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Welcome to 2024! The year 2023 left many feeling unsettled. Chat GPT burst onto the scene, and it seemed AI was destined to take over everything. War continued in Ukraine and broke out in the Gaza Strip. Finally, COVID-19 seems to be the new norm. Calendar year 2023 taught us some tough lessons, most of which focus on preparing for the unexpected and unthinkable. Creating an Estate Plan helps give us a feeling of control and peace of mind, knowing that your loved ones will endure when you leave this earth.

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 enough to tell them what to do in your absence. 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 Living Trust, also known as a Revocable Trust (a “Trust”), a Will, a Property Power of Attorney, a Healthcare Power of Attorney, a Living Will, and a Health Insurance Portability and Accountability (“HIPAA”) Authorization.

Although we list Trust first, let’s start with a discussion of the Will. A Will determines distribution of your assets upon your death and allows you to select an individual or company to make the disbursements of those assets. The Will allows you to nominate guardians to care for any minor children that you have at your death. Finally, some states allow their residents to pass tangible personal property through a separate writing without the formalities required of a Will. These documents must follow state statutes concerning requirements for validity, but generally, these documents need only reference the tangible personal property sought to be distributed, the desired recipient of the property, and have the testator’s signature along with the date signed. Usually, states that allow a separate writing require that the Will contain a direction regarding passing the tangible personal property according to such document. These states typically do not have companion statutes that allow a Revocable Trust to reference the memorandum. If you do not have a Will, then your state’s intestacy laws will govern dispensation of your assets at your death. Often, the state’s distribution pattern does not match your own. Even if state laws match your desired disposition, state laws contain no provisions to account for a beneficiary’s specific circumstances, for example, a beneficiary with special needs. Finally, state intestacy laws may appoint a stranger to handle these important tasks.

Regardless of whether you have a Will or your state’s intestacy laws determine property division and distribution of your assets upon your death, the individual in charge must 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 serves as a Will substitute and provides the opportunity for you 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 the power to make distributions from the Trust without court oversight. 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 Property Power of Attorney.

The Property Power of Attorney allows you to appoint someone as your “Agent” to act on your behalf concerning 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. Property Powers of Attorney come in several flavors. Some vest immediately meaning that the Agent has 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, they also may vest upon incapacity meaning that the Agent’s powers “spring” into action only upon your incapacity. Practitioners refer to these types of Property Powers of Attorney as “springing” Powers of Attorney. 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 Living Will, sometimes called an “Advance Directive” expresses your wishes regarding end-of-life decisions. Without this document memorializing your wishes, doctors and medical professionals must keep you alive even if you have no reasonable chance of recovery notwithstanding that doing so only prolongs your suffering. Often the Living Will and Healthcare Power of Attorney are combined into one document. The Health Insurance Portability and Accountability Act of 1996 mandates that healthcare providers keep your protected healthcare information confidential. While most of us would agree that generally makes sense, sometimes you want others to have access to that information, especially the fiduciaries that you have nominated to act upon your incapacity. A HIPAA Authorization allows you to appoint one or more individuals to access or receive protected health information.

It’s important to keep your Estate Plan updated. Reviewing these documents often ensures that you always have trusted and capable individuals serving in these important roles and that you do not leave your loved ones wondering what to do upon your incapacity or death. While we hope 2024 will be better than the last several years, 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 that it accomplishes your goals. This will provide you and your loved ones with peace of mind for anything that 2024 brings. If the last few years have taught us anything, it’s to expect the unexpected. Even a basic Estate Plan provides peace of mind. Resolve now to get your estate planning done this year, sooner rather than later.

Today, I had the pleasure of meeting a new client.  Wonderful man, smart, educated, refined and a true gentleman.  His live-in girlfriend was there also.  She made her feelings immediately known about her opinions of estate planning.  She was wholeheartedly against the use of a Trust as an estate planning tool.  Why? I asked.  She proceeded to state that ‘everyone’ has told her, including accomplished attorneys, that a Will is all you need and that having a Trust is a mistake.  No other reasoning, just her opinion, based upon other’s opinions.  She obviously believes herself to be an expert in the field of estate planning.  A neophyte?  Maybe.  An authority has spoken!  Every run into these types of people?  We all have.

Continuing, she was belligerent to the point of interrupting the discussions with my new client and made remarks that made little to no sense as to the estate planning process.  She stated that ‘everyone’ had great and impactful experiences with Wills and the probate process.  There was no negativity in their experiences.  I asked her a question.  “Would you rather be in control or leave it to a court to determine the happenings of your estate.  Her response was something to the fact that it doesn’t matter to her.

