Massachusetts Estate Planning & Asset Protection Blog

Gift Tax Versus Estate Tax

Posted by Dennis Sullivan & Associates on Mon, Oct 20, 2014

Gift Tax Versus Estate Tax | Massachusetts Estate Attorney

 

 elderly-mother-and-daughter

 

 

What Do You Do?

You want to leave gifts for your heirs, but should you wait until you pass away? Or should you give some money to them now? 

Caution: There Is A Lot of Confusion About Gifting

While gifts may make sense for taxes, they can also create a significant penalty for nursing home purposes. With all plans, you need to consider whether it makes more sense to preserve your benefits for nursing home purposes or to obtain tax breaks. As the old saying goes, “Don’t let the tax tail wag the dog.” For those who would like to protect their home, family and life savings with a trust based plan, they will also be able to continue to give gifts without triggering a penalty, but only if as the gifts are made from a qualifying trust. For more information on protecting your home, family, and life savings while also retaining gift giving privilege, take a look at our free report The Ten Biggest Estate Planning and Asset Protection Mistakes People Make and How to Avoid Them

Gift Tax versus Estate Tax
Gift tax is the tax imposed by the federal government on any transfer of property to an individual without any compensation in return. "Property" in this sense includes both tangible property, like art or furniture, and intangible gifts like stocks and cash.

Currently (under 2014 law), you are exempt from gift tax on lifetime donations up to $5.34 million. Once your donations go over that lifetime amount, they can be subject to taxes up to 40%.

However, it's essential to note that this is a lifetime exemption – meaning, that's your cap over the span of your life. The $5.34 million lifetime exemption is a well-known figure in the world of estate planning that's based on what's called the unified gift and estate tax credit.

In any particular year, you can also give a tax-free gift of up to $14,000 per recipient without dipping into the basic exclusion. This is known as the "annual exclusion." However, here's where it gets tricky because of the unified credit. This refers to the federal gift tax and estate tax, combined into one tax system. If you give more than the annual exclusion amount to any one recipient in any particular year, most people are eligible to use the unified credit so that the gift counts against your estate. For example, if you give $15,000 in 2014, $14,000 is eligible for the annual exclusion, and the remaining $1,000 is applied against your lifetime exemption, which also reduces the exemption for your estate when you die by the same amount.

Estate tax is the tax imposed by the federal government on any transfer of property (tangible or intangible) by your estate after you have passed away. It is calculated by figuring out your "gross estate" (all assets including real estate, cash and securities, business interests, etc.) and subtracting any deductions you may qualify for (such as funeral expenses and some charitable contributions). The net amount after these calculations is then added to any taxable gifts you have given that have used up your unified credit to generate your taxable amount. 

There are definite pros and cons to either option; we’ll take a look at some below: 

Giving Heirs the Money Now 
Here are some advantages to giving your heirs money while you're still alive.

  • You get to see them enjoy it. If you'd prefer to see your gifts in action, giving your heirs the money now gives you a chance to see the difference it makes in their lives.
  • You can advise how they spend it. If you'd prefer to see your gifts in action in a specific way, giving the money while you're still alive gives you a chance to let your heirs know how you'd prefer they spend it.
  • You can give the gift in the form of paying for something. If you really want to ensure the money is spent on the thing you want it to be spent on, you can pay for something rather than giving your heirs the money for it. For example, you can pay for their wedding, make a down payment on their dream house, or pay for their tuition (which, incidentally, can qualify for the educational exclusion from gift tax).
  • You can stop giving them money if you see them falling off the rails. If you plan to give your heirs free reign with their money, giving it to them now allows you to put a stop to the cash flow if you see them spending it unwisely (like buying a flashy car instead of paying for tuition or paying down their mortgage).
  • You can avoid taxes up to a certain amount. For 2014, the IRS allows you to exclude up to $14,000 in gifts per heir (or $28,000 per heir if the gift is given by you and your spouse jointly). This means you will not have to pay gift tax on gifts up to that amount. If you choose to give a gift beyond that, you'll need to claim the "unified credit" (and have it count against your estate's lifetime exemption) in order to avoid paying taxes on the gift.

Waiting Until You Pass Away

Conversely, here are some advantages to waiting until you pass away before bequeathing gifts to your heirs.

  • You may need the money later. What if you find that you need the money to pay for your own expenses during your lifetime? You might need more than you think in order to enjoy your hard-earned retirement, pay for medical expenses not covered by insurance, or cover other long-term care costs such as home health aides and nursing home care.
  • Ability to change your mind. At the moment, you might want to split your money equally among your children; but what happens if one of your children later makes poor decisions that make you want to disinherit that person? Conversely, what happens if one of your children gets into a major accident and requires more medical care, and therefore more financial support? You can always adjust your will to change the amount you'll be leaving heirs after you pass away, but you can't take back money you've already gifted. Waiting until you pass away gives you the opportunity to change your mind during your lifetime.
  • Your heirs might appreciate it more and spend it more wisely. By waiting until you've passed away, you give your heirs a chance to "make their own way in the world" at a younger age. Rather than relying on an annual cash infusion from you, your heirs will be older and more responsible when they receive the inheritance. This might cause them to appreciate the gift more, as they will have experienced the task of earning money.

 

At the Estate Planning & Asset Protection Law Center, we provide a unique education and counseling process which includes our unique 19 Point Trust, Estate and Asset Protection Review to help people and their families learn how to protect their home, spouse, life-savings, and legacy for their loved ones, click here for more information. We provide clients with a unique approach so they understand where opportunities exist to eliminate problems now as they implement plans for a protected future.

We encourage you to attend one of our free educational workshops, call 800-964-4295 and register to learn more about what you can do to enhance the security of your spouse, home, life savings and legacy.

