A large part of retirement planning involves trying to predict the costs that you will be facing in the future. This is very challenging because there are many variables at play that are totally out of the control of the individual. Things like potential changes in the tax laws, how Medicare will look in ten or twenty years, whether or not health care reform will be repealed or altered, and just how high long-term care costs will rise are all unknowns. All you can do about the things about which you have no control is to make intelligent estimates and be as prepared as you can possibly be financially.
What we want to highlight here is a major financial factor that many people don't see in the proper light, and it is something that is totally within your own control. When you are considering what your future medical expenses and long-term care costs may be, it is important to recognize the fact that for the most your health is by your personal choices. Of course we have all heard about the guy who never smoked a day in his life who got lung cancer, but this is certainly the exception rather than the rule.
As you get older it is statistically more likely that you will have health problems, but to a large extent this is due to an accumulation of damaging lifestyle choices. Too many people depend on their doctors to make them well and kind of pretend that their health problems are a matter of bad luck or an inevitable part of aging when in fact they are making themselves sick.
If you are obese, largely sedentary, eat without any type of plan in mind, and smoke and/or drink to excess you are essentially driving your future medical expenses up by the day. If you do all the right things it is very likely that you are saving yourself a lot of money while you enjoy a higher quality of life. The choice is yours, but the message here is that you do have a great deal of personal control over your future health care costs and it all depends on how well you take care of yourself along the way.
We have all been involved in situations at various points in our lives when we decided to try to fix something on our own. There are times when you can indeed get out your basic tool kit and get the job done, but there are other instances when you learn an important lesson. As you are engaged in the task you see what is necessary, and then you look in your kit and recognize that you don't have the right tool. Knowing the right tools for each job and having access to them is one of the differences between a professional and a dabbler.
Estate planning is one of those jobs that requires the utilization of the proper tools for each circumstance. The one that we would like to take a look at today is the GRAT or grantor retained annuity trust. These vehicles are useful for gaining estate tax efficiency and gifting appreciating assets free of taxation.
The strategy that is employed to make this happen is called the "zeroed out" GRAT. You fund the trust with appreciable assets like securities, real property, or business interests, appoint a trustee, and name a beneficiary. You also decide on the duration of the trust term and the amount of the annuity payments that you would like to receive out of the trust for the term period.
When you fund the GRAT you remove the assets transferred to the trust from your estate for tax purposes, but the IRS does consider the donation to be a taxable gift. However, the taxable value of the gift is calculated using 120% of the federal midterm rate as it stands during the month the trust is created. So, when you set your annuity payments you want them to equal the total taxable value of the trust according to the IRS' valuation methodology. Because your retained interest is 100% of the taxable value, you owe no gift tax on the contribution into the trust. But, any appreciation that exceeds that valuation passes to your beneficiary at the end of the trust term tax-free.
If you have any questions regarding GRATs or other advanced planning techniques, please do not hesitate to contact our firm at any time.
When you are working through your estate planning checklist you may have a lot of ground to cover depending on the size of your estate and the specificity of your wishes. And as we always remind our clients, estate planning is not something that you take care of in a day, a week, or a month. It is an ongoing process that is going to require adjustments because there are changes all around us. Our own lives change, tax laws are subject to revision, interest rates are always fluctuating, and the economy as a whole is largely unpredictable.
We mentioned a checklist in the opening because with so much to consider it would be easy to forget something, and your fine furry friend just might fall through the cracks. Just as your stocks, bonds, cash, real property, and prized possessions are going to need a new home when you pass away, your pet is going to need one too.
Our pets become members of the family and they can really provide senior citizens with a tremendous boost as companions, protectors, and in many cases, master entertainers. The good news is that you may not have to look too far to find a new owner for your pet. You may well have a family member or friend who lets you know that he or she would be more than glad to take care of your dog or cat when you pass away.If you have no volunteers, you can ask around, and when you find a caretaker it is a good idea to make sure that your pet and its future guardian get to know one another so that the transition won't be as hard on the animal. To cover the expenses you can leave a bequest to the new owner-to-be if you so choose.
