Furthermore, as of this date there . . . → Read More: Death Tax Coming Back with a Vengeance in 2011!]]> It is now all but certain that we will have an estate tax in 2011, and it will be harsher than any other system we have had before in this regard since 2001 , with the estate tax lifetime exclusion reduced to $1 million and the top tax bracket at 55%!

Furthermore, as of this date there is no clear agenda in Congress to do anything about it, unfortunately, and the $1 million lifetime exclusion is a certainty on January 1, 2011.

What this means is that the law is about to become a giant dragnet, pulling in upper middle class citizens and their hard earned, lifetime savings into the government hamburger grinder called the tax system.

In particular, individuals with net worths of between $1M and $3M and married couples with net worths of between $2M and $6M will be particularly damaged.  (Of course, those with higher net worths have an even greater need to protect their families, but that need has steadily existed through the gyrations and permutations of the estate tax.)

The Wall Street Journal published an excellent article on the subject on November 18th and it is a worthwhile read.

We are adept at helping such clients through our two key processes in this area:

For those higher net worth clients who are fully committed to protecting their families from the estate tax while ensuring that their values, hopes, and dreams resonate, our Laureate Wealth Planning process provides safety and security with indepth review, analysis, and discussion that provides clarity of purpose and results.  We help you use both big picture thinking and drilling down to the small details to protect you and your loved ones.

Alternatively, for those with lesser net worths or who wish to undertake a more incremental process our core planning process incrementally layers on levels of protection, allowing you to go as far or as short as you determine is best.

Back to current events, if there is any message here it is that family security is under full scale attack and it’s not about to let up.  Families need to decide whether to take steps to protect their hard-earned legacies or to do nothing and allow the confiscation of those legacies.

Purchasing real estate has been a challenge the past several years due to various reasons. One of the biggest reasons being the inability to get credit from a traditional bank.

With the number of intelligent and creative people involved in the real estate profession, different methods and creative ways of obtaining financing have been developed to allow . . . → Read More: Can’t Get Financing – What About a Wrap?]]>

Purchasing real estate has been a challenge the past several years due to various reasons. One of the biggest reasons being the inability to get credit from a traditional bank.

With the number of intelligent and creative people involved in the real estate profession, different methods and creative ways of obtaining financing have been developed to allow buyers to purchase real estate without getting a loan from a traditional bank.

One such method has been the All-Inclusive Trust Deed, also known as an AITD or a “wrap.”

Generally speaking, an AITD is when a Seller provides a new loan to the Buyer, and the Seller’s new loan incorporates the terms of the Seller’s existing loan.  In today’s real estate market, this almost seems like the perfect way to sell a property because the Buyer is able to purchase the property without getting new financing, and the Buyer saves money without having to pay for lender’s fees or other costs related to their loan.

However, sellers and buyers should both be very cautious when using AITDs.  One of the most overlooked provisions in any set of loan documents is what is commonly referred to as a “Due On Sale Clause.”  Essentially, this provision states that if a property owner sells the property, and the lender has not agreed to the assumption of its loan by the buyer, then the lender can call the entire amount of the loan due.

If this were to happen, this can be a very sticky situation, as the seller’s name is still on the loan (which could cause credit problems for the seller) and if the buyer cannot get a new loan, then the lender could foreclose on the property.  Obviously, this is not a situation that the buyer (or the seller) would want to be in.

There are other issues involved with AITDs, but this is one of the potential issues that you may deal with if using an AITD.  As is the case with any real estate transaction, we suggest you obtain the advice of a qualified professional to assist you.  The decisions you make today will have lasting effects for you and your family in the future.

Although there are no estate taxes this year (UNLESS Congress passes a law retroactively — a lower percentage possibility BUT still possible), next year the tax returns with a voracious bite with a . . . → Read More: New York Times Article on Transferring a Residence for Estate Tax Planning]]> There is an excellent article today in the NY Times about transferring one’s residence to loved ones in order to reduce applicable estate taxes.