 

Click Here to Register For Our Trust, Estate & Asset  Protection Workshop

Tags: Estate Planning, gift tax, estate tax, children

To Give Or Not To Give? A Question of Taxes

Posted by Dennis Sullivan & Associates on Fri, Sep 26, 2014

To Give Or Not To Give? A Question of Taxes
hug

What Do You Do?

You want to leave gifts for your heirs, but should you wait until you pass away? Or should you give some money to them now?

 

Caution: There Is A Lot of Confusion About Gifting

While gifts may make sense for taxes, they can also create a significant penalty for nursing home purposes. With all plans, you need to consider whether it makes more sense to preserve your benefits for nursing home purposes or to obtain tax breaks. As the old saying goes, “Don’t let the tax tail wag the dog.” For those who would like to protect their home, family and life savings with a trust based plan, they will also be able to continue to give gifts without triggering a penalty, but only if as the gifts are made from a qualifying trust. For more information on protecting your home, family, and life savings while also retaining gift giving privilege, take a look at our free report The Ten Biggest Estate Planning and Asset Protection Mistakes People Make and How to Avoid Them.

 

Gift Tax versus Estate Tax
Gift tax is the tax imposed by the federal government on any transfer of property to an individual without any compensation in return. "Property" in this sense includes both tangible property, like art or furniture, and intangible gifts like stocks and cash.

Currently (under 2014 law), you are exempt from gift tax on lifetime donations up to $5.34 million. Once your donations go over that lifetime amount, they can be subject to taxes up to 40%.

However, it's essential to note that this is a lifetime exemption – meaning, that's your cap over the span of your life. The $5.34 million lifetime exemption is a well-known figure in the world of estate planning that's based on what's called the unified gift and estate tax credit.

In any particular year, you can also give a tax-free gift of up to $14,000 per recipient without dipping into the basic exclusion. This is known as the "annual exclusion." However, here's where it gets tricky because of the unified credit. This refers to the federal gift tax and estate tax, combined into one tax system. If you give more than the annual exclusion amount to any one recipient in any particular year, most people are eligible to use the unified credit so that the gift counts against your estate. For example, if you give $15,000 in 2014, $14,000 is eligible for the annual exclusion, and the remaining $1,000 is applied against your lifetime exemption, which also reduces the exemption for your estate when you die by the same amount.

Estate tax is the tax imposed by the federal government on any transfer of property (tangible or intangible) by your estate after you have passed away. It is calculated by figuring out your "gross estate" (all assets including real estate, cash and securities, business interests, etc.) and subtracting any deductions you may qualify for (such as funeral expenses and some charitable contributions). The net amount after these calculations is then added to any taxable gifts you have given that have used up your unified credit to generate your taxable amount.

 

There are definite pros and cons to either option; we’ll take a look at some below:

 

Giving Heirs the Money Now 
Here are some advantages to giving your heirs money while you're still alive.

  • You get to see them enjoy it. If you'd prefer to see your gifts in action, giving your heirs the money now gives you a chance to see the difference it makes in their lives.
  • You can advise how they spend it. If you'd prefer to see your gifts in action in a specific way, giving the money while you're still alive gives you a chance to let your heirs know how you'd prefer they spend it.
  • You can give the gift in the form of paying for something. If you really want to ensure the money is spent on the thing you want it to be spent on, you can pay for something rather than giving your heirs the money for it. For example, you can pay for their wedding, make a down payment on their dream house, or pay for their tuition (which, incidentally, can qualify for the educational exclusion from gift tax).
  • You can stop giving them money if you see them falling off the rails. If you plan to give your heirs free reign with their money, giving it to them now allows you to put a stop to the cash flow if you see them spending it unwisely (like buying a flashy car instead of paying for tuition or paying down their mortgage).
  • You can avoid taxes up to a certain amount. For 2014, the IRS allows you to exclude up to $14,000 in gifts per heir (or $28,000 per heir if the gift is given by you and your spouse jointly). This means you will not have to pay gift tax on gifts up to that amount. If you choose to give a gift beyond that, you'll need to claim the "unified credit" (and have it count against your estate's lifetime exemption) in order to avoid paying taxes on the gift.

 

Waiting Until You Pass Away

Conversely, here are some advantages to waiting until you pass away before bequeathing gifts to your heirs.

  • You may need the money later. What if you find that you need the money to pay for your own expenses during your lifetime? You might need more than you think in order to enjoy your hard-earned retirement, pay for medical expenses not covered by insurance, or cover other long-term care costs such as home health aides and nursing home care.
  • Ability to change your mind. At the moment, you might want to split your money equally among your children; but what happens if one of your children later makes poor decisions that make you want to disinherit that person? Conversely, what happens if one of your children gets into a major accident and requires more medical care, and therefore more financial support? You can always adjust your will to change the amount you'll be leaving heirs after you pass away, but you can't take back money you've already gifted. Waiting until you pass away gives you the opportunity to change your mind during your lifetime.
  • Your heirs might appreciate it more and spend it more wisely. By waiting until you've passed away, you give your heirs a chance to "make their own way in the world" at a younger age. Rather than relying on an annual cash infusion from you, your heirs will be older and more responsible when they receive the inheritance. This might cause them to appreciate the gift more, as they will have experienced the task of earning money.

 

At the Estate Planning & Asset Protection Law Center, we provide a unique education and counseling process which includes our unique 19 Point Trust, Estate and Asset Protection Review to help people and their families learn how to protect their home, spouse, life-savings, and legacy for their loved ones, click here for more information. We provide clients with a unique approach so they understand where opportunities exist to eliminate problems now as they implement plans for a protected future.

