning, gifts, grantor trusts, asset protection, portability, generation skipping tax and charitable planning.

2) Must We Trust a Trust That’s Just a Crust That Was a Trust?

What some view as “un-trust-like” notions – protectors, selectors, advisors, appointers, special trustees, directed trusts, secret trusts, virtual representation, in terrorem forfeitures, perpetual trusts and decanting – will be examined with some forms included.

Date: June 4, 2014

Location: Hilton at Easton, Columbus, Ohio

Additional Information: For more information on the conference and to register for the conference please contact agassman@gassmanpa.com

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FREE WEBINAR:

VERSION 226.3 OF OUR ESTATEVIEW ESTATE TAX PROJECTION AND ILLUSTRATION SOFTWARE – A FREE WEBINAR

Alan Gassman, Ken Crotty and David Archer will be presenting a free 30 minute webinar on what is new with our EstateView software which will be featured later this year in Jason Havens’ excellent American Bar Association RPTE Probate and Property column.

Speakers: Alan Gassman, Ken Crotty and David Archer

Date: Monday, June 9, 2014 | 12:30 p.m.

Location: Online webinar

Additional Information: To register for the webinar please click here.

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FREE WEBINAR:

CREDITOR AND OTHER PLANNING FOR SAME GENDER COUPLES

Date: Tuesday, June 10, 2014 | 7:30 p.m.

Location: Online webinar

Additional Information: To register for the webinar please click here.

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BLOOMBERG BNA WEBINAR:

HIRING AND TERMINATING EMPLOYEES; WHAT TO DO, WHAT TO AVOID

Speaker: Alan S. Gassman, Esq., Colleen Flynn, Esq. and Dr. Stephanie Thomason

This is a very practical guide that your office manager is sure to enjoy. Let us know if you would like to see Alan Gassman’s slides for this presentation.

Date: Wednesday, June 18, 2014 | 2:00 – 3:00 p.m.

Location: Bloomberg BNA Tax & Accounting Online webinar

Additional Information: For more information, to register and a discount code please email agassman@gassmanpa.com

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LIVE CLEARWATER PRESENTATION:

FICPA SUNCOAST CHAPTER MONTHLY MEETING

Alan S. Gassman will be speaking at the FICPA Suncoast Chapter’s monthly meeting on HOW TO PLAN, STRUCTURE, AND PROTECT WEALTH USING REVOCABLE AND IRREVOCABLE TRUSTS AND TRUST SYSTEMS. A COMPREHENSIVE OVERVIEW WITH A PRACTICAL PLANNING CHECKLIST AND PRACTITIONER TAX COMPLIANCE GUIDE.

Speaker: Alan S. Gassman

Date: Thursday, June 19, 2014 | 4:00 p.m. (100 minute presentation)

Location: Feather Sound Country Club, Clearwater, Florida

Additional Information: For more information, to register and a discount code please email agassman@gassmanpa.com

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LIVE FT. LAUDERDALE PRESENATION:

FICPA ANNUAL ACCOUNTING SHOW

Alan Gassman will be speaking at the FICPA Annual Accounting Show on Thursday, September 18, 2014 on the topic of ESSENTIAL GUIDE TO BASIC TRUST PLANNING for 50 minutes.

This presentation will introduce basic and intermediate trust planning background and provide attendees with an orderly list of the most commonly used trusts, practical features and traps for the unwary, including revocable, irrevocable and hybrid. The discussion will include tax, creditor protection and probate and guardian considerations.

Date: Wednesday, September 17 through Friday, September 19, 2014

Location: Fort Lauderdale, Florida

Additional Information: For more information about this program please contact Stephanie Thomas at ThomasS@ficpa.org

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LIVE NEW JERSEY PRESENTATION:

NEW JERSEY INSTITUTE FOR CONTINUING LEGAL EDUCATION (ICLE)_SPECIAL 3 HOUR SESSION

Alan Gassman will be the sole speaker for this informative 3 hour program entitled WHAT NEW JERSEY LAWYERS NEED TO KNOW ABOUT FLORIDA LAW

Here is some of what the New Jersey Bar Invitation for this program provides:

New Jersey residents have always had a strong connection to Florida. We vacation there (it=s our second shore). Own Florida property (or have favored relatives that do) and have family and friends living there. Sometimes our wealthiest clients move to Florida and need guidance, and you need background in order to continue representation.

There are real and significant differences between the two states that every lawyer should be cognizant of. For example, holographic wills are perfectly legitimate in New Jersey and anyone can serve as an executor of an estate, which is not the case in Florida. Also, Florida=s new rules regarding LLCs are different, and if you are handling estates of New Jersey decedents who owned Florida property, there are Florida law issues that must be addressed. Asset protection differs significantly in Florida too.

Attendees will receive Mr. Gassman’s book entitled “Florida Law for Tax, Business and Financial Planning Advisors,” which has a retail value of $34.95.

Our informative seminar, presented by Clearwater attorney Alan Gassman, highlights issues New Jersey lawyers should be aware of when handling matters for New Jersey residents who own Florida property, reside there part time, have interest in Florida businesses, or who are considering a move to Florida. The Florida Bar rules permit out of state lawyers to continue representation of Florida residents under rules that will be discussed.

Gain the knowledge you need to assist your clients with Florida matters, including:

  • Florida specific laws involving businesses, trusts, and estates
  • Florida tax planning
  • Elective share and homestead rules
  • Liability Insulation and Planning
  • Creditor Protection and Strategies
  • Medical Practice Laws
  • Staying within Florida Bar Guidelines that allow representation of Florida clients

Comments from past attendees of this program:

  • Excellent seminar and materials!!!
  • This was one of the best ICLE seminars yet!
  • One of the best seminars I have attended.
  • Better than mashed potatoes and gravy. Glad he didn’t serve grits!

Date: Saturday, October 4, 2014

Location: TBD

Additional Information: This is a repeat of the same program that we gave last year, but our book is now updated for the new Florida LLC law and changes in estate and trust law. Please tell all of your friends, neighbors and enemies in New Jersey to come out to support this important presentation for the New Jersey Bar Association. We will include discussions of airboats, how to get an alligator off of your driveway, how to peel a navel orange and what collard greens and grits are. For additional information please email agassman@gassmanpa.com ********************************************************

LIVE SOUTH BEND, INDIANA PRESENATION:

40th ANNUAL NOTRE DAME TAX & ESTATE PLANNING INSTITUTE

Please send us your questions, comments and suggestions for Alan Gassman’s talk on Planning with Variable Annuities and Analyzing Reverse Mortgages. This presentation will cover the unique income tax and financial planning characteristics of fixed and variable annuities, and provide estate and tax planners with a number of strategies for understanding and planning with existing and contemplated contracts. With over One Trillion Dollars of US taxpayer money invested in annuity contracts, more and more clients are showing up in their estate planners’ offices with large annuity contracts and common misunderstandings about “guaranteed income” and “guaranteed rates of return” features. The presentation will cover common policy features, what is actually happening inside of a policy, illustration techniques, and changes that can be made to defer income tax and reduce overall tax liability. Minimum distribution rules that apply to variable annuity contracts will also be discussed.

Date: November 13 and 14, 2014

Location: Century Center, South Bend, Indiana

We welcome questions, comments and suggestions on variable annuities, which will be Alan Gassman’s topic for this conference.

Additional Information: The focus of this year’s institute will be on “Business Succession Planning: An Income Tax, Estate Tax and Financial Analysis.” As in past years, several sessions are designed to evaluate certain financial products and tax planning techniques so that the audience can better understand and evaluate these proposals in determining not only the tax and financial advantages they offer, but also evaluate limitations and problems they may cause in the future. Given that fewer clients will need high-end estate tax planning with the $5 million exemptions, other sessions will address concerns that all clients have. For example, a session will describe scams that target elderly individuals and how to protect the elderly from these scams. As part of the objective on refreshing or introducing the audience to areas that can expand their practice, other sessions will review the income tax consequences of debt cancellation, foreclosures, short sales, the special concerns that arise in bankruptcy and various planning available to eliminate the cancellation of debt income or at least defer it with a possible step-up basis at death. The Institute will also continue to have sessions devoted to income tax planning techniques that clients can use immediately instead of waiting to save estate taxes far in the future.

