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Leny Balute 2/27/25 Leny Balute 2/27/25

Single and Child-Free? Here’s Why Estate Planning is Still Crucial

Even if you’re single and have no children, having an estate plan helps ensure your final wishes are clearly documented and respected. Estate planning isn’t solely about passing assets on to direct descendants; it’s about taking control of your future.

Without a formal estate plan, state laws will determine how your assets are distributed, and those default decisions might not align with your values or desires. Whether they’re your financial investments or personal assets, a comprehensive estate plan allows you to specify exactly who should receive what, be they close friends, extended family or even charitable organizations.

Without a will, who’ll receive your assets?

It’s critical for single people to execute a will that specifies how and to whom their assets should be distributed when they die. Although certain types of assets can pass to your intended recipient(s) through beneficiary designations, absent a will, many types of assets will pass through the laws of intestate succession.

Those laws vary from state to state but generally provide for assets to go to the deceased person’s spouse or children. For example, the law might provide that if someone dies intestate, half of the estate goes to his or her spouse and half goes to the children. However, if you’re single with no children, these laws set out rules for distributing your assets to your closest relatives, such as your parents or siblings. Or, if you have no living relatives, your assets may go to the state.

By preparing a will, you can ensure your assets are distributed according to your wishes, whether that’s to family, friends or charitable organizations.

Who’ll handle your finances if you become incapacitated?

Consider signing a durable power of attorney that appoints someone you trust to manage your investments, pay bills, file tax returns and otherwise make financial decisions should you become incapacitated. Although the law varies from state to state, typically, without a power of attorney, a court will appoint someone to make those decisions on your behalf. Not only will you have no say in who the court appoints, but the process can be costly and time consuming.

Who’ll make medical decisions on your behalf?

You should prepare a living will, a health care directive (also known as a medical power of attorney) or both. This will ensure your wishes regarding medical care — particularly resuscitation and other lifesaving measures — will be carried out in the event you’re incapacitated. These documents can also appoint someone you trust to make medical decisions that aren’t expressly addressed.

Without such instructions, the laws in some states allow a spouse, children or other “surrogates” to make those decisions. In the absence of a suitable surrogate, or in states without such a law, medical decisions are generally left to the judgment of health care professionals or court-appointed guardians.

What strategies should you use to reduce gift and estate taxes?

When it comes to taxes, married couples have some big advantages. For example, they can use both of their federal gift and estate tax exemptions (currently, $13.99 million per person) to transfer assets to their loved ones tax-free. Also, the marital deduction allows spouses to transfer an unlimited amount of property to each other — either during life or at death — without triggering immediate gift or estate tax liabilities.

For single people with substantial estates, it’s important to consider employing trusts and other estate planning techniques to avoid, or at least defer, gift and estate taxes.

Form your plan

Finally, planning ahead can help avoid potential complications in the future. Unexpected events can lead to family disputes if there’s no clear guidance on how your affairs should be handled.

With an estate plan, your personal wishes are followed precisely, ensuring that your legacy — whether it includes contributions to a cause you believe in or support for a family member — is preserved exactly as you intend. Contact FMD if you’re single, without children and have no estate plan. We can help draft one that’s best suited for you.

Leny Balute 2/27/25 Leny Balute 2/27/25

Business Owner? A Buy-Sell Agreement Should be Part of Your Estate Plan

If you hold an interest in a business that’s closely held or family owned, a buy-sell agreement should be a component of your estate plan. The agreement provides for the orderly disposition of each owner’s interest after a “triggering event,” such as death, disability, divorce, termination of employment or withdrawal from the business.

A buy-sell agreement accomplishes this by permitting or requiring the company or the remaining owners to purchase the departing owner’s interest. Often, life insurance is used to fund the buyout. And because circumstances frequently change, reviewing your buy-sell agreement periodically is important to ensure that it continues to meet your needs.

Valuation provision must be current

It’s essential to revisit the agreement’s valuation provision — the mechanism for setting the purchase price for an owner’s interest — to ensure that it reflects the business’s current value. A pressing reason to do this sooner rather than later is because, absent congressional action, the federal gift and estate tax exemption is scheduled to be halved beginning in 2026.

As you review your agreement, pay close attention to the valuation provision. Generally, a valuation provision follows one of three approaches when a triggering event occurs:

Independent appraisal by one or more business valuation experts,
Formulas, such as book value or a multiple of earnings or revenues as of a specified date, or
Negotiated price.

Independent appraisals almost always produce the most accurate valuations. Formulas tend to become less reliable over time as circumstances change and may lead to over- or underpayments if earnings have fluctuated substantially since the valuation date.

A negotiated price can be a good approach in theory, but expecting owners to reach an agreement under stressful, potentially adversarial conditions is asking a lot. One potential solution is to use a negotiated price but provide for an independent appraisal in the event the parties fail to agree on a price within a specified period.

“Redemption” vs. “cross-purchase” agreement

The type of buy-sell agreement you use can have significant tax and estate planning implications. Generally, the choices are structured either as “redemption” or “cross-purchase” agreements. A redemption agreement permits or requires the company to purchase a departing owner’s interest, while a cross-purchase agreement permits or requires the remaining owners to make the purchase.

A disadvantage of cross-purchase agreements is that they can be cumbersome, especially if there are many owners. For example, if life insurance is used to fund the purchase of a departing owner’s shares, each owner will have to purchase an insurance policy on the lives of each of the other owners. Note that redemption agreements may trigger a variety of unwelcome tax consequences.

