Paul R. Tierney Law

Knowing the Value of Your Business

With the day-to-day demands of running their businesses, most owners put off getting
a valuation until a sale is imminent. But some are starting to treat the act of
valuing their business as an integral part of running it.

Has anyone asked you what your business is worth? Have you pondered
that question yourself? As a business owner, you should not only know what your
business is worth to you, but also what your business is worth to a potential
buyer. In other words, you should know the value of your greatest asset and
boldest venture, both personally and on the open market. There may come a day
when you need to sell or pass down the business, and knowing the numbers today will
help you make better business decisions in the future. 

Valuations are difficult for business owners because there are so many
variables to the process. That said, the ability of a business owner to fully
understand their business from the outside – as the owner of an asset or as a
prospector on the market – rather than from within the immediacy of running the
business, is fundamentally important to managing the business well today and in
the future. According to The New York Times, business owners are increasingly coming to terms with these issues. Their recent article, “Do You Know What Your Business Is Worth? You
Should,” suggests that while most business owners put off getting a valuation
until a sale is imminent, many are starting to treat the act of valuing their business as an integral part of running it. For example, valuations -- whether performed by your accountant on an annual
basis or with the assistance of sophisticated software tools -- can help
business owners pinpoint management practices that may be undermining business
value. Isolating those variables, and acting on them, can drive your valuation
higher.

Being that it is “tax time,” take advantage of the opportunity to crunch
numbers with your tax advisor and start getting a handle on the true value of your
business. You never know what tomorrow will bring!

Reference: The New York Times (January 30, 2013) “Do You Know What Your Business Is Worth? You Should”

Tax Breaks Available for Supporting Elderly Parents

You might be able to claim your parent as a dependent, take a dependency care tax
credit, write off your mom or dad’s medical expenses or get some combination of
these tax breaks.

It’s that time again – Uncle Sam is knocking on your door and ready to
collect taxes. If you have been caring for an elderly parent, you may find that
Uncle Sam can actually help with some of those care costs through favorable tax
treatment. How, you ask? Depending upon your circumstances, you may be able to
claim your parent as a dependent, take a dependency care tax credit, deduct a
portion of their medical expenses or get some combination of these tax breaks.

Forbes offers guidance on whether you might qualify in a recent article “How To Claim Tax Breaks For Supporting Your Parents." If you think you may qualify, consult
an accountant or tax professional to maximize your tax savings.

Sadly, caregiving frequently also means managing end-of-life care ... and the attendant expenses. While it may be difficult to focus on financial matters during these stressful times, tax
breaks can help extend available resources. Of course, the first step is to
determine which expenses qualify and to what extent. Expenses that frequently
apply to people with advanced illness include health insurance premiums not
paid through work, deductibles, co-pays, medication, alternative care, medical
supplies such as bandages, dental care, Medicare B premiums, lodging while
traveling for care, and transportation costs. The IRS has a very detailed list
of what is and isn’t deductible in Publication 502. You can refer to this publication for
details, as well as to another excellent Forbes article, “Save Money On Taxes At The End Of Life -- How And Why It Matters.”

Taxes can be tricky, so make sure you ask your accountant for tax assistance if you think you may have qualifying expenses. The tax savings will be well worth your time.

References: Forbes (January 29, 2013) “How To Claim Tax Breaks For Supporting Your Parents”

Forbes (February 4, 2013) “Save Money On Taxes At The End Of Life -- How And
Why It Matters”

Disinheritance Challenges

As cruel as it sounds to disinherit a child, people have their reasons. Sometimes
there is no relationship. Other parents might feel the adult is well-off and
does not need an inheritance.

Estate planning largely involves the process of distributing assets to
your heirs.  But what if you decide not to distribute assets to certain
heirs? Be forewarned:  disinheritance, regardless of your
reasons, can lead to hurt feelings and even quarrelsome legal battles.

