Posts Tagged ‘Estate Planning’

Does Faith matter in Estate Planning?

Friday, March 23rd, 2012

Most people think of estate planning as a sterile process that involves building a Florida Will or Revocable Trust, Power of Attorney and Health Care directions.  That’s a good start, but what should you really be thinking about when you are developing your planning?  Do your thoughts on your faith and values matter?  They should, and here are a few ways to incorporate them into your plan:

1.  If you have specific ideas that you want to share with your family, you need to convey them in your documents.  For example, my wife and I value Roman Catholic education and have our children enrolled in Villa Madonna Catholic School in Tampa.   We specifically authorized our trustee to use our resources to allow our children to continue at that school and progress to other Catholic schools as they grow older.  We did not rely on general boilerplate provisions about education expenses being covered by our trust.

Although we did not write this in our Wills, we certainly could have stated our wishes that our girls attend weekly Mass and receive the Sacraments as they grow.

Another instrument that touches on someone’s faith is a Living Will.  What are your Church’s teachings on end-of-life?  Do those teachings matter?  I was lucky enough to find the Catholic Bishops Advance Directive, which not only confirms that we are following our Church’s teachings, but also includes a beautiful statement of our faith.

Obviously, for those of you who have worked with us, we raise these issues with our clients.  While these examples are faith-based, you do not need to limit your thoughts to purely religious concepts.  How about statements that support the notion that a child become a productive member of society?

2.  If you cannot think of specific concepts to include in your documents, do not give up.  We suggest that you write a letter to the individual who will manage your money for your family (e.g., a trustee) that outlines your thinking.  This letter should be a living document, one that you can add to as your thoughts develop.  Also, we recommend that you write your family a love letter in which you share your faith/values/wishes for them.

These ideas are often very personal, and so do not ask your lawyer for a template as a starting point!  He or she can help to frame your discussion, but do not ask someone to speak for your heart – allow it to speak for you.

Congratulations Louise White!

Saturday, March 10th, 2012

You may not recognize that name, but in Newport, Rhode Island, she’s one famous lady.  At 81 years old, Louise came forward last week to claim one of the largest Powerball lotteries, winning $336.4 million!  Technically, her ticket is being claimed in the name of the Rainbow Sherbert Trust.  No doubt that she sought legal counsel when her numbers were called.

Why?  Well, at amount, the IRS stands to get a large amount in taxes – both income and estate.  Ignoring income tax, a prize that big would result in the federal government receiving over $100 million at Louise’s death!  It would not be surprising of the Rainbow Sherbert Trust was a lifetime trust for Louise’s benefit that would pass to her family at her death WITHOUT the imposition of an estate tax.   If that is not the case, then Louise has two options to avoid the estate tax – spend, spend, spend OR give your remaining winnings at death to your favorite charity.

Congratulations, Louise!

Thinking about converting your IRA?

Sunday, February 12th, 2012

Without Congressional action by December 31, 2012, over 35 Bush-era tax cuts will be eliminated, which means, among other things, that income tax rates will go up.  Many so-called tax experts seem to think that Congress won’t act until after the election.  Taking a position on tax law changes and thereafter having to compromise BEFORE your election could mean that you do not get re-elected.

If that is the case, how do you plan?  As a Florida estate planning attorney, I have found that my clients appreciate any advice that allows for flexibility.  That way, they will not need to come back in six or eight months to re-do everything!

Along those same lines, for the last few years, advisors have talked to their clients about converting their traditional IRAs to Roth IRAs.  The reasons are numerous:

  • You can have tax-free income in retirement – which means you don’t have to worry as much about future income tax rates.
  • There are no required minimum distributions (RMDs).
  • You have access to the dollars you converted penalty-free before age 59½ (subject to a five year holding period in certain instances).
  • Conversions are allowed after age 70½.
  • You can create a tax-free legacy for your heirs.

As with many things in life, downsides exist when you convert.  For example, when you convert, you pay income tax on the value of your traditional IRA at ordinary income tax rates.  To make matters a bit more difficult, you will need to come up with the tax liability from other funds.  For some of our clients, they do not have taxable assets (such as bank accounts or an investment account) from which they can make a withdrawal to pay this income tax liability.

In addition, earnings distributions from a Roth IRA may be subject to taxes and a 10% penalty if the account is less than five years old and the owner is under age 59½.

Presumably, if tax rates go up next year, then paying tax now may make sense so that your converted account can grow tax free.  What makes the Roth conversion unique is the ability to “reverse” your conversion.  For example,  if your account balance declines substantially after the conversion due to poor investment performance, you may want to undo the conversion.  The deadline to recharacterize your conversion is the filing deadline of the date your tax return is due (October 15 of the year following the year of conversion, if your return is extended).

Have more questions, give me a call.  I would love to help.