As of last week, President Biden took office. With the administration change, there will also likely be a change in federal estate and gift tax policies.
President Biden is expected to reduce the tax exemption for estates and gifts and increase the tax rate on transfers. With a Democratic majority in both houses, it is highly possible Biden’s plans will become law.
Even though the White House will focus on more pressing matters like the pandemic, it’s important to keep in mind the kinds of changes you should expect:
1. A decrease in the federal estate tax exemption. We have long enjoyed an extraordinarily high estate tax exemption of $11.58 million per person. Thus, anyone can pass on $11.58 million in assets to beneficiaries without triggering any federal estate tax. Married couples can pass along double that amount - $23.6 million - to their beneficiaries.
Although this legislation was already expected to “sunset” (or fade out) on December 31, 2025, it is likely that Biden will work with Democrats on lowering the current exemption limit now, and not later and will likely make an aggressive change to the exemption. Biden has proposed lowering the exemption to $3.5 million estate with a $1 million gift. This will affect significantly more people than the current $11.58 million.
2. An increase in transfer tax. There is also a potential for the applicable tax rate to include an increased top tax rate of 45 percent.
3. Elimination of step-up basis. This change will impact homeowners, and owners of assets like stock shares. Currently, when a person passes away, assets in their estate typically receive a basis step-up in basis upon death. This is significant because capital gains tax is used to calculate capital gains. With a step up in basis, the potential for capital gains is decreased or eliminated. Biden seeks to remove the step-up in value all together.
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Here are 4 things to keep in mind when you nominate guardians for your children. Interested in learning more? Schedule a consultation, learn more, or email me below or call 818-248-2183. Disclaimer: Although I am a lawyer, I am not your lawyer. The contents of this video are not to be construed as legal advice.
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I have recently received a lot of questions about whether guardians are legally obligated to follow the wishes of the child’s parents. The answer, in short, is no; however, this does not mean that the guardian can do things that will put the child at risk.
The law provides that when the court appoints a non-parent as a guardian, of a child, the authority of the parent ceases. The guardian becomes responsible for the care, and custody of the child. But, this power is not limitless. The guardian is subject to the regulation and control of the court in its role. The court has continuing jurisdiction over the care of the child.
Some interesting questions have popped up over issues such as the duties of a guardian regarding a child’s healthcare. In the age of the “debate” over the “danger” of vaccinations, a guardian’s failure to provide care can be at issue. A guardian has the same right as a parent to give consent to medical treatment performed on the child. Generally, parental consent is required for medical services performed upon a minor. But, if the court determines that a guardian is not allowing life-saving treatment then a court is likely going to sever that guardianship, appoint a new guardian and allow the treatment. These issues, of course, are complex and the outcome of each case will vary. It is evident though that once the court appoints a guardian, the guardian is not required to follow the pre-mortem wishes of the child’s parents. So, the moral of the story is, choose your guardian nominations carefully.
One of the main goals of drafting up an estate plan is to avoid formal probate proceedings. A formal probate proceeding can take months to years, and cost a lot of money. It will also require heirs and/or beneficiaries to file the trust with the court, making the trust public record. Proper planning with the right estate planning vehicles can prevent the headache of a drawn-out formal probate procedure.
The goal of estate planning should be to minimize the “probate-able” assets in your estate. In this way, heirs and/or beneficiaries won’t have to go through the probate process.
Probate assets will require a court order to be transferred. Probate assets, include (and advanced apologies for sounding like a lawyer here) everything but non-probate assets. Essentially, probate assets are assets that do not come with any instructions – either from the decedent or through operation of community property laws.
Non-probate assets are assets that can be transferred to heirs and loved ones without a court order. These are assets with instructions. The instructions are from the decedent, or by law such as where one spouse passes away, leaving a living spouse.
These assets include:
If all assets have instructions and those instructions can be followed, the assets can be transferred without a court order. But if there is a bump along the road regarding the instructions, a probate court order will be required.
For example, let’s say that the decedent designated her husband as the sole beneficiary of her life insurance policy, but the decedent’s husband passed away. The life insurance company will not transfer the funds without a court order.
A court order can either be a formal process, or a simple one. If the gross value of probate assets is valued at less than $150,000, then a formal probate is not required. For example, using the same example as above if the life insurance policy is valued at less than $150,000, the decedent’s heirs can use a simplified procedure to request a court order, compelling the life insurance is properly distributed.
There is real benefit to drafting up an estate plan to avoid the probate process. Let me know if I can assist you in any aspect of your estate planning. I am happy to schedule a complimentary 15-minute consultation with you.
