When we think of estate planning, we often think about preparing our accounts and property to go to our loved ones in a tax-efficient way, protected from probate, disgruntled heirs, beneficiaries’ creditors, divorcing spouses, bankruptcy, and the poor spending habits of children or other beneficiaries. We rarely consider preparing for receiving an inheritance of our own.
Believe it or not, there are some essential things you must consider when you anticipate receiving an inheritance. Understanding these issues can be crucial to protect that inheritance from unnecessary taxes and outside threats like creditors, divorcing spouses, and bankruptcy.
The first way to properly prepare to receive an inheritance is to discover what you will be inheriting. Is it real estate, a 401(k), or an individual retirement account (IRA)? Perhaps it is publicly traded stock, an interest in a family business, or just simply cash from a savings account or life insurance policy.
Whatever it is, there are steps you can take today to plan to receive and manage it properly. For example, if you will receive a large IRA account from a parent, do you understand the new rules associated with inherited IRAs as implemented by the SECURE Act passed in late 2019? If not, you should educate yourself now on how to maximize the tax benefits available under the law regarding required distributions. Without an understanding of these often complicated rules, you could make an irreversible mistake and withdraw all of the IRA funds at one time, thereby substantially increasing your tax liability in the year of withdrawal. There are a variety of nuances to these rules that a tax adviser or attorney can help you understand and navigate properly.
Likewise, if you are receiving rental property as a part of your inheritance, you should consider the business of being a landlord and if you even have an interest in continuing to operate such a venture. If not, you may want to prepare to find a buyer for the property who can offer you a fair price as soon as possible. Or, at the very least, look into hiring a property management company to take over as soon as you inherit the property.
If your loved one has completed trust planning that includes establishing an irrevocable trust for you, such trusts frequently include important features that are generally referred to as powers of appointment. A power of appointment in a trust is a right, often given to the beneficiary of the trust, to gift trust property to someone else or, in some cases, to yourself. These powers are often limited to making gifts to only certain classes of people (such as the descendants of the trust makers), or they may be limited to making gifts only at death (a testamentary power of appointment) or during life (a lifetime power of appointment). Some trusts include both types of powers. These can be powerful planning tools that have been given to you through trust documents. Failure to recognize the existence of these powers can lead to unintended consequences, or at the very least, crucial missed asset protection and tax-planning opportunities.
If you know that you have been granted a power of appointment, you should attempt to obtain a copy of the relevant trust documents to carefully review and determine the nature of these powers. An experienced estate planning attorney can help you with this task. With this information, your professional advisers can properly advise you on the planning opportunities and tax consequences of the powers of appointment that may be available to you.
A common mistake made by married individuals who receive an inheritance is to commingle that inheritance with the property of both spouses. How can this be a mistake? An example may best illustrate the point:
Imagine Robin receives a cash inheritance from her deceased father of $300,000 and she and her spouse Morgan decide to use the inheritance to buy a vacation cabin in the mountains. When purchasing the property, the title company assumes that because they are a married couple, they want to take title to the property as joint tenants with rights of survivorship and the deed gets prepared and recorded accordingly. Further imagine that over the years, they furnish the property together, maintain it, and enjoy many family vacations there. One night, however, Morgan has a little too much to drink at a bar, gets behind the wheel, and causes a deadly accident that results not just in a DUI, but also in a wrongful death lawsuit. Because Morgan’s name is on the title to the property as a joint owner, Robin and Morgan discover that the family cabin is an asset that can be used to satisfy the lawsuit judgment against Morgan. As a result, they are forced to sell the cabin and use half of the proceeds to satisfy the judgment.
This unfortunate circumstance can be the result of Robin’s failure to keep her inheritance as separate property. By commingling her property with Morgan, she made it much easier for the judgment creditor in the lawsuit to reach what otherwise would have been considered Robin’s separate inheritance property.
Commingling inherited property can also lead to a similar result if Robin and Morgan ultimately divorce and the family court judge has to determine how to divide the marital property. Failing to keep the inherited property separate during marriage can often lead to that property being divided between spouses at divorce.
A fourth way for you to prepare to inherit property is by using an inheritor's trust. This is a special type of trust that can be established by the individual who will be leaving an inheritance to you. An inheritor's trust is designed to receive the inheritance that you would otherwise receive directly. It must be carefully designed and implemented to work properly, and an experienced estate planning attorney should most certainly be used in the effort. A properly drafted inheritor's trust includes the following key elements:
An inheritor's trust includes the following benefits:
An inheritor's trust can be a powerful tool to use when you anticipate receiving a large inheritance and would like to make sure that the inheritance is protected from certain tax consequences or threats from creditors.
If you would like to learn more about any of these concepts, give us a call. We would love to discuss these ideas in greater depth with you so we can help you build and protect your wealth more effectively.
During estate planning, the beneficiaries are likely to change over time. It’s common for grandchildren to be added into the plan as they come, which will require several amendments from a licensed estate planning attorney. Estate planning attorneys are often asked about trusts for grandchildren and what the best option is.
Several inheritance methods exist to accommodate grandchildren and there are many factors to consider when determining the best one for you and your family. For most grandparents, the best way to provide for their grandchildren is to leave their accounts and property to the grandchildren’s parents. In some cases, however, it makes better sense for grandparents to give property directly to their grandchildren.
If you’re wondering, “Can I open a trust account for my grandchildren?” the answer is yes. Below are examples of trusts for grandchildren and some of the basic information you need to know about them.
Regardless of your current situation, it is important to consider the possibilities and options for leaving an inheritance to your grandchildren. Failing to do so can have long-lasting consequences and, in many cases, may result in difficult legal challenges and family complications upon your passing.
Many grandparents decide that the best way to provide for their grandchildren is to leave their assets to the grandchildren’s parents. This typically ensures the financial stability of that family unit, thereby indirectly benefiting the grandchildren. From a practical perspective, the grandchildren’s parents are often in the best position to know how to use the money for the benefit of their children and can spend or invest it appropriately on their behalf.
