Richmond Virginia Estate Planning, Elder Law, And Asset Protection


Making the Most of Exemptions and Flexibility in Gifting

The time period available to take advantage of the high transfer tax exemption has driven many to make or give more serious thought to making large gifts, while the estate tax exemptions are certain. However, not everyone is ready or able to give away large amounts of wealth, in case they may be needed in the future. For those who are concerned about needing these assets vs. making gifts, there are some strategies that can build flexibility into gift planning, reports the article “Five Ways to Build Flexibility Into Your Gift Planning” from Financial Advisor Magazine.

Depending on the outcome of two runoff elections for the U.S. Senate in Georgia in early 2021, there may or may not be large changes in the gift and estate tax laws in store, but now, before any changes, may be a good time for people with larger estates to make significant gifts.

Spousal Lifetime Access Trust, or SLAT, is one gifting option for married couplies. This is a type of irrevocable trust that includes the grantor’s spouse as one of the beneficiaries. The couple can enjoy the gift tax exemption, because the trust is funded while one spouse is living, but they can also have access to the trust’s assets because the grantor’s spouse may receive both income and principal distributions. A few things to keep in mind when discussing this with your estate planning attorney:

  • If both spouses want to create a SLAT, be careful not to make the trusts identical to one another. If they are created at the same time, funded with the same amount of assets and contain the same terms, it is possible they will not withstand scrutiny.
  • The term “spouse” has some flexibility. The spouse could be the current spouse, the current spouse and a future spouse, or a future spouse for someone who is not yet married.

Special Power of Appointment is a power granted to a person to direct trust assets to a specified person or class of people (other than the power holder, the estate of the power holder or the creditors of either one). The power holder may direct distributions to one or more people, change the beneficiaries of the trust and/or change the terms of the trust, as long as the changes are consistent with the power of appointment. Note the following:

  • The permissible appointees of a power of appointment can be broad or narrow, and the grantor may even be a permissible appointee for outright distributions.
  • If the grantor is a permissible appointee, special care must be taken when naming the power holder(s) to avoid any challenge that the trust was always intended for the grantor. The trust may need to have multiple power holders, or a third party, to agree to any distributions.

A Trust Protector is a person who has powers over the trust but is not a trustee. This is an increasingly popular option, as the trust protector has the ability to address issues and solve problems that were not anticipated when the trust was created. The Trust Protector may often remove or replace trustees, make changes to beneficiaries, divide the trust, change administrative provisions, or change trust situs.

A Disclaimer is used when a gift recipient renounces part or all of a gift transferred to them. When a gift is made to a trust, the trust instrument is used to specify how the assets are to pass, in the event of a disclaimer. If the grantor makes a gift to the trust but is then concerned that the gift is unnecessary or the grantor might need the assets back, the trust can provide that the assets revert to the grantor in the event of the disclaimer.

Planning with Promissory Notes is another way to include flexibility in the timing, implementation and amount of gift planning. An asset is sold by the grantor to a grantor trust in exchange for a promissory note. There are no income tax consequences, as the sale is to a grantor trust. If the sale is for full market value, there is no gift. The grantor gets to decide when, and if, to make a gift with the promissory note.

Speak with your estate planning attorney to determine which, if any, of these strategies is the right fit for you and your family, and to learn more about flexible solutions to making large gifts. While it is impossible to know exactly when and how the federal exemptions will change, there are many different tools that can be used while waiting for any changes.

Reference: Financial Advisor Magazine (Sep. 10, 2020) “Five Ways to Build Flexibility Into Your Gift Planning”


long-term care planning

When Do We Need an Elder Law Attorney?

A recent Kiplinger’s article “When Elder Care Requires Legal Advice” explains that a lot of panicked calls are made to elder law attorneys when a person becomes disabled. These are attorneys who specialize in planning for the legal complications that can arise in old age. However, seldom do people think to consult one preemptively to avoid making that panicked phone call when incapacity strikes.

