Here is a nice article from Ahmed Shaikh, a certified estate planning specialist, on the classic tale of Cinderella!
An Estate Plan for Cinderella’s Parents
Here is a nice article from Ahmed Shaikh, a certified estate planning specialist, on the classic tale of Cinderella!
Fiscal Cliff Update: Whether you approve or disapprove of the Fiscal Cliff deal made by President Obama, the Senate, and the Congress, as of the date of this blog post it is the law of the land. While folks on either side of the aisle may argue about income tax cuts or increases for certain income brackets, you can take some comfort in the fact that the Fiscal Cliff deal will have few negative effects on your current estate plans. In fact, you may be surprised to find that the Fiscal Cliff deal was an overall good deal with regards to estate planning.
Without the fiscal cliff deal in place, the federal estate tax exclusion limit (the amount you could transfer tax-free during your lifetime or after your death) would automatically have dropped significantly from $5,120,000.00 to $1,000,000.00. Estates that were worth more than $1,000,000.00 would have been taxed at the rate of 55%. The Fiscal Cliff deal prevented this from occurring. If your estate is worth more than $5,120,000.00, then your estate will be taxed at a rate of 40% rather than the 55%. Admittedly, the 40% rate is still higher than the maximum rate of 35% which large estates were taxed at last year, but overall, we can be thankful that there was no major drop in the federal state tax limit.
Furthermore, the Fiscal Cliff deal made the portability law passed in 2010 a permanent feature in estate taxes. For those unfamiliar with the portability concept, the law allows a married couple to combine their federal estate tax exclusions so that they may transfer during or after their lifetime up to $10,240,000.00 tax-free.
Finally, the Fiscal Cliff deal increases the annual gift tax exclusion. The limit in 2012 was $13,000.00, and it will increase slightly to $14,000.00. This means that each spouse may give a gift valued at $14,000.00 in a single year without that amount counting against the spouse’s federal estate tax exclusion. This yearly amount may also be combined so that both spouses together can grant a gift to a single person worth $28,000.00 without the gift counting against their federal estate tax exclusion. The couple may make gifts to as many people as they choose, and so long as the gift does not exceed $28,000.00, it will not count against the couple’s federal estate tax exclusion.
While the Fiscal Cliff deal makes more changes beyond those discussed above, these are the issues most people were likely concerned about. Overall, with regards to estate planning, the Fiscal Cliff’s positives outweigh its negatives. For those interested in looking deeper into the Fiscal Cliff deal’s effects on estate planning, I would encourage you to read the article posted at the link below.
The past few years have seen a number of significant changes in estate tax law; so much so that estate planners—as well as anyone with a will, trust, or estate plan themselves—have had to stay on their toes! The most significant event in recent estate tax history was the lapse of the estate tax in 2010. This lack of tax was so momentous, and was such a surprise, that we are still seeing the effects of it two years later.
A recent article from Reuters describes the ongoing saga of the Tweten family of California, and how the disappearance of the federal estate tax in 2010 caused (and may still be causing) a lengthy legal battle between father and daughters. Leonard Tweten and his wife of 58 years, Eileen, founders of Magnolia Audio Video, established a trust in 2008 which utilized a common formula clause to help minimize estate taxes.
“The formula clause typically divides the estate so that children get the amount of assets in the federal estate tax exclusion (currently $5 million per person), with the rest going to a marital trust for the surviving spouse. This allows the full amount of the exclusion to pass to the heirs tax-free.”
This formula clause is a wonderful tool when the estate tax exclusion amount hovers around $2 million, exactly the amount it was in 2008 when the Twetens set up their trust. Unfortunately, “in 2010, the exclusion was unlimited, because there was no estate tax. So when Eileen died in April of that year, her whole estate, rather a few million dollars, would have gone to the kids, leaving Leonard out of the money.”
The Twetens were not unaware of the exclusion, and made an eleventh hour change to their trust only 12 days before Eileen Tweten’s death. Unfortunately, their efforts were not enough. “The couple’s adult daughters, Nancy Crowe and Janet Houston, petitioned the court to invalidate that amendment on grounds of forgery and incapacity, while their father petitioned to allow the trust’s modification.”
The court eventually had to throw out the amendment, “noting that it had not been notarized as required by the trust”, but sided with Leonard Tweten in spite of this, letting the original intent of the Tweten’s estate plan stand. The Tweten’s daughters, however, plan to appeal the court’s decision.
