Tag Archives: Estate Planning

How Do Estate Taxes Work?

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How Do Estate Taxes Work? | NOVAEstateLawyers.com

Tax Day is rapidly approaching, and as you prepare to file your tax return this year, it’s a good idea to also review the current legislation on estate and gift taxes.

While the Commonwealth of Virginia effectively repealed its state-level estate or inheritance tax in 2007, federal estate tax laws still apply to estates of a certain size. For this reason, it’s important to understand how the law may impact your beneficiaries and their future inheritance.

Here are some of the basic facts about estate taxes, including who is expected to pay what, and when.

What is the estate tax?

The estate tax is collected by the IRS from estates of a certain size before assets are distributed to any heirs and beneficiaries. Sometimes called the “death tax,” the estate tax is levied against estates larger than $11.58 million per individual, or $23.16 million per married couple (as of 2020) under a temporary change made to the laws under President Donald Trump’s tax reforms.  In 2021, unless Congress acts to extend these changes, the figure will be reduced to roughly $6 million, with a cost of living adjustment to apply on an annual basis.

The amount your estate will pay is determined by how much larger it is than the federal exemption. For instance, under the Trump tax reforms, an estate that is less than $10,000 above the federal limit will pay $0 in base taxes and a marginal tax rate of 18% on the overage amount, while an estate that is $100,000 above the limit will pay a $18,200 base tax plus 28% on the overage.

Who is responsible for paying estate taxes?

All U.S. estates are subject to federal estate tax law, although most are not large enough to be impacted by current regulations. On the state level, 18 states currently collect their own taxes on the estates of its decedents (as mentioned above, Virginia is not one of them). Several states have recently repealed their estate tax for deaths that occurred after a certain date.

What about inheritance taxes and gift taxes?

Inheritance taxes are paid by an individual who benefits from a decedent’s estate. They are not the same as estate taxes, which are paid by the estate itself.

It’s important to note that inheritance taxes are not imposed by the federal government, and only six states (Iowa, Kentucky, Maryland, Nebraska, New Jersey, New York, Pennsylvania) currently collect inheritance tax from its residents. That means if you leave money to a beneficiary residing in one of these states, they will have to pay inheritance taxes on that amount.

Gift taxes, on the other hand, are paid by someone who gifts assets above a certain amount to another person during their lifetime. Read on to learn more about gift tax exclusions and how lifetime gifting can work as an estate planning strategy.

How can I reduce the size of my taxable estate?

If your estate is approaching the federal exemption limit and you want to ensure it stays below that amount, there are a few different strategies for reducing the size of your taxable estate.

One of the most common methods for doing this is establishing an irrevocable trust.  Assets that are transferred through an irrevocable trust, if created five years prior to your death, may not count toward your taxable estate. As an added bonus, these assets are also not subject to the probate process, as they would be if they were passed through a decedent’s Will.

You may also wish to explore inter vivos gifting as an option for reducing your estate size during your lifetime. Gifting is when one person completely and irrevocably transfers assets to another, and the giver does not receive anything in return.

Gift amounts that fall within the current federally-allowed limits of $15,000 per person, per calendar year are completely tax-free. That means if you gift $15,000 to each of your children over the course of one year, they will not have to report it as income or pay taxes on it to the IRS. For spouses, this means you could give your children a combined gift of $30,000 in any calendar year, tax-free. Any amount over this is considered non-exempt, and you and your recipient will have to pay taxes on that amount.

As long as your non-exempt lifetime gifting – the combined amount that you give away prior to death and leave to others after death – does not exceed the current $11.58 million federal limit, you can effectively use this strategy to reduce your taxable estate over time, while still ensuring that your desired beneficiaries receive their inheritance money.

Still have questions? Ask an experienced estate planning attorney.

Estate planning can be confusing, and it’s not always clear how to best structure your plans to minimize the tax burden and maximize your beneficiaries’ inheritance. No matter how large or small your estate, the Law Office of Patricia E. Tichenor can help.

We’ve been assisting Virginia residents with wills, trusts, and other estate planning needs since 2001. We’ll work with you to review your assets and create the ideal plan for your needs. Contact us today and let’s start planning for your family’s future.

