While the new tax law doubled the federal estate tax exemption, meaning the vast majority of estates will not have to pay any federal estate tax, it doesn't mean you should ignore its impact on your estate plan.
In December 2017, Republicans in Congress and President Trump increased the federal estate tax exemption to $11.18 million for individuals and $22.36 million for couples, indexed for inflation. (For 2019, the figures are $11.4 million and $22.8 million, respectively.) The tax rate for those few estates subject to taxation is 40 percent.
While most estates won't be subject to the federal estate tax, you should review your estate plan to make sure the changes won't have other negative consequences or to see if there is a better way to pass on your assets. One common estate planning technique when the estate tax exemption was smaller was to leave everything that could pass free of the estate tax to the decedent's children and the rest to the spouse. If you still have that provision in your will, your kids could inherit your entire estate while your spouse would be disinherited.
For example, as recently as 2001 the federal estate tax exemption was a mere $675,000. Someone with, say, an $800,000 estate who hasn’t changed their estate plan since then could see the entire estate go to their children and none to their spouse.
Another consideration is how the new tax law might affect capital gains taxes. When someone inherits property, such as a house or stocks, the property is usually worth more than it was when the original owner purchased it. If the beneficiary were to sell the property, there could be huge capital gains taxes. Fortunately, when someone inherits property, the property’s tax basis is "stepped up," which means the tax basis would be the current value of the property. If the same property is gifted, there is no "step up" in basis, so the gift recipient would have to pay capital gains taxes. Previously, in order to avoid the estate tax you might have given property to your children or to a trust, even though there would be capital gains consequences. Now, it might be better for your beneficiaries to inherit the property.
In addition, many states have their own estate tax laws with much lower exemptions, so it is important to consult with your attorney to make sure your estate plan still works for you.
A new law that became effective January 1, 2016 creates a Revocable Transfer on Death Deed (“TOD”) as a way for California residents to transfer residential property to name beneficiaries, effective upon death. Only the following types of property are covered by a TOD deed:
A single-family home or condominium unit
A single-family residence on agricultural property of 40 acres or less or
A residence with no more than four residential dwelling units.
The biggest advantage of a TOD Deed is that it can avoid probate. Also, the preparation and recording of the TOD deed is relatively fast and simple. A TOD Deed can be revoked at any time during the lifetime of the grantor. A TOD Deed should simplify the transfer process at death, as long as the deed is not voided by a drafting error.
The TOD Deed is not suitable for everyone because it has many limitations. First, even if you have a TOD Deed, your property will still be subject to probate if your beneficiary predeceases you and you do not have an alternate estate plan. However, if you have a trust, your trust can specify that if the beneficiary predecease you, the property will go to the beneficiary’s children or other people whom you designated. Second, If your beneficiary is a minor when you die, the court will appoint a custodian to take over the control and management of the property until the child reaches legal age and only then will the child own the property outright. This process many incur legal and court fees. However, if you have a trust , your trust can designate a custodian, making court’s involvement unnecessary, thereby saving of a lot of money. Third, if you have more than one beneficiaries and if one of them die, the deceased beneficiary’s interest will automatically pass to the other named beneficiary. If you have a trust, you can specify if a beneficiary dies, the beneficiary’s interest will pass to his children, not to the beneficiaries. Fourth, if you have more than one beneficiaries and if you want uneven distribution of property to your beneficiaries, then you should not use a TOD deed because a TOD deed cannot achieve it. The beneficiaries on the TOD deed will split the property evenly.
A big disadvantage of a TOD Deed is that a TOD Deed is void if at the time of death, the property is held as joint tenancy. If a married couple own a house as joint tenants, if both the husband and the wife executes a TOD deed, both TOD deeds are void. That will create a big problem. If the wife executes a TOD deed and name her son as the beneficiary. If the wife dies first, the TOD deed is void because the property is held in joint tenancy. After the wife dies, the husband will own the entire property through joint tenancy. If the husband remarries, he add the new spouse’s name to the property and can even transfer the house to the new spouse. If the marriage is a second marriage and each spouse has children from a previous marriage, the issue is even more complicated. Assuming each spouse execute a TOD deed designating their own children as the beneficiaries. If one spouse dies first, the other spouse will own the entire property. That spouse can give away to his or her own children and entirely cut off the deceased spouse’s children.
