Estate Planning Articles

Password sharing presents risks for family and fiduciaries

Keeping careful records of the usernames and passwords for your online accounts and sharing them with a trusted family member or agent may seem like the start of a responsible estate plan. But you need to be aware of the risks for those you empower with the information.

Even with your permission, fiduciaries (executors, trustees, conservators), agents and family members who manage assets as part of your estate plan could be committing a federal crime by accessing your online account with your password.

That’s because most terms of service agreements governing websites or online accounts specify that passwords not be shared and that third parties not be allowed to access a user’s account.  So even if you provide the person with the log-in information for your account, he or she could still be violating the terms of service by using it to access your account. [Read more…]

Are LLCs your best option for asset protection? Know the risks

Limited liability companies can offer better asset protection than ordinary stock corporations, but there are potential adverse economic and tax results if investors are not alert.

Investors increasingly use LLCs to operate a trade or business, to hold real estate or to hold other investment assets, as opposed to state law corporations. But when investors transfer LLC interests to a spouse, children, trust or others, as opposed to ordinary corporate stock, they can risk losing control of the business or decreasing the basis for heirs — with a corresponding increase in the beneficiary’s income tax.

An LLC owner or “member” has two types of rights: economic and management. Economic rights allow them to receive property from the LLC both during existence and upon liquidation, along with tax attributes and profits/losses. Management rights allow them the right to vote, participate in management or the conduct of company affairs and have access to company reports, records and accountings. [Read more…]

What millennials need to know about estate planning

A recent survey by senior-living focused website Caring.com, quoted in USA Today, revealed that 78 percent of Americans under the age of 36 don’t have a will or trust in place. But even with youth on their side, the millennial generation needs to be planning for the unforeseen. If most would consider the following three issues, they’d be off to a good start:

  • Incapacitation provisions: No one expects to be incapacitated, but there are at least two documents needed in the event that occurs. The first is a durable power of attorney that identifies who will make financial decisions on your behalf if you are unable to do so. The second is a health care advance directive (including a living will) that outlines preferences for medical care if you are unable to state these for yourself.
  • Death documents: These include a last will and testament and possibly the establishment of a trust, either revocable or testamentary.
  • Beneficiary designations: Keep these up to date for things including life insurance and 401(k) programs.

[Read more…]

Protect your power of attorney from legislative changes

Medical and financial powers of attorney are a critical aspect of effective estate planning, but did you know they must be kept up to date? It is recommended to have them reviewed every 2-3 years.

Several legislative changes over the years have given financial institutions and healthcare providers reasons to reject powers of attorney. As new laws are enacted, necessary provisions must be incorporated into your power of attorney, as failing to including certain language could mean your documents will not be accepted.

Notable issues include:

  • Your medical power of attorney was executed prior to your state adopting the Uniform Health Care Decisions Act. In 1993, this federal law was approved to expand and solidify the authority of a medical power of attorney. It has since been enacted state by state. Key changes include decision-making power surrounding life-prolonging procedures, authorization for organ donation and approval for admission to health care facilities for treatment. [Read more…]

Learn from celebrities’ estate planning blunders

There are many lessons to be learned about estate planning from the bad experiences of some of the world’s most famous people. The AARP recently gathered their stories, and here are the highlights:

Florence Griffith Joyner: Before her death in 1998, Olympic gold medalist Florence Griffith Joyner never told anyone the location of her will. Without the original document, it took four years to close her probate estate due to a long battle among her relatives.

Lesson learned: Don’t keep the location of your will a secret. [Read more…]

Review your estate plan when you move across state lines

When you make a move out of state, be sure to review your estate plan with an estate planning attorney in your new domicile, as trust and estate laws have some differences from state to state.

In most states, the probate court will recognize a will from another state. But in the case of a dispute, you can’t be sure the judge in the new state will understand your will the way that you meant it.

Your new place of residence might place restrictions on executors from out of state. It’s also possible that your new medical provider or bank won’t adhere to powers of attorney drafted under another state’s laws. [Read more…]

Issues to consider before gifting your home to your child

Passing your house on to your children before your death offers some advantages, but there are pitfalls to avoid.

