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Philadelphia PA Estate Planning Blog
Sunday, July 26, 2015
If you are the parents of or caring for young children or dependents, you need to ensure that you have a plan in place if something happens to you. Most younger families don’t give ‘estate planning’ a lot of thought because they don’t think they have enough of an estate to worry. But estate planning is more than just about money. It’s about ensuring a smooth transition of all of your affairs if something happens to you at anytime. A key concern we have for younger families is making sure Guardians are appointed, both in a Power of Attorney and Last Will & Testament. If you do not appoint guardians yourself, and something happens to you, the Pennsylvania Orphans’ Court will get involved and guardians will be appointed by a judge. Do you really want somebody you don’t know appointing a person to care for your children? Wouldn’t you feel better off if you decided that in advance? Every family will have different goals when it comes to estate planning. This is just one of many examples where it’s more than just money as a concern. If you haven’t yet planned for your family, please call my office today at (215) 706-0200 for your complimentary appointment.
Thursday, July 9, 2015
Many people feel guilty about procrastinating about their estate plan. But procrastination is normal. Frankly, not many people want to consider their own demise. But you can't wait until it's too late to start your estate planning. Remember that it's not just about you, but it's about your family and legacy. The younger you are, the more options we have to protect your estate and the easier it is to plan. Make sure you have valid Powers of Attorney, a will and/or a trust, and any other estate planning tools that your attorney deems necessary. Estate planning is not just about tax planning. Today, it's about a few more things: - Your legacy -- in this complex world, a poorly written estate plan can tear a family apart forever.
- Your long-term care plan -- we are living longer, and long-term care is expensive. How will you protect your family while paying for your long-term care?
- Asset protection for your loved ones -- no one wants their hard earned savings to be part of their heir's divorce settlement, lawsuit judgment or creditor claim.
Now is the best time to plan or review your existing plan. Call our office today at (215) 706-0200 to schedule your complimentary telephone consultation at a time convenient for you.
Monday, June 1, 2015
Consider your "estate" for a moment--what's in your estate? Chances are, there is a significant IRA or retirement account in your estate. Yet, most people fail to do proper planning for IRAs in their estate plan. In fact, your Last Will & Testament does not control your IRA. I hope you use this short Q&A on Inheriting an IRA to evaluate your estate plan and make changes as needed: 1. What’s the problem with my IRA passing through my will or estate? The short answer is that you never want your IRA to pass via your will, because it’ll force your beneficiaries to take a lump sum distribution and pay Uncle Sam all income taxes immediately. Instead, you should designate your IRA directly to beneficiaries or to a special IRA trust to take advantage of the “stretch IRA” tax-shelter opportunities. 2. What is a “Stretch IRA”? A Stretch IRA is also known as an Inherited IRA, Beneficiary IRA or Multi-generational IRA. The “stretch” lets your beneficiary continue the tax-deferred treatment of your IRA during his/her lifetime. With a stretch, the beneficiary takes small distributions annually, allowing the remainder of the funds to continue growing tax-deferred. This can lead to big gains over the years and provide benefits for multiple generations. In contrast, a lump sum distribution would mean Uncle Sam getting a big cut of your estate (the highest tax rate right now is 39.6%). 3. Do I Need an IRA Trust? For significant IRA’s (i.e., $150,000 or more per beneficiary), it makes sense to protect the IRA inside an IRA Trust. The three major benefits of an IRA trust are (1) ensuring the “stretch” is taken, (2) protecting the IRA from the creditors of a beneficiary, and (3) keeping the IRA in your bloodlines. An IRA Trust is a special trust and costs more to design. However, your legacy and the benefits for your family greatly outweigh any cost of an estate plan. 4. Why does a “stretch” make more sense than a lump sum distribution? A lump sum distribution of an IRA will trigger all of the income taxes to be paid immediately. For instance, on a $200,000 IRA at a 25% tax rate, the beneficiary will be left with $150,000. Even worse, the remaining funds are no longer tax-deferred, but rather subject to ordinary income and capital gains taxes. In other words, that lump sum may be whittled down rather quickly. By contrast, a $200,000 stretch IRA may be worth over $1.5 million over a beneficiary’s lifetime, depending on age and how the IRA is invested. The reason? A younger beneficiary can let the funds sit in the IRA tax-deferred account longer, meaning Uncle Sam can’t eat away at it. 5. Can my beneficiary simply roll-over my IRA into their own IRA? No, only your spouse can do that. Any other beneficiary cannot do a roll-over. The either must take a lump sum, or take a Beneficiary IRA. Or, you could establish a trust so that the IRA is held for them in trust. 