Category Archives: Estate Planning

What to Do Financially When a Spouse Dies

What to Do Financially When a Spouse Dies

Steps to see that financial matters remain in good order.

   

Provided by Terri Fassi, CPA, MBA, CDFA

 

When a spouse passes away, the emotion and magnitude of the loss can send our lives reeling. This profound change can also affect our finances. All at once, we have a to-do list before us, and the responsibility of it can make us feel pressured. With that in mind, this article is intended as a kind of checklist – a list of some of the key financial matters to address following the death of a spouse.

The first steps. These actions should come first. Some of these steps do require locating some documentation. Hopefully, your spouse kept these documents where you can easily find them – either at home, in a safe deposit box, or in an online vault.

*Contact family members, friends, and your spouse’s employer to tell them of your spouse’s passing. (As a courtesy, your spouse’s employer should put you in touch with the person overseeing its employee benefits plan or human resources department.)

*If your spouse owned a business, check to see what plans are in place for its short-term continuation. Will a partner or key employee take the reins for the time being (or for the long term) as a result of a defined succession plan?

*Arrange payment for funeral expenses.

*Gather/request as many records as you can find to document your spouse’s life and passing – birth and death certificates, a marriage certificate or divorce decree (if applicable), military service records, investment, insurance and tax records, and employee benefit information (if applicable).

The next steps. Subsequently, it is time to talk with the legal, tax, insurance, and financial professionals you trust.

*Consult your attorney. Assuming your spouse left a will and did not die intestate (i.e., without one), that will should be looked at as a prelude to the distribution of any assets and the settlement of the estate. His or her written wishes should be reviewed.

*Locate your spouse’s insurance policy and talk to the affiliated insurance agent. Notify that agent of your spouse’s passing; he or she will work with you to a) get the claims process going, b) help you reevaluate your own insurance needs, and c) review and, perhaps, alter beneficiary designations.

*Notify your spouse’s financial advisor and, by extension, the financial custodians (i.e., the banks or investment firms) through which your spouse opened his or her IRAs, money market funds, mutual funds, brokerage accounts, or qualified retirement plan. They must be notified, so that these funds may be properly distributed according to the beneficiary forms for these accounts. Please note that the beneficiary forms commonly take precedence over bequests made in a will. (This is why it is important to periodically review beneficiary designations for these accounts.) If there is no beneficiary form on file with the account custodian, the assets will be distributed according to the custodian’s default policy, which often directs assets either to a surviving spouse or the deceased spouse’s estate.1,2 

Survivor/spousal benefits. These important benefits may help you to maintain your standard of living after a loss.

*Contact your local Social Security office regarding Social Security spousal and survivor benefits. Also, go online and visit www.ssa.gov/pgm/survivors.htm.

*If your spouse worked in a civil service job or was in the armed forces, contact the state or federal government branch or armed services branch about how to file for survivor benefits.

Your spouse’s estate. To settle an estate, several orderly steps should be taken.

*You and/or your attorney need to contact the executor, trustee(s), guardians, and heirs relevant to the estate, and access the appropriate estate planning documents.

*Your attorney can also let you know about the possibility of probate. A revocable living trust (or other estate planning mechanisms) may allow you to avoid this process. Joint tenancy and community property laws in many states also help.3 

*The executor for the estate should obtain an Employer Identification Number (EIN) from the IRS. Visit: www.irs.gov/businesses/small/article/0,,id=102767,00.html

*Any banks, credit unions, and financial firms that your spouse had a financial relationship with, should be notified of his or her death.

*Your spouse’s creditors will also need to be informed. Any debts will need to be addressed, and separate credit may need to be established for you.

Your own taxes & investments. How does all this affect your own financial life?

*Review the beneficiary designations on the IRAs, workplace retirement plans, and insurance policies that are in your name. With the death of a spouse, beneficiary designations will likely have to be revised.

*Consider your state and federal tax filing status. A change in status may significantly alter your tax picture.

*Speaking of taxes, there may be tax implications surrounding any charitable gifts you and your spouse recently arranged or planned to make. (If a deceased spouse leaves property to a surviving spouse or a tax-exempt charity, that property is exempt from federal estate tax. Any property gifted by your late spouse prior to his or her death is not subject to probate.)3,4 

*Presuming you jointly owned some assets, it is time to retitle them. In addition to real estate, you may have jointly owned bank accounts, investments, and vehicles.

