Category: The Wealth Advisor

After several days of counting ballots, Joe Biden has been declared the winner of the 2020 Presidential election by many major news outlets. Although we await the official certification of the election by each state, an official concession by President Trump, and the outcome of several pending lawsuits–which could take us into December or even January–the 2020 election and its aftermath promise significant changes in how Americans will be taxed. While it is unlikely that every proposal discussed during President-Elect Biden’s campaign will become the law of the land, we can still glean essential details from all the campaign rhetoric to help us prepare to weather these possible changes.

Proposed Policy Adjustments under a Biden Presidency

Here is what we know so far about some of President-Elect Biden’s key proposals that are most relevant to your estate planning:

Estate, Gift, and Generation-Skipping Transfer (GST) Taxes

For 2020, the estate and gift tax exemption is set at $11.58 million (indexed for inflation), with any wealth over that amount taxed at 40 percent as it passes to heirs. This exemption amount is scheduled to be lowered in 2025 to $5 million (also indexed for inflation) unless new legislation is passed before then.

President-Elect Biden suggested during his campaign that he would support legislation that would reduce both the estate and GST tax exemptions to $3.5 million per individual and would lower the lifetime gift tax exemption to $1 million. President-Elect Biden has discussed other proposed legislation, favorably proposed by Senator Bernie Sanders, that aims to place annual, aggregate donor limits on gifts to certain types of entities such as irrevocable life insurance trusts and certain pass-through entities such as family limited partnerships.

In addition to reduced transfer tax exemption amounts, several Democratic tax reform proposals have suggested returning estate tax rates to historical norms. What does that mean? In the 1940s, the top estate tax rate was 77 percent, and under 2001 federal tax law, it was as high as 45-55 percent. As a result, we may well see an upward adjustment in the estate and gift tax rates. If this comes to fruition, coupled with a lowered exemption amount, means more people should be looking at tax planning as part of their strategy.

Capital Gains Taxes

Our current law taxes capital gains as regular income if those gains are realized on property held for less than one year. For long-term capital gains (gains on property held for a year or longer), there is a graduated tax rate depending upon the tax filer’s income level (0 percent, 15 percent, or 20 percent). For individuals and couples who earn more than $200,000 and $250,000 per year respectively in net investment income, there is an additional 3.8 percent surtax added to their capital gains tax rate.

The current law also allows for a step-up in basis of appreciated property if the property is held until the owner dies. This allows for inherited property to be sold or liquidated shortly after the owner’s death with little to no capital gains taxes assessed on the sale of the property.

Today’s law also allows for like-kind exchanges on appreciated property such as artwork and rental properties. This allows people to reinvest the gains that they earn on appreciated property into similar types of property without ever having to pay capital gains taxes when the property is sold. If the individual keeps making such like-kind exchanges on appreciated property until the individual’s death, the capital gains built up in that property will be erased by the basis step-up rules.

Proposed changes under a Biden presidency would either (1) eliminate the step-up basis rule for inherited property and impose a carryover basis rule for inherited property or (2) impose recognition of gain on property at the owner’s death. Additionally, the Biden tax plan proposes eliminating like-kind exchanges and imposing a 39.6 percent long-term capital gains tax rate on individuals earning more than $1 million per year. And if the 3.8 percent surtax on net investment income remains in place, the effective federal tax rate on long-term capital gains could exceed 43 percent.

If these changes are implemented along with the changes to the estate tax laws discussed above, many estates could see significant tax bills at the death of the estate owner.

What to Do in the Meantime

Although it may be too early to know exactly what the tax laws will look like in 2021, we can still take some concrete steps to prepare while we wait for answers. Tax issues, while certainly important, should not overshadow the need to get your affairs in order in case of an untimely death or disability. If it has been some time since you reviewed your estate planning documents such as wills, trusts, powers of attorney, and healthcare directives, now is a great time to do so. Reviewing these important aspects of your estate planning can go a long way toward creating peace and security for you and your loved ones in these uncertain times.

We Are Here to Help

No one knows for sure what the future holds for our country. However, what is certain is that we will continue to monitor the latest tax law developments closely and keep you updated as they unfold. In the meantime, if you have any questions or concerns, please do not hesitate to contact us. We are here for you.

October is a popular month for couples to tie the knot in the United States. While wedding planning most often includes tuxedos, dresses, rehearsal dinners, and guest lists, an often overlooked part of pending nuptials is estate planning.
For young couples beginning a life together and getting married for the first time, estate planning may not be a terribly complicated endeavor. With minimal property and savings, simple wills, financial powers of attorney, and healthcare directives may be sufficient planning for the first years of marriage.

The age at which couples are getting married for the first time continues to creep upward, however. It is therefore common for individuals to accumulate significant amounts of property, savings, and investments during their single years. When couples with property beyond the most simple items marry, estate planning becomes much more urgent. It is even more crucial when children are born into the marriage or when entering a second or third marriage.

If you are considering marriage or have already tied the knot, reviewing the following information can help you tackle the critical task of planning for the management and distribution of your property should you become unable to manage your affairs or die sooner than you expect.

Challenge Your Assumptions

An all too common mistake that married couples make when approaching estate planning is to assume that their spouses will see things the same way they do. The following questions should be asked of each spouse:

• How do you feel about the necessity of purchasing and maintaining life insurance?
• Do you feel that the other could handle the family finances on their own if either of you were to die or become unable to manage your affairs?
• Who should care and raise your minor children if you die?
• To what extent should the money and property left to each other be protected from future creditors or new spouses?
• Who is best prepared to make end-of-life decisions for you should you become critically ill and unable to communicate your wishes?
• Do you expect that all of your wealth should be left to your spouse?
• Do you want to leave some of your money or property to aging parents, children from another marriage, or to a charity or other cause that is important to you?
• How should your property be left to your spouse or your children and grandchildren? Should these individuals inherit the money and property outright (no strings attached), or should the inheritance be left to your spouse and loved ones in trust (with specific instructions as to when and how the inheritance is to be used)?

The answers to these questions regularly surprise couples. If you are unsure of how you or your spouse would answer these questions, now is a good time to discuss them. Couples who communicate and challenge their assumptions will be far better prepared to successfully complete their estate plan.

