The Thursday Report-5.11.17-Re: Call Your Mother
Gassman, Crotty & Denicolo, P.A.
Attorneys at Law | 727.442.1200 | agassman@gassmanpa.com
Thursday Report
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Re: Call Your Mom
Mother’s Day Edition – This Edition is One Only a Mother Could Love
The Asset Protection Continuum (pt. 2 of 3) by Martin Shenkman and Alan Gassman
Mandatory Outright Trust Distributions – How To Plan For The What-Ifs, Maybes, and Contingencies That Could Cause a Loss of The Intended Distribution by Chris Denicolo
Disposition Without Administration by Ken Crotty
Detailed Look at Business Systems to Handle 3 Common Company Situations by David Finkel
Richard Connolly’s World – Trust Beneficiaries Eliminated Through a Decanting Done Pursuant to the Trust Instrument Found Valid in New York
Thoughtful Corner
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 Alan at agassman@gassmanpa.com
This report and other Thursday Reports can be found on our website at www.gassmanlaw.com
Quote of the Week
“My mother had a great deal of trouble with me, but I think she enjoyed it”
-Mark Twain
The Thursday Report would like to extend warm Mother’s Day wishes to mothers everywhere, as The Thursday Report would not be in existence without our mothers. We thank them for setting off the chain of events that allows The Thursday Report to have been created.
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The Asset Protection Continuum Practical Steps for Estate Planning Lawyers and Other Professionals (pt. 2 of 3)
by Martin Shenkman and Alan Gassman
Simpler Irrevocable Trusts
The use of irrevocable trusts is the foundation for many asset protection plans. Protective trusts should be used at each phase of planning. A typical irrevocable life insurance trust (“ILIT”) or trust for children or other heirs, can provide asset protection benefits. Consider:
- Parents should bequeath assets into long term trust for heirs rather than make outright bequests. If benefactors for the client make all gift or testamentary transfers into protective long term trusts for the client the client may be able to have access too, and meaningful control over, those assets, without exposing them to his or her creditors, divorce or other predators. Some commentators refer to these protective yet flexible trusts as beneficiary controlled trusts.
- Spouses and partners should gift and bequeath assets to each other only in protective long-term trusts. Caution should be exercised when spouses (and even other family members) plan to address the reciprocal trust doctrine. While this is a tax doctrine that may enable the IRS to unravel planning, it may also permit a creditor to challenge contributions made by one spouse as having been made by the other spouse when both spouses are funding similar trusts for one another within a relatively short period of time. Many practical steps can be taken to weaken this type of challenge by forming the trusts in different jurisdictions, naming different beneficiaries, using different trustees, varying the terms, not signing the trusts at the same time, funding the trusts with different assets, and so forth.
- Single individuals may have few options other than funding a trust that they themselves are a beneficiary. See discussion of self-settled domestic asset protection trusts (“DAPTs”) below.
Too often clients bequeath assets outright, or even if they use trusts, they do so in a matter that is not optimal. With the increases in estate tax exemption, and even more so if the Trump administration repeals the estate tax, there will be less likelihood that clients who should use trusts for asset protection will do so if the tax incentive is irrelevant. This is why practitioners must proactively educate clients about the importance of trust planning regardless of what happens with future tax changes.
Many irrevocable trusts are simply structured in a manner that is not optimal from an asset protection perspective. Consider the following common shortcomings:
- One of the common issues with trusts is that the distribution provisions are structured in a manner that characterizes them as “support trusts.” This gives the trustee the power to pay trust income to provide for the health education maintenance and support (“HEMS”) of the beneficiary. A support trust is somewhat protective of beneficiary’s interests because the beneficiary is only entitled to distributions for his or her support. A spendthrift provision should be included. But, in some states, a support trust is not as protective as may be necessary to protect the beneficiary because the distributions to maintain support may be reached, and depending on state law put the trust at risk in the event of the beneficiary’s divorce. A preferable approach is to structure trust distribution provisions as a discretionary trust. In contrast to a support trust, distributions under a wholly discretionary trust are made only in the discretion of the trustee. The creditors of a beneficiary of a discretionary trust should not be able to compel the trustee to pay. This is because the interest of the beneficiary does not qualify as a property right so even preferred creditors like spouses may be prevented access. However, it may not provide protection in some jurisdictions from what might be characterized as “super creditors”, which include the Internal Revenue Service, the Federal Trade Commission, and the FDIC.
- Ideally, an independent trustee other than the beneficiary should be named.
- Traditional trusts often distributed assets at specified ages and ended at some specified age, e.g. one-third at age 25, one-half of what remains at 30 and the balance at 35. These mandated distributions and terminations undermine the protection of these trusts from an asset protection perspective.
If a trust is identified that is less than optimal from an asset protection perspective, there may be options to modify the trust to enhance the asset protection benefits of the trust:
- Modify the trust by actions of a trustee or trust protector if permitted under the governing instrument.
- Decanting the trust into a new trust that has better administrative and distribution provisions.
- Merge the existing trust into a new trust that has better administrative and distribution provisions.
- Effect a non-judicial modification pursuant to state statute if the settlor is alive and all beneficiaries are of age or can be represented virtually.
- Move the trust to an asset protection trust jurisdiction by changing trustees, if this will provide protection by the laws of such jurisdiction.
The following discussion summarizes a few of the many different types of irrevocable trusts that may be used in asset protection planning. Many practitioners might view these as more complex and further up the asset protection continuum then a more traditional irrevocable life insurance trust (“ILIT”), or a children or grandchildren’s trust.
Qualified Personal Residence Trust (“QPRT”)
A Qualified Personal Residence Trust (“QPRT”) is a technique whereby a taxpayer gifts his or her home to a special trust while reserving the right to live in the home rent-free for a fixed number of years (the “QPRT term”). Upon the expiration of the QPRT term, the children (or a trust for their benefit, often a grantor trust) will own the home. The parent may continue to live in the residence after the QPRT term pursuant to a fair market lease arrangement.
