What Are Some Advantages of Making Lifetime Gifts? – Annapolis and Towson Estate Planning

There are several non-tax advantages of making lifetime gifts. One is that you’re able to see the recipient or “donee” enjoy your gift. It might give you satisfaction to help your children achieve financial independence or have fewer financial concerns.

WMUR’s recent article, Money Matters: Lifetime non-charitable giving,” explains that lifetime giving means you dictate who gets your property. Remember, if you die without a will, the intestacy laws of the state will dictate who gets what. With a will, you can decide how you want your property distributed after your death. However, it’s true that even with a will, you won’t really know how the property is distributed because a beneficiary could disclaim an inheritance. With lifetime giving, you have more control over how your assets are distributed.

At your death, your property may go through probate. Lifetime giving will help reduce probate and administration costs, since lifetime gifts are typically not included in your probate estate at death.  Unlike probate, lifetime gifts are private.

Let’s discuss some of the tax advantages. First, a properly structured gifting program can save income and estate taxes. A gift isn’t taxable income to the donee, but any income earned by the gift property or capital gain subsequent to the gift usually is taxable. The donor must pay state and/or federal transfer taxes on the gift. There may be state gift tax, state generation-skipping transfer tax, federal gift and estate taxes, as well as federal generation-skipping transfer (GST) tax.

A big reason for lifetime giving is to remove appreciating assets from your estate (i.e., one that’s expected to increase in value over time). If you give the asset away, any future appreciation in value is removed from your estate. The taxes today may be significantly less than what they would be in the future after the asset’s value has increased. Note that lifetime giving results in the carryover of your basis in the property to the donee. If the asset is left to the donee at your death, it will usually receive a step-up in value to a new basis (usually the fair market value at the date of your death). Therefore, if the donee plans to sell the asset, she may have a smaller gain by inheriting it at your death, rather than as a gift during your life.

You can also give by paying tuition to an education institution or medical expenses to a medical care provider directly on behalf of the donee. These transfers are exempt from any federal gift and estate tax.

Remember that the federal annual gift tax exclusion lets you to give $15,000 (for the 2019 year) per donee to an unlimited number of donees without any federal gift and estate tax or federal GST tax (it applies only to gifts of present interest).

Prior to making a gift, discuss your strategy with an estate planning attorney to be sure that it matches your estate plan goals.

Reference: WMUR (April 18, 2019) “Money Matters: Lifetime non-charitable giving”

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

What Do I Need to Know About ABLE Accounts? – Annapolis and Towson Estate Planning

Millions of Americans with disabilities and their families depend on public benefits to help provide income, health care, food and housing assistance. Eligibility for assistance through Supplemental Security Income, SNAP and Medicaid is based upon a resource test, so disabled individuals seeking benefits are typically limited to no more than $2,000 in savings or assets. This can present a difficult problem.

The Achieving a Better Life Experience Act (ABLE) was created as a way to create a tax-advantaged savings tool for individuals with disabilities and their families.

nj.com’s article, “ABLE accounts–A tax advantaged tool for special needs planning,” advises that when used correctly, this overlooked savings account may allow families to build a small nest egg, without affecting eligibility for public program benefits.

An ABLE 529 account is designed to be a savings or investment account to supplement public benefits. It can be a powerful strategy for individuals, who previously were unable to build supplemental funds outside of a trust for their needs. An ABLE account is funded with after-tax contributions that can grow tax-free, when used for a qualified disability expense. The account owner is also the beneficiary and contributions can be made from any person including the account beneficiary, friends, and family.

The ABLE account is available to individuals with significant disabilities, whose age of onset of disability was before they turned 26. A person could be over the age of 26 but must have had an age of onset before their 26th birthday.

Contributions are restricted to $15,000 per year. Because the ABLE account is connected to the 529 plan for education, the total contribution limit is based upon the individual state’s limit for 529 plans. Individuals can have up to $100,000 in an ABLE account, without impacting SSI eligibility. The first $100,000 also does not count toward the $2,000 resource restriction.

A frequently asked question is whether to use an ABLE account or a Special Needs Trust for planning purposes. ABLE are subject to certain limitations that make it impossible, or at least ill advised, to use them instead of a Special Needs Trust. Remember that ABLE accounts can only receive $15,000 in deposits each year, but, in most cases, Special Needs Trusts can receive much larger contributions in a year, once they are funded. This is an important difference for parents who want to leave more substantial assets to their child when they die but don’t want to jeopardize the child’s eligibility for critical services. In that situation, a Special Needs Trust may be more desirable.

