If you have significant wealth, you may be exposed to future estate tax burdens that must be acted on before the Tax Cuts and Jobs Act reduces the estate tax exemption in 2026. Developing and implementing the right estate planning and tax strategies takes time. You may need to prepare regardless of whether the estate tax continues at its current level or if it is cut in half. This means strategizing to minimize your estate tax liability now.
Meet the Andersons, a well-off family living in a state with a high cost of living. Robert Anderson, the father, is a successful entrepreneur who built a thriving business over the years. His wife, Sarah, is a high salary earner, and together they have accumulated a substantial estate of $8 million each, for a total of $16 million. Their estate is primarily composed of their business assets, valuable artwork, life insurance, a family residence, a vacation home, and other lucrative investments. They have two adult children, James and Emily, both actively involved in the family business.
With the generous federal estate tax exemption set at $10 million adjusted for inflation per individual in 2017, steadily increasing to $13.61 million in 2024, the Andersons have felt relatively secure about avoiding estate taxes. Their primary concern has been preserving the family legacy and ensuring a smooth transition of their assets (business, accounts, and property) to the next generation. They had taken some initial estate planning steps, such as creating a living trust, discussing the use of a family limited partnership, and exploring gifting strategies to transfer the assets to their children gradually.
If the estate tax exemption drops to $5 million adjusted for inflation, the Andersons may face several estate tax issues that require professional advice and assistance before the end of 2025. The Andersons need to find other ways to protect their money and property.
The family business represents a significant portion of the Andersons’ estate, and the sunsetting of the higher exemption amount could have profound implications for its continued viability. Robert and Sarah need to develop a comprehensive business valuation and succession plan now to minimize the total estate tax burden and ensure a smooth ownership transition to James and Emily later.
Given the potential changes in the estate tax landscape, the Andersons need to revisit the valuation of their financial accounts, retirement and life insurance investments, personal property, real estate, and artwork to ensure accurate assessments. Then they need to determine which items will affect the estate tax calculation and any remaining exemption they have left from prior legacy planning. Depending on their assets’ values, these items can easily put them over the potentially soon-to-be lower estate tax exemption, exposing them to a 40 percent tax rate.
With the uncertainty surrounding the estate tax exemption, the Andersons may want to consider accelerated lifetime gifting strategies to reduce their taxable estate while the higher exemption is in place. The Internal Revenue Service declared in 2019 that individuals who take advantage of the increased gift tax exclusion from 2018 to 2025 will not be negatively impacted after 2025 if the exclusion amount drops.1 Gifting up to $13.61 million in 2024 has a zero tax liability. But gifting over $6.4 million in 2026 may have major consequences.
The Andersons may want to use life insurance to ensure that their loved ones are provided for at their passing. They may want to consider creating an irrevocable life insurance trust to own the life insurance policy and be the recipient of the death benefit. This removes the value of the policy from the Andersons’ estate and protects the death benefit for their chosen beneficiaries.
The significant portfolios of high-net-worth and ultra-high-net-worth families may require advanced tax planning techniques, including an AB trust, to optimize each spouse’s estate tax exemption and potentially minimize their estate tax liability. At the client’s death, an amount equal to the current estate tax exemption amount is placed in one trust, which uses the exemption, and the remainder is placed in a second trust for the surviving spouse’s benefit, which qualifies for the unlimited marital deduction. This results in no estate tax being owed at the death of the first spouse.
Spouses are able to give an unlimited amount of money and property to each other without having to worry about estate or gift tax. Because of this, some clients may not have an estate tax issue at the first spouse’s death because everything (or a substantial portion) went to the surviving spouse. Because they are utilizing the unlimited marital deduction, the deceased spouse’s exemption is not needed. However, even if this is the case, it may be advisable to file an estate tax return at the first spouse’s death to document how much of that deceased spouse’s exemption is being used, if any, and that the remainder is going to the surviving spouse. This will allow the surviving spouse to add the deceased spouse’s unused exclusion (DSUE) to the surviving spouse’s own exemption amount and apply that combined amount against their own estate at the time of death.
If the Andersons are philanthropically inclined, another great option would be to engage in charitable giving through the use of a charitable remainder trust. Setting up this type of trust can be time-consuming—sometimes the process is fairly straightforward but often highly complex, requiring advanced planning and consideration.
If your situation is similar to the Andersons, expert guidance is necessary to address estate tax issues and help you evaluate the impact of the potential sunsetting of the higher estate tax exemption amount on your estate. Contact us to learn more about strategies to protect, preserve, and pass down valuable property.
1 Estate and Gift Tax Facts, IRS.gov, https://www.irs.gov/newsroom/estate-and-gift-tax-faqs# (last updated Dec. 5, 2023).
In an era where inflation has soared to levels unseen in the last forty years, the challenge of managing your finances effectively has become more critical than ever. As the cost of living rises, you might feel overwhelmed, but there are proactive steps you can take to mitigate the impact of inflation on your financial health. Here are expanded strategies to help you navigate through these high inflation times:
Reassess and Optimize Your Budget:
Track and Analyze Your Spending: Begin by closely monitoring your monthly expenses. Use budgeting tools or apps to get a clear picture of where your money is going.
Cut Unnecessary Expenses: Identify and eliminate discretionary spending. This might include luxury items, dining out frequently, or high-cost leisure activities.
Review Regular Subscriptions and Memberships: Cancel any subscriptions or memberships you no longer use or need. For example, multiple streaming services can be reduced to one or two based on your actual usage.
Negotiate Better Deals on Essentials: Shop around for better deals on recurring expenses like utilities, internet, and insurance. Companies often offer competitive rates to new customers or when existing customers inquire about discounts.
Increase Income Through Side Hustles:
Leverage Your Skills and Hobbies: Turn your skills and hobbies into income sources. This could be anything from freelance graphic design, online tutoring, to crafting unique handmade goods.
Online Marketplaces: Utilize platforms like Etsy for selling handmade items, eBay for second-hand goods, and Facebook Marketplace for local sales.
Rent Out Underused Assets: Consider renting out things like a spare room, parking space, or recreational vehicle. Ensure you have adequate insurance coverage and understand the tax implications of your side hustle.
Smart Investment Choices:
High-Interest Savings Accounts: For short-term savings, look for savings accounts that offer higher interest rates to counteract inflation.
Treasury I Savings Bonds: A stable, long-term investment option that is specifically designed to protect against inflation.
Diversify Investments: Consider diversifying your investment portfolio. This might include stocks, mutual funds, or real estate investments, depending on your risk tolerance and financial goals.
Additional Tips:
Reduce Debt: High-interest debt can become more burdensome during inflationary times. Prioritize paying off such debts, starting with the highest interest rates first.
Energy Efficiency: Implement energy-saving measures at home to reduce utility bills. This can include using energy-efficient appliances, improving insulation, and practicing energy-saving habits.
Plan Major Purchases: If you're planning major purchases, like a car or home appliance, consider the timing carefully. Prices may fluctuate significantly during high inflation periods.
By implementing these strategies, you can create a more resilient financial plan to weather the challenges of high inflation. It's about making informed decisions, seeking opportunities to maximize income, and being judicious about spending and investments. With careful planning and adaptability, you can maintain financial stability even in these turbulent economic times.
Often, when embarking on the journey of estate planning, the primary focus tends to shift towards the distribution of financial assets, real estate, and other high-value possessions after one's demise. However, personal belongings, commonly referred to as 'stuff', hold a pivotal place in this process, often embodying both monetary and sentimental value. As you step into or progress through your estate planning voyage, it's essential to ponder upon the following facets concerning your personal belongings.
Evaluating the Worth: Monetary vs Sentimental
The essence of value varies from person to person. Some possessions, like an antique timepiece, might hold substantial monetary value, while others like a family heirloom may carry sentimental worth. The type of value attached to an item dictates the strategy required for its future allocation.
Monetary Value of Personal Belongings:
Establishing the real value of items believed to be of significant worth is crucial. High-value items might necessitate insurance coverage, as standard homeowner’s or renter’s insurance policies may have limitations. Moreover, if an item demands regular maintenance, ensuring the inheritor is well-informed about its upkeep is vital to retain its value.