The estate tax planning advantage of a QPRT, assuming a taxable estate, is that the technique can be used to leverage the gift of a taxpayer’s personal residence out of his or her taxable estate. The leverage is in part due to the fact that the parent/donor retains the right to live in the house rent-free for a fixed number of years. That retained right delays the beneficiary’s receipt of the residence and reduces the value of the gift of the home on a present value basis. Often QPRTs represented an acceptable form of gift because clients could retain their liquid assets intact to cover living expenses. For most moderate wealth clients, there may be no tax benefit from QPRTS with a $5 million inflation adjusted exemption. Why give up the possibility of the basis step-up at death if the client’s estate won’t be taxable? A QPRT, however, might provide some measure of asset protection planning benefits since it transforms an outright equity interest in the home into a mere term of years’ interest that should not be particularly valuable to a creditor. Consider the following:
- If the client is married and lives in a state that provides for tenants by the entirety protection for a home, e.g. New Jersey, practitioners must weigh the possible benefits and limitations of that protection versus the benefits, restrictions and income tax consequences of a QPRT.
- If the state provides a valuable homestead exemption, e.g., Florida, using a QPRT might reduce protection.
- If the client is single a QPRT may be useful, simpler and perhaps safer than transferring the house to a limited liability company which would be held in whole or part by a self-settled DAPT.
A QPRT transaction may be planned and implemented along the following lines:
- Husband and wife jointly own a personal residence. The deed is re-titled to tenants in common so that each spouse owns a one-half interest in the home.
- Counsel creates a separate QPRT trust for each of husband and wife. Being mindful of the reciprocal trust doctrine a different independent trustee is used on each trust and the term of each trust is set for a different number of years. Other differences may also be incorporated in the trusts, although it is unknown how state courts may apply the reciprocal trust doctrine in creditor situations.
- The home is appraised with consideration to possible fractional interest discounts. Under current law if a husband and wife each transfer ½ of a tenant in common interest in a home into a separate QPRT a discount on the valuation of each of those partial interests may be permitted. If the proposed changes in discounts are enacted this further component of leverage for QPRTs will be lost.
- Each of husband and wife gift their one-half interest in the home to their respective QPRT.
- If either spouse outlives the term of their QPRT the 50% interest in the home is transferred to a remainder trust for the children. By using a grantor trust at the “back end”, if the parents wish to continue living in the home the rent they pay to the trust would be disregarded for income tax purposes since it would be tantamount to paying themselves rent. If the QPRT remainder trust is a grantor trust an important issue is whether that trust would be grandfathered if the QPRT is executed and funded before a change in the law or whether possible restrictions on grantor trusts will apply such that the remainder trust may not be treated as having received the home until after the negative law change occurs.
The Treasury Regulations provide that a QPRT may provide that the contributor will receive an annual, or more frequent, annuity payment if the house is sold during the retained use term. In some states an annuity payment interest is creditor protected, and careful drafting may be necessary to facilitate exemption qualification.
Spousal Lifetime Access Trusts (“SLATs”)
Spousal Lifetime Access Trusts (SLATs) can provide a valuable asset protection benefit for married couples. Non-reciprocal SLATs are a common planning technique.[1] These trusts are more robust versions of more traditional irrevocable life insurance trusts (“ILITs”). In fact, properly structured (e.g., with a separate insurance trustee and appropriate insurance provisions) SLATs can hold life insurance and in many instances may be used in that context to eliminate old ILITs simplifying and improving the client’s planning.
With SLATs each spouse creates a trust for the benefit of the other spouse that may include other sprinkle beneficiaries. The couple can effectively move significant assets into trusts yet continue to access all of those assets. The risks of SLATs include premature death which can be insured against, and the possibility of divorce. How might divorce impact a SLAT plan if one of the premises of the plan is that each spouse might indirectly benefit from the assets of the trust they create through the distributions to their spouse. Divorce would undermine that access.
SLATs are almost always structured as grantor trusts so that the income is taxed to the settlor. This will result in the clients paying income tax on income earned in the SLAT thereby reducing their estate and accelerating the growth of assets inside the SLATs. This is also a valuable asset protection benefit as the protections will be enhanced each time the clients/grantors make income tax payments to cover SLAT income. The power of this grantor trust tax burn on the clients’ estates can be powerful. Even a moderate gift by a married couple both age 65 to two non-reciprocal spousal lifetime access trusts (“SLATs”) can shift over the duration of the couple’s life a substantial portion of their wealth outside their taxable and creditor-reachable estate. Monitoring this common planning strategy can permit the couple’s advisers to monitor and modify the planning in future years by making distributions to or for the couple’s benefit if lower investment returns or higher expenses are realized, or by suggesting additional gifts.
