Secrets to a Successful Marriage

Posted on: January 2nd, 2015 | No Comments

As my Chanukkah and Christmas present to you I am sharing the wisdom from clients who have successfully navigated many years of successful marriage. I’m grateful that Patti and I have twenty five years behind us, which, I suppose is a great accomplishment these days.

Nevertheless, all of us have a lot to learn from those who have travelled a longer path. So over the years, I wrote down these nuggets from those who had been married fifty years or more:

1. Be a good listener and don’t offer an opinion unless asked.
2. If you think marriage would have been easier with someone else, think again.
3. Grow together. You’re both going to change, but do so on the same path rather than taking separate paths.
4. While you want to grow together, also have some separate interests and friends. It’s okay to take some time away from one another every now and then.
5. Everyone has their own quirks that make us difficult to live with. Do your best to minimize your own, and accept those of your spouse.
6. Marriage is an “on the job training” proposition. When the going gets rough, it’s a sign that we may need new skills, not a new spouse.
7. Remind yourself daily why you fell in love in the first place.
8. Don’t let the kids become the number one priority. Your marriage is your first responsibility.
9. When you’re angry it is not the time to fight.
10. If you are thinking “I really shouldn’t say this” – Don’t.
11. Be the first to apologize and the first to forgive.
12. Try new things together. Don’t do the same thing over and over.
13. Trying new things also applies to the bedroom.
14. Surprise your spouse in a good way every now and then. Whether that means to bring her flowers for no reason, book a trip ‘just because’ or do something nice for her parents – those things go a long way.
15. When you screw up, don’t blame your spouse. Take responsibility for your own mistakes.
16. Be willing to compromise but also realize some situations can’t be compromised – e.g. – where you live, how many kids you have, etc. – realize that when your spouse gives in on such a matter it is both a gift to you, and potentially dangerous. Before acting you should be certain that both of you can live with the consequences.
17. Don’t always make your spouse give in when compromise isn’t possible.
18. Don’t rehash the past.
19. Don’t hold grudges – accept apologies graciously and move on.
20. Keep a good sense of humor.
21. Don’t take yourself too seriously.
22. Realize that even tragic times will end.
23. None of us are happy 24/7 – nor do we need to be.
24. Trust is more valuable than all the money you could possibly save.
25. Most good marriages have one person who brings up difficult subjects, or stays hopeful in difficult times. While you may wish that both of you take on this role, be grateful when one of you is willing to do it.
26. Marriage can make you a better person or a worse person – your choice.
27. Better to request a change than to complain and criticize.
28. Fights are usually not about the content of the argument du jour. It’s usually better to define the underlying issues of what is really upsetting and address those rather than continue arguing over trivial matters.
29. Learn how to make up properly as two people can’t be in a marriage without upsetting one another from time to time.
30. Enjoy life together – and appreciate the small things.

Happy Channukah, Merry Christmas, and a Healthy and Happy New Year to everyone.

©2014 Craig R. Hersch

Judgment Creditors and Fraudulent Transfers

Posted on: December 26th, 2014 | No Comments

From time to time someone will visit with me in my office with a serious problem. They have lost a lawsuit and have a judgment creditor attempting to satisfy the judgment against their assets. Once someone already knows of a potential liability, then any subsequent transfers could be voided under Florida’s Fraudulent Transfers Act. Many other states have similar laws. When a transfer is voided, the money or assets must be returned to the original transferor and are often subject to satisfy the judgment creditor’s claim.

There are a few defenses to a deemed Fraudulent Transfer, such as there was a valid business or estate planning purpose behind the transfer. Beware – those defenses are hard to prove. Take, for example, a recent case that originated in Arizona but followed the defendant to Michigan where he resided. Here, attorney Mark E. Schlussel owed his former business partner, Terrace Dillard, $500,000. The business at issue was not related to any law practice.

When Dillard attempted to collect his judgment against Schlussel, Schlussel claimed that he had spent all of his money despite having significant income as evidenced from his income tax returns from the years leading up to the judgment. When it was discovered that he had actually saved some of his income but had transferred it to his wife, Schlussel claimed those transfers were made to pay for ordinary and necessary living expenses, and for estate planning purposes. Dillard quickly filed a motion to claim those transfers as fraudulent under Michigan’s Fraudulent Transfers Act.

