The estate planning attorney in this gentleman’s neighborhood isn’t worried about this rancher’s plan to avoid the “courtroom mumbo jumbo.” It’s not the first time someone thought they could make a short-cut work, and it won’t be the last. However, as described in the article “Estate planning workaround idea needs work” from My San Antonio, the problems this rancher will create for himself, his wife, and his children, will easily eclipse any savings in time or fees he thinks he may have avoided.
There are some individuals who just aren’t interested in handing down their assets to the next generation when they die. Perhaps their children are so successful, they don’t need an inheritance. Or, according to the article “Giving your money away when you die: 10 questions to ask” from MarketWatch, they may be more interested in the kind of impact they can have on the lives of others.
If you haven’t thought about charitable giving or estate planning, these 10 questions should prompt some thought and discussion with family members:
Should you give money away now? Don’t give away money or assets you’ll need to pay your living expenses, unless you have what you need for retirement and any bumps that may come up along the way. There are no limits to the gifts you can make to a charity.
Do you have the right beneficiaries listed on retirement accounts and life insurance policies? If you want these assets to go to the right person or place, make sure the beneficiary names are correct. Note that there are rules, usually from the financial institution, about who can be a beneficiary—some require it be a person and do not permit the beneficiary to be an organization.
Who do you want making end-of-life decisions, and how much intervention do you want to prolong your life? A health care power of attorney and living will are used to express these wishes. Without these documents, your family may not know what you want. Healthcare providers won’t know and will have to make decisions based on law, and not your wishes.
Do you have a will? Many Americans do not, and it creates stress, adds costs and creates real problems for their family members. Make an appointment with an estate planning attorney to put your wishes into a will.
Are you worried about federal estate taxes? Unless you are in the 1%, your chances of having to pay federal taxes are slim to none. However, if your will was created to address federal estate taxes from back in the days when it was a problem, you may have a strategy that no longer works. This is another reason to meet with your estate planning attorney.
Does your state have estate or inheritance taxes? This is more likely to be where your heirs need to come up with the money to pay taxes on your estate. A local estate planning attorney will be able to help you make a plan, so that your heirs will have the resources to pay these costs.
Should you keep your Roth IRA for an heir? Leaving a Roth IRA for an heir, could be a generous bequest. You may also want to encourage your heirs to start and fund Roth IRAs of their own, if they have earned income. Even small sums, over time, can grow to significant wealth.
Are you giving money to reputable charities? Make sure the organizations you are supporting, while you are alive or through your will, are using resources correctly. Good online sources include GuideStar.org or CharityNavigator.org.
Could you save more on taxes? Donating appreciated assets might help lower your taxes. Donating part or all your annual Required Minimum Distributions (RMDs) can do the same, as long as you are over 70½ years old.
Does your family know what your wishes are? To avoid any turmoil when you pass, talk with family members about what you want to happen when you are gone. Make sure they know where your estate planning documents are and what you want in the way of end-of-life care. Having a conversation about your legacy and what your hopes and dreams are for family members, can be eye-opening for the younger members of the family and give you some deep satisfaction.
Reference: MarketWatch (Oct. 30, 2018) “Giving your money away when you die: 10 questions to ask”
If you think of estate planning as a gift to your loved ones, and not an obligation, then you will understand why the start of a new year is the perfect time to give your family the peace of mind that an estate plan can bring. The article “Give the gift of estate planning to loved ones this holiday season” from the Brainerd Dispatch describes how stress and guilt for the family can be alleviated just by having a good estate plan in place.
Your estate plan will provide your family with clear directions on where you want your assets to go when you have passed, but that’s just for starters. They will be dealing with many moving parts when you pass: funeral arrangements, notifying family members and grief, which can be overwhelming.
If you don’t have a will or haven’t done any planning, the process for your family to gain access to your assets becomes extremely problematic. The process is called probate, and it can take months and cost a great deal to unlock real estate ownership, account information or other assets for your spouse, children and grandchildren.
There’s also no way to ensure that your assets will be distributed as you wanted, if you do not have a will or an estate plan. Let’s say you have a non-traditional family. You’ve lived with your partner for decades, even raised children together, but never married. Your partner and your children may find themselves completely without any voice in your estate, and no right to any assets. Without a will, the state’s laws will determine who receives your assets, and that may be a sibling or a parent, if still living.
Your estate plan becomes your legacy, and it’s not just for family members. If there are causes or organizations that have meaning for you, they can be included in your estate plan. Lifetime giving or giving “with warm hands” is rewarding, because you get to see the impact of your generosity. However, you can use an estate plan to make a gift to an organization, which serves a dual purpose. It decreases the value of your estate, and can lessen the tax burden of your estate, giving your family more money.
There are many ways to make planned giving part of your estate. Donor advised funds are increasingly popular, or you may want to use a charitable trust or fund a scholarship. Your estate planning attorney will be able to help you determine the best way to structure your giving.
An experienced estate planning attorney has worked with families of all different types and will have the knowledge and skills to help you create an estate plan that works best for your family. The attorney will also encourage you to talk with your family members to make sure they know that you have put a plan into place. You may wish to have a family meeting with your estate planning attorney, to ensure that everyone understands why you made the decisions you did and ensure that the family understands that your estate plan is a gift from the heart.
Reference: Brainerd Dispatch (Dec. 8, 2018) “Give the gift of estate planning to loved ones this holiday season”
You do not have to be a millionaire for your loved ones to squabble about things you give away. Families have split up over who received a necklace or the candlesticks. You could try to give everyone an equal portion, but that is seldom possible. Sentimental value is hard to measure. You might also have reasons to help one person more than another.
