Resources & News

Our Newsletter: February 2017

philanthropy-definitionSuccess With Significance Through Philanthropy

Once people reach a certain level of financial success, pursuits often become less about accumulating wealth, and more about creating significance, or leaving a legacy. This most often reveals itself through increased involvement in things that benefit their community and the world. In the world of estate and wealth strategies planning, there are many tools that can help families fulfill their philanthropic goals.

For example, there are a variety of charitable trusts that can serve to both benefit philanthropic causes and aid with tax planning. A charitable remainder trust (CRT) is a tax-exempt trust. It is primarily an income tax planning tool with some estate and gift tax benefits. With a CRT, the appreciation in assets can be realized without immediate recognition of the capital gain, a stream of payments is created for the donor and a deferred benefit is provided to a charity or charities. An income tax deduction, gift tax deduction or estate tax deduction is based on the remainder value that passes or is projected to pass to charity at the end of the trust term.

A gift annuity is essentially a bargain sale in which the consideration paid by the charity is in the form of annuity payments. The IRS specifies how the income is categorized; i.e., how much is return of principal and how much is ordinary income. It also specifies how gains are recognized, and limits payments to one or two persons.
A charitable lead trust (CLT) is the opposite of a charitable remainder trust in that the income stream is paid to charity with the remainder going to private individuals. A CLT is primarily an estate or gift tax tool. If it is set up as a grantor trust, it can also provide some income tax benefits.

One strategy that is often considered by affluent families is the creation of a private foundation. A private foundation is a special type of tax-exempt entity that is most often established by a single family to fulfill its charitable mission. There are operating and non-operating foundations, though most private foundations are of the non-operating type.
Private foundations have very specific rules and regulations that must be followed. Most well-known is the rule that mandates a 5% distribution to charity annually. However, there are also rules against self-dealing, holding certain types of investments known as “jeopardy investments,” and rules against creating excessive personal benefits from the foundation. While it is common to have family members on the Board of Directors get paid for their services, pay must be reasonable compared to other similar-sized charities.

Contributions to private foundations generally create an income tax charitable deduction subject to the deductibility limitations. Deductions are available in the year of the gift and can be carried forward for five succeeding years if needed. Contributions may be deductible at fair market value or cost basis, depending on the type of asset contributed. Private foundations are tax exempt under most circumstances, but caution must be taken if assets are being considered that might create Unrelated Business Taxable Income (UBTI).

While there is no legal minimum under the law to establish a private foundation, there is a practical dollar amount needed to justify the cost. While that amount used to be $5 or $10 million, it is now common to see private family foundations established with $250,000 or less.

An alternative to a private family foundation is a donor-advised fund. These funds are established as public charities and contributions are tax deductible as charitable gifts. They can be established with a relatively small contribution (many require an initial gift of only $5000) and the expenses are often charged as an asset-based fee. This makes them substantially less expensive to establish than a family foundation.

Distributions or grants are processed on the recommendation of the donor to qualified charities. The grant can either identify the donor or they may choose to remain anonymous. Donors can also name successor donors to continue the charitable objectives of the fund beyond their lifetime.

Some funds allow the donor to appoint his own money manager or to direct the money management independently. This type of flexibility has become very popular among the giving community since it allows a significant amount of control to remain with the donor. Further, many donor-advised funds allow the fund to remain in force for multiple generations. Contributions to donor-advised funds are deductible in the year of the contribution and for five succeeding years.

