Estate Planning Lessons from Your Friends on “Downton Abbey”

Downton-abbeyThis isn't a joke. The viewers of this high-end PBS costume drama, which takes place about a century ago, could very likely be your clients' demographic. Look at who's a top corporate sponsor: Viking River Cruises, which told The New York Times that “our demographic is affluent Baby Boomers 55+.” It's a big group: more than 10.1 million viewers watched the first episode of the fifth season in early January. Are your clients in this group? Or would you like to reach them? Look closely, and see if Downton can impart valuable financial lessons to your clients.

Downton Abbey follows the lives of the fictitious Crawley family who live in a grand English country house in the early 1900s. Downton’s characters can teach some valuable financial lessons, according to AccountingWEB’s recent post titled, 8 Lessons You and Your Clients Learn by Watching Downton Abbey.

The Crawley family on the award-winning PBS series are stewards of a large estate—over 1,000 acres of agricultural land with a village of tenant farmers and so on. They must keep the estate going and pass it on to the next generation. The big issue on the show lately is finding a suitable husband for Mary, so the estate remains in her family. Take a look at a few of the articles eight lessons:

Being Rich Doesn’t Make You Smart. Now the Granthams on the show may be friends with the Astors in New York and the aristocracy in England, but they’re extremely poor financial managers. Doing things the way we always have isn’t a business plan. Pay attention and make the necessary moves to be viable.

It's Never Too Early for Estate Planning. In season three of the popular series, Matthew Crawley revives the massive estate by injecting a large amount of cash he received as an inheritance from his deceased fiancé's family. The estate was afloat again, and Robert made Matthew a joint owner. However, he’s killed in a car crash. That’s another problem. Were this in 2015 America, any clients with more than $5.43 million in assets need to understand their estate tax liability.

One more lesson—Respect the Value of Advice. Lord Grantham got into a pickle financially by investing in a Canadian railway. But the founder died, and the railroad was on the verge of bankruptcy. LG either didn’t ask his broker’s advice or just ignored it. So if you’re paying an expert for advice, you should follow it.

Read some of the other lessons from this article and talk over a strategy for you and your loved ones with an experienced estate planning attorney.

For more information about estate planning, please visit my estate planning website.

Reference: AccountingWEB (March 10, 2015) 8 Lessons You and Your Clients Learn by Watching Downton Abbey”  


NO NEW TAXES! But Now What?

NoNewTaxes_jpg_800x1000_q100Accountants and financial advisors may be breathing a sigh of relief that there were no major new tax-law changes this year, but that doesn't mean they're happy about the higher taxes their clients are paying now compared to just a few years ago. But income taxes are higher. The top bracket is now 39.6 percent for people earning $400,000 as singles and $450,000 for married couples filing jointly. High earners also pay a 3.8 percent Medicare surtax on their net investment income if their modified adjustable gross income is more than $200,000 for singles and $250,000 for married couples. And there's the 0.9 percent Medicare payroll withholding tacked on to the incomes of people earning $200,000 if single and $250,000 if married.

According to a recent post on cnbc.com, titled Tax planning tips for high-income earners,” tax planning is better done looking ahead three or five years. If you see a trend, such as an increase or reduction in income, you can alter your deductions or deferrals.

To avoid adding to your tax burden, make sure to leverage some income-producing investments, like bonds and real estate investment trusts, as well as tax-sheltered accounts—including 401(k) plans and IRAs. But this investment income is taxed as ordinary income and could bump you into the higher categories if you’re right on the edge of the line. However, if you place it in a retirement account, there’s no tax owed until the funds are withdrawn, and in the case of Roth IRAs, no tax will ever be owed after the contributions are made.

A higher estate tax exemption means that fewer people pay the federal estate tax now, and some experts are reconsidering their traditional advice. A former rule of thumb held that you should give away as much as you can during your lifetime; however, nowadays, there can be some real advantages in keeping things in your estate. In retaining appreciating assets inside the estate, heirs would have the opportunity to get a stepped-up in basis when they inherit. For instance, if a stock grows from $100 to $1,000 during a person's lifetime, the clock will reset for heirs when they inherit it. When the heir sells the stock, his or her cost basis is determined as of the date they inherited the assets (so they will not pay tax on the income from $100 to present—only from $1,000).

Each state has different rules about estate taxes, and you should talk to your estate planning attorney about this. It is also important to remember that not all beneficiaries of an estate actually live in the same state.

For more information about estate planning, please visit my estate planning website.

Reference: cnbc.com (January 28, 2015)Tax planning tips for high-income earners


What’s Your Financial New Year’s Resolution? / York, PA

New-Year-resolutions-370x280Having enough resources to stop working at some point is on most people's 2015 financial planning agenda. Still, most Americans have not taken the time to figure out how much they need to set aside in order to fund their retirement.

The first item for you to check off on your 2015 checklist should be solving this retirement math problem. It’s one of the most significant math problems you’ll do after you finish grade school. Once you have arrived at the answer to this math problem, you need to examine if that answer will create a problem for you as you prepare for retirement.

With that target in place, pay heed to the advice in an article from Seacoastonline.com titled Start your 2015 financial planning checklist.Consequently, you should create a strategy that will help you achieve that goal. A savings plan is one method you can use—and take maximum advantage of any tax-deferred savings opportunities available to you along the way.

For instance, if your company has a 401(k) plan—especially where they match your contributions—it’s imperative that you defer as much of your pay as possible to this account to enhance your retirement security. That’s free money that your employer is setting aside for you just for being smart and planning for retirement!

