Berdon Blogs

Scott T. Ditman, CPA/PFS

Scott T. Ditman, CPA/PFS
Scott T. Ditman, a tax partner and Chair, Personal Wealth Services at Berdon LLP, advises high net worth individuals and family/owner-managed business clients on building, preserving, and transferring wealth, estate and income tax issues, and succession and financial planning.
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Recent Posts

T&E TALK: Don’t Overlook Tax Apportionment in Your Estate Plan

Posted by Scott T. Ditman, CPA/PFS on Aug 14, 2017 7:00:00 AM

If you expect your estate to have a significant estate tax liability at your death, be sure to include a well-thought-out tax apportionment clause in your will or revocable trust. An apportionment clause specifies how the estate tax burden will be allocated among your beneficiaries. Omitting this clause, or failing to word it carefully, may result in unintended consequences.

Your  Options

There are many ways to apportion estate taxes. One option is to have all of the taxes paid out of assets passing through your will. Beneficiaries receiving assets outside your will — such as IRAs, retirement plans or life insurance proceeds — won’t bear any of the tax burden.

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Topics: T&E TALK

T&E TALK: The Stretch IRA - A Simple Yet Powerful Estate Planning Tool

Posted by Scott T. Ditman, CPA/PFS on Aug 7, 2017 7:00:00 AM

The IRA’s value as a retirement planning tool is well known: IRA assets compound on a tax-deferred (or, in the case of a Roth IRA, tax-free) basis, which can help build a more substantial nest egg. But if you don’t need an IRA to fund your retirement, you can use it as an estate planning tool to benefit your children or other beneficiaries on a tax-advantaged basis by turning it into a “stretch” IRA.

Stretching the Benefits

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T&E TALK: ABLE Accounts for Loved Ones with Special Needs

Posted by Scott T. Ditman, CPA/PFS on Jul 31, 2017 7:15:00 AM

For families with disabled loved ones who are potentially eligible for means-tested government benefits such as Medicaid or Supplemental Security Income (SSI), estate planning can be a challenge. On the one hand, you want to provide the most comfortable life possible for your family member. On the other hand, you don’t want to jeopardize his or her eligibility for needed government benefits.

For many years, the most effective solution to this problem has been to set up a special needs trust (SNT). But beginning in 2014, the Achieving a Better Life Experience (ABLE) Act created Internal Revenue Code Section 529A, which authorizes the states to offer tax-advantaged savings accounts for the blind and severely disabled, similar to Sec. 529 college savings plans.

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Topics: T&E TALK

T&E TALK: IRS Simplifies Rules for Making the Portability Election

Posted by Scott T. Ditman, CPA/PFS on Jul 24, 2017 7:05:00 AM

Recently, the IRS issued a Revenue Procedure that allows certain estates to make a late portability election without first filing a ruling request. Portability is a tax law provision that permits a surviving spouse to take advantage of the deceased spouse’s unused combined gift and estate tax exemption which is currently $5.49 million.

But portability isn’t automatic: It’s available only if the deceased spouse’s estate makes a portability election on a timely filed estate tax return. This return is due nine months after death, with a six-month extension option, regardless of whether any tax is owed.

What’s New?

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Topics: T&E TALK

T&E TALK: Fraudulent Transfer Laws Can Undo Your Estate Plan

Posted by Scott T. Ditman, CPA/PFS on Jul 17, 2017 7:05:00 AM

A primary goal of your estate plan is to transfer wealth to your family according to your wishes and at the lowest possible tax cost. However, if you have creditors, be aware of fraudulent transfer laws. In a nutshell, if your creditors challenge your gifts, trusts, or other strategies as fraudulent transfers, they can quickly undo your estate plan.

Two Fraud Types

Most states have adopted the Uniform Fraudulent Transfer Act (UFTA). The act allows creditors to challenge transfers involving two types of fraud that you should be mindful of as you weigh your estate planning options:

  1. Actual Fraud. This means making a transfer or incurring an obligation “with actual intent to hinder, delay, or defraud any creditor,” including current creditors and probable future creditors.
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Topics: T&E TALK

T&E TALK: Leaving Specific Assets to Specific Heirs is Risky

Posted by Scott T. Ditman, CPA/PFS on Jul 10, 2017 7:05:00 AM

Planning your estate around specific assets is risky and, in most cases, should be avoided. If you leave specific assets — such as a home, a car, or stock — to specific people, you could end up inadvertently disinheriting someone.