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LIVE NAPLES PRESENTATION:

2nd ANNUAL AVE MARIA SCHOOL OF LAW ESTATE PLANNING CONFERENCE

Alan Gassman will once again be speaking at the Ave Maria School of Law Estate Planning Conference in Naples, Florida, whether he is invited or not!

Hats off to Jonathan Gopman, Karen Grebing, Northern Trust and many others for having hosted one of the most enjoyable conferences in 2014.

Date: Friday, May 1, 2015

Location: Ave Maria School of Law, Naples, Florida

Additional Information: Please contact Karen Grebing at kgrebing@avemarialaw.edu for more information.

NOTABLE SEMINARS BY OTHERS (WE WERE NOT INVITED, BUT WILL ATTEND AND ARE STILL EXCITED)

LIVE ORLANDO PRESENTATION

49th ANNUAL HECKERLING INSTITUTE ON ESTATE PLANNING

Date: January 12 – 16, 2015

Location: Orlando World Center Marriott 8701 World Center Drive, Orlando, Florida

Additional Information: For more information please visit: https://www.law.miami.edu/heckerling/?op=0

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LIVE ST. PETERSBURG PRESENTATION:

ALL CHILDREN’S HOSPITAL FOUNDATION

Date: Thursday, February 12, 2015

Location: St. Petersburg, FL

Additional Information: Please contact Lydia Bennett Bailey at Lydia.Bailey@allkids.org for more information.

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LIVE PRESENTATION:

2015 FLORIDA TAX INSTITUTE

Date: Wednesday through Friday, April 22 – 24, 2015

Location: TBD

Additional Information: Please contact Bruce Bokor at bruceb@jpfirm.com for more information.

Applicable Federal Rates Below we have this month, last month’s, and the preceding month’s Applicable Federal Rates, because for a sale you can use the lowest of the 3.

Applicable Federal Rates May 2014

The 7520 rate for May is 2.4% and for April was 2.2%

The Thursday Report 5.22.2014 – BP Update, Medical Practice Organization, and a new date for Ave Maria

Posted on: May 22nd, 2014

 

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5th Circuit Throws BP Out – They Are Stuck with the Class Action Deal Unless the U.S. Supreme Court Accepts the Case 

Stock Certificates Held Outside of the Country – A Simple and Viable Creditor Protection Planning Technique? 

The 10% Commercial Assessment Increase Cap – What You Need to Know About It

Why Medical Practices Should Think Ahead and Be Organized With Respect to Office and Facility Leases, an article by Carleton Compton

Seminar Announcement: Ave Maria School of Law Estate Planning Conference 2015 Date Announced

Humor! (or Lack Thereof!)

We welcome contributions for future Thursday Report topics. If you are interested in making a contribution as a guest writer, please email Janine Gunyan at Janine@gassmanpa.com.

This report and other Thursday Reports can be found on our website at www.gassmanlaw.com.

5th Circuit Throws BP Out – They Are Stuck with the Class Action Deal Unless the U.S. Supreme Court Accepts the Case 

by: John D. Goldsmith and Alan S. Gassman

Alan and John

Although Significantly Delayed by the Fifth Circuit Court of Appeals,
Recent Rulings May Finally Allow Claims to be Processed Again.

BP, apparently no longer concerned enough with its reputation to act as a good citizen, is instead continuing to act as an ardent litigator attempting to renounce the settlement it negotiated and urged the Court to approve. However, Monday night the Fifth Circuit Court of Appeals denied an en banc rehearing possibly resulting in the end of an injunction lasting more than six months which had the effect of preventing the BP Claims Administrator from adjudicating or paying any claims. BP was contesting two recent rulings by the Fifth Circuit denying BP’s attempt to reject their own settlement and attempting to delay the resumption of the BP Claims Administrator adjudicating and paying claims. Further, had BP been successful, many companies would have faced the difficult task of proving direct causation between the oil spill and their own economic losses.

The recent decisions of the federal District Court and the federal Fifth Circuit Court of Appeals are summarized below.

The Courts recently required the BP Claims Administrator to develop new criteria to “match revenue with expenses”. It was not clear what that meant, and BP and the BP plaintiffs’ steering committee submitted competing guidelines to the Claims Administrator. The BP Claims Administrator issued draft guidelines two weeks ago that have not yet been made public. Given BP’s recent history it will likely challenge any proposed guidelines in the Federal District Court and then appeal any decision to the Fifth Circuit.

A three Judge panel of the Fifth Circuit recently affirmed the Federal District Court’s December 2012 order approving the BP Settlement Agreement. In an unprecedented move, BP joined the parties appealing the approval of the Settlement Agreement, thereby objecting to the same Settlement Agreement BP negotiated, agreed to, and actively sought approval of from the Federal District Court. The Fifth Circuit specifically ruled that the U.S. Constitution and federal law do not require that each BP claimant make an individual claim showing that the claimant’s losses were caused by the BP Deepwater Horizon oil spill. This was an important victory for BP claimants and in keeping with the BP Settlement Agreement. BP asked the entire Fifth Circuit (referred to as “en banc”) to review this decision.

A three Judge panel of the Fifth Circuit, Court of Appeals instructed the BP Claims Administrator against paying any BP claims or making final determinations until the Fifth Circuit resolved the issues discussed above. This injunction slowed the processing of claims as well.

While the Fifth Circuit was deciding on the petition to rehear en banc, a new method of calculating BP spill payments was developed by the Claims Administrator and approved by the Court. The new “matching” method was submitted in Policy 495, which adds nearly 100 additional pages to an already massive Settlement Agreement. The Court initially ruled against a “matching” of expenses to revenues, however, now the Court has reversed their previous decision and found that unmatched profit and loss statement must be “matched”. Instead of comparing revenues and expenses for periods before the spill and after the spill, businesses will need to use the complex new system. This change has the greatest affect on variable profit businesses, such as construction, agricultural, educational institutions, and professional services that spend money on a project at one time and then derive revenues at a different time.

The Court upheld the two previous rulings by different three Judge panels that claimants are NOT required to prove that their losses were caused by the oil spill. Rather, in conformity with the BP Settlement Agreement and with BP’s original interpretations of the settlement, if the BP claimant has the required drop in revenue during the applicable period in 2010 in comparison to the same time period in prior years, and the required increase in revenue during the same time period in 2011, it is conclusively determined that any losses of a BP claimant were caused by the BP oil spill.

Based on these recent rulings, the Fifth Circuit ruled that the injunction preventing adjudication and payment of claims will be lifted as soon as the Fifth Circuit resolves whether it will review these decisions en banc.

On May 19th, the Fifth Circuit denied the petition for rehearing en banc by a vote of eight to five. This leaves BP with two options, to either start paying claims or to appeal the case to the United States Supreme Court.

BP now has 90 days to file a writ of certiorari to the United States Supreme Court. The next real question is what would happen to all of the business owners still waiting on these claims should BP file for a writ? Even if the writ is denied, the Supreme Court generally takes six months to officially reject a writ. If BP is granted certiorari then that could mean another year or more of waiting for these claims to be settled. The good news for those seeking redress from BP is that the Supreme Court receives close to 10,000 requests every year and formal written opinions are delivered on less than 1% of those on average. The Supreme Court has been known to respond to these applications in as little as six weeks but normally takes six months. Hopefully they will expedite this because of the number of people and businesses involved.

In the meantime, BP is saving very large amounts of money by just avoiding paying interest. Initial estimates by BP had them paying close to $8 billion and even with a modest interest rate that would be a significant amount of money. For this reason, if BP seeks an issuance of mandate so that they can file a Cert Petition, at a bare minimum they should be required to post the certificate bond for the billions of dollars of claims that will not be paid in the meantime, or at least the amount of interest that will accrue on the claims that would be adjudicated otherwise.