Schlussel offered two defenses to Dillard’s claim of fraudulent transfer. First, he said, the transfers to his wife were used to pay household living expenses which were exempt under the Michigan Fraudulent Transfer Act. The Michigan Court of Appeals rejected that assertion because of the large monthly amounts as well as examining Schlussel’s intent.

The Court held that making the transfer wasn’t to cover his normal living expenses but instead to evade Dillard, his creditor. They pointed to the fact that deposits that were normally made into Schlussel’s checking account instead went directly into his wife’s account only after the judgment was entered.
This was largely a facts and circumstances finding based upon the testimony of the parties and how credible they seemed in Court. The Court deflated the “living expenses” defense. Here, the Schlussel’s were trying to claim that their bare living expenses were north of $250,000 per year, something which seemed to really infuriate the Court. While that defense has sometimes taken flight, it has always been in cases where the debtor and his spouse were using the money for bare subsistence living.
Common sense posits that if a debtor is going to claim that he is flat busted broke, he’d better live a lifestyle like he is flat busted broke. Few things will make a judge more irate and willing to throw the book at a debtor than word that the debtor is both not paying his debts, and continuing to live an extravagant lifestyle just as he did before the judgment. Such a debtor can expect no sympathy from the court, and yet time and again we see where debtors continued to live the high life while pleading poverty — and usually coming to serious grief at some point (as here).
Schlussel then offered his second defense that the transfers were made for estate planning purposes. Here again the Court found no credible evidence that the transfer was made for estate planning purposes other than evading the creditor.

The Court distinguished between “actual fraudulent transfer” which is defined as one of intent, as opposed to “constructive fraudulent transfer” where intent may be hard to find but two other questions are asked. First, was the debtor insolvent at the time of the transfer? Second, did the debtor receive anything of reasonable equivalent value from the transfer? If the answer to the first question is “Yes” and the answer to the second question is “No”, then even if intent cannot be found expressly, a Court could nevertheless find that a fraudulent transfer constructively occurred.

Indirect, noneconomic benefits that preserve a family relationship were not found to provide reasonably equivalent value. Thus, any promise that Schlussel made to support his wife for household expenses had no bearing on the Court’s finding.

As for the estate planning defense – the Court found that ridiculous because with all of his unpaid debts, Schlussel had no estate to worry about taxes or otherwise transferring.
If somebody with a legitimate estate planning issue does planning well in advance of creditor difficulties, then they should normally be able to claim that they lacked the intent to defeat creditors because they had other significant motivations for their planning. The Court may ultimately reject the defense if there is evidence that the debtor’s motivations were otherwise, but at least the claim has a chance of winning.
The bottom line here is that to protect assets from the claims of creditors, a good asset protection strategy has to be implemented well before trouble arises.

©2014 Craig R. Hersch

Major Changes Under Duress Not a Good Idea

Posted on: December 19th, 2014 | No Comments

It’s not uncommon to panic under extreme pressure. And there’s no pressure like when a loved one is very sick or near death. There’s a temptation to “tie up loose ends” and to direct our financial advisors and attorneys to make “last minute adjustments” before it’s too late.

Resist that temptation, especially if you’ve recently updated your planning.

I’ve seen families make irrational decisions that can be attributed to a lack of understanding about their estate plan. Even though they may have revocable living trusts, for example, they title everything in “Pay on Death” or “Transfer on Death” accounts. This is absolutely the wrong thing to do. Most trusts have continuing trusts, either for the surviving spouse or sometimes for the children or even grandchildren. By transferring assets to “Pay on Death” accounts defeats all of the estate protections and tax planning thought that went into the creation of the documents.

Sometimes panicked families will collapse trusts before the sick spouse dies and put everything in the well spouse’s name. As I pointed out in the preceding paragraph, doing this will likely defeat the tax planning and asset protection features of the estate plan that was put into place.

Other times families will reposition assets between the trusts just before the sick spouse dies. This can also lead to problems related to capital gains taxes. Normally, when a person dies holding appreciated assets, the assets receive a “step up” in tax cost basis, equal to the date of death value. If I purchased Coca Cola Company stock at $1/share and when I died it was worth $10/share, then my beneficiaries will normally inherit the stock at the step-up value of $10/share. If they sold it shortly after my death for $10/share, then the capital gains tax that would have been realized had I sold the stock the day before my death disappears.

