Goralka Law Firm

Still Wondering Why You Need to Review an Estate Plan?

An estate plan is the guide to how you want your personal and financial affairs to be handled, in the event of your incapacity or death. As life changes, your guide changes with it.

One of the most common mistakes in estate planning is thinking of the estate plan, as being completed and never needing to be reviewed. That is similar to taking your car for an oil change and then simply never returning for another oil change. The years go by, your life changes and you need an estate plan review.

Most people get their original wills and other documents from their estate planning attorney, put them into their safe deposit box or a fire-safe file drawer and forget about them. There are no laws governing when these documents should be reviewed, so whether or when to review the estate is completely up to the individual. That often leads to unintended consequences that can cause the wrong person to inherit, fracture the family and leave heirs with a large tax liability.

A better idea: review the estate plan on a regular basis. For some people with complicated lives and assets, that means once a year. For others, every three or four years works. Some reviews are triggered by changes in life, including:

• Marriage or divorce
• Death
• Large changes in the size of the estate
• A significant increase in debt
• The death of an executor, guardian or trustee
• Birth or adoption of children or grandchildren
• Change in career, good or bad
• Retirement
• Health crisis
• Changes in tax laws
• Changes in relationships to beneficiaries and heirs
• Moving to another state or purchasing property in another state
• Receiving a sizable inheritance

What should you be thinking about, as you review your estate plan? Here are some suggestions:

Have there been any changes to your relationships with family members?

Are any family members facing challenges or does anyone have special needs?

Are there children from a previous marriage and what do their lives look like?

Are the people you named for various roles—power of attorney, executor, guardian and trustees—still the people you want making decisions and acting on your behalf?

Does your estate plan include a durable power of attorney for healthcare, a valid living will, or if you want this, a DNR (Do Not Resuscitate) order?

Has your estate plan addressed the possible need for Medicaid?

Do you know who your beneficiary designations are for your accounts and are your beneficiary designations still correct? Your beneficiaries will receive assets outside of the will and nothing you put in the will can change the distribution of those assets.

Have you aligned your assets with your estate plan? Do certain accounts pass directly to a spouse or an heir? Have you funded any trusts?

Finally, have changes in the tax laws changed your estate plan? Your estate planning attorney should look at your state, as well as federal tax liability.

Just as you can’t plant a garden once and expect it to grow and bloom forever, your estate plan needs to be reviewed, so that it can protect your interests as your life and your family’s life changes over time.

Impact of Tax Reform on Small Businesses

Now that it’s tax season, you may be concerned how the Tax Cuts and Jobs Act, enacted in December 2017, will impact your small business. The reforms represent the most sweeping tax overhaul in 30 years and could have a positive impact on your business’s bottom line—but they may have left you feeling a little confused. Here are some of the most important changes.

Qualified Business Income Deduction

Under the new tax law, many owners of pass-through businesses, such as sole proprietorships, partnerships, and S corporations, may deduct up to 20% of their qualified business income. This new deduction—known as the qualified business income deduction or Section 199A deduction—can be claimed by eligible taxpayers on their 2018 federal income tax returns, lowering their taxable income. One notable exception is that married owners of service-based businesses like accounting firms or doctors’ offices, can only claim the deduction if they have an annual income below $315,000 ($157,500 for single business owners). This deduction replaces the domestic production activities deduction, which allowed business owners to write off 9% of income derived from qualified domestic manufacturing and production.

Lower Corporate Tax Rate

The centerpiece of the new tax law is the reduction of the corporate tax rate from a top rate of 35% to a flat rate of 21%, a substantial cut for many businesses structured as C corporations. However, because the reforms eliminated the 15% rate on the first $50,000 of taxable income, some small C corporations could end up with a bigger tax bill. For example, a C corporation with $50,000 of taxable income that would have owed $7500 under the prior law will owe $10,500 when it files its 2018 federal tax return.

100 Percent Expensing for Qualifying Business Assets

Businesses can now write off the entire cost of most depreciable business assets in the year the business places them in service, resulting in reduced current income tax liability. This break generally applies to depreciable assets with lives of 20 years or less--items such as, machinery, computers, and furniture. This part of the tax reform law is temporary, lasting until 2022 and then phasing out over several years.

