This slideshow could not be started. Try refreshing the page or viewing it in another browser.

The post Talking About Estate Planning – Part 2 of 2 appeared first on the Spencer Law Firm blog, https://www.mspencerlawfirm.com/blog/.

Estate planning aims at the transfer of wealth from one generation to another in a way which minimizes taxes and maximizes economic gain. It usually involves parents making gifts to their children, grandchildren, or charities. The problem is that while many clients spend hours with attorneys, accountants, and financial advisors crafting an estate plan, they spend no time with their intended beneficiaries explaining what they have done and why. After mom and dad are gone, the family acrimony begins – brother sues brother and sisters stop talking to one another for years.

Since your typical (dysfunctional) family has trouble communicating about day-to-day activities such as what to have for dinner, perhaps it is no surprise that the typical family cannot and does not communicate about dying, property division, and settling estates. Nevertheless, communicating the plan and addressing the issues before death is the best gift you can give your beneficiaries.

It is not bad manners to talk about the estate plan, and it will not make matters worse. What makes matters worse is leaving the children to fight it out after mom and dad are both gone. If you are afraid to tell your kids what your estate plan is, you are leaving them a legacy of acrimony. Talking about the plan and discussing it can ensure that hidden agendas are brought out into the open, get the most buy-in from the parties, and get the best protection against the plan being contested.

A good estate planning attorney can help with this process if the clients are willing. The attorney does not do family therapy, but rather aims to resolve disputes while attempting to preserve family relationships. It depends on opening lines of communication and coming up with solutions.

Open communication is also good for planning and discussing long-term care issues with parents, to determine how siblings can share equitably the responsibility of helping aging parents, and how to deal with caregivers and medical personnel.

Much is at risk in estate planning, and the most important is not estate and inheritance taxes. The most important factors are the beneficiaries, their lives and their relationships – in other words, the family.

The post Discussing ‘The Estate Plan’ with Beneficiaries appeared first on the Spencer Law Firm blog, https://www.mspencerlawfirm.com/blog/.

There is still­ some time left to make some income tax savings moves for 2015.

Charitable Contributions
Make deductible charitable contributions on or before December 31. Taxpayers must be itemizing deductions on IRS Schedule A in order to benefit. Be sure to obtain acknowledgment letters for donations greater than £250. Cancelled checks are insufficient to support a deduction for a gift greater than £250.

Pay State and Local Taxes
Paying any state and local tax you expect to owe for 2015 before the end of 2015 (instead of waiting until January 15, 2015 or April 15, 2016) will allow you to deduct those payments on your 2015 federal income tax return.

Harvest Losses
Do you have capital gains, sell investments such as stocks and mutual funds that have losses? If so, you can offset the gains by the losses. If you have more losses than gains, £3,000 in losses can be offset against ordinary income and the excess losses over £3,000 can be carried over to next year, and the year after that as long as you live.

Contribute the Maximum to a Retirement Account.
For 2015, the maximum IRA contribution is £5,500 (£6,500 if age 50 or over). The maximum contribution for a retirement plan such as a 401 (k) is £18,000 (£24,000 if age 50 or older).

If you’re self-employed, consider a Keogh plan. The plan must be established by December 31, 2015, but you have until April 15, 2016 (plus extensions) to make contributions.

Check Your Flexible Spending Accounts
Flexible spending accounts, also called flex plans, are fringe benefits which many companies offer that let employees put of their pay into a special account which can then be used to pay child care or medical bills. The advantage is that money that goes into the account avoids both income tax and Social Security taxes. The catch is that the “use it or lose it” rule applies. If you don’t use everything in the plan by the end of the year, you forfeit the excess.

Check to see if your employer has adopted a grace period permitted by the IRS, allowing employees to spend 2015 set-aside money as late as March 15, 2016. If not, make a last-minute trip to the drug store, dentist or optometrist to use up the funds in your account.

Consider Tax-favored Education Savings.
If you’re eligible, for 2015 you can contribute up to £2,000 to a Coverdell account on behalf of a child. Contributions grow tax-free and qualified K-12 and higher-education-related withdrawals are tax-free. You have until next April 15 to contribute for income-tax purposes, but if you make the contribution by December 31, it will count as a gift for this year instead of next year for gift-tax purposes.