A recent article from Reuters, “Disinheriting someone is not easy,” illustrates some of the many reasons people choose not to leave assets to certain heirs. The reasons are as varied as the
assets involved, and may include anything from hard feelings within a family to
a desire to "equalize" wealth among adult children with differing degrees of financial success. 

If you choose to disinherit someone, realize that some classes of heirs
have legal rights that cannot be violated, such as spouses and minor children. Reuters explains it well: Just as you cannot tell a divorce judge that you refuse to split assets or pay
alimony, you cannot leave your surviving spouse's house and all of the money to
a child or some other family member. Using language to disavow and disinherit
your spouse will not help ...  the spouse can waive the will and receive whatever he or she is entitled to under state law. Minor children are also protected by the courts. Whatever financial
support the minor is entitled to receive, he or she will get, assuming the money is available.

Regardless of the reason(s) you may have to disinherit someone, be sure to discuss them with your
estate planning attorney. Properly drafted legal documents can help ensure your
wishes are followed, as well as prevent unintended consequences such as hurt feelings or court battles.

Remember, disinheritance is a decision not to be taken lightly. Even if you do it for the
right reasons, it can turn ugly if not done properly.

Reference: Reuters (January 31, 2013) “Disinheriting someone is not easy”

Passing On the Family Home to the Next Generation

There are nearly half a dozen ways to give a home to your child. And a couple are
tax-free.

You’re probably well aware that for many families, the family home is
the single most important estate asset. Can you imagine your kids having to
part with the home they grew up in? The thought evokes many emotions when
making end-of-life plans, and passing along the family home to the next
generation is certainly an option. Family homes may also be the most valuable estate assets, and estate taxes may complicate plans for passing them along. If this is your goal, however,
don't give up. There are tax-savvy strategies to make it happen, but they
require you to plan ahead.

For a good overview of this topic, turn to a recent article in SmartMoney, “Passing Your Home to Heirs.” The article is pretty easy reading on a fairly complex subject, and includes a run-down on some effective strategies: from the simple bequest in your will, to variously structured sales, to more
sophisticated trust-based strategies.

Which planning strategy will work best for you depends upon your unique
circumstances. This definitely is not a do-it-yourself undertaking. There are
many factors to be considered and legal land mines to avoid.

If passing a family home to your heirs is one of your goals, be sure to
discuss this with your estate planning attorney, who can guide you to implement
a strategy that will work for you. 

Reference: SmartMoney (February 5, 2013) “Passing Your Home to Heirs”

When an Inheritance is Too Much of a Good Thing

Under the new rules, a taxpayer may shield up to $5.25 million from estate taxes ($10.5 million for couples) … Now that the uncertainty has been lifted, some ultrawealthy families are wondering whether they want to leave heirs that much tax-free money after all.

Can you really ever have too much of a good thing? When it comes to the estate and gift tax exemption amount, many heirs would be thrilled when $5.25 million is up for grabs. How could that be too much of a good thing? But parents have a different answer; some believe that $5.25
million is just way too much of a good thing to leave as inheritance to their
children.

None other than the venerable Wall Street Journal explored this subject in
an article appropriately titled “Can You Trust Your Kid With $5.25 Million?”

As you likely are well aware by now, the recently enacted American
Taxpayer Relief Act of 2012 (ATRA) sets the unified estate and gift tax
exemption at $5.25 million per taxpayer (with a nearly “automatic” $10.5
million per married couple). Using certain estate planning “tools” (e.g., to
make “discounted” wealth transfers) you can do a great deal better than that,
too.

So, what do you think about leaving a large inheritance to your
progeny? By default in most jurisdictions, your children would inherit their
inheritance outright without any restrictions, guidance or protection at age 18
(or immediately if already older than age 18). If that is not enough motivation
to make proper estate plans now, then little may do the trick.

Proper estate planning means providing the legal means to both protect
the inheritance “for” and “from” your descendants. Have you ever noticed that
some children “grow up” and others just “get older”? Accordingly, your planning
should reflect the unique needs of each of your children. While you are at it,
perhaps you might want to make provisions directly for your grandchildren. Many
grandparents say had they known how much fun grandchildren are, they would have
had them first!