But if the family tries to transfer appreciated assets into a dying person’s name in an effort to receive the step-up in tax cost basis, they have an unpleasant surprise. The tax law anticipates people trying to take advantage, so there’s a rule that disallows step-up if the asset was transferred within one year of death. So making last minute changes here could actually do harm to the family.

Should a family therefore not worry about last minute planning if a loved one is gravely ill? Certainly if that person’s documents haven’t been updated in quite some time it makes sense to review them with competent counsel. But the family would be wise to carefully think through any choices that they have, and consider the time it would normally take to implement those choices successfully. If the health and mental stability of the sick person isn’t expected to hold out for long, then it makes sense to “triage” the strategies in such a way as to take care of the most important things first.

Another important thought in late-stage planning includes the fact that any significant changes might be subject to challenge. If a sick person suddenly disinherits someone in favor of another family member, undue influence and competency issues might arise.

If this is a possibility, the family might want to ask attending physicians for statements regarding the sick person’s competency, carefully document all of the medications that are being administered (with an eye towards whether any might affect decision making) and take steps to ensure that the sick person visits alone with counsel rather than having family members who might be or become beneficiaries present at the meetings.

Dealing with the loss of a loved one is almost always stressful. No one wants to compound the stress by having to deal with legal, tax and financial issues at the end of life. The best way to avoid that problem is to take care of things well ahead of time. But if you or a loved one find yourself in this situation, be very careful that you don’t cause more harm than you solve.

©2014 Craig R. Hersch

Lyons Case Illustrates Florida Homestead Peculiarities

Posted on: December 12th, 2014 | No Comments

I’ve long preached that conveying Florida homestead is tricky given the peculiarities of Florida law. A recent court case out of the 4th District Court of Appeal in Florida illustrates this point. So I thought that I would share it with you today.

In Lyons v. Lyons, Norma was married to Richard. In 1993, Richard conveyed his interest in the homestead to Norma so that she owned it individually. Norma then transferred the homestead into a Qualified Personal Residence Trust (QPRT) that upon its expiration would distribute the home to all of her five children, Valerie, Dorothy, Sanford, Timothy and John. Norma signed the deed transferring the homestead to the QPRT individually and Richard did not sign the deed. A Qualified Personal Residence Trust is an irrevocable trust that cannot be undone once signed.

Richard then died in 2007. In 2010 Norma went to her attorney and deeded the homestead from her name to her daughter Valerie. You might think that she had no power to do this since she had already irrevocably transferred the homestead to the QPRT. Norma’s attorney reasoned that the original deed to the QPRT was void, based upon Florida law that requires both spouses to sign a deed of conveyance, even if only one spouse owns the residence in her name individually. So he reasoned that because Norma’s 1993 deed to the QPRT was void, she had the power to convey the homestead to her daughter Valerie, bypassing the other children.

The three sons, who were the acting Trustees of the QPRT sued Norma, Valerie and the attorney to set aside Norma’s conveyance to Valerie.

In 2002, Richard had signed a Will in which he acknowledged the existence of the QPRT. While the trial court sided with Norma, Valerie and the attorney, on appeal the 4th District Court of Appeal (DCA) reversed. It determined that Norma’s assertions that her own deed was void were absurd, as Richard was the only party who could assert the Florida law protections governing the disposition of the homestead without his signature.

In other words, Norma could not attack her own 1993 deed based upon a technicality that only harmed her spouse, who was already deceased and made no objection when the residence was originally transferred to the QPRT. The law in question is found in the Florida Constitution, and is there to protect a spouse (or minor child) from a conveyance of their Florida homestead without their consent.

Despite the decision in Lyons, the Constitutional and statutory protections surrounding the conveyance of homestead remain strong. Even if a Florida homestead residence is in the name of only one spouse, the other spouse needs to sign the deed in order to convey the residence to a third party. What the 4th DCA
held was that the party objecting must have legal standing to void a faulty deed. Here that party was a deceased spouse. So the QPRT ended up owning the residence and all five children shared in the bounty.

This case highlights the importance of understanding the peculiarities of Florida homestead law within any estate plan. That’s one of the many reasons why individuals who move here from another state should review their estate plans with competent Florida counsel

When to Throw it Out

Posted on: December 5th, 2014 | No Comments

My eldest daughter is in college, my second is on her way this next fall and my youngest is a freshman in high school. All of my children have grown up in the house that we built about twelve years ago, and the closets and our garage are filled with clothes, toys and other items from their childhood that they no longer use, want or need.

