Does Artwork Belong in a Charitable Remainder Trust? – Annapolis and Towson Estate Planning

A charitable remainder trust is a tax-exempt irrevocable trust that is created to decrease taxable income of people, by initially giving income to the beneficiaries of the trust for a set period of time and then donating the rest of the trust funds to a designated charity.

Financial Advisor’s recent article entitled “Putting Art Into Charitable Remainder Trusts” says that people who have valuable artwork or other collectibles that are hard to divide or that their kids do not want, can investigate a charitable remainder trust with an estate planning attorney as an option.

A Charitable Remainder Trust is designed to save asset owners taxes that they would have to pay, if they sold their artworks on the open market. CRTs are also designed so that when they expire, they allow philanthropically inclined individuals help their favorite charitable organizations.

Many people with higher net worth hold about a tenth of their wealth in art and collectibles.  Due to the nature of the assets, the value may be hard to split up among their heirs, or no one heir may want that specific piece of art. A charitable remainder trust gives the art or collectible owner a solution to that issue. The trust will reduce her taxable income, by first dispersing income to the trust beneficiaries for a certain period of time and then the remainder is donated to a charity.

It is important to note that art markets are quirky, and a CRT protects an owner from forcing her into a fire sale, when she or a trustee is trying to divide the estate.

For example, say the parents purchased a number of pieces of artwork on a European vacation and shipped them back to the United States. They have three children, but there is one piece of art that is more valuable than the others. As a result, there was no way to equitably divide the pieces. If they sold the pieces outright, there would be a 28% tax imposed.

However, the parents could instead place the artwork in a charitable remainder trust, get a tax deduction for part of the value, get income from the trust and then give a sum to a selected charity.

The asset can be held in the trust until one owner dies, until both parents pass, or for up to a certain number of years, based on how the trust is set up. Contact an estate planning attorney experienced in charitable planning strategies.

Reference: Financial Advisor (Feb. 21, 2020) “Putting Art Into Charitable Remainder Trusts”

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

Do I Need to Be Wealthy to Set Up a Trust? – Annapolis and Towson Estate Planning

Trust funds are intended to let a person’s money continue to be useful, after they pass away. However, they are not only useful for ultra-high-net-worth individuals. Many people can benefit from the use of a trust.

Investopedia’s recent article entitled “How to Set Up a Trust Fund if You’re Not Rich” says that you can place cash, stock, real estate, or other valuable assets in your trust. Work with a trust attorney, decide on the beneficiaries, and set any instructions or restrictions. With an irrevocable trust, you do not have the ability to dissolve the trust, if you change your mind later on. Once you place property in the trust, it is no longer yours but is under the care of a trustee. Because the assets are no longer yours, you do not have to pay income tax on any money made from the assets, and with an estate planning attorney’s guidance, the assets can be exempt from estate and gift taxes.

Tax exemptions are a main reason that some people set up an irrevocable trust. If you, the trustor (the person establishing the trust) is in a higher income tax bracket, creating an irrevocable trust lets you remove these assets from your net worth and move into a lower tax bracket.

If you do not want to set up a trust, there are other options. However, they do not give you as much control over your property. As an alternative or in addition to a trust, you can have an attorney draft your will. With a will, your property is subject to more taxes, and its terms can easily be contested in probate. You also will not have much control over how your assets are used.

Similar to a 529 college-savings plan, UGMA/UTMA custodial accounts are designed to let a person use the funds for education-related expenses. You can use an account like this to gift a certain amount up to the maximum gift tax or fund maximum to reduce your tax liability, while setting aside funds that can only be used for education-related expenses. The downside to UGMA/UTMA Custodial Accounts and 529 plans is that money in the minor’s custodial account is considered an asset. This may make them ineligible to receive need-based financial aid.

For those who do not have a high net-worth but want to leave money to children or grandchildren and control how that money is used, a trust may be a good option. Talk it over with a qualified estate planning attorney.

Reference: Investopedia (Dec. 12, 2019) “How to Set Up a Trust Fund if You’re Not Rich”

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

Should I Use Life Insurance in My Estate Planning? – Annapolis and Towson Estate Planning

With proper planning, insurance money can pay expenses like estate taxes. It will help keep other assets intact.

