Category: The Wealth Advisor

For everything there is a season, and it will soon be the season for taxes. Although it always seems to arrive too quickly, you will start to receive important tax documents by January 31. Whether you are filing as an individual or administering an estate or trust, you should start to prepare for tax day, April 18, 2023.

Filing as an Individual

Individuals (and married couples) use Form 1040 to file their annual income tax return. Starting in January, watch for the arrival of forms stating the amount of income you earned during 2022. Here are several of the most common forms you may need to complete your Form 1040:

Form W-2, Wage and Tax Statement. If you are a full-time employee or work part-time but are classified as an employee, your employer is required to send you a Form W-2 by January 31, 2023, showing the amount you were paid in wages, tips, and other compensation; the amount withheld by your employer for taxes; and the amount withheld for Social Security and Medicare. This form is not sent to independent contractors or self-employed workers.

Form 1099-NEC, Nonemployee Compensation. If you earned at least $600 in income as an independent contractor, the party or business who hired you must provide you with a Form 1099-NEC (in the past, Form 1099-MISC was used) by January 31, 2023. Form 1099-MISC is still used for prizes, awards, and other income payments, and the business must also provide this to you by January 31, 2023.

Form 1099-INT, Interest Income. Any entity that has paid you interest income of at least $10 must send you a Form 1099-INT by January 31, 2023. This could include banks or other financial institutions. For example, it will be issued for interest paid on savings bonds or savings and checking accounts. You should use this form to report all interest income you have received during the tax year to the Internal Revenue Service.

Form 1099-DIV, Dividends and Distributions. Financial institutions such as banks, credit unions, and mutual funds that have issued you at least $10 in dividends or other distributions must send you a Form 1099-DIV by January 31, 2023. This form supplies you the information you will need to report the income you receive from investments in the form of dividends. 

It is also important to gather and maintain records of IRA contributions, health savings account contributions, and other items that can reduce your taxable income, as well as documentation that will allow you to take advantage of tax deductions or credits, such as charitable contributions and mortgage interest.

Filing as an Executor or Trustee

If you are the executor of an estate or a trustee for a trust, you must report income of more than $600 earned by the estate or trust on Form 1041. If there is a beneficiary who is a nonresident alien, it must be filed regardless of the amount of income earned. However, if the beneficiaries of the estate or trust are entitled to receive the income, they are responsible for actually paying the income tax rather than the estate or trust. A few examples of assets held by an estate or trust that may earn income include mutual funds, rental property, savings accounts, stocks, or bonds. 

The date the return is due depends on whether the estate or trust follows a calendar year or a fiscal year. Calendar year estates and trusts must file the return by April 18, 2023, but fiscal year estates and trusts must file the return by the fifteenth day of the fourth month following the close of the tax year. The executor or trustee can choose whether to use a calendar or fiscal year. Many executors and trustees file a form electing a fiscal year, which begins on the date of the individual’s death and ends on the last day of the month before the anniversary of the date of death, because it allows more time for tax planning. In contrast, if the executor or trustee chooses to use a calendar year, the tax year begins on the date of death and ends on December 31 of the same year.

Executors and trustees must report all distributions of income made to beneficiaries on a Schedule K-1 (1041). In addition, you must send a copy of their respective Schedules K-1 to each beneficiary who has received a distribution of income, and the beneficiaries must report the amount of the distributions on their personal income tax returns. The deadlines for Schedule K-1 are the same as those for Form 1041 and depend on whether a calendar year or fiscal year is being used. Because the beneficiaries need to report this income on their own income tax returns, it is important to send the Schedule K-1 to them as early as possible.

As the executor or trustee, you should gather and maintain records of your fees, fees paid to professionals such as lawyers or accountants, administrative expenses, and distributions to beneficiaries so you can report them on Form 1041 to support tax deductions you claim for the estate or trust.

We Can Help

It is crucial to consider the implications of income taxes for estate planning and administration, whether you are an individual who needs to create or update your own estate plan or if you are administering an estate or trust. Please give us a call if you have any questions about how income taxes should affect your planning or administration decisions.

The beginning of a new year is when many of us reflect on where we have been and what we would like to accomplish in the future. If you are a business owner, you may be tempted to succumb to the tyranny of the urgent and fail to take the time to consider the future of your business. However, it is important to think about what you would like your life’s work to accomplish in the future. If you would like to help make the world a better place for future generations, you should consider a relatively new and perhaps unfamiliar planning tool: the purpose trust.