Increased Depreciation Allowances for Vehicles

Businesses that purchased new or used vehicles after September 27, 2017 and placed them into service in 2018 can claim an increased maximum allowance of $10,000 for Year 1 or $18,000 if first-year bonus depreciation is claimed.  For year two, the cap is $16,000 and for year three, $9600. For year 4 and all subsequent years until the vehicle is fully depreciated, the cap is $5760. For 2019 and beyond, the allowances will be indexed for inflation. In addition, for qualified new and used heavy SUVs, pickup trucks and vans purchased for the business, 100% of the cost can be written off, a significant improvement over the prior law.

Family Paid-Leave Credit

Under the new law, certain eligible employers who provide paid family and medical leave to their employees during the 2018 and 2019 tax years may qualify for a new business tax credit. To be eligible, employers must comply with a laundry-list of conditions, including having a written policy, providing at least two weeks of leave, and paying at least 50% of the wages normally paid to the employee. The credit is equal to 12.5% of the amount of wages paid during the employee’s time of leave. However, a larger credit is available for employers that pay over half the employee’s normal wages while they are on leave.

Some Deductions Eliminated or Reduced

Although many of the reforms result in tax savings for small businesses, some, like the elimination or reduction of certain deductions, could have a negative impact on their tax bills. Although there are many changes, here are some of the most impactful.

• The tax write-off for business-related entertainment expenses was eliminated in the new tax law. However, business owners can continue to deduct 50% of the cost of business meals if certain conditions are met, and the cost of holiday parties can still be fully deducted.

 

• Qualified transportation. Under the new tax law, a business owner generally can no longer deduct the expenses of providing tax-free transportation fringe benefits (like the cost of parking or transit passes) or expenses incurred providing employees with transportation for commuting.

 

• Net Operating Losses (NOLs). The new law does not eliminate but does lower the deduction for net operating losses, which are losses taken in a period where a business’s allowable tax deductions are greater than its taxable income. NOLs can now offset only 80% of taxable income in the future, and carry backs are generally no longer permitted. However, NOLs can be carried forward indefinitely under the new tax law, which is an improvement over the 20-year limitation under the prior law.

 

Estimated Taxes

The owners of pass-through entities such as sole proprietorships, partnerships, and S corporations may be required to pay estimated federal taxes each quarter unless they had no tax liability the prior year or owe less than $1000 when they file their tax return. Because of the changes in the income tax rates,  changes to deductions, credits and exemptions, the amount of estimated taxes that should be paid is a trickier question than in previous years.

What to Do Next

The new tax reform legislation is complex and sweeping. We’ll be happy to help you understand its impact on your business and provide guidance about how to maximize your tax savings. Please contact us to schedule a meeting.

When Estate Planning Takes Place in a Crisis

Many of us have experienced the unexpected "telephone call" from a hospital or loved one that a sudden negative medical event has occurred, involving a member of your family.

It’s never a good thing, when you get a call and the person on the other end asks if you are sitting down.

A sudden death or medical crisis can turn your world upside down, especially if the person was not prepared with the right documents. Your heart sinks and questions start flooding your mind. Will they survive? How far is the hospital and how fast can you get there? Will they end up in nursing care? Who will be able to help you care for them?

The questions go on, long after the initial panic subsides.

There are three documents you’ll wish you had when dealing with a medical crisis for a loved one: a health care directive, a durable power of attorney and a living trust.

When a loved one needs help in making decisions and discussing their situation with doctors and other care providers, a health care directive grants you the authority to speak on their behalf. The law requires health care professionals to have legal permission to speak with a representative about highly personal and confidential information. The law requires medical professionals to perform life-saving procedures, which are sometimes painful and unwanted. If the wishes of the person are not correctly documented, it is not possible to stop these procedures from being initiated.

The most common need for this document, is what kind of on-going care is needed and wanted for the loved one, who can no longer express their wishes or care for themselves without help.

Any asset owned by an incapacitated person that is not titled in the name of their trust, cannot be overseen by the successor trustee. The person who is named a durable power of attorney is permitted to control and direct these assets, including transferring them into the trust.

