Category: The Wealth Advisor

As 2016 draws to a close and 2017 approaches, it’s an excellent time to begin making plans for growth in the upcoming year.

According to a study conducted by Fidelity Investments, 37 percent of Americans considered making at least one finance-based New Year’s resolution for 2016, up from 31 percent in the previous year. Those numbers are likely to increase again this year, especially since we won’t have a Presidential election to focus on during 2017. While many people avoid making New Year’s resolutions for fear that they will only break them, the same study indicated that more than half of people who made financial New Year’s resolutions ended the year in better financial shape than when they began.

To that end, below are 9 financial New Year’s resolutions designed to help you grow your wealth in 2017. Enjoy!

1. Set realistic, reachable financial goals.
If it seems a bit ironic that our first resolution or goal is to have goals, that’s because this is where most people fail at the outset. Either they don’t have specific financial goals in mind, or they set the bar so high that their goals are virtually impossible to reach, causing them to lose heart and give up. Don’t let the perfect be the enemy of the good: Set your benchmarks now.

2. Prepare for changes in the tax laws.
When President-Elect Trump takes office on January 20, 2017, changes in the tax codes will almost certainly follow. If you haven’t already done so, talk to us, your financial advisor, and your tax advisor now to strategize about changes to your estate, financial, and tax plans.

3. Review your investment portfolio.
The beginning of a new year and the last few days of 2016 are good times to take a detailed look at your investments, to see which investments are performing well, which are not, and where to reinvest and diversify.

4. Review and track your income and expenses and look for ways to get your budget under control.
Examine your income and expenses for 2016 so you know your starting point. Then, throughout 2017 pull year-to-date reports so you can identify and correct problem areas before they become out of control. Analyzing your expenses regularly helps you identify when money is being spent on things that have less importance to your long term goals.

5. Look for creative ways to increase income.
If you own or operate a business, are there new strategies you could implement to reach untapped markets or otherwise increase revenue? If you work as an employee, are you due for a raise this year? Do you own any intellectual property you’re not currently exploiting for royalties? Brainstorm, and use your imagination to find additional ways to increase your personal income.

6. Deal firmly with debt.
Debt is dead weight and the interest charges can be an anchor on an otherwise good financial plan. Bite the bullet, and get on a debt reduction or elimination plan in 2017.

7. Review your life insurance coverage.
Your policy may be out of date and not have features now commonly available on insurance policies. Worse yet, you may be underinsured if your family’s financial needs have changed. Put the coverage under the microscope to build an action plan. Once you’ve decided on changes with your insurance advisor, coordinate the beneficiary designation with us, so it completely aligns with your estate planning goals.

8. Review your retirement plan.
If you have a 401(k) or an IRA, how is it performing? Is it time to increase your contributions? Should you roll over to a different plan? If you don’t have a retirement strategy, start now, and get to it. Now’s also a great time to verify that your beneficiary designation coordinates with your estate plan. We’re here to help if you have questions.

9. Plan for your heirs.
If you don’t have a trust, consider working with us to establish one in 2017. If it’s been more than three years since your trust was last looked at, it’s time for a checkup. Are there any life changes (e.g., marriage or divorce) that need to be considered and incorporated into your plan? Even if your assets are modest, a trust prepared by a qualified estate planning attorney can provide privacy for your family as well as protect your heirs and legacy from the IRS, creditors, and court interference.

“It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.” – Robert Kiyosaki

This quote reminds us of a couple of important concepts: first, wealth doesn’t come without a plan; and second, we don’t accumulate wealth just for ourselves. Make a commitment in 2017 to set solid financial goals and craft an estate plan that successfully passes on your financial legacy to the next generation.

We are here to help. Call today to schedule an appointment. From our family to yours, have a happy holiday season and a safe and Happy New Year.

On January 20, 2017, Donald Trump will become the 45th President of the United States. Earlier in January, the Senate and House will convene with Republican majorities. How you update and manage your estate plan and financial plan under the Republican controlled Congress and Presidency can make a significant difference in your tax burdens and the way your wealth continues to accumulate. We’re here to help guide you during this time of transition and change.

We are monitoring the situation vigilantly, and we are already strategizing for a wide range of potential tax and regulatory changes in order to provide you with the best possible advice about any changes to your estate plan.

Let’s look briefly at how some of the preliminary details of President-elect Trump’s proposals could affect your estate.

Donald Trump’s proposals

Donald Trump has proposed across-the-board reforms in the tax codes, and while he promises to close up some loopholes, the general trajectory of his proposals is toward lowering taxes overall.

You can find the details of his tax plan on his website, but the most pertinent points are:

• Lowering income tax rates across the board, including significant raises to the standard deductions
• Reducing the number of individual income tax brackets from 7 to 3, with a maximum tax rate of 33 percent (down from 39.6% today)
• Reducing the business tax rate from 35 percent to 15 percent
• Eliminating the estate tax

  Remember that any change to the tax laws requires Congressional approval and won’t happen automatically. In spite of Republicans being in control of the Presidency and Congress, there will still be negotiation and compromise reflected in the “final” tax law that comes out of Washington. And remember, the rules are only “final” until the government decides to change them again. This is one reason you must remain in contact with us as 2017 begins.

  Recommendations, assuming President-elect Trump’s agenda is put into law:

• Be cautiously optimistic. The elimination of the estate tax in particular is likely to be welcome news if you have higher net worth (or even if you are on your way there), but this proposal may be subject to opposition or compromise in Congress. This compromise could range from a “sunset” provision to gradual phase-in or something else entirely. We’ll have to wait and see. Don’t assume that the “death tax” is automatically gone on Day 1 of the Trump Presidency.
• It’s more than taxes. Although taxes have long had top billing in many conversations about estate planning, the real reasons for estate planning are present, no matter who is in the White House and Congress. This includes planning for medical or financial decisions during incapacity, directing your financial legacy to your intended beneficiaries, asset protection, and more. No matter how hard Congress may try, they can’t seem to legislate away lawsuits, wasteful spending by young beneficiaries, and other issues that can be overcome through proper planning. The great news is that we might soon be able to focus our time with you on these issues almost entirely.
• Stay tuned for updates. As tax and regulatory reform starts being fleshed out in Washington and ultimately enacted, we will provide recommendations to you.

