Who can help me if I am unable to manage my own affairs?

According to a survey conducted by the US Census Bureau, approximately 69 percent of survey respondents who were age eighty-five and older had at least one type of disability (Andrew W. Roberts, et al., Dep’t of Commerce, U.S. Census Bureau, The Population 65 Years and Older in the United States: 2016). As you get older, it is more likely that you may need assistance in handling your financial and medical affairs.

A financial power of attorney allows you to choose a trusted person (an agent or attorney-in-fact) to handle your financial matters (sign checks, pay bills, file taxes, etc.). Without a financial power of attorney, a court will need to appoint someone if you need someone to handle financial matters on your behalf. This can take time and money that may not be optimal in the midst of a crisis.A medical power of attorney allows you to appoint a trusted person as your decision maker to communicate or make healthcare decisions on your behalf if you cannot do so. If you do not have a medical power of attorney, the court may be required to name someone to make these decisions for you, costing your loved ones time and money and infringing on your privacy.

Can someone help me if I am out of town?

A recent New York Times article explored the trend of individuals over age sixty-five traveling more now that a COVID-19 vaccine is available (Debra Kamin, A Different Early-Bird Special: Have Vaccine, Will Travel, N.Y. Times, Mar. 22, 2021, https://www.nytimes.com/2021/02/17/travel/seniors-covid-vaccine-travel.html). Whether you are visiting loved ones in another state or crossing countries off your bucket list, you, too, may be traveling more now than you did before. However, the world does not stop just because you leave home for a period of time. A financial power of attorney can allow your agent to handle financial matters on your behalf while you are out of town. Although it may seem scary to allow another person to manage your financial affairs, take comfort in the fact that you can still act on your own behalf if you are able, and if your agent makes a decision you do not like, you can remove them as your agent. This means that you can go out of town and feel assured that your agent can handle your financial affairs, if necessary, while you are gone.

How do I protect my loved ones after I am gone?

Unfortunately, no one is immortal. At some point in time, you will pass away. Although you will no longer be with your family, you can still have a direct impact on your loved one’s financial future. A trust is a great tool to hold the money and property you want to give to your loved ones. Whether the trust is a revocable living trust or a part of your last will and testament, it allows you to set aside a portion of your accounts and property for the benefit of a loved one. You can name someone to oversee the money and property and instruct that person on when and how the money and property must be used. When establishing a trust, there are a few different options for how your loved one can receive the money and property:

• Outright distribution. The terms of the trust can instruct the trustee to distribute all of the money and property to your loved one or give your loved one the right to withdraw all of the money and property in their share of the trust at any time, without any strings attached.
• At certain ages. You can dictate in the terms of your trust that a certain percentage be distributed to your loved one at different ages, such as one-third at age forty, one-half at age forty-five, and the remainder at age fifty.
• After reaching certain milestones. If there are certain things you want your loved one to attain before receiving access to the money and property, you can instruct the trustee to distribute a certain percentage or amount once that milestone has been reached. Some milestones could include attaining a college degree or service in the military.
• Leave it up to the trustee. If you are concerned about what your loved one may do with the money or if your loved one has a high-risk job, creditor issues, an unhealthy marriage, or an addiction, allowing distributions to be made only at the trustee’s discretion is a good way to try to protect the money and property that you have set aside for your loved one. Provisions can be put in place so your loved one can receive enjoyment from the money and property, while protecting it from creditors and predators.

We want you to enjoy your golden years to the fullest. One way to make sure that you live a full and happy life is to address your concerns with a proper estate plan. To learn more about the ways in which we can help you and your loved ones, contact us at your earliest convenience.

The post Estate Planning: Answering Common Questions of Senior Citizens appeared first on AJ Law Firm.

Many of us do not start thinking about life insurance until we get our first full-time job and the company’s human resources representative asks us if we want to enroll in the employer’s group life insurance policy. Most people think “Why not?” and sign up, naming a family member as the beneficiary of their policy, and then never give it another thought. Although this may be a good start, too few of us spend much more time thinking about life insurance.

What Is Life Insurance?

In general terms, life insurance is a contract between two parties, usually an individual and an insurance company, in which the company agrees to pay a specified sum of money (death benefit) upon the death of the insured to the beneficiaries named in the policy to replace the economic loss that would otherwise be incurred by the beneficiaries because of the insured’s death. In exchange for the death benefit, the individual who purchases the policy agrees to pay premiums to the company for a specified period of time, up to a specified amount, or both.

