Estate Planning

Serving Southwest Florida

Helping clients plan for their family's future, by creating an efficient, thoughtful and comprehensive estate plan that preserves their legacy and gives them peace of mind.

Searching for Lower Taxes? Check State Laws

If you are among the many Americans making a move because of economics, a recent article from MarketWatch titled “Thinking about moving to a state with lower taxes? These are the mistake to avoid” has the information you need about the tax impact of your prospective new home state.

Moving to a state with no personal income tax is not the quick and easy answer it seems. You’ve got to look at ALL the taxes that apply to residents, from property taxes to estate and inheritance taxes.

Here’s a good example: Texas has no personal state income tax. Colorado has a flat 4.63% personal state income tax. Therefore, if you are working and have a good income, it makes sense that Texas would be your best option, right? Wrong.

The property tax rate on a home in some Colorado Springs neighborhoods is about 0.49% of the property’s actual value. Let’s say you move to one of these areas and buy a home for $500,000. Your annual property tax bill: $2,450. Let’s say your taxable income is $200,000. Your Colorado state income tax bill would be $9,260, and with the property tax, your tax bill would be $11,710. For that same $500,000 home in Dallas—your property tax would be $21,200 or about $17,800 if you are over age 65 or a surviving spouse. The higher property tax means that your annual tax bill is lower in Colorado.

What about after you die? Seventeen states and the District of Columbia impose their own estate tax or inheritance tax, and Maryland imposes both. Exemptions from the state estate tax are way below the current federal estate tax exemption. However, if you move to the wrong state, your estate could shrink dramatically from the state’s death taxes.

To clarify, an estate tax is charged against the entire taxable estate, regardless of who inherits from the estate. An inheritance tax is charged against people who receive inheritance. The rate usually depends upon their relationship to you.

Here are a few state estate taxes to consider:

  • Connecticut’s top estate tax rate is 12%, with a $5.1 million exemption allowed for 2020. The exemption increases to $7.1 million in 2021, and $9.1 million in 2022. Above $15 million of the estate tax value, the tax rate drops to 0%.
  • Hawaii’s top estate tax rate is 20%, and in 2020, there is a $5.49 million exemption.
  • In Illinois, the top tax rate is 16%, with a $4 million exemption in 2020.
  • Florida has NO estate tax.

Review the entire tax picture, before making this important decision. You should also confer with your estate planning attorney to learn how your estate’s structure—trusts and other estate planning tools—would work in a different state. Keep in mind that all of these tax exemptions, including the federal one, are likely to change as local, state and federal governments respond to the increased costs and lowered revenues brought about by the COVID-19 pandemic.

Reference: MarketWatch (Aug. 30, 2020) “Thinking about moving to a state with lower taxes? These are the mistake to avoid”

 

What are Power of Attorney Options?

FedWeek’s recent article entitled The Options in Granting Powers of Attorney” explains that a power of attorney designates someone else to handle your affairs, if you can’t.

Here are the major types:

  • Limited power of attorney. This allows an agent to act on your behalf under specific circumstances, like a home sale closing that you can’t attend, and/or for a defined period of time.
  • General power of attorney. Gives broad authority to your agent, who at any time can write checks to pay your bills, sign contracts on your behalf and take distributions from your IRA.
  • Springing power of attorney. This isn’t effective when you execute it, but rather “springs” into effect upon certain circumstances, such as your becoming incompetent. You can say in the document what’s needed to verify your incompetency, like letters from two physicians stating that you no longer can manage your own affairs.  Due to a recent change in the laws, the springing power of attorney is no longer available in Florida.   All powers of attorney are effective upon signing.

A power of attorney is important because your agent can act when you become incapacitated. To serve this purpose, a power should be “durable,” so it will remain in effect if you become incapacitated. Other powers of attorney may not be recognized, if a judge determines that you no longer can manage your affairs.

Without a power of attorney, your family may have to ask a judge to name a guardian to act in your best interests. A guardianship proceeding can be expensive and contentious. You might also wind up with an unwelcome interloper managing your finances. To avoid this situation, designate a person you trust as agent on your durable power.

A health care power of attorney, also known as a designation of health care surrogate, should be a component of a complete estate plan. This document names a trusted agent to make decisions about your medical treatment, if you become unable to do so.

The person you name in your health care power doesn’t have to be the same person that you name as agent for a “regular” power of attorney (the POA that affects your finances).

For your health care power, chose a person in your family who is a medical professional or someone you trust to see that you get all necessary care.

