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20111114-NEWS--17-NAT-CCI-CL_-- 11/9/2011 2:57 PM


ESTATE PLANNINGS-2 NOVEMBER 14 - 20, 2011 Advertisement

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PRESIDENT’S LETTER

Opportunities during uncertain timesBy LISA H. MICHEL

The Estate Planning Councilof Cleveland, in conjunc-tion with Crain’s ClevelandBusiness, is pleased to pre-

sent the annual Estate PlanningSection.

It is the council’s goal to offerthe community valuable informa-tion related to financial, retire-

ment, insurance, businesssuccession, and estate andcharitable planning. Thearticles and commentaryon the pages that followhave been provided bysome of Northeast Ohio’smost experienced profes-sionals in these fields.

Estate planning is oneof the most overlooked areas ofpersonal financial management.It is estimated that more than120 million Americans do nothave up-to-date estate plans toprotect themselves or their fami-lies in the event of sickness, acci-dent or untimely death. Eachyear, this costs wasted dollars andhours of hardship, which can bematerially minimized with advanced planning and action.

The financial world in whichwe live continues to change. Un-certainty looms about the future ofestate and gift tax laws and domesticand international economic per-formance. Nonetheless, the needfor preservation of assets built overa lifetime for the benefit of family,heirs or charities is ongoing.

Evaluating how your personalobjectives for leaving a legacyhave been affected by the changein laws and market conditionsshould include consulting withprofessionals to advise you on themethods, techniques and docu-ments available to meet yourgoals. If you have concerns

regarding the transitionof a family-owned busi-ness, planning for retire-ment, creating a legacy foryour family or fulfillingphilanthropic goals, thearticles in this sectionwill address these issuesand the benefits of receiving comprehensive

tax and estate planning advice aspart of the planning process.

The Estate Planning Council of Cleveland is composed of a diverse array of more than 440professionals working in theGreater Cleveland area, includingattorneys, accountants, bankersand trust officers, financial plan-ners, insurance agents, appraisersand representatives from charita-ble organizations. Our membersare available to provide you withthoughtful, tax-effective and value-based planning. Our Coun-cil’s website (www.epccleveland.org)can be a useful resource to locateprofessionals to assist you with allof 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 in-sightful, helpful and valuable. ■

Lisa H. Michel is president of the EstatePlanning Council of Cleveland and atrust officer at Key Private Bank.

LISA MICHEL

TABLEOFCONTENTS

TRENDSExamining the potentialchanges in tax laws and theneed to give prudent attention toyour estate plan. S4-S9

PlusBusiness SuccessionPlanning: Planning forbusiness successioncan benefit charitiesand employees as well as the company’sowner. S10-11

Estate Plan Tactics:Managing thetransfer of yourwealth to lovedones throughtrusts and otheravenues. S12-S17

Charitable Giving:Sharing your success withcharitable

organizations canleave a lasting

legacy. S17-S20

20111114-NEWS--18-NAT-CCI-CL_-- 11/9/2011 1:46 PM Page 1



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ESTATE PLAN CHECKUP

PLAN INSPECTIONS

Planning for the New Year:your annual financial physicalBy MARY EILEEN VITALE

New Year’s shouldn’t bejust about making reso-lutions to better your-self. Consider before

the current year’s end whetheryour financial affairs need to beupdated. This can include manythings we don’t think about dayto day. Moving forward, at leastannually, take stock of your financial and estate plan to prepare for future needs.

The following are a few of thefinancial aspects you should con-sider each year:

■ BANK ACCOUNTSAre these titled correctly?Do they provide for proper

transfer at death?

■ INVESTMENT ACCOUNTSAre these titled correctly?Are the asset allocations

diversified and updated to reflectyour risk tolerance and time toretirement?

Are the investments appropri-ate for your current income taxsituation?

■ 401(K) OR 403(B) RETIREMENTPLANS

Are your deferral/contributionpercentages correct for the

upcoming year?Will your deferral/contribution

percentages get you the maxi-mum company match?

Have you considered Roth versus Traditional IRAs?

Are the asset allocations diver-sified and updated to reflect yourrisk tolerance and time until retirement?

Are beneficiary designationscurrent?

■ CAFETERIA PLAN ELECTIONS

Are your withholding elec-tions current?

Medical spending/HSA deferrals

Dependent careInsurance coverage

■ PAYROLL ELECTIONSAre your tax withholding

elections correct?Is a portion going to

savings/investment?

■ HAS YOUR ANNUAL INCOME TAX PLANNING BEENCOMPLETED?

■ ESTATE PLANNING DOCUMENTS

Are your will/trusts current?Are named trustees, custodi-

ans and advisers appropriate?If you added a living trust,

did you retitle your assets?Do you have a durable power

of attorney? Is it current?

■ DO YOU HAVE A CURRENTHEALTH CARE POWER OF ATTORNEY AND LIVING WILL?

Mary Eileen Vitale, CPA, CFP, is principal with Howard, Wershbale &Co. Contact her at [email protected] or (216) 378-7210.

By LINDA DELACOURT SUMMERSand PATRICK TULLEY

Do you visit your doctorfor an annual checkup?When you do, isn’t itnice to hear that every-

thing is just fine and that thereare no changes? Sometimes,however, the doctor finds issuesthat need addressed.

Your estate plan needs acheckup from time to time aswell. While not as often as aphysical, every few years youshould evaluate your estate plan.

Consider the following as youevaluate your plan:

1Last will and testament.Who do you want to inher-it your property? Are your

executors and guardians still appropriate choices?

2Trust agreement. Do youhave a trust agreement? Ifnot, should you? A trust

agreement allows you to controlwho gets your assets and when.It can help you avoid probateand save estate taxes. At whatage do you have your assets being distributed outright toyour children? Are your childrencapable of receiving those assetsoutright without a detrimentaleffect on their desire to maketheir own way?

3Durable power of attorney.Have you given a trustedperson authority to handle

your finances and property if

you become incapacitated? Doyou have an alternate, just in case?

4Durable power of attorneyfor health care, living willand final arrangements.

In case you cannot, have yougiven someone the power tomake health care decisions foryou? Have you made your desiresknown to your family membersregarding life support? Are youan organ donor? Do you want tobe buried or cremated? Makingcertain decisions ahead of timeeases the burden on thosenamed to take care of you.

5Provide for the orderlytransfer of any business.If you own a business, you

should have a succession plan. If you are the sole owner, who isgoing to run your business ifyou are not there? If you own abusiness with others, do youhave a buyout agreement? Howis it going to be funded?

6Review account ownershipand beneficiary designa-tions. All of the estate plan-

ning documents in the worldwon’t mean a thing if your accounts are not titled properlyto work in conjunction with yourwill and/or trust. Part of yourcheckup should include con-tacting all financial institutionsholding your accounts and the life insurance companiesholding your policies and asking“how is my account titled”and/or “who is my beneficiary?”Many of you will be surprised atwhat you learn.

7Storage of documents andinformation. Where areyour original documents

stored? Do you have a completelist of your assets? Who, other than you, knows the password to the account infor-mation that you keep on yourcomputer?

Estate planning is not just aboutmaking sure your assets go to theright people in the right way. Italso includes the preparation ofdocuments and communicationof desires so that your loved ones’burdens are eased.

Just like with a physicalcheckup, do your estate plan-ning checkup not only for youbut for them. ■

Linda DelaCourt Summers and Patrick Tulley are estate planning attorneys at Ulmer & Berne LLP. Contact Summers at (216) 583-7212and Tulley at (216) 583-7234.

LINDA DELACOURTSUMMERS

PATRICK TULLEY



ESTATE PLANNINGAdvertisement NOVEMBER 14 - 20, 2011 S-5

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THE ESTATE PLANNING COUNCILOF CLEVELAND

PresidentLisa H. Michel

Vice PresidentMarie L. Monago

SecretaryBeth M. Korth

TreasurerJennifer A. Savage

Program ChairMichael T. Novak

Immediate Past PresidentRadd L. Riebe

Tired of paying for trades

instead of guidance?

Fee only, independent,

objective investment advice

How estate planning can help youBy DORIS SEIFERT DAY

One of the first things thatcomes to mind whensomeone hears “estateplanning” is saving taxes.

Many individuals do not bother topursue this planning because theybelieve that their assets will not beaffected by the federal estate tax.However, there are many advan-tages to estate planning.

Yes, there can be both federaland state tax advantages. Thesemay become less important if the federal estate tax threshold remains at $5 million and Ohioretains its plan to eliminate its estate tax in 2013.

Until that time, even for a smallestate, significant savings can berealized by taking advantage of estate planning techniques.

Planning requires you to reviewyour assets and decide who you would like to receive them.This review allows you to consider

whether your beneficiaries havespecial circumstances and if theywould benefit from receiving theinheritance in a form other thanan outright distribution.

Remember, if you do not specify who will receive your assets, state law will.

You may want to considerwhich specific assets (and not justan amount or percentage) a bene-ficiary receives. If you would liketo give a portion of your estate tocharity, some assets are more advantageous than others.

Consider the form in which youhold your assets. You can create agrantor trust, which will allow youto retain complete control of yourassets but avoid probate courtcosts and delays. It also offers other advantages, such as a trusteeto handle the management oftrust assets, when the grantor isunable or unwilling to do so.

It provides an opportunity toorganize and plan, which maymake your current asset manage-ment more efficient and stream-lined.

