Annapolis, Maryland Wills, Trusts & Estate Planning

Do My Debts Die with Me? – Annapolis Estate Planning

If you’ve amassed a multitude of debts, don’t expect them to vanish when you die. Your executor will have to deal with them and your heirs could even get stuck with them.

Your debts won’t be your problem when you pass—but they are likely to become your children’s problems. For starters, your executor will have to pay the debts using assets from your estate, if there are any. If you’ve asked someone to co-sign a loan, they’re responsible for the entire amount. That’s not much of a legacy to leave behind.

Reader’s Digest’s recent article, “This Is What Happens to Your Debt When You Die,” explains that not all debt is created equal. With secured debt, like a mortgage or car loans, your estate can either pay off your debts in full or continue making installment payments. Another option is to sell the property or turn it over to the lender to satisfy the debt.

However, any unsecured debt, such as credit cards, bills, or personal loans, is typically just paid from the estate. The estate is everything you own, such as assets, bank accounts, real estate and other property.

Note that student loans are the exception, but there are some caveats. Most federal student loans, along with private loans without a cosigner, are discharged with proof of death. Thus, your heirs won’t be responsible for those loans. However, if your private student loan was cosigned, that person will be required to pay it off. There are also some loans, like PLUS loans, that while technically forgiven, could leave the parent who took it out with higher taxes.

The way to protect both yourself and your family is to speak with an experienced estate planning attorney to get your affairs in order.

Creating an action plan for your outstanding debt is a critical component of the estate planning process. You also need to ask about other end-of-life plans, like medical directives, wills and trusts to manage your assets when you pass away.

You should also review your life insurance policy to make certain that it’s up-to-date and don’t forget to review your named beneficiaries.

At the very least, check your beneficiaries on assets that you own. If this is done properly, it might let your heirs receive assets directly without needing to go through probate. The assets will also be protected from creditors.

Reference: Reader’s Digest “This Is What Happens to Your Debt When You Die”

Holden & Campbell, LLC – Annapolis Estate Planning Attorneys

What If I Don’t Want to Give My Kids the Same Inheritance? – Annapolis Estate Planning

One of the challenges of asset distribution comes when your children’s lives have taken different turns. Do you leave your successful daughter the same amount of money that you would leave to a son who can’t seem to find a direction? It’s not always easy, but decisions do need to be made.

The discussion of how to decide which child gets what is not always as simple as an even split. Equal is not always fair. For families with children whose adult lives are in different places, it’s a challenge that needs to be thought through with kindness and consideration of the future impact of your decision.

What and how you leave your wealth can be a hard decision if you have more than one child. This is particularly true if your kids’ circumstances are dramatically different or you’re much closer to one than another. The easiest solution might be to split whatever you have equally among them. However, is equal the same thing as fair?

Ladders.com’s recent article, “More parents are leaving unequal inheritances to their adult kids” says that a growing number of parents say that answer is a resounding “no.”

According to a new study from Merrill Lynch Bank of America/Age Wave, responding parents with more than one child who are planning to leave an inheritance are okay leaving different sums to each child based on the situation. In fact, the research showed that 67% of Americans think that under certain circumstances, an uneven split is just fine.

Other studies have shown the same trend. A 2015 study by IZA Institute for Labor Economics, based on data from a large government study, found that among Americans at least 50 years old who had a will, the percentage who left unequal inheritances to their children had more than doubled from 16% in 1995 to 35% in 2010. However, an unequal division can generate ugly sibling fights, jealousy and meltdowns.

An Ameriprise survey found that among siblings who fought about money as adults, 70% of the fights involved issues with parents, like how the inheritance gets divided. If you go with unequal inheritances, you need to manage expectations so you don’t have one sibling blaming another or you.

There are many reasons why parents consider another option. In the Merrill Lynch Bank of America/Age Wave study, nearly one in four of respondents said a child who has children of her own deserves more money than a child who doesn’t have kids. About 66% said that a child who steps in as primary caregiver for an aging parent deserves to inherit more than other siblings. A total of 40% of participants with blended families say they should treat stepchildren the same as biological or adopted children.

