Like so many things in life, taking care of your estate planning now is the right step, even if you don’t have any dependents. It’s a weight off your shoulders, and it leaves plans in place if the unthinkable were to happen to you.

It is official – 2014 is here to stay. Getting your estate plan in order should be on they top of your list of resolutions. How do you get started and get your planning squared away before 2015 rolls around?

Understandably, musing over matters of your own disability and death are not at the top of anyone’s list of “fun things to do,” they are a matter of personal, adult responsibility. In addition, plans can get rather complex when it comes to complex lives, complex families, and complex assets. As with most complex but essential matters in life, it is best to start with the basics.

Fortunately, U.S. News & World Report has helped you jump-start your estate planning basics with a recent article titled “4 Steps for Simple Estate Planning.” What are the four?

1. Prepare a master information document. You should have a single collection of all the information your heirs will need from the location of important documents, to bank accounts, passwords, and lists of assets. Such information allows your heirs to step in when the time comes and to quickly assume command of what needs to be done, to the benefit of all of your loved ones.
2. Purchase a term life insurance policy. Calculate the financial costs your loved ones might bear in your absence. Oftentimes, as good solution is life insurance which provides instant liquidity just when needed most.
3. Write a will to ensure the right persons receive your possessions. Not only do you need to draft a will, but you need to keep it current. If you have a will with a few years on it, then it is time to dust it off and bring it up-to-date.
4. Include guardianship plans in your will for your dependents. Assets aside, the most important “assets” for the parents of minor children are those children. Who would rear them to adulthood in your absence?

Take a look at the original article. You will enjoy the stories and bits of advice it offers as you consider your own plan. Although these four steps are important, they are by no means exhaustive. What issues arise when you ponder your own estate plan and how can they be resolved? Procrastination is simply not an option. Once you understand and appreciate what is at stake, bring in competent counsel to assist you and your family.

Reference: U.S. News & World Report (December 17, 2013) “4 Steps for Simple Estate Planning”

For [some business owners], let’s call them the “able but not quite ready to retire” business owners, the thought of handing off the business they built and walking away is an unsettling, if not gut-wrenching, decision. For these business owners that have also established their business as a corporation (not an option for partnerships), an Employee Stock Ownership Plan (or ESOP) may provide a better retirement option.

Selling your business when it comes time (or nearly time) to retire is a bittersweet moment for a number of reasons. The bitter can come in entirely different ways. For example, selling the business can either mean saying goodbye to it forever or, what may be worse, selling yourself as an “employee” to the company you no longer own for those last years leading up to retirement.

Alternatively, an ESOP may be an interesting option to consider to sweeten up that bittersweet decision. Curious? Take a look at a recent article in Forbes titled “How ESOPs Let Employees Take Stock In Your Retirement.”

The first question for the uninitiated (quite forgivably) is what is an ESOP? An ESOP, or “Employee Stock Option Plan,” is technically a retirement plan. However, unlike most retirement plans an ESOP effectively works to balance the retirement of the owner and the employees by balancing ownership and control.

Here is how it works: The owner essentially sells the stock of the corporation to the employees, but retains much of the corporate structure to control and run the business. In the meantime, the stock itself becomes the retirement plan for the employees who are now working to build the business that is their retirement.

Don’t get too excited yet. There are some significant limitations that must be considered in determining whether your business is suitable for an ESOP. When an ESOP is right, it can be a hole-in-one for all concerned. Take a look at the original article for a review of some of those “moving parts” that can make an ESOP right for a business, or a business right for an ESOP.

If an ESOP sounds like a good fit for you and your business, then be sure to get competent counsel. This is not a do-it-yourself project.

Reference: Forbes (December 27, 2013) “How ESOPs Let Employees Take Stock In Your Retirement”

State estate taxes? That’s another story. Sixteen states and the District of Columbia impose an estate tax, and some kick in for estates valued at $1 million or less. At that level, estate taxes aren’t just a problem for people who own private planes and beachfront property.

When it comes to taxation, there tends to be a weird tension in the space between state-level taxes and federal-level taxes. Not surprisingly, this tension also springs up with regards to the death tax. We tend to spend so much time talking about the federal estate tax it seems we may forget about the pesky, often dangerous, state estate tax.

Fact: there are state-level estate taxes in many states. The exemption limits on these state estate taxes are often set at levels low enough to tag even middle class families. It is important to note that Utah does not now collect estate tax.  This is merely a policy and therefore can change quickly. Moreover, if you hold property located in states outside of Utah, you may be subject to estate taxes in those states.  Consequently, it can be a big mistake to ignore these state estate taxes to your peril. So, do you have a false sense of security?

The problem with state taxes is that there are, at any given time, 50 moving pieces. Fortunately, Kiplinger sheds important light on the subject of state death taxes in a recent article titled “10 States With the Scariest Death Taxes.”

Even if you are living outside of the 20% of estate taxing states, you may own assets that cross into these death tax states. This could be a problem. For that matter, assuming you are still around and kicking, you may retire from your estate tax-free state to a state that has an estate tax.

The original article breaks down estate taxes state by state. However, the scariest state-level death taxes come out of New Jersey, Rhode Island, Minnesota, Oregon, Maryland, New York, Massachusetts, Connecticut, Maine, and Washington.

Do you, your family, or your assets enter into these states? And if so, how do you plan for both the state and the federal estate taxes? More importantly, how do you plan for all 50 state legislatures looking for additional revenue and a highly unpredictable Congress and White House?

