Estate Planning Presents Emotional Challenges

December 8, 2020

More than two-thirds of all advisors surveyed by Key Private Bank said the hardest part of estate planning is navigating family dynamics, according to a 2019 survey. The sensitivity of simply talking about estate planning presents emotional challenges to putting a plan in place, especially when the family includes multiple marriages and blended families.

Advice is offered in a recent news article from CNBC, “Executor of a Family Estate? Here’s How to Avoid Infighting Over Inherited Wealth.”

Much of the problem, experts say, stems from poor communication. A dialogue needs to be open between generations that is a two-way conversation. In most instances, the older generation needs to invite the younger generation to get the ball rolling.

A lack of clarity and transparency can lead to problems. One example is a father leaving the family farm to his children, with a plan that also included money to help run the farm and legal documents to help the transition go smoothly. However, the children didn’t want the farm. They wanted to sell. Disagreements broke out between siblings, and the family was bogged down in a big fight.

Clearly Dad needed to talk with the children, while his estate plan was being created. The children needed to be upfront and honest about their plans for the future, and the issue could have been solved before the father’s death. The lesson: talk about your wishes and your children’s wishes while you are living.

After someone dies, they may leave behind an entire estate, with a lifetime of personal items that they want to gift to family members. However, if these items are not listed in the will, the heirs have to decide amongst themselves who gets what. This is asking for trouble, whether the items have sentimental or financial value. In fact, sentimental items often generate the most controversy.

When conflicts arise, the presence of a third party who doesn’t have emotional attachments and is not embroiled in the family dynamics can be helpful.

If the issue is not addressed before death, there are a few ways to move forward. An estate planning attorney who has seen many families go through the emotional challenges of estate planning can offer suggestions while the will is being prepared. There are facilitators or mediators who can help, if things get really rocky.

Heirs may wish to create a list of items that they would like to be reviewed by the executor. This option works best, if the executor is not a sibling, otherwise charges of favoritism and “Mom always liked you best” can spiral into family spats.

Some families group items into buckets of equal value, others set up a lottery to determine who picks first, second, etc., and some families literally roll the dice to make decisions.

If you would like to learn more about inheritance and distributing personal property, please visit our previous posts.

Reference: CNBC (Nov. 12, 2020) “Executor of a Family Estate? Here’s How to Avoid Infighting Over Inherited Wealth”

Probate can affect Real Estate Transactions

December 7, 2020

Probate can affect real estate transactions. For a family whose 91-year-old mother lives in her home, has a will and has appointed two sisters as Power of Attorney and executors of her estate, the question of handling the transfer of the home is explored in a recent article from the Herald Tribune, “Transfer title now or go through probate in the future?”

The family wasn’t sure if it made more sense to transfer the title to her two daughters and son while she was still living, or let the children handle the transfer as part of the estate. The brother may wish to purchase the home after the mother passes, as he lives with his mother.

If nothing is done, the house will be part of the probated estate. A case will have to be opened, a representative will be appointed by the court (usually the executor of the will) and then the executor can sell assets in the estate, close accounts and deal with the IRS and the Social Security Administration. The probate process can be time-consuming and expensive, depending on where the mother lives.

There are a number of steps that could be taken to simplify things. The mom’s assets can be held jointly, so they pass to the surviving owner, or a trust can be created, and her assets be titled to the trust, so they pass automatically to beneficiaries.

The issue of the house becomes a little more complicated because there are so many options. This is where probate can affect real estate transactions. If the house has appreciated significantly over the years, keeping it in the estate will minimize taxes that have to be paid if and when it is sold.

For example, let’s say the house has increased in value by $250,000. Under current tax law, the mother can exclude up to $250,000 in profits from the sale of the home. This is the exclusion before the sale of a primary residence where the owner has lived in the home for two out of the last five years.

If she signs a quitclaim deed now to give the home to her three children, the IRS will consider this a gift to the three children. Her cost basis in the property (what she paid for the home, plus the cost of any material or structural improvements) will be transferred to the children. However, when the children go to sell the property, they won’t have that same $250,000 exclusion. The three siblings will have to pay federal income or capital gains tax on the same of the home.

