A Millennial’s Guide for Investing – Annapolis and Towson Estate Planning

Bankrate recently created a guide to investing for Millennials. The Millennial Generation is not only concerned about the ability to retire when they choose, but also outliving their retirement savings.

Many millennials carry a great weight of debt, most of which tends to be student loan debt. The large debt ratio of this generation plays a major role in why they are unable or afraid to invest. It is important to keep in mind that avoiding riskier investments will not help build your retirement faster.

Bankrate reports in their recent article  “Time on your side: A guide to millennial investing” why it is so beneficial for millennials to invest early on. The article also provides a guide on how to go about investing, even if you think this is not in your current budget.

According to Bankrate, before making your investment you should evaluate how much you are able to invest. Here are a few steps to follow:

Calculate your total debt: First, figure out how much income you have coming in monthly and how much money is coming out. Some things to consider are rent or a house payment, monthly loan payments, monthly credit card payments, and factor in other debts or payments that must be made monthly. Paying off even a small credit card can help alleviate some debt and provide you with money to put towards your investment.

Determine your financial risk level: Keep in mind that there will always be ups and downs in the stock market. With this being said, if you have a short-term goal that you have been saving for, you may want to start by investing conservatively.

Educate yourself on stark market basics: Bonds, brokerage account, ETFs or exchange-traded funds, mutual funds, and stocks are all terms that you should educate yourself on. The article published by Bankrate is a good starting point for these investing terms.

One thing to keep in mind is the importance of staying up to date on financial news. General stock market news can be found on any major news source. Before you get started with your investing, determine your short-term and long-term goals.

Reference: Bankrate (February 20, 2020) “Time on your side: A guide to millennial investing”

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

What Happens If I Don’t Have an Estate Plan? – Annapolis and Towson Estate Planning

It is so much better to have a will than not to. With a will, you can direct your assets to those whom you wish to receive a legacy, rather than the default rules of the State. This is according to a recent article in the Houston Chronicle’s entitled “Elder Law: Will you plan now or pay later?”

You should also designate an independent executor. You may want to have an estate planning attorney create a special trust to provide for family members who are disabled, along with trusts for minors and even adult children.

Here are three major items about which you may not have considered that may require changes to your estate plan or motivate you to get one. Years ago, the amount a person could leave to beneficiaries (the tax-free exemption equivalent) was much lower. You were also required to either use it or lose it.

For example, back in 1987 when the exemption equivalent was $600,000 per taxpayer, a couple had to create a by-pass trust to protect the first $600,000 upon the first to die to take advantage of the exemption. The exemption is $11.58 million in 2020, and the “portability” law has changed the “use it or lose it” requirement. There may still be good reasons to use a forced by-pass trust in your will, but in some cases, it may be time to get rid of it.

Next, think about implementing planning to have some control over your assets after you die.

You could have a heart attack, a stroke, or an unfortunate accident. These types of events can happen quickly with no warning. You were healthy and then suddenly a sickness or injury leaves you severely disabled. You should plan in the event this happen to you.

Why would a person not take the opportunity to prepare documents such as powers of attorney for property, powers of attorney for health care, living wills and medical privacy documents?

It is good to know that becoming the subject of a court supervised guardianship proceeding is a matter of public record for everyone to see. There is also the unnecessary expense and frustration of a guardianship that could have been avoided, if you would have taken the time to prepare the appropriate documents with an estate planning or elder law attorney.

Why would you want to procrastinate making a will and then die suddenly without ever taking the time to make your will? Without a valid will, your family will have to pay more for a costly probate proceeding.

Reference: Houston Chronicle (Jan. 16, 2020) “Elder Law: Will you plan now or pay later?”

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

What Exactly Is the Estate Tax? – Annapolis and Towson Estate Planning

In the U.S., we treat the estate tax and gift tax as a single tax system with unified limits and tax rates—but it is not very well understood by many people. The Motley Fool’s recent article entitled “What Is the Estate Tax in the United States?” gives us an overview of the U.S. estate and gift tax, including what assets are included, tax rates and exemptions in 2020.

