Not only are people living longer these days, but there’s a growing trend of widows and widowers remarrying in their 60s, 70s and 80s. A remarriage late in life can bring happiness, but it can also create complexities for estate planning.

For most elderly people who remarry, the chief issue is that they want to look out for their adult children and make sure those children have an inheritance. Lack of estate planning can result in a new spouse receiving the assets that could have gone to adult children and grandchildren. [Read more...]

The federal estate tax expired at the end of 2009, and believe it or not, the lack of an estate tax is creating a serious problem for many people who have not revised their wills in a while.

The federal estate tax applied in 2009 to estates of more than $3.5 million. It is slated to come back in 2011, and apply to estates of more than $1 million. Most people expected that Congress would “fix” the estate tax before it expired, and there would be a new exemption amount, such as $3.5 million, for 2010 and beyond. [Read more...]

When a Texas millionaire died, he left all his money to a trust.  He ordered the trustee to support his second wife in the standard of living she had enjoyed while he was alive, if her own income and resources weren’t sufficient to do so.  Once that was done, the trustee could use the trust to benefit the children of his first marriage. [Read more...]

Some people are worried that after they die, family members may be unhappy about certain provisions in their will and may try to challenge the will in court. This is particularly true if one child is getting less in the will than others, for instance.

Here are some ways to head off a will contest:

• Talk to your heirs now about what you’re doing and why. Many will contests are triggered because a relative is surprised to discover after a death that they have been disinherited or treated differently from others. Letting the person know ahead of time won’t necessarily prevent a lawsuit, but it can make it less likely. [Read more...]

Ordinarily, there’s no estate tax on assets that pass at death to someone’s spouse. But that’s true only if the surviving spouse is a U.S. citizen. If the spouse isn’t a citizen, then the estate tax generally applies…unless you set up something called a “Qualified Domestic Trust,” or QDOT.

Instead of leaving your assets directly to your spouse, you can put them into a QDOT for his or her benefit. When you die, there is no estate tax on these assets. Your spouse can receive income from the trust during the rest of his or her lifetime. When your spouse dies, the assets will then be taxed as though they were part of your estate (not as though they were part of the spouse’s estate). [Read more...]

A large number of people have changed their investment manager recently – or have decided to become their own manager – as a result of the 2008 market collapse that led to widespread terrible returns. That’s fine – but keep in mind that if you change your manager, you should check with your estate planner to make sure that any new account you create is titled properly and in accordance with your estate plan.

Many estate plans are carefully constructed to title certain assets as solely owned, jointly owned, owned with a transfer-on-death provision, owned by a revocable trust, etc. It’s possible to destroy much of the benefit of a well-built estate plan by moving accounts and not thinking carefully about how to title them.

A lot of websites offer retirement planning calculators, where you can enter your age, assets, and other types of information and find out how much income you can expect in retirement.

These calculators may be somewhat useful, but many of them have serious flaws, and in general they produce results that are way too optimistic, according to a new study by the Pension Research Council. [Read more...]

If you have strong preferences regarding burial or cremation, it’s a good idea to put these in writing in your will or in your health care power of attorney. You may have expressed your wishes verbally to your loved ones, but people can become uncertain in a time of crisis, and family members might have differing views. If there is ever a dispute, having a written direction will be vital evidence of your intent. 

Also, if you have specific instructions regarding cemetery plots, funeral homes, etc., putting these in writing can be a big help to your loved ones as they try to sort through matters quickly in a difficult time.

 If you or a loved one has recently been diagnosed with a serious disease, it’s a good idea to review your estate planning documents and adjust them to reflect the diagnosis.

For instance, if someone is diagnosed with the early stages of Alzheimer’s disease – or any other disease that could affect cognitive functioning down the road – it’s wise to expedite your estate planning. Sign documents as soon as possible, while mental competency is not yet in question. You might want to get a letter from a doctor confirming that you or your loved one is still competent to make decisions. [Read more...]

Many people are concerned about their aging parents and want to talk with them about estate planning, but this can be a difficult conversation to have. Frequently, parents don’t want to discuss the subject because they don’t like thinking about their own death, and because they’re afraid that estate planning will involve a loss of independence and control. Also, children may be afraid that bringing up the topic will make them seem greedy.

