Wednesday, May 16, 2012 Facebook Founders Use GRATs to Avoid Excessive Taxation; You Can Too
News sources recently revealed that Facebook founder Mark Zuckerberg—as well as other Facebook top brass—use Grantor Retained Annuity Trusts to protect their assets and investments from excessive taxation. Grantor Retained Annuity Trusts (more commonly called GRATs) are a perfectly legal—and very efficient—way to protect and pass significant assets from one person to another without incurring an exorbitantly high tax bill.
According to the article cited above, "GRATs offer a perfect vehicle for wealthy investors who put money in start-ups, while other trusts don't." But we don’t recommend GRATs only to wealthy startup investors. GRATs are "an excellent way to shift wealth to others at little or no tax cost and with minimal legal and economic risk." As such, they can be the perfect tool for business owners, professional investors, and many others.
Setting up a GRAT allows the investor/grantor to give assets over to the trust for a pre-determined number of years. During this time the assets appreciate and the grantor receives “annual payments adding up to the asset's original value plus a return based on a fixed interest rate determined by the Internal Revenue Service.” At the end of the trust term the assets (at their new value) are transferred to the beneficiary named in the trust with none of the usual gift or estate tax on the appreciation.
This makes GRATs sound like the perfect (and perfectly simple) tool, but nothing is perfectly simple. The pre-determined lifetime of your GRAT will depend on your individual circumstances, as well as the tax laws at the time, so you’ll want to make sure you have the help of an experienced and knowledgeable attorney helping you design your trust. Contact our office for more information.
Wednesday, January 04, 2012 2012 Could be the Year You Start Your Own Business
Before we move away from the topic of New Year’s resolutions, there’s one more New Year’s Resolution we’d like to address—that of taking control of your destiny and starting your own business. The desire to move away from corporate America and work for oneself is not at all unusual. Unfortunately, not all who make this resolution will follow through with it. This is not because these brave entrepreneurs can’t make it, but because they get discouraged. Branching out on your own is a scary venture, especially if you aren’t sure where or how to start; but making that start is a lot easier if you have a plan and know that you’re not alone.
The following article from Kiplinger.com, Six Steps to Starting Your Own Business, can help you with the first part, and your attorney can help you with the second.
That’s right; your attorney can help you start your business, and in fact should help you start your business. Although the idea and impetus behind this new venture will be all yours, you should absolutely talk to your attorney about the formal incorporation and formation. Many attorneys are small business owners themselves, and can also help with the challenging and daunting tasks of structuring and formalizing a business plan. Once your business is off the ground and making money (as it undoubtedly will) your attorney can also help you protect it from creditors and lawsuits.
With a clear plan, and a friend in your corner, starting a business seems almost too easy.
If you’ve ever considered starting your own business, this could be the year to do it. Make a plan, call your attorney, and take control of your own destiny.
Monday, October 03, 2011 The Pros and Cons of a Crummey Trust
If you are looking for a reliable way to leave financial gifts to family members you may find that a Crummey trust is the right estate planning strategy for your family. A recent article in the Wall Street Journal explains that “Crummey trusts are used in many circumstances, but are best suited for making gifts to minors—especially when a parent is giving money to a young child who isn't ready to handle a large sum.”
While it’s true that Crummey trusts can be a very convenient and reliable estate planning tool, they do require a certain amount of annual attention and maintenance, and may not be the right strategy for everyone.
Crummey trusts can be used for many different kinds of assets, but they are most commonly used to protect life insurance policies from estate taxes. Your estate planner can help you set up the Crummey trust and use it to purchase a life insurance policy. Then you “fund the premiums with annual gifts... That gets money out of the estate while skirting the gift tax. Since the trust owns the policy, the death benefit ultimately goes to the trust, shielding it from federal estate taxes.”
Once the initial work of setting up the trust and buying the insurance policy is done, “The trustee must send out ‘Crummey letters’ each year, informing beneficiaries that they can withdraw the gifted amount during a window of time, say 30 days. Usually, the beneficiary leaves the money in the trust. But the IRS considers it a tax-free gift only if the person has the right to take it in the short term, and the Crummey letter proves that he has that right.”