Example: Assume husband and wife age 65 and a net worth of $7 million, $1 million in a house and $200,000 in tangibles. Assume the couple has general lifestyle expenses of $150,000, medical expenses of $15,000, and charitable expenses of $10,000 and property taxes of $25,000. These total $200,000. The “burn rate” is about 2.85% on the entire net worth, about 3.5% on investable net worth (i.e., net worth excluding tangibles and the house), and 4.2% on the investment net worth excluding the SLATs. The asset allocation in the SLATs should be more aggressive then for non-SLAT assets since it is a longer term investment “bucket.” At a 70% confidence level, which some advisers deem sufficient for these purposes, the non-SLAT investment assets at death would be $1,313,754. While this might suggest a greater allocation to the initial gifts to the SLATs could be justified, retaining greater assets in the client’s names unfettered by having to access the SLATs may be a more comfortable plan for the clients. Depending on the client’s asset protection concerns forecasting can be used to fine-tune how much can reasonably be transferred to the SLATs without comprising the clients’ ability to support themselves, hence defecting a future challenge that the transfers were a fraudulent conveyance. Note that at a 50% confidence level the investment assets outside the SLATs could be $3,273,007. If the periodic updates of the financial forecast confirm a trajectory on this level or better, then additional transfers could be made to the SLATs or outright gifts if the gift model discussed elsewhere suggests that is appropriate. Bear in mind that these figures do not include house or tangibles. The projected level of assets in the two SLATs at a 70% confidence level is $3,220,197 providing a meaningful state estate tax savings if the couple lives in a decoupled state. At a 50% confidence level nearly $5 million or $4,855,092 of assets are removed from the taxable estate and held in the SLATs. Again the forecasting sensitivity analysis can be used to backstop the planning and support the reasonableness of the transfers. What is an appropriate confidence level to deflect a claim that the clients transferred to large a portion of their wealth? The appreciation inside the SLATs and the use of a swap power to pull unrealized appreciation back into the grantor’s estate would have to be monitored so that the potential capital gains cost does not outweigh the state estate tax savings. If, however, the estate tax is repealed in favor of a capital gains tax on death this planning would have to be reconsidered. Depending on the structure of such a new law the same swap planning may be appropriate, or perhaps inverse swapping to shift appreciation out of the client’s estate and into the trust to avoid a capital gains tax on death may be preferable. But in all instances the transfers to the SLATs may have provided valuable asset protection benefits regardless of the changes to the estate tax system. Importantly, if financial forecasting is integrated into the initial planning phases the client may have a better understanding of how much to transfer and a better result if the transfers are later challenged.
Beneficiary Defective Irrevocable Trust (“BDIT”)
Beneficiary Defective Irrevocable Trusts (” BDITs”) (also called Beneficiary Defective Trusts or “BDTs”), may provide valuable asset protection benefits. An illustration of a possible BDIT plan/technique follows.
The BDIT is an irrevocable trust that uses the common Crummey power that is nearly ubiquitous in insurance trust planning, to allow someone other than a third party benefactor (such as a client’s parent) who establishes the trust for the client and his or her family to be treated as the owner of the trust property for income tax purposes. For instance, the client for whom the BDIT was created can be treated as the owner of the trust for income tax purposes only (i.e. the BDIT is a grantor trust as to the client not the actual settlor). The settlor, e.g., the client’s parent, establishes the trust and makes a $5,000 gift to the trust. The client as beneficiary has the right to withdraw that cash gift using the Crummey power, lapsing power of withdrawal, but does not do so. As a result of the client holding a right of withdrawal under a Crummey power, Code Section 678 treats the client as the owner of the trust property for income tax purposes. This tax characterization is vital to the planning applications.
The client never makes any gratuitous transfers to the BDIT. The trust is intentionally designed so that it is not a grantor trust as to the settlor. This will enable the client, as deemed owner of the trust property for income tax purposes, to sell appreciated assets to the BDIT without triggering income tax consequences. Some practitioners believe that because the client is not the settlor of the trust the BDIT is superior to a self-settled DAPT discussed below. This is why the BDIT is illustrated earlier or lower on the asset protection planning continuum than the DAPT or FAPT below. Once the BDIT is established the client transfers appreciating assets to the BDIT via a nontaxable note sale similar to the traditional note sale to a defective grantor trust.
Why go through these additional machinations to differentiate the BDIT from the DAPT which would permit the same type of sale? Proponents of BDITs argue that a drawback to the DAPT is that the client is the person establishing the trust and making transfers to it. Because the client is the one making the transfers to the DAPT, his or her control over the transferred assets must be substantially limited if the desired estate tax benefits are to be achieved. This drawback, BDIT proponents argue, can be improved using the BDIT technique. Because the client will not make any gratuitous transfers to the BDIT, the assets inside the BDIT are, according to many practitioners who use the technique, more secure from claimants than the assets held in a DAPT. The BDIT is an approach that enables the client to be in substantial control of the transferred wealth, have the use and enjoyment of the trust assets, have the ability to alter beneficial interests in the trust through a limited testamentary power of appointment, have divorce and creditor protection, and estate tax savings (which again will depend on future changes in the transfer tax laws). This is supposedly achieved without some of the perceived risks of self-settled trusts or DAPTs. Some commentators, who are not as comfortable with the BDIT technique, may reduce the control provisions granted to the client to make the BDIT, in their view, more secure.
Many planners caution that a court may consider the beneficiary of the BDIT to be a contributor if the beneficiary has sold assets on a discounted or otherwise advantageous basis to the BDIT, or if significant leverage has been used that would not be common under normal commercial transactions.
Entities, Contractual Relationships and Other Steps
The following steps, are some of the most common and can often be harnessed for a large number of clients in a cost effective manner. In addition to creditor protection, there are important steps that can be taken to shield clients from liability, which includes prudent use of limited liability companies (“LLCs”) and other limited liability entities (corporations, S Corporations, limited partnerships, limited liability partnerships, etc.).
In addition to entities it may be feasible to provide some measure of protection by reasonably re-characterizing relationships, such as by making employees into independent contractors and outsourcing risky activities to third parties. Some of the key and easy ways to effectuate creditor protection mechanisms for individuals who have assets that are not protected under the statutory exemptions may include the planed use of entities and legal relationships.
Many clients will benefit from the planned use of limited partnerships and limited liability companies (“LLCs”) to help make assets much more difficult to be reached by a judgment creditor.
Example: A judgment holder could levy upon all stocks and bonds owned by a debtor. However, before any claim arose the client transferred assets to an LLC. The client/debtor owns 95% of the LLC and the remaining 5% of the membership interests are owned by her parents, or a trust for her children. In most states the creditor cannot reach into the LLC, but generally will only instead receive a charging order which gives the creditor the right to receive 95% of any distributions, but only if and when there would be a distribution. The courts will normally not have any power to require distributions, so creditors typically negotiate favorable settlements when their only avenue is to receive a charging order.
But even this planning without more may not provide the desired and anticipated protection. The LLC must be operated with appropriate formalities. Ideally it should have a written operating agreement, separate bank account, funds should not be commingled, a valid business purpose for the LLC should exist, proper books and records should be maintained, tax returns filed appropriately and distributions made in accordance with the ownership interests in the LLC. If the client participates in annual meetings with all of her advisers and permits professionals to guide the operational formalities, the likelihood of success may be significantly enhanced.
