King & Wood, P.A.

How Do I Spend Wisely in Retirement?

How Do I Spend Wisely in Retirement?

“It’s OK to live it up—within reason.”

When you retire, you have plenty of free time. However, you should be sure that shopping and spending excessively doesn’t become your new vocation. If by nature you’re a shopper, try focusing your energy on searching for deals, especially senior discounts.

MarketWatch’s recent article, “Retirement isn’t a permanent vacation: Don’t spend your free time spending,” reports that the bad thing is with more time on your hands, you can buy more. Online shopping can be a big attraction, particularly if you used e-commerce during your working career.

To thwart the urge to shop non-stop in retirement, seniors should try to maintain active lives and a full social calendar. You can volunteer with a charity, take exercise classes and attend community events. All of these will keep a retiree from aimlessly acquiring things. You’ll be too busy to shop, and you’ll experience more socialization with others who have the same hobbies and interests.

When you do need to shop, use caution, and look online for directories of discounts and coupons like SeniorDiscounts.com and ProgramsForElderly.com.

Prior to making a purchase at a brick-and-mortar store, inquire about senior discounts. Some pharmacies, supermarkets, and other retailers offer specials, especially on certain days of the week. The first Wednesday of the month may be senior day at your grocer’s. In many retail outlets, employees aren’t permitted to proactively give the discount because it can offend people to assume they’re over 65. You have to ask for it.

Another option for the resourceful retirees is to consider purchasing used items or even trading goods and services. Social media facilitates such exchanges, with apps like Nextdoor and Freecycle. People use these websites for giving away or trading items. They’re also pretty safe, since you’re dealing with your neighbors.

Be careful online with your credit card information. Before agreeing to any kind of purchase, make certain that you aren’t being signed up for a regular monthly fee or subscription. Seniors are targeted by websites that automatically sign users up that charge their credit cards, and these are usually extremely hard to cancel.

Finally, two of the most common sources of surprise in spending for seniors are dental care and hearing aids. Look for state dental associations to find free programs. Some dental colleges offer 50% to 75% off regular rates at practices.

Hearing aids are complex, expensive devices that often need customization. One option is a “pocket talker” for around $125. This can save in excess of $1,000 in hearing aid costs.

Reference: MarketWatch (September 5, 2018) “Retirement isn’t a permanent vacation: Don’t spend your free time spending”

 

Do I Have to Report the Value of a 529 Plan on My State Taxes?

Do I Have to Report the Value of a 529 Plan on My State Taxes?

“Certain kinds of beneficiaries may owe the New Jersey inheritance tax.”

Does the value of a 529 plan need to be reported on the New Jersey state inheritance tax filing?

That was the question asked in nj.com’s recent article, “Does a 529 plan become part of someone's estate? Is inheritance tax due?”

A 529 plan is an investment account created pursuant to Section 529 of the Internal Revenue Code and state law. At first, 529 plans were a popular way for families to put away funds for college or other post-secondary educational expenses. The recent 2017 Tax Act has now broadened the plans’ scope to include saving for elementary and high school education.

The short answer is no, 529 plan earnings need not be reported on taxes. These plans are exempt from income tax, if they’re used for qualified education expenses. This includes tuition, fees, books, supplies, equipment, along with room and board at eligible institutions.

Any distributions for anything other than qualified education expenses, will result in the earnings being taxed to the recipient with a 10% penalty.

A contribution to a 529 plan is deemed to be a gift by the contributor to the beneficiary, despite the fact that the custodian on the account can withdraw the funds in the account, subject to tax consequences.

The custodian may also transfer all or some of an account to another beneficiary without tax consequences, but that subsequent designated beneficiary must be a member of the prior beneficiary's extended family, as defined in the Tax Code.

As far as estate taxes are concerned, an interest in a 529 plan typically isn’t included in a decedent's gross estate for federal estate tax purposes.

However, there are some exceptions to this rule.

In addition, an interest in a 529 plan may be subject to any state inheritance tax. For example, in New Jersey, the general rule is that the plan is subject to state inheritance tax, unless the relationship between the owner/custodian and the beneficiary is very close—only Class A, which includes grandparents, parents, spouses, descendants or stepchildren.

Reference: nj.com (October 19, 2018) “Does a 529 plan become part of someone's estate? Is inheritance tax due?”

 

What’s the Latest on the Fight Over Glen Campbell’s Estate?

What’s the Latest on the Fight Over Glen Campbell’s Estate?

