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Arlington TX Estate Planning Blog

Monday, July 22, 2013

How to Leave Assets to Adult Children

When considering how to leave assets to adult children, the first step is to decide how much each one should receive. Most parents want to treat their children fairly, but this doesn’t necessarily mean they should receive equal shares of the estate. For example, it may be desirable to give more to a child who is a teacher than to one who has a successful business, or to compensate a child who has been a primary caregiver.

Some parents worry about leaving too much money to their children. They want their children to have enough to do whatever they wish, but not so much that they will be lazy and unproductive. So, instead of giving everything to their children, some parents leave more to grandchildren and future generations through a trust, and/or make a generous charitable contribution.

When deciding how or when adult children are to receive their inheritances, consider these options.

Option 1: Give Some Now

Those who can afford to give their children or grandchildren some of their inheritance now will experience the joy of seeing the results. Money given now can help a child buy a house, start a business, be a stay-at-home parent, or send the grandchildren to college—milestones that may not have happened without this help. It also provides insight into how a child might handle a larger inheritance.

Option 2: Lump Sum

If the children are responsible adults, a lump sum distribution may seem like a good choice—especially if they are older and may not have many years left to enjoy the inheritance. However, once a beneficiary has possession of the assets, he or she could lose them to creditors, a lawsuit, or a divorce settlement. Even a current spouse can have access to assets that are placed in a joint account or if the recipient adds the spouse as a co-owner. For parents who are concerned that a son-or daughter-in law could end up with their assets, or that a creditor could seize them, or that a child might spend irresponsibly, a lump sum distribution may not be the right choice.

Option 3: Installments

Many parents like to give their children more than one opportunity to invest or use the inheritance wisely, which doesn’t always happen the first time around. Installments can be made at certain intervals (say, one-third upon the parent’s death, one-third five years later, and the final third five years after that) or when the heir reaches certain ages (say, age 25, age 30 and age 35). In either case, it is important to review the instructions from time to time and make changes as needed. For example, if the parent lives a very long time, the children might not live long enough to receive the full inheritance—or, they may have passed the distribution ages and, by default, will receive the entire inheritance in a lump sum.

Option 4: Keep Assets in a Trust

Assets can be kept in a trust and provide for children and grandchildren, but not actually be given to them. Assets that remain in a trust are protected from a beneficiary’s creditors, lawsuits, irresponsible spending, and ex- and current spouses. The trust can provide for a special needs dependent, or a child who might become incapacitated later, without jeopardizing valuable government benefits. If a child needs some incentive to earn a living, the trust can match the income he/she earns. (Be sure to allow for the possibility that this child might become unable to work or retires.) If a child is financially secure, assets can be kept in a trust for grandchildren and future generations, yet still provide a safety net should this child’s financial situation change.


Tuesday, July 2, 2013

The Value of Having a “Plan” in Estate Planning

All too often, estate planning is viewed as a transaction: a will, a living trust, powers of attorney, etc. But the best planning happens when the professional can get to know the client on a deeper level, to uncover hopes, dreams and aspirations. It becomes more about family and values, and it becomes a process instead of a transaction.

This process begins with having a plan for our lives. There is a certain power in planning. When plans are carefully thought through and written out, they tend to come true. A plan can also serve as a guide, helping to align our deepest values, beliefs and goals with our financial resources so we can realize our dreams. Having a plan allows us to live richer, fuller lives—personally, professionally, financially and spiritually.

How to Formulate A Life Plan

1. Think broadly and deeply about what matters most to you. If you had all the money you needed, what would you do with it? If you had only five or ten years to live, how would you live them? If you learned you have 24 hours left to live, what did you miss?

2. Take this vision, sweep away any doubts, and craft your ideal life in as much detail as possible. This can energize you to achieve your vision in the shortest time possible. Goals are no longer something to be hoped for “some day,” but can become immediate and vibrant.

3. A thoughtful professional can help you identify obstacles and roadblocks that may be keeping you from achieving your vision. These are sometimes financial, but more often they are internal beliefs.

4. An experienced professional can then recommend the best ways to achieve your goals. Quite often, this professional will put together a team of professionals from different disciplines to make sure all of the needs are being met. The team may include an estate planning attorney, a financial advisor, an insurance advisor, a CPA, a retirement plan advisor, even a planned giving expert.

The right professional for this approach in planning will ask open-ended questions and listen carefully to the answers. The client, on the other hand, will need to be open, honest and willing to make an emotional connection, with both the professional and with him/herself. The two will be building a mutual trust and relationship, one that can last for many years, possibly even into the next generation.

