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Category: Family

There are pros and cons to charitable trusts

There are Pros and Cons to Charitable Trusts

A charitable trust can provide an alternative to meeting your wishes for charities and your loved ones, while serving to minimize tax liabilities. There are pros and cons to charitable trusts, according to a recent article titled “Here’s how to create a charitable trust as part of an estate plan” from CNBC. Many families are considering their tax planning for the next few years, aware that the individual income tax provisions of the 2017 Tax Cuts and Jobs Act will expire after 2025.

Creating a charitable trust may work to achieve wishes for charities, as well as loved ones.

A charitable trust is a set of assets, usually liquid, that a donor signs over to or uses to create a charitable foundation. The assets are then managed by the charity for a specific period of time, with some or all of the interest the assets produce benefitting the charity.

When the period of time ends, the assets, now called the remainder, can go to heirs, or can be donated to the charity (although they are usually returned to heirs).

There are pros and cons to charitable trusts such as Charitable Remainder Trusts and Charitable Lead Trusts. Your estate planning attorney will determine which one, if any, is appropriate for you and your family.

A charitable trust allows you to give generously to an organization that has meaning to you, while providing an equally generous tax break for you and your heirs. However, to achieve this, the charitable trust must be irrevocable, so you can’t change your mind once it’s set in place.

Charitable trusts provide a way to ensure current or future distributions to you or to your loved ones, depending on your unique circumstances and goals.

A Charitable Remainder Trust, or CRT, provides an income stream either to you or to individuals you select for a set period of time, which is typically your lifetime, your spouse’s lifetime, or the lifetimes of your beneficiaries. The remaining assets are ultimately distributed to one or more charities.

By contrast, the Charitable Lead Trust (CLT) pays income to one or more charities for a set term, and the remaining assets pass to individuals, such as heirs.

For CRTs and CLTs, the annual distribution during the initial term can happen in two ways; a Unitrust (CRUT or CLUT) or an Annuity Trust (CRAT or CLAT).

In a Unitrust, the income distribution for the coming year is calculated at the end of each calendar year and it changes, as the value of the trust increases or decreases.

In an Annuity Trust, the distribution is a fixed annual distribution determined as a percentage of the initial funding value and does not change in future years.

Interest rates are a key element in determining whether to use a CLT or a CRT. Right now, with interest rates at historically low levels, a CRT yields minimal income.

The key benefits to a CRT include income tax deductions, avoidance of capital gains taxation, annual income and a wish to support nonprofit organizations.

Your estate planning attorney and a member of the development team from the charity can work together to ensure that your charitable strategy achieves your goals of supporting the charity and building your legacy.

If you are interested in learning more about charitable giving, please visit our previous posts. 

Reference: CNBC (Dec. 22, 2020) “Here’s how to create a charitable trust as part of an estate plan”

 

ways to recognize signs of dementia

Ways to Recognize Signs of Dementia

More than 50 million people around the world have dementia, and 10 million more are diagnosed each year, according to the World Health Organization. In fact, one in 10 Americans 65 and older has Alzheimer’s dementia, according to the Alzheimer’s Association. There are ways to recognize signs of dementia.

KSL.com’s recent article titled “11 signs of dementia everyone should know” says that with numbers like these, the odds are good someone you know will be impacted by dementia at some point in your life. Let’s look at 11 signs of dementia you should look for in your aging loved ones:

