The Wealth & Wisdom Blog

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

Planning in Uncertain Times

In the iconic comic strip, Peanuts, Charlie Brown is repeatedly invited by Lucy Van Pelt to kick a football held to the ground by her, ostensibly ready for Charlie’s strong kick.  Each time, the football is withdrawn by Lucy at the last moment, causing Charlie to whiff on his kick, leaving Charlie on the ground, humiliated by Lucy.

Over the past 15 months, our law firm assisted a few of our clients to file Beneficial Ownership Reports with the Treasury Department.  As summarized in a blog post last spring, owners of businesses meeting the definition of a “Registered Company,” were required to report their ownership interests to the Treasury Department in accordance with the Corporate Transparency Act.

Beginning last year, several courts issued injunctions against the enforcement of these registration rules. These injunctions were then lifted, resulting in the Corporate Transparency Act rules being reinstituted.  The matter was brought to a merciful end on March 21st when the Treasury Department announced that United States citizens are not required to file beneficial ownership reports.  Instead, only certain business entities formed under foreign law will be required to report.1

I applaud my fellow business owner clients who took the Treasury Department at its word, and dutifully filed the reports.  These business owners might feel like the same level of disgust felt by Charlie Brown with each whiff on the football. While it is natural to feel tricked like Charlie Brown, we cannot take too much time to beat ourselves up.  Since we don’t know the future, we must be willing to make an informed decision based on the available advice and information, and then make changes as necessary.

The Corporate Transparency Act was, at worst, an unnecessary hassle and legal cost to our clients. The future of federal estate and gift tax rules, in contrast, poses a far more onerous uncertainty.

In February, Republican lawmakers in Congress introduced new legislation entitled the “Death Tax Repeal Act.”  If enacted, it would permanently eliminate federal estate taxes and generation-skipping taxes.  Alternatively, if no legislation is passed before December 31st, the federal estate and gift tax exemption would revert to the rules that existed before the 2017 Tax Cuts and Jobs Act (“TCJA”). If TCJA is allowed to sunset, the federal estate tax exemption would revert to approximately $7.0 million per person on January 1, 2026.

Here lies the current planning conundrum:

  • If the Death Tax Repeal Act is enacted, lifetime gifts would not necessarily be a wise tax planning move.  A gift of appreciated assets may result in the loss at death in the step-up in cost basis benefit for appreciated assets to no tax benefit, since there would be no federal estate tax owed.
  • If no legislation is enacted, and if TCJA expires, it would be wise for those with assets of more than $7.0 million to “lock” in the current federal gift exemption amount of $13.998 million by making significant gifts before year-end.

Like a whipsawed stock market, or a back-and-forth federal tariff policy, it is yet uncertain what the future will bring when it comes to future federal tax rules. At times like these, we confirm with our clients the legacy benefits to the family of the gifting, independent of tax savings.  For those clients are in a position to consider a gifting strategy, clients might create a gift plan assuming the TCJA will expire, and then wait until year-end for further Congressional action before gifting. Through proper planning, we can minimize the negative ramifications if Congress pulls the football out from underneath our feet.

 

The Oracle of Omaha on Estate Planning- Part 2

The Oracle of Omaha on Estate Planning – Part 2

Last month, I referenced recent comments by billionaire Warren Buffett about his personal estate plan.  I agree with Buffett that we should disclose the key elements of the plan to our adult children during our lifetime in summary fashion, without necessarily delving into the details—that is, the legal documents or the dollar amounts.  In this month’s update, I outline two areas where most of us should depart from Buffett’s estate planning suggestions; specifically, in charitable planning and in providing for grandchildren.

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The Oracle of Omaha on Estate Planning

At age 94, and with a net worth of approximately $147 billion, it is appropriate that Warren Buffett has given considerable thought to his personal estate plan. Just a few months ago, Buffett provided estate planning advice to fellow Berkshire Hathaway shareholders.  In this month’s update, I comment on Buffett’s views on communicating an estate plan to one’s family during lifetime.  In a subsequent advisory update, I will respond to some of Buffett’s other estate planning suggestions.

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Sample One Page Estate Plan Summary

SUE AND BOB CLIENT ESTATE PLAN

  1. BENEFICIARIES

Following First Death: The deceased spouse’s assets managed in a trust for surviving spouse’s needs.  Surviving spouse owns and controls surviving spouse’s assets.

Following Second Death: Gifts of $100,000 made to each of 5 grandchildren, a gift of $100,000 made to First Lutheran Church, with all remaining assets divided equally between three children, Don, Joan, and Heidi.

  1. KEY LEGAL ROLES
  • Financial Power of Attorney: Your attorney in fact has the legal authority to make financial decisions for you during your lifetime.  Spouse, otherwise Heidi.
  • Health Care: Your health care agent has the legal authority to make health care decisions if neither of you can act. Spouse, otherwise Don.
  • Personal Representative/Executor: Your personal representative implements your directions following death. Spouse, otherwise Don.
  • Trustee: A trustee would manage any ongoing testamentary trusts established for grandchildren following the second death.   Joan is named.
  1. PROFESSIONAL ADVISORS

Financial Advisor: Johnson Financial Group

CPA: East & West, CPA.

