Archive for the ‘Thursday Reports’ Category

The Thursday Report 6.5.2014 – Annuities II, SCGRATs, Need Blattmachr Topic, and Remembering Judge Caddell

Posted on: June 5th, 2014

Titles

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

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

Planning with Variable Annuities

We received a number of comments on our article last week entitled Planning with Variable Annuities that can be reviewed by clicking here.

Veteran chartered retirement planning counselor and financial planner, Gene Stern is preparing an article for us which will outline advantages and positive outcomes that he has had in his practice.

We also received the following comments from Parker Evans, CFA, CFP, CMT.

Our article will continue next week.

Are Annuities a Good Investment?
by Parker Evans, CFA, CFP, CMT

Parker Evans

Parker Evans is a Certified Financial Planner (CFP) and Chartered Financial Analyst (CFA) investment professional with 30 years of experience. He is President of Successful Portfolios LLC, a Clearwater, Florida based, fee-only Registered Investment Advisor.

Are annuities a good investment?  The short answer is probably not. Annuities are insurance contracts based on life expectancy tables.  A simple, traditional annuity provides the buyer with a fixed monthly stream of income for life.  Unfortunately, the insurance industry has made great strides in making the simple complex.  For example, annuities can be immediate or deferred, and fixed, variable or equity linked. Today, new-fangled annuities outsell traditional immediate fixed annuities by a wide margin. There are at least four potential problems with investing in a deferred annuity:

  1. Tax Disadvantages
  2. Mind-boggling Complexity
  3. High Costs and Illiquidity
  4. Concentrated Credit Risk

Consider this hypothetical example.  A fifty-two year old investor purchases a $100,000 equity index deferred annuity.  The annuity is linked to the S&P 500 Index, has a seven-year surrender term, a 60% participation rate, and a 6% annual cap.  Please keep in mind that this investor could easily invest in an ultra-low cost, tax efficient ETF that will reliably replicate the return on the S&P 500 Index.  Also, currently the ETF pays a tax-advantaged dividend of approximately 2% annualized which can increase over time.  The annuity investor will not receive any return linked to dividends, a fact disclosed only in the fine print of the contract.  Now, assume the S&P 500 appreciates 60% over the 7-year term of the annuity term.  The $100,000 invested in the ETF is now worth $160,000 and considerably more with the dividends reinvested.  The $100,000 invested in the annuity is worth at most $133,300 and probably less, possibly a lot less.  It gets worse.  When the investor surrenders his annuity, he pays taxes on any gain at his highest marginal tax rate, which can be as high as 43.4% when you include the 3.8% Medicare tax.  In contrast, the ETF investor, if he sells his shares, may enjoy lower long-term capital gains tax rates.  Better yet, the ETF investor may never owe taxes on his gain if he is in a low marginal tax bracket at the time of sale or if he qualifies for a step up in basis at death.

In the event the investor needs to surrender his annuity before seven years, the insurance company will charge hefty surrender fees and a market value adjustment.  If the investor has not reached age 59-1/2 then an extra 10% of income excise tax may apply.  In contrast, the ETF investor will incur only a relatively small commission to sell his shares.  And unlike the annuity investor, the ETF investor could easily borrow money at very low cost using his ETF as collateral without triggering a taxable event.

Now it is possible, but historically unlikely, that the S&P 500 will be lower after seven years.  In that scenario, the annuity investment might actually outperform the ETF, assuming that the annuity carrier does not go bust.  In the aftermath of the 2008-2009 market crash, many annuity issuers were in such dire financial straits that they required TARP capital injections from the US Treasury.

“Don’t be a fooled. Annuities can be unsuitable investments with complex riders and features designed to promote sales and protect the insurance company, not the investor.“

SCIN, SCRAM, Annuity or SCGRAT – Planning for Clients with Short Life Expectancies After Davidson and CCA 2013-30-033, an article by Alan Gassman & Ken Crotty

On Tuesday, June 3, 2014, our article “SCIN, SCRAM, Annuity or SCGRAT – Planning for Clients with Short Life Expectancies After Davidson and CCA 2013-30-033 was published in Leimberg Information Services.

We have received some positive feedback on the article already including this quote from Scott Tippett, Esq. “Great Leimberg article on SCINs and SCGRATs.  As good as the article is, footnote IV is priceless.

Footnote IV reads as follows: In the famous television game show, Let’s Make a Deal, moderator Monty Hall would give contestants the choice of three different doors or the box where Carol Merrill was standing.  The box where Carol Merrill was standing was not usually the winner, and Carol Merrill was no Vanna White, but let’s not digress any further here other than to mention that the song “My Whole World Lies Waiting Behind Door Number 3,” by Jimmy Buffett on the A1A album from 1974 is more than worth listening to.  “Didn’t Get Rich,” “Son of a ________”, “I’ll be Back Someday, You’ll See,” “My Whole World Lies Waiting Behind Door Number 3.”  If you have never heard the A1A album please listen to it from beginning to end, which is the way that most great albums were designed to be experienced.  Greatest hits almost never do justice to any good musician.  The entire lyrics for the song My Whole World Lies Waiting Behind Door Number 3 can be reviewed by clicking here.  Dolphins can click six times!

Our article is as follows:

“Since the Tax Court decision of Estate of Moss v. Comm’r in 1980 and the issuance of Treasury Regulation § 1.1275-1(j) in 1998, estate tax planners have used self-cancelling installment notes (SCINs) to save millions of dollars of estate taxes for taxpayers whose life expectancy may be shorter than that assumed under the 2000CM Mortality Table promulgated by the Treasury Department under Publication 1457.  In the recent CCA 2013-30-033, the IRS has taken the position in the Davidson case that clients with shorter than average life expectancies may not rely on the 2000CM Mortality Table to determine their life expectancy for the purpose of valuing the SCIN and may make taxable gifts when the sale occurs if they do rely on the 200CM Mortality Table. 

To reduce the possible gift tax exposure for clients, practitioners using SCIN with clients who have reduced life expectancies may want to use the SCGRAT technique. Utilizing a SCGRAT may be the best choice for practitioners who would like to use SCINs with a client who has a reduced life expectancy. 

If the Service successfully challenges the transaction and reduces the face value of the note by applying the willing buyer willing seller standard, by using the SCGRAT the value of the GRAT formed by the client should be increased.  If the value of the GRAT is increased, then the payments from the GRAT to the client will be increased.  As a result, there should not be any additional gift tax liability for the client.”

Alan Gassman and Ken Crotty provide members with their commentary on the benefits of using the “SCGRAT” planning technique.

EXECUTIVE SUMMARY:

Since the Tax Court decision of Estate of Moss v. Comm’r in 1980 and the issuance of Treasury Regulation § 1.1275-1(j) in 1998, estate tax planners have used self-cancelling installment notes (SCINs) to save millions of dollars of estate taxes for taxpayers whose life expectancy may be shorter than that assumed under the 2000CM Mortality Table promulgated by the Treasury Department under Publication 1457.  In the recent CCA 2013-30-033, the IRS has taken the position in the Davidson case that clients with shorter than average life expectancies may not rely on the 2000CM Mortality Table to determine their life expectancy for the purpose of valuing the SCIN and may make taxable gifts when the sale occurs if they do rely on the 200CM Mortality Table.  To reduce the possible gift tax exposure for clients, practitioners using SCIN with clients who have reduced life expectancies may want to use the SCGRAT technique described below.

FACTS:              

The industry practice for most well versed practitioners has been that the 2000CM Mortality Table can be used when the taxpayer has a better than 50% chance of living at least one year at the time that the SCIN or private annuity arrangement is entered into.[i]

In order to avoid incurring income tax on the sale of assets for a SCIN or private annuity, most arrangements have entailed having an irrevocable trust established to be separate and apart from the taxpayer for federal estate tax purposes, while being disregarded for income tax purposes so that there is no income on the sale and no interest or Internal Code Revenue § 72 income recognized by the taxpayer as payments are received by the taxpayer from the trust during the taxpayer’s lifetime.

Treasury Regulation § 25.7250-3(b)(2)(i) was enacted to implement the “probability of exhaustion test” which generally provides that if the entity purchasing assets for a private annuity is not capitalized with sufficient assets to enable the trust to make the scheduled private annuity payments until the Grantor reaches age 115, assuming a market rate equal to what is known as the  7520 rate which is equal to 120% of the Federal midterm rate in effect under § 1274(d)(1) for the month when the transaction is entered into, rounded up to the nearest 2/10ths of 1%.

Because of the difficulty of satisfying the probability of exhaustion test, especially in periods of low interest rates, most estate tax planners have recommended the use of SCINs, which are not subject to that test.  A commonly used planning industry rule of thumb has been that a trust purchasing assets from a Grantor in exchange for a SCIN should have a positive net worth equal to 10% or more of the value of the assets purchased in order to be considered a separate and viable entity for estate tax planning purposes.

When trusts do not have sufficient assets to pass the probability of exhaustion test or the “10% rule of thumb” described above then it is common to have beneficiaries or affiliated entities guarantee the note or the private annuity in order to meet the applicable test,[ii] the 10% test for a SCIN or the probability of exhaustion test for a private annuity.

Treasury Regulation § 25.7520-3(b)(3)(I), which states that the 2000CM Mortality Table can be used when the person whose life controls the document has better than a 50% chance of living at least one year, applies explicitly to private annuities.

Many leading commentators, including Howard Zaritsky and Ronald D. Aucutt, have concluded that most likely this regulation applies to SCINs, because in form and content a SCIN constitutes a series of payments over time that can in substance be exactly the same as a private annuity contract.

The Service has strongly disagreed with this approach, but has waited over 18 years since the enactment of the above-referenced Treasury Regulation and notwithstanding annual and continuing industry and leading treatise literature to the contrary, on the occasion of the death and estate tax return audit of William M. Davidson to challenge this approach, whereby over $1,000,000,000 of estate tax is being assessed by the Service (constituting over 25% of the total estate taxes that the U.S. government would receive for a given calendar year) as the result of Mr. Davidson having sold a large percentage ownership in the Detroit Pistons basketball team and other assets in exchange for multiple SCINs when Mr. Davidson is said to have been in failing health.

The Service further threw the gauntlet down in front of the estate tax planning industry by publishing CCA 2013-30-033 on August 5, 2013, as an IRS Chief Counsel Advice which concludes that a SCIN will be worth substantially less than its face amount if a willing buyer would pay a willing seller less than the face amount if there was open market negotiation for the note.

In other words, if Mr. Davidson sold $1,000,000,000 worth of assets for a $1,000,000,000 SCIN then the trust that sold the note would only be able to receive $300,000,000 pursuant to an auction of the note at an event where every willing buyer received notice of the auction. Mr. Davidson would then have made a $700,000,000 gift and he would be subject to $280,000,000 worth of estate tax, enough to purchase two F-35 fighter jets.

What is a planner to do now when a wealthy client has a short life expectancy – SCRAM, go flat or SCGRAT?

COMMENT:

Door Number 1

A private annuity arrangement could be entered into with family members, such as occurred in the 2012 Estate of Kite v. Commissioner case.  If a private annuity is entered into where the parent sells assets to children, the children’s basis in the assets will be equal to the annuity payments made by the children.  If the parent dies before receiving any annuity payments, such as what happened in the Kite case, the children would have a zero basis in the assets received and would face a 23.8% capital gains tax on the full value of the assets when they were sold.

Alternatively, the planner must face the probability of exhaustion test if a grantor trust is used that would quite possibly allow a stepped up basis for the assets.

The probability of exhaustion test may not apply, as discussed in the University of Miami Heckerling presentation by Lawrence Katzenstein[iii], but there is a significant risk that the probability of exhaustion test will apply.

Door Number 2

Go with a SCIN, but understand the risk posed by CCA 2013-30-033 and the Davidson case that the Grantor could be making a significant taxable gift at the time the transaction was entered into.

Door Number 3

Do nothing, but accelerate planning with charitable donations, discounting, and other methods.

Door Number 4

The box where Carol Merrill is now standing. [iv]

Door number 4 is the bread slicer – or at least what we think is better than sliced bread – a SCIN arrangement that would allow any gift element to not be subject to gift tax and to instead be repayable to the Grantor by use of a grantor retained annuity trust arrangement.

Instead of selling the assets to a typical irrevocable grantor trust the taxpayer first establishes a limited liability company owned 100% by the Grantor and places the assets that are being “sold” into the LLC and also receives a SCIN from the LLC while verifying that the taxpayer has a better than a 50% chance of living at least one year.

The taxpayer also executes a grantor retained annuity trust agreement (GRAT) which provides that a percentage of the value of the Day 1 GRAT assets will be paid back to the Grantor each year for two years on the anniversary date of the GRAT being established.[v]

The Grantor then transfers ownership of the LLC to the GRAT and hires a valuation firm to determine the value of the assets owned by the LLC.

If the valuation firm opines that the assets in the LLC are worth less than the face amount of the SCIN, then the LLC will be considered to have a negligible value, and the payments owed back to the Grantor will be very small.  There should be some positive value even if the assets in the LLC are worth less than the SCIN because the owner of the LLC has no downside and at least some limited upside potential that the assets will grow in value and yield a net return exceeding the amount owed on the SCIN.

If the assets have a value exceeding the value amount of the SCIN then assuming the 7520 rate is 2.4%, then the excess amount multiplied by approximately 51.8% will be the amount of the annual payment that the GRAT will make to the Grantor, which may be in cash that the LLC can distribute to the GRAT or in the form of assets equal in value to such amounts that the LLC may distribute to the GRAT each year.

After the second annual payment, the LLC will be owned by the GRAT or an irrevocable “remainder trust” that the GRAT pours into after the second year.

The SCIN will typically be an interest only SCIN with a balloon payment at the end of the term of the note which will normally be just before the standard life expectancy of the individual on whose life the note is based as determined under 2000CM Mortality Table or the mortality table under Treasury Regulation § 1.72-9, Table V.

The 2000CM Mortality Table will typically have a shorter life expectancy and it is therefore safer to use it.  For example, for a 78 year old the life expectancy under the 200CM Mortality Table is 9.44 and the life expectancy under Treasury Regulation § 1.72-9, Table V is 10.63.

To determine the value of the SCIN, either the interest rate of the SCIN will be increased, the face amount of the SCIN will be increased, or the interest rate and the face amount of the SCIN can both be increased to the extent appropriate to satisfy actuarial assumptions which make the note equal in value to the assets sold so that the seller is compensated to take into account that the note will vanish on death.  This can be determined based upon standard life expectancies under actuarial tables using software programs like Steve Leimberg’s Number Cruncher and Larry Katzenstein Tiger Tables. The links to obtain these programs are as follows.

The need to value the assets held under the LLC is a substantial reason to use the GRAT when assets are hard to value or discounts will be applicable.

A GRAT must be funded in a single transfer and there is no authority for the ability to sell assets to a GRAT in exchange for a note at the time of funding.

This is why well respected commentators have suggested that an LLC that is disregarded for income tax purposes will first be funded by the Grantor and that the Grantor can receive a note back from the LLC in order to provide appropriate financial leverage for the arrangement.

Many taxpayers will want to have their remaining assets be under the amount that would require an estate tax return to be filed in order to reduce the paperwork, expenses, and delay in estate administration that results from having to file a federal estate tax return.  A SCIN will not be considered to be an asset owned at the time of death for estate tax return threshold filing purposes.

 However, in Estate of Moss v. Comm’r, 74 T.C. 1239 (1980) , the Tax Court held in favor of theestate….***See: Cain v. Comm’r, 37 T.C. 185 (1961)

Where a marital deduction devise or charitable disposition may facilitate avoidance of federal estate tax on the death of the Grantor when used in conjunction with the SGRAT, it can still be advisable to have GRAT assets pass to fund a marital devise or trust and/or a charitable devise as remainder beneficiaries of the GRAT so that a federal estate tax return using it is more clear that the assets passing to fund a marital devise will receive a stepped up basis if held by the taxpayer on death, but the advantage of not having to file a federal estate tax return may outweigh the risk of not receiving a stepped up basis on assets passing to fund a marital or charitable devise.

Another consideration is whether to maximize the use of the taxpayer’s generation skipping tax exemption makes the filing of a federal estate tax return worthwhile.  Generation skipping tax exemption can clearly be allocated to a marital deduction trust that is funded from the Grantor’s estate or revocable trust that receives the payments from the GRAT.

Many clients will prefer to zero out the GRAT in order to avoid the need to file a federal gift tax return for the year that the SCGRAT is implemented.  It may therefore be important to be sure that there are no gifts exceeding $14,000 per donee or any gifts that do not qualify for the annual gift tax exclusion for the year in which a gift tax return would be filed, although even if a gift tax return needs to be filed it seems likely that a zeroed out GRAT would not be considered to be a gift that would need to be reported on a gift tax return.

Sample charts demonstrating this SCRAT technique are attached.

Conclusion

Utilizing a SCGRAT may be the best choice for practitioners who would like to use SCINs with a client who has a reduced life expectancy.  If the Service successfully challenges the transaction and reduces the face value of the note by applying the willing buyer willing seller standard, by using the SCGRAT the value of the GRAT formed by the client should be increased.  If the value of the GRAT is increased, then the payments from the GRAT to the client will be increased.  As a result, there should not be any additional gift tax liability for the client.

Citations

[I]Treasury Regulation § 1.7520-3(b)(3) provides that: an individual who is known to have an incurable illness or other deteriorating physical condition is considered terminally ill if there is at least a 50 percent probability that the individual will die within 1 year. However, if the individual survives for eighteen months or longer after the date of the decedent’s death, that individual shall be presumed to have not been terminally ill at the date of death unless the contrary is established by clear and convincing evidence.

[II]It has been appropriately noted by many commentators that the 10% rule of thumb described herein is not based upon any specific IRS ruling, court case, or comparable situation.  It actually came into being after well respected estate tax planner Byrle Abbin delivered a paper at the University of Miami Institute on Estate Planning in 1997, in which he reported that he had conversations with IRS personnel about a comparable situation and concluded the conversation with the mutual non-binding understanding that a 10% net worth should be sufficient to allow a trust entering into such a transaction to be considered as a separate independent entity.

[III]Larry Katzenstein, “Turning the Tables: When do the IRS Actuarial Tables Not Apply?” 34 Univ. Miami Heckerling Institute on Estate Planning (Miami, Fla. Jan 6-10, 2003).

[IV]In the famous television game show, Let’s Make a Deal, moderator Monty Hall would give contestants the choice of three different doors or the box where Carol Merrill was standing.  The box where Carol Merrill was standing was not usually the winner, and Carol Merrill was no Vanna White, but let’s not digress any further here other than to mention that the song “My Whole World Lies Waiting Behind Door Number 3,” by Jimmy Buffett on the A1A album from 1974 is more than worth listening to.  “Didn’t Get Rich,” “Son of a ________”, “I’ll be Back Someday, You’ll See,” “My Whole World Lies Waiting Behind Door Number 3.”

[V]We have used two years as an example.  Some planners believe that a GRAT can be as short as just over one year, and certainly can be for a longer period of time.  If the Grantor dies during the GRAT term then the present value of the GRAT payments that have not yet been paid will be considered to be held by the Grantor’s estate, and can qualify for the federal estate tax or charitable deduction if the GRAT is properly drafted and would then pass to a spouse, a marital deduction trust, or to a private or public charity.

Celebration of Life for Judge Patrick Caddell

Caddell

A Celebration of Life for Judge Patrick Caddell
Saturday, June 21, 2014 at 10 a.m.
Pinellas Park Performing Arts Center 4951  78th Avenue, Pinellas Park

From the Clearwater Bar Association:

Longtime Pinellas County Judge Patrick Caddell, known for his quick wit on and off the bench, died Tuesday after a battle with cancer. He was 60.

“He was kind of the Yoda of judges,” said Thomas McGrady, chief judge for the Pinellas-Pasco circuit.

Caddell had been a mentor to him and many others, offering tips on how to be a good and effective judge. “It was all good advice,” McGrady said.

Caddell, who was elected county judge in 1986 and was the county’s administrative judge, also was well known for his somewhat acerbic sense of humor

In 1987, shortly after Caddell was elected, an irate business owner flew an airplane over downtown St. Petersburg with a banner that read: “Judge Caddell lies from the bench – violates civil rights – Is he fit to stay on the bench?”

Afterward, Caddell quipped: “I’m sorry I didn’t get a picture of it for my mom. She always said I’d be famous someday.”

When Caddell recently ruled a portion of St. Petersburg’s sign ordinance was unconstitutional, the St. Petersburg doctor who challenged the law stood up and thanked him “for recognizing the natural born rights I have of free speech.”

Caddell dryly responded: “It’s what I do for a living. Don’t think you’re anything special.”

This was cited this month when Caddell received the Clearwater Bar Association’s George W. Greer Judicial Independence Award. Caddell was too sick to accept the award in person, but he greatly appreciated it and wrote some remarks for McGrady to read aloud:

“I cannot imagine a higher award to which any judge could aspire than to be deemed ‘independent’ by his or her profession.”

Caddell also was chairman of the Pinellas County Canvassing Board, which supervises election procedures. “No one cared more about ensuring the integrity of election results,” Pinellas Supervisor of Elections Deborah Clark said in a statement.

McGrady said the news of Caddell’s passing came as a shock. “We all knew he was sick. … We were cautiously optimistic that he could beat the cancer and be back. It came much quicker than any of us thought.”

Where Can the Dolphins File Their BP Claims?

Linda.Dolphin.Saying

The U.S. National Oceanic and Atmospheric Administration (NOAA) has recently released a study of dolphins that is very alarming. The study, formally known as a Natural Resource Damage Assessment, investigated the possible damage to gulf coast wildlife as a result of the BP oil spill. Two groups of dolphins were studied, one group in Barataria Bay, an area heavily affected by the 2010 oil spill, and another group from Sarasota Bay, an area not affected by the spill.

The report indicates that the Barataria Bay group had abnormally high cases of lung disease, were under weight, had missing teeth, and very low levels of adrenal hormones (a critical hormone for responding to stress).

The team even came across a pregnant dolphin. Unfortunately, the fetus had already died about a weeks earlier. The fetus had died in the second trimester which was unusual because usually things that cause abortions in dolphins usually occur in the third trimester.

BP has rebutted the study, stating that there are no causal links between the two events. For instance, BP asserts pesticides or other man-made chemicals may have entered the environment through rain water run-off. Despite BP’s claims, scientists performed an analysis of both group’s blubber and discovered that the Sarasota Bay group had higher levels of pesticide and chemical exposure, potentially ruling those out as causes for this event. BP also claims that the symptoms found in the dolphins are also caused from natural diseases like Morbillivirus and Brucellosis.

BP was also unhappy with the scientists’ decision to use dolphins in Sarasota Bay because they are genetically different and live in a different environment then the Barataria Bay dolphins. BP states that Barataria Bay is more industrialized and has been effected by other oil and fuel spills.

Researchers are hoping to receive funding for more studies this coming summer. They wish to study the same group in Barataria Bay in an attempt to better understand this increased level of dolphin disease and sickness.

Thoughtful Corner – The Road Not Taken by Robert Frost, a new Thursday Report Weekly Column for Advisors Who Care

The Road Not Taken | Robert Frost, 1874 – 1963

As we as advisors and planners help clients make important decisions, let’s not forget that the opportunities they have may justify risks and actions that they can afford to hand, and that we can encourage this with appropriate analysis of exposure and how to best protect from risk.

Yes, it is our job to warn them of risks, and help to reduce problems ahead, but let’s not get carried away and drown the next Apple or Microsoft or Facebook.

If the client has passion and the wherewithal to make an intelligent choice then let’s do what we can do to help them.

Let’s not forget that no great achievement has occurred with risk and ambition, and that doing nothing in the face of an important decision is often the wrong move.

As Yogi Berra said, “when you come to the fork in the road, take it.”  What can we do to help clients understand that inaction can be very harmful, in a number of ways.

And let’s not forget the following immortal verse by Robert Frost:

Two roads diverged in a yellow wood,

And sorry I could not travel both

And be one traveler, long I stood

And looked down one as far as I could

To where it bent in the undergrowth;

 

Then took the other, as just as fair,

And having perhaps the better claim,

Because it was grassy and wanted wear;

Though as for that the passing there

Had worn them really about the same,

 

And both that morning equally lay

In leaves no step had trodden black.

Oh, I kept the first for another day!

Yet knowing how way leads on to way,

I doubted if I should ever come back.

 

I shall be telling this with a sigh

Somewhere ages and ages hence:

Two roads diverged in a wood, and I–

I took the one less traveled by,

And that has made all the difference.

Or said in another way:

No Guts No Glory

Have a great Thursday and let’s help others achieve greatness when the time is right.

Stay in motion and have a great day!

 

Next week–Why Your Smart Phone May Be Much Smarter than You Are.  Who works for who and why.

Two Webinars of Interest: Improve Your Professional Practice with Rick Solomon, and a webinar with Jonathan Blattmachr and Alan Gassman

Improve Your Professional Practice

Professional practice coach and workshop leader guru Rick Solomon, CPA will be providing a free live informative webinar for CPAs, lawyers and other professionals on the theme of building an ideal practice.  This presentation will also describe a 6 hour webinar program that Rick offers for lawyers and other professionals that will occur on Thursday, September 11, 2014 and Friday, September 12, 2014 from 2pm to 5pm for $497 ($397 for anyone in the first two years of practice).  Please feel free to attend this complimentary webinar, notwithstanding whether you might be interested in the September 11 and 12 program.  We know from experience that what Rick says at this webinar can have an everlasting positive impact on your practice and professional life.

To register for the webinar please click here.

Rick Solomon

Rick Solomon started his CPA career at a New York City-based international CPA firm before going on to build one of the fastest growing CPA firms on Long Island. He developed and presented his renowned Sell Without Selling sales program to thousands of professionals in seven countries on three continents, helping them add millions of dollars in new business annually. Rick has engaged in lengthy study at the Sedona Institute in Arizona, developing a deep understanding of how to help free people from limiting beliefs and points of view. This freeing process has become the “secret ingredient” in all of Rick’s training programs. He served on the faculty of the esteemed Esperti-Peterson Institute Masters Program, a think tank of the nation’s leading estate planning attorneys. Currently, Rick Solomon is owner and CEO of RAN ONE Americas, a world leader in helping accountants and other advisors build lucrative and rewarding business advisory practices. He continues to travel worldwide presenting inspiring, motivational seminars and challenging thousands of CPAs and other professionals to expand their view of themselves and the value they bring to their clients. Rick‘s message has appeared in almost all industry related publications, including a feature story in the Sunday edition of the New York Times.

Webinar with Jonathan Blattmachr and Alan S. Gassman

Blattmachr.Gassman.Thought Bubbles

Free webinar with Jonathan Blattmachr and Alan Gassman on Tuesday, August 12, 2014 at 12:00 p.m.

Help us decide the topic.

Please tell us what you would like to hear about.

The vast majority of tax and estate planning lawyers recognize that Jonathan Blattmachr is one of the very best estate planning and tax minds, and also a leading author and visionary in our profession.

Nothing he says or suggests goes unnoticed in the estate planning world and he has occupied this position for decades.

Please participate in this interesting and thought provoking process by letting us know what you would like to hear about.

Please email agassman@gassmanpa.com with topic ideas and general thoughts for this webinar.

To register for the webinar please click here.

Upcoming Seminars and Webinars

FREE WEBINAR:

VERSION 226.3 OF OUR ESTATEVIEW ESTATE TAX PROJECTION AND ILLUSTRATION SOFTWARE – A FREE WEBINAR

Alan Gassman, Ken Crotty and David Archer will be presenting a free 30 minute webinar on what is new with our EstateView software which will be featured later this year in Jason Havens’ excellent American Bar Association RPTE Probate and Property column.

Speakers: Alan Gassman, Ken Crotty and David Archer

Date: Monday, June 9, 2014 | 12:30 p.m.

Location: Online webinar

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

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FREE WEBINAR:

CREDITOR AND OTHER PLANNING FOR SAME GENDER COUPLES

Date: Tuesday, June 10, 2014 | 7:30 p.m.

Location: Online webinar

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

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BLOOMBERG BNA WEBINAR:

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

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

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

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

Location: Bloomberg BNA Tax & Accounting Online webinar

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

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LIVE CLEARWATER PRESENTATION:

FICPA SUNCOAST CHAPTER MONTHLY MEETING

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

Speaker: Alan S. Gassman

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

Location: Feather Sound Country Club, Clearwater, Florida

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

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LIVE WEBINAR:

Free webinar with Jonathan Blattmachr and Alan Gassman on Tuesday, August 12, 2014 at 12:00 p.m.  Topic to be announced.  Please tell us what you would like to hear about!

The vast majority of tax and estate planning lawyers recognize that Jonathan Blattmachr is one of the very best estate planning and tax minds, and also a leading author and visionary in our profession.

Nothing he says or suggests goes unnoticed in the estate planning world and he has occupied this position for decades.

Please participate in this interesting and thought provoking process by letting us know what you would like to hear about.

Speakers: Jonathan Blattmachr and Alan Gassman

Date: Tuesday, August 12, 2014 | 12:00 p.m. (50 Minute Webinar)

Location: Online webinar

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

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LIVE FT. LAUDERDALE PRESENTATION:

FICPA ANNUAL ACCOUNTING SHOW 

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

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

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

Location:  Fort Lauderdale, Florida

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

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LIVE NEW JERSEY PRESENTATION:

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

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

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

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

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

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

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

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

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

Comments from past attendees of this program:

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

Date: Saturday, October 4, 2014

Location:  TBD

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

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LIVE SOUTH BEND, INDIANA PRESENATION:

40th ANNUAL NOTRE DAME TAX & ESTATE PLANNING INSTITUTE

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

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

Date:November 13 and 14, 2014

Location: Century Center, South Bend, Indiana

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

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

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LIVE NAPLES PRESENTATION:

2nd ANNUAL AVE MARIA SCHOOL OF LAW ESTATE PLANNING CONFERENCE

Alan Gassman will once again be speaking at the Ave Maria School of Law Estate Planning Conference in Naples, Florida, whether he is invited or not!  Hats off to Jonathan Gopman, Karen Grebing, Northern Trust and many others for having hosted one of the most enjoyable conferences in 2014.

Date: Friday, May 1, 2015

Location: Ave Maria School of Law, Naples, Florida

Additional Information: Please contact Karen Grebing at kgrebing@avemarialaw.edu for more information.

NOTABLE SEMINARS BY OTHERS

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

Live Gulfport, Florida presentation

Practical Ethics: The Ethical Questions that Practitioners Ask with attorney Sandra Diamond.  This annual webinar will address the real ethical dilemmas faced by attorneys in elder law and special needs trusts drafting and administration.

Date: Wednesday, June 11, 2014 | 12-1:30 p.m

Location: Stetson University College of Law, Gulfport, Florida

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

LIVE ORLANDO PRESENTATION

49th ANNUAL HECKERLING INSTITUTE ON ESTATE PLANNING

Date: January 12 – 16, 2015

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

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

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LIVE ST. PETERSBURG PRESENTATION:

ALL CHILDREN’S HOSPITAL FOUNDATION

Date: Thursday, February 12, 2015

Location: St. Petersburg, FL

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

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LIVE PRESENTATION:

2015 FLORIDA TAX INSTITUTE

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

Location: TBD

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

Applicable Federal Rates

Applicable Federal Rates June

The 7520 Rate for June is 2.2% and for May was 2.4%.

Annuity Traps, Same Gender TBE, Avoid Vehicle Probate, and Team Enhancement Strategies

Posted on: May 29th, 2014

Same Gender Married Couples Living in Florida – Why Not Place Their Assets as Tenants by the Entireties

Planning with Variable Annuities

Phil Rarick’s Informative Blog: Transfer of Motor Vehicles After

Owner’s Death: How to Avoid Probate in Florida

Making Your Professional Firm a Great Workplace

Phil McLeod’s Daughter Gets Married!

Humor! (or Lack Thereof!)

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

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

Same Gender Married Couples Living in Florida – Why Not Place Their Assets as Tenants by the Entireties by Alan Gassman, Travis Arango and Scott Callin

Travis Arango and Scott Callin are Stetson Law students who are clerking for Gassman, Crotty & Denicolo, P.A.

On April 19th and 20th, Oregon and Pennsylvania became the 18th and 19th states to recognize same-gender marriages, respectively. These are just the two most recent decisions furthering same-gender marriages since the landmark Supreme Court Windsor decision, issued in June of 2013. Windsor struck down part of the Defense of Marriage Act (DOMA) and forced the federal government to recognize same-gender marriages. The Court did not address Section 2 of DOMA, which allows states to ignore marriages legitimately performed in other states. However, using the logic set forth in Windsor many states, including Kentucky, Ohio, Indiana and Tennessee, have ordered same-gender marriages from other states be recognized.

As the gay rights movement pushes forward, with marriage as the hot topic, other issues remain unanswered. In Florida and a number of other states, tenancy by the entireties (TBE) is utilized as a favorable type of property ownership, but is only available to those who are married. TBE gives both parties an equal and undivided interest in the property and provides advantages like the right of survivorship and protection from creditors. Florida has traditionally had a strong stance against giving any marital rights to same-gender couples, however, with this tidal wave of change moving across the nation, and even in Florida, we may see the end of that repressive era.

So why not attempt to title their assets as TBE if state law may protect such assets from the creditors of either partner? TBE provides obvious advantages, and Equal Protection is the constitutional guarantee that no person or class is denied the same protection of the laws that is enjoyed by other classes. Under this definition of Equal Protection, one would assume the class of same-gender people could not be discriminated against for sexual orientation. However, the same-gender marriage debate has been raging for years so it obviously is not this cut-and-dry. In the recently decided Obergfell v. Kasich case, which forced Ohio to recognize legitimate out of state same-gender marriages, U.S. District Judge John G. Heyburn II said that Ohio’s refusal to recognize gay marriage is “unenforceable in all circumstances.” Also within the ruling was the acknowledgment that once the government attaches benefits to marriage, it must constitutionally grant equal protection to all. With TBE undeniably being one of those benefits to heterosexual married couples, logically courts should extend that line of reasoning to recognize same-gender TBE as well. There is a recent Florida decision that sheds some light on the topic as well.