Consider estate planning andthe opportunities it may provideto you and your beneficiaries. Forquestions or concerns contactyour tax adviser. ■

Doris Seifert Day is director of taxation forWalthall, Drake & Wallace, LLP. Contacther at (216) 573-2330.

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PLAN INSPECTIONS

CONTACT US

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The give and take in estate and gift taxationLawmakers increase exemptionwith a catch ... it expires in 2013By RADD RIEBE

Last December, Congresswas in the giving moodwhen it implemented a $5million exemption for gift

and estate taxes and dropped themaximum rate to 35%.However, as if too muchgood news is a bad thing,Congress chose to sunsetits largess so that on Jan.1, 2013, the exemptionreverts to $1 million,with a maximum tax rateof 55%. For Congress, thelure of a 55% tax rate isthat it produces $550,000in taxes for every $1 millionabove the exemption.

While favorable conditions exist for tax-efficient estate plan-ning, these conditions may notremain. It is unknown when thewindow of opportunity slamsshut.

Interest rates

In August, the Federal Reserveannounced its intention to main-tain low interest rates until mid-2013.

Estate planning strate-gies that take advantageof these historically lowrates are particularly appealing. The Section7520 rate, which the IRSuses in valuing annuities,life interests or interestsfor terms of years and remainder or reversionaryinterests, is at the lowest

it has even been. (See chart at right).

It appears there is only oneway rates can go in 2013 — up.The likely shelf life of low interestrates corresponds with the sched-uled expiration of the $5 millionexemption.

GRAT is to outlive the term sothat the remainder passes outsidethe grantor’s estate. There isgreater mortality risk in a 10-yearterm GRAT that makes realizingthe potential benefits from theGRAT less probable. Congress maypull the GRAT legislation at anytime and attach it to a bill whenevera revenue raiser offset is needed.The combination of the low 7520rate and the specter of this legis-lation showing up in a bill in thenear future presents a compelling reason to establish a GRAT today.

Tax ratesA substantial increase in estate

and gift tax rates is already lockedin for 2013, unless Congress acts.In all likelihood, Congress will notbe concerned with estate and giftrates until after the November 2012presidential election. It will be abrave individual who waits untilthen to find out whether 2013 willbe a good or bad estate tax year.

Valuation discountsThe Joint Select Committee on

Deficit Reduction will make a recommendation by Nov. 23 todeal with future deficits. TheObama administration has proposals to curtail valuation discounts in family-controlledbusinesses for transfers amongfamily members. Restricting valu-ation discounts is one area thatmay be viewed as a loophole closing rather than a rise in taxes.

Estate planning advantages today

Interest rates are low, two-yearGRATs are valid, valuation dis-counts are available, the top giftand estate rate is 35%, and theexemption amount is $5 million.It is difficult to foresee when anopportunity to transfer assets toloved ones will be as favorable asit is now. ■

Radd Riebe is a managing director in the Valuations and Financial Opinions Group at Stout Risius Ross Inc. in Cleveland. Contact him at (216) 373-2998 or visitwww.srr.com.

Grantor retained annuity trusts (GRAT)

Legislation is ready to go to requirea minimum 10-year term for aGRAT. The anticipated benefit of a

RADD RIEBE

TRENDS




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2012 marks an importantyear in estate planningBy JOHN PATRICK

The fundamental goal of estate planning is to protectindividuals’ assets frompotential losses. The primary

drain on an estate is transfer taxes,comprised of gift taxes assessedon assets gifted during a person’slifetime and estate taxes assessedon assets gifted upon death.

The last 12 months have seentaxpayer-friendly progress inhelping to avoid or minimizetransfer taxes. The 2010 Tax Actallows each U.S. citizen to protectup to $5 million from federaltransfer taxes through the 2012calendar year and reduced trans-fer tax rates from 45% to 35%.

The law also introduced theportability of a married person’sexclusion amount by allowingthe estate of a surviving spouse toutilize any exclusion amount thatwas not used at the deceasedspouse’s death. In June, the goodnews continued when Ohio enacteda law to repeal its estate tax fordeaths after Dec. 31, 2012.

There are no new federal orstate laws that will apply on Jan.1, 2012, to weaken the impact ofthese laws. However, 2012 is important under existing federaltransfer tax rates since it expiresDec. 31, 2012. Without action,

those rates will revert to 2001 levels ($1 million exclusion and55% maximum tax rate). PresidentObama’s fiscal year 2012 budgetproposal includes features not asadvantageous as the law he signedless than a year ago, but better thanwhat existed in 2001.

The proposal permanently restores the federal transfer taxlaws to 2009 levels after the 2012calendar year. Under the proposal,federal estate taxes will apply toassets valued over $3.5 million ata 45% rate. Each U.S. citizen willonly be able to gift up to $1 mil-lion on top of the annual gift taxexclusion (currently $13,000 ayear). The proposal limits dynastytrusts to a maximum term of 90years, and imposes a minimum10-year term for Grantor RetainedAnnuity Trusts, eliminating valu-ation discounts. Offsetting thesesetbacks, the proposal plans tomake the portability feature ofthe 2010 Tax Act permanent.

During these uncertain times,it is best to align yourself with askilled professional who will helpyou make the best decisions foryou and your estate. ■

John Patrick, Esq., is a shareholder withReminger Co., LPA, Attorneys at Law.Contact him at (216) 430-2207 [email protected].

TRENDS

Another brief reprieve: the ‘new normal’ for transfer taxes?

By LINDA M. OLEJKO

■ NINE YEARSThis is how long Congress went unable to draft a

long-term resolution for estate and gift taxes. The2001 tax reductions provided for a completerepeal of estate tax in 2010, but a full reinstatement of higher taxes in 2011. Higher taxes largely were postponed fortwo years by the 2010 Tax Act, which provides quite generous provisions thateach of us should now apply to our best advantage.

■ PLANNING FOR 2013 AND BEYONDIf Congress stands still through 2013, we

will again have a 55% estate and gift tax on all assets in excess of $1 million. This uncertaintyrequires us to implement short-term responses that will not hamper or impede post-2012 planning.

■ REVISIT YOUR ESTATE PLANQuestions worth posing: Under current law,

would your current plan leave your spouse withoutadequate resources? Do other provisions in yourestate plan divide property based on amounts defined by the tax consequences?

■ MAKE GIFTSEach of us has the ability to pass along $5 million

free of estate and gift tax through Dec. 31, 2012.

Families who can make large gifts should do so assoon as possible. However, is it prudent to relin-quish cash flow and security? Most fundamental is the need to understand the actual cash flow andlevel of assets you require to sustain your lifestyle

and, importantly, your peace of mind. Glenmede’s approach is to develop, withyou, a balance sheet and cash flow state-ment that projects your big picture andshows how your assets can fulfill yourneeds and your tax efficiency objectives.

■ GENERATION SKIPPINGThe $5 million gift tax exemption also

applies to gifts to grandchildren and more remote descendants. This is a particularly

good time to create a gift in trust for these generations.A “dynasty” trust can last through generations withoutadditional estate tax.

■ EFFICIENT MONETIZATION OF THIS BRIEFREPRIEVE

Many factors important to financial planning willcontinue to remain uncertain. We can, however,work with the facts we have to help clients craft anoptimal gifting and estate plan that considers theirunique personal needs and wealth objectives in thisclimate of evolving legislation.

Linda M. Olejko is vice president, business development for Glenmede. Contact her at (216) 514-7876 [email protected].

LINDA OLEJKO




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Best time for gifts? There’sno time like the presentBy JOSEPH M. MENTREK

For individuals whoare inclined to include a lifetimegifting program to

children and grandchil-dren as part of their estateplanning strategy, ques-tions abound. What togive? How to give? Howmuch to give? Who should bene-fit? With the continuing uncer-tainty in federal estate, gift andgeneration skipping tax laws, thequestion of when to give poses anadditional challenge.

Changes in federal tax laws thatoccurred near the end of 2010 increased and unified the lifetimeestate, gift and generation skip-ping tax exemption at $5 million,decreased the maximum tax rateto 35% and added the ability of amarried couple to effectively sharetheir combined estate tax exemp-tion amount through a conceptknown as portability.

These changes are scheduled to

sunset at the end of 2012,and again we are facedwith the possibility of reverting to the lower exemption and higherrates that were in place in2001. Many consider nowthrough the end of 2012as a window of opportu-nity to make significantgifts in case lawmakers

scale back the exemption.And while I would like to credit

our legislators for creating thiswindow of opportunity, in realitythe fundamental core of any gifting strategy is designed to remove value and future apprecia-tion from the taxable estate of thedonor.

So the sooner one is able tomake a gift, the better, because themere passage of time and the power of compounding value arethe factors most likely to makeany gifting strategy effective. Thefact that we are in a low point inthe valuation cycles of closelyheld business, real estate and

TRENDS

Ohio estate tax repealeffect yet to be seen By JOSEPH P. KOVALCHECK JR.

On June 30, Gov. JohnKasich signed the lawthat repealed the Ohioestate tax for those who

die on or after Jan. 1, 2013. Thelegislation was included as part ofthe Ohio budget bill.

