Grimaldi & Yeung

Avoid Estate Planning Mistakes

“These all-too-common misconceptions can steer your estate plans in the wrong direction right from the start. Here’s how to overcome them and tips to build the right plan for your family.”

Estate planning should be both an emotional and financial process, where people evaluate the assets they have accumulated over time and make clear decisions about how to leave their assets and legacy to those they love. The reality is not so straightforward. Emotions take over coupled with the fear that time is running short which is sometimes the case.

Reactive decisions rarely work as well in the short and long term as decisions made based on long term strategies. Here are some of the most common mistakes that people make, when creating an estate plan or revising one in response to life’s inevitable changes.

Estate plans are all about tax planning. Strategies to minimize taxes are part of estate planning, but they should not be the primary focus. Since the current federal exemption is $11.7 million for 2021, and fewer than 3% of all taxpayers need to worry about paying a federal estate tax. Even with protected tax changes coming the expected individual exemption will remain high at 5 million per person. There are other considerations to prioritize. If there is a family business, for example, what will happen to the business, especially if the children have no interest in keeping it? In this case, succession or exit planning needs to be a bigger part of the estate plan.

The children should get everything. This is a frequent response, but not always right. You may want to leave your descendants most of your estate, but ask yourself, could your lifetime’s work be put to use in another way? You don’t need to rush to an automatic answer. Give consideration to what you’d like your legacy to be. It may not only be enriching your children and grandchildren’s lives. You may wish to set a charity fund or remember a cherished friend.

My children are very different, but it’s only fair that I leave equal amounts to all of them. Treating your children equally in your estate plan is a lot like treating them exactly the same way throughout their lives. One child may be self-motivated and need no academic help, while another needs tutoring just to maintain average grades. Another may be ready to step into your shoes at the family business, with great management and finance skills, but her sister may have their interests and skills not related to the business. The same family includes offspring with different dreams, hopes, skills and abilities. Leaving everyone an equal share doesn’t always work. You can customize your plan.

Having a trust takes care of everything. Well, not exactly. In fact, if you neglect to fund a trust, your family may have a mess to deal with. A sizable estate may need multiple trusts such as revocable or irrevocable trusts. An estate plan is more complicated than trust or no trust. First, when an asset is placed into an irrevocable trust, the grantor choses to transfer control of the asset to the trustee. The trustee has a fiduciary duty to the named beneficiaries of the trust as well as to you as the grantor of the trust. The beneficiaries include the current and future beneficiaries, so the trustee may have to answer to more than one generation of beneficiaries. Choose your trustee carefully. When one family member has been named a trustee and their siblings are beneficiaries, you have created a dynamic among family members that can lead to conflict of the trustees.

Do your estate advisors work well with each other? In a perfect world your estate attorney, your accountant, and your financial advisors are a working team. This would be true, but it doesn’t always happen. You have to take a proactive stance, contacting everyone and making sure they understand that you want them to cooperate and act together. With clear direction from you, your professional advisors will be able to achieve your goals. Contact our firm and we can help you organize your Estate Planning team and avoid the mistakes and pressure which makes Estate Planning so complex.

Reference: Kiplinger (Sep. 17, 2020) “5 Unfortunate Estate Planning Myths You Probably Believe”

Attorney Advertising

Estate Planning Actions to Consider before 2020 Ends

“If you have not already been inundated with invitations to webinars, articles and newsletters regarding  estate planning, you should consider doing so before the end of the year, since you undoubtedly will receive these over the next few months.”

When it comes to estate planning, there’s no such thing as a “one-size-fits-all” solution. That is especially as we come to the year end with predictions of tax changes in the coming years. However, there are several factors that should be considered and discussed with your estate planning attorney, as recommended in this recent article from The National Law Review “Top Ten Estate Planning Recommendations before the End of 2020.”

The estate, gift and generational-skipping transfer tax exemption is now $11.58 million per person. It’s scheduled to increase every year by an inflationary indexed amount through 2025 and in 2026 will revert to $5 million if there are no further legislature tax actions. The IRS has already said that if the exemption is used this year, there will be no claw back even if new tax laws come into effect before 2025. This is a “use it or lose it” scenario. If you are planning on using it, now is the time to do so.

