2013 Estate Planning

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E-2 NOVEMBER 11-17, 2013 ESTATE PLANNING

TABLEOFCONTENTS

PRESIDENT’S LETTER

Proper planning ensures financial legacy lives on

TRENDS

No matter the size of your estate, proper planning will ensure your wealth is protected for future generations and charities of your choice. E-5 to E-6.

Succession planning How does your business influence your estate plan? Establish a contingency plan and understand how gift tax planning impacts the sale of a business. Make sure you know how your valuables and other personal assets affect the value of your estate. E-7 to E-8

Arts and collectibles Don’t overlook this important asset class. E-9

Evaluating how your personal objectives for leaving a legacy have been affected by the change in laws he Estate Planning and market conditions Council of Cleveshould include consultland, in conjunction ing with professionals with Crain’s Cleveto advise you on the land Business, is pleased to methods, techniques and present the annual Estate documents available to Planning Section. It is the meet your goals. If you council’s goal to offer the have concerns regarding community valuable inforthe transition of a familymation related to financial, owned business, planning KORTH retirement, insurance, busifor retirement, creating a ness succession, education, legacy for your family, or estate planning and charitable fulfilling philanthropic goals, the planning. The articles and comarticles in this section will address mentary on the pages that follow these issues and the benefits of have been provided by some of receiving comprehensive tax and Northeast Ohio’s most experienced estate planning advice as part of professionals in these fields. the planning process. BY BETH KORTH

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Business climate From fulfilling philanthropic and financial goals to encountering sudden wealth, consider how current economic conditions factor into your estate planning. E-3 to E-6

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Special considerations

Estate planning experts weigh in on how special needs, citizenship, education and elderly caregivers impact planning. E-10 to E-11

Gifts and asset protection

Protecting your financial legacy for your family requires diligence in choosing beneficiaries, trustees and the right financial vehicles. E-12 to E-19

Charitable giving

Philanthropic contributions offer both financial and personal benefits. E-20 to E-23

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The need for preservation of assets built over a lifetime for the benefit of family, heirs or charities is ongoing. Estate planning is one of the most overlooked areas of personal financial management. It is estimated that more than 120 million Americans do not have up-to-date estate plans to protect themselves or their families in the event of sickness, accident or untimely death. This can result in wasted dollars and hours of hardship, which can be materially minimized with advanced planning and action. The financial world in which we live continues to change. Uncertainty looms about the permanency of the current estate and gift tax laws and domestic and international economic performance. Nonetheless, the need for preservation of assets built over a lifetime for the benefit of family, heirs or charities is ongoing.

The Estate Planning Council of Cleveland is composed of a diverse array of more than 400 professionals working in the Greater Cleveland area, including attorneys, accountants, bankers and trust officers, financial planners, insurance agents, appraisers and representatives from charitable organizations. Our members are available to provide you with thoughtful, tax-effective and value-based planning. Our Council’s web site (www.epccleveland.org) can be a useful resource to locate professionals to assist you with all of your planning needs. We are pleased to be able to share the insights and commentary of our members and other area practitioners with you in this annual publication. We hope that you will find the information insightful, helpful and valuable. n

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How estate planning can help you reach philanthropic, financial goals BY JOSEPH P. KOVALCHECK JR.

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roper estate planning not only supports the current and future financial possibilities for you and your family but also allows you to transfer your wealth according to your wishes, and can help reduce unnecessary taxes and expenses. Whether your goal is to develop a philanthropic legacy for your family or simply to support your community, tax-favored programs create ongoing opportunities to transfer family assets to public and private charities. One common technique is to currently establish a charitable remainder trust (CRT). The benefit of a CRT is that you will continue to receive an annual income from the trust during your lifetime and, upon your death, KOVALCHECK the charity receives the assets remaining in the trust. You also receive a current income tax deduction in the year the trust is funded. Another technique is to establish a private family foundation that is typically managed by family members. The family (through a Board of Directors) retains control over the gifted assets and annually makes contributions to charities of their choosing. The family’s philanthropic legacy continues as younger generations are encouraged to participate in both the management of the foundation as well as researching and recommending charities worthy of the foundation’s annual gifts. A private foundation can be established during your lifetime or upon your death. Gifting is also an important component to any estate plan. Gifting allows you to reduce the size of your taxable estate by transferring wealth to your family members as well as charities. Gifts to family are subject to the rules of lifetime gifting. However, outright gifts to charities have no limits. Charitable gifts made while you are alive receive a current tax deduction (with certain deductibility limitations). Charitable gifts made at your death reduce your taxable estate dollar for dollar. It is important to consider your goals and objectives when establishing your estate plan. Most charitable trusts are irrevocable when funded; however, many aspects of your estate plan can be modified as circumstances change throughout your lifetime. n

Show your grit: Hire a financial advisor BY DOUG MATHEY

The second-most helpful trait is knowing exactly how far you have s associate direcleft to go. This aligns well tor of the Motivawith advice from former tion Science Cenbrokerage bank president ter at Columbia Sallie Krawcheck. In a Business School, Dr. Heidi recent article, “The 5 Real Grant Halvorson has more Reasons to Hire a Finanthan a passing interest in cial Advisor,” she advises the qualities that lead to against seeking an advisor “success.” After assessing to help you try to beat the MATHEY the nine most significant markets. The better reatraits, even she confessed sons are to help you: that she found the results surprising. No. 1? It’s not how focused, 1) Ask and answer difficult questions well-informed or dedicated you are. 2) Have a plan in place It’s having enough grit. 3) Understand your risks

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4) Stick to your plan (there’s that grit again) 5) Know your own biases “This is a biggie,” she writes about biases. “Many of us think we don’t really have any … which is exactly the point.” To help on that front, let’s touch on a highly susceptible bias known as recency — the tendency to give recent experience more weight than it deserves in our decision-making. We are thrilled at how well recent markets have rewarded those who have stayed the course through some remarkably risk-exhibiting markets. But we would be remiss in our advice

Mr. Kovalcheck Jr., CPA CFP, is chief operating officer/account manager for M+N Advisory Services LLC. Contact him at 216363-6489 or email j.kovalcheck@ advsrv.com.

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if we did not remind you that recent returns, fantastic or foul, are but blips on the radar screen guiding you toward your goals — the ones for which we’ve put your plans in place. The true measure of success is whether you achieve your goals, not a quarter’s or a year’s returns. So enjoy the recent market gains. But hang on to that grit. n

Mr. Mathey is president of BCG Wealth Advisors and part of the BCG Legacy Advisors team. Contact him at 330-572-8050 or email Douglas.Mathey@BCGCompany. com.


E-4 NOVEMBER 11-17, 2013 ESTATE PLANNING

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may have otherwise been. Your estate planning attorney can write a document appropriate for your situation. In addition, your financial team should make estate tax projections to assess the amount of federal and state estate tax likely to be assessed on your death and discuss strategies to minimize these taxes with you. Estate planning is much more than just the efficient transfer of assets at death. It’s about carrying out your wishes and carrying on your values; it’s about minimizing the short-term burden and maximizing the long-term positive impact on your heirs. Making sure your documents are up-to-date with your wishes and that your assets are titled appropriately are just two ways to help make sure you are a good steward of your new wealth and leave a positive legacy for your family. n

Mr. Olver, CFP, is senior vice president & wealth advisor for SperoSmith Investment Advisers, Inc. Contact him at 216-464-6266 or email matt@sperosmith.com.

An investment portfolio checkup BY CHARLES J. AVARELLO

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hether you came into a large inheritance, sold a business, leased your gas rights for a significant sum of money, or picked the right numbers in your state’s lottery, you will have very significant finan- OLVER cial decisions to make. Whatever the specifics, the financial challenge of achieving sudden wealth is generally the same: You now have a substantial amount of money that must be managed carefully to help you protect your wealth, provide income for your lifestyle, and achieve your legacy objectives. Take time to evaluate your financial position and consider how your new wealth will affect your goals and your life before making any significant financial decisions. One area of your financial life you should re-evaluate is your estate plan. Your will and trust(s) determine how your worldly possessions will be distributed after

your death. You’ll want to make sure your current documents accurately reflect your wishes and account for all of your assets. If your newfound wealth is significant, you should meet with your trusted advisor and estate planning attorney as soon as possible. New documents may be warranted as a simple codicil to the will and amendment(s) to a trust may be inadequate. Make sure to destroy any old documents if this occurs. Carefully consider whether the beneficiaries of your estate are capable of managing the inheritance on their own. Trusts can assure continuity of your interest and keep money in the family and away from creditors. In other words, a trust can make sure beneficiaries receive what you want, when you want, and how you want, even after you have passed away. It can contain provisions requiring beneficiaries to be more financially responsible with their inheritance than they

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process of monitoring exposures and rebalancing back to your targets at some predetermined intervals? Reversion to the mean is the single most reliable function of the investment world. Rebalancing takes advantage of this, forcing a buy-low, sell-high discipline and trumping the emotions that argue for the opposite. Finally and most importantly, do you recognize the potential self-harm you can do by your own behavior? Humans are simply not pre-wired to be good long-term investors. We misjudge opportunity and risk in both good times and bad. We’re vulnerable to sales pitches and crowd following. The reliable solution is to follow these concepts and to believe that it is the investor that matters much more than the investments. n

Mr. Avarello, CPA, CFP, is senior manager for Fairway Wealth Management, LLC. Contact him at 216-573-7200 or email cja@fairwaywealth.com.

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Low interest rates are impacting life insurance BY CHRISTINE MILLEN and RAYMOND NASH

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nique challenges exist for life insurance policyholders as the pressure of low interest rates and tighter reserve requirements have changed the landscape for competitive life insurance policies. Due to continued low interest rates, insurance carriers have reduced crediting and dividend rates for in-force universal life and whole life policies in an effort to reach targeted profits. Generally, there is a lag of several years between the interest rate environment and insurance carrier investment portfolios because of bond durations inside these portfolios. However, crediting and dividend rates for policies must ultimately reflect asset returns. When life insurance policies are acquired, products are often analyzed assuming certain non-guaranteed features, such as crediting rates and dividend rates, will hold true indefinitely. The more aggressive the assumptions, the better policies look on the surface (lower illustrated premiums, larger death benefits, higher cash values, etc.). Since current crediting and

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dividend rates for policies issued in 2000 and later are substantially less than originally illustrated, unforeseen premium increases, reduced death benefits and even unexpected policy lapses have occurred. These unplanned policy changes can greatly affect business planning, overall estate plans and annual gift tax planning. The effect of low interest rates accelerated for no-lapse guarantee universal life (NLG-UL) products due to NAIC Actuarial Guideline 38 (AG 38), which requires insurers to increase reserves on both new products and some in-force policies. As rates have gone down, some policyholders have gravitated toward NLG-UL products for pricing stability, since this product offering can provide a guaranteed death benefit. It is important for policyholders to remember that guarantees

are subject to the claims paying ability of the insurance carrier. To mitigate this risk, NLG-UL products should be acquired through carriers with strong financials. Additionally, for large NLG-UL acquisitions, diversification among carriers can help lessen the risk. While recent increases in fixed income rates have reduced the spread between rates for newly issued bonds and seasoned bond portfolios, current crediting and dividend rates for life insurance policies are unlikely to increase in the short-term. However, the reduced spread lessens the likelihood that crediting and dividend rates will continue to trend toward guaranteed minimums. Given the complex nature of policies and correlation to financial markets, the health of a life insurance portfolio should be evaluated on at least an annual basis by policy owners and their advisors. This means measuring policy performance, assessing carrier financial strength, and verifying that the portfolio is correctly structured to address current and future planning needs. n

Ms. Williams Millen is director of case management for Cornerstone Consulting Group. Contact her at 330-665-2376 or email cmillen@ cornerstoneconsultinggroup.net. Mr. Nash is president of Cornerstone Consulting Group. Email him at rnash@cornerstone consultinggroup.net.