In a majority of the U.S., default inheritance laws have been set to provide first for children and then for the grandchildren in the event of the grandparent’s death.
In rare instances, grandparents may find that it is in everyone’s best interests to leave their assets directly with the grandchildren. This may occur for a few reasons including cases where the grandparents are untrusting of their own children and are concerned that the money would not be responsibly used for the benefit of the grandchild.
One may also choose to directly leave their assets to the grandchildren if the grandchild’s parents are independently wealthy. This could result in added taxes being tacked onto the estate caused by exposing the property which may be costly.
Lastly, you must consider the possibility of grandchildren inheriting your assets through their parents by default. Although the intent of grandparents may have been to leave everything to their adult children, an inheritance may be given to grandchildren unintentionally. In the event that the adult child who originally inherited the assets prematurely passes away due to an accident or illness, the grandchild could inherit all assets. Arrangements can be made to accommodate these situations in the will or trust.
There are many types of trusts for grandchildren for you to choose from including HEET trusts, Gift trusts, and Generation Skipping trusts. Each has its advantages and disadvantages, therefore, it is important for you to discuss which option is best for you with a licensed trusts attorney.
One of the most preferred ways to leave assets to grandchildren is by naming them as a beneficiary in your will or trust. As the grantor or trustor, you are able to specify a set amount of money or a percentage of your total accounts and property to each grandchild as you see fit. This is an effective method given that all of the grandchildren receiving such gifts are physically and emotionally stable, financially prudent, and have reached adulthood.
However, if the grandchildren are minors at the time of your death, this method leaves the trustee or executor of the estate with more responsibilities to handle before the inheritance can be distributed. In this case, the gift will need to be held in a custodial account for the minor until they have reached the majority age (either 18 or 21). And in some instances, establishing a court-controlled conservatorship over the property may be required.
Regardless of either instance, once the child reaches the age of majority, you or the trustee will not be able to control how that money is used by the grandchild. This could result in the inheritance being spent very poorly by the grandchild or could possibly fall into the hands of a spouse or other person who was not intended to receive the gift.
A trust offers one of the most flexible methods for leaving an inheritance to grandchildren. Not only are you able to amend the trust as you need, but you also have the ability to set the maturity date and control how the inheritance is used. When you leave an inheritance to grandchildren via a trust, you can ensure that the money and property are used appropriately and at appropriate times.
There are a variety of ways to use trusts in your estate planning. Provisions can be added to your will or revocable living trust that give you the freedom to decide how the inheritance is distributed. For example, you can instruct the executor or trustee to hold any property that is payable to a grandchild in a separate trust share rather than making a direct distribution of the accounts or property to them. Also, you can specify in those trust terms how the money is to be used or distributed and when. Such provisions are extremely important to ensure your estate plan follows your specific instructions, regardless of unexpected events impeding on those wishes. Fortunately, a trust can protect and manage the inheritance until it can be distributed to the grandchildren at a more appropriate time.
Another way to use trusts for grandchildren is to have the grandparent create a trust that designates them the trustor and the trustee. Creating the trust during your lifetime and naming yourself as the trustee allows you to transfer some of your property into the trust for the benefit of your grandchildren to use before your passing. From a tax perspective, you can make gifts to this trust using the annual gift tax exemption (currently, $15,000 per beneficiary of the trust per year) to safeguard the gifts from transfer taxes.
If your estate is large enough to potentially be subject to the generation-skipping transfer (GST) tax, then you may consider creating a special trust that may provide additional tax benefits. A health and education exclusion trust (HEET) is one of these special types of trusts. A HEET is designed to be used for the use of paying for health and education expenses directly on behalf of the beneficiaries without being subjected to gift taxes in the future. Furthermore, the distributions to the beneficiaries will be exempt from the GST tax. This benefit is obtained by naming a charitable institution as an additional beneficiary of the trust. As long as the trustee makes regular and reasonably substantial distributions to the charitable beneficiary from the trust, the distributions to the other beneficiaries will be GST tax-exempt.
A HEET is worth considering for several reasons. First, if you would like to help your grandchildren and succeeding generations with their education and medical expenses this is the perfect option for you. And if you have used up your GST tax exemption amount through gifting or other estate planning strategies, a HEET exempts the GST tax. Lastly, a HEET gives you the opportunity to benefit a charitable organization as part of your estate planning.
When planning your estate, generation skipping transfer taxes need to be considered. GST taxes are a unique form of taxation that will undoubtedly affect your grandchildren’s inheritance if what you own is valued at more than the current estate tax exemption amount. For most people with modest accounts and property, the GST tax does not pose any significant plight. However, the GST tax is something that you should be aware of and plan around if you plan to leave any amount of money or property with your grandchildren.
Another point to consider when creating a trust specifically for your grandchildren is the GST tax that is required should you include your grandchildren’s children in the trust. You may need to take certain steps upon creation of such trusts to ensure that the trust is GST tax-exempt which a tax professional can assist with.
Though many grandparents seek to provide their grandchildren with an inheritance with good intentions, gift-giving such large sums of money may not be as appreciated by the parents. While some parents may see the gift as a blessing, others find that such large inheritances may hinder their child’s character development. By taking away the need to become financially independent, some parents worry that their children will miss out on important life lessons about sacrifice and hard work and the value of money in general.
Be sure to speak with your grandchildren’s parents beforehand about how you can best support the development of your grandchildren and provide for them in their early years. This will ensure that your gifts will be appreciated and truly beneficial.
Whether you want to specifically and intentionally include your grandchildren in your estate planning or just want to make sure they are carefully accounted for in the event that they unexpectedly inherit your property, it is critical to examine your estate plan with your attorney to make sure that your plan reflects your wishes and your family’s values. Fortunately, the experts at Anderson, Dorn, and Rader have an exemplary understanding of this type of law and are happy to help you update your estate plan.
