Redkey Gordon P.C.

Too Often Overlooked: How Will Heirs Pay the Estate Tax?

Paying estate taxes requires assets that can be easily turned into cash or dipping into cash accounts. This often becomes a major problem for executors of large estates. If proper planning has not taken place, prized possessions may have to be put on the auction block to pay the death tax. There are ways to address this and prevent the need to sell a family heirloom.

Some of the best known estate law stories concern wealthy families, often bold print names, who had to sell their prized heirlooms so that their heirs could pay estate taxes. It is never a happy day when an heir needs to sell the family home, wine collection, fine art or collection of vintage automobiles to raise cash for the estate tax. Proper estate planning for wealthy families should include a rather simple solution to this problem: life insurance.

This was recently explained in the Wills, Trusts & Estates Prof Blog in "How Life Insurance Can Be Used To Help With Estate Taxes."

You can create an irrevocable trust and make it the beneficiary of a life insurance policy.

When the insurance is paid out, the executor of the estate can use the money to pay any estate taxes owed. It is important that the trust be irrevocable in order for the life insurance proceeds to not be included in the estate and also subject to the estate tax.

For this to work the trust must be created at least three years before you pass away. If not, then it will be considered as part of your estate.

Of course, life insurance is not the only way to provide liquid assets that can be used to pay estate taxes. Before rushing to create an irrevocable trust and buying a life insurance policy, talk to Robert A. Gordon of Redkey Gordon Law Corp, an experienced estate planning attorney about your other options.

Reference: Wills, Trusts & Estates Prof Blog (October 15, 2015) "How Life Insurance Can Be Used To Help With Estate Taxes."

Giving with Warm Hands

When you gift assets to heirs during your lifetime, the reward is being able to see first-hand how your assets help family members and loved ones while you are there to enjoy it. Gifting with warm hands must be done with care to avoid any negative tax consequences.

Most people prefer to maintain possession all of their assets, letting them go to the next generation only after they have passed away. But if a family member feels that they have more than enough money and property and others in the family are in need or would benefit from having access to the assets, then the older person can make gifts during their lifetime. This can be very rewarding to the benefactors.

When it comes to giving methods, there are many ways to skin the cat. This was the subject of a recent article in the Columbus Dispatch, "Guide to Life: Pros and cons of leaving inheritances to relatives." Nevertheless, some of those giving methods are more tax savvy than others.

The article mentions three such ways:

• Cash – A single person can give an individual $14,000 a year without tax consequences for the person receiving the gift. A married couple can give $28,000. This amount can be given to as many people as desired so long as no one individual is given more than the limit by the person giving the gift. Moreover, the giver must be sure not to have given more than his or her lifetime limit on "taxable" gifts (i.e., gifts made in excess of the annual gift exemption). That number is currently $5.43 million for a single person and $10.86 million for a married couple.
• Student Loans – When you pay off a loved one's student loan debt, that does not count against the $14,000 annual limit on gifting. Caveat: This only works if the money is given directly to the educational institution.
• College Savings – Money invested in a 529 college savings plan accumulates tax free and can be withdrawn tax free for qualified expenses.

These are just a few of the ways to make tax savvy gifts. Robert A. Gordon of Redkey Gordon Law Corp an experienced estate planning attorney can help you with other techniques to benefit your family and favorite charities.

Reference: Columbus Dispatch (October 16, 2015) "Guide to Life: Pros and cons of leaving inheritances to relatives"

The State of the State: Estate Tax, That Is

The state estate tax is the one that most Americans must be aware of when working with an attorney on their estate plan, as most states estate taxes have far lower exemptions than the federal estate tax.

What if your estate is worth less than $5 million, even when counting life insurance policies, the value of your home and your assets? We bet you that you think that means you don't need to pay estate taxes, and consequently that you don't need an estate plan.

That is a mistake, because there are many other reasons to have an estate plan besides the estate tax. It is also a mistake because many states have estate taxes of their own that require careful planning to navigate. With proper planning, these state estate taxes can almost always be avoided.

