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IN THIS ISSUE
ESTATE PLANNING FOR BLENDED FAMILIES
LIMITED RMD RELIEF
TAX REFORM AND CHARITABLE GIVING
ARTICLES OF INTEREST
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We didn’t realize we were making memories; we just knew we were having fun – A.A. Milne, Winnie-the-Poo
There is no "best" way to experience grief. Most times it is unbearable. Those of us who have experienced the passing of loved ones know that that pain often comes from the simple fact of missing them and their presence in our life. Many find comfort in remembering and reliving the treasured memories of their loved ones.
Today, there is technology that can help with remembrance. Here are a few examples to consider, so when a new technology arises you might make some comparisons.
As artificial intelligence becomes more complex, it will become more possible to create AI avatars of real people with the same mannerisms, voice, and appearance. In this recent story by the BBC, we can see a California man has attempted to create an AI chatbot of his father after he was diagnosed with terminal cancer. He then created a business to help others do the same, and the article references a South Korean company that captures a person's likeness to 96.5% of the original person.
Given enough information, it's not hard to imagine an AI avatar may be able to extrapolate how that person would respond given a particular question. An older method of bringing that person back to speak to them might have been through watching home movies. By incorporating AI and videos with a database of questions asked and answered, a company called StoryFile is doing just that. Rather than an AI avatar, they prerecord the answers to potential questions that could be asked after a person passes and stores them until that question is asked.
Those that find AI avatars and the interactivity of these new technologies eerie, but who like the idea of getting input after their loved one passes, might want to consider StoryWorth. This is a service that provides question prompts throughout the year for someone to create a diary of stories that could be made into a book later. We all have stories to tell, but sometimes find it hard to do so without prompting.
This type of remembrance technology may make it more difficult to accept the reality that the person that is cherished is gone, and it may seem like they are trying to keep them alive or replace them with these avatars. However, it isn't that dissimilar to looking at pictures, and reading letters or a diary to get stories and lessons out of the past.
There are even new remembrance technologies for a person's remains. The question of what to do with the body has largely been framed as a choice between burial and cremation. However, new technology has arisen to expand those choices. One might be familiar with one of the companies to do so, Eterneva, due to the backing they received from Mark Cuban in 2019 in Shark Tank. Their product is to turn part of the ashes and carbon into a man-made diamond or piece of jewelry that is unique to that person and a remembrance that stays with someone all the time.
They aren't the only company looking to offer new options for the body. PartingStone turns the ash from remains into smooth stones that might feel more natural. This type of remembrance technology may not be any different than funeral urns on the mantle. The intention is to create a physical reminder of what that person or even a pet meant.
The passing of a loved one on top of an already hectic life means needing to deal with more than just funeral planning. It can mean contacting loved ones, coordinating travel for funeral arrangements, contacting companies to let them know of the passing, dealing with any business interests and debts, among other things. It's a full-time job, which piled on top of other work may not leave as much time as we'd like to focus on our grief.
A helpful strategy in this process can be to assemble a team ahead of time and create a "death box". Though the name may sound a bit macabre, this is a box or folder to be opened upon death that has all pertinent information for the executor, such as contact information for the family lawyer, accountant, life insurance agent, a list of financial accounts, real estate deeds, funeral directions, and passwords for computers among other things.
Naming Garden State Trust Company as executor or co-executor with a loved one provides relief from estate settlement responsibilities at a time of extreme grief. To learn more about our estate settlement services visit https://gstrustco.com/trusts-estates/executor-services/ or please feel free to call us.
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MONTHLY QUESTION & ANSWER | |
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Q. I'm going to be retiring later this year. My employer gave me some information from the IRS about my choices for my 401(k) money, but frankly I find the legalese hard to understand. Can you simplify this for me?
A. Don't feel bad about your confusion, you are in good company. The IRS-provided notices have been criticized for being overly complicated, so much so that Congress ordered the GAO to study the issue. The GAO reported in May that its survey of over 1,000 401(k) participants revealed that only 20% of them knew their four choices for a plan distribution, and 40% did not understand the tax consequences of the choices. The report is at https://www.gao.gov/assets/gao-24-107167.pdf.