The right kind of life insurance, when properly understood and carefully coordinated with your estate planning, can provide significant economic benefits and peace of mind for you and your loved ones should you pass away sooner than expected. But there are numerous types of life insurance, and it can be well worth your time to become familiar with the primary varieties and know when to use them.

Types of Life Insurance

Term insurance. Term insurance will pay the death benefit only if the insured dies within the specified period (term) spelled out in the insurance contract. For example, if the policy is for a ten-year term but the insured dies in year eleven, after the ten-year term has ended, no death benefit is payable to the beneficiaries. This type of insurance is generally more affordable than other types of policies and is designed primarily to protect the insured’s beneficiaries should premature death create economic hardship within the specified term period.

Whole life insurance. Whole life insurance typically guarantees a consistent premium throughout the life of the contract, but the premiums are typically higher than term-life premiums because the insurance company maintains a reserve that helps keep the premiums level during the insured’s life. This reserve is an accumulated cash value within the policy that the policy owner can borrow against or cash out if they choose to terminate the contract before they die. Different varieties of whole life insurance have unique features that can be customized for particular situations.

Universal life insurance. Universal life (UL) insurance policies are interest-sensitive policies that can result in higher death benefits and cash value over the life of the policy, depending on a variety of investment, expense, and mortality factors that are built into the contract. With the potential for greater gains in cash value, however, comes the potential for greater risk in the buildup of cash value. If the policy’s underlying investment assets perform poorly and the cash value buildup is insufficient to cover the expense charges and mortality costs, the policy will terminate. However, compared to whole life policies, UL policies are generally significantly more flexible with regard to making premium payments from year to year and withdrawing cash value. Therefore, depending on your circumstances, the type of cash flow you anticipate, and the risks that you are insuring against, a UL policy may be appropriate. As with most insurance policies, you will find limitless varieties from insurer to insurer.

Variable life insurance. Variable life (VL) insurance policies are very similar to traditional whole life policies except that in VL policies, neither the death benefit nor the surrender value of the policy is guaranteed. In addition, either the death benefit or the surrender value, or both, can increase or decrease depending on the performance of the policy’s underlying investments. However, each VL policy typically has a minimum death benefit so that, even with poor asset performance, the beneficiaries receive a payout at the insured’s death. These policies are unique because of the control that the policy owner has over the types of investments underlying the policy. The policy’s cash value can be invested in varying degrees in stocks, bonds, real estate, and money market portfolios. Policy premiums are typically fixed, but depending on the underlying assets’ performance, the cash value can fluctuate from day to day. As with other life insurance products, the death benefits are income tax-exempt. The earnings on the assets and the accumulated cash value in the policy are income tax-deferred until after the policy has been surrendered. In addition, the policyholder can also borrow up to a certain percentage of the policy’s cash value if they need cash for a period of time (although interest is charged while the loan is outstanding).

Variable universal life insurance. Variable universal life (VUL) insurance is, as the name indicates, a hybrid of variable life and universal life insurance, with many of the most desirable features of both types of insurance built into the contracts:

• flexible premiums
• adjustable death benefits
• control over the types of investments within the policy
• the ability to borrow against the cash value
• partial withdrawal rights

Both VUL and VL policies are subject to Securities and Exchange Commission (SEC) regulation because of the flexibility of their investment options.

Survivorship life insurance. Sometimes called “second-to-die” life insurance, survivorship policies can be used when the need for an infusion of cash (the death benefit) is necessary only at the death of the second of two individuals (such as a married couple). These policies can be term, whole, universal, or variable, depending on the policyholders’ need. Survivorship policies are particularly useful when a married couple owns significant real property that they want to keep in the family after the second spouse dies, and the family would rather pay estate taxes from the life insurance proceeds than raise the cash to pay the taxes by selling the property.

First-to-die life insurance. First-to-die policies allow the death benefit to be paid upon the death of the first of two insured individuals. Insuring two individuals instead of one costs less than the total premiums for separate life insurance policies on the same two individuals. For example, these policies can provide a surviving business partner with the cash necessary to buy the deceased partner’s share of the business from their spouse or family.

