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Please choose an article to review:
I’m interested in reducing taxes and protecting my assets. What should I do? Methods to reduce the impact of taxes and techniques to protect assets from creditors are an important part of any estate plan. If these are important considerations, you should discuss them in detail with your attorney when preparing your will and other documents in your estate plan. Things can also be done while you are still alive, of course. Estate planning is more than just passing your assets to your heirs at the time of your death. Whether your goals include tax reduction, asset protection, charitable intentions, or any other similar objective, such matters need to be understood and discussed with your legal and financial advisors. Remember, when discussing tax reduction techniques that this may include a combination of planning for federal and state income, estate, and inheritance taxes. Asset Protection may include not only claims from financial creditors but protection from lawsuits filed against a person engaged in business, a profession, or even everyday activities such as simply driving a motor vehicle. Potential liability and financial claims surround all of us. The wise person plans for such unforeseen events in advance. After all, the more you reduce the exposure of
your assets, no matter what its size, to the impact of high taxes
or unexpected liability
claims, the more you have for yourself and your loved ones. I have elderly parents who are concerned about the high costs of long-term health care. What should they do? Costs for long-term health care are skyrocketing, and preparing for the possibility of such a financial burden is an essential part of anyone’s estate plan. The answer as to what can be done to prepare for these costs depends to a great degree upon a person’s available financial resources. However, even people with modest means can do a lot to plan for these high costs. In Iowa, we’re lucky to have a number of organizations that work with the elderly in providing information and assistance. On the state level, the Iowa Department of Elder Affairs has many useful publications available. Visit their website at www.state.ia.us/elderaffairs or call them at (515) 242-3333 with your questions. Medicare and Medicaid are two separately funded programs offering economic assistance to the elderly. Every senior should know about these programs, how they work, and how to become eligible for benefits. Most folks, however, may still need additional help. In the private sector, advice can be obtained from a good elder law attorney or from an experienced certified financial planner. A professional in this area can do a complete assessment of the particular financial situation and recommend several courses of action to follow in order to conserve financial assets to the greatest extent possible. No one wants to be poor and end up in a nursing home, destitute. The good news is that there are many things a person or couples can do to prevent that from occurring. The time to find out about such things is as soon as possible. Putting off such planning can result in financial catastrophe and unnecessary economic hardship. We invite you to give us a call to discuss your situation. Our initial consultation, usually about thirty to forty-five minutes in length, is free. I received a letter stating that I owe some taxes from a previous year. I’m scared. What should I do? The worst thing that you can do is to ignore the notice or letter you received. There are many things that you will be able to do. First, if you had someone professionally prepare your return for the year involved, contact that professional and tell him or her about the notice that you received. You may also want to begin gathering your tax records and copies of the returns you filed for the year involved for later review. Even if your return was not professionally prepared, you may wish to consider contacting a tax professional such as an accountant or CPA to work with you in responding to the communication. The notice you received may be a mistake or may be resolved very easily. By working with your professional tax advisor, many times the matter can be resolved through simple correspondence. A lot of people become afraid when they receive any kind of communication from the IRS or their state taxing authority. They may be afraid they made a mistake or forgot to include some item on their return. Perhaps, they are afraid because they cannot afford to pay the tax claimed. They just don’t have the money right now. None of these are good reasons, however, to ignore or not answer the notice. The government, both state and federal, sends out thousands of tax deficiency notices and letters each year. A variety of payment methods and arrangements are usually available. What you and your advisors need to determine is the notice correct, and what alternatives do you have available. Just because you receive such a notice doesn’t mean you are evading taxes or are in trouble. The sooner the matter is resolved, the less you have to worry. Please give us a call if you have a question or problem with your taxes. I am interested in selling my business when I retire in about 15 years. What should I do? A business owner wants to be sure that the owner or the owner’s loved ones will receive fair value for their business upon retirement, disability or death, with the minimal amount of tax. There are buy-sell agreements, stock redemption agreements, contracts for the sale for a single lump sum, or for the sale over a fixed period of time. Owners may buy life insurance on the life of a co-business owner and the co-owner may buy life insurance on the owner’s life to be assured that there will be liquidity to purchase a deceased owner’s share. The life insurance premiums may be paid by the business entity or by the co-owner. If the interest is to be purchased using an installment contract, the seller can continue to maintain some control over the business. The