News

14 Apr

Which Trust is Best for Leaving a Portion of Your Estate to a Charity?

When planning your estate, you may want to leave some money to a charity you support. If you are charitably inclined, there are two types of trusts you should consider utilizing to protect yourself from excessive taxation and maintaining the value of your future charitable donation. The two trust options include (i) the charitable lead trust and (ii) the charitable remainder trust.

What is a Charitable Lead Trust?

Compared to a charitable remainder trust, the roles are basically reversed when you set up a charitable lead trust. The charitable beneficiary will receive annual payments from the trust at the beginning of the term. At the end of the trust term, the assets remaining in the trust would be paid to your non-charitable beneficiaries (e.g., your children or other loved ones).  You will receive a front loaded income tax deduction for the scheduled payments to the charity. These types of trust are favored in a low interest rate environment as set forth below.

When you have assets in a charitable lead trust, as long as the interest rate set forth Section 7520, the lower valuation of the remainder interest will help reduce the taxable portion of your gift to your non-charitable beneficiaries. Furthermore, if the assets held in the charitable lead trust appreciate during the trust term at a rate above the Section 7520 rate that was in effect at the time the trust was established, the difference between the two measures would basically translate into a tax-free gift to your beneficiaries.

As a result, a significant portion of your total gift to your beneficiaries would be passed on without having to pay a significant amount in transfer taxes, while also providing a valuable interim benefit to your charity.

Example of How a Charitable Lead Annuity Trust Works

Let’s say, for example, Person X decides to contribute $1 million to a charitable lead annuity trust that will make annual payments to a designated charity for a 5-year term. They will receive approximately a $250,000 income tax deduction in year 1 given the current 7520 rates. Once the term expires, the trust will be distributed to a trust for the benefit of Person X’s children.

What is a Charitable Remainder Trust?

A charitable remainder trust can be set up where you transfer assets into a trust and schedule annual payments that will be made either to you or a designated non-charitable beneficiary.  It is also possible to structure this payment as a fixed annuity.  There is no capital gains on the stock that is sold to fund the trust so low basis stock are good candidates to use for this technique.  At the end of the trust’s term, which can be either a specific number of years or the life of the non-charitable beneficiary, the assets held in the trust will be passed to your designated charity.

There are numerous benefits to utilizing a charitable remainder trust. However, the current low interest environment has limited the tax benefits associated with a charitable remainder trust.  As a result, you may want to consider the  charitable lead trust.

Have Questions about Setting Up a Trust for Your Estate? Contact InSight Law

As with most trust arrangements, charitable remainder trusts and charitable lead trusts are highly technical, which is why it makes sense to retain the services of a skilled and experienced trust attorney with InSight Law. Our law firm takes a unique approach to estate planning by offering clients a wide variety of ongoing resources and tools to make their estate plans complete and detailed. Schedule an online meeting today by contacting our office at 703-654-6019.

2 Mar
15 Jan

Bobby Feisee Publishes Law Practice Management Book

Bobby Feisee, in collaboration with fellow attorney David Ginsberg, published How Successful Law Firms Really Work through the American Bar Association. This in-depth book is designed to assist attorneys at all levels of law firm management create and implement business strategies. Each chapter provides an easy-to-follow overview of a key aspect of law practice management, with actionable guidance for a variety of situations and contexts.

Get a Copy of Bobby’s Book Here

2 Nov

You Were Named the Executor or Administrator of an Estate – What To Expect

When someone is designated as a personal representative for an estate, their mind is often inundated with questions and concerns about what they are legally obligated to do. In many instances, personal representatives are named an Executor/Executrix or an Administrator/Administratrix.

Similarities and Differences between an Administrator and an Executor

You may be wondering, “What is different from being named an Administrator versus an Executor?” Well, an Administrator is the individual appointed by a court to oversee an estate when someone passes away without a Last Will and Testament. In contrast, an Executor is the individual named by a decedent in their estate plan to oversee the administration of their estate, including the distribution of assets and management of any outstanding liabilities.

