Essential steps for Gen Xers caring for Aging Parents

April 15, 2024

Raising children is expensive. Adding medical or living costs for aging parents is enough to strain even a healthy family budget. The additional expenses of caring for an aging parent or parents can take a turn if a parent passes away or is incapacitated without a will or estate plan to guide the family. An estate plan or other legal documents, such as an advance medical directive and powers of attorney, enable trusted representatives to decide and act according to a parent’s wishes. A proactive estate plan can help alleviate financial burdens and smooth aging parents’ path into retirement for both generations. Here are six essential steps for Gen Xers caring for their aging parents:

Based on Kiplinger’s article, “What Gen X Needs to Know About Their Aging Parents’ Finances,” this article outlines steps in estate planning for your parents’ financial future through retirement and their quality of life as they age.

Understand your parents’ financial landscape. Identify their assets, including retirement accounts, investments, real estate and bank accounts. List their debts, from home mortgages to credit card balances—a comprehensive view of their financial health aids in planning their future needs. Consider guidance from an estate planning attorney for a more customized approach.

Familiarize yourself with your parents’ income sources, such as Social Security, pensions and additional retirement income streams. Know their financial inflows, gauge their ability to cover expenses and plan for any shortfalls effectively.

Ask your parents if they have an estate plan, including wills, trusts and other legal documents outlining their wishes for beneficiaries and asset distribution. If they do, is it comprehensive enough for long-term care, medical decisions if they are incapacitated and Medicaid? Address these topics early and facilitate additional planning, so their wishes are honored.

Anticipate future healthcare expenses and discuss potential long-term care needs with your parents. Do they have health issues and medication costs to save money for? Develop strategies to cover these costs through insurance, savings, or income-producing investments. Planning can mitigate financial stress and provide access to quality care in retirement. Consult an attorney to discuss Medicaid planning and avoid delays in the application process.

Family members worry more about scammers and the misuse of an older adult’s money today than in previous generations. Protect your parents from financial exploitation. Consider living trusts or powers of attorney, authorizing trusted family members to act and decide in your parents’ best interests, if necessary.

Seek guidance from a financial adviser and an estate planning attorney for retirement planning and intergenerational wealth transfer strategies. Collaborate with them to develop comprehensive strategies that address your parents’ financial needs, while safeguarding your retirement savings.

Proactive Gen Xers caring for aging parents can use these essentials steps to alleviate financial burdens and provide peace of mind for both generations. They can support aging parents as they plan for the family’s financial needs and future. If you would like to learn more about caring for aging parents, please visit our previous posts.

Reference: Kiplinger (June 5, 2023) “What Gen X Needs to Know About Their Aging Parents’ Finances.”

Photo by cottonbro studio

Protect Family Wealth from Third Generation Curse

April 10, 2024

Have you heard of the “Great Wealth Transfer?” It’s the period when Baby Boomers are projected to pass trillions of dollars to the next generation. Creating or updating an estate plan to protect family wealth from the third-generation curse requires communication between generations centered on the values leading to wealth creation and a financial education on how to preserve and grow wealth.

The anticipated $84 trillion expected to be bequeathed to Generation X, Millennials, and Gen Z beneficiaries sounds enormous, but the third-generation curse may leave heirs with far less than expected. Often, wealth is earned by one generation, grown by the second generation who witnessed firsthand how hard their parents worked to maintain their wealth, and mismanaged or wasted by the third generation members, who are too far from the original wealth creation to respect it.

Many estate plans are structured to address tax planning, but that’s only one aspect of estate planning. Communicating the “why” of the estate plan, including where the money came from, how it has been stewarded over the years, and what needs to happen to protect it, will help beneficiaries have a deeper regard for their inheritance.

Boomer values may differ from their heir’s values, but they may also be similar, as they use different language to describe the same thing. Clarifying these values and communicating with heirs may help to give context to their inheritance and its importance.

Understanding your priorities and values should ideally lead to an estate plan reflecting your wishes. For instance, if the family prizes education, your estate planning attorney may advise you to create a trust to fund advanced education. Such a trust should be accompanied by a letter of intent explaining your wishes and values to both trustees and heirs.

