Firm Publications

News articles and publications of Doane & Doane, P.A.

• Have your Cake and Eat It Too
• Low Interest Rates
• Weathering The Storm
• Legacy Incentive Trust
• Amending Irrevocable Trusts
• Take Charge of Your Destiny: Estate planning for the single woman
• Planning for the Terminally Ill
• Advanced Planning for the Large Estate
• Death & Taxes: The Complete Guide to Family Inheritance Planning
• His, Hers and Theirs: Estate Planning for the 2nd Marriage
• Establishing Trusts For Children: A Few Practical Tips

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Schedule a complimentary initial consultation with a Doane and Doane, P.A. attorney by calling 561-656-0200 or contacting us online.  With offices in North Palm Beach, West Palm Beach and Stuart, our law firm serves clients in the communities along Florida's Gold Coast and Treasure Coast, including Palm Beach, Broward, Miami-Dade, Indian River, St. Lucie and Martin counties.

Have your Cake and Eat It Too

The Advantages of Gifting, Without the Gift

By: Rebecca G. Doane & Randell C. Doane, published in Palm Beach Daily News in January, 2012

From an estate planning perspective, lifetime gifts offer several significant advantages over bequests at death. With the new $5 million exemption from estate tax scheduled to expire at the end of next year, many individuals are considering making large gifts at this time. However, the problem with most lifetime gifts is that you lose access to the gifted asset. Considering the current economic environment, many are reluctant to part with significant assets for fear they may someday be needed. Fortunately, there is an increasingly popular technique that will permit the advantages of lifetime gifting without forgoing access to the gifted assets.

The technique is known as a Spousal Access Trust (SAT). The SAT is simple to establish and can provide enormous estate tax savings. Assume that Husband establishes a trust for the benefit of Wife. Wife can be the sole beneficiary and sole trustee of the trust. Assume Husband transfers $5 million of securities to the trust and files a gift tax return to declare the gift. No gift tax would be owed because of the $5 million exemption. That $5 million is now excluded from the Husband’s estate and all future appreciation and income accumulations are also excluded from his estate. The assets are also not included in Wife’s estate even though she has complete access to them. After Husband and Wife are both deceased, remaining assets will pass to their children or other intended beneficiaries free of estate tax. Wife can establish a similar trust for Husband to be funded with her $5 million exemption amount.

If Husband or Wife lives for several years after establishing the trusts, the total tax savings can be dramatic. For example, if the trust portfolio yields a total of eight percent annually and if either parent lives eighteen years, the total tax savings could be nearly equal to the amount transferred to the trust. If a single trust were funded with $2 million, then the savings would approach $2 million. The savings from funding two trusts with a total of $10 million could be $10 million.

Some additional refinements to the SAT can enhance its potential benefits. For example, the trust can be designed as a “grantor” trust. If that option is selected, then the income earned by the trust will be taxable to the parent who established the trust, instead of being taxed to the trust itself. Since the trust will not pay tax on its earnings, it will, in effect, appreciate at pre-tax rates. Allowing the parent to pay the tax on trust earnings will also help in controlling the family’s total estate tax exposure by annually depleting the parent’s estate by the amount of the tax paid. That shifting of income tax liability from the trust to the parent will have a dramatic effect on the family’s total tax liability.

Another enhancement which could significantly improve the estate tax savings would be to fund the trust with discountable assets such as stock in a closely held company or shares in a family partnership holding a securities portfolio. The taxable value of those assets is often 30% or 40% less than the true value of the underlying assets. That discount will allow significantly larger amounts to be transferred to the SAT. There has been considerable discussion about eliminating those intra-family discounts, but until that happens they will continue to be used.

Individuals who are not married can also transfer assets out of their estates and still retain access, but a different type of trust must be used. The end result is nearly the same. Namely, significant assets will be held in a trust that is appreciating and accumulating income outside of your estate while you still retain access if that is ever needed.

An additional, non-tax benefit of a SAT is that the assets transferred to the trust are generally not reachable by either parent’s creditors. If Husband transferred $2 million to a trust for Wife, and she transferred $2 million to a trust for him, then that $4 million would be perpetually secure from the creditors of both parents. If either were ever sued from an auto accident, a business deal gone bad or any other reason, the assets in trust would be secure.

The advantages of lifetime gifts can be substantial and dramatic. Unfortunately, most estate tax planning techniques involve the transfer of assets out of the parent’s taxable estate and out of his or her reach. The Spousal Access Trust is a notable exception. It allows all the benefits of a gift without losing access or control.

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Low Interest Rates

Bad For Your Portfolio; Good for Estate Planning

By: Rebecca G. Doane & Randell C. Doane, published in Palm Beach Daily News in January, 2011

For most of us, investment performance is not what it used to be. Stock yields are dismal, interest rates inch closer to zero, and consistent capital appreciation seems to be a thing of the past. But never you worry. In the midst of the economic doom and gloom lies a golden opportunity.

If your goal is to move wealth to lower generations at the least estate tax or gift tax cost, there has never been a better time. The current reduction in asset values itself provides an opportunity — lower values means lower tax. But our historically low interest rates can compound that opportunity. Put simply, many estate planning techniques work much better in a low interest environment.

