31 Jan

Your Estate Plan Could Help Grow – or Ruin – Your Family Fortune

Most Americans have heard the names “Rockefeller” and “Vanderbilt.” The two families are firmly embedded in American culture through academia (e.g., Vanderbilt University), real estate (e.g., Rockefeller Plaza), charitable organizations, politics, etc. The progenitors of these now-iconic names were John D. Rockefeller and Cornelius Vanderbilt. Both men enjoyed incredible success in different areas of the business world which resulted in substantial fortunes. Both men left vast sums of money to their loved ones. However, the ways in which their fortunes were distributed between descendants varied greatly, which led to two completely different outcomes that highlight just how important proper estate planning can be to maintain your hard-earned fortune.

Titans of Industry

Cornelius Vanderbilt enjoyed success in the transportation industry, which included owning the New York Central Railroad system. John D. Rockefeller, on the other hand, enjoyed incredible success working in the oil and gas industry, which included founding and growing the Standard Oil company.

When Vanderbilt passed away in 1877, his net worth was estimated to be more than $100 million dollars. For context, that was actually more money than the U.S. Treasury held at that time, according to a great article written by Mark Ford.

When Rockefeller passed away in 1937, his net worth was estimated to be roughly $1.5 billion. For context, that translates to a present-day value of roughly $340 billion (which means Rockefeller would be, far and away, the wealthiest person in America).

Fortune Squandered

Vanderbilt’s estate plan was fairly simple. He left approximately 95 percent of his fortune to his son, William Henry. Vanderbilt’s will directed his son not to simply spend the fortune lavishly. Instead, he advised his son to invest the money so it would continue to grow. William Henry heeded his father’s wishes and did a fantastic job managing the family fortune. By the time William Henry passed away, the Vanderbilt fortune had doubled in size.

Here’s where it gets wobbly.

William Henry, despite having access to a vast fortune and likely a team of trained attorneys, decides to do his 19th century version of Legal Zoom and write his own will. This was a huge mistake since William Henry did not adhere to his father’s advice when passing on the fortune to his children. Instead, William Henry distributed the Vanderbilt fortune (which, let us not forget was built by father) among his children. There were no directives to invest the fortune or any limits on how the money could be spent. As a result, the Vanderbilt heirs simply burned through most of the fortune on extravagant purchases and a lavish lifestyle.

Fortune Maintained

In contrast to the Vanderbilt fortune, the Rockefeller fortune remains intact today. This is largely due to a few key estate planning decisions. John D. Rockefeller did not simply leave all of his money to his children. Instead, during his life, he donated more than $500 million to charity. He then left the remainder (nearly $460 million) to his son, John D. Rockefeller Jr.

Here is the big difference – when John D. Rockefeller, Jr. passed away, he made sure to protect the fortune his father built. He did not simply give the money to his kids to spend as they pleased. Instead, Junior created six trusts which were managed by an experienced and skilled team of financial and legal professionals. As it stands today, after six generations, the Rockefeller fortune is still in place with an estimated value of more than $10 billion.

The Takeaway

When you work hard to build a business and that business results in you accumulating a substantial fortune, it is important to have a plan in place that not only considers the potential actions of your direct descendants, but the descendants of your descendants as well. Your children could be extremely responsible, frugal, and well-versed in financial management. Nevertheless, that does not guarantee their children will embody those same traits and principles. This is why multi-generational planning is important, especially when you have earned and built a large fortune that will – and should – be a part of your legacy that lasts for multiple generations.

Speak to an Experienced Trust and Estate Planning Attorney

An experienced trust and estate planning attorney can help ensure your fortune remains intact and is no squandered. Take the time to sit down with an attorney to review all of your options and develop a plan tailored to your needs and objectives. For more information about trusts, wills, estate planning, contact InSight Law today.

28 Jan

Personal Pain Fuels Desire to Protect Your Family Through Effective Estate Planning

This month marks the 10th anniversary of my father’s death.  He lived with dementia for seven years caused by a form of Parkinson’s called Lewy Body Disease. My father’s illness was one of the main reasons I decided to re-focus my legal career and specialize in estate planning.  Another attorney helped draft my father’s estate plan. The attorney took the traditional approach of getting legal documents executed, but with very little counseling or follow-up.

