The Next Wave in Retirement Planning: Digital and Cyber Assets – Annapolis and Towson Estate Planning

You’ve worked hard for decades, saving and planning for retirement. Don’t put it at risk by delaying having an estate plan created by a qualified estate planning attorney, advises The Press of Atlantic City in the article “Estate planning for your digital and cyber assets.”

But here’s the thing: even when you have a comprehensive estate plan in place, meaning a last will and testament, a power of attorney, a health care power of attorney and the appropriate trusts, you’re not quite done.

That’s because today we have an entirely new type of property that must be dealt with in estate planning. Unlike tangible property that people have been handing down for centuries, this is a relatively new kind of property: digital assets. One of the problems with digital assets is that, unlike paper documents, your family members can’t simply sift through decades of physical records to find out what you own. The online world is endless, and if they don’t know what websites to look at, there’s simply no way that they can find your digital assets.

What is a digital asset? They include such things as:

  • Mobile devices, like cell phones, laptops, tablets
  • Email accounts—all of them
  • Social media profiles including Facebook, Instagram, Twitter, LinkedIn, etc.
  • Sites that contain music, photos, and other personal information
  • Your personal desktop
  • Online banking, investment accounts, cybercurrency
  • Online gaming accounts
  • Online bill paying, like utilities, EZ-Pass, and any automatic payments
  • Websites or blogs

You’ll want to let your executor know what you want to be done with your digital assets. Some platforms have the ability for you to express your wishes for your digital assets, like Facebook. What do you want to happen to your pages when you are gone? Do you want people to be able to see your pages, or to post on them? Would you want them to be taken down a month after you pass, or left up permanently?

You’ll need to list out all your digital assets, your username and your passwords, and provide a directive to specifically state what you want to happen to each website. Yes, it will take time and it may be tedious, but imagine how challenging it will be for your family members to try to track down all your digital assets. Speak with your estate planning attorney as to how to share this information—but don’t put it in a will, because your will becomes a public document if your estate goes through probate (which happens to most wills).

Just as you have taken the time to have an estate plan created, making sure to have a digital assets plan is a gift to your loved ones. With these details taken care of, your family will be able to focus their attention on taking care of each other, dealing with your estate, and going through the grief process. You’ll have spared them a lot of additional stress and expenses.

An estate planning attorney will be well worth the investment. You can be confident that your will is going to be prepared in accordance with the laws of your state, and that your family will be protected as you wished.

Reference: The Press of Atlantic City (July 4, 2019) “Estate planning for your digital and cyber assets”

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

How to Design an Estate Plan with a Blended Family? – Annapolis and Towson Estate Planning

There are several things that blended families need to consider when updating their estate plans, says The University Herald in the article “The Challenges and Complexities of Estate Planning for Blended Families.”

Estate plans should be reviewed and updated whenever there’s a major life event, like a divorce, marriage or the birth or adoption of a child. If you don’t do this, it can lead to disastrous consequences after your death, like giving all your assets to an ex-spouse.

If you have children from previous marriages, make sure they inherit the assets you desire after your death. When new spouses are named as sole beneficiaries on retirement accounts, life insurance policies, and other accounts, they aren’t legally required to share any assets with the children.

Take time to review and update your estate plan. It will save you and your family a lot of stress in the future.

Your estate planning attorney can help you with this process.

You may need more than a simple will to protect your biological children’s ability to inherit. If you draft a will that leaves everything to your new spouse, he or she can cut out the children from your previous marriage altogether. Ask your attorney about a trust for those children. There are many options.

You can create a trust that will leave assets to your new spouse during his or her lifetime and then pass those assets to your children upon your spouse’s death. Be sure that you select your trustee wisely. It’s not uncommon to have tension between your spouse and your children. The trustee may need to serve as a referee between them, so name a person who will carry out your wishes as intended and who respects both your children and your spouse.

Another option is to simply leave assets to your biological children upon your death. The only problem here is if your spouse is depending upon you to provide a means of support after you have passed, this would allocate your assets to your children instead of your spouse.

