People work their entire lives to create a nest egg and hopefully leave a lasting, positive legacy for their children and grandchildren. There are all sorts of tools to make sure these things happen. People invest in retirement plans, create Wills and Trusts and even make plans to direct their healthcare should they become incapacitated. But this article is not about creating or implementing those strategies. Here I want to talk about something that many people either forget to consider or don’t think is important enough to address: who will get your personal effects when you pass. A Couple Real Life Examples Some of the nastiest family battles erupt over items with little or no dollar value. I recently read about a situation involving three adult siblings who fought over a stainless steel ice cream scoop that belonged to their grandmother. She regularly used it to serve them dessert when they stayed the night at her house as children. The siblings argued over who would get that scoop when their grandmother died; the dollar value of which was relatively insignificant but from the kids’ point of view represented a significant part of their childhood. Another similar case involved two brothers who spent a total of about $40,000 fighting over several items of personal property in their father’s estate. The objects themselves were relatively insignificant to anyone else with a combined value of less than $1,500, yet tens of thousands of dollars were spent fighting over who would get them. Both of these examples show the kind of craziness that can result when these decisions are left to your loved ones. Unlike financial assets or real property that can be given an objective financial valuation, small items of personal property are oftentimes the hardest to deal with because their worth is determined not in dollars but in sentimental value, becoming objects of bitter feuds that may develop or worsen an already existing difficult relationship. Start by Asking Questions There is a responsibility when it comes to leaving assets when you die. As a parent you should lead your family and do what you can to minimize infighting and promote family peace. There are constructive ways to avoid conflict by proactively deciding who will get what at your death. As we age, we can ask those close to us if there is anything of sentimental value that they would ultimately like to keep. Have your adult children expressed an interest in a particular item of yours? Is there a family heirloom that cannot possibly be divided? Has a close family friend provided you with great support and love in your lifetime such that you would like for them to feel acknowledged at your death? Have a transition plan that your family can implement and secure the future of those you love. What You Can Do Hopefully not everyone will want the same things but if they do it provides you with an opportunity to consider their wishes and make informed decisions. One option is to simply make the tough call as to where the property will go or you can leave the decision making up to a trustee (not advisable). Another option is to create a process for your beneficiaries to follow such as letting them draw by lots or have them choose the items based on birth order. If you have a specific item of property of particularly high value you can give that asset to a named person and reduce that person’s share of other assets. You could also direct that the item be sold at your death giving anyone who wants it an option to purchase it from their portion of their estate proceeds and/or their own assets. Whatever process you choose, if your beneficiaries are required to follow it there will be far fewer hurt feelings than if left to their own devices. Many problems of inheritance are themselves inherited. You can protect your most important legacy by planning ahead. Email or call Lynn K. Girvin to learn more about planning for your family! 949-387-8707 #WillsandTrusts #Beneficiaries #Inheritance

"Basis" is an important income tax concept used to determine the amount of taxable income that results when you transfer an asset. The basis of a particular asset is key in considering whether to transfer that property during your lifetime or at your death. Here I will briefly explain the basics of basis and how it may affect your decision. General Rule Income tax “basis” is the amount a person invested in a specific asset. Your basis is equal to the amount that asset cost to acquire. By way of illustration, if you purchased a home for $300,000, your basis would be $300,000. If that home is later worth $500,000, your basis is still $300,000. “Gain” on an asset refers to the amount you receive after sale of that asset, less the amount it cost to acquire that asset (or basis amount). So if you later sell the house for $500,000, your gain on that asset would be $200,000. Carryover Basis Normally, when you give an asset to someone, the person receiving the asset keeps the same basis as the person who gave the asset. This is referred to as “carryover” basis. Any gain on the asset is calculated using the gift giver’s basis. So if you give a gift of property to your child, your child would use the carryover basis amount to calculate gain. For example: if you originally paid $300,000 for your home and gave it to your daughter as a gift during your lifetime, her basis would be $300,000 regardless of the fair market value at the time of transfer. Later, if she sold the property for $700,000, her gain would be $400,000 using the basis of $300,000. Stepped Up Basis The basis of inherited property is generally equal to the property’s fair market value, which is established on the date of death or an alternate valuation date six months after the death. This is often referred to as a “stepped up basis”. So rather than the basis remaining at the decedent’s investment amount, the person receiving the decedent’s property gets a step up to fair market value on the date of death (or six months after). The step up creates an income tax advantage because the beneficiary will not have to pay income taxes on realized gain. Using the example above, if at the date of death the home is worth $550,000 and your daughter later sells it for $600,000, her gain would be $50,000 because her basis would be fair market value on the date of death. Alternately, property may get a “step down” in basis if the fair market value of the property is less than the investment amount. *This discussion is intended to provide you with general information about income tax basis and does not include all of the variables in determining how your estate plan should be prepared. Before making and changes to your estate plan you should consult with your estate planning attorney to determine the best options for you and your family. Call Lynn K. Girvin today to ask about how you can plan for your family! 949.887.8707. #Basis #IncomeTax #IncomeTaxbasis #CarryoverBasis #SteppedUpBasis #Gain