D.M.T. v. T.M.H., decided in late 2013 by the Florida Supreme Court, held that Florida Statute 742.14 was unconstitutional as it only allowed legally married heterosexual couples to retain parental rights to children born from donated genetic material from one party to the other. The Court said that the statute, defining a “commissioning couple” as a heterosexual married couple, did not provide equal protection to same-gender couples. The case involved a lesbian couple where one woman donated her egg (“biological mother”) to her partner (“birth mother”) to carry the child. Years after the birth of the child, the birth mother refused to give the biological mother parental rights and asserted the biological mother was only a donor of the egg with no parental rights. Under Florida’s donation statute, since they were not a legally married couple, when the biological mother donated her egg, she was viewed as an egg donor and did not retain any rights to the resulting child. This case relied heavily on Windsor and could be a sign of things to come in Florida law.

Same-gender marriage is often a topic that creates division between the political parties, but that did not hold true in D.M.T. The Court currently has only two justices appointed by a Democratic governor (Pariente and Lewis), four by a Republican (Canady, Polston, Labarga, and Perry), and Justice Quince was appointed by Jeb Bush and Lawton Chiles by a joint agreement as Bush assumed office. In D.M.T., the majority comprised of Pariente, Quince, Labarga, and Perry, while the dissent was Polston, Lewis and Canady. This makes forecasting the outcome of subsequent same-gender appeals all the more unpredictable in Florida. With 10 states lifting bans in the last year, the question is no longer IF Florida will recognize same-gender TBE, and marriages in general, but WHEN it will do so.

Florida, along with Indiana, Michigan, Mississippi, Missouri, North Carolina, Virginia, and Wyoming, provide significant creditor protection, but not same-gender marriage recognition. Considering how quickly the political landscape is shifting, estate planners representing same-gender couples who reside in these state should strongly consider continuing to push the envelope and title their assets as TBE. Since the 2013 Windsor decision, courts have been far more willing to recognize marriage, and the rights that go along with it, as a fundamental right to same-gender couples.

The chart below shows the states that recognize tenancy by the entireties, and the degree of creditor protection associated with it. Same Sex chart part 1 Same Sex chart part 2 Same Sex chart part 3 Same Sex chart part 4

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

Planning with Variable Annuities

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

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

The following excerpts from our recent live webinar entitled Planning with Variable and Other Annuity Products may be of interest.

If you would like to view the webinar please email agassman@gassmanpa.com We welcome any and all questions, comments and suggestions for variable annuity planning.

We are working on a book with respect to this.

Commercial annuities are contracts issued by insurance carriers and annuity companies to individuals, trusts, and other entities. These contracts are designed to qualify for tax deferral and/or basis (cost) allocation rules which are found in Internal Revenue Code Section 72 and the Treasury Regulations issued thereunder. Internal Revenue Code Section 72 has been around for decades. It purports to control the taxation of annuity contracts. Nevertheless, there are many gray areas, uncertainties, and draconian rules presented under Code Section 72.

Some of these tax rules may also apply to private annuities, but private annuity structuring is beyond the scope of this book. In a commercial annuity, an individual or some other entity goes to a registered insurance company, or possibly an offshore insurance company, and says “Here’s some money, give me a return on my money based upon the terms of an annuity contract.” This commences a contractual relationship between a client, whether an individual or an entity, and an insurance company.

In the interest of full disclosure, I must first state that many of our clients have come to us with variable annuity contracts which they entered into without understanding (a) the tax treatment, (b) the costs, and (c) the rate of return calculations.

In the Forbes.com article “9 Reasons You Need To Avoid Variable Annuities” author Eve Kaplan says “[t]here are unusual situations when a variable annuity may make sense – e.g. doctors who are concerned about malpractice suits. Three-quarters of US states protect variable annuity assets from creditors – regular IRAs do not benefit from ERISA protection and may be more vulnerable to creditors. There are a few other instances when variable annuities may make sense – but they’re few and far between. More often than not, it’s clear that variable annuities always benefit the seller, and only infrequently benefit the buyer.”

Our law firm does not sell annuities, nor do we receive any kickbacks or have any financial relationship with any companies that sell annuities. Our only priority is to come up with the best planning possible for our clients.

I would like to thank my partner, Christopher Denicolo, for countless hours spent researching and outlining materials, and also Christopher Price of Lincoln Financial Group, who spent dozens of hours explaining the labyrinth of complex rules and regulations that apply to annuities.

In addition, Michael Morrissey of Vanguard, John Prizer in Orlando, Nathan West, J.D., L.L.M. at KPMG, and Ryan Chaplinski of Dimensional Fund Advisors have spent time assisting me with policy specifics.

12 Reasons to be Cautious About Variable, “Index” and “Guaranteed Income” Annuities That Your Clients May Own or Consider Purchasing

While vast amounts of literature exist expounding the virtues of annuities, it is important to remember that these are most often marketing materials that are paid for by insurance companies to promote their products. In order to best protect your clients, it is important to understand the practical results of these arrangements, and to consider the following limitations, obstacles and issues:

1. Converting Long Term Gains for Ordinary Income. Annuities convert long-term capital gains that would otherwise be dividends taxed at a maximum of 20% into ordinary income.

They would be best suited as a tax deferral devise for high ordinary income investments like REITs (“Real Estate Investment Trusts”) is and hedge funds that throw off short term capital gains.

Converting long-term gains into ordinary income typically raises the tax rate for a client’s assets. Suppose you give an insurance company $100,000. The company places the investment into clone accounts, mutual fund arrangements, and index arrangements. The company is going to give you a rate of return based on how the various funds perform. A mutual fund will typically receive dividend income, which is taxed at 15% to 23.8%, and capital gains income, which is taxed at 15% to 23.8%. With a variable annuity, the good news is that you do not have to pay tax until you make a withdrawal or trigger income; the bad news is when you do have to pay taxes, it is at ordinary income rates. This bumps up the tax rate to 39.6% at most, but there may be an extra 10% tax rate based upon an excise tax that applies in certain situations when distributions are made from variable annuities, and possibly the 3.8% Medicare tax. Many clients are not aware of this distinction with a variable annuity.

Forbes Magazine recently cited study by Richard Toolson (who is an Accounting Professor at Washington State University) that looked at the break-even points for variable annuities and investments in the same funds through a low-turnover stock index mutual fund in lieu of the annuity wrapper, based on the assumption that both investments earn the same pretax return. The study indicated that an individual in a 36% tax bracket will never come out ahead by investing in a variable annuity because of the continued drag of fees and tax issues related to the variable annuity product.”

In her article, “9 Reasons You Need To Avoid Variable Annuities”, Eve Kaplan further states that “[i]f you truly want to convert after-tax dollars and gains to tax-deferred gains, you can pour money into a variable annuity but be aware you do NOT receive a tax deduction since annuities are not qualified retirement products.” Kaplan further explains that “[v]ariable annuities convert lower capital gains rates on taxable income (if the annuity is purchased with after-tax dollars) into a higher tax rate levied on ordinary income. This can cost consumers significant tax dollars down the road.”

2. No Step-Up In Basis on Death. Annuities do not get a step up in basis when the owner dies – the income has to come out eventually and will be taxed at ordinary rates.

For example, if I own an annuity with an $80,000 cost and a $200,000 value and I die, then my family is going to eventually pay tax on that $120,000 of gain when they pull it out. There is absolutely no way around this unless the client has net operating losses or huge nursing care costs in their later years so that they have losses to offset the ordinary income. This is important to keep in mind.

Eve Kaplan also addresses this in her above referenced article, where she states that “[a]nnuities are disadvantageous to inherit if they don’t go to a spouse. If the money formerly was after-tax dollars, the heir receives no step-up in basis on accounts with gains. If you invest the same dollars (after-tax) in a stock fund, your heirs benefit from a step-up on basis at the date of death or 6 months later. This is hard to quantify but a step-up in basis is a powerful tool to reduce capital gains taxes.”

3. Guarantees are Complicated and May Be Deceiving. Most commercial annuities with “guaranteed income” or “market protection” features are extremely complicated and difficult to understand. The sales materials for these products may be confusing at best and intentionally misleading at worst. In many cases even the salespeople for annuity products do not seem to have a firm grasp on what exactly the product does and the financial mechanics of it. Most elderly clients have no hope of truly understanding how the products work, and illustrations only serve to further muddy the waters. The guarantees in annuities are complicated and they may even be deceiving.

If you analyze an annuity with a guarantee feature and reach the conclusion that a majority of the policy owners can expect to come out ahead, you do not understand the product because that cannot be so. It is, however, theoretically possible that an annuity contract could be constructed with a guarantee that would increase the probability of achieving certain goals.

4. 10% Excise Tax. A 10% excise tax on built-up income will apply when withdrawals come out to any individual (or possibly a trust) who has not reached age 59 ½. The excise tax may apply to trusts for generation skipping or creditor protection, even where the monies will eventually make their way to beneficiaries who have reached age 59 ½. Further, making annuities payable directly to individuals can open wealth up to mismanagement, divorce exposure, and other issues. The 10% excise tax will apply on funds withdrawn from an annuity to the extent that there is income under the annuity.

5. Must Pay Out Ordinary Income Shortly After Death (Unless Payable to the Spouse).

Although the Internal Revenue Code has “stretch IRA like rules” that are to apply to non-qualified annuities, the IRS has never issued regulations or other guidance on this topic, so most carriers will not allow annuities to continue in trust after the death of the policy holder or annuitant. Therefore, funding of credit shelter trusts and/or GST exempt trusts with variable annuities will normally not work.

When somebody dies owning an annuity, Congress is essentially saying through Code Section 72 that because of the deferral of income under annuity products, taxpayers will need to take monies out of the annuity and pay tax on the distributions in a manner similar to IRAs and other retirement plans. But unlike IRAs and pensions, which have very complicated but manageable rules that allow taxpayers to make IRAs and other retirement accounts payable to trusts that will make distributions over the life expectancies of the beneficiary to the trust, this is not the case with respect to non-qualified annuity contracts.

Code Section 72(s) provides the general rules that a contract must satisfy in order to be treated as an annuity contract for income tax purposes (and therefore be afforded tax deferral advantages). If a contract does not satisfy these rules, then all payments received under the contract after the holder’s death will be included as gross income.

In order to use an exclusion ratio to exclude a portion of each payment received from gross income, an annuity contract must provide both of the following:

1. If the holder of the contract dies on or after the annuity’s starting date and before the entire interest in the contract has been distributed, then the remaining portion of such interest must be distributed at least as rapidly as under the method of distributions being used as of the date of the holder’s death (the “at least as rapidly” rule). When the annuitization is based on a life or certain period and the holder dies, the exclusion ratio is replaced with a FIFO payment scheme so that the first payments made will be tax-free to the extent of the holder’s unrecovered investment in the contract.

2. If the holder of the contract dies before the annuity’s starting date, the entire interest in such contract must be distributed within 5 years after the death of such holder. This is referred to as the “5-year rule”.

If the above requirements are not satisfied, then all monies paid from an annuity will constitute income to the extent that the value of the annuity contract exceeds the investment in the contract, unless one of the broad exceptions to this general rule applies. If one of the following exceptions applies, then the exclusion ratio will apply to defer the income taxes applicable to the amounts received from the annuity contract after the holder’s death. These exceptions are as follows:

1. If (a) the annuity contract allows any portion of the holder’s interest in the contract to be payable to (or for the benefit of) a “designated beneficiary,” (b) such portion will be distributed over the life expectancy of such designated beneficiary, and (c) such distributions begin no later than 1 year following the holder’s death, then such portion shall be treated as distributed on the day on which such distribution began. This exception is often referred to as the “Life Expectancy Rule.”

For example, if I leave my annuity to my two children equally, they can stretch payments out over their life expectancies if I die after the annuity has begun annuitizing.

Suppose that I want to leave the annuity to my two children equally in trust for a variety of reasons. In the IRA and pension plan area I can certainly do that, and there are rules that will look through the trust to the life expectancies of my children and use those life expectancies to govern the period of time over which the distributions must be made. There are no similar rules or guidance in the area of annuities, even though the statutes are very much similar in Code Section 72(s) and Code Section 401(a)(9). This gray area leaves advisors without much guidance, and a lot of commentators are really unsure of what the result would be if an annuity contract is payable to a trust with only individuals as beneficiaries.

2. If the holder’s surviving spouse is the designated beneficiary, then the surviving spouse is treated as the holder of the contract, which will allow for the continued deferral of income taxes as if the holder had been receiving the scheduled payments under the contract.

You can have an annuity payable to a spouse, and the spouse can pretty much roll it into a substitute annuity, that is never going to be a problem.

3. If the annuity contract is held under a qualified plan described in Chapter 401(a), 403(a) or 403(b), is an IRA or held under an IRA, or is a qualified funding asset that is defined in Chapter 130(d), then the “at least as rapidly” and “5-year” rule described above do not apply and the income taxation of the contract is controlled by the rules applicable to qualified plans or qualified funding assets.

It is also possible to have an IRA or a pension held by an annuity contract, and in that case the minimum distribution rules under the IRA rules apply rather than the annuity rules. This can often create confusion as to which set of rules apply. If the client dies and you have to pay the required minimum distributions, or it is payable to a trust and the IRS does not recognize the trust as being a person, then you may have a lot of taxable income and unhappy clients.

6. Discounting is Difficult. Discounting values for estate and gift tax purposes normally involves placing investments in FLP’s, Family LLC’s and similar arrangement to facilitate partial interest gifting and “discount on death” planning. While it would make sense that an annuity contract could be held by a “disregarded discount entity” with special design and drafting, most carriers will consider the transfer of a product to an FLP or LLC as a taxable transfer, and will issue a 1099 as if the contract proceeds were paid out. Also, can you compress the value of a variable annuity without compressing the tax basis (investment in the contract) or other characteristics?

We had a client who was on her death bed about 5 months ago. Her net estate was about $7 million, a lot of which was in variable annuities. We decided to put the variable annuities into a family limited partnership. However, we discovered that if you transfer an annuity from a person to a partnership, it will trigger all of the income as taxable.

So we went to the next step and we structured an LLC as a disregarded entity owned by the client, but irrevocably managed by her children. We were going to put the annuity in the LLC, take the discount out on death, and avoid paying the tax. When we went to register the change of ownership to the disregarded LLC, the carrier called and said “don’t do this or we are going to issue a 1099 for all the income.” We said, “but wait a minute, the LLC is a disregarded entity that is considered as owned by the client for federal income tax purposes.” However, the carrier responded by saying, “we don’t have any letter rulings, we have not been able to get the IRS to recognize disregarded entities for purposes of the triggers. You’re probably right, Mr. Gassman, but if you do this we’re going to issue a 1099.”

So remember, discounting with annuities will probably not work, and should not be considered as a reliable planning option.

Next week we will continue our discussion on the 12 reasons to be cautious about annuities.

Phil Rarick’s Informative Blog: Transfer of Motor Vehicles After Owner’s Death: How to Avoid Probate in Florida, an article by Christina M. Fernandez, Esq.

A. The Question

A common question we encounter is how to transfer the title of a motor vehicle upon the death of its owner.

B. Law Summary

Florida law allows the beneficiaries or heirs of a deceased person to transfer a motor vehicle title without the need of a formal court proceeding. To avoid court intervention, the beneficiary/heir or personal representative must apply for a new certificate of title to the Department of Highway Safety and Motor Vehicles and that application must be accompanied by an affidavit – a statement attesting to certain facts. The tax collector’s office in the county in which the deceased person resided will generally take the applications and also supply the appropriate forms upon request. They will process the application and accompanying documents with the Department of Highway Safety and Motor Vehicles. See, Fla. Stat. §319.28

C. Intestate

If the deceased person died intestate (without a Last Will), the required documentation includes:

• The completed application for the certificate of title;

  •       This can be found on the Florida Department of Highway Safety and Motor Vehicles (FLHSMV) website

• The certificate of title or other satisfactory proof of ownership or possession;

• An affidavit that the estate is not indebted; and. . .

Click here to read more.

Making Your Professional Firm a Great Workplace by Alan S. Gassman, Esq.

Have you ever been to a business or resort that provided exemplary services and made these look easy and enjoyable for the team serving you? We all know that it takes a lot more than just hiring qualified people and giving them policy and procedure manuals to put together a great team that can make everything look easy.

The Gallup organization surveyed over 80,000 successful managers. Some of their conclusions make great sense, and others might surprise you.

Here is our summary of their report:

The team at the Gallup organization, and in particular Gary Buckingham of Gallup, Inc., have put together a fantastic book called 12: The Elements of Great Managing by Rodd Wagner, Ph.D. and James K. Harter based upon comprehensive surveys of what it takes to create, have, and maintain a great workplace.

Their first discovery was that, “There are no great companies, there are only great workgroups,” and that “there appear to be 12 characteristics that will consistently describe great workgroups.”

While many of these are well-known and based on common sense or intuition, a few of them may come as a surprise.

Item 1: Knowing what is expected. Confusion over expectations and desired outcomes can be extremely frustrating and cause loss of effectiveness and morale.

Do your team members know exactly what is expected, or is that a nebulous situation?

Item 2: Lack of frustration by having all of the necessary workplace tools needed to do the job right.

Confusing or poorly working computer systems, forms that are inappropriate, and other systems that get in the way as opposed to help can be the downfall of what might otherwise be an effective and positive team member.

Item 3: Doing what the person does best.

“Frank Sinatra never moved pianos.”

– Dan Sullivan, Strategic Coach –

Everyone has an innate instinct as to what he or she does best, but in our law firm we test talents using OMNIA profile and Kolbe A personality testing and are very mindful as to what the team member can do best, and what they can develop to be better at.

If the team member is not in a job that allows them to be their very best, then it may be time to change the job or the person.

Remember the recurrent theme from the book Outlyers” by Malcolm Gladwell – once you find somebody who is a good fit for what they do, and they do it for 10,000 hours they can be at the genius level and lead the world.

That only takes 5 years if everything is properly situated.

Item 4: Praise and recognition are completely essential in a great workplace. A study of more than 80,000 managers found that there is a significant difference between “don’t complain if the team member does a good job” versus giving consistent and well directed praise.

Item 5: My immediate supervisor or boss cares about me.

The Gallup Poll study showed that the fifth most important item with reference to a good workplace relationship is that the person with supervisory or mentorship authority sincerely cares about the welfare of the team member.

Item 6: Does someone on the team encourage the employee’s development.

Good team members want to get better, that is part of the human psychological makeup for successful and positive people.

Knowing that someone is there to help make this occur is an important component.

Item 7: The opinion of the team member counts. Team members each have a unique view and ability to contribute to improve ideas, systems, and services. If they think that their opinion doesn’t count, then you may be counting them out for helping you to maintain and grow your business.

Item 8: The link between the team member and the company’s mission or purpose. Team members at every level like to know that they are integral part of an organization that has a purpose and mission.

Everyone on the team should contribute directly to that mission in their own unique way.

Item 9: Doing quality work. Team members like to know that they are provided good quality work that need not be criticized or cause stress that would result from errors. “Pride in workmanship” is an important part of the work experience that each team member should have the opportunity to thrive with.

Item 10: Having a best friend at work (BFW). Gallup found in their 80,000 manager study that employees who report having a best friend at work achieved as follows:

• 43% more likely to report having received praise and recognition for their work in the last seven days.

• 37% more likely to report that someone at work encourages their development.

• 35% more likely to report co-worker commitment to quality.

• 28% more likely to report that in the last six months, someone at work has talked to them about their progress.

• 27% more likely to report that the mission of their company makes them feel their job is important.

• 27% more likely to report that their opinions seem to count at work.

• 21% more likely to report that at work, they have the opportunity to do what they do best every day.

What are you doing in your company to help make sure that good team members are properly introduced to good influence co-workers, are able to socialize and meet each other’s families in simple but enjoyable “company picnic” and happy hour events? Employees don’t need expensive and fancy parties and events – simple and relaxed low-key after-hours opportunities to mingle can have a significantly positive impact on all team relationships.

By the way, the best friend at work cannot be Colonel Sanders. If you think he works at your office get professional help!

Alan KFC with sayings

Item 11: Team members like to discuss their progress. Gallup reports that great managers are always encouraging employees to know themselves and the roles that they are likely to succeed in. Gallup recommends that feedback be specific and given in the context of a positive employee/manager relationship.

Item 12: Are there opportunities to learn and grow?

Good team members are always interested in learning new things and growing as team members. An appropriate atmosphere and methodology can advance this.

Phil McLeod’s Daughter Gets Married!

St. Petersburg collaborative family lawyer Phil McLeod’s daughter was recent married to a daring young man who was apparently not represented at the wedding or at the honeymoon thereafter. Mr. McLeod is pictured here with his wife and daughter during a discussion of post-marital injunctions.

McLeod with Sayins

Humor! (or Lack Thereof!)

Incredibly strict waiver limits daredevil Evil Kneivel, Jr. to jumping over two ottomans covered in rugs at an elevation slightly higher than the floor.

New Evil Rug

Upcoming Seminars and Webinars

FREE WEBINAR:

WILL THE SUPREMES TAKE BP CLAIMS ON A MIDNIGHT TRAIN TO GEORGIA?

Date: Friday, May 30, 2014 | 12:30 p.m. (20-30 Minutes)

Location: Online webinar

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

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LIVE OHIO PRESENTATION:

THE JOINT EXEMPT STEP-UP TRUST AND PLANNING WITH COMMERCIAL ANNUITIES

Alan Gassman will be speaking at the annual Ohio Conference on Wealth Transfer on June 4, 2014 on two different topics:

1) Wealth Transfer on Structuring Joint Exempt Step-Up Trusts (“JESTs”): Maximizing Stepped-Up Basis Planning, Fully Funding Credit Shelter Trusts with Joint Assets and Practical and Technical Aspects Thereof – With Forms

With the increased federal estate tax exclusion, it may be time to reconsider “joint” trusts for married couples. Alan co-authored two articles in the October and November issues of Estate Planning Magazine about Joint Exempt Step-Up Trusts (JESTs), and will talk about maximizing stepped-up basis planning, fully funding Credit Shelter Trusts with joint assets, and other practical aspects of JESTs with forms.

2) Planning with Commercial and Charitable Annuities. Mr. Gassman will also be participating in a panel discussion the evening before hosted by Johnson Investment Counsel and The Ohio State University.

This session will discuss planning with fixed and variable annuities, covering common policy features, misunderstandings about “guaranteed” rates of return, the minimum distribution rules akin to the IRA rules, income taxation of annuities on the death of the owner or annuitant, and trusts as holders of annuity contracts.

Skip Fox will be speaking on the following:

1) Recent Developments.

This session will include commentary on marital planning, gifts, grantor trusts, asset protection, portability, generation skipping tax and charitable planning.

2) Must We Trust a Trust That’s Just a Crust That Was a Trust?

What some view as “un-trust-like” notions – protectors, selectors, advisors, appointers, special trustees, directed trusts, secret trusts, virtual representation, in terrorem forfeitures, perpetual trusts and decanting – will be examined with some forms included.

Date: June 4, 2014

Location: Hilton at Easton, Columbus, Ohio

Additional Information: For more information on the conference and to register for the conference please contact agassman@gassmanpa.com

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FREE WEBINAR:

VERSION 226.3 OF OUR ESTATEVIEW ESTATE TAX PROJECTION AND ILLUSTRATION SOFTWARE – A FREE WEBINAR

Alan Gassman, Ken Crotty and David Archer will be presenting a free 30 minute webinar on what is new with our EstateView software which will be featured later this year in Jason Havens’ excellent American Bar Association RPTE Probate and Property column.

Speakers: Alan Gassman, Ken Crotty and David Archer

Date: Monday, June 9, 2014 | 12:30 p.m.

Location: Online webinar

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

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FREE WEBINAR:

CREDITOR AND OTHER PLANNING FOR SAME GENDER COUPLES

Date: Tuesday, June 10, 2014 | 7:30 p.m.

Location: Online webinar

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

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BLOOMBERG BNA WEBINAR:

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

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

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

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

Location: Bloomberg BNA Tax & Accounting Online webinar

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

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LIVE CLEARWATER PRESENTATION:

FICPA SUNCOAST CHAPTER MONTHLY MEETING

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

Speaker: Alan S. Gassman

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

Location: Feather Sound Country Club, Clearwater, Florida

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

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LIVE FT. LAUDERDALE PRESENATION:

FICPA ANNUAL ACCOUNTING SHOW

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

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

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

Location: Fort Lauderdale, Florida

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

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LIVE NEW JERSEY PRESENTATION:

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

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

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

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

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

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

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

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

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

Comments from past attendees of this program:

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

Date: Saturday, October 4, 2014

Location: TBD

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

LIVE SOUTH BEND, INDIANA PRESENATION:

40th ANNUAL NOTRE DAME TAX & ESTATE PLANNING INSTITUTE

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

Date: November 13 and 14, 2014

Location: Century Center, South Bend, Indiana

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

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

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LIVE NAPLES PRESENTATION:

2nd ANNUAL AVE MARIA SCHOOL OF LAW ESTATE PLANNING CONFERENCE

Alan Gassman will once again be speaking at the Ave Maria School of Law Estate Planning Conference in Naples, Florida, whether he is invited or not!

Hats off to Jonathan Gopman, Karen Grebing, Northern Trust and many others for having hosted one of the most enjoyable conferences in 2014.

Date: Friday, May 1, 2015

Location: Ave Maria School of Law, Naples, Florida

Additional Information: Please contact Karen Grebing at kgrebing@avemarialaw.edu for more information.

NOTABLE SEMINARS BY OTHERS (WE WERE NOT INVITED, BUT WILL ATTEND AND ARE STILL EXCITED)

LIVE ORLANDO PRESENTATION

49th ANNUAL HECKERLING INSTITUTE ON ESTATE PLANNING

Date: January 12 – 16, 2015

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

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

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LIVE ST. PETERSBURG PRESENTATION:

ALL CHILDREN’S HOSPITAL FOUNDATION

Date: Thursday, February 12, 2015

Location: St. Petersburg, FL

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

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LIVE PRESENTATION:

2015 FLORIDA TAX INSTITUTE

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

Location: TBD

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

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

Applicable Federal Rates May 2014

The 7520 rate for May is 2.4% and for April was 2.2%

The Thursday Report 5.22.2014 – BP Update, Medical Practice Organization, and a new date for Ave Maria

Posted on: May 22nd, 2014

 

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5th Circuit Throws BP Out – They Are Stuck with the Class Action Deal Unless the U.S. Supreme Court Accepts the Case 

Stock Certificates Held Outside of the Country – A Simple and Viable Creditor Protection Planning Technique? 

The 10% Commercial Assessment Increase Cap – What You Need to Know About It

Why Medical Practices Should Think Ahead and Be Organized With Respect to Office and Facility Leases, an article by Carleton Compton

Seminar Announcement: Ave Maria School of Law Estate Planning Conference 2015 Date Announced

Humor! (or Lack Thereof!)

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

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

5th Circuit Throws BP Out – They Are Stuck with the Class Action Deal Unless the U.S. Supreme Court Accepts the Case 

by: John D. Goldsmith and Alan S. Gassman

Alan and John

Although Significantly Delayed by the Fifth Circuit Court of Appeals,
Recent Rulings May Finally Allow Claims to be Processed Again.

BP, apparently no longer concerned enough with its reputation to act as a good citizen, is instead continuing to act as an ardent litigator attempting to renounce the settlement it negotiated and urged the Court to approve. However, Monday night the Fifth Circuit Court of Appeals denied an en banc rehearing possibly resulting in the end of an injunction lasting more than six months which had the effect of preventing the BP Claims Administrator from adjudicating or paying any claims. BP was contesting two recent rulings by the Fifth Circuit denying BP’s attempt to reject their own settlement and attempting to delay the resumption of the BP Claims Administrator adjudicating and paying claims. Further, had BP been successful, many companies would have faced the difficult task of proving direct causation between the oil spill and their own economic losses.

The recent decisions of the federal District Court and the federal Fifth Circuit Court of Appeals are summarized below.

The Courts recently required the BP Claims Administrator to develop new criteria to “match revenue with expenses”. It was not clear what that meant, and BP and the BP plaintiffs’ steering committee submitted competing guidelines to the Claims Administrator. The BP Claims Administrator issued draft guidelines two weeks ago that have not yet been made public. Given BP’s recent history it will likely challenge any proposed guidelines in the Federal District Court and then appeal any decision to the Fifth Circuit.

A three Judge panel of the Fifth Circuit recently affirmed the Federal District Court’s December 2012 order approving the BP Settlement Agreement. In an unprecedented move, BP joined the parties appealing the approval of the Settlement Agreement, thereby objecting to the same Settlement Agreement BP negotiated, agreed to, and actively sought approval of from the Federal District Court. The Fifth Circuit specifically ruled that the U.S. Constitution and federal law do not require that each BP claimant make an individual claim showing that the claimant’s losses were caused by the BP Deepwater Horizon oil spill. This was an important victory for BP claimants and in keeping with the BP Settlement Agreement. BP asked the entire Fifth Circuit (referred to as “en banc”) to review this decision.

A three Judge panel of the Fifth Circuit, Court of Appeals instructed the BP Claims Administrator against paying any BP claims or making final determinations until the Fifth Circuit resolved the issues discussed above. This injunction slowed the processing of claims as well.

While the Fifth Circuit was deciding on the petition to rehear en banc, a new method of calculating BP spill payments was developed by the Claims Administrator and approved by the Court. The new “matching” method was submitted in Policy 495, which adds nearly 100 additional pages to an already massive Settlement Agreement. The Court initially ruled against a “matching” of expenses to revenues, however, now the Court has reversed their previous decision and found that unmatched profit and loss statement must be “matched”. Instead of comparing revenues and expenses for periods before the spill and after the spill, businesses will need to use the complex new system. This change has the greatest affect on variable profit businesses, such as construction, agricultural, educational institutions, and professional services that spend money on a project at one time and then derive revenues at a different time.

The Court upheld the two previous rulings by different three Judge panels that claimants are NOT required to prove that their losses were caused by the oil spill. Rather, in conformity with the BP Settlement Agreement and with BP’s original interpretations of the settlement, if the BP claimant has the required drop in revenue during the applicable period in 2010 in comparison to the same time period in prior years, and the required increase in revenue during the same time period in 2011, it is conclusively determined that any losses of a BP claimant were caused by the BP oil spill.

Based on these recent rulings, the Fifth Circuit ruled that the injunction preventing adjudication and payment of claims will be lifted as soon as the Fifth Circuit resolves whether it will review these decisions en banc.

On May 19th, the Fifth Circuit denied the petition for rehearing en banc by a vote of eight to five. This leaves BP with two options, to either start paying claims or to appeal the case to the United States Supreme Court.

BP now has 90 days to file a writ of certiorari to the United States Supreme Court. The next real question is what would happen to all of the business owners still waiting on these claims should BP file for a writ? Even if the writ is denied, the Supreme Court generally takes six months to officially reject a writ. If BP is granted certiorari then that could mean another year or more of waiting for these claims to be settled. The good news for those seeking redress from BP is that the Supreme Court receives close to 10,000 requests every year and formal written opinions are delivered on less than 1% of those on average. The Supreme Court has been known to respond to these applications in as little as six weeks but normally takes six months. Hopefully they will expedite this because of the number of people and businesses involved.

In the meantime, BP is saving very large amounts of money by just avoiding paying interest. Initial estimates by BP had them paying close to $8 billion and even with a modest interest rate that would be a significant amount of money. For this reason, if BP seeks an issuance of mandate so that they can file a Cert Petition, at a bare minimum they should be required to post the certificate bond for the billions of dollars of claims that will not be paid in the meantime, or at least the amount of interest that will accrue on the claims that would be adjudicated otherwise.

John Goldsmith is a litigation lawyer with over 30 years experience handling complex financial, regulatory, and multiple party litigation with the Trenam Kemker law firm.

Join us for a webinar on BP Claims on Friday, May 30, 2014 at 12:30 p.m.

Get the latest thinking on the new matching of revenue and expense accounting rules with brief discussion concerning the possibility of the U.S. Supreme Court granting BP’s request for consideration.

Please join us for this interesting and informative presentation. To register for the webinar please click here.

Stock Certificates Held Outside of the Country – A Simple and Viable Creditor Protection Planning Technique?

by: Travis Arango, Dena Daniels and Alan Gassman

Executive Summary:

The Jordan River is prominently known as the river that the Israelites had to cross in order to reach the Promised Land. Measuring 156 miles long, the Jordan is what stood between the Children of Israel and the land “flowing with milk and honey” that they were told would be theirs. Well, this seemingly insurmountable river was not only a huge obstacle for the Israelites, but also for a Florida court as well. In a recent Florida case, a trial court entered an order to compel delivery of stock certificates held in foreign countries, one of which was Jordan. However, an appellate court put an abrupt halt on the order ruling that a Florida court does not have the authority to order the surrendering of foreign stock certificates.

Florida’s 4th District Court of Appeal issued an opinion on March 5, 2014, which indicated that Florida courts do not have in rem or quasi in rem jurisdiction over a foreign state and do not have the authority to order the debtors to turnover foreign stock certificates. In this case, a gentleman named Mohammad Anwar Farid Al-Saleh, who is a citizen of the Country of Jordan, sued two individuals for having proceeded with a corporate business arrangement without sharing profits with him. He received a judgment for over $20,000,000 and then asked the Palm Beach County court, in a motion for proceedings supplementary, to order the two defendants in the case to turn over “all stock certificates and similar documents memorializing their ownership interest in any corporation.”