Things to think about when you are ready to move forward. With the passage of time, you may give thought to the short-term and long-term financial and lifestyle consequences of your spouse’s passing. 

*Some widowed spouses ponder selling a home or moving to be closer to adult children in such circumstances, but this is not always the clearest moment to make such decisions.

*Your own retirement planning needs. Certainly, you had an idea of what your retirement would be like together; to what degree does this life event change that idea? Will potential sources of retirement income need to be replaced?

*If you have minor children to take care of, will you be able to sustain the family lifestyle on a single income? How do your income sources compare to your fixed and variable expenses?

*Do you need to address college funding in a new way?

*If your spouse owned a business or professional practice, to what extent do you want (or need) to be involved in it in the future?

This article is intended as a checklist – a list of the important financial considerations to address in the event of a tragedy. If you find yourself referring to this article now, or you decide to keep it in a drawer or on your computer for some unforeseen time in the future, please know that I am here to help you and assist you as you seek answers to your questions as well as a measure of financial equilibrium. Simply call or email me.

 

Terri Fassi, CPA, MBA, CDFA  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or terri@fassifinancialnetwork.com.

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – usatoday.com/story/money/personalfinance/2016/01/14/your-ex-could-get-rich-if-you-dont-update-your-beneficiaries/78259394/ [1/14/16]

2 – richmond.com/business/local/article_03ac117d-0bd4-53f9-84cb-5b6ce716c2aa.html [5/14/16]

3 – nolo.com/legal-encyclopedia/avoid-probate-how-to-30235.html [10/12/16]

4 – nolo.com/legal-encyclopedia/estate-gift-tax-faq-29136.html [10/12/16]

 

Updating Your Estate Plan

Updating Your Estate Plan

When should you review it? What should you review?    

 

Provided by Terri Fassi, CPA, MBA, CDFA

 

An estate plan has three objectives. The first goal is to preserve your accumulated wealth. The second goal is to express who will receive your assets after your death. The third goal is to state who will make medical and financial decisions on your behalf if you cannot.

Over time, your feelings about these objectives may change. You may want to name a new executor or health care agent. You may rethink how you want your wealth distributed.

This is why it is so vital to review your estate plan. Over ten or twenty years, your health, wealth, and outlook on life may change profoundly. The key is to recognize the life events that may call for an update.

Have you just married or divorced? If so, your estate plan will absolutely need revision. For that matter, some, or all, of your will may now be legally invalid. (Some state laws strike down existing wills when a person is married or divorced.) If your children or grandchildren marry or divorce, that also calls for an estate plan review.1

Has there been a loss or serious illness within your family? If so, your named executor or health care agent may have to be changed. If one family member has now become physically or financially dependent on you, that too may be an occasion for a second look at the plan.

Has your net worth risen or declined substantially since the plan was first implemented? If you have become much wealthier in the past five or ten years (or much less wealthy), that circumstance may have altered your vision of how you want your assets distributed at your death. Maybe you want to give more (or less) to charity or your heirs. A large inheritance can also prompt you to rethink your wealth protection and wealth transfer strategy.

Have you changed your mind about what your wealth should accomplish? Today, you may view your wealth differently than you did when you were younger. New purposes may have emerged for it – new roles that it can play. Following through on those thoughts may lead you to reconsider aspects of your estate plan.

Have your executors or trustees changed their mind about their roles? If they are no longer interested in shouldering those responsibilities, no longer alive, or no longer of sound mind or reputable character, it is revision time.  

Have you retired, moved to another state, or bought or sold real estate? All of these events call for an estate plan check-up.

The first step in revising an estate plan is to update essential documents. Not just your will or your trust, but also your financial power of attorney and health care proxy. Review all the names: your executor; your trustee; your health care agent. Changes in your personal (and even your business) relationships may call for alterations to those choices.

The second step is to review your risk management. Does language in your will need revision? Does a trust created years ago need to be modified or replaced? Do new estate planning vehicles need to enter the picture in order to help you adequately transfer wealth, counter estate taxes, or endow charities?

