Trusts

Intrafamily Loans: An Estate Planning Tool for Houston Families

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

Utilizing intrafamily loans and trusts is one way that wealthy families can maximize their estate planning strategies. A recent issue of Barron’s features, “How Family Loans and Trusts Can Create Big Wins,” and outlines the specifics on intrafamily loans as an estate planning tool. The note has a fixed value, no matter how big the underlying asset grows.

With low interest rates, families with taxable estates can benefit from structured trusts and intrafamily loans. Not that these intrafamily loans have their own rates and rules – the rates on intrafamily loans allow parents to lend their children cash at rates far lower than a comparable commercial loan. Plus, they can be part of a broader wealth-transfer strategy.

For instance, an aging millionaire can fund a trust for his children’s benefit with a $100,000 gift. He then loans it $900,000 at the allowable 1.82 percent interest rate for five years, which the trust invests. The trust makes regular payments on the loan and then repays the principal in full at the term’s end. Any investment gains over that extremely low interest rate are tax-free in the trust for the next generation – it’s all legal and great planning.

Texas Politics: High Profile Guardianship Case

Published on: September 1, 2015 | By McCulloch & Miller, PLLC

Naming a guardian for minor children is never a pleasant task, but this situation makes a compelling argument for why it is so important. A Texas Attorney General with legal problems was appointed guardian of a large trust for two minor siblings and certain facts don’t seem quite right. That no investigation is being made makes one wonder if this is what their father had in mind.

When minors are to receive an inheritance and no guardian has been named, it is normal for a court to name a Guardian ad Litem. This is typically an attorney who is expected to represent the minors and look out for their best interests. When Tanner Hunt, the son of Texas billionaire Ray Hunt, passed away, he left behind a large trust fund and two minor daughters.

In the Hunt case, current Texas Attorney General Ken Paxton was appointed as the Guardian ad Litem for the minor daughters. Questions are being asked about Paxton's role in participating in negotiations that would have potentially bought the daughters out of any interest in the Hunt trust for a substantially lower amount than they would have otherwise been entitled to.

Estate Planning Isn’t a “Cookie Cutter” Approach for All Millionaires

Published on: August 18, 2015 | By McCulloch & Miller, PLLC

A recent survey from CNBC.com shows that there are differences in how the wealthy perceive the need for estate planning, and not all millionaires behave the same way. There are differences between families at the $1 million – $5 million level and those with $5 million and more. However, a significant number of millionaires do not have an estate plan, and part of that may be due to estate planning fatigue.

According to a poll of 750 millionaires, individuals with $5 million or more (68%) were more likely to seek help with estate planning, compared to individuals with $1 million to $5 million in assets (61%). The survey, conducted by CNBC.com, reports their findings in a recent article: “Wealthy suffer from 'estate-planning fatigue'.”

The political break down was as follows: Republicans (68%) were more likely to use an estate planning expert to create an estate plan than Democrats (61%) or Independents (58%).

Can Incentive Trusts Guide Good Behavior?

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

A trust that rewards heirs for desired behavior is known as an “incentive trust.” These kinds of trusts are popular among those who fear that their beneficiaries will not treat their inheritances with respect and are likely to waste vast amounts of resources. If you are considering setting up an incentive trust that will succeed, it needs to be done correctly.

Some wealthy families worry that their heirs may not be capable of handling large inheritances, and are concerned that the money may be squandered. In an effort to guide their heirs, they turn to incentive trusts to reward heirs who follow in what they consider to be the correct path.

For example, if you are planning your Houston estate and creating a trust for a minor child, you might want to create a trust that rewards the child for graduating from college or getting a job.

Estate Tax Planning Remains Important Step for Some Houstonians

Published on: July 31, 2015 | By McCulloch & Miller, PLLC

Estate taxes are seen by some as instruments of public policy, an attempt to fight economic inequality by diminishing the ability of wealthy families to aggregate vast amounts of wealth. Others see estate taxes as a “death tax” that penalizes those who are financially successful. Whatever your opinion, estate tax rates are still quite high compared to other taxes. This creates an incentive to plan in advance and use sophisticated methods to reduce estates taxes.

