Klitzman Law Group, PLLC

Top Myths of Estate Planning

There are far more than five myths about estate planning. However, the article “5 common myths about estate planning, debunked” from Utah Business examines the most common ones. Estate planning is crucial to safeguarding your financial future and asset disposition and ensuring that the right people are involved in caring for you in case of incapacity. Estate planning is for your life and your legacy.

Biggest myth of all: You only need a Will for estate planning. Your estate plan begins with a Last Will and Testament. However, a comprehensive estate plan addresses more than the distribution of assets. Trusts are used to ensure that assets are transferred to the right beneficiaries in a timelier manner than they would be if passed through your will. Your estate plan should include a Power of Attorney, Health Care Directive and a Living Will.

Myth 2: Only seniors need estate plans. Anyone of legal age who has a family and owns property needs a will. Young families need an estate plan to protect their children and ensure that the parent’s assets and any life insurance proceeds are managed and distributed to their children according to the parent’s wishes. Parent’s wills need to include naming a guardian to raise children in the unlikely event of both parents dying while the children are still minors. Without naming a guardian, a court decision will determine who raises your children.

Myth 3: Only rich people need wills. An argument could be made that estate planning is more critical for people who aren’t rich, protecting and growing more modest estates. A well-crafted estate plan will protect the estate from creditors, deter litigation between family members and minimize tax liabilities so wealth can be passed to the next generation.

Myth 4: Estate planning is only about what happens after death. Estate planning addresses what should happen in case of incapacity because of illness or an accident. If you can’t communicate your wishes, these documents allow others to act on your behalf. A Power of Attorney appoints someone to handle your financial and legal matters. Standard POAs aren’t the best option, since they may allow someone too much or insufficient control. You’ll also want a Health Care Power of Attorney so someone you name can take over your medical care and talk with your doctors and health insurance company. Another reason for placing assets into a trust is that the successor trustee may manage assets in the trust if you are incapacitated.

Myth 5: Once your estate plan is created, you’re all set. Your car and home require ongoing maintenance—and so does your estate plan. Life and laws change, and your estate plan won’t work if it’s outdated. Triggering events like marriage, divorce, birth, relocating, or big changes to your financial situation require a review of your estate plan.

Consult an experienced estate planning attorney to create or review your estate plan. You’ll breathe easier knowing you’ve taken steps to protect yourself and your loved ones.

Reference: Utah Business (June 12, 2024) “5 common myths about estate planning, debunked”

Can Estate Planning Reduce Inheritance Taxes?

If not renewed, the expiration of changes in estate and gift taxes from the Tax Cuts and Jobs Act of 2017 (TCJA) on Dec. 31, 2025, will reduce federal estate tax exemptions to $7 million for individuals and $14 million for married couples. A recent article from CPA Practice Advisor, “A Crucial Window for Estate Planning: Preparing for 2026 Changes,” reminds us the IRS has said any benefits used under the current exemption are not subject to any “claw-backs.” In other words, use this tax advantage while you can.

It’s important to note the many benefits of estate planning are not just for wealthy people. The cohort referred to as “mid-affluent”—individuals and couples with or who will have significant assets and growth—should carefully plan for future tax exposure. Someone with $5 million in assets today could see their wealth grow to exceed the future exemption thresholds, making estate planning a vital means of protecting their wealth.

There are several techniques to minimize estate tax consequences, and your estate planning attorney will be able to identify the most appropriate for your unique situation.

Lifetime and Annual Gifting. Making gifts while living transfers wealth to the next generation while minimizing your estate’s tax exposure. Right now, you may gift $18,000 per person, or $36,000 per married couple, to as many people as you wish. Making these gifts annually allows you to reduce your taxable estate and enjoy seeing the recipients benefit from your gifts.

If you’d like to help someone with tuition or medical costs, you may pay any amount you wish without generating gift taxes as long as the payments are made directly to the educational institution or healthcare provider.

Spousal Lifetime Access Trust (SLAT). A SLAT is an irrevocable trust designed to benefit the spouse. Other family members can also be named as beneficiaries. The spouse has access to the income from the trust during their lifetime, and upon the spouse's death, the remainder can be distributed as per the grantor’s wishes.

Grantor Retained Annuity Trusts (GRATs). These trusts are best in a low-interest rate environment. Assets are transferred to the trust, with the right to receive annuity payments for a set period, usually two to ten years. When the grantor dies, assets pass to designated beneficiaries.

