The Wiewel Law Firm

Updated Estate Plan Can Help Your Heirs

Even if net worth is not high, a second look at your plan can be beneficial.

The Federal Tax Cut and Jobs Act is a good reason for people, regardless of the amount of their assets, to either create an estate plan or review an already existing plan, according to the Atlanta Business Chronicle in the article “Updating estate plan could save heirs in taxes.”

The tax act doubles the gift, estate and generation-skipping transfer tax (GST) exemptions, raising them to historic highs. The exemptions, which are all linked in a unified estate and gift tax, had been scheduled to increase to $5.6 million per person in 2018, but they were modified to reach the current level of $11.2 million per person, or $22.4 million per couple. The inflation-adjusted exemption for 2019 is $11.4 million per person, or $22.8 million per couple.

When the most that could be transferred to heirs was under a million dollars, everyone worried about the estate tax. Since the estate tax was so much higher than the capital gains tax, it was never considered a big deal if a person paid the capital gains tax on selling, because it was less costly than paying the estate tax.

Now with the new exemption, trying to move assets out of estates and into trusts may not be the best solution to preserve wealth and minimize taxation.

In the past, a trust would be created, and the maximum amount of funds placed into the trust for use when the grantor (the person who created the trust) died. The goal was to provide income for the spouse until the spouse’s death, at which point the money bypassed the estate and went directly to the beneficiaries, who would pay income tax on the funds.

If a person owned $10,000 worth of stock at their death, the stock increased to $100,000 and a bypass trust was in place to hold the stock, then heirs would pay taxes on $90,000 upon the sale of the stock. This could mean paying up to 30 percent in taxes, based on a 23.8 percent federal tax and the maximum state tax rate. If, however, the money went into the spouse’s estate, when the beneficiaries sold the stock, they would pay no state or federal income tax.

Note that the law creating the present $11.4 million limit ends at the end of 2025, when the tax exemption will return to $5 million (adjusted for inflation).

Another aspect of estate tax planning relates to what type of accounts inheritance spring from. For instance, heirs who receive money from Individual Retirement Accounts (IRAs) have to pay taxes when they withdraw funds from the account. IRA money is not taxed when it goes into the account, and the growth is not taxed. However, the withdrawals are.

However, because current exemption amounts may not be available after 2025, or if further changes to tax laws are made, another strategy for individuals who wish to make significant lifetime gifts, is to lock in the current levels.

 Reference: Atlanta Business Chronicle (May 31, 2019) “Updating estate plan could save heirs in taxes”

Estate Planning? Consider Family Dynamics

There are many things to think about, when estate planning.  However, among the most crucial is to take potential family conflicts into consideration.

A group of professionals including estate planning attorneys, trust officers, accountants, charitable giving professionals, insurance advisors, elder law attorneys and nonprofit advisors recently attended a conference on estate planning and a survey by TD Wealth revealed that the major professional concern that kept them awake at night was family conflict, according to WealthManagement.com, in “Family Conflict Tops the List of Estate Planning Challenges in 2018.”

The article says that 44% of all planning professions consider family conflict more of a threat to estate planning than tax reform (25%) and market volatility (12%). That’s no small number and one that should be considered, while creating or revising an estate plan.

One reason for these results is that the response to the Tax Cuts and Jobs Act has received mixed reactions from estate planning attorneys and financial professionals. Some believe it may help their clients, while about a third of those queried in the TD Wealth survey aren’t sure. Only 16% feel the tax reform will have a negative impact on their clients.

Almost 75% of those taking part in the survey felt that clients who do benefit, will do so because of wealth transfer tax changes. About a third expect that clients will see the biggest benefits from new estate tax laws, followed closely by generation-skipping tax and gift tax updates.

What is the biggest challenge that people face when addressing their estate plan, according to this survey? It is naming guardians for minor children and beneficiary designations.

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances and may include dealing with potential family conflicts.

Reference: WealthManagement.com (March 28, 2018) “Family Conflict Tops the List of Estate Planning Challenges in 2018”

Will a Trump Presidency Finally Kill Off the Estate Tax?

