Wealth Management Blog

Posts tagged Estate Planning

What to Know About Being Trustee Over Family Assets

By JJ Burns

December 5, 2018

Being appointed a trustee over family assets can feel overwhelming if you aren't familiar with the ins and outs of family trusts. First things first; don't panic. It's a big responsibility, but nothing you can't handle if you've got the right financial advisor by your side.

So what does being a family trustee mean? In the simplest terms, you're being entrusted with handling the family's assets—bank accounts, businesses, real estate, you name it. This includes managing and distributing these assets in accordance with the grantor's wishes, as well as making good on the trust's tax filings.

Family trusts can take a couple of different forms. The first, known as a testamentary trust, is appointed after the grantor's death. The other is called a living trust, which is exactly what the name implies. This is when the grantor, who's still living, signs family assets over to you. This is a common occurrence, especially for what's known as the "sandwich generation." These are folks who are simultaneously raising children and caring for aging parents.

So why would a family member appoint you as trustee? The biggest benefit is that, after the grantor's death, it allows the family to sidestep the costly and time-intensive probate process. And as Legal Zoom points out, it also preserves privacy—there won't be any public record of your family's assets and debts. Another important feature of a family trust is that it protects beneficiaries, like children or disabled relatives, who aren't able to handle their assets on their own.

Now that you know what a trustee actually does, let's unpack some of the most common hurdles. Again, seeing it all in black and white may feel daunting, but knowledge is power. In my 24 years as a Certified Financial Planner, I can tell you that financial awareness is the first step in decreasing stress and putting yourself back in the driver's seat.

Common Challenges of Being a Trustee

The thing about managing a family trust is that—in money and in life—there are a lot of moving parts to consider. In addition to the actual assets, you also have to think about the well-being of the beneficiaries you've been tasked with protecting. After one parent passes away, for instance, you may have to take over the family trust for the surviving parent who's also battling dementia or another degenerative disease that leaves them unable to handle the task.

This is tricky because, well, you're human! In addition to grieving the loss of a parent, the responsibility of caring for other close family members likely weighs heavy on your heart. The same goes for similar situations, like acting on behalf of a disabled sibling. The crux of the problem here is the complexity of juggling these two components—the financial responsibility and your emotional health. One bit of consolation is that this is completely normal and to be expected.

This is precisely why outsourcing the task to a qualified third party is often the best way to go. At JJ Burns & Company, we act as impartial facilitators who are 100% guided by fiduciary duty. In other words, we do right by the grantor and carry out their wishes so that their beneficiaries are cared for as intended—no conflicts of interest, no drama. Every family has their share of baggage, old grudges, and decades-long dynamics. It's simply part of life, but it can create a real headache for those who are handling a family trust. Partnering with a third-party facilitator protects those relationships and takes the pressure off the trustee.

Whether you choose to manage it yourself or team up with a financial expert, a few tasks should be at the top of the to-do list. Chief among them is getting an accurate valuation of the estate as a whole. And through every step of the process, honesty and transparency should always reign supreme.

It's also in everyone's best interests to create some liquidity from assets from the get-go. To put it another way, which assets can be easily liquidated to free up cash for immediate financial responsibilities, like taxes?

Your Action Plan

The first order of business is putting together a competent team of professionals (a financial advisor, CPA, and attorney) to help you shoulder the responsibility. This will help eliminate any conflicts of interest so that you can truly act as an independent facilitator of the trust. From there, it's about really understanding each beneficiary’s needs versus wants.

Prior to becoming a trustee, for example, a sibling may have grown accustomed to an over-the-top annual allowance from your parents. But taking the financial reins may reveal that this isn't sustainable over the long haul, so appropriate changes need to be made to preserve the estate's longevity. This requires making well-informed decisions that are based on the facts, as well as the parameters of the trust. Above all, advisors can help guide the trustee every step of the way.

Keep the lines of communication open so that beneficiaries can articulate their needs and wants. And be sure to revisit your family's values as needed so that you're really preserving the grantor's legacy and wishes. If you get ensnared by financial details, it's easy to lose sight of what matters most—family. Throughout your journey as a trustee, come back to your family values again and again to help guide you.

