New Dimensions in Estate and Trust Planning

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Content Provided by The Advisors Forum


 January 2014
In This Issue
Three Top Reasons to Update Your Estate Plan in 2014
Planning with Execution
Upcoming Seminars 
Please check our upcoming seminar dates 
Wills vs. Trusts Workshop
Dear Friends,
We hope you had a wonderful 2013 and are looking forward to what 2014 will bring.  
Please review the information provided in this newsletter and see what may apply to your and your estate plan.  Do not hesitate to call us if we can be of assistance to you and your family.  We encourage you to share these articles with your family and friends.  As with past practice, there is no fee for an initial estate planning review conference with one of our attorneys.
We wish you a happy and healthy new year!   
The Attorneys at Carrell Blanton Ferris & Associates, PLC
If you need a speaker for your church, civic group, or professional organization, please let us know.  Our attorneys have a variety of topics they can present for your group.  Contact Carmen at for more information.

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Three Top Reasons to Update Your Estate Plan in 2014

(Content provided by The Advisors Forum; 
reviewed and edited by James W. Garrett, Esq.)


Make this your top New Year's resolution - update your estate plan this year. If you didn't update your estate plan last year when the federal tax laws changed, 2014 is the year to make some important changes in it. Alterations to tax laws can definitely impact your estate, plus addressing two other key issues can help you be confident you have everything in place for yourself and your heirs. Here are the three main reasons to review and update your estate plan as soon as you can this year.
Estate Taxes Are Now Stable

The federal estate and gift tax exemption is now an inflation-adjusted (from 2010) $5M per individual. Plus, there is no longer a built-in "sunset" for this exemption to automatically revert to $1M. For a married couple, their estate can be worth more than ten million dollars before they have to worry about estate taxes. In the past, when the exemption was or was scheduled to be much lower, a large number of estate plans were set up using A/B trust provisions. With that structure, when a spouse dies, the deceased spouse's assets do not go to the surviving spouse but rather are put in an estate tax avoidance/asset protection trust to the extent possible without causing the estate to be taxable. That trust would be a separate taxpayer and file its own income tax return each year. There are also ongoing management and administrative costs. Offset against those disadvantages are the asset protection advantages that an irrevocable trust can provide and the possible opportunity to preserve the deceased spouse's assets for heirs if the survivor has to go into a nursing home or remarries. 

For the majority of people, there is no longer a current tax need for complex A/B provisions and so estate plans can be designed in a much more straightforward manner to meet non-tax goals. Your estate will be administered as directed by the plan in place when you die, so, with these major tax law changes, now is the time to come in and work with our firm to review your plan and your situation to determine if your plan should be updated and/or simplified.


But Other Taxes Are Higher 

Although estate taxes are less of an issue these days, income and capital gains taxes have increased with the passage of the American Taxpayer Relief Act of 2012 ("ATRA"). Given the increased tax burdens imposed by ATRA, specifically the increase in the capital gains tax rate to 20% and the new 3.8% healthcare surtax imposed on incomes exceeding certain thresholds, we have been on the lookout for estate planning techniques that will provide some tax relief.

One such strategy we have come across is designed to reduce capital gains tax for married couples. This strategy is not well-known and is underutilized by many estate planning lawyers and CPAs. Briefly, surviving spouses in Virginia (and the other 39 "separate property" states) do not receive the same favorable capital gains treatment as do surviving spouses living in the ten "community property" states when it comes to the tax treatment of jointly owned property passed on to the surviving spouse by virtue of survivorship.

Fortunately one of the community property states, Alaska, specifically allows non-Alaska residents who meet certain criteria to "borrow" the features of Alaska Community Property law and totally eliminate capital gains on their appreciated assets at the death of the first spouse. Thus, it is now possible for you to transfer your appreciated property to a special revocable trust drafted to take advantage of Alaska Community Property law. This type of trust is a called a Revocable Alaska Community Property Trust. For many of our client families this technique will provide significant tax savings and other benefits.


Provide Divorce and Lawsuit Protection

No parent likes to think of their children in dire straits or that their heirs might have personal or business difficulties in the years ahead. But life does have a tendency to get in the way of the best laid plans. You want to protect your heirs and provide some financial security, yet most estate plans do not provide the heirs an adequate level of asset protection from the risks of loss of inheritance through getting divorced or sued. There are three issues that could negatively impact an inheritance:

1)    Immaturity or mismanagement of assets could cause an inheritance to dissipate long before you intended.
2)    Even if funds are managed well, an heir could be involved in a failed business venture or an accident. The resulting lawsuit could result in their inheritance being taken by a judgment creditor.
3)    With a divorce, all assets not proved to be inherited or gifts are subject to division, which does not have to be evenly. If the inheritance you provided ends up untraceable, like in a joint account, it could all be lost.

