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IRS2Go App Provides Tax Return Refund Status and Tax Information

If you’re one of those techie type people that enjoys accurate, instant information in the palm of your hand, try the new IRS2Go App for either your Android or iPhone mobile device.  With this new application, you are able to check your tax return refund status, subscribe to tax updates by providing your e-mail address, follow the IRS on Twitter, and call the IRS with the push of a button.

 

The IRS understands the need for evolving their technology systems to match today’s standards as per a statement made by IRS Commissioner Doug Shulman.  He stated that “this new smart phone app reflects our commitment to modernizing the agency and engaging taxpayers where they want when they want it”.  He continued to state that “as technology evolves and younger taxpayers get their information in new ways, we will keep innovating to make it easy for all taxpayers to access helpful information.”

 

Get Your refund Status

In the “Get Your Refund Status” section of the App, you can provide your Social Security number (which is masked and encrypted for your protection), filing status used on your tax return, and your anticipated 2010 tax return refund amount.  For e-filers, it takes about 72 hours for this function to work on their phone, and for paper filers it can take three to four weeks before you can check your tax return refund status.  Roughly 70 percent of individual returns were filed electronically last year.

 

Get Tax Updates

In the “Get Tax Updates” section of the IRS2Go App, you are presented with the option to enter your e-mail address in order to subscribe to daily tax tips during the filing season, and randomly during the rest of the year.

 

Follow the IRS on Twitter

In the “Follow Us” section of the App, clicking the “Follow” link will redirect you to Twitter so you can see the latest news feed of federal tax news and information for taxpayers.

 

At a minimum, those that want to see where their refund is or want to keep up on current tax trends will want to download, for free, this handy App in either the Android Marketplace or the Apple App Store.

Important Tax Extension Considerations for 2010 Taxes

The deadline to file individual tax returns for the 2010 tax year is April 18, 2011.  The due date was extended federally in recognition of Emancipation Day, which falls on Friday, April 15, 2011 the original deadline.  It is important to know that individuals who need more time to file their tax returns can apply for an automatic extension of time to file by using IRS form 4868.  While filing this form gives the taxpayer an extra 6-months to file their income tax return, it is strongly recommended that a taxpayer pay any tax liability they believe to be owing as of April 18, 2011 in order to avoid paying any late payment interest on the balance due.  The extension of time to file the return does not extend the time to pay in the view of the Internal Revenue Service.

A common misconception about filing for an extension is that your tax return will be audited by the IRS for that year.  Not true.  The IRS applies various other criteria when they determine which tax returns that they audit.  If you need assistance in applying for an automatic extension of time to file you 2010 income tax returns, please let us know.

RAS Group, LLC

Understanding Social Security

Over 55 million people today receive some form of Social Security benefits, including 90 percent of retired workers over age 65. (Source: Fast Facts & Figures About Social Security, 2009) But Social Security is more than just a retirement program. Its scope has expanded to include other benefits as well, such as disability, family, and survivor’s benefits.

How does Social Security work?

The Social Security system is based on a simple premise: Throughout your career, you pay a portion of your earnings into a trust fund by paying Social Security or self-employment taxes. Your employer, if any, contributes an equal amount. In return, you receive certain benefits that can provide income to you when you need it most–at retirement or when you become disabled, for instance. Your family members can receive benefits based on your earnings record, too. The amount of benefits that you and your family members receive depends on several factors, including your average lifetime earnings, your date of birth, and the type of benefit that you’re applying for.

Your earnings and the taxes you pay are reported to the Social Security Administration (SSA) by your employer, or if you are self-employed, by the Internal Revenue Service. The SSA uses your Social Security number to track your earnings and your benefits.

Finding out what earnings have been reported to the SSA and what benefits you can expect to receive is easy. Just check out your Social Security Statement, mailed by the SSA annually to anyone age 25 or older who is not already receiving Social Security benefits. You’ll receive this statement each year about three months before your birthday. It summarizes your earnings record and estimates the retirement, disability, and survivor’s benefits that you and your family members may be eligible to receive. You can also order a statement at the SSA website, at your local SSA office, or by calling (800) 772-1213.

