Author Archives: Robert Mondo

Individuals began relocating in record numbers during the pandemic. Some moved to be closer to family, others for better weather. Still, others changed domicile for financial reasons, like the pursuit of different job opportunities, for lower taxes, or because they planned to retire. Folks desiring to relocate should consider the various taxes in the desired state of residence, especially when they are at or nearing retirement. It’s no secret that taxes vary widely from state to state. Some states may impose estate, gift, inheritance, or income taxes which could affect the decision to move. States diverge in their property and sales tax rates as well.

If the desired state of residence imposes an income tax, then the individual needs to determine what types of income would be subject to taxation and how it would affect their bottom line. States most friendly to retirees exclude Social Security benefits from taxation and provide exemptions for other common forms of retirement income, such as private pensions or Individual Retirement Accounts (“IRAs”). Additionally, states friendly to retirees have lower property and sales taxes to allow those on a fixed income to make the most of every dollar.

Eight states, including Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming do not impose a state income tax. This means that a retiree’s Social Security benefits, as well as other income, are safe from state income tax liability. Of course, that shouldn’t be the only financial factor considered. Of those eight states, Florida, Nevada, Tennessee, and Wyoming impose neither an estate tax nor an inheritance tax. Nevada provides another advantage with the seventh lowest median property tax rate of just over $572 per $100,000 of home value. Unfortunately, Nevada has a combined state and local sales tax rate of 8.23%. Wyoming provides both a low combined state and local sales tax rate (5.22%) and the eleventh lowest property tax rate at $605 per $100,000 of home value.

Arizona, Alabama, Colorado, and South Carolina impose a state income tax but none impose an estate or inheritance tax. Arizona, Alabama, and South Carolina all exempt Social Security benefits from state income taxes. Colorado exempts Social Security benefits from taxation at the state level if the retiree has attained the age of 65. South Carolina allows taxpayers aged 65 and over to exclude up to $10,000 of retirement income versus $3,000 for those under the age of 65. South Carolina also allows seniors to deduct $15,000 from other taxable income as well. Colorado’s combined state and local sales tax rate comes in at 7.77% and its median property tax rate is $505 per $100,000 of home value. South Carolina bests Colorado slightly with a combined state and local sales tax rate of 7.44% but has a slightly higher median property tax rate of $566 per $100,000 of home value.

Alabama may require seniors to pay a bit more in income tax than retirees in other states because it taxes IRA and 401(k) distributions. While those facts may weigh against a move to Alabama, its median property tax rate is the second lowest in the country at $406 per $100,000 of home value. It’s average combined state and local sales tax rate is a bit high at 9.24%, but it allows anyone over the age of 65 to exempt the state portion of property taxes and allows lower-income residents an exemption from all property taxes on their principal residence.

Interestingly, a recent Kiplinger article rated Hawaii and Delaware as the number 2 and number 1 states, respectively, for retirees. Even more shocking, Florida, a state known for its large retiree population failed to make its top ten list. Perhaps less shocking, New Jersey ranked as the least retiree-friendly state with its state income tax rate ranging from 1.4% to 10.75%, it’s average combined state and local sales tax rate of 6.6%, and its median property tax rate of $2,741 per $100,000 of home value. Kiplinger based their rates on the sum of income, sales, and property tax paid by two hypothetical retired couples, both with modest assets and income levels.

In addition to considering the potential estate, gift, inheritance, income, sales, and property taxes imposed by a state, individuals desiring to relocate should consider the types of ownership the state acknowledges, for example, community or separate property, and the nuances of property ownership in that state. The property ownership and nuances of the state of residence prior to the relocation may also impact Estate Planning in the new state. The decision to move involves complex considerations regarding more than just location. Of course, retirees will want to consider weather, crime, and proximity to friends and family. I can assist in demystifying these complex considerations.

As we gather with our family, friends, and loved ones to celebrate Thanksgiving, while year-end obligations may tempt us to rush through the meal and return to “normal,” we should not. Instead, we should stop, savor the moments together, and remember why we choose to spend our time with these individuals. This time of the year offers a special opportunity to show our loved ones just how much we care. We can do this in any number of ways, including gifting.