Once an inheritance is lost, there is no way to recover it. You want the part of your hard-earned assets that you leave to pass on to your heirs to provide them a measure of financial security. That is best done through a "testamentary" trust - one that goes into effect and receives assets upon your death. A testamentary trust can provide divorce and lawsuit protection to your heirs as well as to protect a young or unwise heir from himself.
Skyrocketing Costs of Long-Term Care

The issue of needing long-term care as we age is emerging as the greatest single real risk to estates of middle class Americans. There is now a 70% likelihood that an adult American will need nursing home care and the costs of that care are increasing rapidly. An average monthly cost for a nursing home can range from $5,000 to upwards of $15,000 depending on the location. In some cases, both spouses are in care at the same time, resulting in costs that can range from $10,000 - $30,000 a month. As care needs increase, for example with Alzheimer's patients as their disease advances, monthly care costs can escalate to far, far above the average.

Most Americans worry about how long they may need care and how they will pay for it. Few have the income to cover those costs and so have to consume their assets to pay for care that is not covered by insurance. Medicare provides only limited, temporary nursing home care coverage, and that is only following a hospitalization of at least 3 days. Medicaid requires a person have minimal resources and the inability to pay for the nursing home before providing help. Protecting yourself and your spouse from ruinous long-term care costs requires a different sort of trust plan. Now is the time to review your estate and include some long-term care planning.

One possibility is moving assets into a Medicaid Asset Protection Trust. Assets that have been in a Medicaid Asset Protection Trust for five years are not included in the Medicaid calculation, so the sooner the trust is established, the more effectively it works. If you or your spouse is a veteran, you may qualify for a VA "Aid and Attendance" Pension benefit designed to help offset high medical-related costs. We help clients qualify for this pension benefit using a Veterans Asset Protection Trust.

If you do not have long-term care insurance, you should explore getting some. Your health will be a determining factor in whether it is available for you and its cost. There are also a variety of new insurance products that combine a life insurance death benefit with a long-term care benefit. Having a strategy for long-term care in your estate plan will give you, and your heirs, peace of mind.

Your estate plan may also need revision to protect assets for the survivor after the other spouse dies. The federal Medicaid laws have strict requirements for how that can be accomplished.
Early 2014 is the time to think about these three crucial issues and how they may relate to your own estate strategy. Make that New Year's resolution today and call us for an appointment to review and revisit your current plan and goals. We will discuss with you the best possible solutions to meeting your estate plan objectives.


Planning with Execution
(Content provided by The Advisors Forum;
reviewed and edited by James W. Garrett, Esq.)


Financial planning has become a generic term. You find it mentioned across media channels from banks to brokerages to accounting firms to personal finance. While the term itself may be diluted, planning is the first step in securing your long-term security. But this security is only realized when the plan is implemented.
Your various needs, anxieties, and aspirations fuel every step and define how you measure the plan's results. The actual method is best defined as "Planning with Execution" for the obvious truth that you won't get results unless the plan is put into action. As a single, flowing process, results present themselves as solutions to your needs and requirements. In other words, your income is more stable and certain; your spending matches your priorities; your taxes are less; you know what to do with your property; your loved ones are protected; your physical care is assured.  
Key Takeaways:

  • Like anything worth achieving, a formal planning process is necessary to secure your long-term financial stability.
  • An essential element of every plan is the inventory of your needs, anxieties, and aspirations.
  • Your needs and requirements serve as the plan's objectives and determine the value of results.
  • In order to achieve your desired results, an array of targeted investment, insurance, and trust solutions is instituted that generates net benefits to the costs incurred. 


Why We Plan
We plan with these objectives in mind: 1) to avoid wasting time and money, 2) to prepare for future uncertainty, 3) to minimize consequences, and 4) to seize opportunities. These objectives sit passively until the planning process begins.
The table below identifies eight planning tasks under the general umbrella term, "Financial Planning." For any given situation, several of these tasks will be active during the planning process, and if you are a successful small business owner, all eight may be in play.
Each task serves as a container filled by your specific circumstances, needs, anxieties, and aspirations; this is detailed in the right column.