A versatile document

A buy-sell agreement can provide several significant benefits, including keeping ownership and control within your family, creating a market for otherwise unmarketable interests, and providing liquidity to pay estate tax and other expenses. In some cases, a buy-sell agreement can even establish the value of an ownership interest for estate tax purposes. FMD can work with you to design a buy-sell agreement that helps preserve the value of your business for your family.

Leny Balute 2/21/25 Leny Balute 2/21/25

A Power of Appointment Can Provide Estate Planning Flexibility

A difficult aspect of planning your estate is taking into account your family members’ needs after your death. Indeed, after you’re gone, events may transpire that you hadn’t anticipated or couldn’t have reasonably foreseen.

While there’s no way to predict the future, you can supplement your estate plan with a trust provision that provides a designated beneficiary a power of appointment over some or all of the trust’s property. This trusted person will have the discretion to change distributions from the trust or even add or subtract beneficiaries.

Adding flexibility

Assuming the holder of your power of appointment fulfills the duties properly, he or she can make informed decisions when all the facts are known. This can create more flexibility within your estate plan.

Typically, the trust will designate a surviving spouse or an adult child as the holder of the power of appointment. After you die, the holder has authority to make changes consistent with the language contained in the power of appointment clause. This may include the ability to revise beneficiaries. For instance, if you give your spouse this power, he or she can later decide if your grandchildren are capable of managing property on their own or if the property should be transferred to a trust managed by a professional trustee.

Detailing types of powers

If you take this approach, there are two types of powers of appointment:

“General” power of appointment. This allows the holder of the power to appoint the property for the benefit of anyone, including him- or herself, his or her estate or the estate’s creditors. The property is usually included in a trust but may be given to the holder outright. Also, this power of appointment can be transferred to another person.
“Limited” or “special” power of appointment. Here, the person holding the power of appointment can give the property to a select group of people who’ve specifically been identified by the deceased. For example, it might provide that a surviving spouse can give property to surviving children, as he or she chooses, but not to anyone else. Thus, this power is more restrictive than a general power of appointment.

Whether you should use a general or limited power of appointment depends on your circumstances and expectations.

Understanding the tax impact

The resulting tax impact may also affect the decision to use a general or limited power of appointment. The rules are complicated, but property subject to a general power of appointment is typically included in the taxable estate of the designated holder of the power. However, property included in the deceased’s estate receives a step-up in basis to fair market value on the date of death. Therefore, your heirs can sell property that was covered by a general power of appointment with little or no income tax consequences.

In contrast, property covered by a limited power isn’t included in the holder’s estate. However, the new heirs inherit the property with a carryover basis and no step-up in basis. So, if the heirs sell appreciated property, they face a potentially high capital gains tax.

Your final decision requires an in-depth analysis of your tax and financial situation by your estate tax advisor. Contact FMD with any questions.

Leny Balute 2/21/25 Leny Balute 2/21/25

Do You Have the Right Amount of Life Insurance Coverage?

Life insurance plays a vital role in your estate plan because its proceeds can provide for your family in the event of your untimely death. And for wealthier families, life insurance proceeds can cover any estate tax liability not covered by the current $13.99 million federal gift and estate tax exemption.

But when was the last time you reviewed your policy? The amount of life insurance that’s right for you depends on your circumstances, so it’s critical to regularly review your life insurance policy.

Reevaluating your policy

Life insurance isn’t a one-size-fits-all solution. Milestones such as marriage, having children, buying a home or starting a business bring new financial responsibilities. A policy purchased years ago may no longer protect your loved ones adequately.

Conversely, you may be over-insured, paying for coverage you no longer need. For example, if your children are financially independent or you’ve paid off significant debts, your coverage requirements might decrease.

The right amount of insurance depends on your family’s current and expected future income and expenses, as well as the amount of income your family would lose in the event of your untimely death.

On the other hand, health care expenses for you and your spouse may increase. When you retire, you’ll no longer have a salary, but you may have new sources of income, such as retirement plans and Social Security. You may or may not have paid off your mortgage, student loans or other debts. And you may or may not have accumulated sufficient wealth to provide for your family.

When you sit down to reevaluate your life insurance policy, consider the:

Coverage amount. Is your policy sufficient to cover current expenses, future obligations and debts?

Policy type. Term life insurance can be cost-effective for temporary needs, while whole life or universal policies may offer long-term benefits such as cash value accumulation.

Beneficiaries. Ensure your policy lists the correct beneficiaries, especially after a major life event such as marriage, divorce or the birth of a child.

Premiums. Are you paying a competitive rate? Shopping around or converting an old policy could save money.

While reviewing your policy, keep in mind your broader financial plan. How does your policy currently fit within your overall strategy, including tax implications, estate planning and business succession planning?

Turn to us for help

Taking the time to reassess your life insurance needs is an investment in your family’s financial security. Contact FMD to ensure your coverage aligns with your current and future estate planning goals.

Leny Balute 2/19/25 Leny Balute 2/19/25

5 Questions Single Parents Should Ask About their Estate Plans

In many respects, estate planning for single parents is similar to that of families with two parents. Parents want to provide for their children’s care and financial needs after they’re gone. However, when only one parent is involved, certain aspects of an estate plan demand special attention. If you’re a single parent, here are five questions you should ask your advisor:

1. Are my will and other estate planning documents up to date? If you haven’t reviewed your estate plan recently, talk with your advisor to be sure it reflects your current circumstances. The last thing you want is a probate court to decide your children’s future.

2. Have I selected an appropriate guardian? Does your estate plan designate a suitable, willing guardian to care for your children if the other parent is unavailable to take custody of them in the event you become incapacitated or die suddenly? Will the guardian need financial assistance to raise your kids and provide for their education? If not, you might want to preserve your wealth in a trust until your children are grown.