When you make financial arrangements for your heirs, be prudent in your
decision so that the inheritance is a blessing and not a curse. And don’t
forget to leave an inheritance to your favorite charity or charities, as well.

Reference: The Wall Street Journal (January 18, 2013) “Can You Trust Your Kid With $5.25 Million?”

Can You Undo a Large Gift Made in 2012?

Donors who acted solely out of the expectation that the generous exemptions would disappear may be experiencing a healthy dose of donor’s remorse. For them, the question arises, “Can I take it
back?”

With all the uncertainty over changes in the gift tax at the end of 2012, many donors rushed to make
donations before the New Year. Since the gift tax laws remain unchanged for
2013, some donors are having remorse over those large gifts. So, can they take
back their donations?

If you are suffering from donor’s remorse, then you might want to read a recent article on Financial Advisor - Private Wealth titled “After Budget Deal: Donor’s Remorse.”

The article addresses any interest you may have in undoing a large gift. In reality, whether you can undo your gift will hinge on precisely which strategies you employed and the
language used. Be sure to consult with your professional advisors on this.

That noted, however, 2012 was still a good year to give and most likely will do wonders for your overall estate plan. Don’t be too hard on yourself. After all, unless you had a working
crystal ball, who knew how the fiscal cliff deal would go down? Just think if
the transfer tax laws had reverted to their default settings. Your savvy
gifting would have been prescient, to say the least.

Reference: Financial Advisor – Private Wealth (January 11, 2013) “After Budget Deal: Donor’s Remorse”

The Latest Edition of DSM May Lead to Rise in Cognitive Diagnosis

The Diagnostic and Statistical Manual of Mental Disorders, published and periodically updated by the American Psychiatric Association, is one of those documents few laypeople ever read, but
many of us are affected by.

When you have an elderly loved one, it’s wise to keep abreast on the ever-evolving medical world and all the new findings for mental health as a person ages. One committee with which you
should become most familiar is the American Psychiatric Association and their
upcoming best-seller, the DSM5. The book may usher in new ways of approaching
elders and depression, and some are apprehensive about the book’s impact.

The concern over the DSM5 has come to a slow boil. The conversation about DSM5 has begun seeping out from the academic literature and into the public square with articles like a recent
piece in The New York Times titled “Time to Recognize Mild Cognitive Disorder?”

The DSM5 will be the sequel to the Diagnostic and Statistical Manual of Mental Disorder IV (DSM-IV), the utterly necessary reference book and dust-gatherer of psychologists, doctors,
insurance companies, bureaucrats, and lawyers alike. DSM-IV chronicles known
and diagnosable psychological disorders.

For seniors, the new disorder making the rounds is “mild cognitive disorder.” This diagnosis is an attempt to bring to psychiatry the same awareness to levels of cognitive senility that
medical doctors know all too well and yet still understand too little. If the
DSM5 is published as is, and becomes the go-to reference, then we’re likely to
see many more elderly diagnosed into categories that have only just now been
created.

It’s useful to understand the basis for any diagnosis made by doctors when it comes to our elderly loved ones or even ourselves as we age. Don’t forget – proper planning now can give you peace of mind for any future diagnosis concerning your healthcare needs.

Reference: The New York Times – The New Old Age Blog (January 25, 2013) “Time to Recognize Mild Cognitive Disorder?”

Fiscal Cliff Deal Leaves Some Estate Planning Tools on the Table

The good news is that the New Year’s day passage of the American Taxpayer Relief Tax Act Of 2012 or ATRA ended 12 years of uncertainty about how much could pass tax free; what the tax will be on
transfers above that amount; and even whether there would be an estate tax at all.

What’s still in play are the cute tax tricks that some of the best minds in the field have devised to leverage or pack more into the tax-free amount.

Americans can rest easy now that the fiscal cliff debacle is over.  But
some professionals have started to realize that there were some very real
questions left on the fiscal cliff table as it relates to key “tax tricks.”