It is possible that Discounts, GRATS, Grantor Trusts and other estate planning techniques may go away, as a result of new laws. Consider taking advantage of commonly used estate planning tools before it is too late.

Married couples who are not ready to gift significant amounts to their children or to put assets into trusts for their children should consider the SLAT–Spousal Lifetime Access Trust. They can create and gift the federal estate tax exemption amount to a SLAT for each other and still maintain access to the assets during their life.

Interest rates are at an all-time low, and that is when tools like intra family loans, GRATs and GLATs are at their best.

Although it may seem tempting to move to Florida, Nevada, Texas and other low- or no-income tax states think about all aspects of such a move. Be aware that high tax states like New York and California are not going to let your tax revenue leave easily. Check with our firm before you make the move to be sure you follow the rules in changing your domicile from a high-income tax state.

Reference: The National Law Review (Oct. 6, 2020) “Top Ten Estate Planning Recommendations before the End of 2020”

Attorney Advertising

 

Are Trusts The Answer to All Estate Planning Needs?

“We may think of a spoiled heiress to a large fortune, whose parents were savvy enough to prevent her from having full access to her funds. On the other hand, we could imagine a loved one with special needs, whose needs will be provided for with trust-protected money.”

Trusts serve many different purposes in estate planning. They all have the intent to protect the assets placed within the trust. The type of trust determines what the protection is, and from whom it is protected.

The person who creates the trust is called a “grantor” or “settlor.” The individuals or organizations receiving the benefit of the property or assets in the trust are the “beneficiaries.” There are two basic types of beneficiaries: present interest beneficiaries and “future interest” beneficiaries. The beneficiary can be both the grantor and the beneficiary when a trust is set up for their lifetime, or it can be other people or entities.

The person who is responsible for the property within the trust is the “trustee.” This person is responsible for managing and investing for the assets in the trust while following the instructions of the trust. The trustee can be the same person as the grantor, as long as a successor is in place when the grantor/initial trustee dies or becomes incapacitated. However, the grantor still controls the trust and has full access to the trust accounts as the principal recipient of the trust.

One way to establish asset protection during the lifetime of the grantor is using an irrevocable trust. Someone other than the grantor must be the trustee, and the grantor should not have any control over the trust assets. The less power a grantor retains, the greater the asset protection.

A grantor can secure lifetime asset protection and also wishes to retain the right to income from the trust property, hold on to the use of the grantor’s residence for one’s self, or provide a protected home for an adult child upon the grantor’s death. Very specific provisions within the trust document can be drafted to accomplish many tasks.

There are many other options that can be created to accomplish the specific goals of the grantor.

Some trusts are used to protect assets from taxes, while others ensure that an individual with special needs will continue to receive needs-tested government benefits and still have access to  the trust funds for costs not covered by government benefits.

Grimaldi & Yeung LLP has a thorough understanding of the many different types of trusts and can create a trust that would best suit each individual situation and goal.

Reference: The News Enterprise (July 25, 2020) “Trusts are powerful tools which can come in many forms”

Our firm now offers Care Advocacy to service all of our clients' needs with our new social work staff. Please call our office anytime for assistance in your Estate Planning, Long Term Care Planning, Medicaid or Special Needs Planning: (718) 238-6960 or info@gylawny.com. We will be happy to schedule an appointment with one of our attorneys.

Different Trusts for Different Estate Planning Purposes

“Trusts are legal entities that own assets, and all trusts are not alike. They are created by a written trust document with certain provisions that can vary from trust to trust.”

There are a few things all trusts have in common, explains the article “All trusts are not alike,” from the Times Herald-Record. They all have a “grantor,” the person who creates the trust, a “trustee,” the person who is in charge of the trust, and “beneficiaries,” the people who receive trust income or assets. After that, they are all different. Here’s an overview of the different types of trusts and how they are used in estate planning.

