Danor Aliz’ article starts with: “Are you looking for some tips on how to do estate planning right? When it comes to estate planning, there are a lot of dos and don’ts. This can be confusing for people, as they may not know what is right to do when it comes to their estate. That’s why we talked to some experts in the field and got their advice on the dos and don’ts of estate planning. Keep reading for more information!“
“Unmarried people should put a priority on developing the traditional estate planning documents that don’t pertain to disposition of property: the health care proxy (or advance medical directive or living will) and financial power of attorney. Without these documents, when the single person is unable to make medical decisions or take care of financial matters, there might not be someone to make decisions whose authority will be readily recognized.”
Simpleshowing’s article discusses the pros and cons of putting your home in a revocable living trust.
“Once you become a homeowner, estate planning needs to include what will happen to your house after you pass away. If you don’t put those intentions in writing, your intended recipient may have to spend a lot of time and money in order for that to happen, or they could even end up losing it altogether. This is why you may want to put your home in a trust.”
Yahoo Finance discusses what a will cannot do:
A will can’t avoid probate, the legal process that typically follows death. In probate, your will becomes a public record and the court supervises the distribution of your estate.
A common way to bypass probate is to create a revocable living trust and then transfer ownership of your real estate, accounts and other property into the trust. You retain control, but upon your death, the person you name as your successor trustee can distribute your property without a court’s involvement, says Matt Palmer, associate product counsel at online legal site LegalZoom.
Charles Schwab asked three of their own professionals important questions regarding the differences between wills and trusts.
A trust is a fiduciary arrangement that specifies how your assets are to be distributed, usually without the involvement of a probate court. They can be structured to take effect before death, after death, or in case of incapacitation. In contrast, wills take effect only upon death and typically need to be authenticated by a probate court, which can take time and involve additional costs.
Trusts can be arranged to accomplish a variety of different goals. For example, you can use a trust to transfer property, help minimize estate taxes, preserve assets for minors until they are adults, or benefit a charity.
Real Simple explains what singles need to know about estate planning, according to experts.
“Everyone needs a financial plan, and everyone also needs an estate plan,” says Amy Richardson, a certified financial planner with Schwab Intelligent Portfolios Premium. And yes, that includes singles without obvious heirs—i.e., kids of your own. Of course, the cornerstone of any estate plan is a will, which at its core is a document aimed at outlining how you would like your life on earth to be closed out.”
MarketWatch recommends every adult should have the following six estate planning documents:
“Durable power of attorney
Health care directive or medical power of attorney
Guidance letter to family”
Most of our estate planning clients create a trust because they want to leave assets to children and loved ones in a trust that protects the assets from the child’s or loved one’s creditors and ex-spouses. When we are hired to prepare an estate plan with a trust we prepare a revocable living trust that contains language that causes the successor trustee to create a beneficiary controlled asset protected trust (a BCAPT) for each child or loved one on the death of the trust maker or death of the second spouse if the trust is a joint trust. See the contents and prices of our two estate plan packages.
If the future beneficiary of the BCAPT ever got sued the creditor could not touch the assets in the trust. If the future beneficiary were to marry and get divorced the ex-spouse could not get any of the assets in the trust. You cannot predict if your child or loved one will ever have a creditor or ex-spouse problem, but it is prudent to protect against these two problems.
It is also possible to create a BCAPT while you are alive if you want to transfer valuable assets to your child or loved one now before you die. We prepare BCAPTs for people who want to give valuable assets to their children or loved ones now and protect the assets from their future creditors and ex-spouses. To learn more about the BCAPT see my article called “Beneficiary Controlled Asveset Protected Trusts.”
Investopedia discusses how to set up a trust fund if you’re not rich:
Trust funds are designed to allow a person’s money to continue to be used in specific ways after they pass away, and to avoid their estate going through probate court (a time-consuming and expensive legal process). But trusts aren’t only useful for ultra-high-net-worth individuals, the middle-class can use trust funds as well, where setting one up isn’t out of financial reach.
