Estate Planning – Tower Financial Group, Inc.

Use of Living Trusts

admin — Wed, 05 Jul 2017 15:38:32 +0000

A revocable living trust provides financial protection in the event you are no longer able to manage your financial affairs yourself. You can be trustee while you are healthy, but if you have a stroke or become otherwise incapacitated, your successor trustee would manage your assets in the trust.

Using a Living Trust for Privacy

Another benefit of revocable living trusts is continued privacy because the instrument will bypass probate. The trust can function like a will, dictating at what age children are to receive trust assets and the percentage shares of the distribution. The trust can be linked to a pour-over will, a short document that names the executor and that determines how taxes, creditors, and final expenses will be paid. The pour-over will directs the executor to gather all assets not included in the trust and pour them over into the trust. Once that happens, the trustee will follow the directions included in the trust. The pour-over will must be filed with the probate court, but because it doesn’t say much, it doesn’t reveal much.

Using a Living Trust to Reduce Probate

Regarding probate, living trusts offer another useful feature — if you own property in a state other than your state of residence, when you die, that property must go through what’s known as an ancillary probate. Many people think it’s worth setting up the trust just to avoid the out-of-state probate hassle, which necessitates hiring a lawyer in that other state.

Using a Living Trust as a Management Tool

The living trust can be used as a tool to manage your property, and can be especially helpful if you become incapacitated because the successor trustee can manage your property, rather than a court-appointed trustee, which takes time. The benefit of having an immediate successor can be especially important if you own a business or other assets that need to be managed seamlessly.

Other Benefits of a Living Trust

Finally, you can include provisions in the trust that preserve the use of your estate and use the gift tax exclusion to set up other trusts that will help reduce estate taxes.

Disadvantages of a Living Trust

There are disadvantages to using a revocable living trust as well. You must re-title assets into the trust name, which entails a lot of paperwork. And, although creditors only have a limited time after your death to make claims against your estate while it’s being probated, there is no time limit within which creditors may go after assets in a living trust.

Conclusions

If your goal in using a revocable living trust is only to avoid probate, there are easier ways to accomplish this task. However, the revocable living trust can provide a wide variety of estate planning benefits that are difficult to achieve with any other estate planning tool.

Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice.

Gift Giving Strategies

admin — Wed, 05 Jul 2017 15:37:46 +0000

The federal government imposes a substantial tax on gifts of money or property above certain levels. Without such a tax someone with a sizable estate could give away a large portion of their property before death and escape death taxes altogether. For this reason, the gift tax acts more or less as a backstop to the estate tax. And yet, few people actually pay a gift tax during their lifetime. A gift program can substantially reduce overall transfer taxes; however, it requires good planning and a commitment to proceed with the gifts.

Advantages of Gift Giving

You may have many reasons for making gifts — for some gift giving has personal motives, or others, tax planning motives. Most often you will want your gift giving program to accomplish both personal and tax motives. A few reasons for considering a gift giving plan include:

Assist someone in immediate financial need
Provide financial security for the recipient
Give the recipient experience in handling money
See the recipient enjoy the property
Take advantage of annual exclusion allowance
Paying gift tax to reduce overall taxes
Giving tax advantaged gifts to minors

Gift Tax Annual Exclusion

Probably the easiest way to reduce the size of your taxable estate is to make regular use of the gift tax annual exclusion. You may give up to $14,000 each year to as many persons as you want without incurring any gift tax. If your spouse joins in making the gift (by consenting on a gift tax return), you may (as a couple) give $28,000 to each person annually without incurring any gift tax liability.

Unlimited Gift Tax Exclusion

In addition to the $14,000 exclusion, there is an unlimited gift tax exclusion available to pay someone’s medical or educational expenses. The beneficiary does not have to be your dependent or even related to you, although payment of a grandchild’s expenses is perhaps the most common use of the exclusion. You must make the payment directly to the institution providing the service — the beneficiary himself or herself must not receive the payment.

Gift Programs and Your Estate

Use of the gift tax exclusion in a single year may not affect your estate tax situation significantly, but you can reduce your taxable estate substantially through a planned annual program of $14,000 (or $28,000 if you are married) gifts. All gifts within the exclusion limits are protected from federal estate taxes.

In addition to reducing the size of your estate, another major tax advantage of making a gift is the removal of future appreciation in the property’s value from your estate. Suppose that you give stocks worth $50,000 to your children now. If you die in 10 years and the stock is worth $130,000, your estate will escape tax on the $80,000 appreciation.

Charitable Remainder Trusts

admin — Wed, 05 Jul 2017 15:36:35 +0000

A Charitable Remainder Trust normally is used as a strategy for converting highly appreciated assets into income producing assets, without income tax liability. The Charitable Remainder Trust is an irrevocable trust with both charitable and non-charitable beneficiaries.

