Tax Season: Use It Or Lose It

Posted by on Apr 10, 2018 in asset protection, estate planning, tax |

Calculator on the beach

Tax season, happily, is ending soon, and if you haven’t used your exemptions, you should probably do so now. Tax returns are due April 17, while filing began on January 29, which means that the American people have had four months to either procrastinate on their taxes (or get them done).
If you haven’t used your tax exemptions, do it now, particularly when it comes to the estate tax and gift tax. The estate and gift tax exemptions work together, so it makes sense, in this article, to talk about them together with estate planning in mind.

The Estate Tax Exemption
An estate tax is a tax levied on a deceased person’s estate based on the estate’s net value. On an estate, there are two types of taxes that you need to be aware of: one on the income generated from the estate’s assets and another on the transfer of assets to the beneficiaries of the estate.
The estate tax exemption has been raised to $11 million per individual, which equals $22 million for a married couple electing portability. Before 2018, the estate tax exemption was maybe half of what the individual person could get. So, if you fall within this exclusionary amount, you can dodge the estate tax altogether.
Similarly, the gift tax has undergone some changes in 2018.

The Gift Tax Exemption
The gift tax exemption (also known as the gift tax exclusion) has increased in 2018. Before 2018, the limit was $14,000. But now, in 2018, the limit is $15,000. For married couples who split their gifts, the limit ends up being $30,000.
This gift tax exemption is especially valuable for families who are gifting money to help pay for college education. There is a special type of plan for gift money that is used to pay for college: the § 529 plan. A 529 plan allows you to gift five times the gift tax exemption limit in a single year and still be covered by the exclusion. So, if you were to give a gift of $75,000, you would not be taxed on it because it would be considered five gifts of $15,000. Were the limit still $14,000, the 529 would exempt $5,000 less.
The gift tax and estate tax exemptions have both gone up, and the increase in these exemptions will benefit the savvy filer who knows how to use them.

How the Two Work Together
Known as the “unified tax,” the gift and estate tax are the same rate and applied in the same way. The gift tax occurs when you’re alive, and the estate tax comes when you are dead. You can gift during your lifetime in order to avoid paying estate taxes when you are deceased. If you give gifts throughout your life and meet the exemption, you can reduce the amount of taxes that you will have to pay on your estate.
The other benefit to this idea of “gifting while you live to save on taxes when you die” is that even if you are taxed on your gifts, you have the option of paying those, because you’ll be alive. The estate tax will just take out a chunk of what your beneficiary will inherit.
Use it or lose it! Tax season is coming to an end, and if you are able to claim either of these exemptions, you should.

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Digging For Digital Gold – You’ve Mined Your Bitcoin, Now What?

Posted by on Apr 3, 2018 in asset protection, Misc. |

         Pretty much everyone has heard of Bitcoin, but, for the few who haven’t, Bitcoin is a digital currency that, in order to get, you have to “mine.” You mine Bitcoin by running software that finds the key to open the digital Bitcoin lockbox, so to speak. When your software finds the key, you get twenty-five Bitcoins. This unusual process isn’t the only way to get the coins, however; you can also trade them for fiat (domestic) currency.

Bitcoin is super volatile, but it can be very profitable given the right circumstances. Its price can soar or drop, making it one of the more exciting assets out there. If you’re a Bitcoin investor, first of all, congratulations on being brave. Second, if you consider Bitcoin a part of your assets that you want to hang on to, you can protect them through estate planning.

Bitcoin in Your Estate Plan?

You’ve mined your gold and now want to protect it. Luckily, estate planning is a field that has kept up with this technological advancement, and you are able to protect your Bitcoin the way you would any other, more conventional, asset.

People tend to talk about Bitcoin’s price, not about what you do with it after you die. You store Bitcoin on a computer, whether in cold vault storage, a digital wallet, USB port, or some other digital means. This makes it different than, say, real property, which is held in the corporeal world.

Bitcoin does differ when it comes to trading, as you’re not asked to name a beneficiary when you buy or sell through an exchange, a practice that is common when trading other assets. The anonymity of Bitcoin (no identification required to buy or sell) is another problem, as there’s no information attached to this form of property. Your Bitcoin is just floating around in the computer world, and it needs to be tethered down somehow.

To make sure you’ve got your gold protected, you need to update your documents to include your digital currency, what you want done with it after you die (buy, sell, keep, etc.), and how to access it. If you don’t, this property will end up in probate court, where a judge will distribute it.

Things to Consider

One of the most important things to consider is making sure that your beneficiaries have the ability to access your bitcoin. Give them the private key, password, and whatever else they need to get to your bitcoin. List the different digital holdings you have and how to electronically get to them. If you have your currency locked up and die without giving people instructions on accessing it, it will be gone forever.

