You have decided to establish a trust to manage your assets for your loved ones, but who should be in charge? Typically, the grantor, or the person creating the trust, serves as trustee during his or her lifetime. Upon the death or incapacity of the original trustee, a successor trustee is needed to either continue management of the trust, or to handle distribution of trust assets and trust termination. While many grantors prefer to appoint a family member or close friend to the role of successor trustee, the duties of a trustee can be quite overwhelming. As such, it is important to keep the magnitude of the trustee position in mind when making this decision. Some factors to consider when selecting a trustee include:

• Financial proficiency and ability to meticulously manage fiduciary responsibilities

• Organizational and administrative capacity

• Potential risk and legal liability

• Family dynamics

• Professional trustee or co-trustee possibilities

• Full understanding and agreement by the trustee

A trust can be a very useful tool to provide for loved ones now and in the future, avoid probate, preserve privacy, and minimize estate taxes. Selecting the proper trustee is crucial to the effective execution of a trust. For more information on what you and your trustee need to know as you work toward setting up a trust, this recent piece from MarketWatch provides some valuable insights.

Many legislative changes are expected over the coming months as our country transitions to a new administration. Although the Biden administration’s plans for estate tax reforms have not been fully detailed, signals from Biden’s campaign indicate that two major changes will likely be introduced to Congress:

• Reduction of the lifetime exemption. The current $11 million lifetime exemption amount (adjusted annually for inflation) that went into place as part of the Tax Cuts and Jobs Act of 2017 (an increase from the previous $5 million exemption) is set to expire at the end of 2025. For the year 2021, individuals may gift up to $11.7 million during life or at death without gift or estate tax consequences. If left unchanged, this amount would continue to increase with inflation until 2026 when the exemption amount would return to $5 million. However, many expect that the Biden administration will propose adjusting the lifetime exemption amount downward, possibly to $3.5 million per individual.

• Elimination of the stepped-up basis for capital gains at death. Currently, inheritors enjoy the benefit of a stepped-up basis on capital assets (certain investments such as stocks and bonds, real estate, cars, etc.) upon a decedent’s death. This means that appreciated capital assets previously owned by the decedent are valued at the fair market value as of the decedent’s date of death for tax purposes. As such, any capital asset appreciation that occurred prior to the decedent’s death is not subject to capital gains taxes under current federal estate tax law. The Biden tax plan seeks to eliminate the stepped-up basis, which means that any appreciation on capital assets held by the decedent during his or her lifetime would be subject to capital gains taxes. Further, Biden’s tax plan has proposed a long-term capital gains tax increase that could double the capital gains tax rate for wealthy individuals.

Now that the Democratic Party controls both the House and Senate, it is very likely that tax reforms will be made. However, with other pressing issues including COVID-19 and economic relief, many believe that changes to the current tax structure will likely not occur until the end of 2021 and will not go into effect until 2022. As such, this year should provide time to consider making gifts, perhaps recognize capital gains early, or make other adjustments to address the impact these changes could have on your estate plan.

References for additional information:

Biden’s Tax Proposals and Estate Planning (Skadden)

What Does A Biden White House Mean For Estate Planning? (Forbes)

10 Biden Tax Plans (MarketWatch)

Joe Biden’s Tax Plans for the Next Few Years (Kiplinger’s)

2020-2021 Capital Gains Tax Rates - and How to Calculate Your Bill (NerdWallet)

With the end of 2020 in sight, a few last minute estate planning considerations provided by JD Supra can help you close out this turbulent year with confidence and a clean slate:

1. Make gifts of cash to public charities to take advantage of tax laws;

2. Have discussions regarding your estate plan with your family over the holidays;

3. Review and update your estate plan every few years or after a major life event such as a birth, death, or marriage;

4. Check account ownership and beneficiary designations to make sure they still reflect your wishes;

5. Make sure your family knows how you would like your affairs to be handled in the event of your incapacity and where all pertinent documents (powers of attorney, living wills, advance directives, etc.) are stored;

6. Investigate life insurance options for the benefit of your dependents or loved ones; and

7. Finalize or pledge charitable gifts that qualify for 2020 tax purposes.

Wishing you joy and happiness this holiday season, and a safe and bright start to a brand new year!

With the holiday season upon us, especially this year, care and concern for family and loved ones takes on particular importance. Although contemplating what will happen to our assets should we lose capacity or pass away is not a typically joyful holiday pastime, thinking broadly about your main goals for your estate plan can provide a positive starting point. To help you get started, below are some of the most common estate planning objectives:

• Provide financially for oneself, spouse, children, or other friends and family members

• Minimize estate and income tax consequences

• Appoint a guardian for children

• Give to charities, churches, or other organizations

• Contribute to educational costs of loved ones

• Protect assets from creditors

• Appoint representatives in the event of incapacity

• Simplify the process of asset transfer for family members

• Give specific items of personal property to family or friends

• Avoid the probate process

Taking the time to consider what you wish to accomplish with your estate plan can make the process seem less daunting and provide a clear roadmap for developing your plan. For more information on ways to meet your estate planning objectives, take a look at this recent piece from Forbes.