Why estate planning is still necessary loss of a parent. It may derail plans to go to college and may make the child subject to potential predators. he federal gift and estate n Even clients with relatively tax exemption currently is modest estates may desire to leave $5.25 million per person their children a legacy that is ($10.5 million for married protected from creditors couples). Individuals with and divorce, and to ensure “smaller” estates might the assets remain in their wonder whether they need family bloodline. to do any estate planning. n It is imperative that With the federal exemption clients with children from so high and the repeal of outside the current marthe Ohio estate tax, clients riage prepare a proper are now free to plan their estate plan to handle the estates without having the VASELANEY needs of the surviving “tax tail wag the dog.” spouse as well as to ensure There are many reasons that assets pass to the client’s chilto do estate planning, even when dren, either at his or her death or avoiding estate taxes is not a the surviving spouse’s death. With concern: the increased exemption, leaving n Many people want to avoid assets to a spouse to obtain the probate, especially if they own real marital deduction and defer taxes estate in other states and would until the second death is no longer have to go through probate in mula primary concern. Clients are free tiple jurisdictions. to leave a larger portion of their esn One of the most important tate to their children at their death reasons clients do estate planning and not make them wait until the is to have their assets distributed death of the surviving spouse. n to their heirs at appropriate ages. Without a proper estate plan, Ms. Vaselaney is a partner with many assets pass to heirs at age Taft Stettinius & Hollister LLP. 18, when most children are too Contact her at 216-706-3956 or immature to handle the receipt of mvaselaney@taftlaw.com. assets while they are grieving the BY MISSIA VASELANEY

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Marcia Wexberg 216.622.8858 mwexberg@calfee.com

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Sophisticated estate, gift and generation-skipping planning Comprehensive probate and trust administration Business succession planning strategies Probate litigation Asset protection planning, including the Ohio Legacy Trust

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E-6 NOVEMBER 11-17, 2013 ESTATE PLANNING

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Guide to your estate plan checkup

BY SUNNY MASTERS

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your family by offering them your personal history as part of your ethical will. Make your end-of-life wishes known by creating a living will and advance directives. Avoid probate by making the individuals and charities who are most meaningful direct beneficiaries to property such as insurance policies and investments. The following checklist will help you track what you have and what documentation you need.

efore meeting with the professional who will assist you in creating your estate plan, take time to gather all pertinent personal and financial information. This will help to ensure that the process is efficient and that your wishes for distributing your assets are followed exactly. Any life change can trigger the need for a revisited or new estate plan: marMASTERS Information about riage or divorce (yours or your children’s or grandyou, your family children’s), the death of a spouse, n Personal information for you, selling a home or business, moving your spouse or significant other, to a new state, or retirement. and your children and stepchildren Estate plans are living documents that should be flexible enough to meet your needs and offer you Information about peace of mind wherever you are in your assets, including your journey through life. monetary value and Estate plans can also reach beyond the financial and help you ownership focus on the personal legacy you n Primary residence wish to leave. Consider benefiting

n Other real estate n Checking accounts n Savings accounts n CDs/Money Market accounts n Stocks n Taxable bonds and tax-exempt bonds n Mutual funds n Business interests n Pensions/profit sharing n IRA, 401K, 403(b) n Other investment vehicles n Collections or items of value such as antiques, jewelry or art n Automobiles n Life insurance policy information/copies of policy n Beneficiary information (primary, secondary; if a charity is your beneficiary, obtain its tax ID number) n Other See CHECKUP Page E-23

Your legacy helps create a healthier community.

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Plan to meet periodically with your financial advisor to ensure your plan matches your wishes.

Beyond performance: wealth preservation BY LINDA M. OLEJKO

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t is no surprise that investors often gravitate to portfolio performance as the primary means to protect and grow assets. Yet from our experience, there are four critical strategies of equal, if not greater, importance: protect assets, control consumption, minimize taxes and prepare for transition. On the most basic level, wealth preservation begins as a OLEJKO need to ensure an individual or couple has sufficient assets to maintain their lifestyle. For many, a longer-term objective is to preserve wealth across generations of family members and for charitable endeavors. Here, we delve into just one of the critical strategies, the need to protect assets.

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Preserving wealth requires the pursuit of a disciplined strategy that can protect assets from unforeseen or difficult-to-forecast events. This begins with an analysis of the insurance needs. Periodic review of personal, business and property insurance coverage is fundamental groundwork. It is

imperative that policies remain current and that coverage adequately protects against unforeseen events. For example, insurance coverage may need to be updated if real estate is transferred to a limited liability company, if a new household employee is hired or if the insured decides to join a board. The outside agent must be apprised of any related activities. On this continuum is the need to ensure the proper registration and titling of assets.

Proper titling of assets

The legal titling of an asset can affect a client in many ways, including personal liability exposure. For example, asset protection can be secured by establishing a particular type of entity, such as an S corporation, a limited partnership or a limited liability company. Many states offer “tenancy by the entirety” — a form of concurrent spousal ownership that provides favorable asset protection benefits. In counseling clients through the ownership structuring process, we remain cognizant of the potential implications for other areas of the family’s wealth preservation efforts. n

Ms. Olejko, CFP® is a Managing Director of Glenmede. Please contact her at 216-514-7876 or Linda. Olejko@glenmede.com.

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If you want top dollar when selling your business, you need a formal business succession plan plan. We’re experts in helping business owners develop their most effective succession plan. We know from experience that today’s planning moves can reap big rewards in the future.

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Gift tax planning before business sale closes BY ROBERT A. HAUPTMAN

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hile there are significant benefits to gifting shares of closely held businesses, such planning is often the last thing on an entrepreneur’s mind. The long holding periods associated with private companies present business owners with the opportunity to transfer these illiquid investments at discounted valHAUPTMAN ues to minimize taxes while providing heirs with an appreciated asset when the sale of the business ultimately closes. What about situations where the business owner has yet to make gifts and the holding period is shortened due to a pending sale? Has the window of opportunity for gifting stock at discounted values closed? In traditional gift tax planning, a business owner will transfer shares of company stock long before a sale is anticipated. An appraisal of the company’s stock will account for the inability to easily sell this asset through valuation discounts. Because the hold-

Risk, uncertainty increase if you wait until process begins

ing period for a private company investment may last years or even decades, these discounts are often significant. If the pro-rata value of one share of stock is $100, it may only be worth $65 after considering valuation discounts. As an eventual transaction becomes more likely, the valuation discounts decline. At the time of sale the share would be worth $100. A similar relationship can be observed in public markets when an acquisition offer is made for a publicly traded company at a premium to its trading price. Follow-

ing the acquisition announcement and prior to the deal closing, the stock price will rise but not to the full premium. Why? Investors recognize that there is risk that a deal will not close. To compensate for this risk, investors will purchase shares at a discount to the offered premium price (a merger-arbitrage discount). Sales of private companies are similarly risky. Deals can fail to close or change materially due to a number of issues, including: the buyer’s inability to secure financing, disagreement on key deal

terms; declining financial performance of the seller; and issues uncovered during due diligence. If a public acquisition fails to close, the investor still holds a marketable security. However, if a private company transaction falls through, the investor is left with an illiquid asset. The presence of merger-arbitrage discounts in public markets suggests that shares in closely held businesses about to be sold should also reflect a discounted price. An appraisal of private company stock should analyze the value of a share

The long holding periods with private companies present business owners the opportunity to transfer illiquid investments at discounted values.

if a transaction occurs vs. remains private, evaluate the likelihood of each outcome, and account for the risk of the transaction failing to close. Discounts will be larger in situations with substantial risk of a failed transaction and where there is a significant valuation differential between the “deal” and “no deal” scenarios. While it is always advisable to gift shares prior to pursuing the sale of a closely held business, given the risks of the sale process, there is still opportunity to take advantage of discounted gifting prior to the transaction closing. n

Mr. Hauptman, CFA, is director of valuation & financial opinions for Stout Risius Ross, Inc. Contact him at 216-373-2997 or email rhauptman@srr.com.

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E-8 NOVEMBER 11-17, 2013 ESTATE PLANNING

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Can you direct me to the nearest exit? Begin with a team, successors and a valuation BY ANDREW WHITEHAIR

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eventy-eight million Baby Boomers are closing in on retirement. For business owners considering their retirement, this demographic shift could flood the market, meaning only the best positioned businesses will sell. If you are among the 67% of business owners without a formal succession plan, where do WHITEHAIR you start to ensure you receive top dollar for your business? While assembling a succession plan may seem daunting, small steps can make a huge difference in ensuring a successful exit. Kick start your

owner’s primary asset. An impartial valuation can provide a baseline for a retirement sufficiency analysis and can identify areas of improvement that can make your business more valuable and more likely to sell. succession plan with the following:

Build your team of advisors

Your CPA, attorney and financial advisor all provide different insights and can help determine the amount of core retirement capital needed, provide tax minimization strategies, and suggest deal-structuring alternatives. They can guide you through the tough decisions and discussions needed to build a successful plan.

Obtain a business valuation

Most owners who have poured their life’s energy into their business tend to overestimate its worth. In many cases, the business providing the funds for retirement is the

Identify potential successors

No one can accurately predict future market conditions. As a result, many business owners may look to a family member or key employee as a potential exit strategy. However, it is important to ascertain early in the planning process whether the potential successor has both the desire and capability to lead your business. Identifying your successor now also gives you plenty of time to share your expertise and groom them to take over the business. Small steps now can reap huge benefits later, so consult with your advisor today. n

Mr. Whitehair, CPA, is tax manager for Zinner & Co. Contact him at 216-831-0733 or email awhitehair@zinnerco.com.