Planning Tasks Categorize Needs, Anxieties, and Aspirations

  Financial Planning Tasks

 Underlying Need/Requirement

 Income Planning

·Controlling spending
·Lifestyle budget support
·Effective management of income
·Developing new income sources
·Annual shortfall management

 Retirement Planning

·Controlling spending
·Retirement lifestyle budget support
·Distribution planning
·Wealth conversion to income
·Long-term care anxiety
·Shortfall risk anxiety

 Insurance Planning

·Income protection
·Wealth replacement
·Property loss protection
·Health deterioration fear
·Lawsuit liability protection

 Tax Planning

·Federal and state income tax efficiency
·Capital gains tax efficiency

 Charitable Planning

·Wealth purposing/passion investing
·Enhanced charitable tax benefits

 Estate Planning

·Beneficiary support
·Lifetime dependent support (special needs?)
·Low or no probate costs
·Federal/state estate taxes
·Wealth transfers
·Fear of misuse of transferred wealth
·Avoiding family disputes
·Minimizing family hassle at death
·Use of wealth according to values
·Controlling end-of-life outcomes

 Investment Planning

·Wealth protection
·Wealth creation
·Fee minimization
·Protection against liability-based lawsuits

 Private Business Planning

·Controlled and efficient transfers
·Protection against liability-based lawsuits

What you need to know: Through the planning process, whether you have one or eight containers filled with your needs and requirements, this inventory sets in motion action steps to bring the fruits of this planning into reality.

Implementing for Results

A common tool kit for implementing a plan includes mutual funds, ETFs (Exchange Traded Funds), individual stocks, and insurance products (noting that more complex circumstances may include private stock, hedge funds, real estate, collectibles, and other specialized investments).  These tools exist alongside your other wealth sources such as employment compensation, property, and business-ownership interests.

Trusts, in their various forms, are excellent in solving financial and wealth needs and requirements. In fact, trusts provide an enveloping structure wholly compatible with common investment and insurance tools as well as your other wealth sources, and enhance what otherwise could be attained. 

Trust Solutions Meeting Needs and Requirements


Financial and Wealth-Management Need Categories

·         More stable and secure income

·         Lower income taxes

·         Lower capital gains taxes

·         Efficiently diversifying concentrated stock ownership

·         Protecting wealth from liability-based lawsuits

·         Elimination of legal expenses from liability-based lawsuits

·         Reducing end-of-life fees and expenses

·         Directing wealth to specific purposes and passions

·         Productive investing based on values and beliefs

·         Protecting wealth from undesirable uses

·         Replacing wealth used to support lifestyles


Planners operate within a band of expertise such that they use the strategies they know and understand. This natural inclination to stay in one's comfort zone, though, may lead to limitations in which other tools beyond one's expertise may do a better job. Trusts are a clear example: Trusts' technical nature and imposing acronyms (e.g., CRUTs, GRATs, QPRTs, IDGTs, etc.) have built a barrier to understanding that constrains their broader use in producing more robust planning.
What you need to know: 
No one can be an expert in every one of the eight financial planning categories (see above table). Therefore, advisors operating in a team of experts leap over technical barriers and define comprehensive and efficient solutions. In this multidisciplinary approach, a trust attorney works alongside financial or other advisors and assists in using trusts' unique characteristics not only to generate true net savings (i.e., the dollar results > the dollar costs) but equally significant quality-of-life benefits.  
The Protective Cure
We buy many things that give us mental or emotional rewards whereby we proclaim that the costs were "worth it." Every day examples are vacations, education, and luxuries. Similarly, paying insurance premiums to protect against potential losses frees us mentally to enjoy driving a car, leaving our house empty while on vacation, and getting medical treatment for an injury or illness.
With this context, you should expect that solid planning shifts anxiety to comfort, turmoil to peace, and complexity to understanding. Trusts further deliver a protective cure against these possible hits to your mental and emotional quality of life:
*    the pain felt if loved ones aren't protected financially;
*    the worry that wealth will not last;
*    the possibility that a family will be left with hassle and discord after a loved one's death;
*    the risk that a family will dissolve into disharmony arguing about wealth;
*    the anxiety that a life's work could be lost to litigation;
*    the anguish if wealth isn't used according to one's values and beliefs;
*    the frustration that money could be wasted unnecessarily.
What you need to know: 
Although trusts offer various net financial benefits, removing anxieties and fears about your wealth may in and of itself enhance your quality of life. Considering these beneficial financial and mental or emotional results alongside a plan's set-up costs represents a balanced evaluation that leads to a more informed decision; you can proclaim, "It was worth it."
Actions to Consider:

  • Build a complete needs/requirements inventory.
  • In considering what is important to you for your future, list your fears and anxieties since if these are left untouched by your financial plan, joy may be sapped.
  • Set up a table in which you identify in the left column the costs associated with planning and the plan's execution, and in the right column you enter the financial and mental/emotional value you expect.
  • Judge the net results. If the net results are greater than the costs, you are richer than if you had done nothing.
  • Set your standard as "Planning with Execution" and monitor the actual results to those that were expected.
  • "Planning with Execution" is not a transaction but a process that makes ongoing adjustments as your needs/requirements inventory changes.

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in this newsletter was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax penalties that may be imposed on such person and (ii) each taxpayer should seek advice from their tax adviser based on the taxpayer's particular circumstances.




Carrell Blanton Ferris & Associates, PLC

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