The result? A family left in the dark. We did not know my father’s wishes or preferences regarding his health care or what should be done if he became unable to care for himself. Unfortunately, many people mistakenly believe they checked the “disability planning” box because they executed an advance medical directive (AMD). For context, an AMD is a legal document designating an agent to make health care decisions on your behalf if you are unable to communicate with your doctor. It is an important estate planning document, but it puts a huge burden on whomever you designate as your “health care agent.” You need to have a conversation with your chosen health care agent to discuss your wishes and desires. I believe it is the attorney’s role to help facilitate and provide a framework for these discussions.

Did my father actually want my mother to shoulder the financial and emotional burden of taking care of him at home? I suspect he would have preferred being moved to an assisted living facility after his health deteriorated to a certain point. If this conversation had taken place, I believe my parents would have taken the steps necessary to work through the financial issues of paying for long-term care should the need arise.

Tough Issues, Tough Discussions

It is perfectly understandable that no one wants to discuss issues related to mental decline, incapacitation, and death. Nevertheless, if you don’t plan for these issues – both by planning to have the financial resources to pay for quality long-term care and by communicating with your loved ones about your wishes – then you are effectively leaving a burden for your loved ones.

There are many advances in medical science, and I believe in the next decade or so, we will have real treatments to stave off diseases like Alzheimer’s, Dementia, Lewy Body, and so forth.  We are not there yet, but there are certain actions you can take to help prepare for the worst. For example, you can take a simple screening test to determine if you are at a higher risk of developing these debilitating diseases. When you visit enrichvisits.com, you can take the “Mymemcheck” test (it is free to take the test). The site also provides educational information on diets and other factors that you can attempt to address to help reduce your risk of developing these diseases.

There are moments when I wonder what would have happened if my father took this type of test and learned about his heightened risk of developing Lewy Body. He may have been more inclined to engage in deeper conversations with our family about what to do when he was unable to care for himself.

Personal Pain Drives Desire to Help Others

The experience I had with my father after his diagnosis and a big reason why I founded InSight Law. Our mission is to help bring families together during difficult times and put together plans to ensure the family is not driven apart by a lack of communication or information.

Estate planning is a process; it is not simply a document or transaction.  The goal of InSight Law is to help support your family during difficult times and be there when it matters most. That is why the InSight Law Maintenance Plan is so important. This Plan provides a platform where you essentially teach us about you and your family and we teach you about the relevant laws and regulations governing estate planning.

11 Nov

Must-Know Info on How Charitable Deductions Work

You need to itemize in order to claim your charitable deduction

The latest tax act raised the standard deduction single filers to $12,200 and joint filers to $24,400. It appears the big increase in standard deduction has had a negative impact on the percentage of taxpayers who make charitable contributions because you are unable to deduct the contributions if you decide to go with the standard deduction rather than opting for itemization. Determining whether to itemize or not depends on your specific situation so you will need to consult an experienced and knowledgeable tax advisor. As a general rule, the interest on your mortgage is a factor in determining whether you should itemize as this is a write-off that you can take advantage of only if you itemize. The new tax law also limited the interest deduction to loans up to $750,000 for homes purchased after December 15, 2017. If you purchased your home prior to that date, then you can deduct the interest on a home loan of up to $1 million for primary residences. In addition, you can continue to enjoy the mortgage interest deduction until the year 2025, according to Lending Tree.  Also, your taxes paid to the state are limited to a $10,000 deduction.  If your mortgage interest deduction plus your state tax deduction is close to the standard deduction amount then your charitable contribution will provide you with the tax benefits outlined below.

Donating to Just Any Charity is Not Enough to Claim the Tax Deduction

It is extremely important to understand that, in order to qualify for the charitable donation tax deduction, your donation needs to be made to a “qualified” charitable organization. If you donate to an individual or institution that is not qualified under the tax code, then your generosity doesn’t count and you won’t be able to get the deduction.