Sentimental Value of Personal Belongings:
Personal belongings with sentimental value can sometimes stir family disputes. Amid the grief of loss, distributing cherished mementos without clear directives can be emotionally draining. Documentation of your desires regarding the distribution of such items can help maintain harmony among loved ones, making thoughtful consideration and clear communication indispensable.
Desirability of Your Belongings:
Understanding who might cherish your belongings as you do is an essential aspect of estate planning. Engaging with potential inheritors beforehand can provide insight into their willingness, especially if the item involves storage or maintenance responsibilities.
Handling Multiple Claims:
Awareness of multiple interests in a single item is pivotal to preventing discord post your demise. It's wise to contemplate the fair division of items or balancing inheritances if a valuable item is to be inherited by one person.
Unwanted Items:
An item precious to you might not hold the same value for your heirs. Formulating a plan for such scenarios, whether it be selling, donating, or offering it to someone who appreciates it, is advisable.
Incorporating Personal Belongings in Your Estate Plan:
Several mechanisms allow the incorporation of your wishes regarding personal belongings in your estate plan:
Specific Gift: Utilizing a Last Will and Testament or a Revocable Living Trust, you can designate specific items to specific individuals. Amendments, however, require the execution of new documents.
Personal Property Memorandum: Many states acknowledge this document which lists personal belongings along with their designated inheritors. It offers a simpler amendment process compared to a Will or Trust.
The Residuary Clause: This clause addresses the distribution of any unmentioned items in your Will or Trust, ensuring a comprehensive distribution in line with your wishes.
Professional Guidance:
Having a clear inventory, understanding the worth, and knowing the desired allocation of your belongings is the foundation of an effective estate plan. Partnering with seasoned estate planning attorneys can tailor a plan reflecting your unique circumstances. Reach out to schedule a consultation, ensuring your estate plan embodies your wishes comprehensively and lawfully.
Disclaimer: The information provided in this blog is intended for general informational purposes only and should not be construed as legal advice or a substitute for obtaining professional advice from a qualified attorney or estate planning professional based on your individual situation or jurisdiction.
Estate planning is not merely a legal necessity, but a shield to safeguard yourself, your family, and your financial achievements, irrespective of their magnitude. Despite its crucial role, a disheartening number of individuals overlook the value of estate planning. Whether it's about formulating a new estate plan or refining an existing one, procrastination can be a risky game. Below is an insight into some unsettling statistics regarding estate planning among Americans, emphasizing the urgency to address this issue to prevent becoming a part of these grim figures.
A Majority Lack a Will or Trust
Shockingly, only a third of Americans have a will or trust in place. This fact can be attributed to widespread myths and apprehensions surrounding estate planning. A significant number of people without a will or trust feel that their assets are too modest to warrant an estate plan. The misconception that estate planning caters only to the affluent, alongside hurdles like hectic schedules, perceived complexity or cost, or the uncomfortable subject of mortality, often delays this critical task. However, the advantages of proactive planning substantially outweigh the drawbacks of postponement.
Estate Planning Conversations Are Often Avoided
Death is an uncomfortable topic for many, yet discussing it and the accompanying estate planning aspects with family can be incredibly beneficial. It's alarming that 52% of individuals are clueless about where their parents have stored their estate planning documents, and a mere 46% of executors are aware of their nomination in a will. It's pivotal to have open conversations with your family regarding the whereabouts of essential documents and inform those involved in your estate plan about their roles, ensuring clarity and preparedness for the future. Some estate planners facilitate family meetings post the drafting of an estate plan to elucidate the responsibilities entailed.
Family Disputes Are Not Uncommon
A survey by LegalShield revealed that 58% of American adults have either been embroiled in or know someone who has faced family conflicts stemming from inadequate estate planning. Such disputes, often revolving around the distribution of assets post a loved one’s demise, underscore the necessity of meticulous planning. Engaging a proficient estate planning attorney can be instrumental in crafting a plan that minimizes familial discord and the potential for permanent rifts.
Seize the Moment to Plan or Revise Your Estate
The importance of solid planning stands timeless. With American retirees poised to transfer an astounding $36 trillion to heirs, charitable causes, and other beneficiaries over the forthcoming three decades, the call for a thorough financial and estate plan has never been louder. Cast aside apprehensions and kick start or proceed with your planning journey to steer clear of morphing into an unfavorable estate planning statistic. For any inquiries or guidance on initiating or amending your estate plan, we are just a call away.
Much like a well-attended roll call, a robust estate plan needs several legal instruments to ensure its comprehensiveness. The term 'estate planning' might ring a bell, yet the specifics of the legal tools involved may not be as clear. Let's delve into the essential legal tools that constitute a thorough estate plan and explore the protections and advantages each one offers.
Foundation With a Will or Revocable Living Trust:
Establishing a sound foundation is paramount for any structure, and estate planning is no exception. A will or a revocable living trust (RLT) acts as this foundation, guiding the distribution of your assets. While a will operates posthumously, an RLT provides directives both during incapacity and after death, thus making the choice between the two a pivotal decision based on individual circumstances.
Will: A typical choice for a foundational tool, a will necessitates a probate process to distribute your assets, although some assets can bypass probate through beneficiary designations or joint ownership. It's crucial to choose a competent executor to ensure smooth execution of your wishes.
Trust: An RLT, on the other hand, allows for probate avoidance, provided the assets are retitled to the trust. Besides, an RLT offers protection should you become incapacitated, making it a more encompassing tool.
Despite having an RLT, a 'pour-over' will is essential to transfer any assets not titled in the trust at the time of death, also enabling you to nominate guardians for minor children and specify funeral arrangements.
A testamentary trust is another notable tool, created posthumously through provisions stated in a will during one's lifetime, offering a customized distribution plan.
Financial Power of Attorney (POA):
A financial POA is a customizable legal tool, allowing you to appoint an agent to manage your financial affairs. The scope of authority granted can range from specific tasks under a limited POA to almost all financial decisions under a general POA. A Durable POA remains effective even during incapacity, ensuring continued financial management.
Medical Power of Attorney:
Entrusting someone to make medical decisions on your behalf during incapacity is facilitated through a medical POA. This document allows you to appoint a trusted individual, ensuring that your medical preferences are honored even when you cannot communicate them.
Advance Healthcare Directive:
Commonly known as a living will, an advance directive lets you specify your preferences for end-of-life care. It's a critical tool to have, providing clear instructions about life-support measures in terminal or vegetative conditions.
HIPAA Authorizations:
The Health Insurance and Accountability Act (HIPAA) authorizations enable designated individuals to access your medical records. While not granting decision-making authority, these authorizations ensure selected individuals are informed about your medical condition.
Guardianship Provisions:
For parents, securing the future of minor children is paramount. Some states offer separate legal instruments for appointing guardians, whereas others incorporate these provisions within a will. Consultation with an estate planning attorney can provide clarity on the appropriate tools for your state.
Temporary Guardianship or Parental Power Delegation:
Circumstances like extended travel may necessitate the delegation of parental powers to a temporary guardian. Understanding state-specific guidelines regarding the duration and limitations of such delegations is crucial to ensure the well-being of your children during your absence.
Navigating through the legal intricacies of estate planning might seem daunting, but with the right guidance and a well-structured plan, you can secure peace of mind for yourself and your loved ones. Engaging with an experienced estate planning attorney will ensure that the legal tools in your estate planning toolkit are tailored to meet your unique needs and circumstances.
In today's digital age, though a plethora of information is available at our fingertips, certain crucial topics like estate planning often remain overshadowed by myths and misconceptions. Many steer clear from delving into discussions about estate planning in Reno, either due to a lack of awareness or the uneasy feelings associated with contemplating life’s uncertainties. Common misconceptions such as the notion that having a will sidesteps probate, or that marriage automatically transfers all assets to the surviving spouse, often mislead individuals, especially those with modest assets. It's imperative to debunk these myths and highlight the substantial benefits of having a well-thought-out estate plan. Not only does it provide a roadmap for the distribution of your assets posthumously, but it also ensures protection for you and your loved ones in case of incapacitation.
Let's narrow down the discussion to three pivotal reasons why keeping your estate plan updated is non-negotiable:
A Transparent Communication of Your Wishes:
Death and the matters surrounding it are often seen as taboo subjects, avoided in conversations with loved ones. However, it’s these candid discussions that pave the way for clear understanding and preparation for the inevitable. An updated estate plan serves as a comprehensive guide for your family, illuminating your desires regarding asset distribution, the guardianship of minor children and pets, and even your own final arrangements. This clarity can significantly alleviate the stress and confusion that usually follows a family member’s passing, more so if there have been recent significant life changes like a birth or a death.