Connect with our Reno estate planning attorneys and learn how you can open a trust for your grandchildren.
How to Responsibly Leave an Inheritance to Your Grandchildren, Ortiz Gosalia Attorneys at Law (June 8, 2021)
This year has been unprecedented from a political perspective in many ways. President Joe Biden stepped into office facing huge obstacles related to the COVID-19 pandemic, an economy battered by the pandemic, a crumbling national infrastructure in dire need of repair, an ongoing immigration crisis at our southern border, and deep political and social divisions in this country, among other challenges.
As Biden entered office, he named the following issues as his top priorities:
With these issues at the top of Biden’s priority list, it may appear that no real changes are coming down the pipeline that are directly related to the estate plans of most Americans of average means. But if recent history is any guide, although many of us hope that the estate planning landscape will remain settled and predictable, it is unlikely that we will be so lucky. Here’s what we know so far with regard to proposals coming from the White House.
While many of the issues Biden has prioritized have begun to be addressed within his first one hundred days in office, many of them are still in their infancy, with the details of how they will be implemented and funded still to be determined. The following steps have already been implemented or proposed in Biden’s plan.
These large spending bills, both passed and proposed, will need to be funded in some manner.
Some of the possibilities for funding this spending include the following changes to the tax laws
that could have a significant impact on your estate planning: 5
We are living in a time of significant uncertainty when it comes to estate planning and the economy. As a result, it is more important than ever to ensure that your estate plan is designed in a way that enables you to move quickly and take advantage of estate and tax planning opportunities that arise.
Additionally, there remain many non-tax-related reasons to keep your estate plan up-to-date
and relevant to your circumstances:
Keeping abreast of the whirlwind of changes in the law and the economy can be a tall order for anyone when it comes to maintaining your estate planning. That is why having an estate plan with appropriate provisions that allow for flexibility is so important. We are prepared to keep you apprised of the legislative changes that are headed our way and will help you stay informed so you can move quickly if changes to your planning become necessary. We always welcome a call from you to set up an appointment with our office to discuss your estate plan. Together, we can make sure you are prepared for whatever may come.
1 Jacob Pramuk, Biden Signs $1.9 Trillion COVID Relief Bill, Clearing Way for Stimulus Checks, Vaccine
Aid, CNBC (Mar. 11, 2021, 3:03 PM)
https://www.cnbc.com/2021/03/11/biden-1point9-trillion-covid-relief- package-thursday-afternoon.htmlhttps://www.cnbc.com/2021/03/11/biden-1point9-trillion-covid-relief- package-thursday-afternoon.html
3 Barbara Sprunt, Here’s What’s in the American Rescue Plan, NPR News (March 11, 2021),
4 Fact Sheet: The American Families Plan, The White House (Apr. 28, 2021),
5 Blank Rome, LLP, Estate Planning in 2021 and Beyond: The Possible Impact of Democratic Control in
Washington, JD Supra (Mar. 9, 2021)
6 See Fact Sheet: The American Families Plan, The White House 14 (Apr. 28, 2021)
In March 2004, the Senate passed Resolution 316, which officially recognized April as National Financial Literacy Month. Both Houses of Congress have passed similar resolutions since then designed to encourage financial literacy so that individuals are better prepared to manage their money, credit, and debt. Nevertheless, in the fourth quarter of 2019, U.S. household debt, which includes student debt, credit card debt, auto debt, mortgages, home equity loans, and other debts, exceeded $14 trillion for the first time ever.1 In addition, forty percent of the respondents of one recent survey indicated that it would be very difficult for them to meet their current financial obligations if their next paycheck were delayed for one week, and another thirty-four percent said it would be somewhat difficult.2 The COVID-19 pandemic has, unfortunately, made this potential difficulty a scary reality for many Americans.
Whether or not you are indeed struggling financially, it is important to do a realistic assessment of your financial situation and how prepared you and your family are for the future. Creating or updating your estate plan is an important part of exercising control over your finances, and ensuring that proper plans are in place can provide substantial peace of mind and security for you and your family.
Take an Inventory
One of the first steps in creating an estate plan is to take an inventory of your money and property. Regardless of whether you are wealthy or just getting by, everything that you own is part of your estate and should be listed--or at least accounted for-- in your inventory. This inventory should include the following:
As you and your estate planning attorney evaluate your inventory, there are several questions you should ask yourself.
Am I saving adequately for retirement? Clearly, the answer to this question will vary for different individuals and circumstances, but many financial advisors recommend saving ten to fifteen percent of your pre-tax income during the entire span of your entire working years. If you have not been saving adequately, consider increasing your contributions to your retirement accounts.
Are sufficient funds available to provide for my spouse and dependents if I pass away? If the answer is no, consider purchasing a life insurance policy large enough to replace your income, as well as pay off any outstanding debts, college for your children, final expenses, and other important expenses, e.g., the cost of your child’s wedding or their first car.
Do I have a lot of debt? If you have substantial debt, your family members generally will not be responsible for paying it if you pass away. However, your estate will have to pay off your creditors before your beneficiaries receive anything. Life insurance can help in this situation as well: You can either purchase life insurance sufficient to pay your debt or you can make family members or loved ones the beneficiaries of your policy (or a trust for their benefit), as the proceeds of the policy never become part of your estate but are transferred directly the beneficiaries of the policy. Similarly, retirement, investment, and brokerage accounts allow you to name one or more beneficiaries, keeping those funds outside of your estate. Real estate or accounts owned jointly will also pass directly to the surviving owner when permitted by state law.
An even better course of action, however, would be to meet with a financial planner who can help you create a budget enabling you to decrease or eliminate your debt so that your loved ones will receive all the money and property you would like them to have.
