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SinclairProsser Law, LLC is a member of the American Academy of Estate Planning Attorneys.

One do-it-yourself estate planning strategy is to make beneficiary designations on your bank accounts.  The benefit of beneficiary designated accounts is that they go to whom you name at the time of your death with little more than a death certificate and proof of identification.  This is an option that is often implemented to avoid probate.

In our firm, we believe that the Revocable Living Trust is the most complete estate planning strategy there is.  That may involve making beneficiary designations on certain accounts, however, our reasoning for utilizing this option varies.

Here are some tips to effective estate planning where beneficiary designations are used:

1)      Be careful making a minor a beneficiary- a minor cannot be given money outright and the parent is not automatically entitled to receive the money.  A guardianship proceeding may need to be initiated, which can be both time consuming and expensive

2)      Also keep in mind that a beneficiary of an account or life insurance policy receives the money outright with no limitation.  That means that even an 18 year old can receive $500,000 no questions asked, and is that really what was intended?

3)      IRA’s, 401K’s, annuities, TSP’s, all have special designation considerations, especially for a married person.  Consult with a professional before making these beneficiary designations

4)      Make sure that your beneficiary designations are current- they should be reviewed after any significant change; such as death, divorce or marriage and disability.  We see it all the time; a couple divorces and forgets to change their beneficiary designations on their policy or account and guess who gets the money when that person dies?  You got it, the ex.  The important thing to remember is that beneficiary designation usually trumps everything.

5)      Naming a beneficiary with a disability or special needs can have unintended consequences.  Your “gift” can disqualify them from receiving government benefits.

6)      What happens if you do not have a beneficiary named or you name your estate?  Some people think by naming your estate that that means it will go to your heirs that way and you won’t have to worry about naming someone or making changes as mentioned, but you’ve caused the money to be subject to creditor claims.  So the money that your beneficiaries would’ve received if designated, may now be diminished by your debt.

The bottom line is, be careful of the pitfalls of beneficiary designations or planning without professional advice or supervision.

SinclairProsser Law, LLC is a member of the American Academy of Estate Planning Attorneys.

When you put your estate planning in place you took some valuable steps to protect your family from guardianship, probate and/or estate taxes.  The current system of estate taxation in Maryland taxes estates in excess of $1,000,000 for a single person.  For a married couple with a living trust, $2,000,000 would be exempt.

Do you want to take additional steps to reduce or eliminate estate taxes?  Here are a couple of examples:

Gifting. You can transfer $13,000 per year to any person.  It is very simple and very easy.  If you would like to gift more than $13,000, then you will need to file a gift tax return and the amount in excess of the $13,000 will reduce your Federal estate tax exemption, currently $5,000,000.  However, since Maryland does not have a gift tax, your Maryland estate tax exemption will remain at $1,000,000.  There are also exemptions for gifts to pay educational and medical expenses.

Irrevocable Life Insurance Trusts (also commonly referred to as an ILIT “eye lit”).  You can transfer your life insurance policies to an irrevocable trust and exempt the proceeds from your estate.  You may also want to buy a life insurance policy and place it in the ILIT to create a source of cash to pay final expenses and estate taxes upon your death.  If you purchase the policy and you do not put it in an ILIT, then you are increasing your estate for greater taxation at your death.

Qualified Personal Residence Trust (also known as a QPRT “queue pert”).  This irrevocable trust allows you to place your home and/or a second home in a trust and exempt the value of your home from your estate.

Grantor Retained Annuity Trust (also known as a GRAT).  This is also an irrevocable trust that can be used to remove future appreciation of an asset from your taxable estate.  You would gift an asset or assets to the trust, receive a stream of income for a period of time, and at the end of the term of the trust the principal is distributed to the beneficiaries of the trust, most likely your children or grandchildren.  The success of the GRAT depends on the performance of the asset(s) gifted to the GRAT.

Family Limited Liability Company. This tax reduction strategy allows you to gift small portions of an asset to family members without having to break apart the asset.  Real estate or businesses are good examples of the type of asset best suited for a Family Limited Liability Company.

As with all tax reducing strategies, there are many technical issues that you will want to be aware of before implementing one of these plans.  It is important that you meet with a qualified estate planning attorney to discuss which options are best for you and your family.

