Specific Philanthropic Tools for Life, Death and Perpetuity

Depending on when donors envision giving, there are several types of donations to consider as part of the traditional financial and estate plan:

Direct transfers:

Gold Bars ImageDirect transfers are gifts given during a donor’s lifetime and consist of checks, cash, gold, etc. Donors give directly to the organization/institution and work directly with fundraisers at the institution. Direct transfers involve fewer legal issues and tax problems or knowledge regarding tax codes. ( Source: Ann Kaplan. 2010.”Philantropic Planning” Smith College, October 20, presentation)
 

CRUT (Charitable Remainder UniTrusts)

CRUT are donations which combine lifetime income with charitable donations, i.e., they combine annuity payments to the donor with a charitable contribution. These gifts are one of the most tax efficient ways of donating money to an institution. The grantor makes a contribution to the Trust and receives a tax deduction (based on a Treasury calculation regarding the amount to be left to charity).

The trust is usually funded with low basis assets because the sale of the stock within the Trust does not trigger capital gains taxes. The beneficiary of the trust receives an annuity. Taxes are paid by the beneficiary only when funds are withdrawn from the CRUT. Assets remaining after the life of the Trust go to charity. [Source: Ann Kaplan. 2010.”Philantropic Planning” Smith College, October 20, presentation]

CLAT (Charitable Lead Annuity Trusts)

CLAT combine wealth transfer to heirs with charitable giving and are another tax efficient way of donating money to an institution. They are comprised of the remainder of the estate after the heirs receive a specified amount and allow the donor to make a contribution to a trust and receive an immediate tax deduction.

An annual amount, established using the treasury rate in effect at the time the CLAT is established, would be paid to the institution. The difference between the charitable annuity payments and the investment results will transfer to heirs at the termination of the CLAT. During life of CLAT, annuity payments are distributed to charitable vehicles or institutions as scheduled when CLAT is established. (Source: Ann Kaplan. 2010, “Philanthropic Planning,” Smith College, October 20, presentation.)

 

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning. She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about. Annino recently released an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime. To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

Donor Education – Why Effective Donor Education Programs Are Important

Give sign image, estate planning

Image by Jello Fishy

One of the most effective ways to educate donors and help them achieve financial literacy is through sustained and focused donor education programs. The process of understanding the power of philanthropy and how it works best for a donor’s goals and objectives takes time. When donors learn together, share their ideas and understand what other donors have done and are doing, they become more comfortable with the process.

Donor education programs which focus on philanthropy and related topics, such as financial issues for women, can teach both men and women how to achieve the joy of giving while living. Your institution can incorporate into the donor education event faculty and student presentations which integrate messages into the mission of your institution. These programs can help differentiate/distinguish your institution and create deeper relationships with donors, alumnae, and alumni spouse (Women’s Philanthropy Institute 2009, 15). (8)

Effective donor education, combined with financial literacy, can also provide networking opportunities. Associating with women of similar financial standing increases their willingness to use their money to leave a legacy. This is especially relevant for women who are learning to be comfortable with their wealth. Many baby boomer women in this country will inherit twice—once from their parents and once from their spouse. Nevertheless, donors will not give until they know that they can take care of themselves first. As an estate planning attorney, the most common question I hear from a new widow is, “Do I have enough money to live on?” (Of course that question should be asked many years before that moment in time.) Taking the time to systematically educate your women donors, to help them achieve financial literacy, to teach them that by gifting they can reap both current and future rewards will help empower them to act when they receive their “double inheritance.”

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning. She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about. Annino recently released an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime. To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

Don’t let clients overlook these key estate planning issues

estate planning, estate planning tipsClients tend not to want to deal with estate planning until they absolutely have to. In my 30 years of practice, I’ve found that the two most common times clients revise an estate plan are when a vacation is coming up and when a friend or family member has just died or received a bad diagnosis, leading the client to contemplate his or her own mortality. But both of those events are the wrong time to do proper estate planning. It is very difficult to plan when facing a medical emergency, sudden illness, or recent death in the family, and it’s equally difficult to do proper planning when the client just wants a quick fix before he or she gets on a plane.

For these reasons, it may be helpful for you to bring up certain key issues with clients who are on the fence about estate planning, so that they can visualize the consequences of not having an up-to-date plan. One way to do so would be to hand them this column before you begin working with them.