A Legally Binding Blueprint:
The assumption that verbal agreements with loved ones about asset distribution are sufficient can lead to unexpected and undesired outcomes. When financial strains come into play, even the closest of kin might act contrary to your wishes. For instance, adding a child’s name to the title of your property might seem like a prudent way to avoid probate, yet it opens up a Pandora’s box of potential legal and familial disputes. A meticulously crafted estate plan, forged with the assistance of seasoned estate planning attorneys, ensures that your assets are distributed precisely according to your wishes, minimizing the scope of conflicts.
Your Autonomy in Decision-Making:
Hesitation to consult with an estate planning attorney in Reno often stems from a lack of understanding regarding the repercussions of an outdated or non-existent estate plan. In the absence of a personal estate plan, state laws take over, and these generic intestate statutes might not resonate with your unique familial relationships or financial circumstances. Especially for individuals in blended families, parents with minor children, entrepreneurs, or unmarried couples, the urgency to establish a personalized plan cannot be overstated. Additionally, an estate plan is your safety net against unforeseen incapacitation, allowing you to designate trusted individuals to manage your affairs, thereby circumventing potentially distressing court-supervised conservatorships or guardianships.
The path to ensuring your future and that of your loved ones lies in a well-structured estate plan. Engaging with proficient estate planning attorneys like the team at Anderson Dorn & Rader can empower you to create a robust plan that mirrors your aspirations. Should you or your loved ones harbor any queries regarding initiating or updating an estate plan, the expert counsel at Anderson Dorn & Rader is just a call away, ready to guide you through every step of this vital journey.
The 18th birthday of a disabled child can evoke feelings of apprehension for parents. While some parents may view their children as ready to embrace independence and take charge of their lives, parents of disabled children typically harbor concerns about how their child will navigate life without their oversight. With their child now legally considered an adult, parents may lose the ability to make decisions on their behalf or receive information about their medical or financial needs. This can leave many parents feeling unsure of how to continue caring for their child. However, by preparing thoroughly and seeking professional legal advice, parents can take measures to ensure that their child's needs continue to be met and their best interests remain safeguarded with asset protection you can perform in Reno, NV.
To ensure the ongoing ability to provide care for your disabled child after they reach 18, it is advisable to explore the option of having them execute a financial and/or medical power of attorney. A financial power of attorney will authorize someone chosen by your child to make financial decisions on their behalf in case they become incapacitated or are unable to communicate their wishes. In the absence of this document, you may need to pursue legal avenues to acquire the necessary authority for managing your child's financial affairs. It's important to know that if your child chooses you to make decisions for them, they can still make their own choices if they have the capacity too.
Additionally, your child has the option to execute a medical power of attorney. This will allow them to designate a trusted agent who can make medical decisions on their behalf in situations where they are unable to do so or unable to communicate their preferences to healthcare providers. The agent appointed is chosen to make decisions according to your child's wishes. As long as your child possesses the capacity to make and articulate their own medical decisions, they maintain the right to do so, and the appointed agent would only step in if your child becomes incapable of making or expressing their preferences.
Executing a financial or medical power of attorney requires that your child has the mental capacity to understand and sign the documents, with specific capacity requirements varying by state. Even if your child cannot physically sign the documents, they may still be able to execute them. It's crucial to prepare these documents ahead of time, particularly if your child has a degenerative condition. Not planning ahead can lead to serious problems because the documents are meant to assist your child when they can't make decisions on their own. Until that happens, your child can still make their own choices.
In the event that your child is not able to execute a financial or medical power of attorney due to lack of mental capacity, making decisions on their behalf may require court intervention. This process can be lengthy, costly, and public, causing additional stress and difficulties for both you and your child.
If your child is incapable of executing the required legal documents, you might need to undergo a legal procedure in court to establish guardianship and conservatorship. During this process, you would ask the court to grant you the authority to make decisions on your child’s behalf. The exact titles of the roles you may be seeking appointment for vary by state, but generally a guardian (sometimes known as a guardian of the person or conservator of the person) is authorized to make general life decisions for your child, such as where they live and what medical treatment they receive. A conservator is authorized to make financial decisions on behalf of your child.
If appointed as a guardian or conservator, you would have authority to make all decisions, including power of attorney for medical records, and your child would no longer be able to make any decisions for themselves. In some states, you may have the option to seek a limited or partial guardianship or conservatorship, where you can only make decisions specified by a court order. In all other matters, your child retains the right to make their own decisions. The court's overall objective is to promote independence while ensuring that your child receives the necessary support and care.
Get in touch with us today if you are wanting to be prepared for your child with disabilities to approach the age of 18. It's important to plan ahead so that your child gets the same care they had going up well into their adult life. This includes addressing the power of attorney for medical records. Our team is available to provide support and guidance as you navigate through the essential steps.
As individuals embark on the journey of estate planning, they find themselves engaged in a delicate balancing act. Their objective is to strike a harmonious equilibrium between minimizing income and estate taxes, safeguarding their assets from potential creditors, and ensuring that their loved ones receive the utmost benefit. To achieve this equilibrium, it is necessary to explore the available legal and financial instruments that can bring their estate plan to fruition.
One crucial consideration when creating an estate plan is the reduction of income and estate taxes. These taxes can significantly diminish the amount of wealth and property received by beneficiaries. To minimize estate taxes, various strategies can be employed, such as gifting assets to loved ones or establishing trusts on their behalf. Additionally, leveraging tax-advantaged investment accounts can be an effective means of reducing income taxes. The optimal approach will depend on an individual's unique financial circumstances and the desired outcomes of their estate plan.
For those seeking to reduce the amount of money and property subject to estate tax, making gifts during their lifetime can prove advantageous. The current annual gift tax exclusion for 2023 allows for $17,000 per recipient ($34,000 for married couples making joint gifts), and individuals can give away up to a total of $12.92 million during their lifetime without triggering federal estate tax. By transferring accounts and property, the income tax burden can also be shifted to recipients who may find themselves in lower tax brackets, resulting in reduced tax liabilities on generated income. However, it is important to consider the potential capital gains tax implications for recipients if the value of the assets appreciates significantly. Additionally, once assets are transferred, individuals lose control over how the money is spent or how the property is utilized, and the assets may become vulnerable to the creditors or divorcing spouses of their loved ones.
Creating trusts is another avenue for tax savings. Trusts serve as legal entities that can hold and manage accounts and property on behalf of beneficiaries. By utilizing irrevocable trusts, income taxes on the trust's generated income can be paid by the trust itself as a separate entity, thereby allowing the trust's accounts and property to grow free from estate taxes for the beneficiaries. However, establishing such trusts may necessitate the use of annual gift tax exclusions or lifetime gift and estate tax exclusions. Certain types of irrevocable trusts can also provide asset protection, as the transferred accounts and property are considered separate entities. Nonetheless, relinquishing control over the trust becomes a requirement going forward.
Optimizing tax savings can also be achieved through the utilization of tax-advantaged investment accounts like IRAs and 401(k)s. These accounts offer opportunities to defer taxes on contributions and investment earnings until retirement, potentially resulting in a lower tax bracket during distribution. Roth IRAs and Roth 401(k)s provide an alternative by allowing after-tax contributions and tax-free withdrawals of earnings. By thoughtfully considering and utilizing these diverse investment accounts, individuals can potentially maximize tax savings and increase the overall value of their estate.
In addition to tax considerations, it is crucial to contemplate protecting assets from potential creditors when developing an estate plan. Insufficient asset protection measures may expose accounts and property to seizure for debt repayment or legal judgments against individuals or their beneficiaries.
One way to safeguard your accounts and property from creditors, including potential Nevada estate tax implications, is by establishing a trust with specific provisions. Trusts can be structured to create a level of separation between your assets and any potential creditors. For example, if your loved ones have a history of overspending or face potential creditors, incorporating a spendthrift trust into a revocable or irrevocable trust can be beneficial. This type of trust restricts beneficiary access to the trust's accounts and property, making it more difficult for creditors to seize them.