Reference: Kiplinger (December 2013) “10 States With the Scariest Death Taxes”

rusts for burials, Bentleys, blunderbusses, Basset Hounds, Beaujolais and blowhards: Not all trusts fit into the traditional model. Most people will never need any of these. But when they do, one of these obscure arrangements may fill a need in a way that no other arrangement could. It may just be the one thing you need when you have everything else.

A typical estate plan is designed to achieve a variety of goals unique to the one making the plan. Some of those goals may be rather commonplace, but others may be highly specialized. Fortunately, there is a unique trust available whatever the need.

A recent lighthearted Forbes article titled “Six Trusts For The Person Who Has Everything Else” pulled back the curtain for a look into the world of unique trusts for unique circumstances. [Spoiler alert: There are really four trusts, one special bank account, and one misguided attempt to emulate the trust format.]

Here is an overview of how the article described these six trusts:

1. Totten Trusts: These are specialized bank accounts rather than actual trusts, often known more appropriately described as “payable on death” accounts.  The account allows the depositor to name a beneficiary for the account, and such beneficiary receives the account upon the passing of the depositor entirely outside of probate or, if you are careful, outside the knowledge of your other heirs. The article notes that Totten Trusts are especially well-suited secret heirs, paramours, lopsided giving or other hushed motives, unless the wronged someone has access to bank statements or tax returns.

 

1. Purpose Trusts: These trusts are not designed for people but for a “purpose.” In this sense it is actually a class of trusts, and amongst the most common purposes is the health, happiness, and continued well-being of a prized and/or pampered pet. Think Leona Helmsley. Then again, the maintenance of a collection is also a strong purpose behind setting up a purpose trust.  In Utah  purpose trusts are call Honorary Trusts.

 

1. Funeral Trusts: Like the name itself, these trusts are solely designed to ensure the payment of funeral expenses because you believe either your heirs should not be so burdened or you do not trust them to be responsible about it. Basically, you want to make your passing a non-issue. You can always pre-pay for a burial plot or other accoutrement, but the trust gives discretion to a trustee while still footing the bill.  Utah authorizes such trusts in a separate statute that regulates funeral directors.  Under that statute funeral homes are closely regulated.

 

1. Blind Trusts: This is a trust that leaves you, the trust settlor, blind regarding what your own trust owns, how the investments are doing, or any other information that may compromise you. Namely, you would be compromised if you could accidentally get tagged for an insider trader (an executive holding stock in their own company) or the fact that healthy investments can be politically disadvantageous (note the use of the Blind Trust by many a politician, not least of which being the former presidential nominee Mitt Romney).

 

1. Rabbi Trusts: No, these trusts have nothing to do with Judaism. On the other hand, they do have everything to do with timing of compensation – salary, bonuses, or other compensation from an employer – to stash that money away while limiting the income tax hit in any given year.

And finally,

1. Secret Trusts: In the estate planning world, secrets can be manageable if often ill-advised (secrets breed distrust, and distrust breeds long and painful lawsuits for heirs). In reality, the secret trust is not even a trust at all, even if you do keep it secret. Essentially, this is the attempt to emulate a trust by getting an executor to agree, outside of the will, to disperse estate funds in any particular way. That is a tricky spot to be for an executor, a nasty secret for an excluded heir to discover, and an easy way to see everything go downhill after that.

That is a quick list and explanation of unique trusts, and one non-trust as a lesson in what not to do. Read the original article for more in-depth coverage of the topic. So, have you made appropriate estate planning arrangements with a trust or two designed with your goals in mind?

Reference: Forbes (January 2, 2014) “Six Trusts For The Person Who Has Everything Else”

An IRA account owner or beneficiary died and there was no named beneficiary for the account. The obvious question comes, “Who inherits the account and how do you calculate the required distribution?”

Probate can be a difficult and long process. In fact, anything involving the court system is rarely quick and painless. Fortunately, IRAs can easily transfer to your loved ones outside of probate simply by completing a beneficiary designation form. Well what if there was no beneficiary designation form completed? How do the heirs or the executor figure this one out?

The messy situation of an IRA left without a beneficiary was tackled recently by Ed Slott’s blog, The Slott Report. The article, titled “There is No Beneficiary on the Retirement Account: Now What?,” is the perfect encouragement to ensure that every beneficiary form is filled out and up to date.

The good news is that many accounts have a built-in default to the surviving spouse or children of the owner. The bad new is that is may not comply with your estate plan. More importantly, what if the account has no default? In all likelihood the account will then default to your probate estate and, if the IRA requires MRDs, the IRS may require the amounts to be taken into income within five years instead recalculating the MRD based upon the life of the beneficiary.

Aside from probate itself, there are lots of rules regarding how IRAs can be inherited and used by the inheritor. They must take distributions just like you do, but when the IRA defaults to your probate estate it gets messy – and fast.

The IRA can be assigned/transferred into a properly titled new account, but then again some IRA custodians simply refuse to do this, making the irreversible and catastrophically taxable choice to distribute the entire account to the estate.

Simply put, an IRA not acting like an IRA within the estate plan is messy. It is easily avoidable by filling out the beneficiary form and keeping it up to date. In some situations this requires being proactive. For example, when a surviving spouse inherits an IRA but passes before naming a new designated beneficiary to the account.

Reference: The Slott Report (January 9, 2014) “There is No Beneficiary on the Retirement Account: Now What?”