Redkey Gordon P.C.

Estate Tax Changes Are Favorable, But Different Worries May Arise

State and federal estate and inheritance tax rates are what drive most people’s estate plans, but now that tax rates are falling and exemptions rising in many jurisdictions, how much people will leave their heirs isn’t what keeps them awake at night anymore. What they really worry about is how the money they leave will affect the lives of those who will inherit it.

Are you cheering for the new death tax changes on the horizon, or will you be up all night worrying about the potential downsides?

So-called “death tax” rates have been the subject of much debate, reform, and repeal over the past 15 years. Some say that repeal will suppress entrepreneurship and economic growth. However, tax rates have been unreliable, so it's hard to use them when looking at a long-term estate plan. A recent Forbesarticle, titled "Estate Planning Fears That Keeps Us Up At Night,"explains what this means.

For example, from 2001 to 2010, federal estate tax rates fell until they were eliminated in 2010, but were reinstated the next year and made permanent last year when Congress set a 40% rate on estates in excess of $5 million. In addition, there are now 15 states and DC that impose their own estate tax—with six states also imposing an inheritance tax. Some states have raised their exemptions to be more in line with the federal level or have eliminated their inheritance taxes altogether.

So what does this mean to you?  Well, the original article says that it's a win for parents who want to leave their children, other heirs, and charities as much as they are able. Many people are most concerned whether the wealth they have and pass on to their heirs is going to help those individuals or make matters worse. T. Boone Pickens has said publicly that he doesn't intend to leave all his money to his children. “I’m not a big fan of inherited wealth,” Pickens has said. “It generally does more harm than good.”

This is why it's so important to work with an experienced California estate planning attorney at Redkey Gordon Professional Law Corporation so that your estate is designed with the best interests of both you and your loved ones in mind. As the original article notes, money matters in estate planning. As new tax rates become effective, it’s a good time to sit down with your estate planning attorney and discuss how the money can support your beliefs, philosophies, and charitable intentions—and how you can ready your heirs to accept and sustain it.

Reference:  Forbes (October 29, 2014) "Estate Planning Fears That Keeps Us Up At Night"

Don't Shy Away from These Estate Planning Questions!

Establishing a will is a vital part of protecting your financial legacy and there is no benefit in delaying it. Here are six often-avoided questions to help you get over your fear of wills and establish one for your family.

There are no silly questions when it comes to your estate plans!

A recent Forbes article, titled "6 Questions About Wills You Were Afraid To Ask," gives us some answers to several often-avoided questions to help alleviate some trepidation over wills and to motivate you into creating one for your family. Here are a few of them:

What's a will? A will is a basic estate planning document that details exactly where you want your assets distributed when you die.

Why should I draft a will?  There's really no bona fide financial, social, emotional, or any other reason to not draft a will. This sometimes can be difficult for parents to think about, but creating a will allows you peace of mind in knowing that your wishes will be heeded. Without a will, there's a much greater chance of hard feelings and disputes among your family. Along with a will, an experienced estate planning attorney can help you determine if other planning documents, such as a living will, power of attorney, durable power of attorney (with health care), and a living trust are necessary.

How are assets distributed? If you identified specific gifts you want distributed (like Grandma's broach) or a conditional gift ($X to your daughter when she reaches a certain age), you can apportion the rest of your estate in shares among your heirs. This can be divided equally or in percentages. The original article also recommends that you select two executors in case your first choice is unable to fulfill an obligation.

What about the children? An extremely critical task in creating a will is selecting a guardian for your minor children. If you die and fail to do so, the court will decide who takes care of your children. You should make sure beforehand that he or she is able and willing to take on this responsibility.

You can ask your Sacramento Estate Planning lawyer, Robert A. Gordon any questions when it comes to wills and trusts.  A free consultation is available for clients interested in drafting their estate plan.

Reference: Forbes (October 30, 2014) "6 Questions About Wills You Were Afraid To Ask"

Five Estate Planning Don'ts

To prevent you and your family members from enduring more stress, misery or confusion than necessary, here are five estate-planning booboos to avoid ...

