Berdon Blogs

T&E TALK: Is It Time for a Charitable Lead Trust?

Posted by Scott T. Ditman, CPA/PFS on Jul 5, 2017 7:00:00 AM

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 are still favorable. Although interest rates have crept up recently, they remain 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. If your beneficiaries are in a position to wait for several years (or even decades) before receiving their inheritance, a CLT may be an attractive planning tool. That’s because the charity’s upfront interest in the trust dramatically reduces the value of your beneficiaries’ interest for gift or estate tax purposes. There are two types of CLTs:

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Topics: T&E TALK

T&E TALK: A Video of Your Will Signing May Not Produce the Desired Outcome

Posted by Scott T. Ditman, CPA/PFS on Jun 26, 2017 7:00:00 AM

Some people make a video recording of their will signing in an effort to create evidence that they possess the requisite testamentary capacity.  In some cases, this strategy may help stave off a will contest. But in most cases, the risk that the recording will provide ammunition to someone who wishes to challenge the will outweighs the potential benefits.

Assessing the Downsides

Unless the person signing the will delivers a flawless, natural performance, a challenger will pounce on the slightest hesitation, apparent discomfort or momentary confusion as “proof” that the person lacked testamentary capacity.  Even the sharpest among us occasionally forgets facts or mixes up our children’s or grandchildren’s names. And discomfort or nervousness with the recording process can easily be mistaken for confusion or duress.

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Topics: T&E TALK

T&E TALK: Protect Your Retirement Savings from Creditors

Posted by Scott T. Ditman, CPA/PFS on Jun 19, 2017 7:05:00 AM

A primary goal of estate planning is asset protection. If you have significant assets in employer-sponsored retirement plans or IRAs, it’s important to understand the extent to which those assets are protected against creditors’ claims and, if possible, to take steps to strengthen that protection.

Employer Plans

Most qualified plans — such as pension, profit-sharing and 401(k) plans — are protected against creditors’ claims, both in and out of bankruptcy, by the Employee Retirement Income Security Act (ERISA). This protection also extends to 403(b) and 457 plans.

IRA-based employer plans — such as Simplified Employee Pension (SEP) plans and Savings Incentive Match Plans for Employees (SIMPLE) IRAs — are also protected in bankruptcy. But there’s some uncertainty over whether they’re protected outside of bankruptcy.

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Topics: T&E TALK

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

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