When the beneficiary of the ABLE account passes away, any leftover funds in the account are typically reimbursed to the state to defray the costs of providing services during the beneficiary’s life. However, that’s different than a properly drafted Special Needs Trust.

In 2019, ABLE account owners who work but don’t have an employer-sponsored retirement account, can now save up to $12,140 in additional savings from their earnings.

Ask your estate planning attorney about possibly coordinating an ABLE account with a Special Needs Trust.

Reference: nj.com (April 20, 2019) “ABLE accounts – A tax advantaged tool for special needs planning”

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

An Estate Plan Directs Assets According to Your Wishes – Annapolis and Towson Estate Planning

Anyone who has any assets they want distributed should have an estate plan, regardless of the size of their estate.

Having a will and an estate plan created by an experienced attorney is the easiest place to start, says the Observer-Reporter in the article “Set up an estate plan so your assets go where you want.” Without a will, the state will decide what happens to your assets and it may not be what you wanted.

If your will was done more than four years ago and was never updated, it may lead to some unwanted results. If people you named as beneficiaries or executors have died or if there were divorces in your family, these are examples of changes that should be addressed in the estate plan.

Many people don’t know that insurance policies, annuities, 401(k), or IRA accounts that have a designated beneficiary are going to the designated beneficiary, regardless of what is in the will. If the will says everything in the estate should be divided equally between children, but one child was named the beneficiary on the life insurance policy, then only the named child will inherit the insurance policy.

Another part of an estate plan that is needed to ensure that your wishes are followed, is a financial power of attorney and a health care power of attorney. The financial power of attorney gives the person you name the legal ability to make financial decisions for you, if you are incapacitated. The health care power of attorney, similarly, gives the person you name the power to make health care decisions for you if you cannot do so for yourself. A living will is another part of planning for incapacity that is a part of a comprehensive estate plan. The living will lets your wishes for end of life care be known to others.

Assets that pass to heirs through beneficiary designations do not go through the probate process. However, assets distributed through your will do so. Probate administration of an estate takes some time to complete depending upon where you live. In some states, probate is more involved and time consuming than in others.

Another reason why people like to avoid probate is that documents, including your will, are filed with the court and become part of the public record. That’s why many people who lose a family member find themselves receiving direct mail and phone calls about buying insurance policy or selling their home.

There are ways to minimize the number of assets that pass through probate, which your estate planning attorney will be able to explain. Trusts are used for this purpose. There are a variety of trusts that can be used depending upon your circumstances. Some are used to protect inheritances if a person has an opiate addiction or cannot manage her own affairs. Others are used so individuals with special needs do not receive inheritances that would make them ineligible for government benefits.

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances.

Reference: Observer-Reporter (April 19, 2019) “Set up an estate plan so your assets go where you want”

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

Big Mistakes Add Up Big Time for Retirement – Annapolis and Towson Estate Planning

Retirement is a theoretical event happening way off in the future — until you celebrate your 55th birthday, when it starts to become all too real. When that lightening bolt strikes, says The Street, some mistakes may become obvious, as described in the article “Avoid These Big Mistakes in Your Retirement Planning.”

The biggest, most obvious and perhaps least followed lesson: do as much of the planning in advance as possible. Don’t wait until you wake up on your first day of retirement to figure it out.

Here are the top four mistakes people make:

Overlooking the impact of healthcare costs. Inflation in healthcare is more than three times the Consumer Price Index’s annual increase. Medical inflation hit an average of 6.8% in 2018, and it’s not likely going down any time soon. Medicare covers hospitalization (Part A) and doctor visits (Part B) but it does not cover many other critical costs. You’ll need to pay for long-term care, vision, dental, co-pays and deductibles.

As we age, our healthcare costs go up. When you are in the early stages of retirement, active, busy and healthy, it rises around 5%. But as you age, if you are lucky enough to do so, your health insurance costs could leap by 15% annually.

Planning for Medicare is very important.  It is where many retirees make big mistakes. You’ll need Medigap insurance to cover areas that Medicare does not. You’ll also want Part D to cover prescriptions.

The bigger Medicare mistake is failing to enroll at age 65. If you miss it, you’ll have to pay a penalty just to get enrolled in the program. It’s not easy to figure it out, and the instruction book is 130 pages long. The website is also confusing. However, you have to do it and do it right.

