On the surface, the idea is sound. Ownership transfer would reduce the size of a taxable estate, keep the property out of probate and help with the original homeowner's extended healthcare-affordability concerns. Despite the superficial positives, a trust may be a better solution than direct transfer, according to estate planning experts.
]]> If a home is transferred out of the owner's name into the name of an heir, the owner's rights are transferred with them. Even if the person who takes ownership is reliable, there is no predicting whether that trustworthy person will divorce, enter bankruptcy or get sued.The legal issues of the child become a threat to the financial wellbeing of the original owner of the property, the parent.
In one case, a widowed father transferred the rights of his home to a married adult child. The heir, her husband and young child moved in with the generous parent. The daughter died within months of the property transfer. She had no will, which sent the estate into probate.
A court decided the home belonged to the woman's surviving spouse and child. The home's original owner was eventually asked to vacate the property, since the woman who legally bound the old and young widowers together was no longer alive.
Trusts are a way to reach the same estate planning goals without the risks of property ownership transfer.
Creating a trust reduces assets, protects the property from unnecessary taxes and avoids probate, the same as the ownership swap. A trust also offers an advantage that a transfer of property does not. With a trust, the original homeowner maintains the financial security of ownership rights.
Source: huffingtonpost.com, "Don't Let Bad Estate Planning Make You Homeless," Ann Margaret Carrozza, May 9, 2012
]]>Assigning after-life duties to a digital caretaker may include instructions to close an account, remove content from a website or set up a memorial. In contradiction, having someone other than an original Internet user access an account violates the Terms of Service of most security-minded account hosts.
]]> Once administrators at LinkedIn or Facebook realize a website user has died, it becomes the service provider's choice what to do with the virtual "remains." Once notified, a deceased user's account should be terminated. However, unless other steps are taken, the service provider controls what happens to the content. That means a user's contributions could remain on display in perpetuity or stripped from the site altogether.In some cases, a website user can preempt the service provider's standard policies by directing the account to be memorialized. The user's content may be frozen indefinitely, but it remains the provider's prerogative to control the content.
Many estate-planning clients dislike the restrictions imposed by websites and want to direct what should be done with their digital assets.
Some choose to appoint a virtual executor with access to online account user names and passwords. Thorough instructions are added to the account access information and placed with estate documents.
Advisors warn that handing over the sensitive information to a virtual executor can be problematic.
Violating terms of service rules by sharing user names and passwords is a risk that can cause the immediate termination of a digital account.
The trustworthiness of a virtual executor must be absolute. The assigned individual executor would have access to the deceased person's most private data. An unreliable executor might use the opportunity to impersonate the decedent or download and share extremely sensitive information and communications.
Estate planners say, even when trust is not an issue, details given to executors are important. Executor instructions should be comprehensive but clear. There should be no questions about what is to be done with the data or with whom it should be shared.
Source: hometownlife.com, "TAKIN' CARE OF BUSINESS: Estate planning and your digital assets - part two," Dan Hoops, May 2, 2012
]]>State inheritance or intestacy laws dictate an estate plan for Florida individuals who do not create their own after-death wishes. When someone has no estate plan, states generally use percentages to divide the individual's assets among family members. The state's distribution may not coincide with what the deceased said or thought during life. Unfortunately, the one person who could dispute the state's methods is no longer around to have a say.
]]> Having a will or trust in place is fundamental to avoid probate and ensure correct asset distribution. Experts warn that using one-size-fits-all, do-it-yourself documents to prepare an estate plan may produce more headaches than help.Drafting wills and trusts is more than filling out a standard online form. States' inheritance laws vary widely and so do the documents required to abide by them. DIY estate planning websites that employ cookie-cutter paperwork with no provisions should state or federal tax laws change.
Another common estate planning mistake is to ignore discrepancies. The names on asset titles and recorded beneficiary designations take precedence over any beneficiaries written into an estate plan. A change of beneficiary or title must be at the source. If a 401(k) set up decades ago still names an ex-spouse as the beneficiary, the former husband or wife will inherit the asset.