Our new President promised to kill the estate tax. Will he really do it?

While campaigning for the presidency, Donald Trump repeatedly said he would eliminate the federal estate tax. Most Republicans in Congress share his position. Now that Donald Trump and congressional Republicans have the power to do away with the estate tax, the question becomes whether they will actually do so.

Financial Advisor addressed that question in "Death to the Death Tax?"

“I think there’s a chance he [Trump] will repeal the whole thing,” said tax attorney Martin Shenkman, whose namesake firm in Jersey City, N.J., and New York City focuses on estate and tax planning for high-net-worth individuals, closely held businesses and real estate professionals.

Shenkman also said there’s speculation about abolishing the gift and generation-skipping taxes. He pointed out that, while these taxes do not raise a lot of revenue, they were at one time intended to minimize the wealth-concentration in our country. Whether or not they still serve this social purpose, or should, is up for debate.

With all of this uncertainty, no one can predict the final outcome, but, as Shenkman said, “There’s no reason to stop planning because of this uncertainty, if the end result of the planning is to get assets in a better place than they are now regardless of the tax.”

Reference: Financial Advisor (January 3, 2017) "Death to the Death Tax?"

Giving While You Are Living

Increasingly, we’ve been asked to help them find ways to assist their kids now, rather than waiting to leave them money and assets in their wills. The parents in their 50s and 60s want to be here to watch and enjoy seeing the ways their children will benefit from their generosity. If you find yourself thinking along these lines, you are not alone.

Much of estate planning means planning for where and to whom assets are to go after you are gone. On the other hand, some people want to see their plans take effect and their loved ones enjoy their generosity. So how do you begin moving the estate within your own lifetime?

A recent article in Forbes titled “Best Ways To Give Your Heirs Money While You're Alive,” explored this subject.

The short answer is “giving” while you are living. However, there are certain limitations to giving, largely because of a screen of taxation. You want to duck under the gift tax itself, most likely, which means giving less than the annual exclusion (i.e., currently $14,000 per child). In addition, you may want to consider leveraging your lifetime gift/estate tax exemption to its greatest effect.

To make already complicated matters a bit more complicated, don’t forget there also are taxes based on to whom you are giving. For example, there is the generation-skipping transfer tax and, with certain assets, the kiddie tax.

To be sure, lifetime wealth transfers can be a great benefit to those on either end – the givers and the receivers. Seek qualified professional counsel in advance to ensure that all is done according to Hoyle.

Reference: Forbes (June 18, 2013) “Best Ways To Give Your Heirs Money While You're Alive”

2012 – A Recap of This Year’s Highlights

The good news:  There was no Mayan apocalypse.

The bad news:  You didn’t win the Powerball.

This past year will undoubtedly be remembered for several important events – the Supreme Court’s decision upholding Obamacare, the London Olympics and the reelection of President Obama – to name a few. A recent article by The Estate Analyst, “The Year in Review – 2012: A Retrospective of the Whole Shebang,” provides a somewhat comedic overview of this year’s Supreme Court rulings, Tax Court cases, celebrity estates, and other interesting events.

One notable tax decision involved the Alabama Waffle House waitress who was given a lottery ticket worth $10 million from a customer. The waitress, her parents, and her siblings set up a corporation, which eventually claimed the winning ticket and elected to receive annual payments of $354,000 for 30 years.

Not surprisingly, other Waffle House employees claimed they were entitled to a share of the winnings because all tips were to be shared. The IRS also claimed its share by finding that the waitress had made a taxable gift by sharing the lottery ticket with her family.

In Dickerson v. Commissioner, T.C. Memo 2012-60 (March 6, 2012), the Tax Court decided that: (1) the customer who gave the waitress the lottery ticket did not make a taxable gift; (2) the waitress’s former Waffle House co-workers were not entitled to any share of the lottery ticket – which was a gift to the waitress and not a tip; and (3) the waitress’s long-standing family agreement to share tickets was not binding, so a taxable gift of 51% of the lottery ticket was made with a value of $1.1 million. A gift tax delinquency of $771,000 was owed with interest and penalties.

