20101115-news--31-nat-cci-cl -- 11/9/2010 3:37 pm page 1€¦ · crain’s cleveland business...

20101115-NEWS--31-NAT-CCI-CL_-- 11/9/2010 3:37 PM

Crain’s Cleveland Business Custom Publishing

ESTATE PLANNINGS-2 November 15-21, 2010 Advertisement

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Uncertainty presents opportunity

The Estate PlanningCouncil of Cleve-land, in conjunc-tion with Crain’s

Cleveland Business, ispleased to present the annual Estate PlanningSection. It is the council’sgoal to offer the commu-nity valuable informationrelated to financial, retirement,insurance, business succession, andestate and charitable planning.The articles and commentary onthe pages that follow have beenprovided by some of NortheastOhio’s most experienced profes-sionals in these fields.

Estate planning is one of themost overlooked areas of personalfinancial management. It is estimated that more than 120million Americans do not haveup-to-date estate plans to protectthemselves or their families inthe event of sickness, accident oruntimely death. Each year, thiscosts wasted dollars and hours ofhardship which can be materiallyminimized with advanced plan-ning and action.

Since the Council’s Estate Planning Sectionlast appeared in November2009, the financial worldin which we live continuesto change. A change inestate and gift tax lawslooms and domestic economic performanceremains sluggish.

Despite uncertainty, the needfor the preservation of assets builtover a lifetime for the benefit offamily, heirs or charities is ongoing.

Evaluating how your personal objectives for leaving a legacyhave been affected by the changein laws and market conditionsshould include consulting withprofessionals to advise you onthe methods, techniques anddocuments available to meetyour goals. If you are concernedabout transitioning a family-owned business, planning for retirement, creating a legacy foryour family, or fulfilling philan-thropic goals, the articles in thissection will address these issuesand the benefits of receivingcomprehensive tax and estate

planning advice as part of theplanning process.

The Estate Planning Council of Cleveland is composed of a diverse array of more than 440professionals working in the GreaterCleveland area, including attor-neys, accountants, bankers andtrust officers, financial planners,insurance agents, appraisers andrepresentatives from charitableorganizations. Our members areready to provide you withthoughtful, tax-effective and value-based planning. Our Council’sweb site (www.epccleveland.org)can be a useful resource to locateprofessionals to assist you withall of your planning needs.

We are pleased to be able toshare the insights and commentaryof our members and other areapractitioners with you in this annual publication. We hope thatyou will find the information insightful, helpful and valuable. ■

Radd L. Riebe is president of the EstatePlanning Council of Cleveland and amanaging director at Stout Risius Ross,Inc. in Cleveland.

RADD RIEBE

PRESIDENT’S LETTER

Overview and trendsS-3 Estate plan

checkup

S-3 Ohio Legacy Trust

S-4 Changes in the law

S-6 Family gifting

Best practicesS-6 Fiduciary

responsibilities

S-7 Choosing a lawyerProper asset titling

S-8 Choosing trustees

Retirement plansS-15 Taxes

Roth IRAs

S-16Trusteed IRAs

EducationS-16 Funding options

S-17 529 plans

Related topicsS-18 International

estate planningFine art appraisals

S-19 Split-dollar plansInsurance assets

Business successionS-13 Ownership transfer

S-14 Other stakeholders

TABLEOFCONTENTS

S-17Help elderlyrelatives

craft estate plan

Charitable giving

S-8 Philanthropy

Life insurance

S-9 Donor-advised funds

Three-part plan

S-10 Gift annuities

Lead trusts

S-11 Therewards of giving

S-12 Dynasty trusts

S-13 GRATs

SPECIAL NOTEConsult an attorney and financial

advisers to evaluate individual estate planning needs.IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with IRS requirements, we inform you that thiscommunication (including any attach-ments) was not intended or written tobe used, and cannot be used, for thepurpose of (a) avoiding penalties under the Internal Revenue Code or (b) promoting, marketing or recom-mending to another party any transac-tion or matter discussed herein.

20101115-NEWS--32-NAT-CCI-CL_-- 11/10/2010 10:10 AM Page 1


ESTATE PLANNINGAdvertisement November 15-21, 2010 S-3

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THE ESTATE PLANNING COUNCILOF CLEVELAND

PresidentRadd L. Riebe

Vice PresidentLisa H. Michel

SecretaryMarie L. Monago

TreasurerBeth M. Korth

Program ChairJennifer A. Savage

Immediate Past PresidentErica E. McGregor

OVERVIEW AND TRENDS

Proposedtrust statutetargets assetprotection

The Ohio Legacy TrustCommittee, a committeeof the Ohio State Bar Asso-ciation, is seeking legisla-

tion in Ohio that would allow thecreation of asset protection trusts.

■ What is asset protection?Asset protection planning is simplythe rearranging of someone’s assets to minimize the chance ofloss from future litigation claims.

■ Why does Ohio need this? Todate, 11 states have adopted assetprotection trust legislation. Ohioresidents are establishing trusts inthese states and relocating them-selves and their assets to thosestates in order to take full advan-tage of those states’ laws.

■ What are the provisions ofthe statute? The act enables a person to establish an irrevocabletrust, place assets into that trust andstill benefit from those assetsthrough the actions of one ormore trustees.

The person establishing thetrust must create an affidavit andaver in it that the transfer will not render the person insolvent,defraud his creditors, or be doneprior to filing for bankruptcy. Theperson must identify pending orthreatened court actions.

A qualified trustee must serveduring administration of the trust.The trustee cannot be the personestablishing the trust but can be anOhio resident or an entity autho-rized to act as trustee in Ohio.

The person establishing thetrust can retain certain rightswithout those rights being construed as having retained thepower to revoke the trust.

The statute describes how andunder what circumstances credi-tors have access to the assets inthe trust.

The proposed statute drawsfrom the best of the other states’laws and will allow Ohio to retaingood citizens and their assets. ■

Joanne E. Hindel is chair of the OSBALegacy Trust Committee and vice presi-dent and senior personal trust officer forFifth Third Bank. Contact her at 216-274-5633 or e-mail [email protected].

Whether you consideryourself rich or poor,when you die youwill leave behind

assets. Your estate might includecash and investments, real estate,tangible personal property, oreven an interest in an operatingbusiness. At its most basic level,an estate plan determines howyour assets will be distributed toyour heirs after you die.

“An estate plan isn’t just aboutassets, it is also about people.And when you add taxes to themix, a process that could havebeen fairly simple has the tendency

to become quite com-plex,” said Joseph M.Mentrek of Meaden &Moore. “So even if you already have an estate plan,it is imperative that yourevisit that plan to ensurethat it remains relevant.”

Just like an annual visitto your physician, a peri-odic review of your estateplan can either reinforce that allis well, or it can uncover the needfor additional attention to returnyour plan to a healthy state.

A basic estate plan should includea valid will, durable general

(financial) power of attorney, health carepower of attorney and aliving will (if desired).More complex family orfinancial situations mayrequire the use of a trustor series of trusts to effec-tively accomplish yourgoals. An estate plancheckup involves a thor-

ough review of all of these docu-ments and determining whetherthe plan matches your wishes.

In addition to the implemen-tation or review of your docu-ments, your estate plan checkup

should look at the effect of relatedissues such as the desirability oflife insurance, disability or long-term care insurance, as well asthe impact of pre-nuptial or buy-sell agreements, or other docu-ments that affect your assets.

The uncertainty regarding federal estate tax laws makesmatters even more challenging.And in an election year, it is anyone’s guess as to what, if any,action Congress will take.

Many older plans may nothave been drafted with this veri-table roller coaster in mind. Consequently, the terms of your

existing plan may be open to interpretations that could lead toa vastly different result fromwhat you originally anticipated.

There may never be a bettertime to schedule a checkup withyour planner. The time youspend will give you peace ofmind, knowing that your financial affairs are in order andthat you have adequately and appropriately provided for yourfamily. ■

Joseph Mentrek is vice president withMeaden & Moore Financial Services.Contact him at 216-928-5343.

Protect asset health by giving estate plan a checkup

JOSEPHMENTREK




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OVERVIEW AND TRENDS

Year of the lifetime gift

Hard to believe, 2010 isthree-quarters over, yetthe federal gift and estatetax picture is no clearer

than it was last New Year’s Eve. Asa result of Congressional inaction,estate planners have been forcedto find ways to navigate in densefog — to achieve their clients’

goals with no certainty as to thetax consequences of any planningstep. Still, interesting develop-ments have occurred in this unprecedented environment.

For the past 10 years of federalestate tax phase-out, businessowners interested in passing onthe business to the next genera-tion were generally reluctant tomake gifts to family members, particularly those that would require payment of gift tax. But ifanything is certain, it is that thefederal estate tax repeal will last,

at most, onlyone more calen-dar quarter. Theshort odds areon a re-enact-ment of the$3.5 million applicable estatetax exemptionand 45% estatetax rate. By con-trast, this year’s

gift tax rate is only 35%. Even ifthat rate is increased retroactively,transferring the family business tothe next generation during theowner’s life — even at the cost of gifttax — now may be compelling.

Although legislation restrictingvaluation discounts for transfersof closely held businesses has beenintroduced, it appears to have little traction at present. Minorityownership valuation discountscontinue to be upheld by thecourts. A low growth, low interestrate economic climate is excellentfor structuring gifts and/or sales ofminority business interests. Sinceestate tax repeal after 2010 is but adim dream, strong incentive existsto take advantage of the currentenvironment for lifetime gifts.

Patricia Pacenta is shareholder, Trustsand Estates, Buckingham, Doolittle &Burroughs, LLP. Contact her at 330-376-5000 or e-mail [email protected].

Congress’ inaction createsa need for estate planning

Last year at this time, thepossibility remained thatCongress would act to pre-vent the 2011 resurrection

of a much lower federal estate taxexemption and a much higherfederal estate tax rate. No suchaction was taken, and none islikely before Jan. 1. Thus, manywho did not need to implementestate plans in prior years mayneed to do so to avoid the impo-sition of a combined federal andstate estate tax at a rate thatcould exceed 60%.

In 2009, couples or individualswith a net worth of $3.5 millionor less generally could pass assetsto heirs free of federal estate tax(FET) even if they did no estateplanning. While there wouldlikely still be Ohio estate tax (theexemption remains $338,333),the highest marginal Ohio estate tax rate remains 7%. Thus,although estate planning among

those with a net worth less than$3.5 million still was necessary toavoid the 7% Ohio estate tax andthe other non-tax negative conse-quences that come with a lack ofestate planning. For many, no estate planning was required toprevent the imposition of theFET (which was levied at a maxi-mum rate of 45%). As of Jan. 1,that will no longer be the case.

Who needs to seriously considerimplementing an estate plan in2011?

■ Those who live in Ohio (individuals or couples) with anet worth exceeding $338,333;and individuals or couples (irre-spective of domicile) with a networth exceeding $1 million.

