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Jan 8 18

Have You Considered a Dynasty Trust for Your Family?

by Phil Levin, Esq.
January 8, 2018

When most people hear the term “Dynasty Trust,” they assume it is an estate planning technique for only the wealthiest of families. However, Dynasty Trusts are being implemented today by families and are often used by many families of a greater wealth spectrum.

Demystifying Dynasty Trusts:

Dynasty Trusts are established to keep your wealth within your family for a longer time frame than traditional trusts. When properly designed, they can last for multiple generations, depending upon the law of the state where the trust is established. Upon the passing of the client, a Dynasty Trust becomes irrevocable, and are therefore perceived by some clients and financial advisors to be inflexible. However, through the appointment of a Trust Protector, and including flexible distribution provisions, adjustments to these type of trust are possible, and in fact often result, due to changes in future personal, family, and financial circumstances, along with changes in tax policy and legislation. Of course, it is always important to secure a full understanding of the estate planning goals and objectives of the family before creating a Dynasty Trust for the family.

For many families, the value of a Dynasty Trust is evident since this estate planning technique offers many practical and tax planning benefits, some of which are detailed below:

They consolidate and build intergenerational wealth, allowing you to create long-term security for your family.They help avoid estate, gift, and generation-skipping transfer taxes. Although these taxes are unpopular with the current President, and Congressional Republicans, history reveals that tax policy can change after any election.Therefore, any comprehensive estate plan must consider the possibility of reinstatement of federal estate taxes, even if such tax is temporarily repealed.They protect your beneficiaries’ inheritance from creditors, predators, and divorcing spouse.When creatively designed, they can even incentivize desirable behavior from your trust beneficiaries.

How Does a Dynasty Trust Differ from Other Types of irrevocable Trusts?

Simply put, a Dynasty Trust is designed to consolidate and build intergenerational wealth over a long period of time. Other common types of irrevocable trusts you may have heard about (i.e., GRATs, ILITs, QPRTs, CRTs) are created to achieve a particular tax result. However, Dynasty trusts build on these planning strategies and are appealing because they allow you to take a long view of estate planning for your family.

Why is Now the Time to Explore this Estate Planning Option?

In today’s favorable tax and legal environment, Dynasty Trusts can make more sense than ever – especially if your family has significant life insurance policies, a small business, anticipated inheritances, along with other assets that might increase in value significantly (like founder’s stock, a vacation residence, or vacant land in a fast growing area).

In the past, families have not always had such wide opportunities to explore Dynasty Trusts. Today, many states have enacted laws abolishing perpetuity type trusts, which had prevented trusts from lasting for multiple generations. While these laws still exist in some states, there is a trend toward less rigid application, or even outright removal of these rules. Admittedly, one reason for the growth in popularity of these trusts is that financial institutions stand to benefit from management fees associated with them. However, your clients and their family members benefit as well because wealth that’s consolidated and managed (as in the case of a Dynasty Trust) is more likely to be preserved and successfully passed from one generation to the next, versus wealth that is simply divided and distributed outright to children, as in the case with many estate plans.

Is a Dynasty Trust the Right Choice for You and Your Family?

Most people think of Dynasty Trusts are a planning strategy available or indicated only for the highest net worth families. And while they do require the help of a skilled estate planning attorney, who can navigate the complex interplay between state and federal laws, along with the dynamics of the family, such trusts can be an attractive option for your clients and their families. In fact, Dynasty Trusts offer an excellent method to pass along lifelong financial security to your loved ones for generations to come, in an asset protected manner.

The Levin Law Firm can work together with you in order to build the right type of trust to protect your clients and their families through whatever the future may bring. We can also ensure that the trust established for your clients fully complies with all applicable state and federal laws, and provides maximum protection for the legacy goals of your clients. 7sq

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Dec 28 17

Tax Planning Opportunities to Take Before 2018

by Phil Levin, Esq.
tax opportunities

With 2017 coming to an end and sweeping tax reform legislation (Act) having been signed into law, some last-minute opportunities should be considered while the current law still applies. There are steps that taxpayers can take before the Act takes effect in January that could lower their tax bills for the 2018 tax season. Following are several suggestions on how to implement these strategies before the window of opportunity closes at the end of December.