Retirement accounts, 401(k)s, IRAs, Deferred Compensation Benefit Plans, SEPs and all other assets or benefit plans not titled in the trust name can be administered only by the person named the durable power of attorney.

If there is no power of attorney at the time a loved one becomes incapacitated, the only way they can access funds outside a trust is to have a guardian appointed for their loved one. The court must be involved in every part of their life, as long as their loved one lives.

A living trust is a legal document that provides for the smooth transition of management, administration and distribution of assets by the grantor, the person who is putting their assets into their trust during their lifetime. When that person is no longer legally competent, the successor trustee takes over with all the legal powers outlined in the living trust document.

This document gives clear legal authority so that assets can be managed, income can be distributed and bill paying and distribution of the estate at death can take place.

Speak with one of our qualified estate planning attorneys to put these important documents into place, along with creating a will, so you are protected before an emergency occurs.

Is Your Estate Plan Truly Complete?

 

For an estate plan to be truly effective and do more than simply move money and assets from one generation to the next, it must accomplish three basic goals: 1) ensure that you are actually leaving your assets to those you designate; 2) make certain those assets are received at the right time to maximize their lifetime benefits; and 3) protect your legacy from being lost to creditors, predatory lawsuits, divorce, government claims or secondary estate tax. In addition to protecting your legacy throughout your beneficiaries' lifetimes, and perhaps for future generations as well, an effective estate plan also provides incentives to promote your family's core values and help inspire, motivate and educate your children or beneficiaries to become the people you hope them to be.

The Benefits of Developing a "Values Legacy"

Estate planning goes beyond money and even asset protection to the heart of preserving and conveying one's core values, which is also known as a "values legacy." What values or character traits do you want your kids or grandkids to know were important to you? What core principles or qualities do you want to pass on and instill in them? Through identifying the key elements of those core values and beliefs you are most passionate about and developing an estate plan that clearly reflects your "values legacy," the next generation is empowered to achieve the four Cs:

1. Character: Heirs will be encouraged to cultivate good character.

2. Competence: Heirs will be motivated to become competent and capable.

3. Confidence: Heirs will be inspired to succeed.

4. Core Values: Many families have unique core values that they wish to instill in future generations, such as honesty, respect and education.

Creative Strategies for Educating, Motivating and Inspiring Heirs

When approached and drafted properly, your estate plan can directly promote and reinforce your core values, thus becoming an extremely effective teaching and motivational tool benefitting the next generation. To accomplish these goals, creative planning is critical as each family's story, values and estate plan are unique. The following strategies should be considered:

Incentive Provisions or Trusts

Trusts or trust provisions can be used to help motivate the next generation to achieve their goals. The most common example of this is education. If you have children, you likely want them to graduate from college. In addition to providing that the cost of education will be paid, the use of an incentive provision provides a "performance bonus" if a degree is obtained from an accredited university before the age of 25 or another specified age.

Another example may be the desire for your children to have a full-time job. In order to avoid creating trust fund babies, many clients require that their heirs have a full-time job during certain age ranges to prevent them from simply living off of their inheritance. It is important to develop the desire and ability for heirs to be productive members of society.

Documentation of the Family Story

Every family has a unique story and history, which can easily be lost in today's world due to a variety of factors. Sharing the family history with children and grandchildren can be a very powerful as well as personally meaningful tool. A business owner or patriarch or matriarch may have struggled to succeed and overcome many barriers or challenges, and this story should be communicated in a way that educates, inspires, connects, and motivates the next generation. A family meeting and maybe even a legacy video may prevent a family's unique story from being forgotten or fading away over time.

Family Retreat

An annual family trip or retreat can be combined with an educational speaker, event or discussion to create a very effective educational and personally memorable experience. This retreat can educate future generations on how to become productive, competent and confident people of good character. Also, it need not be overly expensive and can be extremely valuable and may even become an ongoing family tradition.

