Written on August 3, 2008 by admin
The following is a letter I sent to a client describing the differences between a Simple Will, Disclaimer Trust Will and A-B Trust. I hope you find this information enjoyable and educational.
The following information compares and contracts the basic tools we have regarding your estate plan. We will look at the simple will, a will with disclaimer trust and contingent trust provisions and an A-B QTIP trust plan. These three plans correspond with the “Simple Will Plan,” “Family Security Plan,” and “Trust and Tax Savings Plan.” The general pros and cons of each plan will be assessed and a recommendation will be made as to which financial and life situations are most appropriate for each type of plan. I will also be making recommendations for your particular situation and attempting to provide you with the information you need to make the most informed choice possible. To better understand these plans better you may find it helpful to reference the illustrations included at the end of this letter.
Some important numbers and definitions to remember:
- Net Worth: When I refer to a net worth included in that number is all of the assets you own, life insurance, 401k, IRA’s, investment vehicles and the like. Many people are under the mistaken impression that life insurance does not count as an asset of the estate when the estate tax calculations are made.
- Applicable Exemption Amount: The 2008 Federal Estate Tax Threshold is $2 million, which means that you can pass on a total of $2 million before your estate will be subject to an estate tax. Married couples can pass an unlimited amount of assets to each other and due to the unlimited marital deduction no tax will be due when spouses pass assets on to each other.
- Unlimited Marital Deduction: Spouses can pass unlimited amounts of assets to each other due to the unlimited marital deduction. Upon the death of a spouse, for every dollar that is transferred to the surviving spouse they receive a dollar of deduction. No estate tax will be owed for any amount of assets passed between spouses.
- Wasting the applicable exemption amount: When the first spouse dies and all assets are passed to the surviving spouse outright the applicable exemption amount is wasted. The surviving spouse’s estate will be taxed if it passes on a total amount of assets over the applicable exemption amount. If the first spouse to die were to pass assets to a trust, which would be used to support the surviving spouse, and then pass the remainder to the surviving spouse we can double the assets that are passed on to the children tax free.
- For example: John and Jane are married and have an estate worth $5 million. If John passes away in 2008 and passes on his half of those assets to Jane her estate will be worth $5 million and not tax will be due because of the unlimited marital deduction. But when Jane passes away she will be $3 million over the applicable exclusion amount and will be on the hook for a substantial tax bill of about $900,000.
- If when John had passed away in 2008 he had a tax plan in place he could have passed on the applicable exclusion amount (in 2008 $2 million) in to a trust that would be used support his wife and passed the remaining on to his wife. His wife would have received $500,000 (the remainder of John’s assets) and the trust would have received $2 million. The trust language states that it is to be used for the support of Jane for her life and then pass to their children. No tax would be due on this transfer. The important part comes when Jane passes away. She has $2.5 million ($2MM of her own and $500k from John) to pass on to her children. If she passes away in 2008 she will have $2,500,000 to pass on. Since she is over the applicable exclusion amount by $500,000 and will be taxed on that part of the transfer. But remember, we have $2 million in trust and that will pass tax free to the children.
- In the first part of the example no tax was paid on the first death but we were only able use Jane’s applicable exclusion amount to transfer $2 million tax free. With the trust plan we used both John and Jane’s applicable exclusion amount and transferred $4 million to the children
*All estate plans include a Health Care Directive and Power of Attorney
Simple Will Plan
The first estate planning option to be analyzed is the simple will plan. The will in the simple will plan allows the client to choose their personal representative, guardians for their children and lay out to whom they want their assets to pass. If the parents were to pass away before the children reach age 18 the assets will be held in a court ordered trust and distributed to them outright when the reach 18. If the parents were to pass away after the children reach age 18 those children will receive the assets to which they are entitled outright.