Our Newsletter: January 2017


I Love My Business, but I Love My Family

Life is never easy for the spouse and family of an entrepreneur. And that was certainly true of Tim’s family. Over the years, they had to learn to cope with a certain level of insecurity and fear of the unknown, to live through periods of excitement and depression, through days of exuberance and days of anger, and through feast and famine. And though the business went through many days of uncertainty, Tim was always sure about one thing – he loved his family and they were more important to him than the business. Most business owners feel the same way.
Nothing seems to stretch the familial bonds further than when it’s time for the successful business to change hands – either to be passed to the children, or to be sold to a non-family member. The impact on the family can be wonderfully rewarding, or it can be devastating. The difference usually depends on how much advance planning has been done by the owner.
An owner/parent occupies two roles in a family business and it’s extremely difficult to separate those roles without dramatically affecting the members of the family. Sometimes both parents and children find it hard to be honest about their true feelings. The strong, independent father doesn’t want to show vulnerability, that he actually needs the help of the children, or that he longs for them to carry on the business to which he has devoted his life.
Children may resent the fact that the business has kept Dad too busy and distracted while they were growing up, but are reluctant to bring that up because they know how important the business is to Dad, and know that the business has also provided them with financial stability.
Unfortunately, there’s no shortcut to family succession planning. It requires serious (and sometimes tough) discussions with total honesty and openness. If a child takes the reins of a family business only because a parent wants that, it usually leads to either a business or personal disaster. It is far better to keep the family intact than it is to keep the business in the family.
Questions about the ChildrenMany business owners assume that their children will want to carry on the family business, but this is not always the case. So begin with a heart-to-heart discussion. It’s important to understand what the children want and expect. If any of the children are interested in carrying on the business, you’ll need to realistically and objectively assess each child’s qualifications and abilities to do so.
If your children already work in the business, you can evaluate their performance and their strengths in such areas as marketing, administration, finance, and operations. If a child is interested in the business but not currently working there, you should get them involved as soon as possible. You should provide that child with the necessary experience in the day-to-day operations of the business. Let that child work his or her way up the ladder in non-management positions, gaining important experience. This will help non-family employees accept that child more readily.
One of the biggest obstacles in transferring to family is how to ensure that the business will continue to be profitable and growing. Selling or transferring to family has the same problems as transferring internally to employees. The big hurdle is management training. If you have been running the company successfully then you will now need to train family members to do “what you do.” This takes time, often three to five years.
It is helpful to have your business plan outline the steps of the transfer, and establish goals that can be monitored and measured at regular intervals. If enough time is allowed, the training can be carried out in a slow, purposeful, and organized fashion. A multi-step transfer allows you to control the process, and relinquish management duties over time in small pieces.
To have someone in charge of a business who doesn’t have the personality, skills, or knowledge to successfully run the business is unworkable – even if that person is your child! However, the best person to run the business is often not the same person that a family’s dynamics would indicate. It’s not necessarily the oldest child, the “born salesman,” or the daughter with the MBA. Every business is unique, and there are no easy answers in succession planning.
In addition, as a parent you may be hesitant to face the emotions or even accusations about having a favorite child, or arguments about who is smarter, or better with people, or better with money. It’s easy (and not uncommon) for emotional issues to cloud and confuse the discussion about what is best for the business. Using an outside advisor who specializes in both family and business dynamics allows a more objective input into the decision. Once that decision is made, ensuring that the family members are groomed to be successful becomes equally as difficult to do.
How the Sale of a Business Affects the FamilySometimes family members have an inflated sense of the value of their contribution to the family business, and feelings of jealousy can easily arise. Also, it seems that, no matter how large the sales price, nor how high the payouts to family members, sellers are overcome with uncertainty about the sale process. Was the price high enough? Will I be able to continue or improve my lifestyle with this newly- found wealth? Will my future business endeavors be as successful as the business we just sold? These are all very normal emotions for the selling family.
The family routine probably suffers the most. Family discussions of routines, how the new at-home person fits into the routine (not dictates it), voicing the hidden expectations and fears, all become very important.
Working hard in the business may serve to mask family, communication, and relationship issues. Once the business routine is lost, the underlying relationship issues become obvious. Being home full-time exacerbates those same issues.
Plan on spending regular discussion and planning times prior to the transition, make the transition gradual if possible, and most importantly, include the thoughts and feelings of all of those involved to help move through these intense family and personal changes.
The sale of the business frequently changes family finances dramatically. Family expenses have been run through the business, and the income stream is typically consistent. Whatever the expectations of the finances have been, most often the new finances will be different. Fear is a routine visitor when any change occurs, and the more dramatic the change, the deeper the fear. An open discussion about the impact, planning for the impact, and understanding the underlying feelings becomes more important than ever.
Oddly enough, many selling families realize that their financial position is even more precarious after the sale than it was before the sale. That’s because the business usually paid some discretionary expenses, such as automobile, entertainment, and travel that are now borne by the individual. The selling family may be surprised to learn how much their lifestyle has actually cost, and they may have trouble sustaining that lifestyle.
Also, most sellers are now faced with the prospect of investing a large sum of money, and most people have limited experience or expertise in investments outside the family business. The prospect of losing some of their sale proceeds in the investment markets is very troubling, and for some, it is the biggest challenge they face. Couple that with the fact that most people have an unrealistic view of what is needed to live for the remaining 30+ years of their lives, and it’s easy to understand why the sale of the business is so stressful.
A partial solution is found in advanced planning to figure out your real costs of living for the rest of your life, and a realistic value for your business. Because of the blood, sweat, and tears that have been invested by owners in their businesses, many have an inflated view of its value. Purchasers look at how the business compares to the return on other investments, commonly seeing a much lower value. The gap between those two figures has to be closed in order for the financial end of the transaction to be successful. Thorough planning with the help of a professional advisory team can help reduce the stress to manageable levels for everyone involved.
The Impact on You“Honey, I’m home!” While those words sound great the first day after a successful sale, they may become the source of considerable consternation soon thereafter. The typical business owner works an extended work week; 50+ hours is not uncommon. And most of the mental energy of that person is used at work. When they are at home, time is quickly filled and they are back to work.Meanwhile, the family has learned to go about and build their own lives, rather than just sitting around waiting for the business owner to appear. In addition, most business owners are used to being in charge. Coming home full-time and being in charge usually just produces a lot of conflict.
Another major source of conflict comes from the fact that the business owner has many emotional needs met at work. Their sense of value or importance, the challenges, the sense of accomplishment, and many more subtle needs are no longer being met. Having a place to go, as opposed to just moving away from the business is a completely different psychological position. Ask yourself where you want to go next, how that will help you feel good, and then plan for that change.

