Archive for the ‘Thursday Reports’ Category

The Thursday Report – 4.2.15 – The Naked Truth About See-Through Trusts

Posted on: April 2nd, 2015

1933 Reasons Not to Buy Gold Coins

BP Claims Update: Policy 495, Part II

The Naked Truth: Planning for Ownership and Inheritance of Pension and IRA Accounts and Benefits by Christopher J. Denicolo, Alan S. Gassman, and Brandon Ketron, Part V

Richard Connolly’s World – Celebrity Estate Round-Up, Part II

Thoughtful Corner – Pilates – Fitness’s Best Kept Secret by Emily Wenzel

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 Stephanie at stephanie@gassmanpa.com.

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

1933 Reasons Not to Buy Gold Coins
by Alyssa Perez, Brandon Ketron, and Alan Gassman

What’s so special about pre-1934 gold coins? Apparently nothing, but this has not prevented many dealers and others in the market of gold coins from violating FTC rules and leaving investors and collectors to believe that there is a legal difference between pre- and post-1933 gold coins.

Thursday Report writers Alyssa Perez, Brandon Ketron, and Alan Gassman provide us with the following coverage:

EXECUTIVE SUMMARY:

A great number of investors, both sophisticated and unsophisticated, bought gold coins and bullion as it increased 465% in value from April 2001 to April 2011; which is an average rate of return of 46.5% per year. [i]  It is noteworthy, however, that in 2013 alone, gold prices fell  28% while the S&P Stock Index returned 32%, including dividends.[ii]  Some sophisticated investors have concluded that if the world economy shuts down, having gold on hand will be as good as anything, while others believe that holding onto gold makes almost no sense at all. In any event, the 1933 gold law misconception is one of the reasons that many people are clutching old gold coins for no good reason, and clients should not assume that it is an appropriate investment for any more than a very small portion of their portfolio.

Gold’s inability to accrue interest, coupled with the fact one must actually pay for its safe storage, undoubtedly has played a factor.[iii] In fact, the Wall Street Journal reported that those who purchased gold within the last four years (without distinguishing what type) lost money.[iv] In this day and age, gold is just a tough sale for those companies that were making significant money preying on naivety and a sense of panic that many not so well educated investors have experienced.

In order to combat these inescapable truths, many within the precious metals industry have found a way to profit by scamming unsophisticated buyers. A grandiose hoax—one that has long flooded cable television’s airwaves—continues to be used today.

The fact is that gold coins predating 1933 are not more “collectible,” or “valuable,” based solely on the fact that they were created before this date. The outdated Executive Order that allowed the federal government to confiscate citizens’ gold is clearly old news. Many laws have since replaced it and allowed for the attainment and enjoyment of any and all gold coins by any citizen, not just by “collectors.” An American “collectible” gold coin is worth only as much as its weight in gold—do not let the scammers convince you otherwise.

FACTS:

The government effectively confiscated gold coins in 1933, in a law that continued through 1969 and grandfathered pre-1933 gold coins.  Legislation in 1975 made all of this history irrelevant, yet many laymen and some advisors believe that pre-1933 coins have some sort of grandfathered legal status, which is absolutely not the case.  However, local precious metal firms, coin dealers, and banks supply hundreds of people with historical gold coins at prices that greatly exceed their melt value on the false basis that the federal government may, once again, confiscate gold coins. The sellers of numismatic gold coins claim that the holder can save gold coins from confiscation by buying coins struck before 1933. No current federal law or Treasury Department regulation supports any of these claims. In fact, the Federal Trade Commission (“FTC”) released an article warning against the scam of increased prices and government confiscation conspiracy theories.[v]

Where did this myth come from? President Franklin Delano Roosevelt issued an executive order on April 5, 1933 requiring that all persons in possession or in control of gold coins, bullions, or certificates, turn them in to any Federal Reserve Bank, or any branch or agency thereof.[vi] Roosevelt thereby effectively seized any gold bullion and coin that was not “rare and unusual.” While the Order never defined “rare and unusual,” it became an accepted practice that any gold coin minted prior to 1933 was exempt from the 1933 seizure.

After many ineffective Treasury regulations throughout the next thirty years, the practicality of banning gold ownership had ended. “On April 22, 1969, the [US] Treasury . . . issued rules and regulations . . . that eliminated all licensing requirements for the importation of gold coins produced prior to 1934.”[vii] The Treasury defined “rare coins” as such: “‘Gold coins made prior to 1934 [are] considered to be of recognized special value to collectors of rare and unusual coin.’”[viii]  Additionally, the Treasury stated that “‘[gold coins] of recognized special value to collectors of rare and unusual coin may be acquired, held, and transported within the United States without the necessity of holding a license therefor.’” Although private gold ownership was banned in 1933, following the 1969 amendments, those engaged in the scholarly pursuit of the study of gold coins were protected. Moreover, the Treasury did not intend to provide a loophole to private citizens who wished to hoard gold for its monetary value, and provided that: “‘gold, as a store of value, can be held only by the government and that private citizens and entities in the United States can acquire gold only for legitimate and customary industrial, professional, and artistic uses.’”[ix]

All of these rules and regulations, however, became moot on January 1, 1975 when President Gerald Ford signed a law allowing US citizens to privately own gold.[x] Private gold ownership was once again legal and has been ever since.

The issue now is that many precious metal firms maintain that US gold coins minted prior to 1933 are “collectible” and therefore not subject to any future gold confiscations.[xi] These firms claim that federal law allows the federal government, in times of national crisis, to confiscate gold coins, yet nothing in the law or Treasury Department regulations support this argument.[xii] The myth stems from the now-extinct Executive Order of 1933, and firms still use this law today to promote the sale of their overpriced “rare, collectible” gold coins.[xiii]

CMI Gold & Silver Inc. proffers:

Many gold and silver dealers foster the circulation of many myths, misunderstandings, and outright lies about the purchase and sale of [precious metals]. Generally, these misconceptions and falsehoods promote the notion that the government may again call in gold as it did in 1933 . . . . By cultivating such fears in investors, unscrupulous firms can sell high-priced (and nearly always over-priced) coins with greater margins of profit. Investors who believe these stories invariably pay too much or buy the wrong coins.[xiv]

In line with this claim, the FTC encourages investors to compare pricing before making a purchase, and informs consumers that there is no federal law or regulation supporting any claim that the federal government may someday, somehow, confiscate gold coins once again.[xv] In 2010, the FTC presented to the Subcommittee on Commerce, Trade, and Consumer Protection (of the Committee on Energy and Commerce in the US House of Representatives), a statement on The Precious Coins and Bullion Disclosure Act. The FTC acknowledged the scam artists who falsely tout “coins and precious metals as low-risk, high-yield investments to hedge against the economic downturn and fears of a declining [ ] dollar.”[xvi] These marketers fail to disclose the hidden mark-ups and premiums added onto the purchase of the coin, and thereby “divert consumers from purchasing investment opportunities from legitimate dealers.”[xvii] High inflation rates in the 1980s led to numerous enforcement actions brought against various operators.[xviii] “The FTC has brought 17 cases against companies that sold overpriced and/or misgraded historic coins for investment purposes.”[xix] These dealers sold coins with mark-ups as high as 100 to 300% over the market price, and made return on the investment impracticable.[xx] With the FTC stepping in, consumers have become more educated in understanding the differences among their investments.

COMMENT:

The long-lived tale that pre-1933 gold US coins are more valuable than newer coins, due to the older ones forever being exempt from government confiscation, is nothing short of a full-blown scam. Currently, coins predating 1933 may sell for more because of a continuing falsity being distributed by many within the precious metals industry (that they are “collectible,” and thereby exempt from any federal taking); however, these “rare coins” will only ever produce a profit more than their post-1933 counterparts, if, and when, the federal government once again calls for a nationwide confiscation of all gold coins minted after 1933. The fact is that there is no law, whatsoever, that gives credibility to these claims. Moreover, it is clear that the intention of the federal government is to continue to allow private citizens (not just collectors) to own gold coins, regardless of their rarity, collectiveness, or date of production. Attempts to sell these “collectible” coins for above-market prices on the basis of outdated “law” is a sham of tremendous proportion.

For charts on the real rate of return on gold, please visit http://www.usagold.com/publications/Mar2015R&O.html.

**************************************************
[i] Richard Salsman, The Bank Runs of the Early 1930s and FDR’s Ban on Gold, Forbes (Apr. 6, 2011), http://www.forbes.com/sites/richardsalsman/2011/04/06/the-bank-runs-of-the-early-1930s-and-fdrs-ban-on-gold/
[ii] Tatyana Shumsky. Gold vs. Stocks: The 10-Year Winner is… Wall St. J. (Nov. 18, 2014, 3:44 PM EDT), http://blogs.wsj.com/totalreturn/2014/11/18/gold-vs-stocks-the-10-year-winner-is/. (Investors who bought gold in the years 2010 to 2014 and didn’t sell it are carrying losses, while those who went with riskier stock investments are likely sitting on gains.)
[iii]  Id.
[iv] Id.
[v] Federal Trade Commission, Investing in Gold, Consumer Information (May 2011), http://www.consumer.ftc.gov/articles/0134-investing-gold.
[vi] Forbidding the Hoarding of Gold Coin, Gold Bullion and Gold Certificates, Exec. Order No. 6102, § 2 (1933).
[vii] Confiscate This!, Only Gold (Aug. 24, 2002), http://www.onlygold.com/articles/ayr_2002/CONFISCATE_THIS(August_24_2002).asp.
[viii]  Id.
[ix] Id.
[x]  Pub. L. No. 93-373 (Aug. 14, 1974).
[xi] Gold Confiscation Myths, CMI Gold & Silver Inc., http://www.cmi-gold-silver.com/ gold-confiscation-1933/ (last visited Mar. 27, 2015). (Headquartered in Phoenix, Arizona, CMI Gold & Silver Inc. is one of the oldest gold and silver dealers in the United States and has played a major role in introducing investors to the gold and silver markets.)
[xii]  Id.
[xiii] Id.
[xiv] Id.
[xv] Investing in Gold, supra note 2. The FTC further notes in their consumer report that “if you are interested in buying gold, do some digging before investing.  Some gold promoters don’t deliver what they promise, and may push people into an investment that isn’t right for them.” Id.
[xvi] Prepared Statement of the FTC on The Precious Coins and Bullion Disclosure at 1–2 (2010), available at https://www.ftc.gov/sites/default/files/documents/public_statements/ prepared-statement-federal-trade-commission-precious-coins-and-bullion-disclosure-act/ 100923coinsbulliamact.pdf.
[xvii] Id. at 2.
[xviii] Id. at 2–3.
[xix] Id. at 3–4.
[xx] Id. at 4.

BP Claims Update: Policy 495, Part II
by John Goldsmith and Alan Gassman
with assistance from Brandon Ketron and Noah Fischer

John Goldsmith recently appeared on a webinar with Alan Gassman to discuss the claims filing deadline and the various industries impacted by the accrual requirements.

This webinar can be viewed by clicking here.

To see Part I of this article, please click here.

If a claim is determined to be unmatched, Policy 495 provides seven methodologies that a claim administrator uses to achieve sufficient matching. The methodology used depends on the type of industry the claimant is assigned. The methodologies are as follows:

  1. Annual Variable Margin Methodology (AVM)
  2. Construction Claim Methodology
  3. Agricultural Claim Methodology
  4. Educational Institution Claim Methodology
  5. Professional Service(s) Claim Methodology
  6. Failed Businesses and Failed Start-Up Businesses
  7. Start-Up Businesses

Non-Profits

In November 2012, the BP Claims Administrator issued regulations which said that for non-profit organizations, revenues include both gifts and grants. This was subsequently approved by the court. Up until recently, BP never appealed this ruling, but BP is now trying to attack it almost two years later. As it currently stands, revenue includes gifts and grants. There are three important issues that arise from questions on how to match revenues with expenses in a non-profit organization. These issues significantly impact not-for-profit organizations’ claims, and usually for the worse.

The first issue that is presently up on appeal through the appeal and reconsideration process of BP involves a claim where incoming money is placed into an endowment fund whereby only the income from that fund can be spent for charitable purposes. BP is saying that only the interest on the endowed money should be counted, not the capital amounts raised. This is ludicrous because it does not take into account that charitable organizations show capital contributions as income, and these contributions slowed down after the BP Spill. Donors were holding on to their donations, and for the most part, never caught up with what the normal levels of contributions had been in previous years. Charitable organizations that were having special fund-raising events during this period of time lost significant endowment funding that can never be recovered, and this should be recognized in the same way that it would apply to any business.

The second issue up on appeal dealing with non-profit claims relate to restricted gifts. If a gift is restricted to a particular purpose or use and cannot be used in the month in which the money has come in, BP claims that the money must be spread out over the months for which that money is spent for its restricted purpose, although, they have not been entirely consistent in this. For example, if the money is given to buy food for three months, and it is given in September, they will spread it over September, October, and November. This will help some claims, but it will hurt others. Remember, they are looking at the purpose of those gifts and the dates they were to be spent, not the date they were pledged or received.

The third issue on appeal dealing with non-profit claims relates to capital campaigns, which are a very particular type of restricted gift. Basically, the money is given for something that will be of long-term use. Assume that the capital campaign states “we are giving you this money for the purpose of constructing a building.” The question is, if the money is used to construct the building, is it then spread over the time it took to construct or the forty-to-fifty year life of the building?

Helpful Hint

The biggest mistake that people seem to make is that they voluntarily give too much information to the BP claim administrator. Instead of giving a full and complete answer to BP’s claim accountants as to the specific questions they ask, people volunteer excess and often unrelated information resulting in further questioning and possible claims reductions and denials. BP claim accountants are thoroughly reading and looking through everything, so if you give them something they do not ask for, you are asking for a lengthier and possibly more in-depth process. There is also a higher chance that they may misunderstand something and reduce or eliminate the claim. It is safest in our opinion to have answers provided by a very experienced appeals lawyer who may handle the appeal if the BP administrator’s conclusion is not accepted or if BP contests it so that the appeals lawyer can best shape the issues, tone, and content of the information given.

Retail

In dealing with retail claims, the BP claim administrators want to know when purchases occur and when items are sold in order to ensure revenue is properly matched with the expenses incurred in earning it. They will want to see the data you have in support of your sales and purchases reconciled with information found on the profit and loss statements. If you do not have it, then they will apply what is called the Annual Variable Margin methodology (AVM).

This method is usually unfavorable for claimants because the claims administrator will match revenues and expenses by totaling each fiscal year’s variable expenses and allocate those expenses on a prorated basis to monthly revenues for the corresponding period, effectively smoothing out the variable expenses. This is only used when there is no supporting information of any kind or financial statements for revenue.

This can be avoided if the proper information is provided; for example, providing information that the average length of time inventory is on the shelf is very short. In some instances, they seem to recognize there are industries that, by their very nature, do not have inventory that stays on the shelves for a long time period. The objective is to provide information to support the timing of activities to earn revenues. If a claimant can avoid the claims administrator from applying the annual variable margin, then the claimant will usually be in much better shape. Remember, do not volunteer information. Take time to figure out what exactly they are asking for and give a full, fair, and complete answer only to the question asked by the claims administrator.

BP claims administrators are always asking for information on owner/officer compensation benefits and bonuses. If a claimant paid money to an owner as either salary or benefits, BP views this as if the company made a profit and will pull out owner/officer compensation from the expense model. Therefore, it makes a big difference if a claimant can submit the claim correctly by pulling out the owner/officer compensation to begin with due to the fact that BP will require this in any case.

We are often asked whether there are any differences between internet and brick and mortar stores in retail cases. The answer to the question is quite simple: there is no difference. Even if a claimant has an internet business with no brick and mortars, the business may still have a claim.

Medical Practices

While BP has appealed and fought almost every single medical and similar professional practice claim, the vast majority of medical practices earn their income in close proximity to the time in which they receive their money. Medicare normally pays within 14 days after the services are rendered, and most other payers are consistent and not far behind. Some medical practices and businesses are paid farther in arrears in some situations, such as compensation for Letters of Protection in personal injury.

The most common stumbling block for medical practices and many professional companies is owner/officer compensation, which is required to be stripped out and is irrelevant, for the most part, in the claims eligibility and determination process. Oftentimes, the amount of the claim ends up being directly related to the drop in income that the physician may have had during a three-month time period between May and December of 2010 in comparison to previous, pre-spill years during that same time period.

Filing Deadline

The Settlement Agreement provides that the filing deadline is six months after the last opportunity to appeal the settlement has expired. The Supreme Court denied certiorari review of BP’s appeal of the settlement on December 8, 2014. Accordingly, the final deadline to file any Claim Forms for claims other than Seafood Compensation Program Claims is fast approaching at a mere four months away. This deadline may end up being later, but the BP Claims Administrator continues to assert the deadline will remain June 8th, 2015. Realistically, it may take months for the lawyers and accountants to gather and analyze all of the information needed to submit a claim, so anyone who thinks they may have a potential BP claim should get their information to their lawyers and accountants as soon as possible. Once the deadline is missed, there is nothing that can be done about it!

There is no doubt that hundreds of millions of dollars of claims will never be filed or will not be calculated accurately, in good part because of the confusion and extra work caused by the fairly recent decision that receipts and expenses should be matched, to some extent, in a manner similar to that which applies under the accrual method of accounting.

June 8th will be here before we know it! If there are any questions or if we can be of assistance in looking at any complicated or perplexing BP claim situations, please let us know. Alan Gassman can be reached at agassman@gassmanpa.com, and John Goldsmith can be reached at jgoldsmith@trenam.com.

The Naked Truth: Planning for Ownership and Inheritance of Pension and IRA Accounts and Benefits – Part V
by Christopher J. Denicolo, Alan S. Gassman, and Brandon Ketron

The rules applicable to retirement plan and IRA distributions, contributions, rollovers, and otherwise can be difficult to understand and complex to implement.  The applicable Internal Revenue Code Sections and Treasury Regulations are somewhat complicated and convoluted, and use many technical “terms of art.”  This makes dealing with qualified plans cumbersome and difficult for laypersons and planners who are not experienced in this area.

We have attempted to simplify the applicable rules into a digestible format with concise explanations of the applicable rules.  We have also prepared charts and explanations to illustrate the key concepts and mechanics of important definitions, rules, and planning strategies.

The Thursday Report proudly will provide a multi-part series to exhibit our materials and charts, and we hope that you enjoy this series as much as we did in putting it together.

To see Chapter 1 of this presentation, please click here.

To see Chapter 2 of this presentation, please click here

To see Chapter 3 of this presentation, please click here

To see Chapter 4 of this presentation, please click here.

IRA SERIES CHAPTER 5

IRA and Plan Benefits Payable to Trusts

Probably the most complicated and misunderstood area of IRA and retirement plan structuring involves the complex labyrinth of rules that will apply when the beneficiary is one or more trusts or trust systems. We have provided an easily understandable system to help planners understand what the rules are and which trusts they apply to.

Illustration 3.0 below is a summary of which rules apply to each kind of see-through trust, and then the rules are explained in further but efficient detail below.

Illustration 3.0

IRA Chart 5

I. RULES THAT APPLY TO ALL SEE-THROUGH (BOTH ACCUMULATION AND CONDUIT) TRUSTS:

A. The trust must be valid under state law.

B. The trust must be irrevocable, at least immediately after the death of the Plan Participant.

C. The beneficiaries of the trust must be identifiable by being named, or by being members of a class of beneficiaries that makes each person identifiable.

D. Only beneficiaries on the Designation Date count.

Trust beneficiaries who are no longer entitled to receive any benefit on the Designation Date (for example by disclaimer or satisfaction of all bequests by September 30 of the calendar year following the year of Plan Participant’s death) will not be counted for Required Minimum Distribution purposes.  Only those beneficiaries present on the Designation Date are considered in determining the Designated Beneficiary

E. Information must be provided to the Plan Administrator by October 31 of the year after the year of the Plan Participant’s death.

The IRA/Plan administrator must receive appropriate trust documentation by October 31 of the calendar year after the calendar year of the Plan Participant’s death.  This will normally be accomplished by providing the IRA/Plan administrator with a copy of the actual trust document.  Alternatively, the trustee of the trust can provide the IRA/Plan Administrator with a final list of all beneficiaries of the trust as of the Designation Date, and a certification by the trustee that all requirements necessary for the trust to qualify as a See-Through Trust have been met.

F. Deceased Beneficiary Rule

A beneficiary who survived the Plan Participant but does not survive the Designation Date (September 30 following the death of the Plan Participant) is still considered as a beneficiary of the trust for Required Minimum Distribution purposes, unless the beneficiary (or his successor in interest) has received full payment or has executed a valid disclaimer of all of such beneficiary’s interests in the IRA/Plan or trust receiving the IRA/Plan before the Designation Date.

Notwithstanding the above, there may be situations in which meeting the applicable “See Through Trust” requirements is not as important.  For example, if the oldest trust beneficiary is the same age or older than the Plan Participant, “See Through Trust” qualification will not result in a longer applicable distribution period. The applicable distribution period will be the same if the trust satisfies the “See Through Trust” requirements (the longer of the life expectancy of the Plan/Participant or the life expectancy of the oldest trust beneficiary) than if the trust did not satisfy the “See Through Trust” rules (the life expectancy of the Plan Participant)[1].

II. RULES THAT APPLY TO ACCUMULATION TRUSTS ONLY:

A. Powers of Appointment must be limited only to certain appointees.

There is specialized drafting that is required for powers of appointment held by beneficiaries of an Accumulation Trust.  Holders of powers of appointment over IRA/Plan assets should not have the power to appoint the IRA/Plan assets to any individual (including spouses) older than the Designated Beneficiary or any Non-Person, nor the power to appoint or transfer assets to another trust that could have individuals older than the Designated Beneficiary or a Non-Person as a beneficiary.

Oftentimes planners provide beneficiaries with Powers of Appointment that can be exercised in favor of creditors of the power holder’s estate to avoid imposition of federal generation skipping tax.  Because a creditor of the power holder’s estate could be a non-individual, or an individual older than the Designated Beneficiary, this will cause problems in qualifying the trust as a See-Through Trust.  The clause can be drafted to provide that the power is exercisable only in favor of individual creditors of the estate who are younger than the otherwise applicable Designated Beneficiary[2].

B. Permit Powers of Appointment only in favor of individuals who are younger than the Designated Beneficiary of any Accumulation Trust.

Most commentators believe that it is safe to allow the power of appointment to be exercisable in favor of any living individual younger than the Designated Beneficiary, while one or more conservative commentators believe that the powers should only be exercisable in favor of a limited class of individuals, such as descendants of the grandparents of the Plan Participant who are younger than the Plan Participant.  This is because the Regulations state that a power of appointment can only be exercisable in favor of “individuals identifiable from the trust document.”  Reg. §1.401(a)(9)-4, A-5 and A-6.

Conservative planners who believe that only “individuals identifiable from the trust document” who are younger than the Designated Beneficiary may be named as possible appointees can assure avoidance of imposition of generation-skipping tax by giving a non-skip beneficiary the power to withdraw trust principal, which may be subject to approval of an independent trustee, trust protectors, or other non-adverse parties.  This power can achieve the same generation skipping tax avoidance results as the use of a power of appointment exercisable in favor of individual creditors of the estate of the power holder.

C. Programming for Tax Efficiency as between GST and Non-GST Trusts

Where trusts are to be divided into generation skipping and non-generation skipping trusts for generation skipping transfer tax planning purposes, it will make sense to have a non-Roth IRA/Plan payable to the non-generation skipping trust so that the generation skipping trust will be funded with less built-in taxable income than is inherent with IRA/Plans, and be able to accumulate more wealth for subsequent generations.  For example, if John Smith dies unmarried with a $2,100,000 IRA, and $4,330,000 of other assets, he can leave $5,430,000 to a trust that will benefit his children without being taxed in their estate, and another $2,000,000 to a non-GST trust that has to be considered as owned by one or more of the children for estate tax purposes when they die.  It seems to make sense to first allocate the IRA/Plan to the non-GST trust so that John’s GST exemption is not used on assets that will incur income tax at ordinary income rates in the future (with no opportunity for a step-up in basis).  Additionally, the formula to be used to define the assets that pass to the non-GST trust should be a fractional formula, and not a pecuniary bequest, because the use of an IRA/Plan to satisfy a pecuniary bequest may trigger tax upon funding[3].

The opposite rationale applies where a Roth IRA/Plan exists, because of the tax advantaged status of a Roth IRA/Plan – there is no income tax payable on withdrawals from a Roth IRA.  Therefore, Roth IRA/Plan benefits would be allocated first to the GST Trust, and then secondly to the non-GST Trust.  See Illustration 3.1 below.

Language that may be used in a Trust Agreement to facilitate the above can be found in Appendix B.

Illustration 3.1

IRA Chart 1

IRA Chart 2

D. Contingent beneficiaries count for Required Minimum Distribution purposes.

Even contingent distribution provisions that would only apply if no named beneficiary under an Accumulation Trust survives will be problematic unless the provision simply relies upon the applicable intestacy rules under local law.  For example, the Accumulation Trust can provide that “if none of my descendants survive then all remaining assets will be distributed based upon the intestacy rules of the State of Florida that would apply to my estate if I died intestate” as opposed to “if none of my descendants survive then pay out to the descendants of my grandparents, per stirpes.”  The second alternative would cause the Required Minimum Distributions to have to be distributed over the life expectancy of the oldest descendant of the Plan Participant’s grandparents, even if the Plan Participant has surviving descendants.  As a planning note, if the client wants to use “descendants of my grandparents” language, then the provision can be carved out to instead read “to the descendants of my grandparents, per stirpes, who are born after the date of birth of my oldest living descendant who survives me.”

E. Prevent the adoption or addition of an older beneficiary.

The trust instrument should prevent any individual who is older than a Designated Beneficiary from being considered as a beneficiary of any trust that is the recipient of IRA/Plan benefits. Also, any person to be adopted and qualify to receive benefits would need to be younger than the otherwise applicable Designated Beneficiary under an Accumulation Trust.

F. Q-TIPPING an Accumulation Trust

What Rules Apply to Determine What Portion of Any Payments from an IRA or Pension to an Accumulation Trust Are Income for Purposes of Defining How Much Has to Be Paid out to the Surviving Spouse?

Note – With a Conduit Trust, the Spouse must receive 100% of the distributions so this analysis may not be pertinent.  With a QTIP Trust that is an Accumulation Trust, the Spouse only has to receive the “income” as determined under state law – some or all of an IRA or pension distribution may consist of a return of principal.  The analysis that applies is as follows:

The law in each state will vary with reference to what portion of an IRA distribution will be considered as income for trust income calculation and distribution purposes.

  1. Fla. Stat. § 738.602 governs the character of payments from deferred compensation plans, annuities, and retirement plans or accounts. § 738.602(4) describes the method a trustee should use to allocate income and principal with respect to payments made. The trustee is required to follow the steps set forth below in allocating a payment to principal or income:
    1. If the payor characterized a portion of the payment as income, that portion shall be allocated to income by the trustee, and the remaining portion shall be allocated to principal.
    2. If the payor does not characterize a portion as income, then the following shall apply:

1.) The trustee must attempt to determine the income derived from the applicable investment (i.e. the account statement for a mutual fund). The trustee can then allocate the lesser of the income of the fund or the entire payment to income, and the remaining portion of the payment to principal.

2.) If the trustee “acting reasonably and in good faith” determines that neither A nor B is available, the trustee shall allocate 10% of the payment to income, and the remaining portion to principal.

This differs from the Uniform Principal and Income Act, which states that:

1.) To the extent that a payment is characterized as interest, a dividend or a payment made in lieu of interest or a dividend, a trustee shall allocate the payment to income.

2.) If no part of a payment is characterized as interest, a dividend, or an equivalent payment, and all or part of the payment is required to be made, a trustee shall allocate to income 10 percent of the part that is required to be made during the accounting period and the balance to principal.

II.  The IRS has indicated that the UPIA 10% rule “does not satisfy the marital deduction income requirements of Section 20.2056(b)-5(f)(1) and Section 1.645(b)-1 because the minimum distribution rules are not based upon the total return of an IRA. Revenue Ruling 2006-26.

However Florida’s Principal and Income Act requires the trustee to invest trust assets on a “total return basis”, and gives the trustee the ability to adjust income so that the treatment of income is “fair and reasonable” to the beneficiary.  Fla Stat. § 738.103(2), 738.104(1).

It is likely that Florida’s Uniform Principal and Income Act will satisfy the all-income-for-life requirement of Section 20.2056(b)-5(f)(1) and Regs. § 1.643(b)-1 due to the trustee’s power to adjust, as well as the additional good faith determination requirements for allocating income from a retirement plan.

Florida law also states that certain unitrusts mandating annual payouts between 3% – 5% will be treated as trusts requiring the payments of all income. Fla Stat. § 738.1041(10)

Regs. § 1.643(b)-1 specifically states that:

…a state statute providing that income is a unitrust amount of no less than 3% and no more than 5% of the fair market value of the trust assets, whether determined annually or averaged on a multiple year basis, is a reasonable apportionment of the total return of the trust. Similarly, a state statute that permits the trustee to make adjustments between income and principal to fulfill the trustee’s duty of impartiality between the income and remainder beneficiaries is generally a reasonable apportionment of the total return of the trust.

III.  The American College of Trust & Estate Counsel (ACTEC) has expressed concern with respect to the 10% rule via their Employee Benefits Committee, and have recommended amendment and/or elimination of the 10% provision of the UPIA.  A majority of states statutes do not satisfy the marital deduction income requirements, so until an amendment is made planners should exercise caution in this area. Some practical solutions to this problem are discussed in the next section.

One approach that will work is to treat the IRA as a “trust-within-a-trust”.  Under this approach income earned under the IRA is treated as income of the trust to the extent distributed.  This approach is only possible when the trustee can easily distinguish the IRA’s internal income from principal, meaning that the trustee must be able to determine exactly how much the IRA investments earn in income each year.  The IRS has approved this approach for marital deduction trusts.

A second approach is to treat the trust as a unitrust.  Under this approach the beneficiary will receive an annual income payment based upon a fixed percentage of the trust assets each year.  This will satisfy the marital deduction requirements if (1) it is permitted by state law and (2) the fixed percentage is no less than 3% and no more than 5%.  This approach was approved by the IRS under Rev. Rul. 2006-26.

Illustration 3.2

IRA Chart 3

Stay tuned next week, where we’ll discuss rules that apply to conduit trusts only and toggling from a conduit trust to an accumulation trust (and vice versa)!

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[1] Choate’s The 201 Best and Worst at 3-100
[2] PLR 200235038 – 200235041 and Robert S. Keebler, CPA. New IRS Ruling Validates the “IRA Inheritance Trust™”
[3] Natalie Choate Outline Making Retirement Benefits Payable to Trusts ¶6.5.07

Richard Connolly’s World
Celebrity Estate Round-Up, Part II

Insurance advisor Richard Connolly of Ward & Connolly in Columbus, Ohio often shares with us pertinent articles found in well-known publications such as The Wall Street Journal, Barron’s, and The New York Times. Each week, we will feature some of Richard’s recommendations with a link to the articles.

This week, we are featuring a few more stories on the issues surrounding celebrity estates. The first article is entitled “Feud Over Saints Owner Tom Benson is More Common Than You May Think” by Danielle and Andy Mayoras. This article was featured on Forbes.com on March 11, 2015.

Richard’s description is as follows:

Yes, Tom Benson has a great deal more money and power than most of us. How much? Try $1.9 billion, according to the annual Forbes rankings.

The successful owner of the NFL’s New Orleans Saints and NBA’s New Orleans Pelicans, Benson built a wide-ranging empire of car dealerships, banks, various real estate holdings, and a television station. He still actively participates in running his businesses – most of all his beloved Saints.

But for all of his wealth, prestige, and status, Tom Benson is in the midst of the same type of probate-related court battle that entangles many elderly individuals in our country. Some of Benson’s heirs do not believe the 87-year-old is mentally competent to make his own decisions any more. They are seeking to have him declared legally incompetent and protect him from what they claim is undue influence.

So what makes a fight of this nature more common than most people realize? The very same type of competency battles are common in blended families across the country, even when billions of dollars aren’t on the line.

Please click here to read this article in its entirety.

The second article this week is “Death and Domicile – No Joking Matter: Will New York try to take a final death-tax bite in the estate of Joan Rivers?” by Charles Douglas. This article was featured on WealthManagement.com on January 5, 2015.

Richard’s description is as follows:

While the late Joan Rivers’s will has yet to be probated, her case illustrates how someone might reside in one state (New York) and be domiciled in another (California.) This can be important for tax and estate planning. It also shows why individuals who relocate to other states or individuals with residences outside their state of domicile would do well to maintain accurate, reliable records to support the contention that they aren’t residents of or domiciled in a particular state.

This is a big deal. Based on Joan’s estimated estate of $150 million, there is approximately $24 million of estate tax in New York and no estate tax in California.

Please click here to read this article in its entirety.

Thoughtful Corner
Pilates – Fitness’s Best Kept Secret
by Emily Wenzel

Emily Wenzel is the owner of Kapok Pilates & Wellness at 908 McMullen Booth Road in Clearwater, Florida. She is a Certified Personal Trainer through the National Academy of Sports Medicine, Certified Pilates Instructor, Herbalist, Food Artist, Organic Gardener, and the President of the Florida Herb Society.

Kapok Pilates & Wellness, located across from Sam Ash Music in Clearwater, is a fully equipped Pilates studio that offers private sessions, small group classes, Pilates mat, yoga, Tai Chi, Aerial Yoga, and more, and is a friend of the Gassman Law Associates firm. Gassman, Crotty & Denicolo, P.A. has no financial relationship with Emily or Kapok Pilates, but this is a great opportunity we thought we would share.

If you don’t know what Pilates is, then you are missing out on one of the best exercise and fitness systems that has ever existed – maybe even the very best.

The country has entered a new era when it comes to self-care. There is a growing awareness on the part of Americans of all ages to exercise more, eat better, and incorporate a mind-body connection into not only physical activity but daily life. The trouble is knowing which exercise systems are just marketing fads and which are truly effective and provide lasting results.

One of the fastest-growing and most successful programs across the country is called Pilates. Although gaining quickly in popularity, it’s hardly new. The founder, Joseph Pilates, was born in Germany in 1880. He was a sickly child, but he improved his health through physicial activities such as gymnastics, boxing, and skiing. He worked as a nurse in England during World War I and began to develop his techniques and methods there.

Mr. Pilates provided exercises for the injured by utilizing springs from hospital beds and other props to create resistance training, improving strength and flexibility in patients.

The results were astounding.

He later moved to New York and opened a studio with the equipment he created, known as the Pilates Reformer. The Reformer has a spring loaded moveable surface that can be converted to look like a bed or mat with a pulley system. He went on to develop 3 other machines called the Cadillac, the Wunda Chair, and the Ladder Barrel.

The beauty of the Pilates method is that it is safe for someone with physical limitations and challenging for those at a higher level. There are modifications and progressions within the method, and the springs offer assistance or resistance depending on the needs of the individual. It is also helpful for people of all ages, even those with physical ailments, low stamina, inexperience with exercise, or even those in need of rehabilitation.

In 60 minutes, you can get an amazing workout that does not feel like a workout.

In addition, there are Mat Pilates classes, which address the same principles without the use of the Reformer. There are often small props such as magic circles, bands, and stability balls incorporated into this kind of work.

Some of the major principles of the Pilates method are described below:

The Core – Physically speaking, the stronger the “core” of your body, the greater your physical potential. Breath and posture have a major impact on the effectiveness of your fitness program. Pilates exercises give you a sense of energy and confidence by increasing your strength while finding more flexibility.

Concentration – Concentrate on mastering the relatively simple movements each time to a point of subconscious reaction. It won’t be dull; this will happen with some consistent Pilates instruction. This is how to progress from visualizing improvement to incorporating changes into your everyday life.

Breathing – Pilates helps make you aware of the “automatic” task of breathing and helps you breathe more efficiently and effectively. An increase in the amount of oxygen in your bloodstream will benefit the health of all your cells, improving brain function, blood circulation, and physicial coordination. It can also help you feel more tranquil.

Centering – Centering is finding those muscle groups which are important for stabilization (pelvic stability) and strength. Probably the most important activity many of us do not do properly is walking upright. Correcting posture begins with sitting and standing a little straighter and taller every day, but Pilates exercises will help support good posture as well.

Humor! (or Lack Thereof!)

Cartoon 1

Cartoon 2 - TO PUBLISH

Upcoming Seminars and Webinars 

LIVE BLOOMBERG BNA WEBINAR:

Alan Gassman, Kenneth Crotty, and Christopher Denicolo will be presenting a not-so-free 90-minute webinar for Bloomberg BNA Tax & Accounting on WHY FLORIDA IS DIFFERENT – IMPORTANT THINGS THAT ESTATE AND TAX PLANNING PROFESSIONALS NEED TO KNOW.

Date: Thursday, April 16, 2015 | 2:00 PM

Location: Online webinar

Additional Information: To register for this webinar, please email Alan Gassman at agassman@gassmanpa.com.

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LIVE FREE ETHICS CREDIT WEBINAR:

Alan Gassman and Dr. Srikumar Rao will present a free 50-minute webinar on HOW TO HANDLE STRESSFUL MATTERS IN AN ETHICAL WAY – PART II.

This webinar is a continuation of the How to Handle Stressful Matters in an Ethical Way webinar that was presented by Dr. Rao and Alan Gassman on February 19, 2015. This webinar will qualify for 1 hour of CLE Ethics Credit and is classified as Advanced.

See Professor Rao’s Ted Talk YouTube video, and you will understand how important this webinar might be to accelerating your law practice and enhancing your enjoyment of the practice as well.

Dr. Srikumar Rao is the creator of the original Creativity and Personal Mastery (CPM) course that has helped thousands of executives and entrepreneurs achieve quantum leaps in effectiveness. He earned a Ph.D. in Marketing from Columbia University and has taught the course at Columbia University, Northwestern University, University of California at Berkeley, and the London School of Business. He is the author of Happiness at Work and Are You Ready to Succeed? which can be reviewed by clicking here. Are You Ready to Succeed? has been published in over 60 languages!

Date: April 21, 2015 | 12:30 p.m.

Location: Online webinar

Additional Information: Please click here to register or email Alan Gassman at agassman@gassmanpa.com for more information.

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LIVE BLOOMBERG BNA WEBINAR:

Professor Jerome Hesch, Alan Gassman, Kenneth Crotty, and Christopher Denicolo will present a 90-minute webinar for Bloomberg BNA Tax & Accounting on MATHEMATHICSLAND FOR ESTATE PLANNERS. 

This webinar includes over 30 interactive spreadsheets and explanatory tools that you need to know how to use to best serve your clients!

Date: Monday, April 27, 2015 | 2:00 PM

Location: Online webinar

Additional Information: To register for this webinar, please email Alan Gassman at agassman@gassmanpa.com.

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LIVE OLDSMAR PRESENTATION: 

FICPA SUNCOAST SCRAMBLE GOLF TOURNAMENT 

Kenneth J. Crotty and Christopher J. Denicolo will speak at the FICPA Suncoast Scramble Golf Tournament on the topic of MATHEMATICS FOR ESTATE PLANNERS INCLUDING 10 ESTATE PLANNING STRATEGIES NOT TO MISS. 

Date: Friday, May 1, 2015 | CPE Presentations from 9:00 AM – 11:30 AM 

Location: East Lake Woodlands Country Club | 1055 E Lake Woodlands Parkway, Oldsmar, FL 34677 

Additional Information: For more information about registration, sponsorship, or this event, please click here or click here to download the Tournament brochure.

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LIVE NAPLES PRESENTATION: 

2nd ANNUAL AVE MARIA SCHOOL OF LAW ESTATE PLANNING CONFERENCE

Alan Gassman, Jerry Hesch, and Richard Oshins 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 Richard Oshins on 11 Outstanding Planning Ideas, Jonathan Gopman on Asset Protection, 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.

Date:  Friday, May 1, 2015

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

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

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LIVE MIAMI PRESENTATION: 

FLORIDA BAR WEALTH PRESERVATION PROGRAM 

Denis Kleinfeld and Alan Gassman have released the schedule and topics for FUNDAMENTALS OF ASSET PROTECTION AND ADVANCED STRATEGIES. This seminar will be presented on May 7th and May 8th, 2015, and is sponsored by the Tax Section of the Florida Bar.  Attendees can select one day or the other, or to attend both days.

Day One will be for fundamentals and will be an excellent review or an introduction to the basic rules and practice aspects of creditor protection planning for both new and experienced practitioners.

Day Two will be an advanced treatment of creditor protection and associated planning, which will be of great use to both new and experienced practitioners.

Date: May 7 – 8, 2015

Location: Hyatt Regency Miami | 400 SE 2nd Avenue, Miami, FL 33131

Additional Information: To pre-register for this conference, please click here. For more information, please email Alan Gassman at agassman@gassmanpa.com.

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LIVE BLOOMBERG BNA WEBINAR:

Professor Jerome Hesch, Alan Gassman, and Barry Flagg will be presenting a 90-minute webinar for Bloomberg BNA Tax & Accounting on THE TAX ADVISORS GUIDE TO PERMANENT LIFE INSURANCE AND STRUCTURING TOOLS AND TECHNIQUES.

Date: Tuesday, May 12, 2015 | 2:00 PM

Location: Online webinar

Additional Information: To register for this webinar, please email Alan Gassman at agassman@gassmanpa.com.

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LIVE BRADENTON, FLORIDA PRESENTATION

Alan Gassman will speak at the Coastal Orthopedics Physician Education Seminar on the topics of CREDITOR PROTECTION AND THE 10 BIGGEST MISTAKES DOCTORS CAN MAKE: WHAT THEY DIDN’T TEACH YOU IN MEDICAL SCHOOL.

Coastal Orthopedics, Sports Medicine, and Pain Management is a comprehensive orthopedic practice which has been taking care of patients in Manatee and Sarasota Counties for 40 years. They have sub-specialized, fellowship-trained physicians as well as in-house diagnostics, therapy, and an outpatient surgery center to provide comprehensive, efficient orthopedic care.

Date: Tuesday, May 12, 2015 | Time TBA

Location: Coastal Orthopedics and Sports Medicine | 6015 Pointe West Boulevard, Bradenton, FL, 34209

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

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LIVE STUART, FLORIDA PRESENTATION

Alan Gassman will be the featured “headline” speaker the Martin County Estate Planning Council Annual Tax and Estate Planning Seminar. He will be doing a three-hour talk on the topics of JESTs, MATHEMATICS FOR ESTATE PLANNERS, AND THE ESTATE PLANNER’S GUIDE TO PLANNING FOR IRA AND PENSION BENEFITS – YES, YOU CAN FINALLY UNDERSTAND THESE RULES!

Date: May 15, 2015 | 8:15 AM – 4:30 PM; Alan Gassman speaks from 9:00 AM to 12:00 PM

Location: Stuart Corinthian Yacht Club | 4725 SE Capstan Avenue, Stuart, FL 34997

Additional Information: For more information, please email Alan Gassman at agassman@gassmanpa.com or Lisa Clasen at lclasen@kslattorneys.com.

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LIVE WEBINAR:

Alan Gassman and noted trust and estate litigator, LL.M in estate planning, and blog master Juan Antunez, J.D., LL.M. will be presenting a free 30-minute webinar on ARBITRATING TRUST AND ESTATES DISPUTES. 

Don’t miss Juan’s wonderful blog site entitled Florida Probate & Trust Litigation Blog, which can be accessed by clicking here, and the many vary useful articles thereon.

Date: Tuesday, May 19, 2015 | 12:30 PM

Location: Online webinar

Additional Information: To register for this webinar, please click here.

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LIVE FLORIDA INSTITUTE OF CPAs (FICPA) WEBINAR

Alan Gassman, Ken Crotty, and Chris Denicolo will present a webinar on A PRACTICAL TRUST PLANNING CHECKLIST AND PRACTITIONER COMPLIANCE GUIDE FOR FLORIDA CPAs for the Florida Institute of CPAs.

Review a practical planning checklist and practitioner tax compliance guide to facilitate implementing a comprehensive overview of practical planning matters and tax compliance issues in your practice. This presentation will cover over 20 common errors and missed planning opportunities that accountants need to understand and counsel their clients on.

This course is designed for practitioners who wish to assure that trust planning structures and compliance are both aligned with client objectives and that common catastrophic errors and misconceptions can be corrected.

Past attendees have indicated that this is an interesting and practical presentation that offers a great deal of practical information for both compliance and planning functions, based upon an easy to follow checklist approach.  Includes valuable materials.

Date: May 21, 2015 | 10:00 AM

Location: Online webinar

Additional Information: For more information, please contact Alan Gassman at agassman@gassmanpa.com or Thelma Givens at givenst@ficpa.org. To register, please click here.

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LIVE MIAMI LAKES WORKSHOP:

Alan Gassman will be speaking at the Miami Lakes Bar Association Luncheon on the topic of ACCELERATING YOUR LAW PRACTICE.

Date: Thursday, May 21, 2015 | 11:45 am – 1:45 pm

Location: TBD

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

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LIVE WEBINAR:

Alice Rokahr, President, Trident Trust Company (South Dakota) Inc., and Alan S. Gassman will present a free, 30-minute webinar entitled WHAT IS SO SPECIAL ABOUT SOUTH DAKOTS – DOMESTIC ASSET PROTECTION TRUST LAW AND PRACTICES.

Date: June 9, 2015 | 12:30 pm

Location: Online webinar

Additional Information: For more information, please contact Alan Gassman at agassman@gassmanpa.com or click here to register for this webinar.

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LIVE BLOOMBERG BNA WEBINAR:

Professor Jerome Hesch, Alan Gassman, Ed Morrow, Christopher Denicolo, and Brandon Ketron will be presenting a 90-minute webinar for Bloomberg BNA Tax & Accounting on ESTATE AND TRUST PLANNING WITH IRA AND QUALIFIED PLAN BENEFITS: AN UNDERSTANDABLE SYSTEM WITH CHARTS AND EASY-TO-UNDERSTAND MATERIALS.

This presentation will include a 300 page E-book for each attendee.