If you’re unsure about mandating the use of funds, you may have your estate planning attorney create a discretionary trust with a similar letter explaining what you’d like them to use the funds for and why it’s important to you. Because circumstances change, the trustee will have the flexibility to distribute the funds as they see fit.

Creating or updating an estate plan to protect your family wealth from the third-generation curse will give everyone the peace of mind they crave. When the estate plan is completed, have a series of conversations with family members about what’s in the plan and why. They don’t need to know every detail, but broad strokes will go a long way in letting them know what you’ve done, your wishes, and your hopes for their future. If you would like to learn more about planning for future generations, please visit our previous posts.

Reference: Kiplinger (March 12, 2024) “How Estate Planning Can Thwart the ‘Third-Generation Curse’”

Photo by Ron Lach

Do You Pay Taxes on Wedding Gifts?

April 9, 2024

You are a father whose son is getting married. You want to provide a wonderful wedding gift that your son and his bride will cherish and enjoy. Do you pay taxes on wedding gifts? A generous gift for a child’s wedding doesn’t necessarily cause a tax problem unless your lifetime gifts are over the lifetime exclusion limit, which is extremely high right now. A recent article from Yahoo! Finance, “Do I Need to Worry About the Gift Tax If I Pay $60,000 Toward My Daughter’s Wedding?” says most Americans won’t have to worry about the gift tax.

In 2024, the lifetime exclusion is $13.61 million per person and $27.22 million for a married couple. Unless you’ve gone above and beyond these limits, you can make as many gifts as you like to anyone you choose without worrying or paying the 18% to 40% federal gift tax.

But there’s one thing to remember: if you make a gift over the annual gift limit, which is $18,000 per person in 2024 or $36,000 for a married couple, you need to send the IRS Form 709. The form should be submitted even if no gift taxes are due. It’s a simple and smart move.

How do gift taxes work? The federal gift tax doesn’t come into play often. Most gifts are tax-free simply because of the size of both the annual and lifetime gift exclusions. You can gift freely if you keep the limit in mind.

The lifetime exclusion for gift and estate taxes is so high right now that few Americans need to worry about it. If you are generously minded, you may gift $13.61 million (individual) and $27.22 million (married couple). The lifetime exclusion is just as it sounds: the number of gifts you may give during your life or as part of your federal estate.

If you are charitable-minded, you may make many contributions. There are no gift taxes levied on charitable donations, gifts to spouses or dependents, or gifts to political parties. As long as you pay directly to the institutions, there are no taxes on college tuition or healthcare expenses.

There are some strategies to manage the gift tax. One would be to split your $60,000 gift between your daughter and her fiancé. Both gifts would be under the 2024 $36,000 per person exclusion, assuming you are married, so there would not be a gift tax.

Another tactic is to spread the gift out over a few years. Let’s say you’re a single parent. You could gift your daughter and her fiancé $15,000 each this year and next, keeping you below the $18,000 annual gift tax exclusion.

If you’ve already given a gift of $60,000 to your daughter and made gifts over and above the $13.61 million lifetime exclusion, speak with your estate planning attorney to determine where you fall in the gift tax brackets and how much you’ll need to pay.

The easiest way to avoid gift taxes is to pay the vendors directly, but this depends on your overall situation. For instance, where is the money coming from—tax-deferred accounts or investment accounts? It would be wise to talk with your estate planning attorney before making a large gift. Do you pay taxes on wedding gifts? If you have a wedding coming up and are concerned about gift taxes, you can pay the vendors directly rather than giving money directly to the happy couple. If you would like to read more about the gift tax, please visit our previous posts.

Reference: Yahoo! Finance (March 14, 2024) “Do I Need to Worry About the Gift Tax If I Pay $60,000 Toward My Daughter’s Wedding?”