Mandatory Outright Trust Distributions – How To Plan For The What Ifs, Maybes, and Contingencies That Could Cause a Loss of The Intended Distribution
by Christopher J. Denicolo
Many clients wish to have testamentary dispositions or trust distributions to be made to their children or other intended beneficiaries outright and free of trust. Purposes for doing so include simplicity, and affording the intended beneficiaries the freedom of receiving the benefit of the disposition without the constraints or formalities of an ongoing trust, and to allow the intended beneficiary to have complete discretion over the assets.
However, drafting wills and trusts to provide for required outright distributions to a beneficiary could cause the distribution to be subject to the beneficiary’s creditors, a possible divorce situation, and the federal or state estate tax. This is because state law and federal tax law consider assets to be owned by the beneficiary to the extent that they are required to be paid out to the beneficiary or that the beneficiary can withdraw them without regard to any ascertainable standard.
On the opposite end of the continuum is the approach of having inheritances held under an irrevocable trust for the benefit of the intended beneficiary, with third-party independent trustees who are able to make distributions for the beneficiary’s benefit based upon his or her health, education, maintenance, and support. Under Florida law, a beneficiary’s interest in a trust with these provisions should not be available or subject to his or her creditors. Additionally, Florida law provides that, even if the beneficiary is the sole trustee of such a trust established for his or her benefit, then the beneficiary’s creditors would not be able to reach the assets of the trust, except in special circumstances (such as with respect to past alimony and child support payments.)
A middle approach is to have an inheritance paid to a trust established for the desired beneficiary, but to permit an independent party to make outright distributions of assets to a beneficiary as the trustee deems in his or her discretion. Additionally, the trust can require that an independent trustee make distributions to the desired beneficiary only upon the beneficiary obtaining a certain age or achieving a specified professional, educational, or personal milestone, subject to the independent trustee’s ability to withhold any such distribution based upon the creditor circumstances of the applicable beneficiary.
For example, the following language can be used to facilitate this:
Upon attaining the ages specified below, a Primary Beneficiary shall have the power to withdraw outright the following percentages of the remaining property in his or her separate trust, provided that such Primary Beneficiary first obtains written consent from the Withdrawal Protector then serving:
Age Percentage
25 33 1/3%
30 50%
35 100%
The term “Withdrawal Protector” shall mean my sister, JANE CLIENT, or my spouse’s father, JOHN SMITH, if JANE CLIENT is unable to consent due to her death or incapacity, or the licensed trust company then serving as a Co-Trustee of this Trust if neither of JANE CLIENT nor JOHN SMITH are able to serve as Withdrawal Protector.
As a result of the consent of the Withdrawal Protector being necessary for a Primary Beneficiary to exercise such withdrawal power, the Withdrawal Protector, may, in his, her or its sole discretion, in accordance with the advice of legal, tax or other personal advisors, and after taking into account the personal situation of the Primary Beneficiary, withhold such consent based upon circumstances that indicate that such withdrawal would likely be subject to seizure by a creditor, ex-spouse or other third party, if the Primary Beneficiary is insolvent, or if such withdrawal would cause adverse tax consequences. It is my intent that this provision prevent the attachment of such withdrawal by a creditor, and that such distribution would be used to or for the benefit of the Primary Beneficiary and not to be available for any such creditors of the applicable Primary Beneficiary. In the event that a Non-GST Trust is established for the benefit of the applicable Primary Beneficiary, then the withdrawal power described in this subsection shall first be made from such Non-GST Trust before the GST Trust established hereunder is accessed for this purpose.
The Primary Beneficiary shall exercise this power by written notice to the Trustee, and to the Withdrawal Protector, and the Withdrawal Protector may consent to such withdrawal in writing, provided that the Withdrawal Protector may provide advance written consent of a Primary Beneficiary being able to exercise their withdrawal power, and such advance consent shall be effective until such time that the then serving Withdrawal Protector revokes or cancels such consent.
Any portion of a separate trust over which the Primary Beneficiary holds but fails to exercise a power of withdrawal shall continue to be held in trust, subject to the Primary Beneficiary’s continuing power of withdrawal with the consent of the Withdrawal Protector. If the Primary Beneficiary shall already have attained one of the above-listed ages at the time of the establishment of such beneficiary’s separate trust, and if the Withdrawal Protector has given written consent as provided above, the Primary Beneficiary shall have the right to withdraw at such time a portion of his or her separate trust up to the corresponding percentage or percentages on a cumulative basis. For example, if this provision provides that the Primary Beneficiary shall have the right to withdraw thirty-three and one-third percent (33 1/3%) of his or her separate trust at age twenty-five (25), fifty percent (50%) of the remainder at age thirty (30), and one hundred percent (100%) of the remainder at age thirty-five (35), and such Primary Beneficiary has attained the age of thirty (30) when his or her separate trust is established, then the Primary Beneficiary shall have the immediate right to withdraw up to sixty-six and two-thirds percent (66 2/3%) of the principal of his or her separate trust.
Another approach would be to automatically have distributions paid outright to the applicable beneficiary, but to provide that the distribution will not be paid if the beneficiary is insolvent, is in the process of getting divorced, or the trustee reasonably believes that there is a creditor situation. An example of language to facilitate this is as follows:
Upon attaining the ages specified below, a Primary Beneficiary shall have the power to withdraw outright the following percentages of the remaining property in his or her separate trust, provided that any Independent Trustee or Trustees then serving shall have the ability to withhold any such distribution based upon circumstances that indicate that such distribution would likely be subject to seizure by a creditor, ex-spouse or…
It is often impossible to determine what future circumstances might be present with respect to a particular beneficiary. Thus, planners will want to discuss various options with their clients to ensure that inheritances and testamentary dispositions are structured to avoid possible creditor claims and loss of assets while achieving the client’s underlying objectives in their estate plan. Many clients like to have trust protectors or other independent parties appointed under the trust document in order to assure that the provisions of the trust can be amended if circumstances change in the future. It is therefore important to inform clients of their options in using one or more of the above approaches, and to provide for mechanisms to protect assets and beneficiaries from what might arise in the future.
