Estate Planning for Millennials

 

This is an article adapted from the personal finance website, Nerdwallet.

As a Millennial myself, this article really touches close to home. Everyone needs an Estate Plan and many Millennials are starting families, creating businesses, investing in real estate, etc.

Ask people to write down a list of their plans and it’s likely to be chock-full of career accomplishments and vacation experiences. Graduating, getting a great job, getting married, starting a family, buying a home, and traveling are likely to be high on the list.

Odds are Estate Planning isn’t high on the list.

It’s not a surprise that people in their 20s and 30s wouldn’t have estate planning at the top of their mind.

The creation of legal documents such as living wills, last wills and testaments, powers of attorney for medical and financial well-being, and potential trusts is a foreign concept to many people, especially those who aren’t married or don’t have children.

Many people assume you don’t need to work on those plans until your 50s or 60s.

The truth is . . . planning now saves you time and money later on.

The Millennial view of money

Many Millennials have embarked on parenthood, care giving and other stressful responsibilities. But they tend to view money from an entirely different perspective from preceding generations. Growing up in the shadow of the recession and under the weight of sometimes crippling student loan debt, many Millennials are responsible with their finances, contrary to sky-is-falling reports. As we juggle student loans, young family expenses, and startup or freelancing jobs, our estate plan changes and the need for a plan grows.

Being good with money, though, isn’t enough. Part of being fiscally responsible is planning for the long-term. More than 60% of Americans don’t have a will, according to a 2015 Harris Poll

Most Americans don’t have long-term care insurance. Good news for Millennials, the premiums are cheap now.

The benefits of estate planning

No matter where you are in your financial life, you need an estate plan. 

Will. Medical Power of Attorney, Financial Power of Attorney, Physician’s Directive.

Those are the big four.

For those with children, a good estate plan lets you appoint a guardian for your children should something ever happen to you.

 

Come see us with your estate planning questions. 817.638.9016.

Do I Owe Gift Taxes on Gifts from My Parents?

Nothing in life is as certain as death and taxes.

Do you owe tax on gifts from your parents?

Your parents have made wise financial decisions.

They now have a decent amount of money.

Maybe you are struggling a bit financially right now.

Maybe you are fine financially.

Either way, your parents gift you money.

Why?

Your parents love you.

Thanks, mom and dad . . . but . . . do I owe taxes on this gift?

The Short answer is NO.

Here’s Why?

These lifetime gifts made to you by your parents (or others) are not considered income to you.

As a result, the gifts will neither be taxed as income nor will they put you into a higher tax bracket.

Will you parents owe taxes?

Perhaps.

If they give more than the annual exclusion amount to an individual, then yes.

How much is the annual exclusion amount?

In 2018, it is $15,000.

They or you can give this amount to any number of people in a year. Gifts for all!

What if their gift exceeds this amount?

Your parent will need to file a gift tax return (Form 709) and claim any gift exceeding the exclusion amount as a reduction against his or her future estate tax exemption.

With the federal estate tax exemption now sitting at $11,220,000 per person in 2018, this will not likely be a problem.

YES . . .you can give away over 11 Million Dollars during your life and not pay taxes on those gifts.

Can your parent claim a deduction on a gift to you, your children, or anyone else?

Nope.

Deductions are allowed on charitable donations, but not on gifts to people.

To take a deduction on charitable donation, donations must be itemized.

Your parents should work with an experienced estate planning attorney to be sure their gifts align with their estate planning goals. 817.638.9016

Are You Responsible For Your Parents’ Debt?

Hopefully your parents enjoyed a happy life, filled with all the joy and good times envisioned on their wedding day.  At the end of their lives, you may be facing questions about your parents’ choices–including debts. Am I responsible for my parents’ debt when they die? The quick answer to that question is…..no.

Unless you co-sign for someone else’s debt, you are generally NOT responsible for their debt. Think student loans. If you, as a parent, co-sign on debt for your child, you are responsible if your child fails to pay the debt. Same thing for houses and cars.

Whether your parents have a Will or not, if they die with debt in THEIR names, there is a legal process that should be followed.

First, if your parent died with assets that are not in a trust, depending on their assets and the amount, a you probably need to go to probate court for the administration process. If you have a Will, you get Letters testamentary. If you don’t have a Will, the Court must determine who your heirs are and appoint someone to administer your Estate. After Letters are issued or an administration is opened, then your attorney should publish notice to creditors in the county where the person passed away. If unsecured creditors exist, they must file a claim with the Estate in the Probate Court.