  1. Memory loss that impacts daily life. The most commonly recognized sign of dementia is memory loss. However, this is more than mere forgetfulness. It is the type of memory loss that makes it hard to learn new information or remember important dates or events. Those with dementia-related memory loss will remember items they’ve previously forgotten, and it will disrupt their daily life in many ways.
  2. Issues with planning or solving problems. Deficits in executive functioning is a recognized sign of dementia. This can include a wide range of things, such as planning and problem-solving. People who have dementia might experience trouble with regular work tasks, trouble problem solving with minor issues, or difficulty planning a schedule. Some memory loss is expected in old age. However, impairment in problem-solving or with planning isn’t.
  3. Difficulty completing familiar tasks. A person may have trouble doing tasks they ordinarily do, like using the computer, making coffee, or following their normal work routine.
  4. New problems with words in speaking or writing. At first, it might be amusing to hear your loved one call a banana a donut or something else, but continued incidents of this behavior is worrisome and may be a symptom of dementia.
  5. Confusion as to time or place. Forgetting their location or how to get to or from familiar places is another common early signal of dementia. These can lead to danger for someone with dementia to run an errand or live on their own.
  6. Trouble with visual images and spatial relationships. Visuospatial abilities are the ability to understand what we see around us and interpret spatial relationships. Dementia can bring on a decline in visuospatial abilities, such as reading, judging distance, or trouble with depth perception.
  7. Misplacing things and losing the ability to retrace steps. People with dementia increasingly put things in strange locations and can’t find them. In fact, they may accuse others of stealing the items.
  8. Changing moods, personality, and judgment. These changes are due to damage in vital areas of the brain which can lead to depression, manic-like behaviors and frequent changes in emotions called emotional lability. Dementia causes damage to the frontal lobe systems, and it can result in a loss in the ability to make sound judgments about insignificant or substantial issues.
  9. Social withdrawal. While we all like some quiet time, with dementia, it’s important to recognize if there’s a change of behavior and withdrawal from social activities they’re enjoyed in the past.
  10. Difficulty concentrating. Background noise and loud environments can make it difficult for a person suffering from dementia to concentrate. It makes them frustrated and makes conversations difficult. There’s not much you can do about the concentration problems, but you can help make their environment less stimulating. Reducing distractions and using the person’s name often as you speak to him or her.
  11. Hallucinations. Finally, hallucinations are a symptom worth discussing with a healthcare provider. If you notice your loved one becoming upset about events that didn’t happen, talk with their doctor.

These are just a few ways to recognize signs of dementia in a loved one. It is vitally important to stay in close contact with your primary care physician. Take the time to consult with your family and an elder law attorney to ensure you have provided for your loved one as they decline.

If you would like to learn more about dementia and other forms of mental decline, please visit our previous posts.

Reference: KSL.com (Dec. 29, 2020) “11 signs of dementia everyone should know”

 

There are pros and cons to charitable trusts

Estate Planning Presents Emotional Challenges

More than two-thirds of all advisors surveyed by Key Private Bank said the hardest part of estate planning is navigating family dynamics, according to a 2019 survey. The sensitivity of simply talking about estate planning presents emotional challenges to putting a plan in place, especially when the family includes multiple marriages and blended families.

Advice is offered in a recent news article from CNBC, “Executor of a Family Estate? Here’s How to Avoid Infighting Over Inherited Wealth.”

Much of the problem, experts say, stems from poor communication. A dialogue needs to be open between generations that is a two-way conversation. In most instances, the older generation needs to invite the younger generation to get the ball rolling.

A lack of clarity and transparency can lead to problems. One example is a father leaving the family farm to his children, with a plan that also included money to help run the farm and legal documents to help the transition go smoothly. However, the children didn’t want the farm. They wanted to sell. Disagreements broke out between siblings, and the family was bogged down in a big fight.

Clearly Dad needed to talk with the children, while his estate plan was being created. The children needed to be upfront and honest about their plans for the future, and the issue could have been solved before the father’s death. The lesson: talk about your wishes and your children’s wishes while you are living.

After someone dies, they may leave behind an entire estate, with a lifetime of personal items that they want to gift to family members. However, if these items are not listed in the will, the heirs have to decide amongst themselves who gets what. This is asking for trouble, whether the items have sentimental or financial value. In fact, sentimental items often generate the most controversy.

When conflicts arise, the presence of a third party who doesn’t have emotional attachments and is not embroiled in the family dynamics can be helpful.

If the issue is not addressed before death, there are a few ways to move forward. An estate planning attorney who has seen many families go through the emotional challenges of estate planning can offer suggestions while the will is being prepared. There are facilitators or mediators who can help, if things get really rocky.