Pros:
- The upfront cost is low
- Your documents are simple and more easily understood
- Your children will receive assets outright
- You can name guardians for your children
Cons:
- If your children are not old enough or capable of handling substantial sums of money they may not spend or invest the assets wisely
- No tax savings provisions
- No use of each spouses applicable exclusion amount
Recommended for:
- Clients with a combined net worth below $500,000 and/or
- Clients with no children or adult children that can financially handle their inheritance
Family Security Plan:
The Family Security Plan includes everything in the simple will plan with the addition of disclaimer trusts for the parents and contingent trusts for the children. The disclaimer trust is a trust we describe and set rules for in the will, but no actual trust is created at the time of execution of the document. The disclaimer trust is a tax savings vehicle that takes advantage of the unlimited marital deduction and the applicable exclusion amount. If, upon the death of the first spouse, it appears that the surviving spouse will receive more assets than the applicable exclusion amount the surviving spouse can elect to “disclaim” those assets and have them pass to the disclaimer trust. The disclaimer trust is used to support the surviving spouse for life and then to pass any remaining assets on to the children. Just like the example above we won’t have wasted the applicable exclusion amount of the first spouse to pass away.
The contingent trusts for the children are trusts that are described in the will but again are not created at the time of the execution of the will. It sits there in the will and waits to see if it’s needed. If the parents pass away before their children reach a certain age (an age that the parents choose) it will be created and funded with any assets that were to pass to the children. This trust would be used to support the children just as the parents would have supported the children. The parents determine in their will when the children will be able to receive all or a portion of the trust property. If the children are older than the latest distribution date of the trust when the parents pass away the trust is not created and the children receive their inheritance outright.
Pros:
- Not expensive to set up
- Parents have tax savings clauses available to them
- Life Insurance proceeds can be disclaimed in to the disclaimer trust
- Trusts do not have to be set up now and no change in the ownership of major assets is likely needed
- The children’s inheritance is protected from the possibility that they are too young or financially immature to handle their inheritance
- Parents choose who will be the guardians of their children
- Parents pick their personal representative
Cons:
- Costs slightly more than simple will plan
Recommended for:
- Clients with a combined net worth between $500,000 and $5 million
- Clients who would like to have the opportunity to save on estate taxes
- Clients with young children or those they do not believe are old enough to properly manage the assets they may receive
Posted in Estate planning, Minneapolis Estate Planning, Minnesota Estate Planner, Trusts, Twin Cities Estate Planning, Wills | Comment Now!
Written on August 3, 2008 by admin
Trust and Tax Savings Plan:
The Trust and Tax Savings Plan utilized trusts, set up at the time of the execution of the will and other documents, to save on estate taxes by utilizing both spouses applicable exclusion amount. Several variations of this plan are available for a variety of situations. The most common types of trust plans are the “A/B” and “A/B with QTIP” trust. The difference between these two is who gets to control where the assets pass after the second spouse dies.
The first and most common variation is the “A/B” trust set up. In this variation it is easiest to describe the workings of the “B” trust first. The “B” trust is funded up to the full applicable exclusion amount. This trust will be used to support the surviving spouse during his or her lifetime and the surviving spouse will have the power to determine where any remaining assets of the “B” trust will pass upon the death of the surviving spouse. The surviving spouse usually has the power to withdraw 5% or $5,000.00 of the principle of the trust each year. This trust will generally escape taxation when assets are passed on to the next generation after the death of the second spouse.
The “A” trust will be funded with everything that is left over after the “B” trust is funded with the maximum applicable exclusion amount. The “A” trust is controlled by the surviving spouse and it is used to support the surviving spouse during his or her life time. The surviving spouse has the power to determine where any remaining assets will pass after his or her death.
The second common variation is an “A/B QTIP” trust. QTIP stands for “Qualified Terminable Interest Property.” The QTIP trust is a fancy way of saying that the first spouse to pass away will have control over where the remaining assets of the A trust will go after the death of the surviving spouse. The surviving spouse will still receive the benefit of the income of the “A” trust but he or she will not have control over where the property ends up upon his or her death, the first spouse to pass away has already determined its outcome.
