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A Cautionary Tale of DIY Estate Planning

Written on May 1, 2013 by Cooper, Adel & Associates in Planning, Probate

By Attorney Ted Brown

I recently came across another example of self-help estate planning gone drastically wrong. In this case, Mom was in her 80′s and owned a family farm and a life-savings of conservative investments. She wanted her estate to be divided equally among her four children but wanted to make sure her two sons, who were farmers, got the farm.

So, to keep things simple, she deeded the farm to her two sons, and created a “simple” will leaving everything else (the cash investments) to her two daughters. She used a national legal self-help service to get templates of the necessary documents and was satisfied she had done everything she needed to do while avoiding the costly fees of an estate planning attorney.

However, when Mom passed away things were not nearly as simple as she had hoped. The will that she had prepared was not valid because it did not comply with the complexities of Ohio law. Therefore, her plan to divide the investments among her daughters failed. Not only did her assets have to go through the hassle and expense of probate, but since there was no valid will, her assets were divided according to state law.

This gave the investments equally among all four children. Since she had already given the farm to her sons, they ended up with a larger share and were under no obligation to even things out as mom had intended. However, it turned out that they would need the extra cash to cover the large capital gains tax burden that was created when mom gifted the farm to them while she was alive.

I see cases like this all too often. Estate planning is one of the most important decisions you will make and it is always best to consult a professional who specializes in that area. The legal fee paid to ensure that your estate is in order, up to date with state law and tailored to the specifics of your family will be far less than the fee associated with sorting out a flawed do-it-yourself strategy. Estate planning is like anything else: you get what you pay for.

Why a Trust is Better than a Survivorship Strategy

Written on April 11, 2013 by Cooper, Adel & Associates in Probate, Trust

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By Attorney Ted Brown

Clients often ask me “if they need a trust to avoid probate?” And of course the answer is “no.” There are a variety of ways to avoid the hassle and expense of probate such as survivorship deeds, rights of survivorship accounts and payable on death designations. This is commonly known as a “survivorship” or “payable on death” strategy.

However, this strategy has several major limitations and potential drawbacks. The most significant is that it only allows couples to plan for one stage, or the death of one spouse, at a time. In most cases bank policy does not allow for an account to be jointly owned between two spouses and have a payable on death designation to the children after both pass.

For example, husband and wife can own an account jointly and have it set up that it goes to the survivor without probate. But policy prevents them from also designating that the account be divided among the children at the survivor’s death. Banks will allow the survivor to make that designation only after the first spouse passes. Deed rules also provide the same limitations on real estate.

This strategy will allow a couple to avoid probate at first death, but requires the surviving spouse to take affirmative steps after the first spouse passes away to do the same type of planning. Unfortunately, this second round of planning is commonly not done and the children are faced with a complex and costly probate proceeding at the survivor’s death.

Similarly, this type of planning does not avoid probate in a situation where both spouses pass away at the same time or within a short period.

By contrast, a revocable living trust allows a couple to plan for both stages at the same time. In fact, a trust is the only type of estate planning instrument that can avoid probate at the death of both spouses without requiring any additional action by the survivor. Both spouses maintain complete control over trust assets during life.

Therefore, a trust is an incredibly powerful and cost-effective method of probate planning for a couple, even with modest assets. Of course, your specific situation will dictate the best strategy for you. It is a good idea to discuss any type of estate planning strategy with a professional Elder Law Attorney.

DISCLAIMER – Every case is different because every case is different. This blog does not give legal advice. This blog does not create an attorney client relationship. You are not permitted to rely on anything in this blog for any reason. This blog is an entirely personal endeavor. Every person’s situation is different and requires an attorney to review the situation personally with you.
No attorney-client relationship is created by this site.

The use of the Internet, this blog or email for communication with this firm or any individual member of this firm does not establish an attorney-client relationship. Before we represent any client, the client and the attorney will sign a written retainer agreement.
If you do not have a written, signed retainer agreement with us, we are not representing you and will not be taking any action on your behalf.

Staff Profile: Attorney Ted Brown

Written on February 22, 2013 by Cooper, Adel & Associates in Staff Profiles

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Ted is a staff attorney with Cooper, Adel & Associates. He grew up in Mariemont, Ohio, outside of Cincinnati, where he served as the Director of Traffic Operations for the Police Department. He graduated from Xavier University with a major in History and Philosophy. During Law School at the University of Dayton, his favorite classes were estate planning, tax and constitutional law. Ted clerked for the Federal Election Commission in Washington, D.C. and also spent a semester studying in a comparative law program in London, England. Ted's wife, Natalie, is also an attorney.

