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Estate Planning

DISCOVER NEW OPPORTUNITIES UNDER TAX CUTS AND JOBS ACT

Congress has passed, and President Trump signed the Tax Cuts and Jobs Act. Although continued study of the bill will undoubtedly reveal additional opportunities we wanted to provide some of the immediate impressions.

Significant Changes to Business Taxation

If you own a business or are thinking about starting one, contact a tax attorney immediately. Relying on old rules of thumb or ignoring this monumental change in business taxation as you make business plans could mean paying enormous amounts of unnecessary taxes.

Many of the new, business-oriented deductions have specific rules to qualify. Although, this bill has been the subject of intense media discussion, don’t rely on television programs, blog posts, or press releases. Instead, speak to your attorney or tax advisor and analyze how to maximize your benefits under the bill.

New Opportunities for Dynasty Planning and Discounted Gifting

The doubling of the estate, gift, and GST tax exemptions to $10 million per person ($20 million per couple) opens a significant, once-in-a-lifetime opportunity for you to protect more assets than ever. Combined with the IRS’s withdrawal of the anti-discounting section 2704 regulations earlier in 2017, tax reform opens the door for dynasty trusts, family partnerships, discounted gifts, and other strategies that could shield entire fortunes for your beneficiaries. 

Although the estate tax and GST tax exemption doubles on January 1, 2018, to $10 million per person, this increased exemption expires on December 31, 2025. You may be tempted to wait, given that seven years may feel like forever. But remember that this tax legislation is likely to be heavily modified if the political pendulum swings in the other direction. (The clock is already ticking steadily towards the 2018 midterms and 2020 Presidential election.) Of course, we have tools that can build flexibility into your plan, including trust protectors, decanting powers, and other strategies to deal with future changes. But those future strategies only work to preserve options if we implement plans while the exemption is available. 

If you have any concerns about how the death tax will impact your family, give us a call today so we can maximize the opportunities afforded by the new bill. And, if in doubt, call now and let’s strategize while there’s still time. 

Changes to Individual Income Taxes

The new cap on state and local tax deductions may mean that we need to consider a special income-tax saving trust, called a non-grantor trust. If you have a business, an asset, stock, or anything else that has substantially appreciated in value that you’re considering selling, give us a call first so we can see whether a non-grantor trust would benefit you. This is a sophisticated strategy, but we are here to assist you with it. 

The bill provides no reduction in personal capital gains rates (which remain 20% for most assets and taxpayers) and no repeal of the 3.8% net investment income tax. Charitable planning remains an excellent option to help reduce these taxes. If you are considering making a significant charitable gift, a charitable remainder trust, lead trust, private foundation, or other strategy may be an excellent option to save income and estate taxes while benefiting a cause you care about. 

The increase in the standard deduction ($12,000 for individuals, $18,000 for heads of household, and $24,000 for married couples filing jointly) and removal of some above-the-line deductions (moving expenses and alimony) may help save you some time at tax-time. Plus, the bill retains the deductions for 529 plans, IRAs, 401(k)s, and Health Savings Accounts (HSAs), offering you several opportunities to reduce your taxes while building financial security for the future if you choose to save and invest some of the tax savings. 

Final Considerations and Next Steps

Planning to minimize income taxes is a balancing act. We are available now to answer your questions about tax reform and work with you to take full advantage of the opportunities.

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What is Estate Planning?

Believe it or not, nearly everyone has an estate. Your estate consists of everything you own— your car, your home, your rental and investment properties, your business interests, bank accounts, investment and stock accounts, life insurance, household items, and personal possessions. No matter how large or how modest your estate is, you can’t take it with you when you die.

Having a Living Trust reduces the stress on your family.

In most cases, you probably want to control who gets your things and how after you pass away—and it is a “when” and not an “if. To ensure that your estate, no matter how modest, goes to the people or organizations you care most about, you need to provide instructional guidance designating the persons or charities whom you want to receive your certain assets, what items you want them to receive, and when. In addition, you will want this to happen with the least amount paid in taxes and legal fees.

            That is the essence of estate planning—making a plan in advance and naming whom you want to receive the things you own after you die. However, good estate planning can be so much more than that. It can:

  • Include instructions for passing your values(religion, education, hard work, etc.) in addition to your valuables.
  • Provide guidance for your care if you become disabled before you die.
  • Provide for family members with special needs without disrupting government benefits.
  • Name a guardian for minor children.
  • Protect your loved ones who might be irresponsible with money, dealing with creditors or collections, and/or going through a divorce.
  • Provide for the transfer of your business at your retirement, disability, or death.
  • Minimize taxes, court costs, and unnecessary legal fees.

Estate planning is beneficial to everyone.

