Michigan Estate Planning Blog

What are Common Mistakes People Make with Living Trusts?

Yahoo Life’s recent article entitled “Why You Should Put Your House in a Living Trust” explains some of the biggest errors people make with trusts.
Remember that a trust is a fiduciary relationship in which one party (trustor) gives another party (trustee) the right to hold title to property or assets for the benefit of a third party (beneficiary).
Trusts are created for these reasons:
To provide legal protection for the trustor’s assets
To be certain that those assets are distributed according to the trustor’s wishes
To save time and reduce paperwork; and
In some instances, to avoid or reduce inheritance or estate taxes.
Also remember that although trusts are generally associated with the wealthy, they are highly versatile instruments that can be used for a variety of purposes to achieve specific goals.
Failing to retitle your home. If you don't retitle your home or transfer the deed into the name of the trust, you paid a lot of money for a piece of paper. The trust is empty because it hasn’t been transferred. Therefore, it is not covered.
Failing to notify tenants of the ownership change. If you're retitling a two- (or multi-) family home into the trust, and the property has rent-paying tenants, you need to inform must them of this change in landlord for rent payment purposes. You’ll also need to set up a bank account in the name of the trust for rent deposits.
Failing to tell the insurance company of ownership change. Be sure to tell your home insurance company about retitling to a trust. If not, the insurance company may deny your claim in an event because the actual property owner—your trust—wasn’t insured.
Failing to tell the bank holding the mortgage of the intended transfer. See if your mortgage has a "due on transfer" clause. That means you'd have to pay the mortgage balance, if you transfer the home from yourself to the trust.
Don’t make these mistakes. Work with an experienced estate planning attorney.
Reference: Yahoo Life (Jan. 10, 2022) “Why You Should Put Your House in a Living Trust”

Challenges When Selling The Inherited Family Home Mid-Michigan

Selling a home is never an easy process. Even if it moves on the real estate market, there is still the fact of moving itself. What about when it is not your home at all? What if it is the home of your parents, and perhaps your sole inheritance, with or without siblings? In that case selling the house can be rather difficult indeed, practically, financially, legally, and yes, emotionally. When it comes to selling an inherited home, there are some complications to ride out and with which you must deal. For guidance, consider reading are recent MarketWatch article titled “How to sell an inherited home.” Get past the practical facts of getting to the home (maybe you live states away) and moving out all of the possessions or figuring out what to do with them. Get past the emotional problems, too. How do you even go about selling it? Can the property move on the market to begin with or, alternatively, is there a better market for a rental and can you manage it? Who owns it exactly and, especially if it is in probate, when will those who will own it actually own it? Are there any liens on the property or a mortgage that may or may not be underwater? The simple truth for some families is that it may be best not to inherit the house at all and to let it go into foreclosure. Are there creditors in line to receive from the estate? If yes, then you cannot take ownership from the estate until bankruptcy proceedings have finalized. A few of these issues are drawn out in the article and worth the general advice offered. In the end, inheriting and selling the family home can be the uncomfortable intersection of estate law, tax law and real estate law. Without a plan, a family can find themselves in a mess. Without competent counsel, they may have trouble getting back up and away from the problems. If you are planning your estate, real estate -- especially your home -- is an essential component that may be overlooked to the peril of your loved ones later if not properly addressed from all angles now.

Reference: MarketWatch (January 13, 2014) “How to sell an inherited home”

For more information, see www.jerryreiflawyer.com

State Death Tax Gotchas Saginaw, MI

The Federal government may be bigger, but when it comes to estate planning you simply cannot forget state laws. If you are building your estate plan, ignore your state estate taxes (present or future) to your peril. MarketWatch recently provided some advice in an article titled “Protecting your estate in a high-tax state.” Ironically, the estate tax scare at the federal level is less of a concern at present. The IRS has issued the estate and gift tax exemptions for 2014 and the new unified exemption/credit will be pegged at a cool $5.34 million. Unfortunately, the states did not get the same memo. The states are still different and vary considerably. Certain states have their own forms of gift tax, estate tax, inheritance tax, and so on. There are even more subtle taxes such as those on real property. Even if you live in one state, you might just be affected by the laws of another state if you own the wrong kind of property or conduct business there. Where you choose to retire could also upset your estate tax planning apple cart. In addition, you may be inheriting from family members who are residents in a tax-happy jurisdiction. Consequently, it is important to follow the Boy Scout motto and always “Be Prepared.’