What Is a Purpose Trust?

A typical trust is an agreement involving several parties: the grantor, the trustee, and the beneficiary. After the trust is created, the grantor funds it with money or property, and the trustee is responsible for managing the money and property as specified in the trust for the benefit of specific named beneficiaries. One exception recognized under the law is a charitable trust that is created for a charitable purpose but has no specific beneficiaries. In recent years, however, some states have enacted statutes that allow the establishment of noncharitable purpose trusts (generally known as purpose trusts). In some states, they can be established only to care for pets or maintain a grave site. However, other states (for example, Delaware, New Hampshire, South Dakota, Utah, and Wyoming) allow purpose trusts for most lawful purposes, as long as they are reasonable, attainable, and do not violate public policy. Because there are no beneficiaries to ensure that the trustee is carrying out the purpose of the trust, the grantor must designate an independent trust “enforcer” who can petition the court if the trustee fails to perform its duties under the trust. The same or a different party could also be appointed as a trust protector who can modify the trust if necessary, for example, to add beneficiaries if the purpose of the trust has ended, change the situs of the trust, or even terminate it. The goal of a purpose trust is different from that of more common estate planning tools in that it is not aimed primarily at minimizing taxes or transferring wealth efficiently (although it may achieve those goals) but instead at ensuring that the grantor’s stated purpose is carried out.

The Patagonia Purpose Trust

In September 2022, Yvon Chouinard, the founder of Patagonia, a $3 billion clothing company, transferred the voting stock of the company to a purpose trust designed to further his lifelong goal of fighting the environmental crisis. In a message from Chouinard on Patagonia’s website, he explained that his desire was for the company to continue to pursue its stated purpose: “We’re in business to save our home planet.” After learning that his children were not interested in running the business, he considered his options. Although he could have sold the company and donated the proceeds to other organizations that would continue to pursue the company’s goals, he worried that a new owner of Patagonia would have different values and that his employees would not have job security. The voting stock of the company was transferred to the Patagonia Purpose Trust, which, guided by the family and their advisors, will ensure that the company’s values are pursued and that its profits further their goals. All of the nonvoting stock was contributed to a 501(c)(4) nonprofit organization that will be funded by Patagonia’s dividends, worth an estimated $100 million a year, which it will use in its efforts to protect the environment. Because the business interests were not donated to a charity, the gift will be subject to an estimated $17.5 million in gift tax, and no charitable deduction will be available to Chouinard. However, he will avoid $700 million in capital gains taxes, and when he dies, Chouinard’s estate will avoid substantial estate tax liability.

Why Would You Want to Transfer Your Business to a Purpose Trust?

If you own a profitable company, there are a number of reasons why you may be interested in a purpose trust as you consider business succession planning. Like the Chouinard family, you can ensure that in addition to providing job security for your employees, the values underlying your business continue to be pursued for many decades into the future. Especially if you do not have children who are interested in running the business, or if your children do not share your values, the terms of a purpose trust can require future management to adhere to the purpose of the trust. Transferring the business to a purpose trust will also ensure that it remains a private company and that the pursuit of profits will never replace your cherished values as its main goal.

What are your goals for the future of your business? If you have a desire to use the wealth you have acquired for the benefit of others, you may be interested in learning more about a purpose trust. Give us a call if we can help you determine if you would like to explore this planning opportunity.

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¹  Yvon Chouinard, Earth Is Now Our Only Shareholder, Patagonia, https://www.patagonia.com/ownership/ (last visited Dec. 22, 2022).

² David Gelles, Billionaire No More: Patagonia Founder Gives Away the Company, N.Y. Times (Sept. 14, 2022), https://www.nytimes.com/2022/09/14/climate/patagonia-climate-philanthropy-chouinard.html.

³ Patagonia Billionaire Ducks $700 Million Tax Hit by Giving It Up, Bloomberg Law (Sept. 16, 2022), https://news.bloombergtax.com/daily-tax-report/patagonia-billionaire-ducks-700-million-tax-hit-by-giving-it-up.

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.

Along with warmer weather and lazy days spent at a pool, summertime also often includes a family gathering, such as a Fourth of July barbecue, a family vacation, a reunion, or time spent at a family cabin or lake house. Whatever the form, in our always-on-the-go society, getting the whole family together is a rare occurrence. Consider taking advantage of this time together to discuss your estate and financial wishes with your family by including a family meeting in your family gathering.

What Should You Talk About in a Family Meeting?

