Kansas and Missouri Estate Planning

Why is the Time Right for Making Large Family Gifts?

Gift givers have an exciting IRS update.

Tax laws.

Few people are fans of these words, whether taken together or individually.

Together, however, the disdain more than doubles.

According to a recent Financial Planning article titled “IRS update will benefit clients making gifts to family members,” some new updates make these words a little more pleasant.

What are they?

The estate tax exemption has increased.

It doubles from $5 million per person to $10 million.

With inflation this translates to $11,180,000 in 2018 and $11,400,000 in 2019.

You can double these exemption numbers if you are a married couple filing together.

The estate and gift tax exemption can be applied to lifetime giving.

The annual gift exclusion amount remains at its 2018 level for 2019.

What is that number? $15,000 per donee.

Seems simple, right?

Wrong.

The estate tax exemption is scheduled to revert to the previous amount after 2025.

What will happen if you use the exclusion now, but die after 2025?

Will you be taxed on those gifts?

The IRS has spoken.

The answer is no.

There will be no feared "claw back"!

Using these exemptions to the full may be a good strategy.

Work with an experienced estate planning attorney to determine whether this gift strategy is useful for your circumstances.

Reference: Financial Planning (November 21, 2018) “IRS update will benefit clients making gifts to family members”

Is it Better to Receive a Gift or an Inheritance?

Gifting while alive of through your estate can make a difference in taxes.

You are thinking about your estate plan.

How can you optimize your asset transfers?

Should you give them to your children while you are alive?

Should you pass everything through your will or trust?

Is one approach better than the other?

According to a recent nj.com article titled “This estate planning mistake could mean huge tax bill,” this depends on certain factors.

In New Jersey, for example, the estate tax was repealed in 2018.

There is still a federal tax, but your assets must be exceed $11.18 million if you are single or $22.36 million if you are a couple.

The inheritance tax remains in the Garden State.

This tax only affects those who inherit and are not “Class A” beneficiaries.

Who are “Class A” beneficiaries?

These include children, spouse, grandchildren, and parents.

Why could giving an asset to your child while you are yet living have negative tax consequences?

In such case your child would have the same basis (a carryover basis) you had in the asset.

Were she to sell the asset, then there could be a capital gains tax to pay.

What is the capital gains tax?

This is the difference between the sale proceeds and the tax basis of the owner.

Passing the asset to your child at death would allow her to avoid the capital gains tax by affording a stepped up basis to value on your date of death.

Transferring assets is a big decision.

Tax consequences can be significant.

Work with an experienced estate planning attorney to create a plan to benefit you and your loved ones.

So, how do you find an "experienced" estate planning attorney?

First, ask around. Friends, family and other professional advisors are trustworthy sources.

Second, conduct an "organic" search on "Google" for "estate planning" near you (e.g., "Estate Planning Anytown MoKan").

Third, either way, verify! Check out the education, experience, ratings and client reviews of any attorney before you contact him or her.

How?

Two helpful online resources are just a mouse click away to assist with your due diligence:  Avvo.com and Lawyers.com.

Check any Avvo ratings, client ratings/testimonials and attorney endorsements on Avvo.com and any "peer ratings" by judges/other attorneys and any client ratings/testimonials on Lawyers.com.

In fact, I use both of these services to thoroughly vett attorneys before referring members of our "client" family for legal help in other areas of law or for matters in jurisdictions outside Kansas or Missouri.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: nj.com (April 10, 2018) “This estate planning mistake could mean huge tax bill”

Do I Owe Gift Taxes on Gifts from My Folks?

The laws regarding gifts and taxes can be confusing to many.

Your parents have made wise financial decisions.

They now have a decent amount of money.

Maybe you are struggling a bit financially right now.

Maybe you are fine financially.

Either way, your parents gift you money.

Why?

Your parents love you.

Although you appreciate the gift, you are concerned.

Do you owe taxes on this gift?

According to a recent nj.com article titled “Are taxes owed on gift from in-laws?,” the answer is no.

Why?

These lifetime gifts made to you by your parents (or others) are not considered income.

As a result, they will neither be taxed as income nor will they put you into a higher tax bracket.

Will you parents owe taxes?

Perhaps.

If they give more than the annual exclusion amount to an individual, then yes.

How much is the annual exclusion amount?

In 2018, it is $15,000.

They or you can give this amount to any number of people in a year.

What if their gift exceeds this amount?

Your parent will need to file a gift tax return (Form 709) and claim any gift exceeding the exclusion amount as a reduction against his or her future estate tax exemption.

With the federal estate tax exemption now sitting at $11,220,000 per person in 2018, this will not likely be a problem.

Can your parent claim a deduction on a gift to you, your children, or anyone else?

Nope.

Deductions are allowed on charitable donations, but not on gifts to people.

To take a deduction on charitable donation, donations must be itemized.

