How a Charitable Remainder Trust Works – Annapolis and Towson Estate Planning

A couple lives well on their incomes, but the biggest asset they own is a tract of unimproved real estate that the wife received from her parents many years ago. The land was part of the family’s farm and is located in prime area that is growing in value.

The couple is looking for ways to supplement their retirement income, which is based solely on their retirement accounts.

What can they do to generate retirement income and not have to pay a significant proportion of their profit in capital gains? The solution is presented in the article “Using Charitable Trusts in Your Retirement Planning” from Richardland Source.

One strategy would be to establish a Charitable Remainder Trust or CRT. The wife would transfer the land to an irrevocable trust created to provide lifetime payments to her and her husband. At the death of the surviving spouse, the trust property would be transferred to a charitable organization named in the wife’s trust agreement.

Using the CRT, the trustee can sell the trust property and reinvest the proceeds without having to pay any immediate tax on the gain. The couple would have more money for retirement than if they simply sold the land and invested the proceeds. They also have the option of investing their tax savings outside of the trust to produce additional income.

The CRT can be either an annuity trust or a unitrust. The type of CRT used will determine how payments from the trust are calculated. If a Charitable Remainder Annuity Trust (CRAT) is chosen, the couple will receive annual payments of a set percentage of the trust’s initial fair market value. The percentage will need to be at least 5% and may not be more than 50%.

If they choose a Charitable Remainder Unitrust (CRUT), they would receive an annual income based on the fair market value of the trust property, which is revalued each year. That percentage must be at least 5% and not more than 50%.

These are complex legal strategies that need to be considered in tandem with an overall estate and tax plan. Speak with an experienced estate planning attorney to learn if using CRTs would be a good strategy for you and your family.

Reference: Richardland Source (October 28, 2019) “Using Charitable Trusts in Your Retirement Planning”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

New IRS Regulations Won’t Claw Back Estate Tax Benefits – Annapolis and Towson Estate Planning

The IRS published regulations on Friday that there will not be a claw back in the event exemptions are reduced in 2026, when the current tax levels expire. We recommend clients consider making lifetime gifts to use some of the federal estate tax exemptions before the exemption is reduced.

Please feel free to give us a call if you would like to discuss this further.

IRS Says Millionaires Can Keep Estate Tax Benefits After 2025

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Not Having a Will Should Scare You and Your Family – Annapolis and Towson Estate Planning

For families of people who don’t have a will, dealing with their estate is an expensive, stressful and time-consuming experience.

A will isn’t anything to be afraid of, says the Herald Journal in the article “It’s Halloween, do you have a will?” Here’s a list of things not to do that should be useful for anyone who doesn’t have a will yet.

Don’t procrastinate. You can keep on waiting until there’s a better time, but life has a way of happening while we’re waiting. Now is the time to do your will. For your sake and your family’s sake, don’t put it off any longer.

This is not a do-it-yourself project. No matter how simple you think your estate is, it isn’t. A form that you download from a website may not be legal in your state. Nothing can replace the sense of security that sitting down with an experienced estate planning attorney can give to you and your family. You’ll know that your will is legally valid in your state, follows all the right steps and was created for your unique situation.

An estate plan requires more than a will. There are many other documents and strategies to consider. Chances are that you already have more than a few other accounts to consider, like an insurance policy, investment accounts and jointly owned accounts. For an estate plan to protect you and your family, you’ll need a power of attorney, health care power of attorney, a living will and possibly a trust. A qualified attorney will help you coordinate all of your assets and make sure everything is properly prepared.

Don’t set it and forget it. Your life changes and so should your estate plan. There have been some large changes to the tax law in recent years and a number of bills are now pending in Congress that may bring even bigger changes in 2020. Your family may have celebrated a marriage, welcomed a new child or experienced a loss. All of these issues require updates to your estate plan.