However, it's important to note that a spendthrift provision alone does not offer adequate protection from creditors. To further enhance creditor protection, a discretionary trust can be utilized. In a discretionary trust, the trustee has the discretion to determine when and how to distribute money and property to the beneficiary, thereby preventing distributions vulnerable to seizure by creditors. The choice of trustee is crucial for the level of creditor protection. An independent trustee, not related to or subservient to the beneficiary, is ideal. A well-drafted discretionary trust limits the beneficiary's access to the trust's accounts, property, and income. If the trust retains the income generated by its assets and doesn't distribute it to the beneficiary, the income may be taxed at the trust's income tax rate, unless the trust is structured in a way that holds the trustmaker responsible for the tax liability. Both provisions can be incorporated into either a revocable or irrevocable trust.
It's worth noting that different tax rules apply to trusts and individuals when it comes to income tax. Individuals are subject to a graduated tax system, with tax rates increasing as income rises. For the tax year 2023, individuals face a maximum marginal tax rate of 37 percent, which is applicable to income surpassing $523,600 for individuals and $628,300 for married couples filing jointly. Conversely, trusts are governed by a compressed tax bracket system, where any income over $13,451 is subject to the top marginal tax rate of 37 percent. Consequently, trusts may face a higher tax rate on the same amount of income compared to individuals in similar tax brackets.
For individuals aiming to safeguard their accounts and property from their own creditors, specific types of irrevocable trusts should be considered. As previously discussed, an irrevocable trust entails surrendering control over the assets held within it, potentially resulting in a higher tax liability on the trust's income if it remains undistributed to beneficiaries or lacks a structure to hold the trustmaker responsible for the income tax obligation.
While saving on taxes and protecting assets from creditors are vital aspects of estate planning, giving beneficiaries maximum access to their inheritance is also important. This is particularly relevant if you want to support their needs and provide flexibility in how they utilize their inheritance. To achieve this, you can structure your estate plan in a way that allows unhindered distributions to beneficiaries. Options include creating a revocable living trust with lenient distribution instructions or outright giving assets to beneficiaries during your lifetime or at your death. However, providing unrestricted access to inheritance carries certain risks. Beneficiaries might be tempted to spend the money unwisely or mishandle the property, potentially making them targets for fraud or manipulation. Moreover, this approach may expose them to creditors and legal claims like divorce. Thus, it's crucial to carefully consider the advantages and disadvantages of granting maximum access to beneficiaries and implement safeguards to mitigate potential risks.
Estate planning requires a thoughtful balance of various factors and interests. Evaluating your goals and priorities and determining the most suitable approach is essential. We are dedicated to assisting you throughout this intricate process, guaranteeing that you achieve the desired equilibrium. Contact us today to begin or review your estate plan, taking into account Nevada estate tax.
When it comes to estate planning and legacy planning, most individuals focus on passing down their assets to their children and heirs. However, for those seeking to establish a legacy that will endure for generations, the concept of a dynasty trust becomes particularly intriguing.
A dynasty trust, an integral part of estate planning, is an irrevocable trust that offers similar tax advantages and asset protection as other trust types, but with a remarkable distinction—it can span multiple generations. Often referred to as perpetual trusts, dynasty trusts are meticulously designed to last indefinitely, as long as the trust's assets remain intact. Given the long-term nature of a dynasty trust, it is imperative to establish it with utmost care and attention to detail. Once the trust is in place, its rules generally cannot be altered, underscoring the importance of getting everything right from the beginning.
Setting up a dynasty trust follows a process akin to that of any other trust. The grantor, who serves as the trust's creator, transfers funds and assets into the trust during their lifetime or, in the case of a testamentary dynasty trust, after their death. Once the trust is funded, it becomes irrevocable, and the rules established by the grantor become fixed. Modifying these rules is only possible under specific state laws that govern trust modifications.
When establishing a dynasty trust, thoughtful consideration must be given to selecting the most suitable trustee. It is common practice to appoint an independent trustee, such as a bank or trust company, to administer the trust throughout its existence. Although a beneficiary can serve as a trustee, this approach may give rise to potential issues concerning taxes and creditor protection. A beneficiary-controlled trust can have significant implications for income and estate taxes, depending on the extent of the beneficiary's powers. It can also impact the level of asset protection provided to the beneficiary and expose family wealth to the risk of misappropriation. On the other hand, a corporate trustee, such as the dynasty trust itself, possesses indefinite legal life and can ensure uninterrupted administration across generations. Corporate trustees typically charge an annual fee based on the value of assets held in the trust.
While trusts are generally beneficial for individuals across various financial backgrounds, there are exceptions, and the dynasty trust is one of them. Establishing a dynasty trust does not necessitate grand dynastic aspirations akin to illustrious families like the Medici or the House of Windsor. However, it is most commonly utilized by families with substantial wealth. While there are no legal requirements regarding the minimum amount of funds needed to establish a dynasty trust, from a practical perspective, it is typically suitable for those with sufficient wealth and assets capable of sustaining multiple generations, taking into account the financial needs and responsibilities of the beneficiaries. Grantors who are concerned about future generations beyond their children often opt for dynasty trusts as part of their estate and legacy planning. Additionally, dynasty trusts can prove invaluable for families that own a family business and desire to maintain its continuity within the family lineage.
Statistics reveal that many family businesses fail to survive beyond the second or third generation, but a dynasty trust can significantly enhance the chances of success. By placing shares of the business into the trust, the grantor can provide for multiple generations of beneficiaries while ensuring the seamless continuation of business operations through professional trustee management. The trustee assumes responsibility for managing the business affairs and maintaining continuity, while the beneficiaries reap financial benefits. Furthermore, the grantor can include specific terms within the trust to guarantee competent business management, such as mandating the trustee to establish an advisory council functioning as a board of directors.
In the realm of estate planning and legacy planning, one of the notable advantages of establishing a dynasty trust is the potential for significant tax benefits. By leveraging the federal estate tax exemption amount (which currently stands at $12.06 million per individual in 2022, or twice that amount for couples) to fund a dynasty trust, you can effectively transfer money and property directly to your grandchildren while avoiding gift or generation-skipping transfer (GST) taxes. To achieve this, you would place accounts and property into the trust and file a gift tax return to allocate appropriate tax exemptions to the trust or pay a portion of the wealth transfer tax. This strategic approach ensures that these assets are not included in your taxable estate, nor in the taxable estates of your beneficiaries, provided that the trust is fully exempt from GST tax.
Furthermore, utilizing trust funds to cover a beneficiary's living expenses or investing in a home for their benefit can also help reduce their taxable estate. Additionally, when a dynasty trust is properly drafted, accounts and property left to your loved ones within the trust can enjoy protection from creditors and divorce courts. In contrast, gifting money outright may not offer these same protective benefits.
It is worth noting that dynasty trusts are not available in every state due to the rule against perpetuities, a common law principle that restricts the duration of controlled property interests, including those established within trusts. This rule, which was not specifically created for trusts, aims to prevent individuals from exerting control over property ownership for an extended period after their demise through legal instruments like deeds and trusts. However, many states have modified or even eliminated this rule, as its interpretation can be complex. With the guidance of an experienced estate planning attorney, you may be able to establish a trust in a state where you do not reside, taking advantage of more favorable laws.
If you are considering the establishment of a dynasty trust, our firm can connect you with a skilled estate planning attorney who can guide you through the process. During your consultation, crucial factors such as selecting a trustee and beneficiaries, implementing tax and creditor protection strategies, understanding state laws pertaining to perpetual trusts, and aligning the dynasty trust with your comprehensive estate plan will be thoroughly discussed. Taking this initial step will enable you to secure your legacy and ensure the preservation of your wealth for future generations. To embark on this journey, please reach out to us, and we will be delighted to assist you.
May marks not only the end of the academic year and the start of summer, but it also marks the beginning of the busiest season for moving - National Moving Month! When you're moving, there are numerous tasks to tackle, including packing your belongings, managing utilities, forwarding mail, updating voter registration, and more. As you prepare for your next move, there are two major tasks to take into consideration:
In all of the chaos of moving boxes and packing tape, it is easy for things to get lost in the shuffle or even thrown out during a move. Certain important documents, such as birth certificates, social security cards, passports, financial statements and estate planning documents, should not be packed up and put on the moving truck along with your less important belongings. Keep these important documents safe and accessible during your move and ensure that they do not get thrown out by accident.
