One of the main challenges for families with wealth is planning for more than a single generation. With the uncertainty of the world, advances of technology, economic upheaval, and more many people are concerned about how to plan for decades or even a century down the line. However, there are ways to plan your estate that can provide for children, grandchildren, and subsequent generations as long as you are willing to plan with some level of flexibility.
Issues with Multigenerational Planning
"People, especially the first generation to have wealth, do have concerns about the future and they aren't used to thinking in multigenerational terms." Many legal and financial planners have found that it is difficult for people that have first generation wealth to think past giving to the next generation. This is because they first must adjust to managing that kind of wealth on their own before thinking about transferring it to their children, let alone passing it to subsequent generations.
In addition, it is impossible to know what the tax landscape or financial regulations will look like decades later, so making plans that far away gets even harder. That is why very few planners today recommend rigid estate planning tools like a pure dynasty trust, which has very little flexibility in its terms.
How to Long-Term Estate Plan
Allowing for flexibility in your estate plan can help you plan for future generations beyond your children and grandchildren. One of the most commonly used estate planning tools for this type of planning is the use of a multigenerational trust that is not too rigid and allows for flexibility in future generations. Multiple means of flexibility can be incorporated into a single planning tool. Power to modify the trust terms, flexibility in distribution, and other optional clauses can help a single trust last for generations.
Another option for multigenerational estate planning is the use of decanting, otherwise known as moving assets from an older trust into a new trust with updated terms. Decanting can only be done in certain circumstances, and the laws are different for the practice in every state. It is important to check with an estate planning attorney about whether this practice is legal and proper for your situation.
A third option for multigenerational planning is to give broad, discretionary powers to trustees. Giving broad powers to the trustee allows for them to make a wider range of decisions regarding the assets in the trust. In addition, giving beneficiaries the power of appointment allows for the beneficiaries to decide what is in their best interests at the time in addition to what will be in the best interest of the next generation. This can be beneficial because future generations will be able to spot potential problems with family members that you would be unable to account for now. For example, someone down the line might have a substance abuse problem, need emergency medical care, or have special needs that require more from the trust.
One of the main challenges for families with wealth is planning for more than a single generation. With the uncertainty of the world, advances of technology, economic upheaval, and more many people are concerned about how to plan for decades or even a century down the line. However, there are ways to plan your estate that can provide for children, grandchildren, and subsequent generations as long as you are willing to plan with some level of flexibility.
The House of Representatives recently passed a bill that would eliminate the federal estate tax. The bill is expected to pass in the Senate but be vetoed by the President, thus most likely preventing it from becoming law. However, the bill does bring up an interesting aspect of the federal estate tax, namely, how small businesses and family farms need to estate plan in order to protect their assets.
Federal and State Estate Taxes
Currently, the federal estate tax applies to any estate that is over $5.43 million, and any assets over that amount in the estate can be taxed up to forty percent. State estate and inheritance taxes vary and must be checked on a state by state basis; however, some states can take a significant portion of the estate's worth if the assets are not properly shielded by an estate plan. For example, Ohio repealed its estate tax in 2013, but Maryland has both estate and inheritance taxes up to sixteen percent on estates worth more than $1 million.
Effects of Federal Estate Taxes
While most people are not affected by the federal estate tax, people with small businesses or family farms can be hurt by the final tax bill from the Internal Revenue Service (IRS). This is because the majority of the estate's assets are usually tied up in illiquid things. For example, a small business usually has most of its assets in the building and equipment and a farm has most of its money tied up in farmland, farming equipment, seed, livestock, and other things that cannot be quickly and easily converted into cash.
As a result, small businesses and farming operations can be stuck in a bind if they are hit with serious estate tax bills by the federal government. Oftentimes the heirs are forced to sell the business or farm simply to cover the federal estate taxes because they cannot convert the assets into cash and have enough left to properly run the operation. This is why it is important that the owners of small businesses and farms have the right estate plans in place to shield their assets from the federal estate taxes.