Intentionally Defective Grantor Trusts (IDGTs). No, they’re not broken. By creating an “intentionally defective” trust, the grantor splits the income tax responsibility from the estate and gift tax implications. The grantor pays the income taxes, allowing assets in the trust to grow tax-free.

There are more, including Qualified Personal Residence Trusts, Charitable Remainder Trusts, Charitable Lead Trusts, Dynasty Trusts and Irrevocable Life Insurance Trusts.

If you expect the value of your taxable estate to come close to or exceed the future estate tax threshold, now is the time to discuss the various options with your estate planning attorney.

Reference: CPA Practice Advisor (June 13, 2024) “A Crucial Window for Estate Planning: Preparing for 2026 Changes”

Should You Tell Beneficiaries Their Inheritance?

If you’ve watched Netflix’s The Gentlemen or HBO’s Succession, you know how powerful the inheritance storyline can be. The mystery creates suspense, and the reveal invites drama. However, your estate plan shouldn’t take lessons from these plot lines, says an article from mondaq, “Communicating Your Estate Plan: A Helpful Tool, Not A Fix-All.”

Whether to reveal the details of your estate plan should be preceded by another question: will being upfront with heirs and beneficiaries before you die reduce the likelihood of family fights and litigation, or will it create the conflict you were hoping to avoid?

While it’s best to be able to share your wishes, whether or not to communicate anything about your estate plan is entirely up to you. No one should feel they must share this information. Your estate planning attorney is ethically required to keep your discussions and any details confidential, even after you have passed.

Any person can modify their estate plan at any time, as long as they are competent and living. You can make any changes you want, even if you’ve told your beneficiaries one thing and then decide to do another. This may have negative consequences. However, you are legally allowed to do it.

Communication can take any form and be vague or specific. You could disclose the existence of an estate plan and inform heirs that it was carefully created based on your wishes and the advice of an estate planning attorney and any other tax and wealth advisers.

Sometimes, knowing a plan has been made with professional help can allay concerns from heirs. You might communicate the general framework of the estate plan, letting heirs understand who has been named for roles like Power of Attorney, Health Care Power of Attorney, Successor Trustee and Executor. It may be helpful to explain why you’ve made these decisions to avoid the “Mom would have never wanted this” arguments.

Things don’t always go as planned, however. If explanations are not consistent among heirs, there will be conflict. Even if explanations are consistent, there will be conflict in some families, no matter how clear you are with everyone.

In some cases, having your estate planning attorney convey details of your choosing to family members might be helpful. Learning this information from someone outside the family can be less triggering, particularly when the family respects the attorney as a skilled professional.

Unfortunately, there are some families where transparency won’t preclude conflict. In these situations, sharing any details may create battles you may not want to be a part of or subject you to attempts to influence your decisions. This is something that each person has to consider. A frank conversation with your estate planning attorney about handling these issues will help you decide if or how much information to share with your family.

Reference: mondaq (June 18, 2024) “Communicating Your Estate Plan: A Helpful Tool, Not A Fix-All”

Do You Need a Living Trust?

Trusts have been called the Swiss army knife of estate planning, and rightly so. There are trusts for every purpose in estate planning, including the living trust, also known as the revocable trust. As described in the article “Is a Living Trust Really the Best Way to Pass an Inheritance to Your Family?” from The Motley Fool, you start by creating a living trust, then retitle assets to move them into the trust. When you die, assets in the trust are distributed according to the directions in the trust.

Trusts protect assets in ways last wills and testaments can’t. This is especially so if your wishes for the assets change during your lifetime.

One of the most significant advantages of trusts over wills is the avoidance of having the assets in the trust go through probate. While probate is better in some jurisdictions than others, in general, probate takes some time and requires the involvement of the court. In the process, your will becomes part of the public record. Anyone who wants to can read the will, grab the information you may have wanted to keep private and contact heirs to solicit them. That includes creditors and potential litigants.

The living trust keeps your private business private. If discretion is important, or if you have a family with a history of battling over assets, a trust could be a good move for you.

Trusts can also be used to give very specific information about what you want to happen to your assets. You can tell the trustee to provide gradual distributions of assets to beneficiaries over extended periods or stipulate the conditions they need to meet to receive an inheritance.

Trusts are also used to manage assets if incapacity strikes. A trustee can be appointed, and the trust can be structured so that if you cannot manage your own affairs, they can use assets to pay household expenses and medical bills and manage the investments or other assets the trust owns.

Whether or not to create a living trust depends upon your own unique situation. What type of trust to establish also depends upon many different factors. An experienced estate planning attorney who understands the pros and cons of different types of trusts is your best resource when making this decision.

