Revocable Living Trusts, Not a "One Size Fits All"

Is a Revocable Living Trust Right for You?

Revocable Living Trusts have become the basic building block of estate plans for people of all ages, personal backgrounds, and financial situations. But for some, a Revocable Living Trust may not be necessary to achieve their estate planning goals or may even be detrimental to achieving those goals.

What Are the Advantages of a Revocable Living Trust Over a Will?

Revocable Living Trusts have become popular because when compared with a Last Will and Testament, a Revocable Living Trust offers the following advantages:

  1. A Revocable Living Trust protects your privacy by keeping your final wishes a private family matter, since only your beneficiaries and Trustees are entitled to read the trust agreement after your death. On the other hand, a Last Will and Testament that is filed with the probate court becomes a public court record which is available for the whole world to read.

  2. A Revocable Living Trust provides instructions for your care and the management of your property if you become incapacitated. Since a Last Will and Testament only goes into effect after you die, it cannot be used for incapacity planning.

  3. If you fund all of your assets into a Revocable Living Trust prior to your death, then those assets will avoid probate. On the other hand, property that passes under the terms of a Last Will and Testament usually has to be probated. A probate could add thousands of dollars of costs at your death.

Why Shouldn’t You Use a Revocable Living Trust?

Although Revocable Living Trusts offer privacy protection, incapacity planning, and probate avoidance, they are not for everyone. For example, if your main concern is avoiding probate of your assets after you die, then you may be able to accomplish this goal without the use a Revocable Living Trust by using joint ownership, life estates, and payable on death or transfer on death accounts and deeds. However, those strategies aren’t a perfect fit for everyone.

In addition, if you are concerned about protecting your assets in case you need nursing home care, then an Irrevocable Living Trust, instead of a Revocable Living Trust, may be the best option for preserving your estate for the benefit of your family. The rules governing Irrevocable Living Trusts can be very complex, and you should only create an Irrevocable Living Trust after a thorough discussion with a qualified trust attorney.

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Do You Still Need a Revocable Living Trust?

While some estate planning attorneys advise their clients against using a Revocable Living Trust under any circumstance, others advise their clients to use one under every circumstance. Either approach fails to take into consideration the fact that Revocable Living Trusts are definitely not “one size fits all.” Instead, your family and financial situations must be carefully evaluated on an individual basis and the advantages and disadvantages of using a Revocable Living Trust must be weighed against your personal concerns and estate planning goals. In addition, these factors must be re-evaluated every few years since your family and financial situations, concerns, and goals will change over time.

If you have a Revocable Living Trust and it has been a few years since it has been reviewed, then I can help you determine if a Revocable Living Trust is still the right choice for you and your family.

New Opportunities Under Tax Cuts and Jobs Act

Congress just passed, and President Trump signed, the Tax Cuts and Jobs Act. Although continued study of the bill will undoubtedly reveal additional opportunities I can share with you and your family, I wanted to provide some of my immediate impressions.

Significant Changes to Business Taxation

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If you own a business or are thinking about starting one, contact me to discuss how the new tax laws may impact your business. Relying on old rules of thumb or ignoring this monumental change in business taxation as you make business plans could mean paying enormous amounts of unnecessary taxes.

Many of the new, business-oriented deductions have specific rules to qualify. Although, this bill has been the subject of intense media discussion, don’t rely on television programs, blog posts, or press releases. Instead, contact me so we can analyze how to maximize your benefits under the bill. I will work with your CPA or tax advisor the right decisions are made for you and your business.

New Opportunities for Dynasty Planning and Discounted Gifting

The doubling of the estate, gift, and generation-skipping (GST) tax exemptions to $10 million per person ($20 million per couple) opens a significant, once-in-a-lifetime opportunity for you to protect more assets than ever. Combined with the IRS’s withdrawal of the anti-discounting section 2704 regulations earlier in 2017, tax reform opens the door for dynasty trusts, family partnerships, discounted gifts, and other strategies that could shield entire fortunes for your beneficiaries.

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Although the estate tax and GST tax exemption doubles on January 1, 2018, to $10 million per person, this increased exemption expires on December 31, 2025. You may be tempted to wait, given that seven years may feel like forever. But remember that this tax legislation is likely to be heavily modified if the political pendulum swings in the other direction. (The clock is already ticking steadily towards the 2018 midterms and 2020 Presidential election.) Of course, we have tools that can build flexibility into your plan, including trust protectors, decanting powers, and other strategies to deal with future changes. But those future strategies only work to preserve options if we implement plans while the exemption is available.