So it’s time to clean it all out. Now that the weather has cooled down, it’s not a bad time to do it.

Which leads me to today’s topic – how long should you keep your legal, tax and financial records? As a general rule, you should keep your tax records and supporting documentation until the statute of limitations runs for the filing of returns or for the filing of a refund. For most taxpayers that means three years following the date of filing the return.

But keep in mind that if you underreport your income by more than 25% the statute of limitations is six years, and that the statute never runs on fraudulently filed returns. Those of you who file fraudulent returns should hold on to tax records forever!

If you claim depreciation, amortization or depletion you should keep the records for as long as you own the property, including cost basis records. If you claim a bad debt deduction, it’s a good idea to hold on to those records for seven years.

As far as your wills and trusts go – you should hold on to the most recent version of your documents. If, for example you had a trust dated January 1, 1972 and it was amended in 1978, 1988 and 2000 you would keep all of the related documents. If the trust was subsequently restated in 2014 in its entirety, you could keep the restatement in hard copy but make sure that you have electronic copy backups of the documents it replaced.

If you have a will from 1972 that was subsequently rewritten in its entirety in 2014 you only need to retain the 2014 copy.

Occasionally a client might create a Durable Power of Attorney (DPOA) then decide to have someone else serve in that role. Rather than simply throwing out the old DPOA, you need to discuss how it is properly revoked with your attorney. If the document has been provided to any bank or brokerage firm, for example, Florida law provides specific direction how that DPOA is revoked and who needs to be notified of its revocation. If, on the other hand, the DPOA was never given to any third party, it’s probably safe to destroy.

If you have a new law firm draft wills, trusts and advanced directives, it is usually a good idea to tell your former law firm that the documents they have on file have been updated by another firm.

Hopefully this helps you clean out your desk and home office shelves! I wonder if I can sell some of my kids’ stuff on Ebay!

©2014 Craig R. Hersch

Does Money Buy Happiness?

Posted on: November 29th, 2014 | No Comments

Three weeks ago I finished my first full Ironman triathlon competition. I’ve finished plenty of half-Ironmans, Olympic and Sprint distance triathlons before, but never the full – until now. I turned fifty years of age this year, and promised myself that this would be the year to tackle some big goals.

The full Ironman distance includes a 2.4 – mile open water swim followed by a 112 – mile bike race and concluding with a 26.2 – mile run. Competitors have 17 hours to finish, or else they are pulled off the course with a “DNF” (Did Not Finish).

While many might call an experience like that painful (and believe me, it was!), nevertheless it was one of the more emotionally rewarding athletic events I’ve ever had the good fortune to participate in. I’m sure that I’ll remember the feeling of elation I had when I crossed that finish line for the rest of my life. My wife Patti was at the finish line to give me a big hug (despite my odor from nearly 12 hours of continuous exertion), and I am fortunate enough to have had several friends there as well who journeyed all the way to Panama City Beach to see me do this.

And that got me thinking about what makes me happy – because it seems counterintuitive to put oneself through a grueling endurance event to find happiness.

Many people crave money – thinking that it will make them happy. Why else would people buy lottery tickets when the odds are so stacked against them? A lot has been said or written about whether money buys happiness. A recent Wall Street Journal article concluded that while having good income does help, recent research indicates that using your money to purchase experiences usually results in greater happiness and satisfaction than purchasing material goods.

The research surrounding material purchases indicates that while initial satisfaction is high, most people adapt to owning the item and therefore the happiness associated with its purchase diminishes over time. The new dress or fancy car provides that brief thrill of ownership, but the process of “hedonic adaptation” takes over and we soon take owning the item for granted.

When we purchase the new iPhone 5, for example, we are happy with it for a while until our neighbor boasts of all the new features he has in his iPhone 6. On the other hand, it is hard to compare experiences with the neighbors. They enjoyed their trip to Italy, you enjoyed the weekend in New York. People are a lot less likely to be jealous of other’s experiences.

The irony found in the research is that while experiences give us more lasting pleasure than things, people often deny themselves the special vacation over making the special purchase. They may believe that the experience only lasts for the moment while purchasing the object will be something that they own forever.