Many, but not all elder law attorneys are members of the National Academy of Elder Law Attorneys (NAELA).

Elder care attorneys work in the best interests of the older person, although how that is accomplished may differ. If the senior is competent and contacts the attorney, it can be fairly straightforward. However, if an adult family member or friend is an agent or has power of attorney for an elderly person—and asks for help, the attorney may represent the agent. In our office, we normally consider the disabled person the client, even if we are working through an agent or other client representative. In fact, for new estate planning clients, we get their permission in advance to advise the power of attorney agent or other personal representative in the event they become incapacitated in the future. In any event, a person who has power of attorney for another has a fiduciary responsibility to do what is best for the elderly person granting them that authority.

If a power of attorney isn’t in place and the elderly parent is incapable of giving it, the family is required to go to court to have someone appointed as a guardian, which can be a time-consuming option. If a parent is cognitively capable and doesn’t want help, there’s nothing an attorney can do about it.

Although state laws vary, elder law primarily concerns these topics:

  • The client’s wishes and health
  • Family dynamics; and
  • The client’s financial assets and income.

An elder care attorney will also make sure that all important documents are in place and up-to-date, according to state laws. This includes a will, a trust, a power of attorney and an advance directive that includes a health care proxy.

Elder law attorneys also help moderate tough decisions, like when family members can’t agree about how a loved one wanted to be buried.

In addition, elder care lawyers understand the complex laws for Medicaid and Veterans benefits. An elder care lawyer can speak to many other issues, ranging from long-term care insurance to capital gains taxes.

A key when meeting with an elder law attorney is that you feel comfortable, that you’re not rushed and that your questions are answered.

Reference: Kiplinger (Sep. 15, 2020) “When Elder Care Requires Legal Advice”


Signing estate plan documents

The Wrong Power of Attorney Could Lead to a Bad Outcome

There are two different types of advance medical directives, and they have very different purposes, as explained in the article that asks “Does your estate plan use the right type of Power of Attorney for you?” from Next Avenue. Fewer than a third of retirees have a financial power of attorney, according to a study done by the Transamerica Center for Retirement Studies. Most Americans don’t even understand what these documents do, which is critically important, especially during this Covid-19 pandemic.

Two types of Durable Power of Attorney for Finance. The power of attorney for finance can be “springing” or “immediate.” The Durable POA refers to the fact that this POA will endure after you have lost mental or physical capacity, whether the condition is permanent or temporary. It lists when the powers are to be granted to the person of your choosing and the power ends upon your death.

The “immediate” Durable POA is effective the moment you sign the document. The “springing” Durable POA does not become effective, unless two physicians examine you and both determine that you cannot manage independently anymore. In the case of the “springing” POA, the person you name cannot do anything on your behalf without two doctors providing letters saying you lack legal capacity.

You might prefer the springing document because you are concerned that the person you have named to be your agent might take advantage of you. They could legally go to your bank and add their name to your accounts without your permission or even awareness. Some people decide to name their spouse as their immediate agent, and if anything happens to the spouse, the successor agents are the ones who need to get doctors’ letters. If you need doctors’ letters before the person you name can help you, ask your estate planning attorney for guidance.

The type of impairment that requires the use of a POA for finance can happen unexpectedly. It could include you and your spouse at the same time. If you were both exposed to Covid-19 and became sick, or if you were both in a serious car accident, this kind of planning would be helpful for your family.

It’s also important to choose the right person to be your POA. Ask yourself this question: If you gave this person your checkbook and asked them to pay your bills on time for a few months, would you expect that they would be able to do the job without any issues? If you feel any sense of incompetence or even mistrust, you should consider another person to be your representative.

If you should recover from your incapacity, your POA is required to turn everything back to you when you ask. If you are concerned this person won’t do this, you need to consider another person.