Think you have the right ideas when it comes to your estate? You may want to watch out for some common "don'ts" in the estate planning world.  Please contact your Amador and Calaveras County estate planning attorney at Redkey Gordon P.C. if you have any questions

The Financial Post's recent article, titled "‘Your grandfather’s dead. It’s my money now': Five estate-planning mistakes to avoid," discusses some typical estate planning mistakes.

Here they are:

Leaving everything to someone with private instructions to donate to charity. Yeah, that's going to work.  Well, who's going to make them? Even though your daughter swore she’d donate a portion of your estate to a specific charity, there's no guarantee she'll do that after you pass. If there’s a charity that you want to give to, spell it out in your will.

Create your will based on today’s situation and forget it. Not good.  The original article says to plan ahead and review your will regularly. For example, you shouldn't say in your will that you’re leaving your current house on Rockford Street to your niece—if you move before you die and don’t update your will, your niece might not get a thing. The original article also cautions against leaving one child more money than another because you believe that one is in better financial shape—you might not know the real situation.

Give up control of your finances to your children. Simply put, if you give up control, you may not get it back.

Expect your children to give some of their inheritance to your grandchildren. It's quite possible that if you leave your assets to your children, that money may well be spent before it gets to the grandchildren. You can avoid this by leaving something to your grandchildren as a separate entity or give them money while you’re still around. 

Trust a homemade will. If you’ve made your own will, you may have issues that you didn't even know about. If you’ve downloaded the will from the internet, is it from your state? When was the will form last updated?

 Reference: Financial Post (October 29, 2014) "‘Your grandfather’s dead. It’s my money now': Five estate-planning mistakes to avoid"

Get The Latest on Grantor Trusts

“Income-tax rates are going up so it becomes more expensive for a grantor to maintain the grantor trust status of a trust they’ve set up,” says Lynn Halpern Lederman, managing director and senior fiduciary counsel – Northeast Region at Bessemer Trust, a New York firm that oversees $97.5 billion.

A Wall Street Journal article, titled "Rethinking Some Grantor Trusts," says that the latest bull market created potentially substantial taxable gains for individuals—and with the top federal rate on long-term capital gains at nearly 24%, as compared to 15% in 2012—there's a concern that some people may have a harder time paying that income tax bill.

How does this affect grantor trusts?

Intentionally defective grantor trusts ("IDGTs") have become very popular in estate planning because they allow the grantor to move assets out of his or her taxable estate. This lowers their potential estate taxes, while remaining responsible for the income taxes, so that the income tax burden isn’t transferred to heirs.

However, increasing income tax rates means that it becomes more expensive for a grantor to maintain the grantor trust status of a trust they’ve set up. One way around this is a clause that allows grantors to essentially turn off the grantor status of the trust. This means the trust must pay its own income taxes going forward. But this election can only be made once—the grantor can’t switch back and forth from paying to not paying the income taxes—so there needs to be some careful consideration of this decision.

Higher income taxes have prompted some to take a closer look at the assets held in grantor-retained annuity trusts ("GRATs"), which allow individuals to put some of an asset’s future profits to heirs free of gift or estate tax. Most of this planning revolves around the “step-up” in cost basis, which helps eliminate the long-term capital-gains tax on assets that are held until death by raising the owner’s cost basis for these assets to the full market value. However, in a GRAT, the assets transferred to beneficiaries usually doesn’t receive that step-up at death, so to cut down on capital-gains taxes, the original article says that it's better to have higher basis assets in the GRAT because those assets won’t get a step-up in basis.

In addition, the original article suggests swapping out low-basis assets that have recorded gains in the trust with high-basis assets, like cash, and this swapping can also be implemented with IDGTs that still have their grantor status.

Sound a little tricky? Your Northern California estate planning attorney, Robert A. Gordon can help you sort through this and find the best strategies for your situation.