But that would be the wrong choice according to the experts who study such things. Psychologists say that experiences tend to meet more of our underlying psychological needs. Experiences are often shared with other people, giving us a greater sense of connection and therefore help form our identity. When you look at it that way, the choice becomes more obvious. Would you rather buy that new diamond bracelet or spend the money on plane tickets to visit your grandchildren in Ohio?

Personally, I’ve always valued experiences – whether they are family gatherings, vacations, going to the theatre or participating in sporting events. If my house caught fire I want to save all the photographs first – as those are all about my experiences and memories that can’t be replaced as opposed to the material possessions in my home that can always be replaced.

I’ve found that being grateful for the things that you do have in life also helps build happiness. During the toughest part of my Ironman when my legs wanted to give up I consciously made the decision to think about all of the good things that I have in my life. And you know what? It really did help.

I’m interested in whether those who read this column share the feeling that experiences trump material goods when looking for happiness. Shoot me an email sometime and tell me what you think.

©2014 Craig R. Hersch .Learn more at

Spendthrift Trusts

Posted on: November 26th, 2014 | No Comments

We all know what a spendthrift is – someone who just can’t hang on to money. If they have $10 dollars in their pocket they’ll go out and spend $20.
When creating estate plans, many people who have spent a lifetime working hard to save and accumulate wealth become concerned about leaving significant sums to a child or other relative who, for the lack of a better word, is a spendthrift.
Sometimes attorneys will recommend creating a “spendthrift trust” for these situations. Florida law recognizes the validity of spendthrift trusts which are created with the view of providing a fund for the maintenance of a beneficiary, and at the same time securing it against his own improvidence or incapacity for self protection.
A typical spendthrift provision may read something like this: “Each trust created for a beneficiary under this Trust Agreement shall be a spendthrift trust to the fullest extent allowed by law. Prior to the actual receipt of trust property by any beneficiary, no property (income or principal) distributable shall, voluntarily or involuntarily, be subject to anticipation, pledge or assignment by any beneficiary, or to attachment by or to the interference or control of any creditor or assignee of any beneficiary, or be taken or reached by any legal or equitable process in satisfaction of any debt or liability of any beneficiary. Any attempted transfer or encumbrance of any interest in such property by any beneficiary hereunder prior to distribution shall be void”
This means, in layman’s terms, that a beneficiary can’t alienate his or her interest in the trust. An example of this might be where a beneficiary wishes to purchase an automobile on credit, but is denied. So he or she points to a trust under which he or she is a beneficiary, and agrees to pledge the assets of the trust as security for the loan. When a trust contains a spendthrift provision like the one found above, the lender can’t rely on the assets of the trust for its security interest.
But a spendthrift trust alone does not protect the beneficiary in all cases. In Florida, a spendthrift provision is unenforceable against a beneficiary’s child, spouse or former spouse who has a judgment or court order for support or maintenance, and a claim of a state or federal government. These are commonly known as “exception creditors”.
In Bacardi v. White the Florida Supreme Court held that disbursements from spendthrift trusts, in certain limited circumstances, may be garnished to enforce court orders or judgments for alimony before such disbursements reach the debtor-beneficiary. In that case, a father created a trust for the benefit of his son, who was subject to alimony payments to his former wife. When the son stopped making the alimony payments, his ex-wife obtained a judgment for the unpaid balance.
To collect her judgments, the ex-wife served a writ of garnishment on the trustee of the spendthrift trust on the trustee demanding payment from trust funds. The Florida Supreme Court held that any distributions from the trust could be garnished before they reached the son in satisfaction of the alimony claim. The Court ruled that garnishing a spendthrift trust should only occur as a last resort – such as when a beneficiary has no other assets to satisfy the alimony claim.
The Florida Trust Code was amended in 2006 to address this issue. It codified the Bacardi holding by indicating which creditors could attach to spendthrift trust distributions.
Here’s where it gets interesting. The statutes distinguished between spendthrift trusts and discretionary trusts. In contrast to a spendthrift trust, a discretionary trust gives a trustee discretion whether to make distributions to a beneficiary at all. The distributions are usually governed by a “health, education, maintenance and support” standard.
Under the 2006 Florida Trust Code statutes, therefore, a creditor cannot compel a distribution that is subject to the trustee’s discretion or attach or otherwise reach the interest, if any, which the beneficiary might have as a result of the trustee’s authority to make discretionary distributions to or for the benefit of a beneficiary.
Attorneys have differing opinions as to whether the 2006 Florida statutory changes were intended to thwart an exception creditor from attaching to discretionary trust distributions, using the Bacardi rationale. Clearly, however, when a client and his or her attorney are attempting to protect trust assets from a beneficiary’s creditors, a spendthrift provision is not enough, as the trustee should have discretionary powers to make or not to make distributions to that beneficiary.
As this plays out in our court system, I’ll try and keep you posted. In the meantime, if one of your beneficiaries may have judgment creditors including ex-spouses (alimony) and children (child support), the provisions of the trust should be examined to ensure that the trustee of the trust has discretion not to make distributions as circumstances warrant.
©2014 Craig R. Hersch .Learn more at