Increase and Accelerate Deductions
Arguably, one of the most controversial provisions in the Act is the limitation on the deduction for state and local taxes (SALT). Under the Act, individuals cannot deduct more than $10,000 of combined property, income, and sales taxes. The obvious reaction would be to maximize the SALT deduction under current law by pre-paying now as much of next year’s taxes as is currently allowable. Anticipating that taxpayers may take advantage of this loophole, the Act provides that any amount paid in a taxable year beginning before January 1, 2018, for income taxes imposed for a taxable year beginning after December 31, 2017, are treated as having been paid on the last day of the taxable year for which the tax is imposed.

However, some taxpayers may have outstanding income tax bills for 2017, which should be paid before the end of the year and can be deducted for this year’s taxes. Additional estimated payments that might otherwise be due in April 2018 for 2017 state taxes could also be paid before the end of the year.

There is no such corresponding restriction applicable to pre-payment of property taxes. So, for example, winter property tax bills that would normally be paid in 2018, could be paid before the end of 2017.

Mortgage interest remains deductible under the Act, whereas interest on home equity loans would not be. Clients should consider paying off as much of their home equity loans as is practical while the deduction is still available under current law. In both instances, an early monthly payment that would otherwise be due in January could be made in December to increase the deductions available for the 2017 return.

Employees should pay as many unreimbursed expenses as possible before the end of December, since these deductions will disappear in January. The same applies for work-related moving expenses, which will no longer be deductible under the Act.

The deduction for professional fees, such as attorney and accountants’ fees, is also disappearing under the new law. Taxpayers should see if their advisors will accept early payment for anticipated services, so that the deduction can be taken in 2017 while it is still available.

Giving to charity is tricky. Although the charitable deduction remains in place under the Act, the lower income tax rates next year may make a charitable deduction more valuable for 2017 than for 2018. Clients may also consider setting up donor advised funds before the end of the year, which will allow them to maximize the charitable deduction, while preserving the right to determine how to donate the funds at a later time. Other charitable giving strategies, such as charitable remainder trusts, could also be considered, but setting up a trust may require more time than is available before the end of the year.

Although the foregoing are viable strategies that would maximize deductions for 2017 that are either limited or unavailable as of next year, they generally only make sense if a taxpayer itemizes deductions. While it is more likely that a taxpayer will itemize for 2017 when the standard deduction is relatively low, the much higher standard deduction as of 2018 (from $6,350 to $12,000 for individuals and from $12,700 to $24,000 for married couples, both indexed for inflation), will make itemizing less likely. So, things like the charitable, mortgage, and the limited SALT deductions, even though they will still be available next year, are less likely to be utilized in 2018 than in 2017. However, for taxpayers who still plan on itemizing next year, an analysis should be done to determine in which year the deductions that are still available under the Act and can be paid in either year will be most beneficial.

Businesses, also, should consider accelerating expenses for 2017, since they might prove more useful to offset the higher income tax rates under current law. However, a careful analysis must be made to see how the figures work out, because next year will allow for the immediate expensing of capital investments, as well as more beneficial depreciation.

Defer Income
While accelerating deductions before the end of the year is probably a good strategy for most taxpayers, the reverse is true for income. Considering the 2018 reduction in income tax rates, most taxpayers, individual and businesses alike, will likely benefit from deferring income until next year. This technique has generally already been implemented by those wishing to defer the payment of taxes on a portion of their income for another year. However, this might prove particularly beneficial in this end-of-year planning phase for those taxpayers expecting to see a drop in their tax rates next year.

Deferring income, however, may not make sense for families with three or more children. Personal exemptions have been eliminated as of 2018. So, families with three or more children will theoretically pay less in taxes on income earned in 2017 by utilizing the high number of personal exemptions available under current law, than with the increased standard deduction in 2018.

