Archive for Estate Planning
Are You Ready for the 2011 Tax Changes?
Posted by: | CommentsAre You Ready for the 2011 Tax Changes?
If ever there was a time to call your estate planning or tax attorney, now is that time.
The tax cuts instituted by the Bush administration in 2001 and 2003 are set to expire in 2011 unless Congress does something to stop it before the end of this year. There are many proposed bills up for discussion right now but it’s anyone’s guess which, if any, will be passed in time.
If you are a single person earning $200,000 or more per year, or a married couple with a combined income of $250,000 plus per year, your federal payroll tax will increase by 0.9 percent in 2013 and taxes on your investment income and gains will take an additional hit of 3.8 percent.
To minimize the hit you’ll take next year, now is the best time to plan. To give you an idea of what’s coming, here’s a brief list of the top 5 changes you’ll see after 2011:
1. Increased Income Taxes for Higher Earners
Right now, single people with a taxable income of more than $192,000 and married couples who file jointly and have a combined taxable income of $232,950 or more pay 33 percent and 35 percent in taxes, respectively. These taxes are going to increase to 36 percent. If you earn more than $375,700 (regardless of whether you’re single or a couple filing jointly), your taxes will go up to 39.6 percent. The general consensus is that the Bush tax cuts will probably become permanent for earners with incomes less than $200,000.
If you are looking at a higher tax rate in 2011, you need to look for ways to take advantage of the lower 2010 taxes now. One possibility is conversion of a traditional IRA to a Roth IRA. But don’t do this without talking to us first. It needs to be done a certain way or it’s pointless.
2. Higher Taxes on Investment Gains
If you’ve been enjoying a 15 percent maximum rate on long-term capital gains and qualified dividends, expect to see that increase. If Congress takes no action, capital gains will be taxed at 20 percent and dividends will be treated as normal income (making rates as high as 39.6 percent a possibility). More than likely, action will be taken to fix that hike to 20 percent, but only for investors in the top two income brackets we talked about earlier. In 2013, that 20 percent rate will rise to 23.8 percent for the highest earners as part of the new excise tax for health care.
Don’t sell profitable stocks right now to qualify for a lower tax rate. Just take this opportunity to rebalance your taxable investment portfolio now when the taxes are lower. You should also take a look at your home equity situation and talk to us about actions you can take to lower your tax bill should you decide to sell and make a considerable profit.
3. The Estate Tax Cometh
Yes, the federal estate tax will be resurrected in 2011 and it will come back at levels we saw in 2000. The top tax rate will be 55 percent on estates worth $1 million to $10 million and 60 percent on estates worth more than $10 million. Congress has said that they will fix the estate tax debacle and make estates valued at less than $3.5 million ($7 million for couples) exempt from federal estate taxes, and set a maximum tax of 45 percent on assets over that. But no one is really sure how all this will play out.
Right now, we can only hope they take action soon. But in the meantime, talk to us about how to structure your estate to take advantage of these exemptions should they happen, and make sure that your estate plan is sound. For example, there are certain kinds of trusts that will essentially disinherit you if your spouse dies before the tax comes back. Call us to make sure you don’t have a potential nightmare on your hands.
4. You Could Be Losing Write-Offs
The 2011 budget will reinstate the phase-out of personal exemptions and itemized deductions for earners in the top two tax brackets. Another proposal is on the table that will cap the deduction rate for the top two tax brackets at 28 percent.
The itemized deduction is still in effect for 2010 so this is a good year to make sizable gifts to your favorite charities.
5. An Alternative Minimum Tax Quick Fix
If you’re a middle class taxpayer, you’re being hit every year by the Alternative Minimum Tax (“AMT”) because, although it was designed to make sure that rich taxpayers didn’t get out of paying taxes, it was never indexed for inflation. Every time Congress passes what they call a one year “patch” to spare some taxpayers, they raise the AMT exemption. A one year patch for 2010 is a given, and a permanent fix is possible in 2011 with an automatic annual inflation adjustment. The AMT may be a joke but it’s a very profitable one – it will account for $875 billion between 2009 and 2019, so it’s likely to be a joke we’ll be living with for a very long time.
If you’re a single person with an adjusted gross income of $46,700 or more in 2009 or a married couple with an adjusted gross income of $70,950 for the same year, you will have to look at the tax tables and the AMT and pay whichever is higher. This is really painful for couples with children in states where you’re also paying high income and property taxes (the deductions for these taxes are limited under the AMT).
These are only five of the changes that are coming in 2011. The ins and outs of dealing with the tax code are murky on a good day, but with the coming year and the expiration of old tax breaks, the new health care legislation and the outcome of any pending legislation, you need to make sure that your tax house is in order and you’re not paying more than you need to pay.
We can help you navigate your way through the changes.
Our Family Wealth Planning Session is normally $750, but this month I’ve made space for the next two people who mention this article to have a complete planning session with me at no charge. Call today and mention this article.
Do Advance Directives Really Work?