Sending letters once a year isn’t a difficult task, but forgetting even once can lead to consequences with the IRS. Our advice is to be very careful to select a trustee you can count on to be timely and detail-oriented with the Crummey letters. Alternatively, the estate planner who set up your trust will often be willing to take over the administrative task of sending annual Crummey letters as well. Contact our office for more information. Wednesday, June 22, 2011 Make Financial Decisions a Family ActivityMake Financial Decisions a Family Activity
When it comes to chores many families are not so different from businesses, with members tending to “specialize” in something they enjoy or are good at. Certain chores will often become the domain of one family member or another, lessening the daily burden all around. This may work well for tasks such as cooking, doing the laundry, mowing the lawn, etc.; but when it comes to finances this “specialization” can create long term problems.
While it may be convenient for one partner to pay bills every month, if both partners aren’t aware of the family budget and month-to-month financial status there can be a tremendous disconnect in spending habits, leading to resentment and often a slow decline into debt. Even more frightening, disaster can strike quickly if the “accountant spouse” dies or becomes incapacitated. Quite often the surviving spouse has no idea what the family financial status is, or even where accounts or investments are located and how to access that money.
The best solution is for couples to talk about their finances often, or take turns being the family CFO. You may even want to consider involving the kids in the family financial planning once they’re old enough. Having a regular allowance or earning pocket money for chores not only teaches kids about money management, but also helps them understand when they have to wait to get that new video game, or when the family may have to cut back on certain luxuries.
Furthermore, children are natural problem solvers and activists, and including them in financial decisions such as which charities the family should support, or how to spend surplus cash can make them feel useful and important, as well as teaching them financial accountability.
Many of us look upon our finances with dread; but it doesn’t have to be that way. Skill with money matters can bring us just as much pride and joy as skill with a paintbrush, tennis racquet, or any other skill that must be acquired with practice and hard work. With a little education, and the involvement of the entire family, we can all become the masters of our own financial futures. Monday, April 04, 2011 Royal Couple Has Many Asking “How Effective Are Prenuptial Agreements?”
It’s all over the news lately that Prince William and his fiancé Kate Middleton will likely not sign a prenuptial agreement before the royal wedding on April 29th. Although many reasons have been given as to why the couple will forgo signing a prenup, one of the reasons is that “while prenuptial agreements are common in the United States, they are far less prevalent in the UK. Only in the last year have British courts agreed to recognize such deals.” This is a statement that has some Americans asking exactly how legally binding are prenuptial agreements here in the States?
The answer to that question depends on a number of factors: your state of residence, the terms of your prenuptial agreement, how long you stay married, and more. Fortunately, the longer prenuptial agreements are around, and the more common they become, the more respect they get from the courts. But if you’re worried that your prenuptial agreement won’t hold up in court, here are few tips to help ensure the validity of your agreement.
Neither party must be signing under duress. The more time each party has to review the agreement before the wedding the better. Any prenuptial agreement signed the day of or the day before the wedding could be looked upon as being signed under duress.
The agreement should include full disclosure of income and assets. If you live in a state where it is possible to waive full disclosure of assets then BOTH parties should specify that they do so knowingly.
Each party should have their own legal representation.In order to be sure that neither party is being taken advantage of, each party should have their own independent attorney review the document before it is signed.
Details regarding children or child support in a prenuptial agreement may not be enforced by most courts.Partners my want to include details about possible custody or child support arrangements in a prenuptial agreement, but keep in mind that any court will always give the best interests of a child the highest priority, even if it means disregarding those sections of the agreement between spouses.
Of course, every couple hopes that a prenuptial agreement will never come into play, but these tips can help ensure that your agreement will be considered valid by a court if the worst should happen. Contact our office if you have any questions about prenuptial or marital agreements, we’d like to help. Wednesday, March 23, 2011 Prenuptial Agreements Help Protect Your Assets AND Your Marriage
Marriage is not just a mingling of hearts and households; it’s also a mingling of assets and property. This may not seem like a big deal if both partners are young and have little to their names yet, but if either partner (or both partners) is well established, with a career or business of their own a prenuptial agreement is particularly well advised. A prenuptial agreement can also be a good idea if one partner has children (or assets, or debt) from a previous marriage, or is an expectant heir or heiress.
Contrary to what many people may think, a prenuptial agreement isn’t just for the rich and famous, and a prenuptial agreement doesn’t mean you aren’t sure your marriage will really make it. In fact, this article in the Huffington Post details 10 reasons why a prenuptial agreement is a good idea—and not one of those reasons is “You don’t think your marriage can make it.” Here are just some of the reasons why you should consider a prenuptial agreement:
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Writing a prenup will help you learn about each other.
