Veterans Day each year causes me to think about my family members, friends, and clients who have served our country, often putting themselves in harms way, and others who have paid the ultimate sacrifice with their lives.
I think of my dad who served in World War II, and a neighbor who was among the last killed in Vietnam, as well as many clients I know who served in Vietnam and the Gulf War which is still on going. We all owe a debt of gratitude to the men and women who have served our nation so that we can continue to live in a free and democratic society.
As a trust and estate planning attorney, I often help Veterans with the non-service connected pension benefits, commonly referred to as “Aid and Attendance” benefits. For those whom I have assisted to secure this valuable Veteran’s benefit, these income tax free funds have helped our clients pay for much needed long-term care.
Currently, the VA has proposed regulations which will penalize all gifts and transfers for three (3) years following the transfer of assets. These new regulations have not been implemented, as they received numerous negative comments. However, the VA is planning to have new regulations imposed in April, 2017, clearly designed to prohibit Veterans from receiving Aid and Attendance benefits for three (3) years following a Veteran making a gift or transfer of their property into a Trust.
I am working with other lawyers and Veteran interest groups around the country who
are trying to prevent such proposed legislation from being signed into law and having the VA implement more reasonable rules. But sadly, Veterans understand that the system does not always work as it should.
Attorney Phil Levin regularly designs and implements effective Asset Protection Estate Plans for his clients. These plans can allow eligible Veterans to qualify for the financial assistance they have earned, and greatly need at this time in their lives. We can help Veterans to retain their dignity, protect their assets, maintain their standard of living, and pass along an inheritance to their families.
If you are a Veteran, or know a Veteran, who may need help financing the cost of long-term care over the next few years, please call The Levin Law Firm at 610-977-2443 to arrange a Complimentary Consultation with attorney Phil Levin, Esq.
Sustaining family wealth transfer across multiple generations is difficult. In fact, a proverb that describes this problem is: “Shirtsleeves to shirtsleeves in three generations.”
This proverb reflects the common experience, throughout the world, that family wealth is often exhausted within three generations. The failure to sustain and maintain wealth can be due to various business and economic conditions (e.g., market risk, capital risk, interest rate risk), poor management and vision, failure to train and mentor children, sudden death, transfer taxes implications, as well as lack of a comprehensive business succession and estate plan.
A syndrome called “affluenza” – the general malaise that may take hold in the second and third generation, due to the lack of fulfilling, purposeful activity which is necessary to develop self-esteem, self-worth, motivation, self-confidence, and a personal identity, has also resulted in business failures and ineffective wealth transfer plans.
Transferring a non-publicly traded family business, as well as substantial assets to the family, without preparing children and grandchildren for the receipt of inherited wealth, is likely to be the undoing of that wealth. In fact, one study suggests that 60% of multi-generational wealth transfer failures resulted from lack of communication and trust, as opposed to 3% resulting from tax or financial planning mistakes.
In many cases, the first and second generations are identified by and gain a strong purpose in life from the activity of accumulating wealth, whether it is in a business or another occupation. The third and fourth generations may have a difficult time fitting in or finding “their own way”. Unfortunately, these differences may create a communication divide that exacerbates the wealth transfer problem.
Our experience reveals that wealth transfer planning is often focused on preparing investments for transfer from one generation to the next, which include trust-based estate plans, business succession agreements, tax minimization strategies, and prenuptial agreements. These planning techniques are essentially focused on what will happen to the wealth, not the person who is inheriting and perhaps ultimately managing the wealth.
One technique to address estate and succession planning is to initiate family legacy and education discussions, which we believe are essential to successful multi-generational wealth transfer.
Engaging in a discussion about family wealth succession and estate planning is vitally important, especially for clients who are business owners, and should focus on the following three (3) essential areas:
- Investment Management Planning – Wealth accumulation and retirement distribution needs, including a candid discussions about time horizon, risk tolerance, asset allocation, and monitoring strategies.
