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As Autumn arrives, it is not too early to consider end-of-year planning. Fundamental to end-of-year planning is deciding whether to shift income or expenses from this year to the next, to the extent possible.

All other things being equal, typically you would want to defer income (and the taxation on it) until the following year. However, if your income is lower in the current year, you may want to keep extra income in the current year to be taxed in a lower tax bracket and hence a lower marginal tax rate.

Similarly, typically you would want to take expenses in the current year rather than deferring them until the following year. However, with expenses you would need to consider their deductibility in each year. For example, in 2020 a single taxpayer has a standard deduction amount of $12,400 (and a married couple filing jointly has twice that at $24,800). In order for itemized deductions to give you a better result than the standard deduction, they would need to exceed that standard deduction amount of $12,400.

Let us assume that Betty Taxpayer will have the same income in both years. She has no other deductions in the current year. She is considering making a charitable contribution of some stock. Let us say next year Betty will have other itemized deductions in excess of the standard deduction amount. The existence of those other itemized deductions the following year would mean that her charitable deductions would not have to exceed the standard deduction amount of $12,400 to be deductible. She may want to defer gifting the stock until next year. (Note, in 2020 only, Betty may give up to $300 in cash to a public charity as an “above-the-line” deduction that need not be itemized.)

In addition to considering expenses and deductions, Betty should take into consideration whether her employer participated in the optional deferral of payroll taxes. Beginning September 1, 2020, employers can defer withholding the employee’s 6.2% payroll tax for those employees earning less than approximately $100,000 annually. Some employers, such as the military and the federal government are doing so. Many other employers are not doing so due to the complications involved. If Betty’s employer is deferring her payroll tax withholding, she will have larger paychecks than normal in the last four months of 2020. However, Betty’s paychecks in early 2021 will be smaller than normal to pay back the deferred withholding.

Betty should take all this into consideration, and more as she considers her end-of-year tax planning. Of course, if Betty will have more payroll tax withheld next year, she may find it more difficult to put money aside to make IRA contributions. Remember, you have until April 15^th to make your IRA contributions for the prior tax year.

End-of-year tax planning is just part of the planning process. Estate planning includes tax planning but also much more. Estate planning also considers ensuring your assets go to whom you would like them to go and how you would like them to go.

In the United States alone, the pandemic has infected nearly 7 million people and has killed nearly 200,000 of them. In today’s pandemic, it is more important than ever to make sure your estate planning documents are current. It is especially important to ensure your documents relating to your health are up to date. Those documents are the Health Care Power of Attorney, the Advance Directive, and the HIPAA Power.

In the Health Care Power of Attorney you appoint an “Agent” to make health decisions for you when you are not able to make those decisions for yourself. You can also appoint a successor Agent to make decisions if the first Agent is not available or is not able. You can appoint additional successors, too.

An Advance Directive expresses your wishes regarding end-of-life decisions. Without such a clear expression of your wishes, you must be kept alive even if you have no reasonable chance of recovery, even if doing so would prolong your suffering. Sometimes an Advance Directive is called a “Living Will” and often it is combined into the same document as the Health Care Power of Attorney.

The Health Insurance Portability and Accountability Act of 1996 mandates healthcare providers keep your protected health information confidential. While this is primarily a good thing, sometimes you want some people to have access to your protected health information. For example, you want your Health Care Agent to have access to your information so they can make informed decisions regarding your health. Also, you want fiduciaries such as the Agent under a Financial Power of Attorney and the successor Trustee of your Trust to be able to have access so they can know if they need to step in to manage your financial affairs, which is their duty. A HIPAA Power grants access to your protected health information to those whom you designate. In fact, without such a power, your loved ones might not even know you are in the ICU with COVID-19.

It is important to have these three documents, but it is also important to keep them up to date and to name successors in them. All too often in the current pandemic, the illness impacts more than one person in the family or locality. If there is no successor appointed (or that successor is also incapacitated) there can be delays in getting consents for different treatments or implementing end-of-life decisions.