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Separate property before you marry should often remain separate property when you married.
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A prenuptial agreement can help keep the peace in your extended families.
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Prenuptial agreements can provide freedom from each other’s debts.
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Expectations for the marriage can be addressed in advance with a prenuptial agreement.
No matter what your age or position in life, creating a prenuptial agreement before you wed can be beneficial to your family, your finances, and your marriage. Don’t let old-fashioned notions about prenups and the rich and famous keep you from protecting your assets. Talk to your partner and consult your attorney before you walk down the aisle. Monday, February 14, 2011 Retirement Advice for EVERY Age
“Retirement”—It’s a word that goes hand-in-hand with “Baby Boomer” these days. After all, as has been pointed out over and over again, retirement is the issue of the hour as the first round of Baby Boomers hits that magic age. But what about the younger set? Is there anything that twenty- or thirty-somethings should be considering regarding retirement at this point in their lives?
Actually, according to this article by Steve Vernon at MoneyWatch.com, it is never too early to start thinking about retirement; and there is plenty for adults in their twenties or thirties to consider right now that can help them get a jump on retirement a couple decades down the line.
According to the article, “The challenge facing most people in their 20s and 30s is juggling competing priorities — usually there isn’t enough money in the budget to do it all... ‘Should I save money for retirement, a down payment on a house, or for my kid’s college education?’... How do you prioritize?” While all of these things are important, Vernon suggests that your first priority in your twenties should be yourself. He suggests that the best investments you can make at this time are in your career, your home, your health, and your spending habits.
What our firm would like to point out is that a large part of investing in those things mentioned above is protecting those things. An estate planner can help you decide how to best protect your home from taxes, lawsuits, or divorce; an estate planner can also help you protect your health with a living will or healthcare directive. Additionally, many young adults (frustrated with the current state of the job market) have decided to take employment into their own hands by starting their own businesses—and many have been very successful! An estate planner can help you with the overwhelming but necessary task of protecting and planning for the future of your small business.
The news may be flush with stories about (and advice for) Baby Boomers entering or nearing retirement, but we know that everybody can use help and advice when it comes to planning for the future. Our office can help you prepare for your best future—regardless of your age. Call us today. Friday, December 03, 2010 Are Misconceptions Keeping You From Planning for Retirement?
Planning for retirement can be tricky business. When we discuss our clients’ estate plans and assets with them we can’t help touching on retirement plans, so we hear a lot about the worries that go along with preparing for an uncertain future. There are many variables and unknowns that can crop up between starting out in your 20s or 30s and your eventual retirement at 60 or 70; and there are a lot of myths about retirement which are daunting, discouraging, or just plain misleading.
U.S. News and World Report recently published an article which attempts to address some of these myths and set readers back on the right track to retirement. We hope that all of our readers are already saving for retirement, but because we know just how important it is to save early and save often we’d like to list some of the myths here for our readers:
#1 You don’t make enough money to save for retirement.
#6 You need to be debt free before you can invest for retirement.
#8 Social Security benefits will be enough to retire on.
#9 You have to retire at age ___.
These are only 4 of the 10 myths covered in the article. Click on the link above for a full list of commonly-held assumptions about retirement that may be preventing you from making the most of your retirement savings.
At our office we help our clients protect and plan for the future, retirement is often a part of that future. If you have any questions about how to protect your retirement investments, or how to ensure that they transfer properly to your heirs if anything should happen to you, please call our office. Monday, October 25, 2010 “Nothing Says Romance More Than A Prenuptial Contract.”
You may have your doubts about the sentiment above (which is also the opening line of a recent article in the Wall Street Journal) but many couples are beginning to see the truth of this statement. Younger couples, older couples embarking on second marriages, and couples with family businesses or assets to protect are coming to realize that prenuptial agreements can actually take the pressure off a relationship, making more room for romance rather than less.
A recent ruling in Britain’s Supreme Court has thrown prenuptial agreements back into the limelight, not only in the U.K. and Europe, but also here in the United States. The above-mentioned article in the Wall Street Journal offers a few basic guidelines for couples considering drawing up a pre-nup, the most important of which include: there must be no signs of duress, each party must have their own legal counsel, and nothing concerning children can be fixed in a pre-nup.