Yet this is one of the most important conversations a family can have. Parents who don’t engage in estate planning risk losing their assets to taxes, having their assets go to people they wouldn’t have chosen, and making it difficult for their children to care for them and make the right decisions in an emergency. [Read more...]

When it comes to making a will, most people have a sense of how they want to divide their major financial assets among their heirs.

But people often don’t put much thought into how to divide their personal property – particularly property that isn’t worth much economically but is rich in sentimental value, such as a wedding dress, a war medal, or a photo album. [Read more...]

If you’re thinking of signing a prenuptial agreement – or if you know someone who is – it’s a good idea to have an estate planner review the document.

Most people think of prenuptial agreements as spelling out what will happen if a couple get divorced. But in fact, most prenuptial agreements also state what will happen if one spouse dies while the couple is still married. In actual practice, prenuptial agreements come into play as much as a result of death as they do as a result of divorce. [Read more...]

People often move to another state after they retire. In the past, this was usually to take advantage of a better climate or to be closer to friends and family. But these days, moving is often a good form of estate planning.

One reason is state estate taxes. These used to be tied closely into the federal estate tax system and largely a non-issue. But for several years now state estate taxes have been “uncoupled” from the federal system. States now vary widely in their tax rates and exemptions, and moving to another state can often significantly affect how much of your assets will be left for your heirs. [Read more...]

Almost three million children in the U.S. between the ages of 5 and 15 have special needs, according to the latest Census figures.  Parents of these children need to use extra care in planning their estates. For most people, estate planning is about making sure your assets go where you want them to, and minimizing inconvenience and taxes along the way.  But parents of special needs children face an additional challenge because they have to make sure that their children will continue to be cared for, even if they have trouble caring for themselves.

One of the best ways to do this is with a “special needs trust”.  Many people with special needs are eligible for government programs that finance their basic support needs.  This includes health insurance coverage and direct cash payments through the Medicaid system and Social Security.  The problem is that people are eligible for these programs only if they don’t have enough assets to pay for those items themselves.  If a person with special needs has assets in his or her name, the government wants the person to use those assets before it will provide support.  [Read more...]

 A new law in Nevada could benefit people all over the country who want to reduce estate taxes and protect assets from creditors. The law allows anyone in the U.S. to create a “restricted” limited partnership or limited liability company in Nevada.

In general, putting assets into an LP or LLC can be a good idea. You can then give membership units, or shares, in the LP or LLC to your heirs each year. Ordinarily, you can’t give anyone more than $13,000 a year without incurring gift tax. But because the shares are worth less than an equivalent amount of the underlying assets, each year you can give your heirs shares that represent considerably more than $13,000 worth of assets. [Read more...]

Years ago, when someone passed away, their loved ones could often access all the documents they needed with a simple key to a safe deposit box.

Now however, many aspects of people’s lives – both financial and personal – are online in places accessible only by password. This includes e-mail accounts, PayPal accounts, online banks and brokerages, automatic bill-paying arrangements, and even Facebook pages and photo collections. [Read more...]

Many parents make gifts or loans to their children. Often they give more money to one child than to others, perhaps because one child has a greater need. If you do make a significant gift or loan to one of your heirs, you should modify your will to address it.

The reason: If something happens to you, it might be unclear to your heirs what the effect of the gifts or loans should be on their inheritance. In some families, this kind of uncertainty can lead to family battles and even a legal challenge to the will. But even if this doesn’t happen, some children might be quietly offended or simply uncertain, and you probably want to avoid that if possible. [Read more...]

Almost three million children in the U.S. between the ages of five and 15 have special needs, according to the latest Census figures. Parents of these children need to use extra care in planning their estates.

For most people, estate planning is about making sure your assets go where you want them to, and minimizing inconvenience and taxes along the way. But parents of special needs children face an additional challenge because they have to make sure that their children will continue to be cared for, even if they have trouble caring for themselves. [Read more...]

Many people wonder about passing along their assets to a child who tends to overspend and hasn’t show an ability to manage money.  They worry that such a child will blow through an inheritance quickly and wont have the money to live on as he or she gets older.