Today’s pandemic is hard on all of us. Precautions like washing your hands, social distancing, and wearing a mask can make all of us safer. Keeping your estate planning documents up-to-date helps ensure that, if the precautions do not work, your loved ones and fiduciaries can help you through the illness and make it easier for you and your loved ones.

Even a little bit of a headstart can be extremely helpful in life. Those who start with little economic wealth, including many minorities and recent immigrants, face obstacles in obtaining a good education and building a business or a solid career. Those who have a headstart in life have an easier path to success and happiness. It doesn’t mean they will have everything handed to them on a silver platter. It just means they won’t start at the bottom of society’s ladder. The biggest factor in the wealth gap between minorities and non-minorities is inheritances, according to a report by the  Brookings Institution. This generational wealth is key to leveling the playing field so your children, grandchildren, and descendants can have a better life. The American dream is to work hard and provide your descendants with a chance for a better life than you had.

How do you provide a headstart in life for your loved ones? First, you can provide them with funds to give them a leg up. These funds could allow:

• A home to provide a solid footing
• A good education to allow a more rapid ascent up the career ladder
• Funds for starting a business
• Economic security

Second, you can leave those assets to them in a manner that protects those assets.

• You can protect those assets from the beneficiary’s mismanagement prior to when they have gained maturity
• You can protect the assets from the beneficiary’s creditors
• You can protect the assets from the beneficiary’s misuse of the assets

You can achieve all of this by using a trust. Let’s look at an example. Jayden and Alyssa have worked hard all their lives. Through their hard work (and a little good fortune) they have been able to build a tidy nest egg. They have two children, Jasmine and Isaiah (Ike). They want all the best for their children, as we all do, and they want them to be able to have an easier start than they did.

Jasmine is level-headed and is a straight-A student. They have greater concerns about Ike, who isn’t as studious as Jasmine. After speaking with their estate planning attorney, Jayden and Alyssa decide upon a plan tailored to their family’s unique needs. Upon the death of the survivor of them, their assets will be split into shares for their two children. Both trusts will have Alyssa’s trusted sister, Janet, as the trustee. Janet will be the trustee of Jasmine’s half until Jasmine is of a suitable age, which they think will be 35. At that age, Jasmine will be the trustee of her own share. Prior to that time, Janet will distribute for Jasmine’s education, support, and other needs. Thus, the assets will provide Jasmine a headstart in life while the assets are protected from misuse and unwise investments in her early adulthood. Then Jasmine can pay it forward to her children when she has them.

Ike is not as studious as Jasmine. In fact, Jayden and Alyssa have some concerns about Ike. Ike has been irresponsible. Ike had an accident while driving under the influence. Luckily, Ike wasn’t hurt, but the passengers in his car and the occupants of the other vehicle involved were injured and received judgments against him. Because of this, they’re giving Janet greater latitude as trustee for Ike’s share. Ike’s share provides distributions to him only in Janet’s discretion. This provides protection from Ike’s creditors. Janet can still make distributions for Ike’s benefit as she sees fit so he can still get a good start in life by getting an education, etc. This ensures the assets will be there for Ike’s benefit and won’t be wasted by Ike or seized by his creditors.

Jayden and Alyssa have worked hard and saved all their lives. They want their children to have an easier start than they did. So, they consulted with an estate planning attorney. After they are gone, they’re leaving their assets for their children in trusts with protection tailored to Jasmine and Ike’s needs. They built their family. They built their nest egg. Now they’ve consulted an estate planning attorney and built a unique plan tailored for their family which will pass on their nest egg to provide a headstart and protections for their family.

The star of multiple films, including the blockbuster superhero film “Black Panther,” died on August 28 of colon cancer. “Black Panther” by Marvel was nominated for 6 Academy Awards, including Best Picture. The film grossed over $1.3 billion worldwide. Chadwick Boseman became a role model for millions by playing Marvel Studio’s first Black superhero. Boseman also starred in films portraying real-life heroes, like Jackie Robinson (“42”), James Brown (“Get On Up”), and Thurgood Marshall (“Marshall”).

Boseman showed us that even those who appear to be young, vibrant, and heroic need planning. Boseman died at age 43. While little is known of Boseman’s estate planning, we do know that he had a wife, Taylor Simone Ledward, whom he met in 2015 and to whom he got engaged to in October 2019. Boseman was the youngest of three sons of his mother, a nurse, and his father, a textile factory worker.