Heirs may wish to create a list of items that they would like to be reviewed by the executor. This option works best, if the executor is not a sibling, otherwise charges of favoritism and “Mom always liked you best” can spiral into family spats.

Some families group items into buckets of equal value, others set up a lottery to determine who picks first, second, etc., and some families literally roll the dice to make decisions.

If you would like to learn more about inheritance and distributing personal property, please visit our previous posts. 

Reference: CNBC (Nov. 12, 2020) “Executor of a Family Estate? Here’s How to Avoid Infighting Over Inherited Wealth”

 

There are pros and cons to charitable trusts

Probate can affect Real Estate Transactions

Probate can affect real estate transactions. For a family whose 91-year-old mother lives in her home, has a will and has appointed two sisters as Power of Attorney and executors of her estate, the question of handling the transfer of the home is explored in a recent article from the Herald Tribune, “Transfer title now or go through probate in the future?”

The family wasn’t sure if it made more sense to transfer the title to her two daughters and son while she was still living, or let the children handle the transfer as part of the estate. The brother may wish to purchase the home after the mother passes, as he lives with his mother.

If nothing is done, the house will be part of the probated estate. A case will have to be opened, a representative will be appointed by the court (usually the executor of the will) and then the executor can sell assets in the estate, close accounts and deal with the IRS and the Social Security Administration. The probate process can be time-consuming and expensive, depending on where the mother lives.

There are a number of steps that could be taken to simplify things. The mom’s assets can be held jointly, so they pass to the surviving owner, or a trust can be created, and her assets be titled to the trust, so they pass automatically to beneficiaries.

The issue of the house becomes a little more complicated because there are so many options. This is where probate can affect real estate transactions. If the house has appreciated significantly over the years, keeping it in the estate will minimize taxes that have to be paid if and when it is sold.

For example, let’s say the house has increased in value by $250,000. Under current tax law, the mother can exclude up to $250,000 in profits from the sale of the home. This is the exclusion before the sale of a primary residence where the owner has lived in the home for two out of the last five years.

If she signs a quitclaim deed now to give the home to her three children, the IRS will consider this a gift to the three children. Her cost basis in the property (what she paid for the home, plus the cost of any material or structural improvements) will be transferred to the children. However, when the children go to sell the property, they won’t have that same $250,000 exclusion. The three siblings will have to pay federal income or capital gains tax on the same of the home.

However, if the home remains in the mother’s estate when she passes, the siblings inherit the home at the stepped-up basis. In other words, the value of the house (for estate tax purposes) will rise to the current market value at the time of her death, and not the value when she paid for the house. If the children decide to sell the house immediately, there won’t be any profit and there won’t be any taxes.

Depending on the state’s probate laws, the children might be able to use a transfer on death deed that would let the property transfer automatically to heirs upon the mother’s death. The siblings then inherit the property at the stepped-up value.

Here’s another question to consider: how does the cost of setting up trusts and transfer on death deeds compare to the estimated cost of probating the estate?

This family, and others in the same situation, should speak with an estate planning attorney to evaluate their options. The siblings in this case need to clarify whether their brother wants to buy the house and if he is able to do so. The mom then needs to make a decision, while she is still able to do so, because after all, it’s still her home.

If you would like to learn more about how to protect the family home for future generations, please visit our previous posts.

Reference: Herald-Tribune (Nov. 7, 2020) “Transfer title now or go through probate in the future?”

 

There are pros and cons to charitable trusts

What Medicare Doesn’t Cover

Medicare Part A and Part B, also known as Original Medicare or Traditional Medicare, cover a big part of your medical expenses after you turn age 65. It is important to understand what Medicare doesn’t cover. Kiplinger’s recent article entitled “7 Things Medicare Doesn’t Cover” reviews what isn’t covered by Medicare, plus information about supplemental insurance policies and strategies that can help cover the additional costs, so you don’t end up with unexpected medical bills in retirement.

Prescription Drugs. Medicare doesn’t provide coverage for outpatient prescription drugs. However, you can buy a separate Part D prescription-drug policy that does, or a Medicare Advantage plan that covers both medical and drug costs.