Her very apparent misunderstanding of estate planning is probably not that uncommon.  Often times, those that do not understand and/or do not have the capability of understanding, take other people’s word as Gospel when it comes to a matter of which that person has no experience.  Case in point, today.  She may have looked on the internet and saw an opinion of someone about Wills and probate.  Thus, since it is on the internet, it has to be true.  Don’t get me wrong, the internet is a great source of knowledge, but it fails in two respects, ’Dr. Google and Attorney Google.’  According to Dr. Google, I have every symptom of leprosy!  As to legal concepts, there are so many competing theories that no one can decipher what is up or down.

In each of my meetings, whether it be an estate planning or tax client, my main focus is to educate the client to the greatest extent without having them die of boredom.  This way, we have educated clients that truly understand, not only the concepts, but also how it directly affects them.  But, no matter what you explain to certain people, they have pre-conceived notions that they will not falter from.  Regardless of reason or true fact, certain people believe that they know better than someone who is experienced and seasoned in their chosen field.  The women I was with today, is the type that if her car is not running correctly and she brings it to an expert mechanic who tells her she needs a new timing chain will argue with the mechanic that the car just needs an oil change.

I have come to the conclusion that closed minded people will always be closed minded.  Also, people that have an inherent distrust of everyone is a strong indicator of a lack of intelligence.  So, trying to influence any of these types of people by using reason and facts are a waste of time.  So, my advice is to stop trying to teach neophytes/authorities on everything (masters of none) and allow them wallow in their own ignorance.

As 2023 draws to a close and the New Year dawns, we need to think of…tax planning for 2024 and beyond! Some years Congress tweaks the laws more than other years. While 2023 held plenty of surprises, it was a relatively quiet year for legislative changes impacting tax planning. Still, even in a quiet year, some things change due to inflation adjustments, etc.

Estate Tax Planning

Applicable Exclusion rises from $12.92 million in 2023 to $13.61 million in 2024.

GST Exemption rises from $12.92 million in 2023 to $13.61 million in 2024.

Annual Exclusion for present interest gifts rises to $18,000 in 2024.

Annual Exclusion for gifts to a Noncitizen Spouse rises to $185,000 in 2024.

In a couple 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 those amounts, you may want to consider removing those amounts from your estate while you still have the temporarily-doubled Exclusion and Exemption to cover the transfers. The law will change on January 1, 2026, unless Congress changes things dramatically before then, which appears unlikely at least for the next year given the closely divided Congress and Senate.

Income Tax Planning

Standard deduction amount:

Married, filing jointly, increases from $27,700 in 2023 to $29,200 in 2024.

Single, increases from $13,850 in 2023 to $14,600 in 2024.

Head of household, increases from $20,800 in 2023 to $21,900 in 2024.

State and Local Tax (SALT) deduction cap remains at $10,000 in 2024.

The income tax brackets creep slightly higher, as well.

As you plan for 2024, 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. According to the Tax Foundation, less than 14% of taxpayers itemize each year after the TCJA. Before then, more than twice that percentage, over 31% of taxpayers, itemized. If you give to charity, you may want to group your charitable contributions into one year, itemize them in that one year, and take the standard deduction in other years. You can do this by consolidating giving to a Donor Advised Fund (“DAF”) in one year. Then you can make grant recommendations from your DAF each year. This way, your tax planning won’t impact your favorite charities.

Let’s look at an example. John and Mary have high incomes and make $17,700 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 $27,700 of deductions and they’d be better off taking the standard deduction ($27,700 in 2023). Rather than giving $17,700 for each of three years to charity, they could give 3 x $17,700 ($53,100) in one year and they’d get a much better tax result. If they gave $53,100 in year 1 to a DAF, combined with their SALT deduction of $10,000, they’d have $63,100 of deductions instead of the standard deduction of $27,700. 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 ($29,200 in 2024). The charities would get their funds each year just as usual when John and Mary make the grant recommendations from their DAF. John and Mary would get a much better tax result. In year 1, they’d have $63,100 of deductions instead of $27,700, an increase of $35,400. Their deductions in years 2 and 3 would not change, because either way they’d be taking the standard deduction in those years. Depending upon John and Mary’s income tax bracket, this increased deduction could save them over $12,000 in federal income taxes alone.

A little planning can produce a much better tax result. Have a happy, healthy, and prosperous 2024!