  1. Health care proxies. All members of your family who have attained the age of majority should have signed and updated health care proxies or health care durable powers of attorney. It is also a good idea to list the cellphone numbers of all relevant people on these documents and to give copies of them to your health care agent (the person designated by the health care proxy to make health care decisions) as well as one or two and backup people so that they can be easily accessed.Having a health care proxy is especially important if you have children going off to college. Under Health Insurance Portability and Accountability Act (HIPAA) privacy rules, once a child attains the age of majority, his or her parents cannot access the grown child’s medical information without permission.

    Without a signed health care proxy, you will not able to make medical decisions for your child in the event he or she is unable to make them.
  2. Guardians or conservators. As you age, you need to decide who will be in charge should you lose the ability to handle financial affairs. A durable power of attorney can be used to handle financial affairs should you become disabled or incapacitated.However, even if you have a valid durable power of attorney in place, there are certain situations where protective proceedings must commence for someone to be appointed your guardian or conservator. The durable power of attorney can include a provision that nominates this person.

    Note that the nomination is just that: a nomination, not an appointment. But, should protective proceedings commence in court, the court is obligated to notify the person or persons you named as guardian or conservator that the proceeding is underway and that they have been nominated. In my experience that gives you a fighting chance that the person you nominated will be the person who serves in that capacity. (This is especially important if you’re worried that your family members may dispute your guardianship or if you’re in a nontraditional relationship or a second marriage.)
  3. Durable powers of attorney. Retirement planning assets (such as IRAs, Keogh, etc.) are owned by the plan holder. Without a durable power of attorney, no one automatically has the power to make investment decisions, take a hardship withdrawal, or roll the asset over for you should you become disabled or incapacitated. This is true even if you’re married. However, if you’ve established a durable power of attorney and given the attorney-in-fact (the agent) the authority to deal with the retirement planning asset, then the attorney-in-fact will be able to take those actions.Likewise, while you’re alive, you are the only person who can transact any real estate you own (including any jointly owned real estate). No one else automatically has the right to handle your assets. This is true even if you’re married and own real estate jointly with your spouse. If you and your spouse jointly own a piece of real estate and you become disabled, that asset is frozen unless you have given someone the legal authority through the durable power of attorney to deal with it.
  4. Updating the entire estate plan along with a will or a trust. If changes are made to a will or a trust— such as a change in beneficiary—it is important to make sure you coordinate your entire financial picture alongside those documents so that the plan remains integrated.
  5. Periodic revisions of the estate plan. In general, you should revise your estate plan at least every five years. Other times to do so include death, disability, divorce, marriage, the birth or adoption of children, the serious illness of a beneficiary or named fiduciary, a substantial increase or decrease in the size of your estate, the purchase or sale of a business, significant gifting or lending of money to a child, change of residence, or the purchase of real estate in another jurisdiction. Changes in the tax laws may also necessitate that you revisit your estate plan.It is a challenge for all of us to think about estate planning when there is no immediate reason to do so. It is very easy to put it off planning for one more day—then one more day. But life can be unpredictable. You don’t want to have to deal with a death, serious illness, or other unforeseen event without a proper estate plan in place. The time to secure that plan is now.

 

Source: http://www.journalofaccountancy.com/newsletters/2015/oct/key-estate-planning-issues.html

 

 

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning. She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about. Annino recently released an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime. To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

Ten Steps to Great Philanthropy in Your Estate Plan

  1. Understanding your basics- you can’t give until you know you are taken care of yourself. Take inventory – what is donation imageyour net worth? Income, debts, cash flow? Emergency reserve? If you become disabled what happens? If someone you are entwined with becomes disabled or dies how does that impact you? Are you protected financially in the way you should be? Are those who depend on you protected in the way they should be if you become disabled or die?
  2. Assemble the right team of advisors to help you in the process.
  3. Own the responsibility to educate yourself- read books, take online classes, join groups.
  4. Correct any weaknesses that turned up in the review above- put in adequate insurance (long term care insurance, disability, life insurance), make any adjustments to investment portfolio, retirement projections that are highlighted because of review.
  5. Put any legal documents in place to make your financial plan congruent- health care proxy, durable power of attorney, will and trust.
  6. Review your plan and determine what your philanthropic spending should be – this year and for the future.
  7. Spend some time and write a one page philanthropy mission statement (by yourself or with spouse/family) on philanthropic goals –what do you believe in? What do you want to achieve? What organizations are congruent with that? Evaluate your statement –is it consistent with what you have been doing in the past? Is it bold enough for the future? Do you know organizations that are in line with your mission? Are you involved with them? Do you wish to contribute to one cause/organization or many?
  8. Educate yourself on the choices- read books, attend workshops given by community foundations, take online classes.
  9. Give this year’s donation and commit to a more integrated plan.
  10. Annually review where you have been and where you are going by repeating steps 1-7. If there is a life change – divorce, disability, illness, unexpected expense, business failure, lottery winning, significant increase in salary, no more tuition payments take that into account and make appropriate adjustments.