Because of the potential different circumstances of each child, you may want to give one child the money outright and with the other, you may want to put it in a trust. The reason for doing this is to protect the child, not to punish them. If a child struggles with addiction or overspending, a trust makes certain that she has access to the money, but the trustee has control over its disbursement. In some cases, parents may also be concerned that a child’s marriage may be in trouble or feel uneasy about their son- or daughter-in-law.

A family meeting with your estate planning attorney might be a good way to discuss your decision to distribute your assets differently among your children. The presence of a non-family member might facilitate a different kind of conversation. While every family is different, completely avoiding the topic and leaving it for the survivors to grapple with could create more family discord.

Another strategy is to create a trust for each child or for all of them and appoint a trustee with highly specific directions as to when and how the assets are distributed.

Reference: Ladders.com (March 25, 2019) “More parents are leaving unequal inheritances to their adult kids”

Holden & Campbell, LLC – Annapolis Estate Planning Attorneys

What Purpose Does a Revocable Trust Serve In My Estate Plan? – Annapolis Estate Planning

The foundation of your estate plan is a will, also known as a last will and testament. Depending upon your situation, your estate planning attorney may recommend additional documents, including trusts.

The first part of your estate plan is the creation of a will to provide clear instructions of how your property should be distributed after you pass. The will is also used to name a guardian for minor children if your family is still young. The concept that many people don’t understand is that without a will, these and other decisions will be made for you according to the laws in your state. It’s far better to make these decisions for your family yourself.

If your estate is simple, your estate plan will be straightforward and simple. If you have a large amount of assets, children from different marriages, or own a business, your estate will draw on different strategies used by the estate planning attorney. Among them may be a revocable trust.

Forbes’ recent article, “Revocable Trusts And Why Should You Consider One,” explains that a revocable trust, also called a “living trust” or an inter vivos trust, is created during your lifetime. On the other hand, a “testamentary trust” is created at death through a will. A revocable trust, like a will, details dispositive provisions upon death, successor and co-trustees, and other instructions. Upon the grantor’s passing, the revocable trust functions in a similar manner to a will.

A revocable trust is a flexible vehicle with few restrictions during your lifetime. You usually designate yourself as the trustee and maintain control over the trust’s assets. You can move assets into or out of the trust by retitling them. This movement has no income or estate tax consequences, nor is it a problem to distribute income or assets from the trust to fund your current lifestyle.

A living trust has some advantages over having your entire estate flow through probate. The primary advantages of having the majority of your assets avoid probate is the ease of asset transfer and the lower costs. Another advantage of a trust is privacy because a probated will is a public document that anyone can view.

Even with a revocable trust, you still need a will. A “pour over will” controls the decedent’s assets that haven’t been titled to the revocable trust, intentionally or by oversight. These assets may include personal property. This pour-over will generally names the revocable trust—which at death becomes irrevocable—as the beneficiary.

Another reason for creating a revocable trust is the possibility of future diminished legal capacity, when it may be better for another person, like a spouse or child, to help with your financial affairs. A co-trustee can pay bills and otherwise control the trust’s assets. This can also give you financial protection by obviating the need for a court-ordered guardianship.

There are many different strategies available to protect your family and your property. Consult with an experienced estate planning attorney in your state to ensure that your estate plan follows the proper formats and procedures. The attorney will be able to help you clarify your goals and make sure that your plan puts them into action when you pass.

Reference: Forbes (March 11, 2019) “Revocable Trusts And Why Should You Consider One”

Holden & Campbell, LLC – Annapolis Estate Planning

How Trusts Work in Estate Planning for Regular People – Annapolis Estate Planning

You’ve heard the expression “trust fund babies.” However, trusts are not just for the wealthy. They have a number of uses in estate planning and can be helpful at any asset level.

The reality of our own mortality keeps some of us up at night. For others, it’s a disturbing thought that is easily brushed aside. Whichever group you belong to, you need to have an estate plan in place. This is the only way that you can have any say in how your assets are distributed after you pass. Without an estate plan, your family will be subjected to much more stress and financial strain. One part of an estate plan is a trust.

Barron’s recent article, “Why a Trust Is a Great Estate-Planning Tool — Even if You’re Not Rich,” explains that there are many types of trusts, but the most frequently used for these purposes is a revocable living trust. This trust allows you—the grantor—to specify exactly how your estate will be distributed to your beneficiaries when you die, and at the same time avoiding probate and stress for your loved ones.