Social Security eligibility

When you work and pay Social Security taxes, you earn credits that enable you to qualify for Social Security benefits. You can earn up to 4 credits per year, depending on the amount of income that you have. Most people must build up 40 credits (10 years of work) to be eligible for Social Security retirement benefits, but need fewer credits to be eligible for disability benefits or for their family members to be eligible for survivor’s benefits.

Your retirement benefits

If you were born before 1938, you will be eligible for full retirement benefits at age 65. If you were born in 1938 or later, the age at which you are eligible for full retirement benefits will be different. That’s because full retirement age is gradually increasing to age 67.

But you don’t have to wait until full retirement age to begin receiving benefits. No matter what your full retirement age, you can begin receiving early retirement benefits at age 62. Doing so is often advantageous: Although you’ll receive a reduced benefit if you retire early, you’ll receive benefits for a longer period than someone who retires at full retirement age.

You can also choose to delay receiving retirement benefits past full retirement age. If you delay retirement, the Social Security benefit that you eventually receive will be as much as 6 to 8 percent higher. That’s because you’ll receive a delayed retirement credit for each month that you delay receiving retirement benefits, up to age 70. The amount of this credit varies, depending on your year of birth.

Disability benefits

If you become disabled, you may be eligible for Social Security disability benefits. The SSA defines disability as a physical or mental condition severe enough to prevent a person from performing substantial work of any kind for at least a year. This is a strict definition of disability, so if you’re only temporarily disabled, don’t expect to receive Social Security disability benefits–benefits won’t begin until the sixth full month after the onset of your disability. And because processing your claim may take some time, apply for disability benefits as soon as you realize that your disability will be long term.

Family benefits

If you begin receiving retirement or disability benefits, your family members might also be eligible to receive benefits based on your earnings record. Eligible family members may include:

  • Your spouse age 62 or older, if married at least 1 year
  • Your former spouse age 62 or older, if you were married at least 10 years
  • Your spouse or former spouse at any age, if caring for your child who is under age 16 or disabled
  • Your children under age 18, if unmarried
  • Your children under age 19, if full-time students (through grade 12) or disabled
  • Your children older than 18, if severely disabled

Each family member may receive a benefit that is as much as 50 percent of your benefit. However, the amount that can be paid each month to a family is limited. The total benefit that your family can receive based on your earnings record is about 150 to 180 percent of your full retirement benefit amount. If the total family benefit exceeds this limit, each family member’s benefit will be reduced proportionately. Your benefit won’t be affected.

Survivor’s benefits

When you die, your family members may qualify for survivor’s benefits based on your earnings record. These family members include:

  • Your widow(er) or ex-spouse age 60 or older (or age 50 or older if disabled)
  • Your widow(er) or ex-spouse at any age, if caring for your child who is under under 16 or disabled
  • Your children under 18, if unmarried
  • Your children under age 19, if full-time students (through grade 12) or disabled
  • Your children older than 18, if severely disabled
  • Your parents, if they depended on you for at least half of their support

Your widow(er) or children may also receive a one-time $255 death benefit immediately after you die.

Applying for Social Security benefits

You can apply for Social Security benefits in person at your local Social Security office. You can also begin the process by calling (800) 772-1213 or by filling out an on-line application on the Social Security website. The SSA suggests that you contact its representative the year before the year you plan to retire, to determine when you should apply and begin receiving benefits. If you’re applying for disability or survivor’s benefits, apply as soon as you are eligible.

Depending on the type of Social Security benefits that you are applying for, you will be asked to furnish certain records, such as a birth certificate, W-2 forms, and verification of your Social Security number and citizenship. The documents must be original or certified copies. If any of your family members are applying for benefits, they will be expected to submit similar documentation. The SSA representative will let you know which documents you need and help you get any documents you don’t already have.

Housing Options for Older Individuals

As you grow older, your housing needs may change. Maybe you’ll get tired of doing yardwork. You might want to retire in sunny Florida or live close to your grandchildren in Illinois. Perhaps you’ll need to live in a nursing home or an assisted-living facility. Or, after considering your options, you may even decide to stay where you are. When the time comes to evaluate your housing situation, you’ll have numerous options available to you.