The Ohio estate tax has beenaround since 1968, generating$333.8 million in fiscal year2009. Twenty percent ofthe estate tax was distrib-uted to the state generalrevenue fund, and 80%was distributed to the local government wherethe decedent resided.However, the tax pro-duces less than 1% of total annual revenues forOhio cities, villages andtownships. Additionally,because proceeds go to the localitywhere the decedent resided, it wasfelt that wealthy jurisdictions received a disproportionate shareof estate tax revenues. No estatetax revenues go to Ohio’s schools.

Before the repeal, Ohio wasone of 22 states that had estateand/or inheritance taxes. Amongestate tax states, Ohio had thelowest exemption amount, just$338,333, but also had the lowesttop rate at 7%. Some states are

following Ohio’s lead. Vermontincreased its exemption from $2million to $2.75 million, andNorth Carolina and Delaware increased their exemptions to $5 million to match the federalestate tax exemption.

However, other states are taking the opposite approach.Looking to increase revenues during these challenging economictimes, they are imposing new and

higher estate taxes. Illi-nois revised its estate tax,effective Jan. 1, 2011, taxing estates exceeding$2 million and with a toprate of 16%. Connecticutlowered its exemptionfrom $3.5 million to $2million per estate.

Gov. Kasich believesexcess state taxes are amajor reason that capital,

businesses and jobs have fledOhio in recent years. Many believe the elimination of the estate tax will help stop the exodusof Ohio residents who have fledto Florida or one of the other 27states without an estate tax, andwith luck, will attract new resi-dents and their businesses. ■

Joseph P. Kovalcheck Jr., CPA, is prin-cipal with M+N Advisory Services LLC.Contact him at (216) 363-0100.

other investment assets makes potential results more attractive.Add to that the leverage that can be achieved from more sophisticated techniques and historically low interest rates, and the opportunity increases exponentially.

So whether your motivation ishigh exemption amounts, low asset values or low interest rates,whatever gifting strategy youchoose to pursue, the sooner youact, the greater the potential bene-fits to you and your family. ■

Joseph M. Mentrek, J.D., is vice presi-dent, Meaden & Moore, Ltd. Contact himat (216) 928-5343.

JOSEPH MENTREK

JOSEPH KOVALCHECK JR.




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TRENDS

Despite uncertainty, properestate planning still will becompelling issue in 2013By JIM ROSEMAN

Historically, much of theestate planning that hasbeen done has been tothe drumbeat of estate

tax savings. The potential tax savings versus the cost of estab-lishing the plan was often verycompelling. For all of that,in modern tax historythere has not been a timewhen more than 2% to3% of estates in thiscountry were actually tax-able. For the 97-plus% ofthe population for whomtaxes were not a real issue,the planning was done forthe protection of self and family.

In 2011, a typical estate planwill have five major documents:

■ A revocable living trust■ A durable financial power of

attorney■ A durable health care power

of attorney■ A living will■ A last will and testamentThe primary purpose of these

documents is to govern the finan-cial landscape of the individualfor whom they are established. Ifproperly established and funded,they should preclude the necessityof having a guardian of the estateif the grantor becomes ill or infirm, and may avoid probateadministration at death.

In addition, if appropriate, thetrust may set aside assets in a waythat first garners the maximumavailable estate tax exemptions forthe grantor’s estate and avoids futuretaxation in the estates of spouses and

perhaps lineal descendants.The current federal exemption

from estate taxes is $5 million percitizen taxpayer. Left untouched,that exemption will expire on Dec.31, 2012. One camp wants the $5million exemption and the maxi-mum rate of 35% to be made permanent. President Obama has

preferred a return to the2009 exemption of $3.5million and a maximumrate of 45%. There are toomany variables involvedto predict the outcome,but it is reasonable to assume we will have somesort of estate tax.

In 2013, individuals still will be interested in protectingthemselves and others in theevent of illness or infirmity, pro-tecting minor lineal descendantsbeyond the age of 18, and pre-serving the maximum amount oftheir estate among other things.Some voices in the estate plan-ning industry have prophesizedthe end of the industry withoutmajor tax planning to drive it;but even if there is no estate tax,the more personal reasons for estate planning will exist andthey will just be more visibleonce again. ■

Jim Roseman is vice president, seniordevelopment officer for FirstMerit Bank.Contact him at (216) 694-5686 [email protected]. First-Merit Bank, N.A. and its representativesdo not provide legal or tax advice. Indi-viduals should consult their personal le-gal/tax adviser(s) before makinglegal/tax related decisions.

Portability comes with a catchBy STEVEN COX

On Dec. 17, 2010, the TaxRelief, UnemploymentInsurance Reauthoriza-tion, and Job Creation

Act of 2010 became law. The newlaw raised the federal estate tax exclusion amount to $5million (reduced by tax-able gifts made duringlifetime) for individualswho die in 2011 or 2012.In the past, without properplanning, a decedent either used the exclusionor lost it.

Now, for the first time,the unused portion of a decedent’sexclusion amount can be passedto his or her surviving spouse toincrease the amount available atthe survivor’s death. This “porta-bility” of the exclusion betweenspouses can provide a substantialtax break to widows and widowers.However, portability may not beas good as it seems. The rules governing portability contain sig-nificant limitations.

For example, portability applies

TAKE THE HIGH ROADThe current federal exemp-

tion from estate taxes is $5million per citizen taxpayer.Left untouched that exemp-tion will expire on Dec. 31,2012.

■ WHAT MAY HAPPEN?The $5 million exemption andthe rate of 35% could bemade permanent. TheObama adminis-tration has

preferred a return to the 2009 exemption of $3.5 million and a

maximum rate of 45%.

■ GIVEN THE UNCER-TAINTY, WHAT’S BESTFOR ME? People still will

want to preserve the maxi-mum amount of their estatefor the heirs. Even if there isno estate tax, the more per-sonal reasons for estateplanning will exist.

only to the last deceased spouse ofan individual. Therefore, if a widowremarries and her most recentspouse also dies first, she is limitedto the new spouse’s unused exemption amount, even if it islower than the amount remainingfrom the first spouse.

Furthermore, the lawexpires on Dec. 31, 2012.Unless the benefits areextended, portability willno longer be available after 2012. Survivingspouses and heirs relyingon the tax benefits ofportability may be disap-pointed if those benefits

are later disallowed. While manyexpect that portability will be renewed, there is no guarantee.Moreover, portability does notcover other taxes like the genera-tion-skipping transfer tax imposedon gifts to grandchildren and the estate tax imposed at the statelevel.

Portability is not automatic. Inorder for a surviving spouse to usea deceased spouse’s exclusionamount, an election must be

made by the executor of the deceased spouse’s estate on a timelyfiled federal estate tax return. Inmany cases, a return would beotherwise unnecessary because thedeceased spouse’s gross estate isless than the exclusion amount.

Under the new rules, even smallestates must file a return if theywant to preserve any unused exemption. Because survivingspouses can acquire unanticipatedwealth, every executor shouldconsider filing an estate tax returnwhen the exclusion amount wasnot fully used. Of course, thepreparation of a federal estate taxreturn often requires the paymentof professional fees and the cost ofappraisals.

While many couples may betempted to rely on portability as asubstitute for more traditionalplanning methods, the associatedlimitations, risks and hidden costsmay outweigh portability’s appar-ent benefits. ■

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

JIM ROSEMAN

STEVEN COX




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Business owners looking for salecan benefit from charitable givingBy PETER A. IGEL

Business owners anticipatinga sale often wish to satisfycharitable objec-tives using part of

their new liquidity. Thetax code rewards generosityfor donors who planahead.

The tax savings from acharitable contributiondepends on the donor’seffective tax rate, the typeof business interest andthe type of charity. Gifts of stockmade ahead of a potential sale allow a double benefit of claiminga contribution deduction and alsoavoiding reporting gain on thesale. Charities are tax-exempt onmost income, but could report“unrelated business income” on S corporation stock sales or onpassed-through income from asset

sales. Planners must consider: ■ The donor’s effective tax

rates in the year of an anticipatedsale, and in the preceding and

succeeding years;■ Whether an intended

charity is a public charityor private foundation;

■ Whether the busi-ness being sold is a C cor-poration, S corporation,partnership or LLC; and,

■ Whether the busi-ness will sell assets andliquidate, or whether it

will sell equity.Presale gifts to charity tend to

work best when C corporationstock is contributed to publiccharities, and when a donor hassome ordinary income to be offset by the charitable deduc-tion.

If a donor anticipates signifi-cant capital gains, contributions

might be better in the year beforeor after a sale, so that the charita-ble deduction will shelter incometaxed at higher ordinary incomerates.

Post-sale gifts are usually advis-able when a donor holds S corpo-ration, partnership or LLC inter-ests because charities could incursignificant unrelated business income in sale transactions. Thus,most sellers of pass-through enti-ties participate in the sale andcontribute sale proceeds later.

Professional planning, early inthe process, can guide a businessowner through the thicket of issues to create a win-win resultfor the owners and their favoritecharities. ■

Peter A. Igel is a partner in the tax groupat Calfee, Halter & Griswold LLP. Con-tact him at [email protected] or (216)622-8311.

Proprietors should consideremployee stock ownershipBy MICHAEL MATILE

There are a number of estate planning consider-ations for business owners thinking of

selling their firms, and amongthe options are employee stockownership plans (ESOPs), whichcan offer a number of benefits.

