The Wealth & Wisdom Blog

Prime Numbers and the Division of Unique Assets

Posted on April 10, 2022 by Cory Wessman

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

Posted on March 9, 2022 by Cory Wessman

“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 However, regardless of when the account owner died, all remaining retirement account assets must be withdrawn by the December 31^st of the calendar year that contains the 10^th anniversary of the account owner’s death.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

Posted on February 13, 2022 by Cory Wessman

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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Information Disclosure Following Death

Posted on January 18, 2022 by Cory Wessman

“This coordinated lying between us is exhausting, how do criminals manage?”

With careful coordination, my wife and I were able to keep the truth about Santa Claus from our children for several years. During that time, neither of us wanted to be the bearer of bad news about Santa to the kids. When they were eventually told the truth, how traumatic and disappointing it was for them to learn that it was their father, not Santa, who had enjoyed the cookies and milk left out on Christmas Eve.

In the estate planning context, I can understand the desire of some of our clients to avoid having to disappoint loved ones. Some clients don’t want to bear bad news to potential beneficiaries about an inheritance amount or percentage. These “Minnesota nice” clients would rather live in the more comfortable ambiguity by not facing the disappointment of potential beneficiaries.

In this month’s update, I briefly summarize who has the right to know the details related to the transfer of assets following death. While this question is of central focus following the death of a loved one, it is also of relevance for advising our living clients. As summarized below, the information disclosed following death will depend upon the legal ownership structure of the asset.

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The Benefits of Professional Advisory Insights

Posted on December 11, 2021 by Cory Wessman

“Hey honey, you can’t use the microwave now– I have to start a zoom call.”

Throughout much of the stay-at-home period in 2020 and into early 2021, my wife and I “suffered” (in a very first-world sense of the word, of course) from a few technology-related issues in our home. Until about six months ago, using our microwave for more than approximately 30 seconds effectively disabled all our wired devices. I learned that I could not conduct a zoom call at the same time as my wife was using the microwave to prepare breakfast for our kids. While I made some very feeble attempts to rectify the situation myself, I am glad to report that after hiring a home technology expert, we are no longer forced to choose between oatmeal for breakfast or an early morning zoom meeting. I never would have known how to fix our home technology on my own (“I didn’t know what I didn’t know”) and we greatly benefitted from a professional’s insights.

Just as “I don’t know what I don’t know” when it comes to technology matters, most of our clients approach us with the same “I don’t know what I don’t know” mentality on estate and gifting matters, open to our advice and counsel. In this month’s update, I summarize three commonly-misunderstood planning issues over which even the most astute clients have remarked, “I would not have known about that issue.”

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Don’t Let the Tax Tail Wag the Dog

Posted on November 16, 2021 by Cory Wessman

The phrase, “not letting the tax tail wag the investment dog” emerged in the 1960s to discourage business owners from making business based solely upon tax implications. The term “wag the dog” has historically been used whenever a minor detail controls a significant decision. More recently, the term “wagging the dog” has been used to describe how political leaders let loose a flurry of activity to distract their constituents from broader, more significant issues. Just as a small tail should not control an entire dog, a tax attribute should not drive the larger, more significant estate planning decisions.

Recent events in Washington D.C. demonstrate the importance of not elevating potential tax law changes ahead of the more significant family, financial and legal factors impacting estate planning decisions. While I have advised clients and advisors about these potential tax law changes (see my May, 2021, advisory update), as of this morning it appears that none of the substantive tax law changes being proposed will be enacted once the tax bill is signed into law.

In this month’s update, I summarize the new income tax rates that will be applicable to irrevocable trusts, and summarize four important tax rules that remain unchanged.

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Trends in Charitable Giving

Posted on October 18, 2021 by Cory Wessman

“Wessman…Wessman….Oh yes, I recognize your last name–your wife sends me all those fundraising emails!

My wife Heather is the associate development director at Avail Academy, a private school in Edina. When I first meet some Avail Academy parents, they claim to recognize our last name by reason of Heather’s numerous fundraising emails sent to them on behalf of the school. Ahead of the year-end charitable solicitation season, the season when your email inbox is filled with year-end requests for charitable contributions, in this month’s update I provide some thoughts on how lifetime charitable giving can be coupled with post-death (“testamentary”) charitable giving.

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Death in a Digital Age

Posted on September 16, 2021 by Cory Wessman

Honey, do you know where we stored our Amazon account password?

I am somewhat embarrassed to report that I once developed a personal rapport with a customer service representative because I called so many times to reset our password. Fortunately for me, and for that customer service representative, I have recently cleaned up my records, and have a good plan in place for the storage and record keeping of our digital assets. In this month’s update, I wish to provide you with a summary of how to keep adequate records of your digital assets, and how to properly plan for digital assets in the event of your death or incapacity.

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Digital Rights by Service Provider

Posted on September 16, 2021 by Cory Wessman

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FINANCIAL ACCOUNTS

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It is most critical for you to include, within the terms of your estate planning documents, provisions that provide your designated fiduciary with the authority to manage your accounts, including online accounts, during your incapacity or following your death. In the case of the each of the financial institutions listed below, each company will respect the authority you provide to your designated agent to gain access to your accounts following your death.

You should provide your desired and appointed “legal fiduciary” (that is, your Trustee, Personal Representative and Power of Attorney) with the contact information for any financial professional with whom you work regularly at a financial institution, such as your personal banker and your financial advisor. You might also inform your financial professionals with the contact information of your named fiduciary or fiduciaries.

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Back to School Special: How to Help Young Adult Children

Posted on August 17, 2021 by Cory Wessman

August in Minnesota means the State Fair, Twins and Vikings blowout losses, the last few days at the cabin, and “back to school” events. While my children are still a few weeks away from starting school, friends and clients are already seeing their young adult children off to college. In this month’s advisory update, I thought it would be appropriate to summarize two sets of legal problems we are addressing on behalf of parents with young adult children: (i) first, how the young adult children of our clients, many of whom are “flying the coop” for the first time this fall, can legally authorize their parents to gain access to their financial and health care information, and (ii) second, how our clients can financially assist their young adult children who are “setting out on their own.”

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