Author Archives: cgrahamesq

Charitable Giving Options Under the New Tax Law

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The new tax law makes it harder to claim a tax deduction for charitable contributions. While charitable giving should not be only about getting a tax break, if you want to reap a tax benefit from your contributions, there are a couple of options. 

The Tax Cut and Jobs Act, enacted in December 2017, nearly doubled the standard deduction to $12,000 for individuals and $24,000 for couples. This means that if your charitable contributions along with any other itemized deductions are less than $12,000 a year, the standard deduction will lower your tax bill more than itemizing your deductions. For most people, the standard deduction will be the better option. 

If you still want to maximize the tax benefits of charitable giving and you have the financial means, one option is to double your charitable donations in one year and then skip the donation the following year. For example, instead of giving $10,000 a year to charity, you could give $20,000 every other year and itemize your deductions in that year. 

Another way to concentrate charitable giving is to establish a donor-advised fund (DAF) through a public charity. A DAF allows you to contribute several years worth of charitable donations to the fund and receive the tax benefit immediately. The money is placed in an account where it can be invested and grow tax-free. You can then make donations to charities from the account at any time, in addition to adding to the account. As with any investment, you need to do research before establishing a DAF. Make sure you understand the fees involved and whether there are any limits on the charitable contributions you can make. You should consult with your financial advisor before taking any steps. 

If you are taking required minimum distributions from an IRA, another option is to donate those distributions directly to charity through a qualified charitable donation. The distributions won’t be included in your gross income, which means lower taxes overall. The donation must be made directly from the IRA to the charity and different IRAs have different rules about how to make the distributions. 

Have Private Insurance and Are Turning 65? You Need Sign Up for Medicare Part B

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f you are paying for your own insurance, you may think you do not need to sign up for Medicare when you turn 65. However, not signing up for Medicare Part B right away can cost you down the road. 

You can first sign up for Medicare during your Initial Enrollment Period, which is the seven-month period that includes the three months before the month you become eligible (usually age 65), the month you are eligible and three months after the month you become eligible. If you do not sign up for Part B right away, you will be subject to a penalty. Your Medicare Part B premium may go up 10 percent for each 12-month period that you could have had Medicare Part B, but did not take it. In addition, you will have to wait for the general enrollment period to enroll. The general enrollment period usually runs between January 1 and March 31 of each year.

There are exceptions to the penalty if you have insurance through an employer or through your spouse’s employer, but there is no exception for private insurance. The health insurance must be from an employer where you or your spouse actively works, and even then, if the employer has fewer than 20 employees, you will likely have to sign up for Part B. 

If you don’t have an employer or union group health insurance plan, or that plan is secondary to Medicare, it is extremely important to sign up for Medicare Part B during your initial enrollment period. Note that COBRA coverage does not count as a health insurance plan for Medicare purposes. Neither does retiree coverage or VA benefits.

For a New York Times column about a man with private insurance who didn’t realize he needed to sign up for Part B, click here.  

IRS Announces 2017 Estate & Gift Tax Exclusions

Leave a comment / Estate Planning, Tax, Trusts

The IRS has announced that the basic estate tax exclusion amount for the estates of decedents dying during calendar year 2017 will be $5.49 million, up from $5.45 million for calendar year 2016. With portability, a couple may claim an exclusion up to $10.98 million in 2017.

Also, if the executor chooses to use the special use valuation method for qualified real property, the aggregate decrease in the value of the property resulting from the choice cannot exceed $1,120,000, up from $1,110,000 for 2016.

The increase in the estate tax exclusion means that the lifetime tax exclusion for gifts will also rise to $5.49 million, as will the generation-skipping transfer tax exemption. The annual gift tax exclusion will remain at $14,000 for 2017.

For details on many of these and other inflation adjustments to tax benefits, go to: https://www.irs.gov/pub/irs-drop/rp-16-55.pdf

To establish a trust or implement other strategies that may offer significant tax savings for large estates, contact estate planning and tax attorney Christopher Graham: (480) 221-5223, chris@grahamlawaz.com, www.grahamlawaz.com.

Celebrity Estate Planning Horror Stories: Prince Had No Will

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Spin Article: Prince Had No Will

If this is accurate and Prince does not have a will or a trust, the state of Minnesota will determine who gets his assets. The heirs will then be free to administer the assets, including Prince’s image and music catalog, in any fashion they choose. Additionally, there is going to be a lot of purple rain in the U.S. Treasury because the estate is going to have a hefty tax bill.