Let’s make this year the year we give gifts that benefit both the recipient and the donor. Annual exclusion gifts provide a benefit not only to the recipient but also to the donor. Annual per donee exclusion gifts allow the donor to make gifts to multiple individuals without incurring any transfer tax consequences provided that the total gifts to an individual are present interests and do not exceed the threshold amount. Internal Revenue Code (“Code”) Section 2503(b) sets the amount that an individual taxpayer can gift to any other person at $16,000 for 2022 (which will rise to $17,000 for 2023). Giving now allows individuals to reduce the value of their taxable estate without impacting the lifetime exclusion amount of $12.06 million in 2022 (which will rise to $12.92 million in 2023). In addition to allowing the donor to avoid the use of any applicable exclusion amount, gifts remove future appreciation on the assets gifted from the donor’s estate as well.

The Code imposes no limit on the number of annual per donee exclusion gifts per taxpayer meaning that an individual taxpayer may gift up to that $16,000 amount to an unlimited number of individuals without ever worrying about estate or gift tax consequences. Gifting the funds or assets removes them from the donor’s taxable estate without ever impacting the lifetime exclusion amount. It’s one of the few totally “free” estate planning techniques. Because annual gifts reduce the size of the taxable estate, they also reduce the potential tax liability. For married couples, the benefit doubles because each spouse can gift the annual per donee exclusion amount to the same individual, and if the recipient has a spouse, then the donors can double the impact of their gifting again. Let’s review an example that demonstrates effective use of the annual per donee exclusion amount.

Assume that Mike and Carol recently met with their attorney who suggested that they start reducing the value of their taxable estate. The pending nuptials of their daughter, Cindy, caused Mike and Carol to be preoccupied. They realized that they better act quickly to utilize their 2022 annual per donee exclusion amounts. They decided to give each of their six now-married children, Greg, Marcia, Peter, Jan, Bobby, and Cindy an envelope containing $64,000 ($32,000 from each of Mike and Carol to each child, plus an additional $32,000 for each spouse of each child) at Cindy’s wedding on New Year’s Eve 2022. As the clock strikes midnight, the family rings in 2023, and Mike and Carol hand out another set of envelopes, this time, with $68,000 cash in each envelope.

In the example above, in just a few hours, Mike and Carol gave away nearly $800,000 without incurring any estate or gift tax consequences. Mike and Carol each gave $16,000 to each of their six children and their spouses, totaling $384,000 in 2022, and Mike and Carol each gave $17,000 to each of their six children and their spouses, totaling $408,000 in 2023, for a total of $792,000. In fact, Mike and Carol could each also gift $16,000 to a grandchild in 2022 and $17,000 to that same grandchild in 2023. The foregoing example demonstrates how quickly these gifts can add up and make a huge impact on an estate. In addition to using the annual exclusion gifts, the Code gives taxpayers a tax-free pass when they pay the medical bills of another individual or pay the tuition bills of a student. The Code imposes no limit on the amount of these medical and tuition gifts, as long as the amounts are paid directly to the provider. The Code also allows contributions to charitable exempt organizations. The Code imposes no limit on the amount of these contributions for gift tax purposes, which provides another easy option for those who want to do some easy estate planning. Such contributions may also qualify for an income tax deduction, up to certain percentages of the taxpayer’s adjusted gross income.

The upcoming holiday season presents the perfect time to consider these and other estate planning issues. Options may exist for use of the annual exclusion gifts in conjunction with trusts and a long-term estate plan. Giving now, rather than waiting until death provides several estate planning opportunities in the form of tax-free distributions, reduction of the gross estate, and appreciation outside of the taxable estate, not to mention the benefit to the recipient that the donor will witness while alive. I am always available to help you explore these opportunities and more to determine whether it makes sense for your family situation.

As the world continues to emerge from the pandemic, many find themselves taking trips that they had postponed. If the pandemic taught us anything, it’s that the world has become more interconnected than ever before. It’s common to hear messages about remote work, which means that individuals can work from anywhere. By extension, that means that there is a need to understand the ramifications for clients both at home and abroad, as well as for those clients who were not born here but reside here.

When I considers estate planning for an individual, I need to ascertain the client’s citizenship and residence. In addition, I need to understand the worldwide assets of the individual. The estate of a United States (U.S.) citizen includes the worldwide assets of the citizen, regardless of the location of such assets and the individual. Under Internal Revenue Code (“Code”) Section 2010, a U.S. citizen has a permanent exclusion of $5 million, adjusted for inflation. The Tax Cuts and Jobs Act of 2017 temporarily doubled the applicable exclusion through December 31, 2025. Thus, in 2022, a U.S. citizen has an exclusion from estate taxes of $12.06 million.

