Monday, June 25, 2012

7 Major Errors in Estate Planning* - Part 6 of 7

A recent article in Forbes listed one author’s opinion of the 7 Major Errors in Estate Planning.
The 7 Major Errors were listed as:

1.   Not Having a Plan
2.   Online or DIY Rather Than Professionals
3.   Failure to Review Beneficiary Designations or Titling of Assets
4.   Failure to Consider the Estate and Gift Tax Consequences of Life Insurance
5.   Maximizing Annual Gifts
6.   Failure to Take Advantage of the Estate Tax Exemption in 2012
7.   Leaving Assets outright to Adult Children

Although not as successful as other literary series such as Harry Potter, Twilight, or The Hunger Games, our blog series has been fun to produce.  I am up again for exciting installment number Six!
6. FAILURE TO TAKE ADVANTAGE OF THE ESTATE TAX EXEMPTION IN 2012
We will be holding free seminars for clients and potential clients on this exact topic at 7:00 p.m. on June 26 at our Las Vegas office and at the same time on June 27 at our Henderson office.  If you have an interest in attending, please call us at 433-4455 to RSVP.
As we have stated before in earlier blog posts, 2012 is the perfect storm for gifting opportunities.  The gift tax exemption amount is currently reunified with the estate tax exemption and since the exemption amount is set to greatly reduce next year, and most people commenting on this issue feel that the likelihood of the gift tax exemption amount again being unified with the estate tax exemption amount is low.  In plain words, there is only 6 months guaranteed to be remaining where it will be legal to gift up to $5.12 Million without having to pay gift tax.  The amount will be $1 Million next year and the future is uncertain beyond that because Congress is likely to make a change to this element of the tax code, but not likely until after the Presidential election.  The ability to gift over $5 Million out of one’s estate can result in a great estate tax reduction opportunity for clients in the right wealth category.
A few techniques for accomplishing gifting (that will also be discussed at our upcoming seminar) include the following:
·         Outright gifts to children or grandchildren (or through irrevocable trusts which is preferred and is a preview of episode 7).
·         Qualified Personal Residence Trusts (QPRT’s).
·         Intentionally Defective Grantor Trusts (IDGT’s).
·         Spousal Limited Access Trusts (SLAT’s).
·         Charitable Remainder and Charitable Lead Trusts.
·         Grantor Retained Annuity Trusts (GRAT’s).
We could have a whole spin-off blog series on this topic alone to discuss these gifting opportunities. (Think “A Different World” as a spin-off to “The Cosby Show”). 

Tuesday, June 19, 2012

July AFR's

The AFRs
Annual
Semi-annual
Quarterly
Monthly
are as follows
Short-term
0.24%
0.24%
0.24%
0.24%
Mid-term
0.92%
0.92%
0.92%
0.92%
Long-term
2.30%
2.29%
2.28%
2.28%

Tuesday, June 12, 2012

7 Major Errors in Estate Planning* - Part 5 of 7

A recent article in Forbes listed one author’s opinion of the 7 Major Errors in Estate Planning.

The 7 Major Errors were listed as:
1. Not Having a Plan
2. Online or DIY Rather Than Professionals
3. Failure to Review Beneficiary Designations or Titling of Assets
4. Failure to Consider the Estate and Gift Tax Consequences of Life Insurance
5. Maximizing Annual Gifts
6. Failure to Tax Advantage of the Estate Tax Exemption in 2012
7. Leaving Assets outright to Adult Children

As we continue to discuss each of the 7 major errors in estate planning, I am up again for number 5.
5. Maximizing Annual Gifts

