Clock Ticks On Estate Tax
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Saturday, December 26, 2009
Sunday, December 20, 2009
Grantor Retained Annuity Trust (“GRAT”)
Grantor Retained Annuity Trust (“GRAT”) – Do you have assets with potential to appreciate in the next 2 – 5 years?
This estate planning technique utilizes IRS-approved discount factors to make gifts of assets having the potential for appreciation with minimal or no gift tax consequences. In a GRAT, the client transfers property to an irrevocable trust, retaining the right to a fixed annuity for a term of years, and the value of the gift to the trust for gift tax purposes is reduced by the IRS-determined present value of the client’s retained interest. If the client survives the term of the trust, any property remaining in the trust, including any appreciation in the trust assets that exceeds the IRS-assumed rate of interest (which is 3.4% for September, 2009, and is recalculated monthly), passes to the client’s beneficiaries free of any gift or estate tax.
Obviously while some GRATs may appreciate and succeed, others may fail. A GRAT may currently be structured so as to “zero out” the taxable gift with an annuity set at a level so that the present value of the client’s retained interest is equal to the value of the property transferred to the trust. This approach allows the use of any number of GRATs, some of which are likely to succeed. There is some discussion that Congress may change the law to require that a gift to a GRAT have a value of greater than zero for gift tax purposes, therefore requiring the use of a portion of the client’s lifetime exclusion for gifts (currently at $1 million, beyond which gift tax would be payable) and discouraging the use of an unlimited number of GRATs. However, low interest rates, currently low asset values and favorable law make a GRAT a particularly attractive estate planning tool at this time.
This estate planning technique utilizes IRS-approved discount factors to make gifts of assets having the potential for appreciation with minimal or no gift tax consequences. In a GRAT, the client transfers property to an irrevocable trust, retaining the right to a fixed annuity for a term of years, and the value of the gift to the trust for gift tax purposes is reduced by the IRS-determined present value of the client’s retained interest. If the client survives the term of the trust, any property remaining in the trust, including any appreciation in the trust assets that exceeds the IRS-assumed rate of interest (which is 3.4% for September, 2009, and is recalculated monthly), passes to the client’s beneficiaries free of any gift or estate tax.
Obviously while some GRATs may appreciate and succeed, others may fail. A GRAT may currently be structured so as to “zero out” the taxable gift with an annuity set at a level so that the present value of the client’s retained interest is equal to the value of the property transferred to the trust. This approach allows the use of any number of GRATs, some of which are likely to succeed. There is some discussion that Congress may change the law to require that a gift to a GRAT have a value of greater than zero for gift tax purposes, therefore requiring the use of a portion of the client’s lifetime exclusion for gifts (currently at $1 million, beyond which gift tax would be payable) and discouraging the use of an unlimited number of GRATs. However, low interest rates, currently low asset values and favorable law make a GRAT a particularly attractive estate planning tool at this time.
Qualified Personal Residence Trust (“QPRT”)
Qualified Personal Residence Trust (“QPRT”) – Would you like to remove the value of your home from your taxable estate without moving out?
A silver lining of the cooling real estate market is the opportunity to use a QPRT to transfer a “personal residence” (e.g. your primary residence of your vacation home) to beneficiaries while values are low. In a QPRT, the client transfers a home to an irrevocable trust, retaining the right to reside in a home rent free for a fixed term of years. The amount of the taxable gift made upon the initial transfer of a home is the value of the residence, discounted by the IRS-determined present value of a client’s retained interest. If the client survives the term of the trust, the value of the home, including all appreciation after the creation of the trust, will be removed from the client‘s taxable estate. After the trust term ends, a rental arrangement for the client’s continued use of the home can be structured, and rent payments from the client to the beneficiaries (which can be used to pay property taxes, insurance and other home expenses) can further reduce the client’s taxable estate. The trust can be extended and appropriate provisions included so that no income tax is payable by the beneficiaries on the rental income, thereby creating more tax savings.