However, if the home remains in the mother’s estate when she passes, the siblings inherit the home at the stepped-up basis. In other words, the value of the house (for estate tax purposes) will rise to the current market value at the time of her death, and not the value when she paid for the house. If the children decide to sell the house immediately, there won’t be any profit and there won’t be any taxes.

Depending on the state’s probate laws, the children might be able to use a transfer on death deed that would let the property transfer automatically to heirs upon the mother’s death. The siblings then inherit the property at the stepped-up value.

Here’s another question to consider: how does the cost of setting up trusts and transfer on death deeds compare to the estimated cost of probating the estate?

This family, and others in the same situation, should speak with an estate planning attorney to evaluate their options. The siblings in this case need to clarify whether their brother wants to buy the house and if he is able to do so. The mom then needs to make a decision, while she is still able to do so, because after all, it’s still her home.

If you would like to learn more about how to protect the family home for future generations, please visit our previous posts.

Reference: Herald-Tribune (Nov. 7, 2020) “Transfer title now or go through probate in the future?”

Implementing Succession Plans Before Year Ends

December 3, 2020

Anyone with a taxable estate that includes an operating business should be looking into the efficacy of making gifts in 2020 to take advantage of a unique set of circumstances, advises the article “Why Now is the Right Time to Execute Succession Plans” from Worth. This could include implementing succession plans before the year ends.

The federal exemption from transfer taxes is at a historically high level. Individuals may transfer up to $11.58 million of assets during their lifetime without incurring federal gift, estate or generation skipping transfer tax (GST). The current maximum federal gift and estate tax rate and the current maximum federal GST tax rate is now 40 percent. As the law stands now, this amount is not scheduled to be reduced until the end of 2025, but whether that will remain is anyone’s guess.

The IRS has stated that it will not attempt a claw back of taxes if the exemption amount decreases soon, so taxpayers who put off taking action before December 31, 2020 will miss out.

Lower Value Another Incentive to Develop a Succession Plan

It is important not forget the impact of the global pandemic. Valuations in some parts of public markets continue to be high, but many private companies have lost a lot of value. The lower appraised values can be beneficial for succession planning. If a business owner is willing to transfer all or a portion of the private company to successive generations now, that lowered appraisal value means that more wealth can be shifted. There is the possibility of growth in the future, free of gift, estate, or GST tax.

How Do Interest Rates Impact Succession Plans?

Many strategies used to transfer assets between generations are based on interest rates which are near the lowest they have ever been. Every month, the IRS releases the updated Section 7520 and Applicable Federal Rates (AFR). These are the rates used for transfer techniques like GRATs and intra-family loans. In October, the 7520 rate was 40 basis points (“bps”), and the Mid-Term Annual AFR, used for loans with terms of three to nine years was 39 bps.

Succession Plans Take Time to Create

This unique combination of exemptions, low business valuations and low interest rates is likely to lead many business owners to their estate planning attorney’s offices to implement succession plans before the calendar years ends. The smart move is to contact your estate planning attorney, CPA, and financial advisor as soon as possible to discuss options, and get succession plans going. There will likely be a more-than-usual last minute rush to complete many financial and legal tasks this December, and getting started as early as possible will make it more likely that your succession plan can be completed before December 31, 2020.

If you would like to learn more about gifting, and other means of reducing estate taxes, please visit our previous posts.

Reference: Worth (Nov. 2, 2020) “Why Now is the Right Time to Execute Succession Plans”

Business Owners May Need a Power of Attorney

December 2, 2020

Some business owners may need a power of attorney (POA). However, what type would be of benefit the most is the question. This article looks at the types of power of attorney and in what circumstances a business owner may need each of them.