- Wealth Transfer Planning – Estate planning, including selection of executors, trustees, financial and health-care agents, as well as implementing prudent and effective asset protection planning strategies, business succession plans, life insurance analysis, and transfer tax projections.
- Family Legacy Education Planning – Family education in financial literacy and the impact to the second and third generation of receiving inherited wealth, whether outright or through a trust-based estate plan, is essential.
Many of our clients include a “Family Insight Letter” and a “Family History Letter” to transfer “Core Values” to children, in addition to their investments and business interests.
Communicating with family members about charitable goals, as well as utilizing
Charitable Trusts and Private Charitable Foundations to accomplish lifetime and testamentary philanthropic desires, is also top-of-mind for many of our affluent clients.
By incorporating all three (3) of these components, our clients are able to develop and implement an effective family wealth succession plan which empowers the next generation, rather than letting the chips fall where they may, and hoping their children will be ready to “take-the-reins” when the assets are eventually inherited.
Taking a team approach to Investment Management, Wealth Transfer Planning, and Family Legacy Education is vitally important to accumulating and sustaining the transfer of wealth from one generation to the next.
By assembling a team of allied professionals, focused on relevant wealth accumulation and transfer strategies, your clients can achieve their financial and estate planning goals.
We welcome the opportunity to have a discussion with you and your clients who need to establish or update their estate and business succession plans.
If you or your clients are interested in learning more about the estate planning services provided by The Levin Law Firm, please visit us at: www.levinlawyer.com.
To arrange a Complimentary Consultation with estate planning attorney, Philip Levin, Esq., please call Lauren or Ashley at 610-977-2443.
Family Trusts, a once-popular estate planning tool, may now cost families more in taxes than it saves. Changes in estate tax laws have made the “Bypass Trust” a less
appealing option for many families. In fact, if you or your clients have an estate plan that includes one, you should reconsider its necessity, because it could be doing more harm than good.
When the first spouse dies and leaves everything to the surviving spouse, the surviving spouse may have an estate that exceeds the federal estate tax exemption. A bypass trust, (also called a “Credit Shelter Trust”) was designed to prevent the estate of the surviving spouse from having to pay federal estate taxes.Years ago, it was prudent legal advice in estate tax planning to split an estate that was over the prevailing federal exemption amount between spouses and for each spouse to execute a Testamentary Trust to “shelter” the exemption amount of the first spouse to pass away into the Credit Shelter Trust.
While the terms of such Trusts vary, they generally provided that the Trust income would be paid to the surviving spouse and the Trust principal would be available at the discretion of the Trustee if needed by the surviving spouse and possibly the children of their marriage. Since the surviving spouse would not control distributions of principal, the Trust assets would not be included in the surviving spouse’s taxable estate at his or her subsequent death, completely escaping federal estates taxes when ultimately passing to the family.
However, in 2013, federal estate tax laws changed dramatically. Today, very few people are exposed to federal estate taxes. Currently, the first $5.45 million (in 2016) of an estate is exempt from federal estate taxes. As a result, theoretically, a husband and wife would have no federal estate tax if their combined estates are less than $10.90 million.
Current federal estate tax laws now include “Portability Provisions”, which means that the exemption amount is also “portable” between spouses, accomplishing the same purpose as a Bypass Trust. Therefore, if the first spouse to die does not use all of his or her $5.45 million exemption, the estate of the surviving spouse may use the deceased spouse’s exemption amount, provided the surviving spouse makes an “election” on the first spouse’s federal estate tax return.
One problem with a Bypass Trust is that the surviving spouse does not have complete control over of the assets in the Trust. The surviving spouse’s right to use assets in the Trust is limited and also requires the filing of accountings and separate tax returns each year for the Trust. In addition, if the Trust generates income that is not distributed each year to the beneficiary, that income can be taxed at a much higher tax rate than if it was not taxed at the income tax level for the Trust.
Another significant problem today is that a Bypass Trust can actually cost the family much more in capital gains taxes than it saves in estate taxes.
