Estate Planning Archives - K.T. Williams Law

Are Major Tax Changes Ahead?

March 5, 2021/in Estate Planning/by KT Williams

Gazing Into The Crystal Ball . . . Tax Increases In Our Future

The new administration is off and running in 2021. There are many changes coming our way, and higher taxes are among them. I discuss some of the proposed changes in this article. In the next article, I discuss options for handling the tax changes.

Cause and Effect

The US Government borrowed vast amounts of money to provide stimulus because of the COVID-19 pandemic. This borrowing occurred at the same time the government collected less in taxes. Sooner rather than later, we will have to pay for the borrowing. There has been a litany of proposals for new taxes and for tax increases. So what can we expect?

Estate Taxes

Currently, estate taxes don’t affect estates unless they reach at least $11,700,000. For estates that exceed this size, the tax on the excess reaches 40%. Proposals include reducing the estate tax exemption from $11,700,000 so that many more estates will be taxed. For example, one proposal would tax estates in excess of $3,500,000. Proposals also include increasing the estate tax rate from 40% to 45%. But that’s not all. We may see new and increased capital gains taxes, too.

Capital Gains Taxes

Currently, long term capital gains are taxed at a 20% rate. Tax proposals include increasing the capital gains tax rates for long-term and short-term capital gains. Additionally, some proposals include a capital gains tax that will be paid at death. This is not the estate tax as we traditional think of it. It is a new tax, independent of the estate tax. And it allows the government to capture tax revenue from gains experienced during the deceased’s lifetime. The tax rate proposed for this new tax ranges from 28% to 36% depending on the decedent’s income. This estate-based capital gains tax relates to the tax-basis proposals discussed next.

Stepped-Up Tax Basis and Elimination of 1031 Like-Kind Exchanges

Currently, an inherited asset comes with a tax basis that is equal to the asset’s fair market value. This is referred to as its “stepped-up basis.” Recent tax proposals include limiting or even eliminating the stepped-up basis following someone’s death. If the step-up is eliminated, the inherited asset will come with the deceased’s tax basis which is typically what the deceased paid for the asset.

If the IRS doesn’t eliminate the basis step-up, but limits the basis step-up to $1 million per estate, the limit will be applied this way. The basis of inherited assets will be increased to their fair market value until the total basis increase for assets in an estate reaches the $1 million limit. When the limit is reached, additional inherited assets will not receive any further basis step-up even if the deceased’s basis was lower than the fair market value at their death. And the heir will face a larger capital gains tax when they sell the inherited asset.

Another proposal eliminates the 1031 like-kind exchange. A 1031 like-kind exchange allows property owners to sell property without paying capital gains if they quickly replace it. This process postpones capital gains taxes until the replacement property is sold without being replaced quickly. Eliminating the 1031 like-kind exchange will result in more immediate taxation of capital gains and potentially slow down economic growth that occurs when payment of capital gains taxes can be postponed.

Higher income taxes

We’ll also see higher income taxes. Proposals include higher income tax rates which means we’ll pay more taxes on our taxable income. Also, proposals include reducing or eliminating income tax deductions which means more of our income will be taxed.

Uncharted Territory

We’re facing an uncertain landscape, but like all other uncertainties, we’ve got options. We can ignore it and just stick our head in the sand. Or we can embrace the uncertainty, confident that we’ll find a way to navigate it as we’ve navigated uncertainty and challenges in the past. I choose the second option. As we look ahead, I’ll remain vigilant and keep you updated. In my next article, I present options for handling some of the proposed tax changes. Contact us if you have any questions about this evolving landscape.

Estate Planning Awareness Week Takes on More Significance than Ever During COVID-19

October 12, 2020/in Estate Planning/by KT Williams

Have you heard that Estate Planning Awareness Week is recognized in October? Estate planning can be an essential part of your financial health no matter your age or how much money you have. Estate planning can be critical for anyone who wants to help ensure their wishes are respected in the event of temporary incapacitation or upon their death. That should apply to everyone, especially during the Covid-19 pandemic. Knowing the uncertainty of what tomorrow might bring, having an estate plan in place provides some security, and regularly updating what you have put in place can help ensure that security will continue.

Depending on your age, marital and parental status, and what kind of assets you have, estate planning can be simple or a bit more complex. For most people, having a written will, choosing a power of attorney and health care surrogate, and designating specific beneficiaries for bank and retirement accounts will go a long way to protecting the future they want for themselves and their loved ones.

Writing a will is often the first step. You can decide to whom you would like to leave any prized possessions, how to divide your eventual estate, and whether you want to set up any kind of trust that would allow your spouse or partner to live comfortably while preserving assets for children and grandchildren down the road. It can be equally important to designate specific account beneficiaries for bank and retirement accounts, and make sure the beneficiary you have chosen falls in line with your will.

