Perlin Estate Planning

Here’s What an Estate Plan Can Do for You

“It’s common for people to consider how they will eventually like their assets to be distributed among loved ones and ministry organizations. But perhaps you have not developed a comprehensive estate plan because you think that is only necessary for the extremely wealthy.”

The need for an estate plan applies to everyone, says Trust Advisor’s recent article, “Why An Estate Plan Is Beneficial.”

With a small estate, you should be even more careful to avoid unnecessary expenses and to retain the most resources for fulfilling your personal, financial, and charitable goals. The article cites four key reasons why you should have an estate plan:

1. Stipulating Care for Yourself. This includes a healthcare proxy, power of attorney and living will that states how you want to be cared for, if you become incapacitated.
2. Financial Security. Your will lets you specify the way that you want your assets distributed and to whom. Without a will, state probate law will determine who receives your assets.
3. Designating Guardians. If you have minor children, it’s critical to make written arrangements for their care. A will is the only legal way to do so in most states (e.g., California is an exception). You must designate a person that you want to be entrusted with the care of your children.
4. Designating Beneficiaries. Your estate plan will include completing beneficiary forms for insurance policies and retirement accounts. It’s a good idea to review your designated beneficiaries after any major life event, like marriage, divorce, a death in the family or the birth or adoption of a child. Remember, you can also name a charity as a primary beneficiary or contingent beneficiary in your plan.

Reference: Trust Advisor (April 29, 2017) “Why An Estate Plan Is Beneficial”

Will Your Estate be Subject to a Death Tax?

“Be careful where you die.”

Currently, the federal estate tax exemption of $5.49 million for 2017 (and double that if you’re married) leaves little for most folks to worry about.

But MarketWatch’s article, “Here are the 20 most expensive places in America to die,” reminds us that about 20 states and DC have their own estate or inheritance taxes, or both. Some have exemption thresholds below the federal amount. Therefore, if you live in one of these states, you may be exempt from the federal estate tax, but still exposed to a significant state death tax bill.

Are you thinking about moving to avoid state death taxes? If so, think about all the potential tax implications in the new state, starting with the ones that will affect you while you’re still alive. If you decide to move to a lower-tax state, understand the residency requirements: be sure you’re no longer a “legal resident” of your old higher-tax state.

For 2017, 14 states plus DC have their own estate taxes (rather than inheritance taxes). These estate taxes are based on the entire value of your estate in excess of the applicable exemption. Delaware, Hawaii, and Maine have $5.49 million estate tax exemptions for 2017 (the same as the federal exemption). New York’s exemption is $5.25 million. Living (and dying) in these four states means much less risk of unanticipated estate tax exposure. But the wealthy in those states can be exposed to both federal and state estate taxes. Massachusetts, Oregon and D.C. have exemptions of just $1 million.

In 2017, there are six states that have “inheritance” taxes, which are assessed on the value of specifically inherited assets. Estate taxes are assessed on the entire value of an estate, in excess of the applicable exemption. Another difference is that inheritance taxes are paid by the person who inherits the money or property, while estate taxes are paid by the deceased person’s estate before making distributions to heirs. Inheritance tax exemptions are also negligible.

Property passing to a surviving spouse is exempt from state inheritance taxes. Nebraska and Pennsylvania are the only states that tax inheritances passing to children and grandchildren. Maryland and New Jersey have both an estate tax and an inheritance tax. In each case, the inheritance tax exemption is zero and the maximum tax rate is 16% (plus the 16% maximum estate tax rate).

The federal and state tax rates are not stacked on top of each other. The state inheritance and estate taxes are subtracted from the value of your taxable estate for calculating the federal estate tax. Even so, you can have some hefty combined tax rates when adding up federal and state estate taxes, and state inheritance taxes. The federal estate tax rate is a flat 40% on the value of your estate over the exemption ($5.49 million for 2017).

Reference: MarketWatch (April 20, 2017) “Here are the 20 most expensive places in America to die”

Learn More about Deferred Charitable Gift Annuities

“For those who would like to leave a legacy and include a gift to charity in their estate plan, a Deferred Charitable Gift Annuity is a powerful tool to consider.”