What Is a Special Needs Trust?

special needs trust attorney

What Is A Special Needs Trust? | NOVAEstateLawyers.com

If you are the parent of a child with special needs, you may need to set up some special protections in your estate plan to ensure he or she will be properly cared for when you pass away, especially when your child reaches adulthood. The most common way to do this is by establishing a special needs trust.

A special needs trust (SNT) can be used to protect the assets you or your family wish to leave to your child. The SNT involves a donor, trustee, and beneficiary. The donor supplies the funds for the trust, while the trustee holds and administers the funds as the donor intends. An SNT when drafted properly allows the beneficiary (the individual receiving the benefits) receive supplemental support above and beyond (and totally separate from) the government benefits received by them – without those supplemental assets being counted against them for purposes of qualifying for or receiving federal benefits.

Here’s what you need to know about special needs trusts and the advantages of establishing one.

Types of special needs trusts

There are three main types of special needs trusts: first-party, third-party, and pooled. Each trust has its own terms and benefits.

1. First-party special needs trust

A first-party SNT is commonly used when a child with special needs who, unfortunately, directly and personally inherits money or property because there was no third-party SNT planning done by the individual from whom the child is now inheriting.  This type of SNT is also used when an individually receives a personal injury or other large settlement.  The use of the SNT is made in order to permit the individually the ability to still qualify for government aid, such as Medicaid.

With a first-party SNT, any portion of the assets which remain unused by the beneficiary will become the property of the government, reverting to Medicaid as a pay-back mechanism.

2. Third-party special needs trust

A third-party SNT is created by a parent, grandparent, or other third party who wishes to leave assets (commonly life insurance) for the benefit of a special needs child without fear that doing so will disqualify that child from qualifying for other federal government benefits such as Medicaid.   The Trustee of such an SNT (similar to the First-party SNT) has absolute discretion over the use of the assets in this Trust, and they must familiarize themselves with the applicable POMS rules to ensure that distributions they make for the benefit of the child (never directly to the child) do not disqualify the child from his or her federal benefits nor result in a reduction in the amount of such benefit.

With a third-party SNT, unlike a first-party SNT, any unused assets which remain in the SNT can be re-directed to another family member or even the descendants (if any) of the special needs child.

It is generally best to prepare an SNT as a separate, stand-alone document when preparing your estate plan, so that any third party family member, sibling of your special needs child, or other family friend can name that SNT as a beneficiary if they desire to benefit your child without risking your special needs child losing his or her government benefits and allowing other family members or friends to be named as alternate or successor beneficiaries should your special needs child fail to exhaust all of his or her SNT assets prior to his or her death.

3. Pooled special needs trust

Pooled SNTs are unique because they are established and administered by nonprofit associations, often subject to government oversight to prevent mishandling and abuse. This type of SNT is used when a child’s family or a child do not have sufficient personal assets to justify the creation and funding of a separate SNT solely for the child’s benefit.  Instead, whatever assets are there for the child are pooled with the assets of many hundreds or thousands of other similarly situated special needs children, and all are then able to draw from this pool of assets in order to supplement their needs where their government benefits are insufficient to support or pay all their needs.  At the death of a participating special needs child, any unused assets from that child’s original contribution is retained by the pool and used for other surviving, participating special needs children drawing from those pooled funds.

Is a special needs trust right for your family?

There are many reasons why you might consider establishing a special needs trust:

  • Protecting necessary assets: If you want to ensure your child’s inheritance is protected from unscrupulous individuals or creditors, naming a trusted individual or bank to serve as manager and gate-keeping during your child’s lifetime, an SNT is something you want to consider.
  • Preserving family wealth: When you establish a Third-Party SNT for your child, you can provide a mechanism that ensures any portion of the assets transferred to the SNT after your death that are not used by the death of your child pass onto other siblings or family members, or a charity designated as a “legacy gift” by you.
  • Ensuring government aid: Naming the special needs child as a direct beneficiary will hinder the amount of support (medical or otherwise) he or she may receive from the government. Using an SNT provides a mechanism by which a child’s needs can be supplemented by what you leave them while avoiding the risk of costing them valuable government assistance.
  • Appointing a trustee: Depending on the duration of the SNT, it may be prudent to select a corporate trustee (often a bank or a dedicated trust management organization) rather than just an individual trustee to provide ongoing management of the trust assets for your special needs child. An SNT can provide for a Trust Advisory Committee that includes siblings, a nurse, CPA, Certified Financial Planner, or others to serve as a kind-of Trust protector and as a hands-on caretaker to your child, even while having the assets of the SNT managed by a corporate trustee.

