What Could Proposed Estate Tax Bill Mean to You?

April 27, 2021

U.S. Sen. Bernie Sanders has released proposed legislation named “For the 99.5%” Act. If passed in its present form, the legislation would bring estate tax exemptions back to the 2009 thresholds of $3.5 million per individual and $7 million per married couple. Exemptions are currently $11.7 million and $23.4 million, as reported by Think Advisor in a recent article “Sen. Bernie Sanders Introduces Estate Tax Bill.”

Larger estates would also be subject to higher tax rates. The current 40% tax rate would be raised to 45% and taxable estates larger than $10 million would be taxed at 50%, amounts greater than $50 million at 55% and any estates valued at greater than $1 billion would be taxed at 65%.

The same rates would apply for all gift taxes, for which the threshold would be lowered to $1 million.

Sanders spoke at a Senate Budget Hearing committee, stating that his bill was designed to have the families of the “millionaire class not only not get a tax break but start paying their fair share of taxes.”

Another bill introduced by Sanders would prevent corporations from shifting profits offshore to avoid paying U.S. taxes and restoring the top corporate rate to 35%, where it has been since 2016.

In contrast, Senators John Thune, South Dakota (R) and John Kennedy, Louisiana (R), introduced legislation in early March to repeal the estate tax entirely.

Frank Clemente, executive director for Americans for Tax Fairness, said the tax plan released by President Biden during his campaign also tracked the 2009 estate tax levels that are the basis of Sanders’ bill, but because of the higher tax brackets for larger estates, his group believes the Sanders bill would raise about twice as much revenue as the Biden plan.

History teaches us that there is a long distance between the time that a bill is introduced, and many changes are made as proposed legislation makes its way through the law-making process. In this case, it can be safely said that there will be changes to the tax and estate laws, and that may be the only sure thing.

Now is a good time to review your estate plan, if these federal estate changes will have an impact on your family’s wealth. Familiarity with your current estate plan and staying in touch with your estate planning attorney, who will also be watching what Congress does in the coming months, will allow you to be prepared for changes to the tax planning aspect of your estate plan in the near or distant future.

Reference: Think Advisor (March 25, 2021) “Sen. Bernie Sanders Introduces Estate Tax Bill”

What Is ‘Whole Farm Planning?’

April 22, 2021

Farm families should adopt a whole farm planning approach, when they develop strategies for the future success of their business. The whole farm approach lets families look at the internal structure of their business and then develop business, retirement, transition, estate and investment plans that work in harmony.

Ohio’s Country Journal’s recent article entitled “Whole farm planning” says that in the middle of most farms and agricultural businesses is the family unit, and valuable lessons can be learned by all the generations involved, by examining past successes and disappointments. The underlying values and goals of the family have a significant impact on the way in which family members treat each other and employees and make business decisions.

The analysis of the current state of a farm should also be done to determine the physical, fiscal and personnel status of the business. The operation’s efficiency should be examined and any available resources that aren’t currently being utilized should be identified. The farm’s profitability, business structure, operating procedures and employee management should also be reviewed. It’s also helpful for the management team to pinpoint external influences that could affect the business in the future, such as governmental, political, economic, environmental, social or technological elements.

Once a family has finished its internal analysis, they can continue the planning process by developing business, retirement, transition, estate and investment plans. These plans all will need to work in concert to ensure the long-term viability of the business.

Business Plan. A comprehensive business plan helps the family develop a plan of action for production and operation practices, and also helps develop plans for the financial, marketing, personnel and risk-management sectors of the business.

Retirement plan. A strategy to help each business member meet his or her expected retirement needs should be created. The two main retirement issues to look at are the amount of money each family member needs for retirement and the farm’s obligation to the retirees.

Transition plan. This plan ensures that the business has the resources to continue for future generations. This helps the family examine its current and future situations, then develop a plan to transfer the business to the next generation.