3. Have I established a trust for my children? Trust planning is one of the most effective ways to provide for your children. Trust assets are managed by a trusted individual or corporate trustee, and you specify when and under what circumstances funds should be distributed to your kids. A trust is critical if you have minor children. Without one, your assets may come under the control of your former spouse or a court-appointed administrator.

4. What if I become incapacitated? As a single parent, it’s important for your estate plan to include a living will, advance directive or health care power of attorney to specify your health care preferences if you become incapacitated and to designate someone to make medical decisions on your behalf. You should also have a revocable living trust or durable power of attorney that provides for the management of your finances in the event you’re unable to do so.

5. Can the other parent help? If your spouse (or ex-spouse) is alive, is he or she willing to help care for your children or provide financial resources? If your spouse (or ex-spouse) is deceased, does his or her estate plan provide any financial assistance for your children?

If you’ve recently become a single parent, contact FMD. We’d be happy to help review and, if necessary, revise your estate plan.

HEATHER DOERING 2/17/25 HEATHER DOERING 2/17/25

A Revocable Trust Can be a Versatile Tool in Your Estate Plan

A revocable trust (sometimes referred to as a “living trust”) is a popular estate planning tool that allows you to manage your assets during your lifetime and ensure a smooth transfer of those assets to your family after your death. Plus, trust assets bypass the probate process, which can save time, reduce costs and maintain privacy. However, like any legal instrument, a revocable trust has certain disadvantages.

A revocable trust in action

A revocable trust’s premise is relatively simple. You establish the trust, transfer assets to it (essentially funding it), and name a trustee to handle administrative matters. You can name yourself as trustee or choose a professional to handle the job. Regardless of who you choose, name a successor trustee who can take over the reins if required.

If you designate yourself as the trust’s initial beneficiary, you’re entitled to receive income from the trust for your lifetime. You should also designate secondary beneficiaries, such as your spouse and children, who are entitled to receive the remaining assets after the trust terminates.

Added flexibility

One of the primary benefits of a revocable trust is its flexibility. As the grantor, you retain control over the trust and can change its terms, add or remove assets, or even dissolve it at any time during your life. This control makes it a flexible tool for adapting to changing life circumstances, such as new family members, changes in financial status, or shifts in your estate planning goals.

For many people, the main reason for using a revocable trust — and sometimes the only one that really matters — is that the trust’s assets avoid probate. Probate is the process of settling an estate and passing the legal title of ownership of assets to heirs specified in a will. Depending on applicable state law, probate can be costly and time-consuming. The process is also open to the public, which can be a major detriment if you treasure your privacy.

Assets passing through a revocable trust aren’t subject to probate. This gives you control to decide who in the family gets what without all the trappings of a will. Along with the flexibility, it keeps your personal arrangements away from prying eyes.

Potential drawbacks

One of the most notable drawbacks of a revocable trust is the upfront cost and effort involved in setting one up. Drafting a revocable trust requires the assistance of an attorney. You’ll also need to retitle your assets under the name of the trust, which can be time-consuming and may incur fees.

Another limitation is that a revocable trust doesn’t provide asset protection from creditors or lawsuits during your lifetime. Because the trust is revocable, its assets are still considered your property and are thus subject to claims against you.

Finally, despite a common misconception, revocable living trusts don’t provide direct tax benefits. The assets are included in your taxable estate and dispositions of trust property can result in tax liability. You must report the income tax that’s due, including capital gains on sales of assets, on your personal tax return.

Right for you?

For many individuals, a revocable trust can be an invaluable part of their estate plans, offering flexibility, privacy, and efficiency. However, it’s not a one-size-fits-all solution. Before deciding, weigh the benefits and drawbacks in the context of your unique financial situation and estate planning goals. Contact the FMD team with questions regarding a revocable trust. Be sure to consult with an estate planning attorney to draft your revocable trust.

HEATHER DOERING 2/17/25 HEATHER DOERING 2/17/25

Have You Prepared an Advance Health Care Directive?

An advance health care directive allows you to communicate your preferences, in advance, for medical care in the event you become incapacitated. Often part of a comprehensive estate plan, these directives sometimes go by different legal names depending on your jurisdiction. Let’s take a closer look at a few healthcare directives you should consider including in your estate plan.

Health care power of attorney

Comparable to a durable power of attorney that gives an “agent” authority to handle your financial affairs if you’re incapacitated, a health care power of attorney (or medical power of attorney) enables another person to make health care decisions for you. In some states, this is called a healthcare proxy.

Choosing your agent is critical. You can’t anticipate every situation that might arise in which it’s likely that someone will have to make decisions concerning your health. Therefore, the agent should be a person who knows you well and understands your general outlook. Frequently, this is a family member, close friend, or trusted professional. Remember to designate an alternate agent in the event your first choice can’t do the job.

Living will

A living will is a legal document that establishes criteria for prolonging or ending medical treatment. It indicates the types of medical treatment you want — or don’t want — in the event you suffer from a terminal illness or are incapacitated.

This document doesn’t take effect unless you’re incapacitated. Typically, a physician must certify that you’re suffering from a terminal illness or that you’re permanently unconscious. Address common end-of-life decisions in your living will. This may require consultations with a physician.

The requirements for a living will vary from state to state. Have an attorney experienced in these matters prepare your living will based on your state’s prevailing laws.

DNR and DNI orders

Despite the common perception, it’s not a legal requirement for you to have an advance health care directive or living will on file to implement a “do not resuscitate” (DNR) or “do not intubate” (DNI) order. To establish a DNR or DNI order, discuss your preferences with your physician and have him or her prepare the paperwork. The order is then placed in your medical file.