Date: Wednesday, June 10, 2015 | 2:00 PM

Location: Online webinar

Additional Information: To register for this webinar, please email Alan Gassman at agassman@gassmanpa.com.

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LIVE AVE MARIA SCHOOL OF LAW PROFESSIONAL ACCELERATION WORKSHOP

Alan Gassman will present a full day workshop for third year law students, alumni, and professionals at Ave Maria School of Law. This program is designed for individuals who wish to enhance their practice and personal lives.

Date: August 22, 2015 | 9:00 AM – 5:00 PM

Location: Thomas Moore Commons, Ave Maria School of Law, 1025 Commons Circle, Naples, FL 34119

Additional Information: To download the official invitation to this event, please click here. To RSVP and for more information, please contact Donna Heiser at dheiser@avemarialaw.edu or via phone at 239-687-5405 or Alan Gassman at agassman@gassmanpa.com or via phone at 727-442-1200.

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LIVE SARASOTA PRESENTATION:

2015 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: Friday, October 23rd and Saturday, October 24th, 2015

Location: To Be Determined

Additional Information: Please contact Alan Gassman at agassman@gassmanpa.com for more information.

Notable Seminars by Others
(These conferences are so good that we were not invited to speak!)
 

LIVE PRESENTATION:

RUTH ECKERD HALL PLANNING GIVING COUNCIL MEETING

This exciting two-part event will feature an educational presentation and a networking session. Attorneys and CPAs may receive CLE and CPE credit for attending the educational presentation.

The educational presentation will be an entertaining, interactive workshop led by Jack Halloway, a well-known improvisational coach and actor. He is directing “The Complete Works of William Shakespeare (Abridged)” and will share some thoughts on how Shakespeare used law, lawyers, and money in his plays. Some improv will also be included.

Jack Halloway’s presentation will be followed by a social networking and info session. Enjoy some wine and time with fellow Planned Giving enthusiasts!

Everyone who brings a potential donor or new member to the Planning Giving Council will be entered into a raffle for 2 tickets to an upcoming show.

Date: April 21, 2015 | Educational Presentation begins at 4:30 PM | Networking sessions begins at 5:30 PM

Location: The New Murray Theatre at Ruth Eckerd Hall

Additional Information: For more information, please email Alan Gassman at agassman@gassmanpa.com. RSVPs may be sent to Maribeth Vongvenekeo at maribeth@gassmanpa.com, Suzanne Ruley at sruley@rutheckerdhall.net, or Kristy Philippe at kristy.philippe@ms.com.

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LIVE PRESENTATION:

2015 UNIVERSITY OF FLORIDA TAX INSTITUTE

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

Location: Grand Hyatt Tampa Bay | 2900 Bayport Drive, Tampa, FL 33607

Additional Information: Please visit http://www.floridataxinstitute.org/agenda.shtml for a complete schedule or contact Bruce Bokor at bruceb@jpfirm.com for more information.

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LIVE ORLANDO PRESENTATION:

50TH ANNUAL HECKERLING INSTITUTE ON ESTATE PLANNING

Date: January 11 – January 15, 2016

Location: Hotel information to be announced

Additional Information: Information on the 50th Annual Heckerling Institute on Estate Planning will be available on August 1, 2015. To learn about past Heckerling programs, please visit http://www.law.miami.edu/heckerling/.

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.

April Applicable Rates

The Thursday Report – 3.26.15 – The Positive Universe, No Time for Sargeants, and the Tipping Point of Health Care

Posted on: March 27th, 2015

No Time for Sargeants Article Published on Leimberg Information Services

Planning for Ownership and Inheritance of Pension and IRA Accounts and Benefits by Christopher J. Denicolo, Alan S. Gassman, and Brandon Ketron, Part IV

The Tipping Point in a Health Care Network by Pariksith Singh, M.D.

Richard Connolly’s World – Celebrity Estate Round-Up, Part I

Thoughtful Corner – Einstein’s Positive Universe – It’s More Than Just Relativity. Positive Equals a Better Professional Life and Performance Squared.

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 Stephanie at stephanie@gassmanpa.com.

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

No Time for Sargeants Article Published on Leimberg Information Services

An article entitled “Wells Fargo v. Barber: The Barber of Seville Replaces No Time for Sargeants” by Alan S. Gassman and Travis Arango, as edited by Duncan Osbourne, was published on March 24 on Leimberg Information Services.1 The article explores a case where a foreign LLC membership is seized by a judgment creditor in Florida.

“It is shocking that a Florida judgment creditor would be able to seize a Florida debtor’s solely owned Nevis Limited Liability Company’s membership interest, but not stock in a foreign corporation, but the federal judge sitting in Orlando has credible support for his conclusion. In Sargeant v. Al-Saleh, the stock in a foreign corporation could not be reached by the court while in Wells Fargo Bank v. Barber, sole ownership of a Nevis LLC was considered to be like any other intangible personal property that a Florida judgment could be applied against. It is time for planners to change the way they do things in this area.

The court distinguished the Nevis LLC from foreign stock certificates:

Although Defendants repeatedly refer to Blaker Enterprises, LLC as a “foreign corporation”, (see Doc. 32, pp. 6, 7), Blaker Enterprises, LLC is not a corporate entity but a limited liability company. (Doc. 1-1, Ex. J). Unlike stock certificates in a corporation, a membership interest in a limited liability company is intangible personal property, which “accompanies the person of the owner.”2

If you would like to read more about this case go to www.leimbergservices.com and check out the Asset Protection Planning Newsletter #287.

Jay Adkinson was kind enough to send us another case on this topic: Sand Creek Partners LTD v. American Federal Savings and Loan Association of Colorado.3 In this case the plaintiffs had a judgment in excess of three million dollars against the defendant Bortles.4 Bortles was the owner of general partnership interests in 2 limited partnerships.5 Bortles claimed that he owned “zero percent” interest in each partnership.6

The issue in this case, among other things, was whether Bortles had to surrender his interests in the Hawaiian limited partnerships.7 The charging order was governed by Hawaii’s statute which states “(1) ‘[a] charging order constitutes a lien on the judgment debtor’s transferable interest,’ (2) ‘[a] transferable interest shall be personal property,’(3) ‘the judgment creditor has only the rights of a transferee,” not a manger or partner,’ and (4) ‘[t]he court may order a foreclosure upon the interest subject to the charging order at any time.’”8 Bortles claimed that the plaintiff’s request for a charging order was not allowed under Nevada law.9 The court held that limited partnerships are generally governed by the law of the jurisdiction in which they were formed.10 Bortles’ second argument was that no property exists for the plaintiffs to charge against since he owns zero percent interest.11 The court stated this argument was contradictory as he is the general partner of the partnerships.12 The court granted the charging order.13

It is interesting to see how this court came to the same conclusion as the one in Barber but through a different route. This court held that the charging order was allowed because the Hawaiian partnerships were governed by Hawaiian law, while the court in Barber held that the partnership interests were intangible personal property and thus Florida law applied even though the partnerships were formed in Nevis.

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1 LISI Asset Protection Planning Newsletter #287 (March 24, 2015) at http://www.leimbergservices.com. Copyright 2015 Leimberg Information Services, Inc. (LISI).
2 Barber, 2015 WL 470589.
3No. 2:14©CV©444©GMN©VCF, 2015 WL 316750,  (D. Nev. Jan. 26, 2015)
4 Id. at 1.
5 Id.
6 Id.
7  Id. at 5.
8 Id.
9 Id.
10 Id.
11  Id.
12 Id.
13 Id. at 6.

Planning for Ownership and Inheritance of Pension and IRA Accounts and Benefits – Part IV
by Christopher J. Denicolo, Alan S. Gassman, and Brandon Ketron

The rules applicable to retirement plan and IRA distributions, contributions, rollovers, and otherwise can be difficult to understand and complex to implement.  The applicable Internal Revenue Code Sections and Treasury Regulations are somewhat complicated and convoluted, and use many technical “terms of art.”  This makes dealing with qualified plans cumbersome and difficult for laypersons and planners who are not experienced in this area.

We have attempted to simplify the applicable rules into a digestible format with concise explanations of the applicable rules.  We have also prepared charts and explanations to illustrate the key concepts and mechanics of important definitions, rules, and planning strategies.

The Thursday Report proudly will provide a multi-part series to exhibit our materials and charts, and we hope that you enjoy this series as much as we did in putting it together.

To see Chapter 1 of this presentation, please click here http://gassmanlaw.com/the-thursday-report-3-5-15-live-long-and-thursday-more-warped-humor/

To see Chapter 2 of this presentation, please click here http://gassmanlaw.com/the-thursday-report-3-12-15-spock-o-prudence-the-needs-of-the-many-outweigh-the-needs-of-the-few-335-s-w-3d-126-tex-2010/

To see Chapter 3 of this presentation, please click here http://gassmanlaw.com/the-thursday-report-3-19-15-bp-ira-the-look-and-the-investigation-process/

IRA SERIES CHAPTER 4

CRUCIAL DEFINITIONS AND RULES (Part Two):

1.) Other Income Tax Planning Considerations, Opportunities, and Traps

OPPORTUNITIES 

a. Estimated Taxes Coordination Opportunity – A Plan/Participant can withhold federal income tax from Required Minimum Distributions by filing a Form W-4P. The tax withheld from retirement plan distributions is treated as if it was paid equally on each of the due dates for estimated tax payments.  § 6654(g)(1).  Therefore a distribution from a retirement plan paid on December 31st, but withheld for income tax purposes, will be treated as four equal payments made on March 31st, June 30th, September 30th, and December 31st.  For example, a $100,000 distribution on December 31st will be treated as if $25,000 was paid on March 31st, $25,000 on June 30th, $25,000 on September 30th, and $25,000 on December 31st.  This effectively allows a taxpayer to delay paying estimated taxes until the end of the calendar year.

Be wary as this strategy becomes more risky the older the Plan/Participant gets.  If the taxpayer dies before the Required Minimum Distribution is used to pay taxes, then the estate will become liable for the penalty on underpayment of income taxes in the year of the Plan/Participant’s death.[1]

b. Appreciated Employer Stock Withdrawal Opportunity – A participant in an employee sponsored retirement plan has the opportunity to withdraw a lump sum distribution from the account and only be taxed on a portion of the withdrawal.  The taxable portion is the value of the stock over the plan’s transferred basis (what the stock was originally purchased for).  The remaining portion is treated as “net unrealized appreciation” (NUA) and is not taxable until the recipient sells the stock.  The portion of net unrealized appreciation is taxed at long-term capital gains rates when sold. This can result in significant tax savings for plan/participants whose ordinary income rate is much higher than the capital gains rate and need cash upon retirement.[2]

For example, a CEO in the 39.6% tax bracket holds $100,000 in company stock upon retirement.  The stock was originally purchased for $20,000.  The CEO has the option to either distribute all of the company’s stock or roll the stock into an IRA account subject to the minimum distribution rules.

If he chooses to distribute all of the stock and elect to use the net unrealized appreciation tax treatment, then the tax on the distribution would be $7,920 (39.6% x Cost Basis of $20,000).  He then immediately sells the stock triggering a capital gains tax of $19,040 (23.8% x net unrealized appreciation of $80,000).  The CEO would pay total tax of $26,960.

If the CEO instead rolled the Employer Plan into an IRA the results would be much different.  The CEO would pay ordinary income tax on the entire balance resulting in total tax of $39,600.  By using net unrealized appreciation tax treatment the CEO would be able to save $12,640 in taxes.

Whether the net unrealized appreciation tax treatment will be beneficial depends on a number of factors, some of which include the following:

  1. Tax rates
  2. The amount of Net Unrealized Appreciation
  3. The length of time until the distribution
  4. Age of participant (individuals born before 1936 are eligible for a special averaging tax rate)[3]

As a general rule the shorter the Plan/Participant plans to keep the assets in the plan, the more attractive NUA tax treatment becomes.  However if the Plan/Participant plans to keep the assets under an IRA for a longer period of time the benefits of tax deferral become more attractive.

c. There is no requirement that Required Minimum Distributions be paid in cash.  A Plan/Participant has the option to take Required Minimum Distributions in kind, rather than selling the investment in the IRA and paying out the cash.  If assets are distributed in kind their fair market value on the date of the distribution is included in ordinary income, and becomes the Plan/Participant’s tax basis in subsequent years.  This could be beneficial for two reasons:

  1. Taking Required Minimum Distributions in kind saves commissions on selling the investment and then re-buying the investment outside the plan.
  2. Once distributed any post distribution gain will be taxed at capital gains rates rather than being taxed at ordinary income when distributed from the IRA. Therefore assets that are currently undervalued or assets that are considered to be growth stocks are the best candidates for in kind distributions.

Natalie Choate points out that this strategy is difficult due to the limited amount of guidance available on how to determine the “fair market value” of securities on the date of distribution, so “unless there is a good reason to do otherwise, pay RMDs in cash.”[4]

d. Convert to Roth in low income tax years or marry a developer with lots of losses and convert to a Roth! – If a Plan/Participant experiences a significant drop in income in a given year, he or she should consider converting all or a portion of a Plan into a Roth IRA. The Plan/Participant will have to pay tax on the amount converted at ordinary income rates, but will pay no tax on later distributions.  By converting into a Roth IRA in low income tax years, the Plan/Participant can take advantage of the lower tax rate now and not be subject to a higher tax rate in subsequent years.  A conversion into a Roth IRA for someone under the age of 59 ½ does not trigger the 10% penalty on early withdrawals.  Also, the income limitations that exist for Roth IRA contributions do not apply to IRA conversions.  A taxpayer can convert a retirement plan into a Roth regardless of their level of income.

TRAPS

a. IRA to HSA Account transfers are rarely beneficial.  The income tax deduction for contributions to an HSA is worth more than being able to take a Required Minimum Distribution tax free by funding an HSA the majority of the time.  It could however be beneficial in the following situations:[5]

  1. An individual under the age of 59 ½ with no other liquid investment funds in his or her HSA to avoid the 10% penalty on early distributions.
  2. An individual wants to avoid having an IRA distribution appear on his or her bank account due to creditor concerns, financial aid considerations, ex-spouse or state income tax effects.

b. The Required Minimum Distribution Rules continue to apply through the year of the Plan/Participant’s death as if the Plan/Participant was still living.  This means that beneficiaries will be responsible for ensuring that any distribution not otherwise satisfied before the end of the calendar year in which the Plan/Participant died is distributed from the plan.  This final distribution will be classified as Income in Respect of Decedent.

c. The Roth IRAs and IRA wash sales rules – Clients who would like to sell a security to trigger capital losses may wish to immediately repurchase the same security under an IRA.  The wash sale rule states that a taxpayer cannot deduct a loss on the sale of securities if a substantially identical security is repurchased within 30 days after the loss-generating sale.[6]  According to Rev. Rul. 2008-5, 2008-3 I.R.B.,  the sale of a security outside of an IRA will be matched with the purchase of a security inside an IRA/Plan for the purposes of applying § 1091. Therefore, the repurchase under an IRA/Plan needs to take place more than 30 days after the original sale to avoid the wash sale rule.[7]

2.) Distribute or Sell Hard-to-Value Assets ASAP. Currently IRA providers have the option to check the box and “flag” hard-to-value assets on Forms 5498 and the 1099-R.  Some commentators believe that this reporting requirement is likely to become mandatory soon, maybe even as early as 2016.[8]  The Plan/Participant should either sell the asset in an arm’s-length transaction to an unrelated party, or distribute the asset as part or all of a Required Minimum Distribution.  This should be done as soon as possible before the IRS requires providers to flag these assets, which will subject them to higher audit risk.

3.) Rolling Over Qualified Retirement Plan into IRA Gives Plan/Participant More Options. Some Qualified Retirement Plans only offer the death benefit to be payable in a lump sum.  Therefore Plan language should always be checked to see if distribution election options preferred for a particular taxpayer are permitted. Even if the stretch options are available, an employer could terminate a plan resulting in a lump sum distribution.  A qualified retirement plan Participant should consider rolling plan benefits over to an IRA as soon as this can occur, if the Participant is leaving the benefits to (a) a non-spouse designated beneficiary that will be expected to stretch the payout over his or her life expectancy, or (b) a accumulation or conduit trust where an individual will be the Designated Beneficiary for plan distribution determination purposes in order to avoid these potential pitfalls.[9]

We’re noteworthy that 403b plans can only be invested in annuity contracts or mutual funds offered by the plan, whereas IRAs offer much more flexibility than a 403b plan or the typical qualified retirement plan.  Qualified retirement plans may also assess administrative expenses and costs against Participant’s accounts.

With qualified plans, the Participant may be able to borrow funds, have the plan own life insurance, or collectibles.

Age/qualified retirement plan 10% excise tax considerations.  Normally, any taxpayer who is not an individual who has reached age 59 ½ will have to pay a 10% penalty in income withdrawn from the qualified retirement plan or IRA.

An individual will not be subject to this penalty on withdrawals from a retirement plan if the individual has separated from service on or after reaching age 59 ½.

Under an IRA (but not a qualified retirement plan) a Participant can elect to receive substantially equal periodic payments for life and avoid the 10% excise tax on those amounts received.

4.) Rollovers from Qualified Retirement Plans Should be Kept Separate from Regular IRA Plans.  Rollovers from qualified retirement plans should be kept separate from regular IRA plans because of the federal bankruptcy court exemption rules which limit protection for IRAs held by residents of states that do not have IRA creditor protection to $1,000,000 for IRAs that have been funded with annual contributions.  If qualified retirement plan monies have been mixed with IRA contribution monies, the exemption limit rules will be challenging at best.[10]

5.) Asset Allocation Rules. While many financial planners will balance IRA and non-IRA investments using the same ratios of fixed income to equity, a good many financial advisors believe that the better approach is to have taxable bonds and equivalent fixed income investments under the IRAs, with equities outside of the IRAs.  Equities are tax advantaged because the capital gains on sale will not occur until sold, whereby taxable income on bonds and other interest can be deferred under an IRA, which would otherwise turn long term capital gains into ordinary income if equities are held under the IRA.[11]

6.) Annuitized IRA. An IRA can be “annuitized” by investing the IRA assets in an annuity contract whereby the insurance carrier issuing the contract will make a series of annual or more frequent lifetime payments to the IRA owner.  These payments will be considered to satisfy the minimum distribution rules, and neither of the payments or the value of an annuitized annuity will be aggregated with any other IRA or retirement plan for purposes of calculating the minimum distribution requirements.  The annuitized payments will typically exceed the required minimum distribution amounts that would have applied.

For example, a male age 70 who is otherwise subject to the payout amounts described in Illustration 2.1 above, might instead cause his IRA to purchase an annuitized contract that would require payment of 7.67% of the initial amount invested each year for his lifetime.  Alternatively a female might cause her IRA to purchase an annuitized contract that would require payment of 7.12% of the initial amount invested each year for her lifetime.

Payments received from an annuitized IRA by an owner/participant who has not reached age 59 ½ will not be subject to the 10% excise tax described below.

Below (Illustration 2.9) is an example provided by one investment company of hypothetical payments for a male and female age 70 who annuitizes $100,000 of his or her IRA to receive lifetime payments that will never run out in lieu of minimum distributions which would be less.

2 -  IRA Chart

7. Qualified Longevity Annuity Contract (“QLAC”). A QLAC is an annuity contract held under an IRA that begins paying a lifetime annual, or more frequent, annuity amount years after acquisition. Before going into payment mode, the value of a QLAC is not counted in determining minimum distribution payment amounts.  When payments begin, they must be distributed in full each year, and will normally exceed the minimum distribution amount until the client reaches a fairly high age.  (Upper 80’s and older).[12]  The Treasury Regulations released on July 2, 2014 permit the lesser of $125,000 or 25% of the applicable IRA balance to be held under QLAC contracts that can be disregarded with respect to the value of the IRA in determining minimum distribution requirements.  The contract will pay fixed dollar amounts at stated intervals over a number of years for the life of a taxpayer, beginning no later than age 85.  If the taxpayer dies before he or she has received payments equal to the amount paid for the contract, then the contract may offer a return of premium option so that the taxpayer in effect receives back all amounts invested, without interest, but this return of premium option is not required by the Regulations, and will cause reduction in the minimum annual amount paid.  The lesser of $125,000/25% limitation can be somewhat confusing, and is described, with further detail in LISI Archive Message 639 by Alan Gassman, Christopher Denicolo & Brandon Ketron: A Practical Approach to Qualifying Longevity Annuity Contracts (QLACs) – Using the (King) L.E.A.R. (Life Expectancy And Return) Analysis to Determine Whether Clients Should Invest in Specially Designed Annuity Products under Their IRA or Qualified Retirement Plans, Steve Leimberg’s Employee Benefits and Retirement Planning Email Newsletter located in Appendix E.

As of publication of this outline AIG is the only carrier presently offering QLACs, and Vanguard personnel have reported that they will have QLACs “within the next few weeks.”

8.) Designed Beneficiary. The individual beneficiary whose life expectancy is used for the purpose of determining the Applicable Payment Mode of the Required Minimum Distributions that will apply to an IRA/Plan.  This is the age that the Designated Beneficiary will attain in the calendar year following the Plan Participant’s death.  A Designated Beneficiary could be any of the following:

  1. A beneficiary of an IRA/Plan if an individual is directly named as beneficiary based on a beneficiary designation or the terms of the applicable IRA/Plan governing document;
  2. The oldest individual beneficiary of a trust that qualifies as an Accumulation Trust; or
  3. The beneficiary of a Conduit Trust to whom all payments from IRA/Plan to the trust must be made.
  4. Note – If the Designated Beneficiary is not an individual, the IRA/Plan will be subject to either the Five Year Rule, if the Plan Participant died before his or her Required Beginning Date or the At Least as Rapidly Rule, if the Plan Participant died after his or her Required Beginning Date.

9.) Designation Date. The Designation Date is September 30 of the calendar year following the year of death of the Plan Participant. This is the date on which the Designated Beneficiary is determined for the purposes of calculating the Applicable Payment Mode of the Required Minimum Distributions.  As stated above, it is possible to remove or eliminate one or more beneficiaries shortly after the death of a Plan Participant, but before the Designation Date. See Illustration 2.10 below for a summary of important dates after the Death of the Plan Participant.

4 - IRA Chart 2

 

10.) See Through Trust. An Accumulation Trust or a Conduit Trust, as used by the IRS to denote a trust that may not be considered as a Non-Person if the trust is named beneficiary of an IRA/Plan.  Assuming that certain requirements are met, and that the trust qualifies as a Conduit Trust or as an Accumulation Trust, the trust is “looked through” to the Designated Beneficiary for the purpose of determining the Applicable Payment Mode of Required Minimum Distributions.

11.) Accumulation Trust. A trust that is the beneficiary of an IRA/Plan where the trustee thereof has the power to accumulate some or all of the Required Minimum Distributions and other payments from the IRA/Plan (i.e., the terms of the trust instrument do not require the trustee to distribute all Required Minimum Distributions and all other payments from the IRA/Plan to a particular beneficiary).  Thus, the Trustee need not necessarily distribute monies received from an IRA/Plan by the trust, unlike a Conduit Trust where any and all distributions from the IRA/Plan to the Trust must be in turn paid out to the Designated Beneficiary.  Such trust can have no Non-Person beneficiaries after September 30 of the calendar year following the death of the Plan Participant (i.e., the Designation Date) and must properly register certain information with the Plan Administrator by October 31 of such calendar year.  If the trust has any Non-Person beneficiaries after the Designation Date, then the trust cannot qualify as an Accumulation Trust.

The Designated Beneficiary of an Accumulation Trust for the purposes of the Required Minimum Distribution rules is the oldest individual beneficiary of the trust, even if such person is merely a contingent beneficiary.  This is discussed further in Chapter Three, Section II.  Any potential appointees under a power of appointment held by a trust beneficiary over property held under an Accumulation Trust are taken into account for the purposes of determining the Designated Beneficiary of the IRA/Plan.  Therefore, no power of appointment should be exercisable in favor of individuals who are older than the desired Designated Beneficiary, or in favor of any Non-Person entities, because this would invalidate the ability to use the Designated Beneficiary’s life expectancy for Required Minimum Distribution purposes.

For example, power of appointment language may be limited by the following:

Notwithstanding the above, the holder of any power of appointment of any trust herein established which is the recipient of any IRA or pension plan distributions may not exercise such power of appointment in favor of any individual younger than the applicable “Designated Beneficiary” or any entity that is not an individual.

Further, any appointee must be a descendant of the great-grandfathers and great-grandmothers of the grantor of this trust.

Accordingly, any Non-Person beneficiaries of a desired Accumulation Trust should be eliminated before the Designation Date (September 30 of the calendar year following date of death of Plan Participant) by full payment of the share of the trust otherwise allocable to them by such Non-Person beneficiaries, by amendment of the trust by independent trust protectors, or possibly by court order.  Further, powers of appointment may be trimmed back before the Designation Date, and any powers held by the trustee or any other party (such as trust protectors) that would allow for the addition of Non-Person beneficiaries or individuals older than the Designated Beneficiary should also be trimmed back as well.

It is also possible to draft so that a conventional credit shelter trust or generation skipping trust can be the recipient of IRA/Plan benefits to be paid out over the lifetime of a Designated Beneficiary by having a separate “shadow trust” established under the trust instrument with identical dispositive provisions to the main trust, except that certain provisions are modified as necessary in order to result in the maximum deferral of IRA/Plan benefits. “Shadow trust” provisions will typically provide that only individuals younger than the Designated Beneficiary can receive benefits from the trust, and that appointees under any power of appointment must be individuals who are younger than the Designated Beneficiary.  The non-IRA/Plan assets can be held, managed, and administered under the main trust provisions, and would not be subject to the provisions of the separate shadow trust.

12.) Conduit Trust. A trust that is the beneficiary of an IRA/Plan which requires that all distributions from the IRA/Plan must be paid to a specified Designated Beneficiary, and does not authorize the trustee thereof to accumulate or withhold any distributions from the IRA/Plan.  The Required Beginning Date and Required Minimum Distribution rules will normally apply as if the Designated Beneficiary of the Conduit Trust is the sole direct beneficiary.  Thus, all beneficiaries (other than the Designated Beneficiary) can be disregarded for the purpose of determining the Designated Beneficiary, and the Designated Beneficiary will be treated as the individual beneficiary for Required Minimum Distribution rule purposes.  A Conduit Trust can thus have beneficiaries older than the desired Designated Beneficiary, Non-Persons as beneficiaries and unlimited power of appointment powers, so long as all distributions from the IRA/Plan to the trust are required to be paid to the Designated Beneficiary upon receipt from the IRA/Plan during his or her lifetime by trust during his or her lifetime.

Under most circumstances, the proceeds received by the Designated Beneficiary will not be protected from the creditors of the Designated Beneficiary, or from the federal estate tax at the Designated Beneficiary’s death, because a Conduit Trust requires that he or she must receive all IRA/Plan distributions.  However, a Conduit Trust may provide that a charity or another Non-Person is a beneficiary of the trust, and this will not jeopardize use of the desired Designated Beneficiary’s life expectancy for the purposes of determining the Applicable Payment Mode.

It might be possible to “toggle” a Conduit Trust into an Accumulation Trust within nine months after the death of the Plan Participant in most states, if the Designated Beneficiary who is to receive all distributions of IRA/Plan benefits per the trust instrument disclaims his or her right to receive mandatory distributions of all IRA/Plan payments.

It may also be possible for a Trust Protector to hold an amendment power to “toggle” a Conduit Trust into an Accumulation Trust; however the power must be exercised prior to the Designation Date. A Trust Protector given this ability should also have the power to change remainder beneficiaries within 9 months following the death of the Plan Participant as necessary to comply with the Designated Beneficiary Rule discussed in #5 below. See PLR 200537044.

13.) Q-TIP Minimum Distribution Rules. When IRA/Plan benefits are payable to a Q-TIP trust that must pay all income to the surviving spouse to qualify for the estate tax marital deduction, Revenue Ruling 2006-26 requires that both (a) the Plan/IRA and the Q-TIP trust each make affirmative marital deduction elections; and (b) that the greater of the Required Minimum Distribution percentage or all income from within the plan must be paid to the Q-TIP trust annually.  Further, the spouse must have the right to require that all income earned within the Plan be distributed to the Q-TIP Trust, and the normal Q-TIP Trust rules provided under Internal Revenue Code Section 2056 will apply.

A Q-TIP trust will qualify as a Conduit Trust, and the Surviving Spouse will be considered to be the Designated Beneficiary thereof if the IRA/Plan meets the requirements set forth above.  This is further discussed in Chapter Three, Section II (F) of this outline.

14.) Delay in Division Problem. What if the Plan Participant’s trust agreement or will provides that a trust or trusts held for the Designated Beneficiary will not be separated until after an event which will not occur before the deadline for the establishment of separate accounts (December 31st of the calendar year following Plan Participant’s death). For example, the applicable trust provides that the trustee is to “divide the assets equally into separate trusts for my children after my youngest child has reached age 25.” Based on this language, each trust is going to have to take Required Minimum Distributions out over the life expectancy of the oldest child (assuming that the children and individuals younger than the oldest child are the only beneficiaries of the trusts that will be established).

A better approach would be to provide for funding of a side trust that could be used to provide health, education, maintenance, and support for the youngest child or children, with the net remaining amount to be distributed equally among the trusts for the children once the youngest child has reached age 25.  The IRAs/Plans can then be allocated equally among the trusts for the children, which can be formed on or before the deadline for establishing separate accounts.

15.) Separate Accounts Rule. This rule allows an IRA/Plan to be paid to multiple beneficiaries based upon their respective life expectancies if separate IRA/Plan accounts are established.  The applicable distribution period for each separate account is determined by disregarding the other beneficiaries, but only if the separate accounts are established on a date which is no later than the last day of the year following the calendar year of the Plan Participant’s death.  Reg. 1.401(a)(9)-8, A-2(a)(2).  However, when IRA/Plan account division occurs by operation of a single trust that is named as beneficiary, the separate accounts rule is not available for purposes of determining the life expectancy of multiple beneficiaries.  Reg. 1.401(a)(9)-4, A-5(c).  Where the Plan/IRA beneficiary is a trust with multiple beneficiaries, the life expectancy of the oldest possible Designated Beneficiary is used to determine the applicable distribution period.

EXAMPLE: Where an IRA is payable by beneficiary designation to a trust with three beneficiaries, and after the death of the Plan Participant the IRA splits into three separate shares payable to each beneficiary, the Minimum Distribution Rules will apply under each separate share as if each beneficiary was the same age as the oldest beneficiary. PLR 200317041; 200317043; 200317044; 200432027.

16.) Separate Trust Rule. Permits separate trusts for separate beneficiaries to each use the life expectancy of the respective Designated Beneficiary where the Plan/IRA is payable directly to each separate trust, notwithstanding that each separate trust may be established after the death of the Plan Participant by testamentary Will provision or under a revocable trust.  This applies as long as the IRA/Plan is divided into separate IRAs/Plans, with the applicable separate trust being named as the beneficiary of the corresponding separate IRA/Plan under the beneficiary designation.[13] Each trust (at the time it receives benefits) must be a separate trust under applicable state law, with its own taxpayer identification number.

EXAMPLE:  An IRA that is payable 1/3 to a trust for one grandchild, 1/3 to a trust for another grandchild, and 1/3 to a trust for a third grandchild will qualify to facilitate having the applicable distribution period determined separately, according to the respective life expectancy of each grandchild.  Note that this can have a much better result than what would apply in the example of the Separate Accounts Rule, especially if there is a large age difference between the beneficiaries of a trust.

***********************************************
[1] See Natalie Choate’s The 201 Best and Worst Planning Ideas for Your Client’s Retirement Benefits at 3-11.
[2] Id. At 3-12
[3] Choate’s The 201 Best and Worst at 3-13.
[4] Choate’s The 201 Best and Worst at 3-16.
[5] Choate’s The 201 Best and Worst at 3-18 and 3-19.
[6] § 1091
[7] Choate’s The 201 Best and Worst at 3-37
[8] Choate’s The 201 Best and Worst at 3-16 and 3-17.
[9] Choate’s The 201 Best and Worst at 3-26
[10] The rule reads as follows, and no-one knows how it will work: “For assets in individual retirement accounts described in section 408 or 408A of the Internal Revenue Code of 1986, other than a simplified employee pension under section 408(k) of such Code or a simple retirement account under section 408(p) of such Code, the aggregate value of such assets exempted under this section, without regard to amounts attributable to rollover contributions under section 402(c), 402(e)(6), 403(a)(4), 403(a)(5), and 403(b)(8) of the Internal Revenue Code of 1986, and earnings thereon, shall not exceed $1,000,000 in a case filed by a debtor who is an individual, except that such amount may be increased if the interests of justice so require.” 11 USC § 522
[11] Choate’s The 201 Best and Worst at 3-37
[12]  The author used to think that a fairly high age was 30, when the author was 20.  Now the author thinks that 70 is young.
[13] Some commentators believe that the separate trust rule will still apply if the IRA/Plan is not divided into separate IRAs/Plans, so long as the beneficiary designation specifies that a distinct portion of the IRA/Plan will be payable to each separate trust.  The authors are not aware of any IRS guidance on this issue, but conservative planners will want to divide the IRA/Plan into separate IRA/Plans during the Plan Participant’s lifetime to assure that the separate trust rule will apply.

The Tipping Point in a Health Care Network
by Pariksith Singh, M.D.

4 - Singh

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.

The tipping point of a health care network in a selected geographic area is reached when the growth of the network begins to happen on its own. This occurs when the resistance to development begins to melt away and providers in the area realize that they have a significant advantage in joining the network.

While economies of scale may play a role in reaching the tipping point, the more important aspect is economies of scope and a sense of mutually beneficial relationships among the community of vendors and providers. At this point, a strongly integrated network becomes inevitable in the mind of the community with an understanding that such a development brings a shift in the way health care will be practiced and it brings tremendous advantages.

The most important aspect of such network development in my mind, is its emphasis on relationships, a long-term investment from all parties, and a building up of trust. Service and value-creation are the key based on integrity and credibility. Initially, there may be significant resistance, even verbal and emotional violence, warnings of grave injury to providers and patients. But as the network is built brick by brick, rather person by person, such resistance melts away into sheer resistance.

What are the components of building a health care network? The key is to develop an anchor practice or multiple anchor practices, preferably in primary care, which makes one a part of the community. This is the most difficult step and requires hard work against great resistance. The second step is to build a non-confrontational relationship with patients, vendors, facilities administrators and health care providers. Once the anchor practice takes hold, it should be expanded or enlarged by bringing in more providers or creating more offices using a hub and spokes model.

The emphasis of the practice should be on customer satisfaction, quality, compliance and evidence-based medicine. The stronger the engagement with patients, the easier it is to develop the network. One often finds that a physician community is seldom completely united. There are factions, old grudges and a sense of dissatisfaction with the status quo among the non-group members. It is extremely important to know the lay of the land, areas of population concentration and the dynamics of various factions among the physicians. Invariably, these physicians will want to develop relationships and might wish to outdo one another when the tide turns.

It is important to be focused on one’s mission, and it is best to do so in a non-threatening manner. Having a higher cause is great help. Financial and operational benefits that might accrue to other providers when they join the band wagon should be reviewed compliantly with a sense of service and humility. There are times when one may need to take a stand but that must be done so professionally and with gentle firmness.

It may be important to offer several lines of service, to touch the provider at multiple levels and in multiple ways. Building relationships in a team based approach helps since each provider is different in aptitude, background, preference and needs. A team comprising of a physician liaison, compliance and quality officers, managed care or accountable care solutions and resources, IT services, data and analytics, and legal and financial counselors may be used to reach out to providers in a holistic manner.

Besides building a primary care network, one should strongly consider building a specialty network made up of a network of hospitals, nursing home specialists, and various outpatient services such as radiology, physical therapy, home health care, phlebotomy stations and specialty testing. A specialty network brings tremendous dynamic value to a primary care network since it helps build strong relationships with specialists, hospitals and skilled nursing facilities especially if patients are managed in a strong care management environment.

A specialty hospitalist network can enhance the primary care network several-fold by helping cover physicians who are strictly out-patient, bring a focused effort to take excellent care of the ‘captive’ inpatients and ensuring continuity of care without the chance of patient care ‘falling through the cracks’ if thoroughly integrated.

Market saturation may be important but presence and proper branding of one’s product is more important. Marketing is helpful for new physicians in the area or after a strong base for a primary care network is created but is not the main goal of the network. Activities and events to create community outreach are important to avoid the appearance of being ‘carpet baggers’ (using manipulation or fraud to obtain an objective).

Even after a network is built, it is important to provide excellent service that is always making an effort to improve, is provider- and patient-centric, and focused on quality and compliance. Inducements are prohibited and are never necessary for patients or providers.

If these principles are followed, a network is inevitably created and is able to develop in the correct way. Patience and systems thinking is a must along with a vast vision that does not react constantly, is detail-oriented, and yet extremely nimble with operational leverage.

Richard Connolly’s World
Celebrity Estate Round-Up, Part I

Insurance advisor Richard Connolly of Ward & Connolly in Columbus, Ohio often shares with us pertinent articles found in well-known publications such as The Wall Street Journal, Barron’s, and The New York Times. Each week, we will feature some of Richard’s recommendations with a link to the articles.

This week, we are featuring stories on the issues surrounding celebrity estates. The first article is entitled “Robin Williams’ Widow Starts a Court Battle – But Why?” This article was written by Danielle and Andy Mayoras and featured on Forbes.com on February 3, 2015.

Richard’s description is as follows:

When Robin Williams tragically committed suicide, he left behind three children from his first two marriages (ages 23 to 31) and a widow of less than three years, Susan Schneider Williams. Unlike many celebrities, Robin Williams took the time to create a thoughtful and detailed estate plan, including various trusts to benefit his three children and Susan. The trust established for his wife, called the Susan Trust, referred to and was consistent with a prenuptial agreement the couple signed when they were married in late 2011.

Because Robin Williams’ estate planning was carefully crafted, it initially appeared that his heirs would avoid the bitter family squabbles that affect many mixed-marriage families (in Hollywood and around the country). After all, it is his wishes that matter, and because those wishes were seemingly captured through the proper legal documents, there should be nothing left to fight about, right?

Not so fast. Within the past 24 hours, the news broke that the Williams family will not be so lucky. Susan, through her lawyers, started legal proceedings a few days before Christmas. She asked for a probate court in California to take jurisdiction over the Robin Williams Trust to interpret various provisions that she feels are in dispute. Robin’s three children – themselves coming from two different marriages – filed a unified response through their attorneys and opposed Susan’s court filing. The battle is on.

Please click here to read this article in its entirety.

The second article this week is “Estate of Ernie Banks in Turmoil as Caregiver Claims to be Sole Heir.” This article was also written by Danielle and Andy Mayoras and was featured on Forbes.com on February 19, 2015.

Richard’s description is as follows:

[Mr. Cub] Ernie Banks died on January 23rd at age 83 from a heart condition. Interestingly, his death certificate listed dementia as a “significant condition contributing” to his death. Why is that important?

Only three months before he died, Banks signed a new set of estate planning documents, including a power of attorney, healthcare directive, new will, and a trust. The new documents left his caregiver and talent agent, Regina Rice, in control of everything. Strangely, the will and trust completely excluded his family members and named Rice as his sole beneficiary.

The Banks’ family attorney says his children plan to vigorously contest the will. They believe that Rice coerced their father to sign the new estate planning documents, by controlling and manipulating him. They also say that in the months leading up to his death, Rice prevented them from speaking with their father by phone. They believe that Rice used her position of trust and confidence to take advantage of Banks’ dementia to their detriment.

It will be interesting to see what precautions were taken by the attorney who drafted the “final” estate plan.

Please click here to read this article in its entirety, and stay tuned next week for stories on the conflicts surrounding the estates of Joan Rivers and New Orleans Saints owner Tom Benson.

Thoughtful Corner
Einstein’s Positive Universe – It’s More Than Just Relativity. Positive Equals a Better Professional Life and Performance Squared.
by Dr. Srikumar Rao, as edited by Alan S. Gassman

5 - Rao

If you were not able to join us for the March 5, 2015 ethical credit, 50-minute presentation of How to Handle Stressful Matters in an Ethical Way by Srikumar Rao, then please consider doing so by clicking the link below and contact us about receiving a one-hour credit.

Professor Rao’s discussion was extremely interesting and useful. His discussion of Albert Einstein’s theory of a positive universe was both original and insightful, as represented below:

Let me take you to someone who is one of the greatest known scientists of the world. The person I am referring to is someone you have all heard of. His name is Albert Einstein.

Albert Einstein is revered as a genius, but when we revere him as a genius, we are primarily thinking about his scientific accomplishments. Einstein was the person who gave us first the special theory of relativity, then the general theory of relativity. He was the person who discovered the photo-electric effect for which, in fact, he received the Nobel Prize, and there are numerous other things he did; his scientific accomplishments are legendary.

What few people know is that Einstein was also a philosopher who had a pretty deep understanding of the universe and the way it operates. One of the observations he made is something which is immensely relevant. I found it extraordinarily helpful in my life; it has been extraordinarily helpful in the lives of many thousands of people who have taken my programs and my workshops, and, if you think about it, it will be enormously helpful to you personally.

What Einstein said is that the most important decision you are ever going to make is, “Is the universe friendly?” Let me repeat that – the most important decision you are ever going to make is, “Is the universe friendly?”

Now we all know people who believe that the universe is unfriendly. They believe the sole purpose of the universe is to frustrate you when you are trying to accomplish something. These are the people who believe that the universe knows when you are running late and will arrange for a massive traffic jam exactly when you are running late. We all know people like that. Fortunately, they are few in number. The vast majority of us believe that the universe is indifferent to us. “Here I am doing my thing, and there is the universe doing its thing, and sometimes we seem to collaborate, and sometimes we work across purposes, but eventually, I am me, and the universe is the universe, and the universe does not know about me and does not care about me,” and that is the world the vast majority of us live in.

We all know what we experience in this world. We experience stress, and we experience frustration; some of the time things go so serendipitously well, and we are elated, but much of the time, we are not. But let’s turn the thing around. What if the universe was friendly? Friends do not shaft friends, do they? No, of course not. So if the universe was friendly, would it ever do anything to harm you? Of course not. But then why does the universe do things that you look at it and say, “Hey, this is terrible”?

Well, is it possible, is it just barely possible, that you do not have a sufficient understanding of what forces are in play?

Imagine you are a small child; you are an infant or a baby. What a baby would like is a tub of ice cream, but what would a wise parent provide? Fruits and vegetables. The baby does not want fruits and vegetables. When presented with fruits and vegetables, the baby is happy to label it – “This is bad” – and it is only much later, at a deeper level of understanding and maturity, which the child can say, “Boy am I glad I did not get a tub of ice cream, and I got fruits and vegetables back then.”

What if it is exactly like that in your life? Something happens, and you are about to label it “bad.” That is what the universe gave you, but maybe it isn’t. Maybe that is exactly what you needed. So if that is exactly what you needed, you stop bemoaning the fact that this “bad” thing happened and start thinking about what are the ways in which it can be good? It is an expansion of the Good Thing, Bad Thing parable I have shared before.

So if the universe is friendly, then no matter what you are confronting, it is exactly what you need for your personal growth at this instant.

So here is something for you to think about. Regardless of whether or not the universe is friendly, if you believe that the universe is friendly, your life will be immeasurably improved.

People have no problem in accepting it. They can readily know that – regardless of whether or not the universe is friendly – if you have a deep belief that the universe is, in fact, friendly…then life will improve. The problem is that just because you have an intellectual understanding that a particular model is better than the one you are using, it does not necessarily mean that you can adopt the model. So what can you do to believe that that universe is friendly?

For a live recording of this talk, please click here.

To see Dr. Rao’s website including his amazing course syllabus, please click here.

To hear more from Dr. Rao, a continuation of the webinar from which this article was taken, will be presented on April 21, 2015. This entire session will consist of Professor Rao answering questions on the topic of How to Handle Stressful Matters in an Ethical Way – No Question is too difficult or inappropriate. Please email your questions to agassman@gassmanpa.com and/or srikumarsrao@gmail.com and don’t make them easy! Real stories and predicaments are especially useful. To register for the webinar, please click here.

Humor! (or Lack Thereof!)

In the News
by Ron Ross

NBC cancels new reality show Millionaire Murderer Matchmaker after potential spouses kept disappearing.

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Lab rats, working in their spare time, come up with a cure for old age. They refuse to share the secret with humans out of sheer spite.

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Congressman with Downton Abbey replica office is forced to resign after he is revealed as the father of Edith’s illegitimate child.

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Recent publicity criticizing a lack of diversity inspires The Walking Dead to add a zombie character in a wheelchair. The survivors who fight the zombies refer to him as “Speedy.”

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New research indicates the Founding Fathers were especially proud of the Second Amendment to the US Constitution. “This one is so crystal clear, no court will ever have problems interpreting it,” they said.

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Regular customers of the recently-closed Orlando “Arabian Nights” attraction are invited to a free night at the new local dinner theatre “Cannibal Times.” Hurry! The number of invited guests will be smaller each week.

Upcoming Seminars and Webinars

LIVE WEBINAR:

Alan Gassman and Barry Flagg, CPF, CLU, ChFC, GFS, of Veralytic will present a free 30-minute webinar on COMPARING THE FINANCIAL STRENGTH AND RISKS ASSOCIATED WITH DIFFERENT LIFE INSURANCE CARRIERS.

Date: March 31, 2015 | 5:00 PM

Location: Online webinar

Additional Information: To register, please click here or email Alan Gassman at agassman@gassmanpa.com for more information.

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LIVE BLOOMBERG BNA WEBINAR:

Alan Gassman, Kenneth Crotty, and Christopher Denicolo will be presenting a not-so-free 90-minute webinar for Bloomberg BNA Tax & Accounting on WHY FLORIDA IS DIFFERENT – IMPORTANT THINGS THAT ESTATE AND TAX PLANNING PROFESSIONALS NEED TO KNOW.

Date: Thursday, April 16, 2015 | 2:00 PM

Location: Online webinar

Additional Information: To register for this webinar, please email Alan Gassman at agassman@gassmanpa.com.