How to Protect Assets
One popular option for small businesses and farms is to purchase life insurance. The life insurance proceedings can be used to cover the federal estate tax without harming the operation. Another option is to transfer the ownership of the business or farm into a business entity. Partnership, corporation, or limited liability corporations are all possibilities for transferring ownership in order to minimize or avoid federal estate taxes on that aspect of the estate. The business or farm would be taxed separately as its own entity, and it would no longer be considered part of an individual person's estate.
While the main purpose of an estate plan is to distribute assets to your loved ones after you are gone, it can also serve an important purpose while you are alive - planning for your potential incapacity. An estate plan can provide instructions for the management of your assets, payment of expenses, and personal instructions for your care if you become unable to communicate those decisions on your own.
Importance of Planning for Incapacity
Planning for incapacity is important for everyone, but it is especially important for unmarried partners. Typically, the spouse of an incapacitated person is named as the administrator for financial, legal, and medical needs. However, unmarried partners are not always named as the administrator, and a blood relative may be named instead.
It is also vitally important to have documents planning for incapacity if your plans differ than the wishes of your family members or if you have not shared what your final wishes are with your loved ones. If your choices are not clear, it is up to whoever is appointed to make decisions on your behalf, and whatever they decide regarding your care will be enforced.
Possible Incapacity Documents
There is multiple estate planning documents that can help you plan for any potential incapacity. These documents impact the financial, medical, and legal decisions that your appointed administrator can make.
Durable Power of Attorney
A durable power of attorney form appoints a person to make all financial decisions on your behalf. This includes paying all bills, house repairs or maintenance, and control over any retirement funds or other assets.
Revocable Living Trust
This estate planning tool is another form of protecting your assets in the case of incapacitation. Your assets are transferred into a revocable living trust and you are named as the trustee. If you ever become incapacitated, the successor trustee takes over until you are able to regain the ability to manage the trust. In addition, a revocable living trust can give instructions about asset management that a simple durable power of attorney cannot.
A healthcare proxy, otherwise known as a durable power of attorney for healthcare, appoints someone to make all of the medical decisions regarding your treatment and care. It applies to all medical decisions, including whether to leave you in a vegetative state, signing a "Do Not Resuscitate" form, or allowing you to pass away.
Also known as an advance directive, a living will gives directions to the person named as your healthcare proxy regarding your medical wishes. It can gives directions about what medication you wish to have, what treatments you want to abstain from, and detailing your end of life wishes. It can alleviate the trauma of making a loved one decide whether or not to end potential life-saving procedures. A living will should also include copies of HIPAA forms for all of your doctors and other medical professionals that give authorization to the person named in the healthcare proxy form.
Small, family-owned businesses make up the crux of our nation's economy. In 2011, there were 28.2 million small businesses in the United States and they make up 99.7% of U.S. employer firms. Many small business owners hope to create a legacy where their family will take over operations once they decide to retire, but it does not always happen. Business succession planning is crucial to determining whether your family should inherit the business or if you should look to other options when you decide that you no longer wish to run the company.
Early Planning is Important
The earlier that you begin succession planning for the next generation, the better off your business will be. To start, have a conversation with the next generation about whether they see themselves running the business when you are gone. It can take over a year to develop a succession plan and between three to five years to implement.
If your family shows an interest in running the business, you can decide when the best time to introduce them to the operations should be. If they do not seem interested, you can start to look to other options regarding your business for when you decide to retire.
Have an Honest Conversation
Just because you have created a successful small business, it does not mean that your children or grandchildren are cut out for business. Even if they wish to run the business, your family members may not have the aptitude for it. You should have an honest discussion with your heirs about their career aspirations and whether they should run the family business when you are gone.
You should never assume that your family members will run the company or are equipped to handle the responsibility. If you do not believe that you can objectively evaluate the situation, consider bringing in a neutral third party to decide the matter. If there are multiple family members that wish to run the business, a third party decision maker can be a fair and impartial way to choose.
Identify All Operational Roles
One of the most important parts of a succession plan is that every member who is set to run the family business knows their role and responsibilities. If more than one family member will be running the business, try to play to their strengths and not what you wish for them to do. If every person has their specific responsibilities, it can alleviate potential arguments down the road. In addition, everyone will be able to add value to the business without causing problems for others.