The U.S. estate tax only impacts the wealthiest households. Let us look at why that is the case. Americans can exempt a certain amount of assets from their taxable estate—the lifetime exemption. This amount is modified every year to keep pace with inflation and according to policy modifications. This year, the lifetime exemption is $11.58 million per person. Therefore, if you are married, you and your spouse can collectively exclude twice this amount from taxation ($23.16 million). To say it another way, if you are single and die in 2020 with assets worth a total of $13 million, just $1.42 million of your estate would be taxable.

However, most Americans don’t have more than $11.58 million worth of assets when they pass away. This is why the estate tax only impacts the wealthiest households in the country. It is estimated that less than 0.1% of all estates are taxable. Therefore, 99.9% of us do not owe any federal estate taxes whatsoever at death. You should also be aware that the lifetime exemption includes taxable gifts as well. If you give $1 million to your children, for example, that counts toward your lifetime exemption. As a result, the amount of assets that could be excluded from estate taxes would be then decreased by this amount at your death.

You do not have to pay any estate or gift tax until after your death, or until you have used up your entire lifetime exemption. However, if you give any major gifts throughout the year, you might have to file a gift tax return with the IRS to monitor your giving. There is also an annual gift exclusion that lets you give up to $15,000 in gifts each year without touching your lifetime exemption. There are two key points to remember:

  • The exclusion amount is per recipient. Therefore, you can give $15,000 to as many people as you want every year, and they do not even need to be a relative; and
  • The exclusion is per donor. This means that you and your spouse (if applicable) can give $15,000 apiece to as many people as you want. If you give $30,000 to your child to help her buy their first home and you’re married, you can consider half of the gift from each spouse.

The annual gift exclusion is an effective way for you to reduce or even eliminate estate tax liability. The estate tax rate is effectively 40% on all taxable estate assets.

Finally, the following kinds of assets aren’t considered part of your taxable estate:

  • Anything left to a surviving spouse, called “the unlimited marital deduction”;
  • Any amount of money or property you leave to a charity;
  • Gifts you have given that are less than the annual exclusion for the year in which they were given; and
  • Some types of trust assets.

Reference: The Motley Fool (Jan. 25, 2020) “What Is the Estate Tax in the United States?”

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

Am I Better Off Investing Earlier in My IRA? – Annapolis and Towson Estate Planning

Remember that you are able to make an IRA contribution for a given year anytime between January 1 and the tax-filing deadline of the following year (usually April 15). That means that you can make a 2020 IRA contribution between Jan’ 1, 2020, and April 15, 2021. However, do not wait. Why not?

Vanguard’s recent article entitled “IRA contributions: The earlier, the better” notes that you invest to earn money, and the amount of money you earn depends primarily on three factors—two you can control.

  1. Investment performance. There is no way to control investment performance and all investing involves risk. The main cause of risk is market movement, which impacts your investment earnings.
  2. The amount you invest. You earn your money with compounding, when your investment earnings make their own earnings. If you contribute more, you have more money to generate earnings. That means you have more earnings to generate additional earnings. You can control the amount you invest, provided you keep within the annual IRA contribution limit.
  3. Your investment timing. If you wait until April to make an IRA contribution, you have missed 15 months of compounding, so if you have the financial flexibility to decide when you contribute to your IRA, do it ASAP.

As an illustration, let us imagine that you invest $5,500 in your IRA each year for 30 years, and your average annual return is 4%. In Situation A, you make a lump-sum investment every January, and your end balance is $323,967. That includes $158,967 in earnings. In Situation B, you make a lump-sum investment every April and your end balance is $308,467. That includes $143,467 in earnings, which is $15,500 less than you would earn in the first scenario. In each situation, you are contributing a total of $165,000 to your IRA over the span of 30 years.

This illustration shows some what-if scenarios that are not always possible to do in real life. For instance, you may not be able to invest the same amount each year or have to skip a few years. However, you should make small steps toward saving 12%–15% of your gross income (including employer contributions) every year. If you do not have the financial flexibility to make a lump-sum investment in your IRA—in January or April (or in any other month as a matter of fact), try to set up recurring automatic bank transfers. If you make bi-weekly contributions over the course of 30 years (for a total contribution of $165,000) and earn a 4% average annual return, the end balance is smaller than Situation A but larger than Situation B.

However, remember that you can’t contribute more than you’ve earned for the year.

