King Henry VIII and Queen Elizabeth Repealed

History Changed. Would you believe that 500 years after the death of Queen Elizabeth Michigan has taken its first steps to eliminate a medieval carryover into our laws of trusts and estates? This old relic is called the Rule Against Perpetuities (RAP).

What is the RAP? The Rule Against Perpetuities - RAP - was established in medieval England to prevent property from being tied up in trusts forever. Since land was the principal form of wealth in medieval days, the ruling monarchs and parliament decided that it was against public policy to prevent alienation of real estate indefinitely. By alienation we mean sale or other transfer of ownership. In other words, there was concern that estates, land primarily, would be held in a trust forever which could be uneconomical or unproductive and thereby contrary to the welfare of society and the country. These medieval rules were carried over into American common and statutory laws. From your history books you might recall that the laws of most states originated with the common law and statutes that existed in England when most of the early settlors came to North America. When the laws regarding property were codified in statute, most states adopted some version of the English RAP. The RAP regulates the length of time that a trust can be in existence. In Michigan, it was generally limited to a maximum of 90 years, or the longest life of a beneficiary living at the time of the Trust, plus 21 years.

Many States Have Repealed RAP For Competitive Reasons. Starting with such states as Alaska, South Dakota and Delaware, states have begun repealing RAP as the rationale for limiting the life of a trust has become less tied to land and more involved with securities and business interests of various types. Moreover, since trusts typically buy and sell property, real estate as well as securities, state legislatures have decided that there is no strong public policy to restrict the period of time, or number of generations, that a trust can be existence.

Some states have inserted a ridiculously long period of time such as 1,000 years. Others have eliminated RAP completely. In Michigan, the legislature in 2008 has split the baby in Public Acts 148 and 149.

Michigan’s Solution. Effective May 28, 2008, the RAP was abolished with respect to personal property held in trust. This would include all financial instruments, corporate shares, bonds, etc. It is now possible in Michigan to have a trust holding personal property exist in perpetuity.

What About Real Estate? For some reason, the legislature did not make a sweeping abolition of RAP. The elimination expressly applies only to personal property. This is a strange distinction in our modern era because real estate can be held by a corporation or an LLC, the shares or membership interests of which are classified as personal property. Therefore, it is easy to hold real estate in perpetuity by transferring title to a separate entity such as a corporation or LLC.

What Difference Does This Make to Most Clients? Some clients, wealthy or not so wealthy, want to establish trusts for future generations which will not be subject to estate or inheritance taxes. These are sometimes called "dynasty" trusts. Generally, these trusts are identified with the super wealthy families such as Ford, Kennedy, Rockefeller, etc.

Now with many states removing the barrier to perpetual trusts, Michigan trustees and residents found themselves at a disadvantage when contrasted with other states where perpetual trusts can be established. Now that disadvantage has disappeared for trusts that were revocable on May 28, 2008, or are created after that date. However, perpetual trusts are a favorite topic of writers in the financial press. Michigan trusts are no longer disadvantaged for those residents who want to explore this option.

We find relatively little interest in perpetual trusts among our clients. This may be because of the typical Midwestern conservative values and the desire not to control family wealth from the grave forever. Conclusion. Whether you have any interest in a dynasty trust or want to explore the possibility, or desire any help with your estate planning needs, please call Jim Modrall or any of the attorneys listed below.

Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, Laura E. Garneau and David H. Rowe at (231) 941-9660

Brandt, Fisher, Alward & Pezzetti, P.C.

This newsletter is for informational purposes only and is not intended as legal advice.

Important Homestead News

Good News From Lansing. These days it is hard to find good news in Lansing or Washington when it comes to taxes. However, in 2008 Public Acts 96 and 198, the Michigan legislature addressed the dilemma of homeowners who have put their houses up for sale and moved out.

Homestead Status. Michigan taxpayers are familiar with a Homestead exemption for their principal residence, which usually is worth a savings of 18 mils on their property tax bills - approximately half of the total potential tax burden for most taxpayers. We deal regularly with questions from clients about Homestead status, who can claim it and how. Most homeowners are familiar with the Homestead Affidavit, filed with the local assessor, to establish the Homestead exemption - sometimes called the Principal Residence Exemption (PRE).