Disposition Without Administration
by Kenneth J. Crotty
If an individual died with assets titled in his or her name, Florida Statute § 735.301 provides that a disposition without administration may be available. A disposition without administration allows title to these assets to be changed without requiring a probate or a summary administration to be administered.
Florida Statute § 735.301 reads as follows:
735.301 Disposition without administration.
(1) No administration shall be required or formal proceedings instituted upon the estate of a decedent leaving only personal property exempt under the provisions of s. 732.402, personal property exempt from the claims of creditors under the Constitution of Florida, and nonexempt personal property the value of which does not exceed the sum of the amount of preferred funeral expenses and reasonable and necessary medical and hospital expenses of the last 60 days of the last illness.
(2) Upon informal application by affidavit, letter, or otherwise by any interested party, and if the court is satisfied that subsection (1) is applicable, the court, by letter or other writing under the seal of the court, may authorize the payment, transfer, or disposition of the personal property, tangible or intangible, belonging to the decedent to those persons entitled.
(3) Any person, firm, or corporation paying, delivering, or transferring property under the authorization shall be forever discharged from liability thereon.
Several qualifications related to using the disposition without administration process may not be clear and can pose issues for practitioners and clients. For example, preferred funeral expenses are limited to $6,000 regardless of the actual amount spent on the decedent’s funeral. This means that if the assets are nonexempt personal property, the total value of these nonexempt assets may not exceed the sum of (1) the medical and hospital expenses paid and (2) the lesser of (a) the funeral expenses paid or (b) $6,000.
With respect to personal property of the decedent that is exempt under the provisions of § 732.402, a disposition without administration may only be used if the exempt property passes to the surviving spouse or to a child or the decedent if there is no surviving spouse. Exempt property is limited to household furniture, furnishings, and appliances in the decedent’s residence up to a value of $20,000. It also includes two motor vehicles in the decedent’s name which are regularly used by the decedent or members of the decedent’s immediate family as their personal vehicles, subject to other limitations. Exempt property also includes all qualified tuition programs and other personal assets (including cash) up to a value of $1,000.
With respect to a disposition without administration for non-exempt property, the property can pass to (1) the surviving spouse, (2) to a child if there is no surviving spouse, or (3) to a third party who paid the decedent’s funeral bill and/or final medical bills if there is a surviving spouse or child. If there is a surviving spouse or child, a third party may only receive non-exempt property through a disposition without administration.
If the decedent had no surviving spouse or children, then a third party who paid the decedent’s funeral and or medical expenses may use a disposition without administration to receive exempt and non-exempt property so long as the total value does not exceed the sum of (1) the medical and hospital expenses paid and (2) the lesser of (a) the funeral expenses paid or (b) $6,000.
While a disposition without administration is a useful tool to transfer title to assets, practitioners and clients need to be sure that the client will be able to proceed with the disposition without administration based on the limitations described above. Otherwise, a formal probate or summary administration will need to be administered to transfer title to the assets.
Detailed Look at Business Systems to Handle 3 Common Company Situations
By David Finkel
David Finkel is the Wall Street Journal bestselling author of Scale: Seven Proven Principles to Grow Your Business and Get Your Life Back http://www.amazon.com/Scale-Seven-Proven-Principles-Business/dp/1591847249/ref=cm_cr_pr_product_top
As a business owner we understand that implementing systems is a key ingredient to help us scale. What isn’t always so obvious is how to do this.
Here is a simple checklist of the best formats from which to choose from for three common situations that your business needs to implement systems to handle.
Situation One: A system to coordinate activities between multiple people
(E.g. To produce a product or deliver a service.)
- A defined timeline: This lets all players visually see the sequencing of steps and stages in a way that they can integrate into their personal calendars.
- A flow chart of the process steps: Not only does this let you better organize and optimize the process, but it makes key dependencies clear and gives all players in the system a better understanding of how their work fits into the bigger picture.
- A project “task list”: Built like a checklist, this tool helps you clarify explicitly who needs to do what, by when. (Once you have this nailed, I encourage you to consider online tools like Zoho Projects or Basecamp in which to house these project task lists.)
- An event “screen play”: Ever watch a play? What you don’t know is that the stage manager has in front of her a detailed scene-by-scene 3-ring binder that lists out exactly which props are being used and where they are placed, who is in which scenes (and where they enter onto the stage, and the lighting and sound cues that will happen and when. Done as a progressive timeline, this is like a timeline on steroids. For example, my company, Maui Mastermind, produces 4-6 high end business owner training workshops per year. We have our “screen play” that lays out exactly what props go where, which handouts need to be given to participants and when, what A/V needs are for each segment, etc.
Situation Two: A system to guarantee all the steps in a complicated process are followed.
(E.g. To produce a successful event or ship a complicated order accurately.)
- A comprehensive checklist: As long as all the boxes are checked your company can be confident that all the steps were followed.
- A procedural recipe: Typed out long-hand, this is simply a complete list of all the steps in the process, in order. This is very useful to capture key company knowledge, when training a new team member, or working to optimize a process. But be aware that once a team member is fluent with a process, he or she will likely just ignore this long, intimidating written out process.
- A “cheat sheet” version checklist: For people who do a process over and over, this shorthand version will give them the mental anchor to make sure all the key steps are taken, in order, but not be so overloaded with non-essential information that your staff might be tempted to skip over it. For example, think of the checklists that pilots use for various situations. They are honed down and rely on the pilot being trained in the background expertise to wield each of these checklists for a specific outcome. Airlines know that if they were to give their pilots a 17-page version of the checklist that most wouldn’t read it.
