The Freshman 15: What Parents Need to Know Before Your Child Starts College
1) It’s that time of year…and most parents are a little nervous about a child going off to college all by themselves.
2) That’s normal! It may even be for good reason because….
3) Your child is a legal adult as soon they turn 18!
4) This means that, as a parent, you are no longer your child’s “legal guardian.”
5) You no longer have the right to make decisions regarding your child’s living situation, school, or health care.
6) You also no longer have the right to access records from your child’s school or doctor.
7) Your 18 year old “child” now even has the power to open bank accounts, borrow money, and obtain credit cards.
8) However, you have no right to review bank or credit card statements or even to be notified about the status of their accounts!
9) This can, of course, lead to some nasty surprises for parents if their inexperienced child’s spending gets out of hand.
10) There also can be serious issues if the child is sick or injured and you cannot obtain information about their health. This may also be a concern if the child travels out of the country on a break or study abroad trip.
11) The good news is you can protect your child right now with basic estate planning documents!
12) For example, a Durable Power of Attorney will give you access to your child’s finances. This will allow you to just check in or to take over if it becomes necessary.
13) As another example, a Durable Power of Attorney for Health Care allows you to step in and make medical decisions for your child if they are unable to make the decisions themselves.
14) Once you have such documents, you can even store them electronically so that any medical facility can easily access the documents. At Cramer Law Center, we partner with DocuBank, a service that stores that information and also gives you and your child a wallet-sized card with emergency contact information on it.
15) Cramer Law Center is here to help you and your child take this important step towards college preparation. Call us today to discuss our flat-fee “Back to School” plan!
How Stretchy is an IRA?
It appears that the government, in its search for funds to balance the Federal budget, has set its sights on yet another estate planning tool: the stretch IRA. Both Congress and President Obama have proposed severely limiting the ability to “stretch” the payments from an IRA over the lifetimes of persons younger than the owner.
Currently, stretch IRAs are an effective way to preserve and grow assets for future generations. Children and grandchildren named as beneficiaries of IRAs can take withdrawals from their share of an IRA over their own projected lifetime, rather than being forced to take distributions based upon the life expectancy of the (older) owner. This means that withdrawals are delayed and the IRA can grow, either tax-deferred or tax-free, for significantly longer periods of time.
However, the proposed change to the law governing IRAs would take away the ability to stretch IRAs over generations. Retirement accounts inherited by anyone other than a spouse would be required to be entirely paid out within five years of the owner’s death. This would cause beneficiaries to have to pay income tax sooner and in larger amounts than under a stretch out. With more and more individuals planning for retirement with IRAs due to the disappearance of employee pension plans, such a change would significantly affect estate planning in America. We will be watching this issue as part of our mission to keep our clients’ plans current.
For more on the exact changes proposed, where they are coming from, and what you can do now, see:
With Elder Care, You Get Eggroll!
China has passed a law effective July 1 requiring adult children to regularly visit or talk with their parents as well as care for them financially after the parent becomes 60 years old. The parents can even sue their children in court for failing to follow this law and the court can force visits or impose a fine upon the children. The Chinese have a long-standing tradition of caring for their elders, but previously had not incorporated this tradition into their laws. Following this tradition, the Chinese government passed this law in order to try to ensure that their aging population would be cared for on both the physical and spiritual levels.
There are probably many parents out there that think this law is a great idea and would love to tell their children that they have to visit on a regular basis. Certainly, there is also a western tradition of caring for our parents, going back to the commandment to “Honor thy father and mother.” However, here in the US, there is no law on the books to mandate good elder care by the younger generations. Rather, people must take personal responsibility for making sure that they are taken care of when they get older. People in the US have to plan for their legal and financial futures.
In-depth personal estate planning can help you accomplish your goals for your elder care, not just your goals for when you pass away, but if you become disabled or need your income supplemented by the government through programs such as Medicaid. There are several estate planning tools which can be used to take care of you. As one example, you can choose a trusted disability trustee to help care for you and leave that person specific instructions about how you want to live in the event that you become disabled.