Lee’s Summit Journal says in a recent article, “Retirement planning power tool,” that a Deferred Charitable Gift Annuity may be a great retirement planning tool for charitably-minded baby boomers, who may already be maximizing contributions to their IRAs.

A Charitable Gift Annuity (CGA) is a contract with a non-profit. The agreement states that, in exchange for a contribution, the non-profit guarantees an annual payment of a set amount to an individual or a couple for their lifetime. The remainder of the gift is used by the charity for their own purposes. A Deferred CGA is where the contribution is made now and the annuity payment is deferred to a later time.

Here’s an example to illustrate how this works and the benefits. Let’s say we have a married couple, Bob and Fran, who are now both 56 and in the prime earning years of their careers. They have IRAs and are making the maximum contribution annually, but they’d still like to put some more away into a retirement account.

They could always use another tax deduction, and they’d like to create a legacy gift to benefit their church. Bob and Fran create a Deferred CGA contract with a local community foundation. They are planning on contributing $4,200 annually for six years. That’s a total contribution of $25,200. Bob and Fran will defer their annuity payment, until they reach their full retirement age for Social Security, age 67. Over the six years they’re making the contribution, Bob and Fran receive a partial tax deduction for their contribution of $5,392. This saves them $1,779 in taxes, since they’re in a 33% tax bracket.

At age 67, they start to get an annual annuity of $1,512 based on a 6% annuity contract (that’s 6% of the contribution amount), which they’ll keep receiving for the rest of their lives. This amount doesn’t change from year to year, but will remain at $1,512. In addition, more than half of this amount ($858) will be income that’s tax free. A similar taxable investment would need to earn 8.2% to have the same return. It’s estimated over their lifetimes that Bob and Fran will receive $42,741.

The foundation investment committee and professional advisers will invest the contributions and track the investment returns and annuity payments in a fund specifically set up for this annuity. Estimating a conservative average annual return of 5%, the fund would have $54,547 remaining in the fund after their lifetimes, to create an endowment to benefit their church that would pay out approximately $2,700 annually to their church.

The Deferred Charitable Gift Annuity allowed Bob and Fran to provide an impactful legacy gift to their church. They also received reliable income for themselves in their retirement and a tax deduction during their peak earning years. This example shows why this is a powerful retirement planning tool for those who want to leave a legacy and support their favorite charity.

Reference: Lee’s Summit Journal (March 28, 2017) “Retirement planning power tool”

Making That First RMD

“If you turned 70½ last year, you had the option to delay your first required minimum distribution until April 1 of this year. Fair warning: That's a Saturday, so don't wait until the last minute.”

If you turned 70½ last year but did not take the required minimum distribution (RMD) from your IRA, then you had until April 1 of this year. So, did you make it in time?

Kiplinger’s recent article, “Meeting Your First RMD Deadline,” explains that although the IRS is extending the April 15 deadline for filing your tax return to the 18^th this year because of the weekend and a Washington, D.C., holiday, there was no break or delay coming for taking your required minimum distribution (RMD).

If you turned 70½ in 2016, you were required to take your first RMD by April 1, 2017 (if you haven't already withdrawn the money). If you didn’t, you'll pay a penalty that’s equal to 50% of the amount of money you should have withdrawn.

Note that if you delayed taking your first RMD, you’ll also have to take the one for age 71 by December 31 of this year. That withdrawal can increase your adjusted gross income a bit. It may also bump you into a higher tax bracket.

In addition, it could make you subject to the Medicare high-income surcharge, if your adjusted gross income (AGI)—plus tax-exempt interest income—totals more than $85,000 if you’re single or $170,000 if you are married and filing jointly.

A good way to shelter your required withdrawal from your AGI, is to make a tax-free transfer from your IRA to a charity. If you're 70½ or older, you can transfer up to $100,000 per year to a charity from your IRA. This will count as your RMD, but it isn't included in your adjusted gross income.

Reference: Kiplinger (March 15, 2017) “Meeting Your First RMD Deadline”

The Beauty of Donor-Advised Funds

DAFs can be a quick, easy and flexible way to achieving your family's philanthropic goals.

What's the best way to make tax-deductible charitable contributions? The answer depends on several factors, such as the recipients of your gift, the kinds of assets you'd like to donate, the size of your gift and your timing.