Single premium whole life insurance. Single premium whole life insurance allows an individual to purchase, with a single cash payment, a specific amount of insurance to cover the remainder of their life. As with typical whole life, the insured can borrow against the policy’s cash value or surrender the policy. There may be income tax consequences for surrendering the policy, but as with most other life insurance policies, there can be significant income tax protection if the policy matures and pays out at the insured’s death. Also, in some states, the cash value of life insurance can enjoy significant asset protection against future creditors’ claims, thus making investing in life insurance more attractive than other types of investments.

Which Type of Insurance Is Best for Me?

With all of the choices available in the life insurance world, considering what type of insurance is best for your situation can feel overwhelming. If you are a young couple just starting out and you do not have much spare income, it may be best to shop for some term insurance that will provide a cash payment that allows your surviving spouse to pay off the home and have sufficient income until they can provide for themselves on their own.

If you are a middle-aged working professional with a family, you may want to consider purchasing a much larger term life policy or even a whole life policy that has a guaranteed death benefit as long as you keep paying the premiums. This option can be important if there is a chance that you could develop a chronic illness, such as diabetes or cancer, that would disqualify you from obtaining a new term policy when your old term policy terminates.

If you have a large estate with significant assets that would be difficult to sell, such as a successful business or real estate, a second-to-die or first-to-die policy might be a better option for ensuring that there is sufficient cash upon the death of one or both of you and your spouse, or business partners, to pay taxes or buy out a deceased partner’s business interests.

The bottom line is that life insurance policies come with a huge variety of options because families and individuals have an endless variety of circumstances. Ask your insurance professional, financial advisor, and estate planning attorney to help you identify the risks that you may be facing that could be reduced by using a carefully crafted insurance policy, coordinated with your estate planning, to meet your unique needs. Insurance can be complex, but you do not have to go it alone.

The post Life Insurance in Estate Planning appeared first on AJ Law Firm.

Asking someone to serve as your fiduciary (trustee of your trust or personal representative or executor under your last will and testament) is not something that you should take lightly. Serving as a fiduciary is a heavy responsibility that requires significant time and effort. If you plan to nominate a family member or friend to serve in one or both of these roles, you will need to consider whether you should authorize them to be compensated from the trust or estate for the services they provide to the trust beneficiaries or heirs of the estate.

What is the customary amount of compensation for these types of services? If you have not specified in a will or a trust whether, or how much, the fiduciary should be compensated for their services, most state laws have addressed the question. A majority of the states that have adopted some form of the Uniform Trust Code allow the fiduciary to be paid a fee that is “reasonable under the circumstances.” (Unif. Trust Code § 708 (Unif. L. Comm’n 2010), available at https://www.uniformlaws.org/HigherLogic/System/DownloadDocumentFile.ashx?DocumentFileKey=3d7d5428-dfc6-ac33-0a32-d5b65463c6e3&forceDialog=0). Some states have other approaches to fiduciary compensation, including a graduated fee scale based on the value of the property being managed (For example, see Georgia, O.C.G.A. § 53-12-210, Maryland, Md. Code § 14.5-708, or New York, S.C.P.A. § 2309). In 2016, the American College of Trusts and Estates published a comprehensive comparison of the different state rules, including a list of the states that allow a trustee’s fee to be calculated based on a percentage of the assets under management (Fee Statutes by State, The American College of Trust and Estate Counsel (Feb. 2016), https://www.actec.org/assets/1/6/Fee_Statutes_by_State_February_2016.pdf). The current trend among the different states, however, is the “reasonableness” standard (See Unif. Trust Code § 708, Unif. L. Comm’n 2010, available at https://www.uniformlaws.org/HigherLogic/System/DownloadDocumentFile.ashx?DocumentFileKey=3d7d5428-dfc6-ac33-0a32-d5b65463c6e3&forceDialog=0).

What Is a Reasonable Fee?

“Reasonable under the circumstances” can be hard to pin down when it comes time to actually write the check to pay the fiduciary. To provide some guidance on the “reasonableness” standard, the Uniform Law Commission, and case law have offered, in one form or another, the following factors to assist the courts (and the parties in court cases) in determining what makes a fee “reasonable.” These are not the only factors to be considered, but they are some of the factors frequently cited by courts when determining the reasonableness of a fiduciary’s compensation.