The temporary doubling of the exclusion offers unique planning opportunities for U.S. citizens, regardless of their country of residence. If clients have an estate that exceeds the applicable exclusion amount, it’s vital that they begin to plan for that now, while the exclusion remains doubled.

For anyone not a U.S. citizen, residence dictates how their estate will be taxed at death. If the individual resides in the U.S., even if they are not a citizen, whether here legally or not, the Code imposes tax on such individual, exactly the same as that of a U.S. citizen. If the person moves or changes residence, the result changes dramatically. A “green card” provides Lawful Permanent Resident Alien status to the holder. Thus, the green card holder pays taxes like a resident, whether or not physically residing in the United States. Someone who is neither a citizen nor resident of the United States pays tax only on their U.S. assets; however, the Code reduces the applicable exclusion amount to $60,000, rather than the $12.06 million enjoyed by a resident or citizen of the U.S.

Let’s look at an example. Jorge was born in Mexico and is a citizen of Mexico (and is not a citizen of the United States). Although Jorge has lived in the U.S. for decades, he has no documentation. Years ago, Jorge purchased shares of stock in Yahoo.com prior to it going public and made millions. He used those funds to purchase a ranch in California which has grown substantially in value to $12 million. If Jorge died today while living in the U.S., his estate would escape taxation because the applicable exclusion amount of $12.06 million would cover the value of his property.

Because of Jorge’s status, he faces the threat of deportation. If removed from the U.S., he would lose resident status. If he died after deportation, but while owning the ranch, his estate would face a significant estate tax liability. While the estate tax would apply only to his U.S. assets, the ranch represents a valuable asset. His non-resident exclusion would only cover $60,000, subjecting the remaining $11,940,000 of value to tax. While the first $1 million is subject to tax at graduated rates, the estate tax would apply on the amount above that at a rate of 40%. Jorge’s estate would owe over $4 million in U.S. estate taxes. If Jorge sought the services of a U.S. attorney, that attorney may have counseled that he could avoid tax exposure by owning the ranch in a foreign corporation, or by using other acceptable estate planning techniques.

Estate planning for the international client involves understanding numerous, and sometimes convoluted provisions of the Internal Revenue Code. Similarly complicated provisions govern gift and income taxation. Often, these clients need advice regarding the tax implications in another country as well, which means that I usually seek to partner with an expert from the other country to lay the best made plans understand the tax and legal circumstances that an international cliet may pose.

Creating an Estate Plan that includes a Revocable Trust, pour-over Will, Property Power of Attorney, Health Care Power of Attorney, Living Will, and Health Insurance Portability and Accountability Act Authorization provides numerous benefits during life and at death. During life, the plan provides directions to your family regarding your medical care and finances if you become incapacitated or are otherwise unable to articulate your wishes. At death, the plan acts as a set of instructions to your fiduciaries regarding distribution of your assets. Unfortunately, as seasoned Estate Planning practitioners know, signing the documents alone does not solve every problem or guarantee that the plan will work as intended. Sometimes, mistakes occur that undermine an Estate Plan.

An Estate Plan involves more than just the documents evidencing the plan. Effective estate planning requires an understanding of an individual’s assets and how the plan will work for those assets. It also involves knowing what assets the plan won’t cover. Under normal circumstances, any asset that passes pursuant to a beneficiary designation, such as a retirement plan, life insurance, or an annuity passes outside the Estate Plan. Sometimes, these assets make up the bulk of an individual’s wealth. Thus, coordinating beneficiary designations for those assets constitutes an integral part of comprehensive Estate Planning. For example, assume that while single, Don named his brother as the beneficiary on his life insurance policy. Upon Don’s later marriage, he updates his Estate Plan leaving all his assets to his wife but fails to update the beneficiary designation for his life insurance. Upon Don’s death some years later, his life insurance passes to his brother, rather than his wife as was his stated intent. Simply put, Don could have avoided this result by updating his beneficiary designation upon his marriage.

In addition to considering beneficiary-designated assets, it’s important to consider the overall impact that taxes will have on the plan as well as the beneficiaries themselves. Obviously, it is important to understand whether the estate exceeds the Applicable Exclusion Amount ($12.06 million in 2022) which includes determining whether lifetime gifts reduced that amount. Further, if the estate will have an estate tax liability, then it’s important to consider which assets the estate will use to pay such liability. In a situation in which the client has children from a prior relationship, this matters a great deal. While assets passing to a surviving spouse do not incur an estate tax because of the unlimited marital deduction under Internal Revenue Code Section 2056, when those assets pass from the surviving spouse to the children of the first deceased spouse, a tax liability may occur and determine which party ultimately bears the taxes matters.