Joint or Separate Estate Plans

The decision to jointly engage an attorney to assist you with your estate plan may not be as simple as it would seem at first blush. Depending upon your circumstances, it may be advisable for a couple to engage separate legal counsel to assist with the estate planning process. If any of the following circumstances apply to you, you should give serious thought to hiring separate counsel for your estate planning:

• Do you or your spouse have children from a prior marriage or relationship? If yes, is there any tension between you and your spouse when discussing how you would want the accounts and property divided upon the death of one or both of you?
• Did one of you bring far more money or property into the marriage?
• Is there anything in your estate plan that you want to keep hidden from your spouse (for example, a child from outside the marriage that you do not want to reveal)?
• Note: Honesty in marriage might well be the best policy in the long run.
• Do you and your spouse have very different ideas about philanthropic goals in your estate planning?
• Have you and your spouse entered into a prenuptial or postnuptial agreement?
• If you have a prenuptial or postnuptial agreement, do you now want to change the terms of that agreement through an amendment or through your estate plan?

There may be other reasons to seek separate counsel in estate planning. A good rule of thumb is that if there are aspects of your financial and family relationship that will likely breed contention and misunderstanding between you and your spouse, you should consider using separate counsel to help negotiate and resolve the legal and estate planning issues that intersect with these problem areas.

On the other hand, for those who are willing to communicate and resolve the differences discussed above, it may be possible to jointly engage legal counsel to assist with your estate plan. One of the advantages of jointly hiring legal counsel is that the attorney can act in some ways as a mediator and educator, helping you identify and craft creative solutions to challenges that may arise during the estate planning process. Additionally, jointly hiring legal counsel tends to be a less expensive solution and communication tends to flow much more freely when fewer individuals are involved.

Elective Share Laws

It is important to understand that even if you do separate estate planning with your spouse, the United States has elective share laws designed to ensure that a married individual cannot completely disinherit a spouse or minor child from another marriage. The reason for these types of laws is that traditionally, lawmakers felt that these family relationships deserved protection from financial ruin by individuals who perhaps would unwittingly or unwisely attempt to disinherit a spouse or child dependent upon that individual for support.

These elective share laws are designed to allow a disinherited spouse or child who is still dependent upon the deceased individual to legally claim a percentage share of the individual’s accounts and property regardless of what the will or trust provides.
If you have agreed as a couple to leave your entire estate to someone other than the surviving spouse, you will likely need to sign a prenuptial or postnuptial agreement in which the disinherited spouse waives elective share rights. Such a waiver must meet certain requirements to be valid, which can vary by state. For example, most state laws require that the disinherited spouse must have been represented by independent legal counsel when negotiating the waiver.

Unmarried Couples

Marriage today is less common than it was a few decades ago, with more couples choosing to live together without the legal consequences of marriage. If you find yourself in such a relationship and nevertheless feel committed to your partner, you may be in even greater need of a carefully crafted estate plan, either together with your partner or on your own, depending upon your goals.

In nearly every state, the default laws (intestacy laws) that govern how your property is to be managed if you die without a valid will or trust or are unable to manage your affairs typically do not allow an unmarried partner to receive your property. To ensure that your property passes to your partner, certain legal steps must be taken:

• Jointly titling property (such as bank accounts and real estate) with your partner so that it passes to the survivor automatically at the deceased partner’s death
• Naming your partner as the payable-on-death or transfer-on-death beneficiary of certain financial accounts
• Naming your partner as the beneficiary on your IRA, 401(k), 403(b), or other retirement plan
• Drafting a will or trust and naming your partner as a beneficiary
• Naming your partner as the beneficiary on a life insurance policy

Each of these methods of leaving property to your partner has pros and cons. For instance, jointly titling your home with your partner may be an easy way to ensure that your partner will inherit the home that you share when you die. However, if you and your partner split, your former partner now jointly owns that property and can force the sale of the property to liquidate their share. Additionally, there may be gift tax consequences to adding a partner to the title of your banking or investment accounts that could later affect you. Even worse, jointly titling your property with a partner can subject it to your partner’s lawsuits or creditor claims in the future even though your intent was merely to allow your partner to inherit that property upon your death.
You should also consider planning for your potential incapacity and whether your significant other will be your designated agent (decision maker) by drafting documents that address financial or healthcare matters:

• A financial power of attorney can name your partner as the trusted individual to make financial decisions for you should you become unable to manage your own affairs
• A healthcare power of attorney and living will (also called an advance healthcare directive) can name your partner as your medical decision maker should you be unable to make or communicate your medical decisions for yourself

Estate Planning When Your Marriage Is on the Rocks

Sadly, many marriages ultimately end in divorce. If in the process of divorcing, it is important to consider your current estate planning implications should something suddenly happen to you. Some decisions that you might want to change immediately include the following:

• The person named as your medical decision maker. Choosing a different decision maker can usually be done at any time. Most people would not want their soon-to-be-ex in charge of making life and death decisions on their behalf.
• The person appointed to make financial decisions on your behalf. Depending upon the type of financial power of attorney that has been prepared, your ex might be authorized to act on your behalf only when you are no longer capable of handling your affairs (a springing power of attorney)—or your ex might be authorized to act on your behalf now (an immediate power of attorney).
• The guardian of your minor children from a prior relationship or marriage if you no longer want your soon-to-be ex-spouse to be the guardian.
• The person named in your will as personal representative or trustee of your trust (if you have a separate trust from your spouse).
However, there are some things that you may not be able to change until after the divorce is finalized. For example, when a divorce case is pending in court, the couple is legally prevented from changing the following:
• Legal title to bank accounts, real estate, and other types of investments
• Beneficiary of a will or trust
• Beneficiary designations on retirement accounts
• Beneficiary designations on life insurance
• Ownership of personal property such as vehicles, art, furnishings, etc.

Once a divorce has become final and the property division is memorialized in the divorce decree you have the right (and should not delay) to revise your estate plan in whatever manner you wish, keeping in mind any requirements imposed by the divorce decree, elective share laws for child support, or continuing spousal support obligations.

As you can see, obtaining solid legal estate planning counsel when you have a significant other—whether it is a spouse or partner—or minor children can be critically important. Without careful planning, you are almost guaranteeing that your loved ones will experience frustration, expense, and delays when it comes to the management and distribution of your property if something happens to you. Conversely, a carefully crafted estate plan can provide significant peace of mind for you, your significant other, and your children for years to come. Call our office today for a virtual or in-person consultation to discuss how we can help you with your estate planning goals.