Around the Offices: January 25, 2017

5 pointsJoin Attorney L. Kaye DeSelms Dent for a special seminar next month!

Our Newsletter: December 2016

Special Needs Trusts for People Without Special Needs?

Would it surprise you if your professional advisor recommended “special needs” planning when you don’t have any special needs children or grandchildren?

It’s important to think about things that might happen to your loved ones after you’re gone. Especially as they might be affected by your estate plan.

As advisors, we always try to help you plan for unforeseen financial circumstances and build creditor protections for our beneficiaries whenever possible.

The same type of preventive planning can be done to protect loved ones in a tragedy that leads to physical and/or mental disability.

Consider what happened in this situation, taken from the files of one of our colleagues.

John and Elizabeth had one child and several grandchildren. Their estate documents included a living trust that passed their estate to their only son, Jerry in trust.

At John and Elizabeth’s death, the trust was funded with approximately $1,000,000 after taxes and expenses, which Jerry was free to spend as needed.

The trust provided that if Jerry passed away, anything left in the trust was to be distributed to the grandchildren.

One day Jerry was involved in a terrible automobile accident. Jerry was injured so badly that he was no longer able to care for himself.

The person named as his guardian immediately sought help for Jerry’s medical expenses from Medicaid or other means-based government programs. They were shocked to learn that Jerry’s entire inheritance of $1,000,000 would have to be spent on medical expenses before Medicaid would assist him. As an alternative, the guardian learned that the assets could be placed in a special kind of trust to be used for Jerry’s benefit. But at Jerry’s death, that trust must reimburse Medicaid for what was spent for care during his life. The result in either case is that little or nothing will be left for Jerry’s children.

This result could have been avoided by creating a special needs trust. A special needs trust is specially designed to hold the inheritance of a beneficiary, and to be used for needs above and beyond those covered by government programs. These trusts contain instructions that allow the Trustee to meet the needs of the beneficiary, but prohibit the Trustee from providing for those needs if already covered by Medicaid or other programs. It also prohibits the Trustee from using the assets to reimburse any government program after the beneficiary’s death.

The result in Jerry’s case would be that his needs would be met during his lifetime, and anything left over at the time of Jerry’s death could be passed on to his children.

Around the Offices: December 2016


Coles-Cumberland Bar Association Offers Law Student Scholarship

The Coles-Cumberland Bar Association is pleased to announce that it has established the Coles-Cumberland Bar Association Law School Scholarship Program.

The Coles-Cumberland Bar Association is a private organization composed of attorneys practicing in Coles County and Cumberland County, Illinois. The organization has established this scholarship program to recognize and assist law students who have a close connection to the Coles County and/or Cumberland County, Illinois communities. One or more scholarships will be awarded annually, based upon academic and extracurricular achievements, background and financial need.

