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Estate Planning 101 from Famous Celebrity Stars

Several recent celebrity estate issues in the news highlight how important it is to plan ahead and get professional advice when setting up your estate plans.

When celebrities pass away, aspects of their estates hit the news almost immediately. These high-profile cases can offer some valuable lessons for the rest of us.

A recent Forbes article, titled "Lessons Celebrities Can Teach Retirees About Estate Planning," advises us to learn a thing or two from famous stars who have passed recently—some with solid estate planning and some without.

Think Carefully About the People Involved in Your Trust. Robin Williams created irrevocable trusts for his children. Privacy is a big advantage to trusts, as they dare not be made public through probate. However, Williams' trust documents were made public after an original trustee died, and the co-trustee was required to petition a court to appoint a new one. Also, Williams’ management team claimed that the trusts were outdated and no longer part of his estate plan. The plans would have given each of his three children control over major assets at age 21. According to the original article, you should make sure you understand what happens to your trust when named individuals can no longer perform their functions. More structure could have been added to Robin's trusts to consider his children’s education and maintenance, but at the same time controlling the assets by way of a trustee.

Don’t Give the IRS Your Money. The late Philip Seymour Hoffman did not want his kids to end up being spoiled trust babies, so he made a straight bequest of his estate to their mother. But since he did not create trusts and he did not marry his longtime girlfriend (the mother of his children), his estate is now going through public probate without the tax benefits of the unlimited marital deduction. This means a huge tax bill for her. The original article recommends planning in advance and making sure your estate plan reflects your wishes. Keep your estate planning attorney in the loop and ask about changes in tax regulations and the laws in your state.

Make Sure Your Plans Keep Up With Your Life. Best-selling author Michael Crichton had writer's block when it came to his estate planning. Crichton died suddenly with his fifth wife expecting; however, he failed to update his will to provide for the new child. In addition, his will specifically excluded any future children from inheriting, which lead to a court battle between his wife (representing her son) and his adult daughter from a previous marriage. What was Crichton thinking? No seriously, what did he have in mind? Did he want to disinherit his young son? No one knows because it was not really clear based on his situation and his outdated estate planning documents. Forbes suggests that you review your estate and legal documents to make sure that they are accurate. Life events—divorce, marriage, new children, new business enterprises, retirement, moving to another state—all may impact your estate plans. If one of these or a similar life event occurs, review your financial and estate plans with a qualified estate planning attorney.

So, what's the big take-away from the estate planning of these stars? Start planning now for the unexpected and work with a qualified Sacramento estate planning attorney at Redkey Gordon P.C. to make your intentions clear and to create the estate plan that fits your situation.

Reference:  Forbes (September 16, 2014) "Lessons Celebrities Can Teach Retirees About Estate Planning"

Financial Planning Has Four Seasons Too

Below are key financial planning tips to guide you through the four seasons of your financial life.

With summer ending and fall around the corner, the changing of seasons is almost upon us. Just as the seasons change with each passing year, your financial seasons change as well.

An article titled "The four seasons of financial planning," as recently published in the Las Vegas Review Journal, explained the four “financial seasons” of life, which can help you see where you are now and what you need to do in the future. Understanding the change of seasons and how to handle your money will ultimately determine if you are successful in attaining or exceeding your long-term financial goals.

The original article offers important financial planning tips to guide you through the four seasons of your financial life:

1) Accumulation Season – ages 20 to 55. This typically is the longest financial season and what you do here financially really sets you up for the rest of your life. This time should be spent accumulating wealth to lay your financial foundation. Set your financial objectives and begin to save and invest. Remember to leverage your employer-sponsored retirement plan, open a brokerage account, and do all you can to save, grow, and keep your hard-earned savings for the seasons to follow.

2) Preservation Season – ages 55 to 65. The key here is to protect the money you have worked to save for retirement. An important part of this strategy is to assess your risk tolerance—the amount of variability in your investment returns you can take before cashing out. Can you sit still and watch an investment go up and down without panicking and selling at the wrong time? The answer to this question measures how comfortable you are with risk. Typically, people here should be more conservative with their investment dollars.

 3) Distribution Season – ages 65+. At this stage your concern is that you have the type of income planning that will bring you the greatest return on investment on your financial savings. Tax liabilities in retirement and when you withdraw from retirement savings are also very important considerations.

4) Succession Season – after your death. The last season is one for which you can only plan—that is, what do you want to do with your assets after you pass away? As we have heard, without the help of a qualified estate planning attorney, your estate may not transfer as you desire and even cause family conflicts.

Your financial legacy will be dependent on how well you lived the seasons mentioned here. Regardless where you are in your life, you should talk to a Sacramento estate planning attorney at Redkey Gordon P.C. and get the advice you need to have the best strategies in place for your situation.

Reference:  Las Vegas Review Journal (September 8, 2014) "The four seasons of financial planning"

Save Your DIY Skills for Saturday Projects, Not Your Estate Plan

Moving to New York to avoid state death taxes? “When your bordering state is telling you, ‘Come on over!’ the pitch is compelling,” McManus says. “If New York has a more welcoming tax scheme, then people will say, ‘Let’s call me a New York resident.’” McManus says that he and his wife might make the New York move in retirement themselves; they already have a place in the West Village they rent out for now.

Would your state's death tax prompt you to move to another state? You wouldn't be the first to consider relocation.

The number of death tax jurisdictions is 19 states plus D.C. at present. However, there are several states making changes for 2015. These states are lessening the death tax liability by increasing the exemption dollar threshold, figuring in inflation, and eliminating “cliff” provisions that tax the first dollar of an estate.

