Divorce is much more frequent, as are people remarrying, which can introduce stepchildren into a relationship. Life expectancy has also increased, as have health care costs. The reality is simple: Families need to get to work on estate planning in an open, honest manner, so that no one's feelings are hurt when they get less than they thought they would.
]]> According to the U.S. Census Bureau, the fastest growing age group of seniors is between 85 and 94 years old, but half of that group has Alzheimer's disease. The costly care involved can deplete retirement savings and assets that children thought they would inherit, and often the child that provides the most care feels as if they are entitled to what's left. This is an issue that needs to be settled before a parent can no longer make decisions.Handling inheritances and stepchildren is also tricky. One 46-year-old man who is on his second marriage does not want his stepchildren to inherit his estate, because he wants to leave it to his children. He said it's complicated, and it made his new wife angry, but he went to an estate planning attorney alone to make sure only his children received anything.
No matter how complicated estate planning gets, the lesson is always the same: Start planning sooner rather than later. Families who are open with each other about inheritance expectations are more likely to reach an amicable agreement.
Source: USA Today, "With more blended families, estate planning gets ugly," Haya El Nasser, March 14, 2012
]]>For parents who want to make sure they leave as much to their children as possible, being able to handle multinational tax issues is paramount. Many countries are now sharing information in order to rein in tax dodging, and the Internal Revenue Service is allowing people to voluntarily report funds that had been stashed offshore.
]]> One of the most important pieces of information for foreign residents with children living in the United States is that U.S. property is taxable upon death, and the estate tax exemption is much lower than for U.S. citizens. For foreigners owning U.S. property, the estate tax exemption is only $60,000, while for citizens it's $5 million.For gift taxes, one attorney said it isn't clear if the IRS considers gift of cash to be U.S. property subject to gift taxes. She recommends parents give cash to children by transferring sums between non-U.S. bank accounts.
But one financial planner said a common mistake is that visiting parents buy their children gifts, which can be subjected to steep gift tax rates of up to 35 percent for any gift worth more than $13,000.
Another common gift to U.S. children is real estate. One expert recommended that foreign parents should put the property in an offshore company, and allow family members to own shares in that company. The main piece of advice is to begin planning now, so that children are not hit with a high tax burden.
Source: Bloomberg, "Tax Hunt Pushes Global Rich to Offshore Trusts for U.S. Children," Elizabeth Ody, March 5, 2012
]]>Many times we hear stories of lottery winners or children who come into a large inheritance blowing the money within a few years. One of the most paramount decisions that advisers recommend is to wait before making any large purchases. Take the time to make a plan and consult with experienced financial advisers.
]]> Another important safeguard to take is to be wary of loaning too much money to relatives or investing in schemes that sound too good to be true. A financial adviser recommends letting the adviser play the bad guy to family members.And perhaps most important is to begin or update the estate planning process. Make sure awards to beneficiaries are up to date. Plan for the estate tax bill that could hit your heirs. Appoint a power of attorney who is responsible enough to make financial decisions on your behalf if you become incapacitated.
There are several strategies to employ to minimize the tax burden on children and other heirs. One kind of trust is called a "credit shelter" trust, which allows a surviving spouse can draw on any interest that the trust gains. After the surviving spouse dies, the remaining assets in the trust are awarded to beneficiaries.
Source: Wall Street Journal, "Too Rich, Too Soon," Jessica Silver-Greenberg, Feb. 25, 2012
]]>Florida residents can take their lead from physicians. A 2003 survey of 745 doctors found that 64 percent of participants had an advanced directive, a document that outlines their wishes when it comes their medical care when they can't make those decisions on their own. Sadly, only 20 percent of the public has taken these same measures.
]]> And surprisingly, even with better medicine and treatment available as compared to years ago, many physicians choose to forego treatment when faced with a terminal condition. But more regular patients are dying away from home than in years past, one doctor contends. He argues that doctors are hesitant to tell patients what they would do when faced with a no-win situation, and many choose treatment that could keep them alive for a few more, albeit painful, months or years.The doctor argues that hospitals are not the place for one to live out the rest of his or her life comfortably.
But what's most important is that an advanced directive gives a person control over the decisions that are made about their care. It is okay to choose life-extending treatment, if that is what the patient wants. But it's important to realize that estate planning decisions about what happens when one is still alive are just as important as decisions about what happens after one dies.