Fortunately, there are ways to provide for such children while at the same time protecting them from themselves.

For instance, you can put assets into a trust and give the trustee detailed instructions stating under what conditions and for what purposes the assets can be given to the child. [Read more...]

When a person dies, the value of his or her estate for tax purposes is its value at the date of death.  However, the tax isn’t due until nine months after death.  If the value of an estate plummets in the nine months after a person’s death, this can create very bad consequences for the heirs – namely, a large amount of tax is due but the assets that will be used to pay the tax have disappeared. 

As you can imagine, this happened fairly frequently following last years stock market crash, when the value of many estates rapidly diminished.  [Read more...]

Many people should consider converting a regular IRA or old 401(k) plan into a Roth IRA, as a result of a change that takes effect on January 1 of next year. 

With a regular IRA, contributions are often tax-deductable, but you have to take a certain amount of money out of the account each year once you turn age 701/2, and you have to pay income tax on the withdrawals.  If you leave the IRA to your heirs, they will have to pay income tax on the money they take out. [Read more...]

Ordinarily, people over 70½ are required to receive a minimum distribution from their retirement plan each year. But this minimum payout won’t be required in 2009, thanks to a law passed by Congress.

However, this law is creating widespread confusion, and if you’re concerned, you might want to ask for advice quickly on how to handle your particular situation. [Read more...]

Nobody likes a recession, but any time when real estate values, stock prices and interest rates are low is a great time to do estate planning.  You can transfer assets to your heirs now at a low value and save them a huge estate tax bite later.

One way to do this is with a “grantor retained annuity trust” or GRAT.  The idea is that you create a trust and fund it with income producing assets, while keeping the right to receive a certain amount of income from the trust each year.  When the trust expires after a certain number of years, the assets go to whatever beneficiaries you choose. [Read more...]

With interest rates at historic lows, this can be a good time to make loans to your children so they can buy a home, start a business, or invest.  Giving your children an outright gift can subject you to the gift tax, but giving your children a loan doesn’t have any effect on estate or gift taxes as long as your children pay you back at an interest rate set by the IRS.  Right now, the IRS rate is extremely low- and considerably lower than the rate banks usually charge for a mortgage or business loan.

In effect, the difference between what your children pay you in interest and what they would have to pay the bank amounts to a completely tax free gift from you.  Plus, any appreciation in their investment is an additional gift on which you don’t have to pay a gift tax. This can be an especially good idea for children who would have trouble getting a bank loan because they don’t have a good credit score, don’t have sufficient credit history or don’t have enough of a down payment for a home.

Real estate prices have been falling all over the country.  While no one likes to think that their home is worth less than it used to be, the downturn has created an opportunity to give your home to your eventual heirs while saving a large amount of estate and gift taxes.

This can be done with a “Qualified Personal Residence Trust”, or QPRT.  The idea is that you put your home into a trust for a certain period of time – five years, 10 years, 15 years or whatever period you choose.  At the end of that time, the trust expires and ownership of the home goes to the beneficiaries you name. [Read more...]

Picking a retirement plan beneficiary is a key step in estate planning.  Every year we hear about people who lost out on enormous tax savings by picking the wrong beneficiary.  So how do you decide whom to pick?

Most married people will choose their spouse.  This is usually a good idea because the spouse can take distributions from the plan if he or she needs the money.  The spouse can also roll the account over into his or her own retirement plan. [Read more...]

All of us are affected by the economic recession, but you should know that certain estate planning techniques become must more valuable when asset prices plunge – so this is a good time to take advantage of them.

Some of the best estate planning ideas involve giving a partial interest in your assets to your heirs now, while retaining effective control over the assets.  The idea is to get these interests out of your estate now at today’s value, rather than later when they will presumably be worth more. [Read more...]

