Tax Planning

The Changing Role of Trusts in Estate Planning

Published on: July 27, 2016 | By McCulloch & Miller, PLLC

A legislative change made the use of trusts less necessary for most Americans, but there are still many situations where this planning tool is the best option.

When the American Taxpayer Relief Act became law, the $5 million exemption and the new rules on portability of the exemption for married couples (i.e., $10 million per couple) became permanent. The tax rate on estates over that threshold, now $5.45 million per person, was bumped up to 40%. Many people who had created trusts to protect their descendents from estate taxes had cause to grumble because their trusts were no longer necessary, according to CNBC in “What's the difference between an inheritance and a trust?”

The estate tax now only affects about 0.2% of the population, translating to about 600,000 Americans. This was one of the big reasons why people set up trusts over the last 20 years…to avoid estate tax consequences. But trusts continue to have an important role in estate planning.

How to Make Your Houston Family Business the Exception That Survives

Published on: June 13, 2016 | By McCulloch & Miller, PLLC

Whether on the evening news or a serial drama, we love to watch the inner workings of family businesses—in large part because of the drama and the high likelihood of failure.

The narrative of family dynasties is intriguing. According to the Yakima Herald in "Passing the baton: 6 challenges for family business succession," that is because successfully transitioning from one generation to the next is extraordinarily challenging and statistically unlikely. The low levels of success are matched by high expectations of business owners who believe that somehow, someway, their family will continue to control the businesses. Their viewpoint is highly optimistic and—most often—wrong.

Whether it's a national chain of supermarkets or a mom and pop corner grocery, owners will face several obstacles when seeking to ensure that their business legacy continues with and through their children. Here are some common challenges to consider.

Here’s One Way to Avoid the 401(k) Penalty

Published on: June 9, 2016 | By McCulloch & Miller, PLLC

The double nickel year has potential for allowing you to tap your 401(k) without an early withdrawal penalty, but you have to know exactly how it works to avoid problems.

There's one exception to the rule that you must be at least 59 ½ to tap your 401(k) without incurring a 10% early-withdrawal penalty, but you have to tread carefully. If it is the year you turn 55 or older and you leave your job, there's no penalty. You will still owe tax on the withdrawal—a $10,000 payout at a 25% tax rate will still cost you $2,500. There's no free lunch, even here. But, the good news is you don't get hit with a $1,000 early withdrawal penalty.

It doesn't matter how you separate from service. In fact, retiring, being laid-off or even termination will spare you the penalty. Provided you're 55 by the end of the year you leave the job, the rule applies, says the Kiplinger's article, "When You Can Tap a 401(k) Early With No Penalty."

Most Americans Still Don’t Have a Will

Published on: May 20, 2016 | By McCulloch & Miller, PLLC

Despite countless celebrity estate battles, most Americans still put off having a will created. Think of a will as an itinerary for your family that will make their lives easier once you are gone.

Prince was clearly busy with performing, writing, recording and creating. But that's still not a good reason for him to not have put a will in place. The very public court processes that are now underway could have been completely avoided had he devoted the time to creating an estate plan.

The Huffington Post, in its May 3 article, "Like Prince, A Majority Of Americans Don't Have A Will," stressed that wills are important as they establish beneficiaries, distinguish who gets what (and how much of it), and prevent the state from deciding what happens to your property.

How Do Supreme Court Judges Do Their Estate Planning? Very Well, As It Turns Out!

Published on: May 19, 2016 | By McCulloch & Miller, PLLC

One Chief Justice's seemingly simplistic will was the target of a lot of humor. Tongues wagged in Washington that he had utterly failed to do any estate planning. The gossips had it all wrong.

It may be surprising to outsiders, but Washington D.C. actually functions in many ways as a small town. When Chief Justice Warren Burger died in 1995 and it was revealed that he had a one-page will that he typed himself, the community was amused and the jokes flew.

But the Chief had the last laugh. His lawyer responded that Burger's will, when given effect along with the terms of his previously deceased wife's will, created maximum tax savings.

Adopting? Congratulations! First, Your Financial Homework

Published on: May 17, 2016 | By McCulloch & Miller, PLLC

Financial planning needs to be part of the equation when doing all of the work involved in bringing a new family member into your lives.

