ASSET PROTECTION- WHAT DOES THAT MEAN

A person interested in conserving their assets and conveying them to the next generation may have heard of the concept of asset protection. You will find it is not as simple as giving your assets to the kids and hoping for the best.  The tools used vary greatly and one should consider the least costly and most efficient process after evaluation of all the possible solutions.  The difficulty is that asset protection can mean a lot of different processes and legal tools, some simple and some very complex.  This is an area where expert advice is absolutely required.

The general rule is that your assets should be available to satisfy your expenses and payment of your creditors.  In order to shield assets from creditor claims, it is necessary to anticipate and plan in advance the transfer of title to assets before the claims arise.  Otherwise, the transferring party has likely engaged in a fraudulent conveyance, which a court can reverse.  The various forms in which  asset protection can arise might be as simple as incorporation of improvements into personal residential property,  placing property in a limited liability company, forming a family limited partnership, creating a domestic asset protection trust, (which is an irrevocable trust), or creating an offshore trust, held in a foreign country.

The complexity and cost of such transactions varies greatly.  The right choice takes into consideration many factors, including your age, health, trustee selection, potential beneficiaries, potential liability sources, and goals.  When done well, the party creating an asset protection plan can rest knowing that their goal of preservation of property has been accomplished.

A SURVIVING SPOUSES’ RIGHTS

In Ohio and in addition to other rights, a surviving spouse has a number of basic rights available to them in a probate estate. The purpose of these legislated rights is to attempt to assure surviving spouses are not impoverished or that they have resources for necessities on the death of their husband or wife. Our legal system has generally memorialized these rights in Ohio Revised Code Section 2106. The rights include but are not limited to the following which I have listed in no certain order. A spouse has a right to two automobiles of limited value that are not specifically listed in the Last Will and Testament. He or she has a right to live in their home (aka “the mansion house”) for up to a year if it is not transferred or bequeathed to them otherwise. They have the right to purchase property from the deceased spouse’s estate. He or she has a right to an “allowance for support.” This allowance depends on the money available in the estate and other factors. Additionally, the survivor receives preferential treatment on appointment as the fiduciary to their spouse’s estate. If the surviving spouse wishes to exercise any of their rights, they have 5 months after the appointment of an executor or administrator of an estate to do so. The decision to make is whether they would like to elect to take under the will or to take against the will (which means exercising the rights listed above). Depending on the estate and situation, it may behoove a widow or widower to elect against a will if they were not adequately provided for in the will. Now one reality to watch out for is a situation where the surviving spouse is completely cut out of an estate by the late spouse. Sometimes this is unintentional or intentional and almost always because the late spouse received bad counsel from whoever they held as advisors. Your advisor should be an attorney who can explain the positive and negative ramifications of an estate plan. There are many, many non-attorneys in Ohio doing a disservice to citizens by looking (and sounding) sophisticated regarding estate planning but lacking the professional competence to advise on such heavy matters.

TAX PLANNING – AGAIN

I spent over 30 years analyzing and planning estates for my clients to minimize the bite of estate tax. The mechanisms were complex, not logical, and for many a burden. But in those days before tax reform, the family business, the family farm, and live savings were all exposed to state and federal estate tax that made such planning necessary to minimize their impact.

They’re gone – almost. The Ohio estate tax is gone and the federal filing threshold is $5.9M. But now, the most important tax issue is basis and capital gains tax for beneficiaries. Since property transfers to the next generation more often now in the form of an IRA, annuity, or some survivorship designation, it is important, if you want to preserve assets, to understand how each works and the income tax impact on beneficiaries.

You can do this planning yourself if you understand this, but most don’t. Don’t leave this to chance – come talk to us because the tax bite can still hurt.

TWO PORTLY GENTLEMEN

In October of 1843, Charles Dickens began writing one of the English languages most beloved stories. What began as his attempt to supplement his family’s meager income has in excess of 170 years, become cherished by many with its tale of special spirits, warmth to others and much of the byproduct of Christmas.

One of my favorite scenes is the oft overlooked part in Chapter One where the “two portly gentlemen” are let into the miser’s counting house by his employee, Bob Cratchit. They engage Mr. Scrooge to solicit resources for the poor and destitute. He summarily does not like the entreaty and presses them on their perspective. I wonder: what are the legal implications of their presence in his office that fictitious night? The laws impacting the scene if it occurred today could include: premises liability (what if one slip and fell?); propriety of their solicitation (were they registered with the State? would the donation be tax deductible?); agency (did the employee have the right to let them in?); trespassing (Scrooge would argue it.); hostile work environment we would need to ask Bob Cratchit); employment (was Bob an “at will” employee, independent contractor or salaried under contract?); fraud (were the two guys honorable at all or something akin to the IRS phone scammers we have today?); and the list goes on.

