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Federal Estate and Missouri Inheritance Taxes…

Federal Estate and Missouri Inheritance Taxes…

2020 Federal Estate and Missouri Inheritance Taxes

              With the passing of a New Year comes a new year tradition – updating the estate and inheritance tax rates.  This is the 2020 update, straight from our good friend, the Internal Revenue Service.

Estate Tax

Estate tax is charged to the estate of a decedent, not their beneficiaries.  However, as much as politicians like to scare people with talk of the “death tax” (a.k.a. estate tax), the estate tax only affects 2 out of 1000 estates in America.

In 2020, the threshold for federal estate tax is $11.58 million, a slight increase from 2019 when the threshold was $11.4 million.  This new threshold was part of the Tax Cuts and Jobs Act which went into effect on January 1, 2018.  Simply put, an estate will not face estate tax in 2020 unless the value of the estate is higher than $11.8 million.

Additionally, estate tax is paid on only the amount over the $11.8 million.

Example:  Tom dies in 2020 with an estate of $11.7 million.  No estate tax is owed.  Tim dies in 2020 with an estate of $12.9 million.  The estate is $1.2 million over the threshold and the tax rate is 40% of $1.2 million, resulting in an estate tax balance of $480,000.  That’s a big bite, but as an O’Fallon trust attorney I can tell you that proper estate planning can always reduce a taxable estate.

Important Point

If a decedent was married when they passed away, there is an opportunity to transfer the $11.58 million down exemption to the surviving spouse, effectively doubling their threshold to $23.16 million when the surviving spouse passes away.  This is known as portability.

However, in order to take advantage of this opportunity, an estate tax return must be filed when the first spouse passes away.

State Estate Tax

In addition to the federal estate tax outlined above, some states also have an estate tax. In 2020, only 13 states have a state estate tax and this includes Illinois.

Good news:  Missouri does not have a state estate tax.  You can die with a billion dollars in Missouri and your estate will not owe Missouri any estate tax (yay!).

State Inheritance Tax

Estate taxes are charged against the estate, not the beneficiaries, for the transfer of assets after the death of a decedent.  By contrast, inheritance taxes are a tax on the beneficiary (or heir) for the receipt of assets from an estate.  Only six states have a state inheritance tax and Missouri is not one of them (yay!).

Annual Gift Tax Exclusion

A person who may be worried about having a taxable estate may want to consider utilizing annual gift tax exemptions.  In 2020, a person can give away $15,000.00 to charity or anyone they want, but a couple can give double that amount, or $30,000 to as many people as they want.  This is a good strategy to whittle away a taxable estate.

Conclusion

As a buy estate planning attorney St. Peters, very few of my clients (nor myself) will ever need to worry about estate and inheritance taxes.  However, the very nature of estate taxes is that they change over time.  The recent doubling of the exemption followed a period of time where the estate tax exemption was $3.5 million.  Still a lot, but a potential problem for many more people.  You can limit your exposure to this by creating an estate plan, usually with a revocable living trust that can change with the changes in estate tax.

Starting The Probate Process…

Starting The Probate Process…

STARTING THE PROBATE PROCESS – ARTICLE 2 OF 3

                In the last article we talked about the initial steps of probate and starting to administer the decedent’s estate and start the probate process.

As a probate lawyer Creve Coeur, Missouri, I can tell you that the next important step is to determine if the decedent had a last will and testament, a trust and/or passed away without a trust or will.

For this article, we will assume that the decedent had a valid will and trust.

Reviewing The Will And Trust Documents

Once the decedent’s trust and will have been found, the next step is to read the documents carefully to determine who are the trust beneficiaries, who is / are the successor trustee or trustees and are the documents legally valid.

Generally speaking, finding who’s in charge of the estate and who the beneficiaries are is not very difficult, as the document will usually clearly say who is each.  For this example, you are in charge of the trust and the will (the successor trustee and executor).

Does A Probate Have To Be Opened?

This is a critical question and will determine how complex the administration of the estate will be.  For this example, let’s assume that the decedent owned a house at his death and had one bank account.  The bank account is titled in the name of the trust, the house is not.  In that case, the house will end up in probate, which will be opened by the named executor in the will.

Opening A Probate / Obtaining Letters Testamentary

Since the house needs to be probated and assuming the value is over $40,000, the executor will file probate documents in the county in which the decedent was residing at his death.  Generally, the documents that would need to be filed in this case would be an Affidavit of Death and Application For Probate of Will, a death certificate, the will itself and each of the beneficiaries dates of birth, addresses, phone numbers / email and their Social Security numbers.  Filing fees range from $100 to almost $300.