Estate Plan. This entails determining how the farm assets and debts will be distributed upon the death of the principal operators. This plan, along with the transition plan, helps to address the way in which the off-farm heirs can be treated fairly, without jeopardizing the future of the farming heir.

Investment plan. The primary investments made by farm families are typically made in land, machinery. and livestock. Investments let farm families to save for future education or retirement needs and permit investment diversification.

Reference: Ohio’s Country Journal (Feb. 11, 2021) “Whole farm planning”

Trusts can Work for ‘Regular’ People

April 20, 2021

A trust fund is an estate planning tool that can be used by anyone who wishes to pass their property to individuals, family members or nonprofits. They are used by wealthy people because they solve a number of wealth transfer problems and are equally applicable to people who aren’t mega-rich, explains this recent article from Forbes titled “Trust Funds: They’re Not Just For The Wealthy.”

A trust is a legal entity in the same way that a corporation is a legal entity. A trust is used in estate planning to own assets, as instructed by the terms of the trust. Terms commonly used in discussing trusts include:

Grantor—the person who creates the trust and places assets into the trust.
Beneficiary—the person or organization who will receive the assets, as directed by the trust documents.
Trustee—the person who ensures that the assets in the trust are properly managed and distributed to beneficiaries.

Trusts may contain a variety of property, from real estate to personal property, stocks, bonds and even entire businesses.

Certain assets should not be placed in a trust, and an estate planning attorney will know how and why to make these decisions. Retirement accounts and other accounts with named beneficiaries don’t need to be placed inside a trust, since the asset will go to the named beneficiaries upon death. They do not pass through probate, which is the process of the court validating the will and how assets are passed as directed by the will. However, there may be reasons to designate such accounts to pass to the trust and your attorney will advise you accordingly.

Assets are transferred into trusts in two main ways: the grantor transfers assets into the trust while living, often by retitling the asset, or by using their estate plan to stipulate that a trust will be created and retain certain assets upon their death.

Trusts are used extensively because they work. Some benefits of using a trust as part of an estate plan include:

Avoiding probate. Assets placed in a trust pass to beneficiaries outside of the probate process.

Protecting beneficiaries from themselves. Young adults may be legally able to inherit but that doesn’t mean they are capable of handling large amounts of money or property. Trusts can be structured to pass along assets at certain ages or when they reach particular milestones in life.

Protecting assets. Trusts can be created to protect inheritances for beneficiaries from creditors and divorces. A trust can be created to ensure a former spouse has no legal claim to the assets in the trust.

Tax liabilities. Transferring assets into an irrevocable trust means they are owned and controlled by the trust. For example, with a non-grantor irrevocable trust, the former owner of the assets does not pay taxes on assets in the trust during his or her life, and they are not part of the taxable estate upon death.

Caring for a Special Needs beneficiary. Disabled individuals who receive government benefits may lose those benefits, if they inherit directly. If you want to provide income to someone with special needs when you have passed, a Special Needs Trust (sometimes known as a Supplemental Needs trust) can be created. An experienced estate planning attorney will know how to do this properly.

Reference: Forbes (March 15, 2021) “Trust Funds: They’re Not Just For The Wealthy”

The Stretch IRA Is Diminished but Not Completely Gone

April 15, 2021

Before the SECURE Act, named beneficiaries who inherited an IRA were able to take distributions over the course of their lifetimes. This allowed the IRA to grow over many years, sometimes decades. This option came to an end in 2019 for most heirs, but not for all, says the recent article “Who is Still Eligible for a Stretch IRA?” from Fed Week.

A quick refresher: the SECURE Act—Setting Every Community Up for Retirement Enhancement—was passed in December 2019. Its purpose was, ostensibly, to make retirement savings more accessible for less-advantaged people. Among many other things, it extended the time workers could put savings into IRAs and when they needed to start taking Required Minimum Distributions (RMDs).

However, one of the features not welcomed by many, was the change in inherited IRA distributions. Those not eligible for the stretch option must empty the account, no matter its size, within ten years of the death of the original owner. Large IRAs are diminished by the taxes and some individuals are pushed into higher tax brackets as a result.