One idea is to purchase a portable file box with an attached lid and a secure latch. You might consider purchasing a brightly colored one so that it is easily identifiable. Then, place this file box in a secure and easily accessible location. If you are moving locally, a logical place might be at a family member’s or friend’s home. If you are moving a longer distance, that place might be the trunk of your car.
Having electronic backup copies of your important documents is a wise decision, especially during a move. You can take pictures of your documents and save them on your smartphone or a password-protected removable flash or external hard drive. Another option would be to store it in the cloud. This way, you'll always have a copy of these important documents in case you cannot locate the original.
Adding this step to your moving checklist can save you time and from stress. For example, you will not have to run around searching through unpacked boxes for your children's birth certificates to register them for their new school.
When moving, it's important to not only contact the moving company, but also to reach out to your team of advisors. A major consideration is the cost associated with the move, which is influenced by factors like the size of your home, the distance of the move, and your preference for do-it-yourself tasks. To ensure your moving expenses align with your long-term financial objectives, it's advisable to consult your financial advisor and establish a moving budget.
It is recommended to contact your estate planning attorney if you are moving different states. While a will or trust created in one state should generally be valid in another, certain documents such as a financial or medical power of attorney may be state-specific. Due to the variations in estate planning laws across different states, it is strongly advised that you have your estate planning documents examined to ensure their effectiveness in your new state. You can have your attorney review the documents or they can assist you in finding a local attorney who can review them for you in your new state.
If you and your spouse are moving out of or into a community property state, your estate planning may be more complicated. In these states, any property acquired during the marriage is presumed to be owned equally by both spouses, while property brought into the marriage by one spouse or acquired by gift or inheritance is separate property. Moving from a community property state to a common law state or vice versa raises questions about the status of community property. For instance, if a couple purchases a home in California during their marriage and then moves to Nebraska and buys a new home with the proceeds from selling their California home, is the new Nebraska home community property? Your estate planning attorney can answer these questions and help you take necessary steps to maintain any tax benefits.
Moving involves many things to consider, but don't forget to keep your important documents secure and meet with your team of advisers. These are crucial items to add to your moving checklist. If you're planning to move soon, we would be more than happy to help you keep this as smooth as possible.
Every child is a precious gift, and as parents or grandparents, we strive to plan for their future, anticipating their needs and aspirations. However, families with special needs children or grandchildren face additional responsibilities in ensuring their loved one's future is secure, fulfilling, and supported. To ensure a flourishing future for your special needs child or grandchild, estate planning measures focused on their unique circumstances are essential. We recommend the following steps:
When it comes to estate planning, creating a Special or Supplemental Needs Trust (SNT) for your special needs child or grandchild should be a top priority. An SNT is a specialized trust designed to set aside funds and assets for the benefit of a beneficiary who may qualify for public assistance due to their disabilities. It can be established as a standalone trust or added to your existing trust.
It's important to note that government programs providing aid to disabled individuals have strict criteria regarding the amount of money and property a person can own while receiving benefits. Structuring any inheritance your special needs beneficiary may receive in a way that doesn't disqualify them from obtaining government benefits is crucial. Even if they are not currently receiving government benefits, considering the possibility of future needs is essential. To ensure all opportunities are available, it is vital that the trust is meticulously drafted by a lawyer well-versed in the eligibility requirements for government benefits.
An SNT not only provides financial security but also allows you to appoint a care manager or advisory committee. The care manager serves as an advocate for your special needs beneficiary, overseeing their well-being periodically or daily, depending on their level of care requirements. An advisory committee, comprising family members, friends, and professionals, can provide guidance to the trustee on the beneficiary's needs and the best use of the funds.
Additionally, the SNT can include a statement of intent, outlining the trust's purpose and how the funds should be utilized. This section acts as a safety net in case changes in the law make the beneficiary ineligible for government benefits. It allows for modifications to ensure your original intentions are met, even in the face of unforeseen circumstances.
In addition to establishing an SNT, putting your instructions in writing is crucial to ensure your wishes are carried out as intended. Consider creating a letter or memorandum of intent that provides guidance to your trustee on managing the trust after your passing. Although not legally binding, this document offers valuable insights into your true intentions. You can include details on how the funds should be used in accordance with government rules, specific goals you would like the beneficiary to achieve, and the standard of living you envision for them.
Supporting a special needs child or grandchild can be financially demanding, and it's important to consider how to sustain their care once you pass away. Life insurance can be a valuable tool in ensuring there will be sufficient funds for the trustee to use for their benefit. By designating the SNT as the beneficiary, you can provide a lump sum payment that is not subject to the same tax liabilities as retirement accounts.
The SECURE Act has brought changes to how beneficiaries can receive distributions from inherited IRAs, potentially impacting the financial support available to your special needs beneficiary. However, the Act also recognizes "eligible designated beneficiaries," including individuals with disabilities, who can still receive distributions over their life expectancies. Congress has established rules that allow the life expectancy of disabled beneficiaries to be used for certain types of trusts. If you have a substantial retirement account, it is crucial to discuss your distribution options to maximize benefits for all your beneficiaries.
We understand that securing a bright future for your special needs child or grandchild is of utmost importance to you. Our priority is to work with you in developing a comprehensive plan that will guarantee continued care and well-being for your loved ones. Please do not hesitate to reach out to us to schedule an appointment so that we can begin this process together.
When Elvis Presley, the King of Rock and Roll, passed away in 1977, he left behind a complicated legacy, just like his famous dance moves. His estate, including the iconic Graceland, eventually ended up in the hands of his only child, Lisa Marie Presley. However, the future of Elvis's legacy and the fate of his estate face challenges ahead. These challenges involve Lisa Marie's personal financial issues, a significant age gap among her children, and even a legal dispute initiated by her mother, Priscilla Presley. The unfolding of this captivating saga will determine the course of Elvis's rockin' legacy.
From Elvis to Lisa Marie: Inheritance and Financial Legacy
Lisa Marie, born in 1968 to the legendary rock and roll icon Elvis Presley and his wife Priscilla Presley, had to face the tragic loss of her father at a young age. Sadly, Elvis passed away at forty-two due to a heart attack. Fast forward to January 2023, and Lisa Marie herself succumbed to heart problems at the age of fifty-four.
Despite Elvis's untimely departure, his legacy has continued to thrive, with his estate earning an impressive $400 million in the previous year alone. The value of the estate skyrocketed to over $1 billion, thanks in part to the 2022 Elvis biopic movie. This created a substantial financial legacy for Lisa Marie to inherit.
The Elvis Presley Trust
When Elvis Presley passed away, his estate was placed in a trust with Lisa Marie, his grandmother, and his father as beneficiaries. According to the trust, Lisa Marie's inheritance was held in trust until she turned twenty-five in February 1993. After that, the trust dissolved automatically, and Lisa Marie inherited $100 million, including Graceland, her childhood home.
Today, Graceland stands as a museum and popular tourist attraction, generating over $10 million annually. To manage Graceland and the rest of Elvis's estate, which includes Elvis Presley Enterprises, Inc. (EPE), Lisa Marie established the Elvis Presley Trust. Until 2005, Lisa Marie served as the owner and chairperson of EPE's board, but she later sold 85 percent of its assets.
Graceland and the Living Trust
Graceland, the iconic mansion that was once Elvis Presley's residence, has become a symbol of his legacy and a beloved tourist destination. After Lisa Marie inherited it, she made it clear that Graceland would always remain within the family.
Lisa Marie's children, Riley Keough, Harper Lockwood, and Finley Lockwood, are set to inherit her fortune and properties through a living trust. However, Lisa Marie's son, Benjamin Keough, tragically passed away in 2020.
Considering that it's unclear whether Lisa Marie had a separate will in place, the living trust, an estate planning document, will play a significant role in determining the distribution of her assets. Through the living trust, individuals can transfer ownership of accounts and property to a separate entity, the trust, which they control while alive. The trust also names a successor trustee to manage the accounts and property after their passing.
Priscilla Presley's Trust Challenge
A challenge to Lisa Marie's living trust has emerged from an unexpected source—her own mother, Priscilla Presley. The legal dispute revolves around a 2016 amendment to the trust, which removed Priscilla and a former business manager as trustees and replaced them with Lisa Marie's daughter, Riley Keough, and her late son, Benjamin Keough.
