Pitfalls of Adding a Child to Your Home’s Deed

February 20, 2024

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

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

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

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

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

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

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

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

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

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

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Endowed Scholarships create an Important Legacy

February 15, 2024

Endowed scholarships are powerful tools in the realm of charitable giving, often used as a part of comprehensive estate planning. An endowed scholarship is a significant philanthropic commitment that involves establishing a fund to provide scholarships to students, typically in perpetuity. It’s a donation and a long-term investment in future generations, aligning with the donor’s values and interests. Endowed scholarships can be established during a donor’s lifetime or through estate gifts, allowing individuals to create an important legacy reflecting their passion for education and student support. For a detailed overview of how endowed scholarships function within charitable giving and estate planning, see The National Association of Charitable Gift Planners.

To endow a scholarship means providing a stable funding source by creating an endowment fund. An endowment fund is typically a large sum of money that is invested. The earned income from the investments is used to fund the scholarship. The principal amount of the endowment remains intact, allowing the scholarship to be awarded yearly indefinitely, based on the income generated.

In estate planning, establishing an endowed scholarship can offer a meaningful way to memorialize a loved one or to honor family and friends, while also providing tax benefits. It serves as a lasting testament to the donor’s commitment to education and charitable giving, ensuring that their philanthropic goals continue to be met even after they are gone.

Establishing an endowed fund involves careful planning and collaboration with financial or philanthropic advisors. The donor needs to decide on the amount to endow, which should align with their financial capabilities and the objectives of the scholarship. The process also involves legal considerations, since the terms of the scholarship and the fund’s administration must be clearly defined and documented. A comprehensive guide on endowment funds can be found at The Council on Foundations.

Legal and financial planning is crucial in creating a scholarship fund. This involves drafting the terms of the scholarship, deciding on the fund’s management and ensuring that the scholarship aligns with the overall estate plan. The donor must also work with the chosen educational institution or charitable organization to set up the fund and define how the scholarship will be administered.

There are numerous benefits to establishing an endowed scholarship for both the donor and the recipients. From a donor’s perspective, endowed scholarships provide a way to make a significant, lasting impact while also reaping financial rewards. They can lead to potential income tax deductions and be a part of a strategic plan for estate gifts, reducing the taxable estate.

For scholarship recipients, an endowed scholarship represents a reliable source of tuition assistance, often making the difference in their ability to pursue higher education. These scholarships can be designated according to the donor’s wishes, targeting specific fields of study, financial need, or other criteria, thus allowing donors to support areas they are passionate about. One of the most important aspects of establishing an endowed scholarship is setting the criteria for scholarship recipients. This process allows donors to personalize their scholarship according to their values and the impact they wish to make. Criteria can include academic merit, financial need, specific areas of study, or any other factors the donor deems important.

Balancing the donor’s wishes with institutional policies is key. While the donor can designate the scholarship according to their preferences, they must also ensure that the criteria are feasible and aligned with the institution’s policies and regulations. Naming a scholarship can be a very meaningful way to honor family, friends, or personal causes. It ensures that the donor’s or the loved one’s name is associated with educational support and philanthropy for years to come.

Effective management of the endowment is crucial to ensure its longevity and impact. This involves prudent investment strategies to grow the principal amount, while generating sufficient income to support the scholarship. Regular reviews and adjustments to the investment strategy are necessary to align with market conditions and the scholarship’s objectives.

Donors and institutions may also seek additional contributions to the scholarship fund. These contributions may be made by the donor, family members, or others who share the donor’s vision, thus helping to grow the fund and increase its impact over time.

Incorporating endowed scholarships into an estate plan can have significant tax implications. Donors can benefit from income tax deductions for their contributions to the scholarship fund. By reducing the taxable estate, endowed scholarships can also be an effective tool in estate planning, potentially lowering estate taxes.

Endowed scholarships are more than just financial aid; they offer a unique opportunity to create an important legacy of support, ensuring that the donor’s passion for education and charitable giving continues to make a difference for many years. If you would like to read more about endowed scholarships, and other forms of charitable giving, please visit our previous posts.

