Decanting: How to Fix a Trust That Isn’t Getting Better With Age

While many wines get better with age, the same cannot be said for some irrevocable trusts.  Maybe you’re the beneficiary of a trust created by your great grandfather seventy years ago that no longer makes sense.  Or maybe you created an irrevocable trust twenty years ago that doesn’t work as it should.  Is there any way to fix an irrevocable trust that has turned from a fine wine into vinegar?  You may be surprised to learn that under certain circumstances the answer is yes, by “decanting” the old broken trust into a brand new one.

What Does It Mean to “Decant” a Trust?

Wine lovers know that the term “decant” means to pour wine from one container into another in order to open up the aromas and flavors of the wine.  In the world of irrevocable trusts “decant” means the legal process through which the trustee appoints or distributes trust property in further trust for the benefit of one or more of the beneficiaries.  In other words, the trustee transfers some or all of the property held in an existing trust into a brand new trust with different and more favorable terms.

When Does It Make Sense to Decant a Trust?

Decanting a trust makes sense under many different circumstances:

·         Tweaking the trustee provisions to clarify who can or cannot serve as the trustee.

·         Expanding or limiting the powers of the trustee.

·         Converting a trust that terminates when a beneficiary reaches a certain age into a lifetime trust.

·         Changing a support trust into a full discretionary trust in order to protect the trust assets from the beneficiary’s creditors.

·         Clarifying ambiguous provisions or drafting errors in the existing trust.

·         Changing the governing law or trust situs to a less taxing or more beneficiary-friendly state.

·         Adding, modifying or removing powers of appointment for income tax or other reasons.

·         Merging similar trusts into a single trust for the same beneficiary.

·         Creating separate trusts from a single trust to address the differing needs of multiple beneficiaries.

·         Providing for and protecting a special needs beneficiary.

What is the Process for Decanting a Trust?

First of all, decanting must be allowed under applicable state case law or statutory law.  Aside from this, the trust agreement may contain specific instructions with regard to when or how a trust may be decanted.

Once it is determined that a trust can and should be decanted, the next step is for the trustee to create the new trust agreement with the desired provisions.  The trustee must then transfer some or all of the property from the existing trust into the new trust.  Any assets remaining in the existing trust will continue to be administered under its terms, otherwise the empty trust will terminate.

Beware:  Decanting is Not the Only Solution to Fix a Broken Trust

While decanting may work under certain circumstances, it is not the only way to fix a “broken” irrevocable trust.  Our firm can help you evaluate all of the options available to fix your broken trust and determine which ones will work the best for your situation.

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in  this newsletter  was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax  penalties that may  be imposed on such person and (ii) each taxpayer should seek advice from their tax adviser based on the taxpayer’s  particular circumstances.

What’s Hot in Estate Planning Right Now May Surprise You

Estate planning has truly evolved over the past 20 years.  Gone is the uncertainty about federal estate taxes and the absolute requirement for married couples to use complex trusts to minimize these taxes.  But also gone is planning for the “traditional” family.  In fact, today’s estate planning is more complicated than ever before.

Estate Planning in 1995 Versus 2015

In 1995 the federal estate tax exemption was only $600,000 and the estate tax rate was 55%.  Back then it was easy to accumulate a taxable estate by simply owning a home, a few investments and some life insurance.  And while married couples could pass on two times the exemption ($1.2 million) free from estate taxes by incorporating Marital/Family Trusts into their estate plan, these trusts came with strings attached.  Yet these inflexible trusts were worth it to avoid the hefty 55% tax. 

Today the federal estate tax exemption is a whopping $5.43 million (and will increase annually based on inflation) and the federal estate tax rate has dropped to 40%.  In addition, married couples can now combine their estate tax exemptions and pass on two times the threshold ($10.68 million) without Marital/Family Trust planning by making the “portability” election.  As a result, the focus of estate planning has shifted away from estate tax planning to more relevant concerns:

·         While the federal estate tax rate has decreased from 55% to 40%, since 2012 the top federal income tax rate has increased from 35% to 43.4%, and the top long-term capital gains rate has increased from 15% to 23.8%.  This has made minimizing income taxes an integral part of estate planning.

·         Today many families are blended, dysfunctional or completely estranged.  This has made flexible estate planning and finding ways to modify what was thought to be an irrevocable plan the “new normal.”

Estate Planning for the “New Normal”

Today with the generous and ever-increasing estate tax exemption and “portability” of the exemption available to married couples, it is estimated that 99.8% of Americans will have no federal estate tax exposure.  As a result, traditional Marital/Family Trust planning is no longer a necessity for a majority of families.  Therefore, instead of planning for excluding assets from the taxable estate, the new trend for couples with less than $10 million is to plan for estate inclusion so that their heirs will receive a basis step up.  This can be accomplished by:

·         Leaving assets outright to your spouse and making the portability election; but beware if your spouse is a spendthrift, has creditor issues, or if you want to insure your assets stay within your bloodline.