What about your life insurance? Do beneficiary forms of life insurance policies need updating? Is corporate-owned life insurance coverage you once counted on now absent? Will policy payouts be sufficient enough to help your loved ones address financial issues after your death?

The third step is to make sure your assets are in sync with your plan. For example, if you have a revocable trust, have you transferred ownership of all the assets that are supposed to go into it? Have you acquired new assets that need to be “poured in?”

If you are married and it appears certain that your estate will be taxed, you may want to own some assets and have your spouse own others. Yes, the federal estate tax exemption is portable, so any unused estate tax and gift tax exemption is allowed to pass to a surviving spouse. At the state level, though, there are different rules. So if all assets are in your spouse’s name and your home state levies an estate tax, that scenario may mean higher estate taxes for your heirs than if those assets were alternately owned by either you or your spouse.2

Even if nothing major happens in your life, review your plan every five years or so. While your life may be uneventful over five years, tax law, the financial markets, and business climates may change significantly. Those kinds of shifts can impact your estate planning strategy.

     

Terri Fassi, CPA, MBA, CDFA  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or terri@fassifinancialnetwork.com.

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.


Citations.

1 – 360financialliteracy.org/Topics/Retirement-Planning/Estate-Planning-Basics/How-often-do-I-need-to-review-my-estate-plan [8/4/16]

2 – time.com/money/4187332/estate-planning-checkup-items-review/ [1/20/16]

 

Coping with an Inheritance

Coping With an Inheritance

A windfall from a loved one can be both rewarding and complicated.

 

Provided by Terri Fassi, CPA, MBA, CDFA

 

Inheriting wealth can be a burden and a blessing. Even if you have an inclination that a family member may remember you in their last will and testament, there are many facets to the process of inheritance that you may not have considered. Here are some things you may want to keep in mind if it comes to pass.

Take your time. If someone cared about you enough to leave you a sizable inheritance, then likely you will need time to grieve and cope with their loss. This is important, and many of the more major decisions about your inheritance can likely wait. And consider, too – when you’re dealing with so much already, you may be too overwhelmed to give your options the careful consideration they need and deserve. You may be able to make more rational decisions once some time has passed.

Don’t go it alone. There are so many laws, options and potential pitfalls – The knowledge an experienced professional can provide on this subject may prove to be vitally important. Unless you happen to have uncommon knowledge on the subject, seek help.

Do you have to accept it? While it may sound ridiculous at first, in some cases refusing an inheritance may be a wise move. Depending on your situation and the amount of your bequest – it may be that estate taxes will drain a large amount. Depending on the amount that remains, disclaiming some (or all) of the gift is worth contemplation.

Think of your own family. When an inheritance is received, it may alter the course of your own estate plan. Be sure to take that into consideration.  You may want to think about setting up trusts for your children – to help ensure their wealth is received at an age where the likelihood that they’ll misuse or waste it is decreased. Trust creation may also help you (and your spouse) maximize exemptions on personal estate tax.

The taxman will be visiting. If you’ve inherited an IRA, it is extremely important that you weigh the tax cost of cashing out against the need for instant funds. A cash out can mean you will have to pay (on every dollar you withdraw) full income tax rates. This can greatly reduce the worth of your bequest, whereas allowing the gains of the investment to continue to compound within the account, and continuing to defer taxes, may have the opposite effect and help to increase the value of what you’ve inherited.

Stay informed. The estate laws have seen many changes over the years, so what you thought you knew about them may no longer be correct. This is especially true with regard to the taxation on capital gains. The assistance of a seasoned financial professional may be more important than ever before.

Remember to do what’s right for YOU. All too often an inheritance is left in its original form, which may be a large holding of a single company – perhaps even one started by the relative who bestowed the gift. While it’s natural for emotion to play a part and you may wish to leave your inheritance as it is, out of respect for your relative, what happens if the value of that stock takes a nose dive? The old adage “never put all your eggs in one basket” may be words to live by. Remember that this money is now yours – and the way in which you allocate assets needs to be in line with YOUR needs and goals.

  

Terri Fassi, CPA, MBA, CDFA  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or terri@fassifinancialnetwork.com.

 

 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Setting Up Your Estate to Minimize Probate

Setting Up Your Estate to Minimize Probate

What can you do to lessen its impact for your heirs?