Finally, it is important for the client to understand the potential income tax consequences of the plan. For example, if the client has designated a beneficiary on an Individual Retirement Account (“IRA”), that beneficiary will have to pay income taxes on the distributions from the IRA unless it’s a ROTH IRA. The income tax consequences of receiving these assets may influence the client to structure their plan another way. Perhaps they intended to make a charitable bequest and after discussing the income tax consequences of distributions from an IRA decide that using a portion of the IRA to fund that charitable bequest makes more sense for their plan.

Beneficiary-designated assets and taxes make up an important part of any estate plan. As part of the complete Estate Plan, any time a birth, death, marriage, divorce, or change in financial situation or the law occurs, we need to update the beneficiary designations and consider anew the tax implications. Mistakes happen in many ways and lead to various unintended and potentially catastrophic consequences for the loved ones of those who fail to plan. These mistakes may make an impact during the life of the individual who failed to plan, and they certainly cause problems at death. Making matters worse, these mistakes may cause lasting trouble after an individual’s death either through an unnecessary (and possibly expensive or time-consuming) probate process or by improper planning for the intended beneficiary which takes numerous forms.

Creating an Estate Plan that includes a Revocable Trust, pour-over Will, Property Power of Attorney, Health Care Power of Attorney, Living Will, and Health Insurance Portability and Accountability Act Authorization provides numerous benefits during life and at death. During life, the plan provides directions to your family regarding your medical care and finances if you become incapacitated or are otherwise unable to articulate your wishes. At death, the plan acts as a set of instructions to your fiduciaries regarding the distribution of your assets. Unfortunately, as most understand, signing the documents alone does not solve every problem or guarantee that everything will work as intended. Sometimes, there are things that the grantor or testator does or fails to do that undermine an Estate Plan.

Some clients prefer to avoid hiring an attorney for estate planning and take matters into their hands by titling assets so that said assets pass outside of probate. Of course, clients have other ways to avoid using the services of an attorney. Numerous organizations such as Legal Zoom, RocketLawyer, and Will Maker all claim to permit an individual to create estate planning documents without hiring or consulting an attorney. Documents created using these services sometimes lack basic elements such as a residuary clause, fail to include lapse beneficiaries, or fail to meet the statutory requirements for validity. Any items not specifically devised by a Will or Trust, or things not owned at the creation of the documents pass pursuant to the terms of the residuary clause. If the documents do not contain the residuary clause, it’s not clear how those assets will pass. Likewise, if the Will or Trust fails to name lapse beneficiaries, that also causes problems. For example, if a specific devisee predeceases the testator or grantor and there’s no lapse beneficiary, then the assets pass to the residuary beneficiary which may or may not have been the grantor’s intent. If the residuary beneficiary predeceases the grantor and there’s no lapse beneficiary, or if the documents lack a residuary clause, that creates even more confusion. In situations in which the documents lack a residuary clause or lapse beneficiaries, the fiduciary likely would need to petition the court for an order directing the distribution of the assets. This causes a delay in the distribution of the assets along with increased expense for the estate ultimately reducing the amount passing to the beneficiaries.

Even if an individual retains the services of an attorney to create their Estate Plan, that’s not the end of the attorney’s role. The client should consult the attorney to update the plan whenever major life changes occur. The death of a spouse, being one of the most critical such life events. Upon the death of a spouse, the surviving spouse should contact me to ensure proper administration of the estate and trust. If a client fails to contact me upon the death of their spouse that can cause significant issues. For example, many estate plans utilize a “Family Trust” or “Credit Shelter Trust” to hold assets of the decedent spouse equal to their unused Applicable Exclusion Amount. Pursuant to Internal Revenue Code Section 2010, in 2022 an individual may transfer up to $12.06 million (the Applicable Exclusion Amount) upon their death without the imposition of transfer tax. Some Estate Plans with a Family Trust requires the establishment of that trust as soon as practical after the death of an individual. If a Trustee fails to do this, said Trustee has breached their fiduciary duties to the beneficiaries of the Trust. Further, imagine the difficulty in trying to fund that Family Trust several years later when assets may have changed in value, been sold, or have otherwise been depleted.