Whoever is the administrator of the estate is responsible for making all payments to creditors with valid claims. The payments are made from the assets in the estate. These amounts are usually negotiable and you absolutely should negotiate large bills. If there are more debts than assets, creditors will only get a pro-rata payment depending on what class of creditor they fall into per the Texas Estate Code.  Neither the estate, nor the administrator personally, will ever be responsible for coming up with the difference.

If you have any questions regarding completing an estate plan for yourself or an aging parent, or if you are the administrator of an estate, call our office at 817.638.9016 with all of your questions. 

How the Tax Plan Affects You in 2018

On December 22, 2017, President Trump signed into law new tax legislation (the “2017 Tax Bill”). The 2017 Tax Bill makes significant changes to the tax code, including a reduction in corporate tax rates, major changes to individual taxes, a repeal of the Health care mandate, and a number of other changes.

This update focuses on how this law affects individuals from an estate planning and tax perspective, including charitable gift planning, taxation of trusts and estates and asset transfers for planning purposes.

Estate Tax Exemption Doubles to Approximately US$11.2 million per Individual.

Rockefeller would be proud. The 2017 Tax Bill keeps the estate and gift tax at 40% but doubles the estate tax exemption to approximately US$11.2 million per individual (US$22.4 million per married couple), beginning on January 1, 2018. This increase also applies to the exemption from generation-skipping transfer (“GST”) tax, which also increases to US$11.2 million per individual (US$22.4 million per married couple). In layman’s terms, this means your estate will not pay taxes as long as it remains under $11.2 million. If you have a taxable estate, come see us right away so we can begin the planning process.

The other rules applicable to gift and estate taxation, such as heirs receiving fair market value basis for assets received from an estate, stay the same.

This US$11.2 million exemption will continue to be adjusted for inflation each year. Along with most other changes to the individual tax regime, this increased exemption is scheduled to expire after 2025. This increased exemption creates significant planning opportunities for individuals, particularly those with estates in excess of the increased limits. 

Clients Should Consider Using This Increased Exemption Starting in 2018

Clients should consider making gifts (either outright or in trust) in order to utilize this increased exemption, particularly since this increased exemption is scheduled to expire at the end of 2025. In addition, other estate planning techniques, such as GRATs and sales to grantor trusts, can still be used under the new 2017 Tax Law. 

Clients Should Review Current Estate Plans in Light of the Increased Exemption

One planning item to consider is that many clients have wills and other estate planning documents that use formulas based on the exemption amounts available at the client’s death. For example, an individual’s will may leave an amount equal to her available exemption from the estate tax to her children (either outright or in trust) and the balance over the exemption to her spouse. Without changing her documents, the change in the law increases the amount passing to the children and decreases the amount passing to her spouse by more than US$5 million. Accordingly, clients should review their current estate planning documents to ensure that their plans and these formulas still accurately reflect their wishes in light of the dramatically increased exemption amounts.

In addition, clients who live in New York State and whose estate planning documents fund trusts with the entire federal exemption amount may owe significant New York estate tax on the death of the first spouse and, therefore, may wish to review the structure of their estate plans. Clients living in other states that have state estate or inheritance taxes may also have similar tax considerations.

529 Plans May be Used for Educational Expenses for K-12 

The Tax Bill also expands the use of 529 plans so that they may be used for K-12 education. 529 plan funds (up to US$10,000 per year per beneficiary) can now also be used for tuition expenses for any elementary or secondary school, including public, private, or religious schools. Previous law only allowed 529 plan funds to be used for college and other post-secondary programs and expenses. A previous provision also allowed 529 plan funds to be used for homeschooling expenses, but that provision was removed from the final 2017 Tax Bill.

Limit on Deductions for Charitable Cash Contributions Increases to 60% of AGI

In addition, although the 2017 Tax Bill limits a number of income tax deductions, it does increase the deductibility limitation for cash contributions to public charities from 50% to 60% of adjusted gross income. This increase is scheduled to expire after 2025. Other charitable contributions (such as contributions of appreciated property and contributions to private foundations) are still subject to the 30% (and in some cases 20%) of adjusted gross income limitations, and the ability to carryover unused charitable contribution deductions for five years remains unchanged. 

Many Changes to Individual Taxation Also Affect Trusts and Estates, Including the New 20% Deduction for Certain “Pass-through” Income

Many of the changes to the taxation of individuals (e.g., reduction in tax rates, limitation on state and local income tax deductions, etc.) will also apply to trusts and estates. 