Avoiding probate is a common goal for those establishing estate plans. The probate process is the system through which the assets included in a deceased individual’s estate are distributed according to wishes expressed in the decedent’s will, or through state intestacy laws if no will was created. The transfer of assets through a probate court can result in attorney and court fees as well as other expenses and delays that many individuals wish to avoid. Only assets that do not transfer automatically upon an individual’s death are included in that individual’s estate. As such, setting up assets to transfer automatically upon death can reduce the size of an estate, thus minimizing costs and complexities associated with the probate process. Below are some helpful tips shared in a recent Forbes piece highlighting some of the best ways to utilize an estate plan to avoid probate:

1. Payable-on-Death Designation: Designating beneficiaries on life insurance policies, retirement, investment, and other accounts, as well as payable-on-death beneficiaries on simple checking and savings accounts will ensure the non-probate transfer of financial assets.

2. Transfer-on-Death: Indiana and Ohio both allow individuals to set up transfer-on-death beneficiaries on titles to real property and vehicles. Upon the original owner’s death, the transfer-on-death beneficiary will receive such property outside of the probate process.

3. Joint Ownership: By adding a joint owner to property or financial accounts, assets belonging to the original owner can become the property of the joint owner seamlessly upon the original owner’s death without the involvement of the probate court.

4. Revocable Living Trust: Some individuals place their assets into a revocable living trust during life. Upon the grantor’s death, assets that have been transferred into the trust will pass to beneficiaries according to the terms of the trust without ever going through probate.

5. Gifts: Finally, you can reduce the size of your estate by making gifts of property during your lifetime that you would have otherwise made through a will after your death. A smaller estate can result in lower probate court fees and a more timely distribution of your assets after your death.

Although assets passing through the probate process will eventually be distributed according to your will or state intestacy laws if you do not have a will, taking a few fairly simple steps now to ensure that your assets will transfer outside of the probate process can save time, money, and energy for loved ones down the road.

If nothing else, the past few months have given many of us a greater appreciation for the value of our homes. A home is typically the largest non-financial asset Americans own at the time of death. As such, the transfer of one’s home is often a major consideration during the estate planning process. Whether the goal is to avoid probate, minimize capital gains, or attempt to qualify for Medicaid, there are several ways a home can be transferred through an estate plan.

If you have been in your home for a number of years, the value of your home has likely appreciated markedly since the time of purchase. Therefore, simply gifting your home to a loved one during your lifetime could have significant capital gains tax implications. So, what are some effective ways to plan for a transfer of your home while minimizing capital gains? Below are a few options:

1. Living Trust: By transferring a home into a living trust, the home is immediately taken out of the original homeowner’s estate. This means that when the original homeowner passes away, the transfer of his or her home will not involve a probate court. Upon the death of the original homeowner, a home that has been placed in a trust can be sold and proceeds distributed to loved ones with the benefit of a stepped-up basis for capital gains considerations.

2. Life Estate: By reserving a life estate in a home, the original homeowner maintains the right to live in the home during his or her lifetime. Upon the original homeowner’s death, the home transfers (with a stepped-up basis) to the named beneficiary. It is important to keep in mind that the original homeowner gives up many ownership rights to the property, including the ability to mortgage or sell the home, during his or her lifetime.

3. Transfer on Death Deed: Also known as a Lady Bird deed, a transfer on death deed allows the original homeowner to maintain full control and possession of the property during his or her lifetime. Upon the death of the original homeowner, the home will transfer to the named individuals outside of the probate process.

When all factors and options are taken into consideration, an estate plan can be a very useful tool for arranging the transfer of a home. To learn more, check out this recent article published by Forbes.

A huge thank you to so many who shared and took advantage of the free health care power of attorney and living will promotion over the past 4 months! Wishing everyone a fun and safe 4th of July!

We’ve all been there, ready to leave the party, but we don’t want to make a scene or get caught in a lengthy conversation that delays our departure. Instead of running through a series of goodbyes and excuses, we slip out the door, undetected by others until long after our escape. While the Irish Goodbye works in many social situations, it is typically not an effective end of life strategy.

Many people shy away from creating an estate plan to avoid the perceived stress of the estate planning process. Oftentimes, individuals assume their families will just “figure it out,” or assert that “everyone gets along” so “it will be fine.” Unfortunately, it is not usually that simple.

While you are alive, you may need someone to help with financial or medical decisions should you become incapacitated. Without any sort of plan to guide these decisions, loved ones can be left feeling unsure as to how to handle your affairs. When it comes time to handle your estate after your death, loved ones may find that ownership of assets is not straightforward, assets might be unknown or difficult to locate, outdated beneficiary designations may lead to doubt about how assets should be distributed, probate and associated attorney fees that could have been minimized may diminish the estate, and quite often, conflict does arise between family members that previously “got along.”