The lesson we can all take away from the Tweten’s experience is that no matter how safe you may feel with your current estate plan, it is absolutely essential to review your trust regularly, and consult your estate planning attorney about any changes to estate tax law that may have been enacted since your last review. Contact our office for more information.
If you follow current events at all it is impossible to ignore the fact that we are now in the thick of the Republican primary race—and that the Presidential election will not be far behind. With the political machine in full swing there have been quite a few news stories about the candidates’ financial backgrounds, and more than a little talk of “blind trusts.”
Many of our readers will already know that a blind trust is a vehicle which holds the wealth of a candidate (or a politician serving in office) in an effort to avoid any conflicts of interest. We thought this might be a good opportunity, however, to discuss trusts in general: Which trusts are out there, what are the differences between them, and what purposes do they serve?
Revocable Trust: A revocable trust is one of the most commonly used trusts because it is able to be revoked or changed so long as the grantor (the person who created the trust) is still living. There are many other trusts that fall under the category of “revocable trust”, including a pet trust (which addresses the physical and financial care of your pets), an education trust (which provides for your child’s educational expenses), and many more.
Irrevocable Trust: An irrevocable trust, logically, is one which cannot be revoked or changed after it has been signed. The irrevocability is what makes these trusts useful for tax planning and asset protection. Some types of trusts which fall under the category of “irrevocable trust” include life insurance trusts (which save the beneficiary on the policy from paying exorbitant estate taxes), spendthrift trusts (which reduce the beneficiaries’ estate taxes and protect trust assets from creditors’ claims), and more. It is important to note that any revocable trust becomes irrevocable upon the death of the grantor.
Charitable Trust: A charitable trust is one in which at least one of the beneficiaries is a charity or non-profit. These trusts allow the grantor to claim a portion of their contribution as a charitable deduction under income tax laws. A charitable trust can be either revocable or irrevocable to begin with, but if distributions will be made during the grantor’s lifetime the trust must be irrevocable.
Special Needs Trust: Sometimes also called a “Supplemental Needs Trust”, is a trust created for the benefit of a person receiving government benefits—this usually includes someone with a physical or mental handicap—and its purpose is to allow outside sources to provide the beneficiary with supplemental funds without endangering their right to receive government benefits. A special needs trust can be either revocable or irrevocable, but usually includes a clause instructing that the trust be dissolved if its existence disqualifies the beneficiary for government benefits.
We have only discussed some of the most commonly used trusts here, but there are many, many different kinds of trust which can be valuable for estate planning or asset protection. If you have any questions about trusts or estate planning, please contact our office.
Parents of young children always seem to be busy, and we know that it can be difficult to find the time to think about something that you hope will never happen. With all the “To Do’s” and distractions out there, too many parents simply avoid thinking about a will, trust, or guardianship for their children; hoping that it will never be needed. But your children deserve more than good luck and crossed fingers, and we recommend making 2012 the year that you take the (sometimes difficult) steps necessary to ensure that your minor children are protected no matter what the future may bring.
1. Create a nomination of guardians for your children. The single-most important step you can take to ensure the well-being of your children is to execute a nomination of guardians. This is the document that names who you believe are the best and most loving people to parent your children if something should happen to you. This document is your children’s best protection against unqualified guardians or the foster care system.
2. Talk to your attorney about protecting your children’s inheritance (and in some cases protecting your children from receiving an inheritance too soon) with a trust. With a trust you can ensure that your children will be provided for financially until they reach adulthood, as well as leave a legacy for your children which includes your financial, philanthropic, and educational values.
3. Invest in your child’s higher education. Education is more important than ever in our current economic situation, and parents can resolve in 2012 to secure their child’s education by setting up a 529 education savings plan. This is something that parents can contribute to regularly, as well as grandparents, aunts and uncles, and more. A 529 plan that you set up today will be there even if you can’t be. After all, protecting your child’s future doesn’t stop when they reach 18.
If you have other questions or concerns about how to protect your minor children please contact our office today. We can help ensure your children will be provided for—and that you will have the peace of mind you deserve.
All of our readers know just how important—how essential—a will is to protecting your family after you pass away. Leaving clear and tangible instructions can prevent family infighting as well as hurt or unsettled feelings; and leaving a legally airtight will can prevent wasted time and money in unnecessarily long probate proceedings. But for all of this, there are a few assets that your will may not be able to address.