Many folks take advantage of donor-advised funds (DAFs) to simplify their giving and take an immediate tax deduction. DAFs let the donors set the pace in determining recipients and distributing funds. There are no IRS requirements for minimum annual distributions. These and other features have made DAFs the fastest-growing giving vehicles in the U.S., says Kiplinger’s article “Are Donor-Advised Funds the Best Charitable Giving Vehicle for You?”

DAFs are maintained by major financial institutions like Fidelity and Vanguard. They manage the recordkeeping and tax reporting for a fee. Contributions within these accounts can be invested to the donor’s specifications and grow tax-free.

As far as IRS value calculations, directly donating securities is like donating cash. The charity has to be set up to accept publicly traded or private securities. The donations of securities and other appreciated assets are limited to 30% of adjusted gross income (AGI) and cash donations are limited to 50% of AGI. The same limits apply to DAFs. Moving appreciated stock into a DAF results in the donor taking an immediate tax deduction for its full market value and protection against the tax-dollar hit. DAFs have no payout requirements in terms of timing or funding, so the donor can take time to plan the charitable distributions.

The benefits of direct giving include writing a check, making a contribution with a credit card or donating a used vehicle, which you can do on the last day of the year for tax purposes. Writing a check is still the simplest option for many, but the catch there, is that you have to do the recordkeeping.

If you want to keep your giving as non-public as possible, DAFs are a wise option because the donations are made through the financial entity that holds the DAF. You get to decide whether or not the gift will be acknowledged or if you prefer, you can keep your giving private.

Reference: Kiplinger (November 2016) “Are Donor-Advised Funds the Best Charitable Giving Vehicle for You?”

Michigan State Grad and Employee Gives Back through Estate Planning

 “Through a charitable bequest, the Montgomery’s will creates an accounting scholarship to benefit the next generation of financial managers, especially those who might return to school while working.”

Valarie Montgomery may have retired from overseeing Michigan State’s financial operations, but she used her estate plan with her husband Mark to leave a legacy that will be felt forever. This legacy was reported by MSU Today in the post titled “Returning on an Investment.”

Val first realized her love for accounting under the instruction of her favorite teacher at Quincy High School. However, at graduation, she opted to fast track her entry into the workplace by earning a certificate in general business, not a bachelor’s degree. This was enough for her to gain experience at several financial institutions and businesses before she landed at MSU as a clerical technical level six employee in 1989.

Val didn’t forget about her love of accounting. While working full-time, she took advantage of Michigan State’s tuition assistance program and a flexible work schedule. She obtained her bachelor’s and master’s degrees in accounting from the Eli Broad College of Business. Taking just two classes per quarter—one at night and one during the day—it took Val 13 years to complete both degrees. She said that a scholarship also played a key role along the way.

As her education and skills took shape, she rose through the employee ranks of her department. She retired last spring from the Office of Treasury and Financial Management as the manager of MSU’s Treasury Services, a high-level administrative professional supervisory position.

The Montgomery Endowed Scholarship for Accounting will give preference to students who graduated from Quincy High School and are returning to school, after having been in the workforce for a time.

“We wanted to pay back MSU for helping me obtain my degrees and for giving me a place to have a fulfilling career,” says Val.

Reference: MSU Today (January 31, 2017) “Returning on an Investment”

Mary Tyler Moore’s Money Savvy Results in Big Contributions to Her Favorite Charities

“Smart career decisions early on paved the way for America’s Sweetheart to enjoy a long and comfortable final act. Now her last husband stands to claim whatever undoubtedly lavish bequests to signature causes leave behind.”

When actress Mary Tyler Moore was told she had diabetes, her doctors gave her a 50-50 shot at living another 35 years. A recent Trust Advisor’s article discusses how the actress overcame those odds by more than 10 years, described in “Mary Tyler Moore: Will Charities or Estranged Relatives Inherit?”

One thing that really helped was the awareness and millions of dollars she helped raise as a celebrity advocate for research.

Mary lived as comfortably as her health permitted, courtesy of the television empire she built after her signature roles ended. As far as estate planning, Mary buried her only son and never bonded with ex-husband Grant Tinker’s children. She called them “his” family, when he died a few months ago.

