Attorney Sandy Ard, of the Ard Law Firm, PLLC, writes about Estate Planning, Medicaid Planning, Veterans Benefits Planning, Wills, Trusts, Living Trusts, Pet Trusts, Special Needs Planning, Asset Protection, Elder Law, Farm Trusts and Non-citizen Spouse Estate Planning, Probate & Estate Administration, Business Succession, and Family Business Planning in Houston, Texas, and the surrounding areas.
“An estate plan is not a time capsule to be opened and dissected at some distant point in the future," according recent Forbes article. The article, titled "Why You Should Update Your Estate Plan," explains that many ultra-wealthy individuals have a valid estate plan in place, but have not reviewed and updated their plans after they first signed them. In some instances, an outdated or insufficient estate plan have caused disputes between heirs. Unfortunately, many of these situations are even more tragic because they are usually avoidable, especially when professionals can facilitate difficult conversations.
The original article notes that family members will often shy away from the estate planning process because it typically means some tough discussions. However, the article reminds us that this can be a wonderful opportunity for your estate planning attorney to educate family members on the benefits and risks of planning while helping to bridge family divides. In fact, the "key is to evaluate the impact on the estate or wealth transfer plan of all major decisions and life events as elements of a broader generational family wealth strategy." As a result, this can simplify an ongoing process and reduce the possibility of damaging legal disputes on the disposition of family assets in the future.
The easiest way to decide when to review your estate plan is: (i) when there is a meaningful change in your life; or (ii) every few years just to make sure you are up-to-date with the changing tax laws. Contact your estate planning attorney to make sure your estate plan is current and your wishes will be carried out when the time comes.
Reference: Forbes (July 3, 2014) "Why You Should Update Your Estate Plan"
Kim Woolen Campbell, Glenn Campbell's wife, recently told The Associated Press via email that the country and pop music legend was suffering from his Alzheimer's disease to such an extent that he needed access to medical care 24 hours a day. The 78-year-old singer's doctors encouraged her earlier this year to discontinue care at the family's home and move him to a care facility. He has been suffering from the degenerative neurological condition for about three years.
This move was publicly criticized by Mr. Campbell’s eldest daughter, Debby.
As reported by The Associated Press, in an article titled "Glen Campbell's wife defends decision on long-term facility care," Kim Campbell wrote in the email that it was "crushingly sad" to see her husband's health deteriorate "but indulging those feelings does not help him."
His daughter Debby Campbell told Country Weekly in June that she was opposed to the decision, and that she did not feel Campbell's family was spending enough time with him in Nashville.
No doubt with a star of this magnitude, the details will come out about how he planned for his long-term care. You should take some time to talk to your own estate planning and elder law attorney to cover just such circumstances.
Reference: Associated Press (June 19, 2014) "Glen Campbell's wife defends decision on long-term facility care"
A recent article in The Star-Ledger, titled "Your Money: The truth about 'power of attorney' documents," provides helpful information about the essential subject of powers of attorney and their uses.
A "Special Power of Attorney" grants an individual the authority to perform a specific act or acts. Just like the name implies, this authority is limited to the special powers listed.
A "Durable Power of Attorney" expressly provides that it is not terminated by the grantor's incapacity. In contrast, a "Non-Durable Powers of Attorney" is terminated if the principal becomes incapacitated. The document can be as broad or as specific as the grantor wants, but generally it gives a person expansive powers and is used when the grantor becomes incapable of managing his or her affairs.
Similarly, a "Springing Power of Attorney" can also be very particular or expansive, but it only "springs" into effect if the principal becomes incapacitated. Caution: this type of document can create issues, as financial institutions will not recognize this POA until they receive official notification of the incapacity of the grantor.
Last, some states have a "Statutory Power of Attorney" in which case the POA need only be presented to the financial institution. The institution must honor a validly executed POA unless it believes in good faith that it does not look genuine, that the principal is deceased, that the document has been revoked, or that the principal was under a disability when he or she signed it.
Some financial institutions may not be helpful. In fact, some will insist that their particular form needs to be completed. Also, if incapacity has already occurred and an institution is unwilling to honor the POA, The Star-Ledger suggests that you bring in your estate planning attorney to help resolve the issue. Finally, the article reminds us that a POA commonly only covers financial matters, and that a separate health care POA is needed for health issues.
