Crain's Cleveland Business

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ESTATE PLANNING

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TABLEOFCONTENTS Help us connect people to the wonders of the universe

BETHEFUTURE To learn more about estate planning and life income gifts to the Museum, contact Sheryl Hoffman, Director of Major & Planned Gifts at (216) 231-4600, ext. 3310 or shoffman@cmnh.org www.cmnh.org

Overview and trends

Charitable giving

Business succession

S-3

Estate plan checkup

S-8

S-3 S-4 S-6

Ohio Legacy Trust

S-13 Ownership transfer S-14 Other stakeholders

S-9

Changes in the law Family gifting

Best practices

S-6 S-7 S-8

Philanthropy Life insurance Donor-advised funds Three-part plan

S-10 Gift annuities Lead trusts

Fiduciary responsibilities

S-11 The

Choosing a lawyer Proper asset titling

S-12 Dynasty trusts S-13 GRATs

Choosing trustees

rewards of giving

S-17

Help elderly relatives craft estate plan

Retirement plans

S-15 Taxes Roth IRAs

S-16 Trusteed IRAs

Education

S-16 Funding options S-17 529 plans Related topics

S-18 International estate planning Fine art appraisals

S-19 Split-dollar plans Insurance assets

PRESIDENT’S LETTER

Uncertainty presents opportunity Real Estate/Construction John Funk, Director of Real Estate Practice

Property is as unique as its owner. Our clients benefit from our depth of industry knowledge and our commitment to offering personalized attention and insightful solutions. The knowledge of a trusted advisor can make the difference between a strong or shaky foundation.

The Maloney + Novotny Real Estate Practice combines a wealth of experience with a passion for understanding the ever-changing landscape involved in property development, ownership and management.

T

he Estate Planning Since the Council’s Council of CleveEstate Planning Section land, in conjunclast appeared in November tion with Crain’s 2009, the financial world Cleveland Business, is in which we live continues pleased to present the to change. A change in annual Estate Planning estate and gift tax laws Section. It is the council’s looms and domestic RADD RIEBE goal to offer the commueconomic performance nity valuable information remains sluggish. related to financial, retirement, Despite uncertainty, the need insurance, business succession, and for the preservation of assets built estate and charitable planning. over a lifetime for the benefit of The articles and commentary on family, heirs or charities is ongoing. the pages that follow have been Evaluating how your personal provided by some of Northeast objectives for leaving a legacy Ohio’s most experienced profeshave been affected by the change sionals in these fields. in laws and market conditions Estate planning is one of the should include consulting with most overlooked areas of personal professionals to advise you on financial management. It is the methods, techniques and estimated that more than 120 documents available to meet million Americans do not have your goals. If you are concerned up-to-date estate plans to protect about transitioning a familythemselves or their families in owned business, planning for the event of sickness, accident or retirement, creating a legacy for untimely death. Each year, this your family, or fulfilling philancosts wasted dollars and hours of thropic goals, the articles in this hardship which can be materially section will address these issues minimized with advanced planand the benefits of receiving ning and action. comprehensive tax and estate

planning advice as part of the planning process.

The Estate Planning Council of Cleveland is composed of a diverse array of more than 440 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 ready to provide you with thoughtful, tax-effective and valuebased 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. ■

Radd L. Riebe is president of the Estate Planning Council of Cleveland and a managing director at Stout Risius Ross, Inc. in Cleveland.

SPECIAL NOTE + Business Advisors and Certified Public Accountants

+ Cleveland 216.363.0100 Canton 330.966.9400 Elyria 440.323.3200 maloneynovotny.com

Crain’s Cleveland Business Custom Publishing

Consult an attorney and financial advisers to evaluate individual estate planning needs.

IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with IRS requirements, we inform you that this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (a) avoiding penalties under the Internal Revenue Code or (b) promoting, marketing or recommending to another party any transaction or matter discussed herein.

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ESTATE PLANNING

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November 15-21, 2010

S-3

OVERVIEW AND TRENDS

Protect asset health by giving estate plan a checkup

W

hether you consider yourself rich or poor, when you die you will leave behind assets. Your estate might include cash and investments, real estate, tangible personal property, or even an interest in an operating business. At its most basic level, an estate plan determines how your assets will be distributed to your heirs after you die.

“An estate plan isn’t just about assets, it is also about people.

And when you add taxes to the mix, a process that could have been fairly simple has the tendency

Proposed trust statute targets asset protection

T

he Ohio Legacy Trust Committee, a committee of the Ohio State Bar Association, is seeking legislation in Ohio that would allow the creation of asset protection trusts.

■ What is asset protection?

Asset protection planning is simply the rearranging of someone’s assets to minimize the chance of loss from future litigation claims.

■ Why does Ohio need this? To date, 11 states have adopted asset protection trust legislation. Ohio residents are establishing trusts in these states and relocating themselves and their assets to those states in order to take full advantage of those states’ laws.

■ What are the provisions of the statute? The act enables a person to establish an irrevocable trust, place assets into that trust and still benefit from those assets through the actions of one or more trustees.

The person establishing the trust must create an affidavit and aver in it that the transfer will not render the person insolvent, defraud his creditors, or be done prior to filing for bankruptcy. The person must identify pending or threatened court actions.

A qualified trustee must serve during administration of the trust.

The trustee cannot be the person establishing the trust but can be an Ohio resident or an entity authorized to act as trustee in Ohio.

The person establishing the trust can retain certain rights without those rights being construed as having retained the power to revoke the trust.

The statute describes how and under what circumstances creditors have access to the assets in the trust.

The proposed statute draws from the best of the other states’ laws and will allow Ohio to retain good citizens and their assets. ■

Joanne E. Hindel is chair of the OSBA Legacy Trust Committee and vice president and senior personal trust officer for Fifth Third Bank. Contact her at 216-274-5633 or e-mail joanne.hindel@53.com.

to become quite com(financial) power of plex,” said Joseph M. attorney, health care Mentrek of Meaden & power of attorney and a Moore. “So even if you living will (if desired). already have an estate plan, More complex family or it is imperative that you financial situations may revisit that plan to ensure require the use of a trust that it remains relevant.” or series of trusts to effecJust like an annual visit JOSEPH tively accomplish your to your physician, a peri- MENTREK goals. An estate plan odic review of your estate checkup involves a thorplan can either reinforce that all ough review of all of these docuis well, or it can uncover the need ments and determining whether for additional attention to return the plan matches your wishes. your plan to a healthy state.

In addition to the implemenA basic estate plan should include tation or review of your docua valid will, durable general ments, your estate plan checkup

should look at the effect of related issues such as the desirability of life insurance, disability or longterm care insurance, as well as the impact of pre-nuptial or buysell agreements, or other documents that affect your assets.

The uncertainty regarding federal estate tax laws makes matters even more challenging.

And in an election year, it is anyone’s guess as to what, if any, action Congress will take.

Many older plans may not have been drafted with this veritable roller coaster in mind.

Consequently, the terms of your

existing plan may be open to interpretations that could lead to a vastly different result from what you originally anticipated.

There may never be a better time to schedule a checkup with your planner. The time you spend will give you peace of mind, knowing that your financial affairs are in order and that you have adequately and appropriately provided for your family.

■

Joseph Mentrek is vice president with Meaden & Moore Financial Services.

Contact him at 216-928-5343.

THE ESTATE PLANNING COUNCIL OF CLEVELAND President Radd L. Riebe Tanzie D. Adams Kelly G. Adelman Charles F. Adler, III Richard A. Ahrens Thomas D. Anderson Graham T. Andrews Oakley V. Andrews Gordon A. Anhold Gary S. Archdeacon Kemper D. Arnold Rosanne J. Aumiller James S. Aussem P. Thomas Austin Charles J. Avarello Molly Balunek Peter Balunek Alexander D. Barclay Lawrence C. Barrett Russell Bauman Stephen Baumgarten Edward J. Bell Michael D. Benson Gina Marie Bevack Mohammed J. Bidar Gary B. Bilchik John J. Bindas James A. Blue Alane Boffa Jason Bogniard Daniel L. Bonder Christ Boukis Laura Bozell Caprice H. Bragg Herbert L. Braverman Christopher P. Bray James R. Bright Susan Brooks Don P. Brown C. Richard Brubaker Robert M. Brucken Armond D. Budish Martin J. Burke, Jr. Eileen M. Burkhart J. Donald Cairns Peter H. Calfee Carl Camillo Nancy H. Canary William G. Caster Sal A. Catalano James R. Chriszt Trevor R. Chuna Mark A. Ciulla R. Michael Cole Warren Coleman Andrew R. Connors Jeffrey P. Consolo David E. Cook James I. W. Corcoran Heather A. Cornell Christy Corrao Greg S. Cowan Steven Cox Thomas H. Craft Jean M. Cullen M. Patricia Culler Rand M. Curtiss Cheryl A. D'Amico Jason S. Damicone Stephen M. Darlington Doris A. Seifert Day Holly N. Denham Rebecca Dent Thomas A. DeWerth Carina S. Diamond David S. Dickenson, II James G. Dickinson Gary L. Dinner

Vice President Lisa H. Michel

Secretary Marie L. Monago

Jeannemarie DiPadova Nick DiSanto Lynda Doland Kara Downing Timothy Doyle Emily A. Drake William A. Duncan James R. Dunn Catherine S. Eclavea Howard B. Edelstein Elaine Beth Eisner Michael E. Ernewein Patrick J. Ertle Christopher M. Essig Heather R. Ettinger Susan M. Evans Darren A. Ewaska Frank Fantozzi Charles E. Federanich William C. Ferry J. Paul Fidler Julie A. Fischer Mary Kay Flaherty Robert E. Fleck Kimberly A. Florcosky Robert B. Ford Judson Forner Kevin J. Forney Patricia L. Fries William H. Fulton Naomi D. Ganoe Beverly Gans Stacey M. Gardella Stephen H. Gariepy Rao K. Garuda Richard Gary James E. Gaydosh Christopher Geiss Thomas M. Genco Arthur E. Gibbs, III Thomas C. Gilchrist Stephanie M. Glavinos Catherine Klima Gletherow Ronald J. Gogul James A. Goldsmith Susan S. Goldstein Tom S. Goodman Scott Goyetche Alexandra Gray Karen Greco Marianne Grega Sally Gries Nancy Hancock Griffith Charles M. Grimm Alan Gross James P. Gruber Timothy R. Haber Patrick A. Hammer Ronald F. Hanson Dana G. Hastings Douglas R. Hastings Lawrence H. Hatch Robert A. Hauptman Janet W. Havener Albert G. Hehr, III Theodore N. Hellmuth Kimberly Heman James M. Henretta James R. Hickey Mark W. Hicks Jean M. Hillman Joanne Hindel Kenneth G. Hochman Mark L. Hoffman Doris Hogan Ronald D. Holman Harold L. Hom

Treasurer Beth M. Korth

Robert S. Horbaly James M. Horkey Brent R. Horvath Michael J. Horvitz Stuart M. Horwitz George A. Jacobs Paula Jagelewski Christopher P. Jakyma Barbara Bellin Janovitz Robert B. Jensen Theodore T. Jones James O. Judd Matthew F. Kadish Stephen L. Kadish Ronald L. Kahn Joseph W. Kampman Karen J. Kannenberg Amy A. Kapostasy Kimon P. Karas William E. Karnatz, Sr. William E. Karnatz, Jr. Bernard L. Karr Howard Kass Edmund G. Kauntz Theresa M. Kean John D. Kedzior Michele Keith Lesley Keller Lisa M. Kerr Veena Khanna Dorothea J. Kingsbury Richard B. Kiplinger Raymond G. Klinc Paul S. Klug Victor G. Kmetich Erik R. Kneip Daniel R. Kohler James R. Komos Thomas H. Konkoly William H. Koptis Harvey Kotler Roy A. Krall Frank C. Krasovec, Jr. Peter G. Kratt Eugene A. Kratus Thomas W. Krause Bruce A. Kretch James B. Krost Deviani Kuhar Craig A. Kukla Thomas J. LaFond William P. Lange Gary E. Lanzen Donald Laubacher Daniel J. Lauletta Herbert B. Levine Wendy S. Lewis Keith M. Lichtcsien James Lineweaver David F. Long Ted S. Lorenzen Sandra C. Lucas Charles S. Lurie Robert M. Lustig Matthew J. D. Lynch James M. Mackey David S. Maher Stanley J. Majkrzak Laura Malone Karen T. Manning Wentworth J. Marshall, Jr. Melissa L. Marvin Douglas Mathey Michael W. Matile Mark J. McCandless Nancy McCann Karen M. McCarthy

