Tip for June, 2018
Discussing your estate plan should include all of the property and possessions you pass to others on your death. However, the word “estate” is often used in terms to describe specific kinds of property distributed when you die.
Your “probate estate” means those assets that will be governed by your Will, or intestacy if you have no Will, when you pass. Your probate estate is governed by state law and administration may be under court supervision.
Your taxable estate (sometimes called gross estate) consists of your probate estate plus any non-probate assets passing on your death which are subject to taxation (less any lawful deductions).
Assets not included in your probate estate which may be included in your taxable estate could consist of property held in joint tenancy (including certain real estate, bank or other financial accounts), property held in tenancy by the entirety, assets placed in trust, life insurance, pensions, retirement plans, payable on death accounts or certain other assets.
Your federal taxable estate may even include certain gifts made prior to you death. It is important to know that changes to your Will may only govern your probate estate. It may not affect distribution of your non-probate assets.
In preparing your estate plan you should consult with your attorney so that all of your assets will be distributed.
Tip for May, 2018
There is a saying: “The only thing that doesn’t change, is things will always change”. You should review and update your estate plan whenever there are significant changes in your circumstances or the law. For example, older estate plans may include provisions to maximize Federal or state tax deduction or exemption amounts which may no longer be appropriate or necessary.
Significant changes may occur in your life; the lives of your spouse, heirs and beneficiaries. You should also review your personal representatives such as your Executor, Trustee, Guardians for children, conservators, any attorney in fact, custodian for your pets or others charged with carrying out your wishes. Life changes may include moving to a new home (especially in another state), marriages, divorces, births, deaths, adoptions, children reaching the age of majority, health-related issues, college, or finances. Changes in finances might include a new job, filing for disability, retirement, inheritances or other windfalls, starting or selling a business, financial setbacks, buying or selling property, changes in the nature or location of your assets or even changes in your income tax situation.
Of course, you should review your estate plan whenever your priorities or desires regarding your estate plan change as well. Even if you aren’t sure if changes are significant, experts recommend you review your estate plan at least once every 3-5 years.
Tip for April, 2018
Thanks to recent changes in tax law the individual exemption from Federal estate, gift and generation-skipping taxes has been increased to $10 million (before indexing for inflation) for tax years 2018 through 2025. (Note: unless extending the personal exemption will later revert to $5 million, indexed.)
The IRS has determined that after indexing in 2018 one person may exempt from Federal estate tax up to $11.2 million in assets. Married couples may be able to exclude $22.4 million from estate tax for 2018 using a tax provision called “portability”. Using portability the personal representative may elect to transfer decedent’s unused estate tax exemption amounts to the surviving spouse to reach the $22.4 million. In addition the annual exclusion from federal gift tax increases in 2018 to $15,000 per donor for each donee. For example a couple may each gift a person $15,000 for a total gift of $30,000 to one person from the couple. If the donee is married the couple may gift the spouse another $30,000 free of federal gift tax. This means fewer estates will be subject to Federal taxation and may mean more opportunity to make planning for avoidance of Federal income taxes a priority.
Tip for March, 2018
Durable powers of attorney can be an important part of your estate plan. Wills are testamentary instruments, meaning they take effect upon your death. A power of attorney is a legal document in which you (as principal) allow your agent (called the attorney in fact) to act on your behalf in specified matters while you are still alive. Traditional powers of attorney are terminated when you die or become incompetent. A durable power of attorney either becomes effective (springing) or remains effective if you later become incompetent.
With durable powers of attorney your agent may be able to take care of your affairs without going to court for guardianship or conservatorship proceedings if you become incapacitated. Durable powers of attorney are often divided into financial and medical powers.
Financial powers may allow your attorney in fact to pay your family’s expenses, manage your bank accounts and investments, collect your Social Security or other benefits, operate your business, pay your taxes or take care of other financial matters as you designate.
Your medical power of attorney can allow (or prohibit) your agent from approving certain medical procedures on your behalf. In most states your medical power of attorney may also include provisions about donations of your body parts after death (either to permit or forbid) and may include provisions about disposition of your remains. Your agent (attorney in fact) is required to follow your wishes and act in your best interests.
You may revoke or modify a durable power of attorney as long as you are mentally competent. Durable powers of attorney end on your death so they cannot take the place of a Will or Trust. Please consult with your attorney to learn now durable powers of attorney may fit into your estate plan.
Tip for February, 2018
Have you made provision for care of your pet(s) in the event of your death? All 50 U.S. States now allow “pet trusts” to care for pets. Your lawyer can advise of you about the laws and limitations in your state. There are, however, general considerations you should discuss with your lawyer.
Pet trusts provide for animals who are alive at the time of your passing and end when the last pet dies. Unless an animal has special needs or is treated differently than your other pets it may be best to describe your pets generically. The pets you own today may not be the same pets you have when you expire.
Your pets will need a caretaker. This person will have physical custody of your pets and will be responsible for their day-to-day care. It is important that the person named be willing to accept the responsibility. Ask first before naming someone. You should also name alternates to succeed the caretaker if they become unable or unwilling to serve.
You need a Trustee or other person to monitor your money and assure your wishes are being met by the caretaker. Having two different people, one as caretaker and one distribute Trust money, provides checks and balances. Again, it is best to prepare for successors should the need arise.
Funding the pet trust can be an issue. You should set aside enough money to properly care for your pets during their lifetimes. This amount will depend on the number, age, and health of your pets. You should put aside enough money to handle unexpected illness or other expenses. But if you set aside too much it could invite a legal challenge from your heirs. One way to deter challenges is to name a charity as the remainder beneficiary for any unused funds from the pet trust.
Finally, remember that a Will goes into effect when you die. You may become incapacitated and need help with your pets prior to your passing. A “Living Trust” (inter vivos trust) can be effective prior to your death. A pet provision in your Living Trust provides for your pets if you become incapacitated. A durable power of attorney may also be used to appoint a caretaker to deal with your pets in the event of incapacity. Please consult with your attorney for details.
Tip for January, 2018
Tax changes are coming in 2018. But most people are not done with their 2017 returns, due April 17, 2018. You can start now to make things easier for you at tax time.
Watch your mail and inbox and make sure not to miss any tax documents sent you by third parties. Make a list of documents you needs to complete your return, such as W-2s, 1099s, mortgage interest statements, ACA documentation and the like. Gather up your financial records, receipts or other tax information accumulated during the year so they are together. Be sure to have documentation for any sales of stocks, bonds or other assets during the year, including your purchase price or other tax basis.
If any documentation is missing try to get copies now, don't wait until your return is due. Starting your homework now may help make things less stressful when preparing your return later.