Building Legacies that Last Estate Planning and Elder Law

Gifts for Educational Purposes

Giving money to children and grandchildren for educational purposes is a common goal in estate planning. There are several different ways that it can be done efficiently. Bigstock-Family-Portrait-At-Christmas-4881212[2]

Most people would prefer that their children and grandchildren do not have to go into debt to get an education. If they can find some way to pay for the education, besides having college students take out student loans, it is what most parents and grandparents would prefer.

It is common for people to take this into consideration when they visit an estate planning attorney, because they would like their estate plans to account for future educational expenses. There are a few good ways that the educational expenses of children and grandchildren can be covered, as The Legal Intelligencer recently explained in "How to Make Tax-Efficient Gifts to Children, Grandchildren for Their Education," including:

  • 529 plans are investment vehicles that allow people to put money in tax free. The money can then be used for the educational expenses of a beneficiary later. Withdrawals for education are also tax free.
  • Irrevocable trusts are another option. They do not have the same tax benefits. However, they can be grantor retained trusts allowing the settlor to have control over the assets, so they can be invested appropriately.
  • Another option is to pay the child’s or grandchild's tuition directly. Educational gifts made in this way are not subject to gift taxes.
  • IRAs can also be used for this purpose, when gifts to children or grandchildren are used to fund their own IRAs. However, you should consult with an accountant first, because there may be unintended tax consequences, if not done properly.

Reference: The Legal Intelligencer (Feb. 12, 2018) "How to Make Tax-Efficient Gifts to Children, Grandchildren for Their Education."


2018 Estate Tax Exemption Projections

TaxesThe IRS has not yet announced what the 2018 estate tax exemption will be. However, expert analysts think there will be some slightly good news for wealthy people.

They predict that the exemption should increase to $5.6 million for a single person and more than $11 million for married couples.

At the same time, they predict that the annual gift tax exemption should also increase to about $15,000, as Forbes reported in “Estate Tax Exemption To Top $11 Million Per Couple in 2018.”

This should give wealthy people and their estate planning attorneys a little bit more flexibility, as they attempt to shrink estates to below the threshold.

While most people who might be affected by this exemption increase would prefer to see the estate tax repealed entirely, that is increasingly looking like it will not happen this year.

Congress has turned its attention to tax reform, but getting anything passed could be a long process and will likely continue into next year.

Repealing the estate tax is also controversial. If Democratic votes are needed to pass tax reform legislation, that might take the estate tax off the table.

If you have questions about your estate and how it might have an impact on the estate tax, then you should see an experienced estate planning attorney in your area.

Reference: Forbes (Sep. 15, 2017) “Estate Tax Exemption To Top $11 Million Per Couple in 2018.”

Depression Era Trusts May Expire Soon

Bigstock-Extended-Family-Outside-Modern-13915094[1]Many family dynasty trusts created during the Great Depression to avoid rising taxation, will automatically terminate soon. Trustees and beneficiaries need to be prepared.

One of the lasting legacies of the Great Depression will soon come to an end. In response to that crisis, the government greatly increased the gift and estate tax rates. Wealthy families responded, in turn, by creating dynastic trusts to hold their wealth and preserve it for future generations.

Most of the trusts created at that time have mandatory termination dates at which time the trust assets must be distributed to the residual beneficiaries.

Successfully carrying out that process will require some planning as the Wills, Trusts & Estates Prof Blog explained in “Preparing for Trust Termination.”

The first challenge for many trusts and trustees will be determining the residual beneficiaries. In many cases, they could be distant relations of the original trust settlors and not the same people who currently receive regular distributions from the trusts.

Once the beneficiaries are determined, they will need to plan for how receiving the trust assets, will  impact their lives and financial futures. Depending on the amount of money received, the beneficiaries’ tax and estate plans could change dramatically.

Those who do not plan appropriately, could face negative consequences that could have been avoided.

If you are a residual beneficiary of a depression era trust, you should seek independent legal advice. It might not be a good idea to rely on the advice offered by the trustees and their legal advisors.  Profit Law Firm, LLC can provide an independent consultation.

You need an attorney who will be acting only in your interests.

Reference: Wills, Trusts & Estates Prof Blog (Dec. 5, 2016) “Preparing for Trust Termination.”


Giving Charity to Specific People

Giving-to-charity2[1]If you would like to make a charitable gift to a specific individual, you can. However, you should be aware that there are rules that need to be followed.

There are all kinds of people in the world who are in need of charitable assistance. Fortunately, there are many others with the means and desire to provide that assistance.

The normal method of donating is to give to an established charitable organization and to let them sort through the people requesting assistance and donate to those most worthy. What if you have found a particular individual you would like to help directly? Certainly you can give to him or her. However, if you hope to deduct the donation from your taxes, then you do need to be aware of the rules.

The Wills, Trusts & Estates Prof Blog discussed this issue in "Charitable Giving to Individuals."

If you are hoping to give to someone directly, then they need to have a private foundation pre-approved for the purpose. Furthermore, you need to be able to prove that you chose to give to them in a fair and non-discriminatory way. You cannot, for example, just give to someone who a co-worker knows needs money for educational expenses and deduct it from your taxes.

To best cover yourself you will probably need to have developed a grant application for the person to fill out.

You might consider just using your gift tax exemption to give to specific people as that would be a lot easier. Make sure you talk to an estate planning attorney first because large gifts should only be made with your estate plan in mind.

Reference: Wills, Trusts & Estates Prof Blog (Oct. 5, 2016) "Charitable Giving to Individuals."