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LIVE FREE ETHICS CREDIT WEBINAR:

Alan Gassman and Dr. Srikumar Rao will present a free 50-minute webinar on HOW TO HANDLE STRESSFUL MATTERS IN AN ETHICAL WAY – PART II.

This webinar is a continuation of the How to Handle Stressful Matters in an Ethical Way webinar that was presented by Dr. Rao and Alan Gassman on February 19, 2015. This webinar will qualify for 1 hour of CLE Ethics Credit and is classified as Advanced.

See Professor Rao’s Ted Talk YouTube video, and you will understand how important this webinar might be to accelerating your law practice and enhancing your enjoyment of the practice as well.

Dr. Srikumar Rao is the creator of the original Creativity and Personal Mastery (CPM) course that has helped thousands of executives and entrepreneurs achieve quantum leaps in effectiveness. He earned a Ph.D. in Marketing from Columbia University and has taught the course at Columbia University, Northwestern University, University of California at Berkeley, and the London School of Business. He is the author of Happiness at Work and Are You Ready to Succeed? which can be reviewed by clicking here. Are You Ready to Succeed? has been published in over 60 languages!

Date: April 21, 2015 | 12:30 p.m.

Location: Online webinar

Additional Information: Please click here to register or email Alan Gassman at agassman@gassmanpa.com for more information.

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LIVE BLOOMBERG BNA WEBINAR:

Professor Jerome Hesch, Alan Gassman, Kenneth Crotty, and Christopher Denicolo will present a 90-minute webinar for Bloomberg BNA Tax & Accounting on MATHEMATHICSLAND FOR ESTATE PLANNERS. 

This webinar includes over 30 interactive spreadsheets and explanatory tools that you need to know how to use to best serve your clients!

Date: Monday, April 27, 2015 | 2:00 PM

Location: Online webinar

Additional Information: To register for this webinar, please email Alan Gassman at agassman@gassmanpa.com.

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LIVE OLDSMAR PRESENTATION: 

FICPA SUNCOAST SCRAMBLE GOLF TOURNAMENT 

Kenneth J. Crotty and Christopher J. Denicolo will speak at the FICPA Suncoast Scramble Golf Tournament on the topic of MATHEMATICS FOR ESTATE PLANNERS INCLUDING 10 ESTATE PLANNING STRATEGIES NOT TO MISS. 

Date: Friday, May 1, 2015 | CPE Presentations from 9:00 AM – 11:30 AM 

Location: East Lake Woodlands Country Club | 1055 E Lake Woodlands Parkway, Oldsmar, FL 34677 

Additional Information: For more information about registration, sponsorship, or this event, please click here or click here to download the Tournament brochure.

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LIVE NAPLES PRESENTATION: 

2nd ANNUAL AVE MARIA SCHOOL OF LAW ESTATE PLANNING CONFERENCE 

Alan Gassman, Jerry Hesch, and Richard Oshins 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 Richard Oshins on 11 Outstanding Planning Ideas, Jonathan Gopman on Asset Protection, 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.

Date:  Friday, May 1, 2015

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

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

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LIVE MIAMI PRESENTATION: 

FLORIDA BAR WEALTH PRESERVATION PROGRAM 

Denis Kleinfeld and Alan Gassman have released the schedule and topics for FUNDAMENTALS OF ASSET PROTECTION AND ADVANCED STRATEGIES. This seminar will be presented on May 7th and May 8th, 2015, and is sponsored by the Tax Section of the Florida Bar.  Attendees can select one day or the other, or to attend both days.

Day One will be for fundamentals and will be an excellent review or an introduction to the basic rules and practice aspects of creditor protection planning for both new and experienced practitioners.

Day Two will be an advanced treatment of creditor protection and associated planning, which will be of great use to both new and experienced practitioners.

Date: May 7 – 8, 2015

Location: Hyatt Regency Miami | 400 SE 2nd Avenue, Miami, FL 33131

Additional Information: To pre-register for this conference, please click here. For more information, please email Alan Gassman at agassman@gassmanpa.com.

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LIVE BLOOMBERG BNA WEBINAR:

Professor Jerome Hesch, Alan Gassman, and Barry Flagg will be presenting a 90-minute webinar for Bloomberg BNA Tax & Accounting on THE TAX ADVISORS GUIDE TO PERMANENT LIFE INSURANCE AND STRUCTURING TOOLS AND TECHNIQUES.

Date: Tuesday, May 12, 2015 | 2:00 PM

Location: Online webinar

Additional Information: To register for this webinar, please email Alan Gassman at agassman@gassmanpa.com.

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LIVE BRADENTON, FLORIDA PRESENTATION

Alan Gassman will speak at the Coastal Orthopedics Physician Education Seminar on the topics of CREDITOR PROTECTION AND THE 10 BIGGEST MISTAKES DOCTORS CAN MAKE: WHAT THEY DIDN’T TEACH YOU IN MEDICAL SCHOOL.

Coastal Orthopedics, Sports Medicine, and Pain Management is a comprehensive orthopedic practice which has been taking care of patients in Manatee and Sarasota Counties for 40 years. They have sub-specialized, fellowship-trained physicians as well as in-house diagnostics, therapy, and an outpatient surgery center to provide comprehensive, efficient orthopedic care.

Date: Tuesday, May 12, 2015 | Time TBA

Location: Coastal Orthopedics and Sports Medicine | 6015 Pointe West Boulevard, Bradenton, FL, 34209

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

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LIVE STUART, FLORIDA PRESENTATION

Alan Gassman will be the featured “headline” speaker the Martin County Estate Planning Council Annual Tax and Estate Planning Seminar. He will be doing a three-hour talk on the topics of JESTs, MATHEMATICS FOR ESTATE PLANNERS, AND THE ESTATE PLANNER’S GUIDE TO PLANNING FOR IRA AND PENSION BENEFITS – YES, YOU CAN FINALLY UNDERSTAND THESE RULES!

Date: May 15, 2015 | 8:15 AM – 4:30 PM; Alan Gassman speaks from 9:00 AM to 12:00 PM

Location: Stuart Corinthian Yacht Club | 4725 SE Capstan Avenue, Stuart, FL 34997

Additional Information: For more information, please email Alan Gassman at agassman@gassmanpa.com or Lisa Clasen at lclasen@kslattorneys.com.

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LIVE WEBINAR:

Alan Gassman and noted trust and estate litigator, LL.M in estate planning, and blog master Juan Antunez, J.D., LL.M. will be presenting a free 30-minute webinar on ARBITRATING TRUST AND ESTATES DISPUTES. 

Don’t miss Juan’s wonderful blog site entitled Florida Probate & Trust Litigation Blog, which can be accessed by clicking here, and the many vary useful articles thereon.

Date: Tuesday, May 19, 2015 | 12:30 PM

Location: Online webinar

Additional Information: To register for this webinar, please click here.

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LIVE FLORIDA INSTITUTE OF CPAs (FICPA) WEBINAR

Alan Gassman, Ken Crotty, and Chris Denicolo will present a webinar on A PRACTICAL TRUST PLANNING CHECKLIST AND PRACTITIONER COMPLIANCE GUIDE FOR FLORIDA CPAs for the Florida Institute of CPAs.

Review a practical planning checklist and practitioner tax compliance guide to facilitate implementing a comprehensive overview of practical planning matters and tax compliance issues in your practice. This presentation will cover over 20 common errors and missed planning opportunities that accountants need to understand and counsel their clients on.

This course is designed for practitioners who wish to assure that trust planning structures and compliance are both aligned with client objectives and that common catastrophic errors and misconceptions can be corrected.

Past attendees have indicated that this is an interesting and practical presentation that offers a great deal of practical information for both compliance and planning functions, based upon an easy to follow checklist approach.  Includes valuable materials.

Date: May 21, 2015 | 10:00 AM

Location: Online webinar

Additional Information: For more information, please contact Alan Gassman at agassman@gassmanpa.com or Thelma Givens at givenst@ficpa.org. To register, please click here.

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LIVE MIAMI LAKES WORKSHOP:

Alan Gassman will be speaking at the Miami Lakes Bar Association Luncheon on the topic of ACCELERATING YOUR LAW PRACTICE.

Date: Thursday, May 21, 2015 | 11:45 am – 1:45 pm

Location: TBD

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

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LIVE BLOOMBERG BNA WEBINAR:

Professor Jerome Hesch, Alan Gassman, Ed Morrow, Christopher Denicolo, and Brandon Ketron will be presenting a 90-minute webinar for Bloomberg BNA Tax & Accounting on ESTATE AND TRUST PLANNING WITH IRA AND QUALIFIED PLAN BENEFITS: AN UNDERSTANDABLE SYSTEM WITH CHARTS AND EASY-TO-UNDERSTAND MATERIALS.

This presentation will include a 300 page E-book for each attendee.

Date: Wednesday, June 10, 2015 | 2:00 PM

Location: Online webinar

Additional Information: To register for this webinar, please email Alan Gassman at agassman@gassmanpa.com.

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LIVE SARASOTA PRESENTATION:

2015 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: Friday, October 23rd and Saturday, October 24th, 2015

Location: To Be Determined

Additional Information: Please contact Alan Gassman at agassman@gassmanpa.com for more information.

Notable Seminars by Others
(These conferences are so good that we were not invited to speak!)
 

LIVE PRESENTATION:

RUTH ECKERD HALL PLANNING GIVING COUNCIL MEETING

This exciting two-part event will feature an educational presentation and a networking session. Attorneys and CPAs may receive CLE and CPE credit for attending the educational presentation.

The educational presentation will be an entertaining, interactive workshop led by Jack Halloway, a well-known improvisational coach and actor. He is directing “The Complete Works of William Shakespeare (Abridged)” and will share some thoughts on how Shakespeare used law, lawyers, and money in his plays. Some improv will also be included.

Jack Halloway’s presentation will be followed by a social networking and info session. Enjoy some wine and time with fellow Planned Giving enthusiasts!

Everyone who brings a potential donor or new member to the Planning Giving Council will be entered into a raffle for 2 tickets to an upcoming show.

Date: April 21, 2015 | Educational Presentation begins at 4:30 PM | Networking sessions begins at 5:30 PM

Location: The New Murray Theatre at Ruth Eckerd Hall

Additional Information: For more information, please email Alan Gassman at agassman@gassmanpa.com. RSVPs may be sent to Maribeth Vongvenekeo at maribeth@gassmanpa.com, Suzanne Ruley at sruley@rutheckerdhall.net, or Kristy Philippe at kristy.philippe@ms.com.

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LIVE PRESENTATION:

2015 UNIVERSITY OF FLORIDA TAX INSTITUTE

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

Location: Grand Hyatt Tampa Bay | 2900 Bayport Drive, Tampa, FL 33607

Additional Information: Please click here for a complete schedule or contact Bruce Bokor at bruceb@jpfirm.com for more information.

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LIVE ORLANDO PRESENTATION:

50TH ANNUAL HECKERLING INSTITUTE ON ESTATE PLANNING

Date: January 11 – January 15, 2016

Location: Hotel information to be announced

Additional Information: Information on the 50th Annual Heckerling Institute on Estate Planning will be available on August 1, 2015. To learn about past Heckerling programs, please visit http://www.law.miami.edu/heckerling/.

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.

8 - Rates Chart

 

The Thursday Report – 3.19.15 – BP, IRA, “The Look” and the Investigation Process

Posted on: March 19th, 2015

BP Claims Update: Policy 495 by John Goldsmith and Alan Gassman, with assistance from Brandon Ketron and Noah Fischer, Part I

Planning for Ownership and Inheritance of Pension and IRA Accounts and Benefits by Christopher J. Denicolo, Alan S. Gassman, and Brandon Ketron, Part III

The Internal Investigation Process for Healthcare Providers by Stephen H. Siegel, Esquire, and Gabriel Imperato, Esquire

The Problem with “The Look” by Rahma Sultan

Richard Connolly’s World – The Executor’s $1.2 Million Mistake

Thoughtful Corner – Why You Should CC Yourself by Email When You Mail a Letter

The Worst Humor Ever!

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

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

BP Claims Update: Policy 495, Part I
by John Goldsmith and Alan Gassman
with assistance from Brandon Ketron and Noah Fischer

What is Policy 495?

In a decision last year, the 5th Circuit Court of Appeals held that a claim for losses under the BP Deepwater Horizon Economic & Property Damage Settlement must be supported by Profit and Loss Statements that sufficiently match revenues and expenses. Policy 495, created by BP Claims’ Administrator Patrick Juneau, is an 88 page “solution” to this problem.

Policy 495 attempts to precisely measure losses associated with the oil spill by treating Profit and Loss Statements in claims made by cash-basis businesses more like Profit and Loss Statements in accrual basis accounting. In cash-basis accounting, revenues and expenses are recorded when cash changes hands as opposed to when they actually occur; this leads to unmatched revenues and expense. Policy 495’s goal is to match revenue and expenses by smoothing out the impact of revenue spikes, and variable and occasional expenses, which can distort the monthly accounting of a cash-basis business. Variable expenses change according to sales in a given period, while occasional expenses arise as a result of a change in business environment, such as an oil spill.

When revenues and expenses do not match, the claims’ accountant adjusts the accounting records so that a more “realistic” measure of loss is determined. As a result, your initial estimated compensation may change, requiring additional time to process and receive the claim. In reality, it is generally making most claims lower or eliminating them entirely, but in rare instances, it is actually helping claims.

The original Settlement Agreement allowed alleged victims to base claims on any three-month post-spill time frame they chose. Policy 495 now allocates those occasional expenses across the fiscal year by weight in order to show the monthly variation in a business’ revenue. The policy also establishes additional hurdles to businesses using cash-basis accounting by requiring them to change their accounting method so that revenues get matched with the expenses incurred in earning them.

The following is a basic example of how Policy 495 may be applied:

A law firm operating on a contingent-fee would be required to file a claim that allocates the amount of the fee proportionately across the life of the case instead of in the month it is received.

Linh owns a boutique law firm and uses cash-basis accounting. Her business was affected by BP’s oil spill, so she is planning on filing a claim. During the applicable time period, Linh was in the middle of a contingent fee case which was finally settled in December. The settlement provided her with attorney’s fees of $100,000 which she received in December. The revenues and expenses as recorded are shown below, followed by the adjustment that would have to be made under Policy 495.

2 - Accounting Charts

When viewing the revenues and expenses in charts, it is easy to see why claimants are distraught about their cash-basis businesses’ income being “smoothed over” when switching to accrual basis accounting. In a small amount of cases, Policy 495 has helped businesses receive a larger claim, but “smoothing” has worked in BP’s favor for the far majority of claims.

More on Policy 495

Policy 495 contains seven trigger events that a claim administrator uses to determine if a claim is sufficiently matched. If any of the triggers are not tripped, the claim is presumed to be sufficiently matched; however, if any of the triggers are flipped, the claim will be subject to further scrutiny. The seven trigger events used to analyze profit and loss statements submitted by a claimant are as follows:

  1. Negative total revenue is recorded for any month included within the Benchmark Year(s), Compensation Year, or 2011.
  2. Total revenue recorded in any month included in the Benchmark Year(s), Compensation Year, or 2011 exceeds 20% of the claimant’s annual revenue for the year which includes that month.
  3. The monthly profit and loss statements or other documentation submitted shows that the claimant’s business experienced a period of dormancy during the Benchmark Year(s), Compensation Year, or 2011.
  4. Total variable expenses when summed up are negative for any month within the Benchmark Year(s) or Compensation Year.
  5. Total variable expenses for any month within the Benchmark Year(s) or Compensation Year exceed 25% of the claimant’s annual variable expense for the year which includes that month.
  6. Variable margin percentages when compared between any two months included within the Benchmark Year(s) and Compensation Year vary by more than 50 percentage points.
  7. In any given month within the Benchmark Year(s) or Compensation Year, the variance between that month’s percentage of annual revenues as compared to that same month’s percentage of annual variable expenses exceeds 8 percentage points.

Benchmark Period: The Pre-Deepwater Horizon Spill time period that the claimant chooses as the baseline for measuring its historical financial performance. The claimant can select among the following Benchmark Periods: 2009, the average of 2008-2009, or the average of 2007-2009.

Compensation Period: Selected by the Claimant to include three or more consecutive months between May and December 2010.[1]

The claim accountants must exercise their professional judgment after the trigger event has occurred in order to determine the matched or unmatched status of the profit and loss statements. It is likely that a trigger will be tripped because they are overly inclusive and are set up to encompass the majority of claims. If the claim accountant uses their professional judgment, claims based on an accrual method of accounting should pass as sufficiently matched because the accrual method records income when earned and expenses when incurred, regardless of when payments are made or received. Judge Clement strengthens this stance by stating “the parties apparently agree that matching is required and occurring with respect to the vast majority of accrual basis claims.”[2] Unfortunately, claim administrators have given little deference to accrual accounting based claims based on the fact that as of December 2014, close to 90% of all claims have been deemed “unmatched.”[3] A quote from Tom Young’s article Cleared by SCOTUS, Audit; Juneau & Judge Barbier Should Revisit BP Matching Policy 495 sums up how bizarre this really is:

Fortune 500 businesses, publicly traded companies and entities keeping their books as per Generally Accepted Accounting Principles (GAAP) are now being deemed deficient under the Settlement Program’s matching protocol. Wall Street would likely be quite surprised to hear that the largest and most sophisticated companies in the world are misstating their earnings according to the Claims Administration’s vendors.

Accrual based accounting systems claims should be classified as being matched but instead are subject to adjustments under Policy 495, which strikes the authors as odd due to the fact that the main principle behind accrual accounting is “matching.”

Next week, we will discuss the seven methodologies under Policy 495 and provide details on how Policy 495 applies to claimants whose industry/business falls into one of the more difficult categories for matching revenues with expenses. This includes industries such as non-profits, retail, and medical practices.

John Goldsmith recently appeared on a webinar with Alan Gassman to discuss the claims filing deadline and the various industries impacted by the accrual requirements.

This webinar can be viewed by clicking here.

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[1] http://blogs.reuters.com/alison-frankel/files/2014/05/bp-policy495.pdf
[2] October 2, 2013 Opinion in 13-30315 at 17 (emphasis added)
[3] Young, Tom, Cleared by SCOTUS, Audit; Juneau & Judge Barbier Should Revisit BP Matching Policy 495 www.legalexaminer.com. Claris Law, January 19, 2015. February 27, 2015.

Planning for Ownership and Inheritance of Pension and IRA Accounts and Benefits – Part III
by Christopher J. Denicolo, Alan S. Gassman, and Brandon Ketron

4 - Chris

The rules applicable to retirement plan and IRA distributions, contributions, rollovers, and otherwise can be difficult to understand and complex to implement.  The applicable Internal Revenue Code Sections and Treasury Regulations are somewhat complicated and convoluted, and use many technical “terms of art.”  This makes dealing with qualified plans cumbersome and difficult for laypersons and planners who are not experienced in this area.

We have attempted to simplify the applicable rules into a digestible format with concise explanations of the applicable rules.  We have also prepared charts and explanations to illustrate the key concepts and mechanics of important definitions, rules, and planning strategies.

The Thursday Report proudly will provide a multi-part series to exhibit our materials and charts, and we hope that you enjoy this series as much as we did in putting it together.

To see Chapter 1 of this presentation, please click here.

To see Chapter 2 of this presentation, please click here.

IRA SERIES CHAPTER 3

CRUCIAL DEFINITIONS AND RULES (Part One): 

1.) 10% Excise Tax. A Plan Participant who has not reached age 59 ½ will pay a 10% excise tax on taxable distributions (in addition to the normal income tax) unless one of the below exceptions from Internal Revenue Code Section 72(t)(2) applies:

  1. A distribution for the payment of certain higher education expenses.
  2. A distribution of up to $10,000 to fund the purchase of a primary residence for a first-time home buyer.
  3. Distributions for certain medical expenses.
  4. Distributions from retirement plans to individuals called to active duty.
  5. The Plan Participant is disabled.4
  6. Annuitized IRA annuity distributions – part of a series of substantially equal annual or more frequent payments made over the life expectancy of the Plan Participant, or over the joint life expectancy of the Plan Participant and his or her Designated Beneficiary. Thus, an annuitized IRA annuity will qualify under this exception.

2.) Required Minimum Distributions or “RMDs.” The amounts which must be paid out in a given year under the Applicable Payment Mode, based upon the life expectancy of the Plan Participant or the Designed Beneficiary. The Applicable Payment Mode also depends upon whether the IRA/Plan names the Plan Participant’s Spouse as the sole beneficiary of the IRA/Plan after the death of the Plan Participant. The majority of plans cannot be aggregated together to satisfy the Required Minimum Distribution Rules. Below (Illustration 2.3) is a chart that summarizes the aggregation rules for Required Minimum Distributions.

Illustration 2.3

3 - Aggregation Rules for Distributions

3.) Required Beginning Date or “RBD.” The date on which lifetime distributions to the Plan Participant from the Plan must begin; this date is April 1 of the calendar year following the later of (a) the calendar year in which the Plan Participant attains the age of 70 ½; or (b) the calendar year in which a non-shareholder Plan Participant retires from being employed by the company which maintains a qualified retirement plan as to such plan.

Illustration 2.4

4 - Minimum Distribution Rules
NOTE: “Age 70 ½” means the April 1st of the calendar year following age 70 ½.

4.) 70 ½ First Year Delay Right.
A Plan Participant who has reached the age of 70 ½ can take some or all of the first year Required Minimum Distributions on any day or days during the calendar year in which age 70 ½ is reached, or by April 1st of the following calendar year. Therefore, the first two annual Required Minimum Distributions could be taken in the calendar year following when the Plan Participant has reached age 70 ½ (by April 1st as to payments required for the first year, and by December 31st as to the payments required for the second year.)The Plan Participant should consult with a tax advisor after reaching the age 70 ½ to determine whether the “first year required payment” should be deferred until the following year, based upon the expected tax bracket or rates of asset growth applicable to the Plan Participant.

If the Plan Participant is going to be in the highest tax bracket in both years, then it most likely makes sense to defer all of the first year Required Minimum Distribution until the second year. If the Plan Participant is not in the highest tax bracket, then it makes sense to spreadsheet the expected tax liability for the two years, while applying a time value of money adjustment for deferral, in order to determine how to best apportion the first year payment.

EXAMPLE (see Illustration 2.5 below) – Claire turns 70 ½ on May 1, 2015, and pursuant to the Minimum Distribution Requirement Table set forth above, has a Required Minimum Distribution of 3.65% of the account balance that must be taken prior to April 1st of 2016 and a 3.77% distribution that must be taken prior to December 31st of 2016. Claire can pay the above percentages in 2015 or 2016, or she may elect to make a 3.65% payment of the 2014 account balance and a 3.77% payment of the 2015 account balance, both in 2016. The amount that would have been paid out in 2015 does not reduce the balance of the amount held in the plan that is used to determine the 2016 Required Minimum Distribution amount. For example, if the account is worth $1,00,000 as of December 31, 2014, and grows by 5.00% during the subsequent two years, then Claire could have distributed 3.65% ($38,325.00) in 2015 and 3.77% ($40,047.15) in year 2016 for a total of $78,372.15. If Claire waits until 2016 to satisfy both years, then the total amount paid will be $79,889.25.

Illustration 2.5
Deadlines for Required Minimum Distributions
Illustration 2.6

Distribution Options

5.) Age 70 ½ First Year Delay Crossover Analysis. What after tax rate of return on investments would a hypothetical 43.4% tax bracket IRA owner need to earn to make it worthwhile to delay taking the first year minimum distribution, after accounting for the excess amount that has to be paid out (but later) if the first year payment is moved from December 31st of the year after turning 70 ½ to April 1st of the second year after turning 70 ½?Based upon the following (Illustrations 2.7 & 2.8), we believe that the rate of return is approximately 2.39%. A return below this level would not generate enough tax-deferred growth to offset the additional tax owed in the second year.

Illustration 2.7

5 - Crossover Analysis
Illustration 2.8

Crossover Analysis Chart

6.) Other Considerations in Delaying the First Year’s Minimum Distribution.

  1. Social Security Benefits – Social security benefits become taxable if “provisional income” exceeds a certain amount. Provisional income is calculated by making certain adjustments from the taxpayer’s gross income. Distributions from retirement plans count for the purpose of determining if tax is owed on Social Security Benefits and are considered as part of provisional income. Therefore, the effect on the taxability of social security payments should be considered in deciding when to take the first year’s required minimum distribution.
  2. Audit Risk – The IRS is currently in the middle of a major initiative to crack down on Plan/Participants who do not distribute their required minimum distributions. If a taxpayer decides to delay the first year’s required minimum distribution, he or she will check the box that indicates to the IRS that the Plan/Participant is over the age of 70 ½ and distributions are required; however, the taxpayer will report no distribution and have no 1099-R on file. This could raise a red flag even though the taxpayer has not done anything wrong.
  3. Avoiding the Confusion – As discussed above, the two RMDs will be computed using different account balances, different divisors, and have different deadlines. The simplest option is to just take the entire first year’s Required Minimum distributions on or before December 31st in the year the Plan/Participant turns age 70 ½.

Stay tuned next week for Part IV of “Planning for Ownership and Inheritance of Pension and IRA Accounts and Benefits.”

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4 An individual shall be considered to be disabled if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration. An individual shall not be considered to be disabled unless he furnishes proof of the existence thereof in such form and manner as the Secretary may require. § 72 (t)(2)(A)(iii)

The Internal Investigation Process for Healthcare Providers
by Stephen H. Siegel, Esquire, and Gabriel Imperato, Esquire

6 - Siegel and Imperato

Stephen H. Siegel received his Juris Doctor from the Georgetown University Law Center in Washington, D.C. He is Board Certified in Health Law by the Florida Bar and has been Certified in Healthcare Compliance by the Health Care Compliance Association. With 30 years of health law experience, Mr. Siegel is currently with Broad and Cassel, where he represents a wide range of health care providers and suppliers and helps clients navigate the changes in the health care industry that are the result of the Affordable Care Act and HIPAA-HITECH. Mr. Siegel can be reached at shsiegel@broadandcassel.com.

Gabriel L. Imperato received his Juris Doctor from De Paul University College of Law. He is Board Certified in Health Law by the Florida Bar and has been Certified in Health Care Compliance by the Heath Care Compliance Association. Mr. Imperato is the Managing Partner of the Fort Lauderdale office of Broad and Cassel and serves on the Firm’s Executive Committee. His personal practice includes representing individuals and organizations accused of health care fraud and assisting health care organizations with corporate governance and compliance matters. Mr. Imperato can be reached at gimperato@broadandcassel.com.

Healthcare providers and vendors who provide items and services to providers have many reasons to carefully evaluate their legal and financial risk. One reason might involve learning that the organization is being investigated by the federal government (for example, the OIG, CMS, or FBI). Alternatively, a staff member or vendor may tell the owner about questions regarding the documentation supporting the business’ billings. The provider/vendor needs to investigate the allegations, evaluate the legal and financial risk, and take appropriate corrective action; otherwise, the risk of facing significant administrative, civil, or criminal sanctions can become very real.

Many organizations do not see a value in or have the resources to conduct an internal investigation and resist doing so. Conducting an internal investigation is sometimes viewed as an admission that something is “wrong” and there is a “problem.” The obligation to and cost of fixing the “problem,” both financial and reputational to the organization and senior management, is another concern. Frequently, it also is difficult to demonstrate how internal investigations contribute to the “bottom line.”

Every Medicare or Medicaid provider is expected to implement and maintain a compliance program that satisfies all 7 elements set out in the Federal Sentencing Guidelines. How sophisticated a practice’s compliance plan needs to be and the resources devoted to it should be a reflection of the size of the organization. Significantly, in order to satisfy at least 4 of the elements, a provider/vendor needs to be able to conduct effective internal investigations.

Although every internal investigation is different, there are common elements. Specifically, determining (i) the facts and identifying the associated risks; (ii) what happened and who was involved; and (iii) what needs to be done to rectify the situation.

In many situations, there is no realistic alternative to conducting an internal investigation. Healthcare providers and vendors cannot safely disregard allegations involving, for example, receipt of incorrect payments from Medicare or involvement in an arrangement that violates the Stark Law. There is an obligation to institute an internal investigation in order to determine the truth of the matter and take appropriate corrective action, including repaying Medicare. To make that obligation clear, a provider must repay any “known overpayment” to Medicare, usually within 60 days of discovery. Otherwise, the organization may become a defendant in a lawsuit brought by either the government or a “Whistleblower” under the Federal False Claims Act, where penalties are as much as treble damages plus $11,000 per claim, and possible exclusion from the Federal health care programs.

An effective internal investigation requires identifying the individuals (staff and/or outsiders) who have the needed expertise. Whether to bring in outside legal counsel, thereby potentially having the ability to conduct the investigation under the attorney-client communications privilege, is an important issue that should be addressed at the planning stage. The ability to assert this privilege may become critical in the event of future litigation or settlement negotiations.

After determining the facts and establishing responsibility, an internal investigation’s findings should provide the business’ senior managers the information needed to understand and weigh the risks, decide further actions, and oversee the development and implementation of appropriate corrective actions. For example, the organization may develop and implement new policies and procedures, terminate/add/re-train personnel, implement or expand staff training, engage consultants, and/or take advantage of the government’s various voluntary disclosure protocols.

Today, every healthcare provider and vendor should anticipate that it will need to conduct multiple internal investigations. If the business does not have the resources internally (and many do not), it should be prepared to look for the expertise outside. While the internal investigation process is not desirable, pleasant, or inexpensive, in the long run, a provider or vendor that finds and fixes its problems itself is going to be better off than one that ignores the problems and acts like an ostrich until forced to do so by either a Whistleblower and/or the government.

The Problem with “The Look”
by Rahma Sultan

Rahma Sultan is in her 2nd year at Stetson University College of Law where she is a candidate for the Social Justice Advocacy Certificate. She hopes to pursue a career in civil litigation upon graduation.

Abercrombie and Fitch is a popular, preppy, teen retail store. They are being sued by the Equal Employment Opportunity Commission (EEOC) on behalf of Abercrombie applicant Samantha Elauf for basing its hiring practices on religious discrimination.

In 2008, when Elauf was 17 years old, she applied for a job at an Abercrombie Kids store in Tulsa, Oklahoma. She was interviewed for the position by Heather Cooke, an assistant manager at the store. Elauf was given a high score for the interview, and Cooke recommended her to be hired, but Cooke advised her superiors (the ones that make the final hiring decisions) that Elauf wore a headscarf, which she assumed was for religious purposes. At the interview, Eluaf wore a black headscarf, which is apparently a big no-no for Abercrombie. The superiors, upon hearing this, advised Cooke not to hire Elauf.

The retailer told the EEOC that “under The Look Policy, [sales] associates must wear clothing that is consistent with the Abercrombie brand. Associates cannot wear hats or other coverings, and they cannot wear clothes that are the color black.”

Abercrombie describes its style of clothing as “All-American” and they go on to explain that America is a diverse place and no one will be discriminated against based on race, religion, ethnic origin, etc. Abercrombie has a very detailed and strict policy on how its employees should dress. The employee handbook covers everything from nail polish to jewelry to hair color to how to style clothing and more. Abercrombie strictly enforces its “Look Policy,” but there are circumstances where Abercrombie and Fitch will make an exception. For example, “head coverings, including baseball caps, are not permitted. For certain purposes, such as religion or disability, however, associates may be permitted to wear appropriate head coverings.”

This exception was put into place after Abercrombie settled a similar lawsuit with one of its former employees, Hani Khan. Khan worked at Hollister (another retail store owned by Abercrombie) in their stockroom for about four months. During a visit from the district manager, Khan was asked to remove her headscarf because it did not fit the company’s “Look Policy.” When she refused to remove the scarf, she was suspended and then ultimately terminated.

The Supreme Court has two options in this case. Employers will either be granted the discretion to silently stereotype people and base their hiring practices off of the way a person looks and dresses, or the employer can simply ask the employee or applicant why they wear a headscarf, turban, or yarmulke and whether or not they would seek a religious accommodation. The latter will be the result if Elauf and the EEOC prevail in this case.

While it may be an awkward (and perhaps unnecessary, in most instances) conversation to have with potential employees, the second option addresses the issue head-on. If Abercrombie really believes in the “All-American style,” the company should have no problem hiring anyone based on appearance.

On the other hand, opponents might argue, is it really so bad that Abercrombie has a “Look Policy”? As a clothing store, does it not have a right to require its employees to dress a certain way in order to promote its brand?

We will find out the answer in June! The Supreme Court is expected to make its ruling on this matter by the end of its term.

Richard Connolly’s World
The Executor’s $1.2 Million Mistake

Insurance advisor Richard Connolly of Ward & Connolly in Columbus, Ohio often shares with us pertinent articles found in well-known publications such as The Wall Street Journal, Barron’s, and The New York Times. Each week, we will feature some of Richard’s recommendations with a link to the articles.

This week, the article of interest is “The Executor’s $1.2 Million Mistake” by Ashlea Ebeling. It was featured on Forbes.com on March 4, 2015.

Richard’s description is as follows:

Here’s a tale of caution about being an executor, the person you appoint in a will to oversee your estate after your death.

The cast of the story includes a 73-year-old high-school-educated homemaker named executor of a nonagenarian cousin’s will; an attorney who was secretly battling brain cancer; seven distant relatives; and three charities all due a piece of a $12.5 million estate, and an Internal Revenue Service bill for $1.2 million in penalties and interest for failure to file an estate tax return and pay taxes on time levied on the estate.

In an appeal to the US Court of Appeals for the Sixth Circuit filed in February, the executor is trying to recover the $1.2 million. The question at hand: was her failure to file the return and pay the tax on time due to reasonable cause and not willful neglect?

The details might make you think twice about who you appoint as executor of your will – or whether you agree to take on the role for a friend or relative.

Please click here to read this article in its entirety.

Thoughtful Corner
Why You Should CC Yourself by Email When You Mail a Letter

Some clients request that correspondence and documentation not be emailed to them, or they do not have an email address at all. This is fine, but how will your staff find this correspondence later if they are trained to rely upon email searches to recover things? What if you need an extra copy down the line and want to see exactly what was sent to the client? How will you verify that the letter has actually gone out?

The simple solution is to have your assistant always have you listed as a carbon copy (“CC”) party to each letter. Have this “CC” go via email with your email address. Then, when the correspondence is ready to be sent, you will be emailed a copy, and everyone will be able to both verify that the correspondence was sent to the client and be able to find the correspondence later, if necessary.

If you simply save a copy of the correspondence to the client’s computer directory, you will not necessarily be able to confirm later that the correspondence was actually sent, but if you receive the correspondence via a “CC” in your email inbox, then you know the client has received the correspondence, too.

The alternative is to utilize the blind carbon copy (“BCC”) function to implement this practice. We do this for each letter – whether it is going to the client by email or not – so correspondence can always be easily tracked and substantiated.

Speaking of the “BCC” feature, however, be careful when you send an email to someone and “BCC” someone else!

If the person receiving the “BCC” hits “Reply All” and transmits a message, then the person or people who received the original email will know there was a “BCC” included with the message. For instance, say you send an email to Person A and Person B. You also include on this email a “BCC” to Person C. If Person A or Person B hits “Reply All,” their message will not be transmitted to Person C, and Person C will not show as a recipient anywhere within the transmission. However, if Person C hits “Reply All,” everyone will receive their message, and therefore, Person A and Person B will know you included a “BCC” on the original email.

This could set your relationship back to 44 BC, which is when Caesar was killed by Marcus Brutus and 59 co-conspirators adjacent to the Theatre of Pompey on the 15th day of March after it was determined that his emperor malpractice policy did not have sufficient limits of liability to cause a trial to be worthwhile. Salad dressing has not been the same since.

The Worst Humor Ever!

Illegal Pad 1

Illegal Pad 2

Upcoming Seminars and Webinars

LIVE WEBINAR:

Alan S. Gassman, Christopher J. Denicolo, and Edwin P. Marrow, III will present a 90-minute Strafford Publications, Inc. webinar entitled STRUCTURING JOINT EXEMPT STEP-UP TRUSTS: EVOLVING TOOL TO MAXIMIZE STEP-UP IN BASIS.

In an environment wherein the focus is shifting toward maximizing income tax basis step-up, counsel must be knowledgeable of all tools necessary to reach this goal. One tool that is beneficial for preserving both the inheritance tax exemption and basis step-up is the joint exempt step-up trust (JEST).

This panel will review questions such as:

  • What are the best practices for structuring a JEST?
  • What drafting techniques must be implemented to maximize basis step-up at both the first-to-die and surviving spouse’s deaths?
  • What is the IRS guidance on this tool offered through the Technical Advice Memorandum and Private Letter Rulings?
  • Under what circumstances is the JEST most appropriate?

Date: Tuesday, March 24, 2015 | 1:00 PM – 2:30 PM

Location: Online Webinar

Additional Information: For more information or to register, please click here. You may also email Alan Gassman at agassman@gassmanpa.com.

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LIVE WEBINAR:

Alan Gassman and Barry Flagg, CPF, CLU, ChFC, GFS, of Veralytic will present a 30-minute webinar on COMPARING THE FINANCIAL STRENGTH AND RISKS ASSOCIATED WITH DIFFERENT LIFE INSURANCE CARRIERS.

Date: March 31, 2015 | 5:00 PM

Location: Online webinar

Additional Information: To register, please click here or email Alan Gassman at agassman@gassmanpa.com for more information.

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LIVE WEBINAR:

Alan Gassman and Juan Antunez will be presenting a 30-minute webinar on ARBITRATING TRUSTS AND ESTATES DISPUTES.

Date: Tuesday, April 14, 2015 | 12:30 PM

Location: Online webinar

Additional Information: To register for this webinar, please click here.

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LIVE BLOOMBERG BNA WEBINAR:

Alan Gassman, Kenneth Crotty, and Christopher Denicolo will be presenting a 90-minute webinar for Bloomberg BNA Tax & Accounting on WHY FLORIDA IS DIFFERENT – IMPORTANT THINGS THAT ESTATE AND TAX PLANNING PROFESSIONALS NEED TO KNOW.

Date: Thursday, April 16, 2015 | 2:00 PM

Location: Online webinar

Additional Information: To register for this webinar, please email Alan Gassman at agassman@gassmanpa.com.

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LIVE FREE ETHICS CREDIT WEBINAR:

Alan Gassman and Dr. Srikumar Rao will present a free 50-minute webinar on HOW TO HANDLE STRESSFUL MATTERS IN AN ETHICAL WAY – PART II.

This webinar is a continuation of the How to Handle Stressful Matters in an Ethical Way webinar that was presented by Dr. Rao and Alan Gassman on February 19, 2015. This webinar will qualify for 1 hour of CLE Ethics Credit and is classified as Advanced.

See Professor Rao’s Ted Talk YouTube video, and you will understand how important this webinar might be to accelerating your law practice and enhancing your enjoyment of the practice as well.

Dr. Srikumar Rao is the creator of the original Creativity and Personal Mastery (CPM) course that has helped thousands of executives and entrepreneurs achieve quantum leaps in effectiveness. He earned a Ph.D. in Marketing from Columbia University and has taught the course at Columbia University, Northwestern University, University of California at Berkeley, and the London School of Business. He is the author of Happiness at Work and Are You Ready to Succeed? which can be reviewed by clicking here. Are You Ready to Succeed? has been published in over 60 languages!

Date: April 21, 2015 | 12:30 p.m.

Location: Online webinar

Additional Information: Please click here to register or email Alan Gassman at agassman@gassmanpa.com for more information.

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LIVE BLOOMBERG BNA WEBINAR:

Professor Jerome Hesch, Alan Gassman, Kenneth Crotty, and Christopher Denicolo will present a 90-minute webinar for Bloomberg BNA Tax & Accounting on MATHEMATHICSLAND FOR ESTATE PLANNERS. 

This webinar includes over 30 interactive spreadsheets and explanatory tools that you need to know how to use to best serve your clients!

Date: Monday, April 27, 2015 | 2:00 PM

Location: Online webinar

Additional Information: To register for this webinar, please email Alan Gassman at agassman@gassmanpa.com.

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LIVE OLDSMAR PRESENTATION: 

FICPA SUNCOAST SCRAMBLE GOLF TOURNAMENT 

Kenneth J. Crotty and Christopher J. Denicolo will speak at the FICPA Suncoast Scramble Golf Tournament on the topic of MATHEMATICS FOR ESTATE PLANNERS INCLUDING 10 ESTATE PLANNING STRATEGIES NOT TO MISS. 

Date: Friday, May 1, 2015 | CPE Presentations from 9:00 AM – 11:30 AM 

Location: East Lake Woodlands Country Club | 1055 E Lake Woodlands Parkway, Oldsmar, FL 34677 

Additional Information: For more information about registration, sponsorship, or this event, please click here or click here to download the Tournament brochure.

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LIVE NAPLES PRESENTATION: 

2nd ANNUAL AVE MARIA SCHOOL OF LAW ESTATE PLANNING CONFERENCE 

Alan Gassman, Jerry Hesch, and Richard Oshins 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 Richard Oshins on 11 Outstanding Planning Ideas, Jonathan Gopman on Asset Protection, 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.

Date:  Friday, May 1, 2015

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

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

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LIVE MIAMI PRESENTATION: 

FLORIDA BAR WEALTH PRESERVATION PROGRAM 

Denis Kleinfeld and Alan Gassman have released the schedule and topics for FUNDAMENTALS OF ASSET PROTECTION AND ADVANCED STRATEGIES. This seminar will be presented on May 7th and May 8th, 2015, and is sponsored by the Tax Section of the Florida Bar.  Attendees can select one day or the other, or to attend both days.

Day One will be for fundamentals and will be an excellent review or an introduction to the basic rules and practice aspects of creditor protection planning for both new and experienced practitioners.

Day Two will be an advanced treatment of creditor protection and associated planning, which will be of great use to both new and experienced practitioners.

Date: May 7 – 8, 2015

Location: Hyatt Regency Miami | 400 SE 2nd Avenue, Miami, FL 33131

Additional Information: To pre-register for this conference, please click here. For more information, please email Alan Gassman at agassman@gassmanpa.com.

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LIVE BLOOMBERG BNA WEBINAR:

Professor Jerome Hesch, Alan Gassman, and Barry Flagg will be presenting a 90-minute webinar for Bloomberg BNA Tax & Accounting on THE TAX ADVISORS GUIDE TO PERMANENT LIFE INSURANCE AND STRUCTURING TOOLS AND TECHNIQUES.

Date: Tuesday, May 12, 2015 | 2:00 PM

Location: Online webinar

Additional Information: To register for this webinar, please email Alan Gassman at agassman@gassmanpa.com.

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LIVE BRADENTON, FLORIDA PRESENTATION

Alan Gassman will speak at the Coastal Orthopedics Physician Education Seminar on the topics of CREDITOR PROTECTION AND THE 10 BIGGEST MISTAKES DOCTORS CAN MAKE: WHAT THEY DIDN’T TEACH YOU IN MEDICAL SCHOOL.

Coastal Orthopedics, Sports Medicine, and Pain Management is a comprehensive orthopedic practice which has been taking care of patients in Manatee and Sarasota Counties for 40 years. They have sub-specialized, fellowship-trained physicians as well as in-house diagnostics, therapy, and an outpatient surgery center to provide comprehensive, efficient orthopedic care.

Date: Tuesday, May 12, 2015 | Time TBA

Location: Coastal Orthopedics and Sports Medicine | 6015 Pointe West Boulevard, Bradenton, FL, 34209

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

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LIVE STUART, FLORIDA PRESENTATION

Alan Gassman will be the featured “headline” speaker the Martin County Estate Planning Council Annual Tax and Estate Planning Seminar. He will be doing a three-hour talk on the topics of JESTs, MATHEMATICS FOR ESTATE PLANNERS, AND THE ESTATE PLANNER’S GUIDE TO PLANNING FOR IRA AND PENSION BENEFITS – YES, YOU CAN FINALLY UNDERSTAND THESE RULES!

The tentative schedule for this one-day program is as follows:

5 - Martin County Schedule

Date: May 15, 2015 | 8:15 AM – 4:30 PM; Alan Gassman speaks from 9:00 AM to 12:00 PM

Location: Stuart Corinthian Yacht Club | 4725 SE Capstan Avenue, Stuart, FL 34997

Additional Information: For more information, please email Alan Gassman at agassman@gassmanpa.com or Lisa Clasen at lclasen@kslattorneys.com.

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LIVE FLORIDA INSTITUTE OF CPAs (FICPA) WEBINAR

Alan Gassman, Ken Crotty, and Chris Denicolo will present a webinar on A PRACTICAL TRUST PLANNING CHECKLIST AND PRACTITIONER COMPLIANCE GUIDE FOR FLORIDA CPAs for the Florida Institute of CPAs.

Review a practical planning checklist and practitioner tax compliance guide to facilitate implementing a comprehensive overview of practical planning matters and tax compliance issues in your practice. This presentation will cover over 20 common errors and missed planning opportunities that accountants need to understand and counsel their clients on.

This course is designed for practitioners who wish to assure that trust planning structures and compliance are both aligned with client objectives and that common catastrophic errors and misconceptions can be corrected.

Past attendees have indicated that this is an interesting and practical presentation that offers a great deal of practical information for both compliance and planning functions, based upon an easy to follow checklist approach.  Includes valuable materials.

Date: May 21, 2015 | 10:00 AM

Location: Online webinar

Additional Information: For more information, please contact Alan Gassman at agassman@gassmanpa.com or Thelma Givens at givenst@ficpa.org. To register, please click here.

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LIVE BLOOMBERG BNA WEBINAR:

Professor Jerome Hesch, Alan Gassman, Ed Morrow, Christopher Denicolo, and Brandon Ketron will be presenting a 90-minute webinar for Bloomberg BNA Tax & Accounting on ESTATE AND TRUST PLANNING WITH IRA AND QUALIFIED PLAN BENEFITS: AN UNDERSTANDABLE SYSTEM WITH CHARTS AND EASY-TO-UNDERSTAND MATERIALS.

This presentation will include a 300 page E-book for each attendee.