Remember that the trust needs to work alongside other aspects of your estate plan. If you have a last will and testament including certain assets and then place the assets in the trust, the directions of the trust will take precedence. You can leave whatever you want to whomever you want, but what is owned by the trust will be distributed regardless of the direction of the will.

Your best move is to contact an estate planning attorney and have them create your will and trusts in tandem for optimal results.

Reference: The Motley Fool (June 2, 2024) “Is a Living Trust Really the Best Way to Pass an Inheritance to Your Family?”

Smart Estate Planning In 13 Steps

People never understand how expensive it is not to do any estate planning, explains an article from Kiplinger, “13 Smart Estate Planning Moves.” Consider these steps for your estate planning checklist:

The SECURE Act changed distribution rules for non-spouse beneficiaries. The ten-year rule requires most beneficiaries to empty the account within ten years of the original owner’s death. It may be time to rethink how your IRA is invested.

Consider a Roth IRA conversion. This allows heirs to receive distributions tax-free. Consider converting annual distributions instead of moving an entire IRA into a Roth.

Use the annual gift tax exclusion, which is $18,000 in 2024. You can give as many people as you want up to $18,000 without incurring gift taxes. A related choice: superfund a 529 college savings plan, putting five years of gifting into one year—up to $90,000 all at once. Check with your estate planning attorney to see how this could impact your estate plan.

Use up your lifetime gift exemption early. This is especially useful if you believe the gift and estate tax limits will be lowered when the Tax Cuts and Jobs Act expires.

Pay medical or tuition costs directly to the school or healthcare provider as long as checks are written directly to the institution; paying medical bills or tuition doesn’t count towards the annual exclusion or estate tax exemption.

Talk with your estate planning attorney about a Spousal Lifetime Access Trust. This is an irrevocable trust for a spouse, with each spouse opening one for another. The trusts must be different to avoid drawing the IRS's attention.

Find out whether carrying forward any remaining estate tax exemptions unused by a deceased spouse is right for you. If you have appreciated assets, a bypass trust might be better.

Protect yourself and your estate from creditors and litigation with a domestic asset trust. This irrevocable, self-settled trust is available in twenty states. The person funding the trust can be the grantor.

Explore the use of revocable trusts. Some may not help with avoiding probate or trimming taxes but may work well for managing assets as you age or if you have health problems and expect someone to help manage your finances.

Make a plan for Medicaid and Special Needs family members. The massive cost of nursing home care makes this a necessity. Discuss the creation of a Medicaid Asset Protection Trust with your estate planning attorney.

Simplify your investment life. If you have investments in multiple accounts and different bank accounts, your executor will have more work to do.

Consider whether or not your estate should be managed by a professional, especially if you have a particularly argumentative or litigious family.

Finally, don’t delay having your estate plan created or updated. We all think we have plenty of time until we don’t. Meet with an estate planning attorney to update or create a new plan.

Reference: Kiplinger (May 9, 2024) “13 Smart Estate Planning Moves”

Handling an Inheritance from Someone Outside of U.S.?

An inheritance is almost always a mixture of happiness and sadness. You’re grieving the loss of a loved one at the same time you’ve received a financial bequest. Receiving an inheritance from someone who lives outside of the country or from a non-U.S. citizen makes matters even more complicated, says this recent article, “U.S. Tax: 4 Tips For Americans Receiving A Foreign Inheritance,” from Forbes.

There are certain IRS reporting requirements to be aware of, in addition to knowing what taxes you’ll be responsible for. Here are four top issues.

If the deceased person was a former American citizen and met specific requirements as a “covered expatriate” or “CE,” anyone receiving an inheritance must pay the IRS 40% of the inheritance. An estate planning attorney with experience in CE inheritances can help avoid or minimize this admittedly high level of taxes.

Even if the inheritance is not taxable, it must be reported to the IRS by the American recipient. If it is found to have been unreported, a 25% penalty will be levied. Your estate planning attorney will know how to report the inheritance using IRS Form 3520.

Depending on the type of asset inherited, there may be other reporting obligations. The Foreign Account Tax Compliance Act (FATCA) requires IRS Form 8938 to be filed if the total value of foreign financial assets is more than a specific threshold. The annual thresholds are lower for citizens who live in the U.S. than for Americans living abroad.

The U.S. tax basis must be accurately valued and documented when inheriting a foreign asset. The basis of a foreign asset from a CE will be “stepped up” to its fair market value as of the decedent's death date. However, there are many nuances to this, and in some situations, there is no step-up.