Depending on state law, it may go into effect when a doctor (whom you can name in the POA) determines in writing that you no longer have the ability to make or communicate health care decisions.

Reference: FedWeek (Aug. 26, 2020) “The Options in Granting Powers of Attorney”

 

What Needs to Happen after a Spouse Dies?

Making funeral arrangements, paying medical bills and closing down accounts are just the start of the tasks that a surviving spouse must take charge of, advises the recent article “Checklist for Handling the Death of a Spouse” from U.S. News & World Report. It can be overwhelming, especially with the intense emotions that come with such a large loss.

Having a checklist of specific tasks may make this difficult time less stressful. This is because you will be able to see what has been accomplished, and what is yet to come.

Start by getting organized. Make a list of what you need to do and add to it as you think of new tasks. You should also track what you are doing, using a notebook to keep a record of who you spoke with and when. If you need help, don’t be afraid to ask a family member or trusted friend. Being organized is a big help, when there are so many things that need to be done during such a hard time.

Review your spouse’s will and estate plan. Gather all the documents, from their last will and testament to insurance policies, trust paperwork and related documents. Call your estate planning attorney, since she can help you with settling the estate.

Identify the personal representative. If you are the personal representative, then you are the person in charge of managing the estate, including distributing assets. If someone else has been named, contact the person and be sure they are still willing and able to undertake the responsibilities.

Obtain original death certificates. All of the financial, legal and property matters will require an original death certificate, with a raised seal. It’s easier to have more than you need, so order ten to fifteen.

Talk with other professionals. The financial advisor, CP, and insurance broker, in addition to the estate planning attorney, will need to know that your spouse has passed. You will also need to notify the Social Security Administration. If your spouse was receiving benefits, depending upon when in the month they died, you may need to return money.

Avoid any big decisions. This is not the time to sell the house, move to another state or make any other large decisions, unless you must for financial reasons.

Carry out your spouse’s wishes. There is comfort in carrying out your loved one’s wishes. Giving money to a charity as per the will’s direction or handing a prized possession to a family member who will treasure it can be heartwarming, since it reminds you of the values that your spouse held dear.

Take time for yourself and your loved ones. Mourning and healing from loss are not easy times. Take the time to process the loss and grieve with other family members. Find comfort from those you love.

Reference: U.S. News & World Report (Aug. 28, 2020) “Checklist for Handling the Death of a Spouse”

Suggested Key Terms: Funeral Arrangements, Surviving Spouse, Executor, Estate Planning Attorney, Social Security, Mourning, Trusts, Last Will and Testament

You Need More than a Will for Estate Planning

As the coronavirus continues to sweep across through the U.S. and the death tolls continue to rise, many people are starting to put their estate plans in place, as reported by CNBC.com in the article “A will doesn’t cover all your bases when it comes to end-of-life decisions. Here’s what else you need.”

It’s true–your will, or last will and testament, is just one of several legal documents you need to help loved ones know what your wishes are. If there is no will, all kinds of problems are created. If you have minor children and no will, the court will decide who will care for them. With no will, the laws of your state determine who will receive your assets—even if it’s a relative you’ve never met—or one you’ve loathed for decades.

For those who have partners but are not married, no will means your assets won’t go to them. They also won’t have legal standing to fight back. The courts typically pass assets on to your closest blood relatives. That might not be what you want.

However, a will is only one part of your entire estate plan. You don’t need to live on “an estate” to have an estate. Actually, your estate refers to everything you own—financial accounts, possessions, real estate and digital assets. Putting a plan in place for those assets helps lessen the chances your family will fracture when you have died. Your assets will also go where you want them. It’s a kindness to your loved ones.

A will lets you convey your wishes about who gets what when you die, except for assets that pass outside of a will. These are accounts where you have named a beneficiary, like insurance policies, retirement accounts and jointly owned property. The beneficiary designations and joint ownership (with rights of survivorship) always supersede your will, which is where many people make big mistakes. If you don’t update your beneficiary designations as you move through life, the wrong person might inherit significant assets. There also won’t be anything your intended heirs can do about it.

Another big part of your will involves choosing a person to be in charge of carrying out your intentions—the personal representative (or executor). This is a job that requires someone who is responsible, reliable and comfortable with handling financial and legal matters.