Today's official IRS interest rates are spectacularly low and that can produce significant opportunities. The official short term rate for intra—family loans or sales is an almost insignificant 0.41%. Let's take a very simplistic example. Assume I loan $10M to a trust for my children at that 0.41% rate. Assume the trust purchases a high yielding asset (there are still a few of those around). All of the yield in excess of the 0.41% will escape estate and gift taxation. Alternatively, if my goal is simply to allow my children to enjoy some of their inheritance while I am still alive, the simplistic loan allows me to transfer significant wealth to them without current gift taxation and the only cost is that very nominal 0.41% interest rate. If I want to lock—in a favorable IRS rate for many years, I can enter into a long term loan or installment sale at the current IRS long term rate of 3.32% (higher than the short term rate, but historically still a bargain).

When the advantage of the low official rates is applied to more complex planning tools, a much greater benefit can result. Many of the traditional planning techniques perform substantially better with low interest rates (although some techniques actually fair worse with low rates). Consider the Charitable Lead Annuity Trust (CLAT). Under that technique, assets are transferred to a trust which pays one or more charities (perhaps your own private foundation) a fixed annuity for a specified number of years or for the duration of a named person's life. At the expiration of the annuity period, the remaining principal is transferred to your children or to trusts for their benefit. That technique can provide you with a significant charitable deduction, and also allow a major portion of the assets to eventually pass to your children fee of tax. Today, that technique provides nearly three times the benefit as compared to the results achievable under the higher interest rates of only a few years ago.

The Grantor Retained Annuity Trust (GRAT) is another popular tool to transfer wealth with little or no gift tax cost. Under that technique I transfer cash or other assets to a trust which pays me an annuity for a specified number of years or for life. At the expiration of the annuity period, the remaining assets pass to my children or to trusts for their benefit. All other factors being equal, a GRAT established under today's interest rates will permit several times the amount of assets to pass tax free as compared to GRATs established a few years ago.

Other techniques that are enhanced by lower interest rates are Private Annuities (PAs) and Self Cancelling Installment Notes (SCINs). In the case of a PA, assets are sold to a trust in exchange for a lifetime annuity. A SCIN is a technique where you sell assets in exchange for a promissory note which is cancelled at the time of your death. The CLATs, GRATs, PAs, SCINs and similar tools all have two things in common: they are well established methods of significantly reducing estate and gift taxes, and they all perform much better during times of low interest rates.

Most economists and investment gurus believe we will eventually return to the investment yields of prior years. In the meantime, don't miss this unprecedented opportunity to transfer wealth to younger generations at a greatly reduced cost.

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Weathering The Storm

By Rebecca G. Doane, Esq., published in the 2009 winter issue of VIVE Magazine

If we listen to the news or read the newspaper on a regular basis, it is easy to come away with an overwhelming feeling of despair given our currently dire economic situation.  Well there is a ray of hope—a virtual beacon of light upon which we can focus our attention.  At the current time, we can aggressively take advantage of a government "freebie," so to speak.  Right now, at this very moment, you can and should be making certain that your estate plan takes advantage of the largest estate tax exemption ever granted by the U.S. government.  Each individual is now entitled to a three and one-half million dollar estate tax exemption.  For a married couple, that adds up to a combined seven million dollars in estate tax exemptions if your estate is properly planned.  That means that now is the time to create your estate plan if you have not already done so—or the perfect time to have your current plan reviewed to make sure it is statutorily current and will afford your family the best tax protection available.

Additionally, for those individuals with assets valued in excess of 3.5 million dollars, and for couples with assets valued in excess of seven million dollars, now is the perfect time to think about making gifts to your children and grandchildren.  We all know that real estate, marketable securities and most business values are at an extreme low.  While this may seem like only depressing news, there are actually some opportunities presented due to the economic downturn.  When asset values are lower, a parent or grandparent has an excellent opportunity to make gifts of assets at the reduced value for gift tax purposes.  Currently, in addition to the $13,000 per person annual gift tax exemption, each individual can transfer assets worth up to one million dollars to children and grandchildren during that individual's lifetime without any gift tax being imposed.  For example, if you had a two million dollar rental property that, due to current market conditions, is now valued at one million dollars, you would have the opportunity to transfer that to your children or grandchildren utilizing your one million dollar gift tax exemption and incur no gift tax.  A few years ago, when the same real estate was valued at two million dollars, such a transfer would have incurred a substantial gift tax.  When the market finally recovers, all of the appreciation over the one million dollar value will have passed to your children free of gift tax, or estate tax upon your demise.

In addition to the opportunities presented by the lower asset values, the current low interest environment affords yet another estate planning advantage.  Many of the advanced techniques to transfer wealth to younger generations are enhanced during periods of low interest rates.  A simplistic example of the advantage of low interest rates is illustrated by intro-family loans.  If, for example, a parent loans her child $1 million, the Internal Revenue Service now only requires an interest rate at a historically 1.9 percent.  If the child invests that $1 million at a yield exceeding that 1.9 percent, the excess will pass to the child free of gift and estate tax.  The advantage of that basic technique can be multiplied many-fold through family limited partnerships, grantor retained annuity trusts and other more sophisticated estate planning techniques.

