Category: Wills and Trusts

Passing More Wealth To Grandchildren

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.

Titling Assets To Your Trust

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.

Here are some other general recommendations regarding assets to title and not to title to your new revocable trust:
Assets you should re-title to your new RLT:
  • Savings accounts
  • Money Market accounts
  • Mutual funds
    • Certificates of Deposit (consider delaying the transfer to maturity if the institution considers the transfer a technical termination that could reset your interest rate)
  • Publicly-traded stocks
  • Bonds
Assets you should not re-title to your new RLT because they are instead handled by beneficiary designation updates:
  • Any retirement account (IRA, 401(k), 403(b), etc.)
  • Any annuity
  • Any life insurance policy
Assets you should contact competent legal counsel before transferring to your new RLT:
  • Stock in a closely-held corporation
  • LLC ownership interests however denominated (e.g., Units, Shares, etc.)
  • Any other assets not listed in “should re-title” above

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.

When Is The Right Time To Create An Estate Plan?

“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.

Family Changes

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.

Portfolio Changes

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.

What Is The Exemption Amount For Couples?

$22.8 Million is probably not a fair approximation of the exclusion amount couples have to protect property from the estate tax. For this to be true, both spouses would need to die before 2026. Otherwise, the language of the Internal Revenue Code appears to make clear that the survivor has at most only two times the then-current exclusion (i.e., after 2026 this is $5 Million X 2 = $10 Million [adjusted for inflation]). One consequence of this is that if you are a surviving spouse who had transferred to them the decedent spouse’s full exclusion, you should consider making additional gifts during your lifetime to reduce this amount (by up to one-half) to avoid losing it.

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

Three Reasons To Talk To Your Kids About Your Estate Plan

Have you been avoiding the “uncomfortable” topic of your estate plan with your children? You want to do what is best for your children but perhaps you are legitimately concerned that your children are too young or busy, the conversation will be perceived as morbid or will not deliver the message you intend, or you just think it is too personal or confusing to discuss. For these and many other reasons, it is certainly an easy discussion to put off. However, with the holidays and plenty of family time approaching, we want to review three important reasons to take the plunge and have this critical conversation.

1. It’s Practical.

Put simply, if you want things done according to plan, you need to communicate the plan. Most children we speak with do actually want to know about their parents’ arrangements and wishes so they can help carry them out. Even if you choose not to share the financial details, at a minimum, we recommend discussing two basic things with your children. First, tell them the location of and how to get access to your important documents. Second, tell them the people on your “team” (e.g. financial advisor, accountant, attorney) that they should contact immediately after your death. This may seem obvious but preparing them for the actions they will need to take at your death will alleviate unnecessary stress for them during the emotional time immediately after.

2. Providing the “Why”.

Although your estate plan documents detail what goes where, they usually do not explain why. For example, unequal distributions or receipt of large sums or complex assets may be confusing to your children without the proper context or instructions. Communicating with your kids now, either one-on-one or in a family meeting can help to avoid confusion or hurt feelings after your death. It is also a great opportunity to share your values with the next generation so that they can continue your legacy. If you cannot find the courage for a conversation, at least consider writing your wishes and objectives in a non-binding letter format to keep with your other important papers.

3. A Teachable Moment.

As a parent, you have been given the privilege of leading your children by example. If you discuss the importance of estate planning with them now, you can teach them not only what you have learned about the process but also emphasize why it is critical for them to undertake as well. In addition, recognize that your estate plan may impact the planning that your children implement for their own families.

Don’t keep your kids in the dark or let the opportunity to communicate the plan, your “why”, and the importance of the process slip by. It can be as simple as starting with “I know you might think of this as an uncomfortable topic, but it is important to discuss it so you are prepared.” In addition, our attorneys have experience planning and conducting family meetings and would be happy to help you start the conversation by arranging one or more meetings at your request.

 

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

What Happens If I Die Without A Will?

As estate planning attorneys, we often get the question: “Who needs an estate plan?”  The answer is: “EVERYONE!”  Studies have shown that only 42% of American adults currently have an estate plan in place.  For the 58% of Americans who don’t have an estate plan, dealing with intestacy laws and the probate process places a huge burden on loved ones left behind.

If you die without a Will in North Carolina, you lose control over a number of important decisions.  North Carolina’s default statutes provide what happens upon your death, regardless of your particular situation or circumstance:

(1) Intestacy laws govern the disposition of your property.

These intestacy laws are default rules that provide for automatic beneficiaries and automatic fiduciaries, without any ability for custom adjustment.  Although these laws do an adequate job of ensuring property stays within the immediate family, they rarely capture exactly – and in many cases even nearly – what the decedent would want to happen.

(2) Individually-held assets are subject to the probate process.

Probate is a lengthy and costly process where the court oversees the management and disposition of the estate assets.  Court filings during the probate process are public record and the responsibilities placed on surviving loved-ones can be overwhelming for many people.

(3) Guardianship of minor children will be determined by the court.

While the court will always look to the best interests of the child, the parents’ guardianship decision and wishes will be unknown without an estate plan.

In almost every circumstance, consulting with an attorney and establishing an estate plan that fits your particular situation can eliminate the applicability of these default laws.  We encourage all of our clients to take control and be proactive in planning for their family’s future.

Please contact us to speak with one of our attorneys in further detail about how you can be proactive with your planning.

 

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