There’s no place like home

Are you able to take care of your home by yourself? If your answer is no, that doesn’t necessarily mean it’s time to move. Maybe a family member can help you with chores and shopping. Or perhaps you can hire someone to clean your house, mow your lawn, and help you with personal care. You may want to stay in your home because you have memories of raising your family there. On the other hand, change may be just what you need to get a new perspective on life. To evaluate whether you can continue living in your home or if it’s time for you to move, consider the following questions:

  • How willing are you to let someone else help you?
  • Can you afford to hire help, or will you need to rely on friends, relatives, or volunteers?
  • How far do you live from family and/or friends?
  • How close do you live to public transportation?
  • How easily can you renovate your home to address your physical needs?
  • How easily do you adjust to change?
  • How easily do you make friends?
  • How does your family feel about you moving or about you staying in your own home?
  • How does your spouse feel about moving?

Hey kids, Mom and Dad are moving in!

If you are moving in with your child, will you have adequate privacy? Will you be able to move around in your child’s home easily? If not, you might ask him or her to install devices that will make your life easier, such as tub or shower grab bars and easy-to-open handles on doors.

You’ll also want to consider the emotional consequences of moving in with your child. If you move closer to your child, will you expect him or her to take you shopping or to include you in every social event? Will you feel in the way? Will your child expect you to help with cooking, cleaning, and baby-sitting? Or, will he or she expect you to do little or nothing? How will other members of the family feel? Get these questions out in the open before you consider moving in.

Talk about important financial issues with your child before you agree to move in. This may help avoid conflicts or hurt feelings later. Here are some suggestions to get the conversation flowing:

  • Will he or she expect you to contribute money toward household expenses?
  • Will you feel guilty if you don’t contribute money toward household expenses?
  • Will you feel the need to critique his or her spending habits, or are you afraid that he or she will critique yours?
  • Can your child afford to remodel his or her home to fit your needs?
  • Do you have enough money to support yourself during retirement?
  • How do you feel about your child supporting you financially?

Assisted-living options

Assisted-living facilities typically offer rental rooms or apartments, housekeeping services, meals, social activities, and transportation. The primary focus of an assisted-living facility is social, not medical, but some facilities do provide limited medical care. Assisted-living facilities can be state-licensed or unlicensed, and they primarily serve senior citizens who need more help than those who live in independent living communities.

Before entering an assisted-living facility, you should carefully read the contract and tour the facility. Some facilities are large, caring for over a thousand people. Others are small, caring for fewer than five people. Consider whether the facility meets your needs:

  • Do you have enough privacy?
  • How much personal care is provided?
  • What happens if you get sick?
  • Can you be asked to leave the facility if your physical or mental health deteriorates?
  • Is the facility licensed or unlicensed?
  • Who is in charge of health and safety?

Reading the fine print on the contract may save you a lot of time and money later if any conflict over services or care arises. If you find the terms of the contract confusing, ask a family member for help or consult an attorney. Check the financial strength of the company, especially if you’re making a long-term commitment.

As for the cost, a wide range of care is available at a wide range of prices. For example, continuing care retirement communities are significantly more expensive than other assisted-living options and usually require an entrance fee above $50,000, in addition to a monthly rental fee. Keep in mind that Medicare probably will not cover your expenses at these facilities, unless those expenses are health-care related and the facility is licensed to provide medical care.

Nursing homes

Nursing homes are licensed facilities that offer 24-hour access to medical care. They provide care at three levels: skilled nursing care, intermediate care, and custodial care. Individuals in nursing homes generally cannot live by themselves or without a great deal of assistance.

It is important to note that privacy in a nursing home may be very limited. Although private rooms may be available, rooms more commonly are shared. Depending on the facility selected, a nursing home may be similar to a hospital environment or may have a more residential feel. Some on-site services may include:

  • Physical therapy
  • Occupational therapy
  • Orthopedic rehabilitation
  • Speech therapy
  • Dialysis treatment
  • Respiratory therapy

When you choose a nursing home, pay close attention to the quality of the facility. Visit several facilities in your area, and talk to your family about your needs and wishes regarding nursing home care. In addition, remember that most people don’t remain in a nursing home indefinitely. If your physical or mental condition improves, you may be able to return home or move to a different type of facility. Contact your state department of elder services for guidelines on how to evaluate nursing homes.

Nursing homes are expensive. If you need nursing home care in the future, do you know how you will pay for it? Will you use private savings, or will you rely on Medicaid to pay for your care? If you have time to plan, consider purchasing long-term care insurance to pay for your nursing home care.

