Tag Archives: estate plan

Charitable Trusts in the Time of Giving

charitable trust IMAGEWith taxpayers owing such a high percentage of taxes on almost any type of long-term gain, in addition to other taxes –such as the Medicare surtax – those in the top tax brackets might consider establishing charitable remainder trusts for donations of highly-appreciated assets. A charitable trust is a trust established for some charitable purpose. Charitable trusts are limited in what they can do; they must fit into a certain category established by the law.

 Setting up a Charitable Trust

In order to establish a charitable trust, you must first create the trust and donate the property to the trust that will eventually pass to a charity that is approved by the IRS. The trustee will manage or invest the property to produce an income. A charitable trust can pay the person who established the trust a certain percentage of the income that was made from the trust over an agreed upon payment timeline.  After the person that established the trust passes away, the charity becomes the owner of the property.

 Why establish a charitable trust?

An income tax deduction may be available for the value of the property given to the charitable trust. The IRS will consider the value of the property and the amount of income you may receive from the trust in determining your deduction.

In addition to receiving tax benefits, remember that you are also doing something beneficial for an organization that works to put a little extra good in the world.  Current laws make charitable trusts irrevocable. Hence, while you may be able to obtain a cash flow from the property for the remainder of your life, the property cannot be sold later or given to an heir. The administration and management costs associated with charitable trusts should be carefully considered.

Charitable trusts are a great way to give back to your community, and gain a benefit for you as well. If you have any questions regarding charitable trusts, or any other estate planning questions, reach out to an experienced Illinois attorney today.

 

Legal Issues Surrounding Lost Art

 adverse possession IMAGEA recent Hollywood-like story out of Munich is setting the stage for some interesting issues regarding estate planning and the rights of heirs. In a raid on the home of Cornelius Gurlitt in Germany, the police found over 1,000 paintings, drawings, and other works of art packed alongside hoarded groceries.  Among the art discovered were works by Beckman, Picasso, Matisse, and Renoir – all taken from Jewish collectors in Nazi Germany.  According to an article from the Chicago Tribune, the art stashed away in Gurlitt’s house could be worth over $1 billion.

 The Nazi Regime and “Degenerate Art”

The art found in Gurlitt’s home was previously possessed by Gurlitt’s father, who helped Adolf Hitler sell art that had been stolen or quickly sold off by Jewish collectors throughout Europe. The Nazis categorized many great works of art as ‘degenerate’ and sold them on the open art market to provide additional wartime funding. Despite human rights organizations and Jewish groups around the world calling on Gurlitt to unconditionally return the art to their rightful owners, the German newspaper Der Spiegel reported that he has no plans of returning the artwork to those who owned the pieces sixty years ago.  Instead, Gurlitt said, he plans on spending his life with the paintings.

Legal Issues

How is it that Gurlitt is allowed to keep art stolen by Nazis?  Due to the sheer enormity of the find by German police officers, there is no legal precedent for what to do with all of the art. While many believe that the art should simply be returned to those who lost it during World War II, the solution is not that simple.  First, a statute of limitations may exist barring collectors who lost their work from making claims against Gurlitt.  A statute of limitations is a legally prescribed time limit in which a lawsuit may be filed in court.  Second, some are already claiming that Gurlitt owns the art through adverse possession.  Adverse possession is a way in which someone else may acquire ownership of property so long as a number of requirements are met, including ‘openly’ using the property so that the true owner is put on notice.

While in the U.S. the doctrine of adverse possession primarily applies to real estate, in Germany it can apply to art as well.  Hence, even if someone who lived under Nazi rule could show that they had lost their property to Hitler’s regime, after decades of the art being in someone else’s possession, any claims for restitution may be barred.

Sometimes the law regarding property ownership and the rights of heirs can be complicated, even nonsensical.  It is therefore important that you make sure all of your assets are accounted for and your estate is planned.  If you have any questions regarding your estate, contact an experienced Illinois estate planning attorney today.