When you speak with an estate planning attorney about setting up a trust, also ask about your will, healthcare derivatives, a living will and powers of attorney.

Your attorney will have to retitle your probatable assets to the trust. This includes brokerage accounts, real estate, jewelry, artwork, and other valuables. Your attorney can add a pour-over will to include any additional assets in the trust. Retirement accounts and insurance policies aren’t involved with probate, because a beneficiary is named.

While you’re still alive, you have control over the trust and can alter it any way you want. You can even revoke it altogether.

A revocable trust doesn’t require an additional tax return or other processing, except for updating it for a major life event or change in your circumstances. The downside is because the trust is part of your estate, it doesn’t give much in terms of tax benefits or asset protection. If that was your focus, you’d use an irrevocable trust. However, once you set up such a trust it can be difficult to change or cancel. The other benefits of a revocable trust are clarity and control— you get to detail exactly how your assets should be distributed. This can help protect the long-term financial interests of your family and avoid unnecessary conflict.

If you have younger children, a trust can also instruct the trustee on the ages and conditions under which they receive all or part of their inheritance. In second marriages and blended families, a trust removes some of the confusion about which assets should go to a surviving spouse versus the children or grandchildren from a previous marriage.

Whether you own five houses or one, drive a late-model car or an old clunker, you need an estate plan. Because estate plans have long-range consequences, the best way to go is to sit down with an estate planning attorney and receive good guidance for your legal, tax and financial situation.

Reference: Barron’s (February 23, 2019) “Why a Trust Is a Great Estate-Planning Tool — Even if You’re Not Rich”

Holden & Campbell, LLC – Annapolis Estate Planning

Move to Nevada or Anywhere Else? Review Your Estate Documents Soon – Annapolis Estate Planning

Did you know that most estate laws are governed by state law, and not federal? That’s why any kind of relocation to another state, for retirement or a new job, should have you finding an estate planning attorney and making an appointment soon after you move.

If you’ve moved to a new state, an estate planning attorney will need to review your estate plan and your will to be sure that the documents follow the laws of your new home state.

The Nevada Appeal’s recent article, “Change to estate planning documents if you moved,” also notes that as long as you're working with the attorney, it would be a wise move to also have her prepare a power of attorney for medical decisions and the power of attorney for financial matters to be in compliance with Nevada law.

Making those changes can avoid a lot of time, trouble and confusion in the future for you and your family.

Another thing to consider while you're making those changes, is to be certain the documents show your current goals and desires. If you want to make a change in trustees and/or executors, now is a good time to do that.

Remember that serving as trustee and/or executor isn't an easy task. It may be possible that one of your children or a close relative is no longer the best choice at this point in time. Whoever is selected to do that work, will probably work with your CPA and your estate planning attorney. Therefore, it might be a good idea for you and the person you name to meet and go over all your goals and wishes.

In addition, many people leave an additional letter of instructions for other items like funeral services and burial or cremation instructions. You can keep the letter with your trust and will. However, you also should discuss it and make sure to tell your family members where it's located.

If you have a safe deposit box, you might tell your executor or trustee where the key to the box is kept. You may want to keep that key with your important documents. Discuss giving your executor or trustee access to the safe deposit box; you’ll need to visit the bank branch to ensure that authorization to access the safe deposit box is taken care of.

If you’ve acquired special items such as antiques, valuable jewelry, or collections, you may draft a list of possible appraisers and information about those special items. Another good idea is to take some photographs of the items that need special valuation or handling.

Some people prefer to make gifts, especially of items with great sentimental value, while they are still living. This way they can be sure the right person receives their gift, and if that person doesn’t really want the gift, it can be given to someone else.

Reference: Nevada Appeal (February 22, 2019) “Change to estate planning documents if you moved”

Holden & Campbell, LLC – Annapolis Estate Planning

What’s Hot In Estate Planning? The ING Trust – Annapolis Estate Planning

The ING trust is used to generate tax savings in a number of ways. For the right person, they are a trend worth looking into. Are they right for you?

The expanded transfer tax exemptions created by the 2017 tax reform legislation will end in 2026. However, in the meantime, the increased exemptions have led many high-net worth individuals and couples to review their existing estate plans. The ING trust has now become a valuable tool and could easily become the biggest trend in 2019 estate planning.