We encourage you to attend one of our free educational workshops, call 800-964-4295 and register to learn more about what you can do to enhance the security of your spouse, home, life savings and legacy.

Click Here to Register For Our Trust, Estate & Asset  Protection Workshop

Tags: Nursing Home Costs, long term care, gift tax, estate tax

Massachusetts Estate Planning Attorney | Year End Gifting Strategies for Your Estate

Posted by Massachusetts Estate Planning & Elder Law Attorney, Dennis B. Sullivan, Esq., CPA, LLM on Fri, Dec 14, 2012

Gifting and other estate tax reduction strategies have been at the forefront of many estate planning discussions as we approach the holidays due to the uncertainty over the estate and gift tax rules for next year. While current Federal estate and gift tax rates have been relatively favorable, much less favorable rules are set to go into effect in January. gifting, estate, planning, holidays

Currently, the federal estate and gift tax exemption is $5.12 million, meaning those with estates worth less than that, or who give away less than that, will not pay Federal estate or gift taxes (the Massachusetts exemption is $1M). The tax rate on estates and gifts above the exemption is a flat 35 percent.

However, unless Congress and the President can agree on a compromise, the Federal estate and gift tax exemption will be reduced to the $1 million credit that was in effect before the Bush tax cuts were enacted. Simultaneously, the maximum estate and gift tax rate will rise to 55 percent.

Gifting Opportunities for Your Estate

Nevertheless, many people are getting ready to make gifts to their loved ones to help reduce their estates. This is because, regardless of what Congress does, you should still be able to rely on the annual gift tax exclusion to shelter lifetime transfers to family members and loved ones. The annual gift tax exclusion hasn’t been affected by other tax law modifications over the last decade and that isn’t expected to change. By systematically giving gifts that qualify for the exclusion, you can gradually reduce the size of your taxable estate over time, thereby reducing your potential estate tax liability.

The current annual gift tax exclusion is $13,000, and it will increase to $14,000 in 2013. You can give gifts of cash or property to an unlimited number of recipients up to this amount each year without any gift tax consequences. The annual exclusion is doubled for joint gifts made by a married couple, although you must file a gift tax return for these joint gifts.

Other gifting opportunities include paying for a loved one’s medical or educational expenses: No gift taxes are imposed on amounts used to pay these costs for another person as long as the bills are paid directly to the provider or institution.

Creating a Planned Gifting Program

In addition to the annual gift exclusions, you can also reduce your taxable estate by bestowing sizeable gifts on as many family members as you desire over a given period of time to reduce your estate tax exposure.

For example, a couple who own $2 million in assets and three adult children could give $28,000 to each child each year for the next five years. By the end of the five-year period, they will have reduced their joint estate by $1.4 million, leaving as estate worth $600,000 (plus earnings in the interim). This would eliminate their exposure to both state and Federal estate taxes. Gifts could be made into an irrevocable trust in order to get assets out of your estate but not subject them to your heirs’ creditors and manage their spending.

However, you must be careful when considering gifting highly appreciated assets such as real estate or stock, as they may expose your beneficiary to capital gains taxes. Gifting through a trust can avoid this outcome as well.

To explore how gifting may benefit your estate, contact The Estate Planning and Asset Protection Law Center of Dennis Sullivan & Associates

Research shows that 86% of trusts don’t work.  That’s why we developed our Unique Self-Guided 19-Point Trust, Estate, & Asset Protection Legal Guide, so you can learn where problems may exist in your planning as well as opportunities for improvement and how to implement a plan to protect your spouse, home, family, and life savings.  Click Here to Download the Guide.

We encourage you to attend one of our free educational workshops to learn more about our process and what you can do to enhance the security of your spouse, home, life savings and legacy. To register for a seat at an upcoming workshop call (800) 964-4295 (24/7) or register online at www.SeniorWorkshop.com

 

Tags: gifts, gift tax, estate, taxes, gifting, Massachusetts, tax, Attorney, trust, holiday, federal, exclusions

Massachusetts Estate Planning Attorney | 10 Detrimental Estate Planning Myths

Posted by Massachusetts Estate Planning & Elder Law Attorney, Dennis B. Sullivan, Esq., CPA, LLM on Wed, Oct 10, 2012

There are a variety of misconceptions associated with estate planning, which unfortunately often lead to detrimental mistakes. Please take the time to read “10 Common Estate Planning Myths That Can Be Detrimental to Your Family”, in which Erik Carter of Forbes.com discusses estate planning myths that often keep people from initiating an estate plan that could protect their home, spouse, life savings and legacy.

10 Common Estate Planning Myths That Can Be Detrimental to Your Family

estate plan, estate planning, Massachusetts

1) Estate planning is just for the wealthy. This myth comes from the focus of so many attorneys and financial advisers on the estate tax, which may not be an issue this year until your estate surpasses $5,120,000, an amount that most of us would characterize as pretty well-off, if not downright rich. This focus makes sense for estate planning professionals since they make so much more money dealing with that issue, but estate planning is about so much more than that. It’s also about making sure that your finances are taken care of if you’re incapacitated, that decisions about your health care are carried out the way you’d like even if you’re not able to make them, and that your children and other heirs are taken care of when that time eventually comes. That’s why estate planning isn’t just for the Donald Trumps of the world. Estate planning is for anyone who may become seriously ill or pass away. In other words, it’s for everyone.

2) I’m too young for estate planning. We never know when we might need estate planning and by then, it will be too late. For example, history is replete with the stories of celebrities who unfortunately died before creating a will, many of them at a relatively young age.

