Wednesday, December 11, 2013
Can I Get In Trouble With The IRS for Trying to Reduce the Amount of Estate Tax That I Owe?
You’ve likely heard that one of the many benefits of estate planning is reducing the amount of federal, and state, taxes owed upon your passing. While it may seem like estate tax planning must run afoul of IRS rules, with the proper strategies, this is far from the case.
It is very common for an individual to take steps to try to reduce the amount of federal estate taxes that his or her "estate" will be responsible for after the person's death. As you may know, you may pass an unlimited amount of assets to your spouse without incurring any federal estate taxes. You may pass $5.25 million to non-spouse beneficiaries without incurring federal estate tax and if your spouse died before you, and if you have taken certain steps to add your spouse's $5.25 million exemption to your own, you may have $10.5 million that you can pass tax free to non-spouse beneficiaries.
If your estate is still larger than these exemption amounts you should seek out a qualified estate planning attorney. There may be legal, legitimate planning techniques that will help reduce the taxable value of your estate in order to pass more assets to your loved ones upon your death and lessen the impact of the estate taxes. After your death, the duty normally falls on your executor (or perhaps a successor trustee) to file the appropriate tax returns and pay the necessary taxes. Failure to properly plan for potential estate taxes will significantly limit what your executor/trustee will be able to accomplish after your passing.
If you have taken steps to try to reduce the taxes owed, it is possible that the IRS may challenge the reported value or try to throw out the method you used. This does not mean that the executor/trustee will be in trouble; it just means that they will need to be prepared to support their position with the IRS and take it through an audit or even a tax court (or other appropriate court system). In the event of a challenge, a good attorney will be critical to ensure all of the necessary steps are taken.
Friday, September 27, 2013
How to Keep Your Affluent Children From Turning Into … Well, … Brats
How to Keep Your Affluent Children From Turning Into … Well, … Brats
Congratulations are in order—you have accumulated enough wealth to be concerned about eventually passing it along to your children and grandchildren in a manner that will encourage them to lead positive and productive lives. Like many, your objective is to allow your children to enjoy the rewards of wealth without becoming irresponsible, overindulgent or feeling entitled to anything money can buy.
When it comes to sharing one’s wealth with adult children, there are some general principles that may help you guide your children as they shape their values. Two quotes about sharing wealth with children are an excellent starting point:
I wanted my children to have “enough money so that they would feel they could do anything, but not so much that they could do nothing.” – Warren Buffett
“It’s better to give with warm hands than with cold ones.” – Unknown
Establish Inter Vivos Trusts for Your Children, And Use Restrictions Creatively
You can establish inter vivos trusts (trusts that go into effect during your lifetime) and appoint professional trustees during your lifetime. Consider some combination of the following restrictions on the trust funds to help your children develop into competent, capable adults:
Make receipt of funds dependent on employment
Use trust funds to match income from employment
Prohibit distribution of trust earnings until the child reaches a certain age (it is not unheard of to distribute trust earnings to children once they reach age 65)
Make attaining a certain level of education a prerequisite to distribution of trust income
Consider establishing a charitable trust or family foundation, with room for employment of your adult child in the foundation’s management
Consider a generation-skipping trust, so that your wealth is shared directly with grandchildren
Make Gifts or Loans During Your Lifetime—And Not Just Gifts of Money
This is the meaning behind the quotation above regarding warm hands and cold ones. It is better, in so many ways, to give gifts during your lifetime rather than after your death. In addition to gifts, consider making strategic, interest-free loans to your children to help them achieve certain goals without losing a lot of their own income to interest payments:
Interest-free loans for higher education
Interest-free loans for private education for grandchildren
Interest-free loans for home purchases
In addition to giving gifts of money or making strategic loans, there are other “gifts” you can give your children to help them learn to live with wealth. Consider the following suggestions,:
Hire a professional to teach your children how to manage their money, instead of banking on your children listening to your own lessons.
Pay for family vacations that serve a philanthropic purpose, such as travel to Africa to deliver medical equipment to a remote town or travel to South America to help clean a national park.