Date: Wednesday, June 10, 2015 | 2:00 PM

Location: Online webinar

Additional Information: To register for this webinar, please email Alan Gassman at agassman@gassmanpa.com.

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LIVE SARASOTA PRESENTATION:

2015 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: Friday, October 23rd and Saturday, October 24th, 2015

Location: To Be Determined

Additional Information: Please contact Alan Gassman at agassman@gassmanpa.com for more information.

Notable Seminars by Others
(These conferences are so good that we were not invited to speak!)
 

LIVE PRESENTATION:

2015 UNIVERSITY OF FLORIDA TAX INSTITUTE

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

Location: Grand Hyatt Tampa Bay | 2900 Bayport Drive, Tampa, FL 33607

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

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LIVE ORLANDO PRESENTATION:

50TH ANNUAL HECKERLING INSTITUTE ON ESTATE PLANNING

Date: January 11 – January 15, 2016

Location: Hotel information to be announced

Additional Information: Information on the 50th Annual Heckerling Institute on Estate Planning will be available on August 1, 2015. To learn about past Heckerling programs, please visit http://www.law.miami.edu/heckerling/.

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.

8 - Rates Chart

The Thursday Report – 3.12.15 – Spock-o-prudence: The Needs of the Many Outweigh the Needs of the Few – 335 S.W.3d 126 (Tex. 2010)

Posted on: March 12th, 2015

Live Long & Thursday: Readers Respond

Initial Life Insurance Applications May Need to be in Separate Increments

Advising Clients on What to Take to the Division of Motor Vehicles to Transfer Ownership of a Motor Vehicle or a Florida Registered Boat

Planning for Ownership and Inheritance of Pension and IRA Accounts and Benefits – Part II by Christopher J. Denicolo, Alan S. Gassman, and Brandon Ketron

Richard Connolly’s World – Lawsuits’ Lurid Details Draw an Online Crowd

Thoughtful Corner – What is Write About the Following?

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.

The Needs of the Many Outweigh the Needs of the Few

This now iconic line was first spoken by Leonard Nimoy as Spock in 1982’s The Wrath of Khan. Spock stated, “Logic clearly dictates that the needs of the many outweigh the needs of the few.” Captain Kirk responded with, “Or the one,” thus setting up a pivotal scene near the end of the film. To see a clip of Spock speaking the famous axiom, please click here.

This phrase has had a great cultural impact, as its philosophy continues to be widely demonstrated in film, television, and books of all genres.

The phrase even made its way into the Texas Supreme Court. See 335 S.W.3d 126 (Tex. 2010). Spock’s famous quote was cited in Robinson v. Crown Cork & Seal when the court stated:

Fortunately, we are not without guidance. Appropriately weighty principles guide our course. First, we recognize that police power draws from the credo that ‘the needs of the many outweigh the needs of the few.’ Second, while this maxim rings utilitarian and Dickensian (not to mention Vulcan), it is cabined by something contrarian and Texan: distrust of intrusive government and a belief that police power is justified only by urgency, not expediency. That is, there must exist a societal peril that makes collective action imperative.

To see more from this 2010 case, please click here.

Live Long & Thursday: Readers Respond

We had a great response to last week’s article tribute to the late Leonard Nimoy. To see the article (and our other Star Trek humor!) please click here.

Here are just a few of the messages we received:

“Thanks for the tribute to Leonard Nimoy (Mr. Spock) who was then, is now, and will always be my friend. Star Trek remains, to this day, my favorite, both the TV shows and the movies. RIP Mr. Spock; you will be missed always.”
– Velma Saccone, vsaccone@verizon.net

“I had quite a chuckle on the Nimoy article. I think I’ll Photoshop my picture over yours and save $200 – only for “fair use,” though.”
– Edwin P. Morrow, III, edwin_p_morrow@keybank.com

“Live long and prosper, Alan!”
– Jacqueline Maltry, jmaltry@tampabay.rr.com

“Alan, you are FUNNY! This [article] is great! Thanks for making my weekend!”
– Dr. Srikumar Rao, srikumarsrao@gmail.com

Who is your favorite Star Trek character? Tell us at agassman@gassmanpa.com!

Initial Life Insurance Applications May Need to be in Separate Increments

Initial life insurance applications may need to be in separate increments so policies purchased can be more flexible overall.

For example, recently, a client applied to well-known insurance carrier for two multi-million dollar universal life insurance policies. When it was time to take delivery of the policies, we requested separate policies in $5,000,000 increments instead.

This would have enabled the client to drop some of the coverage without complicated internal adjustment repercussions that would have otherwise applied.

The carrier refused to issue the policies in this manner, thus requiring the client to go through underwriting again to receive new offers from the initial carrier and/or other carriers, as opposed to having the flexibility that had always existed in the industry.

We can’t tell you which carrier this was with, but we can tell you that their name had to do with the Gettysburg Address.

As the result of this, it appears that we need to urge clients and insurance agents to put applications in for separate incremental policies.

This can be particularly important with term insurance coverage because a great many term policies cannot have the death benefit reduced and thus, are completely inflexible.

Advising Clients on What to Take to the Division of Motor Vehicles to Transfer Ownership of a Motor Vehicle or Florida Registered Boat

So often, we advise clients (or should advise clients) to transfer ownership of a car or boat, but they are not sure how they are to go about doing so. The following list was prepared by Stetson Law Student Rahma Sultan, given the lack of such instructions or information on the DMV website or Wikipedia.

Instructions for Transferring Ownership of a Florida Motor Vehicle

To transfer ownership of a vehicle currently titled in Florida, you must bring the following to any DMV office:

  1. The Application for Certificate of Title With/Without Registration properly completed by both the buyer and the seller
  2. A Notice of Sale or Bill of Sale is suggested and may be required.
  3. Purchaser’s name, selling price, and odometer reading (if applicable) must be entered.
  4. Proof of current Florida Property Damage and Personal Injury Protection insurance
  5. The name of your Florida licensed insurance company and policy number
  6. Each applicant must be present to sign a new Application for Title, or a properly completed Motor Vehicle Power of Attorney may be furnished.
  7. Personal identification, such as a driver’s license, is required for notarization of signatures.
  8. If the applicant does not hold a Florida Driver License or Identification Card, a photocopy of their out-of-state license or United States passport is required.
  9. A copy of your current auto registration when transferring a license plate is required.
  10. Any alterations on the Title may require additional documentation.

Planning for Ownership and Inheritance of Pension and IRA Accounts and Benefits – Part II
by Christopher J. Denicolo, Alan S. Gassman, and Brandon Ketron

4 - Chris

The rules applicable to retirement plan and IRA distributions, contributions, rollovers, and otherwise can be difficult to understand and complex to implement.  The applicable Internal Revenue Code Sections and Treasury Regulations are somewhat complicated and convoluted, and use many technical “terms of art.”  This makes dealing with qualified plans cumbersome and difficult for laypersons and planners who are not experienced in this area.

We have attempted to simplify the applicable rules into a digestible format with concise explanations of the applicable rules.  We have also prepared charts and explanations to illustrate the key concepts and mechanics of important definitions, rules, and planning strategies.

The Thursday Report proudly will provide a multi-part series to exhibit our materials and charts, and we hope that you enjoy this series as much as we did in putting it together.

To see Chapter 1 of this presentation, please click here.

IRA SERIES CHAPTER 2

PLAYERS:

1. IRA/Pension Plan/Retirement Plan Accounts

For the purposes of this handbook, we use these terms interchangeably, and will most commonly refer to them as “IRA/Plan.”

Many pension plans and IRA custodians limit beneficiary designation rights, sometimes necessitating rollover to an IRA that will permit the desired planning configuration, whether before or after the death of the Plan Participant.

The actual technical names given to the various plans that come under these rules are as follows:

  1. IRA
  2. SIMPLE IRAs
  3. Simplified Employee Pension (SEP)
  4. Employer sponsored retirement plans, such as 401(k) plans, defined benefit plans, defined contribution plans, and profit sharing plans
  5. 403(b) plans
  6. 457(b) plans
  7. Roth 401(k) plans
  8. Roth IRAs; however, Roth IRAs are not subject to the Required Minimum Distribution rules until the owner of the Roth IRA (or the spouse of the deceased owner who rolled over into his or her own Roth IRA) dies.
  9. Canadian Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Plans (RRIFs) will now be treated as US IRA equivalents to a certain extent as per Rev. Proc. 2014-55.

Almost any of the above plans can be transferred to another of the above plans during the life of a Plan Participant.  An IRS chart (Illustration 2.0) released on November 17, 2014 can be found on the following page, as featured in Leimberg Information Services Tax Tips November 24, 2014.

Illustration 2.0

Illustration 1

Also see Appendix D for a recent article by the authors “Bobrow Raises Brows” discussing the limitations on rollovers after Bobrow v. Commissioner which held that a taxpayer is only allowed to roll over one IRA in a calendar year.

2. Person. An individual.

3. Non-Person Beneficiary. An estate, charity, company, trust or other “non-individual” named as the direct beneficiary of an IRA/Plan, or a non-individual that is the beneficiary of a trust to which an IRA/plan is made payable.

4. Original Plan Participant, or just “Plan Participant”. The person who is the IRA owner or qualified retirement plan participant, while alive, or after death.

5. Beneficiary. The person, trust, or other entity named as the direct beneficiary of an IRA/Plan or the person who will inherit directly upon the death of the Plan Participant.

6. Non-Spouse Beneficiary. Any Beneficiary other than the Plan Participant’s spouse.

7. Plan Participant’s Spouse/Surviving Spouse. The person married to the Plan Participant is his or her spouse.  The person married to the Plan Participant on his or her death is the Surviving Spouse.  We are using these terms interchangeably.

Note – Federal pension law gives the surviving spouse an absolute right to be considered the sole beneficiary of certain qualified retirement plans of his or her spouse, unless this right has been legally waived.[1]

8. Bobrow Problem. The January 28, 2014 Tax Court Decision of Bobrow v. Commissioner shocked a great many advisors by finding that a taxpayer who followed IRS Publication 590 and a proposed regulation when making two “tax-free roll overs” during a single year was penalized when the IRS guidance he followed was not permitted under Internal Revenue Code Section 408(d)(3)(B), which only permits one roll over per calendar year.

This case is discussed in Appendix D and casts at least a light gray cloud on much of the conventional wisdom in this area.

9. Designated Beneficiary. An individual beneficiary of a trust receiving IRA/Plan distributions whose life expectancy will be used for purposes of determining the Required Minimum Distributions that will apply.

Note – As discussed below, for a Conduit Trust (which must pay all IRA/Plan withdrawals to the Designated Beneficiary) older individuals and other entities that are beneficiaries of the Trust can be ignored.  For an Accumulation Trust, the Designated Beneficiary must be the oldest named possible individual beneficiary of the trust to which the IRA/Plan is payable, and there can be no non-person beneficiaries under the Accumulation Trust as of September 30 of the calendar year after the death of the Plan Participant.

10. Administrator. The IRA sponsor or qualified retirement plan administrator, or comparable person or entity.  For a pension or 401(k) plan this will typically be someone who works for the sponsoring company who administers the plan.  For an IRA this will typically be the company that sponsors it, such as Schwab, Wells Fargo, Vanguard, and at banks and credit unions.

11. IRA Custodian. A company or bank that sponsors an IRA account such as Merrill Lynch, Schwab, Vanguard, or Wells Fargo.

Note – Many sponsors will not permit an inherited IRA to be distributed intact to a trust that receives the IRA on the death of the Plan Participant, so custodians/brokers/banks may have to be changed after the Plan Participant dies.  These sponsors will sometimes only be willing to have inherited IRAs, or portions thereof, payable to a trust only after the receipt of a court order and/or an IRS private letter ruling.  The most notable of these is Schwab, under both conventional and institutional accounts/managed accounts.2

12. IRA Trustee. A bank with trust company powers, or a nonbank trust company that has been approved by the IRS under Treasury Regulation 1.408-2(e) to serve as a trustee/custodian under the rules that permit trusteed IRA arrangements.  These rules permit the same customized trust agreement that is entered into with the trustee to also control disposition and payment rights, to avoid having to program these into the Plan Participant’s will and/or living trust system, but the same rules with respect to required minimum distributions (e.g., the requirements with respect to the determination of the Designated Beneficiary of the Trust), will still apply.

13. Individual Retirement Trust “IRT”. The Individual Retirement Trust arrangement is permitted under Internal Revenue Code §408(a) and known as an “Individual Retirement Trust or “IRT.”  An Individual Retirement Trust is very similar to a typical IRA custodianship arrangement because a trust company holds the trust assets to comply with the IRA administration rules.  But, unlike a typical IRA custodianship arrangement where the beneficiary may be an individual, Conduit Trust, or Accumulation Trust, an Individual Retirement Trust can in effect become a Conduit Trust or an Accumulation Trust without the need of extraneous trust documents or provisions under a Last Will and Testament.

In other words, instead of having a traditional IRA that would be payable to trust on death, and then having the Trustee receive minimum distributions each year, that in turn can be accumulated, paid out to the beneficiary, or paid to third parties on behalf of the beneficiary, an Individual Retirement Trust avoids the need for an intermediary Accumulation Trust or Conduit Trust.  See Edwin Morrow’s article “Trusteed IRAs: An Elegant Estate Planning Option,” Trusts and Estates, Sept 2009 for an excellent discussion on Individual Retirement Trusts in Appendix C.

14. Qualified Annuity. An annuity contract issued by an insurance carrier using IRA/Plan monies which qualifies as an IRA/Plan, and therefore follows the IRA/Plan rules set forth herein as opposed to the “non-qualified annuity” rules under Internal Revenue Code Section 72.

15. Applicable Payment Mode. The method of payment of Required Minimum Distributions, as described in Chapter Four – Payout Methods, which will apply after the death of the Plan Participant, and will usually continue after the death of the Designated Beneficiary of the Plan Participant’s IRA/Plan.

16. Applicable Life Expectancy Table. The life expectancy table published by the IRS, which applies based on the Applicable Payment Mode of Required Minimum Distributions after the Plan Participant attains his or her Required Beginning Date, or after the death of the Plan Participant.

17. Applicable Required Minimum Distribution Divisor. The divisor for the year in question under the Applicable Life Expectancy Table which is used to determine the amount of the Required Minimum Distribution for a given year. The value of the IRA/Plan on December 31 of the prior calendar year is divided by the divisor in order to determine the amount of the Required Minimum Distribution for the given year.

18. Recalculation of Life Expectancy. The method of calculation whereby the person’s life expectancy is determined each year from the Applicable Life Expectancy Table, which takes into account that every year a person’s life expectancy is reduced by less than one year.  This rule will apply during the lifetime of the Plan Participant, and during the lifetime of a Surviving Spouse beneficiary who is able to follow the rollover rules.  The Applicable Payment Mode is determined by looking at the age of the Plan Participant or the Plan Participant’s Spouse (as applicable) on the Applicable Life Expectancy Table for each year in which a Required Minimum Distribution must be made.  The life expectancy of the Plan Participant or the Plan Participant’s Spouse is therefore “recalculated” each year.

For example, if an unmarried Plan Participant turns age 72 during Year 1, then she would look at the row under the Uniform Lifetime Table that corresponds to age 72 in order to determine the Applicable Required Minimum Distribution Divisor (25.6).  In the next year, when the Plan Participant turns age 73, she will look at the row under the Uniform Lifetime Table that corresponds to age 73 to determine the Applicable Required Minimum Distribution Divisor (24.7).

If a Person other than the Plan Participant’s Spouse is a beneficiary of the IRA/Plan, or if the Plan Participant’s Spouse is a beneficiary of the IRA/Plan but is not the sole or designated beneficiary of the IRA/Plan, then the Recalculation of Life Expectancy principle will not apply.  Instead, the Applicable Required Minimum Distribution Divisor for the first calendar year after the year of the Plan Participant’s death is determined by looking at the row under the Single Life Table that corresponds to the oldest age of the Designated Beneficiary in such calendar year, and the Applicable Required Minimum Distribution Divisor is determined for all subsequent years by subtracting one from the Applicable Required Minimum Distribution Divisor of the preceding calendar year.

For example, if the Designated Beneficiary is not the Plan Participant’s Spouse and is age 72 in the calendar year after the year of the Plan Participant’s death, then the Applicable Required Minimum Distribution Divisor for such year is 15.5. For the next calendar year when the Designated Beneficiary is age 73 the Applicable Required Minimum Distribution Divisor is 14.5, and for each subsequent year, the Applicable Required Minimum Distribution Divisor for the preceding year is subtracted by one, and will therefore be 13.5 years, rather than re-determining life expectancy each year by “recalculation.”

The following chart illustrates the effect of each of the four calculation methods, and the significant difference between the results that apply under each method where the beneficiary of an IRA is age 70 in the first year of withdrawal (as original owner, or beneficiary where original owner died before reaching age 70 ½).

Illustration 2.1
Chart to demonstrate minimum distribution rule calculations for an individual who begins receiving distributions at age 70 (or designated beneficiary) where distributions begin at age 70; also displayed in percentages based off of the applicable divisor % = 1 ÷ divisor)

Illustration 2

Illustration 3

19. See Through Trusts, Accumulation Trusts, and Conduit Trusts. As described below in much more detail, certain trusts can receive IRA/Plan benefits after the death of the Plan Participant without triggering the “5th Year After Death Payment Requirement” by having a Designated Beneficiary whose life expectancy can be used for required minimum distribution rule purposes.  An Accumulation Trust can retain distributions from the IRA/Plan whereby a Conduit Trust must pay all distributions received directly from the IRA/Plan to a Designated Beneficiary upon receipt by the trustee.3  The term “See Through Trust” refers to both Accumulation Trusts and Conduit Trusts.

20. Fifth Year After Death Method. The Required Minimum Distribution rule that requires benefits to be paid out by the last day of the 5th calendar year following the death of the Plan Participant who has not reached age 70 ½, which will apply if no more favorable method of Required Minimum Distributions apply.  If the Plan Participant dies after age 70 1/2 , then the five year rule cannot be used, and instead the life expectancy of the deceased Plan Participant will continue to be used under the “at least as rapidly” method.  For example, if the Plan Participant dies in 2015 before he has attained the age of 70 ½, and no other more favorable method of payment applies, then all assets must be distributed from the IRA/Plan by December 31, 2020, and likewise, no distributions must be made whatsoever until December 31, 2020, notwithstanding, whether an alternative Applicable Payment Mode based upon life expectancy of a beneficiary would apply.  This may be more advantageous for older Designated Beneficiaries.  For example, if the life expectancy of the Designated Beneficiary is only 4.6 years because he or she is age 93, then the choices for distributions would be as follows in Illustration 2.2:

NOTE: This method can only be used if the deceased Plan Participant dies before April 1 of the calendar year following the year of turning 70 ½.

Illustration 2.2
Life Expectancy Method vs. Five Year Alternative

Illustration 4

21. Trust Protector. An individual and/or entity given the power to make changes to trust agreement provisions.

22. Toggle. To, in effect, pull a switch that causes changes in a trust document to facilitate tax or other planning, which will often be in the form of having trust language that permits fiduciaries to change what would have been an Accumulation Trust into a Conduit Trust before the Determination Date (September 30 following calendar year of death of the Plan Participant).          See Chapter Three Section IV.

23. Natalie Choate’s Definitions. Natalie Choate’s book, “Life and Death Planning for Retirement Benefits”, is an indispensable guide and the standard of practice for anyone giving advice in this area.  You can order the book by going to ataxplan.com.  We strongly recommend that you also take a look at what is available from Natalie’s website.  It may be useful to have the following abbreviations from Natalie’s book, and an extra copy of this abbreviation sheet is provided in Appendix D to this outline, so that you can tear it out and insert it into Natalie’s book as a book marker to help with your pilgrimage through her holy scriptures.  We thank Natalie Choate for permission to make mention hereof, or at least for not saying no when I sent her an email asking for permission.  (She now apparently spams us!)  She is without a doubt the most dynamic and constructive force that has occurred in any one area of estate and tax planning law for our generation of planners.

Acronyms and Definitions

Definitions

Stay tuned for the next installment of this series which will feature crucial definitions and rules along with more helpful illustrations.

Christopher Denicolo can be reached at christopher@gassmanpa.com.

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[1] This spousal waiver requirement can be satisfied by an appropriate document signed by the Plan Participant’s spouse before or after the Plan Participant’s death, and will apply to plans covered by ERISA. The waiver requirement will probably not be satisfied by the execution of a prenuptial agreement or an agreement to execute a waiver, because these types of agreements will not satisfy the applicable consent requirements. However nuptial agreements may provide that to the extent the nonparticipating spouse fails to release his or her claims to retirement plan benefits, the heirs of the participant spouse may have a cause of action.  For further discussion see Appendix C Exercise Caution When Drafting Nuptial Agreements With Retirement Benefits
2  The authors have seen emails exchanged with Schwab personnel to verify this, and thank financial planner, John M. Prizer, Jr., CFP, CFA, of Maitland, Florida, for sharing his concerns with respect to this.
3 Treasury Regulation 1.401(a)(9)-5, Q&A-7

Richard Connolly’s World
Lawsuits’ Lurid Details Draw an Online Crowd

Insurance advisor Richard Connolly of Ward & Connolly in Columbus, Ohio often shares with us pertinent articles found in well-known publications such as The Wall Street Journal, Barron’s, and The New York Times. Each week, we will feature some of Richard’s recommendations with a link to the articles.

This week, the article of interest is “Lawsuits’ Lurid Details Draw an Online Crowd” by Jodi Kantor. The article was featured in The New York Times on February 23, 2015.

Richard’s description is as follows:

Intimate, often painful allegations in lawsuits – intended for the scrutiny of judges and juries only – are increasingly drawing in mass online audiences far from the courthouses where they are filed.

Though all sorts of legal records circulate online – the document website Scribd has more than six million – those involving gender or claims of sexual misconduct tend to resonate more widely than complex corporate litigation or low-level disputes. Lawsuit papers are generally public, but before the advent of electronic filing, most of them remained stuffed inside folders and filing cabinets at courthouses.

Now some plaintiffs’ lawyers, calculating that they will be protected from defamation suits when making charges in civil complaints, distribute the first filings online as a way of controlling the narrative. But more often, electronic case databases, blogs, and social media propel a case into the spotlight even when the parties are not public figures.

Please click here to read this article in its entirety.

Richard also attached a related Op-Ed from The Wall Street Journal by Alan M. Dershowitz. This piece was published on January 14, 2015. Dershowitz is a retired Harvard Law Professor who recounts his experience with false accusations against him in a lawsuit in which he is not a party and has no standing to dispute.

Professor Dershowitz opens his piece with the following:

Imagine the following situation: You’re a 76-year-old man, happily married for nearly 30 years, with three children and two grandchildren. You’ve recently retired after 50 years of teaching at Harvard Law School. You have an unblemished personal record, though your legal and political views are controversial. You wake up on the day before New Year’s Eve to learn that two lawyers have filed a legal document that, in passing, asserts that 15 years ago, you had an inappropriate relationship with an underage female.

The accusation doesn’t mention the alleged victim’s name – she’s referred to only as Jane Doe #3 – and the court document includes no affidavit by her. But her name doesn’t really matter because you have never been with anyone other than your wife during the relevant time period. The accusations against you are totally false, and you can prove it.

The article discusses in detail why Professor Dershowitz has no legal recourse against his accusers and, when he denies the charges in public, he is sued for defamation by the lawyers who filed the lawsuit.

To read this article in its entirety, please click here.

Thoughtful Corner
What is Write About the Following?

Here are some grammatical questions that we run into in the day-to-day operations of our law firm:

Question #1:

Do you capitalize the word “section” when you mention a law, such as Internal Revenue Code “Section” 1236(a)(1)?

Answer #1:

According to the Bluebook Citations to Internal Revenue Code, if you are citing to the current edition of the Code, use the abbreviation “I.R.C.” and provide only the section number, using the regular Bluebook rules for numbering.

Examples:
I.R.C. § 61.
I.R.C. §§ 55-59.
I.R.C. § 368(a), (c)

You may use a section symbol followed by the appropriate section number as a short citation if the section has been cited at least 5 footnotes above.

Example:
Original Citation: I.R.C. § 897(f).
Short Citation: § 897 (e).

If you are citing to a previous edition of the Code, indicate to the reader that you are doing so by including the year in parentheses after the regular citation.

Example:
I.R.C. § 341 (1954).

Question #2:

When you indent quoted language, do you still need to use quotation marks, like in the following in-line quotation from Mark Twain: “The Thursday Report is the best literary thing to come out since Oliver Twist!”

Answer #2:

According to Purdue University’s Online Writing Lab, also known as OWL, when you indent quoted language, it is known as “block quotations.” These type of quotations are to be used when the quoted language exceeds more than four typed lines. It should be indented one inch from the main margin, and quotation marks are not necessary.

Question #3:

Can you use “and/or” without incurring the wrath of the grammar police?

Answer #3:

“And/or” means that two or more persons or entities indicated may together or separately take the action or responsibility so provided.

Unfortunately, the grammar police say no to this one. According to the English Language & Usage Stack Exchange, a question and answer site for etymologists, linguists, and “serious English language enthusiasts,” the conjunction “and/or” is advised against in formal writing.

It can, however, be a defined term in a contract such as the following:

“Pursuant to the provision above, John and/or Mary will be permitted to enter into the property for the purpose of printing out and reading a Thursday Report.”

The language above outlines that John and Mary are permitted to enter the property independently of the other, or they may do so together.

Question #4:

What the heck does “i.e.” mean?

Answer #4:

“i.e.” is an abbreviation taken from the Latin phrase id est, which means “that is” or “in other words.” When written, there should be a period after each letter, and it should always be followed by a comma.

A common mistake made by many people is the desire to use “i.e.” and “e.g.” interchangeably. This is a big no-no! The Latin phrase exempli gratia means “for the sake of example” and is the phrase “e.g.” is derived from. It is often confused to mean “for example.” This abbreviation should also be written with a period after each letter. Although it is usually followed by a comma, the use of the succeeding comma depends on the context in which the term is being used.

For more information, please click here.

Question #5:

What if you want to enumerate some items after using a semicolon, but the preceding phrase is a question? Can you put a question mark with a semicolon?

Answer #5:

Based on several forums, but no absolute or definite source, the consensus is that there is no need to use both a question mark and a semicolon; the question mark alone with suffice.

Example:
Correct: Which of the following three items do you prefer to do?
Incorrect: Which of the following three items do you prefer to do?:

We appreciate your comments, suggestions, and concerns about the above article. To share your thoughts, please email Alan Gassman at agassman@gassmanpa.com.

Humor! (or Lack Thereof!)

Pi Day Header

Don’t forget to eat pie on Saturday! It’s the perfect pi day: 3/14/15 – won’t happen again for a long time!

Thanks to Carl W. Jenne for bringing this to our attention!

Now, please enjoy the following from Thursday Report comedian Ron Ross:

YOUR NEW TRASH PICKUP SCHEDULE:

Monday – Lawn Trimmings
Tuesday – Trash
Wednesday – Recyclables
Thursday – Words and phrases we no longer use, such as “spiffy” and “rad”
Friday – Ugg Boots

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The Cat Who Knew Too Much

The prosecution had a case against Bentley Faberge
For bribery, tax evasion, and fraud
The only witness against him was his cat
Which turned against him when it was de-clawed.

Bentley sent hit men after the cat,
Planning a hanging or immolation.
But the cops led them astray with a trail of cream,
Heading away from the cat’s undisclosed location.

On the day of the trial, the cat was sworn in.
Bentley watched nervously, eyes open wide.
His hands shook as he poured from the pitcher.
Bentley took a sip of water and died.

He had been poisoned;
The investigation revealed this unsettling epilogue.
For his will had been changed, leaving all to the cat;
The only witness to the revision was the dog.

Upcoming Seminars and Webinars 

LIVE WEBINAR:

Alan Gassman and Barry Flagg, CPF, CLU, ChFC, GFS, of Veralytic will present a 22.5-minute webinar on SPLIT-DOLLAR IN 15 MINUTES.

Date: March 17, 2015 | 5:00 PM

Location: Online webinar

Additional Information: To register, please click here or email Alan Gassman at agassman@gassmanpa.com for more information.

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LIVE WEBINAR:

Alan S. Gassman, Christopher J. Denicolo, and Edwin P. Marrow, III will present a 90-minute Strafford Publications, Inc. webinar entitled STRUCTURING JOINT EXEMPT STEP-UP TRUSTS: EVOLVING TOOL TO MAXIMIZE STEP-UP IN BASIS.

In an environment wherein the focus is shifting toward maximizing income tax basis step-up, counsel must be knowledgeable of all tools necessary to reach this goal. One tool that is beneficial for preserving both the inheritance tax exemption and basis step-up is the joint exempt step-up trust (JEST).

This panel will review questions such as:

  • What are the best practices for structuring a JEST?
  • What drafting techniques must be implemented to maximize basis step-up at both the first-to-die and surviving spouse’s deaths?
  • What is the IRS guidance on this tool offered through the Technical Advice Memorandum and Private Letter Rulings?
  • Under what circumstances is the JEST most appropriate?

Date: Tuesday, March 24, 2015 | 1:00 PM – 2:30 PM

Location: Online Webinar

Additional Information: For more information or to register, please click here. You may also email Alan Gassman at agassman@gassmanpa.com.

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LIVE WEBINAR:

Alan Gassman and Barry Flagg, CPF, CLU, ChFC, GFS, of Veralytic will present a 30-minute webinar on COMPARING THE FINANCIAL STRENGTH AND RISKS ASSOCIATED WITH DIFFERENT LIFE INSURANCE CARRIERS.

Date: March 31, 2015 | 5:00 PM

Location: Online webinar

Additional Information: To register, please click here or email Alan Gassman at agassman@gassmanpa.com for more information.

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LIVE WEBINAR:

Alan Gassman and Juan Antunez will be presenting a 30-minute webinar on ARBITRATING TRUSTS AND ESTATES DISPUTES.

Date: Tuesday, April 14, 2015 | 12:30 PM

Location: Online webinar

Additional Information: To register for this webinar, please click here.

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LIVE BLOOMBERG BNA WEBINAR:

Alan Gassman, Kenneth Crotty, and Christopher Denicolo will be presenting a 90-minute webinar for Bloomberg BNA Tax & Accounting on WHY FLORIDA IS DIFFERENT – IMPORTANT THINGS THAT ESTATE AND TAX PLANNING PROFESSIONALS NEED TO KNOW.

Date: Thursday, April 16, 2015 | 2:00 PM

Location: Online webinar

Additional Information: To register for this webinar, please email Alan Gassman at agassman@gassmanpa.com.

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LIVE BLOOMBERG BNA WEBINAR:

Professor Jerome Hesch, Alan Gassman, Kenneth Crotty, and Christopher Denicolo will present a 90-minute webinar for Bloomberg BNA Tax & Accounting on MATHEMATHICSLAND FOR ESTATE PLANNERS – OVER 30 INTERACTIVE SPREADSHEETS AND EXPLANATORY TOOLS THAT YOU NEED TO KNOW HOW TO USE FOR YOUR CLIENTS.

Date: Monday, April 27, 2015 | 2:00 PM

Location: Online webinar

Additional Information: To register for this webinar, please email Alan Gassman at agassman@gassmanpa.com.

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LIVE OLDSMAR PRESENTATION:

FICPA SUNCOAST SCRAMBLE GOLF TOURNAMENT

Kenneth J. Crotty and Christopher J. Denicolo will speak at the FICPA Suncoast Scramble Golf Tournament on the topic of MATHEMATICS FOR ESTATE PLANNERS INCLUDING 10 ESTATE PLANNING STRATEGIES NOT TO MISS. 

Date: Friday, May 1, 2015 | CPE Presentations from 9:00 AM – 11:30 AM 

Location: East Lake Woodlands Country Club | 1055 E Lake Woodlands Parkway, Oldsmar, FL 34677 

Additional Information: For more information about registration, sponsorship, or this event, please click here or click here to download the Tournament brochure.

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LIVE NAPLES PRESENTATION:

2nd ANNUAL AVE MARIA SCHOOL OF LAW ESTATE PLANNING CONFERENCE

Alan Gassman, Jerry Hesch, and Richard Oshins 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 Richard Oshins on 11 Outstanding Planning Ideas, Jonathan Gopman on Asset Protection, 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.

Date:  Friday, May 1, 2015

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

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

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LIVE MIAMI PRESENTATION:

FLORIDA BAR WEALTH PRESERVATION PROGRAM 

Denis Kleinfeld and Alan Gassman have released the schedule and topics for FUNDAMENTALS OF ASSET PROTECTION AND ADVANCED STRATEGIES. This seminar will be presented on May 7th and May 8th, 2015, and is sponsored by the Tax Section of the Florida Bar.  Attendees can select one day or the other, or to attend both days.

Day One will be for fundamentals and will be an excellent review or an introduction to the basic rules and practice aspects of creditor protection planning for both new and experienced practitioners.

Day Two will be an advanced treatment of creditor protection and associated planning, which will be of great use to both new and experienced practitioners.

Date: May 7 – 8, 2015

Location: Hyatt Regency Miami | 400 SE 2nd Avenue, Miami, FL 33131

Additional Information: To pre-register for this conference, please click here. For more information, please email Alan Gassman at agassman@gassmanpa.com.

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LIVE BLOOMBERG BNA WEBINAR:

Professor Jerome Hesch, Alan Gassman, and Barry Flagg will be presenting a 90-minute webinar for Bloomberg BNA Tax & Accounting on THE TAX ADVISORS GUIDE TO PERMANENT LIFE INSURANCE AND STRUCTURING TOOLS AND TECHNIQUES.

Date: Tuesday, May 12, 2015 | 2:00 PM

Location: Online webinar

Additional Information: To register for this webinar, please email Alan Gassman at agassman@gassmanpa.com.

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LIVE BRADENTON, FLORIDA PRESENTATION

Alan Gassman will speak at the Coastal Orthopedics Physician Education Seminar on the topics of CREDITOR PROTECTION AND THE 10 BIGGEST MISTAKES DOCTORS CAN MAKE: WHAT THEY DIDN’T TEACH YOU IN MEDICAL SCHOOL.

Coastal Orthopedics, Sports Medicine, and Pain Management is a comprehensive orthopedic practice which has been taking care of patients in Manatee and Sarasota Counties for 40 years. They have sub-specialized, fellowship-trained physicians as well as in-house diagnostics, therapy, and an outpatient surgery center to provide comprehensive, efficient orthopedic care.

Date: Tuesday, May 12, 2015 | Time TBA

Location: Coastal Orthopedics and Sports Medicine | 6015 Pointe West Boulevard, Bradenton, FL, 34209

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

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LIVE STUART, FLORIDA PRESENTATION

Alan Gassman will be the featured “headline” speaker the Martin County Estate Planning Council Annual Tax and Estate Planning Seminar. He will be doing a three-hour talk on the topics of JESTs, MATHEMATICS FOR ESTATE PLANNERS, AND THE ESTATE PLANNER’S GUIDE TO PLANNING FOR IRA AND PENSION BENEFITS – YES, YOU CAN FINALLY UNDERSTAND THESE RULES!

The tentative schedule for this one-day program is as follows:

5 - Martin County Schedule

Date: May 15, 2015 | 8:15 AM – 4:30 PM; Alan Gassman speaks from 9:00 AM to 12:00 PM

Location: Stuart Corinthian Yacht Club | 4725 SE Capstan Avenue, Stuart, FL 34997

Additional Information: For more information, please email Alan Gassman at agassman@gassmanpa.com or Lisa Clasen at lclasen@kslattorneys.com.

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LIVE FLORIDA INSTITUTE OF CPAs (FICPA) WEBINAR

Alan Gassman, Ken Crotty, and Chris Denicolo will present a webinar on A PRACTICAL TRUST PLANNING CHECKLIST AND PRACTITIONER COMPLIANCE GUIDE FOR FLORIDA CPAs for the Florida Institute of CPAs.

Review a practical planning checklist and practitioner tax compliance guide to facilitate implementing a comprehensive overview of practical planning matters and tax compliance issues in your practice. This presentation will cover over 20 common errors and missed planning opportunities that accountants need to understand and counsel their clients on.

This course is designed for practitioners who wish to assure that trust planning structures and compliance are both aligned with client objectives and that common catastrophic errors and misconceptions can be corrected.

Past attendees have indicated that this is an interesting and practical presentation that offers a great deal of practical information for both compliance and planning functions, based upon an easy to follow checklist approach.  Includes valuable materials.

Date: May 21, 2015 | 10:00 AM

Location: Online webinar

Additional Information: For more information, please contact Alan Gassman at agassman@gassmanpa.com or Thelma Givens at givenst@ficpa.org. To register, please click here.

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LIVE BLOOMBERG BNA WEBINAR:

Professor Jerome Hesch, Alan Gassman, Ed Morrow, Christopher Denicolo, and Brandon Ketron will be presenting a 90-minute webinar for Bloomberg BNA Tax & Accounting on ESTATE AND TRUST PLANNING WITH IRA AND QUALIFIED PLAN BENEFITS: AN UNDERSTANDABLE SYSTEM WITH CHARTS AND EASY-TO-UNDERSTAND MATERIALS.

This presentation will include a 300 page E-book for each attendee.

Date: Wednesday, June 10, 2015 | 2:00 PM

Location: Online webinar

Additional Information: To register for this webinar, please email Alan Gassman at agassman@gassmanpa.com.

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LIVE SARASOTA PRESENTATION:

2015 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: Friday, October 23rd and Saturday, October 24th, 2015

Location: To Be Determined

Additional Information: Please contact Alan Gassman at agassman@gassmanpa.com for more information.

Notable Seminars by Others
(These conferences are so good that we were not invited to speak!)
 

LIVE PRESENTATION:

2015 UNIVERSITY OF FLORIDA TAX INSTITUTE

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

Location: Grand Hyatt Tampa Bay | 2900 Bayport Drive, Tampa, FL 33607

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

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LIVE ORLANDO PRESENTATION:

50TH ANNUAL HECKERLING INSTITUTE ON ESTATE PLANNING

Date: January 11 – January 15, 2016

Location: Hotel information to be announced

Additional Information: Information on the 50th Annual Heckerling Institute on Estate Planning will be available on August 1, 2015. To learn about past Heckerling programs, please visit http://www.law.miami.edu/heckerling/.

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.

8 - Rates Chart

The Thursday Report – 3.5.15 – Live Long and Thursday & More Warped Humor

Posted on: March 5th, 2015

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* This issue’s date is displayed in Stardate format, in honor of Leonard Nimoy and the Star Trek franchise. To convert a Gregorian calendar date into a Stardate, please click here for a Stardate calculator.

Live Long and Prosper: Leonard Nimoy

Secretary of State Filings Now Slower than a Damaged Klingon Freighter on Impulse Battery Drive

Planning for Ownership and Inheritance of Pension and IRA Accounts and Benefits – A Thursday Report Series Designed to Decipher the Complexities Associated with the Taxation of Retirement Plans, Part I by Christopher J. Denicolo, Alan S. Gassman, and Brandon Ketron

Well-Respected Multi-National Trust Company Opens Office in South Dakota – Very Nice Informational Book Available at No Charge!

Richard Connolly’s World Double Header

Thoughtful Corner – Business Etiquette in Interacting with Clients and Colleagues

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.

Live Long and Prosper: Leonard Nimoy
by Stephanie Herndon and Alan Gassman

Those of us who grew up watching television in the late 1960s while entranced by the space program, the promise of a more ideal society, and the desire to travel in time and see new worlds and civilizations could’ve had no better vehicle, at least on Thursday nights, than Star Trek, and Mr. Spock was a big part of that.

Star Trek’s predecessor was the western show Wagon Train, where a somewhat emotional leader and a logical first mate riding shotgun on explorations to unknown lands made for a very successful formula. Star Trek was almost entitled “Wagon Train to the Stars” and was marketed as a western in outer space before its premiere in 1966.

Star Trek was creator and producer Gene Roddenberry’s science fiction twist for a Wagon Train equivalent, and, with science fiction, Roddenberry could go further in exploring a character so logical that he had to be an alien from another planet. This character was named Spock. He was half human, with shielded and locked up emotions, and half Vulcan, an extraterrestrial humanoid species from the planet with the same name, known for their ability to live logically and with tremendous mental and mathematical power. Spock exemplified these Vulcan characteristics, not to mention the ability to read minds and to pinch people’s shoulders and make them pass out.

Roddenberry intended each episode of Star Trek to tell two stories each week: one of suspenseful adventure and one of morality, like the stories contained in Jonathan Swift’s Gulliver’s Travels. Spock was in constant combat with his emotions, revealing an extremely ironic sense of humor. The character’s journey on the show illustrated an evolution from being extremely starchy and impersonal in the first few episodes to becoming likeable and eventually one of the most beloved, fan-favorite characters of all time.

Spock was portrayed by Leonard Nimoy, an accomplished and talented actor who became an international phenomena through Spock and Star Trek. Nimoy never had the chance to play the role of Colonel Sanders, but he continued to return to Spock and the Star Trek universe throughout his lengthy career.

Gene Roddenberry died in 1991. The following year, a portion of his ashes traveled to space on the space shuttle Columbia before returning to Earth after the crew completed Mission STS-52. Five years after that, a spacecraft owned and operated by Celestis, a company known for performing space burials, was launched into Earth’s orbit aboard a Pegasus rocket. The Celestis spacecraft contained a portion of Roddenberry’s ashes, as well as the ashes of Timothy Leary and 22 other people. This spacecraft disintegrated into the atmosphere in 2002. Roddenberry, Nimoy, and the entire Star Trek team have been credited with fueling public interest in space and space exploration programs.

The computer on the Starship Enterprise was more fun than Siri and proved to be 45 years ahead of its time. Quite likely, Apple computers, the monumental success of Steve Jobs, and Siri would not have happened if a generation of then-teenagers were not helped to see the incredible possibilities that Roddenberry and his team made not only evident but also seemingly probable.

So much of the science fiction portrayed in Star Trek has come true, and so much more will come true as technology continues to grow.

If you have never seen Star Trek, some of our favorite episodes include “The Trouble with Tribbles,” (Episode 44), written by David Gerrold and directed by Joseph Pevney and “The City on the Edge of Forever,” (Episode 28) written by Harlan Ellison and directed by Joseph Pevney. “The City on the Edge of Forever” also features guest star Joan Collins as Edith Keeler, who (spoiler alert!) makes out with Captain Kirk.

Leonard Nimoy and William Shatner (who played Captain Kirk on Star Trek) were very close friends. They, along with Gene Roddenberry, were highly interactive with each other and fans of the franchise.

2 - Alan and Actors

Alan Gassman had a very deep discussion with Leonard Nimoy and William Shatner in Las Vegas in 2009 during the 1.7 seconds that he was given to have his picture taken with Nimoy and Shatner, each of whom asked him for his autograph and invited him to their after-the-signing party to discuss intergalactic trust law and the use of time travel to capture the time value of money and Kentucky Fried Chicken franchises in the Romulan Neutral Zone.

While waiting for approximately 45 minutes for his turn to be photographed with them ($200 per person at approximately 1 person a minute for 45 minutes – not a bad deal for them!) Alan noticed a close friendship between the two and that they appeared to have a lot of things they wanted to talk to each other about.

In any event, we can always salute the late 1960s, Gene Roddenberry, Leonard Nimoy, William Shatner, and others for giving us something else to watch besides Lost in Space, which aired the night before Star Trek each week and makes Star Trek look like the most advanced television show ever created by comparison. (CBS was originally offered Star Trek but passed it up in favor of Lost in Space. Star Trek then landed on NBC instead.)

Kudos to Roddenberry, NBC, and Paramount for a show and storylines that indirectly objected to the Vietnam War and encouraged interracial relationships and helping others. Star Trek showed that people from diverse backgrounds can work together to achieve phenomenal results and that the engineer (Mr. Spock) should always tell the Captain that things take a lot longer than they really take so that he can look like a hero.

Hats off to Leonard Nimoy for being an important part of the team that gave us a fantastic vision, great humor, and most importantly, great motivation for doing the right thing, respecting human rights, taking risks when appropriate, using intuition, and bucking the system in the right way and the right time.

Live long and prosper Leonard Nimoy! We will see you in the next nebula.

See our Humor section below for some of Leonard Nimoy’s best quotes as Mr. Spock. Don’t miss it!

Secretary of State Filings Now Slower than a Damaged Klingon Freighter on Impulse Battery Drive

Due to recent system updates, mass annual report filings, or both, we have noticed a delay in the filing of LLC Articles of Organization when filed through the Florida Department of State online filing system. While we have come to expect that LLC Articles of Organization submitted through the online filing system would result in a confirmation of filing within 24 hours, we recently have encountered a delay of 2-3 business days for some of our LLC filings.

Please also be aware that recent system upgrades seem to have added an extra “last step” screen that can be slightly confusing and may result in your corporate filing not being processed at all. After entering information on the LLC Articles of Organization and hitting “Continue,” you are taken to the Filing Information screen and asked to review the filing for accuracy. If the information entered is correct, you will click on “Continue” and are then taken to a screen that says, “Florida Limited Liability Company Online Filing Information,” where you will be provided with a Document Tracking Number and the charge amount for your filing.

Since this screen provides you with a Document Tracking Number, it is easy to assume that your filing is complete and nothing else is needed. Please note that from this screen, you will have to again click “Continue” to move to the payment screen (and receive a second Tracking Number.)

Our staff has erroneously assumed filing was complete after the first Document Tracking Number was provided. When the LLC was not filed in a timely manner, we contacted the State by phone to provide our Tracking Number and check the status. We were told they had no information regarding our document in their system. Apparently, no information is saved on the Department of State system until payment is processed. The initial Tracking Number you receive will not allow you to check the status of a filing unless you proceeded to the next screen, submitted payment, and received the second Tracking Number.

In situations where time if of the essence, we have found fax-filing with the Department of State (which requires that you have a Department of State account) is often the fastest way to generate a timely filing.

