How To Use a Trust to Minimize Taxes

Taxes can have one of the most significant impacts on your intentions with estate plans. This is especially important as you contemplate incapacity issues. If you no longer are able to manage your financial assets, this brings important questions to the surface about who is responsible for those assets.

Trust planning becomes crucial in this strategy because trusts can be a valuable way to minimize taxes on your estate. Trusts refer to legal arrangements that benefit people or causes you choose down the line. There are several different kinds of trusts available for estate planning purposes, and they vary in terms of how they can be activated. Discussing your personal concerns for trust planning with an experienced estate planning lawyer can help you to determine whether a living trust or an irrevocable trust is most important for you.

A living trust is a transitionary method that assists with incapacity planning, whereas an irrevocable trust means that the creator of the trust relinquishes the right to reclaim any property after the trust has been created. Furthermore, that person does not have the ability to close the trust or to make any amendments or major changes to it. As a result of these complex factors, it is crucial to select the right kind of trust for your estate planning purposes.

Make sure that you consult with an attorney who is highly familiar with these different types of trusts and who can help advise you about the right selection based on your personal goals. If you’re ready to meet with a Virginia Beach, Virginia estate planning lawyer, contact our office today.


Avoid These Estate Planning Mistakes Prior To The Biggest Wealth Transfer in History

One of the biggest wealth transfers that the United States has ever seen will take place in the coming 25 years. This is because it is anticipated that up to $68 trillion of wealth will be passed from current to future generations. This presents you a unique planning opportunity, but this requires those responsible for the funds and assets now to be forward thinking and proactive planning.

Taking a couple of planning steps now, being mindful of the possibility of disabilities, and other issues can enable you to create an estate plan that protect your loved ones needs and saves them thousands in taxes and legal fees while decreasing the possibility of delayed estate issues. One of the most common and easily avoided estate planning mistakes is failing to properly designate beneficiaries. This can be overlooked when you are first setting up your retirement plan or switching to a new investment company.

Make sure that every retirement plan, life insurance policy and brokerage plan has accurate and updated beneficiaries associated with it. You can easily set up bank deposits like savings accounts and CDs and fail to neglect a beneficiary. It’s easy enough to add a transfer on death designation which allows this account to simply bypass probate and go directly to your beneficiaries.

Be mindful of the potential pitfalls of naming a minor as a beneficiary. You can instead list a guardian for the minor child inside your will, meaning that person is also appointed to manage any investments or property that the minor inherits until they achieve 18 of 21.

If you have established a trust, make sure that you follow through with funding it and have a consultation with an experienced estate planning attorney about your tax situation now and your anticipated tax situation in the future.


Study Shows that Some of America’s Wealthiest People Are Ready to Transfer Their Assets

The tax overhaul from 2017 has prompted many people to rethink their overall estate and tax strategies. The coronavirus pandemic has also made it easier for some of America’s wealthiest families to pass on assets to their grandchildren and children tax free. Volatile markets and plunging interest rates have created a unique opportunity just keeping plenty of financial advisors and estate planners busy.

Some of the ways that wealthy families are taking advantage of this current market is to loan assets or cash to other family members. This means that heirs are eligible to borrow up to millions of dollars and then reinvest that money in profit for many upsides. Many beneficiaries today would be eligible to lock in extremely low rates for years or even decades.

Other estate planning strategies, such as those that relay on loans to trusts are also extremely popular. The advantage of these techniques is that they don’t eat into the gift tax exemption for 2020. Many wealthy families are scheduling consultations with their estate planning lawyers to discuss grantor retained annuity trusts which enables beneficiaries to profit from future investment gains with minimal or no risk of losing money.

Our office is here to help- are you concerned with the most effective strategies to pass on your wealth to the next generation? We can advise you about next steps so you know what to expect. Contact our Virginia Beach office today.



List Of ‘Where Not To Die’ Updated For 2015

In the somewhat macabre Forbes magazine’s annual list of “where not to die in 2015,” some changes are noted over the recommendations for the current year.

