Norvell & Associates public accountants USA Singapore Alabama: Preparing to write your will
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Norvell & Associates public accountants USA Singapore Alabama: Preparing to write your will
by Admin Wed Oct 01, 2014 6:54 pm
One of the things I love most about living in the Poconos is the charitable spirit of our community.
We are home to many organizations doing great work; my two favorites being Pocono Alliance and the Salvation Army. I had the pleasure of working with the Salvation Army once again recently by participating in the annual estate planning seminar hosted at the East Stroudsburg citadel, free and open to the public.
At this year's event, CPA Scott Miller of Riley and Company and I presented the steps to take in preparing your estate plan, including tax tips and pitfalls. Attorney Jeffrey Wright of Cramer, Swetz, and McManus enlightened us about navigating the legal process. I learned some interesting things to share with you.
Most of us are inclined to start with a will, or maybe even a trust. But those things should actually come toward the end of the process, rather than at the beginning. Having an attorney draft your will before you've thought through the plan can leave you with homework to do and the temptation to put it off to later, which often becomes never.
To increase your chances of not only drafting a successful plan, but actually getting it done, the best way to approach your estate planning is through an outline involving six decisions that you can use with your family, and consult with your attorney about what tools and techniques are best for you. I like the term "wealth transfer" because it encompasses more than just the tools used, but tells how you transfer to your heirs the many forms of wealth you have: material goods, family memories, spiritual guidance and wisdom, to name a few.
You have only three choices for who will steward what you leave behind: your heirs, charity and taxes. That's it. Careful planning will help ensure the stewards you choose will actually benefit.
How will each steward be treated in your plan? Should some benefit more than others due to special needs or difficult circumstances? Controls may need to be in place to protect a young beneficiary, or the unfortunate possibility of a child's divorce down the road.
You may be in the position to do some gifting while you're alive, perhaps helping your family or a charitable organization to experience the joy of seeing your gift in action. Making a wise choice of what type of asset to gift can ensure less goes to taxes and more to your recipient.
Suppose you want to give your child $10,000, and the money is invested in a company's stock. Suppose also you only paid $1,000 for that stock and have a capital gain of $9,000.
As Scott Miller pointed out, it is smart to calculate whether you or your child will be taxed at a lower rate on those stocks before making any gift. If you are in a higher tax bracket, it would be wiser to gift the stocks intact and allow that child to sell them to raise the cash. Conversely, if your tax on the sale would be less, you will want to sell first and gift the cash.
Suppose you are not in a rush to gift that stock, but think it may be easier to gift it now rather than to will it to an heir. Should you gift it now, and that recipient sells right away, he (or she) will recognize that same $9,000 gain you had in the stock. However, if that recipient inherits it instead, he (or she) gets what is called a "step up" in basis. That means when factoring the gain on a sale, that child will be taxed on the difference between what the stock sells for and what it is was worth at your death. Selling immediately will likely result in no or little gain, potentially saving 15 percent tax on that $9,000 profit, or $1,350.
Alternatively, you could gift that stock to a charity, skip paying any tax on the profit and still get a deduction for the full amount of the stock value.
Care should be taken when titling assets. Even something as innocuous as adding a name to your bank account can have consequences, as the IRS construes that as a gift. Adding your child's name to the deed to your home, for instance, may not only trigger the need to file a gift tax return, but it also complicates matters of Medicaid planning. It can even make your home vulnerable to creditors.
Putting your child's name on your deed may also cause an unnecessary capital gains tax, as demonstrated earlier, that could be avoided by passing the title at your death with that corresponding step up in basis.
As attorney Wright pointed out, probating a will in Pennsylvania is a relatively simple procedure; if avoiding probate may not be much of a real concern anyway, by maneuvering to avoid it, you may cause unintentional expense or complication. It is wise to seek the counsel of an estate planning attorney before changing titles or adding names to accounts.
At this stage in the process, you are ready to prepare the legal documents to put the mechanics in place to carry out your wishes. In Pennsylvania, a will does not have to be prepared by a lawyer to be legal; in fact we heard from Wright that wills have been accepted that were written on a mirror in soap, and even one written on the side of a cow.
However, it is strongly recommended that you use the services of an attorney to be sure your will uses the correct language to carry out your wishes properly.
Wright cautioned that writing documents on your own may unintentionally replace your proper will. For example, should you compose a letter explaining what your will says and sign that letter, you may in fact have created a new will that supersedes the will you formally prepared.
In the area of estate planning, not knowing what you don't know can get you into trouble. It is best to seek the assistance of a professional who can alert you to those pitfalls and steer you in the right direction.
At the seminar we heard about charitable gift annuities from Sharon Somers, Salvation Army director of planned giving for our area. Charitable gift annuities are products that, like a commercial annuity, provide a lifetime of income in exchange for a lump sum. But better than a commercial annuity, the funds that purchase the annuity are used to further the work of the charity and are a tax deduction.
At this time, a 70-year-old can buy a gift annuity from the Salvation Army with a payout rate of 5.1 percent. It means that for a $25,000 annuity, the recipient will receive $1,275 annually for life. As a bonus, part of that $25,000 is deductible as a charitable donation, and the annual payment will be favorably taxed.
A charitable gift annuity can be a win-win in the right circumstances. You are welcome to contact Somers for a personalized, no obligation annuity illustration at 215-787-2840.
