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Taxes and estate planning

Taxes and estate planning go hand in hand. A variety of factors, including the size of your estate and how you distribute it, can affect your heirs' tax bills.

Timothy J Rice | Oct 2, 2019

Charitable Giving Under the New Tax Law

Q: What is the new tax law? A: The Tax Cuts and Jobs Act, enacted in December 2017, nearly doubled the standard deduction to $12,000 for individuals and $24,000 for couples. Q: What does The Tax Cuts and Jobs Act actually change? A: This means that if your charitable contributions along with any other itemized deductions are less than $12,000 for the tax year, the standard deduction will lower your tax bill more than itemizing your deductions. For most people, the standard deduction will be the better option. Q: Is it still possible to maximize your contributions? A: If you still want to maximize the tax benefits of charitable giving and you have the financial means, one option is to double your charitable donations in one year and then skip the donation the following year. For example, instead of giving $10,000 a year to charity, you could give $20,000 every other year and itemize your deductions in that year. Q: How else can you concentrate on charitable contributions? A: Another way to concentrate charitable giving is to establish a donor-advised fund (DAF) through a public charity. A DAF allows you to contribute several years’ worth of charitable donations to the fund and receive the tax benefit immediately. The money is placed in an account where it can be invested and grow tax-free. Q: What are the benefits of a donor advised fund (DAF)? A: You can then make donations to charities from the account or add to it at any time. As with any investment, you need to do research before establishing a DAF. Make sure you understand the fees involved and whether there are any limits on the contributions you can make. You should consult with your financial advisor before taking any steps. Q: Does being 70 and older change the guidelines for contributing to charitable donations? A: If you are age 70 and a half or older and taking required minimum distributions from an IRA, another option is to donate those distributions directly to charity through a qualified charitable donation. The distributions won’t be included in your gross income, which means lower taxes overall. The donation must be made directly from the IRA to the charity, and different IRA custodians have different rules about how to make the distributions.

William J. Reinhardt Jr | Sep 25, 2019

Ten Common Estate Plan Mistakes To Avoid

1. Not having an estate plan at all. The most common estate planning mistake is not having an estate plan. Unfortunately, no one can escape death, but thoughtful planning for what may occur after your death is one of the most important things you can do to ensure your personal and financial affairs will be handled properly when the inevitable occurs. 2. Not updating your Will. There are many changes that can take place within a family or business structure, such as births, deaths, divorces, and new property acquisitions. Therefore, to ensure the assets you leave behind are given to those you intend, it is wise to perform a periodic update of your will when these changes take place. 3. Not planning for disability. An unexpected or long term disability can often have greater consequences on your personal and financial affairs. Decisions such as who will handle your finances, raise your children, or make healthcare decisions on your behalf are extremely important. Therefore it may be necessary to appoint a power of attorney and/or create a living trust to work on your behalf if you’re unable to do for yourself. 4. Not making gifts to reduce your estate taxes. A common estate planning mistake is failing to make gifts under your estate plan to reduce your estate taxes. According to the Internal Revenue Code, gifts up to $15,000 a year per spouse may be excluded from estate tax. So gifts made to individuals, groups, or business, are subject to a $30,,000 estate tax savings. Not only will this leave more money in your estate for distribution, you can positively impact a specific person or individual cause of your choosing. 5. Putting your child's name on your deed. When you put your child’s name on the deed to your home, you are essentially giving your child a hefty sized taxable gift. (See number 4 above). While gifts up to $15,000 are excluded from estate tax, gifts more than $15,000 per spouse are taxable. Instead, create an estate plan that passes on the home or value via an inheritance. 6. Choosing the wrong person to handle your estate. Sometimes the person you think is the best choice for executor of your estate is not always the case. For example, while you may think your spouse or child may be best suited to handle the affairs of the estate when you are gone, there may be someone else who is not as personally invested to objectively handle the extensive duties and demands required of an executor, trustee, or guardian. 7. Not transferring your life insurance policies to a life insurance trust. A life insurance policy is subject to a hefty estate tax when you die, resulting in most of the proceeds going to the IRS instead of your intended beneficiaries. One way to avoid this is to set up a life insurance trust to act as the owner of your life insurance policies. This way you avoid hefty estate taxes being placed on the insurance proceeds, and spare your spouse or beneficiary any undue hardship in waiting up to several months for a pay-out of the insurance proceeds. 8. Not taking advantage of the federal exemption (per spouse). For married couples, one of the easiest ways to save on estate taxes is to fully use the federal exemption for each spouse (set at $11.4 million per spouse in 2019). Before 2011, married couples typically created exemption trusts (also called credit shelter trusts or AB trusts) so that when a spouse died, instead of exhausting that spouse’s individual exemption amount, a portion of the estate could be protected in the trust. However, since 2011, surviving spouses are allowed to make a “portability election” which passes any of the deceased spouse’s unused exemption to the surviving spouse, in effect potentially doubling the exemption amount for the surviving spouse. 9. Procrastinating. Even for those who realize an estate plan can benefit them, this realization sometimes comes too late in time. To avoid the stress of not having a proper estate plan in place, it would be wise to meet with an estate planning lawyer to help you at least draw up a basic estate. 10. Not meeting with an experienced legal, financial or tax professional. Not meeting with an estate planning lawyer or other professional is probably the most common mistake a person might do, especially if you have complicated assets or if you have doubts about your own ability to draft an estate plan. An experienced attorney can provide you with tax-planning strategies based on the particular needs and demands of your estate.