Furthermore, the TOD Deed offers no protection from the Grantor’s creditors including Medi-Cal Estate Recovery. Because the TOD Deed offers no protection from creditors, the beneficiary may end up with nothing if the debts of the Grantor are larger than the worth of the property. Because there are unsatisfied creditor’s claims against the property transferred via TOD Deed, some title companies are not willing to issue title issuance to the beneficiary until three years after the Grantor’s death. Although the TOD law was written to minimize the use of attorneys, because of the specificity of the form, a consumer may unwittingly void the transfer because of an error in the completion of the form.
There is a sunset date on the TOD Deed. As stated above, the use of TOD deeds is relatively new, and they are not allowed in all states. California has undertaken a five-year trial period for TOD deeds. According to the California legislation, the use of TOD deeds will expire on December 31, 2020.
Because of the disadvantages outlined above, particularly concerns regarding joint tenancy, community property, transfers to minors, and capacity to revoke, some estate planners believe that transfer on death deeds should only be used as a last resort unless there is insufficient time to prepare proper estate documents. You should consult an estate planning attorney whether the use of the TOD Deed is suitable for your family.
一個在2016年1月1日生效的新法規制定了可撤銷的死亡契約轉讓 Transfer on Death Deed (TOD) 。這是一種加州居民把物業轉移給指定受益人的一種方式，轉讓在去世時便生效。 TOD契約僅涵蓋以下類型的物業：
It’s quite a contrast to Jackie Kennedy Onassis’ will, who generously instructed that each of Lee’s children were to be given $500,000. However, the relationship between the ex-princess and her daughter-in-law Carole allegedly waxed and waned, after her son Anthony’s death from cancer. Lee herself was said to be hard pressed for cash, because of an extremely extravagant lifestyle. However, her own mother had set up a trust for her benefit decades ago.
Radziwill’s last will and testament was signed on Sep. 20, 2018, less than five months before she passed away. She died at age 85 of apparent natural causes in her apartment in New York City.
Her daughter-in-law, Carole DiFalco Radziwill, had appeared on “The Real Housewives of New York City.”
Because her son Anthony predeceased his mother, her will stated that she has one child, named Christina. She directed her executors to sell her New York City co-op apartment as soon after her death as may be practicable and to dispose of the proceeds, as part of her estate. She split her time between New York City and Paris, where she kept an apartment that was sold in 2017.
Throughout her high-profile life, Lee would reportedly turn to her sister Jackie and ask for funds to finance her lavish lifestyle. In response, Jackie did not leave any money for her sister in her own will, explaining simply that she had provided for her sister during her lifetime.
Lee was married to three men, who left her substantial funds. The last was Herbert Ross, a wealthy director and producer. However, in her own will, light is shed on a trust set up for her by her mother, Janet Lee Auchincloss, a leading member of American society in Newport RI, and Washington, D.C. The trust was created in 1975, an agreement between Jackie as grantor and Lee and the U.S. Trust Company of New York as trustees and revealed that Christina becomes the beneficiary of this and any other trusts that are in her and her mother’s name. The value of the trust was not revealed.
The executor of Lee’s wills are two friends, one who lives in Cornwall CT and another who lives in Harding Township, NJ.
Lee’s relationship with her daughter-in-law received a nice grace note, when Carole wrote about her mother-in-law and said that even though her husband was gone and there were no grandchildren, which often bonds in-laws, Lee always introduced her as her daughter-in-law, and even after long absences, she never wavered.
Ironically, the first item in her estate states that all debts and funeral expenses be paid as soon as practicable, and that no extraordinary means or special accounting loopholes be taken to avoid paying any death taxes. That’s an interesting comment from someone who was blessed with wealth, glamour and connections, but never had enough money to fund her own lifestyle.
“Wills are beneficial, whether you think you have assets or not.”
Having a will and an estate plan makes passing along assets much easier for the family. Having necessary documents like a power of attorney and a health care power of attorney lets the family make decisions for a loved one, who has become incapacitated. These are estate planning basics, as reported by WKBN 27 in the article “Attorney recommends everyone have a will in place to prevent avoidable issues.”
