Avoiding Family Disputes In Estate Planning

Family discord is not uncommon. In fact, avoiding family disputes is one reason to plan an estate carefully. Unfortunately, merely planning an estate alone is not sufficient to avoid a family dispute. It must be planned in the right way to avoid disputes.

There are many elements which enter into a family dispute about estate planning. Here are a few:

  • Bad Dynamics

Often, there is little that can be done about bad family dynamics due to extenuating circumstances such as a long history of bad blood between two brothers. When there are deep rifts in a family, many times there is little that can be done, except to plan for the possibility of a dispute. For example, a no contest or “in terrorem” clause should be considered. Such a clause disinherits anyone who contests the estate plan. This works especially well when coupled with a substantial bequest.

  • Unfair Disposition

When there is a disposition which is likely to be viewed as unfair, it increases the likelihood of a contest. But, fair is not always equal. For example, if one child has special needs, it may be fair for that child to receive a greater portion of the estate. Also, if one child has been the parents’ caretaker, it may be fair for the caretaker child to receive a greater portion of the estate.

  • Lack of Communication

Often the biggest factors in a family dispute is lack of communication. There may be bad dynamics and what is perceived as an unfair disposition. But, when that disposition is a surprise, then the dispute escalates. The client should be encouraged to communicate their wishes to their family. This will increase the likelihood of their wishes actually being carried out and decrease the likelihood of a contest.

For more information on avoiding and handling family disputes surrounding your estate plan, contact us today.

Preparing Heirs for Successful Wealth Stewardship

There are numerous research tools that are available detailing the difficulty of maintaining wealth through multiple generations. This simple fact highlights the importance of teaching children to be competent financial stewards. Claudia Sangster, Northern Trust’s director of Family Education and Governance, encourages families to introduce children to monetary concepts at an early age. Sangster promotes using day-to-day activities, like grocery shopping, to teach the value of money to children. Parents explaining their reasoning behind certain product choices may help children in understanding the differences between price and quality and how these characteristics affect decisions. As children get older, implementing an allowance opens up an avenue for independent spending. Sangster suggests structuring the allowance by placing it in three jars: one for spending, another for saving, and the final for giving. Whatever your personal or family philosophy regarding money, bring your children into that discussion so they are aware of the expectations and can plan more strategically for their own future.

See the article, Preparing Heirs for Successful Wealth Stewardship

Charitable Gifting Strategies for Your Estate Plan

Charitable giving is a great option to consider for your estate plan. Charitable estate planning helps you combine your desire to give to charity with your overall financial, tax, and estate planning goals. Many of you are likely familiar with a bequest, the most common form of charitable giving (where you indicate a specific amount or a percentage of your estate/trust to go to charity). However, there are many different options to consider based on your personal and financial goals.

Charitable Remainder Trust

A Charitable Remainder Unitrust (CRUT) is a gift where property is transferred into a trust and pays annual distributions from its principal until the trust terminates, at which point the remainder amount transfers to the charity. The property transferred into the trust is invested during the life of the trust.

This option provides an immediate tax deduction to the donor for the charitable gift, as well as annual distributions from the trust. A CRUT is a great option to consider for those who have highly appreciated assets that might be subject to capital gains tax (stocks, real estate, etc.), as a CRUT will help you avoid these taxes.

Benefits of a CRUT:

  • Receive income for life or a term of years in return for your gift
  • Receive an immediate income tax deduction for a portion of your contribution
  • Pay no upfront capital gains tax on appreciated assets you donate
  • You can make additional gifts to the trust as your circumstances allow, for additional income and tax benefits

Things to consider:

  • A CRUT is an irrevocable gift to the charity
  • The level of investment for a CRUT.

Charitable Gift Annuity

Another gift option is a Charitable Gift Annuity (CGA), where you transfer cash or securities to the charity, which in return pays a fixed income to you or a selected beneficiary for life. The remaining balance passes to the charity when the contract ends at the death of the last beneficiary. This option is good for those who might be interested in supplemental income at a higher return than a low-earning security or CD. CGAs can also be done at a lower investment, with many charities requiring a minimum of $5,000 to $10,000 (ex. American Cancer Society has a $5,000 minimum). Many charities have a CGA program, and you can connect with them to learn more about their program and request a rate illustration.