Homestead Rescission. Michigan law requires that a property owner is required to rescind the PRE within 90 days after the property is no longer used as a principal residence, i.e when the owner moves out. Homestead status is determined on a calendar year basis. Normally, the PRE will be in effect for the taxable year in which the property is transferred or is no longer the principal residence. So, if a person moves out and/or rescinds the PRE during 2008, for example, the PRE status is generally maintained for the 2008 tax year. Prior to the 2008 amendments, an owner moving out of a home listed for sale in 2008 would lose the homestead exemption for the tax year 2009. If the owner failed to file the Notice of Rescission, continuing the exemption for 2009, the owner could be liable for penalties. For example, clients moving to a smaller residence or moving out of state in 2008 could be on the hook for a much large tax bill in 2009 and subsequent years until the property sells. (If a person moved out of their home in 2007, the PRE would be lost for 2008.)

Conditional Rescission. The 2008 statutory amendments to MCL 211.7cc.(5) are now permitted to file a Conditional Rescission Notice affirming that PRE property is not occupied, is for sale, is not leased and is not used for a business or commercial purpose. A new Department of Treasury form 4640 has been issued for this purpose. The statute requires it to be filed annually prior to December 31 in order to maintain the PRE for the next tax year. The statutory amendments states that an owner may retain an exemption "for not more than 3 tax years on property previously exempt ...".

While it is not completely clear how the 3 tax years are determined, it would appear that a homeowner moving out in 2008 and filing a conditional rescission prior to December 31, 2008, would be able to keep the PRE in effect for tax years, 2009, 2010 and 2011, if the property is unoccupied, listed for sale, and not leased during that period of time. (Let’s hope that the property owner in question has priced the property at a reasonable enough level to sell within that period of time.) Similarly, an owner who moved out in 2007 can get retroactive relief for 2008 under the new law, but the owner needs to act promptly.

Conclusion. The conditional rescission and continuation of the homestead exemption is a great tax break for the many Michigan residents who have been forced to move as a result of a lay-off or transfer. It also benefits retired property owners who have moved and have their residences listed for sale. It can be especially beneficial if the client has moved within the State of Michigan and can now claim two properties for the PRE, pending the sale of a previous homestead property. The new law has a critical time element for owners seeking relief for 2008. Relief should be sought before the December Board of Review meeting.

If you have questions pertaining to the PRE, estate planning or your property tax classifications or valuations, please call Jim Modrall or any of the attorneys listed below.

Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Edgar Roy, III, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., John M. Grogan, Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, Laura E. Garneau and David H. Rowe at (231) 941-9660

©BRANDT, FISHER, ALWARD & ROY, P.C.

This newsletter is provided for informational purposes and should not be acted upon without professional
advice.