A recent Forbes article took on this topic in "Three Surefire Moves To Beat State Death Taxes," which recommend the follow tactics:

• Move – Not every state has an estate tax, so you can move to a state without one. However, you need to be careful about appearing to have merely changed your address to avoid the estate tax. You need to make the move complete, and it is best to cut all ties with your former state.
• Bypass Trusts – These are trusts created at the time of death of one spouse. The trust is usually funded with assets up to the state's estate tax limit. The rest of the estate goes to the surviving spouse. When that spouse passes away, the estate tax bill will be less. These are complex instruments and you will need an estate planning attorney to assist you.
• Gifting – If you give assets away now, they will not be part of your estate and subject to the estate tax. However, make sure that you only do this after speaking to an attorney and accountant so that you do not face unnecessary tax problems.

Proper estate tax planning, whether at the federal or the state level, requires qualified estate planning assistance. This cannot be overemphasized. Contact Robert A. Gordon of Redkey Gordon Law Corp, an experienced estate planning attorney for assitance.

Reference: Forbes (October 16, 2015) "Three Surefire Moves To Beat State Death Taxes."

Keep Your Heirs Motivated with a Secret Trust

Preventing an heir from knowing about the value of a trust, or even that a trust has been created for their benefit is often a desired goal, particularly when there are concerns about how the knowledge will affect the heirs. In some states, there is a way to accomplish this.

This is what is called a "first world" problem, but it is a problem nonetheless. Wealthy families who value their accomplishments are concerned that heirs who know that they are going to receive large amounts of wealth through a trust may not be motivated to establish their own careers or take their studies seriously.

One way to help avoid this is to create a trust that does not give anything to the beneficiaries until they reach an age where they will have settled into their adult lives. However, there still might be a fear that if a beneficiary knows that a large inheritance is eventually coming through the trust, they will not be as motivated to earn their own money as they otherwise would be.

A recent article by Financial Planning, "How Silent Trusts Can Help Your Clients," discusses a type of trust that can be used to keep beneficiaries in the dark about their trusts.

The basic idea is that in a "silent trust," the terms of the trust prohibit the trustee from telling the beneficiaries about the trust or the assets in the trust. You should know that these trusts are legally controversial and are not allowed in all states.

Some states mandate that the trust beneficiaries must be told about the trust upon reaching a certain age. Delaware, however, is one state that does allow silent trusts in almost all circumstances.

If you are interested in such a trust, then contact Robert A. Gordon of Redkey Gordon Law Corp, an experienced estate planning attorney to explore your options.

Reference: Financial Planning (October 16, 2015) "How Silent Trusts Can Help Your Clients"

No Kids? You Still Need an Estate Plan

Many people think that not having children means that you don't need to have an estate plan. But in most cases, having an estate plan becomes even more important in the absence of children. Unless you wish to give your assets over to the state, you'll want an estate plan that will carry out your wishes.

When most people think of wills and estate plans, they usually think about the primary function of distributing assets to children. The natural next thought is, if they have no children, then they don't need a will. But estate plans, and especially wills, actually serve a number of important purposes, only one of which is conveying assets to children.

As U.S. News & World Report points out in, "No Kids? You Still Need an Estate Plan," people without children need, at the very least, to have a will if they want to have a say in who gets their assets after they pass away.

People who pass away without a will are said to have died intestate. Every state has a law that determines who gets the assets of people who die intestate. The laws all operate similarly, in that the assets are given to the person's closest living relatives.

Under such law, those who have a spouse or children will have their assets given to that spouse or the children. If however you have no spouse or children, then your assets will be distributed to other relatives, depending on who is closest in line. Ultimately, if you have no living relatives that can be found, then the assets will be claimed by the government. The term for this is escheat.

So, the primary purpose of estate planning for most people is avoiding the laws of intestacy and deciding for yourself who will inherit from you.

Do not let the fact that you do not have children deter you from getting an estate plan. Contact Robert A. Gordon of Redkey Gordon Law Corp, a qualified estate planning attorney to help you design a custom plan for your unique circumstances.

Reference: U.S. News & World Report (October 14, 2015) "No Kids? You Still Need an Estate Plan"