In 2015, the 401(k) contribution limit is at $18,000. If you are age 50 and older, you can enjoy an additional $6,000 catch-up contribution.

If your employer doesn’t have a 401(k) program, then you should start and contribute to a traditional IRA. You can put in $5,500 pre-tax ($6,500 for those age 50 and older). In addition, you can contribute to a Roth IRA, which, for 2015, has the same limits.

Eligibility to make Roth contributions, however, starts to phase out as your modified adjusted gross income exceeds $183,000 for married couples and $116,000 for single tax filers. The article suggests that, to maximize growth potential, it's typical to make traditional and Roth IRA contributions early in the year, instead of waiting until the contribution deadline (April 15th of the next year).

Take a look at your insurance coverage and make sure that your financial plan is not derailed by an unforeseen disability or untimely death. Acquire adequate long-term disability insurance so you will have income to pay expenses and to fund other goals. Although many employers offer group disability and life insurance coverage at a low cost, that coverage may not be sufficient. Supplement this with individual coverage to provide adequate security for you and your family.

Last, but certainly not least, your 2015 checklist should include setting up and maintaining a complete, up-to-date, estate plan with an experienced estate planning attorney.  As one of the most neglected areas of personal finance, you should have, at a minimum: (i) a will to designate beneficiaries for your assets (ii) a durable power of attorney to designate an agent to act on your behalf in financial dealings; and (iii) a health care proxy to designate an individual to act for you when health care decisions are required. You should also discuss a living will with your attorney so that you can make your wishes known for life-prolonging treatments you want or don’t want.

In addition, trusts can play an important part in an estate plan. A revocable trust can simplify estate settlement for family members: it isn’t part of the probate process and provides for ongoing management of your financial resources in the event you become incapacitated.

For more information about estate planning, please visit my estate planning website.

Reference: Seacoastonline.com (December 28, 2014) Start your 2015 financial planning checklist


Award Winning Director May Have Used Trust to Keep Estate Secret

Fbb41bb578be0d5f201a492eed5a55dfA recent headline in the New York Daily News, pertaining to the death of film director, Mike Nichols, highlighted the misinformation and confusion regarding how assets pass upon death. The headline said Nichols "left his estate to his widow, Diane Sawyer, and his three adult children." The article went on to say his $20 million estate was split between Sawyer and his three adult children "according to estate papers." It quoted from Nichols' will that left his "tangible personal property" to Ms. Sawyer. However, except for tangible personal property (e.g., jewelry, furniture, art), the "pour over" will did not set forth how his assets were left.

Unlike many celebrities and famous public figures, why do we know so little about the estate of award winning director Mike Nichols? An article from The National Review, titled "The Death of Mike Nichols and Estate Planning," has the answer.

It seems the "[d]etails of the distribution …are concealed in a private trust that has not been made public."

Experts say that, in all likelihood, Nichols had a "revocable living trust" containing the dispositive provisions of his estate. Consequently, with such a trust his wishes were shielded from the public and not part of a court record, which is public.

All we can do is speculate. We can’t tell, except for the tangible personal property, if the famous director split his assets between his wife and children—or left them all to his wife, or all to his children, or all to charity, and so on. Those details are in his revocable living trust. He may have also gifted his assets during his life—or he may have passed them by beneficiary designation or title.

So, don’t believe everything you read. Remember, just because it’s in print doesn’t mean it’s true, and things aren’t always as they seem. From an estate perspective, the moral of the story according to Forbes is to use a revocable living trust to avoid probate and to provide many advantages over just a will, not just the privacy advantage that Nichols achieved.

Contact an experienced estate planning attorney to help determine whether a revocable living trust is appropriate for you.

For more information about estate planning, please visit my estate planning website.

Reference: The National Review (December 9, 2014) "The Death of Mike Nichols and Estate Planning"



‘Tis the Season to Think about Gifting / York, PA

GiftingWhen you mention "gifting" what usually comes to mind is a birthday or Christmas. What I’d like to talk about today is gifting assets to another generation. Your federal estate tax exemption, which is the amount you can give away tax free when you die, for this year is $5.34 million and next year will be $5.43 million and if you have more assets than that your estate will owe federal estate taxes. Married couples have an unlimited gifting privilege between spouses in life or death.

In certain states, the estate exemption is just $1 million, not the $5 million (indexed for inflation) as at the federal level. CBS Boston's recent posting, titled All About Gifting Assets, warns that things can get complicated pretty fast and you should have a good estate planning attorney to help you.

The annual gift exclusion for anyone is $14,000. That means you can transfer this amount this year (and then next) to as many recipients as you want, provided you have the money to make the gifts. If married and your spouse joins in, then you can gift a total of $28,000. What's more, you can pay medical or school bills for an individual and not incur a gift tax. In other words, such “gifts” are not counted toward that gift exemption amount.

Taking advantage of these opportunities is a great idea, so why not give away some money to help the next generation accomplish their goals (or to pare down your estate so you won’t owe estate taxes). For instance, if you have an estate worth $1.2 million, there will be no federal estate taxes but (depending on where you live) some state estate taxes. Would you rather give it away to your family or to the government?

If any of your grandchildren are in college or grad school you can pay their tuition and medical insurance, but you need to pay it directly to the school or insurance company. And after paying the bills (if you still have some money left), you can still hand over a check to them for $14,000, or with your spouse, you can make it $28,000.

Reference: CBS Boston (November 27, 2014) All About Gifting Assets

1 2 3 6

  • Fill in the form below to download your e-book

    Download your free Avoid These Five Common Estate Planning Myths e-book
  • This field is for validation purposes and should be left unchanged.