Inheriting foreign assets is complex and requires the guidance of an experienced estate planning attorney to avoid significant taxes and penalties. If you know you’ll be inheriting assets from a CE, speak with an estate planning attorney to figure out what to do before and after the inheritance.

Reference: Forbes (June 3, 2024) “U.S. Tax: 4 Tips For Americans Receiving A Foreign Inheritance”

Top Estate Planning Mistakes to Avoid

Suppose you’ve reached retirement age and have savings, including a 401(k), IRA, investment accounts, home and life insurance policies. Congratulations! While you’ll use these assets during retirement, some of them may end up in your estate. This, according to a recent article from Rocky Mount Telegram, “Avoid these estate planning mistakes,” is why you need an estate plan.

 

An estate planning attorney will be able to create such a plan. They’ll also know how to avoid common mistakes made by people with less experience. Once you get your information in order, the process isn’t as daunting as you think. Here’s what you need to know to have a successful plan:

Don’t wait until the “right time.” Putting off creating a plan and taking care of the details, like funding a trust or getting documents executed, leaves many people with no plan. Illness and accidents occur without warning. Estate plans address incapacity and distribute assets. If there is no will, your state’s laws of intestacy will determine how to distribute your estate. Contact an estate planning attorney and schedule a meeting sooner, not later.

Neglecting to update an estate plan and related documents. Estate planning isn’t a “set it and forget it” process. Most people’s lives include change—marriage, divorce, moving, etc. Your estate plan needs to change too—to be updated in the event of a large event, like the birth of a second child or grandchild, moving, a change in health or financial status and to take advantage of always-changing tax laws.

Forgetting to update beneficiaries. The number of people leaving generous surprises to people no longer in their lives because they forgot to update their beneficiaries would surprise you. However, it would not surprise an estate planning attorney. People start retirement funds at their first job and forget they assigned someone to receive the assets twenty or thirty years later. Your will only addresses assets in your estate—accounts with beneficiary designations are outside the purview of your will.

Neglecting to fund a trust after it’s been created. This is another common mistake to avoid. The entire estate plan might not achieve your goals if the trust is created and not funded. Assets being moved into the trust need to be retitled, and it takes some attention to detail to ensure that this is all done.

Naming a bad executor. The executor is responsible for carrying out your wishes as expressed in your will, overseeing the distribution of assets, filing estate and final personal taxes and many other tasks. They need to be extremely well organized and financially responsible. Your legacy will be impacted if you choose someone based on family relationships instead of competence.

Most people start this process by consulting with an estate planning attorney. It will take some time and effort on your part. However, imagine your family having to dig through all your records and documents and guess what you wanted to happen. Is that not a pretty picture? A better choice is to start and finish your estate plan with an experienced attorney.

Reference: Rocky Mount Telegram (May 10, 2024) “Avoid these estate planning mistakes”

What are the Best Ways to Protect Digital Assets?

Boomers may be the last generation to use cash and paper checks for financial transactions. However, according to a recent article from GO Banking Rates, “6 Ways for Boomers To Preserve Their Digital Estate and Online Assets,” many have switched to digital wallets.

With the rise of digital finance, it's crucial to stay vigilant. While hackers may be more skilled in the digital world, you have the power to protect your digital assets. Here’s what you can do.

Emails are rife with scammers. Even an email from your bank shouldn’t be trusted. Never click on links within an email—go to the website from your browser instead. “Phishing scams,” where an email from someone you know asks for quick action, should always be treated with the utmost care. Misspellings or weird URLs should be red flags to alert you to a scam.

Keep a close eye on financial accounts. Fraud is best detected early. Check for unknown charges on credit cards and bank statements. One common technique is to make a small charge on a credit card to see if it is detected, followed by a sizeable charge. Set up your accounts to send alerts for every transaction to fight this.

Don’t go online on unsecured networks. Your local coffee shop or library is not the place to conduct financial transactions. Public Wi-Fi networks are not secure, ever. It only takes one opportunity to clean out your bank accounts.

Take software updates on cell phones, laptops, tablets and desktop computers. Many software updates are sent when vulnerabilities are spotted. If you don’t take the software update, you could open yourself to hackers.

Go for the two-factor authentication. Some people feel that having to go through a two-step process to log into a favorite site is too much work. This added layer of security makes it harder for hackers to access financial information and access your systems. It’s worth the extra time.

