Author Archives: Robert Mondo

The advent of websites like “Legal Zoom” may lead you to believe that you can create your own estate plan without the assistance of a qualified Estate Planning attorney. You may believe or have heard that writing your intentions on a piece of paper might suffice as a Will. When you write your testamentary intentions on a piece of paper entirely in your own handwriting and sign and date it, that’s called a holographic Will. While creating your own estate plan without the assistance of a qualified Estate Planning attorney may tempt you, using a holographic Will or any other documents that were not drafted by an attorney to dispose of your estate upon your death will likely cause more problems than it solves. Let’s look at an example based upon a recent North Dakota case that highlights just some of the issues that holographic Wills create.

Assume that Bill died survived by several siblings, including Joel, and one son, Luke. Upon Bill’s death, Luke sought informal probate and was appointed as co-personal representative along with his cousin. A few months later, Joel submitted Bill’s purported holographic Will for formal probate. The purported holographic Will read as follows:

My Last Will and Testament
Bill Murray
I leave to Joel Murray
Everything I own
P.S. Bury me in Malibu
4-8-04

The court heard the petition for formal probate and Joel introduced testimony from seven witnesses, most of whom testified that the signature and all portions of the document were in Bill’s handwriting. The court found that Bill’s signature was his signature based upon the evidence offered. The court also held that the clause “everything I own” was not in Bill’s handwriting because the ink appeared lighter, the handwriting slanted differently, and that clause was smaller in text and printed when the remainder of the document was a mix of cursive and print. According to the court, “everything I own” was a material clause, required under North Dakota law. Without the material clause, the document failed to express the donative and testamentary intent necessary for a valid holographic Will. Joel appealed the lower court’s findings, but the higher court ultimately agreed with the lower court findings.

The example above demonstrates just a few of the myriad issues that arise with a holographic Will. Some states like Florida, Illinois, Missouri, New Hampshire, and Wisconsin may accept a holographic Will if the document otherwise meets the statutory requirements for a valid Will, including witness and notary requirements. Maryland and New York recognize holographic Wills made by members of the Armed Forces, but only for the year immediately following the service member’s discharge. A handful of states such as Alabama, Connecticut, Iowa, Washington, and Wisconsin do not recognize a holographic Will made within the state but will honor those made in other states if the instrument is valid in that state. Finally, about half of all states, including California, Kentucky, Louisiana, Texas, and Virginia recognize a holographic Will.

Even in those states that recognize holographic Wills, uncertainty looms when folks create do-it-yourself estate plans. For example, consider the estate of the Queen of Soul, Aretha Franklin. Aretha died in 2018, presumably intestate. Under the laws of Michigan, that meant the distribution of her estate equally among her four children, one of whom has special needs. A few months later, while clearing out Aretha’s home, her niece found three handwritten documents expressing conflicting testamentary directions. All three contained illegible portions, and Aretha failed to execute any of those documents with the requisite formalities for a Will. Although an expert confirmed that all documents were in Aretha’s handwriting, much remains unclear, including whether the documents were simply drafts or her do-it-yourself final estate plan. Sometime later, one of her sons obtained a fourth will along with Aretha’s handwritten notes from a law firm Aretha allegedly had engaged to help her complete her Estate Planning. That son submitted these documents to the probate court and requested that the court admit the documents as his mother’s Will. Although a trial was set to occur in August 2021, no formal opinion has yet been issued. Aretha’s family has waited over three and a half years for distribution from the estate. Are they a “Chain of Fools?” Perhaps it’s time to “R-E-S-P-E-C-T” Aretha’s written instructions; determining those instructions remains the problem.

As the North Dakota case and Aretha’s estate illustrate, holographic Wills and do-it-yourself plans create ambiguities in many situations. Lack of clearly defined beneficiaries, too many beneficiaries, and failing to account for the death of a beneficiary all exacerbate the issue. Legibility and authenticity pose problems as well. Finally, although not discussed in the above examples, consider what happens if the holographic Will or self-created plan disposes of only part of the estate or disposes of assets that the testator does not own. Holographic Wills and other do-it-yourself plans often fail to account for unique circumstances because the author lacks the specialized knowledge of an experienced Estate Planning attorney. Leaving something as important as the distribution of assets upon death to a holographic Will or self-created plan leaves the testator’s family vulnerable to in-fighting, wastes time, and causes significant expense.

Holographic Wills and self-created documents complicate, rather than simplify, an estate. It’s important to speak with a qualified Estate Planning attorney regarding your estate plan and your unique circumstances. I recommend only the use of Revocable Living Trusts as Will substitutes to avoid probate and to provide certain other protections during life, including simplified asset management during periods of disability. If you have a holographic Will, a self-created estate plan, or have considered writing one, don’t! Instead, consult with me and I can ensure that the documents you sign are legally valid, distribute your assets in accordance with your wishes, and account for your distinct circumstances. Save your loved ones that time and expense.