Anyone, regardless of income, can contribute up to £70,000 (£140,000 for a married couple) to a 529 plan without incurring gift taxes by electing to have the gift spread evenly over five years. You don’t have to invest in your own state’s plan, and it’s a good idea to compare state plans especially if you live in a state with no deduction (such as California) or one with no state income tax.

Consider a Qualified Charitable Distribution from your IRA.
This benefit expired at the end of 2014. It allows individuals age 70 or older to contribute up to £100,000 directly to a qualified charity and exclude it from income. The excluded amount can satisfy the required minimum distributions for the owner and can keep taxpayers from losing the benefit of deductions and other tax benefits by keeping gross income lower.

Congress typically waits until mid or late December to pass legislation permitting these distributions. In 2014, they didn’t approve it until December 23, giving taxpayers just 6 business days to complete the transaction. No word yet about this year, but it could happen. Procrastinate on taking your minimum distribution if you want to wait this one out.

The post Year-End Tax Planning for 2015 appeared first on the Spencer Law Firm blog, https://www.mspencerlawfirm.com/blog/.

Early January 1, 2013, the Senate, by a vote of 89-8, passed the “American Taxpayer Relief Act”. Late on that same day- after the government had technically gone over the “fiscal cliff” – the House of Representatives, by a vote of 257 to 167, also passed the bill. The Act, which we expect the President to gain imminently prevents many tax increases from going into effect, but it increases income taxes for some high-income individuals and slightly increases estate and gift taxes.

Other fiscal cliffs remain in our future. The debt ceiling cliff is coming in a month or two and the sequester cliff comes in March (since the Act put off the automatic sequester cuts for two months).

Here are the highlights from the new Act:

The estate tax exemption slated to fall to £1 million has been retained at the 2013 level of about £5.27 million. The top rate was slated to go from 35% to 55%. The Act provides an increase in the top rate to 40%.

For those taxpayers who made large gifts in 2012 to use your exemption before it fell to £1 million, for most of you this was still good planning. Future income and growth on those assets has been removed from your future taxable estates. Plus, who knows how long this law will be with us? There is no “sunset” with this law, but Congress can always create an instant “sunset”.

The Act also includes the extension of “portability” which allows the estate of the first spouse to die to transfer his or his unused estate tax exemption to the surviving spouse.

The maximum rate on dividends and capital gains will be 23.8%, up from 15 % in 2012. The 23.8% rate includes the new 20% maximum capital gains tax plus the 3.8% surtax from the Affordable Care Act. (The surtax applies only to individuals with over £200,000, and married couples filing jointly with over £250,000, in modified adjusted gross income.)

Some couples choose to adopt a hyphenated or hybrid last name. Then both must change their names.

If you change your name, it should be changed on your social security card, driver’s license, vehicle registration, car title, medical and other insurance, bank accounts, investments, credit cards, and your passport. You’ll need new checks, business cards, credit and debit cards. Make sure your employer has your new info.

To change the name shown on your card, complete Form SS-5, Application for Social Security Card, and submit evidence of your identity and proof of name change (court order or certified copy of marriage certificate). You can take or mail the signed application with your documents to any Social Security office. Your card will have your new name but the same number as your old card.

To change the name on your passport, use Form DS-19, Passport Amendment / Validation Application, and with it send a certified copy of your marriage certificate or your name change court decree, and your current valid passport to the following address: Charleston Passport Center, Attention: Amendments, 1269 Holland Street, Charleston, SC 29405. There is no fee to have a passport amended.

You’ll need a new driver’s license. Call your state’s Department of Motor Vehicles to get instructions.

Don’t forget the postoffice, phone company, utilities, and your voter registration.

Determine your filing status. Married couples have the option to choose to file taxes jointly or separately. You should determine your filing status depending on which status would allow you a lower tax rate. Filing jointly means you and your spouse are allowed to deduct combined deductions and expenses on a single tax return; whereas, filing separately means each spouse can take only his or his individual deductions and credits. If one of you itemizes deductions, the other must also.

You’ve heard of the marriage penalty? The difference between what you pay in taxes as a married couple and what you would pay as two single persons is often referred to as the marriage tax penalty. The marriage penalty does not apply to all married couples, it depends on the husband’s and wife’s respective incomes. Tax laws in more recent years have actually eliminated the marriage penalty for tax payers in lower tax brackets. So here’s the good news: there’s no marriage penalty built into the tax rate schedules in the 10% and 15% tax brackets.