Planning for Ownership and Inheritance of Pension and IRA Accounts and Benefits – A Thursday Report Series Designed to Decipher the Complexities Associated with the Taxation of Retirement Plans
by Christopher J. Denicolo, Alan S. Gassman, and Brandon Ketron

4 - Chris

The rules applicable to retirement plan and IRA distributions, contributions, rollovers, and otherwise can be difficult to understand and complex to implement.  The applicable Internal Revenue Code Sections and Treasury Regulations are somewhat complicated and convoluted, and use many technical “terms of art.”  This makes dealing with qualified plans cumbersome and difficult for laypersons and planners who are not experienced in this area.

We have attempted to simplify the applicable rules into a digestible format with concise explanations of the applicable rules.  We have also prepared charts and explanations to illustrate the key concepts and mechanics of important definitions, rules, and planning strategies.

The Thursday Report proudly will provide a multi-part series to exhibit our materials and charts, and we hope that you enjoy this series as much as we did in putting it together.

IRA SERIES CHAPTER 1 

There are many stages of IRA and pension distribution planning, and many different types of interactive knowledge needed. Nevertheless, a thumbnail sketch of the most important components of knowledge with reference to establishing and funding IRAs and making the best use of planning considerations follows:  

I. Accumulation Stage

  1. IRA Contribution Rules for 2014 tax year
    1. Basic Contribution limit is the lesser of
      1. $5,500 (but $6,500 if over the age of 50)
      2. Taxable compensation for the year
      3. Reduced by the amount of Roth contributions, as described in C.2 below
    2. Other Limitations if covered by a qualified plan at work
      1. Contribution limit begins to be phased out at $96,000 of adjusted gross income, and is completely phased out at $116,000 of adjusted gross income for married filing jointly taxpayers.
      2. Phase out begins at $60,000 of adjusted gross income, and is completely phased out at $70,000 of adjusted gross income for single or head of household taxpayers.
    3. In order to deduct contributions for the 2014 tax year, contributions must be paid prior to the due date for the 2014 tax return (April 15th, 2015). Even if you have not yet made a contribution after year end, a contribution made prior to the filing of the tax return due date is eligible to be treated as made in the prior year.
  2. Coverdell Education Savings Account (Education IRA) Contribution Rules – Grandmas and Grandpas should pay special attention to this. This allows tax-free growth and tax-free withdrawals to pay for permitted educational expenses.
    1. Contributions are limited to $2,000 per year per child. (Note –The limitation is on the total amount the child can receive per year, not on the amount contributed by each person. Therefore if multiple parties contribute to the Educational IRA the total contributions in the aggregate cannot exceed $2,000.)
    2. Balance must be disbursed on qualified education expenses prior to the beneficiary obtaining the age of 30 to avoid penalties and taxes.
    3. Only eligible if AGI of contributor is less than $110,000 ($220,000 if filing joint) (Planning Note – It is possible for the child to contribute to his or her own Educational IRA. If the contributor’s AGI is greater than the limitation, a gift of $2,000 can be made to the child, and the child contributes the money to the Educational IRA, assuming the Child’s AGI is below the limitation amount.
    4. Organizations such as corporations and trusts can also contribute, and there is no requirement for the organization’s income to be below a certain level.
    5. No contribution can be made after beneficiary reaches age 18, unless the beneficiary is a special needs beneficiary.
  3. Roth IRA Contribution Rules
    1. Basic Contribution limit is the lesser of
      1. $5,500 (but $6,500 if over the age of 50).
      2. Taxable compensation for the year
      3. Reduced by contributions to traditional IRAs – See A.1.c above
    2. Other Limitations
      1. Contribution limit begins to be phased out at:
        1. $188,000 for married filing jointly
        2. 127,000 for single, head of household
      2. If contributing to both Roth and Traditional IRA, contributions in the aggregate cannot exceed the $5,500 limitation ($6,500 if over age 50)
  4. Converting Traditional IRA into Roth IRA
    1. You can withdraw all or part of the assets from a traditional IRA and reinvest them WITHIN 60 DAYS into a Roth IRA.
    2. If you started taking substantially equal periodic payments from a traditional IRA, you can convert the amounts in the traditional IRA to a Roth IRA and then continue the periodic payments.
    3. You CANNOT convert amounts distributed in accordance with Required Minimum Distributions Rules into a Roth IRA
    4. Do not include in gross income any part of a distribution from a traditional IRA that is a return of basis, but the rest is subject to income tax upon conversion and does not always make good sense. See Leimberg Information Services Newsletter Archive #549 by Alan S. Gassman, Kenneth Crotty and Christopher Denicolo, entitled One Good Reason Not To Do A Roth IRA Conversion.
  5. Eligible Rollovers
    1. See IRS Chart in Chapter Two.
  6. How Many Rollovers Each Year?
    1. Internal Revenue Code Section 408(d)(3)(B) provides that there can be only one tax free rollover by an individual within a twelve month period.
    2. 2014 Tax Court Memorandum decision of Bobrow v. Commissioner confirmed this treatment by severely penalizing a taxpayer that attempted to roll over multiple IRAs in one calendar year.
  7. Creditor Protection of Owner
    1. Fla. Stat. Ann. § 222.21 provides that retirement plans are exempt from creditor claims as discussed in Chapter Three Section IV. Therefore, the U.S. Supreme Court decision of Clark v. Rameker [1], which found that the federal bankruptcy law will not protect IRAs for those residing in states that do not have exemption statutes for IRAs, will not apply to Floridians.  Archive #251 by Christopher Denicolo, Alan S. Gassman and Brandon Ketron entitled Clark V. Rameker:  Supreme Court Rules that Inherited IRAs Are Not Creditor-Exempt in Bankruptcy.
    2. The majority of other states treat retirement plans as creditor exempt but see 50 State plus D.C. Creditor Exemption Statutes for IRAs, Non‐ERISA 403(b) and Roth Variants provided by Ed Morrow in Appendix C that outlines the Creditor Protection Statutes for each State.
    3. The authors believe that a distribution received by an individual beneficiary of an inherited IRA/Plan or a rollover IRA/Plan will be considered to be exempt from creditor claims from normal general creditors under Florida Statute Section 222.21(2)(c), and may therefore be placed into an exempt asset (such as a variable annuity contract, a cash value life insurance policy, or a tenancy by the entireties account) without being considered a fraudulent transfer (the transfer of funds from one exempt class of asset directly to another exempt class of asset will generally not be considered to be subject to being set aside under the Florida Fraudulent Transfers Act), although a Florida Bar article authored by David Pratt and Lindsay A. Roshkind “Roth IRA Conversions as an Asset Protection Strategy: Does it Always Work?” Feb. 2011 Vol. 85, No.2 indicates that there is a possibility that distributions would not be considered to be exempt from creditor claims.
  8. QDRO Rules – transferring IRA and/or pension balances tax-free upon divorce.
    1. A Qualified Domestic Relations Order is a domestic relations order which creates or recognizes the existence of an alternate payee’s right to, or assigns to an alternate payee the right to, receive all or a portion of the benefits payable with respect to a participant under a qualified plan (i.e. employer sponsored).
    2. QDROs must contain the following information:
      1. The name and last known mailing address of the participant and each alternate payee.
      2. The name of each plan to which the order applies.
      3. The dollar amount or percentage (or the method of determining the amount or percentage) of the benefit to be paid to the alternate payee.
      4. The number of payments or time period to which the order applies.
  9. Recent Pronouncement on Canadian Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs)
    1. Taxpayers who hold these funds will now automatically qualify for tax deferral similar to US IRA and 401(k) funds.
    2. Previously Canadian taxpayers were required to file a Form 8891 in order to qualify for tax deferral. The IRS has now eliminated Form 8891, and taxpayers are no longer required to file this form for any year, past or present.
  10. Grandfather Rule – TEFRA 242(b) elections
    1. In 1982 TEFRA made significant changes to the Required Minimum Distribution Rules.
    2. If elected prior to January 1, 1984 242(b) allows Plan Participants to use the more liberal rules prior to TEFRA
    3. Significant Rules allowed pre TEFRA
      1. Required Minimum Distributions can be postponed past age 70 1/2 until retirement, regardless of whether the Plan Participant owns more than 5% of the company.
      2. Death Benefits are not subject to the 5 Year Rule, or the At Least as Rapidly Rule.

II. Access Before Age 59 ½

  1. Generally any amount withdrawn prior to the age 59 ½ is subject to an additional 10% excise tax
  2. Exceptions
    1. 60 Day Rule – Any money can be withdrawn temporarily, as long as the money is placed back into the account within 60 days of the withdrawal.
    2. The taxpayer has unreimbursed medical expenses that are more than 10% (or 7.5% if you or your spouse was born before January 2, 1949) of your adjusted gross income.
    3. The distributions are not more than the cost of taxpayer’s medical insurance due to a period of unemployment.
    4. Taxpayer is totally and permanently disabled.
    5. Taxpayer is the beneficiary of a deceased IRA owner. The surviving spouse who is named as a beneficiary of a deceased participant’s IRA/plan who has not reached age 59 ½, may withdraw funds from the plan without being subject to the 10% excise tax unless or until the IRA/plan has been rolled over to the surviving spouse’s own IRA.  This would be a good reason to delay making a complete rollover before being sure that distributions from the IRA/plan for a spouse under age 59 ½ will not be needed.  A disadvantage of the above is that the  surviving spouse will not be able to change the disposition of the assets remaining under the deceased participant’s IRA/plan if the spouse dies without having completed a rollover into his or her own IRA/plan.
    6. Taxpayer is receiving distributions in the form of an annuity.
    7. The distributions are not more than the taxpayer’s qualified higher education expenses. [2]
    8. The taxpayer uses the distributions to buy, build, or rebuild a first home up to $10,000 for any of the following:
      1. The taxpayer
      2. The taxpayer’s spouse
      3. The taxpayer’s child or the taxpayer’s spouse’s child
      4. The taxpayer’s grandchild or the taxpayer’s spouse’s grandchild
      5. The taxpayer’s or the taxpayer’s spouse’s parent or other ancestor
    9. Roth IRA conversions
    10. Qualified Domestic Relations Orders (QDROs) – A transfer from one spouse to another in the event of a divorce. (Why are these not called Qualified Domestic No Longer Have A Relationship Orders?)

III.  Prohibited Transactions, Trusteed IRA’s, and LLCs Owned Under IRA

  1. Generally an IRA is limited to traditional investment categories
  2. Prohibited Investments Include:
    1. Life Insurance
    2. Certain types of derivative positions
    3. Antiques/Collectibles
    4. Most coins, but exceptions include
      1. One, one-half, one-quarter or one-tenth ounce U.S. gold coins (American Gold Eagle coins are the only gold coins specifically approved for IRAs. Other gold coins, to be eligible as IRA investments, must be at least .995 fine (99.5% pure);
      2. one ounce silver coins minted by the Treasury Department;
      3. any coin issued under the laws of any state;
      4. a platinum coin described in 31 USC § 5112(k) ; and
      5. gold, silver, platinum or palladium bullion (other than bullion that is made into a coin) of a certain fineness that is in the physical possession of a trustee that meets the requirements for IRA trustees under Code Sec. 408(a).
    5. IRA trustees are permitted to impose additional restrictions on investments. For example, while the IRS does not prohibit an IRA from investing funds in real estate, due to the administrative burdens many IRA trustees do not permit IRA owners to invest in real estate.
  3. However IRAs can invest in alternative arrangements if properly structured. Strict rules still apply, and the IRA can risk losing its tax-deferred status if these rules are violated.
  4. A prohibited transaction occurs when the IRA engages in a transaction with a disqualified person, which includes
    1. the IRA owner
    2. the IRA owner’s spouse
    3. the IRA owner’s ancestor
    4. the IRA owner’s lineal descendant
    5. any spouse of the IRA owner’s lineal descendant(s)
    6. investment advisors
    7. the IRA custodian or trustee
    8. certain entities in which the IRA owner owns at least 50% interest, such as a corporation, partnership or trust
  5. A prohibited transaction occurs when:
    1. sale or exchange, or leasing, of any property occurs between the IRA and a disqualified person;
    2. there is lending of money or other extension of credit between the IRA and a disqualified person;
    3. there is a furnishing of goods, services or facilities between the IRA and a disqualified person;
    4. the assets are transferred to – or used by or for the benefit of – a disqualified person;
    5. any action by a disqualified person who is a fiduciary whereby the fiduciary deals with the income or assets of the IRA in his or her own interests or for his or her own account; or
    6. receipt of any consideration by Plan Participant from any disqualified person who is a fiduciary dealing with the plan in connection with a transaction involving the income or assets of the plan
  6. For potential sample Operating Agreement language see Appendix B

IV. Access After 59 ½

  1. Distributions are taxable at ordinary income from a Traditional IRA unless:
    1. Rolled over within 60 days (only one per year per taxpayer under the Bobrow v. Commissioner case, discussed at Appendix D)
    2. Considered as a return of a nondeductible contribution
  2. The Coffee and Cream Situation (Partly Taxable Distributions)
    1. Basis (investment in the contract) is received for any non- deductible contributions or rolled over after tax amounts made into an IRA.
    2. Until your entire basis has been distributed, each distribution is partly non-taxable and partly taxable.
    3. The taxable and non-taxable portion is determined by the following formula:

5 - IRA Article Formula

V. Before 70 ½

  1. No distributions are required prior to reaching age 70 ½
  2. No difference between original owner, surviving spouse who received by roll over as direct beneficiary, or divorced spouse under QDRO
  3. Inherited IRAs are different, whether in trust or outright, minimum distribution rules will apply.

VI. After 70 ½ (actually after April 1 of the calendar year after the taxpayer reaches the age of 70 ½)

  1. Exception for Participant in Qualified Pension Plan who owns less than 5% of the Employer
  2. The Required Minimum Distribution rules apply during the lifetime of the taxpayer and/or to a surviving spouse who has rolled over an inherited IRA as a direct beneficiary thereof.
  3. $100,000 per year Charity Exception (Note – only extended through the 2014 tax year, but past history would indicate that it is likely to be extended to subsequent years) 

VII.  After Death of Participant

  1. Surviving Spouse Beneficiary
    1. Sole Beneficiary
      1. Spouse has option to roll over IRA and treat it as his or her own
      2. Can elect to be treated as beneficiary, and surviving spouse’s life expectancy will be recalculated annually
    2. Surviving spouse as sole beneficiary via estate/will or revocable trust
    3. One of multiple beneficiaries
      1. Separate Accounts can be established
      2. Spouse can elect to roll over his or her portion and treat as his or her own IRA.
    4. Surviving Spouse as beneficiary of Conduit Trust
    5. Surviving Spouse as beneficiary of Accumulation Trust.
    6. The best practice may be to have an Accumulation Trust that can be toggled into a Conduit Trust
    7. Income distribution requirements must be met for trust to qualify for the marital deduction.
  2. Individual Beneficiaries
    1. Separate Account/Trust Rules
    2. Life Expectancies are not recalculated annually
  3. Charitable Beneficiaries
    1. Beware of the traps associated with having a charity named as a beneficiary of a trust that is named as beneficiary of the IRA/Plan
    2. Generally, as long as the charitable distribution is made directly from the IRA, it is not taxable
  4. Dispositions to Trust – Here is Where the Rest of the World Lies!

VIII.  And Much More…

Stay tuned for the next installment of this series, Chapter Two, which will feature a rundown of the players involved in planning for ownership and inheritance of pension and IRA accounts and benefits, an acronym chart, and several illustrations to demonstrate different methods for calculating IRA distributions and enhance your learning experience.

Christopher Denicolo can be reached at christopher@gassmanpa.com.

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[1] 134 S. Ct. 2242 (2014)
[2] Qualified Education Expenses include: tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution.  In addition if the student is at least a half-time student, room and board are qualified education expenses.

Well-Respected Multi-National Trust Company Opens Office in South Dakota – Very Nice Informational Book Available at No Charge!

Earlier this week, Trident Trust Company, Inc. announced the establishment of Trident Trust Company (South Dakota) Inc., a public trust company licensed and regulated by the South Dakota Division of Banking.

This new office will allow professional advisors and their clients to employ South Dakota’s highly-rated trust laws in a variety of planning situations including:

  • Acting as trustee of South Dakota revocable and irrevocable trusts established by US or foreign settlors (grantors)
  • Acting as trustee of Qualified Domestic Trusts (QDOT)
  • Serving as successor trustee of foreign trusts re-domiciled into South Dakota
  • Acting as trustee of South Dakota Dynasty Trusts
  • Establishing and administering Private Trust Companies

To see a summary of the South Dakota trust legislation and the benefits Trident Trust can offer, please click here to download the free Quick Guide to South Dakota Trusts, provided courtesy of Trident Trust Company (South Dakota) Inc.

Richard Connolly’s World
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Insurance advisor Richard Connolly of Ward & Connolly in Columbus, Ohio often shares with us pertinent articles found in well-known publications such as The Wall Street Journal, Barron’s, and The New York Times. Each week, we will feature some of Richard’s recommendations with a link to the articles.

This week, the first article of interest is “Trusts That Can Trim State Income Tax” by Liz Moyer. It was featured in The Wall Street Journal on January 23, 2015.

Richard’s description is as follows:

These trusts may have funny-sounding names, but for some high-net-worth individuals, they are serious tax-minimization tools.

Known as incomplete nongrantor trusts, they are often formed in Delaware, Nevada, and sometimes Wyoming, hence their acronyms DING, NING, and WING. Those states are chosen because they don’t tax the income of trusts established there, even by people who live elsewhere, or have favorable tax rules.

In a typical scenario, an individual would put into the trust an asset or assets that already have gone up a lot in value or that he or she hopes will appreciate sharply, such as shares in a private company that plans to go public. The aim is usually to sell the securities, at which point federal tax would be due – but not state tax. Alternatively, the trust could be used to hold assets that throw off a lot of income each year, sheltering that income from state tax.

While Ohio tax law makes use of this strategy difficult, this article could trigger inquiries from clients.

Please click here to read this article in its entirety.

The second article of interest this week is “Treasure Island: Puerto Rico Bids to Become New Age Tax Haven” by Lauren Gensler. The article was featured in the March 2, 2015 issue of Forbes magazine and was published on their website on February 11, 2015.

Richard’s description is as follows:

As the US Treasury Department continues to tighten its noose around offshore accounts, a new tax haven has sprung up under its nose in the Caribbean. Welcome to Puerto Rico, island of tropical breezes, and (for new arrivals only!) a 0% tax rate on certain dividends, interest, and capital gains.

Yes, this is legal. While the US asserts a sweeping right to tax citizens’ income wherever they live and wherever it’s earned, Section 933 of the tax code exempts residents of Puerto Rico from paying US income tax on their Puerto Rico sourced income. Instead, the Commonwealth of Puerto Rico has the exclusive right to tax local income as it sees fit.

Sadly, moving to Puerto Rico won’t buy you a total dispensation from the Internal Revenue Service. Uncle Sam still wants his cut on dividends you receive from US public companies, profits from mainland private businesses, pensions, and deferred compensation earned in the states, and Social Security benefits.

Make no mistake: to benefit from Act 22, you must become a bona fide Puerto Rico resident, which means being on the island at least 183 days a year. You can’t just rent a post office box in San Juan and call it “home” while keeping a $5 million house and your ties back in the States. Your business, family, bank and brokerage accounts, driver’s license and yacht should all move with you to the island.

To see this article in its entirety, please click here.

To see our write-up on this topic, co-authored with Puerto Rico attorney Erick Negrón, please click here.

Thoughtful Corner
Business Etiquette – Interacting with Clients & Colleagues

The following are a few tips concerning business etiquette when interacting with clients and colleagues.

1.) Learn How to Write

As a lawyer, you will be doing a lot of writing, including contracts, documents, letters, presentations, and more. This writing will be read by judges, clients, juries, and other attorneys.

Ask someone for an honest appraisal of your writing. Judges more than anyone go on and on about how poor many new lawyers are at drafting language for agreements, orders, and otherwise.

Clients have no way of knowing whether you are a good lawyer or not, but they will know if you cannot write worth a darn, and they will really know if what you write is not understandable to them. If the language in your correspondence to a client is not clear to the client, it probably won’t be comprehensible to a judge or a jury, either.

Ask someone else to read your letters and documents before you send them unless or until you truly have the hang of this invaluable skill.

Spend extra money as needed for a good proofreader or a good secretary. Require your employees to use spell check and grammar check, if available.

It is never too late to learn how to write, even if you are already a couple years out of law school, but it is too late to attempt to practice law before learning how to write. Documents and letters should not sound like an 8th grader’s text messages.

2.) Be on Time

Make every effort to arrive on time for appointments, whether that appointment takes place inside or outside of your office. Make every effort to be available for scheduled calls, if someone is scheduled to call you, or to be on the line on time if you are calling someone or calling in to a conference call.

Answer emails in a timely manner. Keep to previously agreed upon schedules, or make every effort to give ample notice if something in your schedule needs to change.

Clients and other business associates appreciate knowing that their time is respected and valued. Being on time is courteous and professional and will earn you the reverence of clients and colleagues.

3.) Do What You Say You Will Do

When you promise to deliver a work product and/or respond to a question in a specific time frame, make sure you honor that promise.

If you are unable to provide a response or a result in the time frame that you promised it, acknowledge this and apologize to the person who was waiting on you.

Doing what you say you will do demonstrates integrity. Your clients and associates will feel comfortable giving you work and/or referrals when they know that you will deliver what is promised.

This concludes our series on Business Etiquette. We will appreciate any questions, comments, or suggestions offered for the above article. It has been excerpted from a PowerPoint that we will present to third year law students and alumni (and you, too, if you would like to attend!) at the Ave Maria School of Law on a date to be determined. The presentation will be on professional acceleration. For more information, you can email Alan Gassman at agassman@gassmanpa.com or Janine Gunyan at janine@gassmanpa.com.

Humor! (or Lack Thereof!)

6 - Einstein

Leonard Nimoy’s Best Star Trek Quotes

The following are some of Leonard Nimoy and Mr. Spock’s best quotes:

“May I say that I have not thoroughly enjoyed serving with humans? I find their illogic and foolish emotions a constant irritant.” – Mr. Spock

“Computers make excellent and efficient servants, but I have no wish to serve under them.” – Mr. Spock

“My folks came to the US as immigrants, aliens, and became citizens. I was born in Boston, a citizen, went to Hollywood, and became an alien.” – Leonard Nimoy

“We must acknowledge once and for all that the purpose of a diplomacy is to prolong a crisis.” – Mr. Spock

“Spock is definitely one of my best friends. When I put on those ears, it’s not like just another day. When I become Spock, that day becomes something special.” – Leonard Nimoy

Upcoming Seminars and Webinars

LIVE ORLANDO PRESENTATION:

THE ADVANCED HEALTH LAW TOPICS AND CERTIFICATION REVIEW 2015

Alan Gassman will speak at The Advanced Health Law Topics and Certification Review 2015 on HEALTHCARE TAX ISSUES.

To see the complete schedule for this program, please click here.

Date: March 6 – 7, 2015 ǀ Alan Gassman will speak on March 6 at 11:00 AM

Location: Hyatt Regency Orlando International Airport | 9300 Jeff Fuqua Blvd., Orlando, FL 32827

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

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LIVE WEBINAR:

Alan Gassman and Barry Flagg, CPF, CLU, ChFC, GFS, of Veralytic will present a 22.5-minute webinar on SPLIT-DOLLAR IN 15 MINUTES.

Date: March 17, 2015 | 5:00 p.m.

Location: Online webinar

Additional Information: To register, please click here or email Alan Gassman at agassman@gassmanpa.com for more information.

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LIVE WEBINAR:

Alan S. Gassman, Christopher J. Denicolo, and Edwin P. Marrow, III will present a 90-minute Strafford Publications, Inc. webinar entitled STRUCTURING JOINT EXEMPT STEP-UP TRUSTS: EVOLVING TOOL TO MAXIMIZE STEP-UP IN BASIS.

In an environment wherein the focus is shifting toward maximizing income tax basis step-up, counsel must be knowledgeable of all tools necessary to reach this goal. One tool that is beneficial for preserving both the inheritance tax exemption and basis step-up is the joint exempt step-up trust (JEST).

This panel will review questions such as:

  • What are the best practices for structuring a JEST?
  • What drafting techniques must be implemented to maximize basis step-up at both the first-to-die and surviving spouse’s deaths?
  • What is the IRS guidance on this tool offered through the Technical Advice Memorandum and Private Letter Rulings?
  • Under what circumstances is the JEST most appropriate?

Date: Tuesday, March 24, 2015 | 1:00 PM – 2:30 PM

Location: Online Webinar

Additional Information: For more information or to register, please click here. You may also email Alan Gassman at agassman@gassmanpa.com.

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LIVE WEBINAR:

Alan Gassman and Barry Flagg, CPF, CLU, ChFC, GFS, of Veralytic will present a 30-minute webinar on COMPARING THE FINANCIAL STRENGTH AND RISKS ASSOCIATED WITH DIFFERENT LIFE INSURANCE CARRIERS.

Date: March 31, 2015 | 5:00 p.m.

Location: Online webinar

Additional Information: To register, please click here or email Alan Gassman at agassman@gassmanpa.com for more information.

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LIVE OLDSMAR PRESENTATION:

FICPA SUNCOAST SCRAMBLE GOLF TOURNAMENT

Kenneth J. Crotty and Christopher J. Denicolo will speak at the FICPA Suncoast Scramble Golf Tournament on the topic of MATHEMATICS FOR ESTATE PLANNERS INCLUDING 10 ESTATE PLANNING STRATEGIES NOT TO MISS. 

Date: Friday, May 1, 2015 | CPE Presentations from 9:00 AM – 11:30 AM 

Location: East Lake Woodlands Country Club | 1055 E Lake Woodlands Parkway, Oldsmar, FL 34677 

Additional Information: For more information about registration, sponsorship, or this event, please click here or click here to download the Tournament brochure.

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LIVE NAPLES PRESENTATION:

2nd ANNUAL AVE MARIA SCHOOL OF LAW ESTATE PLANNING CONFERENCE

Alan Gassman, Jerry Hesch, and Richard Oshins 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 Richard Oshins on 11 Outstanding Planning Ideas, Jonathan Gopman on Asset Protection, 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.

Date:  Friday, May 1, 2015

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

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

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LIVE MIAMI PRESENTATION:

FLORIDA BAR WEALTH PRESERVATION PROGRAM 

Denis Kleinfeld and Alan Gassman have released the schedule and topics for FUNDAMENTALS OF ASSET PROTECTION AND ADVANCED STRATEGIES. This seminar will be presented on May 7th and May 8th, 2015, and is sponsored by the Tax Section of the Florida Bar.  Attendees can select one day or the other, or to attend both days.

Day One will be for fundamentals and will be an excellent review or an introduction to the basic rules and practice aspects of creditor protection planning for both new and experienced practitioners.

Day Two will be an advanced treatment of creditor protection and associated planning, which will be of great use to both new and experienced practitioners.

Date: May 7 – 8, 2015

Location: Hyatt Regency Miami | 400 SE 2nd Avenue, Miami, FL 33131

Additional Information: To pre-register for this conference, please click here. For more information, please email Alan Gassman at agassman@gassmanpa.com.

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LIVE BRADENTON, FLORIDA PRESENTATION

Alan Gassman will speak at the Manatee County Physician Education Seminar on the topics of CREDITOR PROTECTION AND THE 10 BIGGEST MISTAKES DOCTORS CAN MAKE: WHAT THEY DIDN’T TEACH YOU IN MEDICAL SCHOOL.

Date: Tuesday, May 12, 2015 | Time TBA

Location: Surgery Center at Pointe West | 6015 Point,e West Boulevard, Bradenton, FL, 34209

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

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LIVE STUART, FLORIDA PRESENTATION

Alan Gassman will be the featured “headline” speaker the Martin County Estate Planning Council Annual Tax and Estate Planning Seminar. He will be doing a three-hour talk on the topics of JESTs, MATHEMATICS FOR ESTATE PLANNERS, AND THE ESTATE PLANNER’S GUIDE TO PLANNING FOR IRA AND PENSION BENEFITS – YES, YOU CAN FINALLY UNDERSTAND THESE RULES!

The tentative schedule for this one-day program is as follows:

5 - Martin County Schedule

Date: May 15, 2015 | 8:15 AM – 4:30 PM; Alan Gassman speaks from 9:00 AM to 12:00 PM

Location: Stuart Corinthian Yacht Club | 4725 SE Capstan Avenue, Stuart, FL 34997

Additional Information: For more information, please email Alan Gassman at agassman@gassmanpa.com or Lisa Clasen at lclasen@kslattorneys.com.

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LIVE FLORIDA INSTITUTE OF CPAs (FICPA) WEBINAR

Alan Gassman, Ken Crotty, and Chris Denicolo will present a webinar on A PRACTICAL TRUST PLANNING CHECKLIST AND PRACTITIONER COMPLIANCE GUIDE FOR FLORIDA CPAs for the Florida Institute of CPAs.

Review a practical planning checklist and practitioner tax compliance guide to facilitate implementing a comprehensive overview of practical planning matters and tax compliance issues in your practice. This presentation will cover over 20 common errors and missed planning opportunities that accountants need to understand and counsel their clients on.

This course is designed for practitioners who wish to assure that trust planning structures and compliance are both aligned with client objectives and that common catastrophic errors and misconceptions can be corrected.

Past attendees have indicated that this is an interesting and practical presentation that offers a great deal of practical information for both compliance and planning functions, based upon an easy to follow checklist approach.  Includes valuable materials.

Date: May 21, 2015 | 10:00 a.m.

Location: Online webinar

Additional Information: For more information, please contact Alan Gassman at agassman@gassmanpa.com or Thelma Givens at givenst@ficpa.org. To register, please click here.

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LIVE SARASOTA PRESENTATION:

2015 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: Friday, October 23rd and Saturday, October 24th, 2015

Location: To Be Determined

Additional Information: Please contact Alan Gassman at agassman@gassmanpa.com for more information.

Notable Seminars by Others
(These conferences are so good that we were not invited to speak!)
 

LIVE PRESENTATION:

2015 UNIVERSITY OF FLORIDA TAX INSTITUTE

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

Location: Grand Hyatt Tampa Bay | 2900 Bayport Drive, Tampa, FL 33607

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

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LIVE ORLANDO PRESENTATION:

50TH ANNUAL HECKERLING INSTITUTE ON ESTATE PLANNING

Date: January 11 – January 15, 2016

Location: Hotel information to be announced

Additional Information: Information on the 50th Annual Heckerling Institute on Estate Planning will be available on August 1, 2015. To learn about past Heckerling programs, please visit http://www.law.miami.edu/heckerling/.

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.

8 - Rates Chart

The Thursday Report – 2.26.15 – 529 vs. Variable Annuities, Puerto Rico Tax Haven, and Medical Billing 501

Posted on: February 26th, 2015

Are 529 Plans Better Investments than Variable Annuities, Even if Not Spent on Education?

Moving Business Operations and Personal Service Activities to Puerto Rico

Medical Billing 501: Quick Tips to Enhance an Already Efficient Billing Operation – Payer Underpayments by Colin Shalin

Seminar Spotlight – The Florida Bar Annual Wealth Protection Conference – Now 2 Days!

Richard Connolly’s World – Finding the ‘Right’ Way to Dispose of Ill-Gotten Gains

A Note From One of Our Readers – PDFs vs Word Documents as Attachments

Thoughtful Corner – Comparing Documents

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.

Are 529 Plans Better Investments than Variable Annuities, Even if Not Spent on Education?
by Alan S. Gassman and Brandon Ketron

Are 529 Plans better investments than variable annuities, even if not spent on education? If so, why ever use a variable annuity?

The authors would like to thank Michael E. Kitces, MSFS, MTAX, CFP, CLU, ChFC, RHU, REBC, CASL for his comments on this article. Be sure to check out his blog, Nerd’s Eye View, by clicking here, and yes, all of those initials after his name are real! 

Most clients view 529 Plans to be appropriate planning vehicles only when all or most of the monies will be devoted solely to college and graduate school tuition and permitted expenses. At the same time, a number of financial advisors often consider variable annuities viable for facilitating the deferral of tax on income. In this article, we aim to explore whether a 529 Plan might serve a similar purpose, and, in fact, be preferred over a variable annuity for many clients. There are a number of advantages to using 529 Plans beyond educational funding. In many situations, 529 Plans will be preferred to variable annuities, even when educational expenses are not the primary goal.

The primary purposes of this article is to help the reader understand important tax and investment characteristics of both variable annuities and 529 Plans and to question the wisdom of the purchase of variable annuities while reviewing the advantages and features of 529 Plans.

  1. Non-Educational Distributions from 529 Plans Carry Out Income and Basis Pro Rata; With Annuities, the First Dollars Out are Taxable

Distributions from variable annuities normally carry out accumulated income first and principal only thereafter. A client holding a $100,000 variable annuity that cost $80,000 must pay tax on the first $20,000 withdrawn. At the 43.4% tax bracket, this would cost $8,680 in combined income and Medicare taxes.

Monies withdrawn from a 529 Plan are only taxable pro rata to the income portion. In the above example, there would be tax on only $4,000 worth of income (20% of the withdrawal), so the tax would instead only be $1,736.

While it is true that the $4,000 will be taxed at the taxpayer’s highest tax bracket plus an additional 10%, the excess of $20,000 ($7,920) to 53.4% of $4,000 ($2,136) is a big difference.[1]

Yes, a variable annuity might be exchanged tax-free under Internal Revenue Code Section 1035 in order to facilitate less than $20,000 of the distribution being taxable. However, this would involve a tax-free exchange into multiple separate annuity contracts and then waiting 18 months before making the withdrawal.

Alternatively, two annuity carriers that we are aware of do offer products that allow pro-rata distribution of income, if the IRS accepts this, but the vast majority of annuity companies do not offer this option. One of the exceptions is the LincolnI4Life, where the current year’s income is paid out first, and then pro rata between earnings and basis after the current year’s income. Equitable/AXA has a similar product arrangement. 529 Plans are less expensive than these commercial annuities and have other characteristics as herein described.

  1. 529 Plans Can Continue After the Death of a Family Member

Variable annuities have to be paid out within five (5) years of the death of the annuity holder, or possibly over the life expectancy of a beneficiary, with the sole exception of the above being that a surviving spouse can facilitate deferral for his or her lifetime.

With a 529 Plan, there is no distribution requirement upon death or any other event. A 529 Plan can pass from person to person and generation to generation indefinitely and is not even limited by the rule against perpetuities, which is 365 years in Florida.[2]

  1. 529 Plans Reward Educational Pursuits

529 Plans encourage education and limit educational living expenses to levels that are recommended by applicable colleges and universities. No tax is payable on income that would otherwise be subject to tax when 529 Plan monies are spent in this manner.

There is no such protection with annuities.

  1. 529 Plans Can be Owned by Complex Trusts, Family Limited Partnerships and Other Entities

Variable annuities cannot be safely owned by trusts that are taxed independently from their Grantor unless the trust has special language that makes it clear that the annuity is held for the benefit of an identified individual(s) or a private letter ruling is received from the Service, if they are even willing to issue one.

Most financial advisors are not aware that upon the death of an individual annuity owner, contract ownership or other rights that pass to an irrevocable trust to be held for a spouse or descendants will probably have to be paid out within five (5) years, thus triggering all income tax. Presently, irrevocable trusts are in the 39.6% income tax bracket and are also subject to the 3.8% Medicare tax on undistributed income exceeding $12,055. Having to distribute this income to beneficiaries in lower brackets to save income tax may result in the assets being wasted by inappropriate spending, loss to creditors or spouses, or otherwise being mishandled in a way the Grantor did not intend.

Some planners suggest incorporating trust provisions similar to those required to allow a trust to spread its retirement plan distributions over the life of a trust beneficiary. Unfortunately, the IRS has refused to issue regulations to make this action safe, so clients are effectively bound by the five-year rule described above.

  1. 529 Plan Ownership Can be Transferred Without Triggering Income Taxes

Income within a variable annuity contract is triggered upon transfer. If someone wants to make a gift of a variable annuity contract, he or she is considered to have received all income from the contract at the time of transfer. If he or she has not reached age 59½, or the transferor is not an individual, then this income is taxed at the taxpayer’s highest income tax bracket plus an additional 10%.

On the other hand, 529 Plan ownership can be freely transferred without triggering such taxes.

  1. 529 Plans are Less Expensive to Purchase and Maintain

According to a Morning Star report dated February 28, 2013, for the average 529 Plan that is directly sold and actively managed, the annual expense is 0.84% per year, and the average variable annuity expense is around 2.5% per year. Hybrid index annuities that are designed to replicate market index results and avoid market index crashes are said to trail the actual market index plus dividends by 4% to 6% on average.

  1. 529 Plans Do Not Have Surrender Charges or Generate Large Commissions

Large commissions can influence advisors to sell clients products that may not be suitable to them or in their best interests. 529 Plans do not have surrender charges or generate large commissions that might influence advisors. While there are low cost, no-load annuity products that compete with 529 Plans from an expense standpoint, a great many investors do work with commissioned sales organizations, such as banks, brokerage firms, and insurance agencies, and should have access to the choices available in the commissioned product system.

For example, clients who would like to invest in a contract based upon the well-known and respected American Fund family could buy a State of Florida 529 Plan, which has average annual charges on the equity portion of the Plan of 1.14%.

The Lincoln Investor Advantage™ variable annuity (a loaded annuity contract,) which permits the contract owner to invest in American Fund, may cost approximately 2.92% and have surrender charges based upon 7% in year 1, 6% in year 2, 5% in year 3, 4% in year 4, and 3% in year 5.

Alternatively, when you consider a possible cost savings of 1.78% per year for 18 years and assume 6% a year in growth, a $100,000 investment would grow to $232,207.63 under a 529 Plan costing 1.14% a year, and only $167,433.12 under a variable annuity costing 2.92% a year.

Even if cashed in all at once, the $132,207.63 of income from the 529 Plan, taxed at 53.4%, leaves a total after tax of $138,167.15. The 529 Plan wins even after application of the 10% excise tax at the highest tax bracket![3]

A similar comparison can be conducted on no-load, low-cost 529 Plans and variable annuities, and the variable annuity will normally be superior if a large portion of the 529 Plan above and beyond its original cost basis is not spent on educational expenses. For example, a no load annuity contract through Vanguard could have annual expenses as low as 0.76% and the above analysis would have a much different result. But 529 Plans still have the other advantages described above and below.

It is of note that 529 Plans do have limits on the amount of assets that can be contributed on behalf of each designated beneficiary. These amounts vary among the states but are typically limited to amounts that are necessary to finance the designated beneficiary’s educational expenses. For example, a 529 Plan offered through Vanguard imposes contribution limits of $370,000.

  1. Five Year Forward Averaging of 529 Plan Gifts

Clients who wish to make gifts using 529 Plan funding can elect to have 80% of the amount transferred considered to have been gifted in the four years subsequent to the 529 Plan funding to maximize use of the $14,000 per person per year annual gift tax exclusion. For example, a $70,000 contribution to a 529 Plan for a grandchild can be considered to be a $14,000 gift in the year of contribution and in each of the four subsequent years. If the donor dies before the beginning of the fifth year, then the applicable portion of the unapplied gift will be considered an asset of the donor’s estate for estate tax purposes, assuming that the donor will be estate taxable with such addition.

A gift that is used to purchase a variable annuity will be considered to have been made 100% in the year of purchase.

It is noteworthy that monies paid directly for tuition are not counted as gifts under the federal estate and gift tax law, but monies put into a 529 Plan that is eventually used to pay tuition will be considered to be gifts but will use part of a person’s $5,340,000 estate tax exemption amount if and when exceeding $14,000 a year. Simple low-cost passive mutual funds which have very little income and generate qualified dividends and capital gains which are taxed at the 20% bracket (plus a possible 3.8% for Medicare tax, when applicable) may therefore be preferred over 529 Plans, at least for monies to be paid for tuition.

  1. In Some States, 529 Plans are Protected from Creditors but Variable Annuities are Not

Many states provide protection for all 529 Plans and variable annuities, and some states provide protection for 529 Plans but not for variable annuities or only for variable annuities to the extent deemed reasonably necessary to provide for the retirement needs of the owner. A few states, like Colorado, Virginia, and West Virginia, provide creditor protection for 529 Plans but not variable annuities.

  1. Widely Criticized Investment Aspects Found in Certain Variable Annuities are not Permitted in 529 Plans

Many investors have been disappointed to learn that “guaranteed income benefit features” and “equity index guaranties” that were explained to induce the purchase of variable annuities have turned out to have been not as expected and much more expensive than understood. State and federal regulation associated with 529 Plan investments and disclosures do not permit these or certain other features that most conservative investors and investment advisors find to be expensive and generally undesirable for the vast majority of clients. See Alan S. Gassman Evaluating Commercial Annuities and Reverse Mortgages: Are Deferred Payment Annuities too Good to be True?

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[1] Michael Kitces, co-author of the “Advisor’s Guide to Annuities,” provided the authors with the following comment: “Notably, there have been recent discussions in tax committees about raising the 10% penalty, specifically to dissuade people from using a 529 Plan as a non-qualified accumulation vehicle.”
[2] The authors expect that within 365 years, the rule against perpetuity will change. We regret that we will not be here in our present form to witness that.
[3] On the other hand, if the investment was in a Vanguard variable annuity with an average cost of 7/10ths of 1% as opposed to the Vanguard 529 Plan with an average cost of 0.21%, the net received after liquidation and taxes would be $191,368.75 for the 529 Plan and $185,766.72 for the variable annuity.

Moving Business Operations and Personal Service Activities to Puerto Rico
by Alan Gassman and Erick Negrón

2 - Negron

Attorney Erick G. Negrón Rivera was born in San Juan, Puerto Rico. He received a Bachelor’s degree in Economics from Yale University in 1982 and a Juris Doctor from Harvard Law School in 1985. As Special Counsel at the law firm of Rexach & Picó in San Juan, he has specialized for the last two decades in corporate, tax, and insurance regulatory matters. Since 2009, he has been a member of the board of Consero, A.I., the first captive international insurer that became licensed in Puerto Rico. Attorney Negrón has also published several articles on tax and economic development issues. Erick Negrón can be reached at negron@rexachpico.com.

Puerto Rico is a US-flag territory, but it is not a state or a US taxed jurisdiction. Puerto Rican’s do not vote for the United States President, have Congressmen, or pay US income taxes on their Puerto Rican income.

Besides great natural beauty, a fantastic culture, talented people, and a Ritz Carlton hotel in San Juan on the beach that can be seen from the airport, Puerto Rico offers US citizens who reside there the ability to pay income tax on many kinds of businesses and vocations at a rate much lower than standard US taxes. Puerto Rico corporations are “foreign” corporations for US tax purposes, and thus, not regularly subject to US income taxation.

Establishment of Puerto Rican Residence

To take advantage of these rules, it is necessary to truly reside in Puerto Rico and to have the business and work accomplished in Puerto Rico. Internal Revenue Code Section 937 provides guidance to determine if an individual truly resides in a territory such as Puerto Rico. The section establishes three tests: 1.) the presence test, 2.) the tax home test, and 3.) the closer connection test. All three tests must be satisfied in order to establish Puerto Rican residency for tax purposes. The general requirements of the three tests are as follows:

  1. Presence Test – Normally requires the taxpayer to spend at least 183 days in the territory
  2. Tax Home Test – The primary location of the taxpayer’s business activities must be in the territory where the residence is claimed
  3. Closer Connection Test – The taxpayer must have a closer connection to the territory where the residence is claimed than with the United States or some other location with which there may be a connection. Relevant factors include where the taxpayer votes, where the taxpayer has his or her driver’s license and bank accounts, where the taxpayer’s family lives, where the taxpayer conducts social, religious, and community activities, and the country of residence designated by the taxpayer on forms and documents.

Tax Incentives Offered to Bona Fide Residents of Puerto Rico

Act 20 of 2012, “An Act to Promote Exportation of Services,” allows a US citizen to own a Puerto Rican company that will be subject to corporate income tax at a rate of 4 percent with no tax on dividends paid to Puerto Rico residents. The Act also offers exemptions, or partial exemptions, on local real estate and municipal taxes and licenses. To be eligible for the tax benefits of Act 20, a company must maintain a “bona fide” office in Puerto Rico which carries out an approved service, and its activities must be determined to be “in the best economic and social interests of Puerto Rico.” This determination is made by the Department of Economic Development and Commerce of Puerto Rico and carries a 20 year term to protect the company from any future changes in the law.

This can be very attractive to individuals who make their living as computer programmers, Internet marketers, office-based management consultants, and in many other fields and professions.

Act 22, “An Act to Promote the Relocation of Individual Investors,” provides another tax incentive for new Puerto Rico Residents. An individual who did not reside in Puerto Rico during the six-year period prior to January 17, 2012 (that is, since January 17, 2006) will be eligible to become exempt for taxation gains on investments and passive income. This includes interest, dividends, and capital gains.

Close proximity to Florida makes this an appealing opportunity given the relatively inexpensive and plentiful flights available to visit family and customers in Florida, as long as the days actually spent here are minimal.

For more information on Puerto Rican Act 20 and Act 22, please click here to read a Mayer Brown report by Mark H. Leeds and Gabriel Hernandez.

Medical Billing 501: Quick Tips to Enhance an Already Efficient Billing Operation – Payer Underpayments
by Colin Shalin

Shalin with text

Colin Shalin is a Practice Management Consultant specializing in A/R and financial management with an emphasis on billing and collection process and performance improvement.  Contact him by phone at (727) 244-1179 or by emailing consultcolin@gmail.com. © 2014

Please click here to see Colin’s first Thursday Report article regarding Employee Incentive Plans. This week, Colin discusses how medical offices can improve their billing practices when it comes to payer underpayments. We thank Colin for making this content available to Thursday Report readers!

Monthly review of variances between payments posted and negotiated reimbursements will ensure payers are not underpaying for services and can enhance your ability to collect any additional reimbursement you are due. Most practice management systems have the capability to load, manage, and compare the reimbursement tables so as to allow this task to be performed relatively simply and timely. If you are not currently performing this task, of if you are pulling random EOB samples to accomplish it manually, you should develop a project team to work with your vendor immediately to implement this function in the most automated manner possible. Some ideas for either implementing or enhancing this task are as follows:

1.)  Ensure you load at least Medicare, Medicaid, and your contracted payers’ reimbursement tables. Be sure to load individual plans for which you have negotiated multiple reimbursement methodologies. If you still have any individual physician/provider, location, modality, or facility contracts with unique reimbursements, make sure you create a specific table for these as well. Be sure you allow for differences in rates based on modifies also.

