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PPOA types

What are the Different Kinds of Powers of Attorney?


What are the Different Kinds of Powers of Attorney?

If I asked you what you thought is the most important document in your estate plan, you may say it’s your last will and testament or your trust. However, that’s not always the case. In many situations, the most important planning document may be a well-drafted power of attorney, says The Miami News-Record’s recent article entitled “Power of attorney options match different circumstances.”

When a person can’t make his or her own decisions because of health, injury, or other unfortunate circumstances, a power of attorney (POA) is essential. A POA is implemented to help their loved ones make important decisions on their behalf. It helps guide decision-making, enhances comfort and provides the best care for those who can’t ask for it themselves. A POA permits the named individual to manage their affairs.

To know which type of POA is appropriate for a given circumstance, you should know about each one and how they can offer help. There are five POA forms.

Durable and Non-Durable Power of Attorney. This is the most common. These leave a person with full control of another person’s decisions, if they’re unable to make them. A Durable POA continues to be in effect when you are incapacitated. That is what the “durable” part means. A Non-Durable POA is revoked, when you become incapacitated. Be sure you know which version you are signing.

Medical Power of Attorney. Especially in a hospice setting, it permits another person to make medical decisions on the patient’s behalf, if they lose the ability to communicate. This includes decisions about treatment. In this situation, the POA takes the role of patient advocate, typically with the presiding physician’s consent.

Springing Power of Attorney. This POA is frequently an alternative to an immediately effective POA, whether it durable or non-durable. Some people may not feel comfortable granting someone else POA, while they’re healthy. This POA takes effect only upon a specified event, condition, or date.

Limited Power of Attorney. This POA provides the agent with the authority to handle financial, investment and banking issues. It’s usually used for one-time transactions, when the principal is unable to complete them due to incapacitation, illness, or other commitments.

If you don’t have a POA, ask a qualified elder law or estate planning attorney to help you create one. If you already have a POA, review it to be sure it has everything needed, especially if you have a very old POA or one that was drafted in a state other than the one in which you reside.

Reference: The Miami (OK) News-Record (July 7, 2020) “Power of attorney options match different circumstances”

Read more related articles at:

Powers of Attorney Come in Different Flavors

4 Types of Power of Attorney: What You Should Know

Also, read one of our previous Blogs at:

The Second Most Powerful Estate Planning Document: Power of Attorney

Click here to check out our Master Class!

LLC for Estate Planning

Should I Create an LLC for Estate Planning?

Should I Create an LLC for Estate Planning?

If you want to transfer assets to your children, grandchildren or other family members but are worried about gift taxes or the weight of estate taxes your beneficiaries will owe upon your death, a LLC can help you control and protect assets during your lifetime, keep assets in the family and lessen taxes owed by you or your family members.

Investopedia’s article entitled “Using an LLC for Estate Planning” explains that a LLC is a legal entity in which its owners (called members) are protected from personal liability in case of debt, lawsuit, or other claims. This shields a member’s personal assets, like a home, automobile, personal bank account or investments.

Creating a family LLC with your children lets you effectively reduce the estate taxes your children would be required to pay on their inheritance. A LLC also lets you distribute that inheritance to your children during your lifetime, without as much in gift taxes. You can also have the ability to maintain control over your assets.

In a family LLC, the parents maintain management of the LLC, and the children or grandchildren hold shares in the LLC’s assets. However, they don’t have management or voting rights. This lets the parents purchase, sell, trade, or distribute the LLC’s assets, while the other members are restricted in their ability to sell their LLC shares, withdraw from the company, or transfer their membership in the company. Therefore, the parents keep control over the assets and can protect them from financial decisions made by younger members. Gifts of shares to younger members do come with gift taxes. However, there are significant tax benefits that let you give more, and lower the value of your estate.

As far as tax benefits, if you’re the manager of the LLC, and your children are non-managing members, the value of units transferred to them can be discounted quite steeply—frequently up to 40% of their market value—based on the fact that without management rights, LLC units become less marketable.

Your children can now get an advance on their inheritance, but at a lower tax burden than they otherwise would’ve had to pay on their personal income taxes. The overall value of your estate is reduced, which means that there is an eventual lower estate tax when you die. The ability to discount the value of units transferred to your children, also permits you to give them gifts of discounted LLC units. That lets you to gift beyond the current $15,000 gift limit, without having to pay a gift tax.

You can give significant gifts without gift taxes, and at the same time reduce the value of your estate and lower the eventual estate tax your heirs will face.

Speak to an experienced estate planning attorney about a family LLC, since estate planning is already complex. LLC planning can be even more complex and subject you to heightened IRS scrutiny. The regulations governing LLCs vary from state to state and evolve over time. In short, a family LLC is certainly not for everyone and it appropriately should be vetted thoroughly before creating one.

Reference: Investopedia (Oct. 25, 2019) “Using an LLC for Estate Planning”

Read more related articles at: 

How Limited Liability Companies Can Help with Estate Planning

LLC: The Estate Planning Tool

Also, read one of our previous Blogs at :

Small Business Owners Need Business Succession and Estate Planning

Click here to check out our Master Class!

Family Business

How Family Businesses Can Prepare Now for Future Tax Changes?

How Family Businesses Can Prepare Now for Future Tax Changes?

