A recent article posted to the financial advice site, Nerd Wallet, describes “10 big financial mistakes” seen every year by the author, a Certified Financial Planner. Number 10 on the list is the act of gifting children with valuable estate assets as you get older.
The asset that parents commonly consider gifting to their children is their home. Parents may do this because they think it will create less of a financial burden for their children in the long-run. However, it can wind up being a costly mistake in a number of ways, including the following:
- There are cases where children have had their parents evicted from their homes. Children may feel that their parents should move to an assisted living facility, or they may simply want to make use of the home themselves. If you gift your home, you’re giving up a lot of control over how long you can stay there.
- Sometimes, the home is lost to a child’s creditors or to other messy situations such as divorce. After you’ve gifted your home to your child, it can become a part of their problematic financial situation.
- You may wind up depriving yourself of certain benefits you need, in particular Medicaid for nursing home care.
- As mentioned in the Nerd Wallet article, your child may have to pay a hefty capital gains tax when they sell your home. When you gift your home, it retains its original tax basis (or cost) for your child; if your child then sells it, they need to a pay a tax on the difference between the current selling price and the original tax basis. However, if your child inherits the home from you, they’ll likely benefit from a “stepped-up basis” reflecting the home’s value on your date of death.
Some parents feel like they should gift their home because it will reduce the taxable value of their estate. However, there are various solutions for reducing the tax burden without necessarily gifting your home. You need to discuss these issues with a reputable estate planning attorney. Don’t hesitate to contact us to figure out the best solutions for your estate planning needs.
When you relocate from one state to another, you’ll have a lot of practical issues to attend to. One of the issues you shouldn’t neglect is your estate planning. Estate laws differ from one state to another, so the documents you drew up in one state may require modification now that you’ve relocated.
Probate. The state you’re moving from may have a different probate process; as such, you may want to modify some of the strategies you’ve made to bypass probate or make it less protracted. Also, keep in mind that if you wind up keeping some of the property you owned in your home state, this will also affect probate in your new state.
Executors. If you’ve named executor for your estate, you need to make sure they’re still eligible in your new state. In Texas, for example, you’re generally permitted to have an out-of-state executor, but this executor would also have to choose someone in Texas to serve as an in-state agent; often, the agent chosen is an attorney.
Medical documents. If you’ve laid out medical directives and assigned power of attorney, make sure those documents are accepted in your new state; also look at any additional forms to fill out for your new state regarding these issues.
Community property in marriage. Texas is one of 10 community property states, meaning that – in general – the property you acquire during your marriage is held to belong jointly to you and your spouse (there are also exceptions to this, such as property bequeathed or gifted to only of the spouses). Most states follow a common law property system, in which property acquired by a married person after the marriage is by default only theirs unless they specifically arrange for joint ownership with their spouse. Your will and other estate documents may need some modification to reflect the differences between how states regard marital property.
We’ve only touched on some of the issues here. If you have additional questions, don’t hesitate to contact us. As experienced Texas estate law attorneys, we can assist you as you review and modify your estate planning documents after a move.
Creating a trust when your child or grandchild is small is a good way to build up money for the child’s future educational expenses. But there are a number of other benefits involved with educational trusts, as well. Here are a few.
- You don’t have to pay a gift tax. If you have a properly set up Crummy Trust, in which each beneficiary has the right to withdraw a certain portion of the gift within thirty days, individuals can give away up to $14,000 per year without paying gift taxes on it. Because the trust can be funded with the gift exclusion amount, you won’t incur any gift taxes on it. The interest and dividends from it are also exempt.
- Educational trusts can be protected from liability. By including Spendthrift Provisions in the language of the trust agreements, the money can’t be taken by creditors as payment for noneducational expenses.
- There are further tax benefits. Contributions to an educational trust are no longer included as part of the grantor’s estate and, therefore, are not subject to estate taxes. In particular, educational trust help those individuals with sizable estates to pass their assets to future generations without an estate tax being involved.
While the main benefit of an educational trust, of course, is raising the money for a child’s educational expenses, this form of trust is often included in a comprehensive estate plan. It is important that your trust be set up in accordance to Spendthrift and Crummy guidelines so that you and your loved ones will receive the maximum benefit. For more information on this and other types of trusts, contact us.
The other day, we read an interesting news story that we thought all of our Texas readers should know about.
The story concerned a man who died of cancer in 2008. According to his children, the man met with financial advisors and had a will made because he wanted to make sure his children were provided for after his death.
Unfortunately, the man made a $400,000 mistake.
