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…]

How to ‘fix’ a trust that isn’t working as intended

Sometimes, despite everyone’s best efforts, things change and the terms of an older, irrevocable trust just don’t work as well as they could in the present circumstances. But there’s a movement afoot to allow people in such a situation to solve the problem by moving the assets from an older trust into a newer one with more appropriate rules.

This is sometimes called “decanting” a trust, because you’re basically pouring the assets from an older container into a newer one.

Today, some 22 states allow decanting of irrevocable trusts in some circumstances. That’s up from 11 states just three years ago, so there’s a lot of momentum behind the change. [Read more…]

Some older wills can cause unnecessary capital gains taxes

As a result of changes in the law, a lot of wills that were drafted even relatively recently may now result in a capital gains tax issue, and if you have such a will, you might want to consider revising it to save taxes.

Here’s the background: When a person dies, he or she can leave an unlimited amount of assets to a spouse without incurring the federal estate tax. If assets are left to anyone else, including children, then everything above the “exemption amount” is subject to a very significant tax.

In the past, the exemption amount was not very large. As recently as 2001, it was only $675,000. Back in 2008, it was $2 million. [Read more…]

Parents disagree as to when children can handle an inheritance

If you’re wondering at what age your children or grandchildren will be old enough to handle an inheritance, well, you’re not alone.

U.S. Trust recently conducted a survey of wealthy Americans (with assets of $3 million or more) and asked them that precise question. The issue is important because many parents leave assets in a trust for children or grandchildren until they reach a certain age, so the parents have to choose an age at which to release the funds.

The survey answers varied widely. Here’s a closer look at the results:

Age 18-24: 4%

Age 25-29: 23% [Read more…]

Should you tell your children about your estate planning?

Often, one of the hardest decisions people make in the estate planning process is how much (and when) to tell their children or other heirs about their plans.

There’s no single right answer for everybody; what to do depends on the nature of your planning and your family circumstances. But it’s worth giving the issue some consideration.

Many people are very hesitant to reveal the details of their family’s expected inheritances. A recent survey by UBS of almost 3,000 investors showed that only 54% had discussed their estate plans with their heirs, and only 34% had mentioned specific dollar figures. [Read more…]

Some gifts to charity should be made now, not in your will

In the past, many people’s wills included a sizable donation to charity. Because the federal estate tax was so burdensome, including charitable bequests in a will was a good idea since it reduced the amount of tax the estate had to pay.

Now, however, the federal estate tax applies only to estates of well over $5 million. As a result, for a great many people, leaving money to charity in a will no longer provides any tax benefit.

On the other hand, the federal income and capital gains taxes have gone up, new surcharges have been added on investment income, and many states have raised their income and capital gains taxes as well. As a result, many people could reap significant tax savings if they made planned annual gifts to charity while they’re alive, as opposed to making bequests in a will. [Read more…]

Saving taxes with WINGs, NINGs and DINGs

Some taxpayers with large state income tax bills have been trying to avoid them through the use of out-of-state trusts.

These trusts have been created in three states that have no or minimal state income tax – Wyoming, Nevada and Delaware. The idea is that people in high-tax states can set up trusts in these low-or-no-tax states to hold the investments that produce the income.

The trusts are called “incomplete non-grantor gift trusts.” A Wyoming incomplete non-grantor gift trust is known by the acronym WING. In Nevada and Delaware, there are NINGs and DINGs.

In theory, you can put income-producing assets into a WING, NING or DING and be an income beneficiary. You’ll pay no federal gift tax on the transfer to the trust, and no state income tax on the income you receive. [Read more…]

Eight states are easing their estate taxes in 2015

Eight states are reducing their estate tax burden in 2015, which is good news for anyone who lives or owns property in those states.

New York and Maryland are increasing their exemption amounts (the amount of assets an estate can have before any tax is due). For 2015, the New York limit goes from $1 million to just over $2 million, and the Maryland limit goes from $1 million to $1.5 million. Both states plan to gradually raise their limits to the amount of the federal limit by 2019. (The federal limit was $5.34 million in 2014 and will be $5.43 million in 2015.)

Tennessee’s limit will be $5 million in 2015, and the tax will be repealed altogether in 2016. [Read more…]

New danger for IRA rollovers

There’s now a big danger if you’re rolling money over from one IRA into another IRA, as a result of a decision from the U.S. Tax Court.