Don’t hide your will and estate planning documents. Having all of these documents prepared properly is step one. The next step is to make sure that your family members know where the documents have been stored and how to access them. They should not be in a safe deposit box, as those are usually sealed upon the death of the owner. If you don’t own a waterproof, fireproof safe, consider purchasing one. Then tell a trusted family member where it is.

If charitable giving is part of your life, make it part of your legacy. Making a charitable gift as part of your estate plan can be helpful in reducing your estate taxes. It also sends a positive message about philanthropy to your family.

Make an appointment with an estate planning attorney to create your will, establish protection for yourself and your spouse in case of incapacity and create a legacy.

Reference: Herald Journal (October 26, 2019) “It’s Halloween, do you have a will?”

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Blended Families Need More Thoughtful Estate Plans – Annapolis and Towson Estate Planning

Estate planning for blended families is like playing chess in three dimensions: even those who are very good at chess can struggle with so many moving parts in so many dimensions.

Preparing an estate plan requires careful consideration of family dynamics and those are multiplied in blended families. This is another reason why estate plans need to be tailored for each family’s circumstances, as described in the article “Blended families have unique considerations in estate planning” from The News Enterprise.

The last will and testament is often considered the key document in an estate plan. But while the will is very important, it has certain limitations and a few commonly used estate planning strategies can result in unpleasant endings if this is the only document used.

Spouses often leave everything to each other as the primary beneficiary on death with all of their children as contingent beneficiaries. This is based on the assumption that the second spouse will remain in the family home, then will distribute any proceeds equally between the children if and when they move or die. However, the will can be changed at any time before death as long as the person making the will has mental capacity. If when the first spouse dies, the relationship with the surviving children is not strong, it is possible that the surviving spouse may have their will changed.

If stepchildren don’t have a strong connection with the surviving spouse, which occurs frequently when the second marriage occurs after the children are adults, things can go wrong. Their mutual grief at the passing of the first spouse does not always draw stepchildren and stepparents together. Often, it divides them.

The couple may also select different successor beneficiaries. The husband may name his wife first, then only his children in his will, while the wife may name her husband and then her children in her will. This creates a “survival race.” The surviving spouse receives the property and the children of the spouse who passed won’t know when or if they will receive any assets.

Some couples plan on using trusts for property distribution upon death. This can be more successful if planned properly. It can also be just as bad as a will.

Trust provisions can be categorized according to the level of control the surviving spouse has after the death of the first spouse. A trust can be structured to lock down half of the trust assets on the death of the first spouse. The surviving spouse remains as a beneficiary but does not have the ability to change the ultimate distribution of the decedent’s portion. This allows the survivor the financial support they need, giving flexibility for the survivor to change their beneficiaries for their remaining share.

Not all blended families actually “blend,” but for those who do, a candid discussion with all, possibly in the office of the estate planning attorney, to plan for the future is one way to ensure that the family remains a family when both parents are gone.

Reference: The News Enterprise (November 4, 2019) “Blended families have unique considerations in estate planning”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Tailoring a Caregiving Plan to Your Family – Annapolis and Towson Estate Planning

If you have a family member who needs ongoing assistance because of a disability, severe medical issue, or a chronic illness, you might need to create a schedule within the family for providing care to that loved one.

Few of us can afford to hire a private nurse for a family member. Many people who need caregiving need someone available 24 hours a day, even if some of that time is watching over the person rather than providing medical attention.

Public assistance programs provide limited, if any services, so most families have to figure out who can pitch in and help care for the loved one. If you are like most people, you could use some suggestions on tailoring a caregiving plan to your family. Recent legislation could make that task easier.

The Inherent Problems of Caregiving

People who are already working full-time and raising their families often end up taking shifts along with other relatives. The situation can go on like this for years. The caregivers become exhausted, physically, emotionally and financially.

Resentment can build if some of the family caregivers feel they are doing more than their share, while others are not doing their part. Years later, the primary caregivers can get accused of undue influence if the person who received help gives a larger portion of the estate to the primary caregivers out of gratitude.