Provided by Terri Fassi, CPA, MBA, CDFA

 

Probate subtly reduces the value of many estates. It can take more than a year in some cases, and attorney’s fees, appraiser’s fees and court costs may eat up as much as 5% of a decedent’s accumulated assets. Think tens of thousands of dollars, perhaps more.1

What do those fees pay for? In many cases, routine clerical work. Few estates require more than that. Heirs of small, five-figure estates may be allowed to claim property through affidavit, but this convenience isn’t extended for larger estates.

So how you can exempt more of your assets from probate and its costs? Here are some ideas.

Joint accounts. Jointly titled property with the right of survivorship is not subject to probate. It simply goes to the surviving spouse when one spouse passes. There are a couple of variations on this. Some states allow tenancy by the entirety, in which married spouses each own an undivided interest in property with the right of survivorship. A few states allow community property with right of survivorship; assets titled in this way also skip the probate process.2,3,4

Joint accounts may be exempt from probate, but they can still face legal challenges – especially bank accounts when the title is modified by a bank employee rather than a lawyer. The signature card may not contain survivorship language, for example. Or, a joint account with rights of survivorship may be found inconsistent with language in a will.5

POD & TOD accounts. Payable-on-death and transfer-on-death forms are used to permit easy transfer of bank accounts and securities (and even motor vehicles in a few states). As long as you live, the named beneficiary has no rights to claim the account funds or the security. When you pass away, all that the named beneficiary has to do is bring his or her I.D. and valid proof of the original owner’s death to claim the assets or securities.3

Gifts. For 2013, the IRS allows you to give up to $14,000 each to as many different people as you like, tax-free. By doing so, you reduce the size of your taxable estate. Please note that gifts over the $14,000 limit may be subject to federal gift tax of up to 40% and count against the lifetime gift tax exclusion, now at $5.25 million.6

Revocable living trusts. In a sense, these estate planning vehicles allow people to do much of their own probate while living. The grantor – the person who establishes the trust – funds it while alive with up to 100% of his or her assets, designating the beneficiaries of those assets at his or her death. (A pour-over will can be used to add subsequently accumulated assets; it will be probated, however.)2,7,8

The trust owns assets that the grantor once did, yet the grantor can use these assets while alive. When the grantor dies, the trust becomes irrevocable and its assets are distributed by a successor trustee without having to be probated. The distribution is private (as opposed to the completely public process of probate) and it can save heirs court costs and time.7

Are there assets probate doesn’t touch? Yes. In addition to property held in joint tenancy, retirement savings accounts (such as IRAs), life insurance death benefits and Treasury bonds are exempt. Speaking of retirement savings accounts…2

Make sure to list/update retirement account beneficiaries. When you open a retirement savings account (such as an IRA), you are asked to designate eventual beneficiaries of that account on a form. This beneficiary form stipulates where these assets will go when you pass away. A beneficiary form commonly takes precedence over a will, because retirement accounts are not considered part of an estate.8

Your beneficiary designations need to be reviewed, and they may need to be updated. You don’t want your IRA assets, for example, going to someone you no longer trust or love.

If for some reason you leave the beneficiary form for your life insurance policy blank, it could be subject to probate when you die. If you leave the beneficiary form for your IRA blank, then the IRA assets may be distributed according to the default provision set by the IRA custodian (the brokerage firm hosting the IRA account). These instances are rare, but they do happen.9,10

To learn more about strategies to avoid probate, consult an attorney or a financial professional with solid knowledge of estate planning.

Terri Fassi, CPA, MBA, CDFA  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or terri@fassifinancialnetwork.com.