Posted by: | CommentsDo Advance Directives Really Work?
A Living Will…
A Durable Power of Attorney…
An Advance Health Care Directive…
Any of these documents can help to establish your wishes when it comes to the medical treatment you receive at the end of your life.
But do they really work?
According to one of the largest studies on the effectiveness of documents specifying medical treatments desired, or not desired at the end of life, yes, these documents do work. And more and more Americans are using these tools to make their wishes known.
The results of this study, published in the New England Journal of Medicine, showed that seventy percent (70%) of the people followed in the study lacked the ability to make choices toward the end of their lives because of their mental or physical health. Fortunately, most of them had advance directives and their wishes were not only known but followed. The will of the patient prevailed.
So which documentation is the right choice? Here’s what you need to know:
Living Will
A Living Will specifies the type of medical treatment you desire if you become incapacitated. If you are permanently unconscious or terminally ill, your Living Will merely tells your family and the medical community whether or not you desire to receive life sustaining treatment. The Living Will does not allow you to appoint someone else to make decisions for you. It just makes your wishes known.
Durable Power of Attorney for Health Care
A Durable Power of Attorney for Health Care allows you to appoint an agent with the legal authority to make decisions for you, relating to health care issues and treatment, should you become unconscious, mentally incompetent or otherwise unable to make those decisions. By making this a “durable” document, you are including language to make sure that this document remains effective or will take effect if you are mentally incompetent. In many states, you can also include language to make your wishes known with regard to “life-sustaining procedures” if you are in a coma or terminally ill. But a word to the wise, even if you include language about your wishes in this regard, make sure you discuss them with the person you designate as your agent.
Advance Health Care Directive
In many states, the Advance Health Care Directive has replaced the Living Will and Durable Power of Attorney for Health Care as the document for making your wishes known with regard to health care treatment and decision making. This document instructs others (your family and the medical community) about your care if you are unable to make those decisions on your own. It only becomes effective under the specific circumstances you provide for in the document itself. The Advance Health Care Directive allows you to do either or both of the following:
- Appoint a health care agent
- Prepare instructions for health care
This document provides a very clear statement of your wishes about your choice to prolong your life or to withhold or withdraw treatment. You can be as specific as you like about the medical care you want at the end of your life. For example, if you are a vegetarian or vegan, you can specify that you do not want to be fed meat. You can indicate whether or not you want hydration and nutrition to be withdrawn and that it goes beyond whether or not you can breathe on your own.
The Advance Health Care Directive allows you to do everything in one document that a Living Will or Durable Power of Attorney for Health Care allow you to do separately. If you already have a Living Will or Durable Power of Attorney for Health Care, don’t worry. Both of these documents are still valid until you take steps to replace them with an Advance Health Care Directive, unless you have a really old one that automatically expired after 7 years.
If you have any of these documents in your current estate plan, make sure that copies are provided to your appropriate family members, your primary care physician and/or anyone you have named as an agent in these particular documents.
If you don’t currently have these documents in your estate plan and would like an expert opinion on which is appropriate for your particular circumstances, call us to schedule your Family Wealth Planning Session today. We can identify what needs to be done to ensure that you have the right documentation to make your wishes known and followed.
Also, as part of our estate planning process, we will interview you about your specific wishes and what you want your family to know. We provide you with a copy of the interview so you can pass on the information you want your family to remember. We understand that it’s not just about the paper you leave behind, but the voice you leave behind. Our Family Wealth Planning Session is normally $750, but this month I’ve made space for the next two people who mention this article to have a complete planning session with me at no charge. Call today and mention this article.
Gifting to Nieces and Nephews – What You Don’t Know Can Hurt You (and Them)
Posted by: | CommentsGifting to Nieces and Nephews –
What You Don’t Know Can Hurt You (and Them)
Picture this scenario…
You’ve worked hard, saved and managed to accumulate some wealth.
You’re not a robber baron by any means but you’re comfortable. Your siblings haven’t fared as well and you want to make sure that their children have the benefit of a solid higher education. With no children of your own, it seems the right thing to do.
So you set up 529 college education savings plans for your nieces and nephews, make them the beneficiaries, and mention everything in your will.
And life goes on…
You don’t give it another thought beyond making regular contributions. You move to another state. You divorce.
All the things that happen in the normal course of living.
You know you need to change the beneficiary of your estate and name another executor (both are still your former spouse) but you never really get around to it.
And then the unthinkable happens. You die unexpectedly, with no time to make those changes you sincerely intended to make.
This is where things can quickly fall apart for those nieces and nephews you so wanted to take care of.
To make sure your wishes are carried out exactly as you intended, take these steps now to protect those 529 college education savings plans:
- 1. Name One or Both of the Child’s Parents as Participant or Owner
If you name your niece or nephew as the “beneficiary” of the 529 plan as a gift, you must add one or both of the child’s parents as the Participant or Owner. This gives them actual control over the 529 account. They can even change the beneficiary. If the child’s parent is not listed as an owner or participant, the plan will be considered part of the estate (which would then belong to your former spouse in this instance). Your niece or nephew would need the executor (again, your former spouse) to essentially turn the plan over to them in writing. And the executor and beneficiary of your estate would be well within their legal rights to refuse. Is that a risk you really want to take?
