King & Wood, P.A.

How Do I Best Pass My Car to My Heirs?

How Do I Best Pass My Car to My Heirs?

“Steps to take so there is no delay in passing a car to your heirs.”

A recent nj.com article asks, “What is the best way to pass a car to your heirs when you die?” The article explains that, as far as estate planning is concerned, a car is considered personal property. A car can be transferred by a specific mention of it in a will or just by the general reference to “personal property.” The only exception is if it is a collectable, in which case the auto will need a specific reference.

Typically, the executor of the estate (if there’s a will) or the administrator (if there’s no will) would either:

• Execute the bill of sale and the old title to sell the car to a third party; or
• Execute the old title to transfer the car to the person who inherits it in the will.

The executor should have an original document provided by the probate court that shows the executor's authority to act on behalf of the estate. This is called Letters Testamentary. If there is an administrator, Letters of Administration will also be required and should be given to the new owner.

However, if the car is owned by both a husband and wife or by civil partners, the transfer can be made in New Jersey, for example, by sending a copy of the death certificate, the old title, and an affidavit supplied by the Motor Vehicle Commission confirming the status of ownership and the co-owner's death, without the need for Letters Testamentary or Letters of Administration.

If the estate is small, under $50,000 in the case of the car passing to a spouse/civil partner or under $20,000 where the car passes to another heir, the documents required by the New Jersey Motor Vehicle Commission will include an Affidavit of the Spouse or Next of Kin, as filed with the probate court rather than Letters Testamentary or Letters of Administration, in addition to the old title.

To complete the transfer, the transferee will also need the odometer reading on the vehicle, the transferee's driver's license, her insurance information and payment of the fee charged by the Motor Vehicle Commission.

Because it’s so easy to transfer a motor vehicle, there’s no reason to put a vehicle in a trust prior to death. That’s only going to possibly increase insurance rates. Likewise, transferring the vehicle to a different owner prior to death, again could increase insurance rates.

However, there are several things that could cause a delay in the transfer of the vehicle's ownership. For instance, there could be a lien on the vehicle for an auto loan that would have to be paid before the car could be transferred. There also could be inheritance or estate taxes or other creditor claims that would need to be addressed, before a distribution can be made.

Delays could also occur, if there is a disagreement among the beneficiaries as to whom should receive the vehicle in distribution. There could be delays, if there's difficulty obtaining a duplicate title, because the old title can't be found. Finally, a family member may not be able to address the administration of the estate or not dispose of an asset, because of grief caused by the death of their loved one.

Reference: nj.com (November 13, 2018) “What is the best way to pass a car to your heirs when you die?”

What are the Estate and Gift Tax Limits for 2019?

What are the Estate and Gift Tax Limits for 2019?

“The Internal Revenue Service announced today the official estate and gift tax limits for 2019: The estate and gift tax exemption is $11.4 million per individual, up from $11.18 million in 2018. That means an individual can leave $11.4 million to heirs and pay no federal estate or gift tax, while a married couple will be able to shield $22.8 million. The annual gift exclusion amount remains the same at $15,000.”

Forbes’ recent article, “IRS Announces Higher 2019 Estate And Gift Tax Limits,” explains that for the very rich, these new limits are planning opportunities.

For the rest of us, they’re a reminder that even if you don’t have a taxable estate, you still need an estate plan.

The Trump tax cuts severely reduced the number of estates that will be subject to the federal estate tax this year. The tax reform doubles the exemption amount from a base level of $5 million per person.

There were just about 1,890 taxable estates in 2018, according to the Tax Policy Center, compared to 4,687 taxable estates in 2013 with a base $5 million exemption. There were 52,000 taxable estates in 2000, when the exemption was $675,000.

An unlimited marital deduction lets you leave all or part of your assets to your surviving spouse free of federal estate tax. However, to use your late spouse’s unused exemption (known as “portability”), you must elect it on the estate tax return of the first spouse to die—even when no tax is due. The issue is, if you don’t know what portability is and how to elect it, you could be surprised with a huge federal estate tax bill. That should be part of your conversation with your estate planning attorney.

If you live in one of the 17 states or DC that impose separate estate and/or inheritance taxes, there’s even more at risk. Death taxes sometimes start with the first dollar of an estate.

Several states planned to match the federal exemption amount for 2018. However, state legislators thought that the new doubled exemption was just too high.

Most states haven’t released their inflation-adjusted numbers yet for 2019.

Reference: Forbes (November 15, 2018) “IRS Announces Higher 2019 Estate And Gift Tax Limits”

Should I Give Access to My Checking Account to My Adult Son in Case of an Emergency?