A silver lining of the cooling real estate market is the opportunity to use a QPRT to transfer a “personal residence” (e.g. your primary residence of your vacation home) to beneficiaries while values are low. In a QPRT, the client transfers a home to an irrevocable trust, retaining the right to reside in a home rent free for a fixed term of years. The amount of the taxable gift made upon the initial transfer of a home is the value of the residence, discounted by the IRS-determined present value of a client’s retained interest. If the client survives the term of the trust, the value of the home, including all appreciation after the creation of the trust, will be removed from the client‘s taxable estate. After the trust term ends, a rental arrangement for the client’s continued use of the home can be structured, and rent payments from the client to the beneficiaries (which can be used to pay property taxes, insurance and other home expenses) can further reduce the client’s taxable estate. The trust can be extended and appropriate provisions included so that no income tax is payable by the beneficiaries on the rental income, thereby creating more tax savings.
Life Insurance Reviews
It is important to have older life insurance policies reviewed, as there have been changes in the life expectancy tables. Often a review can reveal opportunities to reduce your premium, increase your coverage, obtain guarantees, or shorten the the number of required premiums. Typically, the review process is free, and a medical preliminary inquiry can be made without filling out any actual policy applications. Some life insurance professionals charge a fee for the review, which can help eliminate any bias in the making of recommendations.
Saturday, December 19, 2009
Choosing a Guardian to raise your Child
For many families, selecting a Guardian for minor children is the most difficult choice when planning their estate. No matter how loving, it is hard to envision someone else raising your child. Planning for this possibility, however, would make a tremendous difference in your child's life. And you have nothing to lose except a few moments thinking about what you value most in life, and in child-rearing.
Anyone with a child under the age of 18 must consider who would raise that child if they were unable to. Of course, we all imagine the worst case scenario - our own premature deaths - when we consider this. But there is a less tragic, and common, situation in which naming a guardian is crucial: incapacity. If you and your spouse were unable to care for your children for a time, who would watch over them while you recovered your abilities?
The younger your child, the more crucial this choice is, because very young children cannot form or express their own preferences about caregivers. Yet young children are not the only ones who benefit from careful parental attention to guardianship. Children close to 18 years old will be legal adults soon, but, as you well know, a parent's job does not end when the child reaches 18. By naming and talking about your choice of guardian, you can encourage a lifelong bond with a caring family.
The nomination of guardians is a straightforward aspect of any family's estate plan. It can be as basic or detailed as you want. You can simply name the guardian who would act if both you and your spouse were unable to. Or you can provide detailed guidance about your children and the sort of experiences and family environment you would like for them. Your state court, then, can give strong weight to your expressed wishes.
So how do you actually choose the right person or couple? You may have too many loving family members to count. How do you choose between them? Or you may be from small families and wonder if you can find anyone suitable. Either way, you can make a good choice by following four straight forward steps.
Step One: Make a List
Make the longest list you can stand of everyone you know who might possibly be a good guardian. When considering whether someone should be on the list, ask yourself, "would they provide a better home for my children than the foster care system?" If the answer is yes, put them down. If the answer is no, note that too, for you may wish to express that under no circumstances should these people be made the guardians of your precious children. Your list could contain dozens of names but should have at least 3 or 4 people or couples before you call it a day. Think beyond your sisters and brothers. Parents have chosen as guardians cousins, aunts & uncles, grandparents, child care providers, business partners, and friends. Consider long-time friends and those you've gotten to know at parenting groups. They may share similar philosophies about child-rearing. Do not eliminate people from your list for financial reasons unless they lack basic money management skills. Sufficient life insurance in a well-drafted Children's Trust can ensure your children's material well-being.
Step Two: Decide What Matters Most
Choose a few factors that are most important to you. Here are some to consider:
-maturity
-patience
-stamina
-age
-child-rearing philosophy
-presence of children in the home already
-interest in and relationship with your children
-integrity
-stability
-ability to meet the physical demands of child care
-presence of enough "free" time to raise children
-religion or spirituality
-marital or family status
-potential conflicts of interest with your children
-willingness to serve
-social and moral habits and values
-willingness to adopt your children
Obviously, the perfect choice would score highly on every measure. But because we are all imperfect, you will likely have more success in choosing the few characteristics that are most important to you. Consider, as you make your choice, that some factors can be influenced by you and others cannot. Integrity is something you cannot change. But if having an at-home parent is important to you, your prospective guardian might be willing to come home to raise your child if you make it possible through a well-structured and funded plan.