 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – www.nolo.com/legal-encyclopedia/why-avoid-probate-29861.html [4/17/13]

2 – www.kiplinger.com/article/retirement/T021-C000-S001-four-facts-of-living-trusts.html#iwrC4LSHbmjf9emt.99 [4/4/13]

3 – www.inc.com/articles/1999/11/15611.html [11/99]

4 – www.law.cornell.edu/wex/tenancy_by_the_entirety [8/19/10]

5 – www.newyorklawjournal.com/PubArticleNY.jsp?id=1202585770799 [1/28/13]

6 – www.chron.com/news/article/New-act-clears-up-estate-gift-tax-confusion-4301217.php [2/22/13]

7 – blog.nolo.com/estateplanning/2011/08/24/trusts-revocable-v-irrevocable/ [8/24/11]

8 – www.nytimes.com/2011/02/10/business/10ESTATE.html [2/10/11]

9 – www.investopedia.com/articles/retirement/03/031803.asp [11/8/09]

10 – www.smartmoney.com/taxes/estate/how-to-choose-a-beneficiary-1304670957977/ [6/10/11]

 

Ways the Middle Class Can Make a Difference for Charity

Ways the Middle Class Can Make a Difference for Charity

You don’t need to be wealthy to make an impact and get a win-win.

Provided by Terri Fassi, CPA, MBA, CDFA

Do you have to make a multimillion-dollar gift to a charity to receive immediate or future financial benefits? No. If you’re not yet a millionaire or simply a “millionaire next door,” yet want to give, consider the following options which may bring you immediate or future tax deductions.

Partnership gifts. These gifts are made via long-term arrangements between donors and recipient charities or non-profits, usually with income resulting for the donor and an eventual transfer of the principal to the charity at the donor’s death.

For example, a charitable remainder trust also allows you to pay yourself a dependable income (typically for life) and then distribute the remaining trust principal to charity. A charitable lead trust offers you the potential to reduce gift and estate taxes on assets passing to your heirs by making annual charitable gifts; your beneficiaries get the leftover trust assets at the end of your life or the specified trust term. You could even name a charitable life income arrangement as the beneficiary of your IRA.1,2

If you don’t have enough funds to start one of these, you might opt to invest some of your assets in a pooled income fund offered by a university or charity. Your gifted assets go into a “pool” of assets invested by a fund manager; you get a pro rata share of the income of the fund for life, and when your last income beneficiary passes away, the principal of your gift goes to the school or charity.

If you like the idea of a family foundation but don’t quite have the money and don’t want the bureaucracy, you could consider setting up a donor-advised fund. You make an irrevocable contribution to a third-party fund, realizing an immediate tax deduction; the fund invests the money in an account you create. You advise the fund where the money goes and how it grows, but the fund makes the actual grants to nonprofits.

Lifetime gifts. These are charitable gifts in which the donor retains no powers or other controls over the gift once it is made. A lifetime gift of this sort is not included in what the IRS calls your Gross Estate (but taxable gifts are used in calculation of estate tax).3

Lifetime gifts also include outright gifts of cash or appreciated assets such as stocks or real estate. A gift of appreciated stock could bring you a charitable deduction to lower your income tax, and help you avoid capital gains tax linked to the sale of the appreciated shares.

Through a gift of appreciated property, you can transfer a real estate deed to a school or charity and get around capital gains taxes that may result from a property’s sale. If you have held the appreciated property for at least a year, the gift is deductible up to 30% of adjusted gross income with no capital gains tax on the appreciation. You could even arrange a retained life estate, in which you deed your home to a charity or non-profit while retaining the right to live in it as your primary residence for the rest of your life.4

Estate gifts. These are deferred gifts you make after your lifetime, without impact on your current lifestyle. You can make a bequest to a charity through your will or a living trust without generally incurring estate taxes on the gift amount. A gift of life insurance to a university or charity can give you an immediate income tax deduction for the cash surrender value of a paid-up policy, and possible future deductions. You can also make an IRA gift or retirement plan gift effective upon your death, with the non-profit organization receiving some or all of the assets as you wish.5,6

The caveats. As your income increases, you may face limits on the amount of charitable gifts you can deduct. If you are retired, an increase in income can also cause more of your Social Security benefits to be taxed. The IRS says that your charitable deductions for any tax year cannot be more than more than 50% or your adjusted gross income (possibly 30% or 20% depending on the specifics of your gifts). But if you exceed such limits, the IRS lets you carry forward excess contributions for up to five years.4

Would you like to learn more? Okay, so they may not name a hospital wing or a library after you. But your charitable gifting can have real effect even if you don’t have a fortune. Keep in mind that your unique circumstances need to be weighed before making any decision. As with all tax and estate planning, please consult your financial advisor, attorney or tax advisor to affirm that you are in a position to fully benefit from charitable deductions.