■ Owners of interests in close-ly-held businesses who need toplan for liquidity to pay the increased estate tax that will bedue at death.

This should involve ensuring

that the entities’ governing docu-ments and the owners’ personalestate plan documents (and anyredemption agreements) are coordinated and carefully craftedto permit qualification under Section 6166 of the Internal Revenue Code (IRC).

This will enable FET deferralfor up to nearly 15 years, and under Section 303 of the IRC forpotentially income tax free (or atleast capital gain treatment of)movements of cash from thecompanies to the estates of thedeceased owners irrespective ofthe owners’ basis in the interestsbefore death and/or the existenceof retained earnings.

■ Those with wealth in excessof their projected needs, whomay wish to reconsider gifting.

■ Those who need to engage inestate planning to address non-tax-related yet potentially very costly

KEY SCENARIOSTHAT COULD

IMPACT PLANS

■ Although unlikely, Congresscould reinstate an estate taxretroactive to Jan. 1, 2010, at a 55% tax rate for assets in excess of $1 million. If a retroac-tive tax is enacted, the courtswill need to determine whetherthe tax is constitutional, furtherdelaying the known tax conse-quences for 2010 decedents.

■ With the estate tax on hiatusin 2010, estate assets of 2010decedents do not receive a fullyautomatic stepped-up cost basis. Determining the cost basis going forward may be difficult and confusing.

■ The cumulative aggregateexemption for taxable gifts is $1 million through 2010. Gifts inexcess of the cumulative exemp-tion are taxed at 35%, excludinggifts up to $13,000 per recipient.

■ An extension of the 2001and 2003 tax cuts is likely for themiddle class. An extension of thetax cuts for taxpayers in the topincome tax bracket is undecided.

■ The top income tax rate of39.6% will be reinstated on Jan. 1, 2011, long-term capitalgain rates will rise to 20% anddividends will be taxed at the topordinary income rate (instead ofthe long-term capital gains rate).The Obama administration’sbudget calls for taxing both divi-dends and long-term capitalgains at 20%. Some suggestthere will be a compromise.

■ Additional taxes will be imposed in 2013 on high-incomepeople by The Patient Protectionand Affordable Care Act of 2010.

Linda M. Olejko, CFP is vice presi-dent, Business Development at Glenmede. Contact her at 216-514-7876 or [email protected].

PATRICIAPACENTA

See CONGRESS Page S-20


20101115-NEWS--35-NAT-CCI-CL_-- 11/9/2010 3:39 PM Page 1



University Hospitals Makes the Difference.

Fergus Family Gift Benefits Maternal-Fetal Care

Terry Fergus and family wanted to honor wife and mother Mary Fergus for her many years of dedication as a neonatal nurse. Their generous gift created the Mary D. Fergus Endowed Chair in Maternal-Fetal Medicine that will advance care for high-risk pregnancies at University Hospitals.

“It is a great pleasure to give a gift in honor of my wife, Mary, for her many years of dedication, caring for the sickest of babies,” said Mr. Fergus.

At University Hospitals, the Diamond Legacy Society recognizes and celebrates individuals, like Mary and Terry Fergus, who leave a meaningful legacy for future generations.

Contact a UH gift planning professional to work with you and your advisor in customizing a gift plan to create your own personal legacy at University Hospitals. Call 216-983-2200 or visit uhgiving.org.

Mary and Terry Fergus and Family

ADVISORS TO INDIVIDUALS AND BUSINESSES ON THE PRESERVATION, PROTECTION AND RESOLUTION OF MATTERS INVOLVING:

Angela G. Carlin

Karen A. Davey

Jerrold L. Goldstein

Gary W. Johnson

Roy A. Krall

Jeanne V. Gordon

Eugene A. Kratus

Samuel J. Lauricia III

Shawn W. Maestle

Paul Y. Shapiro

Joseph B. Swartz

Estate and Trust AdministrationEstate PlanningSuccession Planning

Guardianships AdoptionsProbate and Trust Litigation

The Tower at Erieview1301 East 9th Street, Suite 1900

Cleveland, Ohio 44114-1862

670 West Market StreetAkron, Ohio 44303-1414

10 West Broad Street, Suite 2400Columbus, Ohio 43215-3469

24100 Chagrin Boulevard, Suite 200 Beachwood, Ohio 44122

OVERVIEW BEST PRACTICES

The best of times to make gifts Trustees must adhere to strict fiduciary duties

The Uniform Prudent Investor Act (UPIA) instructs trustees on theduties they must perform

to meet the fiduciary duties theyassume once they become atrustee for a trust.

When trusts contain a varietyof investments or when they contain assets worth a largeamount of money, these dutiescan seem time-consuming andcomplicated.

Each state has laws that estab-lish the standards trustees mustfollow. A trustee who doesn’tmeet these standards can be heldpersonally responsible for trustlosses. To maximize benefits forthe trust beneficiaries, and to reduce personal liability for trustlosses, trustees need to:

■ Understand the objectivesand terms of the trust. Are thetrust assets designed to providefor estate liquidity, contribute toa charitable organization or perhaps care for a disabled child?

■ Develop a reasonable investment strategy. How muchfinancial risk is the trust willingto take to reach its goals?

■ Adopt a written managementstatement. If the trust contains a life insurance policy, this becomes a policy managementstatement and describes what typeof coverage is expected. Should the

policy last longer than the life expectancy of the insured? Shouldit be a paid-up policy or will thetrust expect to pay premiums onthe policy for a number of years?

■ Implement the strategy with the appropriate products.Once the objectives and terms ofthe trust are understood, what assets should the trust own to meetthem?

■ Regularly review policiesand investments and makechanges as needed. This processshould be documented.

The UPIA allows a trustee todelegate investment and manage-ment functions to an objectivethird-party professional. Thetrustee is not liable for the deci-sions or actions of that profes-sional, but is still responsible forperiodically reviewing any third-party’s performance.

Attorneys, trust officers andnon-professional trustees can benefit by working with a trust adviser who specializes in a specific asset — for example, lifeinsurance. This trust adviser willbring industry-specific knowledgeand experience to the case tohelp ensure the trust is managedproperly and according to thelaw. ■

Mike Pepe, CLU, is founder of The TOLIGroup. Contact him at 216-325-1686.

W ith a nod to VictorHugo’s “A Tale ofTwo Cities,” the re-cent economic woes

again emphasize the “it was the bestof times, it was the worst of times”dichotomy, making now an idealtime to consider tax efficientfamily gift opportunities:

LOW INTEREST RATES ANDLOW ASSET VALUES. Interestrates and asset values have notrecovered from their pre-reces-sion levels. In particular, real estate values remain severelydown in value. The Federal Reserve’s monetary policies andgeneral economic sluggishnesscontribute to these conditions.When these conditions will reverse is unknown, but the correct answer is a multimillion-dollar one for family gifts.

VALUATION DISCOUNTSAVAILABLE: The environmentfor valuation discounts is subjectto proposals circulating in Con-gress. The past spendthrift waysof Congress are expected to man-

ifest themselves in the pursuit ofadditional taxes. More tax dollarswill be sought through rate increasesand rule changes. One of thoserule changes calls for cutting oreliminating valuation discounts(frequently 25%-45% under current law) for intra-familytransfers. If suchlegislation is enacted, the costto families makinggifts to heirs willincrease substan-tially.

TAX RATES INCREASE NEXT YEAR: Gift taxrates are scheduled to increasefrom a top rate today of 35% to55% in 2011. A taxable gift of a $1 million asset transferred tochildren in 2010 might be valuedfor gift tax purposes at $650,000(after discount) and incur gifttaxes at 35% ($227,500). Thatsame gift in 2011 may be valuedat $1 million (assuming discountsare prohibited by law) with a taxrate of 55% ($550,000). The gift

taxes payable in 2010 could beless than half of those for the sametransaction in 2011, if the worst-case scenario from Congress unfolds.

Rarely do conditions align tocreate the perfect storm for tax-

payers to maketransfers of inter-ests to familymembers, but2010 appears tobe one of thosetimes.

If one is con-vinced that thefuture will bringhigher tax rates,

new limitations on discounts forfamily transfers and economic recovery, the opportunity presented this year to take advan-tage of low tax rates and low values is not likely to be repeatedanytime soon. ■

Radd Riebe is managing director of theValuation and Financial Opinions Groupat Stout Risius Ross, Inc., Cleveland.Contact him at 216-373-2998 or visitwww.srr.com.




We work hard every day to earn the title

of trusted advisor. By immersing

ourselves in your industry, we can

better understand the complexities and

nuances of your organization.

This commitment allows a

Calfee attorney to offer true value:

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your business objectives.

knows that industry expertise is the key to valuable counsel.

A CALFEE ATTORNEY

Calfee, Halter & Griswold LLPw w w . c a l f e e . c o m

BEST PRACTICES

How to choose a good attorney

The federal estate and gifttax system has changeddramatically over the pastyear. While it is unknown

what the tax system will be in 2011and beyond, this year offers opportunities to reduce taxes thatmay not exist in the future.

While your estate planning attorney must have a thoroughknowledge of complicated taxand related laws, and be an artfuldrafter of documents, the attor-ney’s personal attributes are justas important. You should be comfortable having a thoughtfuldiscussion about the personal aspects of your life with your attorney. Consider whether yourattorney:

■ Really cares about yourconcerns. For you to feel comfortable discussing personalissues, you should feel that yourattorney is truly interested inhelping you. A good estate planner must care about theclient and empathize with theclient’s concerns.

■ Provides a fixed-fee option.Clients often get nervous aboutcontacting their attorney too often. They fear that “the clock isticking” and they will be chargedextra if they ask questions. Payinga fixed fee to prepare your basicestate documents allows you todiscuss your estate planning

concerns and questions in detail,without fear of incurring addi-tional legal fees.

■ Offers to meet you outside of the office. Talkingabout dying is difficult, and discussing personal aspects ofyour life in an office setting canbe uncomfortable. Your attorneyshould be willing to meet you atyour home or in another settingthat is comfortable for you.

■ Finds the personal side ofestate planning rewarding andtakes pride in his or her work.Some attorneys get bored preparingwills and trusts for hundreds ofclients each year. Good estateplanning attorneys provide theirclients with excellent service because they find the personal relationships they develop reward-ing and often become the estateplanner for several generationsand related members of the samefamily.

■ Is a good listener. Your attorney must truly understandnot only the information youconvey but also the concerns andquestions you express. Successfulestate planning may require youto think about your relationshipsand attitude toward money in away that you never have before;and your attorney should be sensitive to your issues and helpyou address them.

■ Works for a law firm thatvalues estate planning. Some lawfirms minimize the value of estateplanning because it may notbring in the attention or moneyother specialized areas of the lawgarner. Your attorney shouldwork at a firm that values the importance of estate planningand estate planning clients.

■ Maintains a relationshipwith you after your documentsare prepared. Your attorneyshould keep you informed of significant changes in the lawand remind you to review yourdocuments periodically. Good estate planners value the rela-tionships they maintain withtheir clients over many years.

