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If you are like most people, your life is complicated. There are a lot of moving parts, a lot of puzzle pieces. If you sometimes find it challenging to manage your own affairs just imagine how difficult it would be for your executor, guardian, or attorney-in-fact to do so. These “fiduciary” roles are often assigned to family members or close friends who have little or no information about your assets, your testamentary plan or the legal documents you have in place. The kindest and most responsible thing you can do for your loved ones is to leave them “a fiduciary roadmap” to help them find those puzzle pieces.  

What is a Fiduciary Roadmap?

In order for your guardian or attorney-in-fact to manage your financial affairs should you become incapacitated, or for your executor to administer your estate upon your death, they will need knowledge of your assets and the ability to access certain legal documents. A fiduciary roadmap is something you leave your fiduciaries to help them do this. Because this is a highly personal process, the roadmap can take many forms and be provided in many different formats. To prepare a fiduciary roadmap, you will first need to get organized.

In my last post, I alerted you to the fact that the federal gift and estate tax exemptions— now at a record high of $11.58 million per individual for 2020--would revert back to $5 million per individual (adjusted for inflation) in 2026 and could be cut back much sooner and more dramatically depending upon the results of this year’s election. I urged you not to postpone making lifetime gifts to use up the increased amount.  As a follow-up, I thought I should lay out some of the pros and cons of making lifetime gifts.

Pros: Advantages of Lifetime Gifts

One advantage of lifetime gifts is that a regular program of lifetime gifting can substantially reduce your estate tax bill. A current gift of property likely to increase in value during your lifetime not only removes the property from your estate but also removes all post-gift appreciation. If the gift is within your available Federal gift tax exemption— you will have passed all of this value to your children transfer tax free.

The federal gift, estate, and generation-skipping transfer (“GST”) tax exemptions are currently at an all-time high of $11.58 million per individual for 2020 ($23.16 million for a married couple).   However, these increased exemption amounts won’t be around forever, so if you want to preserve the current $11.58 million, you would be wise to use your gift and GST tax exemptions in 2020.

Increased Federal Exemptions Are Temporary

The federal gift and estate tax exemptions allow an individual to make lifetime gifts or transfers at death (that would not otherwise qualify for a marital or charitable deduction or an exclusion—and so would be taxable) up to the exemption amount free of gift or estate tax.   The two exemptions are “unified”; which means that any part of the $11.58 million exemption used to shelter lifetime gifts from gift tax reduces the amount available to shelter death-time transfer from estate tax.

If you’re going through a divorce, you probably feel overwhelmed. Not only is it a difficult time emotionally, but there are a lot of legal and financial decisions you have to make to terminate your marriage.  Chances are you are not thinking about your estate planning—but you really should be. Here’s why:

Every person going through a divorce needs all of his or her estate planning documents reviewed, first when the divorce is commenced and again after the divorce is finalized. In addition, during negotiations, thought should be given to the estate or gift tax implications of proposed settlement obligations.

Wills and Trusts

To start, you should immediately review your will and revocable trust (collectively your “Will”). Under the laws of some states, bequests or fiduciary appointments (e.g., executor or trustee appointments) under a Will in favor of a former spouse are automatically revoked upon divorce. However, not all states provide for such revocation.

A loved one has just left you a bequest—but should you accept it?  You are now in the unique position of doing what is called “post mortem” planning.If you don’t need the assets, or there are tax savings or other advantages to be gained, it may make sense for you to refuse thebequest.You would do this via a qualified disclaimer. A qualified disclaimerallows the bequest to bypass you and go to the next beneficiary in line. There are many reasons why you might want to disclaim a bequest-- here are five:

1. Estate and Gift Tax Savings. This is often cited as the main incentive for using a qualified disclaimer. In 2020, an individual can shelter a generous $11.58 million in assets from gift and estate tax. By maximizing portability of a spouse’sunused estate tax exemption, a married couple can effectively pass up to $23.16 million in 2020 to their heirs free of gift and estate taxes. The gift and estate tax exemption may be used to shelter transfers to non-spouse beneficiaries, such as your children and grandchildren, from gift or estate tax (transfers between spouses are sheltered by the unlimited marital deduction).

If your child recently graduated from high school and is now in college, consider providing a few estate planning documents that he or she may need at this stage of life.

Needless to say, having all the necessary financial and medical documents may be more important than ever because of the COVID-19 pandemic. And even if your student is staying home to participate in online learning this year, having these documents prepared now can provide peace of mind when he or she returns to campus.

Let’s take a closer look at four such documents:

You’ve probably seen it in the movies or on TV: A close-knit family gathers to find out what’s contained in the will of a wealthy patriarch or matriarch. When the terms are revealed, a niece, for example, benefits at the expense her uncle, causing a ruckus. This “bad blood” continues to boil between estranged family members, who won’t even speak to one another.

Unfortunately, a comparable scenario can play out in real life if you don’t make proper provisions. With some planning, you can avoid family disputes or at least minimize the chances of your will being contested by your loved ones.

Start at the Beginning

Before you (and your spouse, if married) set the table for your will, which is the centerpiece of any comprehensive estate plan, discuss estate matters with close family members who’ll likely be affected. This may include children, siblings, adult grandchildren and possibly others. Present an outline regarding the disposition of your assets and other important aspects.

You may think of trusts as estate planning tools — vehicles for reducing taxes after your death. While trusts certainly do fill that role, they’re also useful for protecting assets, both now and later. After all, the better protected your assets are, the more you’ll have to pass on to loved ones.

Creditors, former business partners, ex-spouses, “spendthrift” children and tax agencies can all pose risks. Here’s how trusts defend against asset protection challenges.

Tell Creditors “Hands off”

To protect assets, your trust must own them and be irrevocable. This means that you, as the grantor, generally can’t modify or terminate the trust after it has been established. (A “revocable trust,” on the other hand, allows the grantor to make modifications.) Once you transfer assets into an irrevocable trust, you’ve effectively removed your rights of ownership to the assets. Because the property is no longer yours, it’s unavailable to satisfy claims against you.

Nearly everyone owns at least some digital assets, such as online bank and brokerage accounts, bill-paying services, cloud-based document storage, digital music collections, social media accounts, and domain names. But what happens to these assets when you die or if you become incapacitated?

The answer depends on several factors, including the terms of your service agreements with the custodians of digital assets, applicable laws and the terms of your estate plan. To reduce uncertainty, address your digital assets in your estate plan.

Pass on Passwords

The simplest way to provide your family, executor or trustee with access to your digital assets is to leave a list of accounts and login credentials in a safe deposit box or other secure location. The disadvantage of this approach is that you’ll need to revise the list every time you change your password or add a new account. For this reason, consider storing this information using password management software and providing the master password to your representatives.

The annual gift tax exclusion allows you to transfer up to $15,000 per beneficiary gift-tax-free for 2020, without tapping your lifetime gift and estate tax exemption. And you can double the exclusion to $30,000 per beneficiary if you elect to split the gifts with your spouse.

It’s important to understand the rules surrounding gift-splitting to avoid unintended — and potentially costly — consequences.

Understanding the Pitfalls

Common mistakes made when splitting gifts include:

Failing to make the election. To elect to split gifts, the donor must file a gift tax return and the nondonor must consent by checking a box on the return and signing it or, if a gift exceeds $30,000, filing his or her own gift tax return. Once you make the election, you must split all gifts to third parties for the year.