Even if your living will spells out your preferences regarding resuscitation and intubation, it’s still a good idea to create DNR or DNI orders when you’re admitted to a new hospital or healthcare facility. This can avoid confusion during an emotionally charged time.

Put your directive into action

Advance health care directives must be put in writing. Each state has different forms and requirements for creating these legal documents. Depending on where you live, you may need certain forms signed by a witness or notarized. Contact an attorney for assistance if you’re unsure of the requirements or the process.

Finally, be aware that health care directives aren’t written in stone. You can revise them at any time. Just be sure to follow your state’s requirements for revisions

HEATHER DOERING 2/14/25 HEATHER DOERING 2/14/25

Should a married couple use a joint trust or separate trusts?

There are many benefits of including a revocable trust in your estate plan. This trust type allows you to minimize probate expenses, keep your financial affairs private, and provide for the management of your assets in the event you become incapacitated. Importantly, they offer flexibility: You’re free to amend the terms of the trust or even revoke it altogether at any time.

If you’re married, you and your spouse must decide whether to use a joint trust or separate trusts. The right choice depends on your financial and family circumstances, applicable state law, and other factors.

Maintaining a joint trust is simpler

If you’re comfortable with your spouse inheriting your combined assets (and vice versa), a joint trust can be less complex to set up and administer than separate trusts. Funding the trust is a simple matter of transferring assets into it and avoids the need to divide assets between two separate trusts.

In addition, during your lifetimes, you and your spouse have equal control over the trust’s assets, which can make it easier to manage and conduct transactions involving the assets. On the other hand, separate trusts may be the way to go for spouses who aren’t comfortable sharing control of their combined assets.

Separate trusts may provide greater asset protection

If shielding assets from creditors is a concern, separate trusts usually offer greater protection. With a joint trust, if a creditor obtains a judgment against one spouse, all trust assets may be at risk. A spouse’s trust is generally protected from the other spouse’s creditors.

Also, when one spouse dies, his or her trust becomes irrevocable, making it more difficult for creditors of either spouse to reach the trust assets. Keep in mind that the degree of asset protection a trust provides depends on the type of debt involved, applicable state law, and the existence of a prenuptial agreement.

Factor in taxes

For most couples today, federal gift and estate taxes aren’t a concern. This is because they enjoy a combined gift and estate tax exemption of more than $27 million in 2024 and 2025.

However, if a couple’s wealth exceeds the exemption amount, or if they live in a state where an estate or inheritance tax kicks in at lower asset levels, separate trusts offer greater opportunities to avoid or minimize these taxes. For example, some states have exemption amounts as low as $1 million or $2 million. In these states, separate trusts can be used to make the most of each spouse’s exemption amount and minimize exposure to death taxes.

It’s also important to consider income tax. As previously mentioned, when one spouse dies, his or her trust becomes irrevocable. That means filing tax returns for the trust each year and, to the extent trust income is accumulated in the trust, paying tax at significantly higher trust tax rates.

A joint trust remains revocable after the first spouse’s death (it doesn’t become irrevocable until both spouses have passed). In this case, income is taxed to the surviving spouse at his or her individual tax rate.

Review the pros and cons

Joint and separate trusts each have advantages and disadvantages. Contact FMD to determine which is right for you. We’d be pleased to review your circumstances and help you make a final decision.

HEATHER DOERING 2/12/25 HEATHER DOERING 2/12/25

Achieve Multiple Estate Planning Goals With One Trust: A CRT

For many people, two common estate planning goals are contributing to a favorite charity and leaving significant assets to your family under favorable tax terms. A charitable remainder trust (CRT) can help you achieve both goals.

ABCs of CRTs

Typically, you set up one of two CRT types (described below) and fund it with assets such as cash and securities. The trust then pays out income to the designated beneficiary or beneficiaries — perhaps yourself or your spouse — for life or a term of 20 years or less. The CRT then distributes the remaining assets to one or more charities.

When using a CRT, you may be eligible for a current tax deduction based on several factors. They include the value of the assets at the time of the transfer, the ages of the income beneficiaries, and the government’s Section 7520 rate. Generally, the greater the payout to you (and consequently, the lower the amount that ultimately goes to charity), the lower the deduction.

2 flavors of CRTs

There are two types of CRTs, each with its own pros and cons:

A charitable remainder annuity trust (CRAT) pays out a fixed percentage (ranging from 5% to 50%) of the trust’s initial value and doesn’t allow additional contributions once it’s funded.
A charitable remainder unitrust (CRUT) pays out a fixed percentage (ranging from 5% to 50%) of the trust’s value, recalculated annually, and allows additional contributions.

CRATs offer the advantage of uniform payouts, regardless of fluctuations in the trust’s value. CRUTs, on the other hand, allow payouts to keep pace with inflation because they increase as the trust’s value increases. And, as noted, CRUTs allow you to make additional contributions. One potential disadvantage of a CRUT is that payouts shrink if the trust’s value declines.

Who to choose as a trustee?

When setting up a CRT, appoint a trustee to manage the trust’s assets. The trustee should be someone with the requisite financial knowledge and a familiarity with your personal situation. Thus, it could be a professional or an entity, a family member, or a close friend.

Because of the potentially significant dollars at stake, many trust creators opt for a professional who specializes in managing trust assets. If you’re leaning in this direction, interview several candidates and choose the best one for your situation, considering factors such as experience, investment performance and the level of services provided.

Know that a trustee must adhere to the terms of the trust and follow your instructions. Thus, you still maintain some control if someone else handles these duties. For instance, you may retain the right to change the trustee if you become dissatisfied or designate a different charity to receive the remainder assets.