The result of this type of planning is far more rewarding than any transaction.


Tuesday, May 21, 2013

Should You Disinherit a Child?

Most parents choose to leave their estates equally to their children. But sometimes, parents intentionally choose to not leave anything to a child. There may be what the parents consider to be a legitimate reason: one child has been more financially successful than the others; not wanting a special needs child to lose government benefits; or not wanting to leave an inheritance to an irresponsible or drug-dependent child. Sometimes a parent wants to disinherit a child who is estranged from the family, or to use disinheritance as a way to get even and have the last word.

 

Regardless of the reason, disinheriting a child is hurtful, permanent, and will affect that child’s relationship with his or her siblings. The courts are full of siblings who sue each other over inheritances but even if they don’t sue, it is highly unlikely they will be having family dinners together. Money aside, there is symbolic meaning to receiving something from a parent’s estate.

 

Disinheriting a child may be short-sighted and even completely unnecessary. For example:

*    A child who appears to be more successful financially may have trouble behind the scenes. The inheritance may be needed now or in the future: finances can change, marriages can collapse, and people can become ill. And unless specific provision is made for them, grandchildren from this child will also be disinherited.

*    A spouse, child, sibling, parent or other loved one who is physically, mentally or developmentally disabled—from birth, illness, injury or even substance abuse—may be entitled to government benefits now or in the future. Most of these benefits are available only to those with very minimal assets and income. But you do not have to disinherit this person. A special needs trust can be carefully designed to supplement and not jeopardize benefits provided by local, state, federal or private agencies.

*    A child who is irresponsible with money or is under the influence of drugs or alcohol may not be the ideal candidate to receive an inheritance of any size. But this child may need financial help now or in the future, and may even become a responsible adult. Instead of disinheriting the child, establish a trust and give the trustee discretion in providing or withholding financial assistance; you can stipulate any requirements you want the child to meet.

 

How we choose to include our children in our estate plans says a good deal about our values and faith. Not disinheriting a child who has caused grief and heartache can convey a message of love and forgiveness, while disinheriting a child, even for what seems to be good cause, can convey a lack of love, anger and resentment.

 

If you have previously disinherited a child and you have since reconciled, update your plan immediately. If your decision to disinherit a child is final, your attorney will know the best way to handle it. Consider telling your child that you are disinheriting him or her so it doesn’t come as a complete surprise. Explaining your reasons will allow for honest discussion, may help deter the child from blaming siblings later and may prevent a costly court battle.


Thursday, February 21, 2013

How to Leave Assets to Minor Children

How to Leave Assets to Minor Children

 

Every parent wants to make sure their children are provided for in the event something happens to them while the children are still minors. Grandparents, aunts, uncles and other relatives often want to leave some of their assets to young children, too. But good intentions and poor planning often have unintended results.

 

For example, many parents think if they name a guardian for their minor children in their wills and something happens to them, the named person will automatically be able to use the inheritance to take care of the children. But that’s not what happens. When the will is probated, the court will appoint a guardian to raise the child; usually this is the person named by the parents. But the court, not the guardian, will control the inheritance until the child reaches legal age (18 or 21). At that time, the child will receive the entire inheritance. Most parents would prefer that their children inherit at a later age, but with a simple will, you have no choice; once the child reaches the age of majority, the court must distribute the entire inheritance in one lump sum.

 

A court guardianship for a minor child is very similar to one for an incompetent adult. Things move slowly and can become very expensive. Every expense must be documented, audited and approved by the court, and an attorney will need to represent the child. All of these expenses are paid from the inheritance, and because the court must do its best to treat everyone equally under the law, it is difficult to make exceptions for each child’s unique needs.

 

Quite often children inherit money, real estate, stocks, CDs and other investments from grandparents and other relatives. If the child is still a minor when this person dies, the court will usually get involved, especially if the inheritance is significant. That’s because minor children can be on a title, but they cannot conduct business in their own names. So as soon as the owner’s signature is required to sell, refinance or transact other business, the court will have to get involved to protect the child’s interests.

 

Sometimes a custodial account is established for a minor child under the Uniform Transfer to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA). These are usually established through a bank and a custodian is named to manage the funds. But if the amount is significant (say, $10,000 or more), court approval may be required. In any event, the child will still receive the full amount at legal age.

 

A better option is to set up a children’s trust in a will. This would let you name someone to manage the inheritance instead of the court. You can also decide when the children will inherit. But the trust cannot be funded until the will has been probated, and that can take precious time and could reduce the assets. If you become incapacitated, this trust does not go into effect…because your will cannot go into effect until after you die.

