Author: Michele Braverman

January Is National Mentoring Month: Three Creative Ways to Use the Estate Planning Process to Be a Mentor

Celebrate National Mentoring Month this January by becoming a mentor to the people in your life who have less life experience, whether they are your children or other loved ones. Mentors can have a huge positive impact on a young person’s life by sharing the wisdom, knowledge, and experience they have gained to help their mentee develop skills and goals that will enable them to succeed in life. 

What does mentoring have to do with estate planning? You may think that estate planning is only relevant when a person dies or is preparing to pass on their money and property upon their death. However, estate planning can also involve strategies you implement during your lifetime and provides a great mentoring opportunity. Here are three ways you can use estate planning to guide your younger loved ones toward a more successful life: 

(1) Give small gifts during your life to help your mentee reach a goal. First, help your mentee learn why setting goals is important and how to set goals for their own life. For example, if your mentee would like to start a business or pay for college, you could assist them in creating a bank or investment account to save money for that purpose. You could use gifts to create an incentive for them to deposit money regularly in that account by contributing a certain amount, perhaps fifty cents, for every dollar they deposit. Or, if they would like to contribute to a charitable organization that is important to them, you could encourage them by providing a matching gift for every contribution they make. By helping them reach these goals themselves instead of merely giving them all of the money needed to achieve them, they will learn valuable lessons. You can further facilitate their success by sharing life lessons you learned when you tried to achieve similar goals.

(2) Educate your mentee about a particular item that you plan for them to inherit one day. For example, if you have a family cabin that you plan to pass on to your son and daughter, document all of the steps needed to maintain it and create a schedule for who will fulfill those chores on a regular basis. If you and your sibling have been in charge of taking care of the cabin, you can share the knowledge and experience you have gained over the years about the best ways to work together to care for the property. In addition to providing information about the nuts and bolts of maintaining the cabin, you can share stories and memories about your own experiences there to communicate why it means so much to you and why you want them to have those same positive experiences in their lives.

(3) Teach your mentee about a skill you have developed and believe is important. Perhaps your mother or father taught you important lessons about how to save money or contribute to good causes. You can pass these same lessons on to the next generation as well. If you learned money management skills that have enabled you to build a sizable estate and allowed you to benefit your family and others, invest time in teaching those skills to your younger loved ones. Similarly, if you have discovered methods for determining whether a charity is being run responsibly and is a worthy organization for a donation, share that knowledge with your mentee so they can make good decisions when they make their own charitable contributions. Communicate to your mentee how these skills have had a positive impact on your own life and the lives of others to reinforce their importance and why it is important for them to gain the same skills.

Creative mentoring can provide a great opportunity for you to share more than just your money and property with those you love: you can share your important values and the skills and experiences gained as you have put them into practice. If you want to leave a lasting legacy for your family and loved ones and need assistance creating or updating your estate plan, please give us a call.

End-of-Year Considerations

Unique Gift Ideas that Benefit You Too

You may associate the month of December with giving holiday gifts, but it is also a great time for you to think about the valuable estate planning opportunity presented by year-end gift giving. In making lifetime gifts, you can experience the pleasure of providing immediate benefits to your loved ones while shaping your legacy, for example, by funding a loved one’s education or starting a family tradition of charitable giving. There are several advantageous ways for you to make year-end gifts.

1. Direct payment of medical expenses. You can make an unlimited number of tax-free gifts by paying your loved ones’ medical expenses. These gifts should be made directly to the medical providers rather than to your family members or friends. In addition, it is important to verify that the payments are for expenses that would qualify as deductible itemized medical expenses on the tax return of the individual receiving the healthcare. 

2. Direct payment of tuition. Similar to paying medical expenses, you can also pay for your loved ones’ tuition. There is no limit on the amount of tax-free gifts or restrictions on who can benefit from them, but payments must be made directly to the educational institution, not to the parents or students themselves. The payments must fall within the Internal Revenue Code’s definition of “tuition,” which is not limited to college or graduate school tuition, but also includes private school tuition for younger students. It does not include payments for living expenses, books, or other fees, however. 

3. Charitable gifts on behalf of or in honor of a loved one. If you are charitably inclined or want to honor a loved one by donating to their favorite charity, a year-end contribution to a qualified organization will also enable you to claim a charitable deduction. You must keep records of any contribution, and you may need to obtain written acknowledgment from the charity to deduct a contribution of cash or property. There are additional requirements for larger gifts of property. You can claim charitable deductions during your lifetime or your estate can claim it when you pass away, depending upon the strategy you use. We can help you determine the best strategy for your unique circumstances.

