Berdon Blogs

T&E TALK: A SLAT can serve as a Financial Backup Plan

Posted by Scott T. Ditman, CPA/PFS on Jul 16, 2018 7:00:00 AM

The most effective estate planning strategies often involve the use of irrevocable trusts. But what if you’re uncomfortable placing your assets beyond your control? What happens if your financial fortunes take a turn for the worse after you’ve irrevocably transferred a sizable portion of your wealth?

If your marriage is strong, a spousal lifetime access trust (SLAT) can be a viable strategy to obtain the benefits of an irrevocable trust while creating a financial backup plan.

Indirect Access

A SLAT is an irrevocable trust that authorizes the trustee to make distributions to your spouse if a need arises. Like other irrevocable trusts, a SLAT can be designed to benefit your children, grandchildren, or future generations. You can use your lifetime gift tax and generation-skipping transfer tax exemptions (currently, $11.18 million each) to shield contributions to the trust, as well as future appreciation, from transfer taxes. And the trust assets also receive some protection against claims by your beneficiaries’ creditors, including any former spouses.

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Topics: T&E TALK

T&E TALK: Fortify your Estate Plan Against “Undue Influence” Claims

Posted by Scott T. Ditman, CPA/PFS on Jul 9, 2018 7:00:00 AM

You should expect the declarations in your will to be carried out, as required by law, and, usually, that’s exactly what happens with wills.  However, it’s possible your will could be contested and your true intentions defeated if someone is found to have exerted “undue influence” over your decisions.

What is Undue Influence?

Undue influence is an act of persuasion that overcomes the free will and judgment of another person. It may include exhortations, insinuations, flattery, trickery, and deception.

Frequently, undue influence happens when an elderly individual, who may or may not have all of his or her bearings, is convinced to change provisions in a will or otherwise suddenly rewards another person, such as a caregiver.

Conversely, not all influence is “undue.” For instance, it’s perfectly reasonable for a child or close friend to advise an elderly person. It’s usually up to a court to decide if the “suggestion” constitutes undue influence.

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Topics: T&E TALK

T&E TALK: Self-Canceling Installment Notes have Pros and Cons

Posted by Scott T. Ditman, CPA/PFS on Jul 2, 2018 7:00:00 AM

Many estate planning techniques are intended to minimize or even eliminate gift and estate taxes when transferring assets to family members. Sometimes, the most powerful techniques also have a significant drawback: mortality risk.

Example

You may have to outlive the term of a trust to realize its tax benefits. A self-canceling installment note (SCIN) eliminates mortality risk, so it may be appropriate for anyone in poor health who isn’t expecting to reach his or her actuarial life expectancy. But it has other potential downsides.

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Topics: T&E TALK

T&E TALK: Naming a Minor as Beneficiary Can Lead to Unintended Outcomes

Posted by Scott T. Ditman, CPA/PFS on Jun 25, 2018 7:01:00 AM

A common estate planning mistake is to designate a minor as beneficiary — or contingent beneficiary — of a life insurance policy or retirement plan. While making your young child the beneficiary of these assets may seem like an excellent way to provide for him or her in the case of your untimely death, doing so can have significant undesirable consequences.

Not Per Your Wishes

The first problem is that insurance companies and financial institutions generally won’t pay large sums of money directly to a minor. What they’ll typically do in these situations is require costly court proceedings to appoint a guardian to manage the child’s inheritance. And there’s no guarantee the guardian will be someone you’d choose.

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Topics: T&E TALK

T&E TALK: You can Repair a “Broken” Trust with the Proper Tools

Posted by Scott T. Ditman, CPA/PFS on Jun 18, 2018 12:18:38 PM

An irrevocable trust has long been a key component of many estate plans. But what if it no longer serves your purposes? Is it too late to change it? Depending on applicable state law, you may have options to fix a “broken” trust.

How Trusts Break

There are several reasons a trust can break, including:

Changing Circumstances. A trust that works just fine when it’s established may no longer achieve its original goals if your family circumstances change — births, deaths, divorce, etc.

New Tax Laws. Many trusts were created when gift, estate, and generation-skipping transfer (GST) tax exemption amounts were relatively low. Today, however, the exemptions have risen to $11.18 million, so trusts designed to minimize gift, estate, and GST taxes may no longer be necessary.  And with transfer taxes out of the picture, the higher income taxes often associated with these trusts — previously overshadowed by transfer tax concerns — become a more important factor.

