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Friday, July 26, 2013

A Great Estate Planning Tool: Life Insurance

What if we told you that there is a financial product available that does the following:

  • Transfers wealth tax-free to your spouse and/or your heirs (that includes Pennsylvania inheritance tax, federal estate tax, federal income tax and state income tax).
  • Ensures that any income loss as a result of your death does not affect your spouse or family negatively.
  • Provide safety of investment from market risk or market loss.
  • Provide you with long term care coverage if you need it.

Certain life insurance policies can achieve all of those goals! Yes, not everyone can get covered or is eligible, but you'd be surprised how insurance companies are rapidly changing and covering more individuals under these types of policies.

One of the greatest benefits of these policies is providing you with long term care coverage if you ever require it. Your death benefit would be used towards your long term care costs. That means no traditional long term care policy is needed, and your estate won't be diminished if you need care, leaving nothing for your family.

Interested in learning more about this type of life insurance? Call us today at (215) 706-0200 to schedule your complimentary consultation. 


Monday, January 30, 2012

Gifting the House For $1: Good Idea or Not?

 

Many people ask us if it is a good idea to give their home to their children. While it is relatively easy to do, giving away your house can have major tax consequences, among other negative results.
 
GIFT TAX ISSUES: When you give anyone property valued at more than $13,000 in any one year, you have to file a gift tax form.  Also, under current law you can gift a total of $5.12 million over your lifetime without incurring a gift tax. If your residence is worth less than $5.12 million, you likely won't have to pay any gift taxes, but you will still have to file a gift tax form. Congress may change the gift tax exemption, which is now scheduled to revert to $1 million in 2013 unless Congress acts.
 
CAPITAL GAINS TAX ISSUES: While you may not have to pay gift taxes on the gift, if your children sell the house right away, they may be facing steep taxes. The reason is that when you give away your property, the tax basis (or the original cost) of the property for the giver becomes the tax basis for the recipient. For example, suppose you bought the house years ago for $150,000 and it is now worth $350,000. If you give your house to your children, the tax basis will be $150,000. If the children sell the house, they will have to pay capital gains taxes on the difference between $150,000 and the selling price. The only way for your children to avoid the taxes is for them to live in the house for at least two years before selling it. In that case, they can exclude up to $250,000 ($500,000 for a couple) of their capital gains from taxes.
 
Inherited property does not face the same taxes as gifted property. If the children were to inherit the property, the property's tax basis would be "stepped up," which means the basis would be the current value of the property. However, the home will remain in your estate, which may have estate tax consequences.
 
PA INHERITANCE TAX ISSUES: In Pennsylvania, there is no gift tax. However, to avoid PA Inheritance Taxes (the rate is 4.5% for assets passed to children or grandchildren), you must live at least one year from the time the gift was made. Often times, 4.5% of inheritance tax is worth paying rather than gifting the house in this manner, due to the risks involved.
 
ASSET PROTECTION ISSUES: By transferring your house to your children, you are making all of their future financial and family problems YOUR problems. That means the house could end up being taken away due to creditor problems, bankruptcy, litigation, or divorce. Would you want your son-in-law to get part of your house while you're still living?
 
MEDICAID/LONG-TERM CARE ISSUES: Beyond the tax consequences, gifting a house to children can affect your eligibility for Medicaid coverage of long-term care.  There are other options for giving your house to your children, including putting it in a trust or selling it to them. Before you give away your home, consult with an elder law firm such as our law firm, where we can advise you on the best method for passing on your home.
 
CONCLUSION: "Gifting the house for $1" is a phrase that's tossed around quite a bit, and several families go ahead with this planning. As you can see, casual planning like this is fraught with potential landmines. Be careful. There are options out there to transfer the house properly. Speak with an estate planning or elder law attorney about this type of planning.


Monday, December 12, 2011

Estate Tax Update / 4 Common Estate Planning Questions

 

Q&A: Four Commonly Asked Estate Planning Questions

 

1. Most of my assets are jointly titled, or they are qualified accounts with beneficiaries named. So do I still need a Will? Having a Will is still a necessity, but it can be more or less important to you depending on your estate. A Will is always needed to make sure an Executor is named, and take care of assets that are not titled jointly or with beneficiaries. It always makes sense to have a Will no matter what your circumstances.