2.) Most systems will allow reimbursement rate creation by procedure code based on a percent of Medicare. This will save a lot of manual entry during the initial load and annual updates. You can try to negotiate future contracts on this basis to allow for a simpler comparison process (which translates to an easier ability to identify underpayments), however, contract negotiation has been waning over the past few years as more payers move to location-based fee schedules (some of which may be based on a percent of Medicare, etc. methodology.)

3.) If you have a specific rate table for each procedure code, try to get the table in an electronic format which your vendor can accept for download.

4.) Report design is a crucial step. Work with your vendor to ensure the variance report:

  • Allows you to select a dollar or percent range for which to ignore variances. You do not want to have to pay attention to low dollar or cents variances but focus instead on those that are going to be worth your time and effort. Depending on your average gross charge per procedure, the minimum amount could be anywhere from $1 – $3, or 1% – 10%.
  • Gives you a run-time option to choose only a certain payer class, range of related payers, or specific payers. Depending on how you load your reimbursement tables, you may want to look at specific Insurance Company/Plan codes, Financial Classes/Carrier codes, or all loaded tables.
  • Gives you a run-time option to choose only a certain modality, range of procedure code, or specific procedure code either across payers or for the range chosen above.
  • Gives you similar run-time options for specific or ranges of payment posting dates, physician/providers or any other contract basis variation you may have.
  • Allows you to sort the output by payer, procedure code, variance amount, physician/provider, or any combination of contract basis variation thereof. The ability to output the data to a spreadsheet program for further sorting can also be useful.
  • Remember to consider modifiers during both the load and report design phases to ensure the most useful data output.

5.) Make sure all communication with payers regarding this issue demonstrates your belief that this is a serious and possibly egregious violation of your contract. You may consider involving your attorney or the Insurance Commissioner depending on the severity of the problem. Check your state’s prompt payment laws for identification of violations, statute of limitations, and possible remedies.

6.) Use the data to facilitate meetings in your office with Payer Reps to let them know you are watching remittances closely and to resolve the underpayments identified. Make sure you document the payer’s stated action plan and your agreed-upon deadline or follow-up date to ensure timely reprocessing by the payer. While they are often not excited to see them, a stack of paper claims with identified underpayments may help the payer visualize the issue and want to resolve it in a timelier manner.

7.) Remember to provide feedback to your payment posting or other staff should you find errors they made during the review. Don’t forget to include this data in your quality audit process by function and the annual performance review folder for affected staff.

Depending on your practice management system’s capabilities, monitoring payer underpayments can range from overwhelming to relatively easy. Whether it is performed manually on a periodic basis or in an automated fashion daily, the monitoring process is crucial to ensuring proper payments are received and needs to be visual to the payer to ensure conformity with contracted reimbursements.

Seminar Spotlight
The Florida Bar Annual Wealth Protection Conference

The Florida Bar Annual Wealth Protection Conference is expanding this year! The May 2015 program will feature a Thursday Fundamentals program and a Friday Advanced program. Come for one day, or come for both, but don’t miss it!

Denis Kleinfeld and Alan Gassman are pleased to announce that the 53rd Annual Tax Section Wealth Protection Conference this year will provide Bar members with the option to attend one or both days of a fundamentals program that will be well-suited to both lawyers who have limited knowledge and experience and experienced lawyers wishing to refresh and update their awareness and practices.

There will be an interactive cocktail party Thursday evening, and attendees are invited to attend the speakers’ dinner (Dutch treat) on Thursday evening as well. This is a great opportunity to mingle with the speakers and other professionals. Bring your own cigar!

The Thursday program will also feature panel discussions where every question and topic suggested by attendees will be answered to the fullest extent.

On Friday, the conference will feature an advanced program, which will be well-suited to both advanced practitioners and beginners who have completed the Thursday Fundamentals program.

All attendees will receive printed course books with over 600 pages of valuable information, which will also be available online and by PDF to registered attendees with no extra charge for the printed and electronic materials.

This year’s program will include 16 speakers, most of whom have a national reputation.

We have worked hard to ensure that this will be the best 2-day program available to cover fundamentals of asset protection, recent developments, and practical planning aspects of Wealth Protection.

Topics and speakers for Day One, Thursday, May 7, 2015, include the following:

  • Arthur C. Neiwirth and Ronald G. Neiwirth on Basic Bankruptcy – Welcome to the Fish Bowl
  • Ronald G. Neiwirth and Denis A. Kleinfeld on The Trick and Traps of Creditors’ Remedy of Fraudulent Conveyance
  • Professor Jerome M. Hesch on Basic Tax Laws and Planning Opportunities Associated with Commercial and Private Annuities, Life Insurance Policies, and Debt Forgiveness

Advanced topics and speakers for Day Two, Friday, May 8, 2015, include the following:

  • Denis A. Kleinfeld, Howard Fisher, and Alexander Fisher on Foreign Trusts, Powers of Appointment, Trust Protectors, Planning Opportunities and Traps for the Unwary
  • Ky Koch, Esquire and Courtney Koch, Esquire on Marital Agreements and Divorce Planning – What to Do Before, During, and After There is Trouble in Paradise
  • Alan S. Gassman and Christopher J. Denicolo on 10 Examples of Effective Asset Protection Plans That Have Worked
  • Michael C. Markham and Ronald G. Neiwirth on How an Aggressive Creditor’s Lawyers Will Attack Protection Structures

Registration information will be forthcoming. Please consider attending this event. A splendid time is guaranteed for all!

For more information, please email Alan Gassman at agassman@gassmanpa.com or click here to pre-register.

Mini-Spotlight
Martin County Estate Planning Council Annual Tax and Estate Planning Seminar

Don’t miss the one-day Martin County Estate Planning Council Seminar on May 15, 2015!

Alan Gassman will be the morning speaker at the event; he will be speaking on JESTs, Mathematics for Estate Planners, and The Estate Planner’s Guide to Planning for IRA and Pension Benefits – Yes, You Can Finally Understand These Rules! This presentation will take place from 9:00 AM to 12:00 PM.

The afternoon will consist of three one-hour presentations by Catherine Zieman, CFP, Stacey McMahon, Esquire, and Laird Johnson, CLU.

The Martin County Estate Planning Council Annual Tax and Estate Planning Seminar will take place at the Stuart Corinthian Yacht Club in Stuart, Florida.

Clasen with text

For more information, contact the amazing Lisa Clasen at lclasen@kslattorneys.com.

Richard Connolly’s World
Finding the ‘Right’ Way to Dispose of Ill-Gotten Gains

Insurance advisor Richard Connolly of Ward & Connolly in Columbus, Ohio often shares with us pertinent articles found in well-known publications such as The Wall Street Journal, Barron’s, and The New York Times. Each week, we will feature some of Richard’s recommendations with a link to the articles.

This week, the article of interest is “Finding the ‘Right’ Way to Dispose of Ill-Gotten Gains” by Paul Sullivan. This article was featured in The New York Times on February 6, 2015.

Richard’s description is as follows:

Several years ago, Thomas M. DiBiagio was asked by a large European company to run an internal audit on its South African operations. They suspected something might be amiss. And they were right. In the course of the audit, he discovered about $12 million that might best be described as ill-gotten gains.

Mr. DiBiagio, now a partner at the law firm Baker Botts in Washington, reported what he found to the company’s management and suggested something novel: Since the money had been earned “from aggressive business practices” – a euphemism for a crime he would not name – the company should give it to charity.

The company, which he described as a $35 billion to $40 billion business listed on a United States stock exchange, agreed.

The company gave him two years to give away the money…

The project, while rewarding, turned out to be far more complicated and time-consuming than he, with no experience giving away this kind of money, had imagined.

It was chock-full of lessons for wealthy donors and recipients – and could even be the seed of a new line of business for law firms with corporate clients who find their own wrongdoing before federal prosecutors get wind of it.

Please click here to read this article in its entirety.

A Note From One of Our Readers
PDFs vs Word Documents as Attachments

The Thoughtful Corner in last week’s Thursday Report focused on business etiquette in email communication. We endorsed the idea of sending document attachments in Word format instead of the more typically used PDF format. To see this article, please click here.

We received the following email from Smilie G. Rogers, who had this to say about our ideas:

“Not sure I agree with your suggestion that Word attachment should trump PDFs. First, Word documents are more likely to contain metadata. Second, PDF to Word conversion is easy, online, and free, but be that as it may, having a good converter program like Omnipage by Nuance is essential in my office for quickly (and accurately) converting PDFs (often deeds, but you name it) to Word. As an aside, as a semi-solo without staff, I like to use Dragon’s “Read That” feature to read a deed description back to me just in case my line-by-line review missed something.”

Thanks, Smilie, for sharing your insight into bettering business communication practices.

Thoughtful Corner
Comparing Documents

Until recently, it was considered to be rude by many to take a document that another lawyer drafted and make changes to it.

The proper protocol was to give suggestions for changes or possibly even send a letter outlining exact changes, but you typically would not copy the document and make the changes yourself. Doing so would take work away from the lawyer who drafted the document.

That rule seems long gone, at least from the point-of-view of those of us who have not been practicing law for 35 to 40 years. The following should go without saying but commonly does not:

  • When changing someone’s document, send them a compare version that clearly shows the changes you have made. Yes, that may take you an extra five minutes to do, but why put that burden on the other person when you have the updated document on your screen and have taken the prerogative to make changes to their document.
  • The corollary of the above is that you can be sued for malpractice if you make a change to a document that is wrong, not recognized by your own client, or possibly the other side. You owe the other side a compare, and you owe it to yourself to give the other side a compared version.
  • Never ever ever ever (we mean never!) save over a previous document and then tell the other side that it is not available because you saved over it.While you typically could pull the original document from an old email, it is much safer for a malpractice avoidance and from a document management standpoint to save every revised version of a document with a separate suffix and to show on your compare which version you are comparing back to.This also keeps your clerical staff honest. It may be a bit more work for your clerical staff, but you cannot rely upon even a very good secretary to be perfect every time. What if he, she, or the computer accidentally eliminated an important word, clause, or section? How would you know if you do not see a compare?We print a lot of draft documents in our office, and we kill a lot of trees, but we practice safe law, and in our opinion, this means printing compares and taking a look at every page.
  • Use strikeouts and underlines in your compares instead of the default Word version where what is deleted is shown in small boxes to the right. It takes the brain five times as much time and opens you up for mistakes if you cannot see exactly what happened in the text.We have found it best to use WordPerfect for documents we are likely to compare, however, the WordPerfect compare style can be emulated in Microsoft Word. To do this, all you have to do is navigate to the “Review” tab in Microsoft Word, click the arrow by the “Show Markup” button, and, under the Balloons drop-down menu, choose “Show All Revisions Inline.” This choice will force all changes in the compare to be shown in strikeouts and underlines, which will look very similar to the automatic formatting of a WordPerfect compare.

To see examples of a Word compare and a WordPerfect compare, please click accordingly: Microsoft Word Compare (unmodified). Microsoft Word Compare (modified). WordPerfect Compare.

We will appreciate any questions, comments, or suggestions offered for the above article. It has been excerpted from a PowerPoint that we will present to third year law students and alumni (and you, too, if you would like to attend!) at the Ave Maria School of Law on a date to be determined. The presentation will be on professional acceleration. For more information, you can email Alan Gassman at agassman@gassmanpa.com or Janine Gunyan at janine@gassmanpa.com.

Humor! (or Lack Thereof!)

Please enjoy the following from our resident comedy expert Ron Ross:

IN THE NEWS THIS WEEK:

3 - Humor 1

What Republican is NOT Running for President in 2016?

The list so far:

  • Abraham Lincoln
  • Theodore Roosevelt
  • The mythical moderate who can appeal to both liberals and conservatives

A Word From Our Sponsors

This week’s Thursday Report brought to you by “Nice Horsey” Hair Extensions. If it’s good enough for the Budweiser Clydesdale, it’s good enough for you!

4 - Humor 2

Upcoming Seminars and Webinars

LIVE WEBINAR:

Alan Gassman and Barry Flagg, CPF, CLU, ChFC, GFS, of Veralytic will present a 22.5-minute webinar on PREMIUM FINANCING IN 15 MINUTES.

Date: March 4, 2015 | 5:00 p.m.

Location: Online webinar

Additional Information: To register, please click here or email Alan Gassman at agassman@gassmanpa.com for more information.

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LIVE FREE ETHICS CREDIT WEBINAR:

Alan Gassman and Dr. Srikumar Rao will present a free 50-minute webinar on HOW TO HANDLE STRESSFUL MATTERS IN AN ETHICAL WAY.

This webinar will qualify for 1 hour of CLE Ethics Credit and is classified as Advanced. See Professor Rao’s Ted Talk YouTube video, and you will understand how important this webinar might be to accelerating your law practice and enhancing your enjoyment of the practice as well. You can sign up for this free webinar by clicking here.

New Rao and Gassman

Dr. Srikumar Rao is the creator of the original Creativity and Personal Mastery (CPM) course that has helped thousands of executives and entrepreneurs achieve quantum leaps in effectiveness. He earned a Ph.D. in Marketing from Columbia University and has taught the course at Columbia University, Northwestern University, University of California at Berkeley, and the London School of Business. He is the author of Happiness at Work and Are You Ready to Succeed? which can be reviewed by clicking here. Are You Ready to Succeed? has been published in over 60 languages!

Date: March 5, 2015 | 12:30 p.m.

Location: Online webinar

Additional Information: Please email Alan Gassman at agassman@gassmanpa.com for more information.

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LIVE ORLANDO PRESENTATION:

THE ADVANCED HEALTH LAW TOPICS AND CERTIFICATION REVIEW 2015

Alan Gassman will speak at The Advanced Health Law Topics and Certification Review 2015 on HEALTHCARE TAX ISSUES.

To see the complete schedule for this program, please click here.

Date: March 6 – 7, 2015 ǀ Alan Gassman will speak on March 6 at 11:00 AM

Location: Hyatt Regency Orlando International Airport | 9300 Jeff Fuqua Blvd., Orlando, FL 32827

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

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LIVE WEBINAR:

Alan Gassman and Barry Flagg, CPF, CLU, ChFC, GFS, of Veralytic will present a 22.5-minute webinar on SPLIT-DOLLAR IN 15 MINUTES.

Date: March 17, 2015 | 5:00 p.m.

Location: Online webinar

Additional Information: To register, please click here or email Alan Gassman at agassman@gassmanpa.com for more information.

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LIVE WEBINAR:

Alan S. Gassman, Christopher J. Denicolo, and Edwin P. Marrow, III will present a 90-minute Strafford Publications, Inc. webinar entitled STRUCTURING JOINT EXEMPT STEP-UP TRUSTS: EVOLVING TOOL TO MAXIMIZE STEP-UP IN BASIS.

In an environment wherein the focus is shifting toward maximizing income tax basis step-up, counsel must be knowledgeable of all tools necessary to reach this goal. One tool that is beneficial for preserving both the inheritance tax exemption and basis step-up is the joint exempt step-up trust (JEST).

This panel will review questions such as:

  • What are the best practices for structuring a JEST?
  • What drafting techniques must be implemented to maximize basis step-up at both the first-to-die and surviving spouse’s deaths?
  • What is the IRS guidance on this tool offered through the Technical Advice Memorandum and Private Letter Rulings?
  • Under what circumstances is the JEST most appropriate?

Date: Tuesday, March 24, 2015 | 1:00 PM – 2:30 PM

Location: Online Webinar

Additional Information: For more information or to register, please click here. You may also email Alan Gassman at agassman@gassmanpa.com.

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LIVE WEBINAR:

Alan Gassman and Barry Flagg, CPF, CLU, ChFC, GFS, of Veralytic will present a 30-minute webinar on COMPARING THE FINANCIAL STRENGTH AND RISKS ASSOCIATED WITH DIFFERENT LIFE INSURANCE CARRIERS.

Date: March 31, 2015 | 5:00 p.m.

Location: Online webinar

Additional Information: To register, please click here or email Alan Gassman at agassman@gassmanpa.com for more information.

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LIVE OLDSMAR PRESENTATION:

FICPA SUNCOAST SCRAMBLE GOLF TOURNAMENT

Kenneth J. Crotty and Christopher J. Denicolo will speak at the FICPA Suncoast Scramble Golf Tournament on the topic of MATHEMATICS FOR ESTATE PLANNERS INCLUDING 10 ESTATE PLANNING STRATEGIES NOT TO MISS. 

Date: Friday, May 1, 2015 | CPE Presentations from 9:00 AM – 11:30 AM 

Location: East Lake Woodlands Country Club | 1055 E Lake Woodlands Parkway, Oldsmar, FL 34677 

Additional Information: For more information about registration, sponsorship, or this event, please click here or click here to download the Tournament brochure.

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LIVE NAPLES PRESENTATION:

2nd ANNUAL AVE MARIA SCHOOL OF LAW ESTATE PLANNING CONFERENCE

Alan Gassman, Jerry Hesch, and Richard Oshins 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 Richard Oshins on 11 Outstanding Planning Ideas, Jonathan Gopman on Asset Protection, 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.

Date:  Friday, May 1, 2015

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

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

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LIVE MIAMI PRESENTATION:

FLORIDA BAR WEALTH PRESERVATION PROGRAM 

Denis Kleinfeld and Alan Gassman have released the schedule and topics for FUNDAMENTALS OF ASSET PROTECTION AND ADVANCED STRATEGIES. This seminar will be presented on May 7th and May 8th, 2015, and is sponsored by the Tax Section of the Florida Bar.  Attendees can select one day or the other, or to attend both days.

Day One will be for fundamentals and will be an excellent review or an introduction to the basic rules and practice aspects of creditor protection planning for both new and experienced practitioners.

Day Two will be an advanced treatment of creditor protection and associated planning, which will be of great use to both new and experienced practitioners.

Date: May 7 – 8, 2015

Location: Hyatt Regency Miami | 400 SE 2nd Avenue, Miami, FL 33131

Additional Information: To pre-register for this conference, please click here. For more information, please email Alan Gassman at agassman@gassmanpa.com.

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LIVE STUART, FLORIDA PRESENTATION

Alan Gassman will be the featured “headline” speaker the Martin County Estate Planning Council Annual Seminar. He will be doing a three-hour talk on the topics of JESTs, MATHEMATICS FOR ESTATE PLANNERS, AND THE ESTATE PLANNER’S GUIDE TO PLANNING FOR IRA AND PENSION BENEFITS – YES, YOU CAN FINALLY UNDERSTAND THESE RULES!

The tentative schedule for this one-day program is as follows:

5 - Martin County Schedule

Date: May 15, 2015 | 8:15 AM – 4:30 PM; Alan Gassman speaks from 9:00 AM to 12:00 PM

Location: Stuart Corinthian Yacht Club | 4725 SE Capstan Avenue, Stuart, FL 34997

Additional Information: For more information, please email Alan Gassman at agassman@gassmanpa.com or Lisa Clasen at lclasen@kslattorneys.com.

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LIVE FLORIDA INSTITUTE OF CPAs (FICPA) WEBINAR

Alan Gassman, Ken Crotty, and Chris Denicolo will present a webinar on A PRACTICAL TRUST PLANNING CHECKLIST AND PRACTITIONER COMPLIANCE GUIDE FOR FLORIDA CPAs for the Florida Institute of CPAs.

Review a practical planning checklist and practitioner tax compliance guide to facilitate implementing a comprehensive overview of practical planning matters and tax compliance issues in your practice. This presentation will cover over 20 common errors and missed planning opportunities that accountants need to understand and counsel their clients on.

This course is designed for practitioners who wish to assure that trust planning structures and compliance are both aligned with client objectives and that common catastrophic errors and misconceptions can be corrected.

Past attendees have indicated that this is an interesting and practical presentation that offers a great deal of practical information for both compliance and planning functions, based upon an easy to follow checklist approach.  Includes valuable materials.

Date: May 21, 2015 | 10:00 a.m.

Location: Online webinar

Additional Information: For more information, please contact Alan Gassman at agassman@gassmanpa.com or Thelma Givens at givenst@ficpa.org. To register, please click here.

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LIVE SARASOTA PRESENTATION:

2015 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: Friday, October 23rd and Saturday, October 24th, 2015

Location: To Be Determined

Additional Information: Please contact Alan Gassman at agassman@gassmanpa.com for more information.

Notable Seminars by Others
(These conferences are so good that we were not invited to speak!)
 

LIVE PRESENTATION:

2015 FLORIDA TAX INSTITUTE

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

Location: Grand Hyatt Tampa Bay, 2900 Bayport Drive, Tampa, FL 33607

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

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LIVE ORLANDO PRESENTATION:

50TH ANNUAL HECKERLING INSTITUTE ON ESTATE PLANNING

Date: January 11 – January 15, 2016

Location: Hotel information to be announced

Additional Information: Information on the 50th Annual Heckerling Institute on Estate Planning will be available on August 1, 2015. To learn about past Heckerling programs, please click here.

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.

5 - Rates

The Thursday Report – 2.19.15 – Foreign LLCs may be Subject to US Court Jurisdiction

Posted on: February 19th, 2015

The Barber of Seville Replaces No Time for Sargeant

Charles Rubin Reads The Thursday Report and The Thursday Report reads Charles Rubin’s Blog

Gregory Gay’s Corner – The Baker Act

Seminar Spotlight – Structuring Joint Exempt Step-Up Trusts

Richard Connolly’s World – When You Die, Who Can Read Your Email?

Thoughtful Corner – Business Etiquette Concerning Email Communication

Humor from Heckerling!

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.

The Barber of Seville Replaces No Time for Sargeant
by Travis Arango and Alan Gassman

It is shocking that the difference between a Limited Liability Company’s membership interest and stock in a corporation could cause such a different result. In Sargeant v. Al-Saleh, the stock in a foreign corporation could not be reached by the court while Well Fargo Bank v. Barber sent the creditor offshore to get a foreign court to allow seizure. In Barber, sole ownership of a Nevis LLC was considered to be like any other intangible personal property that a Florida judgment could be applied against.

In Well Fargo Bank v. Barber[1], the plaintiffs, Wells Fargo, had a deficiency judgment against Barber for $62,491,162.98. Before this judgment, the defendant had made a number of transfers. Here is a timeline of the transfers made:

Before April 13, 2009: Barber gets $1 million for sale of marital home – deposited into “homestead” account at American Momentum Bank (AMB)

September 21, 2009: Barber closed AMB account (balance: $1,066,776.85) and purchased a CD with AMB as “homestead” proceeds

February 17, 2010: Barber transferred CD to AIG Bank

April 15, 2010: Barber withdrew $227,026.20 to buy home

January 10, 2011: Barber formed Blaker Enterprises, LLC

February 28, 2011: Barber withdrew $870,000.49 from AIG and opened account at TD Ameritrade under Blaker Enterprises, LLC

September 9, 2011: Transferred $275,000 from TD Ameritrade back to AIG

February 9, 2012: Transferred $220,000 from AIG to an unknown location

April 2, 2012: Transferred $110,000 from TD Ameritrade into a new TD Ameritrade account

October 2, 2013: Deficiency judgment entered against Barber and another non-party for $62,491,162.98 to Wells Fargo and Regions

Plaintiffs seek injunctive relief, to foreclose on Barber’s membership interest in Blaker Enterprises, LLC, or seek a charging order against it and to avoid the fraudulent transfers made by Barber based on actual and constructive fraud. The court dismissed the injunctive relief claim stating that it is “a remedy that is [only] available upon a finding of liability on a claim.”[2]

The second claim was an attempt to foreclose on the membership interest or to obtain a charging order. The court stated that the Florida Limited Liability Company Act states:

A judgment creditor to any member of a limited liability company may obtain a charging order against the member’s interest in the company or foreclose that interest in the company under certain circumstances.[3]

The charging order will be similar to a lien on the membership interest and allows the creditor to receive distributions from the LLC that the member would have received. [4] This is generally the only remedy available, however, when the LLC only has one member, the Florida LLC Act allows a foreclosure on the company. [5] This foreclosure remedy is available when there is only one member and when “a charging order will not satisfy the judgment within a reasonable time.”[6]

The defendants claimed that the court lacked jurisdiction to foreclose or to enter a charging order on the LLC because Blaker Enterprises, LLC was created under the laws of Nevis. The defendants rely on a recent case Sargeant v. Al-Saleh.[7] In Sargeant, the trial court ordered the defendants to turn over stock they had in a foreign corporation to satisfy a judgment. [8] On appeal, the court of appeals reversed the trial court and held that the court “may only exercise jurisdiction over property of a debtor located within the court’s jurisdictional territory.”[9]

The plaintiffs contend that Sargeant had to do with interests in a corporation which is different than interests in an LLC; the court agreed. The court stated that “a membership interest in an LLC is intangible personal property, which accompanies the person of the owner.”[10] Thus, since Barber lives in Florida, her membership interest is located in Florida. The court goes on to say “Although Defendants repeatedly refer to Blaker Enterprises, LLC as a “foreign corporation,” (see Doc. 32, pp. 6, 7), Blaker Enterprises, LLC is not a corporate entity but a limited liability company. (Doc. 1-1, Ex. J). Unlike stock certificates in a corporation, a membership interest in a limited liability company is intangible personal property, which ‘accompanies the person of the owner.’”[11]

The court was then faced with a conflict of laws issue between the Florida LLC Act and Nevis law, which has the Nevis Limited Liability Company Ordinance of 1995. The court found that there was an actual conflict because the Florida act allows a charging order and a foreclosure action while the Nevis ordinance only allows a charging order. When there is a conflict of laws question, “a federal court sitting in diversity must apply the forum state’s choice of law rules.”[12] Since the issue in this case involves property, the law in Florida dictates that the situs of the property controls. Since Barber lives in Florida, so does her membership interest and thus, Florida law applies.[13] The court held that the plaintiffs are entitled to foreclosing the interest or charging the interest.

The next issue was avoiding the fraudulent transfers based on actual and constructive fraud. The Florida Uniform Fraudulent Transfer Act (FUFTA) states “a creditor may avoid a debtor’s transfer where the creditor shows that the transfer was made ‘with actual intent to hinder, delay, or defraud.’”[14] The statute provides a list of “badges of fraud” for the court to consider. The court finding a badge of fraud creates a prima facie case and a rebuttable presumption that the transfers are void if created.[15]  The court held that the complaint showed six badges of fraud:

  1. Barber’s transfers to Blaker Enterprises, LLC were transfers to an insider, as Barber is the sole member of Blaker Enterprises, LLC.
  2. Barber retained possession or control of the funds transferred to Blaker Enterprises, LLC because Barber is the sole member of Blaker Enterprises, LLC.
  3. Barber transferred the funds shortly after the state court entered summary judgment against her and shortly before Plaintiffs sued Barber for a deficiency judgment.
  4. Barber’s transfers to Blaker Enterprises, LLC appear to constitute substantially all of Barber’s assets.
  5. Barber did not receive any consideration from Blaker Enterprises, LLC for the funds transferred.
  6. Barber was insolvent at the time she made the transfers to Blaker Enterprises, LLC, as the summary judgment against her was in excess of $66 million.[16]

This established a prima facie case for avoiding the transfers.

It is shocking that the difference between a Limited Liability Company’s membership interest and stock in a corporation could cause such a different result. In Sargeant v. Al-Saleh, the stock in a foreign corporation could not be reached by the court while Well Fargo Bank v. Barber sent the creditor offshore to get a foreign court to allow seizure. In Barber, sole ownership of a Nevis LLC was considered to be like any other intangible personal property that a Florida judgment could be applied against.

The question remains: did the court get this right? The court stated, “Unlike stock certificates in a corporation, a membership interest in a limited liability company is intangible personal property, which ‘accompanies the person of the owner.’” This would imply that stock certificates in a corporation are not intangible personal property but instead tangible. Is this because the stock is physically in a location? Would an LLC with certificates be classified in this way? The court did not go into much detail about the distinction, the court just stated that they are indeed different.

This goes to show that a foreign LLC may not be the best asset protection tool when the owner of the interest is still going to reside in Florida or in the US. This is especially true when the LLC only has one member which gives the judgment creditor the opportunity to ask for foreclosure under the Florida LLC act. They, of course, would need to show that a charging order would not satisfy their claim in a reasonable time, but that does not seem to be a large hurdle to jump, especially when you are dealing with multi-million dollar judgments like the one in Barber.

Fans of Gomer Pyle, U.S.M.C. might remember Andy Griffith’s movie No Time for Sergeants, where Andy Griffith starred as Private Will Stockdale. The Sargeant case caught the attention of a great many planners last year when the Fourth District Court of Appeal determined that stock held in a foreign country could only be seized by a creditor when permitted by a court sitting in that foreign country.

One would think that ownership in a limited liability company would be equivalent to owning stock in a foreign corporation, and that may be the case (not to be confused with a case of beer, which is what many planners are going to drink this weekend as they think about this case) because Judge Paul G. Byron, who sits at the United States District Court for the Middle District of Florida, determined that because an LLC membership interest is not “certificated,” it is “intangible personal property” that attaches to the debtor.

In No Time for Sergeants, the character played by Andy Griffith could never get his arms around the situation. Wells Fargo (which has been around since 1852, long before anyone had heard of Andy Griffith,) thought they were going to get their arms around stock but failed. The Barber of Seville was an opera that was written by Gioachino Rossini and Cesare Sterbini and first performed in 1861 at the Teatro Argentina in Rome, Italy. When someone gets a cut out of Will Stockdale, it is a heir-cut as opposed to a judicial haircut, which is what Ms. Barber got from Wells Fargo, when she expected that her Nevis LLC interest would not be seizeable[17] without getting a judgment in Nevis. Nevis does not recognize foreign judgments, let alone question the judgment of foreign countries.

The issue of this case will definitely be appealed by Ms. Barber or some subsequent debtor or creditor as this issue is litigated in the future.

Lawyers who have encouraged clients to use out-of-state and/or offshore limited partnerships, LLCs, or other entities need to realize that judges have the ability to apply Florida law in these situations under the Conflict of Law Rules, and that charging order protection will not be available for many Florida based situations where the debtor is the 100% owner of a foreign LLC, thus calling into question whether planners need to get back to clients and suggest additional members.

Another question is whether LLCs should be certificated (required to have stock certificates issued) and whether that would have changed the result for Ms. Barber, who will now have to trade her Rolls Royce in for a Cadillac Seville.

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[1] 2015 WL 470589
[2] Id.
[3] Barber, 2015 WL 470589.
[4] Id.
[5] Id.
[6] Id.
[7] 137 So.3d432 (Fla. Dist. Ct. App.2014).
[8] Id. At 433.
[9] Barber, 2015 WL 470589.
[10] Id.
[11] Barber, 2015 WL 470589.
[12] Barber, 2015 WL 470589.
[13] Id.
[14] Id.
[15] Id.
[16] Id.
[17] “Seizeable” is not a word, but what the heck?

Charles Rubin Reads The Thursday Report and
The Thursday Report reads Charles Rubin’s Blog

Chuck

Charles Rubin is a Managing Partner with Gutter Chaves Josepher Rubin Forman Fleisher Miller, P.A. Chuck earned both his J.D. degree and his LL.M. in Taxation from the University of Florida. He is Florida Bar Board Certified in Taxation and was named the 2015 Lawyer of the Year by Best Lawyers in Taxation in the Miami metropolitan area. He has been running Rubin on Tax, a tax blog on developments relating to Federal and Florida tax, estate planning, probate, and business law, since 2005. The blog currently features over one thousand posts.

Charles Rubin has a long history of contributing to the tax and estate planning community as a lawyer, intellectual, and writer.

Chuck blogs at least twice a week, and his most recent blog is set forth below. To access Chuck’s website, please click here.

Getting to Appeals in an Estate or Gift Tax Audit with Pending Information Requests

Ain’t gonna happen! So says the IRS in guidance released by the IRS, at least in most circumstances.

In a memo to IRS estate and gift tax examination employees, the IRS advises:

1.) If information requested by the IRS in an IDR (Form 4564, Information Document Request) or other correspondence is not provided, the auditor’s group manager will discuss the case with the taxpayer to facilitate the receipt of the information. Generally, the case should not be sent to Appeals until the information has been provided.

2.) If the requested information is provided, or the taxpayer advises there is no additional information, then the auditor should issue a 30-day letter and provide the taxpayer with the opportunity to request an Appeals conference.

3.) If the requested information is not provided and the taxpayer has not advised there is no additional information, then the initial examination report should be issued, along with Letter 5262-D, Additional Information Due – Estate and Gift, along with the original IDR or a new IDR incorporating the undelivered items. The taxpayer will then have 15 days to provide or confirm they do not have the requested information. After certain prescribed contacts with the taxpayer, if the taxpayer refuses to provide the requested information, then the examiner should close the case to Technical Services for issuance of a statutory notice of deficiency.

The policy is that the examiners are to be the first finders of fact and are responsible for taking relevant testimony and examining books, papers, records, memoranda, and returns. As such, factual items should not first be introduced at the appellate level, at least as to items requested by the IRS. The penalty for not providing the requested items is the loss of access to Appeals review.

As noted, if the taxpayer advises that there is no additional information available to respond to the request, this serves the same function as actually providing the information.

Memorandum for all SB/SE Estate and Gift Tax Employees regarding Interim Guidance on Letter 5262-D, Additional Information Due – Estate and Gift, dated January 30, 2015 (Control #: SBSE – 04-0115-0015).

We thank Chuck for reading The Thursday Report and for contributing to tax literature.

Gregory Gay’s Corner
The Baker Act

2 - Gregory Gay

Gregory G. Gay, Esquire is an attorney from Tarpon Springs who specializes in meeting the special needs of senior citizens and the disabled. Mr. Gay is also the author of the Florida Senior Legal Guide, the 8th edition of which can be purchased by clicking here. Our deepest thanks to Mr. Gay for making some of this content available to Thursday Report readers!

This week Gregory Gay’s series continues with a discussion of the purposes and specifications of the Baker Act statute in Florida, as well as a look at Guardian Advocate Provisions under the Baker Act.

Baker Act

The purpose of Florida’s mental health statute known as the Baker Act is to provide examination and short-term treatment for a person suffering from a mental illness. This statute also authorizes the court to order continued placement in certain circumstances if the person, because of his or her mental illness, suffers from self-neglect or is dangerous to self or others.

The intent of this statute is for a person in need of mental health treatment to be admitted as a patient to a facility on a voluntary basis, if competent to give express and informed consent to treatment. However, the statute also provides for involuntary placement, but only after authorized mental health professionals and a circuit judge confirm that it is necessary. The primary goal of the statute is to ensure that individual dignity and human rights are guaranteed to any person admitted as a patient to a mental health facility.

An involuntary psychiatric examination may be initiated by a law enforcement officer who has reason to believe a person appears to meet the criteria for an involuntary examination. It may also be initiated by an order of a circuit judge, if the application filed by one or more persons with the clerk of the court provides sufficient reason to believe another person is in need of a psychiatric examination. In addition, a request for an involuntary psychiatric examination can be initiated by a physician, clinical psychologist, psychiatric nurse, or licensed clinical social worker who has observed that person within the preceding 48 hours and finds (as a result of the observation) that the person meets the criteria for an involuntary examination.

The basis for the involuntary examination is if the person to be examined is mentally ill and without care or treatment, the person is likely to suffer from neglect or refuse to care for his or her self, or is likely to cause bodily harm to his or her self or others. This neglect or refusal of care must pose a real and present threat of substantial harm to the person’s well-being. The mentally ill person must be refusing voluntary examination or be unable to determine whether examination is necessary. It must also be apparent that harm to the person cannot be avoided through the help of willing family members or friends.

If the judge issues what is called an ex-parte order of if the professional signs a certificate stating that a person needs to be examined, the law enforcement officer must deliver the person to the nearest facility designated to receive patients under emergency conditions for a psychiatric evaluation. The person is then examined without unnecessary delay by a physician or clinical psychologist and may be given emergency treatment for the safety of the person or others. The person may not be detained at the facility for more than 72 hours. Within the examination period, the patient must be released or may give expressed and informed consent to continued voluntary placement, or a petition for involuntary placement must be signed by the facility administrator and filed with the clerk of the court. If a petition for involuntary placement is filed, a circuit judge or a hearing master appointed by the circuit judge must hold a hearing within five days to determine whether there is clear and convincing evidence to believe that the patient meets the criteria for involuntary placement. The maximum period for an involuntary commitment is six months.

At any time, a person held in a mental health facility or a relative, friend, guardian, guardian advocate, representative or attorney, or the Department of Children and Families, on behalf of such a person, may petition for a writ of habeas corpus to question the cause and legality of such detention. The petitioner can allege that the patient is being unjustly denied a right or privilege granted by law. The petitioner can request that the circuit court issue an order directing the hospital to respond to the writ.

Significant mental health laws relate to the voluntary admission to a mental health facility of a person 60 years of age or older who is presently residing at a nursing home, assisted living facility, adult day care center, or adult family care home and has previously been diagnosed as suffering from dementia. The statutes provide that an initial assessment of the patient’s ability to give informed consent to treatment is necessary before the person can be transferred from the care facility and admitted on a voluntary basis to a mental health facility.

This initial assessment must be performed by a state designated crisis service at the facility where the patient is residing. This requirement also applies to the voluntary admission of a person to a facility from a nursing home, assisted living facility, adult day care center, or adult family care home when all decisions concerning medical treatment are currently being made by a health care surrogate or proxy. If the designated crisis service cannot respond, the assessment may be performed by an authorized licensed professional who is not employed or under contract and does not have a financial interest in either the facility initiating the transfer nor the receiving facility to which the transfer may be made.

The statutes further state that within 24 hours after the voluntary admission of any patient to a treatment facility, the admitting physician must document in the patient’s clinical record that the patient is able to give informed consent for admission. If the patient is not able to give consent, the facility must discharge the patient or transfer him or her to involuntary status. Transferring the patient to involuntary status will assure that the patient receives a court hearing regarding his or her need for continued treatment.

The statues governing nursing homes, assisted living facilities, adult day care centers, and adult family care homes state that action may be taken by the Agency for Health Care Administration against such a facility for failure to follow the criteria and procedures provided in these mental health statutes. This action includes the right to deny, revoke, or suspend a license or to impose an administrative fine.

Guardian Advocate Provisions

The Baker Act statute provides that when a mentally ill person is involuntarily committed to a facility, a person known as a guardian advocate must be appointed by the court to make decisions regarding mental health treatment on behalf of a patient, if the patient is found incompetent to consent to treatment. The Baker Act statute provides that the court should give preference in the appointment of a guardian advocate to the person designated to make health care decisions in a health care surrogate designation. If the patient has not previously designated a health care surrogate, preference is then given to the patient’s spouse. If there is no spouse, then the following priority should be applied in appointing a guardian advocate:

  1. An adult child of the patient
  2. A parent of the patient
  3. The adult next-of-kin of the patient
  4. An adult friend of the patient
  5. An adult trained and willing to serve as the guardian advocate

The Baker Act statute also states that, unless the requirement is waived by the court, a guardian advocate must, prior to exercising his or her authority, attend a training course approved by the court. The training course must be a minimum of four hours and must include information about psychotropic medications that affect a person’s mental state, diagnosis of mental illness, the ethics of medical decision making, and duties of guardian advocates.

It is important to know that the Florida statutes state that a person may designate a separate surrogate to consent to mental health treatment if he or she is later determined by a court to be incompetent to consent to mental health treatment and a guardian advocate is appointed. However, unless the document designating the health care surrogate specifically states otherwise, the court assumes that the surrogate authorized to make health care decisions may also make decisions regarding mental health treatment.

Next time, Gregory Gay’s series will continue with a discussion on Medicaid nursing home financial assistance, including a look at eligibility and non-countable assets. If you would like to read the Florida Senior Legal Guide in its entirety, please visit http://www.seniorlawseries.com. Mr. Gay can be reached at gregg@willtrust.com.

Seminar Spotlight
Structuring Joint Exempt Step-Up Trusts: Evolving Tools to Maximize Step-Up in Basis

Seminar Panel

In an environment where the focus is shifting toward maximizing income tax basis step-up, counsel must be knowledgeable of all tools necessary to reach this goal. One tool that is beneficial for preserving both the inheritance tax exemption and basis step-up is the joint exempt step-up trust (JEST).

The JEST has the capacity to not only cause a step-up in income tax basis of all of the couple’s assets on the death of the first spouse, but also an additional step-up in income tax basis upon the death of the surviving spouse.

In order to achieve the entirety of the JEST benefits, counsel must be well-versed in the complex drafting techniques in light of IRS Technical Advice Memorandums and Private Letter Rulings. Additionally, the JEST structure preserves the assets of both spouses by protecting against undue influence, creditor claims, and possible future inheritance tax liability.

Christopher J. Denicolo, Partner at Gassman Law Associates; Alan S. Gassman, Partner at Gassman Law Associates, and Edwin P. Morrow, III, Esquire, Senior Wealth Specialist at Key Private Bank Wealth Advisory Services, will prepare estate planning counsel to use an estate planning tool specifically for inheritance tax exemption and income tax basis step-up preservation. Our experienced panelists will outline practical drafting techniques and explain ambiguities and risks in taking advantage of stepped-up basis.

The outline for the presentation is as follows:

  1. Basis step-up preservation techniques
  2. Exemption preservation techniques
  3. Applicability of IRS Technical Advice Memorandum
  4. Applicability of IRS Private Letter Rulings

The panel will review these and other key questions:

  • What are the best practices for structuring a JEST?
  • What drafting techniques must be implemented to maximize basis step-up at both the first-to-die and surviving spouse’s deaths?
  • What is the IRS guidance on this tool offered through the Technical Advice Memorandum and Private Letter Rulings?
  • Under what circumstances is the JEST most appropriate?

This CLE/CPE webinar will prepare estate planning counsel to use an estate planning tool specifically for estate tax exemption and income tax basis step-up preservation.

Please click here to register for this webinar produced by Stafford Publications, Inc. Register before February 27, 2015 and receive an Early Discount savings of $50.00.

Richard Connolly’s World
When You Die, Who Can Read Your Email?

Insurance advisor Richard Connolly of Ward & Connolly in Columbus, Ohio often shares with us pertinent articles found in well-known publications such as The Wall Street Journal, Barron’s, and The New York Times. Each week, we will feature some of Richard’s recommendations with a link to the articles.

This week, the article of interest is “When You Die, Who Can Read Your Email?” by Rachel Emma Silverman. This article was featured in The Wall Street Journal on February 1, 2015.

Richard’s description is as follows:

Many Internet companies strictly limit access to their customers’ accounts to the account holder, in accordance, they say, with federal privacy law. When an account holder dies, estate executors typically have to seek a court order to access the account, which can be expensive and time consuming – sometimes taking half a year or more – and isn’t always successful.

But under a Delaware law passed last summer, executors can now access online accounts without a court order, unless the deceased has instructed otherwise. Similar legislation is under consideration in several other states.

The new Delaware law also gives access to those serving as agents for the deceased under a power of attorney, as well as court-appointed guardians for those who are incapacitated, and to others serving in a fiduciary role.

Please click here to read this article in its entirety.

Thoughtful Corner
Business Etiquette Concerning Email Communication

When to Use the “Reply All” Function in Email Communication

Do not “reply all” in an email when another lawyer’s clients are copied unless you have explicit written consent from the other lawyer to copy his or her clients.

This is not implied by the fact that the lawyer sent you a letter or email and copied his or her clients. This violates a disciplinary rule and does not make the other lawyer happy, whether they tell you about this or not.

Conversely, when you are aware that everyone copied on an email should also be copied on the response, please “reply all.”

Quite often, our job when receiving an email is to make sure that the other people who should be copied have the information. Many people on smart phones and/or iPads hit “reply” but not “reply all.”

The world will be a better place when more people learn how to use the “reply all” button.

Sending Documents with an Email Message

Send documents in Word, not PDF, format so that the other side can verify that what you sent, when compared back to what they last saw, includes all changes.

When sending a document or attachment to somebody by email, consider not only attaching the attachment but also cutting and pasting it into the text of your email so that the person reviewing it does not have to open it separately. You never know when someone may be checking their email on a device that cannot open large attachments.

This is especially the case if you want to get a quick response from somebody who is having to work off of their phone or is older and perhaps not as adept with documents as you might be.

If you are sending an important document by email, ask an assistant to be sure to call the client if you don not get a response within a few hours, especially if this is a client who tends to trip over their emails.

Calls vs. Emails

Do not require someone to call you with a detail that can easily be handled by email or through secretary communication.

You may like to socialize, and you might not think about it all the time, but not expect to be called back by people who believe that the only purpose of the call is to handle something that could have been done without the need for a phone call.

If you need a phone call, offer times that you are available and let the person know by email how long the call needs to be and what it is about so they do not have to play telephone tag with you.

We will appreciate any questions, comments, or suggestions offered for the above article. It has been excerpted from a PowerPoint that we will present to third year law students and alumni (and you, too, if you would like to attend!) at the Ave Maria School of Law on a date to be determined. The presentation will be on professional acceleration. For more information, you can email Alan Gassman at agassman@gassmanpa.com or Janine Gunyan at janine@gassmanpa.com.

Humor from Heckerling!

One of our favorite writers and lecturers is Steve Akers of Bessemer Trust, and one of the best things Steve writes is his Heckerling Musings, which is a 145 page masterpiece describing what he has gleaned from the Heckerling Institute and other noteworthy themes. Steve just released his 2015 musings which cover the January 2015 proceedings very well.1

One feature that we noticed and really liked was his humor summary, which included the following:

On practice advice:
“First, it’s the client’s problem until it’s yours. Second, never make it yours.” – Howard Zaritsky

On representing family members in business succession planning:
“If any of the in-laws are attorneys, my fees go up 25%” – Lou Mezzullo

On the Code as entertainment:
“Section 1014 is a far more entertaining section than you had any right to expect.” – Howard Zaritsky

On dress code:
Upon Dennis Belcher’s expressing some surprise that Sam Donaldson was not wearing a suit coat at the Current Developments panel, Sam replied: “Someday, you might be cool, too, Dennis.”

