Got wealth to protect from probate fees and taxes? Then here are the not-to-be-missed minutes from The Money Matters Club's March 5th session where we learned the ins and outs of Estate Planning tips and other best practices for passing your legacy on to your loved ones in the best financial posture possible.
Mark Drobny of Drobny Law Offices (Drobny Law Offices, Inc.), returned to The Money Matters Club to talk to us about the basics of Estate Planning on Tuesday, March 5, 2024. His talk was educational and informational and not meant to be individualized advice.
In our time with Mark, he emphasized “stop giving things away while you’re alive,” and the importance of proper planning to gift give strategically, reducing losses for recipients/yourself, avoiding unnecessary capital gains, excessive probate costs, and other taxes being unnecessarily siphoned from your Estate.
Some of the main points / takeaways I captured are below for your perusal.
But what were your takeaways, Club Friends?
Please comment below to share your learnings, or to ask another question if you have opens that weren’t answered/closed during the session.
We had well over 250 Club members attend the hour and over 90 of you stayed for the after show where we casually chatted with Mark for another 20+ minutes! Thanks, Mark! But there’s still a chance more questions remain—a good chance! Let us know below?
My main takeaways are these bullets I jotted down for you:
IRDs and IRAs, and your estate will still have taxes due upon your death.
If you’re not the spouse, as a beneficiary, there are no stretch IRAs anymore; an IRA beneficiary must take the required distributions within 10 years of the decedent’s death.
The gift tax exclusion is now at $18k per person per year. This doesn’t mean that you can’t gift more than that. This means that you as an individual are allowed to gift another individual person $18k without reporting it to the IRS. A couple can effectively double a gift by combining individual allowances. And a couple can give more than $18k away in a year each individually or more than $36k away as a married couple and still not have to pay gift tax, it just must be reported at that point to adjust your lifetime max gifting allowance. Gifts that fall beyond the annual exclusion limit are filed/reported and will debit from / reduce your lifetime gift exclusion limit accordingly.
If you’re fortunate enough to be in this position: your lifetime allowance is currently set at $13.61 million. That amount can be gifted away in your lifetime before you have to pay any tax on it. (Gifts can be things of value, not just liquid money.)
Anything above the lifetime exclusion amount at the time of your death becomes the taxable amount and Mark says it will be taxed at the max rate of 40%.
Mark says if you give away ownership in your home before your death, including joint tenant/tenancy, (i.e., to one of your children), this hurts the recipient/child potentially because they assume your cost basis, and will not get a step up in cost basis when you pass. A step up in cost basis would only occur at the time of your death to your heir. If they've received a home prior to your death, they'll be subject to carry over basis and not get a step up in basis upon your death. So, if you give away your home or half the rights to your home while you’re living, then later when the home is sold, the new owner (the join tenant, for example your child) is now unfortunately subject to all of the gains from the home's original value, not the value since the date of your death. Step up in cost basis to the death date value works the same for investment accounts.
One reason people gift in their lifetime is if they think their estate/net worth will be valued higher than the lifetime exclusion amount. Reducing the total value down to the lifetime exclusion limit while living helps your estate avoid a max 40% tax rate on what remains to be given beyond that limit to beneficiaries after your death. And depending on the current Administration, we have to watch for these changes and adjust the best we can in anticipation.
Mark talked about how the most recent 2018 tax law governing estates is set to expire by end of 2025, so unless Congress acts to extend it, the lifetime exclusion amount we’re all currently planning for will be cut in 2026. Also known as the Fiscal Cliff.
Mark talked about disability planning. If you are ever no longer able to care for yourself, conservatorships can take months to get even if not contested. Durable Powers of Attorney are dormant until they need to spring up and help a person act on your behalf. They’re useful for the Financial and Advanced Health Care Directive decisions that need to be made for you if you’re disabled/incapacitated.
Mark covered the Right to Die laws. The country must keep you alive. If you have a DNR (order that declares 'Do Not Resuscitate'), it means you have decided not to be resuscitated in the event you lose consciousness or flatline perhaps temporarily even and could be okay after live-saving CPR, for example.
An Advanced Health Care Directive, he says, will help instruct the people you designate to determine/make your decisions as you would have them do.
The End-of-Life Option Act says if you have been diagnosed with a terminal illness you can do some steps to get an end-of-life dose administered. This is only personal to the patient; the authority cannot be given to another person.
Probate (a procedure required in every state when someone dies) is required to get assets out of decedents’ names (only judges can do that if it wasn’t set up prior to death). Best scenarios measure probate cases taking on average 6-12 months. These proceedings are not private, anyone has the right to access the records, copy them, and make contests to these assets. The probate fees are based on the gross value of your estate (across all states) and can be steep, and they are fixed by law. Both attorney and executor receive fees paid by your estate.