3) If I pass away without a will, the state will get my assets. If the last two myths can lead so many to inaction, it always amazes me that this myth hasn’t led to a boom in the will-making business. If you pass away without a will, each state will apply its “laws of intestacy” to determine who will get what. You can check out a site called mystatewill.com to see what that outcome may look like. If you don’t like it, get a will drafted. If you’re fine with it and have minor children, get a will anyway. That’s because the will also allows you to determine who would be the guardian of your children if that need should arise, which is probably not a decision you want a court to make.

4) If I have a will, I don’t have to worry about probate. This may be wishful thinking as probate can be a long and expensive process in which one or more courts decide who will inherit your assets. While a will provides the court with guidance on your wishes, it doesn’t actually avoid the process altogether. Since a will is public information, it can be easily contested in court, adding more time and cost. In addition, if you have real estate in more than one state, each property may have to go through probate in its respective state.

5) I need a lawyer to draft these documents. If your family and financial situation is relatively simple, you can draft many of these documents yourself at no or low cost. For health care decisions, you can get a health care directive from your hospital or download a state-specific form from the National Hospice and Palliative Care Organization here at no cost. Another resource for health care decisions is the Five Wishes, which is a popular, low-cost living will form made available from the non-profit Aging with Dignity organization. You can draft other legal documents like a power of attorney and a simple will for free at sites like DoYourOwnWill.com or for a relatively low cost at sites like LegalZoom and Nolo. Your employer may also offer these documents at no or low cost as an employee benefit.

6) I don’t need a lawyer at all. While these documents may cover most common situations, there may be a complicating issue warranting legal advice that you’re not even aware of. That’s why it’s still a good idea to at least run these documents by a qualified estate planning attorney, which may cost you less than having the attorney draft them all from scratch. You can search for an attorney by asking for referrals from family, friends, and other professionals, by using the lawyer referral service of your local bar association, or by searching the membership of organizations like the American Academy of Estate Planning Attorneys and the National Network of Estate Planning Attorneys.  Finally, don’t forget to ask your employer about any discounted legal services they may offer.

7) To avoid probate, you have to draft a trust. One area that you’re most likely to need an attorney is drafting a trust. Avoiding probate is one of the most common reasons people do this, but there may be cheaper and easier methods that may be sufficient for your needs. First, jointly owned property (like what you own with your spouse) generally passes to the other owner(s) without going through probate (unless it’s a “tenancy in common”). Second, life insurance, annuities, and anything in a retirement plan like a 401(k) and IRA avoids probate as long as there is at least one living beneficiary listed. Some states also allow you to avoid probate by adding beneficiaries to bank accounts with a “payable on death” registration and to brokerage accounts, real estate, and even vehicles with “transfer on death” registrations. You can see what’s available in your state here. Finally, each state has methods to speed up or even skip probate for “small estates,” which in some states can be quite large.

8) Trusts avoid estate tax.  Most trusts do not help you avoid estate taxes in and of themselves. However, if you’re worried about having a taxable estate, be sure to seek qualified legal advice (your nephew who just graduated from law school with a focus on criminal law doesn’t count) since certain trusts can be used as part of a strategy to reduce and even eliminate estate tax liability.

9) I don’t have enough money to worry about the estate tax. This may be true today, but if nothing changes, estates over $1 million are scheduled to be subject to a 55% estate tax starting next year. When you add in the value of your home, life insurance proceeds, and your retirement accounts, that $1 million may start looking a little too close for comfort.

10) I’ll have to pay a gift tax if I give someone over $13k per year. Anything (except for money paid directly to a medical or educational institution, charity, or to a 529 plan) over $13k that you give someone (other than your spouse) in a single year simply reduces your lifetime gift and estate tax exclusion amount (currently the $5,120,000 that’s falling to $1 million next year). Only after you use up the entire exclusion amount do you actually have to start paying anything. In other words, you’d have to give away quite a bit. That being said, you would still have to file a gift tax return and then keep track of how much you’ve reduced your lifetime exclusion amount by, so try to stay within the $13k annual exclusion amount just to avoid that hassle.

As you can see, there are lots of misconceptions out there about estate planning and understandably so as it can be complex, constantly changing, and removed from our everyday lives. Knowing the truth about these myths can help you avoid numerous mistakes."

At the Estate Planning & Asset Protection Law Center, we help people and their families learn how to protect their home, spouse, life-savings, and legacy for their loved ones.  We provide clients with a unique educational and counseling approach so they understand where opportunities exist to eliminate problems now as they implement plans for a protected future.

We developed our Unique Self-Guided 19-Point Trust, Estate, & Asset Protection Legal Guide, so you can learn where problems may exist in your planning as well as opportunities for improvement and how to implement a plan to protect your spouse, home, family, and life savings. 

Click Here to Download our Trust, Estate, & Asset Protection  Legal Guide

We encourage you to attend one of our free educational workshops to learn more about our process and what you can do to enhance the security of your spouse, home, life savings and legacy. To register for a seat at an upcoming workshop call (800) 964-4295 (24/7) or register online at www.SeniorWorkshop.com

Tags: Estate Planning, probate, trusts, gift tax, estate tax, Massachusetts, lawyer, myths

Long Term Care and College Debt | Boston Elder Law Attorney

Posted by Massachusetts Estate Planning & Elder Law Attorney, Dennis B. Sullivan, Esq., CPA, LLM on Thu, Aug 16, 2012

There are many dangers associated with grandparents paying for a grandchild’s college education if they haven’t planned for long term care first.  That payment may not be subject to gift tax laws but will be subject to a Medicaid transfer penalty. senior, student

However, there is another disturbing trend that is hitting seniors hard and it is a growing problem. As the cost of college education continues to soar so does the amount of student loan debt, now totaling over $1 trillion.  Almost 90% of that is from federal student loans and the federal government is getting more aggressive in pursuing repayment.  Changes in the laws have given the government more ability to collect from defaulting borrowers.  Student loans are not dischargeable in bankruptcy, unlike credit card debt, for example.