There is one caveat of which you need to be aware.  The estate tax exemption is currently a moving target.  When doing estate planning, you need to understand that, under current law, the three and one half million dollar estate tax exemption per individual is in effect only during the calendar year 2009.  In 2010, the estate tax goes away completely.  However, under current rules, in 2011 and thereafter, the amount that can pass estate tax-free is only one million dollars per person.  Although many tax planning professionals predict Congress will act to freeze the three and one-half million dollar per person exemption, we have no guarantee of that proposition.  We will have to "stay tuned" to see what actually happens.  However, in the meantime, the combination of low asset values and low interest rates provide a golden opportunity which we should not allow to pass us by.  You have worked all your life to protect your loved ones, so what better time than the present to secure your legacy for immediate and future generations.  A quick review of your current situation or an informal assessment of your existing estate planning documents will provide you with some important guidelines that, when handled properly, will afford you and your family a priceless intangible—peace of mind!

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Legacy Incentive Trust

By Rebecca G. Doane, Esq. and Randell C. Doane, Esq., published in the Palm Beach Daily News, January 2007

A large inheritance can be a blessing or a curse depending on the choices made by the beneficiary.  Where a child or grandchild who has inherited sizeable wealth chooses to focus on entrepreneurial, artistic, family, charitable or other worthwhile goals, he or she will have an extraordinary opportunity to experience great achievement in his or her field of interest.  On the other hand, if the child or grandchild does not choose wisely, a substantial inheritance can compromise their opportunity to experience the satisfaction and fulfillment that would come from great success in their chosen important endeavors.  The legacy incentive trust is designed to encourage children, grandchildren and future generations to make intelligent and thoughtful choices that will more likely lead to lifelong satisfaction and personal fulfillment.

Unfortunately, experience shows that a very high percentage of third-generation rich are not involved in business, the arts, philanthropy or any other worthwhile endeavor.  More often than not, a substantial inheritance serves as a disincentive to creativity, learning, undertaking challenges or assuming risks that could lead to happiness, fulfillment and self-esteem.  Parents who worry about the negative affects that substantial wealth may have on their children, grandchildren and future generations may want to consider the advantages of a legacy incentive trust.

A legacy incentive trust will achieve the usual estate planning goals of probate avoidance, tax reduction and asset protection.  However, a well drafted incentive trust will also encourage and incentivize future generations to acquire those qualities and values that the creators of the trust deem important.  The terms of the trust can be used to motivate future generations to develop a sense of productivity, diligence, dedication and curiosity, and to foster education, stewardship and family values.  A legacy incentive trust allows the creators to specify the criteria surrounding their distribution decisions.  Therefore, where appropriate, distributions can be tied to attainment of specified goals and values such as education, accomplishment, hard work, integrity, contribution to society and any other standards they may choose which are of personal significance to them regarding the management of their wealth as it passes to younger family members.

As is the case with most estate planning trusts, the legacy incentive trust may be designed to benefit the surviving spouse, children, grandchildren and future generations.  Of course, the incentive features of the trust will be applied differently to the various beneficiaries.  In the case of a long-term marriage, the trust will often provide broad discretion during the lifetime of the surviving spouse to distribute income and principal among the surviving spouse, descendants and charities as appropriate.  After the death of the surviving spouse, the incentive features of the trust will affect distributions to the grandchildren, and may or may not be applied to the children.  The trust may be written in such a way that the personal goals of the creators of the trust will be fully realized as wealth is passed from one generation to another.

Where the children are fully grown, and have already developed the qualities and interests they will likely always have, there may be little point in trying to incentivize them now.  If the parents themselves have not succeeded in developing well adjusted and productive children, the trustees will likely do no better.  Therefore, the provisions for grown children typically require distributions of a fixed amount or percentage of the trust annually with the remaining income being reinvested or distributed among grandchildren or charities, including a family foundation.  For young children who are still developing the level of drive, ambition and integrity that will be theirs for a lifetime, the incentive features of the trust will not only apply but may serve as a lifelong guide to choosing a path in life that would serve to achieve the goals of the creators of the trust.

For young children, grandchildren and future generations, the distribution plan often consists of two elements.  The trustee is first directed to pay for basic needs such as education, health, modest living expenses, and possibly the maintenance of family homes or other facilities.  The second element, and indeed the more “philosophical” of the two, involves the incentive feature where additional distributions are directly tied to the performance of beneficiaries in the realm of their personal goals and achievements.

Incentive distribution standards as determined by the creators of the trust may take into consideration a beneficiary’s achievement in education, entrepreneurship, personal financial success, benefiting society, or any other goals or qualities the creator may deem important.  Incentive provisions can be as simple as an earned income match, or may factor in a number of other concerns such as the income potential or the benefit to society of a chosen career.  Provisions may be included to discourage negative behavior such as substance abuse, or to encourage positive behavior such as philanthropy.  It is in these areas that a legacy incentive trust can often be the “guiding hand” that steers future generations toward the path of life envisioned by parents or grandparents.