■ Estate planning involves listening, giving advice and helping clients make the correctchoices for their unique circum-stances. Being a good estate plannerrequires more than having athorough knowledge of tax lawsand being skilled at drafting doc-uments. It involves compassion,empathy and understanding. You should be confident thatyour estate planner possesses allof these attributes. ■

Barbara Bellin Janovitz is chair ofReminger Co., LPA’s Estate PlanningGroup. Contact her at 216-430-2178or [email protected].

Poor asset titling canfoil legacy

The first step in any estateplan is having one, buteven the most detailed ofplans may be completely

bypassed if the assets included init are not titled properly.

It is important for individuals tounderstand that a will controlsonly the disposition of assets heldin their individual name.

Assets that pass by contract,such as life insurance or retire-ment accounts, are controlled bythe beneficiary designation, not aprovision in the will. Therefore,knowing what your assets are,how they are titled and followingthrough to ensure correct titling iscritical to your legacy.

Avoid these common titlingmistakes:

■ Joint and survivorship assets. At death, these assets passby contract to the surviving owner.We often see a client who has ajoint account with a caretakerchild. Unfortunately, many clientsdo not realize that this means thatthose assets pass only to that onechild at the client’s death.

As drafted, the estate plan mayprovide a detailed plan for taking

care of a second spouse as well as the children from a prior marriage. However, if assets are titled in joint and survivorshipform with the second spouse, thechildren from the prior marriagecan be effectively disinherited.This unfortunate scenario can lead

Tips for avoiding asset titling mistakes:

■ Ask your financial adviserto provide a summary detailingthe transfer of your assets atyour death based on how yourassets are currently titled so youcan determine what changesmay be needed.

■ Choose advisers withwhom you are comfortable, andthen be open and honest aboutyour wishes and the details of all of your accounts. Select advisers who will be objectiveand not driven by commission.

■ Ensure your financial adviseris working closely with your attorney and accountant, andthat all are fully informed of yourwishes and plans.

■ Regularly revisit all aspectsof your estate plan, including thetitling of assets. Any life-changingevent or tax law change shouldbe a trigger.

CHECKLIST

See TITLING Page S-20




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CHARITABLE GIVING VEHICLES

BEST PRACTICES

Selecting trustee key to success

Choosing a trustee is thesingle most importantdecision most people willmake in creating their

estate plans. An incompetent oruninterested trustee can ruineven the best plans.

“After 34 years of advisingclients on their estate plans,” saidJim Dickinson, a board certifiedspecialist in estate planning, pro-bate and trust law, “I am still unable to name the ideal trustee.Each situation must be analyzedbased upon a number of factors.”

A trustee must have the abilityto assemble and to manage a prudent, well-diversified portfolioof assets that will serve the needsof the trust beneficiaries; mustsend periodic reports to the bene-ficiaries; and file state and federalincome tax returns. The trustee willfollow the instructions containedin the trust agreement and use its

best judgment in deciding whenand how to distribute the assets.

Factors to consider in choosinga trustee are: size and duration ofthe trust; needs of the beneficia-ries; assets expected to be held;the relationships among thetrustee and the beneficiaries; andthe tax consequences. Only cor-porations that have been grantedtrust authority by a state canserve as a trustee. There are gener-ally no restrictions on an individ-ual serving as trustee.

CORPORATE. Choosing acorporate trustee has several advantages: professional exper-tise, continuity, impartiality andaccountability. The problem withchoosing a corporate trustee iscost, high employee turnover andtakeovers. A corporate trusteemay lack the ability to deal withclosely held business interests,real estate and other special assets.

INDIVIDUAL. An individualtrustee often has personal knowl-edge of the grantor’s purposes increating the trust. Individuals, how-ever, may not be able to fulfill theduties because of death, disability orretirement. Individual trustees haveto call upon the services of invest-ment professionals and accoun-tants to fulfill their obligations.

CO-TRUSTEES. Many of theseadvantages and problems can bemanaged through the use of indi-vidual and corporate co-trustees.An individual can be named astrust adviser and be given the authority to veto or direct invest-ments, vote the shares of closely-held stock or give approval to dis-cretionary distributions tobeneficiaries. ■

James G. Dickinson is a partner withCavitch, Familo & Durkin. Contact him at216-621-7860 or [email protected].

Many options can helpachieve estate goals

Giving through estateplans or life income giftsmay be suitable for indi-viduals who would like

to support a charity, but need income from their assets duringtheir lifetime.

The most common form of aplanned gift is a bequest con-tained in a person’s will or revoca-ble living trust. General bequestsleave funds or property to a charitywithout designating its use. Other bequest types may direct apercentage of a person’s estate tocharity or allow for the charity toreceive residual funds after pay-ment of debts, taxes or adminis-tration fees.

If you want to receive numeroustax and financial benefits by creatinga life income gift, you may wantto explore creating a charitablegift annuity or a charitable remainder trust.

When a donor makes an irrevo-cable contribution of assets tofund the trust or annuity, he orshe will receive an immediate income tax deduction for part of the contribution’s value and income for life or a term betweenone to 20 years. When the trust orannuity ends, the remaining assetsgo to the designated charity.

GIFT ANNUITIES provide older donors who give cash, securities, real estate or personalproperty with fixed annual payments that start at a time spec-ified by the donor. Gift annuitiesare beneficial to donors who wantto receive income from assets thathave risen sharply in value, suchas stock.

The charity will guarantee thedonor a fixed annual income forthe rest of his or her life and assistthe donor in avoiding capitalgains tax. The donor also receivesan income tax break on a portionof the earnings from an annuity,

THE BENEFITSIndividuals of all agesshould explore the poten-tial benefits of various estate planning strategiesto determine which toolsbest fit their needs. Bene-fits vary, and many giftscan do the following:

depending on the donor’s age.

CHARITABLE REMAINDERTRUSTS allow donors to receiveincome tax deductions and escapecapital gains taxes.

The assets can be invested toearn a lower rate of return whenthe donor is younger and later canbe shifted to earn a higher rate,providing more income in thedonor’s later years.

Charitable lead trusts make anagreed payment to the charity fora specific term of years or lifetime.Thereafter, the assets are either returned to the person who created the trust (who is eligible to receive an income tax deduc-tion when the trust is created orpassed on to children) or a desig-nated heir. Applicable estate orgift taxes on the value of the gift to the child or other heir are reduced or completely elimi-nated. ■

Advancement Department, Diabetes Association of Greater Cleveland.

■ Provide regular paymentsfor you and/or your spouse orother beneficiary;

■ Reduce your taxes throughcharitable income tax deduction;

■ Reduce or avoid capitalgains taxes; or

■ Save estate and gift taxes.

Life insurancecan benefit yourcharity of choice

Most consider life insur-ance a way to protectthe family should theinsured pass away; but

life insurance can be an effectiveway to make a charitable gift.

With the return of some form of estate tax next year, many areacting now to remove assets fromtheir estate to minimize the antici-pated impact.

Life insurance is one such assetthat is included in the taxable estate if the insured is the policyowner at the time of death. Toavoid estate tax, an individualwith charitable intent could consider arranging a gift of life insurance now.

There are two basic approachesto using life insurance as a charita-ble gift: Make a gift of an existingpolicy or establish a new one.

A gift of an existing policyshould be considered when thepolicy is no longer needed for itsoriginal purpose. The simplest wayto make this gift is to name the organization receiving the gift ascharitable beneficiary and assignownership to it.

A donor also could establish anew life insurance policy. In Ohio,a donor first should establish thepolicy in his or her name and designate the charity as the beneficiary before transferringownership. Once the policy is inplace, ownership can be changedto the charity. ■

Anne Corrette is manager of Gift PlanningServices at Cleveland Clinic. Contact herat 216-444-1251.




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Donor-advised funds boost charitable benefits

For most families, every holiday season is the same— turkey, trimmings, familyand charity. According to

The Giving USA Foundation,Americans gave more than $227billion to charity last year, mostlyin the form of cash.

While that can be the quickestand easiest gift, too few donorsconsider the tax advantages ofcontributing assets such as pub-licly traded securities, closelyheld stock or real estate. By givingsuch assets into a donor-advisedfund, a donor can essentially

“pre-fund” multiple years of givingwhile receiving a tax benefit of asignificant charitable gift in a yearthat it may really be beneficial.

Donor-advised funds are like acharitable investment account.Appreciated assets, such as marketable securities, can be contributed free of capital gainstax, allowing the full gift to beused over an extended period oftime for grants to numerous

charities. Donor-advised fundscan be established with an initialgift as low as $10,000.

“Although much of America’swealth is comprised of appreciatedassets, both liquid and less-liquid,few Americans consider donatingsuch assets,” said Phil Tobin,chairman and CEO of AmericanEndowment Foundation. “Givingappreciated assets to a donor-advised fund gives the donor

tremendous flexibility in sup-porting his or her favorite chari-table interests, while enjoyingthe best tax benefits available.”

Donor-advised funds are an excellent alternative to a familycreating a private foundation.They are becoming the fastest-growing form of family philan-thropy because they can be usedby families that don’t have exor-bitant wealth. Other advantagescan include the ease in establishinga fund, the lack of administrativeburden, greater privacy and agreater charitable deduction of

Implementa three-partestate plan

“It’s time to put your af-fairs in order.” Usually,this intimidating phrasemeans it’s time to pre-

pare a will, or to dictate how ourassets will be handled after death.While these arrangements are important, successful estate plan-ning involves more than finances.

An effective estate plan shouldinclude three essential elements: afinancial plan, an advance careplan and an ethical will.

Taking the time to create athree-part estate plan can have atremendous impact on quality oflife, particularly if you or a lovedone is facing a serious illness. Eachaspect of estate planning offers atime for reflection and celebration.

FINANCIAL PLAN: Financialplanning is primarily asset distribu-tion and requires specialized legaland financial assistance. Wills andtrusts allow us to continue to carefor the people and charitable orga-nizations that we value most andensure that our lifelong legacy ofhard work will live on. It is vital toappoint a trusted financial powerof attorney who will make deci-sions on your behalf, if needed.

Property inheritance issues canbe loaded with emotion, but it isoften easier to have the “moneytalk” with family and friends thanto have the “what if” talk.

ADVANCE CARE: Your advanced care plan focuses on themedical “what ifs” that can occurat the end of life. “What if I get aninfection? Do I want antibiotics?”“What if I can’t swallow? Do Iwant intravenous nutrition?”These are difficult questions. Butimagine how difficult it would befor your family and friends to answer them for you during amedical crisis. Would they agreeon your course of treatment? Thegreatest gift you can give yourloved ones is to relieve them ofthe burden of making uninformedchoices on your behalf.

Your advanced care plan shouldinclude a living will declaration aswell as a health care power of attorney. These documents will be consulted only if you can’tcommunicate your wishes.

Creating an advance care plantakes effort and the courage to have

market instead of cost basis.