6. What do most beneficiaries decide to do when they find out they’re inheriting an IRA? Most beneficiaries opt to take a lump sum, which Uncle Sam appreciates. The custodians of IRA accounts are typically unhelpful to the beneficiaries in making this important decision. A beneficiary only has one chance to get it right. An IRA Trust can be helpful because it will prevent the lump sum distribution, and force the beneficiary to take the Beneficiary IRA (Remember, another term for “stretch”). Ask yourself this… before reading this article, how much knowledge did you have about Stretch IRAs? Consider that your beneficiaries will probably know less than you and not understand the decision they make. 7. My IRA is for my retirement, so why should I be worried about who inherits it? People that believe they will spend down their IRAs in retirement often forget two concepts: First, they were and are savers, and that habit won’t change overnight. Second, they will only take their required minimum distribution because they don’t want to pay Uncle Sam one penny more than they have to. Most people will leave significant IRAs if they were savers during their lifetime, so it’s best to plan for the strong possibility that your heirs will inherit your IRA.
Thursday, May 7, 2015
Term Life Insurance vs Whole Life Insurance - Why It Matters Life insurance is a commonly used tool in estate planning, but often misunderstood or misapplied. It is one tool of many, and you should consider life insurance as part of a comprehensive plan. Term life insurance is essential insurance that you rent for a period of time (typically 20 years). Term insurance is affordable if you’re young and healthy, and generally serves a specific purpose, such as premature death. You could instantly make up for income loss, supporting children, etc. Term insurance typically is used for younger people who need this affordable protection. The disadvantage of term insurance is that once your term expires, the insurance premiums skyrocket or the policy lapses. There is also no cash value or other benefits to these policies. Whole life insurance is a policy that accumulates cash value and can offer a guaranteed death benefit. Certain types of whole life insurance policies can provide unique estate planning benefits, such as the ability to add an “accelerated death benefit” or long-term care rider. With this type of policy, life insurance is no longer just a benefit to your loved ones, but a benefit to you as well if you need long-term care (In Pennsylvania, nursing home costs are surpassing the $100,000/year mark easily). Life insurance generally passes inheritance tax free in Pennsylvania. Life insurance death benefits are also income tax free. Finally, you may use life insurance if you have a large estate to fund an Irrevocable Life Insurance Trust, so that the life insurance benefits aren’t included in the estate for tax purposes. If you want to learn more about how life insurance may benefit you and your estate, contact The Law Offices of Jeremy A. Wechsler today for your consultation.
Monday, April 6, 2015
In this blog, we explore 10 common questions about Powers of Attorney in Pennsylvania. Powers of Attorney are a fundamental part of your estate plan, so make sure you see an estate planning attorney to discuss your Powers of Attorney.
- Why do I need a Power of Attorney? A Power of Attorney (POA) is important in case you become incapacitated, or you are incompetent and cannot manage your own affairs. An “agent” (the person you appoint as Power of Attorney) steps into your shoes to take over all of the activities and responsibilities that you can no longer handle. Because life expectancy continues to increase, there is more of a chance that any of us becomes incapacitated during our lifetime.
- Who should be my Power of Attorney? Choose a person that you trust wholeheartedly. I always tell people to choose your agent based on your gut feeling. If you have reservations about the person you chose, then it’s the wrong person. Try to choose someone who is local, responsible, competent, and typically younger than you.
- What happens if I become incapacitated and do not have a Power of Attorney? Guardianship proceedings may be needed if you do not have a POA at the time of incapacity. Guardianship is granted through the courts, and is burdensome for all parties involved. Worse, you have no say in who your guardian is. If several people try to become your guardian, then there are contested guardianship proceedings, which can drain your assets and leave you with a guardian who you don’t even know.
- If I am appointed as someone’s Power of Attorney, what are my responsibilities? You have a fiduciary responsibility to act in the person’s best interests. You must handle their money carefully, pay all bills, preserve assets, and be able to account for all of the funds. In essence, you step into the person’s shoes.