Things (assets and accounts) that do not have to go through probate include:
Assets not in your name any longer at the time you die.
Assets valuing less than the $184,500 threshold when you die.
Things that vest on death (anything with a beneficiary form on file).
Joint Tenants or Community Property
TOD and POD accounts – Transfer on Death or Paid on Death help exempt these assets from being subject to probate too.
Anything beyond the above that you’ve set up a Revocable Living Trust for. These assets remain in your name until you pass away. Then a successor trustee steps in upon death to distribute according to the decedent’s wishes, avoiding probate.
You have to trust your successor trustee because they’ll be named on everything you own when you pass and must be trusted to divide the assets as you wish.
You can name co-trustees and independent trustees, as well as private fiduciaries to be your trustee, which can be a great alternative if you aren’t quite sure who should be the trusted trustee. A Trustee is a thankless job, and it is a lot of work. Having a co-trustee can build checks/balances into the process.
Basic Estate Plans include:
Durable POA
Advanced Health Care Directive
Trust and Certificate of Trust
Pour Over Will
Funding your trust… is the most important step. Go somewhere where funding your trust is included. If you forget or don’t get to it yourself, the trust is not funded. An annual review should be included too. If you get more assets in the future, an annual review that is included will be able to handle funding new assets too.
Distribution Planning
You can put heirs into four categories and should adjust your trust to handle each type:
1. Mature – an outright distribution may be okay when an heir is mature.
2. Not Mature – keep assets in trust until the person is mature/in terms of years or other terms so they do not blow their inheritance immaturely.
3. Postponed – Incentive trusts can be distributed when education or employment terms are met. Or “You get an amount equal to what you earn.”
4. Disabled – heirs are not eligible for public benefits if they own more than $2k, so you can create a special needs trust.
Portability – if anyone married did a revocable living trust before 2013, you need to fix your AB Trust soon. There is no longer any reason to have AB Trusts. 2013 law said your exemption is portable to your spouse.
General Rule for retirement accounts (every rule has exceptions) is if you’re married, you want to list your spouse as the primary beneficiary so they can do the spousal roll over and defer RMDs until they are 73 years old. A second marriage may differ if you want to be making provision for someone prior to your second marriage.
No one gets a stretch IRA anymore (that’s an old rule). Whether you name a human or a trust – it’s still an inherited IRA and there are no differences on taxation for those inherited dollars.
Mark invited us all to continue learning about this topic from his partner Anne Rosenthall of Drobny Law Office who did a more advanced estate planning talk covering death and taxes and other strategies like LLCs, with host Kelly Brothers on his podcast, “Bite Sized Finance,” watch it here: https://podcasts.apple.com/us/podcast/bite-sized-finance/id1532748850?i=1000645555186
Mark and his firm are available to The Money Matters Club members for a free consultation, contact Linda Moua in his office at 916-419-2100 or linda@drobnylaw.com.
Mark also offered to come back or have Anne Rosenthall, his Sr. Managing Partner come, to talk with us more on nuances of estate planning. Are you in favor, Club Friends? Signal me in the comments.
Side note: Are you inheriting money, or do you stand to inherit in the future? Something not covered with Mark, that I know may be little-known, somehow especially among women, and worth a mention here, is that when you inherit money, as an heir, you do NOT have to comingle these assets with your partner (married partner, spouse, community property partner). When you keep inheritances held separately (not comingled with a partner or joint account) you can keep them separately held for your life and to pass on separately as well as you wish. Anne covers this well in her podcast I linked above too.
Thank you, Mark Drobny, and to your team at Drobny Law Offices! We appreciate the lessons.
You can watch a playback of our session with Mark Drobny (apologies for missing the very beginning).
Club Friends, don't miss our next Club session on March 19th! More tax strategies are ahead at our next lunch-and-learn together!
Because your money matters,
el*
*not an expert, just care
E.M.Powers ("el") is a regular person with no particular financial credentials or expertise who happens to be a money enthusiast and the founder of The Money Matters Club, a virtual watercooler for like-minded individuals with a thirst for building their own financial health. Since 2006, she's helped thousands of co-workers build their financial literacy and wealth by participating in The Money Matters Club, a community she built on her employer's internal network. Since 2023, she's been attempting to scale The Club's reach through its second home on the World Wide Web. Her opinions--as well as the opinions of all participants--are just that: opinions, which are subject to flawed logic, math, typos and correction. She keeps a growth mindset and is also always learning something new or bolstering her own understanding after discussions at The Club. All information shared is done so with the best intent to inspire and empower others to learn more about money considerations toward building their own financial muscles. Nothing shared is meant as individualized advice that anyone should act on without doing their own curious research and personal decision making. There are no dumb questions at The Money Matters Club. Your financial health and literacy are what this Club cares about. All investing involves risk. All results can and will vary.
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