Read more about the article Prepare Now for Coming Estate Tax Changes – Annapolis and Towson Estate Planning
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Prepare Now for Coming Estate Tax Changes – Annapolis and Towson Estate Planning

The TCJA nearly doubled the lifetime estate and gift tax exemption from $5.6 million for individuals (and $11.18 million for married couples) to $11.18 million and $22.36 million for married couples), indexed for inflation after 2018. Right now, the exemption stands at $12.92 million per person and $22.84 million for couples, as reported in a recent article, “How To Prepare Clients Now For Looming Estate Tax Changes” from Financial Advisor.

All this changes on January 1, 2026, resulting in a roughly 50% reduction over the next few years. Individuals could see their federal estate tax exemption dipping to approximately $7 million, while couples could see a decrease to $14 million.

In anticipation of this drastic change, estate planning attorneys are reviewing plans now with clients to implement an appropriate course of action in less than three years. This is especially important for clients who might not have been impacted by estate tax laws in the past but who will be in 2026 because of a combination of the lowered amount and any growth in their assets.

Here are some strategies for preparing for the new lowered levels:

Review the complete estate plan with an estate planning attorney. Without a proper estate plan, it’s easy to lose sight of the value of all assets and may be entirely in the dark concerning estate tax liabilities. For instance, a boomer who hasn’t reviewed their estate plan in twenty years could see an enormous change in the size of their assets, possibly bringing them across the $7 million estate tax exemption threshold. Failing to address this could risk financial security in retirement and significantly impact their heirs.

Create a strategy with the information you have now. First, review your estate plan with an eye to moving assets out of the estate. You should then consider the overall goals and time horizons to determine the best way forward. There are several optimal strategies, including using annual gift tax exclusion, which as of 2023, is up to $17,000 per person.

The use of trusts is a well-known facet of estate planning. Which type of trust is used depends upon your specific situation. Trusts generate income and protect access to assets used for living expenses, reduce taxation on the estate, protect assets from creditors and keep a family’s financial assets and affairs private upon death.

Other strategies to consider:

Allocating assets to a 529 education plan, allows you to put money aside for the education of loved ones. It can be used for education from kindergarten to college, graduate coursework and more. There is also an option of accelerating gifting by giving up to five years of contributions in one year per individual.

Suppose you wish to pass assets to grandchildren, instead of gifting them during their lifetimes. Consider generation-skipping trusts, which allow you to create a separate fund for grandchildren under age 37.

There is no one-size-fits-all approach to estate planning. However, a discussion with your estate planning attorney will clarify your wishes and allow you to plan for the future.

Contact us to schedule a review of your estate plan with one of our experienced estate planning attorneys.

Reference: Financial Advisor (May 8, 2023) “How To Prepare Clients Now For Looming Estate Tax Changes”

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

Read more about the article What Should I Know About a Living Trust? – Annapolis and Towson Estate Planning
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What Should I Know About a Living Trust? – Annapolis and Towson Estate Planning

Forbes’ recent article, “What Is A Living Trust? Definition, Pros & Cons,” explains everything you need to know about living trusts to determine if one is right for you.

The grantor (or owner of the assets) transfers property ownership to the trust. They will name a trustee to manage the trust property. The grantor can choose to be the trustee, retaining control of trust property. However, the grantor can also designate a “successor trustee.” The successor trustee will manage the trust property if and when the primary trustee becomes incapacitated or passes away.

The grantor also names beneficiaries of the trust. These individuals are the individuals (or other entities) who benefit from the trust. The grantor designates beneficiaries who will inherit the property held within the trust after the grantor’s death. A significant benefit of a trust is that the assets held within the trust transfer to the beneficiaries without going through probate.

Creating a living trust entails drafting a formal legal document that:

  • Establishes the trust
  • Names the trustee (and successor trustee)
  • Names the beneficiaries; and
  • States when and how trust property will be transferred to beneficiaries.

Note that after you create the trust document, you must transfer the property title to it.

The trust becomes effective as soon as you create it. However, because it’s a living trust, you have the right to cancel it or make changes to it any time you want to.

A living trust is a powerful legal tool. However, there are other estate planning documents that you may need. Work with an experienced estate planning lawyer to get help creating a living trust, as well as assistance in developing a comprehensive plan to protect you in case of incapacity and to provide for your loved ones after you’re gone.

Questions? Contact us to schedule a complimentary initial call with one of our experienced estate planning attorneys.