Begin or continue a family tradition of local volunteer work with disadvantaged people in your own community to ensure that your children get firsthand knowledge of how fortunate they are to have the resources your family has accrued.
In general, experts agree that families fare better when their wealth is used to enrich their lives and to help others less fortunate. Give your children opportunities to learn to use money in responsible ways, from as early in their lives as possible. Show them the difference between buying a new sports car and donating the same amount of money to a program that sends food to people in need. That isn’t to say a new sports car shouldn’t be on the shopping list – but perhaps it shouldn’t be the only thing on the shopping list.
Monday, May 27, 2013
Advance Planning Can Help Relieve the Worries of Alzheimer’s Disease
Advance Planning Can Help Relieve the Worries of Alzheimer’s Disease
The “ostrich syndrome” is part of human nature; it’s unpleasant to observe that which frightens us. However, pulling our heads from the sand and making preparations for frightening possibilities can provide significant emotional and psychological relief from fear.
When it comes to Alzheimer’s disease and other forms of dementia, more Americans fear being unable to care for themselves and burdening others with their care than they fear the actual loss of memory. This data comes from an October 2012 study by Home Instead Senior Care, in which 68 percent of 1,200 survey respondents ranked fear of incapacity higher than the fear of lost memories (32 percent).
Advance planning for incapacity is a legal process that can lessen the fear that you may become a burden to your loved ones later in life.
What is advance planning for incapacity?
Under the American legal system, competent adults can make their own legally binding arrangements for future health care and financial decisions. Adults can also take steps to organize their finances to increase their likelihood of eligibility for federal aid programs in the event they become incapacitated due to Alzheimer’s disease or other forms of dementia.
The individual components of advance incapacity planning interconnect with one another, and most experts recommend seeking advice from a qualified estate planning or elder law attorney.
What are the steps of advance planning for incapacity?
Depending on your unique circumstances, planning for incapacity may include additional steps beyond those listed below. This is one of the reasons experts recommend consulting a knowledgeable elder law lawyer with experience in your state.
Write a health care directive, or living will. Your living will describes your preferences regarding end of life care, resuscitation, and hospice care. After you have written and signed the directive, make sure to file copies with your health care providers.
Write a health care power of attorney. A health care power of attorney form designates another person to make health care decisions on your behalf should you become incapacitated and unable to make decisions for yourself. You may be able to designate your health care power of attorney in your health care directive document, or you may need to complete a separate form. File copies of this form with your doctors and hospitals, and give a copy to the person or persons whom you have designated.
Write a financial power of attorney. Like a health care power of attorney, a financial power of attorney assigns another person the right to make financial decisions on your behalf in the event of incapacity. The power of attorney can be temporary or permanent, depending on your wishes. File copies of this form with all your financial institutions and give copies to the people you designate to act on your behalf.
Plan in advance for Medicaid eligibility. Long-term care payment assistance is among the most important Medicaid benefits. To qualify for Medicaid, you must have limited assets. To reduce the likelihood of ineligibility, you can use certain legal procedures, like trusts, to distribute your assets in a way that they will not interfere with your eligibility. The elder law attorney you consult with regarding Medicaid eligibility planning can also advise you on Medicaid copayment planning and Medicaid estate recovery planning.
Monday, April 15, 2013
Think Treasure Hunts are Fun and Games?
Think Treasure Hunts are Fun and Games? Think Again
You’ve had an attorney draft your estate planning documents, including your living trust and will. Probate avoidance and tax saving strategies have been implemented. Your documents are signed, notarized and witnessed in accordance with all applicable laws, and are stored in a location known to your chosen executor or estate administrator. Your work is done, right? Not exactly.
Although treasure hunts may be fun for youngsters, the fiduciaries of your estate will not find inventorying your assets to be nearly as exciting. When it comes time to settle your affairs, your estate representatives will be charged with the responsibility to gather and manage your assets, pay off debts and taxes, and distribute your assets to your named beneficiaries. This can be a tall order for an outsider who is likely unaware of the full scope of your assets.