As we consider our lives and how they are impacted by an almost innumerable number of regulations and laws (state, federal and international), we can know well that life can be a complex bag of rules, tensions, met and unmet expectations. I hope this Christmas season we can all understand in our heart of hearts the question put forth by the two portly gentlemen from the pen of Charles Dickens. “A few of us are endeavoring to raise a fund to buy the Poor some meat and drink, and means of warmth. We choose this time, because it is a time, of all others, when Want is keenly felt, and Abundance rejoices. What shall I put you down for?”

FIVE REASONS TO NEVER GIVE AN OUTRIGHT INHERITANCE TO YOUR CHILDREN

If you’re like me, you want to leave an inheritance for your children. But giving outright ownership of our assets to the kids could put everything you’ve worked so hard to leave behind at risk. Why? Let me give you five reasons and then show you the way to protect your kids’ inheritance for many, many generations.

1. Your Child’s Future Divorce
Approximately forty-two percent (42%) of our children will divorce during their lifetime. In most divorces property is divided evenly. So if you have a married child, or a child who will get married in the future, and you leave them an inheritance, and they later divorce, as much as half of their inheritance could go to their ex-spouse. You aren’t working as hard as you are to support your child’s future ex-spouse, right? Good news, there is an alternative!

2. Extreme Debt/Bankruptcy
Your child may incur such extreme debt that the only possible relief will come through bankruptcy. Possible causes of such debt are a business venture gone bad or a health event, such as addiction, mental illness, accident, or disease that results in either a temporary or permanent inability to work in combination with staggering medical bills. Bankruptcy does happen to good people, and you can ensure that the inheritance you leave behind will never be at risk due to a mistake or health issue.

3. Lawsuit
Unintended neglect that injures someone’s person or property could wipe out an inheritance you leave your children. For example, in a 2009 case in Florida, the defendants thought they were doing the neighbors’ son an act of kindness by allowing him the “fun” of driving the four wheeler around the family property. Apparently, they didn’t tell the young man about the barb wire on the property. Their good intended neglect, resulting in the decapitation of their neighbor’s son, was not seen as good by the parents or the court, who ordered the $20 million judgment. In sum, good intended, but neglectful behavior on the part of your children could wipe out any inheritance you leave them.

4. Mismanagement:
I have many clients who tell me they do not trust their children to manage money. This could mean that their children are spendthrifts, unwise investors, or easily manipulated out of the money. And, the statistics support this.

According to Prof. Jay L. Zagorsky of Ohio State University, 18.7 % of individuals who inherit more than $100,000 will spend or lose the entire inheritance. On average individual who inherit lose 50% of the money. It’s quite likely that if that inheritance was left in a different way those numbers would greatly improve. I’ll share more with you about that below.

5. Lost Work Ethic:
My father once said, “Some people can’t handle prosperity.” He was right.

For example, Thomas Stanley and William Danko in their book, The Millionaire Next Door, uncovered research showing that children who received an inheritance were worth four-fifths less than others in their same profession who didn’t. Vic Preisser, of the Institute for Preparing Heirs, says that unprepared children who inherit money are susceptible to excessive spending, identity loss, and guilt over receiving money they didn’t earn. Preisser says, “In a year to 18 months, everything falls apart — marriage, finances — and if there is a drug problem it becomes worse.” Thus leaving an outright inheritance to our kids, may do harm instead of good. But there is an alternative!

As we can see, an outright inheritance is NOT the best answer for your kids.

Our office can assist you or your family in what to do instead.

Is That A Loan or A Gift?

My dad always said, “Do not loan it, unless you are willing to give it away.” You know the scenario. Your neighbor or brother borrows your bolt cutters and “man they’re gone!” You have a better chance of retrieving keys from a river of molten lava than seeing those bolt cutters or your mom’s cake pan return to their proper place. Now imagine what it looks like when the receiver thinks the property (i.e. cash, vehicle, even house) is a “gift”, while the giver thinks it is a “loan.”

 

 

Yep, I’m sure you’re chuckling but you know it’s true. As attorneys we experience this all the time. I had a client whose ex-in-laws demanded repayment of a “loan”. The exes gave some property to the client and client’s spouse during the marriage. Now that the marriage was no more, the exes are calling the gift a loan, demanding repayment with interest in an amount pulled out of thin air. The problem was there is nothing in writing.