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Adjustment in Cost Basis is a Crucial Tax Consideration

January 24, 2024

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

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

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

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

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

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

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

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

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

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

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

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

Strategies to avoid Inheritance Disputes

January 22, 2024

One of the many aspects of a professionally created estate plan involves employing strategies to avoid inheritance disputes. Your estate planning attorney has various tools, from creating a revocable living trust to drafting a detailed and legally sound will, as outlined in the article “6 Estate Management Strategies to Avoid Inheritance Disputes and How to Implement Them” from Legal Reader.

Creating a revocable living trust and placing assets in the trust allows those assets to be passed to heirs directly and according to the instructions you provide in the language of the trust. Assets not in the will need to pass through the probate process, where those involved in the estate plan might need to attend lengthy and stressful court proceedings. In some jurisdictions, the court may require the presence of all heirs and even estranged family members who were not properly disinherited.

In the probate process, beneficiaries can air grievances if they are unhappy with the inheritance agreement and could potentially challenge the will. By passing assets via a trust, you can completely reduce or avoid the opportunity for these disputes to occur.

The foundation of a successful estate plan is a will created with an experienced estate planning attorney. A will is a legally binding document outlining how the decedent wanted their assets and property distributed upon death. The estate planning attorney will work with you to ensure the language in the will is extremely specific and leaves no room for interpretation.

Some assets pass through beneficiary designations, including life insurance policies, retirement, investment, and bank accounts. To avoid problems with these financial assets, regularly review and update beneficiary designations to avoid giving someone no longer in your life a generous gift. These should be reviewed anytime a significant life event occurs, like marriage, divorce, birth or death, changes in financial circumstances, or when you acquire new assets.

A prenuptial agreement can mitigate the risk of inheritance disputes by establishing specific terms and conditions in the event of a divorce. They are particularly important in states where the courts can divide property acquired during the marriage regardless of where the assets came from. By drafting documents explicitly declaring intentions about the treatment of inherited assets, you provide an additional layer of protection to assets in case of divorce. The process also fosters communication between parties to assist in clarifying expectations for the future.

A well-drafted no-contest clause can diminish the likelihood of legal battles among heirs and challengers. It helps dissuade disgruntled beneficiaries from pursuing costly litigation by putting any inheritance at risk if they should decide to pursue what they feel are unfair distributions. It is imperative to engage an experienced estate planning attorney licensed to practice law in your state to have an effective no-contest clause in a will or a trust.

In some situations, liquidating non-cash assets like real estate makes the most sense. It’s far easier to divide cash than proportions of real estate. However, a buyout arrangement can be implemented if one sibling wants to purchase the property. Beneficiaries could buy out each other’s shares if there’s more than one heir, eliminating the need to sell the asset.

By employing strategies to avoid inheritance disputes, you can ensure your will clearly articulates your wishes. If you would like to learn more about inheritance issues, please visit our previous posts.

Reference: Legal Reader (Dec. 4, 2023) “6 Estate Management Strategies to Avoid Inheritance Disputes and How to Implement Them”

Trusts Work for Multi-State Property Owners

January 9, 2024

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

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

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

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

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

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

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

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

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

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

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

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

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Gift and Estate Tax Exemption Limits Increase for 2024

December 11, 2023

The year 2024 will bring more reasons to be generous, since the Internal Revenue Service (IRS) has increased the limits for gift and estate tax exemption amounts to their highest amounts ever. It’s good news to start the year with, reports the article “IRS Increases Gift and Estate Tax Exempt Limits—Here’s How Much You Can Give Without Paying” from yahoo! finance.

Those with large estates should always consider gifting during their lifetime to reduce taxes by using the annual gift and lifetime gift and estate tax exemptions. Right now, you may give an unlimited number of people up to $17,000 each in a single year without taxes. However, in 2024, this increases to $18,000 per person. For married couples starting in 2024, a gift of $36,000 can be made to any number of people, tax-free.

