Estate Planning and Tax Lawyer Blog

A recent article in Forbes provided some good information on how to deal with inherited IRAs:

Know before you act. Once you inherit an IRA, you should not do anything until you become fully informed about the IRS rules that apply to it. Do not assume that you can treat an inherited IRA the same as you would your own because you cannot.

Beneficiary forms control an inherited IRA. How the beneficiary forms are filled out control what can be done with an inherited IRA. To provide beneficiaries with the most flexibility, there should be both primary and alternate beneficiaries specified on this form. This provides the primary beneficiary with the choice of turning down the account, which can then pass on to the alternates. If an estate is named, then tax deferral is cut short. In addition, the IRA custodian’s default policy will rule if there is no beneficiary form on file.

Spouses have options. A spouse who inherits an IRA has one option that is not available to other beneficiaries: rolling the assets into their own IRA and postponing distributions from a traditional IRA until they reach the age of 70 ½. However, the inheriting spouse may have to pay an early withdrawal penalty of ten percent if they take the money before turning 59 ½ from their own IRA. So the inherited spouse should wait until they are at least 59 ½ before doing the rollover.

There are other cautions that apply to inherited IRAs, so if you need more information on the rules that apply to maximize your benefit or that of your heirs, consult with a Florida estate planning attorney.

When it comes to estate planning, people often wonder what the benefits are to creating a trust. Here are the five main reasons for creating a trust:

Control assets. A Trust can be used to retain control over the assets within the trust for a elected period of time, and may survive death if so designated.

Protect assets. A Trust allows you to put assets in the hands of a trusted advisor or administrator (the trustee) for proper management. In addition, putting assets into a knowledgeable trustee’s hands can also relieve your beneficiaries of what they may consider to be a burden for which they are unqualified.

Save on taxes. For married couples, all estate taxes can be avoided upon the death of the first spouse. A Trust can also ensure your own children benefit from your estate by establishing a tax by-pass Trust to hold property for children, while still allowing the trust funds to provide for the surviving spouse. The Trust assets will not be subject to estate tax upon the death of the surviving spouse.

Avoid probate. A Trust is a separate entity that continues after the death of the creator. The trustee can assume management of the estate and distribute the assets of the trust to beneficiaries without having to go to court.

Avoid a conservatorship. If the Trust creator becomes disabled or incapacitated, the successor trustee can take over management of the Trust without going to court to appoint a conservator.

Most people know that married couples enjoy greater tax benefits just by virtue of the fact they are married. But are there other financial benefits to being married? The answer is yes.

A heftier IRA. To be eligible to contribute to an IRA, you must have taxable income. However, if you are married and do not have taxable income, the spouse who does work is allowed to make an IRA contribution on behalf of his or her nonworking spouse.

Health insurance. Having one spouse covered by the other spouse’s employee health plan can save thousands of dollars every year.

Social Security benefits. A husband or wife is entitled to one-half of each other’s Social Security benefits as well as to death benefits.

Automatic inheritance rights. If a spouse dies without a Florida will, the surviving spouse has a legal right to at least one-half of the estate.

No estate tax. You can leave an unlimited amount to a spouse without generating any estate tax.

No gift tax. Current law allows exempts spouses from having to pay any taxes on gifts to each other.

Special trusts. There are life estate trusts that are restricted to married couples, including marital deduction trusts and QTIP trusts.

Creating a will does not need to be a complex process, but it does take some forethought and preparation prior to meeting with your estate planning attorney to finalize it.

Here is a checklist for getting ready to prepare your will:

1. List all the property you want included in your will. If you have significant assets, these may need to be protected by a trust, which you can discuss with your estate planning attorney.

2. Make a list of your beneficiaries. Decide who you want to inherit the property you have already listed. Be sure to identify secondary beneficiaries in case the primary ones die before you do.

3. Select an executor. Every will must include the name of the person you designate – an executor -- to carry out the terms of your will. It should be someone who is willing to serve, and you should notify them that you have named them as the executor of your will.

4. Determine a guardian for any minor children. If you have children 17 or younger, and there is not another parent to raise them, you will need to name a guardian in your will.

5. Determine a trustee for property you leave your children. If you are leaving significant property to your children and they are young, you should name a trustee or property guardian to manage it for them.

Once you have finished all the items on this checklist, you are well prepared to execute a will with the assistance of a Florida estate planning attorney.