However, one change of particular importance for trusts and estates is the deduction for income received from pass-through entities. 

Under the 2017 Tax Bill, trusts and estates are entitled to take the 20% deduction for pass-through income also applicable to individuals, which creates an effective tax rate of 29.6% for most pass-through income earned by a trust. While beyond the scope of this discussion, certain restrictions apply to the availability of this deduction. It is important for trustees of trusts that own interests in pass-through entities to understand the effect of these rates on fiduciary income tax obligations. 

Conclusion

Although the ultimate scope and effects of the 2017 Tax Bill will continue to unfold, the most significant change from a transfer tax and estate planning perspective is the doubling of the estate, gift and generation-skipping transfer tax exemptions to approximately US$11.2 million beginning on January 1, 2018.

For questions or concerns about tax planning, please contact us immediately at 817.638.9016. Don’t wait until you’re facing an enormous tax bill!

The Most Important Things You Need To Include In Your Will

A will can accomplish many different legal tasks, including naming heirs, naming guardians for minor children, and naming an executor to take care of your estate. Many people can get by with a simple will that has a few important provisions. You can even draft your own Will as long as you carefully follow state specific instructions for execution and drafting. If you have questions, come see a qualified Estate Planning Attorney. Here is what your Will needs to include.

Choose Who Receives Your Property…Who Gets What

Many people will want to leave all of their property to their spouse or children. This is standard. Here is what you don’t usually think about.

First, you may want to spell out what should happen if one of your beneficiaries passes away before you do. We often see people who leave all of their estate to one beneficiary and forget to include a back up plan. In many cases, you can simply state that their share will be divided equally among the remaining heirs based on current intestacy laws. Don’t forget your backup plan.

You may also want to include a survival clause. For example, if you both you and your spouse are involved in an accident, there is a possibility that your assets could have to go through probate twice if one of you passes away shortly after the other spouse does. You can designate a longer survival period to avoid this problem. Standard survival is 120 hours or 5 days for the math majors out there.

Name an Executor…Who is the Boss

The executor is in charge of administering the estate. Many people choose a family member or someone else with the necessary skills to complete this task. This person needs to be trustworthy and should immediately move to secure the Estate after you die.

You should also consider choosing a backup executor just in case your primary executor is unable to serve or refuses or resigns. This position does require some legal or business knowledge, so make sure you choose someone with those skills.

Other Important Will Language

The following are a few additional things you should include in your last will and testament:

  • State that you are revoking all prior wills to avoid a potential conflict between the new will and a prior will.
  • Include a residuary clause, which controls what happens to all property not specifically mentioned in the will. This ensures that any property you acquire after drafting the will is still distributed to your designated heirs.
  • If you have minor children or a trust, you should name any trustees and guardians in your will.

Every family is unique, and very few Wills are “simple.” If you have questions about what to include in your will, give us a call and let us craft a plan for your family.

817.638.9016

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Probate of a Salesman

Willy Loman’s story resolves most of the conflicts between the characters.

SPOILERS AHEAD. (But seriously, this play premiered in 1949…you should know what happened by now)

What the play didn’t touch on would probably put the original story to shame. A tale of drama, death, INTRIGUE! That story is…probate. Maybe Biff runs off with the assets. Perhaps Linda remarries and leaves everything to her new spouse. What if Uncle Ben created a Trust but left someone out of his diamond fortune??? SO MANY POSSIBILITIES.

Probates can get messy very quickly. Even famed playwright Arthur Miller’s estate is whirlwind of emotions and drama…much like his play.

The crux of this drama revolves around more than 160 boxes of Miller’s manuscripts and writings. The battle pits Yale University vs. the University of Texas. The loot:

The Miller archive, comprising 322 linear feet of material, is certainly a rich one. It documents the whole of his public career, including the development of classic plays like “Death of a Salesman” and “The Crucible” and his showdown with the House Un-American Activities Committee and advocacy against censorship around the world.

There is also intensely personal material, including early family letters and drafts of an essay about the death of Marilyn Monroe, Miller’s second wife, begun the day of her funeral and revised over many years but never published. But the richest vein may be the journals, which span more than 70 years, often mixing fragments of works in progress with intimately diaristic reflections.

Miller began his relationship with the Ransom Center in the early 1960s. Short on funds and facing a large tax bill, Miller donated 13 boxes of material, including manuscripts and working notebooks for the plays that made his name — including “Death of a Salesman,” “All My Sons” and “The Crucible” — in exchange for a tax deduction. (You can do this too…by contacting our firm).

