END OF THE YEAR TAX THOUGHTS: 

As the end of the year approaches, your tax liability is beginning to solidify. As the ball drops in Times Square next week, most of your ability to plan for your 2014 bill goes out with the old year.

• Consider your income and expenses for 2014 and 2015.
  • Would you be better to defer some income or expenses into 2015?
  • Would you be better to accelerate some income or expenses into 2014?
  • Normally, it is better to defer income and accelerate expenses. However, each situation is different.
  • Businesses have greater ability to do this than most individuals.

• Consider making a contribution to your retirement plan.
  • The employee contribution to a 401k must be made by December 31^st.
  • The employer contribution may be made until April 15^th of the following year.
  • If you have an IRA, you have until April 15^th to make a contribution for the prior year.

• If you have a Flexible Spending Account for child care, medical, or other designated expenses, you must use it by the end of the plan year.

• Of course, it is essential to track your expenses, both personal and business, for tax purposes and accounting purposes.
  • The burden is on you to prove that you have a tax-deductible expense.

• If you’ve haven’t kept good records this year, make a New Year’s resolution to be better at record keeping in 2015.

• Estimated payments must be made quarterly for individuals with income exceeding their withholdings.
  • The last quarterly estimated payment is due January 15^th.

As today is Christmas Eve, Merry Christmas to all…and to all a good night! Ho, Ho, Ho!

Avoid Unnecessary Family Disputes with a Letter of Instruction

By: Sanford M. Fisch, CEO & Co-Founder, American Academy of Estate Planning Attorneys, Co-Author of The E-Myth Attorney Posted in Client Services, Estate Planning, General

The time immediately after the death of a loved one can be stressful and overwhelming. Family members are grieving, and on top of this, they must handle a variety of organizational and legal tasks. In many cases, there can also be disputes concerning who gets certain possessions, which can make the whole situation even messier and create some ugly conflicts. Fortunately, you can minimize many of these complications by addressing these matters ahead of time and creating a letter of instruction, which is generally broken down into three parts.

1) Funeral Arrangements

This typically begins with making a list of all the people, organizations, agencies and professionals who should be notified upon your death. You should include contact information like phone numbers, email and mailing addresses, along with any other pertinent details. If you are an organ or tissue donor, you will want to also include relevant information.

You will need to leave everything your loved ones should know about your burial method, including whether you will be buried in a plot or cremated. In the event that you have paid for funeral arrangements in advance, you should include this information as well.

2) Financial and Personal Affairs

When it comes to finances, you can start by listing contact information for your attorney, stockbroker, employer, insurance agent, financial planner, etc. You should make it as easy as possible to reach anyone involved with your financial matters. It’s also important to make note of all your financial accounts such as checking, savings, retirement funds and credit cards. If you want to contribute to any charitable organizations, you will also need to include their contact details.

For personal affairs, you should state the location of documents like your birth certificate, marriage certificate, divorce papers, diplomas, etc. This should streamline things and make it much easier for your loved ones to get your documents organized.

Because there is a lot of sensitive information concerning financial and personal affairs, you need to ensure that all records are kept in a safe place like a fireproof lock box in your home. The only people who should have access to the lock box are you and your executor.

3) Distribution of Personal Effects

Finally, it’s smart to go in depth about how your personal possessions should be distributed among family and friends. Basically, this will elaborate upon your will and take it one step further so there is no confusion or disputes. This is where you state who gets smaller items like your electronics, books, dishes and so on.

While there is some debate as to whether you should discuss whom you plan to give what ahead of time, it’s usually not a bad idea to sit down and go over things while you can still get everyone’s input. If a certain family member has no interest in a particular item, then you could give it to a different family member who could make better use of it. Also, don’t forget to make arrangements for who will care for your pets.