A power of attorney can allow someone else to make financial or legal decisions on your behalf. If durable, this power will survive, even in the event you become incapacitated. A healthcare surrogate will allow someone else to make medical decisions on your behalf should you become incapacitated. You can choose a trusted loved one to fill both roles or choose two different people who may be better suited to one or the other. The important part is that, by planning ahead now, you get to make your own choices.

It can also be important to check in regularly with your estate plan and to make any changes that may be necessary due to life events, changes in law, or under other circumstances. In addition, regularly updating your account beneficiaries ensures they stay in line with what you have in your will and broader estate plan.

This Estate Planning Awareness Week, let us all take the time to learn more about the importance of estate planning and the steps we need to take in order to establish a strong estate plan. In times of great uncertainty, an estate plan can bring much needed peace. For more information, please reach out to our office and schedule a time to meet.

Spendthrift Trusts and Leaving Assets to Children with a Substance Abuse Disorder

September 23, 2020/in Estate Planning/by KT Williams

As September is National Recovery Month, sponsored by the Substance Abuse and Mental Health Services Administration, it can be a good time to discuss estate planning for parents of children with substance abuse disorders. One of the important concepts highlighted by national recovery month is that substance abuse disorders are a recognized medical disease, requiring medical treatment. There is no cure per se. A person with a substance abuse disorder will work their whole lifetime to achieve and maintain sobriety, likely including alternating periods of both.

When parents of a child with a substance abuse disorder create an estate plan, have you considered that one of their primary concerns may be that the money will be blown during a relapse, or in a more macabre light, possibly result in an overdose? On the other hand, a child with a substance abuse disorder can typically be the one who needs the most financial assistance, and a parent may wish to leave him or her resources. Creating a spendthrift trust can allow for the balancing of these concerns in the following ways:

Require approval of disbursements: A spendthrift trust designates a trustee, who must approve all disbursements from the trust. Accordingly, if a child beneficiary with a substance abuse disorder is in relapse, the trustee can deny access to the funds.
Does not allow transfer of interest: The child beneficiary will be blocked from transferring interest.
Creditors cannot reach the assets of the trust: If the child beneficiary has a judgment against them or gets into financial trouble, creditors cannot reach the trust. The trustee can discontinue disbursements from the trust, so long as the judgment is out there.
Allow child beneficiary to maintain eligibility for government programs: Assets in a spendthrift trust will not be considered, when the child beneficiary applies for government benefits, such as Medicare or Medicaid, which may be a vital resource to obtain treatment services.

Our office can assist you in the drafting of a spendthrift trust, which can provide for your child with a substance abuse disorder, while providing peace of mind. Contact us today to schedule a time to meet.

3 Health Care Documents Every College Student May Need, Especially During COVID-19

August 3, 2020/in Estate Planning, Uncategorized/by KT Williams

Most parents are used to taking care of their children’s medical needs. They might even assume that they can continue caring for a child once he or she leaves for college. Did you know that this may not always be the case? In fact, parents who fail to secure certain health care estate documents may be in for a terrifying surprise in the event of an emergency.

Once a child reaches age 18, he or she is legally considered an adult. That means all bets are off as far as how parents may have previously dealt with their child’s health needs. Without certain legal documents, parents could be locked out of an adult child’s medical information and be prevented from making important health decisions. With COVID-19 surging and colleges expected to reopen in the fall, the risk of an infection and hospitalization makes health care planning imperative.

Let us take some time to discuss three critical health care estate items to have in place for your college kid:

1. HIPAA Release. Pursuant to the Health Insurance Portability and Accountability Act of 1996, or HIPAA, a person’s medical information must be kept private unless an authorization form grants access to specific individuals. The form, known as a HIPAA release, is essentially a permission slip for disclosing sensitive medical information. If a college student designates his or her parents, they can be kept abreast of important medical developments and communicate with their adult child’s doctors. Limiting conditions can also be implemented to certain information, such as mental health counseling or reproductive health records.

2. Health Care Surrogate. While a HIPAA release can keep parents in the loop about important medical information, it does not provide the authority to make medical decisions on behalf of an adult child. That power would come from a separate document called a health care surrogate. This would allow the parent to make health decisions if the adult child was incapacitated or unable to make competent decisions.

3. Living Will. A living will is a form of an advance medical directive. It is a legal document that specifies the actions that should be taken under specific circumstances such as a terminal of end-stage condition. It specifies, specifically, what medical treatment should or should not be withheld.