At JJ Burns & Company, we understand the complicated family dynamics that come into play here. We're also well-versed in the many financial nuances and tax responsibilities that go hand in hand with taking over a family trust. With the right team behind you, the road ahead doesn't have to be a bumpy one.

No Will? Don’t Make Prince’s Mistake

By JJ Burns

May 13, 2016

David Bowie and Prince both had much in common—an international career as talented musicians, performers and actors; and sadly, untimely deaths this year (January and April, respectively). But possibly the most significant thing they didn’t share were wills. While Bowie had an estate plan and a will, Prince reportedly died without one.

We understand that discussing financial matters for some people is difficult—and that contemplating what will happen when you’re gone can be even more unpleasant. However, without proper planning, you stand to lose a significant amount of the value of your estate to state and federal taxes, not to mention legal fees. It’s estimated that Prince’s $300 million estate will pay $120 million—or more—in taxes.

Consider this: without a directive after your death, a judge could award your spendthrift step brother (whom you never liked) an equal share of your hard-earned assets as those awarded your children. Or, your alma mater may not be able to help fund the scholarship that was so important to you.

A comprehensive wealth management plan will give you the power to live the life—and pass on the life—that you want.

Officially Intestate

The legal term for dying without a will is “intestate.” Depending on the situation, it can be a lengthy, difficult process to sort out if you are managing it for a family member or friend—or if they are managing it for you.

To save effort, it’s key to understand what assets are not passed through in a will. These are assets where beneficiary(ies) are assigned or where there is co-ownership, and can include:

  • Life insurance policy proceeds;
  • Retirement plan funds in IRAs, a 401(k) or other retirement plans;
  • Assets held in a living trust;
  • Joint tenancy or community property funds with right of survivorship, such as real estate or bank accounts;
  • Funds or property held in a transfer-on-death account.

States Rule Over the Feds

The federal government has a specific tax percentage they levy on the amount of an estate. But what every state requires for probate and levies for taxes is different.

Generally, spouses, registered domestic partners and blood relatives will inherit under a certain state’s intestate laws; unmarried partners, friends and charities are not eligible to receive an intestate distribution. If there is a surviving spouse, he or she usually receives the largest portion of the estate. And if no relatives can be found, without a will, the state becomes the heir and takes any remaining assets.

In the case of Prince, who was divorced and had no living children, his one full-blooded sibling and five half-blooded siblings will all share in his estate.

Special Considerations

If you have minor children or loved ones with special needs, it’s especially important to have a will and other estate planning instruments in place to care for them. You don’t want to leave important guardianship decisions up to a judge who knows nothing about you, your family nor your wishes.

The Bottom Line

A will for anyone at the minimum is essential. A comprehensive estate and financial plan is even better. Changes in life invariably happen so make sure your plan is up to date. If you don’t have one, talk to us today.

3 Creative Ways to Make Your Donation Count – For You and Them

By JJ Burns

December 28, 2015

You’d like to make a major gift, and want to maximize the donation to help both you and the charitable organization. Maybe you own a piece of artwork or an item that would complement a collection. There are ways to make a donation that still allow you to enjoy the piece yourself.

Maybe you want to build or maintain a lasting legacy centered around your family values. You can involve your children and create a generational plan that will outlive you.  When considering donations, there may be some options you might not have considered for your planned giving. Your assets can help more than charitable organizations and your taxes— they may also help your heirs now or later.

Donor-Advised Fund

One of the fastest-growing vehicles for donating to philanthropies is the donor-advised fund or DAF. This is an alternative to a foundation. Typically, you make contributions with appreciated property, like stock shares and receive an immediate tax benefit. You avoid capital gains tax and get a charitable deduction for the value. Over time, you recommend grants from the DAF account.

You can make contributions to the account as often as you like. The gifts to the donor-advised fund can be invested and they grow tax-free while they are in the DAF.

DAFs can be set up and personalized to reflect your interests and values.   You can choose the name of your DAF to reflect your intention, such as “The Jones Family Fund for The Learning Disabled.” You can also choose a name that keeps you anonymous.