Buying Supplemental Health Insurance: Medigap

Medicare won’t cover all of your health-care costs during retirement, so you may want to buy a supplemental medical insurance policy known as Medigap. Offered by private insurance companies, Medigap policies are designed to cover costs not paid by Medicare, helping you fill the gaps in your Medicare coverage.

When’s the best time to buy a Medigap policy?

The best time to buy a Medigap policy is during open enrollment, when you can’t be turned down or charged more because you are in poor health. If you are age 65 or older, your open enrollment period starts when you first enroll in Medicare Part B. If you are not yet 65, your open enrollment period starts when you turn 65 and then lasts for six months. A few states also require that a limited open enrollment period be offered to Medicare beneficiaries under age 65.

If you don’t buy a Medigap policy during open enrollment, you may not be able to buy the policy that you want later. You may find yourself having to settle for whatever type of policy an insurance company is willing to sell you. That is because insurers have greater freedom to deny applications or charge higher premiums for health reasons once open enrollment closes.

What’s covered in a Medigap policy?

Under federal law, only 10 standardized plans can be offered as Medigap plans (except in Massachusetts, Minnesota, and Wisconsin, which have their own standardized plans). The plans currently sold are Plans A-D, Plans F and G, and Plans K-N. Each Medigap plan offers a different set of benefits. All cover certain out-of-pocket costs, including Medicare coinsurance amounts. Some plans also cover other costs, such as all or part of Medicare Part A and Part B deductibles, foreign travel emergency costs, and Medicare Part B excess charges.

You can buy the Medigap plan that best suits your needs. But it’s important to note that not all Medigap plans are available in every state.

Are all Medigap policies created equal?

Generally, yes. Although Medigap policies are sold through private insurance companies, they’re standardized and regulated by state and federal law. A Plan B purchased through an insurance company in New York will offer the same coverage as a Plan B purchased through an insurance company in Texas. All you have to do is decide which plan that you want to buy.

However, even though the plans that insurance companies offer are identical, the quality of the companies that offer the plans may be different. Look closely at each company’s reputation, financial strength, and customer service standards. And check out what you’ll pay for Medigap coverage. Medigap premiums vary widely, both from company to company and from state to state. You can find a tool on the Medicare website (www.medicare.gov) that will help you compare Medigap policies offered in your area.

Does everyone need Medigap?

No. In fact, it’s illegal for an insurance company to sell you a Medigap policy that substantially duplicates any existing coverage you have, including Medicare coverage. In general, you won’t need a Medigap policy if you participate in a Medicare managed care plan or private fee-for-service plan, or if you qualify for Medicaid or have group coverage through your spouse.

You may also not need to buy a Medigap policy if you work past age 65 and have employer-sponsored health insurance. If you find yourself in this situation, you may want to enroll in Medicare Part A, since it’s free. Remember that if you enroll in Medicare Part B, your open enrollment period for Medigap starts. If you don’t buy a Medigap policy within six months, you may be denied coverage later or charged a higher premium, so you may want to wait to enroll in Medicare Part B until your employer coverage ends.

In addition, you may not need to buy a Medigap policy if you are covered by an employer-sponsored health plan after you retire (e.g., as part of a retirement severance package). In this case, your employer’s plan may cover costs that Medicare doesn’t. If you have any questions about your coverage, talk to your employer’s benefits coordinator.

Benefit Plans for Small Businesses

If you own a small business, you may be finding it increasingly necessary to implement a benefit program to attract and maintain employees. For small businesses, benefit plans generally consist of some of the major insurance benefits, discussed here, as well as employer-sponsored retirement plans.

Group health insurance

By far the most common benefit offered by employers, and the one most requested by employees, health insurance comes in many forms and with widely varying levels of benefits. The most frequently offered forms of health insurance are traditional, Blue Cross/Blue Shield types of plans and health maintenance organizations (HMOs).

Traditional health insurance

Under a traditional employer-provided health insurance plan, you, as the employer, contract with an insurer to provide health insurance benefits for you and your employees (and often for your employees’ dependents as well). A typical plan will pay claims as a percentage of the normal and customary charge for a given procedure in a particular region (typically, the insurance company pays 75 to 80 percent of a covered claim).