Keeping Track of Beneficiary Designation Forms

There are many assets such as bank accounts, brokerage accounts, insurance policies, annuities and retirement funds that allow a beneficiary to be named on the account. In the event of the account owner’s death, those funds go directly to the person named, avoiding a lengthy probate waiting period. An article in the Wall Street Journal highlighted the importance of keeping accurate and up-to-date documentation of those who have been named as beneficiaries and the serious issues that can arise if beneficiaries are not updates.

 beneficiariesFor example, it is important to remember that despite who is designated in a will, it’s the person named as the beneficiary on the account, policy, etc., who will receive the funds. It’s all too common for people to forget the beneficiary they named on as beneficiary on accounts opened years ago. Your will may be written so that your entire estate is left to one person, but if someone different is named as beneficiary on your bank accounts,the beneficiary on the accounts will receive the funds, not the person named in your will.

Another common oversight people make is forgetting to update beneficiaries when an event such as a death, marriage, or divorce occurs. Financial experts point out that it’s important to choose a beneficiary when you roll over a 401k or an IRA to a new plan or to a Roth IRA because the person who you had previously designated does not automatically carry over to any new accounts.

Experts also advise against choosing a different beneficiary for multiple accounts. For example, if you have three children and each one is the sole beneficiary on three separate accounts and the accounts experience different rates of growth over the years, there will be an unequal distribution of assets upon your death. It may be advantageous to designate all three children as equal beneficiaries on all three accounts.

Careful consideration should be given before naming a minor child as a beneficiary without a trust in place. If a trust is not in place and a minor child is the beneficiary, the court will appoint a financial guardian over those funds until the child becomes of legal age. In addition, not all young adults of legal age are fiscally mature enough to handle a large sum of money responsibly.

Trusts for disabled children and disabled adult children should be set up as supplemental trusts so as not to interfere with any government assistance these children receive. Keeping your beneficiaries up to date and setting up the most strategic estate plan requires the guidance and knowledge of a DuPage County estate planning attorney.

My Will is Better than Yours

A good estate plan includes a will. Wills are an efficient way to distribute property according to the person’s intent and avoid family fighting at the time of distribution. Wills have been around for a long time, and are part of the tool set of every experienced estate-planning attorney. A common, but serious mistake that people make is to use generic wills that they find online. Wills found online are problematic because they may not comply with the Illinois Wills statute and may leave gaps in the property distribution.

RigsAn experienced Illinois estate-planning attorney on the other hand, will have a personal relationship with her clients and ensure that wills reflect the nuances of each individual case. After drafting the will, the attorney will guide the client through the process of reviewing, revising, and executing the will.

An experienced Illinois estate-planning attorney will make sure that will execution process meets the requirements of the Illinois statute governing wills. First, the person executing the will must be at least 18 years old and must be of sound mind. The issue of sound mind is problematic when elderly people execute or amend wills, because unless done properly, these wills are open to challenges based on allegations of unsound mind.

Second, the will must be in writing and the person must sign it in front of two or more witnesses. There has been extensive litigation surrounding the finalization of wills. An experienced estate-planning attorney will make sure that there are no doubts about the validity of the will signing ceremony.

Revoking or amending a will also must follow a set of rules with which a local attorney is well acquainted.

For a will to be valid, it must follow a set of rules. An experienced Illinois estate-planning attorney will make sure the wills are appropriately and validly drafted for your individual situation; contact one today.

Caring for a Pet After Death

Planning for pet care after one dies is an area of estate planning that people often overlook. Sometimes, a family member will step up to take care of the pet. However, when family members are not willing or able to take on the responsibility of caring for a pet, the pet could end up in a shelter.

Discuss pet care with your estate planning lawyer.

Discuss pet care with your estate planning lawyer.

Fortunately, an estate-planning attorney will make sure that a strong estate plan contains adequate resources to provide for the pet. In Illinois, one can go about providing for a pet in two ways. However, both methods are not equal.

The first option is for the pet owner to make a bequest in a will to a family member providing resources to take care of the pet. While this method is easy because the bequest is usually part of the main will, it may not be in the best interest of the pet. Illinois wills usually have to go through probate, which can mean long delays before the funds are available for the pet care. Moreover, wills are open to challenges during probate, which may mean even longer delays.

Another way to provide for a pet is through a trust for domestic or pet animals. Illinois specifically allows these types of trusts, and allows courts to construe the governing instrument liberally to implement the transferor’s intent. Moreover, courts are able to consider extrinsic evidence in order to carry out the transferor’s intent in providing for their pet.