Do I have a giving plan? How did I create it? How do I assure myself that I make a difference?

Yes, my core financial contribution is geared towards education because I believe that it is the most important root cause of change and empowerment. It began when my aunt who was my best friend died of cancer and I was thinking of how to remember her so we started a scholarship fund in her name at the law school she and I went to- it is for women who are working and attending law school (which is what she did). Each year I add to it annually and my goal is to build it up to real significance by the time I die- and if by chance I die before my time I have a life insurance policy made payable to it to insure its continued success.

Thoughts on anonymous gifting, being prepared to inherit from parents and spouses, passing values about philanthropy to the next generation.

Some people chose to make gifts anonymously – this can be to be private, so their names as donors are not revealed, so they are not deluged with requests. If privacy is important then that should be made clear and understood at the beginning – it is easy to start off anonymous and become more public and much more difficult to start off public and become anonymous.

Women need to directly enter the conversation with their parents, spouses and children about financial/estate planning and philanthropy.

It is hard to think about that vital conversation and women have to remember that they are pros at taking care of everyone else. They need to remember what the flight attendant says every time you get on the plane- if the barometric pressure in the cabin changes and the oxygen mask falls from the sky and you are traveling with a small child put it over your own face first- it is only when you protect yourself that you will have the strength to protect that child.

Anyone taking the time to read this is the most responsible person in their family and they are going to get that call if something happens to anyone else in the family – they must have protected themselves first so that they can instinctively do what needs to be done to protect the others.

If it is difficult to begin a conversation about these topics with your parents or spouse then begin by asking questions that will prompt thought and discussions- have you thought about what would happen if? Hand them articles, newspaper columns, and ask questions.

Life is a movie not a snapshot and as we travel through the phases of life there are certain things that we should be paying more attention to than others- single, married, divorced, widowed, remarried all have different challenges and focal points.

Find and hire the right advisors to help you with those phases. Understand that it is a process- understand what your money beliefs and habits are and why they exist, develop a series of questions to evaluate them and then think about a strategic plan to address them.

Passing values of financial literacy and education and how it is and will become a value in your family is important – especially if it took you years and major events to get to that place yourself. Once you are educated, empowered and act it is essential you build what you have learned into your family discussions and values. This can be informal dinner conversations, discussions of the nuts and bolts of economics- how are you going to pay for your expenses while you are at college? What stocks would you invest in if you had money today? Why? What are the influences at work? Site visits to financial institutions. A trip to the bank, opening and monitoring bank accounts at an early age, on site visits to charities selected by family members, development of family mission statement, a discussion the week before Thanksgiving about what philanthropy means and how time treasure and talent will be used. A family book club. There are many creative ways to introduce these topics and values into the fabric of everyday life and develop “family rituals” that will become incorporated for generations to come.

 

 

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning. She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about. Annino recently released an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime. To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

A Generous (and Unwanted) Gift

people in bed image, estate planning tipsBy MICHAEL BAHLER

My father has always been generous with his money. I didn’t have to pay for college or law school or even for the confused year I spent at Princeton taking graduate courses in sociology.

When my mother was sick, I moved back from Washington to be near her and help with her care. While there, I tried to start a legal-research business, for which my father paid the start-up costs and then the winding-down expenses. Most of the money in my children’s college funds is from him.

He would cover random needs, too, like sending me home after a visit with new boxer shorts, dress socks and Allen Edmonds loafers (size 11½, even though I am a 12). He had bought these things for himself but wanted me to have them and wouldn’t take no for an answer.

“He’s like his mother,” my mother said, smiling. “Except instead of trying to get you to eat food, he gives you underwear.”

As a successful cardiologist, my father can afford to be generous. He never invested in stocks, but he earned a lot and lived a frugal life. Besides buying laptop computers and a Volvo station wagon every seven years, the man buys almost nothing. He doesn’t take vacations or go to Atlantic City.