Conversations with family, friends, and colleagues can sometimes wander into the topic of lawsuits, divorces, bankruptcies, and other threats that put one’s property at risk of loss to a creditor. Such conversations often leave people shaking their heads, asking what the world is coming to, and feeling vulnerable and frustrated. However, an important tool has become increasingly available to even those of modest means to protect their property from such threats at a reasonable cost and with relatively few hoops to jump through.

The Domestic Asset Protection Trust

A domestic asset protection trust (DAPT) is a legal structure into which you (in your role as the grantor or trustmaker) transfer your accounts and property such as your home, cash, stocks, or other investments.  Once transferred into the DAPT, the property is legally protected from future lawsuits, divorcing spouses, bankruptcies or creditors, and similar threats. Although you have transferred these accounts and property to the trust, you can continue to enjoy the benefit of this property in the DAPT with minor limitations.

DAPTs work on the legal principle that someone cannot take away from you something that you no longer own. When you transfer ownership of your property to a DAPT, you are actually making a gift of it to the trustee (the person or entity you have chosen to manage, invest, and use the accounts and property) on behalf of the irrevocable trust. The trustee is then under a legal obligation to use this property for your benefit, or for the benefit of those you have named in the trust.

How a DAPT Works

When you create a DAPT, you sign a trust document and permanently gift some of your property into the trust. The trust is irrevocable, meaning you cannot change the trust agreement (the document that creates the trust and establishes the rules that control the trust). The trustee can make distributions to you as the grantor, thereby allowing you to continue enjoying some benefits of the property in the trust. However, the trustee in most cases needs to be an independent trustee (someone who is not related or subordinate to you or any other beneficiary and will not inherit anything from the trust) in order to preserve the asset protection properties of the trust. Still, many states allow for a grantor to be a co-trustee and exercise authority with respect to the investment decisions of the trust.

Which States Have DAPT Laws?

Currently, the following states have legislation that authorizes the creation of a DAPT: Alaska, Connecticut, Delaware, Hawaii, Indiana, Michigan, Mississippi, Missouri, Nevada, New Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia, West Virginia, and Wyoming.

It is important to remember that DAPT laws can vary significantly by state. Residency requirements of the grantor or trustee of a DAPT vary from state to state, as does the required connection of the grantor with the DAPT state. In some instances you can live in one state but have a DAPT in a different state. Some DAPT laws are better than others, and their effectiveness may depend upon the location of the property that you plan to gift into the trust. Given these considerations, it is critical that you speak with an experienced attorney when setting up a DAPT. Key differences in state law that can significantly impact the effectiveness of a DAPT include the following:

• how a DAPT must be set up
• who can serve as the trustee
• how much of your property can be placed in the trust
• which creditors will be blocked from reaching the trust property
• what additional powers you, as the grantor, can exercise over the trust
• how much time must pass before the property placed in a DAPT is protected from creditors

What Kind of Creditor Protection Does a DAPT Provide?

In general, a DAPT will allow you to shield accounts or property owned by the DAPT from any creditor claims that arise after the DAPT is funded and after any applicable time periods or notice requirements imposed by state law have been met. In many states, this protection can even include future claims of a current or future spouse, child, or creditor. It is important that you consult an experienced attorney regarding the protections your state’s DAPT statutes offer, as these can vary by state.

Despite the protection offered by a DAPT, some creditors will be able to reach the property owned by the DAPT regardless of which state law you use. Currently, no state’s DAPT laws allow a DAPT to be used to

• spend down or qualify a grantor or the grantor’s spouse for Medicaid eligibility;
• defeat state or federal reimbursement claims or rights of recovery for Medicaid benefits paid to the grantor or the grantor’s spouse; or
• defeat creditor claims if property is transferred to a DAPT with the intent to prevent, hinder, or delay a known or present creditor from reaching the property.

Most states’ DAPT laws also provide the following exceptions to the creditor protections:

• taxes (state and federal tax claims must still be paid from trust assets)
• family support obligations such as alimony and spousal support (state laws differ significantly on this topic)
• medical bills of a beneficiary (certain states allow access to the trust property to pay these medical bills)

Who Is Likely to Need a DAPT?

Not everyone will need a DAPT because not all people face the same kinds of risks. However, there are certain professions and circumstances for which you may want to consider using a DAPT as part of your estate planning.

• High-risk occupations. Lawsuits are increasingly common against those in certain professions, such as doctors, accountants, lawyers, real estate developers, builders, architects, and business executives. Creating a DAPT to protect a portion of your assets can be an effective shield against risks associated with lawsuits if you are in one of these occupations.
• Owning a business. Owning a business can put you at a higher risk of lawsuits. Using a DAPT can protect your home and other personal property against claims brought against your business.
• Personal injury and accidents. Unfortunately, accidents happen to everyone. Moreover, it is common today for even innocent accidents to lead to litigation and potential loss of personal wealth. A tool such as a DAPT can be a critical part of protecting your property for your family both now and in the future.

Deciding If a DAPT Is Right for You

Deciding whether to use a DAPT should not be undertaken without good legal advice. The following factors, among others, should be carefully considered with the help of a qualified estate planning attorney:

• How much of your property do you want to place in the DAPT?
• What kind of access to the trust accounts or property will you need in the future?
• Who will serve as the independent trustee responsible for making distributions to you?
• Who, besides you, will be a beneficiary of the DAPT?
• In which state will you form the DAPT?
• What types of creditors are you most concerned about, and do the relevant state’s DAPT laws protect you against such creditors?

Once you have answered these questions, you will have a much better sense of whether a DAPT is a tool that will work for you. If you have additional questions about DAPTs, please give us a call. We would love to visit with you either in person or virtually.

COVID-19 has deeply impacted the economy in the United States and will likely continue to do so for some time. While most would agree that this pandemic is not a positive development, there are nevertheless some silver linings. One such silver lining is that certain powerful estate planning strategies have become much more attractive and feasible based on the current low interest rate environment. If you have a relatively large estate (over $10 million individually or $20 million as a married couple), you may want to talk with your estate planning attorney about the following planning strategies.

