Paul Newman’s Will

Paul Newman’s will showed up on the internet over the weekend.  Here’s a link http://tinyurl.com/5at7eq.  The will has been filed in the probate court in his hometown of Westport, Connecticut.  The will contains all of the details of Cool Hand Luke’s estate including the fact that he left his Academy Awards from The Color of Money to his Newman’s Own Foundation and that the bulk of his estate including his production companies to his wife Joanne.  The will designates that some property be distributed to the Trustee of the Paul Newman Living Trust Number One.  I’m curious as to why the assets mentioned in the Will were not funded into the Living Trust.

Keeping it in the Family

You may be hearing daily from family, friends, financial advisors, and the talking heads of every cable news station about the turbulence of our current economy. You may feel by turns worried, confused, and uncertain.

However, with the right team on your side, you and your family will weather this storm. Instead of keeping constant vigil with the 24-hour news and financial networks – talk with you advisors. You’ll get a realistic assessment of your situation, helpful ideas about what to do right now, and a welcome respite from many in the media who look for ways to boost your tension and, thus, their ratings.

Most of the factors contributing to our current economic situation are beyond our control. There are, however, things you can do to assure that you, your family, and your assets are protected now and in the future. At Smith Barid, we find that helping people take control of the things they can control creates true peace of mind.

One of the important things you can control is what happens with the legacy you’ve worked so hard to create once it passes to your children and grandchildren. We all acknowledge that the divorce rate in our country is staggeringly high. If one of the loved ones you leave behind finds themselves in the middle of a divorce, will some or all of your hard-earned assets leave the family along with the soon-to-be ex?

Divorce (a major part of what many call Family Law) is a complex, and often difficult, process. One of our local Superior Courts (the courts in GA which handle divorce matters) just released an attorneys’ guide to property division in divorce. The memo is 14 pages, single-spaced, with 8 footnotes. This isn’t simple stuff. It is important to know, however, that the only assets divided by a judge or jury (Yes, GA still allows juries in divorce cases!) in a divorce are marital assets.

Proper planning done now can prevent your hard-earned assets from becoming marital assets of your children. That is to say, the right kind of revocable living trust or testamentary trusts will allow you to pass your legacy to the next generation without those assets being subject to division in a future divorce.

A qualified estate planning attorney will help you to seize the reins of your legacy, control what you can control, and find your bearings in this transient maelstrom of anxiety-ridden news stories.

What Everyone Should Know About Protecting Themselves in a Recession

Six Steps You Can Take to Minimize Your Risk in Uncertain Times

1 – Control What you Can Control

The tremendous turmoil in financial markets and financial institutions has caused a great deal of concern for many of us. It’s important to realize that, while we cannot control what happens in the stock market, we can control what we do with respect to our estate planning. Now, more than ever, it is vital to have a plan in place that will protect your assets, provide for your family and spare them the burden and expense of probate. These are things over which you have control. By taking control over the things in your life that you can control, you will be left with a wonderful sense of empowerment that will make the uncertainties of the world seem less scary.

2 – Turn Off the Television

This piece of advice goes along with number one. What is happening on Wall Street as the markets correct themselves is something which is out of your control. Other than doing your civic duty and voting when it comes time to, neither you nor I can do much to affect what happens in the global economy. So, why worry about it. Stressing out over whether Congress passes a bailout bill and what happens in the stock market is not going to help you make any decisions about what you need to do and adds stress unnecessarily. So do yourself a favor and turn off the TV.

3 – Insurance

Based on your age, your income and your asset level, make sure you have enough insurance in place to protect you and your family in the event of death, disability, or a long term medical condition. This is one of the most important things you can do to protect your family. This also falls under the heading of things WE CAN CONTROL. By having an appropriate amount of insurance in place, you can make sure that your family will be taken care of if something unexpected happens to you. And oh, by the way, it’s far more likely that you will suffer a disability than death anytime soon, so make sure that you have adequate disability insurance in place to maintain your lifestyle if you can’t work any longer. Almost as important for those over fifty is to make sure you have long term care insurance in place. As time goes by rates for long term care insurance will rise and now is the time when you can lock in a premium.

