Check on Your Beneficiaries…Today!

Fortune cookie inheritanceWhen you pass away, what you leave to your loved ones is important, but so too is how you leave those assets. Making certain that you leave the right assets to the right beneficiaries, is a critical element of effective estate planning.

Forbes’ recent article, “Pass On Your Assets Wisely: How To Choose The Right Beneficiaries,” examines several common asset types and considerations to be taken when naming beneficiaries.

Life insurance. These proceeds can be paid to the beneficiaries quickly. After proof of death is established, the funds are paid. Think about heirs who may need ready access to funds after you pass. That’s usually not a minor child. However, if you do name a child, you must designate a guardian or place the proceeds in trust. Otherwise, the state may take control and assign a stranger to manage the money on your child’s behalf.

Assets in a Will. When you pass away, your will is going to be probated, and the assets can’t be distributed until the probate process is complete. Because of this, be sure the beneficiary of any property or assets specified in the will is in a position to wait. You can also create a revocable living trust to hold those assets, so a trustee can distribute assets directly to beneficiaries without waiting to go through probate.

Retirement plans. When you select the beneficiaries for retirement plans, remember that it can result in tax implications. The younger the recipient, the longer their life expectancy, and the more time they will have to withdraw funds from the plans. That means the account can continue to grow tax-deferred. You can also name a trust as the beneficiary of a retirement plan, and the assets in the trust will be protected from creditors. A retirement plan inherited outside of a trust may not enjoy this protection. In addition, if a beneficiary is young, the trustee can make distributions under conditions that you state when you create the trust.

Last, be certain the beneficiaries named in your retirement and other financial accounts are consistent with your estate plan. A beneficiary designation of your 401(k) plan supersedes anything in your will.

Reference: Forbes (May 30, 2017) “Pass On Your Assets Wisely: How To Choose The Right Beneficiaries”


Trump Transfers Condos to Trust

Conference roomTrump has transferred 71 properties—primarily condo units in a handful of buildings—into his personal trust. He promised that the trust would be run by his sons Eric and Donald Trump Jr., along with Trump Organization executive Allen Weisselberg.

The Real Deal, in “It’s official: Trump begins transferring NYC properties into trust,” reports that to date, Trump has transferred holdings in Trump Tower, Trump International Hotel and Tower, Trump Park Avenue and Trump World Tower into the trust.

His ground lease on 40 Wall Street and interest in the 1290 Avenue of the Americas office tower, which he co-owns with Vornado Realty Trust, and other properties, have not yet officially been transferred. It’s unknown whether his primary residence, a penthouse at Trump Tower, will eventually be transferred into the trust, which is registered in New York and already holds many of Trump’s other ownership entities for properties outside of New York.

At a press conference in January, then President-elect Trump announced that he would move all of his assets into a trust not controlled by him, to avoid the appearance of conflicts of interests. He also said that the trust would have an independent ethics adviser not affiliated with the Trump Organization and an internal officer to monitor compliance.

The Director of the Federal Office of Government Ethics and others denounced the move. They insist that Trump can only truly avoid conflicts of interest by completely divesting from all his holdings, rather than just a transfer to family members and company associates.

Trump’s son-in-law Jared Kushner, Senior Adviser, announced that he’d place many of his assets into a family-controlled trust and step down as CEO of his family firm. Although Kushner has done more to address potential conflicts than his father-in-law, ethics experts have also raised concerns about whether transfers of interests to family members is a true divestment.

Revocable trusts, or living trusts, are used in estate-planning. A revocable trust is a trust in which provisions can be modified or canceled by the grantor. During the life of the trust, income earned is distributed to the grantor. After his or her death, the property transfers to the beneficiaries. Trump can control the trust until his death while keeping the earnings.

Reference: The Real Deal (January 30, 2017) “It’s official: Trump begins transferring NYC properties into trust”


It’s Okay, an Intentionally Defective Grantor Trust is Legal

Definition of trustDon’t worry; this is a totally legal and valid trust. The “defective” part only describes the fact that it’s not valid for income tax shifting purposes.

Because it’s a Grantor Trust, all of the income, deductions, and credits are reported on the individual income tax return of the person creating the IDGT, who is called the Grantor or Settlor. This is all explained well in a recent article appearing in The Nevada Appeal: “What is an ‘IDGT?’”

An IDGT is valid for gift or estate tax purposes. The Grantor is also called the “deemed owner” and is separate from the trust. A big benefit of the IDGT is that significant wealth can be transferred by the Grantor without transfer taxes. This is due to the lack of coordination between the regulations for income tax and those concerning gift and estate (transfer) taxes that apply to grantor trusts.

A grantor trust—which is also known as a “living trust”—is revocable. The owner or grantor is allowed to modify the terms, add assets and remove assets from the trust. Income is reported on the individual income tax return, and the grantor trust isn’t required to file Form 1041, an income tax return for estates and trusts.

