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The current makeup of the federal government makes it very likely that some type of tax reform will happen within the next couple of years. Many individuals that have comprehensive estate plans in place or are considering engaging in creating a comprehensive strategy may have questions about how such tax reform could impact their estate plan. Recently, WealthManagement.com published an article discussing some approaches to estate planning while waiting to see how tax policy develops.

Tax Policy and Your Estate Plan

You must not underestimate the potential impact that tax policy can have on your estate plan. For individuals with larger estates with values that surpass the current estate tax exemption of $5,490,000, taxes play an even bigger role. If your estate is valued above the estate tax exemption, you have a variety of tools at your disposal that can help you alleviate some of the financial burdens imposed by taxes. Perhaps you will utilize your annual gift exemption to distribute some of your assets during your lifetime. You may end up creating a trust and title some of your assets under the trust instead of in your own name. Whatever tools you utilize, and even if the value of your estate falls within the estate tax exemption, taxes play a crucial role in the design and implementation of your estate plan. An experienced estate planning attorney can and should help you understand exactly how taxes might affect your personal estate plan and can also help you stay abreast of new developments in tax and other laws that could impact your estate plan.

In the past, a trust was something that seemed useless for many Americans. It was a term often used to refer to the bank accounts of wealthy individuals. However, trust can be useful tools for many individuals. You don’t have to be a millionaire to make use of them, either. They can be an effective part of a comprehensive estate planning strategy that help you provide your loved ones with financial security after your death. While trusts are much more accessible than they once were, there is still confusion surrounding them. Many people wonder why they need a trust if they have listed assets as payable on death to another individual. While payable on death accounts can be an effective way of naming a beneficiary for those accounts, there are some limitations that can be addressed by a trust.

Payable on Death Limitations

The largest limitation of a payable on death structure is that while it will allow you to name a beneficiary for the asset in question and thus avoid the need to probate such assets, it typically only allows title to the asset to pass upon your death. In other words, if you become incapacitated while still alive, the person the account is meant to pass to may not be able to access the asset. Additionally, not all types of assets can be listed as payable on death, which leaves things like personal property in limbo in case of your incapacitation or death.

For some people, the term “estate planning” conjures up images of wealthy families complaining about the estate tax. However, estate planning is an important responsibility for all adults with assets that they wish to leave behind. This is especially true today as most people are becoming increasingly familiar with the use of various online accounts. Online accounts can be used for a variety of different things, ranging from online banking to social media. As technology becomes an ever-increasing aspect of each of our lives, almost everyone needs to consider the management of online accounts during a period of disability or in case of death when considering the various important aspects of estate planning.

New Legislation

According to WealthManagement.com, several states have adopted relatively similar laws that allow individuals to control access to online accounts in the case of disability and/r death. While individuals serving in roles such as an executor or trustee can generally access information related to electronic communication that includes the sender, recipient, and date/time of a message, they typically need a court order to access the content of these communications. However, new legislation allows you to control scenarios in which individuals could get greater access in three ways:

An important part of your estate plan is making sure that it provides for your heirs in the way you want it to. While you may take pains to make sure your estate plan is comprehensive and covers all your bases, it is important to factor your heirs and their possible actions into the equation. The final part of our series on some of the most common biggest mistakes individuals tend to make in estate planning will explore these more subjective aspects of the estate planning process, which an experienced estate planning attorney can help you navigate.

Lack of Flexibility

Comprehensive estate planning can be a long and detailed process. You may feel like you have everything worked out perfectly by the end of it. However, it is important to keep in mind that you cannot plan for every event. For instance, even if you establish a trust for your only child and transfer assets to the trust successfully, you may not have included mechanisms that protect your child from creditors or even a potential future divorce. That means the assets within that trust could be susceptible to claims by other individuals, and if you establish a trust in your child’s name when the child is five then you may not be planning far enough ahead.

Each individual state has its own trusts and estates laws. While there are many similarities among these laws, there are also important differences. Some states are notoriously difficult when it comes to the probate process. Fortunately, other states – like New York – make the process much easier when you take the time to properly plan. In the second part of our series on common mistakes many individuals make in estate planning, we will explore some of the more technical mistakes that can be made. Being aware of these specific mistakes can help you ensure that any estate planning mechanisms you have comply with the law and are established to correctly meet your needs.

Improper Use of Trusts

Trusts can be a useful tool for many people depending on their individual circumstances. One of the most common benefits of a trust is that assets within one are typically not subject to probate. However, the type of trust to select to meet your goals is extremely important as selecting the wrong type can not only be costly and time-consuming, but can frustrate your purpose. One common mistake individuals make with trusts is failing to transfer assets to the trust. Simply establishing a trust is not enough for it to be effective. It is important to work with an experienced estate planning attorney to ensure that assets you want to be part of that trust are eligible to be transferred to it and are, in fact, actually transferred. This may often involve formally changing the title of ownership for an asset, and in some cases with financial accounts such accounts may need to be closed and reopened in the trust’s name. Without properly funding a trust, the trust will most likely be ineffective in helping assets you want to be held in it avoid probate.

