Pitfalls of Adding a Child to Your Home’s Deed

February 20, 2024

As an estate planning attorney, I’ve witnessed many parents consider adding a child to the deed of their home with good intentions. They often view this as a simple strategy to ensure that their property seamlessly passes to their children without the complexities of probate. However, this well-intentioned move can lead to numerous unexpected complications and financial burdens. This article explains the pitfalls of adding a child to your home’s deed might not be the optimal choice for your estate plan.

To begin, let’s clarify what it means to add a child to the deed of your home. By doing this, you are legally transferring partial ownership rights to your child. This action is commonly perceived as a method to circumvent probate. However, it is imperative to understand that it also entails relinquishing a degree of control over your asset.

When you add your child to the deed, you are not just avoiding probate; you are creating a co-ownership situation. This means your child gains legal rights over the property, equal to yours. Such a shift in ownership can have significant legal ramifications, particularly if you need to make decisions about the property in the future.

Avoiding probate is often cited as the primary reason for adding a child to a home’s deed. Probate can be a lengthy and sometimes costly process. However, it’s essential to weigh these concerns against the potential risks and challenges of joint ownership. Probate avoidance, while seemingly beneficial, does not always equate to the most advantageous approach. The process of probate also serves to clear debts and distribute assets in a legally structured manner. By bypassing this process, you might be opening the door to more complicated legal and financial issues in the future.

One of the most overlooked aspects of adding a child to your deed is the gift tax implications. The IRS views this act as a gift. It’s important to understand that the IRS has established specific rules regarding gifts. If the value of your property interest exceeds the gift tax exclusion limit, you might be required to file a gift tax return. This could potentially lead to a significant tax liability, an aspect often not considered in the initial decision-making process.

The loss of control over your property is a critical consideration. Once your child becomes a co-owner, they have equal say in decisions regarding the property. This change can affect your ability to sell or refinance the property and can become particularly problematic if your child encounters financial issues. In a co-ownership scenario, if your child faces legal or financial troubles, your property could be at risk. Creditors might target your home for your child’s debts, and in the case of a child’s divorce, the property might become part of a marital settlement. Adding a child to your deed can inadvertently lead to family disputes and legal challenges, especially if you have more than one child. Equal distribution of assets is often a key consideration in estate planning to maintain family harmony.

A significant financial consideration is the potential capital gains tax burden for your child. When a property is inherited, it usually benefits from a step-up in basis, which can significantly reduce capital gains tax when the property is eventually sold. However, this is not the case when a child is added to a deed. Without the step-up in basis, if your child sells the property, they may face a substantial capital gains tax based on the difference between the selling price and the original purchase price. This tax burden can be considerably higher than if they had inherited the property.

There are several alternatives to adding a child to your home’s deed. Creating a living trust, for instance, allows you to maintain control over your property while also ensuring a smooth transition of assets to your beneficiaries. A living trust provides the flexibility of controlling your assets while you’re alive and ensures they are distributed according to your wishes upon your death. This approach can also offer the benefit of avoiding probate without the downsides of directly adding a child to your deed.

Given the complexities and potential pitfalls of adding a child to your home’s deed, seeking professional legal advice is essential. An experienced estate planning attorney can help navigate these complexities and tailor a plan that aligns with your specific needs and goals.

While adding a child to your home’s deed might seem straightforward to manage your estate, it’s fraught with potential problems and complications. It’s vital to consider all the implications and seek professional guidance to ensure your estate plan is effective, efficient and aligned with your long-term intentions. If you would like to learn more about managing real property in your estate plan, please visit our previous posts.

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Integrating Retirement Accounts into your Estate Plan

February 13, 2024

Retirement accounts, such as IRAs and 401(k)s, play a pivotal role in many estate plans. They are not just savings vehicles for retirement; they are also crucial assets that can be passed on to beneficiaries. An effective estate plan should integrate retirement accounts seamlessly, supporting your overall retirement and estate objectives.

When incorporating retirement accounts into an estate plan, it’s essential to understand the tax implications and the rules governing beneficiary designations. These factors can significantly impact how your retirement assets are distributed and taxed upon your death. Retirement accounts are subject to income tax and, in some cases, estate tax.