Pros:
- Parents have tax savings clauses available to them
- Life Insurance and retirement beneficiaries are changed to trusts
- The children’s inheritance is protected from the possibility that they are too young or financially immature to handle their inheritance
- The trusts are revocable trusts and can be changed at anytime
- Parents choose who will be the guardians of their children
- Parents pick their personal representative
Cons:
- Costs significantly more than simple will plan
- Trusts must be set up now
- The ownership of major assets need to be changed shortly after the execution of the will documents
- Clients must remember to title any newly acquired assets in the name of the trust
Recommended for:
- Clients with a combined net worth of $5 million and up
- Clients who would like to have the opportunity to save on estate taxes
- Clients with young children or those they do not believe are old enough to properly manage the assets they may receive
- Clients with second marriages that want to ensure that property is passed on to particular family members outside of the control of the surviving spouse
Transfer on Death Deed (TODD)
The Transfer on Death Deed “TODD” is a recent development within Minnesota Law. As of August 1st 2008 the Minnesota legislature has authorized the use of TODDs as a way to pass on real property. The TODD is a deed that is filled out and recorded in the recorder’s or registrar’s office and upon the death of the person or persons that own real property that property will pass outside the probate process to whomever is listed on the TODD. The property passes to the person named on the document with all mortgages, liens and encumbrances still intact.
What this means is that if a husband and wife wanted to pass on their home to their child after they die they could fill out a TODD and have it recorded. When the last spouse passes away the child would go to the recorders or registrars office with a certified copy of the death certificate and then the property would be legally transferred to that child. The property can be passed to multiple people at once. For example, if a husband and wife had 3 children the property could be passed in equal shares to the 3 children.
The TODD will keep the home out of the probate process and transfer the home in a much shorter amount of time than had it gone through the probate process. Keep in mind that mortgages and liens will still be attached to the home. If the children cannot pay the mortgage the home will likely have to be sold. In that case the children, having equal ownership, would split the profit from the sale of the home.
Posted in Estate planning, Minneapolis Estate Planning, Minnesota Estate Planner, Trusts, Twin Cities Estate Planning, Wills | Comment Now!
Written on July 9, 2008 by admin
It’s been a while since I’ve posted to my Minnesota Estate Planning Blog, and that’s because my wife and I have been on the hunt for a house. During our search I began to think of how buying your first home can greatly impact your estate planning needs. This is the topic we will tackle today, how buying a home changes what you need to plan for.
A home is often times the largest investment a person will make during his or her lifetime. With such a large investment comes the responsibility to ensure that you plan for the future of that investment. When you buy a home you also purchase insurance, fire, theft, liability and so on. An estate plan is another form of insurance. You decide to whom your home passes, how it passes and potentially save taxes on the transfer.
Speaking of taxes, in Minnesota your estate will be taxed if it exceeds $1 Million. The federal tax threshold, as of 2008, stands at $2 Million. These taxes are independant, if your estate exceeds $2 Million you will incur both Minnesota and federal taxes. Purchasing a home will greatly increase the value of your estate and will bring you much closer to those tax thresholds. With an estate plan you and your attorney can work together to ensure that your home is titled in the appropriate way. Titling your home as joint tenants with rights of survivorship, tenants in common or in a certain trusts will remove your home from your taxable estate which can save quite a bit of money.
An additional tax related consideration when transferring a home is the set up in basis. The procedure and rules of the step up in basis has been covered in several of my previous posts, but we’ll go over the basics. Generally when someone inherits valuable property they will receive a basis step up to the fair market value of that asset. Your basis is used to calculate gain or loss when the property is sold. Subtract the basis from the sale price to determine taxable gain or loss on property. For example, if Mom bought an asset for $100,000 and sold it for $300,000, she would have a taxable gain of $200,000. If Son inhereted that asset from Mom, and at that time it was worth $300,000, son would have get a step up in basis to the fair market value of $300,000. Son could turn around and sell that asset the next day for $300,000 and would have no taxable gain on the property.