However, not everyone has lost the ability to use the stretch option, including anyone who inherited an IRA before January 1, 2020. This is who is included in this category:

Surviving Spouses.
Minor children of the deceased account owner–but only until they reach the age of majority. Once the minor becomes of legal age, he or she must deplete the IRA within ten years. The only exception is for full-time students, which ends at age 26.
Disabled individuals. There is a high bar to qualify. The person must meet the total disability definition, which is close to the definition used by Social Security. The person must be unable to engage in any type of employment because of a medically determined or mental impairment that would result in death or to be of chronic duration.
Chronically ill persons. This is another challenge for qualifying. The individual must meet the same standards used by insurance companies used to qualify policyowners for long-term care coverage. The person must be certified by a treating physician or other licensed health care practitioner as not able to perform at least two activities of daily living or require substantial supervision, due to a cognitive impairment.
Those who are not more than ten years younger than the deceased account owner. That means any beneficiary, not just someone who was related to the account owner.

What was behind this change? Despite the struggles of most Americans to put aside money for their retirement, which is a looming national crisis, there are trillions of dollars sitting in IRA accounts. Where better to find tax revenue, than in these accounts? Yes, this was a major tax grab for the federal coffers.

Reference: Fed Week (March 3, 2021) “Who is Still Eligible for a Stretch IRA?”

Just What Does an Executor Do?

April 13, 2021

Spending the least amount of time possible contemplating your death is what most people try to do. However, one part of the estate planning process needs time and reflection: deciding who should serve in important roles, including executor. Whatever the size of your estate, the people you name have jobs that will impact your life and your family’s future, says a recent article “How to get it right when naming an executor and filling other key roles in your estate plan” from CNBC. A quick decision now might have a bad outcome later.

First, let’s look at the executor. They are responsible for everything from filing your last will with the court to paying off debts, closing accounts and making sure that assets in your probate estate are distributed according to the directions in your last will. They need to be trustworthy, organized and able to manage financial decisions. They also need to be available to handle your estate, in addition to their other responsibilities.

Note that some of your assets, including retirement tax deferred accounts, life insurance proceeds and any other assets with a named beneficiary, will pass outside of your probate estate. These assets need to be identified and the custodian needs to be notified so the heir can receive the asset.

Settling an estate takes an average of 16 months, with smaller estates being settled more quickly. Larger estates, worth more than $5 million and up, can take as long as four years to settle.

Some people prefer to name co-executors as a means of spreading out the responsibilities. That ix fine, unless the two people have a history of not getting along, as is the case with many siblings. Sharing the duties sounds like a good idea, but it can lead to delays if the two don’t agree or can’t coordinate their estate tasks. Many estate planning attorneys recommend naming one person as the executor and a second as the contingency executor, in case the first cannot serve or decides he or she does not want to take on the responsibilities. The same applies to any trustees, if your estate plan includes a trust.

Make sure the people you are considering as executor, contingent executor, trustee or success or trustee are willing to take on these roles. If there is no one in your life who can take on these tasks, an option is to name an estate planning attorney, accountant, or trust company.

Another important role in your estate plan is the Power of Attorney. You’ll want one for financial decisions and another for healthcare decisions. They can be the same person or different people. Understand that the financial Power of Attorney will have complete control over your assets, including accounts, real estate, and personal property, if you are too incapacitated to make decisions or to communicate your wishes.

The healthcare Power of Attorney will be making medical decisions on your behalf. You will want to name a person you trust to carry out your wishes—even if they are not the same ones they would want, or if your family opposes your wishes. It’s not an easy task, so be sure to create a Living Will to express your wishes, if you are placed on life support or suffer from a terminal condition. This will help your healthcare Power of Attorney follow your wishes.