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Protect your business by­ implementing a contingency plan

and seller). A buy-sell agreement may be structured based upon an “owner purchases from owner� methbusiness contingency plan odology, known as a cross-purchase agreement. A buy-sell agreement is imperative because it may also be structured through the helps protect the owner’s business itself (known as a redemppersonal wealth, but it tion agreement). The two types may also offers protection from the be mixed to form a hybrid unexpected. The owner agreement. The tax ramifishould consider three key cations and maintenance for elements to maximize the each of these options vary value of planning: a “busiand should be considered by ness will,� the execution of each party’s attorneys and a buy-sell agreement, and tax advisors to confirm that access to liquidity through the proper buy-sell structure personal resources. is chosen. A business will is created One of the biggest issues through an array of direcKOEPP a business owner may face, tives that state a business if an unforeseen circumowner’s wishes and intenstance occurs, is future tions regarding future deciaccess to liquidity. Most sions if an unexpected event businesses utilize some were to occur. An owner’s form of commercial loan or estate plan should have line of credit to maintain flexibility to account for operations, inventory, or changes to both the busifor expansion purposes. An ness and the federal and/or unforeseen circumstance, state estate, gift or personal PERRINE such as death of an owner, and corporate income tax may threaten access to legislation. An equally important factor in creating a business these funds. A planning technique to consider is an Emergency Liquidwill is the assignment of decisionity Trust (ELT) that is funded with making power if a contingency were life insurance and, at the death of to occur. The use of clear corporate the insured, provides income and by-laws and/or board resolutions principal to its beneficiaries. may help prevent conflict regarding A comprehensive business decision-making control. As part of contingency plan takes foresight the business will, a formal succesand coordination from the business sion plan should be considered to owner and their trusted attorneys verify that all key management and and advisors. With proper planning vital production positions in the it should help protect the owner’s company remain filled. beneficiaries during a crisis. n If a business has more than one owner, the creation and implemenMessrs. Koepp, JD, CFP and Perrine, tation of a buy-sell agreement is CFP are senior wealth planners for considered one of the most important PNC Wealth Management. Contact elements of the contingency plan. Mr. Koepp at 404-495-6417 or email The purpose of a buy-sell agreement bryan.koepp@pnc.com and Mr. Peris to balance the continuation of ownrine at 216-222-8170 or email james. ership in the business with the treatperrine@pnc.com. ment of all parties involved (buyer BY BRYAN P. KOEPP and JAMES PERRINE

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The material presented in this article is of a general nature and does not constitute the provision by PNC of investment, legal, tax or accounting advice to any person, or a recommendation to buy or sell any security or adopt any investment strategy. Opinions expressed herein are subject to change without notice. The information was obtained from sources deemed reliable. Such information is not guaranteed as to its accuracy. You should seek the advice of an investment professional to tailor a financial plan to your particular needs. For more information, please contact PNC at 1-888-762-6226. The PNC Financial Services Group, Inc. (“PNC�) uses the names PNC Wealth ManagementŽ, Hawthorn, PNC Family WealthŽ and PNC Institutional InvestmentsŽ to provide investment and wealth management, fiduciary services, FDIC-insured banking products and services and lending of funds through its subsidiary, PNC Bank, National Association, which is a Member FDIC, and uses the names PNC Wealth ManagementŽ and Hawthorn, PNC Family WealthŽ to provide certain fiduciary and agency services through its subsidiary, PNC Delaware Trust Company. Brokerage and advisory products and services are offered through PNC Investments LLC, a registered broker-dealer and investment adviser and member of FINRA and SIPC. Insurance products and advice may be provided by PNC Insurance Services, LLC, a licensed insurance agency affiliate of PNC, or by licensed insurance agencies that are not affiliated with PNC; in either case a licensed insurance affiliate will receive compensation if you choose to purchase insurance through these programs.

Crain’s Cleveland Business Custom Publishing

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Advertisement ESTATE PLANNING NOVEMBER 11-17, 2013 E-9

ARTS AND COLLECTIBLES

Re-appraising valuables an important planning step

BY LORIE HART

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o one likes surprises when it comes to their money and assets. You (and clients) want to know where you stand financially at any given moment. Most of us check our bank accounts, stock portfolios, investments and insur- HART ance policies on a regular basis. But what about that dusty personal property appraisal for your artwork or collectibles that’s tucked away in the back of your filing cabinet (at least that’s where you think you put it)? Here’s an all too common scenario: A loved one passes away and the trustee/heir is handling the estate. He/she finds said dusty appraisal while cleaning out personal files and learns that his/her loved one had an insurance policy for a collection of bronze sculptures, artwork and silver. The appraised value of the collection is $500,000. Wow! But wait … the appraisal is from 1998 and is for insurance coverage. The values are a snapshot of the marketplace and condition of the items 15 years ago when Furbies, Y2K and swing dancing were all the rage! Those things are long past, so why would anyone assume that a 1998 appraisal is still accurate? Unfortunately many people do. How often should your artwork and collectibles be appraised? The short answer is at least every five years. Why? Markets fluctuate. If you have an appraisal prior to 2009, you should seriously consider updating your information. The market crash of 2008 drastically affected the art market as well as all other markets. The fine art market has mostly recovered, however, certain collectibles, such as antique furniture, are still recovering. There are always exceptions, but those are reserved for the best of the best in the collecting world. Accurate insurance coverage. If you have a scheduled fine arts insurance policy, you should re-appraise every three to five years. You want to make sure the value on the schedule is not below the appraised value. Estate planning. Current appraisals are essential so that owners can plan for donation, estate tax and distribution and make adjustments to their plan to reflect the updated values. Review and update your appraisals periodically and you won’t be surprised, which is a good thing. n

Ms. Hart, ISA AM, is co-owner of L&L Estate Liquidation & Appraisal Services, LLC, in Solon. Contact her at (216) 470-7002 or email lorie@llestateliquidation.com.

Are you overlooking an important asset class? BY JAMES CORCORAN

on this asset class, which is often neglected during estate planning. n up-to-date estate plan The value of such property may be must take into aca significant portion of the count high value total value of an estate. personal property Certain categories assets whenever approof high value personal priate. As an asset class, property have escalated personal property spans a in value over the past five wide range of high value years, some by as much items and collections from as 100% to 300%. This infine art to firearms, from crease reflects an increasCORCORAN books to vintage automoingly global marketplace biles plus jewelry and wine. and an enthusiasm for As estate planners and wealth prestige collectibles, coupled with a managers we may be less focused desire to hold high value tangibles

as a currency hedge. An estate plan must include an up-to-date fair market value appraisal for these assets. Fair market value appraisals preformed by certified fine art appraisers who are members of the AAA, ASA, or ISA provide the planning professional with the appropriate values for estate planning purposes. Fair market value, as defined by the IRS, is generally not the same as insurance replacement value. For estate planning purposes, it is inappropriate and misleading to use insurance replacement appraisal val-

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ues. This is not to discount the value of an updated insurance appraisal, which can be prepared concurrently with the fair market value appraisal at cost savings to the client.. It’s time to delve into your clients’ high value personal property, get an updated fair market value appraisal, and update their estate plans with this valuable information included. n

Mr. Corcoran, JD, AAA, ASA, ISA, is founder of Corcoran Appraisal Group. Contact him at 216-7670770 or CorcoranAppraisals@ gmail.com.

Legacy Robert

*

Family is a top priority for me. Which is why we want to know that the decisions we make now will ensure a bright future for us, our children and our grandchildren. Tom, our FirstMerit Client Advisor, understands our aspirations and helped us develop a long-term investment plan. He also helps us manage our day-to-day banking needs so we can focus on what’s important. We have peace of mind knowing our legacy will live on, exactly as we want it to.

TO L E A R N MOR E A B O U T F I R S T M E R I T P R I VA T E B A N K , C O N T A C T : Tom Anderson, Senior Vice President,

at 877-478-2495 or tom.anderson@firstmerit.com. Follow the latest market trends @firstmerit_mkt Investments and Insurance Products are:

Not FDIC Insured

May Lose Value

Not Bank Guaranteed

Not A Deposit

*Robert reflects a composite of clients with whom we’ve worked; he does not represent any one person.

Crain’s Cleveland Business Custom Publishing

Not Insured By Any Federal Or State Government Agency Member FDIC

1920_FM13


E-10 NOVEMBER 11-17, 2013 ESTATE PLANNING

Advertisement

SPECIAL NEEDS ESTATE PLANNING

Consider options for disabled loved ones LISA MONTONI GARVIN

P

arents and other family members who care for loved ones with special needs worry about many things, including providing for that individual after they no longer can. Public benefits programs are available to address basic care needs, but families often wish to make funds available that add to quality of life. A special needs estate-planning attorney can assist families in creating a structure of legal documents that address concerns about

successor caregivers and advocates, and access to important funding sources. Individuals with disabilities may be eligible for valuable public benefits that provide a wide range of care, services and income supports. They may qualify for Medicaid, Medicare, Supplemental Security Income (SSI), and/or Social Security Disability Income (SSDI) at different points in their lives. SSI and SSDI provide monthly income benefits meant to cover the cost of basic room and board expenses. Medicaid and Medicare benefits

include health care coverage, but the various Medicaid programs also provide group home living arrangements and other vital services that allow people with disabilities to remain a part of their communities and avoid costly institutionalization. All four programs require participants to meet a common definition of disability, but Medicaid and SSI also require participants to have very little in terms of income and assets. Special needs estate planning utilizes various types of Medicaid

INTERNATIONAL ESTATE PLANNING

Citizenship, residency impact estate taxes BY JAMES SPALLINO JR.

W

hen a client comes to you with “international issues,” a threshold determination that

you must make is the client’s citizenship, residency and domicile. U.S. citizens and noncitizens that are resident in the United States (resident aliens) are subject to U.S. gift tax on all transfers of

property wherever situated. U.S. citizens and resident aliens are subject to U.S. estate tax on worldwide assets. Noncitizens that are not residents in the United States (non-

You’ve been blessed with many gifts. What will you give in return?

and SSI exempt special needs trusts that permit family members to set aside funds that may be used to supplement, but not replace, public benefits and greatly enhance that individual’s quality of life. The property held in a specialneeds trust maybe used for the benefit of the disabled individual, but is not countable toward Medicaid and SSI financial eligibility. Planning may also include documents nominating successor guardians for an adult disabled child, if a guardian is necessary. Current

F caregivers may also complete a letter of intent that identifies details about the disabled individual’s history of medical care, therapies, preferences and housing concerns so successor caregivers better understand current and future care needs. Parents and other family members may always worry about a loved one with a disability, but appropriate and correct special needs estate planning may help allay some of that worry. n

Ms. Garvin is an attorney in the Cleveland office of Hickman & Lowder Co., L.P.A. Contact her at 216-861-0360 or via email at LGarvin@hickman-lowder.com.

resident aliens) are subject to U.S. gift tax only on transfers of U.S. real property and tangible personal property located in the U.S. Intangible property is specifically excluded by statute (with exceptions for certain expatriates). Nonresident aliens are subject to U.S. estate tax there is an enhanced annual excluon property situated in the U.S. sion available for such transfers. Thus, the issue of situs of propIn 2013, this amount is $143,000. erty will control U.S. gift and esAn estate tax marital deduction tate tax consequences for nonresiis available only if the property is dent aliens. Determining situs of transferred to a qualified domestic real property and tangible personal trust (QDOT). Estate tax will be property for purposes of gifts made due on certain principal by a nonresident alien is distributions from a QDOT pretty straightforward. to a noncitizen surviving The property is either in spouse. the United States or it is Foreign trusts present not. their own unique set of For U.S. estate tax issues, one of which is the purposes, §2104 of the Inreporting requirements. ternal Revenue Code sets Transfers to a foreign trust forth the rules for propand distributions from SPALLINO erty that is deemed to be a foreign trust must be situated within the United reported on Form 3520. States for the estate of a nonresiA foreign grantor trust must file dent alien, and thus subject to U.S. Form 3520-A. estate tax. The rules for property Planning using non-U.S. that is deemed to be situated outsitus assets and entities can be an side the United States can be found effective way to reduce the U.S. in §2105 of the Code. estate tax liability for a nonresiEstate tax treaties can change dent alien. n these situs rules. Transfers of property to a noncitizen spouse, either Mr. Spallino Jr. is a partner with during life or at death, have special Squire Sanders (US) LLP. Contact rules. No gift tax marital deduction him at 216-479-8424 or email is available for lifetime transfers james.spallino@squiresanders. to a noncitizen spouse. Instead, com.

Consider a legacy gift to benefit the ministries of your Church. To learn how your generosity can make a difference in the Catholic Diocese of Cleveland, call the Catholic Community Foundation at 216-696-6525, ext. 4200 or go to planwithcatholiccommunity.org.

Our mission is to foster faith-based stewardship in the community for the spiritual, educational and charitable needs of all.