Think of the will as a way to speak for yourself, when you have passed away. It’s the instructions for what you want to happen to your property, when you die. If there’s a will, the executor is responsible for carrying out your requests. With no will, a court will have to make these decisions.
Many people believe that if they don’t have a will, their spouse will simply inherit everything, automatically. This is not true. There are some states where the surviving spouse receives 50% of a decedent’s assets and the children receive the rest. However, the children could be offspring from outside the marriage. Not having a will, makes your estate and your family vulnerable to unexpected claims.
A will must contain certain elements, which are determined by your state’s laws and must be signed in the presence of two witnesses. Without the correct formalities, the will could be deemed invalid.
Lawyers recommend that everyone have a will and an estate plan, regardless of the size of your estate.
Young parents, in particular, need to have a will, so they can name a person to be guardian of their child or children, if they should both die.
Details matter. In some states, if you make a list and neglect to name specifically who gets what, using the term “children” instead of someone’s name, your stepchildren may not be included. State laws vary, so a local estate planning attorney is your best resource.
You should also be sure to talk with your spouse and your children about what your intentions are, before putting your wishes in writing. You may not feel totally comfortable having the discussion. However, if your intention is to preserve the family, especially if it is a blended family, then everyone should have a chance to learn what to expect.
Wills do become binding, but they are not a one-time event. Just as your life changes, your estate plan and your will should change.
Don’t neglect to update your beneficiary designations. Those are the people you named to receive retirement accounts, bank accounts or other assets that can be transferred by beneficiary designations. The instructions in your will do not control the beneficiary designation. This is a big mistake that many people make. If your will says your current spouse should receive the balance of your IRA when you die but your IRA lists your first wife, your ex will receive everything.
Here are the four estate planning documents needed:
A living will, if you need to be placed on life support and decisions need to be made;
A healthcare power of attorney, if you cannot speak for yourself, when it comes to medical decisions;
A durable power of attorney to make financial decisions, if you are incapacitated.
A local estate planning attorney can help you create all of these documents and will also help you clarify your wishes. If you have an estate plan but have not reviewed it in years, you’ll want to do that soon. Laws and lives change, and you may need to make some changes.
It’s a very easy thing to forget, because it’s so unpleasant to consider. The idea of becoming seriously ill or even dying while your children are young, is every parent’s worst fear. But putting off having an estate plan with a will that prepares for this possibility is so important. Doing it will provide peace of mind, and a road forward for those who survive you, if your worst fears were to come true.
Start with a will. In a will, you’ll name a guardian, the person who would be in charge of rearing your children and have physical custody of them. Don’t assume that your parents will take over, or that your husband’s parents will. What if both sets of parents want to be the custodians? The last thing you want is for your in-laws and parents to end up in a court battle over custody of your children.
Another important document: a trust. You should have life insurance that will be the source for paying for the children’s education, including college, summer camps, after-school activities and their overall cost of living. In addition, proceeds from a life insurance policy cannot be given to a minor.
However, what if your son or daughter turned 18 and were suddenly awarded $500,000? At that age, would they know how to handle such a large sum of money? Many adults don’t. A trust allows you to give clear directions regarding how old the child must be, before receiving a set amount of money. You can also stipulate that the child must complete college before receiving funds or reach certain milestones.
An estate plan with young children in mind, must have a Power of Attorney for financial decisions and one for medical decisions. That allows a named person to make important financial and medical decisions on behalf of the child. You may not want to have their legal guardian in charge of their finances; by dividing up the responsibilities, a checks and balances system is set into place.
However, for medical decisions, it is best to have one primary person named. In that way, any care decisions in an emergency can be made swiftly.
While you are creating an estate plan with your children in mind, make sure your estate plan has the same documents for you and your spouse: Power of Attorney, medical Power of Attorney, a HIPAA release form and a living will.
Speak with a local estate planning attorney who has experience in planning for young families.
“You’re hoping to leave your loved ones a nice legacy and something that can enhance their financial security or help them achieve special goals. Have you considered how your individual retirement account (IRA) fits into your estate plans?”