The upcoming presidential election is giving small to mid-sized business owners concerns regarding changes in their business and the legacy they leave to family members. The recent article “How family businesses can come out on top in presidential election uncertainty,” from the St. Louis Business Journal looks at what’s at stake.

Tax breaks. The current estate tax threshold of $11.58 million is scheduled to sunset at the end of 2025, when it will revert to the pre-2018 exemption level of $5 million (as indexed for inflation) for individuals. If that law is changed after the election, it’s possible that the exemption could be phased out before the current levels end.

Increased tax liability. These possible changes present a problem for business owners. Making gifts now can use the full exemption, but future gifts may not enjoy such a generous tax exemption. Some transfers, if the exemption changes, could be subject to gift taxes as high as 40%.

Missed opportunity with lower valuations. Properly structured gifts to family members, which benefit from lower valuations (that is, before value appreciation due to capital gains) and current allowable valuation discounts give families an opportunity to pass a great amount of their businesses to heirs tax free.

Here’s what this might look like: a family business owner gifts $1 million in the business to one heir, but at the time of the owner’s passing, that share appreciates to $10 million. Because the gift was made early, the business owner only uses up $1 million of the estate tax exemption. That’s a $9 million savings at 40%; saving the estate from paying $3.6 million in taxes. If the laws change, that’s a costly missed opportunity.

It’s better to protect a business from the “Three D’s”—death, divorce, disability or a serious health issue, by preparing in advance. That means the appropriate estate protection, prepared with the help of an estate planning attorney who understands the needs of business owners.

Consider reorganizing the business. If you own an S-corporation, you know how complicated estate planning can be. One strategy is to reorganize your business, so you have both voting and non-voting shares. Gifting non-voting shares might provide some relief to business owners, who are not yet ready to give up complete control of their business.

Preparing for future ownership alternatives. What kind of planning will offer the most flexibility for future cash flow and, if necessary, being able to use principal? Grantor Retained Annuity Trusts (GRATs), entity freezes, and sales are three ways the owner might retain access to cash flow, while transferring future appreciation of assets out of the estate.

Know your gifting options. Your estate planning attorney will help determine what gifting scenario may work best. Some business owners establish irrevocable trusts, providing asset protection for the family and allowing the trust to have control of distributions.

Reference: St. Louis Business Journal (April 3, 2020) “How family businesses can come out on top in presidential election uncertainty”

Read more related articles at: 

Preparing to Transition the Family Business to the Next Generation

Tips for starting a successful family business

Also, read one of our previous Blogs at :

Does My Business Need a Succession Plan?

Grandparents with Grandchildren

How do I include my Grandchildren in my Estate Plan?

How do I include my Grandchildren in my Estate Plan?

Grandchildren are often on the minds of those doing estate planning; learn the best strategies for including them in your plan.

Similarly to planning the transfer of assets to your children, how you plan the transfer of your assets to your grandchildren will likely depend on whether they are adults or minors. Also, special needs children may need complete or supplementary financial support throughout their lives; as a grandparent, you may wish to contribute to that, as well.
Grandchildren may be subject to the generation skipping transfer (GST) tax, which is levied in addition to estate and gift taxes.Additionally, paying for education may be a concern as grandchildren transition into adulthood and beyond. If you haven’t already placed assets in a 529 plan, Uniform Gifts to Minors Act (UGMA) account or Uniform Transfers to Minors Act (UTMA) account, doing so during your lifetime may be a strategic way to reduce the value of your taxable estate while working toward education savings goals.If you have a 529 plan, you generally maintain control of the account until the money is withdrawn. Therefore, part of your estate planning might be to update the successor designation, which stipulates who will take over management of the account if you pass away.

And, as always, ensure your beneficiaries are up to date on other assets that have provisions for naming them, including investment and bank accounts with transfer on death (TOD) designations.

For minor grandchildren

If grandchildren are still minors, you may wish to help ensure they are provided for financially. Even if you have other assets you would like to pass to grandchildren, you may want to consider them when you choose your life insurance coverage. You might also want to plan to help cover the cost of college education through insurance, or to provide for grandchildren into adulthood, as well.

Trusts can be especially beneficial for minor children, as they allow more control of the assets, even after your death. By setting up a trust, you can state how you want the money you leave to your grandchildren to be managed, the circumstances under which it can be distributed, and when it should be withheld. You can also determine if your grandchildren will be able to control the money at a certain age as either co-trustees or full owners.


Trusts with distinct benefits for grandchildren

Generation-skipping trusts can allow trust assets to be distributed to non-spouse beneficiaries two or more generations younger than the donor without incurring GST tax.

Credit shelter trusts make full use of each spouse’s federal estate tax exclusion amount to benefit children or other beneficiaries by bypassing the surviving spouse’s estate.

Irrevocable life insurance trusts (ILITs) purchase life insurance policies to provide immediate benefits upon death that do not usually pass through probate.

A trust can also be an effective tool for transferring assets to an adult grandchild, while reducing estate taxes and allowing your influence on the assets even after you have passed away. A simple revocable trust or irrevocable trust may suit your needs, or you may want to consider one of the trusts with distinct benefits for grandchildren, listed at the right.