Prince could have controlled his legacy and minimized the taxes with estate planning. For an artist that spent so much time and effort during his life to building, controlling, and protecting his image, as well as fighting for the economic rights of artists, it is sad to see all that he worked for turned over to others as dictated by the laws of Minnesota instead of Prince’s own wishes.

While we all may not have the tax burden of Prince’s estate, estate planning is important for everyone to pass on their own wealth and legacy to their heirs. The goal of estate planning is to give what you have, to whom you want, when you want, and the way that you want while passing on your wisdom and values. Please make sure your estate plan is in place and reflects your wishes.

David Bowie’s Estate Plan

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David Bowie made an estate plan and now his wishes are being carried out. He made specific gifts of his SoHo apartment and his mountain home so there is no doubt about who inherits his real property. Real property (i.e., the house you live in) is usually the item that causes the most disputes because it is often the item with the most value and is not suited to be divided or shared among beneficiaries. He also left gifts to two important people in his life, his personal assistant and former nanny. Since these two were not family, they would have received nothing if he had not created a will. Finally, he created a trust for his daughter. Now her inheritance can be managed by a trustee for her benefit until such time as David deemed she would be able to manage the assets herself. It is common for parents to delay or divide control of an inheritance so that a child will not spend through the whole thing early. For example, I often see a parent leaving an inheritance to a child in thirds: 1/3 when they turn 21; 1/3 when they turn 25; and 1/3 when they turn 30.

This is the importance of estate planning: giving what you have to whom you want, when you want, and the way you want. This applies to estates of all sizes, not just people with David Bowie money. I’m here to help you with your estate planning. Get your will or trust drafted or updated today!

David Bowie Article on Spin

arrives at the 11th Annual Webby Awards at Chipriani Wall Street on June 5, 2007 in New York City.

What Is Estate Planning?

1 Comment / Estate Planning

BELIEVE IT OR NOT, you have an estate. In fact, nearly everyone does. Your estate is comprised of everything you own— your car, home, other real estate, checking and savings accounts, investments, life insurance, furniture, and personal possessions. No matter how large or how modest, everyone has an estate and something in common—you can’t take it with you when you die.

When that happens—and we all have an expiration date—you probably want to control how those things are given to the people or organizations you care most about. To ensure your wishes are carried out, you need to provide instructions stating whom you want to receive something of yours, what you want them to receive, and when they are to receive it. You will, of course, want this to happen with the least amount paid in taxes, legal fees, and court costs.

That in a nutshell is estate planning—making a plan in advance and naming whom you want to receive the things you own after you die. However, good estate planning is much more than that. It should also:

  • Include instructions for your care if you become disabled before you die.
  • Name a guardian and an inheritance manager for minor children.
  • Provide for family members with special needs without disrupting government benefits.
  • Provide for loved ones who might be irresponsible with money or who may need future protection from creditors or divorce.
  • Include instructions for passing your values (religion, education, hard work, etc.) in addition to your valuables.
  • Include life insurance to provide for your family at your death, disability income insurance to replace your income if you cannot work due to illness or injury, and long-term care insurance to help pay for your care in case of an extended illness or injury.
  • Provide for the transfer of your business at your retirement, disability, or death.
  • Minimize taxes, court costs, and unnecessary legal fees.
  • Be an ongoing process, not a one-time event. Your plan should be reviewed and updated as your family and financial situation (and laws) change over your lifetime.

Estate planning is for everyone. It is not just for “retired” people, although people do tend to think about it more as they get older. Unfortunately, we can’t successfully predict how long we will live, and illness and accidents happen to people of all ages.

Estate planning is not just for “the wealthy,” either, although people who have built some wealth do often think more about how to preserve it. Good estate planning often means more to families with modest assets, because they can afford to lose the least.

Too many people don’t plan. Individuals put off estate planning because they think they don’t own enough, they’re not old enough, they’re busy, think they have plenty of time, they’re confused and don’t know who can help them, or they just don’t want to think it. Then, when something happens to them, their families have to pick up the pieces.

If you don’t have a plan, the State has one for you, but you probably won’t like it.

