Top Five Reasons to Review your Estate Plan

October 27, 2011 by · Leave a Comment 

By Adil Daudi, Esq.

A very common question asked by many is, “I have an Estate Plan, but how often do I need to make changes to it, or review it?” I have witnessed clients having their estate plan completed over fifteen years ago and have not reviewed it once. This is definitely not the recommended approach.

Drafting an Estate Plan is essential for all families, whether you are single, married, or married with kids; but, reviewing those documents on a consistent basis is just as important. If you established a plan ten years ago when you were married, you could find yourself now having three kids with the same plan, but the consequences could be significant; because at the time of the drafting you didn’t include any kids (since you didn’t have any), but now by not having done a review, your plan still does not make any mention of your kids – not what you initially planned out.

That is why it is always important to have a sit-down and take the time to go over your Estate Plan and make sure it still fits your primary objective. The following is a list of tips that will help you decide whether it is time for you to review your Estate Plan.

No Kids/Young Kids – A review is a must if at the time you drafted your Estate Plan you had no kids, or your kids were relatively young (under the age of 18).

New Grandkids – If at the time of your Estate Plan you had no grandkids, but if you find yourself with grandkids, and would like to leave something for them, you should definitely have a review of your trust.

Difference in Wealth – Significant changes in your personal wealth also plays a role in your overall Estate Plan, as there could be new strategies/goals that would better suit your current situation.

Marital Status – If you had a change in your marital status (married or divorced), then a review of your plan is important, as you may need to include and/or exclude certain individuals.

No Review for Two Years – Some may find this too early, but through experience it is found that over a course of two years, a lot changes for families, whether it’s dealing with new kids, grandkids, change of wealth, or personal preferences. Therefore, it is advisable to make sure you complete a review at least once every two years.

One issue many have with this is that the Attorney they completed their plan with charges for the reviews. For anyone looking to draft an Estate Plan, always make sure the law firm you proceed with explains their fees (not just for the actual drafting, but for any changes that may be needed, or for follow-up meetings). Many firms charge less for the Estate Plan, but make-up the cost by charging for meetings and changes, which more often than not, is not properly explained to the client.

Adil Daudi is an Attorney at Joseph, Kroll & Yagalla, P.C., focusing primarily on Asset Protection for Physicians, Physician Contracts, Estate Planning, Shariah Estate Planning, Business Litigation, Corporate Formations, and Family Law. He can be contacted for any questions related to this article or other areas of law at adil@josephlaw.net or (517) 381-2663.

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529 Plans

September 15, 2011 by · Leave a Comment 

By Adil Daudi, Esq. 

The-Benefits-of-a-529-Savings-Account-Daniel-Stoica-Accounting-ProfessionalA major focus of many estate plans is reducing federal estate tax liability.  Currently, the federal estate tax imposes a 35% tax on any estate exceeding $5 million, or $10 million for married couples.  For example, if you are a single person and your estate is worth $6 million, $1 million of your estate is taxed at 35%.  Instead of your chosen beneficiaries enjoying the fruits of your labor, the government will enjoy $350,000 of your hard earned money.  This exemption amount may not be a problem now; however, many speculate that the limit will be reduced in the next few years from $5 million down to $1 million, causing many savvy individuals to plan ahead. 

How do you reduce the amount of your estate?

Fortunately, many tools exist for reducing the size of your estate.  One such tool is a 529 plan.  A 529 plan is a college savings plan that not only reduces the amount of your estate that will be subject to the federal estate tax but also provides a means of financing your children’s (or grandchildren’s) education. 

How do 529 plans work?

A 529 plan is an investment option whereby the funds that you place into the plan grow tax free and are managed by brokers and other investment professionals.  More importantly for estate tax purposes, a 529 plan can be frontloaded, i.e. five years’ worth of tax free gifts ($13,000 x 5 = $65,000) can be immediately placed into the plan without tax consequences.  However, if you frontload your plan, you may not put in anymore money (that will be tax deferred) for five years.  But because you are able to put $65,000 into the plan right away, waiting five years is rarely a problematic issue.  

