Tax Tips to Benefit YOUR Family
April 15, 2010
Tax day is here. Are you ready to file? And just as important—are you taking advantage of all the savings and deductions available to you? Most people who do their own taxes are unaware of some of the lesser-known deductions which can help you save money come tax-time. We have a couple of articles we’d like to share with our readers that may make it easier for your family come April 15th.
A recent article on SmartMoney.com offers 3 often overlooked ways to save on your income taxes. Two of the three items have to do with parenthood and buying a home, but of particular interest to our readers is tip #2, Selling Grandma’s Stuff: “If you sold something last year that you inherited, understand that your tax basis for gain or loss purposes generally has nothing to do with what your benefactor paid for the asset. And that’s probably going to save you a bundle in taxes.” If you sold an asset from an inheritance last year (or if you received an inheritance last year at all, regardless of whether you’ve sold the asset or not) let your tax professional know.
Another potentially useful resource for tax savings is the ABC News article Top Ten Commonly Missed Tax Deductions to Put Cash in Your Wallet. This article reminds us to include the little things—such charity volunteer related expenses, the new car deduction, old school books used for work, and more. There are a number of tax deductions your family may be able to take advantage of… if you just know where to look.
If you have not yet completed your tax return by April 15th, or are still mulling over tax deductions, you may consider filing for an extension. But do it in a timely manner. Ask your tax professional for help. Somtimes the additional time to reflect on your circumstances may be well worth the effort.
The Receiving End of Estate Planning
March 29, 2010
We publish a lot on this blog about preparing your estate plan: writing a will, setting up a trust, choosing beneficiaries and nominating guardians; but there is another side to estate planning, a fun side… the receiving end.
You may assume that the receiving end of estate planning is the fun and easy part, but that is not always the case. Coming into an inheritance presents its own questions and challenges; financial, logistical, and personal.
Financial
Receiving an inheritance always means you have to think about taxes. Estate taxes, income taxes, property taxes… The estate tax this year is not as clear as it has been in the past, and you will probably want to have an attorney or accountant help you with it. Whether or not you have help, you will absolutely want to keep paperwork on everything. This includes paperwork from any transfers of inherited property received by you, as well as any and all of the original paperwork you can find for the acquisition of the inherited assets.
Logistical
There is a lot more to an inheritance than simply getting money and spending it. Are you the nominated guardian of young children, holding those assets in trust for their benefit? Or perhaps you are the beneficiary of a trust, and your receipt of the assets is subject to the terms of that trust. Do you have to use the money for school? Do you need the approval of a trustee before you can spend it? Hopefully you are working with a trustee you know and trust, but if you and the trustee disagree you may need mediation or even your own attorney to assist with resolution of any dispute.
Personal
Inherited assets are often very personal and fraught with emotion. Should you really sell the house grandma lived in for decades and use the money to take a cruise? (If so, wait until after taxes, if any, are determined before you buy the tickets.) Would your parents have wanted you to use the money to pay for a wedding, or save it for your own retirement? Do you want to take the summer home that’s been in your family for generations and own it jointly with your new spouse, or keep the property on your side of the family?
Whatever you choose to do with your inheritance, it’s likely you’ll need some guidance from a knowledgeable and trustworthy professional. Your estate planning or elder law attorney can help. His or her knowledge of the probate system, estate taxes, and how to protect your newly inherited assets can be very valuable to you at the receiving end of your loved one’s estate plan.
When and Why You Might Turn Down An Inheritance
February 25, 2010
Would you ever turn down an inheritance?
Your first reaction might be “Of course not!” But don’t speak too soon. Most estate plans are created at least in part to protect heirs (generally spouses and children) from the sometimes devastating blow of estate taxes; but with the estate tax in a confusing state of flux this year some of these plans won’t work as their creators intended—and heirs may end up looking for a way to protect themselves against the unintended consequences of well-intentioned estate plans.
With the threat of the return of the estate tax in 2011 for estates valued over $1,000,000, the surviving spouse of a person dying this year may now have good reason to consider a timely disclaimer. Doing so may eliminate tax as assets pass on down to the couple’s children. For more information on how this works, see our article entiled “Repeal of Estate Tax May Warrant a Fresh Look At the Use of Disclaimers To Avoid Death Tax”
Although the use of a Disclaimer may be a good solution in some cases, there are no easy general answers to the question of whether you should exercise the right of disclaimer. Much will depend upon the state of the estate tax law at the time of your loved one’s death. One thing is clear, however: most people would be well advised to include the option of disclaimer in their trust or wills, “just in case”. If you have any questions whatsoever about an inheritance—or about your own estate plan—contact your elder law or estate planning attorney for help.
Test Your Knowledge: An Estate Planning Quiz
December 2, 2009
How much do you know about estate plans? And how do you know when you need one?
Many people have a vague feeling that they should execute some kind of estate plan eventually, but think (hope) that they really don’t need one right now. On our blog we spend a lot of time telling people that they do need an estate plan, and they probably need one right now—or yesterday!—and we hope we do a good job of explaining why you need one. But maybe it’s time for you to decide when the time is right. This quiz will help you determine just when (and if) you need to do some estate planning.
1. Do you own a house?
Owning your own home means you have at least one significant asset, which affects your need for planning in a number of ways: First, a piece of property cannot be split between people, it will have to be sold (which can take months or longer) and the proceeds divided among your heirs—often at a loss, especially if the house was undervalued to sell quickly. Second, many people who feel they have “small estates and won’t have to worry about Probate or the estate tax” are surprised when they find that the value of their home does indeed push their estate over the line. Third, if you are married, you may need to make provisions for your spouse if you would like them to be able to continue to live in your home, especially if it is partly your own separate property acquired before marriage.