The step up in basis can be even more beneficial when the asset is a home. The tax code provides that if it has been lived in as a home for at least 2 years you will not be taxed on the first $250,000 of gain realized on the sale of that home. Therefore if son inhereted a home from mom he would receive a step up in basis to the fair market value and could sell the home for up to $250,000 more than his basis and realize no taxable gain on the property.
Among the non-tax estate plannig considerations when purchasing a home is planning for the passing of the home after your lifetime. If you are married chances are that you own the home as joing tenants with rights of survivorship with your spouse. But when both you and your spouse pass away where should the home go? If you have multiple children and had not estate plan the home would be just another asset to be split up amongst them. There are only a couple of options for the children in this situation.
All of the children can share common ownership of the property. But this would require all of the children, and their spouses, to agree on everything that is done with the home. This can create unwanted family conflit. Another possibility is that one or more will have to buy out the other children’s interest in the home, a spendy endeavour, but the prevoius problem is likely in this situation as well. Or the home will need to be sold, usually in a short time span, and the proceeds split up amongst the children. This option often times results in a lower than market value sale of the home, hurting everyone in the process.
These options can be avoided by making the decision yourself, while you are still alive, regarding the future ownership of the home. You get to decide which person(s) should own the home or whether it should be sold or held in trust for your children. Planning for the future transfer of your home helps reduce family conflict, stress and can save everyone time and money.
Buying a home is an exciting process, but the increased value of your estate will impact your planning needs. Taking control of your future through estate planning is a great way to make sure that your wishes are followed and you and your family can rest easy knowing you have a strong plan in place.
If you have questions about home ownership and its effect on your estate plan, or lack thereof, please feel free to contact me. I can be reached via email at james@jtandersonlaw.com or via phone at (952) 356-6470. I am happy to make housecalls and all initial consultations are free of charge.
Posted in Estate planning, Minneapolis Estate Planning, Minnesota Estate Planner, Trusts, Twin Cities Estate Planning | Comment Now!
Written on May 21, 2008 by admin
The following is not legal adivce, rather it is a general description of the probate process as it applies to assets with beneficiary designations.
Investment accounts with beneficiary designations:
Investment accounts with beneficiary designations are non-probate assets, and as such will not be involved in the probate process. These assets will not be held up in probate and the method by which they are transferred to the beneficiary after the decedent’s death varies a little depending on what company they are with. The beneficiary will need to provide a certified copy of the death certificate to the investment company holding the assets. Often times the company will require the beneficiary to open an account with them, transfer the assets to the new account and then the assets can be liquidated.
Cost of the Probate Process where the estate’s probate assets exceed $20,000:
Trying to determine the cost of the probate process is a tricky thing. First of all the filing fee in MN for probate is $200. The family, decedent’s assets, creditors and the complexity of the estate all play large rolls in what the overall cost can be. If the family fights over assets costs go up. If the assets are large the likelihood of family fights increase. The accounting for the estate’s checking account can also take time depending on how well the PR has tracked income and expenses. Sometimes the estate will receive rebates or other correspondence from creditors up to 9 months after the decedent passed away.
All of these things require time from the attorney to deal with the different issues. Another reason that I am hesitant to give out numbers is that clients are often very unhappy if an attorney quotes a possible overall cost and then the costs exceed that estimate. But if you need a number to work with you should plan on at least $3,000 for the attorney’s fees for the probate process with the possibility of the costs going up.
Cost of the probate process where the estate’s probate assets do NOT exceed $20,000.
When the probate assets of a decedent’s estate do not exceed $20,000 the estate can be probated through Summary Administration pursuant to Minn. Stat. 524.3-1201 et. seq. This means that instead of going through the normal probate process the PR or an interested person can file an affidavit with the court stating that the estate’s value is less than $20,000. The court will sign an order allowing the PR or interested person to distribute the assets in accordance with a will, if one was made, or follow the intestacy laws if no will was made.