In 1983, after a fire damaged Miller’s house in Roxbury, Conn., he shipped another 73 boxes to Texas for safekeeping. In a letter held at the Ransom Center, he said he’d like to eventually formalize the transfer either by sale, or by donation should the tax deduction (which had been eliminated in the early 1970s) be restored.

“I am in full agreement with your suggestion that I give them absolute first refusal in whatever decision I make for the disposition of the archive,” he wrote to the Manhattan bookseller Andreas Brown, who was serving as his archival consultant.

PAUSE. This is the point where a good estate planning attorney would step in and create a valid estate plan leaving the manuscripts to the Ransom Center with a right of first refusal. This right would exists in the Last Will and Testament of Arthur Miller and should also exist in any other planning documents involved with the gift. Sadly, this did not happen.

In January 2005, a few weeks before his death at the age of 89, Miller shipped 89 more boxes to the Ransom Center, whose extensive American theater holdings also include the papers of Tennessee Williams, Lillian Hellman and Stella Adler.

In the summer of 2015, three staff members from Yale’s Beinecke Rare Book and Manuscript Library visited the Ransom Center to inspect the Miller collection. Yale then made an offer of $2.7 million for the materials on deposit, plus some 70 boxes still held by the estate.

The Ransom Center matched the price, but refused to go higher, citing Miller’s 1983 letter as providing them a right of first refusal.

So now, the heirs of the estate of Arthur Miller are in a quandary. Clearly, the works are worth more than $2.7million, but why would either side increase their offer?

Ultimately, the Ransom Center won and purchased the works from the Estate for $2.7million. The Court relied upon the letter from Miller as sufficient proof that a right of first refusal existed. Who knows how much Yale would have offered???

h/t to the New York Times for this great article.

Plan your Estate with us now. Become a famous playwright later.

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817.638.9016 or weaverlegal.net

 

Should You Plan Your Estate Like Aaron Hernandez?

Have you ever considered creating a Trust for your heirs? A properly drafted and managed irrevocable trust can protect your hard-earned assets from certain creditors.

Former New England Patriot Aaron Hernandez may have left hidden wealth for his 5-year-old daughter beyond the reach of his creditors in a trust he set up before his prison suicide.

The “AJH Irrevocable Trust” came to light in documents filed in Bristol Probate and Family Court by attorney John G. Dugan, the special representative of Hernandez’s purportedly destitute estate.

Since Hernandez owed substantially more in debts than he had in assets, his estate is likely insolvent. Although a probate court has the power to provide a family allowance for minor children of a deceased person, often creditors will aggressively pursue assets contained in someone’s estate. 

Creating an irrevocable trust allows you to provide for your future heirs and separate assets from your taxable estate. 

Feel like an irrevocable trust is right for you? Set up an appointment at 817.638.9016.

What is a Medicaid Trust and How Can it Protect Your Legacy?

Photo of lady and daugher

Long-term medical care is expensive, and there is no indication that trend will reverse itself anytime soon. The national median cost of long term care is $44000-$91000. If you don’t have this saved away, you aren’t alone. There are governmental programs that help you pay for those types of programs, but they require planning. That means you need to be proactive in considering the implications of long-term medical care costs when crafting your estate plan. Many people find themselves falling short of the funds needed to pay for increasingly costly long-term care but still having too many assets to qualify for Medicaid funds to help cover those costs. This no-man’s land is a place no one wants to be. Thus the name. A recent article from Marketwatch.com provides some information on Medicaid trusts, estate planning tools that can help you navigate the high cost of long-term care insurance while still holding onto important assets you want to pass to your heirs. Here are some highlights.

Medicaid “Look-Back” Rules

One of the reasons that you should start planning for long-term care costs as soon as possible is the existence of Medicaid “look-back” rules. Right now, Medicaid looks at any major gift you’ve given in the last five years. Gift is used in a loose sense. Any major transfer is likely to be scrutinized. My partner, Rick Weaver, always says “treat a Medicaid application like your tax return with a 100% chance of audit.” These rules mean that even if you are able to prove your eligibility for Medicaid today, you will still be required to have been eligible for each of the past five (5) years, too. If you find yourself in a situation where you are facing heightened medical costs, especially from unanticipated long-term care needs, you will not simply be able to transfer assets somewhere else to qualify. The earlier you start planning, the more secure you can be in your ability to qualify for potentially necessary Medicaid funds when it comes to your long-term care plans.