Congress was trying to be helpful when it provided so many alternatives, but that doesn't make decisions easy or obvious. Your choices are:
- Leave the money in your employer's plan.
- Roll the money into the plan of your new employer.
- Roll the money into an IRA.
- Take the money as a taxable lump sum distribution.
On this question, one size definitely does not fit all. What are your retirement income sources? Will your income taxes be going down in retirement? Are you satisfied with the investment options in your employer's plan? Do you have debts that should be paid off before retirement? How will you invest the money after the distribution?
The decision about how to handle a major retirement distribution will lay the foundation for a successful and secure retirement. We strongly recommend getting professional advice before proceeding -- we will be happy to be of service in this regard.
© 2024 M.A. Co. All rights reserved.
HAVE A QUESTION ON TRUSTS, WILLS, OR INVESTMENT MANAGEMENT?
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For general informational purposes only. This information does not constitute legal advice. | |
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In one of this month's Informational Articles, Tax Reform and Charitable Giving, read about how charities are concerned that the expiration of the 2017 tax reform provisions will have a negative impact on their fundraising.
In another Informational Article, Estate Planning For Blended Families, there is a humorous ending to an otherwise tricky estate planning issue.
With the official start of summer later this month, and the heat already starting to settle in, read about how to protect your pets from the heat in the Of Interest Article How to Keep Pets Safe in the Summer Heat, According to Experts.
Sincerely,
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Estate Planning For Blended Families | |
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The Brady Bunch Breaks Down: Estate Fights Tear Stepfamilies Apart -- Wall Street Journal headline, June 1, 2024
According to that Journal article, the U.S. Census Bureau has determined that one in five opposite-sex couples who lived together in 2021 had at least one partner who had a child with a prior partner. That's a lot of blended families, and a lot of potential estate planning conundrums. Blended families should benefit from comprehensive estate planning.
Some of the typical estate planning issues were illustrated in reader comments to that article.
"A situation occurred when my husband's father remarried after his first wife's death. The new wife was the same age and had grown children and had property that she got after being widowed from her first husband. They left everything to each other in their wills and I guess they expected each would do the right thing when the time came. The wife died first and my husband's dad inherited everything including the property. Then he remarried and left everything to his third wife. He died first so the family property from wife #2, that was supposed to go to her family, instead, went to this third wife. What a mess!"
"Things do get very ugly sometimes, even if there is an estate plan. People can be cruel to each other when money is involved. If any family member asks you to be executor or trustee, say no."
"Grief may do something to people, but you learn a lot about someone by going through the probate process with them. When my father passed away, he had a freshly made will that left the bulk of his estate to his wife, my step-mother. His children watched as she became a shrew over every bit of his belongings and property owed to her. I didn't believe that she married him for the money until I saw this. Now I know it is probably true that if he had not had anything, she would not have married him. So, word to the wise...If you have any assets and are thinking about getting married, just consider the possibility, unbelievable that it may seem, that your beloved is in it for the money. Get a prenup. Leave your estate to your children. Your new spouse can leave his or her assets to her children."
Estate planning is important for everyone, and the issues for blended families can be especially knotty. How can one be confident that one's wishes for everyone will be implemented? The most flexible approach to preserving an inheritance for children, whether they are minors or adults, is a trust. The trustee can take subsequent circumstances into account in sprinkling the income distributions among the beneficiaries. An irrevocable trust also provides financial protection in divorce, bankruptcy and lawsuits. It can be a mechanism for supporting financial discipline and avoiding irresponsible spending and the waste of an inheritance.
Two more takeaways from this article;
"'Blended families should consider naming an outsider as executor or trustee instead of a relative, a biological child of one parent, or even one child from each side,' said Paul Hood, a retired estate planner in Hazel Park, Mich." That could be us. We serve as executor and trustee.
And one more comment from the article. "I have a rich friend (1 billion +). I casually asked him what his children are doing. "They are all waiters.". To my "Huh?" he replied, "They are all waiting for me to die".
(June 2024)
© 2024 M.A. Co. All rights reserved.