Facts:

The original complaint was brought forth by the “creditor”, Mohammad Anwar Farid Al-Saleh, in 2008. In the complaint, Al-Saleh sought damages for common law fraud, conspiracy to commit fraud, aiding and abetting fraud, declaratory judgment and violations of Jordanian law.

Al-Saleh, Sargeant and Abu-Naba established International Oil Trade Center LLC (IOTC) under Jordanian law in 2004, and all three parties were equal partners. The LLC was established to bid on contracts offered by the U.S. Government for the shipment of oil to U.S. troops in Iraq. When the company began procuring these U.S. Government contracts, Sargeant and Abu-Naba formed IOTC USA, a Florida company under their direct control. Al-Saleh was unaware of the formation of IOTC USA and, although being reassured that his interest was protected, was excluded as a partner in the newly formed entity. Sargeant and Abu- Naba used the mandatory authorization letter that was procured from the Government of Jordan by means of Al-Saleh’s connections. This letter had been received for use by the original IOTC. The original complaint asserts that Sargeant and Abu-Naba refused to pay Al-Saleh over $13 million in profits owed to him unless he surrenders his partnership rights and any claims he may have against the other two partners stemming from their misconduct.

Procedural History:

Procedural Picture

Comment:

The 4th District Court of Appeal received this case on an appeal filed by the debtors. Upon the creditor’s filing of the motion for proceedings supplementary, compelling the debtors to turnover the stock certificates, the debtor’s argued that the stock certificates represented assets located in the Bahamas, the Netherlands, Jordan, The Isle of Man, and the Dominican Republic therefore, the court has no jurisdiction over the assets. Rejecting the debtors’ argument and absent of an evidentiary hearing, the trial court granted the creditor’s motion and entered an order for the debtors to turn over the foreign stock certificates.

On appeal, the debtors continued to argue that the trial court lacked jurisdiction to enter an order forcing them to surrender the stock certificates; the creditor counters that the trial court did have the authority.

The court referenced a case in its discussion called Paciocco v. Young, Stern & Tannenbaum, P.A., 481 So.2d 39,39 (Fla. 3d DCA 1985). The court in that case held that a Florida court has no jurisdiction on mortgages and real property that is in a foreign land. The creditors attempted to rely on General Electric Capital Corp. V. Advance Petroleum, Inc. but the court distinguished it from the present case. 660 So.2d 1139 (Fla. 3d DCA 1995). In General Electric, the court held that a court may reach property outside the court’s jurisdiction if the court has in personam jurisdiction over the defendant. While this seems to be on point the court stated this was distinguishable because that case dealt with a creditor who had a perfected lien on the property at issue.

The court gave two reasons for its holding. First, there could be competing claims to the property that is in a foreign jurisdiction and those claims should be dealt with in that jurisdiction. Second, if trial courts were allowed to bring foreign assets into the state it would basically remove foreign judgment statutes.

This has some serious implications in the wealth preservation context because this may give people incentive to have their stocks in foreign jurisdictions. This way if a creditor obtains a judgment against them they will not only have to go through our judicial system, but then go through all the hoops that the foreign jurisdiction has set up. In the end, depending on the size of the judgment, this may not be worth the creditor’s effort or legal fees for that matter.

However, this little plan of offshore protection should not be expected to work in bankruptcy courts and may land clients in jail if they fail to cooperate. The Eleventh Circuit held a debtor in contempt for not complying with the court’s turn over order. In In re Lawrence, the debtor had an offshore trust.279 F.3d 1294 (11th Cir. 2002). The bankruptcy trustee tried to have the assets turned over but the debtor claimed it was impossible due to a duress clause he had put in which prevented the settlor’s powers from being executed under duress or coercion. The court rejected the impossibility argument and held him in contempt for not turning over the assets. Thus, it would seem bankruptcy courts do not even hesitate at the idea of asserting jurisdiction over foreign assets.

This new case law may have added another weapon to the wealth preservation lawyer’s arsenal. However, it is likely that it only helps the client with an un-perfected judgment against them in state court. It will be interesting to see how or if courts will try to prevent this holding from being used as an wealth preservation tool.

Conclusion:

This case makes the, already attractive, State of Florida even more appealing to individuals seeking to protect their assets from creditors. As the result of this case many planners will doubtlessly encourage clients and potential clients to keep more assets in offshore companies, and to issue stock certificates and have them held in jurisdictions that do not recognize US judgments. The creditor will have to spend years in litigation to reach the foreign stock certificates and while the creditor is battling in court, the debtor can move the assets to another jurisdiction to prevent the creditor from getting access.

The 10% Commercial Assessment Increase Cap – What You Need to Know About It

In 2008, the Florida Constitution was amended to provide that commercial real estate, including residential rental property and vacant property, could not be increased by more than ten percent (10%) in any given year for property tax purposes. This ten percent (10%) cap applies automatically, without the need to apply for ten percent (10%) cap status.

This protection does not apply to agricultural property, conservation land, and certain other property that qualifies for other favorable tax treatment.

A change of ownership or control of such property will cause loss of the ten percent (10%) cap in the year of the transfer. Where property is owned by an entity, such as a corporation, a limited liability company, or a partnership, the cap will be lost if there is a transfer of more than 50% of the ownership in the entity.

In addition, for non-residential property the cap will be lost if improvements are added that increase the value by at least twenty-five percent (25%).

Under Florida Statute Section 193.1556 any person or entity that owns property protected by the ten percent (10%) cap has a duty to notify the county property appraiser of any change of ownership or control on a Form DR-430, which is provided by the Department of Revenue. This form can be reviewed by clicking here.

Frequently asked questions from the Department of Revenue on the ten percent (10%) cap, to view click here.

Why Medical Practices Should Think Ahead and Be Organized With Respect to Office and Facility Leases
by Carleton Compton

Carleton

Carleton Compton runs his medical specialty leasing and real estate practice like a true professional, and has developed processes and a reputation accordingly. We can all learn from how Carleton has geared himself and his organization to best serve clients. Carleton can be reached at ccompton@equity.net, and was recently awarded the “Real Estate Forum’s 40 under 45” award for real estate professionals. He has also spoken at a variety of educational panels, including the University of Florida’s Bergstrom Council.

Carleton is an active member in the community in which he lives. Currently he is a contributing member of the Board of Directors for the Children’s Cancer Center, where he previously held the Chairman position. He has also been a member of the Advisory Board of the Gulf Ridge Council for Boy Scouts and is the former President of the local University of Alabama Alumni Association. Hats off to Carleton, and we thank him for the following story:

If you are like most medical practices, you are constantly looking for ways to decrease your overhead costs. In a lean market, it can mean a more competitive position in the market. It can also be the difference between profitability and loss. One area that you may be overlooking is your current lease agreement. If you are up for renewal within the next year or two, you may have more leverage than you think.

This past year, the Equity Healthcare Team was hired to review Dental Care Alliance’s (DCA) renewal option. The following case study shows the benefit of having a formal lease audit conducted by a commercial real estate expert.

The Situation: DCA felt that their base rent and common area maintenance charges (CAM) were above market. Since occupying their space, the tenancy in the building and surrounding area was on the decline. The anchor tenant in the building was SunTrust, whose relocation could stigmatize the building. In addition, the elevator in the building was inadequate and needed replacement or repairs. Since DCA occupied second floor space, this was an inconvenience for their patients.

The Strategy: DCA hired Equity Healthcare Real Estate to represent them in their lease renewal negotiations. The client had two options; move to a new location or stay put. DCA was more inclined to stay in their existing location. In an effort to have a stronger position while negotiating with the Landlord, Equity advised the client to pursue a leverage negotiation. Equity reviewed DCA’S existing lease while also performing a site search for alternative spaces in the market. By understanding the market conditions, including rental rates, CAM charges, tenant improvement allowance, and vacancy rates, Equity was able to have a stronger position in negotiating leverage with the landlord.

The Results: Equity was able to negotiate the following renewal terms for DCA:

A five (5) year lease with a starting Base Rent of $12.37 PSF with 2% annual increases. This was a significant decrease from their original Base Rent of $25 PSF with 3% annual increases.

Equity discovered inconsistencies in the CAM Charges, which were adjusted and brought the Base Year down to $8.73 PSF from $10 PSF. The landlord also agreed to a 5% cumulative cap on operating expenses.

The renewal allowed DCA to terminate their agreement if the bank downstairs left the building at any time during their lease period.

DCA was able to obtain exclusivity for dental care in the building.

In their initial Lease, DCA agreed to pay back the total build-out allowance ($71,000) if they did not renew their Lease for an additional 10 years. Equity was able to convince the landlord to terminate the language in the Lease tied to the $71,000 penalty and modify it to include 2 renewal options for 3 years each.

The Landlord addressed the significant concerns regarding the elevator problems and provided an acceptable resolution.

Over the course of five years, the renewal negotiation saved DCA approximately $316,207 in base rent alone. Additionally, Equity helped DCA achieve more flexibility in their lease and a stronger control of their environment.

Not every situation will yield the same results, however, Carleton can provide an audit and analysis of your current leases

Seminar Announcement: Ave Maria School of Law Estate Planning Conference 2015 Date Announced

The 2014 Ave Maria School of Law Estate Planning conference was a great success. Be sure to mark your calendar for Friday, May 1, 2015 (and a wonderful weekend in Naples). The interaction between participants and presenters at this small but powerful conference was unsurpassed.
For more information please contact Alan Gassman at agassman@gassmanpa.com or Karen Grebing at kgrebing@avemarialaw.edu.

Christopher P. Bray (moderator), Al W. King, III, Alan S. Gassman, Bruce Stone, Jerry Hesch and Barry A Nelson participate in a panel discussion at the 2014 Estate Planning Conference.

Upcoming Seminars and Webinars

FREE WEBINAR:

ALL ABOUT THE JEST TRUST

I am speaking at the Ohio State Bar Association 25th Annual Estate Planning Conference on Wealth Transfer on June 4, 2014 on a topic that I have never handled alone, for 50 minutes. Please help me rehearse by attending this free 50 minute webinar.

Date: May 28, 2014 | 12:00 p.m. (50 minutes)

Location: Online webinar

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

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FREE WEBINAR:

WILL THE SUPREMES TAKE BP CLAIMS ON A MIDNIGHT TRAIN TO GEORGIA?

Date: Friday, May 30, 2014 | 12:30 p.m (20-30 Minutes)

Location: Online webinar

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

THE JOINT EXEMPT STEP-UP TRUST AND PLANNING WITH COMMERCIAL ANNUITIES

Alan Gassman will be speaking at the annual Ohio Conference on Wealth Transfer on June 4, 2014 on two different topics:

1) Wealth Transfer on Structuring Joint Exempt Step-Up Trusts (“JESTs”): Maximizing Stepped-Up Basis Planning, Fully Funding Credit Shelter Trusts with Joint Assets and Practical and Technical Aspects Thereof – With Forms

With the increased federal estate tax exclusion, it may be time to reconsider “joint” trusts for married couples. Alan co-authored two articles in the October and November issues of Estate Planning Magazine about Joint Exempt Step-Up Trusts (JESTs), and will talk about maximizing stepped-up basis planning, fully funding Credit Shelter Trusts with joint assets, and other practical aspects of JESTs with forms.

2) Planning with Commercial and Charitable Annuities. Mr. Gassman will also be participating in a panel discussion the evening before hosted by Johnson Investment Counsel and The Ohio State University.

This session will discuss planning with fixed and variable annuities, covering common policy features, misunderstandings about “guaranteed” rates of return, the minimum distribution rules akin to the IRA rules, income taxation of annuities on the death of the owner or annuitant, and trusts as holders of annuity contracts.

Skip Fox will be speaking on the following:

1) Recent Developments.

This session will include commentary on marital planning, gifts, grantor trusts, asset protection, portability, generation skipping tax and charitable planning.

2) Must We Trust a Trust That’s Just a Crust That Was a Trust?

What some view as “un-trust-like” notions – protectors, selectors, advisors, appointers, special trustees, directed trusts, secret trusts, virtual representation, in terrorem forfeitures, perpetual trusts and decanting – will be examined with some forms included.

Date: June 4, 2014

Location: Hilton at Easton, Columbus, Ohio

Additional Information: For more information on the conference and to register for the conference please contact agassman@gassmanpa.com

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FREE WEBINAR:

VERSION 226.3 OF OUR ESTATEVIEW ESTATE TAX PROJECTION AND ILLUSTRATION SOFTWARE – A FREE WEBINAR

Alan Gassman, Ken Crotty and David Archer will be presenting a free 30 minute webinar on what is new with our EstateView software which will be featured later this year in Jason Havens’ excellent American Bar Association RPTE Probate and Property column.

Speakers: Alan Gassman, Ken Crotty and David Archer

Date: Monday, June 9, 2014 | 12:30 p.m.

Location: Online webinar

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

CREDITOR AND OTHER PLANNING FOR SAME GENDER COUPLES

Date: Tuesday, June 10, 2014 | 7:30 p.m.

Location: Online webinar

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

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BLOOMBERG BNA WEBINAR:

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

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

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

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

Location: Bloomberg BNA Tax & Accounting Online webinar

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

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LIVE CLEARWATER PRESENTATION:

FICPA SUNCOAST CHAPTER MONTHLY MEETING

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

Speaker: Alan S. Gassman

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

Location: Feather Sound Country Club, Clearwater, Florida

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

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LIVE FT. LAUDERDALE PRESENATION:

FICPA ANNUAL ACCOUNTING SHOW

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

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

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

Location: Fort Lauderdale, Florida

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

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LIVE NEW JERSEY PRESENTATION:

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

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

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

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

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

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

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

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

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

Comments from past attendees of this program:

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

Date: Saturday, October 4, 2014

Location: TBD

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

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LIVE SOUTH BEND, INDIANA PRESENATION:

40th ANNUAL NOTRE DAME TAX & ESTATE PLANNING INSTITUTE

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

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

Date: November 13 and 14, 2014

Location: Century Center, South Bend, Indiana

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

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

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LIVE NAPLES PRESENTATION:

2nd ANNUAL AVE MARIA SCHOOL OF LAW ESTATE PLANNING CONFERENCE

Alan Gassman will once again be speaking at the Ave Maria School of Law Estate Planning Conference in Naples, Florida, whether he is invited or not! Hats off to Jonathan Gopman, Karen Grebing, Northern Trust and many others for having hosted one of the most enjoyable conferences in 2014.

Date: Friday, May 1, 2015

Location: Ave Maria School of Law, Naples, Florida

Additional Information: Please contact Karen Grebing at kgrebing@avemarialaw.edu for more information.

NOTABLE SEMINARS BY OTHERS

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

LIVE ORLANDO PRESENTATION:

49th ANNUAL HECKERLING INSTITUTE ON ESTATE PLANNING

Date: January 12 – 16, 2015

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

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

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LIVE ST. PETERSBURG PRESENTATION:

ALL CHILDREN’S HOSPITAL FOUNDATION

Date: Thursday, February 12, 2015

Location: St. Petersburg, FL

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

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LIVE PRESENTATION:

2015 FLORIDA TAX INSTITUTE

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

Location: TBD

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

APPLICABLE FEDERAL RATES

Applicable Federal Rates May 2014

The 7520 rate for May is 2.4% and for April was 2.2%

The Thursday Report 5.15.2014 – New 4th DCA Creditor Case and Dr. Obama 90 Day Rule

Posted on: May 15th, 2014

New 4th DCA Decision May Dramatically Change the Landscape for Many Creditor Protection Plans

Obamacare 90 Day Risk Rule for Doctors. Don’t Be Blue (Shield), an article by Mike Segal, Shachi Mankodi and Alan S. Gassman

Oshins 11 or 101? Asset Protection Philosophy 101, an article by Steven J. Oshins

Humor! (or Lack Thereof!)

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

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

New 4th DCA Decision May Dramatically Change the Landscape for Many Creditor Protection Plans

Florida’s fourth district court of appeals chewed an opinion on March 5, 2014, which indicated that Florida courts do not have in rem or quasi in rem jurisdiction over foreign states and does not have the authority to order the debtors to turnover foreign stock certificates. In this case a gentleman named Mohammad Anwar Farid Al-Saleh, who is a citizen of the Country of Jordan, sued two individuals for having proceeded with a corporate business arrangement without sharing profits with him. He received a judgment for over $20,000,000 and then asked the Palm Beach County court, in a motion for proceedings supplementary, to order the two defendants in the case to turn over “all stock certificates and similar documents memorializing their ownership interest in any corporation.”

The court noted that “allowing trial courts to compel judgment debtors to bring out-of-state assets into Florida would effectively eviscerate the domestication of foreign judgment statutes”. The court also noted that “there may be competing claims to the foreign assets and we believe that claims against a single asset should be decided in a single forum – and . . .that the forum should be, as it traditionally has been, a court of the jurisdiction in which the asset is located.” The court cited the 2009 New York Court of Appeals case of Koehler v. Bank of Bermuda Ltd., 911 N.E.2d 825 (N.Y. 2009) for the above quotation, and distinguished the situation in this case from the circumstances of the Koehler decision, where an international bank with a presence in New York was ordered to turn over stock certificates that it was holding outside of New York. In this case the party with the physical possession of the stock certificates apparently has no physical ties to Florida.

This case has made the national news and will be quoted by many for the proposition that the best place to keep stock certificates and other evidence of ownership may by in foreign countries.

In this case the subject stock certificates concerned assets located in the Bahamas, the Netherlands, Jordan, The Isle of Man, and the Dominican Republic.

Courts may find that the assets owned and/or the state of incorporation is Florida, then a debtor may be required to turn over stock certificates, no matter where they are.

As the result of this case many planners will doubtlessly encourage clients and potential clients to keep more assets in offshore companies, and to issue stock certificates and have them held in jurisdictions that do not recognize U.S. judgments.

We will continue to study this situation and keep our readers posted.

A copy of this decision rendered by the 4th District Court of Appeals is available upon request. Please e-mail agassman@gassmanpa.com or Janine at janine@gassmanpa.com for a copy.

Obamacare 90 Day Risk Rule for Doctors. Don’t Be Blue (Shield), an article by Mike Segal, Shachi Mankodi and Alan S. Gassman

3 atty

Mike Segal is a Partner in the Miami office of Broad and Cassel. He chairs the Firm’s Health Law Practice Group and has been practicing with Broad and Cassel for more than 40 years. Throughout his legal career, Mr. Segal has practiced in a business management environment. Over 20 years, he has spent considerable time in the representation of large single specialty and multi-specialty physician groups. He also has significant experience in structuring all varieties of joint venture transactions, keeping in mind the various regulatory issues. Additionally, he acts as general and special counsel to both hospitals and large medical groups.

He is a certified American Health Lawyer Association Dispute Resolver, a designation that qualifies him to serve as a mediator and arbitrator in forums for alternative dispute resolution.

Shachi Mankodi is an Associate in the Fort Lauderdale Office of Broad and Cassel. She is a member of the Firm’s Health Law Practice Group. Ms. Mankodi focuses her practice in the area of Health Law. She represents individuals and organizations in licensure disputes and proceedings as well as compliance and reimbursement matters involving the Medicaid and Medicare programs.

As Assistant General Counsel, she advised the Agency for Health Care Administration and Persons with Disabilities, the Department of Children and Families, and the Governor’s Energy Commission on litigation matters. As part of her duties in the Office of General Counsel, she was also involved in the judicial selection process.

Ms. Mankodi co-authored a chapter in the Florida Practitioner’s Health Law Handbook 2007 entitled “Investigating Medicaid Fraud”. Ms. Mankodi can be reached via email at smankodi@broadandcassel.com

The Broad and Cassel website is http://www.broadandcassel.com/.

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Among the many changes enacted by the Patient Protection and Affordable Care Act (“ACA”), is a provision that allows a 3-month grace period for certain individuals to pay their premiums while continuing to be insured by HMOs and managed care companies that participate in the national health insurance exchange (often referred to as the “exchange marketplace”). This 3-month grace period only applies to individuals that receive advanced premium tax credits (subsidies). Below is an explanation of how physicians that are providing services to insured individuals during the grace period are to bill and receive reimbursement from insurers for these services.

Services during first month of grace period
HMOs will pay physicians the full amount for claims related to services rendered from Day 1 to Day 30 of the grace period;

Claims paid during the first month are not subject to recoupment if the insured individual fails to pay his or her premium during the 90-day grace period.

HMOs are required to notify physicians when an Insured Individual is in the grace period for nonpayment of premium (either through their online systems, via letters or through remittance advice notices). NOTE – the ACA provides discretion to HMOs as to when and in what manner the notification is sent to the physician (for example, an HMO may choose to send a notice as soon as the patient enters the grace period or can wait to notify the physician until the second or third month of the grace period).

Services during second and third months of grace period

HMOs are authorized to “pend” claims, meaning the HMO can hold payments for services rendered from the 31st day until the 90th day of the grace period until the full amount of the premium is paid by the Insured Individual.

Physicians can still collect copayments, deductibles and coinsurance payments from the Insured Individual for services rendered during the second and third months.

HMOs may choose to notify providers that the claims are “pending” but best practice would be for the physician to check eligibility for all patients that are in the grace period prior to rendering services.

Billing for services after grace period has ended

If the Insured Individual does not pay the premium during the 3-month periodthe HMO will terminate coverage and deny all pending claims with dates of service in the second and third month of the grace period.

The physician is then authorized to collect the full amount of the service from the patient directly.

Physicians may have to invest in effective ways to collect for these services, which could require additional resources from billing agents.

If the Insured Individual pays the premium during the 3-month period the HMO will reimburse the provider for all pending claims with dates of service during the second and third month of the grace period.

NOTE – there is no change in policy for insured individuals that do not receive subsidies or who are not enrolled in a health insurance exchange policy. Florida law currently gives individuals a 30-day grace period to pay their premiums. All claims will “pend” during this 30-day time period and coverage will be terminated retroactive to the start of the 30-day grace period if the insured individual has not paid the premium within the 30-day period. Insurers are NOT required to notify providers that these insured individuals have entered the 30-day grace period.

Bottom Line for Physicians

Be aware of which patients are in the 90-day grace period; pay attention to the notices that you receive from HMOs regarding patient eligibility.

“Flag” patients who are entering their 31st day of the grace period. The services that physicians provide to these patients after the 31st day will most likely be in pending status with the HMO until the patient pays the premium.

Perform routine eligibility checks for patients at the time of scheduling appointments to ensure that they are actively insured.

Pursue collection activities from patients who have lost coverage after the 3-month grace period.

Oshins 11 or 101? Asset Protection Philosophy 101
by Steven J. Oshins

Steve Oshins - 72dpi photo

Steven J. Oshins, Esq., AEP (Distinguished) is an attorney at the Law Offices of Oshins & Associates, LLC in Las Vegas, Nevada, with clients throughout the United States. He is listed in The Best Lawyers in America. He was inducted into the NAEPC Estate Planning Hall of Fame in 2011 and was named one of the 24 Elite Estate Planning Attorneys in America by the Trust Advisor. He has authored many of the most valuable estate planning and asset protection laws that have been enacted in Nevada. He can be reached at 702-341-6000 or via email at soshins@oshins.com. The firm website is www.oshins.com

Asset protection has become a necessary part of every estate planner’s practice. As we see case law develop, it seems that every time a new decision is issued there are numerous blogs and comments made about the case at conferences, whether positive or negative. The litigators generally claim that the new case spells the end of the technique that was used and failed to work in this particular case. They will often claim that a technique “doesn’t work” based on one bad case. The asset protection planners generally claim that “bad facts made bad law.” So who is right?

The Goal

What is the goal when attempting to protect your assets? Isn’t the goal simply to structure your assets in such a way that they are less desirable to potential creditors? This is Asset Protection Philosophy 101. The asset protection structure should not be judged solely based on whether there is a similar structure that did not work when tested in the court system. Each situation stands on its own. NO two fact patters are exactly the same, no two parties to a lawsuit have exactly the same levels of fear and desire for compromise, and no two attorneys will approach the dispute in exactly the same way.

The goal isn’t necessarily to take a case through the court system and convince a judge to rule in your favor. The goal is to walk away with some or most of your assets intact. A settlement for substantially less than what could have been lost should be considered a victory. Unfortunately, case law generally glorifies the losing cases – not the winning cases – because the plaintiff tends to press the matter when the facts are more heavily on the plaintiff’s side. Therefore, we tend to see the bad results (from the debtor’s perspective) in the case law, but the good results (from the debtor’s perspective) very often go unreported because the disputes were settled. Those who practice in this area, however, have seen numerous clients settle matters, in large part because of the asset protection structure that was in place – which helped the creditor see the benefits in settling and the uphill battle that may exist without settlement.

Playing the Game

Asset Protection is a game of probabilities. Every legitimate wall that is placed around the asset should move the settlement number more in favor of the debtor. And every bad case that comes down the pike should move the settlement number more in favor of the creditor. Uncertainty over collectability causes most disputes to settle long before they reach the trial level. The creditor must assess the probability that he will be able to collect the debt and the expenses that will be involved in trying to collect, and then make a rational decision about how far to press the dispute and whether to attempt to settle and the likely settlement amount.

Asset Protection Philosophy 101

Assuming there is no creditor on the horizon, or that any current creditor is excluded from the asset protection structure and that it is only set up to protect from future creditors, if you were the client:

Would you proceed with an asset protection structure that has a 99% probability of protecting your assets? (Absolutely.)

Would you proceed with an asset protection structure that has a 90% probability of protecting your assets? (Very highly likely.)

Would you proceed with an asset protection structure that has a 75% probability of protecting your assets? (Probably, but you would hope to find a better alternative.)

Would you proceed with an asset protection structure that has a 50% probability of protecting your assets? (Maybe, but you would look for other alternatives.)

It is important to remember that nothing exists that assures a 100% probability of success. If hundreds of debtors are able to successfully use a particular asset protection structure to induce creditors to settle disputes and therefore avoid going all the way through the court process, would you avoid using that strategy if one bad case came down? If two bad cases come down? If three bad cases come down? Each advisor and each client will ask themselves whether the cost and complexity are worth the degree and probability of protection obtained using the particular structure.

Summary

Asset protection planning is about putting the client in a strong negotiation position by using accepted, legitimate techniques so that the client will ultimately settle the dispute for less than the amount that the client otherwise may have lost had the structure not been in place. It is not solely about case law. The asset protection scorecard not only includes case law, but also includes favorable settlements.

To the extent that the asset protection structure has moved the settlement number in favor of the debtor, the asset protection planner has done a good job. Asset Protection Philosophy 101 is to structure the client’s assets so that, if the client is ever sued, the client will keep some or more of the assets on account of the structure being in place well in advance of the creditor issue.

Humor! (or Lack Thereof!)

GREETINGS FROM SAN JUAN:

Alan and his wife Marcia are enjoying some time down in San Juan. Here is his auto-response on his email:

I’m in Puerto Rico on a vacation that I seek-o.
Soon Marcia will be calling me Chico,

Our ready team
is strong and lean
handling things until Monday
so that today and tomorrow can be fun-days.

I may check in on occasion
so please share anything that will cause elation.

If you need anything soon,
you will have it well before June.

My partners, Ken and Chris
are easily handling anything I might miss.

Have a great week, make it the most
and I bid you for now, Adiós!

Upcoming Seminars and Webinars

PLANNING WITH VARIABLE AND OTHER ANNUITY PRODUCTS and ALL ABOUT THE JEST TRUST

Dates:  Planning with Variable Annuities | May 21, 2014 | 12:00 p.m. (50 minutes)

               All About the JEST Trust | May 28, 2014 | 12:00 p.m. (50 minutes)

I am speaking at the Ohio State Bar Association 25th Annual Estate Planning Conference on Wealth Transfer on June 4, 2014 on 2 topics that I have never handled alone, at 50 minutes each. Please help me rehearse by attending one or both of these free 50 minute webinars.

These webinars are free of charge and you can register for each of them below.

To register for the Variable Annuities talk please click here.

To register for the JEST talk please click here.

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THE JOINT EXEMPT STEP-UP TRUST AND PLANNING WITH COMMERCIAL ANNUITIES

Alan Gassman will be speaking at the annual Ohio Conference on Wealth Transfer on June 4, 2014 on two different topics:

1) Wealth Transfer on Structuring Joint Exempt Step-Up Trusts (“JESTs”): Maximizing Stepped-Up Basis Planning, Fully Funding Credit Shelter Trusts with Joint Assets and Practical and Technical Aspects Thereof – With Forms

With the increased federal estate tax exclusion, it may be time to reconsider “joint” trusts for married couples. Alan co-authored two articles in the October and November issues of Estate Planning Magazine about Joint Exempt Step-Up Trusts (JESTs), and will talk about maximizing stepped-up basis planning, fully funding Credit Shelter Trusts with joint assets, and other practical aspects of JESTs with forms.

2) Planning with Commercial and Charitable Annuities. Mr. Gassman will also be participating in a panel discussion the evening before hosted by Johnson Investment Counsel and The Ohio State University.

This session will discuss planning with fixed and variable annuities, covering common policy features, misunderstandings about “guaranteed” rates of return, the minimum distribution rules akin to the IRA rules, income taxation of annuities on the death of the owner or annuitant, and trusts as holders of annuity contracts.

Skip Fox will be speaking on the following:

1) Recent Developments.

This session will include commentary on marital planning, gifts, grantor trusts, asset protection, portability, generation skipping tax and charitable planning.

2) Must We Trust a Trust That’s Just a Crust That Was a Trust?

What some view as “un-trust-like” notions – protectors, selectors, advisors, appointers, special trustees, directed trusts, secret trusts, virtual representation, in terrorem forfeitures, perpetual trusts and decanting – will be examined with some forms included.

Date: June 4, 2014

Location: Hilton at Easton, Columbus, Ohio

Additional Information: For more information on the conference and to register for the conference please contact agassman@gassmanpa.com

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VERSION 226.3 OF OUR ESTATEVIEW ESTATE TAX PROJECTION AND ILLUSTRATION SOFTWARE – A FREE WEBINAR

Alan Gassman, Ken Crotty and David Archer will be presenting a free 30 minute webinar on what is new with our EstateView software which will be featured later this year in Jason Havens’ excellent American Bar Association RPTE Probate and Property column.

Speakers: Alan Gassman, Ken Crotty and David Archer

Date: Monday, June 9, 2014 | 12:30 p.m.

Location: Online webinar

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

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CREDITOR AND OTHER PLANNING FOR SAME GENDER COUPLES

Date: Tuesday, June 10, 2014 | 7:30 p.m.

Location: Online webinar

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

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

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

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

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

Location: Bloomberg BNA Tax & Accounting Online webinar

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

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FICPA SUNCOAST CHAPTER MONTHLY MEETING

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

Speaker: Alan S. Gassman

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

Location: Feather Sound Country Club, Clearwater, Florida

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

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FICPA ANNUAL ACCOUNTING SHOW

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

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

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

Location: Fort Lauderdale, Florida

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

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

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

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

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

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

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

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

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

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

Comments from past attendees of this program:

  • Excellent seminar and materials!!!
  • This was one of the best ICLE seminars yet!
  • One of the best seminars I have attended.

Date: Saturday, October 4, 2014

Location: TBD

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

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40th ANNUAL NOTRE DAME TAX & ESTATE PLANNING INSTITUTE

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

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

Date: November 13 and 14, 2014

Location: Century Center, South Bend, Indiana

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

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

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2nd ANNUAL AVE MARIA SCHOOL OF LAW ESTATE PLANNING CONFERENCE

Alan Gassman will once again be speaking at the Ave Maria School of Law Estate Planning Conference in Naples, Florida, whether he is invited or not! Hats off to Jonathan Gopman, Karen Grebing, Northern Trust and many others for having hosted one of the most enjoyable conferences in 2014.

Date: Friday, May 1, 2015

Location: Ave Maria School of Law, Naples, Florida

Additional Information: Please contact Karen Grebing at kgrebing@avemarialaw.edu for more information.

NOTABLE SEMINARS BY OTHERS

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

49th ANNUAL HECKERLING INSTITUTE ON ESTATE PLANNING

Date: January 12 – 16, 2015

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

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

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ALL CHILDREN’S HOSPITAL FOUNDATION

Date: Thursday, February 12, 2015

Location: St. Petersburg, FL

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

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2015 FLORIDA TAX INSTITUTE

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

Location: TBD

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

Applicable Federal Rates

Below we have this month, last month’s, and the preceding month’s Applicable Federal Rates, because for a sale you can use the lowest of the 3.
Applicable Federal Rates May 2014

The 7520 Rate for May is 2.4% and for April was 2.2%

The Thursday Report – 5.8.2014 – Certs, Time Clocks, No Mr. Spock’s

Posted on: May 8th, 2014

Hesch on Certs – Part 2 of 3

Charitable Donations and Fraudulent Transfers

New Belize Regulations

Time for Tax Revolution – Not Tax Reform

Doctor, Does Your Office Have a Time Clock, and If Not, Why?

Words of Wisdom from Bob Burke

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.

Hesch on Certs – Part 2 of 3

Hesch with Words

On April 22 Jerry Hesch spoke at a donor’s luncheon for Ruth Eckerd Hall in Clearwater, Florida and did a great job of showing how taxes can be saved when donors wish to benefit a charity and integrate charitable planning with their family and income tax situations.

Jerry’s discussion of charitable remainder trusts is as follows:

Using Charitable Remainder Trusts

An individual intends to sell aero basis stock in a public company, or an interest in a private company, in the near future for $10,000,000.  Without any income tax planning, the $10,000,000 capital gain will be subject to the 20% capital gains rate and the 3.8% Medicare surcharge, a combined 23.8% effective Federal income tax rate.  If the individual lives in a state with a state income tax rate, there can be an additional income tax, ranging as high as 14.3% in California.  Thus the combined state and Federal income tax rate on the capital gain can be as high as 38.1% in states like California (and New York City with a city income tax).