If your fiduciaries cannot determine exactly what property you own, and its value and location, you are setting up your loved ones for a frustrating treasure hunt that can delay the settlement of your estate and rack up additional estate-related expenses. You may be remembered for the frustration of locating your assets, rather than the gifts made upon your death – not a legacy many wish to leave.
Instead, as you are establishing your estate plan take the extra time to record a comprehensive asset inventory and make sure those who will be responsible for settling your estate know where that inventory is stored. Do not presume that everything is handled once you meet with a lawyer and sign your documents. The legal instruments you have gone to the time, trouble and expense to prepare are practically worthless if your assets cannot be identified, located and transferred to your beneficiaries. However, creating a thoughtful asset inventory will aid your loved ones in closing your estate and honoring your memory.
Nobody knows better what assets you own than you. And who better than you to know an item’s value, age or location? Your fiduciaries may not have the benefit of tax or registration renewal notices for titled assets, and certainly won’t have copies of the titles or deeds – unless you provide them. It’s a good idea to include copies of the following items with your asset inventory:
- Deeds to real property
- Titles to personal property
- Statements for bank, brokerage, credit card and retirement accounts
- Stock certificates
- Life insurance policy
- Tax notices
For each of the above assets you should also list names and contact information for individuals who can assist with each the underlying assets, such as real estate attorneys, brokers, financial planners and accountants.
If your estate includes unique objects or valuable family heirlooms, a professional appraisal can help you plan your estate, and help your representatives settle your estate. If you have any property appraised, include a copy of the report with your asset inventory.
Care should be taken to continually update your asset inventory as things change. There will likely be many years between the time your estate plan is created and the day your fiduciaries must step in and settle your estate. Properties may be bought or sold, and these changes should be reflected in your asset inventory on an ongoing basis.
Monday, February 25, 2013
Preventing a Will Contest
Preventing a Will Contest & Preserving Peace in the Family
The purpose of writing a Last Will and Testament is to make sure that you – and not an anonymous probate court judge – have control over the distribution of your property after your death. If one or more family members disputes the instructions in your will, however, then it is possible that a probate court judge may decide how your assets will be distributed.
Protect yourself, your family members and your last wishes by taking steps to prevent a will contest after your death. Will contests (this is the legal term used to describe a family member’s challenge to the contents of a will) can be based on one or more of these claims:
The will was not properly executed
The willmaker was under improper or undue influence from a beneficiary
The willmaker or another person committed fraud
The willmaker lacked the mental capacity to make the will
There are a number of steps that you can take to help prevent will contests based on any of those claims. It is important to remember, though, that different states have different laws regarding wills and probate. What is advisable in one state may be inadvisable in another, which is why the first suggestion for preventing a will contest is:
Obtain qualified legal advice regarding your estate plan. Estate planning has become a popular “do it yourself” legal task, but you should at least consider having your will reviewed – if not written – by a qualified estate planning lawyer. Writing your will with the help of an estate planning attorney will also ensure that your will is a properly executed and valid legal document.
Don’t delay estate planning. Plan your estate while you are in good health – “of sound mind and body.” If you create your will while your physical or mental health is failing, your will becomes vulnerable to claims that it is invalid due to your lack of mental capacity.
Consider a no-contest clause. A no-contest clause (also called an in terroreum clause) in a Last Will and Testament disinherits anyone who contests the will. Keep in mind, though, that no-contest clauses are valid in some states but not in others.
Consider using trusts. Trusts are becoming more widely usedin estate planning , and are useful for various situations. A will is a public document once it is filed in probate court, and the public nature of the document can give rise to disputes and will contests. In contrast, a revocable living trust is a personal and private document that does not have to be filed as a public record. Furthermore, lifetime trusts can be used to provide financially for “troublesome” beneficiaries who might otherwise spend through their inheritance. Lifetime trusts are flexible and can link financial inheritance to the accomplishment of goals that you set forth in the trust documents.
Write your will independently. To avoid claims of undue influence after your death, make sure you write your will in circumstances that are clearly free from interference by family members or other beneficiaries. Avoid having beneficiaries serve as witnesses, for example, and don’t allow beneficiaries to attend your meetings with your estate planning attorney. This is especially important if you are under the care of a family member who is also a beneficiary.