1. A Grantor Retained Annuity Trust (GRAT) is a tool that can be created by an experienced estate planning attorney to transfer significant wealth at a reduced transfer tax cost. This strategy requires a grantor (the person creating the trust) to transfer accounts or property into a carefully drafted irrevocable trust. The trust is designed to pay the grantor a stream of income at least annually and over a specific term of years. At the end of the specified term, the payments end and any property left in the trust not paid to the grantor is transferred (gift tax-free) to a third-party remainder beneficiary. This beneficiary is usually a child or descendant of the grantor.

The goal of a GRAT is for the assets in the trust to grow faster (at a higher interest rate) than the low interest rate published by the Internal Revenue Service (IRS), also known as the Section 7520 rate, used to calculate the present value of the payments made back to the grantor. If this occurs, the accounts or property remaining in the GRAT are transferred to the remainder beneficiaries free of gift taxes.

The following factors can impact the effectiveness of a GRAT:

• The health of the grantor and whether the grantor can be expected to live beyond the GRAT term
• The interest rate (Section 7520 rate) for the month in which the accounts or property are transferred to the GRAT
• The nature of the accounts or property being contributed to the trust and their growth potential
• The remaining lifetime gift tax exclusion amount available to the grantor

It is also important to note that the creation of a GRAT will require the filing of a gift tax return to report the gift. With deliberate planning, however, the amount of the gift to be reported can be negligible.

2. A Charitable Lead Trust (CLT) can also offer significant tax savings if you intend to make charitable giving a part of your estate plan and legacy. This is particularly true in today’s low interest rate environment. Similar to a GRAT, a CLT is an irrevocable trust that makes payments out of the trust to a beneficiary (a qualifying charity) over a specified period and is tied to the IRS Section 7520 rate. The period can be a set number of years or for the lifetime of the grantor. Unlike a GRAT, however, a CLT names a charity as the recipient of the annual payments over the trust term. Upon completion of the trust term and payments, the accounts and property remaining in the trust pass to chosen beneficiaries (often children or descendants) free of gift and estate tax.

The value of the gift reported on the gift tax return for the year in which the gift was made is calculated as the difference between the amount of the initial gift and the present interest of the sum of all of the payments payable to the charity. Because that present interest value is calculated using the currently low Section 7520 rate, the aim is for the money and property in the CLT to grow at a higher rate, thus allowing more of the growth to be transferred tax-free to remainder beneficiaries at the end of the trust term. In addition, and depending upon how it is structured, a CLT can provide valuable income tax deductions during the grantor’s lifetime.

It is important to remember that the payments to the charity must be made each year regardless of the performance of the trust assets. Poor investment performance can result in the need to use trust principal to cover the required charitable payments.

3. Intrafamily loans are another often overlooked strategy to transfer additional wealth to family members without unnecessarily using up your gift tax and estate tax exemption amounts. These kinds of loans can be an excellent way to help family members recover from low credit scores or eliminate certain high interest commercial home loans, consumer debt, business loans, or education loans, all while keeping interest payments within the family rather than enriching commercial lenders.

In a low interest rate environment, you could loan a family member money using the Applicable Federal Rate (AFR) as the interest rate over the term of the loan. The loaned money could then be invested by the borrower in assets that are likely to grow faster than the AFR built into the loan. The difference between the AFR payable to the lender and the realized rate of growth of the invested loan proceeds would accrue to the benefit of the borrower and outside of your estate (leaving less to be taxed upon your death). Thus, you can indirectly transfer this growth to your family members without the need to report the “transferred” amount as a gift to the IRS.

As a reminder, even though these are intrafamily loans, this does not mean that they can be informal. Such loans must be properly documented with executed promissory notes and, where appropriate, secured with collateral as if they were arm’s-length transactions so that the IRS cannot reclassify all or part of the loan as a gift.

There are several other strategies beyond those discussed that can help you take advantage of these historically low interest rates. Now is a great time to give us a call so we can review strategies for taking advantage of low interest rates. Doing so can maximize your wealth and the wealth of succeeding generations, even in these economically challenging times. We are available for in-person or virtual meetings, as you prefer.

When you hire an estate planning attorney, you are often looking for help with preparing your accounts and property to ultimately pass smoothly and safely to your loved ones. This is a key component of estate planning. An experienced estate planning attorney will put much thought and effort into ensuring that an appropriate estate plan is created using a variety of legal documents including wills, trusts, powers of attorney, and health care directives. These important tools can ensure that what you own ends up in the right hands, at the right time, and with as little cost and delay as possible.

Prepare beneficiaries to receive assets. An often-overlooked aspect of estate planning, however, is preparing beneficiaries to receive money and property. With all of the thought that goes into making sure taxes are minimized, probate is avoided, and accounts and property are protected, few clients give sufficient thought as to whether their beneficiaries have been adequately prepared to suddenly receive large amounts of cash or manage property. Working through the following questions with your beneficiaries can pay huge dividends by ensuring that they are prepared to receive your accounts and property.

Identify successors for a family business. If a family business makes up a large portion of your family’s wealth, have you identified who will continue to run the business if you become incapacitated or suddenly pass away? Will your successor be a family member who has been working in the business, and is this person fully prepared to take over your role? If a family member will take over, does the person understand the extent to which they will manage the business for the benefit of other family members? Or does the successor have expectations about the financial rewards of participating in the business that differs from those of the rest of the family? These questions can cause a great deal of discord within a family if left unanswered.

Consider complicated assets. Perhaps the wealth of your estate is made up of a complicated portfolio of stocks, bonds, cash, and investment accounts. If that is the case, do your beneficiaries understand the basics of investing with these types of accounts? Do they understand the tax implications? Are your beneficiaries used to taking advice from attorneys, financial advisers, and tax professionals, which will allow them to achieve the most benefits from the accounts left to them? Or do your beneficiaries consider such advice needless, expensive, or untrustworthy, and will such attitudes come back to haunt them down the road?