Broad powers are granted by a Durable POA. They allow your representative to buy property on your behalf and sell your property, including your home, manage your debt and Social Security benefits, file tax returns and handle any assets not named in a trust, such as your retirement accounts.

Some lawyers — and some homemade powers of attorney — include old boilerplate which limits gifts to some arbitrary amount related to gift taxes which apply to few Americans today. This restriction could prevent your agent from making perfectly appropriate and permissible gifts before applying for Medicaid. The point is, we all need a durable power of attorney, but it needs to be the right power of attorney.

The executor of your will, your trustee, and Durable POA are often the same person. They have the responsibility to manage all of your assets, so they need to know where all of your important records can be found. They need to know that you have given them this role and you need to be sure they are prepared and willing to accept the responsibilities involved.

Your advance directive documents are only as good as the individuals you name to implement them. Family members or trusted friends who have no experience managing money or assets may not be the right choice. Your estate planning attorney will be able to guide you to make a good decision.

Reference: Market Watch (Oct. 5, 2020) “Does your estate plan use the right type of Power of Attorney for you?”


long-term care planning

Will COVID-19 Cause Memory Loss?

Have you seen those Facebook posts which ask if you personally know anyone who’s had COVID? Is that a 2020 question, or what?  And it’s now apparent that many survivors of COVID-19 have neurological symptoms. As we know, these symptoms include a loss of smell, delirium and an increased risk of stroke. But there are also longer-lasting consequences for the brain, including myalgic encephalomyelitis/chronic fatigue syndrome and Guillain-Barre syndrome, reports Considerable’s article entitled “Does COVID-19 increase your risk of memory loss? Here’s what we know.” 

The article say that these effects may be caused by direct viral infection of brain tissue. However, there is growing evidence to suggest that additional indirect actions triggered via the virus’s infection of epithelial cells and the cardiovascular system, or through the immune system and inflammation, contribute to lasting neurological changes after contraction of COVID-19. Scientists are looking at whether there be a COVID-19-related wave of memory deficits, cognitive decline and dementia cases in the future.

Scientists say that many of the symptoms we link to an infection are, in fact, due to the protective responses of the immune system. This is also true when it comes to feeling sick: the general malaise, tiredness, fever and social withdrawal are caused by activation of specialized immune cells in the brain, called neuroimmune cells, and signals in the brain.

In addition to changing behavior and regulating physiological responses during illness, the specialized immune system in the brain also has several other roles.

Research now shows that the neuroimmune cells that are at the connections between brain cells (synapses), which provide energy and minute quantities of inflammatory signals, are essential for normal memory formation. Unfortunately, this also is a way in which an illness like COVID-19 can cause both acute neurological symptoms and long-lasting issues in the brain.

During illness and inflammation, the specialized immune cells in the brain become activated, sending out large amounts of inflammatory signals and changing how they communicate with neurons. Because COVID-19 involves a massive release of inflammatory signals, there are both short-term effects on cognition (delirium) and the potential for long-lasting changes in memory, attention and cognition.

(And my personal, non-legal advice? Take your Vitamin D3!)

There is also an increased risk for cognitive decline and dementia, including Alzheimer’s disease, during aging.

The potential connection between COVID-19 and persistent effects on memory are evidenced by observations of other illnesses, such as patients who recover from a heart attack or bypass surgery who report lasting cognitive deficits that become exaggerated during aging.

It will be many years before we know whether the COVID-19 infection causes an increased risk for cognitive decline or Alzheimer’s disease. However, this risk may be reduced by prevention and treatment of COVID-19. Prevention and treatment both rely on the ability to decrease the severity and duration of illness and inflammation. Interestingly, new research suggests that common vaccines, including the flu shot and pneumonia vaccines, may reduce the risk for Alzheimer’s. Several emerging treatments for COVID-19 are drugs also suppress excessive immune activation and inflammatory state. These treatments may also reduce the impact of inflammation on the brain and decrease the impact on long-term brain health.