Source: Wall Street Journal, "Why Doctors Die Differently," Ken Murray, Feb. 25, 2012
]]>As our population ages and life expectancies continue to climb, more people are stretching their retirement income for longer periods of time. This means that the issue of retirement income taxation is more important than ever before; having to factor in for tax deductions could take years off a retiree's livable income and it could impact other estate-related issues as well. The fact that Florida doesn't tax such income can be an incentive for some people to spend their sunset years in the Sunshine State.
]]> Florida's 2004 elimination of the state estate tax also has a huge impact on bringing in the retirees. Estate taxes can eat up a huge amount of the total assets you are passing along to your loved ones; moving to a state without the tax means more money is inherited. The federal estate tax is on hiatus until 2013 for estates totaling less than $5,000,000, and for those higher than the cut-off amount, the highest rate of estate tax has been lowered to 35 percent. Still, though, not having to pay a state-level estate tax can mean a huge savings that your beneficiaries won't have to pay out of their inheritance.Tax considerations alone cannot make the decision about where you plan on spending your retirement, but they play an important role in determining how much money you need to comfortably retire -- which could influence at what age you retire -- and how much you will be able to leave to your loved ones after you pass away.
Source: Christian Science Monitor, "Retirement plans? Don't forget about state, local taxes.", Karla Bowsher, Feb. 16, 2012
]]>As we've previously reported, if Congress doesn't act, the estate tax exemption will decrease from $5.1 million to $1 million, and the tax rate on that estate will increase from 35 percent to 55 percent. And this could be especially dangerous for farmers who think they will just be able to pass their estate on to their children, because the land values are increasing quickly.
]]> If a farmer is not prepared for a massive estate tax bill to come do once he or she passes away, the beneficiaries may have to sell the farm just to pay the bill. And a farm management specialist at Iowa State University says that one of the problems for farmers who want to transfer their property is that younger generations are losing interest in becoming farmers.For those who have beneficiaries who want to receive the property, experts recommend having strong, open lines of communication amongst family members.
Along with being able to transfer assets (which can include livestock), labor and management decisions, a farmer has to be able to give up some decision making ability. There also have to be decisions made about whether the farm wants to grow or remain stable, and that can depend on how many heirs there are.
In order to keep a farm viable for a younger generation, it is important that planning decisions are made as soon as possible. Even if one is not ready to give up control, they need to have a succession plan in mind.
Source: Drovers Cattle Network, "Will your agri-legacy be a monstrous estate tax bill?," Stu Ellis, Feb. 17, 2012
]]>For 2012, the gift tax and estate tax exemption is $5.12 million, meaning anything given away under that amount cannot be taxed. But that exemption will expire at the end of this year unless Congress acts, which is not guaranteed.
]]> If no action is taken, the gift and estate tax exemption will go back to $1 million, the level it was at before the 2001 tax cuts were passed. Any gift or estate above that amount could be taxed at a rate of up to 55 percent, which no one wants to pay.One of the best methods that one can use if they want to leave their children as much wealth as possible is to create a trust. Gift and estate taxes are filed on an individual basis, which means a couple together could protect up to $10.24 million in a trust that would be shielded from taxation.
One tax expert especially recommended that business owners make plans this year, lest the survival of a business be threatened by estate taxes. He used the example of a business owner with $4 million in assets who did no estate planning and died next year when rates will be higher and the exemption will be lower.
Experts also recommend moving quickly, waiting until the end of the year could be too late, because setting up a trust takes time, and there might not be enough.
Source: New York Times, "A Year to Stay Flexible on Tax Plans," Jan M. Rosen, Feb. 8, 2012
]]>The 48-year-old man has two biological children who are not yet 35 years old, the age he designated that they will have access to the trust, so he legally adopted his 42-year-old girlfriend as his daughter, which would entitle her to one third of the assets in the trust.
]]> His civil trial and criminal trial for DUI manslaughter, vehicular homicide and leaving the scene of a crash for an accident that left a 23-year-old man dead are both scheduled to begin in March. He could face a lengthy prison term if convicted, and wants to protect the assets in the trust for his children.The court hearing the lawsuit has ruled that the trust assets cannot be considered part of the man's assets in the event punitive damages are awarded. The family of the accident victim thinks that portion of the trust should be available for the lawsuit since the man effectively has control over that money.