Although not an income deferral strategy, per se, taxpayers should also look closely at their IRAs before year-end. Roth recharacterization, which essentially provides taxpayers with the opportunity to undo a Roth conversion, will no longer be available as of 2018. Any conversion from a traditional IRA to a Roth IRA that is being considered before year-end should be scrutinized more carefully than before, as it cannot be undone under the new law.

Conclusion
The general rule of thumb is to increase and accelerate deductions, and to defer income. Since the tax rates are dropping as of next year, a deduction in 2017 to offset the higher current rates is more valuable than it will be next year. In addition, most itemized deductions have been eliminated, while others have been limited. Income should be deferred and taxed under the lower rates effective as of next year.

Although these are general principles, each taxpayer’s situation should be assessed to determine the most beneficial approach. There is very little time left to take advantage of these strategies. And especially now, during the holiday season, taxpayers want to spend time with their families, not worrying about taxes. But the effort of spending a few hours this week with your tax advisor could result in a significant savings on your tax bill next year.

Nov 10 17

Estate Planning for Clients Married to Non-US Citizens

by Phil Levin, Esq.
married to non-US citizens

In our increasingly globalized world, many American citizens have non-U.S. citizen spouses. This can present a serious problem when such couples consider estate planning. Under Internal Revenue Code Section 2056(d) the unlimited estate tax marital deduction is not available to non-citizen spouses of a deceased U.S. citizen. As a result, such couples may have significantly greater transfer tax exposure for Federal estate tax purposes.

Under current law, an individual can give away up to $5,490,000 during life or at death, which is known as the “Applicable Exclusion Amount”. However, amounts transferred in excess are taxed at a flat rate of 40%. Federal law also provides for unlimited gifts between spouses, so long as the transfer is made to a U.S. citizen spouse, which is commonly known as the “marital deduction.” As a result, married couples who are citizens can transfer unlimited amounts of property to each other during their lives or at death without affecting or exhausting their $5,490,000 Applicable Exclusion Amount.

However, the unlimited marital deductions does not apply to couples where one spouse is a non-U.S. citizen. Normally, non-citizen spouses must pay estate tax on any amount transferred in excess of the Applicable Exclusion Amount. Similarly restrictive limits also apply to lifetime giving to non-U.S. citizen spouses. However, a Qualified Domestic Trust (“QDOT”), drafted in accordance with the legal requirement under Internal Revenue Code Section 2056A, does provide a partial solution to this tax issue facing many clients who are married to a non-U.S. citizen spouse. More specifically, so long as the U.S. citizen spouse leaves their assets upon death to a qualifying QDOT trust, the Federal estate tax on those assets funding the QDOT is delayed.

An properly designed and funded QDOT plan, provides that upon the death of the U.S. citizen spouse, assets in his or her estate are transferred to the QDOT, instead of directly outright to the surviving non-U.S. citizen spouse. Federal estate tax on the amount transferred to the QDOT upon the death of the U.S. citizen spouse will still be owed upon the subsequent death of the non-U.S. citizen surviving spouse. However, during the life of the non-U.S. citizen surviving spouse, income generated from the assets in the QDOT can be distributed to the surviving spouse without the imposition of Federal estate taxation. In addition, there is also a partial exemption for distributions of principal to the surviving spouse provided such distributions meet the requirements of the “hardship exemption.”

If you are interested in learning more about estate planning strategies for individuals married to a non-U.S. citizen spouse, or would like to arrange a consultation with estate planning attorney Philip Levin, Esquire to discuss estate planning matters, please call The Levin Law Firm at (610) 977-2443.

Sep 13 17

Transfer on Death Designations – Are They an Estate Plan?

by Phil Levin, Esq.
Transfer on Death

Over the past year, an increasing number of clients have asked me about transfer-on-death (TOD) designations and how they can play in to their estate plan.

TOD designations are quite common in the financial industry. They operate very similarly to a beneficiary designation on life insurance or a retirement account.

You complete the TOD designation and when you pass away, the account funds are transferred to the person you designated. At some banks, you may find them called POD (pay on death) or ITF (in trust for) accounts. Despite their name, ITF accounts are Not trusts (more on that in a moment). At many credit unions I see them called beneficiary designations. To be clear, TOD, ITF and beneficiary designations are not the same thing from a legal standpoint, but they operate the same way when someone passes away.