Even if the decedent’s plan did not mandate the creation of a separate Trust, other decisions impact the estate and trust. For example, perhaps an intended beneficiary recently won the lottery. That beneficiary could disclaim an inheritance and let it pass to the next beneficiary under the plan. A qualified disclaimer under Internal Revenue Code Section 2518 allows an individual to refuse a gift or bequest without transfer tax consequence and must be made within nine months of the creation of the interest. I always walk an individual through the process and he/she will know the requirements for a qualified disclaimer. Many plans that leave everything to a surviving spouse include disclaimer language that gives the surviving spouse the option to decide whether to disclaim assets and use the decedent spouse’s unused Applicable Exclusion Amount thereby saving estate taxes upon the surviving spouse’s later death.

Creating an Estate Plan without an attorney saves neither time nor expense, in fact, it’s likely to cost the family more in the long term.

Creating an Estate Plan that includes a Revocable Trust, Pour-over Will, Property Power of Attorney, Health Care Power of Attorney, Living Will, and Health Insurance Portability and Accountability Act Authorization provides numerous benefits during life and at death. During life, the plan provides directions to your family regarding your medical care and finances if you become incapacitated or are otherwise unable to articulate your wishes. At death, the plan acts as a set of instructions to your fiduciaries regarding the distribution of your assets. Unfortunately, signing the documents alone does not solve every problem or guarantee that everything will work as intended. Sometimes, there are things that the grantor or testator does or fails to do that undermine an Estate Plan.

Creating an Estate Plan requires an individual to disclose sensitive information to create the plan. Many of us agonize over a discussion focusing on mortality, yet that’s exactly what a discussion about Estate Planning does. A comprehensive Estate Plan though implements a plan for that eventuality. People creating an Estate Plan often make the mistake of failing to inform their beneficiaries and fiduciaries of the plan. While the conversation may be awkward, having it not only lets your loved ones know of your plan and their role therein but also prevents hurt feelings and potential litigation if the plan deviates from a beneficiary’s expectation.

Clients may hesitate to discuss their plan because they worry that a beneficiary who knows that they will receive an inheritance will lose motivation to work hard. Others may worry that disclosing the information will cause current conflict or believe that the details of their plan should remain private until after their death. Still, others may have a hard time assessing family dynamics or the limitations of their intended beneficiaries. An experienced Estate Planning practitioner assists a client in working through these concerns and encourages an open dialogue with the beneficiaries and fiduciaries to reduce conflict after death. As Trust and Estate litigators know, a beneficiary whose inheritance failed to meet their expectations makes a great client. Plenty of contentious battles begin because the grantor treated one beneficiary differently than another or one person decided something of which another disapproved.

Having a conversation with the beneficiaries during and at the end of the process provides several benefits. First, it allows the client to provide the beneficiary with their underlying reasoning or motivation for creating the plan. That helps the client understand and manage the beneficiary’s expectations and address the beneficiary’s questions or concerns. Second, the conversation might help the grantor or testator better understand the beneficiary’s needs. That conversation may serve as motivation for the beneficiary to undertake their own Estate Planning. Third, the conversation helps prepare the beneficiary for experiencing the testator’s end-of-life. Imagine a healthcare agent faced with the decision to terminate life support, now imagine they never had a conversation with the individual hooked up to the machines. Imagine trying to make that decision without all the information. A conversation about your wishes with those who will make the decision reassures them that they know what to do when the time comes.

Having a tough conservation with your beneficiaries about the contents of your plan goes a long way toward preventing litigation. Unfortunately, it can’t prevent all litigation. The plan itself also plays a role. If the plan fails to address incapacity, that could cause significant issues. A comprehensive Estate Plan that includes all the documents noted above addresses incapacity if the Revocable Trust has been funded and contains provisions regarding who serves as Trustee if the original Trustee (who is typically the Trustor) cannot because of incapacity and how distributions from the Trust should be made during the period of incapacity. If there are assets outside the Trust, then the Attorney-in-Fact acting under the Property Power of Attorney can make decisions about those assets. Relying upon the Property Power of Attorney could cause issues if the Power of Attorney is outdated or otherwise insufficient. In any scenario, the individual acting pursuant to the Health Care Power of Attorney will control decisions regarding health care for the incapacitated individual. If an Estate Plan lacks these documents or the documents don’t properly address and plan for incapacity, then the family or loved ones will have to go through the time, effort, and expense of initiating incapacity proceedings.