Reference: Forbes (May 12, 2023) “What Is A Living Trust? Definition, Pros & Cons”

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

Read more about the article What Happens When There’s No Will? – Annapolis and Towson Estate Planning
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What Happens When There’s No Will? – Annapolis and Towson Estate Planning

According to a recent article, “The Confusing Fallout of Dying Without a Will,” from The Wall Street Journal, despite the consequences for their heirs and loved ones, millions of Americans still don’t have a will. The total wealth of American households has tripled over the past thirty years, according to the Congressional Budget Office. Still, more than half of Americans polled by Gallup said they didn’t have a will in 2021. Another survey showed that one in five Americans with investible assets of $1 million or more don’t have a will.

Dying without a will means the laws of your state will determine who gets your assets. In some cases, loved ones could end up with nothing. They could be evicted from the family home and even hit with massive tax bills.

This is especially problematic for unmarried couples. One example—after 18 years of living together, a couple had an appointment with an estate lawyer to create wills. However, the woman died in a horseback riding accident just before the appointment. Therefore, her partner had to get the woman’s sons, who lived overseas, to sign off, so he could be appointed her executor. The couple had agreed between themselves to let him have the home and SUV they’d purchased together. However, state law gave her sons her 50% interest. Therefore, he had to buy out her son’s interest to keep his home and car.

Dying without a will, or “intestate,” means you can’t name an executor to administer your estate, name a guardian for minor children, or distribute the property as you want.

Here’s what you need to know about having—or not having—a will:

State law governs property distribution. In some states, where there is a surviving spouse and children, the surviving spouse gets 100% of the estate, and the children get nothing. The surviving spouse gets 50% in other states, and the children divide the estate balance. For example, in Pennsylvania, if there are no children but there is a surviving parent, the surviving spouse gets the first $30,000, and the balance is split 50/50 with the parent. In Tennessee, a surviving spouse with two or more children receives a third of the estate, with the rest split between the children.

Check on all assets for beneficiary designations. Retirement accounts and life insurance policies typically pass to whoever is listed as the beneficiary. However, if you never named a beneficiary, the state’s laws will determine who receives the asset.

If you don’t have a will and want to be sure a partner gets these assets, you’ll need to speak with an experienced estate planning attorney to explore your options. For example, you might be able to use a transfer on death deed or a payable on death account. However, there may be better ways to accomplish this goal.

Contact us to schedule your complimentary initial call with one of our experienced estate planning attorneys.

Reference: The Wall Street Journal (May 2, 2023) “The Confusing Fallout of Dying Without a Will”

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

Read more about the article Who is Legally Able to Amend a Trust? – Annapolis and Towson Estate Planning
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Who is Legally Able to Amend a Trust? – Annapolis and Towson Estate Planning

Procrastination is the most common mistake in estate planning when people don’t create a will and trusts and when documents are not updated. For one family, a revocable trust created when both parents are living presents some complex problems now, when the surviving wife wants to make changes but is suffering from serious health issues.

As described in the article “Estate Planning: Who can amend the trust” from NWI Times, this scenario requires a careful review of the trust document, which should contain instructions about how it can be amended and who has the authority to do so. An estate planning attorney must review the trust to ensure it can be amended.

If the trust allows the surviving settlor to amend the trust, the authority to amend it may only be given to the surviving settlor. The mother may be permitted to amend the trust. However, it can’t be anyone acting on her behalf.

If the language in the trust makes the power to amend personal, a guardian or an attorney-in-fact likely won’t be able to amend the trust. Likewise, if the mother is incapacitated and cannot do this herself, the trust may not be amendable while she is ill or disabled.

However, if the trust allows the surviving settlor to amend the trust and the power is not personal, a legal representative, such as a guardian or an attorney-in-fact, may be able to amend the trust for her, if they have the authority to do so under the terms of the trust.

Anyone contemplating this amendment must be aware of any “self-dealing” issues. The legal representative will be restricted to making changes only for the benefit of the beneficiaries and should be mindful before attempting to amend the trust.

Suppose the authority to amend doesn’t exist or other restrictions make it impossible, depending on the state’s laws. In that case, it may be possible to docket the trust with the court and obtain a court order authorizing the trustee to depart from the terms of the trust or even amend the document.

Accomplishing this is far easier if all involved agree with the changes to be made. Unfortunately, if any interested parties object, it may lead to litigation.

Depending upon the desired change, entering into a family settlement agreement may be possible after the mother dies. If everyone is willing to sign off, an agreement can be written authorizing the trustee to deviate from the terms of the trust. This will also require the guidance of an estate planning attorney to ensure that the agreement follows the state’s laws.

If family members disagree with the change, the trustee can refuse to accept the settlement agreement to protect themselves from potential liability.