An incentive trust should be flexible so that distribution guidelines can evolve over time, and to provide for emergency situations such as a divorce, chronic health issues or severe economic conditions.  The choice of trustees is a critical issue, and in certain instances, the appointment of a board of trustees may be appropriate especially during the incentive phase of the trust.

It is a primary consideration, as parents plan the future management of their accumulated wealth, that the legacy incentive trust is an important option available to them.  This trust can provide guidelines which will influence their descendants in a very positive manner.  It will also serve to provide some peace of mind for the creators of the trust that their personal objectives will continue to flourish even after they have passed away.  A trust of this nature passes on inherent family goals, values and ideals.  Properly designed, the incentive trust can provide important encouragement to future generations to make those life decisions that will result in productivity, accomplishment and self fulfillment.

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Amending Irrevocable Trusts

By Rebecca G. Doane and Randell C. Doane

Due to the increasing usefulness and popularity of trusts over the last several decades, many families now have one or more trusts which were either irrevocable upon their creation or have become irrevocable as a result of the death of the trust creator.  As the years pass and family circumstances change, the provisions of some irrevocable trusts may become less and less appropriate for the needs of the family and it may become desirable to amend or terminate the trust.  Contrary to popular belief, in almost all cases an irrevocable trust can be amended or revoked.  Often times, such modifications can be easily accomplished.

Many trust documents, especially trusts created in recent years, contain provisions to facilitate an amendment or termination if appropriate to better serve the needs of the family.  The trust may allow the appointment of a special trustee to revise the trust consistent with family wishes or to transfer the trust assets to a new trust with more appropriate terms.  If that flexibility is missing from the trust document, state law may permit a necessary modification or termination of the trust.  In recent years many states, including Florida, have liberalized their laws to simplify making needed changes to irrevocable trusts.  In most cases such changes can be made by a simple agreement among the trustee and beneficiaries.  Occasionally, trust modifications may require court approval, but that is also easier to obtain under the new trust laws.

The need to change trustees is a common situation where a trust revision may be useful.  Occasionally, when the trust creator has depended on individual trustees, the smooth administration of the trust may be jeopardized as those trustees die, retire, or become incapacitated or infirm.  While "family trustees" might simply be succeeded by younger-generation family members, that may not be a desirable solution in some cases.  Another awkward situation may arise where a trusted advisor or other non-family member has been appointed as an "independent trustee" and he or she is no longer suitable to fulfill that function.  Likewise, the suitability and acceptability of institutional trustees can change over time.  Where it is important to change the succession of trustees one should first look to the trust document which may contain a provision permitting a current trustee or the beneficiaries or some other person to revise the trustee succession as stated in the document.  If that flexibility is not present in the document then the problem by be solvable through an agreement among the interested parties or court approval may be sought.

Conflicts among trust beneficiaries is another situation where a trust revision may be important.  Current income beneficiaries often wish to focus on investments that produce a high income return and are not concerned with long-term capital appreciation.  Remainder beneficiaries, who will receive the trust after the income beneficiaries are deceased, may prefer to focus on investments producing long-term growth and capital protection and are not concerned with maximizing current income returns.  In that situation, state law, or an agreement among the parties, may permit the trustee to simply pay a reasonable fixed annual return to the income beneficiary regardless of the trust's actual income.  In that case the trustee can shift to an investment portfolio designed to produce the greatest total return without concern as to what portion of the return is the result of current income or capital appreciation.  The mix of current income and capital appreciation should not be a concern to the income beneficiary where he or she is receiving a fixed annual return regardless of investment performance.  The remainderman should also be satisfied since the trustee can now seek the greatest total return regardless of the amount of current income being produced.

Sometimes a trust may be established to benefit two or more beneficiaries simultaneously.  In that case disagreements may arise between those current income beneficiaries concerning trust investment policy or the frequency or size of trust distributions.  In that situation, it may be appropriate to divide the trust into separate trusts for each of the beneficiaries.  Then the trustee of each separate trust can adopt investment and distribution policies that are more tailored to the individual needs of the respective beneficiary.  Similarly, we sometimes see situations were there is a multiplicity of trusts that have been created over a number of years by members of different generations.  In that case it may be helpful to merge the several trusts into one or two separate trusts that can be more efficiently and consistently administered.

The foregoing is just a sampling of the many situations where the division, merger, revision or termination of one or more irrevocable trusts may produce huge benefits in terms of administrative efficiency, family harmony, wealth preservation or other benefits to the family.  Under the newly evolving law of trusts, achieving such amendments or revocations is increasingly easy and should not be overlooked in your planning.

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Take Charge of Your Destiny: Estate planning for the single woman

By Rebecca G. Doane, Esq., published in Vive Magazine, April/May 2008

When we think of estate planning, we often have in mind the image of an older well-dressed couple situated amidst the trappings of accumulated wealth.  Images of winged back chairs in front of the fire or the stately columns supporting the front portico or, perhaps, the charming cottage on the Cape at sunset come to mind.  However, reality shows us that this image can easily be replaced with one of a vibrant and savvy single women, who is forging a successful career and celebrating the freedoms that abound in the single life.

