The Obama Administration advocates extending the 2009 exemption of $3.5 million permanently. This appeared to be where the Senate was headed on May 18th when an agreement was reached that had the support of more than 60 Senators. But the deal fell apart when the Democratic leadership decided that it will not allow the legislation to come to the floor for a vote unless the legislation has the support of more than half of the Democrats’ 59 votes. Since the Democrats lack 50% support within their party the legislation failed. Regardless of whether the Senate acts, there will be an estate tax next year. Full repeal is not under consideration. The only question is whether the exemption will be $3.5 million or $1 million –and $ 2.5 million is a huge difference in the plans for millions of families including many many of our clients.

For the full story click here.

One of the largest and most respected attorney organizations in the country is called WealthCounsel.  They just released their Third Annual Survey of Industry Trends and there were some results that I thought you might be interested in hearing about.  Since this group is exclusively “by attorneys” and “for attorneys,” it isn’t very often the general public gets to see our inside information.  Let’s take a peak…

While many businesses are down, 40% of the attorney’s said their business had increased – at least in the estate planning area.  Why?  More people were focused on updating and getting some plans in place to hold onto more of what they had after many had lost a bundle due to the economic crisis.  This was not only good for the attorneys but was very good for their clients to get an update and better plans in place. (Especially true in California where we got four new statutes in 2009 alone that affect every estate plan.)

The survey asked attorneys what is the number one reason why people plan – make your guess now. <drum roll>  The number one reason was to avoid probate and minimize estate taxes.  Probate starts at 8% of the gross estate and estate taxes may reach as high as 55% of the net estate.  It’s no wonder they’re planning.  Another major factor that motivates people to do their planning is to avoid the answer to the question, “What would happen if they don’t plan?”  Most attorneys expect to see an increase in activity as the population of baby-boomers starts aging – which has already begun.

Wachbrit Braverman PC is well positioned to serve this baby-boomer population because of our strengths in asset protection planning for next generation and in special needs planning, two key motivators.  And when we started the firm, we worked with many young families who are older families now (yes, it’s been over 10 years!) so we’re very familiar with many of the issues boomers are facing.

I have the privilege of being part of this wonderful group of attorneys where I get to share ideas and insights to help my clients from San Diego to San Jose.  I have been a part of Wealth Counsel for eight years, and each year brings more great ideas than the previous one.  I feel honored to be a part of such a wonderful group of attorneys and am proud to call them my friends.

Why do I like Retirement Trusts best of all beneficiaries for retirement assets? Because unlike any other beneficiary, with an Irrevocable Retirement Trust, we can achieve every objective clients have for their estate planning. (Although the trust has to be irrevocable — according to one case in Kansas — it’s easy to replace it with a new trust as long as the plan participant is alive and well.)

We can achieve estate tax planning goals by keeping the first spouse’s retirement assets out of the second spouse’s taxable estate; especially valuable if the retirement plan is a substantial portion of the estate. This is applying the A-B formula that allows married couples to double the amount they can pass on to beneficiaries free of estate tax to retirement assets.

We can maximize the income-tax deferral benefits of the retirement asset by ensuring that the stretch-out is fully utilized. (That means that your beneficiaries can withdraw and pay tax on the retirement plan over the course of their entire lives, rather than all at once.  If they have to withdraw it all right away, it may put them in a higher tax bracket so that they have to pay very high income tax rates on the inheritance.  Imagine a $1M IRA reduced to $650k through income taxes.  Imagine the beneficiary finding out that it was avoidable…)

We can provide asset protection, divorce protection, remarriage protection and disinheritance protection to all beneficiaries, from the spouse to the grandchildren. Unlike in an RLT’s conduit trust provisions (at our firm, a standard clause we include that, in some cases, allows a stretch-out), a Retirement Trust can contain Accumulation Trust provisions that allow the trustee to accumulate required minimum distributions inside of the trust instead of distributing them to the beneficiary each year. This allows true protection because there is no right to attach or take away.

