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.

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.

The holidays are finally upon us!  I hope that in the weeks to come you are able to spend time with family and friends that you don’t get to see regularly through the year.  That is, of course, the beauty of the season.

While I don’t want to detract from, or put a negative spin on the festivities, now is a great time to remind you of how vital estate planning is to ensure the happiness of your family for years to come.

Understanding Family Dynamics

This year, as you sit around your holiday table, I want you to imagine those smiling, happy faces engaged in an ugly, destructive battle over your estate when you are gone.   While we all secretly hope this would never happen, sadly I’ve found it to be a natural response when a loved one passes away.

For many families because of a lack of clarity and planning, family cohesion becomes a distant memory upon the parents’ death.

But this can be avoided!  You have quite a bit of power when it comes to keeping peace in the family even years after you’re gone.

Easy Ways to Make a Change

The first step in doing this is to make absolutely sure you address specific issues that could arise during the distribution of your estate.  This is important because boilerplate wills and trusts give only the legal parameters for your successor trustee or executor to follow.  So, for example, your plan might give directions about how the family home is to be distributed.  But, what if two of your heirs want to purchase the home?  What if one of your children wants to keep the home in the family, but can’t afford to purchase it outright?  These are the type of issues that arise every day—and are rarely addressed in a typical estate plan.

Therefore, to avoid such hurt feelings or hostilities between relatives that might require a court’s intervention, you should analyze whether standard provisions in the family’s estate plan address your intentions as to the distribution of your assets.

Here are a few things that I recommend to avoid such problems:

1. Be specific about who will inherit your assets – especially the family home.

Without specific instructions about how assets will be distributed, it will be up to the trustee to decide who gets what.  Not only does this mean that someone else will be making decisions that you should have made, but it is a tremendous responsibility that he or she may not be prepared to properly (and peacefully! ) deal with.

It‘s also a good idea to speak openly to your children or other potential heirs to discuss several scenarios that may arise following your death.  Then once you know what you would like to do and what would bring the most peace to your family, I’d advise you to incorporate those provisions are in your estate plan.

2. Clearly address how the value of your assets will be determined.

Fights and arguments can quickly break out among family members when someone believes that an appraised value of an asset does not reflect the fair market value.  If you don’t adequately address how the trustee should arrive at a selling price, unhappy siblings or relatives may hire their own attorneys and force the trustee to spend your assets unnecessarily to have the court review the process.  Wouldn’t you much rather see your hard-earned assets go to your loved ones instead of to the court and to attorneys?   Resorting to court involvement is likely to be the final straw in already strained family relations.  It will be very difficult, if not impossible, to mend family ties once things escalate beyond this point.

Fortunately, this is easily avoided by specifying whether certain assets are to be sold with the proceeds being split, or kept in the family by giving each heir an option of first right of refusal to purchase the asset.  Again, discuss this openly and honestly with your heirs and don’t leave it to the person you chose as trustee to handle such a hot bed issue.

3. Think through the consequences before naming two siblings as co-trustees or executors.

I’ve found that many parents choose two of their children to act as co-trustees to avoid conflict or hurt feelings.  Yet in most cases, the result is actually the opposite.  This is because if they fail to agree during trust administration and come to an impasse, there will need to be court intervention.  Again, this can result in high lawyer fees and a long-term (and possibly permanent) family feud.

Preserving Family Peace Now and Forever

So, this year as you look around the holiday table, think about these issues and ask yourself honestly if you can see the disastrous scenarios I have described.  If so, lay out a very specific path for your trustee to allow him or her to follow your wishes.  That way, your family will continue to share the holiday season peacefully and lovingly for many years to come.

There are a variety of reasons that people in Cary seek out a qualified estate planning lawyer.  There’s the need to provide for your heirs or to protect them from tax penalties, for example.  But, many people are discovering that an estate planning lawyer can also help them develop the legacy they wish to leave behind.  Planning now can help you ensure that your beliefs and values are not only upheld, but even advanced by the choices you make for your estate.

While creating a plan is important for your family, there are many other ways to use your worldly wealth.  In an age when people are becoming more introspective and choosing to live their ideals, it is comforting and even exciting to know that you can continue to do so after you are gone.  It’s not just about donating money to a good cause, it’s about knowing that your life has made an impact on those people and ideals that are most important to you.