Most people use their IRAs (Individual Retirement Accounts) for retirement income. However, a lucky group find themselves not needing the money from their IRA accounts. Instead, the assets become part of a legacy that they leave to heirs. That is why most IRA accounts include the name of a beneficiary who could inherit these accounts, when the owner passes away, reports the Oakdale Leader in the article “Leaving An IRA As An Inheritance.”
If no beneficiary is named, things can get complicated for both the estate and the heirs. If the IRA has a named beneficiary, but the will names someone else to receive the IRA, the beneficiary named in the IRA is the one who receives the asset. The named beneficiary in any account and especially an IRA, supersedes the will, in almost every instance.
Anytime there is a significant event, often called a “trigger” event, like a divorce, marriage or birth, the estate plan and all accounts with named beneficiaries should be reviewed. This is to ensure that the assets go where the owner wants them, and not to an unintended heir, like an ex-spouse.
There are special rules for spouses, where IRAs are concerned. Married couples typically name each other as beneficiaries on their IRAs. A surviving spouse has certain decisions to make, when inheriting an IRA. The IRA may be rolled over into a new or existing IRA in the spouse’s own name. Taking this route depends upon the age of the spouse and the need for the money.
Another option is to convert the inherited traditional IRA into a Roth IRA. However, taxes must be paid on the conversion. It is also possible to transfer the IRA assets into an inherited IRA. An estate planning attorney will be able to explain all the options and how they will work with the surviving spouse’s estate plan.
To maximize the growth of the IRA, children or grandchildren can be named as IRA beneficiaries. They will need to start taking annual Required Minimum Distributions (RMDs) immediately, and the distributions will be taxable. However, the amount of the RMD will be based on their anticipated lifetimes, so the taxable distributions will be relatively small. The money in the account will have many years to grow.
When children or grandchildren are named as contingent beneficiaries, a surviving spouse has the option to disclaim the IRA, which allows the children or grandchildren to inherit the IRA and enjoy the tax-free years of growth.
Many advisors counsel against naming an estate as a beneficiary, because it helps avoid probate and strict distribution time limits.
“What then happens when gifts made in a testamentary instrument, such as a will or a trust, lapse (fail) because the beneficiary is either deceased or is deemed to be deceased (such as with an ex-spouse)?”
The goal of any estate plan is to avoid “intestacy” — that is, when all or some of a person’s estate goes to their surviving heirs, and not to beneficiaries who were named in the decedent’s will or trust. After all, that was the point of having a will in the first place, wasn’t it?
However, as reported in Lake Country News’ article “Estate Planning: Failed Testamentary transfers,” things don’t always work out as planned. If the beneficiary is unable to receive the asset, the best possible situation is for the asset to go to an alternative beneficiary. That’s why every will, trust and any asset of any kind with a beneficiary designation should have an alternative or secondary beneficiary. However, what happens when there’s no such person named?
If the deceased beneficiary was the decedent’s kin or was kin to the surviving spouse, deceased spouse or even an ex-spouse, in California a special statute called the California Anti-Lapse Statute comes into play, unless another intention is expressed in the will. Under this law, a gift to a deceased kindred beneficiary goes to the kindred beneficiary’s descendants.
The share of the asset will be divided into as many shares, as there are living members of the next generation of kin.
Here’s an example: Let’s say a father makes a gift to his beloved daughter Susan. Sadly, Susan dies before her father. She has two daughters, Dawn and Heather. There’s also a son, Phil, who has passed away, with two surviving children (who were Susan’s grandchildren).
The shares of the father’s gift to Susan is divided by a right of representation into three equal shares: one share each for both of Susan’s daughters Dawn and Heather, and one share for her son Phil, because he has two surviving children.
The share for Phil’s two kids is split equally between the two boys.
This division of assets is a statutory response to what can happen when children do not live longer than their parents.
When there is no alternative beneficiary to inherit and the Anti-Lapse statute does not apply, then the gift is subject to a residual clause. This determines how the remainder, or balance, of the assets are distributed after any specific gifts or assets and monetary gifts are made. First in line: any debts or taxes that need to be paid by the estate.
When there are no specific or monetary gifts, the residuary clause distributes the decedent’s entire estate.