Under federal law, you can only do one IRA-to-IRA rollover per year. If you try to roll over more than one IRA in a 365-day period, it’s considered a distribution, and you’ll be subject to significant taxes and penalties.

In the past, the IRS has told taxpayers that this means you can’t roll over the same IRA within a year. So if you rolled your Fidelity IRA over to Schwab, and you later wanted to roll the same IRA over to Vanguard, you had to wait at least 365 days.

But the Tax Court says this is wrong, and in fact you can’t roll over more than one IRA per year even if they’re different IRAs. [Read more…]

Inherited IRAs aren’t protected from creditors

If you’re planning to leave an IRA or other retirement account to your heirs, you might want to consider creating a trust to hold the account. That’s the upshot of a recent ruling from the U.S. Supreme Court.

That’s because IRAs that are inherited from anyone other than a spouse are no longer protected from creditors in a bankruptcy.

Heidi Heffron-Clark and her husband Brandon filed for bankruptcy after their pizza shop failed in 2009. They owed their landlord $74,000, but didn’t have enough cash on hand to pay the debt.

Heidi did, however, have $293,000 in an IRA that she inherited from her mother.

In general, IRA funds are exempt from creditors in a bankruptcy. Congress created this rule in order to protect Americans’ retirement savings and to prevent elderly people from not having enough to live on. [Read more…]

How to help your trustee make good decisions for your family

As Yogi Berra supposedly said, “It’s hard to make predictions, especially about the future.” Yet when you create a trust for your heirs, you have little choice but to make predictions about what their needs will be many years down the road.

Because circumstances change, it’s a good idea to make your trust flexible enough to accommodate the unexpected. If you tell your trustee what to do in too much detail, the trust might end up being useless or counter-productive if something unforeseen happens.

That’s why most trusts give trustees quite a lot of discretion. For instance, a trust might say that a trustee can make distributions to a spouse to help maintain his or her lifestyle, or to children for their health, education and support. But it’s up to the trustee to decide when and in what amounts these distributions should be made. [Read more…]

Planning for estate tax vs. planning for income tax

Traditionally, the federal estate tax was extremely burdensome to wealthier individuals, and the bulk of estate planning involved finding ways to minimize this federal tax.

In the last few years, though, the federal estate tax rates and exemption amounts have changed and become much less of a problem. On the other hand, federal income taxes, capital gains taxes and other investment taxes have gone way up. And many states have increased their income, estate and inheritance taxes.

As a result, these days smart estate planning involves looking at all the different possible taxes that heirs might be facing, and figuring out how best to reduce the overall tax burden. [Read more…]

Thinking of retiring abroad? Know the rules first

The idea of retiring on a beach in Central America or in a quaint village in Europe might seem idyllic. But before you think seriously about retiring in another country, be sure you know all the tax and estate planning rules.

A lot of people have been tripped up by these rules in the past. For instance:

  • If you keep more than $10,000 in a foreign bank account, you’ll have to file annual reports with the U.S. government. And be sure you can even open a local account – a law passed by Congress in 2010 requires foreign banks to file detailed disclosures on accounts held by Americans, and many smaller foreign banks won’t even accept Americans as account holders anymore because they don’t want to deal with the paperwork.

[Read more…]

IRS allows many estates to save taxes – if they act quickly

A federal estate tax return doesn’t have to be filed every time someone dies. In fact, a return typically doesn’t have to be filed unless the estate is worth more than the federal estate tax exemption amount (which is currently $5,340,000). As a result, most estates never have to file one. However, a change in the law back in 2011 makes it advantageous to file a return if the deceased person is survived by a spouse – even if the estate is below the exemption amount and thus a return isn’t legally required.

If you know someone whose spouse passed away and who didn’t take advantage of this opportunity, the IRS is now giving them a second chance to file a return – but they must act by the end of this year in order to do so.

Here’s the background:Generally, when a person dies, his or her estate can give an unlimited amount to a surviving spouse tax-free. After that, if the person’s bequests (plus large lifetime gifts) total more than the exemption amount, then an estate tax is due. [Read more…]

What will happen to your online accounts if you pass away?

As more and more people live their lives online, the question of what happens to online assets and records after someone dies is becoming more important – and confusing.

Consider all the things that you might “own” on the Internet – thousands of photos and e-mails, Facebook and other social media accounts, music libraries, blogs, genealogy records, domain names, and much more.