Assume the individual is a resident of Florida so that there are no state income taxes.

With no tax planning, the individual sells the asset for $10,000,000, pays the $2,380,000 of capital gains tax and is left with $7,620,000 to invest.

Since a charitable remainder trust (a “CRT”) does not have to pay any income taxes on its income (including no tax on the gain realized from the immediate sale of any asset contributed to the CRT), the CRT will have $10,000,000 to invest.

Over one’s life (or a maximum of 20 years if the CRT is for a fixed term), the extra income for the trust term (the income generated by the investment of the $2,380,000 that would have otherwise been paid as capital gains tax) replaces the amount that is given to the charity at the end of the CRT term.  In effect, instead of paying the $2,380,000 of income taxes on the capital gain, that income tax savings, and the income tax savings from the immediate charitable income tax deduction, is used to provide the funds needed to give to the charity at the end of the CRT term.

Financially, one can receive the annual income from $10,000,000 instead of only the income from $7,620,000.

Hesch.1

Hesch.2

This illustration shows that the individual is no better off by using the CRT, but is no worse off.  In effect, it does not cost the individual anything to have the CRT distribute $7,500,000 to charity at the end of the CRT term.

The individual can actually be better off if the sale proceeds can produce an investment rate of return greater than the 5.2% rate of return used in the prior illustration.  The next illustration shows that the individual can actually be better off and still give the same amount to charity if the investment rate of return is assumed to be 6.2% over the CRT term.

Hesch.3

Hesch.4

The individual can be worse off if the investment rate of return is below expectations.  The next illustration shows that if the investment rate of return is 4.8 %, the individual would have been better off without the CRT.  But, what this shows is that it costs the individual only $838,225 to give the $7,500,000 to a charity at the end of the CRT term.

Hesch.5

Hesch.6

  1. Early Termination of Charitable Remainder Trusts

A charitable remainder trust (“CRT”) is a widely-used charitable planning technique that provides the settlor with significant income tax benefits and a source of future payments, followed by the distribution of trust assets to one or more charities at the end of the trust term.  The CRT generates an immediate income tax charitable deduction (equal to the present value of the interest passing to the charitable remainder beneficiary) that can offset ordinary income.[1]  And the CRT can be used to eliminate the income tax on the gain realized from the sale of appreciated assets.  The CRT creates a financial benefit because the person who transfers assets to the CRT receives (or can gift to one or more others) an annuity or unitrust payment for life or for a fixed term.

Exemption inception: Charitable Donations and Fraudulent Transfers

On July 1, 2013, the Florida Legislature added another provision to the fraudulent transfer law that helped to protect nonprofit organizations from having to give back contributions made before bankruptcy. [2] Under bankruptcy law, if a transfer is found to be fraudulent the bankruptcy trustee may avoid it and require the transferee to repay the amount that was transferred. This affected nonprofits as well so, for example, if a person donated $50,000 to a church then filed for bankruptcy (within the statutory period for fraudulent transfers) then the church may be liable for that $50,000. This causes a problem for nonprofits when they have already spent some of the money not expecting this to happen.

Now under 726.109 (7)(a)-(b), there are more protections for nonprofit organizations. The relevant statute is as follows:

(a). The transfer of a charitable contribution that is received in good faith by a qualified religious or charitable entity or organization is not a fraudulent transfer under s. 726.105(1)(b).

(b) However, a charitable contribution from a natural person is a fraudulent transfer if the transfer was received on, or within 2 years before, the earlier of the date of commencement of an action under this chapter, the filing of a petition under the federal Bankruptcy Code, or the commencement of insolvency proceedings by or against the debtor under any state or federal law, including the filing of an assignment for the benefit of creditors or the appointment of a receiver, unless:

1. The transfer was consistent with the practices of the debtor in making the charitable contribution; or

2. The transfer was received in good faith and the amount of the charitable contribution did not exceed 15 percent of the gross annual income of the debtor for the year in which the transfer of the charitable contribution was made.

This statute protects nonprofits that accept the contribution in good faith, as in they were unaware of the person’s intention to file bankruptcy. However, there is an exception under (b). If the contribution was made by a natural person within 2 years before commencement of the action, filing of the petition or commencement of the insolvency proceedings, whichever is earlier, then it was a fraudulent transfer. This exception has 2 exceptions within it which is sort of like the movie Inception except it is in a statute and is less exciting than the movie; we can call it “Inexception.” The exception is for when the transfer was consistent with previous practices of the debtor in regards to making charitable contribution or when the transfer was accepted in good faith and the donation is not more than “15% of the gross annual income of the debtor for the year that the donation was made.”[3] This means that insolvent debtors are able to make limited charitable contributions to nonprofit organizations as long as it falls under the exceptions listed in the statute.

NEW BELIZE REGULATIONS

Many advisors use Belize trusts and sometimes Belize international business companies because of the user friendly and owner protective legislation and trust industry there.

New accounting regulations in Belize took effect on October 12, 2013, which need to be understood and reckoned with.  The regulations stipulate that accounting/financial records for Belize entities must be maintained and be accessible at a designated location.  A copy of the Belize Accounting Records (Maintenance) Act 2013 can be viewed by clicking HERE.

In summary, the Act requires that financial records (further defined as “financial statements; general and subsidiary ledgers; sales slips; contracts and invoices; and records and documents relating to assets and liabilities, all sums of money received and expended and the matters in respect of which the receipt and expenditure take place, all sales and purchase, and all financial transactions”) are kept in one of the following locations:

1.         In Belize, at the office of the entity’s Registered Agent; or

2.         Outside of Belize, at a designated location to be provided to such Registered Agent by written resolution.  Such resolution should include language authorizing such Belize Registered Agent to request up to five (5) years of financial records at any time and that such financial records will be provided to the Registered Agent within one (1) business day of receipt of such request.

Clients with offshore trusts where a Belize company serves as Trustee or Co-Trustee are also required to comply with the new accounting regulations.  We have developed a Written Resolution (click here to view) that can be completed by clients and provided to the Belize Trust, Co-Trustee or Registered Agent allowing the client to maintain financial and accounting records at his or her home, office or CPA’s office.

Failure to satisfy the above requirements will constitute professional misconduct on the part of the Belize Registered Agent, punishable by suspension or revocation of license and/or imposition of a fine.

Clients are strongly encouraged to provide the requested documentation to Belize Registered Agents as soon as possible to ensure the continuation of a favorable professional relationship.

Time for Tax Revolution – Not Tax Reform
by Denis Kleinfeld

Some of our articles are factual and some can be opinion.

Many friends and colleagues share Denis Kleinfeld’s views of the subject of the below article, but if you disagree please consider that this is not the opinion of the Thursday Report.  If you agree then maybe it is.

Seeing what has been happening in Russia and the Ukraine we can only be thankful to have the opportunity to thrive in the largest and most successful democracy in history.

Along with democracy comes our right to help make things better.

Please send us your suggestions and opinions, especially if they are complimentary to the Thursday Report, Kentucky Fried Chicken, and other vitally important national treasures.

Denis’ editorial is as follows:

The Washington Times reports (www.washingtontimes.com/news/2014/apr/19/scalias) on Supreme Court Justice Antonin Scalia’s speech at the University of Tennessee College of Law this past Tuesday.

In response to a question asked by a student about his interpretation of the constitutionality of the income tax he said that the government has the constitutional right to implement a tax, “but if it reaches a certain point, perhaps you should revolt.”

While not going further and defining exactly  what kind of revolution he was musing about, Justice Scalia did go on to tell students that they had every right to express criticism of the government.

This lead me to start thinking about, what is the Constitution exactly?  That is, how can the relationship between the people and the government be described as a matter of law?  What was it supposed to do? And, is the Supreme Court enforcing the agreed to written provisions?

There is a branch of constitutionalists who take the position that the constitution is a living document. In fact many legal academicians and prominent lawyers take this position when they believe that they are achieving a higher and nobler purpose of one kind or another.

Justice Scalia, according to the article, said that “The Constitution is not a living organism for Pete’s sake…It’s a law.  It means what it meant when it was adopted.”

Here’s where Justice Scalia and I part ways.  I think he misunderstands the nature of the Constitution.  It is not a law.  A law is passed by a government and imposed on its citizens.

What the Constitution is is a contract.

It is the agreement by the citizens to give up some of their totality of rights conferred upon them by the Creator to the government.  Thereby, each of the parties to this contract has agreed to the exchange of both rights and duties.

The Constitution was meant as a limitation on the government.  A restriction of power.  Essentially the People agreed that the government would have certain powers but was prohibited from interfering with the rights–Constitutional rights–that the People did not cede and did not intend to cede.

With the 16th Amendment to the Constitution, the People permitted the government to impose an income tax.

But does that mean there is no Constitutional limitation on this taxing power that has been ceded by the People to the government?

Justice Scalia seems to think so.

I don’t. I think that there is fundamental principle upon which the Constitution is founded which is ignored by both the conservative and liberal Justices. They both like to wrap themselves with the cloak of nobility and righteousness when it suits their purpose.   Principle be damned.

The foundation principle of the Constitution is that the government must stay out of the People’s private lives and stay out of their private parts. Whatever taxing power the government has been granted it is a limited power.

Either justices of the Supreme Court do not agree with that, or they just do not have the guts to take responsibility for making a decision.

When there is an issue in doubt, deference should be given to the People and not the government.  The Supreme Court has a long history of deferring to the government in matters  involving tax as well as the most intrusive interference with their privacy and sexuality.

It has been complicit in the creation of the circumstances that Justice Scalia now recognizes as perhaps needing the people to have some sort of revolution. The implementation of the income tax is responsible both for the substantial destruction of the fundamental constitutional rights of the People to be free of government and the means to use tax law to facilitate blatant political corruption.

The income tax incentivizes politicians to do bad things.

This failure of government to live up to its Constitutional contract includes the failure of the Supreme Court.

If a revolution is what it takes for the People to enforce the Constitutional contract, then the United States certainly has its own historical precedence for starting one over taxes.

Doctor, Does Your Office Have a Time Clock, and If Not, Why?

Many small professional practices and businesses have employees track hours on the “honor system” or simply assume that everyone works a 40-hour week.

Wage and Hour Law require that employees who would qualify for overtime payment and in actuality receive that payment, have their hours tracked.

While a time clock is not required for this, it provides the best evidence of the hours that an employee actually works at the office.

Employees who leave an employer and then claim several years of overtime payment entitlement are often in a position to “hold up the practice” unless a time clock has been used to prove that they did not have the overtime hours.

When the employee has to additionally turn in an “hours worked at home and outside of the office” addendum each week, the burden is on them to be accurate, and the employer should make sure that the signed weekly addenda is scanned and also placed in a safe file for future reference.

Here are the 4 reasons that we encourage clients to have time clocks.

1.         Overtime Law compliance as described above.

2.         Morale of the employees who work the actual required hours and resent the employees who do not.

3.         To make sure that the employer gets the agreed number of hours from the employee after taking into account lunches, breaks, and other events.

4.         The time clock is a convenience for the employer and the employees when it comes to keeping track of hours, accuracy, and tracking whether a given employee normally gets to the office on time, leaves on time, or deviates from punctuality.

Words of Wisdom from Bob Burke

(re: Credit Shelter vs Portability)

Burke 

Bob Burke graduated from Florida State University in 1968 and from Stetson University College of Law in January 1974. He was a past trust officer for First Union National Bank, now part of Wells Fargo through merger. Mr. Burke is “Of Counsel” to the Richards, Gilkey, Fite, Slaughter, Pratesi, & Ward, P.A. Law Firm in Clearwater, Florida.

We were very pleased when Bob Burke, Esquire reviewed our article that set forth our strong opinion that the decision as to whether to use portability should be put off until after one spouse dies, and that the most important thing to concentrate on from that standpoint is to permit automatic funding of a credit shelter trust that can be converted into a Clayton QTIP trust or otherwise channeled to a QTIP disposition without the need of an affirmative disclaimer by the surviving spouse.

Bob’s response to this is as follows:

A few thousand years ago, someone said that “the most important thing an attorney can do for his client is to preserve his alternatives.” Why ever depend on portability when there are so many reasons to fund a credit shelter trust at the death of the first spouse to die:

  1. Avoid creditor of the 2nd spouse
  2. Avoid estate tax law changes regarding the 2nd spouse
  3. Increases in value of the asset that was ported to the 2nd spouse
  4. Admin structure and security inside the CST rather than rely on the 2nd spouse
  5. Assurances of the remainderman beneficiaries

As we get older and the value of the estates get larger, the most important person to protect ourselves from is “ourselves.”

Upcoming Seminars and Webinars

WILL TBE APPLY FOR FLORIDA SAME GENDER COUPLES WHOSE MARRIAGES ARE RECOGNIZED IN THE STATE OF CELEBRATION?

Date: Thursday, May 22, 2014 | 7:00 p.m.

Location: Online webinar

Additional Information: To register for the webinar please click here 

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THE JOINT EXEMPT STEP-UP TRUST AND PLANNING WITH COMMERCIAL ANNUITIES

Alan Gassman will be speaking at the annual Ohio Conference on Wealth Transfer on June 4, 2014 on two different topics:

1)     Wealth Transfer on Structuring Joint Exempt Step-Up Trusts (“JESTs”): Maximizing Stepped-Up Basis Planning, Fully Funding Credit Shelter Trusts with Joint Assets and Practical and Technical Aspects Thereof – With Forms

With the increased federal estate tax exclusion, it may be time to reconsider “joint” trusts for married couples.  Alan co-authored two articles in the October and November issues of Estate Planning Magazine about Joint Exempt Step-Up Trusts (JESTs), and will talk about maximizing stepped-up basis planning, fully funding Credit Shelter Trusts with joint assets, and other practical aspects of JESTs with forms.

2)     Planning with Commercial and Charitable Annuities.  Mr. Gassman will also be participating in a panel discussion the evening before hosted by Johnson Investment Counsel and The Ohio State University.

This session will discuss planning with fixed and variable annuities, covering common policy features, misunderstandings about “guaranteed” rates of return, the minimum distribution rules akin to the IRA rules, income taxation of annuities on the death of the owner or annuitant, and trusts as holders of annuity contracts.

Skip Fox will be speaking on the following:

1)     Recent Developments.

This session will include commentary on marital planning, gifts, grantor trusts, asset protection, portability, generation skipping tax and charitable planning.

2)     Must We Trust a Trust That’s Just a Crust That Was a Trust?

What some view as “un-trust-like” notions – protectors, selectors, advisors, appointers, special trustees, directed trusts, secret trusts, virtual representation, in terrorem forfeitures, perpetual trusts and decanting – will be examined with some forms included.

Date: June 4, 2014

Location: Hilton at Easton, Columbus, Ohio

Additional Information:  For more information on the conference and to register for the conference please contact agassman@gassmanpa.com

Online Practice Webinars:

I am speaking on two topics that I have never handled alone, at 50 minutes each so I will be taking practice run on each of these and invite your questions, comments and suggestions.

The variable annuity talk will be live on May 21, 2014 at 12:00 p.m. and the JEST talk will be live on May 28 at 12pm.  Each webinar will last 50 minutes.

These webinars are free of charge and you can register for each of them below.

To register for the variable annuities talk please click here.

To register for the JEST talk please click here.

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VERSION 226.3 OF OUR ESTATEVIEW ESTATE TAX PROJECTION AND ILLUSTRATION SOFTWARE – A FREE WEBINAR

Alan Gassman, Ken Crotty and David Archer will be presenting a free 30 minute webinar on what is new with our EstateView software which will be featured later this year in Jason Havens’ excellent American Bar Association RPTE Probate and Property column.

Speakers: Alan Gassman, Ken Crotty and David Archer

Date: Monday, June 9, 2014 | 12:30 p.m.

Location: Online webinar

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

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

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

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

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

Location: Bloomberg BNA Tax & Accounting Online webinar

Additional Information:  To register for the webinar please visit

http://www.bna.com/effectively-hire-terminate-w17179890199/.  To receive a discount code please email agassman@gassmanpa.com

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FICPA SUNCOAST CHAPTER MONTHLY MEETING

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

Speaker: Alan S. Gassman

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

Location: Feather Sound Country Club, Clearwater, Florida

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

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FICPA ANNUAL ACCOUNTING SHOW 

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

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

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

Location:  Fort Lauderdale, Florida

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

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

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

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

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

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

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

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

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

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

Comments from past attendees of this program:

  • Excellent seminar and materials!!!
  • This was one of the best ICLE seminars yet!
  • One of the best seminars I have attended.

Date: Saturday, October 4, 2014

Location:  TBD

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

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40th ANNUAL NOTRE DAME TAX & ESTATE PLANNING INSTITUTE

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

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

Date:November 13 and 14, 2014

Location: Century Center, South Bend, Indiana

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

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

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2nd ANNUAL AVE MARIA SCHOOL OF LAW ESTATE PLANNING CONFERENCE

Alan Gassman will once again be speaking at the Ave Maria School of Law Estate Planning Conference in Naples, Florida, whether he is invited or not!  Hats off to Jonathan Gopman, Karen Grebing, Northern Trust and many others for having hosted one of the most enjoyable conferences in 2014.

Date: Friday, May 1, 2015

Location: Ave Maria School of Law, Naples, Florida

Additional Information: Please contact Karen Grebing at kgrebing@avemarialaw.edu for more information.

NOTABLE SEMINARS BY OTHERS

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

49th ANNUAL HECKERLING INSTITUTE ON ESTATE PLANNING

Date: January 12 – 16, 2015

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

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

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ALL CHILDREN’S HOSPITAL FOUNDATION

Date: Thursday, February 12, 2015

Location: St. Petersburg, FL

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

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2015 FLORIDA TAX INSTITUTE

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

Location: TBD

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

Applicable Federal Rates

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

SHORT TERM AFRs MID TERM AFRs LONG TERM AFRs
May2014 Annual 0.33% Annual 1.93% Annual 3.27%
Semi-Annual 0.33% Semi-Annual 1.92% Semi-Annual 3.24%
Quarterly 0.33% Quarterly 1.92% Quarterly 3.23%
Monthly 0.33% Monthly 1.91% Monthly 3.22%
April 2014 Annual 0.28% Annual 1.81% Annual 3.32%
Semi-Annual 0.28% Semi-Annual 1.80% Semi-Annual 3.29%
Quarterly 0.28% Quarterly 1.80% Quarterly 3.28%
Monthly 0.28% Monthly 1.79% Monthly 3.27%
March 2014 Annual 0.28% Annual 1.84% Annual 3.36%
Semi-Annual 0.28% Semi-Annual 1.83% Semi-Annual 3.33%
Quarterly 0.28% Quarterly 1.83% Quarterly 3.32%
Monthly 0.28% Monthly 1.82% Monthly 3.31%

The 7520 rate for May is 2.4% and for April was 2.2%

 

[1]                   The charitable itemized deduction is not a tax preference item under the alternative minimum tax.

[2]               http://www.nonprofitcpa.com/new-florida-law-provides-protection-for-nonprofits-from-clawbacks-of- charitable-contributions-under-fraudulent-transfer-law/

[3]  Fla. Stat. 726.109 (7)(b)(2).

The Thursday Report – 5.1.2014 – Charitable Planning, Wait to Reinstate?, TBE Life Insurance, Oshins 11

Posted on: May 1st, 2014

Hesch on Charitable Planning and Explaining Charitable Planning to Clients

Wait to Reinstate

Letter Explaining the Use of Life Insurance for a Physician Client as a TBE Substitute in Case the Non-Physician Spouse Dies

Engineering Medical Practice Compliance, an article by Dr. Pariksith Singh

The 5th Annual Domestic Asset Protection Trust State Rankings Chart by Steve Oshins

Taking Piano to Heart – One Lawyer’s Story

Seminar Announcement – Don’t Skip (Fox) and Alan Gassman in Columbus, Ohio – JEST Enjoy It! Best Seminar Since 1492!

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.

Hesch on Charitable Planning and Explaining Charitable Planning to Clients

hesch

On April 22 Jerry Hesch spoke at a donor luncheon for Ruth Eckerd Hall in Clearwater, Florida and did a great job of showing how taxes can be saved when donors wish to benefit a charity and integrate charitable planning with their family and income tax situations.

The introduction to Jerry’s outline reads as follows:

Introduction

Charitable supporters face income, estate and gift tax challenges that can be alleviated with the use of charitable tax law coordination and planning.  In many situations the tax savings generated by these techniques will pay for all or a large part of the charitable donation and the donor can still enjoy seeing local charities improve their facilities and services, while giving well deserved thanks to the donor and the donor’s family.

The most important function a tax planning professional must master is how to communicate the tax savings from the different charitable giving techniques in a manner that the potential donor can quickly and easily understand.  The primary focus of this presentation will be how to communicate charitable giving techniques that can save taxes in an efficient and understandable manner.

Today’s presentation is designed to show how the use of brief descriptions and short financial illustrations can accomplish this communication objective.  Specific topics covered will include the following:

How the income tax deduction for charitable gifts can be used to generate a 43.4% tax savings, and also facilitate avoidance of a 23.8% capital gains tax and avoid estate taxes.

Using a lifetime charitable lead annuity trust (“CLAT”) in a low interest rate environment to pass an income producing investment on to the next generation without any gift or estate taxes and actually pass more on to the children than if no planning had been used.

 How a charitable remainder Unitrust (“CRUT”) can create current charitable income tax deductions that can offset up to 50% of adjusted gross income when an individual wants to implement a Roth IRA conversion or has other large amounts of ordinary income that would otherwise be taxable.  How the use of life insurance by the CRUT can further enhance the income tax benefits of the CRUT.

Using Net Income Makeup Charitable Remainder Unitrusts (the “NIMCRUT”) when an individual anticipates selling an appreciated asset at a large gain so that the capital gains tax that would otherwise be paid on the gain from the sale of that asset can instead be given to a charity at the end of the charitable remainder trust term.  How the charitable remainder trust can even be used for the gain from the sale of an operating business by minimizing the amount of unrelated business income allocated to the charitable remainder trust.

How individuals in their late 80s and 90s, and individuals with a short life expectancies can use lifetime charitable lead annuity trusts that make payments to charities for a given number of years to extend the compounding of a this tax-free wealth shifting technique for as many years as needed after their deaths so that there are no gift or estate taxes on the transfer of an income-producing asset to the next generation. Why lifetime CLATs are a more advantageous solution to the testamentary charitable lead annuity trust (the “CLAT”).

How to terminate an existing charitable remainder trust so that the charity can receive funds currently instead of having to wait until the creator of the trust dies and show how the creator of the trust can be better off by receiving a lump sum upon an early termination instead of receiving distributions each year for the rest of the creator’s life.  How to use the early termination of a trust to convert ordinary income into capital gain.

 Communication

Explaining how a technique works, and communicating the wealth shifting concepts incorporated therein is an essential role for the tax and estate planning professional.  Part of the communication process is to explain the technique in a way that the individual can easily understand without the use of technical terms that the individual is often unfamiliar with.  An important aspect of the communication process is to illustrate the potential transfer tax savings without overwhelming the individual with complicated financial data and the use of technical terms.

Most donors realize that the highest tax bracket consists of the 39.6% income bracket and the 3.8% Medicare tax for a combined total annual income tax bracket of 43.4%, and that capital gains are taxed at the 23.8% combined income and Medicare tax brackets. Further, assets in excess of $5,340,000 left on death to non charity and non spouse beneficiaries will be subject to estate tax at the 40% bracket, with the $5,340,000 2014 threshold going up with the Consumer Price Index, but being reduced by gifts exceeding $14,000 per person during the person’s lifetime.

Example John Supporter has a $3,000,000 net worth and pays income taxes at the highest bracket.  He has stock worth $11,000 that cost him $1,000.  He can sell the stock for $11,000 and will pay $2,380 of income tax, and then give the money to his nieces or nephews, or he can give the stock to a charity, pay no capital gains tax, and save $4,340 in income taxes for total tax savings of $6,720, or 61% of the amount gifted, while receiving recognition and the satisfaction of having made a difference for a good cause or charitable activity.

If John was also estate taxable then the estate tax savings would be another 40% (without taking into account future growth, so $4,400 of estate tax savings plus $6,720 of income tax savings amounts to $11,120 of savings on an $11,000 gift!

The tax savings in the example above may be even greater if there are medical expenses, alternative minimum tax or other situations at hand which are further described below.

Besides the above, there are a number of charitable giving mechanisms that planners can use to allow family or self benefits to occur while allowing for present or future dollars or assets to go to charity.

With a Charitable Remainder Trust tax deductions apply on funding, even though payments are received by the donor or family members for a term of years, and capital gains taxes can be avoided.

A simple example is that the donor puts $100,000 of appreciated stock into a trust that pays him $4,000 a year for 20 years.  The donor gets an immediate tax deduction on the donation based on the present value of what the charity is expected to receive, and may pay the capital gains tax on the sale of the asset ratably over time as he or she receives the $4,000 payments, instead of immediately on sale.  This is a way to eat the icing off of your cake, after you have given it away!

With a Charitable Lead Trust assets can be placed in a trust that pays the charity a set dollar amount or percentage of its value for a term of years, and everything left after that may go to the donor’s children or other individual beneficiaries without estate tax.

A simple example is that someone age 72 who will be in the 40% estate tax bracket will put $100,000 into a Charitable Lead Trust that pays a charity $8,200 a year for 12 years, and then is held for the donor’s children. This is not considered to be a gift to the children under the gift tax law.  If the trust is worth $50,000 after the 12th payment, then the donor got income tax deductions based on 43.4% of $100,000 in payments, and thus saved $43,400 in income taxes over the 10 years, and $20,000 of estate or gift tax for total savings of $63,400 on a $100,000 gift.  If a family partnership or LLC is used then the savings can be much greater.

Jerry’s discussion of the use of charitable lead trusts can be viewed by clicking here.

Next week we will feature Jerry’s charitable remainder trust discussion.

Wait to Reinstate

For a Florida LLC, if you file your Annual Report after May 1st, you will incur a $400.00 late fee (in addition to the $138.75 Annual Report fee) at the time of filing for a total amount due of $538.75.

HOWEVER, if you wait until September when the Secretary of State administratively dissolves LLCs that did not file their Annual Reports, the $400.00 late fee will no longer apply.  Instead the LLC will pay a $100.00 reinstatement fee (in addition to the $138.75 Annual Report fee) for a total amount due of $238.75.

This results in a savings of $300.

Further, what is the rush to reinstate?  Reinstatement goes back retroactively, and each year there is no additional penalty, they just add on the $138.75.  Eventually the annual report fees may increase retroactively, but for now the smart client will want to wait to reinstate.

Letter Explaining the Use of Life Insurance for a Physician Client as a TBE Substitute in Case the Non-Physician Spouse Dies

Recently a client asked us the following question:

Alan, Mary and I were doing some planning and were looking at life insurance options.  You and I had discussed getting a new policy to stagger expiration dates for coverage, specifically, to replace a $2 million dollar policy with two $1 million dollar policies, one for 20 years and one for 30 years.

Can you refresh my memory on the asset protection component of doing this?  As I recall, there was an issue with TBE assets becoming exposed if I die and there was a tax issue as well.

Thanks,

John

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Our response to the client is as follows:

Dear John and Mary:

Thank you for your email asking for guidance on the new life insurance.

We favor having multiple policies because once you buy a policy you can never reduce the death benefit.  If you buy two $500,000 policies and decide in later years that you only need half of the coverage then you can drop one policy and keep the other.

It does not cost much more to have two $500,000 policies, as compared to one $1,000,000 policy.

On the death of one spouse the life insurance proceeds can be held for the health, education and maintenance of the surviving spouse without being subject to the federal estate tax on the surviving spouse’s estate.

Also, the life insurance proceeds can be held without creditors having access to them.

For example, if Mary dies you are going to lose your tenancy by the entireties protection, but if she dies leaving life insurance in a trust that benefits you for your lifetime without being subject to federal estate tax or creditor claims, this helps to replace the tenancy by the entireties assets and to supplement your future creditor protection and the protection of your children’s inheritance from a potential future spouse and potential future children.

From an estate tax standpoint if we think that there is a good likelihood that the insured spouse will die during the term of the policy, and that the couple will have a net worth exceeding what passes estate tax free (which is presently $5,340,000 per spouse, increased with inflation under the present system), then we can place the life insurance into an irrevocable life insurance trust.  This helps to protect the actual ownership of the life insurance policy in case the insured spouse were to ever die, and also avoids federal estate tax on the policy proceeds.

Would you like to set up a ten minute call between the three of us to discuss this?

Best personal regards,

Alan

Engineering Compliance
by Dr. Pariksith Singh

We talk about compliance and how important it is for an organization. But what is compliance really? Is it only adherence to certain rules and regulations or is it something more? Is it just documentation and fulfillment of certain policy requirements? To my mind, compliance is the back bone of an organization. It is the true strength of the company. How do we make compliance the part of an organization’s DNA?

These are the things I believe should be done:

1) Compliance needs to be part of the Value System of the company: What is value system? It is the basis on which we judge the appropriateness of all our actions, behaviors, processes and systems. Compliance needs to be the moral and ethical fiber of the company.

2) Compliance is non-negotiable: This is the message that needs to be sent out to the staff constantly. Mere words do not suffice. It is the actions that show staff how seriously the company takes it. To paraphrase my friend Mirza Yawar Baig, “The staff listens with their eyes.”

3) Buy-In from Leadership: Unless the whole leadership team is solidly behind it, compliance will not get ingrained in the fabric of the organization. There will be tests time and again when compromise is the easier way out. But when issues are serious and violations are clear-cut and flagrant, everyone needs to get behind the decision and support it.

4) Constant drilling is needed: Compliance training is not a once-a-year training program or session or testing after some reviews. Compliance is a matter of constant awareness, training and education. We can’t emphasize it enough. E-mails with tips on a weekly basis should be sent and staff feedback is to be welcomed. Mere education too is not enough. We need to engage employees and make them understand why compliance is the life blood of their work.

5) Quiz and Question: We need to be able to quiz our staff on the spot with a compliance issue and test their ability to think on their feet and respond immediately. This should be part of the evaluation of that office. If the answer is right, there should be an immediate reward like a $5 certificate or note of appreciation. In the event of an audit from an agency, such spot quizzes or questioning of employees will happen for sure and if they are not prepped their answers will be usually of a stunned silence or “I do not know’s”.

6) Celebrate Compliance: Compliance or adherence to the law should not be painful. The way it becomes part of the culture is by making it a positive aspect of the company and integrating it with the value system. Rewarding employees who are sticklers in the right way, creating award programs, making it fun and sportive are all part of a good and strong compliance program.

7) Review of Operations: Every process starting with hiring to orientation to training and review and firing or exit interviews should be reviewed for all employees. Also, each process in offices or in various departments should be broken down at a granular level and reviewed and made compliant by retooling and re-processing as needed. A proper Policies and Procedures Manual is a must and must be a part of every employee’s vocabulary and made available for reference at all times.

8) IT Processes: Once operations are made precise and legitimate, the computer software, Enterprise Resource Processes and CRMs need to reflect the steps that need to be taken to accomplish the task. If education and training and employee orientation are the software of compliance, IT and operations are the hardware.

9) Documentation and record-keeping: Documentation is the sine qua non and without documentation the program has no way to be measured. This documentation needs to be shared with the Executive team transparently and compliantly and a proper repository of such records must be kept available as needed to appropriate personnel.

10) Compliance Committee: A team of leaders should be appointed to review the compliance program on a regular basis and should have the ability to tailor the program to the organization’s needs, functions and regulatory status. The members should be willing to study the subject and share the knowledge with the company. Hiring of consultants who are experts in compliance is another way to enhance an organization’s knowledge base and expertise. Special courses in compliance and certification for key people should be encouraged and emphasized.

True compliance leads to quality even though the two departments are separate and should be kept separate. Compliance is a function of humility, willingness to learn and abide by the law, leadership and a fundamental transparency. If focused on with adequate attention, compliance can become a core competency of the organization and its strategic strength in this world of audits and Federal refunds, punishments and disbarments.

Dr. Singh thanks Alan S. Gassman and Kristen O. Sweeney for their assistance in preparing this article for publication.

The 5th Annual Domestic Asset Protection Trust State Rankings Chart
by Steve Oshins

We sincerely thank Steve Oshins for everything that he has done on the Domestic Asset Protection Trust scene to make these a well respected and protective vehicle with many uses well beyond “creditor protection”.  Oshins and Oshins has a great website at www.oshins.com.

The 5th Annual Domestic Asset Protection Trust State Rankings Chart is at http://www.oshins.com/images/DAPT_Rankings.pdf.

Some Highlights:

1.  Mississippi was added to the chart.

2.  Colorado was removed from the chart because of space limitations and because its DAPT law is very questionable.

3.  There is now a “Decanting State Ranking” column reflecting the importance of that added flexibility.

4.  “Reputation” and “Other Adjustments” have been removed in order to reduce subjectivity.  I’m not yet certain whether that helps or hurts.

5.  Because many states have enhanced their statutes over the past few years, many of the states have very close Total Scores.  It is important to note that the amount of weight given to different columns is very uniform, so if you believe that certain columns should be more heavily weighted, then minor adjustments will change the rankings, especially for the states ranked #5 through #11.

Please provide both positive and negative feedback.

The sister charts are at:

*Dynasty Trust State Rankings Chart:  http://www.oshins.com/images/Dynasty_Trust_Rankings.pdf

*Decanting State Rankings Chart:  http://www.oshins.com/images/Decanting_Rankings.pdf

Quotes from Steve:

1.  As the DAPT states have improved their statutes, the competition among the states has gotten fierce.

2.  This year I tried to reduce the subjectivity even more by removing the state’s reputation from the scoring so that the states are now ranked solely on the face of their statutes.

3.  The current chart now includes a column for decanting to reflect its popularity and importance to DAPTs and other types of trusts.