Crain’s Cleveland Business Custom Publishing

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Advertisement ESTATE PLANNING NOVEMBER 11-17, 2013 E-11

ADVISING CAREGIVERS

FUNDING EDUCATION

Maximizing education savings BY BETH KORTH

I

Elderly caregivers play key role BY ANNE-MARIE E. CONNORS

tax-free distributions of cash value for education costs and fund education costs in the event of the death of the insured.

f paying for a child’s or grandchild’s college education is Account ownership a cause of worry or stress in your financial life, then you There are significant benefits are not alone. However, there are to having assets in the parents’ planning opportunities available to names rather than the student’s help you meet the chalname since the FAFSA lenges of college funding. needs analysis assumes All families, regardless of less of the parents’ assets income, should complete are available to fund the Free Application for education. Federal Student Aid (FAFSA) to ensure they can take Grandparents advantage of all potential Grandparents often college funding opportunichoose to fund a grandties. Other strategies may KORTH child’s education. They can include the following: contribute to 529 plans, open 529 plans in their own name or pay 529 plans tuition directly to the school. 529 college savings plans let you This allows grandparents to save money for college in a tax-dereduce their taxable estate while ferred investment account. These financially assisting a child and investment plans don’t guarantee providing for a grandchild. a return and you may lose money. The total amount you can contribWhile the cost of a college educaute to a 529 plan is generally high, tion can seem overwhelming, planwith limits of $300,000 and higher. ning ahead with a team of advisors allows you to define your goals, consider all options and implement Permanent life insura strategy to reach your goals. n

ance with cash value

Since this asset is not included on the FAFSA, some families may purchase permanent life insurance with cash value as a strategy to decrease “included” assets, provide

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n attorney is a trusted resource for clients, offering expertise on the myriad legal issues arising Primary caregivers provide a throughout a client’s lifespan. significant amount of practical As clients age, issues may arise assistance – coordinating that may not be specifically medical appointments and legal in nature, but can care, scheduling outings or impact decision making, providing financial support. financial planning and The primary caregiver may other considerations. Wills, be a spouse, an adult child trusts and other estate or even a relative, neighbor planning mechanisms may or friend who is providing need to be reevaluated as comprehensive assistance to a person ages, especially CONNORS make sure older adults get the if he or she experiences care they need. chronic health issues or Developing a good relationship develops dementia. Planning for with the caregiver can help an atlong-term care needs, protecting torney ensure that he or she is proentitlement benefits or considering a viding the best results for the client. housing transition may move to the Working as a team will help ensure forefront of legal needs. that everyone is on the same page Older adults often have a careshould a crisis arise or in the case of giver. Even if someone is cognitivesignificant decline over time. ly intact, a caregiver can provide In the case of dementia, a person help with day-to-day activities that loses cognitive capacity over time enable seniors to remain at home and the rate of decline varies from and retain their independence.

person to person. During early stage dementia, an individual’s ability to make sound decisions even about complex legal matters may remain for a long period of time. He or she may be in denial about the dementia diagnosis, in which case the involvement of the primary caregiver can help an attorney get a clearer picture of current and future needs. Alternatively, some people who receive a diagnosis of dementia gain a sense of urgency to put their affairs in order before they lose the capacity to do so. They may want the caregiver involved in planning personal financial affairs, in personal care that may be needed in the future, and deciding or establishing long-term care preferences. The caregiver can also provide See INPUT Page E-18

Ms. Korth is a senior financial planner with Key Private Bank. Contact her at 216-689-7160 or email Beth_M_Korth@ KeyBank.com.

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Developing a good relationship with the caregiver can help an attorney ensure he or she is providing the best results for the client.

Estate Planning. Ever-changing laws and circumstances require an experienced trusted advisor. Whether you’re concerned about a potential tax impact, maximizing opportunities, minimizing risks, or are uncertain where to begin, Ulmer & Berne LLP is ready to assist. Our experienced attorneys simplify the important process of protecting your assets.

Building partnerships for a better tomorrow Today we honor our prestigious Allied Partners in Philanthropy society. Your support helps maintain Cleveland Clinic as a world leader in healthcare. 216.445.8980 | mccannn@ccf.org

Estate Planning | Wills & Trusts Succession Planning | Probate & Trust Litigation Asset Protection Planning

ulmer.com

216.444.CARE | clevelandclinic.org

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E-12 NOVEMBER 11-17, 2013 ESTATE PLANNING

You’re likely to get a second opinion for a Medical Diagnosis It’s never too late for a second opinion on your Investment Plan The financial advice you receive comes with: • Personalized financial strategies with a broad range of investment choices • Support from our talented force of market analysts, investment planning specialists and portfolio managers

Henry Spain, ChFC, CLU Steven Berman, CFP®

Wells Fargo Advisors, LLC, Member SIPC

30100 Chagrin Blvd. #200 Pepper Pike OH 44124 www.spainberman.com

216-378-2722

CORCORAN APPRAISAL GROUP The Personal Property Appraisal Experts • Estates • Charitable Donations • Insurance • Insurance Claims • Sales Consultations • Estate Planning

Advertisement

GIFTS AND ASSET PROTECTION

Ohio legacy trusts offer flexibility BY F. SCOTT B. GENEVA

revocable with at least one trustee tied to Ohio. The settlor can be a ffective March 27, 2013, beneficiary of the trust receiving under the Ohio Managedistributions in the discretion of ment Modernization Act the trustee. Further, the settlor of 2012, Ohioans can retain the power to are now able to put assets instruct the trustee to into trust of which they are make a distribution to othbeneficiaries and protect ers, and retain the power those same assets against to veto distributions the their creditors. These trustee would otherwise “domestic asset protection make to others. Finally, trusts” have been popular the settlor can retain using Delaware, Alaska the power to remove and GENEVA and a few other states’ replace trustees. jurisdictions. Now with the Ohio legacy trust, Ohio has an agCreditor requirements gressive domestic asset protection Any creditor whose claim arises trust of its own. The details of the after the time of the transfer has legacy trust and its administration 18 months from the date of the are essential, but the law provides transfer to contest the transfer great flexibility. if it should have known about the transfer, and no more than Settlor requirements 36 months if it should not have To create a valid Ohio legacy known. A new optional filing with trust, the settlor (the person creatthe county, similar to recording ing the trust) must be solvent at a deed, will allow the settlor to the time assets are transferred into effectively notify every creditor the trust and must be projected of the transfer, limiting the time to remain solvent into the future period for all to 18 months. based upon expected income and If the settlor makes a proper expenses. The trust must be irtransfer into a valid trust and

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The details of the legacy trust and its administration are essential, but the law provides flexibility.

does not violate the terms of the trust during its administration by exercising direct control over the trustee or even having an implied understanding with the trustee, the assets in the trust are protected from all claims against the settlor, with only a few statutory exceptions. Ohio legislators have taken significant steps to make Ohio one of the most debtor-friendly jurisdictions in the country. If your business opens you up to potential litigation, it is advisable to discuss with your attorney whether a legacy trust would be suitable for you. n

Mr. Geneva, Esq., is a partner with Meyers, Roman, Friedberg & Lewis. Contact him at 216-8310042, ext. 123 or email sgeneva@ meyersroman.com.

James Corcoran JD, AAA, ASA, ISA 37 years of Certified and IRS Qualified Appraisals. Fine Art, Antiques, Books, Firearms, Collectables

216-767-0770 12610 Larchmere Blvd. • Cleveland, Ohio 44120 www.corcoranagi.com • corcoranfinearts@gmail.com

Deciding to give: beginning the process BY CARRIE ROSKO

O

ne of the most exciting decisions in a financial plan is choosing how and when to make personal

T H E AR T O F P R O BL EM S OL VI NG Providing creative legal solutions for tax & wealth matters

and charitable gifts. Thoughtful planning can ultimately serve to create a meaningful legacy and bring peace of mind to you and your loved ones. Begin the process by assembling a listing of all your assets. Then give careful consideration to the ROSKO ultimate distribution of your assets upon passing. There are three baskets to choose from: family, charity or taxes. Generally people prefer to get as much as possible in the first two baskets. Family may involve children, nieces and nephews, cousins, or perhaps even family friends. Typically, charity works best for those that are already charitably inclined and have a passion for particular causes.

Give careful consideration to the ultimate distribution of your assets upon passing. There are three baskets to choose from: family, charity or taxes. Generosity seems to be an inherited trait. Generosity combined with a cause that resonates within the family makes the giving process most meaningful.

The Tax & Wealth Attorneys of

Estate and Wealth Management Planning | Business and Individual Taxation | Counseling and Succession Planning for Closely Owned Businesses | Asset Protection Planning |

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it is helping a child purchase a house or start a business or seeing the benefits that your charitable donation is able to provide to others. A lifetime gift can serve to teach responsibility gradually rather than overwhelming the recipient with a windfall. Finally, a lifetime gift may enable you to observe how your gifts are used and may help determine how you want the remaining assets distributed at your passing, whether it is more appropriate for them to be distributed outright or in trust. If your gift is to a charity, it enables you to see if the charity is using the funds thoughtfully and wisely.

When do you begin the process? Do you give during your lifetime or at death? Many families begin the process during life with the final distribution at death. Lifetime gifts have the benefit of removing the asset from your estate early on, thereby removing future growth from your estate. One of the non-financial benefits to giving early is allowing you to see the enjoyment achieved, whether

Crain’s Cleveland Business Custom Publishing

What assets do you give? Cash, of course, is always an option. Other good possibilities include stocks, real estate, or shares of a family business. Your financial advisor and estate planning attorney will help you determine what assets make the most sense for you and your family. Overall, early planning provides you with the comfort and joy of knowing your beneficiaries are provided for in the manner you desire. n

Ms. Rosko, CPA/PFS, MT is a partner and vice president of Cornerstone Family Office, LLC. Contact her at 440-460-0460 or crosko@crnstn.com.


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THE ESTATE PLANNING COUNCIL OF CLEVELAND President Beth M. Korth

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Vice President Jennifer A. Savage

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Secretary Michael T. Novak

Treasurer Michael W. Matile

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Program Chair Emily Shacklett

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Immediate Past President Marie L. Monago

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E-14 NOVEMBER 11-17, 2013 ESTATE PLANNING

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Choosing the right trustee BY LOUIS LAJOE

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Family Fa ily Offi Office,LLC WEALTH

ADVISORS

More Than Just Advice.

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ou’ve worked hard to build your wealth. Now you’re ready to set up a trust to pass it on to future generations. One of the most important decisions you’ll need to make is about who will oversee the trust. The role of trustee bears significant responsibility including standing in a fiduciary role for the trust’s current and future beneficiaries, making prudent investment decisions, responsibility for distributions and all of the administration requirements. In addition to the trustee’s responsibilities, you also need to consider the personal time commitment. The administration of a trust, from evaluating beneficiary requests to reviewing investment options and maintaining accounting records, can require a substantial commitment. The choice of trustee is a personal one and could be a family member, trusted friend, lawyer or bank. It is important to find the individual or organization with whom you are most comfortable and provides peace of mind that your assets are being managed in accordance with the direction provided in your trust.

Family trustees

It is not unusual that grantors select family members as a sign of honor or trust. While the intention is good, it may actually turn out to be a burden since the family member would consider this an obligation, even though they may not have the skill set or time to meet the needs of the beneficiaries. You’ll also want to consider someone who can deal fairly and diplomatically with competing interests, for example, meeting your trust’s directions for dealing with the requirements of the current beneficiaries and what your trust directs for protecting assets for future generations.