As this article has demonstrated, while there are reasons that folks want to keep the details of their Estate Plan secret, that can backfire in big ways. Further, failure to include provisions in an Estate Plan can result in expensive litigation for the estate, ultimately reducing the benefit to the beneficiaries. I encourage clients to have tough conversations, includes provisions that address a range of circumstances that the client might experience in their life, and ultimately creates a plan that honors their legacy and protects their beneficiaries. Any plan that fails to address these matters ultimately fails the creator of the plan and their loved ones, at a time when they are least equipped to deal with it.

Creating an Estate Plan that includes a Revocable Trust, pour-over Will, Property Power of Attorney, Health Care Power of Attorney, Living Will, and Health Insurance Portability and Accountability Act Authorization provides benefits both during life and at death. During life, the plan provides directions to your family regarding your medical care and finances if you become incapacitated or are otherwise unable to articulate your wishes. At death, the plan acts as a set of instructions to your fiduciaries regarding the distribution of your assets. Unfortunately, as many practitioners understand, signing the documents alone does not solve every problem or guarantee that everything will work as intended. Sometimes, even a properly executed Estate Plan contains mistakes.

Let’s start with what seems like an obvious mistake, leaving assets outright to a minor beneficiary. Any Estate Plan that gives assets outright to a minor beneficiary has disastrous consequences. Although most states have statutes that prevent a minor beneficiary from inheriting money or assets directly, some permit the minor to hold title to certain assets, such as real estate. Of course, even if the state allows minors to hold title to real estate, minors cannot contract and therefore cannot alone exercise the bundle of rights associated with property ownership. Other states have statutes that let a parent take the property on the minor’s behalf if the assets do not exceed a modest amount, but inheritances often exceed that amount. If the Estate Plan does not properly address minor beneficiaries, the fiduciary distributing the assets will need to ensure that he or she distributes the assets to the appropriate party, which could require petitioning the court for the appointment of a guardian or conservator to take title to the assets on the minor’s behalf. Guardianship proceedings involve significant time, trouble, and expense, and often mean continuing court oversight. If instead, the Estate Plan contains provisions for the establishment of a trust along with the appointment of a trustee or a custodian for the property going to the minor, that can save the fiduciary, the estate, and by extension, the beneficiaries, tremendous time, and effort while giving the minor immediate access to the assets.

Even if all the beneficiaries in a plan have attained the age of majority, other life factors may require the implementation of a plan that leaves assets in trust rather than outright to the beneficiaries. For example, beneficiaries known for spending money, battling addiction, facing legal woes, or dealing with creditors need the benefit of a trust holding their inheritance, rather than outright distribution. Implementation of a trust structure for beneficiaries with certain problems protects the inheritance and by extension, the beneficiaries from those problems. Savvy practitioners will encourage long-term thinking and planning for these issues while achieving the client’s goals and protecting their legacy.

Finally, if a beneficiary receives government benefits, then that, too, deserves special consideration. Failing to plan for a special needs beneficiary may cause a disaster in an Estate Plan, usually including loss of benefits for a beneficiary receiving public assistance. If a client wants to leave money or property to a special needs beneficiary, then it’s important that the assets pass through a Special Needs Trust to the beneficiary to preserve that beneficiary’s benefits. The trust needs to meet certain requirements to qualify as a Special Needs Trust and if it does, then the beneficiary will maintain his or her benefits. In addition to provisions for any beneficiaries currently receiving benefits, it’s important that the plan include provisions that authorize the creation of a Special Needs Trust for any beneficiary receiving government benefits at the time of distribution, not just upon the creation of the plan. Estate Plans need to have flexible provisions that allow evolution of the plan to meet changing needs and circumstances.

As this article has demonstrated, certain categories of beneficiaries require special provisions to protect them in an Estate Plan. Although folks undertaking Estate Planning think about which assets should go to whom, a qualified Trusts and Estates attorney understands that the intended beneficiaries impact the plan tremendously. I always include the proper provisions in the plan to address the age and situation of the beneficiaries and to account for the inevitable changes that will occur in the beneficiary’s circumstances over time. Any plan that fails to address these matters ultimately fails the creator of the plan and their loved ones, at a time when they are least equipped to deal with it.

