One of the key advantages of a portability-based estate plan over a credit shelter trust-based estate plan is that portability allows the married couple to obtain a second step up in basis upon the death of the second spouse.

With the new ability to minimize estate taxation, known as “portability,” there is now a choice between the automatic portability plan and the old standby of the trust-based plan, notably the credit shelter trust plan.

One important detail driving the choice is the “step up in basis,” as pointed out in a recent Forbes article titled “Portability Plans Vs Credit Shelter Plans Round 1: Step Up in Basis.”

As you may know, the laws surrounding estate and wealth transfer planning underwent a tumultuous change with ATRA. Time was, we spent our planning sessions looking over our shoulder to see what the status of the estate tax was, but that is a gentler beast these days. Nevertheless, there are new competing concerns for which to plan. The old planning techniques aren’t necessarily less useful today, but our motivations may have changed.

To learn more about the old tricks, there are a few related Forbes articles worth perusing: “Planning for Married Couples After ATRA: The Simple Portability Based Plan” and Part 2 thereto.

So what’s the lesson on the step up in basis?

A “step up in basis” is a somewhat subtle effect, but one that’s not to be overlooked. After all, the basis of an asset will determine the taxable value to your heirs, so to have the basis stepped up at various stages can only help cut the overall tax bill. Consequently, any plan that lets you do this can be useful.

It’s not quite so simple but, depending upon the assets, simply using the “portability plan” can help realize the greatest tax savings and the original article runs through the scenarios to show you some hard math on how it works.

Whether you have an old plan in place or if you’re just now looking to set up your estate plan, there are simply more considerations to be made these days and assessments like cost basis can make all the difference. It’s important to seek competent estate planning legal counsel to help chart the best course for your assets and the needs of your family.

Reference:

Forbes (April 8, 2014) “Portability Plans Vs Credit Shelter Plans Round 1: Step Up in Basis”

Forbes (March 18, 2014) “Planning for Married Couples After ATRA — Part I”

Forbes (March 25, 2014) “Planning for Married Couples After ATRA — Part 2”

Time, it seems, has healed past wounds enough to leave us remembering Grandpa Oscar with a smile. Very belatedly the violin has served its purpose. We can hold on to the memories and let go of the object.

Family heirlooms seem to have special powers over the family. Memories and story-telling often result in the discussions of an inherited object. As one sitting down to put your intentions to paper, or even as the inheritor, it is a power worth pondering.

There are always the goals and intentions of the planning parent, of course. Nevertheless, more often than not, it is the family that sees the peculiar power of an heirloom. Maybe it is something well-loved and fought over, or the heirloom may simply provide the tinder to which a disgruntled heir may choose to set match and light a fire.

Recently, Forbes considered this common source of family discord in an article titled “When It’s Time To Part With Family Heirlooms, And Why I Gave Away Grandpa Oscar’s Violin.”

You cannot make all of the mistakes in life yourself, so it is best to learn from the trials (and errors) of others. Be sure to read the original article as it is really far from a tale of fighting, divvying up, or even maximizing sale returns. No, this article provides fresh insights into the kinds of special moments an inherited object can bring to a family well after the loved one has past. Each family member had a piece of the story behind this particular violin chronicled in the original article, and, therefore, they all walked away learning a bit more about Uncle Oscar.

Reference: Forbes (March 31, 2014) “When It’s Time To Part With Family Heirlooms, And Why I Gave Away Grandpa Oscar’s Violin

About 50 years ago, only 5% of the total assets of America’s largest 50 foundations were held by spend-downs. In 2010, that number had risen to 24%, according to Bridgespan Group in Boston.

Today’s charitable foundations seem to be shifting from maintenance for longevity to spending down and winding up.

This trend was identified in a recent article in The Wall Street Journal titled “The Rise of Spend-Down Philanthropy.” The hard numbers in the article come from an analysis by the Bridgespan Group which found a marked jump in spend-downs. As reported there, “About 50 years ago, only 5% of the total assets of America’s largest 50 foundations were held by spend-downs. In 2010, that number had risen to 24%, according to Bridgespan Group in Boston.”

Why spend down? Well it varies from foundation to foundation, but then it also relates to the purpose and nature of the foundation in the first place. The foundation typically has a philanthropic goal set up at its creation, but that goal may not carry forward past the original creator. This is especially true in a family foundation and, eventually, mission drift becomes a sustainability issue. The family may even not grow around the goal in the way originally hoped – they have lives, after all, and may not have the ability to keep up the foundation – and so the longevity may be in question due to logistics rather than the goal.