Under current law, when a person passes away, his or her assets receive a step-up in basis. However, when an asset is in a Bypass Trust, upon the death of the surviving spouse, all assets do not receive a step-up in basis because it is passing outside of the surviving spouse’s estate.
As a result, when the inherited assets from a Bypass Trust are sold by the children after the surviving spouse dies, the family will usually have to pay capital gains taxes, at combined federal and state tax rates which can collectively exceed 15% of the inherited assets from the Bypass Trust. However, if the assets were not held in a Bypass Trust for the surviving spouse, and were inherited outright by the family, the children would have received a stepped-up basis on such assets, completely avoiding capital gains taxes.
In specific circumstances, a Bypass Trust can still be useful for wealth transfer planning purposes. For example, if a client’s estate is greater than the current estate tax exemption, a Bypass Trust is still an excellent strategy to protect assets from the imposition of federal estate taxes. In addition, some states tax estates at thresholds much lower than the federal estate tax levels, and a Bypass Trust may also significantly reduce transfer taxes on the state level. For other people, these trusts have other uses besides avoiding estate taxes.
To find out if your estate plan contains an unnecessary Bypass Trust, or if you need one to maximize the transfer of wealth to your family, please call The Levin Law Firm at (610) 977-2443 to arrange a complimentary consultation with attorney Philip Levin, Esq.
Estate Planning for Your Digital Life
Matters of the heart are no less important than material possessions. And with proper planning, your digital life can live on beyond your passing.
Have you ever thought about what happens to your social media accounts in the event of your death? According to the Pew Research Center, 74% of internet users maintain a social media presence using websites like Facebook, LinkedIn, Instagram, and Twitter. The far majority of internet users maintain a Facebook account.
Who Owns Your Online Accounts?
Many people assume that the online accounts they use are “their” accounts and that they have the right to decide what happens with those accounts after they die. That is simply not true.
While a few states have adopted laws to give family members some ability to obtain or access online accounts, access is usually a matter of contract. When you sign up for a social media account, including email and banking accounts, you agree to the company’s terms of service. Those terms of service typically dictate what happens to your account after death.
The good news is that many social media providers are beginning to recognize that consumers should have a say in whether their accounts die with them.
Why Should You Care?
Your online social media accounts contain unique and touching memorabilia about you. It may comfort your family and friends to revisit that material so they can maintain a connection with you and with each other. It really is a pretty cool way to live on in the hearts and minds of your loved ones.
If you do not take steps to provide for your social media presence after you die, your loved ones will be faced with significant hurdles to access your material, including photographs and posts. In most cases, there are many hoops to clear involving death certificates and proof of identification. Sometimes, even a court order is required.
What Options Are Available for Facebook?
Facebook offers two options that subscribers may choose before they die.
The first is account deletion. With this option, Facebook permanently deletes the account when
notified of a user’s death.
The second option is a memorialized account. If this option is chosen, Facebook freezes the account and shows the word “remembering” in the person’s profile. In a memorialized account, Facebook friends may share memories on your page. However, the account is removed from public spaces, so that M events such as birthday reminders no longer occur.
With memorialized accounts, Facebook also allows you to name a “legacy contact.” A legacy contact can pin something to your profile, update your cover photo, and respond to new friend requests. You may also allow this person to download portions of your content, although they cannot access your messages or remove any friends or material. If you do not make an election, your account will be memorialized with no legacy contact.
Please feel free to call our office to discuss your questions and concerns, along with how your social media preferences can be integrated into your estate plan. We begin with a Family Wealth Planning Session, where we guide you through the estate planning process, because no one wants to leave a mess for the one’s they love.
Please call The Levin Law Firm to arrange a consultation with estate planning attorney Phil Levin, Esq., at (610) 977-2443.