- How can I trust the person I appoint? There is no easy answer to this, but continuing to review your Power of Attorney document every few years will get you into a good habit of making sure the person appointed is still the person you would trust if something happened to you. Again, go with your gut feeling—if you’re questioning whether the person is trustworthy, they’re probably not.
- Is a Power of Attorney separate from my Last Will & Testament? They are very different. The purpose of a Last Will & Testament is to settle the estate when one passes away. A Power of Attorney is for incapacity/incompetency while you’re still alive. These two documents are always separate.
- Do Powers of Attorney expire? No. However, you should review your POA every few years. Banks and financial institutions may create extra legal hurdles if presented with an old Power of Attorney. My advice is to re-execute your POA’s every 5-8 years even if no changes have occurred.
- Can I appoint Co-Agents? Yes. However, Co-Agents can create logistical nightmares, and conflicts can occur easily. Think of your agent like a CEO. You need one person you trust to be able to take decisive action when necessary. I always recommend having at least two backup agents in case the primary agent is unavailable to serve.
- Why are there ‘Gifting’ powers in my Power of Attorney? Gifting powers are often used to take advantage of any Medicaid laws that favor spending down your estate if you need long-term care in order to preserve assets for your family. The gifting powers should be carefully written to comply with state law, and also to protect your estate from unscrupulous spending. In Pennsylvania, the laws on Powers of Attorney changed in 2015 regarding gifting laws. Check with your attorney.
- What is the difference between a Springing Power of Attorney and Immediate Power of Attorney? With a Springing Power of Attorney, two doctors must certify incapacity before the POA takes effect. This can lead to delay and problems. An immediate Power of Attorney does not require the doctors certification; the agent can take over at the time you can no longer handle your own affairs. Again, if you trust your agent, this won’t be a problem.
If you need assistance with Powers of Attorney or Estate Planning, call The Law Offices of Jeremy A. Wechsler today at (215) 706-0200.
Sunday, February 15, 2015
It's not uncommon to hear people confuse a will and an estate plan. A will can be part of an estate plan, but is not a complete estate plan. The question is, what is a "complete" family estate plan? Here's my definition broken down into bullet points:
- Provides a legacy that your loved ones will be proud of for years to come;
- Ensures your property passes to whom you wish it to pass;
- Protects the inheritance from outside forces, such as creditors, divorces and lawsuits;
- Addresses incapacity and long-term illness planning; and
- Saves your heirs every tax dollar possible, and saves them from making mistakes when inheriting your estate.
A Last Will & Testament only helps with one of the five items, item #2. Item 2 is important, but aren't the other four equally important?
I could make a case that each one of the five are the most important items on the list, but the truth is, they're all important. One remarkable but little-known truth of estate planning is that in the modern estate, typically only half of the estate passes through the will. The other half passes by beneficiary form. Think about your IRA's, life insurance policies and annuities: They all have beneficiary designation forms. IRA's in particular offer great rewards, but great dangers to your heirs if they inherit them without knowing what to do.
The best advice (perhaps biased advice) that I can give you is to design your entire estate plan with an estate planning attorney. He or she can walk you through all of the steps, and discuss all of the points above. Every plan is different. The plan really depends on your goals, the types of assets you own, your family and more.
Don't get a false sense of security if you have a simple will. If you haven't visited with an estate planning attorney, take the initiative to do so. If nothing else, you'll learn a lot!
Sunday, February 15, 2015
Estate Planning for Non-Traditional FamiliesIs your family of the “Leave It to Beaver” variety -- opposite-gender parents, the first marriage for each, one or more kids, all healthy and thriving? If so, your estate plan will probably be pretty straightforward. But if not, it's not as simple and you have a lot of company.
The percentage of married households in the United States fell from 55 percent in 1990 to 48 percent in 2010. Perhaps this number will begin to rise again with same-sex marriages being honored in more and more states. About 40 percent of all marriages end in divorce. Three quarters of people who divorce remarry -- accounting for a pretty large proportion of the 48 percent of American households that are married.
Nearly 1.5 million babies a year are born to unmarried women, more than a third of all births.This can complicate matters, especially when the father is not identified or, in the case of donated sperm, does not exist. It also can mean a greater need for planning when there is no obvious back-up parent if something happens to the mother.
