What's New at Smith Barid

2012 is here and man are Mike and Richard busy! Richard was selected by other attorneys in Georiga as one of the 2011 Gergia Trend’s Legal Elite, for his hard work and dedication to the practice.  Mike’s hard work and dedication has earned him an appointment on the Board of Directors for the Georgia NAELA Chapter and the Advisory Board for the Greater Savannah Sports Council.

The guys have also enjoyed being in the Savannah spotlight lately, educating the community on estate planning issues and veterans’ benefits.  So far this year they have appeared on WTOC Midmoring Live to talk about Pet Trusts and have given talks at Senior Citizen’s Inc. about elder law and VA Aid and Attendance benefits.  Later this month, Richard will be part of a presentation offered by Visiting Angels to the local Polio Survivor’s Group at Memorial.  If any of your clients are veterans or are interested in long term care planning and missed earlier presentations, please invite them to join us on Saturday, March 31st at 2pm at River’s Edge Senior Living Community to learn how veterans or their surviving spouses could qualify for up to $2,019 a month tax free!  Anyone interested can contact Samantha at 912-352-3999 for a reservation.

If you haven’t already heard, Mike’s getting locked up to help in the fight against Muscular Dystrophy and we need your help to raise his bail before the goes to jail! The 2012 Southside Savannah Lock-Up takes place on 03/07/2012.  Your support will help families living in our community with the muscle disorder and help guarantee that he gets out of jail and comes back to work.  Please support us in this important goal by visiting his fundraising page and making a contribution and we will be sure to add you to our list of contributors.  Your tax-deductible donation makes a difference to hundreds of kids, adults and their families who live right here in our local community.

Finally we would like to let all of you know that we will no longer be hosting the monthly CE for CFPs Teleconference.  We will really miss our chance to interact with you on a monthly basis and welcome you to join us for lunch if you have any questions or ideas to discuss.

Have a happy St. Patrick’s Day!

Celebrity Estates

Whether it’s your spouse, your kids, or your beloved pet, there are many important reasons to get your estate plan in place and keep it up to date.  In this issue’s celebrity estates section we bring you examples of one person you know who went to great lengths to be sure their planning was thought out and well-documented and another who’s heirs found it hard to keep on  “Truckin’” in the family business after he passed away.

The last issue of this newsletter discussed the relatively new availability of pet trusts in Georgia.  Leona Helmsley was a great example of what a person can do to care for her furry friends even after the person has left this Earth.  Ms. Helmsley famously left 12 million dollars in trust for the care of her dog Trouble.  Even after a judge cut down that bequest substantially (the final sum set aside to see to Trouble’e every needs was a paltry 2 million dollars), Trouble was still known as the wealthiest dog in America.

Leona’s plan, despite the judge’s tempering of her wishes, worked out as she’d hoped.  Trouble passed away just last year at age 12, far from having outlived her money, and was pampered to the very end.  She lived out her days in Sarasota, FL where her caretaker, Carl Lekic, spent $100,000 on her care each year including $8,000 for grooming alone.

Beloved and legendary musician Jerry Garcia’s estate was not as neatly bundled for those he left behind.  His estate turned into a mess of litigation surrounding Cherry Garcia ice cream, customized guitars, and other Grateful Dead memorabilia.  Though Jerry’s music, and the highly-devoted following it engendered, was many people’s idea of the ultimate in entertainment -- it was also the family business.  A business that lacked a successful succession plan.

Most of us will never create a business as famous as Jerry’s.  However, everyone who runs a business should give careful thought to what will happen to that business when they pass away.  Will a surviving spouse or kids be left to try and run the business with a partner who doesn’t really know or want to work with them?  Do they have the tools or desire to continue the business successfully?  Our newspapers and gossip columns are filled with news of what happens when celebrities (and other business owners) don’t give this issue careful consideration before it’s too late.  A good estate plan, including business succession planning (or what some call a “business will”), will make things far easier for those you leave behind.

How a Charitable Remainder Trust Can Help Charity and Save Income Taxes

As tax season rolls around, lots of us are thinking about ways we can reduce the income tax bite and with the downturn in the economy, it’s more important than ever to support charities in the work that they do. Business owners especially will often want to use their earnings to benefit the communities that supported them.

There is a way for business owners to donate to charity while also creating a sizeable retirement income for themselves and reducing their tax liability.  It’s called a Charitable Remainder Trust (CRT). When a business owner is ready to retire, she can gift either the entire business or her shares of stock to a Charitable Remainder Trust. Because the Charitable Remainder Trust is a non-taxable entity, it can then sell the stock or business without incurring capital gains taxes, which currently is 15 percent of the sale.

The tax savings would preserve principal to be reinvested in a diversified portfolio with the business owner named as income beneficiary and the charity of his or her choice named as remainder beneficiary. Thus, the business owner would receive an income for the term of the Charitable Remainder Trust and the charity would receive the assets at the end of the term of the Charitable Remainder Trust.  Let’s take a look at how this scenario would differ from an ordinary sale.

In a typical sale example, if a business owner sold his or her company for $10 million he would pay $1.5 million in capital gains taxes. The remaining $8.5 million could be invested and if we estimate an 8 percent annual return, the business owner would receive $680,000 before taxes. Assuming a 35 percent tax bracket, the business owner would be left with $442,000.

If the business owner instead transferred the business to a Charitable Remainder Trust and then sold it for $10 million the entire sales proceeds would be preserved for investment because the trust would not be liable for capital gains taxes. Assuming the same 8 percent return, the trust would generate a gross annual return of $800,000, 17.6 percent higher than the above example of a traditional sale.

The business owner can choose a distribution percentage of anywhere from 5 percent to 50 percent, but for the sake of this example, let’s say the business owner takes an 8 percent distribution receiving $800,000 with a final total of $520,000 after taxes, $78,000 more than the traditional sale example.

The business owner would benefit from a charitable income tax deduction in the year of the donation and up to five more years depending on different variables. Instead of paying sizeable capital gains taxes the business owner would only be liable for income taxes due on the amount received from the Charitable Remainder Trust.

In some cases, the company may choose to buy back and retire the majority owner’s stock making the remaining stockholders majority owners. Another option is to sell the stock to the individual stock holders.

One concern that business owners often have about Charitable Remainder Trusts is not having an inheritance to pass down to their children. But proper estate planning can rectify that situation by using the tax savings to buy a life insurance policy with the heirs named as beneficiaries.

If your client’s children have not followed them into the family business it would likely be much more difficult and burdensome for them to inherit the business. This is true not only because of the tax consequences but also because they might have trouble liquidating the assets.

Compared to a traditional sale a Charitable Remainder Trust can provide more income for the business owner, reduce his or her taxes and provide a way to leave a lasting legacy both to the owner’s heirs and the community.