With $5 Million Gift Tax Exclusion Set to Expire, Is Now the Time for You to Give?
July 9, 2012
When legislation in 2010 raised the lifetime gift tax exclusion amount from $1 million to $5 million many wealthy families rejoiced, expecting that they would now be able to give large gifts to children or grandchildren and be able to save millions in taxes at the same time. But for all the rejoicing, the unsteady economy has made many people cautious, and has parents and grandparents thinking twice before giving away wealth that they may need themselves in later years.
According to this article in Bloomberg Business Week, however, the time has come for families to take a careful look at their finances and decide if they want to take advantage of the $5 Million gift tax exclusion before it expires. “Legislation enacted in 2010, which raised the lifetime gift-tax exclusion to $5 million from $1 million for each person starting last year, is set to expire. For 2012, the inflation- adjusted figure is $5.12 million for each person. It will drop to $1 million on Jan. 1 unless Congress acts.”
Parents who want to take advantage of the gift tax exclusion, but who worry that their children may not yet be ready to handle such a large financial gift, do have options. As the article points out, “Many [families] are setting up irrevocable trusts for children or grandchildren and transferring assets such as second homes that have the potential to appreciate.” This not only allows the assets to appreciate, but also allows parents and grandparents to breathe easy while young children or grandchildren have time to mature before receiving a gift or inheritance.
If you think your family may benefit from taking advantage of the gift tax exclusion before the end of the year, please contact our office. We can help you explore your options and learn more about what legal changes may be in store in the coming year.
How the Supreme Court Ruling on Health Care Reform May Affect Seniors
July 6, 2012
The recent Supreme Court ruling of the constitutionality of the new health care reforms has many seniors breathing a sigh of relief. The ruling has ensured that, at least for the time being, senior citizens will continue to receive their currently existing benefits from programs such as Medicaid and Medicare; but the ruling also paves the way for changes—some good and some not so good—in the way various home-based and long term care services are paid for and provided.
This article in Forbes explains some of the ways that the ruling on the Affordable Care Act will impact senior citizens or adults with disabilities:
According to the article, Medicaid “currently funds nearly half of all paid long-term care services.” This current coverage will continue under the 2010 health law, but states can refuse to provide new coverage to individuals if they choose.
The Medicare program is currently under some considerable financial strain, and the Affordable Care Act “includes a small increase in the payroll tax that is aimed at increasing revenues for Medicare.” This should be a great help to the program, and a relief to seniors who receive benefits from Medicare.
For seniors and adults who require long-term care services and have been frustrated by numerous roadblocks to getting that care at home instead of in a nursing facility, good news is on the horizon; the ACA “includes important new incentives for states to expand Medicaid long-term care services for people living at home.”
And finally, the law is giving more attention to seniors and adults with chronic and long-term illnesses. The ACA “creates a new office to coordinate the health and long-term care of people who receive both Medicare and Medicaid. . . It also includes important incentives to encourage hospitals, nursing homes, doctors, and other providers to work together to improve care for people with chronic disease.”
Do You Know How Much Your 401(k) Is REALLY Costing You?
July 2, 2012
Do you know how much your 401(k) is costing you? Are you sure? What most people don’t know is that many employees with “free” retirement plans through an employer actually pay a number of hidden fees. According to a recent article in the Huffington Post, “71 percent of plan participants don’t think they pay any fees for their company’s retirement plan. In reality, they pay a variety of fees including investment management, administrative and advisory fees, and more — investment management fees usually comprising the bulk of the expenses.”
All of this is about to change, however, thanks to new laws being enacted by the Department of Labor. CNN Money reports that “A new federal rule took effect July 1 that requires 401(k) plan providers to disclose certain 401(k) fees, and employers to distribute these disclosures to plan participants by Aug. 30.” The hope with this new disclosure rule is that it will increase transparency, and help both employees and employers stay aware of how much their “free” 401(k) may or may not be costing them in administrative fees.
