After The Fiscal Cliff

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Fiscal CliffWhat has Changed in the Estate and Gift Tax Laws? By Geri McHam

Congress passed the American Taxpayer Relief Act of 2012’’ (“ATRA”) that made the federal estate tax exemption permanent on January 1, 2013.  In a last minute move before we went over the “fiscal cliff”, in an 11th hour tax law passed by the Senate on New Year’s Eve, and by the House of Representatives one day later, mostly what Congress did was to make permanent the system that has been in effect for the past two years.  I am just thankful that we now have permanence that has been missing for the last 12 years.

What’s most important to us as planners is how the “fiscal cliff” deal changes will affect our clients’ existing estate plans and whether any changes are necessary.

Most estate planning documents deal with non-tax issues, including the very valuable benefit of structuring assets to avoid the probate process at death and to provide creditor protection for beneficiaries.  The Power of Attorney, Conservator, and healthcare documents are all extremely important and necessary.  These documents are critical to avoid unnecessary court oversight and expense, delay, and intrusion.

What are the provisions of the ATRA that will affect my estate planning practice or clients?

Top gift, estate and GST tax rates are set at 40%. ATRA 2012 establishes the top gift, estate, and GST tax rates at 40% for gifts made and decedents dying in 2013 and thereafter. This top rate is higher than the 2012 rate of 35%, but lower than the 55% rate that would have come into effect on January 1 in the absence of legislation. This top rate will apply to transfers exceeding the exemption amounts.

Exemption amount:  Permanently set at $5,000,000 per client, indexed for an inflation adjustment beginning 2012 ($5.12 million in 2012).   The estate tax exclusion amount for deaths in 2013 will be $5.25 million.

Gift Tax Rate:  The estate and gift taxes will remain unified, so the $5 million exemption also applies for gift tax purposes, and will follow the estate tax rate.  The rate was permanently set to 40% of the amount over the exemption.  In addition, the annual gift exclusion amount was raised to $14,000 per person this year.

Generation Skipping Tax Rate:  The generation skipping tax exemption follows the estate tax rate.  The rate was permanently set to 40% of the amount over the exemption.

Portability made permanent:  Further, the deal continues the estate tax portability provisions that allow a surviving spouse to take advantage of his or her deceased spouse’s unused exemption amount. This provision allows a surviving spouse to avoid complicated estate planning by recognizing that gifts between spouses are typically tax free and allowing the exemption to be portable between both spouses.  In order to utilize this, a 706 tax return MUST be filed within 9 months, so in my opinion, portability is less than optimal in many cases.

Use of the A/B/Bypass Trust:  Some of the discussion since passing this legislation has focused on the use of A/B trust structure, and whether planning is better without the credit shelter trust.  I still am in favor of estate planning with an A/B/C trust, especially to preserve a decedent’s share in case of a remarriage of the survivor spouse, and also to allow the flexibility of state estate tax planning.  As long as the trust is flexible enough to allow the options of funding the various sub-trusts to the survivor spouse, which ours does, you still have the benefit of planning that gives the most flexibility to the survivor.  We will review the provisions in our trust as a precaution

Upside to IRA Planning in ATRA

Hidden in the law — along with the typical year-end riders attached to a last minute piece of legislation, including tax breaks for NASCAR and the alternative fuel industry — were a couple of tangible impacts to the retirement world, though one may offer just short-term benefits. First, it looks as though folks hoping to roll over their regular 401(k)s to Roth 401(k)s may get an opportunity for a long-term tax break — lord knows you’re going to need one, as your taxes really are going to go up.  A new provision in the package will allow 401(k), 403(b) and 457(b) participants to make the leap to a Roth 401(k) without waiting for the traditional qualifying events (retirement, reaching age 59 1/2 or changing jobs).  Why? Because doing so immediately sends that tax deferral — which you’ll have to pay up front — to Washington, rather than waiting until your far-off retirement day, and Washington wants your taxes. It’s a huge opportunity for regular folks to make that Roth conversion – provided they have the financial wherewithal to pay those taxes much sooner than later.

Potential future legislation. It is important to note that there may be a push for additional revenue-raising legislation as political debates continue. The current administration has expressed its desire to limit the advantages of GRATs, grantor trusts, GST-exempt dynasty trusts, and transfers in family entities that qualify for valuation discounts. Clients who might consider employing those techniques may wish to do so sooner rather than later.

Why You Need a Lawyer to Create Your Estate Plan

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In California, a case has recently been filed against Legal Zoom; an online site that markets wills and trusts without the need to meet with an attorney. The case involves a man with a terminal condition who used Legal Zoom to draft a trust and pour over will. The documents were signed but the trust was never funded because financial institutions that held the man's money refused to recognize the validity of the documents. The man died without getting the trust funded.