Your parents should work with an experienced estate planning attorney to be sure their gifts align with their estate planning goals.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: nj.com (December 6, 2017) “Are taxes owed on gift from in-laws?”

How Can I Optimize Monetary Gifts to My Family?

Not planning your giving can have unintended consequences.

Gift giving can be a useful estate planning tool.

But it must be done right.

According to a recent nj.com article titled “Gift tax consequences for you and your heirs,” you could end up owing taxes if you do not give wisely.

There are some gifts that are exempt from taxes.

There are also some gifts that are exempt under specific circumstances.

What gifts are generally nontaxable?

• Gifts for tuition*
• Gifts for medical expenses*
• Gifts to your spouse
• Gifts to a political organization
• Gifts to qualifying charities

Keeping your gifts to under the estate and gift tax exemption is important.

What is the exemption limit?

The estate and gift tax exemption is $5.49 million per taxpayer.

That is the total amount of "taxable gifts" you may make during your lifetime, but doing so means you have correspondingly reduced the amount you may exempt from estate taxes when you die.

In short, you can use it all of the overall exemption during your lifetime, at your death, or some now and the balance later.

Next year, the amount will be $5.6 million.

Your federal income tax is not impacted by giving gifts to family or leaving assets to your heirs.

On the other hand, charitable contributions can provide income tax deductions.

When giving gifts to your family, you can give $14,000 per person each year without it counting towards your lifetime gift exemption.

This amount will increase to $15,000 starting next year.

For gifts below this amount, you need not file a gift tax return.

Work with an experienced estate planning attorney so your gift planning is carefully coordinated with your overall goals.

*To qualify as excluded gifts, these gifts must be paid directly to the relevant institution for benefit of the donee and not directly to the donee.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: nj.com (October 5, 2017) “Gift tax consequences for you and your heirs”

How Can I Help My Grandchildren with Financial Readiness?

It is never too early to set your grandchildren up for sound financial stewardship.

Did your grandchildren have summer jobs?

Perhaps they work part-time during the school year?

According to the recent Kiplinger Retirement Report article titled “Seed a Roth IRA for Your Grandkids,” if the answer was yes to either of these questions, you can give money to a Roth IRA for them.

How will this help them?

You will teach your grandchild the value of saving.

You can contribute on their behalf so they can keep the money they earn and use it for a car or other needed items.

Also, your grandchildren will have the beginning of a nest egg.

How can they use the money?

They could take tax-free retirement income.

They could also withdraw it before retirement when purchasing a home or some other worthy purchase.

How much can you contribute?

The amount depends on how much your grandchild earned.

In 2017, the maximum total contribution to a Roth IRA was $5,500.

If they earned less than this, then they could only contribute up to the amount actually earned.

Why is a Roth IRA a particularly good way to give money to your grandchild?

The money has the potential to grow significantly before your grandchild retires.

For example, if your grandchild is 15 and earns $2,000 over a year, then you can contribute $2,000 to a Roth.

Let us say the grandchild worked four years.

Assuming for illustration purposes a six percent interest rate, the account would grow those contributions made over four years to more than $143,000 by the time your grandchild turns 66.

Are there any other stipulations you should know about?

Yes.

These contributions will count as gifts.

You will need to make sure you do not give more than $14,000 per grandchild in a year, unless done so as part of a strategic wealth transfer plan.

If you do, then remember to file a Form 709 Gift Tax.

Although you can front-load the account based on the expected income of your grandchild, you need to be aware of the actual amount he or she earned.

If he or she earns less than expected, then you will need to remove the excess from the account before the tax filing.

Another benefit?

If you are concerned about the financial decisions your grandchild might make with the money while in high school, you may be in luck depending on state law.

You could have control of the money in the account until your grandchild turns 18 or 21.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Kiplinger Retirement Report (May 2017) “Seed a Roth IRA for Your Grandkids”

Are Gifts are a Good Estate Planning Move?

Gifts can be a useful estate planning tool.

Tomorrow is Christmas eve, after all.

As such, gifts may be on your mind right now, especially if you are behind on your shopping.

A recent CBS Boston article titled “Our Families: Giving It Away,” reminds us how gift giving can be a good estate planning tool.

How so?

The federal estate tax exemption amount ins $5.45 million.

If you have more than this in assets, you will owe federal estate taxes.

No fun.

Gifts can help.

If you are married, you and your spouse and give to one another without limit.

This includes gifts passed along in death.

Outside of marriage, there is a limit of annual gifting.

What is it?

$14,000 a year to as many individuals as your heart desires and your bank account can afford.

The amount doubles if you are married.

Together you can give $28,000.

Because this money will not be yours when you die, it will not be taxed as part of your estate.

By maximizing your gift exclusion, you reduce the amount of your taxable estate.

Can it get any better?

Yes.

