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Rows of 100 dollar bills

There’s that pragmatic, and slightly depressing saying that the only sure things in life are death and taxes. But what about taxes on death? Just like you can’t escape taxes in life, they government can tax your estate at death. Indeed, it’s often referred to as the “death tax.”  And, just like taxpayers file both federal and state income taxes, there are both federal and state estate taxes.

People having a meeting at a desk with papers

What is an Estate Tax?

When a U.S. resident dies, an estate tax may be levied against the gross estate, which includes the fair market value (FMV) of all owned property, as well as any assets the deceased had interest in (e.g. assets like life insurance). Think of it like the gross income figure you calculate for income tax returns.

Federal Estate Tax

Let’s start with federal estate taxes. Because this is a federal tax, this applies regardless of what state you die in.

Not too long ago, I reviewed the Tax Cuts and Jobs Act’s (TCJA) impact on estate planning. (Why? Because smart estate planning accounts for taxes and employs strategies that minimize said taxes.) One of the most significant changes from the “new tax law” was with the estate tax exemption. This is the figure subtracted from an estate’s gross value in order to calculate federal taxes.

For tax years 2018 through 2025, the exemption from estate, gift, and generation-skipping taxes was raised from $5.49 million per individual to an approximated $11.2 million. (Why do I say approximated? Because the exemption base is indexed, so the base for the 2017 tax year was $5 million; for the 2018 tax year, the base is now $10 million and indexed for inflation.) In plain terms, this means each individual should be able to pass over $11 million to their heirs before any estate, gift, and generation-skipping taxes apply.

If you’re married, this means your estate exemption now equals $22.4 million. (Or, you could think of it like each couple now has an additional $11.2 million in assets available to gift or make a testamentary transfer with thoughtful estate planning.)

The bottom line: if your estate is worth less than the federal exemption rates, it will be free from the estate taxes after you die. If you have an estate valued at more than the exemption threshold (and smart estate planning strategies are not appropriately implemented to shield assets from being counted in your estate’s gross value), your taxable estate will met with a tax rate of up to 40 percent.

State Estate Taxes

The caveat (and good news for residents of the majority of states) is that not all states have a state estate tax…including Iowa! Currently, 12 states and D.C. also impose an estate tax on residents. It’s important to note that the exemption rates for these state estate taxes are much lower than the federal exemption rate. For instance, our neighbors to the east in Illinois have an exemption rate of $4 million and a graduated marginal tax rate of of o.8 to 16 percent.

Here’s an incredibly helpful map from Tax Foundation that illustrates this.

estate tax map

Note: figures may have changed since time of publication of this map.

Is there any reason an Iowan would need to account for state estate taxes in their estate planning? Only if they own real estate in another state. Let’s consider a hypothetical example to explain this better.

Alice with her Minnesota Lake House

Alice is an Iowa resident. She died in March 2018 owning a vacation home on her favorite lake in Minnesota. Alice’s gross estate totals $2.8 million. What estate taxes will Alice’s estate be responsible for?

Iowa’s Inheritance Tax

While Iowans largely escape the state estate tax, there is a state inheritance tax. The inheritance tax is different than the estate tax (although they they are often incorrectly used interchangeably). The estate tax is based purely on gross value and regardless of who inherits what; the inheritance tax is only charged against the share of inheritance of certain estate beneficiaries.

There’s a lot to note about Iowa’s inheritance tax, so I’ll do a deep dive into that here on the GoFisch blog later this week!

Questions about how taxes (and other fees) may affect your estate plan? Need to revise your current plan after changes to the tax code? Don’t hesitate to contact me via email at gordon@gordonfischerlawfirm.com or by phone (515-371-6077).

Wraparound bookshelf

Last month’s GoFisch book club pick was a real life soap opera-esque story of estate planning, inheritance, and complex affairs tied to extreme wealth. This month’s read is also about estate planning, but is a fiction story with the quick pacing of a comedy and dialogue of a melodrama. I bet you could fly though this one while lounging poolside or swinging in the backyard hammock!

The Nest book

The Nest, by Cynthia D’Aprix Sweeney, follows the dysfunctional Plumb Family siblings around New York City as they deal with the unexpected fallout from the eldest Plumb’s major, costly mistake. All the while, the four adult siblings are the beneficiaries to a trust fund they have deemed “the nest” (like a nest egg, so to speak). The “nest,” thanks to sound investing and a generous market, grew larger than the grantor (the Plumb’s father) ever expected. Indeed, he intended for it to be helpful, but not a pot of gold to depend upon.