It remains to be seen what the outcome of the case will be but it does highlight the importance of getting a lawyer to draft your revocable trust and companion documents. In most cases, a face to face meeting will elicit important facts so that your trust and other documents accurately reflect what you want to happen after your death.

Some circumstances that dictate hiring an attorney to create an estate plan are the following:

1. You are in a second marriage with children of other relationships
2. You own real estate in more than one state.
3. You want to benefit a charity in some way
4. You own a business and want to provide for someone to take over the business after your death
5. You have a taxable estate.
6. You have substantial assets in 401(k)s or IRAs
7. You have a beneficiary who is disabled
8. You have minor children and want to provide for distributions to them at intervals or for specific purposes.
9. Your children have drug or alcohol problems and need a trust that will take that into consideration
10. You want to have someone you can call when you have questions or want to make changes in your documents.

Roy M. Doppelt & Associates

Retirement Accounts – Who is the Beneficiary of Your Account?

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Have you checked your beneficiary designation for your retirement account recently? If not, you may find that your designated beneficiary is not who or what you think it should be, especially if you have divorced, remarried or had children since your retirement plan account was established.

Outdated Beneficiary Designations

There have been numerous cases of retirement-account owners who have been divorced and remarried but have neglected to update their beneficiary designations accordingly. This can be quite frustrating for their survivors, who must battle in court for a legal determination of the true beneficiary. The court's decision, however, may not necessarily be what the deceased would have wanted.

A similar dilemma arises if children are named as beneficiaries but the document has not been updated to include those who were born after you set up your account. To prevent these situations, you should update your beneficiary designation periodically or even immediately after you experience a change in family status. Should you need to, you may submit a change-of-beneficiary form.

Per Stirpes Designations

In the event your child predeceases you, a per stirpes beneficiary designation would allocate that share to the child's issue – your grandchildren.  If you don't name them, they will be disinherited from taking the share of their parent.

Make Provisions for Simultaneous Death

Many spouses, expecting that one will predecease the other, name each other as their designated beneficiaries. The issue of simultaneous death is then addressed by state law, which will determine that one spouse died first, even though both deaths occurred at the same time. This determination is critical, especially if there are children from a previous marriage: will all the children be included? Or will children from a previous marriage be excluded? Proper documentation designating successor beneficiaries for normal and extenuating circumstances will ensure that the retirement-account owner decides who the successor beneficiary is.

Look into a Trust for Your Distributions

If you feel you need to retain some degree of control over the disposition of the retirement assets after your death, you may consider designating a trust as your beneficiary. Designating the right type of trust as your beneficiary could offer these benefits:  allow you to provide financial support for your surviving spouse while ensuring that children from previous marriages are also provided for; helping to maximize your estate tax exclusions; and controlling distributions to the children you might think are not mature enough to handle a large IRA. Trusts require expertise to set up correctly, so please ask me for some assistance before you make any decisions regarding customized and/or trust beneficiary designations.

Beneficiary Designation Checklist

Check the default provisions of the document that governs your retirement account, as it may come into effect if your beneficiary predeceases you and you fail to make subsequent changes.

Look into the tax implications for the kind of beneficiary you choose, whether a particular person, such as a spouse or non-spouse, an entity, such as a charity, your estate or a type of trust.

Request a confirmation of receipt of the designation from your retirement account trustee, custodian or administrator. Documents do not always reach their intended recipient and/or may get lost in transit. Beneficiary designations are considered in effect only if they are received by the responsible party (e.g. trustee, custodian or administrator) before the retirement account owner dies.

If you prefer to use a customized beneficiary designation, make sure your trustee, custodian or administrator finds it acceptable. Not all financial institutions or qualified plans will accept customized beneficiary designations.

Check with your financial institution periodically to determine who your beneficiary is - you may need to make changes if you had a change in your family such as a birth, death, divorce or marriage.

Making a proper beneficiary designation is a very important part of your financial planning process.

Document Solutions

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Comprehensive Estate Planning Documents - Revocable Living Trusts - Will Package - Ancillary Documents

What Gives Our Documents the Leading Edge?

Detailed and comprehensive, these documents have been developed through nearly 30 years of hands-on improvement by hundreds of attorneys throughout the US resulting in thousands of satisfied clients. They are drafted to ensure accuracy with current state and federal laws, and are updated as changes occur.

The Revocable Living Trust contains over 222 carefully worded provisions so that the trust can accommodate a client’s changing circumstances and to cover additional contingent situations without needing to be legally modified.  The trust is also universal; that is applicable in all 50 states, for a client may eventually own property in or even move to another state.