Although there are no estate taxes this year (UNLESS Congress passes a law retroactively — a lower percentage possibility BUT still possible), next year the tax returns with a voracious bite with a top tax bracket of 55% and a lifetime exclusion of only one million dollars.  Congress may do something but then again they may not — it’s an easy revenue raiser and nobody even has to vote on it – next year’s law occurs automatically effective January 1st.

Planning for one’s residence will most likely receive greater focus because of the reduction of the lifetime exclusion, and will be particularly important for taxpayers with a net worth from one to ten million dollars as well as higher net worth clients who have a disproportionate amount of their wealth tied up in their house (or a second home).

There are a number of excellent techniques which the article outlines very well.

Suffice to say that qualified personal residence trusts, tenancies in common, and grantor trusts in general are useful in reducing tax and I foresee greater use of these techniques as part of a plan to reduce or eliminate estate taxes while providing inheritances to loved ones in manners that are not only tax efficient but can effect the donor’s intentions in an accurate fashion as well.

Whether it’s to preserve a house on the Strand for the family or a vacation chalet, planning up front can make these desires reality.

Look for more discussion in this blog, our newsletter, and at our inhouse seminars in the future on this subject.

I just met with a client who . . . → Read More: Don’t waste money on your attorney!]]> There is nothing that your attorney cannot figure out given enough time.  But that’s expensive.  The client who appears for a meeting with a shoe box full of documents in disassociated condition will pay more in attorneys fees just to get organized or to have the attorney organize their files.

I just met with a client who arrived with two three ring binders:  One for her and one for me.  There was a short (1/2 page) story as an introduction, and a longer, more complete version following that.  Each “fact” was tied to an exhibit in the notebook, neatly placed behind marked dividers.  Finally, the client laid out three specific goals she wanted to achieve, together with four specific questions.  It took about 30 minutes to review the entire binder.

By the end of one hour, we had a plan.  The client left knowing what we were going to do, what it would cost and what goals were expected to be achieved.  She knew what risks she was taking and what could be gained and what could be lost.  And on top of all that, money was saved.

Not every client is in a position to be this organized, but the closer a client can get to that, the less money will be spent just getting started.

It is very quiet in Washington DC after a busy summer since everyone is working on reelections for November 2nd.  Their viewpoint was that it looks like about . . . → Read More: Taxes and Congress–Update]]> I recently listened in on a teleconference sponsored by UBS on the current tax situation and the speakers had some interesting observations about that dysfunctional group known as Congress.

It is very quiet in Washington DC after a busy summer since everyone is working on reelections for November 2nd.  Their viewpoint was that it looks like about an 80% chance that the Republicans will retake the House, but they are unlikely to retake the Senate.

The lame duck session starts on November 15th with the return of the current Congress before being supplemented/replaced by the incoming electees.  New congressmen and congresswomen will not be sworn in until January 11th of 2011.

One exception is that three Senate seats will fill immediately and influence the lame duck session since those seats involve such things as filling the vacancy of deceased Senator Byrd’s seat.  This is important as although it is a lame duck session, basic tax policy will be decided for the following year not by the new Congress but the lame duck Congress!

The big issue is the Bush tax cuts and in particular whether the top two brackets should be extended.  The “big three” —  income taxes,  capital gains, and dividends — will most likely be extended for at least one year, but maybe two years, contrary to the President’s budget.  President Obama may even veto such action, but they deemed it unlikely–could be overridden and perhaps too high a cost in terms of political capital.  Why?  Something happened this summer — a number of Democrats questioned whether  it was sensical to raise rates on the top two brackets in a recession (or whatever you want to call this post-recession misery).

There is a train wreck scenario you should know about as well but that is unlikely–no agreement by anyone could cause all brackets to go up across the board–from top to bottom.   I doubt that will happen though Congress has done worse.  If Congress did manage to let all the rates go up,  I would guess we might have a lynch mob on capital hill!  Most likely Congress will play it safe and just extend rates one more year.

With respect to estate taxes, we are most likely to see a short term fix for a year or two.  Probably very similar to  the 2009  law with an exclusion of $3.5M and a 45% estate tax rate for 2011 and then Congress will fight some more.  I guess not only is the moment of most people’s deaths unknown to them until it happens but so is the estate tax law in effect at the time as well!

