What Taxes are Due if I Gift My Home to my Grandchild?
Two boys with grandmother playing game at home, Happy kids playing with senior woman at home. Family relationship with grandma and grandkids.

What Taxes are Due if I Gift My Home to my Grandchild?

It’s not unusual for a senior to consider gifting her home to a married daughter or to a grandchild. There are certainly tax consequences to consider.

nj.com’s recent article on this subject asks “What should I know about taxes before I gift my home?” The article explains that you can gift your home or any other asset to anyone, provided that person is capable of receiving the gift and takes delivery or ownership of it. However, if the grandchild is a minor, the gift would have to be made either in trust with a trustee or through a Uniform Transfers to Minors Act (UTMA) account that has a custodian, until he or she attains the age of majority.

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What Do I Do With an Inherited IRA?

When a family member dies and you discover you’re the beneficiary of a retirement account, you’ll need to eventually make decisions about how to handle the money in the IRA that you will be inheriting.

Forbes’ recent article, “What You Need To Know About Inheriting An IRA,” says that being proactive and making informed decisions can help you reach your personal financial goals much more quickly and efficiently. However, the wrong choices may result in you forfeiting a big chunk of your inheritance to taxes and perhaps IRS penalties.

Assets transferred to a beneficiary aren’t required to go through probate. This includes retirement accounts like a 401(k), IRA, SEP-IRA and a Cash Balance Pension Plan. Here is some information on what you need to know, if you find yourself inheriting a beneficiary IRA.

Inheriting an IRA from a Spouse. The surviving spouse has three options when inheriting an IRA. You can simply withdraw the money, but you’ll pay significant taxes. The other options are more practical. You can remain as the beneficiary of the existing IRA or move the assets to a retirement account in your name. Most people just move the money into an IRA in their own name. If you’re planning on using the money now, leave it in a beneficiary IRA. You must comply with the same rules as children, siblings or other named beneficiaries, when making a withdrawal from the account. You can avoid the 10% penalty, but not taxation of withdrawals.

Inheriting an IRA from a Non-Spouse. You won’t be able to transfer this money into your own retirement account in your name alone. To keep the tax benefits of the account, you will need to create an Inherited IRA For Benefit of (FBO) your name. Then you can transfer assets from the original account to your beneficiary IRA. You won’t be able to make new contributions to an Inherited IRA. Regardless of your age, you’ll need to begin taking Required Minimum Distributions (RMDs) from the new account by December 31st of the year following the original owner’s death.

The Three Distribution Options for a Non-Spouse Inherited IRA. Inherited IRAs come with a few options for distributions. You can take a lump-sum distribution. You’ll owe taxes on the entire amount, but there won’t be a 10% penalty. Next, you can take distributions from an Inherited IRA with the five-year distribution method, which will help you avoid RMDs each year on your Inherited IRA. However, you’ll need to have removed all of the money from the Inherited IRA by the end of five years.

For most people, the most tax-efficient option is to set up minimum withdrawals based on your own life expectancy. If the original owner was older than you, your required withdrawals would be based on the IRS Single Life Expectancy Table for Inherited IRAs. Going with this option, lets you take a lump sum later or withdraw all the money over five years, if you want to in the future. Most of us want to enjoy tax deferral within the inherited IRA for as long as permitted under IRS rules. Spouses who inherit IRAs also have an advantage, when it comes to required minimum distributions on beneficiary IRAs: they can base the RMD on their own age or their deceased spouse’s age.

When an Inherited IRA has Multiple Beneficiaries. If this is the case, each person must create his or her own inherited IRA account. The RMDs will be unique for each new account, based on that beneficiary’s age. The big exception is when the assets haven’t been separated by the December 31st deadline. In that case, the RMDs will be based on the oldest beneficiaries’ age and will be based on this, until the funds are eventually distributed into each beneficiary’s own accounts.

Inherited Roth IRAs. A Roth IRA isn’t subject to required minimum distributions for the original account owner. When a surviving spouse inherits a ROTH IRA, he or she doesn’t have to take RMDs, assuming they retitle the account or transfer the funds into an existing Roth in their own name. However, the rules are not the same for non-spouse beneficiaries who inherit a Roth. They must take distributions from the Roth IRA they inherit using one of the three methods described above (a lump sum, The Five-Year Rule, or life expectancy). If the money has been in the Roth for at least five years, withdrawal from the inherited ROTH IRA will be tax-free. This is why inheriting money in a Roth is better than the same amount in an inherited Traditional IRA or 401(k).

Speak with an experienced estate planning attorney about an Inherited IRA. The rules can be confusing, and the penalties can be costly.

Call us (228) 460-5243 or email us at info@perklawgroup.com to find our how your estate planning attorney can help you.

Legal disclaimer: The information in this article is provided for information purposes only and should not be construed as legal advice. Your should not act or refrain from acting on the basis of any content included in this article or on our website (www.perklawgroup.com) without seeking legal or professional advice.