Urgent News Re: Charitable Trusts

Charitable Lead Annuity Trust. A Charitable Lead Annuity Trust ("CLAT") is a charitable trust designed to pass significant wealth to the next generation without transfer tax. The CLAT was publicized after the death of Jacqueline Kennedy Onassis who had reportedly established a CLAT in her will or revocable trust for the benefit of her children.
Basically, the idea of a CLAT is to provide for sufficient annual payments from the trust to a charity over a period of years so that the remainder gift to children, at the end of the term, has a tax value of zero or close to it.
How Does This Work? I was alerted to the impact that the rapidly changing interest rates will have on a zero gift CLAT. Each month the IRS publishes the applicable interest rate for the next month based on Federal mid-term interest rates. For example, the applicable rate for May was 3.2%. For June and July, 2008 the rate is 3.8%, and for August, 2008 the rate is 4.2%. In calculating the value of the remainder gift to family, the IRS assumes that the earnings of the trust will be equal to the applicable interest rate ("AFR").
Example. Suppose $1 million is transferred to a twenty year CLAT with annual payments to a family foundation (or a public charity) at the May AFR of 3.2%. The annual payment to the charity from the $1 million trust would be $68,464.54 for a 20 year trust. Using the May AFR of 3.2%, the taxable gift would be zero. If the trust earns more than 3.2% there will be a tax free remainder at the end of the twenty year term. For example, if the trust earns 6.85%, the earnings will exceed the payments to charity and there will be $1 million remaining after 20 years. If the trust earns more than 6.85%, the remainder value will be greater than $1 million .
Similarly, if the trust earns less than 3.2% there will be no remaining assets for family. (How many financial advisors tell their clients that they can expect to earn less than 3.2% on their portfolio over a twenty year period?)
Why The Urgency? The IRS regulations permit the grantor of the trust to use the AFR for the month of the transfer or either of the two previous months. Thus, a CLAT done before the end of July, 2008 will qualify for the 3.2% rate.
Why is this important? If the grantor delays until August when the lowest AFR is 3.8%, the annual payment to charity would have to be $72,284.63 for the 20 year term in order to have a zero gift. That is a difference of $3,820.09 per year to accomplish the same result, a taxable gift valued at zero.
Using a compound growth rate of 5% for 20 years, that saving would amount to $126,312 (assuming an annuity in arrears). As they say, "this ain’t chicken feed!"
What Is The Benefit? Why would a client want to do a CLAT in the first place? First, this interests clients who are pretty sure to have an estate tax at death. That is, clients that have total assets more than $3.5 million (the exemption in effect for 2009 and likely to be in effect in the future).
Second, clients may have a charity or private foundation that they want to benefit. We have done CLATs benefitting both family foundations and public charities where there is a strong charitable interest.
Third, we have had clients who want to delay distributions of wealth to family members for various reasons. Among them are maturity of grandchildren, retirement funds for children, or delays for reasons of divorce credit or claims, etc. (Delays can also be useful in the case of incarcerated relatives but we assume that no readers of this newsletter would fall into that category.)
More On CLATS.
We have talked about why people would use a CLAT. CLATs come in two flavors. In the most commonly used CLAT in our experience, the donor does not claim an income tax deduction, but the trust gets an income tax deduction for all the payments to the charity. The alternate form provides a charitable deduction for the discounted value of the charitable payments, but the trust is taxed on the income. In either case the objective is the same: payments to a charity and a tax free gift to children at the end of the term.
In some cases clients may elect to use several CLATs of different terms if part of the objective is to use up the taxable gift exemption of $1 million, for example, by reducing the annual payments to charity, the length of the trust term, or some combination of both.
Conclusion. There is not a lot of time left to set up a CLAT before the end of July, 2008. However, with another jump in interest rates imminent, there is still a substantial advantage to a trust established in August, 2008, using the June rate of 3.8%. A CLAT can be an important estate planning tool for wealthy clients with a charitable intent. (There is an especially strong reason to use a CLAT if a client has a Private Foundation where the client’s family will retain an element of control over the activities of the Foundation.) You don’t have to be a Ford or a Rockefeller to establish a Private Foundation!
If you or your clients are interested in exploring the CLAT, or the organization of a Private Foundation, please call Jim Modrall or any of the attorneys listed below.
Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Edgar Roy, III, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., John M. Grogan, Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, Laura E. Garneau and David H. Rowe at (231) 941-9660
©BRANDT, FISHER, ALWARD & ROY, P.C.
This newsletter is provided for informational purposes and should not be acted upon without professional advice.