Why Congress is Paying Attention to the Challenges of Family Caregiving

Our population is aging. By 2026, the baby boomer generation will start to turn 80 years old. Many people in their eighties need long-term care, either in the home or a facility. The high numbers of baby boomers and the declining birthrates mean there will be more people needing family caregiving and fewer relatives available to provide those services.

Family caregiving takes a massive chunk out of our economy each year. Experts say 40 million people in the United States provide unpaid caregiving services to their adult loved ones who have limitations in their daily activities. The experts on aging value these services at around $470 billion a year.

Another 3.7 million Americans take care of a disabled child under the age of 18. Some people have to provide caregiving for both an older adult and a child. People in the field estimate that about 6.5 million people in our country fall into this category.

The caregivers face immediate and long-term financial crises, because of the time they devote to the needs of their vulnerable loved ones. In the moment, the caregiver might have to cut back on work hours or leave a paying job to be there for the family member in need. Losing a paycheck and benefits can put a caregiver into economic hardship. Many caregivers live in poverty in the future because it was impossible to contribute to retirement savings or the Social Security system during the long years of caregiving.

Congress is working on measures to provide more public resources for family caregivers. The “Recognize, Assist, Include, Support, and Engage (RAISE) Family Caregivers Act” contains strategies for state and communities to support caregiving families. Increased assessments and service planning dovetailed with education, supports and respite options can impact financial security and workplace issues of caregivers. The new law centers on both caregivers and people receiving the care.

References: AARP. “Building a Family Caregiving Strategy to Align with the Real Needs of Families.” (accessed October 31, 2019) https://blog.aarp.org/thinking-policy/building-a-family-caregiving-strategy-to-align-with-the-real-needs-of-families

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Why Do I Need a Power of Attorney? – Annapolis and Towson Estate Planning

A Power of Attorney document allows you to name an agent or attorney-in-fact to act on your behalf if you are unable to.

You might nominate both of your children as attorneys-in-fact, requiring that they agree to act on your behalf under a power of attorney.

Fed Week’s article, “Giving Someone the Power of Attorney,” uses the example that you might suffer a stroke with no prior warning signals and be unable to sign your name. This could mean serious financial consequences. However, executing a power of attorney can protect you in that kind of situation.

It’s important for just about everyone to have a power of attorney. You can name more than one attorney-in-fact, stipulating if they are permitted to act alone or if they must act in concert.

Of course, the individual you designate must be someone you trust. This is typically a close (albeit younger) member of the family or a close friend.

If desired, you can assign different responsibilities to different individuals. For instance, you can name your spouse to make your housing decisions and your son to manage all your financial affairs.

You may not want to give power over your assets to a family member while you’re still in command of your faculties (or have capacity). To address this, many states recognize springing powers of attorney. These powers do not become effective until specified events take place, like incompetency (certified by a doctor) or when you go into a nursing home.

If your state doesn’t recognize springing powers, you often can see the same result with a durable power of attorney that’s accompanied by a letter saying that the power will go into effect if certain events occur. For example, in Florida, contingent or “springing” powers of attorney are not permitted after legislation was passed in 2011. However, the State of Minnesota does recognize them.

Talk to an experienced estate planning attorney. He or she can also keep these signed documents until they’re needed.

Your attorney will also know if the law also provides that powers of attorney properly executed under the laws of another state are recognized in your state of residence.

Reference: Fed Week (October 3, 2019) “Giving Someone the Power of Attorney”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

What is a Special Needs Trust? – Annapolis and Towson Estate Planning

Supplemental Security Income and Medicaid are critical sources of support for those with disabilities, both in benefits and services.

To be eligible, a disabled person must satisfy restrictive income and resource limitations.

That’s why many families ask elder law and estate planning attorneys about the two types of special needs trusts.

Moberly Monitor’s recent article, “Things to know, things to do when considering a special needs trust,” explains that with planning and opening a special needs trust, family members can hold assets for the benefit of a family member without risking critical benefits and services.

If properly thought out, families can continue to support their loved one with a disability long after they’ve passed away.

