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The Wealth & Wisdom Blog

Information on Estate Planning, Estate and Trust Administration and Unique Asset Planning

Employee Benefits Estate Planning

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It’s open enrollment season, which means that our law firm, like your company, has recently received notice of its 2023 health insurance coverage options.  Having reviewed our firm’s coverage costs, well, let’s hope that 2023 brings good health, and few medical appointments, for my family as well as for yours.

As occasioned by this upbeat topic, in this month’s update I answer a few common estate planning questions that frequently arise in the context of naming beneficiaries on employee benefits. The specific beneficiary designation for Health Savings Accounts (“HSAs”), life insurance policies, and retirement accounts will vary based upon family and state residency circumstances, but a few general principles apply.

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Patagonia and Purpose-Driven Planning

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“Hopefully this will influence a new form of capitalism that doesn’t end up with a few rich people and a bunch of poor people.”  So remarked Yvon Chouinard, the founder of outdoor clothing company Patagonia, as he announced his remarkably unique estate plan.  Rather than take a more conventional approach of either selling his Patagonia shares, or perhaps gifting the Patagonia shares to his two adult daughters, Chouinard recently gifted his entire $3.0 billion ownership stake to two entities: a specially designed “business purpose trust,” and to a 501(c)(4) social welfare organization.  In this month’s update, I provide a brief overview of the Patagonia plan, and consider what lessons we can draw from the Patagonia plan.

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Charitable Planning as a Triple Threat to the Tax Code

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In basketball, a player is known to be in a “triple threat” position when he or she is holding the basketball and in an athletic position with the ball, ready to (i) pass to a teammate, (ii) dribble drive to the basket to score, or (iii) immediately shoot a jump shot.  In my past years of playing basketball, I possessed neither a good jump shot nor the quickness necessary to dribble drive to the basket.  In my case, the triple threat position was simply the means to pass the ball to a more capable teammate.

In tax planning, a charitable gift of assets might pose a “triple threat” to the tax code through one or more of three separate benefits.  These three tax-related benefits are as follows:

  • An immediate income tax charitable deduction;
  • Avoidance of future capital gains or future ordinary income tax liability; and
  • Avoidance of future estate tax liability.

In this month’s update, I briefly summarize how a donor can implement a charitable strategy to make use of one or more of these three benefits.

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Buy One, Get One Free: Using Separate Revocable Trusts for Married Clients

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Buy One, Get One Free.  Who doesn’t like a good deal?  Whether two-for-one amusement park tickets, sports tickets or my favorite, BOGO children’s meals, we appreciate “two for the price of one” deals. In this month’s update, I share why we recommend that married residents of the State of Minnesota create two trusts—in some respects, two trusts for the price of one.

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Veritage Law Group

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I am pleased to announce that our law firm is now “Veritage Law Group.”  Veritage is a combination of two words – “Veritas,”  which is Latin for “truth,” and “Heritage.”  This new name conveys our firm’s mission: to implement an estate plan unique to a client’s faith beliefs, family relationships and community commitments –the components that comprise one’s true heritage.

While our law firm’s name and logo have changed, we have not changed our scope and delivery of legal services.  We will continue to focus in the areas of estate planning and trust and estate administration.  Within our firm, here are the areas of focus that each of our professionals have developed:

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Customized Trust Planning

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“We love our kids equally by treating each of them uniquely.” One of the numerous estate planning implications of the COVID-19 pandemic is the significant increase in mental health challenges and drug and alcohol addiction issues experienced by the adult children of our clients. The WHO reported a 25% increase in anxiety and mental health disorders since the onset of the pandemic. Similarly, one in five adults report a surge in heavy alcohol use since March of 2020. By reason of student loan debts, significant inflation, and other factors, many of our clients are providing significant financial support to adult children. As in other areas of life and law, there is not one trust solution to be applied to a myriad of different challenges. Instead, a client’s post-death “testamentary trust” plan should address each child’s unique challenges. In this month’s update, I describe four types of testamentary trusts that can be customized for each beneficiary’s unique situation.