Secondly, make sure your beneficiary understands how to manage Bitcoin. Bitcoin, as stated above, is volatile, with tons of swings in price. It’s not for the faint of heart. You can lose or gain a lot of money, depending on what the market decides to do (true, that’s common with many assets, but it’s more pronounced with Bitcoin). Ensure that your beneficiary knows how to handle this currency, and leave them detailed instructions.

Bitcoin is an exciting new currency, and, like any other asset, it needs to be protected and maintained via documents in your estate plan. Consult an attorney today to find out how to best manage your Bitcoin.

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Restructuring a Business for Asset Protection

Posted by on Jan 21, 2018 in asset protection, Business Plan |

Restructuring a Business for Asset Protection

          If you have a business, you know how hard you’ve worked to maintain it: all the late hours, countless phone calls, endless paperwork, and more. When you pass on, you’ll want to make sure that these assets you’ve worked so hard for are protected. Estate planning can help you do that.

Not only are regular assets (money, property, etc.) eligible for protection through estate planning, less conventional ones are as well. Bitcoin and other cryptocurrencies can be protected via a trust, ensuring that everything you want protected—even something outside the traditional asset realm—is kept safe and secure.

What is a Trust?

A trust is pretty simple to understand. It’s essentially a three-party fiduciary relationship. You have your trustor (you, in this case), who transfers assets to a trustee for the benefit of the third party, known as a beneficiary. This transfer grants the trustee nominal ownership over assets. These same principles of a three-party relationship apply to your business assets. The trust is treated, by the IRS, as an entity.

When you pass on, your trustee will confer your assets to the beneficiary. You may be thinking, “How is this better than a will?” Many people, when they think of estate planning, automatically jump to the last living will and testament as the golden document to have. But actually, a living trust is more advantageous.

Trust vs. Will

A trust goes into effect the moment you create it, whereas a will only becomes effective after you die. You can use a trust to start transferring your property prior to death; you cannot do that with a will, so you have a little less control. Also, a trust will get you out of probate court. If you die with just a will, you have to go through probate, which is a long, tiring process where a court distributes your assets for you. This can tie up your family for years while a court ensures the validity of the will.

Lastly, a trust can be kept private, whereas a will is on the public record. While a trust doesn’t include the ability to make funeral arrangements and name your children’s guardian if they’re minors, it does let you save on taxes and make disability arrangements.

Crypto: The New Wave

Everyone’s talking about Bitcoin these days, and everyone seems to have an opinion about it. If you’re a Bitcoin investor, or an investor in other cryptocurrencies such as Ethereum, Litecoin, Dash, and more, you’ve heard all the opinions, made up your mind, and, now, most likely just want to know how you can protect your coins via an estate plan.

As cryptocurrency jumps in popularity, more and more estate planners are encouraging clients to work their crypto into an estate plan. Cryptocurrency is, like your other assets, subject to distribution. Your crypto cannot be inherited, however, and, if you don’t include it in your estate plan, it will be as though it never existed. A trust is, as with your other assets, the best way to manage this property.

When deciding how to manage your cryptocurrency, make sure that your intended beneficiary is able to manage an entity like crypto, which is very volatile. You’ll also want to ensure that your directions are clear, including how to access your account to get the coins. This complicated, especially as cryptocurrency is relatively new, hence why an estate plan is best carried out under the guidance of a professional estate planner.

If you want to make sure that your business is protected after you pass on, a trust is the way to do it. Your assets will be protected, and you’ll be able to start the process before death, allowing you a measure of control and the ability to avoid probate.

 

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Don’t Let Your Assets Be Frozen This Winter

Posted by on Dec 4, 2017 in asset protection, estate planning |

Winter weather is fast approaching (if not here already), and with it comes snow, sleet, and ice. But not in the lovely, sunny South Florida! While we’re lucky enough to not be iced over, your assets can still be frozen. Follow these tips to avoid having your assets frozen this winter.

How Assets Freeze

First things first: what are frozen assets?

Frozen assets are owned assets that cannot be bought or sold in any way because of a debt that still requires repayment. Until the debts are paid or satisfied, the asset’s owner cannot do anything with the asset.

To understand how to circumvent frozen assets, it’s important to know how the process occurs. One way your assets can be frozen is in probate court. Probate, as those keeping up with these articles know, is the court that you want to avoid at all costs. If you die without an estate plan (which we’ll get to in a moment), your assets will end up in probate court to be distributed.

The probate court also has to verify your will, if you have one. This process can take a long time, even more so if someone decides to contest your will. During the verification process, your assets are frozen. Even for time periods of up to several years, they can be frozen.

If that wasn’t bad enough, once the court verifies your will, they will then distribute your debts along with the assets. This has the potential to cause your family hardship if they not only have to go through probate, but shoulder your debts at the end of the ordeal.

