Berdon Blogs

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

T&E TALK: Do You Know the Fate of Your Electronic Documents?

Posted by Scott T. Ditman, CPA/PFS on Jun 5, 2017 9:17:00 AM

Once a financial document has outlived its useful life, it is sound policy to see that it is destroyed in a way that would prevent it from being retrieved and used by anyone else.  This is typically accomplished by contracting with a qualified document shredding service.  But today, so much of our personal documentation is stored electronically.  In this case, not only the network but the backup media needs to be purged to be consistent with a secure record destruction policy.   

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Topics: T&E TALK

T&E TALK: Principle Trusts Can Encourage Beneficiaries to Lead Responsible Lives

Posted by Scott T. Ditman, CPA/PFS on May 30, 2017 9:25:07 AM

For many, an important estate planning goal is to encourage children or other heirs to lead responsible, productive lives. One tool for achieving this goal is a principle trust.

By providing your trustee with guiding values and principles rather than the set of rigid rules found in an incentive trust, a principle trust may be an effective way to accomplish your objectives.  However, not everyone will be comfortable with giving a trustee the broad discretion a principle trust requires.

Discretion and Flexibility

A principle trust guides the trustee’s decisions by setting forth the principles and values you hope to instill in your beneficiaries. These principles and values may include virtually anything, from education and gainful employment to charitable endeavors and other socially beneficial activities.

By providing the trustee with the discretion and flexibility to deal with each beneficiary and each situation on a case-by-case basis, it’s more likely that the trust will reward behaviors that are consistent with your principles and discourage those that are not.

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Topics: T&E TALK

T&E TALK: Watch Out For Pitfalls in Prepaid Funeral Plans

Posted by Scott T. Ditman, CPA/PFS on May 22, 2017 9:40:00 AM

The cost of a funeral has increased steadily during the past two decades. To relieve their families of the burden of planning and funding a funeral, some people plan their own and pay for them in advance. Unfortunately, prepaid funeral plans are fraught with potential traps.

Avoiding the Pitfalls of Prepaid Plans

Some plans end up costing more than the benefits they pay out. And there may be a risk that you’ll lose your investment if the funeral provider goes out of business or you want to change your plans. Some states offer protection — such as requiring a funeral home or cemetery to place funds in a trust or to purchase a life insurance policy to fund funeral costs — but many do not.

If you’re considering a prepaid plan, find out exactly what you’re paying for. Does the plan cover merchandise only (casket, vault, etc.) or are services included? Is the price locked in or is there a possibility that your family will have to pay additional amounts?

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Topics: T&E TALK

T&E TALK: Concerned About Challenges to Your Estate Plan? Make it No Contest

Posted by Scott T. Ditman, CPA/PFS on May 15, 2017 10:15:00 AM

Estate planning is all about protecting your family and ensuring that your wealth is distributed according to your wishes. The possibility that someone might challenge your estate plan can be disconcerting. One strategy for protecting your plan is to include a “no-contest” clause in your will or revocable trust (or both).

What is a no-contest clause?

A no-contest clause essentially disinherits anyone who contests your will or trust (typically on grounds of undue influence or lack of testamentary capacity) and loses. It’s meant to serve as a deterrent against frivolous challenges that would result in unnecessary expenses and delays for your family.

Most, but not all, states permit and enforce no-contest clauses. However, the laws differ — often in subtle ways — from state to state, so it’s important to consult state law before including a no-contest clause in your will or trust.

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Topics: T&E TALK

T&E TALK: Asset Valuations Essential for Your Estate Plan

Posted by Scott T. Ditman, CPA/PFS on May 8, 2017 10:15:00 AM

If your estate plan calls for making noncash gifts in trust or outright to beneficiaries, you need to know the values of those gifts and disclose them to the IRS on a gift tax return. For substantial gifts of noncash assets other than marketable securities, it’s a good idea to have a qualified appraiser value the gifts at the time of the transfer.

Adequately Disclosing a Gift

A three-year statute of limitations applies during which the IRS can challenge the value you report on your gift tax return. The three-year term doesn’t begin until your gift is “adequately disclosed.” This means you can’t just file a gift tax return, but also:

  • Give a detailed description of the nature of the gift,
  • Explain the relationship of the parties to the transaction, and
  • Detail the basis for the valuation.
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Topics: T&E TALK

T&E TALK: Be Careful When Using Life Insurance in Your Estate Planning

Posted by Scott T. Ditman, CPA/PFS on May 1, 2017 9:34:55 AM

A life insurance policy can be an important part of your estate plan. The tax benefits are twofold: The policy can provide a source of wealth for your family income-tax-free, and it can supply funds to pay estate taxes and other expenses.

However, if you own your policy, rather than having, for example, an irrevocable life insurance trust (ILIT) own it, you’ll have to take extra steps to keep the policy’s proceeds out of your taxable estate.

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Topics: T&E TALK

T&E TALK: Using a Roth IRA as an Estate Planning Tool

Posted by Scott T. Ditman, CPA/PFS on Apr 24, 2017 9:32:00 AM

A Roth IRA can be a valuable estate planning tool, offering the opportunity for tax-free growth as long as it exists and requiring no distributions during your life — allowing you to pass on a greater amount of wealth to your family. While traditional IRAs are more common, in certain circumstances a Roth IRA might better help you achieve your estate planning goals.

Roth vs. Traditional IRA

With a Roth IRA, you give up the deductibility of contributions for the opportunity to make tax-free withdrawals. This differs from a traditional IRA, where contributions may be deductible and earnings grow on a tax-deferred basis, but withdrawals (less any prorated nondeductible contributions) are subject to ordinary income taxes — plus a 10% penalty if you’re under age 59½ at the time of the distribution.

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Topics: T&E TALK

T&E TALK: Holding Joint Title Has Upsides and Downsides

Posted by Scott T. Ditman, CPA/PFS on Apr 17, 2017 11:45:00 AM

Owning assets jointly with one or more children or other heirs is a common estate planning “shortcut.” But like many shortcuts, it can produce unintended — and costly — consequences.

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Topics: T&E TALK

T&E TALK: Could Your Charity Reject Your Donation?

Posted by Scott T. Ditman, CPA/PFS on Apr 11, 2017 9:22:00 AM

If your estate plan includes charitable donations, be sure to discuss any planned gifts with the intended recipients before you finalize your plan. This is particularly important for donations that place restrictions on the charity’s use of the gift, as well as donations of real estate or other illiquid assets.

Why Your Gift Could Be Rejected

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Topics: T&E TALK

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