Retirement plans

Since only spouses have the option of rolling your retirement plan assets into their own IRAs, grandchildren will generally be required to begin taking required minimum distributions (RMDs) soon after your death based on their age—and to pay the associated income taxes.

Additionally, your retirement plan assets will be included in the federally taxable value of your estate. This results in estate tax liability when you pass away (unlike leaving the assets to a spouse, which allows you to take advantage of the unlimited marital deduction).

Although IRAs have no special provisions for naming grandchildren as beneficiaries, your options for grandchildren include:

  • Name grandchildren individually; if any pass away prematurely, the assets will be divided equally among the rest.
  • Choose “Per stirpes,” which means that if one of your children passes away before you do, their share will automatically go to their descendants.
  • Name grandchildren “contingent beneficiaries,” if, for example, you want to name your spouse as the primary beneficiary and your children are financially secure. If your spouse passes away before your IRA is transferred, then the assets would go to your grandchildren.

As always, if you want to name grandchildren as IRA beneficiaries, make sure your designations are up to date.

To learn about the options your grandchildren (and other non-spouse beneficiaries) will have when inheriting an IRA, see If you are a non-spouse IRA beneficiary in Fidelity Viewpoints®.

The rules for 401(k)s and other qualified retirement plans are similar to those for IRAs. If you are married and you want to designate beneficiaries—such as grandchildren—other than your spouse, you may need written consent from your spouse.

Otherwise, retirement plans follow roughly the same guidelines for what is taxable, but other features will vary from plan to plan. Contact the plan’s administrator for specific rules governing your plan.

Special needs grandchildren

For any grandchildren or other beneficiaries who may be unable to care for themselves as adults, you may want to help ensure they have the care and oversight they need for their lifetimes.

If they are unable to make a living for themselves, leaving them assets and making them beneficiaries of life insurance are both options. Trusts can be useful in either case, to help ensure the money is spent properly if they are unable to make spending decisions on their own.

Next step

Estate planning strategies by asset
Consider what kinds of assets you’ll leave to beneficiaries and the top estate planning concerns for each situation.


Read more related articles at:

6 Ways You Can Set Up Savings for Your Grandchildren

What’s the best way to invest money for my grandkids?

Also read one of our previous Blogs at :

Can 529 College Savings Plans Be Used Now in Estate Planning?


10 Reasons Why You Need A Trust

10 Reasons Why You Need A Trust


Christine Fletcher Contributor

If your estate is not subject to estate taxes now, it may be in a few years.

Clients often ask, “Why do I need a trust?” This question comes up even more frequently since Congress passed the Tax Cuts and Jobs Act of 2017, which increased the federal estate tax exemption amount from approximately $5 million per person to $11 million per person or $22 million per couple. Those amounts are adjusted for inflation, so this year the exemption amount is $11.4 million per person.

If you and your spouse have less than $22 million, you may think you can get by with a simple will. Here is why you need more than that.

The tax cuts are temporary. The $11 million federal estate tax exemption amount is scheduled to drop back to the $5 million range in 2026. If your estate is not subject to estate taxes now, it may be in a few years.

Your state matters. Your state may impose its own state estate tax. This is true of Massachusetts which has a $1 million estate tax exemption. If you own real estate in another state, you may be subject to that state’s estate tax laws as well. You should be planning to minimize state estate taxes in all applicable states. (Explore 2019 state estate and inheritance taxes.)

Avoiding probate. If you fund your trust during your lifetime, you will avoid probate. Avoiding probate means your family will not have to go to court to authenticate your will after your death in order to access your assets. This saves time and money.

Planning for incapacity. Another benefit to funding your trust while you are alive is that your successor trustee can access the assets for your benefit if you become incapacitated. If you are in the ICU or a long-term care facility, who will pay your bills and manage your assets? If your trust is funded, the successor trustee can do that. Otherwise, your family may have to go to court to have a conservator appointed to oversee your assets.


Limiting children’s access to their inheritance. If you have minor children, you want to make sure their inheritance is overseen by a trustee until they are old enough to manage the monies themselves.

Making lifetime gifts to children. If you want to make a lifetime gift to a child, this is best done through an irrevocable trust to define the child’s access to the funds and to allow you some tax savings.

Protecting beneficiaries from themselves. If a beneficiary has a drug addiction, is a spendthrift or just makes poor choices, having a trustee limits their access to the trust funds.

Divorce happens. If a beneficiary goes through a divorce, a trust could prevent their divorcing spouse from obtaining all or a portion of their monies in a settlement.

Creditor protection. If a beneficiary is in a business or profession that makes her susceptible to lawsuits, having a trust can protect the assets and keep them out of reach by her creditors. Clients with children who are physicians often keep the child’s inheritance in trust to protect from any such judgments.

Preventing bad decisions by a surviving spouse. Do you really want him or her spending your hard-earned money on European vacations with the pool boy or the local cocktail waitress? What if your surviving spouse blows the money on shopping trips leaving your children with nothing? I have seen both situations and they are not pretty. Trusts can prevent these scenarios.

Different trusts serve different purposes. Estate tax savings can be an important part of trust planning, but there are many other facets of trust planning to consider and incorporate into your estate plan.

Read more related articles at :

We Asked Our Experts: Do You Need a Trust?