The important thing to realize is that in the US, people have to take responsibility for their own futures and well-being. You can do this through personalized estate planning (or through lobbying Congress for our own version of the Chinese law!), but everyone needs to plan for their own elder care.
As Confucius said: “Wise man seek counsel.”
Protecting Your Loved Ones from Creditors
We often talk about protecting your loved ones (your “beneficiaries”) from creditors through trust planning. Some people may question if this really works and whether it is worthwhile. Two recent cases affirmed that a properly drafted trust will prevent your beneficiaries’ future creditors from reaching the assets you leave behind.
Both cases revolved around specific trust language called “spendthrift provisions.” Spendthrift provisions prohibit a trustee from distributing trust money to the beneficiary if the distribution would be subject to creditor claims. This essentially makes it impossible for creditors to reach the trust funds. Because this is such an extreme protection, questions arose in each case as to whether the protection would apply under certain circumstances.
In the first case, Miller v. Kresser, the creditor argued that it could reach trust assets because the beneficiary was effectively in control of those assets. The court disagreed and held that, even if a beneficiary appears to have complete control over the funds in his trust, a properly drafted spendthrift clause that gives an independent trustee control over distributions or termination of the trust will block creditors from reaching the funds. This is true even when the trustee is related to the beneficiary. The court explained that it was required by the law to focus on the terms of the trust rather than the actions of the trustee or beneficiary. The trust document in Miller did not give the beneficiary any express control over distributions or termination of the trust but rather delegated that control to the independent trustee. Thus, the spendthrift provision was valid and the assets were protected from the creditor.
In the second and more recent case, Zlatkiss v. All America Team Concepts, LLC, the creditor made a constitutional attack on spendthrift provisions in general, claiming that such provisions violated the Florida Constitution’s guarantee of access to the courts for redress of any injury. The Zlatkiss court found that spendthrift trusts have long been recognized as legally valid. It further reasoned that the right to bring claims in a court does not include a guarantee that judgments will be enforceable. The court therefore held that properly drafted spendthrift provisions in trusts are a valid means of protecting assets from creditors.
These recent cases prove that trust planning is still an effective creditor protection tool. A properly drafted Florida trust with spendthrift language can protect your loved ones from future claims against them. If you have any questions or would like to speak to us about creating a trust or creditor protection, please feel free to contact us.
LLC Owners, Be Aware and Be Prepared!
On May 3, 2013, the Florida legislature passed the new Florida Revised Limited Liability Company (“LLC”) Act. This new LLC act will be effective for every LLC formed in Florida on or after July 1, 2014 and will apply on a mandatory basis to all LLCs, including those formed earlier, as of January 1, 2015. There are some major changes in the new act that could materially affect existing LLCs and certainly need to be considered for any LLCs set up in the future. This newsletter will cover the changes the new LLC act brings and our next newsletter will cover parts of Florida LLC law that are not being changed that every LLC owner needs to keep in mind.
One of the biggest changes the new LLC act brings is the expansion from 6 to 16 “non-waivable provisions.” These are provisions that are mandatory by law and cannot be altered through the LLC operating agreement. Some of these new provisions include: 1) the ability of the LLC to sue and be sued in its own name, 2) the inability to change Florida Law as the governing law of a Florida LLC, and 3) the inability to vary the statutorily-required contents of a plan of merger, plan to acquire interest in another company, plan of conversion into another form of company, or plan of domestication to become a Florida LLC.
Another important change the new LLC act brings is the elimination of the “managing member” form of management. Under existing Florida law, Florida LLCs can have three types of management: 1) management by its members, 2) by one or more managers, or 3) by a managing member. This third category is fairly unique to Florida and the term has caused significant confusion over the years. To eliminate this confusion and make Florida’s LLC laws more similar to those of other states, the new LLC act eliminates the category of “managing member.”
These changes in the Florida LLC law are likely to have a material effect on all existing and future Florida LLCs. If you currently operate a Florida LLC or are thinking about creating one, it is important that you have your company’s operating agreements carefully reviewed by an attorney to make sure they will be in compliance with the new LLC act when it takes effect. Cramer Law would welcome the opportunity to help. We can review an existing agreement or help start a new one. Please consider contacting us for help with your Florida LLC.