While women have come a long way over the past few decades with regard to business and politics, it might amaze you to know that only about one-half of single American women—or any Americans for that matter—have a will or a trust.

Women who have become single by virtue of divorce often leave their estate plan, as previously handled by their ex-spouse, to remain unreviewed by an estate planning attorney and unchanged to accommodate their new lifestyle.  This leaves women exposed to a myriad of problems including paying estate taxes that could have been avoided, and having someone other than a first choice administer assets should she become incapacitated or die.

If you are one of said single women, listen up: It’s about time single women took charge of their destiny.

Being single means you are solely responsible to direct how you manage your assets.  Your assets are anything of value that you own.  Even if you don’t have vast wealth at this time, most of you have a few items that you would like to pass along to people who are special to you.  Hence, you have the very beginning of the need for an estate plan.

If you have trouble immediately comprehending the unsavory topic of dying, try the possibility of not dying but rather being involved in a serious accident or developing a debilitating disease of some sort.  Think of the possibility of being incapacitated, either temporarily or permanently, and needing someone to handle your financial and personal matters in a manner that is in sync with your wishes.  This scenario represents just another aspect of estate planning.  With a proper estate plan in place, you will have already appointed someone you trust to represent you and carry out your specific directives regarding the handling of matters while you are incapacitated.  Without a proper estate plan in place, the Court will make those decisions for you, including who will be the guardian of your minor children if that issue applies to your situation.  If you happen to be the caregiver for aging parents, you need to further plan for their continuing care and the management of their individual finances as well.

Many single females in America fail to address the importance of estate planning because they are of the opinion that they don’t have enough of an estate to worry about right now.  Being the savvy businesswoman that you are and probably in possession of a small portfolio of your own, the Standard and Poors index has experienced an average increase of somewhere around 10.4% annually since the 1920s.  Based on that figure, your portfolio should double about every seven years.  (And you thought you shouldn’t be worrying about estate taxes!)

Now is the perfect time to implement an estate plan that will help you to minimize estate taxes and preserve the legacy of your future accumulated wealth.  Why make sound investments only to lose a substantial amount to taxes due to poor or non-existent estate planning?

Are you the entrepreneurial type who owns a business? A well-written estate plan will set forth specifically who will receive control of your company if you become incapacitated or die.  You need to plan who will be the recipient of delicate assets such as business “secrets” and other private documents.  You should plan and direct to whom sensitive information should be revealed (safety deposit box information, payroll information, off-shore account information, codes and passwords for your business accounts).  These are “intangible” assets but planning to share this information with a person you trust implicitly can assist your business to grow and prosper during your period of incapacity or after your death.

Finally, for you single women, who are thinking of changing that status, please remember that the “p” word (the dreaded prenuptial agreement) is also an essential part of estate planning.  While many think this takes the “romance” out of romance, given the statistics that about one in three marriages ends in divorce, it is better that you go into the marriage with eyes wide open and cards on the table.  Romance is emotional, marriage is financial.

A prenuptial agreement and all the preliminary discussions that precede its final documentation help to ensure the financial well-being of the union.  The history of prenuptial agreements goes back thousands of years when royal families of European and Far Eastern cultures made specific provisions for protecting their wealth.  The same issue prevails in our modern society.  You should consider a prenuptial agreement if, prior to the marriage, you own your own home, have a stock portfolio or a retirement account.  If you own a business, a pre-nup is of the utmost importance.  Factors such as receiving an inheritance, having children from a previous marriage, being wealthier than your intended, caring for an elderly parent, or anticipating a large increase in your own earning capacity via the pursuit of a degree/license or business surge add up to one important message: Initiate a prenuptial agreement so that you are in control of your financial destiny.  Likely your intended will appreciate your honesty, openness and business acumen.

Take control of your destiny now.  With the help of an estate planning attorney, you can easily put your affairs in good order, have a well-written and well-planned course of action, and then you can take a deep breath and enjoy the peace of mind that comes with the knowledge that your legacy will be carried out precisely to your specifications.

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Planning for the Terminally Ill

By Rebecca G. Doane, Esq. and Randell C. Doane, Esq., published in the Palm Beach Daily News, January 6, 2008

Death is an uncomfortable topic which many of us would prefer to ignore, but a family confronted with a terminal illness will be forced to face the reality of the situation.  The dying person and each family member will need to begin to deal with the emotional aspects of death, and to try to make the best of the remaining time.  As a result, practical matters, such as estate planning, may be the last thing that the family wishes to address.  However, in the case of a terminal illness, numerous planning opportunities are available which can provide huge savings in estate taxes, administration expense and peace of mind for the survivors.  Therefore, a person diagnosed with a serious illness should consider having their estate plan reviewed as soon as they feel comfortable doing so.