Corporate trustees

Another consideration is choosing a trustee who has the knowledge to successfully manage your trust. Consider choosing someone who is able to interpret trust documents and terms, has an understanding of the Ohio Trust Code, state and federal income tax codes and other applicable tax concerns. Corporate trustees offer all these advantages and more. A corporate trustee is a company, such as a financial institution, that is authorized by law to manage trust property. Such companies have specialists who can offer expert

advice and planning to assist with every aspect of your finances, from investment management to private banking, trust and estate planning to retirement planning solutions. Corporate trustees have experience to manage the complex details of a trust including established processes and procedures; appropriate levels of oversight to avoid mismanagement; account services; and will provide objectivity in the general oversight of the trust and in handling discretionary distributions and beneficiary requests.

Trust advisor If you are interested in the benefits a corporate trustee provides, but still want a family member or trusted friend involved in the oversight, consider appointing that person a trust advisor to act along with the corporate trustee and give them the power to change corporate trustees, provide oversight to investment management and/or provide approval on discretionary distributions. No matter who you choose, remember that the trustee is obligated to follow the grantor’s instructions, which are provided in the trust document. n

Mr. LaJoe is trust advisor and vice president of FirstMerit Bank. Contact him at 216-694-5656 or email Louis.LaJoe@FirstMerit.com.

It’s still a great time for a GRAT BY PETER A. IGEL AND RENNIE C. RUTMAN

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state planning techniques rarely permit a transfer of wealth with no estate, gift or income tax cost to the transferor. One technique that does is a grantor retained annuity trust (GRAT). A GRAT is an irrevocable trust into which assets are transferred by a person who wishes to make a gift. The grantor receives an annual payment from the GRAT for a term of years (annuity period). Assets remaining in the GRAT when the annuity period ends, after the annual payments are made to the grantor, are transferred to the GRAT beneficiary. The taxable value of the gift which is charged against the grantor’s lifetime gift tax exemption is determined at the time the assets are initially transferred to the GRAT, rather than when the assets are ultimately received by the beneficiary. This determination is based on a projection of the

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RUTMAN

amount that will remain in the GRAT when the annuity period ends, after the annual payments are made to the grantor. The amount actually transferred to the GRAT beneficiary at the termination of the annuity period is disregarded. The most important variable in the calculation of the taxable value of the gift is the “7520 Rate,� which is an interest rate tied to certain U.S. Treasury bonds. The 7520 Rate floats monthly and is published by the IRS. (The current 7520 Rate is 2.4%.) The lower the 7520 Rate, the lower the projected value remaining in the GRAT at the end of the annuity period, and thus, the lower the calculated tax-

Crain’s Cleveland Business Custom Publishing

able gift to the beneficiary. Here is the key: if the assets held in the GRAT actually appreciate at a rate greater than the 7520 Rate, the excess appreciation is transferred to the beneficiary, gift tax free. Although 7520 Rates are slowly creeping up from their historic lows, they are still low and continue to create an opportunity to transfer a significant amount of wealth at little to no tax cost. This is particularly tax efficient if the assets transferred to the GRAT are still suffering from some market depression. If the GRAT assets appreciate at a rate greater than 2.4%, the GRAT has been successful; if not, there has been no harm done, no tax paid, no exemption wasted. n

Mr. Igel is a partner in the Cleveland office of Tucker Ellis LLP. Contact him at 216-696-5084 or email peter.igel@tuckerellis.com. Ms. Rutman is counsel in the Cleveland office of Tucker Ellis LLP. Contact her at 216-696-4749 or email rennie.rutman@tuckerellis.com.

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Advertisement ESTATE PLANNING NOVEMBER 11-17, 2013 E-15

GIFTS AND ASSET PROTECTION

Legacy trust as an asset protection strategy BY SCOTT E. SWARTZ

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Good asset protection planning with a legacy trust might cause tax problems if not structured correctly.

here is heightened interest in Ohio regarding protecting wealth from future creditors, claims and lawsuits. This is due in part to a significant change to the Ohio Trust Code. Ohio law now allows for legacy trusts, the codified term for what are is one possible tool to study for commonly known as “domestic protecting personal wealth. asset protection trusts.” The statute allows a person While there are many other to create an irrevocable trust, techniques for protecting wealth, transfer assets to that trust, be a these self-created trusts merit beneficiary of future distributions consideration when engagof income or principal, and ing in estate and wealth prevent the trust assets planning. from being subject to There are other good claims of the transferor’s reasons for looking at how creditors. to protect accumulated There are exceptions wealth. Continued developsuch as spousal support, ments nationally should alimony or a division of cause business owners property upon divorce to a SWARTZ and executives to wonder spouse who was married to whether planning meathe transferor on or before sures are needed. the funding of the trust, and child For example, a recent Wall support obligations. Street Journal article detailed In creating a legacy the plight of an entrepreneur and trust, the individual will have to executive who was being sued take into account federal estate and personally by the U.S. Consumer gift tax laws. Good asset protection Product Safety Commission for planning with a legacy trust might alleged deficiencies in an office toy cause tax problems if not structured that his corporation marketed to correctly. the public. The transferor will also have to get Elsewhere, the Second Circuit comfortable with losing unfettered Court of Appeals held that the control of the trust assets. Distribuowner and CEO of a supermarket tions back to the transferor by the corporation was personally an trustee must be in the discretion of “employer” under the Fair Labor the trustee, or the protective purpose Standards Act, and thus personally is defeated. liable for violations of that federal There are many issues to work law in a collective action by plainthrough, but with good planning tiff employees. the legacy trust law, along with These cases demonstrate that as- other existing options, provides set protection concerns are not limopportunities to minimize creditor ited to the traditional individuals risks to accumulated wealth. n such as doctors and lawyers. Business owners and executives can Mr. Swartz is of counsel with experience a variety of situations Benesch, Friedlander, Coplan where possible personal liability & Aronoff LLP. Contact him at exists for corporate activity. 216-363-4154 or email sswartz@ In Ohio, the new legacy trust beneschlaw.com.

Take heed as you set up IRA BY MARY EILEEN VITALE

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RA beneficiary designations provide a myriad of opportunities including income and estate planning combined with the desired distribution of assets among heirs. Certain rules must be followed to reach the VITALE goals of an IRA owner; but with proper work up front, the desired results are attainable. To obtain the benefits of planning, two basic principles must be followed: Beneficiaries must be named by the owner; and, Beneficiaries must be named prior to the death or Required Beginning Date (RMD) for maximum planning effect. Three types of beneficiaries qualify: individuals, certain qualified trusts and charitable organizations. If beneficiaries are directly named (individuals), they have the flexibility of splitting the IRA for determining the required distributions during their own lifetime. If beneficiaries

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Whether you need to build an estate plan from scratch, or ensure your current plan is in sync with today’s rapidly changing laws, our attorneys can help. We have the specialized knowledge and experience to manage all aspects of your estate.

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In today’s economy, you may want to consider the advantages of a Charitable Gift Annuity with the American Heart Association.

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Have you considered how taxes will impact your wealth? Do you have a business succession plan in place? Are you sure that your assets have been aligned properly with your estate plan? Have you planned for charitable gifts…long-term care…incapacity? We can assist in these areas and help you manage your assets in ways that will minimize the probate administration process.

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For all the time and effort you’ve put into building your wealth, you deserve peace of mind in return. The kind that comes from knowing your assets are protected, your wealth will be distributed as you wish, and your future is as secure as you can make it.

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Ms. Vitale, CPA, CFP, AEP is principal at Howard, Wershbale & Co. Contact her at vitale@hwco.com.

Live for today. Plan for tomorrow.

Gary B. Bilchik, Partner Business Succession Planning & Wealth Management Practice Licensed to practice law in Ohio and Florida

Two Life agreements are available with the rate provided on request with both dates of birth.

the contingent beneficiaries at the owner’s death or roll the IRA into his/her own IRA to defer payouts. However, the spouse can also name new beneficiaries if the account is rolled over. A trust can be used to name the beneficiaries in order to prevent this, which is important where children of an earlier marriage are the contingent beneficiaries. For Roth IRAs, the RMD rules do not apply. However, proper beneficiary designations are very important, given the IRAs may be in existence for a long time if no RMDs are made. The most important thing to remember is to make sure IRA beneficiary designations are made and kept updated. Circumstances change and elections should be kept current. The birth or death of an heir, marital changes, etc., can all have an impact on the proper naming of beneficiaries and choice of distribution method. n

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are named through a qualified trust, they may split it into “subaccounts” for investment purposes, but the age of the oldest beneficiary determines the life expectancy for distribution calculations for all. Naming a charity can save both estate and income tax. If no named beneficiary exists, the estate is the beneficiary. All assets will need to be distributed by the end of the fifth year after death. The use of primary and contingent beneficiaries is important. Naming contingent beneficiaries protects against the demise of the primary beneficiary before the IRA owner. It also allows for the use of disclaimers of IRA accounts by primary beneficiaries to contingent beneficiaries if they so choose. This can allow for maximum flexibility. Required distributions during lifetime are based on the age of the owner and beneficiary. Naming a spouse 11 or more years younger than the owner can reduce the annual amounts. The spouse can disclaim the accounts to

Scott E. Swartz, Of Counsel Business Succession Planning & Wealth Management Practice, Licensed to practice law in Ohio

Live for today…plan for tomorrow. Talk to us about how to get started.

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E-16 NOVEMBER 11-17, 2013 ESTATE PLANNING

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GIFTS AND ASSET PROTECTION

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Lifetime trusts ideal vehicle for heirs Benefits include flexibility, control and protection from creditors BY MARCIA J. WEXBERG and FRAN MITCHELL SCHAUL

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s estate planners, the plans that we establish for clients have shifted a great deal in recent years. Apart from the tax-driven changes that are frequently in the news, we have witnessed other, more valuedriven changes, prompted by our

clients’ desire to protect their heirs, their families and their wealth. Even a dozen years ago, our client’s estate plans (after the death of both spouses) were focused primarily upon their children – how much the children would receive and when. The big discussions centered around the wisdom of choosing distribution ages of 25 and 30 versus 25, 30 and 35 – or

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even 40. Occasionally, special circumstances (alcohol or drug dependence, for instance) would lead to an extended period of retention in trust, but this was rare. Lifetime trusts for children, except to protect the generation-skipping tax exemption, were simply not on most people’s radar screens. How our world has changed! More and more we find our clients interested in a thoughtful approach to planning that provides control and flexibility for their children while at the same time protecting their inheritance from certain creditor claims. Physicians and others in risky professions worry about liability. Parents are acutely aware of the skyrocketing divorce rates – many of them having been touched by this experience. Increasingly, as we discuss estate-planning updates with clients, we talk about holding assets in long-term trusts for their children and grandchildren – trusts that may last for generations. These long-term trusts – often referred to as “dynasty” trusts – offer many advantages. While

creditor (judgment) and divorce protection may provide the initial impetus, a properly drafted dynasty trust can also provide significant wealth-building and tax-planning opportunities for multiple generations of family members. But what about flexibility? Although clients want to protect their children, they generally trust them. Were it not for creditor and divorce-protection concerns, many would leave their assets to their children outright, rather than in lifetime trusts. We are often asked whether the children can have access to the assets held in a lifetime trust, and whether they can have some say as to what happens to those assets when they die. The answer is a resounding “yes.” In fact, we can approximate the amount of flexibility that came with the outright at 2530-35 model, while still providing the desired level of protection. Here are some of the approaches that have been most appealing to those who are creating lifetime trusts for their children: n Allow the son or daughter to become the trustee of his or her own trust, often at the age when he or she would have received the last outright distribution under the old model. This provides them with substantial control over the trust assets, including the ability to make distributions to themselves and their children for health, support, maintenance and education, as well as the ability to control the investment of trust assets. n Where the parents want the child to have access beyond the stated (tax-driven) standard, a special trust advisor for distributions can be included. Although this has to be someone other than the child, and not “related or subordinate” to the child, this can provide virtually unlimited access to the assets, should that be needed. n Give the child the flexibility to

Give the child the flexibility to alter the basic trust provisions set up by his or her parents.