Many older people are watching their grown children struggling through difficult times, facing unemployment, investment losses, difficulty in keeping up with a mortgage and other issues.  These parents want to help their children financially – but they want to do so in a tax-smart way that’s consistent with their overall estate plan.  Here are some ideas to consider:

 Annual gifts to children’s spouses:

Suppose your daughter is doing well financially, but your son has lost his job and is struggling.  If you make annual gifts to your children, you could make an additional gift to your son’s wife.  You can give up to $13,000 a year to the son and an additional $13,000 to his wife without incurring any gift tax consequences. One thing to consider is your daughter’s reaction.  Will she be understanding, or will she think this is unfair?  If you want to be completely fair to your daughter, you could increase the amount you leave to her in your will, in order to equalize the amount the children will ultimately receive.  You could create a formula in your will explaining your lifetime gifts and taking them into account in your bequests. [Read more...]

The amount that you can give to someone without having to pay the federal gift tax has been increased to $13,000 a year, effective for 2009. The previous maximum was $12,000 a year. Many people will want to take advantage of this new limit to increase their annual giving as part of their estate plan.

The limit is the amount that any one person can give to any other person. So for instance, if a married couple has three children, each spouse can give each child $13,000 in 2009. That’s a total of $78,000 that can be transferred to the next generation completely tax-free each year. [Read more...]

Starting in 2009, you can leave $3.5 million to your heirs before the federal estate tax kicks in – up from $2 million previously. And in 2010, the estate tax is slated to be repealed altogether.

But contrary to what some people think, that doesn’t mean you don’t need to worry about estate planning! [Read more...]

If you’ve been wondering how a family limited partnership can save your family taxes, here’s a good example. 

Bianca Gross was a widow who invested in stocks.  She had two daughters.  She decided to create a family limited partnership, in part so she could involve her daughters in her investment decisions and teach them about investing.  Bianca became the general partner, and the daughters became limited partners.  Bianca had complete management control over the partnership, and the daughters were not allowed to sell their shares or dissolve the partnership. [Read more...]

You might think it’s easy to leave a vacation home to your children in your will.  But there are many issues that can arise.  For instance, over time children might squabble over who will pay for major repairs or renovations, especially if some children use the property more than others.  Children might disagree about whether to sell the property.  And there are tax, liability and asset protection issues and opportunities as well.

If you haven’t thought a great deal about how a vacation home fits into your estate plan, we can help you come up with a plan that best fits your family’s needs, both now and down the road. [Read more...]

Many people like the idea of pre-paid funeral plans because they allow funeral services to be locked in at today’s prices, and save family members the trouble of selecting caskets and attending to other matters at a time of great sadness and stress. 

But if you’re thinking of such a plan, be cautious.  After you’ve paid, there’s always a risk the funeral home will go out of business, or the owner (or a new owner) will abscond with the money. [Read more...]

Can you put property into a trust, but keep the power to take it back again as long as you substitute other property of equal value?  Yes in some cases, according to an IRS ruling. This means you could put real estate, artwork, an insurance policy or other property into a trust, and keep the power to take it back for yourself, as long as you’re willing to pay the fair market value of it to the trust.

Under the ruling, this is true if the trustee (someone other than you) certifies the substituted property is of equivalent value.  Also, the substitution must not benefit one beneficiary at the expense of another.

If you plan to leave a house, car, business, or other property to one of your heirs, and the property is subject to a mortgage or other debt, do you want o leave it with the debt? Or do you want the debt to be paid off from your other assets so the person receives the property debt free?

Surprisingly, many people don’t think about this question when they write their will.  But it can have a very big impact on how your assets are divvied up among your heirs.  In some cases where the heirs don’t get along, it can even lead to a lawsuit. [Read more...]

A trust can’t deduct on its tax return the entire amount it spends for investment advice – at least in most cases, the U.S. Supreme Court has decided.

The case involved a trustee who paid $22,000 for investment advice.  He tried to deduct this amount from the $625,000 in income the trust reported on its tax return. For an individual, investment advisory expenses are a “miscellaneous itemized deduction” and they can be deducted only to the extent they exceed 2 percent of adjusted gross income. [Read more...]

With the cost of education skyrocketing, many people want to contribute to their grandchildren’s tuition costs.  A variety of ways are available to do this, which also have estate-planning benefits.

All these ideas apply not just to grandchildren but to grandnieces, grandnephews, great-grandchildren and others.

The simplest solution is for grandparents to pay the tuition costs directly.  Not only does this provide a benefit to the grandkids, but it also gets assets out of the grandparents’ estate tax free.  [Read more...]

