How Long Can I Afford to Live?

In 1900, the average American lifespan was 47 years of age. Today, our life expectancy is 78.8 years. So many people are wondering if their retirement funds will last long enough, and that question is causing a great deal of anxiety. In addition, it also has people wondering if they’ll be able to leave any financial inheritance to their families. It is causing many families to redefine what a legacy is and how to pass it on.

Some people are restructuring their assets so they can leave legacies when they pass, while others are giving away money in advance. About 62 percent of Americans age 50 or older are currently providing financial assistance to family members according to a study by Merrill Lynch and Age Wave. That support averages $15,000 per year — more when the giver has more resources. Luckily, you can give away $14,000 per recipient per year without triggering tax penalties or disclosures. After $14,000 the giver must fill out a gift tax return.

Here are some other ways to pass on your legacy while you live and upon your death.
• Grandparents can set up a 529 plan to build a college fund for grandchildren.
• Others use inheritances from their parents to purchase life insurance policies that will pay out even more than the initial inheritance.
• Some families purchase real estate (like a vacation home or property) that is held in trust or owned equally by all heirs.
• Still others create trusts that pay for their retirement years and which will then pass on to family members when the principals die.
• Many set up smaller trusts that will distribute assets year after year to favorite charities.
• Set up an annuity. An annuity is a contract between you and an insurance company in which you make a lump sum payment or series of payments and in return obtain regular disbursements beginning either immediately or in the future. The goal of annuities is to provide a steady stream of income during retirement.
• If insurable, using life insurance to fund the estate is a great way to leverage assets so that they are available to both generations.

There is also great concern that in living longer you may also need care that will sap your assets long before you die. There are strategies that you can put in place that will put some of your assets away from the reach of the government when it seeks to recoup those Medicaid charges.

If you are wondering how long you can afford to live and still pass on assets to loved ones, take time to learn how to plan for retirement. Work with a financial planner and an estate planning attorney to see your options. Like any journey, you need to know where your starting and ending points are. A financial plan will tell you where you stand today, but also where you want to get to, and the strategies you need to make it happen. In addition, an estate plan will provide a road map for your loved ones to begin their journey.

Should You Select a Corporate Trustee for Your Estate Plan?

One of the most difficult decisions my clients face when creating an estate plan is naming a trustee to administer to the trust if they become incapacitated or after their death. Many questions need to be asked. Do you have an individual you can trust to follow your wishes? Does that person have the wisdom to make good decisions? Does that person even want to be a trustee? How complicated is your estate — does it require a great deal of legal or financial acumen? Will your trustee live long enough to administer your estate?

For complicated estates or if you have no family member or friend you feel you can trust, a corporate trustee might be an option to make sure your beneficiaries are well taken care of.

The first choice many people make for a trustee is an individual trustee — most likely a relative or friend. He or she may find it difficult to say no to your request to be your trustee based on your connection or friendship. In addition, because they have a connection to your family, that person may have difficulty turning down requests for funds distributions from your children. Unless your trustee is an attorney, he or she probably doesn’t have the training to have difficult conversations and the emotional element involved with the family makes it even more difficult. Selecting a corporate trustee takes the emotional element out of the equation and allows for difficult conversations without straining relationships.

Lack of Expertise
Your individual trustee may lack the fiduciary experience necessary to properly administer your trust or estate plan. Selecting a corporate trustee that has years of fiduciary experience is the answer to the problem. In addition, a trustee should have a strong understanding of trust law, federal and state tax rules and many other issues. The rules are constantly changing, and a corporate trustee with an ongoing knowledge of changing law, can help prevent unintentional harm to the estate and avoid nasty tax consequences.

Often the first questions clients ask is about the cost of hiring a corporate trustee. It may be cheaper overall for a corporate trustee to administer to your trust. The corporate trustee will have a team of qualified people with specialized knowledge to handle every detail. An individual trustee who doesn’t have fiduciary experience may need to hire attorneys, accountants, investment advisors and more, and the costs will add up. In addition, if you find a corporate trustee that can also manage your funds, the fees will be adjusted for both services for a lower overall cost.

An individual trustee isn’t subject to any regulatory or audit oversight. Potentially, they can — and often do — whatever they want. A corporate trustee is periodically examined and reviewed by independent auditors and either state or federal banking regulators. Corporate trustees are licensed, bonded and insured for protecting your trust or estate.

Individual trustees may not know that, by law, they must report to beneficiaries. More than likely, the individual trustee will lack the proper tools to provide reports and to account for separate funds for income beneficiaries and funds available for remainder beneficiaries.

An individual trustee could become disabled, infirm or die and then your estate is thrown into disarray. Who will administer to the trust then? By selecting a corporate trustee, theoretically, the corporation will outlast any individual and be able to administer to your trust indefinitely.

Choose Both
The best of both worlds it to appoint both. That is, appoint an individual trustee, who has the intimate knowledge of the beneficiaries, and a corporate trustee with the expertise in the relevant laws and has the fiduciary abilities your individual trustee may lack. Make sure this trustee team can work well together.

