Category Archives: Estate Planning Blog

IRAs, Annuities and Guardianship: Providing for Your Minor Children if You Die Before They Reach Adulthood

young-family 91024Deciding on a guardian for your minor children may very well be the most important decision you’ll make regarding your estate planning. Not only must you trust the appointed guardian to raise your children as you’d want them raised, but you also need that person to be financially responsible with your children’s inheritance. For example, if you have an IRA or an annuity that you wish to pass to your minor children, how can you ensure those funds will be used properly—especially if the person you trust most to raise your kids isn’t necessarily the best with finances?

This question is multifaceted, so let’s unravel one aspect at a time.

The Question of Guardianship

Here’s the good news: The person who raises your minor children and the person who handles their inheritance don’t have to be the same person. If necessary, you can appoint one guardian to serve each function, naming one as the guardian of the person and another as the guardian of the estate. In this arrangement, you entrust one person with your children’s assets and another with their care, while enabling each to interact with the other. This dual guardianship model gives many parents peace of mind—knowing they don’t necessarily have to risk their children’s inheritance while ensuring that they are raised according to the family’s values.

Although guardianship of the estate is an option, for many families the best strategy for financially providing for the children is to use a trust. In that case, a trustee fulfills the responsibility that would otherwise belong to the guardian of the estate. The trust assets can be released to the children or the caregiver incrementally according to age and needs. For example, the trustee could distribute money for the children’s needs until age 18 and then manage for the money until the child is a financially mature adult. Your trustee may also exercise discretion in investing and distributing the funds for the children’s support, education, etc., coordinating with their physical guardian to ensure the children’s needs are met until they come of age. This can ensure that the assets are there when they’re needed for your family.

Passing an Annuity to the Children

Annuities pay out regular income—which can make them convenient vehicles to cover ongoing expenses for minor children. If you have set up an annuity for yourself or a spouse, you can name the children as beneficiaries, or you can also name a trust for the benefit of your children. If you are still paying into the annuity at the time of death, your children may receive the balance, or you may give a trustee the option of rolling the balance into another annuity to be paid out to the children at a later maturity date. If you are already receiving annuity payments yourself, the children may simply continue receiving these payments for the remainder of the term. Depending on your annuity contract, payouts may also be made lump sum. Annuities are a very flexible financial product with many different options. If you have annuity now, or if you are considering purchasing one, bring it up with us as we work on your estate plan so we can make sure it meshes with your will or trust seamlessly.

Transferring an IRA to the Children

Individual Retirement Accounts (IRAs) are also excellent vehicles to pass along wealth for minor children’s welfare—because, unlike most annuities, they have the ability to grow over time and can provide a lifetime of financial benefit to your children.

When you name the next generation as beneficiaries on an IRA, you effectively extend the IRA’s life expectancy. While the required minimum distribution payments to the children will be smaller than they would have been for you (since, according to the IRS’s rules, they have a longer life expectancy), the account balance can remain invested for growth over time. Your financial and tax advisor can evaluate your situation to help you decide which type of IRA (Roth or traditional) is the best option for your goals. And we can work with you to set up a trust which fully protects your IRA against your child’s creditors, predators, future ex-spouses, and immature financial decision making.

Planning for the welfare of minor children after your death is neither simple nor pleasant to consider, but it’s absolutely necessary for peace of mind. Determining the right person(s) to be the guardian of your children requires careful thought, but you don’t have to sacrifice your children’s inheritance for their proper care. With the right financial plan, you can manage both facets successfully. As always, we’re here to provide assistance and explain your options. Call our offices for an appointment today.

Dedicated to building your wealth, empowering your family and securing your legacy,

Marc Garlett 91024

New Baby? Time to Create Your Estate Plan

newborn baby 91024Estate planning is often one item that gets pushed back on nearly everyone’s to-do list. The reasons you might be delaying vary: lack of time, not thinking you have enough assets, not knowing how to start, or the uncomfortableness of contemplating death. Whatever the reason for not putting an estate plan together, it is important to understand that if you just had a baby – there is no better time to meet with an estate planning attorney to implement a plan.

