August, 2020 | Shah & Associates, P.C. Estate Planning & Elder Law Blog
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What Do You Need to Know About Estate Planning Options with Potential Biden Tax Increases?

August 28, 2020

Filed under: Taxes — Laura Pennington @ 10:06 am

As we get closer to an election, it’s important to think about how your estate plan might need to be updated or changed altogether in light of who is elected. Some of the most common issues that have been popping up with Biden’s proposed tax plans have to do with accelerated capital gains and bonuses, deferring deductions and more.

Some important steps you’ll need to take before the end of the year depending on who is elected will rely on the insight and experience of your trusted estate planning attorney. There are several important things you need to have top of mind as a result of published proposals from Joe Biden or possible results from a legislative committee looking at revenue. These include:

  • Taxing of capital gains at ordinary income rates and similar treatment for dividends.
  • Potential eliminations of the step ups that exempt unrealized capital gains at death.
  • Acceleration of the Trump tax cuts that would start on January 1st, 2021 rather than January 1st, 2026.
  • Limiting deduction value to 28% even in cases in which the taxpayer’s income bracket is higher than that.
  • Imposition of a 12.4% social security tax.
  • Elimination of local and state income tax ceiling of $10,000.

All of these important and complicated issues should be discussed directly with your trusted estate planning lawyer. Make sure to schedule a consultation as soon as possible after the election if there are significant tax changes on the table.

Election Year Politics and Stock Market Forecasts

August 26, 2020

Filed under: Estate Planning — Raymund Rasco @ 4:19 pm

A recent New York Times article discussed the stock market impact of Joe Biden winning the 2020 presidential election. The article quoted Lori Calvasina, head of US equity strategy at RBC Capital Markets, who said “The market is starting to worry that Trump will not be re-elected. Trump is consistently viewed as a positive for the stock market.” Before you make changes to your portfolio as a result of these predictions, consider the following three points:

1. Markets have already priced in the possibility of a Biden presidency.
2. Two-step forecasting is difficult.
3. Your political beliefs can lead to investing mistakes.

Markets Have Already Priced in the Possibility of a Biden Presidency

Right now, if you look at the odds on betting markets, the consensus estimate is that Biden has about a 55% chance of winning the election, while Trump has about a 40% chance. The remaining 5% is allocated to various candidates and non-candidates. What will wind up moving financial markets is if conditions change such that the odds of Biden becoming president significantly increase or decrease. President Trump was a heavy underdog in 2016; betting markets gave him just a 20% chance of winning the day before the election. And yet, even after the surprise outcome, market moves were relatively muted the day after the election (the S&P 500 was up 1.1% that day). It should be noted that some forecasters were predicting a sharp decline if Trump won. Dallas Mavericks owner and TV personality
Mark Cuban said “there is a really good chance we could see a huge, huge correction” in the event of a Trump victory.

Two-Step Forecasting is Difficult

Two-step forecasting is when someone says, “I forecast X, and as a result Y will happen.” Let’s say you’re 60% sure Biden is going to win (which is roughly in line with the consensus estimate). Let’s also assume that you’re 60% sure a Biden victory means stocks will decline in value. Then assume that if you’re wrong and Trump wins (a 40%chance) there’s another 30% possibility that stocks will decline for other reasons.

Keep in mind that going back to 1926, the S&P 500 has had negative returns in 27% of calendar years, so these assumptions are essentially saying that a Biden presidency is more than twice as likely to cause a stock market decline as has happened historically, while a Trump presidency means that the chances are roughly the same as history.

Using the above assumptions, the math works out on this so that there is a 36% probability (60% x 60%) that you’re right about Biden winning and then also right about the market declining as a result, plus another 12% probability (40% x 30%) that you’re wrong about Biden winning but accidentally right about the market decline anyway. This totals out to a 48% chance of getting your two-step forecast correct, or essentially a coin-flip.