Donors typically establish adonor-advised fund to act as amultigenerational family fund fortheir charitable giving. The accountcan be personalized with a familyname (e.g., “The Smith FamilyFoundation”), involve familymembers in recommending grants,and name successor advisers. Depending on the sponsoring organization, the fund can lastinto perpetuity. Both the invest-ments and the charities can bechanged at any time to ensure themost charitable growth and thechanging charitable desires of thefamily.

DDoonnoorr--aaddvviisseedd ffuunnddss aarree lliikkee aa cchhaarriittaabbllee iinnvveessttmmeenntt aaccccoouunntt..

See HOSPICE Page S-20

See DONOR Page S-20




on receiving the2010 Distinguished Estate Planner Award

fromTHE ESTATE PLANNING COUNCIL OF CLEVELAND

Congratulations toM. Patricia CullerHahn Loeser & Parks, LLP

Trusts & Estates

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We’ll help you get there.No matter what charitable cause you support, we invite you to visit our website for free planned giving education.

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www.oprsfoundation.org/legacyAccess a library of planned giving essentialsCalculate your potential benefitsDiscover the rewards of life income giftsLearn how to create a legacy for your cause

Your Partner in Legacy PlanningProvided as a public service of the Ohio Presbyterian Retirement Services Foundation. For more information about our work in northeast Ohio supporting Breckenridge Village and Senior Independence, please call Jim Hickey at (440) 942-4342.


CLTs idealin currentclimate

Charitable lead trusts(CLTs) are excellent estateand tax-planning tools forindividuals with large

estates who wish to maximizewealth transfer to their heirs andmake a generous gift to their favoritecharity. By taking advantage of current market conditions, including low interest rates anddepressed asset values, CLTs helpdonors make lemonadeout of the “lemon” economy.

Charitable lead trustsare irrevocable trusts established either duringthe donor’s life or upondeath to benefit bothcharitable and non-chari-table beneficiaries. Uponcreation, the donor trans-fers assets into the trust.Thereafter, the donor’s chosen charitable organization(s)receives “lead” distributions (fixedor percentage) each year for eitherthe donor’s life or a term of years.These annual gifts from the trustcan be designated to support thedonor’s chosen program or capitalproject and, if done during life,can have an immediate and trans-formative impact.

At the end of the trust term, thetrust assets, including the growth

or appreciation of those assets,are distributed to the donor’sheirs.

CLTs are best suited fordonors who can afford toset aside a portion oftheir assets for a certainnumber of years. Donorsare able to use thesetrusts to remove wealthfrom their estates andpass it tax-free to theirheirs. CLTs also are idealfor donors who have assets, such as securities

or real estate, that are expected toincrease in value over the term ofthe trust.

Thanks to current market conditions, it is a great time to establish a charitable lead trust.The IRS has lowered its specialrate used to predict how muchthe assets will grow while in trust.This special “hurdle” rate hasbeen at historic lows (2% in October), which makes charitablelead trusts very attractive.

In addition, asset values shouldrecover over the coming years.The growth in trust assets is likelyto outpace the low IRS “hurdle”rate, and this value will pass tax-free to the donor’s heirs.

Proposed federal estate taxchanges could mean that estab-lishing a CLT is an even more attractive estate and tax-planningtool. Congress allowed federal estate taxes to lapse in 2010. How-ever, this is a short-term reprieve.Congress may reinstate estate taxesat the former levels or change therules. Even if Congress takes noaction, estate taxes will automati-cally return — at more burden-some levels — on Jan. 1. Charita-ble lead trusts and other estateplanning strategies will be moreimportant than ever. ■

Patricia Fries is the senior gift planningofficer for University Hospitals, includingboth the main campus and the commu-nity hospitals. Contact her at 216-844-0430.

PATRICIA FRIES

Generate incomefrom other sources

ACharitable Gift Annuity(CGA) gives you fixed andattractive pay-ments for life,

regardless of changes in in-terest rates. More impor-tantly, it provides a way to make a meaningful, en-during gift to a nonprofitorganization. A CGA maybe right for you if:

■ You want to supporta charitable organization.

■ You want income that is un-affected by changes in the economy.

■ You want to maintain, andpossibly increase, income receivedfrom your assets.

■ You want income tax reliefthis year.

HOW IT WORKS: Through asimple contract, you agree to donate cash, stocks or other assetsto a charitable organization. In return, the organization agrees topay you (and someone else, if youchoose) a fixed amount each yearfor the rest of your life.

CGA payments are partially tax-free. The contract pays a set amountfor one or two lives, and providescurrent and future savings on income taxes. If you prefer, youmay defer payments. Because ratesare based on age, the future annualpayout rate can be considerablyhigher than the rate of annuity

payments starting immediately.Many people wish to support

those in need but are uncomfortable partingwith a large sum of cashin today’s economy, evenif the income generatedfrom it would increase.Here are a few creativeways to fund a CGA:

REAL ESTATE: Themere thought of market-

ing and selling a home, vacationproperty or other holdings duringa lagging real estate market can beexhausting. An alternative to selling the property would be touse it to fund a CGA. Organiza-tions may set CGA rates on a case-by-case basis for gifts of real estate,relative to the anticipated risk andexpense to the organization forholding and selling the property.

LIFE INSURANCE: If you ownan insurance policy that you nolonger need, use this “hidden asset”to fund a CGA and turn this policyinto income.

STOCKS: When appreciatedstocks are used to fund a CGA,you gain a charitable tax deduc-tion while amortizing capitalgains taxes on the appreciationover your life expectancy. This

Cash one way to fund gift annuities

HOW DOES AN ANNUITY WORK?

A charitable annuity allows individuals to support a charitywhile receiving a cash rewardfor years to come. It is a greatway to give a donation and payyourself back over time, whilereducing your tax bill. For example:

Mary, 68, provides a one-timecash donation of $5,000 to thecharity of her choice. Her annuityrate of return, determined by theAmerican Council of Gift Annuitiesbased on her age, gift amountand other factors, is 5.5%. Therate is fixed over her lifetime.

Her tax deduction the first yearis $1,847.

She will receive $275 everyyear ($180 tax-free, $95 ordinaryincome).

“Annuities provide a competi-tive and reliable rate of returnand allow donors to support theirfavorite charities at the same time,”said Kerry A. Mink, developmentmanager of the Benjamin RoseInstitute.

*Calculations are for illustrativepurposes and should not be considered legal, accounting or other professional advice. Actual benefits may vary depending on thetiming of the gift.

Kerry A. Mink, Esq., is developmentmanager of the Benjamin Rose Institute. Contact her at 216-373-1607.

JAMES HICKEY

See CHARITABLE Page S-20




Gary B. Bilchik, Partner

Co-Chair, Estate Planning and

Probate Practice Group

Licensed to practice law in Ohio and Florida

Deviani M. Kuhar, Partner

Co-Chair, Estate Planning &

Probate Practice Group

Licensed to practice law in Ohio

Nick D. Shofar, Associate,

Estate Planning and

Probate Practice Group,

Licensed to practice law in Ohio

MY BENESCH MY TEAM

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We can assist in these areas and help youmanage your assets in ways that will minimizethe probate administration process.

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Selecting a nonprofit to include in your estate planis a personal experience.When selecting charities, Ihighly recommend thatdonors consider:

■ Do you want your gift tobe revocable or irrevocable?

■ How well do you knowthe charity or charities?

■ How well does its mis-sion align with your valuesand goals in life?

■ Do you have an establishedrelationship with the charity?

■ What do you know about the longevity/sustainability of thecharity?

■ How well has it handled its finances?

■ How well is it meeting its mission?

■ What impact do you think yourgift will have? Is it a large institu-tion to which you plan to leave a

small gift — or a large gift? Or is ita small organization to which youplan to leave a large gift — or asmall gift? The size and capacityof the organization may be greatlyimpacted by your gift. Can it carryout your desires?

■ Do you want your gift to go toa specific purpose within the charity,or would you prefer the charity determine how to best use yourgift? If you would like your gift to

provide for a specific project, acertain term of years or other designated purpose, you shouldmeet with the charity to be sure itcan carry out your wishes and thatyour estate plans and MOUspecifically reflect your wishes.

■ Is the charity able to acceptyour gift if you are donating tangibleproperty? For example, leaving ahouse to an organization thatdoes not have the capacity tomaintain the property or to sell theproperty immediately may actuallybe more of a liability than a gift.Make sure your gift is somethingyour charity can accept and fromwhich it can benefit.

■ Do you want to make provi-sions if the charity’s program nolonger exists? Do you want thecharity to designate the funds to asimilar program or problem it isnow undertaking?

— Sheryl Hoffman

Gifting to charity can leave a lasting legacy

The decision to create alegacy gift — be it a chari-table trust, a bequest ofcash or transfer of tangible

property, naming an organizationas a beneficiary in a retirementaccount or life insurance policy,or establishing a charitable giftannuity — is an important mile-stone.

A legacy gift not only speaks tothe donor’s commitment to anorganization, but also illustratesthe donor’s philosophy about living, giving and his or herhopes for future generations.

Considering what is best forboth the individuals making thegift, as well as the organization, isa key element in establishing aplanned gift.

While some donors have themeans to immediately create atrust, others may only be able toattain their philanthropic dreamsin increments. Some may be interested in earned income during their lifetime, while othersmay be interested in providingfor a loved one — as well as acharity.

The ability to work withdonors in a creative and collabo-

rative fashion helps to ensurethat their gift — and the methodof the gift — accomplishes theirgoals.

It is also important to havedonors work with their attorneysand financial planners in a collaborative manner, which often can lead to greater gifts and greater satisfaction for thedonors.

Making a legacy gift is an important life statement, onethat should be personally rewarding and deeply gratifying.Often, nonprofit staff learnsabout a bequest gift only after adonor has died.

By working with the organization in advance, donorscan ensure their wishes are fulfilled — and it gives the organization the opportunity to express how important thesegifts are to the sustainability ofthe organization and ensuring itsmission. ■

Sheryl Hoffman is director of Govern-ment Relations, Major & Planned Giftsfor the Cleveland Museum of NaturalHistory. Contact her at 216-231-4600ext. 3310 or visit www.cmnh.org.

What good are we doing? “In the quiet hours when we are

alone and there is nobody to tell uswhat fine fellows we are, we comesometimes upon a moment in whichwe wonder, not how much moneywe are earning, nor how famous wehave become, but what good we aredoing.”

— A.A. Milne

There are many ways tomake estate plans, andmany charitable planningtechniques to consider

when determining the best wayto include a gift as part of an estate plan.

However, before that processbegins, one or more organizationsneed to be identified as gift recipients, which often is easiersaid than done. For some people,it is a clear choice; others needguidance and direction from theiradvisers.

Anyone connected to the giftplanning process knows howmeaningful it is to help someoneestablish a planned gift. In manycases, planned gifts fulfill finan-cial and emotional needs.