Then consider how many financial accounts you have or manage online – including PayPal and other accounts with credit balances, as well as online accounts with detailed financial records, automatic bill-paying processes, etc.

If you haven’t given any thought to what will become of these things – and who will manage them after you’re gone – it’s probably a good time to do so. [Read more…]

How to leave items of sentimental value to your heirs

Often, the issue that causes the most hard feelings among family members after a death isn’t how much money everyone received in the will, but who should get the plate on which Grandma served her famous Thanksgiving pie year after year.

Most people don’t think much about items of sentimental value when they do their estate planning. But they should, because doing so can avoid a lot of awkward situations.

For instance, you might plan to leave everything to your children in equal shares, but what about the piece of jewelry that you always promised to your eldest daughter, or the antique vase your cousin loved that no one else in the family liked? Or what if you have a valuable item such as a piano that can’t be divided equally? [Read more…]

Should life insurance be part of your estate plan?

Traditionally, the purpose of life insurance is to replace a person’s income for their family in the event they die before they stop working. For this reason, many people buy “term” insurance that ends when they reach retirement age.

However, there are also some very good uses for life insurance as part of an estate plan. For example:

• You might want to make sure that your heirs won’t have to sell important assets (a business, real estate, etc.) after you die in order to pay estate taxes or because of a lack of liquidity in the period after your death. Life insurance can provide your heirs with ready cash to cover taxes and other expenses. [Read more…]

What you can learn from Philip Seymour Hoffman’s will

When actor Philip Seymour Hoffman died unexpectedly this past February, he hadn’t updated his will in about 10 years, and his estate planning left something to be desired.

Hoffman’s will created a trust for his son Cooper, and left the rest of his roughly $35 million fortune to his longtime companion Mimi O’Donnell.

It’s worth taking a look at what Hoffman might have done differently:

► First of all, apart from the trust for his son, everything passed through probate, which tied up the assets and caused the estate distribution to be made public (which is how we know these details). If Hoffman had used additional trusts, the world wouldn’t know the extent of his wealth or how he planned to distribute it. [Read more…]

Thousands of retirement accounts are ‘ticking time bombs’

Americans have more than $12 trillion stashed away in IRAs, 401(k) plans, and similar retirement accounts. Yet very few people have given careful thought to what will happen to the assets in those accounts if they should pass away unexpectedly. In a surprising number of cases, what would happen is not at all what they would expect – or want.

Over the next decade, as the Baby Boomers continue to age, we will hear many stories of “inheritance disasters” as heirs are surprised by the laws surrounding these accounts. That’s why it’s important to make sure your retirement accounts have been considered as part of a complete estate plan for your family.

Many people assume that if they’ve written a will, then the people they named as heirs in the will are entitled to the assets in their retirement accounts. [Read more…]

I have a will but want to provide for my nieces and nephews, do I need to establish separate trusts for each of them?

ADDITIONAL INFORMATION:

All of my nieces and nephews are under the age of 18. I want to be sure that they are the direct beneficiaries. I also want to prevent my drug addicted brother from getting any of the funds.

ATTORNEY ANSWER BY MARGARET L. CROSS-BELIVEAU:

You should establish a trust and fund it during your lifetime. Upon your death, the assets will be held or distributed as you have directed in the trust. The trust can break down into separate shares for your nieces and nephews.
You do not want to direct that your nieces and nephews receiving anything directly under your Will if they are under 18 and your brother is a drug addict. Probate is expensive and time consuming. You brother, being a family member will have notice of your death and the ability to read you Will at the Probate Court. If your nieces and nephews are to receive assets under the age of 18, the court will require a guardian be appointed for them, adding to the cost. You brother could apply to be the guardian and then gain access to the funds.
If you establish a trust, after your death, your successor Trustee can instantly being serving as Trustee. Your brother would have no access to the funds and the trust will remain private.

Legal Disclaimer: Please note that this answer does not constitute legal advice, and should not be relied on since each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. This answer does not create an attorney-client relationship. A lawyer experienced in the subject area and licensed to practice in the jurisdiction should be consulted for legal advice. Circular 230 Disclaimer: Any information in this answer may not be used to eliminate or reduce penalties by the IRS or any other governmental agency.