In general terms, an estate plan is a set of legal documents that outline your wishes on how your assets should be distributed and who is responsible for your dependents, in the event of your death or legal incapacity. An estate plan should be developed with a qualified estate planning attorney to ensure that it will work as intended and fully protect your family.  Here’s how an estate plan can you protect the newest addition to your family.

Protect Your Children

Perhaps to top reason to put together an estate plan is to dictate who will care for your children in the event you and your spouse die early or become legally incapacitated and therefore unable to care for your kids yourselves. Your estate plan can designate someone you trust and who shares your values as a guardian of your minor children – this is the person who will essentially be a surrogate parent and raise the children through adulthood. When selecting a guardian, it is important to choose people who will be willing participants in your estate plan, who share your values and parenting philosophy, and who you trust to raise your children.

Distribute Your “Stuff”

While some assets have purely financial value, others have deep emotional attachments. Not only will a trust-based estate plan eliminate the probate process, but it will save your heirs stress, time, and money. As you may already know, probate is the court-supervised process of wrapping up a deceased person’s affairs. This consists of multiple steps, including presenting a deceased’s last will and testament (if they had one – otherwise the probate court uses the government’s default plan known as intestacy), gathering assets, paying off debts, and distributing what’s left over to the deceased’s heirs. Using a trust to provide specific instructions on distribution of assets not only avoids probate altogether but it can help ward off fights among surviving relatives, too. Additionally, special features in your trust, sometimes called lifetime asset protection trusts, also allow you provide long-term financial stability and support for your children. These types of trusts can prevent a financially immature heir from blowing their inheritance.

Provide for Your Loved Ones

Beyond your children, creating an estate plan will inform your loved ones what final health care decisions should be made on your behalf in the event you become incapacitated and are unable to make decisions. Serving as healthcare proxy is an enormous responsibility for the person you name, but you can help lessen the burden by communicating your wishes about medical decisions. One significant advantage of properly planning is that your intentions can be clearly stated so that your surviving family members do not have to guess what your desires are.

Find an Estate Planning Attorney

If you have experienced a recent life-event – such as a new baby, a work promotion, purchasing a home, moving to a new state, or any other milestone – you should discuss your situation with a trusted estate planning lawyer. If you already have a will or trust in place, those life events make it necessary to update it to ensure it fully provides for your family and loved ones. To learn how estate planning can protect you, your newborn, and the rest of your family, contact us today.

Dedicated to building your wealth, empowering your family and securing your legacy,

Marc Garlett 91024

Planning for the Future (Without a Crystal Ball)

crystalball 91024Creating a will, trust, or any type of estate plan has always involved dealing with an uncertain future. Consider that just 20 years ago in 1997, the estate tax had an astonishing 55% rate with only a $600,000 exemption. Because of the low exemption and high rate back then, tax-driven estate planning was a mathematical necessity for a large segment of the population.

Fast forward to 2017. Not only do we now have a generous $5.49 million exemption and a lower 40% rate, we also have renewed emphasis and action from the President and Congress on repealing the estate tax, as evidenced by the September 27, 2017 Unified Framework for Fixing Our Broken Tax Code. So what does this mean for you, as you’re planning for the future?

Estate Tax Repeal Means No Need to Plan…Right?
Nothing could be further from the truth! Although there was a lot of tax-driven planning in the past, in recent years estate planning has largely focused on preserving family unity, protecting assets, ensuring privacy, and effectively passing along financial and emotional legacies.

And, for those with high net worth, it’s also worth mentioning that estate tax repeal isn’t a foregone conclusion at this point either. The Unified Framework still must be crafted into legislation that and pass both houses of Congress before being signed by the President. Given the political division the country faces (and the likely stiff opposition to the President’s tax proposal from Congressional Democrats), this will be no small feat.

Today, the focus of estate planning has shifted away from death taxes to other concerns that affect most families. Good estate planners now work with clients to protect their families against costly, public probate, guardianship, or conservatorship court proceedings and also further their legacy goals.