Preparing your estate for the next administration

With all the volatility surrounding this now-concluded election cycle, the only thing of which we can be certain is change. Regardless of who you supported, any election requires you to take some action to protect yourself. Proactivity is the best way to protect your wealth against any changes to come.

Between now and when President-elect Trump becomes President Trump, you would be wise to schedule an appointment with us for a full review of your will, trust, and estate plan. Depending on your circumstances, there may be actions that need to be taken now, some that might need to wait, and some that need to be back burnered until we know the “final” tax rules that come from President Trump and the Republican Congress.

As always, we are here to help. Give us a call today to schedule an appointment.

This newsletter is for informational purposes only and is not intended to be construed as written advice about a Federal tax matter. Readers should consult with their own professional advisors to evaluate or pursue tax, accounting, financial, or legal planning strategies.

You have received this newsletter because I believe you will find its content valuable. Please feel free to Contact Me if you have any questions about this or any matters relating to estate planning.

Many of us labor a lifetime to build up our assets and fight for causes that matter to us. Few things are more fulfilling than the thought of sharing wealth and legacy with our family.

Of course, it’s impossible to plan for every eventuality, but careful planning can mitigate against the two primary risks.

a)    Your intentions regarding your estate weren’t made clear, resulting in the potential for costly, time-consuming conflict.

b)    Your family did not understand or share your wealth management vision, resulting in the possibility of asset dissipation.

The good news is both of these issues can be prevented through honest communication with your family now. While it’s not necessarily comfortable to broach this topic, a family gathering at the holidays might be the best time to have a conversation with your children and loved ones about your estate plan.

Why it’s important to talk to your family

Passing along our wealth is one thing, but what about passing along the values of work ethic and generosity that enabled us to acquire and grow that wealth in the first place? Too many fortunes built by one generation are lost by the next, not due to bad luck or the IRS, but due to a lack of understanding of wealth management and preservation. Also, when your family doesn’t appreciate the rationale behind your estate planning choices like the use of lifetime trusts, this lack of understanding can lead to conflict and resentment among family members. In a worst case scenario, your heirs end up suing one another. No one relishes the idea of family being torn apart over antiques, heirlooms, or who gets the house on Long Island. Nevertheless, it happens far more often than anyone cares to admit.

Should you tell your children about their inheritance?

The question of whether to tell the children about their inheritance is the subject of ongoing debate. Many people express concern that this information might reduce a child’s work ethic or make them feel otherwise entitled, killing their motivation to seek a career and a “normal” life. Depending on the child’s temperament, this might be a legitimate point. On the other hand, inexperience and lack of understanding about wealth can result in a quickly lost inheritance, only because your heir didn’t know what to do.

The best path for most of us is a “happy medium,” sharing your plan in general terms with your heirs, without necessarily telling them the dollar values. You might even entrust some heirs with some responsibility for investment and entrepreneurial opportunities now before they inherit anything. This way, they begin to share your guiding values, and they are therefore better prepared to handle, manage and even grow their inheritance when they ultimately receive it.

Communication now prevents conflict later

You have put careful thought into which assets go to which beneficiaries and why. But, when the details of a plan are sprung on people, especially during a time of grief, differing opinions can create conflict. If your family unexpectedly discovers upon your death that there is a significant amount of money to be distributed, and you haven’t shared your rationale behind the decisions you’ve made, then you’ve set the stage for conflict and infighting – possibly even a costly and lengthy lawsuit.

To overcome these challenges, frame your estate planning around your guiding principles, communicate your intentions thoroughly in the trust, and explain your vision clearly to your trustees and beneficiaries while you’re still around to explain things. By attaching your values to your estate planning and involving your family in the process, your estate plan now becomes a family plan, minimizing the risk of conflict.

What should you discuss at the family meeting?

Once you’ve committed to discussing your estate planning with your family, what should you share specifically? Should you detail the entire plan with them, or just an outline of it? Should you go into detail about who gets what?

The specifics of what should and should not be discussed about your estate will depend on your family, your circumstances, and your overall level of comfort with how much knowledge they possess. You don’t necessarily have to violate your privacy, and there’s typically no need to reveal specific dollar amounts at this meeting. One big caveat – if there’s anything in your plan that might stir controversy, concealing it now serves to invite conflict later. Thus, a good basic rule of thumb is to share as much as is necessary to get everyone on the same page.

Tips for a successful estate planning family meeting

When you hold your family meeting, a bit of awkwardness is to be expected at first—after all, no one in your family (presumably) is likely eager to discuss what will happen when you die. Likewise, you need to be prepared to talk through some of the choices you’ve made that are likely to generate some pushback. However, the end of the meeting is often more comfortable than the beginning. The following guidance can help you get there.

• Plan the meeting after the holiday, if possible. If you’re gathering the family at a holiday like Thanksgiving or Christmas, try to arrange the actual meeting to take place after the holiday itself, so a potentially uncomfortable conversation doesn’t spoil any planned festivities.
• Invite your financial advisor, estate planning attorney, and accountant to be in attendance. (More to this point momentarily.)
• Schedule the meeting in a quiet place that encourages candid conversation. A public place is probably not appropriate for this discussion. Your financial advisor or estate planning attorney might have access to space if you need it and prefer a “neutral” site over your living room.
• Arrange for child care. This meeting should be an adults-only gathering so everyone can participate without distractions from babies and children.
• Set an agenda. Encourage open conversation, especially on any controversial points, but have a clear list of points to be covered, so you don’t forget anything in the midst of emotional moments.
• Set a start and stop time. This step will help the meeting stay on track without meandering away from the main points. If something significant comes up, you can always continue the discussion later.
• Strike an inclusive tone. While you should not suggest that your decisions are open to challenge or discussion (it is your estate plan after all), try to convey that you are inviting the family to share your vision and goals. If you can get them on board with you at the outset, the risk of disputes will be significantly reduced later.