·         Taking a wait-and-see approach, such as all to the Family Trust with the ability to disclaim to the Marital Trust or vice versa.

·         Including flexibility in the Marital Trust provisions.

·         Using a Family Trust and allowing for basis increase through a customized power of appointment.

But while building flexibility into your estate plan is ideal, what happens if your plan becomes irrevocable before you have had a chance to make it flexible?  What if it would be advantageous to include assets in the estate of your spouse or a beneficiary, change the situs of your trust or its governing law, add or remove beneficiaries, add a trust protector or advisor, or change the trustee structure?  Is it possible to modify or even revoke your inflexible, irrevocable trust?  Under many circumstances the answer is yes; these things can be accomplished by agreement or a court order through:

·         Reforming the trust:  Using judicial interpretation to determine and properly restate your intent.

·         Modifying the trust:  Changing the terms of the trust to meet your tax‐saving objectives.

·         Equitably deviating the trust:  Modifying the trust provisions upon the showing of an unforeseen change in circumstance the impact of which would frustrate your intent.

·         Invoking the Trust Protector:  Allowing a third‐party to exercise specific powers as defined in the trust agreement.

·         Decanting the trust:  Allowing the trustee to distribute property in further trust for a beneficiary.

Where Should Your Estate Plan Go From Here?

Estate-tax-driven estate plans are becoming a thing of the past.  Higher income tax rates, changing state laws, unfavorable jurisdictions and wayward heirs add up to the need for an estate plan that is able to adapt over time.  Modern families need modern estate planning solutions, and our firm stands ready to help you create a flexible estate plan.

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in  this newsletter  was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax  penalties that may  be imposed on such person and (ii) each taxpayer should seek advice from their tax adviser based on the taxpayer’s  particular circumstances.

Aging.gov: A New Resource for Older Americans and Their Families

More than 10,000 people turn 65 in the U.S. every day according to Aging.gov (http://www.hhs.gov/aging/), a new website recently launched by the Obama administration.  The goal of this website is to act as gateway for older Americans and their families, friends and caregivers to locate information about leading a healthy lifestyle, options for health care, preventing elder abuse, and retirement planning. 

Healthy Aging

According to the website, healthy eating habits, physical activity, and involvement in your community help contribute to living a long, productive, and meaningful life.  This section of the website offers links to dietary guidelines for older Americans, the American Dietetic Association, the National Institutes of Health (NIH) Senior Health website, and resources for volunteering and senior employment.

Health Issues

According to the website, focusing on preventive care, managing health conditions, and understanding medications help contribute to an increased quality of life.  This section of the website offers links to various Medicare resources (hospital compare, home health compare, dialysis facility compare); information about mental health, Alzheimer’s disease and dementia; information about other specific diseases, conditions and injuries (arthritis, cancer, diabetes, fall prevention, hearing, heart and lung, HIV/AIDs, vision); and resources for medications (Medicare prescription drug coverage) and treatments.

Long-Term Care

According to the website, long-term care – either through in-home assistance, community programs, or residential facilities – allows you to stay active and accomplish everyday tasks.  This section of the website offers links for finding home care and assisted living facilities; resources for caregivers; securing benefits (Benefits.gov, Medicare.gov); planning for long-term care (LongTermCare.gov, Medicaid.gov); veteran’s services; and preparing for end of life (Advance Directives, funeral planning, organ donation).

Elder Justice

According to the website, millions of older Americans encounter abuse, neglect, exploitation, or discrimination each year.  This section of the website offers links to help you identify scams, prevent fraud, address senior housing issues, stop elder abuse, and find legal assistance.

Retirement Planning & Security

According to the website, planning for retirement will allow you to enjoy financial security as you age without the risk of outliving your assets.  This section of the website offers links to resources for retirement planning, understanding your employer’s retirement plan, and investing (IRAs, investing wisely for seniors, preventing financial fraud).

State Resources

The final section of the website points out that resources to support older Americans and their families, friends and caregivers can vary from state to state and offers links to the departments of aging for all 50 states and the District of Columbia.

Final Thoughts on Aging.gov

Aging.gov offers a diverse amount of information to help you or a loved one navigate the challenges of growing older.  Instead of randomly searching for guidance and advice, this website is a good starting point for locating more specific information related to aging healthy, wealthy, and wise.

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in  this newsletter  was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax  penalties that may  be imposed on such person and (ii) each taxpayer should seek advice from their tax adviser based on the taxpayer’s  particular circumstances.