You can learn more about trust funds and how to establish them in our blog post.

Contact an experienced estate planning attorney for help

If you need help establishing a special needs trust for your child, the Law Office of Patricia E. Tichenor can help. We’ll work with you on your estate plans to ensure your child’s rights and needs are protected for throughout their lifetime.

Estate Planning Resolutions to Make for 2020

"2020" numerals with notebook page reading "estate planning resolutions"

2020 Estate Planning Resolutions | NOVAEstateLawyers.com

You may have already made some 2020 New Year’s resolutions about your health or your career. However, the start of the year (and in this case, the decade) is a great time to make some estate planning resolutions, too.

While estate planning can feel overwhelming at times, it’s essential to devote time to it if you want to secure your family’s future or ensure that the individuals you want to inherit from you do so in the most efficient, least costly way possible. Here are five important estate planning tasks to address this year.

1. Draft a will if you don’t already have one.

A valid will is a document that tells a probate court how to distribute your property and financial assets when you die. Without one, there is no legal way to ensure that your final wishes are carried out. In your will, you should name a trusted executor (such as an attorney, family member, or friend), who will be responsible for overseeing the management of your assets after your death.

2. Create a revocable living trust.

A revocable living trust is another estate planning tool that aids in the transfer of property. A revocable living trust can be adjusted at any time during your life and preserve certain assets for specific reasons important to you, such as keeping the family home for your children to continue to be raised in if both you and your spouse die. It’s especially important to create a revocable living trust together if you have children under the age of 18, so you can designate how their inheritance and finances will be managed until they reach an age or ages where you feel most comfortable having them control their inheritance.

3. Update your powers of attorney, executor, and/or beneficiaries if any family circumstances have changed.

Ideally, the person(s) you name as attorney-in-fact under your powers of attorney and executor in your will is someone you trust to keep your best interests at heart. Unfortunately, your initial choices for these roles may not always remain the same.

A designated attorney-in-fact or executor should be changed in your estate plans if the chosen individual passes away before you, or if other recent circumstances (divorce, bankruptcy, a falling out, etc.) make you feel that they should not be involved in carrying out your final wishes. Be mindful not to appoint someone who could abuse this privilege for selfish reasons.

Similarly, you may want to review your list of beneficiaries to ensure that your selections reflect your current circumstances. For instance, if you are recently divorced, you should review your will and change anything that may be associated with your ex-spouse and their family.

4. Make sure you’ve appointed a legal guardian for any minor children you may have.

No parent wants to think what would happen if they pass away while their child is still a minor. However, this is precisely why naming a legal guardian in your will is so important.

Typically, if you die before the child turns 18, your child’s other parent becomes the legal guardian and assumes responsibility for that child’s care and well-being. If you both pass away (or if the other parent is not involved in your child’s life), having an appointed legal guardian or guardians ensures that important decisions about your child’s future are not left to a court or Department of Social Services.

5. Review your entire estate plan and consider whether you need to make any changes.

Your life circumstances can change a lot in a few short years, so be sure to review your entire estate plan and consider whether you need to make any changes, especially if you have not done so recently. When making these updates, ensure that all your retirement accounts, joint properties, life insurance, and beneficiary designations are recent.

Get help keeping your estate planning resolutions.

The best way to keep your 2020 estate planning resolutions is to work with a knowledgeable estate planning attorney. The Law Office of Patricia E. Tichenor, P.L.L.C. has almost 20 years of experience serving the needs of Virginia families. Contact us today for help with creating or updating your estate plans.

How to Identify and Prevent Estate Planning Fraud

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How to Identify Estate Planning Fraud | NOVAEstateLawyers.com

When you make estate plans during your lifetime, your goal is to make the probate process as stress-free as possible for your surviving loved ones when you die. Usually, a valid will and other estate planning documents mitigate a lot of potential questions and controversy in probate court. However, estate planning fraud and probate fraud do happen, and they can leave your family devastated.

