Category: Estate Planning & ...

On behalf of The Law Office of Wickersham and Bowers posted in Estate Planning on Monday March 7th, 2022.

A gift tax is a federal tax levied on someone who gives something of value to someone else without obtaining anything of equal or greater worth in return. Gifts can be anything of great value, such as sums of money, vehicles, or real estate, and the tax can be applied even if the donor never intended it to be a gift in the first place.

The Internal Revenue Service, or IRS, sets the limits on how much you can give before having to file a return and being taxed. Amounts in excess of the annual thresholds must be reported and count toward a lifetime gift tax exemption. When this significant provision is depleted, the gift tax is due.

Does the Person Receiving the Gift Pay Taxes?

In the vast majority of cases, the person being gifted does not owe taxes. At the federal level, assets you receive as gifts or inheritance are usually not taxable income. However, if the assets generate income in the future (for example, interest, dividends, or rent), that income will almost certainly be taxable. The specifics can be found in IRS Publication 525. 

Inheritance taxes are also imposed in some states.

How Can I Avoid Paying Gift Tax?

The yearly exclusion ($16,000 in 2022) and the lifetime exclusion ($12.06 million in 2022) keep the IRS out of most people’s pocketbooks.

If you stay below those, you’ll be able to be generous while remaining untaxed. If you go above that, you’ll have to fill out a gift tax form when filing your taxes.

Taxable Gifts

Are you curious about the gift tax and what constitutes a gift? Money and property, including the use of property, are examples of gifts. Remember, gifts are given without expecting to receive something in return of equal worth. 

In addition to simply giving someone something of value, these instances may also qualify as gift-giving: 

• You sell something at a lower price than it is worth
• You give someone a no-interest or low-interest loan

Exceptions

There are a few exceptions to the gift tax laws. These contributions are exempt from the annual limit:

• Expenses for tuition or medical treatment paid directly to an institution
• Gifts for your spouse
• Donations to a political party
• Donations to charity

On behalf of The Law Office of Wickersham and Bowers posted in Estate Planning on Thursday February 10th, 2022.

A period of unspeakable sadness follows the death of a spouse, but unfortunately, many legal and financial requirements cannot be postponed.

Taking on a to-do list while grieving is probably the last thing on your mind, so enlisting the assistance and counsel of a trustworthy family member, friend, or attorney to help you sort things out and provide emotional support is a smart option.

You may also want to seek the assistance of your financial, legal, and tax professionals. They can often assist you with many of the responsibilities, allowing you to concentrate on your loss. 

Here are five things that will need to be done shortly after the death of a spouse:

Request Certified Copies of the Death Certificate

Certified copies of your spouse’s death certificate will be required to claim benefits or transfer accounts into your name. Request at least a dozen or more copies from the funeral home. To prove you were married to the deceased, you may also be required to provide verified marriage certificates.

Gather Financial Records

Begin gathering financial documents, such as bank records, bills, credit card statements, tax returns, insurance policies, and any outstanding mortgages or loans, as well as retirement accounts. It could take time if your spouse doesn’t have a well-organized filing system. Remember, you may need to contact the corporations directly and give documentation of your spouse’s death in order to access their accounts.

Change Titles on Accounts

Accounts only in your spouse’s name should be closed, and the account holder’s information should be changed on all joint bank, investment, and credit accounts. You can request the necessary forms from your financial institutions.

Revise Beneficiary Designations

If you inherit a retirement account, such as an IRA, you can choose to roll it over to an IRA in your own name. You will want to speak with an attorney and a tax specialist to determine the best method for receiving your deceased spouse’s retirement account. You should also update beneficiary designations on such accounts.

Discuss Next Steps

A financial advisor can assist you in updating your financial strategy in light of the new situation. You can also talk about short-term adjustments, such as a budget, as well as long-term changes, such as your retirement plan and investment possibilities.

On behalf of The Law Office of Wickersham and Bowers posted in Estate Planning on Monday January 10th, 2022.

When you’re young, healthy, and beginning a family, you may not think about estate planning, but your child needs you to make decisions now that will ensure a secure future for him or her, even if the worst happens.

There are a few critical estate planning actions that every parent should take to ensure that their child is secure, no matter what the future holds.

Make a Will

Making a will is crucial for parents, but did you know that each parent should have their own legal will? Even if generating only one document may be more efficient, a joint will doesn’t make much sense.

A shared will ties the survivor to the original terms, leaving little room for the surviving parent to make revisions if circumstances drastically altered.

Name a Guardian

Your will should name your spouse or partner as the guardian of your children, and their will should name you. Having it written down prevents someone from stepping forward and challenging your children’s custody.

If both of you die or the surviving partner is unable to care for the children, you will need to have an alternate guardian. The most difficult task for parents is deciding on a guardian. It’s difficult to envision anybody else raising your children, yet it’s one of the most crucial things you can do to assure their future happiness.

Set Up a Trust

A child trust fund allows you to decide what your children will receive and when they will receive it. A trust fund is a place where you can keep the assets you want for the beneficiaries you pick.

The trustee is legally accountable for the child trust fund’s management and must fulfill your desires precisely as stated in your will.

For example, you might wish to give your child a lump sum of money on their 18th birthday or want them to inherit one of your most valuable things after you die.

On behalf of The Law Office of Wickersham and Bowers posted in Estate Planning on Friday December 10th, 2021.

If you are dealing with an estate in probate, it can feel like you need to learn a whole new language to understand the proceedings. To help you better understand the process, we have created a glossary of the most commonly used terms in Probate proceedings, except for the term “executor”. In Florida, an executor is referred to as a “Personal Representative”. 