- 2. Update Your Will
I know you’ve heard this at least a thousand times but I’ll say it again because it is critically important in situations like this. If you undergo any kind of lifestyle change (i.e., divorce, death of a spouse or child, become incapacitated, move to another state, etc.), take the time required to have your will updated. This kind of situation happens all the time. The former spouse, as both executor and beneficiary, controls the 529 college savings funds because of a failure to properly set up the funds. If you’re going to the trouble of setting up a 529 fund and make regular contributions to it, take the necessary steps to ensure that money is used for what you intended.
- 3. Don’t Leave Assets or Insurance Outright to Your Nieces or Nephews
If you leave either assets or insurance directly to your nieces or nephews and they are minors at the time of your death, their parents will have to go to court to be named as guardians to gain access to these assets. Needless to say, that just adds another layer of complexity and more expense to the process.
- 4. Have Your Estate Planning and Financial Documents Thoroughly Reviewed
When you update your will, make sure that all your estate planning documents are reviewed, cross-referenced and do not contradict each other. Also, make sure that the person or persons you’ve named as beneficiaries and owners of your accounts are coordinated with your estate planning documents and that all your documentation supports your ultimate goals and objectives.
I can’t emphasize enough how important it is to have current estate planning documents. And this is especially true if you have 529 college education savings plans set aside for nieces, nephews, great-nieces or nephews, etc.
If you have started a 529 plan or would like to and would like an expert opinion on how a plan like this should be handled, call us at 818-905-6088 to schedule your Family Wealth Planning Session today. We can identify what needs to be done to ensure that you have the appropriate language in the plan to make sure that the money goes exactly where you intended. Our Family Wealth Planning Session is normally $750, but this month I’ve made space for the next two people who mention this article to have a complete planning session with me at no charge. Call today and mention this article or visit or website at http://www.estplan.com to request a call back.
Protecting Your Children’s Nest Egg
Posted by: | CommentsParents often set up trusts as a way to ensure their assets reach their children and successive generations without being diminished by courts costs and taxes. When leaving assets to a child, parents will be faced with some choices on how to handle or set up their children’s future inheritance.
Should they leave them to the children outright (no longer held in the trust), how much and when should the children receive the assets and will their inheritance be protected from future creditors are amongst some of the questions a parent must ask. Read More→
Keep The Change And Get $4,000 In Bonuses
Posted by: | CommentsChanges in our lives can bring a wealth of opportunity or surprising disappointment.
We can anticipate some changes, like getting married or the birth of a child, and other times, Change just struts in and makes itself at home without warning.
It’s easy to evaluate and plan for those big or significant changes that we know are going to happen: what they entail, when they will happen, how they will affect our lives, and how we can be better prepared for them when they do. Read More→
Is Your Business Putting Your Personal Assets At Risk?
Posted by: | CommentsAll professionals are aware of the challenges of running their business amidst a barrage of lawsuits. The number of lawsuits filed each year against physicians and small businesses is staggering and has reached over 15 million. That works out to one new lawsuit every two seconds! Or one lawsuit filed for every 12 adults in America. This is truly a large number of lawsuits.
Professional small business owners are at risk of losing their business assets, savings, and livelihood with one malpractice case. Steps can be taken to minimize the threat of these lawsuits and insulate assets from liability. Read More→
Special Needs…Special Planning When the Court is Involved
Posted by: | CommentsI am receiving more and more calls asking about protecting a settlement for a plaintiff in a personal injury case that has a disability. The plaintiff has a catastrophic brain injury due to the negligence of the defendant and receives a $3 million award in damages. A structured settlement can be integrated with a special needs trust through a qualified settlement fund to protect the plaintiff’s dollars.
What is a Structured Settlement? Read More→
Getting Divorced? Vital Info Regarding Your Estate Plan
Posted by: | CommentsIf you’ve already got an estate plan in place and you are going through a divorce, you’ve got some steps to take because no matter how you cut it, divorce has a major impact on your estate plan. I hate to tell you that because I know that the last thing you want to think about in the middle of your divorce is your estate planning and, yet, it’s critically important unless you want your ex to end up with control over all of your assets if anything happens to you.
Yep, that’s what could happen if you don’t address your estate planning as part of your divorce … your ex could end up with everything or at the very least in control of everything. Read More→
When Real Estate is owned by a parent and child
Posted by: | CommentsLast week, I had a client ask me what the best way to vest title when purchasing property with a child. This is an ever recurring question as to what is the best way to hold title between a parent and child. Property is often acquired with a child due to a joint investment the parent or child can’t qualify for a loan, or the parent or child wishes to gift an interest to the other.
Before I can answer this question, it’s helpful to understand the various ways two parties can hold title to property. Read More→