Benefits of a CGA:

  • Receive dependable, fixed income for life in return for your gift
  • In many cases, increase the yield you are currently receiving from stocks or CDs
  • Receive an immediate income tax deduction for a portion of your gift
  • A portion of your annuity payment will be tax-free

Things to consider:

  • Beneficiaries must be at least 60 years of age at the time of the gift
  • Gift annuity rates are partly determined by the age of the beneficiary
  • Charities often have minimum donation requirements for a CGA
  • Younger donors may find planning benefits in a deferred gift annuity

Other Creative Gifting Options

There are many other creative ways to do charitable giving with your assets, including gifts of appreciated securities, a retained life estate, a donor advised fund, or gifts of personal property. I will quickly outline each of these gifts below.

Gifts of Appreciated Securities

You transfer appreciated stocks, bonds or mutual fund shares you have owned for one year or more to the charity and receive an immediate income-tax deduction.

Retained Life Estate

This is a popular type of gift; you transfer your property to charity and continue to live in the property for life or a specified term of years, and continue to be responsible for all taxes and upkeep. The property then passes to the charity when your life estate ends. You get immediate income tax deduction for a portion of the appraised property value and get to use the property for the rest of your life.

Donor Advised Fund

An increasingly popular option in recent years, a donor advised fund (DAF) is an irrevocable gift to a public charity sponsoring your account of cash, securities, or other property. You invest your fund and distributions to charities of your choice are made at your recommendation. This option allows donors to make a charitable contribution, receive an immediate tax benefit and then recommend specific charitable donations to be made from the DAF.

Gifts of personal property

You transfer valuable paintings, antiques, or other personal property to the charity for the charity to use or sell and in return receive an income tax deduction on the appraised value and pay no capital gains tax.

There are numerous creative ways to incorporate charitable giving as part of your estate plans. Some of these options have benefits to you or your beneficiaries during your lifetime, and ultimately can help you with your financial goals. Its recommended taking time to consider your ultimate goals for your estate plan, as well as the goals for your legacy. It is also recommended that if you have a charity in mind to include in your estate plans, reach out to them to find out the options they have available to you.

Your legacy is important and can have meaningful and lasting impact in your community, so take the time to understand all of the charitable giving possibilities available to you.

For more information, contact us today.

Charitable Giving In Your Estate Plan

For many, charitable giving is a way of life. Whether it is to support an organization that has touched your life in a meaningful way, a school or university that put you on the road to success, or simply a cause that you feel passionate about, charitable giving not only offers emotional benefits, but practical ones as well.

For motivated donors, one question is how much to give throughout your lifetime and what to leave as charitable gifts in your will or trust.

For those who are not concerned about the use of the assets during their lifetime – for care, or enjoyment – a charitable gift may be a regular occurrence. Others may choose to pass on assets after their death, in addition to, or sometimes in place of, passing on assets to family members.

The options for charitable giving within an estate plan are varied. One option is to make a gift at death through a will or trust, which would then reduce the amount of the donor’s estate, and thus any estate taxes that would need to be paid.

Gift Annuity

Another popular option is a Charitable Gift Annuity. The basic structure of such an annuity is that the donor makes a lump sum gift to the charity, with the gift being used to purchase an annuity. The annuity would pay the donor a fixed percentage of the gift each year during their lifetime, with the remaining value of the annuity paid to the charity after the donor’s death. This offers a way for the donor to give away cash or assets while still receiving an income stream.

Gifting Assets

Another beneficial strategy that a donor can use is gifting appreciated assets. For donors who own real estate or a stock portfolio with a large appreciation, the assets can be passed on to the charity so that the donor receives a tax deduction for the fair market value of the gift. The charity can then sell those assets without having to pay the capital gains tax on the appreciated value.

Charitable Trusts

Yet another alternative is that the gift is left in a trust, giving a family member or a corporate trustee control over the trust. The terms of the trust would then direct how and when the assets of the trust are to be distributed to the charity or how the assets are used for charitable purposes.

Family Foundations

For larger donations or donations to be made over time, creating a family foundation is an option. A family foundation can be useful for those who wish to devote some part of their assets to charitable causes during their lives and have the work of the foundation and its charitable efforts continue after death.

Do Your Research

As with any donation, it is highly recommended to fully investigate the reputation of the charity you wish to make your contribution to. By doing a little research, you can be sure that the charity you wish to donate to uses their assets wisely, and that your donation is actually applied to charitable purposes instead of administration costs.

If you are inclined to make a charitable donation in your Estate Plan, it is always smart to discuss your intentions with an Estate Planning Attorney to ensure your wishes are fully thought-out, appropriately documented, and to ensure that the gift is mutually beneficial from a tax perspective.

For more information on charitable giving, contact us today.