Contact us to schedule a review of your estate plan with one of our experienced estate planning attorneys.

Reference: NWI Times (May 7, 2023) “Estate Planning: Who can amend the trust”

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

Read more about the article Why You Need to File an Estate Tax Return – Annapolis and Towson Estate Planning
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Why You Need to File an Estate Tax Return – Annapolis and Towson Estate Planning

Even if your spouse has died and left all their assets to you and no estate tax is due, you still need to file an estate tax return. Doing so may save your family significant sums in estate taxes after your death, according to a recent article from Forbes, “5 Reasons You Must File An Estate Tax Return (Even When No Tax Is Due).”

The estate tax is a one-time tax due nine months after the date of death. The federal threshold in 2023 is $12,920,000 for an individual. Many states have their own estate taxes, with thresholds ranging from $1 million in Oregon and Massachusetts to $12,920,000 in Connecticut. Your estate planning attorney can advise which assets are included in calculating this amount. For example, many people are surprised to learn that proceeds from their life insurance policies are taxable on their death, unless the policy is owned in an irrevocable trust.

No estate tax is due if your assets are left to your surviving spouse because of the unlimited marital deduction. You get an unlimited deduction for the assets left to your spouse. Spouses can leave any amount to their surviving spouse tax-free, whether $2 or $2 million. However, there are reasons to file an estate tax return. The law requires it, even if the value of your estate assets is below the filing threshold.

If you’ve done estate planning, your spouse most likely has a trust that will break into various sub-trusts upon her death. As the surviving spouse, you’ll need to fund those trusts and apportion assets to them, which is done through the estate tax return. The estate tax return establishes the value of what those trusts are funded with.

Critical tax elections. When you file an estate tax return for your spouse, you’ll make certain elections to determine what assets are included in your estate when you die.

Tax savings for heirs. If your spouse has not used up all their $12,920,000 exemption, you can lock in their unused portion and port it to your estate tax return when you die. The portability of the deceased spouse’s unused exemption could potentially save your children millions of dollars in estate taxes in the future.

The combined exemption for two spouses is currently $25,840,000. The federal estate tax rate can be as high as 40%. By locking in the unused exemption, you could save more than $5 million in estate taxes that would otherwise be due on your death. Even if your assets are not in the $12 million to $25 million range, this is still smart because your assets could increase in value, and the estate tax thresholds are scheduled to drop to $5 million in 2026 (adjusted for inflation).

More tax savings for grandchildren. If your spouse has yet to use all of their general-skipping transfer tax (GST Tax) exemption, you can lock in their remaining GST Tax exemption. The GST Tax is a 40% tax on assets, if you “skip” your children and leave them directly to your grandchildren or in a trust that will eventually be distributed to them. The amount of GST Tax exemption is the same as the estate tax exemption, $12,920,000 per person in 2023. Therefore, the amount is the same, but they are different taxes.

Questions? Contact us to schedule a call with one of our experienced estate planning attorneys.

Reference: Forbes (May 10, 2023) “5 Reasons You Must File An Estate Tax Return (Even When No Tax Is Due)”

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

Read more about the article How Do I Talk to My Parents About Estate Planning? – Annapolis and Towson Estate Planning

How Do I Talk to My Parents About Estate Planning? – Annapolis and Towson Estate Planning

The best time to have this conversation is today. If you’re unsure how to broach the subject, you might ask a trusted family friend to help you navigate the conversation with compassion.

JP Morgan’s recent article, “How to talk to loved ones about estate planning,” says that if your loved ones have already started this process, ask which documents they have and see if any need to be updated. You may need to consult an experienced estate planning attorney to see what’s required.

Discussing estate planning with aging parents can be challenging, since both sides may hesitate to broach tricky topics involving end-of-life care and related decisions. However, the probate process becomes much more difficult if your parent dies without an estate plan.

Delaying this conversation won’t make it any easier. It’s important to stay calm and address the topics gently and openly. You may have to initiate a conversation several times before your mom or dad is willing to open up—another reason to broach the topic sooner.

If you’re having difficulty getting through to them, you could bring in another family member or a trusted family friend who can help you approach this conversation with the needed compassion. You may also consult an estate planning attorney to help plan and frame the conversation itself.

If your parents haven’t started planning their estate yet, think about some of the critical matters you want to discuss, like health issues, medical insurance, help with making decisions in case of incapacity, help to pay bills and keeping finances in order.

You should also ask about a plan if they need help managing daily tasks like walking, dressing, preparing meals and bathing.

Decision-making can also become a challenge for some as they get older. Therefore, having a valid power of attorney, living will and health care proxy is critical.