Of course, so far I haven’t even mentioned how difficult it is to get the first prediction correct, much less getting both predictions right. Philip Tetlock, who teaches psychology, business and political science at the University of California, Berkeley is the author of “Expert Political Judgment: How Good Is it? How Can We Know?” The book, which was published in 2006, discusses the findings of his 20-year study, the first scientific study on the ability of experts from various fields to predict the future. Tetlock found that so-called experts who make predictions their business are no better than random luck. RBC head of US equity strategy Lori Calvasina should have learned this lesson in October 2019, when a Bloomberg Businessweek article shared her analysis of the Democratic presidential primary: “If politicians were stocks, she would advise shorting Joe Biden. Elizabeth Warren, on the other hand, looks like a buy.”

Your Political Views Can Lead to Investing Mistakes

There’s actually evidence that election results have the power to affect how investors handle their portfolios. The 2010 study “Political Climate, Optimism, and Investment Decisions” examined the link between investors political affiliations and their investment choices. Simply put, when your political party is in power, you feel much more confident about the economy and markets, and vice versa. Being aware of your biases can help you make better investment decisions. Trying to time the market due to concerns about the upcoming election is not likely to be a winning strategy. The reason is that you have to be right not once, but twice. In order for market timing to work, you need to know when to get out and when to get back in. Suppose you get out now. Do you get back in if Trump wins? Or if, Biden wins, do you stay out of the market for four full years waiting for the 2024 election? The bottom line is that you shouldn’t let the latest economic or political news cause you to abandon your well-developed plan.

Sources: © 2020 Buckingham Wealth Partners. Buckingham Strategic Wealth, LLC, & Buckingham Strategic Partners, LLC (Collectively, Buckingham Wealth Partners) IRN-20-748

Do You Really Need a Financial Plan?

August 25, 2020

Filed under: Finances — Laura Pennington @ 12:32 pm

You’ve heard about an estate plan and you might have even referenced an elder care plan, but do you know how your financial plan fits in with the rest of these documents and strategies? Your financial plan is somewhat distinct, although it is definitely linked to your overall estate plan. Your financial plan is a document that takes a comprehensive look at your financial picture and helps you to determine how you’ll achieve specific financial goals.

You’ll need to think about your wishes, wants and needs and also understand your overall comfort level with risk when creating your own financial plan. More often than not a person who is confronting their financial plan for the very first time will use financial planning software, such as an analysis showing the impacts of taking money out of your different retirement accounts and how to invest aggressively to save for retirement.

A detailed cash flow analysis or net worth statement can also help you to get a 30,000 ft view of some aspects of your financial life that you should remain focused on immediately. As part of your overall financial plan, this helps you see when you need to make changes to existing strategies and how to adapt when challenges or unexpected windfalls like inheritances come your way.

You’ll also need to document all investible assets that could be used to achieve your individual goals as well as your current and anticipated spending and your detailed liabilities. Once you know where you stand financially, you’ll be able to craft a plan that is in line with your unique goals and priorities.

 

Navigating Divorce? Now Is a Good Time to Talk to Your Financial Advisor and Estate Planner

August 24, 2020

Filed under: Divorce — Laura Pennington @ 1:14 pm

Each person in a couple needs a team to help them navigate the tricky waters of divorce. The financial breakup and dissolution of your marriage has important implications for everything from retirement to the beneficiary designation forms you filed with your life insurance company.

And there’s no doubt that you are likely overwhelmed with all of the emotional, financial and physical aspects of parting ways to begin with so it can be hard to keep track of all of these details and ensure they are dealt with properly. Advising clients through major life changes is a core component of an estate planning attorney’s job.

A good rule to follow is to remain impartial and open when discussing estate planning matters with your attorney. Some of the most common things you might wish to bring up with your financial professionals and estate planning lawyer include:

  • An inventory of all the assets that are owned individually or jointly by the couple.
  • A listing of expenses including how those expenses might be adjusted for each spouse after the divorce.
  • Information about any long term care life or disability policies currently in place.
  • Reviews of any prenuptial agreement and how this could impact the division of assets in the divorce.

Your estate planning attorney can help you to look at the different documents that may need to be updated after you have gone through the divorce process. Knowing that you have another party to guide you through this difficult situation can help to make this complicated aspect of your life somewhat easier.