IRA Rollover Limitations

Posted on: November 14th, 2014 | No Comments

You may be aware of a rule that allows you to withdraw amounts from your IRA and not be taxed on the distribution so long as you return that same amount to your IRA within sixty days. In a recent case, Alan L. Bobrow, however, the Tax Court that an IRA owner who takes a distribution from an IRA and rolls it over into an IRA cannot do so again within one year, either from the same IRA or a different IRA. This Tax Court ruling is in direct conflict with IRS Publications that provide taxpayer guidance.
Alvan Bobrow, a tax lawyer, withdrew $65,064 from his traditional IRA on April 12, 2008.
On June 6, 2008, he withdrew another $65,064 from his rollover IRA.
On June 10, 2008, he put $65,064 back into his traditional IRA.
On July 31, 2008, his wife, Elisa, withdrew $65,064 from her traditional IRA.
On August 4, 2008, Alvan put $65,064 back into his rollover IRA.
On September 30, 2008, she put $40,000 back into her traditional IRA.
The taxpayers argued that Alvan rolled over each distribution within 60 days.
The Internal Revenue Service attempted to cross Alvan’s repayments. The Service treated the August 4, 2008, deposit as a repayment of the April 4, 2008, distribution, so that it would have been beyond the 60-day deadline. The Tax Court held for the Service.
The Bobrows filed a motion for reconsideration. The Service announced that it would not apply the Tax Court’s opinion to rollovers before January 1, 2015. The Service then settled with the Bobrows, giving them the benefit of their policy not to apply the Tax Court’s opinion to rollovers before January 1, 2015.
The Tax Court held for the Service with respect to Alvan, but for a different reason. The Tax Court said that the applicable Internal Revenue Code Section precludes an IRA owner from performing more than one nontaxable rollover within a year, without regard to the source.
Alvan had argued that the Internal Revenue Code Section in question only applies to multiple rollovers from the same IRA.
The Tax Court cited other cases as well as the legislative history, which explains that the sixty-day rollover exemption was intended to provide some flexibility, but that the limitation was intended to insure that taxpayers did not repeatedly shift income in and out of retirement assets.
As to Elisa, her repayment was not within 60 days. Worse yet, since Elisa had not reached age 59½ at the time of her distribution, she was subject to the 10% penalty on early distributions. Even worse, the Tax Court imposed the 20% accuracy-related penalty.
The accuracy-related penalty applies to a substantial underpayment, defined as an underpayment in excess of the greater of 10 percent of the tax required to be shown on the return, or $5,000, unless there is substantial authority for the taxpayer’s position, or there is adequate disclosure and a reasonable basis for the taxpayer’s position. The Tax Court said that the taxpayers did not cite any authority for their position, nor did they disclose the facts on their return. There is also an exception to the penalty if there is reasonable cause and good faith.
The Tax Court viewed his being a tax lawyer as a negative factor, citing other cases where the taxpayers were lawyers or accountants. In support of Alvan’s position is an IRS Publication (#590) that supports his contention that multiple withdrawals can be made within a calendar year from different IRA accounts. The Tax Court said it was aware of Publication 590 when it issued its opinion, but that it didn’t discuss the Publication because neither party discussed it in its briefs.
Even if the taxpayer had cited the Proposed Regulations and Publication 590, it might not have made any difference. The Tax Court explained that IRS guidance is not binding precedent, and that taxpayers rely on it at their own peril. Therefore, the Tax Court said that if the taxpayers had argued reliance on the Publication, it would not have served as substantial authority for their position.
The Tax Court has already cited Bobrow for the proposition that only one rollover contribution is permitted within a one-year period, and for the proposition that no rollover contribution or taxable distribution occurs in a direct transfer between spouses.
Concluding Observation
An IRA owner who makes a tax-free rollover cannot do so again with one year. However, the IRS will allow IRA owners to do rollovers from separate IRAs until the end of 2014.