Reference: Considerable (Aug. 7, 2020) “Does COVID-19 increase your risk of memory loss? Here’s what we know”

pet inheritance

Can I Leave My Pet Some of My Estate?

What is a Pet Trust? It is a legal instrument you can create in your will or living trust to ensure your beloved pet receives proper and loving care after you die (or in the event of your disability).  Virginia has allowed pet trusts since 2005. Minnesota recently became the last and 50th state to allow pet trusts, as  reported in the Minneapolis Star Tribune’s article entitled “Who will take care of Fido when you’re gone? Minnesotans put trust in trusts”. Now our northern brethren are setting up trusts to care for their pets in the event they survive them.  

If you care for animals, pet trusts are something to discuss with your estate planning attorney.

Since the law was enacted in 2016, Minnesotans have joined us in setting aside money to guarantee the care of their animals after they die or are incapacitated. With a pet trust, there’s a guarantee that the money earmarked to care for the animal will be there for the animal as intended. A trust can designate a separate caretaker, trustee and a trust enforcer to care for the animal, manage the money. and make certain the care is being provided as instructed in the trust.

A pet trust can contain instructions on the type of food, medical care, exercise and housing the pet will get, as well as the pet’s end of life and burial or cremation directions.

When the pet trust law was being debated in the Minnesota Legislature, there was the idea that pet trusts are frivolous, an option only for wealthy eccentrics like New York real estate and hotel tycoon Leona Helmsley. She died in 2007 leaving $12 million for the care of her dog, Trouble. The courts later reduced that amount to $2 million.

In the North Star State, the amount of money put into a trust to care for a pet can’t be excessive, or a judge might decrease the amount.

A pet trust can be used to care for an animal before the owner dies but is disabled or incapacitated. When the pet dies, depending on how the trust was created, the money left in the trust would be distributed to heirs or could go to another designated person or charity.

When states didn’t allow pet trusts, a person could write in a will that a relative will inherit a pet, and the pet owner could also leave the person money to pay for the animal’s care. However, because pets are legally considered personal property, they cannot own property or inherit assets themselves. As a result, there’s nothing that would prevent the relative designated to care for the animal to take it to the pound after you die and spend the cash on themselves.

A pet trust can provide a plan for animal lovers who want to own pets late in life but may be concerned the pet might outlive them. Talk to an experienced estate planning attorney about pet trusts in your state.

And while you’re at it, since pet trusts typically end if you outlive your pets, you may want to consider leaving what would have gone into the trust to charity instead.

Reference: StarTribune (Sep. 23, 2020) “Who will take care of Fido when you’re gone? Minnesotans put trust in trusts”

Estate hassles start here

Prince’s Estate Hits the IRS with a Multi-Million Dollar Lawsuit

Filing probate documents was just the beginning of a process that still hasn’t ended the bad news from Prince’s estate. The megastar did not have a spouse or children, but Prince had half-brothers and half-sisters, says a recent article from Forbes titled “Prince’s Estate Sues IRS Over Claimed $135 Million Tax Value.” There were a number of claims against the estate, and claims by Prince’s estate as well, including a wrongful death action that was eventually dismissed. For Prince or anyone else who dies without a will, probate can be lengthy and expensive. Things also get complicated quickly, especially with an estate of this size.

One of Prince’s half-sisters, Tyka Nelson, sold a portion of her share of the estate to Primary Wave, a music publisher. So did another sibling. And then the tax troubles began. Cash poor or not, larger estates must pay a federal estate tax of 40%. A federal estate tax return needs to be filed, and while audits are rare, almost every estate of this magnitude is audited by the IRS. The estate reported a taxable value of $82 million, but the IRS isn’t satisfied.

Estate tax fights with the IRS can go on for a long time. Michael Jackson’s estate battle with the IRS is still going on—and he died in 2009.

