Estate Planning

A will or trust contest can derail your final wishes, rapidly deplete your estate, and tear your loved ones apart. But with proper planning, you can help your family avoid a potentially disastrous will or trust contest.
 
If you are concerned about challenges to your estate plan, consider the following:

1. Let family members know about your estate plan. When it comes to estate planning, secrecy breeds contempt. While it is not necessary to let your family members know all of the intimate details of your estate plan, you should let them know that you have taken the time to create a plan that spells out your final wishes and who they should contact if you become incapacitated or die.
2. Use discretionary trusts for problem beneficiaries. You may feel that you have to completely disinherit a beneficiary because of concerns that a potential beneficiary will squander their inheritance or use it in a manner that is against your beliefs. However, there are other options than completely disinheriting someone. For example, you can require that the problem beneficiary’s share be held in a lifetime discretionary trust and name a third party, such as a bank or trust company, as trustee. This will insure that the beneficiary will only be entitled to receive trust distributions under terms and conditions you have dictated. You will also be able to control who will inherit the balance of the trust if the beneficiary dies before the funds are completely distributed.
3. Keep your estate plan up to date. Estate planning is not a one-time transaction – it is an ongoing process. Therefore, as your circumstances change, you should update your estate plan. An up to date estate plan shows that you have taken the time to review and revise your plan as your family and financial situations change. This, in turn, will discourage challenges since your plan will encompass your current estate planning goals.

By following these four tips, your heirs will be less likely to challenge your estate planning decisions and will be more inclined to fulfill your final wishes. If you are concerned about heirs contesting your will or trust, you should seek the professional advice now.

• Studies have shown that 70% of family wealth is lost by the end of the second generation and 90% by the end of the third.
• Help your loved ones avoid becoming one of these statistics. You need to educate and update your heirs about your wealth transfer goals and the plan you have put in place to achieve these goals.

What Must You Communicate to Future Generations to Facilitate Transfer of Your Wealth?

1. Net worth statement, or at the very minimum a broad overview of your wealth
2. Final wishes – burial or cremation, memorial services
3. Estate planning documents that have been created and what purpose they serve:
4. Who will be in charge if you become incapacitated or die – agent named in your Durable Power of Attorney and Health Care Directive; successor trustee of your Revocable Living Trust and other trusts you’ve created; personal representative named in your will
5. Benefits of lifetime discretionary trusts created for your heirs
6. Overall goals and intentions for inheritance – what the money is, and is not, to be used for (in other words, education vs. charitable work vs. vacations vs. Ferraris vs. business opportunities vs. retirement), and who will be trustee of lifetime discretionary trusts created for your heirs and why you’ve selected them
7. Where important documents are located – this should include how to access your “digital” assets
8. Who your key advisors are and how to contact them

How Can Your Professional Advisors Help You Communicate Your Wealth Transfer Goals?

• Your professional advisors are well-positioned to help you discover your wealth priorities, goals, and objectives and then communicate this information to your heirs. This, in turn, will prepare your heirs to receive your wealth instead of being left to figure it out on their own and, as statistics have shown, lose it all.
• We are available to assist you with figuring out your wealth transfer goals, putting a plan in place to achieve these goals, and effectively communicating this information to your loved ones.

As a result of a 2010 tax law, a surviving spouse can receive his or her deceased spouse’s unused estate tax exemption. This is called a “portability” election. You may have seen it called the “deceased spousal exclusion amount” or “DSUE amount.”
 
In essence, a portability election allows a surviving spouse to apply the DSUE amount to his or her own taxable transfers during life and after death. Using the portability election can save a significant amount of estate tax and income tax, depending on your circumstances and assets.
 
Portability under the 2010 law was originally only a temporary option, available for estates of people dying during 2011 and 2012. But as a result of a 2012 tax law, the portability election became “permanent.” But, as you’ll see below, this change and other legal developments have created a great deal of confusion about portability.
 
In summary, a portability election is available for estates of people who died after January 1, 2011, and who left surviving spouses. Making a portability election can save you a significant amount of estate tax and income tax, depending on your circumstances and assets.
 
When and How is the Portability Election Made?
 
In order to make an effective portability election, the executor of the estate of the deceased spouse must timely file an estate tax return (Form 706) and include a computation of the DSUE amount. The due date for Form 706 is the later of (i) 9 months after the deceased person’s date of death, or (ii) the last day of the period covered by an extension if an extension of time for filing has been obtained. Extensions are typically six months. So you usually have, at most, 15 months after a spouse dies to file an estate tax return.
 