Step Three: Match People to Priorities
Use the factors you chose in step two to narrow your list of candidates to a handful. Congratulations! You can relax knowing you have many good choices to choose from. Listen to your body and feelings as you consider each person or couple as guardian. You'll have to use your gut to rank order this short-list into the people you would want first, second, and so on. If you select an attorney experienced in helping parents of minor children, be prepared to answer the following question whenever you have named a couple: if the couple divorces or, because of death or incapacity, only one can serve, would you like either one to be guardian? Or would you prefer to move to the next name on the list?
For many families, its as easy as it looks. For others, however, these three steps are fraught with conflict. One common source of difficulty is disagreement between spouses. Consensus is important. While you can each name different guardians, most parents are happier when they reach agreement. Explore the disagreements to see what information about values and people you should both understand. Use all your strongest communications skills and empathy to understand eachother's position before you try to find a solution that you can both feel good about.
Regardless of which spouse's family or friends appear more frequently on your final list, it's important to keep both families involved. One way to do that is to name members of one family as guardians to care for the children, and members of the other family as trustees, to manage the assets for the children. If there is a likelihood of conflict between these family members, be sure to share this with your attorney so that your guardianship can be customized to encourage them to keep the lines of communication open.
Step Four: Make it Positive
For some parents, getting past this decision quickly is the best way to achieve peace of mind and happiness. For others, choosing a guardian can be the start of a more intensive relationship-building process. An attorney who understands where you and your spouse fall on that spectrum can counsel you appropriately.
For those who want to use the estate planning process as a life-enhancing inquiry, consider the following:
- guardians, once they know how strongly you feel about their loving and good characters, may choose to become more involved with your children (as "godparents" do in some religions);
- the focus on what you want for your children, whether you are there to provide it or not can clarify your own parenting priorities, in addition to enabling you to create a highly customized estate plan that will convey your values
- this last idea is not for the faint of heart: you can use planning for your children to consider the impermanent nature of relationships. What do you want to achieve with your children while they're still at home with you? What legacy do you want to leave for them when you say goodbye?
Although I have shared some ways choosing and nominating a guardian can be an intensive, life-changing process, you should know that it can also be the easiest "legal" issue you'll ever face. The nomination of guardianship itself can be a very brief document or just a paragraph in a will or a trust. So use this article as a resource as you make these tough decisions… but only take what works for you. Nominating guardians need not be a life event. However you complete the process, you will find a new level of peace of mind.
Anyone with a child under the age of 18 must consider who would raise that child if they were unable to. Of course, we all imagine the worst case scenario - our own premature deaths - when we consider this. But there is a less tragic, and common, situation in which naming a guardian is crucial: incapacity. If you and your spouse were unable to care for your children for a time, who would watch over them while you recovered your abilities?
The younger your child, the more crucial this choice is, because very young children cannot form or express their own preferences about caregivers. Yet young children are not the only ones who benefit from careful parental attention to guardianship. Children close to 18 years old will be legal adults soon, but, as you well know, a parent's job does not end when the child reaches 18. By naming and talking about your choice of guardian, you can encourage a lifelong bond with a caring family.
The nomination of guardians is a straightforward aspect of any family's estate plan. It can be as basic or detailed as you want. You can simply name the guardian who would act if both you and your spouse were unable to. Or you can provide detailed guidance about your children and the sort of experiences and family environment you would like for them. Your state court, then, can give strong weight to your expressed wishes.
So how do you actually choose the right person or couple? You may have too many loving family members to count. How do you choose between them? Or you may be from small families and wonder if you can find anyone suitable. Either way, you can make a good choice by following four straight forward steps.