Leo’s accident (the oldest brother) and the unintended consequences that follow, puts a “crack” in the nest egg all had come to count on. (All four siblings had to wait to have access to their share of the funds until the youngest child turned 40.) Tensions flare, grudges are dredged up, and each of the Plumb siblings will have to reckon with their own poor financial decisions. Indeed, they were all depending on the trust fund in different ways to help bail them out of their own missteps.

This New York Times bestseller masterfully sets an engaging domestic drama filled with familial love and letdowns midst important estate planning elements. The Nest (at least for me) naturally leads its readers to want to learn more about different types of trusts, explore why estate planning is super important, and to whom they’re leaving their money to and how. It also reminds us that it’s super important to honestly discuss estate planning decisions and intentions with your loved ones who are named in the estate plan, so everyone is on the same page.

I would love to hear your thoughts about this book in the comments below! Did you love this book or not so much? Do you have any recommendations of books (fiction or non) related to Gordon Fischer Law Firm’s core services of estate planningnonprofit formation and guidancenonprofit employment law; or donations and complex gifts? Let me know in the comments or contact me by email or phone.

headphones and pink flowers

Speaking of the most romantic holiday of the year, I’ve really LOVED writing the #PlanningForLove series in the lead up to Valentine’s Day this year. We’ve been able to cover some super important aspects of an estate plan and how, oddly enough, estate planning is one of the ultimate expressions of love.

I have no doubts that after reading posts on how you can show love to your spouse, pets, and even yourself through estate planning you are ready to take the first step and fill out my (free) Estate Plan Questionnaire. Thinking about your estate’s executor, beneficiaries, and charitable bequests can only be made better with a special Gordon Fischer Law Firm Valentine’s playlist. (You can also check out my other estate planning-inspired playlist while you’re at it!)

What are your favorite love songs of all time I should add to this playlist? Let me know in the comments below. (Also, I apologize if “My Heart Will Go On” is now stuck in your head.) Want to discuss your estate planning options? Don’t hesitate to contact me via email or phone (515-371-6077).

kiss-me-tag-box

Thanks for reading the #GoFisch blog! Now through February 14 I’m sharing how flowers, jewelry, or chocolate are not the only gifts that say, “I love you.” While not explicitly romantic, a personalized, quality estate plan speaks to that lifelong consideration and care be it for your significant other, your children, or even simply yourself. 

Typical Valentine’s Day gifts usually come in the expected packaging—velvet or heart shaped-boxes topped with silky ribbons and complete with a red rose or a sappy card. But, an estate plan is not your typical Valentine’s present and therefore needs some special storage. You’re more than welcome to put a bow on the documents following the signing…finishing your estate plan is something worth celebrating! However, a gift bag won’t do for safely and securely protecting your estate plan.

I give my clients guidance on where to store their original estate plan documents because it should be both be kept private and safe, but should still be practical and accessible by those who need it such as your will’s executor or designated representative for financial matters. So, where specifically should your keep your original estate plan? There are a few different options.

In Your Home or Office

office space with flowers

When you think accessibility, the places you spend the majority of your time, such as your home or office, are going to be obvious choices. Some of my clients who’ve chosen this option even invested in a water- and fire-proof safe. (Of course, if you get a safe, folks who need to access the estate plan, such as a spouse or child, obviously need access to the lock combo!) In any case, put the plan in a spot that’s likely to be protected from flooding or a fire. For example, a dark, dank basement may not be the best place to keep your original estate plan documents. However, in your home office, in your desk’s top locked drawer (assuming others have a key), would be a much better spot.

Caution: No Treasure Hunts

Some people think “hiding” their will is a solution to any security concerns. This however inhibits accessibility! Sure, people may not be able to find your will while you’re living, but that also means your loved ones are unlikely to find it when they need it in the case that you suddenly pass away or are incapacitated and cannot communicate where it is. This is problematic for multiple reasons. First, your wishes cannot formally be known and therefore not fulfilled, and if the document cannot be found, the presumption is you either did not make a plan or you intended to revoke/destroy it. In the case of your death, the court will then act as if you died “intestate,” or without a will. The long probate process will ensue, and after some substantial court fees your estate will pass to your heirs-at-law as determined by state law. (Almost everyone I’ve ever met would have their estate pass according to their terms and not some impersonal law.)

Safety Deposit Box

safety deposit box

I know many folks who keep their important documents like birth certificates and social security cards in their safety deposit box. And when it comes to your original estate plan documents, your safety deposit box is a good option. Except, and this is hugely important, the safety deposit box must be readily accessible by executors, agents, and other fiduciaries. This requires making sure that your bank or credit union has the “right people on file.” Also, don’t assume that just because both you and your spouse have access to the safety deposit box, that is sufficient. What if there’s a joint accident or joint disaster and you’re both incapacitated? Sit down and talk with your bank or credit union to make absolutely certain those who need access to the safety deposit box will definitely have access in case of an emergency. Otherwise, a court order may be required before your financial institution will grant access, which equates to more bureaucratic hold-ups costing time, money, and even worse worse, adding additional stress for loved ones.