If your children inherit the property through your estate, the cost basis on the property will be the value of the home on the day of your death. But if you gift the children the property while you are still alive, they will inherit your cost basis, including potentially large capital gains if they decide to later sell the home.

You still might want to remove the property from your estate to help you better qualify for assistance with long-term-care costs. But be aware that you are subject to a five-year look-back on assets. That means that when you apply for Medicaid, gifts or transfers of assets you make within five years of the date of the application for assistance may be subject to inclusion in your estate. [Read more…]

How to change an irrevocable trust

When dealing with irrevocable trusts the ability to effect change can be difficult to understand, presenting more questions than answers.

The correct answers often depend on a variety of factors, but a good starting point is state law and the trust document itself.

When modification or termination of an irrevocable trust is sought, a possible mechanism is for the trustee or beneficiary to seek a court order. [Read more…]

Beware the pitfalls of naming a minor as your beneficiary

A minor generally doesn’t have the right to manage his or her assets, including any inheritance.

But sometimes a minor child becomes the beneficiary of a sizable family inheritance. That can occur because a parent dies without a will or trust, leading to an unavoidable direct inheritance by the child.

If a minor is chosen as a beneficiary of a retirement account or life insurance policy, many challenging issues can arise.

First of all, a minor is not legally allowed to take control of inherited assets left directly to him or her. Instead, an adult or financial institution has to be appointed to manage the estate until the minor turns 18.

[Read more…]

Estate planning options for blended families

The dynamics of a blended family, defined as one where at least one spouse has at least one child from a prior marriage or relationship, can complicate financial and estate planning because no off-the-shelf plans apply.

It’s important to contact your estate-planning lawyer to ensure complete review of all personal and economic aspects of your family and a resulting plan that works for everyone involved.

From designating account beneficiaries to updating wills and trusts, it takes attention to detail to ensure specific wishes are carried out properly. Effective, collaborative planning can address the family’s needs and goals while building trust and helping everyone move forward together. [Read more…]

IRS: Account transcripts can serve as estate tax closing letter

A recent IRS notice confirms that an account transcript issued by the IRS qualifies as a substitute for an estate tax closing letter, as long as the transcript includes the proper transaction code.

An estate tax closing letter indicates that the IRS has accepted an estate tax return and that the estate’s federal tax liabilities have been satisfied. Once the letter has been received, it makes it clear to the executor of the estate that it can proceed with finalizing the estate administration process.

The receipt of the closing letter is often needed to meet requirements for state law probate proceedings. It’s rare for the IRS to reopen an estate tax return after a closing letter has been issued, except in certain extreme circumstances such as fraud or a major error by the IRS. [Read more…]

Retirement accounts: Tips for taxpayers turning 70 1/2

It’s a big year for the first set of baby boomers: They’re turning 70 1/2. And that means getting prepared for their first mandatory distributions from tax-sheltered retirement accounts.

The first thing to keep in mind is that the amount of your required annual withdrawal is based on the assets in the account as of the prior December 31. For a taxpayer with multiple 401(k) plans, he or she must take a proportional distribution from each of the accounts. If a taxpayer has multiple IRAs, the payouts can be uneven. That is, the entire amount can be taken out of one IRA, if the taxpayer chooses. [Read more…]

New law allows individuals to create special needs trusts

Buried in a new federal law is a tiny change that will now allow individuals to set up their own special needs trusts.

The sum total of the change is two words — “the individual” — intended to correct a more than 20-year-old error. The change is called the Special Needs Trust Fairness Act.

Authorized under the Omnibus Budget Reconciliation Act of 1993, special needs trusts protect assets and allow an individual to maintain eligibility for governmental benefits such as Supplemental Security Income (SSI) and Medicaid.   [Read more…]

In will contest, no need to oversell decedent’s capacity

Imagine a situation where a loved one dies and there is a contest over the validity of the will. The question arises: What was the decedent’s mental state in drafting the will?

A typical, knee jerk answer is that the decedent had a perfectly clear state of mind.