A covered employee generally must pay a standard deductible before benefits become payable by the insurer. Deductibles typically range between $200 and $1,000. The higher the initial deductible, the lower the insurance premium. This is because the covered employees are taking on a larger portion of the insurance risk by paying the higher amount, and saving the insurance company the costs of processing smaller claims.

Health maintenance organizations

HMOs have grown tremendously in popularity over the last 20 years or so. There is still some debate as to whether these plans have actually helped in lowering costs while providing a high level of care to the patient, but there is little doubt that HMOs are here to stay.

HMOs will often offer a lower-cost option for you, the employer, as well as for your employees. Costs are reduced because the HMO typically restricts the doctors a patient can see to those within its provider network. However, in limited circumstances–as set out by the HMO–participants can generally go out of the provider network, and the HMO still picks up the cost.

HMO doctors are typically paid a set fee per patient. This fee is paid whether a patient actually seeks treatment or not. Doctors in the HMO network handle all procedures and tests. Thus, the HMO is able to control the entire spectrum of tasks necessary to keep a patient well. In theory, the HMO is also able to control costs by giving doctors incentives to keep costs low. A doctor has no financial incentive to conduct unnecessary tests (the doctor will receive the preset fee and no more), so it is up to the doctor to help control patient costs. Typically, HMOs charge very small co-payments (as low as $5 or $10 per visit).

Preferred provider organizations

The preferred provider organization (PPO), a less common type of plan, is also available in many areas. PPOs operate much like a hybrid of the two more frequently seen employer-provided health insurance plans.

A PPO is actually a group of doctors and/or hospitals that provides medical service only to a specific group or association. The PPO may be sponsored by a particular insurance company, by one or more employers, or by some other type of organization. PPO physicians provide medical services to the policyholders, employees, or members of the sponsor(s) at discounted rates and may set up utilization control programs to help reduce the overall cost of medical care. In return, the sponsor(s) attempts to increase patient volume by creating an incentive for employees or policyholders to use the physicians and facilities within the PPO network.

Dental insurance

This benefit has grown in popularity among small businesses. Dental insurance is really more of a co-payment plan than an actual insurance plan. This is because, typically, there are annual limits of a few thousand dollars on the amount of benefits an individual may receive under the plan (unlike health insurance, which may have a lifetime limit of several hundred thousand to millions of dollars for benefits paid).

Nonetheless, dental insurance is highly valued by employees, because dental procedures are often among the most expensive medical charges an individual will incur in a given year.

Paying insurance premiums

Whatever type of health plan(s) you select, it’s fairly typical for an employer to pay a portion (or all) of the employee cost of the plan. If an employee also wants to cover his or her family, the additional cost is often paid for entirely by the employee.

Group term life insurance

Group term life (GTL) insurance is another popular benefit offered by more and more small businesses.

Typical GTL plans offer employees insurance in either a set amount (e.g., all employees receive $10,000 of insurance, regardless of income level) or an amount based on their salary level (e.g., each employee receives insurance equal to two times current salary).

GTL benefits are tax free up to $50,000 of coverage (assuming that the benefits are provided under a policy that qualifies as GTL insurance for tax purposes). If you provide employees with more than that amount of coverage under a qualifying GTL policy, your employees must pay taxes on the amount of the premium attributable to insurance coverage in excess of $50,000. However, the amount of additional income recognized by employees as a result of employer-provided GTL coverage in excess of $50,000 is typically very small (especially for younger employees). Therefore, the additional taxable income should not, by itself, be a disincentive for providing higher amounts of GTL coverage for your employees if you’re so inclined.

Short-term and long-term group disability insurance

A disability plan is designed to provide an employee with an income stream should he or she become disabled.

Short-term disability plans provide benefits (usually a fixed percentage of the employee’s salary) for a set number of days (typically 180). After that period of time, assuming the employee is still disabled, long-term disability insurance (if available) kicks in, and the employee receives benefits under that program until he or she is no longer disabled.

Typically, under a group plan, these benefits are fixed and not adjusted for inflation (in contrast, individual policies often offer an inflation rider). And if an employer pays all or a portion of the premium for disability coverage, then the portion of the benefits paid to employees that is attributable to the employer’s contribution is considered taxable income.

Cafeteria plans

Though not an insurance plan per se, a cafeteria plan can offer employees a way to pay their portion of insurance premiums with pretax dollars. If you implement a cafeteria plan as part of your business’s benefits program and the plan satisfies certain requirements, employees can elect to forgo a portion of their salary and have that money instead go to pay for their premium payments, without the amount being included in their taxable income.