Although Individual Retirement Accounts (“IRAs”) have become ubiquitous in the Estate Planning world, they are relatively young having been created in 1974 with the passage of the Employee Retirement Income Security Act. Recently, the Setting Every Community Up for Retirement Enhancement Act of 2019 (“SECURE Act”) made significant changes to the rules regarding IRAs including raising the age at which taxpayers had to begin taking their Required Minimum Distributions (“RMDs”). Complex provisions of the Internal Revenue Code and Treasury Regulations govern RMDs and the calculation thereof. Determining the amount of an RMD for a particular year puzzles taxpayers and Estate Planning practitioners, alike.

In simple terms, the RMD is a fraction, the numerator of which is the IRA account balance on December 31 of the prior year and the denominator of which is the applicable distribution period. The IRS publishes tables in IRS Publication 590-B and Treas. Reg. §1.401(a)(9)-9 that provide the applicable distribution period based upon the age of the individual and their status as a participant, spouse, or non-spouse beneficiary. The IRS published revised tables effective January 1, 2022. The updated tables will lower the tax burden for taxpayers who use their lifetime to determine RMDs. Let’s review an example that demonstrates how the revised tables help lower potential tax liability.

Assume that Patty Participant turned 80 in 2021 and that her December 31, 2020, IRA balance was $2 million. Participants whose spouses are not more than ten years younger use the Uniform Life Table to calculate their applicable distribution period. That table gives an applicable distribution period of 18.7. Her 2021 RMD was $106,951.87 (2,000,000/18.7). Now let’s assume that Patty turned 80 in 2022 and that her December 31, 2021, IRA balance was $2 million. The updated Uniform Life Table gives Patty a new applicable distribution period of 20.2. Thus, Patty’s 2022 RMD is $99,009.90 ($2,000,000/20.2). This produces a difference of $7,941.97 between the RMDs calculated under the prior and revised Uniform Life Table. This difference could translate to a few thousand dollars in tax savings, depending upon Patty’s tax bracket.

Let’s change the facts to see how the updated tables affect certain designated beneficiaries. Assume Patty Participant dies in 2022 and names her spouse, Benjamin Beneficiary, as the sole beneficiary. Benjamin qualifies as an EDB under the SECURE Act. Spouses who are not more than ten years younger than their participant spouse determine their applicable distribution period using the Single Life Table, just like any other EDB. Let’s assume that Patty’s balance as of December 31, 2021, was $2 million and that Benjamin turns 75 in 2022. Under the updated Single Life Table, the applicable distribution period is 14.8. Benjamin needs to withdraw $135,135.14 ($2,000,000/14.8) in 2022 for his RMD. Under the prior tables, Benjamin would have had an applicable distribution period of 13.4 producing an RMD of $149,253.73 ($2,000,000/13.4). This difference resulted in an additional amount of $14,118.59 ($149,253.73-$135,135.14) distributable as an RMD under the prior Single Life Table.

Aside from surviving spouses and EDBs, certain other beneficiaries may use these tables. Let’s assume that Patty’s designated beneficiary is a non-spouse beneficiary in a pre-SECURE Act world. Pre-SECURE Act designated beneficiaries used the Single Life Table to determine their RMDs. Non-spouse beneficiaries calculate their applicable distribution period for the first year and then subtract one each subsequent year. Let’s assume that Patty died in 2015 and named her son, Brian Beneficiary, as the designated beneficiary. In 2016 Brian turned 30 and according to the Single Life Table in effect then, the applicable distribution period was 53.3. In 2017, his applicable distribution period was 52.3 (53.3-1). In 2022, six years after the initial determination date, Brian would use an applicable distribution period of 47.3 (53.3-6) to calculate his RMD. The new tables change that. Under the new tables, the non-spouse designated beneficiary uses their age as of the participant’s date of death to determine the applicable distribution period. Once the beneficiary has that number, the beneficiary subtracts the number of years that have passed since the first RMD to recalculate their RMD under the revised tables. Brian’s applicable distribution period under the new table based upon his age at Patty’s death is 55.3. Six years have passed, so his divisor for 2022 is 49.3 (55.3-6). This same process applies to any non-spouse EDB where the participant died post-SECURE, but prior to 2022.

Many advisors focus on the high-level plan without understanding the administrative details governing IRAs which they leave to the plan administrators and IRA custodians. As the Estate Planning world evolves, professionals seek ways to become better integrated advisors to their clients. The new tables extend the life expectancy for most individuals meaning smaller RMDs, which translates to lower tax liabilities. If you receive RMDs from an IRA, then it’s vital to review your RMDs to ensure proper calculation under the updated life expectancy tables. If you have questions regarding your own RMDs, reach out to me for help calculating your 2022 RMD.