Step One: Make a List
Make the longest list you can stand of everyone you know who might possibly be a good guardian. When considering whether someone should be on the list, ask yourself, "would they provide a better home for my children than the foster care system?" If the answer is yes, put them down. If the answer is no, note that too, for you may wish to express that under no circumstances should these people be made the guardians of your precious children. Your list could contain dozens of names but should have at least 3 or 4 people or couples before you call it a day. Think beyond your sisters and brothers. Parents have chosen as guardians cousins, aunts & uncles, grandparents, child care providers, business partners, and friends. Consider long-time friends and those you've gotten to know at parenting groups. They may share similar philosophies about child-rearing. Do not eliminate people from your list for financial reasons unless they lack basic money management skills. Sufficient life insurance in a well-drafted Children's Trust can ensure your children's material well-being.
Step Two: Decide What Matters Most
Choose a few factors that are most important to you. Here are some to consider:
-maturity
-patience
-stamina
-age
-child-rearing philosophy
-presence of children in the home already
-interest in and relationship with your children
-integrity
-stability
-ability to meet the physical demands of child care
-presence of enough "free" time to raise children
-religion or spirituality
-marital or family status
-potential conflicts of interest with your children
-willingness to serve
-social and moral habits and values
-willingness to adopt your children
Obviously, the perfect choice would score highly on every measure. But because we are all imperfect, you will likely have more success in choosing the few characteristics that are most important to you. Consider, as you make your choice, that some factors can be influenced by you and others cannot. Integrity is something you cannot change. But if having an at-home parent is important to you, your prospective guardian might be willing to come home to raise your child if you make it possible through a well-structured and funded plan.
Step Three: Match People to Priorities
Use the factors you chose in step two to narrow your list of candidates to a handful. Congratulations! You can relax knowing you have many good choices to choose from. Listen to your body and feelings as you consider each person or couple as guardian. You'll have to use your gut to rank order this short-list into the people you would want first, second, and so on. If you select an attorney experienced in helping parents of minor children, be prepared to answer the following question whenever you have named a couple: if the couple divorces or, because of death or incapacity, only one can serve, would you like either one to be guardian? Or would you prefer to move to the next name on the list?
For many families, its as easy as it looks. For others, however, these three steps are fraught with conflict. One common source of difficulty is disagreement between spouses. Consensus is important. While you can each name different guardians, most parents are happier when they reach agreement. Explore the disagreements to see what information about values and people you should both understand. Use all your strongest communications skills and empathy to understand eachother's position before you try to find a solution that you can both feel good about.
Regardless of which spouse's family or friends appear more frequently on your final list, it's important to keep both families involved. One way to do that is to name members of one family as guardians to care for the children, and members of the other family as trustees, to manage the assets for the children. If there is a likelihood of conflict between these family members, be sure to share this with your attorney so that your guardianship can be customized to encourage them to keep the lines of communication open.
Step Four: Make it Positive
For some parents, getting past this decision quickly is the best way to achieve peace of mind and happiness. For others, choosing a guardian can be the start of a more intensive relationship-building process. An attorney who understands where you and your spouse fall on that spectrum can counsel you appropriately.
For those who want to use the estate planning process as a life-enhancing inquiry, consider the following:
- guardians, once they know how strongly you feel about their loving and good characters, may choose to become more involved with your children (as "godparents" do in some religions);
- the focus on what you want for your children, whether you are there to provide it or not can clarify your own parenting priorities, in addition to enabling you to create a highly customized estate plan that will convey your values
- this last idea is not for the faint of heart: you can use planning for your children to consider the impermanent nature of relationships. What do you want to achieve with your children while they're still at home with you? What legacy do you want to leave for them when you say goodbye?
Although I have shared some ways choosing and nominating a guardian can be an intensive, life-changing process, you should know that it can also be the easiest "legal" issue you'll ever face. The nomination of guardianship itself can be a very brief document or just a paragraph in a will or a trust. So use this article as a resource as you make these tough decisions… but only take what works for you. Nominating guardians need not be a life event. However you complete the process, you will find a new level of peace of mind.
Uncertainty Swirls Around Estate Tax
WSJ Article: Uncertainty Swirls Around Estate Tax
By LAURA SAUNDERS
The possible expiration of the federal-estate tax has sent the normally staid world of estate planning into a frenzy of activity, as taxpayers try to cope with uncertainty.