Estate plans require maintenance and updating. Plan adjustments are needed to take advantage of the fluctuations in state and federal tax laws, deductions and exclusions. Gift-giving, to family members or charitable organizations, is one way to reduce assets during life so that the estate and heirs bypass a tax problem later.
Source: forbes.com, "7 Major Errors In Estate Planning," Rob Clarfeld, April 25, 2012
]]>Estate asset planning problems crop up when spouses disagree how distribution and estate administration should be handled. Advisors say partners in some situations should consider using separate legal counsel.
]]> Couples with a web-work of immediate or blended family relationships, the potential heirs and beneficiaries of an estate, are more likely to disagree about asset portioning. Partners with children born from a previous relationship and stepparents may be in conflict over how assets are shared.The division of ideas about estate planning intensifies if likely heirs straddle the past and present. The competition for a loved one's assets could ensue between half-siblings or a childless, surviving spouse and the deceased spouse's children from a former marriage.
The benefits of using individual attorneys increase with the number of disparities between partners.
It is possible for a partner with greater economic advantage or relationship dominance to sway an estate plan design. Separate legal representation allows less-powerful partners to express asset distribution desires without being hidden in the shadows of richer, more influential partners.
Partner imbalances beyond wealth signal a possible need for separate estate plans. A one-attorney estate plan may not be suitable for couples with prenuptial agreements, sizeable age differences or relationships of short length.
In the most unfortunate circumstances, one partner will discover new, unpleasant information about the relationship. Attorneys say it is not unusual for a spouse to learn for the first time about a formerly-secret bank account, hidden property or unmentioned love child during the estate-planning process.
A couple's lack of communication can derail the best legal efforts to solidify the terms of an estate plan. Transparency and agreement between marriage and domestic partners is vital if a couple plans to use the same lawyer.
Source: forbes.com, "Estate Planning for Couples: Should It Be A Solo Or A Duet?" Deborah L. Jacobs, April 10, 2012
]]>Phishing scams involve emails promising lottery winnings, inheritances and fantastic deals in exchange for a recipient's personal and financial information. Among the unsolicited, criminal messages are illegitimate methods to hide estate assets to avoid tax and probate issues.
]]> True estate planners will offer customized solutions to help clients minimize the effects of estate taxation.For example, trusts used as effective asset-holding sites before and after death, are suitable based on individual estate circumstances. Scammers make wild claims about estates, taxes and trusts that promote one-size-fits-all answers that are false or misleading.
The IRS sees many taxpayers falling prey to scams involving revocable living trusts, which are created during the lifetime of an estate owner, known as the grantor. Financial and legal advisors encourage the use of trusts for clients who have potential estate tax or probate problems, but not for all estates. Revocable living trusts are only as valid as the funded assets within them, a process that requires legitimate estate planning guidance.
Scammers have been known to offer do-it-yourself, revocable-trust packages. The expensive forms included in trust kits look official, but are often useless. The trust documents come without instructions, offer no legal backing and may be too generic to comply with state laws.
Estate-planning attorneys and the IRS warn taxpayers that online or in-person salespeople who promise to solve estate tax and probate situations with simple, broad-based solutions are not substitutes for solid, professional legal advice.
Be wary whenever an answer to a complex estate problem comes by mail, email or through an unsolicited recommendation. The pitch may be appealing, but the service or merchandise could be flawed. It may also be an outright con to bilk a tax-paying consumer out of hard-earned money.
Source: washingtonpost.com, "How to avoid revocable living trust cons and other tax scams," Benny L. Kass, April 7, 2012
]]>Writing a will acknowledges that death is an absolute, not a maybe, which is why estate planners believe some people avoid or endlessly put off creating one.