Creating a legacy with the help of your Cary estate planning lawyer also affects those who knew you in life.  Children, grandchildren, and other significant people are able to see your example of grace and generosity.  They will remember your actions with pride and will hopefully follow in your footsteps to support your cause or to take up one of their own.  That is the true meaning of a “legacy.”

Defining Your Legacy

While a skilled estate planning lawyer will be able to help with the details, creating a fitting legacy certainly begins with you.  The first step is to take a look at your own values and interests.  What are you passionate about and why?  Perhaps you are an animal lover or a cancer survivor or a bicycle enthusiast.  The most important aspect of creating a true legacy is to choose a cause that truly speaks to your heart.

Your contribution, no matter how large or small, may not be enough to find a cure for a disease or eradicate animal cruelty, but by honing in on your cause, you can find ways to make a significant impact.  Perhaps you have enough material wealth to donate a piece of cutting-edge medical equipment to your hospital’s oncology department.  Or maybe your wealth will allow you to pay for new infrastructure to support the expansion and growth of your favorite cause.

Of course, you may have a smaller contribution to make, but it can still be put to amazing uses.  Offsetting the cost of adoption for a few animals at the local shelter may not seem like a “grand gesture,” but for the families and pets adopted, it will mean the world.  If you are an enthusiast or collector, how could your physical assets benefit others?  Could you contribute your prized art collection to a museum or donate your bike collection to a nonprofit that provides them to low-income children?

Setting up a legacy with your Cary estate planning lawyer does not need to be all about money.  It’s about preserving part of your spirit and passion in ways that you are able.  It’s about knowing that you’ve done something important with your life.  It’s also about being someone that future generations will remember with pride and respect and inspiring them to create legacies of their own.

The following article originally appeared in an issue of The Daily Plan-It, 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.

Advisors know there’s a host of unknown costs and fees lurking inside a client’s 401(k) plans, IRAs and other retirement accounts. Often, those fees make a world of difference in investment returns. But most clients don’t know the fees that they pay to plan providers. A recent AARP study found that more than seven in ten 401(k) plan participants incorrectly reported that they did not pay any fees, and 6 percent said that they didn’t know whether or not they pay fees. Clients often fail to read the fine-print disclosures that explain fees. A recent Smart Money article [http://tinyurl.com/3nvxpsj] detailed the fees. I’ve included the highlights for you.

What You Don’t Know Can Hurt You

Beginning Jan. 1, plan sponsors must disclose fees to participants. But there are other lesser-known fees to consider. Clients who move IRA accounts to new brokerage firms can be hit with two unexpected fees: the account transfer fee and the annual maintenance fee. In addition, retirement accounts that use managed-money programs will have termination fees that must be paid prior to money being moved from a current manager to a new manager. These can include that quarter’s asset fee, management fee and custodian fee.

10 Fees Eating Up Retirement Savings:

1. Account termination fees.

2. Account maintenance fees.

3. Various account transfer fees.

4. Roth conversion fee: This is charged when a traditional IRA is converted to a Roth IRA.

5. Federal fund wire fee and overnight delivery fee.

6. “Special investment” fee: This applies to nontraditional/ non-publicly traded investments such as private placements, real estate and certain limited partnerships.

7. “Special investment” set-up fee: This also applies to non-traditional investments not publicly traded. Such fees are usually one-time only.

8. Form 990-T filing fee: For accounts holding nontraditional/ non-publicly traded investments, the custodian may need to file IRS Form 990-T to report unrelated business income.

9. Loan processing fees: Clients who take loans from retirement funds may face a processing fee.

10. Recordkeeping fee: Small business owners with solo-K/individual-K plans may be charged a recordkeeping and filing fee of several hundred dollars, if they use the services of a record keeper.

As advisors, we can’t make these fees go away, but there may be a tax-efficient way to pay them. For instance, if a client is in the “accumulation” phase of saving for retirement, it would make sense to pay any allowable fees with what’s called non-qualified money, that is, money that’s outside of the retirement accounts. This would allow more money in the account to grow tax-deferred.

By contrast, if a client is in the distribution phase of retirement, it may make sense to have these fees paid from the qualified account.

As always, I hope this article has helped you and your clients. Please contact our office if you need any assistance.

By Jackie Bedard, Carolina Family Estate Planning, Cary, NC

Depending on your family’s lifestyle, your teenage children may already have an idea of what would happen if you and your spouse were to pass away. They may not know the exact dollar amount of the money that they would inherit, but they probably have an idea of who they would live with and that they would receive most of your assets if something happened.