 

Another option is a revocable living trust, the preferred option for many parents and grandparents. The person(s) you select, not the court, will be able to manage the inheritance for your minor children or grandchildren until they reach the age(s) you want them to inherit—even if you become incapacitated. Each child’s needs and circumstances can be accommodated, just as you would do. And assets that remain in the trust are protected from the courts, irresponsible spending and creditors (even divorce proceedings).


Wednesday, August 8, 2012

Get Ready for These Five New Taxes on January 1, 2013

Now that the health care law has been declared constitutional, several significant provisions will become effective on January 1, 2013.

 

Tax #1: 3.8% Surtax on Investment Income

This new tax will be levied on net investment income if modified adjusted gross income is more than the “threshold amount” based on filing status. For married taxpayers filing jointly, the threshold amount is $250,000. For married filing separately, it is $125,000. For single taxpayers, the threshold is $200,000. The surtax also applies to trusts and estates if the net investment income is more than about $12,000 and is not paid out to the heirs/beneficiaries.

 

Assuming Congress extends the current tax rates that are set to expire on December 31, adding this surtax will increase the tax rate on long-term capital gains and dividends from 15% to 18.8%. If Congress does not extend the current rates, the top rate on January 1 for capital gains will be 23.8% and the top dividends rate will be a whopping 43.4%!

 

How the Tax is Determined

Modified adjusted gross income is adjusted gross income (the last line on page 1 of Form 1040) plus the net foreign income exclusion amount. Income includes interest, dividends, capital gains, wages, retirement income, and income from businesses and partnerships. No itemized deductions, which lower income for income tax purposes, are included for this calculation.

 

If modified adjusted gross income is less than or equal to the taxpayer’s threshold amount (see above), no surtax will be paid, regardless of the amount of investment income.

 

If modified adjusted gross income is more than the taxpayer’s threshold amount, the 3.8% surtax will be due on 1) the amount of adjusted gross income over the threshold amount OR 2) net investment income, whichever is less.

 

Net Investment Income Defined

Net investment income is total investment income less allocable expenses. Investment income includes interest, dividends, capital gains, annuities, rents, royalties, passive activity income, gain on the sale of a principal residence above the $250,000/$500,000 exclusion and gain from the sale of a second home.

 

It does not include active trade and/or business income; distributions from IRAs and other qualified retirement plans; Social Security income and veterans’ benefits; income from tax-exempt and tax-deferred vehicles like municipal bonds, tax-deferred nonqualified annuities, life insurance and nonqualified deferred compensation; or any income taken into account for self-employment tax purposes.
 

Plan Now to Minimize the Tax

Start now to reduce investment income and modified adjusted gross income for 2013 and beyond. Consider shifting investments, converting to a Roth IRA, deferring income, increasing contributions to tax-deferred plans, installment sales and charitable trusts.

 

Tax #2: Medicare Payroll Tax Increase for Higher Earners

This tax will increase .9%, from 1.45% to 2.35% on wages and self-employment income above $250,000 for married taxpayers filing jointly and above $200,000 for single taxpayers.

 

Tax #3: Medical Device Manufacturing Tax

This 2.3% tax will be levied on the gross sales of medical device makers, whether or not they make a profit.

 

Tax #4: High Medical Bills Tax

Currently, medical expenses that exceed 7.5% of adjusted gross income are deductible on Form 1040. On January 1, the threshold will increase from 7.5% to 10%.

 

Tax #5: Flexible Spending Account Cap

Flexible Spending Accounts are pre-tax accounts that 24 million Americans use to pay for all kinds of family medical expenses, including tuition for children with special needs. Currently, these accounts have no federal limit, but beginning January 1 they will have a $2,500 annual cap.

 

Planning Considerations in 2012

In addition to planning now to reduce or avoid the 3.8% surtax in 2013 and beyond, this is an exceptional year to do estate planning. The federal gift and estate tax exemption is $5.12 million, which allows a married couple to remove as much as $10.24 million from their estate with no estate tax. Under current law, this exemption is scheduled to shrink to $1 million in 2013. Other Bush-era tax rates, including income and capital gain taxes, are set to expire at the end of 2012. With these new taxes becoming effective in January, 2013 is on track to have the highest tax rates we have seen in years.

 

As always, be sure to seek expert advice on all tax-planning issues. Now, more than ever, you need the assistance of experienced professionals to advise you and help you implement the best plan for you and your family.

 

*The content of this blog is adapted in part from information provided by the nationally recognized tax professionals at Keebler & Associates. For more information please visit their website at http://www.keeblerandassociates.com. The full text of the Health Care Act is available here, with the relevant provisions of the surtax beginning at Section 1411 at page 946.