Protect Your Assets
If you transfer money and property you would like to preserve for your beneficiaries into an irrevocable trust, that is, a trust that cannot be amended, modified, or revoked (except under limited circumstances), those assets will be protected from any of your future creditors or judgments (with time limits). Because the money and property used to fund the trust is no longer yours and you have no control over it, it is not available to pay your creditors. Your family members and loved ones can be named as the beneficiaries of the trust. This strategy can be particularly helpful for individuals working in professions that are at a high risk of lawsuits, e.g., doctors, lawyers, etc.
Warning: An irrevocable trust will not protect money and property from creditors having a claim at the time the trust is created. Courts can rescind transfers to trusts if they are determined to have been made with the intention to defraud current creditors.
Consider the Needs of Your Beneficiaries
Protect their inheritance from their creditors. Even if you take all the steps necessary to ensure that your beneficiaries receive a nice nest egg when you pass away, it can disappear quickly once it is in their hands unless your estate plan is designed to avoid this possibility. Fortunately, you can create a trust with terms that will protect your beneficiaries’ inheritance against claims arising from their creditors, divorcing spouses, or lawsuits. There are a variety of different types of trusts that can protect the money and property from such claims, but the following are among the most commonly used.
Create a trust for a specific purpose(s). You can include terms in your trust authorizing the trustee to make distributions for your children or other loved ones for specific purposes so that even after you have passed away, you are still able to help the trust beneficiaries make certain important purchases or pay for special care.
Let Us Help You and Your Family Move Toward a Secure Future
Celebrate Financial Literacy Month by taking steps to get your financial house in order. Estate planning is an essential part of this process, as it is all about providing you and your family with the peace of mind that comes with knowing that even if the unexpected happens, the future is secure. Please call us today at (775) 823-9455 to set up a meeting so we can create an estate plan that meets all of your needs and goals.
1 Federal Reserve Bank of New York, “Quarterly Report on Household Debt and Credit, February 2020,” accessed March 17, 2020, https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/hhdc_2019q4.pdf
2 American Payroll Association, “Getting Paid in America Survey,” last modified September 10, 2019, https://www.nationalpayrollweek.com/wp-content/uploads/2019GettingPaidInAmericaSurveyResults.pdf
As millennials (born 1981 to 1996), you are well known for your distinctiveness as a group. Your generation has followed paths and set goals that are decidedly different from those chosen by previous generations. You are highly diverse, better educated, more socially conscious, and wait longer to have families than your parents and grandparents. But one thing you have in common with other generational groups is the need for estate planning. Unfortunately, a startling 79% of millennials do not have basic estate plans in place. Your needs and goals may vary, but having an estate plan in place is crucial for every adult, including millennials. You do not know what the future holds, and we can help you make sure that plans are in place that not only provide for your own future needs but also those of your loved ones and pets.
As a millennial, you may not have accumulated as much wealth as members of older generations, but it is important for you to make sure that your money and property will go to the family members or loved ones you have chosen if something happens to you. If you do not have a will or trust, your money and property will pass to the person designated by state law, which may not be the person you would want to inherit your prized possessions and money. In addition, if you are married and have young children, you need to take steps to ensure that your spouse and children are provided for. A trust is often the best solution: If your spouse inherits your money and property outright under a will, and your spouse eventually remarries, your assets could go to the second spouse instead of your children. In addition, the inheritance will be vulnerable to claims made by your spouse’s creditors. A trust can avoid these results by allowing you to choose who receives your property and money, as well as the timing and size of the gifts.
If you are one of many millennials, especially those who live in large urban areas, who chose either to delay having children or to remain childless, you may have adopted pets that you love and dote upon just as you would a child. Especially if you are single, you should consider a pet trust to provide for your pet’s care if something happens to you. The pet trust can allow you to make arrangements for your pet if you die or are physically unable to care for them yourself. The pet trust can not only specify a caregiver for your pet, it can also provide care instructions and set aside funds sufficient to care for your pet’s needs (medical care, grooming, exercise, etc.). You also have the ability to name an additional person to manage the money you have set aside for your pet, if you would rather have someone other than the caregiver in charge of the money.
Millennials are well known for being socially conscious and wanting to make a positive difference in the world. If you want your money and possessions to support a charitable cause when you pass away, you may be interested in establishing a charitable remainder trust, which enables you to benefit from a stream of income for your own life, with the remaining money in the trust going to a charity you have selected upon your death.
As the cost of college tuition continues to increase, the level of debt millennials have begun their adult lives with is startlingly high. The average student loan debt of adults aged 25 to 34 is $33,000 per borrower. Federal student loans typically are forgiven upon the borrower’s death, but the estates of borrowers who obtained private loans can be pursued by those lenders. In addition, high credit card debt is prevalent among millennials. If you have incurred substantial debt, life insurance sufficient to cover income tax on the cancellation of debt in the case of a federal student loan or to cover the debt itself if a student loan is owed to a private lender or money is owed to a credit card company may be a good solution if you are concerned about the burden your debt could place on your loved ones upon your death.
If you are like many millennials, who are the first generation who grew up using the internet, you have likely amassed a much greater quantity of digital assets than members of previous generations. These assets may include social media accounts, blogs, photographs and videos, financial accounts, and email accounts, among many others. A comprehensive list of these of these assets, which may be among your most prized possessions, as well as the accompanying usernames and passwords, and instructions for their management, is essential to ensure that your wishes are honored if you pass away or become too ill to manage them on your own. Depending upon your wishes, you can appoint a separate person to wind up (or continue managing, e.g., in the case of a blog) these assets and accounts, or you can choose to have your executor or trustee handle this aspect of your estate. The list, which can be incorporated by reference into your other estate planning documents, should be stored in a secure place along with your will and/or trust.
