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Beaverton Estate Planning Blog
Estate planning, in its broadest sense, is a way to turn your wishes into a plan and make them legally binding. It encompasses things such as giving money for grandchildren’s college funds, stating who you would like to raise your children if you could not and establishing a financial power of attorney.
One of Forbes’ first lists of the new year underscores another reason Oregonians need to prioritize their estate planning. Oregon is named by Forbes Magazine as one of the states on their “ in 2018” list. One of the reasons is because Oregon has a state estate tax, and another is because the tax exempts only one million dollars of assets. Here are some ways you and your heirs can benefit while reducing or eliminating your state estate tax responsibility.
While the possibility of being single can have a big impact on either spouse, women are often more likely to face more challenges if they are to suddenly become widowed.
One reason for this is that women tend to be less involved when discussing their family’s wealth management strategy. Even though the traditional gender roles of money management are shifting, men are still overwhelmingly driving conversations about money.
Many people who have accumulated wealth want to keep the money in the family. However, discussing that wealth can make for an awkward conversation. Some people see conversations about money, even with loved ones, as taboo, while others don't want their children or grandchildren to lose their motivation or work ethic if they know they have a significant inheritance coming.
According to USA Today, 64 percent of people do not have an estate plan. The apprehension to talk about money is natural, but it could be contributing to the startling statistics related to wealth and estate planning. Failing to make an estate plan can have significant consequences for business owners and people with diversified portfolios.
Reaching certain milestones in life gives you a unique perspective on and clarity about the future. Perhaps as it is as you prepare to you walk down the aisle or as you prepare to welcome your first child into the world. These moments often make you stop to take the essential step of writing an estate plan to create concrete plans for the future.
However, according to Fortune, despite the best intentions you may have to create a good estate plan, you may not achieve your goal. You may make some of the five most common mistakes that many people make.
The baby boomer generation is full of entrepreneurs. Many have chosen a path of independence and cultivated successful businesses. As the generation matures many baby boomers are making decisions about the future of their companies. Deciding the best way to pass on a family business can be complicated. There are multiple choices to pick from and each one has its own repercussions. The following list does not include every possible option but highlights some popular choices.
1. Pass the business on as a gift
Some business owners prefer to give their company to heirs in the form of a gift. This option is complicated by state gift tax. Under federal law business owners can give up to $5.45 million before gift tax kicks in. Unfortunately that number is the total amount of assets passed on to your heirs, which can include your house, stocks, and bonds. If the business is shared between you and your spouse then a married couple can give up to $10.9 million in total before taxes. This option is great for some small business owners but many choose another way to save money.
So you read online somewhere about some guy named Anderson or Lawrence and how they went to jail for civil contempt because they settled an offshore trust. Scared? Don't be. Anderson and Lawrence (as well as every other case) are very fact-specific cases. Lets discuss both of them as well as some others.
To understand what a will is, you must first understand what Probate is. Probate is a court process where the court names an executor to gather property of the decedent, pay any creditors of the decedent out of that property, and ultimately distributes the property to the decedent's heirs. Example: Mom dies, leaving two sons, Andrew and Bart. Bart petitions the court to become the executor, and the court complies and names him executor. Bart collects money from mom's bank accounts, and sells her house and adds the sale proceeds to the estate. After all of Mom's creditors are paid, Bart distributes the proceeds to himself and Bart.
I was recently talking with a CPA in my network, and he told me how he attended a continuing education seminar on how "retirement plans are the best form of asset protection available." Although retirement plans offer some asset protection, and should be a part of everyone's asset protection strategy, they are not the end all be all of asset protection. Nor are they the best form of asset protection available.
The Delaware Incomplete Non-Grantor Trust (DING, aka NING-for trusts settled in Nevada) is a sophisticated irrevocable trust that functions as follows: Grantor, an Oregon resident, has a substantial amount of stock with a low cost basis. Grantor settles a non-grantor trust [FN1] funded with an incomplete gift [FN2] in a state that has no income tax, such as Nevada or Delaware. Grantor is a beneficiary of the trust along with his children. For our example, lets say he settles the trust in Nevada. Grantor sends the stock certificates (or otherwise transfers ownership) to the NING trustee in Nevada. The Nevada trustee sells the stock, pays federal capital gains, but no state income tax on the gain. Over time, the trustee distributes some of the sale proceeds to Grantor in Oregon. Although Grantor must pay state income tax on the distributions received, the trust funds that stay in Nevada are not subject to Oregon state income tax. When grantor dies, the remaining trust funds are distributed to Grantor's children (inheritances pass free of income tax altogether).
As you may be aware, if your child inherits your IRA, he can "stretch" out the withdrawals in order to continue the deferred tax growth for a number of years. Naming your child a beneficiary of your IRA can be a problem if: (1) your child is a minor and you don't want him to inherit a large amount upon turning 18 (the legal age of majority in Oregon); or (2) your child has creditor problems (or may have creditor problems in the future). Most people are unaware that if you have one or both of the above mentioned problems, you can still have your IRA pay into a special kind of trust (called a "See Through Trust"), and limit distributions to your child until he reaches a certain age, or prevent your IRA money from going to your child's creditors, while still benefiting from the stretch provision. See Through Trusts can be further categorized as either "Conduit Trusts" or "Accumulation Trusts." In a nutshell, Conduit Trusts must make the Required Minimum Distributions (RMD) each year, and Accumulation Trusts allow the trustee to accumulate the RMD for a later distribution. To qualify as a See Through Trust, certain specific requirements must be met. Because of these strict requirements, your typical revocable living trust will not qualify; another trust must be settled specifically to be the beneficiary of your IRA.