“A recently appointed administrator in the estate of singer Glen Campbell is disputing more than $1.3 million in claims filed by his widow Kimberly.”

Several motions have been filed in Davidson Probate Court in Tennessee, where Blaine H. Smith has challenged five separate claims filed by Kimberly Campbell, singer Glen Campbell’s widow and the administrator of the estate.

The Tennessean’s recent article, “Glen Campbell estate administrator disputes $1.3 Million in claims filed by widow,” reports that the items challenged, include funds spent to place Campbell in an assisted living facility in the months before his death in the summer of last year.

Smith was appointed in September by Probate Court Judge David Randy Kennedy as a special administrator to examine the five claims submitted by Kimberly Campbell, since the estate was opened in 2017. Smith says that several of her claims are defective. They include a $330,000 filing for medical expenses for Campbell, who died following a long battle with Alzheimer's disease. The largest single claim challenged was for $506,000. A $300,000 claim was also disputed. That claims seeks reimbursement to pay off a mortgage held on a California property, which has since been sold.

Smith also noted that one of the claims Campbell’s widow filed was for a $175,000 payment made from a joint checking account with her husband. The special administrator said that Kimberly may be eligible for partial reimbursement—not the entire amount.

With another claim, Smith's motion said that the filing looked to be inconsistent with a spreadsheet submitted to document and support the claim.

There are other objections for claims of unspecified items charged to a credit card "with no particularity."

In other recent actions in the Glen Campbell estate, a new probate attorney, David J. Callahan of Nashville, entered an appearance for three of Campbell's children. The three are disputing the will filed by Kimberly, which specifically excludes the three from any inheritance.

Their prior attorney, Christopher Fowler, withdrew in September.

Probate Court Judge Kennedy also approved the payment of $16,000 to an expert hired to estimate the future value of Campbell's song royalties.

A hearing has been scheduled by the probate judge for late November on Smith’s claims.

Reference: The Tennessean (October 18, 2018) “Glen Campbell estate administrator disputes $1.3 Million in claims filed by widow”

 

How Do I Receive an Inheritance Wisely?

How Do I Receive an Inheritance Wisely?

“Receiving an inheritance is helpful, but don't let the potential tax bill surprise you.”

The way in which spouses and other heirs go ahead and withdraw the funds from inherited IRAs or 401(k)s can have big tax implications, according to U.S. News & World Report’s recent article, “Tax-Savvy Ways to Manage an Inheritance.”

Receiving an inheritance from a deceased relative means there may be some complicated tax repercussions. Spending that money quickly or thoughtlessly can also result in an unexpectedly high tax bill. Let’s look at how heirs can make sure they're thinking about taxes when benefiting from an inheritance, with some tax-savvy ways to manage inherited wealth.

IRAs or 401(k)s. If a deceased relative, spouse, or friend passes along an IRA or employer retirement savings account, you should understand how it will be taxed. The options for the account are based on your relationship to the deceased person. A spouse may be able to roll the funds into their own account. That’s an option that other beneficiaries don't have. A spouse can also open an Inherited or Beneficiary IRA account. This account has both partners' names on it. A young spouse can withdraw funds, without getting hit with the 10% early withdrawal penalty.

Other heirs of the benefactor, such as a child, nephew, niece, or grandchild, don't have the option to deposit the money in their own retirement account. However, they can hold it in an Inherited IRA account. Once they decide how to deposit the money, the rate at which spouses and other heirs decide to withdraw the funds can have significant tax implications. If they decide to take out all the money in a lump sum, they may experience a "double whammy" tax bill. That’s because for a traditional IRA, the lump sum would be treated as taxable income. Beneficiaries could pay roughly 40% in taxes if they live in a state that charges income tax. It also could push them into a higher tax bracket, causing them to pay more taxes on their regular income.

The better move for heirs is to spread out the distributions over their lifetime. This is often called a "stretch IRA," because it allows investors to stretch out the time during which earnings can grow.

The specific rules regarding how beneficiaries manage Inherited IRAs are determined by whether the deceased person was older than 70½ at the time of death. Generally, heirs who want to keep their tax bill as low possible, must take required minimum distributions (RMDs), based on their life expectancy, within about a year of inheriting the account. They won't see the 10% early withdrawal penalty, but they'll be taxed on the amount they take out. However, the RMDs will generally be smaller than a lump sum and less apt to push them into a higher tax bracket. Recipients who want to take minimum distributions, must take the first one before the required date, or they may be forced to liquidate the account within five years.