Local Custom

When a court is being asked to evaluate the reasonableness of fiduciary fees, it first considers the customary fees charged by professional or corporate trustee companies in the local area. The result may be an hourly rate or it may be a percentage of the value of the property under management, paid annually. In either case, if you are trying to determine a reasonable fee to pay your trustee, ask some professional trustees in your area what their customary fee structure is and whether it would make sense in your case to provide the same level of compensation to the fiduciary handling your trust or estate.

Trustee’s Skill and Expertise

The skills or expertise your trustee can bring to the table is another important factor. Simply put, an attorney or a certified public accountant (CPA) will bring much more knowledge and experience when acting as a trustee than a professional musician will. Thus, a reasonable fee for a trustee who is a CPA may be a much higher hourly rate because of the skill, efficiency, and professionalism that they use in doing their job. On the other hand, because a professional musician is more likely to be unfamiliar with such subjects, they may need to spend much more time than a CPA will to get the accounting and tax preparation done, thereby justifying a lower hourly rate.

Similarly, it would be unreasonable for a trustee who is an attorney to bill their typical rate of $350 per hour to clean out or mow the lawn of a home owned by the trust. In such a case, reason would dictate that the trustee hire someone at $25 per hour, or the standard rate for similar work in the same geographical location, to perform the landscaping work for the trust and charge the trust $350 per hour for the work only an attorney could do.

Time Devoted to the Trustee’s Duties

Some fiduciary roles require significant investments of time. Therefore, to justify a reasonable fee, the fiduciary must keep careful records of the amount of time they spend carrying out their duties. If a fee seems particularly large, especially when compared to the amount of property in the estate or trust, the fiduciary must be prepared to show a court or the beneficiaries and heirs of the trust and estate that the time spent on those fiduciary duties was necessary for the proper administering the estate and trust.

Amount and Character of Trust Property

Some forms of property can be much more complicated to deal with than others. For example, a savings account containing $800,000 can be much simpler to deal with than five rental properties in a depressed area of town where renters have done significant damage to the property. Thus, a reasonable fee for managing those properties or preparing them for sale could be significantly larger than the fee for distributing outright one savings account in equal shares to the beneficiaries. Similarly, the tax preparation and investment decisions required from the fiduciary of an estate or trust worth $800,000 will be much different from the same types of decisions for an estate or trust worth $18 million.

Degree of Difficulty

Some trust and estate administrations can be very straightforward and easily managed. For example, if a widow leaves all her property and cash to her only child, outright and free of continuing trusts, the degree of difficulty of such an administration would be very low. On the other hand, if the deceased had been married multiple times and left a surviving spouse as well as children and grandchildren, some of whom may be suffering from addiction, creditor issues, or a messy divorce and who were prone to challenge every action by the fiduciary, the fiduciary’s duties could be exponentially more difficult. As a result, a reasonable fee for the latter example could be substantially higher than the fee for the former.

Level and Type of Responsibility

Different types of responsibilities may require different levels of compensation. For instance, managing property held in trust for the benefit of a mentally disabled individual so the beneficiary remains eligible for public benefits takes a much different level and type of responsibility than making scheduled outright distributions to a beneficiary or distributions under a more straightforward distribution standard, such as for health or education expenses.

Risk Assumed

The protection and management of certain types of estate and trust property can also carry varying levels of risk. If a trust holds certain types of business property associated with high risks or volatile value fluctuations, the trustee may personally be at much greater risk with regard to being responsible for the proper care and management of that property. As a result, a higher fiduciary fee may be appropriate in such a case.

Conclusion

There may be other factors involved in an analysis of whether a trustee’s or personal representative’s fee is reasonable under the circumstances. However, the factors described above should give you some sense of the types of things that you should consider. The bottom line is that the reasonableness of these types of fees is very fact specific. If a trustee or personal representative wants to be paid for their services, they should keep careful and detailed records of the types of services provided for the management of the trust in addition to the time spent and the expenses incurred on the trust’s behalf. Even if a trustee or personal representative is not asked to provide that information to justify their fee, doing so anyway is crucial if, down the road, that fee is ever challenged as being unreasonable.

Whether you choose a corporate or professional fiduciary or a family member or friend to act as trustee or personal representative, discuss with your estate planning attorney the issues surrounding trustee compensation to ensure that you understand how to handle this important element of your estate planning and that it conforms to your ideas about what is reasonable and what is not.

The post Successor Trustee Compensation appeared first on AJ Law Firm.