The portability election is not automatic. Instead, the executor of the estate of the deceased spouse must timely file a federal estate tax return to affirmatively make a portability election.
 
Decision in Windsor v. United States Adds Confusion to Timely Filing a Portability Election
 
On June 26, 2013, the United States Supreme Court handed down its landmark decision in Windsor v. United States. In the Windsor case, the Court held that Section 3 of the Defense of Marriage Act (“DOMA”), which states that “the word ‘marriage’ means only a legal union between one man and one woman as husband and wife, and the word ‘spouse’ refers only to a person of the opposite sex who is a husband or a wife” is unconstitutional.
 
In response to the Windsor decision, Treasury and the IRS issued a ruling in August 2013 which stated that same sex couples will be treated as married for all federal tax purposes, including income and gift and estate taxes. This ruling gave the surviving spouse of a same sex marriage the right to make the portability election.
 
Special Portability Rules for Deaths Occurring Between January 1, 2011 and December 31, 2013
 
The confusion surrounding the status of federal estate taxes and portability at the end of 2012 coupled with the Windsor decision and related IRS ruling in the summer of 2013 prompted the IRS to issue Rev. Proc. 2014-18 in early 2014.
 
Under Rev. Proc. 2014-18, the executors of the estates of certain decedents may make a late federal estate tax portability election by filing Form 706 on or before December 31, 2014.
 
To qualify for making a late portability election, the estate must meet the following criteria:
 
1. The deceased person must:
(a) Have left a surviving spouse; and
(b) Died after December 31, 2010, and on or before December 31, 2013; and
(c) Been a citizen or resident of the United States on the date of death.
 
2. The estate was not otherwise required to file a federal estate tax return (as determined based on the value of the gross estate and adjusted taxable gifts); and
 
3. The estate, in fact, did not file a federal estate tax return in order to elect portability; and
 
4. A person permitted to make the election on behalf of a decedent (usually the executor) files a completed and properly-prepared federal estate tax return on or before December 31, 2014; and
 
5. The person filing the federal estate tax return on behalf of the decedent’s estate must state at the top of the return that it is being “FILED PURSUANT TO REV. PROC. 2014-18 TO ELECT PORTABILITY UNDER § 2010(c)(5)(A).”
 
What this means for you is that you may be able to file an estate tax return to elect portability, even if it’s outside the normal 9 month window. But, time is running out. A properly made portability election can save hundreds of thousands of dollars of estate and income taxes, depending on your circumstances. So you should contact us today if you think an estate tax return with portability will help you.

With the end of 2014 fast approaching, now is the time to take a look at your year-to-date retirement plan contributions to see where yours stand when compared with the 2014 contribution limits.
 
Summary of 2014 Retirement Plan Contributions Limits
 
Depending on how much you’ve already contributed, you may be able to contribute more to your retirement plan for 2014.
 
To help you determine whether you need to make some additional contributions, here is a summary of the 2014 retirement plan contributions limits. Please remember that some types of accounts require contributions before December 31, whereas other types of accounts allow contributions up to the April deadline for filing your tax return. Contact us now so we can offer you specific guidance about your account.

• The contribution limit for employees under age 50 who participate in a deferred contribution plan (401(k), 403(b), most 457 plans, or the federal government’s Thrift Savings Plan) is $17,500. These plans generally require contributions to be made on or before December 31.
• The contribution limit for employees age 50 and over who participate in a deferred contribution plan (401(k), 403(b), most 457 plans, or the federal government’s Thrift Savings Plan) is $23,000. These plans generally require contributions to be made on or before December 31.
• The contribution limit for employees under age 50 who participate in a Savings Incentive Match Plan for Employees of Small Employers (known as a SIMPLE plan) is $12,000. These plans generally require “employee” contributions to be made on or before December 31 and permit “employer” contributions to be made up to the filing deadline of your tax return on April 15.
• The contribution limit for employees age 50 and over who participate in a Savings Incentive Match Plan for Employees of Small Employers (known as a SIMPLE plan) is $14,500. These plans generally require “employee” contributions to be made before December 31 and permit “employer” contributions to be made up to the filing deadline of your tax return on April 15.
• The contribution limit for a Simplified Employee Pension Individual Retirement Account (i.e., SEP IRA) or Solo 401(k) is the lesser of (a) $52,000, or (b) 25% of the employee’s salary, and the compensation limit used in the savings calculation is $260,000. These plans generally permit contributions up to the filing deadline of your tax return on April 15.
• The contribution limit for individuals under age 50 to a traditional or Roth Individual Retirement Account (IRA) is $5,500. These plans generally permit contributions up to the filing deadline of your tax return on April 15.
• The contribution limit for individuals age 50 and over to a traditional or Roth Individual Retirement Account (IRA) is $6,500. These plans generally permit contributions up to the filing deadline of your tax return on April 15.
• While contributions to IRAs that apply to the 2014 tax year can be made up until April 15, 2015, the time is now to make contributions so that you can maximize your earnings inside the account.
• Before you make any contributions to a Roth IRA, make sure you’re not subject to the adjusted gross income (AGI) phase-out. If your income is greater than AGI phase-out amount for your filing status, then you’re not eligible to make contributions to a Roth IRA. The AGI phase-out amounts for taxpayers making contributions to a Roth IRA is $181,000 to $191,000 for married taxpayers filing jointly; $114,000 to $129,000 for single taxpayers and head of household taxpayers; and for a married taxpayer filing a separate return, the phase-out is not subject to an annual cost-of-living adjustment and is therefore $0 to $10,000. We can help you determine which phase-out, if any, applies to your situation.