The federal estate tax exemption is currently $5 million per person. As indexed for inflation, it is $5.34 million for 2014. As noted in a recent Forbes article, titled "Where Not To Die In 2015," the exemption will be $5.43 million next year. Consequently, up to $5.43 million of an individual’s estate will be exempt from federal estate tax, with a 40% tax rate applied to any dollars beyond that exemption threshold. Compare this with state estate taxes which are usually exempt to a far lesser extent per estate from tax with a top rate of 16%.

New York’s changes went into effect immediately. This doubled its exemption from $1 million for deaths before April 1, 2014 to $2,062,500 for deaths from April 1, 2014 through April 1, 2015. Similar to Maryland, New York's exemption will increase through 2019 to meet the federal exemption. Other states where the exemption amounts are climbing include Tennessee, Minnesota, and Rhode Island, which got rid of its “cliff” so the tax only kicks in on amounts above the $1.5 million exemption amount.

There are citizens in Rhode Island who want to get rid of the death tax altogether. The original article reports that there is precedent for a repeal, as North Carolina and Indiana did so last year, and Kansas, Ohio, and Oklahoma abolished this tax in 2010.

As the saying goes, only two things are for certain: death and taxes. Experts predict that the changes in this area of tax law will continue. To ensure that your estate planning documents are up-to-date and that you have the most effective strategies in place in light of the current tax laws, speak with an experienced Sacramento estate planning attorney at Redkey Gordon P.C..

Reference:  Forbes (September 11, 2014) "Where Not To Die In 2015"

Don't Die in These States Next Year!

Moving to New York to avoid state death taxes? “When your bordering state is telling you, ‘Come on over!’ the pitch is compelling,” McManus says. “If New York has a more welcoming tax scheme, then people will say, ‘Let’s call me a New York resident.’” McManus says that he and his wife might make the New York move in retirement themselves; they already have a place in the West Village they rent out for now.

Would your state's death tax prompt you to move to another state? You wouldn't be the first to consider relocation.

The number of death tax jurisdictions is 19 states plus D.C. at present. However, there are several states making changes for 2015. These states are lessening the death tax liability by increasing the exemption dollar threshold, figuring in inflation, and eliminating “cliff” provisions that tax the first dollar of an estate.

The federal estate tax exemption is currently $5 million per person. As indexed for inflation, it is $5.34 million for 2014. As noted in a recent Forbes article, titled "Where Not To Die In 2015," the exemption will be $5.43 million next year. Consequently, up to $5.43 million of an individual’s estate will be exempt from federal estate tax, with a 40% tax rate applied to any dollars beyond that exemption threshold. Compare this with state estate taxes which are usually exempt to a far lesser extent per estate from tax with a top rate of 16%.

New York’s changes went into effect immediately. This doubled its exemption from $1 million for deaths before April 1, 2014 to $2,062,500 for deaths from April 1, 2014 through April 1, 2015. Similar to Maryland, New York's exemption will increase through 2019 to meet the federal exemption. Other states where the exemption amounts are climbing include Tennessee, Minnesota, and Rhode Island, which got rid of its “cliff” so the tax only kicks in on amounts above the $1.5 million exemption amount.

There are citizens in Rhode Island who want to get rid of the death tax altogether. The original article reports that there is precedent for a repeal, as North Carolina and Indiana did so last year, and Kansas, Ohio, and Oklahoma abolished this tax in 2010.

As the saying goes, only two things are for certain: death and taxes. Experts predict that the changes in this area of tax law will continue. To ensure that your estate planning documents are up-to-date and that you have the most effective strategies in place in light of the current tax laws, speak with an experienced Sacramento, California estate planning attorney at Redkey Gordon P.C..

Reference:  Forbes (September 11, 2014) "Where Not To Die In 2015"

Advantages of 529 Plans

Even though many gifts no longer make tax sense, 529 plans remain viable options for both estate tax exclusion and income tax reduction, without much complexity and cost.

Which gifts make sense for taxes these days? Consider your options.

Before recent changes to the federal estate tax exemption amount (i.e., $5 million per taxpayer, as indexed for inflation), taxpayers were encouraged to make lifetime gifts to reduce their federal estate tax. This was especially the case when the exemption was $1 million per taxpayer with top 55% rate on any amount over that. Now, however, the common advice is for all but the über wealthy to retain their assets to ensure there is enough to live on during their lifetime. According to a recent National Law Review article, titled "529 Plans: Estate Tax and Income Tax Advantages," a second benefit of passing assets at death is that the recipient of the assets obtains a "step up" in the assets' basis to fair market value—avoiding income tax on the sale.

The original article advises that gifting is appropriate for tax purposes for grandparents and parents wanting to save for escalating college tuition. Contributions to 529's are treated as gifts for tax purposes, and they qualify for the $14,000 annual gift tax exclusion. Another benefit is that these contributions can be "pre-funded" for five years. This means that $70,000 per parent (or $140,000 for a married couple) can be removed from the donor’s estate more quickly than annual contributions. Remember, though, that the donor must survive the five years, or some of that gift with be placed back in the taxable estate.

The investment grows tax-free as far as federal income taxes, and the distributions to pay for the beneficiary's college costs also are not taxed. State law, however, may impact the state income tax liability.

Other advantages to a 529 plan include the donor's control of the funds. In a custodial account, the recipient receives the funds at 18 or 21, and other gift strategies give up control to get an estate tax exclusion.

The only real disadvantage for 529’s is if you are applying for financial aid, as the 529 may be deemed an asset. 529 plans can still be a sound choice from the perspective of both estate tax exclusion and income tax reduction without a great deal of expense or time. Even so, talk to a Sacramento estate planning attorney at Redkey Gordon P.C. and get sound advice on where to go to set up the best 529 for your child and to implement the best strategies for your education situation.

Reference: The National Law Review (September 8, 2014) "529 Plans: Estate Tax and Income Tax Advantages"