This article in CNN Money describes three assets that could cause you to “unwittingly disinherit intended beneficiaries, including your children, from significant portions of your estate,” namely your 401(k) plan, your IRA account, and your life insurance.
You can name anybody you’d like as a beneficiary in your will, but when it comes to 401(k) plans it’s your spouse who is entitled to the money when you die. “If you want to leave a 401(k) to someone else, your spouse must first file a written statement waiving rights to it.” Even a prenuptial agreement won’t help if you want to keep your 401(k) assets out of the communal pot, you’ll have to convince your spouse to sign a waiver after you’ve tied the knot. “A person can’t give up spousal rights to inherit a 401(k) until actually married. ‘A prenup by itself is not a valid waiver according to the rules governing 401(k) plans.’”
Who will inherit your IRA or your life insurance is a little easier to control than who will inherit your 401(k). In the case of IRA or life insurance accounts the person named as the beneficiary on the account will always take precedence over a beneficiary named in your will. The most common inheritance issues we see with these accounts is when people forget to update their beneficiary forms after a significant life change such as a divorce or the birth of a child. In these cases it’s important to review and update your beneficiaries every 2-5 years to ensure there’s no confusion between your will and the designated beneficiary on the account.
Having a will is important, but a will is simply one piece of a whole plan—a plan that likely includes many pieces. Being aware of all the pieces of your estate plan, and keeping those pieces working together and in harmony, is essential to ensuring that your family and your legacy is protected. Our office can help.
In our line of business we like to think that what we offer our clients is more than a way to minimize estate taxes or avoid a lengthy probate, we like to think that what we really offer our clients is an opportunity for peace and comfort during a time of stress and emotional upheaval.
Sharon Epperson, in her article on MSNBC entitled “How Dad’s Planning Helped Us Cope With His Death” gets to the heart of what we think everybody is trying to accomplish when they contact an estate planner. “By making some important decisions while living, my father helped to lessen the overwhelming stress of coping with sudden loss.”
Epperson goes on to explain that while simple things like a clear-cut will, pre-made funeral arrangements and an up-to-date life insurance policy can make all the difference in the world to grieving relatives, “only 45 percent [of respondents in a State Farm survey] say they’ve actually made plans.”
The truth is that the hardest part of creating an estate plan is simply getting started. Asking that first question, making the first decision, creating the first document… once you’ve taken the first step the rest comes easily—especially if you have a knowledgeable and compassionate advisor to help you along the way.
When clients come to our office asking about a last will and testament, or a trust for their children, we know that the question underlying the entire experience is “How can I ensure my family will be taken care of?” Our goal is to address ALL of your concerns, and help you provide your loved ones with a port of comfort and security in the storm.
Every new project has to begin somewhere, and most newcomers to estate planning choose to begin with a will and a trust. This is because wills and trusts form the foundation for how your property will be distributed, how your heirs will be cared for, and how the probate process and estate taxes will be handled.
A will is the most well-known of all estate planning documents, it is generally the simplest and easiest to create (although some wills can be very lengthy and complex), and in most states a will can contain within it instructions for peripheral topics such as guardianship of minor children or the final disposition of your remains.
But everybody knows that the main purpose of a will is usually to dispose of your assets and effects. In its most basic form, a will should include these important parts:
* The testator’s (creator’s) name and crucial information
* Nomination of an executor to carry out the wishes of the testator
* The naming of the beneficiaries
* Instructions as to how the estate should be distributed to the beneficiaries
* Signature of the testator and the date signed
* Signature of witnesses and the date signed
As mentioned above, this is a will in its most basic form, but in fact most wills will also contain instructions for probate, instructions regarding the payment of debts and taxes, the names of any organizations to receive charitable distributions, a mention of relatives who may purposefully NOT have been named, and more.
Because a will can be so basic, many people believe that a will can easily be created on one’s own, without the help of an estate planning professional; in fact, there are plenty of companies who offer “Do It Yourself” will creation software for a fee. However, it is important to understand that while a will itself can be very simple; the federal and state tax and probate laws are rarely so. If you feel your estate is small and your wishes are modest then by all means keep your will short and sweet as well. However, we strongly urge ALL of our readers (even those with small and simple estates) to have an estate planning professional at least review your will and advise you as to its validity before you sign it and tuck it away.
