Sunday, December 30, 2007

Your Estate is Going to the Dogs

Category: Estate Planning

This news story about estate planning for pets is not as rare as you might think. For many people, the care of their beloved pets is a primary concern should they become ill or pass away.

3 Md. dogs enjoy $800,000 inheritance - Yahoo! News: "The dogs — named Buckshot, Katie and Obu-Jet — inherited $400,000 and a house in Hagerstown with the death last year of owner Ken Kemper. Altogether, their estate is worth about $800,000.

The beagle and two Labrador mixes were strays when Kemper adopted them. They now live at their house with caretaker Roy Grady.

They might not be aware of their wealth, but they do know that on one night a week Grady treats them to spaghetti dinner, with meatballs and garlic bread."

Interestingly, I find that people with pets and people with small children share the same rationale/excuse for not preparing an estate plan "We can't agree on who to name to care for our children/our dogs should we die." Now, I remind people with children that not naming guardians is a true dis-service to your kids because if you don't name Guardians a total stranger who you have never met will name Guardians - and you might not like who they name.

The difference is that with children the law provides a mechanism to provide someone to be in charge of them and the cost of caring for them if you can't (not that this should be an excuse for not creating a Will and naming Guardians). With pets, there is no built-in protection of laws to provide for a home, costs of food, medicine, etc., and most important, loving guidance and supervision. You the owner must do that or your best friend may end up in the pound. This doesn't need to be a difficult or insurmountable task - it just requires a bit of forethought and planning. Some ideas:

+ Leave your pets to a relative who will love and care for them. Give the person a cash bequest to cover potential costs of care.

+ Don't know who to leave the pets to? Direct your Executor to find an appropriate home, and give your Executor the ability to make a cash bequest up to a certain amount to cover the costs of care.

+ Create a "Pet Trust" for the care of the your pets during their lifetimes. In the news article above, the pets house went in the trust and the trust paid to maintain their home, as well as acquire a care-giver for them. Make sure you consider mechanism to have an outside party verify the caregiver is doing a good job.

+ Research an "old-age" home for pets and leave your pets to them together with the requested bequest from the pet home.

Whatever you do, tell the person who is the immediate caregiver if you are hurt that they need to take the pets into their care immediately. After all, your pets can't call in the phone to order a pizza if nobody gets out their chow at the normal time.


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Thursday, December 27, 2007

Whats missing from the Candiates Quick Fixes for the tax code?

Category: Tax Law and Planning

Op Ed pieces about taxation are usually so "Opinion" and so "Editorial" that they might better be called infomercials for a better tax system. So, when I stumble on a piece that is equally critical of all of the candidates vying for the Oval Office in 08, I stop to take a look.

What's missing in tax talk - Opinion - "Set aside for a moment the biggest issue of all, which is uncontrolled spending. Tax revenues, even without further cuts, are nowhere near the level necessary to cover the massive increase in costs that will come with the retirement of the baby boomers and relentless health care inflation. Every candidate knows this, but fiscal responsibility is painful, so the campaign debate is focused mostly on tinkering."

The author goes on to tout simplification as the goal all the candidates are missing, and points out very valid items of "the other side" to all their tax plans. But to the author's main point, while having a "simplified" tax code is a wonderful goal, the idea that reducing the size of the tax code would solve all tax problems is, in a word, and "oversimplification." The tax code is the main means by which government can influence behavior - and whether you think they should be or not, government is in the business of behavior modification. Want to smoke? It will cost you more. Want to get a mortgage instead of a loan for your car? It will cost you less. So maybe the candidates need to better address the role of "governance" then use the tax code to take from one hand and give to the other.


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Friday, December 21, 2007

Good - Avoiding AMT; Bad - Waiting for your Tax Refund

Category: Tax Law and Planning

As with all things dealing with tax law, when the government giveth, it also takes away. Per - Tax change may mean delay in refunds : "More than 20 million taxpayers will escape the alternative minimum tax this year, thanks to a stopgap measure Congress approved Wednesday. But lawmakers waited so late in the year to vote that many early filers could have to wait until March to get their refunds."