That’s because on his IRA beneficiary form, he said the nearly half-million dollars he had saved up was “to be distributed pursuant to my last will and testament.” However, he did not fill out the form correctly, and that made his surviving spouse the automatic recipient of the money.
The problem with that (according to his children) is that the man wed his most recent wife two months before he died. They think she took advantage of his weakened state and told a court their father intended to provide for them, not for her. However, there wasn’t much the court could do, and the $400,000 ended up going to the recent wife.
The lesson to be learned here is that even with careful estate planning, making a mistake on a beneficiary form like this can really throw a wrench into even the most carefully made plans. That’s why we advise all of our estate planning clients to review all of their important forms at least once a year (tax time is a commonly used milestone).
For more information on what you need to do to make sure that everything is as you want it in terms of what happens to your assets, please feel free to contact us.
Casey Kasem recently died at the age of 82 after a very public legal battle over his care between his wife, Jean Kasem, and his children. The issue that eventually led the family to a Washington Courtroom. Court was asked to decide whether Casey should be kept alive solely by life-support or allowed to die. Jean, Casey’s wife, was adamant that her husband who had been diagnosis with a progressive brain disorder in 2007, his children were trying to prematurely end his life. While his children argued that they were simply trying to comply with their father’s wishes to die comfortably and peacefully.
While this dispute between family members over how to best care for a loved-one in their final stage of life was well covered by the media as a result of Casey’s status in the Hollywood community, it is a not a new debate. American families face these tough decisions very day, as the baby-boomer population continues to age. Currently, over 10,000 people turn 65 each day, a trend that is expected to continue for the next 16 years. Now people are living 30 years longer than they were 100 years ago.
The critical issue for all families to know and understand is that planning is key. A well developed estate plan should include a Will, Medical Power of Attorney, Durable (Financial) Power of Attorney, and Directive to Physicians. The Directive to Physicians is the document that was at the center of the debate in Casey’s case. Casey had executed this document, which stated that he did not extreme measures taken to prolong his life. Ultimately, the Washington Court agreed with the children and honored Casey’s Directive.
If you or your loved-one would like to discussed their estate planning options, please contact the experienced attorneys at Ford + Bergner LLP today.
There are many situations in which a trust would be the best option to leave money and other assets behind for children and other family members. In the case of an accident or sudden death, a trust can protect a grantor’s assets from creditors. In addition, a trustee can later preserve and manage those benefits so that the beneficiary received them in a prudent fashion.
Now, in all the terms mentioned above, which would most likely be the “X factor” in a trust agreement? It’s not the grantor, since he’s the one who chose to open a trust in the first place. And it’s probably not the beneficiary, as he was likely always lined up to receive the grantor’s assets.
All that leaves the trustee to being perhaps the most important party of a trust. The legal definition of “trustee” is: “The person designated in the Trust Agreement to take possession of the trust assets and manage those assets. He must also preserve and manage the assets according to the provisions in the Trust agreement.”
The trustee is so important because he needs to abide by the trust agreement and protect and distribute the assets accordingly. This job can be a bit more time-consuming than people give it credit for. There’s a whole lot of paperwork and billing associated with the task. Throw in familial issues such as physical custody and it could suddenly turn into a full-time job.
And that’s exactly why grantors should consider an impartial trustee out of the family. For one, it would make issues much less complicated concerning the distribution of assets. Grantors typically turn to a family member for a trustee, but there’s no guarantee that he has a family member both willingly and capable to do the job.
Professional consulting can help grantor’s pick a reliable and capable trustee. We understand the process and want to help people leave behind their assets exactly as they wish.
If you would like more information about trusts, contact us.
(Credit: South Texas College of Law)
Dean Donald J. Guter had the pleasure of hosting lunch on May 29 for STCL alums Jacob R. Franklin ’13, Andrew M. Wagnon ’13, Thomas A. Horton ’13, and Aaron Dobbs ’05, of Ford+Bergner, who were honored as first-time members of the Law Firm Challenge club. The firm also recently celebrated its fifteenth anniversary and relocation to the landmark Bank of America Center in downtown Houston.
“Our firm has the largest number of South Texas grads practicing estate and trust litigation,” Aaron noted during the luncheon. Recently named by Texas Monthly as a 2014 Rising Star in estate and trust litigation, Aaron also supports the College by serving on our Young Alumni Council.
Ford+Bergner is the forty-ninth organization to have met the Law Firm Challenge by achieving 100 percent participation in alumni giving to the College. The program is open not only to law firms, but also to law offices, in-house legal departments, and government offices with three or more South Texas alumni who make a donation to the College within a given year.