Need support from a NJ estate planning attorney? Divorce calls upon you to update your documents and ensure that everything is aligned with your new plans.

 

Estate Planning is Important Personal Finance for Young Adults

August 19, 2020

Filed under: Asset Protection — Laura Pennington @ 2:17 pm

If you are currently in your 20s or 30s, it’s easy to brush off the idea of estate planning as something that is years down the road. But if the pandemic has shown us anything, it’s that you have to be prepared for the unexpected and that certainly is true for young adults and estate planning.  personal-finance-estate

You don’t have to be only rich or old to have an estate plan in place. Even with modest assets and good health at a young age, you can benefit from putting a plan in place now with the support of an attorney. This is because estate planning goes so much farther than just determining how you want to distribute your money when you pass away. It also includes protecting yourself and taking care of yourself and the people that you love. 

There are many major life events and financial decisions that happen after you graduate from college, start a family, get married or buy a house. These important steps, however, can make your life more complicated, meaning that it is even more complicated to have a comprehensive estate plan addressing these unique issues. 

As your estate plan and list of assets becomes more complicated, you want to ensure you’ve thought through all the details and have the right planning aspects in place. Waiting too long could expose your family members to unnecessary challenges in the future. 

Schedule a consultation with a trusted estate planning lawyer. Whether your estate planning documents grow or change in the future, you want to know that you’ve done what you can to protect yourself right now. 

 

What to Keep in Mind If You’re Getting Divorced During the Pandemic

August 18, 2020

Filed under: Divorce — Laura Pennington @ 2:21 pm

Plenty of people have rethought their life choices including the partners, their homes and even their careers as a result of the pandemic. If you are one of the people who is thinking about getting a divorce, you are not alone since this prolonged period of being at home could lead some people to make the decision that it’s time for a change.

If you’re ready for the next chapter in your life, you need to be prepared for several different things that you can and should not do. First of all, if you begin to file for divorce you cannot change beneficiary designations of retirement accounts and life insurance policies or retitle assets. 

The vast majority of states will block you from being allowed to transfer ownership of assets or changing your beneficiary designations until assets have been divided as part of the divorce court process. However, this doesn’t mean that you can’t update anything. You are eligible to update your trust and your will so that you can identify a new guardian for your children or name a new trustee or executor. 

You’ll also want to have a sit down conversation with your divorce attorney and potentially your estate planning attorney about some of the other issues that often come up around divorce. You might be interested in updating your materials as soon as possible to disinherit your spouse but there is the possibility that your spouse could still have a claim against your estate if you pass away during the divorce. 

Before the divorce is final, you’ll need to be clear about the ability for these documents to remain active and active in terms of allowing your spouse to inherit something. If you attempt to disinherit your spouse entirely while the divorce is still pending and you pass away, your spouse could actually sue your estate for the assets they would be entitled to under state law. For a conversation about these complicated issues, contact your dedicated estate planning attorney to discuss your options.        

 

Tracking Your Digital Assets with Your Estate Plan

August 17, 2020

Filed under: Estate Planning — Laura Pennington @ 4:09 pm

Most of the material you probably own that is an asset inside your estate plan is tracked in the form of paper. You might have kept it in a bookcase, in a filing cabinet or a safety deposit box. But what happens when more and more of your assets are digital? Increasingly, our most important things are actually on the cloud or on websites owned by other people.

It’s very difficult to avoid accumulating digital assets and sitting down and trying to list them all might open your eyes to some of the issues associated with this that could make it hard for you to do so. You’ll begin to see the scope of the challenge if you could complete that exercise of trying to list your different digital accounts.

Right now, your electronic communications and digital assets are entrusted to custodians in the form of those companies that store all of these assets like your photos on their servers. These are not governed by property law which means that the terms of service agreement established by the company is the underlying thing you will want to look at to determine what happens if the original owner is no longer able to access these details.