Skyrocketing Probate Fees – Another Reason to Avoid Probate Court

As of July 1, 2015, Connecticut probate courts earned the dubious distinction of charging the highest probate fees in the U.S.  Amazingly, the Connecticut legislature voted to completely cut general fund support for the state’s probate courts for the next two fiscal years, thereby creating a $32 million deficit.  In order to cover the shortfall, the fees charged for settling a deceased person’s estate in Connecticut were significantly increased and the $12,500 cap on probate fees was eliminated.  To make matters worse, these changes apply retroactively to all deaths dating back to January 1, 2015.  As a result, it is estimated that a handful of Connecticut estates will owe in excess of $1 million in probate fees and at least a dozen will owe in excess of $100,000.

Which Other States Also Charge High Probate Fees?

Connecticut’s new fee structure assesses a 0.5 percent fee on estates worth more than $2 million and most probate court filing fees were also increased from $150 to $225.  While both North Carolina and New Jersey assess probate fees of 0.4 percent, North Carolina’s fee is capped at $6,000, but New Jersey does not have a cap.  In Maryland the probate fee for an estate valued between $2 million and $5 million is $2,500 and for estates valued over $5 million the fee is $2,500 plus .02 percent of the excess over $5 million.

How Can Your Loved Ones Avoid Paying Probate Court Fees?

Even if you don’t live in a state that charges high probate fees now, budget shortfalls and fee changes could occur at any time. Also, in most situations it’s easy to keep your estate out of probate court and avoid all of the fees and costs associated with it:

·         Gift your estate while you’re still alive.  While it really isn't practical to give all of your assets away during your lifetime, it is possible to gift assets into a special type of trust or a family business entity of which you can be a beneficiary or stakeholder. 

·         Own property jointly with others.  If an asset such as a home is owned by two people as joint tenants with rights of survivorship and one of the owners dies, the surviving owner will become the sole owner of the home outside of probate.

·         Use beneficiary designations.  By design, life insurance and retirement accounts (such as IRAs, 401(k)s and annuities) avoid probate through the designation of a beneficiary.  In addition, you can name a beneficiary for your bank accounts using a payable on death account and for your investment accounts using a transfer on death account.

·         Create and fund a revocable living trust.  When you create a revocable living trust and transfer the title of your assets into the name of the trust, you will no longer hold title to your assets in your individual name.  Instead, your assets will be converted into property under the control of the Trustee (which can be you while you’re alive and a spouse, child, friend or bank after you die).  After you die, the property held in the trust will pass to the beneficiaries you name in the trust agreement outside of probate. 

Final Thoughts on Avoiding Probate Court

While probate is easy to avoid using any of the methods described above, there are pros and cons that need to be considered for each method.  Please contact our office if you are interested in determining the best way for your estate to avoid probate court and all of the fees and costs associated with it.

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in  this newsletter  was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax  penalties that may  be imposed on such person and (ii) each taxpayer should seek advice from their tax adviser based on the taxpayer’s  particular circumstances.

What You Need to Know About the Final Estate Tax Portability Rules

Recently the IRS issued the final rules governing the “portability election” as it relates to the federal estate tax exemption.  Married couples need to understand how these final rules may affect their existing estate plans, while recent widows and widowers need to understand how these finals rules may affect their deceased spouse’s estate.

What is the “Portability Election” and How is the Election Made?

The “portability election” refers to the right of a surviving spouse to claim the unused portion of the federal estate tax exemption of their deceased spouse and add it to the balance of their own exemption.  Since in 2015 the federal estate tax exemption is $5.43 million per person (the exemption changes every year since it is indexed for inflation), this means that a married couple can potentially pass on $10.68 million to their heirs free from federal estate taxes.

To properly make the portability election, the surviving spouse must timely file a federal estate tax return, known as the “United States Estate (and Generation-Skipping Transfer) Tax Return,” or “Form 706” for short.  Form 706 is due on or before nine months after the deceased spouse’s date of death, but an automatic six-month extension of time to file the return can be requested by filing an “Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes,” or Form 4768 for short, on or before the due date of the estate tax return.

Which Estates Are Subject to the Final Estate Tax Portability Rules?

The portability election first went into effect for the estates of decedents who died on or after January 1, 2011, and in response the IRS issued temporary regulations to guide taxpayers and their advisors through properly making the election.  The final regulations that were recently released replace the temporary regulations for the estates of decedents who die on or after June 12, 2015, while the temporary rules still apply to the estates of decedents who died on or after January 1, 2011, and before June 12, 2015.

What Do the Final Rules Provide?