A typical transaction involves the grantor selling an asset that is expected to grow in value to the IDGT in exchange for a promissory note for the fair market value of the item, with interest at the applicable federal rate (AFR). Since the transaction is a sale for gift tax purposes, the gift tax doesn’t apply. It’s also a sale for estate tax purposes.

The grantor owns only the promissory note, and when he or she dies, only the value of the note is included in the grantor’s estate. The appreciation passes to the beneficiaries of the trust without any gift or estate tax liability.

The transaction doesn’t mean that the trust pays income taxes. In fact, the “defective” part of the IDGT means the grantor still reports and pays taxes on trust income—like dividends or rents. The grantor pays those income taxes out of other assets, so it further reduces his or her estate. But the payment of those income taxes is not a gift.

Reference: Nevada Appeal (January 23, 2017) “What is an ‘IDGT?’”


Should I Just Copy and Paste an Estate Plan from the Internet?

Senior couple at computerHave you considered creating your own estate plan from a template on a website, instead of using the services of a qualified estate planning attorney? Is that smart?

Modern Medicine’s article “Estate planning: Don’t make these mistakes”, says that, in some instances, folks try to create their estate plan without consulting an experienced lawyer. These folks think that because they may have a general understanding of estate planning, they can do it for themselves without the help of an estate planning lawyer. But everyone’s different, and boilerplate forms won’t always cover a specific situation. Take a look at this list of potential estate planning mistakes that you can help to avoid by working with an experienced attorney.

Failing to update your estate plan. Your life and financial circumstances may change over time. As a result, you need to change your estate plan accordingly.  You should also make sure to review your plan regularly.

Failing to revise your will. The will that you drafted 15 years ago may no longer apply for a variety of reasons. You can’t just cross-out provisions or names on an old will, add or change information, and initial the document. That won’t work and could revoke the entire will. You need to see an estate planning attorney.

Failing to use more than joint tenancy to avoid probate. Many assets are transferred outside of wills, like assets titled in joint tenancy that pass to the surviving joint tenant, not under your will. Remember this only avoids probate on the first death. When the surviving spouse dies, the home will usually end up going through probate.

Failing to coordinate the will and trust. If you have a will and a trust, you must ensure that the documents are aligned so your wishes will ultimately be carried out. If you don’t, there will be delays and unnecessary expenses.

Failing to title assets correctly. You want your primary residence, vacation home, bank accounts, brokerage accounts, retirement accounts, and vehicles to be passed on to the persons you designate.  Therefore, be certain to keep beneficiary designations up-to-date and to properly title accounts.

Failing to name successor or contingent beneficiaries. If you don't update a beneficiary designation after a beneficiary dies, there’ll be no successor to receive those assets when you die. You should name more than one beneficiary on your accounts and keep your designations up to date.

Failing to name a person to make health care decisions. Designate someone that you trust to follow your wishes as far as your healthcare decisions in the event you are incapacitated. Depending on the state, this may be called a living will, a medical directive, a health care proxy or an advance health care directive.

Failing to update outdated financial powers of attorney. If you chose a person to make financial decisions for you with a power of attorney some years ago, his or her circumstances may have now changed, along with your situation. Consult with an attorney about how to proceed.

Reference: Modern Medicine (December 1, 2016) “Estate planning: Don’t make these mistakes”


Planning for Incapacity is Wise Move

Old lady on computerMany of us are not very proactive in estate planning or aware of the issues of elder law, even though we know that eventually we will all face incapacity and/or death. The Arizona Jewish Post’s article, “Estate planning and elder law benefit all ages,” reminds us that life can change in mere seconds.

Estate planning and elder law attorneys say that everyone needs these three documents—a will, a health care power of attorney, and a financial power of attorney.

A will. If you die with no will, state law has a pecking order as to who will inherit your assets, starting with your spouse and children. A valid will must be signed by the person who wrote it, witnessed by two non-relatives who saw them sign and notarized as to the identity of the signer and witnesses.

Your will should name a personal representative, otherwise known as an executor. This should be done far ahead of time to be certain that they are willing and able to undertake the task. Let this person know the location of a copy of your will.

A living will details your end-of-life choices. Without authorized directions, your family may not be able to make the decisions you’d want. A living will can also include funeral wishes.

A medical power of attorney gives the individual you select, the authority to make health care decisions for you, if you’re incapacitated.

A financial power of attorney lets your appointed agent make financial decisions, pay your bills and take charge of your bank accounts, if you’re unable to do so.

A revocable living trust is a document that lets you assemble all of your assets in one place. The assets must be retitled to the trust, not to you as an individual. A trust can help with out-of-state real property or leaving money to a child with special needs who is receiving means-tested government benefits. When you die, the assets in the trust aren’t subject to probate, and are distributed as you instructed in the trust.

Speak with an experienced estate planning attorney for personalized advice that considers your assets, divorces, stepchildren and many other factors.

Reference: Arizona Jewish Post (December 2, 2016) “Estate planning and elder law benefit all ages”

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