Saving The Cottage

How Should the Cottage Be Preserved for the Family? In advising clients about "keeping the cottage in the family", I learned one thing - there is no one-size-fits-all. "Cottage" is a term we use in general to refer to a family’s "up north" property which has been enjoyed by at least two generations and usually more. There is often a great deal of emotion involved in the senior generation about trying to preserve family ownership of the property for use by grandchildren and later generations.
The practical aspects of how and whether a cottage is going to be "kept in the family" is a complicated challenge with many considerations.
How Should Family Ownership be Continued? When the senior generation is gone, the decision about continued family ownership and enjoyment usually comes down to consideration of many factors, among them:
Type of ownership
Property tax considerations
Income tax planning
Usage
Decision making - possible future sale
Ownership. Continued family ownership of the property involves a discussion of the pros and cons of ownership in one of three forms:
1) Trust
2) LLC (limited liability company)
3) Joint ownership
Of these joint ownership is generally the least satisfactory. Ownership as JTWROS - joint tenancy with right of survivorship - is often unsatisfactory became unanimity is required. Fractional ownership - tenancy in common - is generally ruled out because one owner can force a sale of the property.
Between ownership by a Trust and an LLC, there are arguments in favor of each. The LLC can provide for transferrable interests, but a property held by an LLC can never be a "homestead" for Michigan property tax purposes. A beneficiary of a Trust, on the other hand, can claim the homestead exemption if, in fact, the individual occupies the property. (This occupancy does not have to be exclusive.)
Property Tax Considerations. Property taxes are a major concern because of the uncapping of taxable value when the owner, or survivor of a married couple, dies. Although clients tell me that the SEV on lake front property has declined in the last year or so, the SEV is still much higher than the taxable value in the most instances. In considering property taxes, the homestead exemption is especially important and in many instances there is some member of the family who can claim the property as homestead. Continued ownership of the property is the often crafted around this objective, in order to keep long range property taxes at a minimum.
Income Taxes. The income tax aspect of a continued ownership needs to be reviewed. Property taxes and interest are generally deductible on individual tax returns. Usage fees are not deductible and consideration needs to be given whether contributions toward expenses are treated as usage fees or loans. If loans, are the loans to be secured or unsecured?
Expenses of Operation. Consideration needs to be given to how the property expenses are to be funded. Will there be an endowment that the parents provide and, if so, how long will the endowment last? In this respect, parents sometimes decide to endow the continued ownership for a limited period of operation - often three to five years so that the family has time and flexibility to decide how continued family ownership and operation will be handled.
If an endowment is not provided, then some mechanism of providing for usage fees or loans needs to be considered.
Decision Making - Property Usage. In considering continued family ownership, the senior generation needs to give thought to how decisions on property usage and operation are to be made. Is there a committee or board and, if so, how is that group chosen? Decisions have to be made on priority of usage. Is this going to be on a rotation basis, determined by lot, or some combination thereof?
Decision Making - Sale. Generally, the decision on sale is sometimes deferred until an exploratory period has passed. Some provisions generally are made for sale of the property some time in the future by a majority or super majority vote. This can be either on a per capita basis or on a family basis. In the latter case, for example, if there are four children, does each family have a 25% vote? If so, does a family have to vote its entire interest as a whole to prevent a splintering of a family interest? While these questions appear to be a little academic, they often provoke active discussions among family members as to how important decisions like sale of the family cottage are to be made. Needless to say, the articulation of the voting mechanics can get quite complicated, either in the case of ownership by Trust or an LLC.
Conclusion. Continued enjoyment of the cottage by a family, after the senior generation is gone is often an important estate planning challenge with many considerations and alternatives. If your cottage trust needs review, or if one of your clients inquires about making provisions of continued family ownership of the cottage, please call Jim Modrall or any of the attorneys listed below.
Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Edgar Roy, III, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., John M. Grogan, Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, Laura E. Garneau and David H. Rowe at (231) 941-9660 ©BRANDT, FISHER, ALWARD & ROY, P.C.This newsletter is provided for informational purposes and should not be acted upon without professional advice.

