The Estate of The Union Season 3|Episode 3

The Estate of The Union Season 2|Episode 5 is out now!

January 12, 2023

The Estate of The Union Season 2|Episode 5 is out now!

Happy New Year! To kick off the first episode of 2023, host Brad Wiewel, sits down to discuss the Corporate Transparency Act and how it relates to trusts.

There is a Bad Moon Rising (to quote Creedence Clearwater Revival). The bad moon is the Corporate Transparency Act which is going to REQUIRE all LLCs, corporations and Limited Partnerships to register with the federal government! The law becomes effective January 1, 2024.

This podcast focuses on some of the provisions of the new law and the consequences and penalties for failure to comply. It is a MUST LISTEN if you or someone you know or work with has an entity, because this is SERIOUS STUFF!

In the podcast we mention that we have a new service we are providing called Business Shield™ . It is designed to maintain entities and keep them in compliance with both state, and now federal law. Simply click on Business Shield™ to be taken to the page on our website. Please let us know if you would like to discuss Business Shield™ with us and we’ll be happy to schedule a complimentary phone consultation with one of our attorneys.

In each episode of The Estate of The Union podcast, host and lawyer Brad Wiewel will give valuable insights into the confusing world of estate planning, making an often daunting subject easier to understand. It is Estate Planning Made Simple! The Estate of The Union Season 2|Episode 5 is out now! The episode can be found on Spotify, Apple podcasts, or anywhere you get your podcasts. If you would prefer to watch the video version, please visit our YouTube page. Please click on the link below to listen to the new installment of The Estate of The Union podcast. We hope you enjoy it.

Texas Trust Law focuses its practice exclusively in the area of wills, probate, estate planning, asset protection, and special needs planning. Brad Wiewel is Board Certified in Estate Planning and Probate Law by the Texas Board of Legal Specialization. We provide estate planning services, asset protection planning, business planning, and retirement exit strategies.

A Joint and Survivor Annuity is an Option

January 10, 2023

A joint and survivor annuity is an option to consider for some spouses. An annuity is a contract between an investor and a life insurance company. The purchaser of an annuity pays a lump-sum or several installments to the insurer, which then provides a guaranteed income for a certain period—or until their death.

Forbes’ recent article entitled “What Is A Joint And Survivor Annuity?” says that understanding an “annuitant” is key to understanding how a joint and survivor annuity works. An annuitant may be either the buyer or owner of an annuity or someone who’s been selected to get the annuity payouts. A joint and survivor annuity typically benefits joint annuitants: a primary annuitant and a secondary annuitant. Under this policy, both get income payments during the lifetimes of both the annuity owner and their survivor.

With joint life annuity, you can expect payments throughout the lifetime of the primary annuitant. If that person passes away, the survivor—the other annuitant—receives payouts that are the same as or less than what the original annuitant received. However, if the secondary annuitant dies ahead of the primary annuitant, survivor benefits aren’t paid when the primary annuity dies. The annuity buyer can designate themselves and another person, like their spouse, as joint annuitants.

A joint and survivor annuity differs from a single life annuity in a few ways:

A single-life annuity benefits only the annuity owner, so income payouts cease when that person dies; and
A single-life annuity usually pays out less than a joint and survivor annuity, since a single-life annuity covers just one life, while a joint and survivor covers two.

Under some joint and survivor annuities, the amount of the payout is decreased after the death of the primary annuitant. The terms of any decrease are set out in the annuity contract.

The payout to a surviving secondary annuitant, generally a spouse or domestic partner, ranges from 50% to 100% of the amount paid during the primary annuitant’s life, if the annuity was bought through certain tax-qualified retirement plans.

A joint and survivor annuity is an option to consider, but you need to ask these three questions before setting one up:

How much in payout is needed for both annuitants to support themselves?
Do you have other assets (like a life insurance policy) to help the surviving joint annuitant after one of the annuitants dies?
How much would the payouts be lessened after the death of a joint annuitant?

Remember that you usually can’t change the survivor named in a joint and survivor annuity. If you are interested in learning more about annuities in estate planning, please visit our previous posts.