You might be worried about some of these things happening to your family:

● A financially irresponsible child or grandchild wasting their inheritance simply because they lack the financial maturity to handle wealth.
● A divorcing spouse of one of your heirs taking advantage of family wealth.
● Family discord lurking under the surface that tears your family apart, especially after the death of the patriarch or matriarch.
● A lawsuit, judgment, or bankruptcy that causes your family to lose their inheritance.
● Alzheimer’s or another cognitive impairment affecting you or someone else in your family.

Luckily, we have well-developed, flexible legal strategies (such as lifetime asset protection trusts, standby special needs trusts, and robust incapacity planning, to name a few) for overcoming these issues. Although estate planning can’t necessarily repair a damaged family relationship, proper planning can help make sure it does not get any worse. But these strategies only work when you implement or refresh your will, trust, and estate plan.

So, there’s no crystal ball. Where should I go from here?
According to WealthCounsel’s 2016 Estate Planning Literacy Survey, about 74% of Americans find estate planning to be a confusing topic. So, you’re not alone if you’re unsure about your next steps.

If you don’t yet have a will or trust, now is the time to explore getting one. If you have an “old” will or trust, now is the time to talk with us about whether you need an update. Modern families need modern estate planning solutions, and we are ready to help you create a flexible estate plan that works now, and will work in the future, even if the current tax laws change (even though no one has the proverbial crystal ball).

Dedicated to building your wealth, empowering your family and securing your legacy,

Marc Garlett 91024

Just a Few Of the Ways a Living Trust Helps Your Family

trust 91024There are several components to an estate plan, one of them being a living trust. Common benefits that prompt someone to create a living trust include increased privacy, reduced taxes, probate avoidance, and caring for family members with special needs. A living trust also lets you dictate how and when your assets will pass on to future generations after your death.

Avoiding Probate and Increasing Privacy

One of the primary reasons for creating an estate plan is to avoid probate. Unlike a will, a properly funded living trust will avoid probate, the lengthy and costly court-supervised process of transferring assets after death. Probate includes locating and determining the value of the deceased’s assets, paying off any outstanding bills and taxes, and then distributing the remaining value of the estate to the deceased’s rightful beneficiaries or heirs. Avoiding probate is often a top reason for estate planning, and there is no surprise as to why. First, probate can be a costly way to transfer your assets upon death. Second, it is very time-consuming for your family. It can take a year (or even longer) to complete the probate process. Complications, such as a contested will or an inability to find clear records of all of the deceased’s assets and debts, can extend this timeline. Finally, probate proceedings are a matter of public record so when your estate goes through this process, there is no privacy.

Reducing Taxes

While a living trust can help you avoid probate, it can also provide you with tax savings, especially if your estate is subject to death taxes (also known as estate and gift taxes). Of course, there are many types of trusts. One way to think about the variety is to consider a toolbox. For example, there are numerous kinds of screwdrivers, hammers, power tools, and so on. Each tool has an intended use. Trusts are no different. When you work with a family trust attorney, you ensure the type of trust is aligned with the tax-saving needs and other goals of your family.

Seeking Professional Help

It is important to understand that a trust only controls assets that are funded to the trust. In other words, you must place these assets in the trust – commonly referred to as “funding” the trust. Moreover, because our lives are always changing (marriage, childbirth, home purchase, etc.) and so are tax laws, it is essential to continually update and monitor the funding of your trust over your lifetime. For these reasons, you will want to work closely with your family trust attorney to make sure your assets are properly aligned with your trust. This will not only help you get organized, but it will also make things much easier for your heirs when you pass away. And you don’t have to go it alone. The right attorney can be an invaluable help to you and your family.

Dedicated to building your wealth, empowering your family and securing your legacy,

Marc Garlett 91024

Estate Planning For the Newly Married

newlyweds 91024Now is the perfect time to start working on an estate plan—because, as newlyweds, you may not have a list of your accounts, but you’ve effectively just done a working inventory of your possessions—as you’ve figured out how to consolidate two households into one. You’ve already been working on the new banking and shared responsibility of bills and taxes and so forth.