My sister recently treated him to dinner at a nice restaurant. When I asked him how it was, he said: “Good. But Burger King is just as good.”

After my mother died, my father told me he was giving me his house.

This offer was different, and not just because a house is obviously a big gift.

My father had not slept in my parents’ bedroom since my mother died, choosing a couch in the family room where she spent her final weeks in a rented hospital bed.

In the months since her death, he had not cleaned out any of her things, not even the wig she wore to chemotherapy.

It seemed he was desperate to leave the house to escape the reminders of my mother, but he couldn’t bring himself to sell it because there was too much history.

My two sisters already had houses they were happy with. The only way he was going to get to leave was if I agreed to take it. But my father couldn’t tell me why he really wanted to leave the house, so he made it seem as if he were doing it all for me.

“Your two boys need a house,” he said. “They need a backyard. Your wife wants a house.”

My wife, Jen, had been wanting to move out of our apartment and into a house, and she appraised my parents’ home objectively. It was in a good neighborhood on a quiet street. The backyard was big and level, so our boys could run loose and she wouldn’t have to trek to a playground.

The house was small; my parents had bought it right after my father finished his residency, when they had little money. With few windows and stained wood paneling, it was also dark and out of date. But Jen said if we didn’t have a mortgage we could take our savings and remodel.

To me, it was the house I grew up in and the place where my cancer-riddled mother had just died. And while I may be wearing my father’s boxers, I wasn’t going to move back into his house. I kept telling him no.

“You’re making a mistake,” he would say in a singsong voice.

“So be it,” I would singsong back.

In earlier times it was common for people to stay in the house in which they were raised. But these days leaving home permanently is the goal, and to move back feels like the ultimate failure.

Plus, I had been a high-school misfit with few friends and I still avoided restaurants and other public places in my hometown for fear of bumping into former classmates. I couldn’t see moving to a place where I would have to go into hiding.

And if I took the house I knew I would never be able to sell it because I couldn’t even bring myself to throw out scrap paper with my mother’s handwriting on it.

In February, I called my father to tell him my youngest son had said his first word.

“You’re missing out on a great house,” he said.

“Don’t you want to know the word?”

“It’s got dual-zone heating and air-conditioning. Andersen windows. Solid oak doors and cabinets.” My father had installed the doors and cabinets himself.

When I was a child, my parents were always looking for a better house, and on weekends they’d drag us along to see all these pricey homes. I would fight with my sisters in the back seat and then complain I was bored as we toured each house. If I had known I was looking for a home for my future wife and children, I would have paid much more attention.

“The dishwasher’s still great after 40 years,” my father said.

“No,” I told him.

In May, I called to wish him a happy birthday.

“You know, your son would do much better in this house,” he said.

My eldest was having serious kidney issues at the time.

“It’s all the dust in your apartment,” my father said. “The air is horrible there. You need to bring him to this house. It’s like the country here. You’re harming your son by staying at that apartment.”

My father was a doctor, so I couldn’t totally dismiss his opinion. To be safe, I mentioned his dust theory to my son’s New York nephrologist, who shook her head and looked at me as if I were bonkers.

In July, I asked my father when we were having Mom’s unveiling.

“She’s still in the house, Michael. I can feel her here. She’ll look after you. She’ll look after your family.”

“You think I want to move to a house where Mom died?” I said. “You think that doesn’t affect me also?”

“You could always knock down the house and build something you like,” he said.

“So Mom’s still in the house, but you want me to knock it down?”

“Think about it financially.”

I didn’t want to think about it financially.

“You wouldn’t have to take out a mortgage.”

I put thoughts about not having a mortgage out of my head.

“Why don’t you move to the house,” he said, “and if you don’t like it after a year, sell it and find someplace you like?”

“You’d really let me sell it?”

“It would be your house. That would be up to you.”

I felt as if I was being conned, but it would be a great financial move. Plus, who was to say my father wouldn’t remarry and leave everything to his new wife? The house might be my only chance at an inheritance.

“No, Dad, I can’t do it.”

“Mistake.”

“Don’t you want more for me than to live in that house? Why would you want me to live there?” I was on the verge of tears.

“It’s a great house.”

Over the next year, he kept pushing. I’d be seduced by the positives and then unnerved by the negatives.

Finally he told me he had already given me the house and showed me a property tax bill with both our names on it. Without telling me, he had gone to a lawyer and made us joint owners.

“That doesn’t mean I have to take it,” I told him.

