Morningstar Advisor - October/November 2010 - 37

Same-Sex Couples
Unmarried couples miss out on the biggest estate tax break there is: the unlimited spousal exemption. “A single-sex couple might start with an assumption that each will leave each other everything,” Abendroth says. “If it is a wealthier pair, however, the first to die will pay an estate tax, and then the second person will pay it again on the same assets. So, each should leave property in trust for the other.” Green also recommends bypass trusts. “The surviving ‘spouse’—and I use that term because that is how it should be—will have income and the ability to draw principal, but you can keep the money from being taxed again when the survivor dies.” Given legislative and judicial trends, “spouse” is increasingly becoming a legal term for same-sex partners. “It may well be that in five years the couple will in fact be legally married,” Green says, “so you might go ahead and have the marital exemption built into the estate planning.” Until that happens, same-sex couples also need to beware of the consequences of unintended gifting during life. “Rules about transferring property freely between husband and wife aren’t available,” Abendroth says. Adding a partner’s name to a savings account or a property deed might end up creating a taxable gift.

grandchildren are a popular way to reduce a taxable estate. A child with special needs, however, is better off not owning assets outright. Instead, money should be put in a specialneeds trust, where the beneficiary has no control over the money. That means donations do not count as gifts for estate-tax purposes, but it also means that the child doesn’t have assets that might limit eligibility for government programs. “It is often not a financial issue, as much as it is access to programs for care and special training,“ Abendroth says. “Private alternatives may not be as useful.” Clark specializes in special-needs trusts. Because of the complex issues, he advises naming both a “heart trustee” (often a sibling), who can carry on the parents’ wishes, and a “mind trustee” to manage the assets. A trust might also direct trustees to consult with a child’s physician. “Parents of autistic children, for example, want to be sure their child can continue the treatment they received while the parents were alive,” Clark says. Often, that treatment is deemed experimental and a trustee may hesitate to approve payments. “It gives parents comfort to have their child’s own doctor make treatment decisions,” he says.

A social worker or geriatric-care manager might be given power of attorney for health care and will charge a fee in the event that his or her service is needed. A bank or trust company can serve as a financial fiduciary. “They will either charge on an hourly basis or as a percentage of assets,” Neiburger says. “The problem is that people don’t want to pay for a fiduciary. They pay for auto insurance in case the car gets hit and homeowners insurance in case the house burns down, but they don’t realize that a financial fiduciary provides another form of insurance.”

Family Businesses
This may be the best year ever to pass down the family business. Bresette emphasizes that it is an “extraordinarily unique environment. Owners are never going to be in a better position to give portions of their business away to children at low tax costs.” That’s partly because closely held small businesses are at historically low values as a result of both economic conditions and the tightening of the credit market. Further, the gift-tax rate, at 35% this year, is also historically low. Finally, now is an ideal time to establish a grantor retained annuity trust, or GRAT (see “Prepare for the Worst,” Page 32). “It is difficult for owners to give up a business they’ve created. They are not feeling particularly wealthy these days, either; they may be struggling to make payroll,” Bresette says. “But if you can get an owner to stop and take a breath from running the day-to-day operations, they often see the opportunity to save a great deal of money in taxes.” K
Laura Lallos is a former Morningstar analyst and editor and frequent contributor to the magazine.

Couples Without Children
People without children may not be certain who will best look after their interests later in life. “They often have a whole cadre of people who become their friends,” says Ben Neiburger, who specializes in elder law. “What I recommend for couples who have means but do not have children is to appoint independent fiduciaries for health care and for managing money. Then, the relatives can be as friendly as they want, and you don’t have to worry about undue influence when you become old and frail.”

Families With a Special-Needs Child
This is one instance where parents and grandparents might not want to take advantage of the annual gift-tax exclusion. Anyone can make unlimited tax-free gifts of as much as $13,000 each year (adjusted for inflation) per recipient, and such gifts to children and

MorningstarAdvisor.com 37


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Morningstar Advisor - October/November 2010

Table of Contents for the Digital Edition of Morningstar Advisor - October/November 2010