If you are a younger millennial, you may not realize that your parents no longer automatically have the right to make medical decisions on your behalf if you become too ill to make them on your own or if you are unable to communicate your wishes. Even if you are married, your spouse may still need to be properly named in a medical power of attorney to make decisions for you when you cannot. It is also important to designate a trusted person to act on your behalf if your spouse is unavailable. If you fail to have a medical power of attorney prepared, a court proceeding may be necessary to appoint someone to fill that role if, e.g., you are in an automobile accident and are unconscious. You should also consider completing a living will spelling out your wishes regarding medical treatment you want--or don’t want--at the end of your life or if you are in a persistent vegetative state.
Another document that is essential for your care if you were to become unconscious or too ill to make your own financial decisions is a financial power of attorney. It allows a person you have named to pay bills, take care of your home, manage your accounts, and make other money-related decisions for you. Even if you are married, a financial power of attorney is important because any bank accounts or other property that are not jointly owned cannot be managed by your spouse without it—unless your spouse goes to court and asks to be appointed as your guardian, causing unnecessary stress in an already distressing situation. A financial power of attorney can also be helpful if you do a lot of international travel and may occasionally need someone to handle your financial matters while you are out of the country.
You may think that estate planning is only for the elderly. However, even if you are young, an estate plan is crucial, regardless of whether you have accumulated much money or property. A properly executed estate plan provides not only for the well-being of your family, loved ones, and pets, but also allows you to put plans in place if you become ill or are severely injured and cannot make medical and financial decisions for yourself. Call us today at 775-823-9455 to learn more about how we can help you prepare for your future.
Weddings are very memorable events - full of anticipation and lots of planning. Once you decide to get married, there is one type of planning that many people overlook – financial planning. Even if you wait to discuss financial planning after the wedding, it is still very important that you get an understanding of your spouse's spending habits and how he or she looks at their financial obligations.
Spender or saver?
If you or your spouse liked to indulge before the wedding, you will probably do the same after the vows have been said. It is good to discuss your views on finances early on to avoid surprises. If you are a serious spendthrift these differences in attitude about money need to be addressed ahead of time, so that hopefully a compromise can be reached. Among the top three most cited reasons for divorce are money issues or arguments, and many times financial planning before (or early in) a marriage can resolve the largest disputes.
Put all of your respective financial obligations on the table
It is important to disclose to each other everything there is to know about your individual, respective financial situations. Be honest about your income, debts, and pre-existing financial issues. Also, do not overlook any existing financial obligations to an ex-spouse or children from a prior marriage or relationship. A marriage should be about honesty, which includes honesty about your financial situation, even if your financial situation may not be pretty.
Who is responsible for what?
Some couples decide right off that everything will be split down the middle, including both income and financial obligations. Others divide the bills between themselves. Whatever arrangement you decide to make, it should be established as soon as possible to prevent any confusion. If you have separate accounts, know which account pays which bill. Also, remember to notify creditors of your any name changes, new addresses, or account changes.
Discuss future goals and realistic expectations
As newlyweds, you will no doubt find yourself sharing your dreams and expectations regarding your new life together. By evaluating your financial situation early on, it will be easier to define your goals as a couple. Some questions to discuss should include whether to purchase a home, start a family, and which large debts you want to pay off first. Thinking long-term, you might also begin discussing work and home responsibilities, and how you plan to save money towards retirement. At this point, putting together a budget and working with a financial planner may help achieve your goals.
Separate or joint bank accounts?
Couples should discuss their preferences with regard to their bank accounts. There can be advantages and disadvantages to having joint accounts or separate accounts. Establishing a joint account could mean fewer fees and less complication, but money put into a joint account will be co-mingled and considered marital assets. Keeping your bank accounts separate can be easier for those who are already used to managing their own finances, but can add some difficulty in dividing income, bills, and expenses. Some couples find that a combination of joint and separate accounts works well, too. For instance, you can have a joint account for shared household expenses and separate accounts for personal spending.
How to handle insurance coverage
When it comes to health insurance, most couples already have their own policies when they marry. The best advice is to perform a cost/benefit analysis for both plans, to determine which policy is the best. You may also consider whether you need a family plan, or whether it would be more cost effective to maintain two individual plans. When looking at insurance policies, also consider whether one spouse plans to move jobs, which may cause problems if you use the former employer's insurance. As far as auto insurance, you may be better off consolidating your auto policies. Another insurance issue newlyweds should consider is life and disability income insurance. Many couples want the peace of mind that these types of policies can provide, ensuring that one spouse will be able to make ends meet without the other in case of unexpected illness or disability.
If you have questions regarding marriage issues, or any other financial planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
Most people don’t realize that having a huge net worth is not a requirement for financial planning. Even families with the smallest of budgets can benefit from a proper financial plan. In fact, there are many resources available that allow you to create a financial plan on a limited budget. For a flat fee or a reasonable hourly rate you can develop a savings plan, create a good budget, and pay down your debt. So, if you want assistance managing your own finances in order to start off on the right foot for the new year, consider the following:
What type of financial planning assistance can I afford?
There are various levels of planning assistance that provide a wide range of services. A lower level plan would likely include a customized breakdown of your budget and a financial to-do list. A middle level plan could include a multi-year plan, such as a five-year plan, with a set number of consultations throughout that time period. A higher level plan may include a longer planning period and more comprehensive support.
In-depth investment planning
Some people, with more financial resources, may be looking for more in-depth investment advice. This would include specific advice regarding stocks, bonds, mutual funds, and other investment tools. This type of planning service is often provided at an hourly rate or with a negotiated fee schedule. A basic financial plan is typically included with any in-depth investment plan.
Basic financial planning
There are several areas of financial planning that are considered, where appropriate: net worth, cash flow, insurance, education, retirement, and estate taxes. Your net worth includes your current assets and liabilities; with financial planning, it is important to understand your current financial position and to consider how your net worth will likely grow over your lifetime. Cash flow is your current income and expenses, which will also change over time. Inevitable changes in your cash flow will also have an effect on your retirement and your ability to pay down debts. With basic financial planning, you should assess your existing insurance products and with an eye towards determining whether you have sufficient insurance to take care of your family should you die prematurely. You may also want to consider disability insurance or long term care coverage.
