Tag Archives: Estate Taxes

Wealth Gifts to Children and Crummey Trusts

trusts-for-grandchildrenLeaving gifts of money to minor children may sound simple, but it is full of pitfalls that could prevent your intended gift from ever reaching the recipient. An elder attorney can help you set up a Crummey Trust for your gift of wealth. Cash or wealth gifts made with this kind of trust will pass down to the minor without incurring any unified gift or estate taxes. A short term window of opportunity is used to prevent taxes from affecting the total amount given to the minor when they reach a specified age.

An elder law attorney can help you understand the limits on wealth gifts as well. Adults can give gifts of up to $13,000 to their children or grandchildren each year without having to pay taxes on the gifts. The gift must be made immediately available to the recipient to avoid taxes. This is known as a present interest, as opposed to a future interest. In order to make a gift to a minor a present interest, the Crummey Trust uses a 30 day window. Within that month the child can withdraw the gift from the trust and use it. After this window closes, the money is not available until the age specificed in the trust paper work.

A Massachusetts elder attorney can help you determine the perfect age for releasing your wealth gift. A living trust attorney can also act as the administrator for the trust and manage it after the gift giver is gone. Learn more about the Crummey Trust to help your children and grandchildren make the most of your legacy of wealth.

How To Prepare Estate Planning After Having a Baby

Estate planning after having children.

After having a baby, your estate planning strategy completely changes because you need to account for some important decisions that will affect your child, both now and as he transitions into adulthood. It is important to add your child to your will right away and make several other decisions related to your child in the coming years.

First, specify in your will how your assets will be divided between your heirs, including the new baby. An estate planning lawyer can walk you through the process to ensure your wishes get carried out.

Second, get a Massachusetts estate planning attorney to add a clause to your will that specifies who will care for your child if you and the child’s other parent are both unable to. Including this in your will may seem silly if you’re healthy, but it never hurts to have it there in case something happens to you.

Third, consider setting up a living trust. This is a way to protect your assets from being tied up when you die, while still allowing you full control while you are living. A living trust attorney can walk you through the specifics of this process.

Fourth, start transferring your assets to your child if you have a large estate. Tax laws allow you to make tax-free gifts of up to $13,000 per year for each child, which adds up significantly over the child’s lifetime.

Of course, there are several other things you will need to consider as well, especially if you have a large estate or if your existing will is a complicated one. Get in touch with your Massachusetts estate planning lawyer before your baby arrives so you can discuss your plans and be ready to put them in place.

Why You Should Create an Estate Plan Today

Estate planning is not only for the elderly. Even if you don’t think you have any significant assets to protect, it could be beneficial to consult an estate planning attorney and discuss your options. If you know anyone who has had to deal with the loss of a loved one who didn’t have an estate plan they will probably tell you, in retrospect, that they wish they had made specific arrangements. There’s a reason why people say “Always be prepared!” Here are some major reasons why you should consider creating an estate plan today:

Avoid Probate

The main reason that many people create an estate plan is to avoid probate. Probate is the process of the administration and distribution of the estate of a deceased person. This legal process is typically carried out according to the person’s legal will. However, if the person does not draft a will the probate court will administer the person’s estate according to state statute. As a result of horror stories in the media of families dealing with probate, most people often want to avoid probate at all costs. Creating an estate plan is an effective solution.

Reduce EstateEstate Planning Taxes

Another good reason to consult an estate planning attorney about creating a plan is to reduce estate taxes and/or state inheritance taxes. Depending upon the individual’s situation, the payment of these taxes can account for a significant loss of an estate. Through simple planning you can make estate or inheritance tax much less burdensome or nonexistent.

Avoid Stress

Many times when people have personal experience, or witness someone, go through the process of dealing with the administration of a loved one’s estate they’re more likely to meet with an estate planning lawyer. Not having a plan in case you become mentally incapacitated or pass away can be overwhelmingly stressful for loved ones to deal with. Creating an estate plan is a proactive way to avoid family feuds and costly court proceedings.