The man's attorney maintains that the adoption is not illegal, and that the only reason he did it was as a safeguard to protect the trust -- which started more than 20 years ago with a $1.5 million investment and grew into the hundreds of millions of dollars -- for his children. A probate court will have to decide if the adoption is legitimate for the purposes of the trust.
No matter the man's guilt or innocence, the assets in the trust were set aside for his children, and they should not be punished for his actions.
Source: ABC News, "Polo Club Founder Adopts Girlfriend Amid Civil Suit Over DUI Death," Christina Ng, Feb. 2, 2012
]]>One estate planning attorney who has a history of being in the middle of probate battles involving celebrities and other wealthy clients, said one of the biggest problems he encounters is second or third spouses being pitted against children from a first marriage.
]]> The attorney's main advice is that if an estate plan does not try to divide assets equally between children of a first marriage and any other spouse other than the first one, the case will be doomed for litigation.He used the example of the late Grateful Dead lead singer Jerry Garcia, who had children with different wives and married a third woman just before he died. There was lengthy litigation over how his assets would be divided.
Another case where one beneficiary could try to get the upper hand is a child who takes over care of an ailing parent. That person could get joint control of assets, which means that child would assume control when the parent dies. The names on accounts in this case would hold more weight than a will because the child is still alive.
The attorney recommends making sure a second spouse gets whatever was listed in a prenuptial agreement if there was one. He also recommended appointing an independent fiduciary or trustee to handle matters.
Source: Reuters, "The big lessons from celebrity estate wars," Amy Feldman, Jan. 26, 2012
]]>King's family is currently battling his 86-year-old former secretary over possession of documents that the secretary says King wanted her to have. His family however, says the notes belong to King's estate, which his family controls. The documents include a note from civil rights activist Rosa Parks. Had King made a will, he could have specified who he wanted to have possession of the documents.
]]> For the 55 percent of adult Americans who don't have a will, the start of 2012 is the perfect time to resolve to make important estate planning decisions, including a will. One estate planning expert said that many adults put off making a will because they can't bring themselves to make the crucial decisions, such as power of attorney and custody if there are any minor children.When choosing a guardian, one expert recommends choosing the first person who comes to mind when one thinks of a guardian. Usually the person who seems like the best fit is.
When naming beneficiaries, it's also important to keep a will updated. For example, parents of minor children will name another adult as a beneficiary, but should remember to name their child once they reach an appropriate age to handle an inheritance responsibly, if that's what they want to do.
While not everyone had as many prized assets as King, it does not mean that every adult should not take the time to make a will and plan for the future. There is no time like the present.
Source: Forbes, "A Common Sense Approach to Estate Planning," Nancy Anderson, Jan. 19, 2012
]]>One of the suggestions the expert made was to make the January mortgage payment in December to avoid the interest that will be accrued. By doing so, an individual can save money and write off the payment on this year's taxes rather than those from next year. Another move to ensure the minimum amount of tax paid is by making a charitable contribution. Contributions such as this may be made from the heart and from the mind because of their financial benefits toward the contributor.
]]> But donating enough to make this year's charitable contribution can be hard after a tough year in which many struggled financially. It is suggested that anyone hoping to donate that cannot currently -- as long as the contributor knows for certain they will have the money come January, in this case January 2013 -- should consider putting the deposit on a credit card. Be careful though; without the ability to repay soon, the donator may lose the saved taxes to interest on the credit card.Another way to minimize taxes is to donate belongings. Cleaning out closets and basements in the hopes of finding unused clothes, furniture and household goods can give a person the ability to donate a hefty pile of used assets. As long as the items are donated to a qualified charity and are considered in good condition, the government will accept the tax write-offs. An itemized list and legitimate current market value estimates should be used to find a suitable contribution amount.
This advice can easily be applied to anyone looking to minimize an estate tax burden that they are worried about passing on to a beneficiary. This year can be a good time to start planning for the future.
Source: Los Angeles Times, "Make time for financial planning now, save money on taxes later," Kathy M. Kristof, Dec. 24, 2011
]]>The will for the woman's $400-million estate have caused a serious rift between members of her family. The copper heiress died in May and left a hefty portion of her estate to her nurse. Now a court battle is erupting between the nurse and 19 great-nieces and great-nephews of the deceased woman who believe they have a right to some of the estate proceedings that have been court-ordered.