Crain’s Cleveland Business Custom Publishing

Program Chair Jennifer A. Savage Larry E. McCoy Daniel J. McGuire Joseph M. Mentrek Mark A. Mihalik Lawrence Mihevic Charles M. Miller Richard S. Milligan William M. Mills Daniel F. Miltner Wayne D. Minich Ginger F. Mlakar M. Elizabeth Monihan Michael J. Monroe Kenneth R. Morgan Philip G. Moshier Susan C. Murphy Hoyt C. Murray Norman T. Musial Christine Myers Jodi Marie Nead Lisa Wheeler Neely Robert Nemeth Michael T. Novak Stephen M. Nowak Anthony J. Nuccio Eric A. Nye Michael J. O'Brien Lacie L. O'Daire Linda M. Olejko Lauren Anne Olsen Leslie A. O'Malley Charles J. O'Toole Jodi L. Penwell Michael D. Pepe Dominic V. Perry Alex S. Petrus Craig S. Petti Daniel W. Phillips Thomas Pillari Gregory M. Pinter John W. Pinter Douglas A. Piper Candace M. Pollock Mary Ellen Potter Douglas Price Maria E. Quinn Susan Racey Jeffrey H. Reitzes Linda M. Rich R. Andrew Richner Elton H. Riemer Kathleen K. Riley Michael G. Riley Frank M. Rizzo Lisa Roberts-Mamone Kenneth L. Rogat James D. Roseman Carrie A. Rosko Edmund W. Rothschild Larry Rothstein Rennie C. Rutman Patrick J. Saccogna Robert Sanders Ronald S. Schickler Bradley Schlang Dennis F. Schwartz Vassie Scott, Jr. June A. Seech John S. Seich Sally Sharaba Andrea M. Shea Stanley E. Shearer John F. Shelley Lea R. Sheptak Nick Shofar Roger L. Shumaker Dennis J. Siciliano

Immediate Past President Erica E. McGregor Scott C. Silverman Sandra M. Skocir Mark A. Skvoretz Michael J. Sliman John M. Slivka Martha B. Sluka N. Lindsey Smith Cristin Snodgrass Michael L. Solomon Michael T. Sommerfeld Richard T. Spotz, Jr. William L Spring M. Randal Stancik Cindy L. Steeb Kimberly Stein Laurie G. Steiner Saul Stephens E. Roger Stewart John M. Stickney Thomas M. Stickney Robin R. Stiller Robert H. Stock Thomas B. Strauchon John E. Sullivan, III Linda DelaCourt Summers Scott Swartz Joseph N. Swiderski Natalie Bell Takacs Yeshwant K. Tamaskar John R. Telich, Sr. Mark M. Tepper Barbara Ann Theofilos Donald A. Thompson Donna Thrane Philip Tobin Thomas L. Tobin Eric Tolbert Floyd A. Trouten, III Mark A. Trubiano John R. Tullio, Jr. Diann Vajskop Robert A. Valente Missia H. Vaselaney Joseph Frank Verciglio Catherine Veres Anthony Viola Mary Eileen Vitale Michael A. Walczak Kimberly A. K. Walrod Robert W. Wasacz Neil R. Waxman Ronald F. Wayne Michael L. Wear Stephen D. Webster David G. Weibel Paul A. Weick Jeffry L. Weiler Richard Weinberg Katherine E. Wensink Elizabeth Wettach-Ganocy Marcia J. Wexberg Terrence B. Whalen Sharon Kai Whitacre Geoffrey B.C. Williams LeeDaun Williams Teresa M. Wisniewski Nelson J. Wittenmyer Matthew D. Wojtowicz Alan E. Yanowitz James D. Yurman Jeffrey M. Zabor Michael J. Zeleznik David M. Zolt Jack Zugay Shawn D. Zurat Gary A. Zwick Donald F. Zwilling

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ESTATE PLANNING

S-4 November 15-21, 2010

OVERVIEW AND TRENDS

The Trusted Advisors' Choice for Donor Advised Funds

Congress’ inaction creates a need for estate planning

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ast year at this time, the possibility remained that Congress would act to prevent the 2011 resurrection of a much lower federal estate tax exemption and a much higher federal estate tax rate. No such action was taken, and none is likely before Jan. 1. Thus, many who did not need to implement estate plans in prior years may need to do so to avoid the imposition of a combined federal and state estate tax at a rate that could exceed 60%.

In 2009, couples or individuals with a net worth of $3.5 million or less generally could pass assets to heirs free of federal estate tax (FET) even if they did no estate planning. While there would likely still be Ohio estate tax (the exemption remains $338,333), the highest marginal Ohio estate tax rate remains 7%. Thus, although estate planning among

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those with a net worth less than $3.5 million still was necessary to avoid the 7% Ohio estate tax and the other non-tax negative consequences that come with a lack of estate planning. For many, no estate planning was required to prevent the imposition of the FET (which was levied at a maximum rate of 45%). As of Jan. 1, that will no longer be the case.

Who needs to seriously consider implementing an estate plan in 2011?

■ Those who live in Ohio (individuals or couples) with a net worth exceeding $338,333; and individuals or couples (irrespective of domicile) with a net worth exceeding $1 million.

■ Owners of interests in closely-held businesses who need to plan for liquidity to pay the increased estate tax that will be due at death.

This should involve ensuring

Year of the lifetime gift

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ard to believe, 2010 is three-quarters over, yet the federal gift and estate tax picture is no clearer than it was last New Year’s Eve. As a result of Congressional inaction, estate planners have been forced to find ways to navigate in dense fog — to achieve their clients’

Go for it. We’ve got your back.

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goals with no certainty as to the tax consequences of any planning step. Still, interesting developments have occurred in this unprecedented environment.

For the past 10 years of federal estate tax phase-out, business owners interested in passing on the business to the next generation were generally reluctant to make gifts to family members, particularly those that would require payment of gift tax. But if anything is certain, it is that the federal estate tax repeal will last, at most, only one more calendar quarter. The short odds are on a re-enactment of the $3.5 million applicable estate tax exemption and 45% estate PATRICIA tax rate. By conPACENTA trast, this year’s gift tax rate is only 35%. Even if that rate is increased retroactively, transferring the family business to the next generation during the owner’s life — even at the cost of gift tax — now may be compelling.

Although legislation restricting valuation discounts for transfers of closely held businesses has been introduced, it appears to have little traction at present. Minority ownership valuation discounts continue to be upheld by the courts. A low growth, low interest rate economic climate is excellent for structuring gifts and/or sales of minority business interests. Since estate tax repeal after 2010 is but a dim dream, strong incentive exists to take advantage of the current environment for lifetime gifts.

Patricia Pacenta is shareholder, Trusts and Estates, Buckingham, Doolittle & Burroughs, LLP. Contact her at 330-3765000 or e-mail ppacenta@bdblaw.com.

Crain’s Cleveland Business Custom Publishing

that the entities’ governing documents and the owners’ personal estate plan documents (and any redemption agreements) are coordinated and carefully crafted to permit qualification under Section 6166 of the Internal Revenue Code (IRC).

This will enable FET deferral for up to nearly 15 years, and under Section 303 of the IRC for potentially income tax free (or at least capital gain treatment of) movements of cash from the companies to the estates of the deceased owners irrespective of the owners’ basis in the interests before death and/or the existence of retained earnings.

■ Those with wealth in excess of their projected needs, who may wish to reconsider gifting.

■ Those who need to engage in estate planning to address non-taxrelated yet potentially very costly See CONGRESS Page S-20

KEY SCENARIOS THAT COULD IMPACT PLANS ■ Although unlikely, Congress could reinstate an estate tax retroactive to Jan. 1, 2010, at a 55% tax rate for assets in excess of $1 million. If a retroactive tax is enacted, the courts will need to determine whether the tax is constitutional, further delaying the known tax consequences for 2010 decedents.

■ With the estate tax on hiatus in 2010, estate assets of 2010 decedents do not receive a fully automatic stepped-up cost basis. Determining the cost basis going forward may be difficult and confusing.

■ The cumulative aggregate exemption for taxable gifts is $1 million through 2010. Gifts in excess of the cumulative exemption are taxed at 35%, excluding gifts up to $13,000 per recipient.

■ An extension of the 2001 and 2003 tax cuts is likely for the middle class. An extension of the tax cuts for taxpayers in the top income tax bracket is undecided.

■ The top income tax rate of 39.6% will be reinstated on Jan. 1, 2011, long-term capital gain rates will rise to 20% and dividends will be taxed at the top ordinary income rate (instead of the long-term capital gains rate).

The Obama administration’s budget calls for taxing both dividends and long-term capital gains at 20%. Some suggest there will be a compromise.

■ Additional taxes will be imposed in 2013 on high-income people by The Patient Protection and Affordable Care Act of 2010.

Linda M. Olejko, CFP is vice president, Business Development at Glenmede. Contact her at 216-5147876 or linda.olejko@glenmede.com.

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ESTATE PLANNING

S-6 November 15-21, 2010

OVERVIEW

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BEST PRACTICES

The best of times to make gifts Trustees must adhere

W

ith a nod to Victor Hugo’s “A Tale of Two Cities,� the recent economic woes again emphasize the “it was the best of times, it was the worst of times� dichotomy, making now an ideal time to consider tax efficient family gift opportunities: LOW INTEREST RATES AND LOW ASSET VALUES. Interest rates and asset values have not recovered from their pre-recession levels. In particular, real estate values remain severely down in value. The Federal Reserve’s monetary policies and general economic sluggishness contribute to these conditions.

When these conditions will reverse is unknown, but the correct answer is a multimilliondollar one for family gifts.

VALUATION DISCOUNTS AVAILABLE: The environment for valuation discounts is subject to proposals circulating in Congress. The past spendthrift ways of Congress are expected to man-

ifest themselves in the pursuit of additional taxes. More tax dollars will be sought through rate increases and rule changes. One of those rule changes calls for cutting or eliminating valuation discounts (frequently 25%-45% under current law) for intra-family transfers. If such legislation is enacted, the cost to families making gifts to heirs will increase substantially.

TAX RATES INCREASE NEXT YEAR: Gift tax rates are scheduled to increase from a top rate today of 35% to 55% in 2011. A taxable gift of a $1 million asset transferred to children in 2010 might be valued for gift tax purposes at $650,000 (after discount) and incur gift taxes at 35% ($227,500). That same gift in 2011 may be valued at $1 million (assuming discounts are prohibited by law) with a tax rate of 55% ($550,000). The gift

taxes payable in 2010 could be less than half of those for the same transaction in 2011, if the worstcase scenario from Congress unfolds.

Rarely do conditions align to create the perfect storm for taxpayers to make transfers of interests to family members, but 2010 appears to be one of those times.

If one is convinced that the future will bring higher tax rates, new limitations on discounts for family transfers and economic recovery, the opportunity presented this year to take advantage of low tax rates and low values is not likely to be repeated anytime soon. â–

Radd Riebe is managing director of the Valuation and Financial Opinions Group at Stout Risius Ross, Inc., Cleveland.

Contact him at 216-373-2998 or visit www.srr.com.

University Hospitals Makes the Difference.

Fergus Family Gift BeneďŹ ts Maternal-Fetal Care

to strict fiduciary duties

T

he Uniform Prudent Investor Act (UPIA) instructs trustees on the duties they must perform to meet the fiduciary duties they assume once they become a trustee for a trust.

When trusts contain a variety of investments or when they contain assets worth a large amount of money, these duties can seem time-consuming and complicated.