Reference: The Star-Ledger (NJ) (July 1, 2014) "Your Money: The truth about 'power of attorney' documents"
What do you know about the subject of wills? You likely have heard of them, but may not have created your own. Regardless, there are some facts about wills everyone should know.
A recent Daily Finance article, titled "4 Things You Didn't Know About Wills - But Should," provides a few of those facts to bear in mind whether you have a will already or may create one someday.
Even in the Electronic Age, You Must Still Follow the Formalities. The laws covering wills are some of the oldest we have in this country. The ownership and postmortem transfer of property has been going on long before the United States was around. One frequent complaint is that the laws and the courts are not keeping up with technology. Even with our Smartphone and eSignatures, creating a will that is going to be found valid still requires that you follow the often-antiquated laws precisely. In most states, it is critical that you sign the will in the presence of witnesses, who will have the duty of testifying in probate court after your death to say that the will was validly signed (e.g., some states require the witnesses' signatures to be notarized in order to have a “self-proving will,” thereby eliminating the need for the witnesses to later testify as to the will’s validity).
A Will is a Good Idea Even if You're Poor. Many young people, and those who believe they are of modest means, do not think they need to create a will. They think that with little or no assets, they do not have anything to leave. However, if you are a parent of any minor children, many states provide that your will is the place where you appoint the person you would like to take care of your children in the event you pass away. If you do not choose a guardian, then a judge will decide.
If You Don't Update Your Will, the Law Might Do It for You. When major life events occur, like marriage, divorce, the birth of a child, or the death of a close family member, people many times fail to update their wills and other estate planning documents. This can result in undesirable results in some circumstances. In light of this, the laws in some states may “rewrite” your will for you … even if you deliberately choose to do nothing.
Your will is an essential and vital legal device to ensure that your property passes to the individuals you intend to inherit it after your death. By heeding these simple reminders and others from an experienced estate planning attorney, you can use your will to more effectively avoid mistakes that can cause huge problems down the road.
Reference: Daily Finance (June 28, 2014) "4 Things You Didn't Know About Wills - But Should"
Almost all of us can agree that we receive a lot of free advice, to include in the financial and estate planning area. It can get complicated quickly, and some people do not know what to do. As a result, many do nothing, or they accumulate cash - which does not earn them anything. Others will start to think about planning when they are in their late 50s and early 60s, realizing that their work life is short. Panic can set in. However, a good financial planner can help clarify and prioritize your goals, and help you make the most of your money.
A recent USA TODAY article, titled “How to find the right financial adviser,” states that no matter where you stand financially, you can benefit from the advice and guidance of a qualified financial planner. The article advises that even for those with modest savings can see a significant change in their lives with a one- or two-hour session with a planner.
Many financial planners are members of professional organizations that certify them, such as the Certified Financial Planner Board, which is an independent professional regulatory organization. To earn this certification, a financial planner must meet all the requirements, including extensive study and a comprehensive test on the financial planning process, investment planning, income tax planning, retirement planning and employee benefits and estate planning. There are several other prominent financial planning designations, and you should work with your estate planning attorney, who either will have this type of certification or know of a qualified financial planner to help you design a plan to meet your objectives.
Reference: USA TODAY “How to find the right financial adviser” (July 9, 2014)
According to a recent explorenews.com article, titled "Six reasons to take a fresh look at your estate plan," you should review your estate plan every few years to see if it needs updating. Things change over time, such as new tax laws and your grandchildren total. Whether you have a simple will or a revocable living trust, the article points out several reasons to re-evaluate your estate plan regularly.
New family members and friends. There might be a new person in your family or a friend whom you would like to add as a beneficiary, trustee, or inheritor. There may be some new grandchildren and in-laws, or charitable organizations in which you have become active.
Former family members and friends. Perhaps you want to exclude someone currently in your will or trust, like an ex-spouse or ex-in-laws.
Your choice of executor or co-trustee. The article suggest that you consider the current age, geographic location, abilities and skills of the executor and/or co-trustee you originally chose, and whether those individuals are still the best candidates. For example, you may want to change your named executor or trustee if he or she is in their mid-80s.
Assets. Do your will and/or trust still apply to the assets you currently have? If your assets have increased or become more complex, you might want to look at adding a trust, drawing up a more detailed will, or consulting with an estate planning attorney to better evaluate your circumstances.
