Why Shouldn’t I Delay Making Big Gifts?

The unified federal estate and gift tax exemption for 2020 will jump up to $11.58 million or effectively $23.160 million for married couples.

Market Watch’s recent article, “Get your estate plan in order (this means you),”says that, despite these huge big exemptions and the fact you’re not currently exposed to the federal estate tax, your estate plan may still need updating to reflect the current tax rules.

You may be exposed to the federal estate tax in the future, even though you’re okay right now.

Let’s look at some issues, regardless of whether or you’re “rich” enough to be worried about exposure to the federal estate tax. Year-end is a good time to conduct your estate planning self-check, so let’s get started.

Update beneficiary designations. A will or living trust doesn’t override the beneficiary designations for life insurance policies, retirement accounts and other types of investment accounts. This includes accounts, such as life insurance policies, annuities, IRAs, other tax-favored retirement accounts and employer-sponsored benefit plans. The person(s) named on the most-recent beneficiary form will get the money automatically if you die, regardless of what your will or living trust document might state.

Designate secondary beneficiaries. Designate one or more secondary (contingent) beneficiaries to inherit, if the primary beneficiary dies before you do. Consider this possibility.

Update property titles. If you’re married and own property with your spouse as joint tenants with right of survivorship (JTWROS), the surviving spouse will automatically get sole ownership of the property when the other spouse dies. The major advantage of JTWROS ownership is that it avoids probate. The property automatically goes to the surviving joint tenant.

Name guardians. One of the main purposes of a will, is to designate a guardian for your minor children (if any). The guardians must care for your children, until they reach adulthood.

Any life event could require changes in your estate plan. In addition, the federal and estate and gift tax rules have been unpredictable in the past, along with the state death tax rules. Talk with your estate planning attorney today.

Reference: Market Watch (November 11, 2019) “Get your estate plan in order (this means you)”

 

Death Is Very Taxing — What you Need to Know

When a person dies, their assets are gathered, their debts are paid, business affairs are settled and assets are distributed, as directed by their will. If there is no will, the intestate laws of their state will be used to determine how to distribute their assets. A big part of the process of settling an estate is dealing with taxes. A recent article from Wicked Local Westwood, titled “Five things to know about taxes after death,” explains the key things an executor or personal representative needs to know.

The Deceased Final Income Tax Returns. Yes, the dead pay taxes. The personal representative is responsible for filing the deceased final income tax return for both the year of death and prior year, if those returns have not been filed. The final income tax return includes any income earned or received by the decedent from January 1 of the year of death through the date of death. It’s common for a deceased person who is ill during the last months or year of their life to fail to file tax returns, so the executor needs to find out about the decedent’s tax status. Failure to do so, could lead to the representative being personally liable for paying those taxes.

Filing a Federal Estate Tax Return. The personal representative must file a federal estate tax return, if the value of the estate assets exceeds the federal estate tax exemption, which is $11.4 million in 2019. Even if the value of the estate does not exceed the federal estate tax exemption amount, a federal estate tax return should be filed if the decedent is survived by a spouse. This way, the deceased’s unused exemption can be used by the spouse at their death. Note that the filing deadline for the federal estate tax return is nine months after the date of death. An estate planning attorney can help with this.

Fiduciary income tax returns. A personal representative and trustee may have to file fiduciary income tax returns for an estate or a trust. The estate is a taxpayer and the representative must get a tax identification number and file a fiduciary income tax return for the estate, if income is earned on estate assets or received during the administration of the estate. A revocable trust becomes irrevocable after the death of the trust creator. A tax identification number must be obtained, and a fiduciary income tax return must be filed for any income earned by trust assets.

Estate taxes and trust taxes can become complex and confusing for people who don’t do this on a regular basis. An estate planning attorney can be a valuable resource, so that taxes are properly paid and to make the most of any tax planning opportunities for estates, trusts and their beneficiaries.

Reference: Wicked Local Westwood (Nov. 5, 2019) “Five things to know about taxes after death”

What Happens to Older Pets, When People Go into Nursing Homes

Americans love their pets. Cats, dogs, birds, fish and exotic animals bring families joy and companionship. There are millions of pets in homes all over the United States. A family might have a cat or dog for ten years or much longer. An older person might have a pet to increase a feeling of safety and to ward off loneliness and depression. Let’s explore what happens to older pets when people go into nursing homes.