 

2. How can I plan for avoiding Pennsylvania Inheritance Taxes? Most assets are subject to PA Inheritance Tax. However, one asset that's typically not subject to PA Inheritance Tax is life insurance. Life insurance also provides liquidity upon death to pay taxes, fees, etc. The inheritance tax rates are 0% between spouses, and 4.5% to kids and grandkids.

 

3. I have two kids, can't I just name both of them as Co-Executors? That may seem harmless, but could cause big problems for your estate later on. Putting two or more people in charge of one task is a recipe for conflict. Would it make sense to have two CEO's in charge of a company? Both children can be treated equally under the Will while one serves as Executor. Bottom line: Choose one primary, and two backup Executors.

 

4. What is the "Five Year Lookback Period"? When a client is in a nursing home or will be heading there and wants to qualify for Medicaid, federal law requires that any gifts made within the five previous years be accounted for. A gift made within five years could cause a penalty (based on a formula) that will prevent one from receiving benefits for a certain period of time. Qualifying for Medicaid is become increasingly complicated, and the best advice is to plan early while you're still healthy.

 

Have more questions? Email us at info@jawatlaw.com.

Latest News on the Federal Estate Tax

What's happening with the federal estate tax? Recently, a Democratic Congressman proposed a bill in the House of Representatives to lower the federal estate tax to a $1 Million exemption per person. Currently, the exemption is $5 Million. If the bill passed, many more people would be hit by the tax. 

 

The bill has no chance of passing, and the estate tax exemption will remain at approximately $5 Million for 2012. However, we will be watching 2013 closely, when the current law expires. Congress and the President will need to act at some point in 2012 to avoid the estate tax going back to $1 Million in 2013. Who knows what Congress will do... or when they will do it. We'll keep a watch and keep you updated.

 

Article Link: McDermott Tries To Rewrite Estate Tax

 


Monday, November 28, 2011

Evaluate Your Estate Plan

 


2012 is quickly approaching, and there is no better time than now to re-evaluate your estate planning goals. 

Estate planning can be broken down into three distinct areas: tax planning, legacy planning, and long-term care planning. Which area is the most important to you? Once you determine that, you can update your plan based on your goals.

Tax Planning 

Tax planning has not been at the forefront in the last few years for most families. The federal estate tax exemption is $5 Million per person, and $10 Million per married couple, so only a small percentage of individuals are affected. However, you should be aware that in 2013, the estate tax exemption will revert to $1 Million per person unless Congress acts. 2013 will come sooner than we think, and while both political parties have an incentive to come together on taxes, all bets are off. Keep reading our newsletter to keep posted on federal estate taxes.

Legacy Planning 

Legacy Planning is an important component of estate planning for many families today. Legacy planning ensures that your plan is crafted carefully so that any conflicts in the family are avoided, and that your children, grandchildren or other beneficiaries are protected against themselves and others.

Long-Term Care Planning

Excessive long-term care costs are a concern for many families today. As people live longer and long-term care costs rise (much faster than inflation), the question becomes how you protect your estate from being spent down completely on health care costs. There are proven asset protection strategies that help to preserve part of your estate. The earlier you plan (i.e., while you're still healthy), the better.  

Your Next Steps

I recommend that you sit down with your family and review your estate plan every year. You may find that minor or major changes need to be made. Perhaps you were more interested in tax planning a few years ago, but now realize you need to focus on long-term care costs and how to protect assets against those costs. Once you decide changes need to be made, make sure to implement those changes as soon as possible.

 


Monday, November 21, 2011

Executors; Estate & Gift Tax Update

 

THE ROLE OF THE EXECUTOR... The Executor is the CEO of an estate. The individual or institution filling that role is, in essence, the owner of your estate when you pass on, and has a “fiduciary duty” to do what is in the best interests of your beneficiaries, the people you leave your stuff to.