I have long recommended the use of closely held entities such as family limited partnerships (“FLPs”) and limited liability companies (“LLCs”) to provide flexibility in allocating rights to profits and capital, to shift income and property appreciation from one generation to the next, and to provide asset protection.  Individuals transfer assets to the entity in exchange for membership or partnership interests, which provide management control and income distribution rights, but which may be subject to certain restrictions set forth in the governing documents.  These restrictions limit new owners to a class of individuals, usually the descendants of the original members or partners, although some documents allow for the interest to pass to a spouse.  Limitations like this insulate owners from liability, provide concentrated management in one individual, and allow the owners to carry out their business and tax objectives.  The manager of an entity owes fiduciary duties to the other members which protects the business from claims of ex-spouses, creditors, outsiders, or even adversarial family members.  Family entities provide great opportunities to leverage discounts for minority interests or freeze values by allowing appreciation to escape taxation at death when used in conjunction with other Estate Planning techniques.

Many states use partnerships as the default for two or more individuals in business together.  Sometimes the partners have a formal agreement called a partnership agreement, and sometimes it’s just a handshake.  LLCs and limited partnerships, on the other hand, require a more formal intent.  For example, with an LLC, the members file Articles of Organization to establish the LLC and use an operating agreement to govern the day-to-day operation.  The operating agreement generally contains provisions regarding distribution of profits, management of the company, restrictions on ownership, duration of the entity, and what happens upon dissolution.  Often, the operating agreement will include provisions that dictate what happens upon the death of an owner.  These provisions may override the provisions of an individual member’s Estate Plan, although they should work in conjunction with one another.  Questions can arise though, when the provisions of Estate Planning documents conflict with provisions in the entity agreements.  Let’s review an example based on facts from a real case.

Assume that Shirley and Warren created an LLC for their family business.  The operating agreement (“Agreement”) gave each sibling a 50% membership interest (“Interest”) in the company which consisted of the right to distributions, allocations, information, and the right to vote on matters before the Members.  Shirley and Warren included language in the Agreement that a member could transfer all or any portion of his or her Interest by obtaining the prior written consent of all the other Members unless certain limited exceptions applied.  The exceptions included a transfer of Interest outright or in trust for the benefit of another Member and/or any person or persons who are members of the “Immediate Family.”  The Agreement defined Immediate Family as living children and the issue of any deceased child of a Member.  If the Member failed to transfer the Interest during life in accordance with the provisions of the Agreement and failed to dispose of the Interest through the Will, then the Agreement provided that upon the death of such Member, the Interest would pass to and immediately vest in the Immediate Family of the deceased Member.  Shirley and Warren ran the business together for two years until Warren’s untimely death.  Warren left behind four adult children, and his estranged wife, Annette.

Upon Warren’s death, his Will was admitted to probate and Letters of Administration were issued to his son, Benjamin.  The Will did not dispose of Warren’s LLC interest but instead directed that his assets be poured over to his trust which distributed everything equally to his four adult children and named Benjamin as successor Trustee.  Shortly before his death, however, Warren amended his trust to include a distribution of his home to his friend, Faye.  The amendment also gave Faye his Interest.  Benjamin, as Personal Representative and Trustee, refused to transfer the Interest to Faye citing the provisions of the Operating Agreement.  Faye sued Benjamin and won in trial court but lost when Benjamin appealed.

The appeals court focused first on determining whether it was the terms of Warren’s Estate Planning documents, or the terms of the Agreement that would control disposition of his Interest.  That court determined that the laws of the state where the contract was made permitted the Agreement to dictate how the Interest would pass at death.  As such, the Agreement vested title to Warren’s Interest in his adult children immediately upon his death thereby overriding the provisions of his Estate Plan and his true intent.

The example above greatly oversimplifies the case; however, it provides universal lessons.  First, if you have an interest in a family entity, ensure that you transfer that interest in accordance with the terms of the governing instrument.  In the facts above, Warren needed to obtain Shirley’s consent to transfer his Interest to Faye.  Second, make sure that your Estate Plan works with the governing instrument for your entity.  Here, Warren would have needed to transfer his Interest to Faye during life and obtain Shirley’s consent in accordance with the terms of the Agreement, rather than relying upon his Estate Planning documents at his death.  Finally, if you are unaware of any governing instrument, understand the impact of local law on your interest in the entity and your overall Estate Plan.  The opinion for the case did not indicate whether Warren’s Estate Planning attorney reviewed the Agreement, but it’s best to start with a review of the entity documents when dealing with any closely held entity.  Remember that even if you set up the business without the services of an attorney, the business is a legal entity, as is the transfer of your interest in it.

Of note for everyone with a business that files documents with the Secretary of State is the Corporate Transparency Act (“Act”) that requires such entities that qualify as a “Reporting Company” to provide certain information about its “Beneficial Owners” and “Company Applicants.” Failure to report this information may result in civil and criminal penalties. The Act imposes the duty to report the required information to the Financial Crimes Enforcement Network (“FinCEN”) on any Reporting Company beginning on January 1, 2024. 