Although some assisted living centers allow some pets, with restrictions on the size, type, and number of animals, nursing homes do not allow residents to keep their pets in the facility. The options a person has will depend on many factors, such as available relatives or friends who could take in the pet. Some of the more common things that happened to older pets, when the owner goes into the nursing home include:

  • The pet gets to continue living in the home, because the nursing home resident’s spouse, friend or other relative remain living in the house. This situation is usually the best option for the pet. He stays in familiar territory and does not get disrupted by having to live somewhere else.
  • A friend or relative takes in the pet for the older loved one. The animal has to adjust to a different location, owner and schedule. However, at least he has a home.
  • The pet gets re-homed through a rescue organization. Sometimes these groups are breed-specific, like the entities that find homes for retired greyhound racing dogs.
  • The animal gets taken to a shelter. Some shelters serve as no-kill adoption centers, but many are not. If the pet gets adopted, he gets a chance at life with a new family. If no one takes him, he will likely get euthanized.
  • The pet gets abandoned. Tragically, millions of animals get left every year to fend for themselves. While life on the streets is hard enough for a young, strong cat or dog, an older pet is unlikely to survive.
  • The animal has the good fortune of getting rescued by a no-kill sanctuary or a non-profit agency that takes in older pets.

There are not enough no-kill sanctuaries or agencies to meet the need of all of the older pets without homes. However, with a little detective work, you can probably find one or two in your area. Posting the question on social media can help you find a place for a pet to get to live out his golden years.  You can also check with local pet rescue and lost pet groups on social media for suggestions about where to take an older pet, so he does not get abandoned or euthanized.

Why Adopting an Older Pet Can Be a Good Idea

Although a cute puppy is hard to resist, an older animal can be a better pet for a family with children. Older pets tend to be more settled and patient than high-energy young ones. The older pet is also likely already trained, so you will have less work on your hands. You can have the satisfaction of knowing that you saved an innocent life.

References:

Huffpost. “Pet Retirement Home Rescues Dogs In Their Golden Years.” (accessed November 8, 2019) https://www.huffpost.com/entry/vintage-pet-rescue_n_5c141e0de4b049efa7524659

 

How Can I Upgrade My Estate Plan?

Forbes’ recent article, “4 Ways To Improve Your Estate Plan,” suggests that since most people want to plan for a good life and a good retirement, why not plan for a good end of life, too? Here are four ways you can refine your estate plan, protect your assets and create a degree of control and certainty for your family.

  1. Beneficiary Designations. Many types of accounts go directly to heirs, without going through the probate process. This includes life insurance contracts, 401(k)s and IRAs. These accounts can be transferred through beneficiary designations. You should update and review these forms and designations every few years, especially after major life events like divorce, marriage or the birth or adoption of children or grandchildren.
  2. Life Insurance. A main objective of life insurance is to protect against the loss of income, in the event of an individual’s untimely death. The most important time to have life insurance is while you’re working and supporting a family with your income. Life insurance can provide much needed cash flow and liquidity for estates that might be subject to estate taxes or that have lots of non-liquid assets, like family businesses, farms, artwork or collectibles.
  3. Consider a Trust. In some situations, creating a trust to shelter or control assets is a good idea. There are two main types of trusts: revocable and irrevocable. You can fund revocable trusts with assets and still use the assets now, without changing their income tax nature. This can be an effective way to pass on assets outside of probate and allow a trustee to manage assets for their beneficiaries. An irrevocable trust can be a way to provide protection from creditors, separate assets from the annual tax liability of the original owner and even help reduce estate taxes in some situations. Contact an experienced estate planning attorney to discuss options.
  4. Charitable Giving. With charitable giving as part of an estate plan, you can make outright gifts to charities or set up a charitable remainder annuity trust (CRAT) to provide income to a surviving spouse, with the remainder going to the charity.

Your estate planning attorney will tell you that your estate plan is unique to your situation. A big part of an estate plan is about protecting your family, making sure assets pass smoothly to your designated heirs and eliminating stress for your loved ones.

Reference: Forbes (November 6, 2019) “4 Ways To Improve Your Estate Plan”

 

What Is an Ethical Will and Do You Need One?

When an estate planning attorney suggests that clients create ethical wills they aren’t asking the clients to create another last will and testament. Instead, it is to create something that can explain their intentions to their loved ones. According to the article “How to create an ethical will” from Herald Net, an ethical will is also known as a legacy letter.

This can be a kind and loving gift to your family since it allows you to express your feelings and thoughts. If you’re not accustomed to sharing your feelings, that will make it even more special to your loved ones. It’s an opportunity to say all the things you never felt comfortable saying. You may want to express your wishes, regrets and gratitude. You may also want to pass long the life lessons that have been valuable for you.

An ethical will also provides an opportunity for you to explain how you came to the decisions you did about your will and the money and possessions you are passing along. You might want to explain why a certain child is being given a piece of artwork or why another is being left assets in a trust and not an outright gift.

If you are more comfortable with making a video, you can also do that. An audio or video recording often becomes a treasured piece of family history since it allows generations who may have never met you to see and hear you.