If you have any concerns about how the death tax will impact your family, give me a call today so we can maximize the opportunities afforded by the new bill. And, if in doubt, call now and let’s strategize while there’s still time.

Changes to Individual Income Taxes

The new cap on state and local tax deductions may mean that we need to consider a special income-tax saving trust, called a non-grantor trust. If you have a business, an asset, stock, or anything else that has substantially appreciated in value that you’re considering selling, give me a call first so we can see whether a non-grantor trust would benefit you. This is a sophisticated strategy, but I am here to assist you with it.

The bill provides no reduction in personal capital gains rates (which remain 20% for most assets and taxpayers) and no repeal of the 3.8% net investment income tax. Charitable planning remains an excellent option to help reduce these taxes. If you are considering making a significant charitable gift, a charitable remainder trust, lead trust, private foundation, or other strategy may be an excellent option to save income and estate taxes while benefiting a cause you care about.

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The increase in the standard deduction ($12,000 for individuals, $18,000 for heads of household, and $24,000 for married couples filing jointly) and removal of some above-the-line deductions (moving expenses and alimony) may help save you some time at tax-time. Plus, the bill retains the deductions for 529 plans, IRAs, 401(k)s, and Health Savings Accounts (HSAs), offering you several opportunities to reduce your taxes while building financial security for the future if you choose to save and invest some of the tax savings.

Final Considerations and Next Steps

Planning to minimize income taxes is a balancing act. I am available now to answer your questions about tax reform and work with you to take full advantage of the opportunities. I know you’re busy, so I want to make it as easy as possible for us to work together. Here are the next steps:

First, schedule an appointment with me as soon as possible. I’d like to get time on the calendar so that we can take a look at the options that are available to you and your family.

Second, find your estate planning portfolio (if you have one). If you can't find it, just let me know and I can get you a copy from this office or from your previous attorney. Now is a great time to review your plan anyway. When we meet, I want to make sure that anything we do to help you take advantage of tax reform still achieves your overall planning goals and not just your tax-saving goals.

I look forward to hearing from you.

Happy Holidays! Make Gifts that your Family Will Love, but the IRS Won’t Tax

Don’t let the chaos of the holiday season prevent you from avoiding federal gift tax by making “annual exclusion” gifts, medical payments gifts, and educational gifts.

Make Annual Exclusion Gifts

“Annual exclusion” gifts are transfers of money or property in an amount that does not exceed the annual gift tax exclusion.

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In 2017, the annual gift tax exclusion is $14,000 per recipient, and it rises to $15,000 per person in 2018. Therefore, you can give up to $14,000 to as many individuals you choose on or before December 31, 2017, and then give another $15,000 to the same people on or after January 1, 2018, and you will not have to file a federal gift tax return (IRS Form 709). In other words, the IRS doesn’t consider gifts that are equal to or less than the annual exclusion amount to be taxable gifts at all.

Married couples can take double advantage of the annual exclusion and gift $28,000 in 2017 and then another $30,000 in 2018. But note that in some situations, a couple may still need to file a gift tax return to report any "split gifts" – they'll need to consult with their estate planning attorney or accountant to be sure. Also, you may need to file a gift tax return if you make gifts that exceed the annual exclusion amount or if you make gifts that don’t qualify for the annual exclusion – your attorney or accountant can guide you through this.

Make Payments that Qualify for the Medical Exclusion

Another type of transfer that the IRS doesn’t consider to be a gift for gift tax purposes is a payment that qualifies for the medical exclusion.  

Payments that qualify for this exclusion are ones that are made directly to an institution that provides medical care to an individual or to a company that provides medical insurance to an individual. In general, medical expenses that qualify for this exclusion are the same as those that are deductible for federal income tax purposes. 

Therefore, in 2017 you can pay for your grandchild's emergency appendectomy in the amount of $20,000 and also give your grandchild an additional $14,000 by December 31, 2017, and then another $15,000 on or after January 1, 2018, and you will not have to file any gift tax returns. 

One incredibly important detail – in order to qualify for the medical exclusion you must make payment directly to the institution providing the medical care or company providing the medical insurance. If you give the money to the individual receiving the medical care or insurance benefit, even with explicit instructions that it be used to pay for the medical care, your payment will be considered a gift.

Make Payments that Qualify for the Educational Exclusion

A payment that qualifies for the educational exclusion is another type of transfer that the IRS doesn’t consider to be a gift for gift tax purposes.  

Payments that qualify for this exclusion are ones that are made directly to a qualifying domestic or foreign institution as tuition for the education of an individual.