Retirement Accounts - Smart Planning Can Save Big Money

Meeting with a client recently reminded me of a topic that we have explored before. That is, smart tax planning for retirement accounts.
In particular, in this case, both husband and wife had both IRA accounts and 401K Plan accounts. This particular family had other assets including a family business and two residences. They intended to make charitable gifts at the second death using their trusts as the vehicle for disposition of property at that time. The second point that was raised involved retirement income or rather cash for current living expenses. Charitable Gifting. It always makes the most sense to use retirement plans to implement charitable gifts at death. This is the most tax efficient way to benefit a favorite charitable, religious or educational organization. The nonprofit entity can liquidate its share of the plan without paying any income tax. If the charitable gift had simply been made from the trust, an individual beneficiary would have been stuck with income taxes of 30% or more on withdrawing the same sum from the retirement plan.
How does one implement a charitable gift of a retirement account? Assuming that the charitable gift is to be made at death, the charity is named as a beneficiary. Normally, the charity would be listed for a fixed percentage. The plan sponsor might permit a percentage with a cap or a fixed amount.
Another alternative is to set up a separate retirement plan, by making a transfer from an existing IRA, for example, with the charity as the sole beneficiary. This is probably the cleanest and simplest way to plan for charitable gifting. The amount in the charitable IRA account can be regulated by withdrawals, or maintained by taking distributions from other plan accounts. Sometimes a client will provide in his or her trust that the charitable gift be augmented if the IRA account is less than a specified amount.
If the charity is named as only one of the beneficiaries of a plan, the family should be aware that there are time limits on making the distribution to charity after the death of the account owner. Otherwise, the stretch feature for the individual beneficiaries may be lost. This is another good reason for using a separate account for charitable gifting.
Important Reminder. This discussion brings up another point that married couples sometimes forget. For example, if a couple intends that their church or university is to get a gift of $50,000 at death, they should make sure that the spouse with the largest retirement plan take steps to be sure that the gift is made at the death of the account owner. Otherwise, the surviving spouse is likely to roll the account into her own IRA with beneficiaries that she can change at any time. (Assuming, the wife is the survivor, which is generally the assumption made in commentaries like this.) We have seen charitable intentions defeated often by inaction, intentional or unintentional, by the surviving spouse. Income Tax Planning During Lifetime. Another useful way to reduce income tax is to carefully plan distributions from retirement accounts so as to take no more than the Minimum Required Distribution (MRD). This should be done by using income and/or principal from other investments to meet current living costs. As any income tax advisor can attest, income tax planning for seniors can be a delicate matter.
Tax on social security benefits can be a huge variable for many people who do not have significant pension income and live off investments, social security and retirement plans.
Financial planners and other income tax advisors should study their client’s investment portfolio and income sources to devise strategies for minimizing retirement plan withdrawals and income taxes in general. Many times cash for current needs can be provided from principal (not taxable income). This can reduce or eliminate income tax on social security.
For example, couples with a substantial investment portfolio can use annuities and other vehicles to defer the recognition of capital gains and ordinary income. This can reduce taxable income and avoid income tax on social security payments. Remember the old adage, "don’t pay income taxes unless you have to!".
If you have charitable intentions and want expert advice on integrating those goals with your overall estate, or if you want to discuss more effective use of your assets, please call Jim Modrall or any of the attorneys listed below.
Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Edgar Roy, III, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., John M. Grogan, Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, Laura E. Garneau and David H. Rowe at (231) 941-9660
©BRANDT, FISHER, ALWARD & ROY, P.C.
This newsletter is provided for informational purposes and should not be acted upon without professional advice.