Inherited Roth IRAs have already been taxed and don’t have the same tax burden. However, that’s not a good reason to immediately withdraw a lump sum. As long as you take RMDs, IRA funds can stay in the account and grow tax-free.

Stocks or Mutual Funds. An inheritance may also consist of investments outside of a retirement account, like individual stocks or mutual funds. Remember the "step-up basis," which is important to reduce taxes on the sale of these investments. When the owner dies, regardless what they paid for that stock or mutual fund, the cost basis “steps up” to whatever the price of that stock or fund was at the date of death. For example, if a grandfather bought IBM stock for $5 per share, and when he dies, it's worth $100. The heir's basis is the stock’s value when he died, rather than the price at which he bought the stock years earlier. It’s a critical difference when it comes to how heirs calculate and pay capital gains taxes, upon the sale of an asset.

Remember that these assets may have to go through probate. Assets like mutual funds and houses that don’t have a beneficiary designated, may go through probate. This can be avoided with proper planning in advance.

Real Estate. Similar to stocks and mutual funds, an inherited house enjoys a step-up basis. For tax purposes, the cost basis is what the market value was when the benefactor died. Try to have the home appraised immediately after the benefactor's death, to gain an understanding of what the basis is now. If it's not being passed along to a spouse, an inherited house will usually need to go through probate.

Life Insurance. Life insurance is tax-free, but you still need to do good financial planning when deciding how to invest the life insurance payout.

Cash. A cash inheritance isn’t taxable at the federal level. It’s a good reason to start working with an estate planning attorney, so that you use the money effectively and avoid a big tax bill.

Reference: U.S. News & World Report (October 18, 2018) “Tax-Savvy Ways to Manage an Inheritance”

What are the Benefits of an Irrevocable Life Insurance Trust (ILIT)?

What are the Benefits of an Irrevocable Life Insurance Trust (ILIT)?
“The reality is that life insurance is treated as an asset in your estate. If the payout pushes your estate past federal or state estate tax exclusion limits, you could be facing a hefty estate tax bill. There is something you can do, though.”
Many people just assume that all insurance is tax-free. However, that’s only partly true. Life insurance is income tax-free. Therefore, the recipients of a decedent’s life insurance policy don’t have to pay income tax on that amount.
However, Kiplinger’s recent article, “Myth: Life Insurance is NOT Taxable,” explains that if it’s large enough, the decedent’s estate—along with any life insurance proceeds—could be subject to federal and/or state estate taxes.
For instance, if you have a $1 million life insurance policy, the IRS will deem that policy to be an asset. At your death, the IRS sees it as a million-dollar asset you just transferred to your beneficiaries, and taxes it accordingly. That estate tax is usually due upon death, and it can be significant. If you’re wealthy enough to be worried about this, you can avoid having your life insurance proceeds included in your estate and subject to the estate tax, by creating an irrevocable life insurance trust (ILIT). You name that trust the owner of your life insurance. That way, that particular asset will be removed from your estate (if you have had no control over the policy for at least three years). When you die, the proceeds from your life insurance will pass on to your heir’s income tax and estate tax-free.
You may be a candidate for an ILIT, if your estate is in excess of the federal “application exclusion amount” ($11.18 million for single individuals and $22.36 million for couples under the Tax Cuts and Jobs Act of 2017.) The Act sunsets on Dec. 31, 2025. At that point, unless the law is made permanent, the amount will go back to the old $5 million exemption, indexed for inflation.
An ILIT could save your family up to 40% in federal estate taxes. That’s a benefit worth the expense and complexity in setting it up. However, it is important to note that 12 states and DC have their own estate taxes, and their exclusion amounts may be lower than the federal limits.
In addition, an ILIT can help you can avoid tax on both spouses’ estates. Life insurance proceeds can be held in a trust for the benefit of the surviving spouse during her lifetime. When she dies, the proceeds will not be included as part of her estate either. They will pass tax-free to her children and then to her grandchildren, as an ILIT in a multigenerational trust.
It is important to use caution because the IRS scrutinizes ILITs carefully. In order to be certain that your ILIT passes IRS muster, you must:
    · Transfer polices you own to the ILIT, by completing an “absolute assignment” or “change of ownership” form;
    · Relinquish all ownership rights to the trust. You must keep insurance proceeds out of your estate, by doing the following:
                    o Giving up all ownership rights to the policy, such as the right to change beneficiaries, borrowing from cash                         values, and making premium payments;
                    o Sign an annual cash partition agreement to create separate funds from which premiums are paid; and
                    o Maintain a change of ownership in an existing policy for at least three years before the insured's death. (You                         must survive for at least three years after transferring your policy to the trust, or the proceeds will be taxed in                         your estate like you retained ownership of the policy).
Work with an experienced estate planning attorney to set this trust up correctly.
Your family won’t pay income tax on any life insurance proceeds they receive, but if the estate is big enough, they’ll pay estate taxes on the policy, unless you set up an ILIT at least three years before your death.