For example, I have the privi-

lege of working with someonewho is just as thrilled with therate of her charitable gift annuityas she is with knowing that herdonation will ultimately supportfishing in Cleveland Metroparks,which was a passion of her latehusband.

I also have had the opportunityto work with multiple genera-tions of one family to create an endowed program that perpet-uates the beliefs of its family matriarch.

Northeast Ohio’s long-standingtradition of making the quality oflife a priority has allowed non-profit organizations to effectivelyfulfill their mission throughoutthe region.

Through listening to the people we are working with andproviding research assistance, wehave the unique opportunity tohelp them improve and preservethe quality of life throughoutgreater Cleveland. ■

Karen J. Kannenberg, CFRE, is managerof Gift and Donor Development forCleveland Metroparks. Contact her at216-635-3217.

TIPS FOR SELECTING A CHARITY




Armond D. Budish • Michael L. SolomonJennifer E. Peck • Laurie G. Steiner • Stanley M. Fisher

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Your planned gift to the Diabetes Associa-tion of Greater Cleveland (DAGC) willensure that current and future generationsof children, youth and adults living withdiabetes in Northeast Ohio receive theeducation and support they need to learnmore, take charge, and live well with thedisease. One hundred percent of your

investment stays right here in our community to improve the quality oflife for your friends and family members with diabetes.

To learn how DAGC can help you meet your financial and philanthropicgoals, contact Helen Dumski, President & CEO at (216) 591-0800 orvisit www.dagc.org.

Secure Your Future and Leave A Legacy of Learning and Living


Dynasty trusts a valuable vehicle, even sans estate tax

W hen the repeal of federal estate tax firstbecame a possibility,one of my partners

said to me, “Don’t worry aboutyour career. The golden age oftrusts was long before there everwas an estate tax.”

Most estate planners wouldagree that some form of federal estate tax will continue to exist;however, the possibility of an estate tax repeal has led many tofocus on the non-tax benefits ofvarious estate planning tech-niques, including dynasty trusts.

Dynasty trusts can provide atleast three distinct benefits:

ASSET PROTECTION: Gener-ally, throughout the United States,it has been the rule that a self-settled trust (a trust that providesa beneficial interest to the grantorof the trust) may be reached bythe grantor’s creditors. Some stateslike Alaska and Delaware allow thecreation of self-settled trusts thatare creditor-proof. Ohio has proposed similar legislation. As oursociety has become more litigious,asset protection has become a

greater concern for many clients.Although it is difficult to achieveasset protection planning for oneself, it is relatively simple tomake one’s children or other heirscreditor-proof by using a dynastytrust. In many cases, the trust canbe structured to allow a beneficiaryto act as his or her own trusteeand still receive this benefit.

DIVORCE/REMARRIAGEPROTECTION: Under most circumstances, a dynasty trust canbe used to protect a beneficiaryfrom a divorcing spouse. Althoughinheritances are separate property(non-marital property), assets thatare co-mingled may lose their abil-ity to be identified. Many timesthe client will want an heir tokeep his or her non-marital prop-erty separate; but in reality, thatmay be difficult. The separation ofproperty may create a wedge

between the couple, leading to mari-tal discord. If the assets are in atrust, even if the beneficiary is thetrustee or co-trustee, the beneficiarycan make his or her deceased par-ents or the trust the “bad guy.” Inthe case of an heir who is single ordivorced and contemplating mar-riage, a dynasty trust may alleviatethe need for a prenuptial agree-ment, where the beneficiary’s ownassets are not significant.

BLOODLINE: Many clients express the desire that their wealthstay in the family. A typical pat-tern is for the trust to be held forthe benefit of the grantor’s childduring his or her lifetime; andthen, at his or her death, for thetrust to be held or distributed tothe child’s lineal descendants. Ifthe child has no children, a dynasty trust allows a parent toprovide for his or her child butstill control the ultimate distribu-tion of the assets. ■

Missia H. Vaselaney is a partner with Taft Stettinius & Hollister LLP. Contact her at 216-706-3956 or [email protected].

Bloodline trusts protect family, goals

Too often people focus onlyon tax planning whenthey have their estateplanning documents

prepared. Although federal or state estate

tax planning is important, non-tax issues can be just as impor-tant. How do you ensure thatyour estate passes to your chil-dren and is protected from theircreditors or a divorce? How doyou make sure your estate ultimately passes to your grand-children and not to your son- ordaughter-in-law?

The bloodline trust is a toolthat can make sure these goals aresatisfied.

A typical trust might providethat upon the death of the parents the assets in the trust payout to the children when theyreach certain ages. Once themoney is distributed out of thetrust to the children, it could besubject to creditor or divorceclaims.

Also, on the death of the child,the child’s estate plan probablyprovides that the son- or daughter-in-law inherits your money. Ifyour son- or daughter-in-lawspends the money or remarriesand leaves it to the new spouse,this money may never reach your grandchild.

Even if your child provides inhis will that the inherited assetspass to the children, the in-lawstill would have a right to receivea portion of the probate estate.

However, a bloodline trust provides that the assets are heldin trust for the life of your childand eventually pass directly toyour grandchildren on the deathof your child.

Your child still will have accessto the money in the trust and caneven be the trustee.

However, if assets are held intrust for a child, the assets willnot be subject to most creditorclaims (except the IRS, the stateof Ohio and child support) — including alimony payments.

More importantly, the trustwill provide that upon yourchild’s death the assets must goto your grandchild and not toyour son- or daughter-in-law.

The bloodline trust also can beused in business succession plan-ning to make sure that the busi-ness remains in the family. ■

Mike Solomon is a partner with Budish,Solomon, Steiner & Peck, Ltd. Contacthim at 216-245-0185.

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CHARITABLE GIVING VEHICLES BUSINESS SUCCESSION PLANNING

Grantor retained annuity trusts: headsyou win, tails you tie

Grantor retained annuitytrusts (GRATs) are usedto make future gifts ofappreciating property to

family and friends on a virtuallytax-free basis. The currenthistorically low interestrates make GRATs moreattractive than ever.

GRATs are irrevocabletrusts where assets aretransferred. In exchangefor the assets, the trans-feror receives an annuitythat pays back a fixedamount each year. Thetransferor sets the annuityamount and the length of time(or term) of the trust.

The transferor pays a gift taxon the current fair market valueof the trust assets, minus the value of the grantor’s retained annuity interest. If the GRAT isstructured so that the value of theretained annuity is equal to thevalue of the property transferred,there is no gift tax consequence.GRATs structured this way arecalled “zeroed-out” GRATs.

When zeroing out a GRAT, the annuity amount is calculatedusing a rate set by the IRS (thesection 7520 rate) for the monthof the transfer. The “hurdle rate”is the assumed rate of return forthe assets. For October, the hurdlerate was 2%, which tied the lowest rate in history.

The annuity amount is paid tothe transferor during the term of theGRAT, and any property remainingin the trust at the end of theGRAT term passes to the benefi-ciaries gift tax-free. If the GRATassets produce a return in excess

of the hurdle rate, the increase invalue is passed to the beneficia-ries free of gift tax. Therefore, assets likely to appreciate at a ratehigher than the hurdle rate are

ideal for use with GRATs.However, there is a

catch. If the transferor diesduring the GRAT term,the value of the remainderinterest in the trust is included in the transferor’staxable estate. To mini-mize the risk that the assets will be taxed in thetransferor’s estate, multi-

ple short-term GRATs are oftenused.

When structured correctly,GRATs offer little risk. If the assetsin the GRAT do not appreciate ata rate that exceeds the hurdle rate,the GRAT fails, but the transferorreceives all of the assets trans-ferred to the GRAT in the form ofannuity payments. If the transferordoes not survive the annuityterm, the GRAT fails at least inpart, but again, the transferor (orthe transferor’s estate) is no worseoff from a tax perspective than ifthe GRAT had never been created.

Soon, this strategy may be toogood to be true. Changes to theInternal Revenue Code may reduce the benefits of GRATs byrequiring a minimum remainderinterest and a longer term. Becauseit is expected that any legislationwould exclude existing GRATs,opportunities exist and should beseized quickly. ■

Steven St. L. Cox is a partner with Roetzel& Andress. Contact him at 330-849-6714 or [email protected].

Rates should motivate investors

Formulate solid strategy beforetransferring company ownership

There are many tactics thatbusiness owners can employ asthey craft a carefully consideredsuccession plan. Regardless of thechoice of planning tools, considerthe following to pave the way fora successful transition:

1Succession of ownership.Who will take over, and howwill they pay for the added

stake in the company? What roleswill the spouse and any childrenplay in the succession, if at all? Ifa child will not be active in ownership and management,how will (or will) they be providedfor? Business succession planningcan bring family dynamics intoplay — and those dynamics cannot be discounted.

2Age of interested parties.Sometimes you know who is likely to die first. What

happens in the event that yourappointed successor passes awaybefore you?

3Management. How willmanagement be affected bythe new owner? Will the

new owner manage the business,or will there be owners who arenot managers? Will you losequality managers because theyare not part of the ownershipgroup? How will the change affect employees?

4Control vs. ownership.Some ownership interestshave a control component

and others do not, such as votingvs. non-voting ownership interests.

5Plan review. How often do you need to review asuccession plan? If one is put

in place, what flexibility do youwant to retain for changes?

6Tax issues. Upon ownershiptransfer, what income, giftand/or estate tax ramifica-

tions come into play? Who shouldbear the burden of such taxes?

7Succession triggers. Whatevents will put the plan intoaction?

8Equity. How and when will the new owners receiveequity in the company? Is it

an all-or-nothing situation? Dothey earn or purchase equity overtime? How much equity is thecurrent owner willing to partwith now and later?

9Realistic valuations. Whatyou think your company isworth — and its true worth

— may not match up. Make surethe succession plan is based onthe realistic value of the company.

10Vision. What is thegoal for all involved?

James Goldsmith is a partner and chairof the Trusts & Estates Group for Ulmer& Berne LLP. Contact him at 216-583-7114 or [email protected].

STEVEN COX




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Employee ownership planmay be viable exit strategy

W hen considering theoptions relating totransitioning out ofyour business, an

Employee Stock Ownership Plan(ESOP) should be in the running.An ESOP allows employees to become owners in the company.Below are answers to the commonquestions and concerns when considering an ESOP:

Q: I am only looking to diversifymy holding and am not interestedin selling the entire company. Isan ESOP still a possibility?

A: An ESOP can be used to buya percentage or all of the shares ofthe privately held company. Thereare fiduciary responsibilities, and aformal business valuation willneed to be prepared to confirmthe purchase price. If the transac-tion involves less than 50% of thevoting stock of the company, aminority interest discount willneed to be considered.

Q: What can I do to ensure myemployees continue their employ-ment after I exit my business?

A: A concern of many owners isthat they will sell the companyand the new owner will drasticallychange the operations. Althoughthe company needs to be run intelligently and efficiently, it isnow owned by the employees youhired. If the ESOP is rolled outproperly, you will hopefully see acultural change within the companyonce employees fully realize addi-

tional gains will increase the valueof the company — and they sharein that increase. Training employeeson the benefits and future poten-tial stock buyouts at retirement isextremely important.