The Case For Asset Protection

What Is Asset Protection? The subject of asset protection is receiving a lot of attention these days. Clients often read articles in newspapers and magazines about the need for asset protection and there are promoters selling various schemes for protecting assets from creditors. Usually, the "creditors" are plaintiffs who sue for astronomical damages as a result of negligence or wrongful death. We have implemented various strategies for clients with business exposures. Asset protection and these various strategies have been the subject of prior newsletters. A recent Massachusetts case carries the issue of personal liability to an extreme. Bad Facts. The case was a lawsuit against Dr. Roland Florio who had been treating a patient named Sacca for several years. Dr. Florio and other physicians prescribed cancer medications for Sacca. Dr. Florio advised Mr. Sacca that he could not drive while taking medications. When treatment was competed, Dr. Florio had informed Mr. Sacca that it was safe for him to drive again. Apparently, Mr. Sacca continued certain medications.
A couple of years after the cancer treatment had begun, Mr. Sacca passed out at the wheel and killed a ten year old boy on the sidewalk. The boy’s administratrix sued not only the estate of Mr. Sacca, who died a few months later, but Dr. Florio personally on grounds of negligence.
Dr. Florio’s response was that he only owed a duty to his patient, Sacca, and did not have any duty to any one else, including the ten year old pedestrian. Dr. Florio’s Motion for Summary Judgment was granted by the lower court.
The Massachusetts Supreme Court held that there was a duty to the young boy under the theory of common law negligence. That is, a doctor has a duty to warn a patient of the side effects of a drug, such as dizziness or fainting.
In other words, the Court stated that Dr. Florio’s duty was to warn his patient, Sacca, of potential side effects and the risks of driving while taking the medication. The case was sent back to the lower court for further proceedings. Those proceedings would establish what actions that were taken or not taken by Dr. Florio. In other words, the assumption in a Motion for Summary Judgment or Motion to Dismiss is that even if the Plaintiff’s allegations are correct, there is no potential liability.
Where Do We Go From Here? The broad expansion of the doctrine endorsed by the Massachusetts Supreme Court could lead to far reaching results, probably not intended by statute or case law. For example, would there be liability under Massachusetts law if the patient had consulted a doctor in Ohio? What about the usual side effect warnings that come with all prescriptions?
So far, Michigan Courts have been willing to limit liability to third parties, but no one can give assurances that liability won’t be expanded. Liability to third parties is well established, for example, in the case of automobiles where a third party is injured. That is, GM’s duty of care to the auto buyer/operator would probably extend in many states to the person injured by an exploding gas tank or faulty brakes.
These expansions of liability make Asset Protection a primary priority for many people who are in the manufacturing or service business. Unfortunately, clients don’t plan in advance for protection, but rather arrive at an attorney’s office after an accident or claim has arisen. That is usually too late!
If you, a client or friend wish to explore the parameters of this field and the various protective mechanisms, please call Jim Modrall or any of the attorneys listed below.
Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Edgar Roy, III, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., John M. Grogan, Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, Laura E. Garneau and David H. Rowe at (231) 941-9660 ©BRANDT, FISHER, ALWARD & ROY, P.C.This newsletter is provided for informational purposes and should not be acted upon without professional advice.

Whither Goeth The Estate Tax?

Estate Tax -Yes or No?. One of the biggest frustrations of estate planners the past few years has been planning for potential estate taxes. The exemption, of course, has been rising, now $2 million and increasing to $3.5 million in 2009. However, the sunset provisions of the large exemptions and the regression to $1 million in 2011 have been a cause of concern.

We advised clients that despite the impasse in Congress, there was movement to increase the exemption and establish a permanent rate in the August 2006 legislation. This was dropped at the last minute because of lack of agreement on the tax rate.

Now we have an election year, a recession, rising deficits, and a costly war. We have been advising clients that the likely compromise will be a personal exemption $3.5 to $5 million per person with some compromise rate of 35 percent (45 percent is the current rate).

Latest Senate Budget Resolution. Conrad Teitell, a leading tax authority on philanthropy and charitable planning, has just released his summary of the latest Senate Budget Resolution. Amendment 4160 was the only estate tax amendment to pass. It would make the 2009 law permanent - a $3.5 million exemption ($7 million per couple) with a 45 percent flat rate. This amendment passed 99 to 1!

Amendment 4160 and the Budget Resolution do not constitute law, but are only the Senate’s intentions regarding the budget.

Mr. Teitell points out that five other amendments were offered but not passed:

Amendment 4170 (exemption per couple $15 million, 35 percent rate) rejected 47 to 52.

Amendment 4191 (exemption $10 million per couple, rate starts at 15 percent, top rate 35 percent) rejected 50 to 50.

Amendment 4372 (special protection for small businesses, ranches, and farms with a $5 million exemption, a lower rate for smaller estates, and a maximum rate of 35 percent) rejected 48 to 50.

Amendment 4196 (exemption $10 million per couple, $5 million per person, rate 35 percent) rejected 38 to 72.

Amendment 4378 (exemption $10 million per couple, $5 million per person, 35 percent flat rate with a small surcharge for large estates, special breaks for small businesses, farms, and ranches) rejected 23 to 77.