Think Advisor’s recent article, “ING Trusts: The Hot Trend in HNW Estate Planning,” explains that because of the changes from the tax reform, ING trusts have taken on new significance. ING trusts can generate significant savings, both in income taxes and in overall transfer (gift, GST and estate) taxes. This means that it can be a good idea to look into an ING trust.

An ING trust is an intentionally non-grantor trust (or an irrevocable non-grantor trust) that’s primarily aimed to generate income tax savings. However, it can also have value in estate planning, because of the temporary nature of the greater estate tax exemption. The ING trust strategy has an “adverse party”—or a group of adverse parties—who control trust distributions to beneficiaries. Adverse parties can include adult children, although a committee format is generally recommended in order to provide additional evidence that the IRS will regard the trust as a non-grantor trust.

In many states, ING trusts are either subject to reduced income tax rates or are not subject to state income tax at all. Gifts to the trust can be either incomplete, allowing the trust creator to retain a degree of control over the assets and avoid gift taxes, or complete. That means that the transfer would create a deduction from the client’s lifetime transfer tax exemption amount.

Both the proposed and final Section 199A regs throw a wrench in many non-grantor trust strategies by adding a new provision that requires aggregation of two or more trusts in certain situations. The aggregation rules apply in the Section 199A context and beyond. Therefore, they’re also relevant for those planning to use ING trusts to avoid the SALT (state and local tax deduction) cap.

Aggregation is generally required if the trusts have substantially the same grantor or grantors and substantially the same beneficiary or beneficiaries, if the principal purpose of forming the trust or contributing additional assets to the trust is to avoid income tax. Therefore, for income tax planning purposes, ING trusts will be most valuable to those who have multiple natural beneficiaries who can each serve as beneficiary of one trust, or for individuals who can justifiably point to a significant non-tax reason for the trust formation. Significant non-tax reasons that would promote the likelihood of the IRS respecting the separate ING trusts often include aggregation of ownership within the family, savings generated by centralized asset management, avoidance of repetitive asset transfers within the family, asset protection or to relieve a transferring family member of asset management burdens.

The ING trust is complicated and there are significant implications for other parts of an estate plan. For that reason, you’ll want to speak with an experienced estate planning attorney to be sure that the ING does not have a negative impact on the overall estate plan.

Reference: Think Advisor (February 13, 2019) “ING Trusts: The Hot Trend in HNW Estate Planning”

Holden & Campbell, LLC – Annapolis Estate Planning

How is My Estate Plan Impacted by the New Tax Law? - Annapolis Estate Planning

It is possible that certain strategies or language in your estate plan may no longer work, or may have unintended consequences, if it was created before the Tax Cuts and Jobs Act was signed into law in December 2017.

Anytime there is a major change in your life or in the law, it is wise to learn if your estate plan needs to be updated. This is particularly true if your estate plan has not been reviewed since the new tax law went into effect, according to this article, “Talk to estate attorney about impacts of Tax Cuts and Jobs Act,” from The Kansas City Star.

A big change in the tax law is the doubling of the federal estate tax exemption from $5.49 million per person in 2017 to $11.18 million per person in 2018 (or $22.36 million per couple). In 2019, the federal estate tax exemption is $11.4 million per person (or $22.8 million per couple).

You should review any wills or trusts drafted prior to the passing of the 2017 legislation. If the trusts use formulas tied to the federal estate tax exemption, then there could be unintended ramifications because of the new larger exemption amount.

You should also look at trusts drafted prior to 2011, when portability was introduced. This legislation allows for “portability” of the deceased spouse’s unused estate exemption. Therefore, the surviving spouse’s estate can now use any exemption amount that wasn’t used by the first deceased spouse’s estate.

The Tax Cuts and Jobs Act didn’t change the step-up of basis. However, the unintended effects of this “non-event” are potentially more significant now. When the decedent dies, the heir’s cost basis of many assets becomes the value of the asset on the date of their death. Thus, highly appreciated assets that avoided income taxes to the decedent, could also avoid or minimize income taxes to the heirs.

Maintaining the ability for assets to receive a step-up in basis is a more important part of estate planning now because of the larger federal estate tax exemption. However, note that beneficiaries who inherit assets from a bypass or credit shelter trust upon the surviving spouse’s death don’t benefit from a “second” step-up of basis. Instead, the basis of the heir’s inheritance would be the original basis on the first spouse’s death.

