Two years ago seems so short in retrospect. But when the US Congress finally passed what we affectionately called The Bush Tax Cuts, otherwise known more formally as TRA 2010 extending EGTRRA it seemed like two years was a sufficient time to cut down on our tax revenue. Well here we are, two years later and TRA 2010 is set to die on January 1, 2013 at one second past midnight. When you are watching the ball drop in Times Square, you may also hear the stomachs of many of our estate planning clients dropping with it!

The present gift and estate tax exclusions is a hefty $5.12 million. Next year, it will lower to what Dr. Evil thought was a solid number, but we in the modern estate planning world know is a meager $1 million. You can still take advantage of the $5.12 million exclusion this year, but not everyone wants to give away that kind of money just to stop Uncle Sam from collecting a portion of next year’s tax revenue.

Another creative idea is to fund a trust for a living spouse. You can make the spouse the trustee and allow the spouse to make distributions to him/herself. That is such a convenient legal fiction. Setting up the fictitious person trust and allowing a real person to take out money, all the time limiting the money withdrawals to some standard, like using the money for education, housing, health, or basic support. The trust money will be there to help the spouse but isn’t included in the spouses gross estate so their isn’t the same tax analysis. By the way, a spouse isn’t a limiting factor. You can set up the trust to help your children or any other person you care about. Many people refer to this set up as a “Family Trust” or a “Spouse Gift or Gifting Trust.” We are using these types of vehicles to utilize the current law in a way that maximizes the law as it stands today.

If you are really up for the tax avoidance, you can actually complete two separate trusts and shelter for $10.24 million by having each spouse complete an trust for the other spouse’s behalf. There is some complexity in setting up these trusts as we must make sure we don’t violate the “reciprocal trust doctrine.” But there are pretty easy fixes to make that happen and those “fixes” go right into the trust documents.

Again, I speak in terms of “spouses” but in truth, these trusts can be set up by anyone for any other person because the strategy does not rely on the marital deduction. Any two people in a relationship can choose to set up this tax avoidance system. Marriage is optional. So, all my gay friends can quit complaining how unfair the laws are for unmarried couples and just come in and fund your new trust. Then use the money to lobby for a future same sex marriage amendment!

Now, without getting ahead of myself on this trust position, we must also forewarn, that although not likely, in fact we will call it highly unlikely, but certainly within the possibility horizon in the future, the IRS could try and consider the trust transfers to be “gifts” creating a tax burden upon the death of the donor if the donor dies after TRA 2010 is finished. That is a remote possibility and one we are not advising our clients to worry about since the trust still holds up.

But the time it act is NOW. If you are going to move money into a trust you need to have the trust drafted and ready to be in effect and funded prior to December 31st. So, don’t’ wait. Call now to set up your Family Trust.

A recent federal court decision has illustrated the importance of specificity in drafting marital settlement agreements. On July 6, 2012 Federal Judge Middlebrooks issued his opinion in regards to a million-dollar life insurance policy dispute. The decedent/former husband had previously settled his South Florida divorce via a marital settlement agreement. The settlement agreement required him to have a million-dollar life insurance policy naming his ex-wife as the beneficiary. However, five months prior to signing the agreement, he had changed the beneficiary to his sister and adult son. Apparently, no proof of coverage was required or requested around the time of the Final Judgment. When he died, the ex-wife, sister and son all filed claims with the insurance carrier. The carrier wisely filed an interpleader action (deposited with court), the funds and indicated the Judge should figure out the mess.

Judge Middlebrooks did just that; indicating that since the marital settlement agreement did not specifically identify the life insurance policy in question, there was no way to change the prior beneficiary designation. The ex-husband could have just as easily gotten another policy to comply with his marital settlement agreement obligations. The ex-wife lost her claim, and the ex-husband’s sister and adult son walked away with $500,000 each. Is there a legal malpractice claim against the ex-wife's attorney for not being specific enough? Only time will tell.

Negotiating and drafting marital settlement agreements is an art, and requires great thought and specificity in regards to what was actually agreed to. Too often, we see examples such as this where the probable intention of the parties could not be determined. Trusting one side in a divorce can sometimes be a mistake. Not requiring proof of coverage shortly around the time of a settlement agreement or subsequent divorce can lead to situations like this.

LaBovick Law Group has a dedicated division focusing on family law issues. If you have a similar situation to this, or if you have any other family law related question, please don't hesitate to contact us for a free initial consultation.

Social Security Disability may be under attack again. A Congressional report reviewed 300 cases where disability benefits were awarded, and found a lack of sufficient evidence for disability in more than 25% of the cases according to a Palm Beach Post article. Social Security Disability is under greater scrutiny from Congress as the number of people collecting benefits has grown. The problem arises every time the economy takes a plunge because disabled persons who were employed are laid off and turn to disability for income. Bottom line: The increase in Americans collecting disability causes trouble for Social Security. Social Security Disability is projected to become insolvent this decade.

What does this mean for those planning on applying for Social Security Disability? The scrutiny of new applications will be more rigorous to ensure that benefits will only be awarded to those who meet the agencies requirements. It will be more important than ever for disabled persons to document their injury or illness. Dissevering applicants will need to make sure that they meet all of Social Security’s requirements for disability and that they are able to document their medical condition. If you need help filing a Social Security Disability claim or if you have been denied you can contact the LaBovick Law Group for a free case consultation.

Reference: http://www.palmbeachpost.com/ap/ap/labor/report-social-security-lax-on-disability-claims/nR9S5/