Ted's love of history started with his admiration for his grandfather who served in WWII, Korea and the Cold War. His plane was shot down over North Korea and he was the only man of an eight person crew to survive. He spent three days surviving behind enemy lines until he was spotted by a passing American plane using a small signal mirror.

At Cooper and Adel, Ted leads the Estate Administration Department that helps our clients and their beneficiaries get access to their inheritance, minimize estate taxes, claim IRA distributions and navigate the murky waters of probate. He also works in the Trust Department assisting clients with trust and estate planning. He has learned the most from two attorneys in the firm. One he calls “Jedi Master Dan Vu” and the other he calls “Yoda Thom Cooper”.

The top highlights of his life have been marrying his beautiful wife and attending a campaign rally in 2004 where he met President George W. Bush. He is proud of working to start an annual 9/11 Memorial at Xavier University. Ted's greatest aspirations are to live a long, healthy and happy life, while helping other people to do the same.

What would we be surprised to know about Ted?

He is an avid collector of antique road signs. He also volunteers as a traffic control consultant for the Mariemont Police Department and directs traffic for large events, parades, and sporting events. He's also flown in a WWII B-29 Bomber.

How is it to work with Ted? Here is what Ted's client's are saying:

“Ted did a wonderful job … He was very responsive and offered to meet with us to update our documents.”

“It's a great comfort to us knowing that you are overseeing our estate planning. We really appreciate all that you've done.”

“Your presentations were descriptive and to the point. Our questions were answered promptly.”

Thom & Mitch comments…

“Ted has been a great addition to the firm. He does a great job for our clients and they know it. It is always a pleasure to hear from clients about how well Ted has handled their affairs. One of the things I like about ted is how quickly he learns new things. In recent months, Ted has been working through some of the most difficult-to-understand estate tax laws at the firm and he always meets the challenge.

DISCLAIMER – Every case is different because every case is different. This blog does not give legal advice. This blog does not create an attorney client relationship. You are not permitted to rely on anything in this blog for any reason. This blog is an entirely personal endeavor. Every person's situation is different and requires an attorney to review the situation personally with you.
No attorney-client relationship is created by this site.

The use of the Internet, this blog or email for communication with this firm or any individual member of this firm does not establish an attorney-client relationship. Before we represent any client, the client and the attorney will sign a written retainer agreement.
If you do not have a written, signed retainer agreement with us, we are not representing you and will not be taking any action on your behalf.

Beware the IRA Beneficiary Pitfalls

Written on February 18, 2013 by Cooper, Adel & Associates in Investments, IRA

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By Attorney Ted Brown

A Tax-qualified retirement account, such as a traditional IRA, 401(K), 403(b) or other tax-deferred account can pose a unique challenge when planning for your estate. This is because any withdrawals from the account are taxed as ordinary income.

Of course, this tax-deferred treatment is the great benefit of these accounts. While the account-owner is working, money saved for retirement and the gains on such investments grow tax-free. After retirement, presumably when the owner is in a lower tax bracket, withdrawals are taxed at a lower rate.

However, when the account owner-passes away, the burden to pay income tax on the account passes on the the beneficiaries of the account. Since income tax was never paid on the balance of the account during the owners life, withdrawals taken by the beneficiaries will be taxed as ordinary income for each beneficiary.

This can create a problem for the financially imprudent beneficiary who elects to withdraw their inheritance as a lump sum. For even a modest account, this can kick the beneficiary into a higher tax bracket in the year of the withdrawal and result in far more value being lost to taxes than if the account was distributed annually over the beneficiary's lifetime.

What is worse, if the account owner chooses to leave a portion of the account to a charity, organization or simple trust, it can result in all of the beneficiaries being forced to take distributions over a shorter time period and paying more in taxes.

Therefore, it is very important that you seek professional advice to understand how your tax-qualified account works after you pass away and that your beneficiaries are named correctly to avoid the tax pitfalls.

DISCLAIMER – Every case is different because every case is different. This blog does not give legal advice. This blog does not create an attorney client relationship. You are not permitted to rely on anything in this blog for any reason. This blog is an entirely personal endeavor. Every person’s situation is different and requires an attorney to review the situation personally with you.
No attorney-client relationship is created by this site.

The use of the Internet, this blog or email for communication with this firm or any individual member of this firm does not establish an attorney-client relationship. Before we represent any client, the client and the attorney will sign a written retainer agreement.
If you do not have a written, signed retainer agreement with us, we are not representing you and will not be taking any action on your behalf.