For example, in 2017 in addition to paying for your grandchild’s emergency appendectomy (see above), you can pay your grandchild's college tuition in the amount of $25,000, give your grandchild an additional $14,000 by December 31, 2017, and then another $15,000 on or after January 1, 2018, and you will not have to file any gift tax returns or pay any gift tax. 

Two incredibly important details – in order to qualify for the educational exclusion

(1) You must make payment directly to the institution providing the education, not to the individual receiving the education, and

(2) Your payment must be for tuition only, not for books, supplies, room and board, or other types of education-related expenses.

If you fail to follow either of these restrictions, the payment will be considered a gift.

If you have any questions about how to make the most out of gifts to your family, please contact me, and I will be happy to guide you through this.

Planning for the Future (Without a Crystal Ball)

Estate Tax Repeal Means No Need to Plan...Right?

Nothing could be further from the truth! Although there was a lot of tax-driven planning in the past, in recent years estate planning has largely focused on preserving family unity, protecting assets, ensuring privacy, and effectively passing along financial and emotional legacies.

Read More

5 Things Every New Parent Needs to Know About Wills

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As a new parent, you naturally want to ensure your new baby’s future in every way. For many new parents, infancy is a time for celebrating new life, and making a will is the last thing on their minds. For others, the process of bringing new life into the world sparks intense feelings of wanting control and needing organization. Regardless of where you fall on that spectrum, you might be struggling to figure out what steps you need to take to protect your family’s future should the unthinkable happen. Here are five key things every new parent should know about wills.

 

1. Naming a guardian could be the most important part of your will.

If you pass away while your child is a minor, the first issue to be addressed is who will assume responsibility for your child’s care. If you don’t name a guardian for your child in the will, the courts may decide this question for you, and the guardian might not be the person you would choose. Selecting a trusted guardian is in many ways more important at this stage than deciding about how to pass any assets you own.

2. Name an executor you trust.

To ensure your child does receive all that you have allocated when she comes of age, choose a trustworthy executor. Many people choose a family member, but it’s just as acceptable to appoint a trusted attorney to handle your estate. Typically, an attorney has no emotional attachment to the family, which might seem bad, but usually results in less potential conflict.

3. Named beneficiaries on your financial accounts may override the will.

Many accounts allow you to name a beneficiary. When you pass away, the funds go to the beneficiary named on the account, even if your will states otherwise. If you’re creating a will with your child in mind (or adding the child to an existing will), you should review your investment and bank accounts with your financial advisor to make sure there are no inconsistencies when naming beneficiaries. It’s also a good time to check retirement account and life insurance beneficiary designations with your financial advisor and your attorney.

4. A will is not always the right document for your goals.

When naming your child as a beneficiary, a will only goes into effect after you die. If your will leaves property outright to a minor child, the court will step in and hold the assets until your child turns 18. Most 18 year olds lack the maturity to handle even a modest estate, so we don’t recommend outright inheritance for minor children.

A trust, on the other hand, goes into effect when you create it and can provide structure to manage the assets you leave behind for the benefit of your child. An experienced estate planning attorney can advise you on the best option for your family and your circumstances.

5. In the absence of clearly stated intentions, the state steps in.

Think of a will, trust and other estate planning documents as an instruction manual for your executor and the courts to follow. You must be clear and consistent in your stated intentions regarding your child, as well as for others. If you’re not clear or if you don’t leave any instructions at all, the probate courts will step in and follow the government’s plan, which can lead to long delays and is probably not the plan you would have selected for your child and family.

Providing for your baby’s long-term welfare may start with just a simple will, but to be fully protected, you probably need more. That’s why it’s important to talk with a competent estate planning attorney to make sure you have the right plans in place to fulfill your goals. I’m here to help! Contact me today to talk about your options to protect your family.

Do I Need an Estate Plan?

When you hear the term “Estate Planning”, do you think:

  • “I don’t need an estate plan because I don’t have very much,”
  • “My wishes are simple, I can just jot down what I need,”
  • “I know someone who said they used a Will template off the Internet and said it was great,”
  • “Why should I care about estate planning since I’m going to be dead anyway?”  
  • Or perhaps you just want to avoid the topic altogether.

If you relate to any of these thoughts, you are not alone.

But why are these thoughts risky?

You do not have to own a large vista on the hills overlooking the Pacific Ocean to have an estate. An estate is simply a term to describe everything you own - your money, property, and personal belongings are all part of your estate. An Estate Plan helps you determine what will happen to these things once you are no longer able.

However, a complete Estate Plan goes far beyond dispersion of your assets and belongings.  An effective Estate Plan also includes areas such as caring for your family, making health care decisions, avoiding probate and estate taxes, protecting your assets, and addressing specific concerns for distributions.