4 – Business Succession

If you own your own business, now is the time to make sure that there are plans in place to transition your business to the next generation. Seventy per cent (70%) of family businesses in the United States do not survive past one generation and only three per cent (3%) make it to the fourth generation. Having the right plans in place and establishing the right relationship between your family and your business are keys to long term success.

5 – Savings

Now is the time to focus on frugal living. If you do not work with a financial advisor currently, sit down with one today. The real value you can get from working with a financial planner it to take a serious look at what you are spending money on and what you can cut to increase your savings. Also, if you have any lingering differences with your spouse over money, this is the best way to get those issues out in the open and discuss them with an unbiased and neutral third party.

6 – Living Trust – FDIC Protection

Because of the increased protection your assets can have from the FDIC in a Living Trust, now may be the perfect time to set up a Living Trust for the protection of yourself and your family. Under new FDIC rules, accounts held within a Living Trust have FDIC protection of $100,000 for each beneficiary of the trust. This can greatly increase your level of protection. For more info on this here’s a link to an article on Bloomberg.

Newswise Medical News | Mild Alzheimer’s Patients Show Rapid Decline in Financial Skills Over One Year

This article details a new study on Alzheimer’s disease out of the University of Alabama Birmingham which demonstrates a significant deterioration of an Alzheimer’s patient’s ability to manage financial affairs within one year.  This highlights why it is so important to do early planning and that if someone you know or love is diagnosed with Alzheimer’s it is best to get any financial or estate planning matters squared away immediately.

Newswise Medical News | Mild Alzheimer’s Patients Show Rapid Decline in Financial Skills Over One Year

Estate Planning and the Non-Citizen Spouse

When it comes to estate taxes, married couples in which one spouse is a resident non-citizen are treated differently than married couples where both spouses are U.S. citizens. Generally, assets that pass between spouses at the first death are free from estate taxes due to the Unlimited Marital Deduction, no matter how large the estate.

However, where the surviving spouse is a resident non-citizen, the Unlimited Marital Deduction is not automatically available. Although the government allows all taxpayers to pass a certain amount of assets at death estate tax-free, called the Applicable Exclusion Amount (“AEA”), estate taxes will be due on amounts in excess of the AEA (currently $2,000,000.00) unless proper estate planning is in place.

Yet, if either you or your spouse is a non-citizen, the difference in how you are treated does not end here. There are also limitations that apply while you are both alive. Generally, U.S. citizen couples can make unlimited gifts to each other without the gift being taxed. However, when gifting to a non-citizen spouse, a citizen spouse is limited to gifts of $125,000 per year.
This may seem like a sufficient amount, however, certain estate planning techniques may not be available where such a limitation is present. For example, a basic Estate plan may include a Revocable Living Trust which, upon the first spouse’s death, takes his or her assets and divides them into two sub-trusts: a Survivor’s Trust (sometimes called an “A” Trust) and a Family Trust (also called a “B” Trust). The purpose of the Family Trust is to segregate assets equal to the Applicable Exclusion Amount. By doing so, a married couple can pass double the AEA estate tax-free.

However, where one spouse owns more assets than the other spouse the estate may need to be “equalized” so that the spouse with fewer assets does not waste his or her AEA, in the event he or she dies first. This is accomplished by having the propertied spouse gift assets to the non-propertied spouse so that the estates are equal. Should the non-propertied spouse be a resident non-citizen, the gift would be limited to $125,000 annually, potentially hindering the effectiveness of the estate plan.

One way to resolve these planning problems is for the non-citizen spouse to become a U.S. citizen. Obviously, this can occur while both spouses are alive but also can be accomplished after the U.S. citizen spouse’s death. For gifting purposes, citizenship must be obtained before the death of the U.S. citizen spouse. In order to avoid an estate tax, without additional planning, citizenship would have to be obtained before the decedent spouse’s estate tax return is filed (generally within nine months of the citizen spouse’s death).