Your Best Gift

The best gift you can provide for your loved ones is to have all of your affairs in order. Please contact us if we can help you create or update a comprehensive estate plan that will help provide for your loved ones through thoughtful lifetime gifts and after you pass away.

Have You Made New Year’s Resolutions?

A new year is a great time to start fresh and implement positive changes that will enhance our lives. Many of us want to lose weight, spend more time with friends and family, eat healthier, learn a new skill, or save money. Although we can implement these goals anytime, the beginning of the new year is often a good starting point to help us measure our progress.

There are pros and cons to setting New Year’s resolutions, and people have varying opinions about their helpfulness. People who have a favorable attitude towards New Year’s resolutions often point out the following benefits: 

• Having goals provides people with a sense of purpose and a positive, forward-looking perspective. 
• If you do not set goals, it is axiomatic that you will not achieve them!
• Accomplishing a goal—or at least making significant progress—provides a sense of satisfaction.

Others point out the following cons of New Year’s resolutions:

• The initial motivation generally wanes over time, making failure likely.
• Not keeping them could lead to a feeling of failure or shame.
• They reflect dissatisfaction with oneself or one’s life circumstances.

If you have decided that New Year’s resolutions are helpful to you, think about goals that can provide significant security for yourself and your family. Although they may not be the first New Year’s resolutions that come to mind, there are several steps that you can take that will benefit your family.

1. Choose a guardian. If you are a parent, create a plan to ensure that your children are cared for if you or the other legal parent are unable to care for them by naming a person you trust to be their guardian. If you do not choose someone to serve as a guardian, a court will appoint someone for you—and it may not be the person you would have chosen. Designate the person you choose in your will or in a separate document, if your state allows for it. 

2. Create medical and financial powers of attorney. If you are unable to communicate or make your own medical or financial decisions, your agent under a power of attorney can step in and make decisions on your behalf. Even if you are married, it is still prudent to appoint an agent to act for you because your spouse may not be able to step in for you depending on the situation. If you want your spouse to be your agent, you must have medical and financial powers of attorney prepared. This will help your spouse or other loved one avoid the stress of having to go to court to be appointed as your guardian.

3. Have enough life insurance. If you pass away, will the proceeds of your current life insurance policy provide adequate funds for your loved ones? It is important to regularly evaluate whether your coverage is sufficient, particularly if you have had another child. If you do not have life insurance, one of your New Year’s resolutions should be to ensure that this gap in your planning is filled.

4. Establish a plan for your money and property. Have you decided who you would like to inherit your money and property when you pass away? If you do not have a written estate plan, your money and property will go to individuals specified in your state’s statute instead of to the beneficiaries you choose. You should create a will, which is a document that states how you would like your money and property to be distributed at your death and the individuals (or organizations if you would like to give to a charity) who you would like to receive it. Alternatively, many people create trusts to hold their money and property on their behalf and on behalf of their beneficiaries and which specifies when and to whom the money and property should be distributed. Trusts provide privacy because, unlike wills, the trust documents do not become public record during probate proceedings. In addition, a trust can protect your beneficiaries from unwise spending and creditors.

Let Us Help You Keep Your Resolutions

We can help you create a comprehensive estate plan that will fulfill all of your goals and provide you and your loved ones with substantial peace of mind. Please give us a call to discuss how we can assist you in creating the best plan for you as you enter the new year.

Different Types of Charitable Giving

The end of the year is a great time for you to think about donating to charity. Donations not only aptly express the generosity associated with the holiday season, but they help worthy organizations and allow you to save on taxes by claiming a charitable deduction. While most people think of donating cash or financial accounts, donating property can be advantageous as well. 

Cars

Many organizations accept donations of cars, even if they do not currently run, and some will also take donations of other types of vehicles such as recreational vehicles, trucks, or motorcycles. You should transfer the title of the car to the charity and remove the license plate and registration. For the donation to be tax deductible, the charity receiving the donation must be a 501(c)(3) organization. You should obtain a written acknowledgement of the donation from the charity. If the charity sells the vehicle, the deduction should generally be for the charity’s gross proceeds from the sale, but under some circumstances, a deduction can be claimed for the car’s fair market value (i.e., the amount it could be sold for in the open market by a willing seller to a willing buyer) on the date that it is donated. However, if the written acknowledgment indicates that the donated vehicle sold for $500 or less, you can claim a deduction for the lesser of the vehicle’s fair market value on the date it was donated or $500.