Start by writing down some notes about what matters to you and what you think you might want to share with the family. Take your time. Remember you aren’t writing the Great American Novel but creating a gift of love.

Once you’ve gathered your thoughts move on to the next draft. Once it’s complete to keep this document safe and in a secure location. If you have a waterproof and fireproof safe where you keep important papers in the home, the ethical will should also go in there. Remember that safe deposit boxes are sealed at death so if you want your loved ones to read this it should not go in the safe deposit box.

One last thought—some people like to share their ethical will with family and friends while they are still living. This allows them to enjoy their reactions and have a discussion about whatever they have shared in the document. Others prefer to wait until after they have passed. It’s a very personal decision.

Talk with your estate planning attorney about how the ethical will works with your estate plan.  Make sure there’s nothing in the ethical will that contradicts your last will and testament. That could create problems for the family.

Reference: Herald Net (Nov. 6, 2029) “How to create an ethical will”

 

What Does an Executor Actually Do?

Investopedia’s recent article, “The Executor’s Checklist: 7 Tasks Before They Die,” reminds us that being executor of an estate means significant responsibility. It can be a daunting task, if you’re unprepared. Here are some simple steps to take while the testator is still alive to make the executor’s job easier.

  1. Be sure to Have the Location of the Will and Other Estate Planning Documents. This is a no-brainer. You make the executor’s job easier if the testator keeps the original will, deeds, partnership documents, insurance policies, or other important papers in an agreed-upon spot with copies at a backup location.
  2. Retitled Accounts Where Appropriate. If the testator has a spouse, mostly like they want assets to flow directly through to the widow(er), so make accounts as joint and make sure that properties and titles are in both names.
  3. Make a List of the Testator’s Preferences. Another way to make things easy on the executor and the family is to include funeral preferences which need to be in writing and signed by the testator.
  4. Draft a Possessions List and Their Recipients. A big issue that many executors overlook is distributing personal possessions that have little financial value but great sentimental value. Along with the testator, an executor can create a list for the dispersal of personal items, as well as a system of distribution. The testator can include their reasoning for who got what gift. Sharing the list with those involved may also eliminate some hurt feelings. An organized dispersal can make an executor’s job easier and help with issues of fairness.
  5. Create an Annual Accounting Sheet and Updating Schedule. If the testator keeps track of the estate electronically on an annual basis, the executor will have a good idea of assets when it’s required. This e-document will also decrease the time spent searching for that jewelry the testator gave to a granddaughter or tracking down the funds that were supposedly in a now-empty investment account.
  6. Create a Sealed Online Accounts Document. An executor should also have a record of the testator’s online presence to deactivate accounts. This document simplifies work for the executor.
  7. Meet the Relevant Professionals. Executors should be familiar with the accountant, estate planning attorney and other professionals the testator uses. They may have further advice specific to the testator’s situation.

Preparation will greatly decease the odds of any complications when carrying out your duties as an executor. Take these actions while the testator is still alive to help make certain that the executor carries out the testator’s wishes. Contact an experienced estate planning attorney to create your estate planning documents.

Reference: Investopedia (July 11, 2019) “The Executor’s Checklist: 7 Tasks Before They Die”

Will We Have to Pay Gift Taxes if We Give a Rental Property to Our Son?

Older couples frequently invest in real estate. Many manage rental properties as an income stream.

Let’s say that a couple jointly bought a rental property worth $120,000 this year with their adult son. The son started his own limited liability company (LLC) and is a single owner. The parents plan to transfer the property to him so he can use the rental income from the business for college expenses.

A common question is whether there will be any tax implication for the parents, if they move the property to their son’s LLC. The Washington Post’s recent article, “How to avoid gift taxes when shifting ownership of rental property to offspring,” answers that question by first assuming that the parents and the son purchased the rental property together in their own names. The son recently set up the LLC to use as the holding company for this rental property and other real estate properties he may own.

As far as gift tax implications, the couple have the ability to give their son $30,000 this year without having to file any federal gift tax forms or having any effect on their federal income taxes. Each person has the ability to gift another individual up to $15,000 a year without any IRS issues or the filing of forms. If each parent gave their son $30,000 this year and $30,000 next year, then that would effectively transfer their share of the property to him.

We’ll also assume that when they purchased the property, the parents paid closing costs and may have had other expenses while they’ve owned the property. Those expenses would play a part when calculating the tax basis of the property.

Assuming that the parents and their son each paid $60,000 for the property, when the son transfers the property from all the owners’ names into the LLC, the parents may have a taxable event for IRS purposes. That’s because the parents are effectively giving away ownership of their share of the property to their son. He’ll now own the property on his own. If the son signs a promissory note to the parents for $60,000 at the time of the transfer to the LLC, he’ll have an obligation to repay them the money for their share over the next six months. They could forgive $30,000 of the debt immediately and then they could forgive the other $30,000 in the new year. Their son would probably owe a little interest, but he could probably pay that from the income he receives from the rent.