Protect Beneficiaries

One of the main reasons for creating an estate plan is to protect beneficiaries. Beneficiaries could be either minors or adults. When creating an estate plan with minor beneficiaries in mind you should appoint a guardian and trustee to oversee the minor’s finances until they are of age (either 18 or 21 years old, depending on the state in which they live). If the beneficiary is already an adult but has trouble managing money you should create an estate plan which will protect the beneficiary from their own bad decisions.

It’s always good to plan ahead – contact elder law attorney Adam J. Tobin today to discuss the best steps toward creating your own estate plan.

Do you need an estate planning attorney?

Do you need a Massachusetts Estate Planning Attorney?Estate plans are both relevant and necessary if any of the following apply to you:

  • If it matters to you who inherits your assets
  • The future of your health care should you fall ill or otherwise incapacitated
  • Desire to avoid the inconveniences and hassles of probate court

The use of an estate plan is no longer associated for the upper classes looking to pay less taxes. Should anything happen to you, a probate court judge can have control over the fates of your assets and any children you may have under the age of 18 – unless you have an estate plan. The systematic process involved with probate is both financially draining and lengthy: a situation that can be avoided for your loved ones if you have an estate plan.

For these reasons, an estate plan is very beneficial. However, yours must be constructed correctly. An estate plan that is old, filled with loopholes and other potential issues for compromising your assets can be easily avoided by hiring an estate planning attorney. With the increasing trend of “do-it-yourself” trust or will-template websites, this can be a risky alternative to a very  important document. You need an estate planning lawyer to provide individualized legal advice for not just your estate planning, but for trusts, applicable laws for estate taxes, and probate.

Make the investment in your loved ones future, and assure that your wishes are followed through. Contact a Massachusetts estate planning attorney like Adam Tobin today to get you started on an estate plan or will that is right for you!

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Possible Social Security Benefit Changes

Social Security seems to be moving toward its day of reckoning. According to a recent article by Philip Moeller, efforts to put Social Security on a sound long-term footing included higher tax rates for payments into the system, raising retirement ages, and treating some Social Security payments as taxable income.

U.S. Senator Herb Kohl (D-WI), Chairman of the Senate Special Committee on Aging, asked the U.S. Government Accountability Office (GAO) to review benefit options affecting lower-income beneficiaries, who traditionally are the core focus of the program. This group, and particularly older widows, depends almost exclusively on Social Security. The GAO report reviewed eight areas where, it said, benefit changes were most commonly proposed. The report looked at how effectively each proposal would help lower-income beneficiaries, whether it would have much of a financial impact on Social Security, and on how difficult it would be to administer. Here are summary excerpts of some of their findings, which will be part of a larger Social Security report due soon from the Kohl committee.
Guaranteeing a Minimum Benefit. Guaranteeing a minimum benefit by increasing Social Security retirement benefits for those who have worked in low-wage jobs throughout their careers addresses concerns about benefit adequacy. One option would provide a minimum benefit equal to 120 percent of the poverty line for a minimum wage earner who had worked for 30 years. Another option would provide a minimum benefit equal to 100 percent of the poverty line for a 30-year worker and 111 percent of the poverty line for a 40-year worker. Social Security Administration officials said that, depending on how this option is designed, it could work well, but it is difficult to target lifetime low earners effectively.

Reducing the Marriage Duration Required for Spousal Benefits. Reducing the marriage duration required for spousal benefits is an option that targets divorced spouses. However, experts also said they do not expect this option to effectively target economically vulnerable groups. This option would not benefit women who were never married but could benefit higher-income women who are not economically vulnerable.dependent children or elderly relatives. Time spent out of covered employment as a caregiver may reduce benefits for workers, and others may not work enough to earn the required 40 credits to be eligible for benefits. One caregiver credit option would allow a specified amount of care giving time, such as three or four years, to count as covered

Providing Caregiver Credits.
Providing caregiver credits increases benefits for those who spend time out of the workforce to care for employment, and assign a wage to that time. Another design excludes a limited number of care giving years from the benefit calculation so that instead of averaging earnings over 35 years, earnings are averaged over fewer years. A third design supplements caregivers’ retired worker benefits directly, regardless of whether they took time out of the workforce for care giving. For example, an income-tested supplement could be given to increase retired worker benefits by 75 percent for those who have one child and 80 percent for those with two or more children. Both parents of a child would be eligible for this supplement, as long as the total household income did not exceed 125 percent of the federal poverty line. Retirement security experts said this option recognizes the societal value of care giving, but experts also said that, for various reasons, it may not reach its target population. For example, low-income people are less likely to be able to take time off from work. Therefore, people who have relatively higher incomes may benefit more from the creation of caregiver credits. Retirement security experts and SSA officials told us that caregiver credits would be complex to administer. A key issue is how to verify that care was provided to a qualifying person.