BENEFICIARY: n. a broad definition for any person or entity (like a charity) who is to receive assets or profits from an estate, a trust, an insurance policy or any instrument in which there is distribution. There is also an “incidental beneficiary” or a “third party beneficiary” who gets a benefit although not specifically named, such as someone who will make a profit if a piece of property is distributed to another.

DECEDENT: n. the person who has died, sometimes referred to as the “deceased.”

EXECUTOR: n. the person appointed to administer the estate of a person who has died leaving a will which nominates that person. Unless there is a valid objection, the judge will appoint the person named in the will to be executor. The executor must ensure that the person’s desires expressed in the will are carried out. Practical responsibilities include gathering up and protecting the assets of the estate, obtaining information in regard to all beneficiaries named in the will and any other potential heirs, collecting and arranging for payment of debts of the estate, approving or disapproving creditor’s claims, making sure estate taxes are calculated, forms filed and tax payments made, and in all ways assisting the attorney for the estate (which the executor can select).

INHERITANCE TAX: n. a tax imposed on someone who inherits property or money.

INTESTATE: adj. referring to a situation where a person dies without leaving a valid will. This usually is voiced as “he died intestate,” “intestate estate,” or “intestate succession.”

PROBATE: n. the process of proving a will is valid and thereafter administering the estate of a dead person according to the terms of the will. The first step is to file the purported will with the clerk of the appropriate court in the county where the deceased person lived, along with a petition to have the court approve the will and appoint the executor named in the will (or if none is available, an administrator) with a declaration of a person who had signed the will as a witness. If the court determines the will is valid, the court then “admits” the will to probate.

SETTLEMENT: n. the resolution of a lawsuit (or of a legal dispute prior to filing a complaint or petition) without going forward to a final court judgment. Most settlements are achieved by negotiation in which the attorneys (and sometimes an insurance adjuster with authority to pay a settlement amount on behalf of the company’s insured defendant) and the parties agree to terms of settlement. Many states require a settlement conference a few weeks before trial in an effort to achieve settlement with a judge or assigned attorneys to facilitate the process. A settlement is sometimes reached based upon a final offer just prior to trial (proverbially “on the courthouse steps”) or even after trial has begun. A settlement reached just before trial or after a trial or hearing has begun is often “read into the record” and approved by the court so that it can be enforced as a judgment if the terms of the settlement are not complied with. Most lawsuits result in settlement.

Insufficient knowledge about these legal proceedings may cause you huge losses. Therefore, having an attorney on your side in such matters is always recommended. For that reason, we are here to assist you every step of the way at Wickersham & Bowers.

On behalf of The Law Office of Wickersham and Bowers posted in Estate Planning on Tuesday November 9th, 2021.

While it can be difficult to focus on your finances after the death of a loved one, there are tax planning issues that need to be sorted out. This is especially true if you are your loved one’s 401k beneficiary.

401k and Taxes

Upon a person’s death, their 401k plan transfers to their taxable estate. If there is a living beneficiary, the money can probably be disbursed without waiting for probate unlike the rest of the estate.

Taxes will be due on any monies received from a 401k, in addition to estate taxes. However, a few strategies can be used to delay the burden or spread it out. 

Understand the Rules

Many people do not realize that different 401k plans can have different rules. While the IRS does have a set number of limits, a plan can ultimately be more restrictive. For instance, the IRS allows you to leave the money alone without paying taxes, for up to 10 years. But, the plan itself may not allow that length of time.

There may be other rules regarding who inherits the plan. For instance, a surviving spouse may have different restrictions than a surviving child. 

For most people, the 401k will need to be taken out all at once in a lump sum distribution. If this happens, then you will need to pay state and federal income taxes. However, you may not be subject to the early withdrawal penalty.

A surviving spouse may have the option to roll the money over into a different retirement account such as an IRA.

Periodic Payments

Some plans will allow you to spread payments out over the course of a few years to prevent a significant tax burden all at once. This isn’t always allowed by the plan because there is an administrative cost involved for them.

It is more likely to be allowed if the original account holder was already receiving payments before their death.

On behalf of The Law Office of Wickersham and Bowers posted in Estate Planning on Tuesday November 9th, 2021.

According to the Education Data Initiative, the cost of higher education in the U.S. has tripled in the last 20 years. In Florida, the average cost of tuition and fees for a four-year institution is $15,511 and the national average for student loan debt is $37,584.

Have you considered the cost of higher education for your children in your estate planning? Here are a few options that can help you plan for their future.

529 Plans

Savings plans called 529 plans are intended for educational purposes and they come in two different types. The first type is a prepaid tuition plan, which allows for the purchase of future tuition fees at the current price. The money is meant for college or university tuition only and cannot be used for room and board.

The second is an education savings plan which allows for investment accounts that can be used for higher education expenses. This plan allows the money to be used for room and board and school supplies like laptops or books. 

Revocable Living Trust

With a revocable living trust, the provisions can be changed as often as you want while alive and define how the money should be spent. Should you wish some or all of the trust to be dedicated to education, you can define what is eligible in terms that you like. These provisions for education will stand even after your death, ensuring that your child’s education needs are met.

HEET: Health and Education Exclusion Trust

There is an irrevocable trust that can help you avoid paying a gift tax called a health and education trust or HEET. This trust is meant for your younger relatives, two or more generations after you. Any payments made to an educational institution from a HEET are not subject to gift taxes. 

Irrevocable Gifting Trust

If you want your gifts to extend beyond education, an irrevocable gifting trust may be the right option. You can shelter your gifts to beneficiaries with the annual gift exclusion if you include a Crummey power that allows gifts that normally wouldn’t be eligible for the exclusion.