Since the onset of the pandemic, many individuals have decided to relocate. Some move to be closer to family, others for better weather. Still others change domicile for financial reasons, like the pursuit of different job opportunities or for lower taxes. I advise individuals who move to update their Estate Planning documents to conform with the rules of the new state of residence. Numerous factors impact an estate plan, many of which originate from the state of domicile. For example, it’s important to know whether the state is community property, elective community property, or a separate property state. It’s important to understand what forms of ownership the state acknowledges and the nuances of property ownership in that state. Understanding the property ownership and nuances of the state left behind may also impact Estate Planning. Finally, new residents need to understand how state and local taxation works, including whether the state imposes an income tax, gift tax, estate tax, or inheritance tax. If the state imposes an income tax, then the resident needs to determine what types of income will be subject to taxation and may be surprised to learn that their new state taxes Social Security benefits.

The federal government includes in income a portion of your Social Security retirement, disability, and other benefits if your income exceeds a certain amount. Some states follow the federal government’s lead and include these benefits in income for state income tax purposes. Let’s start, however, with those states that do not include these benefits in income. Eight states, including Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming do not impose a state income tax. This means that a resident’s Social Security benefits are safe from state income tax liability. Of the remaining forty-two states, only twelve states include Social Security benefits in the calculation of taxable income. North Dakota used to tax Social Security benefits but amended its tax code in 2021 to remove Social Security benefits from the statutory definition of taxable income. Thus, less than one-quarter of the states in the United States impose a tax on Social Security benefits, some of which depend upon the resident’s income or age. Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia tax some or all their residents’ Social Security benefits.

In the states that impose taxes on these benefits, the policies and rules regarding taxation vary widely. For example, Colorado imposes a flat tax of 4.55% on Social Security benefits; however, it also allows an offsetting deduction of up to $20,000 in retirement income for those aged 55 to 64, which increases to $24,000 for those aged 65 and older. Colorado passed legislation that will allow residents to deduct all federally taxable Social Security benefits from their state income beginning in 2022. For residents in Connecticut, Kansas, Nebraska, and Vermont, if their state Adjusted Gross Income (“AGI”) is below a certain amount based upon filing status, then residents need not worry about taxation of their Social Security benefits. Nebraska began to phase out taxation of Social Security benefits in 2021, with the phase-out continuing until 2025 when at which time lawmakers will vote on whether to eliminate the tax on Social Security benefits altogether by 2030. In Missouri, if state AGI is below a threshold amount and the resident is over the age of 62, then the state will not tax Social Security benefits. Even for those Missourians whose income exceeds the threshold amount, the state may only partially tax benefits. For residents in those states whose income exceeds the set amount, the state’s department of revenue generally imposes tax at the same rate as other income.

Minnesota, Montana, and New Mexico follow the Federal guidelines to some degree by allowing Social Security benefits for those residents whose state AGI does not exceed $25,000 for single filers, or $32,000 for married filing jointly, to escape taxation. States deviate slightly from the Federal model in determining the amount of Social Security benefits subject to taxation and the rate of tax. For example, Utah uses the Federal formula to determine how much of a resident’s benefits will be subject to tax but applies its own rate of tax. In addition, Utah offers residents partial credits for those Social Security benefits taxed at the Federal level.

Rhode Island does not impose taxes on Social Security benefits for anyone who has reached full retirement age as defined by the Social Security Administration if their state AGI does not exceed $86,350 for single filers or head of household and $107,950 for married filing jointly. Finally, West Virginia has begun to phase out state income taxes on Social Security benefits for those making less than $50,000 ($100,000, if married) in 2021 by allowing residents to exclude 65% of Social Security benefits from taxable income. In 2022, West Virginia will not tax Social Security benefits for those residents with income below those amounts. If income exceeds those amounts, the benefits will be taxed according to the Federal model.

As is clear, it’s important to understand how your state views Social Security benefits. There is no uniformity in the treatment of these benefits. For each state’s specific guidelines, contact that state’s Department of Revenue or a qualified Estate Planning attorney. Regardless of whether or how your state taxes Social Security benefits, it’s important to consider the ramifications and examine ways that you might be able to reduce your tax burden. Your after-tax income will determine how you, your spouse, and your loved ones will spend your retirement. Remember that just because a state taxes Social Security benefits does not make it unsuitable for retirement. I can help you decide what’s best for your family and how to plan for your potential tax liability.

While I recommend creating a basic estate plan, usually with a revocable trust as the centerpiece. Revocable trusts provide an easy, yet effective way to avoid probate in most states. In those states in which probate is not a concern, we use trusts to provide asset and creditor protection or to protect a beneficiary from themself. As estate plans become more complex, they tend to involve more trusts. These trusts may contain large sums of money, sometimes all in one account. I have fielded many a question from clients regarding how much of the funds in the trust were insured. If the funds are deposited in a bank or savings and loan that is insured by the Federal Deposit Insurance Company (“FDIC”), then it’s possible to answer that question although the rules can be confusing. Recently, those rules were simplified. To understand the changes fully, we must understand the protections offered under the existing framework.