Estate planning fraud can be easy to spot and prevent if you know what to look for and take the steps to be more secure. Below we outline the different types of fraud and how you can avert it to save your family from a harrowing process.

What makes an estate planning document fraudulent? 

Your will is a legal document that states your plan for the distribution of any assets where you have not already named a beneficiary to receive them (e.g., you might name a spouse or adult child as a payable or transfer on death beneficiary on your retirement account or life insurance).  Assets where there is no named beneficiary or assets like your personal belongings which can’t be designated prior to your death to someone pass through your Will and under the supervision of a probate court. These decisions are yours and yours alone to make, and even if you ask others for their opinion, what is represented in the will should be a reflection of your true wishes.

Of course, it’s easy to see why a relative might be unhappy with a loved one’s estate planning decisions, especially if they feel they deserve a larger share of the estate. This is what often leads to fraud attempts, both during the estate planning process and during the probate process after someone has died.

A fraudulently-executed will is considered invalid during the probate process. These circumstances can lead to a lengthy litigation in order to determine the validity of the will.

There are a few things that can classify a will as fraudulent: 

  • Forged signatures – One way for a will to be fraudulently executed is if it was signed by anyone other than the person who writes the will, known as the testator. The testator can be assisted with making “their mark” or “signature” on the Will by someone else but only at the testator’s direction and in the presence of two witnesses and a notary. In Virginia and other states, wills are required to be signed in the presence of two witnesses. Ideally, a notary should also be present. If the will’s validity comes into question, the witnesses can be questioned and testify about its execution and determine any fraud.  If a testator cannot physical sign without assistance, it may also be prudent to consider making a video record of the signing to establish capacity and overcome later challenges to the Will’s validity. 
  • Undue influence – Undue influence is when the testator is persuaded by another person to change their will and their actions are no longer of their own of their free will. Often this happens within the elderly population and amongst the wealthy. Signs that a testator may be a victim of undue influence are sudden cut offs in communication to the family and spending quality time with a new person who is then added as a beneficiary to their will. 
  • Lack of capacity – When signing a will, the testator must be of sound mind. They need to have the mental capacity in order to sign and understand the purpose and implications of the document. If a person is not of sound mind when they sign the will, it can be considered invalid. The level of capacity to sign a will is relatively low, however, and it can be difficult to prove that there was a lack of capacity to the court.

After you’ve passed: Examples of probate fraud

While you may be able to prevent estate planning fraud during your lifetime, someone may still try to commit probate fraud after you’ve died. This is when someone tries to submit an improper, invalid, or forged estate planning document to the probate court for their own benefit.

Below are some examples:

  • Will contest: A party may try to challenge an entire will’s validity.
  • Executor fraud: The estate executor makes false claims about the content of the document or has overcharged the estate. A probate attorney can obtain the right to seek evidence to prove the crime.
  • Former will submission: Someone attempts to enter a previous version of a will to receive property that is not designated for them in the most up-to-date version.
  • False codicil: A codicil is a document that makes a change to an executed will. A false codicil may be brought forward to give someone a substantial inheritance that is not rightfully theirs, according the valid version of a will.

Can I prevent estate planning fraud? 

The best way to prevent probate and estate planning fraud – or at least reduce the likelihood of it occurring – is to have transparent, honest conversations about your wishes. While planning and writing your will, be sure to openly share your plans with your named executor, your family members, and anyone else who may be included in your will.

You should also update your loved ones every time a significant change is made. That way, everyone can be on the same page regarding your plans, and they’ll be better able to detect if someone is trying to commit fraud during the estate planning or probate process.  With the ability to create a digital image of your estate planning documents, it is easier than ever to share an updated Will or other estate planning document by means of a thumb drive or a secured link using an email.

Contact an experienced estate planning attorney for help.

The Law Office of Patricia E. Tichenor has helped Virginia residents for nearly two decades to understand how to avoid fraud issues and contests in addition to preparing wills, living trusts, powers of attorney, and other critical estate planning documents. Contact us if you need assistance with your estate planning needs.  We can meet you for a home consultation if needed, and all our initial phone consultations are free of charge.