Another option is to create a pet trust to provide for your dog or cat. You fund the trust, name a trustee to administer it, and select a caretaker for the pet. It is also sometimes possible to develop a relationship with a non-profit animal placement facility and arrange for the people there to find your pet a home while you make a donation in return to show your appreciation. For some valuable information on pet trusts and pet planning in general visit our page on page pet planning.
An integral part of your estate plan is creating documents that express your end of life decisions concerning healthcare. You never know exactly how the latter stages of your life will be spent so it is important to make sure that you are prepared for whatever fate may throw your way.
As medical science makes continual advances patients' lives can be extended through artificial means for long periods of time. The implications of this can be controversial. Some have strong opinions on the subject, which could be drastically different than your own opinions. To make sure that your personal preferences are honored in cases when you are unable to express yourself you can include advance health care directives in your estate plan. Two that are widely utilized are the living will and the durable medical power of attorney. In the living will you state your specific preferences. In the medical power of attorney you authorize your agent to make health care decisions in your behalf in the event you are incapacitated.
There are provisions contained in the Healthcare Insurance Portability and Accountability Act that make it illegal for health care professionals to divulge any personal patient information without the patient's express consent. It is not recommended that you wait until you are admitted in a facility to sign an authorization because you may be unconscious or incapacitated. For this reason your estate plan should also contain an authorization that complies with the requirements of HIPAA. If you have had your directives created over the last several years they may already contain a universal HIPAA authorization. But if your estate plan was drafted prior to 2004 or if it does not include any of the documents discussed it would be a good idea to schedule an appointment with a competent estate planning attorney to review your directives.
You may find yourself with a lot on your plate and when you do, you have to set your priorities. There are some matters that must be revisited every year, or every five or ten years, and there are others that are in your lap every day. When you are managing your investments things are changing by the second, and you are well aware of the need to constantly react to these changing market conditions. If you run your own business, the changes come in rapid-fire fashion as well and priorities can shift radically overnight.
This having been established, estate planning and the long terms plans that you have made for your twilight years are also impacted by the constant ebb and flow of change. When you originally construct your estate plan you have no choice but to work with the various relevant factors as they existed at that time. But things are always in flux, and what made sense in 1990, 2000, or even 2009 may no longer be appropriate in 2011.
This can be due to things that are out of your control like fluctuations in the estate tax rate and exclusion amount, the yield on your retirement investments, property values, and long-term care costs. And the need to review and potentially revise your estate plan can also arise as a result of changing circumstances that are specific to you and your family.
Depending on your age, health, and personal proclivities you may realize that the estate plan that you worked up ten or twenty years ago, or even the one you did last year is indeed outdated, but feel as though you still have plenty of time left to adjust it when you really need to do so. However, it is your loved ones who are in essence being asked to take that risk. Perhaps, it is best to stop procrastinating and have your plan reviewed right away.
There is an old saying that goes something like "Give a man a fish, he eats for a day; teach him to fish, he eats for a lifetime." This is some profound food for thought when you are planning your estate. Passing along the assets that you have accumulated during your lifetime is certainly going to be helpful to your heirs, but if you could impart your knowledge to them you may be able to plant a seed that leads to a pattern of success can continue across the generations.
Any time a high profile, successful person writes his or her autobiography it is usually on the non-fiction best sellers list. Why do you suppose this is? Do you think that most people necessarily find the details of the personal lives of these businesspeople to be all that interesting? The primary reason why people want to read the autobiographies of people who were able to generate wealth is because they want to find out how it was done so that they can implement these strategies themselves.
The fact is that you don't have to be famous to write your autobiography and share the secrets of your success. You too can sit down and write your memoirs and pass them along to your family as part of your legacy, and this is a gift that may be more valuable than anything else you can provide for them. Aside from the pathway to financial success, you can also honestly and earnestly share stories from your youth and give your loved ones, and even future generations, some insight into the family tree.
As much as your family will benefit from having the opportunity to read your life story, it can be cathartic for you as well. And it's a satisfying feeling to look at your finished manuscript and recognize that you did indeed have that book in you after all.