Democrats want to return federal estate taxes to their historic norms, which means taxpayers need to act now before Congress passes legislation that could adversely impact their estates. Currently, the federal estate and gift tax exemption is set at $11.58 million per taxpayer. Assets included in a decedent’s estate that exceed the decedent’s remaining exemption available at death are taxed at a federal rate of 40 percent (with some states adding an additional state estate tax). However, each asset included in the decedent’s estate receives an income tax basis adjustment so that the asset’s basis equals its fair market value on the date of the decedent’s death. Thus, beneficiaries realize capital gain upon the subsequent sale of an asset only to the extent of the asset’s appreciation since the decedent’s death.
If the Democrats get control of the Senate it could mean not only lower estate and gift tax exemption amounts, but also the end of the longtime taxpayer benefit of stepped-up basis at death. To avoid the negative impact of these potential changes, there are a few wealth transfer strategies it would be prudent to consider before the year-end.
Spousal Lifetime Access Trust
With the threat of a lowered estate and gift tax exemption amount, a spousal lifetime access trust (SLAT) allows donors to lock in the current, historic high exemption amounts to avoid adverse estate tax consequences at death. The donor transfers an amount up to the donor’s available gift tax exemption into the SLAT. Because the gift tax exemption is used, the value of the SLAT’s assets is excluded from the gross estates of both the donor and the donor’s spouse. An independent trustee administers the SLAT for the benefit of the donor’s beneficiaries. In addition to the donor’s spouse, the beneficiaries can be any person or entity including children, friends, and charities. The donor’s spouse may also execute a similar but not identical SLAT for the donor’s benefit. The SLAT allows the appreciation of the assets to escape federal estate taxation and, in most cases, the assets in the SLAT are generally protected against credit claims. Because the SLAT provides protection against both federal estate taxation and creditor claims, it is a powerful wealth transfer vehicle that can be used to transfer wealth to multiple generations of beneficiaries.
Example: Karen and Chad are married, and they are concerned about a potential decrease in the estate and gift tax exemption amount in the upcoming years. Karen executes a SLAT and funds it with $11.58 million in assets. Karen’s SLAT names Chad and their three children as beneficiaries and designates their friend Gus as a trustee. Chad creates and funds a similar trust with $11.58 million that names Karen, their three children, and his nephew as beneficiaries and designates Friendly Bank as a corporate trustee (among other differences between the trust structures). Karen and Chad pass away in the same year when the estate and gift tax exemption is only $6.58 million per person. Even though they have gifted more than the $6.58 million exemption in place at their deaths, the IRS has taken the position that it will not punish taxpayers with a clawback provision that pulls transferred assets back into the taxpayer’s taxable estate. As a result, Karen and Chad have saved $2 million each in estate taxes assuming a 40 percent estate tax rate at the time of their deaths.
Irrevocable Life Insurance Trust
An existing insurance policy can be transferred into an irrevocable life insurance trust (ILIT), or the trustee of the ILIT can purchase an insurance policy in the name of the trust. The donor can make gifts to the ILIT that qualify for the annual gift tax exclusion, and the trustee will use those gifts to pay the policy premiums. Since the insurance policy is held by the ILIT, the premium payments and the full death benefit are not included in the donor’s taxable estate. Furthermore, the insurance proceeds at the donor’s death will be exempt from income taxes.
Intrafamily Notes and Sales
In response to the COVID-19 crisis, the Federal Reserve lowered the federal interest rates to stimulate the economy. Accordingly, donors should consider loaning funds or selling one or more income-producing assets, such as an interest in a family business or a rental property, to a family member in exchange for a promissory note that charges interest at the applicable federal rate. In this way, a donor can provide a financial resource to a family member on more flexible terms than a commercial loan. If the investment of the loaned funds or income resulting from the sold assets produces a return greater than the applicable interest rate, the donor effectively transfers wealth to the family members without using the donor’s estate or gift tax exemption.
Swap Power for Basis Management
Assets such as property or accounts gifted or transferred to an irrevocable trust do not receive a step-up in income tax basis at the donor’s death. Gifted assets instead retain the donor’s carryover basis, potentially resulting in significant capital gains realization upon the subsequent sale of any appreciated assets. Exercising the swap power allows the donor to exchange one or more low-basis assets in an existing irrevocable trust for one or more high-basis assets currently owned by and includible in the donor’s estate for estate tax purposes. In this way, low-basis assets are positioned to receive a basis adjustment upon the donor’s death, and the capital gains realized upon the sale of any high-basis assets, whether by the trustee of the irrevocable trust or any trust beneficiary who received an asset-in-kind, may be reduced or eliminated.