529 plans are created for a limited purpose (i.e. college savings) and, as such, the plan’s funds may be used only for limited purposes (without being subject to tax consequences):  qualified educational expenses, such as tuition and room and board.  If you create a 529 plan for your child and they decide that college is not in their future, you may change the beneficiary (the person who is to benefit from creation of the plan) or you can withdrawal the money but you’ll have to pay taxes on the amount withdrawn.   The person who puts money into the plan controls the plan and may choose which state in which to create the plan—you do not have to live in the state where the plan is created. 

How is the amount of the plan removed from your estate?

The amount of the plan is removed from your estate when you place the 529 plan into a trust.  After placing the plan into the trust, for estate tax purposes, the amount of the plan is considered outside of your estate; even though the creator of the plan controls beneficiary designation and has the power to withdraw the funds.  Therefore, you’ll want to contribute as much as you can to these plans.  The higher the plan, the lower your estate tax liability and the more financially secure the future of your beneficiaries.  Plus, in this day in age, if you are going to succeed in this world, education is almost always necessary.  Create a 529 plan today for the well-being of your children tomorrow. 

Adil Daudi is an Attorney at Joseph, Kroll & Yagalla, P.C., focusing primarily on Asset Protection for Physicians, Physician Contracts, Estate Planning, Business Litigation, Corporate Formations, and Family Law. He can be contacted for any questions related to this article or other areas of law at adil@josephlaw.net or (517) 381-2663.

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Ladybird Deeds

September 8, 2011 by · Leave a Comment 

By Adil Daudi, Esq. 

house_deedAvoiding probate is (or should be) a main objective of all estate plans.  By avoiding probate (a systematic distribution of assets, which is beyond our clients’ control) our clients have the power to determine how their assets will be distributed upon their death.  There are many tools available to accomplish this aim; one such tool is the ladybird deed.  It should be noted that ladybird deeds by themselves are insufficient to avoid probate; however, if used in conjunction with other probate avoiding tools, such as trusts and pour-over wills, our clients can successfully avoid probate.

What is a ladybird deed? 

To understand what a ladybird deed is, it is essential to know what a deed is.  A deed is a legal instrument that transfers an interest in real estate.  The most common type of deed is a “fee simple” deed.  A fee simple deed conveys property from Person A to Person B.  Once signed and delivered, Person B immediately becomes the owner of the real estate.  Unlike a fee simple deed, a ladybird deed does not immediately convey the property.  A ladybird deed conveys the property to another person but reserves ownership to the grantor (the person who conveys the property) for so long as the grantor is living.  For example, if Person A executed a ladybird deed to Person B, Person A would still own the property until Person A dies; at which point, Person B becomes the owner of the property. 

In addition to remaining the owner of the property until death, the grantor of a ladybird deed reserves the right to sell, mortgage, or transfer the property during their life.  So if Person A executed a ladybird deed to Person B, Person A could still sell the property or give it to someone else.  Ladybird deeds thus avoid probate by designating the person to whom the property will be distributed upon the grantor’s death.  If a ladybird deed (or other deed) is not in place, the property would be subject to probate. 

Ladybird deeds are not always the appropriate solution to avoid probate.  Choosing the wrong deed or using it at an inappropriate time may have significant negative consequences.  Moreover, there are many tax, Medicaid, and other implications associated with deeds; as such, qualified attorneys create each estate plan on a case-by-case basis based on the specific facts and situations of each client. 

Adil Daudi is an Attorney at Joseph, Kroll & Yagalla, P.C., focusing primarily on Asset Protection for Physicians, Physician Contracts, Estate Planning, Business Litigation, Corporate Formations, and Family Law. He can be contacted for any questions related to this article or other areas of law at adil@josephlaw.net or (517) 381-2663.

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Understanding the Basics of Medicaid Planning

August 25, 2011 by · Leave a Comment 

By Adil Daudi, Esq.

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It has become quite evident that more and more aging Americans are beginning to rely on governmental assistance for their health care needs. In fact, Medicaid is officially the country’s largest health program when it comes to recipients – serving approximately 56 million Americans.

