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Estate Planning

Over the course of time we come across articles that we feel like would benefit our clients. Below are some recent articles that we would like to share with you. Click on the articles below to help you increase your financial literacy in the world of Estate Planning. It is not the most enjoyable topic to research and discuss, but is vital for many families. 

Because you’ve worked hard to create a secure and comfortable lifestyle for your family and loved ones, you’ll want to ensure that you have a sound financial plan that includes trust and estate planning. With some forethought, you may be able to minimize gift and estate taxes and preserve more of your assets for those you care about.

A Needs Evaluation

One of the first steps you’ll take in the estate planning process is determining how much planning you’ll need to undertake. No two situations are alike. And even individuals who don’t have a great deal of wealth require some degree of planning. On the flip side, those with substantial assets often require highly complex estate plans.

Two key components of your initial needs evaluation are an estate analysis and a settlement cost analysis. The estate analysis includes an in-depth review of your present estate-settlement arrangements. This estate analysis will also disclose potential problems in your present plan and provide facts upon which to base decisions concerning alterations in your estate plan.

For example, you may believe that your current arrangements are all taken care of in a will that leaves everything to your spouse. However, if you’ve named anyone else as a beneficiary on other documents — life insurance policies, retirement or pension plans, joint property deeds — those instructions, not your will, are going to govern the disposition of those assets. You want to ensure that all your instructions work harmoniously to follow your exact wishes. In addition, you may want to consider alternative asset ownership arrangements under certain circumstances.

An estate plan that leaves everything to a surviving spouse enjoys the unlimited marital deduction against all estate taxes but fails to take advantage of the decedent spouse’s applicable exclusion amounts against estate taxes under federal and state law. This may result in a larger estate tax burden at the death of the second spouse. Yet these are taxes that can potentially be minimized with careful estate planning.

While your spouse will receive your estate free of estate taxes if he or she is a U.S. citizen, anything your spouse receives above his or her federal applicable exclusion amount may eventually be subject to estate taxes upon his or her death.1 Many states also have their own estate tax regimes and apply different (lower) estate tax applicable exclusion amounts, which you will need to consider with your estate planning professional.

An estate settlement cost analysis summarizes the costs of various estate distribution arrangements. In estimating these costs, the analysis tests the effectiveness of any proposed estate plan arrangement by varying the estate arrangement, the inflation and date of distribution assumptions, as well as specific personal and charitable bequests.

Estate planning is very complex. And while a simple will may adequately serve the estate planning needs of some people, you should meet with a qualified legal advisor to be sure you are developing a plan that is consistent with your objectives.

Finally, be sure to recognize that estate planning is also an ongoing process that may require periodic review to ensure that plans are in concert with your changing goals. In addition, because estate planning often entails many facets of your personal finances, it often involves the coordinated efforts of qualified legal, tax, insurance, and financial professionals.

Estate Planning Checklist

Bring this checklist to a qualified legal professional to discuss how to make your plan comprehensive and up to date.

Part 1 — Communicating Your Wishes

  • Do you have a will?
  • Are you comfortable with the executor(s) and trustee(s) you have selected?
  • Have you executed a living will or health care proxy in the event of catastrophic illness or disability?
  • Have you considered a living trust to avoid probate?
  • If you have a living trust, have you titled your assets in the name of the trust?


Part 2 — Protecting Your Family

  • Does your will name a guardian for your children if both you and your spouse are deceased?
  • If you want to limit your spouse’s flexibility regarding the inheritance, have you created a qualified terminable interest property (QTIP) trust?
  • Are you sure you have the right amount and type of life insurance for survivor income, loan repayment, capital needs, and all estate settlement expenses?
  • Have you considered an irrevocable life insurance trust to exclude the insurance proceeds from being taxed as part of your estate?
  • Have you considered creating trusts for family gift giving?


Part 3 — Reducing Your Taxes

  • If you are married, are you taking full advantage of the marital deduction?
  • Is your estate plan designed to take advantage of your applicable exclusion amount?1
  • Are you making gifts to family members that take advantage of the $14,000 annual gift tax exclusion?
  • Have you gifted assets with a strong probability of future appreciation in order to maximize future estate tax savings?
  • Have you considered charitable trusts that could provide you with both estate and income tax benefits?


Part 4 — Protecting Your Business

  • If you own a business, do you have a management succession plan?
  • Do you have a buy/sell agreement for your family business interests?
  • Have you considered a gift program that involves your family-owned business, especially in light of “estate freeze” rules? (These rules were enacted by Congress to prevent people from artificially freezing their estate values for tax purposes.)

Source/Disclaimer:

1The estate tax exemption is $5.49 million for 2017, with a top tax rate of 40%.

 

Required Attribution

Because of the possibility of human or mechanical error by DST Systems, Inc. or its sources, neither DST Systems, Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall DST Systems, Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2017 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

A special child in your life is about to reach a milestone: 13 years of age. You have no idea what’s “in” these days for kids in that age group. The latest computer simulation game? A hot-selling compact disc? Well, maybe, but which one?