For example, Hector passes away and leaves his rather large estate to his daughter, Isabella. Because of the size of the estate, there is a hefty estate tax due. However, unfortunately, most of Hector’s assets are tied up in real estate and an IRA. Isabella may not be keen on a quick forced sale of the real estate to free up some cash for the taxes. If Isabella taps the inherited IRA to raise cash, she will have to pay income tax on the withdrawal and lose a valuable opportunity for extended tax deferral.

FedWeek’s recent article entitled “Using Life Insurance to Protect Your Estate” that in this scenario, Hector could plan ahead. Anticipating such a result, he could buy insurance on his own life. The proceeds of that policy could be used to pay the estate tax bill. Isabella can then keep the real estate, while taking only the Required Minimum Distributions (RMD) that are warranted by law from the inherited IRA. If the insurance policy is owned by Isabella or by a trust, the proceeds most likely will not be included in Hector’s estate, and the money will not increase the estate tax liability she has.

However, some common life insurance mistakes can sabotage your estate plan:

  • Designating your estate as the beneficiary. This will place the policy proceeds in your estate, which exposes the funds to estate tax and your creditors. Your executor will also have more paperwork, if your estate is the beneficiary. Instead, name the appropriate people, trust or charities.
  • Naming just a single beneficiary. Name at least two “backup” beneficiaries to decrease confusion, in the event the main beneficiary should die before you.
  • Placing your policy in the “file and forget” drawer. Review your policies at least once every three years, make the appropriate changes and get a confirmation, in writing, from the insurance company.
  • Inadequate insurance. In the event of your untimely death, if you have a young child, in all likelihood it will take hundreds of thousands of dollars to pay all her expenses, such as college tuition. Failing to purchase adequate insurance coverage may hurt your family. This also should not be a hardship with term insurance costs so low.

Reference: FedWeek (Feb. 6, 2020) “Using Life Insurance to Protect Your Estate”

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

Why Is Estate Planning more Complicated with a ‘Gray Divorce’? – Annapolis and Towson Estate Planning

The increasing divorce rates among Americans over the age of 50 is a problem, because minimizing discord among beneficiaries is one of the top three reasons why people engage in estate planning.

The Clare County Review’s recent article entitled “Rising Gray Divorce Rates Are Making Estate Planning Problems More Complicated” notes that along with prolonged life expectancy and rising healthcare costs, this upward trend in couples divorcing after the age of 50 has created activity and interest in estate planning.

According to the CDC, the divorce rate in the United States is 3.2 per 1,000 people. The ‘first divorce rate,’ or the number of marriages that ended in divorce per 1,000 first marriages for women 18 and older, was 15.4 in 2016, according to research by the National Center for Family and Marriage Research at the Bowling Green State University. As noted earlier, black women experience divorce at the highest rate, 26.1 per 1,000, and the rate is lowest for Asian women at 9.2 per 1,000.  In Michigan, the current divorce rate is 9%, but Tennessee is way up at 43%.

Gray divorce is adding another level of complexity to estate planning that already happens with blended families, designation of heirs and changing domestic structures. Therefore, it is more crucial than ever to proactively review and discuss the estate plans with your estate planning attorney on an ongoing basis.

According to the TD Wealth survey, 39% of respondents said that divorce effects the costs of retirement planning and funding the most. Another 7% said that divorce impacts those responsible for enacting a power of attorney and 6% said divorce impacts how Social Security benefits will be determined.

It is important to communicate the estate plan with family members to reduce family conflict during the divorce process.

The divorce process is complicated at any age. However, for divorcing couples over the age of 50, the process can be especially tough because the spouse is frequently designated as a beneficiary on many, if not all, documents. Each of these documents will need to change to show new beneficiaries after the divorce has been finalized. It means that wills, trusts, retirement accounts, life insurance policies and listed assets will need to be revised.

Reference: Clare County Review (Feb. 10, 2020) “Rising Gray Divorce Rates Are Making Estate Planning Problems More Complicated”

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

Do I Need a Revocable Living Trust? – Annapolis and Towson Estate Planning

A revocable living trust is created with a written agreement or declaration that names a trustee to manage and administer the property of the grantor. If you are a competent adult, you can establish an RLT. As the grantor, or creator of the trust, you can name any competent adult as your trustee, or you can use a bank or a trust company for this role. The grantor can also act as trustee throughout his lifetime.

Investopedia’s article from last fall entitled “Should You Set up a Revocable Living Trust?” explains that after it is created, you must retitled assets—like investments, bank accounts, and real estate—into the trust. You no longer “own” those assets directly. Instead, they belong to the trust and do not have to go through probate at your death. However, with a revocable living trust, you retain control of the assets while you are alive, even though they no longer belong to you directly. A revocable living trust can be changed, and any income earned by the trust’s assets passes to you and is taxable. However, the assets themselves do not transfer from the trust to your beneficiaries until your death.