As tough as this can be, you must ask these questions when helping your parents plan their estate and future.

Questions? Contact us to schedule a complimentary initial call with one of our experienced estate planning attorneys.

Reference: JP Morgan (April 26, 2023) “How to talk to loved ones about estate planning”

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

Read more about the article What Kinds of Powers of Attorney Are There? – Annapolis and Towson Estate Planning

What Kinds of Powers of Attorney Are There? – Annapolis and Towson Estate Planning

A “durable” power of attorney remains in effect once the principal is deemed incompetent. On the other hand, a “springing” power of attorney is ineffective until the principal is judged incompetent, according to Fed Week’s recent article entitled, “‘Springing’ vs. ‘Durable’ Powers of Attorney.”

Some people prefer a springing power, so no one will be authorized to act on their behalf while they’re still capable.

A springing power might go into effect after two physicians have certified your loved one’s incapacity.

Nevertheless, some experienced estate planning attorneys prefer a full power of attorney rather than a springing power of attorney because if your loved one becomes incapacitated, the situation will be stressful enough.

You also don’t want hassles and waste time and energy at the bank or their brokerage firm. It may not be easy to establish the principal’s incompetency and put a springing power into effect.

In addition, some financial institutions are highly reluctant to accept powers of attorney unless their forms are used. These banks and credit unions may be concerned about the liability they might have if they allow transactions under a form that’s not valid.

Therefore, you should make sure that your financial institutions will accept your power of attorney.

In addition, it’s probably better to have just one person authorized to exercise the power.

If two or more people are named, the financial institution may insist that they all sign off, even if one party is authorized to act alone.

You can see that using a joint power is more cumbersome.

Ask an experienced estate planning attorney to help you draft an effective power attorney for your specific circumstances.

Contact us to schedule a complimentary initial call with one of our experienced estate planning attorneys.

Reference: Fed Week (May 1, 2023) “‘Springing’ vs. ‘Durable’ Powers of Attorney”

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

Read more about the article Why Would I Put My Home in a Trust? – Annapolis and Towson Estate Planning

Why Would I Put My Home in a Trust? – Annapolis and Towson Estate Planning

Putting property in a trust can make managing and distributing your assets — including your home — easier after your death. It can also have legal and tax benefits.

Bankrate’s recent article entitled, “How, and why, to put your home in a trust,” says that a real estate trust is a legal arrangement in which the owner of a home, known as the “grantor” or “settlor,” transfers ownership of the property to another entity or individual, known as the “trustee.” The trustee manages the property for the benefit of the grantor and any named beneficiaries of the grantor’s estate.

You can place your home into a trust by signing a deed that names the trustee as the property’s new owner. The deed must be recorded with the local county recording office, and then the trust is the legal owner of the property.

The home’s original owner will usually name him- or herself as the trustee, so they can maintain control of the property. However, the original owner can name someone else as the trustee. This can be helpful in case the original owner passes away. Trustees are frequently adult children of the homeowner, who will inherit the property upon the homeowner’s death.

Trusts are often used for tax, estate planning, or asset protection purposes, as — depending on the type of trust — the property can be protected from creditors and transferred directly to the beneficiaries without going through probate. Two primary types of trusts pertain to real estate: revocable and irrevocable.

Also called a living trust, a revocable trust can be changed or dissolved at any time by the grantor (creator) of the trust. A revocable trust lets a grantor control the property and make changes to the trust during their lifetime. The grantor retains the right to modify or dissolve the trust. The grantor can act as a trustee, manage the property, or appoint someone else.

A revocable/living trust states the original homeowner’s wishes upon death. When the grantor passes away, the property in the revocable trust is distributed to the grantor’s beneficiaries according to the terms of the trust agreement.

An irrevocable trust, as the name implies, is more permanent and can’t be terminated or modified by the grantor after it’s been created, unless the beneficiaries agree to the change.

Contact us to review your estate plan with one of our experienced estate planning attorneys.

Reference: Bankrate (February 21, 2023) “How, and why, to put your home in a trust”

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

Read more about the article How Estate Planning Protects Unmarried Couples – Annapolis and Towson Estate Planning

How Estate Planning Protects Unmarried Couples – Annapolis and Towson Estate Planning

Many couples make the choice not to wed, even after being together for decades, for personal or financial reasons. For example, some clients don’t marry so as not to impact their children’s inheritance, while others would rather not bother with the legalities, says a recent article, “Estate Planning for Unmarried Couples” from My Prime Time News. In some cases, marriage would cause the couple to lose pension or Social Security benefits, if they remarried.