Executors and trustees (if you have a living trust instead of a Will) need to be careful and diligent about their work, and consider hiring outside assistance (attorney, CPA, etc.) as needed to ensure accountings are filed correctly, and inheritance tax and estate tax returns are prepared properly.

Transparency is key when you are an Executor. For instance, sharing a full accounting and a copy of the Will with the beneficiaries goes a long way.

Also, if an estate has creditors, you must be diligent in ensuring they receive proper notice. If an Executor fails to give proper notice to creditors and the Executor distributes the estate, there is a possibility that the creditor could later appear, make a demand, and hold the Executor personally liable.

Being Executor is not impossible to handle without a lot of outside help, especially for simple estates. But where there are complexities, beneficiaries with some conflict, creditors, etc., it makes good sense for your estate for the Executor to consider outside assistance. Remember, the Executor has a legal obligation and a fiduciary obligation.

 

FEDERAL TRANSFER TAX UPDATE... The so-called “super-committee” had apparently floated the ideas of changing the gift tax and federal estate tax before the year is out. Fun rumor, but not going to happen, as we have heard over the weekend that Congress is... surprise, surprise… deadlocked!

The gift tax exclusion stays basically the same in 2012. You can make $13,000 annual gifts to as many people as you want, no tax due and no filing needed. Over $13k, you have a $5.12 million lifetime gifting exemption. Anything above $13k, you need to file a Gift Tax Return (IRS Form 709). Any gift over $5.12 Million in 2012 is taxable at a 35% rate. This will potentially change again in 2013. Now is the time to make large gifts.

The federal estate tax remains at a $5.12 Million exemption in 2012, affecting very few people. Anything above $5.12 Million, or $10.24 Million for a married couple, is taxed at 35%. Again, 2013 could see major changes in this scheme.

The Pennsylvania Inheritance Tax rates will remain the same in 2012.

Of course, we’ll keep you updated on any changes.

Have a Happy Thanksgiving! Best wishes to you and your family.


Monday, November 14, 2011

Estate Planning Misconceptions

 

This week, we have selected five common estate planning misconceptions that we often hear from our clients. 

1. Gifting the house for $1 to my kids is always good idea

Gifting your house to your kids may save some inheritance tax dollars, but there will be no “step up in basis” if the kids try to sell the house after you pass on. To put it simply, there may be more taxes due than if you just left the house in your name. Additionally, once the kids own the house, you’re on the hook if they get into any sort of creditor or marriage trouble.


2. I only need a simple will, or no will at all

Every provision in your will is important. You want your will to be perfect, otherwise it could spell trouble for your family later on. You need to speak with an attorney about what type of estate planning tool you need.


3. I don’t need a will because all of my assets have beneficiaries on them

It always makes sense to have a will, regardless if anything will pass through the will. Inevitably, we find the will always disposes of some assets.


4. A power of attorney is just a form and is the same for everyone

Powers of attorney are subject to the most lawsuits because of this assumption. Your power of attorney needs to be carefully tailored so there aren’t too many powers.


5. I can’t gift more than $13,000 per year

As it stands now, you have a $5 Million lifetime gifting exemption through 2013. You can make the $13k gifts each year without paying taxes or filing gift tax returns. Anything over $13k is not taxed, but must be accounted for. Anything above $5 Million is taxed at 35%. For years, the lifetime exemption was $1 Million, so the $5 Million jump presents a great opportunity for wealthy individuals and families to make transfers.

 

Estate planning should be undertaken with a qualified estate planning attorney. Everyone needs to engage in estate planning to ensure they leave a legacy that's free of conflict and confusion. For a complementary estate planning consultation, please call our office at (215) 706-0200.

Was this week’s blog entry helpful to you? If so, we encourage you to forward it on to friends and family members who you think may find it informative as well.

Have a great week!


Monday, October 24, 2011

Did Steve Jobs Have An Estate Plan?