Why involve your financial advisor, attorney, and accountant?

Some people might have misgivings about having a third party advisor present at an otherwise private family gathering, and it’s certainly not a mandatory step. However, you might want to consider inviting your financial advisor, estate planning attorney, or accountant to the meeting for the following reasons:

• The presence of your financial and legal team can add a sense of authority to the conversation, reinforcing that your choices have not been arrived at lightly.
• With your permission, your team can review the structure of your estate plan with your family, highlight its benefits, and make the meeting easier for you to conduct.
• In some cases, there might be questions from your family. Your team can, with your permission, answer questions, especially those of a technical nature.

Tailor the role of your financial advisor, attorney, and accountant in your family meeting to your specific needs. Whoever you include can give a brief presentation of your estate plan as part of the proceedings, or simply be on hand to clarify points. When appropriate, someone from your team can even act as a facilitator or moderator for the meeting itself.

We are here for you

In whatever way you choose to address this sensitive subject with your family, remember that we are here to help, from a full review of your estate plan to offering guidance on how to include your loved ones in a family vision for your estate. When you’re ready, call us for an appointment to discuss your needs. 

This newsletter is for informational purposes only and is not intended to be construed as written advice about a Federal tax matter. Readers should consult with their own professional advisors to evaluate or pursue tax, accounting, financial, or legal planning strategies. 

10 Year-End Tax Planning Strategies to Discuss with Your Financial and Tax Advisor Before the Holidays

As summer draws to a close, tax time seems like a world away for most of us. We’re preoccupied with squeezing in that last vacation and/or getting the kids ready to go back to school, and once we settle into our fall routine, the holidays are right around the corner. The last thing we want to do is think about taxes. However, the financial decisions you make now can have a huge impact on your tax burden going into next spring. Too many people miss out on significant tax savings simply because they fail to plan in advance. This is why year-end tax planning is so important, and why you should start thinking about it now, before the holiday season consumes your attention. The good news is that making even a few small tweaks to your financial strategy before the end of the year can add up to thousands of dollars in tax savings in 2017. Now is the perfect time to talk with your financial advisory team about year-end tax planning so you’re not left scrambling during the holidays. When you schedule your appointment, here are 10 key areas to assess.

1. Review changes in the tax laws for 2016. The tax laws change every year—sometimes a little, sometimes a lot. Even small changes in the law can have a positive or negative effect on your tax bill, depending on your situation. This year, the IRS released perhaps the most significant regulation change in decades. You may have heard about these in the news as the “2704” regulations or “valuation” regulations. Although these regulations are not yet being enforced, they might substantially impact your estate plan when the IRS finalizes them, potentially as early as January 2017. If you have any questions about these new regulations, we’d be happy to discuss their impact on you, your estate plan, and your taxes.

2. Review significant changes in income/employment. By this time of year, you should have a pretty good idea whether your income is set to increase or decrease significantly in 2016. A sizeable shift either way could have a pronounced effect on your tax burden. Did you get a new job? Lose a job? Did you start receiving rental income? Royalties on intellectual property? Did you start a new business or perhaps expand an existing one? Review your current income streams with your advisor to determine how to prepare for any changes in your taxes. If you started a new business this year, it’s especially important to get insight from your planning professionals to make sure the business is structured properly for your best tax advantage.

3. Review your investment portfolio. Before looking at the next couple of strategies, review your current investment portfolio with your advisor and see whether anything stands out as an actionable item. Do you have stocks or mutual funds that are underperforming, or that have appreciated to a tipping point? Are there any strategic stocks that show promise for next year that you should consider adding? Your advisor may have some key suggestions at this time for adjustments to your portfolio that can keep your taxes manageable while putting you in a good position for next year.

4. Manage capital gains. Timing is everything when reaping capital gains, especially when it comes to taxes. If you’re thinking about selling property (like a rental house or vacation property) at a gain, talk to your advisor about capital gains tax impact because it might make sense to delay the closing until early January. Likewise, if you have stocks or other investments that are performing well, cashing out too soon could bite you at tax time. Consider putting off those sales until early next year to defer the tax burden or using losses to offset the gains, which we’ll discuss next. 

5. Harvest losses. On the other side of capital gains, loss harvesting can be a very effective strategy for reducing your taxable income. If certain stocks in your portfolio have lost value, selling them now can create a loss that can offset gains in other investments. If you have a total net loss in your investments, up to $3,000 of that loss can be used to reduce your ordinary income; and any loss over that amount can be carried over to future years.

6. Start a new retirement savings plan (or contribute to an existing one). If you have a 401(k), IRA or other retirement savings plan, consider putting in some extra money toward the end of this year to save on taxes next year. If you don’t have a retirement savings plan yet, the end of the year is a great time to start one, because anything you add to it can reduce your tax burden and set you up for long-term financial success. Talk with your financial advisor about starting an IRA, SEP, SIMPLE or another type of savings plan for which you might be eligible. It’s also a great time to review your beneficiary designations and make sure they’re in alignment with your estate planning goals. We’re here to help you with aligning your beneficiary designations to your estate plan.

7. Defer income. Another common strategy for saving at tax time is to defer some of your year-end income to next year. If you’ve got a bonus coming, ask your employer about holding off until January to pay it. If you’re self-employed, and you’re finishing a big year-end project, consider invoicing it at the end of December so it gets paid in January. Your financial advisor may have other suggestions for how to defer income strategically. This is especially important if your income for 2016 brings you close to a tax threshold like the alternative minimum tax (AMT) or into a higher tax bracket.