Most of our clients and their advisors are familiar with how beneficiary designations work. Assets subject to beneficiary designations are paid to the designated person upon passing without going through the probate process. Because avoiding probate is an important goal for many families, I regularly am asked the following questions:

“Why can’t I just designate the people I want to receive my assets upon my demise? Why do I need to spend the time and money to put a trust in place and make sure my assets are coordinated with the trust?”

Indeed, these are very valid questions!

As indicated above, even if specific accounts are designated as ITF for a beneficiary, such accounts are NOT a trust? That’s true for all of the acronyms – ITF, TOD and POD. And it is the reason why most experienced estate planning attorneys do not consider TOD designations to be “real” estate planning. That is because “real” estate planning will take care of all the contingencies you can think of in the event of your passing.

For instance, most TOD designations allow you to designate one person, or class of people (e.g., children), as beneficiary. You cannot name a backup or contingent beneficiary. If the person you name is not living when you pass away, the account goes through the probate process. And if the person you have designated as beneficiary lacks legal capacity when you pass away, a Guardianship proceeding may very well need to be raised in order to have a Conservator established for your beneficiary through the local probate court – that costs time and money and is often a protracted public proceeding!

A Trust, on the other hand, allows you to cover all the contingencies you can think of, and likely some that you may not think of. Among other things, you can state under the terms of your Trust exactly how you want your property to be distributed if one or more of your designated beneficiaries is not living when a distribution is made. And if someone lacks legal capacity, you can have his/her portion held in trust for his/her benefit, removing the necessity of a Guardianship proceeding in order to appointment a Conservator.

Please note that a TOD designation and a Trust do not need to be mutually exclusive. We regularly use them together to increase convenience for clients during life and distribution in the event of their passing. For example, we regularly work with clients to have one or more of their bank accounts distributed under a TOD designation to their Trust.

We hope that this edition of Estate Planning Matters helps clarify some of the financial account acronyms we often use in estate planning.

Jun 1 17

How Uncovering Your Clients’ Estate Planning Needs Means More Business for You

by Phil Levin, Esq.
How Uncovering Your Clients' Estate

As a trusted advisor, we have a fiduciary duty and moral obligation to our clients to help them avoid negative consequences of bad planning. That duty includes keeping up-to-date on practical and legal issues related to estate planning, as well as getting your clients the help they need, when they need it, to ensure that their estate plan is in accordance with their goals and objectives.

Being able to spot common estate planning problems can do a lot for your business. It can expand your relationships with clients and allow you to serve them in a fuller capacity – one that’s more intrinsically rewarding and profitable for you.

Currently, you probably have more than enough on your plate now. Therefore, the thought of getting into estate planning and probate law may be overwhelming. Subjects such as planning to avoid probate, developing workarounds for clients to reduce taxes, and examining financial instruments to recommend for various situations can make your head spin.

Fortunately, you do not need a law degree or years of study, to spot some very common gaps in your clients’ estate plans!

Below we have set out eight (8) strategies to determine your clients’ estate planning risks. Like gauges on your car’s dashboard, when you see these signs “light up,” it might be time to bring an experienced estate planning attorney into the mix to figure out what’s happening and what needs to be done to clean things up.

8 Easy to Spot Estate Planning Issues – Signs You and Your Client May Need to Call in an experienced estate planning attorney.

Set aside some time and pull out your client list to review account titles, legal documents, and look for the following blatant signs that an estate plan might fail:

1. A Will-Based Estate Plan, or No Estate Plan

Wills can be good estate planning tools, when used correctly. But in many cases, they are not used peoperly! A proper estate plan often includes the goal of avoiding probate, along with costs, delays, and publicity of a probate proceeding.

If your client dies intestate, that will reflect poorly upon all of his or her financial, legal, and tax advisors, and possibly lead to lots of headaches for both beneficiaries and advisors in your future.