Without the old estate tax in place, some new rules will come into play, potentially forcing families to dig up decades-old records or face big tax penalties. Some other onerous taxes will lapse, potentially cutting bills by two-thirds on transfers to grandchildren. And a debate is raging about whether Congress can pass a bill next year that would be retroactive to Jan. 1.
By LAURA SAUNDERS
The possible expiration of the federal-estate tax has sent the normally staid world of estate planning into a frenzy of activity, as taxpayers try to cope with uncertainty.
Without the old estate tax in place, some new rules will come into play, potentially forcing families to dig up decades-old records or face big tax penalties. Some other onerous taxes will lapse, potentially cutting bills by two-thirds on transfers to grandchildren. And a debate is raging about whether Congress can pass a bill next year that would be retroactive to Jan. 1.
Wednesday, December 16, 2009
Monday, December 14, 2009
Year-End Review Should Include 'Estate Planning for While You Live'
Baby Boomers' Year-End Review Should Include 'Estate Planning for While You Live': WHEATON, Ill., Dec. 8 /PRNewswire/ -- Perhaps with a gentle nudge from their adult children, Baby Boomers should undertake a year-end estate planning review that, says attorney Heinz Brisske, "ought to be every bit as much about planning for while you are living as it is for determining what happens when you die.
Attorney: Estate planning can save families money
pal-item.com
HAGERSTOWN, Ind. -- The biggest impediment to passing on the family farm is a federal tax on a person's estate following his or her death.
HAGERSTOWN, Ind. -- The biggest impediment to passing on the family farm is a federal tax on a person's estate following his or her death.
Thursday, December 10, 2009
Wednesday, December 9, 2009
Keeping Wealth In The Family
Keeping Wealth In The Family: Today's legal climate demands the use of advanced asset protection techniques for high-risk clients.
Posted using ShareThis
Posted using ShareThis
A Slice Of The Pie
A Slice Of The Pie: Fractional ownership plans are available for almost any asset you can think of--even pet cats.
Posted using ShareThis
Posted using ShareThis
Friday, December 4, 2009
Caring for pets after owner's death requires planning
Caring for pets after owner's death requires planning: INDIAN RIVER COUNTY — Joanna Salina of Vero Beach prides herself on being prepared.
She has executed her will, set up a trust and made provisions for what happens to her home after her death.
But the one thing that she hasn’t prepared for is what happens to her four pets if she dies or becomes incapacitated.
She has executed her will, set up a trust and made provisions for what happens to her home after her death.
But the one thing that she hasn’t prepared for is what happens to her four pets if she dies or becomes incapacitated.
Don't wait till you're old or rich for estate plan
Don't wait till you're old or rich for estate plan: CHICAGO — Hiding thousands of dollars inside a book may be a clever way to foil burglars. But it’s less than ideal estate planning — especially when you don’t tell anyone what you’ve done.
Wednesday, December 2, 2009
Retirement Plan Trust Benefits
Establishing a Retirement Plan Trust and naming it as the beneficiary of an IRA or qualified plan can provide a number of benefits. These include:
- Spendthrift protection - Protecting the individual trust beneficiary from his or her temptation to waste "found money."
- Predator protection - Even if the individual beneficiary does not have spendthrift tendencies, there are many out there whose interest lies in separating the beneficiary from their money and property.
- Creditor protection - Ours is a litigious society in which we never know who is going to be the target of a lawsuit. A trust makes the beneficiary a less attractive "target."
- Divorce protection - With the national divorce rate above 50%, it is impossible to determine which marriages will stand the test of time. A Retirement Plan Trust keeps the inherited IRA from being divided or even lost in a divorce.
- Government benefits protection - As with divorce, whether a healthy beneficiary will suffer some catastrophe that makes him or her dependent on needs-based government programs is unpredictable. Inheriting an IRA can easily disqualify someone from receiving needs-based government benefits until the IRA is exhausted.
- Providing consistent investment management (often from the participant's investment advisor).
- Estate planning.
- Control over use of the retirement plan/IRA assets (e.g., to fund education, start a business, or buy the beneficiary's first home or, in the case of a mixed family, to prevent diversion away from the owner/participant's descendants).
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