Even several weeks after his death, people are still talking about Steve Jobs and his contributions to the technological advances we've made in the last 30 years. Just last week, there was a memorial for Apple employees, shutting down every Apple store for a couple of hours, to celebrate the life of Steve Jobs. I remember using the Mac Classic, a black and white Apple computer from the 1980’s, and being fascinated by what was then advanced technology (no WiFi, no Facebook, no internet but still great!). People are going to be talking about Steve Jobs for a long time.

As your estate planning attorney, I was intensely curious about what type of estate plan Jobs created. We have plenty of wealthy individuals who have not engaged in estate planning, and their affairs are simply a mess.  People like Elvis Presley, Sammy Davis Jr. and others lost a huge amount of their estate to unnecessary taxes because they didn’t plan properly. We can learn a lot from their mistakes. But we can also learn from those who actually did take the time to plan, like Steve Jobs. To be honest, the less we can learn about their estate plan, the better their estate plan probably was!

To read more about what Steve Jobs did and didn’t do, check out the Forbes article on his estate plan here.

Every estate plan is different. Most people don’t have the wealth that Steve Jobs had. Nonetheless, everyone needs a plan that works for them and avoids disputes, excessive taxes, and unhappy heirs. If Steve Jobs didn’t put the proper plan in place, we will surely find out sooner or later.

Have a great week!


Monday, February 07, 2011

IRA Inheritance Trusts

 

The most substantial asset in someone’s portfolio is often their IRA. An IRA (Individual Retirement Account) is a tax-deferment or savings device. Whatever is left over is then passed on to the beneficiaries you designated on a form attached to the IRA.

Here’s a typical scenario… Mom wants to leave her $300,000 IRA to her child, who is 25 years old. Mom dies and child receives the IRA, since the child is the designated beneficiary. In this scenario, the child now has the option to let the IRA continue to grow tax-deferred (or tax-free if it’s a Roth IRA). By doing this, the child allows the account to grow substantially, because the younger you are, the smaller the required distributions. However, the child could cash the IRA out at this point, and spend all of the funds on foolish things.

Establishing an IRA trust is the best way to allow the IRA investments to grow substantially, control the distribution of your beneficiary so he or she can’t withdraw all of it at once, and also protect the asset from the beneficiary’s creditors, predators, divorcing spouses, etc. Also, if two or more beneficiaries are dividing the one IRA, an IRA trust can be set up so that each beneficiary uses his or her own life expectancy. A 3 year old grand-child will have to withdraw a lot less on an annual basis than a 25 year old child.

A will or even a standard living trust does not protect one’s IRA from any of the above. A stand-alone retirement trust, or IRA Inheritance Trust, is necessary. It must be designed carefully to comply with the IRS rules.

If you are interested in learning more about the IRA Inheritance Trust, please contact my office today at (215) 706-0200.


Monday, January 17, 2011

Does a Living Trust Make Sense in 2011?

 

Does a living trust make sense?

The term ‘living trust’ is tossed around a lot in the estate planning world and means different things to different people.

Clients and prospective clients sometimes believe that a living trust is necessary to ‘avoid probate’ and to ‘avoid estate taxes’.

Some attorneys believe everyone needs a living trust, no matter what the circumstance.

Both of these assertions are incorrect.

Living trusts ARE a will substitute that allows you, a trustee, to place your assets in a trust, and remain in control of those assets while you are living. The living trust allows you to provide detailed instructions upon how the assets will be distributed upon your death. The living trust can last for years and allows you to give what you want, to whom you want, when you want. For instance, once you pass away, you could instruct the person who takes over as trustee for you to pay your daughter a small sum annually and provide for your daughter for her health care or education needs at anytime.

Living trusts do NOT help a family avoid estate taxes or inheritance taxes. Actually, living trusts can help reduce federal estate taxes if you are affected by the tax (which most people aren’t today), but a Will can do the exact same thing. Therefore, if using a living trust only to save taxes, this is simply an incorrect reason to use a trust. Living trusts today provide a great mechanism for planning through generations… tax saving is not a consideration for most clients.

Regarding probate… Any asset placed within a living trust avoids the probate process. But to completely avoid probate, you must re-title all of your assets into the name of the living trust, and must do so anytime you acquire new assets.