Time frame for the probate process:
The standard probate process must be kept open for a minimum of 4 months. The 4 month minimum is the period that creditors have to bring forth claims against the estate. Some attorneys say that 6 months is a reasonable rule of thumb for a probate with no major problems. But here the problems of fights and late rebates can influence that time frame.
The time frame for the summary proceedings is a little different. From what I understand an interested person or PR must wait at least 30 days after the death of the decedent to file the affidavits for summary proceedings.
Paying for the final expenses of the decedent:
The final expenses of the decedent are usually paid by the estate after a personal representative has been appointed. In a situation where summary proceedings are used the person authorized by the court to act on behalf of the estate will pay the funeral home, cemetery etc… with the estate’s funds.
For the situation in which the person who is likely to be the PR has a power of attorney for the soon to be deceased writing a large check and holding it to pay for the final expenses can be tricky. There are a couple of problems with this situation. First, who would the attorney-in-fact write the check to? Second, depending on the language of the power of attorney documents there may be a restriction on the amount of money that the attorney-in-fact can transfer to herself.
If you need assistance or have questions regarding the probate process in Minnesota please contact an attorney. You can contact me, Jim Anderson, at the Law Office of James T. Anderson via email at james@jtandersonlaw.com or visit my website www.jtandersonlaw.com
Posted in Estate planning, Minneapolis Estate Planning, Minnesota Estate Planner, Twin Cities Estate Planning | Comment Now!
Written on May 20, 2008 by admin
As a Minnesota attorney, more specifically an estate planner, I am often asked this question. Well, actually I usually hear this as a statement rather than a question. People say that they do not need an estate plan, this is then followed by them saying they don’t have much property. You don’t have to be rich to need an estate plan.
Ask yourself the following questions to help determine if you need an estate plan:
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Who would you want to raise your children?
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Are your children capable of handling a large inheritance today or tomorrow?
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Are there specific wishes you have regarding medical treatment or under what circumstances would you like to be kept alive?
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Are their specific assets that you wish to pass to certain people?
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If you have an estate approaching $1 million, would you like to save on estate taxes?
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Do you want to reduce the stress and family conflict that can occur during the transfer of your estate?
If you answered yes to any of the questions you should have an estate plan. The great thing about planning for your estate is that you get to decide what happens to your assets and who takes care of your loved ones. Estate Planning is a great tool to take control of your future and can provide the following answers to the questions I just asked.
- Who would you want to raise your children?
- You decide, not the Probate Judge
- Are your children capable of handling a large inheritance today or tomorrow?
- You decide when and under what circumstances they should get the money
- Are there specific wishes you have regarding medical treatment or under what circumstances would you like to be kept alive?
- You let the doctors and you Health Care Agent know your wishes
- Your Health Care Agent does not have to make the life ending decision, you already made that decision and communicated that wish
- Are their specific assets that you wish to pass to certain people?
- You decide who gets grandma’s rocking chair
- If you have an estate approaching $1 million, would you like to save on estate taxes?
- You can preserve your wealth for the future generations
- Do you want to reduce the stress and family conflict that can occur during the transfer of your estate?
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- Family members can rest easy knowing your estate is handled your way
Take some time to consider these questions and the solutions that Estate Planning can offer you. Planning for your future in Minnesota is relatively easy to do, and if cost of an estate plan is the issue remember that you can pay a fixed, known cost now or the unknown and likely higher cost later when you family has to decide how to handle your estate.
Feel free to contact me if you have any questions regarding estate planning as I am always happy to speak with anyone. You can get a hold of me via email at james@jtandersonlaw.com.
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Written on April 29, 2008 by admin
This article is not meant to be legal advice. It is a discussion relating to the possible tax consequences of giving large amounts of money. If you need advice relating to tax issues please seek out an experienced attorney or CPA.
