The Wealth & Wisdom Blog

Information on Estate Planning, Estate and Trust Administration and Unique Asset Planning

How to Choose a Guardian

Deciding who will raise your child in your absence is one of the toughest decisions you’ll face as a parent. We find that the first step is to admit that no one is good enough to raise your kids!  Make a list of all the possible candidates, and then sit down with your partner and talk over the pros and cons of each one.

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Estate Planning with 529 Plans

Qualified Tuition Programs (so-called “529 Plans”) and increasingly part of my estate planning conversations with clients. The key income tax benefit of a 529 Plan is that assets contributed to plan grow income tax free.  So long as the assets are distributed for “qualified educational expenses,” distributions are tax free.   Previously, advisors rightfully cautioned against “overfunding” these plans, since contributed assets could only be used for college tuition expenses, and any unused assets were subject to a 10% penalty.  Now, however, the permitted uses of 529 Plan assets has broadened significantly, making it an even more attractive savings vehicle.  Under the new tax law, the following types of distributions are considered to be “qualified educational expenses” for purposes of distributions from 529 Plans:

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Benefits of Donor Advised Funds

A donor advised fund (“DAF”) is a charitable planning vehicle that is established through and administered by a public charity. While the assets contributed to a DAF are legally owned by the public charity, the charity generally administers the contributed assets in accordance with an agreement established between the donor and the public charity. When the donor desires for the public charity to make contributions out of the fund, the public charity makes those distributions from the donor’s fund. DAFs are the fastest-growing charitable planning vehicles in the United States for the following reasons:

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Calculation of Minnesota Estate Tax on Non-Residents with Minnesota Property

Under current law, the manner of calculating a Minnesota estate tax liability sometimes yields surprising results. If a non-resident of Minnesota dies with real property or business assets in Minnesota, and if this “non-resident” owned assets total assets in excess of the Minnesota estate tax exemption, then some Minnesota estate taxes are due. Note that tax will be due even if the total value of the real property or business assets in Minnesota is below the Minnesota estate tax threshold!

The method for calculating the estate tax for a non-resident is as follows:

1. Calculate the total estate tax, using the Minnesota estate tax calculators, assuming that the resident was, in fact, a Minnesota resident.

2. Calculate a fraction, the numerator of which is the total value of real property or business assets located in Minnesota, and the denominator of which is the decedent’s federal (total) taxable estate.

3. Multiply the first tax amount by the fraction in step 2 to yield the total tax due.

As an example, consider the case of Arnold Brainerd. While Mr. Brainerd became a Florida resident many years ago, he still owned a cabin property in northern Minnesota at the time of his death. When he died in 2017, Arnold owned total assets of $5.0 million. His total assets included a $1.0 million Florida residence, $3.5 million in liquid assets, and the northern Minnesota property worth $500,000. The value of the property located in Minnesota would only include the $500,000 northern Minnesota property. Arnold’s estate would calculate a Minnesota estate tax liability as follows:

1. Total Minnesota estate tax on a $5.0M estate in 2017 is $348,000.
2. The percentage of Arnold’s total estate located in Minnesota is 10% ($500,000 cabin divided by $5.0 million total assets).
3. The resulting Minnesota estate tax is $34,800 (10% times $348,000).

Note that even though Mr. Brainerd died with Minnesota assets of less than the Minnesota exemption amount, an estate tax is still owed.

Please contact me with questions, or to obtain our assistance in calculating projected Minnesota estate tax liabilities under various scenarios.

Update on Minnesota Estate Taxes

Governor Mark Dayton recently signed a new Minnesota tax bill into law.  I want to make you aware of the new law, two important caveats to the law, and how the law may impact the estate planning of your married, Minnesota resident clients.

The New Law:

Minnesota estate tax exemptions have been increased retroactive to January 1 of this year.  The new exemption amounts and marginal tax rates are as follows:

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Minnesota Residency Requirements

In order to establish and maintain residency for tax purposes outside of Minnesota, a taxpayer must meet both of two tests-a “physical presence” test, and a subjective “intent” test.

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Family Vision Statement

A Family Vision Statement can be any non-legal written direction made by a “senior generation” (e.g., mom and dad) to the named beneficiaries of the senior generation’s legal estate plan detailing how an inheritance should be used following death.  The Statement is directed towards whomever is receiving the inheritance, whether children, grandchildren, nieces, nephews, siblings or friends. In this non-legal document, the senior generation can articulate how one’s deeply-held spiritual, moral and ethical beliefs impact how they wish the receiving generation to use the inheritance.  In many families, these deeply-held spiritual, moral and ethical beliefs of the “receiving” generation are different from the senior generation.  The purpose of the Family Vision Statement is therefore to give the receiving generation non-legally binding direction as to how the senior generation would like the inheritance used consistent with the beliefs of the senior generation.

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Asset Ownership: Sole Ownership & the Probate Estate

At your death, any asset owned in your individual name and that does not pass either by (1) joint ownership with rights of survivorship, (2) by beneficiary designation or (3) by a revocable trust becomes owned by your “estate.”  Your estate is an intangible legal entity, like a partnership or a corporation, which becomes the owner of all of your remaining assets and liabilities.   (more…)

Asset Ownership: Contract Property / Beneficiary Designations

Some types of assets, such as retirement accounts and life insurance policies, pass by beneficiary designation.  (more…)

Asset Ownership: Survivorship Rights on Jointly-Owned Property

Certain types of jointly-owned (co-owned) assets automatically pass to the surviving co-owner at death as a “right of survivorship.”  For example, most of my married clients purchased their residence as “joint tenants with right of survivorship.”  As a legal attribute of this kind of ownership, the ownership on the property is automatically transferred to the surviving spouse at the first death between a husband and wife. Depending upon the estate planning situation and the financial situation of the clients, this may not be advisable from a tax perspective. (more…)

This blog is intended to provide the reader with assistance in understanding various estate planning and trust estate planning concepts. In an effort to keep things as digestible as possible, I have tried to keep each blog post as short as possible.  As a result, an astute reader would see that I often fail to address various exceptions to rules or principals, or how various principles relate to one another.  There are a number of moving parts associated with various planning structures summarized on this blog.  In order to achieve your estate planning objectives, it is important that you receive the assistance of an experienced estate planning attorney.  Otherwise, your family may be in a worse position for your having attempted these strategies on your own.  Until we form an attorney-client relationship, you should be aware that your visiting this blog has not formed an attorney-client relationship, and none of this information can be taken as legal advice.  To contact my office about scheduling an appointment, contact us at 612-465-0080.