The Coles-Cumberland Bar Association anticipates awarding one or more scholarships in the amount of $1,000.00 following the application period. The Coles-Cumberland Bar Association reserves the right to modify the amount and number of scholarships awarded based upon the number and suitability of applications received.

The Coles-Cumberland Bar Association Law School Scholarship Program is open to law students having a close connection to the Coles County and/or Cumberland County, Illinois communities who will be enrolled at an accredited United States law school during the 2016-2017 academic year. Applicants are evaluated for their academic and extracurricular achievements, for their background and financial need, and for their
connection to the Coles-Cumberland communities.

An application form can be obtained via Facebook on the “Coles County Bar Association Scholarship Committee” page or by calling the Bar Association’s Secretary at 217-639-7800. Applications are due by February 1, 2017.

The 2016-2017 recipient or recipients will be announced at the Bar Association’s winter “Guest Night” meeting in February.

Our Newsletter: October 2016

adult_child_with_parent1 You Can Trust Your Children, Right?

Jane was one of five children. Her mother, Ellen, was 87 and had been ailing for some time.
Jane’s oldest brother, Bob, had been given a power of attorney by his mother to act for her. Under the power of attorney, Bob had broad powers. He also had access to all of Ellen’s accounts. The rest of the family had no idea that Bob was using his access to steal his mother’s money.
Jane and her siblings started to become worried because Ellen kept complaining that she didn’t have any money. The children knew that when their dad died several years ago, he left more than $500,000 in assets and a house that was debt free.
When they began to look into it, they discovered Bob had been using his mom’s money for himself over the past several years and that the money was almost gone.
Jane decided that she needed to consult with a lawyer to see what could be done.
The lawyer explained that the power of attorney allowed her brother to take action to benefit his mother, but it did not allow him to use the property for his own needs.
Jane hired the lawyer to look into the matter and found that most of her mother’s money had been spent. In addition, Jane’s mom had signed social security and pension checks over to Bob. Bob claimed they were gifts. But when Jane asked her mother about these gifts, Ellen said that Bob told her she had to sign the checks over to him. That she had no choice. Ellen said she did not want to cause trouble in the family so she went along.
Jane talked with the lawyer about what options might be available to get the money back. Her lawyer explained to her that the only recourse was to demand that Bob return the money and to sue him if he failed to pay back the cash. Jane knew that suing Bob would be a lengthy, time-consuming and expensive legal proceeding, and that there was no guarantee of success.
The lawyer explained that, many times, elderly parents trust their children and rely on their judgment and do as the children suggest. Sometimes, as in Ellen’s case, the power of attorney is used wrongfully. Even worse, it is often the case that the assets have been spent and there is no way to recover them.
The lawyer explained to Jane it would have been better to have employed more than one child to oversee Mom’s affairs. This approach would have provided some checks and balances.
Jane went back and discussed the matter with her mother and her siblings. In the end, Ellen just was not willing to sue her son.
Bob became scarce once the game was up and the other children had to step in to help. The worst part was Ellen’s sadness and disappointment with her son during her last years.

Around The Offices: November 10, 2016

 Social Security’s Trust Centralization Project Affecting Area SSI Recipients

Beginning April 28, 2014, The Social Security Administration implemented its “Trust Centralization Project” to improve the quality and efficiency of its review and approval of special needs trusts. This Project is the result of efforts by a group known as the “SNT Advocates,” primarily attorneys who work with special needs clients and had concerns about how their special needs trusts were being viewed by the Administration.

As a result of the Project, many cases, including cases in our area, are being reviewed. In some instances, trusts which were previously approved by the Administration are now being rejected. If you or someone you know has received a notice about a trust, you should see an Elder Law Attorney immediately to determine what steps to take to protect eligibility for SSI benefits. It is important to remember that Medicaid benefits follow the same rules, so loss of benefits could mean loss of needed medical care and treatments.

There is a short deadline of only 60 days for appealing a Social Security decision, and the deadline may be shorter for Medicaid. It is important to seek help right away, because an attorney needs time to analyze the case and prepare the necessary appeal documents, something which may not be possible on day 49 or 53 or 59.