Although there is no right or wrong answer to this question, a family meeting could cover the following topics:

• Who you have appointed as your trusted decision makers. You can let your family members know who you have selected to be your executor or personal representative, successor trustee, and agents under financial and medical power of attorneys. You may also consider explaining the reasons why you have chosen these people to act in these roles.
  
• What your end-of-life wishes are. People sometimes select a healthcare agent to act on their behalf but then never discuss with that agent their end-of-life wishes. This puts the agent in the uncomfortable position of trying to guess what the person would have wanted or being presented for the first time with the person’s wishes in an advance directive or living will in a moment of crisis. Expressing your end-of-life wishes in a family meeting helps ensure that everyone is on the same page when the time comes for decisions to be made on your behalf.
  
• What specific tangible personal property family members want. A family meeting can be a great opportunity for family members to express their hope of receiving certain items of tangible personal property, such as furniture, jewelry, art, and vehicles. We are often surprised to learn the items that family members have emotional attachments to. For example, your daughter may wish to have the platter you always used to serve the Thanksgiving turkey. The family meeting is a great forum to express these wishes.
  
• Who will receive certain tangible personal property and why. Along with family members expressing their wishes to receive certain items of tangible personal property, a family meeting is the perfect opportunity for you to express who you wish to receive certain pieces of tangible personal property and why. Particularly if multiple people want the same item (such as Grandma’s wedding ring), a family meeting can be a great time to discuss who should receive the item and why. Family members are more likely to respect your wishes if you make them known, and future disputes can be avoided. You can even pass on some of the items at the family gathering so you can witness the joy that the gift brings your loved one.

Use the Family Meeting to Create a Family History

The topics discussed in a family meeting do not have to be limited to issues related to your estate and financial plans. A family meeting is also a great time to reminisce about favorite family memories. Hearing family members share their favorite memories and seeing the sparks of recollection in others is a lot of fun and can be the best part of a family meeting.

Because family legacy is about more than just money and property, we recommend video recording or having someone take notes about the memories shared so the information will be kept for future reference for all family members. A family history like this is often the most cherished family possession.

Invite Your Trusted Advisor to Conduct the Family Meeting

If you are hesitant about having a family meeting because you do not feel that you have the skill set or an adequate level of knowledge to explain the sometimes complicated legal or financial concepts involved in your plans, consider asking your trusted advisor to conduct the family meeting. After all, it is one thing to understand a concept when it is explained to you and quite another to try and explain the concept to someone else.

You may also feel uncertain about how your family will react to the estate and financial plans you have made. Having your advisor, an unrelated and objective party, there to explain your plans and their benefits and answer any questions or concerns that your family members may have can remove some of the emotional upset and criticism that could emerge.

Summertime is a common time for families to get together. Take advantage of this time to discuss your estate and financial wishes with your family in a family meeting. Communicating your plans to your family now, while you are alive and able to answer any questions or concerns family members may have, greatly increases the likelihood of your plan working as it was designed. We would be happy to help you organize a family meeting or even conduct it for you, so please give us a call if you would like to include a family meeting as part of your family’s summer gathering.

The month of May means not only the end of the school year and the beginning of summer but also the beginning of the busiest moving season of the year. That’s why May is National Moving Month. There is a lot to think about when moving: along with organizing and packing up all of your belongings, there is also starting and stopping utilities, mail forwarding, updating voter registration, and so on. While the ever-growing number of items on your moving to-do list may be overwhelming, it is important not to overlook two essential items that should be added to your moving checklist: (1) locating your important documents and (2) meeting with your advisor team.

Locating Your Important Documents

In all of the chaos of moving boxes and packing tape, it is easy for things to get lost in the shuffle or even thrown out during a move. Yet certain important documents, such as birth certificates, social security cards, passports, financial statements and estate planning documents, should not be packed up and put on the moving truck along with your dishes and shoes. Keep these important documents safe and accessible during your move and ensure that they do not get thrown out by accident.

One idea is to purchase a portable file box with an attached lid and a secure latch. You might consider purchasing a brightly colored one so that it is easily identifiable. Then, place this file box in a secure and easily accessible location. If you are moving locally, a logical place might be at a family member’s or friend’s home. If you are moving a longer distance, that place might be the trunk of your car.

It is also wise to have electronic backup copies of all of your important documents. This could take the form of taking pictures of your documents and saving them to your smartphone, a password-protected removable flash or external hard drive, or storing them in the cloud. Then you will at least have a copy of these important documents in case you cannot locate the original.