Although the laws of Medicaid continue to evolve each year, the planning and focus given should also adjust accordingly to ensure the recipients are keeping up-to-date. It is always important to learn the new laws in the event you have a loved who is considering being entered into a nursing home.

The following are three (3) basic questions that are often misunderstood when it comes to planning for Medicaid:

Do I have to give up all of my assets to qualify for Medicaid?

No. With careful planning, you can help increase the number of assets you are allowed to keep. Medicaid applies differently depending on the marital status of the applicant. However, in general terms, any applicant applying for Medicaid is allowed to keep the following “exempt assets”:

Vehicle

Home

Personal belongings

$2000 cash

Life insurance with total face value of $1500 or less.

Prepaid irrevocable funeral contract

Exempt asset are assets that are not countable for Medicaid eligibility purposes. Any remaining assets are considered “non-exempt” assets, and these must be “spent down” in order to become eligible for Medicaid. However, it is always advised to consult with a professional when applying for Medicaid as any experienced attorney would be able to guide you and recommend ways for you to increase your “exempt” assets.

What does it mean to “spend down” my assets?

Once you’ve determined your “exempt” assets, anything remaining is considered “non-exempt” and thus counted towards your eligibility. However, with crafty planning and proper advice, there are ways to lower your “non-exempt” assets and that is by spending down the value you carry. For example, purchasing a home, renovating your home, buying personal property, buying a new vehicle, purchasing an SBO trust (“Sole for the benefit of”) or a single premium immediate annuity. These are all permissible ways of “spending down” your countable assets.  

What does Medicaid pay for?

The average cost of a nursing home in Michigan is approximately $6500 a month. A person who enters into a nursing home Medicaid certified, the government will cover the cost of the care, less the patient-pay amount, which is based on a formula.

The formula itself begins with the Medicaid beneficiary’s monthly income that they receive from Social Security and any possible pension. In addition, the beneficiary can keep $60 for their personal needs and any money needed to pay for private health insurance.

Please note that the above information is simply a guide providing you with the basic understanding of Medicaid. It is always advised to seek professional advice when applying as you would learn how to maximize the assets you can keep and receive assistance in spending down the assets you can’t. Despite the government’s generousity in providing such assistance, it is always best to find ways to preserve your own money for your benefit.

Adil Daudi is an Attorney at Joseph, Kroll & Yagalla, P.C., focusing primarily on Asset Protection for Physicians, Physician Contracts, Estate Planning, Business Litigation, Corporate Formations, and Family Law. He can be contacted for any questions related to this article or other areas of law at adil@josephlaw.net or (517) 381-2663.

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Tips on Negotiating a Sound Physician Agreement

August 18, 2011 by · Leave a Comment 

By Adil Daudi, Esq.

I was recently invited to speak at the Michigan State University Radiology Department, in front of their Residents, on a topic that is very much overlooked by new physicians, or even experienced physicians: Understanding their employment agreement.

StethiscopeMore and more physicians entering into their profession are ignoring some of basic concepts that come with their agreement. However, there is always one clause that is never ignored – their salary. While the complexity and details of a contract can vary with depending on the employer and location, certain clauses must always be addressed. This article will illustrate the three (3) primary areas of concern that every physician, whether new or experienced, should take into consideration when negotiating their Physician Employment Agreement.

Non-Compete Agreements:

A non-compete agreement is a restriction placed on you that bars you from practicing with competitors within a specific geographic area and within a specific period of time. Two factors that should be considered: (a) Whether the state you are working in enforces non-compete agreements (Michigan does as of 1987); and (b) if your state does, are the restrictions placed on you reasonable.

In order to determine reasonableness, courts have laid out three (3) elements: (1) Geographic area; (2) Duration; and (3) Market Description.

Geographic area: In Michigan, courts have established that a 50-mile radius is deemed reasonable. Therefore, if you are terminated from your employment and you are seeking employment, anything within 50-miles from your previous employer will be unacceptable.

Duration: Case law has also established that anywhere between 18-24 months is considered a reasonable timeframe; meaning, you are prohibited from working within the guidelines for at least 18-24 months.

