Category: Wills and Trusts

Is It Time To Plan A Family Meeting?

With the current pandemic, election year, and unsettled economy, now is the best time to consider scheduling an annual family meeting.

With the current pandemic, election year, and unsettled economy, now is the best time to consider scheduling an annual family meeting. While many don’t think about holding this in a more formal setting, such as your advisor’s office, it is always a great idea for your family to meet your trusted team.  As the Holidays approach, rounding up your family unit in the New Year to review and discuss family values, principles and mission with your team of advisors can help build confidence not only in you, but your family.

Should something happen to you, do your spouse and children know what to do if you are not there?  Setting up a family meeting can help family members feel more comfortable with how to handle your passing or incapacity, and you can gain the peace of mind that your wishes will be carried out as planned.

By allowing your team of advisors to facilitate a family meeting, it creates a place where we can focus on being good stewards of business and personal wealth and taking care of your family if something should happen to you.

While there are many more benefits to these gatherings, a word should also be said about confidentiality.  A meeting with your advisors allows you discuss the issues most important to you, without disclosing too much information until you’re ready to do so.  Family meetings are geared towards a higher level of information and to introduce your team and let your family know that you have thought about, and have a plan for, their long-term wellbeing.

*Intended as general guidance only and not as legal advice.

Tips About Gifting

Lifetime gifting, to children or others, has been a popular technique to reduce estate taxes for a long time. Currently, with estate tax exemption amounts exceeding $11 Million per person, most people do not have an urgent tax savings motivation for making gifts. However, this doesn’t mean that sticking to a gifting program is without value. The ultimate measure is at death and, at that time, your property is likely to be worth more than it is today and it’s entirely possible that the amount exempted from taxes will be less.

Aside from tax savings, our clients see at least 2 other major benefits to gifting. First, it’s a lot more satisfying to watch your kids or other loved ones enjoy the gift, rather than waiting until after you pass away. Second, many gifts are made in a trust or other arrangement and this causes them to be protected, such as in the case of a divorce or business setback. This can mean greater financial security for your children and grandchildren than would be true in the case of an outright inheritance of your property.

 Here are some guides for gifting: 

1. You can pay tuition bills directly to a school for the benefit of children and grandchildren. These are not treated as gifts for federal gift tax purposes, as long as they are paid directly to the educational institution and meet the other technical requirements. Healthcare costs qualify for similar treatment. 

2. Make gifts that take advantage of your gift tax annual donee exclusion, currently $15,000.
 
3. Double the benefit of this annual donee exclusion by having your spouse join in these gifts.

4. Some gifts can be valued with a discount (e.g., stock in a closely-held company) and this means a larger gift that still fits within the annual donee exclusion and/or unified credit exclusion amount.
 
5. Make gifts of highly appreciated capital gains property. The tax basis of the gifted property will transfer to the donee. This can save tax dollars if the donee can sell the property and a lesser capital gains tax rate will be applicable.
 

*Intended as general guidance only and not as legal advice.

A Prediction about Estate Planning in the Near Term

As trusted advisors, we see it as our job to alert you to strategies that can help build and protect your family’s wealth and the lifestyle it supports.  From a macro perspective, we see an estate tax that takes essentially no wealth from the vast majority of families, historically high federal deficits, and a real possibility for an administration change that would take us in the direction of more assets being lost to estate and gift taxes. 
 
An important and impactful estate tax minimization strategy has always been to use your exemption sooner rather than later.  Even if the exemption amount stays constant, using it earlier in your life means that you not only get that fixed dollar of wealth moved to the next generation without estate and gift tax, but you also move free of such tax all future appreciation on it.  With the magic of compounding, this can be extremely powerful.  Of course, if some of your current available exemption evaporates through legislation, say next year, then the failure to use it has that much more profound of an effect on your family’s wealth. 
 
Part of our prediction is based on what we mean when we say “use your exemption.”  Essentially, it means to transfer wealth in a manner that will cause it to not be part of your taxable asset base when you pass away.  Many clients will ask the natural question: Can I transfer it and still have access to the wealth if it turns out I need it for myself?  Yes.  There are a lot of strategies to do this, at least to some extent, and at least indirectly. 
 