The government, under a 1996 law, has the ability to collect the debt from Social Security retirement and disability checks and it is doing just that with increasing frequency.  In the year 2000 there were 6 cases in which Social Security recipients checks were reduced to cover college loans on which they were delinquent.  In 2007 that number was 60,000 and in the first 7 months of 2012 that number was up to 115,000.


For many seniors on fixed incomes reducing their Social Security checks, which in many cases are already meager, will have a devastating impact.  In many cases parents and grandparents have cosigned loans for their children and grandchildren.  If the primary borrower defaults on the loan, the lender can collect from the cosigner.


With statistics showing that many baby boomers are not saving enough for retirement and the cost of long term care continuing to climb, adding college debt to the equation just adds to the complexity of the problem.  This is yet another example of why you can’t wait until a medical crisis hits to figure out how you will pay for long term care - Your physical and financial well being depend on it.

Gain instant free online access to “Seniors’ Guide to Health Care Reform & Avoiding Nursing Home Poverty”, which contains information on how Massachusetts Seniors will be impacted by the Affordable Care Act.

Click Here to Download the Senior & Boomers Guide to Health Care Reform & Avoiding  Nursing Home Poverty

At the Estate Planning & Asset Protection Law Center of Dennis Sullivan & Associates, we help people and their families concerned with losing their homes and life savings to increasing medical and nursing home costs, taxes and the costs and time delays of probate. We also protect clients from losing control of their own health and financial decisions.

We encourage you to attend one of our free educational workshops to learn more about our process and what you can do to enhance the security of your spouse, home, life savings and legacy. To register for a seat at an upcoming workshop call (800) 964-4295 (24/7) or register online at www.SeniorWorkshop.com

Tags: long term care, Baby Boomers, gift tax, social security, Medicaid, Retirement, health Care act, student loans

Discuss These Estate Plan Topics With Your Children

Posted by Wellesley Estate Planning Attorney, Dennis B. Sullivan, Esq., CPA, LLM on Thu, Jun 07, 2012

LINK: http://www.yoursmartmoneymoves.com/2012/05/31/what-four-estate-planning-things-parents-should-tell-their-children/

From Your Smart Money Moves (May 31, 2012) “What Four Estate Planning Things Parents Should Tell Their Children”

1. Who is the executor of the estate?  If you have a will set up, it’s important to tell which child or children are the executors of your estate.  Inevitably, they should know where is your will is stored.  It is in a safe deposit box?  It is somewhere at the house?  Or, what’s the name of the attorney that has the will on file?  As the executors of the estate, they’re the ones that are going to be responsible for the orderly administration of all of your assets.  So it’s important to at least let them know that they are the executors. Sometimes, kids don’t want this responsibility. This doesn’t mean you need to talk about how much money you have, but you should be able to let them know that they will be the ones that will be helping to administer the estate down the road.

Estate Planning, Family, Loved One, Asset Protection, Long-Term Care2. What’s the game plan for long term care?  This is one that parents will avoid all day long due to the challenging nature of the question.  Many parents that hit the age of 60, 65, or 70, may or may not have nursing home insurance.  If they don’t have long term care insurance, one of the questions they should be discussing with you is who might be available to help in the future.  Sometimes, the kids want to pay for long term care insurance if in fact the parents cannot afford it themselves.  You may think it’s your middle daughter or you may think it’s going to be your youngest son that will take care of you.  The kids may have thoughts themselves about who’s going to do what or worse yet they may have not talked at all.  So it’s important to have some discussion that if something happens your children have some idea of how the chain of command and responsibilities will roll down at that time.  I had an uncle of mine that unfortunately went into a nursing home and wiped out their entire financial situation.  This is a quality discussion to have as a family.

3. Advanced Medical Directive / Living Will?  You should talk to your kids about whether you have a living will or an advanced medical directive as part of your overall estate planning.  Letting your children know these types of things and if you are an organ donor can at least prepare your children for your wishes somewhere down the road.  You may be uncertain about your wishes if you had some tragic situation that actually put you on some sort of thing that’s keeping your life going.  And if you’ve already pre-made decisions about what’s going to happen, that would be an important thing to share with them.

4. Where Is Everything Located?  I’ve yet to see someone pass away without the family having to deal with some level of mystery on where documents, collectibles, or bank accounts are located.  With today’s technology, getting your finances organized in an electronic account aggregation type software or at least collecting all of your documents in one place with instructions on where everything is located will be important for your children.   Often, families can have a major struggle over personal possessions especially if one member of the family has more knowledge than another including brothers and sisters as well as children.  The goal of doing this isn’t to share your financial picture, but merely give your family a go to person or a location so things can be sorted out easily in the event of a premature death.

As a parent you don’t have to discuss money, your net worth, or what’s happening with your overall budget.  Many parents don’t want to be a burden on their children or they don’t want their children counting on a future inheritance.   Make sure to discuss with your kids these important points so at least they can take the opportunity to discuss and plan their own lives to best support you and your overall estate plan.