- Technology automation: Remember that anything that can be automated is one of your best ways to make sure all the needed steps in a complicated process are in fact being followed. If it can be reduced to software, and that software can be checked and double-checked, then you now have an exceptionally scalable way to handle that portion of your system.
- Templates: When you template a complicated process (or more likely, when you template a portion of that complicated process) you build in much of the expertise into that template. It’s a great form of embedded control to protect your company as you scale.
Situation Three: A system to capture key company “know-how” that has been painfully gained through experience and expensive trial and error.
(E.g. Contracts for vendors or customer project history.)
- A database of key information: This could be a spreadsheet with vendor pricing, a CRM with all key customer emails and customer notes, or even a project management folder or workspace tool housing all key contracts, task checklists, and work papers.
- A template of key work output: As I shared above, a template is a great way to capture expert knowledge. These could include a “Request for Proposal” template, a standardized “bid” template, or a “new client record in CRM” template.
- Standardized system tools: These could include formatted spreadsheets with built-in (and proofed) formulas, diagnostic decision trees to help a team member visually approach a situation, or even a simple worksheet that prompts your team to record all the key information in an organized way.
- FAQs: A great way to list out in a searchable format the most common questions and their respective answers about key areas of your business. You could have an FAQ that explains how to do your monthly client invoicing, or how to prepare for a trade-show, or even how to follow-up with the project team.
- Formal project debriefing sessions: If you do a lot of “brainwork” to produce your product or service offering, then consider regular “debriefing” sessions during which you pull key team members into a conference room and run through a structured series of questions with the aim of capturing new insights, best practices, improvements, expensive failures to learn from, etc. from your team that performed that work. Then make sure you store and share that information in standardized ways. For example, consider sending out a 2-page “project write up” to your entire team after a key project closes with the top insights (perhaps with link to more detailed information that came out of your debrief.)
So there you have a detailed look at how to make systems real in your company.
Richard Connolly’s World
Insurance advisor Richard Connolly of Ward & Connolly in Columbus, Ohio often shares pertinent articles found in well-known publications such as The Wall Street Journal, Barron’s, and The New York Times. Each week, we will feature some of Richard’s recommendations with links to the articles.
This week, the article of interest is “Trust Beneficiaries Eliminated Through a Decanting Done Pursuant to the Trust Instrument Found Valid in New York” by Mary P. O’Reilly and Jason Smith. This article was featured in May 8th’s Steve Leimberg’s Estate Planning Email Newsletter.
Richard’s description is as follows:
The attached Leimberg newsletter reports:
“In Matter of Hoppenstein, the New York County Surrogate’s Court found the distribution of a life insurance policy from one trust to another trust which eliminated certain beneficiaries of the original trust was a valid exercise of the trustee’s discretionary power to distribute principal under the trust instrument.
Under the terms of the original trust, the independent trustee had discretion to distribute principal to one or more beneficiaries (to the exclusion of other beneficiaries) and/or to a trust for their benefit after providing written notice to all beneficiaries.
The ruling is a significant victory for settlors and clients creating trusts, confirming that the words of the trust instrument matter and can be relied upon by trustees in administering trusts.
Thoughtful Corner
The Art of Terms of Art
When drafting documents and correspondence, it is important to assure that references to terms of art or other concepts are consistent throughout the document. This helps assure that the reader follows and understands what is being conveyed, and that there is no confusion between references.
For example, if a term of art is defined by a particular concept, then all references to this concept should refer to the term of art. We have seen a great many documents which neglect to create a term of art where one is necessary, or which do not utilize it appropriately, which can lead to confusion and possible misunderstandings.
Using terms of art avoids situations where synonyms are employed to refer to a similar concept. For example, references to a particular legal entity could be a “company,” a “corporation,” a “practice,” or the name of the actual entity. The confusion from doing this can be rectified by using a term of art that refers to the particular entity.
This helps the drafter communicate in clear and unambiguous terms to help assure that the message is not lost on the reader.
Humor! (Or lack thereof!)
Sign Sayings
Wanted: Ex-FBI Director to run the Thursday Report. Includes drama, secrecy, intrigue, and unlimited Kentucky Fried Chicken. Some knowledge of the Russian language will be useful.
Upcoming Seminars and Webinars
Calendar of Events
Barrett Family Foundation webinar with Dr. John Barrett
Alan will be joined by Dr. John Barrett to discuss the Barrett Family Foundation event on October 19th at the Palladium in St. Petersburg, Florida.
Date: Tuesday, May 16th, 2017 at 12:30 P.M.
To register go to: https://attendee.gotowebinar.com/register/7954805380907609091
Additional Information: For more information, please email Alan at agassman@gassmanpa.com
LIVE PRESENTATION
Alan will be speaking at the All Children’s Hospital Leadership Executive Academic Development (LEAD) – Leaders in Individualized Medicine II and Business of Medicine II.
Date: Wednesday, May 17, 2017 – The presentation will be a private gig, but an audio recording will be available. Alan’s sessions are as follows:|
1:00 – 2:00 p.m. Session 4: Introduction to Financial Planning – and Successful Life Planning for Physicians.
2:00 – 3:00 p.m. Session 5: Negotiating the First Employment Agreement – How Physician Recruitment Agreements Work & Negotiation
3:15 – 4:00 p.m. Session 6: Business and Business Law for Doctors, Including Happiness at Work, Making More Money & Having Your Own Practice Inside or Outside Someone Else’s
4:00 – 5:00 p.m. Session 7: Criminal Law Compliance, Asset Protection Planning & Litigation and Depositions
5:00 – 5:15 p.m. Session 8: Putting it All Together
Additional Information: For more information, please email Alan at agassman@gassmanpa.com
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Monthly Business Law Webinar with Alan Gassman and Friends
Series 3: Designing and Enforcing Non-Competition Covenants in Florida with Darryl Richards of the Johnson Pope Law Firm.
Date: Tuesday, May 23rd, 2017 at 12:30 P.M.