Even those of us who are young need at least a basic estate plan. A basic estate plan includes:

• A Power of Attorney for Property which appoints someone as your Agent to manage your property, particularly when you’re not able to do so yourself.
• A Healthcare Power of Attorney which appoints an Agent for you to make healthcare decisions for you when you’re unable to make those decisions for yourself. This may be combined with a Living Will which expresses your wishes regarding end-of-life decisions.
• A Living Trust often is used to hold your property during lifetime. A Trust avoids the probate process and the cost, delays, and publicity which it might bring.
• A Pourover Will is used to transfer any property in the estate at death to the Trust for disposition according to its terms. The Will is also the document in which you nominate guardians for any minor children.
• A HIPAA (Health Insurance Portability and Accountability Act) Power, which grants access to your protected health information. Without this authority, loved ones and fiduciaries, such as your Agent or Successor Trustee, might not be able to know your health information, including whether you’re even in a hospital or other facility or if you’re no longer able to manage your affairs and your Agent or Successor Trustee needs to step in.

Chadwick Boseman performed his most famous roles after his diagnosis with colon cancer four years before his death. President Barack Obama tweeted: “To be young, gifted, and Black; to use that power to give [Black kids] heroes to look up to; to do it all while in pain – what a use of his years.”

What a use of his years, indeed. Chadwick Boseman demonstrated that one can inspire millions through your words and your deeds.

Before the pandemic, Americans were as mobile as ever. In the prior decade, millions of Americans moved each year.

Often, people wonder, “What happens to my estate plan if I move?” Well, it depends. If you move within the same state, your documents are valid and the planning will still be intact, as well. If you move from one state to another, your primary dispositive plan may still be valid, but some aspects might not work as well in your new state.

Let us look at an example. John and Mary went to an attorney in State A. A couple of years later, they moved to State B. There are so many things to do when you move, they did not update their estate plan when they moved to the new state.  This caused issues because the laws in State B were somewhat different. John had a stroke and when Mary went to use the Healthcare Power of Attorney, the hospital gave resistance because they had never before seen a document like the one John and Mary had which was similar to that typically used in State A. The form used in State A did not have many of the choices the hospital staff in State B typically saw.  Eventually, Mary was able to use the Power of Attorney, but the hospital’s resistance caused by not having a document familiar to them added stress when Mary was already near the breaking point. Later, after John died, Mary went to an attorney to settle things. The attorney opined that, while their estate plan made sense for State A, it did not do the tax planning which would have been wise to do in State B. You see, State B had a separate estate tax, while State A did not.  This is not an issue with the trusts that I prepare.  In each trust, there are three (3) sections that I call the “legislation savings” clauses.  These means that to whatever state you move, your trust provisions will comport with and automatically amend to conform with that state’s laws.  Every state has its own ‘form’ powers of attorney.  I have people moving out of Illinois all of the time.  The only thing we have to address is re-preparing their powers of attorney to be that of their new state of residence.

Going further, after John’s death, the bills from his final illness and funeral came in. Mary sold some stock to pay for the bills. When it came time to prepare her taxes for the year, her accountant asked her if the stocks had been community property before John died. When Mary told him they had not been, he said “That’s a shame.” She would owe tax on her gains. If the stocks had been community property at John’s death, even Mary’s part of the community property would have gotten a “step-up” in basis to fair market value. In other words, all the gain up until John’s death would have been wiped out.

If John and Mary had visited an estate planning attorney regarding their estate plan upon their move to the new state, they could have made plans more appropriate for the new state. This could have saved income tax on the stock sale after John’s death. Mary would not have encountered difficulty using the Power of Attorney. Mary could have saved money at her later death.

Whenever you have a significant life change, including a move to a different state, it’s best to check with an estate planning attorney to see if your estate plan should be updated or if you should make any other changes to take advantage of the laws of your new state of residence. That is the case whenever you move to a different state—even if it is only across a river or state line.