Two cases (one from Delaware – a powerful state), have recently held that an inherited retirement plan has NO asset protection on its own.  Listen, while you own your own retirement plan, you get great asset protection, especially if that retirement plan is under ERISA — 401(k)s, 403(b)s, etc.  If you get sued or go bankrupt, your entire 401(k) is protected (the protection for contributory IRAs is limited; comment below if you want details), no matter how big it is.  Your beneficiaries don’t get this protection.

Finally, we can ensure the asset is never accidentally probated. You may wonder how it could ever be probated.  All it takes is for the primary beneficiary to fail to complete her own beneficiary designation form.  Or the custodian could lose the designation form.  Or you could name a minor child as a beneficiary.  Lots of paths to probate.

The Irrevocable Retirement Trust is an estate planner’s dream for her clients!  DEFINITELY consider it if your retirement assets make up more than 20% of your total estate or exceed $300k.

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This may be the hardest, most important question you will face in the entire estate planning process. If your child is young, the guardianship question is probably harder and more important but this is a close second! I say this not to intimidate you but to reassure you that hundreds of our clients have been in your very position before and every single one of them has found a solution.

We can go into greater detail on any of these in the comments or on a future blog, depending upon demand, but for now we’ll look at a brief overview of your options:

Your Parents: they might be great as a temporary solution but in the natural order of things, they will not live long enough. This Special Needs Trust needs to last for your child’s entire life.

Your Siblings: while they can be a great choice for initial trustee or successor trustee after you, they too will probably not outlast the trust. But they can manage it while we wait for other candidates to, literally, grow up.

Your Other Children: this is a mixed bag. While they are the same generation as your child with special needs, there’s no predicting who will outlive whom. Then there is the burden. You may be counting on you other child(ren) to visit or even to act as Guardian/Conservator to your child with special needs. The job of Trustee, done properly, is an onerous one, fraught with liability. Finally, if your child with Special Needs has more than one sibling you MUST consider family dynamics. Can you name them all as co-trustees, or will that be placing your Beneficiary in the eye of an endless hurricane? If you choose one, how will the other(s) react to “the chosen one” and to the Beneficiary?

Your Special Needs Trust Attorney: in limited cases, I will agree to act as a successor trustee for clients. It often makes sense when naming family does not, and the clients want more personalized attention than a bank can provide. Of course, since I’m mortal, my back up is usually…

A Bank or Trust Company: their minimum trust sizes range from $300,000 to $1M, with the vast majority of banks, brokerage houses, and trust departments either refusing to accept Special Needs Trusts or setting their minimum at $1M. They have one big advantage and that is “deep pockets”; however, in my experience, it’s very hard to get anything out of those pockets because they will not accept a trust that holds them to a standard of accountability that is any higher than “gross negligence“. Gross negligence is very difficult to prove because it goes beyond all kinds of mistakes that no one in their right might would make to mistakes that are just outrageous.

Sometimes a combination makes sense. For example: the estate planning attorney together with the brother of the beneficiary. Then, whichever of them lives the longest with a bank that has a stellar trust department reputation. Then, the bank alone with a Care Manager-style Advocate for the rest of the Beneficiary’s life.

If you find yourself more confused about your choices than before you read this post, don’t be alarmed. That’s just because you realize you have more choices than you thought.

Many a client has resolved an “impossible” situation in my office, not because I have the answer but because I have learned to ask great questions over the years.

So come in, have a cup of coffee with me and let’s take on your toughest choice together. I promise it will be time well-spent.

Many professionals reasonably believe that Congress could never do anything as outrageous as allowing the Permanent Estate Tax Repeal to expire completely on December 31, 2010 and return the exemption to where it was in 2001, when the Repeal was passed.

I believe they could. In fact, a growing number of professionals are coming to believe that expiration of the Estate Tax Repeal is our most likely future.