FAQ's Regarding Asset Protection for Physicians and Dentists

ASSET PROTECTION FOR PHYSICIANS AND DENTISTS Introduction: You have worked hard for what you own, and you want to keep it. An asset protection program simply employs legal techniques that deter others from taking, or in some cases, attempting to take your assets. The complexity of any asset protection program depends largely on what types of assets you have, and what type of work you do. Even something as ordinary as a car accident can give rise to a liability. If the liability exceeds your auto insurance policy limits, your assets will be at risk, unless you plan ahead. 1. What is the best business form for physicians to use to operate a medical practice? Typically, physicians structure their medical practices as an S corporation or in some cases a C corporation. If the medical practice owns the building and/or expensive equipment, a separate LLC should be created to own the land and/or the equipment (see the LLC Q & A below). 2. I have heard a lot about "living trusts." Would a living trust provide protection for my assets if I were sued? No. While a properly structured living trust can provide privacy, and avoid the probate process, it provides practically no protection from your creditors. The trust's assets will generally be available to your creditors. 3. How can a limited liability company provide me with asset protection? An LLC provides liability protection from two different directions. First, an LLC protects its members from any liability generated by property owned by the LLC. For example, if an LLC is formed and a rental property (such as the physician's office that is leased back to his/her practice) is contributed to the LLC and later someone falls down the steps of the office and sues the owner, it is the LLC that gets sued. Any liability belongs to the LLC. Only the assets owned by the LLC, in this case the building, are available to the plaintiff if the lawsuit is successful. The other assets owned by the members (probably one or more of the physicians) of the LLC are not available to the plaintiff. Second, the assets owned by the LLC are protected from any liability of any member. For example, assume that, as in the previous example, several physicians have formed an LLC to own the building that the practice is in. Now, if one of the physicians is sued for malpractice and the suit is successful, the office building is protected. Although the creditor (in this case the patient) can sue the member (i.e. physician), the creditor cannot either take the physician's interest in the LLC, or force him/her to sell it. The interests in the LLC and the office building are protected.  4. Is it really true that the creditor cannot take the interest in the LLC? A creditor of a member of an LLC cannot take either the interest in the LLC or assets from the LLC. A creditor is only entitled to get what is known as a charging order. This means that if any distributions are made by the LLC to the member, the creditor is entitled to those distributions until the judgment is paid in full. The charging order does not entitle the creditor to become a member in the LLC. 5. Does a small business (subchapter S) corporation give me the same protection as an LLC? Yes and No. Corporations provide limited liability to the officers, directors and stockholders of the company (in the case of a medical practice, the physicians) similar to the protection provided by an LLC for its members. This means that in a properly organized, maintained and capitalized corporation, the officers, directors and stockholders have no personal liability for any debts of the corporation. If your medical practice, organized as a corporation, loses a lawsuit, and the corporation does not have sufficient assets to satisfy a liability, a creditor cannot seek the personal assets of the physician/owners. However, if the corporation loses a lawsuit, all of the corporate assets are available to satisfy the judgment. As a general rule, you do not want the corporation to own any valuable assets (real estate, equipment or surplus cash). This just makes them available to a creditor or future creditor of the corporation. However, the stock of a corporation is not protected from a shareholder's other liabilities. Think of it like this: If you own stock in IBM and you are sued and a judgment is obtained against you, the creditor can take your stock. The same is true for Medical Practice, Inc. (of which you own some or all of the stock). This is why it is usually better to be organized as an LLC rather than a corporation. Remember, with an LLC, the creditor cannot take the member's interest in the LLC. 6. I have heard that for tax purposes it is better to be a subchapter S corporation than an LLC. Is this true? This may be true. However, you can be organized as an LLC for asset protection purposes and then elect that the LLC to be taxed as a subchapter S corporation. This is like having your cake and eating it too. 7. If I use the right business form for my medical practice, and have malpractice insurance, should I consider having an asset protection program too? Yes. A claim can always be made that exceeds your liability coverage. Also, most insurance plans do not cover you for punitive damages or intentional wrongdoing. Proper planning would include both liability coverage and asset protection techniques. 8. What asset protection tools are customarily used by physicians? LLCs are the most common asset protection tools used by physicians, but each case should be considered separately. 9. What property can an LLC own? An LLC can own real estate, an office building in the case of a medical practice, and rent it back to the medical practice, shielding the building from any liability that arises outside of the LLC such as a malpractice claim. An LLC can also own investment accounts, and shield those accounts from individual creditors. In many cases multiple LLCs provide the best asset protection against lawsuits. 10. Can a family limited liability company be an effective part of a physician's asset protection program? A family LLC is just an LLC whose members are all in the same family. This can provide asset protection for the physician and his/her family and also provide some estate planning benefits. 11. Can you describe to me what a typical asset protection program would be for a physician who is in a practice with several other doctors, has about $1 million in personal assets in addition to that, plus a family residence valued at over $500,000? To properly protect the assets of the practice, the first step is to make sure the company is structured properly, whether that is a corporation or LLC. The type of structure should be discussed with an attorney. If the company owns the medical practice office building, and expensive equipment, it should be put in its own, or even separate, LLCs. The next step is to shield the personal assets of individual physicians in the practice. In most cases this involves the formation of one or more LLCs to hold the assets, or the formation of an irrevocable trust (it depends on the owner's wishes). If the personal residence is owned as Tenancy by the Entirety, then typically nothing else needs to be done. IRA’s and 401k’s are afforded state and federal statutory protection and are generally safe from creditor attachment. 12. What should a physician be most careful about when putting together an asset protection program? It is important to realize that not every physician will use the same asset protection structure, and designing a plan to fit your needs should take place under the guidance of an attorney who concentrates his practice in these matters. Finally, and most importantly, your asset protection plan must be created before any claim attacking these assets, or threatened litigation. By: Brent Dille, Esq. Bean, Gentry, Wheeler & Peternell, PLLC.

