By Todd A. Stewart, Founding Partner
On May 20, 2019, I was in a program with author Kevin W. McCarthy where he talked about his book, Chief Leadership Officer: Increasing Wealth So Everyone Profits. Many good takeaways and I particularly like the idea of aligning your three bottom lines: Financial, People and Purpose. If you want more information, the website is: http://chiefleadershipofficer.com/.
*Intended as general guidance only and not as legal advice.
Want to pass more wealth to grandchildren?
An idea to consider while exemption amounts are high for estate tax and Generation Skipping Transfer (GST) tax is to protect old trusts from the application of the GST tax that can take a big portion of a trust’s assets before they pass to a skip person, like a grandchild. A common example of such a trust is an Irrevocable Life Insurance Trust (ILIT) that was set up when exemption amounts were lower. Since the exemption amounts were not as generous, the advisors may not have recommended using “precious” exemption amounts to protect the trust from GST taxes, especially since there are cases where the tax won’t apply. Here’s the key point: You are allowed to make late GST tax allocations to protect such a trust and now could be a great time to do so.
If you do not have a trust in place and are considering whether now might be time to take the steps to protect your assets and loved ones read our previous post.
*Intended as general guidance only and not as legal advice.
Many of our clients who come in to prepare or update their Will ultimately decide to include a Revocable Living Trust (RLT) in their estate plan after learning about the benefits it can provide. These benefits include privacy, avoiding or reducing probate fees and delays, and aiding in the management of their assets during periods of incapacity.
If you decide to implement an RLT, you’ll want to fund it by moving assets to it after it’s in place. For an RLT, which is the type of trust that operates as kind of a “Super Will,” you should be adding other assets within the days and weeks after you establish it. This is true because assets titled in your trust name are going to have some real advantages over assets titled in your individual name. For one, if you become incapacitated, your successor or backup trustee will be in a great position to go ahead and take action for that asset. In addition, unlike assets such as stocks, bonds or mutual funds that are titled in your name, assets titled to your trust do not have to go through probate. Avoiding this court process can save time, money and protect your family’s privacy.
RLTs are easy to handle for income tax reporting purposes. The Employer Identification Number (EIN) associated with the trust account will remain your social security number, at least so long as you are the sole trustee of your trust, which is usually the case during your lifetime.
So what’s involved with moving assets to your trust? In general, you simply need to change the name of the asset owner to your RLT. Most often this is accomplished with the assistance of your bank or other financial institution. Some assets, like closely-held business interests, for example, will have ownership agreements that need to be consulted before any title changes are made.
In summary, titling assets to your new Revocable Living Trust will help you get the full benefits of this valuable and versatile tool. What’s more, in most cases you’ll find the process relatively quick and painless. If you have any questions regarding the benefits of a Revocable Living Trust and whether this technique may be right for your situation, please contact us to speak with one of our attorneys.
*Intended as general guidance only and not as legal advice.
Saving self-employment (SE) tax on the business earnings of a partner or sole proprietor can be significant, with rates from 2.9% to 15.3%. Partners in some cases have avoided this SE tax on their distributive share for an interest as a limited partner in a limited partnership (LP).
Today, however, LLCs are in much more common use than LPs for business and investment purposes. This makes it unfortunate that it’s still not clear that a passive member of an LLC can avoid the SE tax. Recently though, the Tax Court allowed limited partner treatment to a passive member of an LLC (the case was Hardy v. Commissioner.)
There are some steps you can take to help secure this treatment for your passive interest in an LLC and, depending on the circumstances, you may still want to go with an LP structure if this type of tax savings is particularly important.
If you’d like to further discuss your business structure or any other tax savings ideas, please contact us to speak with one of our attorneys.
** The information contained in this communication is not intended to constitute legal, accounting or tax advice.
“When is the right time to create an estate plan?” “Am I too young to write a Will?” “Do I have enough assets?” These are a few common questions clients ask when inquiring with our team. Simply put, regardless of age and assets, every adult benefits from having the proper estate planning techniques in place. While the motives of creating an estate plan may vary for each individual, taking the time to create one should be a top priority at every stage of life.
Deciding what age you should be when you are ready to create a Will is a personal decision. Major life events such as marriage, growing families, and asset changes tend to ignite conversations about taking the necessary steps to protect yourself and loved ones from having to make heavy, unguided decisions.
Whether you are getting married, divorced, growing your family, or have aging parents, you likely want to have peace of mind that in the event something happens, your wishes will be carried out exactly as you envision. Growing families experience great joy as they navigate their parenthood journey. The important process of selecting guardianship of your adolescent children will help guarantee that they are adequately cared for in the future. Marital status often changes whom you want to make health care and financial decisions for you in the event of incapacity and is important to review every few years.
Perhaps your years of hard work have resulted in considerable asset changes, you have come into an inheritance, or you have bought or sold property. Having a simple Will or a sophisticated trust prepared will help with a number of important goals such as: (a) providing clarity regarding distribution of your assets; (b) helping avoid or minimize the probate process; and (c) reducing taxes that might be payable on assets left behind.
Whether you are looking to protect your assets, minimize taxes in the event of a death, or protect your health care and financial decisions, creating an estate plan is essential to everyone. At any given age, working with an estate planning attorney to determine what is important to you and how to protect your legacy should be moved to the top of your to-do list. At a minimum, essential documents such as Powers of Attorney remain the most effective way to ensure that your wishes are carried out and goals are achieved. While most people tend to find legal decisions and conversations to be complex and stressful, they do not have to be. By working with a knowledgeable attorney to craft a personalized estate plan, you will be able to create a blueprint that will protect your specific wishes based on your season of life and the current goals that you have in mind.
** The information contained in this communication is not intended to constitute legal, accounting or tax advice.
Here’s an idea that can be very powerful for some business owners. The 2017 Tax Act provides business owners with a 20% deduction on their business profits (Qualified Business Income or QBI). The catch is that the 20% is applied to taxable income if that’s lower. In other words, if taxable income is going to be lower than QBI, then you miss the opportunity to have some income that will receive a 20% deduction.
Therefore, if you accelerate income, some of the cost of doing so will be eliminated by the increase you are creating with a larger QBI deduction. There are a number of ways to accelerate income. However, one of the most exciting ones is creation of an account that can grow tax free and be withdrawn on a tax-free basis: the Roth IRA.
In conclusion, if your 20% deduction is not being applied to your full QBI, then check with your CPA and financial advisor about a Roth conversion. You may be able to create an income tax-free account at a reduced cost.
*Intended as general guidance only and not as legal advice.