To register go to: https://attendee.gotowebinar.com/register/9135252058342728195
Additional Information:
For more information, please email Alan at agassman@gassmanpa.com
To register for this entire series, please email jason@gassmanpa.com
LIVE TAMPA PRESENTATION
Alan, along with David Finkel will present a one-day seminar at the Accredited Investors Wealth Workshop. Alan, in particular, will be speaking on The 10 “Must Have” Creditor Protection Strategies to Protect Your Wealth.
Date: Friday, June 2, 2017 | Check In 7:45 a.m. | Starts 8:30 a.m. | Ends ~5 p.m. | Hosted bar networking reception to follow.
Location: Tampa Westshore Marriott 1001 N Westshore Blvd, Tampa, FL 33607
Additional Information: For more information, please email Alan at agassman@gassmanpa.com
LIVE TAMPA PRESENTATION
Alan, along with Dr. Singh, David Finkel and Kevin Bassett will present a one-day seminar on how to Scale Your Medical Practice. Alan, in particular, will be speaking on asset protection for physicians and medical practices.
Date: Sunday, June 4, 2017 | Check In 7:45 a.m. | Starts 8:30 a.m. | Ends ~5 p.m. | Hosted cocktail social with appetizers to follow.
Location: Tampa Westshore Marriott 1001 N Westshore Blvd, Tampa, FL 33607
Additional Information: For more information, please email Alan at agassman@gassmanpa.com
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Florida Bar Tax Section Phone CLE Program
A Practical Update on the Trump Administration Tax Changes, and How to Advise Clients Accordingly.
Date: Wednesday, June 7, 2017 from 12:00 P.M. – 1:00 P.M.
Registration Details: TBA
******************************************************************************ZPIC Investigations of Medical Practices webinar with Lester Perling
Alan, along with Lester Perling, will update us on the ZPIC investigations
Date: Friday, June 16, 2017 | from 12:30 P.M
To Register, Please go to https://attendee.gotowebinar.com/register/4622958594211084033
Monthly Business Law Webinar with Alan Gassman and Friends
Series 4: Coordinating Business Conduct, Contractor Relationships and Insurances with Chuck Wasson.
Date: Tuesday, June 20th, 2017 at 12:30 P.M.
To register go to: https://attendee.gotowebinar.com/register/4299825319267582211
Additional Information:
For more information, please email Alan at agassman@gassmanpa.com
To register for this entire series, please email jason@gassmanpa.com
Webinar: Maui Mastermind
Alan will be the guest speaker for a Maui Mastermind webinar moderated by Maui Mastermind CEO, David Finkel
Dates: Tuesday, June 27th from 1 P.M – 2 P.M. (Eastern) Topic: Negotiating Leases for Your Business and Related Relationships
Additional Information: For more information, please email Alan at agassman@gassmanpa.com
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Health Law Update webinar with Lester Perling
Alan, along with Lester Perling, will update us on the Health Law Update for Florida CMS and ACA.
Date: Thursday, June 29, 2017 | from 12:30 P.M. – 1:00 P.M.
To Register, Please go to https://attendee.gotowebinar.com/register/6845642240213202946
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Monthly Business Law Webinar with Alan Gassman and Friends
Series 5: Creditor Protection Planning for the Professional Practice or Operating Business
Date: Tuesday, July 25th, 2017 at 12:30 P.M.
To register go to: https://attendee.gotowebinar.com/register/471874487653868291
Additional Information:
For more information, please email Alan at agassman@gassmanpa.com
To register for this entire series, please email jason@gassmanpa.com
Marty Shenkman and Alan Gassman on the Asset Protection Continuum.
Martin Shenkman
Marty Shenkman is well known to most estate planning and tax professionals. He practices in New Jersey and has published over 40 books on estate planning, tax and related topics. His abilities are beyond legendary, including the Heckerling Reports that he issues daily during the Heckerling Estate Planning Institute, and the Notre Dame Tax and Estate Planning Institute Reports that he issues as well.
Please come out to meet Marty on August 21st at All Children’s Hospital at the Conference Center for a one hour continuing education program on a topic to be announced.
Marty and Alan recently presented a webinar on the asset protection continuum, which concentrates on bread and butter creditor protection measures that can be taken for clients without the need for complicated or expensive “asset protection trust systems” and other arrangements.
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Monthly Business Law Webinar with Alan Gassman and Friends
Series 6: The Art and Science of Negotiating Agreements with David Finkel and Steve Maxwell
Date: Tuesday, August 15th, 2017 at 12:30 P.M.
To register go to: https://attendee.gotowebinar.com/register/1353295785037253635
Additional Information:
For more information, please email Alan at agassman@gassmanpa.com
To register for this entire series, please email jason@gassmanpa.com
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LIVE LINCOLN NEBRASKA PRESENTATION
Alan will speak at the Nebraska Medical Association’s Annual Meeting in Lincoln, Nebraska. His topics include: Top 10 Mistakes Physicians Make with Investments/Business & Lawsuits 101.
Date: Friday, September 8, 2017 | 1:30 p.m. & 4:30 p.m.
Location: Lincoln, Nebraska
Additional Information: For more information, please email Alan at agassman@gassmanpa.com.
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LIVE NEW PORT RICHEY PRESENTATION
Alan will be speaking at the New Port Richey Charitable Consortium on new estate planning issues and hot topics.
Date: Thursday, September 14, 2017 | 12:00 p.m. (eastern)
Location: Spartan Manor 6121 Massachusetts Avenue, New Port Richey, FL 34653
Additional Information: For more information, please email Alan at agassman@gassmanpa.com
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LIVE PRESENTATION:
ESTATE PLANNING COUNCIL OF NORTHEAST FLORIDA (Jacksonville)
Please put Tuesday, September 19, 2017 on your calendar to enjoy a dinner conference for the Estate Planning Council of Northeast Florida.
Date: Tuesday, September 19, 2017
Location: TBA
Additional Information: For more information, please email Alan at agassman@gassmanpa.com
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Alan on the Hot Seat!:
Alan will be the guest speaker for a “Hot Seat” question and answer session moderated by Maui Mastermind CEO, David Finkel. This series is provided especially for Maui Mastermind clients and their advisors.