Entrepreneur’s recent article entitled “Does Your Business Need a Power Of Attorney?” reports that the Consumer Financial Protection Bureau (CFPB) defines power of attorney as a legal document that permits a trusted agent the authority to act on your behalf. Accordingly, signing a power of attorney allows the business owner to authorize another person to conduct business in his stead. The person designated in the document is called the “agent” or sometimes the “attorney-in-fact.” There are three main types of power of attorney:

Financial Power of Attorney. This document allows the agent to deal with the financial responsibilities and functions of the “principal” (the person who signs the document), if the principal is unable to do so themselves. Some functions for the agent of a financial power of attorney include the following:

Delegation of the operation of your business
Hiring an attorney and making decisions in lawsuits
Filing and paying taxes
Conducting transactions with banks and other financial institutions
Making decisions on your investments and retirement plan
Entering into a contract
Purchasing of selling real estate or different types of property; and
Using your assets to pay for your living expenses.

Special Power of Attorney (or Limited Power of Attorney). A business owner may need to accomplish a task for the company, but she’s unable to be there because of other responsibilities. This document permits a particular agent to conduct business on her behalf, concerning a specific and clearly outlined event, like opening a bank account, settling a lawsuit, or signing a contract.

Healthcare Power of Attorney. An individual who is incapacitated and can’t communicate, can use this to permit an agent to make medical decisions on his behalf. Note that a healthcare power of attorney isn’t the same as a living will. A living will focuses on a person’s preferences for healthcare treatment, such as do-not-resuscitate and other religious or philosophical beliefs that they want to be respected. A healthcare power of attorney is more flexible and leaves the decisions regarding healthcare to the agent. A living will concerns end-of-life decisions only, where healthcare power of attorney applies in all medical situations.

Durable Power of Attorney. A POA usually becomes effective when a person is incapacitated and stops once they’re able to make their own decisions. However, a durable power of attorney or enduring power of attorney may be applied to any of the types mentioned above. As a result, the agent can make decisions on behalf of a business owner when they aren’t incapacitated.

Business owners may need a Power of attorney to provide protections that will help deal with regular operations, while the owner is unable to lead the company. If the business is an LLC or corporation, a power of attorney for the company may not be needed. However, it’s wise to have one for your own estate planning. Ask an experienced estate planning attorney about the types of power of attorney and how they might help your business.

If you would like to learn more about estate planning for business owners, please visit our previous posts.

Reference: Entrepreneur (Nov. 3, 2020) “Does Your Business Need a Power Of Attorney?”

Understanding What Legacy Planning Means

December 1, 2020

Asset distribution is how many estate plans begin, but we can create legacies for generations to come through our estate planning, says Kiplinger in the article “Legacy Planning: Create a Lasting Legacy.” You may not realize it until you sit down to prepare an estate plan, or even until you prepare a second estate plan. Your life has been devoted to building wealth and now it’s time to plan for the next generation. This is when estate planning becomes legacy planning. Let’s start by understanding what legacy planning means.

Why is Legacy Planning Important?

If the goal is to leave wealth to children, the plan may be simply to bequeath assets.

However, if children are not good at handling money or if there is a concern about a marriage’s longevity, then you’ll want to look past a simple transfer of assets on death. For some families, a concern is leaving too much wealth to children, undermining the parent’s life of work and respect for their accomplishments. Understanding legacy planning addresses these and other serious issues.

Which Documents are Necessary for Estate Planning?

Most people need the following documents:

Revocable Living Trust, or RLT. The person who creates this trust maintains full control of assets that are titled to the trust while they are living, and then directs how assets are to be passed on when one spouse dies and then after both spouses die.

Pour-Over Wills. Used in conjunction with a RLT, these work to direct assets to the RLT.

Durable Power of Attorney. These documents are part of planning for incapacity. They designate a person who will make financial and/or legal decisions for you, if you cannot do so.

Health Care Directives. Note that these have different names and details, depending on the state. For most people, they consist of a Living Will and a Durable Power of Attorney for Health Care. Together, these two documents provide a platform for you to share wishes about medical care. The Living Will gives guidance about your wishes, if you become too sick to communicate, including your wishes on pain medication, artificial feeding and hydration and resuscitation. The Durable Power of Attorney (sometimes called a Health Care Proxy) names a person who can make health care decisions, if you can’t do so for yourself.