More good news: the IRS announced that the lifetime estate and gift tax exemption will increase to $13.61 million in 2024. A gift exceeding the annual limits won’t automatically prompt a gift tax. The difference is taken from the person’s lifetime exemption limit, and no taxes are owed. Your estate planning attorney will create a long-term strategy to use these exemptions to manage your estate tax liabilities.

Let’s say you were feeling generous and bought a friend a car for $20,000 in 2023. You would have exceeded the annual limit of $17,000 but wouldn’t owe any additional taxes. You’d use IRS Form 709 to report the gift and deduct $3,000 from your lifetime exemption of $12.92 million for this year. If you instead make the gift in 2024, you’d subtract $2,000 from your $13.61 million limit.

Gifts between American spouses are virtually unlimited. Couples have $24.84 million in estate tax exemptions, and going over this limit is only taxed upon the surviving spouse’s death.

However, a gift to a non-U.S. citizen, regardless of whether or not they are a U.S. resident, falls under different rules and is subject to an annual tax exclusion amount. The annual amount one may give to a spouse who is not a U.S. citizen increases to $185,000 in 2024 from $175,000 in 2023.

Something else to keep in mind—unless Congress acts, the lifetime estate and gift tax exemption is due to return to the pre-2017 Tax Cuts and Jobs Act level of $5.49 million on December 31, 2025. Your wisest move is to speak with your estate planning attorney about a strategic plan for gift-giving and planning to minimize estate tax liability before the change occurs. To take advantage of the gift and estate tax exemption limits increase for 2024, consult with you estate planning attorney. He or she will make sure you are reaping the benefits. If you would like to learn more about the gift tax, please visit our previous posts.

Reference: yahoo! finance (Nov. 14, 2023) “IRS Increases Gift and Estate Tax Exempt Limits—Here’s How Much You Can Give Without Paying”

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Credit Card Debt must be Paid after Death

December 7, 2023

When you consider the average credit card balance in 2023 was $6,365, chances are many Americans will leave an unpaid credit card balance if they die suddenly. Credit card debt must be paid after death. A recent article from yahoo! finance asks and answers the question, “What happens to credit card debt when you die?”

Many people think death leads to debt forgiveness. However, this isn’t the case. Some forms of debt, like federal student loans, may be discharged if the borrower dies. However, this is the exception and not the rule.

Credit card debt doesn’t evaporate when the cardholder goes away. It generally must be paid by the estate, which means the amount of debt will reduce your loved one’s inheritance. In some cases, credit card debt might mean they don’t receive an inheritance at all.

Outstanding credit card debt is paid by your estate, which means your individual assets owned at the time of death, including real estate, bank accounts, or any other valuables acquired during your life.

Upon death, your will is submitted to the court for probate, the legal process of reviewing the transfer of assets. It ensures that all debts and taxes are paid before issuing the remaining assets to your designated heirs.

If you have a will, you likely have an executor—the person you named responsible for carrying out your wishes. They are responsible for settling any outstanding debts of the estate. If there’s no will, the court will appoint an administrator or a personal representative to manage the assets.

In most cases, your heirs won’t have to pay off your credit card debt with their own funds. However, you may be surprised to learn there are exceptions:

Married people living in community property states. In a community property state, the deceased spouse is responsible for repaying credit card debt incurred by their spouse. In 2023, those states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.
Credit cards with joint owners. If you had a joint credit card shared with a partner or relative, the surviving joint owner is responsible for the full outstanding balance. Only joint users are responsible for repaying credit card debt. If your partner was an authorized user and not an owner, they aren’t legally responsible for the debt.

Debt collectors may try to collect from family members, even though the family members are not responsible for paying credit card debts. The debt collector may not state or imply that the family member is personally responsible for the debt, unless they are the spouse in a community property state or a joint account owner.

If a debt collector claims you personally owe money, request a debt validation letter showing your legal responsibility for the debt. Otherwise, you have no legal obligation to pay for it yourself.

When someone dies, their estate is responsible for paying debts, including credit card debt. However, debt is repaid in a certain order. In general, unsecured debt like credit card balances are the lowest priority and paid last.