Should I Give Access to My Checking Account to My Adult Son in Case of an Emergency?

“Setting up joint accounts between parents and children may seem like an effective way to prepare in case of emergency or if people need help with finances as they get older, but it can cause some big tax and estate problems. Here's a dual strategy to consider instead.”

It's not uncommon for an elderly parent to go to the bank to add a child to his or her bank account “in case something happens to me.”

The reason why most parents do this, is to give their child access to their money during an emergency. It sounds like it should be a pretty easy process. With proper planning, it can be. However, parents should know that simply making a child the joint owner of a bank account (or investment account or safe deposit box) can have unintended consequences. Sometimes this isn’t the best solution during a family crisis.

As Kiplinger’s recent article, “The Trouble with Joint Bank Accounts 'Just in Case'” explains, the vast majority of banks set up all of their joint accounts as “Joint with Rights of Survivorship” (JWROS). This type of account ownership typically says that upon the death of either of the owners, the assets will automatically transfer to the surviving owner. However, this can create a few unexpected issues.

If Mom’s intent was for the remaining assets not spent during the family crisis to be distributed by the terms of a will, that’s not happening. That’s because the assets automatically transfer to the surviving owner. It doesn’t matter what Mom’s will says.

Remember that adding anyone other than a spouse could create a federal gift tax issue, depending on the size of the account. Anyone make a gift of up to $15,000 a year tax-free to whoever they wish, but if the gift is more than $15,000 and the beneficiary isn’t the spouse, it could trigger the need to file a gift tax return.

For example, if a parent adds a child to their $500,000 savings account, and the child predeceases the parent, half of the account value could be includable in the child’s estate for state inheritance tax purposes, like in Pennsylvania. The assets would transfer back to the parent, and, depending on the deceased’s state of residence, state inheritance tax could be due on 50% of the account value. In Pennsylvania, the tax would be 4.5%, which would mean a state inheritance tax bill of more than $11,000.

However, if Mom’s intent in adding a joint owner to her account is to give her son access to her assets at her death, there’s a better way to do it. Most banks let you structure an account with a “Transfer on Death,” or TOD. With a TOD, if the beneficiary passes before the account owner, nothing happens. There’s no possibility of a state inheritance tax on 50% of the account value. When the account owner dies, the beneficiary has to supply a death certificate to the bank, and the assets will be transferred. These assets are transferred to a named beneficiary, so the time and expense of probating the will are also avoided, because named beneficiary designations supersede the will. This is the same for pensions, IRAs and life insurance policies.

Setting up an account as TOD doesn’t give the beneficiary access to the account, until the death of the account owner. Therefore, the change in titling isn’t considered a gift by the IRS, which eliminates the potential federal gift tax issue.

There’s no such thing as a joint retirement account because IRAs, 401(k)s, annuities, and the like can only have one owner—it’s not possible to make someone a joint owner. However, if a parent becomes incapacitated, they still often would like their child to have access to all their assets, in addition to their bank accounts. The answer for these is a financial power of attorney. This is a document that lets one or more people make financial decisions on your behalf. This document should be drafted by a qualified estate planning attorney.

It is important to understand that many financial institutions require a review process of a financial power of attorney appointment. The bank’s legal department may want to review the document before allowing the designated person to make transactions. This can take several weeks, so be sure that all financial institutions where you have accounts have a copy of your executed financial power of attorney. Have it in place before it’s needed.

Talk to your estate planning attorney about what you’re trying to do and let her guide you. Planning in advance will make things much easy for your loved ones, in case of an emergency.

Reference: Kiplinger (November 14, 2018) “The Trouble with Joint Bank Accounts 'Just in Case'”

Can I Do a Transfer on Death (TOD) Registration for Certificates of Deposit and Investment Accounts?

Can I Do a Transfer on Death (TOD) Registration for Certificates of Deposit and Investment Accounts?

“What you need to know about registration of certain investments.”

A transfer on death (TOD) designation lets the beneficiaries of an account receive assets at the time of the person's death, without going through probate. This also lets the account holder or security owner specify the percentage of assets each designated beneficiary receives. With a TOD registration, the named beneficiaries don’t have any access to or control over the account when the person is alive.

However, is a Transfer on Death (TOD) registration allowed for Certificates of Deposit and investment accounts? If so, what’s the process?

nj.com’s recent article asks, “Does New Jersey allow a "Transfer on Death" registration for these investments?” Apparently, in New Jersey, Transfer on Death designations can be made on CDs and investment accounts.

