Articles Posted in Estate Planning

Estate planning lawyers agree that there has been a fundamental shift in their clients’ estate planning concerns over the last couple of decades. There has been less worry about estate tax minimization and more concern for income tax minimizations and other valuable planning ideas. Thankfully, there are things that can be done with an estate before and after your loved one passes away that can add value to an estate for them as they age as well as for their heirs.

Tips for Aging Loved Ones

If you are going over your elderly’ loved one’s estate plan, there are some important items that you should review or look out for in their estate. These issues can include:

An IRA, either in its traditional form or as a Roth, gives you the opportunity to reduce your taxes and grow your wealth for the future. The deadline for 2014 IRA contributions this year is April 15, and the maximum contribution amount is $5,500. If you are fifty years old or older, you can contribute another $1,000 annually as a catch-up contribution. However, many people do not understand the differences between IRAs or what other opportunities exist that can help you with your retirement wealth.

Traditional v. Roth IRAs

There are two main types of IRA accounts. The first is a traditional IRA, where earnings can grow tax deferred until you reach age 70½ years old. However, if you make withdrawals before age 59½, you may incur both ordinary income taxes and a ten percent penalty. As soon as you reach 70½ years old, you are required to start taking the minimum required distributions (MRDs) and start paying taxes on that amount.

Many people who are planning their estate are told by advisors to give annual gifts to children and grandchildren up to the $14,000 yearly limit. It can help you avoid the estate tax of up to forty percent if your estate exceeds the federal exemption level. This year, the exemption is $5.43 million for a single person, $10.86 million for a couple. However, there is a lot more that you can do with this money than simply give it away. You can pass along wealth and wisdom through these annual gifts in a variety of ways.

Why Give Differently

The problem with giving an outright gift to a child or grandchild of up to $14,000 per year is that it may not have the intended effect that you had hoped. If the gifts are significant over time, your loved ones may take advantage or feel like they do not need to accomplish as much. However, you can use these gifts to create a different set of incentives for your loved ones that will help them for years down the road if you invest your annual gift in an alternative way.

The Eighth Circuit U.S. Court of Appeals recently ruled on a case where an estate claimed that the decedent made a gift during his lifetime that actually belonged to the estate after his death. The court ruled that the gift was actually a conditional gift that had its reversionary interest end when the decedent died without asking for the gift back from the recipient.

Facts of the Case

In the case of Estate of Pepper v. Whitehead, Sterling Pepper Jr. owned a large collection of Elvis Presley memorabilia. When he moved into a nursing home in 1978, he told Nancy Whitehead to “keep it.” Mr. Pepper died two years later in the home, and Ms. Whitehead kept the Elvis collection. In 2009, after maintaining the collection for over thirty years, the Pease Family Partnership put it up for auction, and it sold for more than $250,000.

Robin Williams’ widow and his children from previous marriages were in court more than eight months after his death arguing over what personal items should go to whom. His wife, Susan Schneider, conceded that the children should get the suspenders that he wore on the television show, “Mork and Mindy,” but wanted to keep the tuxedo that he wore at their wedding. These were two items in a list of assets that have more sentimental value than monetary value, but it is often an overlooked part of the estate planning process.

Robin Williams’ Estate

Robin Williams was very careful about his estate plan. He left money and property in trust to his children, set up a trust for his wife, and masterfully protected his publicity rights through the creation of a nonprofit 501(c)(3). However, the terms in his estate plan regarding his personal, more sentimental assets were left unfortunately vague. He left clothing, jewelry, and personal items accumulated before his last marriage to his children.

The Georgia Supreme Court recently ruled on what was the proper interpretation of a will that appeared to leave an interest in real property to his wife, in fee simple, but also let the same property to his son and his son’s children. The issue was between the executors of the estate and the grandchildren as to whether they inherited an interest in the land or if the wife’s estate held the title to the land in fee simple.

Facts of the Case

Hodge King and his wife, Hattie, jointly owned four separate tracts of land together as tenants in common during his lifetime. When Mr. King died in 1999, he stated in his will that “I give, devise, and bequeath to my wife, Hattie F. King, all of my property, both real and personal, wherever located and whenever acquired, either before or after the making of this my Will, hers in Fee Simple.”

Most people do not believe that they can leave a legacy for their heirs because the word is usually tied to large, multi-million dollar estates. However, there are ways to leave a legacy that does not involve complicated estate planning tools or extreme amounts of wealth. Two simple moves can be made with the money that you have now that can help you leave a legacy for your family, friends, or charitable organizations.

Moving Money to a Roth IRA

If you have assets in a traditional IRA that you do not think that you will deplete in your lifetime, consider converting those funds to a Roth IRA. High income earners are often prevented from contributing to a Roth IRA, but anyone can convert a traditional IRA to a Roth. After the conversion of the traditional to the Roth, when the Roth IRA is held for five and a half years and you have reached the age of 59 ½ years old all of the distributions are tax-free.