Since we can assume the stepchildren won’t receive a sizeable chunk of her estate that leaves her husband of 33 years, Connecticut cardiologist Robert Levine as her primary heir. He’s legally entitled to at least a third of whatever Mary left behind under state rules.

Even though there were rumors and reports of domestic disputes during Moore’s declining health, she could have divorced him and cut him out of the will at any time. But Moore died married. As a result, Connecticut law says her husband will get the spousal share, estimated to be about $20 million.

One of her best career moves was withdrawing from active celebrity life in the early 1980s. Intentional or not, moving out of the limelight gave her time to focus on the TV production empire she’d built with then-husband Grant Tinker.

The company, MTM Productions, bore her initials and was very profitable into the late 1980s. The company produced shows like “Hill Street Blues,” “Newhart,” and “St. Elsewhere,” and MTM earned more than $40 million a year.

Once Tinker was gone, Moore got a quarter of that cash flow. This steady income allowed her to decline roles she did not like. The sale of the company in 1988 realized $60 million and one last stock payout of $5 million. It was a smart executive exit.

Mary Tyler Moore will be remembered as a star, but she lived like an entrepreneur—generating a great deal of passive income. She gave much of her corporate payout to her favorite charities, such as juvenile diabetes research and animal protection. She also began her philanthropy early. She got to see her money doing good things.

Mary Tyler Moore worked hard for decades, then lived the life she wanted. She also spent a lot of money making a difference for several deserving charitable organizations.

Reference: Trust Advisor (January 30, 2017) “Mary Tyler Moore: Will Charities or Estranged Relatives Inherit?”

Kentucky Dental Grad Gives Back with Scholarship in Estate Plan

“His philanthropy turned toward UK when he discovered that the scholarship he was awarded as a dental student was no longer available, and he decided to begin a similar merit scholarship program.”

November is National Philanthropy Month. It’s a time when the University of Kentucky can show its gratitude to those generous donors who are important contributors to the institution. One of those individuals is an alum from Paducah, Kentucky, dentist Craig Adams.

The University of Kentucky Campus News recently published an article, “UK Dentistry Alumnus Craig Adams Gives Back to Alma Mater,” about a dentist who made charitable giving a part of his estate plan.

When Craig Adams was in high school, his father said he should think about dentistry as a profession. Adams took his dad’s advice seriously. After graduating from dental school, Adams went on to build a very successful dental practice.

Along with his dental practice, Adams serves as a member of the adjunct clinical faculty at the University of North Carolina School of Dentistry and the community faculty of the University of Kentucky College of Dentistry.

With gratitude for his UK education and a desire to help students follow his same career path, Adams made the largest gift commitment in the history of the College of Dentistry.

“Dental school is expensive,” he said. “Nationwide, today’s students are graduating with an average debt of $250,000. I know I can’t help all of the students pursuing dentistry at UK.  However, by endowing a scholarship, I can help one or two students per year, every year, for many years to come.”

Adams contacted UK’s senior director of Gift and Estate Planning to help him map out the parameters of the scholarship endowment he wanted to create and to fund it in a tax-wise manner. Adams made a “hybrid gift,” establishing an endowed scholarship to be funded with both outright gifts during his lifetime and deferred gifts through his estate plan.

This allows Adams to consider the details of how he wants the scholarship to work and gives him the opportunity to see his philanthropy at work as scholarship grants are made.

In total, Adams’ gift commitment is more than $3 million, which makes it the largest in the UK’s College of Dentistry’s 54-year history.

Reference: University of Kentucky Campus News (November 21, 2016) “UK Dentistry Alumnus Craig Adams Gives Back to Alma Mater”

Report on Billionaires Shows Next Gen Have Different Plans for Inheritance

 “Today’s next gens are facing a much wider array of options due to better education, digitization and technology. This amplifies the importance of purpose and meaning for them when choosing what to do and what not to do.”

A recent Billionaires Report by UBS and PwC shows that the unprecedented wealth creation that has occurred in the past 20 years is going to be followed by an unprecedented period of wealth transfer. The report explains that 460 billionaires will transfer more than $2 trillion of assets to their heirs during the next 20 years.

