Keeping it in the Family

You may be hearing daily from family, friends, financial advisors, and the talking heads of every cable news station about the turbulence of our current economy. You may feel by turns worried, confused, and uncertain.

However, with the right team on your side, you and your family will weather this storm. Instead of keeping constant vigil with the 24-hour news and financial networks – talk with you advisors. You’ll get a realistic assessment of your situation, helpful ideas about what to do right now, and a welcome respite from many in the media who look for ways to boost your tension and, thus, their ratings.

Most of the factors contributing to our current economic situation are beyond our control. There are, however, things you can do to assure that you, your family, and your assets are protected now and in the future. At Smith Barid, we find that helping people take control of the things they can control creates true peace of mind.

One of the important things you can control is what happens with the legacy you’ve worked so hard to create once it passes to your children and grandchildren. We all acknowledge that the divorce rate in our country is staggeringly high. If one of the loved ones you leave behind finds themselves in the middle of a divorce, will some or all of your hard-earned assets leave the family along with the soon-to-be ex?

Divorce (a major part of what many call Family Law) is a complex, and often difficult, process. One of our local Superior Courts (the courts in GA which handle divorce matters) just released an attorneys’ guide to property division in divorce. The memo is 14 pages, single-spaced, with 8 footnotes. This isn’t simple stuff. It is important to know, however, that the only assets divided by a judge or jury (Yes, GA still allows juries in divorce cases!) in a divorce are marital assets.

Proper planning done now can prevent your hard-earned assets from becoming marital assets of your children. That is to say, the right kind of revocable living trust or testamentary trusts will allow you to pass your legacy to the next generation without those assets being subject to division in a future divorce.

A qualified estate planning attorney will help you to seize the reins of your legacy, control what you can control, and find your bearings in this transient maelstrom of anxiety-ridden news stories.

The Silver Lining in Tough Economic Times

The economy is weaker than it was in the late 1990s. Interest rates have been rising. Food and energy prices have been skyrocketing. Home prices have been falling. It is getting to the point that we don’t even want to watch the news anymore.

However, there is a silver lining behind the dark economic outlook. As home prices fall and interest rates rise, one estate planning strategy for persons with taxable estates becomes particularly attractive. A Qualified Personal Residence Trust or “QPRT” is a great way to get the value of your home out of your estate for estate tax purposes at a discount. You transfer your home to an irrevocable trust you set up for that purpose. You retain all rights in the home for a period of years, which you select. After the expiration of the period, you can continue to live there by paying rent to the trust (which further helps diminish your taxable estate). The amount an individual can leave estate tax-free is $2 million, rising to $3.5 million in 2009, but then falling to only $1 million in 2011. If you have less than $1 million in assets, a QPRT may not be an appropriate estate planning strategy for you.

Let’s look at an example. In 2003, your home was worth $500,000. Today, it is worth $400,000. The interest rate used by the IRS was 3% in 2003. Let’s say that at the time of your transfer that interest rate has increased to 5%. Let’s further assume you are 70 years old and keep a retained interest for 8 years and then pay rent. The actuarial value of the remainder interest gifted to your kids in 2003 would have been approximately $292,000. If you did that same transaction in today’s environment with the home at $400,000 and the interest rate at 5%, the value of the gifted interest would be less than $200,000. That’s about a 31.5% reduction in the value of the gifted interest. Let’s say your home goes up in value to $800,000. You will have gotten the whole thing out of your estate for a value of less than $200,000! This preserves more of the amount that can pass estate tax-free to be used for your other assets.

As you can see, this is a great time to think about this strategy. The higher the interest rates and the lower the home values, the more powerful this strategy becomes. There may not be much to be thankful about in economic news nowadays. But, this can be a great time for certain estate planning strategies like this one. A qualified attorney who focuses his or her practice in estate planning can help you design and implement a strategy for these tough economic times that meets your unique needs.