SinclairProsser Law, LLC is a member of the American Academy of Estate Planning Attorneys.

Hollywood legend Elizabeth Taylor will be remembered for many things: her stunning violet eyes, her multiple marriages, her film accomplishments, and the success of her perfume and jewelry businesses. But Ms. Taylor may be remembered most of all for her philanthropy, especially relating to the fight to find a cure for AIDS and to end discrimination against those afflicted.

Much of the Oscar-winning actress’ wealth, which could top $1 billion, is expected to be distributed to charities, including the three charitable foundations she helped create – the National AIDS Research Foundation, the American Foundation for AIDS Research, better known as “AMFAR,” and the Elizabeth Taylor AIDS Foundation. Many commentators expect the bulk of the proceeds from the auction of her jewelry collection, expected to top $150 million, to go directly to these three charitable organizations. Most commentators speculate that the residual of her trust assets will be distributed among her four children and many grandchildren, with whom she had good relations.

The exact terms of Taylor’s estate plan are unknown because she used a trust as her primary estate planning document, rather than a Will. Because a Will requires a probate administration, its terms become public record. Many people prefer to use trusts as their primary estate planning document because of the privacy it offers by avoiding the probate process.

Taylor’s AIDS work saw her address the General Assembly at the United Nations. She was a huge supporter of Ryan White, the 18-year-old who died of the disease in 1990 after attracting a frenzy of media attention when he was expelled from his middle school because of the disease, which he contracted from a blood treatment for his hemophilia. At a time when AIDS was poorly understood by the world, Ryan helped reduce stigma and raise awareness. Over the last twenty years, Ms. Taylor worked tirelessly to fundraise and reduce the stigma that surrounds AIDS, and was honored by a plethora of organizations that recognized her commitment to the cause. She was presented with the Jean Hersholt Humanitarian Award by the Academy of Motion Picture Arts and Sciences (“AMPAS”), the Marion Anderson Award, the Vanguard Award by the Gay and Lesbian Alliance Against Defamation (“GLAAD”), and she was honored by the Women’s Image Network. Other honors she received include the French Legion of Honor, the Presidential Citizens Medal, and being made Dame Commander of the Order of the British Empire.

The portion of Taylor’s estate paid to charity will NOT be subject to estate tax. Any portion of her estate over the amount that can pass free of estate tax, currently $5 million, may be distributed to her children and grandchildren and will be subject to estate tax and possibly GST tax. Given the size of her estate, the estate tax could be in the millions of dollars.

For persons who are charitably inclined like Elizabeth Taylor, there are various planning strategies available that both reduce estate and GST taxes and provide funds to worthwhile causes. Outright gifts to charity, both during life and at death, reduce the estate by the amount gifted to the charity. Depending on the law at the time of the death of the donor, the amount of estate taxes saved may be as much as 55% of the amount given to the charities. If the individual wants to retain some control regarding how the funds are to be used, he or she can make a gift to a donor advised fund at an established charitable organization. Even greater control can be retained over the use of the funds through the establishment of a charitable foundation by the donor, either during life (as Elizabeth Taylor did) or upon the donor’s death.

Two additional planning options, a charitable gift annuity and a charitable remainder trust, allow the donor to gift money or property to a charity while retaining a stream of payments for a term of years (not to exceed twenty years) or the life or lives of one or more individuals. The value of the charitable gift (and thus the amount of the charitable deduction for income and estate tax purposes) using these planning options is the present value of the remainder gift to the charity. The payment stream retained by the donor remains a part of the donor’s estate, unless expended during the donor’s lifetime.

Another planning strategy, a charitable lead trust, is basically the opposite of a charitable remainder trust. Payments are made to the charity for a period of years, with the remainder at the end of that period passing to designated beneficiaries, usually the children of the donor. The value of the charitable gift using this planning option is the present value of the payment stream made to the charity.

In certain circumstances, it may be appropriate to combine the use of these various charitable planning strategies with the purchase of a life insurance policy through an irrevocable life insurance trust. This wealth replacement strategy allows the amount of the death benefit from the life insurance to be paid income and estate tax-free to the designated beneficiaries, usually children and grandchildren of the donor, as a substitute for the funds that were given to the charity.

SinclairProsser Law, LLC is a member of the American Academy of Estate Planning Attorneys.