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Residential Property Planning

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“They made us an offer we could not refuse.” One of our neighbors recently sold their residence after receiving an unsolicited offer.  This neighbor took advantage of the significant increase in residential property values not just in our neighborhood, but across the country. Relatedly, our law firm is corresponding with numerous clients seeking advice on the most efficient means of transferring residential property to children.  In this month’s update, I briefly summarize the tax implications of transferring ownership of residential property to children by sale, gift or following death.

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Prime Numbers and the Division of Unique Assets

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While recently helping my third-grade daughter with her math assignments, I had to “google” the exact definition of a “prime number.”  If your memory is better than mine, you will recall that a prime number is any number that cannot be made by multiplying two other whole numbers.  Just as prime numbers cannot be divided into whole numbers, some of our assets are not subject to an easy division among multiple beneficiaries following death. Some of our assets, especially sentimental assets, are simply indivisible.   In this month’s update, I summarize a two-part planning process to manage our “prime number” assets.*

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The Tax Efficiency vs. Legal Control Tradeoff with IRA Assets

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“Nothing is for Free, Cory,” a physician once explained to me.  “If we take steps to address this particular health problem, it will have adverse consequences on other organs.”  Just as there is often a “cost” for a particular medical treatment option, there are certain tax and control tradeoffs in estate planning decisions.  Tax-deferred retirement accounts can be owned by a trust following death, thereby providing control and protection benefits to the account owner’s family.  However, this usually comes at a “cost” of higher taxes.

Last month, I summarized the current tax rules for post-death IRA assets.  As a follow up to last month’s update, on February 23, 2022, the IRS released 275 pages of “clarifications” to the 2019 SECURE Act.  One noteworthy clarification relates to the required minimum distributions (“RMDs”) required of adult children beneficiaries who do not have a disability or chronic illness (“non-eligible beneficiaries”).  According to the IRS, if the deceased account owner had reached the required beginning date, such non-eligible beneficiaries must continue to take RMDs annually in accordance with the deceased account owner’s RMD schedule.  If the account owner has not yet reached the required beginning date, there are no such annual RMD requirements. However, regardless of when the account owner died, all remaining retirement account assets must be withdrawn by the December 31st of the calendar year that contains the 10th anniversary of the account owner’s death.

This month, I share three hypotheticals to illustrate the “trust control” versus “tax efficiency” tradeoff.

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Post-Death IRA Rules and New Life Expectancy Tables

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Who says that the glass is half empty at the IRS?  While it is often said that the IRS views taxpayers as wealthier than we feel, the IRS now anticipates that taxpayers will enjoy a longer life expectancy than is supported by recent data.

According to the CDC, and as reported by CNN, the life expectancy at birth dropped by 1.8 years between 2019 and 2020, from 78.8 years in 2019 to 77 years in 2020.  This was the single largest drop in life expectancy, year-to-year, since World War II.  Effective as of January 1 of this year, we have new life expectancy tables for use in determining the minimum amount that must be withdrawn annually from all retirement accounts (IRAs, Simple IRAs, 401ks, etc.).  These tables are applicable not just for determining the amounts that must be withdrawn once the current account owner reaches the required beginning date of age 72, but also the required minimum amounts that must be withdrawn annually following the original account owner’s death.

In this month’s update, I summarize the basic rules applicable to the “required minimum distributions” (“RMDs”) applicable to retirement accounts following death.  In next month’s update, I will summarize the “tax efficiency v. trust control” tradeoff in making decisions about whether retirement account assets should be owned by a trust following death.

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This blog is intended to provide the reader with assistance in understanding various estate planning and trust estate planning concepts. In an effort to keep things as digestible as possible, I have tried to keep each blog post as short as possible.  As a result, an astute reader would see that I often fail to address various exceptions to rules or principals, or how various principles relate to one another.  There are a number of moving parts associated with various planning structures summarized on this blog.  In order to achieve your estate planning objectives, it is important that you receive the assistance of an experienced estate planning attorney.  Otherwise, your family may be in a worse position for your having attempted these strategies on your own.  Until we form an attorney-client relationship, you should be aware that your visiting this blog has not formed an attorney-client relationship, and none of this information can be taken as legal advice.  To contact my office about scheduling an appointment, contact us at 612-465-0080.