8. Accelerate expenses. Conversely to deferring income, you can reduce your tax burden by accelerating some tax-deductible expenses at the end of the year. If you know you need a new piece of equipment for your business in 2017, consider buying it near the end of 2016 so you can deduct it this year instead of next. If you have a child in college, pre-paying spring tuition can also benefit you at tax time. Also, remember that if you have a Flexible Spending Account (FSA) for out-of-pocket medical expenses, any money left in that account at the end of 2016 becomes taxable. If you’ve been planning on having a procedure, updating your prescription lenses or getting some dental work done, now is the time to get on your doctor or dentist’s calendar!

9. Boost your charitable donations. Year-end charitable giving is a well-recognized method for reducing one’s tax burden. If you’re looking for more deductions, consider making a special holiday donation to one or more non-profit charities of your choice. Remember though, you must itemize your deductions to obtain a tax benefit from charitable giving. If you’re not sure about itemizing your return, talk to your tax advisor as soon as possible.

10. Strategic giving to family or friends. Did you know that you can gift up to $14,000 per year to as many people as you like without paying gift tax? If you give more than that, you’ll have to file a gift tax return. As long as your lifetime gifting doesn’t exceed $5.45 million in total ($10.9 million for a married couple), then you won’t owe any gift tax. Your financial and tax advisor can help you identify which of your assets can be strategically gifted to family or friends in such a way that results in effective wealth-building for all with a minimum tax impact. 

Of course, every person’s financial situation is unique, and not all these year-end tax strategies will apply to everyone. Likewise, certain tax-saving strategies can backfire if they are overdone or overused. That’s why you should always work with a trusted financial advisor to develop a year-end tax plan that’s customized to your situation and designed to yield the best savings overall.

Tax preparation happens every year. If it’s been more than two years since we talked about your will or trust, call us to make an appointment. We’re ready to help.

Lance D. Like is a Certified Specialist in Estate Planning & Administration. He is the founder of the Like Law Group LLC, a Bloomington, Indiana law firm. Practice areas include estate and Medicaid planning, elder law, probate, trust administration, and business planning.

A brief look at statistics reveals that family structure has dramatically changed over time and that there’s an astonishing variety of family structures out there. Everything ranging from the “traditional” nuclear family to blended families of step-siblings and half-siblings headed by parents in a second or later marriage.

Most of us want to take care of our spouse, our children, and maybe the rest of our family too. But, letting everyone else work out the details after you are gone or incapacitated means chaos, and, sadly, the risk of a family being torn apart.

It’s not just your immediate marriage that you should be concerned about – the marriages of every beneficiary named in your plan can affect your estate planning.

Proper estate planning can alleviate your concerns about your unique family situation, giving you the confidence and peace of mind that your wishes will be carried out.

Why does this matter for your estate planning? Since not all families are alike, you can’t rely on an off-the-shelf estate plan or make assumptions based on other families’ experiences. Work with an experienced estate planning attorney to understand the obstacles and opportunities available to you and your family.

Assessing Your Family’s Needs and Challenges

First things, first. You need to have honest conversations with your spouse about your goals for the future, your existing finances and how you would like your assets to be distributed. While these conversations have the potential to be emotionally-charged and difficult – for instance, what if your husband’s oldest son can’t manage his finances, but he is in denial and he refuses to talk about his son’s past business mistakes? You need to air your concerns in a safe context. Sweeping problems under the rug will all but guarantee hurt feelings and negative financial ramifications later.

One big concern will likely be to make sure that each spouse’s portion of the estate goes to each desired beneficiary. In other words, if you have a child from a previous relationship, that child’s inheritance needs to be protected even if the child’s parent is the first spouse to pass away. For instance: after the first spouse dies, what if the surviving spouse amends the documents to remove whomever he or she wants from the inheritance, including the deceased spouse’s children? Your children need fairness, as do your spouse’s children.

Get creative when planning. Seek guidance from professionals who have worked with families like yours in the past. Be open to different solutions; likewise, think about contingencies and ask “What If?” a lot. By examining all your fears and similarly exploring possible solutions, you will be more likely to find a better plan that will give you more peace of mind.

Finally, recognize that estate planning is a fluid process. The plans you make today (or within the next three months, let’s say) will likely need to be revised and amended as the years pass. For instance, over the next decade, your wife’s oldest daughter might start a business, marry and have two children: your plan should then be updated to reflect her new financial reality and challenges.

Tools and Solutions

Let’s explore some useful tactical information:

Beneficiary Forms

Do you have a significant amount of wealth in your retirement accounts and life insurance policies? The beneficiary designation controls these assets, not your trust or will, so these designations need to be coordinated with your overall estate planning.

Think about your estate planning as a whole as well as these separate accounts. For instance, you may wish to allow your estate to pass to your children while providing a death benefit through a life insurance plan for your surviving spouse. However, do not name minors as beneficiaries, since they are not legally able to control assets. If you do, the court may appoint a guardian to manage the asset until the child turns 18. We can discuss strategies that will allow your spouse or children to receive benefits from your retirement account and life insurance policies without court intervention.

Advanced Health Care Directive

A health care directive gives you the opportunity to name a trusted family member to make decisions about your health care, should you not be able to voice your opinion. Keeping your health care directive up-to-date is always helpful for your physicians and other medical professionals in the event of an emergency. This is also a chance to discuss your feelings about burial arrangements, organ donation, and end-of-life care with your new spouse.

Power of Attorney for Financial Affairs

Similar to a health care directive, a power of attorney gives you the opportunity to name a trusted family member to manage your legal decisions and financial affairs should you not be able to do so. If you have already named a power of attorney, including a previous spouse, make sure that you revoke him or her before naming your children, new spouse or another trusted individual as your agent. It is also a good idea to keep your power of attorney “fresh” by renewing it every so often since powers of attorney that are older than a year or two might not be accepted by a bank or third party when needed.

