Okay, this one will be short to make up for last night’s lengthy, difficult post. The myth: some folks seem to believe that life insurance proceeds are automatically exempt from estate taxes. Not true. Life insurance is income tax free when paid to a beneficiary. But, they are included in your estate for estate tax purposes if the proceeds are payable to your estate or if they are payable to a beneficiary and you possessed “incidents of ownership” in the policy at the time of your death. ...
Myth Busting: Portability Does Not Eliminate Need For Good Trust-Based Planning, But It Does Change It
There seems to be a myth circulating on the Internet created by changes in the estate taxation rules from the American Tax Relief Act of 2012 (“ATRA”): that because of “portability,” there is no longer a need for the “traditional” A-B Trust planning. Although I agree with that statement for some couples, there are many groups of people for whom this advice is woefully inadequate. (Sorry in advance — this is long and kind of dense. If you don’t want to read the details, my point is that good ...
Trust Fund Doggie?
When considering what should happen with a person’s financial resources after his or her death, many people do put something aside for the care of their pets, including naming “guardians” and setting aside funds in a “pet trust” for the benefit of the pet. However, pet trusts are usually just enough to pay a pet’s basic expenses: food, vet visits, etc. In that context, pet trusts are a sensible way to ensure that a beloved family member does not end up in a shelter in the event of the ...
Same Sex Marriage Law Update
Since my last posting regarding estate planning in same-sex marriages a few weeks back, the U.S. Supreme Court has announced it will take up the issue of the legality of same-sex marriage. The Supreme Court reviews only a limited number of cases each year (perhaps 1 or 2%), picking and choosing from the thousands of cases decided on appeal by the Courts of Appeals. A quick civics lesson: if you have a federal lawsuit (like suing under the U.S. Constitution to force a State to recognize ...
Should I Take Steps To Avoid Probate? Yes!
One of the common sources of misunderstanding in the estate planning arena is the topic of probate. Simply put, probate is a legal proceeding that takes place after a person dies, to wrap up the financial affairs of that deceased person. Typically, the process involves a number of steps: establishing whether the person had a valid will; taking an inventory of the person’s assets at death; paying any debts and taxes owed; and distributing the remaining property under the will ...
Same Sex Estate Planning — Is It Any Different?
It used to be that estate and legal planning for same sex couples was drastically different than planning for opposite sex couples, since same sex couples were, by rule, not married. With the recent court decisions allowing same sex marriage, I’m contemplating whether this distinction remains true nonetheless. For now, at least, I believe the distinction remains important and that same sex couples should, for planning purposes, continue to treat themselves as unmarried. Here’s ...
Do I Still Need A Trust?
It used to be very common for estate plans to include a two-part trust scheme, often called an AB trust, designed to avoid or minimize estate taxes. In 2012, Congress finally passed “permanent” estate tax legislation, with the estate tax exemption set at $5,000,000 per person adjusted for inflation. In other words, married couples who have less than $10,000,000 in assets no longer face serious estate taxation concerns. It might be tempting to think that the once-common trust is now a relic ...
Idaho Has A Plan For Your Money
The next estate planning myth I want to address is the belief that, if you die without a will in place, the state will get your money. Idaho (as with all states) has a series of laws that control who gets what in the event you die without a will, called the laws of “intestate succession.”These laws govern what happens to your “estate,” the legal term for a part of what you owned when you died. Not everything that you owned becomes a part of your estate. Typically, life insurance proceeds ...
Should We Get A Prenup?
I’ve been asked about premarital or prenuptial agreements — what they do and who might need one. A prenuptial or premarital agreement, as the name implies, is an agreement entered into by two people who are planning to get married. Although certainly not the most fun or romantic aspect to planning a marriage, a “prenup” is a topic many couples should discuss. (I prefer the term “premarital agreement,” so that’s what I’ll use for the rest of this post.) A premarital agreement is ...
Naming A Trust As A Beneficiary Of An Ira
This discussion comes up a lot in my estate planning – should I name a trust as a beneficiary of an IRA? The answer is almost always no, although the pros and cons need to be weighed on a case by case basis. Typically this question boils down to whether the tax consequences of naming a trust as the beneficiary are outweighed by the original purpose of the trust. To address this question, we first need to think about why the trust was created. It might be a trust designed to protect ...