Q: Is there a way to defer thetax associated with the sale?

A: If the ESOP acquires shares ina “C” Corporation, the tax associ-ated with the sale may be deferredusing a Section 1042 Rollover. Therollover can defer income tax permanently, and allows the owner to hold the reinvested shareuntil death and receive a basisstep-up at the time of the transferof the replacement property to theheirs. As long as the ESOP acquiresat least a 30% interest in each classof outstanding stock, the seller mayreinvest the sale proceeds intoqualified replacement property.Qualified replacement propertywould include stocks and bonds ofdomestic operating companies.

“S” Corporations have less favorable tax benefits (such as nosection 1042 rollover or dividenddeduction); however, shares of theS Corp.’s earnings to the ESOP arecompletely tax-free, as are distrib-utions made to the ESOP.

Q: Are there tax advantages forthe company after forming theESOP?

A: Yes, and they can be signifi-cant. A few advantages are that

BUSINESS SUCCESSION PLANNING

employer contributions to theESOP are tax deductible (subject topercentage limitations) and divi-dends paid on ESOP-held stockmay be deductible.

Q: How do I know if an ESOPmakes sense for my company?

A: Although an ESOP can be avery useful vehicle, it comes witha complex set of rules. However,ESOPs create an ownership culturewithin a closely-held business,which is important for thelongevity of the company. Makesure you are aware of the com-plexities and do research and duediligence prior to making thiscommitment. The first step is afeasibility study that should beprepared by an expert that has experience with ESOPs.

ESOPs are often the most advantageous way an owner canachieve liquidity and gain from favorable tax deferrals. Setting upan ESOP requires a well-plannedtax strategy designed aroundmeeting the owner’s goals for thecompany and his or her future. ■

Doug Mathey, CPA, MT, is director ofBCG & Company’s tax services depart-ment. Contact him at 330-572-8050 [email protected] Lampner, CPA, ABV, CVA, is directorof BCG & Company’s entrepreneurial services department. Contact him at330-572-8014 or [email protected].


RETIREMENT PLANS



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5234

Review retirementplans to minimizetax consequences

Window closing on Roth conversions

The end of 2010 is fast approaching, and with itthe end of the opportunityto make a Roth IRA

conversion and spread the taxover 2011 and 2012. The incomelimits on who is eligible to convertto a Roth IRA were lifted effectiveJan. 1, 2010.

Anyone, no matter how muchtheir income is, can make a con-version. The decision to convert iswhether it is better to pay tax onyour IRA today or when you actu-ally withdraw the funds in the future.

Income tax is not the only issue, however; if structured prop-erly, the conversion can be used totransfer wealth to your heirs.

Why would you want to pay taxtoday rather than at retirement?Generally distributions from aRoth IRA are tax-free. By making a

Traditional IRAs and quali-fied plans like 401(k)s and 403(b)s can be greatretirement planning tools.

However, the benefits to yourheirs can be greatly reduced whenyou consider the potential estateand income tax consequences ofretirement assets at your death.

Whereas assets held in a personal brokerage account receive a “step-up” in basis atyour death that can minimize thepotential capital gains tax conse-quences to heirs, retirement plan assets retain their ordinaryincome tax implications. Prudentplanning that considers all ofyour estate planning goals canminimize the impact of estateand income taxes on your heirs.

BENEFICIARIES: Who youname as the IRA beneficiary willdetermine the estate tax conse-quences and how long incometaxes can be deferred.

Designating a younger genera-tion as beneficiaries of your tradi-tional IRA (if financially able tobypass spouse) allows them tostretch the minimum distribu-tions (and the income tax conse-quences) over their lifetimes.

If you intend to leave money tocharity, consider naming it as yourIRA beneficiary since the bequestmay qualify for an estate tax exemption and pass to the charityincome-tax free. Failing to desig-nate a beneficiary or not updatingthe designation when a beneficiarypredeceases you could have unfa-

vorable consequences because theentire balance of your retirementplan may have to be distributed toyour estate or to your beneficiarieswithin the first five years of death.

CONVERSIONS: If you believethere is a significant chance thatyou would not need funds fromthe IRA to meet your living expenses, consider converting atleast some part of your IRA to aRoth IRA. You will have to include the taxable portion ofany conversion amount on yourincome tax return, but it will generally provide for tax-freewithdrawals to your beneficiaries.

INSURANCE: Recouping dollarslost to income or estate taxesthrough insurance requires theuse of more expensive permanentinsurance since it needs to stay ineffect throughout your life. Survivorship, or second-to-die, insurance is best to cover thelives of a married couple. Insur-ance benefits you the most if youboth die prematurely and onlypaid a few premiums.

“Some people are shocked tohear how much of their IRA assets could be lost to estate andincome taxes at death,” says KaraDowning, portfolio manager atSpero-Smith Investment Advisers,Inc. “But with proper planning,you can minimize their impact.” ■

Matthew S. Olver, CFP, is senior VP ofSpero-Smith Investment Advisers, Inc.Contact him at 800-794-7545.

Prudent planning that takes into consideration allof your estate planning goals can minimize the

impact of estate and income taxes on your heirs.2010 presents chance to spreadout taxes on IRA

conversion now, the moneytransferred to the Roth IRA growstax-free in the same manner as a traditional IRA. The tradeoff isthat distributions to you andyour beneficiaries are tax-free.

For example, if your money remains in the Roth IRA for moreyears (unlike traditional IRAs,Roth IRAs do not require distribu-tions to begin at age 70½), youcould double or triple today’s valuewhile paying tax only on its valueat the time of conversion.

A special rule applies for 2010conversions in which the tax isdeferred and the taxable incomeis split between 2011 and 2012.The conversion must be made byDec. 31, 2010.

You can decide whether to paythe tax on your 2010 return orspread it out over 2011 and 2012,by the due date (with extensions)of your 2010 tax return. After2010, the ability to spread the taxis no longer available.

NEW OPPORTUNITIES: Anew wrinkle to Roth conversionswas added Sept. 27, when Presi-

dent Barack Obama signed theSmall Business Jobs Act of 2010.The law includes a provision thatallows participants in 401(k),403(b) and 457(b) plans to con-vert eligible account balances to aRoth account within the sameplan. Participants no longer willbe required to remove the moneyand roll the funds over to an IRA.

To facilitate an in-plan conver-sion the plan must already have aRoth contribution feature. Plansthat do not accept Roth contribu-tions would have to be amendedto add this feature.

Additionally, to make an in-plan conversion the partici-pant must have had a distributableevent under the plans terms. A plan sponsor may decide to expand its distribution options,such as adding an in-service distribution feature to allow participants to take advantage ofthis new provision. ■

David O. Reyes, CPA, is shareholderwith Maloney & Novotny, LLC. Contacthim at 216-363-0100 or [email protected].




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Are you on track with your financial plan?

EDUCATION

Trusteed IRA can skirt issues often associated with stretch IRAs

Alleviate education sticker shock

Many financial and taxadvisers have toutedthe glory of tax de-ferred compounding

with “stretch” IRA planning. A “stretch” IRA simply means

that a beneficiary has the option todefer withdrawals over the maxi-mum amount of time permittedunder IRS distribution tables.

The problem with these projections is that beneficiariesfrequently waste this opportunityand withdraw more than this —often the entire amount — afterthe IRA owner’s death.

How many 18-year-olds inher-iting a $1 million IRA would spend 1/65 (percentage based on65-year life expectancy) or$13,485 in the first year? The“stretch” becomes a “blowout,”and the long-term projections become more myth than reality.

Naming a separate trust as ben-eficiary can prevent the benefi-ciary from squandering the

stretch opportunity. Unfortunately,many trusts do not qualify for thelongest “stretch” income tax deferral. A trust that is ideal forordinary estate planning may beinappropriate to hold retirementplan or IRA assets. If the trust doesnot meet IRS guidelines, the IRAmay have to be distributed withinas soon as five years after death.

TRUSTEED IRA SOLUTION: Atrusteed IRA can combine the taxbenefits of an IRA with the estateplanning benefits of a trust. Using this strategy, an IRA owner,working with his or her estateplanning attorney, customizesthe beneficiary designation tomatch the family situation. Thisflexibility allows an owner to encourage continued tax deferralby limiting a beneficiary to theminimum required distributions,but with trustee discretion to gobeyond this for reasons estab-lished by the owner. This ensuresthe “stretch out” actually happens

in a manner appropriate to a bene-ficiary’s needs.

A trusteed IRA also can allowan owner to control who thebeneficiary is allowed to appointas his or her beneficiary, allowinga hard-earned retirement legacyto stay in the owner’s family. Thiscan be ideal for second-marriageand blended-family situations.

Unfortunately, only a handfulof providers offer a sophisticatedtrusteed IRA solution. TrusteedIRAs are ideal for those withrollover-eligible profit sharing,401(k), 403(b) or Keogh plans orany IRAs larger than $500,000,who want to ensure the strongesttax deferral and asset protectionfor their beneficiaries. ■

Thomas A. Danford is vice president ofKey Private Bank. Daniel F. Miltner, CFP,is senior vice president of Key PrivateBank. Contact Miltner at 440-788-4490or [email protected], orvisit www.keyprivatebank.com.

The total cost of a four-yeardegree for someone bornthis year could be morethan $300,000. This pro-

jection, in conjunction with thecurrent economy, is enough tomake any parent panic — and does

not even include the costof the increasinglymandatory graduate degree. Parents are facedwith the daunting ques-tion of how to financesuch an undertaking, especially when they maystill be paying off theirown college loans. Fortu-nately, there are a numberof options, especially if planningbegins early.

529 PLANS: One of the mostprevalent college funding tools isthe 529 plan, which is a state-sponsored investment vehicle.The primary benefits include tax-free growth while the accountaccumulates and the ability tomake tax-free withdrawals fromthe account for qualified highereducation expenses. Such expensesinclude tuition, books, fees, supplies and, in some cases, roomand board, at any eligible educa-tional institution in the country.Any other withdrawal from theplan is subject to a 10% penaltyin ordinary income taxes (at therecipient’s rate) on the earningsportion of the withdrawal.

IRREVOCABLE TRUSTS: Irrevocable trusts can be set up to

benefit only one or agroup of beneficiaries.Depending on its struc-ture, contributions canqualify for the gift tax annual exclusion, which iscurrently $13,000 ($26,000for a married couple) perbeneficiary per year.

The terms of the trustcan vary the timing of

distributions and the purposes for which they can be made, allowing for greater flexibility inthe future use of the trust assets.However, assets will not accumulateon a pre-tax basis, and dependingon the trust’s structure, either thetrust, the beneficiary or the grantorwill be liable for the income tax.