Studies (Our History, The Williams Group, https://www.thewilliamsgroup.org/our-history, last visited May 20, 2021) have shown that the largest contributing factors to generational loss of wealth are a lack of communication and trust among family members and the failure to prepare heirs (An “heir” is someone entitled to receive a decedent’s property under a state’s default laws when the decedent dies without a will. The list of people who will inherit based on the state’s default plan varies depending on the state. Most state laws recognize spouses, children, and grandchildren as heirs). Often, fear is what underlies the lack of communication and trust that inevitably leads to unprepared heirs. Following are some of the fears that prevent people from communicating with their loved ones about their wealth.

Common Fears

Fear of Creating an Entitlement Mentality in Heirs
We have all heard horror stories about trust-fund kids who had no motivation to do anything other than relax and enjoy life because they knew that a large inheritance would be available for spending once they reached a certain age. Knowing that the large inheritance was coming, they did the bare minimum to make sure they would receive it, but in the process, ignored opportunities to get the most out of their education or learn new skills because, in the child’s mind, the future was already mapped out.

Luckily, by working with an experienced estate planning attorney, you can craft an estate plan that avoids this outcome. Your estate plan could include incentives for your beneficiary, such as qualifying to receive money from the trust only if they graduate from an accredited college or university with a certain minimum grade point average. You could also include restrictions on what the money can be used for, such as tuition, starting a new business, or the purchase of a first home, eliminating the idea that the money is available for luxury or frivolous items. On the other hand, if you are truly concerned about how your beneficiary will use the money, you can leave the decision of how much money they receive and when they receive it to the discretion of a trustee who understands your concerns about discouraging entitlement mentality and encouraging beneficiaries to develop a strong work ethic and become productive, contributing members of society.

Fear That Heirs Will Squander Their Inheritance

You have worked hard to create and maintain your wealth. You have spent where you needed to and saved in other areas. It is reasonable to fear that when you pass along your wealth, your level of frugality may not go with it. As mentioned, to combat this fear, you can include provisions in your estate plan that list exactly what the money you are leaving your loved one can be used for. If your intent is to provide your loved one with an education and seed money for their first business, you can restrict the use of the money to those purposes. Or you can select successor trustees who will make trust distributions in accordance with your long-term objectives for your money and your loved ones. This means that if your loved one wants a wild weekend in Vegas, they will have to find the money for that elsewhere.

Fear That Outside Influences Will Overtake Heirs

Unfortunately, there are some not-so-nice people in the world. These people tend to enter your life and the lives of your loved ones when there is money at stake. While your loved one may be incredibly level-headed and frugal, it can sometimes be hard to say no to a partner who wants to go on expensive trips or buy nice clothes. In addition, with about half of all marriages ending in divorce, potential gold diggers may find your loved one even more attractive if there is the possibility of a large divorce settlement. Through proper drafting, an experienced estate planning attorney can not only restrict how your loved one accesses the money you leave them but also protect it from creditors and predators.

Fear of Treating Heirs Unequally and Fostering Sibling Rivalry

Depending on your parenting philosophy, you will have to decide whether you want to treat your children or grandchildren equally or fairly in your estate plan. Treating your loved ones equally means that they all receive the same amount; treating them fairly means that your loved ones receive money and property according to their individual needs and situations. The answer to the “equally or fairly” question will depend on your unique circumstances and intentions and may take some soul-searching.

Some people believe it is crucial that everyone in the same generation (children or grandchildren) be treated the same (i.e, equally) to prevent family conflict. Others believe that because everyone is different, each person in a generation should be provided for in a way that gives them all the same access to opportunities and advantages in life (i.e., fairly). One child may make more money than a sibling, or one grandchild may have special needs while the other grandchildren do not. These differences might require different amounts and types of inheritances.

Fear That Disclosure Now Might Limit Choices and Changes in the Future

Whom you tell about your plan does not impact your ability to change your mind; however, the type of plan you create may limit your ability to make future changes. A revocable living trust or a last will and testament can be changed at any time up until you are incapacitated (unable to make decisions for yourself) or you die. On the other hand, there are irrevocable trusts that, while offering increased asset protection and potential tax benefits, may be more complicated or problematic to alter if you change your mind in the future.