Taking Piano to Heart – One Lawyer’s Story
by Laura Snell

laura snell

Laura Snell is a candidate for Sixth Circuit Judge group 1. She is a native Floridian with ties to Pinellas County that go back to the early 1900’s.  Her great-grandfather, Getty E. Snell and his brother C.Perry Snell, developed the Old Northeast and Snell Isle areas of St. Petersburg.  Laura is an honors graduate of University of Central Florida with a degree in Spanish and a Degree in Political Science: International Relations and Comparative Governments.   She went on to Stetson University College of Law where she earned a Juris Doctor. Ms. Snell began working at the Sixth Circuit Public Defender’s Clearwater Office in the Spring of 2005.  Laura is now the Senior Assistant Public Defender supervising the Juvenile Division.  She is also an Adjunct Professor of Law for Stetson University College of Law managing the Child Advocacy Clinic. Additionally Ms. Snell has worked in private practice at Wagstaff Law Office as an associate in the practice areas of family law and probate.

Laura Snell has been a member of the Clearwater Bar Association for most of her career.  She participates in many committees, Florida Bar Association and serves on several community boards relating to juvenile justice. Laura enjoys an active role at the Pinellas Pace Center for Girls.  She has been on the Board of Directors for several years, and currently serves in the position of President of the Pace Board.  Ms. Snell graduated from Leadership Pinellas in the 2010 class and has remained on their Board of Directors for several years. She is also a graduate of the Largo Citizen’s Academy and served on the Board of Trustees for AMI Kids Pinellas.  Laura is a member of the Delta Gamma Clearwater Alumnae group and belongs to St. Paul United Methodist Church of Largo.

For more information please visit her website: www.SnellForJudge.com

Here is Laura’s article:

Here’s something not many of my colleagues know about me – I play the piano.  I started taking lessons at age four and continued with formal instruction until the tenth grade.  I also played the clarinet in jazz band and in the orchestra in middle and high school.  Music has been a very big part of my life and I firmly believe the skills I gained from playing the piano assisted me academically.

Playing the piano requires the individual to become fluent in the language of music composition which is so much more than simply having the ability to read notes on a page of sheet music, although that in and of itself is an accomplishment.   It is a different form of communication than the spoken or written word that is akin to a foreign language.  Playing the piano also requires keeping the tempo, having a divided attention between tasks of one’s hands/feet/eyes, being fully in the moment while thinking ahead to plan the next move, expressing the emotion and mood of a song to the audience, learning to improvise when mistakes happen, and growing from words of criticism.

A young man named Kwasi Enin made national headlines after being accepted into eight Ivy League schools. On April 30, 2014 he announced his decision to attend Yale in the fall.  In Enin’s college application essay he wrote about his passion for music and how playing the viola impacted his academic pursuits saying:

There are millions of combinations of key signatures, chords, melodies and rhythms in the world of music that wait to become attached to a sheet of staff lines and spaces. As I began to explore a minute fraction of these combinations from the third grade onwards, my mind began to formulate roundabout methods to solve any mathematical problem, address any literature prompt, and discover any exit in an undesirable situation.

I know that playing the piano was my safety net that got me through law school.  This is especially true immediately after graduation from law school during that critical study time while preparing for The Florida Bar exam.   For a three month period my life was dedicated to passing The Florida Bar which meant that 12+ hours of my days were spent secluded in the Stetson Law library.   I would typically leave the library around midnight and retire to the Mann Lounge where the school had a grand piano.  Let me set the scene, there is really nothing about this large room that measures 48 by 85 feet and has 16-foot ceilings that makes me think “lounge”.  Inside this massive room there is a  fireplace which is a slightly modified reproduction of the painter El Greco’s favorite fireplace,  two huge collectable and presumably  very valuable vases made especially for the 1895 Colombian exposition in Chicago, the  paintings on the walls are the work of Peruvian artist Victor Robian from the early 1900s, there are  antique furnishings and one grand piano.   I had never seen anyone play that piano and I wasn’t even sure we were allowed to touch it, but my longing to play prevailed and I figured I would be safe playing during such late hours.

Playing the piano relaxed me and kept me grounded. Music gave balance to my stressful life.  While playing in the Mann Lounge I would take my frustrations and fears out on that grand piano.   I remember one occasion when I was really banging away on the keys and I thought I was in trouble because the security guard came in and stood next to me.  Panic struck throughout my body and I thought to myself, “well the jig is up I’m going to be kicked out and forbidden from touching this piano”!  What I didn’t know was that the security guard had been a fan of my music for weeks. He had been making his rounds to patrol the Mann lounge right around midnight just to listen to me play. As it turned out in my moment of panic he wasn’t asking me to leave, he was requesting some Billy Joel songs.

Playing piano is very personal for me; I am not an entertainer and haven’t played publicly since I was about fifteen, with the exception of my nightly concerts in the Mann lounge.  The piano has always given me an emotional outlet throughout my life – if I’m sad I can play a soulful tune, if I’m happy I can play something light hearted and patriotic, if I’m feeling loved I can play a ballad, and when I want to worship I can play hymns.  In times of frustration I have my favorite classical piece that allows me to transfer that aggravation to the piano keys; and for this I thank you Edvard Grieg for the concerto in A minor.   Many people say that they get their best thinking done when they are in the shower, I can say I have done some of my best thinking while my hands and mind were busy by playing the piano.

The sad truth is that the arts are almost always first on the chopping block in the schools. I believe that music education is completely underrated and undervalued when budgets are being made by decision makers. I started thinking, if music is so undervalued how do we connect with people to impress upon them the importance of music education and playing the piano? People who play music understand what it does for your personal development, I get that and it would appear that young Kwasi Enin does too.   But how do you explain the power of music to someone who does not “get it”?  That’s when I realized for me that playing the piano not only aided my personal and academic development, but also in strengthening my familial relationship . The bond between parent and child or grandparent and child is a universally accepted concept and here’s one example from my life where this bond  applies to playing the piano.

When I was fifteen I found a box in the attic.  In the bottom of that box was a pile of dusty sheet music of tunes from the 1940’s that I had never heard before.  One of those songs was called  “Peg O’ My Heart” by Alfred Bryan and Fred Fisher.  I sat down at the piano and gave it my best shot.

As I was playing this for the first time, my Mom came running into the living room singing the lyrics    “PEG O MY HEART I LOVE YOU” and she was crying.   That box had belonged to Doris Fogle, my great-grandmother who was born in 1900 and died in 1985.  Up until that moment I had no idea that my great-grandmother even played the piano.  After Doris’ death her things were put in storage in our attic.  My Mom told me she was crying because as soon as she heard that song playing she was reminded of her childhood and the times when her grandmother used to play it on the piano.  My Mom said in that moment she could feel her grandmother’s presence. My great-grandmother passed away when I was only as a child but in that moment I felt a bond with her too.

Now that my Mom has passed away, when I play Peg O’My Heart on the piano I feel a connection to her and to my great-grandmother. I laminated this sheet music in the hopes that I can pass it on to my children one day. Playing the piano keeps the memory of these women and their loving spirits alive!

https://www.youtube.com/watch?v=hvditcQRcXM

If you are a piano fan check out the Sara Gassman Foundation’s Mother’s Day article from last year by clicking here.

Seminar Announcement
Don’t Skip (Fox) and Alan Gassman in Columbus, Ohio – JEST Enjoy It! Best Seminar Since 1492! and a Replay of Our Webinar for Physicians on What They Don’t Tell You in Medical School

On June 4th Alan Gassman will be speaking at the Ohio State Bar Association 25th Annual Conference of Wealth Transfer following a June 3 late afternoon/early evening panel discussion hosted by Johnson Investment Counsel and The Ohio State University

The agenda for the conference is as follows:

June 4, 2014

7:45 am            Registration/Continental Breakfast

8:00 am            Welcome/Introductions

William A. Morse, Esq.; Attorney at Law; Worthington (Program Planning Chair)

Nancy Koerner, J.D.; Director of Development, The Ohio State University; Columbus

Joyce A. Waters; Director of Business Development, Private Client Group, Johnson

Investment Counsel; Columbus

8:15 am            Recent Developments

Charles “Skip” Fox, IV, Esq.; McGuire Woods LLP; Charlottesville, Va.

This session will include commentary on marital planning, gifts, grantor trusts, asset protection, portability, generation skipping tax and charitable planning.

9:45 am            Structuring Joint Exempt Step-Up Trusts (JESTs)

Alan S. Gassman, Esq.; Gassman, Crotty & Denicolo, P.A.; Clearwater, Fl.

With the increased federal estate tax exclusion, it may be time to   reconsider “joint” trusts for

married couples.  Alan co-authored two articles in the October and November issues of Estate Planning Magazine about Joint Exempt Step Up Trusts (JESTs), and will talk about maximizing stepped-up basis planning, fully funding Credit  Shelter Trusts with joint assets, and other practical aspects of JESTs  with forms

10:35 am          Break

10:50 am          Must We Trust a Trust That’s Just a Crust That Wast a Trust?

Charles “Skip” Fox, IV, Esq.

What some view as “un-trust-like” notions—protectors, selectors, advisors, appointers, special

trustees, directed trusts, secret trusts, virtual representation, in terrorem forfeitures, perpetual

trusts and  decanting—will be examined with some forms included.

11:40 am          Planning with Commercial Annuities

Alan S. Gassman, Esq.

This session will discuss planning with fixed and variable annuities, covering common policy

features, misunderstanding about “guaranteed” rates of return, the minimum distribution rules akin to the IRA rules, income taxation of annuities on the death of the owner or annuitant, and trusts as holders of annuity contracts.

12:30 pm          Lunch (provided)

1:30 pm            Modern Portfolio Theory (MPT)

Dominic J. Campisi, Esq.; Evans Latham & Campisi; San Francisco, CA.

Dom Campisi, a fiduciary litigation specialist, will discuss why he believes MPT is no longer “Modern,” but is now a crippled theory; the need to “document” the exercise of discretion; and why taking “risks” to increase income is a dangerous position.

2:40 pm            Self-Cancelling Installment Notes (SCINS)

Analysis of the structure and tax advantages of SCINS, contexts for use in planning, recent IRS rulings and their impact on SCINS, interest rates used, using SCINS in combination with other planning techniques and important considerations and risks attendant to SCINS will be discussed.

3:40 pm            Break

3:55 pm            Fiduciary Liability

Dominic J. Campisi, Esq.

Multiple recent fiduciary liability cases will be discussed, including why ignoring the circumstances of the beneficiary can lead to censure and damages – even if your trustee client is only handling investments for a special needs beneficiary; the measure of damages in failure to diversify cases; why conflicts of interest in investments are a major source of surcharge; and the duty to inform the “sprinkle” beneficiary of his/her rights.

5:00 pm            Conference Concludes

For more information on the conference please click here

The New Doctor’s Guide to Wealth Building, Creditor Protection, Trust Planning, and What They Didn’t Tell You in Medical School

On Wednesday, April 30 we held a Part 1 of a webinar for new doctors on What They Didn’t Tell You in Medical School.  If you would like to watch a replay of that webinar please email Janine Gunyan at Janine@gassmanpa.com

Part 2 of the webinar has been scheduled for Tuesday, May 13, 2014 at 7:00 p.m. To register for the webinar please click here and email any questions you have to Alan Gassman at agassman@gassmanpa.com.  We hope to “see” you there.

Upcoming Seminars and Webinars

THE FLORIDA BAR ANNUAL WEALTH PROTECTION SEMINAR (with 2 hours of Ethics CLE credit)

Alan Gassman will be speaking at the Florida Bar Annual Wealth Protection Seminar on How I Structure an Integrated Income, Estate Tax, and Asset Protection Family Plan as well as participating in a panel discussion with Barry Engel, Jerry Hesch and Denis Kleinfeld on What Are the Ethical, Legal and Administrative Liability Exposures in Wealth Protection Planning and How Do We Protect Ourselves.

Date: Thursday, May 8, 2014

Location: Hyatt Regency Downtown, Miami, Florida

Additional Information: For more information and to register please visit  http://floridataxlawyers.org/images/stories/cle_documents/asset%20protection%20brochure%205-8-2014.pdf.

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THE JOINT EXEMPT STEP-UP TRUST AND PLANNING WITH COMMERCIAL ANNUITIES

Alan Gassman will be speaking at the Ohio Conference on two different topics: 1) Wealth Transfer on Structuring Joint Exempt Step-Up Trusts (“JESTs”): Maximizing Stepped-Up Basis Planning, Fully Funding Credit Shelter Trusts with Joint Assets and Practical and Technical Aspects Thereof – With Forms and 2) Planning with Commercial Annuities.  Mr. Gassman will also be participating in a panel discussion the evening before hosted by Johnson Investment Counsel and The Ohio State University.

Date: June 4, 2014

Location: Hilton at Easton, Columbus, Ohio

Additional Information:  For more information on the conference and to register for the conference please contact agassman@gassmanpa.com

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VERSION 226.3 OF OUR ESTATEVIEW ESTATE TAX PROJECTION AND ILLUSTRATION SOFTWARE

Alan Gassman, Ken Crotty and David Archer will be presenting a free 30 minute webinar on what is new with our EstateView software which will be featured later this year in Jason Havens’ American Bar Association RPTE Probate and Property column.

Speakers: Alan Gassman, Ken Crotty and David Archer

Date: Monday, June 9, 2014 | 12:30 p.m.

Location: Online webinar

Additional Information: To register for the webinar please visit https://www2.gotomeeting.com/register/445383090

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

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

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

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

Location: Bloomberg BNA Tax & Accounting Online webinar

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

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FICPA SUNCOAST CHAPTER MONTHLY MEETING

Alan S. Gassman will be speaking at the FICPA Suncoast Chapter’s monthly meeting on FLORIDA ESTATE PLANNING AND LAW TECHNIQUES THAT CPAS NEED TO KNOW ABOUT

Speaker: Alan S. Gassman

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

Location: Feather Sound Country Club, Clearwater, Florida

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

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FICPA ANNUAL ACCOUNTING SHOW

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

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

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

Location: TBD

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

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

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

Date: Saturday, October 4, 2014

Location:  TBD

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

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40th ANNUAL NOTRE DAME TAX & ESTATE PLANNING INSTITUTE

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

This presentation will cover the unique income tax and financial planning characteristics of fixed and variable annuities, and provide estate and tax planners with a number of strategies for understanding and planning with existing and contemplated contracts. With over One Trillion Dollars of US taxpayer money invested in annuity contracts, more and more clients are showing up in their estate planners offices with large annuity contracts and common misunderstandings about “guaranteed income” and “guaranteed rates of return” features.  The presentation will cover common policy features, what is actually happening inside of a policy, illustration techniques, and changes that can be made to defer income tax and reduce overall tax liability.   Minimum distribution rules akin to the IRA and pension Section 409A rules and common carrier practices will also be discussed.

Date:November 13 and 14, 2014

Location: Century Center, South Bend, Indiana

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

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

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2nd ANNUAL AVE MARIA SCHOOL OF LAW ESTATE PLANNING CONFERENCE

Alan Gassman will once again be speaking at the Ave Maria School of Law Estate Planning Conference in Naples, Florida, whether he is invited or not!  Hats off to Jonathan Gopman, Karen Grebing and many others for having hosted one of the most enjoyable conferences in 2014.

Date: Friday, May 1, 2015

Location: Ave Maria School of Law, Naples, Florida

Additional Information: Please contact Karen Grebing at kgrebing@avemarialaw.edu for more information.

NOTABLE SEMINARS BY OTHERS

(WE WERE NOT INVITED, BUT ARE STILL EXCITED)

ALL CHILDREN’S HOSPITAL FOUNDATION

Date: Thursday, February 12, 2015

Location: St. Petersburg, FL

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

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2015 FLORIDA TAX INSTITUTE

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

Location: TBD

Additional Information: Please contact Alan Gassman at agassman@gassmanpa.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.

SHORT TERM AFRs MID TERM AFRs LONG TERM AFRs
May2014 Annual 0.33% Annual 1.93% Annual 3.27%
Semi-Annual 0.33% Semi-Annual 1.92% Semi-Annual 3.24%
Quarterly 0.33% Quarterly 1.92% Quarterly 3.23%
Monthly 0.33% Monthly 1.91% Monthly 3.22%
April 2014 Annual 0.28% Annual 1.81% Annual 3.32%
Semi-Annual 0.28% Semi-Annual 1.80% Semi-Annual 3.29%
Quarterly 0.28% Quarterly 1.80% Quarterly 3.28%
Monthly 0.28% Monthly 1.79% Monthly 3.27%
March 2014 Annual 0.28% Annual 1.84% Annual 3.36%
Semi-Annual 0.28% Semi-Annual 1.83% Semi-Annual 3.33%
Quarterly 0.28% Quarterly 1.83% Quarterly 3.32%
Monthly 0.28% Monthly 1.82% Monthly 3.31%

The 7520 rate for May is 2.4% and for April was 2.2%

 

The Thursday Report 4.17.2014 – Ohio,

Posted on: April 17th, 2014

Monday’s Ohio U.S. Constitutional Federal Court Decision – Will States Have to Respect Same Gender Marriages?…..Probably!

Non-Residents Can Own Florida Real Estate as Tenants by the Entireties

Calculating IRA Minimum Distributions

Bruce Stone’s Reminiscences of Kiev – A Very Interesting Story – Part 2 of 2

Seminar Announcement – Ohio – Our Second Favorite State – Go There June 4th To See Some Interesting Presentations

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.

Monday’s Ohio U.S. Constitutional Federal Court Decision – Will States Have to Respect Same Gender Marriages?…..Probably!

by India Ingram and Alan Gassman

The state of Ohio was ordered by U.S. District Judge Timothy S. Black on Monday to give full recognition to same-gender marriages legally performed in other states. The court found that the state’s refusal to recognize such marriages violates the Due Process, Equal Protection, and Full Faith and Credit Clauses of the US Constitution, and many legal authorities expect that at least one, if not more, of these doctrines will be upheld eventually by the US Supreme Court.

The judge also found that the state is in violation of the Constitution by denying recognition to out-of-state adoption decrees and by refusing to amend the birth certificates of Ohio-born children.

This ruling does not force Ohio to allow same-sex marriages to be performed within the state, but requires full marital recognition, such as property rights, to couples married outside of the state. The order was a result of a lawsuit brought by four same-sex couples who argued that the state’s current allowance of only one partner from a same-sex marriage on a birth certificate is unconstitutional. The state plans to appeal the ruling, arguing that citizens of the state in 2004 overwhelmingly voted to ban same-sex marriage, giving Ohio a sovereign right to refuse recognition of these unions. Black has temporarily stayed his ruling as applied to everyone except for the four couples named in the lawsuit pending the appeal.

Black found that Ohio’s ban on recognizing out-of-state marriages of same-gender  couples was unconstitutional discrimination, and that the state has no justification for such discrimination. ‘When a state effectively terminates the marriage of a same-sex couple married in another jurisdiction by refusing to recognize the marriage, that state unlawfully intrudes into the realm of private marital, family, and intimate relations specifically protected by the Supreme Court,’ he writes in the opinion.

Black also wrote that: ‘Ohio’s refusal to recognize same-sex marriages performed in other jurisdictions violates the substantive due process rights of the parties to those marriages because it deprives them of their rights to marry, to remain married, and to effectively parent their children, absent a sufficient articulated state interest for doing so.’

The following laws were quoted in this well written opinion:

Due Process and Equal Protection Clause under §1 of the 14th Amendment in the US Constitution:

No state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any state deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

Article IV, Section 1 of the United States Constitution the “Full Faith and Credit Clause”

Full faith and credit shall be given in each state to the public acts, records, and judicial proceedings of every other state. And the Congress may by general laws prescribe the manner in which such acts, records, and proceedings shall be proved, and the effect thereof.           

The full opinion can be viewed by clicking here.

Non-Residents Can Own Florida Real Estate as Tenants by the Entireties

Everyone knows that the creditor of one spouse cannot reach tenancy by the entireties assets unless a fraudulent transfer, super creditor situation, or other exception applies.

If a couple residing outside of Florida owned Florida real estate, can this real estate qualify as a tenancy by the entireties asset where the state of residency does not recognize tenancy by the entireties.  Most advisors do not realize that the answer to this question is yes, as confirmed in the 2007 case of In re Cauley.

EXCERPT FROM GASSMAN & MARKHAM ON FLORIDA AND FEDERAL ASSET PROTECTION LAW

REAL ESTATE OWNED OUTSIDE OF FLORIDA

Does the state of location recognize tenancy by the entireties?  If not, then the ownership of the real property should be converted to an intangible asset so that Florida law will apply.  Most states, including Georgia, Colorado, and Washington, do not recognize tenancy by the entireties.  Conversion can be done by transferring the property to a separate entity in a tenancy by the entireties protective state, such as a limited liability partnership or an LLC, the interests of which will be held as tenants by the entireties between the spouses.      

Some states recognize tenancy by the entireties, but do not provide “full protection” for those assets.  For example, under Alaska law, the creditor of one spouse can sever tenancy by the entireties assets.  Under Tennessee law, the creditor of one spouse can attach the survivorship right that the debtor spouse owns in the share of the non-debtor spouse in the event of the death of the non-debtor spouse, so creditors routinely receive nominal payments in lieu of nothing from a tenancy by the entireties debtor. 

A non-resident of Florida may be able to exempt non-homestead Florida real property, so long as the property is owned by the debtor and his or her spouse as tenants by the entireties. In the case In re Cauley,[1] the court extended tenancy by the entireties protection to nonresidents of Florida. In this case, the court ruled that the debtor’s interest in a Florida property was exempt in bankruptcy, even though the debtor did not live in Florida.  Debtor and his wife purchased a home in Florida, which they lived in for approximately four months. In 2006, the debtor filed for Chapter 7 Bankruptcy in Delaware, claiming that the Florida property was exempt because it was held as tenancy by the entireties. AmSouth Bank objected, arguing that tenancy by the entirety protection was only available if the debtor was a Florida resident.  The court applied Florida law because the property was located in Florida, and the sole determinant of whether Section 522(b)(2)(B) of the Bankruptcy Code protects an asset from the claims of the bankruptcy estate is the asset’s situs. The court noted that “tenancy by the entirety is a creature of Florida common law, not an exemption which is given to a resident of Florida by the Florida constitution or the Florida Statutes.” Thus, the court found that there was no requirement to be a resident of Florida in order to exempt the Florida property under tenancy by the entireties.

Other courts have followed Cauley, allowing non-residents to exempt Florida property held as tenants by the entireties.  In the case of In re Holland,[2] the court allowed an Illinois debtor who owned property in Florida as tenants by the entireties to exempt such property in her bankruptcy.  Citing Cauley, the court noted that there is no requirement for the property owner to be a resident of Florida. The court specifically stated, “[i]t is therefore clear from Florida case law that, at least with respect to creditors who are not joint creditors of the husband and wife, Florida’s common law concept of tenancy in the entireties fits within the exemption provided by 11 U.S.C. § 522(b)(3)(B) [of the Bankruptcy Code].”

It may be significant, however, that both Delaware and Illinois recognize the doctrine of tenants by the entireties; therefore, the courts may have been more willing to apply Florida law since the outcome would be the same under the law of either state. It is unclear whether debtors who file bankruptcy in a state that does not recognize tenants by the entireties, but own property in a state that does recognize tenants by the entireties, will be able to exempt that property in bankruptcy.

Calculating IRA Minimum Distribution

Gregory.Seigel

By: Gregory Seigel, Esq.

 Gregory Seigel is an attorney completing his LL.M. studies in Estate Planning at the University of Miami. He can be contacted at gseigel@law.miami.edu

As April is the season for income taxes, many people have recently made minimum distributions from their IRA or 401(k). Consider this an early review for next tax season.

Calculating required minimum distributions takes more than minimal thought. These calculations are very technical, and the penalties for not meeting these requirements can be onerous. The minimum distribution rules apply to traditional IRA’s, SEP IRA’s, SIMPLE IRA’s, 401(k) plans, 403(b) plans, 457(b) plans, and other defined contribution plans. ROTH IRA’s are not required to make minimum distributions until the death of the ROTH IRA owner.

Under Section 4974(a) of the Internal Revenue Code, a 50% tax is imposed on the amount of required minimum distributions that are not taken in a given year.  However, Section 4974(d) provides relief from this penalty if the taxpayer can show that (1) the shortfall of the required minimum distribution was due to reasonable error and (2) that reasonable steps are made to remedy the shortfall. To obtain this waiver, the IRS requires that the taxpayer file a Form 5329, pay the tax owed, and attach a statement explaining the reasonable error.          

For taxpayers who fail to make minimum distributions for consecutive years, the 50% penalty generally applies only to the failed distribution amount for the particular year. For example, a person who fails to make a $20,000 distribution in 2012 and a $15,000 distribution in 2013 will have a penalty of only $10,000 to be reported on their 2012 tax return. The penalty in 2013 will be $7,500 and there is no further penalty on the failed distribution from 2012.

To begin calculating the required minimum distributions, there must be a starting date. The plan owner or participant’s required beginning date is on April 1st of the year after attaining age 70 ½. For owners of qualified plans that (1) are not retired and (2) own 5% or less of the business sponsoring the plan, the required beginning date will be postponed until the April 1st  following the year the plan owner retires. To ensure this calculation is correct, it is recommended that three dates are calculated: the date plan owner is age 70, the date plan owner is age 70 ½, and the April 1st following age 70 ½.

For the first year’s required minimum distribution, the IRS provides three extra months to make the distribution. All future distributions must be made by December 31st. If the first distribution is made during the three month window between January 1st and April 1st, the plan owner will have to make an additional distribution by the end of that year. To prevent this scenario, the plan owner should make the first distribution by December 31st of the year attaining age 70 ½.

Let’s use an example to illustrate. Arlene and Larry are a married couple that each own an IRA. Larry’s date of birth is 6/30/1944 and Arlene’s date of birth is 7/1/1944. For Larry, he turns age 70 on 6/30/2014 and age 70 ½ on 12/30/2014. Larry’s required beginning date is the April 1st of the following calendar year after attaining age 70 ½, which is April 1, 2015. For Arlene, she turns age 70 on 7/1/2014 and age 70 ½ on 1/1/2015. Arlene’s required beginning date is April 1, 2016, for she does not turn age 70 ½ until January 1st of 2015.

This example illustrates the arbitrary cut-off date drawn for those who receive an extra year to begin taking minimum distributions. Those who are born prior to July 1st will have their required beginning date at age 70, while those born on or after July 1st will have a required beginning date at the age of 71. For persons born on or after July 1st, they will obtain an extra year of tax deferral.

After establishing the plan owner’s required beginning date, there is a fraction used to determine the required minimum distribution. The numerator of the fraction is the value of the plan on December 31st of the previous year. For 2015 minimum distributions, the plan’s value as of 12/31/2014 will serve as the numerator. The denominator of the fraction is based on the Life Expectancy Tables that can be found in Appendix C of IRS Publication 590.

There are three life expectancy tables found in the regulations.  The Uniform Lifetime Table is the table used for all owners of plans requiring minimum distributions. This applies to (1) unmarried owners and (2) married owners with spouses that are not more than 10 years younger than the plan owner. The Uniform Lifetime Table reflects the life expectancy of a plan owner plus an additional beneficiary who is ten years younger.

Let’s go back to the previous example. Larry owns an IRA worth $50,000 on 12/31/2013, and he must begin taking minimum distributions on April 1st, 2015. While Larry has an additional three month window to take his first minimum distribution, his first minimum distribution is for the year 2014. The numerator of the fraction is $50,000, the IRA value on 12/31/2013. The denominator is 27.4, which is the life expectancy for a plan owner age 70 in the Uniform Lifetime Table. Thus, Larry’s first required minimum distribution for year 2014 is $1,824 (50,000 / 27.4). Note that Larry will have until April 1st of 2015 to make this minimum distribution.

For Arlene, her calculations are not identical to those of Larry. If Arlene’s IRA is valued at $50,000 on 12/31/2013, this valuation date is not the pertinent date because her first minimum distributions are taken for year 2015. Thus, the value of the IRA on 12/31/2014 is the pertinent date for Arlene’s 2015 minimum distribution. An additional wrinkle is determining what age to use for Arlene in the Uniform Lifetime Table. Because Arlene is not required to take minimum distributions until age 71, the denominator will use the life expectancy for Arlene at age 71, which is 26.5. Arlene will not use the life expectancy for age 70. Assuming that Arlene’s IRA value remains at $50,000 as of 12/31/2014, her required minimum distribution will be $1,886 (50,000 / 26.5). While Arlene’s minimum distributions are greater than Larry’s, Arlene had the benefit of one additional year to defer the income tax on her distributions.

For plan owners with a spouse that is more than 10 years younger and is the sole beneficiary, the Joint Life Tables are used. The ages of both spouses are necessary to calculate the life expectancy in the Joint Life Table.

If in the previous example Arlene was 15 years younger the Larry, the intersection of age 70 and age 55 on the Joint Life Table would be 31.1 years for their joint life expectancy. The required minimum distribution would be $1,607 (50,000 / 31.1). This joint table provides a more accurate actuarial life expectancy for married plan owners with a spouse more than 10 years younger than the plan owner.

IRS Publication 590 provides a third table for calculating life expectancy, the Single Life Table. This table is used to calculate the life expectancy for beneficiaries of an inherited plan. Beneficiaries can be either a spouse or a non-spouse.

If the beneficiary is a non-spouse, the beneficiary’s life expectancy in the Single Life Table is used. For each subsequent year, the life expectancy decreases by one year. For example, if the non-spouse beneficiary at age 33 has a life expectancy of 50.4 years, then the life expectancy at age 34 will be 49.4 years, and the life expectancy at age 35 will be 48.4 years. When the life expectancy number goes below 1, all remaining assets must be distributed in that final year. These minimum distributions for non-spouse beneficiaries must begin in the year following the plan owner’s death.

For spouses who inherit the IRA, the rule is slightly different. Spouses are allowed to go back to the Single Life Table each year and recalculate his or her life expectancy. This can be beneficial to the spouse because certain ages on the Single Life Table decrease by less than a full year. Additionally, the spouse can wait until the year the plan owner would have attained age 70 ½ to begin taking minimum distributions. The spouse of an inherited plan will not be subject to the 10% early withdrawal penalty if under age 59 ½. A spouse would be advised to use this option if the spouse was older than the plan owner, because the plan owner will have the longer life expectancy, minimizing the required distributions.

Upon the death of a plan owner, the spouse may elect to rollover the qualified plan or IRA into their own account. If the plan owner dies prior to his or her required beginning date, the plan owner will not have any required distributions for that calendar year. Additionally, required minimum distributions are not required until the spouse’s required beginning date. In effect, the spousal rollover postpones the minimum distributions until the spouse attains age 70 ½.  The spousal rollover uses the Uniform Lifetime Table to calculate life expectancy, for all owners of plans utilize this table.

If the plan owner dies on or after the required beginning date, the plan owner will be required to make a minimum distribution in the calendar year of his or her death. However, a spousal rollover will delay subsequent minimum distributions until the spouse attains age 70 ½.

The spousal rollover can be beneficial for younger spouses for multiple reasons. First, a spousal rollover will allow the required minimum date to be deferred until the spouse reaches his or her required beginning date. Second, the spouse can designate beneficiaries, which can elongate the life expectancy for the IRA or other qualified plan. Therefore, three different life expectancies (the original owner, the surviving spouse, and the designated beneficiary of the surviving spouse) are used to “stretch out” the required minimum distributions of the plan. Third, the spouse will be able to use the Uniform Lifetime Table, which provides for additional life expectancy built into the table as compared to the Single Lifetime Table. The major drawback of the spousal rollover is that any withdrawals prior to the spouse attaining age 59 ½ will be subject to a 10% early withdrawal penalty.

This article highlights the framework to use when calculating minimum distributions. This serves as a consolidated basis for understanding the mechanics and calculations for required minimum distributions.

Bruce Stone’s Reminiscences of Kiev – A Very Interesting Story – Part 2 of 2

This is Part 2 of Bruce Stone’s story about his 1974 experience in Ukraine.  Please click here to read Part 1 of this story.

There stood, not a uniformed KGB officer, but the kindly hotel concierge.  He told me that my flight was leaving early, and that I had to get dressed and get down to the car that was waiting to take me to the airport.  I thanked him, closed the door, and nearly collapsed.

I made that flight to Sochi, and I continued on with my travels around the USSR, extending through the southern Muslim areas all the way into Siberia, in a grand circle of thousands of miles.  I met many more people, including Communist Party officials, almost all of whom were friendly and inquisitive about America.  On the day that I left the Soviet Union for my flight back to the US – the very same day that Nobel Prize author Alexsandr Solzhenitsyn was expelled from his home country – I felt relief at leaving such an oppressive culture imposed by a totalitarian government, and with a deep sense of sympathy for those good people who had to live under that system.

And yes, I spent those rubles as I traveled around the Soviet Union, and yes, after I got home, I sent many record albums and a bolt of denim cloth to my young friend in Kiev.  Eventually I lost track of him.  Today, like me, he is forty years older, and I worry for him and his safety.  Will the era of freedom that he and millions of others have encountered come to an end?  What awaits them in these troubled times?  Why do so many different wonderful people have to be in a state of uncertainty and loss of freedom for so many decades?  What can I do to help them?

I hope, of course, that common sense will prevail, and that independence and prosperity will continue for my friend from so many years ago.