Neglecting to save. Really save. It’s next to impossible if you are twenty-something, have enormous student loans and have not gotten your career on track, to even think about retirement. It’s not easy and it’s not the first thing younger people are thinking about. However, the sooner you start putting money away for retirement, the more time you have for the money to grow. If your company offers a retirement plan, start putting something away, even if it’s a small amount. Over time, that company retirement account will grow, your income will grow and you will be better positioned for retirement. Automatic deductions will make this more likely to happen. If your parents are nagging you about retirement, make them happy: sign up for the plan at work and go for the auto deductions. It’s one less thing for them — and you — to worry about.

Poor investments. People who take a do-it-yourself approach to their investment portfolio vary in levels of success. Some devote a lot of time to it, including educating themselves about industry sectors and market performance, and others follow the ‘brother-in-law’ school, which usually tanks. That’s when your brother-in-law boasts about how much money he made in a particular stock. However, he neglects to tell you about how many losses he’s taken along the way. A team approach of an educated investor with a professional financial advisor is a better way to go.

Thinking you know it all. Overconfidence has sunk many retirements. People who are highly successful in life think that career success will automatically translate into retirement and financial planning. It’s also very hard for these types of people to accept that there’s something they do not know and cannot control. It is even harder for them to ask for help.

Failing to plan includes the failure to work with an experienced estate planning attorney in creating an estate plan that addresses tax planning, incapacity, transferring wealth to the next generation and asset distribution. Just like early savings make a big difference, having an estate plan created early in your life and updating as you go through life will help protect you and your loved ones.

Reference: The Street (April 11, 2019) “Avoid These Big Mistakes in Your Retirement Planning.”

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

Gen Xers Are the New Sandwich Generation – Annapolis and Towson Estate Planning

Balancing careers, children, college funds and aging parents present the same-old scenario, but this time to a new generation with a different value system.

Members of Generation X, who straddle a fairly wide age range, from late 30s to early 50s, are feeling the crunch of being responsible for their children and their parent’s needs. How will they ever get a handle on their savings for retirement?

U.S. News & World Report reminds us in its article “Essential Strategies for Generation X” that with the right strategies, Gen Xers can find a money-life balance.

Keep in mind that Gen X has been financially devastated twice: when the tech bubble burst and again during the financial crisis. This makes these individuals dubious about the future.

Let’s look at three strategies for those in the new sandwich generation to help make certain that the financial needs of their aging parents and children are met, and at the same time, ensuring that they don’t sacrifice their own financial future.

For You. Determine your financial health by calculating your net worth. This includes your savings, personal investment accounts, retirement plan accounts, and real estate, minus credit card debts, your mortgage and miscellaneous debt. Take off any items that won’t appreciate or be consumed in retirement, like a car or jewelry. Then review investments to be sure they’re performing consistently with your needs and expectations. Develop a plan to tackle debt and identify existing and projected expenses. Once you have all this information, use a basic retirement calculator to see if you’re on track to meet your retirement spending needs.

A basic calculator probably won’t let you input different scenarios or make detailed assumptions. Most will assume that you will need 70-80% of your current salary in retirement, but this may not be the case if you’re a big saver.

Create a contingency plan for premature death and disability. Ask an attorney to draft your will and other estate planning documents. Make sure that your will includes naming a guardian for your minor children so that you get to name the person who raises them. Have the attorney create powers of attorney and powers of attorney for health care so that you and your partner are prepared for incapacity.

For Your Children. Look at the resources available to fund your children’s education. Don’t put your retirement plan in jeopardy by paying for an expense you can’t afford, including your children’s college. Be open minded about state schools, or having your kids attend a local college for two years, then transfer to another college for a “brand name” diploma.

For Your Parents. See where your parents are financially because you may need to factor unexpected expenses into your plan if your parents need financial assistance. This will save time in the future if you know where to track down this information. Ask if they have an estate plan, and if they do not, have them meet with your estate planning attorney to have a plan created. Find out what kind of long-term care insurance they have in place.

With their somewhat pessimistic outlook—which is not undeserved—many Gen Xers are more focused on a work-life balance than amassing wealth. That’s good, but they need to develop good financial habits on a realistic scale.

Reference: U.S. News & World Report (March 28, 2019) “Essential Strategies for Generation X”

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.