More future planning
Financial planning also includes figuring out how to best save for your children’s college education. It is important to assess how much you need to set aside and which financial instrument is best to do that. Retirement is a crucial part of financial planning and, in fact, many estate planning firms provide in-depth retirement planning as well. As part of your financial plan, you need to estimate what your expenses will be once you retire, and how you can best cover those expenses after you stop working - which can be particularly important with the unsure future of Social Security. It is important to consider the most tax efficient methods for transferring your assets to your family after your death. You will want to avoid estate taxes as much as possible, which is one goal of estate planning in general and which can be accomplished through working with your attorney to ensure your wealth will be preserved for your beneficiaries.
If you have questions regarding budgets, estate planning, or any other financial planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
Your oldest son has just informed you that he and his wife want to buy their first home, but they can't afford the down payment. Even with favorable interest rates available for some, bank loans are still hard to come by, especially for younger borrowers. As a result, many young families turn to their parents or other relatives for intra-family loans. Once you understand the tax consequences of intra-family loans, an intra-family loan can not only benefit the recipient, but also serve as a good estate planning tool.
Treatment of the loan as a gift
There is a chance that the IRS will treat the loan as a gift, regardless of the fact that a promissory note was actually given in return for the transfer of funds. The loan may not be considered bona fide debt by the IRS if it seems that the intention was that the loan would not be repaid, despite the note.
How to overcome the gift presumption
The presumption by the IRS that an intra-family loan is a gift can be overcome by making an affirmative showing of a bona fide loan with a “real expectation of repayment and an intention to enforce the debt.” There are several factors that are considered by courts in making this determination:
(1) existence of a note comporting with the substance of the transaction,
(2) payment of reasonable interest,
(3) fixed schedule of repayment,
(4) adequate security,
(6) reasonable expectation of repayment in light of the economic realities, and
(7) conduct of the parties indicating a debtor-creditor relationship.
As one court determined “[t]he mere promise to pay a sum of money in the future accompanied by an implied understanding that such promise will not be enforced is not afforded significance." Merely documenting the loan transaction is not sufficient to overcome the gift presumption, for Federal tax purposes.
When is a gift better than a loan?
There may be situations where making a loan to your children may not be the best option. In some cases, making it a gift would be more appropriate. Some situations where a gift may be the preferable choice include the following:
Can I forgive the loan later?
Although the intention to forgive an intra-family loan can result in the IRS treating the loan as a gift at inception, it really depends on when that intention to forgive arises. The main factor in making this determination is whether there was a prearranged plan to forgive the debt, or if that intention did not arise until a later time. If that is the case, the IRS will not consider the loan a gift until the time it is actually forgiven.
If you have questions regarding intra-family loans, or any other financial or estate planning needs, please contact me at Anderson, Dorn & Rader, Ltd., either online or by calling me at (775) 823-9455.
When you reach your 30s or 40s, it is time to put youth aside and start financial planning, if you haven’t already. Your future and your family’s future need to be planned for and protected. There are two particular issues that most people in Generation X and the Millennial Generation are faced with: saving for your children's college tuition and retirement. Here are a few financial tips.
Save, save, save!
The very first step to financial planning, obviously, is to start putting money aside. Establish an emergency fund for those unexpected expenses that can often wipe us out. It is typically recommended that you set aside at least 3-6 months of your income. Married couples may be alright with only three months of their combined income, however, a single person will probably need a six-month reserve. Additionally, it is great to also set aside money for planned expenses (such as capital improvements or home repairs). At the very least, this emergency fund is there in case you lose your job or you are faced with a large unexpected expense.
Pay off or reduce your debt
Credit cards, student loans, and medical bills, should be your next priority. These debts should be reduced, with an eye toward eventually eliminating them altogether. That way, your income can be funneled into savings and investments. In the meantime, check to see whether you can lower your interest rates on your credit cards or other loans, which can save you money as well. It's best to pay additional principal towards those debts that have the highest rates first, to minimize the amount of interest you are paying on your overall debt.
Make the most of your employee benefits
By the time you are in your 30s or 40s, you should be maximizing contributions to your 401(k) or other retirement plan to the extent your employer will match your contributions. That way, even if your investment isn’t making much of a profit, your employer is adding to your retirement account (and it's FREE MONEY). And it's hard to ignore the benefit of compounding interest - the growth can be astronomical. Determine from your employer what your maximum contribution and maximum employer match can be, as each retirement plan may be different. You may be able to contribute more than you thought; in 2015, an employee can contribute up to $18,000 in a tax-deferred 401(k).
Establish your own retirement plan
In addition to your employer-sponsored retirement benefits, you should also make the maximum contributions allowed to a traditional IRA or Roth IRA, depending on your income. Traditional IRA contributions are not limited by income, but Roth IRAs are only available to married couples with an adjusted gross income of up to $183,000 and single filers with an adjusted gross income up to $116,000 in 2015. If you are under 50 years of age, the maximum contribution to any IRA is currently $5,500 each year. You will pay taxes now on your contributions to a Roth IRA, but you will avoid taxes later on.
Obtain insurance for your family
The importance of insurance cannot be overlooked. For people in their 30s and 40s, life insurance is often important for the family you leave behind, especially young children. It is often very difficult for one spouse to continue providing for the family without life insurance if the other spouse passes away. The good news is, term life insurance for a healthy person in their 30s or 40s is not that expensive. Another good option to consider is disability insurance.
If you have questions regarding financial planning, or any other estate planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
Divorce means separation and starting over. It means substantial life changes. It is also time to reassess everything. Whether you already had a financial plan in place or not, it is time to evaluate or reevaluate your financial situation and create a financial plan to secure your new future. Financial planning after a divorce is necessary, as the future goals you had will change when you get divorced.