Seminar Announcement – Ohio – Our Second Favorite State – Go There June 4th To See Some Amazing Presentations

On Wednesday, June 4, 2014, Alan Gassman will be a speaker at the Ohio State Bar Association’s 25th Annual Estate Planning Conference on Wealth Transfer

A brief description of Alan’s presentations is as follows:

  • Structuring Joint Exempt Step-Up Trusts (“JESTs”): Maximizing Stepped-Up Basis Planning, Fully Funding Credit Shelter Trusts with Joint Assets and Practical and Technical Aspects Thereof – With Forms

The JEST has the capacity to not only cause a step-up in income tax basis of all of a couple’s revocable trust assets on the first death, but also mechanisms to provide for full funding of a credit shelter trust from joint or separate assets, and creditor and family protection features as well.  In order to best use the JEST structure, advisors must be well versed in drafting and planning techniques which are derived from IRS Technical Advice Memorandums, Private Letter Rulings, and academic and practitioner literature.

Attendees will learn how to use the JEST forms and simplified versions thereof that have been developed by the presenter, and will be included in the materials.

  • Planning with Commercial Annuities

This presentation will cover the unique income tax and financial planning characteristics of fixed and variable annuities, and provide estate and tax planners with a number of strategies for understanding and planning with existing and contemplated contracts. With over 1 trillion dollars of US taxpayer money invested in annuity contracts, more and more clients are showing up in their estate planners offices with large annuity contracts and common misunderstandings about “guaranteed income” and “guaranteed rates of return” features.   The presentation will cover common policy features, what is actually happening inside of a policy, illustration techniques, and changes that can be made to defer income tax and reduce overall tax liability.   Minimum distribution rules akin to the IRA and pension Section 409A rules and common carrier practices will also be discussed.

Additionally, Alan will be participating in a panel discussion on Tuesday evening, June 3, 2014 sponsored by Johnson Investment Counsel and The Ohio State University.

For more information on the seminar and to register please click here.

Upcoming Seminars and Webinars

DONOR LUNCHEON AT RUTH ECKERD HALL WITH PROFESSOR JERRY HESCH IN CLEARWATER, FLORIDA

Sponsored by Gassman, Crotty & Denicolo, P.A. Co-sponsors invited.

Professor Jerry Hesch will be speaking at a Donor Luncheon on the topic of CHARITABLE TAX SAVINGS: HOW TO MAKE SURE THAT UNCLE SAM CONTRIBUTES HIS SHARE TO MAXIMIZE RESULTS

Date: Tuesday, April 22, 2014 | TIME TO BE DETERMINED

Location: Ruth Eckerd Hall, Clearwater, Florida

Additional Information: For additional information please contact Suzanne Ruley at sruley@rutheckerd.net or Alan Gassman at agassman@gassmanpa.com

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RUTH ECKERD HALL PLANNED GIVING MEETING

Professor Jerry Hesch will be speaking at the Ruth Eckerd Hall Planned Giving Meeting in Clearwater, Florida on the topic of INNOVATIVE CHARITABLE GIVING TECHNIQUES FOR THE WELL TUNED ESTATE PLANNER

Sponsored by Gassman, Crotty & Denicolo, P.A. Co-sponsors invited.

Date: Tuesday, April 22, 2014 | 4:00 p.m.

Location: Ruth Eckerd Hall, Clearwater, Florida

Additional Information: This session qualifies for 1 hour of continuing education credit for lawyers and CPA’s.  To attend please email Suzanne Ruley at sruley@rutheckerd.net or Alan Gassman at agassman@gassmanpa.com

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1st ANNUAL ESTATE PLANNER’S DAY AT AVE MARIA SCHOOL OF LAW

Speakers: Speakers will include Professor Jerry Hesch, Jonathan Gopman, Alan Gassman and others.

Alan Gassman will cover Using Estate Planning Techniques to Optimize Family Wealth Preservation.

Date: April 25, 2014

Location: Ave Maria School of Law, Naples, Florida

Sponsors:AveMariaSchool of Law, Collier County Estate Planning Council and more to be announced.

Additional Information: For more information on this event please contact visit http://www.avemarialaw.edu/estateplanning/Index.aspx

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WHAT LAWYERS AND TAX ADVISORS NEED TO KNOW WHEN PLANNING FOR SAME SEX COUPLES – UNUSUAL RULES, STRATEGIES, CHECKLISTS AND TRAPS FOR THE UNWARY

Speakers: Alan S. Gassman, Professors Jason Palmer and Rebecca Morgan from Stetson University, Jessica Lillesand of Wells Fargo and Rob Webster, Esq.

Date: Monday, April 28, 2014 | 12:30 – 2:00 p.m.

Location: Bloomberg BNA Tax & Accounting Online webinar

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

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THE FLORIDA BAR ANNUAL WEALTH PROTECTION SEMINAR (with 2 hours of Ethics CLE credit)

Alan Gassman will be speaking at the Florida Bar Annual Wealth Protection seminar on How I Structure an Integrated Income, Estate Tax, and Asset Protection Family Plan as well as participating in a panel discussion with Barry Engel, Jerry Hesch and Denis Kleinfeld on What Are the Ethical, Legal and Administrative Liability Exposures in Wealth Protection Planning and How Do We Protect Ourselves.

Date: Thursday, May 8, 2014

Location: Hyatt Regency Downtown, Miami, Florida

Additional Information: For more information and to register please click here.

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THE JOINT EXEMPT STEP-UP TRUST AND PLANNING WITH COMMERCIAL ANNUITIES

Alan Gassman will be speaking at the Ohio Conference on two different topics: 1) Wealth Transfer on Structuring Joint Exempt Step-Up Trusts (“JESTs”): Maximizing Stepped-Up Basis Planning, Fully Funding Credit Shelter Trusts with Joint Assets and Practical and Technical Aspects Thereof – With Forms and 2) Planning with Commercial Annuities.  Mr. Gassman will also be participating in a panel discussion the evening before hosted by Johnson Investment Counsel and The Ohio State University.

Date: June 4, 2014

Location: Hilton at Easton, Columbus, Ohio

Additional Information:  For more information on the conference and to register for the conference please contact agassman@gassmanpa.com

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VERSION 226.3 OF OUR ESTATEVIEW ESTATE TAX PROJECTION AND ILLUSTRATION SOFTWARE

Alan Gassman, Ken Crotty and David Archer will be presenting a free 30 minute webinar on what is new with our EstateView software.

Speakers: Alan Gassman, Ken Crotty and David Archer

Date: Monday, June 9, 2014 | 12:30 p.m.

Location: Online webinar

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

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

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

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

Location: Bloomberg BNA Tax & Accounting Online webinar

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

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40th ANNUAL NOTRE DAME TAX & ESTATE PLANNING INSTITUTE

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

This presentation will cover the unique income tax and financial planning characteristics of fixed and variable annuities, and provide estate and tax planners with a number of strategies for understanding and planning with existing and contemplated contracts. With over one trillion dollars of US taxpayer money invested in annuity contracts, more and more clients are showing up in their estate planners offices with large annuity contracts and common misunderstandings about “guaranteed income” and “guaranteed rates of return” features.   The presentation will cover common policy features, what is actually happening inside of a policy, illustration techniques, and changes that can be made to defer income tax and reduce overall tax liability.   Minimum distribution rules akin to the IRA and pension Section 409A rules and common carrier practices will also be discussed.

Date: November 13 and 14, 2014

Location: Century Center, South Bend, Indiana

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

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

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.

SHORT TERM AFRs

MID TERM AFRs

LONG TERM AFRs

April

2014

Annual 0.28% Annual 1.81% Annual 3.32%
Semi-Annual 0.28% Semi-Annual 1.80% Semi-Annual 3.29%
Quarterly 0.28% Quarterly 1.80% Quarterly 3.28%
Monthly 0.28% Monthly 1.79% Monthly 3.27%

March

2014

Annual 0.28% Annual 1.84% Annual 3.36%
Semi-Annual 0.28% Semi-Annual 1.83% Semi-Annual 3.33%
Quarterly 0.28% Quarterly 1.83% Quarterly 3.32%
Monthly 0.28% Monthly 1.82% Monthly 3.31%

February 2014

Annual 0.30% Annual 1.97% Annual 3.56%
Semi-Annual 0.30% Semi-Annual 1.96% Semi-Annual 3.53%
Quarterly 0.30% Quarterly 1.96% Quarterly 3.51%
Monthly 0.30% Monthly 1.95% Monthly 3.50%

 The 7520 rate for April is 2.2% and for March was 2.2%



[1]                  374 B.R. 311 (Bankr. M.D. Fla. 2007).

[2]                  2009 WL 2971087 (Bankr. N.D. Ill. 2009).

The Thursday Report 4.10.2014 – Bruce Stone in Kiev, Step-Ups and 2 Pups

Posted on: April 10th, 2014

Ed Morrow, Alan Gassman and Chris Denicolo on Stepped-Up Basis Planning

Running the Numbers on the Portability Mistake

Beware – Your Referral Sources May Not Be Protected, an Article by Darryl Richards, Esq.

What if a Residential Lease Longer Than One Year Does Not Have Two Witnesses?

Bruce Stone’s Reminiscences of Kiev – A Very Interesting Story – Part 1 of 2

The Thursday Report Goes to the Dogs! Scott Kelby’s Happiness Day Website Entry

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.

Ed Morrow, Alan Gassman and Chris Denicolo on Stepped-Up Basis Planning

If you are a tax lawyer and have never read Ed Morrow’s articles on stepped-up tax planning do that next!  Cancel your Friday or Saturday night plans so that you have time for this and cuddle up with a bucket of Kentucky Fried Chicken and take a look at what Ed has to say about using Powers of Appointment.

A transcript of a recent live presentation provided by Ed, Alan and Chris is available upon request for Thursday Report readers along with the PowerPoint that we used and special tips on how to get the best value for dollar at Kentucky Fried Chicken.

What if a Residential Lease Longer Than One Year Does Not Have Two Witnesses?

Under Florida Statutes §689.01, any lease with a term of greater than one year must be in writing and signed in the presence of two witnesses.

What becomes of the lease when it is signed without witnesses? In University Square v. Congress Auto Center, 9 Fla L. Weekly Supp. (Palm Beach Circuit Court 2002), the tenant signed the lease through a real estate agent, but the landlord never signed the agreement. The landlord accepted payment and turned the keys over to the new tenant. Shortly thereafter, the landlord attempted to terminate the relationship, claiming that because they never signed the lease this was an oral contract with a month to month tenancy.

The Court looked to Demps v. Hogan, 48 So. 998 (1909), which ruled that an agreement will be enforced regardless of the statute of frauds when a seller puts the buyer in possession and the buyer has performed his obligations. The Court reasoned that applying the statute of frauds in this instance would act as a fraud against the tenant, thus the unsigned lease was found to be enforceable.

Since then, a number of court cases have found that landlords and tenants are “estopped” from invalidating a lease that is not in writing or that does not have two witnesses if the landlord put the tenant in possession.[1]

Typically, when witnesses are not present, the lease will be found to be an oral month to month tenancy. Florida Statute Section 83.03(3) states, “A tenancy at will may be terminated by either party giving notice as follows…Where the tenancy is from month to month, by giving not less than 15 days’ notice prior to the end of any monthly period.”

Essentially, the court has discretion to determine whether or not they wish to apply the statute of limitations when reviewing leases. Should it choose not to hold the lease as a valid agreement, it will default to a month to month tenancy where either party can terminate the relationship by giving appropriate notice.

Running the Numbers on the Portability Mistake

By: Alan S. Gassman, J.D., LL.M., Kenneth J. Crotty, J.D., LL.M. and Christopher J. Denicolo, J.D., LL.M.

Over and over again, we have heard many planners and commentators say that you can sit with a married couple who have a fairly long life expectancy and decide right then and there whether they should work to fund a credit shelter trust on the first death or “simply elect portability.”  These people state that this decision can be made at that time by taking into account the size of the couple’s estate, probable growth in savings, and the desire to avoid capital gains tax on the death of the surviving spouse.

We believe that in most cases this approach is completely wrong, and we feel that the numbers provided in the attached spreadsheet proves us right.

Planners and clients need to understand that the best position to be in after the death of one spouse is to have the flexibility for the surviving spouse, family, and/or advisors to decide how much should pass to a credit shelter trust that can have mechanisms which would allow for a stepped-up basis on the second death and how  much can pass to a GST exempt Q-TIP trust for the surviving spouse so as not to waste the first dying spouse’s generation skipping tax exemption. 

If portability is going to be used then the GST exemption of the first dying spouse can be preserved by allocation to a QTIP marital deduction trust that can pay income to the surviving spouse and will be considered as owned by the surviving spouse for estate tax purposes on the second death.  If an outright marital devise or an income/general power of appointment trust is used then the GST exemption of the first dying spouse will be lost.

Many planners (and commentators also it seems) do not understand or are not keeping in mind that the trustee of a credit shelter trust can disclaim some or all of a disposition to pass to a Q-TIP trust to the extent that portability is determined appropriate.  Alternatively, a credit shelter trust can actually become a Q-TIP trust, in whole or in part, by making a Clayton Q-TIP election, as described below.

This puts the family and their advisors in a great position.  They can look at expected future savings, spending, investment returns, life expectancy of the surviving spouse, and remarriage possibilities when considering credit shelter trust funding options.

For example, is the surviving spouse a wife who is likely to remarry because of her age and outlook?  If so, then the odds are fairly high that her new husband will die before she does.  If this happens her portability allowance may be reduced or lost (if her new husband has used more of his estate tax exemption than her previous husband had available on his death, or the new husband’s fiduciaries do not allow for a portability election).

Does this mean that credit shelter trusts should always be formed if a husband dies first, but not if a wife dies first?  Why would anyone try to foresee any of this?

The opposite approach of allowing for the surviving spouse who receives a devise, or a Q-TIP trust trustee to disclaim  a marital devise into a credit shelter trust will not work most of the time, because of the well known propensity of surviving spouses to be unwilling to disclaim into a credit shelter trust because of financial insecurity, and the desire to not lose the ability to appoint how the credit shelter trust assets will pass on the surviving spouse’s death.

If one spouse dies five years after documents are drafted and the documents provide for a credit shelter trust to be funded with assets of the first dying spouse, then there will be an ability to see what the federal estate tax exemption level is, what the income tax situation is, what the assets are, and who will be around to guide them.

Further, the typical married couple has a fairly short attention span and does not want to authorize lawyers and accountants to spend a few hours running numbers and explaining scenarios with this type of situation.  Isn’t it much better to wait until you know what the exact situation is after the death of one spouse, when the surviving spouse is much more willing to allow numbers to be run and alternatives to be considered?

Why do so many planners resist the idea of the JEST system that can allow the surviving spouse and advisors to permit assets considered as held by or for the surviving spouse to pass to a Credit Shelter Trust B that may facilitate a stepped-up basis in that spouse’s own assets, and avoidance of federal estate tax on the second death?

The private letter rulings and TAM cited in our JEST materials directly support the proposition that credit shelter trust funding is permitted and Credit Shelter Trust B can have features to help to substantially increase the possibility that the stepped up basis can be obtained on the first death.

Trust protectors can have the power to give the surviving spouse the ability to appoint assets to creditors of his or her estate on the second death to the extent that the surviving spouse has extra estate tax exemption available and assets within the credit shelter trusts are best situated to receive a step-up in basis on the second death.

With the above in mind, why would any planner representing a moderately successful family not keep the doors open for the above possibilities?

Within a few years we will know whether the IRS accepts the JEST trust technique, and far more about what our tax system and our clients will be and prefer.

Please do not slam the door shut on your client’s planning opportunity in view of the above.

Please click here for a demonstration on how devastating the use of portability can be.

Beware – Your Referral Sources May Not Be Protected
by Darryl Richards, Esq.

Darryl Richards is an extremely well respected and effective litigation lawyer with the Johnson Pope law firm in Tampa.

Darryl has extensive experience in litigating over the enforceability of non-competition covenants, and has written the following article recently which gets straight to the point in laying out the issues that apply with respect to the enforceability of a non-competition covenant where referral sources are a key component.

Our book Florida Law for Tax, Business and Financial Planning Advisors has extensive discussion on this topic and can be purchased on Amazon.com by clicking here.

We thank Darryl for allowing us to reprint his article, and for all of the excellent work that he has done for dozens of our clients over the years.  We estimate that 90% of Darryl’s work settles well before trial, which is one key track record item that we look for in helping clients to identify an appropriate litigator.   Below is the article Darryl wrote.

In Florida, there is no doubt that non-compete agreements to protect legitimate business interests are enforceable.  Yet, actions to enforce restrictive covenants are hotly contested.  The litigation often centers on the question of whether the restrictive covenant is reasonably necessary to protect a “legitimate business interest.”  While §542.335(1)(b), Florida Statutes, defines the term legitimate business interest, it does so without limitation.  One area which is the subject of great debate and conflicting decisions is whether referral sources are legitimate business interests which may be protected by a restrictive covenant.  Successful doctors and other professionals diligently cultivate referral sources and relationships.  Those relationships are the lifeblood of any professional practice.  Doctors and other professionals immerse themselves in professional, social and civic organizations in part to develop relationships with other professionals, community leaders and civic leaders who are potential referral sources.  To develop strong referral relationships often takes years of time, effort and expense.  Referral sources are important to any professional practice, but are referral sources legitimate business interests that may be protected by a non-compete agreement?  Under Florida law, the answer depends in part on where a professional practices.

In the Florida Keys and South Florida, one trial court found that a non-compete may be used to protect a “patient base, referral doctors, specific prospective and existing patients, and patient goodwill.”  An appellate court agreed and said that the restrictive covenant was reasonably necessary to protect legitimate business interests in a patient base, referral doctors, specific prospective and existing patients, and patient goodwill.  In South Florida, therefore, doctors and other professionals can reasonably expect enforcement of non-compete agreements to protect referral sources.

Not too far to the north in the Orlando area, however, the story is quite different.  There, a new doctor joined an established hematology practice.  That practice introduced the new doctor to patients, referral sources and helped him get privileges at local hospitals.  The practice had taken years to develop its referral sources and patient goodwill.  The new doctor had no contacts in the community and used the practice’s relationships to develop his practice.  After the new doctor established a practice using his employer’s contacts, he left and started a competing practice.  A trial court and appellate court refused to enforce a non-compete to protect referral sources, even though those courts recognized that specialists receive “a significant share of their new patients from referring physicians” and that they spend significant time and money to cultivate referral relationships.

The Florida Supreme Court, however, has decided not to resolve the conflict.  Chief Justice Lewis dissented and argued that “a uniform interpretation of §542.335 is critical not only to medical doctors but to those in all walks of life, because this legislation applies to all types of restrictive covenants.  On a daily basis, economic futures are placed at risk through the use of such covenants and reliance upon such covenants.  It is clear to me that referral professionals are ‘legitimate business interests’ subject to protection in the geographic jurisdiction of Dade and Monroe Counties.  However, those in the geographic jurisdiction of the Fifth District Court of Appeal do not have the same legal rights.”

So, where you work may decide what your rights are.  Do not let your hard work be taken from you.  There are steps you can take to protect your referral sources.  Those steps will be different based on where you are located.  If you wait until your former employee or partner is walking out the door with your referral sources, it may be too late.

Bruce Stone’s Reminiscences of Kiev – A Very Interesting Story, Part 1 of 2

Bruce Stone is more than just a top trust lawyer, author and teacher.  He is also a very well respected man who gives to his family, his community and charitable causes.  Further, he speaks fluent Russian and studied Russian for four years at the University of Florida while pursuing his degree in sociology before going to law school, perhaps hedging his bets since the gold war wasn’t over yet!”

Bruce’s story is below about an experience in the Ukraine in 1974.  It is a great read.  Enjoy it!

The recent events in the Ukraine take my mind back forty years to January 1974.  A recent law school graduate, less than a month out of law school, I was in Kiev, traveling alone around the USSR for six weeks as a tourist.  My knowledge of Russian was workably fluent, and so I was able to walk around the city and engage in conversation with people on the streets.  I stood out as an obvious American BACK THEN -with long hair, dressed in Levi blue jeans and Dingo boots.  People were friendly and unafraid to talk with me – we were in the beginning of Henry Kissinger’s “détente.”  Older men would tell me about their service in World War II, fighting as allies with the Americans.  One man who didn’t speak English told me that he knew only one phrase in English which he remembered from General Douglas MacArthur: “I shall return!”

One day a young man not much older than I came up to me on the street and struck up a conversation.  He wanted to try out his English with me.  He offered to take me around Kiev and show me things that I would not find or see on my own, not even if I had a guide.  He showed me the building where the local KGB headquarters were.  He asked me if I was Christian, and when I said yes, he told me that he was Eastern Orthodox.  He offered to take me to a Christmas service at a church in the city.  Because of the difference in the Eastern and Western calendars, I was able to celebrate Christmas in church twice, as I had left on my trip three days after our Christmas in the US.  The church was packed with worshipers, mostly older people, but there were a few younger people.  This was very special, because religion in the USSR was outlawed for being “the opium of the people” for parts of the twentieth century.

That experience, followed up by a subsequent visit to Russia in 2010, convinced me that decades of Communism were no match for the depth of religiosity among the people of the Ukraine and Russia and are an important reminder of how fortunate we are to have freedom of religion in the U.S. and most of the western world.

The day before my departure from Kiev (to Sochi, of all places), my new friend asked me if I would send him record albums and denim cloth once I got back home, if he gave me rubles to do so.  I was concerned but convinced that the request was sincere.  He gave me a large amount of rubles – not worth so much on the official government controlled exchange rate, but worth perhaps a thousand dollars at the true black market rate.  I would have to spend those rubles over the course of my travels over the remaining weeks of my journey, because I would not be able to show how I had acquired them when I left the country.  So I took the rubles, and when I got back to my hotel for that last night in Kiev, I stuffed the wad of currency into my Dingo boots, and went to sleep.

I was awakened by a telephone call at 6 a.m. the next morning.  My flight to Sochi wasn’t scheduled to leave until noon.  A male voice was telling me in Russian that I had to get up and come down to the station immediately.  I was terrified!  I had been set up in a KGB sting operation!  What should I do?  Would I be jailed for a foreign crime, or worse? My answer: simply ignore the call and pretend it hadn’t happened.  So there I sat in my room, in a nervous state of wreck.  The phone rang again ten minutes later.  The same male voice spoke with the same message, only this time more demanding: I had to go to the station immediately.  Once again I chose to ignore it.

Shortly afterward, there was a knock on my door.  My heart just about stopped beating.  In what was the moment of greatest terror in my life, I opened the door.

This is the end of Part 1 of Bruce’s story.  Part 2 will be published in next week’s Thursday Report.  See you then!

Marcia.dogs

We thank friend and visionary, Scott Kelby, for a beautiful happiness day entry for the Coca Cola website.  His profile on Marcia is below.  For the entire site you can click here.

Scott writes:

Every week for the past four years, Marcia takes her specially-trained certified therapy dogs, Layla and Ringo, to local nursing homes to visit, cuddle, and love the residents.

“I started pet therapy because my dogs bring me a joy that I must share with people who don’t have dogs anymore because they can’t. During these visits with the dogs, you see something resonate inside the residents, and when it does, you see life.”

I thought nothing captured that more than Marcia’s story of visiting a resident who had suffered a stroke, becoming completely unresponsive. But when Marcia placed Layla in the resident’s lap, she smiled. This amazed everyone at the nursing home and also demonstrates how we connect with our pets and how much happiness they can bring.

Scott Kelby is the Editor and publisher of Photoshop User Magazine and President of KelbyOne.com. He is the co-host of the highly acclaimed weekly videocast The Grid, and teaches photography, Lightroom and Photoshop workshops around the world.

Scott is an award-winning author of more than 50 books, including The Digital Photography Books, The Adobe Photoshop Book for Digital Photographers, The Adobe Photoshop Lightroom Book for Digital Photographers, and Light It, Shoot It, Retouch It: Learn Step by Step How to Go from Empty Studio to Finished Image.

Kelby.2

For more on Scott, see his blog at www.scottkelby.com.

Upcoming Seminars and Webinars

LEGAL COMPLIANCE FOR MEDICAL PRACTICES THAT USE NURSE PRACTITIONERS AND PRACTICE EXTENDERS

Date: Today, Thursday, April 10, 2014 | 5:00 p.m. (30 Minutes)

Location: Online webinar

Speakers: Cynthia Mikos, Esq. and Alan S. Gassman, Esq.

Cynthia Mikos is an excellent speaker and healthcare lawyer.  Join her fan club by attending this informative webinar.  Her materials are excellent.

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

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FIND OUT WHAT JERRY HESCH’S LATEST THINKING IS ON SELF-CANCELLING INSTALLMENT NOTES, THE KITE CASE, PRIVATE ANNUITIES, AND TRIUMPH SPIT-FIRES

Date: Monday, April 14, 2014 | 12:30 p.m. (30 Minutes)

Location: Online webinar

Speakers: Jerry Hesch and Alan S. Gassman

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

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FICPA SUNCOAST CHAPTER MONTHLY MEETING

Alan S. Gassman will be speaking at the FICPA Suncoast Chapter’s monthly meeting on the topic of THE FLORIDA CPA’S GUIDE TO PLANNING WITH PHYSICIANS AND MEDICAL PRACTICES

Date: Thursday, April 17, 2014 | 4:00 p.m.

Location: Tampa, Florida

Additional Information: For more information on this event please email agassman@gassmanpa.com or mary@clawsonasplus.com

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DONOR LUNCHEON AT RUTH ECKERD HALL WITH PROFESSOR JERRY HESCH IN CLEARWATER, FLORIDA

Sponsored by Gassman, Crotty & Denicolo, P.A. Co-sponsors invited.

Professor Jerry Hesch will be speaking at a Donor Luncheon on the topic of CHARITABLE TAX SAVINGS: HOW TO MAKE SURE THAT UNCLE SAM CONTRIBUTES HIS SHARE TO MAXIMIZE RESULTS

Date: Tuesday, April 22, 2014 | 11:30 am

Location: Ruth Eckerd Hall, Clearwater, Florida

Additional Information: For additional information please contact Suzanne Ruley at sruley@rutheckerd.net or Alan Gassman at agassman@gassmanpa.com

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RUTH ECKERD HALL PLANNED GIVING MEETING

Professor Jerry Hesch will be speaking at the Ruth Eckerd Hall Planned Giving Meeting in Clearwater, Florida on the topic of INNOVATIVE CHARITABLE GIVING TECHNIQUES FOR THE WELL TUNED ESTATE PLANNER

Sponsored by Gassman, Crotty & Denicolo, P.A. Co-sponsors invited.

Date: Tuesday, April 22, 2014 | 4:00 p.m.

Location: Ruth Eckerd Hall, Clearwater, Florida

Additional Information: This session qualifies for 1 hour of continuing education credit for lawyers and CPA’s.  To attend please email Suzanne Ruley at sruley@rutheckerd.net or Alan Gassman at agassman@gassmanpa.com

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1st ANNUAL ESTATE PLANNER’S DAY AT AVE MARIA SCHOOL OF LAW

Speakers: Speakers will include Professor Jerry Hesch, Jonathan Gopman, Alan Gassman and others.

Alan Gassman will cover Using Estate Planning Techniques to Optimize Family Wealth Preservation.

Date: April 25, 2014

Location: Ave Maria School of Law, Naples, Florida

Sponsors: Ave Maria School of Law, Collier County Estate Planning Council and more to be announced.

Additional Information: For more information on this event please visit http://www.avemarialaw.edu/estateplanning/Index.aspx

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WHAT LAWYERS AND TAX ADVISORS NEED TO KNOW WHEN PLANNING FOR SAME SEX COUPLES – UNUSUAL RULES, STRATEGIES, CHECKLISTS AND TRAPS FOR THE UNWARY

Speakers: Alan S. Gassman, Professors Jason Palmer and Rebecca Morgan from Stetson University, Jessica Lillesand of Wells Fargo and Rob Webster, Esq.

Date: Monday, April 28, 2014 | 12:30 – 2:00 p.m.

Location: Bloomberg BNA Tax & Accounting Online webinar

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

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THE FLORIDA BAR ANNUAL WEALTH PROTECTION SEMINAR (with 2 hours of Ethics CLE credit)

Alan Gassman will be speaking at the Florida Bar Annual Wealth Protection seminar on How I Structure an Integrated Income, Estate Tax, and Asset Protection Family Plan as well as participating in a panel discussion with Barry Engel, Jerry Hesch and Denis Kleinfeld on What Are the Ethical, Legal and Administrative Liability Exposures in Wealth Protection Planning and How Do We Protect Ourselves.

Date: Thursday, May 8, 2014

Location: Hyatt Regency Downtown, Miami, Florida

Additional Information: For more information and to register please click here.

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THE JOINT EXEMPT STEP-UP TRUST AND PLANNING WITH COMMERCIAL ANNUITIES

Alan Gassman will be speaking at the Ohio Conference on two different topics: 1) Wealth Transfer on Structuring Joint Exempt Step-Up Trusts (“JESTs”): Maximizing Stepped-Up Basis Planning, Fully Funding Credit Shelter Trusts with Joint Assets and Practical and Technical Aspects Thereof – With Forms and 2) Planning with Commercial Annuities.  Mr. Gassman will also be participating in a panel discussion the evening before hosted by Johnson Investment Counsel and The Ohio State University.

Date: June 4, 2014

Location: Hilton at Easton, Columbus, Ohio

Additional Information:  For more information on the conference and to register for the conference please contact agassman@gassmanpa.com

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

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

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

Location: Bloomberg BNA Tax & Accounting Online webinar

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

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40th ANNUAL NOTRE DAME TAX & ESTATE PLANNING INSTITUTE

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

This presentation will cover the unique income tax and financial planning characteristics of fixed and variable annuities, and provide estate and tax planners with a number of strategies for understanding and planning with existing and contemplated contracts. With over one trillion dollars of US taxpayer money invested in annuity contracts, more and more clients are showing up in their estate planners offices with large annuity contracts and common misunderstandings about “guaranteed income” and “guaranteed rates of return” features.   The presentation will cover common policy features, what is actually happening inside of a policy, illustration techniques, and changes that can be made to defer income tax and reduce overall tax liability.   Minimum distribution rules akin to the IRA and pension Section 409A rules and common carrier practices will also be discussed.

Date: November 13 and 14, 2014

Location: Century Center, South Bend, Indiana

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

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

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.

SHORT TERM AFRs

MID TERM AFRs

LONG TERM AFRs

April

2014

Annual 0.28% Annual 1.81% Annual 3.32%
Semi-Annual 0.28% Semi-Annual 1.80% Semi-Annual 3.29%
Quarterly 0.28% Quarterly 1.80% Quarterly 3.28%
Monthly 0.28% Monthly 1.79% Monthly 3.27%

March

2014

Annual 0.28% Annual 1.84% Annual 3.36%
Semi-Annual 0.28% Semi-Annual 1.83% Semi-Annual 3.33%
Quarterly 0.28% Quarterly 1.83% Quarterly 3.32%
Monthly 0.28% Monthly 1.82% Monthly 3.31%

February 2014

Annual 0.30% Annual 1.97% Annual 3.56%
Semi-Annual 0.30% Semi-Annual 1.96% Semi-Annual 3.53%
Quarterly 0.30% Quarterly 1.96% Quarterly 3.51%
Monthly 0.30% Monthly 1.95% Monthly 3.50%

 The 7520 rate for April is 2.2% and for March was 2.2%


[1]  See: Dixon v. Clayton, 44 So.2d 76 (Fla. 1949) (One party cannot agree to sell his realty to another that he places in possession and accept portions of purchase price  and then avail themselves to the statute of frauds to defeat specific performance);  Cottages, Miami Beach, Inc. v. Wegman, 57 So.2d 439 (Fla. 1951) (Father’s letter with promise to vest 50% interest in a home pursuant to daughter’s moving in to take care of him could not constitute a writing under statute of frauds but can be held as an oral agreement).

The Thursday Report 4.3.2014 – Two New Cases to Know About

Posted on: April 3rd, 2014

Tax Court Clears the Way for Trustee Work to Satisfy the Passive Loss Rules

Everything You Need to Know About IRS Transcripts

University of Florida Dean Search – The Final Four Who Were Not Chosen

Insurance…look again! By Dr. Jack Barrett

Justice Roberts Leads the Supremes to Allow Any Individual to Donate $5,200 per Candidate to as Many Candidates as Desired

Humor!

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.

Tax Court Clears the Way for Trustee Work to Satisfy the Passive Loss Rules

The Tax Court made the right decision in the March 27,2014 case of Frank Aragona Trust v. The Commissioner of Internal Revenue.

Here is what others have said about the case:

Tax advisers have moved one step closer to a resolution of what constitutes material participation for trusts and estates with the U.S. Tax Court’s decision in the Frank Aragona Trust case, an opinion practitioners said will give them new ammunition in fighting the net investment income tax under Section 1411 (Frank Aragona Trust v. Commissioner, T.C., No. 15392-11, 142 T.C. No. 9, 2014 BL 85221, 3/27/14).

The Tax Court’s recent decision in Frank Aragona Trust v. Commissioner concludes that a trust can indeed “materially participate” in a real-property trade or business thus qualifying for the exception found in I.R.C. sec. 469(c)(7) to the per se classification of rental real-estate activities as a passive activity under sec. 469(2). Sec. 497(c)(7)(B) tests for both personal service and materiality.

Aragona Trust is likely to result in a flood of comments and articles (the first one noted is in Tax Notes Today, See Madara, Trust Material Participation Decision Will Significantly Affect NII Tax, TNT March 28, 2014) since it will also impact how Section 1411’s tax on passive investment income will apply to the income of trusts and will be helpful for trusts which have trustees who actually work in the businesses owned by the trusts (even through employment of affiliated entities it seems).

“This case offers a number of planning opportunities for trusts to maximize the benefits of business losses and to avoid the new net investment income tax.”

Many farm holdings have now been placed into trust for the benefit of children and grandchildren.  This decision would allow “farming operations” with enough material participation by trustees and employees to fully deduct those losses and not have any income subject to the new 3.8% net investment income tax.  However, for most farmland placed in a trust that is cash rented or crop shared, these losses would most likely still not be deductible and any income would be subject to the new 3.8% tax (once trust income exceeds about $13,000).