 

 

There are numerous practical problems in gifting. First, will the contested amount be worth your time and money with an attorney. Think of a $500 lawnmower. Who is going to engage a lawyer at $200-400/hour for the hope, as there are no guarantees of winning any suit in court, to get a used $500 lawnmower or $500 back. Second, they say relationships are the only thing you take to heaven. How many relationships have been ruined over “stuff”? I will not represent someone whose core purpose is to harm others.

 

 

Remember this: If you are loaning it out, be willing to give it away. If you are not willing to give it away, get it in writing and preferably secure your loan with right to the borrower’s property in a proportionate amount. If the amount is significant to you, engage an attorney in the beginning. It will save you a lot of future angst. Finally, if it is a gift, there are scenarios where memorializing it in writing is not only prudent but wise.

PLANNING FOR CHRONIC ILLNESS

Sayings are repeated because they contain some real truth. Two that I often repeat to clients are: “Life is what you experience while you are planning other things” and, in contrast, “Failure to plan Is  planning to fail”. Both contain truth and apply when you or a spouse receive a diagnosis of a long term and perhaps fatal, chronic illness.

 

Aside from the personal sorrow and fear when the diagnosis comes, we need to be responsible for those in our families who will be involved in care-giving and care decisions. That is done with a thorough review of the health prognosis, evaluation of assets, projected care costs, and projected impact on the family. Elder law attorneys (like us) are used to dealing with these complicated questions and helping families find the right answers for them. Frequently, it may mean modification of a house for wheelchairs and access, changing the registration of title and accounts, moving to a single-floor residence, adding on a suite to a child’s home, preparing care agreements, setting up trusts for long-term care, investigating financial resources, including Medicaid and veterans benefits, identifying care-givers, and, most of all – making the best of the situation for all the loved ones who will be affected.

 

There are answers but usually not ones you can “do yourself”, because the issues are complicated. We look forward to talking with you in a no-cost initial conference that can lead to the best answers.

GIVE THE KIDS THE HOME? NOT A GOOD IDEA

Many seniors come to us for advice as they see their friends going into long-term custodial facilities and spending their life savings for care. They want to leave their estate to their children. Frequently, they have heard on the street that they should give their house to the kids now so it won’t count for Medicaid. WRONG! –generally.
In husband and wife situations, the marital home has protections that are lost if you give it to children. The structure of Medicaid is to protect a “community spouse” by not taking the home as long as the community spouse owns and lives there. In addition, the marital home is an investment that can be improved, using liquid assets that otherwise might be used for care of an institutionalized spouse and, with the step-up in basis on the death of the community spouse, results in a potentially greater transfer of value to the surviving children.
Another consideration is that transfer to the kids exposes the house to their creditors or their devious, unfaithful spouse in a divorce. You could end up on the street. There are several techniques that accomplish the goal of saving assets for children that don’t expose you to such risk.
It’s complicated. Come talk to us.

Dotty’s Ten Tips for communication with a person living with Dementia

1. Do you know what makes me feel secure? A smile
2. Did you ever consider? When you get uptight it makes me feel tense and uptight.
3. Instead of getting all bent out of shape when I do something that seems perfectly normal to me and perfectly NUTTY to you. Just smile at me it takes the edge off the situation.
4. Please try to understand and remember my short term memory is gone – don’t talk so fast, or use so many words.
5. When you use one of those long winded explanations of me- I’ll say No because I can’t tell what you are asking me to do. Keep your words few and simple so I can follow you.
6. Slow down. Don’t sneak up on me and start talking. Did I mention I like smiles?
7. Make sure you have my attention before you start blabbering away. If you don’t have my attention, I’ll be confused and say NO.
8. My attention span and ability to pay attention are not so good, please make eye contact with me before you start talking. A nice smile always gets my attention. Did I mention that before?
9. Sometimes you talk to me like I’m a child or idiot. How would you like it is I did that to you? Go to your room and think about this. Don’t come back and tell me you are sorry, I won’t know what you are talking about. Just stop doing it and we will get along.
10. You talk too much – instead try taking my hand and leading the way. I need a guide not a person to nag me.

Resource: Alzheimer’s Reading Room

“AH, YOU DON’T NEED AN ATTORNEY TO PLAN YOUR ESTATE”

I have heard the above statement often. Why would a person need an attorney? There are so many nice bankers, insurance salesmen, accountants and “certified financial planners” who do estate planning. But, Estate Planning Attorneys are much different than these wonderful and nice people. First, the attorney’s judgment and analysis are independent of any desire for a commission on a product they are selling. Second, all of the above individuals can be compelled to testify against their customers in court. An attorney has the age old attorney- client privilege where he or she does not divulge your information. Finally, attorneys have malpractice insurance to guard against missteps.

In conclusion, consider an attorney’s advice first, as it is their duty really to act in your BEST interest!

Dustin M. Hughes, Esq.