What Estate Planning Documents Do You Need? – Annapolis and Towson Estate Planning

Wouldn’t your children be relieved to learn that you’ve done all the necessary advance planning so that if you should become incapacitated, someone has been properly appointed to help with health care and financial decisions? The Tennessean suggests that you “Give your loved ones peace of mind with legal documents” so that your spouse and your family will be able to take the necessary steps to give you the care and dignity you (and they) deserve.

Here’s a checklist of the documents that everyone should have in place:

Power of Attorney for Health Care. When you have mental capacity, you can make your own decisions. When you do not, you need someone to be appointed who knows your beliefs and wishes and has the ability to advocate for you. Ideally, you should name one person to be your agent to minimize arguments. Talk with your family to explain who has been named your power of attorney for health care, and if need be, explain why that person was chosen.

Power of Attorney for Finances. There are different kinds of POA for finances. The goal of the POA for finances is so they can make decisions on your behalf, when you become incapacitated. Some states use “springing” POA—but that may mean your family has to go through a process to prove you are incapacitated. Check with an estate planning or elder law attorney in your state to see what the laws are.

Advance Directive. This describes what kind of life sustaining treatment you do or do not want if you are in a coma, are terminally ill or have dementia. You can direct whether you want CPR, tube feeding, and other life-sustaining procedures to be withheld, if your quality of life is diminished and there is no hope of improvement. This will help your family to know what you want in a time when emotions are running high.

Last Will and Testament. Have a will created, if you don’t already have one. This directs distribution of your assets to your wishes and does not leave them to the laws of your state. Not having a will means your family will have to go through many more court proceedings and people you may not want to receive your worldly possessions may get them.

Trusts. Talk with your estate planning attorney about placing assets in trust, so they are not subject to the public process of probate. Your wishes will be followed, and they will remain private.

Reference: Tennessean (Nov. 16, 2019) “Give your loved ones peace of mind with legal documents”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

How Blended Families Can Address Finances and Inheritance Issues – Annapolis and Towson Estate Planning

The holiday season is a popular time for people to get engaged, including people who have been married before. If that’s you, understand that blending families means you’ll need to deal with inheritance and finance issues, says U.S. News & World Report’s article “6 Financial Considerations for Remarriage.” The best time to have these conversations is before you walk down the aisle, not afterwards.

Look at your budget and talk about how things will work. That includes day-to-day expenses, monthly expenses and large purchases, like houses, vacations, and cars. Talk about a game plan for going forward. Will you merge your credit card accounts or bank accounts? What about investment accounts?

Financial obligations outside of the marriage. Two things to check before you wed: your divorce papers and the state’s laws. Does anything change regarding your spousal support (alimony) or child support, if you remarry? It’s unlikely that you would lose child support, but the court may determine it can be reduced. The person who is paying child support or alimony also needs to be transparent about their financial obligations.

Review insurance and beneficiaries. One of the biggest mistakes people make, is failing to update beneficiaries on numerous accounts. If your divorce papers do not require life insurance to be left for your spouse on behalf of your children (and some do), then you probably want to make your new spouse the beneficiary of life insurance policies. Investment accounts, bank account, and any other assets where a beneficiary can be named should be reviewed and updated. It’s a simple task, but overlooking it creates all kinds of havoc and frustration for survivors.

What will remarriage do to college financing options? A second marriage may increase a parent’s income for college purposes and make children ineligible for college loans or needs-based scholarships. Even if the newly married couple has not blended their finances, FAFSA looks at total household income. Talk about how each member of the couple plans on managing college expenses.

A new estate plan should be addressed, even before the wedding takes place. Remember, an estate plan is for more than distributing assets. It includes planning for incapacity, including Do Not Resuscitate Orders (DNR), powers of attorney for finances and for health care, designations of guardianship or consent to adoption, various trusts and if needed, Special Needs planning.

Create a plan for inheritance. If either spouse has children from a prior marriage, an estate plan is critical to protect the children’s inheritance. If one spouse dies and the surviving spouse inherits everything, there is no legal requirement for the surviving spouse to pass any of the deceased’s assets to their children. Even if you are in mid-life and death seems far away, you need to take care of this.

Speak with an estate planning attorney who can help you create the necessary documents. You should also talk with your children, at the age appropriate level, about your plans, so they understand that they are being planned for and will be taken care of in the new family.