Every year, many people in the United States are unable to manage their own affairs due to incapacity. They might be young or old. They may have had a gradual decline or a sudden onset. They might have had a stroke, heart attack, or some disabling disease such as Parkinson’s, Alzheimer’s, or COVID-19.

If you are incapacitated without having prepared, it can be an ordeal for you and those who care for you. Your loved ones might need to go to court to have you declared incompetent and have a guardian appointed to manage your affairs.

Let’s look at an example. John was moving to be closer to his family. He was trying to sell his house. He was in an auto accident and was suddenly incapacitated and unable to manage his own affairs. His neighbor knew he wanted to sell his house and the neighbor’s sister was moving and made John an offer to buy his house. The offer was for more money than John had ever imagined the house was worth. Since John didn’t have the capacity to sell his house, his loved ones had to go to court and have him declared incompetent and have someone appointed as his guardian. Of course, this process was difficult in many ways. John’s family disagreed regarding who should be John’s guardian. Embarrassing information concerning John’s condition and behavior came to light. The family’s dirty laundry all came out in court. After all of this, the great offer on the house was lost due to the court delays. The neighbor’s sister couldn’t wait any longer. An economic downturn hit in the interim and another good offer wasn’t forthcoming.

John could have prepared in advance by naming an “agent” under a Power of Attorney. John could have had one agent to make health decisions for him and the same or a different agent to make financial decisions for him, such as regarding the sale of the house.

Often a home is funded into a revocable trust to avoid any delays, expense, and publicity of the probate process upon death. If John had funded the home into his revocable trust, his successor trustee could have had the authority to sell the home.

In fact, some title companies are reluctant to accept a Power of Attorney for real estate transactions, especially if the Power of Attorney was signed more than two years earlier. Properties in a revocable trust don’t face this same reluctance.

While planning for what happens to your assets after your death is important, planning for the management of your assets and your well-being during periods of your incapacity is even more important. Why not do the right thing, for yourself and those who love you and whom you love, by planning today. Now, more than ever, it’s important to plan for your own incapacity.

In 2020, each person can give away $11.58 million during life. Whatever portion they haven’t used during life, they can use it at death. However, that generous exclusion will be cut in half at the end of 2025. Beginning in 2026, the exclusion will be only $5 million adjusted for inflation from the 2011 base year. If you use the exclusion before it falls back, you won’t be penalized by a “clawback” upon your death in 2026 or later.

For example, let’s say Mary has $11.58 million and gives it all away in 2020. Let’s assume she lives off her social security and dies with nothing in 2026. She would not owe any estate tax, even though she had given away $11.58 million and the exclusion at her death in 2026 is half that amount.

In other words, if Mary uses her exclusion before 2026, she won’t have to worry about having to pay estate tax because of the gifting she did of an amount within the exclusion during her lifetime, even though that exclusion later decreases.

Does that mean Mary should wait until 2025 and then decide what to do? Unfortunately, not. Some voices in Congress have called for an earlier repeal of the law which included the doubling of the exclusion to its current level. Some voices have even called for the exclusion to be lowered even further, to $3.5 million per person, or less.

A shift in power in Washington after the 2020 elections could bring those voices to power and see their vision realized. Does that mean Mary could wait until legislation is passed by Congress and signed by the President to act? Again, unfortunately not. Legislation could be passed late in 2021 and could be retroactive to January 1, 2021. In other words, to be safe, you would need to act before the end of 2020.

For a married couple, perhaps the best way is for one of them to give their full exclusion into a trust for the benefit of their spouse and descendants. This is called a Spouse And Family Exclusion (“SAFE”) Trust (also sometimes called a Spousal Lifetime Access Trust (“SLAT”)). Let’s look at an example. John and Liz are married and have $15 million. John could give $11.58 million to a SAFE trust for the benefit of Liz and their children and grandchildren. Liz could be the trustee of the trust and decide how the assets are invested and distributed, within the ascertainable standard set in the trust (typically “health, education, maintenance, and support”). The assets in the SAFE trust are outside both John and Liz’s estates.