COVERDELL EDUCATIONALSAVINGS ACCOUNT: Contribu-tions are limited to $2,000 perstudent per year and may not bemade after the beneficiary reachesage 18. The account grows tax free,and distributions for qualified expenses at eligible educationalinstitutions are also tax free. Itmay be used for primary and secondary education as well ashigher education, but benefitsmay sunset for ESAs as of 2011unless Congress acts.

CRISTINSNODGRASS

RETIREMENT PLANS

See STICKER Page S-20




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Whether it’s retiring in comfort, educating your children or grandchildren

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EDUCATION

FAMILY CONSIDERATIONS

529 accounts providesavings benefitsAs we approach the fourth

quarter of 2010, we areconfronted with muchuncertainty as to the

future of the federal estate tax.This quandary has led me to seeksolutions that address my clients’ estate planning goals but also pro-vide the flexibility to respond tochanges that may occur after thenew law is settled.

One strategy is the gift and estate tax treatment of 529 savingaccounts.

There are two basic distincttypes of 529 plans: tuition prepay-ment plans, and college savingsand investment plans. In additionto growing free of federal and stateannual taxation, 529 accounts canbe spent free of federal and statetaxes for qualified educational expenses; and the laws setting upmany plans offer account protec-tion from creditors.

Although contributors don’t receive a federal income tax deduction for the contribution,the earnings aren’t taxed whilethe funds are in the program.

The account owner can changethe beneficiary or roll over thefunds to another plan for thesame or a differentbeneficiary without income tax conse-quences. Addition-ally, there are no income limits on contributions.

One of the least under-stood benefits of 529 plansis the account owner’s ability to maintain control over the accounts.

This is possible because funding a 529 account is deemeda “gift” to the designated benefi-ciary of the account even thoughsuch beneficiary never has anyright or entitlement to controlover or legal interest in such account.

Individuals are allowed to access four future years of theirannual exclusion, currently$13,000, to utilize five years at once— meaning an individual couldcontribute $65,000 and joint taxreturn filers could contribute

$130,000 toeach 529 account

during one year or on one occasion.

Assets in a 529 plan could impact the beneficiary’s ability toqualify for grants and student aid.Investors should consider the investment objectives, risks,charges and expenses associatedwith 529 plans carefully before investing.

However, few strategies seem tooffer as much control and bene-fits, and in these uncertain timesthis may prove to be uniquelyvaluable for many. ■

Contact Colin O. Anderson of VantageFinancial Group at 216-642-8037 or e-mail [email protected]. Resources provided by Chris Stack, Esq.

Ensure right plan is inplace for elderly relatives

Many of us struggleevery day to make certain we are finan-cially sound and have

our estates in order. What aboutMom and Dad? Or Aunt Mary?Many elderly are depending onthe 55-plus generation for guid-ance and/or care.

Over the years, I followed the philosophy that if I needed to review my financial items orpermanent documents, I knewthat my mom and dad also needed to review theirs. Discus-sions with elderly relatives alwaysshould begin sooner rather thanlater. It is much easier to talkabout life-changing decisionswhen there is no pressure to do so.

What documents to consider

The first step to begin theprocess is to gather copies of allpermanent documents. Youshould gather:

■ Wills and trusts

■ Powers of attorney

■ Advance directives

■ Living will

■ Durable power of attorney for health care

■ Insurance policies

■ Basis of any assets they may have inherited

■ A list of all advisers and phone numbers

■ A list of all assets and liabilities

(a current tax return will helpwith this).

A downloadable Excel file todocument this information, as wellas other worksheets, is availableat www.walthall.com/practice_groups/financial_planning. Reviewing these documents isyour next step. It is important tounderstand what your relativeswant you to know, and what theydon’t. If you are the executor/executrix, it is advisable to under-stand the estate situation alongwith any undocumented wishes.

Forgotten tasks

An often overlooked task is thereview of the Medicare Part D option for prescription drugs. Theseplans change annually, and as a result, the options must be reviewed annually. The programat www.medicare.gov allows youto maintain and save a list ofmedications, and review and choosethe most suitable plan. Addingthis decision to the energy choicedecisions, the elderly are justifiedin feeling overwhelmed.

Although deathbed planning canbe done, do you want to use yourfinal moments with your loved onesto address financial questions? ■

Cindy Kula, CPA/PFS, CFP, is director of tax services and chairperson of the financial planning group, Walthall,Drake & Wallace LLP CPAs. Visitwww.walthall.com/news for more information and upcoming seminars.

Encourage discussions early on

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OUR INDEPENDENCEIS YOUR PEACE OF MIND

GIVING.Meet Barbara Bellin Janovitz.

In addition to being the Chair of the Estate Planning Group

at Reminger, Barbara also gives freely of her time on behalf of vital causes in our community

like the Cleveland Clinic Taussig Cancer Institute, the Golden Age

Centers of Greater Cleveland and the Different Needz

Foundation. Barbara’s talents and spirit benefit her clients and

our community every day.

Results. Period.www.reminger.com

Barbara Bellin [email protected]

OHIO and FLORIDAESTATE PLANNING and PROBATE

Nancy H. Canary, Esq.CLEVELAND, OH - P: 216/226/7466 F: 216/226/7426

PALM BEACH, FL - P: 561/833/5900 F: 561/833/5951

E-mail: [email protected]

International estate planning requires special considerations

In today’s internationalbusiness community,foreign business owners and execu-

tives often diversify theirbusiness activities and investments globally.

These individualsshould have a compre-hensive personal estateplan for their worldwideassets. An overall plan would, atthe appropriate time, control thetransfer of those assets to familymembers or charities with mini-mal, if any, transfer tax costs, depending on the jurisdictionsinvolved.

Among the tools frequentlyused to accomplish estate-planning goals are foreign discre-tionary trusts and foundations.From a U.S. tax standpoint, theseentities are often viewed as potentially abusive and are notfavored by the IRS.

For non-U.S. citizens and resi-dents, they can be “customized” foreach particular client and family situation and, more importantly,permit significant flexibility intheir administration. In this case,the selection of the appropriate corporate fiduciary and the juris-diction for the foreign entity is extremely important.

Today, with increased interna-tional emphasis on financialtransparency and the exchangeof tax information between

countries, in most cases ajurisdiction on the Organisation for Eco-nomic Co-Operation and Development’s “whitelist”— those countriesthat have substantiallyimplemented the inter-national standard for the exchange of informationamong tax authorities —

is preferred. The selection of a knowledge-

able and experienced corporatefiduciary to administer the estateplan is also crucial.

Customization of a discre-tionary foreign trust can be accomplished in several ways.Depending on the controlling taxlaws, one or more beneficiariescould be given a general, limitedor special power of appointmentover some or all of the trust income and corpus.

Such a power would allow ben-eficiaries to exercise a significantdegree of control over the trustindependent of the authority exercised by the trustee. In somecases, especially where a U.S. citi-zen or resident could be a currentor future beneficiary, such broadpowers may not be advisable andlimitations should be considered.In those cases, a trust protectorcould be designated to provideoversight of and guidance for thetrustee. In addition, the protectorcould be given the authority to

remove and replace the trusteeshould the need arise.

The protector could be a seniorfamily member, a family adviseror a close family friend whoknows the family members andwould be expected to act in thefamily’s best interests.

Another approach is to establisha “family council,” which couldfunction as a collective protector.

Finally, in appropriate situationsand jurisdictions, the family couldestablish a private trust company,controlled by the family, to serveas the corporate trustee.

The formation, funding andadministration of these foreigndiscretionary entities can be complicated and involve thecommercial and tax laws andtreaties of several countries. Expe-rienced international legal andtax counsel should be consultedin advance to assist with the implementation of a comprehen-sive plan with the least amountof tax and transfer costs.

Finally, the international estateplan needs to be reviewed period-ically and, where necessary, revised to address changes in thelaws of the relevant jurisdictions,the composition of the familyand the countries of their resi-dence and domicile. ■

Jeffrey S. Levin is a partner with Squire,Sanders & Dempsey LLP Contact him at212-872-9840.

Safeguard against tax implications

Collectors of fine art andother collectibles shouldprepare for the return ofthe federal estate tax by

obtaining a current appraisal oftheir collections.

Premier quality fine art and collectibles not only have main-tained their value, but many mayhave increased significantly duringthese economically troubled times.As a result, art and collectibles maycomprise a much larger portion ofyour taxable estate.

The time is right to obtain acurrent fair market value appraisalof your collection and to schedulea meeting with your estate plan-ners to review your plan. Signifi-cant changes may be essential tomaximize estate tax savings andmeet personal objectives.

In a recent appraisal update weperformed to evaluate a 5-year-oldappraisal, we discovered that a pairof Art Deco American bronzesculptures had increased in valuefrom $85,000 to $850,000 eachover the five-year period. In lightof the possibility of such signifi-cant increases in value, a promptappraisal update is essential.

An additional reason for sched-uling an appraisal now is to obtainauthentication of high value items.In my experience, most major collections contain one or moreitems that are fake.

FINE ART, COLLECTIBLES AND THE FEDERAL ESTATE TAX

JEFFREYLEVIN

Fakes in your collection will beassumed to be authentic and willbe valued as such by most appraisers.As fakes, they may be worth 10%or less of the value of the authenticwork. You will have paid federalestate tax on a “phantom value.”Most appraisers are not able to obtain proper authentication.When such items are subsequentlyoffered for sale or donation and authentication will be required, thework will be found to be fake andof little or no value.

Likewise, collectibles may havebeen stolen in the past. Thatmeans that the collector has “hotproperty” to which he or she doesnot have any legal rights.

If the collector’s title and own-ership of the work is in question,the item has no value for estate ortax purposes. If the issue of priortheft is not addressed by the appraiser, the appraisal will mis-lead the collector and result in potentially serious economic harmwhen the work finally surfaces in

a public market. Select an appraiserwho is an expert in the area of prior theft, stolen property, own-ership rights, and performs duediligence in this field.

To assure the highest qualityprofessional appraisal, and toavoid any personal liability fromthe appraiser selection process,choose only an IRS-qualified appraiser who is a certified memberof the American Society of Appraisers (ASA), Appraisers Asso-ciation of America (AAA) and International Society of Appraisers(ISA). Verify that the appraiser selected carries at least $1 millionin Errors and Omissions insur-ance, which is your backstop inthe event of a serious appraisalvaluation error. ■

James Corcoran’s appraisals are certifiedby AAA, ASA and ISA. For over 30 yearshis firm, Corcoran Appraisal Group, hasmaintained substantial Errors and Omis-sions insurance coverage with St. PaulInsurance Company.

Art and collectiblesmay now comprise

a much larger portionof your taxable

estate.

■ Fakes in your collection will beassumed to be authentic and will bevalued as such by most appraisers.

■ If the title and ownership of thework is in question, the item has novalue for estate or tax purposes.




Split-dollar plans can be costly

Split-dollar life insuranceplans had frequently beenused to fund estate tax liquidity until the IRS

issued new rules in 2002. Manypeople still have not addressedthese tax implications, and thiscould have detrimental effects forthemselves and their families.