With the end of the year fast approaching, now is the time to fine tune your estate plan. One area of planning that many people overlook is making sure their disability planning is up to date.
 
Three Areas of Your Disability Plan That May be Out of Date

• Are your health care directives compliant with HIPAA? While the federal Health Insurance Portability and Accountability Act (known as “HIPAA” for short) was enacted in 1996, the rules governing it were not effective until April 14, 2003. Thus, if your estate plan was created before then and you have not updated it since, then you will definitely need to sign new health care directives (Medical Power of Attorney and a Living Will) so that they are in compliance with the HIPAA rules. It is also possible that health care directives signed in later years lack HIPAA language, so check with your estate planning attorney just to make sure that your estate plan documents reference and take into consideration the HIPAA rules.
• Is your Power of Attorney stale? How old is your Power of Attorney? Banks and other financial institutions are often wary of accepting Powers of Attorney that are more than a couple of years old. This means that if you become incapacitated, your agent could have to jump through hoops to get your stale Power of Attorney honored, if it can be done at all. This could cost your family valuable time and money. If you want to increase the likelihood that your Power of Attorney will work without any hitches if you lose your mental capacity, update and redo your Power of Attorney every few years so that it doesn’t end up becoming a stale and useless piece of paper.
• Does your estate plan adequately address mental disability? A will is something that only becomes effective when you die. With today’s longer life expectancies come increased probabilities that you will be mentally incapacitated before you die. A fully funded Revocable Living Trust is the best way to provide adequately for mental incapacity, but some older trusts do not. If you signed your Revocable Living Trust more than 8 to 10 years ago and haven’t updated it since or have assets that are outside your Revocable Living Trust, then it may well lack modern and appropriate provisions for what to do with you and your property if you become mentally incapacitated. Have your estate plan checked to ensure that it will work effectively and efficiently if you lose your mental capacity. Otherwise you and your loved ones may end up in front of a judge who will have to sort out your financial matters – at horrendous cost.

What Should You Do?

• Estate planning is about much more than having a plan for who gets your property after you die – it should also include having a plan for what happens in case you lose your mental capacity. If your plan is more than a few years old or does not include a fully funded Revocable Living Trust, then chances are it lacks a good mental disability plan. Now is the time to meet with an experienced estate planning attorney to ensure that you have a mental disability plan that will work the way you expect it to work if it’s ever needed.

With the end of the year fast approaching, now is the time to fine tune your estate plan. One area of planning that many people overlook is ensuring that their final wishes remain private.
 
Will Your Final Wishes Become a Public Court Record?

• Planning for what happens if you become mentally incapacitated or die is an extremely personal matter. It deals with all of the intimate details of your life.
• Because of attorney-client privilege, no one can see your estate planning documents unless you give them permission. But this is only true while you are living. After you die and your will is filed for probate, it becomes a public court record that anyone can read (recent celebrity examples include actors James Gandolfini and Philip Seymour Hoffman).
• What happens if you don’t have any estate plan at all? NFL quarterback Steve McNair’s public probate court proceedings are a prime example of how the public can learn the dirty little secrets about a deceased person – two illegitimate children and possibly others, multiple girlfriends – and all about the deceased person’s property and its value – cash, investments, businesses, and multiple homes valued near $20 million. If you don’t have a personalized estate plan, your family could be stuck with the state’s default plan. That is why I strongly advise you to meet with an experienced estate planning attorney now to ensure that it doesn’t happen to your family.

What Can You Do to Keep Your Estate Plan Private?

• If privacy and discretion are important to you, make sure your estate planning attorney is aware of it, so that these goals can be incorporated into your estate plan.