Reference: Vanguard (Jan. 21, 2020) “IRA contributions: The earlier, the better”

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

What Should I Know about Beneficiary Designations? – Annapolis and Towson Estate Planning

A designated beneficiary is named on a life insurance policy or some type of investment account as the individual(s) who will receive those assets, in the event of the account holder’s death. The beneficiary designation does not replace a signed will but takes precedence over any instructions about these accounts in a will. If the decedent does not have a will, the beneficiary may see a long delay in the probate court.

If you have done your estate planning, most likely you have spent a fair amount of time on the creation of your will. You have discussed the terms with an established estate planning attorney and reviewed the document before signing it.

FEDweek’s recent article entitled “Customizing Your Beneficiary Designations” points out, however, that with your IRA, you probably spent far less time planning for its ultimate disposition.

The bank, brokerage firm, or mutual fund company that acts as custodian undoubtedly has a standard beneficiary designation form. It is likely that you took only a moment or two to write in the name of your spouse or the names of your children.

A beneficiary designation on account, like an IRA, gives instructions on how your assets will be distributed upon your death.

If you have only a tiny sum in your IRA, a cursory treatment might make sense. Therefore, you could consider preparing the customized beneficiary designation form from the bank or company.

For more customization, you can have a form prepared by an estate planning attorney familiar with retirement plans.

You can address various possibilities with this form, such as the scenario where your beneficiary predeceases you, or she becomes incompetent. Another circumstance to address, is if you and your beneficiary die in the same accident.

These situations are not fun to think about, but they are the issues usually covered in a will. Therefore, they should be addressed, if a sizeable IRA is at stake.

After this form has been drafted to your liking, deliver at least two copies to your custodian. Request that one be signed and dated by an official at the firm and returned to you. The other copy can be kept by the custodian.

Reference: FEDweek (Dec. 26, 2019) “Customizing Your Beneficiary Designations”

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

How Do I Incorporate My Business into My Estate Planning? – Annapolis and Towson Estate Planning

When people think about estate planning, many just think about their personal property and their children’s future. If you have a successful business, you may want to think about having it continue after you retire or pass away.

Forbes’ recent article entitled “Why Business Owners Should Think About Estate Planning Sooner Than Later” says that many business owners believe that estate planning and getting their affairs in order happens when they are older. While that’s true for the most part, it is only because that is the stage of life when many people begin pondering their mortality and worrying about what will happen next or what will happen when they are gone. The day-to-day concerns and running of a business is also more than enough to worry about, let alone adding one’s mortality to the worry list at the earlier stages in your life.

Business continuity is the biggest concern for entrepreneurs. This can be a touchy subject, both personally and professionally, so it is better to have this addressed while you are in charge, rather than leaving the company’s future in the hands of others who are emotionally invested in you or in your work. One option is to create a living trust and will to put in place parameters that a trustee can carry out. With these names and decisions in place, you will avoid a lot of stress and conflict for those you leave behind.

Let them be upset with you, rather than with each other. This will give them a higher probability of working things out amicably at your death. The smart move is to create a business succession plan that names successor trustees to be in charge of operating the business, if you become incapacitated or die.

A power of attorney document will nominate a fiduciary agent to act on your behalf, if you become incapacitated, but you should also ask your estate planning attorney about creating a trust to provide for the seamless transition of your business at your death to your successor trustees. The transfer of the company to your trust will avoid the hassle of probate and will ensure that your business assets are passed on to your chosen beneficiaries. Timely planning will also preserve your business assets, as advanced tax planning strategies might be implemented to establish specific trusts to minimize the estate tax.

Estate planning may not be on tomorrow’s to do list for young entrepreneurs and business owners. Nonetheless, it is vital to plan for all that life may bring.

Reference: Forbes (Dec. 30, 2019) “Why Business Owners Should Think About Estate Planning Sooner Than Later”

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

Is There Estate Tax on the Property I Inherited? – Annapolis and Towson Estate Planning

The vast majority of those who inherit real estate don’t end up paying any taxes on the property. However, there are some instances where estate or inheritance taxes could be assessed on inherited real estate. Motley Fool’s recent article, “Do You Have to Pay Estate Tax on Real Estate You Inherit?” provides a rundown of how estate taxes work in the U.S. and what it means to you if you inherit or are gifted real estate assets.