Family entities serve a vital role in accomplishing numerous estate planning goals like asset protection, shifting appreciation and income to the next generation, centralized management, stability, and continuation of business upon death.  Family entities also provide the opportunity to leverage the benefits of other techniques to achieve more significant results during life by excluding assets from the gross estate and increasing valuation discounts.  To achieve these benefits, it’s vital to operate the entity in accordance with its governing documents.  If you have a business, now is a great time to talk to me to ensure that your estate plan and business plan work together to accomplish your goals and to explore any options that you have.

Recently, a headline titled “Eight Lessons from Killers of the Flower Moon” caught my eye, and the idea for this two-part blog took hold. The article talked about the movie titled “Killers of the Flower Moon” that received critical acclaim for its depiction of the plight of the Osage Indian Tribe. The article focused on the many real-life Estate Planning lessons that we can learn from watching the movie. The first part, Estate Planning Lessons from the Movies – Part I, of this two-part series, gave a brief overview of the movie’s plot along with beginning to introduce the lessons from the movie. This second part will finish exploring those lessons and their real-world application.

As a reminder, “Killers of the Flower Moon” focuses on the “Reign of Terror” which was the name given to the period when white “caretakers” murdered members of the Osage Indian Tribe to steal their rights to the oil under their reservation. After the oil was discovered, each member of the tribe received a “headright” or share in the oil money (learn more about that here: The Osage Nation). The tribe members could devise or distribute, but not sell, that right. Anyone could inherit the headright which meant that outsiders sought to marry into the Osage tribe or otherwise become an heir to one of the members of the tribe. This led to the murder of countless Osage tribe members. As if the murders were not tragic enough, the federal government decided to impose restrictions on the tribe’s financial autonomy by requiring tribe members to take a test regarding their competency to manage their own estates. Every tribe member failed, and the Bureau of Indian Affairs assigned each a white guardian to oversee their spending. It’s unclear whether the guardians had any training, but the article makes clear that the guardians were corrupt and completely unnecessary.

I find the story itself intriguing, yet it becomes even more fascinating when viewed through an Estate Planning lens and with an eye toward learning from mistakes of the past. The first part of this series gave us lessons regarding the importance of fiduciary duties, understanding your intended beneficiaries, how sudden wealth destabilizes, and that addiction knows no income bracket or socioeconomic status. The next lesson focuses on the importance of flexibility in family legacy. A good Trusts and Estates Attorney inquires about the legacy that you want to leave for your family and helps you accomplish that goal. A great Trusts and Estates Attorney helps you create a legacy that will evolve with your family over time. Family expectations may motivate one member while crushing another. This underscores the importance of building flexibility into a legacy. The movie highlights how the Osage people struggled to integrate their well-established traditions into their increasingly modern world as it grew with their sudden wealth and interaction with non-indigenous people. The ones who found ways to adapt their traditions to their changing reality seemed happiest. The same holds true for our modern-day families and the legacies they want to pass along – those who can change with the times experience greater satisfaction.

The next lesson focuses on the importance of the proper valuation of assets. While we often boil down the value of an estate to a single figure, it’s rare that an estate consists of only easy-to-value assets. Usually, an estate contains cash, securities, and many other assets such as real estate, tangible personal property, and even intangible rights. While most of these assets have monetary value, sometimes assets have sentimental value or a different intrinsic value and it’s vital to understand that. The Osage understood the importance of land and the rights attached both above and below it. Upon their forcible removal to the Osage reservation in Oklahoma, they negotiated a deal allowing them to keep any subsoil rights. Because the Osage kept those rights, when they discovered oil under their reservation, it was theirs. This resulted in the headrights at the heart of the controversy in “Killers of the Flower Moon.” While the tragic Osage tale demonstrates the ugly side of greed, among many other things, it also highlights the importance of understanding the value of what you have. For those of us who regularly deal with the valuation of assets in either estates or trusts, we understand the importance of assigning correct value both in terms of assessing taxes and maintaining family harmony.

Third, blended families bring complex issues. For most Estate Planning attorneys, this goes without saying. Anytime a potential client arrives and indicates that they have been married previously, or have children from another relationship, that information changes the advice the attorney gives. Apparently, the perpetrators of the Reign of Terror managed to integrate themselves fully into the society they sought to destroy, and the movie tells the tale of non-indigenous husbands and grandfathers murdering their wives, children, and grandchildren to ensure that they inherited the headrights. While most families agree that’s going too far, families, especially blended ones, have different goals. Estate Planning attorneys need to understand those goals and develop a plan that addresses and honors those differences.

