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.

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.

Healthcare Proxy
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.

Living Will
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.

Organize Properly
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.

Combination products
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.

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