According to The Humane Society, Americans own 77.5 million dogs and 93.6 million cats. So chances are pretty good that if you are caring for an aging parent, you are probably helping to care for their pet as well.

Pets play an important role in the lives of the elderly, helping to ease loneliness and providing a limitless source of affection. An article at Forbes.com gave some tips on helping aging parents care for their pets, while also minimizing their own risks of injury:

1. Do what you can to keep the pet-parent connection strong, but be sure to pay attention to potential problems, like an active dog your parent can no longer handle on a walk.

2. If your parent does have a problem walking the dog now, hire a dog walker. They are plentiful and affordable just about everywhere these days.

3. Is your parent still capable and willing to take a pet to the vet for regular check-ups? If not, you should make arrangements to do so.

4. If your aging parent is forgetting to eat or take medication, chances are that a pet is not getting fed or medicated properly either. You may need to supervise.

5. If it’s time to move a parent to a retirement home, make every effort to find one that takes pets.

6. If a parent has to be moved to assisted living or a nursing home that does not allow pets, then look for one that allows pet visits and take your parent’s pet to visit often.

7. If your parent is in a facility that does not allow pets – or if your parent has recently lost a pet – see if the facility offers animal visitation programs where pets are brought in regularly to visit residents.

8. Be on the lookout for signs of aging or illness in your parent’s pet.

9. When a parent’s pet dies, be respectful of the very real grief they feel.

10. Have respect for the importance of a pet to your parent, even if you do not feel the same way.

For more information on retirement and long-term care planning, contact our Jacksonville estate planning law firm.

Before social media, people wrote – and kept – letters. Those letters that survived the writer or recipient’s death were usually passed down through the generations, taking their rightful place in family lore.

But what happens to their modern counterparts – the Tweets, emails and Facebook posts – after the account holder dies?

Twitter has announced a “deceased user” policy that outlines what must be done to either remove an account entirely or archive the deceased’s Tweets so they are available to family members offline. To read the full policy, click here.

Facebook instituted a policy last October that provides family members with the choice of either deleting the account or having it “memorialized” – which means that it stays on Facebook and other Facebook members can continue to access and interact with it.

Facebook provides family members with a form to Report a Deceased Person’s Profile.

For Google email accounts, the process for accessing a deceased person’s mail can be found by going here. You must send a death certificate, a photocopy of your ID, a copy of any email sent to you from the deceased and other identification verification. It takes 30 days for Google to process the documents; if you need access sooner, you’ll need a court order.

For Yahoo! email accounts, you can delete the account of a deceased person if you know their log-in information. If you do not, you can either do nothing and the account will close by itself in a few months, or provide Yahoo! with a death certificate and request the account be closed.

More reminders to keep online identity information up to date and with your estate planning documents to save your heirs a lot of headaches online!

On July 1, 2010, Florida adopted and passed legislation (§ 736.0902) that statutorily protects “qualified” trustees when handling irrevocable life insurance trusts (“ILIT”). The statute was passed because of a going concern that trustees were hesitant to fulfill investing fiduciary duties in fear of being liable to the trust or its beneficiaries.

The statute specifically addresses two major concerns and provides a checklist of which trustees are and are not “qualified” for liability protection. The two areas of concern are: insurable interests and the prudent investor rule.

The statute does not protect a trustee from every situation. For example, when insurance is purchased through an affiliate of the trustee and either party receives a commission, the trustee is not protected under the statute. Another example, but which pertains to the insurable interest section of the statute, will not protect a trustee who has knowledge that the beneficiaries lacked an insurable interest when the insurance policy was issued.

There are other situations that the statute does not protect. However, the overall effect of the statute is designed to assure trustees invest in a prudent matter, continue seeking returns for the benefit of the trust, but invest with confidence that investment decisions will not subject the trustee to liability.

Continue reading " Florida Tries to Strike a Balance between Trustee Liability and Beneficiary Rights " »

Often times when co-owners of property are in dispute, the most equitable remedy is partitioning that property. But at what value should the property be appraised? Present value? Fair Market Value? How should closing and marketing costs be divided, if at all, among the parties? Should these costs be deducted from the value of the property? These are just a few issues pertaining to proper valuation models.