A little background:

The Project affects disabled people who receive SSI, which is a needs-based benefit. It does not affect people who receive SSDI, which is an insurance program. SSI rules require that recipients have no more than $2,000 in “countable resources,” which includes cash and accounts which can be liquidated, regardless of cost, penalties or taxation. Recipients are also very limited as to income.

Because of the restrictive SSI rules, families sometimes set up trusts for SSI recipients. These trusts, often called special needs trusts or supplemental needs trusts, are designed to protect the person’s benefits by creating restrictions on the control and use of trust funds such that those funds are not considered as countable resources.

SSI rules require that a recipient who is the beneficiary of trust submit the trust to the Administration for review. The Administration then determines if the trust meets the requirements and is an exempt resource. In the past, the reviews could take many months or a year or two, and the decisions across the country and even within single field offices was inconsistent. So, it is important to remember that, just because the government sends you a notice doesn’t mean the notice is correct.

If you have received such a notice, Kaye Dent at Frisse & Brewster Law Offices will be happy to provide you with a free consultation to help you determine what, if anything, you may need or be able to do.

Read more here.

Around The Offices: October 26, 2016

Once again, Kaye DeSelms Dent has the honor of presenting at an NBI Continuing Education Seminar, titled Protecting Assets While Qualifying for Medicaid. More information and a link to register are available here.

Program Description

Get the Latest on Medicaid Application and Asset Planning Tactics

Middle class Americans seeking asset protection cannot afford to ignore the potentially devastating costs of nursing home and other long-term care. Nursing homes are among the most common and largest creditors an average American is likely to face in his or her lifetime, but only about 10% of the population has long-term care insurance. For the other 90%, Medicaid is the primary source of payment, so a basic understanding of the Medicaid asset protection process is vital for all professionals who work with seniors and their families. This course will provide an overview of asset protection concepts and strategies that elder law attorneys can use to legally and ethically protect assets while facilitating earlier Medicaid eligibility; and a set of crisis-management tools to prevent and correct inadvertent loss of benefits. Register today!

  • Learn what the income eligibility requirements are when applying for Medicaid.
  • Protect your clients’ interests by knowing what’s exempt and what’s not.
  • Employ the most practical and effective asset transfer methods to comply with the spend-down requirement.
  • Explore crisis planning methods to restore Medicaid benefits as quickly as possible.
  • Guide clients through the Medicaid qualification process by knowing what’s involved.

Who Should Attend

This basic-to-intermediate level seminar is designed for:

  • Attorneys
  • Nursing Home Administrators
  • Social Workers
  • Geriatric Care Managers
  • Trust Officers
  • Accountants and CPAs
  • Estate and Financial Planners
  • Paralegals

Our Newsletter: September 2016


Planning for the Family Vacation Spot

Your family cabin, cottage, or vacation home may be one of your most significant financial assets. It is also likely to be the one with the most enduring memories and emotional ties. The property may have been in your family for decades with your children and grandchildren experiencing special family gatherings and having spent their summers there. Because of this, you probably have a strong desire to keep the property in your family, to protect it, to pass it down to your children, grandchildren, and maybe even your great grandchildren. This isn’t stocks and bonds; it’s your legacy!

Unfortunately, without proper planning, those inheriting the interests of long-time cabin owners may have too many divergent interests, financial and otherwise, to be workable. These new owners have often never discussed who gets to use the property and when, how to share expenses, handle the maintenance and upon what terms they can be bought out. Disputes can easily occur in these situations. Such family fights are often talked about among cabin (family retreat) owners. Most know at least one family story where after the death of the senior generation the property ended up having to be sold outside the family because the heirs could not work out their differences.

Let’s look at some of the common problems that affect inheritors of cabins and family recreational property.

1. The common right to use. All co-tenants have the same common rights to use the property. If July 4th rolls around and all owners enjoy getting together and space is no issue, great; but what if the relations among the owners have changed due to inheritances and the family gathering dynamics are different? If people do not get along or the cabin is simply too small to accommodate everyone, this common ownership becomes a huge and often unworkable issue. Enter the phrase “cabin hog” into the family lexicon.

2. Non-paying owners. This is where the trouble can really start, because even if a co-tenant does not pay their share, they still have the same common right to use the property as the others. The other owners essentially have to subsidize the non-paying owners because, if they don’t, it affects their own interests.