However, testamentary capacity doesn’t require such a high level of clarity in communication and comprehension. Further, overstating a decedent’s capacity might actually lead a trier of fact to become skeptical of the will proponent, especially if other evidence exists that the decedent’s mind wasn’t as clear as stated. [Read more…]

Changes proposed by Trump could open up big estate planning opportunities

With proposals to repeal the federal estate tax and the generation-skipping transfer (GST) tax on the table, the new administration may be opening up some rare estate planning options.

Under President Donald Trump’s proposal, the current step-up in basis for income tax purposes on assets owned at death would be limited to $10 million of assets. The intention, according to the proposal, is to exempt small businesses and family farms.

It’s likely that assets exceeding $10 million in value would be either subject to carryover basis rules of some kind or would be subject to capital gains tax at death. Under Trump’s proposal, the current capital gains tax rate of 20 percent would be retained. [Read more…]

Survivorship life insurance can be good vehicle for estate planning

Survivorship life insurance (also known as “second-to-die”) can be an important vehicle to consider for estate planning in the right cases.

This type of insurance policy covers two lives and pays out the proceeds when the second insured dies.

One benefit is that the premium tends to be lower than it would be for two separate policies because the life expectancy is based on the two insureds’ combined ages and the insurer has lower administrative costs. [Read more…]

Should you amend or rewrite your revocable trust?

It’s important to review a revocable trust regularly to see if any amendments are needed, such as when something changes in your life or if the law changes.

There are two ways to go about it. You can either amend the existing trust to change a certain part of it or rewrite the whole trust, which is known as a restatement.

While you might expect that an amendment is easier and more cost-effective, that’s not always the case. [Read more…]

Remarriage is a reminder to revisit your estate plan

Approximately 40 percent of marriages these days are remarriages for at least one partner. When you remarry, there are all sorts of issues to consider related to your estate plan.

For older people, the main focus may be ensuring that their adult children or grandchildren have an inheritance. Without proper planning, a new spouse could receive assets that were originally intended for children and grandchildren.

Here are some important elements to review in order to protect everyone’s interests when you remarry: [Read more…]

Valuation discounts for transfers in family businesses in jeopardy

The ability to take valuation discounts on the transfer of an interest in a family business for estate, gift and generation-skipping transfer tax purposes would be drastically limited under long-awaited proposed regulations from the Treasury Department.

The most impactful element of the proposal bars any significant discount for lack of control or lack of marketability associated with the transfer of an interest in a family-controlled entity.

If the regulations are finalized as written, the tax cost for transferring interests in such businesses will be substantially higher. [Read more…]

Get a HIPAA release for your college-age child

If you have a child who is away at college, you should be aware that the federal medical privacy rules apply to him or her. Once your child turns 18, the federal HIPAA law says that you can no longer have access your child’s medical information without his or her consent.

That’s a problem, because if there’s an emergency and your child isn’t able to provide consent, you might not be able to access the information you need to make important medical decisions. In fact, it might not even be clear that you have the legal right to make such decisions. [Read more…]

Four big mistakes many executors make

Executors have a tough and often thankless job. They have to marshal all the estate’s assets, file tax returns, and distribute property according to the will. Sometimes, they make mistakes. Here’s a look at the most common ones:

Paying bills too soon. Executors often see bills arrive in the mail and decide to pay them right away to avoid any problems. But this can actually create problems.

There’s an order in which bills must be paid: Items such as taxes, funeral expenses and the costs of estate administration typically take priority over credit card statements, for instance. If an estate turns out to have a lot of debts (perhaps the person who passed away had an unexpected tax bill), and the executor has paid off low-priority debts first, there might not be enough money to pay the high-priority debts, and the executor might be personally liable for them. [Read more…]

Estate planning may be harder for couples without children

You might think that estate planning would be easy when couples don’t have children. In fact, it can sometimes be more difficult – and also more important.

Couples with children generally agree about passing on their assets to their kids, and can rely on their offspring to serve as caregivers and executors. It might not be so easy for other couples.

For instance, suppose Mike and Helen write a will leaving their assets to each other. If Mike dies first, Helen will inherit everything. When Helen dies, who will get Mike’s assets? Helen could make a new will, but if she doesn’t, all of Mike’s assets will go to Helen’s relatives according to state law. [Read more…]

Moving an elderly relative? Think about state taxes

It’s a common scenario: An elderly relative is no longer able to live alone, so family members sell the relative’s house and have the relative start living with them or in a nursing home or assisted living facility that’s closer to the family.