By adding this simple step to your moving checklist, you will save yourself a lot of time and headache when, for example, you are not having to run around searching through unpacked boxes for your children’s birth certificates so that you can register them for their new school.

Meeting with Your Advisor Team

Along with contacting the moving company, it is also a good idea to reach out to your team of advisors during a move. For example, one of the pressing questions associated with a move is how much it will cost. Although the final calculation of cost will depend on factors such as the size of your home, the distance you are moving, and your willingness to take on DIY projects, your financial advisor can help you set a moving budget that aligns with your long-term financial goals.

If you are moving to a new state, it is also advisable to contact your estate planning attorney. In general, a will or trust created in one state should be valid in your new home state. However, some documents, such as a financial or medical power of attorney, can be state-specific. Because estate planning laws vary by state, it is highly recommended that you have your estate planning documents reviewed to ensure their validity in your new state. Your attorney can review your documents or connect you with an attorney in your new state who can review them for you.

If you are married, your out-of-state move may have additional estate planning implications if you are moving to or from a community property state. Currently, there are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In these states, there is a presumption that property acquired during the marriage is owned equally. On the other hand, property acquired by gift or inheritance or that is brought into the marriage by one spouse is separate property. Moving from a community property state to a noncommunity property state (i.e., a common law state) or from a common law state to a community property state raises questions about whether community property remains or becomes community property. For example, if a couple acquires a home in California during their marriage and then moves to Nebraska and purchases a new home in Nebraska with the proceeds from the sale of their home in California, is the new Nebraska home community property? Your estate planning attorney can help answer these questions for you and advise you about the steps you should take to preserve certain tax benefits that may be available to you.

There is a lot to think about when moving, but locating and safekeeping your important documents and meeting with your adviser team are two essential items that should be added to that moving checklist. If you are moving soon, please reach out to us so that we can help ensure your move goes smoothly.

We all plan for “just-in-case” scenarios. When packing for our week-long vacation, we throw in a rain jacket even though the weather forecast is sunny—just in case. When planning for the future, it is also important to consider what will happen just in case one of your loved ones becomes disabled.

We tend to think that disability is something that affects other people. But approximately 61 million adults in the United States live with a disability—that is one in four adults. And more than one in four twenty-year-olds will become disabled before reaching retirement age. Disability is unpredictable, and accidents or serious physical or mental conditions, such as cancer or mental illness, can happen to anyone at any age. 

As helpful as it would be when planning, no one has a crystal ball to see into the future. We do not know when we will pass away, and we do not know what position a beneficiary will be in at the time of our death. So even if you do not currently have a loved one who is disabled, it is critical not to overlook the question of what will happen if your loved one becomes disabled at a future time.

If a loved one becomes disabled, they may need to rely on financial assistance from government programs such as Medicaid or Social Security Disability Insurance. Unfortunately, a monetary gift or inheritance from you may disqualify this loved one from receiving these public benefits. In this situation, your well-meaning gift could become more of a curse than a blessing.

Standby Supplemental Needs Trust

To avoid the possibility that a disabled loved one will lose government benefits because they have too much money, you may want to consider setting up a standby supplemental needs trust as part of your estate plan. The terms of a supplemental needs trust provide that the trust’s money and property are only available to supplement the government benefits a beneficiary may be receiving. Therefore, the trust’s money and property are not included as available resources when determining a beneficiary’s eligibility for government needs-based benefits. A “standby” supplemental needs trust does just what its name implies: the supplemental needs trust is not created automatically but is on standby and comes into existence only if a beneficiary is disabled at the time of your death or, depending on the applicable state’s eligibility rules, becomes disabled at a later date but before the trust has been fully distributed. If the disabled beneficiary is receiving public assistance at the time of your death, the inheritance the beneficiary receives from you in a supplemental needs trust will not disqualify them from the public assistance benefits they are receiving but instead can be used to supplement the benefits they are receiving from the government and enhance the beneficiary’s life.

Since no one knows what the future holds, nearly every estate plan could benefit from including standby supplemental needs trust provisions. If the standby supplemental needs trust is not needed at the time of your death, then the trust will not come into existence. But it does not hurt to include it—just in case.

February 21 is the day on which we celebrate several US presidents who made noteworthy contributions to our country. As with any discussion that involves politics, a discussion about US presidents risks generating a variety of opinions about which reasonable minds can disagree. However, politics is not the focus of this month’s newsletter. Instead, our aim is to examine a few of the important lessons we can learn from the estate planning of some of our country’s most famous political leaders.