Inna Fershteyn | Sep 23, 2019

What Will Happen With Jeffrey Epstein’s $577 Million Estate?

What Estate Planning Documents Does He Have? Epstein filed his will in the U.S. Virgin Islands where he claimed to live permanently. He created a pour-over-will, which essentially transfers all of his assets into a private trust. He listed the two executors of the trust to be Darren K. Indyke and Richard D. Kahn, who are his former colleagues, and named the document “The 1953 Trust”. There also are no beneficiaries named in the trust, however, it is assumed that his brother, Mark, who is Epstein’s only living heir, will end up as the beneficiary. Since this specific type of document allows for anonymity of the trustee’s assets, what is in the estate will not be made public. However, unlike the trust, his will is considered to be a public document. With a will, the probate process must occur before any assets can be transferred into a trust and distributed to the beneficiaries. In Epstein’s case, the courts have to decide how they want to proceed with the multiple lawsuits against Epstein first. Epstein’s Domicile Clearly not your average man, Epstein had residences in New York, Florida, New Mexico, and Paris. However, he listed in the will that his permanent residence is in St. Thomas in the U.S. Virgin Islands. Domicile, which is where one permanently resides, is very important in deciding which jurisdiction will have control over the estate. His residency must be proven in probate court with some form of documentation such as a driver’s license, tax returns, or even time spent in a specific jurisdiction. It is believed that he has been claiming the U.S. Virgin Islands as his domicile for quite some time, which may make it easier to prove his residency in a courtroom. The Validity of the Will As with all estate planning documents, proper execution must include a present witness, or the entire will may be considered invalid. In this case, the will signing had two witnesses: private attorneys Mariel A. Colón Miró and Gulnora Tali. Aside from having witnesses, validating a will requires evidence that the testator had the mental capacity to make certain decisions, a decision that is evaluated by the probate court judge. If the will is considered to be invalid, either due to proven incapacity or any other reason, Epstein’s entire estate will go to his brother, who will still have to pay off creditors claims and lawsuits. Are His Victims Entitled To Anything? The alleged victims that have brought a criminal case against Epstein to court are entitled to some form of justice. Since Epstein took his own life, there can no longer be a criminal trial, but there can be civil lawsuits. In this case, it may be easier for the victims to prove that they were assaulted, since the concept of “beyond a reasonable doubt” only applies to criminal cases, and in general, civil suits have somewhat of a lower bar for proving that someone is guilty. The best possible outcomes for these victims, at this point, is to receive monetary damages from his estate. However, the order in which the assets will be distributed varies upon the laws of each state, which means that nothing can be resolved until the question of jurisdiction is resolved. How Long Will This Take To Resolve? Due to its complex and high-profile nature, this case can take many months up to several years to reach an end. There are multiple steps that have to be made to first understand who is the executor of the will, and only then can it be decided what assets get distributed where and to whom. It’s a fair assumption that it will take a decent amount of time for justice to be served.

Timothy J Rice | Sep 5, 2019

Estate planning for taxpayers without kids

Q: What are important measures to take when estate planning for individuals with no kids? A: Growing older without a built-in support team may mean you’ll have extra expenses for care. You may need to hire people to check in with you, to run errands or to drive you to appointments. If you plan to rely on younger family members or friends, talk to them about what they’re willing to do and revisit those conversations often. Q: How do you prepare to have someone handle this responsibility on your behalf? A: Plan to take care of yourself if you became incapacitated. Certain tools can make that easier for the people who are going to step up to help you. Arrange power of attorney and health care proxies. These documents enable you to designate who will make financial and health care-related decisions for you if you are no longer able. Q: Are there additional documents necessary to aid in the event you become incapacitated? A: If you set up a revocable trust and fund it now, your trustee will be able to use those funds for your care if you become incapacitated. Without such a trust, someone close to you would have to petition the court to appoint a guardian or conservator. That’s costly, time-consuming and stressful, and puts critical decisions for your well-being in the hands of a judge. Q: Does having a will help with unforeseen events in the event of death and no kids? A: A will ensures you get to decide how your assets are distributed, not a probate court judge. For people without a will, state law generally dictates that assets go to a spouse or children. But distributing your assets is more complicated if you are single without kids or part of an unmarried cohabitating couple. Think about your legacy and how you want your assets distributed. You may consider gifts to charity or lifetime gifts to certain family and friends, or the use of age-benchmarks that determine when young beneficiaries receive their gifts.