Reference: MarketWatch (October 28, 2013) “Protecting your estate in a high-tax state"

For more information, see www.jerryreiflawyer.com

 

Watch Out for State Death Taxes

The federal death tax has all but disappeared from the radar screen of most taxpayers. Why? The fiscal cliff-bridging budget set and made “permanent” the estate tax at a generous $5.25 million exemption amount. Unfortunately, there are still some states with their own death taxes.

Consider Connecticut, a state that enjoyed a bumper year for death taxes. As reported by The Hartford Courant in an article titled “Inheritance Windfall: Record-Breaking Year For Estate Taxes Helps Fuel Budget Surplus,” the tiny Nutmeg State raked in an unprecedented $428 million in inheritance taxes.

A good portion of this windfall is due to budget timing and estate planning, since this figure includes any gift taxes collected in 2012. Remember, that was a year of great gifting before the American Taxpayer Relief Act (ATRA), and Connecticut counts all transfer/inheritance taxes as one and the same. Then again, there were some notable deaths in Greenwich, CT, the richest little town in the U.S.

If you do not reside in one of the states with its own death tax, watch out. As state budgets continue to squeeze, death taxes may become more appealing to your state legislators.

Reference: The Hartford Courant (May 11, 2013) “Inheritance Windfall: Record-Breaking Year For Estate Taxes Helps Fuel Budget Surplus”

For more informtion, see www.jerryreiflawyer.com

 

The Beauty and the Beast of the Estate Tax Rules Saginaw, Michigan

We certainly have been through some uncertain times regarding estate taxes over the past several years. From changing exemption amounts, to a one-year repeal, to “band-aid” fixes, the only thing certain about the federal estate tax was its uncertainty. Until now. Congress finally gave us permanent estate tax rules; and by permanent, I mean that except for a built in inflation factor for the estate and gift exclusion, the provisions don’t expire or change with the passage of time. Interestingly, despite its potentially onerous tax bite, the federal estate tax remains largely a voluntary tax. As Forbes points out in a recent column, “Want to Avoid the Estate Tax Cliff? Five Ways to Help,” the new provisions still allow savvy planners to substantially reduce, or even eliminate, federal estate taxes -- even on estates that far surpass the $5.25 million exemption. Forbes goes on to list five powerful strategies for reducing federal estate taxes: Gifting. The new provisions allow you to make tax-free lifetime gifts up to an amount equal to the federal estate tax exemption, currently $5.25 million. Straightforward gifting of assets while you are alive removes them -- and their future growth or appreciation -- from your estate tax-free. Discounting. There are still a myriad of techniques that can be used to discount the value of stock for transfer purposes. These techniques center on lack of control/minority interest and/or lack of marketability, and can create a substantial valuation discount. Loans. Family business owners can take advantage of historically low interest rates for loans used to execute sales of stock. As Forbes points out, “currently, a parent can sell shares of the family-owned business to the child for a fixed long term interest rate as low as 2.52%, and not incur a gift tax because of the loan rate.” Insurance. Properly purchased and owned, life insurance can be used to provide the cash needed to pay any federal estate taxes that may remain after other planning strategies are exhausted. Remember, the cash-call on federal estate taxes is due within nine months of the business owner's death. Charitable Giving. If the family is not interested in the business, but is interested in the wealth it has generated, a charitable gift of a business interest may be a savvy way to dispose of the business while also saving on taxes. As Forbes points out, “there are still a number of tax-smart ways to transfer the business to a nonprofit organization, and fulfill your estate planning goals.” The beauty of the new estate tax rules is their permanence. The beast is their sting -- 40 percent on the first dollar over the exemption amount (currently $5.25 million). Failure to wisely plan for a potential estate tax liability can be disastrous for your family and/or your business.