If you are in a relationship, but not married, been married more than once, have children by more than one partner, or have beneficiaries who cannot manage funds for one reason or another, then it's more important that you do estate planning and your planning cannot be plain vanilla. Here are a few tips to consider: - Give Your Partner Rights. There are laws in place empowering spouses and governing the distribution of property in the event of death. The so-called "rules of intestacy" provide that property will pass to spouses and children, or to parents if someone dies without a spouse or children. But no laws protect unmarried partners or unadopted children. There have been many cases of parents pushing aside the same-sex partners of their children upon death or incapacity. We can all use wills,trusts, durable powers of attorney and health care proxies to choose who should step in for us when needed and who should receive our property.
- But Don't Give the New Spouse Too Many Rights. All too often, despite the best of intentions and good will, when parents remarry the new family doesn't bond. The children from prior marriages or relationships don't become friends with one another or with the new spouse of their father or mother. Frequently, the death of one spouse means that all of the assets of both families end up with the surviving spouse and ultimately pass to his or her children and grandchildren. Frank discussions about what the new couple wants and planning to make sure it plays out as planned can prevent a lot of misunderstanding and resentment. Again, wills, trusts, durable powers of attorney and health care proxies can permit the new couple to choose the outcome they prefer, rather than just let life (and death) happen and the chips fall where they may.
- Don't Be Afraid to Talk Pre-Nup. While most people entering a first marriage have no children and few assets, this is not the case with a second or third marriage. Before getting married again, the couple needs to talk about what they have in mind in terms of mutual financial support of one another and of their children from prior marriages and relationships. Then they need to put their understanding in writing so that down the road there are no misunderstandings or different memories of what they agreed. If memorialized in a prenuptial agreement, it will also be legally enforceable. If circumstances change, the couple can always modify their agreement.
- Use Trusts. Wills are generally straight forward and blunt instruments. When you pass away, your property passes to the people you name. Wills do not easily permit more flexible planning. For instance, you may want to permit your new spouse to live in your home for as long as he wants, but for it to ultimately pass to your children and grandchildren. A trust permits you to plan for this scenario, giving your spouse rights, but someone else -- the trustee -- the power to manage the property and protect it for the next generation. Or a couple could pool all of their resources in a single joint trust for their benefit during their lives, with the funds remaining after they have both passed away to be distributed equally to the children they each bring to the new relationship or marriage.
- Goals First, Planning Second. No planning can take place in a vacuum or based on assumptions without asking questions. Anyone considering planning for themselves and for loved ones, whether in a traditional or non-traditional relationship, needs to start by listing her goals. Is her primary concern providing for herself? Leaving an inheritance to children? Protecting a spouse or partner? Or a pet? Making sure children are independent, but have a safety net if necessary? Of course, most of us don't have just one goal, but we should start by writing them all down. Then we can see if it's possible to achieve all of them, or if we need to prioritize. Ultimately, the estate plan should reflect these goals and priorities. While this is true of anyone doing estate planning, it is more important the more family and non-family bonds one has because the plan will have to balance and prioritize more interests.
The bottom line is that our laws for distribution of property and rights in the event of incapacity are based on a vision of a marriage between one woman and one man with one or more children. However standard this ever was in reality, it is much less the norm today, almost certainly applying to fewer than half of American adults. For those who don't fit the one nuclear family mold, planning is both more important and more interesting. Don't put it off.
Tuesday, February 3, 2015
This week, The New York Times published an article describing, unfortunately, a common occurrence in estate administration and probate. Robin Williams, married to his second wife, had three children from his first marriage. His estate plan attempted to provide for both his second wife and his children from the first marriage. Estate planning for a blended family is almost an art, because you have to balance many sensitive issues. Six months after his death, the conflict seems to be centered over the personal property left in his home, particularly valuable items linked to his career. Whether Robin Williams had $30 million or $300,000, it wouldn't matter. We've seen estates for celebrities that have no money, but relatives fight over their namesake and the personal property and collectibles. For ordinary folks, we often feel that celebrity estate planning mistakes won't happen to us. However, the same principles apply whether celebrity or not. Family is family, and conflicts are bound to occur if (1) the estate plan is not set up properly and reviewed regularly, (2) you haven't clearly communicated your intentions to your loved ones, and (3) you left some ambiguity in your will or trust. You can read the article by clicking here. If you need assistance with your estate planning, contact The Law Offices of Jeremy A. Wechsler today at (215) 706-0200. The only good estate plan is an updated estate plan.