In addition to a will many families will choose to also create a trust. We’ve said it before on our blog and we’ll say it again: It doesn’t matter whether you’re a billionaire business executive or a teacher with a modest salary, it doesn’t matter whether you’re the patriarch of a large family or a stay-at-home mom of a newborn, a revocable living trust may be exactly what your family needs to protect their assets and their best interests. This is because a trust is probably the most comprehensive and versatile tool in your estate plan, and is a key part of helping you accomplish your goals.
There are two basic kinds of trusts—revocable and irrevocable. Revocable means that it is able to be revoked or changed so long as the grantor (the person who created the trust) is still living. Logically enough, an irrevocable trust cannot be changed once it has been signed. The reason this question of revocability is so important is because a trust is not merely a set of instructions for how your wealth should be distributed, a trust actually owns the property placed within it, with the person or people serving as trustee (usually for a revocable trust this is the grantors themselves, while they are living) controlling the trust property within. It is for this very reason that trusts can be such a powerful and flexible tool for tax planning and estate planning.
The specifics of your trust will vary greatly depending on what you hope to accomplish. Parents of young children may wish to include a general trust for the benefit of all the children, with distributions made to the guardians as necessary. This general trust can be split into separate individual trusts when all of the children have reached a certain age or graduated from college. Parents (and often grandparents) may want to include education trusts under the umbrella of their revocable living trust. Many families feel it is important to include instructions for charitable giving in their estate plan, and may choose to set up a charitable trust with their children or grandchildren as trustees. Pet owners often create pet trusts to ensure that their animals will be well cared after the owner has died.
A trust, much more than a simple will, allows the grantor far greater control over their assets—and for a longer period of time—which is why trusts are particularly useful for anybody entering into a second or third marriage, or for any parent who worries about the choices a beneficiary might make once they come into their inheritance. Unlike a simple will, trusts are designed to withstand the test of time, allowing you to leave a legacy that can last for decades.
Many people would like to think that estate planning is a piece of cake: choose your beneficiaries, write up a simple will, and voila – you’re done! The truth is that while estate planning can sometimes be achieved with this amount of simplicity, most of the time there’s more to it than that—a lot more—especially if you have any variables or special circumstances to consider. Variables and special circumstances can encompass just about anything, including:
* Young children
* Adult children with differing financial needs
* Adult children who don’t get along
* A child, parent or sibling with special needs
* A second (or third) marriage
And according to this article in the Chicago Tribune special circumstances also include:
* A non-citizen spouse
* A much younger spouse
* Health concerns
One of the best tools you have in your estate planning toolbox to deal with any or all of these “special circumstances” is to distribute your assets through a trust rather than just a simple will. A trust is comprehensive, plus it gives you the flexibility to you need to provide for every circumstance—even if these circumstances change after your death.
For example, parents with three children ages 21, 17 and 15 would likely not want to split their estate evenly, especially considering that they’ve likely already paid for the 21-year old’s college education, but have yet to pay for college for the 17 and 15 year olds. These parents can place their assets into a common trust which can be used to pay for the needs of all the children at the discretion of the trustee, and then split into separate and equal trusts when the youngest child reaches the age of 21, or when all have graduated from college.
Very few families fit the simple “boiler-plate” description, and even fewer families will benefit from a boiler-plate estate plan. Our office can help you craft exactly the estate plan you need to fit your family’s unique and special circumstances—right now, and years in the future.
News sources such as the Washington Post entertainment section promise that this summer will be flush with celebrity newborns and proud mamas and papas. Some of the stars expecting additions to their families include Natalie Portman, Kate Hudson, Jennifer Connelly and more. Here at our office we wonder how many of these new parents will remember to update their wills or estate plans after the birth of their child… and how many of our readers have remembered (or will remember, if they are currently expecting a new child or grandchild) to update their own estate plans after an addition to their families.
Every parent knows that the time after the birth of a new baby can be a tired, busy and chaotic transition, and updating their estate plan is probably the last thing on any new parent’s mind. But after the first few months, when things have calmed down and you’ve settled into a routine, updating your estate plan to include and provide for your new little one should take top priority.
Here are a few things new parents will want to consider as they prepare to update their estate plan:
Guardians, trustees, trusts and special needs planning are the very basics of estate planning for families with minor children, and should serve as a jumping off point for further discussion with your estate planner.