Understanding the Differences Between a Will and a Trust

Also, read one of our previous Blogs at :

Not a Billionaire? Trusts Can Still Be Beneficial


family farm

Estate Planning for Family-Owned Farmland

Estate Planning for Family-Owned Farmland


Family farms, particularly in the Southeastern and Midwestern United States, are often maintained for generations. In many cases, these are one of or the dominant asset in the family. Family-owned farms and associated timberland are also a tradition for many private investors, which can be used for both commercial and recreational purposes.

As the number of heirs grows and family dynamics change, however, farm succession planning can be an extremely challenging task. There is no cookie cutter approach for estate planning, particularly for farms and farm assets, and typically farm transitions are a lengthy and complicated process.  The over-arching goal is to avoid breaking up the farm upon the death of the older generation in order to pay estate taxes. Below is a brief list of key issues to consider in order to successfully transfer farm businesses, farmland and timberland interests with the goal of keeping these generational assets within the family.

Heirs, Taxes and Family Dynamics

The timeline of farm transfer should be driven by the scope of the farm, the type of farm assets such as land, timber, equipment and livestock, and the personal goals of the each generation, including parity for non-farming heirs.   Large-scale family farmland succession involves legal, business and tax issues, as well as personal issues such as death, control and money, all of which should be treated with care.   Some farm and timber heirs are land rich and cash poor, making the estate tax settlement particularly challenging.  The use of lifetime financial transfers, such as taxable unified credit gifts and annual exclusion gifts, as well as life insurance proceeds on the older generation, are also part of a well-rounded estate plan.

Non-farming heirs may elect to be bought out in a manner that doesn’t break up the farm.  One option is to establish a ‘rent’ to be paid to them over time. Additionally, non-farming heirs that maintain their ownership interest can establish a salary to the heir who is managing the farm.

Business Entity Transfer

Transferring the farm or timber business typically precedes transfer of the actual farmland or timberland, and restating the partnership agreement or operating agreement is likely the first thing to be addressed. Primary issues are management rights and income rights.  To smooth out transfer of business interests from one generation to the next, a suitable business entity must be determined.  Certain legal structures, such as LLCs, partnerships and corporations, allow easy valuation, ownership record-keeping and book-keeping to facilitate gradual transfers by use of units or shares.   Trusts are also commonly used to prevent any heirs’ potential creditors and divorce, among other reasons, from putting in jeopardy the ownership of the farm.  Conservation Easement sales or donations on farmland, timberland and/or wetlands can also generate cash to facilitate the family’s estate plan, as these ‘qualified’ sales/donations entitle the owner to a number of worthwhile tax benefits.

Farmland/Timberland Transfer – Discounted Sales

As mentioned earlier, lifetime financial transfers are important for farm estate planning, particularly in certain ownership structures where discounted valuations of 20%-40% due to a minority interest and lack of marketability assist in the process.

Farmland & Timberland as Alternative Investments

These types of assets are viewed as low-correlating diversifiers to traditional stocks and bonds, as well as to commodities, hedge funds and private equity, and serve numerous purposes as alternative investments.   Agricultural and timberland are traditionally seen as inflation hedges through capital appreciation, and may also have the added benefit of income generation.  Furthermore, farmland has traditionally been a strong investment as suburban development takes more and more cropland and timberland acreage out of commission despite rising global food demand.

Read More Relaed Articles at :

Five Tips for Passing on the Farm

3 Succession Solutions for Family Farms

Also, read one of our previous Blogs at :

What Do Farmers Need to Create an Estate Plan?


Family Estate Plan

5 Estate Planning Strategies to Keep Your Money in the Family

5 Estate Planning Strategies to Keep Your Money in the Family

The inheritance you leave could still be eaten away by taxes and expenses. Here are five strategies to avoid that.

By Maryalene LaPonsie, ContributorNov. 19, 2015, at 11:07 a.m.

5 Estate Planning Strategies to Keep Your Money in the Family

It’s an obvious first step, but many people don’t even bother to draw up a will.

IF YOU’RE SINGLE, YOU can have up to $5.45 million in assets before your heirs have to worry about paying a penny in estate taxes.

Knowing that, you might assume only the super wealthy need to worry about estate planning. However, financial planners say you’d be wrong to think planning is only necessary for the 1 percent.

“The bigger issue in estate planning for the majority of people is managing the step-up in basis on inherited assets and income taxes,” says Matt Anderson, a certified financial planner and vice president of The Wise Investor Group in Reston, Virginia.

The step-up in basis refers to how assets such as investment property and second homes are valued and taxed after a death and how taxes are levied against traditional IRAs and 401(k)s inherited by someone other than a spouse.

What’s more, states may want their piece of the pie. “If you’re just looking at the federal [estate tax exemption] number, you might not realize your state has a lower limit,” says AJ Smith, managing editor of the finance site SmartAsset.com. New Jersey has the lowest exemption, with state estate taxes kicking in once assets exceed $675,000 per person – a number that’s not hard to reach for those who have been saving since early adulthood.

Meeting with an accountant and an estate attorney is the best way to sort through complex issues such as the step-up in basis for property. While you’re talking to the pros, ask them about the following five strategies.

Draw Up a Will 

It’s an obvious first step, but many people don’t even bother to draw up a will. In fact, a 2014 Rocket Lawyer survey of 2,048 adults found 64 percent of Americans don’t have a will. What’s more, 17 percent said they didn’t think they needed one.