Let’s say Bob leaves his entire estate to his friend George. The Anti-Lapse statute does not apply, because Bob’s heir is not a relative. The will has a residuary clause that gives the remainder of the estate to Bob’s own children equally, even though that might not have been Bob’s intention.
While every state has different laws, this is a good example of why it is very important to update your will on a regular basis. It’s also important to have alternative or secondary heirs named as beneficiaries in your will. Life has a way of surprising us. If your will is not up to date, your assets may not go to the people you had intended.
“If your life insurance lists only “Jr.” as the beneficiary, he will get 100% of the death benefit and your daughter will get only half of the assets that do not have a beneficiary designation.”
How would your daughter feel about receiving no part of that death benefit? No matter how good your son is, there’s no way to guarantee that he will do the right thing and share those assets with his sister as you wanted. The result could be a family fracture that keeps siblings, cousins, and even grandchildren apart.
“Dying intestate” is the term used to describe the legal status of someone who has died without a will. The laws of your state will then dictate what happens to your assets. Most of your tangible possessions will be distributed following probate. If your estate is complex, for example, and you own property in more than one state, the process will take a long time and the costs will be high. A will—and an estate plan that is updated regularly—can prevent this and many other scenarios.
Some of your assets do not pass to heirs through a will. This includes retirement accounts, life insurance policies and annuities. All accounts that have named beneficiaries go directly to the people who are named. If they predecease you, then the contingent beneficiary receives the asset.
Reviewing beneficiary designations is as important as reviewing your entire estate plan. If you name only your son as the beneficiary for your insurance policy, then later welcome a daughter into your family by birth or adoption, you’ll want to add her as a named beneficiary as well. Otherwise, when you die, only your son will receive the proceeds.
Anytime a life event occurs—births, deaths, divorces, marriages—is the right time to review your beneficiary designations.
Here’s the key: you can make these changes when you are living. When you die, the designation is irrevocable.
Your estate plan also needs to include two different types of Power of Attorney (POA). The first is to make financial decisions if you are incapacitated, and the second is to make health decisions.
The person you give the POA to has authority to make these decisions for you, only while you are alive. The POA terminates upon your death.
Most people name their spouse for their healthcare POA, but if your spouse passes and you have adult children, one of them should be named your healthcare POA. Regulations about healthcare have put medical professionals into a difficult situation, when they want to have the family involved but are legally unable to share information. If your children disagree about your care, emergency situations may also become more challenging. If you have a blended family, things can get really divisive.
Here’s a celebrity story that serves as a perfect example. A famous father made his third wife his executor and gave her total control over his business, despite the fact that his son was equally famous and the top executive in that business, as well as its public face. The son was baffled when he learned that the third wife now controlled the business, including the rights to his own name. When the father died, a long, expensive and unpleasant estate battle began. The son was Dale Earnhardt Jr.
Keep your family together, ensure that assets are distributed as you want and make sure to have conversations with your family members, so the family you devoted a lifetime to creating continues as part of your legacy. Speak with an estate planning attorney to create the documents and if need be, help you communicate with your family members. Don’t overlook what’s at the heart of estate planning: your family.
“You wouldn't trust your toddler with a pile of cash, right? Well, this estate-planning technique may allow you to safely pass your IRA on to future generations—if you do it right.”
Some of the biggest blunders in IRA distributions come to those who inherit these accounts. On the bright side, if handled correctly, you can structure the distribution, so your children or grandchildren reap the benefits for many years, says CNBC in the article “Leaving an IRA to a loved one? How to avoid a tax bomb.”
Naming a trust as an IRA beneficiary is a good way to protect large IRAs, since it provides some means of control. By naming a trust, you can protect heirs who are minors, vulnerable to creditors, not able to handle large sums of money or disabled. Trusts only need $12,750 of taxable income in 2019 to be subject to the top tax rate of 37%.
If you don’t structure the trust right, you could accelerate the liquidation of the IRA at warp speed.