A family-owned limited liability company saved a family $14 million in taxes, in the latest ruling from the U.S Tax Court on this technique. 

With a family LLC, parents create a company and fund it with valuable assets.  Then they give their children ownership interests in the LLC.  Giving these interests triggers less gift tax than giving the underlying assets, because they are “worth” less on the open market.  That’s because outside investors would be reluctant to buy a share of a family business that they couldn’t control.  [Read more...]

An heir to the Johnson & Johnson fortune created a trust to benefit four children.  The trust was set up so that it would provide money to charity for a period of years, then be distributed to the four children and their spouses.

By the time the distribution came around, one of the children (named Mary) had died.  Her third husband, Martin, who was married to her when she died, claimed that he was a “spouse” who was entitled to collect from the trust. [Read more...]

From 1997 to 2003, a family could take an estate tax deduction of up to $675,000 if more than half of the estate property consisted of interest in a family business.  This law is scheduled to go back into effect in 2010, so it’s wise to be aware of it.

In particular, you should be aware that certain business decisions you make now- such as making personal loans to your company as opposed to capital contributions – could determine whether your heirs can claim the deduction.

A recent case involved the Farnam family, who owned a chain of auto-parts store in Minnesota, North Dakota and South Dakota.  To help grow the company, the family members made a number of loans to the business. [Read more...]

The IRS has given families a little more flexibility in handling a 401 (K) and pension plans.  According to an IRS announcement, children who inherit a 401 (k) or pension plan can now roll it over directly into a Roth IRA.

Before, a spouse who inherited a 401 (k) or pension plan could roll it over into a Roth IRA, but this was not true for a beneficiary other than a spouse, such as a child.  But now its true for any beneficiary. 

(In the past, a non-spouse beneficiary could roll over an inherited 401(k) or pension plan into a regular IRA, but not a Roth IRA). [Read more...]

The recent dip in interest rates has created a golden opportunity to save taxes while giving income-producing assets to your heirs.  You can do this with a “grantor retained annuity trust,” or GRAT.  It allows you to continue receiving income from the property for a number of years, and you can then give it to your heirs while dramatically reducing your estate and gift tax.

The amount of taxes you can save is determined by a federal interest rate, known as the “7520 rate.”  The lower the rate, the more you can save.  And that rate is at one of the lowest points its been in many years. 

The donor of a GRAT creates a trust and funds it with income-producing assets.  The donor then keeps the right to receive a certain amount of income from the trust each year.  Generally, the donor gets the same amount each year, but the amount can vary within certain limits.  [Read more...]

Shareholders in closely-held corporations have won an important estate tax battle with the Internal Revenue Service.

The issue is how to place a value on a corporation that has a lot of “built-in” capital gains-meaning that if the company’s assets were liquidated, it would owe a hefty capital gains tax. 

In this case, a man named Frazier Jelke owned about 6 percent interest in an investment company.  The company had $188 million worth of assets.  However, if it sold those assets tomorrow, it would owe $51 million in capital gains tax. [Read more...]

It’s hard to imagine that someone could accidentally disinherit their own children, but it happens all the time to people who don’t regularly update their estate plan.

It’s important to update your estate plan with a professional every few years, or whenever there is a significant change in your circumstances or in the tax laws. Below are six ways disinheritance can happen:

 1)      Harry wrote a will leaving his house and his business to his children, and anything left over to his nephew.  Many years later, he sold the house and the business.  When he died, there was no house or business to go to his children – and 100 percent of his assets went to his nephew. [Read more...]

When you send your son or daughter off to college, the last thing you’ll probably think of getting for him or her is a will.  But there are a few simple legal documents that any young adult should have.  Getting them takes a short time, and is definitely worth the effort. 

One such document is a medical power of attorney.  Once your student is a legal adult, you can no longer automatically make medical decisions for him or her.  You might still have a right to make those decisions for your children if they can’t make them for themselves, but a medical power of attorney makes it much easier to do so. [Read more...]