For more information on estate planning, asset protection, and elder law we invite you to attend one of our free Trust, Estate, and Asset Protection Workshops.  Register online at www.MASeniorWorkshop.com or by calling (800) 964-4295 (24/7).  At the Estate Planning & Asset Protection Law Center we help families protect what matters most: their spouse, home, and life savings, from the rising cost of medical and nursing home care.  Did you know that resaerch shows that 86% of estate plans DO NOT WORK.  Research conducted by a colleague with more than 30,000 clients demonstrated the need to review plans.  To help people evaluate the areas in which an existing plan meets a family’s goals and objectives and where significant problems may exist we have developed the 19-Point Trust, Estate & Asset Protection Guide

 

Tags: power of attorney, Estate Planning, probate, Estate Planning, asset protection, long term care, gifts, gift tax, family, Beneficiary, Estate Planning Tip, elder care, estate, executor, disinherit, estate tax, estate tax savings

7 Major Errors In Estate Planning

Posted by Wellesley Estate Planning Attorney, Dennis B. Sullivan, Esq., CPA, LLM on Wed, May 16, 2012

As estate planning and asset protection professional we often times help people and their family by reviewing existing planning.   As discussed in a recent Forbes article, the following is a list of major estate omissions and poor choices we see on a consistent basis.  Estate Planning, Asset Protection, Tax Changes, Estate Tax, Gift TaxIt is crucial to have your planning reviewed and updated consistently.  As a result of changes in the law, in health and in personal circumstance an old estate plan may not be working to accomplish your goals.  To learn more about how the Estate Planning & Asset Protection Law Center of Dennis Sullivan & Associates can help you and your family visit www.MASeniorWorkshop.com or call (800) 964-4295 (24/7). 

1. Not having a plan

In a sense, everyone does have an estate plan; state law makes this point a certainty.  It simply may not be the plan that you had in mind, or that your family would have preferred.  Not having a will means that at your death the distribution of your assets will be dictated by the inheritance laws of the state where you were domiciled when you died.  These “intestacy laws” vary from state to state but, typically, leave percentages of your assets to various family members.  There is always a remote chance that these laws will accomplish what you would have intended – but not likely. It is highly improbable that, by chance, your dispositive intentions as to who gets what, when and in what form will be fulfilled.  This is true even if your estate is below the tax threshold.  Your will applies to the disposition of your “probate assets” – those assets NOT otherwise following a beneficiary designation or the titling of the asset. Non-probate assets will pass by operation of law or contract. For example, whoever the beneficiary designation may have been when you originally began your 401(k) or IRA at the start of your work life will override either your will or the laws of intestacy.  Even a simple plan that is well thought out and results from the identification of your personal objectives will be much more successful than nothing at all.

2. Online or DIY rather than professionals

There has been a noticeable uptick in the number of people who will look to the Internet to prepare their own wills and trusts. There are dozens upon dozens of websites that will profess to offer you just the right discounted estate planning documents.  Even wealthy clients who stand to benefit the most from expert planning advice have been impacted. Unfortunately, relying on web-based, do it yourself solutions is a recipe for disaster.  Estate planning documents should represent the culmination of a well thought out financial and estate plan. An amalgam of stand-alone documents does not a plan make.  Furthermore, those pesky nuanced requirements (i.e. the “formalities”) for a validly written and executed document will vary from state to state.  Internet sites can provide you with documents but no actual advice that fits you in the context of your specific financial and personal life.  What happens when the laws change? Does the document create an unnecessary tax if the state and federal tax laws diverge substantially?  Also, use an experienced estate attorney.  All wills are perfect documents while they are in your desk drawer.  Only when examined post-mortem are the inadequacies revealed.

3. Failure to Review Beneficiary Designations and Titling of Assets

One of the most basic and most overlooked items on every estate-planning checklist is the review of beneficiary designations and the proper titling of accounts. Unwittingly, many people will often let beneficiary designations and asset titling determine their estate plans for them, contrary to their intentions. Why? Regardless of what your well developed wills and trusts say, your beneficiary designations and the title of your assets will control the ultimate distribution of those assets. Most investment accounts allow for the designation of a beneficiary (IRAs, 401(k)s, company plans, etc.).  More recently, many states have enacted legislation to convert even otherwise ordinary brokerage accounts into accounts with beneficiary designations via Payable/Transfer Upon Death Registrations. All of these beneficiary designations absolutely control who gets the asset at your death.  The titling of assets is a property law concept with estate implications. An account that is held jointly with right of survivorship will pass automatically to the survivor of the joint owners.  Why does this matter?  Assets can flow to the wrong people due to old, wrong and/or out-of-date designations, often with unintended estate and income tax implications.

4. Failure to Consider the Estate and Gift Tax Consequences of Life Insurance

Life insurance proceeds are included in the estate when owned by the insured at death. However, the insured may choose to transfer all incidence of ownership during his/her lifetime thereby avoiding any potential estate tax inclusion. Notwithstanding this accessible planning fix (usually via trust), relinquishing ownership and control is not necessarily an automatic decision. In some instances, large sums of available, tax-advantaged and asset-protected cash has accumulated in permanent life insurance policies (i.e. whole life).  Accordingly, the decision as to how an insurance policy should be owned and, as importantly, controlled, can be complex and is highly individualized. In the right fact patterns, especially when tax is not the only important consideration, credible arguments can be made for both trust ownership and direct ownership. As in most estate planning, it is very much dependent on individual circumstances: family dynamics, net worth, financial / liquidity position, personal preferences and, even, your philosophy on the transfer of assets to future generations.