Navigating the Challenges: Estate Planning and Protecting Your Legacy
Priscilla's claim challenges the validity of the living trust amendment, citing violations of legal requirements. She highlights the lack of proper notification, absence of witnesses or notarization, and even a misspelling of her name in the document. Adding to her concerns, Priscilla alleges that her daughter's signature appears suspiciously different from her usual signature. Consequently, she has sought the court's intervention to invalidate the amendment that removed her as the trustee.
Lisa Marie's Financial Struggles
Recent legal documents indicate that Lisa Marie faced financial challenges before her passing, despite inheriting $100 million at the age of twenty-five. She held approximately $95,000 in cash and possessed various assets such as bonds and stocks valued at $715,000. Although she earned over $100,000 per month from EPE, she also carried a $1 million tax debt and incurred monthly expenses of $92,000. Furthermore, her ex-husband, Michael Lockwood, reopened a lawsuit seeking $4,600 per month in child support.
By 2016, Lisa Marie's $100 million trust had significantly dwindled to just $14,000 in cash. Her former manager, Barry Siegel, faced allegations of mismanaging her finances, which resulted in a decline of her wealth. Court records reveal that Lisa Marie was burdened with a $16.67 million debt at that time. However, in 2019, Siegel countered the claims and asserted that the sale of her 85 percent stake in EPE helped resolve over $20 million in debts.
Potential Legal Challenges for the Lisa Marie Presley Estate
The legal ambiguity surrounding Lisa Marie's estate gives rise to numerous potential legal issues that will likely require judicial resolution. One such challenge is Priscilla's claim against the living trust amendment. If her challenge is successful, the amendment would be considered void, making Priscilla the successor trustee responsible for managing the trust's assets and funds instead of Lisa Marie's daughter, Riley. This matter would necessitate court intervention for resolution.
Creditor Claims
Although it remains uncertain whether Lisa Marie had outstanding debts, if she did, creditors could make claims against her estate. The estate would need to determine whether to accept or reject these claims. Rejecting them could lead to legal disputes. Creditors hold priority over beneficiaries, which means that Lisa Marie's accounts and property, including Graceland, might need to be sold to satisfy any outstanding debts. Additionally, even after the debts are settled, the estate may still be subject to estate taxes, which could further complicate matters if creditors decide to initiate lawsuits.
Her Daughters' Inheritance
Assuming the estate possesses sufficient funds to settle debts without selling Graceland, Lisa Marie's three daughters, Riley, Harper, and Finley, are poised to inherit the mansion and any remaining property or funds. However, the upkeep and tax costs associated with Graceland surpass $500,000 annually. It remains uncertain whether the daughters would collectively agree to bear these expenses and preserve the Elvis legacy within the family.
The daughters have the option to sell Graceland, but this decision could ignite internal conflicts if even one daughter wishes to pursue a sale. Additionally, crucial details regarding the ages of the daughters and their inheritances remain unknown. Did Lisa Marie establish a trust to hold her twin daughters' inheritances until they reach a specific age, as her father did for her? Or does the trustee possess discretionary power over the funds? Moreover, depending on the outcome of the trust challenge, will the trustee ultimately be Riley or Priscilla?
Furthermore, the question of whether Lisa Marie distributed her estate equally among her daughters remains unclear, as there is no legal requirement for equal distribution.
Control What You Can with an Estate Plan
The sudden and tragic passing of Lisa Marie Presley serves as a reminder that death can come unexpectedly. However, through estate planning, we can exert some control over our legacy.
Crafting a comprehensive estate plan can help alleviate some of the uncertainty and provide peace of mind to both ourselves and our loved ones. If you're ready to start planning for the future, please reach out to our office to schedule a consultation.
For managing your assets and providing for your loved ones after your passing, a trust is a potent tool. Yet, the trustee you choose will have a big influence on how your trust turns out. The trustee is responsible for overseeing and allocating assets in accordance with the conditions of the trust and must possess the skills, moral fortitude, and knowledge required to successfully discharge their obligations and adhere to your objectives.
The first factor to consider when choosing a trustee is their relationship to you and your beneficiaries. This can help guarantee that the trustee is driven to act in everyone's best interests and that they have a profound understanding of the importance of their position.
Another important factor to consider is the trustee's financial and legal expertise. A good trustee should have a strong understanding of financial and legal matters, including tax law, investments, and estate planning. This can ensure that the trust is administered and distributed to maximize its worth and reduce its tax liabilities.
The trustee should also have the time and availability to manage the trust effectively. This entails being willing to embrace the responsibility of acting as a trustee and being flexible enough to devote the necessary amount of time and focus to the assignment. Make sure to discuss this issue with potential trustees upfront to avoid any misunderstandings or conflicts down the road.
Finally, it's important to choose a trustee who possesses personal characteristics that make them trustworthy and reliable. Honesty, reliability, and responsibility are all essential traits for a good trustee. The trustee should be someone you trust implicitly, and who has a reputation for acting with integrity and following through on their commitments.
An individual trustee may have a more personal connection to you and your beneficiaries, and may be better suited to managing smaller trusts or those with less complex asset structures. However, a corporate trustee may offer more expertise and resources, as well as greater objectivity and accountability. The trustee has a right to compensation for their services, and it's crucial to make sure that it's just and reasonable.
Another important consideration is the need for ongoing professional guidance and support. Even the most experienced and capable trustee may need guidance from time to time, particularly when it comes to complex legal or financial matters. This will guarantee that what you want done, gets done.
Another important consideration is making sure your trustee has the knowledge necessary to manage your trust effectively on a legal and financial level. Selecting a trustee with expertise in areas like tax planning, investment management, or estate administration may be suitable depending on the complexity of your estate plan and the assets involved.
It's critical to remember that your selection of trustee is not final. If circumstances change or if you believe your present trustee is not performing up to your standards, you can always change them.
Choosing the right trustee is essential for ensuring the success of your trust. You can make an informed choice that will help ensure that your trust is managed and distributed in a way that reflects your wishes and values by taking into account aspects, like the trustee's relationship to you and your beneficiaries, their financial and legal expertise, their availability and willingness to serve, & their personal characteristics.
This is the first week of May, which means that it is also Teacher Appreciation Week and we want to celebrate teachers everywhere and express our gratitude. Your commitment to laying the groundwork for tomorrow's leaders is truly inspiring. We believe that everyone deserves a successful future, including you. We want to ensure that you have all of the essential estate planning documents to secure that future. To get that preparation started, we have some frequently asked questions listed about estate planning and how important it is to have a plan in place.
Having a proper legal plan is important for everyone, regardless of wealth. The term 'estate' refers to all of your possessions, such as bank accounts, real estate, household items, and vehicles. Essentially, it encompasses everything that you own. Once you pass away, everything in your estate is bequeathed to someone else.
Estate planning or asset protection planning, involves creating a comprehensive set of instructions for your trusted decision-makers to follow. These instructions are laid out in a series of legal documents that specify what should happen to your assets, finances, and other possessions after you pass away. In addition to distributing your estate, these documents can allow you to nominate a guardian for your minor children, and provide guidance for situations where you are unable to make your own decisions or require end-of-life care. A large number of people choose to work with an estate attorney, like us, to help them with this inheritance planning process.
Planning for retirement is essential to ensure that you are financially prepared for your post-work years. Your retirement plan options will vary depending on the school district you're in, so you may need to conduct a little research to see the basic features of your plan. Defined-benefit plans guarantee a specific payment amount, while defined contribution plans are based on investment results. To understand your plan's rules and requirements, consider the following questions:
The type of account your retirement plan is in decides the regulations that go with it. Understanding the terms and conditions for your specific plan is vital.
To create an effective estate plan, you must identify the documents that make up your plan. Having a will or trust already completed means that you are off to a good start. If you haven't started preparing any of the necessary documents yet though, there is no need to panic as we are here to help you create your comprehensive plan for any situation. As a teacher, you know the importance of having a well-organized plan, and we view your inheritance planning documents as the lesson plans that guide and protect your loved ones.
One part of asset protection planning can be developing a revocable living trust (RLT), which is a trust that you establish during your lifetime, which can be altered at any time until you become incapacitated or pass away. You can either transfer ownership of your accounts and property from yourself as an individual to yourself as the trustee of the trust or name the trust as the beneficiary of your accounts and property (with some exceptions). Although many may believe it, there is no requirement as to how much money and property you need to experience the benefits of a trust. The next step may involve figuring out how to choose a trustee as an RLT allows you to designate a co-trustee or substitute trustee if you become unable to act as trustee for any reason. An RLT also enables you to enjoy your money and property during your lifetime and to designate what will happen to it upon your death, safeguarding it for your chosen beneficiaries.