2. Do you have minor children?
If you have minor children and have not made provisions for them in case of your death or incapacity the court will make decisions about their futures. If there are no suitable family members who are willing to step forward and would be suitable guardians, your children might be placed in the care of foster parents or become wards of the state. That is not a chance you want to take.
3. Do you want your heirs to have to wait months (or years) before receiving an inheritance, diminished by the cost of probate?
Probate is sometimes a long and expensive process. Without a plan in place your assets may have to be probated before they can be distributed. Not only does this often take a long time, but the probate fees (which can be considerable) are taken out of your estate—leaving less for your heirs.
4. Do you know how you want to spend your final moments?
Most people don’t die quickly and quietly at the ripe old age of 98. Most people fall victim to accidents, illness or dementia—unable to make their own health care decisions. Without a healthcare directive or living will that specifically outlines your wishes and instructions for your health care and nominates an agent to carry out those wishes, you could end up in a Terri Schiavo situation—costing your loved ones both financially and emotionally.
(NOTE: There is much that goes into your estate plan decision-making; this is only a partial quiz, and not a planning tool. We suggest meeting with your attorney for an in depth interview to determine what kind of planning will be best for you and your family.)
Should You Talk to Your Kids (Or Your Parents) About Inheritance?
September 27, 2009
The subject of inheritance is one that most people studiously avoid for a number of different reasons: superstition, fear, lack of knowledge, or—as this article by Gordon Powers points out—they don’t want to appear greedy. Furthermore, many older adults were raised to believe that money was a private affair, and that talking about it was inappropriate, almost dirty. The difference in how the older and younger generations view money and its place in “polite conversation” has become so great in some cases that it’s no wonder they avoid any mention of it.
An unfortunate side effect of this disconnect is that a refusal to talk about money or your estate plans with you children means that they may have a difficult time following your wishes in regards to inheritance. According to Mr. Powers (and most of the adult children who come into our offices to create their own estate plans) “most middle-aged adult [children] really want to fulfill their parents’ last wishes, regardless of how much money they might or might not see in the end.”
So the answer to the title question is, yes, you should talk to your children about inheritance if you can. Talking about it will not only make it easier for them to follow your wishes, it may even help you determine how you would like to make a difference in the lives of your heirs.
5 Goals Your Estate Plan Can Help You Achieve
September 16, 2009
What is your estate plan all about? Is it about saving your assets from estate tax, or is it about leaving an inheritance for your children? Or is it something even beyond that—providing for your own financial security during your life, thus enabling you to leave a lasting legacy for your family?
Estate planning—or what this article from Investors Insight likes to call “legacy planning” —can help you achieve all of these goals. The article outlines four goals an estate plan can help you achieve. In our firm, we add a fifth: Long Term Care Planning. You and our firm can work together to make your plan more than merely a tax savings tool, by addressing the following:
- Financial Security
- Estate Care and Management
- Protecting your Estate
- Minimizing the Tax Burden and Probate Expense, and
- Long Term Care Planning
Tax planning is sometimes an important part of your estate planning process, but tax laws have a tendency to change, and with a new estate tax law expected in 2009 or 2010 it is essential to remember your other goals as well when you plan your estate.
For many of our clients, planning to help fund the cost of Long Term Care without depleting the estate is a primary goal; if these costs are not considered, they can drain the estate you leave to your spouse or children. Our firm may be able to help minimize the impact of these costs by creating an estate plan that coordinates your wishes with available government long term care benefits. Pre-planning is the best approach.
Obama Administration Proposes Elimination of Estate Tax “Loopholes”
May 14, 2009
The government has plans for your children’s inheritance.
The particulars of the estate tax have been in flux, and have been the subject of much debate over the past few years, with the only constant being that there always is an estate tax. And now the Obama administration is proposing more changes to the estate tax; changes that would result in $60 billion in new tax increases over the next 10 years on wealthy estates, to be exact.
According to the administration itself these are not actually tax increases, but merely the elimination of “tax loopholes”. The elimination of these loopholes “would raise an estimated $24 billion over 10 years by tightening estate-tax rules, giving taxpayers less flexibility to minimize their liability on inherited goods by claiming a different value on the same item for different transactions.”
Wealthy estates are not the only parties to be effected by the proposed changes; business owners will find themselves hit as well by “a second element…which would require businesses and others who make payments to corporations to report such payments to the Internal Revenue Service.”
Forewarned is forearmed. Whether you have a plan in place already or are only now motivated to create one, our firm can help you weather these proposed changes, and help you continue to protect your estate and your children’s inheritance.
An Estate Plan Can Help “Keep the Peace” When Parents Remarry
May 12, 2009
Nothing, it seems, has the potential to cause a fight over inheritance quite like a second marriage. The Wall Street Journal’s SmartMoney magazine, in an article entitled Before Your Parents Say ‘I Do’ Again, says that poor estate planning (or even worse, no estate planning) can cause terrible damage to family relationships:
“As Americans live longer, they’re more likely to move into second marriages, and legal experts and financial planners say the resulting friction with the kids is steadily mounting. In more cases grown children are going to court against their parents even while they’re still alive, only to run up against a legal framework that leaves them with surprisingly few rights compared with their parents’ new spouses.”
How can you avoid family friction — not to mention legal battles — if you choose to remarry? According to the article, there are a number of ways: open communication, careful estate planning, the use of prenuptial agreements, or even skipping the marriage ceremony altogether.
Not all methods are right for all families, but everybody can agree that it pays to think ahead, which is why the advice of a qualified estate planning attorney before the wedding ceremony is crucial. After all, according to one attorney quoted in the article, “People get over the loss of a loved one sooner than the loss of an inheritance”.
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