5. Maximizing annual gifts

Gifting is, probably, the oldest and best way to minimize future estate taxes. The entire universe of exemptions and deductions available for the reduction of estate taxes consist of:  the lifetime exemption ($5.12 million in 2012), the marital deduction (for gifts to citizen spouses during life or at death), the gift and estate tax charitable deduction, annual exclusion gifts ($13,000 in 2012) and direct transfers (not to be treated as gifts) for education (tuition) and medical care (both theoretically unlimited). For the wealthy, maximizing all of these is smart planning. Making annual exclusion gifts every year to as many family members (this includes anyone close to you) as is financially prudent (given your financial situation) is good planning. Over the long run, you can transfer significant sums of money out of your estate along with any appreciation, thereby reducing the tax. Even better planning would be to use your annual exclusion gifts, strategically,  so that each annual gift can be leveraged into larger sums being transferred out of your estate. Strategies such as sales/gifts to defective grantor trusts, the use of LLCs/FLPs in the case of hard to value assets and life insurance are just a few ways to leverage the annual exclusion gifts. In the case of gifting, leverage is a very good thing and strategies that allow you to leverage this scarce resource – tax-free gifts – are crucial to successful estate planning.

6. Failure to Take Advantage of the Estate Tax Exemption in 2012

As every estate and financial planning practitioner will tell you (and probably already has told you), making lifetime gifts is a simple and effective estate tax minimization strategy.  Simply giving away assets at no gift tax cost will allow both the corpus and its appreciation to escape the Federal estate tax on the passing of the donor.  Using the exemption equivalent amount during your life is better than leaving it for use at death.  The urgency is to act now to take advantage of the current estate tax regime that it is set to expire at the end of 2012.  Above and beyond the annual exclusion gift limit of $13,000, the federal applicable exemption amount for transfers during life (gifts) and death (estates) has increased (by indexing) to $5,120,000 per person for 2012 — by far the highest it has ever been since the establishment of the estate tax. Wealthy individuals who have both the means and desire to do so, should plan on making these gifts during 2012.

7. Leaving assets outright to Adult Children

In recent years, there has been a growing opinion among advisors for wealthy families that assets should remain in trust, even for adult children, for as long as possible for the asset protection and other benefits that a trust can offer. For a wealthy couple with adult children, the question may no longer be a one of legal capacity or maturity (although those issues may still remain). The bigger questions may, more accurately, become: who should really benefit from the fruits of my labor and how do I protect those assets from creditors, potential creditors and ex-spouses.  Depending on your perspective, dictating from the grave may or may not be a pejorative expression. For as long as trusts have been in existence (800+ years), the idea of controlling assets for as long as allowed with a set of instructions has been considered acceptable and often sought after planning.  In fact, centuries ago, keeping assets in trust forever was, more likely than not, the goal; hence the genesis of the “rule against perpetuities.” This rule was law in all 50 states to prevent perpetual or “dynasty” trusts. Over the last several years, many states have been modifying this rule to allow for longer trusts or have outright abolished the rule. Whether or not to leave assets in trust for adult children depends on many factors; not the least of which is personal preference. However, in our litigious society of high divorce rates, leaving some assets in trust with fairly liberal access is certainly worth consideration.

For more information on how you can avoid major errors in your estate planning register to attend an educational workshop hosted by our team of estate planning professionals by going to www.MASeniorWorkshop.com or by calling (800) 964-4295 (24/7).  You can also access several free guides and reports on our website by clicking HERE

We look forward to helping you and your family.

 

Tags: Estate Planning, Estate Planning, asset protection, Massacusetts Estate Tax, 401(k), gifts, GST tax, gift tax, Estate Planning Tip, estate, estate tax, Massachusetts estate tax, estate tax savings

Tax Changes: A Boon for Gift Fund Donations

Posted by Dennis Sullivan & Associates on Tue, Apr 26, 2011

According to some barometers, there has been a recent surge in charitable giving over these, the first few months of 2011. Apparently, a good number of people have figured out that now is a good time to give.

As a recent article on InvestmentNews.com reports, “The Vanguard Charitable Endowment Program, the nation's second-largest, collected about $129 million during the first quarter, a 60% in- crease over the same period a year earlier. Donations out of the $4.8 billion fund totaled $87 million, a 31.2% increase from $66 million.”

Why the sudden increase? The new tax deal reached in December makes 2011 and 2012 particularly attractive years for charitable giving. Conditions are ripe for estate reduction, and charitable giving is one of the best forms of estate reduction.

There is something counter-intuitive to this giving season, though. If estate reduction is the motivation for charitable giving, and if you should be swayed into practicing it yourself, why is it important to do so now, with the estate tax exemption at an historic high ($5 million) and the rates at generous lows?

You just cannot forget the fact that these conditions are temporary, and set to expire at the end of 2012. President Obama, speaking for most liberals, has already voiced his plans on lowering the Gift and Estate tax exemptions far below their current generous rates as well as increasing taxes on the wealthiest Americans. And with the recent (and long-overdue) focus on debt-reduction, wealth transfer taxes are quite likely to experience a resurgence of popularity in Congress.

Experts are recommending that wealthy individuals and families make the most of the existing philanthropy-friendly tax provisions before they disappear. You can learn more about gifting strategies in the Estate Planning Strategies section of our website. To learn more about gifting, and other estate planning options, attend a free Trust, Estate and Asset Preservation workshop. 

Tags: 2011, New estate tax law, gifts, gift tax

Obama's Estate Tax Budget Proposals

Posted by Dennis Sullivan & Associates on Tue, Mar 22, 2011

 

We all should realize that the federal estate tax is in a state of flux. The current rules, with the generous $5 million individual exemption ($10 million for a couple), expire at the end of 2012. Last month, the Treasury Department released the “General Explanations of the Administration's Fiscal Year 2012 Revenue Proposals,” also known as the “Greenbook.” The Greenbook reveals that the Obama Administration intends to make some big estate tax changes.