We live in a culture of constant demands and distractions, and it is all too easy to fill out the paperwork to set up a 401(k) with an employer and then forget about it, assuming that as long as nothing changes, everything will keep working the way it’s supposed too. Things do change, however, both in the world of investment and in our own lives. All too often we see clients who miscalculate their 401(k) growth in relation to their retirement needs, or whose valuable retirement savings is lost to taxes when the owner passes away unexpectedly. In all cases, it is important not only to be aware of what’s happening to your savings, but also to be proactive about protecting it, and this is where our office can help.
Whether you are already retired or just getting started with your savings, our firm can help you evaluate your assets, plan for their growth and upkeep, and ensure that they end up in the right hands if something should happen to you. The temptation to procrastinate or bury your head in the sand can be strong, but the knowledge of the consequences of inaction can be stronger. Contact our office and let us help you protect your retirement savings for yourself and your loved ones.
Facebook Founders Use GRATs to Avoid Excessive Taxation; You Can Too
May 16, 2012
News sources recently revealed that Facebook founder Mark Zuckerberg—as well as other Facebook top brass—use Grantor Retained Annuity Trusts to protect their assets and investments from excessive taxation. Grantor Retained Annuity Trusts (more commonly called GRATs) are a perfectly legal—and very efficient—way to protect and pass significant assets from one person to another without incurring an exorbitantly high tax bill.
According to the article cited above, “GRATs offer a perfect vehicle for wealthy investors who put money in start-ups, while other trusts don’t.” But we don’t recommend GRATs only to wealthy startup investors. GRATs are “an excellent way to shift wealth to others at little or no tax cost and with minimal legal and economic risk.” As such, they can be the perfect tool for business owners, professional investors, and many others.
Setting up a GRAT allows the investor/grantor to give assets over to the trust for a pre-determined number of years. During this time the assets appreciate and the grantor receives “annual payments adding up to the asset’s original value plus a return based on a fixed interest rate determined by the Internal Revenue Service.” At the end of the trust term the assets (at their new value) are transferred to the beneficiary named in the trust with none of the usual gift or estate tax on the appreciation.
This makes GRATs sound like the perfect (and perfectly simple) tool, but nothing is perfectly simple. The pre-determined lifetime of your GRAT will depend on your individual circumstances, as well as the tax laws at the time, so you’ll want to make sure you have the help of an experienced and knowledgeable attorney helping you design your trust. Contact our office for more information.
Republican Primary Inspires Discussion of Trusts
January 25, 2012
If you follow current events at all it is impossible to ignore the fact that we are now in the thick of the Republican primary race—and that the Presidential election will not be far behind. With the political machine in full swing there have been quite a few news stories about the candidates’ financial backgrounds, and more than a little talk of “blind trusts.”
Many of our readers will already know that a blind trust is a vehicle which holds the wealth of a candidate (or a politician serving in office) in an effort to avoid any conflicts of interest. We thought this might be a good opportunity, however, to discuss trusts in general: Which trusts are out there, what are the differences between them, and what purposes do they serve?
Revocable Trust: A revocable trust is one of the most commonly used trusts because it is able to be revoked or changed so long as the grantor (the person who created the trust) is still living. There are many other trusts that fall under the category of “revocable trust”, including a pet trust (which addresses the physical and financial care of your pets), an education trust (which provides for your child’s educational expenses), and many more.
Irrevocable Trust: An irrevocable trust, logically, is one which cannot be revoked or changed after it has been signed. The irrevocability is what makes these trusts useful for tax planning and asset protection. Some types of trusts which fall under the category of “irrevocable trust” include life insurance trusts (which save the beneficiary on the policy from paying exorbitant estate taxes), spendthrift trusts (which reduce the beneficiaries’ estate taxes and protect trust assets from creditors’ claims), and more. It is important to note that any revocable trust becomes irrevocable upon the death of the grantor.
Charitable Trust: A charitable trust is one in which at least one of the beneficiaries is a charity or non-profit. These trusts allow the grantor to claim a portion of their contribution as a charitable deduction under income tax laws. A charitable trust can be either revocable or irrevocable to begin with, but if distributions will be made during the grantor’s lifetime the trust must be irrevocable.
Special Needs Trust: Sometimes also called a “Supplemental Needs Trust”, is a trust created for the benefit of a person receiving government benefits—this usually includes someone with a physical or mental handicap—and its purpose is to allow outside sources to provide the beneficiary with supplemental funds without endangering their right to receive government benefits. A special needs trust can be either revocable or irrevocable, but usually includes a clause instructing that the trust be dissolved if its existence disqualifies the beneficiary for government benefits.