In reviewing the estate plan of a terminally ill client it is important to start with a basic overview.  All important documentation should be located and reviewed.  Existing wills, trusts, beneficiary designations for retirement plans and insurance, powers of attorney, living wills and other documents should be analyzed to assure they are up to date and still reflect your current wishes and will still serve to save taxes and reduce or eliminate administrative headaches.  It would be important to assure that the existing estate plan is appropriate and sufficient (and not overly complex) based on current asset holdings.  If you have a revocable trust you should assure that all assets have been transferred to the trust in order to avoid probate proceedings.  If no revocable trust is in place, you should consider establishing one.  That will greatly simplify the administration of your assets by your chosen trustee should you become incapacitated.  It will also serve to avoid probate proceedings in the event of your death.

For many estates, the estate tax is a major concern.  In some cases nearly half of the estate can be lost to the estate tax without proper planning.  Fortunately, there are several estate planning opportunities designed specifically for the terminally ill patient.  In some cases, use of these special planning techniques can reduce the estate tax bill by millions of dollars and may even eliminate the estate tax liability all together.

There are three related techniques which have been approved by the courts and the IRS and which can result in dramatic estate tax savings.  All three of these techniques exploit the difference between a person's actual life expectancy and average life expectancy as set forth in IRS actuarial tables.  The most commonly used technique is the private annuity where the parent transfers substantial assets to a trust for children or grandchildren in exchange for a lifetime annuity.  If the parent does not live to his or her life expectancy, most or all of the assets will escape estate taxation.  This is a very powerful technique in the right situation.

A less dramatic, but sometimes important procedure is to assure that the ill person's annual exclusions are fully utilized.  Each of us can gift $12,000 annually to any number of donees.  If I have three children, six grandchildren and three daughter or son-in-laws, I could gift a total of $144,000 free of gift tax.  If my spouse consented, I could gift $288,000 free of tax.  If I survived until January of the following year I could gift another $288,000.  If a family partnership or other "leveraging" technique is used it might be possible to double those amounts so that a total of nearly $1.2 million could be transferred free of gift or estate tax.

Other concerns relating to the estate of a terminally ill patient would be to assure that assets are properly titled in his or her name or in his or her revocable trust so that the entire $2 million lifetime exemption from estate tax will be saved.  That may require transferring assets from the healthy spouse to the ill spouse.  Another planning opportunity is to assure that highly appreciated assets are held by the ill spouse.  Upon death, those assets will generally receive a "step up" in basis so that capital gain will be eliminated when the asset is sold by the heirs after death.

The foregoing is just a sampling of some of the important concerns and planning opportunities when a person is diagnosed with a terminal illness.  Facing the reality of that situation is one of the most difficult experiences a family will ever confront.  However, if estate planning is addressed at the right time and with the right perspective, the resulting knowledge that one's affairs are fully in order often affords the ill person and the family a great sense of solace and peace of mind.

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Advanced Planning for the Large Estate

By Randell C. Doane, Esq. and Rebecca G. Doane, Esq., published in the Palm Beach Daily News, January 8, 2006

With Congressional repeal of the “death tax” highly unlikely and any other significant relief appearing remote, owners of larger estates should explore again the tax reduction options available to them.

The estate tax is like a chameleon, constantly changing its appearance and sometimes even seeming to fade away.  In 2006, estates in excess of $2 million will be subject to a tax rate of 46 percent.  That $2 million exemption will increase to $3.5 million starting in 2009, and in 2010 the tax will actually disappear.  Unfortunately, the tax will reappear in 2011, with only a $1 million exemption and with a maximum rate of 55 percent.

For the last several years, Congress had promised to reform the “death tax” and even held out the possibility that it might be permanently eliminated.  A few months ago, many commentators were convinced we would at least receive a much larger exemption, possibly in the range of $10 million to $20 million.

Most recently, though, the hope for meaningful relief has faded away.  Those Senators who previously were the strongest proponents of elimination are now talking about “partial elimination” and most experts now believe we will end up with a permanent exemption in the range of $3 million to $5 million and a modest reduction in the tax rate.

Advanced estate planning is primarily concerned with reducing estate taxes on larger estates.  Other goals – such as avoiding probate, better protecting inheritances from future divorces and lawsuits and helping assure that family wealth will remain in the family – may also involve advanced planning.  However, since the estate tax can consume more than half of a large estate, the primary focus of advanced planning is usually on reduction or avoidance of the estate tax.

During the last couple of years, the implementation of many planning techniques was often postponed in the hope that the tax would be eliminated.  Now that the complete repeal of the “death tax” is highly unlikely, and even the possibility of significant relief appears remote, it is time for the owners of larger estates to explore again the tax reduction options available in their particular situation.  Although there is still some uncertainty in the future tax landscape, further delay in advanced planning can be costly for at least two reasons.

The first problem with delay has to do with the passage of time.  The benefit to be derived from many planning techniques can only be derived over a number of years.  One example is family limited partnerships (FLPs).  Immediately upon implementation, the FLP will usually provide some reduction in the taxable value of the estate.  However, much more of the tax reduction benefit will usually be achieved as a result of future appreciation in value of the partnership assets occurring outside of the taxable estate.  Therefore, the sooner the partnership is established and the longer it can remain in place, the greater the benefit to be received.

Other popular planning strategies, such as grantor retained annuity trusts (GRATs) and qualified personal residence trusts (QPRTs) also require the passage of considerable time to be fully effective.  Some techniques, such as private annuities (Pas), require implementation months or years before death and therefore should be considered sooner rather than later.