You’ll also need a health care directives, sometimes called designation of health care surrogate and living will, to outline your wishes, if you become incapacitated because of illness or injury. This gives loved ones the instructions they need if, for example, you are on life support and a decision has to be made about whether to continue or to let you pass. Don’t forget a Durable Power of Attorney. This document allows a person of your choice to carry out all of your financial and legal affairs on your behalf. You want to pick someone who is smart and trustworthy. They might need to do everything from selling your home to managing your investments.

Estate planning also includes preparing all of the important documents in your life, so that your executor can find them easily, including your will itself, other legal documents, information about bank accounts, investment accounts and even your Social Security number. The more organized you can be, the more easily your loved ones will be able to administer your estate.

If you want your children to receive money from you but are concerned about their ability to manage an inheritance, you may want to add a trust to your estate plan. Your assets go into the trust, instead of directly into their hands. You also name a trustee who will oversee the trust. The trustee will decide when your children receive the money, according to your instructions. The distribution could be tied to achieving certain goals—like graduating from college or getting their first apartment. Further, if the trust is a revocable living trust, all assets titled in the trust will avoid probate.

One last point: many people today are downloading estate planning forms from the internet. The problem is, you don’t know if they are up-to-date, or even admissible in your state. Every state has its own estate laws, and no one document works in all states. Working with an estate planning attorney who knows the laws in your state eliminates the risk that a judge will toss out your will, because it does not comply with state law.

Reference: CNBC.com (July 27, 2020) “A will doesn’t cover all your bases when it comes to end-of-life decisions. Here’s what else you need.”

 

What Is a Fiduciary and a Fiduciary Duty?

First, a fiduciary duty is the requirement that certain professionals, like attorneys or financial advisors, work in the best financial interest of their clients. By law, members of some professions with clients are bound by fiduciary duty.

Forbes’ recent article entitled “What Is Fiduciary Duty?” explains that in a fiduciary relationship, the person who must prioritize their clients’ interests over their own is called the fiduciary. The person getting the services or assistance is called the beneficiary or principal.

You will frequently see a fiduciary relationship with certain types of professionals, like attorneys and financial advisors. A fiduciary duty is a serious obligation, and if a fiduciary doesn’t fulfill his or her duties, it’s known as a breach of fiduciary duty. Fiduciaries must act in a beneficiary’s best interest. They have two main duties: duty of care and duty of loyalty. Fiduciaries may have different or additional requirements, depending on their industry.

With the duty of care, fiduciaries must make informed business decisions after reviewing available information with a critical eye. Lawyers must act carefully in performing work for clients. Care is determined by the prevailing standards of professional competence in the relevant field of law and geographic region. To abide by the duty of loyalty, fiduciaries must not have any undisclosed economic or personal conflict of interest. They can’t use their positions to further their own private interests. For example, fiduciary financial advisors might adhere to the duty of loyalty by disclosing recommendations from which they’ll receive a commission.

Other common professions or positions that require fiduciary duties include directors of corporations and real estate agents, as well as those discussed below:

Trustee of a Trust. When you want your assets to transfer to someone after you die, you can put them into a trust. The trustee who’s in charge of the trust has a fiduciary duty to manage the trust and its assets in the best interests of the beneficiary who will one day inherit them.

Estate Personal Representative or Executor. The person who manages your estate and handles your affairs is your personal representative. He or she has a fiduciary responsibility to your heirs and next of kin to distribute the estate according to your wishes.

Lawyer. Your attorney must disclose any conflicts of interest and must work with your best interests in mind.

Financial Advisors. Financial advisors who are fiduciaries must act in the best interest of their clients and offer the lowest cost financial solutions to fit their clients’ needs. However, it important to note that not all financial advisors are fiduciaries.

Reference: Forbes (July 28, 2020) “What Is Fiduciary Duty?”

 

What Is Involved with Serving as a Personal Representative?

Serving as the personal representative (or executor) of a relative’s estate may seem like an honor, but it can also be a lot of work, says The (Fostoria, OH) Review Times’ recent article entitled “An executor’s guide to settling a loved one’s estate.”

As a personal representative of a will, you’re tasked with settling her affairs after she dies. This may sound rather easy, but you should be aware that the job can be time consuming and difficult, depending on the complexity of the decedent’s financial and family situation. Here are some of the required duties:

  • Filing court papers to initiate the probate process
  • Taking inventory of the decedent’s estate
  • Using the decedent’s estate funds to pay bills, taxes, and funeral costs
  • Taking care of canceling her credit cards and informing banks and government offices like Social Security and the post office of her death
  • Readying and filing her final income tax returns; and
  • Distributing assets to the beneficiaries named in the decedent’s will.