When you start to look into the subject of estate planning you see a lot written about employing strategies that are intended to help you avoid probate. Unless you are in the field you may not know exactly what probate is and why you might want to avoid it, an explanation may be in order.
Probate is the legal process that the typical estate has to pass through, and it is supervised by the probate court. The court must determine the validity of the will, and it is the venue within which any claims against the estate are heard. So if you wanted to contest a will or attempt to collect a debt owed to you by the deceased, you would do so in probate court.
There are two primary reasons why some people would prefer to avoid the process of probate. One of them is that it is expensive and it can reduce the value of your estate by anywhere from 2-7% depending on the specifics of your situation. There is a fee that must be paid to the court itself, and the personal representative of the estate is going to have to retain a probate lawyer, who will of course charge a fee. In fact, the personal representative is entitled to a fee as well, and he or she may have to bring in an accountant to assist with tax matters and an appraiser of assets as well as an estate liquidation company. All of this adds up.
Aside from the expense involved in the probate process, it is also time consuming. Depending on the size and scope of your estate and whether or not any aspect of the will is contested, it can take anywhere from six months to multiple years for the process of probate to run its course.
As you can see, there are some significant pitfalls that go along with the probate process, and this is why so many people are interested in doing whatever may be possible to avoid it.
Due to provisions contained the Economic Growth and Tax Relief Reconciliation Act of 2001, the estate tax was repealed for 2010. However, the estate tax is scheduled to return to its pre-2001 existence on January 1, 2011. For this reason it really has not had much impact on long term estate planning unless you were somehow certain that you were going to pass away in 2010.
The thing about the return of the estate tax in 2011 that is quite relevant is the fact that the exclusion amount will return to $1 million. It was $3.5 million when we last had to contend with the levy in 2009, so many estates that were previously protected are now going to be vulnerable to the estate tax. If you are in this position, or if the value of your estate has always exceeded the exclusion amount, a useful strategy that can be implemented to gain tax efficiency is that of gift giving.
The idea is that if you give gifts to your heirs while you are still alive you reduce the value of your estate to the point where it comes in under the $1 million exclusion amount. Of course, there is a gift tax to discourage this, but there are significant exemptions. The lifetime gift tax exclusion is $1 million, so you can give gifts at any time and in any increments throughout your life free of the gift tax as long as the value of these gifts does not exceed $1 million.
However, in addition to this lifetime exclusion, each taxpayer is entitled to give as much as $13,000 annually to an unlimited number of recipients, and these gifts don't count against your lifetime gift tax exclusion. You may also make unlimited educational and medical gifts, paying the tuition or medical expenses of as many people as you would like to equaling any sum of money free of the gift tax.
Contact our office today to schedule a complimentary consultation on how tax free gifts may reduce your estate's exposure to future estate taxes.
The estate tax is repealed for 2010, but when it was last in effect back in 2009, the exclusion was $3.5 million. The exclusion stood at $2 million from 2006 through 2008. In 2011 the estate tax exclusion is going to be just $1 million, so a lot of estates that had been under the exclusion for years are now going to be exposed to the estate tax.
Home ownership has long been the foundational wealth building vehicle in the United Estates, and many of the people who are now going to be exposed to the estate tax would say that the worth of their homes is what is causing the overall value of their estates to exceed the $1 million estate tax exclusion. For these individuals, an instrument known as a qualified personal residence trust, or QPRT, may provide the solution.
To implement this estate planning strategy you place your home into a special trust trust and you name your children, or whoever it is that you want to leave the property to, as the beneficiaries. When you are drawing up the trust agreement you state a term during which you will continue to live in the house rent free. Upon transfer to the trust, the value of the home is removed from your estate and your children will assume ownership of the property after the term expires, at which time you would begin paying rent to live in the home.
The funding of the trust with the house is subject to the gift tax, but the IRS does not use the fair market value of the home at that time to calculate its taxable value. They reduce the value of the home by the interest that you are retaining while you are still living in it rent free after you placed it in the trust. Assuming the value of your home appreciates at a reasonable rate moving forward (say, 3%), this techniques can provide a fair amount of gift and estate tax planning leverage.
Feel free to contact our office if you would like a consultation on how a QPRT may benefit you.