Be of sound mind and body. At the time you write and sign your will, you can ask your physician to perform a physical examination and certify that you are mentally competent to execute your will. Another option is for your attorney to ask you a series of questions before you sign your will and document that the questions were asked and answered. It may also be a good idea to make a video recording of the process of signing your will, as another way to prove mental competency.
Answer your family’s questions. Consider sharing your intentions with your family and other beneficiaries. If you explain the reasons for the decisions you made regarding bequests, you may help prevent will contests after your death. Instead or in addition, you may write a letter to your beneficiaries that will be read at the same time your will is read.
Keep your will dust-free. Once your Last Will and Testament and other estate planning documents are complete, don’t just file and forget them. Review your will with an attorney at least once a year and make any necessary changes in a timely manner.
Friday, February 15, 2013
Meeting With an Estate Planning Attorney?
Preparing to Meet With an Estate Planning Attorney
A thorough and complete estate plan must take into account a significant amount of information about your assets, your family, your property, and your wishes during and after your life. When you make your first appointment with an estate planning attorney, ask the attorney or the paralegal if they can provide a written list of important information and documents that you should bring to the meeting.
Generally speaking, you should gather the following information before your first appointment with your estate planning lawyer.
List the names, birth dates, death dates, and ages of all immediate family members, specifically current and former spouses, all children and stepchildren, and all grandchildren.
If you have any young or adult children with special needs, gather all information you have about their lifetime financial needs.
For all real property you own or can reasonably expect to acquire, gather the property description, your ownership interest information, the address, market value, any outstanding mortgage balance, and the most recent tax assessment.
For any personal property of value (such as vehicles, jewelry, coins, antiques, stamps, and art), compile a list that includes a description, the physical location of each item, your ownership interest information, the market value, and any liens against the property.
If you have an ownership interest in a business, make sure you have documents showing your ownership interest in the business, the business location, the names and contact information of other owners, and 2-3 years of past profit and loss statements.
Compile a list of all your financial accounts, including: checking accounts, savings accounts, investment accounts, stocks and bonds, and U.S. Treasury notes. If any of these accounts currently have designated beneficiaries, bring that information as well.
Gather all retirement savings information, including 401(k) plans, 403(b) plans, IRAs, life insurance policies, Social Security statements, and pension information. Make sure you have the account names, account numbers, current balances, outstanding loan balances, and currently named beneficiaries.
If any family members owe you debts, compile that information.
Questions to Think About
The following are some of the first questions your estate planning attorney will ask. You are not required to have answers ready for all these questions, but because some of them are complex, it is a good idea to think through these issues before your appointment.
Who will be beneficiaries of your property?
Do you want to bequeath any specific items of property to specific individuals?
Is there anyone you do not want to be a beneficiary of any of your property?
Do you plan to make any bequests to any nonprofit organizations – university, church, charity, or other organization?
Do you know who you want to act as executor of your will?
Do you know who you want to act as trustee of any trusts you establish?
If you have minor children, who do you want to appoint as guardian?
Do you want to make arrangements for your health and financial well-being in the event you become unable to make decisions for yourself?
Do you have specific wishes for your funeral?
Are you a registered organ donor?
During your initial consultation, your estate planning attorney will review your family and financial situation, discuss your wishes, answer your questions and suggest strategies to protect your family, wealth and legacy.
Tuesday, July 17, 2012
How Much of Your Estate Will Be Left Out of Your Will? (It is Probably More Than You Think)
You have hired an attorney to draft your will, inventoried all of your assets, and have given copies of important documents to your loved ones. But your estate planning shouldn’t stop there. Regardless of how well your will is drafted, if you do not take certain steps regarding your non-probate assets, you run the risk of unintentionally disinheriting your chosen beneficiaries from a significant portion of your estate.
A will has no effect on the distribution of certain types of property after your death. Such assets, known as “non-probate” assets are typically transferred upon your death either as a beneficiary designation or automatically, by operation of law.