More importantly, these types of trusts do not go through probate, meaning that the funds are available immediately for the care of the pet. Moreover, the Illinois statute contains two additional important provisions. First, if there is no pet at the time of the death, any funds allocated to pet care in the trust would either follow the terms of the trust or estate plan, or if there are none, they’d go to the heirs of the grantor of the trust. Second, a court is able to reduce the funds in the trust if it determines that it substantially exceeds the amount needed for the pet care.

Planning for the care of a loved pet is very important to many people. If you have questions, please consult an Illinois estate planning attorney.

Why do I Need a Will?

Pam (estate plan will)

If you do not have a lot of money or assets, you may be wondering why it is important for you to have a will. However, a will is not only for the rich. You do not have to be rich to feel that you have something of value.  Perhaps it is a precious belonging that you want a certain person to have. If you do not have a will in place, you will not have a say in how things are managed once you are gone.

A will can be changed as your life changes. According to CNNMoney it is a good idea to review your will periodically, particularly if your marital status changes or if your family expands. It is also recommended that you review your named beneficiary on any retirement such as any IRA and 401 (k) accounts, as these will automatically be transferred upon your death.  If your beneficiaries are deceased or no longer in your life, you want to ensure your assets transfer to those you care about most.

Even if you do not have material assets, a will is important if you have minor children. In your will, you can assure that your wishes for the guardianship of your children is clearly reflected.

Even if you have a trust, a will goes hand in hand with the trust.  A trust will stipulate how assets are distributed and to whom; a will is still necessary in the event you have assets that were not placed in trust in order to determine how those assets are distributed upon your death.

Some people feel that they have plenty of time to address these matters. The thought of planning for one’s death does evoke happy thoughts. However, being prepared helps make the transition easier and smoother for those left behind. If you have questions about types of wills or if you are in need of a will, contact an Illinois Estate Planning attorney.

How IRAs Affect Retirement Planning

People often wonder what type of IRA best suits their needs. The answer depends on a person’s short and long term goals, and on their individual and family circumstances. IRA stands for Individual Retirement Account, and as the name suggests, it is an investment vehicle designed to ensure income during retirement. They were first introduced in 1974, with the passage of the Employee Retirement Income Security Act (“ERISA”). 26 U.S.C. § 7701(a)(37). Since the introduction of IRAs, Congress has acted to increase the contribution allowed.

RigersAlthough there are several types of IRAs, the two most popular are Traditional IRAs and Roth IRAs. Both types of IRAs have their benefits and limitations, but they can be invaluable tools if used properly. Contributions to Traditional IRAs are tax deductible, subject to annual contribution limits. Contributions to Traditional IRAs can result in significant tax benefits, especially for people in higher income tax brackets. Additionally, transactions within the IRA are also protected from taxation. Withdrawals are generally subject to income tax, but there is presumption that the contributor will be at lower tax bracket during retirement.

Conversely, contributions to Roth IRAs do not provide the ability to deduct contributions from income. However, withdrawals are exempt from income tax, which means that any appreciation in value between the time of contribution and time of withdrawal will be tax exempt.

Both of these instruments have limitations on the amount one can contribute and when distributions are possible. Although one may contribute as much money as one wants to either type of IRA, there are specific rules that govern how much one can contribute tax free. Distributions can happen at any time, but unless certain conditions are met, distributions before the age of 59 ½ could result in significant tax and early withdrawal penalties.  Because the rules governing the taxation of contributions and  distributions from IRAs are very complex, it is important to obtain assistance from a tax advisor or estate planning attorney.

While IRAs are important retirement planning tools, the rules governing them are complex and an experienced estate planning attorney should assist with reviewing these strategies in conjunction with the overall estate plan. At the Law Office of Cynthia Hayes Hutchins, P.C., we have over 25 years of experience estate planning, and we are ready to answer any questions that you may have.

Image Courtesy of stuart miles / freedigitalphotos.net

Common Mistakes To Avoid When Planning Your Estate

Estate planning can be a daunting task. If you do it right, your family will be well cared for long after you are gone. Without an estate plan, your family could be scrambling to pick up the pieces and paying expenses that would not be necessary with an estate plan. According to AARP Magazine, there are some simple but common mistakes people make when beginning to plan their estate. With the availability of online and do-it-yourself documents, many think hiring an attorney is a waste of money. In fact, one of the most important parts of estate planning is the assistance of someone familiar with the complicated legalese you will have to wade through. Retaining an experienced estate planning attorney could end up saving you and your family both money and frustration.