Reference: Forbes (Dec. 19, 2022) “What Is A Joint And Survivor Annuity?”

Preparing an Estate Inventory is Critical

January 9, 2023

The executor’s job includes gathering all of the assets, determining the value and ownership of real estate, securities, bank accounts and any other assets and filing a formal inventory with the probate court. Preparing an estate inventory is critical to having a smooth probate. Every state has its own rules, forms and deadline for the process, says a recent article from yahoo! Finance titled “What Do I Need to Do to Prepare an Estate Inventory for Probate,” which recommends contacting a local estate planning attorney to get it right.

The inventory is used to determine the overall value of the estate. It’s also used to determine whether the estate is solvent, when compared to any claims of creditors for taxes, mortgages, or other debts. The inventory will also be used to calculate any estate or inheritance taxes owed by the estate to the state or federal government.

What is an estate asset? Anything anyone owned at the time of their death is the short answer. This includes:

Real estate: houses, condos, apartments, investment properties
Financial accounts: checking, savings, money market accounts
Investments: brokerage accounts, certificates of deposits, stocks, bonds
Retirement accounts: 401(k)s, HSAs, traditional IRAs, Roth IRAs, pensions
Wages: Unpaid wages, unpaid commissions, un-exercised stock options
Insurance policies: life insurance or annuities
Vehicles: cars, trucks, motorcycles, boats
Business interests: any business holdings or partnerships
Debts/judgments: any personal loans to people or money received through court judgments

Preparing an estate inventory is critical for probate, but it may take some time. If the decedent hasn’t created an inventory and shared it with the executor, which would be the ideal situation, the executor may spend a great deal of time searching through desk drawers and filing cabinets and going through the mail for paper financial statements, if they exist.

If the estate includes real property owned in several states, this process becomes even more complex, as each state will require a separate probate process.

The court will not accept a simple list of items. For example, an inventory entry for real property will need to include the address, legal description of the property, copy of the deed and a fair market appraisal of the property by a professional appraiser.

Once all the assets are identified, the executor may need to use a state-specific inventory form for probate inventories. When completed, the executor files it with the probate court. An experienced estate planning attorney will be familiar with the process and be able to speed the process along without the learning curve needed by an inexperienced layperson.

Deadlines for filing the inventory also vary by state. Some probate judges may allow extensions, while other may not.

The executor has a fiduciary responsibility to the beneficiaries of the estate to file the inventory without delay. The executor is also responsible for paying off any debts or taxes and overseeing the distribution of any remaining assets to beneficiaries. It’s a large task, and one that will benefit from the help of an experienced estate planning attorney. If you would like to learn more about probate, please visit our previous posts.

Reference: yahoo! finance (Dec. 3, 2022) “What Do I Need to Do to Prepare an Estate Inventory for Probate”

Photo by Ketut Subiyanto

Avoid Leaving Residual Assets Behind

January 4, 2023

This is also known as estate residue or residual estate. It simply means the assets left over after a will has been read, assets have been distributed to heirs and any final expenses have been paid. An estate planning attorney can help avoid leaving residual assets behind, with a comprehensive estate plan, reports a recent article titled “How to Write a Residuary Estate Clause in a Will” from yahoo!

A will is a legal document used to name guardians for minor children and providing directions for how you want assets to be distributed when you pass. Any assets not included in your will or distributed through a trust automatically become part of the residuary estate on your death.

This can happen deliberately or unintentionally. For example, your will can state your wishes to have certain assets left to certain people. However, your will could also include a residual estate clause explaining what should happen to any assets not already named in the will. In this case, you’re intentionally creating a residual estate, and planning for it at the time of the will’s creation.

Some residual estates are created without advance planning. Here’s how that happens:

If you forget to include assets in your will.
If you acquired new assets after drafting a will and do not add a codicil making provision for the distribution of the assets.
Someone named in the will dies before you or is unable to receive the inheritance you left for them.