A college health emergency may be a nightmare scenario under any circumstance. With COVID-19 surging, however, particularly among young adults, securing these estate documents will help parents and students be prepared. Contact our office for help navigate these challenges.

Questions to Ask Your Aging Parents: Do You Have a Power of Attorney?

July 22, 2020/in Estate Planning/by KT Williams

Planning for the future is never easy, especially when that involves thinking about end-of-life issues. Did you know, however, that discussing these concerns now can help you and your aging parents pave a clear path for the future?

Your parents should know about the importance of a power of attorney (POA). It is a crucial aspect of estate planning, albeit a complicated one. Let us discuss a few questions you can ask your parents, so you will know what to expect.

When does your power of attorney take effect? A power of attorney transfers responsibility and decision-making powers from the grantor to an agent. When establishing the POA, your parent can specify when he or she wants the document to take effect. For instance, your parent has the ability to specify that it should only go into effect after he or she has become mentally incapacitated. This is called a durable power of attorney (DPOA).
What responsibilities does the POA cover? If your parents have established a POA, you will want to discuss with them what authority they have granted the agent(s). There are different types of POAs, each with unique attributes. For instance, a POA for health care, otherwise known as a health care surrogate, assigns the right to make health care decisions. A financial POA covers the management of financial accounts and transactions specified in the document.
Have you selected a trustworthy individual as your agent? Those tasked with the role of agent in a POA are empowered to address important matters on behalf of the grantor. Selecting an agent is not a decision to be taken lightly. Discuss with your parents who they have selected as a POA agent and really flesh out why they believe this person is qualified and trustworthy.

A power of attorney can only be granted by someone who is mentally sound. If there is any doubt that the grantor is unsound, the POA can be called into question. This is one of the many reasons that time is of the essence in estate planning. Have your parents put a POA and other legal protections in place before the need for them actually arises. For all of your estate planning questions, our office is here to help provide you with answers.

Consider These 4 Ways to Safely Store Your Original Estate Planning Documents

July 7, 2020/in Estate Planning/by KT Williams

Did you know that estate planning is important for many reasons, but all of them can be undermined if your original estate documents are missing, stolen, or damaged beyond recognition? Failing to safely store signed estate documents can cause irreparable, and avoidable, harm. Let us take a moment to discuss four ways to prevent that from happening:

1. Safe Deposit Box. Safe deposit boxes are ideal when it comes to protecting important documents. They are basically miniature bank vaults that store valuable items and protect against home hazards like accidental loss, water damage, fire and theft. Problems, however, can arise if the box-holder becomes medically incapacitated or dies without providing access to the box. Consider granting a family member or trusted confidant joint access to the box, particularly if they are your designated health care agent or your estate’s personal representative.

2. Storing them at home. If you are going to store original estate documents at home, put them in a waterproof container and out of harm’s way, such as a high shelf to avoid flooding. A home combination safe is also a good option as they can be both waterproof and fireproof in addition to protecting against theft. Make sure someone you trust can get inside the safe in the event you fall ill or pass away.

3. Online hosting. Storing original estate documents online is a growing trend with many benefits, including portability and ease of access. All you need is WiFi and a password. Providing executors, trustees, and beneficiaries with access can help them better understand their roles and your explicit desires. Not everyone, however, may be comfortable putting sensitive information online, so, be mindful if you are helping an aging parent who may be skeptical.

4. Estate planning attorney. Storing original documents with an estate planning attorney is another safe option, especially if the attorney helped craft the documents. At a minimum, storing signed back-up copies can offer an added layer of protection from a legal expert with a fiduciary duty to act in your best interest.

Storing crucial legal documents is just one of the many important decisions you will face during the estate planning process. Should you need help developing an estate plan or have any related questions, please feel free to contact our office and schedule a meeting.

Married Couples Living in Different States Can Use a Trust to Reduce Income Taxes

June 3, 2020/in Estate Planning/by KT Williams

Are taxes a reason not to live with your spouse? It may seem like an unusual estate planning strategy, but the benefits should not be underestimated. There are many legitimate reasons why married couples might live in different states and, whether by happenstance or design, tax planning could be one of them.

Consider that states have varying tax regimes; some have high taxes and others have low taxes. For example, top earners in California are subject to a 13.3 percent state income tax, and that is in addition to a 37 percent top federal income tax bracket. In other words, wealthy Californians pay half of their income to the state treasury and Uncle Sam. Middle income earners do not fare much better, either. Individuals making $58,000 a year pay a 9.3 percent state income tax. In Florida, however, the state income tax is 0.0 percent. No matter how much you make you will not pay a dime in state income taxes in the Sunshine State. Why not use such discrepancies to your advantage?