Speak with the Right Financial Advisor For You

Finding the right financial advisor that fits your needs doesn’t have to be hard.SmartAsset’s free tool matches you with top fiduciary financial advisors in your area in 5 minutes.Each advisor has been vetted by SmartAsset and is legally bound to act in your best interests. If you’re ready to be matched with local advisors that will help you achieve your financial goals,get started now

However, without a will, your estate must be divided in probate court, a process that could leave your beneficiaries footing a big bill. “If your estate is not properly constructed, the only person that wins is the attorney,” says Sean P. Lee, co-founder of the financial education organization Retirement Elevated.

Check Your Beneficiaries

Not all assets are disbursed through a will. Some accounts, such as retirement funds and life insurance policies, let owners name beneficiaries for that particular asset.

“You’d be surprised how many people have no beneficiary or a previous spouse listed,” Lee says. Without a named beneficiary, an account will need to go to probate court, where a judge will decide who gets the money.

It’s a good idea to review beneficiary information after every major life change, including the birth of children, marriage or divorce. As Smith says, “You want your money to go where you want it to go.”

Set up a Trust

If you have a sizeable estate or are worried your heirs won’t be wise with your money, you can set up a trust and appoint a trustee to distribute your wealth.

Trusts can be set up in several ways, but irrevocable, or permanent, trusts may offer the most tax benefits. When money is put into an irrevocable trust, the assets no longer belong to you. They belong to the trust itself. As a result, the money cannot be subject to estate taxes. While a trustee ultimately controls the money, you can create stipulations on its use, and money can be distributed from a trust even while you are alive.

A trust does have to pay taxes on its income from dividends, interest and other sources, and the tax rates for trusts can be higher for individuals. For that reason, Anderson suggests people pay expenses from a trust, whenever possible.

For example, if you were planning to help your child with a down payment on a house, it may make more sense to transfer money from a trust rather than pull cash out of a different account. “Using money from a trust will cause income to be taxed at the beneficiary’s potentially lower tax rate, instead of the trust’s tax rate,” Anderson says.

Because of the complex nature of trusts, you’ll want to consult with an estate attorney to determine how best to create one that meets your goals.

Convert Traditional Retirement Accounts to Roth Accounts

Leslie Thompson, a certified financial planner at Spectrum Management Group in Indianapolis, says the biggest surprise for many people is that their traditional IRAs and 401(k)s are subject to income tax if passed to a beneficiary who is not a spouse. “People think just because they have $100,000 in an IRA, their beneficiaries are going to get $100,000,” she says.

In reality, that money is subject to income tax. Currently, those taxes can be spread over the life of the beneficiary, but that might change.

“Both [political parties] are talking right now about potentially forcing people to take that money over a shorter period,” Thompson says. Instead of stretching payments – and taxes – over a person’s expected lifespan, some proposals call for IRAs to be cashed out, and fully taxed, in as little as five years.

You can avoid leaving your beneficiaries with that tax bill by gradually converting traditional accounts to Roth accounts that have tax-free distributions. Thompson says her firm recommends clients make a series of conversions over several years. Since the amount converted will be taxable on your income taxes, the goal is to limit each year’s conversion so it doesn’t push you into a higher tax bracket.

Gift Your Money While You’re Alive

One of the best ways to ensure your money stays in the family is to simply give it to your heirs while you’re alive. The IRS allows individuals to give up to $14,000 per person per year in gifts. If you’re worried about your estate being taxable, those gifts can bring its value down. The money is also tax-free for recipients.

A similar way to reduce your estate value is through charitable donations. As a twist on that idea, Thompson suggests setting up a donor-advised fund. This option would give you an immediate tax deduction for money deposited in the fund, and then let you make charitable grants over time. By naming a child or a grandchild as a successor for the fund, “it would keep the family involved in philanthropy,” Thompson says.

Complex strategies and the ever-evolving tax code can make estate planning feel intimidating. However, ignoring it can be a costly mistake for your heirs, even if you don’t have a lot of money in the bank. “Estate planning needs to happen for everybody,” Lee says.

Hopefully these 5 Estate Planning Strategies to Keep Your Money in the Family have helped you to make some important decisions about your own Estate Planning.

Read more related articles at :

Estate Planning: A Family Affair

5 Strategies To Protect Family Wealth

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How Do Family Relationships Mess Up Estate Planning?

blowing inheritance

5 Strategies to Keep Your Heirs From Blowing Their Inheritance

5 Strategies to Keep Your Heirs From Blowing Their Inheritance

Preserving the family money beyond a few generations isn’t an easy task.
From Kiplinger’s Personal Finance, November 2015

From shirtsleeves to shirtsleeves in three generations, goes the early 20th-century American proverb. Then there’s the 19th-century British version: Clogs to clogs in three generations. And from Italy, date uncertain: From the stable to the stars and back again. You’ll find similar sentiments in almost every language, all expressing the same thought: It’s nearly impossible to pass on family wealth and have it last beyond your grandkids.

Statistics back up the folklore. Studies have found that 70% of the time, family assets are lost from one generation to the next, and assets are gone 90% of the time by the third generation.