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(Photo credit: Wikipedia)
Since most people probably think there is no such thing as a good place to die at all, the focus for the publication’s ongoing series tends to be on life’s other main inevitability, taxes. “The tally of death tax jurisdictions remains the same for 2015, 19 states plus the District of Columbia, but eight states are ushering in changes in 2015,” according to the article. “The states are lessening the death tax bite by increasing the amount exempt from the tax, indexing the exemption amount for inflation, and eliminating ‘cliff’ provisions that tax the first dollar of an estate.”
The biggest changes, the story noted, were made in New York and Maryland.
“The Maryland legislature acted first. The new law gradually increases the amount exempt from the state estate tax from $1 million this year, to $1.5 million in 2015, $2 million in 2016, $3 million in 2017, and $4 million in 2018. Finally, in 2019 it will match the federal exemption, which is projected to be $5.9 million.
“Still there’s a big catch in Maryland for some: even if no estate tax is due, depending whom you leave your assets to at death, a separate inheritance tax may be assessed. Spouses, children and their spouses and children, parents and siblings are all exempt from the state inheritance tax, but a niece or aunt or friend, for example, would owe the inheritance tax at a rate of 10 percent. Maryland and New Jersey are the only two states that have an inheritance tax in addition to an estate tax.”
The changes in New York were described in the article as “sweeping.”
In New York, lawmakers decided to more than double the exemption for deaths after April 1 of this year, from $1 million to $2,062,500. The exemption in the Empire State will also increase over time, to eventually match the federal exemption, reaching $5,250,000 by April 1, 2017.
“Other states where the exemption amounts are climbing include Tennessee, Minnesota and Rhode Island,” according to the article. “Tennessee’s estate tax is on its way out; the exemption is $5 million for 2015, and it’s repealed as of Jan. 1, 2016. Minnesota’s exemption is climbing steadily; it will be $1.4 million in 2015, going up to $2 million in 2018. Rhode Island bumped its exemption amount from $921,655 this year to $1.5 million in 2015. The $1.5 million will be indexed for inflation. Also a big deal: Rhode Island eliminated a “cliff” so the tax only kicks in on amounts above the $1.5 million exemption amount.
“Other states indexing their exemptions for inflation like Rhode Island are Washington, with a base exemption of $2 million, and Hawaii and Delaware, which both match the federal exemption amount.”

Those With Offshore Accounts Facing More Scrutiny

Honesty is the best policy, but the best way of being honest with the Internal Revenue Service when it comes to offshore accounts isn’t always easy to discern.

Logo of Internal Revenue Service, USA
Logo of Internal Revenue Service, USA (Photo credit: Wikipedia)
A recent article in Forbes magazine focuses of Credit Suisse officials pleading guilty back in May to conspiring to add U.S. tax cheaters.
That’s just the tip of the iceberg.
“More than 100 other Swiss banks are handing over leads that should eventually out more U.S. tax dodgers,” according to the article. “Israeli, Asian and Caribbean banks are all under investigation. Plus, the Foreign Account Tax Compliance Act, which took effect July 1, requires foreign financial institutions to report accounts held by U.S. persons to the Internal Revenue Service.
“But the best way to get right with Uncle Sam isn’t always clear–especially if, like lots of account holders, you’re not a flagrant tax cheat.”
While more than 45,000 U.S. residents are participating in the Offshore Voluntary Disclosure Program of the IRS, and paying in excess of $6.5 billion in back taxes in the process, the story points out that’s only a small percentage of people who admit on their tax returns that they “have a financial interest in or signature authority over a financial account, such as a bank account, securities account or brokerage account, located in a foreign country.”
“Some taxpayers decide to comply only going forward, gambling that an understaffed IRS won’t audit their old 1040s within the usual three-year statute of limitations,” the article continues. “Others have done ‘quiet disclosure,’ sending the IRS amended back tax returns and a check.
Heirs who don’t know all the facts and account holders whose behavior falls in gray areas have some tricky decisions to make, especially since the IRS in June made a ‘streamlined filing compliance option widely available. Under it a taxpayer, or his estate, has to pay only three years of back taxes, plus a (Foreign Bank Accounts Report) penalty equal to 5 percent of the account’s highest end-of-the-year value during the last six years. The catch? To qualify you must certify that previous lapses resulted from ‘non-willful’ conduct, which the IRS vaguely defines as ‘negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.’ ”
“All of our clients are going to think their actions are not willful, but the government might not agree,” Fort Lauderdale tax lawyer Jeffrey A. Neiman, a former offshore prosecutor, told the magazine.

International Tax Disputes Are A Growing Issue

Tax (Photo credit: 401(K) 2013)
Whether it’s called an impostos (Portuguese), a belasten (Dutch) or a tassare (Italian), taxes are an issue all over the world.
“The global recession has increased the focus on inheritance and wealth taxes in recent years,” according to the Ernst and Young International Estate and Inheritance Tax Guide for 2013. “As governments endeavor to restore public finances to health, they are doing all they can to raise tax revenues and individual taxpayers have remained firmly in their sights. Around the world we have seen an increase in the personal tax burden. For those countries experiencing deeper levels of austerity and distress, there has also been a propensity for tax policymakers to popularize those taxes that appear to target wealthy individuals and those benefiting from increased property values.
“Whether in crisis or not, many countries are rapidly increasing the tax burden in these areas in an attempt to reduce their deficits.”
This is the case, the guide’s authors note, in countries that do not have high levels of public debt and even in some emerging nations.
“At the same time, as people and capital become increasing mobile, the number of international inheritance tax disputes is on the rise,” the guide states. “When any tax issue crosses borders it inevitably becomes more complex. Conversely, bilateral treaties preventing double taxation often do not cover estates or inheritances and the risks of international successions being taxed more heavily are therefore on the rise.
“Many jurisdictions have far-reaching laws that give them tax rights when people inherit property from another country or where the deceased or the heir are resident, domiciled or hold nationality in another jurisdiction. Frequently, two or more countries may apply inheritance tax on the assets involved. Cross-border inheritance tax problems do not just affect individuals either; businesses can often face transfer difficulties upon the death of their owners.”