There is no need to worry. There are strategies you can use to keep the peace, without feeling that your relatives are dictating what you can do with your assets. Here are some savvy ways for seniors to give away their money and other items.
Analyze the needs of your children. Let’s say you already put your older children through college, but you have a much younger child who is not yet college-age. While your older children might feel that it is unfair for you to give your younger child more money than them, your older children already received more than the younger child, and he will need the money for college.
If you have a child with special needs, you might want to set up a special needs trust for her support. Funding such a trust might require a disproportionate division of assets.
If you have circumstances like these, talk to all your children now or leave a letter explaining what motivated you to make an unequal distribution. Without sufficient communication, your children might think that you played favorites. Some families harbor grudges for years, because they made incorrect assumptions.
If you still have concerns about resentment over unequal distributions, you might be able to keep a disgruntled relative from filing a will contest. In many states, you can include a “no contest” clause in your will. In short, these clauses provide that if someone contests the will, the contesting person forfeits what he would have inherited through the will.
Funding a child or grandchild’s college education now. If you do not want to wait until an uncertain date in the future to contribute to your child or grandchild’s education, you can do so now through a 529 plan. The most strategic way to do this is usually through a plan the child’s parent sets up, but you should check with your tax advisor. If the funds are for your child, you can set up the plan. For your grandchildren, you can contribute to the plan the child’s parent started.
The best way to pass along your stocks or mutual funds. It is important to be aware that the tax laws are constantly changing, so you should always check with your tax advisor about the current tax considerations. This blog does not purport to give tax advice.
That said, usually, the way to minimize taxes on stocks and mutual funds that you give to your loved ones, is to wait and give them to your heirs through your will or trust. You might have reasons to give them the assets now, however, and you want to manage the transfer without Uncle Sam taking more than he should.
After all, the less that you or the recipient have to pay in taxes on the transfer, the more value that remains for your loved one’s benefit. Sometimes it is more advantageous to give the actual stock, rather than to sell it and give the proceeds, after capital gains tax. After talking with your tax advisor, contact your brokerage firm to find out the steps you have to take to transfer your investments.
The laws are different in every state, so you should talk with an elder law attorney near you.
AARP. “How to Give Your Money Away.” (accessed November 28, 2018) https://www.aarp.org/money/investing/info-2018/giving-money-to-family.html
It’s not uncommon for an elderly parent to go to the bank to add a child to his or her bank account “in case something happens to me.”
The reason why most parents do this, is to give their child access to their money during an emergency. It sounds like it should be a pretty easy process. With proper planning, it can be. However, parents should know that simply making a child the joint owner of a bank account (or investment account or safe deposit box) can have unintended consequences. Sometimes this isn’t the best solution during a family crisis.
As Kiplinger’s recent article, “The Trouble with Joint Bank Accounts ‘Just in Case’” explains, the vast majority of banks set up all of their joint accounts as “Joint with Rights of Survivorship” (JWROS). This type of account ownership typically says that upon the death of either of the owners, the assets will automatically transfer to the surviving owner. However, this can create a few unexpected issues.
If Mom’s intent was for the remaining assets not spent during the family crisis to be distributed by the terms of a will, that’s not happening. That’s because the assets automatically transfer to the surviving owner. It doesn’t matter what Mom’s will says.
Remember that adding anyone other than a spouse could create a federal gift tax issue, depending on the size of the account. Anyone make a gift of up to $15,000 a year tax-free to whoever they wish, but if the gift is more than $15,000 and the beneficiary isn’t the spouse, it could trigger the need to file a gift tax return.
For example, if a parent adds a child to their $500,000 savings account, and the child predeceases the parent, half of the account value could be included in the child’s estate for tax purposes. The assets would transfer back to the parent, and, depending on the deceased’s state of residence, state inheritance tax could be due on 50% of the account value. In some states, the tax would be 4.5%, which would mean a state inheritance tax bill of more than $11,000.
However, if Mom’s intent in adding a joint owner to her account is to give her son access to her assets at her death, there’s a better way to do it. Most banks let you structure an account with a “Transfer on Death,” or TOD. With a TOD, if the beneficiary passes before the account owner, nothing happens. There’s no possibility of a state inheritance tax on 50% of the account value. When the account owner dies, the beneficiary has to supply a death certificate to the bank, and the assets will be transferred. These assets are transferred to a named beneficiary, so the time and expense of probating the will are also avoided, because named beneficiary designations supersede the will. This is the same for pensions, IRAs and life insurance policies.
Setting up an account as TOD doesn’t give the beneficiary access to the account, until the death of the account owner. Therefore, the change in titling isn’t considered a gift by the IRS, which eliminates the potential federal gift tax issue.
There’s no such thing as a joint retirement account because IRAs, 401(k)s, annuities, and the like can only have one owner—it’s not possible to make someone a joint owner. However, if a parent becomes incapacitated, they still often would like their child to have access to all their assets, in addition to their bank accounts. The answer for these is a financial power of attorney. This is a document that lets one or more people make financial decisions on your behalf. This document should be drafted by a qualified estate planning attorney.
It is important to understand that many financial institutions require a review process of a financial power of attorney appointment. The bank’s legal department may want to review the document before allowing the designated person to make transactions. This can take several weeks, so be sure that all financial institutions where you have accounts have a copy of your executed financial power of attorney. Have it in place before it’s needed.
Talk to your estate planning attorney about what you’re trying to do and let her guide you. Planning in advance will make things much easy for your loved ones, in case of an emergency.
Reference: Kiplinger (November 14, 2018) “The Trouble with Joint Bank Accounts ‘Just in Case’”