Market Description: It is always important to read and understand exactly what your Employer is restricting you from. If the contract states you are prohibited from practicing in the field of medicine upon the termination of this contract (and you are a radiologist), then clearly that will not be accepted as a reasonable restriction and would not be enforced. However, if it states that you are not allowed to practice in the field of radiology within the stated guidelines, than courts can consider that as reasonable.

Duties/Responsibilities

For no apparent reason, Employers tend to be lazy when it comes to defining and explaining what your job actually entails. Through my experience, I have noticed that the majority of contracts will define duties as “what is reasonably conducted in the (insert field) profession.”

It is always advised to question the employer and receive a thorough explanation on what “reasonable” actually means. There could be several implications, and more often than not, no two people will carry the same definition and meaning to the word. I always advise my clients to ensure you have a detailed understanding as to what is expected of you when you enter into your profession, and stay clear from ambiguity.

Fringe Benefits

Your employment agreement should always indicate exactly what benefits you are to receive. Furthermore, keep in mind that the variety and flexibility in your benefits will depend on the type of practice you are in. If you find yourself in a smaller practice, you may be able to negotiate a more individualized package. However, in larger practices you will more likely have a uniform program covering all employees; thus, less room for negotiating.

The following are the more common benefits that tend to be addressed the most during negotiations:

Insurance: Always make sure to ask what types of insurance you are being offered; whether it is health, dental, life, or disability. Health insurance is traditionally the most common of the four, however depending on the size of your company, employers do still offer life and disability.

Vacation: It is inevitable that you will receive vacation days, however what you may not know is whether you are permitted from carrying over those days to the following year. Furthermore, is Continuing Medical Education (CME) time included as part of your vacation days, or are they in addition to them?

Malpractice Insurance: No matter how perfect of a physician you are, or consider yourself to be, having malpractice insurance is vital. More importantly, knowing which type you have can be equally as vital. There are primarily two types of malpractice coverage that an employer can offer:

Occurrence. The physician is covered for malpractice that occurs during the period that the policy was in force, regardless of when the claim is filed.

Claims. The physician is covered for claims filed during the coverage period regardless of when the malpractice occurred.

More often than not, because of the expensive premiums associated with occurrence based coverage, you will find yourself in a claims based insurance coverage. Therefore, it is imperative that you inquire into the purchase of a “tail” policy, which covers claims that can be filed after your coverage period ends.

Whether you are a newbie or an experienced physician, always remember that employers always have their own best interest in mind. Therefore, it is important to never simply browse over your contract without giving it the attention it truly deserves. I advise every physician I have encountered, always seek the opinion and advice of a trusted professional who can provide you with a sound analysis and possibly assist you during your negotiating phase. Remember, as a physician, the large salary and healthy lifestyle is expected, but to live a peaceful life, it is the parameters of your contract, the additional clauses that make the difference.

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To Will or Not To Will…

July 7, 2011 by · Leave a Comment 

By Adil Daudi, Esq.

A few weeks ago I was approached by a client who stepped in to discuss his estate plan. He began the meeting by telling me he wanted to create a Shariah compliant Will that will ensure his assets are distributed pursuant to the terms given to us by Allah s.w.t. Before proceeding with his demands, I asked him if he was fully aware of the benefits of creating a Will and whether he knew he had other options.

This scenario is all-too-common. Under the right circumstances, there is nothing wrong with drafting a Will as part of your Estate Plan, however, prior to taking any steps, it is important to be informed on what you are drafting and why.

A Last Will and Testament is very commonly used, but many are not sure what it exactly entails. Although it is very easy to draft a will, be sure to consult with an Attorney on the benefits and drawbacks of actually having one.

Prior to any plan it is always important to know why you should even have one. For any Muslim, having an estate plan is not discretionary, but rather mandatory. Narrated by Ibn Umar, Prophet Muhammad (s) once said: “It is not right for any Muslim person who has something to bequeath to stay for two nights without having his last will and testament written and kept ready with him.”

The following are certain factors, or facts, that should be considered when drafting a will.