Reference: Forbes (September 19, 2019) “What You Need To Know About Inheriting An IRA”

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Why Are the Daughters of the Late Broncos Owner Contesting His Trust?

Beth Wallace and Amie Klemmer, the two oldest daughters of the late owner of the Denver Broncos, Pat Bowlen, filed a lawsuit in a Denver area court challenging the validity of their father’s trust, arguing that their father didn’t have the mental capacity and was under undue influence, when he signed his estate planning documents in 2009.

The trust has a no-contest clause, according to Colorado Public Radio’s recent article “Pat Bowlen’s Kids Are Still Fighting Over Inheritance As 2 Daughters File Lawsuit.”

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Can Charles Manson’s Heirs Get Profits from “Once Upon A Time…In Hollywood”?

The Quentin Tarantino movie, starring Brad Pitt, Leonard DiCaprio, and Margot Robbie, features the Manson killings and ends with a shocking bloodbath 50 years after the grisly murders.

Wealth Advisor’s recent article, “Charles Manson’s grandson can profit off of Once Upon a Time…In Hollywood,” also notes that the movie prominently features a song called “Look at Your Game, Girl,” written by aspiring songwriter Charles Manson before his followers’ murderous spree. The tune is sung a cappella by girls in Manson’s ‘family,’ as they walk through Los Angeles and forage for food.

Tarantino said that he only used Manson’s music, after assuring himself that his family wouldn’t benefit, and that royalties and licensing fees would go to the victims’ families. However, since the movie was released, controversy has exploded and a DailyMail.com investigation has discovered the issue around Manson’s music is far more complicated and likely to wind up in court.

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Dissolving the Mystery of Probate

Probate can be avoided with proper estate planning, or certain assets can be placed outside of the probate process.

The Street’s recent article on this subject asks “What Is Probate and How Can You Avoid It?” The article looks at the probate process and tries to put it in real-life terms.

Probate is an estate planning process that works within a probate court with a probate judge presiding over the proceedings. Usually, surviving families and other interested parties initiate a probate process, to address issues relating to the deceased individual’s estate settlement. These include:

  • The handling of the deceased’s valid will;
  • Properly citing and categorizing the deceased’s assets;
  • Appraising the deceased’s estate and property;
  • Paying off any of the deceased’s existing debts; and
  • Distributing the deceased’s property to those directed by the will (or, if there’s no will, the probate court will direct the distribution of estate assets, according to the laws of intestacy).

The executor handling the deceased’s estate will typically start the process. Here are the basic steps:

File a Petition. The estate’s executor will file a request for probate in the county where the deceased resided.  The court will then assign a date to confirm the executor and, once that is done, the probate judge will officially open the probate case.

Notice. The executor must send a notice that the deceased’s estate is officially in probate to all applicable beneficiaries, heirs, debtors and creditors.

Inventory Assets. The executor will then collect, list and present a value for all of the deceased’s assets and supply this to the probate court.

Pay the Bills. The executor will need to pay all outstanding debts owed by the estate after receiving Court approval.

Complete Any Tax Returns. The estate may also have existing tax returns that need to be filed. An accountant can be hired by the estate to work on this, or the executor may choose to file the taxes on his or her own.

Pay the Heirs. The executor can now distribute the remainder of the estate to any heirs, according to the will’s instructions.

Close the Estate. Finally, the executor will file paperwork with the court and file to close the estate.

An experienced estate planning attorney licensed to practice in your state will be able to explain what strategies are used to avoid probate, how to remove certain assets from the process, or whether it needs to be avoided at all. In some cases, probate is swift, but often it is long and tiresome. A local estate planning attorney is your best resource.

Call us (228) 460-5243 or email us at info@perklawgroup.com to find our how your probate attorney can help you.

Legal disclaimer: The information in this article is provided for information purposes only and should not be construed as legal advice. Your should not act or refrain from acting on the basis of any content included in this article or on our website (www.perklawgroup.com) without seeking legal or professional advice.

Reference: The Street (July 29, 2019) “What Is Probate and How Can You Avoid It?”

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What Are the Biggest Estate Planning Questions I Need to Answer?

If you have a family, you can probably benefit from estate planning, regardless of your asset level. The Montrose Press published an article, “Estate plans can help you answer questions about the future,” that answers some of the big questions:

What will happen to my children? As part of your estate planning, you should name a guardian to take care of your children, if you pass away. You can also name a conservator–sometimes called a “guardian of the estate”–to manage the assets that your minor children inherit.

Will there be a battle over my assets? If you fail to put a solid estate plan in place, your assets could be subject to the time-consuming, expensive and public probate process. During probate, your relatives and creditors can get access to your records. They may even challenge your will. However, with proper planning, you can maintain your privacy.

Who will control my finances and my living situation, if I’m incapacitated? You can sign a durable power of attorney. This permits you to name someone to manage your financial affairs, if you’re incapacitated. A medical power of attorney lets the person you choose handle health care decisions for you, if you’re not able to do so yourself.