Beliveau Law Group: Massachusetts | Florida | New Hampshire

The estate planning attorneys at the Beliveau Law Group provides legal services for estate and asset protection planning. The law firm has offices and attorneys in Naples, Florida; Boca Raton, Florida; Danvers, Massachusetts; Waltham, Massachusetts; Quincy, Massachusetts; Manchester, New Hampshire and Salem, New Hampshire.

Can we stop a nominated executor from filing probate ? We are seeking in process of uncontested guardianship.

ADDITIONAL INFORMATION:

My sister is POA for my mother and father. Her 4 siblings have filed for guardianship after 2 yrs of obvious receipt from her concerning our folks assets , her obvious drug issues, misuse of both cash& credit and the selling of our parents house and estate without honest disclosure. Father passed 3 days prior to the first hearing in which she perjured herself concerning a lapsed life insurance policy which was discovered by her siblings while making funeral arrangements. She spent 2 yrs borrowing against the policy while telling her siblings premiums were being made. As POA , having hidden all of our parents assets, on the day of funeral planning, she refused to pay for either florist or funeral expenses. Yesterday, she hired an attorney to negotiate the discovery ordered April 2, 2014.

ATTORNEY ANSWER BY MARGARET L. CROSS-BELIVEAU:

Your father’s Will needs to be probated only if there are probate assets. It is unclear whether your mother is still alive. Were all the assets owned jointly with your mother, have a beneficiary designation on them, or in a trust? If so, those assets avoided probate.
To probate the assets, the Will must be submitted to the probate court. The heirs of your father will be notified. If it is your sister who is the nominated the executor, you can ask her to decline to serve as executor. If she petitions to be appointed executor, you have the right to object.

Legal Disclaimer: Please note that this answer does not constitute legal advice, and should not be relied on since each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. This answer does not create an attorney-client relationship. A lawyer experienced in the subject area and licensed to practice in the jurisdiction should be consulted for legal advice. Circular 230 Disclaimer: Any information in this answer may not be used to eliminate or reduce penalties by the IRS or any other governmental agency.

Beliveau Law Group: Massachusetts | Florida | New Hampshire

The probate attorneys at the Beliveau Law Group provides legal services for estate and asset protection planning. The law firm has offices and attorneys in Naples, Florida; Boca Raton, Florida; Danvers, Massachusetts; Waltham, Massachusetts; Quincy, Massachusetts; Manchester, New Hampshire and Salem, New Hampshire.

Which prevails, bank registration or trust document?

ADDITIONAL INFORMATION:

If a bank has an INVESTMENT ACCOUNT titled “Transfer on death” to one beneficiary and a Living Trust document (unfunded) lists the INVESTMENT ACCOUNT as trust property to another beneficiary, which document prevails?
The Grantor is deceased.

ATTORNEY ANSWER BY MARGARET L. CROSS-BELIVEAU:

A trust must be funded in order for it to do any good. A trust may be funded either during a person’s life, which is the least costly way, or via probate if directed by the Last Will and Testament to fund the trust. In your case, the asset was not transferred during the grantor’s life. His Will will not govern because any account with a transfer on death avoids probate. The investment account will go to the beneficiary listed on the account.

Legal Disclaimer: Please note that this answer does not constitute legal advice, and should not be relied on since each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. This answer does not create an attorney-client relationship. A lawyer experienced in the subject area and licensed to practice in the jurisdiction should be consulted for legal advice. Circular 230 Disclaimer: Any information in this answer may not be used to eliminate or reduce penalties by the IRS or any other governmental agency.

Beliveau Law Group: Massachusetts | Florida | New Hampshire

The estate planning attorneys at the Beliveau Law Group provides legal services for estate and asset protection planning. The law firm has offices and attorneys in Naples, Florida; Boca Raton, Florida; Danvers, Massachusetts; Waltham, Massachusetts; Quincy, Massachusetts; Manchester, New Hampshire and Salem, New Hampshire.

How do I word a legal guarantee that my sister’s children will be given our mother’s rings when our other sister dies?

ADDITIONAL INFORMATION:

There is a very tense relationship between sisters at this point there is only a verbal promise

ATTORNEY ANSWER BY MARGARET L. CROSS-BELIVEAU:

The inheritance of the rings will governed by your sister’s Last Will and Testament. If she wants her nieces to inherit her rings, it should be written into her Will.