Under the current rules, which remain in place until April 1, 2024, deposits are insured up to $250,000 per depositor, per ownership category, per institution. As a simple example, let’s assume that Johnny has $200,000 in BigBank and no other accounts anywhere. His entire $200,000 is covered. Now let’s assume that Johnny’s $200,000 was titled in a revocable trust, with Johnny as the sole grantor. Upon Johnny’s death, the assets will pass to his daughter, Lyla. For a revocable trust, the FDIC would insure up to $250,000 per institution, per trust beneficiary, up to a maximum of 5 beneficiaries for a total of $1,250,000. The rules look to the primary beneficiaries of the trust, which the FDIC defines as those individuals who would take upon the death of the grantor of the trust. Contingent beneficiaries and more remote beneficiaries are not considered. In our example above, then, Lyla is the sole beneficiary of the trust upon Johnny’s death meaning that the entire $200,000 would be protected. If Johnny had $500,000 in the account with BigBank, only $250,000 would be protected. He could, however, transfer $250,000 to HugeBank and that amount would be covered as well because it’s at a different institution. If Johnny had 5 children, all of whom were the beneficiaries of his revocable trust upon his death, then $1,250,000 in a revocable trust account at BigBank would be FDIC insured (5 x $250,000). If he had more than that, then he would have to transfer the overage to a new bank, keeping in mind that the FDIC insures no more than $250,000, per institution, per beneficiary, up to a maximum of $1,250,000 regardless of additional beneficiaries or funds. If Johnny were married and had a joint revocable trust, assuming that there were five beneficiaries that took upon the death of both grantors, then the FDIC would cover up to $2,500,000 at any one institution.

Let’s change the facts a bit and assume instead that Johnny’s trust is irrevocable. How does that change the analysis? If the beneficiaries of the trust can be identified and are non-contingent beneficiaries, then the FDIC insurance would work like it does for a revocable trust. If, however, some of the beneficial interests are contingent, then those contingent interests would be added together and insured up to a maximum of $250,000, regardless of the number of beneficiaries or the allocation of the funds among the beneficiaries. To demonstrate, let’s assume that Johnny has 5 children and that Lyla’s interest is the only non-contingent interest. If Johnny has $600,000 in BigBank, only $500,000 would be covered because the contingent interests would be added together and treated as one interest, notwithstanding that there are 4 contingent interest beneficiaries. Thus, $250,000 for Lyla’s non-contingent interest and $250,000 for the collective contingent interests would be covered.

Note that if the funds in an account represent both contingent and non-contingent interests, then the FDIC would separate those interests and apply the rules as described above. It’s easy to see how multiple trusts complicate these rules. Interestingly, according to the FDIC, it receives more inquiries related to insurance coverage for trusts than all other types of deposits combined. To simplify the rules, the FDIC issued new rules on January 21, 2022, with a delayed effective date of April 1, 2024.

The new rules merge the categories for revocable and irrevocable trusts and use a simpler, more consistent approach to determine coverage. Now, each grantor’s trust deposits will be insured up to the standard maximum amount of $250,000, multiplied by the number of beneficiaries of the trust, not to exceed five. It no longer matters whether the trust is revocable or irrevocable or whether the interests are contingent or fixed. These rules effectively limit coverage for a grantor’s deposits at each institution to $1,250,000 for a single grantor trust and $2,500,000 for a joint trust, assuming that there are five beneficiaries of such trusts. The streamlined rules provide depositors and bankers guidance that’s easy to understand and will facilitate the prompt payment of deposit insurance, when necessary.

While these rules do not go into effect immediately, it’s important that we begin understanding them now so that we can make any changes that may be necessary prior to the effective date. If you are concerned about FDIC coverage for trust accounts, or in general, talk with me about it. I can help you understand current coverage levels and advise you regarding any moves that you should make now or in the future to receive maximum FDIC insurance coverage.

Technology has obliterated Estate Planning of years past. Gone are the days of the stodgy attorney sitting in a smoke-filled room discussing arcane provisions of the Internal Revenue Code. Modern Estate Planning consists of Zoom meetings discussing cutting-edge techniques. As this article will demonstrate, technology has changed the way that we think about and approach Estate Planning. Digital assets and emerging technology require Estate Planning attorneys to change their practices. Electronic Wills have gained acceptance in certain jurisdictions, many individuals own cryptocurrency, non-fungible tokens have emerged as individuals consider their digital identity, and smartphones replaced flip phones long ago. To great fanfare in mid-December Apple released iOS 15.2 introducing the concept of the “Legacy Contact” setting. Okay, perhaps it wasn’t to great fanfare, but it certainly garnered attention in the Estate Planning world. The technology giant finally joined Google and Meta (formerly known as Facebook) in providing a way for designated parties to access the digital content of an account holder after death. Many expressed surprise that Apple took so long to release such a necessary tool.