Read the rest of the changes here.

Have a question about social security, taxes, or other information for you or a loved one? Make sure to contact Adam Tobin to get your questions answered!

Estate Planning: What You Can Do Now

estate-planningElder lawyers are a great resource for planning your estate. An increasing amount of people are seeking advice on estate planning, and there is currently an intense discussion in Congress about an estate tax law. In her latest book, “Estate Planning Smarts”, Deborah L. Jacobs outlines the essential pieces you need to know when planning your estate.
A good estate plan should accomplish these goals:

•    Caring for yourself by authorizing people to handle your affairs if you no longer can because of illness or disability
•    Specifying who gets what after you pass away
•    Providing for children who are minors or who have special needs.
Trusts play critical roles in estate planning, and can be used to hold money for minors, forestall spendthrift family members, protect assets from former spouses or creditors, or even make provisions to care for pets that survive you.
(Source: www.estateplanningsmarts.com)
See an elder lawyer like Adam J. Tobin, or one nearest you to get your estate plan in motion!

Common ways to reduce Estate Taxes

Question: My parents have considerable assets. What can they do now to reduce the potential estate taxes?

Investing towards the future. Elder Law Estate planning in Massachusetts.Many clients may be near or over the estate tax exemption and owe federal estate taxes upon their death (see my post on ways to avoid state taxes to see federal estate tax rates).  Furthermore, individuals must also face a much lower threshold and may also be subject to Massachusetts estate taxes (currently assets over $1,000,000 are subject to the MA estate tax).

Here are some common, somewhat complex examples on how to reduce your estate in order to minimize the ultimate tax owed:

  1. The Credit Shelter Trust (By-Pass Trust) – In 2009, a married couple will be able to transfer $7,000,000 without federal estate tax.  To do so, each spouse must make maximum use of their $3,500,000 applicable exclusion amount.  A credit shelter trust can allow us to take full advantage of the applicable exclusion amounts and still provides for the surviving spouse and children.  Both a credit shelter trust and a marital deduction trust can be included in a Will or a Living Trust.
  2. Family Limited Partnerships (FLP) – One can use a family limited partnership or an LLC to consolidate ownership and management of family assets and potentially shift income or appreciation to the children.  In essence, these entities allow parents to make discounted gifts of limited partnership interests to children and grandchildren without surrendering control of the business or property.  Such gifts make qualify for gift tax discounts on their valuation as they can be discounted as much as 35% due to lack of control and marketability.
  3. Benefits of Lifetime Gifting – If one still expects estate tax liability even after applying the above mentioned options, one may consider gifting strategies.  For example, in 2009 anyone can make a $13,000 gift, income tax free and gift tax free. Lifetime gifts can remove assets and their future appreciation from the estate.  When deciding what to gift, it is best to gift assets that are likely to appreciate after the gift.  Consider a husband and wife with two children, each spouse can give each child $13,000 annually.  This amounts to $52,000 of tax free gifts annually. Also, any medical or education related expenses you pay directly on behalf of a child or grandchild are immediately removed from your estate without any gift tax.

(photo credit: http://michiganelderlaw.info)

Good News for Estate Planning

Declining interest rates may not be good for potential buyers of bank Certificates of Deposit, but they are good news for various estate planning strategies.

