Berdon Blogs

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

T&E TALK: Making Annual Exclusion Gifts before 2016 Ends May Be the Right Move

Posted by Scott T. Ditman, CPA/PFS on Dec 19, 2016 7:00:00 AM

Making tax-free gifts to loved ones during your lifetime reduces potential estate tax at death. There are many ways to make tax-free gifts and one of the simplest is to take advantage of the annual gift tax exclusion with direct gifts. Even as we face a potentially changing estate tax environment next year, making annual exclusion gifts before 2016 ends can still be a good idea.

What is the Annual Exclusion?

For 2016, you are allowed to give up to $14,000 per recipient tax-free without using up any of your $5.45 million lifetime gift tax exemption. If you and your spouse “split” the gift, you can give $28,000 per recipient. The gifts are also generally excluded from the generation-skipping transfer tax, which typically applies to transfers to grandchildren and others more than one generation below you.

The gifted assets are removed from your taxable estate, which can be especially advantageous if you expect them to appreciate. That’s because the future appreciation can also avoid gift and estate taxes.

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Topics: T&E TALK

T&E TALK: Family Matters: Stepchildren and Your Estate Plan

Posted by Scott T. Ditman, CPA/PFS on Dec 12, 2016 12:50:00 PM

If you have unadopted stepchildren, estate planning is critical to ensure that your property is distributed the way you desire. Stepchildren generally don’t have any inheritance rights with respect to their parents’ new spouses unless the spouse legally adopts them. If you have stepchildren and want them to share in your estate, you have two options: legally adopt the stepchildren, or amend your estate plan to provide for them.

Adoption considerations

Of course, estate planning isn’t the only reason to adopt stepchildren. Adoption also gives you all of the legal rights of a parent during your life. Before you adopt stepchildren, however, you and your spouse should consider the potential effect on their ability to inherit from (or through) their other biological parent’s relatives. In most states, when a child is adopted by a stepparent, the adoption decree severs the parent-child relationship with the other biological parent and his or her family.

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Topics: T&E TALK

T&E TALK: Community Property States Require Extra Estate Planning

Posted by Scott T. Ditman, CPA/PFS on Dec 5, 2016 7:00:00 AM

When a married couple lives in a community property state, the money earned and property acquired by either spouse during their marriage generally belongs to the “community.”

This means that each spouse has an undivided one-half interest in the property (regardless of how property is titled). Then, when one spouse dies, his or her share of community property goes to the surviving spouse unless the deceased spouse’s will provides otherwise.

With this knowledge of the law, be mindful:

  • If you’re married and live in a community property state, be aware of how the community property rules could affect your estate plan.
  • Learn the law and plan accordingly if you’re relocating into or out of a community property state.
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Topics: T&E TALK

T&E TALK: Should You Keep Your Trust A a Secret?

Posted by Scott T. Ditman, CPA/PFS on Nov 28, 2016 12:46:59 PM

When planning their estates, many people agonize over the negative impact their wealth might have on their children. To address these concerns, some people establish quiet trusts, also known as silent trusts. With this technique, the individual leaves significant sums in trust for their children without telling them about it. An interesting approach, but is it effective?

A questionable strategy

Many states permit quiet trusts, but the risks associated with them may outweigh the potential benefits. For one thing, it’s difficult — if not impossible — to keep your wealth a secret. Even if your children are unaware of the details of your estate plan, their expectations of a future inheritance based upon the lifestyle they have come to know can encourage the same irresponsible behavior the quiet trust was intended to avoid.

A quiet trust may also increase the risk of litigation. The trustee has a fiduciary duty to act in the beneficiaries’ best interests. When your children become aware of the trust years or decades later, they’ll likely seek an accounting from the trustee and, with the help of counsel, may challenge any past decisions the trustee has made.

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Topics: T&E TALK

T&E TALK: Family Mission Statements Promote a Harmonious Estate Plan

Posted by Scott T. Ditman, CPA/PFS on Nov 21, 2016 7:00:00 AM

Typically, much of the estate planning process focuses on money, but the most successful estate plans are founded on relationships. Building and preserving family wealth isn’t an end in itself. Rather, it’s a tool for promoting the principles that are important to you and other family members. Drafting a family mission statement can be an effective way to define and communicate these values.

Communicate clearly
Because each family is different, there’s no cookie-cutter formula for drafting a family mission statement. The most important thing is for the statement to clearly articulate your family’s shared values, whatever they may be.

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Topics: T&E TALK

T&E TALK: The Wrong Life Insurance Beneficiary Damaging to Your Estate Plan

Posted by Scott T. Ditman, CPA/PFS on Nov 14, 2016 11:00:00 AM

Life insurance can be a powerful financial and estate planning tool, but its benefits may be reduced or even eliminated if you designate the wrong beneficiary or fail to change beneficiaries when your circumstances change.

Here are common pitfalls to avoid:

Naming your estate as beneficiary. Doing so subjects life insurance proceeds to unnecessary estate taxes, exposes the proceeds to your estate’s creditors, and ensures that the proceeds will go through probate, which may delay payment to your loved ones.

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Topics: T&E TALK

T&E TALK: Address Elderly Parents in Your Estate Planning

Posted by Scott T. Ditman, CPA/PFS on Nov 7, 2016 12:50:00 PM

Individuals examining their own estate plans should be sure to incorporate the financial affairs of their elderly parents, tweaking, when necessary, the arrangements they’ve already made.

Here are four critical steps:

  1. Identify key contacts. Just like you’ve done for yourself, compile the names and addresses of professionals important to your parents’ finances and medical conditions. These may include stockbrokers, financial advisors, attorneys, CPAs, insurance agents and physicians.
  2. List and value their assets. If you’re going to be able to manage the financial affairs of your parents, having knowledge of their assets is vital. It would be wise to keep a list of their investment holdings, IRA and retirement plan accounts, and life insurance policies, including current balances and account numbers. Be sure to add in projections for Social Security benefits. You can use this information to formulate the appropriate planning techniques.
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Topics: T&E TALK

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