John Goldsmith is a litigation lawyer with over 30 years experience handling complex financial, regulatory, and multiple party litigation with the Trenam Kemker law firm.

Join us for a webinar on BP Claims on Friday, May 30, 2014 at 12:30 p.m.

Get the latest thinking on the new matching of revenue and expense accounting rules with brief discussion concerning the possibility of the U.S. Supreme Court granting BP’s request for consideration.

Please join us for this interesting and informative presentation. To register for the webinar please click here.

Stock Certificates Held Outside of the Country – A Simple and Viable Creditor Protection Planning Technique?

by: Travis Arango, Dena Daniels and Alan Gassman

Executive Summary:

The Jordan River is prominently known as the river that the Israelites had to cross in order to reach the Promised Land. Measuring 156 miles long, the Jordan is what stood between the Children of Israel and the land “flowing with milk and honey” that they were told would be theirs. Well, this seemingly insurmountable river was not only a huge obstacle for the Israelites, but also for a Florida court as well. In a recent Florida case, a trial court entered an order to compel delivery of stock certificates held in foreign countries, one of which was Jordan. However, an appellate court put an abrupt halt on the order ruling that a Florida court does not have the authority to order the surrendering of foreign stock certificates.

Florida’s 4th District Court of Appeal issued an opinion on March 5, 2014, which indicated that Florida courts do not have in rem or quasi in rem jurisdiction over a foreign state and do not have the authority to order the debtors to turnover foreign stock certificates. In this case, a gentleman named Mohammad Anwar Farid Al-Saleh, who is a citizen of the Country of Jordan, sued two individuals for having proceeded with a corporate business arrangement without sharing profits with him. He received a judgment for over $20,000,000 and then asked the Palm Beach County court, in a motion for proceedings supplementary, to order the two defendants in the case to turn over “all stock certificates and similar documents memorializing their ownership interest in any corporation.”

Facts:

The original complaint was brought forth by the “creditor”, Mohammad Anwar Farid Al-Saleh, in 2008. In the complaint, Al-Saleh sought damages for common law fraud, conspiracy to commit fraud, aiding and abetting fraud, declaratory judgment and violations of Jordanian law.

Al-Saleh, Sargeant and Abu-Naba established International Oil Trade Center LLC (IOTC) under Jordanian law in 2004, and all three parties were equal partners. The LLC was established to bid on contracts offered by the U.S. Government for the shipment of oil to U.S. troops in Iraq. When the company began procuring these U.S. Government contracts, Sargeant and Abu-Naba formed IOTC USA, a Florida company under their direct control. Al-Saleh was unaware of the formation of IOTC USA and, although being reassured that his interest was protected, was excluded as a partner in the newly formed entity. Sargeant and Abu- Naba used the mandatory authorization letter that was procured from the Government of Jordan by means of Al-Saleh’s connections. This letter had been received for use by the original IOTC. The original complaint asserts that Sargeant and Abu-Naba refused to pay Al-Saleh over $13 million in profits owed to him unless he surrenders his partnership rights and any claims he may have against the other two partners stemming from their misconduct.

Procedural History:

Procedural Picture

Comment:

The 4th District Court of Appeal received this case on an appeal filed by the debtors. Upon the creditor’s filing of the motion for proceedings supplementary, compelling the debtors to turnover the stock certificates, the debtor’s argued that the stock certificates represented assets located in the Bahamas, the Netherlands, Jordan, The Isle of Man, and the Dominican Republic therefore, the court has no jurisdiction over the assets. Rejecting the debtors’ argument and absent of an evidentiary hearing, the trial court granted the creditor’s motion and entered an order for the debtors to turn over the foreign stock certificates.

On appeal, the debtors continued to argue that the trial court lacked jurisdiction to enter an order forcing them to surrender the stock certificates; the creditor counters that the trial court did have the authority.

The court referenced a case in its discussion called Paciocco v. Young, Stern & Tannenbaum, P.A., 481 So.2d 39,39 (Fla. 3d DCA 1985). The court in that case held that a Florida court has no jurisdiction on mortgages and real property that is in a foreign land. The creditors attempted to rely on General Electric Capital Corp. V. Advance Petroleum, Inc. but the court distinguished it from the present case. 660 So.2d 1139 (Fla. 3d DCA 1995). In General Electric, the court held that a court may reach property outside the court’s jurisdiction if the court has in personam jurisdiction over the defendant. While this seems to be on point the court stated this was distinguishable because that case dealt with a creditor who had a perfected lien on the property at issue.

The court gave two reasons for its holding. First, there could be competing claims to the property that is in a foreign jurisdiction and those claims should be dealt with in that jurisdiction. Second, if trial courts were allowed to bring foreign assets into the state it would basically remove foreign judgment statutes.

This has some serious implications in the wealth preservation context because this may give people incentive to have their stocks in foreign jurisdictions. This way if a creditor obtains a judgment against them they will not only have to go through our judicial system, but then go through all the hoops that the foreign jurisdiction has set up. In the end, depending on the size of the judgment, this may not be worth the creditor’s effort or legal fees for that matter.

However, this little plan of offshore protection should not be expected to work in bankruptcy courts and may land clients in jail if they fail to cooperate. The Eleventh Circuit held a debtor in contempt for not complying with the court’s turn over order. In In re Lawrence, the debtor had an offshore trust.279 F.3d 1294 (11th Cir. 2002). The bankruptcy trustee tried to have the assets turned over but the debtor claimed it was impossible due to a duress clause he had put in which prevented the settlor’s powers from being executed under duress or coercion. The court rejected the impossibility argument and held him in contempt for not turning over the assets. Thus, it would seem bankruptcy courts do not even hesitate at the idea of asserting jurisdiction over foreign assets.

This new case law may have added another weapon to the wealth preservation lawyer’s arsenal. However, it is likely that it only helps the client with an un-perfected judgment against them in state court. It will be interesting to see how or if courts will try to prevent this holding from being used as an wealth preservation tool.

Conclusion:

This case makes the, already attractive, State of Florida even more appealing to individuals seeking to protect their assets from creditors. As the result of this case many planners will doubtlessly encourage clients and potential clients to keep more assets in offshore companies, and to issue stock certificates and have them held in jurisdictions that do not recognize US judgments. The creditor will have to spend years in litigation to reach the foreign stock certificates and while the creditor is battling in court, the debtor can move the assets to another jurisdiction to prevent the creditor from getting access.

The 10% Commercial Assessment Increase Cap – What You Need to Know About It

In 2008, the Florida Constitution was amended to provide that commercial real estate, including residential rental property and vacant property, could not be increased by more than ten percent (10%) in any given year for property tax purposes. This ten percent (10%) cap applies automatically, without the need to apply for ten percent (10%) cap status.

This protection does not apply to agricultural property, conservation land, and certain other property that qualifies for other favorable tax treatment.

A change of ownership or control of such property will cause loss of the ten percent (10%) cap in the year of the transfer. Where property is owned by an entity, such as a corporation, a limited liability company, or a partnership, the cap will be lost if there is a transfer of more than 50% of the ownership in the entity.

In addition, for non-residential property the cap will be lost if improvements are added that increase the value by at least twenty-five percent (25%).

Under Florida Statute Section 193.1556 any person or entity that owns property protected by the ten percent (10%) cap has a duty to notify the county property appraiser of any change of ownership or control on a Form DR-430, which is provided by the Department of Revenue. This form can be reviewed by clicking here.

Frequently asked questions from the Department of Revenue on the ten percent (10%) cap, to view click here.

Why Medical Practices Should Think Ahead and Be Organized With Respect to Office and Facility Leases
by Carleton Compton

Carleton

Carleton Compton runs his medical specialty leasing and real estate practice like a true professional, and has developed processes and a reputation accordingly. We can all learn from how Carleton has geared himself and his organization to best serve clients. Carleton can be reached at ccompton@equity.net, and was recently awarded the “Real Estate Forum’s 40 under 45” award for real estate professionals. He has also spoken at a variety of educational panels, including the University of Florida’s Bergstrom Council.