Reference: Kiplinger (August 28, 2018) “Myth: Life Insurance is NOT Taxable”

If You have a College Degree, You’ll Find It Easier to Work after 65

If You have a College Degree, You’ll Find It Easier to Work after 65
“Close to one in five Americans who’s 65 or older is still working, the highest percentage in more than half a century. The one who’s still working may be better off.”
With more of us waiting a bit longer to retire, research shows that those with a college degree will find it easiest to keep working past 65. Folks who are less-educated, are having a more difficult time staying in the workforce.
The Washington Post’s recent article, “Working past 65? It’s easier to do if you graduated college,” explains that it’s a crucial distinction. This is because experts believe both groups would benefit from working an extra year or more to improve their retirement security. Older Americans who stay at work a little longer are able to increase their savings and they can let larger Social Security benefits accrue. Add to that the fact that many older Americans like the idea of staying engaged by working.
However, less-educated Americans aren’t always able to follow this path. They also typically have less in retirement savings. Many must retire before their mid-60s because of poor health, the inability to do jobs that require a lot of physical activity, or a variety of other reasons.
“If less-educated people were retiring early and comfortable in their retirement years, good for them, but we know they aren’t,” said Matt Rutledge, research economist at the Center for Retirement Research at Boston College. His research shows a widening gap in retirement ages between college and high school graduates. It’s very apparent when looking at the average age of retirement for men. However, the increasing number of women in the workforce in recent decades can skew the overall figures. Men with college degrees are retiring at an average age of 65.7, according to Rutledge’s study based on government data. This is about three years later than men with only high school degrees. That group is retiring at an average age of 62.8.
In comparison, in the late 1970s, the two groups were retiring at nearly the same age: 64.6 for college graduates and 64.1 for high school graduates.
Their ability to earn with or without a college degree, creates a split in retirement savings: the typical households run by someone with a college degree has $116,900 in a retirement account. That’s three times more than the $36,000 median for households run by someone with only a high school diploma.
Health is a big factor in deciding when to retire, and less-educated Americans tend to have worse health as a group than their higher-educated peers. This group is also more likely to be in physically demanding jobs, which are harder to maintain as they get older.
For example, with men age 50 and over, 61% of workers without a college degree have to move heavy loads (or people) as a regular part of their job. That’s more than double the 23% rate of their college-graduate peers, according to researchers at Harvard University, RAND Corp. and UCLA. Lower-educated workers also are much more likely to have jobs that require them to stand all the time, do repetitive hand movements or be placed in tiring or painful positions.
The federal government said recently that 19.2% of everyone age 65 and over was employed, as of September. That’s tied for the highest rate since 1962, and it’s nearly double the level of the mid-1980s.
Another aspect of this, is determining how much in spending money a person will have each year in retirement, if they retire at 62—versus how much larger that number would be if they wait until 67. That amount could be as much as 50% higher in some cases.

Reference: The Washington Post (October 8, 2018) “Working past 65? It’s easier to do if you graduated college”

What’s a QTIP in Estate Planning, and Do I Need One?