Questions that may arise during a comprehensive Estate Planning meeting are:

Family

  • Who will care for your minor children? Is there anyone you do not want caring for your children?
  • Do you want the same person who is caring for your children in charge of your assets for your children or should you appoint a trustee?
  • How can you make sure your youngest child is provided for in the same manner as your oldest?
  • How can your special needs child or dependent be cared for?

Healthcare

  • Who should make healthcare decisions for you if you are unable?
  • What types of healthcare interventions do you want?

Estate Taxes and Probate

  • How can you avoid or minimize your estate taxes?
  • How can you avoid having your estate go through probate - which can be a time-consuming and costly process?

Asset Protection

  • What is the best way to ensure that your property doesn’t fall into the hands of creditors?
  • Is there a way to distribute assets to your beneficiaries over time instead of handing over a lump sum?
  • Who will manage your finances if you are unable?
  • Who will manage your small or family-owned business?

Distribution Concerns:

  • What are some different options for splitting your estate among your beneficiaries?
  • How can you take care of your spouse, but ensure that money also goes to your children?

Sitting down with a qualified Estate Planning attorney can help you answer these important questions and many more. In order to ensure full protection of your estate for your loved ones and yourself, you do not want to depend on a fill-in-the-blank template. Instead, you want to meet with someone who knows key questions to ask to ensure your plan provides you and your loved ones with the comfort and peace of mind that comes with knowing you have your affairs in order.

Please call or email this office to schedule your free 30 minute consultation to discuss ways to protect you and your family.

The Impossible Choice - Selecting a Guardian for your Children

You put so much thought into caring for your children - finding the best doctors, the healthiest foods, and the schools that best suit their personalities. But if you are like many parents with young children, you have not thought about what would happen if you were unable to care for your children. Who would step in and make sure your children are cared for, loved, and raised if you were unable to? Picking a guardian to care for your children if something were to happen to you is one of the toughest decisions you can make, but it is also one of the most important. So what are some factors to consider when selecting a guardian, and what happens if you do not have a guardian selected and a need arises?

Tips for selecting a guardian:

  • Emotional Stability: Perhaps the most important quality parents look for in a guardian for their children is the guardian’s capacity to love their children. Does the guardian have the time and energy to give your children what they need? Are there special circumstances in the guardian’s life that would make guardianship a larger burden than normal? Of course, becoming a guardian would be a major adjustment in anyone’s life, but ideally, once the dust settles, your children would be incorporated into the guardian’s immediate family as much as possible.

  • Willingness to Act as Guardian: It is imperative that you discuss with the guardian his/her willingness to act as guardian. Simply listing your choice in your will is not enough to ensure that your children will end up in the household you request. The guardian must also accept the appointment.

  • Values and Religion: Consider family members or friends who have a similar value system to you. Do you want your children raised with certain values, traditions, or religion? If so, seek out those people who already share these traits with your family. If there is no one who is a good match, you may also want to consider people who are open to your religious or value preferences, and would be willing to encourage your child in those areas.

  • Access to other Family Members: Location is another factor to consider. Is your choice of guardian near other family members with whom you would like your children to stay in close contact? Is travel a possibility for this guardian? Alternatively, if there are influences you would prefer your child to be kept from, would your choice of guardian respect your preference?

  • Financial Stability: Does your choice of guardian have the financial means to take on the responsibility of caring for other children? The assets from your estate may be able to provide financial support. This office is also happy to help you purchase a life insurance policy that would help cover expenses.

  • One Person versus a Couple: When choosing a guardian, many people like to choose a couple to act as co-guardians. While this is certainly understandable, and in many cases good for family dynamics, we have to think about what happens if the co-guardians should split up or one of the guardians passes away. Would you be comfortable with either co-guardian acting separately? If not, it might be best to only choose one person as the guardian instead of the couple as co-guardians. There are other alternatives available such as putting contingencies in place if certain events occur - please contact this office to discuss.

What happens if you do not select a guardian:

While it is common, and understandable, to struggle with the guardianship decision, it is vitally important that you do so. The truth of the matter is that if a guardian for your children is needed, and you have not made your preferences known in a legally-binding manner, the decision will be left to the courts. This means that any interested person may petition the court for guardianship. The judge will ultimately make the decision based upon what is in the best interest for your children.

Conclusion

There is rarely a perfect choice for a guardian for your children, and it is very unlikely that the guardian will need to step in. Keep in mind that changes can be made to your guardianship selection if circumstances change in the future. Once you have made this important decision, hopefully you will have the peace of mind knowing that your children will be well cared for in the unlikely event you are unable to do so.