Finally, be aware that a CRT is irrevocable. In other words, you can’t undo it once it’s executed. So, you must be fully committed to this approach before taking the plunge. Contact FMD to learn whether a CRT might be a good fit to achieve your estate planning goals.

HEATHER DOERING 2/6/25 HEATHER DOERING 2/6/25

The Ins and Outs of Relocating Your Trust to a Tax-Friendlier State

It’s not uncommon for people who live in states with high-income taxes to relocate to states with more favorable tax climates. Did you know that you can use a similar strategy for certain trusts? Indeed, if a trust is subject to high state income tax, you may be able to change its residence — or “situs” — to a state with low or no income taxes.

How different trust types are taxed

The taxation of a trust depends on the trust type. Revocable trusts and irrevocable “grantor” trusts — those over which the grantor retains enough control to be considered the owner for tax purposes — aren’t taxed at the trust level. Instead, trust income is included on the grantor’s tax return and taxed at the grantor’s personal income tax rate.

Irrevocable, nongrantor trusts generally are subject to federal and state tax at the trust level on any undistributed ordinary income or capital gains, often at higher rates than personal income taxes. Income distributed to beneficiaries is deductible by the trust and taxable to beneficiaries.

Therefore, relocating a trust may offer a tax advantage if the trust:

Is an irrevocable, nongrantor trust,
Accumulates (rather than distributes) substantial amounts of ordinary income or capital gains, and
Can be moved to a state with low or no taxes on accumulated trust income.

There may be other advantages to moving a trust. For example, the laws in some states allow you or the trustee to obtain greater protection against creditor claims, reduce the trust’s administrative expenses, or create a “dynasty” trust that lasts for decades or even centuries.

Determining if the trust is movable

For an irrevocable trust, the ability to change its situs depends on several factors, including the language of the trust document (does it authorize a change in situs?) and the laws of the current and destination states. In determining a trust’s state of “residence” for tax purposes, states generally consider one or more of the following factors:

The trust creator’s state of residence or domicile,
The state in which the trust is administered (for example, the state where the trustees reside or where the trust’s records are maintained), and
The state or states in which the trust’s beneficiaries reside.

Some states apply a formula based on these factors to tax a portion of the trust’s income. Also, some states tax all income derived from sources within their borders — such as businesses, real estate, or other assets located in the state — even if a trust in another state owns those assets.

Depending on state law and the language of the trust document, moving a trust may involve appointing a replacement trustee in the new state and moving the trust’s assets and records to that state. In some cases, it may be necessary to amend the trust document or to transfer the trust’s assets to a new trust in the destination state. A situs change may also require the consent of the trust’s beneficiaries or court approval.

For tax purposes, a final return should be filed in the current jurisdiction. The return should explain the reasons why the trust is no longer taxable in that state. Before taking action, discuss with us the pros and cons of moving your trust. FMD can help you determine whether it’s worth your while.

HEATHER DOERING 1/27/25 HEATHER DOERING 1/27/25

Leaving specific assets to specific heirs may lead to unintentional outcomes

Does your estate plan leave specific assets to specific family members? If so, you may want to reconsider your plan. While it may be tempting to say, leave your son your classic car and give your daughter a family heirloom, doing so risks inadvertently disinheriting other family members, even if you’ve gone out of your way to ensure that they’re treated equally.

Let’s consider an example. Dan has three children, Susan, Peter, and Emma. At the time he prepares his estate plan, Dan has three primary assets: company stock valued at $1 million, a mutual fund with a $1 million balance, and a $1 million life insurance policy. His estate plan calls for Susan to acquire the stock, Peter to gain the mutual fund, and Emma to become the life insurance policy’s beneficiary.

When Dan dies 15 years later, the values of the three assets have changed considerably. The stock’s value has dropped to $500,000, the mutual fund has grown to $2.5 million and he inadvertently allowed the life insurance policy to lapse.

The result: Although Dan intended to treat his children equally, Peter ended up with the bulk of his estate, Susan’s inheritance was significantly smaller than expected and Emma was disinherited altogether. To avoid unintended results like this, consider distributing your wealth among your heirs based on percentages or dollar values rather than providing for specific assets to go to specific people.

However, if it’s important to you that certain heirs receive certain assets, there may be planning strategies you can use to ensure your heirs are treated fairly. Returning to the example, Dan could’ve provided for his wealth to be divided equally among his children, with Susan receiving the stock (valued at fair market value) as part of her share. That way, Susan would have received the stock plus $500,000 of the mutual fund, and Peter and Emma would each have received $1 million of the mutual fund.

Contact FMD if you have questions regarding how your estate plan currently distributes your assets among family members. We can help determine if all your heirs will be treated equally.

HEATHER DOERING 11/26/24 HEATHER DOERING 11/26/24

Should a married couple use a joint trust or separate trusts?

There are many benefits of including a revocable trust in your estate plan. This trust type allows you to minimize probate expenses, keep your financial affairs private and provide for the management of your assets in the event you become incapacitated. Importantly, they offer flexibility: You’re free to amend the terms of the trust or even revoke it altogether at any time.

Maintaining a joint trust is simpler

Separate trusts may provide greater asset protection

Factor in taxes

For most couples today, federal gift and estate taxes aren’t a concern. This is because they enjoy a combined gift and estate tax exemption of more than $27 million in 2024 and 2025.

Review the pros and cons

Joint and separate trusts each have advantages and disadvantages. Contact us to determine which is right for you. We’d be pleased to review your circumstances and help you make a final decision.