Homesteads: The Good, the Bad, and the Ugly
We recently had to address a question regarding what happens to someone’s homestead in probate when it does not qualify for exemption. When an estate goes through probate, there are special rules governing what happens to homestead property. The good thing about this is that under certain circumstances, the homestead is completely protected from creditors and doesn’t even go through the probate proceedings, allowing those who inherit the homestead to continue using it through a homestead exemption.
Unfortunately, the laws creating the homestead exemption are extremely complex. There are rules about who a homestead can be given to if the decedent is survived by a spouse and it cannot be devised at all if the decedent is survived by minor children. Even if the homestead can be devised because there is no surviving spouse or minor children, there may be a question of whether the homestead qualifies for the exemption, as the Florida Constitution only protects the homestead if it is devised to certain heirs. Otherwise, the homestead becomes subject to probate and creditor claims like any other asset.
While Florida’s constitutional protection of “homestead” is very strong, when dealing with a homestead issue, it is useful to consult an attorney to help navigate the complexities of the law. We often say that a better option is to avoid probate altogether by creating a trust to govern your estate when you pass away. However, there can be special problems with putting homestead property in a trust, eliminating that normally useful bypass. This makes it even more imperative to consult an attorney when attempting to deal with homestead issues to ensure that your wishes for your home will be followed. If you have any questions about homestead exemption law or would like to speak about creating an estate plan, please feel free to contact us.
WASTED WEALTH: $40 MILLION AND NO WILL
Roman Blum died last year in New York at the age of 97 with $40 million worth of assets. At first glance, that sounds like a wonderful way to leave the world. However, Mr. Blum passed away without a will or any other indication of who he wanted to receive his fortune. He also was a Holocaust survivor, and it appears that his unique history died with him
Mr. Blum left behind enough assets to really make a difference in the world. If he had planned, he would have had many options to improve the lives of others by making charitable contributions or leaving money to specific individuals. Unfortunately, without a plan or any obvious heirs (Mr. Blum died without a spouse or children), the $40 million may end up going to the state of New York rather than to the causes or people Mr. Blum cared about.
Perhaps the most tragic part of Mr. Blum’s failure to plan is that he died without preserving his life wisdom. Mr. Blum’s friends and acquaintances gave the media a rough timeline of his life, but no one seemed to know his exact experience during the Holocaust. He earned his fortune buying and developing property, but it does not appear that he ever shared his secret to success.
If you know anyone who has wealth to share with the world, whether it is assets or life wisdom, encourage them to plan before it is too late. A counseling-oriented estate planning attorney can help to preserve their individual legacy and ensure their wealth passes according to their wishes and not the state’s.
ESTATE PLANNING ISSUES FOR UNMARRIED AND SAME-SEX COUPLES
New state laws allowing same-sex marriage and two pending Supreme Court rulings on the subject have brought to mind the special estate planning issues faced by same-sex and other unmarried couples. Marriage comes with important legal rights and benefits that are not automatically provided to all romantic partners.
For example, the state of Florida has a default estate plan for every resident who dies without a will or trust. If you get married, this default plan is automatically adjusted; the primary beneficiary of your property changes immediately from your closest blood relatives to your new spouse. If you are unmarried, on the other hand, the default plan does not give your significant other any of your property, no matter how long or serious your relationship.
Another big area of concern is making sure your unmarried partner has access to you if you are hospitalized and that he or she can participate in the decision-making process if you are hurt or disabled. Again, the law does not give any automatic rights to couples unless they are married. This lack of rights can cause significant emotional distress when something happens to one partner and the other is left feeling helpless.
The good news is that the issues described above can be addressed through a comprehensive estate plan. A trust can give your unmarried partner the same benefits as, and potentially more control than, they would get as your spouse under Florida’s default estate plan. Ancillary planning documents such as powers of attorney and designations of health care surrogate will allow you to empower your significant other to make medical and financial decisions on your behalf. If you are interested in learning more about these documents, you are welcome to attend one of our Truth About Estate Planning workshops.