Long-Term Care. One of the biggest possible expenses in retirement is the cost of long-term care. However, you can purchase long-term-care insurance or a combination long-term-care and life insurance policy to cover these costs.

Deductibles and Co-Pays. Medicare Part A covers hospital stays, and Part B covers doctors’ services and outpatient care. However, you’re on the hook for deductibles and co-payments. In 2020, you’ll have to pay a Part A deductible of $1,408 before coverage begins, and you’ll also have to pay some of the cost of long hospital stays – $352 per day for days 61-90 in the hospital and $704 per day after that. Over your lifetime, Medicare will only help pay for a total of 60 days beyond the 90-day limit, called “lifetime reserve days,” and thereafter you’ll pay the full hospital cost.

Dental Care. Medicare doesn’t provide coverage for routine dental visits, teeth cleanings, fillings, dentures or most tooth extractions. There are some Medicare Advantage plans that cover basic cleanings and X-rays, but they generally have an annual coverage cap of about $1,500. Look at coverage from a separate dental insurance policy or a dental discount plan.

Routine Vision Care. Medicare doesn’t cover routine eye exams or glasses (exceptions include an annual eye exam, if you have diabetes or eyeglasses after having certain kinds of cataract surgery). However, there are Medicare Advantage plans that have vision coverage, or you may be able to buy a separate supplemental policy that provides vision care alone or includes both dental and vision care.

Hearing Aids. Medicare doesn’t provide coverage for routine hearing exams or hearing aids, which can cost as much as $3,250 per ear. However, a few Medicare Advantage plans cover hearing aids and fitting exams, and some discount programs provide lower-cost hearing aids.

Medical Care Overseas. Medicare doesn’t cover care you get while outside of the U.S., except for very limited circumstances (such as on a cruise ship within six hours of a U.S. port). Medigap plans C through G, M and N, however, cover 80% of the cost of emergency care abroad, with a lifetime limit of $50,000. Some Medicare Advantage plans cover emergency care abroad.

If you would like to learn more about Medicare, please visit our previous posts.

Reference: Kiplinger (Oct. 1, 2020) “7 Things Medicare Doesn’t Cover”

 

There are pros and cons to charitable trusts

Estate Planning for a Second Marriage

It takes a certain kind of courage to embark on second, third or even fourth marriages, even when there are no children from prior marriages. Regardless of how many times you walk down the aisle, the recent article “Establishing assets, goals when planning for a blended family” from the Times Herald-Record advises couples to take care of estate planning for a second marriage before saying “I do” again.

Full disclosure of each other’s assets, overall estate planning goals and plans for protecting assets from the cost of long-term care should happen before getting married. The discussion may not be easy, but it’s necessary: are they leaving assets to each other, or to children from a prior marriage? What if one wants to leave a substantial portion of their wealth to a charitable organization?

The first step recommended in estate planning for a second marriage is a prenuptial or prenup, a contract that the couple signs before getting married, to clarify what happens if they should divorce and what happens on death. The prenup typically lists all of each spouses’ assets and often a “Waiver of the Right of Election,” meaning they willingly give up any inheritance rights.

If the couple does not wish to have a prenup in their estate planning prior to the second marriage, they can use a Postnuptial Agreement (postnup). This document has the same intent and provisions as a prenup but is signed after they are legally wed. Over time, spouses may decide to leave assets to each other through trusts, owning assets together or naming each other as beneficiaries on various assets, including life insurance or investment accounts.

Without a pre-or postnup, assets will go to the surviving spouse upon death, with little or possibly nothing going to the children.

The couple should also talk about long-term care costs, which can decimate a family’s finances. Plan A is to have long-term care insurance. If either of the spouses has not secured this insurance and cannot get a policy, an alternate is to have their estate planning attorney create a Medicaid Asset Protection Trust (MAPT). Once assets have been inside the trust for five years for nursing home costs and two-and-a-half years for home care paid by Medicaid, they are protected from long-term care costs.

When applying for Medicaid, the assets of both spouses are at risk, regardless of pre- or postnup documents.