Most people think of their spouse, when it comes to naming a beneficiary for an IRA. Unless your spouse needs the funds, it’s best to name the next generation. What are the pitfalls? Not all IRA custodians allow you to list a trust on the beneficiary form. The tax code has very specific conditions, when trusts are the beneficiaries of retirement accounts. If you fail to follow the rules, your heirs could face huge tax bills. For a trust to be viable as a designated beneficiary, it must meet a four-step test:
It must be valid under your state’s laws.
It must be an irrevocable trust, or one that will become irrevocable upon your death.
Beneficiaries must be identifiable from the trust document.
The IRA custodian or trust administrator must have received a copy of the trust by October 31 of the year after the death of the IRA’s owner.
The beneficiaries must be people, not charities and not your estate. If your beneficiaries are not people, then your IRA may not have a designated beneficiary. In that case, your heirs can’t stretch the IRA by taking required minimum distributions, based on the longer life expectancy of a child or a grandchild.
Worse—if your trust fails to meet the test, it is subject to the same rules as if there was no designated beneficiary at all. That means it’ll be depleted faster than you may have wished. If you die before you start taking RMDs (70½) then the IRA must be distributed within five years after death. If you die after you start taking RMDs, then distributions pay out over what would have been your life expectancy.
Speak with an estate planning attorney about the type of trust that will work best. There are two to chose from: a conduit trust, which distributes the RMDs directly to the beneficiary, or a discretionary trust, if you’re worried about a child who can’t manage money or who may be indebted to creditors. Note that RMDs are taxable income to the beneficiary when they receive it, but if the distribution is held in the trust, then the trust owes the taxes.
“A will directs how your probate assets will be distributed upon your passing, designates an executor to be in charge of your estate, and allows you to create trusts for minor grandchildren or disabled beneficiaries. However, having a will is just part of the story.”
A will is the cornerstone of an estate plan, but it is by no means the only document needed to distribute assets and prepare for both incapacity and death. The Island Now reviews a number of things that an estate plan should address in the article “Five things that will impact your will.”
How are your bank accounts structured? If you have a bank account set up as “joint with right of survivorship,” when one of the owners dies, the other owner automatically inherits the whole account. Remember that this will occur, no matter what is stated in the will. If you have added a child to that account for convenience, is it your wish that the child should inherit the entire account? That’s exactly what will happen. You may be better off letting a child help you, using Power of Attorney rather than structuring the account that way.
When was the last time you reviewed beneficiary designations? Like titling bank accounts, as explained above, the beneficiary designation takes precedence over anything in your will. If you opened an IRA at your first job and now two decades—and two marriages—have passed, that IRA will still be passed on to the person who you named two decades ago, unless you have updated the beneficiary name. Accounts that often pass directly to beneficiaries include life insurance, annuities, 401(k), 403(b), brokerage accounts and some bank accounts.
Each asset that has a beneficiary, should also have a contingency beneficiary in the chance that the primary predeceases you or does not wish to receive the asset.
Are you prepared for the cost of a health crisis? The cost of a health crisis can, and often does, wipe out a family’s years of retirement savings. There are several strategies that an estate planning attorney can help you with to plan in advance for this. Long-term care insurance may be an option and placing assets in an irrevocable trust may be another, depending on your situation. There is a five-year look-back for any Medicaid benefits, so planning in advance is critical.
For many families, placing their primary residence into a trust while retaining the right to live in the home, retaining any STAR or Veteran’s exemptions and possibly even securing capital gains advantages for heirs is a possibility but requires the help of a skilled estate planning attorney.
Is gifting part of your estate plan? Most people know about the annual exclusion gift, which allows anyone to make a gift in the amount of $15,000 per year to a beneficiary with no gift tax consequences. However, if you need to apply for Medicaid coverage within a five-year period, any gift will trigger a waiting period before you can be eligible for Medicaid. Therefore, you can make a gift for tax purposes but it’s not something you can do for Medicaid planning. This is an expensive mistake. Talk with an estate planning attorney to make sure you get this one right.
Who is your Power of Attorney? Everyone should have a Power of Attorney. This is a person who is your legal representative, if you become incapacitated. The durable power of attorney gives your agent the authority to handle banking matters, real estate transactions and other financial matters. You’ll also need a health care proxy and a living will.
All these issues are part of a comprehensive estate plan, which is best created with an experienced estate planning and elder law attorney.