Discuss the challenges of co-owning real estate. If you have a large amount of real estate, farmland, or commercial property or rentals, have your beneficiaries been taught how to manage such properties? Will these properties be passed on to beneficiaries through a trust or through a business entity such as a limited liability company or family limited partnership? If an entity is being used, how has the management structure been set up? Do all beneficiaries understand their roles within the management structure? What if one of the beneficiaries no longer wants to be in a partnership with his or her siblings? Is there a clear path for the beneficiary’s exit from such an arrangement that is fair to both the departing beneficiary and the remaining beneficiaries? Is that exit spelled out clearly in an operating, partnership, or other types of the agreement for later reference by your beneficiaries?

Even something as seemingly innocuous as passing on a family vacation property to adult children can pose a significant risk of rekindling old sibling rivalries. Have you and your attorney met with the beneficiaries, either as a group or individually, to make sure your goals and hopes are clear with regard to the property being left to them? What do you hope your beneficiaries will do with the property you leave to them? Have you asked them whether they even want the property, or in what manner they would like to receive it? Many parents have been completely surprised at their children’s responses to these questions.

Consider asset protection. Parents sometimes think that their children are not at all concerned about asset protection and believe their children would be upset if they were left anything with “strings attached” or conditions on how to use the money or property. Imagine the parents’ surprise when the children share their reasons for why receiving an inheritance outright would be a disaster. Parents are not always aware of the marital or financial challenges their children may be facing that have the potential to lead to a significant, if not total, loss of their inheritance.

Gift today rather than at death. In many cases, it makes sense for parents, during their lifetime, to give their children a portion of the accounts and property that they ultimately want to leave them at death so that the parents can observe how their children will manage and use the property. In some cases, parents have learned a great deal about how their children are likely to handle even larger infusions of cash or property from an inheritance after they are gone. On a more positive note, giving children a substantial amount of their inheritance prior to death can provide a valuable opportunity for parents to mentor their children in the appropriate use and management of the accounts and property, preparing them for the additional accounts and property earmarked for them at the parents’ passing.

We are here to help. Preparing your beneficiaries to receive money and property can in many ways be an even greater challenge than preparing your money and property for your beneficiaries. Nevertheless, putting sufficient effort into such an undertaking has the potential to pay huge dividends by helping to ensure the money and property you have spent your life accumulating will be used to truly benefit your loved ones in the way that would be most satisfying to you. If you are uncertain about where you should start, please reach out to us. We have significant experience helping our clients determine the right questions to ask to begin this important process. We are here to help—call today to set up a virtual or in-person meeting.

Are You Prepared?

If you are like most parents you are concerned about being allowed to get information, and make decisions, about your young adult college student in case of a medical emergency. Without the correct written authority, you may be unable to get information about your child because of the medical privacy laws. You see, your child is now an adult in the eyes of the law and his/her information is private unless your child authorizes a medical provider to share that information. Obviously, that can become a big problem if your child cannot give authorization due to some emergency.

The good news is that our team at the Like Law Group has created the College Student Protection Plan™ which will ensure you legally will be able to get information and make decisions for your college age student in any situation. Take this time while your student is at home, or before your recent high school graduate heads off to college this fall, to get this important planning done.

Our Process

We have a process that will make this easy for both you and your student.  Here is what to do. First, call our Practice Manager, Jennifer Price @ 812-323-8300 or email her jennifer@likelawgroup.com to set a phone or video appointment to get started. Second, we will help guide you and your child on the decisions that are needed which will also allow us to prepare the documents. Third, we will get your child the completed legal documents with instructions on properly executing them, or they can come to our office for us to oversee the proper execution.

What’s Included

Included in this plan will be the legal documents to ensure you can get access to all needed information and be able to make important health care and financial decisions if the need arises, all without the stress and expense that might be incurred if a court had to be involved.  We will include a medical power of attorney, HIPAA medical privacy authorization, living will, and financial power of attorney, as well as detailed instructions on how to execute these documents. If you chose, we can oversee the execution and provide the needed witnesses and notary.

Not Just for College Students

And, by the way, even though we are calling this the College Student Protection Plan™, this applies to all young adults regardless of whether they are in school or not. So, if you have a young adult child give us a call.  We can help.

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The COVID-19 pandemic has led to volatile markets, resulting in retirement accounts with much smaller balances than only a few short months ago. In response to the economic fallout stemming from the pandemic, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which was signed into law on March 27, 2020. The CARES Act was primarily aimed at providing quick and substantial relief to individuals and businesses affected by the economic shutdown in response to the spread of COVID-19. Several relief measures have a significant impact on clients’ ability to benefit from their retirement accounts. You can provide significant peace of mind to your clients by keeping them informed about how they can use their retirement funds now without penalties if necessary, as well as benefit from other tax relief provided by the new legislation.

The CARES Act creates new distribution options for those adversely impacted by coronavirus, expands the availability of plan loans, and waives required minimum distributions for most retirement plans for 2020.

Early Distributions. Pursuant to Section 2103(a) of the CARES Act, the 10% early distribution penalty tax under I.R.C. Section 72(t) that would otherwise apply to the majority of distributions made before a participant turns age 59 ½ is waived for “coronavirus-related distributions” (CRD) made at any time during 2020 from qualified retirement plans for distributions of up to $100,000. The distribution option is permissive, not mandatory, for eligible plans such as IRAs, 401(k)s, 403(a) and (b) plans, and 457 plans.

A CRD is a distribution from an eligible retirement plan made during 2020 to a qualifying individual who is diagnosed with coronavirus, or whose spouse or dependent has been diagnosed with it, or who has experienced adverse financial consequences from a coronavirus-related quarantine, furlough, layoff, work reduction, business closure or reduction in hours (for business owners) or an inability to work due to lack of child care related to coronavirus. The distributions will be subject to income tax, but the qualifying individual may opt to spread the payments evenly over three years rather than having to pay it all in 2020. The participant may also recontribute the distributed funds to the retirement plan or another retirement plan (with an exception for 457 plan distributions), by a single rollover or multiple rollovers, within three years of the date of the distribution regardless of any contribution limit established by the plan.