Trusts

Trusts are probably the most flexible estate planning tool out there. If you haven’t had yours looked at in the last four years, it’s probably worth a review. If it’s been longer than 10 years, it almost certainly needs a complete overhaul, because there have been so many changes in laws over the last decade.

It might make sense to create a trust that benefits your spouse during his or her life while ensuring that those assets ultimately end up with the beneficiaries you choose. Additionally, you may want your children to receive your separate property (like a family heirloom or ancestral lands) at your death while other property remains in the trust until he or she passes, at which time whatever is left will go to your children. Creating these trusts involves multiple considerations, so it’s best that we talk before you decide the best path forward.

Every family, blended or otherwise, presents its own set of challenges, both personal and legal. We can guide you and your loved ones through the process, discuss your wishes, and help you effectively plan for the future. Call us today to discuss estate planning for your family, and we will be more than happy to answer any questions or concerns you might have.

Lance D. Like is a Certified Specialist in Estate Planning & Administration. He is the founder of the Like Law Group LLC, a Bloomington, Indiana law firm. Practice areas include estate and Medicaid planning, elder law, probate, trust administration, and business planning.

When it comes to estate planning, you probably think of wills and trusts. But there are three other estate planning documents you should think about to make your plan complete:

1. A Living Will
2. A Healthcare Directive, also called an Advance Directive, Medical or Healthcare Power of Attorney, or Designation of Healthcare Surrogate
3. A Financial Power of Attorney

Planning for Medical Emergencies with a Living Will and Healthcare Directive

Having the right legal documents in place in case of a medical emergency is essential to providing a family member or trusted friend with guidance and decision-making authority during a difficult time.

A Living Will allows you to state your wishes about the type of medical treatment you do, or don’t, want to receive if you are injured and not expected to recover or become terminally ill.

A Healthcare Directive allows you to choose the trusted family member or friend who will be responsible for making healthcare decisions if, for any reason, you lose the ability to make them for yourself.

Don’t End Up Like Terri Schiavo

One of the well-known cases that highlights the need for a medical emergency plan is that of Terri Schiavo, a 26-year old Florida woman who collapsed and fell into a coma in February of 1990. Mrs. Schiavo didn’t have a Living Will or Healthcare Directive, and as a result was kept alive for 15 years while her husband and parents fought in court over taking her off life support. Finally, in March 2005, a Florida court ordered removal of Mrs. Schiavo’s feeding tube. She died 13 days later.

While the Schiavo case is an extreme one, it emphasizes the fact that without a medical emergency plan, your family members may be left to guess (or possibly fight) about your medical treatment and end-of-life wishes.

But, it doesn’t have to be that way. A Living Will and Healthcare Directive can make your wishes known and legally enforceable. If you haven’t reviewed your healthcare documents in the last year, now is the time to make sure it reflects your current wishes. Call us today if you have any questions about health care decisions and how to best communicate them to your loved ones.

Planning for Property Management with a Financial Power of Attorney

A Financial Power of Attorney allows you to select a trusted family member or friend who will be responsible for managing your money and other property if you become mentally incompetent. Without this document, bank and investment accounts held in your name will become inaccessible, IRA distributions can’t be requested, bills won’t get paid, tax returns won’t be filed, and property can’t be bought or sold. Instead, a loved one may be forced into court to be appointed as the legal guardian, and a judge will oversee the guardian’s every move. A Financial Power of Attorney can provide authority to handle these issues without the court’s involvement.

Caution:  Financial Powers of Attorney Can Become Obsolete

Many Financial Powers of Attorney can be “obsolete” in as short as one year, because many institutions don’t want to rely on stale documents, even though legally the documents should still be fine. Depending on your circumstances, a stale, obsolete power of attorney may not be able to help you and your family with:

• Insurance contracts – life, disability, long term care, property and casualty.
• Annuity contracts.
• Retirement plans – pension, profit-sharing and stock bonus plans, IRAs, 401(k)s and 403(b)s.
• Online financial accounts for banking and investments.
• Online personal accounts such as email, Facebook, Instagram and LinkedIn.
• Elder care and special needs planning.

If it’s been more than a year or two since you’ve signed your power of attorney, it might be time for a fresh one. Call us – we can help make sure you and your family are fully protected.

A Good Estate Plan Needs Up to Date “Ancillary” Documents

In the estate planning community, Living Wills, Healthcare Directives and Powers of Attorney are called “ancillary” documents. But don’t be fooled by the name – these documents are essential and should be updated as lives, finances, and laws change. Call us today with your questions, we’re always here to help.

This newsletter is for informational purposes only and is not intended to be construed as written advice about a Federal tax matter. Readers should consult with their own professional advisors to evaluate or pursue tax, accounting, financial, or legal planning strategies.

How to Protect Your Heirs and Your Legacy from Bad Decisions and Outside Influences

Estate planning is an important and everlasting gift you can give your family. And setting up a smooth inheritance isn’t as hard as you might think. – Suze Orman

After working diligently for decades to achieve your financial goals, you understandably want to preserve your gains and leave an enduring legacy to the next generation. For better or for worse, though, your heirs have free will. Even while you’re alive and very much capable of directly communicating with your children, favored charities and others, you might already be uncomfortably familiar with the limits of your influence.

As you contemplate the future, it’s easy to ponder disagreeable scenarios. What if your adult child squanders the business you leave her by getting involved with a dubious partner or burning through cash reserves and taking speculative risks? What if the non-profit that you co-founded mismanages the property that you leave it or runs afoul of legal issues?

Your carefully outlined plans for passing money onto the next generation can be derailed in many ways:

• A widowed spouse remarries unwisely;
• An unanticipated or unforeseen tax consequence drains the estate;
• A chronic illness or lengthy nursing home stay disrupts the plan;
• An aggressive creditor, fraud, financial mismanagement, or some other unfortunate act undoes your hard work and creates a complicated, expensive, dramatic mess for your family.