Carleton is an active member in the community in which he lives. Currently he is a contributing member of the Board of Directors for the Children’s Cancer Center, where he previously held the Chairman position. He has also been a member of the Advisory Board of the Gulf Ridge Council for Boy Scouts and is the former President of the local University of Alabama Alumni Association. Hats off to Carleton, and we thank him for the following story:

If you are like most medical practices, you are constantly looking for ways to decrease your overhead costs. In a lean market, it can mean a more competitive position in the market. It can also be the difference between profitability and loss. One area that you may be overlooking is your current lease agreement. If you are up for renewal within the next year or two, you may have more leverage than you think.

This past year, the Equity Healthcare Team was hired to review Dental Care Alliance’s (DCA) renewal option. The following case study shows the benefit of having a formal lease audit conducted by a commercial real estate expert.

The Situation: DCA felt that their base rent and common area maintenance charges (CAM) were above market. Since occupying their space, the tenancy in the building and surrounding area was on the decline. The anchor tenant in the building was SunTrust, whose relocation could stigmatize the building. In addition, the elevator in the building was inadequate and needed replacement or repairs. Since DCA occupied second floor space, this was an inconvenience for their patients.

The Strategy: DCA hired Equity Healthcare Real Estate to represent them in their lease renewal negotiations. The client had two options; move to a new location or stay put. DCA was more inclined to stay in their existing location. In an effort to have a stronger position while negotiating with the Landlord, Equity advised the client to pursue a leverage negotiation. Equity reviewed DCA’S existing lease while also performing a site search for alternative spaces in the market. By understanding the market conditions, including rental rates, CAM charges, tenant improvement allowance, and vacancy rates, Equity was able to have a stronger position in negotiating leverage with the landlord.

The Results: Equity was able to negotiate the following renewal terms for DCA:

A five (5) year lease with a starting Base Rent of $12.37 PSF with 2% annual increases. This was a significant decrease from their original Base Rent of $25 PSF with 3% annual increases.

Equity discovered inconsistencies in the CAM Charges, which were adjusted and brought the Base Year down to $8.73 PSF from $10 PSF. The landlord also agreed to a 5% cumulative cap on operating expenses.

The renewal allowed DCA to terminate their agreement if the bank downstairs left the building at any time during their lease period.

DCA was able to obtain exclusivity for dental care in the building.

In their initial Lease, DCA agreed to pay back the total build-out allowance ($71,000) if they did not renew their Lease for an additional 10 years. Equity was able to convince the landlord to terminate the language in the Lease tied to the $71,000 penalty and modify it to include 2 renewal options for 3 years each.

The Landlord addressed the significant concerns regarding the elevator problems and provided an acceptable resolution.

Over the course of five years, the renewal negotiation saved DCA approximately $316,207 in base rent alone. Additionally, Equity helped DCA achieve more flexibility in their lease and a stronger control of their environment.

Not every situation will yield the same results, however, Carleton can provide an audit and analysis of your current leases

Seminar Announcement: Ave Maria School of Law Estate Planning Conference 2015 Date Announced

The 2014 Ave Maria School of Law Estate Planning conference was a great success. Be sure to mark your calendar for Friday, May 1, 2015 (and a wonderful weekend in Naples). The interaction between participants and presenters at this small but powerful conference was unsurpassed.
For more information please contact Alan Gassman at agassman@gassmanpa.com or Karen Grebing at kgrebing@avemarialaw.edu.

Christopher P. Bray (moderator), Al W. King, III, Alan S. Gassman, Bruce Stone, Jerry Hesch and Barry A Nelson participate in a panel discussion at the 2014 Estate Planning Conference.

Upcoming Seminars and Webinars

FREE WEBINAR:

ALL ABOUT THE JEST TRUST

I am speaking at the Ohio State Bar Association 25th Annual Estate Planning Conference on Wealth Transfer on June 4, 2014 on a topic that I have never handled alone, for 50 minutes. Please help me rehearse by attending this free 50 minute webinar.

Date: May 28, 2014 | 12:00 p.m. (50 minutes)

Location: Online webinar

Additional Information: To register for the webinar please click here.

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FREE WEBINAR:

WILL THE SUPREMES TAKE BP CLAIMS ON A MIDNIGHT TRAIN TO GEORGIA?

Date: Friday, May 30, 2014 | 12:30 p.m (20-30 Minutes)

Location: Online webinar

Additional Information: To register for the webinar please click here.
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LIVE OHIO PRESENTATION:

THE JOINT EXEMPT STEP-UP TRUST AND PLANNING WITH COMMERCIAL ANNUITIES

Alan Gassman will be speaking at the annual Ohio Conference on Wealth Transfer on June 4, 2014 on two different topics:

1) Wealth Transfer on Structuring Joint Exempt Step-Up Trusts (“JESTs”): Maximizing Stepped-Up Basis Planning, Fully Funding Credit Shelter Trusts with Joint Assets and Practical and Technical Aspects Thereof – With Forms

With the increased federal estate tax exclusion, it may be time to reconsider “joint” trusts for married couples. Alan co-authored two articles in the October and November issues of Estate Planning Magazine about Joint Exempt Step-Up Trusts (JESTs), and will talk about maximizing stepped-up basis planning, fully funding Credit Shelter Trusts with joint assets, and other practical aspects of JESTs with forms.

2) Planning with Commercial and Charitable Annuities. Mr. Gassman will also be participating in a panel discussion the evening before hosted by Johnson Investment Counsel and The Ohio State University.

This session will discuss planning with fixed and variable annuities, covering common policy features, misunderstandings about “guaranteed” rates of return, the minimum distribution rules akin to the IRA rules, income taxation of annuities on the death of the owner or annuitant, and trusts as holders of annuity contracts.

Skip Fox will be speaking on the following:

1) Recent Developments.

This session will include commentary on marital planning, gifts, grantor trusts, asset protection, portability, generation skipping tax and charitable planning.

2) Must We Trust a Trust That’s Just a Crust That Was a Trust?

What some view as “un-trust-like” notions – protectors, selectors, advisors, appointers, special trustees, directed trusts, secret trusts, virtual representation, in terrorem forfeitures, perpetual trusts and decanting – will be examined with some forms included.

Date: June 4, 2014

Location: Hilton at Easton, Columbus, Ohio

Additional Information: For more information on the conference and to register for the conference please contact agassman@gassmanpa.com

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FREE WEBINAR:

VERSION 226.3 OF OUR ESTATEVIEW ESTATE TAX PROJECTION AND ILLUSTRATION SOFTWARE – A FREE WEBINAR

Alan Gassman, Ken Crotty and David Archer will be presenting a free 30 minute webinar on what is new with our EstateView software which will be featured later this year in Jason Havens’ excellent American Bar Association RPTE Probate and Property column.

Speakers: Alan Gassman, Ken Crotty and David Archer

Date: Monday, June 9, 2014 | 12:30 p.m.

Location: Online webinar

Additional Information: To register for the webinar please click here.
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FREE WEBINAR:

CREDITOR AND OTHER PLANNING FOR SAME GENDER COUPLES

Date: Tuesday, June 10, 2014 | 7:30 p.m.

Location: Online webinar

Additional Information: To register for the webinar please click here.

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BLOOMBERG BNA WEBINAR:

HIRING AND TERMINATING EMPLOYEES; WHAT TO DO, WHAT TO AVOID

Speaker: Alan S. Gassman, Esq., Colleen Flynn, Esq. and Dr. Stephanie Thomason

This is a very practical guide that your office manager is sure to enjoy. Let us know if you would like to see Alan Gassman’s slides for this presentation.

Date: Wednesday, June 18, 2014 | 2:00 – 3:00 p.m.