The latest wrinkle in “identity theft” involves criminals opening accounts in the name of people who are recently deceased.  If a relative has recently died, you might want to take steps to avoid this problem.  For instance, you should immediately notify the Social Security Administration of the death, to prevent someone from using the deceased’s Social Security number.  You should also contact the three leading credit bureaus and report the death.  (Social Security will typically notify the credit bureaus, but this usually takes some time).  If you publish an obituary in the newspaper, its wise to avoid including the deceased’s address and date of birth.  Identity thieves can use this information to establish a fake account.  You can simply list the deceased’s age, without specifying a birthday.

Another note on obituaries:  Think twice about publishing the date and time of the funeral, because this tells thieves when you and your loves ones will not be at home.  If you do publish the funeral details, you might want to ask a neighbor to keep an eye on your house during that time.

A “power of attorney” is an important part of almost any estate plan.  This document allows someone else to take over your day-to-day financial affairs if you become incapacitated but like any element of an estate plan; a power of attorney needs to be reviewed occasionally to see if it still meets your needs.  If you signed such a document many years ago, it might be a good idea to check whether it needs to be updated.

Three things you might want to consider are:

1)      Who should be your agent (the person who will make decisions for you);

2)      What decisions should they make; and

3)      When should they start making decisions? [Read more...]

In the old days, trusts tended to be pretty simple.  Typically, a trustee was expected to invest the funds conservatively and pay interest to a beneficiary at regular intervals.  That was about it. Today, however, trustees are often expected to invest aggressively and successfully in a much more complex market.  They may be subject to far more tax, compliance and regulatory requirements.  And they may have to provide not for a single beneficiary but for a range of family members or generations, who may have conflicting interests. 

Some states have begun changing their laws to encourage the use of “co-trustees”.  The idea is to allow trustees to specialize.  One can handle complex investments, while another takes care of the tax returns and paperwork.  A third trustee might be a family member who is authorized to make decisions about distributions.  A family member would be much more likely than a bank, for instance, to be aware that a relative has developed a gambling or drug problem and shouldn’t be trusted with large cash payments.  [Read more...]

Here’s another story that shows the importance of picking a good trustee – someone who will adhere to your wishes and prevent disputes down the road.

It’s also proof that just because someone has died, that doesn’t mean they cant be the source of a lawsuit – so carefully drafting your document can save a lot of headaches.

Henry Hansen set up a trust to benefit his two daughters, Mildred and Ruth.  The trustee was to pay income to the daughters, and if either daughter needed additional money due to illness, the trustee was to provide it from the principal.  When both daughters had died, the remaining money was to go to his grandchildren. 

Mildred died in 1986 and Ruth died in 2005.  However, Ruth’s executor filed a lawsuit, claiming that in the last years of her life, the trustee had failed to pay her money from the principal to support her in her illness. 

In effect, the lawsuit pitted the creditors of Ruth’s estate against Henry’s grandchildren, both of whom claimed they were entitled to the money.  The dispute ended up in the Nebraska Supreme Court. 

The grandchildren claimed Ruth’s estate couldn’t complain because the trustee had discretion to decide how much to pay her.  But the court said that wasn’t true.

While the trustee had discretion to decide how much Ruth needed, the trustee didn’t have discretion to ignore her needs altogether and refuse to pay money from the principal if Ruth really was ill and needed money.

The grandchildren also argued the trustee had no right to pay any money to Ruth’s estate.  The purpose of the trust was to support Ruth in case she became ill – and now that she had passed away, paying money to her estate wouldn’t fulfill that purpose.  All it would do is benefit her creditors. [Read more...]

Once a year, you’ll transfer to the ILIT enough money to pay the policy premiums.  This transfer to a trust would ordinarily be subject to the gift tax.  But there’s a way around that problem too.

Under the gift tax laws, you can give $12,000 per person per year to any individuals you want before the gift tax applies.  So the idea is to “give” the money to your trust beneficiaries for tax purposes, while actually having it go to the ILIT. 

This is done by making a transfer to the ILIT with the condition that the beneficiaries of the ILIT can claim it if they want to.  Whenever a transfer is made, the trustee will send a letter to the beneficiaries – or their parents or guardians, if they’re children – saying the beneficiaries have a specific period of time (usually 30 or 60 days) to withdraw the money if they want to do so. [Read more...]