Not only can the business succession plan designate responsibilities, it can also help manage expectations. Voting rights, profit sharing, ownership, and other important matters can all be discussed and made explicit in the plan. Knowing exactly what is expected and the roles to be played can also bring your family together, working towards the same goal of making your business as successful as possible.
Many families purchase vacation homes that they and other generations in their family can all enjoy together. However, vacation homes can also lead to some serious family feuds when it comes to estate planning. One of the biggest mistakes in estate planning when a vacation home is involved is to leave the question of ownership, sharing, and other issues without a detailed succession plan. If a plan cannot be agreed upon with you and your loved ones, you may want to consider selling the home before any fights begin.
Selling the Vacation Home
Sometimes selling the vacation home makes more sense than leaving it to loved ones. Your children or grandchildren may not be able to afford the taxes, upkeep, maintenance, and travel to the home. In addition, the recovering real estate market means that your family could make some money selling the home that could be added to their inheritance. The money from the sale of the vacation home could also go to your long-term care or that of your spouse.
Succession Plan for the Home
If you decide to keep the vacation home, it is crucial that you draft a succession plan for your family. The plan should outline how your family members will split the expenses, repairs, taxes, and insurance on the home. Accounts can be created that family members pool their money into to cover the basic costs of the vacation home.
Household chores should also be discussed in the vacation home succession plan. Oftentimes, cleaning and caring for the home can cause tension among family members, so create a plan that gets everyone involved. You can create a rotating schedule to take care of chores around the house, or you can hire a cleaning service to take care of it for you. If one family member decides to serve as the primary caretaker for the home, consider leaving them a small bonus in the estate for all of their hard work. Conversely, if a family member cannot pay for their share of the expenses, they can take on more of the caretaking responsibilities for the home.
Transferring the Vacation Home
Another common issue is determining how to transfer the vacation home from one generation to the next as well as what tax implications the transfer can have on the family. Many families set up a limited liability company (LLC) or family limited partnership to facilitate the transfer. The business entity would be the technical owner of the property, and not your family members individually. Your family members would then be issued "shares" of the property through the limited company.
There are a few benefits to transferring the property through the creation of an LLC or family partnership. For one, the agreement can include all issues surrounding the vacation home like the payment of expenses, scheduling, and other guidelines for the home. In addition, there can be no forced sale of the home if one family member wants out of the agreement, and it can create buyout terms for that situation.
A lawsuit recently filed in the U.S. District Court in the Southern District of Texas has challenged the Internal Revenue Service's (IRS) assessment that a family owes the government millions in taxes for artwork that they claim is actually owned by a company. The estate of Joe Allbritton and his widow, Barbara Allbritton, are disputing the $40.7 million tax assessment on an alleged distribution of around $140 million worth of company-owned art to the Allbritton family.
Facts of the Case
The complaint was filed by the Allbritton family on January 30, 2015 which states that the art in question is owned by Perpetual Corporation (the Company), a corporation that is owned by the Allbritton family that held their art, real estate, and other assets on behalf of the family. The Company has been investing on behalf of the Allbritton family for over fifty years and in 1999 it was the sole owner of 26 pieces of artwork. It also owned another six pieces with a 95% interest, the other five percent belongings to Joe Allbritton.
In 2001, Joe transferred 95% interest to the company in another twelve pieces of artwork, retaining the five percent interest in those pieces. The family reported the tax gain those years for the transfers. The Company held the artwork in various corporate residential properties that were also owned by it, in offsite storage, or occasionally in the Allbritton home. The Allbritton family paid the Company fair rental value whenever family members occupied the residential properties.
The insurance policies on the artwork were paid by Joe Allbritton and the Company according to their percentage ownership interests in the pieces. The IRS assessed the tax bill in question on all of the artwork under the theory of "constructive property distribution" for the art and insurance premium expenses. The IRS also submitted an alternative argument of constructive property distribution for the fair rental value of the artwork.
Argument by the Allbrittons
Joe Allbritton's estate and his widow argue that there was no constructive distribution of the art in question. They argue in the complaint that they did not possess any ownership rights over the art beyond what any corporate officer in the Company would have. In addition, the Allbritton family paid fair rental value for the residential properties owned by the Company, which included the value of the furnishings and artwork in the home.