Location: Bloomberg BNA Tax & Accounting Online webinar

Additional Information: For more information, to register and a discount code please email agassman@gassmanpa.com

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LIVE CLEARWATER PRESENTATION:

FICPA SUNCOAST CHAPTER MONTHLY MEETING

Alan S. Gassman will be speaking at the FICPA Suncoast Chapter’s monthly meeting on HOW TO PLAN, STRUCTURE, AND PROTECT WEALTH USING REVOCABLE AND IRREVOCABLE TRUSTS AND TRUST SYSTEMS. A COMPREHENSIVE OVERVIEW WITH A PRACTICAL PLANNING CHECKLIST AND PRACTITIONER TAX COMPLIANCE GUIDE.

Speaker: Alan S. Gassman

Date: Thursday, June 19, 2014 | 4:00 p.m. (100 minute presentation)

Location: Feather Sound Country Club, Clearwater, Florida

Additional Information: For more information, to register and a discount code please email agassman@gassmanpa.com

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LIVE FT. LAUDERDALE PRESENATION:

FICPA ANNUAL ACCOUNTING SHOW

Alan Gassman will be speaking at the FICPA Annual Accounting Show on Thursday, September 18, 2014 on the topic of ESSENTIAL GUIDE TO BASIC TRUST PLANNING for 50 minutes.

This presentation will introduce basic and intermediate trust planning background and provide attendees with an orderly list of the most commonly used trusts, practical features and traps for the unwary, including revocable, irrevocable and hybrid. The discussion will include tax, creditor protection and probate and guardian considerations.

Date: Wednesday, September 17 through Friday, September 19, 2014

Location: Fort Lauderdale, Florida

Additional Information: For more information about this program please contact Stephanie Thomas at ThomasS@ficpa.org

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LIVE NEW JERSEY PRESENTATION:

NEW JERSEY INSTITUTE FOR CONTINUING LEGAL EDUCATION (ICLE)_SPECIAL 3 HOUR SESSION

Alan Gassman will be the sole speaker for this informative 3 hour program entitled WHAT NEW JERSEY LAWYERS NEED TO KNOW ABOUT FLORIDA LAW

Here is some of what the New Jersey Bar Invitation for this program provides:

New Jersey residents have always had a strong connection to Florida. We vacation there (it’s our second shore). Own Florida property (or have favored relatives that do) and have family and friends living there. Sometimes our wealthiest clients move to Florida and need guidance, and you need background in order to continue representation.

There are real and significant differences between the two states that every lawyer should be cognizant of. For example, holographic wills are perfectly legitimate in New Jersey and anyone can serve as an executor of an estate, which is not the case in Florida. Also, Florida’s new rules regarding LLCs are different, and if you are handling estates of New Jersey decedents who owned Florida property, there are Florida law issues that must be addressed. Asset protection differs significantly in Florida too.

Attendees will receive Mr. Gassman’s book entitled AFlorida Law for Tax, Business and Financial Planning Advisors,@ which has a retail value of $34.95.

Our informative seminar, presented by Clearwater attorney Alan Gassman, highlights issues New Jersey lawyers should be aware of when handling matters for New Jersey residents who own Florida property, reside there part time, have interest in Florida businesses, or who are considering a move to Florida. The Florida Bar rules permit out of state lawyers to continue representation of Florida residents under rules that will be discussed.

Gain the knowledge you need to assist your clients with Florida matters, including:

  •  Florida specific laws involving businesses, trusts, and estates
  •  Florida tax planning
  •  Elective share and homestead rules
  •  Liability Insulation and Planning
  •  Creditor Protection and Strategies
  •  Medical Practice Laws
  •  Staying within Florida Bar Guidelines that allow representation of Florida clients

Comments from past attendees of this program:

  •  Excellent seminar and materials!!!
  •  This was one of the best ICLE seminars yet!
  •  One of the best seminars I have attended.
  •  Better than mashed potatoes and gravy. Glad he didn’t serve grits!

Date: Saturday, October 4, 2014

Location: TBD

Additional Information: This is a repeat of the same program that we gave last year, but our book is now updated for the new Florida LLC law and changes in estate and trust law. Please tell all of your friends, neighbors and enemies in New Jersey to come out to support this important presentation for the New Jersey Bar Association. We will include discussions of airboats, how to get an alligator off of your driveway, how to peel a navel orange and what collard greens and grits are. For additional information please email agassman@gassmanpa.com

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LIVE SOUTH BEND, INDIANA PRESENATION:

40th ANNUAL NOTRE DAME TAX & ESTATE PLANNING INSTITUTE

Please send us your questions, comments and suggestions for Alan Gassman’s talk on Planning with Variable Annuities and Analyzing Reverse Mortgages.

This presentation will cover the unique income tax and financial planning characteristics of fixed and variable annuities, and provide estate and tax planners with a number of strategies for understanding and planning with existing and contemplated contracts. With over One Trillion Dollars of US taxpayer money invested in annuity contracts, more and more clients are showing up in their estate planners’ offices with large annuity contracts and common misunderstandings about “guaranteed income” and “guaranteed rates of return” features. The presentation will cover common policy features, what is actually happening inside of a policy, illustration techniques, and changes that can be made to defer income tax and reduce overall tax liability. Minimum distribution rules that apply to variable annuity contracts will also be discussed.

Date: November 13 and 14, 2014

Location: Century Center, South Bend, Indiana

We welcome questions, comments and suggestions on variable annuities, which will be Alan Gassman’s topic for this conference.

Additional Information: The focus of this year’s institute will be on “Business Succession Planning: An Income Tax, Estate Tax and Financial Analysis.” As in past years, several sessions are designed to evaluate certain financial products and tax planning techniques so that the audience can better understand and evaluate these proposals in determining not only the tax and financial advantages they offer, but also evaluate limitations and problems they may cause in the future. Given that fewer clients will need high-end estate tax planning with the $5 million exemptions, other sessions will address concerns that all clients have. For example, a session will describe scams that target elderly individuals and how to protect the elderly from these scams. As part of the objective on refreshing or introducing the audience to areas that can expand their practice, other sessions will review the income tax consequences of debt cancellation, foreclosures, short sales, the special concerns that arise in bankruptcy and various planning available to eliminate the cancellation of debt income or at least defer it with a possible step-up basis at death. The Institute will also continue to have sessions devoted to income tax planning techniques that clients can use immediately instead of waiting to save estate taxes far in the future.

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LIVE NAPLES PRESENTATION:

2nd ANNUAL AVE MARIA SCHOOL OF LAW ESTATE PLANNING CONFERENCE

Alan Gassman will once again be speaking at the Ave Maria School of Law Estate Planning Conference in Naples, Florida, whether he is invited or not! Hats off to Jonathan Gopman, Karen Grebing, Northern Trust and many others for having hosted one of the most enjoyable conferences in 2014.

Date: Friday, May 1, 2015

Location: Ave Maria School of Law, Naples, Florida

Additional Information: Please contact Karen Grebing at kgrebing@avemarialaw.edu for more information.

NOTABLE SEMINARS BY OTHERS

(We were not invited but will attend and are still excited!)

LIVE ORLANDO PRESENTATION:

49th ANNUAL HECKERLING INSTITUTE ON ESTATE PLANNING

Date: January 12 – 16, 2015

Location: Orlando World Center Marriott 8701 World Center Drive, Orlando, Florida

Additional Information: For more information please visit: https://www.law.miami.edu/heckerling/?op’0

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LIVE ST. PETERSBURG PRESENTATION:

ALL CHILDREN’S HOSPITAL FOUNDATION

Date: Thursday, February 12, 2015

Location: St. Petersburg, FL

Additional Information: Please contact Lydia Bennett Bailey at Lydia.Bailey@allkids.org for more information.

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LIVE PRESENTATION:

2015 FLORIDA TAX INSTITUTE

Date: Wednesday through Friday, April 22 – 24, 2015

Location: TBD

Additional Information: Please contact Bruce Bokor at bruceb@jpfirm.com for more information.

