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Death & Taxes: Plan for Both

By | Attorney Andrea Claus, Beneficiaries, Death Probate, Estate Planning, Estate taxes, Taxes | No Comments

Most folks don’t look forward to planning for two of life’s guarantees: death and taxes.  However mundane or morbid you view this task, there is planning to be done no matter what your station in life. When properly planned the harshness of both death and taxes can be mitigated.

Through my experience as an estate planning attorney, I have outlined five basic areas that you need to consider when implementing your plan:

  1. Select an estate administrator: The administrator is the person who is in charge when you pass. This should be a responsible person with the time and acumen to carry out your wishes.
  2. Select your beneficiaries: These are the people and/or charities that will get your stuff upon your death. If you do not designate beneficiaries via a trust, will, TOD designation, or other method, the state will dictate who gets the stuff from your estate.  Whatever planning tool you use should be accessible by your estate administrator.  Used properly, that the right tool can minimize taxes and provide asset protection to your beneficiaries; it is a good idea to discuss your strategy with an estate planning attorney.
  3. Asset inventory: This is a list of all the stuff you own (like bank accounts, life insurance policies, real estate . . .). When you die, your estate administrator will need to know what you have and who to contact to collect and distribute.  Creating a list of physical and non-physical items that you own will ensure that no asset is left uncollected.  This inventory should be accessible by your estate administrator upon your death.
  4. Asset review: After the inventory is complete, the beneficiary designations and/or titling of all accounts or policies should be reviewed to ensure that they are in line with your wishes. This is also a good time to consolidate assets for ease of management, if you’re able.  Bringing the account statements, deeds and policies to your estate planning attorney will help you align your wishes with how the titling and beneficiaries read.
  5. Create a debt list: Much like the assets inventory, you should make a list of your debts. If the administrator knows what debts will need to be settled upon your death, distribution of your estate can be accomplished more quickly and efficiently.

These five basic considerations can make life easier for your loved ones and for your administrator.  Your asset inventory and debt list are also a good tool to help you get a grip on your current expenses.  Discussing your goals with an estate planning attorney and reviewing your plan is the best way to ensure you’ve addressed all issues unique to your estate.

andrea-claus  Contributed by Morris Hall PLLC Phoenix , Prescott Estate Planning Attorney, Andrea L. Claus.


About Morris Hall, PLLC:
At Morris Hall, PLLC we have focused our legal practice on estate planning for over 45 years.  Along with estate planning, our attorneys help clients and their families with matters of probate, trust administration, wills, power of attorneys, business planning, succession planning, legacy planning, charitable gifting and other important legal aspects.  We also have divisions in financial, real estate and accounting to help you incorporate all of your planning together, ensuring that everything works perfectly for your needs and situation. Our Arizona offices are located in Phoenix, Mesa, Scottsdale, Carefree, Tucson, Oro Valley, Prescott, Sedona, Flagstaff and Arrowhead.  Our New Mexico offices are located in Albuquerque, Las Cruces and Santa Fe.  Contact us today at 888.222.1328 to schedule an appointment!

This blog should be used for informational purposes only.  It does not create an attorney-client relationship with any reader and should not be construed as legal advice.  If you need legal advice, please contact an attorney in your community who can assess the specifics of your situation

With the Estate Tax Exemption Amount as High as it is and Portability do I Need an A/B Trust?

By | Estate Planning, Estate taxes, Taxes | No Comments

Why would a client still need an A/B trust if the exemption from federal estate taxes is now set “permanently” at $5 million (indexed for inflation) and we have portability?

When the American Tax Payer Relief Act of 2012 was passed Congress made the estate tax exemption amount permanent at $5 million, indexed for inflation, and allowed a surviving spouse to preserve a deceased spouses gift and estate tax exemption amount through something called portability.

With this new law in effect we are now seeing many professionals advocate to their clients to get rid of their A/B trusts.  It seems they are advocating this with one goal in mind- simplifying their client’s life upon the death of one spouse.  What they don’t realize is that by trying to simplify their client’s life they will destroy many benefits the A/B trust will provide and in the end only cause more complexity and stress to the surviving spouse and beneficiaries.

Even with the estate tax exemption as high as it is today and portability being available as another arrow in the quiver to minimize or avoid federal estate taxes there are at least 6 critical reasons that an A/B trust should be at the heart of any good estate plan.