]]> Will procrastinators may believe that they are too young, too healthy or too asset poor to consider an agreement for after-death distribution of property. Incapacity and death eliminate the chance to give away assets according to desires and push estate settlements into probate.Wills can be self-designed, although professionals advise against it. Any lack of pertinent information may open the document to dispute or be invalid in court. A will signing also must include suitable witnesses, ones who are not family members or potential beneficiaries.
Couples use wills to guide the distribution of assets and assign a legal guardian in case parents of minor children do not survive to raise them. Wills also list the name of an executor, whose job entails the administration of estate assets, debts and taxes.
Not all assets are covered by wills. Some assets with pre-assigned beneficiaries bypass the snarl of probate and go straight to heirs. Pensions and other retirement accounts, life insurance proceeds, some stocks and bonds and certain jointly-held bank accounts circumvent probate, as do assets secured within a living will.
Additional legal documents are recommended at the time a will is created. Durable powers of attorney give trusted individuals decision power when living persons are unable or incapable of making financial and medical choices.
The creation of a will places a person among the 30 percent of Americans who have taken a giant, initial estate-planning step. Updating a will is necessary following life-shifting events like marriage, divorce, a child's birth or maturity or remarriage.
Source: forbes.com, "Tell Your Family You Love Them -- Write A Will," Marcia Brixey, March 30, 2012
]]>Florida is among 29 states that have passed laws eliminating the so-called death tax. The list of states without estate taxes is likely to grow as Congress considers how much federal estate tax will be levied on the general public in the future.
]]> The federal estate tax for 2011 is 35 percent, which is over and above taxes charged by individual states. States with death taxes are concerned wealthy residents that have not already fled to no-estate-tax states will relocate if or when the federal tax goes up.The federal tax is set to increase to 55 percent in 2013 unless Congress comes up with an alternative plan. The Obama administration has proposed a compromise of 45 percent, which experts say could force some estates into a 50 percent tax bracket when combined with state laws.
Economists released a study late last year comparing tax returns of the wealthy in Florida and Tennessee. Tennessee residents are subject to state-imposed estate and gift taxes with a $13,000 exemption. Florida has no estate or gift taxes. Residents in both states are subject to federal estate and gift taxes on estates worth more than $5 million. Researchers found that the state tax burden on a $5 million Tennessee estate would be more $460,000, a tax that the rich avoid by leaving the state.
The economists' report concluded that states hoping to reap revenue benefits from taxable estates are losing wealthy residents in droves. It tracked the number of taxable estates in 2010 and found that Florida had almost twice as many as Tennessee, with an average taxable-estate size of $7.4 million compared to $4.4 million, respectively.
Florida does not benefit from the estate taxes of transplanted, rich residents. The state enjoys the economic perks of additional tax revenue on purchases by residents who are still very much alive.
The flight of wealthy state taxpayers in Tennessee has had a significant impact on the state's revenue. Researchers figured that if Tennessee had dropped its estate and gift taxes a decade ago, the state's economy would be 14 percent richer today.
Source: The Wall Street Journal, "Death Tax Defying," March 23, 2012
]]>Analysts wonder why the famous singer left behind an outdated, but valid will without backing it up with a living trust. Houston sacrificed her estate's privacy by relying on a 1993 will.
]]> Houston's will was made public when it was filed in probate court. Probate is an often-expensive process that can foster will disputes and create a delay in estate asset distribution.The testamentary trust created by Houston calls for estate assets to be set aside for her daughter, Bobbi Kristina. Houston's entire estate could have been handed over to her 18-year-old daughter.
The singer's testamentary trust allows Bobbi Kristina to collect 10 percent of her mother's estate in two years, at age 20. Another portion will be paid when Bobbi Kristina turns 25. The full estate passes to Houston's daughter at age 30.
Estate-planning experts say Bobbi Kristina's inheritance could have been disputed if her mother and father, Bobby Brown, were still married at the time of Houston's death. Many states do not allow a spouse to be excluded from a will. A living trust might have circumvented that possibility.