©2014 Craig R. Hersch .Learn more at

IRS Rules on Qualified Longevity Annuity Contracts

Posted on: November 7th, 2014 | No Comments

Many retirees worry about running out of money in their later years. One solution is to hoard money (spend less) today because you might live beyond the average life expectancy. The problem with that solution is that it causes everyone to live below his possible standard of living even though not everyone will live long enough to have the problem.
The insurance industry’s solution: For a lump sum payment that is relatively small while you are only in your 50s or 60s, buy an annuity now that doesn’t start paying out until you reach your mid 80s. Such a “longevity annuity” enables you to spend more during your “young old years” without worrying that you will run out of money if you live too long. But that type of annuity could not, until now, be purchased inside a traditional IRA (or other defined contribution/individual account plan, such as a 401(k) plan) because of the rule that payments under a plan-owned annuity contract must begin by the required beginning date (RBD) (generally approximately age 70½).
The IRS has ridden to the rescue. Under proposed regulations issued in 2012, as modified and finalized effective July 2, 2014, up to 25 percent of the participant’s account balance (but not more than $125,000) can be invested in a “qualified longevity annuity contract” (QLAC) without violating the minimum distribution rules.
Definition of a QLAC
Under the IRS Regulations, a QLAC must begin its payments no later than the first day of the month next following the 85th anniversary of the participant’s birth, and must otherwise satisfy all of the requirements that are otherwise applicable to annuitized defined contribution plans. The QLAC may not provide cash surrender rights or similar features; cannot be indexed to variable market performance such as the S&P 500 index; and must limit death benefits.
Dollar and Percentage Limits on QLAC Purchases
The amount paid for QLACs may not exceed the lesser of $125,000 or 25 percent of your combined IRA account balances. A participant can buy multiple QLACs in his/her traditional IRA(s) provided the cumulative total premiums paid do not exceed these limits. The $125,000 amount will be adjusted upwards for inflation starting in 2015, however.
The 25% limitation is applied to the total account balance (including the value of any QLAC). The IRS treats all traditional IRAs that you own as a single account for applying this limit, just as required minimum distributions taken from one traditional IRA can satisfy the distribution requirement with respect to other traditional non-inherited IRAs owned by the same individual.

Roth IRAs
The limitations on purchases of longevity annuities do not apply to Roth IRAs during the owner’s life. That’s because there is no lifetime minimum distribution requirement applicable to a Roth IRA, therefore, buying an annuity that does not start payments until much later than age 70½ is “not a problem” for a Roth IRA.
Longevity annuities held in a Roth IRA are not considered QLACs and do not count when applying the 25 percent/$125,000 limit on QLAC purchases in the participant’s traditional IRA.
Rules Regarding QLAC Death Benefits
Since a QLAC is supposed to be insurance against living “too long,” it makes no sense for the QLAC to provide a death benefit. The cost of providing a death benefit must necessarily reduce the true “longevity insurance” the contract can provide. But human nature being what it is, people only want to buy this product if some kind of death benefit applies, so the IRS regulation permits certain limited death benefits. In general, the permitted death benefits must either be in the form of a “permitted” survivor annuity, or, alternatively, the contract can provide a “return of premium” guarantee-type death benefit in lieu of any survivor annuity.
If the participant’s surviving spouse is the sole beneficiary, the contract can provide a life annuity to the surviving spouse provided the annuity payments do not exceed the annuity payments the participant would have received.
If the participant’s surviving spouse is not the sole beneficiary, the contract can provide a life annuity to the surviving beneficiary. If the beneficiary is the same age as, or older than, or not more than two years younger than, the participant, the maximum annuity is the same annuity the participant would have received. If the beneficiary is more than two years younger than the participant, the amount of the maximum survivor annuity is reduced per a table in the regulation.
You may see a plethora of QLACs in the near future being issued by the large insurance firms. For those that are concerned that their IRAs may not last as long as they do, it might be something to look into.
©2014 Craig R. Hersch

Meaningful Last Words

Posted on: October 31st, 2014 | No Comments

“Harry” complained to me recently while reading over his estate planning documents. “These seem so…cold….so….’legal’…” he said slowly, searching for the right words. “I understand that these documents have to use this legal language so that my estate gets the benefits of the law, but I’m having a hard time knowing that these will be my last words that I communicate to my family.”


