Category Archives: Estate Planning

A Dynasty Trust Provides for Future Generations

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When creating estate plans, people generally take their children and grandchildren into consideration and will organize accordingly. For those who would like to prepare beyond that, a dynasty trust provides for future generations and may be a viable option. Let’s look at some of the specifics of this long-term trust.

A dynasty trust can preserve substantial amounts of wealth—and potentially shelter it from federal gift, estate, and generation-skipping transfer (GST) taxes—for generations to come. Plus, it can provide various other benefits and protections for families over an extended time period (perhaps forever).

Establishing and Funding a Dynasty Trust

A dynasty trust can be established during your lifetime, as an inter-vivos trust, or part of your will as a testamentary trust. With an inter-vivos transfer, you’ll avoid estate tax on any appreciation in value from the time of the transfer until your death. Generally, though, with an inter-vivos transfer, the assets won’t be eligible for step-up in basis at your death.

Because the emphasis is on protecting appreciated property, consider funding the trust with securities, real estate, life insurance policies, and business interests. Ensure you retain enough assets in your personal accounts to continue to enjoy your lifestyle.

Factoring in Taxes

Previously, dynasty trusts were primarily used to minimize transfer tax between generations. Without one, if a family patriarch or matriarch leaves assets to adult children, the bequests are subject to federal estate tax at the time of the initial transfer to the second generation. They are then taxed again when the assets pass from the children to the grandchildren, and so on. Although the federal gift and estate tax exemption can shield the bulk of assets from tax for most families, the top federal estate tax rate on the excess is 40 percent—a hefty amount.

Furthermore, the GST tax applies to certain transfers made to grandchildren, thereby discouraging transfers that skip a generation. The GST tax exemption and 40 percent GST tax rate are the same as they are for regular gift and estate tax.

With a dynasty trust, assets are taxed just once, when they’re initially transferred to the trust. There’s no estate or GST tax due on any subsequent appreciation in value. This can save some families millions of tax dollars over the durations of their trusts.

When the assets are subsequently sold, any gain will be taxable. Note that the basis of the assets will be determined at the time of the initial transfer, although depending on the circumstances, the “step-up in basis” rules may help reduce the taxable amount.

Recognizing Nontax Benefits

Regardless of the tax implications, there are many nontax reasons to set up a dynasty trust.

For example, you can designate the trust’s beneficiaries spanning multiple generations. Typically, you might provide for the assets to follow a line of descendants, such as your children, grandchildren, great-grandchildren, etc.

You can also impose certain restrictions. For example, you may limit access to funds until a beneficiary graduates from college.

We Can Help You Plan for Your Family’s Future

A dynasty trust provides for future generations by creating a legacy that will live on long after you’re gone. Be aware, however, that a dynasty trust is irrevocable. In other words, you can’t undo the arrangement if you have a sudden change of heart. If you’re going to chart the course for future generations, you must have the courage of your convictions. The professional team at Ramsay & Associates is here to answer questions about estate planning and other tax concerns. Contact us for guidance.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.

5 Estate Planning Pitfalls to Avoid

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If you’re taking the first steps on your estate planning journey, congratulations. No one likes to contemplate their mortality, but having a plan in place can provide you and your loved ones with peace of mind should you unexpectedly become incapacitated or die. Keep reading to learn five basic estate planning pitfalls you want to avoid.

Pitfall 1: Failing to Coordinate Different Plan Aspects

Typically, there are several moving parts to an estate plan, including a will, a power of attorney, trusts, retirement plan accounts, and life insurance policies. Don’t look at each one in a vacuum. Even though they have different objectives, consider them to be components that should be coordinated within your overall plan. For instance, you may want to arrange to take distributions from investments — including securities, qualified retirement plans, and traditional and Roth IRAs — in a way that preserves more wealth.

Pitfall 2: Not Updating Beneficiary Forms

Your will spells out who gets what, where, when, and how. But it’s often superseded by other documents, such as beneficiary forms for retirement plans, annuities, life insurance policies, and other accounts. Therefore, much like your will, you must also keep these forms up to date. For example, despite your intentions, retirement plan assets could go to a sibling or parent — or even worse, an ex-spouse — instead of your children or grandchildren. Review beneficiary forms periodically and make any necessary adjustments.

Pitfall 3: Improperly Funding Trusts

Frequently, an estate plan will include one or more trusts, including a revocable living trust. The main benefit of a living trust is that assets transferred to the trust don’t have to be probated, which will expose them to public inspection and subject them to delays. It’s generally recommended that such a trust be used only as a complement to a will, not as a replacement.