A spend-down mode should be meaningful to the donor, too. It means funds are going out the door and into the world, potentially having real effects today. Then again, and without a careful hand guiding the course, that doesn’t mean the cause is getting the biggest bang for its buck. These charities may tend to be less inquisitive and less thoughtful out of necessity of quick decision-making, and may not adopt long-term goals.

It is, if nothing else, an interesting trend to see the rise of the spend-down foundation, and maybe a meaningful one to think about when you think about your own goals in philanthropy.

Reference: The Wall Street Journal (April 13, 2014) “The Rise of Spend-Down Philanthropy”

Reverse mortgages, which allow homeowners 62 and older to borrow money against the value of their homes that need not be paid back until they move out or die, have long posed pitfalls for older borrowers.

Although a reverse mortgage has some advantages, such as offering a means of cash to make ends meet, the financial community has been quick to point out that there are also some serious pitfalls to these mortgages.

The biggest drawback to bear in mind is that your heirs and loved ones may bear the brunt of the burden when it comes to those drawbacks. It is important to know how reverse mortgages work before you sign up for them. While you are at it, make you’re your heirs and other inheritors know what to expect.

The issue of reverse mortgages and inheritances is not a new difficulty. Nevertheless, it does seem to be a new sour spot between borrower families and lenders. The New York Times recently reported on the situation as more and more baby boomers are finding themselves discovering that the “Pitfalls of Reverse Mortgages May Pass to Borrower’s Heirs.” Whether you are the one with a reverse mortgage (or considering taking one out) or one of those on the inheriting end, this article is worth reading.

Ideally, a reverse mortgage is supposed to assist an elderly person or couple by providing a “loan” against the value of their home. The home equity serves as the security for the loan. The loan is really only expected to be dealt with at the time of their passing (or, earlier should they move). The home is likely their most valuable and yet entirely non-liquid asset, after all. Following the death of the elderly person or last surviving spouse, the lender either forecloses on the house to secure repayment of the reverse mortgage or, by law, the family/inheritors are allowed to pay off the balance or some lesser settlement amount.

Apparently, more and more lenders are playing hard ball. They are hiding the pay-off options, the settlement options, and even moving straight to foreclosure proceedings within weeks of the passing of the borrower. This means that many baby-boomers finally inheriting the home either will not inherit the home at all or end up fighting against a bureaucracy.

Even if it’s not intentional on the part of lenders, it’s still a very real problem for even diligent heirs to face. It’s important to know the difficulties that may be inherited, whether you are set to leave the house behind or whether you’re set to inherit it and want to keep it in the family.

Reference: The New York Times (March 26, 2014) “Pitfalls of Reverse Mortgages May Pass to Borrower’s Heirs”

What follows are issues to consider, and, in those rare cases where a transfer can make sense, how to do it the right way.

Are you thinking about handing over the family home to your heirs early? Proceed with caution. Although the hand-off can be a blessing to some, there are consequences you should consider before passing on the house keys.

This challenge was the subject of recent article in The Wall Street Journal titled the “Dangers of Giving Your Home to Your Children.”

The family home is often the most important gift you could ever give to an adult child or your adult children. It is meaningful simply by right of being the family home and its place in the family history. When given to a young couple it is also a gift of the future, and a very practical one if you don’t need the space anymore or just wish to downsize.

Nevertheless, houses are as complex as they are valuable when considered as assets and potential tax burdens. Giving the house away early means moving a taxable asset around, and doing so at different times and in different ways will bring different tax burdens. These issues include weighing the consequences of a lifetime gift versus as a testamentary bequest. In the end, you need to fit the house into your overall plan, and carefully at that.

Then there is even more to the financial side and the darker side of liability. A house as an asset is a magnet for your younger, less financially stable child’s creditors, or soon-to-be divorced spouse, and all manners of other scaly legal problems that make claims or foreclosures upon the house under the name of that younger adult child, likely. Giving it to them to live in forever might end up risking it to creditors, and if you intend to stay living there that means putting you out too.

And what about control? Not all family problems work themselves out, after all. It is now up to the kids to keep or sell the house, even against your wishes and, again, even to evict you right out onto the curb if you intend to still live there.

So, do appreciate the house and the gift of it to your loved ones. At the same time, however, also appreciate it as a difficult transition fraught with potential issues to guard against. Once you appreciate the issues you can appreciate the solutions, and depending upon the house, your heirs, and your own needs there are many powerful solutions at your disposal. Contact you experienced estate planning counsel before your complete the gift.

Reference: The Wall Street Journal (April 13, 2014) “Dangers of Giving Your Home to Your Children”