Aaron Charles Gregg

No Will? What Happens Now Can Be a Horror Show

“It's hard for a family to recuperate when the patriarchs and matriarchs have gone to glory, leaving a battle for who will carry the family's leadership role and manage the family's transition of wealth.”

Families who have lived through settling an estate without an estate plan will agree that the title of this article, “Preventing the Horrors of Dying Without a Will,” from Next Avenue, is no exaggeration. When the family is grieving is no time to be fighting, yet the absence of a will and an estate plan leads to this exact situation.

Why do people procrastinate having their wills and estate plans done?

Limited understanding about wealth transfers. People may think they do not have enough assets to require an estate plan. Their home, retirement funds or savings account may not be in the mega-millions, but this is actually more of a reason to have an estate plan.

Fear of mortality. We do not like to talk or think about death. However, talking about what will happen when you die or what may happen if you become incapacitated is very important. Planning so your children or other trusted family member or friends will be able to make decisions on your behalf or care for you alleviates what could otherwise turn into an expensive and emotionally disastrous time.

Perceived lack of benefits. Working with an experienced estate planning attorney who will put your interests first means you will have one less thing to worry about while you are living and towards the end of your life.

Estate planning documents contain the wishes and directives for your legacy and finances after you pass. They answer questions like:

• Who should look after your minor children, if both primary caregivers die before the children reach adulthood?
• If you become incapacitated, who should handle your financial affairs, who should be in charge of your healthcare and what kind of end-of-life care do you want?
• What do you want to happen to your assets after you die? Your estate refers to your financial accounts, personal possessions, retirement funds, pensions and real estate.

Your estate plan includes a will, trusts (if appropriate), a durable financial power of attorney, a health care power of attorney or advanced directive and a living will. The will distributes your property and also names an executor, who is in charge of making sure the directions in the will are carried out.

If you become incapacitated by illness or injury, the POA gives agency to someone else to carry out your wishes while you are living. The living will provides an opportunity to express your wishes regarding end-of-life care.

There are many different reasons to put off having an estate plan, but they all end up in the same place: the potential to create family disruption, unnecessary expenses and stress. Show your family how much you love them, by overcoming your fears and preparing for the next generation. Meet with an estate planning attorney and prepare for the future.

Reference: Next Avenue (March 21, 2022) “Preventing the Horrors of Dying Without a Will”

How to Handle Digital Assets in a Will

The rapid rise in circulation and growing popularity of cryptocurrencies is prompting attorneys and estate planners to adjust, as digital assets are inherited through wills, trusts and estates, according to experts who warn of the danger of lost or misappropriated assets.”

Now that cryptocurrency has become almost commonplace, it is necessary to incorporate it into estate plans and their administration, according to the article “Estate planners want to keep the crypt out of cryptocurrency” from Roll Call.

One advantage of using cryptocurrencies in estate planning is the ease of transference—if all parties know how crypto works. Unlike a traditional bank, which typically requires executors to produce an original death certificate and other documents to take control of accounts in the estate, cryptocurrency only requires the fiduciary to have passcodes to gain access to accounts.

The passcode is a complex, multicharacter code appearing to be a long string of unrelated numbers and letters. It is stored in a digital wallet, which can only be accessed through the use of the 64-digit passcode, also known as a key.

While the passcode is simple, it is also very vulnerable. If the key is lost, there is no way to retrieve it. The executor must know not just where the key is physically located if it has been written down on paper, or if it is kept in a digital wallet, but how to access the digital wallet. There are also different kinds of digital wallets.

People do not usually share their passwords with others. However, in the case of crypto, consider storing it in a safe but accessible location and telling a trusted person where it may be found.

People who own cryptocurrency need to give someone access info. If someone is named an executor at one point in your life and they have the information about digital assets, then at some point you change the executor, there is no way to guarantee the former executor might not access the account.

How do you protect digital assets? Using “cold storage,” an account passcode is stored and concealed on a USB drive or similar device, allowing the information to be shared without the user needing to learn the passcode to access the account. The cold storage USB drive can be given from one fiduciary to the successor fiduciary without either knowing the passcode.

Many bills have been introduced in Congress addressing cryptocurrency and blockchain policies. The IRS has issued a number of notices and publications regarding taxes on digital currency transactions. Crypto is no longer an “invisible” asset.