But if you’re on the fence about whether or not a prenuptial agreement is right for you and your spouse-to-be you may be most interested in the final paragraph of the article, which states that “Prenups are romantic… You’re making a provision for somebody. You’re saying, ‘I want you to know now that you’ll be alright’… this should be part of the process of falling in love and going forward with that commitment.” Friday, October 22, 2010 Take Care in Making Large Gifts to Heirs
Do you have a provision in your will or trust to pass your house on to your kids when you die? If so, you may want to consider giving the house to them now, before the end of the year. According to this article in the New York Times, doing so could be beneficial to both your heirs and yourself.
It’s easy to see how your heirs might benefit from receiving at least part of their inheritance now. The lapse in the estate taxes only last through the end of the year, “it is scheduled to come back next year with a vengeance. Unless Congress changes current law, the estate tax rate will be 55 percent (60 percent in some cases) on all but the first $1 million, except for what you bequeath to your spouse or charity.”
What may not be quite as obvious is how gifting a large asset right now can benefit you as the giver. “By shifting real estate now, you remove the asset and any subsequent increase in its value from your estate — an especially timely move if your property’s value is depressed and you expect it to bounce back at some point. What’s more, if you wind up owing tax on the gift, the rate now is less than it may be later. Barring Congressional action, the tax rate for 2010 is 35 percent, rising to 55 percent on Jan. 1.”
Making such a large gift is not necessarily without its “hurdles” as the article calls them. Amongst these hurdles include deciding whether you want to continue living in the house, whether to break up interest in the asset or keep it as a cohesive whole, and the potential awkwardness of having a business relationship with family. The article offers a number of thoughtful solutions to these issues, all well worth considering.
As beneficial as such a gift may be to both grantor and recipient, we strongly urge you to discuss the details of such a large gift with your estate or financial planner before you take any action. Wednesday, September 01, 2010 You're Never Too Young to Need a Financial Planner
Most people don’t think about visiting a financial planner until they’re old enough to have some money to manage, but if your child is a recent college graduate, or in his or her final year, you may want to consider a joint trip to your financial planner. A recent article in the Boston Globe lists a number of very compelling reasons why even young adults with little or no savings can benefit from a little bit of planning.
1. A visit to a financial planner can help young adults learn early the importance of budgeting: “If you are living on your own for the first time you haven’t had the responsibility yet of paying bills and learning to make your paycheck last until the next payday… One of the basic tenets of financial planning is to know where your money is going.”
2. Start planning for retirement while you’re still young. The earlier you start, the better off you’ll be. “A financial planner can go over the various fund choices in your 401(k) or other retirement plan and help you choose one or more funds that suit your needs.”
3. Learn how to turn big dreams for the future into a reality. Whether you plan to get married, buy a house, or start your own business, “A Certified Financial Planner® can figure out how much you need to save and create a plan to make saving painless.”
4. And finally, a financial planner can help young adults learn the basic tenets and terminology of borrowing, lending, saving smart and paying off loans with interest. “Learn about interest rates and how they work, whether they are for credit cards, auto loans, student loan or other borrowing. See how compound interest can help you reach goals faster.” An early trip to a knowledgeable professional can ensure that your child doesn’t get taken in by persuasive credit card companies. Monday, August 30, 2010 Planning to Live Through the 2010 Estate Tax Repeal? You Can Still Save on Taxes
It is common knowledge that 2010 is a great year for heirs. If you didn’t know about the 2010 estate tax repeal, all the media coverage of George Steinbrenner’s recent death (and his heirs’ lucky tax break) probably alerted you. Everybody is saying that 2010 is a good year to die… But what about those of us who plan to live through 2010?
According to the New York Times even hale and hearty individuals can save on their taxes in 2010—it just takes a little more planning. “A bigger issue [than the estate tax]… has become the gift tax, which is linked to the estate tax to prevent people from giving away their fortune in life to avoid taxes at death. It now stands at 35 percent, the lowest rate since the 1930s.” The gift tax is a tax on money or property that you give to another individual while you are still living. Currently an individual may give up to $13,000 per year (or up to $26,000 if you give as a married couple) without incurring gift tax.