An ESOP is a transition alterna-tive for business owners to createpersonal liquidity and share ownership with their employees.Frequently thought of only as asuccession planning solution, anESOP also may deliver effectiveestate planning benefits beforeand, uniquely, after an ESOPtransaction.

For business owners who sellless than 100% of their stock toan ESOP, the time immediatelyfollowing the transaction pro-vides an opportunity to giftshares they still own at a reducedvalue due to the increased debtand temporary reduction in thecompany’s equity created as a result of the transaction.

Depending upon the circum-stances, some sellers may be ableto defer capital gains taxes on theproceeds from the sale to theESOP. The owners must reinvest

their proceeds within a year intoqualified replacement property(QRP), which is defined in the Internal Revenue Code. And if owners hold the QRP untildeath, it escapes income taxationduring their lifetime and also provides their heirs a stepped-uptax basis in the property upondeath.

Owners who wish to be chari-table with their estate plans also may be able to transfer QRPto a charitable remainder trustwithout it being considered a disposition that would triggergain. The trust does not pay taxwhen it disposes of the QRP, deferring the tax until the donorreceives payments from the trust.Likewise, QRP holders may beable to transfer it to a grantor-retained annuity trust (GRAT)without triggering gain as a disposition.

All in all, this may be the besttime for business owners tacklingestate and ownership-transitionissues to consider an ESOP. ■

Michael Matile is a senior wealth planner for PNC Wealth Management.Contact him at (216) 222-5885. PNCBank does not provide legal, tax or accounting advice.

PETER IGEL

BUSINESS ESTATE PLANNING




Mandel Building · 25701 Science Park Drive Cleveland, Ohio 44122 216.593.2900 · www.jewishcleveland.org

on receiving the2011 Distinguished Estate Planner Award

fromTHE ESTATE PLANNING COUNCIL OF CLEVELAND

Congratulations toGary A. Zwick

Walter & Haverfield, LLP

Low rates a boon for business succession By DEVIANI KUHAR

The increase in the exclusion from the estate, gift and gener-ation-skipping trans-

fer tax both during lifetimeand at death to $5 million(which will be adjusted forinflation to $5.12 million in2012) has been the mostnoteworthy development forthose assisting closely heldbusiness owners to transitionbusinesses to the next gener-ation. Close behind the risein the exclusion amount arehistorically low Section 7520rates and applicable federalrates (AFRs).

This month, the long-termAFR (for intrafamily loans in excess of nine years) willfall to an all-time low of2.67%. This astonishingly low rate could have profound implications for families who

want to pass their closely heldbusinesses on to younger genera-tions, but whose businesses pro-

Consider overlooked asset protection opportunitiesBy STUART M. HORWITZ

In today’s competitive busi-ness environment, companiesare looking for ways tostreamline their operations

and save money. Consider implementing certain

business planning techniquesthat will offer asset protectionwhile also saving you income taxes and help with your estateplan.

■ BUSINESS OPPORTUNITYTRUST (BOT). A BOT is effectivewhen you want to help a child orfriend start a business. Since mostventures take time to mature,losses may occur initially. Youwould be able to use these initiallosses on your own income taxreturn. If the venture is sued, youhave two layers of asset protec-tion — the entity and the trust.

If the venture eventually becomes wildly successful, yourchild/friend receives the lion’sshare of the appreciation, whileyou receive a nice return. With aBOT, you avoid all of the prob-lems inherent with a loan. If youloan your child/friend funds tostart a business and it fails, yourchild/friend receives all the losses(which they cannot really usesince they have no income).What’s worse, if a venture failsyou will not sue for the money so

the loan is treated as a taxablegift. A BOT avoids both theseproblems.

■ MANAGEMENT INCENTIVEPLAN (MIP). A MIP is much morethan just a simple deferred com-pensation plan or bonus plan. Itcan help protect your business assets from creditors, even frombankruptcy. MIPs provide almost all the benefits of anESOP, with lower administrativecosts. MIPs let you reward specificemployees (i.e. discriminate intheir favor).

Conversely, if an employeeleaves or engages in prohibitedbehavior, you do not have to paythem. This technique allowsback-end bonuses to be taxed ascapital gains and in some cases,not taxed at all. Finally, if yourheirs happen to be key employees,you can include them and notpay gift taxes.

The above are proven tech-niques that have stood the test oftime and have been vetted byboth the IRS and the courts. In thiseconomy, in which business own-ers are looking for a competitiveadvantage, these techniques maybe a good start. ■

Stuart M. Horwitz is managing memberof The Horwitz Group, LLC. Contact himat (330) 670-5300 or [email protected].

BUSINESS ESTATE PLANNING

duce relatively modest annualcash flows.

Grantor retained annuity trusts(GRATs) and installment sales using mid-term debt have longbeen favored methods of trans-ferring family business interests

to younger generations. Butif annual, pre-tax cash flowsamounted to less than 10%of the transfer tax value ofthe interest being trans-ferred or sold, a familycould not engage in thesetypes of leveraged transferswithout owners having toreceive back some of theirinterests (in the case of aGRAT) or face the uncertainprospect of renegotiatingthe note sometime in thefuture (in the case of an installment sale).

A sale using long-termdebt (more than nine years)was possible, but the ratetypically was unfavorable.

Long-term GRATs usuallywould offer a more favorableinterest rate than the long-term AFR, but the estate taxon potentially the full value

of the transferred business inter-est if the grantor dies during theannuity term of the trust causedmost planners to steer away fromthem.

But the landscape has changed

with the long-term AFR about todrop. For example, a business interest that generates 7.67% ofpre-tax cash flow per year couldbe completely out of the firstgeneration’s estate in 20 years if an installment sale of that interest were initiated in Novem-ber 2011. If the business interestcan be discounted by 25% forlack of marketability or lack ofcontrol, the required cash flowwould need to be only 5.75%, ona pre-discounted basis, to com-plete the transaction within 20years.

This development could have aprofound effect on families thatwant to engage in successionplanning. But they need to actquickly. Long-term Treasuryyields will rise again, and withthem, the long-term AFR will increase as well. ■

Deviani Kuhar is a partner and chair of the Estate Planning and Probate Department at Benesch, Friedlander,Coplan & Aronoff LLP. Contact her at [email protected] or (216) 363-4469.




Nick D. Shofar, Associate

Estate Planning and

Probate Practice Group,

Licensed to practice law in Ohio

MY BENESCH MY TEAM

For all the time and effort you’ve put intobuilding your wealth, you deserve peace ofmind in return. The kind that comes fromknowing your assets are protected, your wealthwill be distributed as you wish, and your futureis as secure as you can make it.

Whether you need to build an estate plan fromscratch, or ensure your current plan is in syncwith today’s rapidly changing laws, ourattorneys can help. We have the specializedknowledge and experience to manage allaspects of your estate.

Have you considered how taxes will impactyour wealth? Do you have a businesssuccession plan in place? Are you sure thatyour assets have been aligned properly withyour estate plan? Have you planned forcharitable gifts…long-term care…incapacity?

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

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The ups and downs of a GSTA generational skipping trust is a complex planning toolBy DAVE GAINO

You’ve read about Genera-tion Skipping Trusts (GST)in other sections of thispublication. Sound exciting?

It really is. Sound complex? It is,in fact, a very sophisticated butpowerful planning opportunity.It’s critical to understand the truepower of a GST before decidingwhether it is right for you andyour family.

To start, we can examine thepotential benefit of skipping estatetax at succeeding generations.

The table at the right shows thebenefit of a $5 million principalamount compounded at 3% growthper annum with no estate tax,compared to a 45% effective tax rateover five generations. The benefitis almost too good to believe.

So why not skip?First, neither the grantor nor

the spouse of the grantor can havediscretionary access to the principalor income. So you must be sureyou will not outlive your retainedassets.

Second, trust beneficiaries will

be able to enjoy the income fromthe trust but never have com-plete access to the principal, so itis important to consider whetherthey have access to other capitalfor discretionary needs.

The upside for the future bene-ficiaries is that the income enjoyedfrom trust assets will be geometri-

cally more from not having theprincipal depleted by estate taxevery 30 years or so. In addition,estate planning to shelter trust as-sets from tax is done once, at thestart of the trust. Future generationswill not need to concern them-selves with sheltering trust assets.

With the power of the $5 million

GST exemption set to expire onDec. 31, 2012, this tool should bethoroughly explored and under-stood while it is still available. ■

Dave Gaino is chairman of Apple GrowthPartners and serves as a principal of taxservices. Contact him at (330) 867-7350 or [email protected].

ESTATE PLANNING TACTICS

Survivorship stand-bytrust is a flexible choiceBy LARRY L. ROTHSTEIN

W ith so much uncer-tainty, people areseeking estate tax so-lutions that can also

provide lifetime benefits. A sur-vivorship stand-by trust may be agood fit as it can provide estatetax liquidity, lifetime benefitsand tax advantages.

It is most appropriate for amarried couple who may have anestate tax liability or other finan-cial obligations. For a businessowner, the insurance could“equalize” the inheritance forchildren not involved in the busi-ness. For families using a QPRT(qualified personal residencetrust), the insurance could provide substantial funding formaintenance and taxes. There aremany reasons to provide financialliquidity for children.