WHAT IS THE USE OF A PLLC?

By Brent Dille, Esq.

Bean, Gentry, Wheeler & Peternell, PLLC.

What use does it do to run a practice as a corporation or Limited Liability Company (LLC)? After all, it “doesn’t protect a doctor.”

It’s true. A professional can’t use a corporation or an LLC to protect themselves from their own malpractice. However, that doesn’t mean that a practice should ever be run as a sole proprietorship or partnership. Absolutely not!

A doctor will have to establish either a professional corporation or a professional LLC (PLLC). The only difference is that in a “regular” corporation or LLC the “professional” isn’t protected in the practice of their profession. Each state statute has a long list of professionals that have to establish a professional corporation or a PLLC.

I can’t really think of a situation where a doctor wouldn’t use a professional corporation or a PLLC. Generally, a PLLC will give you a lot more tax flexibility and asset protection than a professional corporation, so for the rest of the article I will assume you will use a PLLC.

Using a PLLC
The PLLC will give you all of the asset protection any other LLC would offer, but it won’t insulate you from the professional malpractice issues. The fact is that most of the lawsuits and liability issues will involve issues other than professional malpractice. An employee will sue over an HR problem. A patient will slip and fall in the parking lot. Your “partner” or bookkeeper will embezzle money. The list can go on forever.

Establishing a PLLC is the same procedure as establishing any other LLC, except you basically check the “professional” box on the state filing forms. The operating agreement will read a little different.

If an issue isn’t addressed in a PLLC operating agreement, the issue will “default” to whatever the state statute says about the issue. I would rather write my own rule book than have the state default position apply. What most people don’t understand about an operating agreement is that you get to write it.

Your PLLC operating agreement shouldn’t just be a form document. It is the rule book you have to live by. It, to a large degree, determines what asset protection you get, what charging order protection you get, and how much money you’ll take home. The funny thing is, the law says if you write it down and it doesn’t violate the law or public policy, then, basically, the courts will uphold what you write down.

Certainly, you don’t want to take a law class on PLLCs, but you need to know the basics of what can and can’t be done, how the asset protection works, how charging order protection works, and how the PLLC can cut your tax bill.

You need to be the director
The analogy in medicine comes from my a client’s C6-C7 fusion last week. The neurosurgeon said he would put a synthetic spacer between the vertebrae. When he got in to the operation, he figured out that the synthetic spacer was too big, and he switched to cadaver bone that he could easily cut down to size. He could have shoved the too big spacer in and called it good, but he took the extra time to fix the problem.

The advantage you have with your PLLC is you’re not “asleep” during the “surgery,” and you can direct your attorney and CPA. If you are awake and can tell the attorney what you want in the custom fit, you are a lot more likely to get good results.

