Why “I Love You” Wills Really Don’t Say “I Love You”

Why “I Love You” Wills Really Don’t Say “I Love You”

Why “I Love You” Wills Really Don’t Say “I Love You”

As Valentine’s Day brings heart-shaped chocolate boxes and roses by the dozen into your imagination, seize the moment to learn about the drawbacks of “I love you” wills and introduce yourself to the estate planning move that’s actually going to ensure you do well by your loved ones: a lifetime beneficiary trust.

Rise above the misconceptions
No aspect of estate planning brings out as much emotional decision-making as the division of assets. Many people think, “I love you,” so I’ll leave you everything. In order to understand why “I love you” wills are, contrary to their name, not the most caring of estate planning gestures, it’s important to understand the risks of “I love you” wills.

Simply put, an “I love you” will is a common name for a will in which the maker leaves all of his or her assets outright to his or her surviving spouse. Many people consider or even use this approach because they think that leaving assets in trust shows they don’t trust their spouse. They may also think that a lack of federal estate taxes protects their assets from getting into the wrong hands. Sadly, many people also think that a will can be used to avoid probate. Unfortunately, none of these things are true.

Understand why “I love you” wills aren’t effective
Say you want to make sure your spouse, Lisa, gets access to your wealth upon your death. In the case of an “I love you” will, Lisa will have to go to the probate court in order to validate your will and ultimately transfer the assets. Since Lisa receives the assets outright, Lisa’s estate plan will eventually control the distribution of whatever assets are left at her death. This could be a significant problem because Lisa could alter her estate plan at any time. Any verbal agreements about what will be done with those assets could go out the window, contrary to your wishes or any agreements you may have made.

● You could inadvertently disinherit your children. If you use an “I love you” will, your assets are now Lisa’s assets for her to leave however she wants. For example, Lisa could leave her assets to her own kids, a charity, a lover, or a new husband. Likewise, assets left outright to children could be lost in a divorce.
● Basic planning with outright inheritance sets your heirs up for asset protection issues. Once your assets are owned outright by your beneficiaries through a direct inheritance, those assets can be seized by creditors, divorcing spouses, or lost in bankruptcy. Even if your estate is below the exemption for the death tax, predatory creditors and lawsuits could still spell trouble.
● These wills still have to go through probate. Surviving spouses do not receive an exemption from probate. Even a simple will still has to go through the process, which you may not be anticipating — especially if you had hoped to keep the details of the will private. Trusts, however, don’t need to go through probate.
● An “I love you will” does not protect against guardianship or conservatorship court involvement for you or for your beneficiaries. For example, if you leave all of your assets to Lisa and she develops dementia, her entire estate (her assets plus the inheritance she received from you) could be under the control of a guardianship or conservatorship court.
● Basic plans pile more assets into survivors’ estates. Although portability between spouses can help, it still doesn’t prove useful with the generation-skipping transfer tax (GSTT). Portability isn’t available for non-spouse beneficiaries. This will only affect a very narrow group of people with very high net worth, and we don’t know yet what will happen with tax policy under the new Trump presidency. In a changing tax policy landscape, keeping yourself as informed as possible is an important tactic for ongoing success.

Explore lifetime beneficiary directed trusts
Comprehensive, trust-based estate planning with lifetime beneficiary trusts is a better option than outright inheritance for surviving spouses, children, grandchildren, or other beneficiaries. If you leave your assets in lifetime beneficiary trusts, you retain control over where assets end up in the long run. Plus, your beneficiaries obtain robust asset protection features that can keep wealth safe from courts, creditors, and divorcing spouses. Your family’s private information can stay out of public record. You can also take advantage of more sophisticated tax planning than you can with a basic will or trust with outright distributions.

With this approach, you can focus enjoying your life with the knowledge that a qualified estate planning attorney is working for your best interests now as well as down the road. Now that’s something to love and truly expresses “I love you” to your beneficiaries.

Snowbirds: What You Need to Know about Renting Out Your Property

Snowbirds: What You Need to Know about Renting Out Your Property

Snowbirds: What You Need to Know about Renting Out Your Property

Retreating to a warmer climate for the winter sounds like an ideal way to spend a few months. To help make this dream a reality, some individuals choose to rent out their second homes when they are not in use. But before you list your second home for rent, there are a few things you should consider.