Each state has laws that establish the standards trustees must follow. A trustee who doesn’t meet these standards can be held personally responsible for trust losses. To maximize benefits for the trust beneficiaries, and to reduce personal liability for trust losses, trustees need to: ■Understand the objectives and terms of the trust. Are the trust assets designed to provide for estate liquidity, contribute to a charitable organization or perhaps care for a disabled child? ■Develop a reasonable investment strategy. How much financial risk is the trust willing to take to reach its goals? ■Adopt a written management statement. If the trust contains a life insurance policy, this becomes a policy management statement and describes what type of coverage is expected. Should the

policy last longer than the life expectancy of the insured? Should it be a paid-up policy or will the trust expect to pay premiums on the policy for a number of years? â– Implement the strategy with the appropriate products.

Once the objectives and terms of the trust are understood, what assets should the trust own to meet them? â– Regularly review policies and investments and make changes as needed. This process should be documented.

The UPIA allows a trustee to delegate investment and management functions to an objective third-party professional. The trustee is not liable for the decisions or actions of that professional, but is still responsible for periodically reviewing any thirdparty’s performance.

Attorneys, trust officers and non-professional trustees can benefit by working with a trust adviser who specializes in a specific asset — for example, life insurance. This trust adviser will bring industry-specific knowledge and experience to the case to help ensure the trust is managed properly and according to the law. â–

Mike Pepe, CLU, is founder of The TOLI Group. Contact him at 216-325-1686.

ADVISORS TO INDIVIDUALS AND BUSINESSES ON THE PRESERVATION, PROTECTION AND RESOLUTION OF MATTERS INVOLVING: Estate and Trust Administration Estate Planning Succession Planning

Guardianships Adoptions Probate and Trust Litigation

Angela G. Carlin

Jeanne V. Gordon

Mary and Terry Fergus and Family

Terry Fergus and family wanted to honor wife and mother Mary Fergus for her many years of dedication as a neonatal nurse. Their generous gift created the Mary D. Fergus Endowed Chair in Maternal-Fetal Medicine that will advance care for high-risk pregnancies at University Hospitals.

Karen A. Davey

Jerrold L. Goldstein

Gary W. Johnson

Roy A. Krall

“It is a great pleasure to give a gift in honor of my wife, Mary, for her many years of dedication, caring for the sickest of babies,� said Mr. Fergus.

At University Hospitals, the Diamond Legacy Society recognizes and celebrates individuals, like Mary and Terry Fergus, who leave a meaningful legacy for future generations.

Eugene A. Kratus

Samuel J. Lauricia III

Shawn W. Maestle

Paul Y. Shapiro

Joseph B. Swartz

Contact a UH gift planning professional to work with you and your advisor in customizing a gift plan to create your own personal legacy at University Hospitals. Call 216-983-2200 or visit uhgiving.org.

The Tower at Erieview 1301 East 9th Street, Suite 1900 Cleveland, Ohio 44114-1862 TEL s FAX

10 West Broad Street, Suite 2400 Columbus, Ohio 43215-3469 TEL s FAX

670 West Market Street Akron, Ohio 44303-1414 TEL s FAX

24100 Chagrin Boulevard, Suite 200 Beachwood, Ohio 44122 TEL s FAX

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November 15-21, 2010

S-7

BEST PRACTICES

Poor asset titling can foil legacy

T

he first step in any estate plan is having one, but even the most detailed of plans may be completely bypassed if the assets included in it are not titled properly.

It is important for individuals to understand that a will controls only the disposition of assets held in their individual name.

Assets that pass by contract, such as life insurance or retirement accounts, are controlled by the beneficiary designation, not a provision in the will. Therefore, knowing what your assets are, how they are titled and following through to ensure correct titling is critical to your legacy.

Avoid these common titling mistakes: ■ Joint and survivorship assets. At death, these assets pass by contract to the surviving owner.

We often see a client who has a joint account with a caretaker child. Unfortunately, many clients do not realize that this means that those assets pass only to that one child at the client’s death.

As drafted, the estate plan may provide a detailed plan for taking

CHECKLIST Tips for avoiding asset titling mistakes: ■ Ask your financial adviser to provide a summary detailing the transfer of your assets at your death based on how your assets are currently titled so you can determine what changes may be needed.

■ Choose advisers with whom you are comfortable, and then be open and honest about your wishes and the details of all of your accounts. Select advisers who will be objective and not driven by commission.

■ Ensure your financial adviser is working closely with your attorney and accountant, and that all are fully informed of your wishes and plans.

■ Regularly revisit all aspects of your estate plan, including the titling of assets. Any life-changing event or tax law change should be a trigger.

care of a second spouse as well as the children from a prior marriage. However, if assets are titled in joint and survivorship form with the second spouse, the children from the prior marriage can be effectively disinherited.

This unfortunate scenario can lead See TITLING Page S-20

How to choose a good attorney

T

he federal estate and gift tax system has changed dramatically over the past year. While it is unknown what the tax system will be in 2011 and beyond, this year offers opportunities to reduce taxes that may not exist in the future.

While your estate planning attorney must have a thorough knowledge of complicated tax and related laws, and be an artful drafter of documents, the attorney’s personal attributes are just as important. You should be comfortable having a thoughtful discussion about the personal aspects of your life with your attorney. Consider whether your attorney: ■ Really cares about your concerns. For you to feel comfortable discussing personal issues, you should feel that your attorney is truly interested in helping you. A good estate planner must care about the client and empathize with the client’s concerns.

■ Provides a fixed-fee option.

Clients often get nervous about contacting their attorney too often. They fear that “the clock is ticking” and they will be charged extra if they ask questions. Paying a fixed fee to prepare your basic estate documents allows you to discuss your estate planning

concerns and questions in detail, without fear of incurring additional legal fees.

■ Offers to meet you outside of the office. Talking about dying is difficult, and discussing personal aspects of your life in an office setting can be uncomfortable. Your attorney should be willing to meet you at your home or in another setting that is comfortable for you.

■ Finds the personal side of estate planning rewarding and takes pride in his or her work.

Some attorneys get bored preparing wills and trusts for hundreds of clients each year. Good estate planning attorneys provide their clients with excellent service because they find the personal relationships they develop rewarding and often become the estate planner for several generations and related members of the same family.

■ Is a good listener. Your attorney must truly understand not only the information you convey but also the concerns and questions you express. Successful estate planning may require you to think about your relationships and attitude toward money in a way that you never have before; and your attorney should be sensitive to your issues and help you address them.

■ Works for a law firm that values estate planning. Some law firms minimize the value of estate planning because it may not bring in the attention or money other specialized areas of the law garner. Your attorney should work at a firm that values the importance of estate planning and estate planning clients.

■ Maintains a relationship with you after your documents are prepared. Your attorney should keep you informed of significant changes in the law and remind you to review your documents periodically. Good estate planners value the relationships they maintain with their clients over many years.

■ Estate planning involves listening, giving advice and helping clients make the correct choices for their unique circumstances. Being a good estate planner requires more than having a thorough knowledge of tax laws and being skilled at drafting documents. It involves compassion, empathy and understanding.

You should be confident that your estate planner possesses all of these attributes.

■

Barbara Bellin Janovitz is chair of Reminger Co., LPA’s Estate Planning Group. Contact her at 216-430-2178 or bjanovitz@reminger.com.

A CALFEE ATTORNEY knows that industry expertise is the key to valuable counsel.

We work hard every day to earn the title of trusted advisor. By immersing ourselves in your industry, we can better understand the complexities and nuances of your organization.

This commitment allows a Calfee attorney to offer true value: interpreting the law to help you achieve your business objectives.

Calfee, Halter & Griswold LLP www.calfee.com

Crain’s Cleveland Business Custom Publishing

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best judgment in deciding when and how to distribute the assets.

Factors to consider in choosing a trustee are: size and duration of the trust; needs of the beneficiaries; assets expected to be held; the relationships among the trustee and the beneficiaries; and the tax consequences. Only corporations that have been granted trust authority by a state can serve as a trustee. There are generally no restrictions on an individual serving as trustee.

CORPORATE. Choosing a corporate trustee has several advantages: professional expertise, continuity, impartiality and accountability. The problem with choosing a corporate trustee is cost, high employee turnover and takeovers. A corporate trustee may lack the ability to deal with closely held business interests, real estate and other special assets.

INDIVIDUAL. An individual trustee often has personal knowledge of the grantor’s purposes in creating the trust. Individuals, however, may not be able to fulfill the duties because of death, disability or retirement. Individual trustees have to call upon the services of investment professionals and accountants to fulfill their obligations.

CO-TRUSTEES. Many of these advantages and problems can be managed through the use of individual and corporate co-trustees.

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■

James G. Dickinson is a partner with Cavitch, Familo & Durkin. Contact him at 216-621-7860 or jdickinson@cavitch.com.

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hoosing a trustee is the single most important decision most people will make in creating their estate plans. An incompetent or uninterested trustee can ruin even the best plans.

“After 34 years of advising clients on their estate plans,” said Jim Dickinson, a board certified specialist in estate planning, probate and trust law, “I am still unable to name the ideal trustee.

Each situation must be analyzed based upon a number of factors.”

A trustee must have the ability to assemble and to manage a prudent, well-diversified portfolio of assets that will serve the needs of the trust beneficiaries; must send periodic reports to the beneficiaries; and file state and federal income tax returns. The trustee will follow the instructions contained in the trust agreement and use its

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Many options can help achieve estate goals

G

iving through estate plans or life income gifts may be suitable for individuals who would like to support a charity, but need income from their assets during their lifetime.

The most common form of a planned gift is a bequest contained in a person’s will or revocable living trust. General bequests leave funds or property to a charity without designating its use.

Other bequest types may direct a percentage of a person’s estate to charity or allow for the charity to receive residual funds after payment of debts, taxes or administration fees.

If you want to receive numerous tax and financial benefits by creating a life income gift, you may want to explore creating a charitable gift annuity or a charitable remainder trust.

When a donor makes an irrevocable contribution of assets to fund the trust or annuity, he or she will receive an immediate income tax deduction for part of the contribution’s value and income for life or a term between one to 20 years. When the trust or annuity ends, the remaining assets go to the designated charity.

GIFT ANNUITIES provide older donors who give cash, securities, real estate or personal property with fixed annual payments that start at a time specified by the donor. Gift annuities are beneficial to donors who want to receive income from assets that have risen sharply in value, such as stock.

The charity will guarantee the donor a fixed annual income for the rest of his or her life and assist the donor in avoiding capital gains tax. The donor also receives an income tax break on a portion of the earnings from an annuity,

THE BENEFITS Individuals of all ages should explore the potential benefits of various estate planning strategies to determine which tools best fit their needs. Benefits vary, and many gifts can do the following: ■ Provide regular payments for you and/or your spouse or other beneficiary; ■ Reduce your taxes through charitable income tax deduction; ■ Reduce or avoid capital gains taxes; or ■ Save estate and gift taxes.

depending on the donor’s age.

CHARITABLE REMAINDER TRUSTS allow donors to receive income tax deductions and escape capital gains taxes.

The assets can be invested to earn a lower rate of return when the donor is younger and later can be shifted to earn a higher rate, providing more income in the donor’s later years.

Charitable lead trusts make an agreed payment to the charity for a specific term of years or lifetime.

Thereafter, the assets are either returned to the person who created the trust (who is eligible to receive an income tax deduction when the trust is created or passed on to children) or a designated heir. Applicable estate or gift taxes on the value of the gift to the child or other heir are reduced or completely eliminated.

■

Advancement Department, Diabetes Association of Greater Cleveland.

Crain’s Cleveland Business Custom Publishing

Life insurance can benefit your charity of choice

M

ost consider life insurance a way to protect the family should the insured pass away; but life insurance can be an effective way to make a charitable gift.

With the return of some form of estate tax next year, many are acting now to remove assets from their estate to minimize the anticipated impact.

Life insurance is one such asset that is included in the taxable estate if the insured is the policy owner at the time of death. To avoid estate tax, an individual with charitable intent could consider arranging a gift of life insurance now.

There are two basic approaches to using life insurance as a charitable gift: Make a gift of an existing policy or establish a new one.