In addition to the birthday dilemma, your friends are getting married soon, and you don’t have much time to shop for a gift. A check or cash can seem so impersonal; you’d rather give them something with meaning. What can you do?

Consider a gift offering years of potential: investments or assets that may increase in value over time. The IRS allows you to give up to $14,000 in 2017 (or $28,000 if you give jointly with your spouse) to as many people as you like in cash, investments, and/or property without triggering mandatory filing of IRS Gift Tax Form 706 and possible payment of gift taxes. This limit may be adjusted for inflation in future years. Couple that with a bit of creativity, and you have gifts that can potentially benefit you as well as the recipients.

A Gift for Children, a Tax Break for You

Along with The Uniform Gifts to Minors Act or The Uniform Transfers to Minors Act (UGMA/UTMA — depending on your state), the tax break associated with gifts of up to $14,000 (or more, in some cases) annually can help benefit parents and grandparents, as well as children, by diminishing the overall contribution to Uncle Sam’s wallet. This can be especially beneficial for adults looking to minimize their estate taxes.

A UGMA/UTMA account allows you to establish a savings or investment account in a child’s name, with one adult named as custodian. In many cases, each parent can contribute up to $14,000 annually without triggering mandatory filing of IRS Gift Tax Form 706 and possible payment of gift taxes. These funds can be used to secure the child’s future — whether they are for college, marriage, buying a house, or other financial challenges looming in the future. Options can include savings accounts; Series EE U.S. Savings Bonds; individual securities such as stocks, Treasury bills, and zero-coupon bonds; and mutual funds.

Fourteen thousand dollars, however, may seem like a lot to bestow in one year’s time. Although most mutual funds have initial investments of $1,000 to $2,500, many lower those requirements on custodial accounts.

Consider the value that even smaller gifts can provide over time. For example, a $2,500 investment made in a zero coupon bond earning 5% interest per year could grow to over $4,000 if left untouched for 10 years. And continuing to make contributions over that 10-year period could have put an 18-year-old entering his or her freshman year further ahead in meeting the college-funding challenge.

Through UGMA/UTMA, the first $1,050 per year of unearned (investment) income is tax free. Under the so-called kiddie tax, unearned income between $1,050 and $2,100 is taxed at the child’s rate. All unearned income kids receive above that threshold is taxed at their parents’ rate.1

Benefits of UGMA/UTMA Accounts

  • Generally, the IRS allows tax-free gifts of up to $14,000 per child, per year; this limit may be adjusted for inflation in future years.
  • Some mutual funds allow small initial investments.
  • Earnings carry tax benefits, depending on amount and child’s age.

Gifts for Adults

Remember that asset gifts are not limited to children. Generally you can also give adults up to $14,000 a year as well (to as many people as you like) — and it can be in cash, investments, or property such as land or a piece of artwork (consult a qualified tax advisor for details). Keep in mind, however, that the IRS considers the value of the gift — its cost basis for purposes of computing gift tax — to be its value at the time that it’s given, not when you originally purchased or invested in it.

Other Gift Options

If you don’t feel comfortable with giving substantial gifts directly to your recipients, the IRS allows you to pay for someone’s college tuition or medical expenses — tax exempt — as long as you write the check directly to the institution. Known as a qualified transfer, this option has no limits for amounts contributed.

Know the Liabilities Before You Give

  • In some cases, children have 100% access to UGMA/UTMA accounts at the age of majority, depending on state law.
  • Giving money for college savings can diminish the amount of financial aid your recipient will be eligible for.
  • Adults who sell/redeem gifts for profit must pay capital gains taxes.

A Few Considerations

Although UGMA/UTMA accounts may be good vehicles for college savings, gift givers should bear in mind an important fact: Assets held in a child’s name can reduce the amount of financial aid received.

And a word of caution: Although UGMA/UTMA accounts are administered by custodian adults on behalf of the beneficiary, when the child reaches an age defined by each state’s law, the money belongs to the child, free and clear. He or she controls the money (regardless of your initial intentions and wishes) and is also fully responsible for paying taxes on all earnings. For these and other reasons, it’s wise to give a child the gift of financial education and responsibility along with the account. Some mutual fund companies offer funds especially for children, providing such marketing tools as newsletters, coloring books, and other fun items designed to help educate this age group about the benefits of investing.

When giving investment gifts to adults, you might want to warn your recipients that, should they decide to sell or redeem your gifts, they will be responsible for any taxes on the capital gains.

The next time you find yourself searching for the perfect gift with a bit of special meaning behind it, consider giving assets that will likely appreciate over time. Offering potential benefits to both you and your recipients, such gifts can mean — and actually be worth — much more in the years to come.

Source/Disclaimer:

1Source: IRS.gov.

Required Attribution

Because of the possibility of human or mechanical error by DST Systems, Inc. or its sources, neither DST Systems, Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall DST Systems, Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2017 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

A major issue in estate planning is who to name as beneficiaries on life insurance policies, pension plan accounts, IRAs, and annuities. This important decision often doesn’t take into account the substantial estate and income tax consequences the beneficiary may incur.

So before you name a beneficiary, you may wish to gain a basic understanding of beneficiary designations.