As a Cary estates lawyer, I know that many parents feel this information is sufficient enough for their minor children.  But having an open discussion with your teen can prevent them from being angry or confused if you have decided that he or she will not have access to their inheritance until they are a few years past the age of majority, such as 21 or 25 years old.

It is common knowledge that inheritances are distributed at the age of 18, unless the parents have set up a trust that makes the teen wait. If a teen anticipates these funds at 18, but discovers that you have made them wait until 25, they might get the wrong idea and feel that you made the decision because you did not trust him or her. And with you not there to defend your decision, the teen could be upset and confused.

One way to potentially avoid this anger or confusion is to sit down and have a frank discussion with your teen.

Talk to them about the following issues:

• The amount of money that he or she is to inherit (you may also ballpark this figure)

• The age you feel is appropriate for the inheritance (i.e., 21 or 25 years old, etc.)

• The age that the teen feels is appropriate

• How you want the money to be spent, for example on college or the down payment on a house

• Whether there are other stipulations besides age for receiving the money. For example, you can set it up so that the teen can receive the money at any age, as long as he or she has graduated from college.

Doing what you can to eliminate secrets or surprises from your estate plan can not only bring your family together while you are still living, but it can make the grieving process easier for your kids after you are gone.

Let Carolina Family Estate Planning help you with these decisions by setting up a Peace of Mind Planning Session.  Call us today at 919-443-3035 to schedule your appointment.   Appointments are reserved on a first come, first served basis, so call today!

Time and time again, when I meet with clients that have parents living, they begin to realize that they have no idea where their parents stand in terms of having the right plans in place to protect their assets and wishes if something were to happen to them.  Even worse, frequently the adult children don’t even know where to begin looking to locate this information in the event of a crisis.

Do their parents have a will or trust and, if so, where are these and other important documents located? Should assisted living or nursing home care become necessary, what plans are in place to cover the costs? Will mom or dad even have enough money after these costs to carry them through retirement?  Where do mom and dad keep their important legal and financial documents and when was the last time that they were reviewed and updated?

These are some very important questions that need to be asked, and an experienced wills and trusts lawyer can steer you in the right direction. That being said, no matter how good your relationship is with mom or dad, the subject can be a difficult one to approach.

Perhaps the best place to start is timing. Holidays such as Christmas, Hanukkah and Thanksgiving are known to be stressful times, so avoid these occasions. Current events often present the perfect opening, as there is always some Hollywood legend or financial mogul who dies leaving a fortune for the heirs to squabble over.  For examples, see our prior blog posts on the Estates of the Rich & Famous and Lessons Learned from Michael Jackson’s Estate.  Amy Winehouse, Rosa Parks, Farrah Fawcett and many others serve as additional examples.

Or, the personal experience of a friend or relative can be worked into a dialogue. “So-and-So’s mother was admitted to the hospital recently and no one knew where to find her important papers.” For the adult child who is doing estate planning of their own, it would only be natural to want to discuss their parents’ plans with them during this time.

For some families, several conversations over a longer period of time might be a better approach. No one wants to feel like they are being told what to do, and money matters are often emotionally charged conversations to begin with.

Remember, advance preparations are in the best interests of the parents, so that their wishes can be carried out upon death.  Be sure to communicate this from the start to avoid your parents shutting down or getting defensive about the questions you are asking.

A friend of mine was called up to make medical decisions for her father upon his death bed.  She told me how stressful it was for her, because her father had never documented his wishes and had never talked to her about them.  At the end of the day, she did the best she could, but it was stressful and she always had that little nagging voice in the back of her mind saying, “is this really what he would have wanted?”  The goal is to give everyone peace of mind by knowing there is clear guidance and instructions in place and that your parents will receive the care they desire.

Finally, don’t forget to include the topic of long-term care in your conversations with mom or dad.   While no one likes to think about the possibility of becoming disabled or incapacitated by something like a stroke or Alzheimer’s disease, it does happen and it’s something that must be planned well in advance for.  If you start early enough, a wills and trust lawyer can help you put the right plans in place to ensure mom or dad’s wishes during incapacity are honored and that they won’t be forced to sell or give away all of their assets in order to qualify for state or federal assistance.

Are you now ready to help your parents put a rock-solid plan in place that ensures their end-of-life wishes are honored to the fullest?  Then be sure to call our Cary wills and trusts office for assistance.  With the mention of this article, you may qualify for a Peace of Mind Planning Session ($750 value), at no-charge.  Simply call (919)443-3035 to find out more.