For example, if your 401(k) plan indicates your spouse as a designated beneficiary, he or she automatically inherits the account upon you passing. In fact, by law, your spouse is entitled to inherit the funds in your 401(k) account. If you wish to leave your 401(k) retirement account to someone other than a surviving spouse, you must obtain a signed waiver from your spouse indicating her agreement to waive her rights to the assets in that account.
Other types of retirement accounts also transfer to your beneficiaries outside of a probate proceeding, and therefore are not subject to the provisions of your will. An Individual Retirement Account (IRA) does not automatically transfer to your spouse by operation of law as is the case with 401(k) plans, so you must complete the IRA’s beneficiary designation form, naming the heirs you want to inherit the account upon your death. Your will has no effect on who inherits your IRA; the beneficiary designation on file with the financial institution controls who will receive your property.
Similarly, you must name a beneficiary on your life insurance policy. Upon your death, the insurance proceeds are not subject to the terms of a will and will be paid directly to your named beneficiary.
Probate avoidance is a noble goal, saving your loved ones both time and money as they close your estate. In addition to the assets listed above, which must be handled through beneficiary designations, there are other types of assets that may be disposed of using a similar procedure. These include assets such as bank accounts and brokerage accounts, including stocks and bonds, in which you have named a pay-on-death (POD) or transfer-on-death (TOD) beneficiary; upon your passing, the asset will be transferred directly to the named beneficiary, regardless of what provisions are in your will. Depending on the state, vehicles may also be titled with a TOD beneficiary.
To make these arrangements, submit a beneficiary designation form to the applicable financial institution or motor vehicle department. Be sure to keep the beneficiary designations current, and provide instructions to your executor listing which assets are to be transferred in this manner. Most such designations also allow for listing of alternate beneficiaries in case they predecease you.
Another common non-probate asset is real estate that is co-owned with someone else where the deed has a survivorship provision in it. For example, many deeds to real property owned by married couples are owned jointly by both husband and wife, with right of survivorship. Upon the passing of either spouse, the interest of the passing spouse immediately passes to the surviving spouse by operation of law, irrespective of any conflicting instructions in your will. Keep in mind that you need not be married for such a provision to be in effect; joint ownership of real property with right of survivorship can exist among any group of co-owners. If you want your will to be controlling with regard to disposition of such property, you need to have a new deed prepared (and recorded) that does not have a right of survivorship provision among the co-owners.
You have spent a lifetime of hard work to accumulate your assets and it is important that you take all necessary steps to ensure that your wishes regarding who will get your assets will be honored as you intend. Carve a few hours out of your busy schedule, several times a year, to review all of your deeds and beneficiary designations to make certain that they remain consistent with your objectives.
Tuesday, July 10, 2012
What happens if you are bequeathed a car that no longer exists? The ABCs of Ademption
If you’re involved in settling a loved one’s estate, you may come across the curious word “ademption”. Ademption describes what happens when something designated in a will no longer exists. Say, for example, your uncle dies and leaves for you in his will an old-school Harley Davidson motorcycle. However, if your uncle crashed the motorcycle two years before the will was probated and there’s nothing to leave, then that gift would be considered adeemed and you would receive nothing. This is why certain wills include language that says, “if owned by me at my death.”
However, it is important to realize that certain items cannot be adeemed. For instance, money. If your uncle died and left $7,000 for you in his will, but left a zero dollar balance in his accounts, your gift of cash would not be adeemed. Instead, the estate would be responsible for satisfying that gift, say for example, through the sale of the house or other such property.
There are exceptions to ademption, however. If the property leaves the estate after the person who wrote the will has been declared incompetent, ademption is waived. Other states make exceptions for cases where interest in a corporation that no longer exists because the shares were exchanged with that of an acquiring company. Your state may tackle ademption differently based on its laws, so please consult a qualified real estate or probate lawyer if you want to learn more about ademption and its exceptions.
Wednesday, May 09, 2012
Planning Pitfall: Probate vs. Non-Probate Property
Transfer of property at death can be rather complex. Many are under the impression that instructions provided in a valid will are sufficient to transfer their assets to the individuals named in the will. However, there are a myriad of rules that affect how different types of assets transfer to heirs and beneficiaries, often in direct contradiction of what may be clearly stated in one’s will.