There is a second problem with postponement of planning.  The Congressional Joint Committee on Taxation recently issued a report suggesting the passage of new laws designed to limit or curtail the use of many of the popular and most useful planning opportunities.  That raises the specter of a most unpleasant situation where we are afforded only modest estate tax relief and some of our most productive tax reduction strategies are no longer available.  Many owners of larger estates are moving to implement planning techniques now with the expectation that their planning measures will be grandfathered.

In some situations, the implementation of certain planning strategies can require the current payment of gift tax as a price for receiving a much greater reduction in the estate tax.  Although we usually strive to defer the payment of taxes, the voluntary payment of the gift tax may be appropriate where it will result in an estate tax savings many times greater than the gift tax paid.  Although substantial estate tax relief for larger estates now seems highly doubtful, some experts still hold out a glimmer of hope.

Accordingly, we would usually advise against a strategy that would require the payment of gift tax until we are absolutely certain the estate tax will not be repealed.  Meanwhile, many of the most useful and beneficial techniques do not involve the payment of gift taxes and those methods should be explored at this time.

The estate tax chameleon continually changes colors and disappears and reappears (and has done so since 1913).  However, that is not the reason to defer intelligent planning.  Instead, the ever-changing rules add to the importance of taking affirmative action.  Many planning methods are available in this changing environment that will significantly reduce the cost of the estate tax regardless of what the final rules turn out to be.

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Death & Taxes: The Complete Guide to Family Inheritance Planning

Randell C. Doane and Rebecca G. Doane are the co-authors of Death & Taxes: The Complete Guide to Family Inheritance Planning, published by Swallow Press, a division of Ohio University Press.

This authoritative guide provides all the practical information needed to undertake confidently one of the most important steps of a career, planning for the disposition of your estate.  Wills, trusts, probate, life insurance, taxes and many other estate planning concerns are discussed in detail.  Over a hundred of the most commonly asked questions are answered in simple, straightforward terms.  Over two hundred examples are included to explain the most important estate planning ideas.

Designed for the interested layperson as well as the financial planner, insurance advisor, or attorney who is not an estate planning specialist but who wants to gain a better understanding of the estate planning process, Death & Taxes is a practical reference guide that cuts through the complications, clarifies options, and points the way to achieving family objectives.

If you are interested in receiving a complimentary copy of this book while supplies last, please e-mail your name and complete mailing address to brew@doanelaw.com.  You may also send us a written request to: Doane and Doane, P.A., 2000 PGA Boulevard, Suite 4410, North Palm Beach, Florida 33408.

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His, Hers and Theirs: Estate Planning for the 2nd Marriage

By Randell C. Doane, Esq. and Rebecca G. Doane, Esq., published in the Palm Beach Daily News, January 9, 2005

Estate planning by a married couple should be a positive and harmonious experience.  After all, the goals of the parties are usually the same -- to assure when one of the marriage partners passes away, that the estate will be protected and conserved for the survivor, and when both parties are gone the remaining estate will pass on to the children or other beneficiaries in the most efficient manner.  When the parties have children together and neither has a child from a prior marriage, it is usually a simple matter to establish an estate plan that will accomplish the family’s goals of reducing estate tax, avoiding probate and assuring that the estate will be protected during the parents’ lifetimes and for future generations.  However, if the family includes one or more children from a prior marriage, a well conceived estate plan can become more complicated.

When clients with prior marriage children come to the attorney’s office they have usually resolved how the estate will some day be divided.  Based on which party brought most of the assets to the marriage, the length of the marriage, which children are considered most deserving and a multitude of other factors, they have usually reached a decision as to whether the estate will ultimately pass equally to his children and her children, mostly to his children, mostly to hers, or some other arrangement.  The problem, however, is how to assure their plan will be carried out without unduly restricting or controlling the surviving spouse during his or her remaining lifetime.

Take the case where the husband and wife each have two children from prior marriages and, for whatever reasons, they have decided that 2/3 of the estate should ultimately pass to his children and 1/3 should ultimately pass to her children.  In that situation we often hear the husband express their goals like this: “If I die first, I want my wife well taken care of, without any restrictions or controls.  I want her to have whatever she needs and to be in control of her finances.  However, when she is also gone, we want the remaining estate to be divided between our children 2/3--1/3.” The problem which then arises is how to assure predictability of the outcome without unduly restricting the surviving spouse.

In the above example, assume the husband passes away first and all assets are left to the wife with the understanding that she will leave those assets in the agreed 2/3--1/3 shares when she passes away.  Assume the wife lives ten years beyond her husband and during that time she has considerable contact with her own children, but very little contact with her husband’s children.  Human nature being what it is, it would not be unrealistic to expect that she might begin to justify a larger share passing to her children.  She may feel they are more deserving or have a greater need than her deceased husband’s children.  Also, if the surviving wife in our example were to remarry how would that factor into the first husband’s children receiving their 2/3 share? If one spouse survives the other for a considerable time even the most honest and well intentioned surviving spouse may be tempted to alter the agreed upon estate plan to the detriment of the deceased spouse’s children.  The point is, if there are no restrictions or limitations placed on the surviving spouse, then the ultimate outcome of the estate plan is not predictable.