The final rules clarify that a regulatory extension of time to make the portability election will only be granted to estates that have a gross value below the estate tax exemption in effect in the year of death.  In other words, in 2015 the gross estate must be valued less than $5.43 million in order for a request for a regulatory extension to be made. 

The final rules also make it clear that the administrator of the estate of a decedent who was not a U.S. citizen at the time of death may not make a portability election on behalf of the non-citizen decedent.

Unfortunately the IRS ended up rejecting a recommendation made by the American Institute of CPAs for the creation of a shorter version of Form 706 that would be used solely for the purpose of making the portability election.  The IRS cited problems it has had with other types of abbreviated forms and the difficulties and costs associated with maintaining alternate forms as the reasons for rejecting this recommendation.

How Do the Final Rules Affect Existing Estate Plans?

Married couples who already have an estate plan should consult with their estate planning attorney to determine if any changes need to be made to their plan in view of these final rules.  Things to consider include the potential for an estate to be subject to state estate taxes, whether the portability election is a viable option in view of second or later marriages, the projected value of the couple’s estate over their life expectancies, and the loss of the step up in basis when traditional AB Trust planning is used.

How Do the Final Rules Affect Recent Widows and Widowers?

Surviving spouses of decedents who died within the past eight months should immediately consult with an estate planning attorney to determine if the portability election can and should be made with regard to their deceased spouse’s estate.  Failure to timely make the election or seek an extension may end up shortchanging heirs and putting the estate administrator at risk of being sued.

Please do not hesitate to contact our office if you have any questions about the final estate tax portability rules.

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in  this newsletter  was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax  penalties that may  be imposed on such person and (ii) each taxpayer should seek advice from their tax adviser based on the taxpayer’s  particular circumstances.

Financial Firms Roll Out Form Aimed at Stopping Financial Elder Abuse

With cases of financial exploitation of the elderly on the rise, advisors who work with older clients are looking for ways to head off the abuse before it happens.  Enter the “Emergency Contact Authorization Form,” a document in which clients can list a trusted person who should be contacted if an advisor suspects a client is starting to lose their mental capacity or, worse yet, being financially abused or scammed.

How Does an Emergency Contact Authorization Form Work?

The Emergency Contact Authorization Form is a document which allows you to identify someone your financial advisor can contact if your advisor becomes concerned about your ability to continue to manage your finances or believes you are being taken advantage of financially by a relative, friend, caregiver, or even a complete stranger.

The Emergency Contact Authorization Form does not take the place of your “Durable Power of Attorney,” which is a legal document in which you give a person you trust the authority to make financial decisions and carry out financial transactions on your behalf.  Instead, the form allows you to designate an individual your advisor can contact to discuss concerns they have about your slipping mental capacity, unusual activity in your accounts, requests for transfers of large sums of money to an unknown person or a foreign bank account, and the like.  This designated individual could be the same person as the agent named in your Durable Power of Attorney or some other trusted person in your life. The idea is that once your advisor makes your emergency contact aware of the issues, your contact can reach out to you to determine if the advisor’s concerns are legitimate.

What Should You Do?

Since your financial advisor is in a unique position to know your financial history (for instance, you take a trip to Europe every June, you have been helping your grandkids with their college tuition, you like to make your charitable donations in October to avoid the year-end rush), your advisor is also in a unique position to spot unusual activity and requests.  Thus, when your advisor asks you fill out an “Emergency Contact Authorization Form,” carefully consider who you should name, discuss your choice with your advisor, complete the form, let the person you’ve chosen know that they have been designated, and give that person your advisor’s contact information.

Nonetheless, keep in mind that while an Emergency Contact Authorization Form is a good start, it will only work at the institution where it is on record.  To insure that all of your financial accounts will continue to be managed and your bills will get paid if you become mentally incapacitated, you will need to sign a Durable Power of Attorney. 

Please contact our office if you have any questions about Emergency Contact Authorization Forms, Durable Powers of Attorney, or if you suspect a family member or friend is being financially exploited or abused. 

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in  this newsletter  was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax  penalties that may  be imposed on such person and (ii) each taxpayer should seek advice from their tax adviser based on the taxpayer’s  particular circumstances.

5 Reasons Why Uncle Bill May Not Make a Good Trustee

If you have created a dynasty trust that you intend to last for decades into the future, choosing the right trustee is critical to the trust’s longevity and ultimate success.

Initially you may think that a family member, such as a sibling (“Uncle Bill” to your children, who are the initial beneficiaries of your Dynasty Trust), will be the best choice as trustee.  After all, Uncle Bill understands the personalities and varying needs of your children, and since Bill has always been frugal, he will surely keep the costs of administering the trust down. These are good reasons to possibly select a family member, like Bill, to serve as trustee.