]]> In the most recently signed will from 2005, the woman notes that she had minimal contact with her 19 great-nieces and great-nephews over the years. As was noted last week, it was discovered the woman had signed two wills in 2005, one leaving most of the fortune to the relatives and the other leaving money to the nurse and charity. The relatives were recently successful in forcing an executor of the estate to resign.The nurse -- born in the Philippines -- spent the last two decades tending to the wealthy woman's needs. The nurse discovered that she was designated as the recipient of approximately $34 million in the woman's will. Over the years, the nurse and mother of three had been given a 2001 Bentley, five homes and a $5 million bonus by her wealthy patient.
Source: New York Post, "Battle of wills starting," Laura Italiano, Dec. 23, 2011
]]>The accountant resigned earlier this month from his role as executor of the $400 million estate. The accountant and an attorney, who also had a role in managing the estate, have caught the eye of the Manhattan public administrator and the New York attorney general's office. Officials were preparing to ask a probate court to remove the two from their roles.
]]> Attorneys for the public administrator wrote in a probate court filing that the accountant and attorney tried to get the heiress, who died earlier this year at the age of 104, to make them executors and leave them large sums of money. They are also believed to have failed to pay $90 million in federal gift taxes and penalties. The two deny any wrongdoing. The accountant had worked for the heiress' estate for the last three decades.The woman's estate has been a source of curiosity for years. While alive, she owned the largest residence on Fifth Avenue, but the reclusive woman had lived in a hospital since the 1980s. The woman had left two wills, one that left most of the estate to family, and another that left most of the estate to her nurse and charity, including an arts foundation that the accountant and attorney would run.
The public administrator's office also accuses the attorney of writing gift checks to himself and the accountant for tens of thousands of dollars, along with convincing the woman to spend money on Jewish settlements in the West Bank of Palestine, where his daughter lives. Family members of the woman were unable to get a guardian appointed while she was still alive.
Source: Associated Press, "APNewsBreak: NY accountant off heiress' estate," Jennifer Peltz, Dec. 21, 2011
]]>But even with early planning, mistakes can be made. Take, for example, the mistakes made by many celebrities in estate planning.
]]> Michael Jackson, while making a wise decision in selecting executors who were unbiased, left the potential for confusion when he named his mother as the guardian of his children. If something happens to her, famous singer Diana Ross is the next in line. If his children are not adults by the time his mother dies, they may have to move in with Ross and adjust to a completely different lifestyle. Experts suggest selecting someone who is willing and able to care for children until they are adults rather than someone who is older, potentially making them incapable of raising kids in the future.Other mistakes made by celebrities include not having financial accounts in a centralized location and letting an estate be subjected to estate taxes.
If an estate is spread out rather than in a solid location, an executor may have a hard time finding assets that have been bequeathed in a will; or the executor may find belongings that were long forgotten about when surveying the estate, which could create a feud between loved ones as to who gets the rediscovered asset.
Even celebrities, despite the vast amounts of wealth they often possess, may make the mistake of improper tax planning. By implementing trusts and taking advantage of tax-free gifts, an individual can minimize the value of his or her estate, thus decreasing the amount of estate tax which may hit it.
Source: U.S. News & World Report, "6 Celebrity Estate Planning Errors-And Tips," Kimberly Palmer, Dec. 6, 2011
]]>A trust may sound like something that only the rich have, but creating one can be quite beneficial to an estate and its beneficiaries. When someone dies, the assets belonging to that person have to go through probate court and be administered to his or her loved ones. This process can be costly and take away from the estate's value as it is finally bequeathed to its recipients. By placing assets into a trust, the probate process can be avoided, allowing for a rapid transition between the original owner and the new one.
]]> Creators of a trust can also control whether or not the beneficiary can receive their allotted distributions. For instance, if someone wants to award a trust to a relative who has a known drug problem, they may request that beneficiary pass a drug test before the trustee doles out any money.Another upside to trusts is their ability to avoid taxes on the principle investment, but this does not mean that distributions are untaxed.
As Dec. 31, 2012 edges closer, many are wondering if Congress will extend the $5 million estate tax exemption rate. If they do not, it may drop to as low as $1 million, and many planners will begin scrambling to find ways to avoid the taxation of their estate. Taking advantage of trusts is just one way that this can be done, and consulting with an experienced estate planning attorney could be a good first step in creating one.
Source: CNBC, "Should You Have Confidence in Trusts?," Jessica Rao, Dec. 5, 2011
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