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T&E TALK: Charitable Lead Trusts offer Philanthropic and Family Benefits

Posted by Scott T. Ditman, CPA/PFS on Jun 10, 2019 7:00:00 AM

High net worth families who wish to give to charity while minimizing gift and estate taxes should consider a charitable lead trust (CLT). These trusts are most effective in a low-interest-rate environment, so conditions for taking advantage of a CLT currently are favorable. Although interest rates have crept up a bit in recent years, they remain quite low.

Two Types of CLTs

A CLT provides a regular income stream to one or more charities during the trust term, after which the remaining assets pass to your children or other noncharitable beneficiaries.

There are two types of CLTs:

1) A charitable lead annuity trust (CLAT), which makes annual payments to charity equal to a fixed dollar amount or a fixed percentage of the trust assets’ initial value, and

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T&E TALK: Leave Your Mark with a Dynasty Trust

Posted by Scott T. Ditman, CPA/PFS on Jun 3, 2019 7:00:00 AM

If a prime objective of your estate plan is to leave a lasting legacy, a dynasty trust may be the right estate planning vehicle for you. And, thanks to the substantially increased generation-skipping transfer (GST) tax exemption amount established by the Tax Cuts and Jobs Act, a dynasty trust is more appealing than ever.

GST Tax and Dynasty Trusts

A dynasty trust allows substantial amounts of wealth to grow and compound free of federal gift, estate and GST taxes, providing tax-free benefits for your grandchildren and future generations. The longevity of a dynasty trust varies from state to state, but it’s becoming more common for states to allow these trusts to last for hundreds of years or even in perpetuity.

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T&E TALK: The Danger of Leaving Specific Assets to Specific Heirs

Posted by Scott T. Ditman, CPA/PFS on May 28, 2019 7:00:00 AM

Planning your estate around specific assets is risky and, in most cases, should be avoided. If you leave specific assets — such as homes, cars, or stock — to specific people, you may inadvertently disinherit them.

Here’s The Problem

Let’s say Debbie has three children — Abbie, Mary Kate, and Lizzie — and wishes to treat them equally in her estate plan. In her will, Debbie leaves a $500,000 mutual fund to Abbie and her home valued at $500,000 to Mary Kate. She also names Lizzie as beneficiary of a $500,000 life insurance policy.

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T&E TALK: Make Health Care Decisions While You’re Healthy

Posted by Scott T. Ditman, CPA/PFS on May 20, 2019 7:00:00 AM

Estate planning isn’t just about what happens to your assets after you die. It’s also about protecting yourself and your loved ones. This includes having a plan for making critical medical decisions in the event you’re unable to make them yourself. And, as with other aspects of your estate plan, the time to act is now, while you’re healthy. If an illness or injury renders you unconscious or otherwise incapacitated, it will be too late.

Without a plan that expresses your wishes, your family may have to make medical decisions on your behalf or petition a court for a conservatorship. Either way, there’s no guarantee that these decisions will be made the way you would want, or by the person you would choose.

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T&E TALK: Does your Estate Plan Include a Formula Funding Clause?

Posted by Scott T. Ditman, CPA/PFS on May 13, 2019 7:00:00 AM

The gift and estate tax exemption is higher than it’s ever been, thanks to the Tax Cuts and Jobs Act (TCJA), which temporarily doubled the exemption to an inflation-adjusted $10 million ($20 million for married couples who design their estate plans properly). This year, the exemption amount is $11.4 million ($22.8 million for married couples).

If you’re married and you executed your estate planning documents years ago, when the exemption was substantially lower, review your plan to ensure that the increased exemption doesn’t trigger unintended results. It’s not unusual for older estate planning documents to include a “formula funding clause,” which splits assets between a credit shelter trust and the surviving spouse — either outright or in a marital trust.

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T&E TALK: If College Financing is Integral to Your Estate Plan

Posted by Scott T. Ditman, CPA/PFS on Apr 29, 2019 7:00:00 AM

The staggering cost of college makes it critical for families to plan carefully for this major expense and, in many cases, grandparents want to play a role. As you examine the many financing options for your grandchildren, be sure to consider their impact on your estate plan.