Thirteen different brackets might make you think that estate tax planning is all about college basketball! According to a Fox Business article, “2015 Estate Tax Rates: How Much Will You Pay?” the rate structure for the estate tax has remained virtually unchanged since 2013, even with these numerous brackets. See the chart below for a birds-eye-view of the 13 different brackets:

Amount of Taxable Estate	Tax Bracket
$0-$10,000	18%
$10,001-$20,000	20%
$20,001-$40,000	22%
$40,001-$60,000	24%
$60,001-$80,000	26%
$80,001-$100,000	28%
$100,001-$150,000	30%
$150,001-$250,000	32%
$250,001-$500,000	34%
$500,001-$750,000	37%
$750,001-$1 million	39%
Over $1 million	40%

Source: IRS

Before you do any number crunching, remember that the federal government has an estate tax exemption for all estates more than $5.43 million (in 2015). The “lifetime exemption amount” is the cut-off mark for how much wealth each person can pass to their heirs without owing any estate tax.

The article explains that the exemption is different than a standard deduction. What you do is look at all your taxable estate assets and knock out the first $5.43 million. If you have more than that, the estate tax will be at the maximum rate of 40 percent on the portion of the estate that’s above the $5.43 million threshold. For instance, if your estate is $5.44 million, then your estate's tax liability would be $4,000 — which is 40 percent of the $10,000 above the $5.43 million threshold.

An estate planning attorney can help you with some ways to reduce or even eliminate your estate tax liability. This can include gifts during your lifetime to reduce your estate assets at your death. The law says that you can give an individual up to $14,000 annually without having to pay any gift tax. If you give more than that amount, you'll start using up your lifetime exemption. You don’t want that!

There are also many more-complicated methods of giving money to potential heirs during your lifetime that can reduce your eventual estate tax bill. Talk with your estate planning attorney about these more complex strategies and leave more money for your heirs and less for taxes.

For additional information on estate tax planning and elder law topics in Houston, please click here to visit my website.

Reference: Fox Business (July 16, 2015) “2015 Estate Tax Rates: How Much Will You Pay?”

Business Succession Planning: Key Element for Houston Business Owners

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

Owners who are personally and emotionally involved in their businesses, including farming operations, often consider what will happen to their businesses, farms and business assets when they are no longer involved. Planning for the disposition of a business is different than estate planning. While many think they are the same process, they are really very different.

Estate planning concerns the transfer of assets, including wealth, of an individual from one individual to another or to an entity, such as a trust, and this occurs only when the person passes away. Ownership of a business and business assets, whether they are tangible or intangible, can be transferred to a legal entity, whenever the owner chooses. The Columbus (NE) Telegram’s article, “Estate planning and business transition quite different,” discusses these two different kinds of transactions.

Business transition is simply the transfer of a business asset or the entire entity from an existing owner who has decided to retire or move on. This usually occurs during the life of the existing owner. However, when a business transfer takes place after the death of the owner, it’s usually part of an existing or implied estate plan or asset transfer process.

Two Key Documents for Houston Estate Planning

Published on: July 28, 2015 | By McCulloch & Miller, PLLC

When a man who had remarried passed away, his children were less upset about his leaving everything to their stepmother as they were about her decision to liquidate the family home and furnishings. Rather than give them an opportunity to enjoy things that had special meaning to the children, she took the position that they could come to the auction and bid on the items, just like anyone else who attended the auction. The heartbreak and hard feelings that resulted could have been prevented with the use of two documents: a Letter of Instruction and a Personal Property Memorandum.

While it seems that listing out personal assets like jewelry, books, photo albums and home furnishings might be tedious and not really necessary, a recent article in Forbes, “Simple Steps To Prevent Future Family Inheritance Rifts,” points the way to using two documents that can ensure that your personal property goes where you want it to go, and also saves your heirs from losing personal items that may hold a great deal of meaning to them.