An RLT is an excellent way to provide instructions to your loved ones about how to handle the money and property owned by the trust. You can specify in the trust document how the money and property should be used during your incapacity and after your death. As an educator, an RLT offers an opportunity to provide younger beneficiaries with teachable moments. You can structure the trust to allocate a specified percentage to your loved one upon reaching a particular age (e.g., one-third at age thirty, one-half at age forty, and the remainder at age fifty). Alternatively, you can use an incentive trust to allow the trustee to give your loved one money only after achieving specific objectives (e.g., successfully completing a post-secondary education, being employed by the same employer for more than a year, being sober for one year, etc.). You can also use your trust to encourage charitable giving by allowing your loved one to select a charity to give a stated amount of money to, providing funding for a mission trip, etc.
Another option for asset protection planning is a Last Will and Testament, which is another option for individuals to carry out their wishes. This document is also referred to as a will. In it, you can name an executor or personal representative who will collect all of your accounts and property, pay off your outstanding debts, and distribute your assets to those you have named. You can also name a guardian for any minor children. Unlike an RLT, this document is only effective after your death and cannot be used during your incapacity. However, it does provide a way to officially express your wishes.
If you choose to distribute your assets through a will, your family will have to go through the probate process, a court-supervised procedure that must be followed to distribute your accounts and property to your beneficiaries after your death. In contrast, with an RLT, probate can be avoided. It's important to note that if you don't have a will, state law will determine who gets your assets.
In the event that you have created an RLT as part of your estate plan, you may also need to create a pour-over will. This document is necessary only if an account or property has not been transferred to your trust during your lifetime or to your trust or another beneficiary upon your death through a beneficiary designation. Similar to a last will and testament, a pour-over will designates a personal representative or executor (usually the same person named as your substitute trustee) and a guardian for any minor children. However, the main difference is that a pour-over will directs that all accounts or property that are subject to probate be transferred to your RLT. While your loved ones will still need to go through probate, your money and property will ultimately end up in the trust and be managed and distributed according to its instructions.
A financial power of attorney allows you to designate a trusted person, referred to as your agent, to manage your financial transactions such as signing checks, opening bank accounts, signing a deed, and other tasks that you may assign. It's similar to assigning tasks to a teacher's aide in a classroom. You can tailor the powers granted to the agent and when they can act on your behalf to meet your specific needs. Failing to name an agent can result in your loved ones having to wait for a court-appointed decision-maker with no input from you.
A medical power of attorney enables you to designate a trusted person to act as your healthcare decision-maker and make medical decisions or communicate your healthcare preferences on your behalf if you become unable to do so, like a stand-in teacher for your healthcare. Without a formal designation, your loved ones would have to seek court appointment for someone to make medical decisions for you, which may not align with your wishes, and the process can be costly, time-consuming, and public, adding to the stress during a challenging time.
An advance directive, also known as a living will, is a teaching guide that communicates your specific wishes regarding end-of-life decisions. It is crucial to thoughtfully consider your desires regarding life-prolonging procedures and clearly convey them to your chosen medical decision-maker. Without these instructions, your medical decision-maker will have to make assumptions about your wishes, which can lead to stress and potential disagreements among your loved ones if their opinions differ.
A Health Insurance Portability and Accountability Act (HIPAA) authorization form allows you to authorize specific individuals to receive information about your medical condition, such as updates on your status or test results. This authorization does not grant decision-making authority to the named individuals; that power belongs to the medical decision-maker you have chosen in your medical power of attorney or the court-appointed individual if you have no valid medical power of attorney. Sharing information with your loved ones can ease anxieties and uncertainties that arise during emergencies. The HIPAA authorization can also help reduce tensions between the medical decision-maker and your loved ones and enable them to understand the reasons behind the decisions made.
Your next task is to contact us so that we can work with you to create a personalized estate plan that will safeguard you and your loved ones. Trusting an estate attorney to help you make the right plan is a great step in the right direction. Preparing a plan will put you at ease knowing your wishes will be honored, all of your assets will be distributed how you'd like, and all of the people you care about are accounted for if you happen to become incapacitated or pass on. Let's work together to create a comprehensive lesson plan for your inheritance planning needs.
There are various ways for settling issues involving trusts and estates. One of the most popular
alternatives to litigation is a nonjudicial settlement agreement (NJSA). NJSAs are not always the best
line of action, but they can be a good alternative to litigation.
The ability to avoid the time, expense, and stress of litigation is one of the main advantages of NJSAs.
NJSAs can be finished very quickly, allowing the parties to go on with their lives, in contrast to litigation,
which can take months or even years to resolve.
Another advantage of NJSAs is that they are flexible. The parties can tailor the agreement to meet their
specific needs and concerns. This means that NJSAs can often result in more creative solutions than
would be possible in court. Additionally, NJSAs are private. Unlike court proceedings, which are generally
open to the public, NJSAs are confidential. This means that the parties can keep the details of their
settlement agreement private and avoid negative publicity.
While NJSAs have many benefits, they are not without their drawbacks. One of the main disadvantages
of NJSAs is that they are not binding on non-parties.The parties might believe they have resolved all of
their issues as a consequence, only to find themselves back in court later. Another potential downside of
NJSAs is that they may not be enforceable. This could be especially challenging if one of the parties has
already received their share of the trust assets and won't return them.
Finally, NJSAs can have some ugly consequences if they are not carefully crafted. One of the most
significant risks of NJSAs is that they can result in unintended tax consequences. For instance, the
distribution may be subject to additional taxes and penalties if the parties concur to transfer trust assets
in a manner that isn't consistent with the trust's provisions or the applicable tax rules.
Another potential problem with NJSAs is that they may not be comprehensive. The parties can end up
back in court later if they don't resolve all the problems that may need to be settled. This can be
especially problematic if the NJSA was intended to be a final resolution of all disputes.
There is a chance that NJSAs won't hold up in court if one party later decides to contest the agreement
since they aren't examined or approved by a judge. Furthermore, NJSAs might not be acceptable when
there is a considerable power disparity between the parties because that could allow one of them to put
excessive pressure or influence on the other.
Despite these limitations, NJSAs can be an effective tool for resolving disputes and distributing assets in
certain situations. For instance, NJSAs may be helpful when the parties already have a relationship and
want to keep it even in the face of a disagreement (for instance, when they are family members or
business partners).
Nonjudicial settlement agreements can be a valuable tool for resolving disputes over trusts and estates.
They offer several benefits, including flexibility, speed, and privacy. NJSAs can be non-binding,
unenforceable, and may result in unintended tax consequences or incomplete resolutions. Therefore, it is
essential to get legal counsel from a licensed expert before signing a NJSA to make sure your rights are
protected and the agreement is valid and enforceable.
Looking to resolve disputes over trusts and estates without the time, expense, and stress of litigation? Nonjudicial settlement agreements (NJSAs) offer several benefits, including flexibility, speed, and privacy. However, it's essential to understand the potential drawbacks, such as non-binding provisions, unenforceability, and unintended tax consequences. To ensure your rights are protected and the agreement is valid and enforceable, it's always a good idea to seek legal counsel from a licensed expert. Please contact the estate planning professionals at Anderson, Dorn & Rader.
Back in 1987, Congress recognized March as Women's History Month to celebrate the incredible contributions of women in American history across various fields. From building a strong and prosperous nation to being the backbone of their families, women have been unstoppable. Yet, in the midst of caring for others, women often neglect their own financial and estate planning. It's high time for women to prioritize themselves by crafting a solid plan that caters to their future needs, which may differ from those of their male counterparts and dependents.