Image by Sigali

Inheritance Trust allows Families to Protect Heirs

April 4, 2024

Imagine being a teenager and suddenly having $250,000 in your hands the instant you become a legal adult. This isn’t a fairy tale; it’s what happened to a young man in the northwestern suburbs of Illinois who writes about his experience in an article titled, “What blowing a $250K inheritance taught me.” After turning 18, he received a quarter of a million dollars from his mother’s medical malpractice case, which should have set him up for a bright future. Instead, without guidance or a plan, the money was gone in a flash. An inheritance trust allows families to protect heirs from their inheritance and the inheritance from the heirs.

While many people agree that an 18-year-old is too young to receive a sizable inheritance without guidance, unfortunately, many families make the common mistake of not planning to protect their children from their inheritance. By working with an experienced estate planning professional, parents can create a plan for when and how their children should receive their inheritance should the parents pass away suddenly.

The excitement of having so much money at such a young age is understandable. Our young friend, now with access to his trust fund, embarked on a journey that led from enrolling in two separate universities with no clear direction as to which degree to pursue, to making impulsive purchases and, ultimately, to a lifestyle fueled by partying and bad choices. The lack of a structured plan or financial advice saw this significant inheritance dwindle to nothing over a few short years.

This story isn’t unique. It highlights a common mistake in estate and family financial planning: not preparing heirs to manage their inheritance. More than leaving assets to your loved ones, it’s crucial to guide them on using them wisely. “As my children grow into young adults,” writes the former teen who lost his inheritance, “I can’t in a million years imagine handing them a check for $250,000 with absolutely no advice.”

An inheritance trust, also known as a testamentary trust, is essentially a tool to protect and manage assets for beneficiaries. It’s a way to ensure that the money you leave behind is safe and used in a manner that you deem fit and matches your values. Setting up an inheritance trust is a strategic move for families looking to safeguard their wealth and provide for future generations.

An inheritance trust offers a myriad of benefits:

Asset Protection: It shields your assets from creditors, lawsuits and even some taxes.
Controlled Distribution: You can specify how and when your beneficiaries receive their inheritance, promoting responsible spending and long-term financial security.
Privacy: Unlike wills, trusts are not public records, offering your family privacy during the transfer of assets.

Whether it’s protecting your assets from being squandered, as in the cautionary tale of the Illinois teenager, or planning for your family’s future needs, an inheritance trust can be tailored to suit your objectives. It’s about making informed choices today that will support your loved ones tomorrow.

The story of the teenager who lost $250,000 is a powerful reminder of what’s at stake when parents leave their money in outright distributions to children. It’s not just about leaving wealth behind; it’s about leaving a foundation for wise decision-making and financial stability. An inheritance trust allows families to protect heirs from their inheritance. It can be the guiding light for your heirs, helping them navigate their inheritance responsibly. If you would like to learn more about inheritance trusts, please visit our previous posts.

References: The Week, originally published on LearnVest.com (Jan. 10, 2015) “What blowing a $250K inheritance taught me.”

SmartAsset (Sept. 19, 2023) “How to Keep Money in the Family With an Inheritance Trust”

Image by Phillip Neho

Risks of Adding a Child as a Life Insurance Beneficiary

March 27, 2024

Life insurance is a critical part of family financial planning, ensuring that your loved ones are taken care of financially when you’re no longer around. A common approach many parents consider is adding their child’s name as a life insurance beneficiary, believing it to be a straightforward way to secure their child’s future. However, this decision carries unexpected complications and risks that many are unaware of. There are hidden risks of adding your child as a life insurance beneficiary.

At first glance, naming your minor child as a beneficiary on your life insurance policy seems like a caring gesture. It’s natural to want to provide for your children’s future directly. However, this well-intentioned move can lead to unforeseen legal and financial hurdles.

Minors are not legally allowed to receive life insurance benefits directly, says Policygenius in an article titled “Naming a child as a life insurance beneficiary.” If a minor is named as a beneficiary, the death benefit payout is delayed until a court appoints a custodian to manage the funds, which can take months. The surviving parent or a guardian named in your will is often appointed as the guardian. During this time, your child would not have access to the financial support you intended, potentially impacting their immediate needs.

Once an adult custodian is appointed, they can only use the money for court-approved expenses, such as living expenses and education. Your child might only access the funds at age 18. This process delays support and limits how the funds are used, contrary to your wishes.