Date: Thursday, September 21st from 1 P.M – 2 P.M. (Eastern) Business Law Hot Seat Sessions: A Moderated Q&A Session to Get help on Your Most Pressing Business Law Questions
Additional Information: For more information, please email Alan at agassman@gassmanpa.com.
To submit questions for the Hot Seat sessions, please send to lawquestions@mauimastermind.com at least 2-3 days ahead of time.
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Monthly Business Law Webinar with Alan Gassman and Friends
Series 7: Negotiating the Purchase and Sale of a Business with John McDonald of Hyde Park Capital
Date: Tuesday, September 26th, 2017 at 12:30 P.M.
To register go to: https://attendee.gotowebinar.com/register/3133928477941465347
Additional Information:
For more information, please email Alan at agassman@gassmanpa.com
To register for this entire series, please email jason@gassmanpa.com
LIVE PRESENTATION-Naples Estate Planning Council
Alan will be speaking at the Naples Estate Planning Conference
Subject: IRA Planning with Trusts, Minimum Distributions, and Associated Topics – How to Learn the Rules and Use Them Expeditiously
Date: Friday, October 13th, 2017 – 8 A.M. – 5 P.M.
Location: Naples-Exact Location TBD
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LIVE PRESENTATION:
2017 MER CONTINUING EDUCATION PROGRAM TALKS FOR PHYSICIANS
Alan will be speaking at the following Medical Education Resources (MER) events:
- October 20th – October 22nd, 2017 in New York, New York
- November 30th – December 3rd, 2017 in Nassau, Bahamas
His tentative topics for these events include the 10 Biggest Mistakes Physicians Make in Their Investments and Business Planning, Lawsuits 101, 50 Ways to Leave Your Overhead, and Essential Creditor Protection and Retirement Planning Considerations.
Date: New York: October 20th – 22nd, 2017
Nassau: November 30th – December 3rd, 2017
Location: New York: To be determined.
Nassau: Atlantis Hotel | Paradise Beach Drive, Paradise Island, Bahamas
Additional Information: For more information, please email Alan at agassman@gassmanpa.com.
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42nd Annual Notre Dame Tax & Estate Planning Institute
Alan will be presenting on “What Estate Planners Need to Know About Bankruptcy”
Date: Wednesday, October 26th, 2017
Additional Information:
For more information, please email Alan at agassman@gassmanpa.com
Monthly Business Law Webinar with Alan Gassman and Friends
Series 8: Choice of Entity and Multiple Entity Structures
Date: Tuesday, October 31st, 2017 at 12:30 P.M.
To register go to: https://attendee.gotowebinar.com/register/9026149718541918979
Additional Information:
For more information, please email Alan at agassman@gassmanpa.com
To register for this entire series, please email jason@gassmanpa.com
Monthly Business Law Webinar with Alan Gassman and Friends
Series 9: Uses and Abuses of Independent Contractor Agreements
Date: Tuesday, November 21st, 2017 at 12:30 P.M.
To register go to: https://attendee.gotowebinar.com/register/8342069867623416835
Additional Information:
For more information, please email Alan at agassman@gassmanpa.com
To register for this entire series, please email jason@gassmanpa.com
Monthly Business Law Webinar with Alan Gassman and Friends
Series 10: Income Tax Strategies and Compliance Aspects of Business Planning
Date: Tuesday, December 19th, 2017 at 12:30 P.M.
To register go to: https://attendee.gotowebinar.com/register/608938507660895491
Additional Information:
For more information, please email Alan at agassman@gassmanpa.com
To register for this entire series, please email jason@gassmanpa.com
LIVE ESTATE PLANNING COUNCIL OF NORTHEAST FLORIDA PRESENTATION:
Alan will be speaking for the Estate Planning Council of Northeast Florida on March 20, 2018 on the topic of DYNAMIC PLANNING STRATEGIES FOR THE SUCCESSFUL CLIENT.
Date: Tuesday, March 20, 2018
Location: To Be Determined
Additional Information: For more information, please email Alan at agassman@gassmanpa.com.
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LIVE PRESENTATION:
2018 MER CONTINUING EDUCATION PROGRAM TALKS FOR PHYSICIANS
Alan will be speaking at the Medical Education Resources (MER) event:
Date: May 17 – 20, 2018
Location: Nassau, Bahamas – Atlantis Paradise Island Resort
Additional Information: For more information, please email Alan at agassman@gassmanpa.com
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 2017 |
Annual | 1.11% | Annual | 2.12% | Annual | 2.82% |
| Semi-Annual | 1.11% | Semi-Annual | 2.11% | Semi-Annual | 2.80% | |
| Quarterly | 1.11% | Quarterly | 2.10% | Quarterly | 2.79% | |
| Monthly | 1.11% | Monthly | 2.10% | Monthly | 2.78% | |
| March 2017 |
Annual | 1.01% | Annual | 2.05% | Annual | 2.78% |
| Semi-Annual | 1.01% | Semi-Annual | 2.04% | Semi-Annual | 2.76% | |
| Quarterly | 1.01% | Quarterly | 2.03% | Quarterly | 2.75% | |
| Monthly | 1.01% | Monthly | 2.03% | Monthly | 2.74% | |
| February 2017 |
Annual | 1.04% | Annual | 2.10% | Annual | 2.81% |
| Semi-Annual | 1.04% | Semi-Annual | 2.09% | Semi-Annual | 2.79% | |
| Quarterly | 1.04% | Quarterly | 2.08% | Quarterly | 2.78% | |
| Monthly | 1.04% | Monthly | 2.08% | Monthly | 2.77% | |
[1] 909.” Beware of the Reciprocal Trust Doctrine: If not set up properly, a popular strategy could backfire.” Martin Shenkman and Bruce Steiner. Trusts & Estates Magazine, April 2012. pp. 14-18