Reference: Wall Street Journal (October 29, 2014) "Rethinking Some Grantor Trusts"

Estate Planning Document List - Time to Get Organized!

A well-planned estate is a wonderful legacy you can leave your heirs — instead of untangling a messy estate, they can follow concrete steps, allowing them to take care of business while mourning their loved one.

Document gathering can be overwhelming when it come to a loved one's passing. What about when you are no longer here? Will your loved ones be able to gather the appropriate information for your estate?

Newsday's recent article, titled "Estate planning: Putting affairs in order before death," lists the basic documents you will need prior to passing away.

Here they are:

LEGAL DOCUMENTS

• Will
• Letter of instruction
• Power of attorney
• Health care proxy
• Trusts (These are not necessary, but some people have a revocable or irrevocable trust.)
• A DNR or "do not resuscitate" order, which may need to be completed at each new admission to a hospital or nursing home.

 

ACCOUNTS

• List of bank accounts
• List of usernames and passwords
• List of automatic pay accounts with name and contact information of each payee
• List of safe deposit boxes
• 401(k) accounts, IRAs, and Roth IRAs
• Pension documents and Annuity contracts
• Brokerage account information
• A list of savings bonds and copies of actual bonds
• Life insurance policies (private and through employer)
• Long-term care insurance policies

 

OTHER ASSORTED DOCUMENTS

• Housing, land, and cemetery deeds
• Mortgage accounts
• Proof of loans made
• Vehicle titles
• Partnership and corporate operating agreements
• Previous three years' tax returns
• Marriage license
• Divorce papers
• Military discharge information

You should also create a list of contact information: contacts on accounts, names, current addresses and Social Security numbers of all people named in your legal documents. After completing all of this, you need to inform your executor where this information is stored. After death, things get complicated, because you have to shift between grieving and doing.

The original article also says to request numerous death certificates, as some institutions want originals, not copies, and it's easier to make the request from the funeral home, instead of after from government. You should also keep track of all bills attributable to the estate, such as funeral and memorial arrangements, death notices, and other expenses. The estate can reimburse individuals for these costs.

When you are ready, meet with your estate planning attorney. He or she will advise you to gather documents and to get a date of death valuation for all accounts to which the deceased held title. If there is a surviving spouse, you should itemize what is in both the living and deceased spouse's names. Even if there are no estate taxes due, it may still be necessary to file an estate tax return.

Work with your Sacramento estate planning attorney and ease the burden that all of this information gathering entails.

Reference: Newsday (October 29, 2014) "Estate planning: Putting affairs in order before death"

It's That Time Again: Year-End Planning

As 2014 dwindles down, it’s time to consider your year-end planning.

The holidays will be here before you know it, and that means the end of 2014 is near. Have you started your year-end planning yet?

A recent article in the Physician's Money Digest, titled 10 Financial Planning Tips for Year-end," offers some helpful financial planning tips for the year-end.

Here are just a few of the items in the article that you should consider as the year comes to an end. If you have any questions, talk to an experienced estate planning attorney.

• Think about adding to or opening a tax-advantaged 529 education plan for future education expenses, which allows you to make five years’ worth of gifts in one year.
• Make your last-minute charitable donations, and maximize your itemized deductions by donating property, or appreciated stock (i.e., contributions are deductible if you itemize deductions).
• For 2014, you can make gifts up to $14,000 (per person) to as many people as you want without any federal gift tax.

• If you're over 70½, be sure you’ve taken your required minimum distribution, including all of your IRAs in the calculation.
• Review the beneficiary designations on your IRA’s, 401(k)s, and insurance policies to confirm the correct info, and don't name your estate as a beneficiary!

There are more tips in the article.  After you read the original article, review your own year-end options and ask your Sacramento estate planning attorney at Redkey Gordon P.C. to review your specific situation, too.

Reference: Physician's Money Digest (October 17, 2014) 10 Financial Planning Tips for Year-end"

L.A. Says "No!" to Elder Abuse

The new programs will be working with those in the private sector and nonprofits to help law enforcement attune to impalpable signals that could indicate mistreatment of this vulnerable population.