In a survivorship stand-bytrust, one spouse acts as the applicant and owner of a sur-vivorship life insurance policy. Asurvivorship life insurance policyinsures two individuals and paysa death benefit at the seconddeath. Since one of the insuredsis the owner, there is no gift orannual exclusion needed. Theowner has complete control overthe cash values of the policy during the lifetime. Policy cashvalues grow tax-deferred and mayalso be an alternative source offunds in retirement if it is laterdetermined that death proceedsare not necessary.

A “stand-by trust” is named asthe contingent owner of the policy. The trust language andnaming of beneficiaries may bechanged at any time during theowner’s lifetime since it will not

become irrevocable until theowner’s death. Upon the owner’sdeath, the policy automaticallytransfers to the trust as the con-tingent owner. The cash valuewill be included in the owner’staxable estate, and it is assumedthat lifetime exemption will beused to offset any tax due. Uponthe death of the surviving spouse,the proceeds will pass to the ben-eficiaries free of any income or estate tax.

If a non-owner spouse diesfirst, the surviving owner needsto gift the policy directly to atrust. This gift again would require the use of a portion oflifetime exemption. Since theowner is an insured on the policy, this would also trigger the3-Year Rule. As long as the ownersurvives three years of more, theproceeds then would pass incomeand estate tax free to the benefi-ciaries.

The survivorship stand-by trustprovides substantial flexibility forfamilies seeking to have theircake and eat it too. It provides astructure to eventually providetax-free death proceeds to theheirs and it also provides access to policy cash values on atax-advantaged basis during alifetime. This approach avoids theuse of any annual exclusion giftsand postpones the use of lifetimeexemptions until a first death.All and all, the survivorshipstand-by trust is an attractive approach, creating flexibility andan ability to deal with an uncer-tain future. ■

Larry L. Rothstein, CLU, is co-founder ofInsurance Management Consultants,LLC. Contact him (440) 801-1800 orvisit www.imcwealth.com.

GOOD BENEFITS

Principal amount Trust principalYears left to next generation growth before tax Tax savings

without GST without GST

1 $5,000,000 $5,000,000 $12,136,312

31 12,126,312 6,674,972 16,201,909 $5,461,341

61 29,458,016 8,911,050 21,629,457 20,546,966

91 71,502,336 11,896,201 28,875,202 59,606,134

121 173,554,936 15,881,361 38,548,232 157,673,574

151 421,263,382 21,201,528 400,061,854

This table shows the benefit of a $5 million principal amount compounded at 3% growth per annum with no estate tax, compared with a 45% effective tax rate over five generations.

GST untaxedtrust principal

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Keeping it all in the family:bloodline dynasty trustsBy ROBIN ROSE STILLER

An article about bloodlinedynasty trusts mightevoke thoughts of the trials and travails of

the 1980s “Dynasty” televisionfamily, the Carringtons. This fictitious family spent considerable time and effort to ensure that“outsiders” did notgain access to thefamily’s con-siderablewealth. Anindispen-sible toolto accom-plish thisasset pro-tection goalis a bloodlinedynasty trust.

“Dynasty”means powerand influenceextending overmany years.

A bloodline dynasty trust doesexactly that. It is an estate plan-ning vehicle that provides a setof instructions to administer and

distribute assets over multiplegenerations for the benefit ofonly those in the family blood-line.

Precisely who is counted in the bloodline is dictated by those creating the trust. Somefamilies include in-laws and

domestic partners in thebloodline, while

others excludeeven legallyadopted chil-

dren.There are three

primaryreasonsthat

clientswish to

createa trust

that will endure for

several genera-tions:

1To protect andpreserve the fam-ily assets from

those who would dissipate them,including creditors and formerspouses of beneficiaries;

2To create incentives that en-courage particular behaviorsand that develop and nurture

family values and relationshipswhile discouraging negative behaviors; and

3To achieve significant transfer tax savings.

Retaining the assets in a blood-line dynasty trust protects benefi-ciaries in a variety of situations,for example, those who are indanger of being sued due to theirhigh-risk professions, those whoown their own businesses, thosewho go through a divorce or abankruptcy, and those who makeirresponsible investment decisionsor who spend foolishly. Draftingflexibility and discretion into thedocument will allow the trust tocontinue until the assets are exhausted or the last of the blood-line descendants has died ... trulyan ending fitting a Carrington. ■

Robin Rose Stiller, Esq., is an OSBA-certified specialist in estate planning, trustand probate law with Smith and Condeni LLP. Contact her at (216)771-1760 or [email protected].

Roth IRA may be right for you

By MICHAEL G. RILEY

Roth IRAs can be a very ef-fective part of a retirementplan. Every case should beanalyzed sepa-

rately, but converting aportion of qualified retirement savings to aRoth IRA adds flexibilityand a hedge against income tax increases.

When a retirement account suchas a traditionalIRA is convertedinto a RothIRA, incometax must bepaid on theconverted amount.Properly handled, theconverted amount willprovide tax-free earn-ings and distributionsthroughout retirementand beyond.

There are also potential estateplanning benefits to Roth IRAs.

For example, Roth IRAs are notsubject to the lifetime minimumdistribution rules that require retirement accounts to be distrib-uted during retirement, generallystarting for the year in which age70½ is attained.

Distributions are required to bemade at death to the beneficiaries,

Donald Hopkins LLC. Contact him at (216)348-5400 or [email protected] from a

traditional IRAcan be beneficial

but with good planning these dis-tributions can be stretched overmany years.

In many estates, retirementbenefits make up the majority of the family’s wealth. In thesecases, it is sometimes necessary topay the retirement benefits to thecredit shelter or family trust tocapture the benefit of the estatetax exclusion in the account owner’sestate, but this is not an optimal

income tax or estate taxresult.

Portability ofthe exclusionamount mightalleviate this

problem, butportability may not

last beyond 2012.

Roth IRAs can be amuch more efficient source forfunding credit shelter trusts afterdeath because the credit sheltertrust will not be depleted by in-come tax on qualified Roth distri-butions.

Roth IRAs can deliver meaningfulbenefits for retirement and to estate beneficiaries, but there aremany competing considerations,so timely planning is needed.

Ask your tax adviser and estateplanning attorney if a Roth IRAconversion is right for you. ■

Michael G. Riley is a member in the EstatePlanning & Probate Department at Mc-

Grandma Grandpa

Daughter

SonGrand-child

Grand-child

20111114-NEWS--29-NAT-CCI-CL_-- 11/10/2011 10:57 AM Page 1



McDonald Hopkins LLC600 Superior Avenue East, Suite 2100, Cleveland, OH 44114216.348.5400Carl J. Grassi Shawn M. RileyPresident Cleveland Managing Member

Chicago • Cleveland • Columbus • Detroit • Miami • West Palm Beachwww.mcdonaldhopkins.com

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Take care when choosing trusteesBy TINA MYERS

W hen creating a trust,choosing a trustee isoften not given thecareful consideration

it should. This decision cannotbe made under pressure, whenyou’re sitting across the tablefrom the drafting attorney.

One’s first instinct is normallyto name a family member, rela-tive, close friend or business col-league. However, there are manyfactors to consider when choosingthe most appropriate individualtrustee. There also are timeswhen using co-trustees or a professional trustee may betterprotect the trust’s integrity.

When choosing an individualtrustee, consider the individual’sability to make financial deci-sions, to understand and followthe trust instrument, and to accept fiduciary liability.

An individual trustee’s financialability doesn’t require invest-ment experience, but the personmust be familiar with the PrudentInvestor Rule in the state andshould be able to make prudent

financial decisions. The individual trustee is oftengiven the ability to hireprofessional investmentadvisers, but cannotblindly rely on the advicethey provide. The trusteewill have the ultimate re-sponsibility and shouldconduct adequate duediligence in selecting professionaladvisers.

An individual trustee shouldalso understand the underlyinglegal concepts. This will requiresome knowledge of the applicablestate’s governing trust law. If theindividual doesn’t have the req-uisite understanding of the legal issues, they should recog-nize when they need to seek thecounsel of an attorney.

Does the individual trustee understand the concept of fidu-ciary liability and that this entailspersonal liability? Will the bene-ficiaries be able to recover damagesfrom the trustee, personally? Notlikely, unless that individualtrustee is wealthy or has the appropriate insurance coverage.

If the candidate for trustee is

lacking in any of thesecharacteristics, then naming co-trustees couldbe an effective way tobalance the lack of skill.But, be careful since thiswould require “co-respon-sibility” in managing thetrust. If one trustee doesn’t uphold his fair

share of the responsibility, theother co-trustee must make upfor the shortfall.

There are many benefits of utilizing a professional trusteethat an individual trustee cannotprovide. Among these are trustcommittee oversight, manage-ment policies to assure trusteecompliance, longevity and theability to make good on losses incase of a breach of fiduciary duty.

Choosing the right trustee is notan easy decision. But failing toselect the correct trustee canthwart the whole purpose of awell-drafted trust. ■

Tina Myers, CPA, is tax manager forZinner & Co. LLP. Contact her at (216) 831-0733 Ext. 108 [email protected].

Estate planning for remarried, unmarried, same-sex couplesBy MISSIA H. VASELANEY

Generally, most couples,whether traditional ornon-traditional, havesimilar basic estate plan-

ning goals, which are toreduce estate taxes, avoidprobate and make suretheir assets go to their intended beneficiaries.