Investopedia’s article, “Billionaires to Transfer $2T in Wealth to Heirs,” reports that the data was gathered from the last 20 years, following 1,400 billionaires across the 14 largest billionaire markets. It looks at the potential impact this gigantic wealth transfer may have on both the recipients and society at large.

The report goes on to say that as great wealth trickles down the generations, the goals of those transferring that wealth will change. In fact, we’re already seeing the early stages of what we expect to be an upsurge in philanthropy.

The Billionaires Report includes information given by an advisor to several billionaire families.

The report concludes that younger beneficiaries of billionaire wealth are driven by three key goals that make them different from their elders: they typically put business first, place greater emphasis on values instead of valuables, and look to find identity through philanthropy. Young multigenerational billionaires are apt to be entrepreneurial and feel that growing their businesses is a way to benefit society. They also believe in philanthropy, but have a different approach than their parents and grandparents.

As far as these last two factors, the report says, “Their business goals must deliver not only returns to the family, but also tangible benefits to a wide group of stakeholders, including employees, customers and society at large. More than previous generations, they bring business discipline and strategy to philanthropy. They want their giving to make an impact–and they want to be able to measure it.”

Reference: Investopedia (October 31, 2016) “Billionaires to Transfer $2T in Wealth to Heirs”

Check This Checklist and See What You Need to Do for Your Estate Plan in South Florida

“No matter your age, this estate planning checklist will help you get started on the process.”

People tend to put off estate planning. As a result, they risk dying without leaving their financial affairs in order and handing their heirs a host of potentially significant problems.

The Business Times recently published an article entitled “Use this checklist to get started on your estate planning.” The article discusses some pointers for those averse to buckling down and creating an estate plan.

Create a will if you don’t have one. A 2015 survey found that 54% of Americans ages 55 to 64 and about 70% of Americans ages 45 to 54 don’t have a will in place. A legally valid will could save your heirs from expensive problems with probate.

Add related documents. Depending on your estate planning needs, you may need a trust, durable financial power of attorney and medical powers of attorney, as well as a living will.

Review beneficiary designations. Check your documents and verify the designated beneficiaries. These take priority over the provisions of wills when it comes to retirement accounts, life insurance, and other non-probate assets. 

Make a list of assets and debts. Give your heirs an estate planning organizer so that they can reference it if you pass away. List your real property and personal property assets, as well as real estate you own and its value. Also list personal property items that have a monetary worth. You can also list your bank and brokerage accounts, retirement accounts, other investments and insurance policies. Finally, make a list of your credit card debts, mortgage, home equity line of credit, and any consumer loans.

Consider making gifts to reduce the size of your taxable estate. The lifetime individual federal gift, estate, and generation-skipping tax exclusion amount is unified and is set at $5.45 million for this year. So a married couple can transfer up to $10.9 million tax-free. 

Reduce, communicate and make wise decisions. Consolidate your IRAs and bank accounts to shorten your list, eliminate statements, reduce paperwork and avoid fees. Tell your heirs which causes and charities you value and select a reliable executor. 

Work with an estate planning attorney. Do-it-yourself estate planning is not recommended because there are numerous financial, legal and emotional issues and pitfalls to avoid.

Ok, you’re not a multimillionaire yet. But if you own a business, have a blended family, have a child with special needs, are concerned about dementia or want to pave a smooth road for the loved ones left behind, use this checklist to get going now.

Do you live in South Florida? Sometimes, an impending hurricane can make you realize how important it is to have your affairs in order. Call me (305-443-3104) right away for peace of mind. I can help!

• I'm an exceptionally experienced Florida Bar Board Certified Estate Planning Attorney,
• I'm a Florida Bar Board Certified Elder Law Attorney, focusing on ALL legal issues related to aging,
• have prepared over 4,000 estate plans in 30+ years in practice,
• have administered over 600 estates through Probate, and
• am a Certified Financial Planner Professional™, plus
• I am also a Florida Certified Public Accountant (CPA).

Of course, if you would like more information about General Estate Planning in South Florida, I have a very informative website you are welcome to visit for more information.

Reference: The Business Times (Sept. 20, 2016) “Use this checklist to get started on your estate planning”