This can also happen if you set up a Payable On Death (POD) account but neglect to add a beneficiary to the account. Any funds in the account would be lumped into the residual estate.

What happens if you draft a will and don’t have a residuary estate clause? Any unclaimed or overlooked assets will be distributed, according to your state’s inheritance guidelines. However, this is only done after any estate taxes, outstanding debts or final expenses have been paid. Assets would be distributed as if you did not have a will. Heirs at law would receive assets according to kinship, including spouse, children, parents, siblings and other relatives.

How does a trust work in relation to a residual estate? Trusts are legal entities allowing you to transfer assets to a trustee. The trustee is responsible for managing assets on behalf of the trust for beneficiaries according to your wishes. You may want to establish a trust if you have a substantial estate, want to plan for a family member with special needs or if you wish to create a charitable giving legacy.

Speak with an experienced estate planning attorney to avoid leaving residual assets behind. Your attorney will determine whether your will should have a residual clause and what assets should be included. They will also be able to determine whether you need additional estate planning strategies, including a revocable living trust. If you would like to learn more about drafting a Will or Trust, please visit our previous posts.

Reference: yahoo! (Dec. 4, 2022) “How to Write a Residuary Estate Clause in a Will”

Benefits and Drawbacks of Family Limited Partnerships

January 3, 2023

Being able to transfer wealth from one generation to the next is a good thing, especially now, when a big change is coming to the federal estate tax exemption amount, says a recent article titled “The Pros and Cons of Family Limited Partnerships” from The Wall Street Journal. The are benefits and drawbacks to Family Limited Partnerships.

In 2022, estates valued at up to $12.06 million are exempt from federal taxes. However, on January 1, 2026, the exemption sinks to around $6 million, with adjustments for inflation. As a result, wealthy Americans are now re-evaluating their estate plans and many are turning to the Family Limited Partnership, or FLP, as a tax saving strategy.

An FLP can be tailored to suit every family’s needs. You don’t have to be ultra-wealthy for an FLP to make sense. An upper-middle class family owning a small business or real estate properties they’re not ready to sell could make good use of an FLP, as well as a real estate mogul owning properties in multiple states.

There are some caveats. The cost of setting up an FLP ranges from $8,000 to $15,000. However, it can go higher depending on the state of residence and the complexity of the partnership. There are annual operating costs, tax filings and appraisal fees. The IRS isn’t always fond of FLPs, because there is an institutional belief that FLPs are subject to abuse.

The FLP needs to be drafted with an experienced estate planning attorney, working in consultation with a CPA and financial advisor. This is definitely not a Do-It-Yourself project.

What makes these partnerships different from traditional limited partnerships is that all partners are family members. There are two kinds of partners: general and limited. The parents or grandparents are usually the general partners. They contribute the bulk of the assets, typically a small business, stock portfolio or real estate. Children are limited partners, with interests in the partnership.

The general partners control all of the investment and management decisions and bear the partnership liability, even though their ownership of assets can be as little as 1% or 2%. They make the day-to-day business decisions, including funds allocation and income distribution. The ability of the general partner to maintain control of the transferred assets is one of the FLP’s biggest advantage. The FLP reduces the taxable estate, while maintaining control of the assets.

Once the entity is created, assets can be transferred to the FLP immediately or over time, depending on the family’s plan. The overall goal is to get as much of the property out of the general partners’ taxable estate as possible. Assets in the FLP are divided and gifted to limited partners, although this is often a gift to a trust for the limited partners, who are the general partners’ descendants. Placing the assets in a trust adds another layer of protection, since the gift remains outside of the limited partner’s taxable estate as well.

To avoid a challenge by the IRS, the partnership must be conducted as a business entity. Meetings need to be scheduled regularly, with formal meeting minutes recorded properly. General partners are to be compensated for their services, and limited partners must pay taxes on their share of income from the partnership. The involvement of professionals in the FLP is needed to be sure the FLP remains compliant with IRS rules.

An alternative is to create a Family Limited Liability Company instead of a Family Limited Partnership. These can be created to operate much like an FLP, while also protecting partners from liability.