The following article originally appeared in an issue of Planning Partners Press, a free newsletter provided by 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.

In Part 1 of this series we explained how Joint Tenancy with Right of Survivorship works.  We noted that it is a form of asset ownership where each owner is deemed to own 100% of the asset, and whoever lives the longest gets the whole thing!  We also introduced some of the pitfalls of owning things in this way, and began to explore two more potential pitfalls of joint ownership, and offer a possible solution.

In Part 2, we discussed these two pitfalls of joint tenancy:

(1)  There is no control, and property may pass to unintended heirs.

(2)  There are no planning opportunities.

There are two more problems of which your clients should be aware:

(3)  Probate is at best delayed, not totally avoided.

In spite of the concerns already discussed, some advisors continue to recommend joint tenancy!  Why? The major reason given is because joint tenancy property bypasses the entire probate process.  But this is not entirely true.

With married couples, joint tenancy does not avoid probate—it only delays it.  Because joint tenancy passes outside all will or trust planning, it does avoid probate—on the death of the first spouse.  When the second spouse dies, however, there will be a probate.  In situations where both spouses die together, there will be at least one probate and perhaps two.

(4) For non-spousal owners, unintentional gift taxes and death taxes can be generated.

When non-spouses create joint tenancy, they often create a gift tax as well.  Frequently, an older parent designates a son or daughter as a joint tenant on bank accounts and/or other property.  The moment this is done, the transfer of property is often considered by the IRS to be a gift, and if the value is abouve $13,000 (in 2011) it will have to be reported to the IRS.  In some cases, a gift tax may be immediately due.

When a non-spouse joint tenant dies, the surviving tenant gets the property.  If a parent with three children makes one child a joint tenant (on the house, for example), then that child inherits the property, no matter what the parent’s will or trust says.  The result is that (1) if the child is selfish, he or she may legally keep the entire property or (2) if the child is generous and shares the inheritance, he or she may have to pay a gift tax.  Joint tenancy makes estate tax planning extremely difficult and may rob clients of the ability to reduce the estate tax burden imposed on their loved ones.

For many clients, the solution to all of these concerns is the creation of revocable living trusts, and the transfer of title to trust ownership rather than joint tenancy.

The following article originally appeared in an issue of Planning Partners Press, a free newsletter provided by 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.

In Part 1 of this article, we introduced the mechanics and the dangers of owning assets as Joint Tenants with Rights of Survivorship.  In this installment, we’ll begin to take a look at each of the potential pitfalls in more detail.

(1)  There is no control, and property may pass to unintended heirs.

Joint tenancy property passes to the surviving joint tenant and no one else, no matter what you do.  If it is your intent to leave your property to your spouse and then to your children, joint tenancy is not for you.

Joint tenancy provides no means of ensuring that your property will pass to whom you want.  For example, if your spouse remarries, your children may inadvertently be disinherited.  Or, against your wishes, your spouse may choose to disinherit some or all of your children after your death.  If you and your spouse die together in an accident, significant questions may arise as to who is going to inherit your property.

While joint tenants are living, they can sell their interest in the joint property and they can give their interest away.  In this respect, joint tenancy is similar to other forms of ownership.  It is only on the death of a joint tenant that its unique features come into play.  In North Carolina, joint tenancy between a husband and wife is called tenancy by the entirety.  It works exactly like joint tenancy with right of survivorship, except that it is more restrictive.  While both spouses are alive, the approval of both is necessary before the property can be transferred.

A joint tenant has the authority to take all the money from a bank account and has significant control over other types of property.  This “control” can be dangerous, especially since a deceased tenant would have had no opportunity to leave any instructions restricting the use of the joint tenancy property.  Even though property is titled in joint tenancy, the joint tenant who dies is presumed to own 100 percent of the property.  As a result, the deceased tenant’s family not only loses the property (which passes to the surviving joint tenant) but also must pay all of the death taxes.  Joint tenancy between non-spouses can create the worst possible tax scenario: full taxation on property one doesn’t even own.

(2)  There are no planning opportunities.

What if your spouse or children need assistance in managing the property you left them?  Joint tenancy cannot help.  What if you want to leave instructions for your loved ones as to how, when, and why your property is to be used?  Joint tenancy offers no opportunity for instructions of any kind.