Some accounts are exempt from debt payment:

Money in a 401(k) or IRA with a designated beneficiary goes directly to the beneficiary and is exempt from any debt repayment.
Life insurance death benefits go directly to the named beneficiary and go directly to the beneficiaries.

If a loved one has died and they had credit cards, stop using any of their cards, even if you are an authorized user or joint owner. Review the deceased’s credit report to learn what accounts are open in their name and the balance on each account. Notify credit card issuers and alert credit bureaus—Equifax, Experian, and TransUnion. You may need to submit a written notification, a copy of the death certificate and proof of your being an authorized person to act on behalf of the estate.

The bottom line is this: credit card debt must be paid at your death. Talk with an estate planning attorney to find out how your state’s laws treat the outstanding debt of a deceased person, as these laws vary by state. If you would like to learn more about managing debt as an executor of an estate, please visit our previous posts.

Reference: yahoo! finance (Nov. 9, 2023) “What happens to credit card debt when you die?”

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Retirement Planning Mistakes to Avoid

November 21, 2023

Planning for your golden years is no small feat. A robust retirement plan is a treasure map to comfort and security in your later life. However, the road to a stress-free retirement is often littered with potential mistakes. Identifying common retirement planning mistakes and knowing the mistakes to avoid can save future retirees from headaches and financial instability.

Are You Underestimating Health Care Expenses When Your Retire?

One retirement mistake made often is underestimating health care costs. It’s easy to overlook long-term care and other health expenses, especially if you’re currently in good health. However, healthcare expenses can deplete your retirement savings faster than anticipated.

As you age, healthcare becomes an integral part of your expenses. Considering potential needs like long-term care, which Medicare does not usually cover, is crucial. Working with a financial planner can help you factor these costs into your retirement plan, ensuring your nest egg is equipped to handle future medical expenses.

Is Your Investment Portfolio Too Aggressive or Conservative?

Your investment strategy plays a pivotal role in your financial security. One of the common retirement mistakes is maintaining an inappropriate investment risk level. As you approach retirement, financial advisors often recommend gradually shifting towards more conservative investments to preserve capital. However, being overly cautious can also impede the growth of your retirement savings.

Discussing your risk tolerance and retirement timeline with a financial advisor is essential. They can help rebalance your portfolio to protect your assets, while still capitalizing on market opportunities.

Have You Neglected Tax Planning?

Tax planning is often overlooked in retirement planning, which can lead to unexpected tax burdens on your retirement income. Without proper planning, everything from social security benefits to withdrawals from your retirement account could be taxed, significantly shrinking your usable income.

Strategies like investing in Roth IRAs, where qualified withdrawals are tax-free, or setting aside funds to handle tax obligations, can be beneficial. It’s advisable to consult with a financial advisor or someone who can provide tax or legal advice to optimize your retirement plan for tax efficiency.

Do You Rely Solely on Social Security Benefits at Full Retirement Age?

A common mistake is assuming that social security benefits will be sufficient as your sole source of income. However, these benefits are designed to supplement your retirement savings account and usually don’t suffice for a comfortable retirement on their own.

It’s essential to have additional sources of income. Strategies like investing, setting up annuities, or continuing part-time work can help ensure a steady income flow throughout retirement, enhancing your financial security.

Are You Withdrawing Too Much, Too Soon?

Careful planning for how much you withdraw in the early years of retirement ensures that you don’t outlive your savings. Retirees sometimes start by withdrawing larger amounts. However, this approach can compromise their financial health in the later stages of retirement.

Setting a sustainable withdrawal rate as part of your retirement plan, considering factors like life expectancy and inflation, is prudent. Financial planners recommend the “4% rule” as a starting point, adjusting as necessary based on individual circumstances and market conditions.

Have You Failed to Consider Inflation?

Inflation can erode the purchasing power of your retirement savings over time, a reality that retirees cannot afford to ignore. A common retirement mistake is failing to factor inflation into retirement planning.