Although a victory for the taxpayer, it will primarily apply to those larger trusts with major farming or ranching activities.

Key language from the case is as follows:

This exception is applicable if more than one-half of the personal services performed in trades or businesses by the taxpayer are performed in real-property trades or businesses in which the taxpayer materially participates and if the taxpayer performs more than 750 hours of services during the year in real-property trades or businesses in which the taxpayer materially participates.

A trust is capable of performing personal services within the meaning of I.R.C. sec. 469(c)(7). Services performed by individual trustees on behalf of the trust may be considered personal services performed by the trust.

One of the six trustees was an independent trustee. The other five trustees were Frank Aragona’s five children, including Paul V. Aragona, the executive trustee.

Three of the children-Paul V. Aragona, Frank S. Aragona, and Annette Aragona Moran-worked full time for Holiday Enterprises, LLC, a Michigan limited liability company that is wholly owned by the Trust. Holiday Enterprises, LLC, is a disregarded entity for federal income tax purposes. Holiday Enterprises, LLC, managed most of the Trust’s rental real-estate properties. It employed several people in addition to Paul V. Aragona, Frank S. Aragona, and Annette Aragona Moran . . .

The Trust conducted some of its rental real-estate activities directly, some through wholly owned entities, and the rest through entities in which it owned majority interests and in which Paul V. and Frank S. Aragona owned minority interests. It conducted its real-estate holding and real-estate development operations through entities in which it owned majority or minority interests and in which Paul V. and Frank S. Aragona owned minority interests.

The table below summarizes the activities of the six trustees on behalf of the Trust during 2005 and 2006:

Aragona Trust chart

During the 2005 and 2006 tax years, the Trust incurred losses from its rental real-estate properties. The losses were reported on the Trust’s income-tax returns, Forms 1041, “U.S. Income Tax Return for Estates and Trusts” and on Schedules E, “Supplemental Income and Loss”, and were reflected on line 5.

In the notice of deficiency, the IRS determined that the Trust’s rental real-estate activities were passive activities, a determination that increased the passive-activity losses for 2005 and 2006.

The second test is met if the taxpayer performs more than 750 hours of “services” during the year in real-property trades or businesses in which the taxpayer materially participates. Sec. 469(c)(7)(B)(ii). Both tests must be met.

The requirements of section 469(c)(7)(B) can be met only by a taxpayer who materially participates in a real-property trade or business. This is because the one-half-of-personal-services test, the 750–hour test, and the special rule for closely held C corporations all presuppose that the taxpayer materially participates in real-property trades or businesses. Sec. 469(c)(7)(B)(i) and (ii); see sec. 469(c)(7)(D); see also sec. 1 .469–9(c)(3), Income Tax Regs.

Section 469(h) provides that for the purposes of section 469 a taxpayer is treated as materially participating in an activity only if the taxpayer is involved in the operation of the activity on a basis which is regular, continuous, and substantial.

Thus, a taxpayer is treated as materially participating in real-property trades or businesses if the taxpayer is involved in the operation of real-property trades or businesses on a basis which is regular, continuous, and substantial.

For the section 469(c)(7) exception to apply, there must be “personal services performed * * * by the taxpayer”. Sec. 469(c)(7)(B)(i). Because “[p]ersonal services” are defined by regulation as “work performed by an individual in connection with a trade or business”, the IRS contends that a trust cannot perform personal services. See sec. 1.469–9(b)(4), Income Tax Regs. Therefore, the IRS contends, a trust cannot qualify for the section 469(c)(7) exception.

The IRS argues that a trust is incapable of performing “personal services” because the regulation defines “personal services” to mean “any work performed by an individual in connection with a trade or business”. Sec. 1.469–9(b)(4), Income Tax Regs. We reject the IRS’s argument. A trust is an arrangement whereby trustees manage assets for the trust’s beneficiaries.

Indeed, if Congress had wanted to exclude trusts from the section 469(c)(7) exception, it could have done so explicitly by limiting the exception to “any natural person”. In section 469(i), the Internal Revenue Code does exactly that. Section 469(i) grants a $25,000 allowance to “any natural person” who fulfills certain requirements. That Congress did not use the phrase “natural person” but instead used the word “taxpayer” in section 469(c)(7) suggests that Congress did not intend to exclude trusts from the section 469(c)(7) exception, despite what the IRS argues here.

The IRS’s fallback position is that even if some trusts can qualify for the section 469(c)(7) exception, the trust does not qualify because it did not materially participate in real-property trades or businesses. The IRS concedes that the Trust’s real-estate operations qualify as real property trades or businesses. Therefore the question to be resolved is whether the Trust materially participated in its real-estate operations. We hold that it did so.

Section 469(h) supplies the definition of what it means to materially participate in an activity. By that definition, a taxpayer is treated as materially participating in an activity only if the taxpayer is involved in the operations of the activity on a basis which is regular, continuous, and substantial. Sec. 469(h). Interpreting section 469(h), the Department of the Treasury has promulgated regulations for determining whether taxpayers who are individuals materially participate in an activity. See sec. 1.469–5T(a), (b), (c), and (d), Temporary Income Tax Regs., 53 Fed.Reg. 5725 (Feb. 25, 1988)

The statute does not provide a method for determining how a trust may materially participate in an activity, and no regulations have yet been promulgated for taxpayers that are trusts. See sec. 1.469–5T(g), Temporary Income Tax Regs., 53 Fed.Reg. 5727 (Feb. 25, 1988) (reserving a place for a regulation to be titled “Material participation of trusts and estates”). Therefore, we must make the determination of whether a trust materially participates in an activity in the absence of regulatory guidance.

Considering the activities of all six trustees in their roles as trustees and as employees of Holiday Enterprises, LLC, the Trust materially participated in its real-estate operations. Three of the trustees participated in the Trust’s real-estate operations full time. The Trust’s real-estate operations were substantial. The Trust had practically no other types of operations. The trustees handled practically no other businesses on behalf of the Trust. The IRS argues that because Paul V. Aragona and Frank S. Aragona had minority ownership interests in all of the entities through which the Trust operated real-estate holding and real-estate development projects and because they had minority interests in some of the entities through which the Trust operated its rental real-estate business, some of these two trustees’ efforts in managing the jointly held entities are attributable to their personal portions of the businesses, not the Trust’s portion. Despite two of the trustees’ holding ownership interests, we are convinced that the Trust materially participated in the Trust’s real-estate operations. First, Frank S. and Paul V. Aragona’s combined ownership interest in each entity was not a majority interest-for no entity did their combined ownership interest exceed 50%. Second, Frank S. and Paul V. Aragona’s combined ownership interest in each entity was never greater than the trust’s ownership interest. Third, Frank S. and Paul V. Aragona’s interests as owners were generally compatible with the Trust’s goals—they and the Trust wanted the jointly held enterprises to succeed. Fourth, Frank S. and Paul V. Aragona were involved in managing the day-to-day operations of the Trust’s various real-estate businesses.

We hold that the Trust materially participated in real-property trades or businesses. For a taxpayer who has materially participated in real-property trades or businesses, the next steps in ascertaining whether the taxpayer benefits from the section 469(c)(7) exception are (1) to determine whether more than one-half of the personal services performed in trades or businesses by the taxpayer during the year are performed in real-property trades or businesses, and (2) to determine whether the taxpayer performed more than 750 hours of services during the year in the real-property trades or businesses. As to whether the Trust qualifies for the section 469(c)(7) exception, however, the IRS has limited its arguments to the two arguments discussed above, namely (1) that trusts are categorically barred from qualifying under the section 469(c)(7) exception, and (2) that the Trust did not materially participate in real-property trades or businesses. In the context of the arguments raised in this case, therefore, we hold the Trust meets the section 469(c)(7) exception for the years at issue.

Once it is determined that the Trust qualifies under the section 469(c)(7) exception, and that therefore the Trust’s rental real-estate activities are not per se passive activities, a theoretical next step is to determine whether the Trust materially participated in its rental real-estate activities. If the Trust materially participated in its rental real-estate activities, then its rental real-estate activities are not passive activities. If the Trust did not materially participate in its rental real-estate activities, then its rental real-estate activities are passive activities.17 The IRS argues only that the Trust is not excepted by section 469(c)(7). It does not argue that-in the event that we determine that the Trust is excepted by section 469(c)(7)—the Trust did not materially participate in its rental real-estate activities. We hold that, in the context of the arguments presented in this case, the Trust’s rental real-estate activities are not passive activities.

Everything You Need to Know About IRS Transcripts

It is now relatively easy to get a comprehensive IRS transcript to show past tax payments, taxes due, and historical tax return history.

What is an IRS Transcript?

These can now be used to help assure that there has not been an identity theft or fraudulent tax refund filed for a client, and can also be used to verify the taxpayer’s income and tax filing status for various purposes.  The IRS provides these transcripts free of charge to individuals.

Many individuals may be hesitant to request their tax information due to assuming that it may create a flag on the account and trigger an audit.  We do not believe that there is any correlation between the chances of being audited and whether someone has requested their tax information.  Taxpayers who request their information are probably more likely to be compliant than the average taxpayer.

Different Types of Transcripts

There are 5 different types of transcripts that an individual can obtain.  These are as follows:

1. Tax Return Transcript – Displays the majority of the line items from your originally filed tax returns as well as any accompanying forms and/or schedules, however, this transcript does not show any changes made by the taxpayer or the IRS.

2. Tax Account Transcript – Shows any adjustments made by the taxpayer or the IRS after the tax return was filed.

3. Record of Account Transcript – Combines the information provided in the tax return and tax account transcripts.

4. Wage and Income Transcript – Displays information and data from your returns, including, but not limited to, W-2s, 1099s, 1098s, and other forms that were submitted to the IRS.

5. Verification of Non-Filing Letter – Proof from the IRS that you did not file a return for the requested year; only available after June 15th.

How to Get Your Transcript?

Transcripts can be received by mail or online.  Online is preferred because it allows you to view and print the transcript immediately, and eliminates the chances that someone from the post office or who receives your mail will obtain a copy.

The mail order transcript reportedly arrives between 5 to 7 business days after the IRS receives the request.

A third party or representative can request a transcript on behalf of an individual taxpayer, but in order to do so a Form 4506-T must be filed with the IRS.

When requesting a copy of your transcript online, you may view and print the transcript immediately. The online method allows you to choose among a tax return, tax account, record of account, wage and income transcripts or a Verification of Non-filing letter.

Step-by-Step Instructions for Getting Your IRS Transcript are as follows:

1) Go to www.irs.gov

2) Under Tools, Click “Get Transcript of Your Tax Records

3) Choose whether you want to receive your transcripts via the online method or via mail

4) If you choose the online method, your screen will look as follows. You will need to create an account if this is your first time requesting a transcript online. Proceed to follow the on-screen instructions and enter the proper information.

5) If you choose the mail method, your screen will look as follows and proceed to follow the on-screen instructions and enter the proper information.

University of Florida Dean Search – The Final Four Who Were Not Chosen

Many University of Florida alumni and others are aware of the recent new Law School Dean search, and the resulting appointment of an Interim Dean.  Apparently, none of the final four candidates were acceptable.  Most tax lawyers are very disappointed that Professor Sam Donaldson of George State University, who is a University of Florida LLM graduate and a very well known and respected speaker and author was not chosen.  He would have been a fantastic leader for the law school in our opinion.

If you are reading about what happened here you may find the following summary of the final four candidates to be of interest:

David A. Brennen:

David A. Brennen has been the Dean of the University of Kentucky College of Law since 2009 and a professor of the University since 2006. Brennen has close to 20 years of experience in the classroom and has taught at Florida A&M University, Syracuse University College of Law, the University of Richmond School of law, Mercer University School of Law and University of Georgia. Brennen received his law degree from the University of Florida in 1991 and also received his LL.M. in tax law from there. Brennen has published many books including Race and Equality Across the Law School Curriculum: The Law of Tax Exemption and he has published many articles.[1]

David Huebner:

David Huebner was the former United States Ambassador to New Zealand and Samoa. He was the first openly gay ambassador in the Obama administration. He has been celebrated as a very successful Ambassador. Before his career as Ambassador he was an international lawyer in Los Angeles, Shanghai, and New York. He graduated from Yale law school in 1986. He taught international law at the University of Southern California Gould School of Law from 1999-2007. [2]  His Wikipedia biography is very interesting.

Alex Acosta:

Alex Acosta is the Dean of Florida International University College of Law. He received his law degree from Harvard Law School. He was a member of the National Labor Relations Board as well as the U.S. Attorney for the Southern District of Florida. Acosta has been named one of the 50 most influential Hispanics in the nation by Hispanic Business Magazine twice.[3]  His Wikipedia biography is very interesting.

Sam Donaldson:

Samual A. Donaldson is a law professor at Georgia State University College of Law. He received his law degree from the University of Arizona College of Law in 1993 and has an LL.M. in tax from the University of Florida. He was a professor at the University of Washington and was an associate dean for academic administration from 2010-2012.[4]   He also prepares crossword puzzles for the New York Times and other publications.

When you enjoy the Final Four on Monday night remember that there is not always a winner.

The Gainesville Sun and The Ocala Star Banner have some interesting articles with respect to this.

Insurance…look again!

By Dr. Jack Barrett

 Barrett

Dr. John P. Barrett, a retired but very active Tampa Bay orthopedic surgeon, is an internationally known innovator, investor, philanthropist and serial entrepreneur. Dr. Barrett’s passion for investment management and research inspired him to create Successful Portfolios. Dr. Barrett can be reached via email at jpbmd@aol.com

All of us insure our automobile.  Because it’s the law.  All of us insure our home. The mortgage holder demands it.  And then there is health insurance. You will have to pay a fine in 2014 if you don’t. The federal government is getting serious. Life insurance is currently a hot topic in the Thursday report. Where are you going to buy the insurance?  So there you have it in a nutshell. Auto, home, health and life, the four horsemen of the insurance industry. But wait a minute, there is another asset that needs insuring. Auto, home, health and life alone don’t cover all the bases.  A large part of your financial well being has been left out in the cold without a coat.

You have probably guessed it by now….Your stock portfolio. This discussion is limited to stocks. There are some techniques for bonds but not today…  Looking at the bright side. In 2013, you didn’t wreck your auto, get sick and go to the hospital, your house didn’t burn down and you didn’t die. All of your insurance expired worthless. But you didn’t have to pay any deductibles either. Your out of pocket cost was only $15,000. But you’re so happy, you bought a bucket of Kentucky fried chicken for all your neighbors on New Year’s eve.

Dial back to the bear market of 2008. Your $2,000,000 IRA was cut in half (if it was all in stocks). That wasn’t a good idea anyway. Here is where it really gets interesting. Assume all your stocks were in the S&P 500(America’s largest companies). Your clever advisor alerted you to the head and shoulders top in late 2007 and advised you to buy a PUT option on the SPY. You were too busy writing an estate plan for your favorite client and dillydallied for a month. The market only lost 5% so your portfolio was worth $1,900,000. You call clever advisor and agree to buy the PUT insurance with no deductible. At the end of the bear market in April 2009 your IRA is worth $1,900,000. Four years go by, the bull market roars ahead and your IRA is worth almost $4,000,000. Your friends wish they knew how to insure their portfolios. The example is a bit of a fantasy.

We didn’t cover the specifics of option, PUT options, bonds or other techniques such as stops. The KISS system wins a bucket of Kentucky fried chicken.

Justice Roberts Leads the Supremes to Allow Any Individual to Donate $5,200 per Candidate to as Many Candidates as Desired

The U.S. Supreme Court removed limits on the amount of contributions a single person can give to candidates and party campaigns. The issue was the law that limited someone donating no more than $48,600 to federal candidates, and $74,600 to a committee in a 2 year election cycle.[5]

The 5-4 ruling kept the $5,200 limit for any single candidate but removed the limit on the total amount people can donate to different campaigns in a season. Chief Justice Roberts stated that the total limits on contributions “intrude without justification on a citizen’s ability to exercise the most fundamental First Amendment activities.” Buckley, 424 U. S., at 14.”[6]   There has been support from people in the political arena for the Supreme Court’s holding:

‘What I think this means is that freedom of speech is being upheld,’ said House Speaker John Boehner (R-Ohio). ‘You all have the freedom to write what you want to write, donors ought to have the freedom to give what they want to give.’[7]

‘The Supreme Court has once again reminded Congress that Americans have a Constitutional First Amendment right to speak and associate with political candidates and parties of their choice,’ said Sen. Minority Leader Mitch McConnell.[8]

The dissent felt the majority’s holding “creates huge loopholes in the law; and that undermines, perhaps devastates, what remains of campaign finance reform.”[9]   Supporters of the original cap agreed:

‘The Supreme Court majority continued on its march to destroy the nation’s campaign finance laws, which were enacted to prevent corruption and protect the integrity of our democracy,’ said Democracy 21 president Fred Wertheimer, a longtime advocate for election money reforms. ‘The court re-created the system of legalized bribery today that existed during the Watergate days.’[10]

Republican Sen. John McCain of Arizona, who last decade co-authored a sweeping law that put in place strict campaign finance limits, said ‘I am concerned that today’s ruling may represent the latest step in an effort by a majority of the Court to dismantle entirely the longstanding structure of campaign finance law erected to limit the undue influence of special interests on American politics.’[11]

As a result of the above we will be seeing more television commercials, more billboards, more campaign events and hopefully more information going to the American public in the upcoming elections.

Hats off to all elected officials and those who would like to be elected. 

Humor (Or Lack Thereof!)

LEGAL AFTERMATH OF FAMOUS MOVIES:

“Willy Wonka and the Chocolate Factory”

Occupational Safety and Health shut down the chocolate factory and police arrested the proprietor, Mr. Wonka, for negligence in not preventing fatal bubble gum accidents and bear attacks.  Officials from the Labor Department freed his tiny imprisoned orange workers, however, the so-called “Ooompa Loompas” were unable to assimilate into society.  A few days after their liberation they were found in diabetic comas under a bridge after trying to satisfy their sugar addiction by eating chocolate chip cake and cookies from the delectable dessert menu at a local Kentucky Fried Chicken. Federal authorities who questioned how this operation was allowed to continue for so long eventually indicted the town’s mayor, Winky Wonka, and the police chief, Wimpy Wonka. Both are being held without bail in Hershey, Pennsylvania.

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ATTORNEYS AND CPA’S TRAPPED ON CARNIVAL CRUSIE LINE FOR TAX SEMINAR RECOUNT FASCINATING TALES OF SURVIVAL:

“After the seminar, we discovered we had been drifting for three days and the crew had abandoned ship. The break out meetings on Carried Interest and Mitigation of the Statute of Limitations were so fascinating we never noticed.

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THE BALCONY SCENE IF ROMEO AND JULIET WERE ATTORNEYS

JULIET: Deny thy father, and refuse thy name, and petition in chancery court for a name change, and file before the office of vital statistics.

ROMEO: My name, dear saint, is hateful to myself, because it is an enemy to thee.  I will therefore show that my petition is filed for no ulterior or illegal purpose and granting it will not in any manner invade the property rights of others, according to Title VI, Chapter 68.07 (j).

JULIET: How camest thou hither, tell me, and wherefore? The orchard walls are high and hard to climb, and a person who, without being authorized, licensed or invited, willfully enters upon or remains in any property violates Title XLVI, Chapter 810.09 and the place death, if any of my kinsmen find thee here. Does thou love me? I know thou wilt say ‘Aye’, thou may prove false, at lover’s perjuries, they say, ‘Jove Laughs’.

ROMEO: Lady, by the blessed moon, I swear

JULIET: O, swear not by the moon, the inconstant moon.

ROMEO, Then I call the judge from “Merchant of Venice” and a stenographer.

JUDGE AND STENOGRAPHER: Hello.

ROMEO: Who will now depose me, under rule 1.310 of the rules of civil procedure, recording my oath or affirmation taken or administered before an officer authorized under s. 92.50, knowing that the penalty for perjury, under s775.082, s775.083 or s775.084 may result in imprisonment for up to one year, a fine of $1,000 dollars, or both, since this is not a legal proceeding for a capital felony.

JUDGE: Ready, my lady?

(JULIET HAS FALLEN ASLEEP)

Upcoming Seminars and Webinars

LUNCH TALK – LAW PRACTICE EFFICIENCY TIPS

Learn 30 efficiency techniques in 30 minutes – use any 3 and save hours between now and year end!

Date: Monday, April 7, 2014 | 12:30 p.m. (30 minutes)

Location: Online webinar

Speaker: Alan S. Gassman

Additional Information: To register for this webinar please visit www.clearwaterbar.org

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LEGAL COMPLIANCE FOR MEDICAL PRACTICES THAT USE NURSE PRACTITIONERS AND PRACTICE EXTENDERS

Date: Thursday, April 10, 2014 | 5:00 p.m. (30 Minutes)

Location: Online webinar

Speakers: Cynthia Mikos, Esq. and Alan S. Gassman, Esq.

Cynthia Mikos is an excellent speaker and Tampa healthcare lawyer with a nursing background.  Join her fan club by attending this informative webinar.  Her materials are excellent.

Additional Information: To register for this webinar please click here. [LINK: https://www2.gotomeeting.com/register/869219714]

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FIND OUT WHAT JERRY HESCH’S LATEST THINKING IS ON SELF-CANCELLING INSTALLMENT NOTES, THE KITE CASE, PRIVATE ANNUITIES, AND TRIUMPH SPIT-FIRES

Date: Monday, April 14, 2014 | 12:30 p.m. (30 Minutes)

Location: Online webinar

Speakers: Jerry Hesch and Alan S. Gassman

Additional Information: To register for this webinar please click here. [LINK:  https://www2.gotomeeting.com/register/437023986]

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FICPA SUNCOAST CHAPTER MONTHLY MEETING

Alan S. Gassman will be speaking at the FICPA Suncoast Chapter’s monthly meeting on PLANNING WITH PHYSICIANS AND MEDICAL PRACTICES

Date: Thursday, April 17, 2014 | 4:00 p.m.

Location: Tampa, Florida

Additional Information: For more information on this event please email agassman@gassmanpa.com or mary@clawsonasplus.com

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DONOR LUNCHEON AT RUTH ECKERD HALL WITH PROFESSOR JERRY HESCH IN CLEARWATER, FLORIDA

Sponsored by Gassman, Crotty & Denicolo, P.A.

Professor Jerry Hesch and 29 time nominee and Broadway show producer Zev Buffman will be speaking at a Donor Luncheon on the topic of CHARITABLE TAX SAVINGS: HOW TO MAKE SURE THAT UNCLE SAM CONTRIBUTES HIS SHARE TO MAXIMIZE RESULTS.

Date: Tuesday, April 22, 2014 | 12:00 p.m.

Location: Ruth Eckerd Hall, Clearwater, Florida

Additional Information: For additional information please contact Suzanne Ruley at sruley@rutheckerd.net or Alan Gassman at agassman@gassmanpa.com

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RUTH ECKERD HALL PLANNED GIVING MEETING

Professor Jerry Hesch will be speaking at the Ruth Eckerd Hall Planned Giving Meeting in Clearwater, Florida on the topic of INNOVATIVE CHARITABLE GIVING TECHNIQUES FOR THE WELL TUNED ESTATE PLANNER

Sponsored by Gassman, Crotty & Denicolo, P.A.

Date: Tuesday, April 22, 2014 | 4:00 p.m.

Location: Ruth Eckerd Hall, Clearwater, Florida

Additional Information: This session qualifies for 1 hour of continuing education credit for lawyers and CPA’s.  To attend please email Suzanne Ruley at sruley@rutheckerd.net or Alan Gassman at agassman@gassmanpa.com

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1st ANNUAL ESTATE PLANNER’S DAY AT AVE MARIA SCHOOL OF LAW

Speakers: Speakers will include Professor Jerry Hesch, Jonathan Gopman, Alan Gassman and others.

Alan Gassman will cover Using Estate Planning Techniques to Optimize Family Wealth Preservation.

Date: April 25, 2014

Location: Ave Maria School of Law, Naples, Florida

Sponsors:AveMariaSchool of Law, Collier County Estate Planning Council and more to be announced.

Additional Information: For more information on this event please contact visit http://www.avemarialaw.edu/estateplanning/Index.aspx

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WHAT LAWYERS AND TAX ADVISORS NEED TO KNOW WHEN PLANNING FOR SAME SEX COUPLES – UNUSUAL RULES, STRATEGIES, CHECKLISTS AND TRAPS FOR THE UNWARY

Speakers: Alan S. Gassman, Professors Jason Palmer and Rebecca Morgan from Stetson University, Jessica Lillesand of Wells Fargo and Rob Webster, Esq.

The speakers will present a comprehensive discussion of practical and technical items that need to be considered when representing same gender couples, with rubber meets the road strategies, partner agreement provisions, and discussion by experts of planning techniques and traps for the unwary.  This presentation goes well beyond the common discussion of constitutional rights and social considerations to provide practitioners with what they need to know to represent same gender couples and their families.”

Date: Monday, April 28, 2014 | 12:30 – 2:00 p.m.

Location: Bloomberg BNA Tax & Accounting Online webinar

Additional Information:  To register for the webinar please click here [LINK: http://www.bna.com/lawyers-tax-advisors-w17179889147/]  You can use discount code

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THE FLORIDA BAR ANNUAL WEALTH PROTECTION SEMINAR (with 2 hours of Ethics CLE credit)

I think that we have hit the ball well out of the ballpark for the May 8, 2014 Annual Wealth Protection Seminar.

Please check out the schedule below and come and see us.

We are particularly looking forward to the ethical panel discussion that will include reviewing important components for fee agreements, conflict of interest rules, liability avoidance for professionals, and comprehensive practice checklists.

Date: Thursday, May 8, 2014

Speakers and Agenda:

8:30 a.m. B 9:00 a.m. – How I ask Questions and Obtain the Right Documents and Information to Develop a Client=s Asset Protection Profile. 

Speaker: Denis Kleinfeld, Esq.

9:00 a.m. B 9:40 a.m. – How I Structure an Integrated Income, Estate Tax, and Asset Protection Family Plan. 

Speaker: Alan S. Gassman, Esq.

9:40 a.m. B 10:30 a.m. – The New Designer Entities B How to Use These Cutting Edge Tools to Protect Wealth.

Speaker: Howard Fisher, Esq. and Alex Fisher, Esq.

10:30 a.m. B 10:45 a.m.  Break (Mingle and Exchange Cards)

10:45 a.m. B 11:30 a.m. – What the Last Two Years of Legal Developments and Litigation Tells Us About Protective Planning With Trust and Associated Entities

Speaker: Barry Engel, Esq.

11:30 a.m. B 12:15 p.m. – What The Case Law Tells Me About Charging Orders and Declaratory Judgments.

Speaker: Jay Adkisson, Esq.

12:15 p.m. B 1:00 p.m. Lunch (Box Lunch) – Income and Estate Tax Issues For 2014 B Q & A.

Speaker: Jerry Hesch, Esq.

1:00 p.m. B 2:30 p.m. – What We Think You Need to Know About Asset Protection Litigation and Obtaining A Good Result For the Client.

Speakers: Jay Adkisson, Howard Fisher, Alex Fisher and Denis Kleinfeld.

2:30 p.m. B 2:45 p.m.  Break

2:45 p.m. B 4:15 p.m. – What are the Ethical, Legal and Administrative Liability Exposures in Wealth Protection Planning and How Do We Protect Ourselves.

Speakers: Barry Engel, Alan Gassman, Jerry Hesch, and Denis Kleinfeld.

4:15 p.m. B 5:00 p.m. – Open Forum Q & A

Speakers: Barry Engel, Jay Adkisson, Howard Fisher, Jerry Hesch, Alan Gassman and Denis Kleinfeld.

Location: Hyatt Regency Downtown, Miami, Florida

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

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THE JOINT EXEMPT STEP-UP TRUST and ANOTHER TOPIC TO BE DETERMINED

Alan Gassman will be speaking at the Ohio Conference on Wealth Transfer on The Joint Exempt Step-Up Trust as well as participating in a panel discussion the evening before in Columbus, Ohio.

Date: June 4, 2014

Location: Hilton at Easton, Columbus, Ohio

Additional Information:  For more information on the conference and to register for the conference please contact agassman@gassmanpa.com

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

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

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

Location: Bloomberg BNA Tax & Accounting Online webinar

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

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40th ANNUAL NOTRE DAME TAX & ESTATE PLANNING INSTITUTE

Please send us your questions, comments and suggestions for Alan Gassman’s talk on Planning with Variable Annuities.  He will also discuss how to spreadsheet and illustrate mutual fund characteristics, variable life insurance policies, whole life policies, and how other products work in the taxable and non-taxable world, and how to evaluate whether real savings occur from tax deferral.

Date: November 13 and 14, 2014

Location: Century Center, South Bend, Indiana

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

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

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.

SHORT TERM AFRs

MID TERM AFRs

LONG TERM AFRs

April

2014

Annual 0.28% Annual 1.81% Annual 3.32%
Semi-Annual 0.28% Semi-Annual 1.80% Semi-Annual 3.29%
Quarterly 0.28% Quarterly 1.80% Quarterly 3.28%
Monthly 0.28% Monthly 1.79% Monthly 3.27%

March

2014

Annual 0.28% Annual 1.84% Annual 3.36%
Semi-Annual 0.28% Semi-Annual 1.83% Semi-Annual 3.33%
Quarterly 0.28% Quarterly 1.83% Quarterly 3.32%
Monthly 0.28% Monthly 1.82% Monthly 3.31%

February 2014

Annual 0.30% Annual 1.97% Annual 3.56%
Semi-Annual 0.30% Semi-Annual 1.96% Semi-Annual 3.53%
Quarterly 0.30% Quarterly 1.96% Quarterly 3.51%
Monthly 0.30% Monthly 1.95% Monthly 3.50%

The 7520 rate for April is 2.2% and for March was 2.2%

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1http://www.law.uky.edu/index.php?hid=87&parentpid=47&sectiontitle=Faculty

2http://en.wikipedia.org/wiki/David_Huebner

3http://en.wikipedia.org/wiki/R._Alexander_Acosta

4http://www.law.ufl.edu/flalaw/2014/02/four-selected-as-final-dean-candidates/

5 Justices strike down political donor limits http://politicalticker.blogs.cnn.com /2014/04/02/justices-strike-down-political- donor-limits/

6 McCutcheon v. FEC, 572 U. S. 40 (2014).

7 Justices strike down political donor limits http://politicalticker.blogs.cnn.com /2014/04/02/justices-strike-down-political- donor-limits/

8Id.

572 U. S. 30 (2014).

10 Justices strike down political donor limits http://politicalticker.blogs.cnn.com /2014/04/02/justices-strike-down-political- donor-limits/

11 Justices strike down political donor limits http://politicalticker.blogs.cnn.com /2014/04/02/justices-strike-down-political- donor-limits/

The Thursday Report 3.27.14 – Humor, Referrals, and IPAs

Posted on: March 27th, 2014

New Corporate Filing Forms in Florida for 2014

Florida Supremes: Baby. Baby. Where Did Our Cap Go?

Free R-Rated Meet and Greet Cocktail Hour on April 7 – Secrets of the Megastars – With National Treasure Zev Buffman – Producer of 40 Broadway Shows

The Balanced Scorecard of an IPA

The Other IPA – A Balanced Beverage History

Jerry Hesch’s Triple Play

Attorney Humor!

Free Phone call to Improve Your Estate Planning and/or Tax Practice – For Lawyers Only

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

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

New Corporate Filing Forms in Florida for 2014

 The Florida Department of State, Division of Corporations has updated the corporate filing forms for 2014.  For LLCs, the new forms comply with Chapter 605, Florida Statutes and the Department of State is no longer accepting the “old” forms.  Articles of Organization and Articles of Amendment for Florida LLCs using the “old” form will be rejected by the Department of State and it will be necessary to re-submit the filing using the new 2014 form to receive a filing acknowledgment.

 All of the new corporate filing forms are available on the Division of Corporations website (www.sunbiz.org).  From the home page, simply click on “Forms” from the top right tool bar and choose the entity type to pull up all available forms in PDF format.

Florida Supremes – Baby, Baby, Where Did Our Cap Go?

In a decision that has surprised and disappointed many of us, the Florida Supreme Court found that the 2003 medical-malpractice law $500,000 cap on pain and suffering damages violates the Equal Protection Clause of the Florida Constitution.

 The Court also found that the rationale for the Legislation in 2003 was based upon faulty conclusions by the Legislature when it determined that there was a shortage of doctors in Florida resulting from the malpractice crisis.

 Much has already been written about this case, which was released on March 13 (everybody’s lucky day!).

 The following excerpts from the Court’s decision should be of interest to those who have not read it:

 Estate of Michelle Evette McCall, et al., Petitioners,
                                   vs.
United States Of America, Respondent

 Lewis, J. – This case is before the Court to answer four questions of Florida law certified by the United States Court of Appeals for the Eleventh Circuit that are determinative of a cause pending in that court and for which there appears to be no controlling precedent.

 Because this case involves a wrongful death, we rephrase the first certified question as follows:

 DOES THE STATUTORY CAP ON WRONGFUL DEATH NONECONOMIC DAMAGES, FLA. STAT. § 766.118, VIOLATE THE RIGHT TO EQUAL PROTECTION UNDER ARTICLE I, SECTION 2 OF THE FLORIDA CONSTITUTION?

 As explained below, we answer the first rephrased certified question in the affirmative and hold that the cap on wrongful death noneconomic damages provided in section 766.118, Florida Statutes, violates the Equal Protection Clause of the Florida Constitution.

 In this case, the district court limited the Petitioners’ recovery of wrongful death noneconomic damages to $1 million upon application of section 766.118(2), Florida Statutes (2005), Florida’s statutory cap on wrongful death noneconomic damages based on medical malpractice claims.  Id.¹  The district court denied a motion filed by the Petitioners that challenged the constitutionality of Florida’s wrongful death statutory cap under both the Florida and United States Constitution.  Id.  The district court also denied the Petitioners’ motion to alter or amend the judgment.  Id. at 947-48.