■■ MARRIED COUPLES WITHOUT CHILDREN

Most individuals diewithout drafting even asimple will. Consequently,states had to enact laws to governthe distribution of these individ-uals’ property. Intestate succes-sion statutes vary by state. InOhio, a married individual’sproperty will pass 100% to the sur-viving spouse if there are no chil-dren, so “he who lives longestwins” (or actually his side of thefamily wins).

■■ REMARRIED COUPLESMany remarried couples try to

use a first marriage distributionplan. They execute simple willsthat leave everything to eachother and then to their joint chil-dren. The flaw in this plan is thatthere is usually nothing to prevent

the surviving spouse fromexecuting a new will thatleaves everything only tohis or her children.

■■ OPPOSITE-SEX COUPLES WHO CHOOSENOT TO MARRY

Older couples may notwant to risk their assetsshould the other spouse

enter a nursing home. A prenuptialcannot prevent a spouse’s assetsfrom being subject to health carecosts. They also may not want tolose Social Security or other benefitsthat may result should they remarry.

■■ SAME SEX COUPLESMany same-sex couples feel

the disadvantages they suffer under the law are the direct resultof their same-sex status. However,the lack of rights and privileges is

not derived from their same-sexcouple status as much as it isfrom the fact that they are un-married. In most states, same-sexcouples are prevented from mar-rying, and thus tax benefits andpriority rights do not exist. Evenif a state allows marriage, it willnot be recognized for most federallaw purposes. Adult adoption isused by some same-sex couples asan estate planning tool. Onepartner may adopt the other,thereby making the adoptee anheir-at-law of the adopting partner.Such adoption is irrevocable.

The issues above are a smallsampling of concerns that differ-ent types of couples may face asthey contemplate marriage, theirfuture and the intended distribu-tion of their assets. An estateplanning attorney should be contacted to help chart the proper course. ■

Missia H. Vaselaney is a partner withTaft Stettinius & Hollister LLP. Contacther at (216) 706-3956 or [email protected].

MISSIA VASELANEY

TINA MYERS

20111114-NEWS--30-NAT-CCI-CL_-- 11/10/2011 10:58 AM Page 1



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Do you have someonerelying on you for care?

If you are a caregiver, you arenot alone. According to a 2009study, “more than 65 millionpeople, 29% of the U.S. popu-

lation, provide care for a chroni-cally ill, disabled or aged familymember or friend during any given year.” At Hospice of theWestern Reserve, not only do weprovide exceptional services toeach of our seri-ously ill patients,we also assisttheir caregivers.

Caregivers often struggle to manage jobs,school, children and amyriad of other responsibilities,along with the stresses associatedwith caregiving. While providingfor the physical, social and spiri-tual needs of their loved one isconsuming, caregivers should notforget to also help make healthcare, financial and legal plansthat will reduce future stress.

More than 60% of Americansbelieve that our loved ones willmeet our end-of-life wishes. How-ever, fewer than 20% actually havediscussed their wishes with any-one. As a caregiver, you can helpyour loved one create an estateplan that includes end-of-lifechoices about health care as wellas financial considerations.

Everyone should have a livingwill and a durable power of attor-ney for health care. Make copiesof these documents to distributeto attorneys, financial planners,friends and relatives. Visit ourwebsite www.hospicewr.org forcopies of these documents.

Have you helped your lovedone review his or her will lately?

Wills should bereviewed afterevery life mile-stone. Help themcheck insurancepolicies and investments toensure that the

beneficiaries chosen years ago arestill appropriate — beneficiariescan be changed, without cost, atany time.

As part of our extraordinarycontinuum of care, Hospice of theWestern Reserve offers patients andfamilies access to a team of vol-unteer attorneys. These dedicatedindividuals help families preparethese vital documents, confiden-tially and free of charge. ■

For more information about Hospice ofthe Western Reserve services, call (800)707-8921. To download a copy of ourcaregiver guide, A Companion GuideWhen Facing a Serious Illness, visitwww.hospicewr.org.

Special needs trusts protect the future

By DAVID MYERS

ASpecial Needs Trust (SNT), sometimes called a“supplemental needstrust,” is a generic term

for a trust designed to supplementthe means-tested government benefits of a beneficiary with a disability. By maintaining eligibilityfor cash income and health insur-ance, a family may stretch its collective resources to care for theindividual with disabilities overtime.

What would prompt someoneto establish a SNT? See if you recognize your client:

■ A father is planning his estateand you discover he has a 9-yearold with cerebral palsy or a 22-year old who is bipolar;

■ a successful plaintiff in a per-sonal injury action has a permanentdisability and will lose his employer-

provided health insurance;■ a spouse or child in a divorce

case has multiple sclerosis or severe attention-deficit/hyperac-tivity disorder (ADHD), and support payments will reduce hisor her SSI;

■ an aged or disabled widow istrying to become eligible for Med-icaid.

Not all benefits are “means-tested.” Medicaid and SSI are, butMedicare and Social Security disability or retirement are not.

SNTs can be inter vivos or

testamentary, stand-alone or partof a will or trust. They may befunded with the disabled individ-ual’s money (so-called “d4A”trusts or “Medicaid PaybackTrusts” or the local CFMF PooledTrust). At his or her death, any remaining funds go to reimbursethe state. A third-party SNT istypically set up by a parent orgrandparent to hold a disabledbeneficiary’s share of the estate.Properly done, there is no repay-ment to the state when the bene-ficiary dies.

Finding the right Special NeedsTrust can preserve governmentbenefits so that the beneficiaryexperiences a net gain and thefunds (whether his own or fromanother person) make a real dif-ference in life, instead of simplyrelieving the government of itsresponsibility to pay benefits. ■

David Myers is a principal with Hickman& Lowder Co., LPA, with offices inCleveland and Sheffield Village. Formore information on estate planning for individuals with disabilities, visitHickman-Lowder.com.

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Settlor’s trusts arerelevant with orwithout estate tax

Collect digital asset information as part of the estate planning processBy CRISTIN R. SNODGRASS

Technological advances in thelast 30 years havedramatically

impacted all areas of ourlives. Practically everyonehas gone digital, includingthe older generations,and so have their assets.Digital assets include assets and data someoneowns, which are elec-tronically created andstored on computers andthe Internet.

Digital assets mayleave a paper trail or exist onlyelectronically. Determining theirexistence and accessing them isthe estate planner’s challenge inthe event of a client’s death orincapacity. Tax returns, credit reports and account statementscan help identify financial digitalassets.

Any device involved must beaccessed first — whether it’s asmart phone, desktop, laptop ortablet — and access could be con-tingent upon the device’s owner-ship. Passwords may also pose ahurdle, including passwords tostart a device and those used toaccess accounts, including email,

financial, social networking, e-commerce, and online data andmedia storage.

While attempts can be made toaccess the accounts without apassword, failed attempts can destroy or corrupt any informa-tion. A better route is engagingan electronic forensic specialist.

To help avoid the digital hunt,collection of digital asset infor-mation and planning for fiduciaryaccess to such informationshould be incorporated into theestate planning process.

Clients can create a physical orelectronic list of all accounts andpasswords. The lists can be stored

in a home safe, a safetydeposit box or in a paid or personal electronic passwordsummary account.

It’s important to ensure, however, thatsomeone else will haveaccess to them through aspecific designationwhen a bank or companyis involved. If anotherpassword is needed toaccess the list, it can bekept with the original estate planning docu-ments.

The documents them-selves should define digital assets,address fiduciary access to themduring incapacity and afterdeath, and direct their disposi-tion.

Issues related to digital assetsare just beginning to surface. Estate planners who incorporatethem in the discovery and drafting process for their clientsnow can help their clients’ families have an easier experiencelater. ■

Cristin R. Snodgrass, J.D., is a relation-ship manager for Key Private Bank.Contact her at (216) 828-7327 [email protected].

By RENNIE RUTMAN

Now that the federal estate tax exemption is $5 million and the Ohioestate tax exemption,

currently $338,333, is scheduledfor repeal in 2013, those with net estates valued at less than $5 million may wonder whetherthere is any real reason to utilizetrusts in their estate plans.

In many situations, there continues to be compelling non-estate-tax-related reasons for including a typical revocable trustin one’s estate plan. Such reasonsinclude:

■ Assets that are in the settlor’strust at his death generally canpass to the settlor’s beneficiariesfree from attachment by the settlor’s creditors. This creditorprotection is not available for inheritances passing to beneficia-ries by last will and testament.

■ Assets that are in the settlor’strust during his incapacity usuallycan be privately managed by asuccessor trustee (of the settlor’schoosing) without requiring probate court involvement. Assetsowned individually during inca-pacity often must be the subjectof a probate court guardianship

proceeding. Similarly, assets that are in the

settlor’s trust at his death usuallycan be privately administeredand/or managed for the settlor’sbeneficiaries with no need to involve a probate court. Assetsowned individually when onedies and that passvia last will andtestament tobeneficia-ries oftenmust be-come thesubject ofprobatecourt pro-ceedings.

Probate proceedings, which areoften costly and time consuming,necessitate the reporting of agreat deal of personal informa-tion (including information con-cerning the incapacitated/deceased person, his family, hisnamed beneficiaries, his assetsand his liabilities), which becomes part of the publicrecord. The use of a trust canavoid most, if not all, of thesedisadvantages.

■ Assets that pass to beneficia-ries through a last will and testa-ment are generally subject to thebeneficiaries’ creditors, including

divorcing spouses and judgmentcreditors. However, assets thatpass to beneficiaries via a settlor’strust generally can be used for thebenefit of the beneficiaries whilenot exposing the assets to theclaims of the beneficiaries’ creditors.

