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Ask Yourself These Estate Planning Questions before 2015

Have a plan; either you decide or someone else does.

Year-end is a great time to evaluate your estate planning goals! This timely topic was the theme of a recent article in the Pittsburgh Post Gazette titled "Holiday season is the best time to update your estate planning."

Here are some questions you ought to ask yourself as 2015 draws near:

What do you have that may be beneficiary designated (life insurance, IRAs, 401ks, etc.)? Do you want the same beneficiaries on all of these? If not, plan to change them.

Do you have contingent beneficiaries, if the first beneficiary predeceases you? If the answer is no, you could pay significant taxes for your IRA, for example. Some of the money will go to income taxes because the funds are going to your estate instead of being able to stretch out the distributions over the life expectancy of the beneficiary.

Have you sat down with an estate planning attorney to create your estate planning documents?If so, review them before the family gatherings and make any changes needed.

Who is going to handle your affairs if you’re incapacitated or when you pass away?Designate the individuals you trust to take care of your affairs before they’re needed, and make sure they’ll do it. You can also make sure your family members know your wishes for health care decisions and end-of-life choices.

Do the parties acting on your behalf know the location of your important documents, like power of attorney and health care directives? You don’t need to give out copies of these documents, but let someone know where they can find them.

Last but not least—before the year ends—are you able to make gifts of some of your assets to loved ones?  If you are financially able, take advantage of the $14,000 annual exclusion from federal gift taxes to give that amount to as many people as you want.

Make it a truly Happy New Year and get that estate plan together. If you have questions or want to find out more about this, contact Robert A. Gordon of Redkey Gordon Law Corp, an experienced California estate planning attorney.

Reference: Pittsburgh Post-Gazette (November 23, 2014) "Holiday season is the best time to update your estate planning"

Should You "Leave It to Beaver" When It Comes to Your Estate?

Leave it to Beaver? Or do you prefer to leave your estate to someone else? Today’s families are a lot different than Ward and June Cleaver. There are more families today with non-traditional situations than ever before. This makes financial and estate planning all the more important.

If your family looks nothing like the family of Ward and June Cleaver, you are not alone. Families today are very different compared to the days of Leave It to Beaver. Our so-called modern families leave much to consider when it comes to financial and estate planning.

A recent article in The Patriot Ledger, titled "Estate planning for non-traditional relationships," takes a practical look at a common personal, financial and legal challenge.

Asset Ownership. You can own assets in your own name, jointly, or in an entity like an LLC or a trust. The ownership issue determines things like taxes and even disposition through an estate or disability. Unlike the Cleavers, not every couple these days combines their financial assets so that everything is owned jointly. Retirement accounts can’t be held jointly, so many families will keep separate asset ownership structures with dispositive plans at death or disability that give the assets to someone other than the surviving spouse.

Married Couples. If you have assets that are owned individually, these assets will be distributed according to your will, so there may be some time and expense in the probate process. If you want your assets to go to your survivor anyway, joint ownership may be the way to go. On the other hand, if you’ve got concerns about this, a trust may be better.

Second Marriages. You need to be very clear about who gets what after the first spouse passes. Don’t just settle this with a verbal agreement with your spouse. For example, do not rely on a verbal agreement for your spouse to “use” the assets after you pass and to then pass them along to your own children. It’s much better to create a trust. Your Amador County estate planning attorney, Robert A. Gordon,  can help you with this.

Cohabitation. For families that might appear to be “traditional” except for a marriage certificate, you can make any assumptions. Married couples, at least, have some state protection from disinheriting a spouse, however, that’s not the case in every state. For estate tax purposes, the original article explains that unmarried couples don’t have an unlimited deduction for leaving assets to a spouse. Remember, technically, the mother of your little Beaver or Wally isn’t your spouse. Also, without a solid will or trust, it’s possible your “partner” will only inherit some of the assets, and the rest to be given to your parents or siblings.

Reference: The Patriot Ledger (Nov. 22, 2014) "Estate planning for non-traditional relationships"

What Is a Perpetual Trust?

“Why do we care about these perpetual trusts?” Mr. Sitkoff said. “Because there’s a lot of money in them. Billions of dollars is pouring into these jurisdictions.”

Perpetual trusts: good or bad? The principle of this tool is up for debate.

Perpetual trusts allow trust creators to maintain some control after they pass, and help protect fortunes from taxes and creditors. However, people who set up these perpetual trusts in states where they’re legal could have some headaches as lawsuits brought in a state where the trusts are prohibited could mean the out-of-state assets could be counted in any settlement.

This was the topic of a recent New York Timesarticle, titled “The Ins and Outs of Trusts That Last Forever.” In other words, all of these very expensive, carefully worded, and very sophisticated documents might fail to work as designed.

Perpetual trusts have been around a long time and were originally used for charitable purposes. Until recently, these trusts were subject to a limit on duration based on the life span of all the people alive when it was created plus 21 years, so about 100 years or so. But this has changed. The first state to allow perpetual trusts (without a time limit) to preserve family wealth was South Dakota in 1983. Now there are several states that allow this practice.

In addition to creating a legacy to last forever, perpetual trusts don’t have to make distributions. In never requiring a trust to be distributed to a beneficiary, the assets are protected for future generations,” according to the original article. If these trusts are set up correctly, they can grow without taxes as they are handed down to the next generation.

Critics of perpetual trusts argue against them on moral grounds. They say tying up money for generations is bad public policy and could create a virtual aristocracy. They argue that legal challenges to these trusts could come from two sources: (i) creditors in a state where the trusts are not permitted who are trying to maximize their settlements and see the trusts as sources of money; and (ii) descendants who want to break the trust and get at their money now without strings attached.

Nine states constitutionally prohibit perpetual trusts: North Carolina, Tennessee, Arkansas, Oklahoma, Texas, Arizona, Nevada, Wyoming, and Montana; however, five of these states have legal workarounds that allow these trusts to exist with some limitations.

Contact your Sacramento estate planning attorney at Redkey Gordon Law Corp to find out more about perpetual trusts and how they might fit into your estate planning strategy.

Reference: The New York Times (December 5, 2014) “The Ins and Outs of Trusts That Last Forever”