A gift of an existing policy should be considered when the policy is no longer needed for its original purpose. The simplest way to make this gift is to name the organization receiving the gift as charitable beneficiary and assign ownership to it.

A donor also could establish a new life insurance policy. In Ohio, a donor first should establish the policy in his or her name and designate the charity as the beneficiary before transferring ownership. Once the policy is in place, ownership can be changed to the charity.

■

Anne Corrette is manager of Gift Planning Services at Cleveland Clinic. Contact her at 216-444-1251.

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S-9

CHARITABLE GIVING VEHICLES

Donor-advised funds boost charitable benefits

F

or most families, every holiday season is the same — turkey, trimmings, family and charity. According to The Giving USA Foundation, Americans gave more than $227 billion to charity last year, mostly in the form of cash.

While that can be the quickest and easiest gift, too few donors consider the tax advantages of contributing assets such as publicly traded securities, closely held stock or real estate. By giving such assets into a donor-advised fund, a donor can essentially

Donor-advised funds are like a charitable investment account. “pre-fund” multiple years of giving while receiving a tax benefit of a significant charitable gift in a year that it may really be beneficial.

Donor-advised funds are like a charitable investment account.

Appreciated assets, such as marketable securities, can be contributed free of capital gains tax, allowing the full gift to be used over an extended period of time for grants to numerous

charities. Donor-advised funds can be established with an initial gift as low as $10,000.

“Although much of America’s wealth is comprised of appreciated assets, both liquid and less-liquid, few Americans consider donating such assets,” said Phil Tobin, chairman and CEO of American Endowment Foundation. “Giving appreciated assets to a donoradvised fund gives the donor

tremendous flexibility in supporting his or her favorite charitable interests, while enjoying the best tax benefits available.”

Donor-advised funds are an excellent alternative to a family creating a private foundation.

They are becoming the fastestgrowing form of family philanthropy because they can be used by families that don’t have exorbitant wealth. Other advantages can include the ease in establishing a fund, the lack of administrative burden, greater privacy and a greater charitable deduction of

Implement a three-part estate plan

market instead of cost basis.

Donors typically establish a donor-advised fund to act as a multigenerational family fund for their charitable giving. The account can be personalized with a family name (e.g., “The Smith Family Foundation”), involve family members in recommending grants, and name successor advisers.

Depending on the sponsoring organization, the fund can last into perpetuity. Both the investments and the charities can be changed at any time to ensure the most charitable growth and the changing charitable desires of the family.

investments | trust | banking

“I

t’s time to put your affairs in order.” Usually, this intimidating phrase means it’s time to prepare a will, or to dictate how our assets will be handled after death.

While these arrangements are important, successful estate planning involves more than finances.

An effective estate plan should include three essential elements: a financial plan, an advance care plan and an ethical will.

Taking the time to create a three-part estate plan can have a tremendous impact on quality of life, particularly if you or a loved one is facing a serious illness. Each aspect of estate planning offers a time for reflection and celebration.

FINANCIAL PLAN: Financial planning is primarily asset distribution and requires specialized legal and financial assistance. Wills and trusts allow us to continue to care for the people and charitable organizations that we value most and ensure that our lifelong legacy of hard work will live on. It is vital to appoint a trusted financial power of attorney who will make decisions on your behalf, if needed.

Property inheritance issues can be loaded with emotion, but it is often easier to have the “money talk” with family and friends than to have the “what if” talk.

ADVANCE CARE: Your advanced care plan focuses on the medical “what ifs” that can occur at the end of life. “What if I get an infection? Do I want antibiotics?”

“What if I can’t swallow? Do I want intravenous nutrition?”

These are difficult questions. But imagine how difficult it would be for your family and friends to answer them for you during a medical crisis. Would they agree on your course of treatment? The greatest gift you can give your loved ones is to relieve them of the burden of making uninformed choices on your behalf.

Your advanced care plan should include a living will declaration as well as a health care power of attorney. These documents will be consulted only if you can’t communicate your wishes.

Creating an advance care plan takes effort and the courage to have

does your financial advisor know the score?

A well-planned financial life has all the complexity – and the fluidity – of a symphony orchestra.

Real life is complicated. People come to Key Private Bank for the simplified sophistication we bring to their financial lives.

Our team can help you achieve what matters most to you, delivering strategic advice and objective wealth management solutions based on a fiduciary standard of care that puts your interests before our own.

Your finances, your life – in tune, on key – for generations.

go to keyprivatebank.com call Louisa Guthrie, Key Private Bank Executive at 216-828-7877

Bank and trust products from KeyBank National Association, Member FDIC and Equal Housing Lender. Investment products are: NOT FDIC INSURED • NOT BANK GUARANTEED • MAY LOSE VALUE • NOT A DEPOSIT • NOT INSURED BY ANY FEDERAL OR STATE GOVERNMENT AGENCY Key.com is a federally registered service mark of KeyCorp. ©2010 KeyCorp. KeyBank is Member FDIC.

See HOSPICE Page S-20

Crain’s Cleveland Business Custom Publishing

ADL2139

See DONOR Page S-20

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Your Partner in Legacy Planning Provided as a public service of the Ohio Presbyterian Retirement Services Foundation. For more information about our work in northeast Ohio supporting Breckenridge Village and Senior Independence, please call Jim Hickey at (440) 942-4342.

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Cash one way to fund gift annuities

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payments starting immediately.

Charitable Gift Annuity Many people wish to support (CGA) gives you fixed and those in need but are attractive payuncomfortable parting ments for life, with a large sum of cash regardless of changes in inin today’s economy, even terest rates. More imporif the income generated tantly, it provides a way from it would increase. to make a meaningful, enHere are a few creative during gift to a nonprofit ways to fund a CGA: organization. A CGA may be right for you if: JAMES REAL ESTATE: The ■You want to support HICKEY mere thought of marketa charitable organization. ing and selling a home, vacation ■You want income that is unproperty or other holdings during affected by changes in the economy. a lagging real estate market can be ■You want to maintain, and exhausting. An alternative to possibly increase, income received selling the property would be to from your assets. use it to fund a CGA. Organiza■You want income tax relief tions may set CGA rates on a casethis year. by-case basis for gifts of real estate, relative to the anticipated risk and HOW IT WORKS: Through a expense to the organization for simple contract, you agree to holding and selling the property. donate cash, stocks or other assets to a charitable organization. In LIFE INSURANCE: If you own return, the organization agrees to an insurance policy that you no pay you (and someone else, if you longer need, use this “hidden asset� choose) a fixed amount each year to fund a CGA and turn this policy for the rest of your life. into income.

CGA payments are partially taxfree. The contract pays a set amount STOCKS: When appreciated for one or two lives, and provides stocks are used to fund a CGA, current and future savings on you gain a charitable tax deducincome taxes. If you prefer, you tion while amortizing capital may defer payments. Because rates gains taxes on the appreciation are based on age, the future annual over your life expectancy. This payout rate can be considerably higher than the rate of annuity See CHARITABLE Page S-20

HOW DOES AN ANNUITY WORK? A charitable annuity allows individuals to support a charity while receiving a cash reward for years to come. It is a great way to give a donation and pay yourself back over time, while reducing your tax bill. For example: Mary, 68, provides a one-time cash donation of $5,000 to the charity of her choice. Her annuity rate of return, determined by the American Council of Gift Annuities based on her age, gift amount and other factors, is 5.5%. The rate is fixed over her lifetime.

Her tax deduction the first year is $1,847.

She will receive $275 every year ($180 tax-free, $95 ordinary income). “Annuities provide a competitive and reliable rate of return and allow donors to support their favorite charities at the same time,� said Kerry A. Mink, development manager of the Benjamin Rose Institute. *Calculations are for illustrative purposes and should not be considered legal, accounting or other professional advice. Actual benefits may vary depending on the timing of the gift.

Kerry A. Mink, Esq., is development manager of the Benjamin Rose Institute. Contact her at 216-3731607.

CLTs ideal in current climate

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haritable lead trusts (CLTs) are excellent estate and tax-planning tools for individuals with large estates who wish to maximize wealth transfer to their heirs and make a generous gift to their favorite charity. By taking advantage of current market conditions, or appreciation of those assets, including low interest rates and are distributed to the donor’s depressed asset values, CLTs help heirs. donors make lemonade CLTs are best suited for out of the “lemon� donors who can afford to economy. set aside a portion of Charitable lead trusts their assets for a certain are irrevocable trusts number of years. Donors established either during are able to use these the donor’s life or upon trusts to remove wealth death to benefit both from their estates and charitable and non-charipass it tax-free to their table beneficiaries. Upon heirs. CLTs also are ideal PATRICIA creation, the donor trans- FRIES for donors who have fers assets into the trust. assets, such as securities Thereafter, the donor’s or real estate, that are expected to chosen charitable organization(s) increase in value over the term of receives “lead� distributions (fixed the trust. or percentage) each year for either Thanks to current market the donor’s life or a term of years. conditions, it is a great time to These annual gifts from the trust establish a charitable lead trust. can be designated to support the The IRS has lowered its special donor’s chosen program or capital rate used to predict how much project and, if done during life, the assets will grow while in trust. can have an immediate and transThis special “hurdle� rate has formative impact. been at historic lows (2% in At the end of the trust term, the October), which makes charitable trust assets, including the growth lead trusts very attractive.

Crain’s Cleveland Business Custom Publishing

In addition, asset values should recover over the coming years.

The growth in trust assets is likely to outpace the low IRS “hurdle� rate, and this value will pass tax-free to the donor’s heirs.

Proposed federal estate tax changes could mean that establishing a CLT is an even more attractive estate and tax-planning tool. Congress allowed federal estate taxes to lapse in 2010. However, this is a short-term reprieve.

Congress may reinstate estate taxes at the former levels or change the rules. Even if Congress takes no action, estate taxes will automatically return — at more burdensome levels — on Jan. 1. Charitable lead trusts and other estate planning strategies will be more important than ever. â–

Patricia Fries is the senior gift planning officer for University Hospitals, including both the main campus and the community hospitals. Contact her at 216-8440430.

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S-11

CHARITABLE GIVING VEHICLES

Gifting to charity can leave a lasting legacy

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he decision to create a legacy gift — be it a charitable trust, a bequest of cash or transfer of tangible property, naming an organization as a beneficiary in a retirement account or life insurance policy, or establishing a charitable gift annuity — is an important milestone.

A legacy gift not only speaks to the donor’s commitment to an organization, but also illustrates the donor’s philosophy about living, giving and his or her hopes for future generations.

Considering what is best for both the individuals making the gift, as well as the organization, is a key element in establishing a planned gift.

While some donors have the means to immediately create a trust, others may only be able to attain their philanthropic dreams in increments. Some may be interested in earned income during their lifetime, while others may be interested in providing for a loved one — as well as a charity.

The ability to work with donors in a creative and collabo-

rative fashion helps to ensure that their gift — and the method of the gift — accomplishes their goals.

It is also important to have donors work with their attorneys and financial planners in a collaborative manner, which often can lead to greater gifts and greater satisfaction for the donors.

Making a legacy gift is an important life statement, one that should be personally rewarding and deeply gratifying.

Often, nonprofit staff learns about a bequest gift only after a donor has died.

By working with the organization in advance, donors can ensure their wishes are fulfilled — and it gives the organization the opportunity to express how important these gifts are to the sustainability of the organization and ensuring its mission.

■

Sheryl Hoffman is director of Government Relations, Major & Planned Gifts for the Cleveland Museum of Natural History. Contact her at 216-231-4600 ext. 3310 or visit www.cmnh.org.

TIPS FOR SELECTING A CHARITY Selecting a nonprofit to include in your estate plan is a personal experience.

When selecting charities, I highly recommend that donors consider: ■ Do you want your gift to be revocable or irrevocable?

■ How well do you know the charity or charities?

■ How well does its mission align with your values and goals in life?

■ Do you have an established relationship with the charity?

■ What do you know about the longevity/sustainability of the charity?

■ How well has it handled its finances?

■ How well is it meeting its mission?

■ What impact do you think your gift will have? Is it a large institution to which you plan to leave a

small gift — or a large gift? Or is it a small organization to which you plan to leave a large gift — or a small gift? The size and capacity of the organization may be greatly impacted by your gift. Can it carry out your desires?