Benefits of renting out your property

One reason to rent out your second home is to help cover the expenses of owning that second home. In addition, you will not have to fully close it up when you leave because someone may be staying there soon after. Frequent use of the property may also help deter burglars who might otherwise think the property is abandoned. Enlist a property manager to respond to any renters’ needs or check the property during periods of vacancy.

Check local zoning ordinances and deed restrictions

Some communities may prohibit renting out a property. If you are purchasing a second home or have already purchased one, it is important to review your deed and contact the appropriate authorities or homeowner’s association to make sure that you are allowed to rent out your property. If not, you could end up angering your neighbors and becoming involved in a costly lawsuit.

Make sure you are insured

Before you open your second home to renters, check your homeowner’s insurance policy to see if it covers rental of the property. You may have to purchase a new policy or add a rider to your existing policy to provide sufficient insurance coverage, but the additional expense will be well worth the investment. The insurance will act as your first line of payment if a renter is injured on your property or the property sustains damage while being rented.

Determine liability exposure

Because many different renters may stay at your second home, there is an increased risk of lawsuits arising in connection with this type of use. Transferring ownership to a limited liability company (LLC) can be a worthwhile option for creating greater protection from a potential lawsuit. If a renter gets injured on the property, sues the LLC that owns it, and obtains a judgment that exceeds any property insurance limits you have, the renter can only go after the assets owned by the LLC to satisfy any claims, not your personal assets or those of any other owners of the LLC.

However, in some states, a single-member LLC (an LLC in which you are the only member) does not provide enhanced protection from your personal creditors. The reason is that your creditors should be able to seek relief through your LLC to satisfy their claims because there are no other members that will be negatively impacted by the seizure of money and property owned by the LLC. 

Before transferring your second home to an LLC, it is important to speak with the holder of any mortgage on the property. In many cases, the transfer of a mortgaged second home to an LLC can cause the due-on-sale clause to be triggered, requiring repayment of the loan in full. Unless you are financially prepared to pay off the mortgage, this may be a substantial and unwelcome financial hardship.

Consider the tax implications of renting out your second home

According to the Internal Revenue Service, if you rent your second home for fifteen days or more a year, the rental income must be reported. In most cases, you will be able to deduct the rental expenses that you have incurred. Because you are using the second home for both rental and personal purposes, you will have to divide your expenses between the rental use and the personal use based on the number of days used for each purpose. Work closely with your tax advisor or preparer to ensure that you accurately report your rental income and expenses and take the appropriate deductions on the right forms. Your tax preparer or advisor can also provide you with tips on proper recordkeeping.

Get your second home ready for occupants

Before your first renter arrives, it is important to go through and remove anything personal that you do not want used, broken, or taken. This may make the space feel a little sterile, but the last thing you want is for a family heirloom to be stolen. You will also want to hire a cleaning crew to come in before and after each group. Not only will this keep the furnishings in good condition, but it may also encourage people to rent with you again. If possible, take pictures prior to new renters arriving in case damage occurs. Doing so will provide proof of the property’s condition before they arrive to compare with the condition after they leave.

We are here to help

While owning a second home can be expensive, it can offer a lifetime of memories for you and your loved ones. We are here to assist you to make sure your second home is properly included in your estate plan and protected for years to come. Give us a call today so we can discuss ways to maximize and protect your second home. We are available for in-person and virtual meetings.

New Year, New Estate Plan

New Year, New Estate Plan

New Year, New Estate Plan

Welcome to 2022! A new year is a time for optimism and new opportunities. It is a time to start fresh and make sure you are headed in the right direction. But making New Year’s resolutions is not enough: Take action now to ensure that you and your family or loved ones are prepared for the future!

Create a New Estate Plan in the New Year
A new year is a great time to take positive steps that will enhance your life, including putting an estate plan in place. There are many reasons why having an estate plan is beneficial. Having a comprehensive estate plan designed with the help of an experienced estate planning attorney can provide substantial peace of mind, both for you and for the loved ones you will eventually leave behind. In addition, you can put plans in place for your own care if you become unable to care for yourself. By having a well-thought-out estate plan, you can avoid:

(1) Decisions inconsistent with your wishes about who will receive your property and money after you pass away or who will make decisions on your behalf if you are unable to make them yourself. If you do not have a will or trust that names the people you want to receive your money and possessions, they will be given to the people determined by state law—which may not be the individuals you would have chosen. In addition, you can name a person you trust to act on your behalf if you become too ill to make decisions for yourself using medical and financial powers of attorney. Without these tools, someone you do not have confidence in could be appointed by the court.