Reference: U.S. News & World Report (Nov. 18, 2019) “6 Financial Considerations for Remarriage”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Will We Have to Pay Gift Taxes if We Give a Rental Property to Our Son? – Annapolis and Towson Estate Planning

Older couples frequently invest in real estate. Many manage rental properties as an income stream.

Let’s say that a couple jointly bought a rental property worth $120,000 this year with their adult son. The son started his own limited liability company (LLC) and is a single owner. The parents plan to transfer the property to him, so he can use the rental income from the business for college expenses.

A common question is whether there will be any tax implication for the parents, if they move the property to their son’s LLC. The Washington Post’s recent article, “How to avoid gift taxes when shifting ownership of rental property to offspring,” answers that question by first assuming that the parents and the son purchased the rental property together in their own names. The son recently set up the LLC to use as the holding company for this rental property and other real estate properties he may own.

As far as gift tax implications, the couple have the ability to give their son $30,000 this year without having to file any federal gift tax forms or having any effect on their federal income taxes. Each person has the ability to gift another individual up to $15,000 a year without any IRS issues or the filing of forms. If each parent gave their son $30,000 this year and $30,000 next year, then that would effectively transfer their share of the property to him.

We’ll also assume that when they purchased the property, the parents paid closing costs and may have had other expenses while they’ve owned the property. Those expenses would play a part when calculating the tax basis of the property.

Assuming that the parents and their son each paid $60,000 for the property, when the son transfers the property from all the owners’ names into the LLC, the parents may have a taxable event for IRS purposes. That’s because the parents are effectively giving away ownership of their share of the property to their son. He’ll now own the property on his own. If the son signs a promissory note to the parents for $60,000 at the time of the transfer to the LLC, he’ll have an obligation to repay them the money for their share over the next six months. They could forgive $30,000 of the debt immediately and then they could forgive the other $30,000 in the new year. Their son would probably owe a little interest, but he could probably pay that from the income he receives from the rent.

This is just one solution to the transfer. There are many others, and some are much more complicated. Speak with an experienced estate planning attorney to review these issues and explore some other ideas that could work to everyone’s benefit.

Reference: The Washington Post (November 11, 2019) “How to avoid gift taxes when shifting ownership of rental property to offspring”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

What Should I Do If I Strike it Rich? – Annapolis and Towson Estate Planning

There’s nothing quite like getting an unexpected sum of money. That happiness can be magnified when the amounts are six, seven, eight digits or more.

However, the greater the amount you receive, the greater your stress.

Investopedia’s recent article, “Tips For Handling Sudden Wealth” reports that there’s even a stress-related disorder called “Sudden Wealth Syndrome.”

This stress results in the recipients doing things that will threaten their good fortune and may leave them worse off than before they got the money.

Let’s look at few ideas to help you hang onto that new wealth:

  1. Tally your money. Take the time to carefully review all the documentation associated with the windfall. Note the areas you don’t understand and talk with your attorney.
  2. Create a comprehensive financial and life plan. Don’t settle for a cookie-cutter solution. Look for customization that takes into account your circumstances, your goals and your desired legacy.
  3. Be wary of friends and family. A downside of sudden new wealth is that new friends and estranged family members may come out of the woodwork. One idea is to pay yourself a salary, which can put some distance between you and these people.
  4. Don’t buy big ticket items, until you’re comfortable with the advice and understand your new financial position. You should address your taxes on the gain, pay down debts or take a small vacation. However, don’t make too many changes all at once. Talk to your advisors.

More money can mean more problems. Use these tips and consult with your attorney, when deciding what to do with your newfound riches.

Reference: Investopedia (June 25, 2019) “Tips For Handling Sudden Wealth”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

How Can I Upgrade My Estate Plan? – Annapolis and Towson Estate Planning

Forbes’ recent article, “4 Ways To Improve Your Estate Plan,” suggests that since most people want to plan for a good life and a good retirement, why not plan for a good end of life, too? Here are four ways you can refine your estate plan, protect your assets and create a degree of control and certainty for your family.