Terri Fassi, CPA, MBA, CDFA  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or terri@fassifinancialnetwork.com.

 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 www.wellsfargoadvisors.com/financial-services/estate-planning/trusts/charitable-trusts.htm [3/6/13]

2 giving.unc.edu/ccm/groups/public/@giving/@main/documents/content/ccm3_033150.pdf [3/6/13]

3 irs.gov/Businesses/Small-Businesses-&-Self-Employed/Frequently-Asked-Questions-on-Estate-Taxes [3/4/13]

4 www.purdue.edu/giving/fed_tax.html [3/6/13]

5 www.irs.gov/publications/p950/ar01.html [3/6/13]

6 redcrosslegacy.org/GIFTinsurance.php [4/23/12]

 

Avoiding Family Squabbles Over Your Estate

Avoiding Family Squabbles Over Your Estate

What steps may help assets transfer without a fight?

Provided by Terri Fassi, CPA, MBA, CDFA

Should you rely on “will power” to bequeath assets? The more complex your estate, the more ill-advised that choice becomes. Having only a will in place when you die may not be enough. As MarketWatch noted recently, research from the Williams Group (a major estate planning firm) indicates that estate fights reduce inherited wealth for as many of 70% of families.1

Inheritance is no simple matter. In a simpler world, an individual with a $3 million estate could pass away and simply leave $1 million each to his or her children – enough said, over and done. But life isn’t so simple: one heir may deserve more money as a result of a disability or fate dealing out hardships, while another may truthfully deserve less due to his or her behavior, or his or her financial success.

If you feel one heir should receive more of your estate than another, that wish needs to be articulated in your estate planning. Stating these wishes before you pass away (the why, the how, the how much) and letting your heirs know how you feel isn’t cruel – candor now is preferable to confusion and in-fighting later.

Beyond money, what about possessions & real property? Homes, businesses, raw land, antiques, artwork, collectibles, heirlooms, and pets: your children and grandchildren may have different perceptions of their future value, and disagree on their destiny. Being clear about who is going to get what today (and why specific decisions are being made) may help defray potential legal challenges tomorrow.

Consider leaving some things up to the kids. You could call in appraisers to set values for your real and personal property, make a list of those assets and their values, and subsequently allow your heirs to take turns choosing the possessions or properties they want to inherit. If a squabble breaks out between heirs over this or that item, you can settle it with a family auction – that item goes to the highest bidder when you pass away.

Also, consider a revocable trust. More people should, as wills have basic shortcomings. If they have any imprecise language or lack in terrorem clauses (which threaten heirs that challenge them with disinheritance), they can invite lawsuits and other battles. If the author of a will is elderly, a spouse, ex-spouse or children could try to assert that the author had insufficient mental capacity at the time of authorship or wrote the will under undue influence.2

Wills are made public; they are probated. While there are many non-probate assets that pass directly to a designated beneficiary or a joint tenant (jointly held bank accounts with right of survivorship, jointly titled real property, POD accounts, most types of IRAs and workplace retirement accounts), other assets do not. The length of the probate process varies by state. It takes weeks in some states, months in others.3,4

Probate requires money as well as time: even if you have named the most capable executor around, the court costs and lawyer and appraiser fees involved may still eat up as much as 5% of your estate (if you’re a millionaire, that’s $50,000). Mostly, those fees go for basic clerical work.3,4

Assets within a revocable trust can avoid probate (assuming they have been properly transferred into the trust, of course). Upon the death of the grantor who established the trust, the grantor’s appointed trustee distributes the assets within the trust per the grantor’s wishes, no probate involved. The chance of a family fight over inherited assets lessens.5

Living wills? Those can prove quite valuable. You may not die suddenly, and you could be incapacitated for a period just prior to your death. Should that be the case, a living will (also called an advance directive) can articulate how you want to be treated. Additionally, a health care proxy document can appoint someone (known legally as a health care agent) to authorize doctors and nurses to carry out those directions. A health care proxy is also crucial in instances when a younger individual becomes severely disabled.5

Opt for more control. When you pass away, your money will have only three possible destinations. Percentages of it will go either to your heirs, to charity, or to the government. If your estate planning goes no further than a will, you could be inviting a dispute and things may not turn out quite the way you want. While creating a revocable trust can cost ten times as much as creating a simple will, it may be worth every penny in the end.6

Terri Fassi, CPA, MBA, CDFA  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or terri@fassifinancialnetwork.com.