Avoiding probate is the big benefit of a living trust, but other benefits like privacy protection and flexibility make it a good choice. A living trust can be used to help control a guardian’s spending habits for the benefit of minor children. It can also instruct another individual to act on your behalf, if you become incapacitated and need someone to make decisions for you. Should you become impaired or disabled, the trust can automatically appoint your trustee to oversee it and your financial affairs without a durable power of attorney.

Although there are several advantages to establishing a revocable living trust, there also some drawbacks:

Expense. Establishing a trust requires legal assistance, which is an expense.

Maintaining Records. Most of the time, you need to monitor it on an annual basis and make adjustments as needed (they do not automatically adapt to changed circumstances, like a divorce or a new grandchild). There is the trouble of ensuring that future assets are continuously registered to the trust.

Re-titling Property. When your RLT is established, property must be re-titled in the name of the trust, requiring additional time. Fees can apply to processing title changes.

Minimal Asset Protection. Despite the myth, a revocable living trust offers little asset protection beyond avoiding probate if you retain an ownership interest, such as naming yourself as trustee.

Administrative Expenses. There can also be additional professional fees, such as investment advisory and trustee fees, if you appoint a bank or trust company as the trustee.

There’s No Tax Break. Your assets in the RLT will continue to incur taxes on their gains or income and be subject to creditors and legal action.

Compared to wills, revocable trusts have more privacy, more control and flexibility over asset distribution. With a revocable living trust, you do most of the work up front, making the disposition of your estate easier and faster. However, an RLT requires more effort, and there is an expense in creating and maintaining it.

Work with an experienced estate planning attorney, if you are considering a revocable living trust.

Reference: Investopedia (Oct. 31, 2019) “Should You Set up a Revocable Living Trust?”

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

How Do I Do the Most with My Inheritance? – Annapolis and Towson Estate Planning

Studies have shown that when people unexpectedly come into money, they will treat it differently than the money they have earned.

Forbes’ recent article entitled “5 Important Steps To Maximize An Inheritance” says that even the most financially astute consumers can get inundated with their newfound wealth. People can feel pressure to use the cash to purchase new vehicles, bigger homes, or even take their families on dream vacations. Others may feel that they can safely quit their jobs and live the life of luxury.

Many people regret jumping into major purchases after getting an inheritance. Others will give away much of the money or even make bad investments that are completely wrong for their goals and financial needs. If you do not get expert financial guidance to develop a plan for your inheritance, or take the time to do it yourself, you may find yourself worse off than you were before you became wealthier via an inheritance.

Here are some financial planning tips for anyone who is receiving an inheritance or another windfall.

Do Something Fun. Set aside an amount to splurge on something fun. However, figure out how much you want to spend and on what. Without that, you may find that one small splurge turns into many, and next thing, a big chunk of your inheritance could be spent.

Taxes on Your Inheritance. It is uncommon for someone to get an inheritance big enough to trigger the federal estate tax. However, estate taxes will vary at the state level, so check with your estate planning attorney. Depending on the type of assets you inherit and how they are held, you may owe taxes on some of your newfound riches.

Quitting Your Job. This sounds tempting, but before you take this big step, make sure you have thought it through and that you have a plan to replace your income. It is not hard to underestimate how much money you will actually need to provide a nice standard of living for the rest of your life.

Take Care of Yourself. When you come into money, you will hear from relatives you never knew you had. They will all be asking for money. Make sure your own finances are in order, before you commit to take care of others beyond your immediate family.

Consult Experts. An inheritance can be stressful and overwhelming, so talk to an experienced estate planning attorney. He can help with tax filing deadlines and provide strategies to protect that wealth.

Reference: Forbes (Feb. 26, 2020) “5 Important Steps To Maximize An Inheritance”

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

Do You Think Everything Is All Set with Your Estate Plan? – Annapolis and Towson Estate Planning

Many people would like to believe that estate planning is simple, and that once you sign everything you’re finished. Not so. There are other things to consider as part of the process, and topics that need to be revisited over time.