After meeting the needs of their disabled family member, the resources are kept for further distribution within the family. Distributions from a special needs trust can be made to help with living and health care needs.

To establish a special needs trust, meet with an attorney with experience in this area of law. They work with clients to set up individualized special needs trusts frequently.

Pooled trust organizations can provide another option, especially in serving lower to more moderate-income families, where assets may be less and yet still affect eligibility for vital governmental benefits and services.

Talk to an elder law attorney to discuss what public benefits are being received, how a special needs trust works and other tax and financial considerations. With your attorney’s counsel, you can make the best decision on whether a special needs trust is needed or if another option is better based on your family’s circumstances.

Reference: Moberly Monitor (October 27, 2019) “Things to know, things to do when considering a special needs trust”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Estate Planning, Simplified – Annapolis and Towson Estate Planning

Estate planning attorneys hear it all the time: “My children will have to figure it out,” “Everything will go to my spouse, right?” and “It’s just not a priority right now.” But then we read about famous people who don’t plan and the family court battles that go on for years. Regular families also have this happen. We just don’t read about it.

A useful article from The Mercury titled “Estate planning basics and an estate attorney meeting preparation” reviews the basics of estate planning and explains how following the advice of an experienced estate planning attorney can protect families from the financial and emotional pain of an estate battle.

Estate planning is not just concerned with passing property and assets along to heirs. Estate planning also concerns itself with planning for incapacity, or the inability to act or speak on one’s own behalf. This is what happens when someone becomes too ill or is injured, although we usually think of incapacity as having to do with Alzheimer’s disease or another form of dementia.

Lacking an estate plan, all the assets you have worked to accumulate are subject to being distributed by a court-ordered executor, who likely doesn’t know you or your family. Having an estate plan in place protects you and your family.

Living Will or Advanced Directive. A living will provides directions from a patient to their doctor concerning their wishes regarding life support. This alleviates the family from having to make a painful and permanent decision. They will know what their loved one wanted.

Springing Durable Power of Attorney. This document will allow someone you choose to make financial and legal decisions on your behalf, if you are not able to. Some attorneys prefer to use the Durable Power of Attorney, rather than the Springing POA, since the Springing event may need a physician to state that the individual has become incapacitated and it may require the court becoming involved. Powers of attorney can be drafted to be very limited in nature (i.e., to let one single task be accomplished), or very broad, allowing the POA to handle everything on your behalf.

Durable Power of Attorney for Health Care. This lets a person you name make health care decisions for you if you are not able to do so. The decision-making power is limited to health care only.

Should Your Health Care POA and Your Financial/Legal POA be the Same Person? Deciding who to give these powers to can be difficult. Is the person you are considering equally skilled with health care, as they are with finances? Someone who is very emotional may not be able to make health care decisions, although they may be good with money. Think carefully about your decision. Just remember it’s better that you make this decision rather than leaving it for the court to decide.

Last Will and Testament: This is the document people think of when they think about estate planning. It is a document that allows the person to transfer specific property after they die in the way they want. It also allows the person to name a guardian for any minor children and an executor who will be in charge of administering the estate. It is far better that you name a guardian and an executor than having the court select someone to take on these roles.

The estate planning process will be smoother if you spend some time speaking with your spouse and family members to discuss some of the key decisions discussed above. Talk with your loved ones about your thoughts on death and what you’d like to have happen. Think about what kind of legacy you want to leave.

Estate battles often leave families estranged during a time when they need each other most. Spend the time and resources creating an estate plan with a qualified estate planning attorney. Leaving your family intact and loving may be the best legacy of all.

Reference: The Mercury (Oct. 27, 2019) “Estate planning basics and an estate attorney meeting preparation”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Remaining Even and Fair in Estate Distribution – Annapolis and Towson Estate Planning

Treating everyone equally in estate planning can get complicated, even with the best of intentions.

What if a family wants to leave their home to their daughter, who lives locally, but wants to be sure that their son, who lives far away, receives his fair share of their estate? It takes some planning, says the Davis Enterprise in the article “Keeping things even for the kids.” The most important thing to know is that if the parents want to make their distribution equitable, they can.