Make Direct Payments

A simple, but effective, technique is to make tuition payments on behalf of your grandchild. So long as you make the payments directly to the college, they avoid gift and generation-skipping transfer (GST) tax without using up any of your $11.4 million gift or GST tax exemptions or your $15,000 annual gift tax exclusion.

A disadvantage of direct payments is that, if your grandchild is young, you have to wait until the student has tuition bills to pay. So there’s a risk that you’ll die before the funds are removed from your estate.

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T&E TALK: Spendthrift Language in a Trust Helps Safeguard Assets

Posted by Scott T. Ditman, CPA/PFS on Apr 22, 2019 7:00:00 AM

Protecting assets from creditors is a critical aspect of estate planning, but you need to think about more than just your own creditors: You also need to consider your heirs’ creditors. Adding spendthrift language to a trust benefiting your heirs can help safeguard assets.

What is Spendthrift Language?

Despite its name, the purpose of a spendthrift trust isn’t just to protect profligate heirs from themselves. Although that’s one use for this trust type, even the most financially responsible heirs can be exposed to frivolous lawsuits, dishonest business partners or unscrupulous creditors. A properly designed spendthrift trust can protect assets against such attacks.

It can also protect your loved ones in the event of relationship changes. If one of your children divorces, your child’s spouse generally can’t claim a share of the trust property in the divorce settlement.

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T&E TALK: Art Donations in Estate Planning — Consider these Three Tips

Posted by Scott T. Ditman, CPA/PFS on Apr 15, 2019 7:00:00 AM

Charitable giving is a key part of estate planning for many people. If you have a collection of valuable art and are charitably minded, consider donating one or more pieces to receive tax deductions. Generally, it’s advantageous to donate appreciated property to avoid capital gains taxes. Because the top federal capital gains rate for art and other “collectibles” is 28%, donating art is particularly effective.

Considerations Before Donating

Here are three tips to keep in mind:

  1. Get an Appraisal. Given the subjective nature of art valuation and the potential for abuse, the IRS scrutinizes charitable donations and other transactions involving valuable artwork. Most art donations require a “qualified appraisal” by a “qualified appraiser.” IRS rules contain detailed requirements about the qualifications an appraiser must possess and the contents of an appraisal.
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T&E TALK: Unlock the Benefits of your Revocable Trust

Posted by Scott T. Ditman, CPA/PFS on Apr 8, 2019 7:00:00 AM

If your estate plan includes a revocable trust — also known as a “living” trust — it’s critical to ensure that the trust is properly funded. Revocable trusts offer significant benefits, including asset management (in the event you become incapacitated) and probate avoidance. But these benefits aren’t available if you don’t fund the trust.

Funding the Trust

Funding a living trust is a simple matter of transferring ownership of assets to the trust or, in some cases, designating the trust as beneficiary. Assets you should consider transferring include real estate, bank accounts, certificates of deposit, stocks and other investments, partnership and business interests, vehicles, and personal property (such as furniture and collectibles).

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T&E TALK: Life Insurance can be a Powerful Estate Planning Tool for Nontaxable Estates

Posted by Scott T. Ditman, CPA/PFS on Apr 1, 2019 7:00:00 AM

For years, life insurance has played a critical role in estate planning, providing a source of liquidity to pay estate taxes and other expenses. Today, the gift and estate tax exemption has climbed to $11.4 million, so estate taxes are no longer a concern for the vast majority of families. But even for nontaxable estates, life insurance continues to offer estate planning benefits.

Replacing Income and Wealth

Life insurance can protect your family by replacing your lost income. It can also be used to replace wealth in a variety of contexts. For example, suppose you own highly appreciated real estate or other assets and wish to dispose of them without generating current capital gains tax liability. One option is to contribute the assets to a charitable remainder trust (CRT).

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