Will my family feel cheated if I leave significant assets to charities? As part of your estate plan, you have options. You could establish a charitable lead trust. This will provide financial support to your chosen charities for a set period. The remaining assets will then go to your family members. On the other hand, a charitable remainder trust will provide a stream of income for family members for the term of the trust. The remaining assets will then be transferred to one or more charitable organizations.

Careful estate planning with the help of an experienced estate planning attorney can answer many of the questions that may concern you.

Once you have your plans in place, you can face the future with greater clarity, peace of mind and confidence.

Call us (228) 460-5243 or email us at info@perklawgroup.com to find our how your estate planning attorney can help you.

Legal disclaimer: The information in this article is provided for information purposes only and should not be construed as legal advice. Your should not act or refrain from acting on the basis of any content included in this article or on our website (www.perklawgroup.com) without seeking legal or professional advice.

Reference: Montrose Press (July 7, 2019) “Estate plans can help you answer questions about the future”

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What’s the Latest with Tom Petty’s Estate?
DEL MAR, CALIFORNIA - SEPTEMBER 17: Tom Petty performs in concert on the third day of KAABOO Del Mar on September 17, 2017 in Del Mar, California. (Photo by Gary Miller/Getty Images)

What’s the Latest with Tom Petty’s Estate?

The late Tom Petty’s wife, Dana Petty, has asked a Los Angeles judge for permission to fund the LLC Tom Petty Legacy with the singer’s assets. However, his two daughters object.

Billboard reports in a recent article, “Tom Petty’s Widow Files New Appeals Against Daughters in Escalating Battle Over Late Rocker’s Trust” that Dana asked the court to deny a previous petition filed by daughter Adria demanding that Dana immediately fund Petty Unlimited. This is an LLC created to receive assets (a.k.a. “artistic property”) from Petty’s trust. Instead, Dana wants to fund and execute an operating agreement for Tom Petty Legacy, a separate LLC that she created by herself.

Adria’s petition accused Dana of withholding Petty’s assets from Petty Unlimited to keep her and sister Annakim from “participat[ing] equally” in the management of those assets, as directed in the trust. Adria also said that under the terms of the trust, Dana was required to fund Petty Unlimited within six months of Petty’s death. However, she failed to meet that deadline.

Dana claims that she’s the “sole successor trustee” of Petty’s trust and she’s “exclusively authorized” to form any entity of her choosing to be the beneficiary of her husband’s assets—provided all three women are given equal participation in its management. She claims that the trust doesn’t specify Petty Unlimited as the only entity that can receive the assets. As such, the LLC has no legal rights to them.

Dana claims there’s been “foul behavior” on Adria’s part, stating that the 44-year-old has “caused enormous damage to many of Tom’s professional relationships” via a series of letters (allegedly sent by Adria’s lawyer Alex Weingarten) that “threaten[ed] everyone whom Tom worked with for decades: his record labels, his music lawyer David Altschul…even Tom’s longtime accountant.” Dana says the threats led the attorney, who was then representing her, to resign. She also claims Adria has been “abusive” and “slander[ous]” towards several others, including his longtime business manager Bernie Gudvi, his estate planning attorney Burton Mitchell and members of his band the Heartbreakers.

Dana accused the daughters of interfering in and, in some cases, delaying the release of several posthumous releases of Petty’s music. She says that as trustee of Petty’s trust, she is sole owner of Petty Unlimited, and that Adria and Annakim (and by extension their lawyers) have been “masquerading” as its rightful representatives. The petition notes that Dana has since signed documents to remove Adria and Annakim as managers of the LLC and “fired” a law firm as its representative.

The petition acknowledged that equal participation in the management of Petty’s assets between the three is required under the terms of the trust, but that Dana has sole power to decide on a governing structure for the entity that’s eventually funded with those assets. Now that negotiations with Adria and Annakim have broken down, Dana is trying to assert her “broad discretion” in deciding that structure without their input.

In response to Dana’s claims, Adria and Annakim’s lawyer Alex Weingarten told Billboard, “Dana and her lawyer are basing their case on smoke and mirrors. Every claim they make is demonstrably false. Adria and Annakim are laser focused on one thing—honoring and protecting their father’s legacy and enforcing the terms of his trust, as written.”

Petty died of an accidental drug overdose in October 2017, at the age of 66.

Reference: Billboard (May 30, 2019) “Tom Petty’s Widow Files New Appeals Against Daughters in Escalating Battle Over Late Rocker’s Trust”

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What Should I Keep in Mind in Estate Planning as a Single Parent?

Every estate planning conversation eventually comes to center upon the children, regardless of whether they’re still young or adults.

Talk to a qualified estate planning attorney and let him or her know your overall perspective about your children, and what you see as their capabilities and limitations. This information can frequently determine whether you restrict their access to funds and how long those limitations should be in place, in the event you’re no longer around.

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