Once the probate has been opened by the court, a document known as Letters Testamentary will be issued in the name of the executor.  This document will be accepted by, in this case, a realtor to begin the process of selling the house (if that has been decided).

After Letters Testamentary have been obtained the executor may begin conducting business on behalf of the estate.  Among the many things to be done would be to close out utility accounts, freezing bank accounts, notifying Social Security of the passing, filing final tax returns and, in general, conducting the affairs of the estate.

Opening An Estate Bank Account

One of the first duties for the executor after opening the probate is to open an estate account at the bank.  To open this type of account, an executor will typically need a death certificate, the original Letters Testamentary (with raised seal from court), a copy of the will and an EIN number (Employer Identification Number.  The EIN can be obtained from the IRS and is the number used for the estate to open accounts and to report taxes owed by the estate, if any.  That’s necessary because once a person has passed, their Social Security number is no longer valid.

Once an estate bank account Missouri has been opened, the executor is making progress with the estate.  In the next article, I will discuss the steps to finish estate business, to distribute assets and, finally, to close out the probate estate.

 

Legacy Law Center assists executors and trustees throughout St. Charles County, St. Louis County, Warren County and Lincoln County with probate matters.  If you’re an executor or trustee and need some assistance with administering an estate or a trust estate, call our firm for a FREE CONSULTATION to learn how we can help.  Call us today at (636) 486-2669!

STARTING THE PROBATE PROCESS – ARTICLE 1 of 3

STARTING THE PROBATE PROCESS – ARTICLE 1 of 3

STARTING THE PROBATE PROCESS – ARTICLE 1 of 3

              Starting the probate process when a person dies can be an intimidating process.  My experience as a probate attorney Creve Coeur has been that the family of the deceased don’t even know where to begin.

The purpose of this article is to give the reader a step by step guide of how to deal with the probate process in Missouri, what you need to know and what issues may come up.

Step 1:  Request a Death Certificate and Secure Any Estate Planning Documents Like Wills or Trusts

So when a person dies, there will be a “shock period” where initially no one has the details about funeral plans and people are just generally receiving news that the person is deceased.  This is obviously a difficult time for the family and friends of the deceased.

However, it’s during this process that the person who was told they would be in charge of the estate secures a death certificate (usually via the funeral home or company handling the arrangements for burial or cremation).  Also, if the person owned a home, the home can be entered (if possible) and the personal documents of the person secured and removed from the home.  This should include wills, account statements, bills and so on.

If no will is discovered or it’s not clear who is in charge of the estate, then the immediate next of kin (spouse or if not married, children) should handle this first step.

Step 2:  Review the Will and Discover the Assets of the Deceased

If there is a will, the will should be reviewed to confirm who was named as the personal representative (executor) in the document.  From there that person should be in control of the process and they can delegate certain duties to others if they wish.

The mail of the deceased should be forwarded to the personal representative so they can get a handle of the debts and assets of the deceased.

If there is no will, the process can be a bit more complicated.  Under Missouri law, the next of kin has the first right to serve as the administrator (executor when there is no will).  Again, surviving spouse or if none then all of the surviving children have equal rights to be appointed administrator in the probate process.

If there is a trust, that document should be reviewed to determine who the trustee is (this article will deal solely with wills and intestate estates, not trusts).

Step 3:  Meet with a Probate Attorney  / Hire a Probate Attorney

Like many states, there is very little a person can do in probate without hiring a lawyer.  If an estate needs to be opened, an attorney must almost always need to be hired under Missouri law and for the more obvious reason that probate administration is a complex and tricky process.

The initial meeting to start the probate process with the probate attorney will require that paperwork and information be gathered and brought to the attorney’s office for review during the consultation.  Among the paperwork typically needed are:  the death certificate, names / addresses / phone numbers / email addresses / Social Security numbers and dates of birth of all heirs / beneficiaries / executors.

During the consultation, the probate attorney will review all the gathered information to confirm if the will is valid, confirm the executor and discover the assets.  It’s often the case that the decedent (the person who died) has some assets that must go to probate because there is no beneficiary listed, but some assets that avoid probate.

Remember, however, that the will and if no will, the probate only covers assets that have no beneficiary, are not owned by a trust or that are otherwise not jointly held with another person.