Don’t use a wimpy password. Passwords are notoriously easy for hackers to figure out. Birthdays, pet names, street addresses and even the word “password” are common and quickly figured out. Did you know there’s software used to crack passwords? Hackers do. Make yours harder to figure out using a combination of letters, symbols and numbers.

While protecting your digital assets, don’t forget to protect your traditional assets. If you haven’t already secured your estate with a last will and testament and protected yourself with estate planning documents, like Power of Attorney, Healthcare Power of Attorney, Living Will, and medical directives, make an appointment with an experienced estate planning attorney. You’ll be glad to have both your digital and traditional assets protected.

Reference: GO Banking Rates (May 30, 2024) “6 Ways for Boomers To Preserve Their Digital Estate and Online Assets”

What Is IRS Rule 706 and Why Should Someone to File It?

IRS Form 706 Estate and Generation-Skipping Transfer Tax Return has become a hot-button issue in the estate planning and tax worlds. A recent article appearing in Forbes addressing this issue, “How To Avoid Faulty Advice On IRS Form 706 And The Portability Election,” makes it very clear this is one to get right from the start.

The IRS was so overwhelmed by the number of private letter ruling requests it issued a rule of its own to extend the ability to make the portability election to on or before the fifth anniversary of the decedent’s date of death.

What’s the issue? Portability allows a surviving spouse to claim their late spouse’s unused tax exclusion amount. It’s known as the Deceased Spouse Unused Exclusion Amount or DSUEA. The important thing to know is the DSUEA isn’t an automatic process. The spouse must complete Part 6 of IRS Form 706, and the portability election becomes effective as of the DOD of the deceased spouse.

This allows the surviving spouse to shelter more assets upon the other spouse’s death. It effectively locks in the deceased spouse’s exemption amount and gives the surviving spouse a greater chance of not needing to pay estate taxes upon the second spouse's death.

This option will become even more critical in 2026 if the Tax Cuts and Jobs Act expires and the federal gift and estate tax exemption amounts will return to 2018 levels. With inflation, estate planning attorneys expect the revised exemption amount to be roughly $6 million.

Determining the form is unnecessary because the estate is not large enough to reach the exemption level, or it’s a waste of time to prepare the form, which could be an expensive mistake. The number of requests for private letter rulings clearly proves the value of ensuring this form is completed when administering an estate for a deceased spouse.

Speak with your estate planning attorney to learn if your estate will be impacted if the federal estate tax exemption returns to prior values. Planning ahead for the loss of a spouse and potential changes in estate tax liabilities will require time and resources to be well spent. The cost of a private letter ruling or paying federal estate taxes is far more costly.

Reference: Forbes (May 21, 2024) “How To Avoid Faulty Advice On IRS Form 706 And The Portability Election”

Stay-at-Home Parents Need an Estate Plan

Any family’s estate plan must address all aspects of life, planning for incapacity and death. It’s easy to overlook the Stay-at-Home Mom (SAHM) or dad. They don’t have paychecks, raises, reviews, or PTO. But, overlooking the importance of what the SAH parent does for the family is a big mistake, and this includes neglecting estate planning, according to a smart article from The News Enterprise: “Stay-at-home parents must be deliberate about estate plans.”

For one thing, life insurance needs to be in place for both spouses. It may be easy to define the amount of insurance for the spouse working outside of the home, but the SAH parent’s tasks also need to be insured.

How long will the children be at home needing care, and what would daycare or a caretaker cost? How much would it cost to hire someone to cook, clean, do laundry, and run the household?

If children are home-schooled, how will the SAH parent be replaced? Will the children start attending public school, or is private school more aligned with the family’s values?

It’s easy to think the working parent will slide into these tasks, but unrealistic, as any single working parent will tell you. The children will be dealing with grief and emotional upheavals—adding a stressed parent to the mix who is also dealing with grief will make for a terrible situation.

In addition to having the right amount of life insurance, estate planning documents should be prepared with an eye on this possibility. The last will and testament is used to name a guardian for minor children, who will be responsible for raising the children if both parents are unable to care for them because of death or incapacity. A revocable trust should be considered, and a trustee should be appointed to ensure the funds are available for the children’s care and education.

The revocable trust can also ensure the children are not disinherited if the surviving spouse remarries.

This plan needs the review and guidance of an experienced estate planning attorney to ensure the will is correctly created to protect the children and set up any needed trusts.

Stay-at-home parents are often the glue keeping the family running. Replacing them isn’t possible—but preparing for life’s ups and downs will help the family adjust to any major changes.

Reference: The News Enterprise (May 25, 2024) “Stay-at-home parents must be deliberate about estate plans”