Values. There is more to estate planning than just finances. Evaluate the decisions you have documented regarding your health care and Advance Directives, such as any Do Not Resuscitate (DNR) order. Think about whether you would like to make any changes.
Tax law. A change in the federal tax laws may require updates to trusts. Estate planning attorneys generally recommend that you should have a health care power of attorney and a financial power of attorney.
Once you update your estate plan, tell your family what documents you have drawn up and where they can find them (such as at your attorney’s office). You need not tell them what is in your will or trust, but someone needs to know it exists. Keep your living will somewhere easy to find, and give copies to appropriate family members, along with copies of your health care and financial powers of attorney. These extra steps will ensure that your wishes are put into action when needed.
Reference: explorenews.com (June 25, 2014) "Six reasons to take a fresh look at your estate plan"
The Clintons drafted two (Qualified Personal Residence Trusts) QPRTs in 2010, divided the ownership of their Chappaqua, N.Y. home into separate 50% shares, and then moved those shares into the trusts, according to Bloomberg News. They bought the home 15 years ago for $1.7 million. Bloomberg says its estimated value for property taxes is $1.8 million. This tax strategy allows the Clintons to take the value of the home out of their taxable estate and pass it to beneficiaries without any estate tax at the end of the trust's term, so long as the grantors, President and Secretary Clinton, are alive at that time.
As an Investment News article, titled "Clintons shine spotlight on tax strategy that splits a house in two," explains that this is not a tool for everybody. A QPRT really is logical for only extremely wealthy people who typically own multiple residences and face high estate taxes. The article advises that to get "the biggest bang for your buck," the residence should be appreciating in value, so that when it is passed to the beneficiary and out of the estate, it will be worth significantly more.
The current estate tax and gift tax exemptions are $5.34 million for individuals, and $10.68 million for married couples filing jointly. An ideal candidate for a QPRT is an individual or a couple whose wealth is above those limits. Why? Because if you are over the exemption amount, you will be subject to estate taxes. If you are not above the limit, it is not a worthwhile plan. With a QPRT, a couple like the Clintons are able to split the ownership of the house and each create a QPRT with an interest in the home.
There are criteria the home must satisfy in order to be eligible for the trust. For example, this works best with a secondary residence (a vacation home) instead of a primary residence. Here is the rub - at the end of the QPRT term, the home passes to the beneficiary. The beneficiary will have to start charging the grantor rent should the grantor reside there, and some parents do not like the idea of paying fair market rent to their children to live the home that has been their primary residence. Nonetheless, rent can work out as a way for grantors to transfer wealth to their kids outside of the estate, as the children must declare that rent as income. The original article also warns that there could be an economic downturn. This, in turn, might leave the grantors with little in the way of assets and no access to home equity. The house also should not have a mortgage, which can add income tax problems to the calculus.
This is not a Saturday morning job on the honey-do list: drafting a QPRT is a job that will require experienced professional tax and estate planners. Talk with your estate planning attorney if you think that you are candidate for a QPRT, or even if you are not, to see if your current strategy is the best for you.
Reference: Investment News (June 27, 2014) "Clintons shine spotlight on tax strategy that splits a house in two"
According to the tax law, from age 59½ to 70½ you are generally allowed to withdraw any amount you want from your traditional IRA without incurring a penalty or paying taxes on previously untaxed amounts. However, after you reach age 70½ you are required to withdraw a minimum amount every year or be subject to a hefty tax penalty. Ordinarily, the deadline for taking this required minimum distribution is Dec. 31st, but for your first distribution you are given until April 1st of the year following the year you turn 70½ to make the withdrawal.
Many investors make use of this three-month grace period. As of Dec. 31, 2013, some 40% of those required to take their first distribution had not yet taken the minimum amount, according to The Wall Street Journal in an article titled "Understanding Required IRA Distributions." That number of investors includes 14% who had not taken any distributions at all. If that is you, then the WSJ says you better get moving! If you miss the April 1st deadline, the IRS can penalize you up to 50% of the amount you were supposed to withdraw.
When do you take that initial required minimum distribution, and does that take care of all of that calendar year? It depends, the article says. If you turned 70½ last year and waited until this year to take all or part of your first required minimum distribution, you would still need to take your 2014 required minimum distribution by Dec. 31st of 2014. Likewise, withdrawals above and beyond the minimum in one year do not count toward required distributions in future years—you cannot apply it forward.