However, Uncle Bill may not make a good trustee for a long-lasting dynasty trust since he will probably not be equipped to handle all of his fiduciary obligations on his own.  Instead, he will need to hire legal, investment and tax advisors to insure that the trust is being distributed, managed and invested as you have intended.  All of these expenses will add up and may ultimately cost much more than the fees of a corporate trustee, such as a bank or trust company. Many corporate trustees can meet all fiduciary obligations under one roof for one comprehensive fee. 

Below are five reasons why you should consider choosing a corporate trustee for your dynasty trust instead of Uncle Bill:

1. A Corporate Trustee Doesn’t Have a Potentially Disruptive Personal Life.  A corporate trustee won’t become ill or die, get married or divorced, have children or grandchildren, go on an extended vacation, move to a foreign country, or get distracted by day-to-day life that can get in the way of properly administering your trust.
2.  Corporate Trustee is Unbiased.  A corporate trustee won’t favor one of your children over another (unless that’s what you intended) and will act in an unbiased manner in making distributions that will benefit both the current and remainder beneficiaries.
3. A Corporate Trustee Avoids Conflicts of Interest and Self-Dealing.  A corporate trustee won’t sell the family company or a vacation home (that you intended to eventually go to your grandchildren) to him or herself or a friend at less than fair market value.
4. A Corporate Trustee Invests Appropriately.  A corporate trustee won’t invest all of the trust assets in a money market, real estate, or hedge fund but will diversify the portfolio to benefit both the current and remainder beneficiaries (subject to any specific instructions you list in the trust agreement).
5. Corporate Trustee Has Expert Knowledge.  A corporate trustee won’t need to hire a slew of attorneys and accountants to interpret the trust agreement and will keep current on changes in the laws governing trusts, fiduciaries and taxes.

Final Considerations

The duties and responsibilities of a trustee are extensive:  From managing the requests and expectations of the current and remainder beneficiaries, to providing periodic reports of the trust assets, liabilities, receipts and disbursements to the current and remainder beneficiaries, to prudently investing the trust assets, to preparing and filing all required tax forms, the work of a trustee seemingly never ends. 

Because of the breadth of duties and responsibilities, a corporate trustee rather than Uncle Bill may be the best option for your dynasty trust.  Please contact our office if you have any questions about the selection of a trustee generally or the use of corporate trustees, so that we can assist you in selecting the right individual or entity to serve as your trustee.

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in  this newsletter  was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax  penalties that may  be imposed on such person and (ii) each taxpayer should seek advice from their tax adviser based on the taxpayer’s  particular circumstances.

IRS Announcement: Estate Tax Closing Letters Will Now Only Be Issued Upon Request

Due to the increased volume of federal estate tax return filings in order to make the “portability election,” the IRS has announced that estate tax closing letters will only be issued upon request by the taxpayer. This change in IRS policy started on June 1, 2015.

What is the “Portability Election” and How is the Election Made?

The “portability election” refers to the right of a surviving spouse to claim the unused portion of the federal estate tax exemption of their deceased spouse and add it to the balance of their own exemption. The portability election went into effect for deaths occurring on or after January 1, 2011. 

To properly make the election, a surviving spouse must file a federal estate tax return within nine months of the date of a spouse’s death, although a six-month extension of time to file the return can be requested. Filing an estate tax return is required to make the election even if the value of the deceased spouse’s estate does not exceed the federal estate tax exemption.

A Portability Example

The easiest way to understand how portability works is through an example.  Let’s say Carol and Bob are married, all of their assets are jointly titled with rights of survivorship, their total estate is valued at $4 million, and neither spouse made any taxable gifts during their lifetimes.  If Bob dies in 2015, none of his $5.43 million federal estate tax exemption will be needed since Carol will automatically inherit the entire estate through rights of survivorship.  In addition, a federal estate tax return will not otherwise be required for Bob’s estate since it is valued under $5.43 million.

Nonetheless, if Carol wants to pick up Bob’s unused $5.43 million exemption and add it to her own exemption so that she can pass on up to $10.86 million when she dies, she can timely file an estate tax return for Bob’s estate and make the portability election with regard to Bob’s unused exemption.

What is an Estate Tax Closing Letter?

An estate tax closing letter is a document issued by the IRS after it determines that an estate tax return has been accepted as filed or that all required adjustments have been completed.  In other words, the closing letter provides written proof from the IRS that all federal estate tax liabilities have been satisfied. An estate tax closing letter is often necessary to sell or distribute property.

New Rules for Issuance of Estate Tax Closing Letters

Prior to June 1, 2015, the IRS automatically issued estate tax closing letters.  However, the IRS recently announced the following on its website in response to the increased number of federal estate tax return filings for the sole purpose of making the portability election: 

“For all estate tax returns filed on or after June 1, 2015, estate tax closing letters will be issued only upon request by the taxpayer.  Please wait at least four months after filing the return to make the closing letter request to allow time for processing.  For questions about estate tax closing letter requests, call (866) 699-4083.”