The following are a few options that people have when they want to give large amounts of money to someone. This list is not meant to be all inclusive as other options exist. The terms Donor and Donee will be used to describe the options. The donor is the person giving the gift and the donee is the person receiving the gift. Each option has its pros and cons and should be weighed carefully as the tax code and tax regulations are complicated and an experienced professional should be consulted if you have any questions as to how a transaction could affect you.
Some important numbers to keep in mind:
Annual Exclusion Amount: $12,000 per person for 2008. This means that if spouses wish to give money to a person they can “split” the gift and together give $24,000 per person per year. Additionally spouses can give money to a husband and wife and “split” each gift, thereby giving each of the donees $24,000 per year for a total gift to the donee spouses of $48,000 per year.
Lifetime Gift Amount: $1 Million for each spouse
Estate Exemption Amount:
2008 Federal Estate Exemption Amount: $2 Million for each spouse; this is scheduled to go up to $3.5 Million for each spouse in 2009
2008 Minnesota Estate Exemption Amount: $1 Million for each spouse; this is scheduled to stay at $1 Million for 2009
Direct gift from donor to donee:
Situation: In 2008 the donor wishes to give to the donee all of the money in one lump sum.
Analysis: If the donor gives the donee all of the money in one lump sum there will be no tax paid by either the donor or donee when the gift is made. Since the donee is receiving a gift it is not considered income and won’t be taxed at that time. However the donor will have to adjust their lifetime gift amount by any amount given that is over the annual exclusion amount. Lets say $150,000 was given by the donor to the donee in 2008. The donor would have to file a gift tax return stating that they used some of their lifetime gift amount. The math works out as follows.
$150,000 (the amount of the gift) - $12,000 (the annual exclusion amount) = $138,000. Therefore the donor must reduce their lifetime gift amount by $138,000. Leaving them with $862,000 remaining for their lifetime gift amount.
Additionally the donor will also be using some of their Estate Exemption Amount. As noted above the 2008 Federal Estate Exemption Amount is $2 million. The math for this is as follows:
$150,000 (the amount of the gift) - $12,000 (the annual exclusion amount) = $138,000. Therefore the donor must reduce their Estate Exclusion Amount by $138,000. Leaving them with $1,862,000 remaining for the Federal Estate Exclusion Amount. This will impact the donor’s Estate Plan in that when the donor dies he will have less than the full Federal Estate Exemption to pass on to his or her survivors. The same thing applies to the donor’s state estate exemption amount.
On a more positive note generally giving now is better than giving later. A general rule when someone has excess capacity (meaning they will have more than enough to live on until death) is to use your lifetime exclusion amount as soon as possible. Why? Because it’s not just the $150K they gave away, but also all the future growth of the $150k they gave away. It is now growing in the kids accounts and not the donor’s adding to their estate. But it is important to keep in mind the age of the donees. Only the donor will know if their children or whomever they give the money to are capable of handling large amounts of money. Many 18 or even 25 year olds are not mature enough to properly handle large lump sum gifts. The donor should discuss this whomever is advising them to see if a lump sum gift is the appropriate action.
Small gifts from donor to donee followed by a large gift if any money is left over.
Situation: The donor wishes to give to the donee the money over a period of years.
Analysis: If donor is worried about their lifetime exclusion (e.g., they expect to give more money near the end of their lives), one possibility would be to break up the payments over a few years, or even two years. That would give them the option of exempting even more money.
To illustrate lets again assume that the donor wishes to give to the donee the sum of $150,000 eventually. The donor could make gifts of $12,000 each year to the donee without any tax consequences. But to give the full $150,000 by way of the $12,000 yearly gifts, that would take 13 years. Keep in mind that the more yearly gifts that are made the less of an impact the final large gift will have on the lifetime exclusion amount and their Federal and State Estate Exclusion Amounts. It is also important to remember that spouses can give a combined $24,000 per year to each person. Furthermore, assuming that the donor’s are married and the donee are married, a Mom and Dad could give a combined $48,000 to their married child and their child’s spouse.