Finally, “Killers of the Flower Moon” reminds us of the danger of undue influence. As our clients age, often their world shrinks, and they depend upon others for help and support. It’s that same help and support that create the opportunity for the caregiver to unduly influence the aging client. Apparently, that’s how the self-proclaimed “King of the Osage Hills” gained his wealth, by insinuating himself with the Osage people and exerting his influence both on his family and on members of the tribe. Ultimately, William Hale’s wealth came from his nefarious deeds and dealings with the Osage tribe. We, as Estate Planning professionals, have the duty to ask the tough questions and determine whether the plan that the client wants to create represents their true intent or that of someone else. It’s not always easy.

I’m excited to catch this movie and look for the lessons explored in these articles. If you have concerns regarding your Estate Plan or any of its provisions, make it a point to talk to me and I can guide you through the maze of Estate Planning and ensure that your plan addresses the lessons raised in this two-part series.

I like to draw inspiration for my blogs from articles and other blogs that I read. Anytime those sources pull from real life, it piques my interest. After all, Estate Planning focuses on real life and the most real and inevitable part of life, death. Earlier this week, a headline titled “Eight Lessons from Killers of the Flower Moon” caught my eye, and the idea for this blog took hold. The article talks about the movie titled “Killers of the Flower Moon” that hit theaters late last month to critical acclaim, but that’s not all it discusses. The article lays out the many real-life Estate Planning lessons that we can learn from watching the movie. This first part of a two-part series will delve into the plot of the movie and start introducing the lessons. The second part will finish exploring the lessons.

Before we get into the lessons, it’s important to understand a bit about the plot of “Killers of the Flower Moon.” The film focuses on the “Reign of Terror” which was the name given to the period when white “caretakers” murdered members of the Osage Indian Tribe to steal their rights to the oil under their reservation. After the oil was discovered, each member of the tribe received a “headright” or share in the oil money. The tribe members could devise or distribute, but not sell, that right. Anyone could inherit the headright which meant that outsiders sought to marry into the Osage tribe or otherwise become an heir to one of the members of the tribe. This led to the murder of countless Osage tribe members. As if the murders were not tragic enough, the federal government decided to impose restrictions on the tribe’s financial autonomy and required tribe members to take a test regarding their competency to manage their own estates. Every tribe member failed, and the Bureau of Indian Affairs assigned each a white guardian to oversee their spending. It’s unclear whether the guardians had any training, but the article makes clear that the guardians were corrupt and completely unnecessary.

The story alone is fascinating, but it becomes even more interesting when viewed through an Estate Planning lens and with an eye toward learning from mistakes of the past. The first lesson we can take is understanding and appreciating the importance of fiduciary duties. Setting aside the question of whether the guardians were necessary, guardians or trustees, as we know them, have fiduciary duties that they must uphold. Without question, those tasked with guarding the Osage failed miserably in this regard, especially because many of them ended up murdering their charges. In the Estate Planning world, fiduciary duties are sacrosanct, and the fiduciary must always put the beneficiary’s needs before the fiduciary’s own self-interest. Choosing the right person to serve as fiduciary makes a plan; likewise choosing the wrong person to serve as fiduciary breaks it.

The second lesson is to know your beneficiaries. Any time that an individual serves in a fiduciary capacity, it’s important that they know and understand their beneficiary. The trustee/guardian relationships served no purpose for the Osage. The government established those relationships in bad faith, and the relationships were borne out of greed and racism. Prior to the creation of these relationships, the Osage negotiated ownership of their land and contracts with the government relating to the oil rights so it’s clear that they needed no help in managing their finances. A fiduciary must recognize what their beneficiary needs and determine how to address those needs either through the trust or another entity. Undoubtedly, a Trustee must exercise their discretion for the benefit of their beneficiaries.

Third, sudden wealth destabilizes. We have all heard stories about how lottery winners end up penniless, or that even those that come from wealth end up losing the family fortune. A sudden change in fortune changes things. People have unique views about money and just because an individual’s fortunes change, doesn’t mean that their view on or relationship with money does. Many a relationship has ended because the parties disagreed about how to spend their funds. If we know how a beneficiary views money, and understand their need for it, we can create a plan that addresses that need and viewpoint. This lesson piggybacks off the first two and underscores why choosing the proper fiduciary and understanding your beneficiary both matter. The relationship between the fiduciary and beneficiary will change because of the money involved.