The portability election provides another strategy that estate planning attorneys can use to lessen the burden of death taxes on your family. Like any other tax or legal strategy, you should seek competent advice to select the strategies that will work in your situation. If you have any questions about federal estate tax returns, the portability election, or the new rules regarding the issuance of estate tax closing letters, please contact our office.

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in  this newsletter  was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax  penalties that may  be imposed on such person and (ii) each taxpayer should seek advice from their tax adviser based on the taxpayer’s  particular circumstances.

5 Most Expensive States for Retirees in 2015

While there are many factors to consider when choosing the place where you will retire, the ones that will impact your wallet may be the most important. Why?  Because having a low crime rate and beautiful weather will be irrelevant if high costs deplete your retirement nest egg faster than anticipated. 

Recently Investopedia.com compared cost-of-living and tax-rate data from Bankrate.com’s list of “Best and Worst States to Retire” and Kiplinger’s list of “10 Worst States for Retirement” to come up with their list of “The Most Expensive States to Retire In.”  We’ve added Genworth’s “2015 Cost of Care Survey” to the mix to come up with our five most expensive states for retirees when comparing cost of living, tax rate, and long-term care expenses (as listed in alphabetical order):

·         Connecticut ranks #3 in tax rate and cost of living and #2 in long-term care expenses.  Along with a state estate tax, Connecticut is also one of only two states that collect a state gift tax (New York is the other).

·         New Jersey ranks #2 in tax rate, #6 in cost of living, and #4 in long-term care expenses.  Along with a state estate tax, New Jersey is also one of six states that collect a state inheritance tax.

·         New York ranks #1 in tax rate, #4 in cost of living, and #5 in long-term care expenses.  Along with a state estate tax, New York is also one of two states that collect a state gift tax (Connecticut is the other).

·        Rhode Island ranks #8 in tax rate, #9 in cost of living, and #10 in long-term care expenses.  Rhode Island also collects a state estate tax.

·         Vermont ranks #9 in tax rate, #10 in cost of living, and barely fell out of the top 10 by coming in at #11 in long-term care expenses.  Vermont also collects a state estate tax.

Final Thoughts on Where to Retire

Each year the statistics on tax rates, cost of living, crime rates, health care expenses, and weather are sliced and diced to come up with various lists for those approaching retirement to consider.  But in the end the choice of where to retire is personal.  While the financial data may point you away from or to a particular location, staying close to your support system of kids, grandkids, other family members, and friends may be priceless.

No matter where you end up deciding to retire, you should obtain qualified estate planning counsel to make sure your plan will work when it’s needed. If you plan on relocating upon retirement, living part-time in another state, or traveling extensively, we encourage you to contact us, so that we can assist you with your estate planning needs.

Additional Resources:

http://www.thinkadvisor.com/2015/04/27/top-15-most-expensive-states-for-long-term-care-20

https://www.genworth.com/dam/Americas/US/PDFs/Consumer/corporate/131168_040115_gnw.pdf

http://www.investopedia.com/articles/personal-finance/060215/most-expensive-states-retire.asp

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in  this newsletter  was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax  penalties that may  be imposed on such person and (ii) each taxpayer should seek advice from their tax adviser based on the taxpayer’s  particular circumstances.

Federal and State Death Tax Updates

Death taxes are back in the news at the federal level as well as in Delaware and Minnesota.

What Happened to the Death Tax Repeal Act of 2015?

Back in February and March of 2015, identical bills calling for repeal of the federal estate tax and generation-skipping transfer tax were introduced in the U.S. House and Senate.  In April 2015 the U.S. House passed the “Death Tax Repeal Act of 2015” by a margin of 240 to 179.  While the votes were largely along party lines (233 Republicans voted for the bill, while 176 Democrats voted against it), seven Democrats ended up supporting the bill. 

In spite of the Republicans’ majority in the U.S. Senate – there are currently 54 Republicans, 44 Democrats, and two Independents – the bill has stalled there.  Why?  Because Democrats have signaled that they will filibuster the bill, which means that at least 60 senators need to be in favor of repeal in order to overcome the filibuster.  Since the two independents – Sen. Angus King (ME) and Sen. Bernie Sanders (VT), who is actually running for U.S. President as a Democrat – caucus with the Democrats, Republicans will need six Democrats to change their minds and vote for repeal.  That’s a lot.  And even on the slim chance that this would happen, President Obama has repeatedly expressed his support of the estate tax and would undoubtedly veto the repeal bill if it ever came across his desk.