Los Angeles is taking a stand against elder abuse with new training programs for the private sector and nonprofits.

“Our office is in the forefront of domestic violence,” the City Attorney commented to the Los Angeles Daily News, as reported in an article titled "L.A. gets $1.6 million to combat elder abuse."

 “Our office receives 11,000 cases of domestic violence each year, but last year, we received only 100 cases of elder abuse," the City Attorney noted.

He's certain there are more cases out there and that elder abuse is under-reported. Victims rely on caretakers, and because of that, are hesitant to come forward and make a report.

L.A. Mayor Garcetti said domestic abuse cases are increasing, even though other types of crime in Los Angeles are at historic lows. New programs will involve training for the private sector and nonprofits to assist law enforcement and to recognize symptoms that are sometimes hard to detect but that could indicate mistreatment of the city's seniors.

The mayor reminded readers that Los Angeles has "absolutely zero tolerance for domestic abuse, for sexual abuse, for elder abuse,” and that there is help for victims.

Los Angeles Assistant Police Chief Michel Moore was quoted in the original article as saying that a major issue with domestic violence is that it continues for generations and often brings about other criminal problems. Moore encouraged people to pay attention to the elderly, saying “If you see repeated signs of bruising or other problems, report it.” He added that friends and neighbors should watch for any increased isolation of an elderly person, which can be a sign of trouble.

This advice works the same in your community as it does in Los Angeles. If you have any concerns about the care of an elderly friend or loved one, speak with a California elder law attorney at Redkey Gordon P.C.. Robert A. Gordon can advise on the steps to take and work with you to make sure that your senior's interests are represented and they receive the care they need.

Reference: Los Angeles Daily News (October 15, 2014) "L.A. gets $1.6 million to combat elder abuse"

Get the 411 on Wills

"If you make a will you can distribute the wealth as per your wish and avoid many hassles. It particularly becomes more complicated if there are immovable properties involved and there are disputes on the values of such properties," says Ashish Kehair, EVP and head - private wealth and international businesses, ICICI Securities.

Why do you need a will?

One of the big reasons to make a will is to distribute the wealth as you want and avoid many of the headaches and expenses for your heirs, especially when you have immovable properties and disputes over their value. This caution is discussing in a recent article in The Business Standard titled "Why you should make a will." If there is no will and more than one legal heir, the distribution of assets is conducted by the court under probate law. This can be time-consuming and cumbersome.

Does the will need to be in a specific format? 

Generally it doesn't, but it must be properly signed and attested for it to be effective.

A will can be written in any language, but the words should be clear and unambiguous so that there's no question about the testator's intentions. The assets in the will should be detailed, as well as the recipient. The person executing the will should sign it, and it should be witnessed by two who saw the testator sign the will. The Business Standard reminds us to avoid a conflict of interest and not have a beneficiary or heir attest a will as a witness. Your estate planning attorney can help you with this.

Does a will need to be registered?

The registration of a will isn't required, but this does provide evidence that the proper steps have been taken.

What about an executor?

The testator appoints an executor to administer the will. It can be anyone he or she is comfortable with and trusts. It can be a family member, friend, attorney, or another individual. The executor is tasked with carrying out the instructions in the will for the distribution of the property and other assets.

For more answers to questions like these, take a look at the original article and speak to a Northern California experienced estate planning attorney at Redkey Gordon P.C..

Reference: The Business Standard (October 19, 2014)  "Why you should make a will"

Reverse Mortgage Schmortgage ... Try These Equity Options Instead

Home equity loans can be problematic if not done correctly and require careful attention to the rights of the surviving spouse, if you are married. And of course, the end of the process means you or your heirs give up your home. There are other ways to tap into your home’s equity that are worth considering. Here, we take a quick look at the top alternatives to reverse mortgages.

Is a reverse mortgage really the answer to your cash-flow needs? It all depends on your situation and the options at hand.