Legal Disclaimer: Please note that this answer does not constitute legal advice, and should not be relied on since each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. This answer does not create an attorney-client relationship. A lawyer experienced in the subject area and licensed to practice in the jurisdiction should be consulted for legal advice. Circular 230 Disclaimer: Any information in this answer may not be used to eliminate or reduce penalties by the IRS or any other governmental agency.

Beliveau Law Group: Massachusetts | Florida | New Hampshire

The estate planning attorneys at the Beliveau Law Group provides legal services for estate and asset protection planning. The law firm has offices and attorneys in Naples, Florida; Boca Raton, Florida; Danvers, Massachusetts; Waltham, Massachusetts; Quincy, Massachusetts; Manchester, New Hampshire and Salem, New Hampshire.

Have an estate plan? Great – but you need to follow through

One of the most common mistakes people make in estate planning is that they finally create a complete, thorough, highly advantageous estate plan – and then forget to follow through and put it all into effect.

It’s not uncommon for people to have detailed documents drawn up, and then not get around to signing them. Or they create a trust, but forget to transfer assets in order to fund it. Or they decide whom to name as beneficiaries of their IRA, 401(k), bank and brokerage accounts – and then don’t fill out the paperwork to make the change.

A recent case involved Allen Kagan, a Minnesota pharmacist who had a $415,000 life insurance policy through his employer. Allen died of a sudden heart attack, and was survived by his new wife Arlene and three children from a previous marriage. [Read more…]

Be careful if you donate to charity for a specific purpose

Bernard and Jeanne Adler donated $50,000 to an animal shelter in their hometown of Princeton, N.J. The gift was to finance a new structure for large dogs and older cats (whose prospects for adoption are limited), and the structure was to be named for the Adlers.

Before construction began, however, the shelter merged with another organization. After the merger, the new organization announced plans to build a smaller structure in another town, without specific facilities for large dogs and older cats and without naming anything for the Adlers.

The Adlers went to court and demanded that the shelter return their $50,000 gift. [Read more…]

The danger of waiting too long to do estate planning

Some people never get around to writing a will or planning their estate until the last minute, when they have grown old and have a serious illness.

Other people write a simple will when they’re young, but never review or update it until something happens that makes them think that death is imminent.

While any estate planning is better than none, the vast majority of mistakes and problems occur when people procrastinate planning their estate and then try to do it in a hurry.

If you wait until the last minute, it might be very difficult to locate all the documents you need to properly execute an estate plan. And you might not have sufficient time to take advantage of all the techniques that are available to save taxes and properly take care of your heirs. [Read more…]

What you need to know about the new ‘trusteed IRAs’

If you don’t need all the money in an IRA after you retire, there can be big tax advantages in carefully leaving it to your children or other heirs. If it’s done right, the heirs can take out only the minimum required distribution each year, and the assets in the IRA can continue to grow tax-deferred for decades – and in some cases, for generations to come.

The problem with this planning technique is that it requires your heirs to be patient money managers. In the real world, many heirs withdraw the funds from an inherited IRA quickly, which destroys the tax advantages.

The traditional solution is to leave your IRA to a trust, in which a trustee can decide how to invest the IRA, when to make withdrawals from the IRA, and what distributions to make to your heirs. [Read more…]

Long-term low interest rates are wreaking havoc on many trusts

For decades, it was very common for trusts to be set up like this: “The trust income will go to the first beneficiary, and when the first beneficiary dies, the trust assets will go to a second beneficiary.”

Here are some common examples:

  • A couple sets up a trust with the income going to a child, and when the child dies, the assets go to their grandchildren.
  • A wife’s will creates a trust that pays income to her second husband, and when he dies, the assets go to her children by her first marriage.
  • A man sets up a trust where the income goes to his wife, and when she dies, the assets go to a charity.

That’s all well and good when interest rates are healthy. But over the last few years, interest rates have plunged to historic lows, and stayed there.

[Read more…]

Have life insurance you don’t need? Consider donating to charity

If you have a whole-life or universal-life insurance policy that you don’t need, you might want to consider donating it to charity rather than cashing it in.