However, a non-citizen spouse may not want to obtain citizenship merely for planning purposes. These unwanted results, as discussed above, can be avoided through the use of a Qualified Domestic Trust, or “QDOT”. The non-citizen spouse’s inheritance could be put into a QDOT under the following provisions:
• The Trust must have at least one trustee who is a U.S. citizen. The spouse can be a trustee but he or she cannot be the only trustee. When assets reach a certain level, a professional trustee will be required.
• The surviving spouse must be entitled to all of the income of the QDOT.
• The QDOT must be established within nine months of the deceased spouse’s date of death and must be elected on his or her estate tax return (no later than one year after the time prescribed by law, including extensions, for filing the decedent’s federal estate tax return).
The non-citizen spouse’s inheritance goes into the QDOT when it is established and is tax-deferred until the non-citizen spouse dies or when he or she withdraws any or all of the principal.
The idea is to allow the non-citizen spouse the receipt of income generated by the QDOT assets, while at the same time securing the collection of the deferred taxes on the principal by the government. The requirement of having a U.S. citizen as one of the trustees was established to ensure the government had someone responsible to pay the taxes if the non-citizen decided to return to his or her country of origin without paying the taxes.
Generally, QDOT assets are taxed upon the occurrence of any of the following events.
• Principal withdrawn from the QDOT is subject to a QDOT tax.
• If the QDOT fails to meet the QDOT requirements at any time, all the trust assets are subject to a QDOT tax.
• When the non-citizen spouse dies, the QDOT assets are taxed.

The QDOT tax is incremental and is calculated in reference to the U.S. spouse’s estate tax. In broad strokes, the tax is determined by calculating what the QDOT assets would have generated in estate taxes were they in the estate of the U.S. citizen spouse. The QDOT amount is placed “on top” of the U.S. citizen’s estate to determine the applicable tax rate bracket for the QDOT assets, thereby generating the highest effective rates.

The mechanics of the QDOT, and the options available to a couple in which one is a non-citizen, are both complex and dependent upon a great number of personal factors (especially the value of the estate). If you or your spouse is a resident non-citizen, consult an estate planning professional at Smith Barid, LLC to discuss your specific planning needs.

If you are a non-citizen whose U.S. citizen spouse died recently, you may find yourself in a situation where proper planning has not been done. In this case it is imperative that you contact a qualified estate planning attorney immediately to discuss possible remedies that may still be available to you. The road to estate planning, especially in this situation, is dangerous without professional guidance.

Protecting Your Kids with Proper Planning

Your children mean the world to you. You’ve done everything within your power to meet their needs and to ward off dangers. You keep a watchful eye out for them, whether they’re swimming in the ocean or wandering too close to the edge of the Grand Canyon. You provide for their needs, from putting food on the table to buying new clothes for school.

We cannot protect our children from every risk in life. When they grow up, they will make some mistakes, just as we did. However, we can afford them some financial protection by leaving their inheritance in trust.

A trust can help because it holds legal title to assets, even though as beneficiary, your child will hold beneficial title. By leaving your assets to your child in a “Family Access Trust,” he or she could still get to the assets at any time. He or she could even remove all the assets from the trust, if desired. Yet, while assets remain in the trust, the trust can protect the assets from your child’s divorcing spouse and, in most states, keeps your child’s future ex-spouse from taking your child’s inheritance.

A Family Access Trust will not act to protect assets from other creditors, however. In order to accomplish that goal, you need a “Family Sentry Trust,” which is a discretionary trust for the benefit of your child. Distributions to your child are made by the person (Trustee) you appoint to make decisions for the trust.

Your child could be a Co-Trustee, but could not act alone to make distributions. Your child could be named as the Investment Trustee and, in that capacity, could direct how the assets are invested. A Family Sentry Trust protects your child from most of their creditors, subject to state law. An additional benefit is that, with a Family Sentry Trust, the assets are not taxed to your child’s estate for estate tax purposes.

You’ve spent your life building your legacy. That legacy will become your child’s inheritance. Keep that inheritance from being attached by future ex-spouses or other creditors. A qualified estate planning attorney can help you provide for your children, and not their creditors.

For more helpful information about estate planning, please visit www.smithbarid.com.

Three Estate Planning Myths Common Among Women

Traditional gender roles are fading fast. Gone are the days of Donna Reed and June Cleaver. However, gender still makes a difference. One of the areas in which we see a difference is estate planning.

Why is that?

Women continue to live longer than men do. In fact, according to MsMoney.com 75% of women will become widows at some point in their life. A woman is an average 56 years of age when she is widowed.