LisetteAccording to AARP Magazine, one common mistake people make is “failing to tie your business to your estate plan.” As one attorney told AARP, “parents sometimes do not want to talk to their kids about it and just leave the business to the kids.” This method does not take into consideration how to provide for children who work outside of the business. Sometimes failing to adequately plan for a family or small business means that the business ends up being sold under market, and distribution is not always uniform.

Another common mistake is to leave lump sums of money in cash instead of in a trust. A different attorney told AARP the anecdote of a father who left $250,000 “to his heroin-addicted son, who was penniless six months later.” A trust, according to AARP, “stipulates how you want the property distributed… the trustee holds your property and doles it out per your instructions.”

A third common mistake is failing to keep your estate plan updated. “Each time the law or your family changes,” reports AARP, “revisit your estate plan.” Even with all this, the most important aspect of estate planning is retaining an experienced estate planning attorney. Do not go through planning your estate alone. Contact a dedicated Chicago-area estate-planning firm today.

Image courtesy of adamr/FreeDigitalPhotos.net

New Tax Laws for Estate Planning

TaxesThe end of 2012 saw a flurry of gifting in order to avoid proposed estate taxes by the government that was set to begin in 2013.  This was part of the fiscal cliff tax increases which also affected income taxes, payroll taxes and others.  Now that the rules are more settled after the enactment of the American Taxpayer Relief Act, it is a good time to plan your estate.

Now, the amount excluded from estate taxes is $5.25 million per person and can be doubled for couples to $10.5 million.  This is a limit that is set to be adjusted by inflation by $130,000.  A good estate plan can even limit taxes for amounts above that exemption by setting up trusts suited for your needs.   This is a lot more than the $1 million limit that was going to be law if the US government did nothing to stop the fiscal cliff.

There are also new tax limits for gifting to individuals, estate tax, and generation skipping transfers. Currently the highest rate for this tax is 40% which is a kind of compromise from the rate in 2012 to the initially proposed rate in 2013.  It increased from 35% in 2012 but is still less than the 55% rate after the expiration of Bush’s tax cuts.

Since these changes are more certain it is an opportunity to move money around to benefit from investments and other appreciating assets.  An estate planning lawyer will be able to review your current situation to make sure that gifting and trusts provide the most benefits to you and your family.  Contact an experienced estate planning attorney in DuPage County today to begin this important process.

New IRS Surtax Pays for Healthcare Reform

With tax season upon us, it’s may be a good time to look at the 159 pages of new rules the IRS has come up with for  investment income taxes on capital gains and dividends earned by high-income individuals that passed Congress as part of the 2010 healthcare reform law. All of the new rules went into effect January 1, 2013.

It is important to understand these new laws when planning your finances. A qualified Illinois estate planning attorney can help you ensure that your finances will be handled according to your wishes even when you are gone. The following is a short summary of some of these new rules, however your attorney can help you to understand how the new regulations will affect you.

This is the first surtax to be applied to capital gains and dividends. The 3.8 percent tax is earmarked to pay for healthcare. Individuals who have a modified adjusted gross income (MAGI) of more than $200,000 and married couples who file jointly and have a MAGI of more than $250,000 are those who will be affected.

A taxpayer’s MAGI is found by taking the adjusted gross income and adding back certain items such as foreign income, foreign-housing deductions, student-loan deductions, IRA-contribution deductions and deductions for higher-education costs.

Many investment securities ranging from stocks and bonds to commodity securities and specialized derivatives are included in the tax. Also included in the new tax laws is a 0.9 percent healthcare tax on wages for high-income individuals.

A report about the new regulations appeared in Reuters. The publication offered an example of how the new tax works, citing an individual filer, with $180,000 in wage income plus $90,000 from investment income. The person’s MAGI is $270,000. According to the IRS calculations, the 3.8 percent tax applies to the $70,000, and the individual would pay $2,660 in surtaxes.

According to a Joint Committee on Taxation analysis, the new tax revenue to be raised is estimated at $317.7 billion over 10 years.

The new changes to capital gains and dividends can be confusing and costly if not handled correctly. Consult with a qualified Illinois estate planning attorney to make sure that your finances are protected, even after you’re not here to take care of them in person.