Every state has specific laws and deadlines for a personal representative’s responsibilities. To help you, work with an experienced estate planning attorney and take note of these reminders:

Get organized. Make certain that the decedent has an updated will and locate all her important documents and financial information. Quickly having access to her deeds, brokerage statements and insurance policies after she dies, will save you a lot of time and effort. With a complex estate, you may want to hire an experienced estate planning attorney to help you through the process. The estate will pay that expense.

Avoid conflicts. Investigate to see if there are any conflicts between the beneficiaries of the decedent’s estate. If there are some potential issues, you can make your job as personal representative much easier, if everyone knows in advance who’s getting what, and the decedent’s rationale for making those decisions. Ask your aunt to tell her beneficiaries what they can expect, even with her personal items because last wills often leave it up to the executor to distribute heirlooms. If there’s no distribution plan for personal property, she should write one.

Personal representative fees. You’re entitled to a personal representative fee paid by the estate. In Florida, personal representatives are allowed to take a percentage of the estate’s value, generally 3%, depending on the size of the estate. However, if you’re a beneficiary, it may make sense for you to forgo the fee because fees are taxable, and it could cause rancor among the other beneficiaries.

Reference: The (Fostoria, OH) Review Times (Aug. 19, 2020) “An executor’s guide to settling a loved one’s estate”

 

How Do I Keep My Spendthrift Son-in-Law from Getting the Money I Give my Daughter in My Estate?

Say that you were to name your daughter as the beneficiary on your Roth IRA and 401(k) accounts, as well as your house and other investments. Her husband would not be a beneficiary.

His only source of income is a monthly stipend that he receives from a trust and earned income from being a rideshare driver. He has at least $5,000 in credit card debt.

Can Mom use a “spendthrift trust” to prevent her son-in-law from inheriting or getting her money when she dies?

Nj.com’s recent article entitled “Can I protect my daughter’s inheritance from her husband?” explains that “spendthrift trusts” were created for this very reason.

Note first that retirement assets can’t be re-titled to a trust. However, a home can be, and investments can be, if they’re not tax deferred.

For assets that can’t be re-titled to the trust during your lifetime, you can name the trust as the payable-on-death (POD) beneficiary of those assets.

You also should take care in deciding on who you choose as a trustee.

In the situation above, depending on applicable law for your state of residence, the daughter may not be the sole trustee and the sole beneficiary under this form of trust arrangement. However, in all instances, a bank or attorney can be a co-trustee.

This trust arrangement ensures that assets distributed to the daughter aren’t commingled with the assets of her husband with extravagant tastes and an open checkbook. In addition, those assets would not be subject to equitable distribution in the event of a divorce.

If the daughter is the sole trustee over a spendthrift trust, then all the planning will be out the window, if the daughter does not agree to this set-up.

For example, if she takes distributions from the trust and deposits them in a joint account with her husband, the money is available for equitable distribution.

This means the daughter arguably has indicated that she does not think of her inheritance as a non-marital asset.

A divorce court would see it the same way and award a portion to the husband in a break-up.

Reference: nj.com (July 21, 2020) “Can I protect my daughter’s inheritance from her husband?”

 

Gifting Can Help Estate Plans and Heirs Reach Goals

The applicable exclusion amount for gift/estate tax purposes is $11.58 million in 2020, a level that makes incorporating gifting into estate plans very attractive for high net-worth families. If a donor’s taxable gift—one that does not qualify for the annual, medical or education exclusion—is in excess of this amount, or if the value of the donor’s aggregate taxable gifts is higher than this amount, the federal gift tax will be due by April 15 of the following year. The current gift tax rate is 40%.

This presents an opportunity, as described in detail in the article “The Case for Gifting Now (or At Least Planning for the Possibility” from The National Law Review.

If the exclusion is used during one’s lifetime, it reduces the amount of the exemption available at death to shelter property from the estate tax. With proper planning, spouses may currently gift or die with assets totally as much as $23.16 million, with no gift or federal estate tax.

To gain perspective on how high this exclusion is, in 2000-2001, the applicable exclusion amount was $675,000.

The exclusion amount will automatically decrease to approximately $6.5 million on January 1, 2026, unless changes are made by Congress before that time to continue the current exclusion amount. Now is a good time to have a conversation with your estate planning attorney about making gifts in advance of the scheduled decrease and/or any changes that may occur in the future. The following are reasons why this exemption may be lowered:

  • Trillions of dollars in federal stimulus spending necessitated by the COVID-19 pandemic and the severe economic downturn in the U.S.
  • Past precedent of passing tax legislation mid-year and applying it retroactively to January 1.
  • A possible change in party control for the presidency and/or the Senate
  • The use of the budget reconciliation process to pass changes to taxes.