Employees save money because their taxable income is reduced, yet benefits remain the same. The employer’s payroll taxes are reduced as well, because the employees are receiving lower salaries than they were before the cafeteria plan was implemented.

In order for a plan to qualify as a cafeteria plan under the Internal Revenue Code, it must satisfy certain requirements. In addition, an employer that has established a cafeteria plan is required to annually file a Form 5500 tax return for the plan.

Asset Protection in Estate Planning

You’re beginning to accumulate substantial wealth, but you worry about protecting it from future potential creditors. Whether your concern is for your personal assets or your business, various tools exist to keep your property safe from tax collectors, accident victims, health-care providers, credit card issuers, business creditors, and creditors of others.

To insulate your property from such claims, you’ll have to evaluate each tool in terms of your own situation. You may decide that insurance and a Declaration of Homestead may be sufficient protection for your home because your exposure to a claim is low. For high exposure, you may want to create a business entity or an offshore trust to shield your assets. Remember, no asset protection tool is guaranteed to work, and you may have to adjust your asset protection strategies as your situation or the laws change.

Liability insurance is your first and best line of defense

Liability insurance is at the top of any plan for asset protection. You should consider purchasing or increasing umbrella coverage on your homeowners policy. For business-related liability, purchase or increase your liability coverage under your business insurance policy. Generally, the cost of the premiums for this type of coverage is minimal compared to what you might be required to pay under a court judgment should you ever be sued.

A Declaration of Homestead protects the family residence

Your primary residence may be your most significant asset. State law determines the creditor and judgment protection afforded a residence by way of a Declaration of Homestead, which varies greatly from state to state. For example, a state may provide a complete exemption for a residence (i.e., its entire value), a limited exemption (e.g., up to $100,000), or an exemption under certain circumstances (e.g., a judgment for medical bills). A Declaration of Homestead is easy to file. You pay a small fee, fill out a simple form, and file it at the registry where your deed is recorded.

Dividing assets between spouses can limit exposure to potential liability

Perhaps you work in an occupation or business that exposes you to greater potential liability than your spouse’s job does. If so, it may be a good idea to divide assets between you so that you keep only the income and assets from your job, while your spouse takes sole ownership of your investments and other valuable assets. Generally, your creditors can reach only those assets that are in your name.

Business entities can provide two types of protection–shielding your personal assets from your business creditors and shielding business assets from your personal creditors

Consider using a corporation, limited partnership, or limited liability company (LLC) to operate the business. Such business entities shield the personal assets of the shareholders, limited partners, or LLC members from liabilities that arise from the business. The liability of these owners will be limited to the assets of the business.

Conversely, corporations, limited partnerships, and LLCs provide some protection from the personal creditors of a shareholder, limited partner, or member. In a corporation, a creditor of an individual owner is able to place a lien on, and eventually acquire, the shares of the debtor/shareholder, but would not have any rights greater than the rights conferred by the shares. In limited partnerships or LLCs, under most state laws, a creditor of a partner or member is entitled to obtain only a charging order with respect to the partner or member’s interest. The charging order gives the creditor the right to receive any distributions with respect to the interest. In all respects, the creditor is treated as a mere assignee and is not entitled to exercise any voting rights or other rights that the partner or member possessed.

Certain trusts can preserve trust assets from claims

People have used trusts to protect their assets for generations. The key to using a trust as an asset protection tool is that the trust must be irrevocable and become the owner of your property. Once given away, these assets are no longer yours and are not available to satisfy claims against you. To properly establish an asset protection trust, you must not keep any interest in the trust assets or control over the trust.

Trusts can also protect trust assets from potential creditors of the beneficiaries of the trust. The extent to which a beneficiary’s creditors can reach trust property depends on how much access the beneficiary has to the trust property. The more access the beneficiary has to the trust property, the more access the beneficiary’s creditors will have. Thus, the terms of the trust are critical.