Tuesday, January 27, 2015
The New York Times published an article two days ago entitled “To Collect Debts, Nursing Homes Are Seizing Control Over Patients.” As I began to read thearticle, two colleagues and a friend sent me a link to the story. We were all stunned.
In essence, author Nina Bernstein paints the picture of a nursing home taking control of a patient by going to court and attempting to get guardianship over her, even though the patient had valid powers of attorney (her husband was power of attorney). There was a billing dispute that led the nursing home to take such action. Read the article in full—it’s an eye opener. Article Link I have not yet heard of a case yet in Pennsylvania where a nursing home has attempted to get guardianship over a patient, but it’s plausible that it could happen in the future. Imagine discovering that you have to go to court and spend thousands of dollars to fight for control of a close family member. Of course, there have been a couple cases in Pennsylvania under the filial responsibility law where the nursing home has sued a family member for recovery of medical costs.
Cases like these are few and far between, but still give us all pause. The situations are always extremely unfortunate, mostly for the family but also for our long-term care system in general. The question as a society we must confront is how to deal with the costly combination of skyrocketing long-term care costs and greater life expectancies.
Place yourself in the following situation that I have seen happen plenty of times in my practice: You have a sizable estate that you expect to pass to your children, and all of the sudden, you need long-term care and the estate is eaten up by the nursing home costs. It’s quite a dilemma. On one hand, you have a responsibility to pay for your care if you have the means to do so. On the other hand, you expected to leave your loved ones at least some of your life savings. This is more than just a financial issue, but a moral and ethical issue that is not easy to square.
Having said that, the best advice I can give is this: Do not wait until it's too late to plan.
While you’re in good health (typically, 50’s and 60’s are appropriate ages), try to put a plan in place in case you need long-term care in the future. Financial planning is important, but so is protecting your dignity and legacy. As one well-known advisor put it to me years ago, “Do you really want your children to take care of you? Or would you rather have a professional handle your care, and allow your children to enjoy their visits with you?”
Some ideas for planning:
- There may be some property that you can put into a Medicaid Asset Protection Trust so that it’s properly protected from ever being spent on your long-term care. This trust is appropriate for only certain assets and a portion of your estate, not your entire estate.
- Consider insurance policies, either traditional long-term care or a “hybrid” life insurance policy that contains a long-term care rider.
In my office, we assist clients regularly with both strategies. Planning for long-term care is difficult in general. Waiting until you actually need nursing care can cause intense stress on the family, and put your back against the wall. The earlier you plan, the more options you will have.
Tuesday, January 13, 2015
By Jeremy A. Wechsler Your Estate Planning Attorney The questions who, what, when, where and why are the most basic questions we are taught to ask. Why not ask the same questions when it comes to estate planning? - WHO: All adults need to plan their estate. Estate planning is not just for the wealthy. Whether you are 18, 30, 50 or 90, you need an estate plan. Everyone will have a different estate plan. For example, a 30 year old with a newborn may be most concerned about guardians for her daughter. A 65 year old that is retiring with a significant IRA may be concerned about legacy protection for his children and grandchildren.
- WHAT: Estate planning can mean different things to different people. These are some of the areas that an estate plan can cover:
Essential planning (Wills, Powers of Attorney) Legacy Planning/Asset Protection Long-term care planning Small business planning Retirement planning Planning for incapacity Special needs planning
- WHEN: It’s never too late to start planning. The best way to start is by making an appointment with a qualified estate planning attorney. Also, review your plan every couple of years. As your life changes, your plan must change!
- WHERE: There are online services such as LegalZoom, RocketLawyer, Nolo and others. However, there is no substitution for working with a qualified attorney. Remember, estate planning is a legal process, so you should have the best legal representation possible. Trying to “do-it-yourself” can cause unforeseen consequences and destroy your legacy.
- WHY: Pause for a minute, and consider what or who is most important in your life. Most times, family will rank pretty high if not the highest to that question. If so, you owe it to your family to create a robust estate plan that protects their interests, squashes any conflict or discord, and helps efficiently deal with your affairs. Remember, if you don’t have a plan, the government has a plan for you (and you have no control over it!).