Partnerships are not for everyone. Your estate planning attorney will advise regarding the benefits and drawbacks of Family Limited Partnerships, and whether an FLP or an FLLC makes more sense for your family. If you would like to learn more about family limited partnerships, please visit our previous posts.

Reference: The Wall Street Journal (Dec. 3, 2022) “The Pros and Cons of Family Limited Partnerships”

Photo by AV RAW

Young Professionals Need Estate Planning

December 28, 2022

Even those whose daily tasks bring them close to death on a daily basis can be reluctant to consider having an estate plan done. However, young professionals, or high-income earners, needs estate planning to protect assets and prepare for incapacity. Estate planning also makes matters easier for loved ones, explains a recent article titled “Physician estate planning guide” from Medical Economics. An estate plan gets your wishes honored, minimizes court expenses and maintains family harmony.

Having an estate plan is needed by anyone, at any age or stage of life. A younger professional may be less inclined to consider estate planning. However, it’s a mistake to put it off.

Start by meeting with an experienced estate planning attorney in your home state. Have a power of attorney drafted to give a trusted person the ability to make decisions on your behalf should you become incapacitated. Not having this legal relationship leads to big problems. Your family will need to go to court to have a conservatorship or guardianship established to do something as simple as make a mortgage payment. Having a POA is a far better solution.

Next, talk with your estate planning attorney about a last will and testament and any trusts you might need. A will is a simpler method. However, if you have substantial assets, you may benefit from the protection a trust affords.

A will names your executor and expresses your wishes for property distribution. The will doesn’t become effective until after death when it’s reviewed by the court and verified during probate. The executor named in the will is then appointed to act on the directions in the will.

Most states don’t require an executor to be notified in advance. However, people should discuss this role with the person who they want to appoint. It’s not always a welcome surprise, and there’s no requirement for the named person to serve.

A trust is created to own property outside of the estate. It’s created and becomes effective while the person is still living and is often described as “kinder” to beneficiaries, especially if the grantor owns their practice and has complex business arrangements.

Trusts are useful for people who own assets in more than one state. In some cases, deeds to properties can be added into one trust, streamlining and consolidating assets and making it simpler to redirect after death.

Irrevocable trusts are especially useful to any doctor concerned about being sued for malpractice. An irrevocable trust helps protect assets from creditors seeking to recover assets.

Young professionals need estate planning because not being prepared with an estate plan addressing incapacity and death leads to a huge burden for loved ones. Once the plan is created, it should be updated every three to five years. Updating the plan is far easier than the initial creation and reflects changes in one’s life and in the law. If you would like to read more about estate planning for business owners, please visit our previous posts.

Reference: Medical Economics (Nov. 30, 2022) “Physician estate planning guide”

Add Safeguards to Protect Heirs

December 20, 2022

What if your executor or trustee decides to run off to the Bahamas with all your assets, leaving heirs with nothing? Ohio Farmer’s recent article entitled “What if trustee runs off with assets?” says that you should add safeguards to protect the heirs of an estate.

The most common way to protect against this possibility is a fiduciary bond. An executor, trustee, or guardian would get a bond early in a probate case and file it with the court. The bond would remain in place while the fiduciary is serving his or her role. If the fiduciary absconds with estate assets, the bond is there to help the beneficiaries.

This expense would be covered by the fiduciary, who would need to find a bond company willing to issue it. The bond amount is connected to the value of personal property, such as financial accounts, vehicles and personal effects.

Do you need a bond to cover the value of land? No. The primary difference is that land can’t be picked up easily and moved, making a bond unnecessary. It’s also very hard to transfer land without extensive safeguards. In some cases, court permission is required for a transfer. To sell a farm or ranch, a title company might raise suspicion. Real estate-related actions are also often public record. In some cases, a court action can correct issues or order damages.

It’s possible to waive the requirement of a bond. That’s a default setting for bonds with estates, trusts, or guardianships. Most estate planning documents waive the bond requirement, because family members often serve as fiduciaries.