By doing this, John and Liz would have taken advantage of John’s $11.58 million exclusion and would not have an estate tax due even if the exclusion falls back to $3.5 million. Even better, Liz still has control of the money and can use it for her own benefit and that of their children and grandchildren.

Having planned now, John and Liz can rest easy and not worry about what legislative changes might be coming after the election in November.

Maybe you grew up without much. You worked hard. You earned a good education. You succeeded in life even though the streets were not paved with gold where you grew up. In fact, maybe you grew up in a very impoverished, oppressed community.

Now you (and your spouse if you are married) have accumulated enough so you are comfortable. Maybe you are not a billionaire, but you feel like you have achieved a reasonable level of material success. After your death, you would like to provide for your loved ones so they can be a step up the ladder of financial stability and so they can get a good education and get a good start in life.

Deciding to whom you want to leave your assets is often the easy part. Often the difficult decision is determining the best way to leave them your assets. Let us say you want to leave your assets to your children at your death. What is the best way to do it?

You could leave your assets to them outright. That might be the right solution sometimes, but all too often, that is not the right solution. This is the third in a series of blogs examining different ways to leave assets to a beneficiary and when and why that might be appropriate.

A Special Needs Trust is tailored to help a beneficiary with special needs receive an inheritance without jeopardizing their current or future public needs-tested benefits, such as Medicaid or Supplemental Security Income (“SSI”).

If you have a child or other beneficiary who has special needs, you want to provide them the best chance to lead a full and meaningful life, just like any other child or beneficiary. If you leave assets to them outright, it could jeopardize public needs-tested benefits which they are on.

Let us look at a quick example. Betty is leaving assets to her son, Jackson. Jackson has special needs. Betty loves Jackson and wants the best chance for him. But she knows Jackson will have unique challenges in life. Betty has $800,000 in assets and she has two children, Jackson and Abigail. Both her children are now adults and Abigail attends college. If Betty leaves assets to Jackson, he would be ineligible for needs-tested public benefits. Betty could leave all the assets to Abigail and ask her to watch out for Jackson. However, if Betty did that, the funds intended for Jackson would be lost if Abigail had financial difficulties from creditor issues, divorce, mismanagement, etc.

Betty could leave the portion intended for Jackson in a Special Needs Trust for him. Abigail could be the trustee of that trust and distribute from it for Jackson’s special needs. This would allow the funds to be used for Jackson to enjoy life through education, vacations, and other “special needs” without jeopardizing his needs-tested public benefits. Also, if Abigail had creditor issues, her creditors could not attach the assets in Jackson’s Special Needs Trust.

From an income tax standpoint, the Special Needs Trust for Jackson is treated as a separate taxpaying entity. A separate tax ID number would be needed for the trust. The trust’s taxable income might be carried out to Jackson if there are distributions to or for Jackson’s benefit that year. Otherwise, the trust would pay its own taxes.

As demonstrated by the three articles in this series, leaving assets to beneficiaries can be tricky. Often the best way to leave an inheritance to someone you love is not leaving it outright. Rather, it is often better to leave them assets in a trust with provisions tailored for their benefit. For some beneficiaries, a Special Needs Trust is appropriate. For other beneficiaries, an Asset Protection Trust is best. For still other beneficiaries, a Divorce Protection Trust is best.

Maybe you grew up without much. You worked hard. You earned a good education. You succeeded in life even though the streets were not paved with gold where you grew up. In fact, maybe you grew up in a very impoverished, oppressed community.

Now you (and your spouse if you are married) have accumulated enough so you are comfortable. Maybe you are not a billionaire, but you feel like you have achieved a reasonable level of material success. After your death, you would like to provide for your loved ones so they can be a step up the ladder of financial stability and so they can get a good education and get a good start in life.

Deciding to whom you want to leave your assets is often the easy part. Often the difficult decision is determining the best way to leave them your assets. Let us say you want to leave your assets to your children at your death. What is the best way to do it?

You could leave your assets to them outright. That might be the right solution sometimes, but all too often, that is not the right solution. This is the second in a series of blogs that will examine different ways to leave assets to a beneficiary and when and why that might be appropriate.