Family structures have evolved beyond the nuclear family unit over the past few decades. With notable rates of divorce and re-marriage, “Blended Families” are now very common and many of our clients serve in the role of step-parents and co-parents. For many remarried individuals, estate planning decisions must take into account not only one’s biological children, but also step-children, future children, or a new spouse.
When changing or revising their estate plan to take into account considerations for “Blended Families”, parents might utilize planning methods that unintentionally expose family members and their assets to risk, as detailed below:
1. Joint Accounts. Aging parents often include an adult child as a signatory on an account to help manage finances. Sometimes the account owner does not clearly define the change to the account and, rather than designate the child as co-signatory, instead names the child as joint owner. Several problems can occur with a joint account owned by an adult child and elderly parent.
- First, if the child becomes the defendant in a lawsuit, the assets held in the account could become vulnerable to a judgment.
- Second, adding a child to an account could cause family conflict if one sibling is chosen over another.
- Third, if not planned for properly, an adult child jointly owning an account with a parent generally receives all account assets upon the other owner’s (the parent’s) death. If the parent intended to provide for multiple children with the assets in that account, this planning move fails to satisfy that goal and effectively disinherits the other siblings.
A better planning technique would involve designating an adult child as Attorney in Fact under a Durable Financial Power of Attorney. A Durable POA allows an individual to grant another person authority over financial affairs, including the management of property, insurance, taxes, and other matters should our client become ill, injured, incapacitated, or incompetent.Alternatively, assets intended for multiple children can be held in a Trust wherein the children are designated as the beneficiaries. Thus, the parent can ensure that their children each receive a share of the asset, while appointing a Successor Trustee to manage their assets should the parent become incapacitated.
2. Beneficiary Designations. Parents should consider several factors before designating a child as the beneficiary of a retirement account, life insurance policy, annuity, or other asset. Assets that might transfer to one or more minor children create complications and require court appointment of a legal Guardian to manage assets for a minor until the child attains age eighteen, the legal age of majority in Pennsylvania, and many other states. For example, if minor children inherit an IRA, they will not have the legal ability or authority to manage Required Minimum Distributions, which must start one (1) year following the account owner’s death. The result may be imposition of a 50% penalty on the shortfall, for failure to take minimum distributions.
Other mistakes parents might make include failing to include all of their children on beneficiary designation forms or neglecting to update beneficiary designation forms with their custodian to reflect new children, whether through birth, adoption, or re-marriage. Any divorced parent should review their beneficiary designation changes with an estate planning attorney to ensure that their assets intended for distribution to children or a new spouse are not unintentionally left to a former spouse. In Pennsylvania, and other states, provisions in a Will that disinherit a former spouse are ineffective if the beneficiary designations on file with IRA custodians, life insurance carriers, and employee benefit administrators still name the ex-spouse as the designated beneficiary.
3. No Estate Plan. Delaying creation of an estate plan, or not updating an estate plan to address children’s inheritance often results in the parents’ wishes not being carried out. Furthermore, parents of children who have not yet reached the age of majority should address the appointment of both a Personal and Financial Guardian in their estate plans. Guardianship terminates at age eighteen (18) in Pennsylvania and if the parent did not include specific wishes in their estate plan for appointment of a Guardian for minor children, such decision will be made through a Court process. When a client has established a valid Will which appoints a Guardian, the Court typically appoints the individual nominated by the parent if a provision is included in the parent’s Will.
A comprehensive estate plan can help families address important issues, ensure loved ones are provided for in the proper manner, and minimize family conflicts and complexity. An individual becoming a parent for the first time has different estate planning needs than one who wants to provide for adult children later in life. For example, an aging parent with adult children will not be concerned with guardianship issues, but will often have elder care planning decisions to decide, along with preserving assets for children. Create a dialogue with your clients to shed light on their legitimate concerns, and encourage them to discuss these vitally important matters with an experienced estate planning attorney.
To discuss your wealth transfer planning needs and arrange a Complimentary Consultation with estate planning attorney Phil Levin, Esq., please call The Levin Law Firm at (610) 977-2443.
