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If there is an organization or charity that you support financially, as a Cary trusts lawyer, I would urge you to consider setting up a charitable trust. A charitable trust allows you to give money to an organization whose work you admire and support, but there is also an additional benefit in that you may be able to reduce your estate taxes.
One way that people use charitable trusts is to set aside assets to produce income while they are alive, with the remainder going to charity when they pass away. This allows them to receive tax benefits while they are still living from a gift that will be made when they die. In this scenario, both the donor and the charity will benefit.
There are two main types of charitable trusts. They are:
- Charitable lead trust. You can use a charitable lead trust to make a series of payments to a charitable organization while you are alive. At some point in the future the remaining assets in the trust either given back to you or transferred to someone that you select as beneficiary. In a way, the donor is lending the assets to the charity for a period of time during which the charity can use the income produced by the assets.
- Charitable remainder trust. In this type of trust, you set up two sets of beneficiaries called income beneficiaries and remainder beneficiaries. The income beneficiaries, typically the trust owner and/or his or her family, receive income from the assets in the trust during their lifetimes. When the beneficiaries pass away, all remaining assets are given to the charity who is the remainder beneficiary. This option has the added benefit of missing estate taxes entirely.
The rules for these types of trusts are very complex. If you are interested in charitable trusts, I encourage you to seek out a qualified trusts attorney and tax advisor who can guide you through the process.
I hear the same excuse over and over….
I don’t have an “estate.”
I have more debt than assets.
The only thing I have is my home.
As you may have guessed, these are excuses that people make for not preparing an estate plan. These people are sadly misinformed. They think estate planning is only about money. Estate planning does take care of financial issues, but the way I see it, the most important reason for doing an estate plan is for the benefit of the people that you leave behind.
Estate planning is essential for senior citizens who are concerned about the well-being of their loved ones. No matter what your level of wealth happens to be, there are decisions that will have to be made if you become incapacitated or when you pass on. If you don’t leave detailed instructions for the type of medical care you want or what to do with your things, you will be putting those you love most in the position of being a mind-reader. They will have to do their best to figure out what you would have wanted and then deal with the consequences such as unhappy family members who disagree with them. Do you really want to cause this type of stress for them at a time when they are already upset and mourning? I doubt it.
I realize thinking about these things is not easy or fun, but approaching it in an organized manner may help. Here’s a list of things to consider when planning your estate:
- Talk to close family members and let them know how you would like to handle the dispersal of your assets and sentimental items. Also, talk to them about the type of medical care you would like to receive should you become incapacitated. Chances are, if everyone knows your plans ahead of time, there will be fewer arguments and a lot less stress.
- Prepare a list of all of your assets including your home, your financial accounts, insurance policies and any personal possessions.
- Make a list of everyone that you would like to be a beneficiary of your estate. You may also want to include organizations that are meaningful to you, such as charities, churches, schools or universities or civic organizations.
- Plan for how you would like your pets cared for if something should happen to you.
- Make a list of passwords, PIN numbers and other codes that someone might need and store them in a secure place (be sure someone know how to access).
- Think about who you would like to put in charge of your medical care and who you would like to oversee the dispersal of your assets. You can appoint different people for these critical jobs.
- Consult with an experienced estate planning attorney who can offer advice about how to arrange your estate so that the person you put in charge of your financial and medical decisions will have the fewest complications.
These steps alone will go a long way in reducing the stress that your loved ones will experience. Isn’t their well-being enough reason to do an estate plan?
If you answered “yes,” then be sure to give our office a call at (919)443-3035 and ask to schedule a Peace of Mind Planning Session.
Individuals engaged in estate planning often get panicky when they hear the word “probate.” When the term hasn’t been fully explained by a probate lawyer (and sometimes even when it has), it conjures visions of long waits, loss of inheritance, and many other hassles for heirs of an estate.
To calm these fears (and to avoid working with an attorney), many people consider the idea of adding one or more of their children to their bank accounts. Generally speaking, each “joint tenant” of an account has complete access to the money, but when one dies, the entire amount becomes the property of the other joint tenant(s).
This may seem like a logical way to directly transfer money to heirs without going through the probate process, but a skilled probate attorney in Cary needs to keep clients informed of potential pitfalls of this approach:
- As it has already been mentioned, all joint tenants have access to the funds in the account. This means that either party can withdraw money at any time. If the child added to the account is not entirely trustworthy, this can be a devastating reality when the money is used inappropriately.
- Any money received by the child may be considered a gift, which means that it is subject to a variety of gift tax laws. A Cary estate gift tax attorney will be able to keep you up-to-date on current laws and regulations in our area.
