Complimentary
Estate Planning Strategy Call
Click to Schedule an Appointment

 

 

Blog Index
Navigation

Entries in a. Advanced Estate Planning (4)

Monday
Jun122017

How a Community Property Trust Could Save You From Heavy Taxation

When it comes to your family’s legacy, every dollar you can save from tax collection counts. One way to keep your assets out of the hands of the IRS is the formation of community property trusts.

How Does A Community Property Trust (CPT) Work?

Community Property Trusts (“CPT’s”) save you money on taxes by adjusting or “stepping up” the basis of the entire property after the death of one member of the couple. When you and your spouse invest in property jointly—be it real estate, stocks, or other assets—it becomes what’s called community property if you live within nine applicable states. However, there are two states, Alaska and Tennessee, where community property can be utilized via the creation of a community property trust, even if you do not live in Alaska or Tennessee.

When couples work with their estate planning attorneys to create these trusts, they can take advantage of a double step-up on the property’s basis. The basis of the property is stepped-up to its current value for both members of the couple’s halves. This is different from jointly owned property which only receives the step-up on one-half of the property. That means capital gains taxes are much lower because the taxed amount is reduced thanks to the stepped-up basis. Community property helps couples reduce their income taxes after the death of a spouse.

Getting To Know Your Basic CPT Terminology:

First, let’s start with a few quick definitions of the financial terms you will need to know to get a sense of whether a community property trust is right for you.

1. Community Property

Assets a married couple acquires by joint effort during marriage if they live in one of the nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

2. Community property trust:

A particular type of joint revocable trust designed for couples who own low-basis assets, enabling them to take advantage of a double step up. Tennessee or Alaska are the two places you can form these trusts.

3. Basics

What you paid for an asset. The value that is used to determine gain or loss for income tax purposes. A higher basis means less capital gains tax.

4. Stepped-up basis:

Assets are given a new basis when transferred by inheritance (through a will or trust) and are revalued as of the date of the owner’s death. The new basis is called a stepped-up basis. A stepped-up basis can save a considerable amount of capital gains tax when an asset is later sold by the new owner.

5. Double step-up:

Because of a tax loophole, community property receives a basis adjustment step-up on the entire property when one of the spouses dies. So, if a surviving spouse sells community property after the death of their spouse, the capital gain is based on the increase in value from the first spouse’s death (where the basis got adjusted on both spouses’ shares) to the value at the date of the sale. This allows the survivor to save money on capital gains tax liability.

One of the best parts of estate planning is that you get out so much more than you put in. In just a short amount of time, we can implement a community property trust that could save your spouse and family tens of thousands of dollars down the road. We are here to help make sure as little of your hard-earned property as possible ends up lost to taxation. Schedule your free consultation with us today, and set yourself up for a better tomorrow.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

Friday
Feb122016

Investment, Insurance, Annuity, and Retirement Planning Considerations

If your clients choose to use a Standalone Retirement Trust (SRT) to provide asset protection benefits for their beneficiaries, then the tax-related asset allocation strategy would be essentially the same as without an SRT, with one small exception.

 Consider skewing your investment plan toward: 

  1. Loading retirement accounts and inherited retirement accounts with bonds, Real Estate Investment Trusts (REITs), and other assets that produce income taxed as ordinary income;
  2. Housing stocks, Exchange-Traded Funds (ETFs), and other qualified-dividend generating investments in taxable accounts; and
  3. Placing any high-growth assets in Roth or inherited Roth IRAs.
WARNING: SRT Tax Consequences:

That one small exception is that if your SRT is designed as an accumulation trust (necessary for asset protection), then the undistributed Required Minimum Distributions (RMDs) accumulating in the trust will face tightly compressed trust tax rates. If the undistributed annual RMDs exceed $12,400 (2016), the SRT is hit with a 39.6% marginal tax rate, possibly much higher than a beneficiary's personal income tax rates. For this reason, you might select very low-growth assets you believe belong in a client’s total portfolio for the accumulation SRT. Examples of these assets might be cash, short-term bonds, etc.

Always Use an SRT?
  1.      Of course not. No planning is one-size-fits all. There may be cases where your client’s circumstances do not warrant the hassle and expense of creating an SRT. An example might be if the inherited IRA is quite small in relation to all the other assets your client is protecting. In such cases, here are some other approaches to consider:
  2.   For clients who are still working but not fully funding their workplace retirement plan (e.g. 401(k), 403(b), 457, SIMPLE IRA, SEP IRA, etc.) accelerate the depletion of the beneficiary IRA and use the extra taxable cash flow to max out tax-deferrals into the workplace plan. If for every dollar pulled from the inherited IRA an additional dollar is contributed to the workplace plan, the tax impact is neutral but the assets are now easily consolidated into a single account.
  3.       For clients who are in retirement, if the optimal liquidation strategy in their case is to consume qualified assets first (as might be the case for those who enjoy a window of low income tax rates between retirement and deliberately delayed Social Security benefits), then consider consuming the inherited IRAs first of all.
  4.       Depending on the circumstances, it may make sense for the client to hasten withdrawals from the inherited IRA to fund 529 plan contributions, to fund life insurance premiums, to fund Roth IRA conversions, HSA contributions, etc., in order to pass assets to heirs through those sorts of channels instead.
 