On miscellaneous itemized deductions:
Miscellaneous itemized deductions are, at least, deductions, but they are subject to the §67 limit, meaning they are not deductible except to the extent they exceed 2% of adjusted gross income. “It’s like going to the prom with your sister. You’re at the prom, and that’s cool, but it’s with your sister. Those first seven or eight kisses are kind of awkward.” – Sam Donaldson

On academic affiliation:
“If you liked that joke, I’m at Georgia State University. If you didn’t, I’m from the University of Georgia.” – Sam Donaldson, a law professor at Georgia State University

On Texas:
“Texas has no income tax. By the way, we don’t have any services, but we’re content with that. We are never disappointed about what we didn’t pay for.” – Stacy Eastland

On perpetual trusts:
“In 28 states and the District of Columbia, by statute, you can have either a perpetual trust or a near perpetual trust. Some states have a gimmick where you can only have a trust for 360 years – which is older than the United States of America – or you can only have a trust for 1000 years – which ought to be long enough for any relatives that you’re going to care about.” – Sam Donaldson

On the definition of “perpetual”:
“For some reason, 1,000 years seems longer than perpetual.” – David Handler

On open-minded attorneys:
“Show me an attorney with an open mind, and I’ll show you an attorney with a head wound.” – Lou Mezzullo

To review Steve’s Heckerling Musings, please click here.

We thank Steve for all that he has done and continues to do for the estate planning industry and especially for his appearance at the February All Children’s Hospital program last week where he spoke on Estate Planning Current Developments and Hot Topics.

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1 Including coverage of the JEST Trust and how it cured a client’s arthritis, enabled her to thread a needle, and gave her a reason to send her husband offshore to Nevis to hold a stock certificate.

Upcoming Seminars and Webinars 

LIVE WEBINAR:

Alan Gassman and Barry Flagg, CPF, CLU, ChFC, GFS, of Veralytic will present a 22.5-minute webinar on PREMIUM FINANCING IN 15 MINUTES.

Date: March 4, 2015 | 5:00 p.m.

Location: Online webinar

Additional Information: To register, please click here or email Alan Gassman at agassman@gassmanpa.com for more information.

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LIVE FREE ETHICS CREDIT WEBINAR:

Alan Gassman and Dr. Srikumar Rao will present a free 50-minute webinar on HOW TO HANDLE STRESSFUL MATTERS IN AN ETHICAL WAY.

This webinar will qualify for 1 hour of CLE Ethics Credit and is classified as Advanced. See Professor Rao’s Ted Talk YouTube video, and you will understand how important this webinar might be to accelerating your law practice and enhancing your enjoyment of the practice as well. You can sign up for this free webinar by clicking here.

4 - Rao and Gassman

Dr. Srikumar Rao is the creator of the original Creativity and Personal Mastery (CPM) course that has helped thousands of executives and entrepreneurs achieve quantum leaps in effectiveness. He earned a Ph.D. in Marketing from Columbia University and has taught the course at Columbia University, Northwestern University, University of California at Berkeley, and the London School of Business. He is the author of Happiness at Work and Are You Ready to Succeed? which can be reviewed by clicking here. Are You Ready to Succeed? has been published in over 60 languages!

Date: March 5, 2015 | 12:30 p.m.

Location: Online webinar

Additional Information: Please email Alan Gassman at agassman@gassmanpa.com for more information.

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LIVE ORLANDO PRESENTATION:

THE ADVANCED HEALTH LAW TOPICS AND CERTIFICATION REVIEW 2015

Alan Gassman will speak at The Advanced Health Law Topics and Certification Review 2015 on HEALTHCARE TAX ISSUES.

To see the complete schedule for this program, please click here.

Date: March 6 – 7, 2015 ǀ Alan Gassman will speak on March 6 at 11:00 AM

Location: Hyatt Regency Orlando International Airport, 9300 Jeff Fuqua Blvd., Orlando, FL 32827

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

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LIVE WEBINAR:

Alan Gassman and Barry Flagg, CPF, CLU, ChFC, GFS, of Veralytic will present a 22.5-minute webinar on SPLIT-DOLLAR IN 15 MINUTES.

Date: March 17, 2015 | 5:00 p.m.

Location: Online webinar

Additional Information: To register, please click here or email Alan Gassman at agassman@gassmanpa.com for more information.

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LIVE WEBINAR:

Alan S. Gassman, Christopher J. Denicolo, and Edwin P. Marrow, III will present a 90-minute Strafford Publications, Inc. webinar entitled STRUCTING JOINT EXEMPT STEP-UP TRUSTS: EVOLVING TOOL TO MAXIMIZE STEP-UP IN BASIS.

In an environment wherein the focus is shifting toward maximizing income tax basis step-up, counsel must be knowledgeable of all tools necessary to reach this goal. One tool that is beneficial for preserving both the inheritance tax exemption and basis step-up is the joint exempt step-up trust (JEST).

This panel will review questions such as:

  • What are the best practices for structuring a JEST?
  • What drafting techniques must be implemented to maximize basis step-up at both the first-to-die and surviving spouse’s deaths?
  • What is the IRS guidance on this tool offered through the Technical Advice Memorandum and Private Letter Rulings?
  • Under what circumstances is the JEST most appropriate?

Date: Tuesday, March 24, 2015 | 1:00 PM – 2:30 PM

Location: Online Webinar

Additional Information: For more information or to register, please click here. You may also email Alan Gassman at agassman@gassmanpa.com.

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LIVE WEBINAR:

Alan Gassman and Barry Flagg, CPF, CLU, ChFC, GFS, of Veralytic will present a 30-minute webinar on COMPARING THE FINANCIAL STRENGTH AND RISKS ASSOCIATED WITH DIFFERENT LIFE INSURANCE CARRIERS.

Date: March 31, 2015 | 5:00 p.m.

Location: Online webinar

Additional Information: To register, please click here or email Alan Gassman at agassman@gassmanpa.com for more information.

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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:  Alan Gassman, Jerry Hesch, and Richard Oshins 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 Richard Oshins on 11 Outstanding Planning Ideas, Jonathan Gopman on Asset Protection, 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.

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LIVE MIAMI PRESENTATION:

FLORIDA BAR WEALTH PRESERVATION PROGRAM 

Denis Kleinfeld and Alan Gassman have released the schedule and topics for FUNDAMENTALS OF ASSET PROTECTION, AND ADVANCED STRATEGIES. This seminar will be presented on May 7th and May 8th, 2015, and is sponsored by the Tax Section of the Florida Bar.  Attendees can select one day or the other, or to attend both days.

Day One will be for fundamentals and will be an excellent review or an introduction to the basic rules and practice aspects of creditor protection planning for both new and experienced practitioners.

Day Two will be an advanced treatment of creditor protection and associated planning, which will be of great use to both new and experienced practitioners.

Date: May 7 – 8, 2015

Location: Hyatt Regency Miami, 400 SE 2nd Avenue, Miami, FL 33131

Additional Information: To pre-register for this conference, please click here. For more information, please email Alan Gassman at agassman@gassmanpa.com.

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LIVE STUART, FLORIDA PRESENTATION

Alan Gassman will be speaking at the Martin County Estate Planning Council Annual Seminar on the topic of JESTs, TRUST PLANNING FROM A TO Z, AND WHAT YOU THOUGHT YOU KNEW ABOUT ESTATE PLANNING.

Date: May 15, 2015 | 8:15 AM – 4:30 PM | Alan Gassman speaks at 9:00 AM

Location: Stuart Corinthian Yacht Club, 4725 SE Capstan Avenue, Stuart, FL 34997

Additional Information: For more information, please email Alan Gassman at agassman@gassmanpa.com or Lisa Clasen at lclasen@kslattorneys.com.

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LIVE FLORIDA INSTITUTE OF CPAs (FICPA) WEBINAR

Alan Gassman, Ken Crotty, and Chris Denicolo will present a webinar on A PRACTICAL TRUST PLANNING CHECKLIST AND PRACTITIONER COMPLIANCE GUIDE FOR FLORIDA CPAs for the Florida Institute of CPAs.

Review a practical planning checklist and practitioner tax compliance guide to facilitate implementing a comprehensive overview of practical planning matters and tax compliance issues in your practice. This presentation will cover over 20 common errors and missed planning opportunities that accountants need to understand and counsel their clients on.

This course is designed for practitioners who wish to assure that trust planning structures and compliance are both aligned with client objectives and that common catastrophic errors and misconceptions can be corrected.

Past attendees have indicated that this is an interesting and practical presentation that offers a great deal of practical information for both compliance and planning functions, based upon an easy to follow checklist approach.  Includes valuable materials.

Date: May 21, 2015 | 10:00 a.m.

Location: Online webinar

Additional Information: For more information, please contact Alan Gassman at agassman@gassmanpa.com or Thelma Givens at givenst@ficpa.org. To register, please click here.

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LIVE SARASOTA PRESENTATION:

2015 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: Friday, October 23rd and Saturday, October 24th, 2015

Location: To Be Determined

Additional Information: Please contact Alan Gassman at agassman@gassmanpa.com for more information.

Notable Seminars by Others
(These conferences are so good that we were not invited to speak!)
 

LIVE PRESENTATION:

2015 FLORIDA TAX INSTITUTE

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

Location: Grand Hyatt Tampa Bay, 2900 Bayport Drive, Tampa, FL 33607

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

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LIVE ORLANDO PRESENTATION:

50TH ANNUAL HECKERLING INSTITUTE ON ESTATE PLANNING

Date: January 11 – January 15, 2016

Location: Hotel information to be announced

Additional Information: Information on the 50th Annual Heckerling Institute on Estate Planning will be available on August 1, 2015. To learn about past Heckerling programs, please click here.

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.

5 - Rates

The Thursday Report – 2.12.15 – We Have Never Been in a War Helicopter

Posted on: February 12th, 2015

Delaware Trusts and the Statute of Limitations

Big Changes to the Rising Costs of State University Tuition

Obtaining a Taxpayer Identification Number

The New Rules of Estate Planning Question & Answer

Gregory Gay’s Corner – Health Care Surrogate Designations

Richard Connolly’s World – When a Will is Not Enough and Law School is Buyers’ Market with Top Students in Demand

Thoughtful Corner – Let’s All Slow Down by Gregory W. Coleman, President of the Florida Bar

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.

Delaware Trusts and the Statute of Limitations
by Travis Arango

TrustCo Bank v. Mathews is an ongoing Delaware case in which the judge has determined that a self-settled spendthrift trust will not be accessible to a creditor who has claimed that the grantor maintained “impermissible control” over property transferred to it. This will be the first of our continuing coverage and analysis of this important case.

Executive Summary:

TrustCo Bank v. Mathews is a case that involves a potential fraudulent transfer and an attempt by a creditor to gain access to these funds. The issue of whether the transfers are fraudulent was never discussed as a more pressing issue arose: whether the statute of limitations had run and which state’s statute applied. The case involved contacts in Delaware, Florida, and New York. The plaintiffs argued that New York law applied, while the defendants argued that Delaware or Florida law applied. You can probably guess that New York has the longer statute of limitations while Delaware and Florida have shorter statutes. The plaintiffs also contended that Ms. Mathews maintained impermissible control over the property that was transferred and thus, the Qualified Dispositions in Trust Act (QDTA) does not apply. The court stated, “I find it unnecessary to resolve the question of whether, in this case, the QDTA requires application of Delaware’s fraudulent transfer statute of limitation without regard to the normal choice of law analysis or the borrowing statute.” In the end, the plaintiff’s claims were barred for many reasons, regardless of which state law was used.

Facts:

In TrustCo Bank v. Mathews[1] the plaintiff TrustCo Bank had given a loan for $9,300,000 to the defendant StoreSmart, a Florida LLC. Ms. Mathews, a resident of Florida, had personally guaranteed the loan. Mathews had created three Delaware trusts in 2006. StoreSmart defaulted on the loan in 2011, and a foreclosure action was filed against it. A judgment was rendered in 2011 in favor of TrustCo for $8.2 million. TrustCo assigned its right in the foreclosure judgment to ORE in 2012. Plaintiffs, ORE and TrustCo, claimed that the transfers to the three trusts were fraudulent. However, the issue of whether the transfers were fraudulent or not was not reached by the court since the issue became whether the statute of limitations had run. “The parties dispute whether the initial transfers that funded the Three Trusts were fraudulent at all…however, I need not resolve this dispute.”[2]

There were two sets of transfers that occurred in January of 2007 where Ms. Mathews transferred stock to two of the trusts. The Plaintiffs claimed that they did not have sufficient notice of the transfers until July 19, 2011. Defendants stated that the Plaintiffs had multiple occasions of notice. One such time was when Ms. Mathews presented a financial statement showing a net worth of $11,773,446 on March 25, 2008. Then on April 11, 2008, a revised statement was sent to TrustCo showing her net worth at $5,578,857, and disclosed the presence of new irrevocable trusts. This statement also included information on the trusts.

The issue became what state statute of limitations would apply: Florida, Delaware, or New York. Under New York law, the statute of limitations states that a claim must be brought within “the greater of six years from the date the cause of action accrued or two years from the time the plaintiff or the person under whom the plaintiff claims discovered the fraud, or could with reasonable diligence have discovered it.”[3] Under Delaware law, a claim must be brought “within 4 years after the transfer was made or the obligation was incurred or, if later, within 1 year after the transfer or obligation was or could reasonably have been discovered by the claimant.”[4] Florida’s statute of limitations is the same as Delaware’s. The court stated that if Delaware or Florida’s statute applies then the transfers are outside the limitations period.

There is a general rule that the court is to apply the forum state’s statute of limitations. However, Delaware modified this rule with its “Borrowing Statute,” which states:

Where a cause of action arises outside of this State, an action cannot be brought in a court of this State to enforce such cause of action after the expiration of whichever is shorter, the time limited by the law of this State, or the time limited by the law of the state or country where the cause of action arose, for bringing an action upon such cause of action. Where the cause of action originally accrued in favor of a person who at the time of such accrual was a resident of this State, the time limited by the law of this State shall apply. [5]

The Delaware Supreme Court has stated that there are some situations where the Borrowing Statute does not apply.[6] The exception to the statute is only when absurdity would result. The plaintiffs attempted to argue that the dispute arose only out of New York, and that it would not be fair to use the Borrowing Statute. However, the court stated that the contacts to New York are not as important as the plaintiffs claim. [7]

The court used the “most significant relationship” test to determine what state the cause of action arose out of. The court held that Florida had the most significant relationship, with Delaware a close second, and New York being last. The court was careful to point out that, even if it had found that New York has the most significant relationship, there is nothing in the facts that would allow an exception to the Borrowing Statute rule. Thus, the court held that the stock transfer claims were barred by the statute of limitations.

The court then gave an analysis as if the New York statute of limitations applied. The court held that, even if it applied, the claim was still barred. New York law has a duty of inquiry, which reads as follows:

“Where the circumstances are such as to suggest to a person of ordinary intelligence the probability that he has been defrauded, a duty of inquiry arises, and if he omits that inquiry when it would have developed the truth…knowledge of the fraud will be imputed to him.” [8]

The defendants had shown evidence of four other dates prior to July 19, 2011, where the plaintiffs had notice of the allegedly fraudulent transfer. The evidence consisted of deposition testimony in 2010 where the transfers were discussed. Thus, this shows that TrustCo had an official that was aware of the transfers by July 2010 and because they filed suit in March 2013, their claims were untimely under New York law.

Comment:

Vice Chancellor Parsons’ opinion is extremely well-written. I appreciate his thoroughness because most opinions will select the law that is to be used and just analyze it from that perspective. Here, however, Vice Chancellor Parsons not only applied the correct law but also analyzed the issues under the other laws in case he chose the wrong state law from the outset. This does not leave the reader guessing as to what would have happened if another state statute of limitations had applied. The analysis given seems correct and helps to support the proposition that asset protection trusts situated in states that have favorable statute of limitations and “borrowing” statutes can have important advantages for those who wish to protect their assets from creditor situations that have not yet arisen.

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[1] A copy of the case can be found at http://courts.delaware.gov/opinions/download.aspx?ID=218050
[2] Id.
[3] N.Y. C.P.L.R. § 213(8).
[4] 6 Del. C. § 1309.
[5] 10 Del. C. § 8121.
[6] The court goes on to talk about Saudi Basic Industries Corp. v. Mobil Yanbu Petrochemical Co. 866 A.2d 1 (Del. 2005). In this cause, a Saudi Arabian sued his joint venture partners in Delaware. Saudi Basic argued that the Borrowing Statute required the court to use the Delaware statute of limitations. However, the court did not apply the statute because under Saudi law, the claims were “eternal,” and had no limitation period. The court held that applying the statute would “subvert the statute’s fundamental purpose…” Id. At 18-19.
[7] The court cited to Juran v. Bron 2000 WL 1521478 (Del. Ch. Oct. 6, 2000) and stated that this situation is not as severe as the facts in Juran.
[8] Gutkin v. Siegal, 926 N.Y.S.2D 485, 486 (A.D. 2011) (quoting Armstrong v. McAlpin, 699 F.2d 79, 88 (2d Cir. 1983)) (internal quotations omitted).

Big Changes to the Rising Costs of State University Tuition
by Travis Arango

Florida has been called many things, such as the Sunshine State or the Gunshine State, but what we should be known for is affordable state colleges. Florida has seven schools in the top seventy top values in public colleges and universities. Of the Top 10, the University of Florida, which comes in at number three, has the lowest total in-state cost.1 These costs will only get better, as House Bill 851 takes effect.2

House Bill 851 became law July 1, 2014. It reduces future costs at state universities. The bill accomplishes this by limiting increase of the Tuition Differential Fee that occurs annually. The maximum increase has been changed from 15% to 6%.3

People who purchased Florida Prepaid plans can already see these effects. Florida Prepaid sent out a letter stating that because of these changes, the monthly price has been drastically reduced. One customer had his monthly price of $879.52 reduced to $443.69. This decrease will add up to a total savings of $23,970.65 for that particular plan. This particular customer even got a refund check based on an overpayment to the account because of these changes. This is a serious change that any parent should be happy about.

If someone with an 8 year old child plans for that child to go to college in 2025 when they are 18, the monthly payment plan is $250.80, the 5 year payment plan is $522.69 and the lump sum payment is $27,250.34.

It is good to see that Florida is taking steps to stop the rise of education costs and to slow down the student loan debt crisis that many young Americans face today and will face in the future. This is certainly a step in the right direction and a big step nonetheless.

To see a copy of House Bill 851, please click here.

For more information about this topic, please click here.

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1 Kiplinger’s Best College Values
2 Bill Text
3  Tampa Bay Times. “Florida Gov. Rick Scott signs bill to give in-state tuition to undocumented students.” June 9, 2014.

Obtaining a Taxpayer Identification Number

The following details how to obtain a taxpayer identification number and is excerpted from our New Entity Formation Letters.

Taxpayer Identification Number Application (Form SS-4):

Please click here to download the Form SS-4 Application for Employer Identification Number.

A taxpayer identification number can be obtained for [NAME OF ENTITY] in one of several ways. Please indicate which of the choices below you would prefer to use in order to obtain a taxpayer identification number. We typically suggest using alternative A, whereby you can simply execute the attachments and send them to our office so that we can handle this on your behalf with the IRS.

  1. Our office can contact the IRS on your behalf by internet to obtain the taxpayer identification number (“EIN”). This procedure requires that we have a signed and completed Form SS-4 (Taxpayer Identification Number Application) in our possession, which can be faxed, e-mailed, or physically given to us. If you want us to contact the IRS in this manner, please sign the attached Form SS-4, insert your social security number at Item 7b, and return the form to us by fax, email, or mail.
  2. You can fax the signed and completed Form SS-4 to the Internal Revenue Service at FAX-TIN: 1-631-447-8960. You must provide your fax number so that the IRS can fax the EIN back to you, which fax should be sent within 4 business days. By using this procedure, you are authorizing the IRS to fax the EIN without a cover sheet. Please feel free to provide the IRS with our fax number if you want us to receive this information from them.
  3. You can obtain this on the Internet (instantaneously) by going to irs.gov with the attached SS-4 form and answering the questions consistent with how we have filled out this form. After logging onto the website, select “Online EIN Application” located on the left-hand side under Online Tools. Scroll down and click on “Apply Online Now.” Please note, the information contained under the Third Party Designee portion of the form we have provided is only necessary when our office is applying for the EIN and not relative to the online process. Once you have completed the online application, an EIN will be issued immediately. You will be given the option of printing out an official letter awarding the EIN, and we recommend that you print this letter for your records and please provide your accountant and our office with copies.

In addition to applying for a taxpayer identification number, you will also need to apply for, register for, or comply with any and all other tax or governmental requirements, including but not limited to state sales tax, social security withholding, federal unemployment tax, state unemployment insurance tax, state corporate income tax, state intangible tax, county intangible and tangible tax, workers’ compensation, state and local occupational licenses, etc. Some of these may not be applicable to your particular business.

The New Rules of Estate Planning Question & Answer

A few months ago, we received the following email from a client:

Alan,

I read a Wall Street Journal article this weekend on “The New Rules of Estate Planning.” It mentioned that exemption equivalent trusts aren’t needed anymore due to the portability of the estate tax exemption between married couples (which we’ve discussed). It went on to say that the trusts may hurt tax-wise due to the loss of step-up in basis at the first death.

What are your thoughts on this, and should we meet to discuss?

Thanks for your thoughts,

John Client

We responded with the following email:

John,

The portability allowance does not grow with the CPI, and a credit shelter trust formed on the first death can grow as the investments grow. The portability allowance is lost or reduced if the surviving spouse remarries and the new spouse dies before the surviving spouse and leaves no such allowance, or leaves a smaller allowance, or has a personal representative that refuses to fill out the necessary estate tax return forms to allow for the allowance.

We do have new language that we use to give the surviving spouse and the Trustees the ability to decide whether to use portability or fund the credit shelter trust after the first death, and to also allow for a stepped up basis on the second death to allow for capital gains avoidance if the estate tax goes away or is less than the capital gains tax up the road.

It would be easy to add this language to your existing trusts.

It never hurts to have a sit-down review of where you stand. Please let me know if you have any other questions, thoughts, or comments.

Best regards,

Alan Gassman

To see the Wall Street Journal article in question, please click here.

Gregory Gay’s Corner
Health Care Surrogate Designations

2 - Gregory Gay

Gregory G. Gay, Esquire is an attorney from Tarpon Springs who specializes in meeting the special needs of senior citizens and the disabled. He is Board Certified in Wills, Trusts & Estates and in Elder Law by the Florida Bar. He has also been named a Certified Advanced Practitioner by the National Elder Law Foundation.

Mr. Gay is the author of the Florida Senior Legal Guide, the 8th edition of which can be purchased by clicking here. In the coming weeks, we will be profiling some of the best chapters from this excellent publication. Our deepest thanks to Mr. Gay for making this content available to Thursday Report readers!

This week Gregory Gay’s series continues with a brief conversation on health care surrogate designations, including what this means, what role the surrogate plays, and how a health care surrogate can be established.

Health Care Surrogate Designations

A person is presumed to be capable of making health care decisions until determined to be incapable of making such decisions. A patient is considered incapable of making health care decisions only after the patient’s attending physician gives an opinion that the patient lacks the mental ability to make health care decisions or give informed consent. The attending physician will indicate this in the patient’s medical chart.

Before becoming incapacitated, a person can sign a written document that names another person as a surrogate to make his or her health care decisions. This document must be signed by the person making the designation in the presence of two adult witnesses. A person physically unable to sign this document may, in the presence of two subscribing witnesses, direct that another person sign the document for him or her. The person who is to serve as the surrogate cannot serve as a witness to the signing of the document. At least one of the witnesses must be someone other than the patient’s spouse or blood relative. A document designating a health care surrogate may also designate an alternate surrogate. The alternate surrogate may assume his or her duties as surrogate if the person originally named as surrogate is unwilling or unable to perform his or her duties.

A health care surrogate has the authority to make all health care decisions for the person during a time of mental incapacity. A person may designate a separate surrogate to consent to mental health treatment in the event he or she is determined by a court to be incompetent to consent to mental health treatment and a guardian advocate is appointed.

The surrogate must make all health care decisions in accordance with the previous instructions of the person for whom he or she is serving. Health care decisions include consenting, refusing to consent, or withdrawing consent to any and all heath care, including life-prolonging procedures. If there is no indication of what the principal would have chosen, the surrogate may consider the patient’s best interest in deciding that proposed treatments are to be withheld or that treatments currently in effect are to be withdrawn. Health care decisions also include applying for private, public, government, or veterans’ benefits to defray the cost of health care. A health care surrogate also has the right to access all medical records of the person who designated him or her that are necessary for the health care surrogate to make decisions involving health care and to apply for benefits.

A surrogate’s authority to make health care decisions remains in effect until there is a determination that the person who signed the health care designation has regained the capacity to make medical decisions. Upon the commencement of the surrogate’s authority, the patient’s spouse and adult children must be notified that such an appointment has been made and that the surrogate has the authority to make decisions for the patient.

If the surrogate is not able or not willing to make health care decisions according to the patient’s wishes and no alternate health care surrogate is named, the health care facility caring for the patient may seek the appointment of a health care proxy.

Next time, Gregory Gay’s series will continue with a discussion of the purposes and specifications of the Baker Act statute, as well as a look at Guardian Advocate Provisions under the Baker Act. If you would like to read the Florida Senior Legal Guide in its entirety, please visit http://www.seniorlawseries.com. Mr. Gay can be reached at gregg@willtrust.com.

Richard Connolly’s World Double Header:
“When a Will is Not Enough” &
“Law School is Buyers’ Market with Top Students in Demand”

Insurance advisor Richard Connolly of Ward & Connolly in Columbus, Ohio often shares with us pertinent articles found in well-known publications such as The Wall Street Journal, Barron’s, and The New York Times. Each week, we will feature some of Richard’s recommendations with a link to the articles.

This week, the first article of interest is “When a Will is Not Enough” by Lindsay Gellman. It was featured in The Wall Street Journal on November 15, 2014.

Richard’s description is as follows:

When there’s a will, there’s a way – and sometimes an ugly family feud.

To head off bickering over your personal possessions, consider supplementing your will with a letter of instruction…

Unlike a will, the letter of instruction is not legally binding, but it can be a helpful road map for your family in your absence and can provide more detail than is customary in a will.

Please click here to read this article in its entirety.

Our second article of interest this week is “Law School is Buyers’ Market, with Top Students in Demand” by Elizabeth Olson. This article was featured in The New York Times on December 1, 2014.

Richard’s description is as follows:

Summer was waning and students were already packing for the fall semester, but Professor Daniel B. Rodriguez, dean of the Northwestern University School of Law, was still fielding phone calls from incoming students seeking to bargain down the tuition at the elite school.

“It’s insane,” Professor Rodriguez said. “We’re in hand-to-hand combat with other schools.”

In the new topsy-turvy law school world, students are increasingly in control as nearly all of the 204 accredited law schools battle for the students with the best academic credentials.

“Students are voting with their feet and demanding a better deal,” said Professor Rodriguez of Northwestern, who is also president of the Association of American Law Schools. “And they are willing to spend less,” he said, meaning they are seeking the best deal.

Please click here to read this article in its entirety.

Thoughtful Corner
Let’s All Slow Down
by Gregory W. Coleman

Coleman Final

Gregory W. Coleman has been practicing law in Palm Beach County for more than two decades. He joined the Law Firm of Critton, Luttier & Coleman in 1995 and was named partner in June of 2000. In June 2014, he was sworn in as President of The Florida Bar. Coleman has been awarded the Florida Bar President’s Award of Merit by The Florida Bar three times; he is the first lawyer in Florida to receive such a distinction.

The following was published in The Florida Bar Journal in February 2015. You can see the original post by clicking here. Thanks to Gregory for allowing us to share this great article with our Thursday Report readers!

Let’s All Slow Down

Is it me or is the world we live in moving faster and faster? I remember the days when the only distraction at work was my phone, and it had a cord.

Today, we are bombarded with an endless array of digital information and communication. We feel compelled to constantly check our emails, text messages, Facebook page, Twitter account, voicemails, etc, etc, etc.

This never-ending cycle of checking our devices for mostly useless information has created a society of people who are constantly distracted and unable to focus on any one thing for more than five minutes. This is not a good thing.

Fifteen years ago, a trial lawyer could take a paper file and sit in a conference room undisturbed. He or she could spread out the pleadings, depositions, discovery, and exhibits and carefully, thoughtfully, and diligently create a strategy for the case. This quiet time was absolutely critical to creative and analytical thinking. As lawyers, this is what we were trained to do. He or she could really think about the case and use his or her education and training to properly prepare the matter for trial.

These uninterrupted blocks of time seem to be long gone. Today, the same lawyer often will not isolate himself or herself in the way necessary to conduct this thoughtful exercise. Instead, we run from email-created emergency to emergency. We are constantly putting out small fires or trying to avoid them.

Everyone today seems to expect an instant response to their instant communication. Often, if an email is not returned within 30 minutes, the client, opposing counsel, or managing partner is sending a follow-up email asking why you did not respond to this missive…and the cycle continues.

Additionally, instant communication sometimes creates an instant response often attached to an instant emotion. Fifteen years ago, if you received a nasty letter, you could dictate a nasty response, and it would take a day or so for you to get it back from your assistant. When you received the draft back, you would cross out all of the nasty parts of the response because there was a built-in cooling-off period. Today, people often respond with a visceral reaction due to the instant emotion.

So what do we do to combat this digital epidemic? We need to learn to use more self-control. We need to learn to use restraint. We need to take a deep breath and wait before we hit the “reply” button when we receive a nasty communication.

We need to slow down. This is easier said than done, but I am convinced we can do this together.

We also need to learn to step away from our devices. We need to re-engage with our surroundings. Watch a sunset or simply listen to the waves. Hug your child or loved one. Soak up a little bit of this beautiful world we live in, and remember, it won’t last forever.

Humor! (or Lack Thereof!)

Alan Gassman is back stateside again, but if you tried to email him while he was away on his tour of Italy, you might have received one of the following messages in return, written by Alan and Kristen Sweeney.

Rome

Great to hear from you, but I’m not at home-a,
I’m currently visiting the city of Roma.
There’s pasta to eat,
And a cool Pope to meet,
I hear the Pantheon’s just a big dome-a.

Did you know that Italy measures wine by the liter?
And the biggest church here is the home of St. Peter?
I’m so excited that I can
Go visit the Vatican,
I hope a Swiss guard is my greeter.

On seven great hills the city was founded,
By men raised by wolves- you could say they were “hounded.”
One killed the other,
Although they were brothers,
In this history Roma is grounded.

Marcia, Brent, and I are planning to visit,
Old Trevi Fountain, magical- is it?
Lots of museums,
And of course the Colosseum,
Before you toss your coin, kiss it!

Before you fret or say what a hack!
I’m definitely coming back.
Maribeth or Tina are your guides,
They are always on your side,
So that nothing you need you will lack.

Pompeii

I’ve left on a trip,
To a place pretty hip,
We are away to visit Pompeii.

There’s a whole lot here stewin’,
It’s more than just ruin,
I’ll tell Brent and Marcia you said hey.

Though Pompeii’s pretty tiny,
It’s famous from Pliny,
Who wrote all about it in a letter.

There was lots of destruction,
A population reduction,
Events not exactly for the better.

The gold and the cash
Were all trapped in the ash
When the great big volcano erupted.

Although you could say,
In a curious way,
Those assets could now be deducted.

If you should need help,
Give Maribeth or Tina a yelp,
(You can always bribe them with guava).

They’re totally free,
To take notes for me,
Until I’m done exploring the lava.

Upcoming Seminars and Webinars

LIVE WEBINAR:

John D. Goldsmith and Alan S. Gassman will present a webinar on BP OIL SPILL CLAIMS – IMPORTANT ISSUES FOR ADVISORS.

Date: February 17, 2015 | 12:30 p.m.

Location: Online webinar

Additional Information: To register for this webinar, please click here or email agassman@gassmanpa.com for more information.

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LIVE WEBINAR:

Alan Gassman and Barry Flagg, CPF, CLU, ChFC, GFS, of Veralytic will present a 22.5-minute webinar on CRITICISM OF HYBRID INDEX LIFE INSURANCE PRODUCTS – WHAT THE HECK ARE THESE AND WHY ARE THEY BECOMING SO POPULAR?

Date: February 18, 2015 | 5:00 p.m.

Location: Online webinar

Please note the below announcements for subsequent installments of this series:

March 4, 2015 – Premium Financing in 22.5 Minutes

March 17, 2015 – Split-Dollar in 22.5 Minutes

March 31, 2015 – Comparing the Financial Strength and Risks Associated with Different Life Insurance Carriers

Gassman, Crotty & Denicolo, P.A., and The Thursday Report receive no direct or indirect compensation from any investment advisors and have no financial relationship with Barry Flagg or Veralytic. We thank Barry for putting together what we are sure will be an informative and objective program!

Additional Information: To register, please click here or email Alan Gassman at agassman@gassmanpa.com for more information.

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LIVE FREE ETHICS CREDIT WEBINAR:

Alan Gassman and Dr. Srikumar Rao will present a free 50-minute webinar on HOW TO HANDLE STRESSFUL MATTERS IN AN ETHICAL WAY.

This webinar will qualify for 1 hour of CLE Ethics Credit and is classified as Advanced. See Professor Rao’s Ted Talk YouTube video, and you will understand how important this webinar might be to accelerating your law practice and enhancing your enjoyment of the practice as well. You can sign up for this free webinar by clicking here.

4 - Rao and Gassman

Dr. Srikumar Rao is the creator of the original Creativity and Personal Mastery (CPM) course that has helped thousands of executives and entrepreneurs achieve quantum leaps in effectiveness. He earned a Ph.D. in Marketing from Columbia University and has taught the course at Columbia University, Northwestern University, University of California at Berkeley, and the London School of Business. He is the author of Happiness at Work and Are You Ready to Succeed? which can be reviewed by clicking here. Are You Ready to Succeed? has been published in over 60 languages!

Date: February 19, 2015 | 12:30 p.m.

Location: Online webinar

Additional Information: Please email Alan Gassman at agassman@gassmanpa.com for more information.

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LIVE AVE MARIA SCHOOL OF LAW PROFESSIONAL ACCELERATION WORKSHOP

Alan Gassman will present a full day workshop for third year law students, alumni and professionals at Ave Maria School of Law.  This program is designed for individuals who wish to enhance their practice and personal lives.

Date: February 21, 2015 | 8:30am – 5pm

Location: Ave Maria School of Law, 1025 Commons Cir, Naples, FL 34119

Additional Information: To see the official program for this workshop, please click here.

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

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LIVE WEBINAR:

Alan Gassman and Barry Flagg, CPF, CLU, ChFC, GFS, of Veralytic will present a 22.5-minute webinar on PREMIUM FINANCING IN 15 MINUTES.

Date: March 4, 2015 | 5:00 p.m.

Location: Online webinar

Additional Information: To register, please click here or email Alan Gassman at agassman@gassmanpa.com for more information.

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LIVE ORLANDO PRESENTATION:

THE ADVANCED HEALTH LAW TOPICS AND CERTIFICATION REVIEW 2015

Alan Gassman will speak at The Advanced Health Law Topics and Certification Review 2015 on HEALTHCARE TAX ISSUES.

To see the complete schedule for this program, please click here.

Date: March 6 – 7, 2015 ǀ Alan Gassman will speak on March 6 at 11:00 AM

Location: Hyatt Regency Orlando International Airport, 9300 Jeff Fuqua Blvd., Orlando, FL 32827

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

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LIVE WEBINAR:

Alan Gassman and Barry Flagg, CPF, CLU, ChFC, GFS, of Veralytic will present a 22.5-minute webinar on SPLIT-DOLLAR IN 15 MINUTES.

Date: March 17, 2015 | 5:00 p.m.

Location: Online webinar

Additional Information: To register, please click here or email Alan Gassman at agassman@gassmanpa.com for more information.

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LIVE WEBINAR:

Alan Gassman and Barry Flagg, CPF, CLU, ChFC, GFS, of Veralytic will present a 30-minute webinar on COMPARING THE FINANCIAL STRENGTH AND RISKS ASSOCIATED WITH DIFFERENT LIFE INSURANCE CARRIERS.

Date: March 31, 2015 | 5:00 p.m.

Location: Online webinar

Additional Information: To register, please click here or email Alan Gassman at agassman@gassmanpa.com for more information.

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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:  Alan Gassman, Jerry Hesch, and Richard Oshins 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 Richard Oshins on 11 Outstanding Planning Ideas, Jonathan Gopman on Asset Protection, 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.

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LIVE MIAMI PRESENTATION:

FLORIDA BAR WEALTH PRESERVATION PROGRAM 

Denis Kleinfeld and Alan Gassman have released the schedule and topics for FUNDAMENTALS OF ASSET PROTECTION, AND ADVANCED STRATEGIES. This seminar will be presented on May 7th and May 8th, 2015, and is sponsored by the Tax Section of the Florida Bar.  Attendees can select one day or the other, or to attend both days.

Day One will be for fundamentals and will be an excellent review or an introduction to the basic rules and practice aspects of creditor protection planning for both new and experienced practitioners.

Day Two will be an advanced treatment of creditor protection and associated planning, which will be of great use to both new and experienced practitioners.

Date: May 7 – 8, 2015

Location: Hyatt Regency Miami, 400 SE 2nd Avenue, Miami, FL 33131

Additional Information: To pre-register for this conference, please click here. For more information, please email Alan Gassman at agassman@gassmanpa.com.

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LIVE FLORIDA INSTITUTE OF CPAs (FICPA) WEBINAR

Alan Gassman, Ken Crotty, and Chris Denicolo will present a webinar on A PRACTICAL TRUST PLANNING CHECKLIST AND PRACTITIONER COMPLIANCE GUIDE FOR FLORIDA CPAs for the Florida Institute of CPAs.

Review a practical planning checklist and practitioner tax compliance guide to facilitate implementing a comprehensive overview of practical planning matters and tax compliance issues in your practice. This presentation will cover over 20 common errors and missed planning opportunities that accountants need to understand and counsel their clients on.

This course is designed for practitioners who wish to assure that trust planning structures and compliance are both aligned with client objectives and that common catastrophic errors and misconceptions can be corrected.

Past attendees have indicated that this is an interesting and practical presentation that offers a great deal of practical information for both compliance and planning functions, based upon an easy to follow checklist approach.  Includes valuable materials.

Date: May 21, 2015 | 10:00 a.m.

Location: Online webinar

Additional Information: For more information, please contact Alan Gassman at agassman@gassmanpa.com or Thelma Givens at givenst@ficpa.org. To register, please click here.

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LIVE SARASOTA PRESENTATION:

2015 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: Friday, October 23rd and Saturday, October 24th, 2015

Location: To Be Determined

Additional Information: Please contact Alan Gassman at agassman@gassmanpa.com for more information.

Notable Seminars by Others
(These conferences are so good that we were not invited to speak!)
 

LIVE ST. PETERSBURG PRESENTATION:

ALL CHILDREN’S HOSPITAL FOUNDATION

Date: Thursday, February 12, 2015

Location: Live Event at the All Children’s Hospital St. Petersburg Campus; Webcasts in Tampa, Fort Myers, Belleair, New Port Richey, Lakeland, and Sarasota

Additional Information: Speakers include Richard A. Oshins, Melissa Langa, Stephanie Loomis-Price, Steve R. Akers, William R. Lane, and Abigail E. O’Connor. For a complete seminar schedule, please click here.

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: Grand Hyatt Tampa Bay, 2900 Bayport Drive, Tampa, FL 33607

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.

5 - Rates

The Thursday Report – 2.5.15 – The Leonardo da Thursday Report

Posted on: February 5th, 2015

Leonardo da Thursday Trivia Test

Avoiding Disaster on Highway 709 – Gift Tax Return Filing Checklist with a Hypothetical Fat Pattern and Sample Form 709 Completed Pages

Don’t Inadvertently Lose S Corp Losses When Terminating an Irrevocable Trust Holding S Corp Stock – Not All Unused Losses are Treated Equally by Logan Baker

Richard Connolly’s World Double Header – PA First State to Restrict Lawyers as Financial Advisors and A Peek at the Highest Earners’ Tax Returns

Thoughtful Corner – Public Listening or When Silence Speaks by Matthew Stillman

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.

Leonardo da Thursday Trivia Test

2 - da Vinci

This week, we here at the Thursday Report are coming to you live from Italy. Not the Italy at Epcot, but the real Italy, where they invented Pizza Hut and Olive Garden! Take our Leonardo da Thursday Trivia Test and win a free last supper for you and eleven friends.

1.) What was Leonardo da Vinci’s father’s profession?

  1. Legal Notary
  2. Painter
  3. Barber
  4. It was never identified.

ANSWER: (A) Leonardo da Vinci’s father was a legal notary in the Republic of Florence.

2.) What was unique about how Leonardo painted The Last Supper on the wall of the Santa Maria delle Grazie monastery dining hall in Milan?

ANSWER: Leonardo painted The Last Supper on a dry wall rather than employing the traditional fresco style of painting on wet plaster. He wanted the painting to have a greater level of detail and luminosity than could be achieved with a fresco style painting, so he sealed the stone first, painted the wall with a white lead undercoat, and then applied his work on top. Additionally, rather than isolating Judas, the disciple who would eventually betray Jesus, to the opposite side of the table from the other disciples, da Vinci chose to seat him among the others leaning back into the shadows.

3.) Which of the following was a function that da Vinci told the Duke of Milan he could perform if hired in a letter written in 1482?

  1. Construct bridges
  2. Construct subterranean passages
  3. Supply infinite means of attack and defense in times of war
  4. All of the above

ANSWER: (D) In an effort to secure a job with the Duke of Milan, Leonardo da Vinci wrote what we would refer to today as a cover letter, detailing 10 functions he could perform that would prove invaluable during times of war. Surprisingly, his artistic abilities (painting and sculpting) did not make his list of 10 talents and were, instead, mentioned as an afterthought at the bottom of the letter. Click here to look at the letter and click here to see a translation of the letter. Leonardo da Vinci got the job, which he held until the French captured his employer.

4.) Leonardo da Vinci was accused of sodomy, but charges against him were dismissed.

TRUE                   or                    FALSE

ANSWER: TRUE. Leonardo da Vinci and 4 others were arrested upon accusations of sodomy in 1476, but charges were eventually dismissed because the accusations against him were not signed. Legally, for sodomy charges to end in prosecution, the initial accusations could be made secretly, but they could not be made anonymously, and no witnesses against da Vinci ever came forward. Additionally, sodomy charges seldom ended in punishment in Florence, Italy, where homosexuality was common and generally tolerated.

5.) Which US city is currently displaying Leonardo da Vinci’s Codex Leicester, a 72-page manuscript containing da Vinci’s observations on the arts, science, and engineering?

  1. Los Angeles, CA
  2. Austin, TX
  3. Phoenix, AZ
  4. New York City, NY

ANSWER: (C) The Codex Leicester was purchased by Bill Gates in 1994 for $31 million. It is currently on loan to the Phoenix Art Museum in Phoenix, Arizona, where it can be viewed by the general public until April 12, 2015. For more information, click here.

Avoiding Disaster on Highway 709
Gift Tax Return Filing Checklist with a Hypothetical Fact Pattern and Sample Form 709 Completed Pages
by Kenneth J. Crotty

3 - Ken

The following checklist could help a practitioner obtain the necessary information to complete a gift tax return and provide adequate disclosure to the IRS.

  • Donor Information
    • Donor’s name, address, and social security number
    • Does the donor have a deceased spousal unused exemption amount?
    • Copies of past gift tax returns that were filed
    • Confirmation regarding any consideration received by the donor for a gift
    • Is the donor opting out of automatic allocation of generation skipping tax?
    • Citizenship of donor
  • Spouse’s Information
    • Confirmation that the donor’s spouse is a United States citizen or resident
    • Will the gifts be split? If so, the consenting spouse’s name and social security number
    • If gift splitting is desired, confirmation that the clients were married when the gifts were made
    • If gift splitting is desired and the donor and the donor’s spouse have divorced, confirmation whether either the donor or the donor’s spouse have remarried during the taxable year
  • Reportable Gifts
    • List of all gifts made, including gifts to spouses and charitable donations
    • Were gifts made to 529 Plans?
      • If so, were these intended to be split ratably over a five-year period?
    • Inquire about life insurance premiums paid for life insurance policies owned by Irrevocable Trusts
    • Did the donor establish a lifetime QTIP Trust?
  • Information Required for Particular Gifts
    • The donee’s name and address and relationship to the donor
    • Description of the gift
    • Donor’s adjusted basis of the gift
    • The date of the gift
    • The value as of the date of the gift
    • Appraisals or explanations of valuation discounts
    • Obtain Form 712 for transfers of life insurance policies
    • For stock sold on an established exchange, determine the number of shares gifted, whether the shares are common or preferred, obtain the CUSIP number, and determine the mean between the highest and lowest quoted selling prices on the valuation date
    • For transfers of closely held corporations, obtain the balance sheet, earning statements, and dividends received for the five years prior to the gift.
    • If bonds are transferred, obtain the number of bonds transferred, the principal amount of each bond, the name of the obligor, the date of maturity, the rate of interest, the date or dates when interest is payable, the series number, exchanges where listed, or if unlisted, the principal business office of the issuer, the CUSIP number, and determine the mean between the highest and lowest quoted selling prices on the valuation date.
  • Information Required for Trusts
    • Copies of all of the Trusts which received gifts during the year (or a brief description of the terms of each trust)
    • Taxpayer identification number for the Trust
    • Name and address of Trustee of Trust
    • Check Trust documents for Crummey right of withdrawals
    • If the Trust does not provide for Crummey rights of withdrawal but the Trust allows the grantor to designate withdrawal powers, a copy of the designation should be attached.

Hypothetical Fact Pattern

John and Mary Doe are married to each other and have been married to each other for all of 2013. John was widowed in 2011, prior to marrying Mary.

