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What’s the Best Way to Pass the Family Vacation Home to the Next Generation?
Estate Planning with the Family Lake House

What’s the Best Way to Pass the Family Vacation Home to the Next Generation?

The generous exclusion that allows wealthy individuals to gift up to $11.4 million and not get hit with federal estate taxes, came from the Tax Cut and Jobs Act of 2017. However, it’s not expected to last forever, according to the article “What to Know When Gifting the Family Vacation Home” from Barron’s Penta. Those in Northeast Florida who can, may want to take advantage of this estate planning window to be extra-magnanimous before the exemption sunsets to about $5 million (adjusted for inflation) in 2025.

At issue for potentially giving, is that when someone transfers property, the recipients must account for it, according to the original price paid for the property. This is known as the basis. For example, shares of stock valued at $5 million today that were originally purchased for $1 million 10 years ago, would be subject to income taxes only on $4 million, if the recipient were to sell the stock.

Advice given to wealthy individuals is to make use of that higher estate tax exclusion while it’s still in place, and that may include property that they expect to gift to beneficiaries. The most likely asset would be the family vacation home, whether it’s a ski chalet or a beach house.

First, make sure your children want the property. There’s no sense going through all the processes, unless they plan on enjoying the vacation home. Next, figure out the best way to gift the home, while making the most of the high exclusion.

A nice point: you won’t have to give up the use or control of the house during this process. Experts advise not making an outright gift. This can lead to less control or the loss of a share to a child’s spouse, in the event of a marital split.

Another option: transfer the property into a trust. There are several kinds that would work for this purpose. Another is to consider a Limited Liability Corporation, which also serves to protect the family’s assets against any claims, if someone were to be injured on the property. The parents would transfer the property into the LLC and give children interests in the company.

A fairly common structure for vacation home ownership is called a Qualified Personal Residence Trust (QPRT). These are used by families who want to retain the right to continue using the home, usually for the rest of their lives. The property is transferred to the designated beneficiaries at death. If it is set up properly, a QPRT avoids any income or estate taxes.

A trust also lets an individual or a couple be very specific in how the property will be used, who can use it and any rules about how they want the home maintained. Making sure that a beloved family vacation home is well-cared for and not rented out for college parties, for instance, can provide a lot of comfort for a couple who have poured their hearts into creating a lovely vacation home.

If you would like to speak with our experienced estate planning team to learn how you can take advantage of the current federal estate tax exemption to pass your family’s vacation home on to the next generation, call Team Legacy.

Reference: Barron’s Penta (March 31, 2019) “What to Know When Gifting the Family Vacation Home”

The People They Trust, Rip Off Seniors the Most

Seniors are frequent victims of financial abuse, whether the crook is a stranger or someone the older adult knows. Sadly, the people they trust rip off seniors the most. The Consumer Financial Protection Bureau (CFPB) analyzed the financial exploitation of older Americans, by poring through government reports that looked into suspicious financial activity.

During a recent four-year period, fraudsters stole or tried to steal more than $6 billion from seniors. The criminal activity is increasing, as shown by the fact that the number of annual reports of financial abuse quadrupled during that time. Since many people do not realize they have been the victim of theft or do not report it, the CFPB estimates that the actual losses could be between $2.9 billion and $36.5 billion every year.

The Older You Are, the More They Steal from You

When the victim was between the ages of 70 and 79, the average loss was $45,300. The average amount stolen from people between 60 and 69 was $22,700. Those in their 50s, sustained average losses of $13,400.

Who Is Stealing from Older Americans?

Strangers account for 51 percent of the scams that take money away from seniors. This category includes thing like:

  • Emails that say the older adult owes money to the government or the electric company;
  • Telephone calls claiming that a grandchild has an emergency in another country and needs money wired; or
  • “Romance” scams in which people in other countries have a fake relationship with the lonely senior, just to get him to send them thousands of dollars for the “fiancé” to fly to the United States for a visit. Of course, the person takes the money and breaks off communication with the senior.

The government does not know who the exploiter was in every case. In about 14 percent of the reports, the victim did not identify the perpetrator.

Family members, caregivers, and fiduciaries account for 36 percent of the financial abuse of seniors. A fiduciary is someone who has the authority to manage the older adult’s money, such as a broker, accountant, trustee, guardian, conservator, or someone who has a power of attorney to act on the senior’s behalf.