By using gifts as an estate planning tool, you can joyfully watch your grandchildren and children benefit from your generosity right now.

These gifts can also be used for medical insurance or tuition for your grandchildren.

When choosing this method, be sure to write the check directly to the school and not to your grandchild.

While using this estate planning tool, be sure you are giving within your means.

You will want to have money to take care of your own present and future needs.

In the end, you do not want the last "gift" given to your children to be taking care of or supporting you.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: CBS Boston (November 24, 2016) “Our Families: Giving It Away”

What is "Don't Die Rich" Estate Planning?

Just like it sounds. Make sure the last check written on your account bounces to the funeral home.

I am only kidding, Todd.*

In all seriousness, the basic premise begins with ensuring that you have enough resources to cover your own needs in retirement.

But from there the focus is on enjoying your resources through lifetime generosity to loved ones and your favorite charities.

This theme was taken up recently by The Wilmington Business Journal in an article titled "Do You Really Want To Leave a Large Inheritance?"

As the article notes, the "Don't Die Rich!" philosophy is premised on the philosophy that money is best used while you are around to enjoy it and appreciate the benefits.

Due to lengthening life spans, in many cases, parental assets will no pass along as an inheritance to their "children" until they themselves are near retirement age.

So, if one adheres to the "Don't Die Rich" theory, how do you put your wealth to work?

Consider the following from the original article:

You come first, so enjoy yourself.

The first beneficiaries of your estate should be you. After that, then there is nothing wrong with enjoying and sharing your wealth with your family.

For example, think about spreading the wealth by gifting or making even modest financial transfers to your family heirs.

Why?

Doing so now, while you are around to see the results, may be better for all concerned instead of leaving them a large inheritance in the future.

This approach is called "gifting with warm hands."

Put another way: If you are giving while you are living, then you are knowing where it is going.

What about charitable giving? Become a philanthropist!

There are many pluses to making a major charitable gift during your lifetime, such as tax benefits and the enjoyment of seeing all your money accomplishes when put to work for good.

While you are at it, if you need additional income from some high-appreciated assets, consider creating a Charitable Remainder Trust (CRT) to provide you with an increased income stream, current income tax deductions and an eventual estate tax deduction.

There are a number of other trust-related charitable giving programs to consider, as well. 

Naturally, the "Don't Die Rich" plan is not a perfect fit for everyone, but the thought of seeing the benefits of using your money while you are alive does make sense in many cases.

Whatever you do, be sure to consult an experienced estate planning attorney about your options, to include the tax implications.

So, how do you find an "experienced" estate planning attorney?

First, ask around. Friends, family and other professional advisors are trustworthy sources.

Second, conduct an "organic" search on "Google" for "estate planning" near you (e.g., "Estate Planning Anytown MoKan").

Third, either way, verify. Check out the education, experience, ratings and client reviews of any attorney before you contact him or her.

How?

There are two helpful resources just a mouse click away to assist with your due diligence:  Avvo.com and Lawyers.com.

Check any Avvo ratings, client ratings/testimonials and attorney endorsements on Avvo.com and any "peer ratings" by judges/other attorneys and any client ratings/testimonials on Lawyers.com.

In fact, I use both of these services to thoroughly vett attorneys before referring members of our "client" family for legal help in other areas of law or for matters in jurisdictions outside Kansas or Missouri.

*Todd Schneider, owner of Schneider Funeral Homes, is a remarkable gentleman and friend who takes compassionate care of grieving families. He cares for their deceased loved ones like they were members of his own family.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Wilmington Business Journal (January 15, 2016) "Do You Really Want To Leave A Large Inheritance?"

To Gift, or Not to Gift?

To gift, or not to gift? That is the question. Is it nobler to see your benevolence in action or to escape the slings and arrows of current gift taxation ... or future estate taxation or capital gains taxation?

So much for my loose (very loose) tip of the hat to Shakespeare.

Sorry, Willy.

Again, I digress.

That noted, today's blog is all about the give and take of making lifetime gifts to loved ones versus leaving them an inheritance at your passing.

We turn to a recent MarketWatch article titled “Why it’s better to give than to bequeath” to remind us that there are huge tax differences between gifts and inheritances. The gift tax is exclusive: it is on top of the gift. 

On the other hand, estate and gift taxes do not affect individuals with estates smaller than $5.43 million (or a married couple with an estates smaller than $10.86 million).

Consequently, there is an exemption from tax liability for most of us (to include my entire zip code if all added together).

Really it is just 1% of the population that needs to be concerned with estate and gift taxes.

But do not be lulled into a state of complacency.

No.

Even though you may not be in the crosshairs of the estate and gift tax now, you should know the difference between gifting and bequeathing (leaving at death) an inheritance.

The original article reminds us that not long ago the estate and gift tax-free amount was merely a fraction of what it is now. There is no guarantee that the United States will not someday revert to her earlier exemption levels, especially with our country’s deficits and the need for tax revenue. 