Sometimes confusion can arise about "sealing" or "freezing" the account.

Accounts that are probate assets—which are those in the decedent's name alone with no co-owner TOD designation—are “frozen” until the will is probated. The beneficiaries can’t access those funds, until the probate judge signs off and allows the executor to move forward and disburse the funds. However, when the executor is appointed, he can open an estate account and access the frozen account.

That can happen within two weeks of death, if the will is probated immediately. In that case, fund access for funeral expenses can happen right away. The executor will frequently pay the funeral home with a credit card and then get appointed executor and access funds, before he has to pay the credit card bill.

However, again in New Jersey, some of the account can be frozen for a longer period, because of the state’s tax waiver system. Half of the account is frozen by law, until the state issues a tax waiver releasing its lien on accounts with New Jersey financial institutions and on New Jersey real estate.

The waiver is accomplished by filing a tax return and paying the tax (if any), or in some instances, a form of affidavit can be filled out and sent to the financial institution and the entire account will be immediately released to the executor.

The tax waiver system also applies to TOD accounts, but not to trust accounts. So making a CD a TOD account, doesn’t avoid the tax waiver system. Half of that account could still be frozen.

Speak with a local estate planning lawyer to find out how to move assets to heirs through the use of TOD accounts in your state. They may not work for every account you want, but they may have a useful role to play in your estate plan.

Reference: nj.com (November 12, 2018) “Does New Jersey allow a "Transfer on Death" registration for these investments?”

Should I Get Disability Insurance?

Should I Get Disability Insurance?

“Disability insurance can help protect your salary, if you are sidelined from work because of a health issue. Many individuals tend to skim over the details of this coverage during open enrollment, leaving them and their loved ones vulnerable.”

One in four adults will become disabled before reaching retirement age, according to the Social Security Administration.

CNBC’s recent article, “1 in 4 workers run into this career derailment, but you can protect yourself,” notes that about 20.1 million adults of employment age have suffered a work disability. Research published by the National Institutes of Health found the common causes to include back or neck problems, depression, anxiety or other emotional issues and arthritis or rheumatism.

When you're suffering from these issues and can’t work, disability insurance can help you bridge the pay funding gap. When going through open enrollment, some people’s patience also runs out after choosing their 401(k) solution, their health-care solution, or their health savings account and they forget about disability insurance.

You may also purposely avoid disability coverage, because of the cost. Disability insurance is frequently more expensive than term life insurance. However, think of it this way: the chances of missing six to nine months of work because of a car accident or other mishap are exponentially higher than dying prematurely, if you’re younger.

Long-term disability usually starts after three to six months and costs around 1-3% of a worker's annual salary. For most people who are covered through their employer, that policy typically replaces about 60% of their income. That may not be enough coverage, and you may consider purchasing another disability policy.

To see if you have enough disability coverage, look at your income, particularly the cash coming in and the cash going out. If you do become disabled, your costs could go up with additional child-care or medical expenses.

If you’re disabled, you don’t want to tap into your emergency or retirement savings. Look at how much you’re saving toward retirement, when estimating how much income you will need. Also keep in mind the number of people who’ll be affected, if your cash flow takes a dive.

If you decide you want more income protection, your employer may let you buy more coverage. If you’re self-employed, you may be able to get coverage through a professional association. You could also buy a policy on your own, but doing this on your own can be more expensive because group plans can spread the risk out among employees.

Reference: CNBC (November 11, 2018) “1 in 4 workers run into this career derailment, but you can protect yourself”

 

Spotlight on Fiduciary Litigation at King & Wood, P.A.

    As part of its elder law practice, our law firm handles fiduciary litigation involving wills, trusts, probate estates, guardianships, and elder exploitation.  Distinguished Louisiana trial lawyer James Gibson (right) appeared as co-counsel with Kim King and Ray Mazzie during a court hearing in a trust case Wednesday.  Afterward, Kim and his wife, Lyla (left), showed our firm’s friend and guest that Tallahassee has much to offer after the courthouse closes.

What Estate Planning Mistakes Should I Avoid After a Divorce?

What Estate Planning Mistakes Should I Avoid After a Divorce?

“According to a report from UBS Global Wealth Management, 56% of married women leave control of major financial planning and investing decisions to their spouses.”

Divorce can be a very difficult time and a big change for most people. However, women, in particular, often realize that they’re impacted most by the financial aspects of divorce. As a result, it’s no shock that many women find themselves financially overwhelmed when divorcing.