An experienced estate planning attorney will be able to help you map out a plan so that no one is left behind. The earlier in your second (or subsequent) married life you start this process, the better.

Reference: University Herald (June 29, 2019) “The Challenges and Complexities of Estate Planning for Blended Families”

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

Do I Need a Spendthrift Trust for a Relative? – Annapolis and Towson Estate Planning

Newsday’s recent article, “What to consider when creating a ‘spendthrift’ trust,” explains that a spendthrift trust protects people from themselves. It can be a great protection for those with an issue with drugs, alcohol, gambling or even a person who’s married to a wild spender.

A spendthrift trust—also called an “asset protection trust”—gives an independent trustee the power to make decisions as on how to spend the funds in the trust.

The beneficiary might get trust benefits as regular payments or need to ask permission from the trustee to access funds at certain times.

A spendthrift trust is a kind of property control trust that restricts the beneficiary’s access to trust principal (the money) and maybe even the interest.

This restriction protects trust property from a beneficiary who might waste the money, and also the beneficiary’s creditors.

Remember these other items about asset protection trusts:

  • Be sure that you understand the tax ramifications of a spendthrift trust.
  • If the trust is the beneficiary of retirement accounts, the trust must be designed to have the RMDs (required minimum distributions), at a minimum, flow through the trust down to the beneficiary.
  • If the trust accumulates the income, it could be taxable. In that case, the trust would have to pay the tax at a trust tax rate. This rate is substantially higher than an individual rate.

It’s critical that you choose your trustee carefully. You may even think about appointing a professional corporate trustee.

If the wrong trustee is selected, he or she could keep the money from the beneficiary, even when the beneficiary legitimately needs it.

Reference: Newsday (June 23, 2019) “What to consider when creating a ‘spendthrift’ trust”

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

Estate Planning Can Solve Problems Before They Happen – Annapolis and Towson Estate Planning

Creating an estate plan, with the help of an experienced estate planning attorney, can help people gain clarity on larger issues like who should inherit the family home, and small details like what to do with the personal items that none of the children want.

Until you go through the process of mapping out a plan, these questions can remain unanswered. However, according the East Idaho Business Journal, “Estate plans can help you answer questions about the future.”

Let’s look at some of these questions:

What will happen to my children when I die? You hope that you’ll live a long and happy life and that you’ll get to see your children grow up and have families of their own. However, what if you don’t? A will is used to name a guardian to take care of your children if their parents are not alive. Some people also use their wills to name a “conservator.” That’s the person who is responsible for the assets that any minor children might inherit.

Will my family fight over their inheritance? Without an estate plan, that’s a distinct possibility. When an estate goes through probate, it is a public process. Relatives and creditors can both gain access to your records and could challenge your will. Many people use and “fund” revocable living trusts to place assets outside of the will and to avoid the probate process entirely.

Who will take care of my finances, if I’m too sick? Estate planning includes documents like a durable power of attorney, which allows a person you name (before becoming incapacitated) to take charge of your financial affairs. Speak with your estate planning attorney about also having a medical power of attorney. This lets someone else handle health care decisions on your behalf.

Should I be generous to charities or leave all my assets to my family? That’s a very personal question. Unless you have significant wealth, chances are you will leave most of your assets to family members. However, giving to charity could be a part of your legacy, whether you are giving a large or small amount. It may give your children a valuable lesson about what should happen to a lifetime of work and saving.

One way of giving, is to establish a charitable lead trust. This provides financial support to a charity (or charities) of choice for a period of time with the remaining assets eventually going to family members. There is also the charitable remainder trust, which provides a steady stream of income for family members for a certain term of the trust. The remaining assets are then transferred to one or more charitable organizations.

Careful estate planning can help answer many worrisome questions. Just keep in mind that these are complex issues that are best addressed with the help of an experienced estate planning attorney.

Reference: East Idaho Business Journal (June 25, 2019) “Estate plans can help you answer questions about the future.”

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

What Happens When Real Estate Is Inherited? – Annapolis and Towson Estate Planning

The number one question on most people’s minds when they inherit real estate is whether they have to pay taxes on it.