■ Do you want your gift to go to a specific purpose within the charity, or would you prefer the charity determine how to best use your gift? If you would like your gift to

provide for a specific project, a certain term of years or other designated purpose, you should meet with the charity to be sure it can carry out your wishes and that your estate plans and MOU specifically reflect your wishes.

■ Is the charity able to accept your gift if you are donating tangible property? For example, leaving a house to an organization that does not have the capacity to maintain the property or to sell the property immediately may actually be more of a liability than a gift.

Make sure your gift is something your charity can accept and from which it can benefit.

■ Do you want to make provisions if the charity’s program no longer exists? Do you want the charity to designate the funds to a similar program or problem it is now undertaking?

— Sheryl Hoffman

MY BENESCH MY TEAM

Live for today.

Plan for tomorrow.

What good are we doing?

“In the quiet hours when we are alone and there is nobody to tell us what fine fellows we are, we come sometimes upon a moment in which we wonder, not how much money we are earning, nor how famous we have become, but what good we are doing.”

— A.A. Milne

T

here are many ways to make estate plans, and many charitable planning techniques to consider when determining the best way to include a gift as part of an estate plan.

However, before that process begins, one or more organizations need to be identified as gift recipients, which often is easier said than done. For some people, it is a clear choice; others need guidance and direction from their advisers.

Anyone connected to the gift planning process knows how meaningful it is to help someone establish a planned gift. In many cases, planned gifts fulfill financial and emotional needs.

For example, I have the privi-

lege of working with someone who is just as thrilled with the rate of her charitable gift annuity as she is with knowing that her donation will ultimately support fishing in Cleveland Metroparks, which was a passion of her late husband.

I also have had the opportunity to work with multiple generations of one family to create an endowed program that perpetuates the beliefs of its family matriarch.

Northeast Ohio’s long-standing tradition of making the quality of life a priority has allowed nonprofit organizations to effectively fulfill their mission throughout the region.

Through listening to the people we are working with and providing research assistance, we have the unique opportunity to help them improve and preserve the quality of life throughout greater Cleveland.

■

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.

Gary B. Bilchik, Partner Co-Chair, Estate Planning and Probate Practice Group Licensed to practice law in Ohio and Florida

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.

Deviani M. Kuhar, Partner Co-Chair, Estate Planning & Probate Practice Group Licensed to practice law in Ohio

We can assist in these areas and help you manage your assets in ways that will minimize the probate administration process.

Karen J. Kannenberg, CFRE, is manager of Gift and Donor Development for Cleveland Metroparks. Contact her at 216-635-3217.

IS AN ESOP RIGHT FOR YOUR COMPANY? Find out by contacting our ESOP experts today.

25 years

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?

Nick D. Shofar, Associate, Estate Planning and Probate Practice Group, Licensed to practice law in Ohio

Live for today…plan for tomorrow.

Talk to us about how to get started.

Ray Lampner Ray.Lampner@bcgcompany.com Doug Mathey Doug.Mathey@bcgcompany.com

Caring People. Shaping Futures.

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Tired of paying for trades instead of guidance?

Dynasty trusts a valuable vehicle, even sans estate tax

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Secure Your Future and Leave A Legacy of Learning and Living Your planned gift to the Diabetes Association of Greater Cleveland (DAGC) will ensure that current and future generations of children, youth and adults living with diabetes in Northeast Ohio receive the education and support they need to learn more, take charge, and live well with the disease. One hundred percent of your investment stays right here in our community to improve the quality of life for your friends and family members with diabetes.

To learn how DAGC can help you meet your financial and philanthropic goals, contact Helen Dumski, President & CEO at (216) 591-0800 or visit www.dagc.org.

hen the repeal of federal estate tax first became a possibility, one of my partners said to me, “Don’t worry about your career. The golden age of trusts was long before there ever was an estate tax.�

Most estate planners would agree that some form of federal estate tax will continue to exist; however, the possibility of an estate tax repeal has led many to focus on the non-tax benefits of various estate planning techniques, including dynasty trusts.

Dynasty trusts can provide at least three distinct benefits: ASSET PROTECTION: Generally, throughout the United States, it has been the rule that a selfsettled trust (a trust that provides a beneficial interest to the grantor of the trust) may be reached by the grantor’s creditors. Some states like Alaska and Delaware allow the creation of self-settled trusts that are creditor-proof. Ohio has proposed similar legislation. As our society has become more litigious, asset protection has become a

Most estate planners would agree that some form of federal estate tax will exist. greater concern for many clients.

Although it is difficult to achieve asset protection planning for oneself, it is relatively simple to make one’s children or other heirs creditor-proof by using a dynasty trust. In many cases, the trust can be structured to allow a beneficiary to act as his or her own trustee and still receive this benefit.

DIVORCE/REMARRIAGE PROTECTION: Under most circumstances, a dynasty trust can be used to protect a beneficiary from a divorcing spouse. Although inheritances are separate property (non-marital property), assets that are co-mingled may lose their ability to be identified. Many times the client will want an heir to keep his or her non-marital property separate; but in reality, that may be difficult. The separation of property may create a wedge

between the couple, leading to marital discord. If the assets are in a trust, even if the beneficiary is the trustee or co-trustee, the beneficiary can make his or her deceased parents or the trust the “bad guy.� In the case of an heir who is single or divorced and contemplating marriage, a dynasty trust may alleviate the need for a prenuptial agreement, where the beneficiary’s own assets are not significant.

BLOODLINE: Many clients express the desire that their wealth stay in the family. A typical pattern is for the trust to be held for the benefit of the grantor’s child during his or her lifetime; and then, at his or her death, for the trust to be held or distributed to the child’s lineal descendants. If the child has no children, a dynasty trust allows a parent to provide for his or her child but still control the ultimate distribution of the assets. â–

Missia H. Vaselaney is a partner with Taft Stettinius & Hollister LLP. Contact her at 216-706-3956 or mvaselaney @taftlaw.com.

Bloodline trusts protect family, goals

T

oo often people focus only on tax planning when they have their estate planning documents

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prepared.

Although federal or state estate tax planning is important, nontax issues can be just as important. How do you ensure that your estate passes to your children and is protected from their creditors or a divorce? How do you make sure your estate ultimately passes to your grandchildren and not to your son- or daughter-in-law?

The bloodline trust is a tool that can make sure these goals are satisfied.

A typical trust might provide that upon the death of the parents the assets in the trust pay out to the children when they reach certain ages. Once the money is distributed out of the trust to the children, it could be subject to creditor or divorce claims.

Also, on the death of the child, the child’s estate plan probably provides that the son- or daughterin-law inherits your money. If your son- or daughter-in-law spends the money or remarries and leaves it to the new spouse, this money may never reach your grandchild.

Even if your child provides in his will that the inherited assets pass to the children, the in-law still would have a right to receive a portion of the probate estate.

However, a bloodline trust provides that the assets are held in trust for the life of your child and eventually pass directly to your grandchildren on the death of your child.

Your child still will have access to the money in the trust and can even be the trustee.

However, if assets are held in trust for a child, the assets will not be subject to most creditor claims (except the IRS, the state of Ohio and child support) — including alimony payments.

More importantly, the trust will provide that upon your child’s death the assets must go to your grandchild and not to your son- or daughter-in-law.

The bloodline trust also can be used in business succession planning to make sure that the business remains in the family. â–

Mike Solomon is a partner with Budish, Solomon, Steiner & Peck, Ltd. Contact him at 216-245-0185.

Budish, Solomon, Steiner & Peck, Ltd. Attorneys at Law

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Elder law, estate planning, business law, real estate, taxation, pension and profit sharing, succession planning, probate, government benefits, health care and litigation.

Armond D. Budish â&#x20AC;˘ Michael L. Solomon Jennifer E. Peck â&#x20AC;˘ Laurie G. Steiner â&#x20AC;˘ Stanley M. Fisher 23240 Chagrin Boulevard, Suite 450 â&#x2013; Beachwood, Ohio 44122-5404 Phone: (216) 765-0123 â&#x2013; Fax: (216) 595-2787 info@budishandsolomon.com â&#x2013; www.budishandsolomon.com

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CHARITABLE GIVING VEHICLES

November 15-21, 2010

S-13

BUSINESS SUCCESSION PLANNING

Formulate solid strategy before transferring company ownership There are many tactics that business owners can employ as they craft a carefully considered succession plan. Regardless of the choice of planning tools, consider the following to pave the way for a successful transition:

1 Grantor retained annuity trusts: heads you win, tails you tie Rates should motivate investors

G

rantor retained annuity trusts (GRATs) are used to make future gifts of appreciating property to family and friends on a virtually tax-free basis. The current historically low interest rates make GRATs more attractive than ever.

GRATs are irrevocable trusts where assets are transferred. In exchange for the assets, the transferor receives an annuity STEVEN that pays back a fixed amount each year. The transferor sets the annuity amount and the length of time (or term) of the trust.

The transferor pays a gift tax on the current fair market value of the trust assets, minus the value of the grantorâ&#x20AC;&#x2122;s retained annuity interest. If the GRAT is structured so that the value of the retained annuity is equal to the value of the property transferred, there is no gift tax consequence.

GRATs structured this way are called â&#x20AC;&#x153;zeroed-outâ&#x20AC;? GRATs. When zeroing out a GRAT, the annuity amount is calculated using a rate set by the IRS (the section 7520 rate) for the month of the transfer. The â&#x20AC;&#x153;hurdle rateâ&#x20AC;? is the assumed rate of return for the assets. For October, the hurdle rate was 2%, which tied the lowest rate in history.

The annuity amount is paid to the transferor during the term of the GRAT, and any property remaining in the trust at the end of the GRAT term passes to the beneficiaries gift tax-free. If the GRAT assets produce a return in excess

of the hurdle rate, the increase in value is passed to the beneficiaries free of gift tax. Therefore, assets likely to appreciate at a rate higher than the hurdle rate are ideal for use with GRATs. However, there is a catch. If the transferor dies during the GRAT term, the value of the remainder interest in the trust is included in the transferorâ&#x20AC;&#x2122;s taxable estate. To minimize the risk that the COX assets will be taxed in the transferorâ&#x20AC;&#x2122;s estate, multiple short-term GRATs are often used.

When structured correctly, GRATs offer little risk. If the assets in the GRAT do not appreciate at a rate that exceeds the hurdle rate, the GRAT fails, but the transferor receives all of the assets transferred to the GRAT in the form of annuity payments. If the transferor does not survive the annuity term, the GRAT fails at least in part, but again, the transferor (or the transferorâ&#x20AC;&#x2122;s estate) is no worse off from a tax perspective than if the GRAT had never been created.

Soon, this strategy may be too good to be true. Changes to the Internal Revenue Code may reduce the benefits of GRATs by requiring a minimum remainder interest and a longer term. Because it is expected that any legislation would exclude existing GRATs, opportunities exist and should be seized quickly. â&#x2013;

Steven St. L. Cox is a partner with Roetzel & Andress. Contact him at 330-8496714 or scox@ralaw.com.

Experienced Estate Planners Squire Sandersâ&#x20AC;&#x2122; private client and estate planning lawyers advise on the personal, financial and estate planning needs of clients around the world. In this highly personalized service area, our lawyers have the experience to deftly handle sensitive situations.

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Succession of ownership.

Who will take over, and how will they pay for the added stake in the company? What roles will the spouse and any children play in the succession, if at all? If a child will not be active in ownership and management, how will (or will) they be provided for? Business succession planning can bring family dynamics into play â&#x20AC;&#x201D; and those dynamics cannot be discounted.

2

Age of interested parties.

Sometimes you know who is likely to die first. What happens in the event that your appointed successor passes away before you?

3

Management. How will management be affected by the new owner? Will the new owner manage the business, or will there be owners who are not managers? Will you lose quality managers because they are not part of the ownership group? How will the change affect employees?

7 8

Succession triggers. What events will put the plan into action?

Equity. How and when will the new owners receive equity in the company? Is it an all-or-nothing situation? Do they earn or purchase equity over time? How much equity is the current owner willing to part with now and later?