There are two ways to make such a donation, each of which has its advantages:

(1) Name the charity as the policy’s beneficiary. The key advantage to this method is that you retain control of the policy. Thus, you can always change your mind if you decide that your heirs need the money or if your feelings about the charity change. You’ll also get an estate tax deduction when the charity receives the money. [Read more…]

Trust could force beneficiaries to arbitrate rather than go to court

Andrew Reitz set up a trust to benefit his sons, with an independent trustee. The trust document said that if there was a dispute between his sons and the trustee, it would be decided by a private arbitrator rather than a court.

When John Reitz, one of the sons, became unhappy with the trustee, he sued to have the trustee removed. The trustee argued that the suit should be thrown out of court, and decided by an arbitrator.

The dispute over who should decide the dispute went all the way to the Texas Supreme Court.

That court said the issue should go to an arbitrator. The judges ruled that (1) the trust should be handled according to Andrew’s clear intentions, and (2) it would be unfair to let John receive all the benefits of the trust, but ignore the one part of the trust he didn’t like. [Read more…]

Divorced couples need to update beneficiary designations

One of the most important things people can do after a divorce is to update their beneficiary designations, and indicate who should get the assets in various accounts if they should unexpectedly pass away.

Most married people name their spouse as the beneficiary of their accounts, but in the stress following a divorce, they often forget to update these designations.

And even when people make an effort, they might not remember every account. Pensions, 401(k) plans, life insurance policies, brokerage accounts, bank accounts, and more may all have listed beneficiaries.

Remember that if you die, who gets the money in these accounts usually depends on who is the listed beneficiary – not who is named in your will. Even if your will says that “everything” will go to a new spouse or a child or other relative, the will doesn’t govern a separate account such as a 401(k) or an insurance policy. [Read more…]

Estate planning is still important even if you’re not super-wealthy

A year ago, Congress dramatically raised the federal estate tax exemption, which for 2013 was $5.25 million (or $10.5 million for a married couple). And that caused some people to mistakenly believe that they no longer need to think about estate planning if their assets are less than $5 or $10 million.

However, nothing could be further from the truth. And people who don’t keep their estate plan up-to-date are making a big mistake that could still be very costly to them and their families.

There are a multitude of reasons for this, but here are just a few:

Protecting your heirs. Many of the techniques that people have used in the past to avoid estate taxes – such as trusts – have lots of other purposes in addition to saving taxes. [Read more…]

Using IRA funds for ‘alternative’ investments can be dangerous

IRAs can be an important part of estate planning, especially for savvy investors and business owners. But be careful – mixing your IRA and your business interests too closely can cause big tax problems.

The IRS can “revoke” an IRA, and deny you all its tax benefits, if you use the funds for certain improper purposes. This rule applies not only to you, but also to actions by your family members and any business or trust that is controlled by you or your family.

What can’t you do? You can’t buy, sell, or lease property to or from an IRA; you can’t borrow money from an IRA or lend money to it; and you can’t make personal use of IRA property. [Read more…]

If you’re donating property, don’t scrimp on an appraisal

If you’re donating assets to a charity, don’t scrimp when it comes to an appraisal and don’t try to file the tax forms yourself. That’s the lesson of a recent case from the U.S. Tax Court.

The case involved Joe Mohamed, an extremely successful real estate investor in Sacramento, California. Joe donated real estate he valued at $18.5 million to a charitable trust. Because Joe was a qualified appraiser, he valued the properties himself. He also filled out the relevant tax form himself to claim a deduction for the donation.

But the IRS denied any deduction for the real estate, claiming that Joe made mistakes on the form. And the Tax Court reluctantly agreed that the IRS was right. [Read more…]

Stepchildren present challenges in estate planning

If you or someone you know has an older estate plan that doesn’t carefully take into consideration the role of stepchildren, it’s a good idea to have it reviewed. If you have stepchildren – or if your children have stepchildren – it’s critical to make clear whether they’re included in your plans.

Take the case of Bill and Pat Clairmont. This North Dakota couple had a daughter, Cindy; a son-in-law, Greg; and several grandchildren including a grandson named Matthew. In 1996, they decided to set up a trust to benefit Matthew. Greg, their son-in-law, wrote the trust document.

Under the trust, Matthew would start receiving the trust funds when he turned 40. If he died before then, the trust funds would go to his brothers and sisters.

That all sounds fine … but sometimes things don’t go exactly as planned. [Read more…]

Same-sex couples should review estate plans after Supreme Court ruling

Same-sex couples should review their estate plans in light of the Supreme Court’s decision striking down part of the federal Defense of Marriage Act.