  1. Beneficiary Designations. Many types of accounts go directly to heirs, without going through the probate process. This includes life insurance contracts, 401(k)s and IRAs. These accounts can be transferred through beneficiary designations. You should update and review these forms and designations every few years, especially after major life events like divorce, marriage or the birth or adoption of children or grandchildren.
  2. Life Insurance. A main objective of life insurance is to protect against the loss of income, in the event of an individual’s untimely death. The most important time to have life insurance is while you’re working and supporting a family with your income. Life insurance can provide much needed cash flow and liquidity for estates that might be subject to estate taxes or that have lots of illiquid assets, like family businesses, farms, artwork or collectibles.
  3. Consider a Trust. In some situations, creating a trust to shelter or control assets is a good idea. There are two main types of trusts: revocable and irrevocable. You can fund revocable trusts with assets and still use the assets now, without changing their income tax nature. This can be an effective way to pass on assets outside of probate and allow a trustee to manage assets for their beneficiaries. An irrevocable trust can be a way to provide protection from creditors, separate assets from the annual tax liability of the original owner and even help reduce estate taxes in some situations.
  4. Charitable Giving. With charitable giving as part of an estate plan, you can make outright gifts to charities or set up a charitable remainder annuity trust (CRAT) to provide income to a surviving spouse, with the remainder going to the charity.

Your attorney will tell you that your estate plan is unique to your situation. A big part of an estate plan is about protecting your family, making sure assets pass smoothly to your designated heirs and eliminating stress for your loved ones.

Reference: Forbes (November 6, 2019) “4 Ways To Improve Your Estate Plan”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Death Is Very Taxing — What you Need to Know – Annapolis and Towson Estate Planning

When a person dies, their assets are gathered, their debts are paid, business affairs are settled and assets are distributed, as directed by their will. If there is no will, the intestate laws of their state will be used to determine how to distribute their assets. A big part of the process of settling an estate is dealing with taxes. A recent article from Wicked Local Westwood, titled “Five things to know about taxes after death,” explains the key things an executor or personal representative needs to know.

The Deceased Final Income Tax Returns. Yes, the dead pay taxes. The personal representative is responsible for filing the deceased final income tax return for both the year of death and prior year, if those returns have not been filed. The final income tax return includes any income earned or received by the decedent from January 1 of the year of death through the date of death. It’s common for a deceased person who is ill during the last months or year of their life to fail to file tax returns, so the executor needs to find out about the decedent’s tax status. Failure to do so, could lead to the representative being personally liable for paying those taxes.

Filing a Federal Estate Tax Return. The personal representative must file a federal estate tax return, if the value of the estate assets exceeds the federal estate tax exemption, which is $11.4 million in 2019. Even if the value of the estate does not exceed the federal estate tax exemption amount, a federal estate tax return should be filed if the decedent is survived by a spouse. This way, the deceased’s unused exemption can be used by the spouse at their death. Note that the filing deadline for the federal estate tax return is nine months after the date of death. An estate planning attorney can help with this.

Fiduciary income tax returns. A personal representative and trustee may have to file fiduciary income tax returns for an estate or a trust. The estate is a taxpayer and the representative must get a tax identification number and file a fiduciary income tax return for the estate, if income is earned on estate assets or received during the administration of the estate. A revocable trust becomes irrevocable after the death of the trust creator. A tax identification number must be obtained, and a fiduciary income tax return must be filed for any income earned by trust assets.

Estate taxes and trust taxes can become complex and confusing for people who don’t do this on a regular basis. An estate planning attorney can be a valuable resource, so that taxes are properly paid and to make the most of any tax planning opportunities for estates, trusts and their beneficiaries.

Reference: Wicked Local Westwood (Nov. 5, 2019) “Five things to know about taxes after death”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Will My Heirs Need to Be Ready to Pay Estate Taxes? – Annapolis and Towson Estate Planning

Estate taxes all depend on how on much a person is planning to give to heirs.

Motley Fool’s recent article asks “If I Leave My Retirement Savings to My Heirs, Will They Pay Estate Tax?” The article tells us that retirement accounts like 401(k)s, 403(b)s, traditional and Roth IRAs and others are a part of your taxable estate.

However, unless the total assets of your estate plus any taxable gifts you’ve already given are more than the lifetime exclusion amount, your estate won’t owe estate taxes.

For 2019, this is $11,400,000, and in 2020, the exclusion will be raised to $11,580,000. If you total all of your assets’ value, only the amount in excess of the exclusion will be taxable. Therefore, if you have a $12,000,000 estate and die in 2020, only $420,000 of your assets would be subject to estate taxes.

Let’s look at another example: if your assets, including your retirement savings, total up to $5 million, your heirs won’t be required to pay any estate tax whatsoever.

However, while they may not have to pay estate taxes, remember that withdrawals from most retirement accounts (except Roth IRA accounts) will be deemed to be taxable income. Thus, estate tax or no estate tax, if your heirs are in a pretty high tax bracket, inheriting your retirement savings may increase their tax liability.