You’ll need to discuss the specifics with your estate planning lawyer if you have concerns about the process and how best to proceed. Scheduling a consultation with a trusted estate planning lawyer can open your eyes and help you put in place the necessary structures, tactics, and strategies to protect your interests.       

So You Own Cryptocurrency? You Definitely Need an Estate Plan

August 13, 2020

Filed under: Estate Planning For Business Owners — Laura Pennington @ 1:55 pm

Has it been 10 or 20 years since you last updated your will or know that you created a trust at some point that was revocable but aren’t exactly clear on its terms? The emergence of bitcoin and cryptocurrency as well as plenty of digital assets that might be a part of your current estate means that you need to take a look at these older documents and discuss your options with an estate planning lawyer.

An estate planning lawyer can help you to craft a customized plan. Right now, Congress is holding hearings on the digitization of the dollar, which means that as a financial tool, cryptocurrency is front and center in becoming more and more important. To avoid making your heirs question whether or not you owned any cryptocurrency or worse, digging through the trash or looking at every computer you own to try to find this information, make sure that you preserve the benefits of cryptocurrency and have an established plan in place to ensure that your intended heirs are able to receive it.

Cryptocurrency is much like cash and that it is not traceable. There is no paper trail or electronic trail connecting it together to make it easy for your estate administrator to find out you were involved in a transaction involving cryptocurrency. In order to maintain that privacy as part of your estate plan, you’ll need to ensure that other transaction documentations do not reveal identities. With the right seed phrase or private key any person can access the cryptocurrency so make sure that you log this information but maintain it as carefully as possible.

 

Think of Your Estate Planning as a Lifetime Gift

August 12, 2020

Filed under: Beneficiaries — Laura Pennington @ 1:54 pm

Did you know that you can leave behind a lifetime gift to your loved ones by doing the necessary work for your estate planning? End of life planning is not necessarily easy but it is so important and a great way to give peace of mind to your loved ones. If you don’t create an end of life plan, your state’s laws will determine who gets everything that you owned. lifetime-gift-estate-planning

Furthermore, a physician that you have never met might be responsible for making final decisions on your behalf and your family members could be stuck trying to sort through messy probate.

The good thing is that most of these situations are completely avoidable. Some of the most common ways to ensure that your estate plan minimizes challenges for your loved ones include:

  • Name an executor.
  • Complete a comprehensive inventory of everything you own.
  • Think about relevant health care decisions.
  • Fill out your living will.
  • Name a medical proxy appointed to make decisions on your behalf if you become unable to do so.
  • Sit down with an estate planning attorney.

Even if you don’t have a big estate, there’s still plenty to be gained from the estate planning process. Leaving the gift of careful planning for your loved ones makes things so much easier for them during a difficult time.

Knowing what to do and when to do it can give you a great deal of peace of mind and confidence about the estate planning process. Schedule a consultation with an attorney you trust when you are concerned about crafting an end of life plan in conjunction with any asset protection planning, business succession planning or estate planning.

Understanding Distribution Clauses in Your Estate

August 11, 2020

Filed under: Beneficiaries — Laura Pennington @ 1:35 pm

One of the most commonly misunderstood aspects of your estate planning is considering what you’ll do with your personal property. It is not recommended that you give all of your personal property to one of your beneficiaries and trust that they will be able to distribute it according to your wishes.

One of the most common methods for a person to deal with their personal property inside their estate is to distribute it equally among beneficiaries.

This does give everyone a say in the distribution but is not a perfect plan. You can use something known as a distribution clause to ensure that your wishes are clearly documented. You could, for example, establish a time limit for parties involved to agree as to how personal property should be distributed. This will primarily fall on the personal representative or the person named in your estate planning documents to handle the management of closing out your estate as well as your personal property.

The personal representative, for example, might be instructed through your will’s distribution clause to sell any personal property that is not the subject of an agreement within five months after the date of the person’s death. This can let everyone involved in the distribution clause know that if they are not able to come to reasonable terms of agreement and work it out on their own that the property might be sold to someone else.