Key Estate Planning Documents for Young Professionals

Nowadays when students finish their undergrad or postgraduate studies, the first thing on their mind is landing their dream job and getting out of debt. However, after you land your first job, preparing your estate plan needs to move quickly to the top of that elusive “to do” list. It’s especially important if you are starting a family. Below are five documents that should be part of your estate plan.

Durable Financial Power of Attorney. A Durable Financial Power of Attorney is a document whereby you name an agent to act on your behalf concerning your personal financial affairs. Typically, your agent (or “Attorney In Fact”) would step into this role only if you were unable to handle your own affairs; e.g., if you were in a serious accident or were extremely ill. Your agent can be a family member, a close friend whom you trust, or even a private fiduciary. The Power of Attorney gives your agent a wide range of duties and responsibilities that should be tailored to your own situation. Some of the responsibilities of your agent might include paying your bills, caring for your home, and even handling disputes on your behalf with the Motor Vehicle Division or the Social Security office. This is one of those documents that you do not need . . . until you do. If you do not have a Durable Financial Power of Attorney in place, and you are unable to make your own decisions, your family members may have to petition the Court to appoint a Conservator on your behalf, which can often be time-consuming, involve delays, and is expensive.

Health Care Power of Attorney. A Health Care Power of Attorney is similar to the Durable Financial Power of Attorney, except it is used for decisions concerning your health care. In Alabama, a Health Care Power of Attorney and Living Will are usually combined into one document called an Advance Directive for Health Care. Again, you will name an agent who will have the authority to make health care decisions for you, if you are unable to make them for yourself. Your named agent can assist with placement, if you must be moved to a rehabilitation facility, and is often given the ultimate authority to follow your wishes regarding life-sustaining treatment, if you were in a terminal situation.

It is important to contact an estate planning attorney to draft this document, due to changes in the laws over the past several years such as decisions on the disposition of your body (i.e. burial vs. cremation). Also, a properly drafted Health Care Power of Attorney is necessary if your physician has determined that, due to your deteriorating mental condition, you must be placed in a different health facility than the one you’re currently in. Without a Health Care Power of Attorney containing certain language, such facilities will require that a Guardian be appointed to act on your behalf.

Last Will and Testament. A Will allows you to provide, with a great deal of specificity, to whom and in what manner your assets will be distributed upon your death. A Will is much simpler than a trust. There are many options to consider when preparing the provisions in your Will, for example: Who will receive your personal property, what will happen to your house, who will serve as guardian for your minor children, and who will be responsible for paying your final expenses? While it may seem overwhelming at first, once you have addressed these questions, and have properly executed your documents, you will be relieved that you have made the task of distributing your property significantly simpler.

Depending on your estate and goals, a Revocable Living Trust may also be an option to consider. Even if you decide to create a Trust, it is still important to execute a Will. If you have a Trust, the sole beneficiary of your Will is likely to be the Trustee of this Trust.

Beneficiary Designation. If that first new job that you landed came with a 401(K) or an IRA program, make sure that you contact your Financial Advisor to ensure there is a current beneficiary designation for you on the account. A Beneficiary Designation states that upon your death, the assets held in that account pass immediately to the named individual(s). Typically the individual(s) will have to provide the custodian of the account with a death certificate and complete forms required of a beneficiary. If you do not have a beneficiary designation on the account at the time of your death, the funds will be distributed as part of your estate. Under IRS regulations an estate cannot be a beneficiary, therefore, if this occurs, the funds in the account must be distributed over five years, which is disadvantageous from an income tax standpoint. Speak with your estate planning attorney to determine if having a Beneficiary Designation fits with your overall estate plan.

Beneficiary Deed. A Beneficiary Deed allows you to name an individual who will receive your interest in real property at your death. Chances are, if you are married, you hold title to your home as community property with right of survivorship or joint tenants with right of survivorship. If that is the case, a Beneficiary Deed would only be used at the death of the second spouse. However, if you are the sole owner of a home, and again, all of your assets will be distributable to one or two individuals, such as your significant other or your parents, a Beneficiary Deed will allow for a smooth transfer without subjecting your property to a probate proceeding. There are times when use of a Beneficiary Deed might not be in your best interest, e.g., if you wish the property to be distributed to minor children.

After the necessary documents are executed, be certain that one set of originals is placed in a safe or safe deposit box in your bank and let your family know that the documents are there. It is wise to re visit these documents when a major life event occurs, such as a wedding, a birth or even a death, to ensure no changes to your documents should be made. If no major life events occur, it is always a good idea to contact your estate planning attorney every five years to ensure there have been no substantive changes in the laws that may affect your documents.