Certain assets avoid probate because the owner of the asset is able to name beneficiaries who will receive the benefit at the owner’s death. Life insurance is one of those assets. So when you create a Revocable Trust as part of your estate plan it is really important to update the beneficiaries of your life insurance policies to reflect your wishes and have it work with your overall plan. Here is some general information for you to consider. Naming Life Insurance Beneficiaries for Married Couples Only a small handful of married couples need to think about tax planning given the relatively high estate tax exemption of $5.45 million (for 2016 and adjusted yearly for inflation). If you are married and estate taxes are not a problem for you, then naming your spouse as the primary beneficiary is usually the best choice. This will give your spouse immediate easy access to funds in order to pay bills. When it comes to naming a contingent beneficiary there are a couple options: one is to name your adult children and another is to name your Revocable Trust. Naming your Revocable Trust is a great choice if you have minor children, spendthrift beneficiaries, estate tax concerns, or simply want to control how the assets are distributed at your death. Naming Life Insurance Beneficiaries if You Are Single If you are single, then regardless of whether you need estate tax planning, naming your Revocable Trust as primary beneficiary of your policies is a great idea. Naming your Trust will insure that your estate has enough cash on hand to pay for debts and expenses at your death in addition to providing the details of where you want the money to go. Again, if your estate will be dealing with any minor beneficiaries, spendthrifts, or any incapacitated beneficiaries then you are covered. Your Revocable Trust insures that those issues are dealt with. Irrevocable Life Insurance Trust If you are one of the lucky few who has estate tax concerns, whether you are married or single, consider setting up an Irrevocable Life Insurance Trust (ILIT). An ILIT removes the value of the insurance from your estate so it isn't subject to estate tax and you are able to leave more to your loved ones. *This discussion is intended to provide you with general information about life insurance and does not include all of the variables in determining how your estate plan should be prepared. Before making and changes you should consult with your estate planning attorney to determine the best options for you and your family. Call Lynn K. Girvin today to ask about how you can plan for your family! 949.887.8707. #LifeInsurance #Beneficiaries #IrrevocableLifeInsuranceTrust #RevocableTrust

Saving for retirement is a financial goal for most clients. Many of us are familiar with the terminology but aren’t quite sure what it all means. Here is a brief summary of one major difference between a traditional IRA or 401(k) and a Roth IRA or 401(k). Traditional IRAs are tax deferred meaning that contributions to those accounts are deductible when made. The amount contributed is deducted from your income and you won’t owe taxes on that amount. It also means that the dividends and sales of the stock are not taxed while they remain in the account. However when you start making withdrawals, the amount withdrawn is taxed. So the principal amount deposited and any increases due to ordinary interest, dividends, and capital gains are all taxed as ordinary income. Contributions to a Roth account, on the other hand, are not tax deductible. Because taxes on the money deposited have already been paid, distributions from Roth accounts are tax-free and dividends, capital gains, and interest earned in the account are able to build tax-free. The beauty of a Roth IRA is that the Roth account holder will not pay taxes on account increases. Each type of account has benefits and restrictions. The decision regarding whether to contribute to a traditional or Roth account depends in large part on your current tax bracket and estimation of when you will start making withdrawals. Talk about the different options with your financial advisor. Learn more about both Roth IRAs and 401(k)s at https://www.irs.gov/retirement plans. And get started on the rest of your estate plan today by calling me at (949) 387-8707! #401k #RothIRA #Taxes #TaxDefferred #CapitalGains

There are a variety of reasons why it is good to have an estate plan. Here is a quick rundown of the top five reasons why I think it is best to have a thoughtful plan in place: Avoid Probate. Probate is a court supervised procedure involving lots of documents and forms that must be filed with the court. Needless to say this process is time consuming and cumbersome. Also, California is one of only a handful of states in which the fees for probating an estate are statutory. The California Probate Code states that fees are based on the value of the gross estate without reference to encumbrances or other obligations on estate property. To illustrate, if you own a home worth $700,000 and still owe 400,000, the statutory fees are not based on your equity amount of $300,000, but rather the appraisal value ($700,000) without regard to your outstanding mortgage. Bottom line: it is good to avoid probate. Tax Planning. Most people don’t need to worry about estate taxes given the current federal estate tax exemption amount ($5.45 million per person) however it is still a good idea to include some tax planning should those laws change. Protect Your Beneficiaries. You can name a guardian for your children in your Will and financially provide for them in your Trust. You can also protect adult beneficiaries from wasting their inheritance through bad money management or divorce with specific provisions in your Trust. Make Your Own Arrangements in Advance. You can provide clarity for your family by leaving specific instructions about your health care and name an agent to help carry out those instructions. Also name someone to manage your affairs should you become incapacitated. Provide Some Peace of Mind for Yourself and Your Family. Avoid leaving a mess to your loved ones. Provide a list of detailed assets and name each beneficiary. Some families are torn apart by the little things such as who will ultimately get a specific piece of jewelry. Take the guesswork and fighting out of the equation. Now let’s get planning so you can play later! Email or call me today at (949) 387-8707! #AvoidProbate #TaxPlanning #Beneficiaries