Retirement accounts, such as IRAs and 401(k)s, typically bypass the probate process, as they are transferred directly to the named beneficiaries. This direct transfer can simplify the estate settlement process and provide quicker access to funds for your beneficiaries. It’s important to understand that while retirement accounts may avoid probate, they are still part of your overall estate for tax purposes. Proper planning can help ensure that your retirement assets are distributed efficiently and tax-advantaged.

Roth IRAs are unique retirement accounts that offer tax-free growth and withdrawals. They can be a valuable tool in estate planning, particularly for those looking to leave tax-free assets to their beneficiaries. Unlike traditional IRAs, Roth IRAs do not require minimum distributions during the account owner’s lifetime, allowing the assets to grow tax-free for a longer period.

When including Roth IRAs in your estate plan, consider the potential tax benefits for your beneficiaries. Since distributions from Roth IRAs are generally tax-free, they can provide a significant financial advantage to your heirs. Tax-deferred retirement accounts, like traditional IRAs and 401(k)s, allow contributions to grow tax-free until withdrawal. This feature can lead to significant tax savings over time. However, it’s essential to consider the tax implications for your beneficiaries.

Beneficiary designations are a critical aspect of retirement planning. These designations determine who will inherit your retirement accounts upon your death. It’s crucial to regularly review and update your beneficiary designations to ensure that they align with your current estate plan and wishes. Failure to update beneficiary designations can lead to unintended consequences, such as an ex-spouse or a deceased individual being named as the beneficiary. Beneficiaries are generally subject to income tax on the distributions upon inheriting a tax-deferred retirement account. Planning for these tax implications is crucial in ensuring that your beneficiaries are not burdened with unexpected taxes.

Retirement assets are considered part of your estate and can impact your overall estate value and tax liability. Properly integrating retirement accounts into your estate plan can help achieve a balanced and tax-efficient distribution of your entire estate. This includes considering the impact on federal and state estate taxes and the income tax implications for your beneficiaries.

In conclusion, integrating retirement accounts into your estate plan is a complex but essential task. Understanding the nuances of how these accounts work in the context of estate and tax planning can ensure that your financial legacy is preserved and passed on according to your wishes. Consultation with financial and legal professionals is key to navigating this intricate aspect of estate planning effectively. If you would like to learn more about retirement accounts, please visit our previous posts.

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When and How to get Letters of Testamentary

February 12, 2024

The executor manages assets until the probate process is complete. They also need proof of their authority to do so. The court-issued Letter of Testamentary provides evidence of their authority and explains a recent article from Forbes, “What Is A Letter Of Testamentary?” The article details how this document works and when and how to get Letters of Testamentary.

A decedent’s last will and testament names their executor, who will manage their estate. Their duties include filing probate paperwork with the court, notifying potential heirs and creditors of the probate process and managing assets, including paying bills from the estate’s bank account. The executor is also the one to set up the estate’s bank account. When the estate is nearly completed, assets are distributed to beneficiaries.

Third parties need to know who the executor is. The executor also needs proof of their authority to carry out their job tasks. The letter is a simple document issued by the probate court and typically includes the following information:

The court issuing the letter.
The name and contact details of the executor (also referred to as a “personal representative” of the estate).
That the personal representative was named in the will of the decedent
The date the executor was granted authority to manage the decedent’s estate.

What is the difference between a Letter of Testamentary and a Letter of Administration? A letter of administration can be used during the probate process. However, it serves a different process. The court uses the letter of administration if a person dies without having named a personal representative or executor. The court appoints a person to manage the estate and probate process, and the court then creates a Letter of Administration giving this individual the authority to act.

There is no guarantee or requirement for the court to appoint a family member to serve in this role. This is another reason why having a will that names an executor is essential if the family wishes to be involved in settling the estate.

What if there is no will? Without a will, there is no executor. Someone is still needed to manage the decedent’s assets and take care of the steps in probate. A surviving family member or loved one may open a probate case after death, even when there is no will. This involves filing court documents and attending a hearing. The court will then appoint an administrator, determining who has the desire and ability to serve in the role.

What about assets held in trust? If assets have been placed in a trust, a trustee has been named and is in charge of following the trust’s directions. There is no probate court involvement, which is why so many opt to place their assets in a trust as part of their estate plan. The trust becomes the legal owner of the assets once they are placed in the trust. The trust creator often acts as the trustee during their lifetime and names a successor trustee who takes over in case of incapacity or death. That person has the authority to manage the trust assets and transfer them through the trust administration process without any involvement from the court.