As an alternative, assume upon the death of the husband, that all assets are left in trust for the wife with a bank or other third party as the trustee, and with a provision that requires the 2/3--1/3 distribution to children upon the wife’s death.  Here, we have much more predictability as to the outcome, but, of course, the surviving spouse is not completely free of restrictions or limitations.

Some of the techniques to add predictability include the use of a bank or other third party as trustee, limitations on access to principal, a requirement that the survivor deplete his or her own assets before withdrawing trust assets, or an estate contract whereby the parties agree not to amend their estate plan after the first spouse is deceased.  There are a number of other strategies that also may be useful in particular circumstances.

In the case of families with prior marriage children, the overriding issue is how to balance the conflicting goals of predictability on the one hand and freedom from restrictions and limitations on the other.  There are a number of tools that can be used to add predictability to the estate plan, but they will by necessity add some measure of restriction or limitation.  How successful the estate plan will be depends on understanding which of those tools are appropriate in a given case.

Estate planning for a family with prior marriage children must be undertaken carefully and must include an open and frank discussion of the realities of the situation.  Then, an estate plan can be established that will best meet the family’s needs and assure their goals are met.

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Establishing Trusts For Children: A Few Practical Tips

By Rebecca G. Doane, Esq. and Randell C. Doane, Esq., published in the Palm Beach Daily News, January 11, 2004

Traditionally, a child’s inheritance would be left in a trust only if the child was young, disabled, a spendthrift, or otherwise unable to manage or conserve significant amounts of money.  The modern trend, however, is to leave property in trust for almost all children, even those children who are adult, mature and responsible.  Most estate planners now recommend such trusts because they know that an inheritance left in trust will be better protected from potential divorces, creditor problems and additional taxes.  A properly designed trust can protect your child’s inheritance from a variety of possible misfortunes and yet provide the child with virtually unrestricted access to the inherited assets.

In the case of young children, it is obviously better to leave their inheritance to them in a trust rather than outright.  Leaving significant property to a child to be received at age 18 or in his twenties or thirties may be a great disservice to the child and may cause more harm than benefit.  Most of us have known of someone who received “too much, too soon.” Such children often suffer serious developmental problems and may never acquire a satisfactory level of maturity or responsibility.  In most cases it is preferable to leave property in trust for children so that the property will be properly managed and administered for their benefit and will ultimately pass to them at a more mature stage of their lives.

Traditionally, trusts for younger children were designed to pay out at later ages.  For example, the child would receive one-third of the principal at age 30, another one-third at age 35 and the remaining one-third at age 40.  Earlier or later ages might be selected depending on the maturity level of the child and the philosophy of the parent.  The idea was to distribute principal in stages so that if the child was wasteful or otherwise imprudent with the first partial distribution, hopefully he or she would have acquired some additional maturity by the time the next partial distribution was made.

Modernly, most estate planners have come to realize there are significant advantages in eliminating mandatory distributions at specified ages and permitting the child to receive the protective benefits of the trust throughout his or her lifetime.  If the trust assets are required to be distributed, then they are no longer protected from divorces, lawsuits, creditor problems, and other possible hazards.

A better approach for most children is not to require distribution at specified ages.  Rather, the inheritance should be permitted to remain in trust where it will be protected throughout the child’s lifetime.  If the child is mature and responsible, you can name the child as Trustee of his or her own separate trust.  Under that arrangement, the child will be in complete control of his or her inheritance and will be able to make investment decisions and spending decisions with no significant restriction.  Yet, the inheritance will be better protected from life’s many hazards.

Another advantage of a trust that remains in effect throughout your child’s lifetime is that it provides some assurance that remaining assets will ultimately pass to your grandchildren or other intended beneficiaries.  Alternatively, if property is left outright to your child, then upon your child’s death it will likely pass to his or her spouse.  Even though you may love your daughter-in-law or son-in-law, you may feel a greater duty to protect and provide for your grandchildren.  A properly designed trust will assure that assets which remain at the time of your child’s death will pass on to those grandchildren if that is your wish.

For those families with significant wealth, a major concern may be the avoidance of unnecessary estate taxes.  A trust that remains in effect throughout your child’s lifetime may save a huge tax that would otherwise be paid by your grandchildren.  Such trusts can be designed so that even though your children are in complete control of their inheritances, the inherited assets will not be included in their estates for estate tax purposes at the time of their deaths.  In many cases, this type of trust will double the after-tax dollars to be inherited by your grandchildren when your children are deceased.

Because divorces, lawsuits, bankruptcies and similar risks are so prevalent in today’s society, it makes sense to take advantage of the protection that a trust affords and to leave your children’s inheritances in a manner that will be safeguarded throughout their lifetimes.  The realization has led many wealthy families to establish “dynasty trusts” that will protect their legacy for many generations to come.  Regardless of the level of your family’s wealth, your children and their descendants will be well served to receive their inheritances in the form of a protective trust.

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