We have only discussed some of the most commonly used trusts here, but there are many, many different kinds of trust which can be valuable for estate planning or asset protection. If you have any questions about trusts or estate planning, please contact our office.
The Bum Rap of Prenups: Why They Are More Romantic Than You Thought
January 23, 2012
Valentine’s Day is only a couple of weeks away, and love and marriage are in the air; but going hand in hand with love and marriage should be the wisdom to protect yourself and your beloved with a prenuptial agreement. We know that most people don’t consider prenuptial agreements a very romantic gesture, but here are 5 reasons why the bum rap of the prenup is undeserved.
1. Prenups encourage couples to think and talk about the future. The process of writing a prenup includes talking about what each party brings with them to the marriage, and how each partner envisions that contribution fitting into the whole as they create their lives together.
2. Agreeing to a prenup is often the very thing that makes marriage possible for two people who come from complicated backgrounds or disapproving families. This is not only true of young people from families with “old money,” but also of elderly couples whose grown children may disapprove of a blending of finances so late in life.
3. Having a prenup means that a couple has studied their finances separately, dealt with any lingering trouble spots before the wedding, and can now move forward in their marriage together, with clear minds and bright futures.
4. A prenuptial agreement bestows security because it requires the agreement of both partners. This mutual agreement ensures that both partners feel they will be provided for as they desire and deserve, no matter what happens.
5. A prenup is the perfect lead-in to an estate plan. The information-gathering and decision-making process for creating a prenup is very similar to the process of creating an estate plan. Couples who execute a prenup before they marry have a head start on creating the estate plan they will want to protect their family after they’re married.
The bottom line is that prenuptial agreements will help protect you, your beloved, your family, and your future… and there’s nothing more romantic than that. Our firm can help you decide if a prenup is right for you and your partner—contact us today.
What Will You Be Doing With This Year’s IRA Withdrawal?
January 13, 2012
Many of our clients who are 70 ½ or older have chosen in the past to give a certain portion of their required IRA withdrawal to charity each year; doing so has allowed them to take the required withdrawal, keep their taxable income down, and give to a cause they care about all at the same time. Unfortunately, the individual-retirement-account donation rule expired at the end of 2011 and has yet to be restored by Congress.
This recent article in the Wall Street Journal explains that “under current rules, the first dollars out of an IRA count as the required withdrawal. So if an IRA owner makes a withdrawal before Congress extends the law, he or she can’t redeposit the funds and make a donation of IRA funds after lawmakers act.”
The expiration of this rule may not be a big deal for many of our readers who intend to make charitable donations as they always have, regardless of retirement-account donation benefits; but for some, not knowing what Congress may choose to do is making it hard to design a financial plan for the year, and causing increasing stress. “The problem arises for IRA owners [who are] over 70½ and must take an annual payout from the account. They want to withdraw as little as possible in order to let the assets expand but also want to donate some or all of the required payout directly to charity.”
Your best bet right now may be to consider your ultimate goal both for your IRA payout and for your charitable giving for the year, and then talk to a trusted advisor. One thing any estate or financial planner will tell you is that there is almost always more than one way to accomplish your goals. We cannot stress enough, however, how important it is to stay on top of any legal requirements or changes in the law when it comes to IRAs and retirement savings.
Friendly Reminder to Take Advantage of Tax Deductions Before Year’s End
December 12, 2011
As 2011 draws to a close just about everybody has their minds on vacation, travel, and gift-buying, so we just wanted to take a moment to remind all of our readers to take advantage of your tax deductions and allowances before the year is over. These may include sending a check to your favorite charity, giving a generous cash gift to children or grandchildren, or selling securities that have lost money this year.
This isn’t all you can do to wrap up your 2011 tax package. This article in the New York Times explains that the next two years of tax policy are likely to be a bit rocky, and that “beyond the usual recommendations… you should use this year to get your affairs in order for what promises to be an uncertain two years of tax policy.”