However, if assets were not placed in the trust, they must go through the probate process, and an executor or personal representative will need a letter to manage them.

If you have lost a loved one, or are choosing an executor, ensure you have a complete understanding of when and how to get letters of testamentary. Work with an experienced estate planning attorney familiar with your state’s laws and the court process of probate. If you are interested in learning more about probate, please visit our previous posts.

Reference: Forbes (Jan. 17, 2024) “What Is A Letter Of Testamentary?”

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A Subtrust is a Multi-Tool that serves various Purposes

January 29, 2024

A subtrust is a separate entity created under the umbrella of a primary trust or a will. A subtrust becomes active based on the terms of the trust or will when certain events happen, such as the death of the primary grantor, or creator. Subtrusts are used by estate planning attorneys to help families pass on inheritances and protect their heirs from creditors or issues such as lawsuits or divorce. A Subtrust is a multi-tool that serves various purposes, depending on the beneficiaries’ specific needs and the grantor’s goals.

A subtrust is created as part of a primary trust, often a revocable trust. The primary trust acts as a container for your assets, answering critical questions about who gets them, what they receive, when and how. The subtrust, on the other hand, is like a specialized compartment within this container, designed for specific purposes or beneficiaries. Subtrusts remain dormant within the primary trust until a triggering event, typically the death of the grantor. Upon this event, the subtrust becomes active and, in most cases, irrevocable. This means that the terms of the subtrust cannot be changed.

The activation of a subtrust initiates a process known as trust administration. This process involves naming the subtrust, obtaining a tax ID and setting up a bank account. In addition, an appointed trustee will need to manage the trust assets, including making distributions to beneficiaries, filing tax returns and ensuring that the trust operates according to the trust provisions and the grantor’s intentions.

How Do Subtrusts Work If Created Under a Will?

Subtrusts can also be effectively created under a will, offering a flexible approach to estate planning. The will itself can directly establish these trusts or designate a revocable trust as the beneficiary in what is known as a “pour-over” will. This method ensures that the assets are transferred into the trust upon the grantor’s death.

How are Subtrusts Different from Revocable Trusts?

Subtrusts offer enhanced protection for your assets and beneficiaries. Unlike a revocable trust, which can be altered during the grantor’s lifetime, a subtrust becomes irrevocable upon activation, providing a firmer legal structure. This irrevocability protects the assets from the beneficiary’s creditors and in cases of legal challenges, such as divorce or lawsuits.

What are Subtrusts Commonly Used for?

Subtrusts serve various purposes, depending on the beneficiaries’ specific needs and the trustor’s goals. They can be used to protect beneficiaries who are minors, financially irresponsible, or have special needs. Subtrusts can also safeguard assets from beneficiaries’ creditors, ensuring that the inheritance is used as intended by the grantor.

Subtrusts have many different names and types, each serving a unique purpose in estate planning, as outlined in an article by the American Academy of Estate Planning Attorneys titled Basics of Estate Planning: Trusts and Subtrusts.

How Do Subtrusts Avoid Probate?

A Subtrust is a multi-tool that serves various purposes, but one of the primary reasons is to avoid the lengthy and often costly process of probate. Having assets in a subtrust bypasses the court-supervised distribution process, making things smooth, quick and easy for your family and heirs after your death.

Subtrusts provide a layer of protection for beneficiaries against their creditors or their own irresponsibility. This is particularly important in cases where a beneficiary may face financial difficulties, divorce, legal disputes, or even car accidents. The subtrust provides a shield for the assets to protect them from external claims. If you would like to learn more about trusts, please visit our previous posts.

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Adjustment in Cost Basis is a Crucial Tax Consideration

January 24, 2024

The adjustment in cost basis is a crucial tax consideration. The adjustment in the cost basis is sometimes overlooked in estate planning, even though it can be a tax game-changer. Under this tax provision, an inherited asset’s cost basis is determined not by what the original owner paid but by the value of the asset when it is inherited after the original owner’s death.

Since most assets appreciate over time, as explained in the article “Maximizing Inheritance With A Step Up” from Montgomery County News, this adjustment is often referred to as a “step-up” basis. A step-up can create significant tax savings when assets are sold and is a valuable way for beneficiaries to maximize their inheritance.

In most cases, assets included in the decedent’s overall estate will receive an adjustment in basis. Stocks, land, and business interests are all eligible for a basis adjustment. Others, such as Income in Respect of the Decedent (IRD), IRAs, 401(k)s, and annuities, are not eligible.