The final lesson from this first part of the series is perhaps the most sobering. Addiction knows no tax bracket. Some movies and television shows cast alcohol and drug abuse as problems of the poor, but nothing could be further from the truth. Those with unlimited resources or who never hear the word “no” run just as much a risk for addiction as those without resources. Again, this underscores the importance of choosing a proper fiduciary and understanding the beneficiary. If the beneficiary struggles with addiction, the fiduciary needs to know that and the trust needs to have the tools to address that beneficiary’s addiction.

While the movie sounds intriguing because of the plot, I’m excited to watch it through the lens of an Estate Planning professional. The lessons discussed in this first part of a two-part series have real-life application. If you have concerns regarding your Estate Plan or any of its provisions, make it a point to talk to contact me so that we can discuss the nuances.

As we gather with our family, friends, and loved ones to celebrate Thanksgiving, let’s take a moment to savor the food and our time together.  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 $17,000 for 2023 ($18,000 for 2024). Giving now allows individuals to reduce the value of their taxable estate without impacting the lifetime exclusion amount of $12.92 million in 2023 ($13.61 million in 2024). In addition to allowing the donor to avoid use of any applicable exclusion amount, annual per donee 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 $17,000 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. Mike and Carol were preoccupied with the pending nuptials of their daughter, Cindy.  They realized that they better act quickly to utilize their 2023 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 $68,000 ($34,000 from each of Mike and Carol to each child, plus an additional $34,000 for each spouse of each child) at Cindy’s wedding on New Year’s Eve 2023. After the clock strikes midnight, the family rings in 2024, and Mike and Carol hand out another set of envelopes, this time, with $72,000 ($36,000 from each of Mike and Carol to each child, plus an additional $36,000 for the spouse of each child) cash in each envelope.

In the example above, in just a few hours, Mike and Carol gave away over $800,000 without incurring any estate or gift tax consequences. Mike and Carol each gave $17,000 to each of their six children and their spouses, totaling $408,000 in 2023, and Mike and Carol each gave $18,000 to each of their six children and their spouses, totaling $432,000 in 2023, for a total of $840,000. In fact, Mike and Carol could each also gift $17,000 to a grandchild in 2023 and $18,000 to that same grandchild in 2024. 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 charitable contributions may also qualify for a charitable 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 the use of 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 can help you explore these opportunities and to determine whether they make sense for your family situation.

Charitable gifts offer a great opportunity to reduce income tax liability. When a taxpayer makes a charitable contribution, typically they get an offsetting charitable income tax deduction. Unfortunately, that offsetting deduction doesn’t always end up reducing the total tax burden. To take a charitable income tax deduction, the taxpayer needs to itemize their deductions. If the charitable contribution and other itemized deductions don’t exceed the standard deduction amount, then it makes sense to take the standard deduction and forego the itemized deductions.

Let’s look at an example. Assume that Charlie Charitable has taxable income of $100,000 each year. He files as a single taxpayer with a standard deduction of $13,850 (in 2023). He has $10,000 of state and local taxes (an itemized deduction and the most one could take as a deduction for such taxes under current law). In addition, he makes a charitable contribution each year of $2,500 to his alma mater. His itemized deductions would be $10,000 plus $2,500 = $12,500, i.e., less than the standard deduction amount of $13,850. It doesn’t make sense for Charlie to itemize his deductions since they would be less than the standard deduction he could take without itemizing.

If Charlie Charitable spoke with an advisor, he would discover that by making several years’ worth of charitable contributions in one year, he would increase his charitable deductions to an amount exceeding the standard deduction amount. Charlie could refrain from making charitable contributions in the “off” years and simply take the standard deduction amount. Charlie likes that idea and decides to make a charitable contribution of $10,000 in 2023. That raises his itemized deductions to $20,000. This saves him the tax on $20,000 (his itemized deductions) less $13,850 (the standard deduction) = $6,150. Assuming he’s in a combined state and federal bracket of 40%, that would result in savings of nearly $2,500. In the “off” years of 2024, 2025, and 2026, he’d take the standard deduction amount each year and the strategy would not impact his taxes in those years. In 2027, he could repeat the large charitable contribution for another itemized deduction.

Another way for Charlie to optimize his charitable deduction would be by using a Donor Advised Fund (“DAF”). Contributions to DAFs give an immediate income tax deduction to the donor while creating a reservoir of assets for distribution to charities in the future. In addition, DAFs provide an opportunity for donors to invest contributed funds and make suggestions regarding which charities should receive the distributions. Donors may change their recommendations regarding the charitable distributions allowing great flexibility coupled with immediate benefits. In our example above, that means that Charlie could continue to make charitable contributions to his alma mater, but Charlie could decide to switch to a different charity altogether. In the interim, Charlie could invest the funds as he determined was appropriate prior to their distribution to a charity.