If you become disabled, your joint tenancy property may be tied up in a living probate while you desperately need it for your own or your loved ones’ care.  If your spouse is disabled when you die, the probate court will “inherit” the joint tenancy property and determine how and when it is to be used for your spouse’s benefit.  More pitfalls and possible solutions next time in the final installment of this series.

The following article originally appeared in an issue of Planning Partners Press, a free newsletter provided by 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.

Joint property, also known as joint tenancy, is nothing but a planning pitfall.  Although joint tenancy has been assailed for years by many estate planning experts, it remains—unfortunately—a very popular form of property ownership.  Joint tenancy is a pitfall because you cannot control where such property passes after your death.

In joint tenancy, each person owns the entire asset, not a part of the asset.  This legal fiction of two or more people owning 100 percent of the same asset is derived from the full name given to joint tenancy: joint tenancy with right of survivorship.  “Right of survivorship” means that whoever dies last owns the property.  The previous joint tenants merely had the use of the property while they were alive.

Joint tenancy property is “uncontrollable.” Even if a joint tenant intends to have his or her share pass to loved ones, the property is not controlled by the instruction in the joint tenant’s will or trust.  Joint tenancy automatically passes to its surviving owners automatically by operation of law.

Property that is owned in joint tenancy can be a trap, because the term itself has nice connotations.  It implies “the two of us,” a partnership, a marriage of title as well as love.  On the surface, at least, it appears to be the right way for people who care for each other to own property.  It’s psychologically pleasing, which for many people is the real advantage of owning their property jointly.

As in many other latent problems, joint tenancy is easy and convenient.  Odds are that when you were married (if you are), one of the first financial actions you and your spouse took was to open a checking or savings account.  The clerk who helped set up your account put it in your joint names when you answered yes to, “Both names on the account?” The same is true of your first house or your first car.  It seems that all of those involved (primarily clerks and salespeople), whether or not they knew what they were doing, took control of your planning and titled your property in joint tenancy.

For most people, the disadvantages of joint tenancy far exceed any advantages.  Some of the more devastating pitfalls of joint tenancy are:

1. There is no control, and property may pass to unintended heirs.
2. There are no planning opportunities.
3. For married couples, probate is at best delayed, not totally avoided.
4. For non-spousal owners, unintentional gift taxes and death taxes can be generated.

In Part 2 of this series, we’ll explore each of these problems in more detail. Our goal is that you, as a professional advisor, will have clear and compelling answers for your clients as to why they should avoid titling assets in joint tenancy.  We also will suggest other ways they might own their property that will enable them to maintain the control they desire.

I’m not sure there are official statistics for this, but based on my experience as a Cary wills and trust lawyer, the number one reason people don’t do their estate plan is that they simply can’t face their own mortality.

In a way, we are like the groundhog…occasionally we stick our heads out of our warm, protected, cave of ignorance to think about what would happen to our family if something unexpectedly happens to us.  In regard to estate planning, are you the type of peek-out, see your shadow, and go back in to your safe and warm bunker and hide type of person?  Or do you step out and face the day and charge full steam ahead?

Interestingly enough, the tradition of the groundhog being afraid of seeing his shadow is a recent phenomenon.  The tradition started as a medieval superstition that all hibernating animals (not just the groundhog) came out of their caves and dens to check the weather in early February.  If the animal could see their shadow, it meant winter could go on for another 6 weeks which meant they could go back to sleep.  A cloudy day meant spring was just around the corner and they could venture out.  As you can see, shadow didn’t “scare” the animal back into the safety of their den.  It was simply an alarm clock of sorts!

So with that myth dispelled, I also want you to stop using the fear of your mortality as a reason for postponing doing your own will or trust.

Simply think of estate planning as a way to ensure that your legacy will go to the people you want, in the way you want, when you want.  It will also allow you to save your loved ones court costs, attorney’s fees and most importantly, will allow them to mourn your loss without the additional burden of dealing with government red tape, a chaotic court system and financial confusion.

So, as we see all the news and excitement surrounding Punxsutawney Phil this year, take a long look at yourself and see if you are ready to make sure your family is taken care of no matter what.  If your plans are sorely lacking, I invite you to give me, your neighborhood wills and trusts lawyer a call to discuss your options.

By simply mentioning this article, you can come in for a Peace of Mind Planning Session (normally $750) at no charge.  However, this offer is limited to 8 per month so call 919-443-3035 to reserve your space today.