Erin Baehr is a certified financial planner and owner of Baehr Family Financial, a fee-only financial planning and investment advisory firm in Stroudsburg (PurposefulMoney.com). Baehr can be reached at 570-223-1550 or at Facebook.com.YourMoneyEveryday.
We are home to many organizations doing great work; my two favorites being Pocono Alliance and the Salvation Army. I had the pleasure of working with the Salvation Army once again recently by participating in the annual estate planning seminar hosted at the East Stroudsburg citadel, free and open to the public.
At this year's event, CPA Scott Miller of Riley and Company and I presented the steps to take in preparing your estate plan, including tax tips and pitfalls. Attorney Jeffrey Wright of Cramer, Swetz, and McManus enlightened us about navigating the legal process. I learned some interesting things to share with you.
Most of us are inclined to start with a will, or maybe even a trust. But those things should actually come toward the end of the process, rather than at the beginning. Having an attorney draft your will before you've thought through the plan can leave you with homework to do and the temptation to put it off to later, which often becomes never.
To increase your chances of not only drafting a successful plan, but actually getting it done, the best way to approach your estate planning is through an outline involving six decisions that you can use with your family, and consult with your attorney about what tools and techniques are best for you. I like the term "wealth transfer" because it encompasses more than just the tools used, but tells how you transfer to your heirs the many forms of wealth you have: material goods, family memories, spiritual guidance and wisdom, to name a few.
You have only three choices for who will steward what you leave behind: your heirs, charity and taxes. That's it. Careful planning will help ensure the stewards you choose will actually benefit.
How will each steward be treated in your plan? Should some benefit more than others due to special needs or difficult circumstances? Controls may need to be in place to protect a young beneficiary, or the unfortunate possibility of a child's divorce down the road.
You may be in the position to do some gifting while you're alive, perhaps helping your family or a charitable organization to experience the joy of seeing your gift in action. Making a wise choice of what type of asset to gift can ensure less goes to taxes and more to your recipient.
Suppose you want to give your child $10,000, and the money is invested in a company's stock. Suppose also you only paid $1,000 for that stock and have a capital gain of $9,000.
As Scott Miller pointed out, it is smart to calculate whether you or your child will be taxed at a lower rate on those stocks before making any gift. If you are in a higher tax bracket, it would be wiser to gift the stocks intact and allow that child to sell them to raise the cash. Conversely, if your tax on the sale would be less, you will want to sell first and gift the cash.
Suppose you are not in a rush to gift that stock, but think it may be easier to gift it now rather than to will it to an heir. Should you gift it now, and that recipient sells right away, he (or she) will recognize that same $9,000 gain you had in the stock. However, if that recipient inherits it instead, he (or she) gets what is called a "step up" in basis. That means when factoring the gain on a sale, that child will be taxed on the difference between what the stock sells for and what it is was worth at your death. Selling immediately will likely result in no or little gain, potentially saving 15 percent tax on that $9,000 profit, or $1,350.
Alternatively, you could gift that stock to a charity, skip paying any tax on the profit and still get a deduction for the full amount of the stock value.
Care should be taken when titling assets. Even something as innocuous as adding a name to your bank account can have consequences, as the IRS construes that as a gift. Adding your child's name to the deed to your home, for instance, may not only trigger the need to file a gift tax return, but it also complicates matters of Medicaid planning. It can even make your home vulnerable to creditors.
Putting your child's name on your deed may also cause an unnecessary capital gains tax, as demonstrated earlier, that could be avoided by passing the title at your death with that corresponding step up in basis.
As attorney Wright pointed out, probating a will in Pennsylvania is a relatively simple procedure; if avoiding probate may not be much of a real concern anyway, by maneuvering to avoid it, you may cause unintentional expense or complication. It is wise to seek the counsel of an estate planning attorney before changing titles or adding names to accounts.
At this stage in the process, you are ready to prepare the legal documents to put the mechanics in place to carry out your wishes. In Pennsylvania, a will does not have to be prepared by a lawyer to be legal; in fact we heard from Wright that wills have been accepted that were written on a mirror in soap, and even one written on the side of a cow.
However, it is strongly recommended that you use the services of an attorney to be sure your will uses the correct language to carry out your wishes properly.
Wright cautioned that writing documents on your own may unintentionally replace your proper will. For example, should you compose a letter explaining what your will says and sign that letter, you may in fact have created a new will that supersedes the will you formally prepared.
In the area of estate planning, not knowing what you don't know can get you into trouble. It is best to seek the assistance of a professional who can alert you to those pitfalls and steer you in the right direction.
At the seminar we heard about charitable gift annuities from Sharon Somers, Salvation Army director of planned giving for our area. Charitable gift annuities are products that, like a commercial annuity, provide a lifetime of income in exchange for a lump sum. But better than a commercial annuity, the funds that purchase the annuity are used to further the work of the charity and are a tax deduction.
At this time, a 70-year-old can buy a gift annuity from the Salvation Army with a payout rate of 5.1 percent. It means that for a $25,000 annuity, the recipient will receive $1,275 annually for life. As a bonus, part of that $25,000 is deductible as a charitable donation, and the annual payment will be favorably taxed.
A charitable gift annuity can be a win-win in the right circumstances. You are welcome to contact Somers for a personalized, no obligation annuity illustration at 215-787-2840.
Erin Baehr is a certified financial planner and owner of Baehr Family Financial, a fee-only financial planning and investment advisory firm in Stroudsburg (PurposefulMoney.com). Baehr can be reached at 570-223-1550 or at Facebook.com.YourMoneyEveryday.
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