For the most part, people don’t have to pay taxes on what they inherit, unless they live in a state with an inheritance tax. There are tax forms to be filed, says the Petoskey News-Review in the article “The pros and cons of inheriting real estate,” but not every estate has to pay taxes.

The estate has to pay taxes on any gains or losses after the death of the decedent, if and when they sell the property. The seller will have either capital gains or capital losses, depending upon what the house was purchased for and what it sold for.

Let’s say that Mom purchased the house for $100,000, gave it to her children and then they sold it for $120,000. They have to pay capital gains on the $20,000. When someone dies, heirs get the step-up in basis, so they get the value of the property at the date of the decedent’s death. If mom bought the house for $100,000 and when she died it had jumped in value to $220,000 the children sold it for $220,000, there would be no capital gain.

People who inherit property should have it appraised by an experienced real estate appraiser to determine the actual value at the date of death. An estate planning attorney will be able to recommend an appraiser.

One of the biggest disagreements that families face after the death of a loved one centers on selling real estate property. Some families actually break up over it, which is a shame. It would be far better for the family to talk about the property before the parents die and work out a plan.

The sticking point often centers on a summer home being passed down to multiple heirs. One wants to sell it, another wants to rent it out for summers and use it during winters and the third wants to move in. If they can resolve these issues with their parents, it’s less likely to come up as a divisive factor when the parents die and emotions are running high. This gives the parents or grandparents a chance to talk about what they want after they have passed and why.

Conflicts can also arise when it’s time to clean up the house after someone inherits the property. Mom’s old lemon juicer or Dad’s favorite barbecue fork seem like small items until they become part of family history.

The best thing for families that are able to pass a house down to the next generation is to start the discussion early and make a plan.

An estate planning attorney can help the family work through the issues, including creating a plan for how the real estate property should be handled. The attorney will also be able to help the family  plan for any taxes that might be due, so there are no big surprises.

Reference: Petoskey News-Review (June 25, 2019) “The pros and cons of inheriting real estate”

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

You’ve Received an Inheritance. Now What? – Annapolis and Towson Estate Planning

Inheriting money puts a whole new spin on your outlook on money, says The Kansas City Star in its article “Coming into some money? Be wise with it.”

Should you pay off your debts first, if you have any? Make a list of your debt balances and their interest rates. If the interest rate is high, you may want to pay it off. If it’s low, you may be better off investing the funds.

Next, check on your emergency fund. If you don’t have three to six months’ worth of living expenses on hand, you can use your inheritance to ramp up that fund. Yes, you can use credit cards sometimes. However, having at least two months’ worth of living expenses in cash is worthwhile.

Another option is to contribute some money to a health savings account (HSA), if your employer does not contribute to it and if you have a qualifying health plan. That’s $3,500 if you are single, $7,000 for families and add $1,000, if you are over 55. This gets you a nice tax deduction and withdrawals are tax-free, as long as they are used for qualified medical expenses.

If you’re still working, and depending upon the size of the inheritance, it might be time to “tax-shift” your portfolio.

Let’s say you regularly contribute $3,000 to a 401(k). You can increase that amount by $22,000, to the maximum, if you’re 50 and older. Since your paycheck decreases, so does your tax. If your tax rate is currently 22%, you’ll only need to add $17,160 from your inherited account to reach the same spendable dollars. The tax-deferred account in your portfolio will grow faster while the taxable account shrinks.

Think about whether to commingle funds with your significant other or not. Let’s say you and your spouse have a retirement portfolio. You both can spend it now, maybe on your house. The inheritance may also help you to retire earlier. If you save the inheritance, keeping it in a separate account with only your name on it, it remains your asset, in case of a divorce. Most states will consider this money a non-marital asset, and not subject to division between divorcing parties.

Consider using the inheritance as a way to avoiding tapping into retirement accounts. Withdrawals from IRAs are taxable. If you’re not worried about commingling funds or investment gains, then you can use the inherited account to minimize the tax losses from retirement accounts.

Most people don’t have enough saved to keep spending during retirement as they did while working. Skip the spending spree that often follows an inheritance and enjoy the money over an extended period of time.