4

Control vs. ownership.

Some ownership interests have a control component and others do not, such as voting vs. non-voting ownership interests.

5

Plan review. How often do you need to review a succession plan? If one is put in place, what flexibility do you want to retain for changes?

6

Tax issues. Upon ownership transfer, what income, gift and/or estate tax ramifications come into play? Who should bear the burden of such taxes?

9

Realistic valuations. What you think your company is worth â&#x20AC;&#x201D; and its true worth â&#x20AC;&#x201D; may not match up. Make sure the succession plan is based on the realistic value of the company.

10

Vision. What is the goal for all involved?

James Goldsmith is a partner and chair of the Trusts & Estates Group for Ulmer & Berne LLP. Contact him at 216-5837114 or jgoldsmith@ulmer.com.

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BUSINESS SUCCESSION PLANNING

Employee ownership plan may be viable exit strategy

W

hen considering the options relating to transitioning out of your business, an Employee Stock Ownership Plan (ESOP) should be in the running.

An ESOP allows employees to become owners in the company.

Below are answers to the common questions and concerns when considering an ESOP:

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Q: I am only looking to diversify my holding and am not interested in selling the entire company. Is an ESOP still a possibility?

A: An ESOP can be used to buy a percentage or all of the shares of the privately held company. There are fiduciary responsibilities, and a formal business valuation will need to be prepared to confirm the purchase price. If the transaction involves less than 50% of the voting stock of the company, a minority interest discount will need to be considered.

Q: What can I do to ensure my employees continue their employment after I exit my business?

A: A concern of many owners is that they will sell the company and the new owner will drastically change the operations. Although the company needs to be run intelligently and efficiently, it is now owned by the employees you hired. If the ESOP is rolled out properly, you will hopefully see a cultural change within the company once employees fully realize addi-

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tional gains will increase the value of the company â&#x20AC;&#x201D; and they share in that increase. Training employees on the benefits and future potential stock buyouts at retirement is extremely important.

Q: Is there a way to defer the tax associated with the sale?

A: If the ESOP acquires shares in a â&#x20AC;&#x153;Câ&#x20AC;? Corporation, the tax associated with the sale may be deferred using a Section 1042 Rollover. The rollover can defer income tax permanently, and allows the owner to hold the reinvested share until death and receive a basis step-up at the time of the transfer of the replacement property to the heirs. As long as the ESOP acquires at least a 30% interest in each class of outstanding stock, the seller may reinvest the sale proceeds into qualified replacement property.

Qualified replacement property would include stocks and bonds of domestic operating companies. â&#x20AC;&#x153;Sâ&#x20AC;? Corporations have less favorable tax benefits (such as no section 1042 rollover or dividend deduction); however, shares of the S Corp.â&#x20AC;&#x2122;s earnings to the ESOP are completely tax-free, as are distributions made to the ESOP. Q: Are there tax advantages for the company after forming the ESOP? A: Yes, and they can be significant. A few advantages are that

employer contributions to the ESOP are tax deductible (subject to percentage limitations) and dividends paid on ESOP-held stock may be deductible.

Q: How do I know if an ESOP makes sense for my company?

A: Although an ESOP can be a very useful vehicle, it comes with a complex set of rules. However, ESOPs create an ownership culture within a closely-held business, which is important for the longevity of the company. Make sure you are aware of the complexities and do research and due diligence prior to making this commitment. The first step is a feasibility study that should be prepared by an expert that has experience with ESOPs. ESOPs are often the most advantageous way an owner can achieve liquidity and gain from favorable tax deferrals. Setting up an ESOP requires a well-planned tax strategy designed around meeting the ownerâ&#x20AC;&#x2122;s goals for the company and his or her future. â&#x2013;

Doug Mathey, CPA, MT, is director of BCG & Companyâ&#x20AC;&#x2122;s tax services department. Contact him at 330-572-8050 or Douglas.Mathey@BCGCompany.com.

Ray Lampner, CPA, ABV, CVA, is director of BCG & Companyâ&#x20AC;&#x2122;s entrepreneurial services department. Contact him at 330-572-8014 or Raymond.Lampner@ bcgcompany.com.

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November 15-21, 2010

S-15

RETIREMENT PLANS Prudent planning that takes into consideration all of your estate planning goals can minimize the impact of estate and income taxes on your heirs.

Review retirement plans to minimize tax consequences

T

raditional IRAs and qualified plans like 401(k)s and 403(b)s can be great retirement planning tools.

However, the benefits to your heirs can be greatly reduced when you consider the potential estate and income tax consequences of retirement assets at your death.

Whereas assets held in a personal brokerage account receive a “step-up” in basis at your death that can minimize the potential capital gains tax consequences to heirs, retirement plan assets retain their ordinary income tax implications. Prudent planning that considers all of your estate planning goals can minimize the impact of estate and income taxes on your heirs.

BENEFICIARIES: Who you name as the IRA beneficiary will determine the estate tax consequences and how long income taxes can be deferred.

Designating a younger generation as beneficiaries of your traditional IRA (if financially able to bypass spouse) allows them to stretch the minimum distributions (and the income tax consequences) over their lifetimes.

If you intend to leave money to charity, consider naming it as your IRA beneficiary since the bequest may qualify for an estate tax exemption and pass to the charity income-tax free. Failing to designate a beneficiary or not updating the designation when a beneficiary predeceases you could have unfa-

vorable consequences because the entire balance of your retirement plan may have to be distributed to your estate or to your beneficiaries within the first five years of death.

CONVERSIONS: If you believe there is a significant chance that you would not need funds from the IRA to meet your living expenses, consider converting at least some part of your IRA to a Roth IRA. You will have to include the taxable portion of any conversion amount on your income tax return, but it will generally provide for tax-free withdrawals to your beneficiaries.

Window closing on Roth conversions 2010 presents chance to spread out taxes on IRA

T

he end of 2010 is fast approaching, and with it the end of the opportunity to make a Roth IRA conversion and spread the tax over 2011 and 2012. The income limits on who is eligible to convert to a Roth IRA were lifted effective Jan. 1, 2010.

Anyone, no matter how much their income is, can make a conversion. The decision to convert is whether it is better to pay tax on your IRA today or when you actually withdraw the funds in the future.

Income tax is not the only issue, however; if structured properly, the conversion can be used to transfer wealth to your heirs.

Why would you want to pay tax today rather than at retirement?

Generally distributions from a Roth IRA are tax-free. By making a

Matthew S. Olver, CFP, is senior VP of Spero-Smith Investment Advisers, Inc. Contact him at 800-794-7545.

■■ ■■ ■■

David O. Reyes, CPA, is shareholder with Maloney & Novotny, LLC. Contact him at 216-363-0100 or e-mail dreyes@maloneynovotny.com.

Financial advisors help you protect your wealth.

We can help you preserve your legacy.

Trust and Estate Advisory Services ■■

NEW OPPORTUNITIES: A new wrinkle to Roth conversions was added Sept. 27, when Presi-

dent Barack Obama signed the Small Business Jobs Act of 2010.

The law includes a provision that allows participants in 401(k), 403(b) and 457(b) plans to convert eligible account balances to a Roth account within the same plan. Participants no longer will be required to remove the money and roll the funds over to an IRA. To facilitate an in-plan conversion the plan must already have a Roth contribution feature. Plans that do not accept Roth contributions would have to be amended to add this feature.

Additionally, to make an in-plan conversion the participant must have had a distributable event under the plans terms.

A plan sponsor may decide to expand its distribution options, such as adding an in-service distribution feature to allow participants to take advantage of this new provision.

■

INSURANCE: Recouping dollars lost to income or estate taxes through insurance requires the use of more expensive permanent insurance since it needs to stay in effect throughout your life.

Survivorship, or second-to-die, insurance is best to cover the lives of a married couple. Insurance benefits you the most if you both die prematurely and only paid a few premiums.

“Some people are shocked to hear how much of their IRA assets could be lost to estate and income taxes at death,” says Kara Downing, portfolio manager at Spero-Smith Investment Advisers, Inc. “But with proper planning, you can minimize their impact.” ■

Supporting and Realizing Value

■■

conversion now, the money transferred to the Roth IRA grows tax-free in the same manner as a traditional IRA. The tradeoff is that distributions to you and your beneficiaries are tax-free.

For example, if your money remains in the Roth IRA for more years (unlike traditional IRAs, Roth IRAs do not require distributions to begin at age 70½), you could double or triple today’s value while paying tax only on its value at the time of conversion.

A special rule applies for 2010 conversions in which the tax is deferred and the taxable income is split between 2011 and 2012.

The conversion must be made by Dec. 31, 2010.

You can decide whether to pay the tax on your 2010 return or spread it out over 2011 and 2012, by the due date (with extensions) of your 2010 tax return. After 2010, the ability to spread the tax is no longer available.

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ESTATE PLANNING

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RETIREMENT PLANS

Trusteed IRA can skirt issues often associated with stretch IRAs

M

any financial and tax advisers have touted the glory of tax deferred compounding with “stretch” IRA planning.

A “stretch” IRA simply means that a beneficiary has the option to defer withdrawals over the maximum amount of time permitted under IRS distribution tables.

The problem with these projections is that beneficiaries frequently waste this opportunity and withdraw more than this — often the entire amount — after the IRA owner’s death.

How many 18-year-olds inheriting a $1 million IRA would spend 1/65 (percentage based on 65-year life expectancy) or $13,485 in the first year? The “stretch” becomes a “blowout,” and the long-term projections become more myth than reality.

Naming a separate trust as beneficiary can prevent the beneficiary from squandering the

stretch opportunity. Unfortunately, many trusts do not qualify for the longest “stretch” income tax deferral. A trust that is ideal for ordinary estate planning may be inappropriate to hold retirement plan or IRA assets. If the trust does not meet IRS guidelines, the IRA may have to be distributed within as soon as five years after death.

TRUSTEED IRA SOLUTION: A trusteed IRA can combine the tax benefits of an IRA with the estate planning benefits of a trust.

Using this strategy, an IRA owner, working with his or her estate planning attorney, customizes the beneficiary designation to match the family situation. This flexibility allows an owner to encourage continued tax deferral by limiting a beneficiary to the minimum required distributions, but with trustee discretion to go beyond this for reasons established by the owner. This ensures the “stretch out” actually happens

in a manner appropriate to a beneficiary’s needs.

A trusteed IRA also can allow an owner to control who the beneficiary is allowed to appoint as his or her beneficiary, allowing a hard-earned retirement legacy to stay in the owner’s family. This can be ideal for second-marriage and blended-family situations.

Unfortunately, only a handful of providers offer a sophisticated trusteed IRA solution. Trusteed IRAs are ideal for those with rollover-eligible profit sharing, 401(k), 403(b) or Keogh plans or any IRAs larger than $500,000, who want to ensure the strongest tax deferral and asset protection for their beneficiaries.

■

Thomas A. Danford is vice president of Key Private Bank. Daniel F. Miltner, CFP, is senior vice president of Key Private Bank. Contact Miltner at 440-788-4490 or Daniel_F_Miltner@KeyBank.com, or visit www.keyprivatebank.com.

EDUCATION

Alleviate education sticker shock

T

he total cost of a four-year degree for someone born this year could be more than $300,000. This projection, in conjunction with the current economy, is enough to make any parent panic — and does

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not even include the cost benefit only one or a of the increasingly group of beneficiaries. mandatory graduate Depending on its strucdegree. Parents are faced ture, contributions can with the daunting quesqualify for the gift tax tion of how to finance annual exclusion, which is such an undertaking, currently $13,000 ($26,000 especially when they may for a married couple) per still be paying off their beneficiary per year.