On appeal to the Eleventh Circuit, the Petitioners challenged the district court’s rulings with regard to both the application and the constitutionality of the cap mandated by Florida law on wrongful death noneconomic damages for medical malpractice claims.  Id. at 948.

The Eleventh Circuit affirmed the application of the statutory cap on noneconomic damages and held that the statute does not constitute a taking in violation of article X, section 6, of the Florida Constitution.  Id. at 953.  The federal appellate court also held that the cap does not violate either the Equal Protection Clause or the Takings Clause of the United States Constitution.  Id.  However, the Eleventh Circuit granted a motion filed by the Petitioners to certify four questions to this Court regarding the remaining challenges to the statutory cap under the Florida Constitution.  Id. 

EQUAL PROTECTION

All natural persons, female and male alike, are equal before the law.  Art. I, § 2, Fla. Const.  This Court has stated “[t]he constitutional right of equal protection of the laws means that everyone is entitled to stand before the law on equal terms with, to enjoy the same rights as belong to, and to bear the same burden as are imposed upon others in a like situation.”  Caldwell v. Mann, 26 So. 2d 788, 790 (Fla. 1946).

Unless a suspect class or fundamental right protected by the Florida Constitution is implicated by the challenged provision, the rational basis test will apply to evaluate an equal protection challenge.

Having carefully considered the arguments of both parties and the amici, we conclude that section 766.118 violates the Equal Protection Clause of the Florida Constitution under the rational basis test.  The statutory cap on wrongful death noneconomic damages fails because it imposes unfair and illogical burdens on injured parties when an act of medical negligence gives rise to multiple claimants.  In such circumstances, medical malpractice claimants do not receive the same rights to full compensation because of arbitrarily diminished compensation for legally cognizable claims.  Further, the statutory cap on wrongful death noneconomic damages does not bear a rational relationship to the stated purpose that the cap is purported to address, the alleged medical malpractice insurance crisis in Florida.

The Alleged Medical Malpractice Crisis

In addition to arbitrary and invidious discrimination between medical malpractice claimants, the cap on noneconomic damages also violates the Equal Protection Clause of the Florida Constitution because it bears no rational relationship to a legitimate state objective, thereby failing the rational basis test.  See Fla. Nurses Ass’n, 508 So. 2d at 319.

The Florida Legislature attempted to justify the cap on noneconomic damages by claiming that “Florida is in the midst of a medical malpractice insurance crisis of unprecedented magnitude.”

In enacting the statutory cap on noneconomic damages, the Legislature relied heavily on a report prepared by the Governor’s Select Task Force on Heathcare Professional Liability Insurance (Task Force), which concluded that “actual and potential jury awards of noneconomic damages (such as pain and suffering) are a key factor (perhaps the most important factor) behind the unavailability and un-affordability of medical malpractice insurance in Florida.”  Report of Governor’s Select Task Force on Healthcare Professional Liability Insurance (Task Force Report) (Jan. 29, 2003), at xvii.

To evaluate the constitutionality of the cap on noneconomic damages imposed by section 766.118, we are not required to accept the findings of the Legislature or the Task Force at face value.

Our consideration of the factors and circumstances involved demonstrates that the conclusions reached by the Florida Legislature as to the existence of a medical malpractice crisis are not fully supported by available data.  Instead, the alleged interest of health care being unavailable is completely undermined by authoritative government reports.  Those government reports have indicated that the numbers of physicians in both metropolitan and non-metropolitan areas have increased.  For example, in a 2003 report, the United States General Accounting Office found that from 1991 to 2001, Florida’s physician supply per 100,000 people grew from 214 to 237 in metropolitan areas and from 98 to 117 in nonmetropolitan areas, or percentage increases of 10.7 and 19, respectively.  Physician Workforce: Physician Supply Increased In Metropolitan and Nonmetropolitan Areas but Geograpic Disparities Persisted, No. GAO-04-124, (October 31, 2003), at 23, available at http://www.gao.gov/new.items/d04124.pdf.  Thus, during this purported crisis, the numbers of physicians in Florida were actually increasing, not decreasing.

 Additionally, an analysis of claim activity certainly does not provide a rational basis for the clear discrimination presented by the legislation.  Although assertions of a malpractice insurance crisis are often accompanied by images of runaway juries entering verdicts in exorbitant amounts of nonecomonic damages, see, e.g., Task Force Report at xvii, one study revealed that in Florida cases which resulted in payments of $1 million or more over a fourteen-year-period, only 7.5 percent involved a jury trial verdict.

 Such statistics led the authors of the study to conclude that jury trials constitute only a very small portion of medical malpractice payments.  Id. At 1345.  The authors also concluded that “tort reform efforts focused on jury verdicts are misdirected, at least with respect to $1 million verdicts in Florida.  Not only do jury trials constitute only a small portion of $1 million payments, [but] the settlements following verdicts tend to be substantially less than the jury awards.”  Id. at 1381 (emphasis is supplied).6   Thus, available data indicates the Task Force’s finding that noneconomic damage awards by juries are a primary cause of the purported medical malpractice crisis in Florida is most questionable.

 The Task Force stated that it “believes” the alleged crisis “could get worse in the coming years…Medical malpractice insurance premiums may become unaffordable, and/or coverage may become unavailable at any price to many physicians and hospitals.”  See Task Force Report, at 211-12 (emphasis supplied).  Further, despite blaming “actual and potential jury awards of noneconomic damages” for this ominous prediction, Task Force Report at xvii, the Task Force recognized that there are other explanations for the dramatic rise in medical malpractice insurance premiums.

 For example, the Task Force Report notes that in the opinion of Joanne Doroshow, Executive Director of the Center for Justice and Democracy:

 [T]his so-called “crisis” is nothing more than the underwriting cycle of the insurance industry, and driven by the same factors that caused the “crises” in the 1970s and 1980s.  According to…Doroshow, with each crisis, there has been a severe drop in the investment income for insurers, which has been compounded by sever [sic] under-pricing of insurance premiums in the prior years… [D]uring years of high interest rates or excellent insurer profits that are invested for maximum return, the insurance companies engage in fierce competition for premium dollars by selling under-priced premiums and insuring very poor risks.  Then…when investment income drops, either due to increases in interest rates or the stock market, or due to low income resulting from unbearably low premiums, the insurance industry responds by sharply increasing premiums and reducing coverage.

 …The tort reform changes in the 1980s had nothing to do with the flattening of rates.  The flattening was caused instead by modulations in the insurance cycle throughout the country.

 Also, the deputy director of the Florida Office of Insurance Regulation testified he had found no evidence to suggest that there had been a large increase in the number of frivolous lawsuits filed in Florida, nor was there any evidence of excessive jury verdicts in the prior three years.  Testimony of Steve Roddenberry, Senate Judiciary Committee Meeting, July 14, 2003, at 3, 10.

 During the subsequent floor debate, the following dialogue occurred between a senator and the Chairman of the Senate Judiciary Committee:

SENATOR: Were you able to determine whether or not there is an access to health care crisis in terms of the number of doctors licensed to practice medicine, the number of hospital closures or the number of emergency rooms closed?

CHAIRMAN: [T]his is not what I found.  What the testimony was from both the Department of Health, the Agency for Health Care Administration and various other people…was that there, in fact, are more doctors licensed to practice today in the State of Florida than there were five years ago.

 Applications to the medical schools in the State of Florida are up and have been up consistently for the past, for the past number of years.

 And also that emergency rooms have not been closing as a result of medical malpractice.

 As a matter of fact, the Department of Health and the Agency for Health Care Administration both testified under oath that they could not cite any incidents where because of a medical malpractice crisis patients were denied some type of care or directed someplace else.

 Based upon these statements and reports, although medical malpractice premiums in Florida were undoubtedly high in 2003, we conclude the Legislature’s determination that “the increase in medical malpractice liability insurance rates is forcing physicians to practice medicine without professional liability insurance, to leave Florida, to not perform high-risk procedures, or to retire early from the practice of medicine” is unsupported.

 The Impact of Damage Caps on the Alleged Crisis

 Even if these conclusions by the Legislature are assumed to be true, and Florida was facing a dangerous risk of physician shortage due to malpractice premiums, we conclude that section 766.118 still violates Florida’s Equal Protection Clause because the available evidence fails to establish a rational relationship between a cap on noneconomic damages and alleviation of the purported crisis.

 Thus, even if there had been a medical malpractice crisis in Florida at the turn of the century, the current data reflects that it has subsided.  No rational basis currently exists (if it ever existed) between the cap imposed by section 766.118 and any legitimate state purpose.  See generally Fla. Nurses Ass’n, 508 So. 2d at 319.  At the present time, the cap on noneconomic damages serves no purpose other than to arbitrarily punish the most grievously injured or their surviving family members.  Moreover, it has never been demonstrated that there was a proper predicate for imposing the burden of supporting the Florida legislative scheme upon the shoulders of the persons and families who have been most severely injured and died as a result of medical negligence.  Health care policy that relies upon discrimination against Florida families is not rational or reasonable when it attempts to utilize aggregate caps to create unreasonable classifications.  Accordingly, and for each of these reasons, the cap on wrongful death noneconomic damages in medical malpractice actions does not pass constitutional muster.

 CONCLUSION

 Based on the foregoing, we answer the first rephrased certified question in the affirmative and hold that the cap on wrongful death noneconomic damages in section 766.118, Florida Statutes, violates the Equal Protection Clause of the Florida Constitution.

 A full copy of the decision can be viewed by clicking here.

 The good news is that as a practical matter we had caps for over 11 years, and to some extent the malpractice insurance industry actuaries have already taken the possibility of the cap being lifted into account in setting rates.

 Nevertheless, this will clearly cause significant gyrations in the next Legislative session and elections process as the trial lawyers and the medical profession gear up again to raise monies and spend political capital on a situation that is certainly not helping the practice of medicine or medical professionals.

 Whether public sentiment will be sufficient to enable those who support positions to have a Florida Constitutional Amendment to override the Equal Protection Clause remains to be seen.

Buffman

The Balanced Scorecard of an IPA
By Pariksith Singh, MD

How does one evaluate an IPA (Independent Physicians’ Association)? This is an important question not only in assessing its value for sale or acquisition but also to measure its success, review the implementation of strategy and identify its key functions and metrics. We have seen the sale of several IPAs in the recent past in Tampa Bay and an interest among physician entrepreneurs in creating IPAs and attempt to make a fast buck.  In this endeavor, they seem to look only at the financial balance sheet or returns of the organization and forget the other measurements that are key in the appraisal of an IPA.

The Balanced Scorecard (BSC) is a concept first articulated in a 1992 Harvard Business Review article by Robert S Kaplan and David Norton.  It comprises of four perspectives which are necessary to have a composite snapshot of the state of health of a business. These perspectives are:

    1. The Financial Perspective
    2. The Customer Perspective
    3. The Business Process Perspective
    4. The Learning and Growth Perspective

In the book ‘The Balanced Scorecard: You Can’t Drive a Car Solely Relying on a Rearview Mirror’, Kaplan later expanded on this approach. It is ‘estimated that at least 40% of the Fortune 1000 companies use this methodology. ‘

 In my opinion, a BSC is the best way in which one can measure the pulse of an IPA, although given the specific nature of an IPA, certain new perspectives must be added. These additional perspectives should be:

    1. The Regulatory Perspective
    2. The Legal Perspective
    3. The Brand Perspective

If an IPA deals with Medicare lives and federally-funded dollars, the regulatory aspect of its functioning assumes an even more critical metric for any violation can threaten its very existence. Such a perspective should include compliance with HIPAA, OSHA, Stark laws, anti-kickback statutes, fee-splitting, Balanced Budget Amendments, the Affordable Care Act, etc. In light of some IPAs losing their contracts with HMOs recently, such a tally becomes immediate and significant.

An IPA is nothing if not relationships and contracts. If contracts do not exist, the IPA has no foundation and its entire structure collapses. Thus, strong and compliant contracts that are transparent and clear with powerful disincentives for breach would be essential. Without such contracts in place with coherent and ethical legal counsel to back it up, an IPA would founder and be unable to grow. Whatever growth and profits are accomplished are tenuous and expose it to further danger and vulnerability. It is my recommendation that all fees including administrative and re-insurance expenses be properly disclosed and attested by affiliates at the time of induction to the IPA. It is also my belief that the liabilities to the business be considered as one of the most critical sections of the BSC, i.e., the number of lawsuits against the organization, the potential damages from such lawsuits, the confidentiality of its data and reports or their loss, the nature of competition and poaching of its affiliates, conflicts in its relationships with the HMOs and potential OIG (Office of Inspector General) investigations of its practices.

The Brand of an IPA is the ‘X’ factor, its mystique and inevitability, uniqueness and desirability, customer loyalty and credibility of the organization and its officers. It is the factor that gives it its ‘oomph’ and saleability, and without the power of the Brand, an IPA becomes an also-ran.

Thus, the valuation of an IPA cannot be done solely on a fiscal basis. All the perspectives mentioned above must be calculated and counted. While the financials remain an important aspect of any valuation, they certainly are not the most important, or even, the largest component of a BSC for an IPA. At best, the fiscal status of an IPA can be used only if the organization scores a 100 on all other measures on its scorecard. At worst, the financials have to be completely discarded if the basics of business are not in place. We have seen that recently when a Fortune 500 corporation refused to take ownership or invest in an IPA solely because there were lawsuits against it for reasons of compliance.

The fundamentals of an IPA still remain the state of its compliance, the strength of its relationships and services, its feedback systems, employees, data and processes. Without these in place and sealed protectively, all one shall find is a house of cards. And the big problem with a house of cards is that the bigger it gets, the more vulnerable it becomes to sudden collapse. An IPA has to be based on an extremely strong foundation even though it needs to be nimble and flexible as regulations change and payment methodologies vary as we have seen with CMS in recent years.

When we measure the Business Process Perspective, we should measure the MRA, HEDIS, HOS, CAHPS and care management analyses, along with length of stays, continuity of care, ER visits, close follow-ups on nursing homes and hospitals, and post-acute care and post discharge care. The Operational metrics would also study the infra-structure, the state of IT, web services, reporting and sharing of information among the executives and owners.

The Customer Perspective should pay close attention to physician and employee satisfaction and retention, response rates and reputation. When practices are not wholly owned, this becomes an even more serious concern for any IPA. Also, the strength and managed care savvy of affiliates and risk of losses due to poor utilization by them cannot be ignored. If the IPA does not see itself as a fiscal intermediary and does not have adequate protections against a downturn and that it is in a risk business where the Pareto rule can get easily skewed from 20-80 to 1-99 and if the reserves are not strong or re-insurance is weak, all the juggling of numbers is of scarce significance.

An IPA is not any stronger by randomly signing up affiliates without interest, aptitude or drive to master managed care; in fact, the very opposite is true. Without proper infra-structure in place, an IPA should not attempt to grow. The continuous education and training of its employees is a sine qua non with any growth and a culture of compliance, quality and excellence should be a part of its DNA. The best IPA is a Learning Organization and a Knowledge-Creating Organization.

The concept of a Poison Pill in the valuation of any IPA is of much use. If the risk to the IPA due to significant legal or regulatory liability is high, it completely negates any financial valuation of the IPA almost like a junk bond and, in fact, may give it a negative status. We see this frequently in the market place when we see how the credit agencies appraise a company or a nation. Recently, we have seen how Universal Health Care, Inc, a Medicare Advantage plan, was taken over by a receiver thereby reducing its value to zero and with significant legal and financial liability to its executives and owners, when the Office of Insurance Regulations (OIR) decided that the plan was out of compliance. An IPA may come under the purview of the OIR too in a similar fashion.

Eventually, one must remember that any metric is only a reflection of an overall strategy, vision and mission, and the core competence of an IPA. If the IPA loses sight of these, no amount of tactical quantification would suffice in making it healthy and sustainable. Strategy must be integrated completely with the processes and the core strength of the entity should never be compromised.  For if the core is forsaken, all is forsaken and the vitality of the organization may be irretrievably lost.

The Other IPA – A Balanced Beverage History

India Pale Ale or IPA is a hoppy beer style within the broader category of pale ale. It was first brewed in England in the 19th century. IPA was born out of necessity.  When the British were colonizing India, the beers they sent down to their troops kept spoiling during the long sea voyage. Before refrigeration and pasteurization, the brewer’s only weapons against spoilage were alcohol and hops.  Alcohol and hops provide an unfriendly environment for microbes, preventing the growth of the bacteria that causes sourness. With an extra healthy dose of hops and alcohol, both having great preservative value, their problems were solved, and the world had another distinctive beer style.

Among the first brewers known to export beer to India was George Hodgson of the Bow Brewery. Ships transported Hodgson’s beers to India, among them his October beer, which benefitted exceptionally from conditions of the voyage and was highly regarded among its consumers in India. Demand for the export style of pale ale, which had become known as India pale ale, developed in England around 1840 and India pale ale became a popular product in England.

The IPA style of beer has a whole lot going for it. First and foremost is taste, which some could argue is an acquired one. The flavor of IPA beer highlights the complex and varied results that can be achieved through hops and other beer ingredient staples. The pronounced and unique flavor profile of IPA allows for a better understanding of brewing beer in general as hops and malts are often identified individually. Today, American craft brewers do more than emulate the style. They continue to push the envelope with strength and bitterness. Curiously, it’s much harder to find a true IPA from England these days.

p>2)            The Legal Perspective

3)            The Brand Perspective

If an IPA deals with Medicare lives and federally-funded dollars, the regulatory aspect of its functioning assumes an even more critical metric for any violation can threaten its very existence. Such a perspective should include compliance with HIPAA, OSHA, Stark laws, anti-kickback statutes, fee-splitting, Balanced Budget Amendments, the Affordable Care Act, etc. In light of some IPAs losing their contracts with HMOs recently, such a tally becomes immediate and significant.

An IPA is nothing if not relationships and contracts. If contracts do not exist, the IPA has no foundation and its entire structure collapses. Thus, strong and compliant contracts that are transparent and clear with powerful disincentives for breach would be essential. Without such contracts in place with coherent and ethical legal counsel to back it up, an IPA would founder and be unable to grow. Whatever growth and profits are accomplished are tenuous and expose it to further danger and vulnerability. It is my recommendation that all fees including administrative and re-insurance expenses be properly disclosed and attested by affiliates at the time of induction to the IPA. It is also my belief that the liabilities to the business be considered as one of the most critical sections of the BSC, i.e., the number of lawsuits against the organization, the potential damages from such lawsuits, the confidentiality of its data and reports or their loss, the nature of competition and poaching of its affiliates, conflicts in its relationships with the HMOs and potential OIG (Office of Inspector General) investigations of its practices.

The Brand of an IPA is the ‘X’ factor, its mystique and inevitability, uniqueness and desirability, customer loyalty and credibility of the organization and its officers. It is the factor that gives it its ‘oomph’ and saleability, and without the power of the Brand, an IPA becomes an also-ran.

Thus, the valuation of an IPA cannot be done solely on a fiscal basis. All the perspectives mentioned above must be calculated and counted. While the financials remain an important aspect of any valuation, they certainly are not the most important, or even, the largest component of a BSC for an IPA. At best, the fiscal status of an IPA can be used only if the organization scores a 100 on all other measures on its scorecard. At worst, the financials have to be completely discarded if the basics of business are not in place. We have seen that recently when a Fortune 500 corporation refused to take ownership or invest in an IPA solely because there were lawsuits against it for reasons of compliance.

The fundamentals of an IPA still remain the state of its compliance, the strength of its relationships and services, its feedback systems, employees, data and processes. Without these in place and sealed protectively, all one shall find is a house of cards. And the big problem with a house of cards is that the bigger it gets, the more vulnerable it becomes to sudden collapse. An IPA has to be based on an extremely strong foundation even though it needs to be nimble and flexible as regulations change and payment methodologies vary as we have seen with CMS in recent years.

When we measure the Business Process Perspective, we should measure the MRA, HEDIS, HOS, CAHPS and care management analyses, along with length of stays, continuity of care, ER visits, close follow-ups on nursing homes and hospitals, and post-acute care and post discharge care. The Operational metrics would also study the infra-structure, the state of IT, web services, reporting and sharing of information among the executives and owners.

The Customer Perspective should pay close attention to physician and employee satisfaction and retention, response rates and reputation. When practices are not wholly owned, this becomes an even more serious concern for any IPA. Also, the strength and managed care savvy of affiliates and risk of losses due to poor utilization by them cannot be ignored. If the IPA does not see itself as a fiscal intermediary and does not have adequate protections against a downturn and that it is in a risk business where the Pareto rule can get easily skewed from 20-80 to 1-99 and if the reserves are not strong or re-insurance is weak, all the juggling of numbers is of scarce significance.

An IPA is not any stronger by randomly signing up affiliates without interest, aptitude or drive to master managed care; in fact, the very opposite is true. Without proper infra-structure in place, an IPA should not attempt to grow. The continuous education and training of its employees is a sine qua non with any growth and a culture of compliance, quality and excellence should be a part of its DNA. The best IPA is a Learning Organization and a Knowledge-Creating Organization.

The concept of a Poison Pill in the valuation of any IPA is of much use. If the risk to the IPA due to significant legal or regulatory liability is high, it completely negates any financial valuation of the IPA almost like a junk bond and, in fact, may give it a negative status. We see this frequently in the market place when we see how the credit agencies appraise a company or a nation. Recently, we have seen how Universal Health Care, Inc, a Medicare Advantage plan, was taken over by a receiver thereby reducing its value to zero and with significant legal and financial liability to its executives and owners, when the Office of Insurance Regulations (OIR) decided that the plan was out of compliance. An IPA may come under the purview of the OIR too in a similar fashion.

Eventually, one must remember that any metric is only a reflection of an overall strategy, vision and mission, and the core competence of an IPA. If the IPA loses sight of these, no amount of tactical quantification would suffice in making it healthy and sustainable. Strategy must be integrated completely with the processes and the core strength of the entity should never be compromised.  For if the core is forsaken, all is forsaken and the vitality of the organization may be irretrievably lost.

Jerry Hesch’s Triple Play

Jerry HeschJerry HeschJerry Hesch

Jerry Hesch is an attorney at Berger Singerman in its Miami, Florida office and is Special Tax Counsel to Oshins & Associates in Las Vegas Nevada. He is the Director of the Notre Dame Tax and Estate Planning Institute, on the Tax Management Advisory Board, a Fellow of ACTEC, has published numerous articles, Tax Management Portfolios, and co-authored a law school casebook on Federal Income Taxation, now in its fourth edition. Jerry has been kind enough to schedule the following 3 interesting events with us:

 1.   On Monday, April 14, 2014 at 12:30 pm, Jerry will join Alan Gassman to lead a discussion on his latest thinking on self-cancelling installment notes, the Kite case, private annuities, and the ins and outs of triumph spit fires.

 Join Jerry, Alan, and Jerry’s triumph spit fire for an interesting conversation.  There is no charge for this webinar and participants will receive a picture of Jerry’s car.  CPAs will receive continuing education credit.

 2.   On Thursday April 17, 2014, Jerry will speak at a donor luncheon at Ruth Eckerd Hall in Clearwater, Florida on capitalized charitable tax savings: How to make sure that Uncle Sam contributes his share to maximize results.

 Financial advisors are welcome.  The lunch will cost less than $20.  Bring a friend or even someone who you do not like.

 3.   At 4:00 p.m., Jerry will be giving a free presentation at Ruth Eckerd Hall on capitalized innovative charitable giving techniques for the well tuned estate planner, and an outline will be provided.  This session is free and qualifies for 1 hour of continuing education credit.

Please also do not forget that on April 25, 2014, Jerry will be speaking at the Ave Maria Law School Estate Planners Day on the topic of Succession Planning for the Closely Held Business Upon Retirement or Death of the Principal.

Jerry also will be speaking at the Florida Bar Annual Wealth Protection Seminar on Capitalized Income and Estate Tax Issues for 2014 – Questions and Answers at the lunch presentation from 12:15 pm to 1:00 pm.

Following that Jerry will appear at the Sands Hotel in Law Vegas, Nevada to deliver his comedy routine on Timing Income Tax Deductions and Mother-In-Law Relationships.

Free Phone Call to Improve Your Estate Planning and/or Tax Practice
For Lawyers Only
On Thursday, April 3, 2014 at 3:00pm

Business coach Rick Solomon will be teaming up with Alan Gassman and Craig Hersch to establish a small group of estate planning and tax lawyers who will meet periodically to talk about improving our practices.

If you are interested in attending a short call on the afternoon of April 3, 2014 with Rick and a few other interested lawyers, please let us know.

From Rick:

There is a very special event coming up that could potentially have a significant impact on the growth and success of your practice. It is the launch of a special Masters Program for estate planning and tax attorneys that goes far beyond basic business and office development. It goes deeply into personal development and how to address limiting beliefs and issues that all successful professionals have. This can have a significant impact on our practices.

The program is headed by me, who has created and facilitated a special Masters Programs for CPAs. I am working with Alan Gassman and Craig Hesch to develop a Masters Program for estate planning and tax lawyers. Previously I have worked extensively with the organization that evolved into Wealth Counsel many years ago, and therefore has a good feel for situations specific to a law practice.

We are only interested in working with open-minded professionals who are willing to help one another and have or wish to have a great passion for what we do, more time off, and enhanced income.

Upcoming Seminars and Webinars

COMPOUNDING THE PROBLEMS AND OPPORTUNITIES FOR COMPOUNDING PHARMACIES

Date:  Tuesday, April 1, 2014 at 5:00 p.m.

Location: Online webinar

Speakers: Lester Perling and Alan Gassman

Additional Information: Please click here to register for the webinar.

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LUNCH TALK – LAW PRACTICE EFFICIENCY TIPS

Date: Monday, April 7, 2014 | 12:30 p.m.

Location: Online webinar

Speaker: Alan S. Gassman

Additional Information: To register for this webinar please visit www.clearwaterbar.org

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LEGAL COMPLIANCE FOR MEDICAL PRACTICES THAT USE NURSE PRACTITIONERS AND PRACTICE EXTENDERS

Date: Thursday, April 10, 2014 | 5:00 p.m. (30 Minutes)

Location: Online webinar

Speakers: Cynthia Mikos, Esq. and Alan S. Gassman, Esq.

Cynthia Mikos is an excellent speaker and healthcare lawyer.  Join her fan club by attending this informative webinar.  Her materials are excellent.

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

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JERRY HESCH’S LATEST THINKING IS ON SELF-CANCELLING INSTALLMENT NOTES, THE KITE CASE, PRIVATE ANNUITIES, AND TRIUMPH SPIT-FIRES

Date: Monday, April 14, 2014 | 12:30 p.m. (30 Minutes)

Location: Online webinar

Speakers: Jerry Hesch and Alan S. Gassman

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

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FICPA SUNCOAST CHAPTER MONTHLY MEETING

Alan S. Gassman will be speaking at the FICPA Suncoast Chapter’s monthly meeting on the topic of THE FLORIDA CPA’S GUIDE TO PLANNING WITH PHYSICIANS AND MEDICAL PRACTICES

Date: Thursday, April 17, 2014 | 4:00 p.m.

Location: Tampa, Florida

Additional Information: For more information on this event please email agassman@gassmanpa.com or mary@clawsonasplus.com

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DONOR LUNCHEON AT RUTH ECKERD HALL WITH PROFESSOR JERRY HESCH IN CLEARWATER, FLORIDA

Sponsored by Gassman, Crotty & Denicolo, P.A. Co-sponsors invited.

Professor Jerry Hesch will be speaking at a Donor Luncheon on the topic of CHARITABLE TAX SAVINGS: HOW TO MAKE SURE THAT UNCLE SAM CONTRIBUTES HIS SHARE TO MAXIMIZE RESULTS

Date: Tuesday, April 22, 2014 | TIME TO BE DETERMINED

Location: Ruth Eckerd Hall, Clearwater, Florida

Additional Information: For additional information please contact Suzanne Ruley at sruley@rutheckerd.net or Alan Gassman at agassman@gassmanpa.com

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RUTH ECKERD HALL PLANNED GIVING MEETING

Professor Jerry Hesch will be speaking at the Ruth Eckerd Hall Planned Giving Meeting in Clearwater, Florida on the topic of INNOVATIVE CHARITABLE GIVING TECHNIQUES FOR THE WELL TUNED ESTATE PLANNER

Sponsored by Gassman, Crotty & Denicolo, P.A. Co-sponsors invited.

Date: Tuesday, April 22, 2014 | 4:00 p.m.

Location: Ruth Eckerd Hall, Clearwater, Florida

Additional Information: This session qualifies for 1 hour of continuing education credit for lawyers and CPA’s.  To attend please email Suzanne Ruley at sruley@rutheckerd.net or Alan Gassman at agassman@gassmanpa.com

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1st ANNUAL ESTATE PLANNER’S DAY AT AVE MARIA SCHOOL OF LAW

Speakers: Speakers will include Professor Jerry Hesch, Jonathan Gopman, Alan Gassman and others.

Alan Gassman will cover Using Estate Planning Techniques to Optimize Family Wealth Preservation.

Date: April 25, 2014

Location: Ave Maria School of Law, Naples, Florida

Sponsors: AveMariaSchool of Law, Collier County Estate Planning Council and more to be announced.

Additional Information: For more information on this event please contact visit http://www.avemarialaw.edu/estateplanning/Index.aspx

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WHAT LAWYERS AND TAX ADVISORS NEED TO KNOW WHEN PLANNING FOR SAME SEX COUPLES – UNUSUAL RULES, STRATEGIES, CHECKLISTS AND TRAPS FOR THE UNWARY

Speaker: Alan S. Gassman

Date: Monday, April 28, 2014 | 12:30 – 2:00 p.m.

Location: Bloomberg BNA Tax & Accounting Online webinar

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

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THE FLORIDA BAR ANNUAL WEALTH PROTECTION SEMINAR (with 2 hours of Ethics CLE credit)

I think that we have hit the ball well out of the ballpark for the May 8, 2014 Annual Wealth Protection Seminar.

Please check out the schedule below and come and see us.

We are particularly looking forward to the ethical panel discussion that will include reviewing important components for fee agreements, conflict of interest rules, liability avoidance for professionals, and comprehensive practice checklists.

Date: Thursday, May 8, 2014

Speakers and Agenda:

8:30 a.m. B 9:00 a.m. – How I ask Questions and Obtain the Right Documents and Information to Develop a Clients Asset Protection Profile.

 Speaker: Denis Kleinfeld, Esq.

 9:00 a.m. B 9:40 a.m. – How I Structure an Integrated Income, Estate Tax, and Asset Protection Family Plan.

 Speaker: Alan S. Gassman, Esq.

 9:40 a.m. B 10:30 a.m. – The New Designer Entities B How to Use These Cutting Edge Tools to Protect Wealth.

 Speaker: Howard Fisher, Esq. and Alex Fisher, Esq.

 10:30 a.m. B 10:45 a.m.  Break (Mingle and Exchange Cards)

10:45 a.m. B 11:30 a.m. – What the Last Two Years of Legal Developments and Litigation Tells Us About Protective Planning With Trust and Associated Entities

 Speaker: Barry Engel, Esq.

 11:30 a.m. B 12:15 p.m. – What The Case Law Tells Me About Charging Orders and Declaratory Judgments.

 Speaker: Jay Adkisson, Esq.

12:15 p.m. B 1:00 p.m. Lunch (Box Lunch) – Income and Estate Tax Issues For 2014 B Q & A.

 Speaker: Jerry Hesch, Esq.

 1:00 p.m. B 2:30 p.m. – What We Think You Need to Know About Asset Protection Litigation and Obtaining A Good Result For the Client.

 Speakers: Jay Adkisson, Howard Fisher, Alex Fisher and Denis Kleinfeld.

 2:30 p.m. B 2:45 p.m.  Break

2:45 p.m. B 4:15 p.m. – What are the Ethical, Legal and Administrative Liability Exposures in Wealth Protection Planning and How Do We Protect Ourselves.

 Speakers: Barry Engel, Alan Gassman, Jerry Hesch, and Denis Kleinfeld.

 4:15 p.m. B 5:00 p.m. – Open Forum Q & A

 Speakers: Barry Engel, Jay Adkisson, Howard Fisher, Jerry Hesch, Alan Gassman and Denis Kleinfeld.

Location: Hyatt Regency Downtown, Miami, Florida

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

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THE JOINT EXEMPT STEP-UP TRUST

Alan Gassman will be speaking at the Ohio Conference on Wealth Transfer on The Joint Exempt Step-Up Trust as well as participating in a panel discussion the evening before.

Date: June 4, 2014

Location: Hilton at Easton, Columbus, Ohio

Additional Information:  For more information on the conference and to register for the conference please contact agassman@gassmanpa.com

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

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

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

Location: Bloomberg BNA Tax & Accounting Online webinar

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

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40th ANNUAL NOTRE DAME TAX & ESTATE PLANNING INSTITUTE

Please send us your questions, comments and suggestions for Alan Gassman’s talk on Planning with Variable Annuities.  He will also discuss how to spreadsheet and illustrate how life insurance policies and mutual funds work in the taxable and non-taxable world, and how to evaluate whether real savings occur from tax deferral.

Date: November 13 and 14, 2014

Location: Century Center, South Bend, Indiana

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

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

Past Seminar and Webinar Transcripts Available

For a transcript of Mr. Gassman’s remarks for the following, please email agassman@gassmanpa.com.

  • The Florida Bar Leadership Academy: March 2014 Regional Meeting

Alan Gassman joined Judge Claudia Rickert Isom and Hillsborough County Bar Association President Susan E. Johnson-Valez for a panel discussion on the Benefits of Serving as a Community Leader.

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.

APR

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