(2) Confusion and disputes over who will care for your children or other dependents. You can name a guardian you trust to provide care for children or dependents in your will. Otherwise, this decision will be up to a court—who may appoint someone you would not have chosen to care for your children. In addition, if you choose to create a trust—instead of giving the caretaker the money outright to be used for your children’s benefit, you can include provisions that ensure that funds are only distributed for the children’s care. In the absence of a trust, there is no guarantee the named caregiver will use the money in the way you would have wanted. In addition, if the caregiver has any debts, giving them your money could make it vulnerable to claims by their creditors. If you create a trust, you can ensure that your money will be used only in the way you have chosen and will be protected against creditors’ claims.

(3) Costly, time-consuming, and public probate proceedings. If you do not have an estate plan or only have a will, your money and property will have to go through a court-supervised process to transfer ownership to your heirs. Even for smaller estates, this process could lead to thousands of dollars in attorneys’ fees and court costs. In addition, probate often requires court approval for every step in the process, which can take months or years to complete, especially if any disputes arise. Like all court proceedings, probate hearings and documents are accessible to the public, so anyone can look at your will or find out details regarding a family dispute. This can be avoided if you have a revocable living trust. With a revocable living trust, you transfer your assets to the trust before your death, making the trust their legal owner instead of you, rendering the court proceedings unnecessary. In addition, if you name yourself as the trustee, you can retain complete control over the money and property during your lifetime. Not to mention, as the current beneficiary of the trust, you also retain complete enjoyment of the money and property.

(4) Depletion of your estate by creditors. If protecting your money and property from future creditors’ claims is one of your main concerns, transferring your property to certain types of irrevocable trusts can achieve this goal. Similarly, if you are concerned that your heirs may have creditors that will look to money or property they inherit from you to satisfy their claims, you can make your heirs the beneficiaries of a trust instead of making outright gifts to them. Because the trust owns the property and money, and the trustee controls when and how much the beneficiary receives, the beneficiaries’ creditors will not be able to reach it unless a distribution is made to them.

(5) Family discord. During the estate planning process, you have the opportunity to explain to your family why you have made certain choices about how and to whom your money and property will be distributed when you die and who will act on your behalf if you are sick or unconscious, which may help to avoid disputes between your children or other family members. This is especially important if the gifts are not equal or if there are certain family heirlooms that more than one heir is interested in receiving. In addition, if you choose to utilize a trust, individuals that you choose not to include will not have access to the trust document and will be less likely to contest it. If you are concerned that naming one of your children as the executor or trustee will lead to squabbles, you can choose an impartial third party to act in those roles.

(6) High estate taxes. Under the tax reforms enacted in 2017, the amount that you can give away both during your lifetime and at death without incurring transfer taxes is quite large (for 2020, the lifetime exemption for an individual is $11.58 million). In addition, a surviving spouse can benefit from the unused exemption amount of their deceased spouse’s estate if a timely IRS Form 706 (United States Estate (and Generation-Skipping Transfer) Tax Form is filed. For 2020, the exemption is $23.16 million per couple. However, this increased exemption amount will revert to a much lower figure in 2026 unless Congress acts to extend it. Further, state estate and inheritance taxes could still be applicable for much smaller estates. We can help you implement strategies that maximize your tax savings.
Review an Existing Estate Plan
It is important to review the estate plan you made in the past, whether that was 20 years ago—or even one year ago—to ensure that it will still accomplish your estate planning goals.
(1) Think about what has changed in your life and if there are aspects of your estate plan that are no longer relevant or need revision. Change is a constant in life: If you have experienced a change in your marital status, a new child has been born, your financial status has improved, a beneficiary has died, the person you have named as trustee is ill, or other similar changes in life circumstances have occurred, it is important to update your existing estate plan. Even if you are not certain that anything has occurred that would affect your plan, it is wise to meet with us on a regular basis to ensure that your plan will still meet your goals: A change you think is insignificant may have an unexpected impact on your plan.

