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This Week in the iNews:

▲ CONSUMPTION TAX

▲ BENEFITS OF A LIVING TRUST

▲ LUNCH & LEARN SERIES PROGRAM – BUSINESS VALUATIONS

Please visit our website at www.pmcpa.com for all prior issues of iNews.

▲ Consumption Tax

From the Desk of John Mack, CPA, MBA

In the coming weeks you will hear a lot about a possible new consumption tax. It’s a tempting way to help foot the bill for health care reform. A 1.5% tax on value added on goods and services could raise an estimated $600 billion over 10 years, for example, and seems less painful then other options being considered. But not so fast. The real problem is, lawmakers would almost certainly insist on carry out exemptions, food, prescription drugs, maybe housing and utilities. Then, raising $600 billion would require a VAT of double the proposed rate…enough to prompt most officials who want to be re-elected to beat a hasty retreat. Plus, state governments would certainly raise “Cain”, arguing that sales taxes are their chief revenue raisers and that a federal tax would severely hamper them.

In the end, no such tax will fly. There may be reasons to substitute a tax on consumption for the current tax on income, but that kind of sweeping rewrite of the tax code is nowhere in sight. And as an add-on, it is surely a pipe dream!

▲ Benefits of a Living Trust

A living trust is different from a will. If you have a will, it will get "interpreted" by the courts once you pass on, and, it will be argued about by the attorneys. This is probate. As you may already know, it can be a very costly, lengthy and public process.

A living trust can help you avoid the cost, time delays and publicity associated with a will.

So a trust provides much greater privacy than a will.

What other benefits does a trust offer?

Any assets you put into the trust go to the beneficiaries that you name. No lawyer or judge gets involved. Because of that, it's much less expensive and takes a lot less time to wind up an estate that has a trust versus an estate that doesn't.

In some cases, a trust can be used to save money on estate taxes but we're not going to get into that subject right now. You can ask us how to help you with that issue.

You may still need a will to "pour over" assets to your trust. Its only purpose is to provide for any assets that were mistakenly left out of the trust you’ve created.

Another very important benefit of having a trust is that it usually includes setting up a health power of attorney. This gives legal authority to another human being to make medical decisions for you in the event that you are unable to do so. Keep in mind that you don't have to set up a trust to get such a document in place. We strongly recommend everyone consider getting such a document in place — whether or not you set up a trust.

Problems with Trusts

First, you have to actually create a trust. While that could cost anywhere between a few hundred dollars to a few thousand dollars, it's well worth it. You have worked all your life to build up assets. Doesn't it make sense to spend some money to protect those assets?

Next, you have to move assets into the trust. Keep in mind that a trust is only a shell. It creates the opportunity for you to have the benefits of the trust. In order to realize those benefits you have to rename those assets so that the trust is the owner of the assets. The renaming process is not difficult or costly.

Now, before you get into a big fuss, keep in mind that you don't have to give up control of the assets. By naming yourself as the trustee of the trust, you still call the shots. You don't have to give up anything. You can invest the money, sell the house … do anything you want. Nothing changes.

Another issue can be children. Some people say that a trust can't guarantee what happens to minor children if both parents pass away. That is true. But a will doesn't solve this problem either. As far as we know, there is no written document that you can create that will guarantee what happens to minor kids. You can make your wishes known by expressing them in the trust or will and the court usually carries that out.

Conclusion

It's never too soon, or late, to take care of this issue. Nobody knows when his or her time is up. If you are responsible for other people or have assets you'd want your family to inherit without wasting lots of time and even more money, you should consider looking into setting up a living trust.

▲ Lunch & Learn Series Program – Business Valuations

Please join us for our upcoming Lunch & Learn Series program on Business Valuations at noon on Wednesday, September 16, 2009 in the Prangley Marks, LLP lunch/conference room, presented by Leslie N. Prangley, III, CPA, CVA, and Harold A. Marks, CPA, CVA.

Please contact mripley@pmcpa.com or call (616) 774-9004 to reserve your spot.

Complimentary lunch, program and parking provided.

Seating is limited.