One plausible scenario was painted by Stan Miller, a Principal with Wealth Counsel at that estate planning organization’s national annual symposium, which I attended last month. Imagine, Mr. Miller posited, a late 2009 in which Congress is facing a 2010 with no estate tax, followed by expiration of the Repeal (what one of my clients called a “throw momma from the train” year).  Further imagine that Congress is continuing to approve expensive stimulus packages while economic pressures and public pressures to hold tax increases down are strong.

The proponents of full repeal have no incentive to compromise: their billionaire constituents don’t care about the difference between a $1M exemption and a $4M exemption. The proponents of higher taxes have no incentive to compromise, they just have to wait for expiration of the Repeal.

So Congress, to avoid the “throw momma” social policy problems and the nightmarish capital gains basis problems that we will face in just a few months if they do not act, could enact a one-year”patch”. They could extend the $3.5m exemption through December 31, 2010, and then… do nothing. Allow the Repeal to expire.

I certainly understand the optimism of many clients who expect more from their elected representatives. But when 2011 rolls around, we’ll be standing by with our toolkit of estate tax planning strategies for those clients who find themselves suddenly, and taxably, “wealthy.”

And the lead attorney is not Diedre Dennis Wachbrit, single mother.  Instead, it’s Diedre Wachbrit Braverman, remarried mother of two fourth-graders. I changed my name when I wed Bennett Braverman, of Boulder, Colorado, in May. Bennett is also an estate planning attorney, and the kids just love him.

I have another big change to tell you about before I get down to the serious business of blogging about legal topics. (I’ve got some good ones already written for including a three-part series on a topic that generates a lot of questions: retirement plan beneficiary designations!)

The other big change is that our firm once again has an Associate Attorney, Mrs. Annabel Blanchard Spatola. A recent law school grad, Mrs. Spatola decided early on that she wanted to focus on estate planning and related areas. We are fortunate to have her because she is a quick learner and she shares the team’s dedication to client service, integrity and the right result, every time.

So please consider this blog a resource for learning (use the comments area for questions), and for sharing. We will continue to email you blog snippets but if you want to see blog articles as soon as they’re published, subscribe to this blog using an RSS reader.

- Diedre Wachbrit Braverman

This promises to be a great resource for special needs families. You can read the full interview, which covers everything from special needs trusts to conservatorships to when Supplemental Security Income is available to a person with disabilities, here.

For many years, avoidance of the Developmental Center as a living arrangement was a primary concern for parents planning the future of their kids with special needs. Adults with special needs who had no place else to go often ended up in these locked, confining and dark centers, alone, with no visitors. Clients who had children with special needs in the 1960s tell me stories of being encouraged to turn their children over to Developmental Centers and pretend they never had them.

But the danger is not over. In many states, Developmental Centers continue operations without any slack, sometimes despite media attention on egregious living conditions. In California, four Developmental Centers remain open and house 2,310 residents. The closest Developmental Center to Westlake Village that is still open is Fairview Developmental Center in Costa Mesa, which has 504 residents. Progress has been made in the provision of a decent quality of life for people who live in Californian Developmental Centers but most Advocates hope to see them all closed as soon as possible.

If you have a Special Needs Trust with our office, you may recall a brief discussion we had over whether your child’s SNT could ever be used to pay for a Developmental Center. Every single client has always said “no.” So I can confidently say that if you have a SNT with us, it prohibits the Trustee from supporting a Developmental Center placement.

If you want to do something to help, support Mary Omoto’s Sacramento organization, California Disability Community Action Network at 1225 8th Street, Suite 480, Sacramento, CA 95814.

If you want to stay on top of the news about Developmental Centers and other Sacramento-related special-needs updates, subscribe to the CDCAN newsletter by sending an email to martyomoto@rcip.com or visit www.cdcan.com.

The IRS is especially fond of auditing those who use Schedule C. If you have a business, you can avoid Schedule C by incorporating (call us for details).

A few other interesting facts from the article:

- Most audits now are done by mail

- Enforcement revenues dropped from 2007 to 2008

- Anyone can “tip off” the IRS that you are cheating and the agency is likely to investigate.