He kept on me until my views began to shift. Maybe he had just worn me down, but the numbers suddenly seemed better, and I stopped thinking about the negatives. Jen and I decided to take the house and we moved in.

In our apartment, I slept on the right side of the bed and Jen slept on the left. But it felt weird to be in my parents’ bedroom sleeping on what was my father’s side of the bed, even though it wasn’t his bed; he had taken that to his new house three blocks away.

I begged Jen to let me switch sides and she agreed. I thought it would be better until I realized I was sleeping on my mother’s side, and that felt equally weird.

“Can we switch back?” I asked.

She moaned and I crossed over her.

I stayed there for a while and then inched toward the middle, where I had sometimes slept as a child when my parents let me come in after I had a nightmare.

I woke the next morning splayed across the bed, feeling anxious and unsettled. But then the sunlight beamed at me through the blinds, and I heard my two boys frolicking in the hallway, happily oblivious to history.

Time to put on a pair of my father’s boxers and start my new life.

Michael Bahler, a writer, lives in New Jersey.

Source: The New York Times www.nytimes.com

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning. She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about. Annino recently released her new book, “It’s More Than Money, Protect Your Legacy” available at Amazon.com. To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

Family Business Magazine Reviews “It’s More Than Money – Protect Your Legacy”

Its More Than Money CoverI am pleased to announce that the January/February issue of Family Business Magazine (http://familybusinessmagazine.com/) includes a wonderful review of my latest book, “It’s More Than Money – Protect Your Legacy”.

Written by Barbara Spector, it indicates, “The book also presents advice on risk mitigation, including strategies for protecting the family’s reputation on social media, questions to consider when deciding whether to make gifts to heirs, and the advantages of prenuptial agreements. In addition, the book offers information on achieving philanthropic goals.”

She really got the essence of exactly why I wrote the book. Click here to read the entire review!

How CPAs Can Help Clients Address the Number One Planning Obstacle

holding paper cut-outs, estate planningFinancial planners can help clients as they determine who should be named their children’s guardians in the event of the clients’ death.

As an estate planning attorney with 30 years’ experience, I can say with confidence that the No. 1 planning obstacle that couples with young children face is deciding who will be named the children’s guardian if the parents die. CPA financial planners can play a role in this crucial decision by helping clients work through issues such as the financial status of the prospective guardian, how the guardian will be compensated, and whether to name a trustee.

First things first: When counseling estate planning clients with young children, be sure they understand the importance of naming a guardian. When clients are reluctant to do so, I point out that a guardian would then have to be chosen by the court in the event of their death—and it might not be the person the client would have preferred.

Financial considerations

There are numerous considerations when it comes to choosing a guardian. While many may not involve input from a CPA financial planner, some could. For instance, clients may want to consider a potential guardian’s financial status and whether the guardian will be able to provide the lifestyle they desire for their children. At a basic level, clients should know whether the guardian they are choosing is financially stable enough to assume this new responsibility.

Prompt your clients to think about additional expenses that may occur if they die unexpectedly. In my decades of practice I have never seen any family spend less money after a family member’s death. They always spend more. Guardians’ income can be reduced if they take time off from work because of exhaustion or the need to care for other family members. At the same time, they may incur heavy counseling bills and spend money on activities meant to “blend” the two families, such as summer camp or vacations. If your clients want to “create” wealth to provide for the financial needs of their children (and perhaps the children of the adopting family as well), it may be prudent for them to purchase life insurance.

Do your clients need a trustee?

Clients should also consider having another person or institution serve alongside the guardian as trustee. There are several reasons why appointing a trustee is a good idea. First, the people your clients think will take the best care of their children may not be the best at handling money, so they may want to give that responsibility to someone more financially literate. Plus, guardians are often under a great deal of stress, as many are raising their own children as well as their deceased relatives’ kids, and they may prefer to have someone else make the financial decisions.

Guardians are also not always able to make disinterested decisions about their relatives’ children’s money. After the unexpected death of someone with minor children, there are many stressful decisions to be made: How should guardians be compensated? How should any changes to their house to accommodate deceased relatives’ children (such as an addition) be financed? If the clients’ children can afford to go to private school but the adopting family’s children cannot, should funds be made available for those children, too? Guardians tend to make decisions such as these with an eye to minimizing their own children’s resentment and helping their new, blended family become a unit. Trustees, however, can be more impartial and make decisions that make the best financial sense.

Should both members of a couple be named guardians?

