Tag Archives: Estate Tax

Estate Planning Docs Part 2 – Trusts

Last Monday we replayed Part 1, here in our post, one week later we wanted to re-roll out Part 2 of this all important Document review, checklist and explanation – Enjoy!

Trusts, in our opinion are most helpful for organization, directives for minors, and very useful in avoiding Estate Taxes, just to name a few.

Estate Tax Review

Estate taxes are the tax that is incurred upon the final death of an estate member. Unlike Federal taxes, Estate taxes are accessed on the TOTAL VALUE of all assets less liabilities. Currently these taxes begin just under $5.5 million for a single person and if done correctly can be double ($11 million total) for married couples. Above these total amounts, the tax rate quickly gets to 40%. For this reason, the popularity and needs of many of the following Trusts have grown and will continue.

Trusts – All Type ReviewLivingTrustEstatePic

Over the last several years we have grown warmer to the use of Trusts. Residing in Texas, a low cost probate state, Trusts frequently have lessor place in the Estate plan. However, we are finding more and more uses for them, and as such wanted to have a detailed list of the various Trusts – This is the second, and more deep dive to our original Estate Planning Doc Summary.

Revocable Trust – By far the most common and most commonly misunderstood Trust of the bunch. Revocable means it can be changed at the grantors request. Due to this fact, there is very little tax or liability avoidance. The key positive for this trust is organization, especially over state borders. In high probate cost states may prevent substantial probate costs.

Testamentary Trust – Trust that is usually embedded in a Will and is created upon the grantors death. Testamentary trusts can take many forms, but are a key aspect of Estate planning for minors, estate tax, and generational transfers. It has virtually no existence until the grantor passes away.

Irrevocable Trust – The Hulk of Trusts. Being Irrevocable, once established and funded, this Trust is a beast. Estate tax, liability, inheritance are just a few items that can be addressed with an Irrevocable Trust. The biggest issue of this type of trust is it what makes it a beast, Irrevocable … once you put assets in it, there is no turning back. Careful use is advised.

QTIP Trust : Qualified Terminal Interest Trust – Most common set up by Grantor to give direction to assets beyond the spouse. Frequently used in second marriages to protect children from a prior marriage. Created and resides most frequently in a Will.

Credit Shelter/A:B Trust – Type of trust that is used to help minimize Estate taxes by maximizing the first person in a married couples Estate tax exemption upon death commonly resides in a Will. Can give directives to eventually end up to a non-spouse beneficiary, but living spouse maintains control during lifetime.

GST or Generation Skipping Trust – This handy estate planning trust gives relief to Grantors by jumping a generation and essentially skipping the Grantors children and passing to the grandchildren. Income may be distributed to the children, but the ultimate beneficiary will be the grandchildren. Under current law there is Estate tax relief from this trust.

ILIT : Irrevocable Life Insurance Trust – This trust is very useful in getting life insurance proceeds out of a Grantors estate. While life insurance is free from Federal taxes in most cases, proceeds are included in an Estate for Total Estate Tax purposes. Done correctly, the ILIT trust can limit most if not all of the proceeds from an estate and thereby estate taxes.

Pat yourself on the back (especially if you are still awake and made it this far.) With a reasonable understanding of these types of trusts, you now have deep knowledge of the types of Trusts available. Reach out if you have any questions.

Have a Great Day!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
www.jkfinancialinc.com
www.street-cents.com

High points of the Tax Reform Announcement due out today… Our favorite and least favorite

So we finally get through Tax Season, sunset the tax discussions until next year, and along comes an announcement that tax reform plans are due out today.

Keep in mind, no one knows for sure what the final outcome will be even after today’s announcements as approval and compromises will ensue.

Here are the high points from our perch.

Standard Deduction AdjustmentUncle Sam

An announcement for a large increase in the standard deduction is expected. If passed the net result could be tax savings for many especially those that do not itemize. In our view, this change, if approved would likely have the largest total number of filing changes. Needless to say the tax planning possibilities are huge….

Corporate Tax Changes

There is much anticipation of lowered corporate rates. US corporate tax rates according to many , are too high, a proposal for relief from higher corporate tax rates is expected.

There is also a possibility of smaller, flow through entity corporation, think S corporation income i.e. K-1 tax rate relief.

Tax Repatriation

Our favorite, and hopeful agreed upon, tax change would allow stranded income, already taxed in a foreign country, to move more freely back to the US with less tax burden.  International corporations would have greater access to foreign country stranded capital if this were to be approved.

We have heard less of this lately and hope it does not hit the cutting room floor!

Estate Tax Reform

There has been much talk of an Estate Tax reform as well. The gist is a disallowance of a step up in basis but a removal of the $5.49 million Estate tax rate.