In this month’s newsletter, we will explore a solution to the problem of how to best pass along your financial legacy, so that you can breathe easier and feel more comfortable with your options.

The good news is that you’re not the first to deal with this anxiety. For centuries, wealthy people have wrestled with how to protect and exert control over the next generation. As a result, they and their advisors have developed quite a toolbox.

This “insider secret of the wealthy” we are about to discuss is strategic as well as tactical. But before we dive in, I want to share what is the more common planning option. In many estate plans, inheritances are given to heirs staggered (such as one-third at age 25, one-third at age 30, and the rest at age 35) or outright with no strings attached. This approach seems straightforward and therefore sensible. But, staggered or outright distributions are less than ideal because they leave your heirs’ inheritance vulnerable to interference from creditors, predators, and courts.  

So what can and should be done, instead?

Here’s one powerful answer: Leave an inheritance in a discretionary lifetime trust, rather than outright or staggered.

What is a discretionary trust?

Depending on how it’s implemented in your circumstances, this type of trust lets you pass assets along to beneficiaries now or at your death. As the name implies, you give the trustee discretion over how and when the beneficiaries may access trust assets. Certain uses of the money might be deemed acceptable, whereas other uses will be restricted.

For instance, if your daughter wants to go to medical school, or your son wants seed money to launch a business, then the money is available. However, if your child (or other beneficiary) veers off path or violates the terms and conditions you incorporate into the trust, then the assets are not available. With proper planning and a good choice of trustee, the funds you set aside can last for your beneficiaries’ whole lives and beyond.  
 

How Does This Tool Shield an Inheritance?
 

First of all, the discretionary lifetime trust cordons off the inheritance. A vengeful ex-spouse, plotting business partner, unshakeable creditor, or plaintiff in a lawsuit against your beneficiary will have a very hard time breaking down the wall surrounding the property and assets you’ve left. Of course, no wall is impenetrable, but this one can be made quite strong.

The trustee has the power to go inside this wall, according to your explicit and pre-determined wishes, and access the funds. But the “bad guys” are generally kept at bay.

You can also ensure that whatever is “left-over” in the trust after a beneficiary dies goes to where you want. You could stipulate that what’s left should be passed to a grandchild, a sibling, or a cherished organization. In this way, you can develop a series of discretionary lifetime trusts and ensure your legacy for decades or longer. This also lets you enshrine your standards and values by imposing them as conditions on the benefits.

You can also empower the trustee to proactively help beneficiaries. For instance, if the trustee notices that your son (sadly) has become an alcoholic or inveterate gambler who cannot be trusted with an allowance, she can be given the discretion to deny or limit the flow of benefits to him and instead use trust funds on his behalf (say to directly pay rehabilitation, rent, or other expenses).

Of course, there are numerous other benefits to discretionary trusts, ranging from estate and income tax planning to proactively passing along financial values.

Although a long-utilized and popular tool for the wealthy, this type of trust has helped protect countless people across the entire wealth spectrum, from the modest to the well-to-do. In many cases, it can help your family too.

You probably have many questions about lifetime discretionary trusts. We’re here to help. Please call us today, so we can explore how we can help you and your family.

This newsletter is for informational purposes only and is not intended to be construed as written advice about a Federal tax matter. Readers should consult with their own professional advisors to evaluate or pursue tax, accounting, financial, or legal planning strategies.

How Adding a Trust Protector Can Help You and Your Family

You probably remember the cast of characters in your estate plan.

• You were the creator of your trust, known as the grantor, settlor, or trustmaker.
• The trustee controls the assets in the trust. For most revocable trusts, that’s also you, while you’re alive and well.
• The beneficiaries are the people entitled to the economic benefit of the trust. For most revocable trusts, that’s you while you’re alive and then later becomes your children or a charity.

In many situations, this lineup is adequate for achieving your goals. While you’re alive and well, you (as the grantor) are able to make changes to the trust based on the needs of your family or changes in the law.

But what happens after you’re gone or are no longer well enough to keep your trust up-to-date? In most cases a trustee is limited in the changes they can make. Depending on what happens in the future, this can result in conflict, unnecessary costs, unnecessary taxes, or even loss of your family’s legacy.

A relatively new mechanism can be added to your trust to shield it from many kinds of mayhem and provide flexibility to your family for years to come.

A Trust Protector is another member of the estate planning “cast” that you must consider adding to your trust. Their primary duty is to oversee the trust and make sure your intentions are carried out, even when an unforeseen change in the law or other challenge occurs. They can also be given other duties, specific to your needs, your trust, and your beneficiaries. The use of a Trust Protector in estate planning documents is a relatively new concept but one which may make sense for many people.

Trusts have a lot in common with Swiss army knives. Their utility is amazingly diverse. When drafted effectively, a trust can preserve your wealth, create structure for the next generation, limit tax consequences, support your business, fund a beloved charity, and give you peace of mind. And, when you include a trust protector, you ensure that your Swiss army knife remains in good working order.

Benefits of Adding a Trust Protector

Increased peace of mind.

Some people postpone or neglect estate planning because they worry about committing to a rigid outcome or fear the costs of amending the plan.

Including a trust protector takes the pressure off and provides you with increased peace of mind. When you can’t act, your trust protector serves as the watchdog to your trustee to make sure he or she fulfills all required duties, stays abreast of legal and financial changes, and adapts or updates the trust as necessary.

More flexibility and confidence.

The duties and powers of the trust protector are defined in your trust documents. You get to decide exactly how much power the protector has and over what items. For instance, the trust protector can oversee, remove, and replace trustees, or even amend the trust directly to improve asset protection or change beneficiaries. We’ll work with you to make sure the scope of the trust protector’s powers achieves your goals.

Long-term protection for the trust’s assets.