Clients should consider whether to nominate one person or a couple as guardians. If they want to choose the wife’s married brother as guardian, for instance, they must decide whether to name the brother alone or both the brother and his spouse as guardians. In my experience, it is better to name both members of a couple as guardians. That way, both have the legal authority to access school records, attend parent-teacher conferences, and make medical decisions for the children. Difficulties and resentments can arise if one member of a couple has personal but not legal responsibility for a child’s welfare.

Clients should also revisit their choice of guardian as their children grow, because the proposed guardians’ financial status may change and because children’s needs vary greatly from one stage of life to another. The nurturing adoration of a grandparent that makes a 4-year-old feel loved and secure may suffocate a teenager, for example. At some ages a child may feel that being able to continue living in the same neighborhood with the same friends and going to the same school is more important than living with a beloved aunt and uncle. It is important that clients understand where their children are emotionally now and determine who would be the best choice to care for them if something happened in the next five years.

Any estate plan designed for the parents of minor children will have to take technical, financial, legal, and psychological components into account. A skilled financial planner will combine technical skill with emotional sensitivity to help his or her clients craft a plan that brings them all into balance.

 

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning. She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about. Annino recently released her new book, “It’s More Than Money, Protect Your Legacy” available at Amazon.com. To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

Case Studies – Estates & Family Values: The Ghost of Authority

An elderly couple I had been representing for 10 years came to my office with a family dilemma. One of their sons Family business image, estate planning tipshad quit the family business a few years before, gone to work for a competitor and lost his job. He still owned stock in the family business and wanted his job back. The other children in the business did not want to let him back in, and the parents came to me to find out what his legal remedies were and how they could facilitate a solution.

A red flag went up when I heard that he was no longer working in the company but still owned stock. Another red flag went up when I heard he had been let go by the competitor. The mother felt he should not be able to go back to the family business as he had left it, and the other children did not want him back. The father, who was no longer the head of the family business but remained the authority figure, remained quiet.

They asked me if all of the children could come into the office and talk with me and with the parents. I agreed to that. The son who wanted to be employed again did not attend. He was suspicious of the meeting.

During that meeting the other children told me emphatically that the entire time he worked in the business he was trouble. He felt he knew more than anyone else and was difficult to get along with. He walked out the door for more money when the company was having a difficult time, and under no circumstances did they want him back. The children had two issues – they wanted him to sell his stock back to them, and they believed that because their father did not tell him that he could not come back, it did not matter what they said; he was going to believe he still had a chance to be employed again.

The father was in that meeting and still would not say that the son could not have another shot at employment. The father felt bad that he was having a hard time supporting his family. It became clear to me in that meeting that this was not a sandbox I could be or should be in. I represented the parents and this was not an issue that dealt with them directly.

I did see the ghost and it was the ghost of authority. The father had merely a vestige of the authority he once had, but that was enough to keep the game in suspense. Everyone was waiting for him to take action, but his age and his switch from business to fatherly concerns had benched him. I felt it was unlikely he was ever going to be able to do it. The family was stuck and no legal mechanism would unstick it.

I referred the family to a psychologist who worked with the father, the children in the business and the son who sought re-entry. He was able to bring the ghost of authority to light and open up communication among all family members that led to an acceptable resolution. The son was cashed out and is now otherwise employed. All family members still speak and spend holidays together. Although the parents came to me for legal guidance, this was not a legal dilemma.

As the population ages and as we live longer with reasonable levels of mental competence, the ghost of authority may become more prevalent and very real – particularly in families of first generation wealth where the wealth has been created by a very strong, controlling patriarch or matriarch. The issues pertaining to when that person should no longer have the “final say” are complicated. It is very difficult to change the “movie script” and switch the lead actors to supporting roles. In many such families there is not room for discussion until the older generation begins it, and therefore the older generation’s understanding that the conversation has a time and a place is critical to sustainable legacy.

 

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning. She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about. Annino recently released her new book, “It’s More Than Money, Protect Your Legacy” available at Amazon.com. To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

Estate planning for the 99%

12-16-14_Estate_Planning_for_the_99Here are some common estate planning mistakes that most clients make—and how to avoid them.

The relatively recent increase in the federal estate tax exemption (to $5 million, indexed for inflation) means that many more people are under the mistaken impression that they do not have to plan their estates. It is important to remember that no matter the client’s net worth, a goal of estate planning is to be sure that the proper documents are in place and that the plan is coordinated. With that in mind, let’s look at a few common mistakes and their remedies.