(2) Changes in the law may impact your estate plan. As estate planning attorneys, we stay up to date about changes in state or federal law, especially tax law, that may affect your estate plan. It is important for us to periodically meet to review your plan to ensure that changes in the law have not reduced the ability of your plan to achieve your goals.

Let Us Help You Make a Great Start to the New Year!
The new year is all about new beginnings. You can take steps today to make sure plans are in place for your own care and to provide for your family. Call us to set up a meeting. We look forward to helping you start the new year heading in a positive direction.

DigiByte Alliance Formed in Wyoming to Accelerate Innovation of the DigiByte Blockchain

DigiByte Alliance Formed in Wyoming to Accelerate Innovation of the DigiByte Blockchain

DigiByte Alliance Formed in Wyoming to Accelerate Innovation of the DigiByte Blockchain

December 08, 2021 9:03 AM EST

CHEYENNE, Wyo.–(BUSINESS WIRE)–Dedicated members of the DigiByte blockchain community announced today the formation of the DigiByte Alliance, a groundbreaking philanthropic approach to creating economic support for the decentralized blockchain. The mission of the DigiByte Alliance is to steward the acceleration and innovation of the DigiByte blockchain by focusing on raising funds for development, maintenance, and education. Charitable contributions to the foundation can be made in both cryptocurrency and fiat currency.

The DigiByte Alliance is the culmination of the efforts of several longstanding and devoted DigiByte community members committed to creating a platform through which individuals, institutions, corporations, communities, and governments can come to better understand and interact with DigiByte blockchain technology.

Incorporated in Wyoming in March 2021, the DigiByte Alliance is in the process of securing 501(c) (3) tax exempt status from the Internal Revenue Service. Assuming the DigiByte Alliance’s application, filed on July 13, 2021, is approved, both cryptocurrency and fiat contributions to the DigiByte Alliance will be eligible as tax deductible.

Today, the DigiByte Alliance also announced a full slate of Board members:

Michelle Dougherty, a former U.S. Department of State attorney and former member oi the DigiByte Awareness Team, will serve as President. Laura Taylor, a DigiByte community leader, Frederick Galblemann, a core member of the development team for DigiByte, and John Song, a finance and investment professional, will all serve as Vice Presidents to the Board. Jana Sulpizio, a former attorney, and former member of the DigiByte Awareness Team will step into the role of Secretary, with David Pope, cofounder of the Wyoming Blockchain Coalition and former member of the Wyoming Legislative Blockchain Task Force, serving as Treasurer. Crystal McDonough, founder of McDonough Law, a Colorado and Wyoming corporate law firm with expertise in both commercial and blockchain industries, will serve as General Counsel.

DigiByte, an enhanced derivative of the Bitcoin blockchain, is a peer-to-peer decentralized public payments and communications infrastructure developed and deployed as a benefit for the general public. As an open source blockchain akin to a public utility, the DigiByte blockchain will benefit from public financial support that ensures its continued growth and vitality. Much like a park provides a landscape for public recreation, a public blockchain provides a landscape for economic recreation, growth, and innovation that can be characterized as charitable purpose technology.
The DigiByte Alliance regards DigiByte as a key foundational technology in the emerging digital economy and seeks to secure its value for future gienerations.

Thanks to thousands of dedicated open-source developer volunteer hours over the past seven years, DigiByte is now an open-source network that as recently as last spring attained approximately two billion dollars of value. As the utility of the DigiByte blockchain evolves, the security and support of its ecosystem must also strengthen. As a public infrastructure, there is no single DigiByte protector or guardian to take on this immense task. This is a distinguishing feature of DigiByte: it has no central, single point of failure.

“As the world stands on the precipice of the digitization of the transfer of value, the DigiByte Alliance is committed to working to serve as an advocate working to inform the world about the value of a decentralized blockchain with unparalleled security, speed, and low transaction fees for use in the emerging digital economy – an economy waitingi for solutions like DigiByte upon which to build,” said DigiByte Alliance President, Michelle Dougherty.

Decentralization is paramount to the ongoing success of DigiByte. The DigiByte Alliance is committed to serving as a committed partner to the community working to support a strategy to intelligently promote adoption of DigiByte’s underlying technology. The DigiByte Alliance regards itself as one of many avenues of support in DigiByte’s worldwide decentralized community and hopes to see many other nonprofit corporations and foundations around the world created to accelerate its use and adoption.