APPLICABLE FEDERAL RATES

Applicable Federal Rates May 2014

The 7520 rate for May is 2.4% and for April was 2.2%

The Thursday Report 5.15.2014 – New 4th DCA Creditor Case and Dr. Obama 90 Day Rule

Posted on: May 15th, 2014

New 4th DCA Decision May Dramatically Change the Landscape for Many Creditor Protection Plans

Obamacare 90 Day Risk Rule for Doctors. Don’t Be Blue (Shield), an article by Mike Segal, Shachi Mankodi and Alan S. Gassman

Oshins 11 or 101? Asset Protection Philosophy 101, an article by Steven J. Oshins

Humor! (or Lack Thereof!)

We welcome contributions for future Thursday Report topics. If you are interested in making a contribution as a guest writer, please email Janine Gunyan at Janine@gassmanpa.com.

This report and other Thursday Reports can be found on our website at www.gassmanlaw.com.

New 4th DCA Decision May Dramatically Change the Landscape for Many Creditor Protection Plans

Florida’s fourth district court of appeals chewed an opinion on March 5, 2014, which indicated that Florida courts do not have in rem or quasi in rem jurisdiction over foreign states and does not have the authority to order the debtors to turnover foreign stock certificates. In this case a gentleman named Mohammad Anwar Farid Al-Saleh, who is a citizen of the Country of Jordan, sued two individuals for having proceeded with a corporate business arrangement without sharing profits with him. He received a judgment for over $20,000,000 and then asked the Palm Beach County court, in a motion for proceedings supplementary, to order the two defendants in the case to turn over “all stock certificates and similar documents memorializing their ownership interest in any corporation.”

The court noted that “allowing trial courts to compel judgment debtors to bring out-of-state assets into Florida would effectively eviscerate the domestication of foreign judgment statutes”. The court also noted that “there may be competing claims to the foreign assets and we believe that claims against a single asset should be decided in a single forum – and . . .that the forum should be, as it traditionally has been, a court of the jurisdiction in which the asset is located.” The court cited the 2009 New York Court of Appeals case of Koehler v. Bank of Bermuda Ltd., 911 N.E.2d 825 (N.Y. 2009) for the above quotation, and distinguished the situation in this case from the circumstances of the Koehler decision, where an international bank with a presence in New York was ordered to turn over stock certificates that it was holding outside of New York. In this case the party with the physical possession of the stock certificates apparently has no physical ties to Florida.

This case has made the national news and will be quoted by many for the proposition that the best place to keep stock certificates and other evidence of ownership may by in foreign countries.

In this case the subject stock certificates concerned assets located in the Bahamas, the Netherlands, Jordan, The Isle of Man, and the Dominican Republic.

Courts may find that the assets owned and/or the state of incorporation is Florida, then a debtor may be required to turn over stock certificates, no matter where they are.

As the result of this case many planners will doubtlessly encourage clients and potential clients to keep more assets in offshore companies, and to issue stock certificates and have them held in jurisdictions that do not recognize U.S. judgments.

We will continue to study this situation and keep our readers posted.

A copy of this decision rendered by the 4th District Court of Appeals is available upon request. Please e-mail agassman@gassmanpa.com or Janine at janine@gassmanpa.com for a copy.

Obamacare 90 Day Risk Rule for Doctors. Don’t Be Blue (Shield), an article by Mike Segal, Shachi Mankodi and Alan S. Gassman

3 atty

Mike Segal is a Partner in the Miami office of Broad and Cassel. He chairs the Firm’s Health Law Practice Group and has been practicing with Broad and Cassel for more than 40 years. Throughout his legal career, Mr. Segal has practiced in a business management environment. Over 20 years, he has spent considerable time in the representation of large single specialty and multi-specialty physician groups. He also has significant experience in structuring all varieties of joint venture transactions, keeping in mind the various regulatory issues. Additionally, he acts as general and special counsel to both hospitals and large medical groups.

He is a certified American Health Lawyer Association Dispute Resolver, a designation that qualifies him to serve as a mediator and arbitrator in forums for alternative dispute resolution.

Shachi Mankodi is an Associate in the Fort Lauderdale Office of Broad and Cassel. She is a member of the Firm’s Health Law Practice Group. Ms. Mankodi focuses her practice in the area of Health Law. She represents individuals and organizations in licensure disputes and proceedings as well as compliance and reimbursement matters involving the Medicaid and Medicare programs.

As Assistant General Counsel, she advised the Agency for Health Care Administration and Persons with Disabilities, the Department of Children and Families, and the Governor’s Energy Commission on litigation matters. As part of her duties in the Office of General Counsel, she was also involved in the judicial selection process.

Ms. Mankodi co-authored a chapter in the Florida Practitioner’s Health Law Handbook 2007 entitled “Investigating Medicaid Fraud”. Ms. Mankodi can be reached via email at smankodi@broadandcassel.com

The Broad and Cassel website is http://www.broadandcassel.com/.

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Among the many changes enacted by the Patient Protection and Affordable Care Act (“ACA”), is a provision that allows a 3-month grace period for certain individuals to pay their premiums while continuing to be insured by HMOs and managed care companies that participate in the national health insurance exchange (often referred to as the “exchange marketplace”). This 3-month grace period only applies to individuals that receive advanced premium tax credits (subsidies). Below is an explanation of how physicians that are providing services to insured individuals during the grace period are to bill and receive reimbursement from insurers for these services.

Services during first month of grace period
HMOs will pay physicians the full amount for claims related to services rendered from Day 1 to Day 30 of the grace period;

Claims paid during the first month are not subject to recoupment if the insured individual fails to pay his or her premium during the 90-day grace period.

HMOs are required to notify physicians when an Insured Individual is in the grace period for nonpayment of premium (either through their online systems, via letters or through remittance advice notices). NOTE – the ACA provides discretion to HMOs as to when and in what manner the notification is sent to the physician (for example, an HMO may choose to send a notice as soon as the patient enters the grace period or can wait to notify the physician until the second or third month of the grace period).

Services during second and third months of grace period

HMOs are authorized to “pend” claims, meaning the HMO can hold payments for services rendered from the 31st day until the 90th day of the grace period until the full amount of the premium is paid by the Insured Individual.

Physicians can still collect copayments, deductibles and coinsurance payments from the Insured Individual for services rendered during the second and third months.

HMOs may choose to notify providers that the claims are “pending” but best practice would be for the physician to check eligibility for all patients that are in the grace period prior to rendering services.

Billing for services after grace period has ended

If the Insured Individual does not pay the premium during the 3-month periodthe HMO will terminate coverage and deny all pending claims with dates of service in the second and third month of the grace period.

The physician is then authorized to collect the full amount of the service from the patient directly.

Physicians may have to invest in effective ways to collect for these services, which could require additional resources from billing agents.

If the Insured Individual pays the premium during the 3-month period the HMO will reimburse the provider for all pending claims with dates of service during the second and third month of the grace period.

NOTE – there is no change in policy for insured individuals that do not receive subsidies or who are not enrolled in a health insurance exchange policy. Florida law currently gives individuals a 30-day grace period to pay their premiums. All claims will “pend” during this 30-day time period and coverage will be terminated retroactive to the start of the 30-day grace period if the insured individual has not paid the premium within the 30-day period. Insurers are NOT required to notify providers that these insured individuals have entered the 30-day grace period.

Bottom Line for Physicians

Be aware of which patients are in the 90-day grace period; pay attention to the notices that you receive from HMOs regarding patient eligibility.

“Flag” patients who are entering their 31st day of the grace period. The services that physicians provide to these patients after the 31st day will most likely be in pending status with the HMO until the patient pays the premium.

Perform routine eligibility checks for patients at the time of scheduling appointments to ensure that they are actively insured.

Pursue collection activities from patients who have lost coverage after the 3-month grace period.

Oshins 11 or 101? Asset Protection Philosophy 101
by Steven J. Oshins

Steve Oshins - 72dpi photo

Steven J. Oshins, Esq., AEP (Distinguished) is an attorney at the Law Offices of Oshins & Associates, LLC in Las Vegas, Nevada, with clients throughout the United States. He is listed in The Best Lawyers in America. He was inducted into the NAEPC Estate Planning Hall of Fame in 2011 and was named one of the 24 Elite Estate Planning Attorneys in America by the Trust Advisor. He has authored many of the most valuable estate planning and asset protection laws that have been enacted in Nevada. He can be reached at 702-341-6000 or via email at soshins@oshins.com. The firm website is www.oshins.com

Asset protection has become a necessary part of every estate planner’s practice. As we see case law develop, it seems that every time a new decision is issued there are numerous blogs and comments made about the case at conferences, whether positive or negative. The litigators generally claim that the new case spells the end of the technique that was used and failed to work in this particular case. They will often claim that a technique “doesn’t work” based on one bad case. The asset protection planners generally claim that “bad facts made bad law.” So who is right?