As a note to insurance agents or annuity-oriented brokers, though qualified longevity annuity contracts (QLACs) were approved in 2014 for a portion of the assets in one’s own IRA, they are not allowed in inherited IRAs.  And while life insurance is allowable in ERISA plans, it is not allowable in inherited IRAs any more than in one’s own IRA.

Team Up with Us:

We’d be happy to answer all SRT and retirement protection questions.  Please feel free to call with questions or if you’d like help planning for a client.  It takes a village.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

Tuesday
Feb022016

5 Reasons to Protect Your Retirement Accounts Now

During your lifetime, your retirement account has asset protection, but as soon as you pass that account to a loved one, that protection evaporates. This means one lawsuit and POOF! Your life long, hard earned savings could be gone.

Fortunately, there is an answer.  A special trust called a “Standalone Retirement Trust” (SRT) can protect inherited assets from your beneficiaries’ creditors.  We’ll show you what we mean.

When your spouse, child, or other loved one inherits your retirement account, their creditors have the power to seize it and take it as their own.

If you’re like most people, you’re thinking of protecting your retirement account?  Here are 5 reasons we think you’re right.

  1.    You have substantial combined retirement plans.  Spouses can use an SRT to shield one or the other from creditors. 
  2.   You believe your beneficiary may be “less than frugal” with the funds.  Anyone concerned about how their beneficiary will spend the inheritance should absolutely consider an SRT as you can provide oversight and instruction on how much they receive – and when. 
  3.       You are concerned about lawsuits, divorce, or other possible legal actions.  If your beneficiary is part of a lawsuit, is about to divorce, file for bankruptcy, or is involved in any type of legal action, an SRT can protect the assets they inherit from those creditors. 
  4.      You have beneficiaries who receive assistance.  If one of your beneficiaries receives, or may qualify for, a need-based governmental assistance program, it’s important to know that inheriting from an IRA may cause them to lose those benefits. An SRT can avoid disqualification. 
  5.       You are remarried with children from a previous marriage.  If you are remarried and have children from a previous marriage, your spouse could intentionally (or even unintentionally) disinherit your children.  You can avoid this by naming the spouse as a lifetime beneficiary of the trust and then having assets pass onto your children after his or her death.

 You’ve Worked Hard To Protect & Grow Your Wealth – Let’s Keep It That Way

You worked hard to save the money in those retirement accounts and your beneficiaries’ creditors shouldn’t be able take it from them. Let us show you how an SRT can help you protect your assets as well as provide tax deferred growth. NOW is the best time.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

Tuesday
Sep152015

A New Online Resource for Older Americans and Their Families

More than 10,000 people turn 65 in the U.S. every day according to Aging.gov, a new website recently launched by the Obama administration.  The goal of this website is to act as gateway for older Americans and their families, friends and caregivers to locate information about leading a healthy lifestyle, options for health care, preventing elder abuse, and retirement planning. 

 Healthy Aging:

 According to the website, healthy eating habits, physical activity, and involvement in your community help contribute to living a long, productive, and meaningful life.  This section of the website offers links to dietary guidelines for older Americans, the American Dietetic Association, the National Institutes of Health (NIH) Senior Health website, and resources for volunteering and senior employment.

 Health Issues:

 According to the website, focusing on preventive care, managing health conditions, and understanding medications help contribute to an increased quality of life.  This section of the website offers links to various Medicare resources (hospital compare, home health compare, dialysis facility compare); information about mental health, Alzheimer’s disease and dementia; information about other specific diseases, conditions and injuries (arthritis, cancer, diabetes, fall prevention, hearing, heart and lung, HIV/AIDs, vision); and resources for medications (Medicare prescription drug coverage) and treatments.

 Long-Term Care:

 According to the website, long-term care – either through in-home assistance, community programs, or residential facilities – allows you to stay active and accomplish everyday tasks.  This section of the website offers links for finding home care and assisted living facilities; resources for caregivers; securing benefits (Benefits.gov, Medicare.gov); planning for long-term care (LongTermCare.gov, Medicaid.gov); veteran’s services; and preparing for end of life (Advance Directives, funeral planning, organ donation).

 Elder Justice:

According to the website, millions of older Americans encounter abuse, neglect, exploitation, or discrimination each year.  This section of the website offers links to help you identify scams, prevent fraud, address senior housing issues, stop elder abuse, and find legal assistance.

Retirement Planning & Security:

According to the website, planning for retirement will allow you to enjoy financial security as you age without the risk of outliving your assets.  This section of the website offers links to resources for retirement planning, understanding your employer’s retirement plan, and investing (IRAs, investing wisely for seniors, preventing financial fraud).

State Resources:

The final section of the website points out that resources to support older Americans and their families, friends and caregivers can vary from state to state and offers links to the departments of aging for all 50 states and the District of Columbia.

Final Thoughts on Aging.gov:

Aging.gov offers a diverse amount of information to help you or a loved one navigate the challenges of growing older.  Instead of randomly searching for guidance and advice, this website is a good starting point for locating more specific information related to aging healthy, wealthy, and wise.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.