State law may also describe several situations where a bond isn’t required. However, if a party motions the court, and the judge thinks there’s good cause for a bond, one can be required for a fiduciary.

While a bond can provide some important protections for heirs, the likelihood of a fiduciary running off with assets is low. As a result, most administrations view the bond as an unnecessary step and expense.

However, if a family is concerned about the trustworthiness of a fiduciary and want to add safeguards to protect your heirs, the bond requirement should be reinstated.

If an administration is pending, the family can petition the court to require a bond. Consult with an experienced estate planning attorney to determine the role of bonds for your estate plan. if you would like to learn more about the responsibilities of a trustee, please visit our previous posts.

Reference: Ohio Farmer (Nov. 22, 2022) “What if trustee runs off with assets?”

The Responsibilities of Being a Guardian

December 14, 2022

Yes, it is an honor to be asked to be the guardian of someone’s children. However, you’ll want to understand the full responsibilities of being a guardian before agreeing to this life-changing role. A recent article from Kiplinger, “3 Key Things to Consider Before Agreeing to Be A Guardian in a Trust,” explains.

For parents, this is one of the most emotional decisions they have to make. Assuming a family member will step in is not a plan for your children. Naming a guardian in your will needs to be carefully and realistically thought out.

For instance, people often first think of their own parents. However, grandparents may not be able to care for a child for one or two decades. If the grandparent’s own future plan includes downsizing to a smaller home or moving to a 55+ community, they may not have the room for children. In a 55+ community, they may also not be permitted to have minor children as permanent residents.

What about siblings? A trusted aunt or uncle might be able to be a guardian. However, do they have children of their own, and will they be able to manage caring for your children as well as their own? You’ll also have to be comfortable with their parenting styles and values.

Other candidates may be a close friend of the family, who does not have children of their own. An “honorary” aunt or uncle who is willing to embark on raising your children might be a good choice. However, it requires careful thought and discussion.

Financial Considerations. What resources will be available to raise the children to adulthood? Do the parents have life insurance to pay for their needs, and if so, how much? Are there other assets available for the children? Will you be in charge of managing assets and children, or will someone else be in charge of finances? You’ll need to be very clear about the money.

Legal Arrangements. Is there a family trust? If so, who is the successor trustee of the trust? What are the terms of the trust? Most revocable trusts include language stating they must be used for the “health, education, maintenance, and support of beneficiaries.” However, sometimes there are conditions for use of the funds, or some funds are only available for milestones, like graduating college or getting married.

Lifestyle Choices. You’ll want to have a complete understanding of how the parents want their children to be raised. Do they want the children to remain in their current house, and has an estate plan been made to allow this to happen? Will the children stay in their current schools, religious institutions or stay in the neighborhood?

In frank terms, simply loving someone else’s children is not enough to take on the responsibilities of being a guardian. Financial resources need to be discussed and lifestyle choices must be clarified. At the end of the discussion, all parties need to be completely satisfied and comfortable. This kind of preparedness provides tremendous peace of mind. If you would like to read more about guardianship, please visit our previous posts.

Reference: Kiplinger (Nov. 17, 2022) “3 Key Things to Consider Before Agreeing to Be A Guardian in a Trust”

Unified Tax Credit is Central to Estate Planning

December 13, 2022

Most people know they pay taxes on earnings and when money grows. However, there are also taxes when money or other assets are given away or passed to another after death. The unified tax credit is central to estate planning, says a recent article titled “What Are The Unified Credit’s Gift Tax Exclusions?” from yahoo!.

First, what is the Unified Tax Credit? Sometimes called the “unified transfer tax,” the unified tax credit combines two separate lifetime tax exemptions. The first is the gift tax exclusion, which concerns assets given to other individuals during your lifetime. The other is the estate tax exemption, which is the value of an estate not subject to taxes when it is inherited. Your estate or heirs will only pay taxes on the portion of assets exceeding this threshold.

The unified tax credit is an exemption applied both to taxable gifts given during your lifetime and the estate you plan to leave to others.