What’s Going On With Death Taxes in Delaware and Minnesota?

Delaware enacted an estate tax in 2009 with a $3,500,000 exemption.  Since then Delaware’s estate tax exemption has been indexed for inflation so that each year it matches the federal exemption.  Thus, in 2014 Delaware’s exemption was $5,340,000, and with a small population and such a high exemption, the state only brought in an insignificant $1,300,000 in estate tax revenues.  This has prompted the introduction of legislation to eliminate Delaware’s estate tax effective July 1.

Meanwhile, just last year Minnesota legislators tweaked their state’s estate tax laws by increasing the exemption from $1,000,000 to $1,200,000 and then increasing it in $200,000 increments on an annual basis so that it reaches $2,000,000 by 2018.  But apparently this was not enough because in May 2015 a bill was introduced that will increase Minnesota’s exemption to $5,000,000 by 2018, after which it will be indexed for inflation so that it matches the federal exemption.

Where Do We Go From Here?

Will any of these estate tax bills become law?  Only time will tell.  One thing is certain though - legislative changes can affect your estate plan and your estate tax bill. Please stay tuned as our firm continues to monitor both federal and state legislation that may affect your estate plan and your estate tax bill.

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in  this newsletter  was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax  penalties that may  be imposed on such person and (ii) each taxpayer should seek advice from their tax adviser based on the taxpayer’s  particular circumstances.

The Shocking Truth About Asset Protection Planning

Some view asset protection planning with a skeptical eye.  They believe there is a moral obligation to pay one’s debts.  They think that asset protection planning is immoral because it prevents a creditor from collecting on a judgment entered by a court.

The truth is the U.S. justice system is unpredictable.  Defendants are faced with ever-expanding theories of liability, being sued just because they appear to have “deep pockets,” and judgments entered against them based on desired outcomes instead of the law.

                                                  

What, then, can you do that will ethically and legally protect your hard-earned assets from creditors, predators, and lawsuits?

What Asset Protection Planning Is, and What it Is Not
The first step in protecting your assets is to understand that planning to preserve and secure your property in advance of a claim, or the threat of a claim, is a legitimate form of wealth planning.  The goals of asset protection planning are to:

·         Provide your creditor with an incentive for settling a claim;

·         Improve your bargaining position;

·         Offer you options when a claim is asserted; and

·         Ultimately, deter your creditor from filing that lawsuit.

On the other hand, asset protection planning is not about avoiding taxes, keeping secrets, hiding assets, or defrauding creditors.  In addition, it will not be effective to shield your property from an existing claim, and it must be done long before there is even the hint of a claim. 

When Done Right, Asset Protection Planning is Completely Legal and Ethical
Using all legal tools available to help clients protect their hard-earned assets from future claims is consistent with the rules of professional conduct that govern the actions of attorneys.  In fact, these rules require attorneys to pursue representation of their clients with diligence and advocacy.  What these rules do not allow, however, is assisting or counseling a client in fraudulent or criminal conduct.  Therefore, you must be wary of an attorney who offers to assist you in protecting your property after a lawsuit has already been threatened or filed.  This type of conduct is not ethical or legal.

The Final Truth About Asset Protection Planning

While you may drive carefully and steer clear of barroom brawls, unfortunately you cannot avoid all activities that create liability.  Putting together a plan to preserve and protect your assets in advance of a claim is a completely acceptable and, more importantly, legal form of wealth planning.

We are experienced at helping clients design and implement asset protection plans that are custom-tailored to each client’s family situation and financial status.  Please call us if you have any questions about this type of planning and to get started on protecting your assets from future creditors, predators, and lawsuits.

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in  this newsletter  was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax  penalties that may  be imposed on such person and (ii) each taxpayer should seek advice from their tax adviser based on the taxpayer’s  particular circumstances.

What Documents Do You Need to Find After a Loved One Dies?

After a loved one dies, you need to gather the important documents that are necessary to settle their final affairs.  While the documents required will vary depending on what your loved one owned and owed, below is a list of common documents you will need to find:

·         Account statements – These may include bank statements and investment account statements (including brokerage accounts, IRAs, 401(k)s, 403(b)s, annuities, pensions, and health savings accounts).  The closer to the date of death that the statement is dated, the better.

·         Life insurance policies – If you are not sure if your loved one owned any life insurance, check their bank account ledger for checks written to a life insurance company.  Because some people choose to pay life insurance premiums on an annual basis, rather than a monthly basis, you might need to look back some time in the check register. If your loved one was employed at the time of death or worked for a large corporation, a local or state government, or the federal government prior to retiring, check with their employer or former employer to determine if your loved one had any employer-provided or government-provided life insurance benefits.  If your loved one served in the U.S. military, check with the U.S. Department of Veterans Affairs to find out if your loved one had any military-based life insurance benefits.