Use all that time and energy and work as a leapfrog into planning for your future—so you’ll be that much more prepared for the house, the kids, and the next stages of your new life together.

Why Think About Estate Planning at This Point?

Even if you have few assets, you probably have more than you think. Still, putting together a will or a trust is probably very straightforward at this point, since, as we just talked about, you recently did an accounting of your collective assets.

You may have heard of California state laws that give your property to a spouse if you don’t have a will. These laws—known as intestacy laws—vary depending on your circumstances and can sometimes have results you wouldn’t expect. And, intestacy requires your estate to go through probate—a court proceeding that can take years, to resolve. So a basic estate plan should give you some peace of mind—knowing loved ones are taken care of if anything should happen.

You can even plan for property you don’t yet own (a house you may buy someday) and provide for children whenever they arrive on the scene. And once you have that initial plan in place, you can easily update it as your circumstances and needs change.

Furthermore, if you already have a sizable amount of assets then estate planning may lead to tax benefits, now and in the future.

Who Can Make Decisions For Me, If I Can’t?

In the U.S., a power of attorney (POA) is a legal document that designates someone else (often a spouse) to make financial and other decisions on your behalf. In the financial realm, your POA can sign contracts, file lawsuits on your behalf, and more. Depending on the exact language, you can grant the POA broad powers, or something more limited to an issue or situation.

One specific form of POA is in effect only if you are unable to make decisions on your own—such as an emergency or illness. And you can have that type of POA for both the financial side of things, as well as one relating to your medical care.

What Kind of Care Would I Want?

An advanced directive (also known as a living will) is a document that makes clear the kinds of medical interventions you’d prefer if you’re unable to make decisions for yourself. In some ways, think of this as an emotional insurance policy: You make decisions now, so the people you love won’t have to later when you are unable to guide them. This can also make it easier for your spouse to make emergency decisions if you’ve named them as a medical decision maker.

Who Will Look After The Kids?

If you don’t yet have kids but want them someday, realize that an estate plan is essential for families with children. The state statute providing assets for a spouse will also include some inheritance for children.  How much depends on how many children.  However, when it comes to guardianship, you need a will to designate caregivers for the children, should something happen to both parents. You’ll want to name both temporary and permanent guardians.  Without these documents, the court decides on the children’s caregiver, and they may end up in foster care while the court makes its decision.

As you start your new life together, one of the best ways to begin is by planning for the future, whatever it may bring. We’ve been helping families of all ages and kinds for years, and we’d be delighted to help you, so let us know if you have any questions.

Dedicated to empowering your family, building your wealth and securing your legacy,

Marc Garlett 91024

My Big Lesson From 9/11

911Like many of you, I watched the remembrances and commemorations covered on television Monday, September 11, this past week.  I thought a lot about that fateful day 16 years ago, my memories of watching the towers come down still vivid in my mind.  The horror, the sadness, still heavy on my heart.  The heroic actions of so many brave men and women still giving hope to my soul.

And then on Tuesday, the very next day, I was listening to motivational speaker Winn Claybaugh, as he addressed the Sierra Madre Rotary Club about experiencing the very same feelings I myself had just the day before.  We shared the knowledge that those thousands of people, trapped in airplanes or buildings, suddenly realized they were in the very last moments of their lives.  And we both thought about how that must have felt – but of course, we can’t really know.  The one thing we do know, however, beyond a shadow of a doubt, is that many of those people, comprehending they only had moments left to live, chose to use those precious last few seconds to make phone calls.

We’ve all heard the stories.  And we know they didn’t call their bosses, or their employees, to complain about stress in the workplace.  We know they didn’t call a neighbor or relative they were having a dispute with to take one final parting shot.  We know those that could, made phone calls to the people they loved most in the world.  And we know the simple message they conveyed was a message of love.  “I love you,” they said.  “No matter what happens, know that I love you.”