What’s a QTIP in Estate Planning, and Do I Need One?
“If you want children from your first marriage to get an inheritance, here's what you should know.”
Second marriages are not uncommon in the US. In many cases, the new spouses have adult children from their first marriages and no children together.
When each spouse dies, they may want his or her children to receive an immediate inheritance with the rest going to the surviving spouse.
nj.com’s recent article, “Second marriage? How to make sure your children get an inheritance,” explains that spouses can leave their assets to anyone they want. They can even leave out their spouse from an inheritance.
In New Jersey, for example, the surviving spouse can choose to receive a third of the estate by filing a complaint in the Superior Court within six months of the appointment of a personal representative of the deceased spouse's estate. This is known in the Garden State as an elective share.
Another strategy is a QTIP or "Qualified Terminable Interest Property." This is a type of trust designed to preserve the marital deduction for estates that may be subject to estate tax. The federal estate tax exemption is $11.2 million per person in 2018. In addition to federal estate tax laws subject to change down the road, some states also have their own state estate tax.
People in second marriages very frequently want to provide for their spouses, when they die. However, they also want to be certain that their own children are able to inherit the remaining assets after the death of the second spouse. This can be done by creating a marital trust for the benefit of the surviving spouse with the remaining assets in the trust going to their children after the second spouse dies. A QTIP may not accomplish the objective of an immediate inheritance for children. An experienced estate planning attorney can review specific situations and determine if a QTIP or other trust would be favorable for a client.
Another option to discuss with an attorney is a postnuptial agreement, where the surviving spouse waives his rights to an elective share or executes wills or trusts that designate assets to children at their death. An attorney can also craft their estate planning documents, so an amount equal to one-third of the augmented estate will go outright to the surviving spouse and have the balance distributed to the children. Finally, spouses may choose to designate their children as beneficiaries on IRAs and insurance policies, instead of the surviving spouse.
Spouses in second marriages should talk to an estate planning attorney to find out the best plan to meet their goals.
Reference: nj.com (October 10, 2018) “Second marriage? How to make sure your children get an inheritance”

New VA Rues for LTC Go Into Effect This Month

New VA Rues for LTC Go Into Effect This Month
“It’s going to be harder for veterans to qualify for a benefit that’s already little known.”
There are some new regulations for the Aid and Attendance program, a service that helps qualifying veterans cover long-term care.
Think Advisor’s recent article, “VA Is Tightening Rules on LTC Benefit for Veterans,” reports that these changes finalized by the Department of Veterans Affairs will place “an asset limit, a lookback period, and asset transfer penalties” for those who apply for VA pension benefits that require a showing of financial need. Aid and Attendance is at the top of the list of those benefits. This program can help veterans who require long-term care.
The program previously had income restrictions to qualify for the benefit, but now the new rules will add more administrative hoops. These new regulations limit veterans to a net worth limit of $123,600—the same as a Medicaid applicant’s spouse may keep. However, this dollar figure includes both the applicant’s assets and income. There are also revisions to policies for qualifying medical expenses to determine IVAP (the veteran’s household income minus all unreimbursed medical expenses).
In addition, the new rules place a three-year lookback period now on applicants. Therefore, if a person has transferred assets to protect themselves within that timeframe, they’ll be penalized by being denied benefits for up to five years. One exception is for transfers to a trust for a child who cannot “self-support.”
There are also new transfer penalties for any gifts and/or transfers that were made at less than fair market value (FMV).
The use of immediate annuities and planning strategies concerning gifting are also being limited.
The new rules went into effect on October 18.
Veterans should talk to their estate planning attorneys about any pending planning strategies and have them re-evaluated, in light of these rule changes. The report says, “The VA will disregard asset transfers made before that date. Applicants may still have time to get through the process before the rules are in place.”

Reference: Think Advisor (September 26, 2018) “VA Is Tightening Rules on LTC Benefit for Veterans”

Why Does Stormy Daniels Have a Nuncupative Will?

Why Does Stormy Daniels Have a Nuncupative Will?
“Daniels’s recording is an oral will, also known in the law as a nuncupative will.”
Stormy Daniels recently released her memoir, Full Disclosure. The book delivers Daniels’s vivid narrative of her 2006 Lake Tahoe meeting with President Trump and the drama that ensued from her signing of a Non-Disclosure Agreement before the 2016 election.
Daniels’ book unintentionally provides a lesson in trusts and estates, says Above the Law’s recent article, “Stormy Daniels’s Oral Will: Nuncupative Wills Make For Risky Estate Planning.”
The final chapters of her book tell of her great fears after The Wall Street Journal’s January 2018 reporting of a Non-Disclosure Agreement that she later argued in federal court was invalid. She appeared on news shows and many articles were written about her relationship with the President.
After she received threats against her and her daughter, Daniels made her friend record a video in which she directs the disposition of her estate at her death. She refers to the recording as her last will and testament, writing that she was “never so direct about anything” in her life and that she had “the clear-eyed vision of a person about to die.” The recording shows detailed information about her life insurance policy and specific distribution instructions. She also gives instructions for the care of her horses—Daniels directs the sale of one horse, so that the proceeds can be used for the care of her daughter.
The recording she made is an oral will—also known as a nuncupative will. An oral will is rarely enforceable in a court of law, but there are a few specific exceptions. One is when a written will is nearly impossible to execute. Oral wills create issues, because they raise questions as to authenticity and fraud. In California and Texas, where Daniels lives, oral wills aren’t admissible for probate. In New York, these wills are permissible in some situations, like when it’s made by a member of the armed services in active duty during a war or a seaman at sea.
Wills, as opposed to many other legal documents that can be valid with an e-signature, must have original signatures and in-person witnesses. A handwritten will, also called a holographic will, is generally unacceptable, except in certain limited circumstances.
When executing a will, each state has a list of specific requirements, including that the testatrix (testator) makes certain statements as she signs the document, and witnesses attest to her ability to execute the document. Validity issues frequently are dependent on the disposition of a testatrix, the testimony of the witnesses and the strength and character of the testatrix’s signature. To offer a will for probate, the original document with a real signature must be filed with the probate court.
Daniels, as an artist, opted to record her final disclosure, even though her imminent fear of danger prompted the recording. Her actions show us that we shouldn’t wait until an emergency to think about estate planning. With her many irons in the fire and court cases, Daniels should properly prepare and execute her last will and testament, this time, on paper and with the help of an experienced estate planning attorney.