Unintended Consequences

Here’s an example that illustrates the problem: Kim has three children — Sarah, John, and Matthew — and wishes to treat them equally in her estate plan. In her will, she leaves a $500,000 mutual fund to Sarah and her $500,000 home to John. She also names Matthew as beneficiary of a $500,000 life insurance policy.

By the time Kim dies, the mutual fund balance has grown to $750,000. In addition, she has sold the home for $750,000, invested the proceeds in the mutual fund and allowed the life insurance policy to lapse. She didn’t revise or revoke her will. The result?  Sarah receives the mutual fund, with a balance of $1.5 million, and John and Matthew are disinherited.

Safer Alternatives

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Topics: T&E TALK

T&E TALK: Is It Time for a Charitable Lead Trust?

Posted by Scott T. Ditman, CPA/PFS on Jul 5, 2017 7:00:00 AM

Families who wish to give to charity while minimizing gift and estate taxes should consider a charitable lead trust (CLT). These trusts are most effective in a low-interest-rate environment, so conditions for taking advantage of a CLT are still favorable. Although interest rates have crept up recently, they remain low.

Two Types of CLTs

A CLT provides a regular income stream to one or more charities during the trust term, after which the remaining assets pass to your children or other noncharitable beneficiaries. If your beneficiaries are in a position to wait for several years (or even decades) before receiving their inheritance, a CLT may be an attractive planning tool. That’s because the charity’s upfront interest in the trust dramatically reduces the value of your beneficiaries’ interest for gift or estate tax purposes. There are two types of CLTs:

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Topics: T&E TALK

T&E TALK: A Video of Your Will Signing May Not Produce the Desired Outcome

Posted by Scott T. Ditman, CPA/PFS on Jun 26, 2017 7:00:00 AM

Some people make a video recording of their will signing in an effort to create evidence that they possess the requisite testamentary capacity.  In some cases, this strategy may help stave off a will contest. But in most cases, the risk that the recording will provide ammunition to someone who wishes to challenge the will outweighs the potential benefits.

Assessing the Downsides

Unless the person signing the will delivers a flawless, natural performance, a challenger will pounce on the slightest hesitation, apparent discomfort or momentary confusion as “proof” that the person lacked testamentary capacity.  Even the sharpest among us occasionally forgets facts or mixes up our children’s or grandchildren’s names. And discomfort or nervousness with the recording process can easily be mistaken for confusion or duress.

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Topics: T&E TALK

T&E TALK: Protect Your Retirement Savings from Creditors

Posted by Scott T. Ditman, CPA/PFS on Jun 19, 2017 7:05:00 AM

A primary goal of estate planning is asset protection. If you have significant assets in employer-sponsored retirement plans or IRAs, it’s important to understand the extent to which those assets are protected against creditors’ claims and, if possible, to take steps to strengthen that protection.

Employer Plans

Most qualified plans — such as pension, profit-sharing and 401(k) plans — are protected against creditors’ claims, both in and out of bankruptcy, by the Employee Retirement Income Security Act (ERISA). This protection also extends to 403(b) and 457 plans.

IRA-based employer plans — such as Simplified Employee Pension (SEP) plans and Savings Incentive Match Plans for Employees (SIMPLE) IRAs — are also protected in bankruptcy. But there’s some uncertainty over whether they’re protected outside of bankruptcy.

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Topics: T&E TALK

T&E TALK: For Intrafamily Lending, Consider Establishing a Family Bank

Posted by Scott T. Ditman, CPA/PFS on Jun 12, 2017 7:05:00 AM

If you’re interested in lending money to your children or other family members, consider establishing a “family bank.” These entities enhance the benefits of intrafamily loans, while minimizing unintended consequences.

Upsides and Downsides

Lending can be an effective way to provide your family financial assistance without triggering unwanted gift taxes. So long as a loan is structured in a manner similar to an arm’s-length loan between unrelated parties, it won’t be treated as a taxable gift. This means, among other things:

  • Documenting the loan with a promissory note;
  • Charging interest at or above the applicable federal rate;
  • Establishing a fixed repayment schedule; and
  • Ensuring that the borrower has a reasonable prospect of repaying the loan.
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Topics: T&E TALK

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