To read about the other tax, charitable and estate planning blunders of 2012, be sure to check out this article.

Reference:  The Estate Analyst (December 2012) “The Year in Review – 2012: A Retrospective of the Whole Shebang”

The Fiscal Cliff - Don’t Make Any Sudden Moves!

“Any time you make a decision purely for tax reasons,

it has a way of coming back and biting you.” 

It’s no secret that the looming “fiscal cliff” has investors sitting on the edge of their seats. And if the President and Congress cannot agree on a plan to avert automatic tax increases set for December 31, some of those investors may be tempted to act soon to take advantage of current tax rates.

But financial advisers warn that “any time you make a decision purely for tax reasons, it has a way of coming back and biting you.”

A recent article in the New York Times, “With Shifts Possible in U.S. Tax Policy, Beware of Sudden Moves,” discusses some of the top areas where short-term trading decisions based solely on taxes could end up hindering long-term investment goals. The article focuses on how to deal with appreciated stock, municipal bonds, real estate and insurance annuities.

The best advice offered by the article, however, is to wait and see. Restraint now could prevent a lot of regret in the future.

 

References: The New York Times (December 2, 2012) “With Shifts Possible in U.S. Tax Policy, Beware of Sudden Moves”

Warning: Don’t Delay Your Wealth Transfers

“The Now Moment Has Arrived.”

With election time right around the corner, it’s easy to lose focus on your goals for 2012 as you vet out your favorite candidate.  The end of 2012 is nearing faster than you may think, and you don’t want to forget about your wealth planning opportunities before they change in 2013.

The estate laws of 2012 are generous and ripe for implementation. However, what will take effect on January 1, 2013 is anybody’s guess. One thing is clear: anything can happen in a divided and contentious lame-duck Congress.

There’s simply nothing worse for wealth transfer planning than an unforeseeable future, but that’s exactly what we face.

The auspices of 2012 and the unknowns of 2013 have been featured once more in Forbes. In a recent article titled “Should You Give Your Wealth To Your Grandkids Before December 31?,” this quandary is explored.

Unfortunately, the question posed in the title of the article is not given easy answers. In the end, the how, when, whom and even how much issues must be addressed on a case by case basis. You know your own needs and assets.

Fortunately, competent counsel can help you make navigate these issues.

There is a lot to gain with the current 2012 wealth transfer laws, so act now when it comes to your gifting or trust plans. Your options may become extremely limited once the ball drops in Times Square.

Reference: Forbes (August 2, 2012) “Should You Give Your Wealth To Your Grandkids Before December 31?”

Generation-Skipping Gyrations

Generation-skipping trusts, also known as dynasty trusts, are designed primarily to avoid estate taxes each time one generation transfers wealth to the next generation. 

For a number of reasons, the government seems to think that family wealth ought to pass from one generation to the next, without “skipping” over anyone. However, that’s not always the way the world works (or the way folks want to distribute their assets)

What if you want to provide for your grandkids instead of your children?

This is one time when extra planning is crucial to escape a series of tax law traps. As a result, this planning may require a generation-skipping or “dynasty” trust.

The idea that wealth ought to trickle down from generation to generation is, if nothing else, a way of guaranteeing that taxes are paid at each level. On the other hand, it’s not necessarily in keeping with your plans or modern reality. For example, who would have anticipated the student debt so many grandchildren face today?

For whatever reason, you might want to skip a generation in your estate distribution. The estate planning vehicle to accomplish this objective is a trust, specifically a “generation-skipping” or “dynasty” trust.

For more information, check out an article in ProducersWeb titled Generation-skipping Trusts.

While there are many limitations, and perhaps also a growing political battle to further limit such trusts, there are very real gains to be secured for you and your family.

These trusts can become complicated very quickly, so competent counsel will be necessary to determine whether a generation-skipping trust is appropriate for your unique circumstances and, if so, then to implement it.

Reference: ProducersWeb (April 11, 2012) “Generation-skipping Trusts”