The first article in the series discussed the “Divorce Protection” Trust or “Access” Trust. The second way which is the topic in this article is a fully discretionary trust, often called an “Asset Protection” Trust or a “Sentry” Trust. In many ways these trusts are opposites. While the beneficiary of an Access Trust has the right to demand whatever they want, whenever they want it, the beneficiary of a Sentry Trust cannot demand anything ever. The distributions from the trust are in the complete discretion of the Trustee.

A completely discretionary trust has many benefits. First, it allows the trustee to use their discretion and withhold distributions if they think the beneficiary is acting unwisely or inconsistent with their best interests. For example, this type of trust might be good for someone with a substance abuse problem or a gambling addiction.

This type of trust also is the best way to provide asset protection. A creditor of a beneficiary stands in the beneficiary’s shoes. So, if the beneficiary can access funds so can their creditor. In this trust, the beneficiary cannot demand anything, so neither can their creditors.

Let us look at a quick example. Jane is leaving assets to her son, Bill. Bill has a history of substance abuse and drunk driving. In fact, Bill is currently incarcerated related to his substance abuse issues. Jane would like to be sure Bill’s inheritance is protected and used for his best interests. Jane leaves the assets in a Sentry trust for Bill’s benefit. The trustee, who should not be Bill, can use the assets for Bill’s benefit, in the trustee’s discretion. But Bill cannot force any distributions from the trust. This way, the assets are protected from Bill’s creditors and Bill’s indiscretions. If there is a victim of the crime, there could be restitution owed. Even if it is a victimless crime, most states charge inmates for the privilege of being housed and fed during their stay. For example, for a recent three-year stay, Florida charged $55,000. As prisons pay inmates little or nothing, they often come out with large debts that could wipe out an inheritance if it were not left in a protected trust.

From an income tax standpoint, this trust is treated as a separate taxpaying entity. A separate tax ID number is needed for the trust. The trust’s taxable income might be carried out to Bill if there are distributions to Bill that year. Otherwise, the trust pays its own taxes (at a compressed rate schedule).

A Sentry Trust allows someone serving as Trustee to watch over the assets of the beneficiary and distribute them to the beneficiary in the Trustee’s discretion. This protects the beneficiary from the beneficiary’s creditors or misjudgment.

Maybe you grew up without much. You worked hard. You earned a good education. You succeeded in life even though the streets were not paved with gold where you grew up. Maybe you even grew up in a very impoverished, oppressed community.

Now you (and your spouse if you are married) have accumulated enough so you are comfortable. Maybe you are not a billionaire, but you feel like you have achieved a reasonable level of material success. After your death, you would like to provide for your loved ones so they can be a step up the ladder of financial stability and so they can get a good education and get a good start in life.

Deciding to whom you want to leave your assets is often the easy part. Often the difficult decision is determining the best way to leave them your assets. Let us say you want to leave your assets to your children at your death. What is the best way to do it?

You could leave your assets to them outright. That might be the right solution sometimes, but all too often, that is not the right solution. This is the first in a series of blogs that will examine different ways to leave assets to a beneficiary and when and why that might be appropriate.

The first way is similar to giving the assets to them outright after your death. It would be to give them the assets in a trust set up after your death from which they could demand the assets at any time they want. This type of trust is often called a “Divorce Protection” Trust or an “Access” Trust. From an income tax standpoint, this trust is treated the same as the beneficiary. In other words, no separate tax ID number is needed for that trust. It can use the beneficiary’s social security number for reporting.

If they can withdraw the assets whenever they want, then what is the benefit of the trust? The assets will retain their character as the beneficiary’s separate property and will not get comingled with their marital assets. Of course, since the beneficiary could withdraw the assets at any time, the asset would be subject to the beneficiary’s creditors. This type of trust would not be a good choice for a beneficiary who had creditor issues or who was irresponsible. But it might be a good choice for a beneficiary who was responsible and whom you just wanted to keep the assets separate in case they get divorced down the road (even if they’re not now married).
While the trust would keep the assets separate, in some states the court could consider these separate assets in making an asset allocation between spouses upon divorce or in awarding child support or alimony.

So, be careful with which trust vehicle to use and which is most appropriate for your situation.