The donor transfers highly appreciated assets into the trust and retains an income interest. Upon expiration of the income interest, the remainder in the trust passes to a qualified charity of the donor’s choice.

If properly structured, the CRT permits the donor to receive income, estate, and/or gift tax advantages. These advantages often provide for a much greater income stream to the income beneficiary than would be available outside the trust.

Unitrust vs. Annuity Trust

There are two types of CRT the Unitrust and the Annuity Trust. The main difference between the two is the way your annual income, paid to you by the trust, is calculated.

Under the provisions of a Unitrust, the annual payment to you must be a fixed percentage of the market value of a trust’s assets as determined each year or, alternatively, the lesser of 5 percent of such value or the trust’s income. You can see that there are no guarantees of the specific amount you will receive. Your payments will depend upon the changing values of the trust property or income from year to year.

Using an Annuity trust, the trust specifies an annual amount to be paid to you. This guarantees that you will receive a specific amount which you can depend upon every year.

Charitable Remainder Trust – Potential Benefits

Eliminate Capital Gains Tax
Tax deductible transfers to trust
Trust income can be significantly greater than income generated outside trust
You choose duration of income from trust
Increased retirement income
Eliminate estate tax on trust assets
Preserve estate for family heirs through survivorship policy funded with added income
Provide charitable bequests to the causes of your choice

Those Who Would Benefit Most From a CRT May Have Some of the Following Characteristics

Own highly appreciated assets
Would like to reposition such assets
Are in a high income tax bracket
Are subject to estate tax at death
Have philanthropic desires

A Will That Meets Your Needs

admin — Wed, 05 Jul 2017 15:35:51 +0000

A will is a legal document that transfers what you own to your beneficiaries upon your death. It also names an executor to carry out the terms of your will and a guardian for your minor children, if you have any.

Your signature and those of two witnesses make your will authentic. Witnesses don’t have to know what the will says, but they must watch you sign it and you must watch them witness it.

Hand-written wills — called holographs — are legal in about half the states, but most wills are typed and follow a standard format.

What Should Be In Your Will?

Your will should contain several key points in order to be valid. The following list is a start. Check with a local estate attorney for a more comprehensive list:

You must first include your name and address.
Next, you must include a statement that you intend the document to serve as your will.
The names of the people and organizations — your beneficiaries — who will share in your estate.
The amounts of your estate to go to each beneficiary (usually in percentages rather than dollar amounts.)
Name an executor to oversee the disposition of your estate and trustee(s) to manage any trust(s) you establish.
Name alternates to provide both executor responsibilities and trustee(s).
Name a guardian to take responsibility for your minor children and possibly a trustee to manage the children’s assets in cooperation with the guardian.
Designate which assets should be used to pay estate taxes, probate fees and final expenses.

Who Needs a Will?

You should make a will as soon as you have any real assets, or get married, and certainly by the time you have children.

If You Don’t Have a Will

Without a will, you die intestate. The law of your state then determines what happens to your estate and your minor children. This process, called administration, is governed by the probate court and is notoriously slow, often expensive and subject to some surprising state laws.

What Is A Living Will?

A living will expresses your wishes about being kept alive if you’re terminally ill or seriously injured.

A Living Will

admin — Wed, 05 Jul 2017 15:35:01 +0000

You may recall that during the final weeks of his life, former President Richard Nixon refused “heroic measures” and received only palliative (comfort-easing) care at his home. Similarly, former First Lady Jacqueline Kennedy Onassis refused life-prolonging medical intervention before her death from non-Hodgkins lymphoma. Former President Nixon and Mrs. Onassis both retained control over their final medical care through use of a living will and a health care power of attorney.

Perhaps you’ve reflected on your own wishes if you were to face a similar situation. Although no one likes to imagine the possibility of being in such a helpless state, the statistical possibility of such an event remains fairly high. This is why it’s wise to ensure that your wishes will be respected if you become incapacitated.

Just as a will becomes the governing entity for your estate after you die, a living will will make your wishes clear and legally binding in the event of a devastating illness or injury. A living will is often referred to as a health care power of attorney. In it you state how you should be treated in the event of a terminal disease, severe illness, or tragic accident. By giving such directions when you are healthy, your relatives won’t have to make difficult decisions on your behalf, and you’ll receive the type of care you desire.

Issues you might want to consider covering are:

Organ donation
Religious and faith issues
Hospital, nursing home, and hospice arrangements
Funeral arrangements

To carry out your living will, you’ll need a health care directive, a written statement that expresses how you wish to be treated in advance of any incapacity. Make sure you’re exacting and give comprehensive directions.

You’ll also need a health care proxy, a person you designate to make your health care decisions based on the guidelines you provide in the directive, if you are incapacitated or unable to communicate your desires.