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Once upon a time, distributions from an inherited IRA could be spread over the beneficiary's lifetime. For young beneficiaries, the RMDs might be small enough that the inherited IRA would continue to grow handsomely. This changed with passage of the SECURE Act. In general, subject to important exceptions, the assets of an inherited IRA must be distributed to the beneficiary over ten years.
Estate planners debated how to handle those distributions. Should they be deferred until the tenth year, for maximum tax-deferred buildup? Or should a program of taking 10% each year for ten years be better, as it avoids pushing the beneficiary into a higher tax bracket?
When the IRS proposed regulations to implement the new rules, the Service pointed out that most everyone had overlooked another rule. If the account owner was already taking required minimum distributions (RMDs), the beneficiary also had to take distributions at least that fast. Failure to take an RMD in that situation results in a substantial excise tax.
The proposal caught planners by surprise, and the IRS responded by waiving penalties for failure to take an RMD from certain inherited IRAs in 2021, 2022, and 2023. In IRS Notice 2024-35, the penalties are again waived for 2024. The Notice suggests that the Regulation is now expected to take effect in 2025.
(June 2024)
© 2024 M.A. Co. All rights reserved.
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Tax Reform and Charitable Giving | |
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When the tax system was reformed in 2017 in the Tax Cuts and Jobs Act, there was much concern about the effect the changes would have on charitable giving. First, the rough doubling of the standard deduction meant that far fewer taxpayers would be itemizing, and without itemizing there is no tax benefit at all for the charitable gift. Second, the top marginal tax rate was reduced slightly, which meant that the net tax benefit for the wealthiest taxpayers would go down.
History seems to show that the importance of tax incentives for charitable giving may have been overstated, because giving went up, not down, after the 2017 tax changes went into effect, according to figures compiled by Giving USA.
For reasons related to the legislative rules concerning the federal budget, the personal income tax provisions from 2017 are slated to expire at the end of 2025. Now some observers are concerned that the expiration of those rules will have an adverse effect on charitable giving. Jack Salmon, a director of Policy Research at Philanthropy Roundtable, wrote in The Chronicle of Philanthropy that "A total of 23 tax provisions are set to expire at the end of 2025, many of which helped fuel charitable giving trends in recent years." He refers to studies that show a one point increase in marginal tax rates leads to a 0.8% decline in gross domestic product, which in turn will harm philanthropy. "A thriving economy translates to increased economic activity and disposable income, which fuels charitable generosity."
According to Mr. Salmon, there are several changes to the tax rules under discussion that could have very negative effects for philanthropy.
Wealth taxes. Bernie Sander's wealth tax proposal would treat the assets of private foundations as if they were the personal wealth of the founder. If such a change worked as intended, the importance of private foundations for philanthropy would be greatly reduced.
Donor advised funds. There has been some concern expressed about the fact that an immediate tax deduction is permitted for giving to a donor-advised fund, even though a charity won't be receiving any funding until an unknown future date. Mr. Salmon counters that there are legitimate uses for donor-advised funds, including "simplifying administrative processes and bookkeeping, pooling resources with other donors, and protecting donor information." Placing new restriction on these funds could stifle innovative grantmaking, as well as reducing the flow of money to charity.
Charitable deduction cap. In the quest to get more tax revenue from billionaires, some have recommended a $500 million lifetime cap on the charitable deduction. Would that have an effect on philanthropy? Mr. Salmon points out that in 2023 alone the top 50 philanthropic billionaires gave nearly $12 billion to charity. They didn't do it just for the tax deduction, but without the deduction they likely would have given less.
Mr. Salmon concludes: "The tax code is a complex web, and its effect on philanthropy is multifaceted. As policymakers navigate potential changes to the tax code, they need to consider the unintended consequences on charitable giving."
(June 2024)
© 2024 M.A. Co. All rights reserved.
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Because of the rapidly changing nature of tax, legal or accounting rules and our reliance on outside sources, Garden State Trust Company makes no warranty or guarantee of the accuracy or reliability of information contained herein nor do we take responsibility for any decision made or action taken by you in reliance upon information provided here or at other sites to which we link. ©2024. All rights reserved. | | | | |