Want to make it a multigenerational family affair? Your children or family members can be involved as long as they are at least 18. Children or successors of your DAF may learn the importance of getting involved in a charity as well as the virtues of gratitude and humility.

Charity Lead Annuity Trust – “CLAT”

A charitable lead annuity trust or CLAT can give your charity regular donations and provide assets to your heirs.  By shifting investment assets into a CLAT, a Trustee whom you choose, can make a series of annuity payments over a number of years to one or more charities. At the end of a fixed time period the remaining assets are distributed to your heirs. The amount you deposit into a CLAT could provide you a significant tax deduction in the current tax year.

An example could be a 20-year CLAT set up from a large stock distribution or business buy-out. You want the annuity payments to benefit a cancer clinic over the next twenty years, after which  your heirs receive the remaining assets.  The benefits you receive are a significant present value tax deduction on the day the CLAT is funded, minimizing the size of your current estate and facilitating the passage of assets to the next generation.

In times of lower interest rates, CLATs are more popular because the present-value tax benefits tend to be greater. Keep in mind there is flexibility and a fair amount of customization to fit your needs in charitable trust planning.

Tangible Property

An ever-popular donation is tangible property. But don’t think there’s only one way to donate, and that the donation ends when you deliver it to the organization.

By working with your financial team and the charity, you can make a mutually-beneficial arrangement. One example could be a piece of artwork, say a painting or sculpture. By working together, you could make the donation but still get to display the piece on certain dates each year at your home.

This “fractional interest” in the property may accommodate your schedule. The time frame can be established in increments. Let’s say you contribute a 75 percent fractional interest in your fully-restored classic luxury car to a motor museum. You could retain custody of the vehicle three months of the year, while they display it for nine months.

Evaluate the Charities

It’s a good idea to do some research when choosing a charity for your donation. Making a site visit to the location can give you a better understanding of their mission. Remember you can direct or restrict your donation to any part of the charity you feel it is important to help. You should also speak with employees, administrators, and other donors. Don’t be afraid to ask questions or get involved.

You can also get an outside view of the charity through a growing number of online organizations. They track a variety of non-profit information, including their IRS filings, revenue and expense data, boards of directors, balance sheets, and annual reports.

Some of the most popular charitable information services are GuideStar.org, the BBB Wise Giving Alliance (Give.org), and CharityNavigator.org. Some of these online guides supply access to data, while others rank charities according to standards listed by each group.

Discuss Your Options

Don’t get frustrated thinking there are limited options for planned giving. There are many ways to make a lasting major gift to the charities of your choice. These donations can help those organizations while also helping you and your heirs.

As with any estate planning techniques mentioned above, it is vital to consult with your wealth management team inclusive of a qualified estate/trust attorney and an accountant.

Contact us to see how you can reach your charitable goals while also receiving tax benefits and creating a lasting legacy.

What the Academy Awards Has to Do With Your Financial Planning

By JJ Burns

February 22, 2015

Joan Rivers, Robin Williams, Philip Seymour Hoffman and Mike Nichols. They’re all industry legends. We’ve been entertained by them for many years and miss their unique talents, wit and spirit.

They were incredibly talented, creative—and most would assume financially successful. However while bringing home or being nominated for that elusive Oscar—some may not have won an award for their financial planning.

The old adage about death and taxes rings true—and no matter what your profession or income, life can be complicated. Whether you’ve had a long-enduring relationship, kids, several spouses, just as many houses and businesses (and did we say grandkids), without a solid estate plan in place, all your hard work can be for naught without some financial forecasting.

Time is On Your Side

The earlier you plan and the earlier you save, the better you are able to face financial downturns. Joan Rivers and Mike Nichols had time on their sides to build their incomes over long careers, as well as solid financial plans in place. They created strategically designed business and estate plans (not to mention having adult children) which made the transfer of assets at their deaths that much easier. Philip Seymour Hoffman and Robin Williams had different family situations that may have made their estates a bit more complicated.