3. Legal and financial problems of other owners. If a co-owner is getting a divorce or files for bankruptcy, those problems can quickly become the problems of the other owners. They may be forced to transfer their interest to a successful judgment creditor including an ex-spouse.

4. Differing interests. This is the most fundamental of all the ownership problems. Some owners want to sell; some do not. Some need the money and some do not. Some can go to the cabin often while others are too far away to enjoy it. The list goes on and on. The more owners there are, and the more divergent their interests, the greater potential there is for problems and the greater the need to plan to avoid them.

5. Disproportionate physical work, property management, or improvements. It’s not easy to keep up lake homes, beach front properties, or cabins in the woods. Things need to be cleaned, fixed, bills paid, etc. Most owners cannot afford to hire out all this work so it often falls upon the owner who lives closest to the property, creating additional inequality.

6. Unintended and unwanted heirs. Assume Bob and Pat die and leave their cabin to their three children, John, Peter and Susan as equal owners. Assume that their son John dies a few years later and leaves his 1/3 interest to his spouse, Jane. Jane remarries and names her new husband Ted as a joint tenant with her on her 1/3 interest. She does not need to consult with Peter and Susan and is free to do this. Now, even though Peter and Susan never liked Jane and have never even met Ted, they now share the same common rights to use the property as they do. Ted shows up each weekend “to check on things”.

Even though Peter and Susan have told Ted they want their privacy, he continues to do this. Jane and Ted also don’t pay. Peter and Susan have to make up the shortfall and have to continue to deal with Ted stopping in all the time. Since Peter and Susan can’t force Ted and Jane to abide by a schedule for using the property or to pay expenses on time, they may have to bring an action to partition the real estate to end the undesired co-ownership with their former in-law and her new husband.

Luckily, there are ways to plan around most, if not all of these problems. Next issue, we will look at some of the potential solutions to the problems outlined in this article.

Around the Offices: September 14, 2016


How and When to Stop an Elderly Parent from Driving

by L. Kaye DeSellms Dent

It’s tempting to put off difficult conversations, but it can also be dangerous. Talking to an elderly parent about when it’s time to stop driving is not a fun conversation, but sit down and have it sooner rather than later. Your parent’s safety and the safety of others is at stake. According to the CDC, “in 2012, more than 5,560 older adults were killed and more than 214,000 were injured in motor vehicle crashes. This amounts to 15 older adults killed and 586 injured in crashes on average every day.
WHO: If your parent has a power of Attorney in Place, the agent appointed by that document may be the person to start the conversation. Alternatively, a trustee of a trust, a trusted family friend (one more the parent’s age?) could be a good strategy. Everyone is different, so consider how your parent might react and whom he trusts. Ask for help from your siblings and maybe his. Once you determine who should be the bearer of what is likely to be seen as bad news, think about what should be said.
WHAT: Do plan ahead. Index cards and practice are not a bad idea. “Dad, you asked me to handle finances and related matters for you if you were no longer able. Apparently you trust me, so I hope you trust me enough that I can tell you it may be time to retire your car keys.” It’s not a message you can convey in a brief sentence, so practice can make it easier. Also be certain to have documentation at hand. This might be medical records (if you have access), a list of medications (with side effects) and illnesses, a list of “close calls” (even those not involving driving), anything that proves your point and more than anecdotal. Don’t forget to have a list of delivery and public transportation options handy, along with a list of willing family and friend “chauffeurs.”
WHEN: Timing is everything. Don’t “pounce” on mom at the end of the day when her pain medication is wearing off or first thing in the morning if she’s groggy then. Pick a time of day when she feels alert, rested, and at her best, so she doesn’t feel (as) defenseless and will also be open and honest with you. The last thing you need is a fight or walking away thinking you have an agreement but finding out the next day she was placating you to get you to leave so she could watch her show, take a nap, or just get you to go away.
WHERE: Again, consider how your parent is going to react and plan accordingly. Will he feel defensive if approached at home or while “trapped” in a car with you? Will he be more receptive to a casual conversation while on a walk or sitting outside? Avoid too public a location.
HOW: Don’t forget to ask for help in developing your “script.” There are internet materials and books on the topic, including How to Say It to Seniors, by David Solie. As a last resort, you can inquire with your parent’s physician or directly with the licensing agency about your concerns.