 With Your Designated Representative

So far, we’ve been talking about your original estate plan documents (with “wet” signatures). An original is always better than a copy. But a copy is better than nothing.  Consider giving a copy of you estate plan to the executor of your will or successor trustee of your revocable living trust, and other named fiduciaries.

two people drinking tea

The person you designate as your personal representative has the important job of settling your estate and they will need to be armed with your estate plan in order to reference your wishes and provide proof that they are authorized to take certain actions. This option makes a lot of sense considering this representative will have immediate cause to reference the paperwork following your death.

Up in the Cloud

I always recommend you retain a paper copy of your original estate plan, but there are many valid and secure options of also storing your key documents in the digital cloud. Like any financial, health, or other personal information accessible online, make certain you have a strong password and security. And, just like a paper version, at least your executor and other designated representatives will need to be able to access the plan when necessary. Whether that’s through an online beneficiary designation or by allocating the password to your executor or another trusted custodian, that’s up to you.

To recap: an estate plan can make a wonderful Valentine’s Day gift that shows love and commitment to your favorite people. And, since you spent time, effort, and money to create an estate plan that meets your goals, it’s essential to keep it in proper storage. Remember: if no one knows you created a plan or no one has access to it, it’s as if you never had one at all.

Before you can store your estate plan, you NEED an estate plan! Best place to get started is with my Estate Plan Questionnaire, or contact me.

Person writing on paper

A last will and testament certainly sounds like a complex document. But, when boiled down, your will answers just three simple, yet important questions.

  1. Who do you want to inherit your assets?

A will provides for the orderly distribution of your property at death according to your wishes. By property, I mean everything you own. Your property includes both tangible and intangible things. An example of a tangible item would be your stamp collection. An example of intangible items would be stocks and bonds.

mom and daughter holding hands

  1. Who do you want to be in charge of carrying out your wishes as expressed in the Will?

In a will, you also name the “executor” of your estate. The executor is the person who’s responsible for making sure the will is implemented as written. Needless to say, this is a very important position, and you want to name someone you can trust completely, and you know to be responsible and competent.

  1. Who do you want to take care of your kids?

If you have minor children (i.e., kids under age 18), you’ll want to designate a legal guardian(s) who will take care of your children until they are adults. Also, a will can set up a financial trustee (may be the same as the guardian) who can oversee and be responsible for your child’s funds until they are old enough (and mature enough) to inherit property.

 

Without a Will, There’s No Way

Without a last will and testament, you’ve given no guidance to anyone about who should inherit your property, who should be in charge of carrying out your wishes, and who you want to be your kids’ legal guardian. Not having a will creates unneeded stress and heartache, and even total chaos, for your loved ones and friends. This distress would also come at the worst possible time—when they are mourning your passing.

Drafting a quality estate plan that incorporates your wishes and goals is the height of responsibility. And if estate planning sounds intimidating, fear not! We’ll walk through the five steps of estate planning together. The best place to start is with my Estate Plan Questionnaire.

I’d love to hear from you. You can email me anytime at gordon@gordonfischerlawfirm.com.

fiduciary

A fiduciary role is one of the highest, strongest relationships between people. It is a role involving the highest care and the greatest importance. The people you choose to fulfill these roles should be carefully considered; they should be those whom you have the utmost confidence in.

Examples of common fiduciary roles include the executor of your will, trustees of your trusts, guardianships of your children, and agents for your financial and healthcare power of attorney. Other fiduciary roles include attorney, accountant, banker and/or credit union manager.

Often times, people choose corporate executors to remove some of the liability and risk, since corporate executors are familiar with the estate planning process. A corporate executor is going to know the drill. With a corporate executor, you have a true estate planning professional that knows and understands

If you DO choose to name a private individual to a fiduciary role, you need to ensure they are trustworthy, organized, and reliable.

The American Bar Association has comprehensively defined the different fiduciary duties as:

  • Duty of care;
  • Duty of loyalty;
  • Duty to account;
  • Duty of confidentiality;
  • Duty of full disclosure;
  • Duty to act fairly; and
  • Duty of good faith and fair dealing.

Understanding fiduciary duties and selecting the right individuals will help you feel content, secure and satisfied with your estate plan.

Have questions? Need more information?

I would love to discuss your estate plan with you. You can contact me by email at Gordon@gordonfischerlawfirm.com or give me a call at 515-371-6077. Don’t have an estate plan? The best place to start is the Estate Plan Questionnaire.