Papers filed by Prince’s estate in the U.S. Tax Court show that the estate reported a taxable value of $82 million, but the IRS claims that the value is really $163 million and wants an additional $38.7 million. In every case, Prince’s estate has obtained appraisals to support its reported values, but the IRS has its own appraisers who disagree.

Even if Prince had a will, there still could have been problems. Heath Ledger had a will, but it was five years old when he died and there was no provision made for his daughter. James Gandolfini had a will, but his estate gave the IRS $30 million of his $70 million. These stories make estate planning attorneys cringe. Seymour Hoffman, Heath Ledger, and James Gandolfini’s estates all ended up with wills in probate, which is public, expensive, time-consuming and unnecessary. A will does have to go through the court process, but the use of a revocable trust could have disposed of their assets outside of probate. A simple pour-over will would have given everything to the revocable trust, simply, and privately in terms of the ultimate inheritance disposition.

Estate planning attorneys advise clients to update wills and trusts every time there is a birth, marriage, divorce, etc. It is good advice for both celebrities and regular people. Probate is complicated.

You can give an unlimited amount to your U.S. Citizen spouse during life or on death. Prince’s estate may face a 40% estate tax, but if he had been married and left his estate to his spouse, there would not have been any federal estate tax until the death of the spouse.

A lesson for the rest of us: have an estate plan, including a will and make sure that it includes tax planning.

Reference: Forbes (Oct. 7, 2020) “Prince’s Estate Sues IRS Over Claimed $135 Million Tax Value”

estate planning decisions

Estate Planning Actions to Consider before 2020 Ends

When it comes to estate planning, there’s no such thing as a “one-size-fits-all” solution. That is especially true after an election. However, there are several factors including estate and gift taxes that should be considered and discussed with your estate planning attorney, as recommended in this recent article from The National Law Review “Top Ten Estate Planning Recommendations before the End of 2020.” This is a good time to review your plan.

The estate, gift and generational-skipping transfer tax exemption is now $11.58 million per person. It’s scheduled to increase every year by an inflationary indexed amount through 2025 and in 2026 will revert to $5 million. If, as it appears, Biden wins the election, it is possible that changes could be made sooner, but at this point, with control of the Senate likely to remain the same, quick changes are unlikely. But this is a good time for tax planning. The IRS has already said that if the exemption is used this year, there will be no claw back. This is a “use it or lose it” scenario. If you are planning on using it, now is the time to do so.

It is possible that Discounts, GRATS, Grantor Trusts and other estate planning techniques may go away, depending upon who wins the control of Congress. Consider taking advantage of commonly used estate planning tools before it is too late.

Married couples who are not ready to gift significant amounts to their children or to put assets into trusts for their children should consider the SLAT–Spousal Lifetime Access Trust. They can create and gift the exemption amount to a SLAT and still maintain access to the assets.

Single individuals who similarly are not ready to make large gifts and give up access to assets may also create and gift an exemption amount to a trust in a jurisdiction based on “domestic asset protection trust” legislation. They can be a beneficiary of such a trust.

Interest rates are at an all-time low, and that is when tools like intra family loans, GRATs and GLATs are at their best.

Moving to Florida, Nevada, Texas and other low- or no-income tax states has become very popular, especially for people who can work remotely. Be aware that high tax states like New York and California are not going to let your tax revenue leave easily. Check with your estate planning attorney to make sure you’re following the rules in giving up your domicile in a high-income tax state.

Reference: The National Law Review (Oct. 6, 2020) “Top Ten Estate Planning Recommendations before the End of 2020”

Social Security Cost-of-Living Adjustment

How Big Is the Social Security Cost-of-Living Adjustment?

“The 1.3 percent cost-of-living adjustment will begin with benefits payable to more than 64 million Social Security beneficiaries in January 2021. Increased payments to more than 8 million [Supplemental Security Income] beneficiaries will begin on December 31, 2020,” the Social Security Administration said in a news release. That’s a smaller increase for retirees once again.