Staying Out of the Cold

To avoid sending your assets to the Age of Winter, an estate plan is key. Estate planning is the process by which you arrange for the management and distribution of your estate after your death or if you are incapacitated. Through estate planning, you can minimize taxes and ensure that your family will stay out of probate court and your assets left unfrozen.

This important step ensures that a person’s wishes are upheld and their decisions, if they are unable to make them, are left to someone who they trust. It may be tempting to set aside the thought of estate planning for now—after all, not many people see their death as imminent—but that is not a wise choice. No matter how large or small, you do have an estate, and setting up arrangements for worst-case-scenarios is vital to your family’s financial health.

Don’t let your assets be frozen this winter. Set up an estate planning consultation today.

 

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Real Monsters: Taxes, Creditors, and the Government

Posted by on Oct 9, 2017 in asset protection, estate planning |

When you leave the theater after seeing the latest scary movie, you can rest assured that none of those monsters actually exist in real life (or at least, we hope not). However, taxes, creditors, and the government do exist, and they will make your life a real nightmare if you don’t take the proper steps to avoid them. If you don’t want your loved ones to have to go through a horror movie of their own, you will need to make an estate plan.

In this article, we will discuss what taxes, creditors, and the government do with your property if you pass on without an estate plan.

But First, what is an Estate Plan?

After reading the above section, you may be wondering what an estate plan is. An estate plan is a set of documents and legal tools that aid in the distribution of a person’s assets and property during their life (when they are ill) and after their death. An estate plan usually contains three main documents, though there may be others. These three documents are a living will, power of attorney for healthcare, and a power of attorney for financial matters. These three will help you manage your healthcare when you are sick, your finances when you are incapacitated, and your property and assets after you die.

Some people choose not to plan their estate because they feel like it is too much work or unnecessary. They couldn’t be more wrong. Failure to plan your estate will result in probate court, which be a million times more work for your family, who is already grieving after your death (for more information on probate court, see our article: The Terrifying Truth About Probate Court).

What Do the “Real Monsters” Do?

Let’s say you don’t take our advice and, like every horror movie victim ever, make the wrong decision to not plan your estate. There are three boogeymen who are going to get you: taxes, creditors, and the government.

  • Taxes. You can reduce taxes when you plan your estate. There are many different tax deductions and financial maneuvers you can engage in that will make the tax burden on your loved ones far less heavy. If you die without an estate plan, however, probate will take over and they will not care how many taxes your family is stuck with (and it will likely be a lot).
  • Creditors. Creditors take over collection of your debt. If you die without an estate plan, your case will go to probate court. The main goal of probate court is to pay off creditors. Your family will get nothing, and your creditors will get everything. If you want to creditor-proof your estate, avoid probate.
  • The government. If you die without an estate plan and don’t have decedents, beneficiaries, and other individuals listed, there is a good chance that the government will get at least some of your property.

Hopefully, this article has given you some insight into who the real monsters are and where they are hiding. The clown in It may have been lurking in the sewers, but taxes, creditors, and the government are hiding in probate court.

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The Benefits of Holding Rental Property in an LLC

Posted by on Aug 4, 2017 in asset protection, Limited Liability Company |

It is that time of year in which people are just realizing that their leases are expiring and are searching for a new place with the best rate, location, and amenities available.  This means for you, rental property owners, that your doors are about to be flooded with people looking for the best deal they can find.  However, before you accept any new leases, it is very important to make sure that all your assets are protected.

Asset protection is simply risk management planning that tries to prevent a lawsuit before it happens.  A comprehensive asset protection plan will be structured with the thought in mind that someday the plan may be laid out in front of a judge or a creditor who wants to attack the plan.  Even though there is no perfect strategy that will protect all of your assets all the time, there are ways, as a rental property owner, you can protect yourself from future liability, like creating your business as a limited liability company (LLC).

An LLC limits personal vulnerability to potential lawsuits related to the property. For example, if a lessee has a party and someone happens to get hurt, it would prevent the victim from going after your personal assets.

Also, as the owner of the rental property, you can enjoy the benefits of pass-through taxation. Since the IRS classifies a real estate holding company with one owner as they would a sole proprietorship.  The LLC is disregarded for federal tax purposes and income and capital gains from the LLC pass through directly to you.  Therefore, you are able to avoid double taxation, while still enjoying the protections offered by the LLC.  However, if you happen to have several owners, you not only get the benefit of pass-through taxation, but you also enjoy more flexibility than either a corporation or a partnership because you can have owners or third-party managers manage your rental property.

Essentially, as a property owner, it is important to protect yourself from future lawsuits and potential creditors.  Therefore, by setting up your business as an LLC, not only do you avoid personal liability, but you also get some extra tax benefits.

For more information on Estate Planning, Asset Protection, and Probate administration visit our website at www.wfplaw.com

It’s A Wild World. Are Your Protected?

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