T&E TALK: Are Your Payable-on-Death Accounts Coordinated With Your Estate Plan?

Posted by Scott T. Ditman, CPA/PFS on Mar 23, 2020 7:00:00 AM

Payable-on-death (POD) accounts provide a quick, simple, and inexpensive way to transfer assets outside of probate. They can be used for bank accounts, certificates of deposit or even brokerage accounts. Setting one up is as easy as providing the bank with a signed POD beneficiary designation form. When you die, your beneficiaries just need to present a certified copy of the death certificate and their identification to the bank, and the money or securities are theirs.

Beware of Pitfalls

POD accounts can backfire if they’re not coordinated carefully with the rest of your estate plan. Too often, people designate an account as POD as an afterthought without considering whether it may conflict with their wills, trusts or other estate planning documents.

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T&E TALK: Trusts to Consider When Estate Planning for a Blended Family

Posted by Scott T. Ditman, CPA/PFS on Mar 16, 2020 7:00:00 AM

No one said estate planning is easy, and this is especially true if you have a “blended family.” The good news is that there are two trust types — a qualified terminable interest property (QTIP) trust and an irrevocable life insurance trust (ILIT) — that can provide for your children from a previous marriage while also taking care of your current spouse and any children from your current marriage.

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T&E TALK: Second Marriage? Time to Update your Estate Plan

Posted by Scott T. Ditman, CPA/PFS on Mar 9, 2020 7:00:00 AM

If you’re in a second marriage or planning another trip down the aisle, it’s vital to review and revise (if necessary) your estate plan. You probably want to provide for your current spouse and not inadvertently benefit your former spouse. And if you have children from each marriage, juggling their interests can be a challenge. Let’s take a look at a few planning tips.

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T&E TALK: Curbing Power of Attorney Abuse

Posted by Scott T. Ditman, CPA/PFS on Mar 2, 2020 7:00:00 AM

A financial power of attorney can be a valuable planning tool. The most common type is the durable power of attorney, which allows someone (the agent) to act on the behalf of another person (the principal) even if the person becomes mentally incompetent or otherwise incapacitated. It authorizes the agent to manage the principal’s investments, pay bills, file tax returns and handle other financial matters if the principal is unable to do so as a result of illness, injury, advancing age or other circumstances.

However, a disadvantage of a power of attorney is that it may be susceptible to abuse by scam artists, dishonest caretakers or greedy relatives.

Watch Out for Your Loved Ones

A broadly written power of attorney gives an agent unfettered access to the principal’s bank and brokerage accounts, real estate, and other assets. In the right hands, this can be a huge help in managing a person’s financial affairs when the person isn’t able to do so him- or herself. But in the wrong hands, it provides an ample opportunity for financial harm.

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T&E TALK: Do You Need To File A Gift Tax Return?

Posted by Scott T. Ditman, CPA/PFS on Feb 24, 2020 7:00:00 AM

For 2020, the lifetime gift and estate tax exemption has reached a whopping $11.58 million ($23.16 million for married couples). As a result, few people will be subject to federal gift taxes.

If your wealth is well within the exemption amount, does that mean there’s no need to file gift tax returns? Not necessarily. There are many situations in which it’s necessary (or desirable) to file Form 709 — “United States Gift (and Generation-Skipping Transfer) Tax Return” — even if you’re not liable for any gift taxes.

If you’re required to file, keep in mind that the deadline for Form 709 is April 15 of the year after you make a gift.

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T&E TALK: For Non-U.S. Citizens, Estate Planning Rules Are Different

Posted by Scott T. Ditman, CPA/PFS on Feb 17, 2020 7:00:00 AM

Traditional estate planning strategies generally are based on the assumption that all family members involved are U.S. citizens. However, if you or your spouse is a noncitizen, special rules apply that may require additional planning.

Defining “Residency” And “Domicile”

If you’re a U.S. resident, but not a citizen, you’re treated similarly to a U.S. citizen by the Internal Revenue Code. You’re subject to federal gift and estate taxes on your worldwide assets, but you also enjoy the benefits of the $11.58 million (for 2020) gift and estate tax exemption and the $15,000 annual gift tax exclusion. And you can double the annual exclusion to $30,000 through gift-splitting with your spouse, so long as your spouse is a U.S. citizen or resident. (Special rules apply to the marital deduction, however, as will be discussed below.)

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T&E TALK: When Inheriting Property, Be Aware Of The Basis Consistency Rules

Posted by Scott T. Ditman, CPA/PFS on Feb 10, 2020 7:00:00 AM

If you’re in line to inherit property from a parent or other loved one, it’s critical to understand the basis consistency rules. Current tax law, passed in 2015, provides that the income tax basis of property received from a deceased person can’t exceed the property’s fair market value (FMV) as finally determined for estate tax purposes.

Prior Law

Before the 2015 tax law change, estates and their beneficiaries had conflicting incentives when it came to the valuation of a deceased person’s property. Executors had an incentive to value property as low as possible to minimize estate taxes, while beneficiaries had an incentive to value property as high as possible to minimize capital gains, if they decided to sell the property.

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T&E TALK: Estate Planning Through The Years

Posted by Scott T. Ditman, CPA/PFS on Feb 3, 2020 9:05:00 AM

Virtually everyone needs an estate plan, but it isn’t a one-size-fits-all proposition. Even though each person’s situation is unique, general guidelines can be drawn depending on your current stage of life.

The Early Years

If you’ve recently embarked on a career, gotten married or both, now is the time to build the foundation for your estate plan. And, if you’ve recently started a family, estate planning is even more critical.

Your will is at the forefront. Essentially, this document divides up your accumulated wealth upon death by deciding who gets what, where, when and how. With a basic will, you may, for instance, leave all your possessions to your spouse. If you have children, you might bequeath some assets to them through a trust managed by a designated party.

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T&E TALK: Nongrantor Trusts Soften The Blow of the SALT Deduction Limit

Posted by Scott T. Ditman, CPA/PFS on Jan 27, 2020 11:50:00 AM

If you reside in a high-tax state, you may want to consider using nongrantor trusts to soften the blow of the $10,000 federal limit on state and local tax (SALT) deductions. The limit can significantly reduce itemized deductions if your state income and property taxes are well over $10,000. A potential strategy for avoiding the limit is to transfer interests in real estate to several nongrantor trusts, each of which enjoys its own $10,000 SALT deduction.

Grantor vs. Nongrantor Trusts

The main difference between a grantor and nongrantor trust is that a grantor trust is treated as your alter ego for tax purposes, while a nongrantor trust is treated as a separate entity. Traditionally, grantor trusts have been the vehicle of choice for estate planning purposes because the trust’s income is passed through to you, as grantor, and reported on your tax return.

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T&E TALK: Nondeductible IRA Contributions Require Careful Tracking

Posted by Scott T. Ditman, CPA/PFS on Jan 20, 2020 9:20:00 AM

If, like many people, your traditional IRA holds a mixture of deductible (after-tax) and nondeductible (pretax) contributions, it’s important to track your contributions carefully to avoid double taxation of distributions. Why? Because the IRS treats distributions as a blend of pretax and after-tax dollars. If you treat distributions as fully taxable, you’ll end up overpaying.

An Example

Dan, age 62, withdraws $40,000 from his traditional IRA on August 1, 2019. At the time, his IRA balance is $200,000, consisting of $50,000 in deductible contributions, $80,000 in nondeductible contributions and $70,000 in investment earnings. On December 31, 2019, the IRA’s balance is $170,000 — $200,000 minus the $40,000 distribution plus additional contributions and earnings after August 1.

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