I Would Like an Advisor to Contact Me to Discuss My Estate Planning Needs

Here is a list of what our package includes:

  • 1 set of Ancillary Documents per person (DPOA for assets, DPOA for healthcare or Advanced Directive, Living Will, Nomination of Conservator, Appointment of Guardian, and Anatomical Gift)
  • Abstract of Trust
  • Trust Certification
  • Pour-Over Will
  • Assignment of Furnishings and Personal Effects
  • 1 three-ring professional quality binder with tabs and inserts
  • 1 set of quality documents with Plain English summaries
  • Funding Manual

We offer a wide variety of estate planning solutions and documents customized at your direction.

Nationally Transportable Living Trusts

Single A Trust
Married A Trust
Married/Unmarried AB Trust
Married ABC Trust
A Q-TIP Trust (for married person)
Partner AA Trust
Partner AB Secure Trust (for Domestic Partners)
Complete Amendment
Partial Amendment

Vital Ancillary Documents

There are a number of other legal documents that are not legally required parts of the Living Trust but which should be included in or with the Trust to provide for future contingencies. Our ancillary documents offer you additional control over your person or assets. These documents are so vital; they are included, at no additional charge as part of your comprehensive document package.

Pour-Over Will
Living Will
Durable Power Of Attorney For Health Care
Durable Power Of Attorney For Assets
Nomination Of Conservator/Guardian
Appointment Of Guardian
Anatomical Gift

Advanced Planning Vehicles

Because many individuals have needs that go beyond basic estate planning, we offer numerous Advanced Estate Planning Solutions that can be incorporated into your overall estate plan. These documents should be considered as a supplement to your Living Trust to shelter your hard-earned estate from unnecessary estate taxes.

■Asset Management Trust (Spendthrift Trust)
■Beneficiary Trust (Dynasty)
■Buy/Sell Agreement
■Catastrophic Illness Trust (Medicaid Planning Trust)
■Charitable Remainder Trust
■Family Catastrophic Illness Trust
■Gift Trust
■Insurance Preservation Trust- Spousal Support (ILIT)
■Insurance Preservation Trust (ILIT)
■IRA/Qualified Plan Trust
■Land Trust
■Special Needs


A poorly drawn trust can become a restrictive nightmare for the surviving spouse or successor trustee and beneficiaries. As long as the clients are living, it does not matter what a Living Trust says, because it can always be revoked. However, upon the death of the client, these poorly written Trusts are going to end up in probate court, with petitions being presented to revise or clarify the Trust wording. (Even though the main advantage of a Living Trust is to avoid probate, a Trust falls under the legal jurisdiction of the probate code; any need for clarification of a Trust therefore must be handled in the probate courts.)

One size does not fit all – no two people or families are alike! Your family’s needs, dynamics, personalities, and values are unique. If you use a form kit, you are asking for problems. Even reveals that 80% of people who fill in blank forms to create legal documents do so incorrectly. Plus, if your Will or Living Trust is not executed properly, it becomes invalid. If you overlook the opportunity to write specific instructions about how you want to provide for your spouse and children, your family will receive whatever the “cookie cutter” document provides, and you may not know of other options. The only estate plan you rely on is the one that is custom prepared by a qualified estate planning professional attorney.

A well-written comprehensive trust document comes about only through extensive experience. The Estate Planning Source’s trust documents are the result of more than 28 years of working together with legal counsel to cover every imaginable contingency.

I would like an Advisor to contact me to discuss my Estate Planning needs

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The Advanced Institute is a professional training course that offers an extensive education on current topics affecting your estate planning practice.  Each subject is presented by an expert in the industry.  An example of training topics are Medicaid and Veterans Planning, When a Corporate Trustee is Necessary, The Power of Trust Provisions, IRA Trust Planning, Settling the Estate, and more.  The Basic Institute course is preferred prior to attending this course.


The Basic Institute is a professional training course that offers a solid education on living trusts, solutions for clients and higher net worth clients using advanced planning concepts, how to properly execute and fund a revocable living trust, steps for estate settlement, available marketing materials and how to use them, and where to look to potentially unlock new business and more.


The History of the Living Trust and Its Relevance Today
The Dangers of Probate
The Revocable Living Trust System
The Revocable Living Trust – 222 Provisions
Ancillary Documents in a Good Trust System
The Planning Team and Avoiding the Unauthorized Practice of Law
Client Generation, Marketing, and New Internet Systems
Advanced Planning Vehicles
The Estate Planning Client Process
Building Estate Planning Office Systems
Working with The Estate Planning Source
Putting Your Plans in Motion
Case Studies


Various information, training and educational material available to network professionals