A Personal Property Memorandum is a legally binding document. It is to be referred to in the will that is to list all the personal property you want to leave to your heirs and loved ones. A personal property memorandum is recognized in 30 states and must be referred to in the will. But the document doesn’t need to be notarized or witnessed. The article suggests that you clearly describe these items so they aren’t confused with others. For example, “All of the Barry Manilow LPs in my collection are to go to Cousin Buddy.” Make sure your executor or executrix has the correct information, as well. You don’t want the wrong relative to walk off with your disco records!

Can You Talk to Your Aging Parents About Finances?

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

Talking with aging parents about their finances, their wishes, and the future, is never an easy conversation. When it became clear that her mother was starting to suffer from memory loss, Gwen started to speak with her mother about finances, accounts and final wishes. While she felt uncomfortable pressing her own mother for information, in the long run obtaining this information made things easier when Gwen, the daughter, ultimately had to take over her mother’s finances. While not all parents are willing to have these discussions, they are important to prevent the difficulties that eventually arise. Gwen Morgan, the author of “What If…Workbook,” a guide that helps gather and convey this type of information, notes that “People hold tight to their bootstraps.” Communicating early and often can help.

Even if your parents are reluctant to discuss their finances, the sooner the conversation begins, the better for all concerned. In an article posted on Go Banking Rates, “How to Talk About Money With Your Aging Parents,” the author shares a deeply personal experience with her own mother. Some parents are simply not willing to have these conversations, and several different approaches may need to be tried before you find the one that they are comfortable with. Not knowing key information could lead to family members needing to go to court to obtain the ability to gain control of their parents' finances and make medical decisions on their behalf. These scenarios can cause serious emotional and financial hardship for families.

Here are several strategies from the article to get aging parents to discuss their finances. Make sure that the conversation is respectful. Also make certain that it’s understood that you’re not trying to take over your parents’ finances. Starting with an area that doesn’t feel like a loss of power, may be more successful, the article advises.

Is a TOD (Transfer on Death) Registration Right for Your Houston Planning?

Published on: July 23, 2015 | By McCulloch & Miller, PLLC

Certain assets, including life insurance, IRAs, 401(k) plans and other retirement accounts pass directly to beneficiaries outside of your will. Typically, brokerage accounts pass only through your will, and then only after probate. But there is a way to ensure that brokerage accounts transfer at death to your beneficiaries.

A recent item in Kiplinger's, "How Your Brokerage Account Can Bypass Probate" explains how to use a transfer on death (TOD) registration to have your brokerage accounts transferred directly to your beneficiaries upon your death. This is a special kind of investment account that is recognized under state law and it may solve the challenges posed by having your estate pass through probate, which can be an expensive and time-consuming process. In some states, a "TOD" can also be used to allow real estate to be transferred. An experienced estate attorney is needed to understand where this works best, and what it can and cannot accomplish.

A TOD lets you keep control over the account, and you are able to change the beneficiary designation any time you'd like.

Is Your Houston Estate Plan Current?

Published on: July 22, 2015 | By McCulloch & Miller, PLLC

Ensuring that your assets are passed on to heirs in a way that you wish is not always easy because of the many options available and the fact that the tax laws are always changing. While certain facts are relatively fixed – i.e., beneficiary designations on life insurance policies and retirement plans avoid having these particular assets subject to probate, others are subject to change. Keep up with these changes by meeting with your estate planning attorney on a timely basis.

The use of trusts to help estates avoid probate is well established in any estate planning law practice, but when laws change, estate planning must change also. An explanation comes from The (Anderson, IN) Herald Bulletin article, "Changes in laws can affect your estate planning," which explains how the revocable grantor trust works and why it was created: to help people avoid probate.

A revocable grantor trust roles include the grantor (the person making the gift), the trustee in charge of the trust (typically the grantor), the income beneficiary (also usually the grantor), and the remainder beneficiary. Taxes that are generated from investments and income are reported on a standard tax return. When assets are placed in a trust, individuals have control and the use of the assets. Ownership is structured so that there is no probate. Individuals should fund the trust with as many assets with which they are comfortable (except IRAs and retirement accounts).