This can help to spur along the possibility of collaboration and moving towards resolution. Another way to ensure that a distribution clause is taken seriously is to include a personal property distribution letter. This ensures that the testator can leave a properly executed property distribution letter detailing who gets what so there are limited opportunities for confusion.

Our NJ law firm is here to help you with estate planning needs.

 

Understanding the Power of Appointment in Trusts

August 7, 2020

Filed under: Trustees — Laura Pennington @ 1:50 pm

Many people who approach their estate planning attorney about putting together a trust have a goal of establishing the trust for the beneficiary’s lifetime, while also allowing for discretionary distributions to a beneficiary in the event that the beneficiary might have a reason or need to access those trust funds. Many of these trusts often are created with default provisions designed by the client, which allow for the disposition of remaining trust funds at the beneficiary’s death.

However, the creator of the trust does not have the ability to see into the future, meaning that the default provisions for a trust remainder often become undesirable over the course of time. This is where the use of a tool known as a power of appointment can become meaningful. This is a good way to add flexibility to trusts to account for future situation changes.

This allows the initial beneficiary to adjust default remainder provisions after the creator’s death. Schedule a consultation with a trust planning attorney today to learn more.       

Choosing a trustee is an important process, and it’s not just about who you’d like to serve in that role. It’s also about who wants to serve in that role and their comfort level with taking on that level of responsibility. Since a trustee has a high level of fiduciary duty, too, this needs to be a level of comfort on their end in terms of taking care of all the details. What you don’t want is someone unfamiliar with the process who is not sure about all the details who then becomes overwhelmed in handling all of the tasks of a trustee.

For more support with trustee issues, consider partnering with a trusted estate planning lawyer to draft and fund your trust.

 

Study Shows That Taxes Are a Leading Reason Americans Renounce Their Citizenship

August 4, 2020

Filed under: Taxes — Laura Pennington @ 5:27 pm

Moving to a different state carries its own set of unique estate planning concerns but moving abroad makes them even more complicated. According to 2016 data shared by the US State Department, approximately 9 million Americans actually live in foreign countries.

The Treasury Department found that in the first quarter of 2020, over 2,900 Americans actually renounced their citizenship. A recent study found that 7 out of 10 US citizens who live in another country believe that they should not be required to file US taxes.

More than 4,000 American ex-patriots were included in this recent study and it continues to be a problematic issue for these individuals who have to comply with extra reporting requirements and forms at tax time.

One-fifth of the participants in that same study actually said they were thinking about giving up their citizenship in the near term and 40% of them said that the burden of filing taxes each year was a big reason for doing this. US citizens, as well as resident aliens, are required to file a state, gift and income tax returns and pay any levies owed regardless of where they live.

This means their income around the world still remains subject to taxes. Americans living abroad also must comply with additional tax requirements. This can eb a very complicated situation for someone who does not have a team of professionals to help them.       

New Study Reveals Estate Planning Concerns of Cryptocurrency Owners

August 3, 2020

Filed under: Asset Protection — Laura Pennington @ 5:17 pm

Are you an owner of cryptocurrency? A recent study might reflect some of the feelings that you have about your investment in your funds. According to the company Coin Cover, up to 90% of cryptocurrency investors are concerned about their funds if they pass away but plenty of them have ignored the opportunity to put together an estate planning strategy.

Fewer than 25% of the same study participants indicated that they were involved in a comprehensive plan for their digital asset. Cryptocurrency is not the only type of digital asset that you might have under your name. It is important to take necessary planning steps and precautions in order to protect your interests and ensure that you have considered all aspects of your digital accounts and ownership.

Owning cryptocurrency or any form of digital asset requires you to think about how it fits into your bigger picture and whether or not you have the right estate planning strategies for it. Although things like this might seem like newer forms of assets that can easily be overlooked, they might represent substantial ownership benefits for your heirs if you plan the right way. Since there are so many specifics to this form of currency and other digital assets, make sure you have a yearly meeting set aside with your financial professional and your estate planning attorney to ensure your plans are all up to date.

Schedule a consultation with a trusted estate planning attorney to learn more about how to prepare an estate plan with digital assets such as cryptocurrency in mind.