Proper due diligence and market anticipation are just a few key concepts lawyers should take from the Ludwick opinion. Partition can take many years to resolve and numerous costs are involved. Different market assumptions are a primary cause in valuation disputes. Each valuation expert should agree to the same assumptions and risks beforehand, then calculate the value of the property based on those assumptions. If they are true experts in valuation models, then both estimates of the property should be similar. If you have a property or valuation issue, reach us at estate planning

A New York Times article says that the 2010 gift tax is a tax-saving gift to the wealthy, and that individuals with more than $5 million and couples with more than $10 million should look long and hard at taking advantage of it in 2010 by making gifts.

The current gift tax of 35 percent is the lowest it’s been since the 1930s. But once the clock strikes midnight on Dec. 31, 2010, it goes up to 55 percent with an exemption of just $1.12 million. And, according to a number of financial experts, people who overlook this opportunity are going to miss significant tax savings in 2010.

According to the article, here are the comparative calculations on a $3 million gift to a grandchild:

2009: 110 percent (gift tax, generation-skipping tax and gift tax on the generation-skipping tax) = $6.3 million tax on $3 million gift.

2010: 35 percent (gift tax only) = 35 percent ($1.05 million tax on $3 million gift).

2011: 140 percent (gift tax, generation-skipping tax and gift tax on the generation-skipping tax) = $7.2 million tax on $3 million gift.

Many estate planning experts are counseling clients to not rush into anything, but to plan and watch what happens between now and the end of the year with estate tax debates in Congress.

Need help with your estate tax planning? Contact our Jacksonville Florida estate planning law firm.

Self-Settled spendthrift trusts have been hotly debated over the last few years and for good reason.

Florida recently considered enacting legislation that would allow a settlor to setup an irrevocable trust, include a spendthrift provision that protects settlor assets in the trust from creditors, AND the settlor could receive the same beneficiary protection as third party beneficiaries from subsequent creditors.

The common law only allowed a settlor to setup this type of trust for the benefit of third parties and creditors could not reach the trust assets until the funds were distributed to the beneficiary.

However, as to date, 13 states have reversed the common law and enacted laws that would allow the settlor to include himself as a beneficiary of the irrevocale trust and receive the same asset protection from creditors with certain exceptions.

Before a settlor could setup this type of trust, Florida's proposed law required the settlor to sign an affidavit indicating that settlor is not trying to hinder, delay or defraud any creditor. Also, any creditor of the settlor that existed prior to the transfer of assets into the irrevocable trust could not be affected.

These are key clauses that would protect preexisting creditor rights and protect against fraud, but the law again has not been codified. Only time will tell if this mindset will change and new law will come into effect. For more information, visit Executive Summary.

Continue reading " Self-Settled Spendthrift Trust Legislation Shot Down " »

With retirement nest eggs having endured a pummeling in the past few years, many pre-retirees are wondering what they can do to still ensure they have a retirement in their future. A U.S. News & World Report Money article provides these tips for retirement planning:

Get rid of debt. Compound interest on debt is money that could be socked away for retirement, so paying down debt is essential to growing that nest egg again.

Increase savings. By increasing 401(k) contributions and maxing out your IRA, you can boost your retirement savings and enjoy tax breaks as well. Those over the age of 50 can add an additional $5,000 annually to their 401(k) and $1,000 to an IRA.

Delay retirement. Putting off that retirement date not only helps you save more, it also means you spend less and shorten the number of years that you will need to draw on retirement savings. Just a few years of additional income can make a big difference.

Postpone Social Security benefits. By holding off on taking Social Security benefits, you can get a bigger payout down the road. Delaying benefits until your full entitlement age (between 65 and 67) will increase the size of your monthly checks.

Reduce expenses. Refinancing a mortgage, downsizing into a smaller home, cleaning out your clutter and putting it for sale on eBay or a garage sale, buying a used car instead of new or even eating out less can create more income for you to put toward retirement.

The Alternative Minimum Tax (AMT) is being hotly debated right now by Democrats and Republicans. Whether the AMT a/k/a the "wealth" tax will be enforced on 2010 tax returns is still up in the air.

If the AMT is not enforced, it will leave a huge hole in the federal government's budget and the lost revenue will need to be "patched" up or found through alternative methods. Although the tax has been categorized as only being paid by the wealthy, tax rates have never been adjusted for inflation and nonwealthy citizens have been affected. The good news is both parties believe they can reach a decision by the end of the year.

To learn more about this article, please visit Bipartisan vow: We'll fix AMT.