·         Beneficiary designations – These may include beneficiary designations for life insurance, retirement accounts (IRAs, 401(k)s, 403(b)s, annuities), payable on death accounts, transfer on death accounts, and health savings accounts.

·         Deeds for real estate – If you are unable to locate the original deed, many states now allow you to view and print deeds online.  Note that you will not need the original deed to sell the property. 

·         Automobile and boat titles – If you are unable to locate the original title, a duplicate original can be ordered from the department of motor vehicles.  Alternatively, some states will allow the transfer of a vehicle title without the original for an additional fee.

·         Stock and bond certificates – This may include corporate certificates, local and state bonds, and U.S. savings bonds.  If you are unable to locate an original certificate, a lost certificate affidavit can be filed by the deceased person’s legal representative.

·         Business documents – If your loved one owned a small business, then you will need to locate all of their business-related documents, including bank and investment statements, corporate records, income tax returns, business licenses, deeds for real estate, loan documents, contracts, utility bills, and employee records

·         Bills – This will include utilities (electric, gas, water, sewer, garbage), cell phones, credit cards, personal loans, property taxes, insurance (real estate, automobile, boat), storage units, medical bills, and the funeral bill.  Check their checkbook for bills that were paid during the past year.

·         Estate planning documents – This may include a Last Will and Testament, any Codicil(s) to the will, a Revocable Living Trust, and any Amendment(s) to the trust.

·         Other legal documents – This may include a Prenuptial Agreement and any Amendment(s), a Postnuptial Agreement and any Amendment(s), leases (real estate, automobile), and loan documents (personal loans, mortgages, lines of credit).

·         Tax returns – This should include gift tax returns and the past three years of state and federal income tax returns.

·         Death certificate – It is a good idea to order at least ten (10) original death certificates so that you do not have to keep ordering more.

As you can see, a significant amount of paperwork is involved. For even a small estate, you should set up a filing system for the deceased loved one’s affairs. This can help ensure that nothing gets missed and that administration costs can be minimized.

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in  this newsletter  was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax  penalties that may  be imposed on such person and (ii) each taxpayer should seek advice from their tax adviser based on the taxpayer’s  particular circumstances.

Where is the Best Place to Store Your Original Estate Planning Documents?

Estate planning attorneys are often asked where original estate planning documents – wills, trusts, powers of attorney, and healthcare directives – should be stored for safekeeping.  While there is no right or wrong answer to this question, consider the following:

                                                    

·         Should you store your original estate planning documents in your safe deposit box?  Many people may believe that the best place to store their original estate planning documents is in their safe deposit box at the local bank.  This may make sense if you have given your spouse or a trusted child, other family member, or friend access to your box.  However, since a safe deposit box is a rental arrangement (you are leasing the box from the bank), if you are the only one who signed the lease and you become incapacitated or die, no one else will be able to open your box.  Usually the only way for someone else to gain access to your box if you become incapacitated or die is to obtain a court order, which wastes time and money.  If you are not comfortable giving someone else immediate access to your box, many banks will allow you to add your revocable living trust as an additional lessee, which will give your successor trustee access to your box if for any reason you can no longer serve as trustee of your trust.

·         Should you store your original estate planning documents in your home safe?  Home safes are popular these days, but in order for yours to be a good place to store your original estate planning documents, it should be difficult to move (bolted to the floor!), fire-proof, and water-proof.  In addition, make sure someone you trust has the combination to your safe or will easily gain access to the combination if you become incapacitated or die.

·         Should you ask your estate planning attorney to store your original estate planning documents?  Traditionally, many estate planning attorneys offered to hold their clients’ original estate planning documents for safekeeping (usually without charging a fee). Today most don’t want to take on the liability.  In addition, as the years go by, it may become difficult for family members to track down your attorney, who could change firms, become incapacitated, or die. 

·         Should you ask your corporate trustee to store your original estate planning documents?  If you have named a bank or trust company as your executor or successor trustee, this may be the best place to store your original estate planning documents.  This is because banks and trust companies have specific procedures in place to insure that your original estate planning documents are stored in a safe and secure area.  If you choose this option, make sure one or more of your family members know where your original documents are located.

Regardless of where you decide to store your original estate planning documents, make sure your family members, a trusted friend or advisor, or your estate planning attorney know where to find them.  Otherwise, if your original documents can’t be easily located, then it may be legally presumed that you no longer liked what they said and purposefully destroyed them.

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in  this newsletter  was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax  penalties that may  be imposed on such person and (ii) each taxpayer should seek advice from their tax adviser based on the taxpayer’s  particular circumstances.