Although having an initial conversation with your family about your financial wishes can be nerve-wracking enough, and meeting with them a second time to let them know you have changed your mind could be even more so, the difficulty does not diminish the importance or the benefits of being open and honest with your family. This is why we generally recommend that families hold an annual retreat to discuss their wealth in case a change has occurred, or even if nothing has changed, to spend time together as a family.

Fear about Running Out of Money

For many people, earning or acquiring money offers a sense of security. Without money, some people may feel vulnerable. Also, unless you plan to work until the day you die, you may also worry that the money you have acquired during your lifetime will run out before your death, leaving you to rely on government assistance or family members. While this scenario is always a possibility, working with an experienced financial advisor can help you get ahead of this fear by taking a look at your current income, savings, and expenses to create a budget and investment strategy that meets as many of your future needs and wants as possible.

Overcoming Your Fears

Creating a comprehensive financial and estate plan with the help of experienced advisors, in addition to having an honest and open conversation with your loved ones about it, are two of the first steps to overcoming the fears that arise about money and inheritance. To help you prepare to create your plan and discuss it with your family, consider how you would answer the following questions. You can also download our convenient handout, “Your Thoughts on Money,” to guide you through this thought exercise and any conversations you want to have with your loved ones about your financial and estate plan.

• What does money mean to me?
• Am I comfortable telling my family about my plans for my wealth?
• What do I want to teach future generations about money?
• How can I help future generations develop financial competency?
• Am I concerned that I am going to run out of money?
• Do I worry about creating an entitlement mentality among my children, grandchildren, etc.?
• If I leave a large sum of money, do I think future generations will squander it?
• Do I think outside influences will take advantage of my children and grandchildren if I leave them a large sum of money?
• Do I want to treat my children and grandchildren equally or fairly?

The answers to these questions will help you express your fears, attitudes, and goals about your wealth and how you want to ultimately pass it down (or not) to your children, grandchildren, and beyond. Also, discussing your philosophy about money with your loved ones will allow them to know what to expect after you are gone instead of being left in the dark. Call us to schedule an appointment so we can discuss your options for protecting your wealth for generations to come.

The post Plan Your Money Ahead of Time appeared first on AJ Law Firm.

Do not let constant political and financial speculation prevent you from making tax-free annual exclusion, medical-payment, and educational gifts to or for the benefit of your loved ones.

Make Annual Exclusion Gifts

Annual exclusion gifts are transfers of money or property in an amount or value that does not exceed the annual gift tax exclusion. In 2021, the annual gift tax exclusion is $15,000 per recipient. Therefore, this year you can give up to $15,000 per person to as many individuals as you choose without having to file a federal gift tax return (Internal Revenue Service Form 709). In other words, the Internal Revenue Service (IRS) does not consider gifts that are equal to or less than the annual exclusion amount to be taxable gifts at all. You may need to file a gift tax return if your gifts either exceed or do not qualify for the annual exclusion amount. Your estate planning attorney or accountant can guide you.

Married couples can take double advantage of the annual exclusion and gift $30,000 in 2021. However, in some situations, a couple may still need to file a gift tax return if the amount of the gift is to be split between them. They should consult with their estate planning attorney or accountant to be sure.

Make Payments That Qualify for the Medical Exclusion

A payment that qualifies for the medical exclusion is another type of transfer that the IRS does not consider to be a gift for gift tax purposes. Payments qualify for this exclusion if they are made on behalf of an individual to a person or an institution that provided medical care or medical insurance to the individual. In general, medical expenses that qualify for this exclusion are the same ones that are deductible for federal income tax purposes. Therefore, in 2021, you can pay the cost of your grandchild’s emergency appendectomy and, in the same year, give your grandchild an additional $15,000 without having to file any gift tax returns.

To qualify for the medical exclusion, a payment must meet two critical requirements.

• You must make payment directly to the person or institution that provided the medical care or medical insurance. If you give the money to the individual who received the medical care or insurance benefit, even with explicit instructions that it be used to pay for the medical care, your payment will be considered a gift to the individual and not payment of a qualified medical expense.
• The amount paid must not have been reimbursed by the individual’s insurance company. Any reimbursed amount is not eligible for the unlimited medical exclusion from the gift tax, and that amount will be treated as having been made on the date the individual received the reimbursement.