The Supreme Court said that the federal law, which refused to recognize same-sex marriages with regard to federal taxes and benefits, was unconstitutional.

The law had made estate planning especially difficult for same-sex couples, because they couldn’t take advantage of techniques that were available to other married couples. For instance, under federal law, married couples can make unlimited gifts to each other, and can leave an unlimited amount of property to each other in a will, without incurring gift or estate tax. But the law said this wasn’t true for same-sex couples. [Read more…]

Big tax change for widows and widowers who remarry

Widows and widowers who are considering remarriage should be aware that a law recently passed by Congress could make a huge difference in how much of their assets they are able to leave to their heirs after taxes.

In general, anyone who is considering remarriage later in life should talk to an estate planner first in order to avoid possible tax problems. But the new law gives added urgency to this advice.

Typically, when a person dies, his or her estate can give an unlimited amount to a surviving spouse tax-free. However, if the person’s bequests (plus large lifetime gifts) to other beneficiaries – such as children – total more than a certain “exemption amount,” then an estate tax must be paid. For 2013, the exemption amount is $5.25 million. [Read more…]

Loans to family members often cause estate planning problems

Charlotte had several grown children, and from time to time she would give the children money. Sometimes she called it a gift, but sometimes she called it a loan. A few of the “loans” were small, but sometimes they were $25,000 or more, such as when a child was starting a business.

Sometimes the children promised to pay the money back, but they didn’t say when. Sometimes Charlotte called something a “loan,” but it was clear she didn’t really expect repayment.

That all sounds innocent enough…but the fact is that gifts and loans like these can have important tax implications. Anyone who provides significant amounts of money to children or other family members should be sure to discuss the matter with an estate planner. [Read more…]

Older wills need to be reviewed due to the new tax law

Some people have been reluctant to review their wills is recent years because the estate tax laws have been so uncertain. They’ve taken the attitude that they want to wait until the dust has settled.

Well, with the “fiscal cliff” law on the books, the dust has now settled – or at least things are far more settled now than they have been in a very long time.

That fact in itself is a good reason to have your estate plan reviewed. But you should also know that some of the provisions in the new law could wreak havoc with older wills that haven’t been looked at in a while. [Read more…]

Charitable donations from your IRA could save taxes

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

But the “IRA charitable rollover” will be allowed only until the end of 2013, so if you think this might benefit you, you should take advantage of it this year.

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 “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 2013, 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…]

New tax rules for trusts mean careful planning is needed

Three big changes in the way that trusts are taxed starting in 2013 are making it far more important to be careful about trust distributions.

A trust’s income and capital gains will now be taxed very differently – and much more heavily – than income and capital gains for individuals. As a result, you’ll want to think very carefully about how you arrange distributions. And you might also want to have any existing trusts reviewed to see if changes can be made that would make it easier to save taxes.

The big changes are:

  • Starting in 2013, the top income tax rate is 39.6%, and the top rate for short-term capital gains is also 39.6%. Those rates apply to income over $450,000 for married couples and $400,000 for singles. But for trusts, those rates apply to all income over $11,950! So even though the new 39.6% rates are meant to apply only to people with very high incomes, they will also apply to trusts even at very small incomes. [Read more…]

How estate and gift tax exemptions and rates have changed over the years

Year

Exemption
Amount

Top
tax rate

2001 $675,000 55%
2002 $1 million 50%
2003 $1 million 49%
2004 $1.5 million 48%
2005 $1.5 million 47%
2006 $2 million 46%
2007 $2 million 45%
2008 $2 million 45%
2009 $3.5 million 45%
2010 Repealed
2011 $5 million 35%
2012 $5.12 million 35%
2013 $5.25 million 40%

Many estates can save money by filing tax returns – even if they don’t have to

A federal estate tax return doesn’t have to be filed every time someone dies. In fact, most estates never have to file one. However, a provision in the new “fiscal cliff” tax law may make it very advantageous to file an estate tax return if the deceased person is survived by a spouse – even if a return is not legally required.

Here’s why: Generally, when a person dies, his or her estate can give an unlimited amount to a surviving spouse. After that, if the person’s bequests (plus large lifetime gifts) total more than a certain “exemption amount,” then an estate tax is due. For 2013, the exemption amount is $5.25 million.