In this modern era it is not uncommon for women to accumulate significant assets of their own during their lifetime, and when they pass away they’ll want to leave those assets to their loved ones. In addition to the fact that women are accumulating more of their own assets, on average a woman’s life expectancy will be longer than a man’s. When you combine this with the fact that women usually marry men that are older, there is a good chance they will inherit assets, too.
Some additional considerations when it comes to women include that they often need to plan carefully for retirement, as well as disability. Many women will have less money with which to retire than men. For this reason a carefully structured estate plan is a necessity so that the assets that are available will stretch as far as possible. A woman’s spouse may want to think about leaving the estate to his wife through a trust so that if the woman should become disabled later in life, a guardianship of the estate can be avoided.
Though the estate plan has always been something with which women should be concerned, today it is even more important with more and more women dying and leaving behind significant assets.
A trust or will can ensure that your assets pass to those you want to have them, but proper distribution of assets is far from the only reason to have an estate plan. You should also include a Living Will, Medical Power of Attorney and a HIPAA release in your estate plan. If you should ever be in a position where you cannot make your own medical decisions, these documents are vital.
Another important document is a Durable Property or Financial Power of Attorney. With this document you will name someone to handle your estate matters if you are ill or in a position to where you cannot take care of these matters on your own. An example of why such a Durable Power of Attorney could be important would include if you were hospitalized and unable to pay your bills or access your funds, the agent you have appointed in your Power of Attorney could take care of these things for you.
Men and women both need an estate plan, and due to the fact that laws can be so complex it is important that you consult an experienced estate planning attorney to help you setup a solid plan that will protect you, as well as your loved ones.
Have you ever wondered about the lives of your ancestors? Many of us have and it is not uncommon for people to spend considerable time and money trying to trace back their roots with varying degrees of success. When you are planning your estate you prepare to pass down things of monetary value to your loved ones, and there is no doubt that remembering your family in this way is very meaningful to them. But you and you alone have another valuable gift that you can choose to give to your loved ones and even the generations yet to come.
This gift is the story of your life, and passing it along can have immeasurable worth to your family in may different ways. Your early memories will paint a vivid picture of where the family came from culturally, ethically, and economically. When you recount stories about your grandmother and they are eventually read by your great-granddaughter, think about how fortifying that is to the fabric of your lineage. In addition, when you write about your personal experiences over the years they will invariably inform your family about the times within which you lived and your perspective on them as an objective participant. Historical accounts such as these are telling, authentic, and hard to come by.
These are great reasons to include your memoirs in your estate, but there is another that probably trumps those. You represent something different to each of your family members depending on your relationship to them. They may never have had a chance to see you as are you truly are in your own mind and your own heart. Your loved ones may find it impossible to imagine you as a child, or as a teenager. When you pass along your life story they get to see you in a more complete light, and opening in this way is as cathartic for you as it is meaningful to your loved ones. Now you have a way of passing on the values as well as the valuables.
The details of our lives are constantly evolving. So in a very real sense estate planning is an ongoing process rather than a single event. A plan that makes sense for you today may not be appropriate five, ten, or twenty years from now. There are many strategies that can be utilized in a well drafted estate plan depending on the specifics of your situation. When you prepare an estate plan you should do so recognizing that you should revisit it over time.
Life insurance is one such tool in an estate planners tool box that may have very usefull apllications depending on your circumstances. When you are still in your working years it is likely that your family depends on your income to maintain their standard of living. If you consider where they would be if that income was suddenly absent, you can immediately see the value of life insurance as an income replacement vehicle. Life insurance coverage should be reviewed periodically as your income increases and the needs of your family change.
Life insurance has some other very useful applications in addition to its value as an income replacement vehicle. It can be used to balance an estate in cases when certain real property or a business interest is left to one beneficiary. It is also commonly used as part of a business succession strategy where the business will take out insurance policies on owners in amounts equal to their respective ownership in the business. Upon the death of an owner insurance benefits are then used to buy out that partner's share and the funds are distributed to a designated beneficiary of the deceased owner. Life insurance may also be important to create liquidity at death to pay expenses so that the sale of assets is nor forced in order to pay expenses such as federal estate tax.