An estate tax is a tax applied on property transfers at death. A gift tax is a tax levied on property transfers while both parties are alive. An inheritance tax is assessed on the individual who inherits the property. For real estate purposes, you should also know that this includes money and property, and real estate is valued based on the fair market value at the time of the decedent’s death.

Most Americans don’t have to worry about estate taxes because we’re allowed to exclude a certain amount of assets from our taxable estates, which is called the lifetime exemption. This amount is adjusted for inflation over time and is $11.58 million per person for 2020. Note that estate taxes aren’t paid by people who inherit the property but are paid directly by the estate before it is distributed to the heirs.

The estate and gift taxes in the U.S. are part of a unified system. The IRS allows an annual exclusion amount that exempts many gifts from any potential transfer tax taxation. In 2020, it’s $15,000 per donor, per recipient. Although money (or assets) exceeding this amount in a given year is reported as a taxable gift, doesn’t mean you’ll need to pay tax on them. However, taxable gifts do accumulate from year to year and count toward your lifetime exclusion. If you passed away in 2020, your lifetime exclusion will be $11.58 million for estate tax purposes.

If you’d given $3 million in taxable gifts during your lifetime, you’ll only be able to exclude $8.58 million of your assets from estate taxation. You’d only be required to pay any gift taxes while you’re alive, if you use up your entire lifetime exemption. If you have given away $11 million prior to 2020 and you give away another $1 million, it would trigger a taxable gift to the extent that your new gift exceeds the $11.58 million threshold.

There are a few special rules to understand, such as the fact that you can give any amount to your spouse in most cases, without any gift or estate tax. Any amount given to charity is also free of gift tax and doesn’t count toward your lifetime exemption. Higher education expenses are free of gift and estate tax consequences provided the payment is made directly to the school. Medical expense payments are free of gift and estate tax consequences, if the payment is made directly to the health care provider.

Remember that some states also have their own estate and/or inheritance taxes that you might need to consider.

States that have an estate tax include Connecticut, Illinois, Maine, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington. The states with an inheritance tax are Iowa, Kentucky, Nebraska, New Jersey and Pennsylvania. Maryland has both an estate and an inheritance tax. However, there are very few situations when you would personally have to pay tax on inherited real estate.

Estate tax can be a complex issue, so speak with a qualified estate planning attorney.

Reference: Motley Fool (December 11, 2019) “Do You Have to Pay Estate Tax on Real Estate You Inherit?”

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

How Do I Plan for My Incapacity? – Annapolis and Towson Estate Planning

The Post-Searchlight’s recent article, “How to go about planning for incapacity,” advises that planning ahead can make certain that your health-care wishes will be carried out, and that your finances will continue to be competently managed.

Incapacity can strike at any time. Advancing age can bring dementia and Alzheimer’s disease, and a serious illness or accident can happen suddenly. Therefore, it’s a real possibility that you or your spouse could become unable to handle your own medical or financial affairs.

If you become incapacitated without the proper plans and documentation in place, a relative or friend will have to petition the court to appoint a guardian for you. This is a public procedure that can be stressful, time consuming and costly. In addition, without your directions, a guardian might not make the decisions you would have made.

Advance medical directives. Without any legal documents that state your wishes, healthcare providers are obligated to prolong your life using artificial means, if necessary, even if you really don’t want this. To avoid this happening to you, sign an advance medical directive. There are three types of advance medical directives: a living will, a durable power of attorney for health care (or health-care proxy) and a Do Not Resuscitate order (DNR). Each of these documents has its own purpose, benefits and drawbacks, and may not be effective in some states. Employ an experienced estate planning attorney to prepare your medical directives to make certain that you have the ones you’ll need and that all documents are consistent.

Living will. This document lets you stipulate the types of medical care you want to receive, despite the fact that you will die as a result of the choice. Check with an estate planning attorney about how living wills are used in your state.

Durable power of attorney for health care. Also called a “health-care proxy,” this document lets you designate a representative to make medical decisions on your behalf.

Do Not Resuscitate order (DNR). This is a physician’s order that tells all other medical staff not to perform CPR, if you go into cardiac arrest. There are two types of DNRs: (i) a DNR that’s only effective while you are hospitalized; and (ii) and DNR that’s used while you’re outside the hospital.