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alter the basic trust provisions set up by his or her parents. Giving them “testamentary power of appointment” allows the child to alter the disposition to his or her children and grandchildren (and perhaps others) as circumstances warrant, and may also permit them to leave their spouse an income (or possibly larger) interest in the trust assets. These same principles can be applied to beneficiaries in generations below that of the children, in circumstances where clients want assets held in trust for multiple generations. We find that children generally welcome the fact that they can be trustees, have substantial control, and still protect their inheritance from creditors. To the extent a child may encounter a subsequent divorce, this trust will generally provide some protection, although that varies from state to state as the divorce laws follow the state of residence of the child (or other trust beneficiary). Overall, however, it doesn’t get any better than having it in a lifetime trust set up by the parents. n

Ms. Wexberg is the chair of the Estate and Succession Planning practice group at Calfee, Halter & Griswold LLP. Contact her at 216622-8858 or at mwexberg@calfee. com. Ms. Schaul is a senior counsel in the Estate and Succession Planning Group. Contact her at 216622-8351 or at fschaul@calfee.com.

Estate planning, probate and trust administration Tax planning for asset preservation and protection Estate planning for charitable and philanthropic pursuits Estate planning for unique family situations, including second marriages and special needs beneficiaries

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Advertisement ESTATE PLANNING NOVEMBER 11-17, 2013 E-17

GIFTS AND ASSET PROTECTION

Outright gifts to minors miss the mark BY PATRICK TULLEY

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arents and grandparents are often interested in making gifts to minor children or grandchildren to help pay college expenses or for other tax planning purposes. Gifts to minors may be made outright to the minor or by one of several alternative methods. An outright gift to a minor generally is unattractive to donors, both because minors lack the capacity to transact financial business and because many minors TULLEY lack the knowledge and maturity to manage their financial affairs. The following are four common alternative methods to make gifts to minors.

Gifts in trust The primary advantage of using a trust to make gifts to minors is the ability to maintain control over the funds until such time as the donor believes that the minor is capable of managing his or her own financial affairs. In addition to wanting to maintain control, most donors want their contributions to the trust to qualify for the federal gift tax

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Consider tuition programs and payments, trusts and gifts annual exclusion. The annual exclusion is a valuable wealth transfer opportunity that allows a donor to give $14,000 (twice that amount if married) to each of an unlimited number of donees, free of federal gift tax. However, only a gift of a “present interest� qualifies for the annual exclusion, and there are only a couple of ways for a gift to a trust to qualify as a present interest for the purpose of the annual exclusion. Contributions to a trust can qualify if certain conditions are met, the most significant of which is that the minor must be able to withdraw all of the money in the trust when the minor turns 21. A contribution to a trust can also qualify for the annual exclusion if the beneficiary has the immediate right to withdraw from the trust an amount equal to the annual exclusion, even though the right of withdrawal may lapse if not exercised within a relatively short period of time (30-45 days).

Uniform Transfers to Minors Act

An alternative to gifts in trust

for minors is gifts to a custodian under the Uniform Transfers to Minors Act. Under the Act, the custodian (an adult acting for the minor) is responsible for investing and applying the funds as needed for the minor’s education and support. There are advantages and disadvantages to UTMA gifts compared to a trust. A UTMA gift is simpler (and less expensive) because there is no trust to prepare and no separate income tax returns to prepare. The biggest disadvantage of an UTMA gift is that the minor must get all of the property at age 21, regardless of the minor’s maturity or ability to manage his or her own funds.

Qualified state tuition programs

The tax-deferred growth and potential tax-free withdrawals associated with a qualified state tuition program (Section 529 plan) make it attractive to individuals who want to maximize the growth of their college savings. While other

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plans offer this feature, Section 529 plans allow a parent or donor to remain in control of the assets indefinitely, even allowing them to close the plan and get their money back (albeit subject to penalties). The advantages of a Section 529 plan include the following: Contributions qualify for the federal gift tax annual exclusion and are no longer part of the donor’s taxable estate. In addition, if the contribution exceeds the annual gift tax exclusion, the donor can elect to treat the gift as though made in equal installments over five years. From an income tax perspective, the account grows tax-free. Withdrawals are free from federal and state income tax if used to pay for qualified higher education expenses. Lastly, contributions may be eligible for a total or partial deduction on the donor’s state income tax return. While the advantages are numerous, there are limitations to these state tuition programs: Nei-

ther the donor nor the beneficiary can direct any investments of the program. Qualified higher education expenses are limited to tuition, fees, books, supplies, and equipment (expenses of room and board can be included only under certain circumstances). A withdrawal for non-education purpose may be subject to income tax on the gains only and an additional 10% federal tax penalty on earnings. Beneficiaries can be changed only to a new beneficiary within the same family.

Direct tuition payments

It’s important to keep in mind that the direct payment of tuition is not considered to be a taxable gift, regardless of who makes the payment. This exemption is unlimited and is in addition to the annual gift tax exclusion. Therefore, a donor is able to “give away� more than $14,000 per year (the amount of the annual federal gift tax exclusion) for a child’s or grandchild’s college education and not worry about gift taxes. The money used to pay the tuition also will not be part of the donor’s estate. n

Mr. Tulley is a partner with Ulmer & Berne LLP. Contact him at 216-583-7234 or email ptulley@ ulmer.com.

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E-18 NOVEMBER 11-17, 2013 ESTATE PLANNING

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GIFTS AND ASSET PROTECTION

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Tax relief not the only reason to use a trust

BY JOSEPH M. MENTREK

W trust Helping you build wealth begins with earning your trust. Our team of Relationship Managers offers expertise in banking, investments, and trust, as well as the personal service you’re looking for. For an integrated and objective approach to managing wealth, turn to Key Private Bank. go to key.com/kpb call Gary Poth, Private Bank Executive at 216-689-5607 Bank and trust products from KeyBank National Association, Member FDIC and Equal Housing Lender. Investment products are: /05 '%*$ */463&% t /05 #"/, (6"3"/5&&% t .": -04& 7"-6& t /05 " %&104*5 t /05 */463&% #: "/: '&%&3"- 03 45"5& (07&3/.&/5 "(&/$: Key.com is a federally registered service mark of KeyCorp. ©2013 KeyCorp. KeyBank is Member FDIC. ADL1551 - 31193

Alternatively, an individual trustee should have the ability to select and hire professional asset managers to the extent he or she does not possess the requisite skills, and where beneficiaries are not equipped to make such decisions on their own.

Control in special circumstances

clude eliminating the time and cost invested in the process. Perhaps more important, avoiding probate keeps your financial affairs private since the process, including the financial accountings, are a matter of public record. Furthermore, using a trust to own out-of-state real estate may help avoid an ancillary probate proceeding in a non-resident state.

hen Congress acted decisively in late 2010 and adopted sweeping estate tax law changes that included an increase in the estate tax exemption amount to $5 million, many paused to consider what the future of estate planning would look like. Peace of mind in Such sweeping changes certainly underscore the providing for your necessity of carefully moniheirs toring your plan to ensure Careful selection of a that it remains effective in trustee and consideration carrying out your wishes. of the terms of your trust And whether you have a can effectively manage the plan in place, or are considpayment of trust income MENTREK ering adopting a plan, you and principal to trust may ask whether it still beneficiaries. A well-drafted trust makes sense to include a trust as can preserve capital and manage part of that plan. Even if taxes may cash flow. This can be particularly no longer be a driving force,there important when you feel that your are non-tax reasons to consider. loved ones’ good intentions may require some oversight when it Probate avoidance comes to making wise financial decisions. Probate is the formal courtsupervised process of attending to the final affairs of a deceased Professional asset individual. Transferring title of management your assets to a trust prior to your passing will remove those assets An institutional trustee will from the probate process. The likely provide portfolio managebenefits of avoiding probate inment as part of its service offering.

A different perspective changes everything.

Input matters continued from Page E-11

perspective on balancing the preservation of family assets with use of funds to maintain or enhance the client’s quality of life. Involvement of the caregiver early in the planning and decision process can smooth potential conflicts if the need for durable power of attorney for health care and/or finance arises, or in more extreme cases, conservatorship or guardianship.

A well-drafted trust allows you to control the “who, what, when, where, why and how” economic benefits are enjoyed by your friends or family. A trust can be very helpful in avoiding conflict in second marriage or blended family situations, when your estate includes a closely held business, or when charity might be considered as an ultimate beneficiary. Likewise, a trust may prove valuable when your goal is to provide for your bloodline over the generations. And a trust may be indispensable when a beneficiary lacks mental capacity, or has special needs where you want to provide for an individual without affecting his or her ability to continue government benefit programs.

Creditor protection

A well-drafted trust can protect your heirs from the claims of their creditors, including a spouse in the event of divorce. So, even in a world where taxes may no longer drive estate planning for many individuals, use of trusts remains an important discussion point as you develop your plan with your trusted advisors. n

Mr. Mentrek is vice president of Meaden & Moore, Ltd. Contact him at 216-241-3272 or email jmentrek@meadenmoore.com.

Many law firms have a social worker on staff who can facilitate the development of teamwork among the attorney, the client and the primary caregiver. The relationship between a client and attorney evolves over time. As a client ages, that relationship can be strengthened by involving the primary caregiver as a key member of the decision-making team. n

Ms. Connors is vice president of development for the Benjamin Rose Institute on Aging. Contact her at 216-373-1608 or email aconnors@benrose.org.

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Advertisement ESTATE PLANNING NOVEMBER 11-17, 2013 E-19

GIFTS AND ASSET PROTECTION

How ‘death puts’ aid in estate, investment planning HENRY A. SPAIN

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am often surprised by how few retirement plans utilize a corporate bond or brokered CD feature known as the “Survivor Put Option” or less glamorously, the “death put.” This feature is available with some corporate bonds and nearly all brokered Certificates of SPAIN Deposit. It provides the estate, trust or IRA beneficiary with the ability to cash the bond in

Creditor protection BY MARYANN C. FREMION

A

re you are concerned with protecting assets from creditors at your death? If so, strategic titling of assets and a revocable trust (also known as a living trust) may be useful tools. Under Ohio law, most creditors may not satisfy debts with property from the FREMION decedent’s living trust except where the creditor files a lawsuit against the decedent before his or her death. However, many living trusts contain a clause directing the trustee at your death to distribute property to your executor to pay your debts. A “pay up” clause means that if your probate estate is insolvent, creditors can satisfy estate debts from living trust property. Why include a pay up clause? Many people feel that their debts should be paid no matter what, especially when those debts include charitable pledges or indebtedness to family members. If your living trust does not have a pay up clause, you might want to consider keeping assets with potentially large liabilities out of your living trust. For example, if you own an interest in a private investment that is subject to a large capital call, you might keep such asset in your individual name That way, if at your death your probate estate has insufficient assets with which to satisfy the capital call, the creditor will be unable to use living trust assets to satisfy such liability. If you have questions, you should have a discussion with counsel regarding the terms of your living trust, type and title of your assets, current and potential liabilities, your wishes regarding your estate’s creditors, and your tolerance for debts consuming your assets that might otherwise go to your family or other beneficiaries. n

Ms. Fremion is an associate attorney with Spieth, Bell, McCurdy & Newell Co., L.P.A. Contact her at mfremion @spiethbell.com, 216-535-1049.