Make Payments That Qualify for the Educational Exclusion

A payment that qualifies for the educational exclusion is another type of transfer that the IRS does not consider to be a gift for gift tax purposes. For example, in 2021, in addition to paying for your grandchild’s emergency appendectomy and giving them $15,000 (see above), you can pay their college tuition costs without having to file any gift tax returns or pay any gift tax.

To qualify for the educational exclusion, a payment must meet two critical requirements.

• You must make payment directly to the institution providing the education rather than to the individual receiving the education.
• Your payment must be for tuition only, not for books, supplies, room and board, or other types of education-related expenses.

If your payment fails to meet either of these requirements, it will be considered a gift to the individual.

Giving gifts can be an effective way to provide financial assistance to your family members. If you have any questions about how to make gifts of money or property to your family without also giving money to the IRS, please contact our office. We are available for in-person and virtual consultations.

The post Make Smart Gifts appeared first on AJ Law Firm.

Studies estimate that 70 percent of family wealth is lost by the end of the second generation and 90 percent by the end of the third generation (About Us, The Williams Group, https://www.thewilliamsgroup.org/about-us, last visited June 25, 2021). To help your loved ones avoid becoming part of this statistic, you need to educate and update your extended family about your wealth transfer goals and the plan you have put in place to achieve these goals.

What Must You Communicate to Future Generations to Facilitate Transfer of Your Wealth?

You should consider communicating the following information to your family to ensure that your loved ones understand and will be prepared to carry out your wishes during a difficult time:

• A net worth statement or, at a minimum, a broad overview of your wealth
• Your final wishes for burial or cremation and memorial services
• Estate planning documents that you have created and the purpose each document serves:
  • Durable financial power of attorney: designates who will be in charge of managing your accounts and property if you are living but unable to make decisions; states what authority your chosen decision-maker has; avoids a legal conservatorship, which is the court supervision of your financial affairs
  • Medical power of attorney: names who will be in charge of making medical decisions for you if you cannot make them for yourself; avoids guardianship, which is often an adversarial court proceeding
  • Advance directive or living will: clarifies your wishes regarding life-sustaining procedures
  • Health Insurance Portability and Accountability Act (HIPAA) authorization form: names the person you have chosen to access your protected healthcare information
  • Revocable living trust: avoids guardianship or conservatorship of your property during your life and avoids probate at death; keeps your final financial wishes private; minimizes delays, costs, and bureaucracy
  • Pour-over will or last will and testament: a catch-all for money and property not transferred into your revocable living trust or by beneficiary designation before death, or the primary means to transfer money and property in your sole name if you are not using a revocable living trust
  • Irrevocable life insurance trust: removes life insurance from your taxable estate; provides immediate access to cash for loved ones’ needs, administration costs, and taxes
  • Other advanced estate planning tools: protect money and property from creditors, predators, outside influences, and ex-spouses; enable charitable giving; minimize taxes; create dynasty trusts

• Who you have chosen to make decisions if you die or are incapacitated or otherwise unable to make decisions while living, including the agents named in your durable financial power of attorney and medical power of attorney, the successor trustee of your revocable living trust and any other trusts you have created, and the personal representative named in your last will and testament or pour-over will.
• The benefits of properly drafted lifetime discretionary trusts that you have created for your extended family:
  • Foster educational opportunities
  • Provide asset, divorce, and remarriage protection
  • Protect special needs beneficiaries
  • Allow for professional account and property management
  • Minimize estate taxes at each generation
  • Create a lasting legacy for future generations

• Your goals and intentions for inheritances: what the money is and is not to be used for (for example, education, charity, business opportunities, or retirement instead of vacations and Ferraris), and who will be the trustee of any lifetime discretionary trusts created for your family members and why you have selected them
• Location of important documents: this should include how to access your digital assets such as social media, online bank accounts, and crypto assets
• Your key advisors and their contact information: estate planning attorney, financial advisor, certified public accountant, insurance agent, spiritual advisor, etc.

How Can Your Professional Advisors Help You Communicate Your Wealth Transfer Goals?

Your professional advisors are well-positioned to help you discover your wealth priorities, goals, and objectives and then communicate this information to your family. This will prepare your family to receive your accounts and property and not be left to figure out your intentions on their own, which could, as statistics have shown, risk them losing it all.

We can assist you with determining your wealth transfer goals, creating a plan to achieve these goals, and effectively communicating this information to your loved ones.

@WealthCounsel

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