Arizona Fiduciary Licensing Program
Note: Here in Arizona, there is a benefit for the elderly called the Arizona Fiduciary Licensing Program. This program is designed to help ensure Arizona’s elderly, mentally incapacitated and other vulnerable citizens have licensed individuals or businesses managing their financial affairs, medical decisions and other vital matters.

How to Cut The Lousy Kid out of Your Will

You haven’t heard from him in 10 years, since he stole the money in your bank account. Or for many other reasons, he or she is a bad seed and you don’t want him or her to inherit your estate? It is possible to disinherit a child from your Will or Estate in most states in the U.S. The key to successfully writing a child out of your will or estate is to make it clear that this is a deliberate decision and to take careful steps to have all your estate planning documents in order.

Make your decisions
Disinheriting a child shouldn’t be done in a fit of pique. I always advise my clients to take time and deliberate carefully over the issue. I encourage them to take every step possible to heal the breach including things like mediation or family therapy. I ask my client to think carefully if they want their last legacy to their child to be a final word of disapproval. There is no forgiveness after death. But okay….

Of course, there are circumstances where a child may have done nothing wrong, but you still need to cut them out of the estate plan. You may decide that you need to devote your entire estate to the care of a child with disabilities, especially if your other children are successful and don’t need as much assistance. If you do make this kind of decision, talk it over with your other children so they understand your thoughts and won’t be shocked when your Will is read. If you do not provide an explanation either before or after you die, there is going to be resentment. Your perception of your action is not that of your children. But okay….

Get your paperwork in order
Once you’ve made the decision to cut a child out of your estate plan, the next step is to carefully detail your assets and the person or person you wish to inherit each asset. Decide on an executor, who will be responsible for administering your estate and making sure the transfer of assets goes smoothly and ends up with the correct parties. Then ask your estate planning attorney to help you prepare all necessary documents to back up your decisions.

It is not a bad idea to draft a provision mentioning each child you wish to cut out of the Will. Name and identify each one and specify that they are to receive nothing, although some states require you to leave each child a token amount, such as $1. It is a very bad idea to fail to mention the child you wish to disinherit. Do try to avoid derogatory language and clearly state your position and concerns. Be cautious though. If your explanation is not well written it could be used as a means to challenge the will. A good estate planning attorney will know the rules of your estate and can help you create the proper documents.

No Contest Clause
No contest clauses in estate planning disinherit an individual if they contest or object to a Trust or Will or any of its provisions, restrictions or conditions. Such a clause should be included in a Will and/or Trust to protect the estate plan no matter what. When you are going to disinherit a child, it is a must.
People using to think leaving a $1 will work as an effective disinheritance. That is not such a good idea. It is probably better to leave a higher value to discourage any contest.

Avoid inadvertent disinheritance
Without a proper estate plan or Will, you can inadvertently disinherit children. For instance, you’ve married a second time and die intestate (without a Will or estate plan). It is possible that the community property laws in your state may take over and your second wife inherits everything, when you actually wanted the children of your first marriage to inherit.

Gregory C. Poulos
Poulos Law Firm, PLLC
11120 N. Tatum Blvd, Suite 101
Phoenix, Arizona 85028
Phone: (623) 252-0292

Build Your Estate Planning Team

Estate Planning is a process – not a transaction! There are many moving parts in your plan that need to be coordinated to get the most benefit you can. That’s why you should put together and work with a team of estate planning advisors to help you get it right. Many people already have these advisors in place, but often they are not used in a team environment. That is a lost opportunity for you.

Your Attorney
First, of course, you should select an estate planning attorney. The attorney should have a solid reputation and years of estate planning experience. The attorney should also have an appreciation for being part of your “team” and not operate in a vacuum. Then you need to involve other advisors like your financial planner, accountant, banker, insurance agent or broker, and perhaps your religious advisors. These team members should mesh well together to make sure your estate plan is coordinated on all levels. If one advisor is not focused on collaborating with the others, then it might be time to find someone who is a team player. More and more, professionals in these fields are open to the synergy created by an estate planning team, so you shouldn’t have to settle for someone who won’t play well with others.

Why Involve Your Accountant
Accountants are not just for taxes. An accountant has information essential to the selection of the appropriate estate planning techniques for you, such as the your present and prospective net worth, asset mix, present and future cash flow needs and family concerns (both financial and nonfinancial) i. In addition, accountants regularly have access to your personal information to determine whether you are complying with estate plans once it is put into place and whether you are or are not taking action inconsistent with the estate plan.

Why Involve Your Banker, Insurance Agent and Financial Advisor
It is vital that you have not only a strong estate plan, but have your finances and assets secured as well. Bankers, Financial planners and Insurance agents should work hand in hand with estate planning attorneys to make sure your goals are consistent and can be carried out in the way you expect them to. All three of these professionals will provide important information to your estate planning attorney. That information might include things like the nature of your investments, insurance coverage and information about the beneficiaries or your policies, the value of retirement accounts and annuities, and much more. They mainly ensure that your accounts are properly funded into your Trust, and ensure that you comply with all current laws.

Why Involve Your Family
Communicate, communicate, communicate! We’ve all heard horror stories about families who end up embroiled in feuds over money after a loved one passes on. More often than not, this is because the terms of the Will or Estate come as a shock to them. If you take the time to discuss your estate plan, financial status and motivations with your loved ones, your estate plan will be less prone to challenges later on and provide peace of mind for family members who will understand what you’ve done and why. It could also be important to have the benefit of older family member’s experiences both good and bad with estate planning. Often they can give advice on good choices for fiduciaries, guardians and other important decisions.

Why Involve a Religious Advisor
Estate planning is a personal process that should reflect your values, family circumstances, and even religious beliefs. Some religions have specific rules about what should happen to your property after your die. Other religions have viewpoints on end of life decisions. A religious advisor may also be available to guide you in dealing with difficult family issues. Involving your religious advisor in the estate planning team will help ensure your commitments to your faith are carried out.

Extend Your Love: Choose a Guardian for Your Children

Choosing a possible guardian for your children could be one of the most important gifts you ever give your kids. Planning for your own death is depressing and unpleasant, but for parents with young children, selecting a guardian is a way to extend your love, share your child care philosophy, and ensure your children’s future if you aren’t there.

Sometimes it is a good idea to nominate or select two people to care for your children. They might work together or one can be a guardian, while the other can be a trustee of the funds dedicated to care of the children. This is a great ways to place checks and balances to make sure your assets are used as you want — for the care of your kids. In addition, it is a good idea to select a backup for each of those people in case something happens and they are unable to perform their duties. Oh, and don’t forget to ask them if they are willing to take on the responsibility of being a guardian!

Dig deep when considering the options when selecting guardian(s). Family members may not necessarily be your best option. Sometimes a friend may be a better fit than a family member – especially where your assets and financial situation are concerned. Ask yourself hard questions like, “Does your chosen guardian reflect your parenting philosophy, religious or personal values? Do they live nearby? How will your children fit into their home and lifestyle? Is the household stable?”

Don’t exclude someone because he or she might not have the financial resources to care for your children. You can establish a trust, funded through assets or life insurance that can ensure the guardian does have the proper funds to care for your children.

Once you select a guardian(s), be sure to discuss your plans and expectations with him or her (including any financial or trust arrangements). You must allow your guardian(s) time to consider your request.

While it isn’t necessary to have an attorney create your Will or Estate Plan (although, of course we recommend it), where young children are concerned, it is probably a good idea. The legal documents you create should be clear and legally binding since you won’t be around to clarify details.

Here is one other thing to consider: If you die intestate (without a Will) it’ll be up to state law to decide what happens to your assets – more often than not they split equally among surviving children if there is no surviving spouse. But what if one of your children is mentally or physically challenged and requires more care than the others? It’s up to you to create an estate plan to care for that child and to make sure the assets are available to do so.

Writing a Guardianship Letter
Most parents think about who might be a good guardian for their children based on their relationship to them. But most parents do not have a discussion about what they actually want the guardian to do in raising the children. There is usually just an assumption of what will be done. A Guardianship Letter is a way to communicate your values and desires for your children.

One of the ways you can help someone who might have to take over for you is to create a letter of instruction for the potential guardian.

The types of things that can go in such a letter are:
• Detailed information about your child’s healthcare.
• Information about your children’s activities
• Where your child’s important papers are…i.e., birth certificate and social security number
• Your religious beliefs, practices and preferences for your child.
• Your views and expectations for your child’s education;
• Information about your family and important people.
• Information about your child’s personality and preferences.

Just imagine how your child will be raised without this information. The guardian will make these decisions which may or may not be consistent with your wishes. While a guardianship letter is not legally binding, it can provide useful insight to both guardian and children. It should be stored with the parent’s last will and testament or trust.


What are Advanced Directives?

What are Advanced Directives?

Life is unpredictable. While no one wants to contemplate something bad happening, either to themselves or to their loved ones, it is important to be prepared. If something bad does happen, advance directives like a Living Will and a Medical Power of attorney come into play. These directives ensure that your family can act on your behalf and understand and will follow your wishes, and should be an important part of your estate planning.

Living Will
A living will is a written statement detailing your desires regarding medical treatment in circumstances where you are no longer able to give informed consent. It is your way of expressing your wishes of what you would want regarding your for end-of-life medical care in circumstances in which you are no longer able to express informed consent. Without a Living Will expressing your wishes, family members and doctors are left to guess what you would prefer in terms of treatment

Power or Attorney
A medical power of attorney appoints someone you trust to act on your behalf on medical decisions if you are unable to speak for yourself. This person will make any necessary health care decisions for you and make sure you receive the type of care you would want. You may choose one person to speak on your behalf on medical matters and you can appoint a different person to handle your financial affairs with a financial power of attorney.

Do Not Resuscitate Order
A do-not-resuscitate order, or DNR order, is a medical order written by a doctor. It instructs health care providers not to do cardiopulmonary resuscitation (CPR) if a patient’s breathing stops or if the patient’s heart stops beating. It allows you to choose whether or not your want heroic measures used to save your life BEFORE an emergency occurs. It does not provide instructions for other treatments, such as pain medicine, other medicines, or nutrition. The doctor writes the order only after talking about it with the patient (if possible), the proxy, or the patient’s family.

Arizona recently passed laws making it easier to create advance directives — and make it easier for health care providers to be aware of your wishes. The program is called the Arizona Advance Directive Registry. The registry allows people to download forms from the website and then file the completed forms with the registry so that they are accessible to health care providers here in Arizona in case of emergency. According to the Arizona Secretary of State’s office, 32,266 of residents are already signed up for the registry. In addition, all healthcare providers in the state have access.

The registry requires that you create a login and password, which means that unless you’ve shared that information with your family, they won’t have access. (NOTE: See our previous article on Digital Assets). In short, you must still let your family, friends and physicians know what your wishes are. You may even want to provide them with copies of the documents.

I am cut out of the Estate! Now what?

When a loved one dies, the trauma of the death is bad enough, but then the distribution is revealed and the terms come as a shock to the beneficiaries. Image this … daughter Judy gets everything and the rest of the family gets little or nothing. Worse yet, a “No Contest” clause has been added to scare the family or friends into not challenging the Will. How could this happen? Sadly, when it comes to money, people are greedy. Even if their reasons were valid, they usually do not communicate those reasons – leaving a lot of hurt feelings.

But what if something does not seem right and you suspect foul play?
You do have options. You should first have an attorney review the terms of the Will, but most important, you need to understand the process to contest it. Arizona has a statute governing the validity of no-contest provisions in wills, but there is no statute expressly covering similar provisions in trusts. In order to contest a Will in Arizona, you must prove that the deceased person either:
• Lacked the testamentary capacity to execute a will
• Was under undue influence
• Executed the will as a result of fraudulent misrepresentation
• Executed the will by mistake
• Or the Will does not meet the legal formation requirements

These terms and conditions sound complex and full of legal jargon, but their meanings are actually pretty simple. Let’s look at each of these things individually.

Testamentary Capacity
Testamentary Capacity is a legal term that simply means the person creating the Will must be 18 years or older. The person must also have the mental capacity to create the Will, meaning your loved ones understood what they are creating and understood the property issues and assets involved. If any of these elements are not met, the Will may be contested.

Undue Influence
A Will may be contested if a third party has influenced the mind of the creator. This tends to be a bit of a gray area, but in general, the court may explore the following questions:
• Did the 3rd party fraudulently misrepresent himself or herself?
• Was the Will created in haste and without careful consideration?
• Was the creation of the Will kept secret from other beneficiaries?
• Were those beneficiaries instrumental in preparing the Will?
• Was the Will consistent with prior versions of the Will?
• Was the Will consistent with the creator’s lifestyle and family views?
• Was the creator susceptible to undue influence?

Let’s take, for example, a daughter who is caring for her mother, who is experiencing a bit of dementia — in short, is not of sound mind. The daughter believes she has a greater right to inherit her mother’s assets than her siblings, due to her caregiving. So, she influences mom to change the terms of the will to provide her with the lion’s share of the estate and reduce the amount her siblings or other beneficiaries should receive.

In this case, the other siblings or potential beneficiaries can contest the Will, however, it is up to them to provide proof that the mother was not of sound mind and didn’t understand what she was doing. They must also prove undue influence.

Another situation, which is unfortunately becoming too prevalent, is when a homecare person takes advantage of a person under their care and convinces them to make them a beneficiary.

Fraud by Misrepresentation
A will may be contested or invalidated if fraud by misrepresentation is involved. Fraud by misrepresentation means that a beneficiary made false representation of material fact (lied) and knew he or she lied in order to induce the person to change the will in his or her favor. The lie caused the creator to make the Will different that is would have been without the misrepresentation. That sounds complicated, but here a simple example. Let’s assume a son lies to a parent about his financial status telling the parent that he has no money and is worried about his financial future, when in fact he is very well off and is concealing his assets. Based on that lie, the parent changes his or her will to favor that child above the children or other beneficiaries.

A mistake in the creation of the Will can allow it to be challenged and set aside. This is rather rare, since it generally means something like the husband signed the wrong document — his wife’s Will rather than his own, for example.

Formation Requirements
Wills many be created or formed only under certain circumstances:
• The person must be age 18 and of sound mind
• The Will must be signed by the person or signed by a designated representative who signs in the presence of the person
• The Will must be signed by two witnesses, who must witness the actual signing by the person or his or her representative
• The person must have the intent to execute his or her Will

No Contest Clause
A “No Contest” clause is a legal provision that states that if a beneficiary challenges any portion of the Will, he or she will be disinherited. These clauses however are not always clearly written and might leave the door open for a challenge. Also, the statute governing wills in Arizona provides that a no-contest provision is “unenforceable if probable cause exists” for the challenger to file the contest. In other words, if there is “smoke” about a possible challenge, the court won’t close the door to hear whether there is “fire.” That means, if you might be able to really prove fraud, or undue influence, or if a mistake is made, the No Contest clause may not be able to stop you.

If you believe the circumstances surrounding the formation or execution of another’s Will are questionable, please contact me immediately to determine your rights. Time is often critical in this issue so do not delay if you feel a friend or family member’s Will should be reviewed as part of its probate.

Where do you express your wishes regarding organ donation?

Did you know that every 10 minutes, another name is added to the national organ transplant waiting list? Right this moment, 123,000 men, women and children need a transplant, but 21 people will die each day because no transplant was available. In 2013, there were 14,257 organ donors resulting in 28,953 organ transplants, which means far too few people are taking the need for organ donation seriously.

With advances in medical science, it’s now possible, to donate organs, tissue (including skin, bone, corneas, heart valves, blood vessels and tendons), bone marrow, or your entire body for purposes of transplant, education or medical research. You can choose whether you wish to donate for transplant only, or for research, therapy, education or any one or more of these purposes.

Organ donation is one of the decisions that should be reflected in advance directives such as your Health Care Power of Attorney. But putting organ donation wishes in your will is not the best idea as the will is often not found nor read until several days after the passing, and organ donations must be made immediately after death.

Here in Arizona, you can designate that you would like to be a DONOR♥ on your driver’s license or identification card. Your name will be added to the 2,511,798 other donors already listed on the DonateLife AZ Registry. You can find more information on this on the Donor Network of Arizona website.

You may also go to the website to list your name and your wishes. This website can also provide you with additional information on becoming a donor, about donation and transplantation , plus other materials and resources.

Finally, if you feel strongly about becoming an organ donor, make sure your family and friends know your wishes on this subject, because there may not be time to hunt up paperwork when it really counts.

How to Gain Access to Digital Accounts When a Loved One Dies

Think about how many times per day you are asked for your login and password information on your computer or hand-held device — to your bank, your investments, social media, email and more. Now imagine that something happens to you and the responsibility for your online accounts suddenly devolves to your spouse or children. Do they know your logins and passwords? Now ask yourself if you need to include digital assets and digital asset protection into your trust?

Digital Asset Protection Trusts allow you to place digital rights and property information into a trust for the beneficiaries to use. Digital rights include email, text messages, online storage, websites, financial accounts, music/publishing rights, social networking accounts and much more. Like all trusts, the trustee can manage all the digital licenses on behalf of the beneficiaries.

Unclear Laws
Unfortunately, the laws on digital are unclear at best. Very few states have even begun to deal with this issue. While many online services have their own policies for how to deal with a user’s death or incapacity, users may not approve of the procedure. Prudent planning now will help ensure your wishes are carried out regardless of the lack of clarity in the law.

Identity Theft
If you think it doesn’t matter what happens to your accounts once you pass on, then you are wrong. Among other things, digital assets can be extremely useful for online identity theft. If you neglect to give your heirs access, then it is entirely possible a hacker could deplete an inheritance before your heirs can act. While there are procedures to protect a deceases identity, they all require having access to the online accounts.

Note: Facebook has just announced it will let users designate a legacy contact – a friend or family member who can continue to post after the user’s death. Legacy users will have limited access, download archived photos and posts shared, but not access private messages. Or Facebook users can tell the company their want their accounts permanently deleted after they die.

Monetary and Emotional Value
While most online accounts don’t have a monetary value, many have emotional value to the heirs. Some families may want to access accounts and download pictures saved in Facebook or Pintrest, for example. However, some accounts, like that of the famed author Leonard Bernstein . He died and created a password so strong, that the draft of his memoir, Blue Ink, remains inaccessible to this day.

Perform Your Own Digital Audit
You need to develop an inventory of your digital assets and that can be a bit of a challenge with as much as we do online these days. Please click on the link below if you would like to download a Digital Audit to help you think through all the digital assets you may want to pass on to your heirs.

Download Digital Audit

Adding Digital Assets to your Estate Plan
Because Digital Asset Protection Trusts are such a new field, you may require an attorney’s assistance to help structure your digital assets into your will or trust. A separate document may be necessary, or the information can be woven into existing documents. At that time, you can indicate which documents or assets should be deleted versus the ones you want passed on to your heirs.

Do I have to file a tax return for my trust?

Clients frequently ask me if they have to file a tax return for a trust they have created. The answer is no if it is a REVOCABLE Living Trust.

Income Tax Treatment of Revocable Trusts
A revocable trust is typically formed by husband and wife. Both are considered the initial trustees who manage the assets in the trust. The trust is usually revocable (i.e. can be changed or revoked) during the trustees lifetimes. It is not considered a taxable entity when it is formed. It is strictly a means of holding title for the beneficiaries of the trust  who are at first the beneficiaries of the trust as well. Therefore because there is no separate tax entity, the assets of the trust and the related income are disregarded for tax purposes so long as the grantor(s) are alive. Any income, gains or losses are reported on the individual return. For example, all mortgage interest and property taxes are still reported on Schedule A, interest income and dividends on Schedule B and so on.

Of course, once the grantors die, then tax consequences may kick in. At that point, the trust generally becomes irrevocable, at least as to the person who died. The irrevocable trust must receive a tax identification number and needs to file its own tax returns.

Income Tax Treatment of Irrevocable Trusts 
Unlike a revocable trust, an irrevocable trust is treated as an entity that is legally independent of its grantor for tax purposes. Accordingly, trust income is taxable, and the trustee must file a tax return on behalf of the trust. If income is distributed to trust beneficiaries or if a charitable deduction is claimed, additional tax documentation is required.The trustee of an irrevocable trust must complete and file Form 1041 to report trust income, as long as the trust earned more than $600 during the tax year. Irrevocable trusts are taxed on income in much the same way as individuals. Under present rules, the tax on the trust income can be very high if the income passes certain thresholds and is not distributed to the beneficiaries.

What about the Beneficiaries? 
A beneficiary of a revocable trust does not have to pay income taxes on his distributions from the trust since the trust grantor has already paid these taxes. Distributions to beneficiaries of an irrevocable trust, however, are taxable to beneficiaries at ordinary income tax ratesSince the individual income tax rate is lower than the trust income tax rate, trusts normally distribute their income to their beneficiaries if they are individuals. If the trust distributes any of its income to beneficiaries, the trustee must prepare Schedule K-1 for each beneficiary who has received a distribution. The trust must also file Schedule K-1 with the IRS if it made any distributions to beneficiaries during the tax year. A beneficiary doesn’t have to submit Schedule K-1 with Form 1040 but will need it to calculate his own tax liability.

If you have questions regarding your trust and taxes, please feel free to give me a call.


Are joint accounts a good idea in estate planning?

Are joint accounts a good idea when you are creating your estate plan? The answer is yes and no.

Spouses often add each other to accounts to avoid probate and transfer money to their loved one. In addition, older people often add children or trusted friends to accounts for the convenience of paying bills, especially if the older person is starting to have difficulty managing money.

Unfortunately, this process can backfire. For example, a person creates a will, assuming the assets will pass according to the wishes dictated by the will, unfortunately, if the assets are held in joint accounts, the will is meaningless. The title of accounts will control everything when an account holder dies. This is a very common issue and can create unnecessary friction between survivors. This is particularly awkward if a parent has added one child to the account for ease of bill paying. Perhaps that child has also been the caregiver to the parent for many years. However, what if the parent actually intended the account to be split among all the children? There are plenty of lawsuits based on situations like this, especially if the child who was the caregiver believes he or she is entitled to all the assets for all their hard work over the years.

Other disadvantages
• Once the money is deposited in a joint account, all parties have equal access, so any of the can withdraw, spend or transfer money without the consent of the other person. Image what could happen in an unhappy divorce!
• Creditors of any of the parties on a joint account have access to the assets in the account. A creditor may be able to garnish the assets, again without the consent of the other party.
• A joint account can affect a person’s eligibility for Medicaid. For instance, an elderly parent may add a child to their account to make the funds easier to transfer upon death. Unfortunately, the entire account is considered countable for purposes of eligibility.

What about TOD and POD?
Bank and brokerage accounts with beneficiary designations built in are sometimes called payable-on-death (POD) or transfer-on-death (TOD) accounts. With a POD or TOD account, there is no transfer of ownership during lifetime, with the transfer to the named beneficiary occurring at the death of the account owner. The process in providing names for TOD an POD accounts is often rushed or if not handled immediately – overlooked. how the account is titled can mean a big difference with how the account is treated during the estate administration process. Even if the accounts have all children named as beneficiaries, there can still be problems. For example, providing for all the children equally may not be fair or if unequal, may cause hurt feelings and resentment. Also, if there is a will or trust that provides for bequests to others or to charity, there may be no money to pay for them because it all goes directly to the beneficiaries.

What is the Better Way?
A better way to protect assets and avoid the pitfalls of joint accounts or beneficiary designations is to use durable powers of attorney and living trusts. The cost of creating an estate plan is easily offset by reducing the risk of your heirs going to battle over your assets.

puppy and kitten

Are Your Furry Friends Protected?

puppy and kittenIf you’ve ever owned a pet, you know the hole they leave in your life when they pass on. These furry friends are as much a part of the family as your spouse and kids. Thankfully, there are ways to help plan for your pets upkeep and care, should you pass on before them. This is particularly reassuring for single adults who don’t have family or friends who can step in to care for the animals.

It may seem obvious, but pets cannot really own property, so you cannot leave property to your pet. However, you can makes plans to ensure that your pet is taken care of after you die. You probably have two objectives in making such plans:

  • make sure that your pet goes to a caring person or organization, and
  • provide for the caretaker the resources to take good care of the pet.

You can use a clause your will to leave your pet —  and money to care for your pet — to someone you trust to care of the pet or

You can create a Pet Trust. This is is obviously more expensive, but it is a stronger way to address this issue. WIth a pet trust you can leave your pet, money for care AND the legal obligation to care for your pet – something that is missing with just a clause in your will.

Some states actually allow for formal trusts for pets. Arizona is one of those states. The statute allows for the creation of a trust for a designated domestic or pet animal and must be performed in 21 years or less. The trust terminates when no living animal is covered by the trust. The remaining funds in the trust must be distributed as directed by the trust.

More often than not, estate planning for pets can be as simple as identifying the family member or friend who will care for the pet, as well as leaving a sum of money to the caregiver for the animal’s upkeep and welfare — and making sure the information is contained in your will or trust. However, for a surviving spouse with no family or few friends, a trust can be the tool that will give them peace of mind if they go first.

It is comforting to know that pets can be cared for in the event of your death, and you’ll know they are in good hands because you plan for it!

Trust Fund Loophole?

What Is President Obama talking About?

President Obama is going to give his State of the Union address on Tuesday January 19, 2015. He has announced several initiatives including  free community college and paid leave. He knows that the number 1 question is where is that money going to come from? Well most of it  — $210 billion — is proposed to come from a capital-gains tax hike and a change in the way the tax code treats the appreciated value of inherited assets. Under the proposal, inherited assets would be taxed according to their value when they were purchased. That means the capital gains on those assets during a person’s lifetime, now shielded from taxation, would be subject to tax at the time of the bequest.

Who is that going to affect?

Well not you and me. The proposal, which does not apply to charitable gifts, would fall almost entirely on the top 1 percent of taxpayers. It would apply to capital gains of $200,000 or more per couple, with an additional $500,000 exemption for personal residences. Well that is quite a big number. The changes on trust funds and capital gains, along with the fee on financial firms, would generate about $320 billion over 10 years, which would more than pay for benefits Obama wants to provide for the middle class, the official said.(Reuters) But in all likelihood these proposals won’t make it past the Republican-run Congress, who directly oppose any tax increase on the wealthy. 

What is the Trust Loophole?

In usual circumstances if you buy a capital good, for example stock shares, and then sell the more than a year later, you will pay capital gains tax on any profit you make. Most middle-income taxpayers pay the 15% rate. For example, if you buy stock for $10,000 and it grows to $20,000, if you sell it you pay capital gains tax on the $10,000 of gain. If you are in the 15% bracket, you owe federal tax of $1,500 plus your state tax.As the amount goes up so does the tax rate. Sometimes as high as 39%

BUT, the rules are a little different when it comes to passing money to your beneficiaries of your trust. With some good tax and trust planning, it is possible to  legally shelter significant portions of their estates from capitol gains taxes. For those who oppose the estate tax and call it the “death tax” and have fought for repeal, saying it is a form of double taxation, this is probably a good thing.

So what is the loophole? If you plan your estate properly though the use of different trusts, you can transfer assets to your beneficiaries at the value when that transfer occurs, not at your cost in buying the asset. What does that mean? There is no capital gains tax. In estate tax speak it is called a “step-up in basis.” So to continue the example, if you transfer the $20,000 from the sale into a a special type of trust during your lifetime or at your death, there is no estate tax and the beneficiaries of the trusts will receive the stock at a value of $20,000. This means that your beneficiaries will only potentially pay tax when they sell on the increase from when they get the property, not for what the parent paid. Closing that loophole will mean “every American, even the wealthiest ones, actually pay taxes on the gains,” the officials said, adding that 99 percent of the impact of this action would affect only the top 1 percent of taxpayers.

Under the current Tax Code, administration officials say, someone who inherits $50 million in stock — in a portfolio that was originally worth $10 million — doesn’t have to pay income tax on the $40 million capital gain. Because of that rule, “hundreds of billions” of dollars of capital gains go untaxed, administration officials say. While philosphies can differ about whether there should be an estate tax or not.

That sure is a lot of money for a very few number of people.

Gregory C. Poulos, J.D., M.B.A..
Poulos Law Firm, P.L.L.C.
11120 N. Tatum Blvd, Suite 101
Phoenix, Arizona 85028
Phone 623-252-0292

Creating a Complete Estate Plan

We all know you need an estate plan, but 50% of people do not get around to taking the steps to create one. To help you get started here are a few checklist items that will help you get a complete plan in place.
1. Create a will.
In a will, you provide instructions about who you want to inherit your property. You can also name a guardian to care for your young children should something happen to you and the other parent. If you die without a will, your property will pass to your survivors based on your state’s laws of intestacy. Contrary to popular belief, in most states, that means that your spouse and your children will split your legacy. If you are single, your assets will go to blood relatives even if you would have preferred a friend to inherit them.
2. Consider a trust.
If you hold your property in a living trust, your survivors won’t have to go through probate court, a time-consuming and expensive process. A trust is a private document that also allows you to direct how your property should be managed in the event of your mental incapacity or disability. Even if you create a trust, you still need a will to name guardians for your children and to make sure property not in the trust gets into it.
3. Protect your children.
You should also consider protecting your children, minor or otherwise by creating a trust for their benefit in your will or in your trust. That way, you name a trustee to follow your instructions on how to manage and distribute assets to your children in a way that is in their benefit and protects them from creditors and financial predators. The trustee can be a relative, friend, or professional such as a banker or lawyer. If you fail to establish a trust in your will for your minor children, a court will name a guardian to oversee the property they inherit.You should name an adult to manage any money and property your minor children may inherit from you.
4. Review your beneficiaries.
If any of your property is titled in joint names or payable on death, that property will not go through probate or be in your trust. That property will go right through to the beneficiaries. Sometimes this can lead to unintended and unpleasant consequences. It is important to review those beneficiaries to make sure they are current and really reflect your wishes.
5. Make health care directives.
Health care directives include a Living Will (instructions if you are in a vegetative state); a Health Care Power of Attorney (gives someone the power to make treatment decisions if you cannot) and a HIPAA authorization to allow the person you choose to make decisions the authority to see your medical records.
6. Make a financial power of attorney.
With a durable power of attorney for finances,you can give a trusted person authority to handle your finances and property if you become incapacitated and unable to handle your own affairs. The person you name to handle your finances is called your agent or attorney-in-fact (but doesn’t have to be an attorney). States differ dramatically on the legal recognition afforded powers of attorney forms.
7. Consider life insurance.
If you have young children or own a house, or you may owe significant debts or estate tax when you die, life insurance may be a good idea.
8. Understand estate taxes.
Most estates — more than 99.7% — won’t owe federal estate taxes. For deaths in 2014, the individual exemption is $5.34 million. Also, married couples can transfer up to twice the exempt amount tax-free, and all assets left to a spouse (as long as the spouse is a U.S. citizen) or tax-exempt charity are exempt from the tax.For most people this is clearly not a consideration at this time.
9. Cover funeral expenses.
Rather than a funeral prepayment plan, which may be unreliable, you can set up a payable-on-death account at your bank and deposit funds into it to pay for your funeral and related expenses.
10. Make final arrangements.
Make your wishes known regarding organ and body donation and disposition of your body — burial or cremation.
11. Protect your business.
If you’re the sole owner of a business, you should have a succession plan. If you own a business with others, you should have a buyout agreement.
12. Store your documents.
The people you name to take care of your property, whether an attorney in fact, your executor or trustee will need to know about your property and where to access your documents. To avoid making that person spend unnecessary time and effort trying to figure out what to do, consider keeping a folder or notebook with your important documents, a list of your assets and the names and telephone numbers of your professional advisors. Don’t forget to keep a list of your on line accounts and passwords as well. Get a home safe or firebox for these documents and make sure someone else knows where the key or combination is.
13. Leave a letter
Consider leaving your survivors a letter to tell them about your life, your values and thoughts that you would want shared upon your death. This is not a legal document, but a way to express your thoughts and hopes when you are no longer able to do so.
14. Review your Plan
And finally, review your estate plan at least every five years. Make sure all of your documents still reflect your desires, and that your beneficiaries and financial and health care proxies are still willing and able to serve. In addition, you should revisit your estate plan if Congress revises the estate-tax law or whenever there is a major change in your life, such as a birth, death, marriage, or divorce.
14. Don’t do it yourself.
You pay people to prepare your tax returns, paint your house or color their hair, but cannot bring yourself to pay a lawyer to prepare an estate plan for your family. You do not want to spend thousands of dollars on something that you think they can do yourself with will-writing software that sells for less than $100. Well Consumer Reports tested three will-writing products in 2011 with the help of a law professor specializing in estates and trusts. Consumer Reports concluded that all three were inadequate unless a very simple plan was required, such as one that leaves everything to a spouse, with no other provisions. For anything else, you really should use a lawyer. Find one by getting referrals to  lawyers with expertise in estate planning from your accountant or financial planner. Call a few and ask how much they will charge, if anything, to meet with you for an hour and discuss your estate planning needs. After your consultation, some attorneys will quote a flat fee for an estate plan; others bill by the hour and will estimate how much time it will take to draft the legal documents you need.

Top 5 Smart Year-End Financial Actions

The end of the year isn’t just a time to celebrate the holidays. It is also a time to clean up last minute details and plan for the future. Here are five really smart year-end financial moves that you can make to help you begin the New Year right.

Review Your Insurance
Review your insurance coverage. If you’ve had any changes to your family status, make sure they are reflected in your coverage. In addition, it is not a bad idea to check and compare the cost of coverage with different companies. In a competitive marketplace, new products can provide you with greater coverage for less cost.

Contribute to Retirement Plans
If you haven’t contributed to your retirement plan, year-end is a good time to do it. The deadline is actually April 15, 2015, but you can get your money working for you sooner if you contribute now.

Evaluate your Investment Plans
Changes in the marketplace this year may have you wondering if you’ve made the right choice in your mix of investments. Year-end is a good time to evaluate if everything is working the way you want it to. And if you don’t have one, it might be time to let a seasoned financial advisor give you a hand with your planning.

Review Your Estate Plan
If you don’t have an estate plan, now is the time to make one. Don’t let another year go by without securing the future for your family. Be sure to put your powers of attorney – financial, durable and health – in place, as well creating a living will. And while you are at it, check all possible documents that might have a beneficiary listed — 401(k), retirement plans, life insurance plans, etc. Be sure you’ve designated the correct person as your beneficiary for each plan or program.

They say the joy is in the giving. This is the time of year to not only open your hearts to family, but to people and organizations in need in your community. There are more hungry people, more orphans, more animals waiting to be adopted, and more sick people than ever in this world. Take a moment to give to worthy cause — you’ll feel good about it and get a tax deduction as a bonus.

If you need a list of the non-profit organizations in Arizona to which you might contribute, you can visit the Arizona Gives Day website at

I wish you and your family a wonderful and joyful holiday season.

Greg Poulos