Berdon Blogs

T&E TALK: Special Planning When Leaving Your IRA to Someone Other Than Your Spouse

Posted by Scott T. Ditman, CPA/PFS on Mar 6, 2017 7:00:00 AM

If you leave an IRA to your children or to someone other than your spouse, certain benefits can be lost without careful planning.

An Inherited IRA Stretches the Tax Benefits

Surviving spouses who inherit IRAs are permitted to roll them into their own IRAs, allowing the funds to continue growing tax-deferred or tax-free until they are withdrawn in retirement or after age 70½.

Beneficiaries other than your spouse, such as your children, are treated differently.

To take full advantage of an IRA’s tax benefits, nonspouse beneficiaries must transfer the funds directly into an “Inherited IRA.” Although the beneficiaries will have to begin taking distributions by the end of the following year, they’ll be able to stretch those distributions over their life expectancies, allowing earnings to grow tax-deferred or tax-free as long as possible.

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Topics: T&E TALK

T&E TALK: 2016 Charitable Deductions: Substantiate or Lose Them

Posted by Scott T. Ditman, CPA/PFS on Feb 27, 2017 7:00:00 AM

Sharing your wealth with a preferred charity can reduce your taxable estate and ease your income tax liability. But, unless you meet IRS substantiation requirements, the Service could deny the corresponding deductions you’re claiming. Let’s look at the requirements for different asset types.

Cash Gifts

Generally, you can substantiate gifts of less than $250 with a canceled check, written receipt, or other reliable record (such as a credit card statement) that indicates the name of the charity and the amount and date of your gift.

If you donate more than $75 in exchange for goods or services other than intangible religious benefits (such as admission to religious ceremonies), the charity must provide you with a statement that:

  • advises you that your deduction is limited to the amount by which your gift exceeds the value of those goods and services; and
  • provides a good-faith estimate of that value.
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Topics: T&E TALK

T&E TALK: Five Estate Planning Questions for Single Parents

Posted by Scott T. Ditman, CPA/PFS on Feb 21, 2017 7:00:00 AM

In many respects, estate planning for single parents of minor children is similar to estate planning for families with two parents.  But when only one parent is involved, certain aspects of an estate plan demand special attention. Here are five questions single parents should ask:

  1. Are my will and other estate planning documents up to date? If you haven’t reviewed your estate plan recently, do so to ensure that it reflects your current circumstances. The last thing you want is for a probate court to decide your children’s future.
  2. Have I selected an appropriate guardian? If the other parent is unavailable to take custody of your children should you become incapacitated or die suddenly, does your estate plan designate a suitable and willing guardian to care for them? Will the guardian need financial assistance to raise your children and provide for their education? If not, you might want to preserve your wealth in a trust until your children are grown.
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Topics: T&E TALK

T&E TALK: Post Mortem Estate Planning Strategies for Couples

Posted by Scott T. Ditman, CPA/PFS on Feb 13, 2017 11:00:00 AM

While it is always important to review and update your estate plan in light of significant life changes or new tax laws, it’s equally important to be aware of strategies that can be implemented after your death to achieve your goals. The flexibility of post mortem strategies is especially important during times of estate tax law uncertainty, like now. If you’re married, here are two post mortem estate planning strategies to consider.

1. Spousal Right of Election

This election provides a way to alter the planned distribution of your wealth after you’re gone. In most states, a surviving spouse has the right to circumvent his or her spouse’s will and take an elective share (one-half or one-third, for instance) of certain property.

Example: Let’s say you leave all of your assets to your children or other beneficiaries. Your spouse might exercise his or her right of election if it would produce a more favorable tax outcome. Even if the federal estate tax is repealed, which is on the agenda of President Trump and the Republican majority in Congress, there may be state estate tax or income tax consequences to consider.

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Topics: T&E TALK

T&E TALK: Set up Trusts in a More “Trust-friendly” State

Posted by Scott T. Ditman, CPA/PFS on Feb 6, 2017 7:00:00 AM

While it is natural to set up trusts in the state where you live, you may be losing out on significant benefits available in more “trust-friendly” states. For example, some states:

  • Don’t tax trust income,
  • Authorize domestic asset protection trusts, which provide added protection against creditors’ claims,
  • Permit silent trusts, under which beneficiaries need not be notified of their interests,
  • Allow perpetual trusts, enabling grantors to establish “dynasty” trusts that benefit many generations to come,
  • Have directed trust statutes, which make it possible to appoint an advisor or committee to direct the trustee with regard to certain matters, or
  • Offer greater flexibility to draft trust provisions that delineate the trustee’s powers and duties.

To take advantage of these and other benefits, review your state’s trust laws and trust-related tax laws with your advisor and consider whether another state’s laws would be more favorable.

