Charlotte Estate Planning Blog

Old strategy helped by tax law changes

Changes in tax law have brought an old strategy back for taxpayers in North Carolina and across the country. It allows taxpayers to save taxes on appreciated assets. The renewed interest in the strategy comes from an increase in the number of tax exemptions that went up to $11.4 million.

The practical steps of the tax strategy, which is sometimes referred to as upstream planning, involve the taxpayer making a gift of an appreciated asset to an older relative with the understanding that the relative will bequeath the asset back in his or her will. The cost-basis in the asset is stepped-up at the time of the gift, so the taxes on any gain to that point may be avoided.

Professionals may make the best trustees

Individuals in North Carolina who have a high net worth may want to consider creating a trust. Doing so can make it easier to transfer large sums of money in an orderly fashion after passing. However, it is important that an individual choose the right trustee to oversee this document. In most cases, a child or spouse is not going to be the right person for the job.

This is because a child may not have the skills or interest in taking on such a role. Furthermore, it could result in disputes between siblings or other beneficiaries within the family. A spouse may not be the best person to act as a trustee because there is a chance that he or she could get remarried. That may result in changes to the trust that the deceased individual may not have approved of.

Successful estate plans pay close attention to several issues

Families that hold substantial assets in North Carolina typically seek financial and legal advice when planning their wealth transfers. Every person who writes a will, sets up a trust or plans a business succession must grapple with unique issues, but some matters apply broadly to most estate planning situations. These include family dynamics and the selection of executors or trustees.

Relationships among heirs might become frayed or hostile because of estate planning decisions. Disputes could arise for many reasons, such as jealousy over other siblings receiving a larger share or a trustee's inability to manage funds properly. Financial advisers recommend that benefactors discuss their plans with heirs whenever feasible. This will reduce the chances of them becoming angered by estate surprises.

What to do about passwords in an estate plan

Some North Carolina residents who are creating an estate plan might not have considered what they need to do to ensure their executor or family members have access to any online accounts. The estate planning world is slowly catching up to the digital world, but there is still no standard procedure in place for sharing passwords.

In fact, for security reasons, people are encouraged to neither share passwords nor write them down. A person who has passwords saved on a computer might give that password to an executor or other individual who can then access bank accounts and other important information. However, this is still not very secure. Some people write down all their passwords and place them in a safe deposit box, but these lists tend to become outdated quickly because people find it too burdensome to return to the bank every time they change a password.

Can your family benefit from drafting a special needs trust?

Every family is different, which means every family will have different estate planning goals. If you have a disabled or special needs individual in your family, it is beneficial to consider his or her future needs when drafting estate plans. There are certain tools available to you that can benefit your family for years to come. 

Through a special needs trust, you can set aside assets for the specific purpose of caring for a person who cannot care for himself or herself in the future. If you do not have plans in place for the care of your special needs loved one, you would be wise to consider taking this step as soon as possible. There is significant benefit in having the right protections in place for the well-being and security of your North Carolina family.

Estate planning tips for collectors

Individuals who like to collect valuables may have to work a little harder to ensure that their estate plan accounts for those items. This is because payment and other records may not be found on tax returns or other formal statements. Therefore, North Carolina residents and others may want to use computer software to inventory their items. It may also be a good idea to use software to keep track of appraisals or other records related to an object.

Those who own valuable items should look into various methods of securing them. Security measures that people commonly use include safes, safe deposit boxes and various types of alarm systems. It could also be helpful to purchase an insurance policy to protect against financial loss in the event a collectible is damaged or stolen.

A DAPT could be a powerful estate planning tool

An estate planning tool called domestic asset protection trusts (DAPTs) may make it possible to minimize income and estate taxes. The DAPT is a self-settled irrevocable trust, which means that a person can both create it and be a beneficiary. However, the trustee must reside in a state such as North Carolina that allows one to be created. While the trustee is generally a financial institution, it generally doesn't manage the trust's investments.

Instead, whoever is responsible for doing so before the trust was created will continue in that role. One of the key benefits of a DAPT is that an individual can both protect assets and have access to them at the same time. For instance, a professional who is worried about losing personal assets to pay off a malpractice or liability judgment can put the assets in a DAPT.

How trusts can help most people

There are many different types of trusts that North Carolina residents can have as part of their estate plan. The most common one is a grantor trust, and it makes it possible for assets to avoid probate in the event that the settlor passes away. While alive, an individual can be a trustee and a beneficiary. In fact, the individual who creates the trust can also revoke it at any point.

Incentive trusts only allow for beneficiaries to receive distributions if certain criteria are met. If a trust has multiple beneficiaries, conditions can be placed on all of them or just a specific individual. Those who have children or grandchildren with special needs may benefit from a special needs trust. When created properly, it allows a beneficiary to both receive government benefits and receive assets from the trust itself.

Planning ahead for estate taxes

There are some unique tax considerations to keep in mind when an estate owner in North Carolina passes away. In most cases, an executor or personal representative is named in the will. When one does not exist, they can be appointed by the probate court. This person is responsible not only for distributing the property to beneficiaries but also for dealing with the final tax obligations of the estate.

The term "gross estate" embraces all of the property that the person owned at the time of death. This includes property interests as well as assets owned outright. For example, the gross estate will generally include lifetime transfers or gifts, overseas property, some community property, annuities and joint assets with a right of survivorship. It can even include some proceeds taken from life insurance. In general, the executor will add up the value of all of these assets in addition to some adjustments for taxable gifts. This amount will then be compared to the federal estate tax exemption. If the gross estate is greater than the exemption amount, the executor will need to file IRS form 706, even if no estate taxes are due.

Setting money aside for life after reanimation

North Carolina residents who have ever contemplated cryonics may be interested to learn that there is an estate planning solution for them. For some people, the idea of having their body scientifically frozen when they die with the hopes that it could be revived one day in the future is a viable option. One concern that they may have is how they will be able to afford to live after being revived if they have no access to funds. The answer is a revival trust.

With a revival trust, assets are set aside and supervised by a lawyer or by another professional. If science reaches the point where a person who has been cryogenically frozen can be revived and live a second time, there will be money for that individual to live on.

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