When you pass away, your executor will typically have many tasks to handle to settle your estate. Anything you can do in advance to add clarity and lessen the burden on her work is wise. MarketWatch’s recent article entitled “Why your estate plan is not as buttoned up as you think it is” gives us a list of seven items to review to be certain that your estate is as planned as you think:

Check to make sure your will is up to date. That is assuming you have written your will (and if you have not, get on it!). How long has it been since you drafted it? Think about any major changes in your life that have happened since that time. If things have changed, be sure to update it.

Check to make sure that your will is sufficiently detailed. Most people think about the big stuff in their estate, like the house, car and jewelry. However, you also need to provide directions for items with sentimental value. This will help to avoid family fighting over these items. Leave directions about who gets what, even if these items of sentimental value do not have a high dollar value.

Check to make sure that your will spells out your wishes in a way that’s legally binding. Every state has its own laws, when it comes to the requirements for a valid will. Work with a seasoned estate planning attorney to make certain that your will is valid. You can also let them do it, so you do not make a mistake that could lead to problems for your executor after you are gone.

Check to make sure that your will has your funeral plans sufficiently detailed. Do not force your grieving family to plan your funeral and try to guess your wishes at the same time. Preplan your funeral. Funeral directors are happy to talk to you to preplan. Leave instructions regarding your wishes, including whether you want to be cremated or buried in a casket; the services you would like and if you would like charitable donations to be made in lieu of people sending flowers.

Be sure that your financial affairs are organized. Your executor will need to know about your typical monthly bills. Make a list of your account numbers and passwords to simplify your executor’s job. Be sure to include automatic deductions or charges on your credit card for things like internet-based subscriptions, club memberships, recurring charitable donations and automatic utility payments.

Make arrangements for the care of your family members who survive you. If you are a caregiver to a parent, spouse, child, or another family member, create a detailed plan concerning who will take over their care, if they outlive you. Do not forget your pets, since the laws on the care for animals contained in a will are different in each state. It is a good idea to make your loved ones aware of your wishes for your furry family members.

Thorough estate planning will help ensure that you family has less to deal with in their grief. Anything you can do to help them get through that difficult time by managing your affairs today is a great gift to them.

Reference: MarketWatch (March 4, 2020) “Why your estate plan is not as buttoned up as you think it is”

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

What are the Main Estate Planning Blunders to Avoid? – Annapolis and Towson Estate Planning

There are a few important mistakes that can make an estate plan defective—most of these can be easily avoided by reviewing your estate plan periodically and keeping it up to date.

Investopedia’s article from a few years ago entitled “5 Ways to Mess Up Estate Planning” lists these common blunders:

Not Updating Your Beneficiaries. Big events like a marriage, divorce, birth, adoption and death can all have an effect on who will receive your assets. Be certain that those you want to inherit your property are clearly detailed as such on the proper forms. Whenever you have a life change, update your estate plan, as well as all your financial, retirement accounts and insurance policies.

Forgetting Important Legal Documents. Your will may be just fine, but it will not exempt your assets from the probate process in most states, if the dollar value of your estate exceeds a certain amount. Some assets are inherently exempt from probate by law, like life insurance, retirement plans and annuities and any financial account that has a transfer on death (TOD) beneficiary listed. You should also make sure that you nominate the guardians of minor children in your will, in the event that something should happen to you and/or your spouse or partner.

Lousy Recordkeeping. There are few things that your family will like less than having to spend a huge amount of time and effort finding, organizing and hunting down all of your assets and belongings without any directions from you on where to look. Create a detailed letter of instruction that tells your executor or executrix where everything is found, along with the names and contact information of everyone with whom they will have to work, like your banker, broker, insurance agent, financial planner, etc.. You should also list all of the financial websites you use with your login info, so that your accounts can be conveniently accessed.

Bad Communication. Telling your loved ones that you will do one thing with your money or possessions and then failing to make provisions in your plan for that to happen is a sure way to create hard feelings, broken relationships and perhaps litigation. It is a good idea to compose a letter of explanation that sets out your intentions or tells them why you changed your mind about something. This could help in providing closure or peace of mind (despite the fact that it has no legal authority).

No Estate Plan. While this is about the most obvious mistake in the list, it is also one of the most common. There are many tales of famous people who lost virtually all of their estates to court fees and legal costs, because they failed to plan.

These are just a few of the common estate planning errors that commonly happen. Make sure they do not happen to you: talk to a qualified estate planning attorney.