Of course, no one wants to think about what happens “when I die.” However, planning for the expected—as well as the unexpected—will help give you a greater peace of mind.

Ways to Take Action Now

So what can you do now to help secure your financial future? Here are five suggestions to shape your strategy.

  1. Leave a legacy that reflects your values and priorities. This is usually created in the form of a trust, and is an opportunity to tell your story. There are a number of ways to have your wishes heard and directed through financial planning. Also, homes and businesses owned within a trust may be protected from certain liabilities and can be afforded tax advantages.
  2. Consider the differing needs and situations of your loved ones. Every family is different. You may wish to pass on your business to your children, set up educational funds or care for a special needs relative.
  3. Streamline your estate management. Estate taxes, plus federal and state taxes can eat up your assets quickly if you don’t plan ahead. In 2015, personal estate tax exemptions are $5.43 million per individual. With professional financial planning, you can avoid the hassle of probate and the time it would take for your heirs to resolve your estate.
  4. Maximize your charitable giving. Many people wish to leave a legacy for their families as well as to community organizations. From donor-advised funds to charitable planning, you can maximize the impact of your donations.
  5. Make plans for the unexpected. An important part of financial planning is to specify your end-of-life preferences. While some people may find this a bit morbid, it’s good to know that you can have control over your estate, your medical treatments, who can help make decisions and other vital issues before you need them. A living will combined with an advanced health care directive can take care of most of these basics.

Enjoy the Academy Awards—and give yourself an award for whatever you do best. Everyone’s situation changes throughout the years—marriage, divorce, death, birth, new job—and that’s just the first level of what to consider. Now is the time for a quick financial planning checkup to learn more about how to make your plans for the future a reality and create the legacy you wish to leave.

Roundup of New Estate Tax Changes

By JJ Burns

April 8, 2013

For more than a decade, estate planning has harkened back to the “wild, wild west,” a time when even the best hired guns didn’t know what would happen next. Now, finally, there’s more certainty, thanks to the estate tax provisions in the American Taxpayer Relief Act (ATRA). The new law, signed as the country teetered on the brink of the “fiscal cliff,” extends several favorable tax breaks, with a few modifications.

Before we explore ATRA’s main provisions, let’s recap the events dating back to 2001, the year the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) was enacted. Among the changes, EGTRRA gradually increased the federal estate tax exemption from $1 million to $3.5 million in 2009 while decreasing the top estate tax rate from 55% to 45%. It also severed the unified estate and gift tax systems, creating a lifetime gift exemption of $1 million unrelated to the estate tax exemption. Then the law repealed the estate tax completely, but just for 2010. After that year, the estate tax provisions were scheduled to “sunset,” restoring more onerous rules that had been in effect before EGTRRA, unless new legislation dictated otherwise.

The Tax Relief Act of 2010 generally postponed the sunset for two years. It hiked the estate tax exemption to $5 million (indexed for inflation), lowered the top estate tax rate to 35%, and reunified the estate and gift tax systems. That law also allowed “portability” of exemptions between spouses.

Now, at long last, ATRA brings permanent clarity. Here are the key estate changes:

  • The estate tax exemption remains at $5 million with inflation indexing. For 2013, the exemption is $5.25 million. Also, portability of exemptions between spouses is made permanent, so a married couple can effectively pass up to $10.5 million tax-free to their children or other non-spouse beneficiaries, even if the exemption of the first spouse to die isn’t exhausted.
  • The top estate tax rate is bumped up to 40%. Not as low as the 35% rate in 2011 and 2012, but still better than the 55% rate slated for 2013 prior to ATRA.
  • The estate and gift tax systems remain reunified. This means that the lifetime gift tax exemption is equal to the estate tax exemption of $5.25 million in 2013. (That’s now the maximum exemption for combined taxable lifetime gifts and estate bequests.) Other provisions, including the generation-skipping tax that applies to most bequests and gifts to grandchildren, are coordinated within the system.

As a result of these changes, now is a good time to examine wills, trusts, and other aspects of your estate plan. Depending on your situation, revisions may be required or you might create a new trust to take advantage of the current estate tax law.