Estate planning can be a difficult topic and is likely to touch on unpleasant emotions. However, it is an important part of comprehensive, responsible financial planning. Mistakes can be costly and some pitfalls can be difficult to recognize. In this three-part series, we will explore some of the biggest mistakes individuals can make in estate planning. Learning about these mistakes can help you avoid them and ensure that your estate plan allows you to distribute your assets to your heirs in the way you want.

Not Having an Estate Plan

Unfortunately, many individuals put off estate planning until it is too late. Sometimes, the unexpected can occur and a family can be caught without an estate plan in place. Without a Will, your estate will be subject to distribution based on your state’s intestate succession statutes. Often, this can be a long and difficult process that may also leave your estate open to significant financial penalties from the state and by way of taxes that could have been anticipated and addressed with a comprehensive estate plan. Additionally, a comprehensive estate plan can include documents that spell out your wishes regarding medical care and other significant decisions. In the absence of such documents, it may be difficult to have your wishes carried out.

Most people engage in comprehensive estate planning to ensure that the things they have worked for throughout their life can pass along to their heirs. Preserving your assets is an important part of ensuring that you are able to pass as many assets to heirs as possible. There are a variety of methods that allow you to successfully preserve assets in the face of major life events, if you are being pursued by creditors, or even from the financial costs of probate. It is of particular importance to make sure that high value assets, like real estate, are protected in these situations. Fortunately, there are several steps you can take to make sure that your real estate assets are able to be passed on.

Gifting

Perhaps one of the most common ways to protect real estate assets is to gift them to a friend or family member. You can either make an outright gift of the real estate or place real estate in a trust for a person. If you make an outright gift of real estate to another, you may be subjecting the transaction to the federal gift tax. However, the gift tax may ultimately be significantly less than the estate tax you could face if real estate you are gifting were to be included in your final estate valuation. An experienced estate planning attorney can help you understand both the federal gift tax and federal estate tax, as well as their state-level counterparts, to help you make more informed decisions about gifting high value and/or other assets.

The popularity of trusts in estate planning has increased steadily over the last few decades. They are often excellent vehicles that can help people protect their assets and avoid excessive tax penalties related to such assets. One of the more traditional types of trust is known as a Crummey Trust. A Crummey Trust is a trust structured in a way that allows parents to make annual deposits to it within the currently established annual limit while allowing for beneficiaries to maintain a present interest in gifts. This trust has some features that might make it applicable to your estate planning needs.

Features of a Crummey Trust

A Crummey Trust allows individuals to use the annual gift tax exclusion while funding a substantial trust that a recipient cannot access until a certain age. As such, it requires the recipient to have what is known as a present interest in the trust. This means that the recipient has immediate access to funds deposited into the trust. In order for Crummey powers in a trust to adhere to this present interest, funds deposited to the trust are available for immediate withdrawal/use by the recipient for a reasonable period of time, such as 30 days after the gift has been made. Once 30 days has passed, the money automatically gets deposited into the trust where it will be protected until the age at which the recipient has been designated as having access to it.

Selecting the right trustee to administer your estate is a crucial part of ensuring that your assets are distributed according to your wishes and that your estate is settled correctly. While many people can and should put a great deal of thought into selecting a trustee to administer their estate, the process of selecting a trustee often stops there. Whether a trustee is a financial institution, attorney, or close family friend, you need to include a mechanism to remove that trustee if the need to do so arises. An experienced estate planning attorney can help you design this type of mechanism, which could help your loved ones avoid the often-lengthy legal process of removing a trustee in the absence of formal instructions.

When can a trustee be removed?

There are many reasons you may wish to revise your estate’s trustee. Perhaps you originally selected a family member that has become estranged because of divorce. You may have selected a sibling that has predeceased you. If you nominated a financial institution, it could have been bought out by another company that you don’t want to deal with. Whatever the reason for wanting to remove a trustee, New York law states that the following constitute some legal reasons for a court to remove a trustee:

When people think of estate planning, they do not automatically think of utilizing retirement planning strategies to maximize their estate’s potential. However, there are many benefits available during retirement that can have a significant impact on how you plan your estate. One such vehicle that can allow for more comprehensive estate planning is a Roth IRA. Roth IRAs are a type of retirement savings account similar to a traditional IRA but with some very important differences that could be beneficial to you. CNN Money provides an explanation of the differences between the two types of accounts, and some of the benefits of Roth IRAs that could be applicable to your estate are discussed below.

Benefits of a Roth IRA

The main benefit of a Roth IRA is that it is funded with after-tax dollars. In other words, the money you put into it has already been taxed. That means that money invested into the account can grow tax free and you do not have to pay taxes on the money you withdraw from it at retirement. There are, however, potential tax penalties associated with unqualified early distributions that an experienced estate planning attorney can help you understand.

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