Reference: Forbes (January 30, 2013)
“Want to Avoid the Estate Tax Cliff? Five Ways to
Help”

For more information, see www.jerryreiflawyer.com

 

Indiana Death Tax Dies – Will Other States Follow?

The Indiana inheritance tax is officially on its way out the door. What does this mean for other states? For some taxpayers, wealth transfer planning has required two layers of tax consideration. First, the federal estate tax, which traditionally has received the lion’s share of attention and, second, “state” estate taxes or even “state” inheritance taxes. And, in some instances, those state taxes can be harsher than the federal estate tax (especially given the current federal estate tax exemption of $5.12 million per taxpayer)! Accordingly, the demise of another state wealth transfer tax is welcome news to many in Indiana. Might this signal a trend extending beyond the Hoosier state? This question is explored in a recent Forbes article titled Another State Death Tax Kicks The Bucket, Will More Fall?. As the author points out, this development in Indiana could buttress the argument for the repeal of such wealth transfer taxes in sister states and maybe even at the federal level. The states, after all, are always in constant competition with one another (for residents and businesses) and taxes are a constant give and take in the exchange. For more information on the Indiana laws and the politics involved, I recommend reading the original article.

Reference: Forbes (March 20, 2012) “Another State Death Tax Kicks The Bucket, Will More Fall?”

State Estate (And Inheritance) Taxes In Flux

Not all states are created equal whether that be for business, for beaches, or… for dying. Recently, Forbes released its perennial (and cheery) bit of advice regarding how to avoid state death and inheritance taxes: where not to die in 2012. As you may well know, the federal government isn’t the only level of government to impose wealth transfer taxes. In fact, 13 states and the District of Columbia impose an estate tax, generally with exemption amounts hovering around $1-2 million (far below the current federal rate of $5 million) and with a taxation rate generally pegged at 16 percent. Among the several states, Ohio offers the lowest rate at seven percent while Minnesota tops out at 41 percent. Fully six states impose an inheritance tax, one that hits the recipient of the inheritance rather than the estate from which the inheritance came. And two states actually impose both: Maryland and New Jersey. As we head into 2012, though, it’s worth noting that there has been a lot of movement regarding such state level taxation (with possibly more to come down the road). Some states are keeping their current rates or simply indexing them for inflation, while still others are making large changes. Connecticut, for one, lowered its exemption amount retroactively to be effective from January 1, 2011, at $2 million instead of the previous $3 million. In addition, there were several taxpayer-friendly changes, such as the raising exemption amount in Maine to $2 million up from $1 million and in Vermont to $2.75 million up from $2 million, with gentler tax rates to boot. Ohio actually repealed their estate tax, as many of you will have heard, but that isn’t effective until 2013. Until then, Ohio boasts the lowest exemption amount (i.e., at $338,333), with New Jersey set to take up that onerous title come next year (i.e., at $675,000). What other states are rumbling? Strong movements are underway to end such taxes in states like Indiana, Tennessee, Nebraska, and Oregon, according to the American Family Business Institute. Also, Pennsylvania has just passed a “carve-out” exemption from the state inheritance tax for farmers. In all, 2012 may bring even more changes and fewer estate dangers. Already it seems to be that much safer to pass along your estate. That said, all of this remains to be seen and tax increases may be lurking as state budgets dwindle and the politics grow more toxic. As James Walschlager, an analyst with tax publisher CCH, put it: “Most of the states are still in pretty poor shape, and if the economy doesn’t improve you might see more action by state legislatures seeking other sources of revenue.” There is much to learn about each state and the original article also has a handy interactive map. Here’s to looking forward with optimism… but also with caution.

Reference: Forbes (December 22, 2011) “Where Not To Die in 2012