In addition to policies and regulations, litigation concerning estates and cryptocurrency is still relatively new to the judiciary. Planning for these assets to ensure they are passed to the next generation securely is very important as their use and value continues to grow.

Reference: Roll Call (Feb. 22, 2022) “Estate planners want to keep the crypt out of cryptocurrency”

Can I Pay Less Taxes on My Retirement Funds?

“You don't get to use all the money in your traditional 401(k) and IRA for retirement because you still have to pay taxes on it.”

No one likes paying taxes on retirement funds. However, unless you have a Roth IRA or SEP, funded with after-tax dollars, you will owe taxes on withdrawals. However, according to a recent article from U.S. News & World Report, “How to Pay Less Tax on Retirement Account Withdrawals,” there are strategies to reduce taxes on your retirement account withdrawals.

Avoid the early withdrawal penalty. If you take money from a traditional IRA before age 59½, the penalty is 10% plus the income tax due on the withdrawal. If you are in a pinch and need the funds, you would be better off taking withdrawals from a 401(k), which is penalty free if you leave the job associated with the 401(k) at age 55 or later. You might be able to avoid the penalty if the money is needed for a large medical bill, college costs or a first home purchase.

Roll over a 401(k) without tax withholding. Changing jobs? If you take money from a 401(k) when you change jobs, 20% is held for income tax. If you do not put the entire distribution directly into a new retirement account, you could end up owing income tax and the early withdrawal penalty. One way to avoid the tax withholding and penalties is to do a direct transfer from your 401(k) to the trustee of another 401(k) or IRA. Trustee-to-trustee transfers are not generally considered a taxable event.

Manage your required minimum distributions. IRA and traditional 401(k) owners are required to take minimum distributions after age 72. Missing an RMD is expensive: the penalty is 50% of the amount you should have withdrawn, plus income taxes. However, if you are still working after age 72 and do not own 5% or more of the company you work for, you can keep delaying those RMDs from a 401(k) account held for you by your employer until you retire. For IRAs, you still have to take those withdrawals.

Be careful about distributions. Plan the distributions for the first year. You do not want to take two distributions and risk getting bumped into a higher tax bracket. The first RMD needs to be taken by April 1 of the year you turn 72 (or 70½ if you were born before July 1, 1949). The second and all subsequent distributions are taken by December 31 each year. If you delay the first distribution until April, you will end up taking two distributions, which could lead to a big tax bill.

Taking withdrawals earlier than age 72. By taking traditional retirement account withdrawals during your 60s, you can spread the tax bill over more years and enjoy the benefits of a lower tax bracket, reducing your overall lifetime tax bill. Try to take 401(k) or IRA withdrawals during a year when your income is low, like after you retire but before you take Social Security benefits.

Consider a qualified charitable distribution made directly from your IRA. Retirees 70½ or older can avoid income taxes on IRA withdrawals of up to $100,000 (or $200,000 per couple), if they make a QCD directly from their IRA to a qualifying charity. You can also donate part of your RMD and withdraw the rest of income.

Keep tax-preferred investments out of retirement accounts. If you have investments generating long-term capital gains in a retirement account, you will pay a typically higher regular income tax rate when you take the funds from the account. By contrast, you can lower the taxes by holding more highly tax investments (like Treasury inflation-protected securities, corporate and government bonds and funds generating short-term capital gains) within retirement accounts.

Balance retirement funds taxes with your overall retirement plan to try to minimize taxes. Do not neglect to discuss tax planning when you sit down with your estate planning attorney to create or revise your estate plan.

Reference: U.S. News & World Report (March 8, 2022) “How to Pay Less Tax on Retirement Account Withdrawals”

What are the Current Gift Tax Limits?

“In 2017, Congress doubled the exemption starting in 2018, and the amount will continue to rise with inflation through 2025. This expansion helped reduce the number of taxable estates to about 1,300 for returns filed in 2020 from about 5,200 in 2017, according to the latest IRS data.

The expanded estate and gift tax exemptions expire at the end of 2025, which is not as far away as it seemed in 2017. For 2021, the lifetime exemption for both gift and estate taxes was $11.7 million per individual, and in 2022, an inflation adjustment boosted it to $12.06 million per person. The increase is set to lapse in 2025, according to the article “Estate and Gift Taxes 2021—2022: What’s New This Year and What You Need to Know” from The Wall Street Journal.

However, in 2019 the Treasury Department and the IRS issued “grandfather” regulations to allow the increased exemption to apply to earlier gifts, if Congress reduces the exemption in the future.