Loans. During the 180-day period from the date of enactment of the CARES Act, plans can increase their loan limits to the lesser of $100,000 or 100% of the participant’s vested account balance for qualified individuals, up from the previous limits of $50,000 or 50% (note that loans are not permitted from IRAs) for participants adversely affected by coronavirus as discussed above. Qualified individuals with an existing loan from a retirement plan that is due to be repaid by December 31, 2020 can delay repayment by one year. Later repayments will be adjusted to reflect the delayed due date plus interest accruing during the delay. In addition, the one-year period of delay in repayment is disregarded in determining the maximum five-year loan period.
Required Minimum Distributions. For participants in 401(k), 403(a) and (b) plans, 457, and IRAs (not defined benefit plans), the CARES Act waives required minimum distributions (RMDs) for the calendar year 2020. Under the new SECURE Act, effective January 1, 2020, account owners are typically required to take an RMD from their plan upon reaching age 72. The CARES Act waiver also applies to RMDs for account owners who reached age 70 ½ in 2019 but deferred taking an RMD in 2019 until April 1, 2020. Normally, account owners in this category would also have to take a second RMD for 2020 by December 31, 2020, but this RMD is waived as well.

Under the previous tax law, an RMD taken by an account owner cannot be rolled back into an IRA unless this is done within 60 days after the distribution, and a rollover from one IRA to another IRA (or from one Roth IRA to another Roth IRA) can be done only one time per year (365 days). Under the CARES Act, those who had already taken an RMD prior to the passage of the new law are allowed to roll it over into the original account within 60 days, and this time limit was extended by IRS Notice 2020-23 for distributions—including RMDs—taken between February 1st and May 15th if the rollover occurs by July 15th. If the account owner took an RMD in January, it may not be returned unless the IRS provides additional relief.
Although the once-per-year IRA rollover rule is still in effect, if the account owner has already used their IRA rollover, they are permitted to do a rollover to a non-IRA retirement account such as a 401(k). The once-per-year rule does not apply to RMDs taken from a 401(k) or to Roth conversions.

The waiver is also applicable to designated beneficiaries who have inherited retirement accounts. Further, 2020 is not counted for purposes of the post-death payout “five-year rule” applicable to non-designated beneficiaries[1] when the owner died before his or her own required beginning date.

However, the CARES Act has no impact on the new 10-year payout rule required by the SECURE Act, which precludes most non-spousal beneficiaries from stretching their distributions over their lifetime, as 2020 is the first year that non-eligible designated beneficiaries [2] would be subject to that rule when they inherit a retirement account. Because the 10-year payout does not start until the year after the year in which the account owner died, 2021 counts as year one rather than 2020.

Note: The CARES Act does not affect the ability of clients who are 70 ½ years old to make an annual qualified charitable distribution (QCD) of up to $100,000 from his or her IRA directly to a qualified charity in 2020 without taking the distribution into taxable income. However, the suspension of RMDs reduces the incentive for doing so because the distribution will not offset the client’s RMD, thus enabling the client to avoid taxable income. However, a QCD will reduce clients’ taxable IRA balance, so it will still provide a tax benefit to them. Further, under the CARES Act, for 2020, individuals who itemize their deductions can elect to deduct up to 100% (up from 60%) of their adjusted gross income for cash charitable contributions, so if clients choose to take a cash distribution from their IRA and contribute that cash to a qualified charity, they can potentially completely offset the tax attributable to the distribution using the charitable deduction.

Review Beneficiary Designations. In any discussions with clients about their retirement accounts, it is always prudent to remind them to regularly review their beneficiary designations. As you know, life circumstances can change very quickly. If a marriage, death, or divorce has occurred since they last reviewed their beneficiary designations, they should give some thought to whether their current beneficiary designations are still consistent with their estate planning objectives. It would be unfortunate if their retirement funds went to an ex-spouse or someone else a client no longer wants to benefit. In addition, alternate beneficiaries should be named in case the primary beneficiary passes away before inheriting the account.

In addition, if a trust is the beneficiary of their retirement account, make sure your clients are aware of the new 10-year rule established under the SECURE Act, which precludes most non-spousal beneficiaries from stretching the distributions over their lifetime. Before the SECURE Act was passed, some clients may have created trusts with “conduit” provisions so that the trust would qualify as a designated beneficiary of a retirement account, allowing the RMDs to pass through to the trust’s primary beneficiary for their individual life expectancy. Now, conduit trusts are ineffective after ten years, at which point the retirement account balances must be paid directly to the trust’s beneficiaries, possibly increasing their income taxes and making the funds available to claims by creditors or divorcing spouses. If your clients were utilizing this type of trust in their estate planning, now is a good time for a review of their documents, as this type of trust may no longer achieve their goals.

Now Is a Great Time to Meet with Clients

As a result of the uncertainty, clients are likely in need of reassurance and advice, so it is an opportune time to meet with them—virtually or by telephone if they prefer. You know your clients’ circumstances, both financial and personal, so you are perfectly positioned to advise them about the best strategies for their retirement plans. We have all been affected by COVID-19 in one way or another: Strengthen your relationships with clients by empathizing with the stress they may be feeling and letting them know that you are available to help. Clients are best served by a collaborative team, so please contact us if we can help your clients with their estate planning needs, whether this involves their retirement account or any other concerns.

[1] The plan participant’s estate, a charity, or a trust that does not qualify as a see-through trust.
[2] Beneficiaries who do not fall within one of five categories (surviving spouse, minor child of participant, disabled beneficiary, chronically ill individuals, beneficiaries less than 10 years younger than the plan participant) of beneficiaries that are still allowed to use the life expectancy payout.

Many scientific studies have established that there is a wide range of benefits flowing from a positive attitude and positive thinking. At a time when many are focused on worst-case scenarios and gloomy predictions, help your clients resist the pull of negativity and embrace the beneficial results of positivity. This is not just an attempt to make them (or ourselves) feel better in spite of reality, but rather to take full advantage of the proven benefits of optimism. We can develop stronger relationships with our clients by helping them to incorporate positivity into their estate planning: They can increase not only their own wellbeing but also that of their children or other beneficiaries by creating an estate plan designed to promote their loved ones’ happiness, which in turn, will enable them to live healthier and more successful lives. Fortunately for those to whom it does not come naturally, positive thinking can be learned by surrounding themselves with positive people, deliberately engaging in positive self-talk, and living a healthy lifestyle, just to name a few common methods.

Health Benefits of Positivity

According to the Mayo Clinic, positive thinking has a multitude of health benefits, including an increased life span, lower rates of depression, lower levels of distress, greater resistance to the common cold, more psychological and physical well-being, better cardiovascular health and less risk of death from cardiovascular disease, and better coping skills. Happiness, a byproduct of a positive attitude, has repeatedly been shown to boost the immune system, with studies showing that happy people who were exposed to illness were less likely to become sick or had milder symptoms than others who were less happy.