1. Every Will must go through Probate: Probate is a court system that determines the validity of your will and helps facilitate in the process of distributing your assets. Note:  assets cannot be distributed until this process has completed. On average, the entire probate process can take between four-to-six months. 

2. Costs: Here is a very common misconception concerning a Will. “I got a Will because it is cheaper than a Trust.” Do not fall into the trap of thinking a Will is the best estate planning tool just because it is the cheapest. I have heard many clients proudly claim they created their Will for free online. But what they don’t realize are the costs that are associated with the Will after they die. Probate costs are not cheap. On average the entire probate process can cost between 3-5% of your estate.

It is important to realize that when discussing your estate planning options, it should not be dependent on how much you pay today, but rather how much your estate will pay at the end.

3. Public Information: Depending on how much value you place on privacy, the administration of a Will provides you with none. Once your Will is filed with the court, it becomes accessible to the general public.

These are some of the issues that you should consider when contemplating your estate plan. Fortunately, there are other options available for you to consider that can be cheaper and more effective. That is why it is important to speak with an Attorney to discuss your options and more importantly to discuss the options on how best to effectuate the distribution requirements pursuant to Shariah law. With the proper planning, you will have set up the best method that suits your individual needs, saves you money, and satisfies the requirements of Allah (s.w.t.)

Adil Daudi is an Attorney at Joseph, Kroll & Yagalla, P.C., focusing primarily on Asset Protection for Physicians, Physician Contracts, Estate Planning, Business Litigation, Corporate Formations, and Family Law. He can be contacted for any questions related to this article or other areas of law at adil@josephlaw.net or (517) 381-2663.

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Federal Government Reinstates the Estate Tax – What That Means to You

May 26, 2011 by · Leave a Comment 

By Adil Daudi, Esq.

FeaturedImageRecently, the Federal government has reinstated a law that will have a significant impact on how we manage our estate. Beginning in 2011, the Federal government brought back the federal estate tax, which imposes a 35% tax on any estate exceeding $5 million, or $10 million for married couples.

An estate tax is defined as a tax imposed on your gross estate that exceeds the exemption limit. For example, if John dies leaving a gross estate of $6 million, his total taxable estate would be $1 million ($6M – $5M). Thus, his estate would pay $350,000 in estate taxes to the government ($1M x 35%). Note: only assets owned by you individually at the time of your death are included in your estate.

Although the common citizen may overlook this law due to the large required estate, it is important to note that many experts consider this $5 million exemption to only be temporary. By the end of 2012, it is widely speculated that federal lawmakers will revert back to the pre-2001 days, where there was only a $1 million exemption and a tax rate of 55%.

Whatever the exemption amount, there are certain tools at your disposal that can assist you in lowering your estate for purposes of avoiding the estate tax altogether, or lowering the amount of money that you will be required to pay to the government. The following are certain deductions that are available to reduce your estate taxes:

(1) Marital Deduction: any property transferred to your spouse upon your death is excluded from your estate;

(2) Charitable Deduction: donations made to a charitable organization are deducted from your estate (creating a charitable remainder annuity trust – CRAT – is beneficial in this regard);

(3) Irrevocable Trust: this is a trust that takes ownership away from you individually and transfers title to your trust’s name; therefore, because you no longer claim individual ownership, the size of your estate is reduced.

The above options are effective means to help reduce your estate; however, you are not restricted to just those. That is why it is always advised that you consult with an attorney who is well-versed in estate planning and asset protection to ensure that you have structured a sound estate plan. Remember, although the exemption may not apply to you this year, there is a strong likelihood that the exemption limit will dramatically decrease by 2012. Plan now to be assured that you have the utilized the right tools to reduce your estate. After all, it is always better to pay your heirs as opposed to the government.

Adil Daudi is an Attorney at Joseph, Kroll & Yagalla, P.C., focusing primarily on Estate Planning, Shariah Estate Planning, Asset Protection, Business Litigation, Corporate Formations, Physician Contracts, and Family Law. To contact him for any questions related to this article or other areas of law, he can be reached at adil@josephlaw.net or (517) 381-2663.

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