Estate planning for Massachusetts elder couples.I will address a few areas and techniques where low interest rates can have a very positive impact on the estate planning process:

  1. Qualified Personal Residence Trust (QPRT) – A QPRT is an irrevocable trust to which the donor transfers their personal residence and retains the right to reside in the residence for a specific term of years, 10 years is common.  After the term of years, the residence passes to the children or other beneficiaries.  In periods of low interest rates, the value of the retained interest is high, and the amount of the gift remains low.
  2. Grantor Retained Annuity Trust (GRAT) – A grantor transfers property to an irrevocable trust and retains an annuity interest for a specific term.  At the expiration of the term interest, the property typically passes to a child.  Gift tax is payable on the present value of the remainder interest.  As interest rates drop, the value of the retained interest increases—thereby decreasing the value of the gift of the remainder interest.  A drop in interest rates is good for GRAT planning.
  3. Private Annuities – In a typical private annuity transaction, a parent transfers property to a child in return for that child’s unsecured promise to pay the parent a fixed income for life.  If the fair market value of the property equals the present value of the annuity under I.R.C. Section 7520 tables (currently at 2.8%), there is no gift tax on the transfer.  A further decrease in the interest rate lowers the annual payment amount that the child has to make to the parent.  Furthermore, if the parent dies during the annuity payments, all payments cease and the child has met their obligations and owns the property outright.

Low interest rates, including the IRS’ Section 7520 rate, can have a significant impact on an individual’s estate planning outcome.  The effectiveness of many estate planning techniques vary with interest rate changes.

If you have any questions about any of these areas and techniques of the estate planning process, feel free to contact me or your estate planning attorney.

(photo credit: www.massenahospital.org/mmhfoundation.php)

Estate Taxes – Are there ways to avoid estate taxes?

YES.  Does this sound too good to be true? I counsel clients to reduce and often eliminate estate taxes through various techniques, including but not limited to:

  • Drafting Credit Shelter Trust Provisions; whereby spouses leave some of their property in trust for their children, but give the surviving spouse the ability to access some or all of it for the remainder of their life. This keeps the second spouse’s taxable estate half the size it would be if the property were left entirely to the spouse.
  • Drafting “QTIP” Trust Provisions; whereby couples can postpone estate taxes until the second spouse dies.  This allows for additional gifts qualifying for the annual exclusion.
  • Drafting Charitable Remainder Annuity Trusts; whereby a tax free gift is made to to a tax-exempt charity and the surviving spouse and/or children receive perpetual income from the transfer.
  • Drafting Irrevocable Life Insurance Trusts; whereby the value of life insurance proceeds is removed from the client’s estate.

What are the rates for federal estate taxes?

In actuality it really depends on your date of death. The federal government imposes a hefty estate tax when your property is worth more than a certain amount. In determining your gross estate, the government values all of your assets including, but not limited to bank accounts, stock, bonds, annuities, mutual funds, real estate, retirement plans, Individual Retirement Accounts (IRA’s), and life insurance.  It is important to note that property left to a spouse is exempt from the tax, as long as the spouse is a U.S. citizen. However, in many cases this merely defers the tax due until the surviving spouse’s death. In addition, Massachusetts has its own estate tax which provides a much smaller $1,000,000.00 exemption. With the escalation of real estate values in the last twenty years many retirees have become vulnerable to Massachusetts estate tax and/or federal estate tax.

Year of Death    Exempt Amount

2001                    $675,000
2002-03            $1 million
2004-05            $1.5 million
2006-08            $2 million
2009                   $3.5 million
2010                   No estate tax
2011                    $1 million unless Congress extends repeal

The rates are steep, starting at 37%. The maximum is 55% for property worth over $3 million. The maximum rate is scheduled to decline gradually to 45% in 2009. There will be no estate tax in 2010, if the current tax law (passed in 2001) is not amended. Unfortunately, in 2011 the exemption is scheduled to drop back to $1,000,000.00 unless congress extends the repeal.

Adam Tobin – Elder Law Attorney

I offer estate planning for estates of all sizes, planning to minimize Gift Taxes and Estate Taxes, the use of Trusts to protect assets, Business Planning for small business owners, and Retirement Planning for individuals of all income levels. As an Elder Law Attorney,  I help guide you through the complexities of Medicaid laws, explain the options available to pay for home health care, assisted living and nursing home costs, assist you in qualifying for these benefits, and implement a plan to protect your assets from nursing home costs. My probate representation practice includes guardianships and other protective proceedings, the probate of Wills, and the administration of Trusts.

Contact me via email or call 978.725.9083 to arrange a free consultation. My office is located at 809 Turnpike Street, North Andover, MA 01845.