Setting up a trust is the best way to ensure that your child benefits from your life insurance policy without legal entanglements or delays. Creating a trust for your minor child allows you to control how and when the benefits are distributed. You can specify conditions, such as funds for specific types of education, vacations, or an allowance, ensuring that the money supports your child in the most beneficial ways. This setup avoids the need for court intervention, providing a smoother transition of financial support.

While not all families choose to create a trust, naming an adult custodian or guardian for minor children is an essential step for estate planning. Appointing a guardian ensures that the person(s) you choose will both raise your children according to your wishes and financially manage the insurance policy death benefit on behalf of your child until they reach adulthood. Selecting a trusted individual for this role is crucial, since they will have significant control over your child’s financial and caregiving support.

Naming your spouse as the primary beneficiary, with a trust as the secondary, ensures that your spouse can manage household finances and support your child’s future if you’re no longer there. It’s essential to regularly review and update your life insurance beneficiaries to reflect life changes, ensuring that your policy aligns with your current wishes.

Adding a child’s name as a life insurance beneficiary might seem like a simple way to secure their future, but it comes with risks. By considering alternatives, like trusts or adult custodians, you can ensure that your child receives the support you intend without unnecessary legal hurdles or delays. If you would like to learn more about life insurance and estate planning, please visit our previous post.

Reference: Policygenius (Aug. 17, 2023) “Naming a child as a life insurance beneficiary”

Photo by Vanessa Loring

The Complexities of Co-Owning a Vacation Home

March 26, 2024

Dreaming of a vacation home you can escape to at any moment is wonderful. However, the reality of co-owning that slice of paradise with friends or family might be more complicated than you think, explains Better Homes and Garden’s article, “What You Need to Know Before You Buy a Vacation Home with Friends or Family.” Let’s dive into the complexities and considerations of co-owning a vacation home, inspired by insights from experts in the field.

Co-owning a vacation home often starts with a dream shared among friends or family. It’s an appealing idea, especially when the cost of owning a vacation spot on your own seems out of reach. The idea of pooling resources to afford a better, more luxurious property in a prime location is tempting. It promises a place to stay and a shared investment, potentially increasing in value over time.

The main attraction of co-owning is financial efficiency. You can access better properties in desirable locations without shouldering the entire financial burden alone. It allows more frequent visits to your favorite vacation spot and turns an otherwise unreachable dream into a tangible reality. Owning a property with others can also create deeper bonds and shared memories that last a lifetime.

However, with the benefits come significant risks and potential pitfalls. Co-ownership can lead to financial disputes, disagreements over property use, maintenance responsibilities and even conflicts about the property’s future. What happens if one owner wants out of their part of the property or if one owner passes away unexpectedly? What if personal circumstances change, affecting

Before jumping into co-ownership, having detailed conversations about every aspect of the property’s future is crucial. Discussing and agreeing on a budget, usage schedules, guests, pets and even decor can prevent misunderstandings down the line. It’s also wise to consider legal structures, like becoming tenants in common or forming an LLC, to manage the property, ensuring that all agreements are in writing to protect everyone involved.

Getting legal advice from an estate, real estate, or business attorney when considering purchasing joint-owned property is essential. A trusted attorney can help draft a comprehensive co-ownership contract with your friend or family member that outlines each owner’s rights, responsibilities, financial commitments and the procedures for resolving disputes or selling shares in the property. This agreement safeguards your financial interest in the vacation home, ensuring that it remains a source of joy rather than a cause of strife.

Co-owning a vacation home offers a unique opportunity to make your dream of a getaway spot a reality. However, it’s not without its challenges. By prioritizing open communication, financial clarity and professional legal advice, you can navigate the complexities of co-ownership. Remember, the goal is to create a space that enhances your life and relationships, not one that leads to unnecessary stress or conflict. Your estate planning attorney will help you fully grasp the complexities of co-owning a vacation home. If you are interested in learning more about managing real property in your estate plan, please visit our previous posts.