Houston's will was created not long after her marriage to Bobby Brown. Brown was Whitney Houston's choice for Bobbi Kristina's guardian, a choice that did not change after the couple's divorce in 2007.
Bobbi Kristina's legal adulthood does not prevent her father from seeking a conservatorship, if his daughter is found to be unfit to handle her own affairs.
Experts say Houston's estate plan could have been more air tight and less public, if she had chosen to supplement it with a living trust. The singer might have avoided any guardianship conflicts if she had updated her estate planning documents immediately after the divorce.
Source: forbes.com, "Whitney Houston's Will Was Far From Perfect," Danielle and Andy Mayoras, March 15, 2012
]]>Many Florida retirees must decide whether it is better to help heirs suffering from present financial problems or wait to bestow assets through an estate later.
]]> Pensions and Social Security benefits that funded the non-working, elderly years of previous generations are not certain to cover the new crop of retirees, who are likely to live to an older age than their parents.A longer, fuller life is desirable. It also costs more.
An average retirement, for people who live until their early 80s, takes a working-and-savings investment of about $1.4 million. Living until 90 increases the investment need to $1.75 million.
Reaching retirement and estate planning goals can be upset by joblessness, interrupted savings, market fluctuations and divorce. The same unexpected events happen to adult children, which causes a dilemma for parents.
According to a 2011 National Endowment for Financial Education survey, nearly 60 percent of parents have helped or are still contributing toward the financial wellbeing of an adult child.
An insurance institute study found that most parents were willing to help adult kids with money, especially if children simultaneously worked toward resolving the problem. Forty-four percent of parents felt obligated. Another 34 percent felt moderately responsible to help during children's financial crunches.
Several investment vehicles are used to help parents straddle the desire to preserve retirement and estate assets while helping adult children.
Intra-family loans benefit recipients and lenders. Parents lend money to adult children to move ahead in life with a business or a new home. Lenders benefit by collecting a market interest rate and lowering future estate taxes.
The money should be given willingly and without hardship, according to experts who caution that a return on principal is not guaranteed.
Source: chicagotribune.com, "How To Help Family Members Without Hurting Your Own Finances: Family financial demands can pose a challenge in saving for retirement," Rachel Koning Beals, March 12, 2012
Donations to good causes among Americans slowed but did not disappear during the economic hard times of the last few years. Acts of giving have gone up since the recession. According to consultants who track philanthropic activities, overall charitable donations in the U.S. increased 3.8 percent between 2009 and 2010 to $290 billion.
]]> Thirteen percent, or about $40 billion in charitable donations, was supplied by established foundations or endowments. Most of the money, $211 billion in 2010, was funneled to charities directly through households or individuals. The motivation to donate is often an emotional one rather than part of a structured plan. Advisors recommend using legal and tax specialists to make sure that donations are maximized for charity and personal benefits.Donors frequently give to charities without vetting the organizations. An estimated 85 percent of donations are made to charities which gift givers know little or nothing about. Charity Navigator is one resource that provides donors with in-depth information about charity organizations to help avoid scams.
Many estate plans bestow lump sums on charities to shave the amount of taxable assets for heirs. Philanthropy experts believe that targeting a given charity early in life allows time to plan gift-giving and subsequent tax benefits over time.
Regular, yearly donations to charity can supplement a long-term gift-giving plan by lowering federal income taxes. Gifts may include charity donations other than cash including vehicles, clothing and services.
Annual charitable donations must be documented according to the value of the gift and itemized along with other eligible tax deductions. Total itemized deductions must exceed IRS standard deductions to be claimed. Itemized deductions for the 2012 tax year must exceed $11,900 for married couples filing jointly or $5,950 for single-status filers.
Source: chicagotribune.com, "What's the Best Way to Give Money to Charity?: As with other financial strategies, advanced planning is needed," David Francis, March 5, 2012
]]>When no will or trust exists, the disposition of assets ends up in the hands of a Florida probate court. A judge uses impersonal state laws to determine how an estate is split. The long, often expensive process can be draining and divisive for heirs.