One thing you might not consider during this stressful process is that if the relative moves to a different state, you might have just changed the person’s official state of residence for tax purposes. And that could have a significant effect on his or her estate plan. [Read more…]

Be careful with inherited IRAs

Leaving someone an IRA as an inheritance can have a lot of tax advantages, and it’s often a very good estate planning strategy. However, the rules for inherited IRAs are complicated, and it’s easy to make mistakes.

If you have recently inherited an IRA, or if you expect to inherit an IRA, it’s important to speak to an estate planner or other advisor right away before you make any decisions about the account. And if you’re planning to leave someone an IRA, you’ll want to make sure that person knows what to do, so the tax benefits aren’t lost through an innocent mistake. [Read more…]

The advantages of making a list of assets and debts

Have you ever considered writing down a list of all your assets (with account numbers, passwords, and so on), as well as debts and recurring payments?

Making such a list and putting it in a secure place can be a godsend if something ever happens to you and you become incapacitated, because your family will have a much easier time looking after your affairs.

In a recent article in the Wall Street Journal, a middle-class couple described the extraordinary difficulties they faced when the wife’s parents developed medical problems and could no longer handle their own finances. The couple had no idea what assets the parents owned, what insurance they had, where to find records, what bills needed to be paid, and so on. Handling the parents’ affairs became a nearly full-time investigative job. [Read more…]

Charitable donations from your IRA could save taxes

Congress has revived a law that lets you make charitable donations directly from your IRA, which might provide you with some significant tax advantages.

The “IRA charitable rollover” was discontinued at the end of 2014. But Congress has now resurrected it, made it permanent, and also made it retroactive to the beginning of 2015.

If you’re over the age of 70½, you’re required to take minimum distributions each year from your IRA, and you have to pay income tax on those distributions. But the “charitable rollover” law lets you transfer assets from your IRA to a charity, and whatever amount you transfer reduces the amount you’re required to withdraw. So if you’re required to withdraw $20,000 in 2016, but you instead donate $20,000 to charity, you don’t have to withdraw any funds for yourself, and you don’t have to pay any income tax. [Read more…]

‘Spendthrift trust’ gets divided at divorce

Even though a wealthy family put assets in a trust for their children in order to protect them from creditors, a child’s interest in the trust could be divided in a divorce, says the Massachusetts Appeals Court.

While this result is unusual, it goes to show that even a solid spendthrift trust might not be perfect if a creditor – in this case, a spouse – is sympathetic enough.

Curt Pfannenstiehl was a beneficiary of a family trust worth some $25 million. He and his wife Diane had a son with dyslexia and ADD and a daughter with Down syndrome. [Read more…]

Financial advisors have more responsibility to clients

Stockbrokers, financial planners and insurance agents who provide advice regarding IRAs and other retirement accounts will have new responsibilities toward clients, and the way they bill their clients may change, under new rules announced by the U.S. Labor Department.

Under the rules, advisors must now act in their clients’ best interests when they make recommendations. In the past, many advisors merely had to make recommendations that were “suitable” for a client, even if what they recommended wasn’t the best possible option.

In addition, advisors must now disclose if they have a conflict of interest (for instance, if the advisor is being paid by a third party to recommend a particular investment), and must adopt procedures to limit such conflicts. [Read more…]

New problem for some executors and heirs

Executors who have to file a federal estate tax return, and some heirs who receive assets from an estate that is subject to the federal estate tax, may be facing a significant new problem as a result of rules just issued by the IRS.

The problem only affects larger estates – generally those where the deceased person’s assets, large lifetime gifts, and life insurance proceeds total more than $5.45 million. But for those estates, it’s a serious issue.

The problem stems from a law passed by Congress last year. The law says that an executor who files an estate tax return must now also fill out a form – called Form 8971 – identifying all heirs to the IRS as well as the value of the assets to be distributed to them. Each heir must also be given a related form (called Schedule A) identifying the assets they will receive and their value. [Read more…]

Family trust could prohibit beneficiaries from going to court

People who set up trusts for children, grandchildren and other family members have a greater ability to limit the beneficiaries’ right to challenge trustees’ decisions in court, as a result of a new U.S. Tax Court decision.