If you’re not sure which deductions might apply to you, our office (along with the article mentioned above) has come up with a list of tax breaks to consider:
1. Charitable gifts to most non-profit organizations are tax deductible; and while you can’t deduct any time you spend volunteering, you can deduct any out-of-pocket expenses incurred while volunteering.
2. You can give monetary gifts of up to $13,000 to as many individuals as you would like without incurring the gift tax.
3. The 30% energy tax credits of 2010 expired at the end of last year, but new (albeit lower) credits were passed for 2011. Check the energy star website for information if you made any energy-efficient improvements to your home this year.
4. If you are over 70½ you are currently allowed “to directly donate the required minimum withdrawal from [your] retirement account to charity.” (This is something that may disappear with new tax laws in 2012.)
5. Teachers are allowed to deduct up to $250 spent on classroom expenses.
6. A significant tax loophole set to end this year is one that “allows people whose marginal tax bracket is under 15 percent to pay no capital gains tax when selling securities held for more than a year.”
These are only a few of the tax strategies you may want to consider before the end of the year. For more tax-saving strategies please talk to your financial advisor.
Speculation About the Estate of Steve Jobs Continues
December 2, 2011
The public has been curious about the estate of Steve Jobs ever since he passed away in early October, but with his assets wisely protected with a trust, his family’s privacy regarding the distribution of inheritance has remained intact. (Privacy is only one of the many benefits of using a trust as part of your estate plan.) However, what is not a secret is that Mr. Jobs’ significant investments in both Disney and Apple stock will pose some interesting questions for his advisors and heirs. Whatever the family chooses to do, it’s clear that estate tax and capital gains tax laws will have to be taken into consideration.
This article in Investment News discusses what Jobs’ trustees or heirs might choose to do with his valuable investments. According to the article Jobs had billions of dollars invested in Apple and Disney stock. Now, “under the U.S. Tax Code, his heirs may sell shares of Apple and Disney, and avoid $867 million in capital gains taxes. If Apple’s late co-founder left his estate to his wife, Laurene Powell Jobs, the family won’t be liable for the 35% estate tax until she dies or gives money to others, according to estate planners.”
An executor or trustee has a responsibility not only to follow the wishes of the grantor of the trust, but also to look out for the best interests of the beneficiaries; which in this case may include selling or diversifying investments Jobs had chosen to hold onto for sentimental reasons.
Additionally, any executor or trustee will have tax laws to consider–not only the laws in place right now, but any changes to the estate or capital gains tax laws being considered by Congress for 2013. “The capital gains tax is set to rise to 20% in 2013, from 15%, and high-income Americans also will be subject to a 3.8% levy on unearned gains.” This means that advisors and heirs won’t want to wait too long before making any decisions.
The estate of Steve Jobs may be larger than most, but the same issues and questions will face the executors, trustees, and heirs of estates of all sizes. Whether you are a grantor, executor, heir or trustee, our office can help you through any questions or concerns you may be facing. Don’t be afraid to contact us.
This Holiday Season an Estate Plan is the Perfect Gift
November 23, 2011
The holiday season is upon us, and as others rush about the malls and the internet looking for gifts, we can recommend a unique, useful and memorable gift that will be perfect for any loved one: An Estate Plan!
Before you roll your eyes at the idea, consider this: An estate plan is something every person needs, whether it’s your single younger nephew, your older sister with her two young children, or your retired, aging parents. Furthermore, although everyone needs an estate plan, many people (wrongly) consider it a luxury, and put off creating one—often until it’s too late.
You may be thinking, No, an estate plan is too personal (too expensive, too morbid) to give as a gift. But we can safely say that not one of these excuses is true. If you feel an estate plan is too personal a gift, we recommend giving a gift certificate good for the cost of a basic plan, which the recipient can then design and add to according to his or her needs. If you feel an entire estate plan is too expensive a gift, you may want to consider paying for a portion of the plan, or for the first consultation with an attorney, just to get your loved one started. And if it’s morbidity that you’re worried about, perhaps giving a “Loving Family Legacy Plan” sounds more appealing.
This year, don’t give a gift that will impress for a moment but be forgotten within a week; instead, give the gift that will protect your loved one—and their loved ones!—and will last for years to come. Give the gift of an estate plan.