For a complimentary 15-minute no obligation chat with Jeremy, call (215) 706-0200 and get on the calendar. Together, we can build an estate plan that provides you with a legacy of which you can be proud.
Tuesday, January 6, 2015
The saying goes, "there's an app for that" and sure enough, there are plenty of applications, websites and software packages today that allow you to "create an estate plan" by yourself. I put the previous phrase in quotes because I believe it is akin to false advertising. An estate plan is much more than just a document—an effective plan requires knowledge, application of proven strategies, and an attorney with experience. Experience matters, because an estate plan that initially appears to be simple may have dangers lurking in the background, and only an experienced estate planning attorney can preemptively address and correct those issues. Before you consider do-it-yourself planning, consider these five true stories of DIY planning gone wrong: - The Suze Orman Trust: Suze Orman has a great reputation for no-nonsense talk on financial matters. A couple of years ago, a couple visited me and showed me the trust they wrote with Suze Orman’s Living Trust kit. The couple lived in Pennsylvania, but they had a California trust. California and Pennsylvania laws are significantly different, including property ownership laws, probate laws and more. Therefore, the trust they had was not appropriate for Pennsylvania and would have done more harm than good. Suze Orman talks a lot about avoiding probate, which is a valid concern in California, but generally not in Pennsylvania. Here, we had a case of over-planning and improper planning. Not everyone needs a living trust, including this couple.
- Honey, I Deleted You From My Trust: A gentleman made an appointment with me last year, and he wrote his living trust online. He was married with three children. He wrote the trust so that if he passed away, everything went directly to his three children. When I showed him and his wife the error, she was not happy… at all. Thankfully, we fixed this plan—and as it happened, this couple did not need a living trust either, so we were able to simplify their plan and get it right.
- Powerless Power of Attorney: I met with a couple who drafted their powers of attorney online. They were very proud that they had powers of attorney for virtually no cost. The problem? They left out key provisions, such as the ability to make gifts strategically if long-term care was needed. They had no backup power of attorney. Finally, they failed to execute the documents properly, meaning the plan would have been useless in a time of need. By the way, they also had no will, which they claimed wasn’t important because all of their assets were jointly held. A will is still vital in this case, because you still need to appoint an Executor.
- Special Problem: Recently, a couple retained me after they drafted their wills online. They have one child, and figured their plan must be simple. The problem is that their child is special needs, and their will left everything outright to their child. If this plan were executed, the child would be disqualified from receiving any public benefits. We drafted a special needs trust for this family so that their child's inheritance would be protected and he would still qualify for public benefits.
- Where There’s a Will, It Won’t Help Your IRA: A widowed woman’s computer-savvy nephew drafted her estate plan online after her husband passed. She has two children, rents an apartment, and has most of her money in IRA’s and annuities. When I sat down with her about estate plan, we uncovered the fact that only about 10% of her assets would pass through her will. Also, after reviewing her beneficiary designation forms for her IRA’s and annuities, we realized her only beneficiary was her deceased husband. There were no contingent beneficiaries listed! Her will was a good start, but not what she needed. We setup a Retirement Asset Protection Trust for her IRA’s, so that they would stay in the bloodlines and her children would get the stretch-out benefits of the inherited IRA.
These stories and situations are common, and illustrate the dangers of do-it-yourself estate planning. Consider hiring an estate planning attorney as you make your own estate plan. A qualified attorney understands the right questions to ask, all of the strategies available, and the dangers lurking beneath the surface.
The Law Offices of Jeremy A. Wechsler assist clients with Estate Planning matters in Willow Grove, PA as well as Abington, Hatboro, Dresher, Horsham, Bryn Athyn, Huntingdon Valley, Fort Washington, Jenkintown, Glenside, Oreland, Warminister, Wyncote, Ambler, Elkins Park, Flourtown, Philadelphia, Warrington, Cheltenham, Gwynedd Valley, Jamison, Feasterville Trevose, Richboro, North Wales, Blue Bell, Lafayette Hill, King of Prussia, Collegeville, Oaks, Phoenixville, Oxford Valley, Langhorne, Penndel, Bristol, Fairless Hills, Bensalem, Plymouth Meeting, Furlong, Philadelphia County, Bucks County and Montgomery County.
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