buyer can be limited to how much he or she may take out of the business without first securing the written approval of the seller, and the seller should have access to the books and other business records. The units or shares of the seller can be held in escrow to be delivered to the buyer upon completion of the contract. A mutually acceptable formula for valuing the business should be embedded in the sales arrangement. The formula must be deemed reasonable by the Internal Revenue Service. Sales to family members for less than fair value will have unintended tax consequences. An accountant and an attorney need to be consulted before a business before a sales agreement is signed. Please feel free to call or write us with your questions. My friends tells me that I need to make arrangements for someone to handle my financial affairs for me should I not be able to do so due to a physical or mental incapacity. Would a power of attorney accomplish this for me? A durable power of attorney is probably the most important estate planning document persons can have in their arsenal of estate planning tools. It allows persons to pick who will manage their financial affairs if they are not able to do so due to some physical or mental incapacity such as a sudden stroke. If a person does not have such a power of attorney, then the family will need to have a conservator appointed to mange financial affairs. This may not be the person that the incapacitated person would have picked. This court process is time consuming, slow, costly, inefficient and open to public scrutiny. The conservator must file annual reports with the court. A power of attorney can become effective upon the date it is executed, or it can become effective when the person has become incapacitated. If it is effective only when the person becomes incapacitated it is called a “Springing” or a “Standby” power. For an agent to act after the person has become incompetent, the power of attorney must be “durable.” The document must expressly state that the agent will have the authority to act when the person is incompetent. The powers should be crafted to fit the individual. A person may want to limit the powers given to the agent. It is a tool for selecting and empowering a person to manage financial affairs. Its advantage is cost, efficiency, privacy and choice of agent. Its disadvantage is the possibility of abuse of power by the agent. I have heard that probate is awful and should be avoided at all costs. Is this true? Probate is the name given to the court procedures often required to administer an estate of a person who died either with or without a will. The procedures include the court appointment of a personal representative. The court must approve all the actions of the personal representative, and all matters concerning the estate including an inventory of the assets and who gets the assets. The probate records are public record accessible to anyone. The probate process often ties up assets for at least nine or more months before the court can approve the actions of the personal representative and order the estate closed and approve the final distributions. There are court costs, publication fees and other fees associated with the probate of an estate. However, having court supervision assures you that your estate will be distributed as directed in your will. The probate process is usually not the nightmare that some people describe. The added expense and burdensome procedures borne by your loved ones be avoided. If you have more than one child, or more than one beneficiary, a revocable trust or living trust is usually a better choice that a will. There is some expense to establishing a trust, and it will not be effective unless your take the time to transfer the title to the bulk of your assets into the trust. Another advantage of the trust is that it enables you to provide for the management of your assets should you became incompetent. It is best to consult an attorney experienced in estate planning to fully explain to you the advantages and disadvantages of probate and of the use of a living trust so that you can make an informed decision. We’re a married couple with two young children, what kind of estate planning advice can you offer to us? Most likely, the welfare of your two children is the most important focus of your estate planning. When planning your Last Will and Testament for both Mom and Dad, you will need to consider who you want as Guardian or Guardians of your children. These are the people you want to raise your children in the event something should happen to the both of you. Before naming anyone as a Guardian you should have a conversation with them so they understand and accept all the responsibilities and instructions you may have in the raising of your children in your absence. Please make your decision on your choice of Guardian known to other family members as well. This may avoid a court fight for the custody of your children by well-meaning family members afterwards. Most parents also want to provide their children with some economic protection as well. In this instance, you should discuss a Family Trust for the benefit of your children with your attorney. In the event something happens to the both of you, the bulk of your assets are left to a Family Trust that is set up to provide financial support and assistance to your children for ordinary living expenses, medical emergencies, and education, such as college. The trust can also prolong distribution of the assets until your children reach a later age at which time they may be more financially responsible. Your Family Trust will also need a trustee who should be a person who is financially responsible and familiar with investments. If you don’t know such a person, there are many banks in Iowa that have Trust Departments, which can assist you in this area for a very reasonable annual fee. If you have any questions about a Family Trust or need further information, please give us a call.
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