Under current tax law, the cost basis is the asset’s value on the date of the original owner’s death. The asset may technically accrue little to no gain, depending on how long they hold it before selling it and other factors regarding its valuation. The heir could face little to no capital gains tax on the asset’s sale.

Of course, it’s not as simple as this, and your estate planning attorney should review assets to determine their eligibility for a step-up. Some assets may decrease in value over time, while assets owned jointly between spouses may have different rules for basis adjustments when one of the spouses passes. The rules are state-specific, so check with a local estate planning attorney.

To determine whether the step-up basis is helpful, clarify estate planning goals. Do you own a vacation home you want to leave to your children or investments you plan to leave to grandchildren? Does your estate plan include philanthropy? Reviewing your current estate plan through the lens of a step-up in basis could lead you to make some changes.

Let’s say you bought 20,000 shares of stock ten years ago for $20 a share, with the original cost-basis being $400,000. Now, the shares are worth $40 each, for a total of $800,000. You’d like your adult children to inherit the stock.

There are several options here. You could sell the shares, pay the taxes, and give your children cash. You could directly transfer the shares, and they’d receive the same basis in your stock at $20 per share. You could also name your children as beneficiaries of the shares.

As long as the shares are in a taxable account and included in your gross estate when you die, your heirs will get an adjustment in basis based on the fair market value on the day of your passing.

If the fair market value of the shares is $50 when you die, your heirs will receive a step up in basis to $50. The gain of $30 per share will pass to your children with no tax liability.

Tax planning is part of a comprehensive estate plan, and the adjustment in cost basis is a crucial tax consideration. An experienced estate planning attorney can help you and your family minimize tax liabilities. If you would like to learn more about tax planning, please visit our previous posts.

Reference: Montgomery County News (Dec. 20, 2023) “Maximizing Inheritance With A Step Up”

Estate Planning for Unmarried Senior Couples

January 10, 2024

An increasing number of couples at various stages of life are choosing to live together without marrying, making estate planning a bit more challenging. This is especially true when considering estate planning for unmarried senior couples, according to a recent article from Kiplinger, “Estate Planning and the Legal Quirks of Retiree Cohabitation.”

From one perspective, living together without being legally married provides an advantage: you have your own estate plan. You may distribute assets after death with no obligation to leave anything to a partner or their biological children. In many jurisdictions, the law requires spouses to leave a significant portion to their surviving spouse. This doesn’t apply if you’re cohabitating.

However, there are downsides. For example, a surviving unmarried partner doesn’t benefit from inheriting assets without estate taxes. A non-spouse transferring assets may find themselves generating sizable estate or income taxes. To avoid this, your estate planning attorney will discuss tax liability strategies.

Owning real property together can get complicated. Consider an unmarried couple buying a property solely in one person’s name, excluding the partner to sidestep any possible gift taxes. If the sole owner dies, the partner has no claim to the property. The solution could be planning for property rights in the estate plan, possibly leaving the property outright to the partner or in trust for the partner’s use throughout their lifetime. It still has to be planned for in advance of incapacity or, of course, death.

Regarding healthcare communication and directives, special care must be taken to ensure that the couple can be involved in each other’s care and decision-making. By law, decision-making might default to the married spouse or kin. Without a designated healthcare proxy, a cohabitating partner has no legal authority to obtain medical information, make medical decisions, or, in some cases, won’t even have the ability to have access to a hospitalized partner. A healthcare power of attorney is essential for unmarried couples.

For senior couples living together, blending families can be challenging. However, blending finances can be even more complex. Living together later in life can create many concerns if there are former spouses or children from a prior relationship. If a senior decides to marry, they are advised to have a prenuptial agreement so children from previous unions are not disinherited. If a potential spouse has big issues signing such a document, it should raise a red flag to their motivation to marry.

Living together without the legal protection of marriage is an individual decision and may be seen as a means of avoiding legalities. However, it needs to be examined from the perspective of estate planning for the unmarried senior couple, to protect both parties and their families. Couples must prepare for the future, for better or worse, in sickness and health. If you would like to learn more about estate planning for unmarried couples, please visit our previous posts.