Morningstar Advisor - October/November 2010
Contents
New on MorningstarAdvisor.com
Contributors
Letter From the Editor
What estate-planning strategies are you and your clients doing before the end of the year?
Next Steps for ETFs
Investment Briefs
Taking It Personal
A Model Practice
Find the Right Fit
Will REITs Put You in the Penthouse?
Prepare for the Worst
Tips for Common Family Situations
Might Makes Right
Built to Last
Four Picks for the Present
Tactical Strategies Miss Their Mark
Time to Hop on the Commodities Bandwagon?
Retailers Balance Caution and Catalysts
In Search of … Recession Survivors
Turmoil-Tested Small-Cap Funds
Mutual Fund Analyst Picks
50 Most Popular ETFs
Undervalued Stocks With Wide Moats
VA Sales Rise in Second Quarter
The Third Rail
Morningstar Advisor - October/November 2010 - Intro
Morningstar Advisor - October/November 2010 - Morningstar Advisor - October/November 2010
Morningstar Advisor - October/November 2010 - Cover2
Morningstar Advisor - October/November 2010 - 1
Morningstar Advisor - October/November 2010 - 2
Morningstar Advisor - October/November 2010 - Contents
Morningstar Advisor - October/November 2010 - 4
Morningstar Advisor - October/November 2010 - 5
Morningstar Advisor - October/November 2010 - New on MorningstarAdvisor.com
Morningstar Advisor - October/November 2010 - 7
Morningstar Advisor - October/November 2010 - Contributors
Morningstar Advisor - October/November 2010 - Letter From the Editor
Morningstar Advisor - October/November 2010 - What estate-planning strategies are you and your clients doing before the end of the year?
Morningstar Advisor - October/November 2010 - 11
Morningstar Advisor - October/November 2010 - Next Steps for ETFs
Morningstar Advisor - October/November 2010 - 13
Morningstar Advisor - October/November 2010 - Investment Briefs
Morningstar Advisor - October/November 2010 - 15
Morningstar Advisor - October/November 2010 - 16
Morningstar Advisor - October/November 2010 - 17
Morningstar Advisor - October/November 2010 - Taking It Personal
Morningstar Advisor - October/November 2010 - 19
Morningstar Advisor - October/November 2010 - A Model Practice
Morningstar Advisor - October/November 2010 - 21
Morningstar Advisor - October/November 2010 - Find the Right Fit
Morningstar Advisor - October/November 2010 - 23
Morningstar Advisor - October/November 2010 - 24
Morningstar Advisor - October/November 2010 - 25
Morningstar Advisor - October/November 2010 - Will REITs Put You in the Penthouse?
Morningstar Advisor - October/November 2010 - 27
Morningstar Advisor - October/November 2010 - 28
Morningstar Advisor - October/November 2010 - 29
Morningstar Advisor - October/November 2010 - 30
Morningstar Advisor - October/November 2010 - 31
Morningstar Advisor - October/November 2010 - Prepare for the Worst
Morningstar Advisor - October/November 2010 - 33
Morningstar Advisor - October/November 2010 - 34
Morningstar Advisor - October/November 2010 - 35
Morningstar Advisor - October/November 2010 - Tips for Common Family Situations
Morningstar Advisor - October/November 2010 - 37
Morningstar Advisor - October/November 2010 - Might Makes Right
Morningstar Advisor - October/November 2010 - 39
Morningstar Advisor - October/November 2010 - 40
Morningstar Advisor - October/November 2010 - 41
Morningstar Advisor - October/November 2010 - 42
Morningstar Advisor - October/November 2010 - 43
Morningstar Advisor - October/November 2010 - 44
Morningstar Advisor - October/November 2010 - 45
Morningstar Advisor - October/November 2010 - Built to Last
Morningstar Advisor - October/November 2010 - 47
Morningstar Advisor - October/November 2010 - 48
Morningstar Advisor - October/November 2010 - 49
Morningstar Advisor - October/November 2010 - Four Picks for the Present
Morningstar Advisor - October/November 2010 - 51
Morningstar Advisor - October/November 2010 - Tactical Strategies Miss Their Mark
Morningstar Advisor - October/November 2010 - 53
Morningstar Advisor - October/November 2010 - 54
Morningstar Advisor - October/November 2010 - 55
Morningstar Advisor - October/November 2010 - 56
Morningstar Advisor - October/November 2010 - 57
Morningstar Advisor - October/November 2010 - Time to Hop on the Commodities Bandwagon?
Morningstar Advisor - October/November 2010 - 59
Morningstar Advisor - October/November 2010 - 60
Morningstar Advisor - October/November 2010 - Retailers Balance Caution and Catalysts
Morningstar Advisor - October/November 2010 - 62
Morningstar Advisor - October/November 2010 - 63
Morningstar Advisor - October/November 2010 - 64
Morningstar Advisor - October/November 2010 - 65
Morningstar Advisor - October/November 2010 - In Search of … Recession Survivors
Morningstar Advisor - October/November 2010 - 67
Morningstar Advisor - October/November 2010 - Turmoil-Tested Small-Cap Funds
Morningstar Advisor - October/November 2010 - 69
Morningstar Advisor - October/November 2010 - Mutual Fund Analyst Picks
Morningstar Advisor - October/November 2010 - 71
Morningstar Advisor - October/November 2010 - 72
Morningstar Advisor - October/November 2010 - 73
Morningstar Advisor - October/November 2010 - 50 Most Popular ETFs
Morningstar Advisor - October/November 2010 - 75
Morningstar Advisor - October/November 2010 - Undervalued Stocks With Wide Moats
Morningstar Advisor - October/November 2010 - 77
Morningstar Advisor - October/November 2010 - VA Sales Rise in Second Quarter
Morningstar Advisor - October/November 2010 - 79
Morningstar Advisor - October/November 2010 - The Third Rail
Morningstar Advisor - October/November 2010 - Cover3
Morningstar Advisor - October/November 2010 - Cover4
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