How Do I Leave a Lasting Legacy?

Many people believe that their children should be the only beneficiaries of their wealth. However, for others, even those with modest estates, supporting an organization that has meaning to them through a gift in their will is just as important as leaving money to children and grandchildren.

Here are a few questions to consider when thinking about legacy planning:

How much wealth is “enough” for heirs?
At what age should money be transferred to heirs?
Should incentive milestones be created, like completing college, attaining higher education goals, or staying sober?

If assets are left directly to children, there is always the risk that they may lose the wealth. Sometimes that is not the child’s fault, but this can be prevented with good planning. Inherited assets can be protected in trusts, which can be created to protect wealth and provide for professional management.

Do Trusts Avoid Estate Taxes?

Now that you have an understanding of what legacy planning means, another important consideration is minimizing tax liabilities. Not every estate plan is designed with taxes in mind, so you’ll want to discuss this with your estate planning attorney. The issue of taxes can become more complex, if the estate includes illiquid assets, including real estate or a family owned business. If you are interested in learning more about advanced planning, please visit our previous posts.

Reference: Kiplinger (Oct. 30, 2020) “Legacy Planning: Create a Lasting Legacy”

Brad Wiewel discusses Surviving Texas Probate

Brad Wiewel Talks About Estate Planning Tips

November 30, 2020

In today’s blog post, Brad Wiewel talks with NBC affiliate KXAN’s morning show, Studio 512, about estate planning tips for 2021. He and host Rosie Newberry discuss recent changes in tax law and the possible impacts President Biden’s first term may have on estate tax exemptions.

The estate tax exemption is at the highest it has ever been. The potential exists for President Biden to lower the exemption. It is important to remember though that the estate tax exemption has never been lowered before. It is not a foregone conclusion that a Democratic president will lower the exemption. It was assumed that Former President Obama would lower it and he actually raised it.

Brad Wiewel provides additional estate planning tips on how you can use gifting to immediate family and relatives to lower your tax burden this year. If you would like to learn more about estate taxes and gifting, please visit our previous posts.

Texas Trust Law focuses its practice exclusively in the area of wills, probate, estate planning, asset protection, and special needs planning. Brad Wiewel is Board Certified in Estate Planning and Probate Law by the Texas Board of Legal Specialization. We provide estate planning services, asset protection planning, business planning, and retirement exit strategies. We also provide trust attorney services, creating revocable living trusts, charitable trusts, special needs trusts, living wills, and financial and medical powers of attorney. Years of experience, a passion for helping our clients, and a high regard for law and ethics guide the way we help our clients in estate planning, and in setting up secure estate administration, and trust administration structures. We can also carefully and gently help families navigate through the probate process.

Creating a GRIT Could Have Some Benefits

November 24, 2020

Creating a GRIT (grantor retained income trust) could have some benefits, particularly if you’re seeking for ways to minimize taxes in your estate plan. A GRIT is a type of irrevocable trust. This means that the transfer of assets is permanent and can’t be reversed.

Yahoo Finance’s recent article entitled “What Is a Grantor Retained Income Trust (GRIT)?” explains that a grantor retained income trust lets the person who creates the trust transfer assets to it, while still being able to receive net income from trust assets. The grantor keeps this right for a set number of years.

By creating a GRIT, the grantor (or creator of the trust) has the right to receive net income from the assets held in the trust. The trustee distributes income to the grantor, according to the trust terms. After the initial term during which the grantor is eligible to receive income from the trust expires, one of two things can happen. The remaining assets in the trust can be distributed to its beneficiaries. If you don’t want the assets to pass on to beneficiaries immediately, you can set it up so the assets continue to be held in trust.

However, unlike other types of trusts, there are rules on who can get a transfer of GRIT assets. Specifically, there are certain people who can’t be named as a beneficiary to a GRIT, including your spouse, your parents or spouse’s parents, your children or spouse’s children, or your siblings or spouse’s siblings (or their spouses).

However, you can designate the children of your siblings or other distant relatives as the beneficiary to a GRIT.