Many Wills we review are very often not drafted properly. For example, if the terms of the Will attempt to include property held in joint tenancy or if the Will designates a beneficiary that conflicts with other beneficiaries named on other legal documents, your client’s goals are not adequately expressed. They might even be setting up their heirs for a long and expensive probate court proceeding. Don’t let that happen. Step in, take command and the initiative to get problems solved while your clients are competent and alive, before the proverbial ship has sailed.

2. An Unfunded Revocable Living Trust

Unfunded trusts can lead to as many problems as a poorly written Will. Some assets will require more time and attention to handle properly during the estate planning process. These include real estate, intellectual property, certain types of stock, business partnerships, and promissory notes. However, building a solid foundation through proper funding, is very important if the plan is to work as intended when it’s needed.

3. Exposed Assets

Assets held as joint property can pose problems if the surviving spouse has a lot of debt. Protect your client’s by ensuring their assets are titled correctly and insured properly. Otherwise, the estate settlement could be held up in court, as debtors seek to get their claws on those assets. Again, if you spot a red flag, bring it up with your client, so you can both start to address it.

4. Assets Distributed Outright to Beneficiaries

An estate plan that provides for outright distributions to beneficiaries leaves that inheritance unprotected from creditors, predators, divorcing spouses, and lawsuits, and lack of investment experience….as well as an inheritor’s own bad decisions. There is a better way. An experienced estate planning lawyer can help your clients by reviewing and analyzing current legal documents in force, along with relevant planning strategies to find the perfect match in order to solve problems for your clients.

5. Family Members as Successor Trustees

One problem with naming family members as successor trustees is that many people name two or more co-trustees. If the family members do not get along; if they don’t trust each other; or if they disagree with each other’s decisions, they could end up fighting about it in court.

In that case, all the inheritors will be waiting for their inheritance, possibly for years. This can be avoided by naming an institution, such as a bank or trust company, as the primary trustee and the family members as co-trustees. The primary trustee can mediate disagreements that arise, saving the family time and money in the process. In our experience, family strife is often a significant cause of estate planning failure after the client dies.

6. Outdated Beneficiary Designations

Even if your clients or prospects have recently updated their estate plan, one common oversight is revising beneficiary designations for their annuities, 401(k)s, IRAs, or life insurance to coordinate with the new plan. It is also possible that a beneficiary designation has not been changed since the account was initially opened, but the client’s circumstances have drastically changed, due to marriage, a divorce, or death in the family. Therefore, it is vitally important to check and update the beneficiary designations for accounts you know have been around for a long time – because chances are, there are some Beneficiary Designation Forms that need updating.

7. Too Much or Not Enough Life Insurance

The federal estate tax exemption continues to increase each year, which is approaching nearly $5.5 million per person. Therefore, many older people might now be over insured. Policies with high cash values can be tapped to provide cash flow or terminated in favor of becoming other investments, adding assets to your management or providing you with an opportunity for the placement of more appropriate financial products. Alternatively, many younger clients and prospects may be under-insured, leaving their loved ones vulnerable to lost wages and unmanageable debt.

8. Lack of Long-Term Care Planning

While many people plan for what happens after they die, a surprising number fail to plan for extended illness or deteriorating mental capacity. Emphasize to your clients that they need some form of Long-Term Care Plan arrangement, and that such a plan needs to be funded somehow.

Key Takeaways:

By identifying common gaps in your clients’ estate plans, you can be of much greater service to them and protect them from undesireable outcomes they may not even see coming.

Fortunately, you do not need to do a deep dive into estate planning law to spot the glaring red flags that I’ve shared with you in this issue. Spotting these red flags can serve as a springboard for you, leading to deeper conversations with clients about their future and possibly bringing you more business with them.

Call Us, We’re Here to Help:

Don’t worry about actually fixing all of the problems you uncover – that’s where we can help. Call us, and we’ll answer your questions, review client documents, and explain the available options to avoid the pitfalls.

We would also be happy to strategize with you to establish a process for identifying the most promising areas to help your clients establish appropriate estate plans, as well as generate new business,for your firm.