The Allbrittons argue that the IRS cannot claim that there was both constructive property distribution of the art in addition to constructive distribution of the fair rental value of the art. Furthermore, the family argues that the IRS should be treating the artwork as separate corporate assets, despite the fact that the art can be movable and enjoyable. The IRS is required to submit an answer to the Allbritton family's complaint by May 20, 2015, and experts are interested to see how the IRS will expound upon its theory of constructive distribution to these types of assets.
The responsibilities of being named as the executor of an estate can be overwhelming, especially when you are still grieving over the loss of a loved one. Becoming the executor of an estate comes with a multitude of administrative tasks, and getting something wrong could make you liable for damages. One software executive saw the need for some help and has designed online tools to make the executor's role in estate planning easier.
Role as Executor
Executors are required to perform many tasks when settling the estate of someone that they know. The executor is in charge of paying the taxes on the estate in addition to any unpaid creditors. The executor must find and document all assets of the estate as well as settling all of the deceased's affairs. Finally, executors must distribute assets and personal items to the heirs of the estate.
Unfortunately, there are not a lot of resources available to help an executor handle an estate outside of turning to an estate planning attorney. Most of the information that currently exists online refers to the estate planning steps that a person should take for their own estate and not how to handle the estate of another.
Online Tools for Executors
Daniel Stickel created a program that has been developed into EstateExec.com, an online tool to help executors handle the estate of their loved one. The program helps executors document and complete the tasks required of them for the estate. Mr. Stickel has likened the program to other programs like TurboTax; EstateExec.com does not provide any legal advice but tries to simplify the process.
Other products already exist online to help executors with their estate responsibilities, but they come in the forms of lengthy books or complicated software systems. These options are usually overkill for the basic, non-attorney executor trying to handle an estate. Mr. Stickel's program focuses on guiding executors through the process.
Features of EstateExec.com
EstateExec.com creates an interactive way for executors to track the list of responsibilities that they have in managing the estate. An executor can list all assets and accounts, individual personal items, and larger pieces of real estate. In addition, this program allows the executor to share the information with other family members and heirs for the sake of transparency. This allows heirs to contribute the information that they might have regarding the estate and alleviates any mistrust that family might have about the executor handling the estate.
In addition, EstateExec.com gives the executor a timeline along with when certain tasks should be completed. It also gives the executor tips about the smaller responsibilities that come with the position, such as getting copies of the death certificate. However, the one thing that this program does not do is give legal advice to the executors of the estate.
Estate law varies from state to state, so as an executor it is important to have an estate planning attorney on hand in addition to use of software like EstateExec.com. The website for the program even states that "You almost certainly need a lawyer if the estate is very large, the will is particularly complex or there will likely be litigation."
The common thought when estate planning is to split the inheritance equally among your children. The main goal of the distribution is to be fair to each child, but that is not always the case. Sometimes there are special considerations that need to be made for one or more children that result in unequal distribution of the estate.
Circumstances for Unequal Distribution
Splitting an estate equally amongst your children may seem like it makes the most sense, but sometimes circumstances arise that make the situation more complicated. Like many families, oftentimes one child does better financially than the others, or one may be struggling through difficult financial times. In addition, if one of your children has special needs it will require additional planning and resources from your estate to care for them for the rest of their life.
In addition, one child may elect to take care of you or your spouse as you age, and you may want to compensate them for the time and effort that they put in for your care. The same goes for any family members that contribute to a family farm or business that you wish to compensate for their efforts. Simply splitting an estate equally could mean that the children that have been actively invested in the family business may be forced to sell or buy out their siblings just to keep things running.
How to Handle the Situation
There are many different ways to handle splitting an estate into unequal shares for your heirs. Setting up a trust for your assets is a common way to deal with the possibility that your children may need more or less of your estate throughout their lives. A trustee can distribute your assets as they are needed to your children and eliminate the need to make a permanent decision about inheritance based only on a single moment in your children's financial lives.
