Don’t Forget to Update Your Estate Plan

Image result for don't forget

There are some people who sign their will once in their life and never change it. They may have executed their estate plan late in life, or after they were diagnosed with a serious disease. However, even if your family life and finances are pretty basic, there are still changes in the law that you may need to incorporate into your estate plan.  Some of the people that you named in your will could also have died or moved away.

Forbes’ recent article, “Why You Should Change Your Will Now,” warns us that if you’ve taken the “one and done” approach to your estate plan, think again. In addition to the reasons already mentioned, your assets may have changed dramatically since you signed your will. The plan you put in place years ago, may not have considered new federal and state estate taxes. Now that you’ve accumulated significant wealth that will be passed on to your children, you might need to review your plans for that wealth for your children.

You may want to include grandchildren to help pay for their college education.

It is also not uncommon for parents to want to protect their children from themselves. This can be because of addiction issues or a lack of financial literacy. If that’s an issue, some parents elect to hold monies in trust for adult children, as a way to ensure that the funds will be there throughout the child’s lifetime.

A person’s estate plan should grow with them over time. An estate plan for a twenty-something may be very basic, but a newly-married couple will want to include provisions for their spouse. Parents need to think about providing for and protecting their children. Adult children have another set of concerns and you need prepare for the possibility of divorcing spouses, poor life choices, addiction issues and just poor money management. There are many stages in life when you may need to readjust the provisions for your children in your estate planning documents.

If you haven’t looked at your will in a while, do it now.

Reference: Forbes (August 27, 2019) “Why You Should Change Your Will Now”

Why You Might Want a Charitable Lead Annuity Trust in Your Estate Plan

The IRS has posted an anonymized version of a letter ruling about charitable lead annuity trusts (CLAT), a trust used in estate planning. In case you were wondering, anonymized means that any information in the letter ruling that could be used to identify the parties involved, has been removed.

A CLAT letter ruling could be of interest to those who are using life insurance, annuities, or other instruments in estate planning.

Think Advisor’s recent article, “IRS Posts Charitable Lead Annuity Trust Letter Ruling,” explains that if the taxpayer passes away prior to the taxpayer’s spouse, the trust is supposed to pay specified debts and expenses, then distribute the trust assets to other individuals and trusts.

If the spouse dies first, the trust is supposed to pay specified expenses and make specified distributions of the assets to individuals and trusts. The trust is then supposed to push the remaining assets into a CLAT. The CLAT is then to pay a charity an annuity amount, that is equal to 5% of the fair market value of the initial trust estate.

A CLAT is designed to have a benefit stream that lasts a specified number of years.

Leslie Finlow, a senior technician reviewer at the IRS Office of Associate Chief Counsel for passthroughs and special industries, said in the letter ruling that the IRS will treat the CLAT as having a benefits payment term of a specified term.

While the term will depend on the amount of assets that winds up in the CLAT, determining the term will be possible, when the trust ends up with its share of the estate, she noted.

If the taxpayer, the spouse, and the trust meet a number of conditions, the taxpayer’s estate should be able to take a tax deduction for the present value of the annuity payments from the CLAT, Finlow explained.

“To the extent any estate, succession, legacy, or inheritance taxes are paid from the residue prior to funding the CLAT pursuant to the terms of revocable trust or by the law of the jurisdiction under which the estate is administered, the amount of the charitable deduction in either estate is determined using the actual amount passing to the CLAT after payment of such taxes,” Finlow writes.

Note that a letter ruling gives the views of one IRS official. A private letter ruling, or PLR, is a written statement issued to a taxpayer that interprets and applies tax laws to the taxpayer’s situation.

Reference: Think Advisor (August 19, 2019) “IRS Posts Charitable Lead Annuity Trust Letter Ruling”

Image of Sigerson Book

Request a No-Cost, No-Obligation Consultation, and Receive a Complimentary Copy of our new book: The Family Estate Planning and Elder Law Guide