When you are busy living your life you may not think too much about your estate and how you would like your assets distributed. If it does cross your mind, you may recognize the fact that you do need to engage in estate planning at some point in time, but feel as though it is too soon to concern yourself with it. That is a mistake. As soon as you are a self supporting adult you should have a basic estate plan in place, and if you have children it is all the more important.
One misconception that many people have is that they don't need to engage in estate planning because they either don't have significant assets, or because they intend to simply leave everything to their spouse. In either instance you still need an estate plan because there is more to estate planning than the transference of assets. If you have dependent children, there is the matter of guardianship. If you and your spouse where to pass away together in an accident, who would take care of the children? You need to state your wishes in that regard in your will.
Incapacity planning through the execution of an advance health care directive is another matter that needs to be addressed that has nothing to do with the distribution of your assets. If you were to become unable to do so, who would you choose to make medical decisions on your behalf? What medical procedures would you like to allow, and which would you prefer to deny in the event of your incapacity? These are questions you can answer by executing a durable medical power of attorney and a living will.
The message here is that everyone, regardless of age or financial situation, needs to have an estate plan in place because even though you will be gone, your loved ones who remain need to know your wishes.
If you have retirement accounts, you understand the importance of having enough funds to cover your retirement expenses. So, what if you pass away with funds still in these accounts? When you die, your family or other loved ones may inherit your retirement accounts.
First, make a list of all of your retirement funds. Include your 401k, pension plan and IRAs. If you were self-employed, don’t forget to list your self-employed 401K, Keogh plan or other account. Next, include details for each account: statement locations, account numbers, financial institutions, account managers, and a description of benefits you are currently receiving.
You should also include information about what you have paid into social security. Some of your beneficiaries, such as children under eighteen or a spouse, may be able to collect on your social security record.
Retirement accounts allow you to name a beneficiary to receive those funds after you pass away. If you have a 401K or work pension plan, or you live a community property state, you may be required to designate your spouse unless he or she signs off on a different beneficiary.
By choosing a beneficiary, your account can pass to your heir outside of probate. Make sure to update account beneficiaries when they change.
It is not a good idea to name your Revocable Living Trust as the beneficiary of a retirement account, as it will limit the access your heirs have to those funds. Since your account can already avoid probate if you have designated a beneficiary, you don’t need a Living Trust for this.
If you prefer a trust to provide protection against a beneficiary's divorce or other creditors, or you have beneficiaries who are young or exhibit spendthrift behavior, you may wish to consider a Retirement Plan Trust. This is a trust specifically designed to meet the requirements of the tax laws to allow you to protect the death benefits of these accounts and to "stretch out" their tax benefits over the life expectancies of your beneficiaries. This allows for maximum protection of your retirement accounts after your death and provides for the greatest overall income tax deferral on these accounts.
If you or a loved one passes away without a valid Last Will and Testament, intestacy laws (sometimes called succession laws) will be used to settle your estate. These laws are unique to each state and determine who inherits property when no Will is available to make the decision.
If you do not create a Last Will and Testament or your Will is deemed inadmissible by a court of law, all property in your state of residence and any real property located in other states will be subject to a court supervised probate proceeding in each state. The court will apply the laws of intestacy relative to its state of jurisdiction.
Intestacy laws not only establish who inherits, they also decide how much each person receives. When laws from multiple states affect an estate, different heirs may inherit the property in each location. In some cases, heirs you would have liked to include may receive nothing or heirs you would not have liked to include will receive an inheritance.
Whether you decease with a Will or intestate probate proceedings will be required. The court will appoint a personal representative or executor or executrix to administer your estate. The personal representative will work with an attorney to determine what assets are subject to probate and who the beneficiaries or heirs will be in each state where a probate may be required. This can be a lengthy process. During this time, family members may not agree on decisions made by the personal representative, which can slow the process down further.
Probate is a costly procedure. Costs include court costs, attorney fees, personal representative fees, publication fees, appraisal fees, tax preparation fees and real estate agent fees to name a few.