HEATHER DOERING 11/25/24 HEATHER DOERING 11/25/24

Ensure you’re properly documenting your charitable donations

If you’re charitably inclined and itemize deductions, you may be entitled to deduct charitable donations. The key word is “may” because there are requirements you must meet. One such requirement is the need to substantiate charitable gifts with proper documentation that will satisfy the IRS. Indeed, a charitable gift may be legitimate, but if the taxpayer fails to substantiate it properly, the deduction may be lost.

Making cash donations

Cash donations, regardless of the amount, must be substantiated with one of the following:

Bank records. These can include bank statements, electronic fund transfer receipts, canceled checks (including scanned images of both sides of a check from the bank’s website) or credit card statements.

Written communication. This can be in the form of a letter or email from the charitable organization, showing the donee’s name, the contribution date and the amount. A blank pledge card furnished by the donee isn’t sufficient.

In addition to the above, cash donations of $250 or more require a contemporaneous written acknowledgment (CWA) from the donee that details the following:

The contribution amount, and
A description and good faith estimate of the value of any goods or services provided in consideration (in whole or in part) for the donation.

You can use a single document to meet both the written communication and CWA requirements. For the CWA to be “contemporaneous,” you must obtain it by the earlier of 1) the extended due date of your tax return for the year the donation is made, or 2) the date you file your return.

Making noncash donations

You must substantiate noncash donations of less than $250 with a receipt from the donee showing the donee’s name and address, the date of the contribution, and a detailed description of the property. For noncash donations of $250 or more, there are additional substantiation requirements depending on the size of the donation:

Donations of $250 to $500 require a CWA.
Donations over $500 but not more than $5,000 require a CWA and you must complete Section A of Form 8283 and file it with your tax return. Section A includes a description of the property, its fair market value and the method of determining that value.
Donations over $5,000 require all the above, plus you must obtain a qualified appraisal of the property and complete Section B of Form 8283 (signed by the appraiser and the donee). There may be additional requirements in certain situations. For instance, if you donate art of $20,000 or more, or any donation valued over $500,000, you must attach a copy of the appraisal to your return. Note: No appraisal is required for donations of publicly traded securities.

Additional rules may apply to certain types of property, such as vehicles, clothing, household items or securities.

The rules are complex

The regulations on substantiating charitable donations are complex, and one mistake can cause you to lose valuable tax deductions. When in doubt, contact us to ensure you follow all the rules correctly.

HEATHER DOERING 11/14/24 HEATHER DOERING 11/14/24

Taking the long view of long-term care insurance

The U.S. Department of Health and Human Services reports that roughly 70% of Americans age 65 or over will require some form of long-term care (LTC). How will you pay for these services?

For many people, the possibility that they’ll incur significant LTC expenses is one of the biggest threats to their estate plans. These expenses — such as for nursing home stays or home health aides — can quickly deplete funds you’ve set aside for retirement or to provide for your family. A practical solution is to purchase an LTC insurance policy.

What does LTC insurance cover?

Most LTC policies operate like some other forms of insurance that you’re probably familiar with, such as homeowners or auto insurance. The policy’s terms control the amount of benefits you’ll receive daily or monthly, up to a stated lifetime maximum or number of years. This is predicated on the type of care provided, for example, in-home care or a nursing home. You may be able to add to your coverage over time.

Typically, you’re subject to a waiting period of 30 to 180 days before you’re eligible for benefits (90 days is the norm). Generally, the shorter the waiting period, the more expensive the policy. Similarly, you can expect to pay more for policies with higher maximum benefits.

LTC policies typically provide benefits when you can no longer perform several basic activities of daily living — including bathing, dressing, eating, transferring and managing incontinence — or if you’re cognitively impaired. Once that occurs and you start receiving benefits, your premiums cease. However, if you stop paying on the policy first, you usually forfeit any future benefits. Note that coverage may be affected by several factors. For example, you may not qualify for coverage because of a preexisting condition.

Any factors to take into account?

Unlike homeowners and auto insurance, you typically have only one good shot at buying LTC insurance. Should you take the plunge, there are several key factors to consider, including your:

Financial situation. Do you have the wherewithal to pay for long-term care assistance without jeopardizing your overall financial situation? Take an objective look at your entire financial picture.

Estate planning objectives. An LTC policy may make sense if preserving wealth to pass on to your family is a primary estate planning objective.

Age and health. As you continue to age, the cost of LTC insurance premiums will increase. Also, you may have to pay more if you have a preexisting condition (if you can secure coverage at all). Apply for a policy as soon as possible and check for more lenient policies at a relatively reasonable cost.

There might be ways of obtaining coverage without buying a policy privately. For instance, you may be able to participate in a group policy offered by your employer or from another affiliation. This can be especially helpful if health conditions would otherwise cause insurers to hike your premiums or deny you coverage.

Assess your options

To determine whether an LTC policy is right for you, compare the costs, benefits and tax implications of various LTC insurance options. Your advisor can assess your specific needs and help you make an informed decision.

HEATHER DOERING 11/14/24 HEATHER DOERING 11/14/24

Understand your spouse’s inheritance rights before getting remarried

One of the golden rules of estate planning is to revisit your plan after a significant life event. Such an event may be getting married, having a child, going through a divorce or getting remarried.

If you’re taking a second trip down the aisle, you may have different expectations than when you married the first time, especially when it comes to estate planning. For example, if you have children from a previous marriage, your priority may be to provide for them. You may feel your new spouse should have more limited rights to your assets than your spouse in your first marriage.

Unfortunately, your state’s law may not see it that way. Indeed, in nearly every state, a person’s spouse has certain property rights that apply regardless of the terms of the estate plan. And these rights are the same whether it’s your first marriage or your second or third.