If passed as mentioned, and the current tax laws held “as is” on capital gains, this could be a huge nightmare. We think there may be major compromises on this before actually passed. We will keep you posted on this as it develops. This is our least favorite possible reform at this point.

Have a Great “Tax Reform Announcement” Day!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
www.jkfinancialinc.com
www.street-cents.com

Estate Planning Docs Part Two – Trusts

Trusts, in our opinion are most helpful for organization, directives for minors, and very useful in avoiding Estate Taxes, just to name a few.

Estate Tax Review

Estate taxes are the tax that is incurred upon the final death of an estate member. Unlike Federal taxes, Estate taxes are accessed on the TOTAL VALUE of all assets less liabilities. Currently these taxes begin just under $5.5 million for a single person and if done correctly can be double ($11 million total) for married couples. Above these total amounts, the tax rate quickly gets to 40%. For this reason, the popularity and needs of many of the following Trusts have grown and will continue.

Trusts – All Type ReviewLivingTrustEstatePic

Over the last several years we have grown warmer to the use of Trusts. Residing in Texas, a low cost probate state, Trusts frequently have lessor place in the Estate plan. However, we are finding more and more uses for them, and as such wanted to have a detailed list of the various Trusts – This is the second, and more deep dive to our original Estate Planning Doc Summary.

Revocable Trust – By far the most common and most commonly misunderstood Trust of the bunch. Revocable means it can be changed at the grantors request. Due to this fact, there is very little tax or liability avoidance. The key positive for this trust is organization, especially over state borders. In high probate cost states may prevent substantial probate costs.

Testamentary Trust – Trust that is usually embedded in a Will and is created upon the grantors death. Testamentary trusts can take many forms, but are a key aspect of Estate planning for minors, estate tax, and generational transfers. It has virtually no existence until the grantor passes away.

Irrevocable Trust – The Hulk of Trusts. Being Irrevocable, once established and funded, this Trust is a beast. Estate tax, liability, inheritance are just a few items that can be addressed with an Irrevocable Trust. The biggest issue of this type of trust is it what makes it a beast, Irrevocable … once you put assets in it, there is no turning back. Careful use is advised.

QTIP Trust : Qualified Terminal Interest Trust – Most common set up by Grantor to give direction to assets beyond the spouse. Frequently used in second marriages to protect children from a prior marriage. Created and resides most frequently in a Will.

Credit Shelter/A:B Trust – Type of trust that is used to help minimize Estate taxes by maximizing the first person in a married couples Estate tax exemption upon death commonly resides in a Will. Can give directives to eventually end up to a non-spouse beneficiary, but living spouse maintains control during lifetime.

GST or Generation Skipping Trust – This handy estate planning trust gives relief to Grantors by jumping a generation and essentially skipping the Grantors children and passing to the grandchildren. Income may be distributed to the children, but the ultimate beneficiary will be the grandchildren. Under current law there is Estate tax relief from this trust.

ILIT : Irrevocable Life Insurance Trust – This trust is very useful in getting life insurance proceeds out of a Grantors estate. While life insurance is free from Federal taxes in most cases, proceeds are included in an Estate for Total Estate Tax purposes. Done correctly, the ILIT trust can limit most if not all of the proceeds from an estate and thereby estate taxes.

Pat yourself on the back (especially if you are still awake and made it this far.) With a reasonable understanding of these types of trusts, you now have deep knowledge of the types of Trusts available. Reach out if you have any questions.

Have a Great Day!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
www.jkfinancialinc.com
www.street-cents.com

 

Do you need a Trust? Maybe, Maybe Not … Benefits of a Revocable Living Trust

Trust – It should have been a four letter word considering all of the confusion it causes. Living in Texas, there are not as many uses for the revocable trust, however, we continue to warm to the Trust and find it very useful in many situations.LivingTrustEstatePic

To Trust or not to Trust?

To prevent a lengthy discussion, the focus of this post is on the Revocable Trust. This type of trust is the most common, but much different from its relative, the Irrevocable Trust.

Just a few benefits of the REVOCABLE Living Trust:

  • Easy to set up
  • Simple to change
  • Avoids Probate (Especially helpful in expensive probate states such as California and Florida –Not as much in Texas, but again still useful)
  • Great Organizer of affairs and death directives
  • Helps with privacy-non probate
  • Holds almost any type of asset
  • Relies on corporate law versus probate law
  • Neither helps or hurts from a Tax standpoint and does not require its own Tax ID

misunderstood aspects of a revocable Trust:

Does very little to prevent creditor exposure. — Since it is revocable, creditors can argue since you can do almost anything you wish with the assets, they are essentially yours and liabilities pass through to the trust.

Upon death of the beneficiary, in most cases a revocable trust becomes very strong and will have greater protections.

Lastly, a revocable trust rarely helps with Federal ESTATE Taxes. These are the taxes levied on estates over $5.4 million by individuals or $10.8 by couples.