It may not be fair, but women are the ones affected by poor planning because, statistically, women live longer—an average of 6.7 years longer.

There are several myths women commonly hold about estate and retirement planning:

Myth #1

I’m not old enough to worry about it, yet.

Planning is important at any age. You are not just planning for what happens to your assets at your death but, also, for who will take care of things if you become incapacitated. Furthermore, while you are young and your children are still minors, it is important to select guardians to raise them if something happens to you.

From a financial perspective, if you start saving early, it will be much easier to have a comfortable retirement. Remember, on average, women are only 56 years old when they become widows. Husbands may not be around when it comes time for retirement.

Myth #2

My estate isn’t big enough to worry about estate taxes.

Maybe it isn’t today but it may be by the year you die. The amount you can pass free from estate taxation under current law goes down in 2011 to $1 million. Meanwhile, the average person’s assets continue to grow.

For example, over the long run, a broad measure of large U.S. stocks, the S&P 500 index, has increased (on average) 10.4% annually since 1926. That means it doubles approximately every seven years. So, if you have over $500,000 today (appropriately invested) and you expect to live more than seven years, you could have a taxable estate! By starting early and planning, you can minimize estate taxes.

Myth #3

If I hold property by joint tenancy, I do not have to worry about estate planning.

Joint tenancy can be a simple way to avoid probate and having to re-title assets upon the death of one spouse. However, if joint tenancy passes all of the dead spouse’s assets to the surviving spouse, we increase the surviving spouse’s estate even more and compound the estate tax problems. Further, joint tenancy is not a solution to the problems of incapacity.

Women live longer than men and are likely to survive their husbands, having to pick up the pieces after their husbands’ deaths. This is why, despite the many myths out there, estate and retirement planning is critical for women.

Estate and retirement planning can be a complex puzzle. A qualified estate and retirement planning attorney can help you put all the pieces together. With a well-planned estate and retirement, you can rest easier. Your future will be secure.

You will have laid the foundation for a great life. You will have guarded against incapacity and the death of your spouse or partner. Finally, you will have set your children off on the right path. It’s amazing what a little bit of planning can do!

For more great information about estate planning, please visit www.smithbarid.com.

Decisions . . . Decisions . . . Decisions . . .

When asked how people want their assets divided after they are gone, some people have definite opinions, while others are less certain. Not only do people differ in the level of their uncertainty concerning how to divvy up their assets, they even differ in what factors are important in making the decision.

In June 2007, Money magazine released a reader poll concerning various financial issues. The following percentages of respondents ranked each factor as very important:

• Dividing the estate equally among your children: 69%
• How responsible each child is about money: 37%
• How helpful each child has been to you: 29%
• How close you are to each child: 22%
• How much money each child has: 22%
• How many children of their own each child has: 19%
• How much you like each child’s spouse: 10%
• 37% said it can be reasonable to disinherit a child.

Another item of indecision for many people is the choice of decision makers: Trustee, Personal Representative, Guardian, and Agents under powers of attorney. For each of these positions, it is important to name people whose decision-making ability you trust. You may be tempted to name all your children or siblings to avoid hurting anyone’s feelings. However, naming a large number of people to serve together in the same role invites family disharmony and chaos. For example, if property in the Trust is to be sold and you have seven Trustees, many of whom may be out of town, it would be a logistical nightmare to route paperwork all around the country. Typically, things work more smoothly if you limit the number of people in any given role. Besides, having a job thrust upon them may be something many would just as soon avoid.

Regardless of what factors are important to you, a qualified estate planning attorney can help you achieve your goals. For example, if you are concerned about your child’s ability to manage finances, the money can be left in a Trust which will prevent him or her from accessing the funds without the permission of a person whom you designate, the Trustee. If you do not like your child’s spouse and are concerned he or she might divorce your child and take some of the inheritance you leave your child, you can leave your assets in a “Divorce Protection Trust.” Such a Trust keeps the assets separate from marital assets. Therefore, it minimizes the risk of the assets ending up in the hands of the child’s future ex-spouse.

A qualified estate planning attorney can help you achieve your goals while paving the way for your family’s continued success and harmony after you are gone.