For example, what if you were leaving the inheritance or making a gift and your estate was $1 million over the current tax-free amount. Under such a scenario, if you gave $1 million dollars to an heir, then you also would cut a check to the IRS for 40%, or $400,000.

Result: You just made a wealth transfer of $1.4 million.

How?

You gave a million to your loved one and $400,000 to the IRS (i.e., your unloved one). 

The MarketWatch article explains that the inheritance tax is inclusive. If you began with that same $1,400,000, but left it as an inheritance rather than a gift, 40% of it would go to estate taxes. The IRS would see a tidy sum of $560,000 ... and your heirs would get the remaining $840,000.

See the difference? 

In both scenarios, you started with $1.4 million dollars, but in the first situation, your loved one ended up with a million, and in the other, your loved one ended up with just $840,000.

Which glass would you rather drink from? 

Bottom line: When it comes to transfer taxes, it is better to gift while you are living than to leave an inheritance after you pass away.

Even though this discussion is pretty much irrelevant but for a very wealthy few, gifting is still more efficient than leaving an inheritance.

The other benefit of gifting is that you get to enjoy the experience of giving with your friends and loved ones. 

Do not take action on any wealth transfer strategy without consulting an experienced estate planning attorney. 

Reference: MarketWatch (May 4, 2015)“Why it’s better to give than to bequeath”

Graduation Gifting Strategies / Overland Park, KS

As we move from spring into summer, many of our young loved ones are entering their own transition periods and marking some of their own first real life milestones. It is graduation and graduation gift season.

If you hope to mark your loved one’s accomplishment with a sizeable gift, then how do you ensure that such gift is not squandered?

To mark a milestone with a financial gift can be something of a carrot-and-stick opportunity. If that is the case, then the trick is to ensure that the gift encourages positive possibilities instead of some shiny mess with a new car smell in Overland Park and elsewhere.

Reuters recently provided some advice on this timely topic in an article titled “Four ways to influence how new grads handle money.” 

In some ways, the advice for giving money to young adults does not hinge on the number of dollars involved. In fact, from $100 to $100 million, and however you slice it, the goal is to ensure a responsible use of the funds.

Then again, with high-value gifts or full inheritances in the mix, there is that much more that can go wrong. Fortunately, there are more tools at your disposal to structure a successful gift.

The advice in the original article is well worth considering, whether your potential gift is imminent or not for another four years of high school, college, or an advanced degree. Knowing full well the value of an approaching milestone, a graduation gift is the sort of thing for which you can plan now to increase the likelihood of success later.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website.

Reference: Reuters (May 14, 2014) “Four ways to influence how new grads handle money”

Family Loans And Family Gifts - Mind The Details / Overland Park, KS

The name of the game in transferring assets out of an estate is knowing how and when to make the transfer. Properly planned and executed, this can minimize taxes and ensure a smooth hand-off.

Then again, sometimes you can help for your loved ones now and maybe even for your estate later by only making a temporary transition in the form of an intra-family loan in Overland Park and elsewhere.

The benefits of incorporating family loans into your estate plan were pointed out a short time ago in an article title “Estate planning benefits of intra-family loans” on LifeHealthPro.com.

The benefits of making a loan are not immediately obvious because that means, by definition, the loaned assets are to be returned to the estate of the one granting the loan, plus interest. Yes, if you make a loan to a family member you still have to expect it back and charge interest at the federally mandated interest rate, the Applicable Federal Rate (or AFR) for the relevant time-frame of the loan.

Otherwise, it is not a “loan,” but a “gift” and is subject to an entirely different set of rules.

You might think of it instead as a tool for “intra-family liquidity” for family members to help their loved ones rather than be at the mercy of the bank. After all, the object of the loan can be to do anything. Significant loans can allow for a significant investment, the appreciation of which need only be greater than the interest rate and this appreciate will pass to the loved one who accepted the loan. Likewise, it could go toward a home and even generate a mortgage tax deduction.

The central caveat is, again, that there are some serious differences between a loan and a gift, to include some heady tax ramifications if not done according to Hoyle. A loan that is not a loan is a gift. It is that simple.

Failure to treat the loan as a bona fide loan or to charge interest will raise red flags with the IRS.

Likewise, to forgive the debt is to effectively make a gift. This is not to be forgotten or treated lightly. Then, again, it does lend a certain power and flexibility if it is intentionally used to recharacterize a loan as a gift ... and when appropriate.

For many, this loan notion is at least a novel thought to consider. What could you and your loved ones be working toward together? You might be capable of more than you thought. Remember, it is not a strategy without some complications. However, an intra-family loan may be a powerful way to pursue family goals.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website.

Reference: LifeHealthPro (February 10, 2014) “Estate planning benefits of intra-family loans”