In which year is that first distribution taxable? The Wall Street Journal article says the basic answer is that the initial distribution is taxable in the year it is taken. So if you delayed taking it until 2014, the taxable portion of both your initial distribution and your 2014 distribution must be reported as income on your 2014 tax return. If those withdrawals are large enough, it could put you in a higher tax bracket this tax year. The financial institution that administers your IRA should be able to calculate your required minimum distribution and your IRA balance as of the previous year's end. Some IRA administrators will automatically calculate your required minimum distribution and then transfer it to an account of your choice, the WSJ says.
Can one have the financial institution that handles his IRA withhold the tax on his distribution, and, if so, whether the tax itself would still count toward his required minimum distribution amount? Yes to both parts of this question. In fact, unless you request otherwise, your IRA administrator must withhold federal (and, if applicable, state tax on your distribution), along with reporting withdrawals and any taxes withheld to you and the IRS on Form 1099-R.
Questions about IRA distributions, tax ramifications, and planning for retirement should be directed to an experienced estate planning attorney. He or she will be able to help you put together the best strategy based on your needs and objectives.
Reference: Wall Street Journal (March 30, 2014) "Understanding Required IRA Distributions"
A recent Forbes article discussed Stretch IRAs and their impact with two brothers, Wealth managers Tom and Robert Fross. In the article, titled "Should I Force My Beneficiaries to Stretch My IRA?," Tom thought it best to leave beneficiaries the full range of IRA distribution options. Why? Because trying to manage from beyond the grave does not allow for flexibility or changing family circumstances. Robert agreed but feels it is important to educate beneficiaries and ensure that they comprehend the benefits of stretching distributions across their own lifetime rather than withdrawing money all at once.
Indeed, “stretch IRAs” can be a worthwhile vehicle to allow children to get a head start on their own retirement savings. With proper planning, an inherited IRA can grow from a modest amount into a great sum of money, the Fross brothers agreed. However, they cautioned that it is critical to take some steps now to set your heirs up for success later. Robert explained that only the IRA's named beneficiaries are able to leverage stretch provisions, so you must name your children or grandchildren as direct beneficiaries of the account, rather than indirectly as heirs in your will or beneficiaries of a trust. They also suggest working with an estate planning attorney to guarantee that the current custodian (e.g., bank, investment company, or insurance company) will allow beneficiaries to take advantage of an inherited IRA.
Also, educate your beneficiaries about inherited IRAs and make sure they understand the tax and financial advantages involved.
Reference: Forbes (March 12, 2014) "Should I Force My Beneficiaries to Stretch My IRA?"
Trusts permit an individual to remove assets from their own estates and avoid (or at least minimize) estate taxes when they die. This allows them to control how and when assets are distributed to their beneficiaries. However, the variety of trusts and the rules that govern them are many and can be complex.
A recent CNBC.com article, titled "Estate planners shift gears in new tax environment," explains the reason for this variety and complexity - for tax purposes, "trusts are treated like wealthy individuals—only worse." Even though the new 39.6% marginal tax rate created by the American Taxpayer Relief Act applied to income exceeding $400K for individuals in 2013, it reached down to an income threshold of $11,950 for trusts. Likewise, the 3.8% Medicare surtax applied to the net investment income of individuals earning over $200K also applies to trusts beginning at a much lower income level.
What this means is much higher tax bills. For example, without claiming any capital gains income, a trust holding $1 million in assets and making a 10% return in 2013 owed $34,868 in income tax and $3,346 in new Medicare taxes—an increase of about $7,400 than under the 2012 tax scheme.
The CNBC.com article further explains that while reducing tax liability is not the only or even the primary objective of trusts, it is a major issue for trustees with fiduciary responsibilities.
The article notes that "the objective is to maximize the amount of money that family members [or other beneficiaries] receive," and "estate planners have to revisit some of their planning patterns of the past and reevaluate what makes sense now."
One strategy to reduce the tax hit is to invest more of the trust's assets in tax-exempt securities like municipal bonds. There are other avenues to explore. Speak with your estate planning attorney and get all the information on the new tax rules.
Reference: CNBC (March 21, 2014) "Estate planners shift gears in new tax environment"