The Goal

What is the goal when attempting to protect your assets? Isn’t the goal simply to structure your assets in such a way that they are less desirable to potential creditors? This is Asset Protection Philosophy 101. The asset protection structure should not be judged solely based on whether there is a similar structure that did not work when tested in the court system. Each situation stands on its own. NO two fact patters are exactly the same, no two parties to a lawsuit have exactly the same levels of fear and desire for compromise, and no two attorneys will approach the dispute in exactly the same way.

The goal isn’t necessarily to take a case through the court system and convince a judge to rule in your favor. The goal is to walk away with some or most of your assets intact. A settlement for substantially less than what could have been lost should be considered a victory. Unfortunately, case law generally glorifies the losing cases – not the winning cases – because the plaintiff tends to press the matter when the facts are more heavily on the plaintiff’s side. Therefore, we tend to see the bad results (from the debtor’s perspective) in the case law, but the good results (from the debtor’s perspective) very often go unreported because the disputes were settled. Those who practice in this area, however, have seen numerous clients settle matters, in large part because of the asset protection structure that was in place – which helped the creditor see the benefits in settling and the uphill battle that may exist without settlement.

Playing the Game

Asset Protection is a game of probabilities. Every legitimate wall that is placed around the asset should move the settlement number more in favor of the debtor. And every bad case that comes down the pike should move the settlement number more in favor of the creditor. Uncertainty over collectability causes most disputes to settle long before they reach the trial level. The creditor must assess the probability that he will be able to collect the debt and the expenses that will be involved in trying to collect, and then make a rational decision about how far to press the dispute and whether to attempt to settle and the likely settlement amount.

Asset Protection Philosophy 101

Assuming there is no creditor on the horizon, or that any current creditor is excluded from the asset protection structure and that it is only set up to protect from future creditors, if you were the client:

Would you proceed with an asset protection structure that has a 99% probability of protecting your assets? (Absolutely.)

Would you proceed with an asset protection structure that has a 90% probability of protecting your assets? (Very highly likely.)

Would you proceed with an asset protection structure that has a 75% probability of protecting your assets? (Probably, but you would hope to find a better alternative.)

Would you proceed with an asset protection structure that has a 50% probability of protecting your assets? (Maybe, but you would look for other alternatives.)

It is important to remember that nothing exists that assures a 100% probability of success. If hundreds of debtors are able to successfully use a particular asset protection structure to induce creditors to settle disputes and therefore avoid going all the way through the court process, would you avoid using that strategy if one bad case came down? If two bad cases come down? If three bad cases come down? Each advisor and each client will ask themselves whether the cost and complexity are worth the degree and probability of protection obtained using the particular structure.

Summary

Asset protection planning is about putting the client in a strong negotiation position by using accepted, legitimate techniques so that the client will ultimately settle the dispute for less than the amount that the client otherwise may have lost had the structure not been in place. It is not solely about case law. The asset protection scorecard not only includes case law, but also includes favorable settlements.

To the extent that the asset protection structure has moved the settlement number in favor of the debtor, the asset protection planner has done a good job. Asset Protection Philosophy 101 is to structure the client’s assets so that, if the client is ever sued, the client will keep some or more of the assets on account of the structure being in place well in advance of the creditor issue.

Humor! (or Lack Thereof!)

GREETINGS FROM SAN JUAN:

Alan and his wife Marcia are enjoying some time down in San Juan. Here is his auto-response on his email:

I’m in Puerto Rico on a vacation that I seek-o.
Soon Marcia will be calling me Chico,

Our ready team
is strong and lean
handling things until Monday
so that today and tomorrow can be fun-days.

I may check in on occasion
so please share anything that will cause elation.

If you need anything soon,
you will have it well before June.

My partners, Ken and Chris
are easily handling anything I might miss.

Have a great week, make it the most
and I bid you for now, Adiós!

Upcoming Seminars and Webinars

PLANNING WITH VARIABLE AND OTHER ANNUITY PRODUCTS and ALL ABOUT THE JEST TRUST

Dates:  Planning with Variable Annuities | May 21, 2014 | 12:00 p.m. (50 minutes)

               All About the JEST Trust | May 28, 2014 | 12:00 p.m. (50 minutes)

I am speaking at the Ohio State Bar Association 25th Annual Estate Planning Conference on Wealth Transfer on June 4, 2014 on 2 topics that I have never handled alone, at 50 minutes each. Please help me rehearse by attending one or both of these free 50 minute webinars.

These webinars are free of charge and you can register for each of them below.

To register for the Variable Annuities talk please click here.

To register for the JEST talk please click here.

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THE JOINT EXEMPT STEP-UP TRUST AND PLANNING WITH COMMERCIAL ANNUITIES

Alan Gassman will be speaking at the annual Ohio Conference on Wealth Transfer on June 4, 2014 on two different topics:

1) Wealth Transfer on Structuring Joint Exempt Step-Up Trusts (“JESTs”): Maximizing Stepped-Up Basis Planning, Fully Funding Credit Shelter Trusts with Joint Assets and Practical and Technical Aspects Thereof – With Forms

With the increased federal estate tax exclusion, it may be time to reconsider “joint” trusts for married couples. Alan co-authored two articles in the October and November issues of Estate Planning Magazine about Joint Exempt Step-Up Trusts (JESTs), and will talk about maximizing stepped-up basis planning, fully funding Credit Shelter Trusts with joint assets, and other practical aspects of JESTs with forms.

2) Planning with Commercial and Charitable Annuities. Mr. Gassman will also be participating in a panel discussion the evening before hosted by Johnson Investment Counsel and The Ohio State University.

This session will discuss planning with fixed and variable annuities, covering common policy features, misunderstandings about “guaranteed” rates of return, the minimum distribution rules akin to the IRA rules, income taxation of annuities on the death of the owner or annuitant, and trusts as holders of annuity contracts.

Skip Fox will be speaking on the following:

1) Recent Developments.

This session will include commentary on marital planning, gifts, grantor trusts, asset protection, portability, generation skipping tax and charitable planning.

2) Must We Trust a Trust That’s Just a Crust That Was a Trust?

What some view as “un-trust-like” notions – protectors, selectors, advisors, appointers, special trustees, directed trusts, secret trusts, virtual representation, in terrorem forfeitures, perpetual trusts and decanting – will be examined with some forms included.

Date: June 4, 2014

Location: Hilton at Easton, Columbus, Ohio

Additional Information: For more information on the conference and to register for the conference please contact agassman@gassmanpa.com

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VERSION 226.3 OF OUR ESTATEVIEW ESTATE TAX PROJECTION AND ILLUSTRATION SOFTWARE – A FREE WEBINAR

Alan Gassman, Ken Crotty and David Archer will be presenting a free 30 minute webinar on what is new with our EstateView software which will be featured later this year in Jason Havens’ excellent American Bar Association RPTE Probate and Property column.

Speakers: Alan Gassman, Ken Crotty and David Archer

Date: Monday, June 9, 2014 | 12:30 p.m.

Location: Online webinar

Additional Information: To register for the webinar please click here.

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CREDITOR AND OTHER PLANNING FOR SAME GENDER COUPLES

Date: Tuesday, June 10, 2014 | 7:30 p.m.

Location: Online webinar

Additional Information: To register for the webinar please click here.

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HIRING AND TERMINATING EMPLOYEES; WHAT TO DO, WHAT TO AVOID

Speaker: Alan S. Gassman, Esq., Colleen Flynn, Esq. and Dr. Stephanie Thomason

This is a very practical guide that your office manager is sure to enjoy. Let us know if you would like to see Alan Gassman’s slides for this presentation.