       
  1. Outdated or unsigned estate planning documents
  2. I can’t count the number of times people have walked into my office with documents they thought they had signed but actually never did. Or they walked into my office with documents that are several years old. The typical reasons for their behavior include an inability to face death or a denial about the possibility of their own demise; the Scarlett O’Hara rationale—“I’ll think about that tomorrow”; lack of desire to pay an attorney to review or revise documents; or an inability to make a decision on a fiduciary choice such as who will serve as the guardian of minor children, or as an executor or trustee.

    The CPA is the gatekeeper of all financial information and, for the most part, is meeting with or speaking to the client at least once a year. It is wise when discussing tax returns to lead the discussion to financial planning topics, including estate planning. (The AICPA PFP Section provides free resources to help CPAs add financial planning to their current practice.) A coordinated financial approach serves the interests of the client and the adviser.

       

  3. Lack of complete beneficiary designation forms
  4. Twenty-five years ago, most clients owned the bulk of their assets in their individual names. At death, those assets passed through the terms of a will to the named beneficiaries. Times have changed. For many clients, a significant amount of their net worth is not held in their individual names and does not pass under the terms of a will but rather by contract to the heirs. Assets that pass by contract—and therefore by designation of beneficiaries—include life insurance, annuities, and retirement planning assets.

    Many clients fill the form out with a primary designated beneficiary when they open an account or start employment and then never revisit that form. It is important to review it when there is a life change—marriage, divorce, death of a spouse or loved one, or the birth or adoption of children—and when there is a change in how the client wants the assets disposed of. For example, if a client wants to donate assets to a qualified charity, the best way to make that transfer may not be through a will or trust, but rather through the designation of a beneficiary of the tax-deferred asset. That’s because a qualified charity can receive those funds free of any income, gift, or estate tax.

       

  5. Lack of understanding that a transfer for insufficient consideration is a gift
  6. It never ceases to amaze me how many clients believe that “selling” real estate to a child for consideration of $1 is a sale and not a gift. The lack of understanding that the transfer was a taxable gift can wreak havoc on the plan and on the composition of the taxable estate.

    We now live in a transparent world. It is very easy for estate tax examiners to access a registry of deeds website and track the history of land transfers. Today, it is routine for an examiner to do just that.

    Recently, I was involved with an audit in which the examiner, through a national database, delivered to our office a very thick package of all the parcels of real estate throughout the country that the client had owned during his lifetime. The package included deeds to him and deeds from him. The examiner sent a summary letter asking for the details of each transfer: What was the fair market value? What was the consideration for the transfer? Were the parties related? What happened to the proceeds?

    The lack of comprehension—that a transfer for less than consideration is a gift, or at least a gift sale, and that it has consequences for the estate tax—also has ramifications for the preparer of the return. It is therefore prudent when preparing gift and estate tax returns to make a thorough inquiry as to each piece of real estate the client purchased, sold, or transferred.

    With the significantly increased federal exemptions, it is also important to understand the tax consequences of a gift transfer. As a reminder, if an asset is gifted for $1 and removed from the client’s taxable estate, the donee inherits the donor’s income tax basis in the property. If instead the property is transferred to the donee beneficiary at death through the estate plan, then it is fully included in the decedent’s estate and the heir receives the full, stepped-up income tax basis in the property, even if there is no federal estate tax due. The state estate tax consequences should also be fully explored when deciding whether it is advisable to make a gift during life or at death.

       

  7. Not understanding the consequences of jointly owned bank accounts

Many people add another person’s name to a joint bank or investment account for a reason that may sound good at the time. For example, an elderly parent may add a child’s name to those accounts as a matter of convenience.

Siblings who co-own a vacation home may also open a joint bank account. There are several types of joint accounts.

If an account is held jointly with a right of survivorship, then at the death of one owner, the other owner receives the account. An account that is joint only for convenience may not be intended to pass to the surviving joint owner, but rather be added to the assets that pass through the probate estate. Whether a joint account is one of survivorship or is instead a matter of convenience can be determined by looking at several factors. These include, for example, how the signature card was completed when the account was opened, whose Social Security number the account is taxed to, whether the other owner used the funds for his or her own purpose or only for the use of the person who primarily established the account.