Personal Directions Letter

We advise clients to provide their successor trustee with a personal directions letter. This letter is not part of the trust, but provides guidance to the successor trustee on how issues should be handled. Also, it may identify the "values legacy" that is hoped to be instilled in future generations. This letter may or may not be shown to the heirs.

An effective estate plan not only serves as an insurance policy to protect assets from costly bumps in the road such as divorce, lawsuits, creditors, bankruptcy and estate tax. It also provides a unique opportunity to preserve an individual's or family's core values for future generations. And the ability to pass on a "values legacy" inspires, motivates and educates heirs to be people of good character, competency and confidence, which ultimately creates happier, more productive and more successful members of society.

How to Protect Your Legacy After You're Gone

Many estate planners believe that their job is done when the beneficiaries avoid probate and receive the inheritance. However, when beneficiaries receive their inheritance in their name outright that needlessly exposes the legacy you leave to the claims of creditors, lawsuits, divorce, the loss of governmental benefits they might otherwise receive and even a second estate tax when they die. "Outright" distributions from the trust to the beneficiary in his or her name should rarely occur.

A better approach may be for each beneficiary's inheritance to go into his or her own Beneficiary Controlled Trust. If properly drafted and funded, the beneficiary can control, use and enjoy the inheritance without the risks of outright ownership.

A Beneficiary Controlled Trust refers to a trust where the beneficiary is also the controlling trustee. The beneficiary can be provided virtually the same control as he or she would have with outright ownership. For example, the beneficiary, as the controlling trustee, could make all investment decisions. Investments such as a home or brokerage account would be held in the name of the trust and would be better protected from lawsuits, divorce, creditors or predators.

The primary beneficiary could alter the level of control or protection if greater risks arose. A co­ trustee could be appointed to control distributions or even investments. If the risk is very high, the primary beneficiary could even resign as trustee and appoint their best friend, trusted family member or professional to act as Trustee.

If the primary beneficiary wants to act as the sole trustee with control over investments and administration, distributions can be limited to the beneficiary's health, education, maintenance and support ("HEMS") to avoid estate tax (the "HEMS Trust"). However, some states permit certain creditors such as a divorcing spouse or health care providers to pierce through the trust and access assets up to the HEMS standard. If they obtain judgement against the beneficiary, the price to be paid for the beneficiary's additional control is potentially weaker creditor protection.

If the primary beneficiary seeks even greater asset protection, then the primary beneficiary can act as the investment trustee and control or make all investment decisions. This primary beneficiary can appoint an independent trustee who acts as the distribution trustee and is authorized to make distributions to the beneficiary in such amounts and at such times as may be determined in the sole discretion of that Independent Distribution Trustee (the "Discretionary Trust"). The Discretionary Trust generally provides greater asset protection irrespective of the beneficiary's state of residence.

The beneficiary may be concerned about giving such discretion to the Independent Distribution trustee. This issue can be minimized by providing the primary beneficiary with the right to remove and replace the Independent Distribution Trustee. While the beneficiary does not have direct control over distributions, the beneficiary can select who does have the power so long as the person selected is not a related party or subordinate person.

Careful consideration must also be given to the trust income tax rules. The highest marginal federal income tax rate for ordinary investment income is now 37%. The highest tax rates are triggered with income for a single individual of $500,000 or more. The highest marginal tax rates for a trust are triggered with income of only $12,500. The difference in tax liability can be substantial.

The beneficiary controlled trust can be drafted in some cases to be a "Grantor Trust." A Grantor Trust is a trust that is "disregarded" for income tax purposes. Income is taxed to the beneficiary without regard to whether the income is distributed to the beneficiary. A Grantor Trust will avoid the higher tax rates applicable to a trust.

Alternatively, the Beneficiary Controlled Trust can be drafted as a "Complex Trust" for income tax purposes. The Complex Trust files a separate tax return. Income actually distributed to the beneficiary is taxed at the beneficiary's lower individual tax rates. Only income not distributed by the Trust will be taxed at the higher trust income tax rates.

There is no single best approach and careful analysis of the client's goals, concerns and situation should always be analyzed. The Trust may, in some circumstances, have an ability to toggle or switch between a Grantor Trust and a Complex Trust.