That’s because a crucial element of successful inheritances is often neglected. Traditionally, the focus has been on the givers of wealth, but it should rather be on the receivers. Investing assets wisely and crafting a good estate plan are crucial to success, but so is preparing the heirs. “Estate planning is a process to transfer wealth, but it doesn’t help the family develop an infrastructure to sustain it, or keep the family unified from one generation to the next,” says Debbie Dalton, a Bay Village, Ohio, resident, whose family is learning how to successfully steward the wealth that her father, a chemical engineer, amassed as founder of cryogenic equipment maker Chart Industries.

Preparing the next generation has a lot to do with financial literacy. But it has just as much (if not more) to do with passing down and putting into practice values that will sustain your family as well as your fortune. In other words, a successful inheritance is as much about parenting as it is about money management, and that goes as much for multimillionaires as for mom-and-pop investors with a six-figure portfolio to pass along.

Inheritances gone wrong

It’s counterintuitive to think about the downside of inherited wealth, and it may be off-putting for families of modest means. But giving money to kids can be fraught with danger, says Brad Klontz, a psychologist and certified financial planner. First-generation wealth creators, often coming from poverty or a middle-class background, have worked hard, made mistakes, picked themselves up and persevered. Along the way, they’ve become self-disciplined, resourceful and resilient.

“You assume that those values will trickle down automatically,” says Klontz. “But your children are having a vastly different experience of the world than you had.” Parents who strive to give their kids what they themselves never had (which is what many worked so hard for, after all) can wind up fostering financial de­pendence, and raising kids who lack drive, creativity or passion, Klontz says.

In the book Inherited Wealth, John Levy lists a number of challenges that accompany a family windfall, observed over many years of consulting with families on inheritance issues. According to Levy, inheritors can lack self-esteem if they suspect that their success stems from their wealth instead of their efforts. Or, feeling guilty, they find it hard to accept good fortune that they didn’t earn. Their emotional development can be delayed if they never face important life challenges. Boredom can be a problem, and because of the boredom, inheritors are at risk for substance abuse or other self-destructive behaviors. Finally, heirs can be stymied by too many options or paralyzed by a fear of losing their wealth.

Little wonder that rich people from Warren Buffett to Sting have vowed to “spare” their children from inheriting fortunes, choosing instead to give most of theirs away or spend it. Buffett has said the ideal inheritance for kids is “enough money so that they would feel they could do anything, but not so much that they could do nothing.” Sting told Britain’s Daily Mail last year, “I certainly don’t want to leave them trust funds that are albatrosses round their necks.”

But that attitude is rare among wealthy parents, says Rod Zeeb, CEO of the Heritage Institute, which trains advisers and works with families to prepare younger generations for their inheritances. “When it comes down to it, most parents don’t want to disinherit their kids,” he says. What they’d prefer is a game plan that will not only keep the family assets intact but also keep the kids grounded, healthy and productive.

Richard Hansen had a plan from the get-go. The retired Navy man, who lives most of the time in Virginia Beach, Va., has done very well as a military contractor for several government agencies, including the departments of State and Homeland Security. “I come from a working-class family,” he says. “I always intended that if I made something of myself, I’d give back and make sure my children and grandchildren did, too. They were not going to be that second- and third-generation family that didn’t understand where they came from.”

Hansen’s four adult kids all have jobs, and they are not wealthy — but they will be when they inherit. In preparation for that day, they’ve taken an active role in the family foundation, learning to invest money and to give it away wisely. Family members, including an 11-year-old granddaughter, support causes ranging from ending homelessness to animal rights to the arts. Each of them knows what’s involved in making the money to give away, how to pitch a project to a board of directors and how to analyze costs, set priorities and evaluate outcomes. “Each of my children can stand on his or her own anywhere in the business world,” says Hansen. “That’s the greatest thing I’ve been able to do for them — that, and making sure that they’re not rotten, spoiled brats.”

A five-point plan

A growing number of families are turning to advisers and specialized programs to help prepare the next generation for the riches they will inherit, in a way that goes beyond the benchmarks of money managers and the legalese of estate lawyers. Here’s some of what those advisers recommend.

Get over the money taboo. Family finances are often an unpopular topic of discussion, especially if parents are worried that family wealth might spoil their kids. “It becomes a big elephant in the room,” says Daisy Medici, managing director of governance and education at GenSpring Family Offices, a unit of SunTrust Banks. “The kids are surrounded by wealth and the opportunities that it brings, but the family doesn’t talk about it,” she says. Young people with no preparation who suddenly come into a trust fund because they’ve turned 21 — or, heaven forbid, the parents die in an accident — can be completely derailed, the same way lottery winners often are.

The same goes for spouses. “My father retired and a couple of years later was diagnosed with lung cancer. He died within six weeks,” says Dalton. The tragedy was compounded by the fact that Dalton’s mother was unprepared to take the financial reins, having been shielded from much of that responsibility during her marriage. “I was really angry at my dad for that. It was well intentioned, but my mother was paralyzed,” says Dalton. It didn’t help that the transition took place in 2008, as the family’s investments were being pummeled by a bear market. The family assets survived the bear market, and Heritage Institute coaching has since helped Dalton’s mom develop her own voice and leadership style. Coaching has also helped the family to coalesce around the Christian values they want to shape their legacy, says Dalton.