Traditionally, the exemption amount applied separately to each spouse. So if a husband died first, his estate could use his exemption amount, and when his wife died later, she would get her own exemption amount. [Read more…]

Roth 401(k) plans get a big boost in the new tax law

The new tax law that resolved the “fiscal cliff” issue in January allows employees with a 401(k) plan at work to roll over any or all of the assets in their current plan into a Roth 401(k) plan. This is a big change, and should at least be considered by anyone who is eligible.

In a traditional IRA or 401(k) plan, employees contribute pre-tax earnings to the plan. The assets grow tax-free until retirement age, at which point the employee can withdraw them and pay ordinary income tax on the withdrawals.

With a Roth IRA, though, employees contribute post-tax earnings to the account, but when they withdraw the assets years later, the withdrawals are tax-free.

The new Roth 401(k) plans follow the same idea – earnings are contributed post-tax, but withdrawals are tax-free. [Read more…]

Annual gift tax exemption has been increased to $14,000

The annual gift tax exemption has been increased to $14,000 in 2013, up from $13,000 last year. That’s due to an adjustment for inflation.

This means that you can give any person $14,000 this year without any gift tax liability at all. Making annual gifts of the exemption amount is one of the best and easiest forms of estate planning, because it transfers assets from one generation to the next without any tax liability whatsoever.

If you have multiple heirs, the amount you can give away tax-free multiplies quickly. For instance, if you have two children, and each child is married and has two children, you can give $14,000 to each child, spouse and grandchild. That’s eight recipients at $14,000 each, or a potential maximum gift of $112,000 a year. [Read more…]

How the new federal tax law will affect your estate planning

In a big surprise to many people, when Congress passed a law to resolve the “fiscal cliff” in January, it retained the large ($5 million-plus) estate, gift, and generation-skipping transfer tax exemptions that had been available in 2011 and 2012. These taxes will now be 40% of amounts over this exemption.

Without this new law, the exemptions would have dropped to only $1 million at the start of 2013, with a tax rate of 55%.

The exemptions will now be $5 million in 2011 dollars, with adjustments for inflation each year. For 2013, they will be $5.25 million.

This is great news for people who want to transfer wealth to the next generation while avoiding taxes. It means that anyone who didn’t use the “window” in 2011 and 2012 to make large gifts without incurring gift tax has a reprieve, and can make those gifts this year. [Read more…]

Four big dangers of having assets in joint accounts

Often, older people will add the name of one or more of their children to their checking accounts or brokerage accounts. They might do this to make it easier for the children to help them with their financial affairs. Or they might think that it’s a clever way to avoid probate.

Joint ownership can be good in some cases, but there are a number of dangers in setting things up this way.

To illustrate, imagine that Anna has three children – Barry, Louise, and Todd – and she adds their names to some of her various accounts so they can help her with her finances. What could go wrong? [Read more…]

Good reasons to update your power of attorney today

If you haven’t updated your power of attorney documents in many years, it might be worth having them reviewed to see if you can take advantage of some recent changes in the tax laws.

If you’re ever near death and unable to manage your affairs, your agent may be able to make some smart financial moves that will dramatically reduce taxes for your heirs. But your agent can do this only if your power of attorney documents allow him or her to – so you might want to consider whether to give your agent this authority. [Read more…]

Prenuptial agreements can be a positive, not a negative

Many people have an instinctively negative reaction when they hear the term “prenuptial agreement.” That’s because, when prenups first became popular, they were often seen as weapons by which rich spouses took advantage of less wealthy, less sophisticated partners. A person who got engaged and said, “I want a prenup” was often seen as unromantic at best and scheming at worst.

But the truth is, prenups often provide important advantages for both partners. They’re not always just about protecting yourself in the event of divorce. They’re often about planning your future affairs so as to arrange things legally and tax-wise in ways that are mutually beneficial. [Read more…]

Even young families need estate planning

Ken and Judy are a couple in their 30s. They recently bought a home, and they have a small child. But apart from some home equity, a retirement account at work and a life insurance policy, they don’t have a lot of assets or investments. Do they really need estate planning? Can’t they get by with a simple will from the Internet?

The truth is, even a couple like Ken and Judy can benefit from a good estate plan, and it doesn’t have to cost them an arm and a leg.

Leaving aside the many serious errors that are commonly found in “form” wills in books and on the Internet, Ken and Judy should consider setting up a living trust. [Read more…]