Does Your Teenage Social Media Influencer Need an Estate Plan?

teen social media influencers | estate planning for influencers

Estate Planning for Teen Influencers | NOVAEstateLawyers.com

With the rise of social media influencers like the Kardashian sisters and popular YouTubers, some pre-teens and teenagers are acquiring fame — and money — at an early age. Take it from 8-year-old Ryan Kaji, who earned $22 million in revenue in 2018 from his YouTube toy reviews.

If your child has begun accumulating their own wealth before age 18, you might want to consider creating an estate plan together. While no one wants to consider the possibility of death, especially so young, there are many important conversations to have regarding their assets.

Here are some tips for how to approach estate planning for your teenage social media influencer.

Estate planning for influencers: What to consider

Create a list of your child’s digital assets and their approximate value.

Influencers become successful through social platforms, such as YouTube or Instagram. It’s important to determine what might happen to these accounts, as well as the content that lives on them, if the influencer is no longer around to manage them.

Additionally, you’ll want to understand how much your teen is worth in relation to industry standards. First, make a list of all their digital assets. This includes all of their social accounts, images and videos, textual content and other intellectual property.

From there, you can calculate their value by considering their follower count, engagement rates, demographics and more. Then, speak with your teen about who they want to handle their digital assets if they were to pass away.

Consider a will and medical directives in case of incapacity

In 2017, Alec Sutton, an 18-year-old who suffered a head trauma in a car accident, was taken off life support in a local hospital, despite his loved ones’ pleading for more time and second opinions. While this was a tragic incident to say the least, the hospital’s decision was entirely legal. Because Sutton, a legal adult, lacked a medical power of attorney and a living will, his parents and relatives did not possess an absolute right to make decisions regarding life support.

When your child turns 18, you’ll want to prepare the right documents for such a situation, as failing to do so can be detrimental. One crucial form is a Durable Medical Power of Attorney. This includes HIPAA release form, which enables an adult child’s healthcare providers to disclose medical records with selected individuals (including parents), as well as living will provisions.

Without a Durable Medical Power of Attorney, parents of an adult child who becomes incapacitated might not be able to obtain a copy of their child’s medical record to get a second opinion or make other important decisions based on having that information.

Some decisions involved in these advance directives include emergency treatments, such as:

  • CPR
  • Ventilator use
  • Artificial nutrition (tube feeding)
  • Artificial hydration (IV, or intravenous, fluids)
  • Other life-prolonging treatments
  • Comfort care

Take time to discuss these decisions with your teen, as physical or mental incapacity can happen to anyone at any time. When your teen decides to appoint a proxy to make these medical decisions for them, ensure they sit down with that individual and has an open conversation about their preferences.

Decide who is responsible for financial assets if your child is under 18

Another consideration is your teen’s financial assets. The top-earning influencers often bring in thousands (or tens of thousands) of dollars per post, which adds up to a lot over the course of a year. Even if your teen hasn’t reached this level of income, it’s important that they dictate what will happen to their earnings in the case of incapacity or death.

Similar to choosing a medical proxy, your child should designate someone to assume responsibility of any financial decisions via a financial power of attorney. Make sure you sit down with your child and discuss this arrangement in great detail. You’ll want to respect their wishes while offering your support and insight from a parental standpoint.

Depending on your child’s earnings and income streams, you may also need to consult with a business planning attorney to set up a corporate entity can hold their assets until they turn 18 and can actively participate as a CEO or CFO.

Since many influencers are still young and financially inexperienced, they might not understand or even want to consider the implications of estate planning. Remind your child that you aren’t trying to control their lives, but that this simply a part of growing up and transitioning into adulthood.

Contact an experienced estate planning attorney for help

Whether it’s for yourself or your child, estate planning is not something you want to do alone. That’s why we recommend working with an experienced estate planning attorney.

If you’re looking for professional guidance with your Virginia estate planning needs, contact the Law Office of Patricia E. Tichenor.

The Law Office of Patricia E. Tichenor, P.L.L.C.
Professional Legal Services or Legal Representation
(703) 669-6700


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