About the DigiByte Alliance

The mission of the DigiByte Alliance is to accelerate the growth and adoption of DigiByte. The DigiByte Alliance was formed to help build the decentralized DigiByte blockchain infrastructure for the public good, with a focus on serving the users of the DigiByte protocol and blockchain. The DigiByte Alliance is committed to aiding the development and maintenance of this decentralized public infrastructure because security, efficiency, and transparency in and access to financial transactions and data integrity are fundamental to guaranteeing the dignity of individuals, human rights, and freedom and democracy in society. Learn more at www.dgballiance.org.

Your 5 Task Year-End Estate Planning To-Do List

Your 5 Task Year-End Estate Planning To-Do List

Your 5 Task Year-End Estate Planning To-Do List

2023 is fast approaching.  As we all prepare for the holidays and a new year, it is important that we wrap up any loose strings.  Before entering into the new year, here are some things that need to be on your end of year checklist: 

  1. Make Sure Your Estate Planning is Up To Date

Will or Trusts 

Now that the federal estate tax exemption if fixed at $12.06 million ($12.92 million in 2023), it is important to review your estate planning to ensure that it still makes sense. For example, when reviewing your estate planning documents, look for such terms as “Marital Trust,” “QTIP Trust,” “Spousal Trust,” “A Trust,” “Family Trust,” “Credit Shelter Trust,” or “B Trust.” With the exemption amount so high, it may not be necessary to utilize these planning strategies anymore.

In addition, you will want to make sure those individuals you have appointed to serve as your fiduciaries (successor trustee, agent under a financial power of attorney, patient advocate, trust protector, etc.) are still able to act on your behalf if the need arises.

Lastly, if your family has gone through any changes such as a birth, death, marriage, divorce, etc., you will want to double check the distribution scheme in your will or trust to make sure that the beneficiaries are still those you would like to leave assets to. 

Health Care Directives

While the federal Health Insurance Portability and Accountability Act (known as “HIPAA” for short) was enacted in 1996, the rules governing it were not effective until April 14, 2003.  Thus, if your estate plan was created before then and you have not updated it since, you will definitely need to sign new health care directives so that they are in compliance with the HIPAA rules. 

With that said, it’s possible that health care directives signed in 2003 or later lack HIPAA language, so check with us just to make sure that your estate plan documents reference and take into consideration the HIPAA rules.

Financial Power of Attorney

How old is your Power of Attorney? Because of liability risks, banks and other financial institutions are often wary of accepting Powers of Attorney that are more than a couple of years old.  This means that if you become incapacitated, your agent may have to jump through hoops to get your stale Power of Attorney honored, if it can be done at all. This could cost your family valuable time and money.   

And, several states have enacted new laws governing Powers of Attorney.  If you want to increase the likelihood that your Power of Attorney will work without any hitches, then redo your Power of Attorney every few years so that it doesn’t end up becoming a stale and useless piece of paper.

  1. Check Your Beneficiary Designations

Another area of estate planning that needs revisiting at the end of the year are your beneficiary designations on any life insurance, retirement accounts, bank accounts, vehicles, or real estate.  If you have previously completed the forms for any of these assets, you should review them to ensure the beneficiary named is still the person(s) you want receiving the assets.

If you have not done so already, you also should make sure that your estate planning attorney has this information as well.  Because a beneficiary designation may overrule any provisions you have in your will or trust, it is important that your designations and other estate planning documents all match and carry out your objective instead of having contrary intents. 

  1. Gather Tax Documents for 2022 Income Tax Return

It would be prudent to spend a little extra time collecting the necessary paperwork to show your income and any deductions you may be claiming instead of waiting until the last minute.

  1. Review Car and Homeowners Insurance Policies

Everyone likes to save money and an easy way to do so is to call you insurance agent.  Analyze the coverage you currently have for your home and car to see if you are properly covered and to see if there are any additional savings available to you.  Sometimes, you can save money by having more than one policy through an insurer.  You may also be able to get a reduction on your rates if you have not filed any claims within a specific period of time.  You never know unless you ask.

  1. Review Your Paycheck Withholdings

When it comes to your 401(k), IRA, and Health Savings Account, the federal government allows you to contribute a maximum amount per year pre-tax.  As we approach the end of the year, it is a good idea to review how much you have contributed and see if you are able to give more.  Because this is done pre-tax, it is a good way to put more money away for your retirement or future medical needs while saving some money on your tax bill now.