For those who are unfamiliar with the concept of a Legacy Contact, anyone who has a Facebook account, Google account, or an iPhone can select one or more individuals (Apple allows up to five, although Google allows up to ten) to access those accounts and the digital content therein after death. Without this access, the loved ones left behind would lose the treasure trove of information contained in these accounts. While most of this information lacks monetary value, it’s priceless when considering sentimental value. Each organization has enacted different protocols regarding how much control the owner has over what gets shared after death. For example, Apple takes an “all or nothing approach” essentially allowing the Legacy Contact to access everything including messages, files, and photographs if they have the access key. Google, however, employs a more selective approach and provides options that allow the owner to tailor what gets shared after a period of inactivity, even going so far as to allow a complete wipe of the account after a certain amount of time.

Although many states have adopted some form of the Revised Fiduciary Access to Digital Assets Act (the “Act”) which gives a fiduciary access to these accounts, the Act does not apply to social media sites. To address the proliferation of these accounts, many Estate Planning attorneys began including language in their Wills and Trusts specifying that the named fiduciaries would have access to all digital assets intending that those provisions would provide the fiduciary with the required powers to dispose of the content. That did not always work. Sometimes, even with appropriately inclusive language, organizations required the fiduciary to produce a court order to access the account. Obviously, this practice caused frustration because obtaining a court order isn’t always an easy or inexpensive task. Thus, the best practice requires a proactive approach by the accountholder. The accountholder should review the policy settings for all digital assets, both monetary and sentimental, and take appropriate steps to ensure access, if desired, after death.

Most digital accounts allow set up of the Legacy Contact under “Account Information,” “Settings,” or “Inactive Account.”  As with the individuals named in your Estate Planning documents, it’s important to consider who should be named, in what capacity, and how much access you want to give that person if you have the option to limit access. Remember that not every digital platform allows you to choose what information gets shared so it’s important to review the policies and procedures for all your digital platforms and remember that the individual selected may still need to provide requested documentation or proof of their own identity. Of course, you can always provide access during life, but that creates a different issue of shared access while you are alive and actively using the account.

It’s hard to accept our own mortality; however, our digital identities give us the opportunity to continue our legacy beyond our years on earth. Even though technology moves fast enough to make your head spin, it’s vital to review the settings for your own digital assets and discuss your concerns with me.

Estate planning involves more than planning to avoid the estate tax, although understanding the estate tax and its impact on a plan are certainly required. Until 1916, the United States did not have an estate tax. The Revenue Act of 1916 assessed taxes on estates (“Estate Tax”) based upon the value of an individual’s assets as of the date of death when President Woodrow Wilson signed legislation creating it. The first iteration of the Estate Tax allowed an exemption of $50,000 with rates ranging from one percent (1%) to ten percent (10%) on estates over $5 million. Thereafter, the rate jumped to twenty-five percent (25%) for estates of $10 million.

Originally, the Estate Tax was imposed to fund the United States’ involvement in the first world war and even after that war ended, the Estate Tax stuck. The Revenue Act of 1924 increased the top tax rate to 40% on estates over $10 million and for the first time, added a gift tax on transfers during life (“Gift Tax”) when it became clear that wealthy individuals found a way around the Estate Tax by transferring wealth during their lifetimes. The Gift Tax was short-lived because it was repealed in 1926 while the Estate Tax rate was lowered to 1% for estates below $50,000 and 20% for those over $10 million. In the decade between 1932 and 1942, the Gift Tax was reinstated, and the Estate Tax and Gift Tax were increased while the exemption amounts were lowered. Estate Tax rates climbed to their all-time high of 77% for estates over $50 million in 1941.

After the Gift Tax became permanent, individuals again found a work-around to avoid taxation on transfers by skipping over their children and making transfers to their grandchildren. In response to this, Congress passed the Tax Reform Act of 1976 (“1976 Act”) introducing the Generation-Skipping Transfer Tax and unifying the Estate Tax, the Gift Tax, and the Generation-Skipping Transfer Tax. This unified regime exists to this day. The 1976 Act also capped the Estate Tax and Gift Tax at 70% for estates over $5 million. The Economic Recovery Act of 1981 phased in an increase in the unified tax transfer credit from $47,000 to $192,000 and a decrease in the maximum tax rate from 70% to 50% and eliminated the limits on estate and gift tax marital deductions. The Taxpayer Protection Act of 1997 phased in an increase in the amount excluded from taxes from $600,000 in 1997 to $1,000,000 in 2006.

In 2001, the Economic Growth and Tax Relief Reconciliation Act of 2001 (“2001 Act”) reduced the maximum estate tax rates from 50% in 2002, to 45% where it remained until 2009 while increasing the exemption amount gradually until it reached $3.5 million. The 2001 Act repealed the Estate Tax and Gift Tax altogether in 2010. In 2011, the exemption amount was raised to $5 million and adjusted for inflation, while the top tax rate was lowered to 35%. In 2013, the top tax rate was raised to 40% which is the current rate. The Tax Cuts and Jobs Act of 2017 temporarily doubled the exclusion amount from $5 million to $10 million, as adjusted for inflation, which is the current law and which is set to sunset on January 1, 2026, if not sooner.