Defining an elective share

Spousal property rights are creatures of state law, so it’s critical to familiarize yourself with the laws in your state to achieve your planning objectives. Many states provide a surviving spouse with an “elective share” of the deceased spouse’s estate, regardless of the terms of his or her will or certain other documents.

Generally, a surviving spouse’s elective share ranges from 30% to 50%, though some states start lower and provide for progressively larger shares as the duration of the marriage increases. Perhaps the most significant variable, with respect to planning, is the definition of assets subject to the surviving spouse’s elective share rights.

In some states, the elective share applies only to the “probate estate” — generally, assets held in the deceased spouse’s name alone that don’t have a beneficiary designation. In other states, it applies to the “augmented estate,” which is the probate estate plus certain nonprobate assets. By understanding how elective share laws apply in your state, you can identify potential strategies for bypassing them.

Transfer assets to a revocable trust

Elective shares are designed to protect surviving spouses from being disinherited. But there may be good reasons for limiting the amount of property that goes to your spouse when you die. For one thing, your spouse may possess substantial wealth in his or her own name. And you may want most of your estate to go to your children from a previous marriage. Or perhaps the bulk of your wealth is tied up in a family business that you want to keep in the family.

Strategies for minimizing the impact of your spouse’s elective share on your estate plan include transferring assets to a revocable trust. In most (but not all) probate-only states, transferring assets to a revocable trust is sufficient to shield them from your spouse’s elective share. In augmented estate jurisdictions, the elective share generally applies to revocable trusts. However, the laws of some states provide that the augmented estate only includes assets transferred to a revocable trust during marriage. In that case, it may be possible to protect assets from the elective share by transferring them to a revocable trust before remarrying.

Seek professional help

State elective share laws are complex and can vary dramatically from state to state. If you’re remarrying, we can evaluate their impact on your estate plan and explore strategies for protecting your assets.

HEATHER DOERING 11/4/24 HEATHER DOERING 11/4/24

Making defined-value gifts may benefit your estate plan

Time is running out to take advantage of the current federal gift and estate tax exemption ($13.61 million for 2024). Absent action from Congress, the amount will drop to an inflation-adjusted $5 million in 2026. One way to make the most of the current record-high exemption amount is to give substantial gifts to your loved ones, thus reducing the size of your taxable estate.

However, making certain hard-to-value gifts, such as interests in a closely held business or family limited partnership (FLP), can raise the concern of the IRS. Indeed, if the IRS determines that a gift was undervalued, you may be liable for gift tax (plus interest and possibly penalties). To help avoid an unexpected outcome, consider making a defined-value gift.

Formula vs. savings clauses

A defined-value gift is a gift of assets that are valued at a specific dollar amount rather than a certain number of stock shares or FLP units or a specified percentage of a business entity. A properly structured defined-value gift ensures that it won’t trigger a gift tax assessment later.

The key is to ensure that the defined-value language in the transfer document is drafted as a “formula” clause rather than an invalid “savings” clause. A formula clause transfers a fixed dollar amount, subject to adjustment in the number of shares necessary to equal that amount (based on a final determination of the value of those shares for federal gift and estate tax purposes). A savings clause, in contrast, provides for a portion of the gift to be returned to the donor if that portion is ultimately determined to be taxable.

Precise language matters

For a defined-value gift to be effective, use precise language in the transfer documents. In one case, the U.S. Tax Court rejected an intended defined-value gift of FLP interests and upheld the IRS’s gift tax assessment based on percentage interests. The documents called for transferring FLP interests with a defined fair market value “as determined by a qualified appraiser” within a specified time after the transfer.

The court found that the transfer documents failed to achieve a defined-value gift because a qualified appraiser determined the fair market value. The documents didn’t provide for an adjustment in the number of FLP units if their value “is finally determined for federal gift tax purposes to exceed the amount described.”

The bottom line: Before taking action, contact us to help ensure that your defined-value gift’s transfer documents are worded in a way to pass muster with the IRS. We’d be pleased to help.

HEATHER DOERING 11/4/24 HEATHER DOERING 11/4/24

Achieve multiple estate planning goals with one trust: A CRT

ABCs of CRTs

When using a CRT, you may be eligible for a current tax deduction based on several factors. They include the value of the assets at the time of the transfer, the ages of the income beneficiaries and the government’s Section 7520 rate. Generally, the greater the payout to you (and consequently, the lower the amount that ultimately goes to charity), the lower the deduction.

2 flavors of CRTs

There are two types of CRTs, each with its own pros and cons:

A charitable remainder annuity trust (CRAT) pays out a fixed percentage (ranging from 5% to 50%) of the trust’s initial value and doesn’t allow additional contributions once it’s funded.
A charitable remainder unitrust (CRUT) pays out a fixed percentage (ranging from 5% to 50%) of the trust’s value, recalculated annually, and allows additional contributions.

Who to choose as a trustee?

Finally, be aware that a CRT is irrevocable. In other words, you can’t undo it once it’s executed. So, you must be fully committed to this approach before taking the plunge. Contact us to learn whether a CRT might be a good fit to achieve your estate planning goals.

HEATHER DOERING 10/9/24 HEATHER DOERING 10/9/24

What are the duties of an executor?

A key decision you must make when drafting your estate plan is who to appoint as the executor. In a nutshell, an executor (called a “personal representative” in some states) is the person who will carry out your wishes after your death. Let’s take a look at the specific duties and how to choose the right person for the job.

Overview of duties

Typically, your executor shepherds your will through the probate process, takes steps to protect your estate’s assets, distributes property to beneficiaries according to the will, and pays the estate’s debts and taxes.

Most assets must pass through probate before they can be distributed to beneficiaries. (Note, however, that assets transferred to a living trust are exempt from probate.) When the will is offered for probate, the executor also obtains “letters testamentary” from the court, authorizing him or her to act on the estate’s behalf.

It’s the executor’s responsibility to locate, manage and disburse your estate’s assets. In addition, he or she must determine the value of property. Depending on the finances, assets may have to be liquidated to pay debts of the estate.

Also, your executor can use estate funds to pay for funeral and burial expenses if you didn’t make other arrangements to cover those costs. In addition, your executor will obtain copies of your death certificate. The death certificate will be needed for several purposes, including closing financial accounts, canceling certain benefit payments and filing the final tax return.

Right person for the job

So, whom should you choose as the executor of your estate? Your first inclination may be to name a family member or a trusted friend. But this can cause complications.

For starters, the person may be too grief-stricken to function effectively. And, if the executor stands to gain from the will, there may be conflicts of interest that can trigger contests of your will or other disputes by disgruntled family members. Furthermore, the executor may need more financial acumen for this position. Frequently, a professional advisor you know and trust is a good alternative.

Don’t forget to designate an alternate

An executor can renounce the right to this position by filing a written declaration with the probate court. This further accentuates the need to name a backup executor.

Without a named successor in the executor role, the probate court will appoint one for the estate. If you have additional questions regarding the role of an executor, please contact us.

HEATHER DOERING 10/1/24 HEATHER DOERING 10/1/24

A real-life example of why a holographic will isn’t enough

Legendary singer Aretha Franklin died more than six years ago. However, it wasn’t until last year that a Michigan judge ruled a handwritten document discovered under her couch cushions was a valid will. This case illustrates the dangers of a so-called “holographic” will. It’s one where the entire document is handwritten and signed without the presence of a lawyer or witnesses.

Facts of the case

Initially, Franklin’s family thought she had no will. In that situation, her estate would have been divided equally among her four sons under the laws of intestate succession. A few months after she died, however, the family discovered two handwritten “wills” in her home.

The first, dated 2010 and found in a locked cabinet, was signed on each page and notarized. The second, dated 2014, was found in a spiral notebook under her couch cushions and was signed only on the last page. The two documents had conflicting provisions regarding the distribution of her homes, cars, bank accounts, music royalties and other assets, leading to a fight in court among her heirs. Ultimately, a jury found that the 2014 handwritten document should serve as her will.

Holographic wills can cause unexpected outcomes

Michigan, like many states, permits holographic wills. These wills, which don’t need to be witnessed like formal wills, must be signed and dated by the testator and the material portions must be in the testator’s handwriting. In addition, there must be evidence (from the language of the document itself or from elsewhere) that the testator intended the document to be his or her last will and testament.

Holographic wills can be quick, cheap and easy, but they can come at a cost. Absent the advice of counsel and the formalities of traditional wills, handwritten wills tend to invite challenges and interfamily conflict. In addition, because an attorney doesn’t prepare them, holographic wills tend to be less thorough and often contain ambiguous language.

If you need a will, contact your estate planning attorney for help. Having your will drafted by a professional can give you peace of mind knowing that your assets will be divided as you intended.

HEATHER DOERING 10/1/24 HEATHER DOERING 10/1/24

A spendthrift trust can act as a wealth preserver

Tax planning is only a small component of estate planning — and usually not even the most important one for most people. The primary goal of estate planning is to protect your family, and saving taxes is just one of many strategies you can use to provide for your family’s financial security. Another equally important strategy is asset protection. And a spendthrift trust can be an invaluable tool for preserving wealth for your heirs.

Spendthrift trust defined

A spendthrift trust prohibits a beneficiary from directly tapping its funds or transferring its rights to someone else. The trust can also deny access to creditors or a beneficiary’s ex-spouse.

Instead, the trust beneficiary relies on the trustee to provide payments based on the trust’s terms. These could be in the form of regular periodic payouts or on an “as needed” basis. The trust document will spell out the nature and frequency, if any, of the payments. Once a payment has been made to a beneficiary, the money becomes fair game to any creditors.

Be aware that a spendthrift trust isn’t designed primarily for tax-reduction purposes. Typically, this trust type is most beneficial when you want to leave money or property to a family member but worry that he or she may squander the inheritance.

For example, you might think that the beneficiary doesn’t handle money well based on experience, or that he or she could easily be defrauded, has had prior run-ins with creditors or suffers from an addiction that may result in a substantial loss of funds.

If any of these scenarios are possible, a spendthrift trust can provide asset protection. It enables the designated trustee to make funds available for the beneficiary without the risk of misuse or overspending. But that brings up another critical issue.

The trustee plays a major role

Depending on the trust’s terms, the trustee may be responsible for making scheduled payments or have wide discretion as to whether funds should be paid, how much and when. The trustee may even decide if there should be any payment at all.

Or perhaps someone will direct the trustee to pay a specified percentage of the trust’s assets depending on investment performance, so the payouts fluctuate. Similarly, the trustee may be authorized to withhold payment upon the occurrence of certain events (for example, if the beneficiary exceeds a debt threshold or declares bankruptcy).

The designation of the trustee can take on even greater significance if you expect to provide this person with broad discretion. Frequently, the trustee will be a CPA, attorney, financial planner or investment advisor, or someone else with the requisite experience and financial know-how. You should also name a successor trustee in the event the designated trustee passes away before the term ends or otherwise becomes incapable of handling the duties.

Other considerations

Be aware that the protection offered by a spendthrift trust isn’t absolute. Depending on applicable law, government agencies may be able to access the trust’s assets — for example, to satisfy a tax obligation.

It’s also essential to establish how and when the trust should terminate. It could be set up for a term of years or for termination to occur upon a stated event, such as a child reaching the age of majority.

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