Review your finances and expenses
The best advice is to be proactive. Most people get divorced and then realize they have to deal with the consequences. To be successful following a divorce, you should think about your finances before you actually sign the divorce decree. Already have a plan in place. Although every divorce may be different, one common truth is that maintaining two separate households will be more expensive than one. Take into consideration what you were spending before the divorce and how those expenses will change. You need to have a realistic idea of what you can afford going forward. If you have children, be sure to consider their potential future expenses, while taking into consideration child support payments.
Consider downsizing your home
Most people decide to stay in the family home for the sake of the minor children, in an effort to disrupt their lives as little as possible. However, that can be a very difficult situation financially, because it costs a lot to maintain a home on one income, if the mortgage had been maintained by two. While moving out of the family home may be an emotional decision, moving to a less expensive home, or even renting, may be a better option depending on your budget.
Make sure you have sufficient health insurance
Health insurance is often a very substantial expense, especially if you were covered under your spouse’s policy before the divorce. Though you have the option of using COBRA, it is often very expensive as well, and it only lasts for 36 months. Before the divorce is finalized, you should start shopping for a new health insurance policy.
Considerations involving alimony
Alimony, often referred to as spousal support, may be a part of your divorce settlement. Whether you are the spouse who is paying or receiving, there are certain financial issues that need to be given some thought. There are various factors that go into alimony, including the length of the marriage and whether one spouse did not work during the marriage. Permanent maintenance agreements, as part of a divorce, do not always remain permanent. Alimony can end if the receiving spouse retires, is unable to continue working, or remarries. In the end, though, alimony will have an effect on both spouse’s budgets, as well as their taxes.
Don't forget the estate plan
In most states, a divorce will nullify the portion of wills that name a spouse as a personal representative or beneficiary. The same is often true as to trusts. Consider, however, what would happen if a death occurs during the process, but before the divorce is final. Increased emotional and mental strain can lead to illnesses and accidents, so be certain to meet with your estate planning attorney even before the divorce is final.
If you have questions regarding divorce, or any other financial planning issues, please contact the experienced attorneys at Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
In order to accomplish your goals in life, it is important to know how to manage your finances properly. That is the purpose of financial planning. The most common goals include buying that first home, saving for college for your kids, and planning your retirement. Estate planning attorneys, who have expertise in financial planning as well, are willing and able to assist you with your financial planning, by working with you and your financial professional, together.
Preparing for financial planning
Financial planning can be a fairly straightforward process. The first step is to gather your financial information so that you can take a look at your current financial situation. After you have decided on your life goals and priorities, the next step is to choose the proper financial strategies to accomplish your goals. Once you have implemented your financial plan, you need to review it periodically to make sure necessary adjustments can be made.
What information do you need to bring to your attorney?
The most important information to bring to your financial planning attorney includes information regarding your family, your income and expenses, all current investments and assets, income tax returns and retirement information. You should also bring any insurance policies and other estate planning documents you may have.
What will your financial plan include?
Typically, there are six areas of financial planning to be considered when you start creating your plan. These areas include net worth, cash flow, insurance, education, retirement and taxes. Your net worth is simply your current assets minus liabilities. It is important to take into account how your assets and liabilities may change over time. Cash flow represents your current income and expenses, which will also change over time and will likely affect your retirement planning.
Review your insurance policies
Reviewing any existing insurance policies you may have is important. Your financial professional can help you determine whether you have sufficient insurance to take care of your family should anything happen to you. Your attorney will assist you in determining whether the insurance will cover potential legal costs such as taxes and estate administration. You may want to consider disability insurance and long term care coverage, as well.
Saving for College
If you have children, your financial planning should include the best method for saving for their college education, by determining how much you need to set aside and which financial vehicle is best for that purpose.
Many financial professionals provide in depth retirement planning, as an entire area separate from financial planning. As part of your financial plan, however, you also need to estimate what your expenses will likely be once you retire. That way, you can determine how to best fund those expenses once you stop working. It is crucial to also plan the most tax efficient ways to transfer assets to your family after your death, in order to avoid taxes, such as estate taxes and capital gains taxes as much as possible.
If you have questions regarding creating a financial plan, or any other financial planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
Alzheimer's is a type of dementia that causes problems with memory, thinking and behavior. The symptoms of Alzheimer’s usually develop slowly, but get worse over time, becoming severe enough to interfere with the individual’s daily tasks. Alzheimer's is the most common form of dementia, accounting for 60 to 80 percent of all dementia cases. If you have a loved one who is suffering from Alzheimer’s or you suspect they may be, it is time to start thinking about financial planning for someone with Alzheimer’s.
Legal and Financial Issues
It is not uncommon for our parents, or other seniors in our lives, to need assistance with various aspects of our lives, as they grow older. Most of us find ourselves unprepared to deal with the legal and financial consequences of Alzheimer’s. Because of the expectation of a continual decline in mental and physical health, associated with Alzheimer’s, family members are encouraged to review and update their health care and financial arrangements now. If you do not have those plans in place, you need to at least create the basic instruments, such as living trusts and advanced directives, to ensure that all financial decisions can be appropriately made.
Why advance planning is necessary
One of the major issues with Alzheimer’s and other types of dementia is the fact that the individual will gradually lose the ability to think clearly, jeopardizing their competence to make legal and financial decisions. This decline in the ability to have meaningful participation in decision making means that advance planning is critical. If at all possible, advance planning should begin as soon as possible after a diagnosis of Alzheimer’s, while your loved one is still able to participate in the planning. In many cases, individuals with early-stage Alzheimer’s are still capable of understanding most aspects of the necessary decision making.
Do I need a lawyer?