In your operating agreement, you can write that the shares (membership interests) can’t be transferred or assigned. That means that if you are sued for malpractice and lose, your creditors can’t come and get the assets of the PLLC as easily. Courts will generally uphold what you have written into your PLLC operating agreement. In fact, with good charging order protection, the PLLC should protect all of the assets of your practice if there is a malpractice suit, divorce, auto accident on the street or you lose your shirt in a bad real estate investment.
  

A Tale of Two Spouses Inheriting IRAs

Ann and Zelda are both 72 years young and now widows after their 74-year-old spouses died this year. Both inherited an IRA from their spouse in the amount of $100,000. Ann’s advisor had her move the funds to an inherited IRA. The account is titled Alan, deceased, IRA fbo Ann. Zelda’s advisor had her move the funds into an IRA in Zelda’s name. The account is titled Zelda’s IRA.

There age and circumstances are where the similarities end. From here their stories are very different.

Ann’s Inherited IRA
As a beneficiary, Ann must calculate her required minimum distributions (RMDs) based on her age. Her factor comes from the IRS Single Life Table. When she takes her first RMD in 2015 at the age of 73, her life expectancy factor is 14.8 years. Assuming no earnings on her IRA, she divides the $100,000 by 14.8 and learns she has to take a distribution of $6,757 in 2015.

Ann named her children as the beneficiaries of her inherited IRA. Brad is 45 and Cathy is 40. At Ann’s death, both Brad and Cathy will continue using Ann’s age to calculate their RMDs. Assuming Ann dies in 2015, Brad and Cathy will have to use a factor of 13.8 in 2016 (based on Ann’s age in 2015 and reduced by one).

Zelda’s IRA
As an account owner, Zelda will calculate her RMDs based on her age and a factor from the IRS Uniform Lifetime Table. For a 73 year old, the life expectancy factor is 24.7 years. Dividing her balance of $100,000 by 24.7 means Zelda has an RMD of $4,049.

Zelda named her children, Xavier and Yvette, as the beneficiaries of her IRA. They are 45 and 40. At Zelda’s death in 2015, they will both get to use their own ages to calculate their RMDs. Xavier will have a single life expectancy factor of 37.9 (age 46) and Yvette (age 41) will have a factor of 42.7 (based on their ages in 2016).

If only RMDs are taken from Zelda’s account, her account will last much longer than Ann’s account. Zelda’s RMD is smaller and the RMDs to her children, when they inherit, will be smaller. This will make the account last longer and will reduce the amount of income tax that will have to be paid each year on the RMDs.

The difference is $2,708 in the first year ($6,757 - $4,049) . The difference in the life expectancy factors for the children is almost 30 years of distributions. Zelda’s children will have 30 years more of distributions than Ann’s children. It’s the difference of A to Z.

- By Beverly DeVeny and Jared Trexler, from the SLOTT REPORT

Health Care Powers of Attorney

By: Stephen C. Hartnett, J.D., LL.M., Associate Director of Education, American Academy of Estate Planning Attorneys Posted in Estate Planning, Legal Education

Last week, I blogged about the importance of powers of attorney, in general. I focused on financial powers of attorney and their potential abuse.

This week, I’ll focus on health care powers of attorney. This is one of the typical documents in a basic estate plan. However, people often give little attention to thinking about this POA. People do not like thinking of their own mortality or their own illness. But, unfortunately, it involves issues we all must face eventually. A health care power of attorney may vary from state to state. In some states it includes a living will or health care directive, in other states that may be a separate document. The person who is appointed as the agent is the one who is given the authority to consent (or withhold consent) for medical treatments.

Of course, it is important for a client to give thought to all of the people they might appoint in fiduciary roles, like Trustee, financial POA agent, and health care POA agent. But, perhaps the health care agent is most important of all. This person literally may have life and death decisions in their hands. That is why it is so important to choose the right person for that role. Above all, you want someone with good judgment who will comply with the client’s wishes, even if those wishes may not be identical to the decisions the agent might make for themselves.

Along this line, it is important to remember that the client should do a new health care POA if their relationship with the agent changes. For example, if someone names their spouse as their agent and later gets divorced, state law may or may not revoke the designation, depending upon the state. It is best to do a new health care POA after divorce. Otherwise, the client may have the unfortunate surprise of having their ex-spouse as their health care agent.