Reference: Kiplinger (Dec. 6, 2023) “Estate Planning and the Legal Quirks of Retiree Cohabitation”

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Trusts Work for Multi-State Property Owners

January 9, 2024

If you own real estate when you die, it is most likely your estate will be required to go through probate. This can take months to years and becomes expensive, as explained in the article “Why a trust is so useful for those who own real property in multiple states” from Coeur d’Alene/Post Falls Press. However, here’s the thing to be aware of: if you own property in more than one state, your estate must go through the probate process in every state where you own property. Trusts can work very well for multi-state property owners.

A few strategies must be considered for snowbirds with homes in northern and southern regions or who own out-of-state rental property.

Some families will add an intended heir to the title (deed) of the real estate while the primary owners are still living. This is rarely recommended, since it can open the door to any number of problems. If the intended heir has a financial crisis, like a lawsuit, divorce, creditor issues, etc., the jointly owned property is an attachable asset.

Another solution people try is the “Pay on Death Deed.” This is a special type of deed where the recipient gets the real property on the death of the owner. This strategy has a few problems. However, the main one is that not all states allow these types of deeds to be used.

An experienced estate planning attorney will know whether or not your state allows the Pay-on-Death-Deed.

The best solution for most people owning property in multiple states is using a living trust.

The living trust provides the same directions as a last will and testament about who should receive what assets from your estate after your death, including real property. It also names a trustee, who manages the assets in the trust and distributes them after your death.

A key reason to use a living trust is the assets owned by the trust are outside of the probate estate. These assets pass to beneficiaries according to the terms of the trust and do not go through the probate process.

Once the living trust is established, the trust may hold title to any real property, regardless of where the property is located. The trustee does not have to deal with the courts in multiple states.

There is a tendency to think trusts are only used by the very wealthy. However, this is not true. Anyone who owns real property and doesn’t want it to go through one or more probate proceedings benefits from using a trust.

Trusts can work very well for multi-state property owners. An experienced estate planning attorney can establish the trust and guide you through putting assets into the trust. If you would like to learn more about managing real property in an estate plan, please visit our previous posts.

Reference: Coeur d’Alene/Post Falls Press “Why a trust is so useful for those who own real property in multiple states”

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Estate Planning is increasingly Popular with Millennials

January 3, 2024

Estate planning is increasingly popular with millennials. It is far from the stereotype of being only of interest to older, affluent couples nearing retirement or dealing with health concerns. These younger generations have unique attributes, including pragmatic financial views and humanitarian concerns, according to a recent article, “Six Estate Planning Tips for Younger Generations,” from Kiplinger. Here are tips to make this process easier for any generation.

Start with a basic will, which guides how assets and possessions are distributed after one’s passing. Prepared by an experienced estate planning attorney, the will should minimize potential disputes, include a clear delineation of assets and beneficiaries and name an executor to manage the estate and guardianship for any surviving dependents.

Appoint a power of attorney and draft medical directives. Power of Attorney and Medical Directives are basic documents that state your preferences during incapacity. A POA grants a named individual the legal authority to act on your behalf for legal and financial matters, if you cannot do so. Medical directives establish your wishes regarding medical treatment and end-of-life care. While taking care of these matters, you may also want to consider becoming an organ donor.

Determine who you want to be your children’s guardian. Naming a guardian of your minor children isn’t pleasant. However, it ensures that you and your partner make this decision, not the court.

Consider a living trust. Living trusts offer a strategic means of managing assets and helping to ensure that your surviving loved ones maintain control of your assets after you have passed. The trust, established with the help of an estate planning attorney, grants ownership of certain assets or properties into the trust, which becomes their owner. A trustee is named to manage and distribute these assets in accordance with your wishes. In some instances, it makes sense to hire a professional trustee, especially if the trust will need to be managed for decades.

By taking assets out of your estate and placing them into a trust, these assets won’t go through the probate process. Probate involves your executor filing your will with a court after you die. The court reviews the will to validate it and grants the named executor the power to execute your final instructions. Probate can be lengthy, expensive and emotionally charged for the family. Your will is entered into the public record, so anyone who wants to can see your will and know your final wishes.

Don’t forget your digital assets. Younger generations are more aware of the value and footprint of their digital assets. They often name a specific digital executor in their estate plans to ensure that their many accounts and digital assets are managed after their passing.

Seek professional advice and update documents. Despite a plethora of online sites and apps, estate planning documents require the skillful handling of an experienced estate planning attorney. Estate laws are state-specific, so wills and trust documents must be created with local laws in mind. Your estate plan documents, from wills to insurance policies, should be reviewed every three to five years. Every time there’s a significant change in your life, like getting married, buying a home, having a child, or getting divorced, this should also be done.