If you’re a wealthy parent or grandparent trying to decrease your taxable estate through gift-giving, this is the year to do it for a number of reasons. First, of course, is the historically low 35% gift tax rate. Second, “in addition to the historically low rate, another reason to make sizable gifts this year is that the values of many assets are still depressed. Long-held stocks, real estate and shares in private businesses could all increase in value, and giving them away now will allow them to appreciate with your heirs and not in your estate.” A final reason to consider giving your large gifts before the year is over is that the 35% rate won’t last forever; the gift tax is expected to rise to 55% next year.
How can you take advantage of this lucky confluence of events? Well, as always when you’re dealing with large sums of money (not to mention dealing with the IRS), you’ll want to be careful. We do NOT recommend that you simply write a check for $13,000+. Contact your estate planner or your financial planner to find out how you can safely reduce your taxable estate while giving security to the people you love. Friday, August 20, 2010 Women and Finances: How Estate Planning Can Help
hen it comes to family matters, women are often the head (and sometimes the sole member) of the planning committee. Vacations, dinner parties, school activities and celebrations… many of these wouldn’t happen at all if the women of the family didn’t take the lead. Estate Planning tends to be no different: Many first phone calls, appointments, and attendance at estate planning or elder law seminars are initiated by women. However, studies suggest that this tendency in women to plan ahead may not apply to financial planning.
A recent article from CBS news suggests that although women are actively involved in family and household finances, they are less likely to be involved in long-term financial decisions. According to the article, although many women “know how to spend and get by on a short term basis… they have a time getting a grip on their long term saving and planning.” Of course this is a generalization, and won’t apply to everyone; but considering the importance of the topic, it is definitely a worthwhile subject for discussion.
Here are a few statistics to consider that impact women and their long-term financial decisions:
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Older women (65+) outnumber older men by 22.4 million to 16.5 million. (Administration on Aging)
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Poverty rates are higher among older women than older men by 20.4 to 13.1. (U.S. Census Bureau)
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The median weekly earnings of full-time wage-earning women is $657, or 80 percent of men’s $819. (U.S. Dept. of Labor)
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Not to mention that on average, it is the woman of the family who will end up putting her career on hold for caregiving duties at various times in her life (either to care for young children or aging parents.)
Put all of this together and it means that women need to take control of their finances, not the other way around! Luckily, this may not be as difficult as you think. The CBS news article mentioned above has some suggestions on how to take charge of your finances; but beyond that, planning your estate can be a huge step toward planning for your financial future as well, because any estate planning includes taking stock of of your financial assets—including savings accounts, retirement assets, individually owned assets as well as those owned jointly by a married couple.
We encourage women (and their families) to let their estate planning contribute to their financial future—it’s not just about how your assets will be distributed after your death, but also what steps you’d like to take to preserve those assets during your lifetime. Wednesday, August 18, 2010 Do Expected Changes to GRAT Legislation Affect YOUR Plans?
If you (or your financial planner) have been considering creating a Grantor Retained Annuity Trust (GRAT) to avoid gift taxes on financial gifts to family members you may want to read this article from Forbes before you take the final step. According to author Seth R. Kaplan there has been much talk in Washington of late about what he calls “anti-GRAT legislation”, and although the offending bills have not passed in the Senate thus far, it seems as though it’s only a matter of time before the rules and regulations regarding GRATs change—and not necessarily for the better.
According to Kaplan, “a bill co-sponsored by 10 senators (relating to an extension of COBRA premium assistance) was introduced at the end of June containing provisions targeting GRATs, the most significant of which requires GRATs to have a minimum term of 10 years. So it appears that some form of this anti-GRAT legislation will eventually become law.”
This ten year minimum will put a stop to the short-term GRATs (2-4 years) which have been especially popular among elderly individuals (a popularity that is understandable considering that if the grantor dies before the expiration of the trust the assets will revert back to the grantor’s estate and are subject to estate taxes.) But Kaplan claims that long-term GRATs can still be “a powerful tool for effective wealth transfer planning, especially where interest rates are low and asset values are depressed but expected to rise.”
If you’ve been considering creating a GRAT, and know that you want the short-term GRAT, you’ll probably want to talk to your estate planner or financial advisor ASAP, before the restrictive legislation Kaplan is expecting comes to pass. However, the proposed legislation doesn’t have to be a loss. If you have the time, you may want to consider the benefits of the long-term GRAT. |