For more information on these necessary documents contact our office today!

Funding Your Living Trust

Hopefully by now you’ve heard about the benefits of having a living trust as part of your estate plan. The most notable benefit is the ability to keep your assets from having to go through probate. You can retain control of assets during your life, and exercise control over how they are managed and used after your death. A trust can reduce, and in many cases eliminate income, estate, and capital gains taxes on assets.

Meeting with a skilled estate planning attorney and creating the best type of trust for your particular needs is a big step. Creating the trust, however, isn’t all you need to do. Consider how silly it’d look if you bought a safe deposit box or opened a bank account, but never put anything in it. They can only protect your assets if they’re inside. If you die or become incapacitated and your trust is not funded, it is mostly useless, no matter how well-drafted it might have been.

How to Fund a Living Trust

So how exactly do you go about funding a living trust? That depends on the nature of the assets intended to be placed in the trust. Many types of assets can be used to fund a trust by re-titling them in the name of the trust.

For instance, if your name is John Doe and you currently have a bank account or cars in your sole name, you could change the name on the bank account or vehicles to that of the trust, with yourself listed as trustee of the trust. Also, if you are married, you and your spouse can both be listed on an account as co-trustees.

Other assets that can be re-titled in order to fund a trust are real estate, stocks, and other investment accounts. Legal requirements for funding a trust with real estate are somewhat complicated, and it is best to have an attorney’s assistance to make sure you use the right type of deed and that it is properly prepared. More likely than not, you will deed the property directly to the trust.

Certain types of assets may be used to fund a trust by designating the trust as the beneficiary of those assets. Many of our clients choose to make their trust the primary beneficiary of their life insurance policies. This allows the client to have lots of control on how the policy proceeds are disposed of at the death of the policyholder. Annuities or retirement accounts, including 401(k), 403(b), and IRAs can also fund a living trust after death through beneficiary designations.

Having retirement account assets payable to certain trusts can significantly reduce the tax deferral period for your taxes. On the other hand, other trusts can enhance the likelihood of attaining the maximum stretch-out period for your heirs. At the Law Office of Rodney Davis, LLC, we can assist you in re-titling your accounts to avoid a bad outcome.

Getting the Help You Need to Fund Your Living Trust

If you have not yet had your attorney draft your trust, prepare a list of the assets that you want to place in the trust. Understanding how you plan to fund your trust will help your attorney guide you in doing so efficiently. If you have created your trust, but have not yet funded it, don’t delay, act now! Call our office today to learn how you can fund your living trust. 

Leaving Money to A Financially Irresponsible Kid

So you’ve finally decided to do your estate plan and you decide to leave everything to your only son, now 15-years old. There is only one problem: your son is not financially proficient, and you are worried he may not be able to handle all of the money and property that is being left to him. In fact, you believe he would blow through his inheritance in less than 5 years. So how do you handle such a situation? Continue reading Leaving Money to A Financially Irresponsible Kid

Americans Unprepared For Biggest Wealth Transfer In History, According to RBC Report

A recent report suggests that Americans are unprepared for the biggest wealth transfer in U.S. history. According to Royal Bank of Canada (RBC) Wealth Management, Americans are “woefully” unprepared to transfer trillions of dollars from the older generation to their heirs, something that will happen in the near future.  Continue reading Americans Unprepared For Biggest Wealth Transfer In History, According to RBC Report

Utah Jazz Owner Transfers Team and Arena Into Dynasty Trust

An In-Depth Look into the Recently-Created Utah Jazz Dynasty Trust

On January 23, 2017, Utah Jazz owner Gail Miller and her family announced the transfer of the Utah Jazz and Vivint Smart Home Arena into a dynasty trust, also known as a “legacy trust.”  The move is believed by many to be unprecedented in NBA history. The trust will ensure that the Utah Jazz remain in Utah and that the franchise remains in the Miller family for future generations. According to Miller, the move was “part of a big package of estate planning. But it’s one part that’s all done and it will last forever, as long as we have people who are willing and able to take care of it.”  Continue reading Utah Jazz Owner Transfers Team and Arena Into Dynasty Trust

Estate Planning Issues After Sending Your Children to College.

So you’ve finally emptied the nest. After sending the youngest of your kids off to college, you are a mixed bag of emotions. On one hand, you’re happy to see your kids fly the coup and spread their wings. On the other, you’re wondering where time went — blink and they’re gone!  Continue reading Estate Planning Issues After Sending Your Children to College.