Let’s say Josh gives assets of $11 million to a trust to benefit heirs in 2020. The transfer had no gift tax because it was under the $11.58 million for 2020. If Congress lowers the exemption to $5 million per person and Josh dies in 2023, when the lower exemption is in effect, as the law now stands, the estate will not owe tax on any portion of his gift to the trust, even if $6 million is above the $5 million lifetime limit in effect at the time of his death.

Current law also has investment assets held at the time of death exempt from capital gains tax, known as the “step up in basis.” If Robin dies owning shares of stock worth $100 each, originally purchased for $5 each and held in a taxable account, the estate will not owe capital gains tax on the $95 growth of each share. The shares will go into Robin’s estate at their full market value of $100 each. Heirs who receive the shares have a cost basis of $100 as the starting point for measuring taxable gains or losses when they sell.

The annual gift tax exemption has risen to $16,000 per donor, per recipient, for 2022. A generous person can give someone else assets up to the limit every year, free of federal gift taxes. A married couple with two married children and six grandchildren could give away as much as $320,000 to their ten family members, plus $32,000 to other individuals, if they wished.

Annual gifts are not deductible for income tax purposes. They also do not count as income for the recipient. Gifts above the exclusion are subtracted from the giver’s lifetime gift and estate tax exemption. However, a married could use “gift splitting” to let one spouse make up to $32,000 of tax-free gifts per recipient on behalf of both partners. A gift tax return must be filed in this case to document the transaction for the IRS.

If the gift is not cash, the giver’s cost basis carries over to the recipient. If someone gives a family member a share of stock worth $1,000 originally acquired for $200, neither the giver nor the recipient owes tax on the gift. However, if the recipient sells, the starting point for measuring taxable gain will be $200. If the share is sold for $1,200, for instance, the recipient’s taxable gain would be $1,000.

For some families, “bunching” gifts for five years of annual $16,000 gifts to a 529 education account makes good sense. A gift tax return should also be filed in this case. Your estate planning attorney will be able to guide you in creating a gifting strategy to align with your estate plan and minimize taxes.

Reference: The Wall Street Journal (March 10, 2022) “Estate and Gift Taxes 2021—2022: What’s New This Year and What You Need to Know.”

How Do You Get a Power of Attorney?

“To get power of attorney (POA), the person granting you that power must name you as the agent to have the powers specified in the POA document. It must be signed by the giver while s/he is sound of mind.”

If you are involved as a care provider for someone who is not able to manage their own affairs, you need to have the legal authority to act in the person’s best interest. To do that, you’ll need to have Power of Attorney (POA) for them, explains the article “How to get power of attorney for a loved one” from Tyron Daily Bulletin.

If the person you are trying to help suffers from dementia, a terminal illness or a condition which makes it difficult for them to communicate or make reasoned decisions, you may not be able to obtain a POA. As a result, may need to go to court for a guardianship or conservatorship instead.

POAs vary by state, so talk with an estate planning attorney to find out what your state allows. In most cases, the POA gives you the power to act on someone else’s behalf for a specific period of time regarding financial management. In most states, you will need a separate healthcare POA to make healthcare decisions or to speak with healthcare providers.

The agent (also known as an attorney in fact) under a POA is required to act in the best interest of the principal. Decisions regarding investments, property, bank accounts, debts and other financial matters must always place the principal first. It is crucial to maintain complete and accurate records of all transactions, and the agent’s finances and personal affairs must be kept separate from the principals.

If the principal is alive and of sound mind, they can overrule the agent’s decision, change or even terminate the POA agreement. They can also name someone else to serve as their agent with another POA. All POA powers terminate upon the death of the principal. Unless the same person has been named as agent under POA and as the executor of the estate or is appointed as executor (or administrator) by the court, that person’s responsibility ends upon the death of the principal.

There are a number of things that an agent under a POA cannot do:

• Be paid for personal services provided to the principal
• Vote in place of the principal
• Take over the principal’s guardianship of another person
• Change the principal’s will.

Even if you or the person who is naming you as the agent under their POA is in good health now, it is wise to plan for the future. We do not know when our capacity to manage finances or make healthcare decisions will be lost. Speak with an estate planning attorney about the POA to best serve your circumstances before it is needed.

Reference: Tyron Daily Bulletin (March 7, 2022) “How to get power of attorney for a loved one”