Here’s the background: You may know that you can give up to $14,000 a year to any person without incurring the federal gift tax. But that rule generally doesn’t apply if you put the money in a trust for the person, because you’re not giving them the money directly – in legal terms, the person doesn’t have a “present interest” in the funds. So any such gift is potentially taxable.

So, how can you avoid this problem and put up to $14,000 a year into a trust without paying gift tax? A common solution is to put the money into a trust, but give the person 30 days in which he or she can withdraw the funds. Typically, beneficiaries won’t actually withdraw the money, because they’ll be afraid that if they do, no further contributions will be coming. But the 30-day window means the person has a “present interest” in the funds, and so you qualify to avoid the gift tax. [Read more…]

Many people miss a tax deduction for inherited IRAs

If you inherited a retirement account, and if the estate of the person you inherited it from owed an estate tax, you might be missing a big income tax deduction when you withdraw funds from the account. Many people forget to claim this deduction.

The deduction applies not only to inherited IRAs, but also to inherited 401(k) accounts, certain stock options and unpaid dividends, pretax gains in certain annuities, and some other assets.

The idea is that the IRA (or other asset) already triggered an estate tax for the person who died. So, taxing your withdrawals from the account amounts to taxing the same asset twice. The deduction exists to prevent this double taxation. [Read more…]

Avoid capital gains tax when selling investment property

Did you know that it may be possible to avoid paying immediate capital gains taxes when you sell an investment property? That’s true if you’re planning to sell the property and invest the proceeds in another property shortly afterward.

For instance, suppose you own a condo as an investment, and you plan to sell it and use the proceeds to buy another investment property. You might be able to treat the sale and the subsequent purchase as a “wash,” and defer paying any capital gains tax on the first property until you sell the second property.

This is known as a “like-kind exchange,” or sometimes as a “1031 exchange” (after the section of the tax code that allows this). [Read more…]

Interest rates are going up – what does this mean for your estate planning?

The Federal Reserve has begun raising interest rates. And while rates are still historically extremely low, they’re probably at the start of a long, gradual increase. As a result, you might want to consider some estate planning techniques now that benefit from very low rates … because an opportunity like this one might not come around again for many, many years.

Here are some ways to use the current low-rate environment to transfer assets to your heirs while avoiding estate and gift taxes:

Family loans. One idea is to loan money to a trust for your children, and then have the trust use it to make investments – or make a promising investment yourself, and then loan that asset to the trust. In return, you’ll get a promissory note in which the trust promises to repay the loan with interest. [Read more…]

Plan for the possibility of Alzheimer’s disease

Did you know that 47% of people over age 85 are affected by Alzheimer’s disease? The numbers are high enough that any older person planning for their estate should consider the possibility that they may become intellectually incapacitated at some point.

Of course, a critical step in planning for incapacity is having a durable power of attorney document in place that allows someone to handle your financial affairs if you’re no longer able to do so.

It’s also critical to have a health care power of attorney or proxy form, so that someone you trust can manage your health care if you’re no longer able to provide informed consent. These two forms are essential components of a good estate plan. [Read more…]

Audrey Hepburn’s sons battle over her memorabilia 22 years later

When actress Audrey Hepburn died in 1993, she owned a storage locker containing memorabilia of her career – costumes, photos, awards, scripts, posters and the like. In her will, she directed that the contents be divided equally between her two sons.

But some 22 years later, the two sons (who had different fathers) still can’t agree on how to divide the goods. The older son, who is now in his mid-fifties, has filed a lawsuit and asked a judge to split the possessions. [Read more…]

IRS tax crackdown might actually end up helping

IRS officials have been indicating for a few months now that they’re about to start cracking down on certain estate planning techniques that have been popular in recent years. But ironically, this might actually help a number of clients to save on their taxes.

The issue involves family limited partnerships and LLCs. A technique that many wealthy people have used in the past is to create a family business structure of this type, and then give away partial interests in the business to family members. The idea is that the value of these partial interests can be significantly reduced for purposes of estate and gift taxes.