for its face value ($1,000) per bond or CD regardless of the current market value. So if a bond or CD holder dies before maturity, the bond may be redeemed for the full face value even if the market value is significantly less. It provides the estate, trust or IRA beneficiary with the ability to cash the bond in for its face value ($1,000) per bond or CD regardless of the current market value. If a bond or CD holder dies before maturity, the bond may be redeemed for the full face value even if the market value is significantly less. When constructing retirement income portfolios, this may aid in the selection process of longerterm securities for greater income while reducing interest rate risk for the estate beneficiaries or heirs. Longer-term yields or interest rates on longer-dated securities are significantly higher in today’s interest rate environment. For example, hypothetically assume an A-rated corporate bond with this feature yields 5% with a 30-year maturity. The investor receives 5% on the original investment and passes away in 2020. The bond or CD would have 20 years left

to maturity and heirs would have the choice to keep the investment or redeem it for its full face value. There are a few administrative issues to consider and typically they are to leave the bond in the decedent’s IRA or account, notify the issuer, and provide all documentation requested. There may be other limitations, which include a restriction on the number of bonds which may “put” annually and a per estate limit of $200,000. These limits only apply to each bond. As with CDs, multiple issues may be purchased to increase the benefits of survivor put option securities. Diversification can help here, too. Naturally, when discussing these investments, you should obtain a complete description of the valuable bond and CD features before making a decision. n

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Mr. Spain, CLU, ChFC, is senior vice president/investment officer for The Spain-Berman Financial Group of Wells Fargo Advisors. Contact him at hank.spain@wfadvisors.com. Wells Fargo Advisors, LLC, Member SIPC, is a registered broker-dealer and separate non-bank affiliate of Wells Fargo & Co.

www.donate.metrohealth.org To find out more about planned giving opportunities to benefit you and MetroHealth, contact Kate Brown at kbrown@metrohealth.org or 216-778-7509.

New statutes allow you to modify irrevocable trusts governing law, improve administrative efficiencies by combining trusts, and/or achieve favorable rrevocable trusts are useful tax treatment. in estate planning to proDecanting is permitted under vide substantial tax savings, the rationale that if a trustee has creditor protection, and other the discretionary power benefits. Of course, one to distribute (or retain) downside of irrevocable trust property to or for the trusts is that they generbenefit of one or more benally cannot be modified. eficiaries, then the trustee In recent years, also should have the power however, 19 states to distribute such property (including Ohio) have in further trust for such adopted “decanting” beneficiaries. statutes that provide a Of course, a trustee’s profoundly useful tool MAKUCH power to modify trust for modifying irrevocable terms through decanting trusts, and many other is not without limitation. Trustees states recognize a common law still have a fiduciary obligation to right to decant. carry out the grantor’s intent and Decanting allows trustees to to act in the best interest of all “pour” assets from one trust (the beneficiaries. decanting trust) into a second trust Thus, for example, a trustee genwith different terms (the recipient erally is prohibited from materially trust). changing the interests of trust The ability to modify the terms beneficiaries or adding new trust that govern the administration beneficiaries. (and potentially distribution) of Moreover, even where a moditrust property through decanting is a valuable tool, especially where an fication is “permissible” through decanting under state law, a irrevocable trust’s existing terms trustee must be mindful of state become antiquated or otherwise and federal tax laws that may be undesirable. triggered by decanting (including, For example, depending upon potentially, the loss of exemption applicable state law, trustees may from generation-skipping transfer decant a trust to: accommodate taxes). n requests of beneficiaries, address changed circumstances, modernize or clarify trust terms, correct draftMr. Makuch is an associate ing errors, grant powers of appoint- with BakerHostetler. Contact ment, delegate functions among him at 216-861-7535 or email co-trustees, clarify or change cmakuch@bakerlaw.com. BY CHAD MAKUCH

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E-20 NOVEMBER 11-17, 2013 ESTATE PLANNING

Advertisement

CHARITABLE GIVING

The charitable disconnect

Congratulations to

BY LAURA J. MALONE

M. Elizabeth Monihan

Spieth, Bell, McCurdy & Newell Co., LPA on receiving the

2013 Distinguished Estate Planner Award from

THE ESTATE PLANNING COUNCIL OF CLEVELAND

What legacy will you leave behind? The Sound for the Centennial Campaign provides an opportunity for each and every member of this Ä?ŽžžƾŜĹ?ƚLJ ƚŽ žĂŏĞ Ä‚ ĹŻÄ‚Ć?Ć&#x;ĹśĹ? Ĺ?žƉĂÄ?Ćš ŽŜ dŚĞ ůĞǀĞůĂŜĚ Orchestra’s success. LJ ĆŒÄžĹľÄžĹľÄ?ÄžĆŒĹ?ĹśĹ? ƚŚĞ KĆŒÄ?ŚĞĆ?ĆšĆŒÄ‚ Ĺ?Ĺś LJŽƾĆŒ ÄžĆ?ƚĂƚĞ ƉůĂŜĆ?Í• LJŽƾ Ç Ĺ?ĹŻĹŻ ŚĞůƉ ĞŜĆ?ĆľĆŒÄž ƚŚĂƚ LJŽƾÍ• LJŽƾĆŒ Ä?ĹšĹ?ĹŻÄšĆŒÄžĹśÍ• ĂŜĚ LJŽƾĆŒ children’s children always have access to an orchestra ŽĨ Ć?ĆšĆŒÄžĹśĹ?ƚŚ ĂŜĚ ÄšĹ?Ć?Ć&#x;ĹśÄ?Ć&#x;ŽŜ͘ &Ĺ˝ĆŒ žŽĆŒÄž Ĺ?ŜĨŽĆŒĹľÄ‚Ć&#x;ŽŜ Ä‚Ä?ŽƾĆš Ć?ĆľĆ‰Ć‰Ĺ˝ĆŒĆ&#x;ĹśĹ? ƚŚĞ ĂžƉĂĹ?Ĺ?Ĺś ĆšĹšĆŒŽƾĹ?Ĺš Ä‚Ĺś ÄžĆ?ƚĂƚĞ Ĺ?Ĺ?ĹŒÍ• Ä?ŽŜƚĂÄ?Ćš ĆŒĹ?ÄšĹ?Ğƚ DƾŜĚLJ͕ >ÄžĹ?Ä‚Ä?LJ 'Ĺ?Ç€Ĺ?ĹśĹ? KĸÄ?ÄžĆŒÍ• Ä?LJ Ä?Ä‚ĹŻĹŻĹ?ĹśĹ? ώϭϲͲώϯϭͲϴϏϏϲ Ĺ˝ĆŒ ĞžĂĹ?ĹŻĹ?ĹśĹ? Ä?žƾŜĚLJΛÄ?ĹŻÄžÇ€ÄžĹŻÄ‚ĹśÄšĹ˝ĆŒÄ?ŚĞĆ?ĆšĆŒÄ‚Í˜Ä?ŽžÍ˜

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felt the need to encourage charitable giving by the next generation (30%), religious or spiritual motivations ccording to the IRS, more (23%), or giving back is an obligathan 90% of high net tion of wealth (22%) was equally worth (HNW) Americans important as the technical aspects. give to charity. However, Meanwhile, when it comes to estate a recent U.S. Trust study reveals and income tax planning, 6% and several disconnects between HNW 45% of HNW individuals, respectively, donors and advisors (wealth adviindicated tax policy changes were a sors, trust and estate attorneys, accountants) centering on the initia- factor in their charitable giving. Only 14% of advisors are likely tion and substance of disto raise the topic of charicussing charitable giving. table giving with clients While most advisors for the purpose of helping (89%) say they discuss to instill charitable values charitable giving with at among their children and least some of their clients, grandchildren. However, half of the HNW donors nearly half (45%) of HNW (51%) say that they were donors feel it is important the one to initiate the to involve children and conversation. MALONE grandchildren in discusMore than two-thirds sions with their advisor (71%) of advisors raise charabout charitable giving. itable discussions from a technical Nearly all advisors and donors perspective, believing that the tax can utilize a donor advised fund considerations or wealth structuring (DAF) to help alleviate some of these is the most important factor for clidisconnects. While some DAFs can ents. However, many HNW donors

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grow to be as large as hundreds of millions of dollars, many get started for as little as $10,000. Often these vehicles are being used to help donors either explore or refine their charitable goals, values and interests. Furthermore, they can provide a low maintenance way to involve children and grandchildren in discussions with the DAF creators and their trusted advisors about charitable giving. DAFs can help donors and their trusted advisors create a more comprehensive and holistic approach to managing wealth and creating strategic tax and estate opportunities while reinforcing the donors charitable goals and aspirations. They allow the charitable conversation to happen both early and often within any client/advisor relationship. n

Ms. Malone, CAP, is director of gift planning at American Endowment Foundation. Contact her at 877-599-8903 or email lauramalone@aefonline.org.

Help others, earn income for life BY PAMELA D. LEONARD

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re you looking for secure sources of fixed income for now or future retirement? If you are like many individuals who own appreciated assets, you are tired of living at the mercy of the fluctuating stock and real estate markets. You recognize that if you sold your appreciated assets you would face a high capital gains tax. There is a solution, a plan that provides you with fixed income for life, avoids capital gains tax, and will help others in the process. A charitable gift annuity is a contract between you and the charity or organization of your choice. You transfer your appreciated assets to the chosen organization in exchange for fixed income for your life. The payout rate can be as high as 9% depending on your age, and a portion of your income stream

Benefits of a charitable gift annuity

n You receive fixed payments for life. n A portion of each payment may be

tax free. n Payout rates are based on your age at funding. n You will receive a federal income tax deduction.

may be tax free. Best of all, you will receive a charitable deduction for the value of your future gift. Details: A charitable gift annuity is a contract between you and the American Heart Association. In exchange for a gift of cash or property, the Association agrees to make fixed payments to you for the remainder of your life.

Duration: You give cash or appreciated property to the American Heart Association. In exchange, the Association makes fixed payments for the lifetime of you or you and another person. Payout Rate: Your gift annuity payout rate is based on your age. Taxation of Payments: A portion of your gift annuity payments could be tax free. The remaining amount of each payment is taxable at ordinary income tax rates and some portion could be taxed at capital gains rates. Timing: A gift annuity contract can begin making payments immediately (current gift annuity) or you can begin receiving income at a future date (deferred gift annuity). n

Ms. Leonard is vice president of charitable estate planning at the American Heart Association. Contact her at 304-366-1604 or pamela.leonard@heart.org.