Example: Phoenix purchased real estate in 2005 for $1 million and gifted the property to his irrevocable trust in 2015 when the property had a fair market value of $5 million. Phoenix dies in 2020, and the property has a date-of-death value of $11 million. If the trust sells the property soon after Phoenix’s death for $13 million, the trust would be required to pay capital gains tax on $12 million, the difference between the sale price and the purchase price. Let us say that before Phoenix died, he utilized the swap power in his irrevocable trust and exchanged the real estate in the irrevocable trust for stocks and cash having a value equivalent to the fair market value of the real estate on the date of the swap. At Phoenix’s death, because the property is part of his gross estate, the property receives an adjusted basis of $11 million. If his estate or beneficiaries sell the property for $13 million, they will only pay capital gains tax on $2 million, the difference between the adjusted date-of-death basis and the sale price. Under this scenario, Phoenix’s estate and beneficiaries avoid paying capital gains tax on $10 million by taking advantage of the swap power.
Installment Sale to an Irrevocable Trust
This strategy is similar to the intrafamily sale. However, the income-producing assets are sold to an existing irrevocable trust instead of directly to a family member. In addition to selling the assets, the donor also seeds the irrevocable trust with assets worth at least 10 percent of the assets being sold to the trust. The seed money is used to demonstrate to the Internal Revenue Service (IRS) that the trust has assets of its own and that the installment sale is a bona fide sale. Without the seed money, the IRS could recharacterize the transaction as a transfer of the assets with a retained interest instead of a bona fide sale, which would result in the very negative outcome of the entire interest in the assets being includible in the donor’s taxable estate. This strategy not only allows donors to pass appreciation to their beneficiaries with limited estate and gift tax implications, but also gives donors the opportunity to maximize their remaining gift and generation-skipping transfer tax exemptions if the assets sold to the trust warrant a valuation discount.
Example: Scooby owns 100 percent of a family business worth $100 million. He gifts $80,000 to his irrevocable trust as seed money. The trustee of the irrevocable trust purchases a $1 million dollar interest in the family business from Scooby for $800,000 in return for an installment note with interest calculated using the applicable federal rate. It can be argued that the trustee paid $800,000 for a $1 million interest because the interest is a minority interest in a family business and therefore only worth $800,000. A discount is justified because a minority interest does not give the owner much, if any, control over the family business, and a prudent investor would not pay full price for the minority interest. Under this scenario, Scooby has removed $200,000 from his taxable gross estate while only using $80,000 of his federal estate and gift tax exemption.
When Should I Talk to an Estate Planning Attorney?
If any of the strategies discussed above interest you, or you feel that potential changes in legislation will negatively impact your wealth, we strongly encourage you to schedule a meeting with us at your earliest convenience and definitely before the end of the year. We can review your estate plan and recommend changes and improvements to protect you from potential future changes in legislation.
Do You Have Any Estate Planning Questions?
If you have any questions about wills, trusts or estate planning call or email one of us.
- Richard C. Keyt (the son) at 480-664-7472 and firstname.lastname@example.org or make a phone appointment with him using his online calendar.
- Richard Keyt (the father) at 480-664-7478 and email@example.com or make a appointment with him using his online calendar.
James Royal’s MSN Money article gives the following definition of estate planning:
Estate planning is the process of arranging who will receive your assets when you die. One goal of estate planning is to make sure your wealth and other assets go to those you intend (and not to others), with a particular emphasis on minimizing taxes so that your beneficiaries can keep more of your wealth. But good estate planning also can reduce family strife, and provide clear end-of-life directives should an individual become incapacitated before ultimately passing away.
A domestic asset protection trust (DAPT) is an irrevocable trust established under the laws of a state that adopted a DAPT statute. Currently 17 states have passed DAPT statutes. These states are Alaska, Delaware, Hawaii, Michigan, Mississippi, Missouri, Nevada, New Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia, West Virginia and Wyoming. Unfortunately Arizona does not yet have a DAPT statute.
A DAPT is an irrevocable trust that allows the trust maker to be a discretionary beneficiary and the trust’s assets are protected against claims made by the trust maker’s creditors. The trustmaker retains access to the trust’s assets, but the assets are protected against many types of creditor claims.