A recent Investopediaarticle, titled "5 Top Alternatives To A Reverse Mortgage," examines some of the top alternatives to reverse mortgages.

1. Refinance Your Existing Mortgage. If you have an existing home loan, you may be able to refinance your mortgage at a lower interest rate and lower your monthly payments to free up some cash.

2. A Home-Equity Loan. This is basically a second mortgage which allows you to borrow money against the equity in your home. The interest is typically tax deductible for loans up to $100,000.

3. A Home Equity Line of Credit. A home equity line of credit ("HELOC") lets you borrow up to an approved credit limit on an as-needed basis, and you pay interest only on the amount of money you actually withdraw. These are adjustable loans, so your monthly payment changes with the interest rates. Interest on a HELOC is usually tax deductible for loans up to $100,000.

4. Sell Your Home and Downsize. The original article also suggests that you think about selling your home to give you access to your home equity. This can be a great option if your current home is too big for your current needs or too difficult or costly to maintain.

5. Sell Your Home to Your Children. One way to do this is a sales-leaseback agreement, where you sell the house to your kids, then rent it back using the cash from the sale. Your children get rental income and will be able to take deductions for depreciation, real estate taxes and maintenance.

The original article says that reverse mortgages may be good for those who are “house-rich and cash-poor.” That is, people with home equity but too little retirement income. Before you decide on which option (if any) is right for you, you should definitely speak with Robert A. Gordon, an experienced estate planning attorney.

Reference: Investopedia (October 17, 2014) "5 Top Alternatives To A Reverse Mortgage"

True Story - What Can Happen If You Don't Sign Your Will!

The legal dispute surrounding the roughly $200 million estate of the late Charlotte developer Henry Faison has been resolved, with his company winning forgiveness of more than $100 million in loans he’d extended to it.

In this recent court case filed by Faison's sons, Jay and Lane, they asked the court to force Henry's company to allow the assets, including $105 million in loans extended by Faison, to pass to his foundation. The dispute centers on Henry's June 2000 will, which left the residuary of his estate to Faison Enterprises. 

However, Henry changed his mind in summer 2012.

As The Charlotte Observerdetailed in a recent article titled "Settlement reached in lawsuit over late developer Henry Faison’s estate," Henry decided to leave most of his personal wealth to a charitable trust he planned to name after his dog, Skeebo. This change would avoid about $110 million in federal estate taxes and allow the foundation to support conservative causes, according to court papers. But Henry passed away right before he could sign the will or the documents creating the trust.

In North Carolina, a written will isn’t valid unless it is handwritten by the decedent or is signed by that person and witnessed by two uninterested individuals.

Faison Enterprises argues that the sons are proposing a type of “post-mortem tax and estate planning” prohibited by state law. The company’s lawyers said Henry repeatedly declined to sign a 2012 draft will—even though he had it for more than two months before he died. They said his 2000 will should be followed.

The original article reported that the parties came to a settlement and that agreement was incorporated into an order from the Superior Court. The judge directed that the loans be distributed to Faison Enterprises, which means the company won’t have to repay them. He also required Jay and Lane Faison, co-executors of their father’s estate, to refund $1 million in interest the company paid on the loans and pay the company’s legal fees up to $2.5 million. The judge’s order also permitted Faison Enterprises the option to purchase certain properties owned by the estate.

After all legal fees, distributions and other expenses are satisfied, the remainder of the estate goes to the Skeebo trust.

This is a pretty straightforward situation that went sideways real fast because the decedent failed to make his intention known by signing a valid will and have his estate planning documents, such as a trust here, in order. You can avoid this type of prolonged and heated litigation by speaking with an experienced Sacramento estate planning attorney at Redkey Gordon P.C.. Get your business succession plan set and your personal asset distribution strategy defined to prevent your heirs and business associates from fighting in court after you're gone.

Reference: The Charlotte Observer (October 17, 2014) "Settlement reached in lawsuit over late developer Henry Faison’s estate"