Monday, August 8, 2011

Social Support Activities Lead to Better Quality of Life As One Ages

 

How important is social support as a person ages? This may seem like an easy question to answer. Most people would not choose isolation and loneliness versus spending time with companions. However, can lack of social support really hinder a person’s overall quality of life?

Lack of social support is related to negative impacts on health and well being, especially for older people. Having a variety of positive social supports can contribute to psychological and physical wellness of elderly individuals. Support from others can be important in reducing stress, increasing physical health and defeating psychological problems such as depression and anxiety.

When considering who provides social support for an elderly individual our first thoughts are of family members. While it is true that most support does come from family members, there are many circumstances in which family members cannot be supportive (stress due to responsibilities, illness, death, financial problems, job relocation). In the United States the fastest growing age group of individuals are those 85 years and older. Due to this fact, family supports will inevitable decrease for these older individuals. A need for community-based services is more important now then ever before.

Community-based services can be extremely useful for elderly individuals. Services for older persons can encompass many areas, but one of the most important areas as discussed previously is social support. Support for elderly persons can be found in many places including: senior centers, assisted living facilities, meal delivery, religious affiliations, adult day care centers, etc. These services can provide positive social supports that can help older persons defeat loneliness and isolation. However, social support must encompass more then physical presence or conversation. Studies have shown that social support services should contain quality activities. These activities should promote positive self-awareness.

Self-awareness is key to a person’s overall quality of life and satisfaction. Many leisure social activities can be used to help increase an individual’s self-awareness. Activities for elderly individuals may include reminiscence groups, journal writing, readings of favorite book passages, group exercise, singing groups, etc. Individuals may also feel more self-satisfied if they are part of the planning of social activities that take place.

Two of these community-based service centers that provide quality social support services for elderly individuals are discussed below.

Senior Citizen Centers

Today, there are estimated to be about 15,000 senior centers across the United States. Senior centers act as a focal point for older Americans to receive many aging services. The most common services offered at a senior center include health programs (including Zumba and Yoga), arts/humanities activities, intergenerational programs, employment assistance, community action opportunities, transportation services, volunteer opportunities, education opportunities, financial assistance, senior rights counseling/legal services, travel programs and meal programs. These programs and activities can help promote positive self-awareness.

Lori Beckle describes how participating in her local senior citizens center has given her the independence and life satisfaction she thought was lost when her husband died in 2009. “ I was devastated and so frightened for my future without Ed. He was my only friend and the one I turned to when I felt alone. My daughter invited me to attend our local senior center where a bereavement group was being held for those who had lost a loved one. I met Phyllis during the group and now I have a new friend I call when I become afraid. Phyllis has helped me develop the skills to get through the tough times and focus on my immediate happiness.”

Adult Day Care Centers

According to the National Adult Day Services Association (NADSA), there are currently more than 4,600 adult day care centers nationwide. Adult day care is a program in which activities are provided to promote social support and health services to an older adult during the daytime. Most centers operate Monday through Friday during daytime hours. Social support services at an adult day care can consist of musical entertainment and singing groups, group games such as cards, gentle exercise, discussion groups (books, films, current events), holiday/birthday celebrations and local outings. Not only are these social activities provided, but participants of the program can also develop lasting relationships with staff and other participants. Adult day care centers also provide meals and health services. Adult day care centers differ from other programs for elderly individuals, because they allow the participants to develop and increase self-awareness by encouraging independence.

Amanda describes her experience as a volunteer at her local adult day care center. She stated, “ I was involved in planning the activities for Thursday afternoons. I wasn’t sure what kind of activities my older friends would enjoy so I had them share their favorite activities they participated in when they were my age (23). I soon realized that I was hearing the most fascinating stories of hopping trains, college dances, swimming in the lake, etc We decided Thursday afternoons would be spotlights of each individuals’ lives as a twenty-something. One of the participants told me that Thursdays became a highlight for her week.”

Adult Day Care Centersand Senior Citizen Centershelp to provide an elderly individual the opportunity to participate in social support activities. Social support activities found in these programs can be beneficial to a person’s quality of life and overall satisfaction. With a higher self-awareness and quality of life an individual can reduce the risks of mental and physical health problems as they age.




The Garner Law Firm assists clients in Arlington, Texas as well as Mansfield, Fort Worth, Hurst, Bedford, Euless, North Richland Hills, Colleyville, Southlake, Grapevine, Coppell, Irving, Grand Prairie, Dallas, Duncanville, Cedar Hill and other communities in Tarrant County, Dallas County, Denton County, and Collin County.



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