What about the 2010 law?  Unlikely to have a retroactive law here unless it’s to provide relief to those who will suffer under the carry over basis regime under the new law.  Perhaps possible to allow executors to pick and choose.  However, not clear as no one is talking much about this right now and Congress is busy raising money and getting reelected.

Grantor Retained Annuity Trusts:  still keeps coming up to make minimum term of 10 years.  Clients with net worths of $7M plus should consider these as GRATs with terms of less than 10 years may be history.

What’s a body to do?

1. Gift tax planning:  right now gift tax rate is 35%–lowest EVER.  Effectively that is a rate of 26% in comparison to estate tax.  Difficult decision for those who have used up their lifetime exclusion but for clients with net worths of perhaps $15M plus it could make sense.  However, we have to be careful here as Congress may pass a law to raise these rates retroactively so it’s best done at the very end of the year.  Personally, it turns my stomach to see anyone pay the tax now but perhaps useful as a minor part of a broader strategy.

2. Multigenerational Planning:  there is no generation skipping tax for 2010!  So for 2010 there may be an opportunity to set up trusts that could theoretically go on forever without any additional gift or estate or generation skipping tax once they are set up.  However, the law is unclear as to how this will apply in the future.  One strategy though could be to make outright gifts to grandkids.  Unfortunately, this strategy has the drawback that the protections of trusts, including asset protection, beneficiary maturation, and divorce protection are missed.  For those who like to gamble though, this could be part of a larger strategy.

3. Taxes:  hard to call here as to the best strategy–if you believe the rates will go up then you may want to liquidate key positions.  Also, charitable gifts may be better made in 2011 to get greater benefit from the deduction.  If you have assets that are difficult to sell it is more problematic as to what to do since you don’t have the flexibility to make last minute dispositions at the end of 2010.

So there you have it–more messiness and uncertainty–at least it’s consistent with what’s going on with the rest of the world!

The bill would have prevented lenders from obtaining deficiency judgments against homeowners living in their homes and who default on their loan which was either the original . . . → Read More: Extension of Nonrecourse Protection vetoed by Governor]]> On Friday, October 1st, Governor Schwarzenegger vetoed SB 1178, which would have extended anti-deficiency protection under Section 580(b) to include refinance loans which replaced loans which were qualified purchase money.

The bill would have prevented lenders from obtaining deficiency judgments against homeowners living in their homes and who default on their loan which was either the original loan used to acquire the property or a refinance loan which was taken out to replace such a loan.

This is probably the correct move from a long-term economic standpoint albeit a decision which will cause some homeowners to feel greater pain beyond just losing their home to foreclosure.

Hard times indeed.

1. EVERYONE who gets married has a prenup.  The difference is that the State . . . → Read More: Ten Simple Things High Net Individuals should know when considering a Prenup]]> Marriage is of course both a spiritual and financial union.  Telling your significant other that you want a prenuptial agreement (“prenup”) can be awkward and getting it done potentially even more awkward.  Here are some tips to remember to make the path easier:

1. EVERYONE who gets married has a prenup.  The difference is that the State of California automatically provides a set of rules for determining what happens in the event of a divorce.  By having an agreement prepared that fits one’s situation, one has in essence elected to make sure that the expectations of both are clearly defined up front in light of their specific circumstances instead of having a “one size fits all” agreement determined by the State and which can change at any time.

2. Both Parties must be Represented by Independent Counsel.  For practical purposes, your agreement will be worthless if a (foolish) attorney represents both of you.  You both need lawyers.  That’s the law if you want to maximize the probability that your agreement will be enforced. Offer to reimburse your significant other for their fees.  Don’t refer your significant other to the attorney they will use–let them find their own or have them call the local bar association for a referral.

3. Disclose up Front. Your agreement will contain schedules showing a full and complete disclosure of your assets and their values as well as your income.  It’s the law.  Discuss your finances with your significant other before they receive the agreement–less surprise is better.  Frequently the party “without the wealth” is surprised by how much wealth their fiance has acquired.  That’s bad as you will see in #4.