In cases where one child is in need of money before you and your spouse pass away, the easiest way to provide for them now is to have that child sign a promissory note. The note is tied to their share of the inheritance from your estate. If the child can pay back their debt before you pass, they can inherit their equal share, and if not the unpaid amount comes out of their inheritance.
The most important thing to do in situations where your heirs will be receiving unequal shares of the estate is to communicate. Talk with your children during the estate planning process and explain your reasoning behind the unequal distribution. The most common reason that children fight over an estate is because they do not understand why one child got more than the other. If you do not feel comfortable having that conversation face to face, consider leaving a letter or video with your estate planning attorney that can be seen after you are gone.
As adult children delay marriage and elderly parents are living longer, estate planning can sometimes get lost in the shuffle. A recent survey showed that only about 55% of all parents have an estate plan or even a simple will. In addition, almost 25% of people ages 65 years and older admitted that they do not know where their parents' estate planning documents are kept, and 44% do not know what the contents of those documents say.
Importance of an Estate Plan
Horror stories abound of adult children unable to provide for their ailing parents because they do not have the proper documentation. Despite needing to make immediate decisions, children get stuck in court and money gets tied up because there is no estate plan. Even fewer parents have health care directives and it can have an immediate effect on their wellbeing if there is a medical emergency.
Tips for Organizing an Estate Plan
Estate planning attorneys and other experts recommend that adult children and their elderly parents sit down and create a solid estate plan. This can potentially include a will, trust, power of attorney, healthcare proxy forms, and more. Here are some simple tips to create, organize, and keep track of an estate plan.
Check Every Five
Simply because an estate plan is completed, it does not mean that the estate planning process is over. You should check and update any relevant information in an estate plan every five years, at most. However, the plan should be updated anytime there is a significant life event for you or your parents.
This includes all relevant documents within the estate plan in addition to any accounts where a beneficiary is designated, such as retirement accounts, bank accounts, life insurance, and the like. Updating beneficiary documents is incredibly important because the person named is automatically the taker, regardless of your elderly parent's final wishes. Updating an estate plan also helps you keep track of where all of the important documents are located.
Finish the Job
Once the estate plan is created, it is also important that you share the information with the proper parties. For example, you should give a copy of the healthcare proxy to any relevant medical professionals, and a copy of any financial documents to the bank. If any updates are made to the estate, you should also remember to update these people, as well.
One of the simplest, yet most overlooked, issues in an estate plan is to stay organized. It can be as simple as keeping all of the relevant documents in a binder, or keep all of the documents in a bank safety deposit box. In addition to the basic estate planning documents, consider leaving additional pages with all of your digital assets, user names, passwords, and the like with these other important papers. If you choose to keep your documents in an electronic format, keep a copy on a separate hard drive or with an online company that specializes in keeping sensitive estate planning documents.
Long-term care insurance is one of the biggest topics of conversation among retirees and estate planners. The industry is going through a period of turmoil with many policyholders now cashing in on their long-term care needs and few new buyers signing up for long-term care insurance. As a result, companies that carry long-term care insurance are shifting the way that they approach these types of policies, and consumers should be looking for new trends in long-term care insurance.
Long-Term Care Insurance
There is good reason for shifting trends in the long-term care insurance industry. Sales for individual policies have plummeted over 75% in the last ten years, and only ten percent of long-term care insurance carriers are still in business. Those that remain continue to increase the premiums and tightly underwrite all of their policies. At this point, most long-term care insurance plans are only available for the wealthy and are unaffordable to the lower and middle class.
Trends in Long-Term Care Insurance
In order to make long-term care policies affordable and available to more consumers, the long-term care industry is looking to make some changes in their business model. These are some of the shifts that you can expect to see in the long-term care insurance industry during the coming years:
New premium structure
The previous premium structure on long-term care insurance was to keep premiums low and steady for years. However, high claims and a lack of returns have forced long-term care insurers to hike up the premium rates every few years. Some of the largest long-term care insurers are looking to create a new premium structure that would raise the premiums by a small amount every year, just like other types of insurance policies.
Cheaper policies with less coverage
More carriers are now selling long-term care policies with shorter terms and smaller benefits. However, these policies are also cheaper than previous long-term policies and are meant to attract new consumers to the market.