For a short time in 2021, it appeared that sooner had come when in September, Congress released proposed legislation containing proposals eliminating the benefits of numerous tried and true Estate Planning techniques which would have had serious ramifications for many Americans. Those changes included acceleration of the reduction in the estate tax exemption amount, taxation of formerly non-taxable transactions between grantors and grantor trusts, eradication of valuation discounts, elimination of stepped-up basis at death, and increased tax rates. Those changes were eliminated and now the Build Back Better Act seems to have become a distant memory with little chance of passage.

One of the many interesting things about the Estate Tax was that it was designed to prevent dynastic fortunes. When one-third of the top 50 wealthiest Americans on Forbes’ annual list are heirs, it seems clear that the Estate Tax has failed in that respect. With the current exemption of $12.06 million at its highest amount ever, individuals can transfer substantial assets at death or during life. Last year only 1,275 estates in the entire country owed Estate Tax, despite the historic amassing of wealth by the very richest.

For those willing to talk with me and plan for the transfer of their wealth, it’s possible to pay little or no estate taxes, essentially making the Estate Tax voluntary. If you have questions about whether your estate might be subject to Estate Tax at your death, it’s vital to talk to me about your concerns. Even if your total assets fall below the current exemption amount, you should plan for the transfer of your assets to your desired beneficiaries at your death. The new year makes a great time to plan for the future and ensure your legacy.

It may be possible to double your gifting by using spousal “gift-splitting.” Spouses may elect to split gifts made to others. If they do so, they must split all the gifts made by the other spouse to others for that year. For example, let’s say John made gifts of $30,000 to each of his five siblings, Aaron, Betty, Charlie, Darlene, and Ed. Let’s say the gifts qualify for the annual exclusion because they are of present interests. If John makes the gifts alone, then each gift of $30,000 would be reduced by the annual exclusion of $16,000 and would result in use of $14,000 of his applicable exclusion ($12.06 million in 2022). So, he’d have used $14,000 x 5 = $70,000 for the gifts. If John’s spouse, Mary, wished to split the gifts, she may do so. However, she must split all the gifts or none of them. So, if Mary doesn’t like Ed, she cannot choose to split the gifts to Aaron, Betty, Charlie, and Darlene, but not the gift to Ed. If she chooses to split all the gifts, she’d be treated as making a gift of ½ of $30,000, or $15,000, to each of John’s siblings. Mary’s annual exclusion would cover her half of each of these gifts and neither John nor Mary would need to use any of their applicable exclusion. Mary would consent to split the gifts by signifying such consent on John’s Form 709 for the year of the gift, thus consenting to split all his gifts for the year.

Interestingly, gift-splitting is effective only for gift tax purposes, not for estate tax purposes. This can be quite important. For example, let’s say John made the gifts to his siblings in an irrevocable trust which included Mary as a beneficiary. If Mary made a gift to a trust of which she’s a beneficiary, it could cause inclusion in her taxable estate under section 2036. However, if Mary merely splits the gift made by John, it would not cause inclusion in her taxable estate because she would only be considered to have split the gift for gift tax purposes and not estate tax purposes.

Spousal gifting can be confusing. While U.S. citizen spouses can give an unlimited amount of money to each other, a gift to a non-citizen spouse doesn’t qualify for the unlimited marital deduction. Instead, such a gift would need to qualify for the annual exclusion. In other words, it would need to be a gift of a present interest. There’s also a limit for such gifts to a non-citizen spouse. In 2022 that limit is $164,000.

Spousal gift-splitting can be a useful technique to consider as you plan your gifting strategy for 2022!

Welcome to 2022! Most of us will leave 2021 without hesitation – many had high hopes that 2021 would bring the end of COVID-19 and a return to normalcy and yet we face another variant as we usher in 2022. While things may not have gone the way we hoped in 2021, we can start 2022 prepared for anything by getting our estate plans in order.

The tumultuous events that plagued 2021 demonstrate the importance of a complete estate plan. Millions became seriously ill from the coronavirus. All too many of them died and even those who lived may be suffering long-term consequences. When they became ill, those who had their estate plan in order could focus on more important things, such as spending precious time with loved ones.

While we hope 2022 will be much better than 2021, it’s important to begin the year by creating an estate plan if you do not yet have one or reviewing the plan that you already have in place to ensure it accomplishes your goals. This will provide you and your loved ones with peace of mind for anything that 2022 brings.

Simply put, an estate plan serves as a set of instructions regarding how you want your affairs handled if something happens to you. The plan sends a message to your loved ones that you care and do not want to burden them with unclear or unstated plans. A basic estate plan consists of documents that provide instructions for what happens both during your life and at death. Those documents consist of a Property Power of Attorney, a Healthcare Power of Attorney, a HIPAA Authorization, a Will, and typically a Living Trust, also known as a Revocable Trust (a “Trust”).