A lawyer on a list serve I follow wrote:
“Why do people still push DAPTs? There are so many cases defeating them. And they are part of the bankruptcy estate unless they’ve been in existence for 10 years. I feel like it’s the 1970s again, and everyone is telling each other how stupid seat belts are and that cigarettes are healthy and help with weight loss. Talking about Wyoming vs. South Dakota vs. Alaska vs. Nevada is like discussing which brand cigarette is healthier. None of them are good. And there are much better options that have tons of case law backing them … like special power of appointment trusts.”
The following text was written by Nevada DAPT attorney Steve Oshins in response to the above comment. Steve is a friend and my choice as the best domestic asset protection trust lawyer in the United States.
“I substantially agree with your comments about regular DAPTs for residents of non-DAPT states. However, not for residents of DAPT states where it’s 100% certain that they work.
But I disagree with your comment that “There are so many cases defeating them.” That is what the foreign APT proponents often say in order to try to substantiate FAPTs over DAPTs. However, after 23 years, there still isn’t even one non-bankruptcy, non-fraudulent transfer case where a regular DAPT did not work. Not even one. So I don’t understand how “there are many cases defeating them”. The dicta in the Huber case says that they don’t work for a non-resident, although I could go on and on about how the judge misapplied the law. But please list the “many cases” that say it doesn’t work. 🙂
The black letter law says that a regular DAPT works. And after 23 years, there still isn’t even one case (other than Huber dicta) that says that it doesn’t. Therefore, a regular DAPT certainly isn’t horrible, although when done for a non-resident you should always combine it with a charging order protected entity for an extra layer of protection. That, in and of itself, is so scary to a creditor that they simply go away or settle. That’s why we see almost no case law. A settlement is a victory. That is not how we do it, but a regular DAPT plus a charging order protected entity is a viable option. Not the best though.
That all being said, the granddaddy of all asset protection techniques in the 21st century is the Hybrid DAPT. Watch the free 7.5-minute Hybrid DAPT slideshow and sales tool at THIS LINK. I agree with you that a Power of Appointment Trust is a great option and better than a regular DAPT (for a non-resident). And it will always be my #2 alternative, although I see no reason to ever use #2. But the reason it falls short of the Hybrid DAPT is that our clients like to maintain as much control as possible. So relying on a power of appointment in the hands of another person rather than retaining the power of appointment and simply running income through your spouse or another person, will always be #2 to the Hybrid DAPT. It works well though because, like a Hybrid DAPT, it’s a third-party trust. So no disrespect to it and any comments I’m making aren’t intended to disparage it. It’s just not #1 to me. 🙂
Hybrid DAPT = A+; / POA Trust = A / DAPT + LLC = A- / DAPT = B+”
Tim Parker’s article says:
If you’ve heard of trust funds but don’t know what they are or how they work, you’re not alone. Many people know just one key fact about trust funds: they’re set up by the ultra-wealthy as a way to protect passing on significant sums of money to family, friends, or entities (charities, for example) after they pass away.
However, only part of the conventional wisdom is true. Trust funds are designed to allow a person’s money to continue to be useful well after they pass away, but trusts aren’t only useful for ultra-high-net-worth individuals. Middle-class people can use trust funds as well, and setting one up isn’t entirely out of financial reach.
Richmond Times discusses the answer to this imperative question in a recent article regarding attorneys experiencing a surge in requests for wills and other estate planning matters as a result of COVID-19.
Legal professionals say definitely yes to make sure your wishes are honored for how your money is distributed or whether you want to be placed on a ventilator.
Wills spell out in detail who gets your property and other assets. Sometimes for young adults with minor children, wills might dictate who would serve as a guardian or how the children’s finances would be handled.
If someone dies without a will, generally that person’s property will go to the closest relative, starting with a spouse and then children. If single, the property and other assets could go to siblings or other relatives.
Advance medical directives or a health care power of attorney allow you to appoint someone to follow your decision on medical issues.
St George News discusses the peace of mind that comes from having planned your future. The common elements of an estate plan include:
- Revocable trust – Otherwise known as a “living trust.” While not appropriate for all situations, it keeps the estate private, protects against incapacity and helps to avoid probate. You also get to see how it works while still alive. For people that own a home, Brande said it is really crucial.