To further illustrate say Adam and Betty are the married parents and they have a child, Charlie whom is married to Daisy. Adam and Betty could give $12,000 each to Charlie and $12,000 each to Daisy for each year! So each receives $24,000 per year. A total of $48,000 received by Charlie and Daisy. When taking this approach Adam and Betty could give the $150,000 to Charlie and Daisy in a period of just 4 years.
No gift by donor to donee but a disclaimer of the assets the donor was to inherit.
Situation: The money or assets that the donor wishes to pass to the donee in one lump sum are properly titled so that the donee is a the secondary beneficiary to the donor.
Analysis: If the donor has yet to inheret the money, another option to consider is whether the donor could disclaim the assets. Disclaiming assets means that you don’t want them and release all rights to the assets. The assets would then pass to whomever is next in line to receive the assets under any beneficiary designations that may be in place. This could make sense if the gift is set up to pass to donor’s children as successor beneficiaries.
Once again I would like to reiterate that these are only a few possibilities for passing on money. Each situation is unique and all of the pros and cons of each method should be weighed with the potential donor. If you have additional questions please contact an attorney or CPA to help you with these matters. I am always happy to discuss estate tax issues. I can be reached by phone at (952) 356-6470 or via email at james@jtandersonlaw.com.
IRS Circular 230 Notice:
Any tax advice contained in this written or electronic communication (including attachments) was not intended or written to be used to avoid any penalty imposed by a taxing authority, nor may the user/recipient of this communication use this written tax advice for that purpose. Please contact us with any questions regarding this notice at james@jtandersonlaw.com.
Posted in Estate planning, Minneapolis Estate Planning, Minnesota Estate Planner, Twin Cities Estate Planning, Wills | Comment Now!
Written on April 28, 2008 by admin
I am often asked this question. What in the world is a trust and how can they work for me? For the time being I am going to defer to Joel Shoenmeyer from the Death and Taxes Blog. Check out his podcast explaining trusts here.
In a nutshell Trusts are vehichles in which property is owned. The trustee (the person in charge of running the trust) has a duty to use the property for the benefit of the beneficiary (the person that the trust helps) based on the language and rules in the trust.
To learn more about trust or to see if they are right for you please contact an estate planning attorney. I am always happy to speak with anyone that has questions at no charge. You can contact me at (952) 356-6470 or via email at james@jtandersonlaw.com
Posted in Estate planning, Minneapolis Estate Planning, Minnesota Estate Planner, Trusts, Twin Cities Estate Planning | Comment Now!
Written on April 25, 2008 by admin
Creating a comprehensive estate plan is a great first step in planning for your future. Unfortunantly many people stop thinking about their plan after the will and trusts are signed without considering the effect that their beneficiary designations of life insurance and investments have on their overall plan.
An example may be the easiest way to understand what I am talking about. Lets say that you state in your will that your 401(k) should be used to fund a marital trust for your spouse. This is all well and good but if you don’t have the necessary beneficiary designations on your 401(k) you likely won’t be able to accomplish your goals. If you have your spouse listed as the primary beneficiary of your 401(k) and name your children as the secondary beneficiary, those assets will never reach your marital trust. This is a huge problem since the marital trust is set up for tax purposes. You will be incurring unecessary tax liability, which translates into less that reaches your loved ones.
Immediately after an estate plan is signed everyone should review their beneficiary designations and alter them to reflect their estate plan. Using our example the owner of the assets should name the same people or trusts that are named in the wills for each appropriate asset. Believe it or not you can name a trust created in a will as a beneficiary. Even though such a trust only comes in to existence after the creator of the trust passes the companies that manage those retirement assets will accept that beneficiary designation.
As a recap; signing a will and trust that implements your wishes, saves on taxes and takes care of your family is something everyone should have, but without the proper follow up such a comprehensive plan can be frusturated by not following up on your beneficiary designations.