“Revocable Living Trust” is a trust created while the grantor is still alive, when assets are transferred into the trust. The trustee transfers assets to beneficiaries, when the grantor dies. The trustee does not have to be appointed by the court, so there’s no need for the assets in the trust to go through probate. Living trusts are used to save time and money, when settling estates and to avoid will contests.

A “Medicaid Asset Protection Trust” (MAPT) is an irrevocable trust created during the lifetime of the grantor. It is used to shield assets from the grantor’s nursing home costs but is only effective five years after assets have been placed in the trust. The assets are also shielded from home care costs after assets are in the trust for two and a half years. Assets in the MAPT trust do not go through probate.

The Supplemental or Special Needs Trust (SNT) is used to hold assets for a disabled person who receives means-tested government benefits, like Supplemental Security Income and Medicaid. The trustee is permitted to use the trust assets to benefit the individual but may not give trust assets directly to the individual. The SNT lets the beneficiary have access to assets, without jeopardizing their government benefits.

An “Inheritance Trust” is created by the grantor for a beneficiary and leaves the inheritance in trust for the beneficiary on the death of the trust’s creator. Assets do not go directly to the beneficiary. If the beneficiary dies, the remaining assets in the trust go to the beneficiary’s children, and not to the spouse. This is a means of keeping assets in the bloodline and protected from the beneficiary’s divorces, creditors and lawsuits.

An “Irrevocable Life Insurance Trust” (ILIT) owns life insurance to pay for the grantor’s estate taxes and keeps the value of the life insurance policy out of the grantor’s estate, minimizing estate taxes. As of this writing, the federal estate tax exemption is $11.58 million per person.

A “Pet Trust” holds assets to be used to care for the grantor’s surviving pets. There is a trustee who is charge of the assets, and usually a caretaker is tasked to care for the pets. There are instances where the same person serves as the trustee and the caretaker. When the pets die, remaining trust assets go to named contingent beneficiaries.

A “Testamentary Trust” is created by a will, and assets held in a Testamentary Trust do not avoid probate and do not help to minimize estate taxes.

Our attorneys can advise and assist in the Trust that is right for your needs.

 

Our firm now offers Care Advocacy to service all of our clients' needs with our new social work staff.

 

Please call our office anytime for assistance with your Estate Planning, Long Term Care Planning, Medicaid or Special Needs Planning: (718) 238-6960 or info@gylawny.com. We will be happy to schedule an appointment with one of our attorneys.

Reference: Times Herald-Record (August 1,2020) “All trusts are not alike”

How Low-Interest Rates Create Estate Planning Opportunities

“A more present sense of one's own mortality may drive those who have not made plans before to begin the process of creating an estate plan. For those who have existing plans, are they up to date? How does the changing economic environment affect prior decisions?”

One result of the global health crisis is that interest rates are lower now than they have been in many, many years. The April, 2020 AFRs (Applicable Federal Rates), which are used to determine the least amount of interest that has to be charged for below-market loans and are often used for intra-family lending, have decreased to 0.91 percent for loans less than 36 months, 0.99 percent for loans of 36 months or more and less than nine years, and 1.44 percent for loans of nine years or longer.

The article, titled “Estate Planning in a Low Interest Rate Environment,” from The National Law Review Journal, explains that for families where intra-family lending has already occurred, these low rates provide a chance to amend the terms of current promissory notes to obtain these rates.

There are two opportunities presented:
• The amount that the borrower needs to repay is reduced, thereby easing the burden on a borrower who has a cash flow problem.
• If a parent has already lent money to a child who will eventually inherit assets from the parent, this lower interest rate will help to facilitate wealth transfer. The parent will receive lower payments under the note, minimizing the assets that are added back to the lender’s taxable estate.

Here are a few situations where these loans are typically used:
• Parents extend a loan to adult child, who is going through a challenging financial period.
• Parent lends money to a child with the understanding that the child will invest the money at a higher rate of return than the interest charged under the note, thus allowing growth to occur in the child’s estate rather than in the parent’s estate.
• Complex estate planning, where a sale is made to an intentionally defective trust, where the seller’s goal is to freeze the value of the estate for a price at which the asset was sold on an installment basis. This allows future growth to take place outside of the seller’s taxable estate.