However, unmarried couples must take extra care to have estate planning documents in place to make their wishes clear and to protect each other in case of incapacity, serious illness and, ultimately, death.

From any statutory priority, a significant other does not have the legal rights granted to a spouse to serve as a personal representative or executor for their loved one’s estate. In addition, there is no statutory right to inherit property, including any family allowance or exempt property allowance.

The significant other also has no rights regarding acting as guardian or conservator for their partner and no ability to make medical decisions, if they become incapacitated or disabled.

All of these issues, however, can be resolved with the help of an estate planning attorney. Both partners should execute a will, health care power of attorney, general power of attorney and a living will to protect each other.

The last will and testament designates a personal representative or executor who will be in charge of the decedent’s estate and inherit the person’s assets. With no will, a partner will inherit no assets, unless they are owned jointly or the partner is a named beneficiary.

Having a health care power of attorney and a financial power of attorney gives a partner the power to make decisions if their loved one becomes incapacitated. In addition, these power of attorney documents are necessary for adult children to have priority in making these decisions, and guardianship proceedings will be required if there are no children or family members.

Disputes between the adult children of unmarried couples are common if a comprehensive estate plan still needs to be completed. For example, imagine a partner of many decades becoming too ill to communicate their end-of-life wishes. Even after a lifetime together, the adult children will have the legal upper hand, regardless of what the couple has discussed as their wishes for this situation.

It may be challenging for unmarried couples to discuss their living arrangements and family dynamics. However, the experienced estate planning attorney has met with and helped families of all kinds and will have the knowledge to prepare an estate plan to address all family dynamics.

Once this work is done, the couple can rest easy, knowing they have protected each other in the best and worst circumstances.

Questions? Contact us to schedule a complimentary initial call with one of our experienced estate planning attorneys.

Reference: My Prime Time News (May 1, 2023) “Estate Planning for Unmarried Couples”

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

Read more about the article How is Estate Planning Used to Distribute Property? – Annapolis and Towson Estate Planning

How is Estate Planning Used to Distribute Property? – Annapolis and Towson Estate Planning

One of the tasks of estate planning is to distribute property, through a variety of ways. A recent article from The News-Enterprise, “How property passes upon death is central to estate planning,” says there are generally four ways to pass property after death.

Beneficiary accounts. Any type of account with a beneficiary designation listed on the account paperwork passes directly to the beneficiary. Most people think of life insurance proceeds as the typical beneficiary designation. However, this can also include investment accounts, some retirement accounts and payable-on-death (POD) or transferable-on-death (TOD) accounts. It’s also possible for real estate property to have a beneficiary designation.

The individual owns property with a beneficiary designation during life but upon death; the property passes directly to the beneficiary. It’s a quick process, usually requiring a death certificate and perhaps other paperwork to pass the asset to the beneficiary.

The primary problem with using a POD or TOD account in this way is what happens if the beneficiary is disabled and is receiving means-tested government benefits. Receiving assets directly could put the person’s entire benefits structure at risk.

Jointly owned property. If an account or property is held jointly and includes survivorship language, the joint owner will own the entire share of the property upon the death of the first co-owner. Without the proper survivorship language, the decedent’s share of the property will pass through probate.

Jointly owned property is commonly how a married couple own assets. There are potential risks involved. If property or assets are left to one spouse, when the surviving spouse dies, the survivor’s separate beneficiaries may inherit the assets rather than the decedent’s intended beneficiaries.

Similarly, suppose one child is added to an account so they may continue to pay bills. In that case, the named child will become the account’s new owner upon the parent’s death, and they will have no legal requirement to share the account with siblings or other beneficiaries.

Trusts. Trusts provide the most control for managing assets during life and after death. Property held in trust does not pass through probate and goes directly to the beneficiary as per the instructions in the trust. In addition, a trust created with an experienced estate planning attorney includes provisions for distributing assets owned by the trust if the beneficiary is disabled, incapacitated, or a minor child, potentially offering significant asset protection for the grantor—the person creating the trust—and beneficiaries.

Property not falling into any of these categories is distributed via a will and through probate. If the decedent had a will, the executor must file it with the court. If there is no will, then a probate case must still be established. However, the distribution of assets will be according to the laws of the state of residence, regardless of the decedent’s wishes.

An estate planning attorney reviews their client’s property and unique situation and prepares an estate plan to distribute property in the most ideal manner based on the client’s goals.

Contact us to schedule your complimentary initial call with one of our experienced estate planning attorneys.

Reference: The News-Enterprise (May 6, 2023) “How property passes upon death is central to estate planning”

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