Simpler products sold online
The successes of online marketplaces like ebay.com, Healthcare.gov, and others have made long-term insurers think about offering products through a similar forum. It would require the policies to be simplified but would also allow the consumer to compare policies from different insurers. It would also require large regulatory changes but also cut down on consumer costs.
No rebound with group stand-alone insurance
Group long-term care policies are no longer as popular as they once were. As a result, fewer insurers are offering it as an option to new consumers, and do not be surprised if many long-term care insurers stop offering this option for coverage altogether.
Some insurers are offering hybrid products like long-term care insurance combined with an annuity. This type of product spreads the risk for both the consumer and the insurer. While some firms have already made it an integral part of their retirement package, other companies are less excited about multi-risk products.
Combining health and long-term care insurance
While this option seems to be the furthest away from happening, there is a lot of talk amongst long-term care and life insurance carriers about creating a combination product. If it does occur, life insurance companies will most likely be the insurers carrying the policy, but figuring out the payment structure seems to be the biggest impediment to this option.
Public/private insurance partnerships
Many long-term care insurance companies are urging the government to get involved in the long-term care industry. One of the more popular options is for the government to cover catastrophic benefits while the private insurers cover the other long-term care expenses. The major issue to this option is figuring out where the funding for the government coverage would come from.
There are many couples at retirement age that have been together for years but have opted to not get married for personal, professional, or legal reasons. For these unmarried couples, estate planning is crucial if you want your partner to inherit from your estate. If the homeowner dies without a will in place, the other partner would be out on the street with little to no recourse. However, there are options to ensure that your partner is protected through your estate plan while simultaneously planning for the other loved ones in your life.
Estate Planning Options
For couples that want to protect their partner but still leave the home to their children, one of the more popular ways of dealing with this problem is to create a life estate for the surviving partner. If drafted correctly, the partner gets the right to live in the home until they move into a nursing home facility or pass away, at which point the real estate would revert to the children. If a couple decides to go with this option, it is smart to also leave money to the spouse specifically for the purpose of house maintenance and upkeep.
If one partner wishes to leave personal property, bank accounts, or other assets to their partner, having a will is incredibly important to have. Without a will, the partner is completely at the mercy of family members set to inherit the estate. Simply claiming that one partner wished for the other to inherit is not enough to beat intestacy laws in probate court. A will can specify what you wish for your partner to inherit in addition to what you want your loved ones to receive.
Unfortunately, the U.S. tax code does not look too favorably on unmarried couples for the purposes of estate planning. Under the code, married couples are allowed to inherit an unlimited amount of assets without paying any state or federal estate taxes. This exception also applies to gifts from one spouse to another while both people are still alive. However, this exemption does not apply to unmarried couples who wish to inherit or gift assets to each other.
The current federal estate exemption level is $5.43 million, but many states have lower thresholds for state estate or inheritance taxes. In some states like Pennsylvania, non-family heirs must pay up to fifteen percent of their inheritance for tax purposes. In addition, the annual gift exception of $14,000 applies to unmarried couples who wish to gift assets to one another before they die without owing taxes on the gift.
Finally, the federal tax code also favors married couples when it comes to inheriting both traditional and Roth IRAs. A spouse is allowed to roll an inherited IRA into their own when the other spouse passes away in addition to postpone the minimum distributions until they are 70 ½ years old. Unfortunately, this does not apply to couples that are unmarried, and the best option is to name the partner as the beneficiary to the IRA account. While the partner cannot escape taxes entirely, taxes can be minimized by rolling an account into an inherited IRA and taking distributions based on life expectancy.
In the age of the internet, concern must be paid to the digital assets in addition to the physical assets of your estate when you pass away. While there have been considerable issues with this in the past, social media companies are finally instituting policies to handle the social media of a person who has died. Some companies like Twitter and LinkedIn will deactivate or remove your social media account when they have been notified of the death, but other social media companies like Facebook are taking digital asset protection one step further.
Facebook Legacy Contact
The Facebook legacy contact is the company's newest way of dealing with a deceased account holder's social media page when they pass away. You can appoint a person as your legacy contact, and it can be anyone who also has an account with Facebook. That person is notified upon your death of their legacy status and given access to your memorialized social media page.