Discuss the use of trusts with your estate planning attorney. A will conveys property, but assets must go through probate, which can be costly, time-consuming and leave your assets open to court battles between heirs. Trusts avoid probate, maintain privacy and deflect family squabbles.

Creating a trust and placing the joint home and any assets, including cash and investments, inside the trust is a common estate planning strategy. When the first spouse dies, a co-trustee who serves with the surviving spouse can prevent the surviving spouse from changing the trust and by doing so, protect the children’s inheritance. Let’s say one of the couple suffers from dementia, remarries or is influenced by others—a new will could leave the children of the deceased spouse with nothing.

Many things can very easily go wrong in second marriages. Prior planning with an experienced estate planning attorney can protect the couple and their children and provide peace of mind for all concerned.

If you would like to learn more about estate planning for large, blended families, please visit our previous posts. 

Reference: Times Herald-Record (Sep. 21, 2020) “Establishing assets, goals when planning for a blended family”

 

There are pros and cons to charitable trusts

Can an Inheritance Lead to Trouble?

Can an inheritance lead to trouble? Is it a blessing, or a curse? That’s the question from the recent article “When One Spouse Gets an Inheritance It Can Be Hard on a Marriage” posed by The Wall Street Journal. The emotional high of receiving an inheritance is often paired with legal issues. Emotional and life changing decisions can take a toll on the best of partnerships. Spouses may disagree with how assets should be used, or if an inheritance should be set aside for children from a prior marriage. The question of what happens to the inheritance in the case of death or divorce also needs to be addressed.

Couples are advised to start exploring these issues, with the help of an experienced estate planning attorney as soon as they know an inheritance is in their future. For starters, couples should learn about the legal issues surrounding inheritances. Most states recognize inheritances as separate property. However, if funds are co-mingled in a joint account, or the deed for an inherited house is in both names, it becomes more complicated to separate out, if necessary.

Couples who decide to use an inheritance for a large purchase need to be mindful of how the purchase is structured and recorded. Writing a check directly from an account dedicated to the inherited funds and keeping records to show the withdrawal is recommended. If a check needs to be drawn from a joint or single account, the inherited funds should only be placed in the account for a short period, preferably close to the time of purchase, so it is clear the funds were transferred solely for the purpose of the particular transaction.

Before an inheritance leads to trouble, it would be wise to obtain a written agreement between spouses, making it clear the money was contributed with the understanding if there is a sale of the property or a divorce, inherited funds and any appreciation would be credited back to the contributing spouse.

For one couple, a $100,000 inheritance received by a man in his mid-50s with adult children and a second spouse created friction. The man wanted to set the funds aside for his children from a prior marriage, and his wife felt hurt, because she had every intention of giving the money to his children in the event of her husband’s death. She didn’t see the need to keep things separate. However, when advisors ran a series of projections showing the wife would be well cared for in the event of his death, since most of his own $1 million estate was earmarked for her, she relented. They also helped her understand if she racked up big medical bills later in her own life or creditors went after the estate, the money would be better protected by keeping it separate.

It is important for couples understand the risks that come with co-mingling inheritances before it leads to trouble. Another example: a couple who expected to receive a sizable inheritance and did not save for their own retirement. Instead, they used up the wife’s inheritance for their children’s college educations. When the husband filed for divorce, the wife was left with no access to her ex-husband’s expected large inheritance and had no retirement savings.

These are not easy conversations to have. However, couples need to look past the emotions and make business-like decisions about how to preserve and protect inheritances. It’s far easier to do so while the marriage is intact, then when a divorce or other unexpected life event shifts the financial event horizon.

If you would like to learn more about the role inheritances can play in estate planning, please visit our previous posts. 

Reference: The Wall Street Journal (Sep. 13, 2020) “When One Spouse Gets an Inheritance It Can Be Hard on a Marriage”

 

There are pros and cons to charitable trusts

A Legal Battle Between Siblings

When your parents pass away, their assets are often divided between their children. However, if there’s no will to answer any legal questions that may arise, siblings can fight over the assets. Some even take the matter to court. It would be great to avoid these battles because, in many cases, a legal battle between siblings over an estate can end their good relationship and enrich attorneys, instead of family members.