Finally, revisit your estate plan every three to five years. Life changes, laws change and your estate plan should continue to reflect your wishes. The lives of the people in key roles change, so the same person who was ready to serve as your executor today may not be five years from now. Confirm their willingness to serve every time you review your last will, just to be sure.

Reference: CNBC (March 5, 2021) “How to get it right when naming an executor and filling other key roles in your estate plan”

What Is Family Business Succession Planning?

April 6, 2021

The importance of the family business in the U.S. can’t be overstated. Neither can the problems that occur as a direct result of a failure to plan for succession. Business succession planning is the development of a plan for determining when an owner will retire, what position in the company they will hold when they retire, who the eventual owners of the company will be and under what rules the new owners will operate, instructs a recent article, “Succession planning for family businesses” from The Times Reporter. An estate planning attorney plays a pivotal role in creating the plan, as the sale of the business will be a major factor in the family’s wealth and legacy.

Start by determining who will buy the business. Will it be a long-standing employee, partners, or family members?
Next, develop an advisory team of internal employees, your estate planning attorney, CPA, financial advisor and insurance agent.
Have a financial evaluation of the business prepared by a qualified and accredited valuation professional.
Consider taxes (income, estate and gift taxes) and income requirements to sustain the owner’s current lifestyle, if the business is being sold outright.
Review estate planning strategies to reduce income and estate tax liabilities.
Examine the financial impact of the sale on the family member, if a non-family member buys the business.
Develop the structure of the sale.
Create a timeline.
Get started on all of the legal and financial documents.
Meet with the family and/or the new owner on a regular basis to ensure a smooth transition.

Selling a business to the next generation or a new owner is an emotional decision, which is at the heart of most business owner’s utter failure to create a plan. The sale forces them to confront the end of their role in the business, which they likely consider their life’s work. It also requires making decisions that involve family members that may be painful to confront.

The alternative is far worse for all concerned. If there is no plan, chances are the business will not survive. Without leadership and a clear path to the future, the owner may witness the destruction of their life’s work and a squandered legacy.

Speak with your estate planning attorney and your accountant, who will have had experience helping business owners create and execute a succession plan. Talking about such a plan with family members can often create an emotional response. Working with professionals who benefit from a lack of emotional connection to the business will help the process be less about feelings and more about business.

Reference: The Times Reporter (March 7, 2021) “Succession planning for family businesses”

What Should I Do with My Valuable Beanie Baby Collection?

April 3, 2021

Learning a foreign language, making wine and crafting are popular stay-at-home activities, there’s a new trend: childhood collections of baseball cards, comic books, video games, sneakers, model trains, and Barbie dolls are being uncovered and re-examined.

The Wealth Advisor’s recent article entitled “Estate Planning for Your Collections May Be a Smart Decision to Make” explains that the legacy we leave isn’t always a lot of money or real estate. Artifacts and collections have a value that goes beyond dollars and cents. The importance of hobbies and collections in a person’s estate plan should be noted.

A collector should catalog their collection because an heir might have no idea what he’s holding. Is it a three-buck toy from the local department store or is it a Devi Kroell Barbie from 2010 that sells now for at least $1,100?

One way to start a catalog is to take photos on a smart phone and save them in a shared file called “My Collectible Barbies.”

Next, get an idea what your collection is worth. You can get some idea by looking at prices for similar items on eBay prices. You also should be aware of the “grade” of your pieces. Is your Devi Kroell Barbie still in its original packaging in pristine condition, or has your niece chewed on it for a few years as a baby? Of course, the condition makes a huge difference in the price.

You can gift a collection to a trust through a gift memorandum and specifically listed it on a trust’s Schedule A. If the collectible has its own title, like your 1954 Chevrolet Corvette Convertible, the title can be transferred to the trust. When it’s part of a trust, a collectible can be distributed or maintained the way other trust assets are governed.

Trusts avoid probate and let a collector have more flexibility to control how her collection is handled, appreciated and sold.