In the 100-plus year history of the estate tax, the exemption has never gone down. However, the exemption has also never been this high. The possibility of a compressed timeframe for family business owners and wealthy individuals to implement lifetime gifts before any legislative change may make a tidal wave of gifting transactions challenging between now and December 31, 2020. Now is the time to start planning and take action to utilize the exclusion amount.

Reference: The National Review (Aug. 20, 2020) “The Case for Gifting Now (or At Least Planning for the Possibility”

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Trusts: The Swiss Army Knife of Estate Planning

Trusts serve many different purposes in estate planning. They all have the intent to protect the assets placed within the trust. The type of trust determines what the protection is, and from whom it is protected, says the article “Trusts are powerful tools which can come in many forms,” from The News Enterprise. To understand how trusts protect, start with the roles involved in a trust.

The person who creates the trust is called a “grantor” or “settlor.” The individuals or organizations receiving the benefit of the property or assets in the trust are the “beneficiaries.” There are two basic types of beneficiaries: present interest beneficiaries and “future interest” beneficiaries. The beneficiary, by the way, can be the same person as the grantor, for their lifetime, or it can be other people or entities.

The person who is responsible for the property within the trust is the “trustee.” This person is responsible for caring for the assets in the trust and following the instructions of the trust. The trustee can be the same person as the grantor, as long as a successor is in place when the grantor/initial trustee dies or becomes incapacitated. However, a grantor cannot gain asset protection through a trust, where the grantor controls the trust and is the principal recipient of the trust.

One way to establish asset protection during the lifetime of the grantor is with an irrevocable trust. Someone other than the grantor must be the trustee, and the grantor should not have any control over the trust. The less power a grantor retains, the greater the asset protection.

One additional example is if a grantor seeks lifetime asset protection but also wishes to retain the right to income from the trust property and provide a protected home for an adult child upon the grantor’s death. Very specific provisions within the trust document can be drafted to accomplish this particular task.

There are many other options that can be created to accomplish the specific goals of the grantor.

Some trusts are used to protect assets from taxes, while others ensure that an individual with special needs will be able to continue to receive needs-tested government benefits and still have access to funds for costs not covered by government benefits.

An estate planning attorney will have a thorough understanding of the many different types of trusts and which one would best suit each individual situation and goal.

Reference: The News Enterprise (July 25, 2020) “Trusts are powerful tools which can come in many forms”

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Should I Let The State Write My Will?

It’s a common question asked of estate planning attorneys: “Do I Really Need A Will?” This article in The Sun explains that the answer is “yes.” If you die without a will or “intestate,” the probate laws of the state will determine who will receive the assets in your estate. Of course, that may not be how you wanted things to go. That’s why you need a will.

When you die, your assets (i.e., your “estate”) are distributed to family and loved ones in your estate plan, if there is no surviving joint owner or designated beneficiary (e.g., life insurance, annuities, and retirement plans). No matter the complexity, a will is a key component of the plan.

A will allows you make decisions about the distribution of your assets, such as your real estate, personal property, investments and any businesses. You can make donations to your favorite charities or a religious organization. Your will is also important, if you have minor children: it’s where you nominate a guardian to care for them if you die.

Of course, you can write your own will or pay for a program on the Internet, but it’s better to have one prepared by an experienced estate planning attorney. Prior to sitting down with an attorney, make a listing of all your assets (your home, real estate, bank accounts, retirement plans, personal property and life insurance policies). If you have prized possessions or family heirlooms, be sure to also detail these.

Make a list of all debts, such as your mortgage, auto loans and credit cards. You should also collect contact information for all immediate living family members, detailing their addresses and birth dates.

When meeting with an attorney, ask about other components of an estate plan, such as a power of attorney and health care directive.

The originals of these documents should be kept in a safe place, where they can be easily accessed by your estate administrator or personal representative.

You should also review your estate plan every few years and at significant points in your life, like marriage, divorce, the adoption or birth of a child, death of a beneficiary and divorce.

Do your homework, then visit an experienced estate planning attorney to receive important planning insights from their experience working with estate plans and families.

Reference: The (Jonesboro, AR) Sun (July 15, 2020) “Do I Really Need A Will?”

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