Senate Finance Committee. We understand that a third hearing on estate tax revision is scheduled by the Senate Finance Committee in April. At its March 12, 2008 hearing the Committee heard testimony about possible substitutes for the current estate tax system. We have no advance indication of the agenda of an April meeting. However, considering the current gridlock in Congress and the election controversies, it seems to this writer that a compromise on the estate tax is the easy way out, if Congress is going to resolve the mess at all before the election.

Stay Tuned. The winds of Washington blow in strange directions. It is hazardous to predict an outcome in our current environment. However, it is somewhat comforting from a planner’s perspective to have near unanimous Senate approval of an amendment which would basically freeze the 2009 tax provisions.

My guess is that wholesale estate tax reform will probably go the way of wholesale reform of the income tax (a lot of talk and no action). However, who’s to tell. Political prognostication is not my forte. Let’s just hope we get some Congressional action before November.

If you wish to consider estate tax planning or any other matters concerning wills, trusts, or probate, please call Jim Modrall or any of the attorneys listed below.

Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Edgar Roy, III, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., John M. Grogan, Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, Laura E. Garneau and David H. Rowe at (231) 941-9660

©BRANDT, FISHER, ALWARD & ROY, P.C.

This newsletter is provided for informational purposes and should not be acted upon without professional
advice.

Too Good To Be True

Introduction. This newsletter is slightly off topic. I give credit to one of the authors of my email estate planning newsletter for bringing the subject to my attention.

Zero Tax. It is hard to believe, but there were provisions in the 2003 and 2005 tax laws to provide for zero tax on net capital gains and qualified dividend income in the years 2008, 2009 and 2010. Who gets this tax plum?

Taxpayers who fall into either the 10% or 15% federal income tax bracket (without the addition of capital gains or qualified dividends) are likely candidates for zero federal tax gains.

Keep on Reading. At first blush you may not think you would fit into this category, but read on. There may be ways to take advantage of zero tax.

1) The first thought of transferring appreciated securities to kids who would be in a low tax bracket has been blocked by broadening the "kiddie tax" extending the age of a child/recipient to age 19 or age 24, for a student still dependent on parents.

2) However, you may have an adult child (out of college) who falls into the 10 or 15% bracket. You can gift appreciated securities to that child, who can then sell them with zero tax.

3) If you help support a parent or other family member, using appreciated securities, you may be able to take advantage of the zero tax rules for 2008.

4) US service members deployed to combat zones would be good candidates either to sell securities or receive gifts of appreciated securities which can be sold.

5) Explore other ways to reduce your taxable income, if you want to take advantage of this benefit.

Techniques to Reduce Taxable Income. If you are interested in exploring the possibilities of reducing your tax bracket to take advantage of the zero tax, you should go over the various alternatives with your income tax advisor or financial planner to see if there is a way to qualify for this zero tax benefit. Some methods used by clients to reduce taxable income (and especially to reduce income taxes on social security) could include some of the following techniques:

1) Use investment vehicles such as variable annuities by which income tax can be deferred.

2) Use segregated principal for living expenses.

3) Reduce withdrawals from retirement plans.

4) Maximize tax deductible contributions to retirement plans (not an itemized deduction, but a subtraction from gross income), utilize tax loss carry backs or carry forwards to reduce your tax bracket.

Negatives. There are down sides to be considered in income tax planning, of course. These include:

1) Capital gains income might trigger taxation of a non-taxed social security benefit.

2) A parent might be faced with disposing of the gifted funds in qualifying for Medicaid.

3) A student might find extra money jeopardizing eligibility for financial aid.

Conclusion. The subject of this month’s newsletter does not pertain directly to estate planning and thus is a little bit out of my area. However, I thought you might find this to be an interesting subject and possible cause to sit down with your financial planner or income tax advisor to see if any of the possible applications of zero tax can benefit you or members of your family. One bright spot in this whole process is that transaction costs for stock sales can be very cheap. Moreover, the wash sale rule does not apply so that the same security that is sold to recognize gain can be immediately repurchased at a higher cost basis.