The legacy contact is not given full access but is able to share a final message on your profile, change the profile picture, and respond to any new friend requests. In addition, the legacy can download a copy of what you have shared on Facebook but cannot remove items from the timeline, read your messages sent to other friends, or remove any current friends from the page.
Digital Assets and Estate Planning
Digital assets are all of the personal property of a person that exists online. This includes photographs, money on internet accounts like Paypal or Dwolla, social media accounts, and blog posts. The main issue with digital assets and estate planning is that there is a lack of state or federal laws regulating the area. As a result, it can be difficult to appoint a representative to take custody and distribute the digital assets of a person's estate. Despite the lack of regulatory guidance for digital assets, estate planners do recommend taking some steps to ensure that your digital assets are protected in your estate plan.
Companies such as PasswordBox, SecureSafe, and EstateMap help keep all of the information about your digital assets safely in one place. The account keeps track of all user names, passwords, security questions, and authorized users for the accounts. If you do not feel comfortable placing all of this information online in one place, keep track of all of your digital assets in a notebook or other non-digital format. The person or people that you entrust with your digital assets after you pass away will have a much easier time tracking down and managing your assets if you collect all of that information now.
Some people are making copies of most of their digital assets like photographs, videos, blog posts, emails, music, and social media sites to an external hard drive, cloud, or personal computer and leaving instructions with how to access all of the digital assets in the estate plan. If you place the assets in something tangible like a hard drive it can be easier to pass along those digital assets to a loved one within a will or other estate planning document.
Celebrity estate stories are rife with lessons about mistakes to avoid when creating an estate plan, such as problems with the estates of James Gandolfini, James Brown, and Anna Nicole Smith. Poor estate planning can lead to probate, taxes, and family disputes. Failing to create an estate plan or drafting a poorly written plan can lead to many issues for your loved ones after you pass away, but there are some mistakes that you can avoid in order to minimize the chances of problems in the estate planning process.
Mistake #1: Thinking You are Too Young or Possess Too Little
In 2012, a report from Texas Tech University revealed that only around 54% of all Americans possess an estate plan. Many do not create a will or other estate planning documents because they believe that they are too young or do not possess enough to warrant a will. However, a good estate plan does not just pass your assets to your loved ones when you die; it can also protect you while you are alive.
An estate plan names people to help you and make decisions if you ever become incapacitated. You can also assign guardianship for children or pets in an estate plan. If you wish for someone other than a spouse or children to inherit, a will is crucial. Even a simple estate plan involving a will and durable power of attorney forms can protect you and your loved ones during your life and after death.
Mistake #2: Placing Everything in Joint Ownership
Some people believe that placing property in joint ownership displaces the need for an estate plan. In joint ownership, the right of survivorship means that if one owner dies the other owns the property in full. However, joint ownership of property also opens that property to the possibility of the co-owner facing lawsuits, financial difficulty, or a divorce.
Mistake #3: Forgetting What a Will Does Not Do
A will does not always have the last say for certain assets in an estate. It is important to remember that accounts that name beneficiaries, like retirement accounts, life insurance, and bank accounts go to the named beneficiary, despite what a will might say. You should also review the beneficiary designations every few years to ensure that they stay up to date.
Mistake #4: Ignoring Family Problems
When you pass away, the last thing that you want to have happen is your loved ones fighting over you estate. While sometimes the dispute is over the amount inherited, but oftentimes the fights are about sentimental personal possessions. One of the easiest ways to avoid this issue is to sit down with you family while you are making your estate plan and discuss what each person should expect. You can also use the time to explain any decisions that you are making with your estate, or ask your loved ones if they have any special requests for items in your estate.
If you do not feel comfortable having a face-to-face talk, consider leaving a letter with your estate plan that explains your decisions. Simply understanding why can alleviate a lot of family strife when it comes to inheritance.
The White House has come forward and stated that President Barack Obama's advisers would recommend that he veto pending bill, authored by Republicans, which would repeal the federal estate tax. A veto on the bill could happen as soon as Thursday, although experts believed that it stood little chance of becoming law. Democrats in the federal legislature and other lobbying groups all disagree with the repeal of the federal estate tax because of the damage that it would cause to the federal deficit.