Here’s an example: Suppose Anne creates a family limited partnership to hold $2 million in assets. She then gives her son Roger a 10% interest in the partnership. You might think that this would result in a taxable gift of $200,000. [Read more…]

Two trustees may be better than one

A trustee has two important duties – managing the assets in the trust, and distributing them to the beneficiaries according to the donor’s wishes. But it can be hard to find one person who can do both things well. An aunt or uncle might be the perfect person to know how to distribute assets to family members, but might not have a lot of financial acumen. An investment advisor might be very skilled at growing the assets, but not have a deep understanding of the donor’s values and preferences.

So you might want to have two trustees and divide the duties – put one in charge of investments and another in charge of distributions.

Some 35 states now have “directed trust” laws, which have an added benefit. These laws say that if the investment trustee makes a mistake or does something wrong, the distribution trustee can’t be sued by the beneficiaries. [Read more…]

Asset protection is for everyone

When many people hear the words “asset protection,” they think of billionaires with Swiss bank accounts and offshore tax havens. But in reality, asset protection is for everyone. It’s simply a series of basic techniques you can use to help ensure that the wealth you’ve accumulated stays with you and your heirs, and not someone else.

Hard-earned wealth can quickly disappear as a result of a lawsuit, a business going under, or a similar event. Asset protection techniques exist to protect you from these possibilities. You can also use them to help protect your children or other heirs from the consequences of a divorce, lawsuit, business failure, and so on.

It’s actually more important for people of moderate wealth to engage in asset protection than it is for billionaires. After all, billionaires can afford to lose a lot of money, whereas the rest of us cannot. [Read more…]

Estate; gift before passing away

[Read more…]

‘Longevity insurance’ sales are growing fast

There’s a new product on the market called “longevity insurance.” This is really just a new name for an old concept, the deferred annuity. Unlike most annuities, which are purchased with a lump sum and begin paying out soon afterward, these policies typically don’t begin paying anything until some 10 or 20 years after you buy them.

Sales of these annuities were up 35% last year from a year earlier.

The idea is that, if you outlive your life expectancy, you can receive fairly large annual payments in your later years for a relatively small investment upfront. But there are downsides, too, as there can be with any annuity. [Read more…]

Estate planning for people who don’t have families

A growing number of older people don’t have a spouse, children, or other close relatives. One of the biggest concerns in such a situation is how to prepare in case the person eventually becomes disabled or incapacitated.

Such a person could, of course, give a power of attorney to a friend, and assume the friend will take care of things. However, friends the same age might die or become incapacitated themselves. They might be overwhelmed with all the responsibilities of taking care of a disabled person, especially since it might be a stretch to ask their own family members for help with someone who is not part of the family. And sadly, there have been many cases where friends have gotten into financial straits and ended up taking advantage of a power of attorney. [Read more…]

Some bequests that ‘look’ equal really aren’t

When you’re deciding how to divide your assets among multiple heirs, it’s very important to consider who will pay your estate’s debts out of their share. Two bequests that look equal in theory might be very different in practice once debts are taken into account.

Generally, when a person dies, his or her outstanding debts must be paid out of “probate assets.” This means the assets that pass to someone according to the person’s will. But many assets don’t pass via a will. For instance, a jointly held bank account, jointly owned real estate, an IRA, a 401(k), and a “transfer on death” brokerage account might all pass to someone outside of a will, and thus not count as probate assets.

Also, life insurance proceeds aren’t dependent on a will and aren’t considered probate assets either. [Read more…]

Supreme Court alters estate planning for gay couples

The Supreme Court’s recent ruling extending same-sex marriage throughout the U.S. has changed the estate planning landscape for gay couples.

The biggest change, of course, will be for couples living in states that didn’t recognize same-sex marriage before the decision. But the ruling is also important for couples in states that previously permitted same-sex marriage, because in the past, their estate planning had to take into account the fact that they might travel, own property, or retire in a state that didn’t recognize their union. This is no longer true. [Read more…]

Help your heirs avoid capital gains tax

In the past, estate planning was mostly about reducing the impact of the federal estate tax. The tax was so onerous, and potentially affected so many people, that the goal was to avoid it like the plague.