Household Items

Donations of household items such as furniture, appliances, books, and clothing to a 501(c)(3) organization are eligible for a charitable deduction of their fair market value on the date of the donation. Donated household goods and clothing must be in good used condition to be eligible for a deduction based on its fair market value. If they are not in good condition, you must attach a qualified appraisal and Internal Revenue Service (IRS) Form 8283, Section B to your tax return to claim a deduction of $500 or more. 

Building Materials

If you have materials left over after building a new house or old cabinets or fixtures after a remodeling project, you can donate them to a 501(c)(3) organization that helps families build affordable homes or sells donated materials to raise money for a charitable cause. Like household items, the amount of the deduction is the fair market value of the building materials on the date they are donated. 

We Can Help

Charitable organizations often operate tight budgets and count on year-end donations to continue their missions. You can benefit a charity and possibly lower your tax bill by donating your old car or leftover building materials before the end of the year. However, keep in mind that you can deduct charitable donations only if you itemize deductions on Schedule A of your IRS Form 1040. Even if you do not itemize your deductions, making a charitable contribution is worthwhile because it is an opportunity to benefit those in need. If you would like to discuss how to make gifts that both fulfill your charitable goals and benefit your family by lowering your taxes, please contact us.

On Tuesday, November 8, United States elections for the year 2022 were held. During this important midterm election, more than one-third of the seats in the Senate and all 435 seats in the House of Representative were contested. Now that the results are in, we know that Republicans will control the House and Democrats will retain control of the Senate come January. What does this mean for you?

With a Republican-controlled House and a Democratic-controlled Senate, it seems likely that any legislative action, outside of must-pass legislation such as funding the government, will come to a screeching halt. And negotiations on even the must-pass legislation will likely be factious, with each party seeing it as their only opportunity to pass policy.

GOP power in the House means Republicans will likely bring congressional investigations of certain people, policies, and corporations. For example, congressional hearings for the Justice Department’s handling of the Trump Mar-a-Lago investigations and telecommunications companies that cooperated with the January 6 committee seem likely. Republican members of the House have also signaled support for probes into Hunter Biden, the White House’s handling of the southern border, and President Biden’s withdrawal from Afghanistan. Some far-right members have also said they would try to launch impeachment proceedings against President Biden, although this effort would likely not get far because the Senate, which has sole power to conduct impeachment trials, is controlled by Democrats.

The Republicans’ agenda will likely include putting an end to Build Back Better, and they may also attempt to get spending cuts as concessions from the White House when the time comes to raise the cap on government spending in 2023.

On the other hand, Democrats will focus on what they can do with the Senate’s power: confirming federal judges and executive branch appointments. Since only a simple majority in the Senate is required to confirm judicial nominees for district courts, circuit courts, and even the Supreme Court, a Democratic Senate will be able to confirm more of President Biden’s choices.

The Democrats’ retention of a majority in the Senate also means that they can determine legislative priorities—Senate Democrats can set their own floor agenda and reject bills approved by the Republican-controlled House. They can also ensure that hearings and committee time are not used on investigations of President Biden and other members of his administration.

In reality, at this point all we can do is speculate until the new congressional session begins. We will continue to keep you updated, particularly with regard to how any proposed or new laws might impact your estate planning. In the meantime, do not wait to start or revise your estate plan if changes are needed. Life events such as marriage, divorce, birth, and death have a major impact not only on your life but on your estate plan as well. If you or your loved ones have had any of these changes, it is crucial that you review your estate plan (on your own or with us) to ensure that your wishes are carried out. Remember: estate planning is not a one-and-done event.IRS Extends Late Portability Election

The IRS recently issued a new procedure (Revenue Procedure 2022-32) which extends the time an estate has to elect portability to five years after the decedent’s date of death. Since portability is probably not top of mind for you, let us take a minute to review what portability is and why this news could be very useful information.

What is the portability election?

In its simplest terms, portability is a procedure that allows spouses to combine their estate and gift tax exemptions by allowing a surviving spouse to use their deceased spouse’s unused exclusion (DSUE) amount. The surviving spouse then has their own exemption from estate and gift tax plus the unused exemption of their deceased spouse.