Without a specific bequest in a last will, something like a Beanie Baby collection worth thousands of dollars may only be mentioned as “personal property” in a catch-all category for non-financial accounts or real estate belonging to the decedent. As a result, it’s lumped in with clothing, furniture and household items. An executor who is unfamiliar with Beanie Babies or Barbies may not know enough to maximize the collection’s value.

Some collectors dispose of an unwanted collection while they’re still alive. That is because the owner is the one who understands the market for the collectibles. Obtaining the best prices and letting your heirs use the windfall for their individual plans may be a win-win.

Reference: The Wealth Advisor (Feb. 2, 2021) “Estate Planning for Your Collections May Be a Smart Decision to Make”

Do We Need Estate Planning?

March 4, 2021

Estate planning is not just about making a will, nor is it just for people who live in mansions. Estate planning is best described in the title of this article “Estate planning is an important strategy for arranging financial affairs and protecting heirs—here are five reasons why everyone needs an estate plan” from Business Insider. Estate planning is a plan for the future, for you, your spouse and those you love.

There are a number of reasons for estate planning:

Avoiding paying more federal and state taxes than necessary
Ensuring that assets are distributed as you want
Naming the people you choose for your own care, if you become incapacitated; and/or
Naming the people you choose to care for your minor children, if you and your spouse left them orphaned.

If that sounds like a lot to accomplish, it is. However, with the help of a trusted estate planning attorney, an estate plan can provide you with the peace of mind that comes with having all of the above.

If those decisions and designations are not made by you while you are alive and legally competent, the state law and the courts will determine who will get your assets, raise your children and how much your estate will pay in death taxes to state and federal governments. You can avoid that with an estate plan.

Here are the five key things about estate planning:

It’s more than a will. The estate plan includes creating Durable Powers of Attorney to appoint individuals who will make medical and/or financial decisions, if you are not able to do so. The estate plan also contains Medical Directives to communicate your wishes about what kind of care you do or do not want, if you are so sick you cannot do so for yourself. The estate plan is where you can create Trusts to control how property passes from one person or one generation to the next.

Estate planning saves time, money, and angst. If you have a surviving spouse, they are usually the ones who serve as your executor. However, if you do not and if you do not have an estate plan, the court names a public administrator to distribute assets according to state law. While this is happening, no one can access your assets. There’s a lot of paperwork and a lot of legal fees. With a will, you name an executor who will take care of and gain access to most, if not all, of your assets and administer them according to your instructions.

Estate planning includes being sure that investment and retirement accounts with a beneficiary designation have been completed. If you don’t name a beneficiary, the asset goes through the probate court. If you fail to update your beneficiary designations, your ex or a person from your past may end up with your biggest assets.

Estate planning is also tax planning. While federal taxes only impact the very wealthy right now, that is likely to change in the future. States also have estate taxes and inheritance taxes of their own, at considerably lower exemption levels than federal taxes. If you wish your heirs to receive more of your money than the government, tax planning should be part of your estate plan.

The estate plan is also used to protect minor children. No one expects to die prematurely, and no one expects that two spouses with young children will die. However, it does happen, and if there is no will in place, then the court makes all the decisions: who will raise your children, and where, how their upbringing will be financed, or, if there are no available family members, if the children should become wards of the state and enter the foster care system. That’s probably not what you want.

The estate plan includes the identification of the person(s) you want to raise your children, and who will be in charge of the assets left in trust for the children, like proceeds from a life insurance policy. This can be the same person, but often the financial and child-rearing roles are divided between two trustworthy people. Naming an alternate for each position is also a good idea, just in case the primary people cannot serve.

Estate planning, finally, also takes care of you while you are living, with a power of attorney and healthcare proxy. That way someone you know, and trust can step in, if you are unable to take care of your legal and financial affairs.

Once your estate plan is in place, remember that it is like your home: it needs to be updated every three or four years, or when there are big changes to tax law or in your life.

Reference: Business Insider (Jan. 14, 2021) “Estate planning is an important strategy for arranging financial affairs and protecting heirs—here are five reasons why everyone needs an estate plan”

Did Larry King have an Estate Plan?