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – blogs.marketwatch.com/encore/2014/09/29/how-to-prevent-family-feuds-when-it-comes-to-your-inheritance/ [9/29/14]

2 – nolo.com/dictionary/in-terrorem-clause-term.html [10/9/14]

3 – nolo.com/legal-encyclopedia/why-avoid-probate-29861.html [10/9/14]

4 – nyparenting.com/stories/2013/5/fp_askattorney_2013_05.html [5/13]

5 – money.usnews.com/money/personal-finance/articles/2012/07/17/how-to-avoid-fights-over-inheritance [7/17/12]

6 – nhmagazine.com/July-2013-1/Wills-Trusts-and-Estate-Planning/ [7/13]

 

Understanding the Gift Tax

Understanding the Gift Tax

Most of us will never face taxes related to money or assets we give away.

Provided by Terri Fassi, CPA, MBA, CDFA

 

“How can I avoid the federal gift tax?” If this question is on your mind, you aren’t alone. The good news is that few taxpayers or estates will ever have to pay it.

Misconceptions surround this tax. The IRS sets both a yearly gift tax exclusion amount and a lifetime gift tax exemption amount, and this is where the confusion develops.

Here’s what you have to remember: practically speaking, the federal gift tax is a tax on estates. If it wasn’t in place, the rich could simply give away the bulk of their money or property while living to spare their heirs from inheritance taxes.

Now that you know the reason the federal government established the gift tax, you can see that the lifetime gift tax exclusion matters more than the annual one.

“What percentage of my gifts will be taxed this year?” Many people wrongly assume that if they give a gift exceeding the annual gift tax exclusion, their tax bill will go up next year as a result. Unless the gift is huge, that won’t likely occur.

The IRS has set the annual gift tax exclusion at $14,000 this year. What this means is that you can gift up to $14,000 each to as many individuals as you like in 2015 without having to pay any gift taxes. A married couple may gift up to $28,000 each to an unlimited number of individuals tax-free this year – this is known as a “split gift”. Gifts may be made in cash, stock, collectibles, real estate – just about any form of property with value, as long as you cede ownership and control of it.1

So how are amounts over the $14,000 annual exclusion handled? The excess amounts count against the $5.43 million lifetime gift tax exemption (which is periodically adjusted upward in response to inflation). While you have to file a gift tax return if you make a gift larger than $14,000 in 2015, you owe no gift tax until your total gifts exceed the lifetime exemption.1

“What happens if I go over the lifetime exemption?” If that occurs, then you will pay a 40% gift tax on gifts above the $5.43 million lifetime exemption amount. One exception, though: all gifts that you make to your spouse are tax-free provided he or she is a U.S. citizen. This is known as the marital deduction.1,2

“But aren’t the gift tax and estate tax exemptions linked?” They are. The gift tax exemption and the estate tax exemption are sometimes called the unified credit. So if you have already made taxable lifetime gifts that have used up $4 million of the current $5.43 million unified credit, then only $1.43 million of your estate will be exempt from inheritance taxes if you die in 2015.2

However, the $5.43 million unified credit extended to each of us is portable. That means that if you don’t use all of it up during your lifetime, the unused portion of the credit can pass to your spouse at your death.2

In sum, most estates can make larger gifts during the individual’s life without any estate, gift or income tax consequences. If you have estate planning questions in mind, turn to a legal or financial professional well versed in these matters for answers.

Terri Fassi, CPA, MBA, CDFA  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or terri@fassifinancialnetwork.com.

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/The-Gift-Tax-Made-Simple/INF12127.html [2/24/15]

2 – schwab.com/public/schwab/nn/articles/The-Estate-Tax-and-Lifetime-Gifting [1/28/15]

 

Special Needs Trusts

Special Needs Trusts

Estate planning vehicles created with disabled heirs in mind.

Provided by Terri Fassi, CPA, MBA, CDFA

If you have a child with special needs, you face long-run financial demands that cannot be fully met through federal and state assistance. What can you do to try and meet them?