As The Federal Times reports in its article, “Retiree cost of living adjustments sink for the second year in a row,” the Bureau of Labor Statistics calculates the cost-of-living adjustment — known as the COLA — each year based on the consumer price index for workers. It looks at the changing prices of common goods to which the average worker would be exposed.

However, the National Active and Retired Federal Employees Association has for many years had an issue with that type of calculation. That’s because it fails to take into account the differences in costs experienced by the elderly, who receive Social Security benefits, rather than the standard worker.

“This insufficient COLA fails to keep up with inflation experienced by seniors, further eroding their purchasing power. The cost of health care continues to rise faster than other goods. Seniors spend more on health care than any other segment of the population — just as the nation struggles to contain a virus that poses particular danger to older Americans. And federal retirees will almost certainly be further burdened by significantly higher Federal Employees Health Benefits program premiums, which have yet to be announced for 2021,” NARFE National President Ken Thomas said in a statement.

“This didn’t need to happen. For years, NARFE has urged Congress to address the inequity of COLAs that don’t keep up with rising health care costs by passing legislation requiring the BLS to calculate COLAs based on the consumer price index for the elderly instead of the consumer price index for workers.”

COLA adjustments have varied widely each year. For example, in 2015, there was no increase, and in 1980, the bump was 14.3%!

In the past 20 years, COLA increases have only twice been more than 4%. The good news is that military veterans will also see an increase to some of their benefits based on the COLA increase.

In September, Congress okayed plans to link a COLA in veterans benefits with the annual Social Security increase. Under current law, Congress must approve the veteran’s benefits increase each year, but Social Security beneficiaries get the boost automatically.

The benefits for vets include disability compensation, compensation for dependents, clothing allowances and dependency and indemnity compensation checks.

Those receiving Social Security benefits should be notified of their new benefit amount beginning in early December. Most recipients should also be able to see the notice in their online Social Security accounts.

Reference: The Federal Times  (Oct. 13, 2020) “Retiree cost of living adjustments sink for the second year in a row”

Suggested Key Terms: Social Security, Retirement Planning, VA Benefits, Veterans, Military, Legislation


What are the Top Giving Characteristics of Donors?

Charitable giving season is here.  A majority of 2020 gifts to charity will likely be given in the next two months. So, who’s most likely to give? Russell James, a professor in the Department of Personal Financial Planning at Texas Tech University in Lubbock, Texas, discussed his research on the characteristics of charitable donors with The Nonprofit Times in a recent article entitled “Research Shows Donors’ 10 Estate Giving Characteristics.” The results may surprise you. (Or not.)

“The Emerging Potential of Longitudinal Empirical Research in Estate Planning: Examples from Charitable Bequests,” is based on the Health and Retirement Study (HRS), which includes nationally representative data that has been released every two years since 1992, including the characteristics of charitable donors. The HRS monitored roughly 14,000 individuals beginning at age 50 to connect lifetime giving and other characteristics and planning to determine how estates have been transferred. The examination of the top 10 lifetime characteristics most important in predicting who would make post-mortem charitable transfers were as follows, in order of importance:

  • Consistency in donating (percentage of survey years when respondents gave $500+ to charity)
  • No children
  • The greatest amount ever donated in any one year in life
  • Consistency in reporting having a funded trust
  • Female
  • Wealth in the last survey
  • Not married
  • The amount of the donation in the year of the final survey
  • Having a growing trajectory of wealth leading up to death; and
  • Consistency in volunteering.

“Several of these most important predictive factors reflect behavior across many years,” said James. He cited wealth trajectory approaching death, rather than just ending wealth, as critical along with consistency across all survey years in giving, donating and reporting having a funded trust.

The greatest amount of donations ever reported in any one year was a major predictor. “By disclosing more of the lifetime history of decedent behaviors, the HRS reveals the importance of such comprehensive information in predicting post- mortem charitable estate transfers,” the paper noted.