Disclaimer provisions provide flexibility by giving the surviving spouse the option to shift assets in response to changing estate tax thresholds and household financial needs. Each spouse leaves his or her share of the estate completely to the surviving spouse. After the first spouse passes away, the surviving spouse holds the power to decide, within nine months after the death, whether the assets should be split. They are used as a standby device when there is little possibility that any estate tax will be due on the survivor’s death, even if all of the deceased spouse’s property passes to the survivor. Your Spouse Still Gets the Benefits The surviving spouse can fund the disclaimer trust with as many assets as makes sense in light of the federal estate tax structure and the value of assets remaining after the first death. The surviving spouse receives income from the disclaimer trust, cannot revoke it, has little or no power to change it, and has limited access to its principal. This separation of assets is necessary for the disclaimer trust to receive separate tax treatment from the survivor's own property. Know What You Are Doing Disclaimer trusts are a great option for most married couples but do come with a degree of risk. First, each spouse must fully trust that the property left to the survivor will not be squandered and in addition, tax planning must be proactively handled following the first death. Most surviving spouses have faith that the other will handle the finances appropriately and usually the survivor seeks the advice of an attorney immediately following the death of a spouse, so these risks are usually minimal. The simplicity and flexibility of a disclaimer trust makes it a good alternative for most married couples. To learn more about your options call Lynn Girvin today. 949-387-8707 #Disclaimer #Trusts #SurvivingSpouse #EstateTax

The subject of estate taxation can be pretty tedious to most people. Here I will briefly explain three basic tax facts relating to estate planning that every family should know. The Federal Estate Tax Isn’t as Scary as it Sounds First, the federal estate tax is imposed by the federal government on the taxable estate of every decedent who is a citizen or resident of the United States. Estate taxes are assessed on the money and property that you pass to your loved ones when you die. Thankfully, the tax isn’t due until you’ve given away more than $5.45 million in cash or other assets so most people don’t have to worry about it. Recent studies show that only about 2% of the population will owe federal estate tax so basically the estate tax is a tax on very large inheritances by a small group of lucky people. In determining what property is taxed, the IRS takes into account the entire state of the deceased individual (gross estate). The fair market value of everything you own or have an interest is considered part of your gross estate, including cash, real estate, life insurance, retirement plans, securities, business interests, and other assets. Once you have accounted for the gross estate, certain deductions are allowed and may include mortgages, estate administration expenses, property that passes to surviving spouses, and qualified charities. Lastly, California does not impose its own estate tax or inheritance tax! More Good News … Another tax angle and one that more people are familiar with is the annual gift tax exclusion. This exclusion allows you to give $14,000 per year to as many people as you want free of any tax or IRS reporting. In other words, a once a year gift or even a series of gifts made to the same person during the course of one calendar year that do not exceed $14,000 are considered "freebies" when it comes to federal gift taxes. And currently, payments made directly to providers of education or medical care services also are tax-free and do not count against the annual exclusion or gift tax exemption amounts. What is the Marital Deduction If you are married you can leave everything to your surviving spouse with no estate tax liability when you die. Then at the death of the surviving spouse, all of the inherited assets along with the surviving spouse’s own assets, will be subject to estate tax. Let's Have a Conversation Email or call me today at 949-387-8707 to talk about your estate plan and what you can do to protect your family. #FederalEstateTax #IRS #GiftTaxExclusion #MaritalDeduction #GrossEstate

Thankfully most gift giving is a tax-free event but if you are one of the lucky few who is able to give big, here are some tips to avoid pitfalls and receive the maximum deduction: Charitable Giving Contributions to eligible charities in the form of money or property are deductible as charitable gifts only if you itemize your deductions on your tax return. All deductions must be properly substantiated but there are stricter requirements for money or property totaling $250 or more. Usually a bank record or receipt showing the amount of the cash, date of the contribution, and description of property will be adequate. If your total deduction for noncash contributions for the year is over $500 then you must complete and attach IRS Form 8283 to your return. Gifts to Family and Friends Other than charitable gifts, any individual can give another individual up to $14,000 (the annual gift exclusion amount through 2016) tax-free. So married couples can give a combined gift of $28,000 to as many people as they want without paying any taxes. Gifts exceeding this amount may require a gift tax return so I recommend seeking professional advice to structure such a gift. Lastly, tuition and medical expenses (including health insurance premiums) are not taxable as long as you pay the institution(s) directly. And you don’t have to worry about gifts to your spouse because those are also tax-free! Call Lynn Girvin today to learn more about gifting opportunities. (949) 387-8707 #Giftin #CharitableGiving #AnnualGiftExclusion #Contributions