Attorney: Veritage Law Group

Irrevocable Gift Trusts and Annual Exclusion Gifting

The late comedian Bob Newhart was famous for his fictional one-sided telephone comedy routines. In the spirit of the Newhart one-sided telephone call, imagine the following one-sided call, heard from the perspective of a father calling his adult son.

Hi Son.  Yes, Dad here, how are you?

Great.  Good to hear.  Hey, listen, my attorney has told me that I need to send you a letter about this trust. 

Right, the trust I told you and your sister about at Christmas.   The letter will say that you can take out some of the cash from the trust. 

Except, yes, well, we don’t really want you to.

Yes, I know, but, well, we don’t really want you to actually take the money out.

Right, even though we are sending you a letter telling you that you can take it out.

Uh-uh. Uh-huh.  Yes. 

You said you want to know what other clear directions and wisdom I can impart to you today? 

In this month’s update, I explain the use of withdrawal rights within an irrevocable trust and provide factors to consider in deciding whether to use withdrawal rights in an irrevocable trust.

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Escape Hatches for Estate Taxes

The Veritage Law Group recently enjoyed an “escape room” experience as part of our annual Christmas Party.  Our group “escaped” the room after successfully solving the various riddles.  While none of us are particularly adept at such riddle games, we regularly advise clients attempting to “escape” estate taxes on behalf of their children at death.

In this month’s advisory update, I provide a brief update on 2025 tax rules, and three useful strategies for escaping federal and Minnesota state estate taxes at death.

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Thanksgiving Dinner Conversation

Broaching political topics at Thanksgiving with your family may not lead to great holiday cheer. In comparison, a discussion centered around your own death—that is, your estate plan—may be far more palatable.  In this month’s advisory update, I provide a few general recommendations about what information that you and your clients could share with your family about your estate plan.

Information To Share Now

If you were a client of our firm, we would likely encourage you to share the following information with your family:

Information To Withhold

In contrast, you might withhold information in certain circumstances.

  • If you have concerns about a child’s personal career progression, you might withhold disclosure of your personal finances. A future financial inheritance should not be an impediment towards a child’s goals of self-sufficiency.
  • If you have made disproportionate gifts among your children or their families, you might withhold disclosure, at least for now, of any such disproportionate gifts. We recommend that your estate plan expressly direct how any disproportionate lifetime gifts should be treated at your death.

Benefits of Communicating the Plan

At least three key benefits result from clearly communicating your plan during lifetime.

  • Legal Certainty: First, you would be certain that the estate plan will not be subject to a legal challenge.2 If you have adequately communicated your estate plan to your children at a time when you have no evidence of undue influence or diminished capacity, you will have a “bullet proof” legal plan.
  • Desired Asset Distribution Format Among Children: Second, adequate communication allows for easy and prompt changes to your estate plan when life changes. A plan for the division of the family cabin can easily be reconsidered when a son announces that he and his wife have bought their own family cabin, or a daughter takes a new job and moves from Minnesota to New York.
  • Clearance of Emotional Baggage: Third, adequate communication creates an opening for children to respond to you, now, over the Thanksgiving dinner table, and not respond with animus towards their siblings, later, after your death and over your coffin.

Unlike the drama that surrounds political candidates and elections, your estate plan should be free from unnecessary drama.

Wisconsin Estate Planning

Minnesota Vikings fans know that no lead against the Green Bay Packers is safe. The Vikings nearly blew their 28-0 lead this past weekend, prevailing by a score of 31-29.  Bragging rights over the rival Packers will certainly be short-lived, as the Vikings and Packers will play again on December 29th.  As the holder of a Wisconsin law license, I have been honored to work with many Wisconsin residents, who agree to work with me even after my disclosure of my Vikings loyalties.

In honor of the Vikings-Packers rivalry, in this month’s update I share three unique elements of Wisconsin estate planning:

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Disclaiming Inherited Assets

One benefit of being a volunteer coach on your teenager’s sports team is that you realize that it’s not just your teenage son or daughter who has the know-it-all attitude; it is ubiquitous among the teenage demographic.  Just as our teenage children, in their less-than-laudable, give-me-a-break dad, eye-rolled responses, seem to look right through us parents as if we are invisible, the use of a legal disclaimer allows a beneficiary to be legally ignored for estate or trust administration purposes.

In this month’s update, I summarize the use of legal disclaimers for inherited assets.

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At Least as Rapidly: Inherited IRA Assets to Children

Our family has been amazed by the athleticism currently on display in the 2024 Summer Olympic Games.  While the precise movements differ between events, one attribute common among them is that their legs or arms (or both) move much quicker than mine.  To win a medal, an athlete must move at least as rapidly as their Olympic competitors.

On July 19th of this year, the IRS released final regulations on the taxation of inherited individual retirement accounts and employer plans (“Inherited IRA Accounts.”)  These regulations were intended to clarify the taxation of Inherited IRA Accounts following the 2019 Secure Act. In these regulations, the IRS applies a principle analogous to Olympic competition—Inherited IRA Accounts must be withdrawn and taxed following death at least as rapidly as if the original account owner were still alive.

In this month’s update, I apply the “at least as rapidly” principle to three hypotheticals involving the receipt of Inherited IRAs.1

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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.