Today is our first post in a series of posts about trusts.  Over the next several weeks we will explain what a trust is and the advantages trusts can offer.

An estate planning trust, sometimes called a revocable living trust, is a key document for saving time and money during life, protecting assets, and avoiding probate.  A trust can also make a smooth transition of wealth to children and other beneficiaries in the event of death.

What is a trust?  A trust is a separate legal entity to manage property, according to the terms of the trust, for the benefit of the beneficiaries.  The person establishing the trust is the “Settlor” who usually serves as the first trustee or manager and is usually the initial beneficiary.

What is a revocable living trust?  A revocable living trust is simply a trust made during life that is changeable by the maker (Settlor).

How does a trust work?  We help individuals establish trusts as part of an effective estate plan.  The trust is a roadmap and sets the rules for the management of the maker’s property during life; then, sets out how the property is to be distributed to the beneficiaries after death.  After the trust is created, the maker transfers many of their assets to the trust.

Can the maker get this trust property back?  Absolutely.  In almost every situation, the maker keeps the right to withdraw any assets from the trust, the right to income from the trust and the right to add additional property to the trust.  However, the trust only works on property in the trust.  So, it is usually not advisable to take property out of the trust unless there is a specific reason to do so.

What are the tax consequences of making a trust?  There is no tax due for making and transferring property to a trust.  In most instances, during the maker’s life, there are no additional tax forms to file or tax returns to be prepared.  Because of the complete control the maker or Settlor retains over the trust, the trust is disregarded for both income and estate tax purposes.  There can be very significant estate tax savings through complex types of trusts for high net worth individuals and couples.

Call us today at 573-441-9000 to learn how you can protect your assets and provide for your family with a trust.

Many people, as they approach retirement, begin thinking about how hard they have worked to build their nest egg.  The thought of using the money they worked so hard to save to pay for their future care is not a pleasant one.  According to the U.S. Department of Health and Human Services, 7 in 10 people over the age of 65 will require long-term care.  Therefore, it is incredibly important for those approaching retirement to consider how they will pay for this care.

Did you know that Medicare doesn’t pay for assisted living or nursing home costs?  Fortunately, there are many products on the market to assist with paying for long-term care.  You should speak with your attorney and your financial advisor to determine what options are best for you.  Our office can help you review your estate and finances and determine the best course of action.  Remember, the key is to plan– the longer you wait, the more limited your options.  Call us today.

This article from Forbes summarizes the extension of the IRA charitable rollover rules through 2013.  You can even still rollover some 2012 distributions, but you have to act before the end of January.

Let’s start by saying this: annuities can be a legitimate investment and could be the right thing for you.  That said, instances where an annuity is the best financial tool for your situation are rare.

As with any financial product, you should always ask yourself, “does this product make sense for me, or does it only make sense to the person selling it to me?”  This is even truer with annuities.  Scams and elder financial abuse are rampant in the annuity sales industry.  The simple reason is that the sale of an annuity usually generates a large commission for the salesperson.  The sales pitch usually begins with promises of asset protection and high returns with low or no-risk.

Unfortunately, there are “wealth strategy” companies out there that make a living selling annuities to seniors.  In our experience, this problem is only becoming more prevalent.  It is the rare case indeed when a 15-20 year annuity is the best investment for someone over 80 years old.  In addition to annuities sometimes being inappropriate investments, they can also greatly complicate the application process for Medicaid or Veterans Benefits.  In some instances, investing in an annuity can disqualify an applicant from these benefits for years.

If you or a loved one are considering an annuity, please contact our office to discuss how the annuity would fit into your overall estate plan and whether an annuity is really the appropriate investment for you.  We do not sell annuities or any other financial products.  Instead, we serve as an independent advisor who does not stand to gain or lose a commission.  Our goal is to help you create the best financial and estate plan for your individual situation by avoiding probate, minimizing taxes, and ensuring that your assets pass to your loved ones efficiently.

In the event you do choose to invest in an annuity, or need advice regarding other investments in general, be sure to contact a Certified Financial Planner (CFP).  A CFP is a financial professional who has the appropriate education, licensing and background to give you sound financial advice.  Annuity salespeople or “wealth planners or strategists” that hold no professional designations or licenses should be avoided.

You can find a CFP in your area by searching at this website.

It appears that Congress has reached an agreement on the tax-side, but not the spending side, of the Fiscal Cliff situation.  Although the legislation has not been signed by the President yet, he has indicated that he will sign it.  In the agreement, Congress postponed their decision on automatic spending cuts for a short time.  Therefore, another Fiscal Cliff, albeit smaller, is on the horizon.

For our clients, the tax implications of the agreement are mostly good news.  Long-term capital gain and dividend rates will remain at 15% except for those earning more than $400-$450,000 (depending on marital status).  This is great news for anyone holding stocks, bonds or rental properties as the tax rate on the gain when you sell those investments will remain at 15%, assuming you have held them for at least a year before sale.

Perhaps the most important outcome from this agreement is its effect on estate and gift taxes.  In 2012, a person could pass up to $5.12 million by gift or inheritance, tax-free.  Any amounts over that exemption were taxed at 35%.  Absent an agreement from Congress, the exemption was set to fall to only $1 million with a 55% tax rate.  In this agreement, Congress has decided to set the exemption for both the estate tax and gift tax at $5 million with a 40% tax rate.  Additionally, this unused portion of the exemption is portable between spouses, which means the exemption is essentially doubled for a married couple to $10 million.  Best of all, the legislation makes all of the estate and gift tax laws permanent, so there is finally a little bit of certainty in this area.  The vast majority of Americans will no longer need to worry about the “death tax.”