Longer life expectancies. According to Social Security Administration data, in 2021, women had an average life expectancy of 79.5 years compared to 74.2 years for men. As a result, it is important for women to create an estate plan that accounts for additional years of living expenses during retirement, healthcare costs, and possibly long-term care costs. As women age, there may be a greater possibility that they could become incapacitated and need someone to act on their behalf to make financial and healthcare decisions. Documents such as financial and healthcare powers of attorney and living wills authorize a person they trust to make decisions or take action for them if they are not able to act for themselves. Some women may not only own their own assets but also inherit wealth from both their parents and a spouse who dies before them, and if so, they need a financial and estate plan to optimally preserve and transfer this wealth. Because women may outlive their spouses, they also may be responsible for administering their spouse’s estate or become the sole surviving trustee of a joint trust. These duties may be difficult for a woman who is experiencing health issues that often occur at an advanced age, and this possibility should be addressed in their estate planning. For example, a woman concerned that she will be unable to handle administering her trust at an advanced age can name a co-trustee or successor trustee to administer it if she is no longer able to do so.
Lower earnings. According to U.S. Census Bureau data, women continue to earn less than men, and the pay gap widens as they age. In addition, because some women have shorter employment histories due to time off to raise children or care for aging parents, they may have less saved for retirement. As a result, it is important for them to take steps to protect their money and property from lawsuits or creditors’ claims. For example, a woman could transfer her money and property to an irrevocable trust. Because she is no longer the legal owner of the property, a creditor cannot reach it to satisfy claims against her so long as the trust is properly drafted to include appropriate distribution standards and administrative and other provisions. The woman may be a discretionary beneficiary of the trust, and the trustee may distribute the funds she needs for living expenses. Additionally, because they have less money and property during their retirement, women need to have a solid plan in place to make sure that they are able to financially provide for their loved ones upon their death and that unnecessary costs and expenses are minimized to the extent possible.
Care for loved ones. Many women are caregivers for minor children, adult children with special needs, or aging parents. As a result, they are often concerned about who will care for their loved ones if they are no longer able to do so. If a spouse or sibling is not available to provide care, they need to make sure that another family member or trusted individual can be the caregiver (sometimes called a guardian of the person) for their loved one. The same individual—or someone else—can serve as the guardian of the loved one’s estate (sometimes called a conservator or guardian of the estate) to manage the inheritance for their benefit. In the case of a child with special needs, if no family member is able to take on the responsibility of their care, a group home or assisted living facility may be the best choice. A special needs trust may need to be established to ensure that funds are available for the child’s care but do not decrease the amount of government benefits they are eligible to receive.
You have accomplished a lot in your life! Celebrate your accomplishments and contributions during Women’s History Month by contacting us to set up an appointment to create an estate plan that provides for your own future needs and those of the people you love. You deserve the peace of mind that comes with knowing your future is secure.
As with all things, there is a time for filing taxes, and it's approaching quickly. As soon as January 31st, you'll begin receiving crucial tax documents. Whether you're submitting as an individual or managing an estate or trust, it's time to begin preparations for the April 18th, 2023 tax deadline.
Form 1040 is the one used by individuals and married couples to file their yearly income taxes. Keep an eye out for forms indicating your overall income for 2022 in your mail and online, as soon as this January. Here are some of the forms you may need to finish your Form 1040:
It's crucial to keep records of items that can lower your taxable income, such as IRA and health savings account contributions, as well as documents that support tax deductions or credits, such as charitable contributions and mortgage interest. These records will assist you in taking advantage of all the possible tax benefits for which you are eligible.
"As an executor of an estate or trustee of a trust, you are responsible for reporting any income over $600 earned by the estate or trust on Form 1041. Even if the income earned is less than $600, if a beneficiary is a nonresident alien, the form must still be filed. However, the beneficiaries, not the estate or trust, are responsible for paying the income tax on the income received. Examples of assets that may generate income for an estate or trust include mutual funds, rental property, savings accounts, stocks, or bonds."
The due date for filing a return for an estate or trust depends on whether it follows a calendar or fiscal year. For those that follow a calendar year, the return must be filed by April 18, 2023. However, for those that follow a fiscal year, the return must be filed by the 15th day of the fourth month after the end of the tax year. The executor or trustee can choose which framework to use. Many opt for a fiscal year, which starts on the date of the grantor’s death and finalizes on the last day of the month prior to the death anniversary. This schedule provides more time for tax planning. If a calendar year is chosen, the tax year starts on the date of death and ends on December 31st of the same year.
Both trustees and executors must report all income distributions given to beneficiaries on the Schedule K-1. You also have to provide a copy of the Schedule K-1 to each respective beneficiary who received an income distribution, and the beneficiaries must report the distribution amount when they file their personal income taxes. The deadlines to submit Schedule K-1 follow the same guidelines as Form 1041 and depend on whether it’s subject to a calendar or fiscal year framework. Since the beneficiaries must report this income on their personal tax returns, it is essential to send them the Schedule K-1 as soon as possible so they have ample time to report the income.
As the trustee or executor, it is important to gather and keep track of your own fees, fees paid to professionals like accountants or lawyers, any administrative expenses, and distributions given to beneficiaries. This way, you can report them on Form 1041, which supports the tax deductions claimed for the trust or estate.
It is important to take into account the impact of income taxes when it comes to estate planning and administration. This is true whether you are an individual creating / updating your own estate plan, or administering a trust or estate on behalf of a loved one. If you have any questions on how income taxes should factor into your planning or administration decisions, please contact the estate planning professionals at Anderson, Dorn & Rader.
One of the most crucial decisions within your life plan is determining who will manage the estate when you aren’t around anymore, or are no longer fit to do so. This individual is called the successor trustee.
A large amount of responsibility comes with being nominated as a successor trustee. Because of the complicated procedures, time they’ll need to dedicate, and risks that the trustee will assume, many people consider hiring a professional fiduciary (like an estate planner) to be their trustee.
When hiring a professional to carry out the duties of trustee, you’ll first need to ensure that a terms of engagement document is signed by both parties to lay out the relationship between parties. This should be a separate document from the one that identified their duties as your estate planner. You’ll also want to look for the following qualifications (and potential red flags) when deciding whether to carry out the relationship.
Even if a professional fiduciary is able to draft a thorough terms of engagement document, that doesn’t necessarily mean that they have all the resources to properly administer your trust. Don’t be afraid to ask questions. You need to make sure that the professional fiduciary takes the trustee role seriously, and that they are well-equipped to take on the job. The below functions should be well within the wheelhouse of a satisfactory candidate for a professional trustee:
Even seasoned estate planners who take on the responsibility of trustee can find it difficult to fit your estate management into their schedule. The professional that you hire should be responsive and accessible. This is especially the case when the trust requires critical decisions related to distributions, beneficiary health, maintenance, education, and support. After you are gone, your beneficiaries will also be in constant contact with your hired fiduciary, and even more so when distributions are made on a reoccurring basis.
For instance, one of your beneficiaries may request an early distribution to cover the expenses of a medical procedure. Or perhaps the period to take advantage of government benefits is drawing to a close on a distribution amount. Will your professional trustee pick up the phone or quickly respond to an email in these instances? Proper communication is paramount to deal with the intricacies of your family’s lives, and your hired trustee must be passionate about providing them service when needed.
No one can work forever, and even your hired trustee must retire at some point. Do they have a plan in place to transfer their responsibilities to another individual or firm? The terms in your trust should outline who will become your successor trustee, but in the case that your trust puts the power of designating the successor in the hands of the trustee, you’ll want to ask your professional fiduciary who will fill their place if something happens to them.
Some instances will require your professional trustee to communicate with the caregivers of your beneficiaries. This could be due to the beneficiaries being minors, or perhaps because they are disabled.
In the case that a beneficiary is not able to manage the assets they’re gifted in the trust, it’s vital that your professional trustee can communicate with caregivers to understand their needs and translate them into actionable estate management duties.
After applying these suggestions when considering a third party trustee, notify them of your decision to nominate them. Even though they won’t assume trustee duties until you are unfit or no longer around, being proactive benefits the planning of your affairs.
Your nominated professional trustee does not necessarily have to accept the position. But by finding out if they’d like to take on the responsibilities sooner than later, you’ll have ample time to make an educated decision if you need to select another individual.
If you have any questions about selecting a professional estate planner to be your trustee, the knowledgeable attorneys at Anderson, Dorn & Rader can help. We offer Trustee Services to help guide you in the process of choosing an adequate trustee to carry out your wishes and preserve your family’s wealth.
Schedule a FREE consultation to discover the benefits of choosing Anderson, Dorn & Rader as your professional corporate trustee. We look forward to serving your needs with a high level of professionalism, experience, and dignity to match the values of your family.