As most individuals realize, creating an Estate Plan that includes a Revocable Trust, pour-over Will, Property Power of Attorney, Health Care Power of Attorney, Living Will, and Health Insurance Portability and Accountability Act Authorization provides benefits both during life and at death. During life, the plan gives directions regarding your finances and medical care if you become incapacitated or are otherwise unable to articulate your preferences. At death, the plan provides instructions regarding who should distribute your assets, in what manner, and to whom. If only drafting and signing the documents were enough; however, as I can attest, there are numerous issues that cause the best-laid plans to go awry.

As a threshold matter, the worst mistake is failing to plan. Many people procrastinate when it comes to their Estate Planning for various reasons, such as lack of money or time, an unwillingness to face their own mortality, or indecision regarding their affairs. The excuses never end. Failing to prioritize your Estate Plan or failing to ensure its completion leaves your affairs and your family in limbo both during life and after your death. Without a proper Estate Plan, the state of your domicile controls distribution of your assets upon your death. When you die without an Estate Plan, that’s called dying intestate and the laws of intestacy in your state of domicile control what happens to your assets upon your death. Intestacy laws usually give at least half of your assets to your surviving spouse and distribute the remainder among your children, all outright. Outright distribution could have disastrous consequences for any special needs beneficiary by making them ineligible for the benefits that they were receiving. Outright distribution causes issues for a minor child by requiring a guardianship for such child to receive the assets. Finally, the distribution pattern may or may not match your intended plan of distribution. Creating a comprehensive estate plan that consists of the documents noted above avoids this result and solves the threshold issue of failure to plan.

Even with the documents noted above, an Estate Plan may not work as intended. For example, consider the couple that creates an Estate Plan when their children are young but then fails to update it as their children reach the age of majority, marry, and have children of their own. Each of those milestones represents a time that the couple should revisit their plan and update it accordingly. Even in the absence of major life events, it makes sense to review and update an Estate Plan every few years to ensure that it continues to accomplish your goals, especially as they change, and that it reflects any changes in the law.

Some individuals try to avoid creating an Estate Plan by using titling mechanisms to transfer their assets at death. Practitioners often cite avoiding probate as one of the reasons for creating a Revocable Trust to govern the distribution of your assets at death. As I know, probate avoidance comes in other forms. For example, taking title to an asset as joint tenants with rights of survivorship avoids probate as long as the other joint tenant(s) survive. However, using that form of joint ownership raises certain issues that using a Revocable Trust does not. Because joint tenants each have rights to the entire asset, a joint tenant could deplete a joint account without the permission or knowledge of the other joint tenants. In addition, joint tenants could share legal worries. Property owned as joint tenants with rights of survivorship becomes vulnerable to legal claims of each joint tenant, even if the other joint tenants had nothing to do with the legal issue. Transferring assets to a Revocable Trust, however, avoids those problems. Owning assets in a Revocable Trust allows the owner to maintain the use of the assets during life and prevents the creditors of another individual from getting to those assets while the trustor is alive. The Revocable Trust also allows the trustor to include safeguards for the beneficiary that will continue after the death of that trustor.

Another tempting way for clients to avoid probate without creating a Revocable Trust involves holding title to real estate with a child or other beneficiary. This causes a myriad of issues. In addition to creating vulnerability to the creditors of both owners like that of joint tenancy ownership, adding a beneficiary to the deed raises issues of gifting. If the beneficiary failed to contribute to the purchase price of the property, then adding the beneficiary to the deed constitutes a gift if the beneficiary’s interest exceeds the annual per donee exclusion amount, currently $16,000. Further, if the original owner wants to refinance, lenders will require the beneficiary’s approval and signature on those documents. Finally, if the original owner desires to sell the real estate, every other owner listed on the deed needs to approve the sale.

As this article demonstrates, while it’s tempting to use shortcuts such as titling assets as joint tenants with rights of survivorship, or adding a beneficiary on a deed, that generally causes more problems than it solves when it comes to Estate Planning. A true Estate Plan entails creating a Revocable Trust, pour-over Will, Property Power of Attorney, Health Care Power of Attorney, Living Will, and Health Insurance Portability and Accountability Act Authorization, but that’s just the beginning. YOUY MUST FUND THE TRUST! An unfunded Trust means nothing!! A comprehensive Estate Plan involves regular meetings to ensure the plan remains current both with the grantor’s goals and the ever-evolving estate tax laws. 

These days, in a rough economy, we hear a lot about adult children in their late 20s or early 30s moving back in with their parents because of unemployment or underemployment. However, what happens when older parents opt to move back in with their financially stable children?