A full summary of the provisions of the legislation, called the American Taxpayer Relief Act of 2012, is available here.

If you would like to discuss how these new laws affect you and your family, call us.  We can review your current plan or create a new plan that takes full advantage of all probate avoidance and tax minimization strategies available.

Here we are on New Year’s Eve and still no deal in Washington to avoid falling off the “Fiscal Cliff.”  You can read our post from last week to find out how the Fiscal Cliff might affect you, your estate and your family.

Unless Congress takes action today, the new year will begin with automatic spending cuts and significant tax increases.  Call our office to schedule an appointment to discuss the best way to minimize taxes and burdens on your beneficiaries.  We can help you protect your assets.

In July we posted about the major changes coming to the estate tax if Congress takes no action before the end of the year.  With only two weeks left in 2012, Congress has still not done anything to avoid the so-called “fiscal cliff.”

The fiscal cliff refers to a multitude of tax breaks all expiring at the beginning of 2013.  It also refers to automatic spending cuts that may be triggered.  Capital gain and income tax rates are set to increase.  However, one tax, which is set to change dramatically, is not getting much attention, but is critical for estate planning:  the estate tax (sometimes called the death tax or known as an inheritance tax).

Currently, the estate tax credit is $5.12 million per person.  There’s also a “portability” provision that effectively allows a married couple to double this exemption to $10.24 million.  At these levels, the vast majority of our clients can avoid estate tax issues and estate tax problems.

However, unless Congress passes a law stating otherwise, in 2013 estates worth $1 million and up will be subject to the estate tax.  In the event that no action is taken, and no new law is enacted, the exemption will drop to $1 million per individual, and the portability provisions of the estate tax will not exist.  At the new level of $1 million and without portability, there are a great number of people who need to review their current documents and planning to ensure the most tax advantageous plan.

Additionally, the top estate tax rate will go up to 55%!  This is not an error or typo – the top rate really is 55%.

While $1 million may sound like a lot of money, your estate for estate tax purposes, called the “gross estate,” includes your home, rental property, farming property and equipment, retirement accounts, life insurance, bank accounts, and everything else you own.  If you own your own business, it’s also included in your gross estate.  It does not matter if this property passes to your heirs by Will, Trust, beneficiary designation, through probate or avoiding probate.  By dropping the exemption from $5.12 million to $1 million, many people will be affected by the estate tax and will need a tax advantaged plan.

If you would like to discuss the estate tax in further detail and how you can limit the taxes on your own estate, contact our office.  We can help you protect your assets.

When people hear the words “estate planning,” many think it doesn’t apply to them because they don’t have a sprawling mansion or a Bill Gates sized bank account.  A recent article from Forbes explains why this simply isn’t true.

Your estate consists of everything you own, whatever that happens to be.  So, if you have a vehicle or a bank account, you have an estate.  Estate planning is just the process of formalizing what will happen with your assets after you’re gone.  You have the right to decide who gets your assets and who is in charge of your estate (called a personal representative or executor).  If you don’t formally make these decisions in your will or trust, the State will make the decisions for you.

If you want to exercise your right to decide what happens to everything you have worked so hard for, call our office today.  We will help you ensure that your assets are protected and that your wishes are followed.

For Missouri residents, businesses or organizations, if you purchased an LCD flat screen television, computer monitor or notebook computer (laptop) between January 1, 1999 and December 31, 2006, you are eligible to file a claim and receive a $25 cash payment per item.   The claim forms are on the Missouri Attorney General’s website and can be completed online.  The process is very simple and only consists of a few questions about the number of purchases.  Missouri residents, Missouri business and non-profit organizations are eligible under the national LCD settlement. Businesses and organizations with large purchases could recoup thousands of dollars.  No actual receipts are required.  The deadline for submission is December 6, 2012.

In 2012, credit card processors have been reporting all gross credit card transactions processed for businesses to the IRS; you will receive a form 1099-K for these gross receipts.  Your business may have received a form 1099-K from your credit card processor last year (for 2011).  This is required by tax code Section 6050W, which was designed to assist the IRS in identifying businesses not filing accurate tax returns.

Starting in January 2013, the IRS will begin imposing a 28 percent withholding penalty on all credit card transactions, if a business or firm’s taxpayer identification number (TIN or FEIN) and the legal name on each account does not exactly match with IRS records. Check your 2011 1099-K and make sure that your legal name and TIN are an exact match to that reported on the form.  If there is a discrepancy on the form, if there are abbreviations or misspellings of your name, if your business has changed names or if you are using a new fictitious corporate name, contact your credit card processor immediately.  Make sure that you are in compliance with these new IRS requirements by the end of the year to avoid the possible 28 percent withholding penalty that starts January 1, 2013.  This is your last chance to make sure that you have matched your exact legal name and your federal tax identification number with your credit card processor or 3rd party payment aggregators (such as Square or PayPal).  There is no reason to risk the 28% withholding penalty when it can be easily avoided.