What if the money and property you’ve worked your whole life to generate gets squandered or greatly diminished due to poor trustee performance, unnecessary disputes, or embezzlement? Your trust protector can help – for instance, by changing the trust to protect its assets from a beneficiary’s creditors, by maximizing income, and by releasing the trust’s assets for specific purposes.

Leaving an inheritance directly to a beneficiary carries risks. What if she loses the assets in a lawsuit or divorce; becomes incapacitated; or engages in extravagant spending? By instead using a trust with a built-in trust protector, you protect your legacy and ensure your assets are available for your family as you intended.

Oversight and support for your trustee.

The trust protector can observe the trustee to make sure that he or she carries out a trustee’s duties appropriately and with the trust’s goals in mind. But a trust protector can also provide significant support for a trustee as well. The trust protector can help the trustee notice and avoid potential pitfalls and make decisions in line with the goals of the trust. The trust protector can also help the trustee proactively address changes in estate law or tax law that affect the trust, so that your family can receive the best possible outcome.
If it becomes necessary to remove a trustee, the trust documents can give the trust protector the power to do so. Then, the beneficiaries are spared the need to go to court and ask for a removal, saving time and money, while reducing or eliminating emotional stress.

Easier resolution of disputes over time.

Your trust protector can also potentially resolve a wide range of disputes. For instance, you can specify that your trust protector will act as mediator in disputes between co-trustees, between a trustee and a beneficiary, or between the beneficiaries. By giving your trust protector the “final say” in these disputes, you can help avoid the expense, hassle, and uncertainty of litigation. Simply giving your trust protector the ability to decide them can shorten some disputes even further. For example, beneficiaries do not need to spend time and effort arguing that a trustee should be removed if the trust protector provides oversight and has the power to remove a trustee.

In addition, you may choose to give your trust protector the power to sue or to defend lawsuits that involve the trust assets. By doing so, you help ensure that someone who understands your goals and intentions as they relate to the trust is present during the case to advocate on behalf of those goals and to center them in pursuit of the lawsuit’s resolution.

An option for lower long-term costs when compared to judicial modification or settlement.

Taking a trust to court to have it modified or to settle a dispute can impose prohibitive costs on the trust and its beneficiaries. Out of court dispute resolution options, like mediation or arbitration, can also be costly. By equipping your trust protector to resolve disputes, you provide an option that is often less expensive than alternative dispute resolution or mediation – allowing your trust to reserve more assets for their intended purpose while still retaining the flexibility to update and modernize the trust when needed. 

Adding a Trust Protector to Your Estate Plan: Summing It All Up

Whether you are thinking of creating a trust, or you have already established one, consider adding a trust protector to increase flexibility, security, and peace of mind. Remember: you control how much power the trust protector has. You decide who the trust protector is, and you can even include provisions in the trust for naming successor trust protectors or for removing or replacing the trust protector for times you can’t.

Call us today to discuss adding a trust protector to your estate plan. We are ready to help.

This newsletter is for informational purposes only and is not intended to be construed as written advice about a Federal tax matter. Readers should consult with their own professional advisors to evaluate or pursue tax, accounting, financial, or legal planning strategies.

Bloomington’s Favorite Law Office
The Like Law Group was recently voted Bloomington’s Favorite Law Office by the readers of the Herald-Times newspaper. From all of us at the office we are honored that so many of our clients as well as other professional advisors took the time to vote. We will continue to strive to be worthy of your future votes as well. Thank you! A link to the entire Readers’ Choice Awards can be found here:
2016 Readers Choice

Now, on to this month’s article –

When Circumstances Change, So Should Your Estate Plan
Your estate plan was written to reflect your situation at a specific point in time – and – as we all know – our lives continually change, unfolding in ways we might not have anticipated. Just like you meet with your doctor, financial advisor, or CPA on a regular basis, you need to meet with us on a regular basis as well.
In this issue, we:

• Identify and provide examples of life changes which typically trigger a need to update your plan
• Examine how often you should “check in” with our office

The goal? To make sure that your estate plan achieves your goals and works for your family.

Update Your Estate Plan if Any of These 7 Circumstances Apply to You
1. Marriage, divorce, or death of a spouse
2. Changes in financial status – good or bad
3. The launch or wind down of a business
4. Birth, adoption, or death of a child or grandchild
5. Change in personal or family circumstances – including the need to replace trustees, address disabilities or addictions, moving to a new state, and more
6. Change in your goals – such as changing amounts of inheritances, adding or removing a charity,
7. Change in who you would want as your proxy health care decision maker, financial decision maker, guardian for your children, or executor of your estate; and more

It’s not just changes in your life you need to think about – Congress, the courts, and the legislatures are constantly changing the rulebook. If you haven’t had your will, trust, or estate plan reviewed since 2012 or if any of these 7 circumstances apply to you, it is essential to contact us, so we can get you back on track.

Examples of When You Should Update Your Trust

To illustrate when a revocable trust should be updated, let’s take a look at the Thomas family: Jim and Carol have been married for 28 years and have three grown children. Several years ago, they created a trust to provide for themselves and their children.

However, since that time, their family has gone through many changes – some good and some not so good. Jim and Carol are considering updating their estate plan to reflect changes in their family’s circumstances. Here’s a look at their circumstances and how they may affect their estate plan:

• Divorce. Their eldest son has filed for a divorce from his wife. Jim and Carol need to update their revocable trust to exclude the soon to be ex-wife as an intended beneficiary.

• Changes in financial status. Carol’s aunt passed away and left her a great deal of money. Jim and Carol need to determine how this inheritance will affect their current plan and future estate tax liability.

• Birth. Their youngest child recently announced that she and her husband are expecting their first child. Jim and Carol need to update their trust in order to provide for the child.

• Changes in personal circumstances. Their middle son was recently diagnosed with a severe disability and can no longer work. He is eligible for government disability benefits, but receiving traditional trust income would disqualify him. Jim and Carol need to convert their son’s current trust into a special needs trust so the government does not consider that income for qualification purposes.