Because in the end – the literal end – nothing else mattered.  At all.  To a person, they just wanted to hear their loved one’s voice one last time.  They wanted to send one final message: “I love you.”  That was their priority; the most important thing in the world.  Nothing else mattered.  Can there be any doubt love is stronger than hate?  Can there be any mistake that what’s most important, when everything is all said and done, is the love we have for our families?

How amazing is that?! What a tribute to us as human beings. And yes, pure evil does reside in some human beings. That’s always been the case.  But there is also such pure goodness and love in so many of us.  And ultimately, this all speaks to why I love doing what I do.  Because at the very end, nothing matters but the love we have for our families.  Estate planning is the way – the only way, in fact – to guarantee that last message of love, security, and hope comes through to our loved ones loud and clear.

And when it comes right down to it, that’s the only thing that matters.  So, my question is this: have you taken the necessary steps to ensure your final message will be clearly heard and unequivocally understood by the people you love most in the world?  Estate planning can – and should be – about so much more than just legal documents.  It is – and must be – about successfully finishing the most important message of your life to the most important people in your life.

If you haven’t gotten it done yet, stop procrastinating.  Get your estate plan in place.  Don’t let the most important opportunity of your life pass you by.

Dedicated to empowering your family, building your wealth and securing your legacy,

Marc Garlett 91024

Do you really need a trust?

trust 91024Although many people equate “estate planning” with simply having a will, there are many advantages to having a trust as the centerpiece of your estate plan. While there are other estate planning tools (such as joint tenancy, transfer on death, and beneficiary designations, to name a few), only a trust provides comprehensive management of your property in the event of your legal incapacity (not being able to make financial decisions for yourself) or death.

One of the primary advantages of a trust is that it provides the ability to bypass the publicity, time, and expense of probate. Probate is the legal process by which a court decides the rightful heirs and distribution of assets of a deceased through the administration of the estate. This process can easily cost tens of thousands of dollars (and sometimes hundreds of thousands) and take a year or longer to resolve. Or course, not all assets are subject to probate. Some exemptions include jointly owned assets with rights of survivorship as well as assets with designated beneficiaries (such as life insurance, annuities, and retirement accounts) and payable upon death or transfer on death accounts. But joint tenancy beneficiary designations don’t provide the ability for someone you trust to manage your property if you’re unable to do so, so they are an incomplete solution. And having a will does not avoid probate.

Of note, if your probate estate is small enough – or it is going to a surviving spouse or domestic partner – you may qualify for a simplified probate process. In California, if your assets are worth $150,000 or more, you will likely not qualify for simplified probate and should strongly consider creating a trust. The cost of probate should also be a factor in your estate planning as creating a trust can save your heirs both time and money, not to mention emotional stress. Moreover, if you own property in another state or country, the probate process will be even more complicated because your family may face multiple probate cases after your death, one in each state where you owned property – even if you have a will. But beyond all of that, probate is a court proceeding and a matter of public record. That means your loved ones will have zero privacy. A trust, on the other hand, creates privacy which helps avoid conflicts, legal challenges, and keeps assets and beneficiaries hidden from potential predators.

A common reason to create a trust is to provide ongoing financial support for a child or another loved one who may not ever be able to manage these assets on their own. Through a special needs trust, you can designate someone to manage the assets and distribute them to your heirs under the terms you provide. Giving an inheritance to an heir directly and all at once may have unanticipated ancillary effects, such as disqualifying them from receiving some form of government benefits, enabling and funding an addiction, or encouraging irresponsible behavior that you don’t find desirable. A trust can also come with conditions that must be met before someone receives the benefit of the gift. Furthermore, if you ever become incapacitated your successor trustee – the person you name in the document to take over after you pass away – can step in and manage the trust’s assets, helping you avoid a guardianship or conservatorship (sometimes called “living” probate). This protection can be essential in an emergency or in the event you succumb to a serious, chronic illness. So unlike a will, a trust can protect against court interference or control while you are alive and after your death.