March 1, 2021

Larry King’s health was not good the past few years before he died in the hospital last week. He was 87, with a history of heart trouble, a stroke and then he got sick with the coronavirus. He was also paying spousal support as part of a lengthy divorce negotiation.

This was his seventh wife who outlasted all the others. Since the divorce wasn’t final, she’ll inherit much of his estimated $50 million estate, says Wealth Advisor’s recent article entitled “Two Bankruptcies, Seven Wives: Larry King’s Estate Planning Miracle.”

The King of Talk wasn’t an early success. He was bankrupt before he was 30 and filed again at 45, when most successful people start eying early retirement. However, Larry had large gambling debts, grand larceny charges for defrauding a business partner and many professional setbacks.

By the time he really became a household name on CNN, he’d already had five divorces to four women as well as one youthful annulment.

Under normal circumstances, this would mean depleted bank accounts, since the households multiplied, and income continues to be split among the exes. However, King continued to work, and while each bankruptcy reset his official net worth to zero, every contract negotiation kept the income flowing.

Since he died before finalizing the divorce, his current wife Shawn is believed to receive everything not otherwise assigned in his will.

If the divorce were a done deal, she would have gotten a lump sum payment and $300,000 in annual support. Shawn had argued that she needed $1 million a year, but now it looks like she inherits everything.

Shawn lists $7 million in assets in her own name, including a house in Utah. That’s usually a good start to a divorce settlement division of property, but she wanted more because Larry was still working.

In fact, only last year, he signed a trial podcast deal worth at least $5 million.

Reference: Wealth Advisor (Jan. 25, 2021) “Two Bankruptcies, Seven Wives: Larry King’s Estate Planning Miracle”

Can Unmarried Couples have an Estate Plan?

February 25, 2021

For unmarried couples, having an estate plan might be even more important than for married couples, especially if there are children in the family. The unmarried couple does not enjoy all of the legal protection afforded by marriage, but many of these protections can be had through a well-prepared estate plan.

A recent article “Planning for unmarried couples” from nwi.com explains that in states that do not recognize common law marriages, like Indiana, the state will not recognize the couple as being married. However, even if you learn that your state does recognize a common law marriage, you still want to have an estate plan.

A will is the starting point of an estate plan, and for an unmarried couple, having it professionally prepared by an experienced estate planning attorney is very important. An agreement between two people as to how they want their assets distributed after death sounds simple, but there are many laws. Each state has its own laws, and if the document is not prepared correctly, it could very easily be invalid. That would make the couple’s agreement useless.

There are also things that need to be prepared, so an unmarried couple can take care of each other while they are living, which they cannot legally do without being married.

A cohabitating couple has no right to direct medical care for each other, including speaking with the healthcare provider or even seeing their partner as a visitor in a healthcare facility. If a decision needs to be made by one partner because the other partner is incapacitated, their partner will not have the legal right to make any medical decisions or even speak with a healthcare provider.

If the couple owns vehicles separately, the vehicles have their own titles (i.e., the legal document establishing ownership). If they want to add their partner’s name to the vehicle, the title needs to be reissued by the state to reflect that change.

If the couple owns a home together, they need to confirm how the home is titled. If they are joint tenants with rights of survivorship or tenants in common, that might be appropriate for their circumstances. However, if one person bought the home before they lived together or was solely responsible for paying the mortgage and for upkeep, they will need to make sure the title and their will establishes ownership and what the owner wants to happen with they die.

If the wish is for the surviving partner to remain in the home, that needs to be properly and legally documented. An estate planning attorney will help the couple create a plan that addresses this large asset and reflect the couple’s wishes for the future.

Unmarried cohabitating adults need to protect each other while they are living and after they pass. A local estate planning attorney will be able to help accomplish this.

Reference: nwi.com (Jan. 24, 2021) “Planning for unmarried couples”

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