529 Plans

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who is to benefit from creation of the plan) or you can withdrawal the money but you’ll have to pay taxes on the amount withdrawn.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 or (517) 381-2663.


A Doctors Guide to Protecting Their Assets

By Adil Daudi, Esq.

EDIT_MoneyDoctorA very common joke used by most doctors who have had a bad experience with a lawyer is that “there are more lawyers than doctors in a hospital.” Although the joke itself is not completely true, it’s also not far from the truth.  More and more doctors are having to worry about being sued for some form of malpractice. Whether that makes doctors more alert when conducting a procedure, or more nervous, has yet to be proven. But what is quite apparent is that lawyers are quick to pull the trigger on a lawsuit whenever a doctor is on the receiving end of the complaint.

So what happens when a doctor is in the middle of a lawsuit where the potential judgment of the liability exceeds the doctor’s malpractice limits? Without a properly structured plan in this common scenario, the doctor becomes susceptible to having his or her personal assets exposed and seized; this can include bank accounts, investments, a primary residence, and rental property, among other assets.

However, with a few simple steps and with even the most simplistic plan in place, a doctor can potentially save and protect millions of dollars from creditors and bad lawyers.

The following are three strategies a doctor can, and should, implement into their day-to-day lives; which will, at the very least, help discourage potential lawsuits from arising:

i. Create a Professional Limited Liability Company (PLLC): As recent as December 2010, former Governor of Michigan, Jennifer Granholm, made Michigan one of the top States in the country to start a PLLC. The bill provides a distinct advantage for owners of a PLLC, as the exclusive remedy for any creditor against debtors is through a charging order.

A charging order is best exemplified when a creditor intends to obtain the proceeds that a debtor distributes to themselves through their PLLC. However, if the debtor decides to not make any distributions, which is often the case, then the creditor is left with no alternative remedy.

Moreover, a well structured medical practice with multiple PLLCs can deter potential lawsuits. Please consult with a professional attorney to learn more about creating and administering a PLLC.

ii. Create an Irrevocable Trust: Once created, an irrevocable trust is a trust that cannot be changed, altered or amended. Although this trust is extremely effective in protecting your assets, the downside is that it takes away ownership and possibly control from the creator of the trust (i.e. you). Your ownership loss prevents creditors from being able to reach these assets. Remember, a creditor can only attack the assets that you own; therefore, if it’s not in your name, creditors will not have access to it.

Prior to getting yourself into an irrevocable trust, be sure to speak to an attorney who practices in Asset Protection. More and more attorneys who are not familiar with this topic tend to advise clients that a Revocable Living Trust (RLT) can serve the same purpose. This is not true since an RLT does not take ownership or control away from your assets because the assets remain in your individual name.

iii. Create a Retirement Savings: There is a reason why OJ Simpson is continuing to live a normal life despite having a judgment against him for over $20 million. He took complete advantage of a protective tool that the government made available to the public. The federal government protects  all contributions made to a qualified retirement account from creditors. Therefore, all qualified retirement accounts, such as contributions to 401(k) plans, 403(b) plans and profit-sharing plans are protected from creditors, until you start making withdrawals.

In addition to qualified accounts, Michigan has also allowed contributions to Individual Retirement Accounts (IRA) to be protected from creditors. Therefore, if you have not already done so, it will be worthwhile for you to start maximizing your contributions.

Despite the fact that malpractice lawsuits have been on the rise for the past decade, doctors continue to take the reactive approach to planning and tend to take the necessary steps of protecting their assets only after the filing of a lawsuit. By doing so, the doctor is   exposed to possible criminal charges, as any transfers of funds or assets made after the filing of a lawsuit is considered a fraudulent conveyance. In other words, it is now too late.  You must plan before the lawsuit. 

Although the foregoing is not a comprehensive list of asset protection strategies, it is however a good starting point. For the number of years invested in your profession, it only makes sense that you consult with a professional attorney who can assist you in preserving your hard-earned wealth before it is all taken away.

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 or (517) 381-2663.