Sometimes parents are silent because they’re not sure their money will outlast the health challenges of old age or mercurial financial markets. Whatever the reason for the lack of communication, heirs who are ill-prepared are left to wonder why their parents thought they were incap­able of handling the information or couldn’t be trusted with it. Better to be up front about the wealth you have and your plans for it. And don’t forget about how it came to be in the first place, especially if the wealth was created several generations ago.

Embark on a mission. Make sure your legacy is about more than money. Many families find a mission statement helpful. After meeting with a family, wealth transition coaches at the Williams Group, in San Clemente, Calif., will have family members write on an easel the values they want to emphasize in their lives — say, education, philanthropy or self-sufficiency. “It takes half a day, and the paper is several feet long,” says founder Roy Williams. “Most of them frame it and hang it in their family offices.” In light of those core values, the family identifies the long-term purpose of their wealth in a mission statement.

Williams considers crafting the mission statement a crucial exercise. His study of 3,250 families found that a breakdown in trust and com­munication is behind 60% of failed inheritances. Involving the whole family in determining common objectives and deciding how they’ll be accomplished avoids the trap of Mom or Dad dictating the future to their children. It can also smooth tensions between family factions — between those running the family business, for example, and those not involved.

Raise money smart kids. From an early age, children should be taught bud­geting and delayed gratification, even if you can afford to give your kids everything they want and more. It doesn’t matter if the monthly budget is $3,000 or $30,000, “there’s no amount of money that can’t be spent through,” Medici reminds her clients. When kids are little, get them a piggy bank with three slots or three separate piggy banks — one for spending, one for saving and one for giving. Remind grandparents who are fond of cash gifts to make them in multiples of three.

Let older kids budget an allowance to cover their expenses. Figure the monthly average spent on a teen’s car insurance, cell phone and so on, and then give the young adult an allowance to pay those bills. The tough part is letting the phone get shut off or taking back the car if the bills are not paid. “It all goes back to the law of consequences,” says Zeeb. “Without a budget, kids never learn to prioritize or make decisions.”

Provide financial training wheels. Don’t make the mistake of delaying all access to the family fortune in order to preserve it. Brian Matter, a certified financial planner at Creative Capital Management, in San Diego, encourages clients to seed an investment account when children are in their late teens. Allow the child to make investment decisions, and agree to match a percentage of the returns earned over a specific time period. The child can withdraw money from the account, but the parent can’t add to the principal. This teaches the child about investing and spending, and it illustrates the power of compound growth as well as the opportunity cost of robbing a nest egg. “We had one client try this, and the child decided to withdraw all the money within the first six months for a lavish trip to Paris. The parents changed their estate plan as a result,” says Matter.

The Dalton kids and their cousin share responsibility with their parents for the management of a family lake house in upstate New York, owned jointly and organized under the legal structure of a limited liability corporation. Debbie Dalton says she expects that the kids will soon take an active role in directing some of the family’s charitable giving, as well. Such experiences boost the odds that when it’s the next generation’s turn to manage the family business or an investment portfolio, “they’ll have the skills, knowledge and insight to be effective,” says Jeff Ladouceur, a director at SEI Private Wealth Management.

Assemble a good team. In addition to a cadre of advisers that includes investment managers, tax preparers, estate planners and trust lawyers, bring in mentors for the next generation — especially for teens and young adults, who might not always see Mom and Dad as the font of all wisdom. Enlist qualified associates, such as financial advisers, board directors you may know and other successful businesspeople. “The smartest thing I did was bring in outside expertise at the highest level,” says Hansen, the contractor, of the board members he has enlisted for his foundation. “Several of them have managed millions — billions — of dollars. The value they add is incredible.”

A de facto advisory board comes in handy when your kids’ friends and classmates start to hit them up for contributions to investment schemes or business start-ups — the surest way, other than overspending, for young adults to fritter away an inheritance, says Zeeb. “They want to help their friends by nature, but the best way is to defer. If the committee says yes, the kid’s a hero; if it says no, it’s not his fault.”

In the end, you’ll have the best shot at preserving both your wealth and your family with a multigenerational effort that begins when your kids are born, not when you die. Dalton, for one, is pleased with the path her family is now on, and she urges others to get started. “Unlike investing, where timing can be critical, there’s no bad time to invest in your family’s legacy. You should start now.”

The power of a trust

As a parent, your vision of how your legacy is passed on to the next generation and beyond probably doesn’t linger on legal vehicles. But such structures are key to achieving your goals.

When it comes to distributing assets, many families turn to trusts. Trusts come in more flavors than Baskin-Robbins ice cream. Depending on the arrangement, they can minimize estate taxes, protect your estate from the mistakes of your heirs or maintain privacy by avoiding probate. The cost to set one up typically ranges from $3,000 to $10,000; it can be more, however, depending on complexity, with additional costs for individual tweaks and maybe 1% of assets to administer it.

revocable or living trust lets you keep control of your assets while you’re alive. Although assets usually pass directly to your heirs, bypassing probate, a revocable trust won’t spare you from estate taxes. If that’s your main goal, then an irrevocable trust, which effectively removes trust assets from your estate, is the way to go. A lifetime asset protection trust might be in order if you have concerns about the ability of your heirs to preserve your estate. Beneficiaries are protected against creditors, bankruptcy — even future ex-spouses — because assets belong to the trust, not the beneficiary.