The health care POA is an important document. It’s important to stress the importance of choosing the right agent, and having the client alert you of any changes in circumstances.

Stephen C. Hartnett, J.D., LL.M.Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128
www.aaepa.com

Can We Have a Fact-Based Conversation About End-of-Life Planning?

By Brendan Nyhan 

Dealing with health care needs at the end of life is a difficult but unavoidable issue in an aging society with rising health care costs like ours. After a failed attempt to deal with the issue as part of the Affordable Care Act, it may again be returning to the policy agenda. Can we avoid another catastrophic bout of misinformation?

The debate over end-of-life planning has largely been dormant since 2009, when the former Alaska governor Sarah Palin’s false claim that President Obama’s health care plan included a “death panel” spelled the end of a proposal for Medicare to reimburse doctors for voluntary end-of-life consultations with patients. The Obama administration briefly issued and then withdrew a regulation that would have added end-of-life consultation coverage to Medicare in early 2011, but is likely to revisit the issue after receiving a recommendation from an influential American Medical Association panel.

Unfortunately, the lesson from the “death panel” controversy is that this issue is vulnerable to demagoguery if it becomes linked to people’s partisanship or feelings about controversial political figures and issues. For example, after Ms. Palin’s comments became widely known, and other prominent Republicans began to echo her claims, the myth came to be deeply held among the public. People’s negative predispositions toward Mr. Obama or his plan overwhelmed their critical faculties.

A Myth That Refuses to Die

Although the claim has been repeatedly proved false, polls have consistently shown that more than a third of Americans believe the Affordable Care Act created a government panel to make decisions about end-of-life care for people on Medicare.

%

40

30

20

10

0

34%

Jul '10

Dec '10

Jun '11

Nov '11

Sep '12

Mar '13

Mar '14

Source: Kaiser Family Foundation polls

In an analysis of 2009 polling data, for instance, I found that Republicans who thought they were well informed about Mr. Obama’s plan were more likely to be misinformed than those who said they didn’t know very much about it — the same pattern observed in 1993 for the myth that President Clinton’s health care plan would take away your choice of doctor.

The same biased reasoning processes make it difficult to undo these mistaken beliefs once they are entrenched. In a 2011 experiment, Jason Reifler, Peter Ubel and I found that corrective information about the “death panel” claim successfully reduced belief in the myth among people with neutral or warm feelings toward Ms. Palin who were less knowledgeable about politics.

Sarah Palin speaking in 2012. Her assertion that President Obama’s health care plan included a “death panel” helped derail a proposal for Medicare to reimburse doctors for voluntary end-of-life consultations with patients. CreditStephen Crowley/The New York Times

However, we found that misperceptions did not decrease significantly among people with mixed or positive feelings toward Ms. Palin who were more knowledgeable about politics — the individuals who are best equipped cognitively to resist unwelcome information. In fact, exposure to corrective information attributed to “nonpartisan health care experts” actually increased belief in the myth among respondents who feel very warmly toward her — a finding that is consistent with the “backfire effect” Mr. Reifler and I found in prior research.

The “death panel” belief has persisted in the years since Ms. Palin’s comments. Though the wording of the question is imperfect, polling datafrom the Kaiser Family Foundation shows that approximately one-third of Americans still believe in the myth — a proportion that has remained relatively stable since 2010. (Similarly, a 2012 academic survey using different wording found that one in two Americans endorsed the myth and only about one in six knew with high certainly that it was false.) This persistence may be the reason that the Obama administration has avoided the issue until now.

Will things turn out differently this time? Support for covering voluntary end-of-life planning is actually remarkably strong across the political spectrum. In addition to the American Medical Association panel’s recommendation, both private insurers and states such as Colorado and Oregon are now offering coverage for these consultations. Even critics of President Obama’s health care plan such as National Review’s Wesley J. Smith and Senator Johnny Isakson, Republican of Georgia, are in favor of advance planning.

Given the strength of this bipartisan consensus, adding coverage for end-of-life planning might seem unlikely to attract significant opposition or revive previous misconceptions. But a risk-averse administration may still elect to dodge the issue given Mr. Obama’s weak approval ratings and precarious political standing. A lesson of 2009, after all, is that it only takes one ambitious critic to spark a conflagration.