Does it make sense to avoid the probate process? If you own property only in Pennsylvania, you might be better off allowing your estate to be probated. Probate in Pennsylvania is relatively straightforward, although there are several considerations and reasons that you may wish to avoid probate even in Pennsylvania. Sometimes, administration of your estate can occur more smoothly if you have a fully funded living trust. Some people like the idea that they will never need to publicize their will, or deny the government even a small fee. Call it the American spirit!

Another consideration in avoiding probate is that for many clients, at least half of their assets have already avoided probate because the asset, perhaps an IRA or an annuity or a life insurance policy have beneficiary designations. That means those assets go directly to those beneficiaries without probate. Same goes for any jointly held asset (joint with the right of survivorship).

Does a living trust make sense for you? Make sure when you are doing your estate plan that a living trust is at least discussed. It may or may not make sense for you depending on the circumstances.

Call for your complementary consultation today at (215) 706-0200 to find out if a living trust makes sense for you.


Friday, December 17, 2010

Federal Estate Tax Now Certain

Good news for most of our clients: The Federal Estate Tax exemption for 2011 and 2011 will be $5 Million per person and $10 Million for a married couple. Any assets over that amount will be taxed at a 35% rate. That means the vast majority of people are not affected by the Federal Estate Tax.

If your assets are nowhere near the $5/$10 Million amount, and you have an old credit shelter/A-B trust when the exemption was much lower, you need to immediately have your estate planning documents revised.

Keep in mind that this is the rate for the next two years. As we get into 2012, it could get interesting.

Stay Tuned...


Monday, December 13, 2010

Do I Need A Revocable Living Trust?

 

Revocable Living Trusts are a substitute to a Last Will & Testament, but for many Pennsylvanian’s, living trusts aren’t necessary for an effective estate plan.

Historically, many people have planned with a living trust to (a) avoid probate and (b) save on federal estate taxes.

Pennsylvania is one of a number of states that has simplified their probate process over the years. Probate in Pennsylvania is mostly handled by your executor and attorney outside of court, unless someone challenges your will or the distribution of your assets. Other states, like Florida and California, still have more burdensome probate processes that require court supervision.

Federal estate taxes fluctuate, but the rates that Congress is discussing for 2011 and 2012 mean that far less than 1% of people will ever be affected by such a tax. The White House and Congress are proposing an estate tax exemption of $5 Million. That means you will not be affected by the tax until you have over $5 Million in assets. Regardless of whether you are affected or not, a living trust does no better than a will with a testamentary trust in saving on tax dollars.

Because probate is simpler in Pennsylvania and living trusts are not tax avoidance tools, many people in Pennsylvania have wills as their fundamental estate planning tool. However, a living trust does have benefits for certain cases. You should seek an estate planning attorney to help educate you about what tools you need for your estate plan. Estate planning is a very individualized field of law, and the tools you need depends on your family, your circumstances and your goals.


Let our firm assist you: Our firm offers a complementary estate plan review and consultation. Please call us today at (215) 706-0200 or email us.

Pass the word on: If you know someone who can benefit by reading this blog, please forward it on to them, or subscribe your friend or family member through this link.


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The Law Offices of Jeremy A. Wechsler assist clients with Estate Planning, Wills, Trusts, Asset Protection, Special Needs Planning, Powers of Attorney, Will Challenges and Probate/Estate Administration in Willow Grove, PA as well as Abington, Hatboro, Dresher, Horsham, Bryn Athyn, Huntingdon Valley, Fort Washington, Jenkintown, Glenside, Oreland, Warminister, Wyncote, Ambler, Elkins Park, Flourtown, Philadelphia, Warrington, Cheltenham, Gwynedd Valley, Jamison, Feasterville Trevose, Richboro, North Wales, Blue Bell, Lafayette Hill, King of Prussia, Collegeville, Oaks, Phoenixville, Oxford Valley, Langhorne, Penndel, Bristol, Fairless Hills, Bensalem Plymouth Meeting and Furlong in Philadelphia County, Bucks County and Montgomery County.



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