Still confused? Drop us a line !

Have a Great Wednesday!

John A. Kvale CFA, CFP

http://www.jkfinancialinc.com
http://www.street-cents.com
8222 Douglas Ave # 590
Dallas, TX 75225

JK Street Cents Logo

 

Tonight’s State of the Union – One Tax Change Explained

Tonight President Obama will give the State of the Union Address to the country. Among various other tax changes one particular item caught my eye.

Trust Fund Loophole

This is a catchy name for the discontinuation of step up in basis.  Under current law asset prices are reset to fair market value at the date of death aka “Step up in Basis”Uncle Sam $

So if your elder heir purchased a stock for $1 and at death is was worth $150, there would be no taxes on the new higher basis.

Sounds like a big tax increase, but multiple planning techniques come to mind that would help thwart these taxes, should it get passed.

If the Estate Tax, currently at over $5 million per person is left alone, we can navigate the loss of a step up in basis.

Have a Great Day!

John A. Kvale CFA, CFP

PS Pretty excited to watch…. ya ya .. nerds!

http://www.jkfinancialinc..com
http://www.street-cents.com
8222 Douglas Ave # 590
Dallas, TX 75225

Estate Tax a nice positive occurence from the Fiscal Cliff negotiations

While we and many others have crowed about the Fiscal Cliff negotiations formally known as H.R.8 American Tax Payer Relief Act of 2012, there are some really bright spots that need to be given their due. Estate tax rates and levels were held at very reasonable levels.

The current estate tax level established by the Fiscal Cliff resolutions is now $5.12 million to index with inflation in the future. The tax rate on amounts over this level is 40%. Estate Tax

But hold on, it gets even better. With a little handy work completed by appropriate Estate Planning and Wills this level can be doubled for couples, thereby increasing the upper level to over $10 million. Unfortunately this is only available for couples through the use of very simple Testamentary Trust planning.  This work needs to be completed BEFORE the death of a spouse for the most ease but is a far cry from the $600k level of not so long ago.

There you have it, a nice positive from the Fiscal Cliff negotiations to start your week off!

Have a good day and a great start to the week!

JK

 214-706-4300
http://www.jkfinancialinc.com
8222 Douglas Ave # 590
Dallas, TX 75225

Dad’s Legacy to Be Sold – A Proper Estate Planning Primer

With the death of Kal Zeff, a multifamily Denver, Colorado, real estate magnet, the story of his heirs beginning to liquidate his properties may seem sad at first, but we think it is worth a closer look, as there are many parts of this situation that we would be fortunate to emulate.

While Mr. Zeff’s estate is grand in size and complex in nature, we have been witness to many, much smaller, simpler issues that have unfortunately not been a smooth transition. Mr. Zeff has left his estate in a situation that has made it fluid for his heirs to do what they want without difficulties. Many dream of the children carrying on the family business, but in reality, this is not always the case.

The goal in any estate plan should be to effectuate an orderly tax efficient distribution to the next generation, while allowing for a continuation of the business, if any, or all, of the children choose to do so. While it is impossible to anticipate every nuance of the distribution, a focus on straight forward, less complex, transfers and distributions may help.

In our experience, here are a few key items to help streamline a smooth transition:

  • Have your Wills, Trusts, deeds, titles, loan and other related documents in a safe place that someone, preferably your Executor, knows the location.
  • Make sure you have a good Executor. This person will have a key role in the transition process. Your Executor should be familiar with your team of advisors i.e. Planner, Accountant, Estate Attorney.
  • Let the heirs have a general idea where and what the assets are, and what direction they may be directed. Size and amounts are not the important part of this discussion, focusing on location and direction is a much greater concern.
  • Allow the Children an easy way of selling the assets, they most likely will not want everything you have accumulated, and if they do, you will already know it. Pokes from the grave make for a funny story while living, but in reality can cause angst.
  • Be sure to acknowledge all heirs, even if assets are not intended to be distributed to them, if not, the assumption may be that you have forgotten them.
  • Fluid, simple, smooth process which is dynamic, and will continue to change from tax laws and important decision makers is key. Well written Estate planning documents will achieve this, do not attempt to over complicate the situation.

Your Financial Planning Advisor should monitor your situation for changes in tax laws, estate planning techniques, and most importantly, your wishes. The Estate Planning Attorney creates the documents, make changes as necessary, and may also communicate with you concerning changes in techniques or laws.

Lastly, while this information may seem easy and logical on first glance, completing a good Estate Plan is much harder than many realize, so do not get frustrated. Take your time, and review our items above.

Be sure to check with the appropriate advisor for directions, as we are not Estate Attorneys, and are not recommending any specific action, only sharing information from the previously well traveled, “path of hard knocks.”

Have a Great Day!

JK

214-706-4300