One way to reduce estate taxes was to put assets into an irrevocable trust. The tax savings could be accomplished in a number of ways, but the key was that, when the person who created the trust died, the trust assets would go on to benefit his or her heirs, and would not be subject to the estate tax.

This was very smart planning at the time. Over the last few years, however, the situation has dramatically changed. [Read more…]

New laws may clarify estate planning for online assets

Including online assets in estate planning is a new thing, and the legal rules aren’t always entirely clear. But a number of states are now considering laws that will make things easier.

For instance, Delaware recently became the first state to pass a comprehensive law addressing what happens to someone’s online assets when they pass away. And 13 other states are currently considering such laws, so it’s likely the legal landscape will change dramatically in the next few years.

The Delaware law says that if a person dies, his or her executor can take control over the person’s online assets and distribute them to heirs. The same is true for trustees and other fiduciaries. This will be allowed unless the person specifically states otherwise in his or her will. [Read more…]

Converting to a Roth IRA can help with estate planning

Converting a traditional IRA into a Roth IRA has many advantages and disadvantages, but what many people don’t realize is that it can provide some estate planning benefits.

If you convert to a Roth, you’ll have to pay income tax on the value of the IRA right away – just as if you received the entire amount as income. On the other hand, all future withdrawals will be tax-free, and there are no minimum required distributions during your lifetime.

Converting may make sense if (1) you have enough assets to pay the income tax without dipping into the IRA itself, and (2) you won’t need to take distributions from the IRA during your lifetime and can leave it to your heirs. [Read more…]

Families with disabled children get new tax-saving accounts

Congress recently approved a new kind of tax-saving account for the benefit of families with disabled children. It’s called an Achieving a Better Life Experience, or ABLE, account.

An ABLE account is a bit like a 529 college savings account. Family members and others can contribute to it on an after-tax basis, up to $14,000 per year each. The money in the account can be invested tax-free, and withdrawn tax-free for specified purposes. These purposes include a disabled beneficiary’s housing, education, transportation, health, employment support, and use of assistive technology.

The beneficiary must have become disabled before age 26, and can only have one account. Total contributions to the account are subject to the same limits as 529 accounts. [Read more…]

How to avoid common trust mistakes

Trusts can be the linchpin of a solid estate plan. But it’s important to remember that you can’t just set up a trust and forget about it. It’s a good idea to periodically review how your trusts are working, to make sure you and your family are getting the full benefit of them. Not doing so can be costly!

Here are just a few things to consider, and some common mistakes to avoid:

► Is your trustee still the best person for the job? If your trust arrangement allows you to change the trustee, you should periodically give some thought to whether the person you’ve selected is still the best choice. [Read more…]

Using ‘529’ plans for grandchildren’s college can backfire

Grandparents often want to help with their grandchildren’s college tuition bills. But you should be very careful about using a 529 plan for these expenses.

The reason? College financial aid programs generally don’t consider parents’ contributions from a 529 plan as student income, but they typically do consider grandparent 529 contributions as income. As a result, these contributions could reduce a student’s eligibility for grants, subsidized loans, and work-study programs.

Only 11% of grandparents are aware of this problem, according to a recent study by Fidelity.

If a student expects to be eligible for financial aid, in many cases it might be preferable for grandparents simply to give money directly to the parents in order to help out – even though this means forfeiting the tax-sheltered advantages of a 529 plan. Grandparents can also contribute to the parents’ own 529 plan, although not all states allow a tax benefit for doing so. [Read more…]

Your ‘power of attorney’ can name more than one agent

A power of attorney document allows someone else to act as your agent and handle your legal and financial affairs. It’s critical to have such a document in case you become incapacitated.

Sometimes, people want to name more than one agent. For instance, a person may have two children, and not want one child to feel that the other is being favored. Sometimes a parent will name two children and give them both access to all his or her affairs, so one child won’t suspect that the other is abusing the power.

Naming more than one agent has some advantages. For one thing, if one agent is hard to reach in an emergency, the other may be able to step in. [Read more…]