Qualified Charitable Organizations

To qualify for the deduction, your donation must be made to a tax-exempt 501(c)(3) organization or fall under Section 170(c) of the Internal Revenue Code (“IRC”). For example, you can generally get a tax deduction for contributions made to:

·       Churches and other religious organizations that fall under Section 170(c) of the IRC

·       American Red Cross

·       Goodwill

·       Salvation Army

·       C.A.R.E.

·       Boy Scouts and Girl Scouts of America

·       Boys Clubs and Girls Clubs of America

·       Tax-exempt educational organizations

·       Tax-exempt hospitals

·       Nonprofit volunteer fire companies

·       Specific veterans’ groups and fraternal societies

·       You can only claim for charities registered in the U.S. This means there is no tax deduction for foreign entities.

Many charitable organizations qualify for tax-deductible donations, but not all, so you need to be proactive and make sure your chosen charity is considered “qualified” under the tax code. If you are curious, the Internal Revenue Service maintains an online database of all qualified and acceptable charitable organizations.

Organizations Generally Not Qualified for the Charitable Giving Tax Deduction

Generally, the charitable tax deductions are not allowed for contributions made to:

·       Individuals

·       Chambers of commerce, or

·       Labor unions.

Limitations on the Amount You Can Give

In addition to limiting who and what you can donate to, the IRC places a limit on how much of your generosity you can claim via the itemized tax deduction. As of 2019, an individual is limited to 60 percent of their adjusted gross income (AGI) on most donations made to public charities and certain private foundations. However, if you donate “appreciated tangible assets” that you owned for one year or longer, then you can only claim a 30 percent deduction of the asset’s current fair market value. This rule applies to donations made to veterans’ organizations, fraternal societies, and some private foundation. Furthermore, if you make a donation of capital gain property, then you will be limited to a 20 percent deduction.

When You Can Claim the Tax Deduction

Your donation to a qualified charity is deductible the same year in which it is made. So, if you make a donation in November 2019, you can claim the deduction on your 2019 taxes. This means the donation is considered paid when you place the check in the mail, or when the donation is charged to your credit card, as opposed to when you pay the credit card.

This means you should make sure that your charitable donation is made prior to December 31 of the year in which you plan to claim the charitable deduction.

Documentation Needed to Claim the Charitable Deduction

If you drop a few hundred dollars into a charity’s collection box or bucket without getting a receipt or any other documentation, then you should not claim that donation for tax purposes. Why? Because there is no actual proof that you made the donation and the IRS probably will not take your word for it.

In order to properly claim this deduction, you need to secure written confirmation from the charity. The confirmation needs to include the name of the charitable organization, the date you made the contribution, and the amount or value of the donation. Charities are only required to provide written acknowledgment for donations over $250, but most do offer a receipt, no matter what size of contribution you make. If you attempt to claim more than a $500 non-cash donation, be prepared to file IRS Form 8283 with your tax return.

Speak to an Attorney

If you have questions about whether it makes sense to move forward with a charitable donation and the impact a donation could have on your estate, consider speaking to an experienced trust and estate attorney in your area.

12 Oct

Income Tax-Free States May Be Worth Considering for Residency in Retirement

There are a number of states – such as Florida, Nevada and Texas – that do not tax income that have received an increasing amount of interest after the new federal tax law passed in 2018 capped state and local tax (SALT) deductions at $10,000. There are currently nine states that do not tax the income of residents.

States with No Income Tax

Below is an overview of the states with no income tax, according to Fox Business.

Alaska

  • In addition to not having an income tax, Alaska has no sales and use tax, generally. Though, local jurisdictions have the right to levy sales and use taxes.
  • According to a study by WalletHub, Alaska has the lowest tax burden of any of the 50 states – at a cumulative 5.1 percent. The average property tax burden is 3.66 percent

Florida

  • In addition to no income tax, the effective real estate property tax rate in Florida is 0.98 percent, according to data from WalletHub.
  • The sales tax rate, generally, is 6 percent. However, localities can collect their own sales taxes, too, for a maximum rate of 8.5 percent

Nevada

  • Despite not having an income tax, Nevada has a high sales tax rate of 4.6 percent. Though, it can reach as high as 8.265 percent in certain localities. As a result, the total sales and excise tax burden is the second-highest of any state besides Hawaii.
  • Property taxes are relatively low, at about 2.24 percent, according to WalletHub.