  • Estate plans are not just for seniors, although people do tend to think about it more as they get older. Unfortunately, we can’t predict how long we will live, and illness and accidents happen to people of all ages.
  • Asset protection is not just for “the rich,” either. To the contrary, estate planning often matters more to families with modest assets, because they can afford to lose the least.

Too many people don’t plan.

People put off estate planning because they think they don’t own enough, they’re not old enough, they’re busy, think they have plenty of time, they’re confused and don’t know who can help them, or they just don’t want to think it. Then, when something happens to them, their families have to pick up the pieces.

If you don’t have a plan, your state has one for you, but you probably won’t like it.

At disability: If your name is on the title and you can’t manage the assets due to mental or physical incapacity, only a court appointee can sign for you. The court, not your family, will control how your assets are used to care for you. It can become expensive and time consuming, and it does not end automatically even after you recover.

At your death: If you die without an estate plan, your assets will be distributed according to the probate code. That means the beneficiary designations, their shares, and distribution time will be determined by the probate court. The distribution of your things would be a public process and involve quite a few third parties and court officials. Furthermore, if you and your spouse pass away at the same time (i.e., in a car accident), the court will appoint a guardian for your children without knowing whom you would have chosen.

Given the choice—and you do have the choice—wouldn’t you prefer these matters be handled privately by your loved ones, not by the courts? Wouldn’t you prefer to keep control of who receives  your things and when? And, if you have young children, wouldn’t you prefer to have a say in who will raise them if you can’t?

Contact Attorney Milda Goeriz today to explore your estate planning needs and options for the protection of your property. Call our office at 619-630-4765!

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LIVING TRUST ADVANTAGES – PART 2

Today we will continue to explore the living trust advantages and benefits. Part 1 of this post discussed such benefits as avoiding the probate proceedings, minimizing the emotional stress on the family, preventing conservatorship, and preserving privacy.

In addition, the living trust advantages include the following:

Centralized Management. The assets transferred to a living trust are all under one “roof” which provides for centralized management.

Protection of Dependents. Because a revocable living trust sets forth the terms for the distribution of your property and assets, you can choose to continue to keep the property in the trust even after your death to provide an ongoing source of funds for young children or dependents with special needs.

Reduce or Eliminate Estate Taxes. Although a living trust does not eliminate or reduce estate taxes in itself it can be constructed and funded in a way to ensure full use of the marital deduction and applicable credit for estate tax purposes.

Easy to Set Up and Maintain. Setting up a revocable living trust is relatively easy and usually involves only a one-time charge. Once the trust is set up and funded, it requires very little maintenance. Usually, you would only need to see an attorney if you desire to change the terms of the document (for example, disinherit someone, change the trustee, etc.)

Avoids the problems of joint ownership. Joint ownership will only avoid the probate process at the passing of the first joint owner (the asset will be subject to probate upon the second owner passes away) and will result in the loss of one spouse’s applicable credit amount. Also, if the joint owners pass away in a common disaster or accident such that it is impossible to determine which joint owner died first, two probate estates will need to be started (one for each owner). Lastly, joint ownership between a parent and child could result in gift tax liability and subject the asset to the claims of the child’s creditors. All of these problems are avoided by having a revocable living trust.

Effective prenuptial protection. If the trust is established before the marriage, the property placed in the trust will remain there and stay separate from the property accumulated during marriage.

Difficult to Contest. The procedure for contesting a trust is much more difficult than contesting a will. The complexity of the procedure may dissuade the angry beneficiary from challenging the terms of your trust.

Clearly, the living trust advantages are significant, and should be considered when designing every estate plan.

In the next post, we will discuss how does the living trust work, who are the parties, and what happens after the revocable trust is executed.

To be continued.

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WHAT IS A REVOCABLE LIVING TRUST?

 The Living Trust Series Part 1

 We all have at least a basic understanding as to the substance and meaning of a will. But the concept of a trust often sounds foreign, complicated, and confusing. This blog post series will attempt to resolve the mystery and explain the most important issues, such as

  • What is a Revocable Living Trust?
  • What are its advantages?
  • How does it work?
  • How is it administered and funded?

So without further ado, lets explore the essentials.

A Revocable Living Trust is a legal document often used as an integral component of an individual’s overall estate plan.

Sounds very similar to a will, doesn’t it? That’s is correct. An estate plan can be either will based or trust based, and individuals of all ages and wealth have used both estate planning vehicles for generations.

What does the document do? 

By executing the legal document, the person establishes a separate entity and transfers his or her assets into it while he or she is living. These assets may include a home, other real estate, stocks, bonds, securities, and the like. However, some assets, such as retirement plans and stocks of a professional corporation, cannot be transferred.