Who Steals the Most from the Elderly?

The sad truth is that the people they should be able to trust the most, take the lion’s share of the money from older adults. Here is how the amount of theft breaks down, by perpetrator groups:

  • Strangers swipe $17,000 per victim on the average;
  • Family members wrongfully take an average of $42,700 from seniors;
  • The average loss from non-relative caregivers was $57,000; and
  • Fiduciaries stole an average of $83,600 per victim.

How to Prevent Elder Financial Abuse

These tips can help you to shield your aging friends and relatives from becoming victims of financial abuse:

  • Talk with your older loved ones and make sure they understand how to safeguard themselves from the well-known types of rip-offs from strangers. Educate at-risk relatives about suspicious emails, telephone calls, online scams and mail.
  • Set up a system of checks and balances for your loved one’s finances. Never allow the person who provides the caregiving, to manage the person’s money. Have one person perform one task and someone else oversee the finances.
  • Have a two-factor authentication system for any fiduciaries, so someone else always reviews the financial transactions that these people make.
  • Be extremely careful when selecting a fiduciary, whether for yourself or a loved one.

References:

AARP. “Older Americans Hit Hard by Financial Fraud.” (accessed March 23, 2019) https://www.aarp.org/money/scams-fraud/info-2019/cfpb-report-financial-elder-abuse.html

Wills v. Trusts: What’s Right for You?

It’s a good idea to take the time and make the effort to create an estate plan to take care of your estate — no matter if it’s a condo apartment and a housecat or a big house and lots of money in the bank — just in case something unexpected occurs tomorrow. That’s the advice from AZ Big Media in the article “The pros and cons of wills vs. trusts.”

Estate planning is the area of the law that focuses on the disposition of assets and expenses, when a person dies. The goal is to take care of the “business side” of life while you are living, so your family and loved ones don’t have to pick up the pieces after you are gone. It’s much more expensive, time-consuming and stressful for the survivors to do this after death, than it is if you plan in advance.

You have likely heard the words “trust” and “will” as part of estate planning. What are the differences between the two, and how do you know which one you need?

A will is the most commonly used legal document for leaving instructions about your property after you die. It is also used to name an executor — the person who will be in charge of your assets, their distribution, paying taxes and any estate expenses after you die. The will is very important, if you have minor children. This is how you will name guardians to raise your children, if something unexpected occurs to you and your partner, spouse or co-parent. The will is also the document you use to name the person who you would like to care for your pets, if you have any.

Burial instructions are not included in wills, since the will is not usually read for weeks or sometimes months after a person passes. It’s also not the right way to distribute funds that have been taken care of through the use of beneficiary designations or joint ownership on accounts or assets.

Another document used in estate planning is a trust. There are many different types of trusts, from revocable trusts, which you control as long as you are alive, and irrevocable trusts, which are controlled by trustees. There are too many to name in one article, but if there is something that needs to be accomplished in an estate plan, there’s a good chance there is a special trust designed to do it. An estate planning attorney will be able to tell you if you need a trust, and what purpose it will serve.

Trusts can be used by anyone with assets or property.

A will can be a very simple document. It requires proper formats and formalities to ensure that it is valid. If you try to do this on your own, your heirs will be the ones to find out if you have done it properly.  If it is not done correctly, the court will deem it invalid and your estate will be “intestate,” that is, without a will.

Many people believe that they should put all their assets into a trust to avoid probate. In some cases, this may be useful. However, there are many states where probate is not an onerous process, and this is not the reason for setting up trusts.

A trust won’t eliminate taxes completely, nor will it eliminate the need for any estate administration. However, it may make passing certain assets to another person or another generation easier. Your estate planning attorney will be able to guide you through this process.

Whether you use a will or a trust, or as is most common, a combination of the two, you need an estate plan that includes other documents, including power of attorney and health care power of attorney. These two particular documents are used while you are living, so that someone you name can make financial decisions (power of attorney) and medical health decisions (health care power of attorney) if you should become incapacitated, through illness or injury.

Speak with an estate planning attorney. Every person’s situation is a little different, and an estate planning attorney will create an estate plan that works for you and protects your family.

Reference: AZ Big Media (March 21, 2019) “The pros and cons of wills vs. trusts”