The cost of adoption can start at a few hundred dollars or it can easily exceed $40,000, according to the U.S. Department of Health and Human Services. There are many different ways of adopting a child into your home, but however your adoption occurs, you need to do some financial planning.

Biz Times' recent article, "Getting your finances ready for adoption," says that in order to get your finances ready for adoption, you have to do your homework and be certain the price and processing work of adoption won't wipe out your plans for essential financial goals like retirement, saving for your future child's education, and higher daily living expenses with a new family. Begin with these tips:

Done Correctly, Reverse Mortgages Can Be a Positive Solution to Some Houston Homeowners

Published on: May 16, 2016 | By McCulloch & Miller, PLLC

The numbers are still small, but as Boomers age, the reverse mortgage may grow in popularity to maintain a certain quality of life.

Reviled for years for high costs, today the reverse mortgage—sometimes referred to as a Home Equity Conversion Mortgage (HECMs)—is a government-insurance loan that allows qualified seniors to turn illiquid home equity into tax free cash that they can use in a variety of ways. Many older adults in Houston use the reverse mortgage to make it possible to stay in their homes during retirement.

The Fifty-Plus Advocate says in "Top ways to use a reverse mortgage" that when used properly, a reverse mortgage may be the solution to living an independent, fulfilling life. A reverse mortgage lets you retain full control and ownership of your home. You are still obligated to maintain the property and to pay real estate taxes and homeowner's insurance, but you can stay in your home for the rest of your life. You also can sell your home at any time without a penalty, and any profit from the sale after paying off the reverse mortgage belongs to you. In many instances, properties held in a trust or life estates are eligible.

Estate Planning and Financial Planning—Two Areas Where Houston Military Families Need Help

Published on: May 12, 2016 | By McCulloch & Miller, PLLC

It is not easy to be a member of a military family. They face many challenges that civilians do not, and—all too often—they do not receive the support in two critical areas that could make a difference.

Risks for Houston military families include accidents during training, battlefield injury and the stress of frequent moves. Service members have a far greater than average chance of becoming disabled or dying prematurely. This makes it especially important for military families to have access to financial and estate planning advice.

The Wall Street Journal article, "How to Serve Military Families," says that in many instances military spouses are young and financially immature. Military families don't settle in one place for very long, so a nonmilitary spouse may have trouble finding a steady job that would provide a second income and a retirement plan. In that situation, if something happens to the service member, and benefits are paid out, they need to be able to access them immediately. It's more likely that young military families will need help getting these estate documents in order and updating their beneficiary designations.

Establishing a Value for Prince’s Estate at the Heart of Upcoming Battle

Published on: May 10, 2016 | By McCulloch & Miller, PLLC

Once again, the value of image and other intangibles will overshadow any other issue with a celebrity estate that is expected to break earnings records.

The countdown on the estate tax liability for Prince's fortune has already begun, but arriving at the final number will not be easy and certainly will not be resolved without significant legal action.

For those involved with Prince's estate, calculating just how big Uncle Sam's bite may be a real challenge. Some say it's next to impossible and might also fuel a lengthy feud between the government and the estate, as more than half the estate's value could be forfeited in taxes.

Houston, Do You Know the True Cost of Divorce?

Published on: March 24, 2016 | By McCulloch & Miller, PLLC

Once the initial emotional trauma is past and the couple starts working towards creating separation agreements, it's time to consider the day-to-day costs of living that change as the result of a divorce. The family economic unit that formerly had one mortgage or rent payment, one cable bill, one energy bill, etc., now has two of each of these bills. Wise planning for life after divorce includes living expenses, taxes and retirement planning.

Money's recent article, "Keep a Divorce From Killing Your Finances," offers several important tips for those going through or recently completing the divorce process.

Monitor assets in your divorce settlement: If you're in the midst of a divorce, examine the type of assets that you receive as part of your divorce property settlement. The reason for this is your cash flow. Even in cases where the math demonstrates an equal split between the two parties, one spouse could get stuck with a non-liquid asset, which might end up being difficult to liquidate if cash flow becomes a problem.