Donors may combine DAFs with other strategies to produce even better results. For example, if a donor gave highly appreciated public stock to a DAF, the donor would receive an income tax deduction for the full value of the appreciated stock without ever paying tax on the gains. Going back to our Charlie example, assume that Charlie gave $10,000 worth of publicly traded stock in which he had a basis of $1,000 to the DAF. If Charlie had sold the stock, he would have had to pay tax on the $9,000 gain. Assuming a state and federal combined capital gain tax rate of 30%, he’d owe $2,700 on the gain. If he then contributed the proceeds to charity, he’d only have $7,300 to contribute to charity. By giving the appreciated publicly traded stock directly to the charity (or DAF), he increases the amount that he contributes to charity which increases the deduction he receives.

DAFs complement any charitable giving strategy already in effect and provide a great opportunity for those new to charitable giving to discover the benefits it provides. It allows one to maximize the tax benefit from charitable giving, while retaining a say over the timing and distribution of the money. I can help you decide if a DAF is right for you.

It’s my favorite time of the year. Temperatures fall and spirits rise as we approach the holiday season. While we count down the days to year-end and enjoy gathering with our loved ones, it’s a great time to remind ourselves and our loved ones about the seedier side of the holiday season: scams. Scams run the gamut in ingenuity and range in form from charity scams to debt collection scams and from grandparent scams to imposter scams. Each scam has its own unsavory elements, but the grandparent scams strike me as the most deplorable of all by preying upon a grandparent’s natural concern for the welfare of their grandchildren.

Imagine that you are a grandparent and receive a late-night call from your grandchild pleading with you to send them money. The grandchild admits to having been arrested, maybe in a foreign country, and begs you to refrain from mentioning the call or the arrest to mom or dad because they will be upset with the child. Worse yet, imagine that you receive a call from a stranger purporting to be a lawyer, doctor, or arresting officer and discover that your grandchild has been arrested, hospitalized, or hurt in some other manner. This probably tops the list of nightmare possibilities about which grandparents worry. Many receiving this call would not think twice and be only too happy to help their grandchild by sending funds…except those funds never make it to the grandchild and by the time the grandparent realizes the ruse, the scammer has moved on to their next victim.

The grandparent scam has existed for several years and only continues to grow in popularity. With the near ubiquitous use of social media, scammers have more means through which they can obtain and use personal information both about the grandparent and the grandchild. Some social media sites encourage listing family members and connections which only makes determining pressure points easier. Often, unsuspecting users post private details on public forums without realizing that their privacy settings won’t protect the information from ne’er-do-wells. Some of the most common scenarios include receipt of an email or telephone call from the grandchild or someone pretending to be calling to advise the grandparent of the grandchild’s circumstances. Unfortunately, bad actors know how to use artificial intelligence technology to mimic voices and hold a conversation in that voice which makes recognizing the scam that much more difficult.

How can we help protect ourselves or the grandparents in our lives? First, be vigilant about calls from any number you don’t recognize. Understand that scam calls happen often and seem to happen more regularly during the holidays. Some swindlers manage to spoof numbers known to the target, thus it’s vital to use caution whenever someone asks for money, especially in what seems like “high-pressure” situations. Scammers impose pressure and bully targets into sending money quickly through money orders, gift cards, or cash apps, before the target has time to think and when adrenaline runs high because they are worried about their grandchild. Some may even insist upon receiving money in person. If you receive a call like this, hang up and report the call to local law enforcement, and then call your family members directly to confirm that they are safe. If the call came from someone claiming to be in law enforcement, call the agency to verify the person’s identity along with any information provided in the call. Resist the urge to keep the call a secret.

Next, review the privacy settings on your social media accounts and prevent strangers from accessing posts and photos. These sites have many benefits in allowing us to stay connected, but they provide fertile ground for scammers to obtain private information. Even on the telephone call, refrain from providing any information, such as your grandchild’s name. Force the scammer to say your grandchild’s name and remember to stay calm. Scammers rely upon causing panic and getting their targets to drop their guard and make quick decisions in the heat of the moment.

Finally, increase your awareness about the latest scams. The Federal Communications Commission (“FCC”) publishes consumer guides on spoofed caller IDs such as Caller ID Spoofing, Stop Unwanted Robocalls and Texts, and Call Blocking Tools and Resources. The FCC’s website has several links allowing a user to file a report about unwanted calls or spoofing or to find information on imposter scams.