Date: Wednesday, June 18, 2014 | 2:00 – 3:00 p.m.

Location: Bloomberg BNA Tax & Accounting Online webinar

Additional Information: For more information, to register and a discount code please email agassman@gassmanpa.com

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FICPA SUNCOAST CHAPTER MONTHLY MEETING

Alan S. Gassman will be speaking at the FICPA Suncoast Chapter’s monthly meeting on HOW TO PLAN, STRUCTURE, AND PROTECT WEALTH USING REVOCABLE AND IRREVOCABLE TRUSTS AND TRUST SYSTEMS. A COMPREHENSIVE OVERVIEW WITH A PRACTICAL PLANNING CHECKLIST AND PRACTITIONER TAX COMPLIANCE GUIDE.

Speaker: Alan S. Gassman

Date: Thursday, June 19, 2014 | 4:00 p.m. (100 minute presentation)

Location: Feather Sound Country Club, Clearwater, Florida

Additional Information: For more information, to register and a discount code please email agassman@gassmanpa.com

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FICPA ANNUAL ACCOUNTING SHOW

Alan Gassman will be speaking at the FICPA Annual Accounting Show on Thursday, September 18, 2014 on the topic of ESSENTIAL GUIDE TO BASIC TRUST PLANNING for 50 minutes.

This presentation will introduce basic and intermediate trust planning background and provide attendees with an orderly list of the most commonly used trusts, practical features and traps for the unwary, including revocable, irrevocable and hybrid. The discussion will include tax, creditor protection and probate and guardian considerations.

Date: Wednesday, September 17 through Friday, September 19, 2014

Location: Fort Lauderdale, Florida

Additional Information: For more information about this program please contact Stephanie Thomas at ThomasS@ficpa.org

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NEW JERSEY INSTITUTE FOR CONTINUING LEGAL EDUCATION (ICLE)_SPECIAL 3 HOUR SESSION

Alan Gassman will be the sole speaker for this informative 3 hour program entitled WHAT NEW JERSEY LAWYERS NEED TO KNOW ABOUT FLORIDA LAW

Here is some of what the New Jersey Bar Invitation for this program provides:

New Jersey residents have always had a strong connection to Florida. We vacation there (it=s our second shore). Own Florida property (or have favored relatives that do) and have family and friends living there. Sometimes our wealthiest clients move to Florida and need guidance, and you need background in order to continue representation.

There are real and significant differences between the two states that every lawyer should be cognizant of. For example, holographic wills are perfectly legitimate in New Jersey and anyone can serve as an executor of an estate, which is not the case in Florida. Also, Florida=s new rules regarding LLCs are different, and if you are handling estates of New Jersey decedents who owned Florida property, there are Florida law issues that must be addressed. Asset protection differs significantly in Florida too.

Attendees will receive Mr. Gassman’s book entitled “Florida Law for Tax, Business and Financial Planning Advisors,” which has a retail value of $34.95.

Our informative seminar, presented by Clearwater attorney Alan Gassman, highlights issues New Jersey lawyers should be aware of when handling matters for New Jersey residents who own Florida property, reside there part time, have interest in Florida businesses, or who are considering a move to Florida. The Florida Bar rules permit out of state lawyers to continue representation of Florida residents under rules that will be discussed.

Gain the knowledge you need to assist your clients with Florida matters, including:

  • Florida specific laws involving businesses, trusts, and estates
  • Florida tax planning
  • Elective share and homestead rules
  • Liability Insulation and Planning
  • Creditor Protection and Strategies
  • Medical Practice Laws
  • Staying within Florida Bar Guidelines that allow representation of Florida clients

Comments from past attendees of this program:

  • Excellent seminar and materials!!!
  • This was one of the best ICLE seminars yet!
  • One of the best seminars I have attended.

Date: Saturday, October 4, 2014

Location: TBD

Additional Information: This is a repeat of the same program that we gave last year, but our book is now updated for the new Florida LLC law and changes in estate and trust law. Please tell all of your friends, neighbors and enemies in New Jersey to come out to support this important presentation for the New Jersey Bar Association. We will include discussions of airboats, how to get an alligator off of your driveway, how to peel a navel orange and what collard greens and grits are. For additional information please email agassman@gassmanpa.com

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40th ANNUAL NOTRE DAME TAX & ESTATE PLANNING INSTITUTE

Please send us your questions, comments and suggestions for Alan Gassman’s talk on Planning with Variable Annuities and Analyzing Reverse Mortgages.

This presentation will cover the unique income tax and financial planning characteristics of fixed and variable annuities, and provide estate and tax planners with a number of strategies for understanding and planning with existing and contemplated contracts. With over One Trillion Dollars of US taxpayer money invested in annuity contracts, more and more clients are showing up in their estate planners’ offices with large annuity contracts and common misunderstandings about “guaranteed income” and “guaranteed rates of return” features. The presentation will cover common policy features, what is actually happening inside of a policy, illustration techniques, and changes that can be made to defer income tax and reduce overall tax liability. Minimum distribution rules that apply to variable annuity contracts will also be discussed.

Date: November 13 and 14, 2014

Location: Century Center, South Bend, Indiana

We welcome questions, comments and suggestions on variable annuities, which will be Alan Gassman’s topic for this conference.

Additional Information: The focus of this year’s institute will be on “Business Succession Planning: An Income Tax, Estate Tax and Financial Analysis.” As in past years, several sessions are designed to evaluate certain financial products and tax planning techniques so that the audience can better understand and evaluate these proposals in determining not only the tax and financial advantages they offer, but also evaluate limitations and problems they may cause in the future. Given that fewer clients will need high-end estate tax planning with the $5 million exemptions, other sessions will address concerns that all clients have. For example, a session will describe scams that target elderly individuals and how to protect the elderly from these scams. As part of the objective on refreshing or introducing the audience to areas that can expand their practice, other sessions will review the income tax consequences of debt cancellation, foreclosures, short sales, the special concerns that arise in bankruptcy and various planning available to eliminate the cancellation of debt income or at least defer it with a possible step-up basis at death. The Institute will also continue to have sessions devoted to income tax planning techniques that clients can use immediately instead of waiting to save estate taxes far in the future.

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2nd ANNUAL AVE MARIA SCHOOL OF LAW ESTATE PLANNING CONFERENCE

Alan Gassman will once again be speaking at the Ave Maria School of Law Estate Planning Conference in Naples, Florida, whether he is invited or not! Hats off to Jonathan Gopman, Karen Grebing, Northern Trust and many others for having hosted one of the most enjoyable conferences in 2014.

Date: Friday, May 1, 2015

Location: Ave Maria School of Law, Naples, Florida

Additional Information: Please contact Karen Grebing at kgrebing@avemarialaw.edu for more information.

NOTABLE SEMINARS BY OTHERS

(WE WERE NOT INVITED, BUT WILL ATTEND AND ARE STILL EXCITED)

49th ANNUAL HECKERLING INSTITUTE ON ESTATE PLANNING

Date: January 12 – 16, 2015

Location: Orlando World Center Marriott 8701 World Center Drive, Orlando, Florida

Additional Information: For more information please visit: https://www.law.miami.edu/heckerling/?op=0

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ALL CHILDREN’S HOSPITAL FOUNDATION

Date: Thursday, February 12, 2015

Location: St. Petersburg, FL

Additional Information: Please contact Lydia Bennett Bailey at Lydia.Bailey@allkids.org for more information.

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2015 FLORIDA TAX INSTITUTE

Date: Wednesday through Friday, April 22 – 24, 2015

Location: TBD

Additional Information: Please contact Bruce Bokor at bruceb@jpfirm.com for more information.

Applicable Federal Rates

Below we have this month, last month’s, and the preceding month’s Applicable Federal Rates, because for a sale you can use the lowest of the 3.
Applicable Federal Rates May 2014

The 7520 Rate for May is 2.4% and for April was 2.2%

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