- Pour-over will – A will can nominate guardians, appoint executors, include burial instructions and ensure that everything in the estate will go into a trust at the time of death to be dealt with according to documents.
- Durable power of attorney – Used in the event of incapacity, this allows an agent to take necessary steps to place assets in a trust that may have been excluded.
- Health care directive – This grants an agent the authority to act on your behalf and make medical decisions. Without this directive, physicians will consult the spouse or next of kin, and that can make any situation more complicated, Brande said, especially when there are many loved ones who all feel like they know what is best. In end-of-life situations, it will also direct providers when you want life-sustaining care to be withheld.
Above the Law discusses the importance of having a Last Will And Testament, Power Of Attorney, And Healthcare Proxy:
Like an annual physical exam or dental cleaning, we know we must, but we often delay. Fear, anxiety, cost, and time are all factors in delaying that which all adults, regardless of familial structure and net worth, should accomplish. Executing estate planning documents, specifically a last will and testament, power of attorney and healthcare proxy, need not be a tremendous production, especially in the precarious times in which we live. At a minimum, we should all execute three basic documents, thus mitigating any future drama.
This article in the Herald Mail Media states:
“the most important document people should be getting right now is the equivalent of a medical power-of-attorney. The document’s name depends on the state. . . . First, appoint an agent or decision-maker for healthcare decisions in case you are unable to make or communicate an informed choice yourself . . . . Second, the document should express your wishes in case you end up in a terminal condition or persistent vegetative state. Do you want interventions or not?”
This article in Kiplinger starts with “Smart Insights from Professional Advisors” then says:
“An estate plan is a necessary tool that allows you to protect, maintain and manage your property if you become ill or pass away. But more than that, it can also help people make sure their minor children are protected in the event of an emergency or minimize taxes paid on assets by beneficiaries. . . . So, why do so many hardworking people fail to take the time and effort to build an estate plan and preserve their hard-earned assets? . . . a common misconception most people have is that estate planning is for those who are older or possess substantial wealth. Many people also assume that the process will be complex, time intensive and pricey. But some — if not all — of the problems mentioned aren’t true the majority of the time.”
Ron Wynn writes in Culver City News:
“People often try to put certain things that are not so pleasant on the back burner and say, “I will get to it.” If that is you, you are no different than anyone else. One of the things that people often put aside is estate planning. We all think that we have plenty of time to do that, and that is not our biggest priority.
And then of course, when people get unfortunately ill, it becomes a scramble. Set everything up early in advance when it comes to how you want your estate handled. It’s not a pleasant thing, but it’s something that has to be done and the sooner you do it, the better off you are.
The first thing you want to do, assuming you have assets, is to contact an estate planning attorney and listen to his/her advice. The likelihood is if you own property and other sizable assets, they will suggest you create a family trust. They will explain the kind of family trusts there are, including a revocable trust and an irrevocable trust, and they will also explain to you what the benefits of each are and how they work.
Very informative article in Business Insider says, “I’ve worked with more than 1,200 families as a Certified Financial Planner, and I see people make the same estate-planning mistakes over and over again. Not having a will is a major problem. After that, though, you also need guardianship documents for minor children, updated beneficiaries, and a properly funded trust.”
MSN‘s article states the message my son and I have been trying to convey for years, but even more so now. The article starts, “If you live in the United States and really want to be prepared for coronavirus, experts say you need a fully executed power of attorney, which designates a trusted person to take over your finances should you become incapacitated. . . . A financial power of attorney is the most useful document because of the possibility that you could be put out of commission for weeks if you fall ill and are unable to take care of your financial affairs. It is followed closely by healthcare directives, which express your wishes about medical care and who gets to make decisions for you, and a will, which distributes your assets after you die.
Arizona residents can get these important documents by purchasing our Peace of Mind bundle or our Gold estate plan.
Wall St. Journal’s article says “The search term ‘getting a will’ has risen sharply since March 8, according to Google Trends. . . . Many young families have nothing in place to protect their assets if they die. Approximately 60% of Americans don’t have a will, according to a study commissioned last year by Brookdale Senior Living . . . But for young parents and healthy people with simple estates, the ease of online estate planning can be beneficial.”
We offer online estate planning. See the contents of our three estate plans.