As estate planning becomes increasingly popular with Millennials, it is wise to consult with an experienced attorney familiar with the lifestyle and concerns of younger generations. If you would like to read more about estate planning for younger generations, please visit our previous posts.

Reference: Kiplinger (Dec. 3, 2023) “Six Estate Planning Tips for Younger Generations”

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Marital Trusts help protect Blended Families

December 18, 2023

Marital trusts help protect blended families from complicated family dynamics. Understanding marital trusts is crucial for couples looking to secure their financial future and provide for the surviving spouse tax-efficiently. This article is a guide to marital trusts, how they work and their advantages and disadvantages. With the potential to safeguard assets and ensure that they reach the intended beneficiaries, marital trusts can be an effective part of a comprehensive estate plan, particularly for those in a second marriage or a blended family.

What Is a Marital Trust?

A marital trust is a type of irrevocable trust and is crafted to benefit the surviving spouse. It allows for the managed distribution of assets, potentially safeguarding against financial imprudence or external influences.

Consider that while many couples are just fine with everything going to the surviving spouse directly and outright after one spouse dies, in some cases, there may be concerns related to the surviving spouse not being able to manage the money effectively. What would happen to the money if the surviving spouse is not good with money or is vulnerable to financial predators? Perhaps giving the entire estate outright to the spouse would run the risk that all of the money would be spent irresponsibly. A marital trust allows for both tax benefits and protections for the couple’s estate to prevent these issues from happening.

How Do Marital Trusts Work?

There are three parties involved in setting up, maintaining and ultimately passing along the trust, including a grantor, who is the person who establishes the trust; the trustee, who’s the person or organization that manages the trust and its assets; and the beneficiary. That person will eventually receive the assets in the trust once the grantor dies. The surviving spouse must be the sole beneficiary of a marital trust. Once the surviving spouse dies, the assets in the trust typically pass to surviving children. A marital trust also involves the principal, which are assets initially put into the trust.

How Do Marital Trusts Assist Blended Families?

For blended families, using a marital trust is becoming more popular as a means to help protect assets to a surviving spouse, and the inheritance of children from previous marriages. If one or both spouses in a second marriage have children from a prior marriage, both spouses typically want to ensure that their kids get an inheritance at some point in the future. While most married couples prioritize their spouse as the primary beneficiary, after the surviving spouse passes away, if the couple’s estate plan gives everything directly to the surviving spouse, that arrangement would run the risk that the children from a prior marriage of the deceased spouse would be cut off from receiving an inheritance.

While couples want to assume that a surviving spouse will protect the rights of children from their spouse’s previous marriage, without legal safeguards, the estate of the surviving spouse can be changed to cut out individuals named as beneficiaries after their spouse’s death. Having a marital trust for the surviving spouse ensures that this change can’t happen.

What Are Other Situations in Which a Couple Should Consider Using a Marital Trust?

Additional situations in which a couple might consider using a marital trust include wanting to prevent undue influence of an outside person or party over the surviving spouse. This usually is a concern for older couples when the surviving spouse is in declining health or may have early onset of dementia, and there’s a concern they may be vulnerable to being taken advantage of financially. Another motivation for a marital trust includes a spouse who has an addiction that prevents them from making sound financial choices.

Did Actor Tony Curtis Disinherit His Children Due to Undue Influence?

In 2010, when Actor Tony Curtis died, his five children were left out of their father’s inheritance in a last-minute decision shortly before his death, notes MoneyWise article, “Hollywood legend Tony Curtis cut his kids out of his will and $60 million fortune when he died. Here’s how to avoid leaving behind messy inheritance disputes.” While Curtis did have a will, he decided to leave the majority of his assets to his fifth wife, Jill, and intentionally disinherit his children. The change to his estate plan came only a few months before his death, which raised suspicions within the family. Some of the Curtis children opened estate disputes in the years following his death to challenge the disinheritance, causing additional pain and separation within their family. If Curtis were subject to the undue influence of his fifth wife, Jill, as some of the Curtis children claimed, then a trust could have protected them from being disinherited.

What Are the Benefits of Having a Marital Trust?