First, the Property Power of Attorney allows you to appoint someone as your “Agent” to act on your behalf with respect to your financial affairs. If that Agent is unwilling or unable to act, you can appoint one or more successor Agents. Through the Property Power of Attorney, you give someone else (the Agent) powers you inherently already have yourself. The Property Power could be drafted to vest immediately meaning that the Agent would have the power to make decisions regarding your financial assets right away and without regard to your ability to make those decisions for yourself. In most states, you also have the option to make the Property Power of Attorney “springing” meaning that the Agent’s powers would “spring” into action only upon your incapacity. You may hear the term “durable” in conjunction with the Property Power of Attorney. This means that the Property Power of Attorney continues to be effective notwithstanding your incapacity. A Property Power of Attorney that is not durable does not allow your Agent to act during your incapacity.

A Healthcare Power of Attorney allows you to appoint an agent to make medical decisions for you if you are unable to do so for yourself. If you can make these decisions, then your agent cannot veto any medical decision you make. A HIPAA Authorization allows you to appoint an agent to access or receive protected health information.

It’s important to keep your Property and Health Care Powers of Attorney updated. Reviewing them often ensures that you always have trusted and capable individuals in those important roles and that you do not leave your loved ones wondering what to do upon your incapacity. The agents you select under your Powers of Attorney play a vital role in your incapacity plan and may have broad power during your life. Make sure you keep the right people in these roles.

A Will determines the distribution of your assets upon your death and allows you to select an individual or company to make the disbursements. If you do not have a Will, then your state’s intestacy laws will govern asset allocation at your death. Often, the state’s division would not match your own. In addition, state intestacy laws may appoint a stranger to handle these important decisions. Finally, the Will also allows you to nominate guardians to care for any minor children.

Regardless of whether you have a Will or your state’s intestacy laws determine property division at your death, the individual in charge will need to petition the court for permission to transact the business of your estate through a probate proceeding. Depending upon the laws of your state, probate can be a lengthy, costly, and public process. If you want to avoid probate and maintain your privacy, a Trust provides you the opportunity to do that. With a Trust, you transfer the assets to the Trust during your lifetime and manage them as the Trustee. You avoid probate altogether by using a Trust because the Trust contains provisions regarding what happens upon your death and vests a successor Trustee with power to make distributions from the Trust. The Trust also protects against incapacity by giving a successor Trustee the power to make distributions from the Trust for your benefit should you become incapacitated. Due to cases of fraud, institutions more readily recognize a successor Trustee acting on your behalf than an agent under your power of attorney.

Hopefully, 2022 will be better than 2021, and 2020 for that matter! Even a basic estate plan provides peace of mind regarding what’s in store for 2022. Resolve now to get your estate planning done this year, sooner rather than later.

As 2021 draws to a close and the New Year dawns, we need to think of…tax planning! Some years Congress tweaks the laws more than other years. While 2021 held plenty of events: a coronavirus vaccine, new coronavirus variants, a new President, etc., it was a relatively quiet year for legislative changes impacting planning. At first, it seemed as though there could be substantial tax changes. But those changes were watered down, deferred, and may never materialize. Still, even in a quiet year, some things change due to inflation increases, etc.

Estate Tax Planning

Applicable Exclusion rises from $11.7 million in 2021 to $12.06 million in 2022.

GST Exemption rises from $11.7 million in 2021 to $12.06 million in 2022.

Annual Exclusion for present interest gifts rises to $16,000 in 2022.

Annual Exclusion for gifts to a Noncitizen Spouse rises to $164,000 in 2022.

In a few years, at the end of 2025, the Applicable Exclusion and the GST Exemption will revert to one-half of their current levels, in other words to $5 million, adjusted for inflation from the 2011 base year. This isn’t relevant for most Americans. However, if you have well over these amounts, you may want to consider removing these amounts from your estate while you still have the temporarily doubled Exclusion and Exemption to cover the transfers. You still have a few years before the law is set to change, unless Congress changes things dramatically before then.

Income Tax Planning

Standard deduction amount:

Married, filing jointly, increases from $25,100 in 2021 to $25,900 in 2022

Single, increases from $12,550 in 2021 to $12,950 in 2022

Head of household, increases from $18,800 in 2021 to $19,400 in 2022

State and Local Tax (SALT) deduction cap remains at $10,000 in 2022, though proposed legislation could increase that cap significantly.

The income tax brackets creep slightly higher, as well.

As you plan for 2022, remember to keep your receipts for expenses and charitable contributions. With the high standard deduction amount and the cap on State and Local Tax deductions remaining at $10,000, fewer taxpayers are itemizing. In fact, the percentage of taxpayers itemizing is less than half what it was before the Tax Cuts and Jobs Act of 2017. Now, less than 14% of taxpayers are expected to itemize. Before then, over 31% of taxpayers itemized. If you give to charity, you may want to group your charitable contributions into one year and itemize them in that one year. You can do this by giving to a donor-advised fund in one year. Then you can make grant recommendations from your donor-advised fund each year. This way, your tax planning won’t impact your favorite charities.