A GRIT is typically used for one specific purpose, which is to minimize taxes in estate planning. Keeping estate taxes as low as possible results in additional assets to pass on to your beneficiaries when you pass away.

When assets are transferred to a GRIT, they’re valued at a discount. This is based upon on the number of years for which you plan to draw income from the trust as the grantor, and the principal value of assets included in the trust are excluded from your estate for estate and gift tax purposes. However, you’ll be taxed on the income you receive from a GRIT during the initial term. It’s taxed at your ordinary income tax rate. It’s important to know about creating a GRIT for the benefit of minimizing estate taxes, that you must outlive the initial term. If you die during the period when you’re still receiving income from the trust assets, no estate or gift tax benefit would pass on to your beneficiaries.

A grantor retained income trusts can serve a specialized objective as part of your estate plan. However, whether you need one can depend on a variety of factors, so speak with an experienced estate planning attorney about the specifics of a GRIT.

If you would like to learn more about GRITs and other types of trusts, please visit our previous posts.

Reference: Yahoo Finance (Oct. 23, 2020) “What Is a Grantor Retained Income Trust (GRIT)?”

Failing To Put Assets Into Trusts

November 23, 2020

Failing to put assets into trusts creates headaches for heirs and probate hassles, says the article “Once You Create a Living Trust, Don’t Forget to Fund It” from Kiplinger. It’s the last step of creating an estate plan that often gets forgotten, much to the dismay of heirs and estate planning attorneys.

Are people so relieved when their estate plan is finished, that they forget to cross the last “t” and dot the last “i”? Could be! Retitling accounts is not something we do on a regular basis, and it does take time to get done. However, without this last step, the entire estate plan can be doomed.

Here are the steps that need to be competed:

Check the deeds on all real estate property. If the intention of your estate plan is to place your primary residence, vacation home, timeshare or rental properties into the trust, all deeds need to be updated. The property is being moved from your ownership to the ownership of the trust, and the title must reflect that. If at some point you refinanced a home, the lender may have asked you to remove the name of the trust for purposes of financing the loan. In that case, you need to change the deed back into the name of the trust. If your estate planning attorney wasn’t part of that transaction, they won’t know about this extra step. Check all deeds to be certain.

Review financial statements. Gather bank statements, brokerage statements and any financial accounts. Confirm that any of the accounts you want to be owned by the trust are titled correctly. You may need to contact the institutions to make sure that the titles on the statements are correct. If there is no reference to the trust at all, then the account has not been recorded correctly and changes need to be made.

It’s also a good idea to review any accounts with named beneficiaries. Talk with your estate planning attorney about whether these accounts should be retitled. The rules regarding beneficiaries for annuities changed a few years ago, so naming the trust as a beneficiary might not work for your estate plan or your tax planning goals as it did in the past.

IRAs and other retirement accounts. These accounts need to be treated on an individual basis when deciding if they should have a trust listed as a primary or contingent beneficiary. Listing a trust as a beneficiary can, in some cases, accelerate income tax due on the account. If the trust is listed as the beneficiary, the ability to distribute assets to trust beneficiaries may be impacted.

The main reason to list a trust as a beneficiary to an IRA or retirement plan is to protect the asset from creditors, financially reckless heirs, or a beneficiary with special needs. An estate planning attorney will know the correct way to handle this.

Making sure that you put your assets into a trust takes a little time, but it is up to the owner of the trust to take care of this final detail. The estate planning attorney may provide you with written directions, but unless you make specific arrangements with the office, they will expect you to take care of this. The assets don’t move themselves – you’ll need to make it happen.

If you would like to learn more about funding a trust, please visit our previous posts.

Reference: Kiplinger (Oct. 26, 2020) “Once You Create a Living Trust, Don’t Forget to Fund It”

Naming a Guardian for Your Children

November 20, 2020

Many young couples with children and bills to pay may look at you askance, when asked about estate planning and say, “what estate?” However, a critical part of having a will—one frequently overlooked—is naming a guardian for your children. If you don’t name a guardian, it could result in issues for your children after your death. Your child might even be placed in a foster home.