Reference: Better Homes and Gardens (June 29, 2023) “What You Need to Know Before You Buy a Vacation Home with Friends or Family”

Image by Paul Brennan

The Estate of The Union Season 3|Episode 3 is out now!

March 21, 2024

The Estate of The Union Season 3|Episode 3 is out now! Taxes come in all favors. Sales taxes, excise taxes, capital gains taxes, etc. We are all concerned about our income taxes as we approach April 15th. Many of us will believe we pay way too much, and nobody will feel like they should pay more! But there’s another tax to be concerned about: The Death Tax.

In this edition of The Estate of the Union, Brad Wiewel dissects the Death tax and it’s first cousin, the Gift Tax and explains them in a way that everyone can understand. He also sheds like on what is going to happen on January 1, 2026 – unless Congress changes the law; so, stand by!

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 3|Episode 3 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 links to listen to or watch 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.

When Gift Tax Return Should Be Filed

March 20, 2024

Gift tax returns may be the most misunderstood and overlooked part of estate planning. The first mistake people make, according to the article “Know The Most Misunderstood Part Of Estate Plans: Gift Tax Returns” from Forbes, is not knowing when a gift tax return should be filed. Even if a gift you make is tax-free, you might have to file a return anyway. And there are times when you aren’t required to file a gift tax return, but it’s still a good idea to do so.

The gift tax return is IRS Form 709, which can be downloaded from the IRS website at no cost.

In most cases, the IRS can’t take action on an incorrect gift tax return once more than three years have passed since it was originally filed. There are exceptions for fraudulent returns or if a return is either missing information or substantially misstates information.

However, there’s no statute of limitations if you fail to file a gift tax return, and the IRS can raise questions about the transaction at any time. This includes coming after your heirs or your estate after you’ve passed. At that time, your heirs or executor may not have the evidence to prove you complied with the tax law. The IRS would be within its rights to assess not only the gift tax but also penalties and interest for all the years from the date of the gift tax filing to the current date.

For this reason alone, it’s a good idea to file a gift tax return if there’s even the slightest question of whether it’s necessary.

Form 709 has a section for reporting “non-gift transactions.” Some estate planning attorneys recommend taking advantage of this to start the statute of limitations clock ticking and prevent the IRS from recharacterizing your gift years later as a taxable gift.

Consider this especially when you sell assets to a trust or shift assets from one irrevocable trust to another, known as “decanting” a trust. Consider also filing a gift tax return for a non-gift if you take advantage of the generation-skipping transfer tax exemption through a trust.

Another common mistake is not realizing that certain actions are considered gifts by the IRS, whether in the general sense or not. Let’s say you sell an asset to your children at less than market value. The difference between the selling price and the market value is a gift. So is forgiving or making a loan at a below-market interest rate.

If parents pay bills for adult children, this might be considered a gift if the gifts are valuable or if you also make significant gifts of money or property to the same person in the same year.

A gift tax issue the IRS pays close attention to is valuation. There’s not much question about the value of a publicly traded security, but for many other assets, there’s a lot of room to question the correct value, and the gift tax is based on the asset value at the time the gift is made.

While spouses may make unlimited gifts to each other tax-free, there are times when gifts between spouses must be reported. One time is when the gift is defined in the tax code as a “terminable interest.” Another time is if one spouse is not a U.S. citizen. Gifts to that spouse from the other spouse exceeding a certain amount during the year must be reported on IRS Form 709.

It’s always a good idea to check with your estate planning attorney about when a gift tax return should be filed to protect yourself and your heirs. If you would like to read more about gifting and estate planning, please visit our previous posts.

Reference: Forbes (Feb. 16, 2024) “Know The Most Misunderstood Part Of Estate Plans: Gift Tax Returns”

Photo by RDNE Stock project

Crummey Trusts are an Option to Gift to Minors

March 18, 2024

If you’re looking for ways to pass wealth on to children or grandchildren, one valuable tool to consider may be the Crummey Trust. Crummey Trusts represent a strategic option for those looking to gift assets to minors. Named after the first individual to utilize this approach, the Crummey Trust offers a way to gift money to minors while enjoying significant tax advantages and maintaining control over the funds’ distribution.