As a result, bypass trusts are much less useful than in the past and could have negative income tax impacts for heirs. This is particularly true if the assets appreciated significantly after the first spouse’s death or if there was a relatively long amount of time between spouses’ deaths. If your current trust establishes a bypass trust at your death, you might want to ask your estate attorney about restructuring how the bypass trust is funded for the larger federal estate tax exemption.

Many of the provisions in the new tax law expire in 2025, but unless you can be absolutely certain that you aren’t going to die before that date—something none of us can possibly know—make sure to have your estate plan reviewed in light of the new law.

Reference: The Kansas City Star (February 7, 2019) “Talk to estate attorney about impacts of Tax Cuts and Jobs Act”

Holden & Campbell, LLC – Annapolis Estate Planning

Why You Need a Gun Trust if You Own Guns - Annapolis Estate Planning

Gun owners, you may own guns to protect your family or because you admire the workmanship or history of firearms. However, without a gun trust, your heirs may face a surprising consequence.

Mistakes with inherited IRS accounts can become expensive, but the penalty is financial. Inherit a gun collection without the necessary permits and you could unwittingly commit a felony. Gun collectors need to prepare their heirs if they intend to pass on their firearms and they also need a gun trust.

Kiplinger’s recent article, “Own a Gun? Careful: You Might Need a Gun Trust,” explains that a gun trust is the common name for a revocable or irrevocable management trust that’s created to take title to firearms.

Revocable trusts are used more often because they can be changed during the lifetime of the grantor.

While it’s true that any legally owned weapon can be placed into a gun trust, these trusts are specifically used for weapons that are classified under the National Firearms Act (NFA) Title II of the Gun Control Act of 1968. These include Title II weapons, such as a fully automatic machine gun, a short-barreled shotgun and a suppressor (“silencer”).

Why is a gun trust an important component of an estate plan? When the grantor owns Title II weapons, the transport and transfer of ownership of such heavily regulated firearms can easily be a felony without the owner or heir even realizing he or she is breaking the law.

A gun trust provides for an orderly transfer of the weapons upon the death of the grantor to family members or other heirs. However, that transferee is required to submit to a background check and identification process before taking possession of the firearm.

An NFA Title II weapon, like a suppressor, can only be used by the person to whom it’s registered. Therefore, allowing a friend or family member to fire a few rounds with a Title II weapon at the local range is a felony. A gun trust can be used to allow for the use of the Title II weapon by multiple parties. Each party who will have access to and use of the weapon should be appointed as a co-trustee of the gun trust and must go through the same required background check and identification requirements.

An owner of a large collection of firearms may find it easier to transfer ownership of his or her weapons to a gun trust even if the person doesn’t own any Title II weapons. There are several benefits to doing this, such as protecting your privacy, allowing for the disposition of your collection and addressing the possibility of incapacity. A gun trust can also ease the process for your heirs. You don’t want to run afoul of the complex laws regarding the use and ownership of firearms, especially Title II firearms. Leaving a large collection of Title I weapons—or even a single Title II weapon—in an estate to be dealt with by an executor or trustee can be extremely troublesome. Fortunately, it’s avoidable with the use of a gun trust.

There are federal and state laws about ownership and how to transfer ownership of firearms, so you’ll need to work with an estate planning attorney who has experience with both.

Reference: Kiplinger (February 6, 2019) “Own a Gun? Careful: You Might Need a Gun Trust”

Holden & Campbell, LLC – Annapolis Estate Planning

Here’s How to Donate to Loved Ones and Avoid a Tax Bite - Annapolis Estate Planning

While there’s a time limit on this great opportunity for tax-free giving—2025, unless Congress makes some changes—this is a good time to take advantage of minimizing your tax liability through generosity. There’s a new big break for top-dollar wealth transfers, thanks to the new tax law.

Basic rule: the more you give away, the smaller your estate and, therefore, the smaller your tax liability. If you’ve got a lot of wealth, this is a good time for you and those you want to make gifts to. The sooner you exploit this, the more you can give. It means that there’s less of a chance your estate will have to write a check to the IRS.