■ Assets that are payablethrough a last will and testamentto a beneficiary who is not yet age18 generally must be managed bya probate court-appointedguardian. When the beneficiary

turns 18, the inheritancegenerally must bepaid outright, in alump sum, to the

beneficiary — irre-spective of whetherthe beneficiary hasthe financial savvyor life experience to effectively managethe inheritance. However, assets that

are payable to a beneficiarythrough a settlor’s trust can be pri-vately managed by a trustee. Thisavoids the need to have a guardianappointed if the beneficiary is notyet 18, and permits the settlor to delay the distribution of the inheritance to the beneficiary until whatever age the settlordeems appropriate.

Suffice it to say that whether touse a trust in an estate plan is adecision that should be made afterconsideration of many factors, manyof which are not tax related. ■

Rennie Rutman is an attorney at Tucker Ellis & West LLP. She is an Ohio stateboard certified specialist in estate planning, trust and probate law. Contact her at (216) 696-4749.




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CHARITABLE GIVING

Philanthropy as a family teaching toolBy LAURA J. MALONE

For many families, the ideaof being a “philanthropist”has been associated withthe abundance of wealth.

However, in the modern age ofcharitable vehicles like donor-advised funds and giving circles,everyday families can becomephilanthropists. Even more important is that they can usethese vehicles to make philan-thropy a family affair.

Statistics show that roughlytwo-thirds of all wealth transfersfail. In many cases, these familiesgot so concerned with protectingtheir financial capital that theyneglect to focus on the values ofthe family that are typically expressed though social, humanand intellectual capital.

Philanthropy can make us feelgood and create a positive effecton the world around us. However,most people underestimate how philanthropy can have thecapacity to:

■ teach younger generationsmoney and wealth managementskills, decision making and re-sponsibility for themselves andthe global community.

■ become a conduit for conver-sations about wealth/money and

their meaning in the lives of allfamily members.

■ open deeper conversationsabout values and what mattersmost to individual members.

■ become a bridge/gift to thenext generation to nurture theirvalues and vision.

■ become the glue that holds afamily together in good timesand bad.

Today’s charitable vehiclesmake it easier to prepare yourfamily for wealth without expos-ing them to all of the wealth.They make it easier for parents totalk about the time, talent andtreasure they share with charita-ble organizations and expresswhy those organizations are important to you. Furthermore,they can support the cultivationof the rest of the family’s charita-ble interests.

While it is better to begin theseteachings early, we have seenthrough our donor-advised fundclients that it is possible at any age.The holidays can be a great timeto start since family and givingnaturally come together. ■

Laura J. Malone is director of gift plan-ning for the American Endowment Foun-dation. Contact her at 877-599-8903or [email protected].

Selling your art and collectiblesBy JAMES CORCORAN

Many clients who aredownsizing their resi-dences have works offine and decorative

art, furniture, antiques, books,jewelry, and sterling silver flatand hollow wear, etc. that theywant to sell.

Space considerations often areprimary in making decisions tosell. Another consideration isthat clients’ children and otherheirs have no interest in theproperty and would prefer not tobe burdened with it as an inheri-tance.

A third reason for consideringthe sale of high value personalproperty is to become more liquid in the current economicenvironment.

In the course of my 35 years asa certified appraisal professional,I have become acquainted with the owners/managers of morethan 80 reputable auction housesaround the world. We haveachieved notable success forclients by selecting the most appropriate and specialized auction house for the sale of eachitem of property brought to us.

For example:

■ A pair of 1973 Israeli limited edition prints. Local auc-tion estimate $400 to $600. Soldat an auction we selected for$7,700 net to client.

■ A French school of Paris(1960s) painting. Estimated locallyat $2,000 to $3,000. Sold for$12,500 net to our client in anout-of-town auction.

■ A set of watercolors by a deceased California artist.Local estimate $1,000 to$1,200. Sold elsewhere for net$10,200 to our client.

Neither my firm nor I personally has any conflict ofinterest in providing thishighly valuable service. Wenever buy clients’ property.We merely direct the client tothe best auction (or gallery)for the sale of their items atthe highest price possible.

We frequently handle theentire process from our receipt of the property:

■ Locating the best market

■ Negotiating with the auctionhouse

■ Insuring the property

■ Packing and shipping theproperty to the auction house

■ Insuring the property fromthe time we receive it until thetime of final sale

■ Taking necessary legal steps toprotect the client’s title to the workprior to the sale

In a period when a wide varietyof art, antiques and collectiblesare coming to market, CorcoranAppraisal Group provides a valu-able service to obtain the highestpossible prices for the sale ofclient property. ■

James Corcoran is a Harvard Law Schoolgraduate, and a certified member of thethree National Personal Property Societies.Corcoran Appraisal Group has been activeprofessionally for 35 years. Contact him at(216) 767-0770 or [email protected].




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To learn more about estate planning and life income gifts to the Museum, contact Sheryl Hoffman, Director of Major & Planned Gifts at (216) 231-4600, ext. 3310 or [email protected]

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Maximize the impact of giving through retirement plansBy PATRICIA FRIES

One of the easiest andmost “tax-wise” ways tomake a gift toUniversity Hos-

pitals, or another charity,is by using your retirementplan assets. In spite of theeconomic downturn,Americans are buildinglarge retirement plan bal-ances, mainly throughthe use of employer-spon-sored 401(k) plans.

Almost all retirement planshave yet to be taxed, and consid-erable taxes will result when retirement plan assets are used ordistributed directly to heirs. How-ever, if these retirement plans aregiven to a qualified charitable organization, they are received infull, with no tax due, resulting ina more significant gift to charity.

RETIREMENT PLAN DESIGNATION TO CHARITY

You can leave your legacy bynaming University Hospitals, oranother charity, as a beneficiary

of your retirement plan account.Charitable gifts of retirementplan assets at the participant’sdeath avoid both income and

estate tax to heirs. Whena participant makes a retirement plan gift, thecharity receives the giftdirectly from the quali-fied plan or IRA trusteewithout going throughthe probate process. Thisalleviates the delays andcosts associated with pro-bate, allowing the charity

to receive the gift more quicklyand cost-efficiently than if it hadbeen made from an estate.

DIRECT IRA ROLLOVERS TO CHARITY

Congress has reauthorized leg-islation that allows you to makelifetime charitable gifts from yourIRA accounts during 2011 with-out incurring federal income taxon the withdrawal. The IRA char-itable rollover provides you withan excellent opportunity to makea gift during your lifetime froman asset that would be subject to

multiple levels of taxation if it remained in your taxable estate.

IRA CHARITABLE ROLLOVER REQUIREMENTS

■■ You must be age 70½ or older at the time of gift

■■ Transfers must be made directly by an IRA administratorto the charity

■■ Gifts must be outright

IRA CHARITABLE ROLLOVER BENEFITS

■■ Counts toward your requiredminimum distribution

■■ Excluded from your gross income as a tax-free rollover

■■ Gifts up to $100,000

The extension of the IRA chari-table rollover will expire on Dec.31. Act now to take advantage ofthis limited charitable planningopportunity. ■

Patricia Fries, Esq., MBA, is director of gift planning for University Hospitals. Contact her at (216) 844-0430.

Not all charitable gifts created equalBy JAMES R. HICKEY

The words “charitable giving” often evokethoughts of taxdeductions, but

it’s not always that simplewith deferred giving.Some deferred gifts are revocable, meaning youcan revoke the gift at anytime, while others are irrevocable, meaning per-manent. When consideringa deferred gift, it’s important tounderstand that some gifts willprovide an immediate incometax deduction, while others willprovide tax benefit to your estate.

■■ TAX BENEFITS NOW

If a positive tax benefit onyour current year taxes is yourgoal, consider irrevocable

deferred gifts that involve a directtransfer of assets. Examples include charitable gift annuities,

charitable remainder annuity trusts, charitableremainder unitrusts andretained life estates. Thecommon thread amongthese gifts is that an assetis irrevocably transferredto a charitable organiza-tion, often making thetransaction eligible foran immediate income

tax deduction. In many cases,these gift options also providelifetime payments to the donorand other beneficiaries, givingyou a two-fold benefit.

■■ TAX BENEFITS LATER

If you are uncomfortable withletting go of an asset now, youmay appreciate a revocable gift

that allows you to change yourmind at a later date. There areseveral revocable gift optionsavailable including will bequests,estate notes, life insurance bene-ficiary designations, pay ondeath/transfer on death assets,and more. The revocability ofthese charitable gifts negates theopportunity for an immediate income tax charitable deduction.However, deductions are usuallyavailable to the donor’s estate asthe gifts mature.

Most importantly, talk to yourtax professional and charitablegift adviser to make sure your giftmeets your goals. ■

James R. Hickey, CFRE, CAP, is giftplanning director for Ohio PresbyterianRetirement Services Foundation, servingBreckenridge Village. Contact him at(440) 942-4342 ext. 1506.