One of the first things you need to know is that, in many cases, beneficiary designations supersede a will. That said, not only is naming a beneficiary important, but also it is equally important to make sure that your beneficiary arrangements are consistent with your other estate planning documents.

Not All Beneficiary Designations Are the Same

You can name a beneficiary for many different financial products and investment vehicles. And each has some subtle nuances that are sometimes difficult to discern. In addition, because naming a beneficiary is a legal arrangement, there is certain language you must use to ensure that your wishes are accurately recorded and executed. That’s why it is important to consult with a qualified financial professional when making decisions about beneficiaries. Aside from determining who you will name as your beneficiary, you’ll also need to consider the following:

  • Age of beneficiary: Most policies and plans will not directly transfer assets to minors until a trustee or guardian is approved by a court.
  • Ability of beneficiary to manage assets: Perhaps a trust set up in the person’s name would be better than a direct transfer.
  • Pension plans: Unless waived by the spouse in writing, the law requires a spouse to be the primary beneficiary of the account. 

Naming beneficiaries is a complex matter that requires a great deal of forethought to help ensure that your decisions are in concert with your financial and estate planning goals. A qualified financial professional can assist you in reviewing your beneficiary designations and help you make choices applicable to your situation.

Required Attribution

Because of the possibility of human or mechanical error by DST Systems, Inc. or its sources, neither DST Systems, Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall DST Systems, Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2018 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

Women play a central role in establishing and preserving family wealth — whether nurturing the values of children, fulfilling charitable goals, or making investment decisions that affect the financial security of themselves or their families. Consider these statistics:1

  • Women now control more than half of personal wealth in the United States.
  • In more than 40% of households, women are the primary breadwinners, up four-fold since 1960.
  • 52% of management and professional positions are held by women.

These and other trends magnify the need for women to be involved in, informed about, and comfortable with their role as guardians of family wealth. Active participation in wealth management can strengthen women’s commitment to protect and grow their assets with the goal of leaving a legacy for their children, their communities, and beyond.

Best Practices in Legacy Planning

The following strategies may help assure the smooth transfer of your measurable wealth — and your values surrounding wealth — to the next generation.

Education leads to confidence. Attaining financial security for you and your heirs typically requires you to accept responsibility for the management of significant investment assets. Whether you are single, married, or a surviving widow, it is in your best interest to obtain as much education as possible about wealth planning, investments, and related matters. Even if you are not directly responsible for making important financial decisions, it is vital to have knowledge in these areas in order to communicate effectively with professional advisors charged with these duties.

Professionals offer objective, qualified services. Relying on professional advice as opposed to family and friends is extremely important when making decisions affecting the accumulation, preservation, and distribution of wealth. What should you expect from a qualified professional? A good wealth advisor — or a team with other professionals, such as attorneys and accountants — should offer guidance and services in most areas of wealth management, including estate planning, retirement planning, insurance needs assessment, and college planning. On a more personal note, a wealth advisor should work closely with you to:

  • Identify areas requiring special assistance, such as creating trusts.
  • Minimize taxes and planning costs.
  • Develop and implement a personalized wealth management plan.
  • Review your plan periodically and suggest changes when needed.

Philanthropy is integral to family legacy planning. Wealth holders have a greater opportunity — if not responsibility — to make charitable giving an integral part of the legacy planning process. Families that are charitably inclined may have clear goals in mind, but they may not know where to begin. In order to choose the best strategy, you should work with a trusted advisor to evaluate a number of factors, such as tax management objectives, types of assets to be gifted, and your specific strategic intent. Then choose from among a range of charitable-giving vehicles, such as donor-advised funds, family foundations, gift annuities, and charitable remainder trusts/charitable lead trusts.

Children should learn about the responsibilities of wealth. Wealth is a gift that opens doors of opportunity not only for you but also for your children, their children, and generations to come. Yet wealth can be a weighty responsibility that takes time to manage, maintain, and preserve. If you are a parent, you are no doubt concerned about the effects of wealth on your children’s values and how the money lessons you pass on to them will resonate as they mature to adulthood.

Family values should be held in the same high regard as family wealth. Family values — those traits, beliefs, goals, and morals that are shared by members of a family group — define a family’s character as much as dollar signs measure a family’s wealth. By holding shared values in high regard and setting an example of commitment to financial responsibility, philanthropy, and volunteerism for the younger generation, you will enrich your family’s legacy for generations to come.

A Woman’s Worth

As stewards of the family legacy, women are in a unique and influential position. They are holders of great wealth as well as keepers of the family’s moral and philanthropic vision. There are many financial, accounting, legal, and business tools to assist women in implementing a plan of action. Contact a financial advisor for guidance in mapping out a legacy planning strategy unique to your situation.

This information is not intended as legal or tax advice and should not be treated as such. You should contact your estate planning and/or tax professional to discuss your personal situation.

Source/Disclaimer:

1BMO Wealth Institute, Financial Concerns of Women, April 2, 2015.

Required Attribution

Because of the possibility of human or mechanical error by DST Systems, Inc. or its sources, neither DST Systems, Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall DST Systems, Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2018 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.