If the daughter takes the family home, she’ll need to have an appraisal of the home done by a certified real estate appraiser. Then, she has options. She can either pay her brother his share in cash, or she can obtain a mortgage in order to pay him.

Property taxes are another concern. The taxes vary because the amount of the tax is based on the assessed value of the real property. That is the amount of money that was paid for the property, plus certain improvements. In California, property taxes are paid to the county on one percent of the property’s “assessed value,” also known as the “base year value” along with any additional parcel taxes that have become law. The base year value increases annually by two percent every year. This was created in the 1970s under California’s Proposition 13.

Here’s the issue: the overall increase in the value of real property has outpaced the assessed value of real property. Longtime residents who purchased a home years ago still enjoy low taxes, while newer residents pay more. If the property changes ownership, the purchase could reset the “base year value,” and increase the taxes. However, there is an exception when the property is transferred from a parent to a child. If the child takes over ownership of the home, they will have the same adjusted base year value as their parents.

If the house is going from parents to daughter, it seems like it should be a simple matter. However, it is not. Here’s where you need an experienced estate planning attorney. If the estate planning documents say that each child should receive “equal shares” in the home, each child receives a one-half interest in the home. If the daughter takes the house and equalizes the distribution by buying out the son’s share, she can do that. However, the property tax assessor will see that acquisition of her brother’s half interest in the property as a “sibling to sibling” transfer. There is no exclusion for that. The one-half interest in the property will then be reassessed to the fair market value of the home at the time of the transfer—when the siblings inherit the property. The property tax will go up.

There may be a solution, depending upon the laws of your state. One attorney discovered that the addition of certain language to estate planning documents allowed one sibling to buy out the other sibling and maintain the parent-child exclusion from reassessment. The special language gives the child the option to purchase the property from the other. Make sure your estate planning attorney investigates this thoroughly, since the rules in your jurisdiction may be different.

Reference: Davis Enterprise (Oct. 27, 2019) “Keeping things even for the kids”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Do I Need a Beneficiary for my Checking Account? – Annapolis and Towson Estate Planning

When you open up most investment accounts, you’ll be asked to designate a beneficiary. This is an individual who you name to benefit from the account when you pass away. Does this include checking accounts?

Investopedia’s recent article asks “Do Checking Accounts Have Beneficiaries?” The article explains that unlike other accounts, banks don’t require checking account holders to name beneficiaries. However, even though they’re not needed, you should consider naming beneficiaries for your bank accounts if you want to protect your assets.

Banks usually offer their customers payable-on-death (POD) accounts. This type of account directs the bank to transfer the customer’s money to the beneficiary. The money in a POD bank account usually becomes part of a person’s estate when they die but is not included in probate when the account holder dies.

To claim the money, the beneficiary just has to present herself at the bank, prove her identity and show a certified copy of the account holder’s death certificate.

You should note that if you are married and have a checking account converted into a POD-account and live in a community property state, your spouse automatically will be entitled to half the money they contributed during the marriage—despite the fact that another beneficiary is named after the account holder passes away. Spouses in non-community property states have a right to dispute the distribution of the funds in probate court.

If you don’t have the option of a POD account, you could name a joint account holder on your checking account. This could be a spouse or a child. You can simply have your bank add another name on the account. Be sure to take that person with you because they’ll have to sign all their paperwork.

An advantage of having a joint account holder is that there’s no need to name a beneficiary because that person’s name is already on the account. He or she will have access and complete control over the balance. However, a big disadvantage is that you have to share the account with that person, who may be financially irresponsible and leave you in a bind.

Remember, even though you may name a beneficiary or name a joint account holder, you should still draft a will. Speak with a qualified estate planning attorney to make sure about all your affairs, even if your accounts already have beneficiaries.

Reference: Investopedia (August 4, 2019) “Do Checking Accounts Have Beneficiaries?”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys