John Lane Law

Consider a Roth IRA for Estate Planning - John M. Lane Law, PLLC

“Want to reduce your beneficiary's tax burden? Consider the estate planning power of a Roth IRA.”

There’s considerable talk about potential tax reform in Washington.  It is anyone’s guess what that will look like in the end.  However, taxes must be a significant concern for those who are doing estate planning in order to pass on their assets to their loved ones. Wise estate planning means you can avoid having a big part of the money you leave your heirs devoured by income taxes. It is a way to move that money to a nontaxable form.

Motley Fool’s recent article, entitled “A Clever Way to Cut Your Heirs' Income Taxes,” says the money you put into a Roth retirement savings account has already been taxed. It was taxed on the contributions you made or as a rollover from a tax-deferred retirement savings account. As a result, everything in that account is now non-taxable for income-tax purposes. So long as the Roth has been open for at least five years prior to your death, the money in that account is won’t be subject to federal income taxes.

In the event you leave the money in your Roth rather than spending it in your retirement, after your death the account will be transferred to the person you designated as a beneficiary. At that point, the Roth account will be subject to the IRS's rules for inherited IRAs.

The beneficiary must then begin to take distributions based on their predicted lifespan (pursuant to the IRS’s actuarial tables). If your beneficiary doesn't simply blow the money in the account right away, the balance in the Roth will continue to grow tax-free, providing them with some untaxed income in the future.

This estate planning strategy works, if you don't spend the money in the Roth account yourself. As a result, it's important to plan and find other sources of income to finance your retirement, leaving the Roth account for your heirs.

If you didn't set up a Roth account for yourself before you retired, don't worry, you can execute a Roth conversion at any age.

Contact John M. Lane Law, PLLC to discover the Simplified Solution to your estate planning needs. Everyone has an estate, no matter how large or small, complex or simple. For more information about how we can help you, visit our website at www.JohnLaneLaw.com.

Reference: Motley Fool (September 14, 2017) “A Clever Way to Cut Your Heirs' Income Taxes”

What… My Taxes are Going Down? What Gives? - John M. Lane Law, PLLC

“Do you want proof that taxes can actually go down? In the last three years, nine states have eliminated or lowered their estate taxes, mostly by raising exemptions.”

There could be more reductions in the offing, as lawmakers in Minnesota recently raised the state's estate tax exemption to $2.1 million retroactive to January. That exemption will rise to $2.4 million next year. Similarly, Maryland is going to increase its $3 million exemption to $4 million in 2018. New Jersey's exemption of $675,000 per person increased to $2 million per person this past January.

In addition, Fox Business’s article, “Why More States Are Killing Death Taxes” reports that the Garden State will also totally eliminate its estate tax, making New Jersey one of about six others that have ended their estate taxes in the last ten years.

The tax-cutting trend stems from an intense competition between the states for affluent and wealthy taxpayers. Residents owe income taxes every year. However, there are those who are willing to move out-of-state to avoid death taxes. In addition, with the federal estate and gift tax exemption increasing to more than $5 million, states with death taxes really stick out.

There are two holdouts, Massachusetts and Oregon. These two are the only states with estate tax exemptions of $1 million or lower, compared to nine in 2009. The tax in both states will increase annually because neither adjusts for inflation. Some Massachusetts lawmakers are concerned about losing residents to other states because of its estate tax, a $400 million revenue generator last year. Massachusetts is looking at upping the exemption to half the federal level and maybe excluding the value of a residence.

It’s a different story in Oregon where efforts to raise the exemption have met with resistance in the legislature. The estate tax revenue of $200 million for the two-year cycle ending June 30 is 50% higher than forecast, which has been helped by strong housing and financial markets. Nevertheless, few people are expected to leave Oregon to avoid its estate tax.

In another six states, it’s the inheritance tax that is creating pressure on the government. An inheritance tax is payable by the person who inherits assets, not the estate of the person who died. Inheritance tax rates and exemptions often vary, according to the heir's relation to the decedent. For instance, in Nebraska, there’s no tax on assets left to a spouse, a top rate of 1% on assets passed to lineal relatives or siblings and a top rate of 18% on assets left to non-relatives.

There are two states, New Jersey and Maryland that have both an estate and an inheritance tax. They’ve both trimmed their estate tax, but neither state has modified its inheritance tax. On the bright side, Maryland has large exemptions to its inheritance tax.

Contact John M. Lane Law, PLLC to discover the Simplified Solution to your estate planning needs. Everyone has an estate, no matter how large or small, complex or simple. For more information about how we can help you, visit our website at www.JohnLaneLaw.com.

Reference: Fox Business (June 16, 2017) “Why More States Are Killing Death Taxes”

Think of an Estate Plan as Added Protection for Your Family

"Without a plan, a challenging time for your loved ones will become even more complicated and difficult."

Estate planning is the way to determine what happens to you and your property when you can no longer make decisions due to incapacity or death. Without this, you stand to make a tough process even tougher for your loved ones. If you don't have a plan, it can delay your medical care if you become incapacitated and make it more difficult to pass your wealth to your heirs when you die.

Make sure to state your wishes in the proper estate-planning documents. To complete these, consult with an estate planning attorney and keep the originals in a safe deposit box with a copy at home or on your computer. 

Nerd Wallet's article, "10 Keys to Proper Estate Planning," reminds us of the four key legal documents you should have in place, plus an additional one you might want to consider.

An advance health care directive indicates your healthcare choices and is used only when you are unable to communicate your wishes. Ask your estate planning attorney about the one specific to your state.

A power of attorney for finances lets you designate an individual to manage your financial affairs in the event you become incapacitated. If you fail to complete this form and you need help, a judge may appoint someone for you.

A HIPAA release form lets those named in your advance health care directive and your power of attorney access your healthcare information to work on insurance issues if you are unable to yourself.

A will allows your assets to be transferred as you've designated upon your death.

A living trust is another way to transfer property upon your death, which can be more confidential, faster, and more flexible than probate. With a living trust, your wishes may be less likely to be contested than with a probated will. A trust is an option, but it depends on your assets and your state laws. But if you have a trust, you still need to have a will.

Not having an estate plan can be time-consuming, stressful, and costly for your heirs. Your estate will have to go through the probate process. There's also a good chance that your property won't be distributed as you wanted. Take action to create a carefully considered estate plan to help make sure your wishes are met and to make it easier on your family.

Contact John M. Lane Law, PLLC to discover the Simplified Solution to your estate planning needs. Everyone has an estate, no matter how large or small, complex or simple.  For more information about how we can help you, visit our website at www.JohnLaneLaw.com.

Reference: Nerd Wallet (March 11, 2016) "10 Keys to Proper Estate Planning"

This Just In: Estate Plans Need to Stay Up-to-Date

"Now that everyone has settled into the New Year, it is a perfect time to review and update your estate plan."

Situations change and, as a result, you need to consider any changes to your estate planning documents. There are marriages. Children are born and adopted. Loved ones and friends pass away. Because of these changes, taking the time to update previously drafted documents is critical.

Dairy Herd published a valuable article, "Legal: Review and update your estate plan now," which advised that you should at least have the basic estate planning documents in place. This includes a will, a power of attorney, a medical power of attorney and an advanced healthcare directive (often called a living will). Also, some should look into trusts, depending on individual situations.

Taking the time to prepare these documents now can help avoid fighting and stress for loved ones left behind.

Create a "Death File." After you have your basic estate planning documents in place, gather them in one place and inform two responsible people of the file's existence and location. It can be placed in a home safe, a bank deposit box or on file with an attorney. The person(s) named as your power-of-attorney and executor need to know the location of these documents and have the ability to access them if needed.

Review Documents for Updates. As mentioned above, it's important to review these drafted documents periodically to see if any changes are needed. Also, when you review a will or a trust, look to see if any of the property listed has been sold, transferred, or purchased. If it has, update the documents to reflect the change in ownership.

Check and Update Beneficiary Designations. Not all property passes in the estate by a will. Some assets, like a 401(K), are passed to the beneficiary of the account regardless of what a will says. This is also common with life insurance, pensions, transfer on death accounts, and accounts held as joint tenants with right of survivorship.

Look at Potential Estate Tax Liability. The federal estate tax exemption for 2016 is $5.45 million per person and $10.9 million per couple. To see if tax liability might be an issue, the estimated fair market value of assets needs to be calculated. Talk to an estate planning attorney if your estate may be close to the exemption limit. An experienced attorney will be able to discuss options to avoid the federal estate tax—a whopping 40% on any amount over the $5.45 million exemption.

An up-to-date and comprehensive estate plan will help ensure that your intentions are carried out and will help to avoid headaches among survivors. Once the planning is done, however, don't forget to conduct a periodic review.  Contact John M. Lane Law, PLLC to discover the Simplified Solution to your estate planning needs. Everyone has an estate, no matter how large or small, complex or simple.  For more information about how we can help you, visit our website at www.JohnLaneLaw.com.

Reference: Dairy Herd (February 9, 2016) "Legal: Review and update your estate plan now"

Best of Intentions...

"The real reasons to do estate planning are to take care of ourselves and our families the way that we want to."

In a review of their finances for the New Year, many well-meaning parents may unknowingly plant a tax bomb for their children in their estate plan. Fox 61 News' recent report, "Tips to avoid an income tax and estate planning time bomb," explains how timing is critical to gain the most from an inheritance. Simply put, the taxes due on the sale of an asset can be drastically different depending on how the asset was inherited by an heir.

For example, parents may decide to deed a home to their son while they are alive to protect it from long-term care costs or to avoid probate. Because the child didn't pay the parents the fair market value of the place, it's considered a gift, and a gift tax return may be required depending on the value of the home. The more the property is worth at the time of its sale, the greater the gain and the larger the tax bill will be.

These parents unknowingly planted an income tax bill bomb for their children by gifting property during their lifetimes instead of allowing the children to inherit the property after their deaths.

However, if the parents had used a revocable trust to own the home, then the residence would be passed on after death. In this scenario, the heir would not owe any income tax, provided the property was sold for what it was worth at the date of death. This works regardless of how much the property is worth at the time of the parents' passing.

Young or old—it doesn't matter—if you don't have an estate plan, have one created now. Start with the basics, and if you need to, do the additional planning as it applies to your situation. Speak with an experienced estate planning attorney. In addition, remember these tips:

• Review and update your beneficiary designations.
• Review and update your insurance policies. Check the amount of coverage and make sure it still meets your family's current needs.
• Consider purchasing long-term care insurance to help pay for the costs of long-term care in case you and/or your spouse ever need it due to illness or injury.

Plus, at a bare minimum, everyone over the age of 18 needs a Power of Attorney for Heath Care, a Living Will, and HIPPA authorizations. Also, a Revocable Living Trust may be better than a will at incapacity because it avoids the court's control over your assets. And while you are at it, review and update the guardian designation for any minor children.

It's critical to work with an estate planning attorney who can keep your estate plan up-to-date with all of the changes in the law, changes in your finances and health, and changes in the health and finances of family members.

Contact John M. Lane Law, PLLC to discover the Simplified Solution to your estate planning needs. For more information about how we can help you, visit our website at www.JohnLaneLaw.com.

Reference: Fox 61 News (January 4, 2016) "Tips to avoid an income tax and estate planning time bomb"

Dispute Over WWII Jacket Reaches Conclusion

A family estate battle over a rare and valuable World War II fighter pilot's jacket has been resolved in court. The case is unusual not only because of the jacket, but also because of one family member's position in the case.

Americans were involved in World War II before the Japanese bombed Pearl Harbor. One such American was Phillip Epley, Sr., a fighter pilot and a member of the American Volunteer Group. This group was known as the "Flying Tigers." They were an elite group of fighter pilots employed by the Chinese government in its fight against Japan. Epley passed away in 2008, and left his entire estate, including his Flying Tiger memorabilia, to his wife.

When she passed away in 2013, a dispute began over ownership of the jacket that Epley wore during the war. It's estimated value? $24,000. Penn Live has more on this story and the history of the Flying Tigers in "Rare WWII 'Flying Tigers' flight jacket focus of Pa. court battle."

Most of the memorabilia went to Epley's son, Robert Epley. However, one of the wife's sons, John Stull, removed the jacket from her home. Her other son, Daryl Stull, was named the executor of his mother's estate and repeatedly asked John to return the jacket. John refused.

Daryl, acting as the executor, then reported to the state's Department of Revenue the value of the jacket and that John had possession of it. The government sent an inheritance tax bill to John based on that information. That's when John decided that he did not want the jacket and claimed that he was only holding it for Phillip Epley's son.

John tried to argue in court that he never owned the jacket and thus he owed no tax on it. The court was not convinced as he kept the jacket for more than a year and only gave it to Robert Epley when the tax bill came.

Contact John M. Lane Law, PLLC to discover the Simplified Solution to your estate planning needs. Everyone has an estate, no matter how large or small, complex or simple.  For more information about how we can help you, visit our website at www.JohnLaneLaw.com.

Reference: Penn Live (September 30, 2015) "Rare WWII 'Flying Tigers' flight jacket focus of Pa. court battle."