The attorney will also want to know what debts the decedent had.  Credit cards are unsecured debts, so the attorney can advise you on how to handle those versus medical bills, outstanding loans and other debts.

The probate attorney can and should go over the probate process (next article) and their fee.

In Missouri, attorneys can charge a fee based on statute (see here).  The statutory fee is the minimum fee that the attorney can charge, but can charge more.  When you are starting the probate process, some attorneys work on a flat fee that may be higher or lower than the statutory fee.

It’s important when you are starting the probate process that you walk out of the meeting with the probate lawyer more knowledgeable about what steps have to be completed.

CONCLUSION

Starting the probate process is obviously an important first step.   Probate is complex in Missouri, as it is in most states.  Whether assets must go in probate is often very nuanced, as are the language of wills.

The next article “The Probate Process – Article 2 of 3” will discuss the different documents and information that need to be filed to initiate the probate, what documents need to be filed after the probate has begun, the rights of creditors while the probate is open and the timeline from start to finish during the probate.

Legacy Law Center assists business owners throughout St. Charles County, St. Louis County, Warren County and Lincoln County with probate administration.  If you’re need of assistance from a probate attorney, call our firm for a FREE CONSULTATION to learn how we can help.  Call us today at (636) 486-2669!

 

 

 

 

Business Succession Planning: Family-Owned Businesses

Business Succession Planning: Family-Owned Businesses

BUSINESS SUCCESSION PLANNING:  FAMILY-OWNED BUSINESSES

            Business succession planning for family-owned businesses is vitally important to their survival after the death of the founder(s).  By some estimates, for example, more than 70 percent of family owned businesses do not survive the transition to the second generation of ownership.

How can this be avoided?  Through proper business succession planning.  This article is an overview of the five levels of business succession planning for a family-owned business.

LEVEL ONE:  WHAT ARE THE LONG TERMS GOALS OF THE FAMILY BUSINESS?

At this first level, the business owner and the best business succession attorney near me have an open discussion and analysis about the long term goals of the business owner.  They discuss current difficulties with the operation of the business, if any, the current financial and health of the business and the lawyer can offer recommendations that are realistically achievable for the family and the business.

LEVEL TWO:  HOW CAN THE SUCCESSION PLAN MEET THE FINANCIAL NEEDS OF THE BUSINESS OWNER AND THEIR SPOUSE?

This level focuses on the business owner in retirement and away from running the business.  What are goals and plans in retirement?  Often a frank discussion of the actual value of the business is needed before these personal goals of the business owner can be discussed.

Once the true value of the business is known the business owner can be better informed about which of their plans and goals in retirement are achievable because the business can provide the income necessary to support those plans and goals.

LEVEL THREE:  WHO WILL MANAGE THE BUSINESS DAY TO DAY? 

This level focuses back on the business to discuss the people who will run the business after the business owner has retired.  Will that be family or employees?  Both?  Is there a successor already in mind and are they ready to take over the management of the business?  Does a mentoring process need to occur, how long with that process take and how will it affect the owner’s timeline to retirement?

If an employee or group of employees will manage the business, how do we ensure they are compensated enough to remain in place after the owner moves on?  Many employees are more loyal to the business owner than the business itself.  These issues need to be discussed and techniques to keep accomplished and trusted employees on board must be employed to ensure a smooth transition.

LEVEL FOUR:  WHO WILL OWN THE BUSINESS AND HOW DO WE TRANSFER OWNERSHIP TO THE NEW OWNER(S)?

This particular level can cause business owners a lot of agony.  Here we are focusing on business succession in terms of which family members will receive ownership interest(s)?  Then the discussion turns to the best and most tax-efficient way to accomplish the transfer of ownership.  Through a sale?  Through gifting?

Should the business owner retain voting shares until the proper child or children to own the business is determined?  This level is among the most complex because there are so many possibilities all of which can be fragmented further by the individual circumstances of the business and family itself.

LEVEL FIVE:  WHAT IS THE PROPER ESTATE PLANNING REQUIRED AND HOW DO WE MINIMIZE TAXES WITH THE TRANSFER OF OWNERSHIP?

This level essentially is the end game because it puts into legal effect the decisions and strategies developed in the first four levels.  Chief concerns at this level are minimizing transfer taxes, whether to employ various gifting strategies, including lifetime exemption and annual exclusion methods.  Installment sales can also be considered as can private annuities.  Both of these are not only sales strategies but can provide a lifetime income to the founding business owner.