While significant estate planning laws are settled, there remain more than a few important estate
planning “tools” left hanging in the air. These tools likely will be low-hanging fruit in future discussions.

The American Taxpayer Relief Tax Act Of 2012 (ATRA) finally ended some 12 years of estate planning uncertainty (or so we can only hope). The certainty includes such matters as various tax
rates and the exemptions amounts for the estate tax, gift tax, and
generation-skipping tax. But ATRA didn’t settle many technical questions raised
in the past few years, both on and off the campaign trail.

So, what issues and devices should we watch? A recent Forbes article titled “Congress May Tighten The Belt On Cute Tax Tricks” lists some sore subjects and possible new areas of taxation.
These include:

• Grantor Trusts: might just get added back into the Grantor’s estate.
•  Dynasty Trusts: might just limit the extent of your dynasty.
• GRATs: “Grantor Retained Annuity Trusts” (GRATs) might become much more demanding and
  risky.
• Family Limited Partnerships: might become much less valuable as your ability to
  take discounts is curtailed.

The original article is worth your time, especially if you are concerned that future technical rules may
swoop in and sully some well-designed estate planning. However, for those conversant with this subject, they will recognize that this talk is nothing new and these estate planning devices have been repeatedly targeted in the past.

Be sure to consult qualified legal counsel if you have questions about how future changes in the law may impact your estate planning.

Reference: Forbes (January 16, 2013) “Congress May Tighten The Belt On Cute Tax
Tricks”

Keep a Sharp Eye on Estate Taxes at the State Level

…State estate and inheritance taxes have been in constant flux over the last decade. And it’s not just the list of states that has been changing, but in some states, the level at which the tax
kicks in has been changing (both up and down). So it’s important to stay on top
of this to avoid a surprise tax bill.

Now that 2013 is underway, there are finally some solid numbers from which to base your tax planning – at least from a federal tax standpoint, right? But what about those state taxes? If you
reside in one of more than 20 jurisdictions that assess an independent inheritance or estate tax, it’s time to start paying attention to your state’s tax changes.

Forbes recently provided some helpful information in an article bluntly titled “Where Not To Die in 2013.”

There always are myriad state level taxes to consider. However, here’s the rub: several states may overlap one tax-wise, not to mention federal level taxes. For example, 22 jurisdictions
(including the District of Columbia) exact some form of taxation. Problem: none
of the taxes for these jurisdictions were written with the current federal
taxation limits in mind, because those have only been on the books since the
beginning of the year.

So what states are the worst for 2013? It’s worth clicking over to the original article and map on Forbes.

Reference: Forbes (January 28, 2013) “Where Not To Die in 2013”

Location Inflation: Where You Live Determines Your Health Care Costs

Inpatient hospital prices in Los Angeles average 149% of Medicare rates; in Richmond, Va., those rates are 192% of Medicare's prices, according to CSHSC.

Ever noticed how prices of certain items can be more or less depending on where you buy them? Take for instance a simple purchase such as coffee. A cup of coffee will cost you just a
bit more or a bit less depending on where you get it. Is the cost dependent on
how good the coffee tastes? Not really -- when it comes to geography and what
you pay for something, remember the phrase “location, location, location.” And
the effect of location on medical care and old-age expenses can be significant.

Planning for your old-age, or for the needs of an elderly loved one, is partly a test of geography in the
health care economy. In fact, it’s more important to understand this fact of
life now more than ever.

For some fresh analysis of this familiar topic, you might want to take a look at a recent Morningstar article titled “Health-Care Costs: Why Your Location Really Matters.” The article speaks
to the “numbers” and to international comparisons. Regardless, the key for you
to note is not the economics or even the politics behind this issue, but rather
the very real circumstances you and your loved ones may be facing now or in the
future.

So, how will you plan for the geography of medical expenses? Be sure to consult appropriate counsel when planning for the future health care costs you or a loved one may encounter.

Reference: Morningstar (January 11, 2013) “Health-Care Costs: Why Your Location Really
Matters”