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Making it Clear and Keeping the Peace by Phil Runyon

5/22/2013

 

Making it Clear and Keeping the Peace

Let's face it, most people's planning decisions are more vanilla than Cherry Garcia.  They just want to provide for their surviving spouses and eventually split their life's accumulated resources equally among their children.  They also want their kids to share the decision-making as co-executors or trustees.  No confusion, no hard feelings, no need to say more.
 
But what if your plans are more like a banana split?  Say you decide to leave the summer retreat to just one of the kids - maybe the one who uses it the most or has done the most work on it - or you want one of them to get your great-grandfather's prized clock - because she's the family historian and will most appreciate the heirloom - or you want to leave more, maybe much more, to one of the kids because of all the help he's given you or because of all the financial help you've already given the other kids - and maybe you want just the youngest of the kids to have charge of settling everything because she's the most diplomatic.  I could go on and on, but I think you can see how these decisions could lead to a full-fledged food fight.  Not a pretty sight, but unfortunately one I've seen quite a few times.

OK, what to do?  Sure, you could gather all the kids together around the Thanksgiving turkey and lay out the plan while you're still around.  It might be your last holiday gathering, but you'd have the satisfaction of total transparency to compensate for the lack of ongoing communication with them.

Or, you could say nothing at all at any point, and let the chips fall where they may.  Some of the less-well-remembered may take your name in vain a few times, particularly because they won't understand your motives, but you won't be around to be offended, and it's yours to do with as you please anyhow, right?

But you could also write up your thinking in a carefully reasoned letter that explains the whole plan as clearly as you can state it.  No advance warning, but no leaving them in the dark either.  Look, under these circumstances they're not all going to be happy or agree with your decisions no matter what you do or say, but why let them create a narrative for you that may be totally off-base. 

Plus, waiting to tell your story until the time comes keeps your options open - and your thinking may change.  I see that happen all the time.  The black sheep may turn out to be the prodigal daughter.  The child who lives closest to you may be the one who pays the least attention when you really need help.  So why burn any bridges now, when you may want or need those bridges later.  And if you've told them all what you plan to do, it's pretty awkward - and likely even more divisive - when you later tell them you've changed your mind.

Posted 05/22/2013

Time for a Trust Tune-up? by Phil Runyon

5/1/2013

 

Time for a Trust Tune-up?

Now that the dust is settling on the new tax law, and the rules have become as permanent as anything can be in Washington, it's pretty clear that most people's estates aren't going to be paying federal estate taxes any longer.  Each of us now has a personal tax exemption of $5,250,000 (to be further adjusted for inflation in the years to come), and if our own estate doesn't fully consume that exemption, our spouse's estate can use the rest of it, in addition to his or her own.  That means unless a couple has more than $10,500,000 in total assets these days, federal estate taxes aren't one of the fronts requiring the same degree of attention as in the past.

There is at least one tax planning opportunity here, however, and I'll try to explain it as simply as possible.  When a person dies, the values of the estate assets get "stepped up" to their date-of-death values.  So even if you bought Apple when it was $10, and it's $400 when you die (I could have said $700 a few months ago), all the potential capital gains tax that would ordinarily be due on a sale gets wiped out, and the tax is figured on $400 per share instead of $10.  

The problem is that much estate tax planning was done when the exemption amounts were much lower, say, $500,000, and people's trusts were structured on that basis.  That kind of planning has been turned on its head now, and while those trusts don't cause any estate tax harm under the new rules, they don't help with capital gains taxes nearly as much as they could.  

Here goes a simple example.  Let's say the Apple stock was at $400 when you died, and your estate got the "step-up" in value to that amount.  Then, by the time your spouse died after 20 more years, the Apple was at $1,000.  If your trust was set up the way most are now, the kids would pay a capital gains tax on the difference between $400 and $1,000 when they eventually sold the Apple at your spouse's death.  That's because there wouldn't be another "step-up" up in value at that point.  If the trusts were revised, however, the stock could qualify for another "step-up" and all the capital gains tax could be saved to pay for something a lot more enjoyable.  Let us know if we can help.

(Posted 05/02/2013)

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