]]> Experts suggest having a will in place from the time assets or relationships begin to accumulate. The addition of a spouse or child is a reasonable starting or changing point for wills. Wills provide a way to direct assets to heirs through an appointed executor. Trusts do the same but offer the added benefit of distribution control. Trust assets, under the care of a named trustee, can be apportioned under certain conditions or over a designated time.Trusts also provide privacy and protection from probate and creditors.
Some trusts are engineered to define the use of assets by a spouse. A Qualified Terminable Interest Property Trust or QTIP ensures that surviving spouses receive assets, but bars the survivor from using the inheritance for a future child or partner.
Trusts are often designed to minimize the effect of estate taxes. The federal estate tax exemption may drop from about $5 million to $1 million by 2013, prompting planners to recommend specialized trusts. Among the tax-smart trusts available are grantor retained annuity trusts or GRATs and charitable trusts.
Assets meant for minors can be distributed through an age-terminating trust. The trust would detail in what portion and at what age a child receives assets. Heirs who are children with special needs can benefit from trusts designed to enrich their lives without interfering in the receipt of needed government benefits.
The usefulness of a trust is only as strong as the assets that have been put in it. Specialists caution that frequent estate-planning errors occur when assets are not fully transferred into trusts.
Source: chicagotribune.com, "What Type of Estate and Tax Planning Do I Need to Do?: Without a will, your assets could be held in probate court and distributed according to state law," Susan Johnston, Feb. 28, 2012
]]>IRAs are designed to move smoothly into the hands of beneficiaries, avoiding probate. The accounts may not bypass the notice of the Internal Revenue Service, if heirs mishandle them. The management of an IRA inheritance depends on the age of the decedent who bequeathed the account and the age of the beneficiary.
]]> IRA owners must take a minimum distribution from the retirement account by age 70 and a half. If a decedent does not take a mandatory distribution in the year he dies, it is up to the beneficiary to make that withdrawal and subsequent withdrawals each year. The income received from the IRA distribution is taxable.Younger IRA heirs may choose to accept the smallest yearly distribution possible. Many beneficiaries do not have the luxury to contribute to an inherited IRA, but they can defer federal taxes by allowing the IRA to remain largely undisturbed. Surviving spouses are the only heirs allowed to roll over a deceased partner's IRA into their own account.
Beneficiaries have alternatives if a decedent passes on before reaching the age of required IRA distributions. Instead of paying taxes on IRA distributions yearly, a beneficiary may choose to spread distributions any time over five years as long as the asset is depleted in that time.
Federal tax consequences await those who leap to take an IRA inheritance in a lump-sum. The asset could boost an inheritor's financial status immediately. It simultaneously adds a chunk of taxable income that must be reported to the IRS in the same tax year.
Some beneficiaries choose to include the inherited IRA as part of the assets of their own estate plan. Disclaiming an inheritance puts the IRA into the hands of others, including heirs or a charitable organization.
Source: mdjonline.com, "William G. Lako Jr.: How to Handle an Inherited IRA," William G. Lako, Jr., Feb. 24, 2012
]]>Portability is an IRS tax benefit that allows a surviving spouse to "inherit" the remaining portion of a deceased spouse's unused federal tax exclusion. The IRS allowed individuals in 2011 the opportunity to transfer $5 million in assets without a tax penalty.
]]> If one spouse died in 2011 before reaching the full basic exclusion, a widow or widower could absorb the deceased spouse's leftover portion. The portable amount is the difference between the deceased spouse's $5 million limit and the value of already-transferred assets at the time of death.A widow or widower must inform the IRS that he or she desires the portability option. A federal estate tax return must be submitted by the executor of the estate, using IRS Form 706, within nine months of a spouse's death. IRS extension applications, using Form 4768, may add another six months to the final filing.