These intra-family loans are usually part of sophisticated estate planning. Other methods include Grantor Retained Annuity Trusts (GRATs), or Charitable Lead Trusts (CLTs), which also become more attractive in a low interest rate environment.
With a GRAT, there is a transfer of assets to a trust, in which the settlor retains an annuity payment for a certain number of years. At the end of the term, the remaining assets pass to the trust beneficiaries with no estate tax implication. The CLT operates in a similar way, except that the payment for a specified number of years is made to a charity.

Speak with our attorneys about how your estate could benefit from the current low interest rate environment.
We can also assist in updating your estate plan, if you haven’t reviewed it in three or four years. If you don’t have an estate plan in place, now is the time to have one created.

Our firm now offers Care Advocacy to service all of our clients' needs with our new social work staff.
Please call our office anytime for assistance with your Estate Planning, Long Term Care Planning, Medicaid or Special Needs Planning: (718) 238-6960 or info@gylawny.com. We will be happy to schedule an appointment with one of our attorneys.

Reference: The National Law Review (April 13, 2020) “Estate Planning in a Low Interest Rate Environment”

Market Plunge Presents Opportunities for Wealthy

 

 

 

 

 

 

 

 

"The worldwide worry over coronavirus creates a glimmer of good news for at least one segment of the U.S. population: the top 0.1 percent."

A down market gives super-wealthy people the ability to use sophisticated strategies to help pass along billions of dollars to heirs, tax free, reports Accounting Today in the article "Heirs of ultra-wealthy can profit even when markets plunge." Plunging interest rates and lower stock prices make it even easier to protect those mega-fortunes from the IRAs. This also presents an opportunity to take a longer-term view of market volatility, because their beneficiaries are future generations, including family members who haven't even been born yet.

Smart individuals, the ultra-wealthy or regular people, understand that this volatility could go on for several months. However, they are invested for a long-term market. However, the richer you are, the more you can insulate yourself from both the corona virus and its effects on the economy. The wealthy investor can use this opportunity to buy stocks at a low point, for instance, buying up stock from companies in travel-related industries.

The IRS levies a 40% estate and gift tax on the biggest fortunes, exempting transfers of $11.53 million for individuals and more than $23.16 million for married couples. Families with more wealth than that often use a Grantor Retained Annuity Trust, or (GRAT), to pass money to their children and grandchildren.

Here's how it works. Stock or other assets are placed in a GRAT, a transaction that is a loan. If the stock rises in value, the proceeds go to the beneficiaries, tax-free. If the stock drops, no harm-the shares go back to the donor.  It’s a win-win for those who can use this tool, regardless of their amount of wealth.

One reason for the popularity of the GRAT is that when markets decline, there are more upsides to the assets in a GRAT. This is also the time when people who have old GRATs with losses, may want to give up on them. GRATs with even small initial losses are now unlikely to succeed. It’s better to start over with new GRATs.

Plunging interest rates are another reason for the new attention on GRATs. When taxpayers loan money to set up GRATs or other trusts, the IRS requires that the trusts pay interest back to the lender. The rates, which are set by a formula and published each month, are a hurdle that GRAT investments must clear for returns to flow to the beneficiary. The hurdle rate for a typical GRAT has fallen by half since the end of 2018 and to 1.8%. That's not counting the impact of the Fed's surprise rate cut. With Treasury yields hitting record lows, the April rate could drop to 1.2%, or even lower.

Similar IRS rules apply to loans within families, another popular strategy used to pass wealth while avoiding the estate tax. As the IRS-required rates drop, advisors say they are helping wealthy families refinance loans, so heirs and trusts are paying less back to their benefactors, usually parents or grandparents.

Please call our office anytime for assistance with a Grantor Retained Annuity Trust (GRAT), Tax Planning or with your Estate Planning, Long Term Care Planning, Medicaid or Special Needs Planning: (718) 238-6960 or info@gylawny.com. We will be happy to schedule an appointment with one of our attorneys.