Help for Our Armed Forces

American military personnel serving in combat zones have enough to worry about. They put their lives at risk every day, in hostile territory, while doing what they are called to do.

The compensation they earn while stationed in the combat zone is excludible from gross income. In other words, it’s tax-free. This applies to all enlisted personnel and warrant officers for any month they served (even in part) in the combat zone. In addition, it covers any month during which they were hospitalized as a result of wounds, disease, or injury incurred in a combat zone (up until two years after the cessation of combat). Even officers’ pay in a combat zone is tax-free, up to the maximum amount of pay for enlisted personnel.

This seems like a great deal, but there are a few caveats. Even though you do not pay tax on the combat-zone pay, you must include it in calculating your qualification for the earned income tax credit and the refundable portion of the child tax credit.

Until recently, if you only had tax-free combat-zone pay, you could not fund an Individual Retirement Account, otherwise known as an IRA, because all your pay would have been excluded from gross income. You must have income from work, or “earned income” in order to make an IRA contribution. Since all the combat-zone pay was excluded from gross income, it did not count as earned income either. A rule that had been meant to benefit our military personnel had inadvertently hurt them.

A new law was passed and signed on May 26, 2006, which provided that, for purposes of figuring eligibility for contributing to an IRA (or Roth IRA), the combat-zone pay can be considered part of earned income. The Heroes Earned Retirement Opportunities (“HEROs”) Act is effective retroactively for 2004 and 2005. You have until May 28, 2009 to make contributions for those years. Also, if you decide to make a contribution for those years, you can still claim a tax refund resulting from that contribution for up to another year. For tax years 2006 and later, military personnel with combat-zone pay are under the normal rules and deadlines.

Now, our men and women in uniform can save for retirement even while fighting for us in a combat zone. Finally, Congress has passed something for which we can all cheer! If you or a loved one is in a combat zone, such as Iraq or Afghanistan, contact a qualified estate planning attorney to discuss how to plan for retirement and the future in general.

A qualified estate planning attorney can help you make sure you get the full benefit of your combat pay. (www.smithbarid.com).

Protecting Your Children from Their Nightmares…and Yours

You tuck your children into bed and kiss them goodnight. In the doorway, you watch them drift peacefully off to sleep. They are so innocent, so naïve. After your long day, you fall into bed and dream of the day your children will be grown. You dream you are walking your daughter down the aisle at her wedding, beaming with pride. Your dream starts out normally, but then you see that your soon-to-be son-in-law is actually a chimpanzee.

While our dreams can be a stage for many bizarre fears, this one is fairly logical. No, it’s not likely that your daughter will marry a chimpanzee. However, we have reason to be mindful of our children getting into bad marriages destined to end in divorce. In the United States, the rate of divorce is up dramatically from one or two generations ago. The rate of divorce is more than double the rate in 1940 and is up 86% from 1960. Nearly half of all marriages in the United States end in divorce.

Is it possible that your children or their descendants could be a party to a divorce? Definitely. So, how can you protect your children in the event of their divorce? A living trust. First, upon your death, you can leave assets to your children in a “divorce protection” trust. Such a trust allows your child to keep his or her inheritance from being considered marital property or community property. Your child can still be in charge of the money. He or she can be the trustee and can make decisions on the management and investment of the money. Even if the child is not the trustee, he or she may have the power to pull money out of the trust.

In addition to protecting your child in the event of his or her divorce, you can also protect them from the event of your marriage ending. If you remarry (especially if your spouse is not the parent of your children), you can ensure that your children are provided for after your death. Rather than leaving all of your assets outright to your spouse at your death, you can leave those assets in a trust.

You can leave up to $2 million (in 2007) in a “Family Trust” for the benefit of the spouse and/or children. This trust can pay income or principal for the needs of the spouse and/or children. Anything over that amount can be left in a “Marital Trust,” paying all income to the spouse. The Marital Trust could be dipped into for the needs of the spouse, or you could provide the spouse with income only. Either way, whatever is left over would be there for the kids and would not go to a new spouse.

You may not have control over your daughter marrying a chimpanzee, or even someone who acts like one. However, you can protect her inheritance so that she will be able to recover financially after a breakup. A qualified estate planning attorney can help you protect your children from divorces (www.smithbarid.com).