As a general rule, a client with a substantial estate should always consider the protective features of a beneficiary controlled trust. If you have any questions about this topic, please contact the Goralka Law Firm.

Recently Divorced: Where Do I Start?

 

You may have juggled a zillion family responsibilities both in and out of the house. But chances are you didn't handle everything. Perhaps your husband handled the investments. Or dealt with advisers, such as a CPA or a lawyer. But now, after a divorce or the death of your husband, are you prepared to take over the entire financial picture?

 

Maybe not. Where do you even start?

That's the question that a recent MarketWatch article asks. The article, titled "Women in transition: Where do I start?" acknowledged that women in transition usually face different challenges than men.

Some men are new to maintaining a household; likewise, some women are new to handling issues outside the house. These can include investments, taxes and legal matters. It can be a drastic change for many women and can be overwhelming.

With that in mind, the original article sets out four initial steps to consider:

• Resist the temptation to conquer the world right away: You do not need to. Start with an experienced estate planning attorney.
• Get a trusted adviser: A trusted adviser could very well be an estate planning attorney. You want someone who is well-qualified, well-networked and trustworthy. They may not have all the answers, but they can refer you to other quality professionals who do.
• Build a team of advisers: Ask the trusted adviser to help you build a team of professionals around you. The team will eventually expand and might add insurance, banking, wellness and other professionals.
• Develop a plan of action: While you may have to handle some matters initially, it is best to work from an action plan rather than react hastily with random, knee-jerk decisions. Let your estate planning attorney guide you in the development of the plan. Grab the initiative and learn what you need to know so you can empower yourself going forward.

Transition is not easy, but it can be a gratifying growth experience. You may even find strengths and capabilities you didn't think you possessed.

Reference: MarketWatch (June 20, 2014) "Women in transition: Where do I start?"

What Can Impact My Estate Planning?

From probate and ownership division to the taxing arm of Uncle Sam, here are some ideas that can influence what happens to your belongings. Remember, everything you own is considered part of your estate when you die. To grasp the importance of planning for the distribution of your worldly goods, consider all the things that influence what happens to them.

A recent Kiplinger's Personal Finance article,titled"Forces That Affect Your Estate Plan," explored challenges you really need to address now so your estate plan will be effective later.

Probate is the way state courts validate the authenticity of a last will and testament. Once okayed by the probate court, the executor is allowed to collect and pay debts, pay taxes, sell property, distribute funds and carry out other tasks that go along with settling an estate. The probate process can be notoriously slow and expensive. Probate fees can suck up 3-7% of the estate's assets, and if someone contests the will, the legal bills can really increase.

Because of the years of dissatisfaction with this system throughout the country, many states have gone to a more streamlined procedure for small estates with informal procedures that need very little court supervision. Formal probate, with strict court supervision, is generally only used with large estates.

Joint ownership is a way to own property with another (usually a spouse) jointly with a right of survivorship. The property automatically passes to the other owner when one dies. This all occurs without going through the probate process. Tenancy by the entirety is another form of joint ownership, can apply only to married couples and is recognized in many states. Note: without further planning arrangements, however, even jointly-owned assets are subject to probate when there is no longer a “surviving” owner.

Federal estate and gift taxes might be categorized as "much ado about nothing." Despite all the publicity and earnings from the IRS, fewer and fewer estates will need to be concerned with it. The first $5.34 million of an estate is tax-free (twice that for married couples) in 2014; only taxable estates larger than these amounts need worry about paying the flat rate tax of 40%.

If you are in the neighborhood of the amount of wealth which may approach or surpass the taxable level, many planning techniques are available to minimize or completely avoid the estate tax that is other wise due. A careful examination of your priorities wishes and desires should be made to identify the desired tax savings and also help you acheive your other nontax wishes or objectives. We can help you and your family acheive these enlighted dreams. Call us today (916) 440-8036.

Reference:  Kiplinger's Personal Finance (January 2014) "Forces That Affect Your Estate Plan"

When Should I Create An Elder Law Estate Plan?