If you live in Nevada, get in touch with Anderson, Dorn & Rader, Ltd. to learn about Nevada intestate succession. To avoid the concerns that are created by intestacy laws, it is recommended that you work with qualified estate planning attorneys to create a Last Will and Testament. To avoid the costs and inconveniences of probate altogether, ask a your attorney about the benefits of a trust.
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When you pass away, your estate must be settled. If you have an estate plan, such as a trust or will, then your assets will be distributed in accordance with your estate planning documents. It is called “intestate succession” when you don’t have a trust or will when you pass away. Your estate will be distributed according to the laws of the state of your residence and any other state where you might own real estate.
Now, before you start thinking this might not be so bad, consider this:
When you die intestate, you have no say over how your assets are distributed or who will oversee the process. With a will, you may designate an executor, someone you trust to ensure your estate is properly administered and that your assets are divided up the way you want. This process is overseen by a court and is known as a probate. A trust works in a similar way allowing you to designate a trustee to oversee the process except that a court is generally not involved maintaining the privacy of your beneficiaries.
But in the absence of a will or trust, the court will appoint a personal representative to oversee your estate. This person will be responsible for not only distributing your assets but also settling any outstanding debts and selling off assets if there’s not enough funds in the estate.
That means that some of your most treasured heirlooms – the baseball card collection, the antique grandfather clock or your great-grandmother’s sterling silver tea set may very well end up being sold in an auction rather than in the hands of your loved ones. And of course, you won’t be around to stop it.
To learn more about the dangers of Nevada intestate succession and to create your own estate plan to prevent this from happening, contact the estate planning attorneys at Anderson, Dorn & Rader, Ltd.
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When you pass away, your estate will either be solvent or insolvent. What does this mean? And more importantly, why do you care?
A solvent estate means that there are enough assets to cover your outstanding debts and still provide some form of an inheritance to your heirs.
If your estate is insolvent, you don’t have enough assets to cover your debts and your heirs end up with nothing. How can this be, you wonder?
Before your heirs can inherit any portion of your estate, your outstanding debts must be settled. There is a legal procedure for this of course, and any creditors wanting to file a claim against your estate must do so within a certain amount of time.
However, if a creditor does file a claim and the debt is valid, your executor or personal representative must use funds from the estate to pay the debt. If there aren’t enough liquid funds, the executor will sell off assets to create the cash needed to cover the debts.
The more debt you have when you die, the more assets that may need to be sold to pay off your debts. If your outstanding debts are greater than the value of the estate, there won’t be any assets left for your loved ones to inherit. To prevent this scenario, you need to start planning now.
Good estate planning attorneys can help you draft a plan that addresses your debts and earmarks funds and/or assets to cover them. This will ensure that your loved ones receive the heirlooms and inheritance you want them to have.
To learn more about debt planning, get in touch with the Reno estate planning lawyers at Anderson, Dorn & Rader, Ltd.
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Understanding how the gift tax works is an essential part of good estate planning. A gift tax attorney can help guide you through the gifting process but put simply, the gift tax is a federal tax owed when assets are “gifted” to another person. Gift taxes can be levied on personal property, real estate, and monetary gifts.
The person giving the gift is responsible for paying the tax, but the tax is waived completely if the gift is to a spouse or if it is for medical or education purposes. In addition, any gifts to a qualifying charity or a political organization are not taxed either.
Currently, you can gift up to $13,000 per year to a single individual without paying the gift tax and you can continue to do this until you reach the $1 million dollar lifetime maximum. That means you can gift up to $13,000 of your property to whomever you choose each year. Beyond that minimum, you must file a gift tax return up to the point that the $1 million dollar threshold is reached. After that, you will be liable for a very high tax.
These limits are "per person." So if you own property jointly with your spouse, you could theoretically give up to $26,000 per year to a single individual between the two of you.
This is a popular option for seniors looking to help their heirs avoid estate taxes and, if used properly, can become a great tool in your estate planning arsenal.
To learn more about the gift tax and to find out how to best plan your estate, you should consult with a qualified gift tax attorney. Anderson, Dorn & Rader in Reno, NV has experienced attorneys that you can trust.