Call Us Today!

The end of the year can be a stressful time for many, but by completing this to-do list, you will be setting up for a financially secure new year.  If you have any questions or need to schedule an appointment to review your estate planning, please give us a call.

Hiring Your Child as an Employee

Hiring Your Child as an Employee

Considerations for Hiring Your Child as an Employee

Hiring your child to work in the family business can be a win-win situation for both you and your child. A child employee offers you tax advantages not available with other employees. There are also potential tax savings for the child employee, who can set aside that money for college or retirement. If you are thinking about hiring your child as a part-time worker or a full-time employee, you need to be aware of the applicable laws to reap the greatest benefits—and to avoid running afoul of the Internal Revenue Service (IRS).

Benefits of Hiring a Child Employee

Hiring your son or daughter has numerous benefits for both parent and child.

Work Experience

Developing good work habits during youth creates a foundation for the rest of life. When teenagers get a job, they learn strong work habits, improve their time management and organizational skills, and have an opportunity to earn and save money. Work can also build confidence and a sense of independence.

While parents might be hesitant to overburden their children, evidence suggests that work experience is beneficial for young people. Research indicates that teenage work is associated with higher earnings later in life, lower pregnancy and crime rates, and higher high school graduation rates.

Child Employee Tax Advantages

Children working for the family business get to keep more of the money they earn, as long as the business is a sole proprietorship, a partnership owned only by you and your spouse, or an LLC that is treated as a sole proprietorship or a husband-wife (only) partnership for tax purposes.

According to the IRS, if your child is under age eighteen and works for your unincorporated family business, their wages are exempt from Social Security, Medicare, and Federal Unemployment Tax Act (FUTA) taxes. If your child  is under age twenty-one and works for your unincorporated family business, their wages are exempt from FUTA taxes (but they still have to pay Medicare and Social Security taxes). These payroll tax breaks are available for part-time and full-time child employees. However, payment for the services of a child employee, regardless of age, are subject to income tax withholding.

In addition, under the Tax Cuts and Jobs Act (TCJA), which nearly doubled the standard deduction through 2025, your child employee can use the standard deduction to shelter up to $12,500 of 2021 wages paid by your business from the federal income tax. In other words, unless your child has income from other sources, they owe no federal income tax on the first $12,500 they earn in wages from the family business this year.

Parent Employer Tax Advantages

Parents who hire their child qualify for a business tax deduction that reduces their federal income tax bill and may also lower their self-employment tax bill and state income tax bill (if either are applicable). The tax deduction, which is deducted as a business expense, equals the amount of wages you pay your child to work in the business. This deduction is available to incorporated and unincorporated businesses.

Fair Labor Standards Act Benefits of Hiring Your Child as an Employee

The Fair Labor Standards Act (FLSA) is a major United States labor law. It not only created the rights to minimum wage and overtime pay, but also includes a number of provisions related to child labor.

However, the FLSA exempts family businesses from several of these provisions. For example, minimum age restrictions and minimum age rates generally do not apply to children working in a parent-owned business, except in occupations where minors under age eighteen are not allowed to work. You can learn more about FLSA exemptions on the Department of Labor website. However, be sure to check state labor laws, which may impose stricter requirements.

Be Truthful When Claiming Child Employee Tax Benefits

Hiring children is a strong tax-saving strategy for parents and children alike. If you follow the rules, the family can come out ahead at the end of the year. At the same time, the tax breaks create an incentive that might inspire some to bend the rules.

The IRS knows this and is on the lookout for taxpayers that untruthfully claim the benefits of hiring child employees. Avoid the temptation to claim a benefit that does not correspond to reality. If you do hire a child, they must be a bona fide employee performing legitimate work at a reasonable rate of compensation. Fill out all of the necessary paperwork and comply with all legal requirements. Failure to do so could result in a loss of tax breaks and an IRS audit.

Running a small business is a big responsibility. You wear many hats in your business, but legal professional probably is not one of them. When in doubt about laws that affect small business owners, it is okay to get help. We are here. Please reach out to our office and schedule a meeting to get professional advice about a tax-saving strategy that could keep more money in your family.