However, the trust must be funded with assets, meaning that legal ownership of the assets must be transferred to the trust. For example, if real estate is being transferred, the deed must be changed to reflect this. If you’re transferring securities or bank accounts, you should follow the directions provided by the financial institutions. Otherwise, the assets must be probated.

Pitfall 4: Mistitling Assets

Both inside and outside of trusts, the manner in which you own assets can make a big difference. For instance, if you own property as joint tenants with rights of survivorship, the assets will go directly to the other named person, such as your spouse, on your death.

Not only is titling assets critical, but you should review these designations periodically. Major changes in your personal circumstances or the prevailing laws could dictate a change in the ownership method.

Pitfall 5: Failing to Regularly Review Your Estate Plan

It’s critical to consider an estate plan as a “living” entity that must be nourished and sustained. Don’t allow it to gather dust in a safe deposit box or file cabinet. Consider the impact of major life events such as births, deaths, marriages, divorces, and job changes or relocations, just to name a few.

We Can Help You Avoid Pitfalls

These five estate planning pitfalls are just some of the dangers to watch for when planning your legacy. To help ensure that your estate plan succeeds at reaching your goals and avoids these pitfalls, turn to the professionals at Ramsay & Associates. We can help ensure that you’ve covered all the estate planning bases.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.

Plan for Assets with Sentimental Value

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As a formal estate planning term, “tangible personal property” likely won’t elicit much reaction from you or your loved ones. However, the items that make up tangible personal property, such as jewelry, antiques, photographs, and collectibles, may be the most difficult to plan for because they hold significant emotional worth. We can offer tips to help ensure you have a plan for assets with sentimental value.

Without special planning on your part, squabbling among your family members over these items may lead to emotionally charged disputes and even litigation. Let’s take a closer look at a few steps you can take to ease any tensions surrounding these specific assets.

Communication is Key

There’s no reason to guess which personal items mean the most to your children and other family members. Create a dialogue to find out who wants what and to express your feelings about how you’d like to share your prized possessions.

Having these conversations can help you identify potential conflicts. After learning of any disputes, work out acceptable compromises during your lifetime.

Bequeath Assets to Specific Beneficiaries

Some people have their beneficiaries choose the items they want or authorize their executors to distribute personal property as they see fit. For some families, these approaches may work. But more often than not, they invite conflict.

Generally, the most effective strategy for avoiding costly disputes and litigation over personal property is to make specific bequests — in your will or revocable trust — to specific beneficiaries. For example, your will might leave your art collection to your son and your jewelry to your daughter.

Specific bequests are particularly important if you wish to leave personal property to a nonfamily member, such as a caregiver. The best way to avoid a challenge from family members on grounds of undue influence or lack of testamentary capacity is to express your wishes in a valid will executed when you’re “of sound mind.”

If you use a revocable trust (sometimes referred to as a “living trust”), you must transfer ownership of personal property to the trust to ensure that the property is distributed according to the trust’s terms. The trust controls only the property you put into it. It’s also a good idea to have a “pour-over will,” which provides that any property you own at your death is transferred to your trust. Keep in mind, however, that property that passes through your will and pours into your trust generally must go through probate.

Create a Personal Property Memorandum

Spelling out every gift of personal property in your will or trust can be cumbersome. If you wish to make many small gifts to several different relatives, your will or trust can get long in a hurry.

Plus, anytime you change your mind or decide to add another gift, you’ll have to amend your documents. Often, a more convenient solution is to prepare a personal property memorandum to provide instructions on the distribution of tangible personal property not listed in your will or trust.

In many states, a personal property memorandum is legally binding, provided it’s specifically referred to in your will and meets certain other requirements. You can change it or add to it at any time without the need to formally amend your will. Alternatively, you may want to give items to your loved ones while you’re still alive.

Have a Plan for All Assets

Your major assets, such as real estate and business interests, are top of mind as you prepare your estate plan. But don’t forget about tangible personal property. These lower-monetary-value assets may be more difficult to deal with, and more likely to cause disputes, than big-ticket items. So, make sure you have a plan for assets with sentimental value. Contact the professionals at Ramsay & Associates if you have questions or need help with estate planning.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.

4 Reasons to Turn Down an Inheritance

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Most people are happy to receive an inheritance. But there may be situations when you might not want one. You can use a qualified disclaimer to refuse a bequest from a loved one. Doing so will cause the asset to bypass your estate and go to the next beneficiary in line. Let’s take a closer look at why you might want to take this action with four reasons to turn down an inheritance.