The Street’s recent article, “This Is the Golden Age of Tax-Free Gift Giving,” says the federal government has taxed estates since 1924, and as recently as 2001, the threshold when taxes kicked in was $675,000. This exemption level from taxation has been increased ever since. However, a large increase came from the Tax Cuts and Jobs Act, which took effect in 2018. The Act doubled the exemption level and indexed it to inflation. Anything above the new limits is taxed at 40%. It is $11.4 million for singles and $22.8 million for married couples in 2019.

Although the exemption for estates is sky-high for now, it never hurts to reduce your estate with gifts to your loved ones. While this is nice for them, it’s also good just-in-case planning. However, right now, a spouse can get the entire estate tax-free, regardless of its size. Inheritances are also generally not taxable income for beneficiaries. There’s also the portability of the exemption level between spouses.

As far as the "annual exclusion," the tax-free gift you can give amounts to $15,000. While you can't carry over an unused portion to the next year, there is a multiplier effect for couples with several beneficiaries. For example, both spouses could each give the maximum to a child, or $30,000 total. In addition, they could then do the same thing for the child's own spouse, for another $30,000.

A smart gifting strategy is to place the gift in a trust so the funds are protected from the beneficiary's creditors (even a former spouse). The givers can also maintain some control over the uses of the money.

For the very generous, the donor could put the proceeds into a "donor" trust (also known as a "grantor" trust), where he or she is responsible for any taxes on income that the gift generates.

Sit down with your estate planning attorney to review your giving strategy and the tax implications. It’s a great time for giving.

Reference: The Street (February 7, 2019) “This Is the Golden Age of Tax-Free Gift Giving”

Holden & Campbell, LLC – Annapolis Estate Planning

Longevity May Surprise You, So Be Prepared – Annapolis Estate Planning

Florida wins for retirement relocation. It’s inexpensive to live in the Sunshine State, the weather’s good, if you don’t mind a lot of humidity and air conditioning, and taxes are low. If you’re going to have a three-decade long retirement, there’s far worse places to find yourself.

It’s no surprise to the residents of Florida that many people see it as the ideal place to retire. According to the U.S. Census’ 2017 Population Estimates Program, right now about 500,000 residents of Miami-Dade County are 65 and over, and by 2040, one in five Americans nationwide will be 65 and over. Many will be living in Florida, ranked as the best place to retire for affordability, health related factors and overall quality of life by WalletHub.

Advances in medicine are helping with longevity, but various improvements in diet and lifestyle have also helped, says The Miami Herald in the article “Plan now on ways to take care of yourself through a long retirement.”

It’s important to keep your lifestyle through retirement, and it’s an essential part of any financial plan. You’ll need to budget for plans or services that help you in your later years, such as everyday tasks, medical care, or even where you live.

Take some time to consider how you want your later years to look, like where you would want to live—whether that’s at home (possibly with live-in help) or in an assisted-living facility. With our longer life spans, we encounter more significant health risks, like cognitive issues. According to research, 37% of people over the age of 85 have some mild impairment and about one-third have dementia. The Alzheimer’s Association says that 540,000 people aged 65 and older reported living with Alzheimer’s in Florida in 2018. Roughly 15% of those in Florida hospice care had a diagnosis of dementia in 2015. Therefore, you can see why it is critical to think about this now and communicate your long-term needs to your family.

As we get older, the ability to maintain a lifestyle we like can become a financial challenge. This is especially true, if we also face an unexpected health condition. Making wise decisions now, can have a dramatic impact on what those later years will look like. Saving for a lengthy retirement can help you prepare to face any potential issues that may arise.

Making provisions for your family and leaving a legacy isn’t always an easy task. However, the financial security of your family may depend not only on how you manage your wealth today, but also on how you protect and preserve it for the future. Your estate plan can help you prepare now to provide for your loved ones in the future.

As you go through the aging process, think about where you want to live, what you want to do and what is financially possible. What seemed like a great idea in your 60s may not work so well when you reach 80. Talk with your family about what you want your future to look like. An experienced estate planning attorney will be able to update your will, trusts or advanced medical directives, so that your wishes are followed, now and in the future.

Reference: Miami Herald (February 1, 2019) “Plan now on ways to take care of yourself through a long retirement”

Holden & Campbell, LLC – Annapolis Estate Planning