A weakened economy altered the family dynamic in the early part of the century. At that time, we were used to a mom, dad, 2.5 children, a dog and a cat. But today, families take all shapes, and many times, that means moving Mom or Dad in with you. There could be benefits such as round-the-clock childcare, added income from chipping in for rent or household expenses, and helping prevent loneliness. However, for those thinking about moving back in with their adult children, there’s plenty to consider.

Before moving in, it is important to discuss the big things and commit to them in writing. If it seems silly or troublesome to ask a family member to sign a binding agreement, then type up your understanding of the arrangement and send it via email to time stamp it with your signature. This will offer evidence of the agreement, should any conflicts ever arise. Conflict often arises when other children wonder about the arrangement and the impact it may have on their inheritance.

When planning your arrangement, be sure to carefully consider homecare needs such as chores and repairs, social arrangements, and transportation. Otherwise, parents may learn quickly that they cannot adapt to their child’s busy schedule.

Additionally, if the parent will be taking care of a grandchild, and will be receiving payments for this task, it is important for the families to follow any applicable labor and tax laws.

If at all feasible, families may wish to try to build a separate living space for their live-in parent. This ensures that there are no conflicts with television programming, microwaving, showering and other minor items that may cause major stress over time. If building an add-on is impractical, then a parent should at least have some private space, as the parent likely had his or her own private space for years and may feel stifled without privacy.

While there may be some challenges associated with bringing a parent into their adult child’s home, it may be well worth it in the end. Adult children offer a great safety net for aging parents, and such an arrangement allows the adult children to return the favor of years of childcare, support, and unconditional love.

Shortly after signing the Inflation Reduction Act into law, President Biden announced his plan to use executive action to cancel up to $10,000 of student loan debt for borrowers under certain income thresholds and an additional $10,000 for borrowers who received Pell Grants. Some support this action, while others condemn it and threaten lawsuits. While nothing is certain until the ink is dry, let’s assume that forgiveness occurs and an estimated 43 million borrowers receive this relief. For the curious, that’s roughly 13% percent of the population of the United States as a whole. No matter how you slice it, that’s a staggering number of individuals affected. Many might wonder how this reduction will affect their taxes.

Internal Revenue Code (“Code”) Section 61(a)(12) specifically includes income from the discharge of indebtedness (cancellation of debt or “COD”) as gross income. Sounds simple enough, but those familiar with the Code know that for every rule, at least one exception exists. In fact, the Code contains several provisions that exclude COD from gross income. Code Section 108(a)(1) indicates that income does not include discharge of indebtedness income if the discharge occurs: (1) in a title 11 bankruptcy reorganization; (2) when the taxpayer is insolvent; (3) the discharged debt is farm indebtedness; (4) for a taxpayer other than a C Corporation, if the discharged indebtedness is qualified real property business debt; or (5) if the indebtedness discharged is qualified personal residence indebtedness discharged before January 1, 2026, or subject to an arrangement entered into and evidenced in writing before January 1, 2026. Excluding COD from gross income comes at a price and doing so usually reduces or eliminates other tax attributes such as basis in property, or loss of credit carryovers. See Code Section 108. Code Section 1017 includes details regarding reductions in basis. The foregoing Code provisions indicate that those taxpayers who receive a partial (or complete) loan reduction will have COD income in the amount forgiven and may lose other valuable tax attributes which arguably defeats the purpose of the forgiveness.

In certain cases, debtors with low income have additional repayment options designed to accommodate lower income. One such program, the income-driven repayment (IDR) plan works like it sounds. The borrower in an IDR plan makes monthly payments based upon their income. Usually, the amount of interest accrued each month on the loans exceeds the borrower’s income resulting in COD for the borrower which undercuts the purpose of lowered payments for lower income. Fortunately for those borrowers, the American Rescue Plan Act (ARPA) of 2021 exempted student loan forgiveness under IDR plans from inclusion in gross income through 2025. According to whitehouse.gov, ARPA eliminates the need for borrowers to include forgiveness of student loan debt under Biden’s plan in their gross income as well, even if they are not paying under an IDR plan.

As of the writing of this article, student loan borrowers benefitting from President Biden’s loan forgiveness should not have to include the income from such discharge in their gross income. However, that could change so it’s important to keep updated on this plan as it develops. It’s possible that some clients, or more likely their children or grandchildren, may benefit on some level from this program. It seems that the Department of Education plans to make additional changes in the future, so this story will continue to develop.