Let us share one creative solution: A spouse living in a high-tax state could gift intangible income producing assets to his or her spouse living in a low-tax state. Intangible assets are not physical in nature and include trademarks, copyrights, patents, literary works, broadcast rights, computer software, and lease and franchise agreements. Then, after a reasonable period of time, the low-tax state spouse would contribute the assets to a Qualified Terminable Interest Property trust, or “QTIP” trust, which is treated as a grantor trust. At this point, the income would be taxed to the lower-tax state resident and the QTIP trust’s distributions circle back to the spouse living in the high-tax state.

The financial benefits could be enormous. Plus, QTIP trusts have other perks. A QTIP trust is a marital trust that can provide for your spouse after your death while also protecting your assets for future generations. They further offer flexibility for an estate’s personal representative to maximize federal estate tax savings after you pass away.

We know this blog may raise more questions than it answers. We are here to help you create the right estate plan for your own needs and circumstances. For more information about creative tax savings solutions and QTIP trusts, do not wait to contact our estate planning attorney today.

The COVID-19 Economy Has Created Opportunities for Estate Wealth Transfers

May 25, 2020/in Estate Planning/by KT Williams

The COVID-19 public health crisis has led to a near complete economic shutdown. Stay at home orders, closures of non-essential businesses, and other measures taken to stop the spread of the Coronavirus have smothered the prosperous pre-COVID economy. While nobody would consider an economic downturn a good thing, from an estate planning perspective the current market conditions offer unique benefits for transferring estate assets to family members and trusts.

Let us explain further. Many tangible property items and paper investment assets are undervalued in terms of where they were prior to COVID-19 and where they are likely to go after the economy reopens. That means transferring depressed assets to loved ones and future heirs could allow you to reduce the value of your estate and your beneficiaries would be able to keep most of the upside appreciation when the stock market and broader economy regain lost value.

This is just one benefit of the Coronavirus economy. Another is the all-time low applicable federal rates, or AFR. Every month the Internal Revenue Service publishes new AFRs based on a number of economic factors, including prior 30-day average market yields of U.S. treasury obligations. The rates apply to loans between private parties, like family members. At record lows, loaning, or transferring, depressed assets to family members is incredibly cheap. It also allows the borrower to keep any future gains free of gift and estate taxes if he or she invests the loan and the investment appreciates in value.

Something else to keep in mind is that when you transfer estate assets their value is essentially frozen for estate and gift tax purposes. Thus, the lower the asset value the lower the corresponding tax liability. Additionally, transferring depressed assets could allow you to fit more into the annual federal gift tax exclusion. The government allows you to give away up to $15,000 a year without it counting toward a lifetime exemption, so cramming in depressed assets allows for greater asset transfers and future upside growth.

Well-timed wealth transfers are an effective way to achieve long-term estate planning goals. They are also complicated, however, and involve nuances specific to individual estate circumstances. For information and to ask your own questions, we encourage you to contact our office to schedule a meeting.

Preparedness: Reminders from a Virus

March 6, 2020/in Asset Preservation, Estate Planning/by KT Williams

The importance of being prepared is obvious. Most of us can easily explain why we should be prepared. With little effort, we can rattle off risks that we face on a regular basis, such as an automobile collision. Other risks might be less common, like the rogue Coronavirus (COVID-19) that is rapidly spreading. Nevertheless, what all these risks have in common is the importance of being prepared and of taking reasonable precautions to increase our safety and reduce our risks.

Preparedness applies just as strongly to your estate planning and asset protection concerns. Have you recently reviewed your beneficiary designations, your Trust, or your Last Will & Testament? Are you prepared if you or your spouse need nursing home care? How will you pay for it? Will your assets be protected or will they be used up? Is your Power of Attorney up to date and compliant with current law?

Review Your Beneficiary Designations Annually

You should review beneficiary designations for your accounts (bank, investment, and retirement accounts) and insurance policies regularly to verify they are correct. I’ve seen beneficiary designations that surprised the account owner or the insurance policy owner. They thought their spouse or child was the beneficiary, but instead, it was someone entirely different. And I’ve seen times when someone was certain they completed a beneficiary designation for an account or an insurance policy, but discovered that no beneficiary was ever listed. Checking your beneficiary designations is a simple precaution.

Keep Your Power of Attorney Up To Date

Your Power of Attorney names someone to be your helper. This helper is called your Attorney in Fact. Your Attorney in Fact will have the authority to handle personal matters for you, such as dealing with banks, financial institutions, credit card companies, insurance companies, and utilities. Your Attorney in Fact doesn’t have any more authority than you do. Instead, your Attorney-in-Fact simply has authority to provide assistance, but they can’t make you do anything that you don’t want to do.