The legal process of administering property owned by someone who has passed away with a will is called probate. Prior to his passing, a deceased person, or decedent, usually names an executor to oversee the process by which his wishes, outlined in his Will, are to be carried out. Probate property, generally consists of everything in a decedent’s estate that was directly in his name. For example, a house, vehicle, monies, stocks or any other asset in the decedent’s name is probate property. Any real or personal property that was in the decedent’s name can be defined as probate property.
The difference between non-probate property and probate centers around whose name is listed as owner. Non-probate property consists of property that lists both the decedent and another as the joint owner (with right of survivorship) or where someone else has already been designated as a beneficiary, such as life insurance or a retirement account. In these cases, the joint owners and designated beneficiaries supersede conflicting instructions in one’s will. Other examples of non-probate property include property owned by trusts, which also have beneficiaries designated. At the decedent’s passing, the non-probate items pass automatically to whoever is the joint owner or designated beneficiary.
Why do you need to know the difference? Simply put, the categories of probate and non-probate property will have a serious effect on how plan your estate. If you own property jointly with right of survivorship with another individual, that individual will inherit your share, regardless of what it states in your will. Estate and probate law can be different from state-to-state, so it’s best to have an attorney handle your estate plan and property ownership records to ensure that your assets go to the intended beneficiaries.
Wednesday, April 18, 2012
What’s Involved in Serving as an Executor?
An executor is the person designated in a Will as the individual who is responsible for performing a number of tasks necessary to wind down the decedent’s affairs. Generally, the executor’s responsibilities involve taking charge of the deceased person’s assets, notifying beneficiaries and creditors, paying the estate’s debts and distributing the property to the beneficiaries. The executor may also be a beneficiary of the Will, though he or she must treat all beneficiaries fairly and in accordance with the provisions of the Will.
First and foremost, an executor must obtain the original, signed Will as well as other important documents such as certified copies of the Death Certificate. The executor must notify all persons who have an interest in the estate or who are named as beneficiaries in the Will. A list of all assets must be compiled, including value at the date of death. The executor must take steps to secure all assets, whether by taking possession of them, or by obtaining adequate insurance. Assets of the estate include all real and personal property owned by the decedent; overlooked assets sometimes include stocks, bonds, pension funds, bank accounts, safety deposit boxes, annuity payments, holiday pay, and work-related life insurance or survivor benefits.
The executor is responsible for compiling a list of the decedent’s debts, as well. Debts can include credit card accounts, loan payments, mortgages, home utilities, tax arrears, alimony and outstanding leases. All of the decedent’s creditors must also be notified and given an opportunity to make a claim against the estate.
Whether the Will must be probated depends on a variety of factors, including size of the estate and how the decedent’s assets were titled. An experienced probate or estate planning attorney can help determine whether probate is required, and assist with carrying out the executor’s duties. If the estate must go through probate, the executor must file with the court to probate the Will and be appointed as the estate’s legal representative. Once the executor has this legal authority, he or she must pay all of the decedent’s outstanding debts, provided there are sufficient assets in the estate. After debts have been paid, the executor must distribute the remaining real and personal property to the beneficiaries, in accordance with the wishes set forth in the Will. Because the executor is accountable to the beneficiaries of the estate, it is extremely important to keep complete, accurate records of all expenditures, correspondence, asset distribution, and filings with the court and government agencies.
The executor is also responsible for filing all tax returns for the deceased person including federal and state income tax returns and estate tax filings, if applicable. Additional tasks may include notifying carriers for homeowner’s and auto insurance policies and initiating claims on life insurance policies.
The executor is entitled to compensation for his or her services. This fee varies according to the estate’s size and may be subject to review depending on the complexity as well as the time and effort expended by the executor.
The Fitzgerald Law Office assists clients with Estate Planning, Advanced Estate Planning, Asset Protection, Business Succession Planning, Planning for Children, Guardianships, Probate and Estate Administration and Pet Trusts in St. Charles, Illinois, all of Kane and DuPage Counties and throughout the Fox Valley.