Reference: Above the Law Advisor (October 10, 2018) “Stormy Daniels’s Oral Will: Nuncupative Wills Make For Risky Estate Planning”

How to Pass Heirloom Real Estate to Your Heirs

“Some assets require special estate planning strategies and a lot of thought. One such asset is what I sometimes call heirloom real estate, or family real estate.”

Heirloom real estate is a property that’s been in the family for some time and that one may want to keep in the family. This includes vacation homes or other second homes, farms, a longtime residence, but not business or investment properties.

Forbes’ recent article, “How To Transfer Heirloom Real Estate,” notes that, as the senior generation ages, heirloom real estate can be the place where many generations get together at least once a year, usually around a holiday. As families spread around the country or world, the family real estate can become the one tie or source of stability and continuity for the family.

To maximize the chances that the property will stay in the family and help keep the family together, you have to give the details some thought and work with your family members and an estate planning attorney. Most people think to leave the real estate in their wills to their children jointly, much as they do with the rest of their estate. However, that is usually not a wise strategy for heirloom real estate.

If the property is in a different state than where you reside, your estate will have to be probated in two states. The state where you reside will control the probate of most of your estate. However, the real estate is probated in the state where it is located. You can avoid that second probate by having the property owned through a trust, limited liability company (LLC), or other entity.

Maintenance and other routine expenses often become problems, because each sibling has to agree to pay a share of these expenses. Some expenses are mandatory, like real estate taxes, but other expenses can be discretionary.

Typically, at least one sibling will want to sell the property, while others don’t. In some instances, when the other siblings don’t want to sell but aren’t able to buy the other sibling’s share, one of the siblings will try to sell her share to an unrelated person. Joint ownership also creates issues, when one of the owners divorces or passes away, because the death of a co-owner raises the issues of whether that owner’s share goes to the surviving co-owners or the heirs of the deceased.

A limited liability company (LLC) may be the best choice. It provides the liability shield of a corporation with the operating and tax flexibility of a partnership. If you chose an LLC or other entity as the best option, the parents who currently own the property should create the entity right away: they’ll be the original owners of the LLC and set up its operating rules. They then can give or sell ownership interests to the children, or they can hold the LLC for life and leave its ownership to the children through their estates. The parents set up rules for sharing and maintaining the property that can be implemented on a trial basis, while the parents are alive. Changes can be made as needed.

An important feature of the LLC is that it can keep the property from being sold outside of the family. The LLC bylaws can prohibit any owner from selling her shares to someone not in the family. The bylaws can also create a process for one member, or other owners, to sell to the LLC and provide a formula for determining the price and payment terms.

The LLC won’t resolve all of the cash flow and money issues. The co-owners must still be willing and able to finance continuing ownership of the property. One way to address money problems is for the parents to leave a cash fund or a life insurance policy to the LLC that will cover some or all of the ownership costs for a period of time. It might also provide a way for the other owners to buy out the interest of anyone who wants to sell.

This can also be a great tax planning tool, when an estate is possibly subject to federal, state, or inheritance taxes. Giving shares of the LLC and establishing minority ownership interests can decrease the value of the property for tax purposes.

You can take these actions to make sure your family property remains heirloom real estate but have frank discussions with the next generation, so it understands the full picture and its members are interested in retaining the property. Seek the counsel of a qualified estate planning attorney, when you’re ready to create the LLC or other entity.

Reference: Forbes (August 19, 2018) “How To Transfer Heirloom Real Estate”