A Crummey Trust allows you to gift assets to minors without those gifts being subject to gift tax up to a certain amount annually. As of 2024, you can give up to $18,000 annually to a minor through a Crummey Trust without incurring gift tax or affecting your lifetime gift tax exemption. This type of trust is particularly appealing because it prevents the minor from gaining direct access to the funds until they reach an age where they can manage the money responsibly.

A Crummey Trust operates on the concept of “present interest” gifts. For a gift to qualify for the annual gift tax exclusion, the recipient must have the right to use, possess, or enjoy the gift immediately. Crummey Trusts meet this requirement by allowing the beneficiary a temporary right to withdraw the gifted amount, typically within a 30-day window after the gift is made. If the withdrawal right is not exercised, the funds remain in the trust, subject to the terms set by the grantor.

While Crummey Trusts offer many advantages, they also require diligent record-keeping and clear communication with beneficiaries about their rights. Additionally, as beneficiaries age, they may choose to exercise their withdrawal rights, which could impact the grantor’s willingness to continue making gifts to the trust.

Crummey Trusts represent a strategic option for those looking to gift assets to minors while maintaining control over the distribution of those assets and optimizing tax benefits. By understanding the unique features and requirements of Crummey Trusts, you can make informed decisions that align with your estate planning goals and provide for your loved ones’ futures. If you would like to learn more about gifting, please visit our previous posts.

Reference: ElderLawAnswers “Crummey Trust: A Safe Way to Give Financial Gifts to Minors”

Image by s05prodpresidente

Business Owners needs Succession Planning

March 14, 2024

Business owners typically have a high percentage of their net worth tied up in the business and sometimes the real estate where it operates. What’s surprising is how little attention is often given to the succession plan. Business owners need succession planning, says an article from Accounting Today, “The two sides to succession plans for private businesses.”

Starting with the operational side, who will take over the business owner’s work when they die, become incapacitated, or retire? If a business founder is in the weeds of the business, this is a big issue. The owner must have extensive conversations with key employees to discuss the details.

Multigenerational family ownership isn’t always the cure for a succession plan. Second- or third-generational roles must be planned, so capable people fill them. Bloodline succession doesn’t always work for running a business.

These conversations regarding roles, compensation and equity incentives must be very detailed. Not all employee leaders are willing to pour their lives into a privately owned business for the benefit of heirs without an incentive plan.

On the financial side of succession, who will become the owners of the deceased’s shares, and what financial arrangements will be made for that transfer? Businesses with the least amount of animosity and grief are those who have done the hard work: they have the business evaluated by an outside professional and having clear plans for how the successor owners will own and operate the business.

How will the transfer of the business take place in the future? An estate planning attorney should work with the business’ accountants, financial advisors, insurance brokers and other professionals to develop a clear plan for the business and the family.

If the owner is contemplating retirement, will they count on the income from the business operations to fund their retirement, or will they sell their shares to family members or outsiders? Who will oversee this transfer if the business owner becomes incapacitated?

Business owners needs succession planning for a privately held business. It is a lengthy process requiring input from skilled professionals, and ideally, it should begin the moment the business is well-established. There’s always time to tweak an existing plan, but never time to plan in an emergency. If you would like to learn more about business succession planning, please visit our previous posts.

Reference: Accounting Today (Feb. 13, 2024) “The two sides to succession plans for private businesses”

Photo by Amina Filkins

Category: Family

Protect Family Wealth from Third Generation Curse

Do You Pay Taxes on Wedding Gifts?

Inheritance Trust allows Families to Protect Heirs

Risks of Adding a Child as a Life Insurance Beneficiary

The Complexities of Co-Owning a Vacation Home

The Estate of The Union Season 3|Episode 3 is out now!

When Gift Tax Return Should Be Filed

Crummey Trusts are an Option to Gift to Minors

Business Owners needs Succession Planning

Categories

View Blog Archives

Watch the

Estate Of The Union

Join Our

eNewsletter and Blog Digest List

Listen to the

Estate Of The Union

Texas Trust Law

Quick Links

Connect With Us