I understood Harry completely. Who wants their last words to read “I instruct my trustee to distribute a fraction of my estate, the numerator of which is comprised of the largest amount that would not be taxable…blah blah blah?”


I am sure that no one wants that.


Today, I’m going to propose that you consider an alternative. This alternative can be made into a very meaningful and fun exercise.


What I’m referring to is to leave a separate letter – apart from your will – for each of your most important loved ones.


This letter shouldn’t be about “who gets what” from your estate – that’s for your will and trust. Besides, you don’t want to inadvertently say anything that might contradict what’s in your legal documents that could lead to beneficiary disputes.


Instead – what I’m talking about here – is for you to create something really special. Too often we don’t share our true emotions with those closest to us. We often tell our spouses that we love them, but we don’t tell them why we love them. We might tell our children that we are proud of them, but we don’t tell them why we are proud of them. We may truly admire something about a lifelong friend, but we are often afraid to open up and tell them what we’ve admired about them – or even that we harbored admiration to begin with.


How great would it be if we shared all of those thoughts with those closest to us? So I propose that you do just that. Write a letter and tell our loved ones how much they’ve meant to us. Then have that letter kept with your will – to be opened concurrently.


I thought that I’d suggest a few basic thoughts for those who might not be as comfortable putting words on paper:


Keep it Positive – Particularly when you are writing a letter that you don’t intend for a loved one to receive until after you have departed this earth, it’s a good idea to keep it positive. Everyone is subject to valid criticisms for our faults and unfulfilled expectations. Don’t use this letter as a means to review those. These are your last words. Don’t you want them to leave them with a smile? But do be sincere. Don’t heap praise where praise really isn’t believable. Everyone has positive qualities. Talk about those here.


Write Separate Letters – Don’t combine everything into one letter. Write one for your spouse. Another to each child or other loved one. That way your letter can be very personal for that particular person.


Open a Spousal Letter with How You Fell in Love – You might open a letter to your spouse recalling the first time that you met, and how you knew that you were in love. Talk about the qualities that she or he possessed and how those qualities grew better over time.


Recall Your Child’s Early Years – For your children you might open a letter about their early years – how much you cherished having them in your life. There may have been certain traits, characteristics or events that foreshadowed later successes they achieved. Talk about those – and how you noticed them.


Tell Them Why – Don’t be shy telling your loved ones the “whys.” Why you are so in love. Why you are so proud. Why you smile when you think about them. With kids it might even be fun to tell them why you wanted to have kids in the first place, and how different it was raising them as opposed to what you expected before you ever had kids.


Review Fun Family Times or Accomplishments – Every relationship has its ups and downs. Many of the ups can be chronicled as happening during a certain event – a vacation – a sporting event – a holiday gathering. While everyone might have already grown tired hearing the same stories around the dinner table over and over – you might be able to provide a twist – relay why that story meant so much to you – and how it demonstrates your loved one’s special qualities.


Regrets – Generally speaking, it’s not a good idea to create a list of regrets. But you might have some that would have a positive spin. “I regret that I didn’t tell you this earlier, and hope that by telling you this now, you’ll know how much you meant to me,” for example. You may regret certain incidents and want to apologize for them. If this is the case, do your best to keep it concise while not trying to place blame or guilt on your loved one.


Your Hopes and Dreams – Talk about your hopes and dreams for your loved one – particularly if they are young. If they aren’t young anymore, you can talk about how proud you are of their accomplishments. Maybe they’ve raised great kids of their own. Perhaps they’ve overcome a lot of obstacles and you’ve noticed how far they’ve come. That’s great stuff. Let them know it.


Wind it Up- Make sure that you leave them with a warm statement. I saw one letter where a father told each of his children that he wanted them to know that he believed in an afterlife, and although his children may no longer be able to touch him or hear him, they could talk to him and he would be there to listen. He told them that he trusted their judgment, and he hoped that they would live the rest of their life with confidence that everything happens for a reason. It struck me as a powerful confirmation of his love, devotion and admiration.


I hope that this column helped provide the start of an outline if you should feel this important to do for your loved ones. I’m working on a letter for my wife and for each of my children, which I intend to update as the years go by. I’m hopeful that these writings will mean more to them than anything material that I leave behind.


©2014 Craig R. Hersch

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