Estate Taxes, the Fiscal Cliff and the New Year

Written on January 17, 2013 by Cooper, Adel & Associates in Planning, Taxes

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By Attorney Ted Brown

Amid all the fanfare of Congress acting in the eleventh hour to stop a major income tax increase, many Americans have been left wondering what the Fiscal Cliff and the “deal” to avert it now means for their estates. The fear looming over the latter part of 2012 was that the Federal Gift and Estate tax limit would drop to $1 million.

As part of the Fiscal Cliff compromise, Congress agreed to extend the $5.12 million estate and gift tax exemption. They also added a provision that will allow the exemption amount to be adjusted for inflation each year. The tax rate for lifetime gifts or estates in excess of this amount is set at 40%.

Using inflation estimates for 2013, the current Federal estate and gift tax exemption is $5.25 million. This means that, just like last year, someone can either gift or pass away with up to that amount without owing gift or estate tax. More importantly, it means that someone who gifted the maximum last year ($5.12 million) now has an extra $130,000 unused exemption amount.

Congress agreed to make this extension “permanent,” meaning that no expiration date (or “cliff”) was included as part of the legislation this time. This does not mean that Congress cannot or will not change the limit downward at some point in the future. Essentially, it is permanent until Congress decides to change it.

The new year also brought a major change to the Ohio Estate Tax. Effective, January 1, 2013 the Ohio Estate Tax was officially repealed. This means that no Ohio Estate Tax filing is necessary for dates of death occurring on or after January 1, 2013. However, the tax will still apply to dates of death on or before December 31, 2012.

If a loved one passed away in 2012 and you would like to discuss the impact of the Ohio or Federal Estate Tax, please call our office.

DISCLAIMER – Every case is different because every case is different. This blog does not give legal advice. This blog does not create an attorney client relationship. You are not permitted to rely on anything in this blog for any reason. This blog is an entirely personal endeavor. Every person’s situation is different and requires an attorney to review the situation personally with you.
No attorney-client relationship is created by this site.

The use of the Internet, this blog or email for communication with this firm or any individual member of this firm does not establish an attorney-client relationship. Before we represent any client, the client and the attorney will sign a written retainer agreement.
If you do not have a written, signed retainer agreement with us, we are not representing you and will not be taking any action on your behalf.

Succession Planning: Estate Planning for Your Business

Written on November 15, 2012 by Cooper, Adel & Associates in Planning

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By Attorney Ted Brown

Perhaps one of the most important questions for any business owner, whether they own an international conglomerate or a corner hot dog cart is who would take over if something happened to them. However, the unfortunate truth is that many business owners do not develop an effective succession plan until it is too late.

Depending on the size and scope of the business, a succession plan should answer (at least) one of the following questions:

Who will take over the operation of the business at the owner's death?
Who will have access to business assets at the owner's death?

If you think your business is “too small” to worry about, think again. Even the smallest of businesses can pose large problems for the owner's family if there is no plan in place. For example, many people have, or had at one point a sole-proprietor type business that did business under a certain name. To make things easier, or lend credibility to this business, the owner established a bank account in the name of the business. At the owner's death, without any planning, that account will be subject to a probate proceeding before even the spouse can access the funds.

The same applies to any other assets titled in the name of the business, such as vehicles, real estate or other items. Unless the structure of your business names a person who will have the legal authority to access and control these assets at the owner's death, the business is a ticking time-bomb for the owner's family.

Even if the owner intends for the business to expire when they do, planning is still needed to ensure that the assets of the business can avoid the hassles of probate and the legal system.

Creating an effective succession plan goes hand-in-hand with creating an effective estate plan. In many cases, the principals and concepts are the same. The trick is making the time to sit down with an Elder Law Attorney and discuss what is needed.

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (or in any attachment) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication (or in any attachment).

New Gifting Rules for 2013

Written on November 14, 2012 by Cooper, Adel & Associates in Estate Planning

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By Attorney Ted Brown

The IRS recently announced that the annual gift exclusion amount will increase to $14,000 per person in 2013. This means that an individual can gift up to $14,000 per person without having to file a Federal Gift Tax return.

Gifting in excess of $14,000 does not necessarily mean that gift tax will be owed, it only means that the gift must be reported. Only when an individual exceeds the lifetime exclusion amount will gift tax be imposed. In 2013, the lifetime exclusion amount will decrease to $1 million dollars.