Repealing the Estate Tax
Known by its opponents as a "death tax," the federal estate tax reaches as high as forty percent on estates valued at more than the federal exemption level, $5.43 million for 2015. The tax is applied to the value of the estate that passes the $5.43 million mark unless it is protected through other estate planning means like trusts, retirement accounts, and the like. Proponents of the bill repealing the federal estate tax claim that it only serves to unduly burden grieving family members. However, the White House has said in a statement that it disagrees.
One of the biggest supporters of repealing the estate tax, Representative Steve Scalise, has gone on record as saying that this bill would help small business owners and family farms that require significant resources to shield their holdings from estate tax. "It takes away from their ability to grow their business to actually create jobs in this country."
Arguments Against the Bill
According to White House experts, repealing the estate tax is "fiscally irresponsible" that would "endorse the principle that the wealthiest Americans should not have to pay tax on certain forms of income at all." In addition, the Joint Committee on Taxation reported that if the bill was passed as law it would add a total of $269 billion to the federal deficit over the next ten years.
In regards to the Republicans' argument for helping small businesses and family farms, reports show that a tiny fraction of Americans actually pay the federal estate tax. Only 0.2% of all American estates, around 5,400 in total, will pass the federal exemption level and be required to pay the federal estate tax this year. This bill does not apply to any state estate or inheritance taxes, which are passed individually by each state and have their own requirements attached to estates.
Democratic Senator Ron Wyden stated that "It's ironic that my Republican colleagues are calling for a balanced budget and then in the same breath offering up a plan that would cost the government $269 billion in lost revenue over a decade." The bill has led to more speculation that the Republican legislature is more concerned about protecting their own wealth and less concerned about the well-being of regular American citizens. Pushing for the repeal of the federal estate tax has also alienated wealthy Republicans from the less wealthy in their own political party.
The White House administration is pushing for legislation that would make it harder for retirement fund brokers to push higher fee mutual funds or other expensive products to people who are trying to save for retirement. The plan, issued by the federal Labor Department, would require brokers to act in the best interests of their clients, which is a change that could drastically affect the earnings of financial advisers in the handling of retirees' funds.
Old Brokerage Rules
President Obama said that the current regulations regarding brokers are out of date and come from an age where employees could rely upon a pension from their employers. "Financial advisers absolutely deserve fair compensation," the President said, "But they shouldn't be able to take advantage of their clients." Under the current rules, brokers can sell any financial product that they deem "suitable" for an investor, which means that it fits the client's needs and financial risk.
The opposition has beaten other attempts to curtail brokers' fees in the past, especially with more banks investing in more capital-intensive trading units. Finance groups say that the White House has distorted the issues and disregarded already tough laws on financial brokers that are enforced by both the Securities and Exchange Commission as well as the Financial Industry Regulatory Authority.
White House Proposed New Rules
This plan would impose a fiduciary duty on the brokers that would "crack down on backdoor payments and hidden fees." The main gist of the proposal is an effort to tighten the legal standard that brokers have in handling retirement funds, accounts, and 401(k)'s. Currently, American retirees have more than $11 trillion in retirement funds.
The Labor Department plans on sending the proposed new rules to the Office of Budget Management and Review next week, but it could be several more months before the official details are released to the public. However, this will also give interested parties like the securities industry and lawmakers the chance to comment on the new rules before the final regulation is issued.
How a Broker Profits
Under the current rules, a broker earns money from the sales commission of financial products or through fees paid by investors in mutual funds. This incentivizes brokers to push the financial products that net the highest fees and not necessarily the highest gain for retirees. Because of this incentive structure, investors lose as much as $17 billion per year. "The corrosive power of fine print, hidden fees and conflicted advice can eat away like a chronic illness at people's hard-earned retirement savings."
The area where investors are most vulnerable to conflicts of interest with the brokers is when they are moving investments from a 401(k) or other employer sponsored account to an IRA. The brokers can steer investors into products that net the brokers higher fees, and the average IRA rollover for investors between the ages of 55 and 64 years old was over $100,000 in 2012.