To explore ways you can give voice to your charitable interests, consult an estate planning attorney who is knowledgeable about charitable gift planning.

Reference: The Nonprofit Times (Sep. 22, 2020) “Research Shows Donors’ 10 Estate Giving Characteristics”

You've got a lot to protect.

Protect Your Estate with Five Facts

It is true that a single person who dies in 2020 could have up to $11.58 million in personal assets and their heirs would not have to pay any federal estate tax. However, that doesn’t mean that regular people don’t need to worry about estate taxes—their heirs might have to pay state estate taxes, inheritance taxes or the estate may shrink because of other tax issues. Even with no estate tax, you need to protect your estate. That’s why U.S. News & World Report’s recent article “5 Estate Planning Tips to Keep Your Money in the Family” is worth reading.

Without proper planning, any number of factors could take a bite out of your children’s inheritance. They may be responsible for paying federal income taxes on retirement accounts, for instance. You want to be sure that a lifetime of hard work and savings doesn’t end up going to the wrong people. You’ve got a lot to protect.

The best way to protect your family and your legacy, is by meeting with an estate planning attorney and sorting through all of the complex issues of estate planning. Here are five areas you definitely need to address:

  1. Creating a last will and testament
  2. Checking that beneficiaries are correct
  3. Creating a trust
  4. Converting traditional IRA accounts to Roth accounts
  5. Giving assets while you are living

A last will and testament. Only 32% of Americans have a will, according to a survey that asked 2,400 Americans that question. Of those who don’t have a will, 30% says they don’t think they have enough assets to warrant having a will. However, not having a will means that your entire estate goes through probate, which could become very expensive for your heirs. Having no will also makes it more likely that your family will challenge the distribution of assets. As a result, someone you may have never met could inherit your money and your home. It happens more often than you can imagine.

Checking beneficiaries. Once you die, beneficiaries cannot be changed. That could mean an ex-spouse gets the proceeds of your life insurance policy, retirement funds or any other account that has a named beneficiary. Over time, relationships change—make sure to check the beneficiaries named on any of your documents to ensure that your wishes are fulfilled. Your will does not control this distribution and is superseded by the named beneficiaries.

Set up a trust. Trusts are used to accomplish different goals. If a child is unable to manage money, for instance, a trust can be created, a trustee named and the account funded. The trust will include specific directions as to when the child receives funds or if any benchmarks need to be met, like completing college or staying sober. With an irrevocable trust, the money is taken out of your estate and cannot be subject to estate taxes. Money in a trust does not pass through probate, which is another benefit.

Convert traditional IRAs to Roth retirement accounts. When children inherit traditional IRAs, they come with many restrictions and heirs get the income tax liability of the IRA. Regular income tax must be paid on all distributions, and the account has to be emptied within ten years of the owner’s death, with limited exceptions. If the account balance is large, it could be consumed by taxes. By gradually converting traditional retirement accounts to Roth accounts, you pay the taxes as the accounts are converted. You want to do this in a controlled fashion, so as not to burden yourself. However, this means your heirs receive the accounts tax-free.

Gift with warm hands, wisely. Perhaps the best way to ensure that money stays in the family, is to give it to heirs while you are living. As of 2020, you may gift up to $15,000 per person, per year in gifts. The money is tax free for recipients. Just be careful when gifting assets that appreciate in value, like stocks or a house. When appreciating assets are inherited, the heirs receive a step-up in basis, meaning that the taxable amount of the assets are adjusted upon death, so some assets should only be passed down after you pass.

Reference: U.S. News & World Report (Sep. 30, 2020) “5 Estate Planning Tips to Keep Your Money in the Family”

Suggested Key Terms: Estate Planning Attorney, Roth Conversion, IRAs, Named Beneficiary, Last Will and Testament, Irrevocable Trust, Probate


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