Despite these differences, there are a number of similarities between Executors and Administrators. For example, both Executors and Administrators are subject to the jurisdiction of a probate court. Both Executors and Administrators are considered to be fiduciaries, which means they have been bestowed with the highest duty of trust and responsibility that can be imposed by law.

Responsibilities Associated with Being a Personal Representative

When you are designated as a personal representative, there are specific duties you should prepare to carry out in order to properly administer an estate. These duties include:

  • Auditing and inventorying the assets of the estate;
  • Distributing the assets of the estate;
  • Pay off valid debts and liabilities of the decedent;
  • File necessary paperwork in the probate action;
  • File necessary tax documents;
  • Notify beneficiaries;
  • Notify other interested parties;
  • If litigation is filed, take action to defend  the interests of the estate; and
  • Maintain specific types of estate assets to ensure they do not diminish in value.

It is worth noting that Executors do not obtain the full authority to complete the above-listed tasks until the decedent’s Will is admitted to a court and recorded. Once the Will is formally admitted to court, the Executor will need to file a bond and take an oath in the court in which the record is made. This means if you are alerted to your designation as an Executor, you cannot start inventorying or distributing assets until you are formally recognized as the Executor of the estate by a probate court.

Refusing Role of Executor

If you are named as an Executor to an estate, but you do not feel capable of properly handling the responsibilities of this position, you have the right to refuse. If you decide to refuse, an alternate Executor will become responsible for the estate. If there is no alternate, the court will appoint an Administrator.

Compensation Structure for Executors and Administrators

If you agree to serve as a personal representative for an estate, it is important to know that you do not have to work for free. For example, if you serve as an executor in Maryland, you are allowed to claim a fee of 9 percent of the estate’s value as compensation for your services. For estates of greater than $20,000, an executor may claim an additional 3.6 percent of the value over $20,000 as compensation.

If you serve as an Executor in Virginia, the amount of compensation varies and subject to the discretion of the court which has jurisdiction over the estate.  Nevertheless, as a general guideline, Virginia courts have considered a reasonable fee for executors to be around 5 percent of the estate assets.  While there is no specific compensation rate set by statute in Virginia, multiple jurisdictions have proactively established guidelines for assessing an executor’s commission, and the amount is predicated primarily on the following factors:

  • Complexity of the estate;
  • Responsibilities assumed by the executor, and
  • Amount and type of professional services required to administer the estate

If you agree to serve as executor in D.C., the compensation standards are similar to Virginia in that the principle of “reasonable” compensation is the governing standard. This means a court will award a fee based on factors such as:

  • Size of the estate
  • Complexity of the estate
  • Compensation customarily charged for other types of similar estate

Have Questions? Speak to an Experienced Estate Planning Attorney

It is important to understand that serving as a personal representative is not something to be taken lightly. If you are tasked with this important responsibility, consider contacting an experienced and knowledgeable estate planning attorney to help guide you through the process. The InSight Law team is here to help. Contact our office today to schedule a meeting.

19 Oct

Streamlined Loan Forgiveness Application Now Available for PPP Borrowers

If you received a loan totaling $50,000 or less through the Paycheck Protection Program, the administrative burden associated with applying for forgiveness is now much lighter. The Small Business Administration recently issued Form 3508S, which is a far simpler loan forgiveness application, especially in comparison to the original 3508 form and even the 3508EZ form. For example, Form 3508S is a single page and requires very little paperwork when applying for PPP loan forgiveness. Small business owners who borrowed $50,000 or less will need to certify the following:

  • Loan funds were used for eligible expenses;
  • Payroll costs were at least 60 percent of the forgiveness amount; and
  • You meet the owner-employee’s limitations and caps.