Let’s look at an example. John and Mary make $15,000 of charitable contributions to their church, alma mater, or other charities each year. They have state and local tax deductions above the $10,000 limit. They have a total of $25,000 of deductions and they’d be better off taking the standard deduction ($25,900 in 2022). Rather than giving $15,000 for each of three years to charity, they could give 3 x $15,000 ($45,000) in one year and they’d get a much better tax result. If they gave $45,000 in year 1 to a donor-advised fund, combined with their SALT deduction of $10,000, they’d have $55,000 of deductions instead of the standard deduction of $25,900. In years 2 and 3, they’d just have the SALT deduction of $10,000 and no charitable deduction but could still take the standard deduction ($25,900 in 2022). The charities would get their funds each year just as usual. John and Mary would get a much better tax result. In year 1, they’d have $55,000 of deductions instead of $25,900, an increase of $29,100. Their deductions in years 2 and 3 would not change. If John and Mary are in the highest income tax bracket, this increased deduction could save them over $10,000 in federal taxes.

A little planning can produce a much better tax result. Have a happy, healthy, and prosperous.

September usually brings the start of a new school year, cooler temperatures, football, and a time for reflection in the final quarter. This year, September brought concern, bordering on panic, over proposed changes to the Internal Revenue Code (“Code”) when Congress released legislation containing several proposals eliminating the benefits of many tried and true Estate Planning techniques. Estate Planning attorneys scrambled to understand the potential modifications to the Code that included acceleration of the reduction in the estate tax exemption amount, taxation of formerly non-taxable transactions between grantors and grantor trusts, eradication of valuation discounts, elimination of stepped-up basis at death, and increased tax rates. Former clients worried about prior transactions and anxious new clients rushed to utilize expiring techniques and the higher estate tax exemption amount. Once again as it did in 2020, the last quarter of the year threatened to overwhelm Estate Planning attorneys as they spent hours reviewing the Build Back Better Act (the “Act”), attending educational seminars, digesting articles, blogs, and opinion pieces about the Act, and calming nervous clients about the consequences of pending and prior transactions. The Act contained retroactive enactment dates giving attorneys and clients little opportunity to plan for the sweeping changes and underscoring the feeling that the sky was falling.

Estate planning went mainstream and even those with modest estates were apprehensive as newspapers and magazines published article after article scaring everyone into thinking that the Act would permanently and detrimentally alter the Estate Planning landscape. Temporary relief appeared at the end of October when the House Rules Committee released a revised version of the Act (H.R. 5376) eliminating the most egregious provisions including the higher individual and capital gains tax rates, the lower estate tax exemption amount, the rules taxing transactions between grantors and grantor trusts, and keeping both valuation discounts and stepped-up basis at death. As of this writing, the Act sits before an evenly split Senate. Critics of the Act point to rising inflation as an impediment to the Act becoming law, while proponents argue that the economic benefits that the Act would provide to lower income families would ease inflation long term. The Act seems to have stalled in 2021 even though this version reflects measured changes to the Code affecting mostly the wealthy: well-paid executives, athletes, entertainers, entrepreneurs selling a business, and non-grantor trusts.

The Act could pass sometime in 2022, but it’s likely that would require significant changes. Perhaps more likely, the Act will die altogether, although President Biden continues to express confidence that the Act will become law. Regardless of the status of the Act two things are clear: the sky is not falling and Estate Planning should be top of mind for all individuals. For clients with a taxable estate or in the top tax brackets, it makes sense to begin or complete planning sooner rather than later. Individuals can do this by utilizing the estate tax exemption amount prior to 2026, at which time it will be halved. Everyone should review their current plan with the aid of a qualified Estate Planning attorney to ensure that it still accomplishes their objectives. Your plan should focus on long-term goals rather than potential policy changes. The last three years have shown us that policy changes are inevitable; however, a flexible plan offers the best protection against future legislation and the unknown.

When you gather with family and loved ones for the holidays, talk about your collective values and how each individual views and measures success. What you learn might surprise you and cause you to reconsider your estate plan. Talk about steps everyone can take to achieve your collective and individual goals as support may come from untapped resources. Remember that when generational wealth transfer fails, it’s not always because of poor planning or failed investments, it’s often a breakdown of communication and trust. Engaging in these conversations at holiday gatherings may seem counterintuitive, but the festivities tend to reduce tension and encourage more frank discussions. You may consider creating a family statement or theme that provides an opportunity for everyone to feel included in decision-making. Consider how the plan you have implemented or failed to implement will look in six months, one year, five years, or even ten years. This may help unmotivated individuals complete Estate Planning or may cause you to revise your plan. If you have a family business or charitable intent, these suggestions may help uncover and resolve underlying issues and concerns.

After all the fuss surrounding the Act, it’s comforting to know that the Estate Planning world will continue mostly as it was. Even Jeopardy! has acknowledged that Estate Planning has gone mainstream with the following answer in the category “What Does It Prevent” on the December 9, 2021, episode: “A Living Trust: This court procedure to carry out the terms of a Will.” That answer, What is probate?, of course! The last two years have been some of the most tumultuous for Trusts and Estates attorneys and clients, alike. Let’s hope the New Year will bring a new calm to our world.