Don’t neglect to check with an estate planning attorney about your state’s estate and inheritance taxes. There are a handful of states that have their own estate taxes, and their thresholds may be lower than the IRS’s.

There are now six states with an inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania.

Each state sets its own inheritance tax exemption, and inheritance tax rates. However, these rates are subject to change at any time with changes to the laws in those states.

Reference: Motley Fool (November 8, 2019) “If I Leave My Retirement Savings to My Heirs, Will They Pay Estate Tax?”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

As a Trust Beneficiary, Am I Required to Pay Taxes? – Annapolis and Towson Estate Planning

When an irrevocable trust makes a distribution, it deducts the income distributed on its own tax return and issues the beneficiary a tax form called a K-1. This form shows the amount of the beneficiary’s distribution that’s interest income as opposed to principal. With that information, the beneficiary know how much she’s required to claim as taxable income when filing taxes.

Investopedia’s recent article on this subject asks “Do Trust Beneficiaries Pay Taxes?” The article explains that when trust beneficiaries receive distributions from the trust’s principal balance, they don’t have to pay taxes on the distribution. The IRS assumes this money was already taxed before it was put into the trust. After money is placed into the trust, the interest it accumulates is taxable as income—either to the beneficiary or the trust. The trust is required to pay taxes on any interest income it holds and doesn’t distribute past year-end. Interest income the trust distributes is taxable to the beneficiary who gets it.

The money given to the beneficiary is considered to be from the current-year income first, then from the accumulated principal. This is usually the original contribution with any subsequent deposits. It’s income in excess of the amount distributed. Capital gains from this amount may be taxable to either the trust or the beneficiary. All the amount distributed to and for the benefit of the beneficiary is taxable to her to the extent of the distribution deduction of the trust.

If the income or deduction is part of a change in the principal or part of the estate’s distributable income, then the income tax is paid by the trust and not passed on to the beneficiary. An irrevocable trust that has discretion in the distribution of amounts and retains earnings pays trust tax that is $3,011.50 plus 37% of the excess over $12,500.

The two critical IRS forms for trusts are the 1041 and the K-1. IRS Form 1041 is like a Form 1040. This is used to show that the trust is deducting any interest it distributes to beneficiaries from its own taxable income.

The trust will also issue a K-1. This IRS form details the distribution, or how much of the distributed money came from principal and how much is interest. The K-1 is the form that allows the beneficiary to see her tax liability from trust distributions.

The K-1 schedule for taxing distributed amounts is generated by the trust and given to the IRS. The IRS will deliver this schedule to the beneficiary, so that she can pay the tax. The trust will fill out a Form 1041 to determine the income distribution deduction that’s conferred to the distributed amount. Your estate planning attorney will be able to help you work through this process.

Reference: Investopedia (July 15, 2019) “Do Trust Beneficiaries Pay Taxes?”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

What Are the Rules About an Inheritance Received During Marriage? – Annapolis and Towson Estate Planning

A good add-on to that sentence is something like, “provided that it is kept separate from marital assets.” To say it another way, when an inheritance or any other exempt asset (like a premarital asset) is “commingled” with marital assets, it can lose its exempt status.

Trust Advisor’s recent article asks, “Do I Have To Divide The Inheritance I Received During My Marriage?” As the article explains, this is the basic rule, but it’s not iron-clad.

A few courts say that an inheritance was exempt, even when it was left for only a short time in a joint account. This can happen after a parent’s death. The proceeds of a life insurance policy that an adult child beneficiary receives are put into the family account to save time in a stressful situation. You may be too distraught to deal with this issue when the insurance check arrives, so you or your spouse might deposit it into a joint account. However, in one case, the husband took the check and opened an investment account with the money. That insurance money deposited in the investment account was never touched, but the wife still wanted half of it when the couple divorced a few years later. However, in that case, the judge ruled that the proceeds from the insurance policy were the husband’s separate property.

The law generally says that assets exempt from equitable distribution (like insurance proceeds) may become subject to equitable distribution if the recipient intends them to become marital assets. The comingling of these assets with marital assets may make them subject to a division in a divorce. However, if there’s no intent for the assets to become martial property, the assets may remain the recipient spouse’s property.

Courts will look at “donative intent,” which asks if the spouse had the intent to gift the inheritance to the marriage, making it a marital asset. Courts may look at a commingled inheritance for donative intent, but also examine other factors. This can include the proximity in time between the inheritance and the divorce. Therefore, if a spouse deposited an inheritance into a joint account a year before the divorce, she could argue that there should be a disproportionate distribution in her favor or that she should get back the whole amount. Of course, the longer amount of time between the inheritance and the divorce, the more difficult this argument becomes.