Gift and Estate Tax Savings

This is often cited as the main incentive for using a qualified disclaimer. But make sure you understand the issue. For starters, the unlimited marital deduction shelters all transfers between spouses from gift and estate tax. In addition, transfers to non-spouse beneficiaries, such as your children and grandchildren, may be covered by the gift and estate tax exemption.

The exemption shelters a generous $13.61 million in assets for 2024. By maximizing portability of any unused exemption amount, a married couple can effectively pass up to $27.22 million in 2024 to their heirs, free of gift and estate taxes.

However, despite these lofty amounts, wealthier individuals, including those who aren’t married and can’t benefit from the unlimited marital deduction or portability, still might have estate tax liability concerns. By using a disclaimer, you ensure that the exemption won’t be further eroded by the inherited amount. Assuming you don’t need the money, shifting the funds to the younger generation without them ever touching your hands can save gift and estate taxes for the family as a whole.

Generation-Skipping Transfer Tax

Disclaimers may also be useful in planning for the generation-skipping transfer (GST) tax. This tax applies to most transfers that skip a generation, such as bequests and gifts from a grandparent to a grandchild or comparable transfers through trusts. Like the gift and estate tax exemption, the GST tax exemption is $13.61 million for 2024.

If GST tax liability is a concern, you may want to disclaim an inheritance. For instance, if you disclaim a parent’s assets, the parent’s exemption can shelter the transfer from the GST tax when the inheritance goes directly to your children. The GST tax exemption for your own assets won’t be affected.

Passing Down a Family Business

A disclaimer may also be used as a means for passing a family-owned business to the younger generation. By disclaiming an interest in the business, you can position stock ownership to your family’s benefit.

Charitable Deductions

In some cases, a charitable contribution may be structured to provide a life estate, with the remainder going to a charitable organization. Without the benefit of a charitable remainder trust, an estate won’t qualify for a charitable deduction in this instance. But using a disclaimer can provide a deduction because the assets will pass directly to the charity.

We Can Help with the Details

Every situation is different, and there may be other reasons to turn down an inheritance, too. Additionally, be aware that a disclaimer doesn’t have to be an “all or nothing” decision. It’s possible to disclaim only certain assets, or only a portion of a particular asset, which would otherwise be received. In any case, before making a final decision on whether to accept a bequest or use a qualified disclaimer to refuse it, turn to the estate tax professionals at Ramsay & Associates. We can help you better understand the details and answer any questions. Contact us today.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.

Structuring Payable-on-Death Accounts with Your Estate Plan

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Payable-on-death (POD) accounts can provide a quick, simple, and inexpensive way to transfer assets outside of probate. However, some account designations may conflict with plans you already have in place. Keep reading to know what to look for — and what to avoid — when structuring payable-on-death accounts with your estate plan

Setting Up POD Accounts

POD accounts can be used for bank accounts, certificates of deposit, and even brokerage accounts. Setting one up is as easy as providing the bank with a signed POD beneficiary designation form. When you die, your beneficiaries simply need to present a certified copy of the death certificate and their identification to the bank, and the money or securities will be theirs.

Beware of Potential Pitfalls

Be aware, however, that POD accounts can backfire if they’re not coordinated carefully with the rest of your estate plan. Too often, people designate an account as POD as an afterthought without considering whether it may conflict with their wills, trusts, or other estate planning documents.

Suppose, for example, that Shannon dies with a will that divides her property equally among her three children. She also has a $50,000 bank account that’s payable on death to her oldest child. The conflict between the will and POD designation may have to be resolved in court, which will delay distribution of her estate and generate substantial attorneys’ fees.

Another potential problem with POD accounts is that if you use them for most of your assets, the assets left in your estate may be insufficient to pay debts, taxes, or other expenses. Your executor would then have to initiate a proceeding to bring assets back into the estate.

POD accounts are often used to hold a modest amount of funds that are available immediately to your executor or other representative to pay funeral expenses, bills, and other pressing cash needs while your estate is being administered. Using these accounts for more substantial assets may lead to intrafamily disputes or costly litigation.

Rely on Your Advisor

Structuring payable-on-death accounts with your estate plan can be tricky if you’re unsure of what to look for. If you use POD accounts as part of your estate plan, be sure to review the rest of your plan carefully to avoid potential conflicts. Contact the trusted professionals at Ramsay & Associates with any questions you have regarding coordinating the use of POD accounts with your estate plan. We’re always here to help.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.