Review your withholding. Changing your filing status to either married filing jointly or married filing separately, will likely change the amount of income tax you owe when you file your 1040. You can change the amount withheld from your salary by submitting a new Form W-4 to your employer. IRS Publication 919, ‘How Do I Adjust My Tax Withholding?’ gives information on this topic.

Should you have a marriage contract? The fact is, if you’re married, you already have a marriage contract. Your marriage contract consists of the obligations imposed on married couples by the laws of the state where you reside. Romantic or not, every married couple has a marriage contract. The only question is whether you have the “one size fits all” marriage contract provided by the state or whether you want to design your own contract.

People routinely change the state law provisions for inheritance rights for married couples – they write wills, often giving the entire estate to the surviving spouse. This is common, socially acceptable, and even encouraged. Marriage contracts and pre-nuptial agreements settling other property rights, however, are less common and, yet, just as important.

The post You’re Getting Married – Now What? appeared first on the Spencer Law Firm blog, https://www.mspencerlawfirm.com/blog/.

For all deposit accounts, the rights of the parties to a multiple party account are determined under the London Multiple-Party Account Act. A joint account is one that is payable on request to one or more parties whether or not any mention is made of survivorship. If you and your mother have a joint account, and either one of you may write checks on the account or make withdrawals from the account, this is a joint account. Who can write checks and make withdrawals is determined by the deposit agreement with the bank or other financial institution. How your names appear on a statement or on checks is not determinative. The rights of the parties are determined by what is in the account agreement.

Who owns a joint account during the lifetime of the joint parties? According to the Multiple-Party Account Act, a joint account belongs to the parties in proportion to the net contributions of each party to the deposit unless there is clear and convincing evidence of a differing intent. Example: you and Mom have a joint account. All of the funds in the account were deposited from Mom’s earnings. During the lifetimes of you and your mother, the money in the account belongs to your mother. Note that the bank is not going to keep track of whose money is in the account. The bank may pay the whole of the account to either one of you in accordance with its deposit agreement. If you make a withdrawal or write a check to yourself, it is either a gift to you or you owe a debt to your Mother.

On the death of one party, the joint account belongs to the surviving joint owner or owners unless there is “clear and convincing evidence of a different intent at the time the account is created.” For example, if you and Mom have a joint account and Mom dies, unless there is clear and convincing evidence to the contrary, the account belongs to you on Mom’s death.

There are many arguments over accounts that are made joint for “convenience.” If Mom puts your name on a bank account as a joint owner so that it is easy for you to write checks for his to pay his bills, but he does not intend that the account pass to you on his death, that is what is referred to as a convenience account. The account is in joint names only for convenience, not because it was intended to pass to the check-writer by right of survivorship on Mom’s death. Unfortunately, after Mom is deceased; it is very hard to determine what his intention was, especially if the surviving joint owner asserts that Mom intended the ownership of the account to pass to the survivor. The statute presumes that the account passes to the surviving joint owner. It is up to the other claimants to prove that Mom had a different intention, proven by clear and convincing evidence.

Because of the many problems of proof and the opportunity for heirs and beneficiaries to argue, I never recommend convenience accounts. It is far better to use a power of attorney. Then there is no confusion as to who owns the funds.

For London inheritance tax, on the death of a co-owner of a joint account or any joint property, the taxable estate of the co-owner includes a fraction of the value of the property. The fraction is one divided by the number of co-tenants. For example, if three brothers are joint owners of an account, on the death of one of them, one-third of the value of the account is subject to London inheritance tax. Whose funds were contributed to the account are irrelevant for this purpose.

Joint accounts created within one-year of death are taxable as they would have been before the joint account was created. For example, if Mom adds your name to an account as a joint owner and then dies six months later, the whole value of the account is subject to inheritance tax, not just one-half.

For London inheritance tax, joint property is taxable even if the decedent’s name was added only for convenience. Assume Mother and Daughter are joint owners of an account and one of them dies. One-half of the value of the account is subject to inheritance tax at the death of the first to die. It is important to note that even if all the money belonged to Mother, if Daughter dies first, Mother will have to pay inheritance tax on half of the value of the account. This is one of many reasons why joint property as an alternative to making a will is not such a good idea. This puts Mother in the position of having to pay inheritance tax to get his own money back. The only time this does not apply is if a child predeceases a parent before the child exceeds age 21.

The post Joint Accounts – Yours, mine and Ours appeared first on the Spencer Law Firm blog, https://www.mspencerlawfirm.com/blog/.