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 Beginning Tax Year 2017, the U.S. federal Internal Revenue Service (IRS) will now require some taxation of cryptocurrency that may affect estate planners and executors. As of this tax season, capital gains and losses on property transactions involving cryptocurrency, for example, must now be reported to the IRS (Notice 2014-21). Before the current tax year, the IRS offered exemption for “like kind exchanges” of crypto assets allowing swaps of digital currency for other assets. With IRS rule changes, and latest insights into the fluctuation of cryptocurrency value, make those assets a bit less attractive to investors than in recent years.

Capital Gains, Estate Tax, ICOs  

If market analysts have advocated cryptocurrency as an estate asset in the past several years, the rule reform will impact investors seeking tax-exemption from Bitcoin, Ethereum and Litecoin earnings. Once considered property rather than fiat currency by the IRS, the rules of have changed. The rules now also distinguish between the tax-exempt proceeds of equity funded trades, and cryptocurrency Initial coin offerings (ICOs), requiring that proceeds from the latter be treated as taxable income. In the short-term, it is likely that investors, including those responsible for estate trusts, will continue to invest in tax-exempt ICOs offered by off-shore banking institutions.   

With all of the discussion surrounding repealing the estate tax and other significant tax reforms, it can be difficult to understand exactly how these proposed changes might affect your estate. For most people in the United States, the estate tax is not a concern. That is because you need an individual estate worth $5.49 million or more before the tax will even apply. However, there are still a number of other concerns to keep in mind in order to make the most informed decisions about your estate plan because there are a number of other factors that could impact the overall value of your estate. A recent article from Financial-Planning.com helps put some of these risks into perspective.

Intestacy

One of the biggest risks to assets in an estate is dying without an estate plan in place to protect them. While your estate may not be subject to the federal estate tax, it could be subject to significant state-level taxes and those penalties can take a large chunk of your assets if you do not have an estate plan in place. Intestate succession will also determine the percentage of your assets that will be distributed to the heirs covered by your state’s intestate succession statute. This may not be in line with how you want your assets to be distributed, so making sure that you have a valid and up-to-date estate plan is the first step in avoiding any hidden financial risks that could impact your assets.

It is a common misconception that estate planning is only a concern for those individuals with sizeable estates. This is simply not true. Everyone can benefit from comprehensive estate planning, even individuals with average or small estates. A recent article from CNBC reminds us of the importance of having a Will regardless of our overall financial situation, age, or other factors that may lead us to believe a Will is not necessary.

Engaging in Estate Planning

As the article points out, even a checking account and a car present a reason for having a Will regardless of any other assets that might exist. The law requires that title to that vehicle must be changed to whomever the new owner is and there must be someone to distribute the assets in your checking account. Absent a Will, you risk losing a great deal of assets to the state either by default because of failure to nominate an heir or because of the legal costs involved in the probate process where those assets will end up.

Regardless of the size of your estate, comprehensive estate planning can help you make the most of the assets you have worked hard to build. It is important to make sure that you take a thorough approach to estate planning in order to preserve as many assets as possible, and also to make sure that you make dealing with a loss as easy on your family members and friends as possible. One of the most common ways to do that is to include funeral arrangement and instructions for the disposition of your remains. There are a number of approaches to doing this, and ultimately the terms you set forth will be unique to you and your family’s wants and needs. However, a recent article from the National Law Review provides some helpful information about this aspect of estate planning.

Pre-Death Arrangements

Most states allow you to iron out many of the details of your funeral arrangements and the disposition of your remains ahead of time. In many cases, these are integral pieces of a comprehensive estate plan. You can dictate whether you wish to be buried or cremated; specify the location of your burial; specify any memorialization; and even designate one individual to make sure your funeral arrangements and the disposition of your remains are conducted in the way you have chosen. Depending on the state you live in, nominating an individual to carry out your particular wishes gives them priority over other individuals that would otherwise potentially have the right to make these decisions for you. This can be helpful because, no matter how carefully you plan, it is impossible to predict all of the circumstances that could arise and you will want someone that you trust in the position to determine the best course of action. More and more, these types of arrangements are becoming commonplace alongside powers of attorney and healthcare directives. In many ways, completing this type of directive can be just as important – and it will likely help your family avoid additional stress and grief during a difficult time.

Debt is an all-too-common part of our everyday life. In fact, Marketwatch.com lists American personal debt – including homes, student loans, and auto loans – at approximately two billion dollars. This figure does not include credit card debt. However, as daunting as debt may seem, making sure to consider your debt when determining how best to engage in comprehensive estate planning is an important part of your debt management strategy.