Investing in inflation-protected securities or assets that tend to increase in value over time can help your savings grow in step with or outpace inflation. Regular consultations with your financial advisor can help adjust your strategies to mitigate inflation’s impact.

Did You Forget to Plan Your Estate?

Beyond securing your lifestyle post-retirement, it is also essential to consider how your assets will be distributed upon your death. Without an estate plan, your heirs may not receive the assets you intend to leave them, and legal complications could arise.

Estate planning involves setting up wills, trusts and designating beneficiaries, ensuring that your wishes are honored. Discussing your desires with an experienced estate planning attorney will help ensure that your estate plan is comprehensive and legally sound.

Summary: Key Takeaways to Remember

To wrap up, here are the essential points to remember to avoid these common retirement planning mistakes:

Plan for health care costs: Factor in expenses like long-term care and unexpected medical bills.
Balance your investment portfolio: Ensure your investments align with your risk tolerance and retirement timeline.
Don’t neglect tax planning: Understand potential tax obligations on your retirement income.
Supplement social security benefits: Identify additional income sources to bolster your social security income.
Adopt a sustainable withdrawal rate: Use strategies like the “4% rule” to avoid depleting your savings prematurely.
Protect against inflation: Invest in assets that can counteract the rising cost of living.
Establish an estate plan: Prepare the legal mechanisms for asset distribution after your death.

Incorporating these strategies can help you avoid these common mistakes as you plan for retirement and set you on a path to a comfortable and secure retirement. If you would like to learn more about retirement planning, please visit our previous posts.

Tax Strategies combined with Estate Planning can Safeguard Assets

October 23, 2023

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

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

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

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

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

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

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

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

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

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

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Where Should You Store Your Will?

October 17, 2023

When you fail to plan for your demise, your heirs may end up fighting. With Aretha Franklin, three of her sons were battling in court over handwritten wills. The Queen of Soul, who died in 2018, had a few wills: one was dated and signed in 2010, which was found in a locked cabinet. Another, signed in 2014, was discovered in a spiral notebook under the cushions of a couch in her suburban Detroit home. This begs the question: Where should you store your will and other estate planning documents?

The Herald-Ledger’s recent article, “Aretha Franklin’s will was in her couch. Here’s where to keep yours,” says that a jury recently decided the couch-kept will is valid. However, Aretha didn’t clarify her final wishes. Her handwritten wills had notations that were hard to decipher, and she didn’t properly store the will she may have wanted to be executed upon her death.

The Herald-Ledger’s article gives some options for storing your will. First, don’t store your will in the couch.

You should keep your will where it is secure but easily located. Here are some options:

Safe-deposit box: The downside is that the box might be initially inaccessible when you die. If your will is in the box, that’s an issue. The executor may need a copy of the will to access the box. If so, and a court order is required, it could take some time before the executor can get the will from the safe deposit box. If you do this, include your executor or the person designated to handle your estate on the safe deposit box contract.
At home: Keep a copy of your will in a fireproof and waterproof safe, but make sure there’s a duplicate key, or you give the combination code to your executor or some other trusted person.
With an attorney: You could have a spare set of original documents and leave one with your attorney. But be sure your family knows the attorney’s name with the will.
Local court: Check with the local probate court about storing your will and tell someone that you’ve placed your will in the care of the court. For instance, in Maryland, you can keep your original last will and testament with an office called the Register of Wills. The will can then be released only to you or to a person you authorize in writing to retrieve it.
Electronic storage: You could store it online to keep your will safe. However, most states don’t yet recognize electronic wills. As a result, you’ll need to have the originally signed copy of your will even if you store a digital copy.

Speak with an estate planning attorney about where you should store your will. He or she may suggest an option you and your family had not considered. All options to store your will have pros and cons. Whatever you do, tell the person designated to handle your estate where to find your will. If you would like to learn more about storing and handling your estate planning documents, please visit our previous posts.

Reference: The Herald-Ledger (July 19, 2023) “Aretha Franklin’s will was in her couch. Here’s where to keep yours.”

Photo by Karolina Grabowska

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