1)  Minimize or Avoid State Estate Taxes. In addition to Federal Estate Taxes there are State Estate Taxes with exemptions far lower than the Federal Estate Tax exemption. One way to avoid or minimize State Estate Taxes is to have an A/B trust.

2) Creditor Protection for Surviving Spouse. If the A/B trust is set up properly with complete discretionary language in the B trust the assets in the B trust can be protected from future creditors of the surviving spouse.  With America being the most litigious society in the world asset protection for your loved ones should always be a goal of a good estate plan.

3) Divorce protection for Surviving Spouse. If the surviving spouse remarries and then gets divorced from the new spouse the B trust can protect the assets from the ex-spouse in the divorce. If the surviving spouse gets remarried you can put language in the B trust that makes it so the surviving spouse has to have a prenuptial agreement in place to protect the B trust assets.

4) Protecting Kids from a Separate Marriage.  If you have children from a previous marriage and want to ensure they receive something after your spouse passes away the B trust can do this.  You can ensure the surviving spouse benefits from the B trust assets while they are alive but that upon their passing there is something left to pass to your children from the previous marriage.

5) Protecting the Growth of the Estate from Estate Taxes.  With portability you are only preserving the deceased spouse’s exemption amount as of when they died. That amount is frozen in time. It does not increase. If one spouse dies this year and the surviving spouse does not have an A/B trust in place the surviving spouse can use portability to preserve only the deceased spouses $5.25 million exemption from estate taxes.  Let’s say the deceased spouse’s estate was worth $5.25 million when they died. If that amount doubled by the time the surviving spouse dies to $10.5 million portability will only protect $5.25 million.  The other $5.25 million of growth will be taxed upon the surviving spouse’s death.  With an A/B trust all $10.5 million would be passed on estate tax free.

6) Preservation of Deceased Spouses Generation Skipping Exemption Amount.  Portability only allows the surviving spouse to preserve the deceased spouse’s gift and estate tax exemption.  Portability does not allow the surviving spouse to preserve the deceased spouses generation skipping tax exemption.  With an A/B trust the assets in both the A and B trust can skip a generation of taxes by using both the surviving spouse’s generation skipping tax exemption and the deceased spouse’s generation skipping exemption. Preserving the deceased spouses generation skipping tax exclusion amount through the use of the B trust is critical, especially for large estates or when the children will have estate tax issues when they die.

The advice that a client no longer needs an A/B trust because the estate tax exemption is so high and we have portability is misguided. Without an A/B trust none of the 6 items mentioned above will be achieved. An A/B trust is still very relevant and you should consult with your estate planning attorney to make sure you are completely aware of the pro’s and con’s of having an A/B trust before you decide to dismantle all of the protections these trusts can afford you.

The attorneys at the law firm of Morris Hall have been doing estate planning for over 40 years in Arizona.  We belong to a nationally recognized institution, the American Academy of Estate Planning Attorneys. We have given numerous seminars to both the private and public sector on various estate planning topics.  For more information or to schedule a free consultation, contact our office at 888.222.1328

Contributed by MH Phoenix, Scottsdale and Arrowhead Estate Planning Attorney David T Eastman.

Morris Hall Can Protect You in Today’s Litigious Society:
We live in a litigious society, where over 1 million lawsuits are filed every year in America alone.  Financial predators are looking for ways to take funds from others and often use litigation as their means to do so.  At Morris Hall we provide your assets and your loved ones with important protections that can prevent financial predators from taking advantage of you.  We do this through proper and current estate planning techniques.  With an MH living trust, we can also protect your property, assets and loved ones from probate, estate taxes, gift taxes, creditors, Medicaid spend-down, conservatorship or guardianship proceedings, ex-spouses and more.  A living trust also keeps your asset and beneficiary information private and secure to avoid giving financial predators information to use against you and your family.  Without a living trust, this information will be made public.

We service AZ and NM.  Contact us today at 888.222.1328 to schedule an appointment with an attorney in your area!  Click here for office locations.

This blog should be used for informational purposes only.  It does not create an attorney-client relationship with any reader and should not be construed as legal advice.  If you need legal advice, please contact an attorney in your community who can assess the specifics of your situation.