In mid-February, the IRS changed the rules and applied a new deadline for those who lost a spouse last year. Spouses, who became widows or widowers between January 1, 2011 and June 30, 2011, have been granted an extra six months to file for portability. The first due date for estate tax/portability option filings is Monday, April 2, 2012.
Some surviving spouses, who may have missed the all-important first portability deadline, will have a second chance to gift assets that a spouse did not have time to transfer in life.
Source: forbes.com, "IRS Extends Key Deadline for Widows and Widowers," Deborah L. Jacobs, Feb. 17, 2012
]]>The 2012 exemptions for federal estate taxes and federal gift taxes are $5.12 million, an increase over the $5 million limits set for 2011. The estate tax law allows individuals the chance to leave behind tax-free assets up to the exemption maximum. A surviving spouse may take over a deceased spouse's unused tax exemption.
]]> The IRS estate rules add a bonus for married couples. If a spouse gifts $4 million at death, the leftover $1.12 million can be added to the exemption for the living spouse. The surviving marriage partner then has the potential to leave behind up to $6.12 million in federally non-taxable assets at death -- the $5.12 million individual allowance plus the deceased spouse's untapped exemption.Gift-giving during life benefits an estate tax situation by reducing the overall size of an estate. The 2012 gift-tax exemption places a $5.12 million lifetime limit on individuals. The combined exemptions for married couples create a $10.24 million tax-free opportunity. Assets distributed to relatives, charities or friends are not IRS taxable, if gift giving is confined to an amount at or below the exemption limit.
Another federal tax rule permits taxpayers to give away a yearly amount of assets without altering the gift or estate tax exemptions. The exclusion in federal tax law entitles an individual to give away up to $13,000 every year, tax-free. The double benefit for married couples is the potential to hand off up to $26,000 in assets annually without a tax penalty.
The exclusion may be used for every person to whom a gift is given. It is possible to give $13,000 to any number of different people during the same tax year without incurring a tax penalty. Gifts of more than $13,000 annually are subtracted from the lifetime exemption and an estate exemption.
The gift-tax exclusion is ideal for estates with assets exceeding $5 million. The exclusion also benefits taxpayers who have been slow to develop estate plans by allowing asset distribution to take place over a short time.
Source: smartmoney.com, "Start Giving It Away Early," Jan. 30, 2012
]]>The default trustee for many small and large estate holders not only here in Florida, but elsewhere throughout the country, is often a spouse or adult child. Estate administrators recognize that assigning the job of trustee to a close relative is often a keep-it-in-the-family decision. But is choosing a relative the wisest choice?
]]> Trustees have colossal power and enormous responsibilities. For some trustees, the job begins and ends after a trust maker's death with the collection and dispersal of assets. Some trustees must be ready to manage and invest trust assets wisely and indefinitely.Impartiality is difficult for trustees who are beneficiaries of an estate. The temptation to play favorites among heirs or take advantage of estate assets for personal gain is tempered by laws that prevent a conflict of interest. Rules do not always prevent incidents of real or perceived misappropriation.
Objective trustees, like specialized attorneys or financial institutions, are paid to act in good faith according to a trust's terms. Professional trustees have no emotional ties to beneficiaries and are skilled in record keeping and asset management, a job which can be complex for many individuals to handle independently.
The person assigned a trustee role must have the capability and motivation to perform the job in the interest of all estate beneficiaries. Trustees who underperform or mismanage assets may be challenged in court and removed from the administrative position, a situation courts find common among quarrelsome relatives.
Choosing a family member as a trustee may be the correct choice, if the designee has the capability and motivation to perform the job in the interests of all estate beneficiaries. Estate experts agree that the decision to choose a competent trustee must include a careful examination of the talents and character of a prospective designee.
Source: emissourian.com, "Common Estate Planning Mistakes: Failure to Use a Revocable Living Trust -- Naming the Trustee ," Walter A. Murray, Jr., Feb. 1, 2012
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