For a long time, avoiding the federal estate tax was a big concern; however, given that the threshold for the federal estate tax is currently very high, the likelihood of most of us ever being liable for federal estate tax is quite low. This, of course, does not mean that estate planning isn’t beneficial. Estate planning is still a great way to avoid probate, and to have your affairs in order and organized.
What is the current tax rate?
In 2019, the current federal estate tax is 40%. This is quite high; however, so is the exemption. The current exemption is $11,400,000. Thus, is a person passes in the year 2019, s/he receives a tax “coupon” of $11,400,000.
This amount is subject to annual change. The Tax Act, which sets forth the gift and estate tax rate, and exemption, is subject to sunset January 1, 2026. As of 2026, the exemption reverting back to $5,000,000 unless further action is taken by Congress. There is much debate about whether Congress will take any other action. Time will tell.
What is the gross estate?
The gross estate includes all real and personal property in which the decedent had an interest. It also includes things such as annuities, the value of the decedent’s share of a joint estate, and life insurance proceeds (even though payable directly to the beneficiaries).
What is the adjusted gross estate?
After the value of the estate’s gross estate is determined, its value is adjusted for deductions such as funeral expenses, and expenses incurred in the administration of the estate.
The federal exemption or “coupon” of $11,400,000 is then applied. So, for most of us, our taxable gross estate will be 0.
Despite this, estate planning is an important tool for a lot of other reasons such as avoiding probate, ensuring your assets go where you would like them to, and ease the burden for loved ones.
Let me know if I can assist you in any aspect of your estate planning. I am happy to schedule a complimentary 15 minute consultation with you.
Digital Assets And Estate Planning – What Anyone With An Email Address Or Social Media Account Needs To Know
What are digital assets?
The term sounds really quite sophisticated. But, digital assets are commonplace. A digital asset in an electronic asset that is associated with the right to use, usually in the form of a username and password.
Given their medium, digital assets are slightly different than most assets. They are highly regulated by state and federal law. Without proper planning, those regulations can cause problems when it comes time to administer an estate.
How common are digital assets? Very! Common examples include:
• Social media: Facebook, Twitter
• Digital photos, images and videos (such as the photos stored on your iCloud account)
• Email: Gmail and Yahoo
• Bank accounts and other financial accounts
• Airline miles
Less common but still run-of-the mill for many of us who have our own businesses, include certain income-generating digital assets:
• Monetized YouTube channel, blog
• Social media influencer accounts
• Income generating blogs
• Intellectual property (patents, copyrights, trademarks)
• Domain name and websites
• Client lists
Often loved ones left in the wake of a death need to take pragmatic steps such as paying bills, or even accessing emails to invite friends to their relative’s funeral. Problems arise when loved ones lack login credentials or consent to access these accounts.
Having a digital asset plan in place can really assist loved ones in taking these steps. It’s a best practice to include a list of digital assets, along with username and password information. For a list of CNET’s best password managers, click here.
Digital asset custodians are absolute sticklers when it comes to protecting these accounts because of the many federal and state laws at play. Federal law prohibits service providers from releasing the content of digital assets without the account holder’s prior consent. A person who has passed away is obviously unable to give that consent anymore. So, without proof of that consent, a loved one may have to request a court order to gain access.
For example, should a relative pass away you may want to simply shut down their email accounts or iCloud accounts. Hackers prey on inactive accounts. So, it’s a best practice to place an account into inactive status, or the equivalent.
Or, perhaps you simply want to access family photos that are stored on the iCloud. The language included in an estate plan in which a deceased person has granted express consent to a particular person may be all that is needed for a loved one to access the deceased person’s email or iCloud account.
With some estate planning, digital assets can be accessed by loved ones. It’s one more piece to the estate planning puzzle that is not discussed often enough, and impacts all of us.
How To Protect Your Digital Assets
There are some simple steps that certain providers offer their users. Certain providers such as Facebook and Google offer legacy plans which allow specific individuals, designated by you, the ability to manage and /or memorialize the account of a deceased person.
As great as the option is; however, even the legacy planning provides some limitations. After the death of a loved one, you may be able to memorialize an account, but the provider may not allow you access the content of those accounts. And, of course, these plans are only offered by a limited number of providers.
To read more about Facebook’s legacy planner, click here:
To read more about Google’s legacy planner, click here:
Please contact me for a complimentary consultation to discuss your options with regard to this aspect of estate planning.
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