#TuesdayTips: Charitable Remainder Trusts

It’s that time of year again… the hustle and bustle of the holidays are upon us!  If you are like me, you may still be searching for that perfect gift for everyone on your list.  Perhaps this year, as you make your list and check it twice, you may want to consider a charitable remainder trust.

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It’s that time of year again… the hustle and bustle of the holidays are upon us!  If you are like me, you may still be searching for that perfect gift for everyone on your list.  Perhaps this year, as you make your list and check it twice, you may want to consider a charitable remainder trust.

A charitable remainder trust is an irrevocable trust that allows the donor, or anyone else you name, to receive each year either a fixed dollar amount from the trust or a percentage (at least 5%) of the value of the trust.  The right to receive this distribution is either for the individual’s lifetime or for a period of years not to exceed 20 years.  At the end of the term, the amount remaining in the trust is distributed to a qualified charity.  Generally, a qualified charity is one that has been deemed tax-exempt by the Internal Revenue Service.

Moreover, the charity will serve as trustee of the trust and will be responsible for investing and managing the asset(s) to produce income for you.  Because the charity is also the remainder beneficiary, it has an incentive to increase the value of the trust, which in turn, benefits not only the charity, but you as the income beneficiary of the trust.

In addition to the income benefit, there are three primary tax benefits.  First, after you have transferred the asset(s) to the trust, you may take an income tax deduction, spread over five years.  You are not, however, allowed to deduct dollar for dollar the amount that you gave.  Rather, you are only allowed to deduct the amount of the “gift,” which is the amount donated less the amount of income you are expected to receive.  Second, whatever the charity receives at the end of the trust term, is not subject to estate tax.  Similarly, the donation will not be subject to gift tax based on the amount the “gift,” unless the income beneficiary of the trust is someone other than the donor or their spouse, in which case, there may be a gift tax imposed on the amount of income that is paid to the income beneficiary.  Lastly, because the charity is tax-exempt, there is no capital gains tax on the sale of the asset(s) in the trust.  So, you can turn non-income-producing property that has increased significantly in value from the time at which you acquired it, into cash without having to pay capital gains tax on the profit.  This enables you to invest the full proceeds of the sale into an income-producing asset.

Further, you can elect to have either fixed annuity payments or a percentage of the current value of the trust.  If you choose the fixed annuity, you will receive a fixed dollar amount each year.  This is beneficial if the trust has a lower than expected income return because you will still receive your fixed payment.  Sounds great, but be careful.  The higher your annuity is, the lower your income tax deduction.  Also, if the trust does not generate enough income to cover your annuity payment, then the trust’s principal will be used.  The more principal that is used, the less likely it is that the charity would receive anything at the end of the trust term and consequently, the less likely it is that the charity would accept your donation in the first place.

Conversely, if you elect a percentage of the value of the trust, your payments will reflect any gains or losses in value of the investments each year.  And, it is important to note, that once a decision is made, you cannot change it later.  If you are considering a charitable remainder trust, call ERA Law Group, LLC at (410) 919-1790 before making a final decision.  Happy gift giving!

#TuesdayTips: DIY Estate Documents Gone Wrong

Estate planning can be a very complicated area of the law.  Before going online to print off your documents, ask yourself, if I needed open heart surgery, would I go to WebMD to get the “how-to” instructions?  Not likely, so why go online to get the how-to instructions to complete your own estate documents? 

Did you create your own documents?

Why pay a lawyer when I can get my estate documents online for free (or at least at a lesser cost than a lawyer)?  Every estate planning attorney has fielded that question at some point or another.  My response is usually: “I love online documents…because it usually means I’ll have more work that makes more money in the future.”  After I say that, I typically get a grin across the client’s face and then they ask “why”?

Using online documents to accomplish your estate planning goals is not generally a good idea and in many cases can lead to severe consequences.  Have you ever heard the saying, “you get what you pay for”?  When you get your documents online, you don’t have the opportunity to talk to an attorney, to ask questions about your specific situation unique to only you or your family, and your documents will not be tailored to your specific circumstances.

Prior to your documents being drafted, you meet with an attorney to discuss your estate planning goals and objectives at the consultation.  My estate planning consultations usually last at least an hour if not an hour and a half.  During the consultation, we review your health status, family status and financial status all before we even mention the words “will” or “power of attorney” or “trust.”  You also have the opportunity to ask questions and receive specific answers related to your situation.  When you get your documents online, they are almost  never tailored to your specific situation.

What happens if you are a blended family?  I can almost guarantee you that the basic online Will does not address how to provide for your spouse and your biological children if you were to die first.  Many estate litigation cases arise from blended family situations where the surviving step parent does a new will after the spouse dies cutting out the spouse’s biological children from any inheritance.

What about your million-dollar IRA?  Who does that go to?  Many clients think the Will directs who gets that money.  WRONG!!  If you have beneficiaries on that IRA, then the beneficiaries listed on the IRA account receive the money and the beneficiaries named in the Will get none of it!  So many people believe the Will controls everything, and unfortunately, if you get your documents online, you will not be educated on what happens to each asset that comprises your estate.