Impact of Positivity on Success

Dr. Martin Seligman, a well-known researcher in the field of psychology, has found that those who are happy and satisfied with their lives are more likely to have desirable outcomes in school, work, social relationships, health, and life in general. Negative emotions narrow our perspective, driving us toward a single, instinctive action (reacting to danger) while ignoring everything else around us. In contrast, positive emotions are accompanied by a broadened perspective that allows us to see and examine a variety of options and then choose the one we believe is best for that moment.

Those who tend to be more optimistic are more likely to establish clear life goals, focus on different ways to reach their goals, and believe that their goals will become a reality. Hopeful people view negative events as temporary setbacks or isolated unfortunate events. As a result, they are more resilient and able to handle challenges and view them as learning experiences. They have confidence that they can take action to improve their lives, and thus, are more likely to do just that.

Encourage Clients to Use Their Estate Plan to Create Positivity and Appropriate its Benefits for Beneficiaries

Rather than focusing primarily on negative goals, such as preventing a spendthrift child from wasting his or her inheritance, encourage your clients to also view their estate planning as a way to pass along a positive legacy. One method is to encourage them to create an ethical will that shares important values, religious beliefs, life lessons, and blessings with their family members. An ethical will, which could be in written or video form, is something that could be shared during your clients’ lifetime as a way of drawing family members closer together, or it could be one of the most meaningful gifts they leave for family members when they pass away. The positive emotions that come from the enhanced relationship and knowledge that they are loved could be a powerful catalyst that increases the wellbeing of your clients’ families.

In addition, clients can provide funds for activities that create positive experiences for beneficiaries, ultimately enhancing their wellbeing. Although providing financial security for family members and loved ones is clearly a positive goal, rather than simply thinking of their wealth as a way for their children or loved ones to acquire more “stuff,” they can be more deliberate and thoughtful about their estate planning, setting aside money for meaningful experiences, e.g., family trips, schooling, or volunteer activities, that will allow their beneficiaries to flourish and develop their strengths and interests. In fact, research shows that experiential gifts (gifts of events that recipients experience) result in a stronger relationship between the giver and the gift recipient than material gifts, even if the gift giver does not experience the event with the recipient.[3] The improvement in the relationship is the result of the positive emotions that are experienced while the recipient is experiencing the gift. These positive emotions also can ultimately increase their physical and mental wellbeing and likelihood of success in life.

Let’s Work Together to Help Clients Achieve a Positive Goal

During this time of crisis, a positive attitude is more important than ever. As your clients’ trusted advisor, one way you can help them is to try to have a positive outlook yourself. If you have a negative attitude, your clients are likely to sense it. On the other hand, if you have a positive outlook, they may feel more confident as well. In helping your clients think through and identify the ways they can incorporate positivity into their estate planning, you will develop a stronger and closer relationship with them that is likely to endure over time. Together, we can help clients have confidence and peace, knowing that they are not only providing their families with financial security, but also that they are leaving a positive legacy that will promote their loved ones’ physical, emotional, and spiritual wellbeing and future success.

[3] Cindy Chan and Cassie Mogilner, “Experiential Gifts Foster Stronger Relationships than Material Gifts,” 43(6) Journal of Consumer Research 913 (April 2017), https://academic.oup.com/jcr/article/43/6/913/2632328

Since 2017, the number of single family offices has grown substantially, with 3100 offices in North America. As the economy has surged, the number of families with millions in assets to invest has increased correspondingly. As a trusted advisor, you play an important role in managing the wealth of these families—and managing the risks associated with the recent downturn triggered by the coronavirus. But even families who are less wealthy can benefit from a team approach to the management of their estate and financial planning.

What is a family office?

A family office typically provides a variety of services to a very wealthy family, including but not limited to the following:

• Investment management
• Cash management
• Risk management
• Financial planning
• Estate planning
• Tax planning
• Planning for charitable giving
• Multi-generational planning

Single family offices are typically used by one ultra-high net worth family having $100 million or more in assets to invest to manage its wealth, and each one is designed to meet the unique needs of the family it serves. Such families are often interested in having the family office serve as their own wealth management business in order to oversee all aspects of their wealth. By starting their own family office, these ultra-high net worth families can retain control of their assets, maintain privacy, pursue the family’s long-term goals, and benefit from the combined wealth of multiple generations, which increases their buying power.

Multi-family offices provide similar services to a limited number of families typically having assets exceeding $20 million, but without as much overhead and responsibility for each family. The multi-family office offers integrated services, which are still customized to meet the needs of each family. The families served receive the benefits associated with a family office but do not have to run it as a separate business.

The team approach is best for every family

Family offices offer a multi-faceted approach to wealth management in which attorneys, accountants/CPAs, insurance professionals, and financial advisors all play a role. Although a family office typically has its own staff, unless the family is ultra-high net worth and able to afford a large staff, it may also utilize third-party advisors to minimize the costs associated with hiring a large team.

Other families, regardless of their wealth, benefit from a team approach as well, as it helps to ensure that all of their estate and financial goals are achieved.

A financial advisor helps clients to identify and understand their financial goals and investment objectives. These goals likely include a financial plan that will enable them to have funds sufficient to meet their own needs and maintain the lifestyle they want as well as pass an inheritance on to their loved ones. For high net worth clients, this often includes planning for multigenerational wealth transfers or charitable giving.

An estate planning attorney will help your clients with their legal affairs so that people they trust are authorized to make decisions for them if they are too ill to do so themselves and so their money and property are distributed in the way they wish after they pass away.

An accountant or CPA provides essential tax planning strategies to your clients, minimizing the taxes that your clients may owe, including the estate tax liability of your wealthier clients (for 2020, the federal gift and estate tax exclusion amount is $11.58 million for individuals and $23.16 million for married couples).

An insurance professional provides your clients with an analysis of their current and future insurance needs. Life insurance is a critical part of many estate planning strategies because it can be an important source of liquidity needed to provide for all of your clients’ beneficiaries. Insurance is particularly important for clients whose main assets are a business or valuable land or property that is difficult to divide between multiple beneficiaries.

