Non-grantor trusts to be regulated by IRS

The IRS and Treasury Department have joined forces to issue regulation regarding non-grantor trusts which have been used by wealthy people to avoid the property tax deduction cap in the new tax reform law.

In Notice 2018-61, the IRS and Treasury say they plan to release regulations to provide clarification on the effect of section 67(g) of the tax code on the deductibility of certain expenses described in section 67(b) and (e) that are incurred by estates and non-grantor trusts.

One way some wealthy peeople are getting around the new law is by setting up limited liability companies for their residences in high-tax states such as here in New York and then transferring interests in them to separate trusts set up in low-tax states like Alaska, where each trust can claim up to a $10,000 deduction for property taxes.

Four northeastern states have sued the govt over the new law as we wrote about here: 4 Northeastern states sue Trump administration .




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#1 estate planning mistake

So, you did everything you were supposed to; set up trusts and did all the rest. There was just one small mistake. You forgot to tell anyone where your will and all those other documents are. If you don’t let anyone know where your will is, it will be as if it doesn’t exist and the state will do what it wants with your property and assets.

Mark Bradstreet, C.P.A. with Bradstreet and Co. tells Cincinnatti’s Journal-News that 

“To not let anyone know where your will and documents are – if you don’t do that, then for all intents and purposes, you never had a will,” said Bradstreet. “If you die without one, the state uses their own rules to effectively come up with a will for you.”

Bradstreet recommends writing a letter to hand-out to trusted family members that include,

“where your will is at, who has got it, who is your attorney, safe deposit keys – a lot of people will go ahead and list out their different assets, and their different account numbers.”

These days there are many online ways to create a will yourself, but Bradstreet recommends working with an attorney who will help you make sure your wishes are carried out.

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How much is rich?

More people are more rich than at any time in our history. The number of 1 percenters has exploded over the last twenty years. But how much money do you need to have to be considered rich? Bloomberg News has given us an answer: $25 million. And that’s basically “welfare” rich

According to Bloomberg, the elite private banks say $25 million is just get you in the door, rich.  To most $25 million is a non-attainablke dream but to the private bankers, it’s the basic tier.

But don’t get the idea that these bankers turn up their noses at those with just a puny few million. Bloomberg quotes Brent Beardsley of Northern trust Corp. who said 505 of their new clients have assets in excess of $10 million, “but to get to the highest level companies have raised the bar.”

What makes people rich these days has changed in the last 20 plus years. In 1994 what made someone rich was $3 million and now $25 million is high net worth.

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Costly estate planning mistakes

Many people think estate planning means drawing up a will an the rest will take care of itself.  That’s a common error people make. Here are a few others.


Surveys have found that not only do 50% of people with children not have a will, many don’t have any other estate planning documents drawn up. This applies not just to young people but older retired Americans in all income categories.

People quite often don’t want to deal with estate matters because it means they have to think about their death. They also make the mistake of thinking their assets will automatically go to their surviving spouse or kids. That all depends on the state law. Different states have different laws.

Not signing your will

So you have drawn up a will. Good for you.  But have you signed it? That might sound like a stupid question but It is not uncommon for people to draw up a detailed will, take it to their attorney and forget to sign it. Without your signature, it’s just a piece of paper.

Updating beneficiaries.

You may think your assets will go to your spouse after you die, but another big mistake is not updating who you beneficiaries will be. If you remarried you might have forgot to update your will. The court system is littered with people battling it out over inheritances because the deceased forgot to update their will  and their money went to their ex,

These are just three common mistake in estate planning. Consult a good estate attorney for more detailed information on what you need.

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Medicaid & nursing homes

Under Medicaid laws, if you transfer certain assets five years before you apply for Medicaid, Your access to Medicaid can be delayed, the length of the delay depending on the amount of the transfer.

While federal tax laws allow you to transfer up to $14,000 a year without having to pay a gift tax, Medicaid still treats that as a transfer an it can delay your benefits. Any transfer you make will be looked at no matter what the amount or reason. Even if you give money for an anniversary, birthday or a charity could count for a penalty.

If, all of a sudden you become Diamond Jim Brady an start spending money that will prompt the State to look into what you are spending it on.

While most transfers are penalized, there are some that are exempt and when you go into a nursing home these won’t count against you.

You can transfer these assets to the following people and not have to worry about the waiting period.

  • your spouse
  • a child who is blind or permanently disabled
  • a trust for the sole benefit of anyone under age 65 who is permanently disabled

Also, you can transfer your home to the above people as well as the following:

  • a child who is under age 21
  • a child who has lived in your home for at least two years prior to your moving to a nursing home and who provided you with care that allowed you to stay at home during that time
  • a sibling who already has an equity interest in the house and who lived there for at least a year before you moved to a nursing home

For more info Medicaid’s transfer rules, click here.


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