Continue reading " Will the AMT be enforced on 2010 tax returns? " »

Deloitte Tax LLP released come figures last week that delineate what could happen if the Bush tax cuts expire at the end of 2010:

Tax increase of $2,900 a year for a family of four with a household income of $50,000;

Tax increase of $4,500 annually for a family of four with a household income of $100,000;

Tax increase of $10,800 a year for a family of four with a household income of $500,000;

Tax increase of $53,200 annually for a family of four with a household income of $1 million.

In addition, long-term capital gains taxes would go from 15 percent to 20 percent and the child tax credit would drop to $500 from $1,000.

The White House wants to extend the cuts -- but only for family households making less than $250,000 a year and individual households making less than $200,000. Obama administration economists say only two percent of the population will be affected – and those are the richest two percent in the U.S.

Republicans wants to extend the tax cuts and have introduced what they call a “Pledge to America” to cut taxes and control government spending. And, as a surprise to no one, the Senate has delayed its vote on extending the tax cuts until after the November election.

Whichever way the votes go, you should elect to consult with our Jacksonville estate planning law firm about asset protection and wealth preservation.

An estate planning attorney sees a number of common estate planning mistakes made over and over again, and while some of these may seem small, they can have a big impact on your heirs.

Usually, these mistakes are made by people who use “do-it-yourself” estate planning websites or forms in an effort to save money. Without professional guidance, going this route usually causes more problems than it solves.

Here are some of the most common estate planning mistakes that you should avoid:

• Selecting a guardian or guardians for minor children who live far away, and not providing any instruction for a temporary guardian;
• Putting your estate planning and other important financial documents in a “safe place” and neglecting to inform anyone of where they are;
• Not leaving any written documentation of your assets;
• Neglecting to leave a list of your online accounts and passwords;
• Not naming recipients of heirlooms and mementos and just letting the family figure it out after you are gone;
• Not designating beneficiaries by name on retirement accounts, life insurance policies, and other similar assets;
• Never reviewing or updating your estate plan or trusts;
• Neglecting to name contingent beneficiaries;
• Designating just one trustee or agent, without any alternates;
• Neglecting to fund your trust properly;
• Not doing any estate planning, thereby leaving it up to the state to decide how to distribute your assets.

There are several places that you can transfer assets to–both in and out of your estate–that offer asset protection:

Closely Held Corporation: This protected entity is a private company that is usually owned by the members of a family who act as the shareholders. Because it is an entity and not a person, it is separate and has its own rights and privileges regarding the assets it holds.

Offshore Trust: This protected entity is operated by a trustee – typically the bank administering the offshore trust or one of its officers – who oversees the management of the trust assets, usually at the direction of the grantor of the estate that holds the trust. Like the closely held corporation, an offshore trust has legal rights that separate it from family members.

Family Foundation: You can set up a family foundation as a single Florida family and transfer assets into this protected entity. The foundation will typically be private, and family members can serve as foundation officers of members of the foundation’s board of directors.

There are a number of other protected entities you can consider to protect assets. If you have an interest in transferring your assets to or from a trust into any other protected entity, contact our law firm of Wood, Atter & Wolf, P.A..

A new study conducted by The Hartford Financial Services Group shows that more Americans – especially women – are paying more attention to their retirement savings plans and are participating more in employer-sponsored retirement plans in 2010 than they did one year earlier.

The Hartford’s Retirement & Recession Study found that 76 percent of those surveyed said they completely or mostly understood their retirement benefits, an increase of seven percent over the previous year. Overall, the number of women focusing on retirement benefits increased by 13 percentage points, from 56 percent in 2009 to 69 percent in 2010. For men, the increase was eight percent, from 75 percent in 2009 to 83 percent in 2010.

Researchers said that Americans’ growing understanding of their retirement savings plans was one of the few benefits of the Great Recession, which seems to have increased the focus on the importance of retirement planning.

In addition, the study found that more Americans are participating in 401(k)s and other employer-sponsored plans. Participation rose to 84 percent in 2010, up from 80 percent in 2009.

Need to learn more about protecting your assets through careful estate planning? Contact our Jacksonville Florida estate planning law firm.

Recently, the IRS announced its annual inflation adjustments. These are important for many different reasons but specifically in estate planning, the annual gift exemption is adjusted for inflation as well as the amount a non-citizen spouse may receive from their spouse annually.

In 2011, the annual gift exemption will not increase at all and will remain at $13,000 per year per person. However, the amount that a spouse may give to their non-citizen spouse on an annual basis increases to $136,000 per year, up from $134,000 in 2010.