Marital trusts are significant in estate planning for high-net-worth individuals, serving as a tool to minimize the estate tax burden by taking advantage of estate tax exemptions. A married couple can significantly reduce or eliminate estate taxes by utilizing a marital trust.
The surviving spouse can receive income and financial stability from the trust.
Assets are kept in the family, and the inheritance intended for children from previous marriages is protected.

Estate Tax Exemptions with a Marital Trust

One of the most significant benefits of a marital trust is its impact on estate taxes. A marital trust effectively doubles the estate tax exemption for a married couple, ensuring that a more significant portion of their wealth can be transferred tax-free. In the context of the federal estate tax, this can result in substantial tax savings and financial security for the surviving spouse and any other designated beneficiaries.

The Unlimited Marital Deduction in Action

The unlimited marital deduction is a cornerstone of marital trust planning. It allows the first spouse to pass assets to the surviving spouse without incurring estate taxes at the time of the first spouse’s death. This deduction is a critical aspect of marital trusts, ensuring that the income to the surviving spouse provides the necessary financial support without an immediate tax burden.

Are There Disadvantages of Using a Marital Trust?

While a marital trust offers many benefits, it’s essential to consider any limitations or drawbacks, such as loss of flexibility once established.

Once established, an irrevocable trust cannot be easily altered or terminated.
Estate tax exemption is limited based on the federal estate tax threshold.
Marital trusts, like other types of trusts, require that assets be moved into the trust, a process that can be lengthy or overlooked.

Establishing a Marital Trust with an Experienced Estate Planning Attorney

Setting up a marital trust is a complicated form of estate planning that involves several steps, including choosing a trustee to manage the trust assets, determining the terms under which the trust assets will be managed and distributed and ensuring that the couple’s property is held in trust. When couples have complex family situations, including blended families or a spouse with vulnerabilities, a marital trust provides for the financial well-being of the surviving spouse. It also ensures that assets are preserved for future generations.

An experienced estate planning attorney can help a couple assess if a marital trust is the right instrument to help protect their blended family as a part of a comprehensive estate plan. If you would like to learn more about planning for blended families, please visit our previous posts.

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Tax Strategies combined with Estate Planning can Safeguard Assets

October 23, 2023

Business owners who want long-term financial success must navigate an intricate web of taxes, estate planning and asset protection. Pre-and post-transactional tax strategies, combined with estate planning, can safeguard assets, optimize tax positions and help strategically pass wealth along to future generations or charitable organizations, as reported in a recent article from Forbes, “Strategic Tax and Estate Planning For Business Owners.”

Pre-transactional tax planning includes reviewing the business entity structure to align it with tax objectives. For example, converting to a Limited Liability Company (LLC) may be a better structure if it is currently a solo proprietorship.

Implementing qualified retirement plans, like 401(k)s and defined benefit plans, gives tax advantages for owners and is attractive to employees. Contributions are typically tax-deductible, offering immediate tax savings.

There are federal, state, and local tax credits and incentives to reduce tax liability, all requiring careful research to be sure they are legitimate tax planning strategies. Overly aggressive practices can lead to audits, penalties, and reputational damage.

After a transaction, shielding assets becomes even more critical. Establishing a limited liability entity, like a Family Limited Partnership (FLP), may be helpful to protect assets.

Remember to keep personal and business assets separate to avoid putting asset protection efforts at risk. Review and update asset protection strategies when there are changes in your personal or business life or new laws that may provide new opportunities.

Developing a succession plan is critical to ensure that the transition of a family business from one to the next. Be honest about family dynamics and individual capabilities. Start early and work with an experienced estate planning attorney to align the succession and tax plan with your overall estate plan.

Philanthropy positively impacts, establishes, or builds on an existing legacy and creates tax advantages. Donating appreciated assets, using charitable trusts, or creating a private foundation can all achieve personal goals while attaining tax benefits.

Estate taxes can erode the value of wealth when transferring it to the next generation. Gifting, trusts, or life insurance are all means of minimizing estate taxes and preserving wealth. Your estate planning attorney will know about estate tax exemption limits and changes coming soon. They will advise you about gifting assets during your lifetime, using annual gift exclusions, and determine if lifetime gifts should be used to generate estate tax benefits. Smart tax strategies combined with estate planning can safeguard assets for generations. If you would like to read more about tax and estate planning, please visit our previous posts.

Reference: Forbes (Sep. 28, 2023) “Strategic Tax and Estate Planning For Business Owners”

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