Let’s Work Together for the Benefit of All Our Clients

Whether you are advising very wealthy families who could benefit from a single or multi-family office or families with more modest means, we can achieve a comprehensive solution for these clients by collaborating to ensure all their financial and estate planning goals are achieved. Please call us to discuss how we can work together for the benefit of our clients. We look forward to working with you.

In 2019, there were over eleven million single parents with minor children in the United States.^[1] It’s likely that some of those single parents are among your clients. For single parents, making sure their children are provided for is probably the top financial and estate planning concern. They worry about whether there will be sufficient funds for the care of their children if something should happen to them. Purchasing a life insurance policy is a great option for many single parents, as they are likely the primary or sole source of support for their children. Their first instinct may be to name their children as the beneficiaries of their life insurance policies, but there are several considerations they should keep in mind, particularly if their children are minors. As their trusted advisor, you can help them think through their options, as well as help them determine the amount of insurance needed to provide for their children.

Can a Minor Be the Beneficiary of a Life Insurance Policy?

The answer is yes, but there are some very important caveats. Insurance companies will not pay out the proceeds of the life insurance policy to minors, so the parent needs to make arrangements for an adult to manage the money for the minor children’s benefit. If a plan is not put in place, and the parent dies while the children are still minors, the court will appoint a guardian to manage the insurance proceeds—and its choice may not be the person your client would have chosen. There are several options your clients can consider aimed at avoiding this problem.

Name a trusted adult as the beneficiary. The least complicated solution is for your clients to name an adult they trust as the beneficiary rather than the minor child. This adult beneficiary must be someone your client is assured will use the life insurance proceeds for the children’s benefit. The problem is that once this adult beneficiary receives the money from the insurance policy, he or she is not legally bound to spend the money for the children’s benefit, and there is nothing to prevent this individual’s current or future creditors from looking to the life insurance proceeds to satisfy their claims. In addition, if this trusted adult fails to create or update his or her own estate planning, ensuring the insurance proceeds go to your children at his or her death, the money may inadvertently go to that person’s creditors, spouse, children, or other heirs. So, although this is the simplest solution, it is very likely not the most advisable one.

Name a custodian. Many insurance companies require a custodian to be designated if a minor is named as the beneficiary of a life insurance policy—and it is a good idea to name an alternate custodian who can carry out this role in the event your client’s first choice is not available. The insurance company can provide your client with the necessary forms to name a custodian and set up an account under the Uniform Transfers to Minors Act (UTMA), which has been enacted in 49 states, or the Uniform Gifts to Minors Act, a similar statute enacted in South Carolina. The custodian will manage the money and can spend it for the benefit of the children as spelled out in the UTMA until they reach the age of majority (this varies from state to state but is typically age 18 or 21) or an age within a range set out in the state’s UTMA statute, e.g., between 18 and 25. The custodian, who has a duty to manage the property prudently, may or may not be the same person your client has named as the children’s guardian, who is the person who acts as their caregiver if your client dies: This really depends upon whether the guardian is adept at handling financial matters. Under some circumstances, it may make sense for the custodian of the life insurance proceeds and the children’s guardian to be two different individuals. If the children’s guardian is the client’s ex-spouse, he or she may not feel comfortable leaving financial decisions in their hands. Once the children reach the age of majority (or up to age 25 in some states), they will receive all of the funds from the account without any restrictions on its use. As a result, at that point, they could spend it irresponsibly or their creditors—future or present—could reach those funds to satisfy their claims.

Create a trust. Another solution that enables your clients to have control over how the life insurance proceeds are used is to create a revocable living trust naming the children as beneficiaries. The trust, rather than the minor child, can be named as the primary beneficiary of the life insurance policy. Your clients can establish terms in the trust specifying the purposes for distributions as well as the times when distributions can be made if they pass away. The trustee is bound to act in good faith and in the interests of the children who have been named as the trust beneficiaries. This is often the best solution for parents who want to ensure the life insurance proceeds are used for the children’s benefit but who are also concerned about whether an 18 or 21 year old will have the maturity to handle a large sum of money; the funds held by the trust can be distributed according to the parent’s wishes and are not required to be fully distributed when the children reach the age of majority. The trust can also be designed to protect the insurance proceeds from being reached to satisfy claims of the children’s creditors. A testamentary trust, created in a will, could also be used, but probate would be required in order for this trust to be established. Probate is a court-supervised process that is public and potentially lengthy and expensive.

How Much Life or Disability Insurance Is Needed?

As your clients’ financial advisor, you can help them think through how much life insurance will be needed to care for their children if they die unexpectedly. This responsibility is particularly pressing for single parents, as they are often the main or only source of financial support for their children. As you know, the amount of the life insurance should be sufficient to replace the parent’s income and cover expenses for the children’s care, as well as any additional amounts desired for expenses such as college tuition, a wedding, or the down payment for the children’s first home. You are in a great position to help them determine the amount of those expenses and take their other assets into consideration so they can make an educated decision about the proper amount of coverage. This will enable them to have the peace of mind that comes with knowing that no matter what happens, there is enough money to provide for their children’s needs.

Disability insurance is equally important for single parents. If they become disabled and are unable to work, they will need sufficient funds not only to cover their children’s expenses, but also their own. You can provide valuable advice based on your familiarity with the particular circumstances of each of your clients that will enable them to make a wise decision about how much disability coverage they should obtain.

Let’s Collaborate to Create a Comprehensive Financial and Estate Plan for Your Clients

Your clients, especially those who are single parents, depend on you to help them create financial plans that will enable them to meet their responsibilities and goals, including the care of their children. They are often the primary or even sole provider for their children, so every penny counts. You are best positioned to recommend products, such as life insurance, that will enable them to fund a trust or UTMA account for the benefit of their children. We can help implement the legal aspects of those plans, for example, by helping them determine the type of trust that is most appropriate for their personal circumstances and create trust provisions that will accomplish their goals. Together, we can create and implement the optimal plans for your single-parent clients so they can rest assured that their children will be provided for if they pass away or become disabled unexpectedly.

[1] United States Census Bureau, Table FG6. One-parent Unmarried Family Groups with Own Children Under 18, by Marital Status of the Reference Person: 2019, https://www.census.gov/data/tables/2019/demo/families/cps-2019.html