Maybe this newsletter will trigger a flash of inspiration, with some ideas that might be applicable to the situation of you, a member of your family, or a friend.

In the meantime, if you have estate planning needs or have friends or family members who require consultation for estate planning or Medicaid eligibility, please don’t hesitate to contact Jim Modrall or any of the attorneys listed below.

Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Edgar Roy, III, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., John M. Grogan, Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, Laura E. Garneau and David H. Rowe at (231) 941-9660

©BRANDT, FISHER, ALWARD & ROY, P.C.

This newsletter is provided for informational purposes and should not be acted upon without professional
advice.

The Death Monster

Identity Theft. This is a common worry for all of us, based on the tremendous publicity about protecting social security numbers and bank accounts. Perhaps you have had personal experiences of unauthorized exploitations of your own identity and assets.

A recent email caught my attention because it dealt with identity theft of a deceased person.

What is Involved? If there is a scam involving use of a credit card or social security number of a deceased person, the decedent is obviously not in a position to care. However, the decedent=s estate, trust or spouse could be involved in an unpleasant mess. As you are no doubt aware, the time and sometimes expense of sorting out an unauthorized credit card purchase or bank account withdrawal can be aggravating. If professional help from an accountant or attorney is used, that will mean an out of pocket expense.

A joint credit card account is an especially dangerous target because a surviving spouse may have to fight off the collection efforts for unauthorized expenditures. In our practice we see the effect that such collection efforts have on a surviving spouse who is the typical target on a creditor collection, whether the spouse is a joint signer or not.

Other Scams. It is always possible that a thief may seek to use an identity and social security number for immigration purposes, as a cover for other illegal activities or simply as an alias.

Some Suggested Steps. Typically in our area, a funeral home will notify Social Security immediately in the event of a death. It is important to verify that this has been done. Similarly, we would recommend notifying the credit reporting agencies of the death, so that the credit files are immediately brought up to date. For the record, the agencies and phone numbers are:

Equifax - 888-766-0008

Transunion - 800-680-7289

Experian - 888-397-3742

Many people caution about being too detailed in the decedent=s obituary such as giving exact dates and places of birth. Certainly, given a decedent=s age and birth location, anyone choosing to probe deeply, particularly via the internet, would be able to locate a birth certificate. Again, I would think that notification of the Social Security Administration and the credit reporting agencies would be the principal deterrent to exploitation of a decedent=s identify.

Other Experiences. I recently received two absolutely authentic-looking emails from a bank where I maintain an account. These communications, with the appropriate bank logo, stated there were irregularities in the account and that the account could be Asuspended@ unless I contacted them. Fortunately, the response link was blocked and I never made communication with the sender. When I contacted the bank=s customer service office, I found out that the emails were forged and were an attempt by someone to get by account information. This information could then be used to make charges against the account by telephone. Needless to say, I was upset at both receiving the emails and at learning that they were fraudulent.

Several years ago, I had two unauthorized telephone withdrawals from accounts at a different bank. After the second one, I closed the account on recommendation of the bank. (Which stood the loss in each case.) My experiences involved very minor amounts of money. Friends have told me of unauthorized charges on their credit cards of $5,000-$20,000 in two different instances. Sometimes the banks pick up these charges, but sometimes they slip through bank security and it is up to the cardholder to find them in their monthly statements.

Moral of the Story. Be sure to be wary of emails asking for personal or financial information. Make sure that you and your family are vigilant about clearing the credit history of any deceased member of your family to avoid aggravation, time and expense. Check your credit card bills carefully to discover any unauthorized activity.

If we can be of any assistance in estate planning or probate for you, family members, friends or relatives, please contact Jim Modrall or any of the attorneys listed below.

Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Edgar Roy, III, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., John M. Grogan, Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, Laura E. Garneau and David H. Rowe at (231) 941-9660

©BRANDT, FISHER, ALWARD & ROY, P.C.

This newsletter is provided for informational purposes and should not be acted upon without professional
advice.