Most of these plans created asharing of the costs and benefitsbetween a business owner’s company and his or her insur-ance trust (ILIT). Under the newrules, participants may be able tocontinue using the low economicbenefit cost (EBC) to measure thebenefit, but as one gets olderthese costs can become astro-nomical. If this plan is eventuallyterminated by repaying all premiumadvances back to the company,

the new rules make the cash value fully taxable as ordinary income. Furthermore, if the policyis held in a trust, it may also beconsidered a taxable gift.

One exit strategy is to changefrom the EBC approach to a“loan regime” and instead payannual interest costs, which arepresently very low. This wouldpotentially remove the taint offuture taxation upon plan termi-nation. If ongoing premiums arestill due, you can continue loaningthe premium, which also will increase annual loan interest costs.

Alternatively, you can freeze theloan and fund future premiumswith third-party premium financingor an enhanced gifting strategy.Funding the repayment to thecompany may also be a challenge

given that few plans ever consid-ered repayment, and poor policyperformance has even impactedplans that did anticipate repay-ment or “rollout.” Sometimes aGrantor Retained Annuity Trustcan be used to interject cash intoan ILIT, and this then can beused to repay the company.

Usually life insurance is an integral part of the estate plan.Therefore, a proper analysis ofthe split-dollar agreement, thelife insurance policy and theoverall wealth transfer plan is essential to developing an appro-priate split-dollar exit strategy. ■

Larry Rothstein, CLU, is a partner withInsurance Management Consultants,LLC. Contact him at 440-801-1800 [email protected].

INSURANCE PLANS

Insurance is a criticalpiece of the asset plan

Overlooking insurance assetsmay be like driving at night

without headlights. Swallowhard, grip the wheel tight,and hope there isn’t asharp curve in the road.The risk managementportion of your portfoliois arguably the criticalpiece of a balanced estate plan.Understanding the characteristicsof these assets and how to utilizethem can put you in a position tomaximize your estate. Here are someinsurance products to consider:

■ Disability coverage protectsyour ability to generate income.Individuals can purchase a disabilitypolicy with the highest level ofcoverage. These individual poli-cies can offer flexibility such asincreasing future coverage with-out medical underwriting andmay have tax-free benefits. Pur-chasing an individual disabilitypolicy prior to securing employer-offered group coverage is wise be-cause of coordination of coverageand the ability to maximize bene-fits. Business owners can choosemany applications. Key personcoverage protects vital employeesand can be offered as part of a retention package. Group “carve

out” covers select employees. Business overhead coverage paysfor ongoing non-ownercosts. Buy/sell fundingpays a benefit agreed tobetween partners whenone becomes disabled.

■ Life insurance canbe a portfolio diversifierunlike any other. Appli-

cations are similar to disabilitycoverage and then some. Its mostimportant characteristic is terrificleverage. One dollar in premiumbuys multiple times in coverage.A life insurance policy with aguaranteed death benefit is perfectfor gifting. Life insurance can beused to replace what will be lostin taxes and long-term care costs.Purchasing a policy at a youngerage can ensure future insurabilityand secure credit. Insurance guar-antees are only as good as thepaying ability of the carrier, so informed choices mean smart diversification and wealth transfer.

■ Coming to grips with mortal-ity may be an emotional hurdle.Long-term care (LTC) insuranceprotects against rising costs thataccompany our last years of life,potentially preserving a sizableportion of your estate. Traditional

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James Corcoran, JD, AAA, ASA, ISA

Cleveland’s Only Certified Appraisers for over 35 years

Northeast Ohio’s only fully IRS Qualified Appraisers for Donation Appraisals of Fine Art, Antiques, etc.

216-767-077012610 Larchmere Blvd. • Cleveland, Ohio 44120

www.corcoranagi.com • [email protected]

CORCORANAppraisal Group

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• Insurance • Estate/Donation • Sales ConsultationsGrounded in experience while focused on the future, Taft is proud to have served our clients and the communities where we live and work through the many milestones that have shaped us all over the years. Find out how our unique perspective, collaborative style and 125 years of serving leading companies in all areas of business has given us something to celebrate.

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STICKER

TITLING

CONGRESS

DONOR

CHARITABLE

HOSPICE

STICKER INSURANCE

to costly and unnecessary litigation.■ Estate tax. Beginning Jan. 1,

2011, each individual will have a$1 million exemption from the federal estate tax, making the titlingof property even more important.For higher net worth couples, eachspouse should have sufficient assetsin his or her own name to fullyutilize each exemption. If all assetsare in joint and survivorship form,

LTC insurance can be purchased byan individual, business partnershipor employer-paid contributoryarrangement. Policies are generallystructured as reimbursement or indemnification type. You maynot have the asset base to self-insure. Various hybrid productsoffer solutions such as life insur-ance contracts with long-term careprovisions. Review the policy withyour agent or adviser to under-stand benefits and limitations.

■ Changes to health-care insurance means choices are critical.Companies may now offer consumer-driven health plans combining high-deductible healthinsurance plans with tax-advan-taged health savings accounts(HSAs). Tax-advantaged HSAs allow you to deposit tax-deductiblefunds into an account to pay for current health care needs and save for future bills. It’s like an IRA account for medicalexpenses.

Put away the max amount, usecash flow to pay medical bills, andthe HSA grows tax-free to covermedical costs in retirement. In anera of diminished consumer control, this is appealing if youhave time to manage it. If eligiblefor Medicare, don’t procrastinate. Using resources like pharmacies,medical providers and AARP helpmake appropriate choices.

■ Property/casualty insuranceprotects material assets. Smartchoices could save hundreds ayear, thousands over a lifetime.Applications are diverse, rangingfrom car, home and renters to collectibles, art and jewelry. Don’tbe a victim of the vexing claimsprocess. Inventory your valuablesusing photos, video and indepen-dent appraisals.

Workers compensation, busi-ness income/interruption losses,excess liability and identity theftlosses are other asset protection coverages. Always check the financialstrength of the carrier before pur-chasing. Choose wisely, rest easy. ■

Howard Slater is a founding partner andfinancial planner of Cedar Brook Finan-cial Partners, LLC. Securities offeredthrough Securities America, Inc. For moreinformation, contact Laura Sheridan at216-548-6780 or e-mail [email protected].

the legacy intended for their familymay be inadvertently subject tofederal estate tax, with up to 55%potentially going to the government.

■ Old documents. Our vault isfilled with documents, many ofwhich are old insurance trusts thathave never been revoked. A clientmay create new documents butfail to revoke old ones, leavingpolicy proceeds paying to the oldplan. It can result in a trust fundedwith insurance proceeds that no longer pay in the manner intended.

■ Tax implications. Titling ofassets can affect which beneficia-ries bear the tax burden when youare gone. Discuss with your estateplanning attorney the use of a taxapportionment clause so that the burden of tax payments is directedwhere you want it. ■

Anne Carnahan is a vice president andsenior trust adviser with PNC WealthManagement. Contact her at 216-222-2894. Nicole Bornhorst is a vice presidentand senior wealth planner for PNC WealthManagement. Contact her at 216-222-9038.

give. Any gift in any format is al-ways appreciated and always need-ed by a great number of organiza-tions. However, if you are lookingto be more strategic, maximizeyour benefits and create a legacy,donor-advised funds may beworth exploring. ■

Laura Malone is director of gift planningwith the American Endowment Founda-tion, an IRS-recognized, 501(c)(3) pub-lic charity and independent sponsor ofdonor advised funds. Contact her at 877-599-8903 or visit www.aefonline.org.

documents, a probate court willselect the guardian.

■ Protecting inheritances fromcertain creditors and creditors ofbeneficiaries (including divorcingspouses, in-laws and judgmentcreditors).

■ Allowing for the managementof assets for the benefit of benefi-ciaries beyond their 21st birthday.Without the requisite documents,most inheritances must be distrib-uted in full by the time a benefi-ciary turns 21. ■

Rennie Rutman is counsel at Tucker Ellis& West LLP. Contact her at 216-696-4749.

Charitable giving can be quitepersonal. A donor-advised fund enables you to select recognitionor privacy as desired, based uponthe needs of your family.

Not everyone may have assetsother than cash to give, and therealways will be families that are going to feel more comfortablegifting with cash they have onhand at the time they are ready to

issues such as: ■ Avoiding the publicity, time

and cost otherwise engendered bythe need for a probate court to become involved in one’s affairsupon incapacity or death. (Note:Contrary to popular belief, a spousecannot automatically handle theaffairs of an incapacitated spouseunless certain estate plan docu-ments have been executed.)

■ Selecting the person who willact as the guardian of minor chil-dren. Without proper estate plan

Continued from Page S-4



difficult “what if” conversations. ETHICAL WILL: Many ethical

wills are simple letters; some arevideo journals; others are gatheredas scrapbook-style assemblages.Each is a journey through a life-time —records of love, wishes andgratitude. We all have stories thatshould become part of a collectivememory. Your ethical will is an irreplaceable inheritance.

From the child putting his firstdollar into a savings account tothe newlyweds preparing to buytheir first house, our society placesgreat value in planning for the fu-ture. But few of us feel comfort-able discussing how we wish to beremembered or what we hope forin that final human experience,our dying.

Each of us has a unique legacyto share. With good planning, wecan pass it on. ■

David A. Simpson, LSW, is CEO of Hospice of the Western Reserve. Contact him at 216-383-2222 or visitwww.hospicewr.org/legacy.


UNIFORM TRANSFERS TOMINORS ACCOUNT: With thisaccount, the minor is the deemedowner and the custodian controlsthe property until the minor reachesthe legal age. Distributions must bemade for the minor’s benefit,which includes education.

DIRECT PAYMENTS: Anotherfunding route is direct payment tothe educational institution.

This can be done by someoneother than the parents. Direct pay-ments, for tuition and fees only,

works even if your stocks have lostvalue but are still worth morethan when you first purchasedthem. You can sell the devaluedstocks and donate the proceeds to-ward a CGA, claiming a loss onyour taxes while receiving a chari-table deduction and gaining in-come for life.

Ask your favorite charitable organization to discuss optionsthat may be right for you. ■

James R. Hickey, CFRE, CAP, is giftplanning director for the OPRS Founda-tion. Contact him at 440-942-4342,x1506.




are not subject to gift tax, and canbe made in addition to any annualexclusion gift without using any ofthe donor’s $1 million gift tax life-time credit. This option can be ad-vantageous for someone trying toreduce the size of their taxable estate.

Other funding methods includeprepaid tuition plans, and tuitionand gift annuities. With all fundingmethods, consider the effect on financial aid availability. ■

Cristin R. Snodgrass is an attorney inCalfee, Halter & Griswold LLP’s Estate and Succession Planning practice. Contact her at 216-622-8503 or [email protected].

Various hybrid contracts offer

solutions such as life insurance

contracts.


20101115-news--31-nat-cci-cl -- 11/9/2010 3:37 pm page 1€¦ · crain’s cleveland business...

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