It is important to remember that gift tax rules only apply to the GIVER. The recipient of the gift is never taxed on the value of the gift they receive, regardless of the amount. They do not need report the gift as income on their taxes because it is not considered “income” within the meaning of I.R.C. Section 61.

Ohio’s Fracking Tax May be Changing

Written on November 9, 2012 by Cooper, Adel & Associates in Taxes

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By Attorney Ted Brown

With the recent boom of oil and natural gas production in Ohio, it should be no surprise that the government is looking for its share of the action.

With the use of a new technique called hydraulic fracturing, or “fracking,” and new methods of horizontal drilling, oil companies have been able to reach previously unreachable pockets of oil and gas. For farmers and landowners alike this has created a new source of revenue in both lease income and higher per-acre value.

However, with higher income means higher taxes. Governor Kasich recently unveiled a plan to relieve the tax burden on farmers and pass it on to the oil companies. The Governor's plan calls for the increase in what is known as the “fracking tax,” or tax on the amount of oil or gas recovered from Ohio lands. This tax is paid by the driller, not the land owner, and would amount to between 1.5% to 4 % of the gross income the oil company generates from the sale of “liquids” extracted in Ohio.

In conjunction with this increase, Kasich will cut income taxes by around 5%, thereby allowing the average landowner to keep more of the lease income they receive.

The plan awaits the endorsement of the Ohio Farm Bureau Federation which is seeking additional information on the impact the plan will have on oil companies before giving its support. The fear is that the companies will merely pass the additional tax burden onto the consumer through higher prices or the landowner through lower lease rates.

The Dangers of a “Simple” will

Written on November 5, 2012 by Cooper, Adel & Associates in Estate Planning, Important Documents

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By Attorney Ted Brown

A question clients frequently ask is “do I have enough assets for a trust?” This question is usually followed by the statement “I just need a simple will.” The reality is that there is no dollar amount at which the need for a trust is triggered and there is no such thing as a “simple will.”

Take as an example, the estate of the legendary lead singer of The Doors, Jim Morrison. Morrison’s will bequeathed his entire estate to his girlfriend , Pamela Courson. In the event that she did not survive him, Morrison named his parents as contingent beneficiaries. Sounds simple enough. When Morrison died in 1971, his entire estate passed to Courson.

However, when she died a mere 3 years later, her entire estate, including everything she inherited from Morrison, passed to her parents. Morrison’s parents implored the legal system to remedy this obviously unjust result, but much to their dismay, the outcome fit perfectly within the letter of the law. His assets passed exactly as it was stated in his will; Courson survived him by more than 90 days and therefore everything was hers. What happened at her death was determined by her will, not Morrison’s.

Ironically, it was the very simplicity of Morrison’s will that led to years of complex litigation. When doing any sort of estate planning, it is very important to plan for even the most remote of contingencies. It is also a good idea to discuss this planning with a professional.

Not only can experienced Elder Law Attorney help prevent the type of unintended result that plagued Morrison’s estate, but they can also determine when a trust might be a beneficial option. In addition to avoiding the costs of probate, trusts can allow you to plan more precisely, to control your bequests even after the death of your secondary beneficiaries.

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (or in any attachment) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication (or in any attachment).

Preplanning Can Reduce Estate Tax Liability for Heirs

Written on October 19, 2012 by Cooper, Adel & Associates in Taxes

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by Attorney Ted Brown

In 2007, an heiress passed away leaving an estate of just over 20 million dollars. The bulk of the estate was her shares of stock in the family hotel business. Facing an exorbitant estate tax bill, the family entered into a payment plan with the IRS to pay the tax over a period of years.

However, when the hotel went out of business a few years later the estate became insolvent and couldn't keep up with the payments. The IRS then promptly contacted the beneficiaries of the estate demanding payment. After several years of litigation, the IRS prevailed on its claim and collected the remaining tax from the children.

Unfortunately, this situation could have been prevented with the help of a special irrevocable trust. If you are holding onto a family business interest, the last thing you want is for that business to be sold to pay the tax expenses of your estate. However, that usually means giving up control of that business sooner than you would like. An irrevocable trust can be used in this situation to accomplish what Elder Law Attorneys call “controlled gifting.”

Controlled gifting allows an individual to reduce the size of their estate by gifting assets to a trust but stipulating that those assets cannot be distributed until after the owner's death. This is an advanced estate planning technique that can be used to save significant money in estate taxes and preserve hard-earned assets for the next generation. If you would like to discuss the appropriateness of this approach for your situation, call our offices for a free consultation.

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (or in any attachment) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication (or in any attachment).

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