For a young family, naming a guardian for their children is another good reason to draft a will. If you and your spouse die together with no guardian specified in a will, the guardian will be chosen by the court.

In a worst-case scenario, if you have no close family or no one in your family who can take your child, the court will send them to foster care, until a permanent guardian can be named.

The judge will collect as much information as possible about your children and family circumstances to make a good decision.

However, the judge won’t have any intimate knowledge of who you know or which of your relatives would be good guardians. This could result in a choice of one of the last people you might pick to take care of your child.

Try to find common ground when naming a guardian for your children, by agreeing to a set of criteria you want in that person. This could include the following:

The potential guardian’s willingness to be a guardian
The potential guardian’s financial situation
Where the child might live with that person
The potential guardian’s values, religion, or political beliefs
The potential guardian’s parenting skills; and
The potential guardian’s age and health.

Next, make a decision, get the chosen guardian’s consent, write it all down, and then set out to create a will.

Naming a guardian for your children need not be a difficult event. Ask an experienced estate planning attorney to help you do it correctly.

If you would like to learn more about guardianship and other needs for young families, please visit our previous posts.

Reference: Lifehacker (Oct. 27, 2020) “Why You Should Name a Guardian for Your Kids Right Away”

The Responsibilities of a Trustee

November 19, 2020

Before accepting the role of a trustee, it is important to have a thorough understanding of the responsibilities of a trustee. Trustees are often appointed to manage trust assets for a child or adult with special needs. This responsibility could be for a lifetime, so be sure that you are up for the task. Trustee duties are outlined in a recent article, “Things a Trustee needs to know,” from InsuranceNewsNet.com.

When the person who set up the trust, known as the “grantor,” dies, the trustee is in charge of settling the trust. That includes tasks like:

1–Locating and reviewing all of the documents of the grantor, especially any funeral and burial instructions.

2–If the grantor owned a home or an apartment, changing the locks for security, notifying the homeowner’s insurance company, if the house will be unoccupied for an extended period of time, and checking on auto insurance policies, if there are cars or other vehicles.

3–The trustee needs to obtain multiple originals of the death certificate, unless the executor is taking care of this task. These are usually ordered by the funeral director.

4–Listing all assets with the Date of Death (DOD) values of any assets. This determines the “cost basis” of assets that are to be transferred to beneficiaries. If assets are later sold and used to distribute proceeds, the cost-basis is used to determine income tax liability.

5–Consolidate multiple financial accounts into one account. The check register will become a register of trust activities and beneficiaries may inspect it. The trustee’s first responsibility is to protect the trust’s funds.

6–Pay outstanding bills and debts. The trustee may be personally liable, so it is their responsibility if this is not handled correctly.

7–Meet with an estate planning attorney to determine if the trust must file income tax returns or if the estate of the grantor must file income tax returns.

8–File claims for life insurance, IRAs and annuities.

9–Create an accounting for all trust financial activity from the grantor’s DOD to be distributed to the beneficiaries.

10–Transfer assets to beneficiaries according to the terms of the trust and have an estate planning attorney send each beneficiary a receipt, release and waiver for any further responsibility and liability.

The responsibilities of a trustee are similar to the responsibilities of an executor, except that wills are used in probate court and trusts are created to avoid probate court. Another benefit of trusts is that they can help avoid litigation between beneficiaries and keep the estate’s affairs private.

If you would like to learn more about the role of a trustee, please visit our previous posts.

Reference: InsuranceNewsNet.com (Oct. 19, 2020) “Things a Trustee needs to know”

Blog Articles

Estate Planning Presents Emotional Challenges

Probate can affect Real Estate Transactions

Implementing Succession Plans Before Year Ends

Business Owners May Need a Power of Attorney

Understanding What Legacy Planning Means

Brad Wiewel Talks About Estate Planning Tips

Creating a GRIT Could Have Some Benefits

Failing To Put Assets Into Trusts

Naming a Guardian for Your Children

The Responsibilities of a Trustee

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