If you would rather gift with warm hands while living, you can pull from this unified credit and avoid paying additional taxes on monetary gifts in the year you gave them. However, if you’d rather keep your assets and distribute them after death, you can save the unified credit for after death. You can also use the unified tax credit to do a little of both.

The unified tax credit changes regularly, depending on estate and gift tax regulations. The gift and estate tax exemptions doubled in 2017, so the unified credit right now sits at $12.06 million per person in 2022. This will expire at the end of 2025, when credits will drop down to lower levels, unless new legislation passes.

Up to 2025, a married couple can give away as much as $24.12 million without having to pay additional taxes. The recipient of this generous gift would not have to pay additional taxes either. If you consider the rate of estate taxes—40%—optimizing this unified tax credit means a lot more money stays in your loved one’s pockets.

How does it work? Let’s say you have four children and each one is going to receive a taxable gift of $500,000. You can pull from your unified tax credit the same year you give these gifts. This way, there’s no need for you to pay gift taxes on the $2 million.

However, this generosity will reduce your lifetime unified credit from $12.06 million to $10.06 million. If you die and leave an estate worth $11.5 million, your heirs will need to pay estate taxes on the $1.44 million difference.

At current estate tax rates, roughly $700,000 would go to the IRS, or more, depending upon your state!

The unified tax credit doesn’t take into account or apply to annual gift exclusions. These annual exclusions allow you to give away even more money during your lifetime and it doesn’t count against your unified limit. As of 2022, taxpayers may give $16,000 per year to any individual as a tax-exempt gift. You can give $16,000 to as many people as you wish each year without being subject to gift taxes. This is a simple way to gift with warm hands without paying gift taxes or reducing the unified limit. The annual gift is per person, so if you are married, you and your spouse may give, $32,000 per year to as many people as you want and the gift is excluded.

Taxable gifts exceeding the annual gift exclusion amount must be properly documented and should be done in concert with your overall estate plan. They offer great tax advantages, and perhaps more importantly, provide the giver with the joy of seeing their wealth translate into a better life for their loved ones. The unified tax credit is central to estate planning so make the time to discuss your options with your estate planning attorney. If you are interested in learning more about tax planning, please visit our previous posts.

Reference: yahoo! (Nov. 18, 2022) “What Are The Unified Credit’s Gift Tax Exclusions?”

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The Estate of The Union Season 2|Episode 4 is out now!

November 29, 2022

The Estate of The Union Season 2|Episode 4 – How To Give Yourself a Charitable Gift is out now!

This is the time of the year when people feel most inclined to provide donations to organizations and charities that mean something to them. The saying goes that “Charity Begins at Home”, but sometimes you can give money to charity and bring it back home too – No Kidding!

In this episode, Brad Wiewel discusses charitable donations and how you can use “give and get” techniques to turn those donations into income and tax deductions for yourself. Just in time for the holiday season. You do not want to miss this one! These are complex estate and tax matters, requiring the guidance of an experienced estate planning attorney for optimal results. If you would like to learn more about charitable giving in your estate planning, please visit our previous posts.

In each episode of The Estate of The Union podcast, host and lawyer Brad Wiewel will give valuable insights into the confusing world of estate planning, making an often daunting subject easier to understand. It is Estate Planning Made Simple! The Estate of The Union Season 2|Episode 4 – How To Give Yourself a Charitable Gift can be found on Spotify, Apple podcasts, or anywhere you get your podcasts. If you would prefer to watch the video version, please visit our YouTube page. Please click on the link below to listen to the new installment of The Estate of The Union podcast. We hope you enjoy it.

Category: Assets

The Estate of The Union Season 2|Episode 5 is out now!

A Joint and Survivor Annuity is an Option

Preparing an Estate Inventory is Critical

Avoid Leaving Residual Assets Behind

Benefits and Drawbacks of Family Limited Partnerships

Young Professionals Need Estate Planning

Add Safeguards to Protect Heirs

The Responsibilities of Being a Guardian

Unified Tax Credit is Central to Estate Planning

The Estate of The Union Season 2|Episode 4 is out now!

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