Durable power of attorney (DPOA). This document lets you to name an individual to act on your behalf. There are two types of DPOA: (i) an immediate DPOA. This document is effective immediately; and (ii) a springing DPOA, which isn’t effective until you’ve become incapacitated. Both types end at your death. Note that a springing DPOA isn’t legal in some states, so check with an estate planning attorney.

Incapacity can be determined by (i) physician certification where you can include a provision in a durable power of attorney naming one or more doctors to make the determination, or you can state that your incapacity will be determined by your attending physician at the relevant time; and (ii) judicial finding where a judge is petitioned to determine incapacity where a hearing is held where medical and other testimony will be heard.

Reference: The Post-Searchlight (December 13, 2019) “How to go about planning for incapacity”

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

What Does an Estate Planning Attorney Really Do? – Annapolis and Towson Estate Planning

Vents Magazine’s recent article, “Understanding What an Estate Planning Attorney Does,” explains that estate planning is a legal set of instructions for your family about how to distribute your wealth and property after you die. Estate planning attorneys make sure the distribution of property happens according to the decedent’s will.

An estate planning attorney can provide legal advice on how to prepare your will after you pass away or in the event that you experience mental incapacity. She will have all the information and education on all the legal processes, beginning with your will and moving on to other important estate planning documents. She will also help you to understand estate taxes.

An estate planning attorney will also help to make certain that all of your savings and property are safe and distributed through the proper legal processes.

Estate planning attorneys can also assist with the power of attorney and health care directives. These documents allow you to designate an individual to decide issues on your behalf, in the event that you become mentally incapable of making decisions for yourself. They can also help you with a guardian who will look after your estate.

It’s important that you select the right estate planning attorney to execute the legal process, as you’ve instructed in your estate plan. You should only retain an attorney with experience in this field of law because other legal counsel won’t be able to help you with these issues—or at least, they may say they can, only to find out later that they’re not experienced in this area.

You also want to feel comfortable with your estate planning attorney because you must disclose all your life details, plans and estate issues, so she can create an estate plan that’s customized to your circumstances.

If you choose the right attorney, it will save you money in the long run. She will help you save from all the estate taxes and make all the processes smooth and easy for you and your loved ones.

Reference: Vents Magazine (December 12, 2019) “Understanding What an Estate Planning Attorney Does”

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

Get Withdrawals from Retirement Accounts Right to Avoid Harsh Penalties – Annapolis and Towson Estate Planning

The next part of retirement is the “distribution” phase. That means spending those assets you’ve worked so hard to accumulate. Planning for this phase doesn’t always get the same attention as saving. However, it is just as important.

Forgetting to take required minimum distributions (RMDs) from IRAs by the due date, brings a nasty penalty: 50%. Let’s say you were supposed to withdraw $4,000 and didn’t. You’ll need to write a check to Uncle Sam for $2,000. To avoid this and other surprises, says Yahoo Finance in “Retirees Should Know These 3 Facts About Required Minimum Distributions.”

The IRS rule requires account owners to withdraw a specific amount from any qualified accounts, when the owners reach 70½. The reason is to make sure that people take the money, so the government gets tax revenues. Without it, people would live from other income and never pay taxes, leaving money to family and keeping it from the IRS.

Here’s what retirement account owners need to know about RMDs:

Retirement Accounts with RMDs include: IRAs 401(k)s,. 457 plans, TSPs, 403(b)s, SEP, Simple IRAs.

Required Withdrawals begin by April 1 of the year following the calendar year in which you turn 70½. For every subsequent year after a required beginning date, RMDs must be taken by December 31. Roth IRAs do not have RMDs.

How do you Calculate the RMD Amount? This can get a little tricky, so don’t hesitate to ask your financial advisor or CPA for help. Divide your earlier year’s December 31 retirement account balance by a “distribution period,” based on your age. Here is an example, let’s say that Marcey is 70 and must take her first RMD in the year she reaches 70½. The year-end balance of her IRA was $100,000. Her “distribution period” factor is 27.4. Dividing $100,000 by 27.4 is $3,649.63. That’s the amount she must take for the calendar year in which she turns 70½.

Reference: Yahoo Finance (December 13, 2019) “Retirees Should Know These 3 Facts About Required Minimum Distributions”

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.