Example: Spouse 1 dies in 2022 when the exemption amount is $12.06 million. Spouse 1 used $2 million of their exemption amount to make gifts during their lifetime, leaving a DSUE amount of $10.06 million. Spouse 2 can elect portability to combine Spouse 1’s $10.06 million unused exemption amount with their own exemption amount.

What was the prior deadline, and why did the IRS issue a new deadline?

Prior to Revenue Procedure 2022-32, for estates not required to file an estate tax return, the deadline to elect portability was two years after the decedent’s death. (For estates required to file an estate tax return, the due date for the return is nine months after the decedent’s death, or if an extension has been obtained, the last day of the extension period, regardless of whether the estate elects portability.) However, the IRS was receiving a significant number of requests for private letter rulings from estates that did not meet the two-year deadline, placing a considerable burden on the IRS’s resources. The IRS observed that many of these requests were from estates where the decedent had died within five years of the request, thus prompting issuance of Revenue Procedure 2022-32, which extends the election period to five years after the decedent’s death.

Why might you be filing late?

Because many couples own property jointly, when the first spouse passes away, the surviving spouse becomes the sole owner of their deceased spouse’s property by operation of law; thus, they often do not consult with any advisors at the first spouse’s death. If the value of the surviving spouse’s money and property is greater than their individual exemption amount, or if the value of their money and property increases after the death of the first spouse, then the surviving spouse’s individual exemption amount alone may not be enough to avoid the payment of estate taxes.

Example: Spouse 1 and Spouse 2 own property worth $10 million. Spouse 1 dies in 2022 when the estate tax exemption amount is $12.06 million. Because everything was owned jointly, all property automatically passes to Spouse 2 as the sole owner. Spouse 2 does not file an estate tax return to elect portability at Spouse 1’s death and does not have to because Spouse 1’s assets were worth less than Spouse 1’s remaining estate tax exemption amount. When Spouse 2 passes away in 2026, the exemption is approximately $6 million, and Spouse 2’s property is now worth $14.06 million, meaning that estate taxes will be owed on the $8.6 million not covered by Spouse 2’s exemption amount. If Spouse 2 had used the extended five-year period for electing portability to claim Spouse 1’s unused $12.06 million exemption amount, the entire estate could have been shielded from estate taxes (($14.06 million – $12.06 million) – $6 million = no estate tax due).

If you need more information about portability and how it might apply to you, please contact us and your tax preparer for help in analyzing your financial and tax situation. We are here to assist you in that analysis and direct you in taking next steps.

What Happens if Your Account and Property Ownership Do Not Match Your Estate Plan?

Have you been lulled into a false sense of security because you have “done” your estate plan? Unfortunately, one of the dirtiest tricks that can be played on an unsuspecting family member may be lurking in the shadows: the way you own your property does not match your estate plan. This could make your estate plan a meaningless relic. How can you ensure that your estate plan works the way you anticipate for your loved ones when the time comes?

The key to ensuring that your estate plan will work the way you envision is understanding that how you own your money and property (i.e., how title is held) determines whether your will or trust, or neither, controls who will receive that money and property. A will only controls the accounts and property titled in solely your name or that do not have beneficiary designations when you die. So, if you jointly own a bank account or home (and are not the only owner) with a right of survivorship, the joint owner will likely inherit the account or home when you pass away rather than it going to a person you have named in your will. Because you were not the sole owner of the bank account or home, your will likely does not control who receives it. Rather, under the law, the surviving joint owner receives that property. The law assumes that if you had wanted your will to control who received that property, you would have held title differently.

Likewise, your trust instructions only control the accounts or property that are owned by the trust or that have designated the trust as the sole beneficiary after your death. (A beneficiary designation names who receives the money in an account or a piece of property at the owner’s death.) Regardless of what your trust says, it will not apply if the trust does not own or is not the named beneficiary of an account or piece of property.

Example: Gomez Addams has a will, and a trust that names his wife Morticia as beneficiary. Gomez owns the Addams family home jointly with Uncle Fester. Gomez also has a life insurance policy. He names his daughter Wednesday and his son Pugsley as beneficiaries on the policy’s beneficiary designation form. After Gomez’s death, Uncle Fester becomes sole owner of the family home, and Wednesday and Pugsley split the life insurance proceeds. Neither the will nor the trust controlled because of how title to the property was held and how the beneficiary designations of the policy were completed. Morticia is left with nothing.