To learn more about using the annual gift exemption to lower the value of your estate or about gifting to your non-citizen spouse, please consult our law firm of Wood, Atter & Wolf, P.A. with offices located in jacksonville and Ponte Vedra Beach.

Change is a part of life – unfortunately, it is also a factor in derailing many estate plans that have not been updated to account for new circumstances.

The most common mistakes that effect estate plans of any size include:

Incorrect Heir Designation – estate plans should be reviewed annually to ensure that the proper beneficiaries are designated. Too often ex-spouses or even those who have already pre-deceased the benefactor are listed as beneficiaries in estate plans that have not been updated for years.

Not Properly Titling Assets – failure to properly title assets in the name of the trust has resulted in the unnecessary payment of additional estate taxes that the trust was established to prevent in the first place. Failing to designate the proper beneficiaries on retirement account plans has also brought about unpleasant and unintended consequences.

Heirs Cannot Pay Taxes – many times heirs cannot afford to pay the taxes on their inheritance, which is due nine months after a benefactor’s death. The assets left to them may not be convertible to cash to pay taxes, leaving them to sell at a loss or borrow to pay the taxes. Purchasing life insurance to cover the taxes is a simple solution to this problem.

Wrong Executor – unless a family member is a skilled legal or financial advisor, it’s usually best to name someone with those skills as your executor, especially for a large estate.

For more information on asset protection trusts as well as retirement and estate planning, contact our Jacksonville Florida estate planning law firm.

With divorces and remarriages now very much a fact of American life, keeping peace in the extended family often requires astute and careful estate planning to avoid potential inheritance disputes.

Financial planners and legal experts both agree that they are seeing more friction between adult children and their parents due to remarriage and mixed families. They also agree that to keep peace in the family requires both good estate planning and open communication.

How can you avoid family friction and the potential legal battles that loom if you remarry? Obviously, there is no one solution that will fit every family, but the use of proper estate planning tools can help you keep the family waters smooth.

For example, many people in blended families utilize trusts to provide for a surviving spouse and to leave property to children, as well as save on estate taxes. It is often a good idea to make specific designations of family heirlooms and other personal property to children in writing, as part of a will or trust.

Careful estate planning, however, is just half the equation. You must also be willing to share your estate plans with family members so you can deal with any potential negative reactions in advance. Doing so may save your heirs from spending a lot of time and money in court.

While a properly drafted and executed last will and testament can transfer assets to your heirs, it will not help you avoid probate, estate taxes, or ensure that your choices are respected in the event of incapacity.

To fully protect your legacy, a Florida estate planning attorney can show you how to:

• Transfer assets from your estate while maintaining the control and benefit of the assets during your lifetime, and at the same time avoiding or minimizing the burden and expense of probate;
• Reduce exposure to estate taxes by means of a revocable living trust;
• Make sure that all assets are transferred into the living trust by means of the pour-over will;
• Ensure the guardianship of minor children to avoid the need for a formal guardianship proceeding;
• Prepare a life insurance trust that can either serve as a means of transferring assets outside of probate upon death, or as a fund from which estate taxes can be paid if they cannot be avoided altogether;
• Set up a durable powers of attorney to designate a trusted individual to make financial decisions on your behalf in the event of incapacity;
• Create advance health care directives to cover medical decisions, outlining your preferences for medical treatment and life support under extreme and terminal conditions and organ donation. At the same time, these documents can protect both you and your family from the difficulty and expense of a conservatorship.

The conservatorship process -- where someone is appointed by the probate court to assume responsibility for the property or the personal welfare of an adult – can be invasive and expensive, and is often quite burdensome for a family. While it can be an effective tool for the protection of a vulnerable person's assets or physical well-being, it can be one of life’s most painful legal procedures.

Fortunately, it is easy to avoid the need for expensive and burdensome conservatorship proceedings through effective estate planning:

• The execution of a durable power of attorney can save the need to appoint a conservator during a period of incapacity;
• The designation of an agent in an advance health care directive will achieve the same purposes as the appointment of a conservator;
• The designation of a successor trustee to serve during a period of incapacity under the terms of a revocable living trust also avoids the need for conservatorship proceedings.

If you have questions about Florida conservatorship proceedings, or would like to avoid the need for a conservator by providing for incapacity in your estate plan, contact a Florida estate planning lawyer.