Forbes’s recent article, “The Top Estate Planning Mistakes Divorcing Women Make,” notes that even though you may be dealing with a lot of emotion at the start of a divorce, it's important to focus on certain issues, like your inevitably changing financial situation. This is especially important, if you have children. You may be busy taking care of many aspects of your immediate financial needs, but this is also the time to consider your future as well. It's never too early to address this often-overlooked task and learn how to protect yourself (and your children), while avoiding these estate planning mistakes that divorcing women commonly commit.

Reviewing Your Will. When you divorce, your will should be reevaluated and updated. If your spouse was named as a beneficiary on any accounts, you may want to make changes to those.

Reviewing the Children's Guardianship. If you don’t name a guardian, there's no knowing who gets custody of your children if you were to die. If you and your spouse already created a guardianship plan before you divorced, and you now have custody, review this plan. That’s because the appointed guardian may be one of your former spouse's family members. This may be someone with whom you’re no longer comfortable.

Failing to Plan for All Assets. You may be entitled to some of your former spouse's deferred savings plans, like a 401(k), IRA or other eligible savings plan. After you've claimed your share, be sure to designate beneficiaries (such as your children) for these plans.

Failing To Incorporate Trusts Into Your Estate Plan. A trust can help to protect your assets (and have them distributed according to your wishes) in certain circumstances. Creating a trust can ensure that your money still goes to whom you want after you pass. Trusts can also be used to defer asset distributions, until your minor children are legal adults.

No Planning Whatsoever. The biggest estate planning mistake a person can make is not having a plan at all. When someone dies without a will or estate plan, their assets go through probate. Your children, grieving your loss, will have to spend a great deal of time and money on this process. State law will determine who inherits assets, when there is no will or estate plan in place. The final decision may also end up being against your wishes. Estate planning may be the last thing on your mind right after a divorce, but it's important to make it a priority.

Not Using an Estate Planning Attorney. Many women new to the estate-planning process make the mistake of going at it alone. It’s critical to get the help of an experienced estate planning attorney. Without the help of a professional, you may overlook important aspects of the estate-planning process.

Reference: Forbes (November 8, 2018) “The Top Estate Planning Mistakes Divorcing Women Make”

What’s the Best Way to Make a Donation for My Taxes?

What’s the Best Way to Make a Donation for My Taxes?

“’Tis the season for giving, and one of the best ways to feel good while making a difference in the world is to donate to charities.”

The way that you donate can significantly impact your tax bill—especially with the tax reform legislation passed last year.

The Los Altos Town Crier’s recent article, “End-of-year checklist spotlights tax-smart charitable giving,” provides some strategies to ponder. However, you should talk to your estate planning attorney to determine how these strategies apply to you.

Appreciated assets. With a strong stock market, some of today’s most effective donations are appreciated assets like stocks and property. The charity that gets the donation can sell the asset and get its full dollar value. At the same time, you receive a tax credit for that same amount. This gives the charity much more than if you were to first sell your stock, pay capital gains tax and then donate the remainder. In addition, this strategy may have a secondary benefit, since it can also save the frustration of spending time researching the cost basis of a stock you may have received as a gift or through company mergers and spinoffs, if the stock lineage is hard to track. However, if you donate these shares, a tax credit can be claimed for the full current value, and you don’t have to worry about calculating the cost basis.

Qualified charitable distributions. If you’re 70½ or older, you can distribute up to $100,000 directly to charity from your IRA, which might meet most or all of your required minimum distribution. The amount doesn’t need to be reported as income.

Donor-advised funds. Contributions to these funds give you an immediate tax deduction, while letting you to give over time to nonprofit U.S. organizations. You can open a donor-advised fund with cash, securities, or property. These funds are simpler and less expensive to set up and manage than a private foundation. They’re a good way to teach children about philanthropy. Donor-advised funds are also a wise estate-planning vehicle for establishing a permanent philanthropic legacy for you and your family.

With last year’s tax reform, many donors are also now using donor-advised funds to collect additional tax deductions by “bundling” charitable gifts. This applies to the increased standard deduction, which jumped to $12,000 for individuals and $24,000 for married couples filing jointly. To do this, multiple years of charitable deductions are donated at the same time to a donor-advised fund.

Vehicles, such as charitable remainder trusts and charitable gift annuities, let you to get a tax deduction now for a charitable gift, while giving you income during your lifetime. They can also be very helpful estate-planning tools.

Reference: Los Altos Town Crier (November 7, 2018) “End-of-year checklist spotlights tax-smart charitable giving”

How Do I Protect the Identity of my Deceased Spouse?

