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When to Update Your Estate Plan

If you currently have an estate plan established, you are off on the right foot. However, keeping your plan current and accurate is essential. Every three to five years, or upon significant life change, you should meet with your estate planning attorney to review and discuss potential revisions. Reviews also give your attorney an opportunity to review your documents for any changes in the law that may have occurred. Listed below are some common reasons to make updates to your estate plan.

If you have moved states 

Estate planning laws vary from state to state. In many, for example, it is required that a spouse inherits a minimum portion of the estate. There may or may not also be an estate or inheritance tax. Aspects of the estate plan including the power of attorney, living wills, and so forth are dependent on state law.

Changing objects of affection  

Changing objects of affection typically occurs when there is a new addition to the family or the removal of a family member upon death or divorce. There may also be instances when you wish to disinherit someone who has become estranged or irresponsible.

Your liabilities or assets change

If the value of the estate has increased or decreased since the original plan was drafted, you may want to check in with your estate planner to change how the property is divided. If you have changed the composition of your estate, through the purchase, exchange, or sale of a valuable asset; a review may be needed. 

Your retirement plan is outdated

Failing to update the beneficiary designations of retirement plans including IRAs and 401k(s) is one of the larger mistakes made in estate planning. Designations of the beneficiaries include who receives life insurance, assets, annuities, and financial accounts.

Altering executors or trustees

With your estate plan changing, there may be a better choice of an executor or trustee. This could also happen upon the aging, moving, or death of your current executor or trustee. It is vital to know that the people appointed in your plan are still willing and able to carry out these tasks as you’d like. 

Your life might not be the same as it was when you created your original estate plan, and your estate plan should reflect that. Circumstances can change and the best thing you can do is stay on the right foot for whatever life brings your way. Tresp Law, APC can assist in all types of estate plan creation and revision for all the updates in your life. Call Tresp Law, APC today at (858) 248-2779 or click below to schedule a consultation.




Proposed Tax Law and its Impact

As the Democratic administration and Congress continue to debate legislation that could dramatically alter the federal tax code, we look at proposed changes and their potential impact on estate planning. Some of the proposed changes could take effect as early as January 1, 2022, and as a result, there could be very little time to develop strategies and potentially shift estate plans.

* NOTE that using the current federal gift tax exemption ($11.7 million per person or $23.4 million per married couple), it is anticipated that any transfers made to irrevocable trusts in the form of gifts must be finalized, including funding, before the enactment of any legislation.

Gift Tax Exclusion Amount and Estate:

The legislation proposes halving the federal estate and gift tax exclusion to around $6.0 million after accommodating inflation. However, no clawback is anticipated, so the possibility exists for lifetime gifts up to the current exclusion if action is taken prior to the new laws taking effect.

Accelerated RMD Provision:

IRAs with balances over $10 million will be met with accelerated required minimum distributions, thus subjecting said distributions to potentially higher income taxes.

High-Income Trusts and Estates Surcharge:

On modified adjusted gross income over $100,000 for trusts and estates, a new income tax surcharge of 3% will be assessed.

Grantor Trusts Transactions:

The new legislation may incorporate alterations to the taxation of grantor trusts (trusts where the grantor continues to hold specific powers over assets of the trust and the grantor remains susceptible to income taxation). This has the potential to influence what, if any, grantor trusts will last as feasible estate planning channels for individuals. Prior to any enactment, it is highly recommended that individuals expedite their planning since the proposals included grandfathering of existing trusts. Included in these grantor trusts are retained annuity trusts (GRATs), intentionally defective grantor trusts (IDGTs), qualified personal residence trusts (QPRT), irrevocable life insurance trusts (ILITs), and more.

Stepped-Up Basis Elimination:

The new legislation may terminate the Stepped-Up Basis available upon the death of a taxpayer presently available to heirs/beneficiaries, but some versions of the proposed legislation do not incorporate the termination of the Stepped-Up Basis. However, such uncertainty in the fluid legislative environment should be considered as the tax ramifications of modifying the basis can be significant.

Roth IRA Conversions and High-Earners:

Conversions of conventional IRAs to Roth IRAs for middle-to-high income taxpayers, i.e. $450k filing jointly per year, $400k filing as single may be terminated. Also known as the “back-door” Roth IRA conversion, the proposed legislation not only eliminates access to these earners but also limits access to lower earners as well.

With the proposed legislation under intense negotiation and re-writing within the Democrat Party, elimination or even strengthening of some or all the proposed changes outlined above, and others that may be proposed, are possible. One thing is for sure, there is a concerted effort underway to rewrite the tax code. Individuals and their advisors should review existing planning to understand how proposed legislation could have the potential to change their estate plans.