CHARITABLE GIVING

PATRICIA FRIES

JAMES HICKEY




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Establish a legacy gift and guarantee income with CGA

Donor-advised funds:same benefit to the charity,bigger tax benefit for youBy MATTHEW S. OLVER

If you itemize deductions onyour tax return, one opportu-nity to harvest some tax savings is through charitable

donations. Generally, individualsdeduct the annual cash contribu-tions they make to non-profit organizations. Donor-advisedfunds offer you an easy way to re-move assets from your taxable es-tate and get a bigger income taxbenefit today but maintain flexi-bility regardingwho receives thedonation, howmuch and when.

A donor-advised fund is particularlyuseful when youhave a spike inincome (e.g. business sale, options exercise, bonus), if youbelieve your future tax rate willgo down (e.g. after retirement) orif you believe Congress will reduce the charitable deduction.

The tax benefit can be magni-fied by donating appreciated assets held more than one year,as you may be able to deduct thefull market value of the asset andavoid paying the capital gains taxyou would have paid by sellingthat asset.

“A donor-advised fund is similar to a private foundationbut requires less money, time, legal assistance and administra-tion to establish and maintain,”

says Kara Downing, portfoliomanager at Spero-Smith Invest-ment Advisers, Inc. When youdonate an asset to your fund, thesponsoring organization liqui-dates it and transfers the proceedsinto investments selected by thedonor from within the donor-advised fund’s available options.

The donor can use these fundsto make cash gifts to charitableorganizations over several years.When ready to make a donationto a qualifying charity, the donor

sends a grant request to yourfund’s sponsoringorganization,which thensends a check directly to thecharity indicatingthat it is from

the donor’s account. The charitable tax deduction is

taken when the assets are con-tributed to the donor-advisedfund, not when the check is sentto the charity.

Many community foundations,financial institutions and somepublic charities sponsor donor-advised funds. Consult your qual-ified tax professional to help youdetermine what makes the mostsense given your goals and finan-cial situation. ■

Matthew S. Olver, CFP, is senior vicepresident for Spero-Smith Investment Advisers, Inc. Contact him at (216)464-6266 or [email protected].

By SHERYL HOFFMAN

On July 1, the AmericanCouncil on Gift Annu-ities announced an increase in Single Life

and Two Lives-Joint & Survivorgift annuity rates. The ClevelandMuseum of Natural History

(CMNH) hasincorporatedthe recom-mended increases for allnew CharitableGift Annuities(CGA) made tothe Museum. ACharitable GiftAnnuity is a

wonderful way to create a legacygift while guaranteeing fixed pay-ments to you for life in exchangefor your gift of cash or securities.

A charitable gift annuity couldbe right for you if:

■■ You want to maintain or increase your income

■■ You want the security offixed, dependable payments for life

■■ You want to save incometaxes or capital gains taxes

■■ You would likeincome that may bepartially tax-free

■■ You are consid-ering a gift amountof $10,000 or more

To establish aCGA, a donor makesan irrevocable gift ofcash, securities orother property toCMNH. In exchange,CMNH pays a fixedamount each year forthe rest of thedonor’s life. When the gift annu-ity ends, its remaining principalpasses to CMNH. A CGA can beestablished for a Single Life or aTwo Lives-Joint and Survivor. Inthe case of a Two Lives CGA, thesurviving annuitant will continueto receive payments for the remainder of his/her life.

For example, a Two Lives-Joint& Survivor CGA of a minimum$10,000 gift will earn a couplewith younger age 82 and olderage 84 a rate of 6.9% for the lifeof the annuitants. The informa-tion below illustrates the benefits

of a $10,000 CGA forthis couple.

Charitable deduction:$4,321Annual payment:$690Tax-free portion:$525.78Ordinary income:$164.22

After 10.8 years, theentire annuity becomesordinary income. Partial payments for

the year of gift will depend onthe timing of your gift.

CGA rates, payments, charitabledeductions and tax free portionsare based on the age of the annu-itant(s), the timing of the giftand the amount of the gift. ■

Sheryl Hoffman is director of major &planned gifts for The Cleveland Museumof Natural History. Contact her at (216) 231-4600, ext. 3310 or [email protected]. Read more about charitable gift annuities and run calculations on rates and payments atwww.cmnh.org/site/GiftGuide.aspx.

HOW AN ANNUITY WORKS

By KERRY MINK WRAY

Acharitable annuity allowsindividuals to support acharity while receiving acash reward for years to

come. It is a great way to give adonation and pay yourself backover time, while reducing yourtax bill. For example:

■ Mary, 68, provides a one-time cash donation of $5,000 tothe charity of her choice. Her Annuity Rate of Return, deter-mined by the American Councilof Gift Annuities based on herage, gift amount and other factors, is 5.5%. The rate is fixedover her lifetime.

■ Her tax deduction the firstyear is $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 sametime.

Kerry Mink Wray, JD, is development director of the BenjaminRose Institute. Contact her at (216) 373-1607 or [email protected].

*Calculations are for illustrativepurposes and should not be consid-ered legal, accounting or other pro-fessional advice. Actual benefits mayvary depending on the timing of thegift.

CHARITABLE GIVING

SHERYL HOFFMAN

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CHARITABLE GIVING

Stewardship plays criticalrole in philanthropy

Retained life estates allow donors to bringhome and heart togetherBy AMANDA STEYER

Ahome often is a family’smost significant asset. Incorporating a home intoa charitable giving plan

can benefit the family, their heirsand a favorite charity. However,many do not know they can makea gift of their residence now andcontinue to live in it for the rest oftheir lives.

With a gift of a retained life estate, the owner of a residence orfarm irrevocably transfers owner-ship of the property to a favoritecharity, while retaining the rightto live on the property for life, aset term of years, or a combina-tion of the two. The residencedoes not need to be the principalresidence but may be, for example,a vacation home.

The donor retains the right tolive on the property during thattime and continues to be responsiblefor all routine expenses, such asmaintenance, insurance, landscapingand property taxes. When the retained life estate ends, the desig-nated charity then can use theproperty or the proceeds from thesale of the property for the directed purpose.

This gift plan entitles the donor to an immediate charitableincome tax deduction for a por-tion of the appraised value of theproperty.

The highest tax deduction isproduced when applicable federalrates are low. With October’s 7520 rate of 1.4%, the time for a retained life estate couldn’t be better.

Some individuals may be hesi-tant to gift their home due to theuncertainty of the later years.What if at some point they wantor need to move into a nursing

By TODD S. POLIKOFF

At minimum, all donationsstem from someone asking, whether throughdirect mail, phone banks

or direct solicitation. “Major gifts”require the additional element ofan organic belief by the donor inthe mission and vision of the or-ganization. A major donor’s sup-port of the organization musttransition from a cerebral thoughtprocess to an emotional response.

The most effective way to makethe migration from the head tothe heart is through a comprehen-sive donor stewardship plan.

At the Jewish Federation ofCleveland, donor stewardship is

Building strong relationships canmake a difference

defined as the development of anongoing relationship with donors,which includes recognizing themfor their contributions, ensuringthat the gifts are used in accor-dance with the donors’ wishes, reporting to donors what hasbeen accomplished, heighteningtheir interest and involvement,and soliciting additional and largerdonations.

Unlike cultivation, stewardshipdeals with the non-gift aspects ofthe donor relationship and hasno set timetable (i.e. annual orcapital campaign drives). Further-more, the Jewish Federation ofCleveland’s stewardship plan ismulti-generational and engagesentire families in the philan-thropic process.

The organizational benefits of a stewardship plan go beyond increased revenue. Proper stewardship reduces costs as it is less expensive to steward a cur-rent donor than to acquire a new

one at the same level. The donorstewardship process also trans-forms donors into force multipliersfor the organization.

Ultimately, the Jewish Federa-tion of Cleveland’s stewardshipplan is a strategy aimed at miti-gating the impact of the multipleeconomic and demographic chal-lenges facing the non-profit sector.

Many major donors today areexhibiting an increased level ofdiscretion in their philanthropy.This places an imperative on anorganization’s ability to assert itsrelevance in the eyes of the donor.Donor stewardship plans are themost effective way to ensure thatyour organization remains a topphilanthropic priority for yourmost supportive donors. ■

Todd S. Polikoff is a senior developmentofficer at the Jewish Federation of Cleveland. Contact him at (216) 593-2905.

home or assisted living facility? The retained life estate provides

flexibility with alternative optionsto consider. If they later decide to vacate the property, they mayrent, gift or sell their interest tofamily, a third party or the charity.

The retained life estate not onlyremoves the residence from thedonor’s taxable estate but also relieves the heirs or estate of theburden of inheriting the homeand arranging for a sale.

Ultimately, the donor can makea significant gift to a favorite charity during his or her lifetime

without in any way altering standard of livingor cash flow.

Discussions betweenclients and their advisersare always recommended.With the right guidance,the planning and imple-mentation of a gift of ahome can be a satisfyingand rewarding decisionfor families and charities.Cleveland Clinic’s giftplanning professionals

would be pleased to assist withthose conversations if there is interest in supporting its medicalmission. ■

Amanda Steyer, Esq., is assistant direc-tor, gift planning, institutional relationsand development at Cleveland Clinic.Contact her at (216) 636-0117 or [email protected], or visit clevelandclinic.org/giving.

Many do not knowthey can make a gift of their

residence now and continue to

live in it.

■ With October’s 7520 rate of 1.4%, a retained life estate is ideal.

■ The retained life estate notonly removes the residencefrom the donor’s taxable estatebut also relieves the heirs or estate of the burden of inheritingthe home and arranging for asale.



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