ESTATE PL A N NING | TRUST & PROBATE A DMINISTR ATION | BUSINESS SUCCESSION PL A N NING CH A R I TA BLE GI V ING | A SSET PROTEC T ION PL A N N ING | PROBAT E L I T IGAT ION

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Advertisement ESTATE PLANNING NOVEMBER 11-17, 2013 E-21

CHARITABLE GIVING

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BY CAROL WOLF

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Donor advised funds can bring families together

Who is your planned giver? And, why are they giving? BY KAREN J. KANNENBERG

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ike a snowflake, the intention of every charitable gift is unique. Whether it is a multimillion-dollar charitable remainder trust or a $10 donation from a 12 year-old who wanted to share his birthday money, the donor is making a gift for a specific reason. And, the organization benefitting from these gifts must ensure that the donor’s intention for the gift is fulfilled, and that their wishes for recognition are documented and implemented KANNENBERG accordingly. The average planned gift is in process for approximately 18 months from the time the donor considers including a charitable organization in their estate plan until the time the documents are complete. During this time, donors and their advisors typically spend a great deal of time coordinating legal and financial details. And, hopefully that document includes specific information regarding the donor’s intended purpose for their gift, as well as the way they prefer to be recognized now and in the future. Collaborating with donors and their advisors ensures the donors’ wishes are fulfilled. As Aristotle said: “To give away money is an easy matter and in any man’s power. But to decide to whom to give it and how large and when, and for what purpose and how, is neither in every man’s power nor an easy matter.” However, through communication and collaboration from the onset of planning any gift, the process can become more efficient and effective for all involved now and in the future. n

Ms. Kannenberg, CFRE, is manager of gift and donor development at the Cleveland Metroparks. Contact her at 216-635-3217 or kjk@clevelandmetroparks.com.

onor advised funds have historically provided individuals with a very effective tool for efficient philanthropic grant making as well as maximizing tax advantages. Donors may not realize that a creating a donor advised fund can be the first step in philanthropic planning for the future by including family members in grant making decisions. WOLF Families may consult on current giving as well as using the fund as a source for gifts at death. There are many benefits associated with a donor advised fund. Donors may transfer appreciated securities to the fund, while retaining flexibility to make grant recommendations to different charitable organizations. Donations may stay in the donor advised fund and earn income, allowing the donor to make grant recommendations at a future date. Donors receive an immediate income tax deduction for the amount of the initial gift to the fund. There may be additional tax savings if the donor uses appreciated securities or property to establish or augment the donor advised funds. Donors do not pay income tax on the income generated by the fund. Donor advised funds allow donors to make grant recommendations and access account balances anytime with online tools. This allows donors to have an accurate record of their philanthropic gifts for the current year as well as their giving history for past years. Donors may find this a helpful tool in response to the many requests they receive from charities. Dates and amounts of gifts are readily available.

A family effort

In addition to the convenience of grant making and the tax advantages, donors may use a donor advised fund as an effective way to introduce family members to the idea of philanthropy. Many donors include family members in the charitable discussion as advisors on fund distributions, demonstrating to them the donor’s personal values

and the importance of philanthropy. It may be an effective tool for encouraging intergenerational discussion of values and philanthropic priorities. Some donors allow their children to recommend grants of a certain amount each year, and others gather at a family holiday dinner to make philanthropic choices together. Either way, the fund is a wonderful catalyst for family philanthropy. It is possible to use the donor advised fund as a “hybrid” family foundation that allows its advisors and designated family members to jointly recommend which charities they wish to support in any given year.

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Create a philanthropic estate plan

A donor advised fund can be a valuable tool in creating a personal philanthropic estate plan. A donor may recommend philanthropic grants during the donor’s lifetime, and then make specific grant recommendations to the fund’s administrator upon the donor’s death. This may liquidate the fund entirely, or create an endowment fund in the donor’s name. It is important for the donor to make his or her wishes known to the host organization for reference at the time of the donor’s death. At the Jewish Federation of Cleveland, the donor advisor has an option to name successor advisors for the fund, make specific recommendations for total distribution of the fund or allow the fund to support the Federation’s Endowment Fund in perpetuity. Many times, donors leave bequests to their donor advised funds, giving their heirs as successor advisors, the privilege to make grants recommendations of their own choice or continue the grant making of the original donor. Donor advised funds provide an excellent tool for current giving, but it is important to keep in mind that they are also an effective first step to creating a meaningful philanthropic plan that benefits both the donor and the community. n

Ms. Wolf is a senior development officer at the Jewish Federation of Cleveland. Contact her at 216-5932805 or email cwolf@jcfcleve.org.

6055 Rockside Woods Boulevard, Suite 330 Independence, OH 44131-2317 tel: (216) 573-7200 www.fairwaywealth.com Contact Dan Gaugler or Mark Weiskind for an introduction.

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The Tower at Erieview 1301 East 9th Street, Suite 1900 Cleveland, Ohio 44114-1862 tel 216.241.6602 fax 216.621.8369

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10 West Broad Street, Suite 2400 Columbus, Ohio 43215-3469 tel 614.280.0200 fax 614.280.0204

24100 Chagrin Boulevard, Suite 200 Beachwood, Ohio 44122 tel 216.241.6602 fax 216.621.8369


E-22 NOVEMBER 11-17, 2013 ESTATE PLANNING

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assets such as cash, taxable investments, real estate to your heirs as these assets do not generally have income tax consequences.

BY PATRICK J. GRACE t is possible — and easy — to demonstrate your commitment to your favorite No estate tax charity or charities by making a meaningful An estate tax is a tax financial donation on the value of the assets that costs you nothing in your estate at the time right now. How do you do of death. If your estate is GRACE this? There are several taxable, the amount of the options. bequest to the charity is reIf you own an IRA, 401K, taxmoved from your taxable estate, so deferred annuity or other such no estate tax is paid on that asset. deferred account among your other assets, by simply designating the Simplicity charity or charities as a beneficiary Ask the plan administrator for of the deferred account, look what a designation of beneficiary form, happens:   complete and return. This is a straightforward procedure with No income taxes paid little complexity. Individuals who would receive distributions from the deferred acFlexibility count will pay income taxes on the You can name a charity to distribution. receive all, or a percentage of, or a The charity does not pay income fixed dollar amount. The bequest tax on the distribution; and your can be modified at a future date estate does not pay any income with a modification of the desigtaxes on the deferred asset gifted nation of beneficiary form. You to charity. You leave your other

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he versatility of life insurance makes it an excellent asset to accomplish charitable goals. Life insurance provides protection against potential economic loss in the event of death or disability and can serve as a source of supplemental income during retirement. Additionally, life insurance can provide liquidity for paying state and federal estate costs. However, many people may not be aware that a life insurance policy also makes an excellent charitable gift that can be made at a very low cost. There are a number of ways in which a life insurance policy can be used to make a meaningful gift. The easiest is to name the charitable organization as beneficiary of the policy. Simply by completing a change of beneficiary form with the insurance provider, a gift can be directed to charity, while

the giver retains ownership of the policy. Although the face value of the policy is included in the gross estate, the estate will be entitled to an offsetting charitable estate-tax deduction because of the gift. If the original reasons for establishing the life insurance policy no longer are a concern, assigning the policy to charity, with NEAL all incidents of ownership, may be a good option. This would create an immediate income tax deduction for the fair-market value of the policy or the cost of the policy, whichever is less. Additional charitable income tax deductions are available for remaining premium payments as they are made on the policy. Finally, by assigning the policy to the charity, the policy proceeds are removed from the gross estate, possibly generating savings on estate taxes. Another way to make a charitable

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There are few, if any, fees associated with the designation process. No lawyer fees to create a charitable trust or annuity agreement, and no ongoing maintenance or trustee fees. By simply designating your favorite charity or charities as a beneficiary of your deferred account, it’s easy, low cost and tax free. Why not consider this option as part of your legacy planning as a testament to what you valued during your lifetime? Send the charitable institution a copy of the designation form and it can monitor the account after your death for proper distribution. n

Mr. Grace is executive director of the Catholic Community Foundation. Contact him at 216696-6525, ext. 5750, or email pgrace@catholiccommunity.org.

Life insurance is a versatile gifting tool BY BRITTANY NEAL

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gift with life insurance is to establish a new policy and transfer ownership to the charity. Such a gift can be made by paying the policy in full with a one-time premium payment or by continuing to make gifts to the charity to cover the cost of the premium payments. As with an existing policy, a charitable deduction is available for the premium payment(s) as they are paid. Making a gift with a life insurance policy is a wise investment in the future. Through a gift of life insurance, a more substantial gift may be possible because payments are made in installments. Additionally, proceeds are promptly paid to the charity without the time-consuming process of probate. n

Ms. Neal, Esq, is assistant director, gift planning for the Cleveland Clinic Foundation. Contact her at 216444-5021 or email nealb@ccf.org.

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Advertisement ESTATE PLANNING NOVEMBER 11-17, 2013 E-23

CHARITABLE GIVING

An endowed gift will last forever BY KAREN L. GRECO

purpose. The donor makes a tax-deductible gift to the charity. The principal hen a is invested by the charity charitable and the income is used to organization provide a steady source of impacts an funds. individual’s life, he or she Preserving the principal may feel compelled to offer allows the donor to make support. Support can mean GRECO an impact today and for giving of time, expertise generations to come. When or making a financial additional donors make contricontribution. butions to the endowment, the One of the most lasting and sigendowment grows nificant contributions a donor can and increases the income for the make to a charity is to establish charity’s use. an endowment. An endowment is Endowed funds are easily cuspermanent and for a particular

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Checkup ensures continuity

continued from Page E-6

Information about your liabilities

n Primary mortgage n Other mortgages n Personal loans n Income taxes n Philanthropic pledges outstanding n Any debts or IOUs

Make copies of the following

n Current wills n Current and previous trust agreements n Copies of gift tax returns filed n Pre- and postnuptial agreements n Divorce decrees and/or separation agreements n Buy-sell and/or partnership agreements n Pension/profit-sharing plans or summaries n Corporate record books for any business in which you have ownership n Copies of any deeds to any real estate listed

Make sure the following are current

n Health care power of attorney and living will declaration for Ohio or your state of residence n Organ donation enrollment

tomized to fit the donor’s philanthropic objectives. An endowment can be created in the donor’s name, to memorialize a loved one, to honor someone who has impacted the donor’s life and to benefit a specific area within the charitable organization. An endowment can be established now or at death. One of the

benefits of establishing a current endowment is to encourage additional contributions from family, friends and other individuals who support the charity. Another is to witness the impact made by the charity in the designated area of support. Most importantly is a feeling of fulfillment in making a positive difference. Donors can fund an endowment at death by making a specific bequest or devise in their will or trust with instructions to purpose the endowed fund. This type of gift provides an estate tax charitable deduction. As an example, donors who have made annual gifts to the charity of their choice can provide for an endowed fund at death. The income generated by the endowment will replace the annual gifts and continue their pattern of lifetime giving into perpetuity. n

Ms. Greco, Esq. is the senior gift planning office at University Hospitals. Contact her at 216-844-0420.

STAY CONNECTED WITH CRAIN’S Crain’s on Twitter: @CrainsCleveland Crain’s on Facebook: Facebook.com/ CrainsCleveland Crain’s on LinkedIn: linkedin.com/company/ crain’s-cleveland-business Be sure to register for our daily themed e-newsletters: CrainsCleveland.com/ register Morning Roundup and daily headlines: weekdays Real Estate Report: Mondays Health Care Report: Tuesdays Dealmaker Alert: Wednesdays Small Business Report: Thursdays Shale and Energy Report: Fridays

Also consider

n Creating an ethical will n Naming a favorite charity as a beneficiary of your will, trust or qualified retirement plan n Making hard copies of all your online accounts and passwords, including email, social media accounts and financial accounts Each of us has a unique legacy to share. With good planning, we can pass it on.

STAND OUT IN THE NORTHEAST OHIO BUSINESS COMMUNITY

Ms. Masters, MBA, is chief development officer for Hospice of the Western Reserve. For copies of “Courage in Conversation: A Personal Guide,” and a list of links that will help in creating ethical wills, call 216-383-2222 or visit www. hospicewr.org. For general questions or for palliative or hospice care referrals call 800-707-8922.

Disclaimer

The material presented in this special section is of a general nature and does not constitute investment, legal, tax or accounting advice to any person, or a recommendation to buy or sell any security or adopt any investment strategy. Opinions expressed herein are subject to change without notice. Seek the advice of an investment professional to tailor an estate plan to your needs.

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