Receiving an inheritance is one of the times when a review of your estate plan becomes a wise move. A new financial position may require more tax planning and more legacy planning.

Reference: The Kansas City Star (June 27, 2019) “Coming into some money? Be wise with it”

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

Why Would I Need to Revise My Will? – Annapolis and Towson Estate Planning

OK, great!! You’ve created your will! Now you can it stow away and check off a very important item on your to-do list. Well, not entirely.

Thrive Global’s recent article, “7 Reasons Why You Need to Review your Will Right Now,” says it’s extremely important that you regularly update your will to avoid any potential confusion and extra stress for your family at a very emotional time. As circumstances change, you need to have your will reflect changes in your life. As time passes and your situation changes, your will may become invalid, obsolete or even create added confusion when the time comes for your will to be administered.

New people in your life. If you do have more children after you’ve created your will, review your estate plan to make certain that the wording is still correct. You may also marry or re-marry, and grandchildren may be born that you want to include. Make a formal update to your estate plan to include the new people who play an important part in your life and to remove those with whom you lose touch.

A beneficiary or other person dies. If a person you had designated as a beneficiary or executor of your will has died, you must make a change or it could result in confusion when the time comes for your estate to be distributed. You need to update your will if an individual named in your estate passes away before you.

Divorce. If your will was created prior to a divorce and you want to remove your ex from your estate plan, talk to an estate planning attorney about the changes you need to make.

Your spouse dies. Wills should be written in such a way as to always have a backup plan in place. For example, if your husband or wife dies before you, their portion of your estate might go to another family member or another named individual. If this happens, you may want to redistribute your assets to other people.

A child becomes an adult. When a child turns 18 and comes of age, she is no longer a dependent.  Therefore, you may need to update your will in any areas that provided additional funds for any dependents.

You experience a change in your financial situation. This is a great opportunity to update your will to protect your new financial situation.

You change your mind. It’s your will and you can change your mind whenever you like.

Reference: Thrive Global (June 17, 2019) “7 Reasons Why You Need to Review your Will Right Now”

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

How Has the New Tax Reform Affected Charitable Giving? – Annapolis and Towson Estate Planning

People typically don’t donate to charity because of tax benefits, but without it, they’re likely to give less.

CNBC’s recent article, “Charitable contributions take a hit following tax reform,” reports that 2018 was the first time the effect of the new tax law could be gauged. The law eliminated or significantly reduced the benefits of charitable giving for many would-be donors.

In total, individuals, bequests, foundations and corporations donated roughly $430 billion to U.S. charities in 2018, according to Giving USA. However, while the giving by individuals dropped, contributions from foundations and corporations went up.

Even though the deduction for donations was unchanged in the Tax Cuts and Jobs Act, individuals are still required to itemize to claim it. That is now a much higher bar because of the nearly doubled standard deduction.

Under the new tax reform legislation, total itemized deductions must be more than $12,000, which is the new standard deduction. That is an increase from the past $6,350 standard deduction for single people. Married couples need deductions exceeding $24,000, which is an increase from $12,700.

Because of this change, there will be fewer people who itemize their individual tax returns. The result is that many people won’t enjoy the tax benefits of their charitable contributions.

One analysis from the Tax Policy Center showed that the number of itemizers fell from to about 19 million under the new tax law. That’s a decrease of more than half from about 46 million. At the same time, lower tax rates also reduced the marginal benefit of giving, the Tax Policy Center said.

Tax reform probably impacted the middle households that used to itemize the hardest, one tax analyst remarked. As a result, lower-income families reduced giving, a change that could be an issue for non-profits in the long term. The greater the revenue is concentrated in only a few sources, the greater the risk for these charities.

Another study from the Fundraising Effectiveness Project revealed that there was a nearly 3% increase in large gifts, defined as $1,000 or more in 2018. However, modest gifts between $250 and $999 dropped by 4%; and gifts under $250 decreased by more than 4%. In addition, the total number of donors declined.