4. They WILL melt down. Almost every person who comes to see me to prepare a prenup says their significant other has no problem at all with signing a prenup.  Just about all of those significant others melt down during the process.  You need to be prepared for this.  Be ready and take the initiative before such a meltdown occurs and discuss the prenup on an ongoing basis, including details and rationales, while it is in progress.  One useful strategy for avoiding meltdowns: see #3 minimizing surprises.

5.  Avoid the Last Minute. These frequently take longer than you think to finalize.  I recommend starting at least two but preferably three months in advance of the wedding date.  You don’t want to be negotiating the week of your wedding, but it happens because the process between the receipt of the first draft and the final draft can be longer than expected. (See #6.)

6. Be prepared for the Opposing Counsel’s Comments. The lawyer your significant other hires has two primary concerns–protecting your significant other and making sure that they are not sued down the road for not getting enough for them.  So fasten your seatbelt–once your significant other meets with their attorney for the first time to review the draft you have had prepared it may get “frosty.”  Your significant other will be told that at least part if not all of the draft is one-sided, unfair, and that they are being taken advantage of.  This is why it’s important to start early and to be prepared for this event.

7. Give. Your agreement should not be one-sided.  There are numerous ways to leverage your generosity, such as calibrating benefits to the longevity of the marriage.  However, no penalties–they are generally counterproductive.

8. Estate Plan. Here is a place to be generous–estate planning provisions can be made to apply only in the event of death while married and together.  You have virtually no downside here with the proper use of trusts.

9. Have some Room. Have the first draft resonate with what you are trying to accomplish, but don’t forget to leave a little room.  Once your significant other sees an attorney, they are likely to ask for changes.  If you leave yourself no room to compromise, you will likely have a difficult situation.

10.  Be Committed. Not my words but always consider the life formula  M=O-C.  This stands for Mess equals Obligation without Commitment.  Here, you need to be prepared for a few awkward moments, and occasionally worse.  Everything may go as planned.  Your significant other’s statement before starting that they will sign whatever you want may hold true, but then again it may not.  If you are not clear in your thinking about doing all of this, you may end up with the worst of all worlds–no prenup and an upset partner!  By being clear that this MUST be done in order for you to become married, your commitment will help carry you across potentially difficult moments in the process.

1. Will your spouse be able to depend upon the benefits of your business if you died tomorrow?

2. What about your minor children or other dependents?

3. Who will . . . → Read More: If you died tomorrow could your family still depend on your business?]]> A common issue that I see with new business owner clients is the lack of a succession plan.  No it’s not so fun to contemplate death but consider the following:

1. Will your spouse be able to depend upon the benefits of your business if you died tomorrow?

2. What about your minor children or other dependents?

3. Who will run your business in the event of your disability or death?

4. Who is authorized to conduct checking or sign contracts on behalf of your business?

5.  If you have co-owners, do you have a buy-sell agreement in place that protects all of you against death, disability, divorce and creditors?

6. Is there a deferred compensation arrangement in place?

7.  How long will your health insurance be available in the event that your family is under the business’s health plan?

8. Will your trustee (if you have a living trust, do you?) have any guidance on how to operate your business? (Note in 2011 the lifetime exclusion is only one million dollars and the top rate is 55%.)

9. How will estate taxes attributable to the business be paid?

10.  Have you done lifetime planning for the business which reduces it’s value for estate tax purposes in the event of your death?

11. If you have family members working in the business, do you have a plan for what will happen to them on your death?

These questions are the tip of the iceberg when it comes to issues business owners should address.  It is very easy to ignore how important you are to your business.

However, succession planning, insurance planning, trust planning, buy-sell planning, and operations manual planning are all important to protecting you, your loved ones, your business partners, and of course your values.

Often times it’s easy to delay this type of planning, with excuses ranging from “I’m too busy” to “I’ll do it when the economy recovers.”

However, whatever day is fated for us does not care what we have done and left undone.  Without  such planning, a very dark day can be made even worse as the world, and those most important to us, our loved ones,  go on without us.

A suggestion on how to start:  print this blog and have a joint meeting with your attorney, CPA, and financial advisor–each has both unique and overapping expertise in relevant areas and together they can help you form a plan which protects you and your loved ones.