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.

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