George Washington

Washington was arguably the most universally beloved and revered US president. Volumes have been written about this man and what he accomplished during his life. One significant achievement that few people know about is the care Washington took to ensure that his final affairs were in order and that those who relied on him were cared for to the best of his ability. Washington’s last will and testament, widely available online in its entirety, shows that he thought carefully about his final affairs and those who depended upon him; he also remembered many individuals by making very thoughtful decisions and gifts of items of personal property or specific bequests.

It is worth mentioning that Washington had a rather nontraditional family situation and had to carefully consider how his estate should be distributed among his loved ones. At age twenty-six, Washington married a widow, Martha Custis, who had two children of her own from her previous marriage, whom they raised together. After his stepson, John Custis, died during the war from an infection, Martha and George Washington raised John’s two youngest children as their own. As a result of his blended family, Washington carefully crafted the language of his will to provide very specific bequests to each of his surviving family members to ensure that they were well cared for long after he was gone.

Washington provides an excellent example in the level of thought and care with which he crafted his estate planning. Even if we do not have the wealth that Washington died with, we can still be very deliberate and thoughtful when it comes to how much, and to whom, we leave our wealth and meaningful items of personal property. By spending sufficient time and effort to think about and memorialize how we want to leave our possessions to our loved ones, we can leave a real legacy that has the potential to benefit generations.

Thomas Jefferson

While equally as famous as George Washington, Thomas Jefferson’s financial situation was far less favorable than Washington’s upon his death. Despite being a brilliant intellectual and the principal author of the Declaration of Independence, Jefferson nevertheless struggled to manage his financial affairs during life. In addition, he was saddled with both debts inherited from his family and that he had assumed by cosigning on a loan for a friend who died prematurely. When Jefferson passed away, he still had significant debts that his family had to repay. Because Jefferson had valuable real property but very little liquid cash with which to pay his debts, his executor ultimately had to sell the family land at depressed market prices to raise enough cash to pay his debts. The unfortunate result of these circumstances was that very little of Jefferson’s property was able to be passed down within the family.

Many families today face similar problems with illiquid or insolvent estates. This issue arises most often when a business or farm owner has significant wealth tied up in their business or land but little cash in reserve to settle debts or pay transfer taxes at death. This can cause the families left behind to feel intense pressure to sell the business or the land at significantly less than they might otherwise be able to sell it for under better conditions to raise the cash necessary in order to pay the debts or taxes that will shortly come due.

Life insurance is an important estate planning tool often used to provide sufficient cash to pay a deceased individual’s debts or transfer taxes. With the proper type and amount of life insurance, and by using certain estate planning tools such as irrevocable life insurance trusts, an individual can prevent a “land rich, cash poor” situation like that experienced by Thomas Jefferson’s family.

Abraham Lincoln

Another well-known and beloved US president — a lawyer, no less — very surprisingly died without a will or any other type of estate planning in place. Lincoln, like so many of us, quite possibly believed that he had many more years to address this important task. His tragic murder at the hands of a political malcontent plunged Lincoln’s family into a confusing and completely unfamiliar situation as they attempted to settle his affairs with no knowledge of where to begin. His oldest son, Robert, reached out to US Supreme Court Justice David Davis to take charge of Lincoln’s affairs. Justice Davis generously stepped away from his duties on the court to assist the Lincoln family with the local court process for settling Lincoln’s estate. His estate was divided between his wife and his living sons, most likely according to the default laws of the jurisdiction. However, it remains unclear whether this is how Lincoln would have wanted to see his property divided.

A key lesson is that no one knows when they will pass away. Even someone as important and well-versed in the law as Abraham Lincoln was caught unprepared for his untimely demise, sadly leaving others to guess what his wishes would have been with respect to his property. The family undoubtedly experienced significant distress and frustration as a result of not having a clear understanding or plan in place for handling Lincoln’s final affairs. Had Lincoln put some basic planning such as a will or a trust in place prior to his death, perhaps he could have helped ease his family through a very challenging time when he was no longer available to them.

Learning from These Presidents

There is a great deal more that could be discussed and learned from the experiences of these and other US presidents as it relates to estate planning. We hope these lessons will help you think about your own estate planning and what you might want to do differently going forward. Give us a call if this newsletter has prompted you to consider any changes you may need to make in your own planning. We would be more than happy to visit with you and discuss your thoughts. Until then, Happy President’s Day!