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Amidst the uncertain changes in our legislation, you deserve to have peace of mind to know that your affairs are in order and that your legacy will be preserved for those who you feel will benefit most.  Tresp Law, APC is here to help you create the kind of estate plan that will best serve you.

Call Tresp Law, APC today to schedule your consultation and begin planning for your future. We will continue to offer face-to-face consultations utilizing video conferencing technologies such as FaceTime, Duo, and Zoom.

How Long Should My Children Wait to Receive Distributions?

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At what age do you want your children to receive outright distributions from your trust? There is no right or wrong answer. It will vary from family to family and from child to child. Some children are responsible and sensible at age 25, others could take a little longer, and some children may never be in a place where their parents are comfortable. Luckily, a revocable trust is flexible enough to address any and all of the above circumstances. The real question is, what is best for your children, and your family?

First and foremost, what is an outright distribution? An outright distribution is where the trustee is writing a check or signing over the right to property that will thereafter be completely under the control of the beneficiary. There will be no oversight or further input from the trustee. The alternative to an outright distribution is keeping the property or money in trust for the beneficiary. This means the trustee is in control of the property and is responsible for making payments to the beneficiary for their needs. Discretion for making these distributions is often left with the trustee, and this approach prevents the beneficiary from buying a Lamborghini (for example) with their inheritance versus putting the money down on a home.

Oversight is helpful, but there is a tradeoff. While the trustee is acting on behalf of the trust and serving that intermediary role, he/she is going to have administrative responsibilities. Tax filing, accounting, attorney fees, trustee fees are all expenses that need to be paid. The trust itself is responsible for these fees, so the longer the trust administration continues to be needed, the more money is going to be used from the inheritance to pay for it. There will always be situations that necessitate keeping the trust open for extended periods, such as underage children or children with special needs who are not capable of handling their own finances, but for the vast majority of children, there will be a point where the oversight is no longer needed.

Remember, there is no right answer here, what you chose is what is the best solution for your family. You know your children the best. You know who is responsible now and who is not quite there yet. The default age for a majority in the United States is 18, so if that seems too young, bump the default in your trust up to 21 or 25. If you think a stagged distribution may be a good solution, have 1/3 distributed at 21, 1/3 at 25, and 1/3 at 30. If 50 seems like a better age for your children, do it. The important thing is that you are informed about the tradeoffs, and feel comfortable that when you are gone, your children will be able to handle their inheritance responsibly.

If you would like to talk about distribution options in your current trust or if you need to create a new trust, we at Tresp Law, APC are here to help. Call for an appointment today and one of our Estate Planning Attorneys can explain these options and more in greater detail.

Isn’t Joint Tenancy Enough? Why do I need a Trust?

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When I talk to new clients, one of the most frequent situations is something like this:

“I have a very simple estate. I own my own home, I have some retirement accounts (401k, IRA, pension), and some bank accounts (bank, brokerage, CDs, etc.). I do not need a Trust. My spouse and I own our home as joint tenants, and we own all our accounts jointly so when one of us dies the other gets everything.”

The good part about that statement is, it’s true. The bad part is there’s a whole second half of that administration that needs to be addressed! 

The client is 100% correct. When the first of the couple passes away, the survivor will “get” everything. This is easy, it is fast, and there is little to no administration needed on behalf of the survivor. Now, what though?  The survivor is now the sole owner of everything. What happens when the survivor passes away? Unless he/she adds kids, family, or friends onto the accounts and property, the survivor is going to need to go through probate to transfer those assets to his/her heirs. That’s not a good solution!

It may be reasonable to add children or family onto accounts with the survivor, but it comes at a cost. That cost is the opportunity for abuse and misuse. If you add a child to your real property, there can be gift tax implications, the child could mortgage the property, the child could be sued and they could come after the property. Adding someone on as a second account holder to a financial account would allow that person to write checks, change investments, and/or withdraw money. This may not be a concern for your family, but it is a concern for many.

The other issue might be, what if both joint account or property holders pass away together? Whether from an illness or accident, it is common enough to be a concern. 

The way to avoid the need for any second-guessing or scrambling to handle things later is to establish a revocable trust now. It will allow the survivor to continue owning property, accounts, and assets as they would in a joint ownership situation, but without the need to change things upon the passing of the first person.  By acting now and setting up your expectations and wishes in advance, you are assured your property will pass to your heirs and beneficiaries without the need for probate. 

Contact Tresp Law, APC today to schedule an appointment with an Estate Planning Attorney to address this and other questions you may have about the best way to pass property to your surviving spouse, children, or other family, friends, or charities.