Review your Power of Attorney to make sure the person you named as your Attorney in Fact is the person you still want helping you. Times change and people change. Someone new may be a better choice. Changing the Attorney in Fact is simple and much better than having a bad Attorney in Fact as your helper.

Also, laws change regularly, and the laws about a Power of Attorney have changed quite a bit in recent years. It is critical that you keep your Power of Attorney current and up to date so that your Attorney in Fact can fully help you. If your Power of Attorney is not current and up to date when its needed, will you be able to change it then? It’s unlikely because the Power of Attorney is needed most when we’re incapacitated in some way. We can’t change our Power of Attorney if we’re incapacitated.

Protect Your Assets From Nursing Home Costs

Most of us will require care in a nursing home. The cost of care in a nursing home ranges widely from region to region, but a conservative estimate places it at $7,500 – $8,000 per month. You worked hard for what you have. You don’t want to see it quickly consumed by the nursing home. Instead, you want to use it, and you want it to benefit your family. That can happen. But it’s not likely if you don’t prepare for the potential of these huge costs.

Preparing Ahead Doesn’t Have To Be Scary

Preparing for the future can seem scary at first. You may feel uncertain about what to do and how to do it. But preparing ahead removes the uncertainty. You just have to begin, to take that first step. You will feel relief that you started, and when you are finished, you will have peace of mind that you are prepared and ready.

We help people prepare for the future and experience that peace of mind every day. And we enjoy it. If you want to become better prepared, contact us for help.

Special Needs Trusts: When and How You Should Create One

February 7, 2020/in Asset Preservation, Estate Planning/by KT Williams

We all have a family member or friend who is directly or indirectly affected by a sickness, injury, disorder, or other impairment that limits their physical or mental abilities. For them, a Special Needs Trust could provide great benefits. But if they don’t have an advocate who has this option in mind, they will miss out. I don’t want anyone to miss out. That is why I believe everyone should know about Special Needs Trusts.

While a direct gift or inheritance might provide a temporary benefit, it could cause long-term harm, especially if some type of government support is involved. A gift or inheritance to someone receiving government support could disqualify the recipient from the ongoing support they need. Stranded without the support on which they rely, the consequence of the gift or inheritance is likely much worse than the benefit it provided.

Careful use of a Special Needs Trust avoids these consequences. When properly drafted, a Special Needs Trust will provide the benefits you hope for without affecting the government support your loved one needs.

When and How Should You Create A Special Needs Trust?

A trust isn’t a do-it-yourself project. I regularly help people establish Special Needs Trusts for friends and family. I see firsthand how the laws and regulations governing trusts change regularly. They are much too complex to tackle without expertise. For instance, there are several types of Special Needs Trusts. Some work at times while others don’t. Expertise is needed to help you accomplish the most good at the least cost.

Creating a Special Needs Trust in Your Will or Your Trust:

You can create a Special Needs Trust in your Last Will and Testament. Or, if you have a trust as part of your own estate planning, the trust can have a Special Needs Trust built in. When created in either of these ways, the Special Needs Trust will not come into existence until some future event, such as your death. Any asset you directed to the Special Needs Trust through your Will or trust will be used to provide benefits to the Special Needs Trust’s beneficiary.

Using your Will or trust to create a Special Needs Trust makes sense at certain times, such when you don’t think anyone else will create a Special Needs Trust for the beneficiary. And it makes sense when you don’t think anyone else will be interested in making a gift or inheritance to the special needs beneficiary. If these factors don’t apply to your situation, consider a stand-alone Special Needs Trust.

Creating a Stand-Alone Special Needs Trust:

You can create a Special Needs Trust as a stand-alone trust. Stand-alone means it is not part of your Will or part of some other trust, such as the trust you have in your estate planning. The stand-alone Special Needs Trust will come into existence as soon as you create it. Assets can be put in it immediately, and it can begin providing benefits as soon as you want.

Creating a stand-alone Special Needs Trust makes sense at certain times. It makes sense when you want the trust to help the beneficiary before your death or some other future event. And it makes sense when you believe someone else, such as another family member, would like to make a gift or inheritance to the beneficiary. With the stand-alone Special Needs Trust in place, anyone can make a gift or inheritance that will support the beneficiary, and they can use the same stand-alone Special Needs Trust for that purpose.

When Should You Consider A Special Needs Trust?

You should consider a Special Needs Trust if someone you care about has a sickness, injury, disorder, or other impairment that limits their physical or mental abilities. Proper planning allows you to do the most good at the lowest cost. Contact us for help.