What if you own property in multiple states?  Chances are you were not advised by the online website that you will have to likely do probate in each state you own property.  To avoid this common situation, often times estate planning attorneys will employ trusts so that ownership of those properties are consolidated into the Trust.  That way, upon the death of the owner, the Trustee can sell the properties and does not have to go through the probate/ancillary probate process in each state the Decedent owned property.

Estate planning can be a very complicated area of the law.  Before going online to print off your documents, ask yourself, if I needed open heart surgery, would I go to WebMD to get the “how-to” instructions?  Not likely, so why go online to get the how-to instructions to complete your own estate documents?  Instead, call ERA Law Group, LLC at (410) 919-1790 today!

#FamilyFriday – Fast Track to Divorce

Many people get married and mutually agree that a divorce is what’s right for them.  A divorce by mutual consent allows parties to file for divorce so long as there are no minor children and there is an agreement as to all property issues.

On this week’s #FamilyFriday article, the attorneys at ERA Law Group, LLC want to help you get divorced and quick.  Many people get married and mutually agree that a divorce is what’s right for them.  Prior to 2015, if you wanted a divorce you had to wait at least one year.  The theory behind the wait period was to encourage partners to reconcile and hopefully avoid divorce.  Fortunately the law has caught up with reality and in many cases, when you know you know.

A divorce by mutual consent allows parties to file for divorce so long as there are no minor children and there is an agreement as to all property issues.  Determining whether you have minor children is easy but settling property can sometimes be difficult depending on the duration of the marriage and the property accrued.  You and your spouse want to discuss and settle issues related to any joint bank accounts, cars, real property, debt, retirement, and alimony before filing for divorce.  Hiring an attorney to draft the settlement agreement to ensure it contains all necessary contract language and covers all potential property disputes is important to make sure you truly have settled all property issues.  Additionally, sometimes parties think they’re on the same page only to learn that they’re not.  Discussing these issues initially allows for a smooth settlement and a true divorce by mutual consent.

Once you have your agreement signed you can then file for the divorce.  Your spouse can come with you and immediately file their answer which avoids waiting for the summons and having to formally serve the Defendant.  When filing for the divorce you must include a copy of your agreement so the Court is satisfied that there are no unresolved property issues.  After you’ve filed, the Court will set an uncontested hearing for about ten (10) minutes.  Some counties take longer than others but a good estimation of the time it would take to get divorced is three (3) months.

The attorneys at ERA Law Group, LLC offer fixed fee services to draft and finalize your  agreement and handle your uncontested divorces.  Call us today!

#FamilyFriday – Can I Get Alimony?

When there’s a large disparity in income, assets, debts, etc. some spouses fear life without the financial contribution from their spouse and ask if they would be entitled to alimony.  The answer is maybe.

Spouses take on various financial roles in a marriage.  Some stay home, some work part-time while the other is the breadwinner, and some play equal roles.  When there’s a large disparity in income, assets, debts, etc. some spouses fear life without the financial contribution from their spouse and ask if they would be entitled to alimony.  The answer is maybe.  This week’s #FamilyFriday article breaks down the road to obtaining alimony.

In Maryland, the Court has a number of factors it must consider when determining an alimony award.  Some of these factors include each parties ability to be self-supporting, a party’s ability to obtain suitable employment, length of marriage, standard of living, the age of each party, any agreements between the parties and the health of the parties.  Some factors play bigger roles in the Court’s decision-making process than others.  For example, a spouse married for 30 years, in their 60s, and  having been a stay at home parent may be in a greater position of obtaining alimony than a marriage less than 5 years with both spouses making equal salaries.

After analyzing the various factors the Court can: (a) decline to award alimony, (b) award temporary alimony, or (c) award permanent/indefinite alimony.  When presenting your case for an alimony award, your attorney should strongly advocate those factors which play an important role in your case.  Your attorney should place emphasis on the length of marriage, the disparity in income, the likelihood of the less economically stable spouse to become more economically stable, the need for additional education, and, if applicable, highlight the circumstances surrounding the divorce.  A party who has physically and emotionally abused their spouse who is seeking alimony would play a far great role in the Court’s decision making than the couple who is seeking a divorce based on a voluntary separation.

In the event you and your spouse can reach an agreement about alimony, you should also consider some potential alternatives.  The alimony paying spouse may not want to have a monthly payment but may be willing to make a one-time large sum payment.  For example, perhaps the alimony paying spouse would rather offer you their share of the equity in the home than pay you alimony each month for the next 5 years.  When reaching an agreement you should speak with an attorney to be sure you don’t, or understand the consequences if you do, waive alimony.

Divorce is an emotional roller coaster.  You may not know what questions to ask, what rights you have, and what you may be entitled to but the attorneys at ERA Law Group, LLC today can help!