Tax-Free Gifts Flowed After Congress Changed The Law

A law passed late in 2010 has resulted in a quadrupling of tax-free gifts less than two years later, according to a recent item by Bloomberg News.

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(Photo credit: Wikipedia)
Congress approved legislation that let wealthy Americans make gifts with no tax penalties of as much as $5 million, and they sure responded, the story noted.
“U.S. taxpayers reported making $122 billion in nontaxable gifts on the returns they filed in 2012, more than four times the amount in each of the two previous years,” according to Bloomberg News.
The Internal Revenue Service released the data in late January.
“Most of the money, $84 billion, came in the form of gifts exceeding $1 million, and those were made by fewer than 30,000 people, according to the IRS,” the story stated. “The data cover tax returns filed in 2012. Typically, gift-tax returns are due on April 15 of the year after the gift is made.
“The law created a chance for wealthy families to move assets out of their estates and let their heirs benefit from any appreciation in value, said Lisa Featherngill, a managing director at Abbot Downing, a wealth-management unit of Wells Fargo and Co.”
“There was a huge scramble after 2010 to take advantage of the new law,” she told Bloomberg News. “There was concern that the law was going to revert.”
The 2010 law increased the lifetime gift-tax exclusion to $5 million from $1 million,” the story noted.
“The 2010 law was temporary and was scheduled to expire in December 2012, and estate planners encouraged their clients to make gifts soon in case Congress changed the law,” Bloomberg noted. “In January 2013, after the higher exemptions had technically expired, Congress extended the gift-tax changes and permanently linked them to inflation. The exclusion this year is $5.34 million per person.
That permanent feature of the tax code means that the increase in nontaxable gifts in 2012 probably won’t last, said Harry Stein, associate director of fiscal policy at the Center for American Progress, a Washington group typically aligned with Democrats.”

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Preparing for the inevitable can be a kindness to others

Along with taxes, we all face one other grim inevitability: We’re all going to die.
No one but tax attorneys and IRS agents likes to think about the former, and possibly only morticians routinely contemplate the latter, but the prudent person sets aside money to pay taxes and wise individuals make some preparations for their passing.
Think of it as a last kindness to the people you love.
The website of the American Bar Association offers a comprehensive list of ways in which people can be as prepared as possible. That address is
“You’ll want to minimize your relative’s distress during the trying months after your departure,” the site states.
One of the more important sections of that page on the site is an area entitled “Cushioning the Blow.”
“Many people are as concerned with sparing their survivors grief and stress as they are about dying themselves,” the site states. “Especially in families where one spouse is the primary wage earner, the loss of income from that spouse’s death can be as devastating financially as it is emotionally. For that reason, your estate planning should include some provision for an emergency fund for your survivors, to tide them over the period immediately following your death.”
Among the many other items included are:

  • Final instructions for a funeral and burial
  • Making provisions in a will for the disposal of personal property and even of business property
  • Selecting the proper person to handle the probate of the estate of exploring ways in which probate can be avoided altogether

While Not Advisable, Battling IRS Need Not Mean Defeat

Getting into a fight with the Internal Revenue Service is almost never a good idea.
However, one wealthy woman did win a legal battle regarding the gift tax exemption.
“There wouldn’t seem to be a whole lot of loopholes available for people making use of the gift tax exemption to reduce their estate taxes,” according to a recent article on the website Lifehealthpro. “But that doesn’t stop people from trying to invent ways around it. One such person was Jean Steinberg, a very wealthy 89-year-old woman with four daughters. She gave the daughters a $72 million gift of cash and securities, which, needless to say, was well over the gift tax limit. But she came up with a strategy to reduce the value of that gift, and thereby reduce the taxes on them.”
That strategy, according to the story’s author, Tom Nawrocki, hinged on what’s termed the “three-year rule,” which is aimed at preventing people from giving away their property just prior to death.
“If Steinberg had passed away within three years of making the gift, the assets would revert to her estate, and the estate would owe tax on it,” the article continued. “In order to keep her estate tax from paying the full rate on that amount, Steinberg asked her daughters to take the full responsibility for it if she should pass away within three years.
“Steinberg’s daughters agreed to assume any gift or estate taxes that would result if she passed away within three years of making the gift. She then made the claim that the value of their gift should be reduced by the amount that would revert back to the estate in case of their mother’s death. The gift had been drawn up very carefully. If the daughters did not agree to cover the estate taxes, they wouldn’t be eligible for any further distributions from the estate. Therefore, Steinberg argued, the gift was contingent on the payment of those taxes and should be reduced by their value. And since Steinberg was 89 at the time, there was a good chance she wouldn’t make it through that three-year window.”
The IRS naturally disputed this interpretation of things, and wanted an additional $1.8 million in taxes.
“But Steinberg, who had hung in there and was still alive, fought the IRS ruling. Earlier this month, the tax court decided in her favor,” Nawrocki wrote. “It ruled that the increased tax burden the daughters took on did indeed count as a reduction for the value of the net gift.”