Understanding Your Debt

One of the first things to consider when approaching debt and estate planning is whether your debt will become someone else’s responsibility when you die. An article from NerdWallet.com helps shed some light on what happens to various types of debt after the individual responsible for that debt passes away. Some common examples of debt and what may happen to that debt include:

Long-term medical care is expensive, and there is no indication that trend will reverse itself anytime soon. That means you need to be proactive in considering the implications of long-term medical care costs when approaching comprehensive estate planning. Many people find themselves falling short of the funds needed to pay for increasingly costly long-term care but still having too many assets to qualify for Medicaid funds to help cover those costs. A recent article from Marketwatch.com provides some information on Medicaid trusts, estate planning tools that can help you navigate the high cost of long-term care insurance while still holding onto important assets you want to pass to your heirs.

Medicaid “Look-Back” Rules

One of the reasons that you should start planning for long-term care costs as soon as possible is the existence of Medicaid “look-back” rules. These rules mean that even if you are able to prove your eligibility for Medicaid today, you will still be required to have been eligible for each of the past five (5) years, too (some states have a shorter requirement, but it is important to check with your state’s Medicaid office to find out). If you find yourself in a situation where you are facing heightened medical costs, especially from unanticipated long-term care needs, you will not simply be able to transfer assets somewhere else to qualify. The earlier you start planning, the more secure you can be in your ability to qualify for potentially necessary Medicaid funds when it comes to your long-term care plans.

Preparing a comprehensive estate planning strategy is an important step in making sure the assets you have worked hard to build are secure and can be distributed to heirs according to your wishes. An experienced estate planning attorney can help you develop an estate planning portfolio that meets all of your needs. A recent article from WealthManagement.com reminds us that one important aspect of estate planning includes retirement accounts such as traditional IRAs, Roth IRAs, or a tax-qualified employer-sponsored retirement plan.

When these plans are left to individual beneficiaries, the person inheriting the qualifying account is able to open their own account and transfer the money they have inherited into it. In turn, they can appoint an individual to be the beneficiary of their account. This allows them to stretch out minimum required distributions for a longer period of time instead of simply taking the lump sum of money in the account. However, when qualifying retirement accounts are left to a trust then there are additional

Trusts and Retirement Accounts

It is difficult to turn on the news today without hearing tragic stories of how the opioid crisis that has swept the United States impacts families and communities. While many of the unfortunate effects of addiction can easily be seen, there are more unintended consequences that need to be taken into account when discussions about addiction and estate planning intersect. Often, individuals dealing with addiction have well-founded concerns that any inheritance they leave to an individual could be squandered on the addiction itself. That can be a disheartening possibility. A recent article from WealthManagement.com reminds us that there are options available to help deal with the role addiction might play in your comprehensive estate planning strategy.

Bequests

Disinheritance is a troubling option for many reasons. The prospect of completely cutting an individual out of any inheritance can difficult to consider, especially when the heir involved is already suffering from a serious condition like addiction. However, you may want to consider leaving a smaller bequest to that individual if you are concerned that they may use their inheritance to facilitate an addiction problem. You may also want to consider leaving the inheritance earmarked for the individual that is suffering from addiction to siblings or other family members that you can trust to safeguard the inheritance and work with the individual to overcome addiction. If you choose the latter, you must make sure that you have a conversation with the individual(s) you are considering for this to make sure that they are prepared and willing to undertake this kind of responsibility.

In the first part of this post, we covered the initial basics in setting up a trust. Determining your purpose for creating the trust is certainly one of the most important steps, as are determining which individuals will be involved in the trust and how you want to go about establishing the trust. However, once the initial legwork is done, you need to focus on making sure that your trust will be able to fulfill the goals you have established it for. Working with an experienced estate planning attorney is an important part of making sure your trust continues to comply with changing laws and continues to retain value so as to meet the goals you have established for it.

Funding Your Trust

Once you have created a living trust, you need to appropriately fund it. One of the basic reasons many people have for establishing a living trust is so that the assets they want to place into it can avoid probate. To that end, it is important to make sure you have properly transferred the correct assets into the trust. Real estate assets are often one of the most important assets for a trust, but you will also want to consider the benefits of transferring your personal assets into the trust as well depending on what your ultimate goals are. Transferring assets to fund the trust can be as simple as changing title to some assets while other can involve a much more complex process.

All trusts have distinct characteristics. Even trusts that have similar structures are still unique because of the assets in them and the goals behind their creation. However, there are still some common steps to establishing a trust. Regardless of the type of trust you are considering, keeping these steps in mind can help you direct your efforts in investigating the type of trust that is right for you and eventually establishing it.

Identify Your Purpose

Why are you thinking about creating a trust? Are you concerned about a family member with special needs being adequately provided for? Are you worried about the costs of long-term health care? Do you want to protect your assets until certain conditions have been met? Do you simply want to protect your assets from the probate process to ensure your heirs have access to them? Whatever the reason for your interest in establishing the trust, it is important to have a clear and concise purpose for creating one. Doing so will help you narrow down your choices and provide needed direction when establishing the terms of the trust itself. At this point, it is also important to explore the potential tax consequences of the types of trusts you are considering. Doing so may open your eyes to some important nuances that can significantly affect your decision in choosing a trust.

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