John and Mary have two children: Henry Doe and Ruth Anderson.

John and Mary have five grandchildren: Jean Anderson, Lily Anderson, Kate Anderson, Stella Doe, and Buddy Doe.

Mary is the grantor of the Ruth Anderson Irrevocable Trust. Each of Ruth, Jean, Kate, and Lily have Crummey rights of withdrawal.

During the 2013 tax year, John and Mary made the following gifts:

  • 1-1-2013; John gifted $28,000 to Henry;
  • 3-31-2013; John made a $40,000 donation to Community Foundation;
  • 8-1-2013; Mary made an $18,000 tuition payment to College University for Stella;
  • 9-1-2013; Mary gave Stella $18,000;
  • 9-1-2013; Mary funded a 529 Plan for Buddy with $140,000;
  • 12-1-2013; Mary contributed $210,000 to the Ruth Anderson Irrevocable Trust; and
  • 12-30-2013; John contributes $6,000,000 to the Doe Descendants Trust

Find a completed Form 709 using the above stated hypothetical fact pattern by clicking here.

This concludes Ken Crotty’s series on Avoiding Disaster on Highway 709. To view the article in its entirety, please click here.

Don’t Inadvertently Lose S Corp Losses When Terminating an Irrevocable Trust Holding S Corp Stock – Not All Unused Losses are Treated Equally
by Logan Baker

3 - Logan

Logan Baker is a Trust Advisor with Regions Private Wealth Management in Clearwater. Prior to joining Regions, Logan practiced law in Vermont, Montana, and Florida, primarily in the areas of estate planning, taxation, and insurance regulation. Logan received his J.D. from the University of Montana School of Law, his LL.M. from the New York University School of Law, and his M.B.A. from Florida State University.

It is often beneficial to place ownership of S corporation shares into a trust for tax, estate, succession, and other planning purposes. However, not all trusts are permissible S corporation shareholders. Check with an advisor before transferring ownership of S corporation shares, since placing ownership of the shares into a non-permissible trust may jeopardize the corporation’s Subchapter S election. Assuming the shares are owned by a trust that is permitted to hold S corporation shares under IRS rules, the S corporation’s income, loss, and other tax attributes will “pass through” to the trust. While this “pass through” treatment is relatively simple when an individual owns the S corporation shares, an additional layer of complexity arises when the shareholder is a trust. This additional complexity is due in part to the fact that the trust lies between the income and loss-generating S corporation and trust beneficiary.

In many cases, the trust will eventually terminate and distribute the S corporation shares and/or any other trust property to the beneficiary. In addition to the distribution of property, IRS rules also allow the trust to, in effect, “distribute” certain tax attributes to the beneficiary. Code Section 642(h) provides that unused net operating loss carry forwards and unused capital loss carry forwards are allowed as deductions to the beneficiary of a trust to the extent existing and unused at the time of termination of the trust. This provision is quite helpful, since important non-tax considerations regarding trust termination can be addressed without worrying that these unused losses will be wasted upon trust termination.

However, not all unused losses are treated equally under the IRS rules. While Code Section 642(h) allows the trust beneficiaries to utilize a terminated trust’s unused net operating losses, the same cannot be said for another common type of loss that looks very similar to a net operating loss. S corporations and their shareholders frequently encounter the loss limitation of Code Section 1366(d)(1), which prevents an S corporation shareholder from taking a “pass through” loss that exceeds the shareholder’s basis in the S corporation stock. For example, if a shareholder has a basis of $100,000 in the stock of an S corporation, and that corporation incurs a $150,000 loss in a given year, the shareholder would be limited to a “pass through” loss of $100,000 in that year. The remaining $50,000 of the loss is suspended until a future year in which the shareholder has sufficient basis to utilize it.

S corporation stock basis, for purposes of this limitation, is generally based upon past contributions plus undistributed income that has been recognized by the company, less distributions, and plus loans from shareholders. Section 1366(d)(1) provides that basis for this purpose is determined with regard to paragraphs (1) and (2)(A) of Section 1367(a), in addition to shareholder’s basis in S corporation debt.

A loss that is suspended under Code Section 1366(d)(1) is similar in several respects to a net operating loss that has been carried forward in that both arise from an excess loss limitation, and (with certain limitations) both may be carried forward until they can be used. However, upon termination of a trust that holds S corporation stock, only the net operating loss can be used by the trust beneficiaries. This is because the suspended loss under Code Section 1366(d)(1) is not actually “occurred” for federal income tax purposes until the trust has sufficient basis to absorb it. If the loss is still suspended in the year the trust terminates, it follows that the trust has insufficient basis in that year and that the loss has not yet “occurred.” Therefore, there is no loss to which the trust beneficiaries could succeed. Support for this interpretation is found in Treasury Regulation Section 1.1366-2(a)(5)(i), which provides that the suspended loss “is personal to the shareholder and cannot in any manner be transferred to another person.” That section also provides that: “If a shareholder transfers all of the shareholder’s stock in the corporation, any disallowed loss or deduction is permanently disallowed.”

In the case of a trust with a suspended loss with respect to its S corporation stock, these provisions mean that the suspended loss is personal to the trust and cannot “in any manner be transferred to” the trust beneficiaries. The conclusion to be drawn is that the provisions of Code Section 642(h), which allow the trust beneficiaries to utilize the trust’s unused net operating loss carryovers, will not apply to the trust’s Section 1366 (d) suspended losses. If the trust terminates, those suspended losses would be wasted.

Trustees and their advisors should consider adding basis to S corporations held under trusts to release otherwise limited losses before the trust terminates and distributes the S corporation stock.

Richard Connolly’s World Double Header
PA First State to Restrict Lawyers as Financial Advisors
and
A Peek at the Highest Earners’ Tax Returns

Insurance advisor Richard Connolly of Ward & Connolly in Columbus, Ohio often shares with us pertinent articles found in well-known publications such as The Wall Street Journal, Barron’s, and The New York Times. Each week, we will feature one of Richard’s recommendations with a link to the article.

This week, the first article of interest is “Pennsylvania First State to Restrict Lawyers as Financial Advisors” by Ted Knutson. It was featured in Financial Advisor magazine on January 13, 2015.

Richard’s description is as follows:

Pennsylvania is becoming the first state to restrict the ability of lawyers to give financial advice. As of January 30, Keystone State lawyers who are state or federally licensed financial advisors or insurance agents will be barred from recommending or making an investment for clients if they or their family members have financial stakes in the transactions.

Beyond the ban against profiting from a financial transaction, the board will prohibit lawyers from giving financial advice unless they have specific registrations with the state or the SEC.

Please click here to read this article in its entirety.

Our second article of interest this week is “A Peek at the Highest Earners’ Tax Returns” by Laura Saunders. It was featured in The Wall Street Journal on November 24, 2014.

Richard’s description is as follows:

The 400 individuals and couples reporting the highest adjusted gross income for 2010 – the latest data available – earned an average of $265 million per return, according to new statistics from the Internal Revenue Service.

To make the list, taxpayers had to have at least $99 million of income, well below the 2007 cutoff of $138.8 million.

The IRS’s tables show that the top 400 taxpayers had an average tax rate of 18%. But more than half, or 221, had average effective tax rates between 10% and 20%, while 37 had an average rate of less than 10%.

Please click here to read this article in its entirety.

Thoughtful Corner
Public Listening or When Silence Speaks
by Matthew Stillman

4 - Stillman

Photo Credit: @stillmansays/Twitter

Matthew Stillman is, in his words, a professional Problem-Re-Imaginer. He identifies unseen connections, uses creative techniques to find new solutions, and helps move his clients towards new opportunities. He also helps to teach the Creativity and Personal Mastery course developed by Dr. Srikumar Rao. Prior to this career, Matt was a program development executive at the Food Network and a student at the Upright Citizens Brigade Theater in New York City, where he studied with Amy Poehler. His film, The End of Poverty, was featured at the Cannes Film Festival and has been shown in over 40 festivals around the world.

In April of 2009, Matt started an experiment in Union Square. He would sit in Union Square in New York City with two chairs, a table, and a sign that reads “Creative Approaches to What You Have Been Thinking About.” He publishes stories about his experiences at this table on his website, which can be viewed by clicking here.

The following article has been reprinted with permission. Thanks to Matt for bringing this story to Thursday Report readers!

Public Listening or When Silence Speaks

I am always grateful when someone as lovely as K comes to the table. She exuded a simple joyous quality coupled with a fine air of stillness that radiated from her in equal measure. Soft spoken, but clear and easy to talk to. The sort that you just start talking, assuming that you have already been friends for some time.

In her admiration of my project, she revealed what she needed a creative approach to.

“I love your table and have been thinking about doing something similar called ‘public listening.’ What do you think of it, and what could I do with it?”

Hearing a woman of this depth say those two words – public listener – I could just see her out there being an amazing resource. My experience of putting myself out there with chairs and a table interacting with the public as a service/experiment/art project/exploration of something I am good at has been a total joy. Profoundly rewarding and deeply nourishing for me and others.

As my mind telescoped into the future, I could see moments of the same for K. But as I looked into the sweet face of K, the one twist to the project popped into mind that somehow fit with K.

“This is brilliant. What if you actually just listen only? You don’t speak. You just have a pad of paper to say anything if you need to say anything. Just receive. That could be a service unlike any other particularly because of the depth of your presence and attention.”

As I said this, K broke into tears of relief.

“Yes! Thank you for saying that. I’m a professional singer. I love singing but need to do it all day. Sing songs. Sing commercials. At night, I sing at bars and shows. I am almost at a point where I need a break from hearing myself. I didn’t realize that this project could save me and give me space, too. How could you have known this about me?”

I understood why she was crying. The realizing that our own ideas often have the keys to our own freedom. To what we need most. I saw the unspoken silence in K and called it out. Her silence spoke back. We lovingly embraced goodbye like new old friends.

Sometimes it is just that simple out here in Union Square.

Humor! (or Lack Thereof!)

If you try to email Alan Gassman while he is away on his tour of Italy, you might receive one of the following messages in return, written by Alan and Kristen Sweeney.

Milan

I’ve left for Milan,
And am not putting you on.
We’ve crossed the Atlantic by plane.

For great art, food, and fashion,
To quench Marcia’s strong shopping passion.
In this place conquered by Charlemagne.

The history’s a muddle
Of political struggle
Will the Guelphs or Ghibellines reign?

The big family is Visconti,
Did they invent biscotti?
A question not exactly germane.

If you need help while I’m in Lombardy,
Maribeth and Tina feel free to bombard-y.
They’re great at keeping me sane.

In the meantime I’m fine,
Sampling kegs of red wine,
Can’t wait to see you stateside again.

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Florence

Thank you much for writing,
I report it’s quite exciting
To be in Florence writing articles for LISI,

In the home of Machiavelli,
And delicious cavatelli,
I’ll tour the palace of the Medici.

I’m pleased that there is ample
Time for a gnocchi sample.
And we absolutely love veal bolognese.

Firenze’s simply grand,
Next to David I did stand.
Chianti gives the Duomo a lovely haze.

On Thursday, February 12th, I will return,
With lots of new things I’ve learned,
Such as: Did Italy really invent the pizza?

But for now this lucky fella
Is with Marcia and Brent dancing tarantella,
With an appetite and of course- the office Visa.

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Naples

I am reporting happily
That I’m out of town in Napoli,
The third stop on my European tour.

In Greek it means “new city,”
And it sure is awfully pretty,
Down here on the bright Italian shore.

Way back when in World War II,
They were heavily bombed, it’s sad but true,
And were reconstructed under Mussolini.

High speed rail’s now a staple,
Of the big port town of Naples,
And my favorite dish is clam sauce with linguine.

If your legal matters need motion
While I’m across the ocean,
(I’m learning how to play the mandolin)

Maribeth or Tina can assist,
They’re keeping a detailed list,
For my return so I can dive right in.

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We received the following from Char Pfaelzer in response to the Florence poem:

Nothing could be neater,
Enjoy La Dolce Vita.
Family [no fights!],
Pasta, vino, and sights…
Enjoy special time
In Firenze sublime

Safe travels home.

Stay tuned for more Italy-inspired poems from Kristen Sweeney and Alan Gassman in next week’s Thursday Report!

Upcoming Seminars and Webinars

LIVE WEBINAR:

John D. Goldsmith and Alan S. Gassman will present a webinar on BP OIL SPILL CLAIMS – IMPORTANT ISSUES FOR ADVISORS.

Date: February 17, 2015 | 12:30 p.m.

Location: Online webinar

Additional Information: To register for this webinar, please click here or email agassman@gassmanpa.com for more information.

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LIVE WEBINAR:

Alan Gassman and Barry Flagg, CPF, CLU, ChFC, GFS, of Veralytic will present a 22.5-minute webinar on CRITICISM OF HYBRID INDEX LIFE INSURANCE PRODUCTS – WHAT THE HECK ARE THESE AND WHY ARE THEY BECOMING SO POPULAR?

Date: February 18, 2015 | 5:00 p.m.

Location: Online webinar

Please note the below announcements for subsequent installments of this series:

March 4, 2015 – Premium Financing in 22.5 Minutes

March 17, 2015 – Split-Dollar in 22.5 Minutes

March 31, 2015 – Comparing the Financial Strength and Risks Associated with Different Life Insurance Carriers

Gassman, Crotty & Denicolo, P.A., and The Thursday Report receive no direct or indirect compensation from any investment advisors and have no financial relationship with Barry Flagg or Veralytic. We thank Barry for putting together what we are sure will be an informative and objective program!

Additional Information: To register, please click here or email Alan Gassman at agassman@gassmanpa.com for more information.

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LIVE FREE ETHICS CREDIT WEBINAR:

Alan Gassman and Dr. Srikumar Rao will present a free 50-minute webinar on HOW TO HANDLE STRESSFUL MATTERS IN AN ETHICAL WAY.

This webinar will qualify for 1 hour of CLE Ethics Credit and is classified as Advanced. See Professor Rao’s Ted Talk YouTube video, and you will understand how important this webinar might be to accelerating your law practice and enhancing your enjoyment of the practice as well. You can sign up for this free webinar by clicking here.

4 - Rao and Gassman

Dr. Srikumar Rao is the creator of the original Creativity and Personal Mastery (CPM) course that has helped thousands of executives and entrepreneurs achieve quantum leaps in effectiveness. He earned a Ph.D. in Marketing from Columbia University and has taught the course at Columbia University, Northwestern University, University of California at Berkeley, and the London School of Business. He is the author of Happiness at Work and Are You Ready to Succeed? which can be reviewed by clicking here. Are You Ready to Succeed? has been published in over 60 languages!

Date: February 19, 2015 | 12:30 p.m.

Location: Online webinar

Additional Information: Please email Alan Gassman at agassman@gassmanpa.com for more information.

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LIVE AVE MARIA SCHOOL OF LAW PROFESSIONAL ACCELERATION WORKSHOP

Alan Gassman will present a full day workshop for third year law students, alumni and professionals at Ave Maria School of Law.  This program is designed for individuals who wish to enhance their practice and personal lives.

Date: February 21, 2015 | 8:30am – 5pm

Location: Ave Maria School of Law, 1025 Commons Cir, Naples, FL 34119

Additional Information: To see the official program for this workshop, please click here. To register for this program please email agassman@gassmanpa.com.

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LIVE WEBINAR:

Alan Gassman and Barry Flagg, CPF, CLU, ChFC, GFS, of Veralytic will present a 22.5-minute webinar on PREMIUM FINANCING IN 15 MINUTES.

Date: March 4, 2015 | 5:00 p.m.

Location: Online webinar

Additional Information: To register, please click here or email Alan Gassman at agassman@gassmanpa.com for more information.

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LIVE ORLANDO PRESENTATION:

THE ADVANCED HEALTH LAW TOPICS AND CERTIFICATION REVIEW 2015

Alan Gassman will speak at The Advanced Health Law Topics and Certification Review 2015 on HEALTHCARE TAX ISSUES.

To see the complete schedule for this program, please click here.

Date: March 6 – 7, 2015 ǀ Alan Gassman will speak on March 6 at 11:00 AM

Location: Hyatt Regency Orlando International Airport, 9300 Jeff Fuqua Blvd., Orlando, FL 32827

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

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LIVE WEBINAR:

Alan Gassman and Barry Flagg, CPF, CLU, ChFC, GFS, of Veralytic will present a 22.5-minute webinar on SPLIT-DOLLAR IN 15 MINUTES.

Date: March 17, 2015 | 5:00 p.m.

Location: Online webinar

Additional Information: To register, please click here or email Alan Gassman at agassman@gassmanpa.com for more information.

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LIVE WEBINAR:

Alan Gassman and Barry Flagg, CPF, CLU, ChFC, GFS, of Veralytic will present a 30-minute webinar on COMPARING THE FINANCIAL STRENGTH AND RISKS ASSOCIATED WITH DIFFERENT LIFE INSURANCE CARRIERS.

Date: March 31, 2015 | 5:00 p.m.

Location: Online webinar

Additional Information: To register, please click here or email Alan Gassman at agassman@gassmanpa.com for more information.

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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:  Alan Gassman, Jerry Hesch, and Richard Oshins 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 Richard Oshins on 11 Outstanding Planning Ideas, Jonathan Gopman on Asset Protection, 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.

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LIVE MIAMI PRESENTATION:

FLORIDA BAR WEALTH PRESERVATION PROGRAM 

Denis Kleinfeld and Alan Gassman have released the schedule and topics for FUNDAMENTALS OF ASSET PROTECTION, AND ADVANCED STRATEGIES. This seminar will be presented on May 7th and May 8th, 2015, and is sponsored by the Tax Section of the Florida Bar.  Attendees can select one day or the other, or to attend both days.

Day One will be for fundamentals and will be an excellent review or an introduction to the basic rules and practice aspects of creditor protection planning for both new and experienced practitioners.

Day Two will be an advanced treatment of creditor protection and associated planning, which will be of great use to both new and experienced practitioners.

Date: May 7 – 8, 2015

Location: Hyatt Regency Miami, 400 SE 2nd Avenue, Miami, FL 33131

Additional Information: To pre-register for this conference, please click here. For more information, please email Alan Gassman at agassman@gassmanpa.com.

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LIVE FLORIDA INSTITUTE OF CPAs (FICPA) WEBINAR

Alan Gassman, Ken Crotty, and Chris Denicolo will present a webinar on A PRACTICAL TRUST PLANNING CHECKLIST AND PRACTITIONER COMPLIANCE GUIDE FOR FLORIDA CPAs for the Florida Institute of CPAs.

Review a practical planning checklist and practitioner tax compliance guide to facilitate implementing a comprehensive overview of practical planning matters and tax compliance issues in your practice. This presentation will cover over 20 common errors and missed planning opportunities that accountants need to understand and counsel their clients on.

This course is designed for practitioners who wish to assure that trust planning structures and compliance are both aligned with client objectives and that common catastrophic errors and misconceptions can be corrected.

Past attendees have indicated that this is an interesting and practical presentation that offers a great deal of practical information for both compliance and planning functions, based upon an easy to follow checklist approach.  Includes valuable materials.

Date: May 21, 2015 | 10:00 a.m.

Location: Online webinar

Additional Information: For more information, please contact Alan Gassman at agassman@gassmanpa.com or Thelma Givens at givenst@ficpa.org. To register, please click here.

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LIVE SARASOTA PRESENTATION:

2015 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: Friday, October 23rd and Saturday, October 24th, 2015

Location: To Be Determined

Additional Information: Please contact Alan Gassman at agassman@gassmanpa.com for more information.

Notable Seminars by Others
(These conferences are so good that we were not invited to speak!)
 

LIVE ST. PETERSBURG PRESENTATION:

ALL CHILDREN’S HOSPITAL FOUNDATION

Date: Thursday, February 12, 2015

Location: Live Event at the All Children’s Hospital St. Petersburg Campus; Webcasts in Tampa, Fort Myers, Belleair, New Port Richey, Lakeland, and Sarasota

Additional Information: Speakers include Richard A. Oshins, Melissa Langa, Stephanie Loomis-Price, Steve R. Akers, William R. Lane, and Abigail E. O’Connor. For a complete seminar schedule, please click here.

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: Grand Hyatt Tampa Bay, 2900 Bayport Drive, Tampa, FL 33607

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.

5 - Rates

The Thursday Report – 1.29.15 – BP Mistakes and the June 8, 2015 Deadline

Posted on: January 29th, 2015

Florida Matters: Alan Gassman’s Interview with WUSF (not to be confused with UNICEF!) on Same-Sex Marriage

June 8, 2015 BP Claim Filing Deadline – An Important Issue for Advisors Involved in BP Claims

Seminar Spotlight – How to Handle Stressful Matters in an Ethical Way with Dr. Srikumar Rao and Alan S. Gassman

Avoiding Disaster on Highway 709 – The Confusion Regarding the Gift Tax and GST Annual Exclusions

Richard Connolly’s World – Beware Crazy Clauses in Condo Contracts

Thoughtful Corner – Is Your Need for Sleep Illusory?

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.

Florida Matters: Alan Gassman’s Interview with WUSF (not to be confused with UNICEF!) on Same-Sex Marriage

Carson Cooper - FINAL

Last week, Alan Gassman was interviewed by world-renown radio talk host and commentator Carson Cooper and Mike Reedy of Equality Florida on the legal aspects of same sex marriage. Lottie Watts, of WUSF Public Media, emailed us the links to the interview earlier this week.

The description for the radio show reads as follows:

Florida Matters: Same Sex Marriage in Florida

Same-sex marriage has been legal in Florida since January 6, 2015, and to mark the occasion, Hillsborough County Clerk Pat Frank held a group wedding at a park across the street from the courthouse. The issue is heading to the US Supreme Court this summer, but in the meantime, marriage licenses are being issued to same-sex couples across the state. Mike Reedy of Equality Florida and attorney Alan Gassman with Gassman, Crotty & Denicolo, P.A. in Clearwater discuss many of the questions facing same-sex couples as they consider tying the knot.

To listen to the interview in its entirety and for more information on the subject, please click here.

An excerpt of this interview is as follows:

Carson Cooper: Now you specialize in things like estate planning, and you wrote a book called The Florida Legal Guide to Same Sex Couples

Alan Gassman: Yes. Yes, and I felt that this book needed to be written because there are so many different laws, so many different tax rules, so many different qualification areas that change when somebody becomes married.

Carson Cooper: Now you wrote this book, and it was published back in June. Now there is no way that you could have seen this coming back then. Right?

Alan Gassman: I was thinking this was going to be a three to four year process. I was so delighted that the federal court did what it did and that the train is rolling faster here.

Carson Cooper: Now are you, as an attorney, getting a lot of questions now from same-sex couples who have yet to tie the knot? And what are they asking?

Alan Gassman: They are asking what happens to their legal rights when they get married? What happens to their homestead rights when they get married? What happens to their ability to leave assets to their children? What happens to their social security? What happens to their income taxes? What happens with their place of employment and their employment rights and benefits? They are asking a lot of questions; there is a lot of areas that have to be understood to avoid a haphazard situation.

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Carson Cooper: The US Supreme Court has agreed to hear cases from Ohio, Tennessee, Michigan, and Kentucky, combined into one case known as Obergefell v. Hodges. The court will consider two questions. Number One – does the 14th Amendment to the US Constitution require a state to license a marriage between two people of the same sex, and Number Two – does the 14th Amendment require a state to recognize lawful out-of-state same-sex marriages? So Alan Gassman, let’s take this one at a time. Does the 14th Amendment, which guarantees equal protection and due process of law, forbid folks from treating gay couples differently than heterosexual couples?

Alan Gassman: The overwhelming majority of court decisions by both federal courts, state courts, and appellate courts have said yes, you cannot discriminate from a basis of sex. You have to treat the same sex couple the same as you would treat a cross-gender couple. So hopefully the US Supreme Court will go along with that and agree. Public sentiment is certainly that way, and you now have tens of thousands of marriages that have taken place based upon all of these decisions.

Carson Cooper: Well let me ask you this about equal protection. What exactly does that mean?

Alan Gassman: No one is sure exactly what the planners of the Constitution meant when they passed the Legal Protection Act. At the time, there were same sex couples in prison because it was a felony punishable by death to have a same sex relationship back then. But what they said was, as you have heard, that all men and women were created equal, and it took our system until the 1950s and 60s to realize that black people would be treated the same as white people. And now it is taking our system this long to ask the Supreme Court, can same sex couples be treated the same way as traditional couples?

Carson Cooper: And, in fact, wasn’t the 14th Amendment cited in a case? I believe it was in the 1960s in Virginia v. Loving or Loving v. Virginia, which banned interracial marriages, and that was overturned.

Alan Gassman: Right.

Carson Cooper: Based on the 14th.

Alan Gassman: Right. And, you know, the way history goes is that you do not ask the Supreme Court something that you are going to get a “no” answer to; you wait until society is ready for the “yes” answer.

To hear and read another excerpt of the Florida Matters interview with Alan Gassman and Mike Reedy, please click here.

To listen to the interview in its entirety and for more information on the subject, please click here.

To purchase The Florida Legal Guide for Same Sex Couples, please click here.

And if you don’t want to click here, click here!

Thanks to Lonnie Watts of WUSF Public Media for making this content available to our Thursday Report readers!

June 8, 2015 BP Claim Filing Deadline – An Important Issue for Advisors Involved in BP Claims

Don’t let your clients who were told they had no claim (by you and others) go without rechecking if they are in the medical, legal, or accounting industries!

The BP Claim Class Action Right of those whose businesses and professions had a presence in Counties that have water exposure to the Gulf of Mexico will reportedly expire this coming June 8, and thousands of businesses and individuals with potential claims will doubtlessly not file by then because they are not aware of the changed accounting rules.

A great many law firms, CPAs, and consulting firms have run numbers for many companies and individuals and concluded that a number of them do not qualify under the automatic damages assumption rules due to the monthly revenue earnings patterns prescribed by the complex Class Action rules. These rules, however, have changed to provide that the cash amounts received each month will not be controlling in many situations where the income was actually earned as opposed to received under what many are referring to as a “modified accrual method of accounting,” which will apply to several industries, including medical, legal, and accounting.

As a result, many who have filed claims actually have bigger claims than they thought, many have smaller claims than they thought, and many who were told they had no claims at all actually do. Those who fall into the last category should get working fast to file their claims as soon as possible.

Goldsmith and Gassman

More information on this very important, opportune, and treacherous situation will be provided in detail by John D. Goldsmith and Alan S. Gassman in a webinar on February 17, 2015. To register for this 12:30 pm webinar, please click here.

To see a webinar on BP Oil Spill Claims: Avoid Mistakes and Maximize Claims – 170 Calculation Errors and Why Everyone is So Excited to Help Pursue Claims with John Goldsmith and Alan Gassman, please click here.

Seminar Spotlight
How to Handle Stressful Matters in an Ethical Way
with Dr. Srikumar Rao and Alan S. Gassman

 4 - Rao and Gassman

On February 19, 2015, Dr. Srikumar Rao and Alan S. Gassman will present a free, 50-minute webinar entitled “How to Handle Stressful Matters in an Ethical Way.”

This webinar is classified as Advanced and will qualify for 1 hour of CLE Ethics Credit. If you’re on the fence about signing up, see Professor Rao’s Ted Talk YouTube video, which can be viewed by clicking here, and you will understand how important this webinar might be to accelerating your law practice and enhancing your enjoyment of the practice as well.

Dr. Srikumar Rao is the creator of the original Creativity and Personal Mastery (CPM) course that has helped thousands of executives and entrepreneurs achieve quantum leaps in effectiveness. He earned a Ph.D. in Marketing from Columbia University and has taught the course at Columbia University, Northwestern University, University of California at Berkeley, and the London School of Business. He is the author of Happiness at Work and Are You Ready to Succeed?, which can be reviewed by clicking here. Are You Ready to Succeed? has been published in over 60 languages!

For more information, please email agassman@gassmanpa.com or click here to sign up for the webinar.

Avoiding Disaster on Highway 709
The Confusion Regarding the Gift Tax and GST Annual Exclusions
by Kenneth J. Crotty

3 - Ken

If a gift qualifies for the Gift Tax Annual Exclusion, then some or all of the gift will not utilize the donor’s applicable exclusion amount for lifetime gifts, depending on the size of the gift. For 2014, the gift tax annual exclusion is $14,000 per donor per donee. This amount is indexed for inflation. I.R.C § 2503(b)(1). If a donor makes a gift to a donee in excess of the gift tax annual exclusion, assuming the gift qualifies for the gift tax annual exclusion, then the reportable value of the gift will be reduced to $14,000.

Only gifts “of present interests” qualify for the gift tax annual exclusion. A gift is a present interest if the donee has an immediate right to use, possess, or enjoy the property. Treas. Reg. § 25.2503-3.

When gifts are made to a trust, the terms of the trust will often provide beneficiaries with a Crummey right of withdrawal, which gives the beneficiary an absolute right to withdraw the gift or a certain portion of the gift during a stated time. Frequently, this right of withdrawal is for 60 days. This right of withdrawal helps to qualify the gift as a present interest.

Gifts of future interests do not qualify for the gift tax annual exclusion. Examples of future interests include remainders, reversions, and any other interest that commences in use, possession, or enjoyment at some future time. Treas. Reg. § 25.2503-2. A gift of a future interest must be reported at its full value and uses an amount of the donor’s lifetime gift tax exemption equal to the fair market value of the gift.

The GST Annual Exclusion

The GST annual exclusion and the gift tax annual exclusion are not identical. The GST annual exclusion is much more limited, and a transfer that qualifies for the annual gift tax exclusion may not qualify for the annual GST exclusion.

An outright transfer to a skip person (such as a grandchild) qualifies for the GST annual exclusion.

For a transfer in trust to qualify for the GST annual exclusion, the trust must be a “qualified trust” as described in I.R.C § 2642(c)(2). To satisfy this requirement, the trust must be held for the benefit of an individual and

  1. During the life of such individual, no portion of the corpus or income of the trust may be distributed to any other person, and
  2. If the trust does not terminate when the individual dies, the assets of the trust must be included in the gross estate of such individual. I.R.C § 2642(c)(2).

Crummey Gifts Often Use Up GST Exemption

Most often a trust with a Crummey right of withdrawal which meets the requirements for the gift tax annual exclusion will not meet the requirements for the GST annual exclusion. Therefore, the donor will need to allocate GST exemption to the trust if the transferor wants the trust to have an inclusion ratio of zero.

Direct Skips (GST Transfers)

A direct skip is a transfer made to a skip person, which is subject to gift or estate tax. A skip person is a person who is two or more generations below the generation of the transferor, unless the predeceased ancestor exception applies. A skip person also includes a “non-relative” who is more than 37.5 years younger than the donor. A non-relative is an individual who is not a lineal descendant of a grandparent of the donor or the donor’s spouse (which includes individuals who have been legally adopted or individuals who are married to such a descendant.)

A non-skip person is any person who is not a skip person.

A trust may also be considered a Skip Person if:

  1. All of the interests of the trust are held by skip persons, or
  2. The likelihood that a non-skip person would receive a distribution from the trust is less than 5%. I.R.C § 2613(a)(2).

Indirect Skips and GST Trusts

An indirect skip is a gift subject to gift tax that is not a direct skip and is made to a GST Trust. I.R.C §2632(c)(3)(A). Most trusts are GST Trusts. If the children of the donor are beneficiaries of the trust, then the Trust will almost always be a GST Trust. Therefore, transfers to these trusts are indirect skips.

Where are Direct and Indirect Skips Reported?

We often see mistakes made with respect to which Schedule on the Gift Tax Return is appropriate for reporting these gifts. Direct skips are to be reported on Schedule 2, and indirect skips on Schedule 3. Therefore, gifts to GST trusts, which include most (if not all) trusts where the children of the donor are beneficiaries, should be reported on Schedule 3 and not on Schedule 2.  To see a Sample Form 709, please click here.

Richard Connolly’s World
Beware Crazy Clauses in Condo Contracts

Insurance advisor Richard Connolly of Ward & Connolly in Columbus, Ohio often shares with us pertinent articles found in well-known publications such as The Wall Street Journal, Barron’s, and The New York Times. Each week, we will feature one of Richard’s recommendations with a link to the article.

This week, the article of interest is “Beware Crazy Clauses in Condo Contracts” by Robert Milburn. It was featured in Barron’s on November 29, 2014.

Richard’s description is as follows:

It’s a seller’s market for new condos in cities like San Francisco, Miami, and New York. If, for example, a buyer in a recently erected New York building unloads his condo for a profit within a year of purchase, a new standard line in contracts states that the condo owner must hand the developer half of his windfall. Meanwhile, buyers in Florida are putting down deposits of as much as 50 percent on condos, which developers can draw down to 10 percent to help pay for their construction costs. If the Florida real estate market tumbles or the developer goes bankrupt, chances are good that buyers are never going to get their money back.

So how’s a buyer to protect himself?

After you get all of the key documents to your attorney – including a few years of the building’s financials, the offering plan, and the house bylaws – review the building’s rules and regulations for easy-to-spot conflicts, like a building that won’t accept your 70-pound golden retriever.

In short, buying a condo in a fashionable city has become a brutal contact sport – so you should have a top-rated real estate lawyer close by your side.

With clients now heading to warmer climates, attorneys may get requests for help with condo purchases, which may include unusual terms like those identified in the article.

Please click here to read the article in its entirety.

Thoughtful Corner
Is Your Need for Sleep Illusory?

Most Americans reportedly need between 7 and 7.5 hours of sound sleep to function optimally, and it is easy to believe that if you do not have sufficient sleep, you will not feel good, function well, or be healthy.

The truth is that different people need different amounts of sleep, and many people are led to believe that if they do not get enough of it, they will be cranky, tired, forgetful, or feel like they have the flu.

In many cases, this is absolutely wrong. Due to this belief, people end up rolling around in bed, wishing they could get sleep and becoming frustrated, restless, and irritable when sleep doesn’t come. Instead, they could be up and about doing what they would like to do and having more hours for enjoyment or productivity while feeling well and vibrant.

Many successful, healthy adults have reported that they function very well on 5 hours of sleep or less three to four days a week and catch up on sleep later.

This might be you, and you might not know it because you have not given this theory a chance. Instead, millions of Americans medicate themselves with sleeping pill prescriptions, which can negatively affect brain wave functions, short term and long term memory, and health in general.

Try waking up earlier or staying up later if your body tells you to, while holding steadfastly to your need to wake up at the same time each day when the alarm rings. If you end up sleep deprived for the day because you were up too late, you can go to bed earlier that day or even take a nap.

Stop caffeine in the afternoon or at least four hours before bedtime. Exercise anywhere from two to twenty minutes approximately four hours before bedtime. Get some relaxing reading done, and give your body and mind the chance to tell you how much sleep you need and not the other way around.

If you are addicted to sleeping pills, you might try to get off of them. One positive effect of Benadryl, which is a 4 or 8 hour antihistamine, is that it induces sleep while not impacting memory or being considered addictive.

Many people (and only with doctor supervision, of course) will gradually reduce their sleeping pill prescription use while taking Benadryl. They then find that they sleep better, with better memory, no grogginess in the morning, and with better control of allergies.

Another thing that will throw sleep off is the jet lag that you get if you stay up extra late Friday and Saturday night and then expect to get right back into a normal sleep rhythm Monday and Tuesday. The older you get, the more difficult that becomes.

If you do choose to stay up until 4:00 AM when the bars close, consider waking up earlier than you normally would the next morning and taking a power nap in the afternoon or going to bed earlier in the evening to get back into the right rhythm. Melatonin is reported to reset the biological clock if you take it at your normal bedtime, but it makes some people groggy the next morning.

Let’s face it – our bodies and minds were designed or evolved to be based upon a 24 hour clock. We’re programmed to go to bed when it gets dark and wake up when it is light in the morning. When your modern brain is telling you to move the time you go to bed and the time you wake up all around from day-to-day, you can expect some resistance from the reptile brain and the body.

Please do not take the above to mean that you should deprive yourself of sleep to do better things. If and when your body is telling you you need sleep, then you usually will be able to sleep. If not, then a doctor or other counselor can be of help. A great many people have reported that using meditation, self-hypnosis, or tapes that you can listen to at night that will “put you to sleep” can help immensely.

The art and science and falling asleep is something that you will want to master if you can. People who have been in the military or have otherwise taken transcendental meditation, self-hypnosis, or other training will often report that they can go to sleep at will within two to three minutes. Reading old Thursday Reports has been rated as one of the top six ways of falling asleep by the National Boredom Foundation. Others report that drinking warm milk before bedtime or an herbal tea can be helpful. Meditation coaches can also help someone learn how to reach a relaxed and sleep-like state of consciousness quickly and efficiently.

If you think about the above and listen to your body, you can be more productive and enjoy deeper sleep.

One more tip – one well-known business advisor points out that when you have not gotten enough sleep, people get “stupider.” Lack of sleep can cause anxiety, loss of patience with other people in situations, and otherwise.

When you are short on sleep, remind yourself every hour or so that you might be seeing the world through a harsher filter. That realization, along with the ability to step back before reacting, may help you get used to those days when you have been sleep deprived as the result of whatever may have occurred.

The above article has not been approved by the Attorney General, any medical doctor, or Colonel Sanders. Take it with a grain of salt and a Benadryl, and enjoy some great dreams tonight.

Humor! (or Lack Thereof!)

THIS ACTUALLY HAPPENED:

A child at Disneyland spread measles to other children and guests in the park. Could this happen here in Florida?

NEW WALT MEASLEY WORLD THEME SONG
(to the tune of “It’s a Small World”)
by Ron Ross aka “Uncle Winkie”

A kid with measles arrives from Spain
Passes it on to a kid from Ukraine
It’s the germs that we share that make us aware
It’s a small world after all.

Tourists arrive with bacteria
Spreading flu and mumps and diphtheria
Then the kids can’t be cleaned till they’re all quarantined
It’s a small world after all.

A trip to Disney is a kid’s greatest wish
But the park itself is a big petri dish.
Diseases will spread right to Mickey’s head,
And they’ll close this small, small world.*

*For a while. Remember, never smile at Mr. Crocodile.

Upcoming Seminars and Webinars

LIVE WEBINAR:

John D. Goldsmith and Alan S. Gassman will present a webinar on BP OIL SPILL CLAIMS – IMPORTANT ISSUES FOR ADVISORS.

Date: February 17, 2015 | 12:30 p.m.

Location: Online webinar

Additional Information: To register for this webinar, please click here or email agassman@gassmanpa.com for more information.

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LIVE WEBINAR:

Alan Gassman and Barry Flagg, CPF, CLU, ChFC, GFS, of Veralytic will present a 22.5-minute webinar on CRITICISM OF HYBRID INDEX LIFE INSURANCE PRODUCTS – WHAT THE HECK ARE THESE AND WHY ARE THEY BECOMING SO POPULAR?

Date: February 18, 2015 | 5:00 p.m.

Location: Online webinar

Please note the below announcements for subsequent installments of this series:

March 4, 2015 – Premium Financing in 22.5 Minutes

March 17, 2015 – Split-Dollar in 22.5 Minutes

March 31, 2015 – Comparing the Financial Strength and Risks Associated with Different Life Insurance Carriers

Gassman, Crotty & Denicolo, P.A., and The Thursday Report receive no direct or indirect compensation from any investment advisors and have no financial relationship with Barry Flagg or Veralytic. We thank Barry for putting together what we are sure will be an informative and objective program!

Additional Information: To register, please click here or email Alan Gassman at agassman@gassmanpa.com for more information.

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LIVE FREE ETHICS CREDIT WEBINAR:

Alan Gassman and Dr. Srikumar Rao will present a free 50-minute webinar on HOW TO HANDLE STRESSFUL MATTERS IN AN ETHICAL WAY.

This webinar will qualify for 1 hour of CLE Ethics Credit and is classified as Advanced. See Professor Rao’s Ted Talk YouTube video, and you will understand how important this webinar might be to accelerating your law practice and enhancing your enjoyment of the practice as well. You can sign up for this free webinar by clicking here.

4 - Rao and Gassman

Dr. Srikumar Rao is the creator of the original Creativity and Personal Mastery (CPM) course that has helped thousands of executives and entrepreneurs achieve quantum leaps in effectiveness. He earned a Ph.D. in Marketing from Columbia University and has taught the course at Columbia University, Northwestern University, University of California at Berkeley, and the London School of Business. He is the author of Happiness at Work and Are You Ready to Succeed? which can be reviewed by clicking here. Are You Ready to Succeed? has been published in over 60 languages!

Date: February 19, 2015 | 12:30 p.m.

Location: Online webinar

Additional Information: Please email Alan Gassman at agassman@gassmanpa.com for more information.

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LIVE AVE MARIA SCHOOL OF LAW PROFESSIONAL ACCELERATION WORKSHOP

Alan Gassman will present a full day workshop for third year law students, alumni and professionals at Ave Maria School of Law.  This program is designed for individuals who wish to enhance their practice and personal lives.

Date: February 21, 2015 | 8:30am – 5pm

Location: Ave Maria School of Law, 1025 Commons Cir, Naples, FL 34119

Additional Information: To see the official program for this workshop, please click here.

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

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LIVE WEBINAR:

Alan Gassman and Barry Flagg, CPF, CLU, ChFC, GFS, of Veralytic will present a 22.5-minute webinar on PREMIUM FINANCING IN 22.5 MINUTES.

Date: March 4, 2015 | 5:00 p.m.

Location: Online webinar

Additional Information: To register, please click here or email Alan Gassman at agassman@gassmanpa.com for more information.

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LIVE ORLANDO PRESENTATION:

THE ADVANCED HEALTH LAW TOPICS AND CERTIFICATION REVIEW 2015

Alan Gassman will speak at The Advanced Health Law Topics and Certification Review 2015 on HEALTHCARE TAX ISSUES.

To see the complete schedule for this program, please click here.

Date: March 6 – 7, 2015 ǀ Alan Gassman will speak on March 6 at 11:00 AM

Location: Hyatt Regency Orlando International Airport, 9300 Jeff Fuqua Blvd., Orlando, FL 32827

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

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LIVE WEBINAR:

Alan Gassman and Barry Flagg, CPF, CLU, ChFC, GFS, of Veralytic will present a 22.5-minute webinar on SPLIT-DOLLAR IN 22.5 MINUTES.

Date: March 17, 2015 | 5:00 p.m.

Location: Online webinar

Additional Information: To register, please click here or email Alan Gassman at agassman@gassmanpa.com for more information.

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LIVE WEBINAR:

Alan Gassman and Barry Flagg, CPF, CLU, ChFC, GFS, of Veralytic will present a 30-minute webinar on COMPARING THE FINANCIAL STRENGTH AND RISKS ASSOCIATED WITH DIFFERENT LIFE INSURANCE CARRIERS.

Date: March 31, 2015 | 5:00 p.m.

Location: Online webinar

Additional Information: To register, please click here or email Alan Gassman at agassman@gassmanpa.com for more information.

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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:  Alan Gassman, Jerry Hesch, and Richard Oshins 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 Richard Oshins on 11 Outstanding Planning Ideas, Jonathan Gopman on Asset Protection, 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.

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LIVE MIAMI PRESENTATION:

FLORIDA BAR WEALTH PRESERVATION PROGRAM 

Denis Kleinfeld and Alan Gassman have released the schedule and topics for FUNDAMENTALS OF ASSET PROTECTION, AND ADVANCED STRATEGIES. This seminar will be presented on May 7th and May 8th, 2015, and is sponsored by the Tax Section of the Florida Bar.  Attendees can select one day or the other, or to attend both days.

Day One will be for fundamentals and will be an excellent review or an introduction to the basic rules and practice aspects of creditor protection planning for both new and experienced practitioners.

Day Two will be an advanced treatment of creditor protection and associated planning, which will be of great use to both new and experienced practitioners.

Date: May 7 – 8, 2015

Location: Hyatt Regency Miami, 400 SE 2nd Avenue, Miami, FL 33131

Additional Information: To pre-register for this conference, please click here. For more information, please email Alan Gassman at agassman@gassmanpa.com.

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LIVE FLORIDA INSTITUTE OF CPAs (FICPA) WEBINAR

Alan Gassman, Ken Crotty, and Chris Denicolo will present a webinar on A PRACTICAL TRUST PLANNING CHECKLIST AND PRACTITIONER COMPLIANCE GUIDE FOR FLORIDA CPAs for the Florida Institute of CPAs.

Review a practical planning checklist and practitioner tax compliance guide to facilitate implementing a comprehensive overview of practical planning matters and tax compliance issues in your practice. This presentation will cover over 20 common errors and missed planning opportunities that accountants need to understand and counsel their clients on.

This course is designed for practitioners who wish to assure that trust planning structures and compliance are both aligned with client objectives and that common catastrophic errors and misconceptions can be corrected.

Past attendees have indicated that this is an interesting and practical presentation that offers a great deal of practical information for both compliance and planning functions, based upon an easy to follow checklist approach.  Includes valuable materials.

Date: May 21, 2015 | 10:00 a.m.

Location: Online webinar

Additional Information: For more information, please contact Alan Gassman at agassman@gassmanpa.com or Thelma Givens at givenst@ficpa.org. To register, please click here.

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LIVE SARASOTA PRESENTATION:

2015 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: Friday, October 23rd and Saturday, October 24th, 2015

Location: To Be Determined

Additional Information: Please contact Alan Gassman at agassman@gassmanpa.com for more information.

Notable Seminars by Others
(These conferences are so good that we were not invited to speak!)

 LIVE ST. PETERSBURG PRESENTATION:

ALL CHILDREN’S HOSPITAL FOUNDATION

Date: Thursday, February 12, 2015

Location: Live Event at the All Children’s Hospital St. Petersburg Campus; Webcasts in Tampa, Fort Myers, Belleair, New Port Richey, Lakeland, and Sarasota

Additional Information: Speakers include Richard A. Oshins, Melissa Langa, Stephanie Loomis-Price, Steve R. Akers, William R. Lane, and Abigail E. O’Connor. For a complete seminar schedule, please click here.

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: Grand Hyatt Tampa Bay, 2900 Bayport Drive, Tampa, FL 33607

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.

8 - Rates Chart

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