When we pass away, loved ones will notice, and if we have failed to establish an estate plan, loved ones could be left to sort out a confusing and frustrating situation. Although creating an estate plan can require you to make tough decisions, the process does not have to be painful. For those hesitating to create an estate plan over fear of the process, Forbes provides a quick and easy understanding of what an estate plan is, and why it is important to navigate this process. Committing to making decisions ahead of time is the best way to spare your loved ones the stress of handling your affairs without your guidance and to make sure that your final exit is graceful.

Effective estate planning does not end when you sign your will. Communicating and clarifying your wishes to loved ones is crucial to ensuring the smooth execution of your estate plan. A failure to communicate your plan to loved ones can lead to doubt, hurt feelings, and conflict during already tumultuous times.

We tend to hold preconceived notions that our inheritance is a representation of our standing in a deceased loved one’s life.  When we do not receive an anticipated gift, we not only feel slighted, but also uncertain about our entire relationship with the deceased individual.  Learning we did not mean as much to someone as we previously thought is a profoundly painful realization.  The finality of death can often exacerbate these negative feelings, manifesting in claims of unfairness and leading to lengthy and expensive legal battles. 

In reality, a non-existent or seemingly small bequest is not always representative of the strength and importance of a relationship.  In determining how their assets will be distributed after death, many testators prioritize gifts to charities, account for gifts made during life or specific medical, financial, or other needs of loved ones, or simply observe that a loved one is in a comfortable position and is not in need of a bequest. 

To preclude feelings of resentment and confusion, communicating your wishes to your loved ones is essential to your estate plan. By setting expectations and explaining your decisions to loved ones ahead of time, you will minimize the possibility of unwelcome surprises that only serve to worsen times of loss.

It is also important to communicate your wishes as to how your financial matters and medical care should be handled while you are alive to prevent doubt and controversy among loved ones.  Although you may create and sign powers of attorney and a living will, it is helpful to make your loved ones aware of what these documents say and how these matters should be carried out in advance.

When it comes to managing relationships with those with an interest in your estate plan, communication is the key to success.

It’s a new year and that means lots of new and exciting things are on the horizon…like gift and estate tax changes! For the year 2020, the federal gift and estate tax exemption will be $11.58 million per person, or $23.16 million for a married couple. This means that each individual may pass up to $11.58 million to his or her heirs without incurring federal gift or estate taxes. So, a married couple may pass up to $23.16 million to their heirs free of federal estate and gift taxes. However, the last surviving spouse must remember to elect to make the predeceased spouse’s unused exemption amount portable when completing the estate tax return for the predeceased spouse. Spouses can pass an unlimited amount of assets to each other free of federal estate and gift taxes through the marital exemption, but the portability election must be made for a surviving spouse to take advantage of the predeceased spouse’s unused exemption amount.

The annual gift exclusion amount will not change this year, staying at $15,000 per person. This means that each individual can give up to $15,000 to as many individuals as they wish without gift tax ramifications. As such, a married couple together can give up to $30,000 this year to children, grandchildren, or other loved ones without incurring gift taxes and without detracting from their lifetime exemptions.

Both Indiana and Ohio remain estate and inheritance tax-free states, so no state level estate and gift taxes will be imposed in these states in 2020.

For more information on federal estate and gift taxes in 2020, check out this article published by Forbes.

While many will be utilizing free time this month to vacation or escape the chaos of the holidays, you may be taking advantage of some time off to work on your New Year’s resolutions. Consider adding an estate plan to your list of goals for the coming year. To get you started, Kiplinger’s recently published a comprehensive list of the ten most common estate planning mistakes. These ten considerations provide a good starting place if you hope to address your estate plan in the year to come.

The top 10 estate planning mistakes according to Kiplinger’s:

1. No “real” plan.

2. Failure to update.

3. No disability/long-term care plan.

4. Disregarding estate tax liability.

5. Improper asset ownership.

6. Lack of liquidity.

7. Overlooking beneficiary income tax implications.

8. Leaving out measures for minor children.

9. Forgetting to consider charitable gifts.

10. Ignoring the impact of beneficiary designations on retirement accounts.

Best wishes for a Merry Christmas and a Happy 2020!

Wondering what to give your loved ones this holiday season? An estate plan is the gift that keeps on giving! Planning provides direction and clarity to your loved ones both while you are alive and after you pass away. Though planning can seem stressful, by failing to plan, we unfairly pass this stress onto loved ones who are left to make difficult decisions for us. Estate planning really does not have to be painful. Often, the hardest part is getting started. To help out, NerdWallet provides 7 simple steps to getting started with your estate plan:

1. Take inventory of your tangible and intangible assets.

2. Contemplate how you would like to utilize your assets and estate plan to protect your family.

3. Select individuals to manage your personal and medical decisions should you become incapacitated.

4. Check beneficiary designations on insurance policies as well as retirement, investment, and other accounts.

5. Understand how and if estate taxes may apply to your situation.

6. Consider hiring a professional to assist with your plan.

7. Plan for the present, but expect to revise in the future.

Though joy and estate planning are unlikely synonyms, the holidays are the perfect time to think about protecting and honoring our loved ones. Best wishes for a safe and happy Thanksgiving!