Be sure to speak with your estate planning attorney about the specific laws in your state. If there is a hint of trouble in the marriage, it might be wiser to simply open a new account for the inheritance.

Reference: Trust Advisor (October 29, 2019) “Do I Have To Divide The Inheritance I Received During My Marriage?”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

How a Charitable Remainder Trust Works – Annapolis and Towson Estate Planning

A couple lives well on their incomes, but the biggest asset they own is a tract of unimproved real estate that the wife received from her parents many years ago. The land was part of the family’s farm and is located in prime area that is growing in value.

The couple is looking for ways to supplement their retirement income, which is based solely on their retirement accounts.

What can they do to generate retirement income and not have to pay a significant proportion of their profit in capital gains? The solution is presented in the article “Using Charitable Trusts in Your Retirement Planning” from Richardland Source.

One strategy would be to establish a Charitable Remainder Trust or CRT. The wife would transfer the land to an irrevocable trust created to provide lifetime payments to her and her husband. At the death of the surviving spouse, the trust property would be transferred to a charitable organization named in the wife’s trust agreement.

Using the CRT, the trustee can sell the trust property and reinvest the proceeds without having to pay any immediate tax on the gain. The couple would have more money for retirement than if they simply sold the land and invested the proceeds. They also have the option of investing their tax savings outside of the trust to produce additional income.

The CRT can be either an annuity trust or a unitrust. The type of CRT used will determine how payments from the trust are calculated. If a Charitable Remainder Annuity Trust (CRAT) is chosen, the couple will receive annual payments of a set percentage of the trust’s initial fair market value. The percentage will need to be at least 5% and may not be more than 50%.

If they choose a Charitable Remainder Unitrust (CRUT), they would receive an annual income based on the fair market value of the trust property, which is revalued each year. That percentage must be at least 5% and not more than 50%.

These are complex legal strategies that need to be considered in tandem with an overall estate and tax plan. Speak with an experienced estate planning attorney to learn if using CRTs would be a good strategy for you and your family.

Reference: Richardland Source (October 28, 2019) “Using Charitable Trusts in Your Retirement Planning”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

For Immediate Release

Contact: Jane Frankel Sims

410-828-7775

Contact: Frank Campbell

410-263-1667

Sims & Campbell Estates and Trusts

Frankel Sims Law and Holden & Campbell
Merge to Form Sims & Campbell

Firm will offer comprehensive Trusts & Estates services through offices in Towson and Annapolis

TOWSON, Md. (April 26,2019)  Frankel Sims Law and Holden & Campbell have jointly announced the merger of their firms to create a boutique Trusts & Estates law firm providing comprehensive services in the fields of Estate Planning, Estate Administration, Trust Administration and Charitable Giving. The combined firm will be named Sims & Campbell and have offices in Towson, Md. and Annapolis, Md.  Jane Frankel Sims and Frank Campbell will lead and hold equal ownership stakes in the firm.

Sims & Campbell will have 9 attorneys and 15 legal professionals that handle every facet of estate and wealth transfer planning, including wills, revocable living trusts, irrevocable trusts, estate and gift tax advice, and charitable giving strategies.  The firm will focus solely on Trusts & Estates but will serve a wide range of clients, from young families with modest resources to ultra-high net worth individuals.  This allows clients to remain with the firm as their level of wealth and the complexity of related estate and tax implications change over time. 

“By joining forces, we have expanded our footprint to conveniently serve clients in Maryland, D.C. and Virginia” said Jane Frankel Sims.  We are seeing some of the greatest wealth transfer in our country’s history, and we want to continue to be on the leading edge of helping our clients maintain and enhance their family’s wealth.  In addition, we aim to serve our clients for years to come, and the new firm structure will allow Sims & Campbell to thrive even after Frank and I have retired.”    

“Jane and I have always admired each other’s firms and recognized the need to provide even greater depth and breadth of focused expertise to help families amass and protect their wealth from generation to generation,” said Frank Campbell.  “Now we have even greater capabilities to make a real difference for our clients.” 

The Sims & Campbell Towson office is located at 500 York Road, on the corner of York Road and Pennsylvania Avenue in the heart of Towson.  The Annapolis office is currently located at 716 Melvin Avenue, and is moving to 181 Truman Parkway in August, 2019.  For more information, visit www.simscampbell.law.