A special needs trust may provide an answer to this dilemma. This is a trust designed to provide for assorted care and lifestyle needs not covered by public benefits – medical and dental needs, transportation needs, therapy and more. A trustee uses such a trust to make purchases of goods and services on behalf of a “permanently and totally disabled” person (as defined by the federal government’s Supplemental Social Income standards). In addition, a properly implemented special needs trust lets a disabled heir receive assets without the inherited funds reducing their chances of securing Medicaid, SSI or state benefits.1,2

There are two kinds of special needs trusts, defined by who funds them. A third-party special needs trust is funded by someone other than the beneficiary. Should the beneficiary of the trust die before the trust assets are exhausted, the remaining assets may be distributed to secondary beneficiaries. Third-party special needs trusts can be either living trusts (i.e., created during a grantor’s lifetime) or testamentary trusts established by a will.2

A first-person (or “self-settled”) special needs trust is funded by the beneficiary, often by assets received from a personal injury lawsuit or legal settlement. You have probably heard stories of lump sum cash settlements quickly evaporating; this trust is designed to guard against that. A trustee can oversee the distribution of the assets with an eye toward conserving them. The beneficiary maintains eligibility for public benefits. When the beneficiary of a first-person special needs trust dies, assets remaining in the trust go to the state to repay Medicaid benefits conferred to the disabled person during his or her life. Any assets left over after that may be distributed to secondary beneficiaries.1,2

In either special needs trust variation, a beneficiary cannot withdraw funds from the trust or directly receive distributions from it (distributions are overseen by the trustee). The beneficiary is also legally prohibited from revoking the trust.2

Informal arrangements have their drawbacks. It is still common for a sister or brother of a newly disabled person to hold assets that once belonged to that sibling. Too often, these assets became “easy pickings” in a bankruptcy or divorce. A special needs trust protects such assets from litigation and creditors.1

Standard estate planning efforts may fall short. Some families set up basic life insurance trusts for disabled heirs, but these trusts are often flawed. The trust language fails to specify that the life insurance proceeds should head directly into a special needs trust. If that next step never occurs, the beneficiary of the life insurance trust loses eligibility for Medicaid due to inheriting that large, tax-free insurance benefit.1

Anyone with more than $2,000 of countable assets ($3,000 for a married couple) loses Medicaid and SSI eligibility. So if you want to bequeath or gift assets to the beneficiary of a special needs trust, you have to name the special needs trust as the heir or beneficiary of those assets, rather than the individual named as beneficiary of the trust.1,3

How do these trusts function? The core principle is that the trust assets supplement government benefits, so they work according to a sliding needs scale; for example, should public benefits somehow be able to provide for 100% of the beneficiary’s needs, the trust will provide 0% and vice versa. Trust assets may be invested conservatively, with the resulting income stream paying expenses for the beneficiary.4

The trust language must express a goal to provide “supplemental and extra care” to the trust beneficiary in addition to public benefits (as opposed to basic financial support). The trust must also be without a Crummey clause (a proviso allowing future interest gifts to be treated as present interest gifts, thereby making them eligible for the annual gift tax exclusion).4

ABLE accounts are also emerging. The federal government has authorized a new tax-favored account to benefit disabled individuals, on track to appear in 2016. Distributions from an ABLE account will be tax-free if they are used to cover qualified disability expenses; individuals will be able to contribute up to $14,000 a year to these accounts. Even with this tax break, families may prefer the special needs trust as it has no limits on contributions and permits funds to be spent on a wider range of expenditures.5

The bottom line: if you wish for your loved one to have a good quality of life for years to come, a special needs trust may prove instrumental in allowing you to provide it.

Terri Fassi, CPA, MBA, CDFA  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or terri@fassifinancialnetwork.com.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

    

Citations.

1 – tinyurl.com/meqw7va [4/8/15]

2 – getevolved.com/trust-fiduciary/special-needs-trusts [5/14/15]

3 – pacer.org/publications/possibilities/saving-for-your-childs-future-needs-part1.html [5/14/15]

4 – nsnn.com/frequently.htm [5/14/15]

5 – tinyurl.com/mbufwvy [2/2/15]