CRISTIN own college loans. FortuThe terms of the trust SNODGRASS nately, there are a number can vary the timing of of options, especially if planning distributions and the purposes begins early. for which they can be made, allowing for greater flexibility in 529 PLANS: One of the most the future use of the trust assets. prevalent college funding tools is However, assets will not accumulate the 529 plan, which is a stateon a pre-tax basis, and depending sponsored investment vehicle. on the trust’s structure, either the The primary benefits include trust, the beneficiary or the grantor tax-free growth while the account will be liable for the income tax. accumulates and the ability to make tax-free withdrawals from COVERDELL EDUCATIONAL the account for qualified higher SAVINGS ACCOUNT: Contribueducation expenses. Such expenses tions are limited to $2,000 per include tuition, books, fees, student per year and may not be supplies and, in some cases, room made after the beneficiary reaches and board, at any eligible educaage 18. The account grows tax free, tional institution in the country. and distributions for qualified Any other withdrawal from the expenses at eligible educational plan is subject to a 10% penalty institutions are also tax free. It in ordinary income taxes (at the may be used for primary and recipient’s rate) on the earnings secondary education as well as portion of the withdrawal. higher education, but benefits may sunset for ESAs as of 2011 IRREVOCABLE TRUSTS: unless Congress acts.

See STICKER Page S-20 Irrevocable trusts can be set up to

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November 15-21, 2010

S-17

EDUCATION

529 accounts provide savings benefits

A

s we approach the fourth quarter of 2010, we are confronted with much uncertainty as to the future of the federal estate tax.

This quandary has led me to seek solutions that address my clients’ estate planning goals but also provide the flexibility to respond to changes that may occur after the new law is settled.

One strategy is the gift and estate tax treatment of 529 saving accounts.

There are two basic distinct types of 529 plans: tuition prepayment plans, and college savings and investment plans. In addition to growing free of federal and state annual taxation, 529 accounts can be spent free of federal and state taxes for qualified educational expenses; and the laws setting up many plans offer account protection from creditors.

Although contributors don’t receive a federal income tax deduction for the contribution, the earnings aren’t taxed while the funds are in the program.

The account owner can change the beneficiary or roll over the funds to another plan for the same or a different beneficiary without income tax consequences. Additionally, there are no income limits on contributions.

One of the least understood benefits of 529 plans is the account owner’s ability to maintain control over the accounts.

This is possible because funding a 529 account is deemed a “gift” to the designated beneficiary of the account even though such beneficiary never has any right or entitlement to control over or legal interest in such account.

Individuals are allowed to access four future years of their annual exclusion, currently $13,000, to utilize five years at once — meaning an individual could contribute $65,000 and joint tax return filers could contribute

Ensure right plan is in place for elderly relatives

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Call our financial planning group specialists.

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6300 Rockside Road Suite 100 Independence OH 44131 $130,000 to each 529 account during one year or on one occasion.

Assets in a 529 plan could impact the beneficiary’s ability to qualify for grants and student aid.

Investors should consider the investment objectives, risks, charges and expenses associated with 529 plans carefully before investing.

However, few strategies seem to offer as much control and benefits, and in these uncertain times this may prove to be uniquely valuable for many.

■

216-573-2330 walthall.com

Contact Colin O. Anderson of Vantage Financial Group at 216-642-8037 or e-mail canderson@vanfin.com.

Resources provided by Chris Stack, Esq.

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LEGACY

Preserving the past, enriching the present, inspiring the future

Let us help create your legacy.

Contact Executive Director Stephen W. Madewell at 440-639-7275.

Encourage discussions early on

M

any of us struggle every day to make certain we are financially sound and have our estates in order. What about Mom and Dad? Or Aunt Mary?

Many elderly are depending on the 55-plus generation for guidance and/or care.

Over the years, I followed the philosophy that if I needed to review my financial items or permanent documents, I knew that my mom and dad also needed to review theirs. Discussions with elderly relatives always should begin sooner rather than later. It is much easier to talk about life-changing decisions when there is no pressure to do so.

What documents to consider The first step to begin the process is to gather copies of all permanent documents. You should gather: ■ Wills and trusts ■ Powers of attorney ■ Advance directives ■ Living will ■ Durable power of attorney for health care ■ Insurance policies ■ Basis of any assets they may have inherited ■ A list of all advisers and phone numbers ■ A list of all assets and liabilities

(a current tax return will help with this).

A downloadable Excel file to document this information, as well as other worksheets, is available at www.walthall.com/practice _groups/financial_planning.

Reviewing these documents is your next step. It is important to understand what your relatives want you to know, and what they don’t. If you are the executor/ executrix, it is advisable to understand the estate situation along with any undocumented wishes.

Forgotten tasks An often overlooked task is the review of the Medicare Part D option for prescription drugs. These plans change annually, and as a result, the options must be reviewed annually. The program at www.medicare.gov allows you to maintain and save a list of medications, and review and choose the most suitable plan. Adding this decision to the energy choice decisions, the elderly are justified in feeling overwhelmed.

Although deathbed planning can be done, do you want to use your final moments with your loved ones to address financial questions? ■

What do You value?

Estate Planning

Retirement Planning Tax Planning Business Succession Planning

Whether it’s retiring in comfort, educating your children or grandchildren or helping your loved ones, being able to live those values and fulfill your dreams lies in setting goals and carefully planning a course of action.

Call 216.241.3272 to talk to a Meaden & Moore professional about protecting what you value.

Cindy Kula, CPA/PFS, CFP, is director of tax services and chairperson of the financial planning group, Walthall, Drake & Wallace LLP CPAs. Visit www.walthall.com/news for more information and upcoming seminars.

Crain’s Cleveland Business Custom Publishing

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20101115-NEWS--48-NAT-CCI-CL_--

11/9/2010

3:54 PM

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ESTATE PLANNING

S-18 November 15-21, 2010

OHIO and FLORIDA ESTATE PLANNING and PROBATE

Nancy H. Canary, Esq. CLEVELAND, OH - P: 216/226/7466 F: 216/226/7426 PALM BEACH, FL - P: 561/833/5900 F: 561/833/5951 E-mail: NACanary@cs.com

GIVING. Meet Barbara Bellin Janovitz.

In addition to being the Chair of the Estate Planning Group at Reminger, Barbara also gives freely of her time on behalf of vital causes in our community like the Cleveland Clinic Taussig Cancer Institute, the Golden Age Centers of Greater Cleveland and the Different Needz Foundation. Barbaraâ&#x20AC;&#x2122;s talents and spirit benefit her clients and our community every day.

Barbara Bellin Janovitz 216.430.2178 bjanovitz@reminger.com

Results. Period. www.reminger.com

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International estate planning requires special considerations

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n todayâ&#x20AC;&#x2122;s international countries, in most cases a business community, jurisdiction on the foreign business Organisation for Ecoowners and execunomic Co-Operation and tives often diversify their Developmentâ&#x20AC;&#x2122;s â&#x20AC;&#x153;white business activities and listâ&#x20AC;?â&#x20AC;&#x201D; those countries investments globally. that have substantially These individuals implemented the interJEFFREY should have a comprenational standard for the LEVIN hensive personal estate exchange of information plan for their worldwide among tax authorities â&#x20AC;&#x201D; assets. An overall plan would, at is preferred. the appropriate time, control the The selection of a knowledgetransfer of those assets to family able and experienced corporate members or charities with minifiduciary to administer the estate mal, if any, transfer tax costs, plan is also crucial. depending on the jurisdictions Customization of a discreinvolved. tionary foreign trust can be Among the tools frequently accomplished in several ways. used to accomplish estateDepending on the controlling tax planning goals are foreign discrelaws, one or more beneficiaries tionary trusts and foundations. could be given a general, limited From a U.S. tax standpoint, these or special power of appointment entities are often viewed as over some or all of the trust potentially abusive and are not income and corpus. favored by the IRS. Such a power would allow beneficiaries to exercise a significant For non-U.S. citizens and residegree of control over the trust dents, they can be â&#x20AC;&#x153;customizedâ&#x20AC;? for independent of the authority each particular client and family exercised by the trustee. In some situation and, more importantly, cases, especially where a U.S. citipermit significant flexibility in zen or resident could be a current their administration. In this case, or future beneficiary, such broad the selection of the appropriate powers may not be advisable and corporate fiduciary and the jurislimitations should be considered. diction for the foreign entity is In those cases, a trust protector extremely important. could be designated to provide Today, with increased internaoversight of and guidance for the tional emphasis on financial trustee. In addition, the protector transparency and the exchange could be given the authority to of tax information between

remove and replace the trustee should the need arise.

The protector could be a senior family member, a family adviser or a close family friend who knows the family members and would be expected to act in the familyâ&#x20AC;&#x2122;s best interests.

Another approach is to establish a â&#x20AC;&#x153;family council,â&#x20AC;? which could function as a collective protector.

Finally, in appropriate situations and jurisdictions, the family could establish a private trust company, controlled by the family, to serve as the corporate trustee.

The formation, funding and administration of these foreign discretionary entities can be complicated and involve the commercial and tax laws and treaties of several countries. Experienced international legal and tax counsel should be consulted in advance to assist with the implementation of a comprehensive plan with the least amount of tax and transfer costs.

Finally, the international estate plan needs to be reviewed periodically and, where necessary, revised to address changes in the laws of the relevant jurisdictions, the composition of the family and the countries of their residence and domicile. â&#x2013;

Jeffrey S. Levin is a partner with Squire, Sanders & Dempsey LLP Contact him at 212-872-9840.

FINE ART, COLLECTIBLES AND THE FEDERAL ESTATE TAX

Safeguard against tax implications OUR INDEPENDENCE IS YOUR PEACE OF MIND :H DUH *OHQPHGH Âł ZH¡UH VWURQJ Ă&#x20AC;QDQFLDOO\ VRXQG DQG SURXGO\ LQGHSHQGHQW $QG ZH LQWHQG WR VWD\ WKDW ZD\ %HLQJ SULYDWHO\ RZQHG SODFHV XV LQ D SRVLWLRQ RI VWUHQJWK 8QOLNH SXEOLFO\ KHOG FRPSDQLHV ZH DUH QRW GULYHQ WR FKDVH VKRUW WHUP SURĂ&#x20AC;WV ,QVWHDG LQGHSHQGHQFH JLYHV XV D VHFXUH ORQJ WHUP RXWORRN 2XU DFKLHYHPHQW LV PHDVXUHG VROHO\ E\ KRZ ZH PDQDJH ZHDOWK IURP RQH JHQHUDWLRQ WR WKH QH[W )RXQGHG DV D WUXVW FRPSDQ\ PRUH WKDQ \HDUV DJR ZH¡YH JXLGHG IDPLOLHV IDPLO\ RIĂ&#x20AC;FHV DQG HQGRZPHQWV DQG IRXQGDWLRQV ZLWK WLPH WHVWHG DGYLFH DQG VRSKLVWLFDWHG LQYHVWPHQW PDQDJHPHQW 7RGD\ ZH KDYH PRUH WKDQ ELOOLRQ LQ DVVHWV XQGHU PDQDJHPHQW IRU FOLHQWV DFURVV WKH FRXQWU\ DQG DEURDG 7R ZRUN ZLWK D SDUWQHU GHGLFDWHG WR LQVSLULQJ WUXVW Âł FRPH WR *OHQPHGH

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ollectors of fine art and other collectibles should prepare for the return of the federal estate tax by obtaining a current appraisal of their collections.

Premier quality fine art and collectibles not only have maintained their value, but many may have increased significantly during these economically troubled times.

As a result, art and collectibles may comprise a much larger portion of your taxable estate.

The time is right to obtain a current fair market value appraisal of your collection and to schedule a meeting with your estate planners to review your plan. Significant changes may be essential to maximize estate tax savings and meet personal objectives.

In a recent appraisal update we performed to evaluate a 5-year-old appraisal, we discovered that a pair of Art Deco American bronze sculptures had increased in value from $85,000 to $850,000 each over the five-year period. In light of the possibility of such significant increases in value, a prompt appraisal update is essential.

An additional reason for scheduling an appraisal now is to obtain authentication of high value items.

In my experience, most major collections contain one or more items that are fake.

Art and collectibles may now comprise a much larger portion of your taxable estate.

Fakes in your collection will be assumed to be authentic and will be valued as such by most appraisers.

As fakes, they may be worth 10% or less of the value of the authentic work. You will have paid federal estate tax on a â&#x20AC;&#x153;phantom value.â&#x20AC;?

Most appraisers are not able to obtain proper authentication.