  • Return the Gift, Estate, and Generation-Skipping Transfer (GST) taxes to 2009 levels. The Greenbook proposes that in 2013 the exemptions return to $3.5 million for the estate tax, $1 million for the gift tax, and slightly over $1 million (reflecting inflation adjustments since 1999) for the generation skipping transfer (“GST”) tax.
  • Make portability permanent. Portability is the ability of the first spouse’s estate exemptions to be passed on to the surviving spouse, essentially doubling the estate exemptions for couples while cutting down on the stress of so many trusts.
  • Limitations on the use of valuation discounts. Although the IRS has long had defenses in place against attempts to reduce the value of the taxable portion of an estate, Chapter 14 of the tax code, the effectiveness of these defenses have been challenged in a number of ways and part of the proposal is to strengthen Chapter 14 by significantly hampering any effort to receive a valuation discount.
  • Impose a ten-year minimum term on GRATs. Grantor retained annuity trusts (“GRATs”) have become extremely popular estate planning vehicles over the past several years.  Among other reasons, they are relatively low cost to implement, are fairly low risk, and can transfer significant amounts of wealth to lower generations with virtually no estate or gift tax, often without using any of the transferor’s exemption. One requirement for a successful GRAT, however, is that the grantor must survive the term, otherwise the trust “fails.” To minimize risk, estate lawyers usually use a series of short-term (e.g., three-year) GRATs in their planning. The proposal is to require a term of no less than 10 years. This proposal would apply to GRATs created after the date of enactment, and has been made several times in the past.
  • Limiting the capacity of Dynasty Trusts. Under current law in many states, a Dynasty Trust can be established to transfer wealth across generations and exist for that purpose “in perpetuity.” The Obama proposal would provide that, on the 90th anniversary of the creation of a trust, the Generation-Skipping Tax (GST) exclusion allotted to the trust would terminate. This proposal would apply to trusts created after enactment, and to the portion of a pre-existing trust attributable to additions made after the date.

 

Many of these proposals have been made before, and most arelikely to face stiff opposition.

In addition, Massachusetts will assess a state tax on estates over $1 million. Without proper planning a married couple will have only $1 million between them.  See a lawer to be sure that you and your spouse get the $2 million exemption available to you.

Also, Massachusetts clients and taxpayers need to watch out for estate plans created based on maximum federal applicable exclusion planning, common for many estate plans prior to 2003. Now with the $5 million federal exempt amount, there could be a COMPLETELY AVOIDABLE Massachusetts estate tax triggered at the first death. The cost to your spouse and family could be as much as $400,000 in unnecessary estate taxes.

The point of all of this is that the “death tax” is not dead. The current law, with its generous exemptions, could be the calm before the storm. A wise planner would move sooner rather than later to preserve estate assets for future generations.

You can learn more about comprehensive estate planning by attending one of our Trust, Estate & Asset Protection Workshops and also by downloading our Unique Self-Guided 19-Point Trust, Estate & Asset Protection Legal Guide on our website.  Once you become a client, we have a Lifetime Protection Program to ensure that your planning stays up to date with the changes in law, fincial, health and family situations.

 

Tags: massachusetts estate planning strategies, Estate Planning, estate tax, Massachusetts estate tax, tax exemption, Estate Planning, New estate tax law, Massacusetts Estate Tax, gifts, GRATs, GST tax, gift tax, IRS

How the 2010 Tax Relief Act Could Affect Your Estate

Posted by Dennis Sullivan & Associates on Tue, Mar 08, 2011

The 2010 Tax Relief Act brought significant changes to the estate and gift tax rules – and an excellent opportunity for you to review your estate planning goals, and the legal documents to achieve them. The new law is complex, and the rules are only in place for two years – this year and next. SmartBusiness recently ran an article highlighting some of the more important provisions:

  • Estate Taxes. The estate tax exemption will be $5 million ($10 for a married couple), with a maximum tax rate of 35 percent. The new law also provides a “portability” feature of the exemption amounts for married couples. Any exemption amount that remains unused at the death of a spouse is available for use by the surviving spouse. These two changes – the increase in the exemption amount and the portability feature – could impact your estate plan if your planning strategy includes a Credit Shelter Trust. Under certain circumstances, your credit shelter trust could be over-funded, leaving limited assets for your surviving spouse. It also is possible that you may no longer need a credit shelter trust at all.
  • Gift Taxes. The new gift tax exemption is set at $5 million, up from just $1 million. Generally, you may consider gifting property that you believe will appreciate in value. Gifting now will now only remove the current value of the property from your estate, but also any future appreciation.

Remember, even if your total estate is less than $5 million, you (and your family) still need comprehensive estate planning to take advantage of tax planning opportunities available to you and to ensure that your wishes are carried out in the event of your death or disability.

Massachusetts Residents  remain subject to Massachusetts estate taxes on amounts above one million dollars. Regardless of the federal estate tax increased exemption for the next two years, Massachusetts will assess an estate tax on all estates above $1 million. However a married couple many times will only get one exempt amount to split, unless they take the necessary steps to ensure their estate plan is up to date and funded correctly so they will be eligible to receive the $2 million combined exemption, as there is NO PORTABILITY in Massachusetts.

Also, Massachusetts clients and taxpayers need to watch out for estate plans created based on maximum federal applicable exclusion planning, common for many estate plans prior to 2003. Now with the $5 million federal exempt amount, there could be a COMPLETELY AVOIDABLE Massachusetts estate tax triggered at the first death. The cost to your spouse and family could be as much as $400,000 in unnecessary estate taxes.

You can learn more about estate tax in the Tax Planning Strategies on our website. Be sure to check out our handy Determining the Estate Tax page too.  To learn how you can protect your family, home, lifesavings and legacy, attend a free Estate Planning and Asset Protection Workshop in Wellesley.

Tags: massachusetts estate planning strategies, estate tax, Massachusetts estate tax, estate tax savings, New estate tax law, Massacusetts Estate Tax, gift tax

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