• Changes in tax law / venue. Jim and Carol moved from Chicago to Bloomington to get away from the large city. Since their estate plan will now be subject to Indiana (rather than Illinois) law, it’s time to determine if Indiana law might provide them with additional benefits and their estate plan needs to be updated to reflect the law of the current state of residence.

How Often Should You “Check In” On Your Estate Plan?

It is a certainty that your life will change. All manner of life and financial changes make it necessary to “check in” on your estate plan.

We can help you to manage your plan. If it’s been 3 to 5 years – or – you have experienced significant life change since you signed your estate planning documents, call our office now. We’ll help you determine whether your estate plan needs to be updated. Life moves fast and procrastination can harm you and your loved ones. We welcome your call now.

This newsletter is for informational purposes only and is not intended to be construed as written advice about a Federal tax matter. Readers should consult with their own professional advisors to evaluate or pursue tax, accounting, financial, or legal planning strategies.

Lance D. Like is a Certified Specialist in Estate Planning & Administration. He is the founder of the Like Law Group LLC, a Bloomington, Indiana law firm. Practice areas include estate and Medicaid planning, elder law, probate, trust administration, and business planning.

It’s counterintuitive, we know: irrevocable trusts are revocable (and amendable). Unfortunately, irrevocability is a malicious myth. The uninformed could spend years relying on an old, out-of-date trust that could be updated and improved without too much effort. Yes, the so-called “irrevocable trusts” absolutely can be, and, often, should be, modified.

In this issue, we’ll identify:

● 10 reasons you may want to modify your irrevocable trust
● 5 ways to modify your irrevocable trust
● 3 circumstances when trust modification should be considered
● When to contact our office to have your trust reviewed for potential modification
10 Reasons You May Want to Modify Your Irrevocable Trust

You may modify “irrevocable” trusts to:

1. Add or remove a trust protector or advisor
2. Add or remove beneficiaries
3. Adjust or remove a power of appointment
4. Change the trustee, the provisions governing the trustee, and/or the trustee’s powers
5. Minimize income taxes or estate taxes
6. Modify distribution terms or patterns
7. Transfer the trust to a new jurisdiction
8. Obtain a step-up in basis and save taxes
9. Qualify a beneficiary for government benefits
10. React to changes in the trust’s governing law

ALERT: You don’t have to “make do” with an out-of-date trust or assume you can’t make modifications. Chances are you can.

Planning Tip: If you’re unsure whether your irrevocable trust can be modified – or whether the current version does what it was intended to do – call our office. A simple conversation and a review of the trust document is all it takes to ensure you’re maximizing your trust’s benefits.

5 Ways to Modify Your Irrevocable Trust
There are generally five ways to modify an irrevocable trust:

1. Judicial Reformation. We ask a judge to restate the trust to match the trustmaker’s intent. WARNING: Not all states allow judicial reformation.

2. Conversion (Judicial or Non Judicial). The criteria for payment of income from irrevocable trusts can vary widely. For example, some irrevocable trusts require the payment of income to trust beneficiaries, whereas others instead allow (but do not require) payment of income. In a conversion, we invoke trust provisions or state law to convert the existing type of trust into another that’s more appropriate for current circumstances.

3. Modification (Judicial or Non Judicial). We change the terms of the trust by agreement or by court order to meet the trustmaker’s tax-saving objectives and intent – or – we show an unforeseen change of circumstance that would frustrate the trustmaker’s intent.

4. Invoke the Trust Protector or Advisor. We invoke the trust protector or advisor’s authority to act. The trust protector or advisor has authority to modify the trust within certain parameters – without going to court.

5. Decant the Trust. We take the funds from an existing trust and transfer them into a new trust with more favorable terms. This is sometimes referred to as a “do-over” trust. WARNING: Not every state allows for decanting.

ALERT: You don’t have to figure out the best way to get more favorable trust terms. We can help you. No more muddling through with an out-of-date trust.

Planning Tip: Sometimes, we can combine several of these methods together to accomplish what might otherwise seem impossible. A simple conversation and a review of your existing irrevocable trust is all it takes to make sure you’re maximizing your trust’s benefits.

3 Instances When Trust Modification Might Be Appropriate
Life changes as it unfolds. Here are three common circumstances when modifying an irrevocable trust could be appropriate:

1. Tax Law Is No Longer Relevant. Irrevocable trusts are often created to save paying federal estate taxes in relation to a specific tax law. When that tax law is revised or ceases to exist, the trust should be modified or terminated.

2. Family Circumstances Change. Irrevocable trusts are often created to provide for family members. However, when family circumstances change due to a birth, death, or anything else, it’s important to modify the trust to reflect those changes.

3. Errors Are Discovered. Most attorneys are diligent when it comes to creating irrevocable trusts and we always try to bat 1000. However, even a small mistake can have legal consequences. For example, Bill gets translated as Will or the trust property at 21161 Main Street gets translated as 21611 Main Street. When errors are discovered, the trust should be modified as soon as possible to reflect the trustmaker’s true intent – and protect the beneficiaries.

When to Contact Our Office About Your Irrevocable Trust
If you have an irrevocable trust, which may have become irrelevant due to changes in the law or changes in circumstances, call our office. We’ll help you by determining whether your trust can and should be modified, as well as the best way to achieve your goals.

Although it’s counter-intuitive, irrevocable trusts are actually revocable and amendable. Don’t fall prey to malicious myths or muddle through with an old, outdated trust when you can turn that musty old trust into a new trust that fixes problems, corrects errors, and more closely addresses the trustmaker’s intent. Call our office now to review your trust to see if a modification is in order.

This newsletter is for informational purposes only and is not intended to be construed as written advice about a Federal tax matter. Readers should consult with their own professional advisors to evaluate or pursue tax, accounting, financial, or legal planning strategies.