Reference: CNBC (June 18, 2019) “Charitable contributions take a hit following tax reform”

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

What Happens When the Family Fights over Personal Items or Artwork? – Annapolis and Towson Estate Planning

A few years after her death in 2014, Joan Rivers’ family put hundreds of her personal items up for auction at Christie’s in New York.  As The Financial Times reported in “Why an art collector’s estate needs tight planning,” a silver Tiffany bowl engraved with her dog’s name, Spike, made headlines when it sold for thirty times its estimated price.

This shows how an auction house can generate a buzz around the estate of a late collector, creating demand for items that, had they been sold separately, might have failed to attract as much attention.

A problem for some art and collectible owners is that their heirs may feel much less passionately about the works than the person who collected them.

A collector can either gift, donate or sell in their lifetime. He or she can also wait until they pass away and then gift, donate, or sell posthumously.

The way a collector can make certain his or her wishes are carried out or eliminate family conflicts after their death is to take the decision out of the hands of the family by placing an art collection in trust.

The trust will have the collector’s wishes added into the agreement and the trustees are appointed from the family and from independent advisers with no interest in a transaction taking place.

Many collectors like to seal their legacy by making a permanent loan or gift of art works to a museum.  However, their children can renege on these agreements if they’re not adequately protected by trusts or other legal safeguards after a collector’s death.

Even with a trust or other legal structure put in place to preserve a legacy, the key to avoiding a fight over a valuable collection after the death of the collector is to have frank discussions about estate planning with the family well before the reading of the will. This can ensure that their wishes are respected.

Reference: Financial Times (June 20, 2019) “Why an art collector’s estate needs tight planning”

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

Filing Taxes for a Deceased Family Member – Annapolis and Towson Estate Planning

If you are the executor of a loved one’s estate, and if they were well-off, there are several tax issues that you’ll need to deal with. The article “How to file a loved one’s taxes after they’ve passed away” from Market Watch gives a general overview of estate tax liabilities.

Winding down the financial aspects of the estate is one of the tasks done by the executor. That person will most likely be identified in the decedent’s will. If the family trust holds the assets on behalf of the deceased, the trust document will name a trustee. If the person died without a will, also known as “intestate,” the probate court will appoint an administrator.

The executor is responsible for filing the federal income tax for the decedent’s estate if a return needs to be filed. Income generated by the estate is taxed. The estate’s first federal income tax year starts immediately after the date of death. The tax year-end date can be December 31 or the end of any other month that results in a first tax year of 12 months or less. The IRS form 1041 is used for estates and trusts and the due date is the 15th day of the fourth month after the tax year-end.

For example, if a person died in 2019, the estate tax return deadline is April 15, 2020 if the executor chooses the December 31 date as the tax year-end. An extension is available, but it’s only for five and a half months. In this example, an extension could be given to September 30.

There is no need to file a Form 1041 if all of the decedent’s income producing assets are directly distributed to the spouse or other heirs and bypass probate. This is the case when property is owned as joint tenants with right of survivorship, as well as with IRAs and retirement plan accounts and life insurance proceeds with designated beneficiaries.

Unless the estate is valued at more than $11.2 million for a person who passed in 2018 or $11.4 million in 2019, no federal estate tax will be due.

The executor needs to find out if there were large gifts given. That means gifts larger than $15,000 in 2018-2019 to a single person, $14,000 for gifts in 2013-2017; $13,000 in 2009-2012, $12,000 for 2006-2008; $11,000 for 2002-2005 and $10,000 for 2001 and earlier. If these gifts were made, the excess over the applicable threshold for the year of the gift must be added back to the estate, to see if the federal estate tax exemption has been surpassed. Check with the estate attorney to ensure that this is handled correctly.

The unlimited marital deduction privilege permits any amount of assets to be passed to the spouse, as long as the decedent was married, and the surviving spouse is a U.S. citizen. However, the surviving spouse will need good estate planning to pass the family’s wealth to the next generation without a large tax liability.

While the taxes and tax planning are more complex where significant assets are involved, an estate planning attorney can strategically plan to protect family assets when the assets are not so grand. Estate planning is more important for those with modest assets as there is a greater need to protect the family and less room for error.

Reference: Market Watch (June 17, 2019) “How to file a loved one’s taxes after they’ve passed away”

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