To learn more about estate planning and the importance of beneficiary designations please contact an estate planning attorney. I am always happy to meet and talk with anyone interested in taking control of their future. I can be reached at (952) 356-6470 or by email at james@jtandersonlaw.com
Posted in Estate planning, Minneapolis Estate Planning, Minnesota Estate Planner, Trusts, Twin Cities Estate Planning, Wills | Comment Now!
Written on April 14, 2008 by admin
The marital deduction is a wonderful thing, it allows the deceased spouse to transfer an unlimited amount of assets to the surviving spouse. Bill Gates could pass his multi-billion dollar fortunte to his wife upon his death tax free! But the fact that many people forget is that upon the death of the surviving spouse their estate will be taxed based upon all of the assets they hold. In this situation Estate Planners would say that the first spouse to die wasted their tax credit.
The marital deduction is just one of many important estate tax concepts which include:
- Martial Deduction: Unlimited
- 2008 MN Exclusion Amount: $1 Million
- 2008 Federal Exclusion Amount: $2 Million
- 2008 Gift Tax Credit: $1 Million
- 2008 Generation Skipping Tax Credit: $1 Million
These are a lot of concepts and numbers to keep track of, but these concepts can be implemented to save people enrmous amounts of tax. We will tackle each of these concepts in upcoming posts but today lets look at how the unlimited marital deduction and the Minnesota and Federal exclusion amounts work together.
The $1 Million MN exculsion amount means that if the total value of your estate is less then $1 Million you will not have to pay any MN estate tax. The same thing applies to the $2 Million Federal exclusion amount, if the total value of your estate is less than $2 Million then you will not have to pay federal estate tax. Now here is where the unlimited marital deduction can alter the results.
If you pass away with assets in your name worth $600,000 you can pass all of that to your spouse tax free due to the unlimited marital deduction. In fact you could pass all of those assets to anyone tax free due to the $1 Million MN estate tax exclusion amount. So say you passed all of that to your spouse, and she currently has $500,000 of assets in her name before you pass then she would have a total of $1.1 Million in assets after receiving the assets you passed to her. That amount would cause her to have an estate worth more than the MN exclusion amount. The problem with this is that currently MN estate tax rates are around 45%.
This could be avoided with some careful planning with an estate planning attorney. A trust called a “marital trust” could be created through your will that would include some of your assets and those assets would be used to provide income to your spouse for things such as health, support, education. Since the assests in the trust would not be included in your spouses estate when she passes she would fall below the MN exclusion amount and avoid estate taxes.
This set up may sound complicated but an experienced estate planner can walk you though this process and explain why it is so beneficial. The cost of the estate plan often pales in comparison to the taxes you might have to pay upon the death of the surviving spouse. If you would like to learn more about this estate plan, and many others, contact an estate planner you can trust. I am always happy to meet with people interested in learning about the benefits of estate planning. You can contact me at james@jtandersonlaw.com or (952) 356-6470.
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Written on April 9, 2008 by James Anderson
Joel Schoemeyer is at it again with his easy to understand estate planning podcasts. Joel is an estate planner in Illinois and he posts very helpful information at his blog Death and Taxes. This particular podcast focuses on wills, it includes some great information about what a will is and what it can do for you. To listen to the podcast click here.
This podcast is a great reminder that wills are powerful instruments, they tell the world to whom you want your assets to pass, nominate guardians for your children and nominate someone to be your personal representative. A personal representative, or PR, is someone who will be in charge of carrying out your wishes laid out in your will and making sure all taxes and final debts of your estate are paid. To find out what happens if you don’t have a will click here to see my previous post on just that subject.
If you or someone you know is interested in learning about wills or any other aspect of estate planning I strongly recommend contacting an attorney you trust to learn more. Feel free to contact me at james@jtandersonlaw.com if you have any questions, I am happy to make housecalls and as always the initial one hour consultation is free of charge.
Posted in Estate planning, Wills | Comment Now!