Reference: Investopedia (Sep. 30, 2018) “5 Ways to Mess Up Estate Planning”

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

What’s the Best Way to Provide for My Family when I’m Gone? – Annapolis and Towson Estate Planning

The estate planning process should begin when you are at least 18 years old, of sound mind and as free as possible from emotional stress, suggests Essence’s recent article entitled “Death And Money: How To Protect And Provide For The Loved Ones You Leave Behind.” You do not want to do this kind of planning when you are on your sickbed or when your mental capabilities are in decline.

If you are new to estate planning, here are the necessary steps to ensure you start the process on the right foot. Work with an experienced estate planning attorney to be certain that your plan is correct and legal.

A will. This is a legal document that details how to distribute your property and other assets upon death. A will can also nominate guardians for minor children. Without this, the state will dictate how to distribute your assets to your beneficiaries, according to the laws of intestate succession. If you already have a will, be sure it is updated to reflect an accurate listing of assets and beneficiaries that may be changed with a divorce, financial changes, or the birth or adoption of a child.

Life insurance. This is a great idea to protect and provide for your family when you are gone. Life insurance pays out money either upon your death or after a set period. Even if you have a life insurance policy as an employee benefit, this coverage is not portable, which means it does not follow you when you switch jobs. This can result in gaps in coverage at times when you may need it most.

Work with a legal professional. Estate planning is not a DIY project, like cleaning the garage. You should have the counsel and assistance of an experienced estate planning attorney to help you create a comprehensive estate plan. An estate planning attorney can also coordinate with your financial advisor to manage your estate’s finances, such as making recommendations and funding investment, retirement and trust accounts.

An estate planning attorney also can make sure that all of your beneficiaries and secondary beneficiaries are up-to-date on your investment accounts, pensions and insurance policies. An estate planning attorney will also help you with the best options for maintaining your estate after death or in the event of incapacity. In addition to preparing a will, your attorney can create a living trust that details your desires regarding your assets, your dependents and your heirs while you are still alive. He can also draw up your power of attorney for your health care, verify property titles and create legal document to ensure a succession plan for your business.

Finally, an estate planning attorney or probate attorney can help the personal representative or executor of an estate with closing responsibilities setting up an estate account, tax filings and paying the final distributions to beneficiaries.

A key to estate planning is to get (and stay) organized. Know the location and passwords (if applicable) of all your important legal and financial documents. You should also communicate the location of these files to trusted family members and to your estate planning or probate attorney.

Reference: Essence (Jan. 29, 2020) “Death And Money: How To Protect And Provide For The Loved Ones You Leave Behind”

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

How Long Do You Have to Settle an Estate? – Annapolis and Towson Estate Planning

The beneficiaries of an estate are recently eager to receive their inheritance. In a common scenario, a trust was left instead of an actual will. All the parties received their respective shares, except for the two brothers and a sister who is the executor. The trust instructed the brothers to divide the estate property in half for each of them. The sister was to get $15,000.

However, one of the brothers lives in the home.

As you may know, the administrator or executor of an estate has the job of collecting the decedent’s assets, paying debts, making distributions to the beneficiaries and finally closing the estate in an expeditious manner.

nj.com’s recent article entitled “How long does it take to pay out a family trust?” tries to sort out what the siblings need to do to settle the estate. The key factor in this scenario is the wording of the trust.

There are situations in which a trust is used as a substitute for a will. In that case, a person’s assets are placed in trust. The trustee pays all the liabilities and administers the assets in the trust in accordance with the instructions of the trust during the individual’s life and after her death.

Even when trusts are used as will substitutes, they are not always designed to be closed with distribution to happen immediately after the debts are paid, as in the case of the estate. The terms of the trust dictate the trustee’s duties as to the distribution of trust assets.

If you are a beneficiary of a trust and think that the trustee is breaching his fiduciary duties, you should inform the trustee of the nature of the suspected breach. If nothing is done to remedy this, you may ask the court for help.

One option is that you can request the court to order the trustee to take actions, which you state in your complaint filed with the probate court. Another option is to request that the court direct the trustee to stop taking specific actions that you detail in your complaint.

A third choice is to ask the court to remove the trustee due to breach of fiduciary duties that you set forth in your complaint filed with the court.

However, such court intervention can be expensive. Another thing to consider is that the trustee may petition the court to have his legal fees paid from the trust funds—which will deplete the money in the trust. Because of this, it is usually best to attempt and resolve these issues before getting the court involved.

Reference: nj.com (Feb. 12, 2020) “How long does it take to pay out a family trust?”

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