The Better Business Bureau website contains consumer awareness articles about scams targeting older Americans, find these articles by reviewing BBB Scam Alert: Top trick used to scam older adults. The American Association of Retired Persons keeps track of scams by location and allows users to either submit a report or see local scams. To report or view scams in your area look at AARP Fraud Watch Network Scam-Tracking Map.

We can combat scams targeting our elders by learning to recognize the more common signs of a scam, educating our clients on scams aimed at the elderly, especially the grandparent scams, and alerting trusted individuals, such as family members and authorities when we suspect a scam, and understanding the resources designed to prevent, intervene, and investigate these scams. These scams will continue to gain popularity as artificial intelligence improves and makes it easier to replicate a loved one’s voice. It’s important that the community continues to evolve with technology and remember that we all have a duty to protect our elderly clients and loved ones.

October brings fall, pumpkin-spiced everything, and macabre things. Ghosts, ghouls, and goblins may Monster Mash through your mind; however, when I think of something truly terrifying, it’s dying without an estate plan…it’s the trick in Trick or Treating. Although everyone knows that they should treat their family to a comprehensive Estate Plan, many folks experience feelings of superstition and dread when considering planning for the end of their life, as if by planning for death, they invite it. The chilling truth is that most of us have no idea how much time we have and when we will depart our mortal coil. Accidents happen, and an alarmingly high number of people die without an Estate Plan, which can have disastrous results.

The excuses for failing to create a plan run the gamut, from being young or childless to being single or refusing to face mortality. Many people believe that if their assets do not exceed a certain amount, then they needn’t worry about an estate plan. Whatever the reason, failing to create an Estate Plan causes chaos at your death, leaving your loved ones in the lurch. Inevitably, those loved ones will need to attend to your legal affairs such as paying your debts and transferring your assets, and, without a clear set of instructions that a comprehensive estate plan provides, you are leaving a mess for those grieving your demise.

If you die without a Will or Revocable Trust, that’s called dying intestate. It’s so common that states have created statutes to address the issue of intestacy. Wills and Revocable Trusts address numerous issues such as who will care for minor children or pets, how and when assets will be distributed, who will oversee distribution of those assets, and how taxes will be paid. If you die without any Estate Planning documents in place, state statutes will determine how and to whom your assets will be distributed without any input from you or the loved ones you leave behind. Many states’ intestacy laws give only a portion of assets to the surviving spouse, making no provisions for anyone to whom you were not legally bound. Those same statutes give the remainder to descendants, without regard for the needs of individual recipients. This includes those who may have special circumstances, such as receiving governmental benefits, often leaving these individuals in the lurch.

If you die intestate, then your estate would need to go through probate. An individual would petition a court for appointment as executor, personal representative, or administrator, which would give that individual legal authority to collect and distribute your assets. That individual likely would need to retain an attorney to understand and navigate the complex court system. A judge oversees the many steps involved in this public probate process. The judge would issue Letters of Administration or similar documents that give the executor power to marshal the assets of your estate. If your family disagrees about who should serve in that capacity, then the court would make that decision and could appoint a total stranger. Usually, statutes entitle the executor to take a commission or fee as compensation for their services. Imagine, a stranger and the public knowing your personal business and then that stranger being paid out of your money to give your assets to the people whom you didn’t even select. There’s something incredibly unsettling about that.

The treat in this tale of woe is that you control your destiny, at least with respect to your Estate Plan. By contacting an attorney, you can accomplish your goals, keep your estate out of probate with an Estate Plan that includes a Revocable Trust and a Will, and preserve your legacy. As part of the estate planning process, your attorney will guide you through the perils of failure to plan and make suggestions and recommendations about the legal documents necessary to accomplish your goals. Most people feel relief and well-being upon executing their Estate Planning documents. Creating an estate plan allows you to determine who will care for your minor children, how your assets will be distributed to those children, who will control those distributions, when those distributions should be made, and whether distributions should be made to individuals, charities, schools, or museums. A comprehensive Estate Plan prevents disputes among beneficiaries and provides for tax planning, if appropriate. With a properly created and funded estate plan, you (not a Court) controls what happens to your children, your pets, and your property after your death.

Dying without a Will can haunt your family years after your demise. Even if this ghoulish endeavor gives you the chills, it’s important to undertake this task before it’s too late. Financial trouble, delayed distribution of assets, and stress are just a few of the frightening things in store for your loved ones if you die intestate. Most individuals find the probate process as torturous as touring a sanitorium; however, you can circumvent it. Avoid the tragedy of intestacy by creating a set of instructions regarding what you want to happen when you die, otherwise known as an Estate Plan.