Joint ownership may have unintended consequences. Consider an example in which a parent adds a daughter to investment accounts and bank accounts. Even if the daughter does not consider those funds to be hers, the daughter’s creditors or a divorce court may view that differently. In addition, holding the funds may affect the financial aid eligibility of the daughter’s children. Or the daughter may predecease the parent after the parent’s incapacity, which can lead to the account being inaccessible for bill payment. Owning joint accounts is something that should be thought through and thoroughly discussed. Alternatives, such as formal trusts, should be considered as part of the discussion.

 

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning. She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about. Annino recently released her new book, “It’s More Than Money, Protect Your Legacy” available at Amazon.com. To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

The Way-Early ‘529’ Gift

Grandparents Can Start a College-Savings Plan Before a Baby Is Born

By Peter S. Green

Photo illustration by John Weber

So you just threw your daughter a big wedding. Now comes the not-so-obvious next step: setting up “529” plans for estate planning, estate planning tips,the future grandchildren.

If that seems like rushing things, think again. With the average four-year price of a private college nearing $165,000 and rising 3.7% a year, anxious families are looking at lots of strategies for helping future grandchildren get a college education. One strategy is to open a 529 college-savings plan and have it start growing years before the future student is even born.

After all, anyone can start a 529, which is funded with after-tax income; the fund’s earnings and principal will be untaxed as long as the money goes to expenses that qualify as higher education. It makes particular sense for older parents with adult children to open a 529, as it helps get the savings ball rolling early. Moreover, if they later transfer ownership of the account to their grown children, both generations can benefit from some gift-tax exemptions.

Benefit Keeps on Giving

Jim Holtzman of Legend Financial Advisors in Pittsburgh explains: If a future grandparent starts a 529 whose beneficiary is the future parent, the grandparent can contribute tax-free up to $70,000—five years’ worth of contributions at $14,000 a year—or up to $140,000 for two grandparents. When an infant arrives with his or her own Social Security number, the parents—or the grandparents who still own the account—can designate the newborn as the beneficiary. Such transfers will likely avoid taxes, though they will eat into the donor’s lifetime gift allowance of $5.34 million.

In addition to increasing the amount of giving both sets of parents can do without owing gift tax, this can help wealthier grandparents reduce their estate below taxable level, particularly in states such as New York and Pennsylvania, where state estate-tax exemptions are far lower than the 2014 federal level, also $5.34 million.

Grandparents and parents can be tempted to maintain ownership of the account to help keep Junior on the straight and narrow. “The advantage of using a 529 is that the account-owner retains control, so when the kid graduates from high school, she’s not going to buy a Harley,” says Nancy Farmer, chief executive of the Tuition Plan Consortium, a group of 277 colleges in 39 states that lets parents (and grandparents) prepay tuition.

But if grandparents hang on to a 529 account, it can hurt a student’s eligibility for aid. Distributions from a parent-owned or custodial 529 reduce federal financial aid by just over 5% of the distributed amount. But distributions from a grandparent-owned 529 can reduce eligibility by half the distributed amount, says Mark Kantrowitz, publisher of Edvisors.com, a website advising on funding college education.

And while grandparents’ assets aren’t considered in aid decisions by state schools, they do figure in some private-college aid grants, says Maura Griffin, a principal of Blue Spark Capital Advisors in New York.

Five Years Ahead?

When is the right time for prospective grandparents to act? Right now, says Cameron Casey, an estate-planning lawyer with Ropes & Grey in Boston. Waiting until a grandchild is born to start a 529 for them can mean years of lost earnings potential.

A 529 plan started with the maximum $14,000 initial gift, five years before a child is born, funded with $500 every month and earning interest at 3% compounded monthly, would yield $226,784 by the child’s 18th birthday. The same plan started at birth would yield $167,336.

Of course, the future is unpredictable. If a future grandparent thinks he or she may not live to see a grandchild’s birth, a will can provide for an executor or trustee to carry out 529 plans using assets in a revocable trust.

For grandparents concerned about what to do if the grandchild doesn’t go to college or has sudden medical needs, a special trust might be a better vehicle, says Ms. Casey, as it will allow more flexibility. Using a 529’s funds for something besides higher education will trigger a 10% penalty and make the earnings taxable.

If no grandchild ever arrives, it can be possible to reassign the account to a close relative without owing taxes or penalty.

Source: WSJ.com   http://online.wsj.com/articles/grandparents-can-make-early-529-gifts-1415048467

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning. She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about. Annino recently released her new book, “It’s More Than Money, Protect Your Legacy” available at Amazon.com. To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

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