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Topics: T&E TALK

T&E TALK: For the Charitable, Consider a Donor-Advised Fund

Posted by Scott T. Ditman, CPA/PFS on Jun 11, 2018 7:00:00 AM

If you make sizable gifts to charitable causes, you can also realize personal rewards, and may be able to claim a deduction on your tax return. However, once you turn over the money or assets, you generally have no further say on how they’re used. You can exercise greater control over your charitable endeavors using a donor-advised fund (DAF). Bear in mind that under the Tax Cuts and Jobs Act, you must itemize to benefit from the charitable contributions deduction.

Setting Up a DAF

As the name implies, your recommendations are integral to a DAF. First, you contribute to a fund typically managed by an independent sponsoring organization or an arm of a reputable financial institution. The minimum contribution generally is $5,000. In exchange for handling the management of the fund, the financial institution or organization usually charges an administrative fee based on a percentage of the deposit.

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Topics: T&E TALK

T&E TALK: Does Your Family Know Where to Find Your Will?

Posted by Scott T. Ditman, CPA/PFS on Jun 4, 2018 9:12:30 AM

In a world that’s increasingly paperless, you’re likely becoming accustomed to conducting many transactions digitally. But when it comes to your last will and testament, only an original, signed document will do.

A Photocopy Isn’t Good Enough

Many people mistakenly believe that a photocopy of a signed will is sufficient. In fact, most states require that a deceased’s original will be filed with the county clerk and, if probate is necessary, presented to the probate court. If your family or executor can’t find your original will, there’s a presumption in most states that you destroyed it with the intent to revoke it. That means the court will generally administer your estate as if you’d died without a will.

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Topics: T&E TALK

T&E TALK: 2nd Marriage Trap — Unintentionally Shortchanging Your Current Spouse

Posted by Scott T. Ditman, CPA/PFS on May 29, 2018 9:31:34 AM

In my previous blog we looked at harnessing the power of a QTIP (qualified terminable interest property) trust for passing wealth to your spouse and children.  However, if you've been married more than once, especially if you have children from different marriages, your estate plan should be even more carefully reviewed to avoid a trap where you could unintentionally shortchange your current spouse.

Consider this scenario:

The Tax Cuts and Jobs Act (TCJA) retained the federal estate, gift, and generation-skipping transfer (GST) taxes but doubled the federal exemption amount to $11,180,000 per taxpayer through December 31, 2025 (indexed for inflation). But, unintended consequences of this temporary doubling of the exemption may be seen in wills containing “formula” based trusts which automatically adjust for the changes in the exemption. 

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Topics: T&E TALK

T&E TALK: Provide for your Spouse and Children with a QTIP Trust

Posted by Scott T. Ditman, CPA/PFS on May 21, 2018 7:00:00 AM

If you want to preserve as much wealth as possible for your children, but you leave property to your spouse outright, there’s no guarantee your objective will be met. This may be a concern if your spouse has poor money management skills or, more importantly, if you are in a second marriage and have children from the first marriage. In both of these situations, a properly designed qualified terminable interest property (QTIP) trust may be the answer.

How QTIPs Work

A QTIP trust provides your spouse with income for life while preserving the trust principal for your children. By appointing a qualified trustee, you can have greater confidence that the assets will be invested and managed wisely. And the trust documents will ensure that, upon your spouse’s death, the trust assets will be distributed to your children according to your wishes.

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Topics: T&E TALK

T&E TALK: Blended Family? Here are Four Estate Planning Techniques

Posted by Scott T. Ditman, CPA/PFS on May 7, 2018 7:00:00 AM

Today, it’s not unusual for a family to include children from prior marriages. These “blended” families can create estate planning complications that may lead to challenges in the courts after your death.

Fortunately, you can reduce the chances of family squabbles by using techniques designed to preserve wealth for your heirs in the manner you want, with a minimum of estate tax erosion, if any. Here are four examples:

  1. Will. Your will generally determines who gets what, when, where, and how. It may be combined with “inter vivos trusts” established during your lifetime or be used to create testamentary trusts, or both. While you can include a few tweaks for your blended family through a codicil to the will, if the intended changes are substantive — such as removing an ex-spouse and adding a new spouse — you should meet with your estate planning attorney to have a new will prepared.
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Topics: T&E TALK

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