There are many important reasons to obtain the advice of a lawyer whenever you are considering advance planning. This is especially so, when you are dealing with the legal and medical issues related to Alzheimer’s patients. In order to be sure that your loved one’s wishes will be carried out, it is wise to retain an attorney that is experienced in interpreting the laws, and knows how to anticipate problems that may arise. Preparing for the future can be complicated and overwhelming, an experienced financial planning attorney can make it easier on you and your family.
Using Advance Directives for Management of Finances
In order to create the necessary advance directives, your loved one must still have the legal capacity to make decisions. The estate planning tools that would be used, all require legal capacity, including wills, powers of attorney, and living trusts. Many medical and legal experts believe that a person newly diagnosed with Alzheimer’s needs to move quickly to create or update these important documents.
If you have questions regarding Alzheimer’s or other forms of dementia, or any other incapacity or financial planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
Creating a comprehensive estate plan is one of the most important things you can do to protect the future of your loved ones. An appropriate plan allows you to remain in control of your finances, including how they are distributed, while sparing your loved ones from the frustration and expense of managing your affairs after your death.
An estate plan can include any number of tools for managing and protecting your assets, including life insurance policies. In fact, the importance of life insurance in estate planning should never be overlooked.
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The baby boomer generation is comprised of people who were born from 1946 to 1964. This group is reaching the age at which people typically retire, but studies are showing that a very significant percentage of them are not prepared financially.
There are a number of contributing factors to this lack of preparation. One of them is the idea that Social Security will be enough to finance a comfortable retirement. When you look at the facts you see that Social Security is really only going to provide a modest safety net, and many people find this out when it is too late to make up for lost time.
Another reason why some people don't plan ahead for retirement is that they expect to receive significant inheritances. This may be a mistake because research is indicating that many baby boomers will be inheriting less than they may expect.
A study done by Boston College's Center for Retirement Research looked at the anticipated inheritances of baby boomers. They found that from the middle of 2006 to the middle of 2010 the amount of projected inheritances dropped by 13%. The financial crisis of 2007 and 2008 definitely took its toll on the inheritances that many baby boomers were counting on.
Increased longevity is another factor.
The segment of the population that is at least 85 is growing faster than any other age group. Clearly, when you live to an advanced age you are incurring expenses for a longer period of time, and that is going to reduce the amount that you have to pass along to your children and grandchildren.
Receiving an inheritance can definitely give you a financial lift. However, it is not wise to count on anything, and it is really up to each one of us to take personal responsibility for our own financial well-being.
Financial planning lawyers will always emphasize the need to accumulate resources for retirement.
There are those who make no advance plans because they are under the impression that Social Security will take care of everything. The fact is that this program is a safety net, not a retirement plan. If you want to be able to "live the dream" as it were you're going to have to plan ahead intelligently and stick to the plan with diligence over an extended period of time.
The above having been stated Social Security is still going to be an important piece of the puzzle. We would like to share three basic facts that everyone should know about Social Security.
You may have noticed that you are not receiving an annual Social Security statement in the mail anymore. The practice has been discontinued as a cost-cutting measure, but you need this information to be able to make budget projections.
It is still available to you. You can obtain access to your statement by registering an account online at the Social Security Administration website.
Another thing to consider is the application process. You can apply four months before you reach the age at which you become eligible for benefits. You can submit your application over the phone, in person, or online.
The last thing we would like to cover is the eligibility age. At the present time the age of full eligibility is 67 if you were born in 1960 or after. It is 66 if you were born between 1943 and 1954. If you were born between 1955 and 1959 your full eligibility age is somewhere between your 66th and 67th birthdays.
It is possible to begin receiving Social Security when you are as young as 62, but you would not be receiving your full benefit.
To start planning ahead for the future the logical first step is to sit down and discuss everything in detail with a licensed and experienced Reno estate planning lawyer.
Many are concerned that their Social Security will not be sufficient to support them let alone finance the type of retirement that they would like to enjoy. Social Security payments are minimal, with the average monthly benefit being less than $1240 as of this writing. Someone who retired this year having paid the maximum amount into the program over 35 years would receive $2513 per month. Even this maximum benefit is relatively modest when you consider the cost-of-living.
Tthe Social Security Administration recently announced an adjustment to account for inflation in 2013. This year the Social Security COLA was 3.6%, but next year it is going to be just 1.7%. With these modest cost-of-living adjustments the need to plan ahead to feather your own nest becomes all the more apparent.
Medicare Part B is the portion of the program that is devoted to paying for outpatient services and visits to doctors. People who are participating in the program must pay a monthly premium. This premium is deducted from the Social Security payments of seniors who are enrolled in the program. These premiums are going up by about seven dollars per month next year, so this will cut into the cost of living adjustment.
If ydon't want to be concerned about nickels and dimes when you retire plan ahead intelligently, stick to the plan, and live out your retirement dreams.
Comprehensive retirement planning is going to involve deciding where you would like to live after you put your working years behind you. People who live in many of the states have incentives to relocate. Some are looking for warmer climates, and financial matters can enter the equation as well.
Certain states have better tax structures for retired individuals than others, and in fact here in Nevada we are fortunate in a number of ways. Indeed, Nevada residents who are planning for retirement have some incentives to stay right at home.
We are one of the handful of states that does not have an income tax on the state level. This is a huge advantage and it is something to keep in mind if you are considering the possibility of relocating after you retire.
Another thing to consider is the legacy that you will be leaving behind to your loved ones. Some states have an estate tax on the state level. A few have an inheritance tax, and New Jersey and Maryland have both of these taxes on the state level.
There is no type of death tax on the state level here in Nevada.
If you are concerned about taking tax efficient steps as you are preparing for retirement you would do well to consider the advantages that we are enjoying right here in the Silver State. Most people would not want to make a move that results in an increased tax burden at a time when they are going to start living on a fixed income. Also, if you are looking for mild sunny winters, Southern Nevada is certainly a viable option.