The Legal Reader’s recent article entitled “Tips to Help Siblings Avoid or Resolve an Estate Battle” says that the following tips can help people in this situation or assist them in preventing the fight entirely, when there are no instructions for the distribution of certain assets.

Use a Family Auction. With a family auction, siblings use agreed upon “tokens” to bid for the estate items they want.

Get an Appraisal. The division of an estate between the siblings can get complicated and end in a legal battle, if the siblings want different pieces of the estate and have to work out the value difference. If, for example, the siblings decide to split the estate unevenly, and one gets a car and another a house, it’s worthwhile to engage the services of an appraiser to calculate the value of these assets. That way, those pieces of smaller value can be deducted from ones of higher value for fairer distribution.

Mediation. If siblings historically don’t get along, they may cause a legal battle over every trinket left as an inheritance, no matter how immaterial. In that case, you should use a mediator to help divide the estate fairly without a court battle.

Take Turns! Sometimes, if there are several siblings involved in the division of assets, they can take turns in claiming the items within the estate. All siblings naturally have to agree to the idea with no hard feelings involved. Just like Mom would have wanted!

Asset Liquidation. If everything else fails, the easiest way to divide the assets and the estate between the siblings is to go through asset liquidation and split the proceeds.

As you can see, there are a number of ways to deal with the division of the estate and assets and prevent the legal battle between the siblings. To avoid hard feelings, stay calm, be reasonable and ask your siblings to act the same way.

If you would like to learn more about inheritance and the role of heirs in estate planning, please visit our previous posts.

Reference: The Legal Reader (Aug. 24, 2020) “Tips to Help Siblings Avoid or Resolve an Estate Battle”

 

There are pros and cons to charitable trusts

What Needs to Happen after a Spouse Dies?

What needs to happen after a spouse dies? Making funeral arrangements, paying medical bills and closing down accounts are just the start of the tasks that a surviving spouse must take charge of, advises the recent article “Checklist for Handling the Death of a Spouse” from U.S. News & World Report. It can be overwhelming, especially with the intense emotions that come with such a large loss.

Having a checklist of specific tasks after a spouse dies may make this difficult time less stressful. This is because you will be able to see what has been accomplished, and what is yet to come.

Start by getting organized. Make a list of what you need to do and add to it as you think of new tasks. You should also track what you are doing, using a notebook to keep a record of who you spoke with and when. If you need help, don’t be afraid to ask a family member or trusted friend. Being organized is a big help, when there are so many things that need to be done during such a hard time.

Review your spouse’s will and estate plan. Gather all the documents, from their last will and testament to insurance policies, trust paperwork and related documents. Call your estate planning attorney, since she can help you with settling the estate.

Identify the executor. If you are the executor, then you are the person in charge of managing the estate, including distributing assets. If someone else has been named, contact the person and be sure they are still willing and able to undertake the responsibilities.

Obtain original death certificates. All of the financial, legal and property matters will require an original death certificate, with a raised seal. It’s easier to have more than you need, so order ten to fifteen.

Talk with other professionals. The financial advisor, CP, and insurance broker, in addition to the estate planning attorney, will need to know that your spouse has passed. You will also need to notify the Social Security Administration. If your spouse was receiving benefits, depending upon when in the month they died, you may need to return money.

Avoid any big decisions. This is not the time to sell the house, move to another state or make any other large decisions, unless you must for financial reasons.

Carry out your spouse’s wishes. There is comfort in carrying out your loved one’s wishes. Giving money to a charity as per the will’s direction or handing a prized possession to a family member who will treasure it can be heartwarming, since it reminds you of the values that your spouse held dear.

Take time for yourself and your loved ones. Mourning and healing from loss are not easy times. Take the time to process the loss and grieve with other family members. Find comfort from those you love.

If you would like to learn more about how to handle an estate after a loved one dies, please visit our previous posts.

Reference: U.S. News & World Report (Aug. 28, 2020) “Checklist for Handling the Death of a Spouse”

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