So our prediction is this:  You could see a lot of interest in Trusts and similar strategies this Fall of 2020 to help clients “use the [currently generous] exemption” before a possible rollback beginning in the next 12 months.

*Intended as general guidance only and not as legal advice.

How To Protect Your Assets From Creditors

Protecting your assets from creditors (“asset protection”) is a topic you don’t think much about until a triggering event, and then it can jump to the top of your priorities.  The triggering event may be an accident with personal injuries on your property, a contract commitment turning bad, or involvement in a financial project where substantial resources are lost. 

Asset protection planning can take many forms, including changing asset titles or setting up structures, such as LLCs or Trusts, to own assets.  With respect to Trusts, in the past these have probably gotten more press than their actual usage would merit. That’s because North American law basically prevented moving your assets to a trust that includes you as a beneficiary and using this to shield the assets from creditors. 

Trusts serve many useful purposes, but in the U.S. asset protection for the person who establishes the trust wasn’t one of them.  This changed in 1997 when Alaska became the first state to permit self-settled asset protection trusts, competing with offshore jurisdictions, such as the Cook Islands.  The trend of U.S. states permitting individuals to use trusts to protect assets from their own creditors continues to pick up steam.  With the recent additions of Indiana and Connecticut, the number of states with asset protection trust legislation now stands at 19. 

While the rules for establishing these trusts differ by jurisdiction, they have some common themes such as: 

(1) that state’s laws must govern the trust, (2) they require a Trustee and some assets in the state, (3) the trust must be irrevocable and, (4) it must contain provisions limiting creditors’ rights.

Domestic Asset Protection Trusts (DAPTs) are becoming much more common and are one technique to consider if you are interested in protecting your assets. 

*Intended as general guidance only and not as legal advice.

Why You Should Have a Family Meeting

Many folks have not considered holding a family meeting in a slightly more formal setting like one of your advisor’s offices.  There can be many advantages to these. 

Confidence is an important outcome that we talk about here.  Do your spouse and children know what to do if you are not there?  Whether they articulate it in advance or not, most families express a substantial improvement in their sense of security knowing there are caring professionals with knowledge of their situation who are there and ready to help at any point.

This is also a great time to develop and perpetuate family values, principles and mission. A place where we are focused on being good stewards of business and personal wealth and taking care of family can facilitate discussions in this regard. Our team will provide examples if this is your first attempt at reducing your values and principles to writing.

While there are many more benefits to these gatherings, a word should also be said about confidentiality.  A meeting with your advisors does not mean disclosing too many details too early.  It is much less important to share amounts, or even specific assets, than to introduce your team and let your family know that you have thought about, and have a plan for, their long-term wellbeing.

If you have any questions about hosting a family meeting, or if you would like to set up one, please contact us.

*Intended as general guidance only and not as legal advice.

Doing Good

September 5th is the International Day of Charity and its purpose, at least in part, is to raise awareness for charities all over the world. Helping many folks plan, as we do, how their wealth can most benefit themselves and their families and communities, it seems an appropriate occasion to share a few thoughts on charity from our perspective.

Rather than recite all the techniques that help maximize estate, gift and income tax benefits of charitable gifts, it may be more useful to say: If you plan to make a significant gift to charity, whether it is on a one-time basis or in the aggregate over the coming years, meet with your advisors in advance and make sure you are structuring your gift in an optimal manner.

In estate planning documents such as your Will or Trust, there are some strategies you can use that you may not have thought about. For one, it is possible to give partial interests to charity and receive substantial tax benefits for doing so, even where a noncharitable person (such as your children) will receive benefits from the property before or after the charity. For example, you might leave a charity the income from your investment for a period of years and then your children receive the asset.

And if you hadn’t considered including a charity in your plan at all, maybe it’s really a matter of where they fit. In other words, possibly your plan should provide, in effect: “If all of the named individuals are deceased, then I leave X to charity.” You can feel better about your legacy even if the gift is far from guaranteed and, in a very real sense, enough folks doing this could change the world for the better.

If you’d like to talk with any of our attorneys about legal techniques to add charities to your wealth planning, please contact us.

*Intended as general guidance only and not as legal advice.