- Creditors for both parties can have access to this account. That means that if one joint tenant dies (even the one who is not in debt), the other’s creditors can go after the money they jointly held. Keep in mind that this means that if the child has had credit problems, those creditors may have access to the parent’s money. This could include not just creditors, but lawsuits and divorce as well.
- Money left in the event of the parent’s death will only be accessible to the other joint tenant(s). If one child has been responsible for the majority of a parent’s elder care and therefore is on the account, he or she will likely have no legal responsibility to share those funds with other siblings. Again, trustworthiness is an important issue. And even if the child wishes to share the funds with his or her siblings, there may be gift tax consequences to doing so.
If you are considering adding a loved one to a bank account as a means to avoid probate, it’s important to at least talk to a Cary probate attorney about your options. You may find that simply giving your loved one power of attorney over the account or holding your assets in trust may be more preferable based on your circumstances.
The following article originally appeared in an issue of Planning Partners Press, a free newsletter provided courtesy of Carolina Family Estate Planning to Triangle-area financial professionals. If you are a financial professional that would like to learn more, please click here to request a subscription.
What if Santa and Mrs. Claus decided to do an estate plan? Although they would doubtless be great clients, the actual plan could be challenging.
What is the size of the Claus estate? It is extremely hard to calculate, even for Mr. and Mrs. Claus. Their accountant merely shrugs when asked. Unless estate taxes are totally repealed forever, Santa has a tax problem. Santa’s toy making business is prospering. He has enough inventory to supply every child on earth with at least one toy each year. There are now over 6 billion people on earth, and if just half of those are children, and if Santa spends just $20 on each child, he is spending 60 billion dollars per year on Christmas gifts alone. Apparently this formal gifting program is not reducing the size of his estate nor his tax liabilities sufficiently since he’s continued to do this since the 4th century.
Another consideration for Santa’s estate plan will be caring for the hundreds of elves that work in his shops and are apparently totally dependent on his largess for survival. There are no known relatives to serve as guardians in the event of Santa and Mrs. Claus’s joint demise. And even if relatives can be tracked down, it is doubtful that they will have the wherewithal to care for so many dependents. We might want to consider starting a charitable organization that establishes homes, jobs, and caretakers for these magical little people.
Santa has also invested a lot of time, money, and love in his wild animal preserve. Besides the normal elk, caribou, and polar bears, Santa has successfully bred a unique species of flying reindeer and at least one with a light-emitting snout. It’s likely that several world zoos will be clamoring to add these animals to their collection, but it would be advisable for Santa and Mrs. Claus to make some of these decisions ahead of time, and use these charitable opportunities for further estate tax planning.
Obviously, death isn’t the only concern for the Clauses. If Santa were to be disabled by a collision with an aircraft, a fall from his sleigh on a fast take-off, or a gunshot wound from someone who mistakes him as a burglar, the business could be in trouble. Mrs. Claus has had her hands full taking care of the elves, and hasn’t had a lot of direct involvement with the toy making. It might be wise to pick some key elf employees from executive management who can be trained to take over. Perhaps an ESOP is appropriate, or a pre-negotiated buy-sell agreement. Due to his advanced age (approximately 1600), and the fact that he is overweight and smokes, life insurance is also unlikely – but should not be ruled out because of his overall good health and vitality.
One other issue to be considered is citizenship. Although we think of Santa as an American icon, he was actually born as Nicholas of Myra in Anatolia – which is now southwestern Turkey. Rumor has it that he met Mrs. Claus while watching the annual tree lighting at Rockefeller Center in New York. If Mrs. Claus is a U.S. Citizen, proper tax planning will require her to at least prepare a Qualified Domestic Trust.
Obviously, planning for Santa and Mrs. Claus will be a daunting task requiring our best efforts. Like Santa, our firm wishes you a “Merry Christmas to All”, Happy Holidays, and a Happy and Prosperous New Year.
This article was original featured in our newsletter last year. Don’t receive our newsletter? If you’re a Triangle area resident, sign up here.
At Carolina Family Estate Planning, we just love creating Priceless Conversations™. During the holidays, you can create your own special memories by asking friends and family the interview style questions below and then recording them on CD.
- As a child, what were your three favorite holidays or seasons of the year? What made them special?
- Describe how your family celebrated Thanksgiving, Christmas, Hanukah or other similar holidays. What were your family’s traditions?
- What special foods were part of your family gatherings? Who prepared those foods? Do you still prepare them today?
- What family traditions would you like to carry or see carried forward?
- Was there an unique or unusual event or tradition that your family celebrated? How did that celebration get started?
- If you celebrate birthdays, what was the most memorable birthday you can recall and what made it special?