Whichever trust you choose, consider inserting a personal message to your heirs to breathe life into an otherwise sterile document. You might include the stories behind family heirlooms, for instance. Or, instead of imposing edicts and tying distributions to certain achievements, express why you value education or entrepreneurship. “This is the last message we get to leave,” says John Warnick, of the Purposeful Planning Institute. “When it comes in a positive and warm way, it has a tremendous impact.”

Read more related articles at:

How to Keep Your Heirs from Blowing Their Inheritance

How to keep your kids from blowing the family fortune

Also read one of our previous Blogs at :

Should I Use a Trust to Protect My Children’s Inheritance?




Requests for Estate Plans Reflect Fears about Coronavirus

Requests for Estate Plans Reflect Fears about Coronavirus

Estate planning lawyers have always known that estate planning is not about “if,” but about “when.” The current health pandemic has given many people a wake-up call. They realize there’s no time to procrastinate, reports the article “Surge on wills: Fearing death by coronavirus, people ask lawyers to write their last wishes” from InsuranceNews.net. Legal professionals urge everyone, not just the elderly or the wealthy, to put their end-of-life plans in writing.

The last time estate planning attorneys saw this type of surge was in 2012, when wealthy people were worried that Congress was about to lower the threshold of the estate tax. Today, everyone is worried.

Top priorities are creating a living will stating your wishes if you become incapacitated, designating a surrogate or a proxy to make medical decisions on your behalf, granting power of attorney to someone who can make legal and financial decisions and preparing advance directives, such as “Do Not Resuscitate” orders.

An estate plan, including a last will and testament (and often trusts) that detail what you want to happen to assets and who will be guardian to minor children upon your death, spares your family the fights, legal costs and hours in court that can result when there is no estate plan.

The coronavirus has created a new problem for families. In the past, a health care surrogate would be in the hospital with you, talking to healthcare providers and making decisions on your behalf. However, now there are no visitors allowed in hospitals and patients are completely isolated. Estate planning attorneys are recommending that specific language be added to any end of life documents that authorize a surrogate to give instructions by phone, email or during an online conference.

Any prior documents that may have prohibited intubation need to be revised, since intubation is part of treatment for COVID-19 and not necessarily just an end-of-life stage.

Attorneys are finding ways to ensure that documents are properly witnessed and signed. In some states, remote signings are being permitted, while other states, Florida in particular, still require two in-person witnesses, when a will or other estate planning documents are being signed.

There are many stories of people who have put off having their wills prepared, figuring out succession plans that usually take years to plan and people coming to terms with what they want to happen to their assets.

Equally concerning are seniors in nursing homes who have not reviewed their wills in many years and are not able to make changes now. Older adults and relatives are struggling with awkward and urgent circumstances, when they are confined to nursing homes or senior communities with no visitors.

Reference: InsuranceNews.net (April 3, 2020) “Surge on wills: Fearing death by coronavirus, people ask lawyers to write their last wishes”

Read more related articles at :

A Guide To Estate Planning During The Coronavirus Pandemic

Estate Planning Industry Sees Boom During Coronavirus

Also read one of our previous Blogs at :

Coronavirus Trusts? Suddenly Estate Planning Is More Popular



A Good Move to Make during the Pandemic

While most of those infected with COVID-19 will recover, about 20% need hospitalization, and in the absence of widely approved treatment, those who are placed in the ICU can be in grave danger.

Thousands of deaths from the coronavirus is making many of us look at death more seriously than we would otherwise. Many Americans are looking to create a will, and if you don’t have this important document in place, it’s critical that you create one immediately — just in case.

Motley Fool’s recent article entitled “The 1 Move You Must Make During the COVID-19 Crisis” says that about 37% of Americans have a will. Without one, you’ll risk having little to no say over what happens to your assets in the event of your passing.

It’s not uncommon for people to say things like, “I’m not rich and have very little money to my name, so who cares who gets it after I pass?” This is not so. Even if you only have a modest amount of assets, it’s wise to make out a will, so your wishes are carried out.

If you have minor children, you need to designate a guardian to care for them, if you should die and they don’t have another living parent. This isn’t a question you want to leave unanswered, and you don’t want to leave your family members to fight over who will take on the assume the responsibility of taking in your children.

Create a will with the help of an estate planning attorney. If you create one online, you risk missing nuances that may be important in the event of your passing. If your estate is somewhat complex, it’s worth the money to use a legal expert.

Another estate-planning document to create includes a financial power of attorney, which designates someone to make financial decisions on your behalf, if you can’t.

A healthcare proxy is a person who can make medical decisions on your behalf. Ask your estate planning attorney to help you determine which documents will benefit you.

With our major health crisis, it’s not really the time to delay creating a will, if you don’t have one already. This document could give you and your loved ones peace of mind, when comfort goes a long way.

Reference: Motley Fool (April 6, 2020) “The 1 Move You Must Make During the COVID-19 Crisis”

Read some related articles at :

Americans rush to make online wills in the face of the coronavirus pandemic

Coronavirus leads to surge in wills: ‘Everyone is thinking about their mortality’

Also read one of our Previous Blogs at :

C19 UPDATE: Beware the Rush to Make Your Own Will Online



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