Houston Estate Planning and Elder Law Attorney Blog

Estate and Gift Tax Exemptions Set to Increase in 2016

Published on: November 9, 2015 | By McCulloch & Miller, PLLC

By law, every year the IRS must determine exemption limits for federal estate tax and the lifetime gift tax based on inflation. And every year, estate planning attorneys wait to hear the IRS' announcement of what the exemptions will be for the coming year.

For 2015, the exemptions were set at $5.43 million for a single person and $10.86 million for a married couple. The exemptions for 2016 have been raised to $5.45 million for a single person and $10.9 million for a married couple.

It is important to note that the gift tax exemption is the total amount of gifts that may be made during a person's lifetime. The amount that may be given to any individual in a single year in 2016 will remain the same as it is in 2015 at $14,000.

The Importance of Keeping Wills and Trusts Updated

Published on: November 6, 2015 | By McCulloch & Miller, PLLC

There was a time when irrevocable bypass trusts were highly favored by estate planning attorneys as one of the best estate planning methods for married couples. It worked like this: one spouse would fund the trust with an amount that was just under the estate tax exemption. At the time that the funding spouse passed away, funds in the trust were available for the heirs, and the balance of the estate was inherited by the surviving spouse.

Consequently, this approach lowered the size of the surviving spouse's eventual estate and lessened the estate tax burden for the married couple. However, as Kiplinger's Retirement Report points out in "Old Trusts Create Tax Issues for Heirs," estate tax laws have changed significantly since the time when many of these trusts were created.

The estate tax exemption is far higher than it used to be, and spousal portability now allows a married couple to double its estate tax exemption.

California Decision Highlights Planning Mishaps

Published on: November 5, 2015 | By McCulloch & Miller, PLLC

This is a great example of a failure to think outside of the box. Literally. A California man created a handwritten will that left all of his property to his wife if he were to predecease her. He also wrote that if they should both die at the same time, he wanted his property to be distributed to a number of charities that were important to them both.

What Duke did not contemplate in his will is the possibility that his spouse would pass away before he did, which is exactly what happened.

As Duke had never redrafted his will after his wife passed away, the trial and appellate courts declared that his property should go to his relatives under the laws of intestacy. However, the California Supreme Court ruled that an unambiguous will can be reformed by the court if it can be established by clear and convincing evidence that a mistake was made in expressing the testator's intent at the time the will was drafted.

Often Overlooked: How Will Heirs Pay the Estate Tax?

Published on: November 4, 2015 | By McCulloch & Miller, PLLC

We’ve heard or read the stories of wealthy families forced to sell off prized heirlooms so that hefty estate taxes could be paid. It is never a happy day when an heir needs to sell the family home, wine collection, fine art or collection of vintage automobiles to raise cash for the estate tax. Proper estate planning for wealthy families should include a rather simple solution to this problem: life insurance.

This was recently explained in the Wills, Trusts & Estates Prof Blog in "How Life Insurance Can Be Used To Help With Estate Taxes."

You may consider the creation of an irrevocable trust and make it the beneficiary of a life insurance policy.

Large Estate? Consider Gifting to Family

Published on: November 3, 2015 | By McCulloch & Miller, PLLC

Most people prefer to maintain possession all of their assets, letting them go to the next generation only after they have passed away. But if a family member feels that they have more than enough money and property and others in the family are in need or would benefit from having access to the assets, then the older person can make gifts during their lifetime. This can be very rewarding to the benefactors.

When it comes to giving methods, there are many ways to skin the cat. This was the subject of a recent article in the Columbus Dispatch, "Guide to Life: Pros and cons of leaving inheritances to relatives." Nevertheless, some of those giving methods are more tax savvy than others.

The article mentions three such ways:

Leaving Houston? Consider State Estate Taxes

Published on: November 2, 2015 | By McCulloch & Miller, PLLC

What if your estate is worth less than $5 million, even when counting life insurance policies, the value of your home and your assets? We bet you that you think that means you don't need to pay estate taxes, and consequently that you don't need an estate plan.

That is a mistake, because there are many other reasons to have an estate plan besides the estate tax. It is also a mistake because many states have estate taxes of their own that require careful planning to navigate. With proper planning, these state estate taxes can almost always be avoided.

A recent Forbes article took on this topic in "Three Surefire Moves To Beat State Death Taxes," which recommend the follow tactics:

Is a Silent Trust Right For Your Houston Family?

Published on: October 30, 2015 | By McCulloch & Miller, PLLC

Creating a tool to keep a trust secret from an heir may be considered a "first world" problem, but it is a problem nonetheless. Wealthy families who value their accomplishments are concerned that heirs who know that they are going to receive large amounts of wealth through a trust may not be motivated to establish their own careers or take their studies seriously.

One way to help avoid this is to create a trust that does not give anything to the beneficiaries until they reach an age where they will have settled into their adult lives. However, there still might be a fear that if a beneficiary knows that a large inheritance is eventually coming through the trust, they will not be as motivated to earn their own money as they otherwise would be.

A recent article by Financial Planning, "How Silent Trusts Can Help Your Clients," discusses a type of trust that can be used to keep beneficiaries in the dark about their trusts.

No Kids? You Still Need Houston Estate Plan

Published on: October 29, 2015 | By McCulloch & Miller, PLLC

When most people think of wills and estate plans, they usually think about the primary function of distributing assets to children. The natural next thought is, if they have no children, then they don't need a will. But estate plans, and especially wills, actually serve a number of important purposes, only one of which is conveying assets to children.

As U.S. News & World Report points out in, "No Kids? You Still Need an Estate Plan," people without children need, at the very least, to have a will if they want to have a say in who gets their assets after they pass away.

People who pass away without a will are said to have died intestate. Every state has a law that determines who gets the assets of people who die intestate. The laws all operate similarly, in that the assets are given to the person's closest living relatives.

Can You Be A Millennial Millionaire in Houston?

Published on: October 27, 2015 | By McCulloch & Miller, PLLC

The one thing that all 401(k) millionaires have in common, according to a Forbes' article "Nine Ways To Be A Millionaire In Retirement," it is saving at a much higher amount than others. Whatever your career path may be and whatever your earnings level is, start saving early.

While millennials often have a competing priority with paying student loan debt, it's still important to make sure some of your money is going into retirement.

Live like a college student. Even if you are making very little, you should "mind the gap" – that is, the gap between what you spend and what you earn. Make sure there is a gap and keep your expenses low. Try to live like a college student when you're earning your first salary. Maybe have Ramen noodles and hot dogs on at least some evenings.

Houston: Why Do You Need Life Insurance?

Published on: October 26, 2015 | By McCulloch & Miller, PLLC

It's no surprise that many Americans have chosen not to have any life insurance at all, according to NASDAQ's recent article, "Why Have Life Insurance?" A recent study by a life insurance advocacy group, LIMRA, revealed that most Americans think that life insurance is expensive. They were asked to name the price of a 20 year, $250,000 level term life policy for a healthy 30 year old and were off by several hundred dollars. The anticipated annual cost was $400, while the real cost of such a policy is more like $150. The study found that 85% of Americans are not buying life insurance, and this price perception may be part of the problem. That's not including the people who purchase insurance that is not right for their needs, who overpay for insurance, or those who are insured for so little that their unexpected passing will assuredly put their family's financial future at risk.

That's why it's important for you to sit down annually with an insurance professional to review your policy and also to speak with your estate planning attorney about the role life insurance may play in your overall estate planning strategy. Reviewing your life insurance policies is one way to make sure you have the coverage that is right for you and your family as you age and your family situation changes.

Basic Types of Life Insurance