South Dakota

  • The sales tax rate in South Dakota is 4.5 percent, but can reach as high as 6.5 percent depending on the rates in different localities.
  • The average property tax burden is 2.87 percent.

Texas

  • In addition to no state income tax, Texas has no state property taxes. Though, property is taxes through local taxing units.  
  • Even though the Lone Star state does not have a state income tax or state property tax, it imposes a 6.25 percent state sales tax and local jurisdictions have the ability to impose up to 2 percent sales and use tax for a combined top rate of 8.25 percent.

Washington

  • It may have no income tax, but Washington makes up for that loss of revenue in other areas. For example, the state sales tax is 6.5 percent, but rates in certain localities can exceed 10 percent. In addition, the average property tax burden in the state is nearly 2.6 percent.

Wyoming

  • Despite not having an income tax, the state imposes a fairly high property tax rate of 4.32 percent.
  • The sales tax rate ranges between 4 percent and 6 percent.

Watch Out for Higher Taxes on Other Investments in Income-Tax Free States

If you are planning to move to an income tax-free state when you retire, be cognizant of the fact that some states attempt to recoup revenue by taxing other investments. Most notably, New Hampshire and Tennessee tax investment income and interest. This is important since, if you are retired and not working, you may be more reliant on your investment income.

A similar strategy is applied in other states where there is no income tax, but the states have much higher sales and/or property taxes. For example, Nevada has a fairly high sales tax on groceries, clothing and other goods, according to Bankrate.com.

Do Not Let Taxes Dictate Where You Decide to Reside in Your Golden Years

The overall tax burden on residents in a particular state is an important consideration, but it should not dictate where you ultimately decide to reside when you retire. There are a variety of factors that you should analyze when assessing whether to move and where to move when you decide to stop working.

To help, Kiplinger created one list of the best states to live for retirees. Kiplinger’s rankings analyzed important factors such as living expenses, health care costs, poverty rates, and the economic wellness of the state, according to World Population Review.

According to Kiplinger, South Dakota is highly ranked for retirees since the cost of living is 4 percent below the national average, health care costs are below average, and it is one of the most fiscally sound states in the United States. Hawaii is also at the top of the list since health care costs are manageable and the overall economic wellness of the state is strong.

Georgia is another highly ranked state for retirees since the cost of living is 7 percent below the national average and state taxes are manageable.  Here is Kiplinger’s list of the top 10 states for retirees:

  • South Dakota
  • Hawaii
  • Georgia
  • North Dakota
  • Tennessee
  • Alabama
  • Virginia
  • Florida
  • New Hampshire
  • Utah

Speak to a Trust and Estate Planning Attorney To Discuss Your Long-Term Goals

As you can see, there are a variety of factors to consider when you are contemplating the best plan for your life post-retirement. To ensure you make the best decision, it is prudent to speak with an experienced and knowledgeable trust and estate planning attorney at InSight Law. Our law firm offers clients a detailed, workable plan that emphasizes the importance education, not only for our clients, but their loved ones as well. We also provide a continuing maintenance plan to make sure client’s estate plans fit their changing lives and provide protection for their families in the future.

23 Jul

Is Your Estate Plan Up To Date?

One of the unique services provided by InSight Law to all clients is a periodic review and update to your estate planning documents. We believe routinely reviewing and updating, as needed, these documents is extremely important to ensure they are correct, current, and legally valid. This is why InSight Law created the “Client Update” program. It is a formal review process to ensure your estate plan is current with the latest laws and estate planning techniques. InSight clients can have their documents reviewed and renewed every two years. If you are due to an estate plan update, make sure to RSVP here for one of our upcoming client update programs.

23 Jul

Is Your Estate Plan Up To Date?

One of the unique services provided by InSight Law to all clients is a periodic review and update to your estate planning documents. We believe routinely reviewing and updating, as needed, these documents is extremely important to ensure they are correct, current, and legally valid. This is why InSight Law created the “Client Update” program. It is a formal review process to ensure your estate plan is current with the latest laws and estate planning techniques. InSight clients can have their documents reviewed and renewed every two years. If you are due to an estate plan update, make sure to RSVP here for one of our upcoming client update programs.