The article contains a good explanation of the AMT or Alternative Minimum Tax - a tax originally designed to prevent very wealthy taxpayers from essentially "deducting" their tax returns down to a zero tax. The AMT is a parallel calculation of tax, that does not incorporate certain deductions. While the theory behind the AMT is sound, the problem is that the income levels that AMT impact were not legislated to be adjusted for inflation. As such, as income grows through inflation, such that salary is higher, but wealth is not necessarily greater, the AMT captures more and more taxpayers, but not necessarily those taxpayer the law was intended to address.

If you were counting on that refund any time soon, this is another example of why you should try to minimize your refund instead of giving the government an interest free loan.


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Wednesday, December 19, 2007

3 New Years Resolutions for the Small Business Owner

Category: Business Law and Planning,

I am always in favor of lawyers who can speak English instead of Legalease - here is a 1-2-3 New Years Resolutions for Small Business owners, courtesy of Jean D. Sifleet, Esq. I added some emphasis here and there for some points to really take to heart.

You’ve heard it all before, but year-end is a great time to reflect on your accomplishments and plan for the future. This year, try the 1-2-3 approach.

Succession, retirement and estate planning are closely linked for the small business owner. If a small business owner dies without a succession and estate plan, chaos occurs in the business and for the family. If the small business owner does not have a retirement plan, financial security for the later years of life is uncertain and remains tied to the business.

Doing nothing can have extremely severe and unintended consequences. There are many sad horror stories of family fights and legal battles about how the estate of a small business owner will be divided up by the survivors. Businesses have been forced to sell property to pay taxes owed or close as a result. Many of these problems can be avoided.

As you pull together your year-end financial results, it’s a good time to make your plans for the future. Recent changes in the law make it easier to put more money away for retirement in a tax advantageous manner. This is the time to think about reducing your taxes by funding your retirement plan.

Try the 1-2-3 approach to New Year’s Resolutions.

Resolution (1): Take action.

Taking action before a crisis arises is much better than reacting under stressful circumstances. If your will and estate planning documents were prepared years ago when the kids were little, as is frequently the case, they need to be reviewed and updated. If the small business owner’s will or trust says, “equal shares to my children,” there can be a disaster in the making. Similarly, if you have put retirement and benefit plans in place over the years, it is important to review them from time to time.

Resolution (2): Articulate your long-term goals.

Planning for your succession, retirement, death is never easy. Your goals should drive the planning process. Hence, articulating your long-term goals is a critical step in the planning process. Answering the following questions will help to articulate your goals and establish a framework for planning.

– Do you plan to retire? At what age?

– Do you plan to transfer ownership and/or management within the family?

– Do you plan to transfer ownership and/or management to employees?

– Do you plan to sell the business?

The succession plan is a critical element of estate planning. A succession plan provides for the orderly transition of ownership and management of your company. Basically, the plan becomes a contract amongst the parties. Family members who are active in the business should be treated differently from family members who are not participating in the business. There are ways to equalize the relative shares that each of the children receives, while avoiding the potential for a power struggle in the business.

Resolution (3): Develop a written plan.

It’s critical that the plan be in writing because people have selective memories and memory fades with time. The importance of communication … and more communication amongst family members and key players … cannot be overstated. The plan can be reviewed, discussed, and revised over a period of time.

To avoid problems down the road, succession, retirement and estate planning should be done with professional assistance. Do not just sign over property or give away stock. A proper estate plan is truly a kindness to your survivors. Having a professional review of your plans gives you a clear understanding of what revenue stream you are likely to have in retirement and how your affairs will be handled if you die or become disabled.

Planning ahead is the best way to achieve your goals. Doing nothing can have severe and unintended consequences. So this year, try the 1-2-3 approach. It’s the best gift you can give your family. Best wishes for the New Year!


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