A whole host of strategies and options are too wide ranging to discuss in this article but needless to say, whatever estate plan options are chosen are designed specifically to not only effectuate the founding owner’s desires but to ensure that the plan is tax efficient, strategically efficient (if possible) and least likely to cause acrimony among family members and among the business culture itself.

CONCLUSION

All too often business succession and business owner estate planning focuses on the death of the owner, but not the transition of the owner out of the business during life.  All businesses, however, benefit from planning for the inevitable and especially benefit when this planning is done long in advance of problems.

As with traditional estate planning, completed business succession planning can provide peace of mind to the business owner that his family, like the business, is in good hands.

Legacy Law Center assists business owners throughout St. Charles County, St. Louis County, Warren County and Lincoln County to develop a succession plan for their business.  If you’re a business owner and  need to speak to an attorney about a business succession plan, call our firm for a FREE CONSULTATION to learn how we can help.  Call us today at (636) 486-2669!

 

LEGAL PLAN BENEFITS:  A HUGE REASON TO GET AN ESTATE PLAN

            In the last decade or so, legal plan benefits have become very popular in Corporate America.  One of the most popular uses for legal plan benefits is to create an estate plan for you and your family.

WHAT ARE LEGAL PLAN BENEFITS?

Legal plan benefits are a benefit offered through some employers which allow the recipient / employee to  hire a lawyer to resolve a legal issue at a greatly reduced cost and sometimes free of charge.

HOW MUCH ARE LEGAL PLAN BENEFITS?

Legal plan benefits can vary in cost.  Often employees pay a fixed cost each pay check.  Some companies offer different coverage levels at different costs and still other companies offer them as a free benefit to their employees.  Contact you Human Resources Department for further details about legal plan benefits through your company.

CAN THEY COVER FAMILY MEMBERS AND THEIR LEGAL MATTERS?

It depends on your employer’s plan.  The benefits almost always cover immediate family members and other dependents.  Less often they cover extended family, for example the parents of a benefit recipient.

DO THEY COVER ESTATE PLANNING?

Yes and as an estate plan attorney O’Fallon our offices have helped many families who receive legal plan benefits to create estate plans.  In fact, creating an estate plan is among the most popular uses of legal plan benefits.

ARE ATTORNEY SERVICES UNDER LEGAL PLAN BENEFITS JUST AS GOOD AS PRIVATELY PAID? 

Yes and there should be no difference if a client is paying a lawyer directly for legal help or is receiving payment from legal plan benefits.  Our office, in fact, makes no distinction between legal plan clients and private pay clients.  The process is the same and so is the attention level to their matter.  I suspect that’s why our office has had so many legal plan clients.

DO LEGAL PLAN BENEFITS PAY ATTORNEYS AS MUCH AS PRIVATE PAY CLIENTS?
No.  Service fees are reduced significantly to the attorney.

IF SERVICE FEES ARE REDUCED, HOW DO LEGAL PLAN BENEFIT PLANS HELP LAWYERS?
There are several advantages.  For one thing, we are often reaching clients who would not call us without having the benefits.  The best example would be a young couple calling to create an estate plan.  Many of our legal plan clients are in fact younger.  So we capture a different age demographic of clients that we ordinarily would not work with.  Also, there is no outbound cost to our firm to acquire legal plan clients.  For example, no advertising cost is required.  To some lawyers, the reduced fees are too low and they do not participate in the plans.

WHAT ARE SOME OF THE LEGAL PLAN BENEFIT COMPANIES?
The most popular legal plan benefit company is Hyatt Legal.  Another company is ARAG.  Finally, a less popular but good legal plan benefit company is LegalShield.  Legacy Law Center works with each of these legal plan benefit companies and considers each to be very good.

ANY ADVICE ON USING LEGAL PLAN BENEFITS?

Yes.  Treat the research you are doing on various law firms and attorneys who can handle the legal plan benefit work you need just as if you were paying out of pocket.  Educate yourself on what you need, review the ratings and websites of lawyers.   Don’t just pick a lawyer because his or her office is down the street.  Also, check to make sure that the particular service you need is something they do a lot of…believe it or not there are still a lot of “general practice” attorneys practicing law.

Legacy Law Center assists legal plan recipients throughout St. Charles County, St. Louis County, Warren County and Lincoln County.  If you have a legal plan through your employer, call our firm for a FREE CONSULTATION to learn how we can help.  Call us today at (636) 486-2669!