While LivinFamily Walkg 

The individual maintains complete authority and control over the assets while he or she is alive. Hence, the term “living”. The person’s powers over the property remain completely unchanged. The individual has the rights to all of the income earned by the assets, the right to the assets, right to add assets to the entity, and the right to amend, change, or terminate the trust at any time.

After DeathAfter death

Upon the individual’s passing, the trust enters the phase of administration and distribution. At this stage the document has a great deal of similarity to a will in that it sets forth how the property is to be administered and distributed among the person’s beneficiaries (i.e. spouse, children, grandchildren). Unlike a will, however, the property in the Revocable Living Trust does not go through the probate. The process, therefore, avoids the time, expense, and publicity associated with it. After the individual’s death, the property can be distributed to the named beneficiaries outright or it could continue to be held in trust for the named beneficiaries. Because no two families are the same, the terms and the dispositive schemes set forth by the trusts will differ from person to person based upon their specific estate planning needs, goals, and objectives.

To be continued in Part 2: Advantages of the Revocable Trust.

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WHY DO YOU NEED AT LEAST A WILL

Clients often ask what exactly is estate planning and why do they need at least a will. Clients also wonder whether they need to think about estate planning not being rich or getting close to retirement.

The answer to all of those questions is yes. Contrary to a popular belief, all of us need to have at least a will to protect our assets and our families in case of unfortunate and unexpected events of death or disability.

SanDiegoTaxLawGroupSlide3Most common estate planning mistakes:  

  1. “I will take care of this later.” Most people are inclined to postpone estate planning indefinitely. However, no one can predict when the disability or death will occur. With time health gets worse not better, and a person is a lot more likely to become disabled than to die early.
  1. “I have a will, so my estate plan is in order.” Having a will is better than not having anything. However, the will drafted 10 years ago may be too simple and fail to account for changes in perspectives, circumstances, people and the law. Also, the will would need to be filed with the clerk of court at death and the estate will have to go through probate proceedings before it is distributed to the beneficiaries.
  1. “My family will make financial and health decisions for me.” Family members may often disagree with regards to your needs and your wishes. The arguments can be expected even if all of them are doctors or lawyers.
  1. “I am leaving everything to my spouse. I don’t need a fancy will.” This strategy fails to take into consideration the possible remarriage of the surviving spouse, and/or loss of the estate to creditors and financial predators. As a result, this plan may fail to provide anything to the children and stepchildren.
  1. “I am leaving everything to my children.” Your children may still be underage when the death or disability occurs. If you die intestate, your children will be put under the care of a court appointed guardian, and there is a real danger that the support they need would be delayed while your estate goes through probate proceedings.

Can you address these issues in advance? Yes, you certainly can. All of these potential problems are resolved by having a comprehensive estate plan.

Estate planning is a process that allows you to control and protect your property while you are alive and well, and enables someone else to take care of you and your loved ones if and when you can’t. Estate planning also let’s you give what you want to whom you want, how you want and when you want, without delays or intrusion to your privacy at the lowest possible cost to you and your loved ones.

What are the questions that estate planning helps to answer? Estate planning takes the guesswork from your family regarding your wishes. It lets them know what and when to do, and how to pay for it in case of death or disability. In addition, estate planning takes care of the proper authorization for all such actions. Proper estate planning provides for your family and protect your estate and privacy from probate.

What is your estate? Your estate consists of

  • Cash, Savings, and CD’s.
  • Stocks, Bonds, and Mutual Funds.
  • Life Insurance and Retirement Plans.
  • Homes, Vehicles, Boats, and Planes.
  • Investment and Rental Properties.
  • Jewelry, Furniture, Tools, and Antiques.
  • Essentially – All of your stuff!

Who is in your estate?

  • Your spouse and children;
  • Your extended family;
  • Your church and other charitable organizations;
  • Any other third parties you include.

What documents should you include in your estate plan? The complexity of your estate plan will depend on the size of your estate and your individual circumstances.

Common estate planning documents during a person’s lifetime regardless of age or estate include:

  1. A stand-alone will, or a will and a trust.
  2. Durable (financial) power of attorney.
  3. Healthcare power of attorney.
  4. Living will.
  5. HIPAA authorization.
  6. Designation of a stand by guardian.
  7. Medical consent for minor.

Advanced estate planning documents consist of:

  1. Credit Shelter/ Marital Deduction Trusts.
  2. Irrevocable Life Insurance Trusts.
  3. Dynasty Trusts.
  4. Asset Protection Trusts.
  5. Charitable Trusts.
  6. Custodial Accounts for Minors.
  7. Business Succession Planning.
  8. Family Limited Partnerships.
  9. Pet Trusts.
  10. Special Needs Trusts.

If you have questions regarding estate planning options best for you and your family, contact our office today at 858-764-2547.

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