Timothy J Rice | Sep 5, 2019

Use caution when creating an IRA inheritance trust

Q: What is an inheritance trust? A: Designating a trust as beneficiary can be useful if the intended beneficiary has financial issues and is not a good money manager. That could mean distributing assets according to a certain schedule or simply withholding access until the beneficiary is a certain age. The trust can also provide protection from creditors, if your heir is likely to owe money in a divorce or file bankruptcy. Q: What are some benefits of having an inheritance trust? A: A trust can also be used to provide for children from a previous marriage, as long as it meets certain requirements. It could, for example, allow someone to leave enough money to care for their spouse, with remaining funds going to their children after their spouse passes. Q: What is the difference between a person versus a trust being listed as the beneficiary of an IRA? A: Designating a trust as the beneficiary of an IRA can be tricky. You’ll need specialized guidance to avoid costly tax mistakes and other unintended consequences. Generally, when someone inherits an IRA, they must withdraw a minimum amount each year. Q: What are the pros and cons of having a trust compared to a person serving as the beneficiary? A: Heirs have the option of stretching payments out over their expected lifespan, which means funds can continue to grow with tax-free benefits. When the beneficiary is a trust, the IRS will “look through” the trust and treat the heir(s) as if they were the named beneficiary. That way the trust can take advantage of the same tax-free minimum-distribution strategies. Q: How does a “look through” effect the beneficiary of an IRA? A: Several factors can disqualify the trust from this look-through treatment. Trusts in which the oldest beneficiary cannot be clearly identified, or which name a nonperson beneficiary (such as a charity or estate) won’t qualify for look-through treatment. If that happens, payments may be calculated according to the original owner’s life expectancy, as if they were still alive. That could mean a far more rapid payout than desirable. Q: What happens if your IRA is designated solely to your spouse? A: With the rollover option, couples can extend the tax benefits of an IRA account for decades, even generations. If you leave your IRA outright to your spouse, he or she has the option to roll those funds into his or her own IRA and defer distributions until age 70 1/2. Then, when your surviving spouse dies, the IRA can be left to younger heirs, using their life expectancy to set distributions.

Inna Fershteyn | Aug 12, 2019

Gift Tax Basics: Do I Owe Taxes When Someone Gifts Me Money?

Gift Tax Limit As of 2018, you and your spouse may gift up to $15,000 each ($30,000 in total) to as many individuals – except to each other if either of you are U.S. residents – as you want per calendar year so long as you file a gift tax return. The giver can actually go over the $15,000 limit if they are single and show an excess of $6,000 and if they are below the $11.2 million lifetime threshold. Until the giver reaches the lifetime threshold, they don’t have to pay any gift taxes. Gifts That Do Not Count and Don’t Need To Pay Tax The IRS has 4 exemptions to the general gift tax rule. The first is the annual exclusion of the $15,000 per the calendar year (or the lifetime exclusion). The second exemption is paying for an individual’s tuition and medical bills without paying the gift tax as long as you pay directly to the institution, not writing a check to the individual to do it themselves. The third is money you give your spouse if they are a U.S. resident and the fourth are gifts to political organizations. Not-So-Obvious, Taxable Gifts Unfortunately not all gifts are as obvious as just gifting someone a sum of money. Gifts where you made a transfer of cash or property without expecting anything in return outside of the 4 exemptions will count as a gift. For example, if you sold someone a house that was worth $1 million dollars for $900,000, you made a gift of $100,000 under the IRS’s definition of “fair market value.” The fair market value means that neither the buyer or seller were under any duress when committing the transaction. Another gift you probably didn’t expect was a gift was giving a friend a loan without charging them interest. Even adding a child as a joint owner to your bank account to help manage finances can be considered a taxable gift. Gifts That Can Land You in Trouble Gift-giving is good, but gift-giving in a way that is meant to specifically avoid being subject to gift taxes is easily recognizable by the Internal Revenue Service (IRS). If you are a parent and you give your child a loan, the IRS will see this as a gift so long as you forgive the repayments each year, particularly in an amount equal to the annual gift tax exclusion. The IRS is also keen to instances where a gift is given to one person but is actually meant for another. If you receive a gift and immediately transfer it to someone else, you are putting yourself at risk of ending up in a skirmish with a federal agency – not a good idea. Another no-no is a gift with strings attached. If you want to give it, give it; don’t try to hold onto it and create another tax-liability for yourself.