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Topics: T&E TALK

T&E TALK: Explore All of Your Options When Appointing an Executor

Posted by Scott T. Ditman, CPA/PFS on Jan 30, 2017 7:00:00 AM

The executor’s role is critical to the administration of an estate and the achievement of your planning objectives. So, your first instinct may be to name a trusted family member as executor (also referred to as a personal representative). But, that might not be the best choice.

Important Duties

Your executor has a variety of important duties, including:

  • Arranging for probate of your will (if necessary) and obtaining court approval to administer your estate,
  • Taking inventory of — and collecting, recovering, or maintaining — your assets, including life insurance proceeds and retirement plan benefits,
  • Obtaining valuations of your assets,
  • Preparing a schedule of assets and liabilities,
  • Arranging for the safekeeping of personal property,
  • Contacting your beneficiaries to advise them of their entitlements under your will,
  • Paying any debts incurred by you or your estate and handling creditors’ claims,
  • Defending your will in the event of litigation,
  • Filing tax returns on behalf of your estate, and
  • Distributing your assets among your beneficiaries according to the terms of your will.
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Topics: T&E TALK

T&E TALK: Basic Asset Protection Strategies

Posted by Scott T. Ditman, CPA/PFS on Jan 23, 2017 11:00:00 AM

Asset protection trusts — both offshore and domestic — can be effective vehicles for protecting your wealth, particularly in today’s litigious society. But these trusts can be complex and expensive, so they may not right for everyone. If you are seeking simpler strategies, there are a number of basic, yet effective, tools to consider. Some involve transferring assets to another person or entity, or changing the way property is titled.

Here are a few common strategies:

Insurance: For many, insurance is the first line of defense against liability claims that expose their assets to risk. Insurance products include personal or homeowner’s liability insurance, as well as professional liability insurance for doctors, lawyers, and other professionals who are frequently targets for lawsuits.

Lifetime Gifts: The most effective strategy may also be the simplest: giving your assets to your children or other loved ones. Creditors cannot come after assets that you don’t own. The disadvantage is that you must relinquish control over the assets.

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Topics: T&E TALK

T&E TALK: Declaring an Elderly Parent Incapacitated

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

With an aging population, more children are facing elderly parents with deteriorating mental states who can no longer manage day-to-day activities. At some point, you may need to make the difficult decision to have a parent declared incapacitated.  Knowing the answers to two key questions can help you determine whether the time has come.

  1. What’s the difference between capacity and incapacity? The legal definition of “capacity” varies from state to state, but generally it’s the mental ability to adequately function. A person is presumed competent unless an adjudication process determines otherwise. That is, a judge must declare a person incompetent.

One barometer of whether someone is able to adequately function is the person’s ability to understand basic financial matters.  Another is whether a person is able to attend to his or her own health needs.

  1. What’s the role of a guardian/conservator? If the judge agrees that your parent is no longer competent, the court will appoint a guardian/conservator who will be responsible for managing your parent’s affairs. More often than not, an incapacitated person’s child is appointed, but the guardian/conservator doesn’t have to be a family member. In some states, a person can designate their guardian/conservator.
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Topics: T&E TALK

T&E TALK: Factoring Intellectual Property in your Estate Plan

Posted by Scott T. Ditman, CPA/PFS on Jan 9, 2017 7:00:00 AM

Taxpayers who own intellectual property (IP), such as a patent or copyright, need to know how to account for it in their estate plan.  IP generally falls into one of these categories: patents, copyrights, trademarks, or trade secrets. For estate planning purposes, IP raises two important questions:

  1. What’s it worth?
  2. How should it be transferred?

Valuing IP is complex, so it is best to obtain an appraisal from a professional with specific experience in IP valuations.

Once the value is established, you need to decide whether to transfer the IP to family members, colleagues, charities, or others through lifetime gifts or through bequests after your death. The gift and estate tax consequences will impact your decision, but you must also consider your income needs, as well as who is in the best position to monitor your IP rights and take advantage of their benefits.

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Topics: T&E TALK

T&E TALK: What if the Death Tax Dies?

Posted by Scott T. Ditman, CPA/PFS on Jan 3, 2017 8:58:14 AM

President-elect Trump and House Republicans have issued proposals to end the estate tax, indicating that a repeal is very possible. But what are the potential ramifications should this occur?

For 2017, the combined federal estate- and gift-tax exemption is $5.49 million per individual ($10.98 million per married couple). If the current estate tax is repealed, it will provide a tax cut to high net worth individuals. The fate of the gift tax, which applies to transfers during life, is also uncertain.  In addition, under current law, there is an income-tax provision known as the step-up in basis which allows assets held at death to bypass capital-gains tax.  At the moment, the Trump proposals would eliminate the step-up in basis above an exemption of up to about $10 million.  If this scenario holds, either the deceased person’s income tax cost in the assets would transfer to the heirs, or a capital gains tax would be imposed on the difference between the fair market value at the date of death and the decedent’s tax basis.  

Even in this uncertain environment, there are still some planning steps to consider.

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Topics: T&E TALK

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