Basics of Medicaid Trusts

Medicaid trusts must be irrevocable trusts. That means that once you establish them, you generally cannot revoke or modify them. The reason for this is fairly obvious. Medicaid doesn’t want to transferring funds with an ability to liquidate those funds down the road. These Medicaid trusts work by transferring ownership from you and your estate to the trust itself so that assets you decide to place in the trust are not counted when determining your eligibility for Medicaid funding. The individual creating the trust cannot be the trustee of the trust, which means that you are essentially handing over control of the assets you assign to a Medicaid trust to the individual you decide to name as trustee. It is important to make sure you appoint someone that you trust and that you know will manage the assets within that trust responsibly. If this concept is confusing after I explained the look back period, don’t worry. Creating a trust for medicaid is a gift for medicaid purposes. This is why effective planning often takes place earlier in life as opposed to right before you need Medicaid.

Medicaid trusts can sometimes be daunting when considering their upfront costs. You will also likely be responsible for annual accounting fees when it comes to tax preparation and other important trust maintenance costs. However, the best way to look at these trusts are as an investment in your long-term care. Paying to establish a Medicaid trust now can be significantly more cost-effective than being required to pay for long-term care without the assistance of Medicaid funds. Would you rather face a small bill today or face months of long term care at $5000+ a month? You can retain significantly more assets to distribute to your heirs than you would be able to if those assets were needed to pay for long-term care expenses. If you are concerned about the potential implications the costs of long-term care may have on you and your estate, come talk to us today. Early planning is smart planning.

Ten Things to Think About Before Creating Your Estate Plan

Haven’t given much thought to estate planning and charitable giving? You aren’t alone. Over 60% of people don’t have Last Wills and Testaments.  Here are 10 questions to jumpstart your thinking(thanks to Marketwatch for the great article):

1. Can you afford to give away money now? You shouldn’t gift large sums to your children or charity unless you’re confident you have enough for your own retirement. There’s no limit on gifts to charity, though your annual tax deduction may be capped. For gifts to family members, you might take advantage of the annual gift-tax exclusion, currently $15,000 as of January, 2018.

2. Do you have the right beneficiaries listed on your retirement accounts and life insurance? Your individual retirement account and employer’s retirement plan might hold the bulk of your savings, so it’s crucial these accounts pass to the correct people. Unless you want your ex-spouse inheriting from you, probably a good idea to remove his or her name from the beneficiary designation.

3. At the end of your life, who do you want to make medical decisions on your behalf and how far would you like doctors to go in attempting to prolong your life? You should make these wishes official in a health care power of attorney and physician’s directive.

4. Do you have a Last Will and Testament? According to a 2016 Gallup survey, just 44% of U.S. adults have one. Wills are crucial to avoid letting the State dictate who receives your property.

5. Are you worrying unnecessarily about federal estate taxes? Thanks to today’s $5.5 million estate tax exclusion, IRS statistics suggest just one out of every 530 deaths will likely trigger federal estate taxes. Indeed, you should review your estate plan if it was designed to avoid federal estate taxes—but was drawn up before the sharp increase in the federal estate tax exclusion since 2001, when the exclusion stood at just $675,000. If you have complicated bypass trust language, now is a great time to simplify your Estate plan. and make things easier on your surviving spouse or children.

6. Does your state impose an estate or inheritance tax? Good news . . . Texas has no state inheritance tax!

7. Should you keep your Roth IRA for your heirs? That pool of tax-free money could make a great bequest. During your lifetime, you might also help your children or other young family members fund a Roth, assuming they have earned income. With decades of compounding ahead of them, even small sums invested today could grow to become significant wealth.

8. Are the charities you support well-run? Investigate charities by heading to sites such as CharityNavigator.org and GuideStar.org. A crucial question: Of the dollars you donate, what percentage ends up in the hands of the people you’re hoping to help? Consider local charities if you have misgivings about national organizations.

9. Could you save even more on taxes by donating appreciated assets? And if you’re over age 70½, you could give away part of your annual required minimum distributions.

10. Have you talked to your adult children about your estate? You should discuss your estate plan with your family and how much they will likely inherit, how you would like the money used, where key documents are located and what your wishes are regarding life-prolonging medical procedures. Will contests and Trust litigations costs thousands and can permanently divide families. Be honest about what you are leaving to whom and why.

If you need help with your estate plan, give us a call at 817.638.9016. Be sure to sign up for our newsletter to receive even more valuable planning news and tips.