Under current tax laws, the annual gift tax exclusion allows each individual to gift $13,000 per year to an unlimited number of persons without any estate or gift tax consequences.  As a result, the utilization/use of the annual gift tax exclusion is a way to transfer assets to the next generation without being subject to any gift or estate tax.  For example, a married couple with 5 children can gift $26,000 per year ($13,000 per parent) to each child free of estate or gift taxes.  The result is that each year the married couple has transferred $130,000 out of their estate to the next generation.  Over a period of 10 years, the couple will have transferred $1,300,000 tax free.
Many clients express concern about gifting thousands of dollars each year to their minor (or adult) children as the funds could be squandered.  Fortunately, there are several planning tools that can be implemented to protect the beneficiaries while allowing the parent to retain some control.
The annual gift tax exclusion can also be used to purchase life insurance policies.  If structured properly, the policy’s premiums can be paid with the annual exclusion amount and the proceeds pass to beneficiaries free of estate and gift taxes.     
We have seen a decrease in the use of the annual gift tax exclusion over the past few years as a result of the increased estate and gift tax exemption in recent years.  However, if Congress fails to intervene, the estate and gift tax exemption will return to $1 million dollars as of January 1, 2013.  This pending change in tax law may result in new appreciation for annual gifting techniques.
Overall, the annual gift tax exclusion is a great way to transfer wealth to the next generation without paying any estate or gift taxes.  Should you have any questions regarding the proper use of the annual gift tax exclusion, feel free to contact our office with your questions.   
 
Attorney - Corey Schmutz


Thursday, June 7, 2012

7 Major Errors in Estate Planning* - Part 4 of 7


Continuing the discussion of the 7 Major Errors in Estate Planning, a recent article written for Forbes, leads me to the fourth error – failure to consider the estate and gift tax consequences of life insurance. 

An asset class commonly found to be a part of a person’s portfolio, life insurance should draw the attention of the knowledgeable estate planning attorney.  When owned by the insured at his or her death, life insurance proceeds are included in the decedent’s estate which may lead to estate tax liability.  Although, for many of us, the issue of estate tax liability is often a distant concern with the current Federal estate tax exemption being just greater than $5 million for the year of 2012, the tax year of 2013 and beyond may require the estate planning attorney to resolve the issues surrounding life insurance due to the scheduled $1 million Federal estate tax exemption.  The resolution for many clients will require the insured to transfer all incidence of ownership during his or her lifetime.  This is most often accomplished with a trust which is often referred to as an irrevocable life insurance trust (ILIT)).  There are significant complexities surrounding the use of ILITs, especially if there are ongoing insurance premiums to be paid in future years.  The estate planning attorneys of Jeffrey Burr are experienced in providing resolutions to the potential adverse estate and gift tax consequences of life insurance.

 Collins A. Hunsaker, Esq.

Monday, June 4, 2012

7 Major Errors in Estate Planning* - Part 3 of 7


A recent article in Forbes listed one author’s opinion of the 7 Major Errors in Estate Planning. 
The 7 Major Errors were listed as:
1.       Not Having a Plan
2.       Online or DIY Rather Than Professionals
3.       Failure to Review Beneficiary Designations or Titling of Assets
4.       Failure to Consider the Estate and Gift Tax Consequences of Life Insurance
5.       Maximizing Annual Gifts
6.       Failure to Tax Advantage of the Estate Tax Exemption in 2012
7.       Leaving Assets outright to Adult Children
My colleagues Jason Walker and Collins Hunsaker have discussed the first two errors and how to remedy those problems. I will discuss the third major error.

Failure to Review Beneficiary Designations or Titling of Assets
I spend a significant amount of time in probate and guardianship court.  Unfortunately, I see first-hand the problems that can be created by failing to review the titling of assets or beneficiary designations.    Generally when a person creates an estate plan involving a trust, title on the assets must be changed and beneficiary designations should be modified or removed. Often times, deeds are required for real property and assignments are necessary to transfer interests in corporations, LLCs and partnerships.  As a general statement, all assets with the exception of qualified retirement plans (such as an IRA or 401K) can and should be owned by a trust.  Sadly, in some cases these changes are never made.  In other cases, new assets are purchased and not titled properly in the trust.  These oversights can be very costly as correcting the error may require an expensive probate or guardianship proceeding.  


This costly error is a simple fix.  Each year, you should review all your assets to make sure each asset is titled correctly and has the correct beneficiary named.  Statements from your financial institution will usually indicate how title is held.  Real property can be checked online through the county assessor’s webpage.   If you are unsure how an asset should be titled in your estate plan, contact your attorney for help.  A good attorney will be able to help make sure that your estate planning goals are not frustrated because of an error in the titling of assets or beneficiary designations.