CNBC’s article says, “Over the last two weeks, online will companies have seen an explosion in users. . . . you can go through the entire process at home . . . . as online wills grow in popularity, a chorus of lawyers increasingly caution against using them. A quick Google search will bring up articles on the dangers of do-it-yourself wills or stories of online wills that were thrown out in court. . . . However, as online wills grow in popularity, a chorus of lawyers increasingly caution against using them. A quick Google search will bring up articles on the dangers of do-it-yourself wills or stories of online wills that were thrown out in court.”
FYI: See the contents and prices of our three estate planning packages, including the Peace of Mind bundle. All three plans allow you to sign the documents in your home.
Forbes says: “Instead of worrying, realize that there are opportunities in this crisis. You can make some moves now that will enhance your tax and estate planning. . . . Be sure your estate plan is updated to reflect the current situation. You need a medical care power of attorney that names an agent who can act for you in an emergency.
Interesting article in the Motley Fool that says the four things you need to have are:
- a will or revocable trust
- Beneficiary designations on financial accounts
- Healthcare durable power of attorney
- Financial durable power of attorney
Read the article for more about each of these important documents.
P.S. Items 1, 3 & 4 are included in our comprehensive estate plan with a trust and our Peach of Mind Bundle. See the contents of the two estate plan packages.
In an article in Barrons on
“Here Are Some Key Things to Know. Financial advisors and estate attorneys say they are seeing a flurry of inquiries from people seeking to update or draft wills and take other estate-planning measures amid the coronavirus crisis.
‘Seeing in the news that so many people are passing away worldwide and here in the U.S., people are getting a little scared,’ says Alain Roman, an estate-planning attorney in Miami, who is now working with clients mostly over the telephone and online. ‘It’s getting them thinking about having a plan in place in case something happens to them.’ . . .
Jamison Taylor, managing attorney at RISM LLC, a law firm in Washington, D.C., recommends that everyone have at least these three basics: a will, a power of attorney, and a medical directive of some sort. These documents will allow for the distribution of assets according to one’s wishes, the ability to make financial decisions on one’s behalf, and guidance for medical professionals on treatment and care.
“It is important that every adult have in place a living will, health proxy and HIPAA release. What key steps should you take now? Why might your existing documents be dangerously wrong and how can you fix them? How has the current environment changed how these documents will be used? How might you update your documents to address these new conditions? What other practical steps can you easily take to protect yourself, and your loved ones?
Think of Others: If you have elderly parents or other loved ones, these may be vital steps for them to take. . . .
Be Sure Your Documents are Current: You should make sure that you, and elderly or ill loved ones, have current legal documents: living wills, healthcare proxies, HIPAA releases, powers of attorney and wills”
Attorney H. Dennis Beaver’s timely article in the Kipliner magazine starts “Estate planning attorneys are getting mobbed with questions. So, here is some timely advice from three attorneys on what families and business owners should be doing to prepare in case the unimaginable happens.”
The article affirms what we as estate planning attorneys believe, which is that these uncertain times make it imperative that people sign estate plan documents that protect their most valuable assets, their loved ones.
Chambliss: “If you have it to give, you certainly can, but there may be consequences should you apply for Medicaid long-term care coverage within five years after each gift. The $15,000 figure is the amount of the current gift tax exclusion (for 2018), meaning that any person who gives away $15,000 or less to any one individual in one particular year does not have to report the gift to the IRS, and you can give this amount to as many people as you like. If you give away more than $15,000 to any one person in a single year (other than your spouse), you will have to file a gift tax return. However, this does not necessarily mean you’ll pay a gift tax. You’ll have to pay a tax only if your reportable gifts total more than $11.18 million (2018 figure) during your lifetime.”
Market Watch: “Creating an estate plan is a gift to the people you leave behind. By expressing your wishes, you’re trying to guide your loved ones at a difficult, emotional time. All too often, though, well-meaning people do things destined to create discord, rancor and resentment among their heirs. What looks good on paper may play out disastrously in real life, says estate and trust attorney Marve Ann Alaimo, partner at Porter Wright Morris & Arthur in Naples, Florida. “People want to think everybody will be nice and do right,” Alaimo says. “Human nature is not always that way.” You can reduce the chances of family discord by doing these four things:”