There are many types of asset protection trusts, each having its own benefits and drawbacks. These trusts include:

  • Spendthrift trusts
  • Discretionary trusts
  • Support trusts
  • Blend trusts
  • Personal trusts
  • Self-settled trusts

Since certain claims can pierce domestic protective trusts (e.g., claims by a spouse or child for support and state or federal claims), you can bolster your protection by placing the trust in a foreign jurisdiction. Offshore or foreign trusts are established under, or made subject to, the laws of another country (e.g., the Bahamas, the Cayman Islands, Bermuda, Belize, Jersey, Liechtenstein, and the Cook Islands) that does not generally honor judgments made in the United States.

A word about fraudulent transfers

The court will ignore transfers to an asset protection trust if:

  • A creditor’s claim arose before you made the transfer
  • You made the transfer with the intent to defraud a creditor
  • You incurred debts without a reasonable expectation of paying them

Choosing a Business Entity

image Sole Proprietorship General Partnership Limited Partnership C Corporation
Limited Liability No No Yes 2 Yes
Pass-through Tax Treatment 3 Yes Generally yes Generally yes No
Difficult to Form/Maintain No Not very Not very Yes
Continuity of Life No No No Yes
Centralized Management Yes Generally no, but partners can elect a committee of managers Yes Yes
Interests Freely Sold/Transferred Yes 5 Generally no Generally no Yes
Available in All States Yes Yes Yes Yes
Minimum Number of Owners One Two Two One
image S Corporation Limited Liability Company (LLC) 1 Limited Liability Partnership (LLP) image
Limited Liability Yes Yes Yes image
Pass-through Tax Treatment 3 Generally yes Yes Yes image
Difficult to Form/Maintain Yes Somewhat Somewhat image
Continuity of Life Yes State law may limit LLC life to a set number of years 4 No image
Centralized Management Yes Generally yes, since members can elect a committee of managers The partnership agreement can centralize management image
Interests Freely Sold/Transferred Not to ineligible S shareholders Yes, but transferee often has more limited rights unless all other members approve of a sale/transfer No image
Available in All States Yes Yes No image
Minimum Number of Owners One Generally two Two image

1 Assumes that the LLC opts for tax treatment as a partnership.
2 Limited liability is available only to the limited partners.
3 In certain circumstances, partnerships and S corporations may be taxed at the entity level.
4 Generally, termination dates for LLCs provided for under state law may be overridden in the LLC agreement.
5 Sole proprietor sells business assets rather than an interest in a business entity.

Can I disinherit relatives I don’t like?

Disinheritance is intentionally depriving someone who would otherwise be a rightful heir from receiving your estate. Typically, your heirs include your spouse, your descendants, and possibly other relatives. Although you may feel you have a good reason for disinheritance, be aware that a majority of non-community-property states provide statutory protection for spouses. That is, most states provide that if a spouse is disinherited under the decedent’s will, he or she may elect to take under the state intestacy laws instead. These laws vary from state to state but generally entitle the spouse to receive from one-third to one-half of the decedent’s estate.

Although only one state provides similar protection for the children of a decedent, simply leaving a child out of the will may not succeed in disinheriting that child. In the absence of any mention in the will, the child can either argue that this was an oversight on the part of the parent or contest the will on other grounds. Moreover, courts are often reluctant, in the absence of evidence to the contrary, to rule against the disinherited child. Therefore, if a child is disinherited, it is best to mention him or her in the will, even if only for a token amount.

Can an UGMA/UTMA account reduce my child’s financial aid for college?

It can, but in the same way that any other asset held by your child can. An UGMA/UTMA account is a custodial account established at a financial institution for a minor child and managed by a parent or other designated custodian. It is established under either a state’s Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA).

Because an UGMA/UTMA account is held in your child’s name, it is considered your child’s asset. The federal government’s financial aid formula treats your child’s assets differently than your assets. Under the current federal formula, children must contribute 20 percent of their assets to college costs each year before becoming eligible for financial aid, while parents must contribute only 5.6 percent of their assets.

For example, $10,000 in your child’s UGMA/UTMA account would result in a $2,000 required contribution from your child. The same $10,000 in your bank account would result in a $560 required contribution from you.

As a result of this formula, any asset that your child holds, including an UGMA/UTMA account, will always translate into a higher monetary contribution to college costs than if the same asset were in your hands. It follows that the more money your family is required to pay up front for college costs, the less financial aid your child will be eligible for. But even though your child will be entitled to less financial aid, that may not be such a bad thing. Remember, the main component of the average financial aid package consists of loans that must be paid back.