Remember, trusts are not simply just about avoiding probate. Creating a trust can give you privacy, provide ongoing financial support for loved ones, and protect you and your property in the event you are unable to manage your own assets. Simply put, the creation of a trust puts you in the driver’s seat when it comes to your assets and your wishes as opposed to leaving critical life decisions to strangers, like a judge.

Dedicated to empowering your family, building your wealth, and securing your legacy,

Do you really need a will?

Marc Garlett Estate Planning Attorney

Most Americans do not have a simple will as part of their estate plan. You might believe that a will is only for the rich and famous, and not the average person who has a far smaller net worth. Or, you may think that a will is entirely unnecessary if you have a trust, jointly owned property, or have named beneficiaries on your insurance.

So, to the question of the day – do you really need a will? The short answer is “yes.” In fact, everyone who owns anything – no matter how much or how little – should have a will. This is because a will puts you in charge of directing your wishes and the distribution of assets upon your death. Without a will or other estate plan you forfeit control and state law determine who gets what after your death. Even if you have a trust, jointly owned property, or have named beneficiaries on your insurance, a will is critically important as a “backup” plan.

As a practical matter, the simpler your affairs are (and the fewer assets you own) the less complicated your will and overall estate plan needs to be. But keep in mind, it does not take much to complicate your estate, legally speaking. For example, if you have minor children you must name a guardian for those children in the event of your death – and not only in your will as most traditional estate plans do, that leaves holes which could cause your minor children to be placed into temporary foster care, something which no parent wants.

Many people believe if they have made beneficiary designations on life insurance policies, property deeds or retirement accounts that a will is not necessary at all.  While it is true those particular designations ensure the people you intended receive benefits or inherit those assets, the distribution stops there. If there are other assets you own – such as a car, a china set, or jewelry for examples – or if you would like to give part of your estate to a charitable organization, a will becomes essential.

Furthermore, when a person dies without a will (referred to as intestate), the estate goes into probate. Probate is a judicial process by which the court decides the rightful heirs and distribution of the assets of a deceased person. Going through probate without a will can be both more time consuming and expensive than it is with a will. This is because your will can waive certain probate requirements (like having the executor post a bond or obtain judicial approval to have an estate sale). And again, probate without a will follows the state’s intestacy laws which may likely result in a less-than-perfect split of assets that may not be in line with the deceased’s wishes and often leaves many surviving loved ones unhappy.

Family dynamics also play a part in estate planning, something state intestacy laws do not account for. Many people have blended families. There may have been second or third marriages. Older couples may choose to cohabitate after a death or divorce and never legally get married. You may have to treat your children differently on current accounts due to distance, and without a will, those assets will not be distributed equitably.

It is important to note that a will can also include a no contest clause, reducing the likelihood of potential heirs arguing over its contents.

Creating a will as part of your estate plan is primarily about passing your wealth to your loved ones only after you die since a will only “works” after it’s gone through the probate court process. A will gives you both independence and control of what happens to your assets after your death. Instead of leaving the distribution of your property to California’s intestacy laws, a will can put your wishes down on paper and direct a selected person to carry out your desires exactly as expressed.

But before you decide a will is all you need, read my article next week to learn more about another, more comprehensive strategy — the revocable living trust.

Dedicated to empowering your family, building your wealth, and securing your legacy,

Marc Garlett 91024

Doesn’t Everything Automatically Go To My Spouse And Kids When I Die Anyway?

Probate-court-hearingMany people think that if they die while they are married, the law dictates everything they own goes directly to their spouse or children. They’re thinking of state rules that apply if someone dies without leaving a will. In legal jargon, this is referred to as dying “intestate.” In California’s case, the specifics will vary depending on the type of property held and the number of children you have, if any. However, the general rule is that your spouse will receive a certain share and the rest will be divided among your children.

Now that may seem like, “So far, so good,” right? Your spouse is getting an inheritance and so are the kids. But wait. Here are some examples of how the intestacy laws can – and do – fail many common family situations.