How Do I Protect the Identity of my Deceased Spouse?

“After someone dies, there's a lot to do in order to with finances and making sure that no one steals the dead person's identity.”

When a senior passes away, there are frequently questions about the type of benefits from Social Security that are available to her husband (especially when the wife’s benefit was larger than his).

Along with this, questions arise about the protective measures to take to protect her identity from being stolen and other legal measures that are needed after the death of a spouse.

nj.com’s recent article, “A to-do list for widows, and how to protect the identity of a dead loved one,” says that when a loved one dies, there’s a lot you can do to protect their identity.

As to the widower’s Social Security benefits, he’s entitled to the greater of his benefit or her benefit, whichever is higher. It’s good reason to plan your Social Security benefits for when you retire.

While some say it doesn't matter if a deceased person's identity is stolen, it can be an issue. There are several things you should do when someone dies.

First, the executor should contact Social Security and inform the agency of the wife’s death. Next, contact the three credit bureaus to also tell them, and ask that they put a freeze on her credit. To do this (and most of the other actions here), the executor will need copies of the death certificate and letters testamentary to wrap up the finances. The executor should then inform the wife’s attorney and/or tax preparer, as well as all her investment custodians and financial institutions.

If she had a non-qualified (non-retirement) account, there should be a step-up in basis on at least 50% of the account and possibly 100%, depending on the circumstances. In either case, the executor should obtain the fair market value of each of the investments as to the date of death right away. This should be immediately mentioned to both the accountant and the attorney. Make certain that the investment custodians increase the cost basis, as needed. If there’s an IRA, there are options, and for a spouse, the account can be treated as a rollover IRA or an inherited IRA. Note that an inherited IRA requires minimum distributions annually but doesn’t impose a 10% penalty on withdrawals.

Another step is to look at any life insurance policies. If the deceased had a will and trust, the executor should talk to an estate planning attorney to understand where the assets are going. Taxes should be estimated to determine if any changes need to be made to withholding or estimated tax payments.

Last, the surviving spouse/beneficiary should sign proper forms for all brokerage accounts and new account forms to indicate the new ownership and title.

Reference: nj.com (November 6, 2018) “A to-do list for widows, and how to protect the identity of a dead loved one”

What Does Irrevocable Really Mean?

What Does Irrevocable Really Mean?

“When it comes to implementing an estate plan, the word irrevocable is commonly part of the conversation. While it may sound scary to do anything irrevocable, in estate planning there are several instances where it may make sense.”

The Patriot Ledger’s recent article, “Sometimes irrevocable is good,” explains that the first situation where an irrevocable trust may be wise, is for asset protection purposes. When assets are passed outright to heirs, there’s no control, and heirs can do whatever they want. You may have a child that can’t handle her money. You may also have a son-in-law that you’re not crazy about. If you leave your assets outright to your daughter, they may become jointly owned with your son-in-law. If your daughter dies prematurely, the assets would be the sole property of your iffy son-in-law.

However, if those assets were left to your daughter through an irrevocable trust, the assets would be under the control of a trustee you select for the benefit of your daughter only. The trustee could be a professional or another trusted family member. You can even add terms in the trust that allow the daughter’s beneficiary to change trustees, in case there’s a falling out later in life between the trustee and the beneficiaries. The trust may include liberal terms to allow for distributions for the beneficiaries and others at the trustee’s discretion.

Another spot where irrevocable may be ideal is with life insurance, because life insurance owned or controlled by the insured may be include-able in the decedent’s estate. It depends on the size of the policy and the estate. For federal purposes, the death tax threshold is $11.18 million per individual. However, some states have their own estate tax. For example, in Massachusetts, the state death tax begins when assets (including the death benefit of owned life insurance) hits $1 million per decedent.

However, if the life insurance policy is owned by an irrevocable trust with an independent trustee other than the insured, the policy may not be included in the insured’s estate for tax purposes.

Irrevocable also makes sense, when gifting a business or investment real estate to children or minors. To avoid or reduce estate taxes, many wealthy families frequently delay in making gifts to the next generation.

If minority interests in businesses or business real estate were to be gifted via an irrevocable trust or other entity, the assets could be protected from creditors of the minority owners. This also precludes the minority from spending all the money, affecting the management or operations of the underlying business or getting any distributions from the business or the trust.

If you’re interested in an irrevocable trust, work with a seasoned estate planning attorney.

Reference: The Patriot Ledger (November 2, 2018) “Sometimes irrevocable is good”