When such items are subsequently offered for sale or donation and authentication will be required, the work will be found to be fake and of little or no value.

Likewise, collectibles may have been stolen in the past. That means that the collector has â&#x20AC;&#x153;hot propertyâ&#x20AC;? to which he or she does not have any legal rights.

If the collectorâ&#x20AC;&#x2122;s title and ownership of the work is in question, the item has no value for estate or tax purposes. If the issue of prior theft is not addressed by the appraiser, the appraisal will mislead the collector and result in potentially serious economic harm when the work finally surfaces in

Crainâ&#x20AC;&#x2122;s Cleveland Business Custom Publishing

â&#x2013; Fakes in your collection will be assumed to be authentic and will be valued as such by most appraisers. â&#x2013; If the title and ownership of the work is in question, the item has no value for estate or tax purposes.

a public market. Select an appraiser who is an expert in the area of prior theft, stolen property, ownership rights, and performs due diligence in this field.

To assure the highest quality professional appraisal, and to avoid any personal liability from the appraiser selection process, choose only an IRS-qualified appraiser who is a certified member of the American Society of Appraisers (ASA), Appraisers Association of America (AAA) and International Society of Appraisers (ISA). Verify that the appraiser selected carries at least $1 million in Errors and Omissions insurance, which is your backstop in the event of a serious appraisal valuation error. â&#x2013;

James Corcoranâ&#x20AC;&#x2122;s appraisals are certified

by AAA, ASA and ISA. For over 30 years his firm, Corcoran Appraisal Group, has maintained substantial Errors and Omissions insurance coverage with St. Paul Insurance Company.

20101115-NEWS--49-NAT-CCI-CL_--

11/10/2010

10:03 AM

Page 1

ESTATE PLANNING

Advertisement

November 15-21, 2010

S-19

INSURANCE PLANS

Split-dollar plans can be costly

S

plit-dollar life insurance plans had frequently been used to fund estate tax liquidity until the IRS issued new rules in 2002. Many people still have not addressed these tax implications, and this could have detrimental effects for themselves and their families.

Most of these plans created a sharing of the costs and benefits between a business owner’s company and his or her insurance trust (ILIT). Under the new rules, participants may be able to continue using the low economic benefit cost (EBC) to measure the benefit, but as one gets older these costs can become astronomical. If this plan is eventually terminated by repaying all premium advances back to the company,

the new rules make the cash value fully taxable as ordinary income. Furthermore, if the policy is held in a trust, it may also be considered a taxable gift.

One exit strategy is to change from the EBC approach to a “loan regime” and instead pay annual interest costs, which are presently very low. This would potentially remove the taint of future taxation upon plan termination. If ongoing premiums are still due, you can continue loaning the premium, which also will increase annual loan interest costs.

Alternatively, you can freeze the loan and fund future premiums with third-party premium financing or an enhanced gifting strategy.

Funding the repayment to the company may also be a challenge

Insurance is a critical piece of the asset plan

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out” covers select verlooking employees. Business insurance assets overhead coverage pays may be like for ongoing non-owner driving at night costs. Buy/sell funding without headlights. Swallow pays a benefit agreed to hard, grip the wheel tight, between partners when and hope there isn’t a one becomes disabled. sharp curve in the road.

■ Life insurance can The risk management HOWARD be a portfolio diversifier portion of your portfolio SLATER unlike any other. Appliis arguably the critical cations are similar to disability piece of a balanced estate plan. coverage and then some. Its most Understanding the characteristics important characteristic is terrific of these assets and how to utilize leverage. One dollar in premium them can put you in a position to buys multiple times in coverage. maximize your estate. Here are some A life insurance policy with a insurance products to consider: guaranteed death benefit is perfect ■ Disability coverage protects for gifting. Life insurance can be your ability to generate income. used to replace what will be lost Individuals can purchase a disability in taxes and long-term care costs. policy with the highest level of Purchasing a policy at a younger coverage. These individual poliage can ensure future insurability cies can offer flexibility such as and secure credit. Insurance guarincreasing future coverage withantees are only as good as the out medical underwriting and paying ability of the carrier, so may have tax-free benefits. Purinformed choices mean smart chasing an individual disability diversification and wealth transfer. policy prior to securing employer■ Coming to grips with mortaloffered group coverage is wise beity may be an emotional hurdle. cause of coordination of coverage Long-term care (LTC) insurance and the ability to maximize beneprotects against rising costs that fits. Business owners can choose accompany our last years of life, many applications. Key person potentially preserving a sizable coverage protects vital employees portion of your estate. Traditional and can be offered as part of a See INSURANCE Page S-20 retention package. Group “carve

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given that few plans ever considered repayment, and poor policy performance has even impacted plans that did anticipate repayment or “rollout.” Sometimes a Grantor Retained Annuity Trust can be used to interject cash into an ILIT, and this then can be used to repay the company.

Usually life insurance is an integral part of the estate plan.

Therefore, a proper analysis of the split-dollar agreement, the life insurance policy and the overall wealth transfer plan is essential to developing an appropriate split-dollar exit strategy. ■

The TOLI Group’s sole focus is the creation of the greatest possible benefit for trust grantors and beneficiaries, while reducing risk and providing fiduciary prudence for both professional and non-professional trustees. We have developed a unique process that attempts to ensure, on an annual basis that the assests being protected in the trust are well managed and on track to deliver their intended purpose.

Larry Rothstein, CLU, is a partner with Insurance Management Consultants, LLC. Contact him at 440-801-1800 or lrothstein@imcwealth.com.

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20101115-NEWS--50-NAT-CCI-CL_--

11/12/2010

11:40 AM

Page 1

ESTATE PLANNING

S-20 November 15-21, 2010

DONOR Continued from Page S-9

Charitable giving can be quite personal. A donor-advised fund enables you to select recognition or privacy as desired, based upon the needs of your family.

Not everyone may have assets other than cash to give, and there always will be families that are going to feel more comfortable gifting with cash they have on hand at the time they are ready to

CONGRESS Continued from Page S-4

issues such as: ■ Avoiding the publicity, time and cost otherwise engendered by the need for a probate court to become involved in one’s affairs upon incapacity or death. (Note: Contrary to popular belief, a spouse cannot automatically handle the affairs of an incapacitated spouse unless certain estate plan documents have been executed.)

■ Selecting the person who will act as the guardian of minor children. Without proper estate plan

give. Any gift in any format is always appreciated and always needed by a great number of organizations. However, if you are looking to be more strategic, maximize your benefits and create a legacy, donor-advised funds may be worth exploring.

■

Laura Malone is director of gift planning with the American Endowment Foundation, an IRS-recognized, 501(c)(3) public charity and independent sponsor of donor advised funds. Contact her at 877599-8903 or visit www.aefonline.org.

documents, a probate court will select the guardian.

■ Protecting inheritances from certain creditors and creditors of beneficiaries (including divorcing spouses, in-laws and judgment creditors).

■ Allowing for the management of assets for the benefit of beneficiaries beyond their 21st birthday.

Without the requisite documents, most inheritances must be distributed in full by the time a beneficiary turns 21.

■

Rennie Rutman is counsel at Tucker Ellis & West LLP. Contact her at 216-6964749.

TITLING Continued from Page S-7

to costly and unnecessary litigation.

■ Estate tax. Beginning Jan. 1, 2011, each individual will have a $1 million exemption from the federal estate tax, making the titling of property even more important.

For higher net worth couples, each spouse should have sufficient assets in his or her own name to fully utilize each exemption. If all assets are in joint and survivorship form,

STICKER Continued from Page S-16

UNIFORM TRANSFERS TO MINORS ACCOUNT: With this account, the minor is the deemed owner and the custodian controls the property until the minor reaches the legal age. Distributions must be made for the minor’s benefit, which includes education.

DIRECT PAYMENTS: Another funding route is direct payment to the educational institution.

This can be done by someone other than the parents. Direct payments, for tuition and fees only,

STICKER

Advertisement the legacy intended for their family may be inadvertently subject to federal estate tax, with up to 55% potentially going to the government.

■ Old documents. Our vault is filled with documents, many of which are old insurance trusts that have never been revoked. A client may create new documents but fail to revoke old ones, leaving policy proceeds paying to the old plan. It can result in a trust funded with insurance proceeds that no longer pay in the manner intended.

■ Tax implications. Titling of assets can affect which beneficiaries bear the tax burden when you are gone. Discuss with your estate planning attorney the use of a tax apportionment clause so that the burden of tax payments is directed where you want it.

■

are not subject to gift tax, and can be made in addition to any annual exclusion gift without using any of the donor’s $1 million gift tax lifetime credit. This option can be advantageous for someone trying to reduce the size of their taxable estate.

Other funding methods include prepaid tuition plans, and tuition and gift annuities. With all funding methods, consider the effect on financial aid availability.

■

INSURANCE

Cristin R. Snodgrass is an attorney in Calfee, Halter & Griswold LLP’s Estate and Succession Planning practice.

Contact her at 216-622-8503 or csnodgrass@calfee.com.

CHARITABLE

Anne Carnahan is a vice president and senior trust adviser with PNC Wealth Management. Contact her at 216-2222894. Nicole Bornhorst is a vice president and senior wealth planner for PNC Wealth Management. Contact her at 216-222-9038.

Continued from Page S-19

LTC insurance can be purchased by an individual, business partnership or employer-paid contributory arrangement. Policies are generally structured as reimbursement or indemnification type. You may not have the asset base to selfinsure. Various hybrid products offer solutions such as life insurance contracts with long-term care provisions. Review the policy with your agent or adviser to understand benefits and limitations.

Various hybrid contracts offer solutions such as life insurance contracts.

Continued from Page S-10

works even if your stocks have lost value but are still worth more than when you first purchased them. You can sell the devalued stocks and donate the proceeds toward a CGA, claiming a loss on your taxes while receiving a charitable deduction and gaining income for life.

Ask your favorite charitable organization to discuss options that may be right for you.

■

James R. Hickey, CFRE, CAP, is gift planning director for the OPRS Foundation. Contact him at 440-942-4342, x1506.

HOSPICE Continued from Page S-9

difficult “what if” conversations.

ETHICAL WILL: Many ethical wills are simple letters; some are video journals; others are gathered as scrapbook-style assemblages.

Each is a journey through a lifetime —records of love, wishes and gratitude. We all have stories that should become part of a collective memory. Your ethical will is an irreplaceable inheritance.

From the child putting his first dollar into a savings account to the newlyweds preparing to buy their first house, our society places great value in planning for the future. But few of us feel comfortable discussing how we wish to be remembered or what we hope for in that final human experience, our dying.

Each of us has a unique legacy to share. With good planning, we can pass it on.

■

David A. Simpson, LSW, is CEO of Hospice of the Western Reserve.

Contact him at 216-383-2222 or visit www.hospicewr.org/legacy.

Crain’s Cleveland Business Custom Publishing

■ Changes to health-care insurance means choices are critical.

Companies may now offer consumer-driven health plans combining high-deductible health insurance plans with tax-advantaged health savings accounts (HSAs). Tax-advantaged HSAs allow you to deposit tax-deductible funds into an account to pay for current health care needs and save for future bills. It’s like an IRA account for medical expenses.

Put away the max amount, use cash flow to pay medical bills, and the HSA grows tax-free to cover medical costs in retirement. In an era of diminished consumer control, this is appealing if you have time to manage it. If eligible for Medicare, don’t procrastinate.

Using resources like pharmacies, medical providers and AARP help make appropriate choices.

■ Property/casualty insurance protects material assets. Smart choices could save hundreds a year, thousands over a lifetime.

Applications are diverse, ranging from car, home and renters to collectibles, art and jewelry. Don’t be a victim of the vexing claims process. Inventory your valuables using photos, video and independent appraisals.

Workers compensation, business income/interruption losses, excess liability and identity theft losses are other asset protection coverages. Always check the financial strength of the carrier before purchasing. Choose wisely, rest easy. ■

Howard Slater is a founding partner and financial planner of Cedar Brook Financial Partners, LLC. Securities offered through Securities America, Inc. For more information, contact Laura Sheridan at 216-548-6780 or e-mail laura @vivalabrand.com.