First off, if both parents of minor-aged children die intestate, then the children are almost always left without a legal guardian. Kids won’t automatically go to a godparent, even if that’s what everyone knew the parents had intended. Instead, a court will appoint someone to be the children’s guardian. In such situations, the judge may not make the decision that you, as a parent, would have made. In fact, sometimes the judge appoints the last person you would have wanted to have custody of your children.

It’s important to note that when it comes to asset division, in most cases, state intestacy law presumes that a family consists of a husband, wife, and their natural-born children. But, that’s not the way all families are structured, and things can become legally complicated for those other families quickly.

According to Wealth Management, one analysis counted 50 different types of family structures in American households – 50! Almost 18% of Americans have been remarried, and through adoption and stepfamilies, millions of children are living in blended families. The laws just haven’t kept up, and absurd results often occur for these types of families if they’ve relied on intestacy as their estate plan. For example, stepchildren that you helped raise (but didn’t legally adopt) may end up with no inheritance, while a soon-to-be-ex-spouse may inherit everything from you.

Of course, with proactive estate planning, you can control your assets and essentially eliminate the risk of these crazy results.

Also, keep in mind that intestacy provides no asset protection or preservation benefits. Without any protections in place, an estate’s assets are vulnerable to creditors, lawsuits, and others who may claim entitlement to the property. These claims would take precedence over the statutory requirements for inheritance. In other words, the family won’t be first in line; they’ll be last. They’d only be able to inherit the scraps and leftovers.

The best way to safeguard and pass along what you’ve worked so hard to build is to do your own estate planning rather than leave things to the laws of intestacy. Protect yourself, your family and your assets by talking to a qualified estate planning attorney today.

Dedicated to empowering your family, building your wealth and securing your legacy,

Marc Garlett 91024

What is Portability and How Can It Benefit You and Your Family?

TaxBill-91024The legal concept of “portability” is still relatively new in estate planning, having become available only after 2011. Since then, it’s been both a blessing (for its tax saving benefit) and a curse (because of rules that seem to be constantly shifting). Fortunately, the IRS has recently clarified some important details about portability.

So how can a portability election benefit you and your family? It could help save hundreds of thousands of dollars of estate and gift taxes for your family if you lost your husband or wife within the last few years. Although the exact mechanics of the tax remain complicated, portability makes it much easier for estate planners and tax professionals to save taxes for you and your family. But be aware, portability is not automatic (even under the new regulations), so you must take action to claim it.

Why should I care?
Portability allows a surviving spouse to inherit and use the estate tax exemption from a deceased spouse. If you’re planning isn’t as good as it could have otherwise been, portability can save hundreds of thousands of dollars of estate and gift taxes. And for those who are proactively planning, it also makes crafting your trust or will much more flexible so we can tailor the plan more towards you and your family’s needs, and less to the needs of the IRS.

What’s new with portability?
Under a new IRS revenue procedure, you now have additional time to take advantage of portability. In the past, you had only 15 months after the death of a loved one to file for portability. Now, you now have two years after the passing of a spouse to file for portability, making this option much easier to use than before.

The IRS is also allowing a unique opportunity to file a late portability estate tax return, as long as you meet certain requirements and have it submitted by January 2, 2018.

On the other hand, if you have a substantial estate (over $5.49 million) or are not a US citizen or resident alien then the traditional 15-month rule will continue to apply to you. Also, like any legal or tax issue, it’s always a good idea to obtain qualified assistance as early as possible so you can have the widest possible set of options and the best likely outcome.

What do I need to do now?
If you lost your spouse after 2011 and haven’t yet spoken with an estate planning attorney about your options, now is the time. As the stock market and housing markets have recovered in the last few years, it might be worth a second look to see if a portability election is right for you and your family, even if you previously decided against one. But whatever you decide to do, do it sooner rather than later. January 2, 2018, will be here before you know it.

Dedicated to empowering your family, building your wealth and securing your legacy,

Marc Garlett 91024