At disability: If your name is on the title of your assets and you can’t conduct business due to mental or physical incapacity, only a court appointee can sign for you. The court, not your family, will control how your assets are used to care for you through a conservatorship. It can become expensive and time consuming, it is open to the public, and it can be difficult to end even if you recover.

At your death: If you die without a written estate plan, your assets will be distributed according to the probate laws. If you have minor children, the court will control their inheritance. If both parents die (i.e., in a car accident), the court will appoint a guardian without knowing whom you would have chosen.

Given the choice—and you do have the choice—wouldn’t you prefer these matters be handled privately by your family, not by the courts? Wouldn’t you prefer to keep control of who receives what and when? And, if you have young children, wouldn’t you prefer to have a say in who will raise them if you can’t?

An estate plan begins with a will or living trust. A will provides your instructions, but it does not avoid probate. Any assets titled in your name or directed by your will must go through probate before they can be distributed to your heirs. (If you own property in other states, your family will probably face multiple probates, each one according to the laws in that state.) The process can become expensive with legal fees and court costs. It can also take anywhere from nine months to two years or longer. With rare exception, probate files are open to the public. Creditors and excluded heirs are encouraged to come forward and seek a share of your estate. In short, the court system, not your family, controls the process.

Not everything you own will go through probate. Jointly-owned property and assets that let you name a beneficiary (for example, life insurance, IRA’s, your 401(k), annuities, etc.) are not controlled by your will and usually will transfer to the new owner or beneficiary without probate. But there are many problems with joint ownership, and avoidance of probate is not guaranteed. For example, if a valid beneficiary is not named, the assets will have to go through probate and will be distributed along with the rest of your estate. If you name a minor as a beneficiary, the court will probably insist on a guardianship until the child legally becomes an adult.

For these reasons a revocable living trust is preferred by many families and professionals. It can avoid probate at death (including multiple probates if you own property in other states), prevent court control of assets at incapacity, bring all of your assets (even those with beneficiary designations) together into one plan, provide maximum privacy, is valid in every state, and can be changed by you at any time. It can also reflect your love and values to your family and future generations.

Unlike a will, a trust doesn’t have to die with you. Assets can stay in your trust, managed by the trustee you selected, until your beneficiaries reach the age you want them to inherit. Your trust can continue longer to provide for a loved one with special needs, or to protect the assets from your beneficiaries’ creditors, spouses, and irresponsible spending.

For a better look at the differences between a will and a trust, and comparing them to having no estate plan, please see my Comparison of Estate Planning Options chart. Also, for a general idea on the cost, please see my “What Does It Cost?” section of this Packet. A living trust is more expensive initially than a will, but considering it can avoid court interference at incapacity and death, many people consider it to be a bargain.

Planning your estate will help you organize your records and correct titles and beneficiary designations. Would your family know where to find your financial records, titles, and insurance policies if something happened to you? Planning your estate now will help you organize your records, locate titles and beneficiary designations, and find and correct errors.

Most people don’t give much thought to the wording they put on titles and beneficiary designations. You may have good intentions, but an innocent error can create all kinds of problems for your family at your disability and/or death. Beneficiary designations are often out-of-date or otherwise invalid. Naming the wrong beneficiary on your tax-deferred plan can lead to devastating tax consequences. It is much better for you to take the time to do this correctly now than for your family to pay an attorney to try to fix things later.

Estate planning does not have to be expensive. 
If you don’t think you can afford a complex estate plan now, start with what you can afford. For a young family or single adult, that may mean a will, term life insurance, and powers of attorney for your assets and health care decisions. Then, let your planning develop and expand as your needs change and your financial situation improves. Don’t try to do this yourself to save money. An experienced attorney will be able to provide critical guidance and peace of mind that your documents are prepared properly.

The best time to plan your estate is now. None of us really likes to think about our own mortality or the possibility of being unable to make decisions for ourselves. This is exactly why so many families are caught off-guard and unprepared when incapacity or death does strike. Don’t wait! You can put something in place now and change it later, which is exactly the way estate planning should be done.

The best benefit is peace of mind. Knowing you have a properly prepared plan in place – one that contains your instructions and will protect your family – will give you and your family peace of mind. Estate planning is one of the most thoughtful and considerate things you can do for yourself and for those you love.