The answer is the typically vague "it depends." Elder law estate planning is best viewed by your needs and circumstances, not by your age. The typical concerns prompting a plan include providing for disability, keeping assets out of court when you die or become disabled by using trusts rather than wills, keeping assets in the family, reducing or eliminating estate taxes, and protecting assets from nursing home costs.

It seems some people start to think about estate planning when it is almost too late. Too many people want to "live life to its fullest" and not be troubled with serious issues such as death, disability, and long-term care.

This was the advice in a recent article in the Times-Herald Record titled “Protecting your future: Situation, not age, a factor in elder law estate plan.”

If you are on the younger side, you should consider how you will provide for your family in the event of your timely death. If you are at or nearing retirement, you should also be concerned about elder care—how you will be cared for if you are unable to be on your own.

Regardless, it is essential to get the professional advice and information you need. Speak to an estate planning and elder law attorney as soon as possible. While it may not be the most enjoyable conversation you will ever have (discussing one’s own morbidity and mortality), it may be one of the smartest.

For more information, please visit my website.

Reference: Times-Herald Record (Hudson Valley, NY) (March 13, 2014): “Protecting your future: Situation, not age, a factor in elder law estate plan”

What Will Become of the IRA Charity Rollover?

You were so helpful to me in September, clarifying the IRA charitable contribution. Do you know if the government is instituting that same contribution this year?

We are well into tax season and planning for the upcoming year. Are you keeping up with the tax laws? As many retirees and their advisors review changes in the tax laws and begin their planning, they have one important question in common: “Will Congress revive the IRA charity rollover?”

Coincidentally, these taxpayers and advisors will be interested in a recent article in The Wall Street Journal titled “Will Congress Revive the IRA Charity Rollover?”

Why all the buzz? The IRA charity rollover is a well-loved tool that creates a win-win for retired taxpayers and the charities they support. Unfortunately, it has never been a permanent part of the tax code and was just one those many provisions of the tax code that bit the dust at the end of last year.

What is an IRA charity rollover? It allows a taxpayer who is already required to take “Required Minimum Distributions” to direct their required distribution directly into the hands of charity. As a result, the taxpayer pays no income taxes on the distribution and the charity enjoys 100% of the distribution tax-free. What is not to like about that?

With the IRA charity rollover gone, retirees and their advisors now have to shift their priorities and tools to minimize the tax bite and still accomplish all of their financial goals.

Alternatively, you take the author’s lead and try waiting to see if Congress reinstates this beloved option.

Will Congress revive the IRA charity rollover? That is the question.

For more information about retirement and IRA, please visit my website.

Reference: The Wall Street Journal (January 25, 2014) “Will Congress Revive the IRA Charity Rollover?”

Should You Downsize In Retirement?

 

Emotionally, it's hard to let go of a home filled with memories. Moving is a hassle, and downsizing to a smaller home isn't always the cash bonanza some might expect.

 

 

When entering your golden years of retirement, what is the ideal living arrangement for your new stage of life? Do you stay in your home where you've made life-long memories? Or do you downsize to something else in hopes of saving on expenses and maintenance?

Even if you have yet to confront these fundamental retirement questions, you ought to consult a recent article in The Wall Street Journal titled “When Should Retirees Downsize Homes?” The Journal asks, “when” not “if,” but that does not mean there is not another side of the story. Enter the DailyFinance with an article providing yet additional reasons to stay put. In fact, that article is aptly titled “7 Reasons Not to Move in Retirement.”

While you will want to read both articles, here are the seven reasons to stay:

• Save Money
• Services You Like
• A Social Network
• Proximity to Family
• Memories
• An Advance Plan for Your Later Years
• You Like It

What place does your home occupy in your life and in the lives of your loved ones? To some families a house is an asset, to others it is a home, and to others it is an anchor (whether wanted or not).

Whether you are planning for retirement or already in retirement, there is much at stake and the home can be a divisive issue.

So, again, what is the house to you and yours? How are you planning for it?

 

For more information about retirement, please visit my website.

 

For more information about estate planning, please visit my website.

Reference: The Wall Street Journal (January 25, 2014) “When Should Retirees Downsize Homes?”

                  DailyFinance (January 22, 2014) “7 Reasons Not to Move in Retirement”