In addition, PPP loan borrowers also need to provide some form of documentation supporting the eligible payroll and nonpayroll payments from the covered period, including:

  • Payment receipts, cancelled checks, or account statements documenting the amount of employer contributions to employee benefit plans;
  • Copies of lender amortization schedules and receipts or cancelled checks verifying eligible payments from the covered period;
  • Business rent or lease payments; and
  • Business utility payments.

The supporting documentation will need to be retained for six years after the date your PPP loan is forgiven or repaid in full.

The SBA anticipates that this new form will enable almost 70 percent of PPP loans to be easily forgiven.  The SBA arrived at this conclusion because, out of a total of 5.2 million PPP loans that the agency approved, around 3.5 million loans were in amounts of $50,000 or less.

The SBA also issued guidance advising that small businesses with no employees or businesses where the owner is the only employee, can now have most, or all, of their PPP loan forgiven. Additionally, the SBA issued a new rule also relaxes the scrutiny requirements on lenders to review documentation from small businesses proving how the money was spent.

The new forgiveness form and guidance from the SBA was met with much fanfare in the business community since many small businesses have been reticent to spend much, if any, money to grow their business due to concerns with the PPP loan hanging over their heads. Relieving businesses of the loan burden could now enable them to actually spend and take more risk at went enter the final months of 2020. However, the SBA points out there’s no guarantee and is still pushing for continued support from Congress in the next stimulus bill. In addition, it is pushing for the SBA to extend the new guidance to loan $150,000 or less.

Have Questions? Contact InSight Law

If you need assistance with how to navigate the complexities of the PPP loan forgiveness process, InSight Law is here to help. Contact our office today to speak to an experienced attorney.

19 Oct

Streamlined Loan Forgiveness Application Now Available for PPP Borrowers

If you received a loan totaling $50,000 or less through the Paycheck Protection Program, the administrative burden associated with applying for forgiveness is now much lighter. The Small Business Administration recently issued Form 3508S, which is a far simpler loan forgiveness application, especially in comparison to the original 3508 form and even the 3508EZ form. For example, Form 3508S is a single page and requires very little paperwork when applying for PPP loan forgiveness. Small business owners who borrowed $50,000 or less will need to certify the following:

  • Loan funds were used for eligible expenses;
  • Payroll costs were at least 60 percent of the forgiveness amount; and
  • You meet the owner-employee’s limitations and caps.

In addition, PPP loan borrowers also need to provide some form of documentation supporting the eligible payroll and nonpayroll payments from the covered period, including:

  • Payment receipts, cancelled checks, or account statements documenting the amount of employer contributions to employee benefit plans;
  • Copies of lender amortization schedules and receipts or cancelled checks verifying eligible payments from the covered period;
  • Business rent or lease payments; and
  • Business utility payments.

The supporting documentation will need to be retained for six years after the date your PPP loan is forgiven or repaid in full.

The SBA anticipates that this new form will enable almost 70 percent of PPP loans to be easily forgiven.  The SBA arrived at this conclusion because, out of a total of 5.2 million PPP loans that the agency approved, around 3.5 million loans were in amounts of $50,000 or less.

The SBA also issued guidance advising that small businesses with no employees or businesses where the owner is the only employee, can now have most, or all, of their PPP loan forgiven. Additionally, the SBA issued a new rule also relaxes the scrutiny requirements on lenders to review documentation from small businesses proving how the money was spent.

The new forgiveness form and guidance from the SBA was met with much fanfare in the business community since many small businesses have been reticent to spend much, if any, money to grow their business due to concerns with the PPP loan hanging over their heads. Relieving businesses of the loan burden could now enable them to actually spend and take more risk at went enter the final months of 2020. However, the SBA points out there’s no guarantee and is still pushing for continued support from Congress in the next stimulus bill. In addition, it is pushing for the SBA to extend the new guidance to loan $150,000 or less.

Have Questions? Contact InSight Law

If you need assistance with how to navigate the complexities of the PPP loan forgiveness process, InSight Law is here to help. Contact our office today to speak to an experienced attorney.