Avoid tricking your loved ones when you intend to give them a treat. We can help you ensure that your account and property ownership is consistent with your estate planning objectives so that your plan will work the way you expect.

Will Your Trusted Decision Maker Be a Hero or Villain?

Failing to Appoint Trusted Decision Makers

While Halloween, The Exorcist, or The Shining may top your list as some of the scariest horror films ever, I Care a Lot is the stuff of real-life nightmares. The movie I Care a Lot tells the story of a con artist named Marla Grayson who makes a living by becoming the court-appointed guardian of vulnerable elders who she places in a nursing home, where they are sedated and left unable to manage their affairs. Meanwhile, Marla sells all of the elderly person’s belongings and property and pockets the cash, while the elderly person’s family members watch helplessly. Fortunately, this nightmarish circumstance can be avoided by doing one simple thing.

By naming trusted decision makers in your estate planning documents, particularly in financial and medical powers of attorney, and updating these documents regularly, you can avoid being placed at the mercy of a court-appointed guardian like Marla Grayson. A power of attorney allows you to appoint someone to make financial and medical decisions for you when you are unable to make them for yourself. You can customize your choices by appointing one person to make financial decisions and another person to make medical decisions. You can even choose backups to act as alternates in case your first choice cannot or will not act.

Unfortunately, if you do not choose someone to be your decision maker, or if the person you have chosen cannot or will not act, the state may choose someone for you. This person will have extensive authority to act on your behalf, but at this point, you will have no say in who that person should be. Sadly, the person chosen by the court could be a family member who you do not want making decisions for you or a court-appointed person with bad intentions, such as Marla Grayson. With the odds of becoming incapacitated stacked against you, this is not something you want to leave to chance, particularly when the solution is so easy.

You can avoid a real-life nightmare by taking the simple step of creating or updating your power of attorney. We know how important it is to select the right person to be your trusted decision maker, and we would be happy to help you create or update this important piece of your estate plan.

Tips to Defeat the New Bogeyman: Inflation

Surviving High Inflation

With inflation at a forty-year high, the rising cost of living is affecting everyone. While you may feel some level of distress as you watch the steady decline in your purchasing power, you do not have to sit idly by while it happens. Here are some things you can do to survive this time of high inflation, no matter how long it lasts:

• Reevaluate your spending. Most likely, your income is not increasing at the same rate that your expenses are increasing, so one way to counteract these rising costs is by lowering your expenses. Start by looking at how much you are spending each month. Then, look at what you are spending your money on.
  • Are there unnecessary expenses that you can cut out?
  • Are there monthly subscriptions being billed to you that you have forgotten about? Are you using that gym membership, or have you subscribed to multiple entertainment services when one or two would suffice?
  • Are there ways to reduce the cost of necessary expenses? For example,  are there cheaper options for your cell phone service (e.g., a prepaid or a limited data plan) or your auto or home insurance? Often, a simple phone call or internet search can end up saving you hundreds of dollars.
• Consider a side hustle. If you have cut as much from your expenses as you can but you still come up short, you may need to look at ways you can increase your income. The options for a side hustle outside of your nine-to-five job are only limited by your imagination and creativity. You could offer services such as photography, petsitting, or tutoring on any variety of topics, from gardening to laying tile to writing essays. You could sell handmade items online on Etsy or items that you no longer want on eBay or Facebook Marketplace, or rent property that you do not use all of the time, such as a recreational vehicle on sites such as Outdoorsy or RVshare, or even your pool on Swimply. The possibilities are endless. (Note: do make sure you are adequately covered through your liabilty insurance company before you do this!). 
• Use increasing interest rates to your advantage by investing even small amounts of money. If you have money in an account that earns interest at a rate below the inflation rate, consider putting that money in an account where it can earn a higher interest rate. For long-term savings, consider purchasing Treasury I savings bonds. The interest rate for I-bonds is designed to meet or beat inflation, and the current annual rate is 9.62 percent. For short-term savings that you may need to access, such as an emergency fund, consider using a high-yield savings account.

While it can be frustrating to watch rising inflation rates eat away at your spending power, you do not have to just sit by and watch. Be proactive, and use these tips to fight back.