This is just one solution to the transfer. There are many others, and some are much more complicated. Speak with an experienced estate planning attorney to review these issues and explore some other ideas that could work to everyone’s benefit.

Reference: The Washington Post (November 11, 2019) “How to avoid gift taxes when shifting ownership of rental property to offspring”

 

A Good Estate Plan Equals Peace of Mind and Peace in the Family

The problems aren’t always evident when the first parent passes. Often, it’s when the second parent becomes gravely ill that lapses in estate planning become evident. For one family, everyone thought estate plans were all in place after their father died. When their mother suffered a stroke, the adult children learned that they had no access to her financial accounts or her health care directives. No one had thought to update the estate plan.

However, when one parent passes the family needs to take action. That’s the lesson from the article “Avoid heartache and anxiety with estate planning” from Post Independent. In this case, the family never thought to modify or add anyone’s name to the financial accounts, power of attorney documents, Health Care Proxy documents, or HIPAA consent forms. What often happens in these cases is that family members start bickering about who was supposed to do what.

For those who have not taken the time to learn about estate planning, planning for end-of-life legal, financial and medical matters, the quarrels may be inevitable.

Estate planning is not just for wealthy families. If your aging loved one own property, stocks, bonds or any other assets, they need to have a will, advance directives, powers of attorney and possibly some trusts. Take the time to understand these documents now before an urgent crisis occurs.

There are few formal courses that teach people about these matters, unless they go to law school. Nearly half of Americans age 55 and over don’t have a will, according to an article appearing in Forbes. Fewer than 20% of these people have health care directives and the proper types of powers of attorney in place.

When it comes to preparing for these matters, the laws are very specific about who can participate in health care and financial conversations and decisions.

Here are some of the documents needed for an estate plan:

  • Last Will and Testament
  • Durable Power of Attorney
  • Health Care Proxy
  • Living Will
  • HIPAA Consent Form

Pre-planning will greatly assist family members and loved ones, so they know what medical and financial efforts you or your parents would want. Having the documents in order will also provide the family with the legal means of carrying out these wishes.

The legal documents won’t solve all problems. Your brother-in-law will still be a pain in the neck and your oldest sister may still make unrealistic demands. However, having these documents in place will make the best of a bad situation.

Speak with an experienced estate planning attorney to ensure that your estate plan or your parent’s estate plan is properly prepared. If someone has moved to another state, their estate plan needs to be updated to align with their new state’s laws.

Reference: Post Independent (November 3, 2019) “Avoid heartache and anxiety with estate planning”

 

Will the Power of Attorney You Sign Today Work for Your Executor?

These are all good questions, as Powers of Attorney (POA) are some of the most commonly used estate planning documents and they are also some of the most misunderstood estate planning documents, says nwi.com in a recent article “Estate Planning: Do Powers of Attorney lapse?”

A POA (Power of Attorney) is a document that authorizes another person to act on behalf of the person making or signing the document. The person named in a POA is also referred to as the Attorney-in-Fact. Some POAs grant a wide range of authority while others are limited to a specific action. An estate planning attorney can create a POA that suits a person’s particular needs which is far better than a generic document that may not be accepted because it is too broad.

Durable Powers of Attorney don’t usually exist for a set period of time. There are also limited or special POAs that have a date or a time frame and at the end of that time frame or upon that date they terminate. It’s important to note that all POAs terminate upon the death of the maker or principal. The only power that can survive after the death of the maker is the authority to dispose of the maker’s remains, and that varies by state.

A POA can also be terminated at any time by the principal. This termination should be in writing and it can be terminated by revoking the POA within the terms of a new POA or by execution of a revocation. Either way, the person should notify the AIF  that they no longer have the authority to act under the revoked POA, and any entity who may have a copy of the revoked POA should be notified that it is no longer valid.  A qualified estate planning attorney in your state will know what rules apply in your area.

The AIF serves because the principal has chosen them, and if that changes, they are removed from their responsibilities as long as the principal is competent.

Estate planning attorneys are concerned less with the date of the POA as they are with the simple fact that banks and other financial institutions are reluctant to accept POAs that were created many years ago. In that case, usually an affidavit affirming that the document is still valid and the AIF has the authority to act under it is enough.

However, it is recommended that when you have your estate plan reviewed every three or four years, you also have your estate planning attorney update the Power of Attorney. This way there is less of a chance that a bank or other institution will balk at the document. The same goes for your health care proxy, also known as a Health Care Power of Attorney.

Reference: nwi.com (November 3, 2019) “Estate Planning: Do Powers of Attorney lapse?”